DISCONTINUED OPERATIONS

6 Months Ended

Feb. 01, 2020

Discontinued Operations and Disposal Groups [Abstract]

NOTE 18—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu (“Retail”). The results of operations, financial position and cash flows of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save St. Louis and Shop ‘n Save East retail operations have been presented as discontinued operations and the related assets and liabilities have been classified as held-for-sale.

In the second quarter of fiscal 2020, the Company entered into agreements to sell 13 Shoppers stores and decided to close six locations. During the second quarter of fiscal 2020, within discontinued operations the Company incurred approximately $30.5 million in pre-tax aggregate costs and charges, consisting of $12.4 million of operating losses and transaction costs during the period of wind-down, $8.6 million of property and equipment impairment charges related to impairment reviews on the remaining locations (discussed below), $6.2 million of severance costs and $3.2 million of losses on sale. The Company expects to incur additional related costs and charges in the third quarter of fiscal 2020. In the second quarter of fiscal 2020, the Company reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values. Based on the announced transactions and an updated impairment assessment, the Company recorded property and equipment impairment charges of $8.6 million for the remaining Shoppers assets within discontinued operations, which is included above.

The Company continues to hold the remaining Shoppers stores and the Cub Foods business for sale. The Company may incur additional costs and charges in the future related to Cub Foods or Shoppers if there are declines in their estimated fair values or if we incur additional wind-down or employee-related costs or charges.

In fiscal 2019, the Company completed the sale of seven of its eight Hornbacher's locations, as well as Hornbacher’s newest store in West Fargo, North Dakota, to Coborn's Inc. (“Coborn’s”). The Company did not incur a gain or loss on the sale of this disposal group. The Hornbacher’s store in Grand Forks, North Dakota was not included in the sale to Coborn’s and has closed pursuant to the terms of the definitive agreement. As part of the sale, Coborn's entered into a long-term agreement for the Company to serve as the primary supplier of the Hornbacher’s locations and expand its existing supply arrangements for other Coborn’s locations.

In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group. As of February 1, 2020, only the Cub Foods and Shoppers disposal groups continue to be classified as operations held for sale as discontinued operations.

Operating results of discontinued operations are summarized below:



	13-Week Period Ended					26-Week Period Ended
(In thousands)	February 1, 2020		January 26, 2019			February 1, 2020			January, 26, 2019⁽¹⁾
Net sales	$	613,705	$	727,037		$	1,224,526		$	773,635
Cost of sales	451,007		533,639			892,078			568,173
Gross profit	162,698		193,398			332,448			205,462
Operating expenses	129,413		156,710			265,848			166,204
Restructuring expenses and charges	30,851		10,382			32,213			10,382
Operating income	2,434		26,306			34,387			28,876
Other income, net	41		(339		)	(1,050		)	(588		)
Income from discontinued operations before income taxes	2,393		26,645			35,437			29,464
Income tax provision	286		5,239			8,376			5,987
Income from discontinued operations, net of tax	$	2,107	$	21,407		$	27,061		$	23,477


(1)	These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to January 26, 2019.

The Company recorded $251.5 million and $265.2 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the second quarters of fiscal 2020 and 2019, respectively, and $496.1 million and $287.0 million in fiscal 2020 and 2019 year-to-date, respectively, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $96.6 million and $153.6 million in the second quarters of fiscal 2020 and 2019, respectively, and $209.6 million and $163.4 million in fiscal 2020 and 2019 year-to-date, respectively.

The carrying amounts (in thousands) of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets follows in the table below.



(In thousands)	February 1, 2020		August 3, 2019
Current assets
Cash and cash equivalents	$	2,264	$	2,917
Receivables, net	17,756		1,471
Inventories	120,231		129,142
Other current assets	5,118		10,199
Total current assets of discontinued operations	145,369		143,729
Long-term assets
Property and equipment	276,132		301,395
Intangible assets	49,687		48,788
Other assets	2,086		1,882
Total long-term assets of discontinued operations	327,905		352,065
Total assets of discontinued operations	$	473,274	$	495,794

Current liabilities
Accounts payable	$	68,024	$	61,634
Accrued compensation and benefits	39,893		45,887
Other current liabilities	14,844		14,744
Total current liabilities of discontinued operations	122,761		122,265
Long-term liabilities
Other long-term liabilities	646		1,923
Total liabilities of discontinued operations	123,407		124,188
Net assets of discontinued operations	$	349,867	$	371,606

As of February 1, 2020, the fair value of disposal groups were estimated based on each group’s expected consideration less costs to sell. Estimated fair values include indications of values that are based on the stand-alone fair values of the long-lived assets of the disposal group exclusive of transferring multiemployer pension plan obligations. The sale of the Company’s retail disposal groups may result in charges that may be materially different than the Company’s prior estimates. Estimates most sensitive to changes that could result in material charges include expected consideration, including the extent to which the Company is able transfer multiemployer pension plan obligations, and the potential sale of the disposal groups at a lower level.