SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Feb. 24, 2018

Business Description and Principles of Consolidation

SUPERVALU INC. and its subsidiaries (“we”, “us”, “our”, “Supervalu” or the “Company”) provides supply chain services, primarily wholesale distribution and support services, and operates three retail grocery banners in three geographic regions under the Cub Foods, Shoppers Food & Pharmacy, and Hornbacher’s banners. We operate primarily in the United States grocery channel. The Consolidated Financial Statements include the accounts of Supervalu and all its wholly and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

Unless otherwise indicated, references to the Consolidated Statements of Operations and the Consolidated Balance Sheets in the Notes to the Consolidated Financial Statements exclude all amounts related to discontinued operations.

Fiscal Year

Our fiscal years end on the last Saturday of February and contain either 52 or 53 weeks. All references to fiscal 2018, 2017 and 2016 relate to the 52-week fiscal years ended February 24, 2018, February 25, 2017 and February 27, 2016, respectively.

Use of Estimates

The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting periods presented. Actual results could differ from those estimates.

Revenue Recognition

Revenues from Wholesale product sales are recognized upon delivery or shipment. Revenues from Retail product sales are recognized at the point of sale. Typically, invoicing, shipping, delivery and customer receipt of Wholesale product occur on the same business day. Revenues from fixed price services contracts are recognized on a straight-line basis unless revenues are earned and performance obligations are fulfilled under a different pattern. In certain circumstances, we provide incentives to Wholesale customers through upfront cash payments. Incentives are recognized as a reduction of Net sales over the term of the incentive agreements when clawback rights exist for such payments, which typically coincides with the term of the supply agreements. When no clawback provisions exist, these incentives are recognized immediately. Discounts and allowances provided to customers at the time of sale are recognized as a reduction in Net sales as the products are sold to customers. Sales tax is excluded from Net sales.

Revenues and costs from professional services and third-party logistics operations are recorded gross when we determine we are acting as a principle in the transaction, which includes our evaluation of whether we are the primary obligor in a transaction, are subject to inventory or credit risk, have latitude in establishing price and selecting suppliers, or have several, but not all, of these indicators. If we are not the primary obligor and amounts earned have little or no inventory or credit risk, revenue is recorded net as management fees when earned.

Revenue is recognized only when evidence of an arrangement exists, the price is fixed and determinable, the products or services have been rendered and collectability is reasonably assured.

Cost of Sales

Cost of sales in the Consolidated Statements of Operations includes cost of inventory sold during the period, including purchasing, receiving, warehousing and distribution costs, and shipping and handling costs. Costs of sales include depreciation expense and salaries and wages related to warehousing and distribution costs. We receive allowances and credits from vendors for volume incentives, promotional allowances and, to a lesser extent, new product introductions, which are typically based on contractual arrangements covering a period of one year or less. We recognize vendor funds for merchandising and buying activities as a reduction of Cost of sales when the related products are sold. Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as reductions of inventory. When payments or rebates can be reasonably estimated and it is probable that the specified target will be met, the payment or rebate is accrued. However, when attaining the milestone is not probable, the payment or rebate is recognized only when and if the milestone is achieved. Any upfront payments received for multi-period contracts are generally deferred and amortized on a straight-line basis over the life of the contracts.

Retail store advertising expenses and Wholesale advertising services provided to Wholesale customers are components of Cost of sales and are expensed as incurred. Retail advertising expenses, net of cooperative advertising reimbursements, were $20, $25 and $23 for fiscal 2018, 2017 and 2016, respectively.

Selling and Administrative Expenses

Selling and administrative expenses consist primarily of store and corporate employee-related costs, such as salaries and wages, incentive compensation, health and welfare and workers’ compensation, as well as net periodic pension expense, occupancy costs, including rent, utilities and operating costs of retail stores, depreciation and amortization, impairment charges on property, plant and equipment and other administrative costs. The shared service center costs incurred to support back office functions related to services agreements represent administrative overhead and are recorded in Selling and administrative expenses.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents include amounts due from credit card sales transactions that are settled early in the following period. Our banking arrangements allow us to fund outstanding checks when presented to the financial institution for payment. We fund all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create book overdrafts, which are recorded in Accounts payable in the Consolidated Balance Sheets and are reflected as an operating activity in the Consolidated Statements of Cash Flows. As of February 24, 2018 and February 25, 2017, we had net book overdrafts of $144 and $91, respectively.

Allowances for Losses on Receivables

Management makes estimates of the uncollectability of its accounts and notes receivable. In determining the adequacy of the allowances, management analyzes customer creditworthiness, aging of receivables, the value of the collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially impacted by different judgments, estimations and assumptions based on the information considered and result in a further deterioration of accounts and notes receivable.

Inventories, Net

Inventories are valued at the lower of cost or market. Substantially all of our inventory consists of finished goods. We use the weighted average cost method, standard costs, the retail inventory method (“RIM”) or replacement cost method to value discrete inventory items at lower of cost or market under the FIFO method before application of any last-in, first-out (“LIFO”) reserve. We evaluate inventory shortages throughout each fiscal year based on actual physical counts in our distribution facilities and stores. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the end of each fiscal year. See Note 5—Inventories, Net for additional information.

Property, Plant and Equipment, Net

Property, plant and equipment are carried at historical cost less any applicable impairment charges. Depreciation is based on the estimated useful lives of the assets using the straight-line method. Estimated useful lives generally are ten to 40 years for buildings and major improvements, three to ten years for equipment, and the shorter of the term of the lease or expected life for leasehold improvements and capitalized lease assets. Interest on property under construction of $1, $1 and $1 was capitalized in fiscal 2018, 2017 and 2016, respectfully.

Business Dispositions

We review the presentation of planned business dispositions in the Consolidated Financial Statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, we evaluate whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year.

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within (Loss) income from discontinued operations, net of tax in the Consolidated Statements of Operations, and assets and liabilities of the business component planned to be disposed of are presented as separate lines within the Consolidated Balance Sheets. See Note 18—Discontinued Operations for additional information.

The carrying value of the business held for sale is reviewed for recoverability upon meeting the classification requirements. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill, indefinite lived intangible assets and other assets are assessed. After the valuation process is completed, the held for sale business is reported at the lower of its carrying value or fair value less cost to sell, and no additional depreciation or amortization expense is recognized. The carrying value of a held for sale business includes the portion of the accumulated other comprehensive loss associated with pension and postretirement benefit obligations of the operations of the business.

There are inherent judgments and estimates used in determining impairment charges. The sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to closing.

Goodwill

Goodwill is tested annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The reviews consist of comparing estimated fair value to the carrying value at the reporting unit level. Our reporting units are the operating segments of the business, which consist of Wholesale and Retail. Goodwill was assigned to these reporting units as of the applicable acquisition dates, with no amounts being allocated between reporting units. Fair values are determined by using both the market approach, applying a multiple of earnings and revenue based on guidelines for publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflect a weighted average cost of capital based on our industry, capital structure and risk premiums in each reporting unit, including those reflected in the current market capitalization. If management identifies the potential for impairment of goodwill, the implied fair value of the goodwill is calculated as the difference between the fair value of the reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. An impairment charge is recorded for any excess of the carrying value over the implied fair value.

We review the composition of our reporting units on an annual basis and on an interim basis if events or circumstances indicate that the composition of the reporting units may have changed. There were no changes in our reporting units as a result of the fiscal 2018 review. See Note 7—Goodwill and Intangible Assets for additional information.

Intangible Assets, Net

We review intangible assets with indefinite useful lives, which primarily consist of trademarks and tradenames, for impairment during the fourth quarter of each year, and if events or changes in circumstances indicate that the asset might be impaired. The reviews consist of comparing estimated fair value to the carrying value. Fair values of our trademarks and tradenames are determined primarily by discounting an assumed royalty value applied to management’s estimate of projected future revenues associated with the tradename using management’s expectations of the current and future operating environment. The royalty cash flows are discounted using rates based on the weighted average cost of capital discussed above and the specific risk profile of the tradenames relative to our other assets. These estimates are impacted by variable factors, including inflation, the general health of the economy and market competition. The impairment review calculation contains significant judgments and estimates, including the weighted average cost of capital, any specified risk profile of the tradename, and future revenue and profitability. See Note 7—Goodwill and Intangible Assets for additional information.

Impairment of Long-Lived Assets

We monitor the recoverability of our long-lived assets such as buildings and equipment, and evaluate their carrying value for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. Events that may trigger such an evaluation include current period losses combined with a history of losses or a projection of continuing losses, a significant decrease in the market value of an asset or plans for closures. When such events or changes in circumstances occur, a recoverability test is performed by comparing projected undiscounted future cash flows to the carrying value of the group of assets being tested.

If impairment is identified for long-lived assets to be held and used, the fair value is compared to the carrying value of the group of assets and an impairment charge is recorded for the excess of the carrying value over the fair value. For long-lived assets that are classified as assets held for sale, we recognize impairment charges for the excess of the carrying value plus estimated costs of disposal over the estimated fair value. Fair value is based on current market values or discounted future cash flows using Level 3 inputs. We estimate fair value based on our experience and knowledge of the market in which the property is located, including the use of local real estate brokers and advisers. Our estimate of undiscounted cash flows attributable to the asset groups includes only future cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset group. Long-lived asset impairment charges are a component of Selling and administrative expenses in the Consolidated Statements of Operations.

We group long-lived assets with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets, which has predominately been at the distribution center level for Wholesale and the geographic market level for retail stores for three geographic market groupings of individual retail stores, but individual store asset groupings may be assessed in certain circumstances.

Due to the highly competitive environment and our ongoing strategic transformation, we continue to evaluate if modifications to the estimation approach of our long-lived asset groups are necessary. Future changes to our long-lived asset policy and changes in circumstances, operating results or other events may result in additional asset impairment testing and charges.

Reserves for Closed Properties

We maintain reserves for costs associated with closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations. We calculate closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, reduced by estimated subtenant rentals that could be reasonably obtained for the property. Lease reserve impairment charges are recorded as a component of Selling and administrative expenses in the Consolidated Statements of Operations.

The closed property lease liabilities are usually paid over the remaining lease terms, which generally range from one to 12 years. Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

The calculation of the closed property charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on our experience and knowledge of the market in which the closed property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions. Reserves for closed properties are included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets.

Deferred Rent

Rent Expense

We recognize rent holidays, including the time period during which we have access to the property prior to the opening of the site, as well as construction allowances and escalating rent provisions, on a straight-line basis over the term of the operating lease. We recognize rent expense and the carrying value of capital lease obligations and property, plant and equipment, related to contractual obligations for properties where we remain the primary obligor upon assignment of the lease and do not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts. Deferred rents are included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets.

Self Insurance Liabilities

Self-Insurance Liabilities

We use a combination of insurance and self-insurance for workers’ compensation, automobile and general liability costs. It is our policy to record insurance liabilities based on management’s estimate of the ultimate cost of reported claims and claims incurred but not yet reported and related expenses, discounted at a risk-free interest rate. The present value of such claims was calculated using discount rates ranging from 0.3 percent to 5.1 percent for fiscal 2018, 0.3 percent to 5.1 percent for fiscal 2017 and 0.3 percent to 5.1 percent for fiscal 2016.

Changes in our insurance liabilities consisted of the following:



	2018			2017			2016
Beginning balance	$	67		$	69		$	67
Expense	19			16			17
Claim payments	(19		)	(18		)	(16		)
Reclassification of insurance recoveries to receivables	—			—			1
Ending balance	67			67			69
Less current portion	(21		)	(21		)	(22		)
Long-term portion	$	46		$	46		$	47

The current portion of reserves for self-insurance is included in Other current liabilities and the long-term portion is included in Other long-term liabilities in the Consolidated Balance Sheets. The insurance liabilities as of the end of the fiscal year are net of discounts of $5 and $5 as of February 24, 2018 and February 25, 2017, respectively. Amounts due from insurance companies were $8 and $9 as of February 24, 2018 and February 25, 2017, respectively. The current portion of the insurance receivables is included in Receivables, net and the long-term portion is included in Other assets in the Consolidated Balance Sheets.

Benefit Plans

We recognize the funded status of our Company-sponsored defined benefit plans in the Consolidated Balance Sheets and gains or losses and prior service costs or credits not yet recognized as a component of Accumulated other comprehensive loss, net of tax, in the Consolidated Balance Sheets. We sponsor pension and other postretirement plans in various forms covering substantially all employees who meet eligibility requirements. The determination of our obligation and related expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare and compensation costs. These assumptions are disclosed in Note 11—Benefit Plans. Actual results that differ from the assumptions are accumulated and amortized over future periods.

We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. Pension expense for these plans is recognized as contributions are funded. See Note 11—Benefit Plans for additional information on participation in multiemployer plans.

We also contribute to an employee 401(k) retirement savings plan.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:


Level 1 -	Quoted prices in active markets for identical assets or liabilities.


Level 2 -	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.


Level 3 -	Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability.

We utilized fair value measurements in reporting results of operations and financial position within our Consolidated Financial Statements for the following:


•	Acquired assets and liabilities discussed in Note 2—Business and Asset Acquisitions were measured at fair value using Level 3 inputs.


•	Impairment charges related to lease reserves, and properties held and used and held for sale, as discussed in Note 4—Reserves for Closed Properties and Property, Plant and Equipment-related Impairment Charges, were measured at fair value using Level 3 inputs.


•	Goodwill and intangible asset impairment charges and acquired intangible assets, as discussed in Note 7—Goodwill and Intangible Assets and Note 18—Discontinued Operations, were measured at fair value using Level 3 inputs.


•	Assets and liabilities measured at fair value on a recurring basis using Level 1 and Level 2 inputs as discussed in Note 8—Fair Value Measurements.

Derivatives

We use derivatives only to manage well-defined risks. We do not use financial instruments or derivatives for any trading or other speculative purposes.

Interest rate swap contracts are entered into to mitigate our exposure to changes in market interest rates. These contracts are reviewed for hedging effectiveness at hedge inception and on an ongoing basis. If these contracts are designated as a cash flow hedge and are determined to be highly effective, changes in the fair value of these instruments are recognized in Accumulated other comprehensive loss in the Consolidated Balance Sheets and reclassified into earnings in the period in which the hedged transaction affects earnings. Hedging ineffectiveness, if any, is recognized in earnings in the Consolidated Statements of Operations.

Our limited involvement with diesel fuel derivatives is primarily to manage our exposure to changes in fuel prices utilized in the shipping process. These contracts are economic hedges of price risk and are not designated or accounted for as hedging instruments for accounting purposes. Changes in the fair value of these instruments are recognized in earnings in the Consolidated Statements of Operations.

In addition, we enter into energy commitments for certain amounts of electricity and natural gas purchases that we expect to utilize in the normal course of business. Changes in the fair value of these purchase obligations are not recognized in earnings until the underlying commitment is utilized in the normal course of business.

Stock-Based Compensation

Stock-based compensation expense is measured by the fair value of the award on the date of grant, net of the estimated forfeiture rate. We use the straight-line method to recognize stock-based compensation expense over the requisite service period related to each award.

The fair value of stock options is estimated as of the date of grant using the Black-Scholes option pricing model. The fair value of performance stock units is estimated as of the date of the grant using the Monte Carlo option pricing model.

The estimation of the fair value of stock options incorporates certain assumptions, such as the risk-free interest rate and expected volatility, dividend yield and life of options. Restricted stock awards and restricted stock units are recorded as stock-based compensation expense over the requisite service period based on the market value of our common stock on the date of grant.

Income Taxes

Deferred income taxes represent future net tax effects resulting from temporary differences between the financial statement amounts and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which the differences are expected to be settled or realized. See Note 15—Income Taxes for the types of differences that give rise to significant portions of deferred income tax assets and liabilities. Deferred income tax assets are reported as a noncurrent asset or liability.

We are currently in various stages of audits, appeals or other methods of review with authorities from various taxing jurisdictions. We establish liabilities for unrecognized tax benefits in a variety of taxing jurisdictions when, despite management’s belief that our tax return positions are supportable, certain positions may be challenged and may need to be revised. We adjust these liabilities in light of changing facts and circumstances, such as the progress of a tax audit. We also provide interest on these liabilities at the appropriate statutory interest rate, and accrue penalties as applicable. We recognize interest related to unrecognized tax benefits in Interest expense and penalties in Selling and administrative expenses in the Consolidated Statements of Operations.

Recently Adopted and Recently Issued Accounting Standards

ecently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance under Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted this guidance in the first quarter of fiscal 2018, which resulted in $7 of additional income tax expense that would have been recorded as an adjustment to Additional paid-in-capital under previous authoritative guidance. The adoption resulted in the presentation of payments for shares traded for taxes within financing activities, which resulted in the retrospective revision of the Consolidated Statements of Cash Flows. In addition, we elected not to change our policy on accounting for forfeitures and continue to estimate the total number of awards for which the requisite service period will not be rendered.

Recently Issued Accounting Standards

In February 2018, the FASB issued authoritative guidance under ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides that the stranded tax effects from the Tax Cuts and Jobs Act (the “Tax Act”) may be reclassified to retained earnings. We are required to adopt this new guidance in the first quarter of fiscal 2020. We estimate that the stranded tax effects that may be reclassified are approximately $10.

In March 2017, the FASB issued authoritative guidance under ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in the statement of operations. We are required to adopt this new guidance in the first quarter of fiscal 2019. We will reclassify $63 of non-service cost components of net periodic benefit income, as disclosed in Note 11—Benefit Plans, to an other income and expense line in the Consolidated Statements of Operations upon adoption.

In January 2017, the FASB issued authoritative guidance under ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating step 2 of the goodwill impairment test. If a reporting unit fails step 1 of the goodwill impairment test, entities are no longer required to compute the implied fair value of goodwill following the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. ASU 2017-04 requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.

In August 2016, the FASB issued authoritative guidance under ASU 2016-15, Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. We are required to adopt this new guidance in the first quarter of fiscal 2019. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.

In June 2016, the FASB issued authoritative guidance under ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. We are required to adopt this new guidance in the first quarter of fiscal 2021. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements.

In February 2016, the FASB issued authoritative guidance under ASU 2016-02, Leases (Topic 842). ASU 2016-02 provides new comprehensive lease accounting guidance that supersedes existing lease guidance. Upon adoption of ASU 2016-02, we will be required to recognize most leases on our balance sheet at the beginning of the earliest comparative period presented with a corresponding adjustment to stockholders’ equity. ASU 2016-02 requires us to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating lease obligations. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. We are required to adopt this new guidance in the first quarter of fiscal 2020. ASU 2016-02 must be adopted using a modified retrospective transition, applying the new criteria to all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply. Expanded disclosures with additional qualitative and quantitative information will also be required. The adoption will include updates as provided under ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. We are currently evaluating the potential impact of adoption of this standard on our consolidated financial statements. For a quantification of our off-balance sheet operating leases subject to capitalization under ASU 2016-02, other than those reserved for as a closed property and certain agreements that may be deemed leases under the new authoritative guidance, refer to total operating lease obligations within Note 10—Leases.

In May 2014, the FASB issued authoritative guidance under ASU 2014-09, Revenue from Contracts with Customers (Topic 606): ASU 2014-09 supersedes existing revenue recognition requirements and provides a new comprehensive revenue recognition model that requires entities to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The new guidance will be adopted by us in the first quarter of fiscal 2019, as permitted by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The adoption will include updates as provided under ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; and ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). Adoption is allowed by either the full retrospective or modified retrospective approach.

We do not expect that the standard will materially affect our net earnings, financial position, or cash flows. We are also currently finalizing our accounting policies under Topic 606 and designing and implementing internal controls for the adoption and recognition of revenue under Topic 606. We completed our evaluation of the impact the standard has on our determination of whether we act as principal or agent in certain customer and vendor arrangements where the purchase and sale of inventory are virtually simultaneous, and we will continue to recognize sales and cost of sales on a gross basis. We currently believe that there will be less than a $10 impact to our Wholesale segment’s revenue. We currently believe that there will be less than a $5 increase to our Retail segment’s revenue, which relates primarily to the recognition and classification of customer loyalty programs and the presentation of certain advertising programs. We expect to recognize incentive payments made to customers under supply agreements as assets that will be amortized over the expected term of the related purchases under these agreements. Distribution contracts within Wholesale contain certain promises for goods or services that we believe will be immaterial in the context of the contracts. We will adopt the guidance in the first quarter of fiscal 2019 and plan to use the modified retrospective approach in the first quarter of fiscal 2019.