SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Sep. 07, 2013

Statement of Registrant

The accompanying condensed consolidated financial statements of SUPERVALU INC. (“SUPERVALU” or the “Company”) for the second quarter and year-to-date ended September 7, 2013 and September 8, 2012 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial condition and results of operations for such periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended February 23, 2013 and the Company’s Current Report on Form 8-K filed on September 6, 2013. The results of operations for the second quarter and year-to-date ended September 7, 2013 are not necessarily indicative of the results expected for the full year. The Condensed Consolidated Balance Sheet as of February 23, 2013 has been derived from the audited Consolidated Balance Sheet as of that date.

Basis of Presentation

Basis of Presentation

During the fourth quarter of fiscal 2013, the Company entered into a stock purchase agreement (“Stock Purchase Agreement”) to sell the operations of the Company’s New Albertson’s, Inc. subsidiary (“New Albertsons” or “NAI”), including the Acme, Albertsons, Jewel-Osco, Shaw’s and Star Market retail banners and the associated Osco and Sav-on in-store pharmacies (the “NAI Banner Sale”) to AB Acquisition LLC (“AB Acquisition”). The NAI Banner Sale was completed effective March 21, 2013, during the Company’s first quarter of fiscal 2014. The NAI operations disposed of under the NAI Banner Sale are being reported as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. The assets and liabilities of the NAI disposal group are presented separately in the Condensed Consolidated Balance Sheets for all periods presented. Unless otherwise indicated, references to the Condensed Consolidated Statements of Operations and the Condensed Consolidated Balance Sheets in the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. See Note 11 – Discontinued Operations for additional information regarding these discontinued operations.

Accounting Policies

Accounting Policies

The summary of significant accounting policies is included in the Notes to Consolidated Financial Statements set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended February 23, 2013.

Fiscal Year

Fiscal Year

The Company’s fiscal year ends on the last Saturday in February. The Company’s first quarter consists of 16 weeks, while the second, third and fourth quarters each consist of 12 weeks. Because of differences in the accounting calendars of the Company and its previous wholly-owned subsidiary, NAI, the February 23, 2013 Condensed Consolidated Balance Sheet includes the assets and liabilities of the NAI disposal group as of February 21, 2013.

Use of Estimates

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 during the reporting period. Actual results could differ from those estimates.

Segment Reclassification

Segment Reclassification

During the first quarter of fiscal 2014, the Company reclassified the segment presentation of certain corporate administrative expenses and related fees earned under the Company’s transition services agreements, pension and other postretirement plan expenses for inactive and corporate participants in the SUPERVALU Retirement Plan and certain other corporate costs to properly reflect the structure under which the Company is now managed. These changes primarily resulted in the recast of net expenses from the Company’s Retail Food segment to its Corporate segment for all periods presented and as previously reported in the Company’s Quarterly Report on Form 10-Q for the second quarter ended September 8, 2012. These changes do not revise or restate information previously reported in the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), Condensed Consolidated Balance Sheets, Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows for the Company for any period.

Revision

Revision

During the second quarter of fiscal 2014, the Company revised its presentation of fees earned under its transition services agreements. The Company historically presented fees earned under its transition services agreements as a reduction of Selling and administrative expenses. The presentation of such fees earned has been revised and are now reflected as revenue, within Net sales of Corporate, for all periods. The revision had the effect of increasing both Net sales and Gross profit, with a corresponding increase in Selling and administrative expenses. These revisions did not impact Operating earnings (loss), Earnings (loss) from continuing operations before income taxes, Net earnings (loss), cash flows, or financial position for any period reported. Management has determined that the change in presentation is not material to any period reported. Prior period amounts shown below have been revised to conform to the current period presentation.

The following table represents the effect of the revision of fees earned under transition services agreements on the Company’s Condensed Consolidated Statements of Operations as originally reported in the Company’s Quarterly Report on Form 10-Q for the first quarter ended June 15, 2013.


	First Quarter Ended June 15, 2013												First Quarter Ended June 16, 2012
	As Originally Reported		% of Net sales			Revision		As Revised		% of Net sales			As Originally Reported		% of Net sales			Revision		As Revised		% of Net sales
Net sales	$	5,158		100.0	%	$	84	$	5,242		100.0	%	$	5,237		100.0	%	$	13	$	5,250		100.0	%
Cost of sales		4,446		86.2	%		—		4,446		84.8	%		4,530		86.5	%		—		4,530		86.3	%

Gross profit		712		13.8	%		84		796		15.2	%		707		13.5	%		13		720		13.7	%
Selling and administrative expenses		630		12.2	%		84		714		13.6	%		673		12.8	%		13		686		13.1	%

Operating earnings	$	82		1.6	%	$	—	$	82		1.6	%	$	34		0.7	%	$	—	$	34		0.6	%

The following table represents the effect of the revision of fees earned under the Company’s transition services agreements on the Company’s Condensed Consolidated Statements of Operations for the comparative periods being presented in this Quarterly Report on Form 10-Q.


	Second Quarter Ended September 8, 2012														Year-to-Date Ended September 8, 2012
	As Originally Reported			% of Net sales			Revision		As Revised			% of Net sales			As Originally Reported		% of Net sales			Revision		As Revised		% of Net sales
Net sales	$	3,929			100.0	%	$	10	$	3,939			100.0	%	$	9,166		100.0	%	$	23	$	9,189		100.0	%
Cost of sales		3,410			86.8	%		—		3,410			86.6	%		7,940		86.6	%		—		7,940		86.4	%

Gross profit		519			13.2	%		10		529			13.4	%		1,226		13.4	%		23		1,249		13.6	%
Selling and administrative expenses		531			13.5	%		10		541			13.7	%		1,204		13.1	%		23		1,227		13.4	%

Operating earnings (loss)	$	(12	)		(0.3	%)	$	—	$	(12	)		(0.3	%)	$	22		0.2	%	$	—	$	22		0.2	%

The Company earned $42, $47 and $50 of fees under a previous transition services agreement during fiscal 2013, 2012 and 2011, respectively. The Company’s previous transition services agreement with Albertson’s LLC was replaced at the close of the NAI Banner Sale, with transition services agreement with each of NAI and Albertson’s LLC. See Note 11 – Discontinued Operations. Fees earned under transition services agreements are recognized as the administrative services are rendered, which align with the recognition of administrative expenses required to support the transition services agreements.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company’s banking arrangements allow the Company to fund outstanding checks when presented to the financial institution for payment. The Company funds 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 and accrued liabilities in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of September 7, 2013 and February 23, 2013, the Company had net book overdrafts of $148 and $131, respectively.

Inventories, Net

Inventories, Net

Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventory consists of finished goods and a substantial portion of the Company’s inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each year based on the inventory levels and costs at that time. If the first-in, first-out (“FIFO”) method had been used, Inventories, net would have been higher by approximately $210 at September 7, 2013 and $211 at February 23, 2013. The Company recorded a LIFO credit of $1 and a LIFO charge of $2 for the second quarter ended September 7, 2013 and September 8, 2012, respectively. The Company recorded a LIFO credit of $1 and a LIFO charge of $4 for the year-to-date periods ended September 7, 2013 and September 8, 2012, respectively.

Long-Lived Assets

Long-Lived Assets

The Company monitors the recoverability of its long-lived assets such as buildings and equipment, and evaluates their carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount 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 the Company’s plans for store 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. During the year-to-date period ended September 7, 2013, the Company recorded $14 of long-lived asset impairment charges primarily related to the write-off of certain software support tools that would no longer be utilized in operations. In addition, during the second quarter and year-to-date period ended September 7, 2013, the Company recorded a gain on the sale of property of $14 within Selling and administrative expenses of Independent Business due to the exit of a previously disposed distribution center.

Net Earnings (Loss) Per Share

Net Earnings (Loss) Per Share

Basic net earnings (loss) per share is calculated using net earnings (loss) available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted net earnings (loss) per share is similar to basic net earnings per share except that the weighted average number of shares outstanding is computed after giving effect to the dilutive impacts of stock options, performance awards and restricted stock awards.

The following table reflects the calculation of basic and diluted net earnings (loss) per share:


	Second Quarter Ended					Year-to-Date Ended
	September 7, 2013		September 8, 2012			September 7, 2013			September 8, 2012
Net earnings (loss) per share – basic:
Net earnings (loss) from continuing operations available to common stockholders	$	39	$	(56	)	$	(66	)	$	(74	)
Weighted average shares outstanding – basic		258		212			251			212

Net earnings (loss) from continuing operations per share – basic	$	0.15	$	(0.26	)	$	(0.26	)	$	(0.35	)


Income (loss) from discontinued operations, net of tax available to common stockholders	$	1	$	(55	)	$	191		$	4
Weighted average shares outstanding – basic		258		212			251			212

Net earnings (loss) from discontinued operations per share – basic	$	—	$	(0.26	)	$	0.76		$	0.02


Net earnings (loss) available to common stockholders	$	40	$	(111	)	$	125		$	(70	)
Weighted average shares outstanding – basic		258		212			251			212

Net earnings (loss) per share – basic	$	0.15	$	(0.52	)	$	0.50		$	(0.33	)


Net earnings (loss) per share – diluted:
Net earnings (loss) from continuing operations available to common stockholders	$	39	$	(56	)	$	(66	)	$	(74	)
Weighted average shares outstanding – basic		258		212			251			212
Dilutive impact of stock-based awards		3		—			—			—

Weighted average shares outstanding – diluted		261		212			251			212

Net earnings (loss) from continuing operations per share – diluted	$	0.15	$	(0.26	)	$	(0.26	)	$	(0.35	)


Income (loss) from discontinued operations, net of tax available to common stockholders	$	1	$	(55	)	$	191		$	4
Weighted average shares outstanding – basic		258		212			251			212
Dilutive impact of stock-based awards		3		—			4			2

Weighted average shares outstanding – diluted		261		212			255			214

Net earnings (loss) from discontinued operations per share – diluted	$	—	$	(0.26	)	$	0.75		$	0.02


Net earnings (loss) available to common stockholders	$	40	$	(111	)	$	125		$	(70	)
Weighted average shares outstanding – basic		258		212			251			212
Dilutive impact of stock-based awards		3		—			4			—

Weighted average shares outstanding – diluted		261		212			255			212

Net earnings (loss) per share – diluted	$	0.15	$	(0.52	)	$	0.49		$	(0.33	)

Stock-based awards of 20 and 25 were outstanding during the second quarter ended September 7, 2013 and September 8, 2012, respectively, but were excluded from the calculation of Net earnings (loss) from continuing operations per share – diluted for the second quarter September 7, 2013 and September 8, 2012, respectively, because their inclusion would be antidilutive. Stock-based awards of 21 were outstanding during the year-to-date periods ended September 7, 2013 and September 8, 2012 but were excluded from the calculation of Net loss from continuing operations per share – diluted and Net earnings per share – diluted for the year-to-date ended September 7, 2013 and September 8, 2012 because their inclusion would be antidilutive.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The Company reports comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income (Loss). Comprehensive income (loss) includes all changes in stockholders’ deficit during the applicable reporting period, other than those resulting from investments by and distributions to stockholders. The Company’s comprehensive income (loss) is calculated as net earnings (loss) plus or minus adjustments for pension and other postretirement benefit obligations, net of tax.

Accumulated other comprehensive loss represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period and relates to pension and other post-retirement benefit obligation adjustments, net of tax. Changes in the Accumulated other comprehensive loss balance by component follows below:


	September 7, 2013
Pension and postretirement benefit plan accumulated other comprehensive loss at beginning of the fiscal year, net of tax	$	612
Other comprehensive income, net of tax of $19		(31	)
Divestiture of certain NAI pension plan obligation’s accumulated other comprehensive loss, net of tax of $31		(48	)

Pension and postretirement benefit plan accumulated other comprehensive loss at the end of period, net of tax	$	533

Upon completion of the NAI Banner Sale in the first quarter of fiscal 2014, the Company disposed approximately $48 of Accumulated other comprehensive loss, which was a component of Stockholders’ deficit in the Condensed Consolidated Balance Sheets, due to NAI’s assumption of a defined benefit pension plan established and operated under NAI. The accumulated other comprehensive loss assumed by NAI was a component of the preliminary estimated loss on the sale of NAI accrued in Current liabilities of discontinued operations in the Condensed Consolidated Balance Sheet as of February 23, 2013.

Common and Treasury Stock

Common and Treasury Stock

Concurrent with the execution of the Stock Purchase Agreement, the Company entered into a Tender Offer Agreement (the “Tender Offer Agreement”) with Symphony Investors LLC, owned by a Cerberus Capital Management, L.P. (“Cerberus”)-led investor consortium (“Symphony Investors”), and Cerberus, pursuant to which, upon the terms and subject to the conditions of the Tender Offer Agreement, and contingent upon the NAI Banner Sale, Symphony Investors tendered for up to 30 percent of the issued and outstanding common stock of the Company at a purchase price of $4.00 per share in cash (the “Tender Offer”). Approximately 12 shares were validly tendered, representing approximately 5.5 percent of the issued and outstanding shares at the time of the Tender Offer expiration on March 20, 2013. All shares that were validly tendered and not properly withdrawn were accepted as tendered in accordance with the terms of Tender Offer.

In addition, pursuant to the terms of the Tender Offer Agreement, on March 21, 2013, the Company issued approximately 42 additional shares of common stock (approximately 19.9 percent of outstanding shares prior to the share issuance) to Symphony Investors at the Tender Offer price per share of $4.00, resulting in $170 in cash proceeds to the Company, which brought Symphony Investors ownership percent to 21.2 percent after the share issuance. The additional 42 shares outstanding, comprised of 34 issued out of common stock and 8 issued out of treasury stock, have a dilutive effect on current and future net earnings (loss) per share.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance under ASU 2013-02 surrounding the presentation of items reclassified from accumulated other comprehensive income (loss) to net earnings (loss). This guidance requires entities to disclose, either in the notes to the consolidated financial statements or parenthetically on the face of the statement that reports comprehensive income (loss), items reclassified out of accumulated other comprehensive income (loss) and into net earnings (loss) in their entirety by component and the effect of the reclassification on each affected Consolidated Statement of Operations line item. In addition, for accumulated other comprehensive income (loss) reclassification items that are not reclassified in their entirety into net earnings (loss), a cross reference to other required accounting standard disclosures is required. The Company adopted ASU 2013-02 in the first quarter of fiscal 2014. Accordingly, additional footnote disclosure is provided within Note 1 – Summary of Significant Accounting Policies in the accompanying Notes to Condensed Consolidated Financial Statements. The adoption had no effect on the Company’s results of operations or financial position.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In July 2013, the FASB issued authoritative guidance under ASU 2013-11, which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This accounting standard update requires entities to assess whether to net the unrecognized tax benefit with a deferred tax asset as of the reporting date. ASU 2013-11 will be effective for the Company’s first quarter of fiscal 2015. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.