NOTE 11 – DISCONTINUED OPERATIONS

On January 10, 2013, the Company, AB Acquisition and NAI entered into the Stock Purchase Agreement providing for the sale by the Company of its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market banners and related Osco and Sav-on in-store pharmacies (collectively, the “NAI Banners”) to AB Acquisition. The NAI Banner Sale was completed on March 21, 2013. The Company received net proceeds of approximately $100 and a short-term note receivable of approximately $44 in exchange for the stock of NAI. AB Acquisition also assumed approximately $3,200 of debt and capital leases. In addition, AB Acquisition assumed the underfunded status of NAI’s related share of the multiemployer pension plans to which the Company contributed. AB Acquisition’s portion of the underfunded status of the multiemployer pension plans was estimated to be approximately $1,138 before tax, based on the Company’s estimated “proportionate share” of underfunding calculated as of February 23, 2013.

In connection with the Stock Purchase Agreement, the Company entered into various agreements with AB Acquisition and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the “TSA”) and operating and supply agreements. These arrangements have initial terms that range from 12 months to 5 years, are generally subject to renewal upon mutual agreement by the parties thereto and also include termination provisions that can be exercised by each party. The Company expects to earn $242 in fiscal 2014 under the TSA, which includes $60 of transitional fees in place for the first year only. The fiscal 2014 amount represents incremental TSA fees of approximately $140 more than the amount of TSA fees historically recognized under its previous transition services agreement with Albertson’s LLC exclusive of the incremental $60 in first-year transitional fees. The Company recognized $48 and $194 in TSA fees during the third quarter and year-to-date period ended November 30, 2013, respectively, including $4 and $58 (of the $60 total) under the first-year transitional fee provisions for the third quarter and year-to-date period ended November 30, 2013, respectively. The Company expects to recognize $2 in first-year transitional fees during the fourth quarter of fiscal 2014. The Company recognized $9 and $32 in transition services agreement fees during the third quarter and year-to-date ended December 1, 2012, respectively. The shared service center costs incurred to support back office functions related to the NAI Banners represent administrative overhead and are recorded in Selling and administrative expenses.

The Company has determined that the continuing cash flows generated by these arrangements are not significant in proportion to the cash flows that the Company would have generated had the NAI Banner Sale not occurred, and that the arrangements do not provide the Company the ability to significantly influence the operating or financial policies of the NAI Banners. Accordingly the above arrangements do not constitute significant continuing involvement in the operations of the NAI Banners. The assets, liabilities, operating results, and cash flows of the NAI Banners have been presented separately as discontinued operations in the Condensed Consolidated Financial Statements for all periods presented.

During the fourth quarter of fiscal 2013, the Company presented the assets and liabilities of NAI as discontinued operations and accordingly assessed the long-lived assets of the disposal group for impairment by comparing the carrying value of the total net assets of discontinued operations to their estimated fair value based on the proceeds expected to be received and debt expected to be assumed by AB Acquisition pursuant to the Stock Purchase Agreement less the estimated costs to sell. The Company recorded a preliminary estimated pre-tax loss on contract for the disposal of NAI of approximately $1,150, recorded as a component of Current liabilities of discontinued operations, and a pre-tax Property, plant and equipment related impairment of $203, recorded as a reduction of Long-term assets of discontinued operations, in the Condensed Consolidated Balance Sheets. The Company refined the calculated loss on sale of NAI during the first quarter ended June 15, 2013, resulting in a $76 pre-tax, or $68 after tax, reduction to the preliminary estimated loss and finalized the loss calculation during the second quarter ended September 7, 2013, resulting in a reduction of the loss on sale of NAI of $4 pre-tax or $1 after tax, which was recorded as a component of Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations. The total loss on sale of NAI was $1,246, comprised of $1,064 of contract loss and $182 of Property, plant and equipment related impairment. The Company determined the pre-tax property, plant and equipment-related impairment using Level 3 inputs.

The following is a summary of the Company’s operating results and certain other directly attributable expenses that are included in discontinued operations:


	Third Quarter Ended					Year-To-Date Ended
	November 30, 2013			December 1, 2012		November 30, 2013			December 1, 2012
Net sales	$	—		$	3,871	$	1,235		$	13,334
Income before income taxes from discontinued operations		5			63		125			62
Income tax provision (benefit)		6			32		(65	)		27

(Loss) income from discontinued operations, net of tax	$	(1	)	$	31	$	190		$	35

The tax rate for the income tax provision included as a component of Income from discontinued operations, net of tax for the third quarter ended November 30, 2013 included $5 of discrete tax expenses and the year-to-date period ended November 30, 2013 included $112 of discrete tax benefits primarily resulting from the settlement of IRS audits for the fiscal 2010, 2009 and 2008 tax years and an adjustment to decrease the loss on sale of NAI reported at fiscal year ended 2013, which are non-recurring.

The amounts of the intercompany sales, which approximate related costs and were eliminated upon consolidation, were $0 and $60 for the third quarter ended November 30, 2013 and December 1, 2012, respectively. Intercompany sales, which approximate related costs and were eliminated upon consolidation, were $19 and $184 for the year-to-date periods ended November 30, 2013 and December 1, 2012, respectively. The Company will continue to sell certain products to the NAI Banners subsequent to the NAI Banner Sale. The Company recorded $52 and $153 within Net sales of continuing operations related to the NAI banners for the third quarter and year-to-date periods ended November 30, 2013. The Company provides certain back office support to the divested NAI Banners under the TSA. Fees earned under the TSA are reflected in Net sales in the Condensed Consolidated Statement of Operations.