Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period (12 weeks) ended December 5, 2015 .
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      .
Commission File Number: 1-5418
 
SUPERVALU INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
41-0617000
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
11840 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
 
55344
(Address of principal executive offices)
 
(Zip Code)
(952) 828-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   x
As of January 8, 2016 , there were 265,910,308 shares of the issuer’s common stock outstanding.
 

Table of Contents

SUPERVALU INC. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Item
 
Page
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
 


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED SEGMENT FINANCIAL INFORMATION
(Unaudited)
(In millions, except percent data)
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net sales
 
 
 
 
 
 
 
Independent Business
$
1,902

 
$
1,972

 
$
6,195

 
$
6,227

% of total
46.2
%
 
46.7
%
 
45.6
%
 
46.0
%
Save-A-Lot
1,069

 
1,085

 
3,568

 
3,498

% of total
26.0
%
 
25.7
%
 
26.3
%
 
25.8
%
Retail Food
1,097

 
1,125

 
3,662

 
3,660

% of total
26.7
%
 
26.6
%
 
27.0
%
 
27.1
%
Corporate
46

 
43

 
158

 
145

% of total
1.1
%
 
1.0
%
 
1.1
%
 
1.1
%
Total net sales
$
4,114

 
$
4,225

 
$
13,583

 
$
13,530

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Operating earnings
 
 
 
 
 
 
 
Independent Business
$
54

 
$
60

 
$
180

 
$
180

% of Independent Business sales
2.8
%
 
3.1
%
 
2.9
%
 
2.9
%
Save-A-Lot
32

 
34

 
115

 
106

% of Save-A-Lot sales
2.9
%
 
3.1
%
 
3.2
%
 
3.0
%
Retail Food
21

 
28

 
64

 
78

% of Retail Food sales
2.0
%
 
2.5
%
 
1.8
%
 
2.1
%
Corporate
(6
)
 
(66
)
 
(6
)
 
(79
)
Total operating earnings
101

 
56

 
353

 
285

% of total net sales
2.4
%
 
1.3
%
 
2.6
%
 
2.1
%
Interest expense, net
45

 
46

 
148

 
156

Equity in earnings of unconsolidated affiliates
(1
)
 
(1
)
 
(3
)
 
(3
)
Earnings from continuing operations before income taxes
57

 
11

 
208

 
132

Income tax provision (benefit)
22

 
(1
)
 
79

 
41

Net earnings from continuing operations
35

 
12

 
129

 
91

Income from discontinued operations, net of tax
—

 
69

 
3

 
68

Net earnings including noncontrolling interests
35

 
81

 
132

 
159

Less net earnings attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Net earnings attributable to SUPERVALU INC.
$
34

 
$
79

 
$
126

 
$
153

See Notes to Condensed Consolidated Financial Statements.

1
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net sales
$
4,114

 
$
4,225

 
$
13,583

 
$
13,530

Cost of sales
3,513

 
3,629

 
11,589

 
11,605

Gross profit
601

 
596

 
1,994

 
1,925

Selling and administrative expenses
494

 
540

 
1,635

 
1,640

Intangible asset impairment charge
6

 
—

 
6

 
—

Operating earnings
101

 
56

 
353

 
285

Interest expense, net
45

 
46

 
148

 
156

Equity in earnings of unconsolidated affiliates
(1
)
 
(1
)
 
(3
)
 
(3
)
Earnings from continuing operations before income taxes
57

 
11

 
208

 
132

Income tax provision (benefit)
22

 
(1
)
 
79

 
41

Net earnings from continuing operations
35

 
12

 
129

 
91

Income from discontinued operations, net of tax
—

 
69

 
3

 
68

Net earnings including noncontrolling interests
35

 
81

 
132

 
159

Less net earnings attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Net earnings attributable to SUPERVALU INC.
$
34

 
$
79

 
$
126

 
$
153

 
 
 
 
 
 
 
 
Basic net earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
0.13

 
$
0.04

 
$
0.47

 
$
0.33

Discontinued operations
$
—

 
$
0.27

 
$
0.01

 
$
0.26

Basic net earnings per share
$
0.13

 
$
0.31

 
$
0.48

 
$
0.59

Diluted net earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
0.13

 
$
0.04

 
$
0.46

 
$
0.33

Discontinued operations
$
—

 
$
0.26

 
$
0.01

 
$
0.26

Diluted net earnings per share
$
0.13

 
$
0.30

 
$
0.47

 
$
0.58

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
264

 
261

 
263

 
260

Diluted
268

 
265

 
268

 
263

See Notes to Condensed Consolidated Financial Statements.

2
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net earnings including noncontrolling interests
$
35

 
$
81

 
$
132

 
$
159

Other comprehensive income (loss):
 
 
 
 
 
 
 
Recognition of pension and other postretirement benefit obligations (1)
27

 
(98
)
 
50

 
(80
)
Change in fair value of cash flow hedges (2)
—

 
—

 
(2
)
 
—

Total other comprehensive income (loss)
27

 
(98
)
 
48

 
(80
)
Comprehensive income (loss) including noncontrolling interests
62

 
(17
)
 
180

 
79

Less comprehensive income attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Comprehensive income (loss) attributable to SUPERVALU INC.
$
61

 
$
(19
)
 
$
174

 
$
73

(1)
Amounts are net of tax expense (benefit) of $15 , $(27) , $29 and $(17) for the third quarters of fiscal 2016 and 2015, and for fiscal 2016 and 2015 year-to-date, respectively.
(2)
Amounts are net of tax expense (benefit) of $0 , $0 , $(1) and $0 for the third quarters of fiscal 2016 and 2015, and for fiscal 2016 and 2015 year-to-date, respectively.
See Notes to Condensed Consolidated Financial Statements.


3
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value data)
 
December 5, 2015
 
February 28, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
134

 
$
114

Receivables, net
485

 
482

Inventories, net
1,170

 
984

Other current assets
78

 
120

Total current assets
1,867

 
1,700

Property, plant and equipment, net
1,458

 
1,470

Goodwill
867

 
865

Intangible assets, net
57

 
48

Deferred tax assets
246

 
265

Other assets
148

 
137

Total assets
$
4,643

 
$
4,485

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,200

 
$
1,121

Accrued vacation, compensation and benefits
187

 
204

Current maturities of long-term debt and capital lease obligations
224

 
35

Other current liabilities
175

 
173

Total current liabilities
1,786

 
1,533

Long-term debt
2,281

 
2,480

Long-term capital lease obligations
209

 
213

Pension and other postretirement benefit obligations
513

 
602

Long-term tax liabilities
129

 
119

Other long-term liabilities
169

 
174

Commitments and contingencies

 

Stockholders’ deficit
 
 
 
Common stock, $0.01 par value: 400 shares authorized; 266 and 262 shares issued, respectively
3

 
3

Capital in excess of par value
2,802

 
2,810

Treasury stock, at cost, 1 and 2 shares, respectively
(5
)
 
(33
)
Accumulated other comprehensive loss
(375
)
 
(423
)
Accumulated deficit
(2,877
)
 
(3,003
)
Total SUPERVALU INC. stockholders’ deficit
(452
)
 
(646
)
Noncontrolling interests
8

 
10

Total stockholders’ deficit
(444
)
 
(636
)
Total liabilities and stockholders’ deficit
$
4,643

 
$
4,485

See Notes to Condensed Consolidated Financial Statements.


4
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
(In millions)
 
Common
Stock
 
Capital in Excess of Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
SUPERVALU INC.
Stockholders’
Deficit
 
Non-controlling
Interests
 
Total
Stockholders’
Deficit
Balances as of February 22, 2014
$
3

 
$
2,862

 
$
(101
)
 
$
(307
)
 
$
(3,195
)
 
$
(738
)
 
$
8

 
$
(730
)
Net earnings
—

 
—

 
—

 
—

 
153

 
153

 
6

 
159

Other comprehensive income, net of tax of $(17)
—

 
—

 
—

 
(80
)
 
—

 
(80
)
 
—

 
(80
)
Sales of common stock under option plans
—

 
(52
)
 
57

 
—

 
—

 
5

 
—

 
5

Stock-based compensation
—

 
17

 
—

 
—

 
—

 
17

 
—

 
17

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(8
)
 
(8
)
Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
3

 
3

Tax impact on stock-based awards and other
—

 
(12
)
 
(1
)
 
—

 
—

 
(13
)
 
—

 
(13
)
Balances as of November 29, 2014
$
3

 
$
2,815

 
$
(45
)
 
$
(387
)
 
$
(3,042
)
 
$
(656
)
 
$
9

 
$
(647
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of February 28, 2015
$
3

 
$
2,810

 
$
(33
)
 
$
(423
)
 
$
(3,003
)
 
$
(646
)
 
$
10

 
$
(636
)
Net earnings
—

 
—

 
—

 
—

 
126

 
126

 
6

 
132

Other comprehensive income, net of tax of $28
—

 
—

 
—

 
48

 
—

 
48

 
—

 
48

Sales of common stock under option plans
—

 
(12
)
 
22

 
—

 
—

 
10

 
—

 
10

Stock-based compensation
—

 
19

 
—

 
—

 
—

 
19

 
—

 
19

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(8
)
 
(8
)
Tax impact on stock-based awards and other
—

 
(15
)
 
6

 
—

 
—

 
(9
)
 
—

 
(9
)
Balances as of December 5, 2015
$
3

 
$
2,802

 
$
(5
)
 
$
(375
)
 
$
(2,877
)
 
$
(452
)
 
$
8

 
$
(444
)
See Notes to Condensed Consolidated Financial Statements.


5
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Year-To-Date Ended
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Cash flows from operating activities
 
 
 
Net earnings including noncontrolling interests
$
132

 
$
159

Income from discontinued operations, net of tax
3

 
68

Net earnings from continuing operations
129

 
91

Adjustments to reconcile Net earnings from continuing operations to Net cash provided by operating activities – continuing operations:
 
 
 
Intangible asset impairment charge
6

 
—

Asset impairment and other charges
7

 
3

Net gain on sale of assets and exits of surplus leases
(3
)
 
(11
)
Depreciation and amortization
211

 
219

LIFO charge
6

 
7

Deferred income taxes
(19
)
 
(41
)
Stock-based compensation
19

 
18

Net pension and other postretirement benefits cost
29

 
82

Contributions to pension and other postretirement benefit plans
(38
)
 
(115
)
Other adjustments
20

 
15

Changes in operating assets and liabilities, net of effects from business acquisitions
(116
)
 
(164
)
Net cash provided by operating activities – continuing operations
251

 
104

Net cash provided by operating activities – discontinued operations
1

 
2

Net cash provided by operating activities
252

 
106

Cash flows from investing activities
 
 
 
Proceeds from sale of assets
4

 
7

Purchases of property, plant and equipment
(169
)
 
(164
)
Payments for business acquisitions
(9
)
 
(55
)
Other
(24
)
 
3

Net cash used in investing activities
(198
)
 
(209
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of debt
—

 
484

Proceeds from sale of common stock
10

 
5

Payments of debt and capital lease obligations
(35
)
 
(37
)
Distributions to noncontrolling interests
(8
)
 
(8
)
Payments of debt financing costs
(1
)
 
(7
)
Other
—

 
1

Net cash (used in) provided by financing activities
(34
)
 
438

Net increase in cash and cash equivalents
20

 
335

Cash and cash equivalents at beginning of period
114

 
83

Cash and cash equivalents at the end of period
$
134

 
$
418

SUPPLEMENTAL CASH FLOW INFORMATION
The Company’s non-cash activities were as follows:
 
 
 
Purchases of property, plant and equipment included in Accounts payable
$
31

 
$
10

Capital lease asset additions
$
18

 
$
1

Interest and income taxes paid:
 
 
 
Interest paid, net of amounts capitalized
$
150

 
$
136

Income taxes paid, net
$
44

 
$
55


See Notes to Condensed Consolidated Financial Statements.

6

SUPERVALU INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in millions, except per share data)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Registrant
The accompanying Condensed Consolidated Financial Statements of SUPERVALU INC. (“SUPERVALU” or the “Company”) for the third quarters and year-to-date periods ended December 5, 2015 and November 29, 2014 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, results of operations and cash flows 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 28, 2015 . The results of operations for the third quarter and year-to-date ended December 5, 2015 are not necessarily indicative of the results expected for the full year.
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 28, 2015 .
Fiscal Year
The Company operates on a 52/53 week fiscal year basis, with its fiscal year ending on the last Saturday in February. References to the third quarters of fiscal 2016 and 2015 relate to the 12 week fiscal quarters ended December 5, 2015 and November 29, 2014 , respectively. References to fiscal 2016 and 2015 year-to-date relate to the 40 week fiscal periods ended December 5, 2015 and November 29, 2014 , respectively.
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.
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 net book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of December 5, 2015 and February 28, 2015 , the Company had net book overdrafts of $147 and $145 , respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventories consist 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 method had been used, Inventories, net would have been higher by approximately $217 at December 5, 2015 and $211 at February 28, 2015 . The Company recorded a LIFO charge of $1 and $3 for the third quarters of fiscal 2016 and 2015, respectively. The Company recorded a LIFO charge of $6 and $7 for fiscal 2016 and 2015 year-to-date, respectively.

7

Presentation Revision
In the first quarter of fiscal 2016, the Company completed an assessment of its revenue and expense presentation primarily related to professional services and certain other transactions. Expenses related to transactions in which the Company determined it was the principal were previously presented net of related revenues within Net sales in the Condensed Consolidated Statements of Operations. The presentation of these expenses has been revised to include them within Cost of sales and Selling and administrative expenses. These revisions had the effect of increasing Net sales with a corresponding increase to Cost of sales and Selling and administrative expenses. These revisions did not impact Operating earnings, Earnings from continuing operations before income taxes, Net earnings attributable to SUPERVALU INC., cash flows, or financial position for any period reported. These revisions have similarly impacted the Company's financial statements across fiscal periods. Management determined that these revisions are not material to any period reported. Prior period amounts have been revised to conform to the current period presentation as shown below.
The following tables present the impact of these revisions on the Company's previously reported results as reported in this Quarterly Report on Form 10-Q:
 
 
Third Quarter Ended November 29, 2014 
 (12 weeks)
 
Year-To-Date Ended November 29, 2014 
 (40 weeks)
 
 
As Originally Reported
 
Revision
 
As Revised
 
As Originally Reported
 
Revision
 
As Revised
Net sales
 
$
4,204

 
$
21

 
$
4,225

 
$
13,456

 
$
74

 
$
13,530

Cost of sales
 
3,611

 
18

 
3,629

 
11,539

 
66

 
11,605

Gross profit
 
593

 
3

 
596

 
1,917

 
8

 
1,925

Selling and administrative expenses
 
537

 
3

 
540

 
1,632

 
8

 
1,640

Operating earnings
 
$
56

 
$
—

 
$
56

 
$
285

 
$
—

 
$
285

 
 
Third Quarter Ended November 29, 2014 
 (12 weeks)
 
Year-To-Date Ended November 29, 2014 
 (40 weeks)
 
 
As Originally Reported
 
Revision
 
As Revised
 
As Originally Reported
 
Revision
 
As Revised
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
Independent Business
 
$
1,958

 
$
14

 
$
1,972

 
$
6,178

 
$
49

 
$
6,227

% of total
 
46.6
%
 
0.1
 %
 
46.7
%
 
45.9
%
 
0.1
 %
 
46.0
%
Save-A-Lot
 
1,079

 
6

 
1,085

 
3,477

 
21

 
3,498

% of total
 
25.7
%
 
—
 %
 
25.7
%
 
25.8
%
 
—
 %
 
25.8
%
Retail Food
 
1,124

 
1

 
1,125

 
3,656

 
4

 
3,660

% of total
 
26.7
%
 
(0.1
)%
 
26.6
%
 
27.2
%
 
(0.1
)%
 
27.1
%
Corporate
 
43

 
—

 
43

 
145

 
—

 
145

% of total
 
1.0
%
 
—
 %
 
1.0
%
 
1.1
%
 
—
 %
 
1.1
%
Total net sales
 
$
4,204

 
$
21

 
$
4,225

 
$
13,456

 
$
74

 
$
13,530

 
 
100.0
%
 
—
 %
 
100.0
%
 
100.0
%
 
—
 %
 
100.0
%
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance under accounting standard update (“ASU”) 2014-09, Revenue from Contracts with Customers . 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 goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The new authoritative guidance will likely be adopted during the first quarter of fiscal 2019, as permitted by ASU 2015-14. Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently evaluating which approach it will apply and the potential adoption impact on its financial statements.

In April 2015, the FASB issued ASU 2015-03,  Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs . ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt obligation. This ASU would apply retrospectively beginning in the first quarter of fiscal 2017,

8

although early adoption is permitted. Debt issuance costs, excluding revolving credit facility financing costs, that the Company would present as a reduction of the related debt included in Other assets were approximately $29 as of December 5, 2015 .

In November 2015, the FASB issued ASU 2015-17,  Balance Sheet Classification of Deferred Taxes . ASU 2015-17 requires all deferred income tax assets and liabilities to be classified as non-current in a classified balance sheet. This ASU would first apply prospectively or retrospectively beginning in the first quarter of fiscal 2018, although early adoption is permitted. The Company is currently evaluating which approach it will apply. Current deferred tax liabilities included in Other current liabilities were approximately $12 as of December 5, 2015 .

NOTE 2—GOODWILL AND INTANGIBLE ASSETS
Changes in the Company’s Goodwill and Intangible assets, net consisted of the following:
 
February 28,
2015
 
Additions
 
Impairments
 
Other net
adjustments
 
December 5,
2015
Goodwill:
 
 
 
 
 
 
 
 
 
Independent Business goodwill
$
710

 
$
—

 
$
—

 
$
—

 
$
710

Save-A-Lot goodwill
141

 
1

 
—

 
—

 
142

Retail Food goodwill
14

 
1

 
—

 
—

 
15

Total goodwill
$
865

 
$
2

 
$
—

 
$
—

 
$
867

 
 
 
 
 
 
 
 
 
 
Intangible assets:
 
 
 
 
 
 
 
 
 
Favorable operating leases, prescription files, customer lists and other (accumulated amortization of $94 and $86 as of December 5, 2015 and February 28, 2015, respectively)
$
124

 
$
24

 
$
(6
)
 
$
—

 
$
142

Trademarks and tradenames – indefinite useful lives
9

 
—

 
—

 
—

 
9

Non-compete agreements (accumulated amortization of $3 and $2 as of December 5, 2015 and February 28, 2015, respectively)
3

 
—

 
—

 
—

 
3

Total intangible assets
136

 
24

 
(6
)
 
—

 
154

Accumulated amortization
(88
)
 
(9
)
 
—

 
—

 
(97
)
Total intangible assets, net
$
48

 
 
 
 
 
 
 
$
57

Amortization of intangible assets with definite useful lives was $9 and $7 for fiscal 2016 and 2015 year-to-date, respectively. Future amortization expense is anticipated to average approximately $7 per fiscal year for each of the next five fiscal years.
In the first quarter ended June 20, 2015, the Company recorded intangible assets using valuations based on Level 3 inputs consisting primarily of certain distribution center operation rights, purchase options and other intangibles received by the Company under the letter agreement the Company entered into with Albertson's dated May 28, 2015, as described in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements .
In the third quarter ended December 5, 2015, the Company received a notice pursuant to which the Company could exercise certain options to purchase operating assets. As a result, the Company performed a review of the associated indefinite-lived intangible assets for impairment, which indicated the carrying value of the intangible exceeded its estimated value. The Company recorded a non-cash intangible impairment charge of $6 within its Independent Business segment.


9

NOTE 3—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-RELATED IMPAIRMENT CHARGES
Reserves for Closed Properties
The Company maintains reserves for costs associated with closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations. The Company provides for 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. Adjustments to closed property reserves primarily relate to changes in expected subtenant income or actual exit costs differing from original estimates. The calculation of the closed property charges requires significant judgments and estimates including estimated subtenant rentals, discount rates and future cash flows based on the Company’s 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.
Changes in the Company’s reserves for closed properties consisted of the following:
 
December 5, 
 2015 
 (40 weeks)
Reserves for closed properties at beginning of the fiscal year
$
34

Additions
2

Payments
(8
)
Adjustments
(2
)
Reserves for closed properties at the end of period
$
26

Property, Plant and Equipment Impairment Charges
Property, plant and equipment impairment charges are recorded as a component of Selling and administrative expenses in the Condensed Consolidated Statements of Operations.
The following table presents impairment charges related to property, plant and equipment measured at fair value on a non-recurring basis:
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Property, plant and equipment:
 
 
 
 
 
 
 
Carrying value
$
3

 
$
—

 
$
6

 
$
2

Fair value measured using Level 3 inputs
1

 
—

 
3

 
1

Impairment charge
$
2

 
$
—

 
$
3

 
$
1


NOTE 4—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 of inputs that market participants would use to value the asset or liability.
Non-recurring Fair Value Measurements
Acquired intangible assets discussed in Note 2—Goodwill and Intangible Assets were measured at fair value using Level 3 inputs. Impairment charges related to property, plant and equipment discussed in Note 3—Reserves for Closed Properties and Property, Plant and Equipment-related Impairment Charges were also measured at fair value using Level 3 inputs.

10

Financial Instruments not Measured at Fair Value
For certain of the Company’s financial instruments, including cash and cash equivalents, receivables, accounts payable, accrued salaries and other current assets and liabilities, the fair values approximate carrying amounts due to their short maturities.
The estimated fair value of notes receivable was greater than their carrying amount by approximately $1 and $2 as of December 5, 2015 and February 28, 2015 , respectively. Notes receivable are valued based on a discounted cash flow approach applying a market rate for similar instruments that is determined using Level 3 inputs.
The estimated fair value of the Company’s long-term debt (including current maturities) was less than the carrying amount by approximately $41 as of December 5, 2015 and greater than the carrying amount by approximately $59 as of February 28, 2015 . The estimated fair value was based on market quotes, where available, or market values for similar instruments, using Level 2 and Level 3 inputs.
Fair Value Measurements - Recurring Basis
On February 24, 2015, the Company entered into a forward starting interest rate swap agreement, in effect converting $300 of variable rate debt under the Company's Secured Term Loan Facility (defined below) to a fixed rate of 5.5075 percent . The agreement goes into effect beginning in February 2016, and extends through the Secured Term Loan Facility's maturity in March 2019. This transaction was entered into to reduce the Company's exposure to changes in market interest rates associated with its variable rate debt. The Company designated this derivative as a cash flow hedge of the variability in expected cash outflows for interest payments attributable to future changes in interest rates. The fair value of the interest rate swap was a liability of $4 and $0 as of December 5, 2015 and February 28, 2015 , respectively, and is included within Other long-term liabilities and Other current liabilities in the Condensed Consolidated Balance Sheets. The fair value of the interest rate swap is measured using Level 2 inputs. The interest rate swap agreement is valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of December 5, 2015 , a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately $7 . A 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swap by approximately $4 .
The fair value of the Company’s fuel derivatives was a liability of $2 and $1 as of December 5, 2015 and February 28, 2015 , respectively, and fuel derivative gains and losses were insignificant for the third quarters and year-to-date periods of fiscal 2016 and 2015 .

NOTE 5—LONG-TERM DEBT
The Company’s long-term debt consisted of the following:
 
December 5,
2015
 
February 28,
2015
4.50% Secured Term Loan Facility due March 2019
$
1,459

 
$
1,469

6.75% Senior Notes due June 2021
400

 
400

7.75% Senior Notes due November 2022
350

 
350

8.00% Senior Notes due May 2016
278

 
278

3.75% Revolving ABL Credit Facility due September 2019
—

 
—

Net discount on debt, using an effective interest rate of 4.63% to 8.56%
(6
)
 
(8
)
Total debt
2,481

 
2,489

Less current maturities of long-term debt
(200
)
 
(9
)
Long-term debt
$
2,281

 
$
2,480

The Company’s credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions, which generally provide, subject to the Company’s right to cure, for the acceleration of payments due in the event of a breach of a covenant or a default in the payment of a specified amount of indebtedness due under certain other debt agreements. The Company was in compliance with all such covenants and provisions for all periods presented.
Senior Secured Credit Agreements
As of December 5, 2015 and February 28, 2015 , the Company had outstanding borrowings of $1,459 and $1,469 , respectively, under its $1,500 term loan facility (the “Secured Term Loan Facility”), which is secured by substantially all of the Company’s

11

real estate, equipment and certain other assets, and bears interest at the rate of LIBOR plus 3.50 percent subject to a floor on LIBOR of 1.00 percent . The Secured Term Loan Facility is guaranteed by the Company’s material subsidiaries (together with the Company, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Company granted a perfected first-priority security interest for the benefit of the facility lenders in the Term Loan Parties’ equity interests in Moran Foods, LLC, the main operating entity of the Company’s Save-A-Lot business, and the Term Loan Parties granted a perfected first-priority security interest in substantially all of their intellectual property and a first-priority mortgage lien and security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of December 5, 2015 and February 28, 2015 , there was $765 and $776 , respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility are secured by second-priority security interests in the collateral securing the Company’s $1,000 asset-based revolving ABL credit facility (the “Revolving ABL Credit Facility”). Including the original issue discount and the estimated Excess Cash Flow prepayment required under the Secured Term Loan Facility, as described immediately below, $63 and $9 of the Secured Term Loan Facility was classified as current as of December 5, 2015 and February 28, 2015 , respectively.
The loans under the Secured Term Loan Facility may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs. Pursuant to the Secured Term Loan Facility, the Company must, subject to certain customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility. The Company must also prepay loans outstanding under the facility no later than 90 days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from 0 to 50 percent depending on the Company’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on the Company's estimated Excess Cash Flow for fiscal 2016 as of December 5, 2015, the Company determined it was reasonably probable that it would be required to make a prepayment on the Secured Term Loan Facility as of December 5, 2015. As such, $60 of the Secured Term Loan Facility was classified as current. This estimated prepayment could change significantly based on the Company's actual results of operations, financial condition and cash flows for fiscal 2016.
As of December 5, 2015 and February 28, 2015 , there were no outstanding borrowings under the Revolving ABL Credit Facility. As of December 5, 2015 , letters of credit outstanding under the Revolving ABL Credit Facility were $69 at fees of 1.625 percent , and the unused available credit under this facility was $931 with facility fees of 0.375 percent . As of February 28, 2015 , letters of credit outstanding under the Revolving ABL Credit Facility were $76 at fees of 1.625 percent , and the unused available credit under this facility was $871 with facility fees of 0.375 percent . As of December 5, 2015 , the Revolving ABL Credit Facility was secured on a first-priority basis by $1,379 of certain inventory assets included in Inventories, net, $230 of certain receivables included in Receivables, net, $32 of certain amounts included in Cash and cash equivalents and all of the Company’s pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets. As of February 28, 2015 , the Revolving ABL Credit Facility was secured on a first-priority basis by $1,188 of certain inventory assets included in Inventories, net, $220 of certain receivables included in Receivables, net, $28 of certain amounts included in Cash and cash equivalents and all of the Company's pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets.
The revolving loans under the Revolving ABL Credit Facility may be voluntarily prepaid in certain minimum principal amounts, in whole or in part, without premium or penalty, subject to breakage or similar costs. The Company and those subsidiaries named as borrowers under the Revolving ABL Credit Facility are required to repay the revolving loans in cash and provide cash collateral under this facility to the extent that the revolving loans and letters of credit exceed the lesser of the borrowing base then in effect or the aggregate amount of the lenders’ commitments under the Revolving ABL Credit Facility. During fiscal 2016 year-to-date, the Company borrowed $234 and repaid $234 under its Revolving ABL Credit Facility. During fiscal 2015 year-to-date, the Company borrowed $2,556 and repaid $2,422 under its Revolving ABL Credit Facility. Certain of the Company’s material subsidiaries are co-borrowers under the Revolving ABL Credit Facility, and this facility is guaranteed by the rest of the Company’s material subsidiaries (the Company and those subsidiaries named as borrowers and guarantors under the Revolving ABL Credit Facility, the “ABL Loan Parties”). To secure their obligations under this facility, the ABL Loan Parties have granted a perfected first-priority security interest for the benefit of the facility lenders in their present and future inventory, credit card, wholesale trade, pharmacy and certain other receivables, prescription files and related assets. In addition, the obligations under the Revolving ABL Credit Facility are secured by second-priority liens on and security interests in the collateral securing the Secured Term Loan Facility, subject to certain limitations to ensure compliance with the Company’s outstanding debt instruments and leases.
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit the Company’s ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends

12

to stockholders. The Secured Term Loan Facility caps the aggregate amount of Restricted Payments that may be made over the life of the Secured Term Loan Facility. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions taken by the Company, including certain debt prepayments and Permitted Investments (as defined in the Secured Term Loan Facility). As of December 5, 2015 , the aggregate cap on Restricted Payments was approximately $294 . The Revolving ABL Credit Facility permits regularly scheduled dividends up to $50 in aggregate per fiscal year as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. The Revolving ABL Credit Facility permits other Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met.
Debentures
In the third quarter ended December 5, 2015, the Company delivered a redemption notice for the remaining $278 of 8.00 percent Senior Notes due May 2016 (the “2016 Notes”). Subsequent to the third quarter ended December 5, 2015 , the Company used borrowings under the Revolving ABL Credit Facility of $140 , which resulted in the classification of that portion of the 2016 Notes as long-term as of December 5, 2015, together with cash from operations, to fund the redemption of the 2016 Notes and to pay accrued and unpaid interest on the redeemed 2016 Notes, and the applicable redemption premium of approximately $6 . In addition, non-cash charges of $1 for the write-off of the remaining unamortized financing costs were incurred subsequent to the third quarter ended December 5, 2015 .

The $400 of 6.75 percent Senior Notes due June 2021 and the $350 of 7.75 percent Senior Notes due November 2022 contain, and before their redemption the 2016 Notes contained, operating covenants, including limitations on liens and on sale and leaseback transactions. The Company was in compliance with all such covenants and provisions for all periods presented.

NOTE 6—INCOME TAXES
The tax provision for each of the third quarters of fiscal 2016 and 2015 included certain discrete tax benefits. The tax provision for fiscal 2016 and 2015 year-to-date included $1 and $5 of net discrete tax benefits, respectively.
During fiscal 2016 year-to-date, unrecognized tax benefits increased by $11 to total $105 . It is reasonably possible that changes may occur in the Company's unrecognized tax benefits in the next 12 months , which changes are not anticipated to exceed $5 to $15 .
As of December 5, 2015 , the Company is no longer subject to federal income tax examinations for fiscal years prior to 2011, and in most states is no longer subject to state income tax examinations for fiscal years before 2006.

NOTE 7—STOCK-BASED AWARDS
The Company recognized pre-tax stock-based compensation expense (included primarily in Selling and administrative expenses in the Condensed Consolidated Statements of Operations) related to stock options, restricted stock units and restricted stock awards (collectively referred to as “stock-based awards”) of $6 and $5 for the third quarters of fiscal 2016 and 2015 , respectively, and $19 and $18 for fiscal 2016 and 2015 year-to-date, respectively.
Stock Options
In April 2015 and May 2014 , the Company granted 4 and 5 non-qualified stock options, respectively, to certain employees under the Company’s 2012 Stock Plan with weighted average grant date fair values of $3.67 per share and $3.28 per share, respectively. The stock options vest over a period of three years and were awarded as part of a broad-based employee incentive program designed to retain and motivate employees across the Company.
The Company used the Black-Scholes option pricing model to estimate the fair value of the options at grant date based upon the following assumptions:
 
Year-To-Date Ended
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Dividend yield
—%
 
—%
Volatility rate
49.0—50.6%
 
50.8—53.2%
Risk-free interest rate
1.2—1.4%
 
1.2—1.6%
Expected life
4.0—5.0 years
 
4.0—5.0 years

13

Restricted Stock and Restricted Stock Units
In the first quarter of fiscal 2016, the Company granted 2 restricted stock awards ("RSAs") to certain employees under the 2012 Stock Plan. The RSAs vest over a three year period from the date of the grant and were granted at a fair value of $8.79 per award. In the first quarter of fiscal 2015, the Company granted 2 restricted stock units (“RSUs”) to certain employees under the 2012 Stock Plan. The RSUs vest over a three year period from the date of grant and were granted at a fair value of $7.50 per unit.

NOTE 8—BENEFIT PLANS
Net periodic benefit expense (income) and contributions for defined benefit pension and other postretirement benefit plans consisted of the following:
 
Third Quarter Ended
Pension Benefits
 
Other Postretirement Benefits
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
24

 
28

 
1

 
1

Expected return on assets
(32
)
 
(35
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(4
)
 
(4
)
Amortization of net actuarial loss
18

 
15

 
1

 
1

Pension settlement charge
—

 
63

 
—

 
—

Net periodic benefit expense (income)
$
10

 
$
71

 
$
(2
)
 
$
(2
)
Contributions to benefit plans
$
—

 
$
(47
)
 
$
—

 
$
—

 
Year-To-Date Ended
Pension Benefits
 
Other Postretirement Benefits
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
81

 
94

 
3

 
3

Expected return on assets
(108
)
 
(118
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(12
)
 
(12
)
Amortization of net actuarial loss
60

 
49

 
4

 
3

Pension settlement charge
—

 
63

 
—

 
—

Net periodic benefit expense (income)
$
33

 
$
88

 
$
(5
)
 
$
(6
)
Contributions to benefit plans
$
(27
)
 
$
(114
)
 
$
(11
)
 
$
(1
)
During the third quarter ended December 5, 2015, the Company amended the SUPERVALU Retiree Benefit Plan to eliminate benefits provided by the plan for certain participants under a collective bargaining agreement. As a result of the plan amendment, certain SUPERVALU Retiree Benefit Plan obligations were re-measured using a discount rate of 4.25 percent and the MP-2015 mortality improvement scale. This re-measurement resulted in a $28 reduction of postretirement benefit obligations within Pension and other postretirement benefit obligations with a corresponding decrease to Accumulated other comprehensive loss, net of tax.
Multiemployer Pension Plans
During fiscal 2016 and 2015 year-to-date, the Company contributed $31 and $29 , respectively, to various multiemployer pension plans, primarily defined benefit pension plans, under collective bargaining agreements.

14

Pension Contributions
No minimum pension contributions are required to the Company's pension plans in fiscal 2016 in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $40 to $50 .
Lump Sum Pension Settlement
During the third quarter of fiscal 2015, the Company made lump sum settlement payments to certain deferred vested pension plan participants under a lump sum payment option window. The payments were equal to the present value of the participant’s pension benefits, and were made to certain former employees who were deferred vested participants in the SUPERVALU INC. Retirement Plan (the “SUPERVALU Retirement Plan”), who had not yet begun receiving monthly pension benefit payments and who elected to participate in the lump sum payment option window. In fiscal 2015 year-to-date, the SUPERVALU Retirement Plan made lump sum settlement payments of approximately  $267 . The lump sum settlement payments resulted in a non-cash pension settlement charge of  $63  from the acceleration of a portion of the accumulated unrecognized actuarial loss. As a result of the lump sum settlements, the SUPERVALU Retirement Plan assets and liabilities were re-measured at November 29, 2014 using a discount rate of  4.1 percent, an expected rate of return on plan assets of  6.5 percent and the RP-2014 Generational Mortality Table. The re-measurement resulted in an increase to accumulated other comprehensive loss of  $200  pre-tax ( $141  after-tax) and a corresponding decrease to the SUPERVALU Retirement Plan's funded status.

NOTE 9—NET EARNINGS PER SHARE
Basic net earnings per share is calculated using net earnings attributable to SUPERVALU INC. divided by the weighted average number of shares outstanding during the period. Diluted net earnings 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-based awards.
The following table reflects the calculation of basic and diluted net earnings per share:
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net earnings from continuing operations
$
35

 
$
12

 
$
129

 
$
91

Less net earnings attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Net earnings from continuing operations attributable to SUPERVALU INC.
34

 
10

 
123

 
85

Income from discontinued operations, net of tax
—

 
69

 
3

 
68

Net earnings attributable to SUPERVALU INC.
$
34

 
$
79

 
$
126

 
$
153

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—basic
264

 
261

 
263

 
260

Dilutive impact of stock-based awards
4

 
4

 
5

 
3

Weighted average number of shares outstanding—diluted
268

 
265

 
268

 
263

 
 
 
 
 
 
 
 
Basic net earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
0.13

 
$
0.04

 
$
0.47

 
$
0.33

Discontinued operations
$
—

 
$
0.27

 
$
0.01

 
$
0.26

Basic net earnings per share
$
0.13

 
$
0.31

 
$
0.48

 
$
0.59

Diluted net earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
0.13

 
$
0.04

 
$
0.46

 
$
0.33

Discontinued operations
$
—

 
$
0.26

 
$
0.01

 
$
0.26

Diluted net earnings per share
$
0.13

 
$
0.30

 
$
0.47

 
$
0.58

Stock-based aw ards of 12 and 10 that were outstanding during the third quarters of fiscal 2016 and 2015, respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their

15

inclusion would be antidilutive. Stock-based awards of 10 and 10 were outstanding during fiscal 2016 and 2015 year-to-date, respectively, but were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive.

NOTE 10—COMPREHENSIVE INCOME AND ACCUMULATED COMPREHENSIVE LOSS
The Company reports comprehensive income in the Condensed Consolidated Statements of Comprehensive Income. Comprehensive income includes all changes in stockholders’ deficit during the reporting period, other than those resulting from investments by and distributions to stockholders. The Company’s comprehensive income is calculated as net earnings (loss) including noncontrolling interests, plus or minus adjustments for pension and other postretirement benefit obligations, net of tax, and changes in the fair value of cash flow hedges, net of tax, less comprehensive income attributable to noncontrolling interests.
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 postretirement benefit obligation adjustments, net of tax, and unrealized losses on cash flow hedges, net of tax.
Changes in Accumulated other comprehensive loss by component for fiscal 2016 year-to-date are as follows:
 
Benefit Plans
 
Interest Rate Swap
 
Total
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(423
)
 
$
—

 
$
(423
)
Other comprehensive income (loss) before reclassifications (1)
18

 
(2
)
 
16

Amortization of amounts included in net periodic benefit cost (2)
32

 
—

 
32

Net current-period Other comprehensive income (loss) (3)
50

 
(2
)
 
48

Accumulated other comprehensive loss at the end of period, net of tax
$
(373
)
 
$
(2
)
 
$
(375
)
(1)
Amount is net of tax (expense) benefit of $(9) , $1 , $(8) , respectively.
(2)
Amount is net of tax (expense) benefit of $(20) , $0 and $(20) , respectively.
(3)
Amount is net of tax (expense) benefit of $(29) , $1 and $(28) , respectively.
Changes in Accumulated other comprehensive loss by component for fiscal 2015 year-to-date are as follows:
 
Benefit Plans
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(307
)
Other comprehensive loss before reclassifications (1)
(141
)
Pension settlement charge, net (2)
36

Amortization of amounts included in net periodic benefit cost (3)
25

Net current-period Other comprehensive loss (4)
(80
)
Accumulated other comprehensive loss at the end of period, net of tax
$
(387
)
(1)
Amount is net of tax benefit of $59 .
(2)
Amount is net of tax expense of $(27) .
(3)
Amount is net of tax expense of $(15) .
(4)
Amount is net of tax benefit of $17 .

16

Items reclassified out of pension and postretirement benefit plan accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
 
Third Quarter Ended
 
Year-To-Date Ended
 
 
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
 
Affected Line Item on Condensed Consolidated Statement of Operations
Pension and postretirement benefit plan obligations:
 
 
 
 
 
 
 
 
 
Amortization of amounts included in net periodic benefit expense (1)
$
13

 
$
9

 
$
46

 
$
31

 
Selling and administrative expenses
Amortization of amounts included in net periodic benefit expense (1)
2

 
3

 
6

 
9

 
Cost of sales
Pension settlement charge
—

 
63

 
—

 
63

 
Selling and administrative expenses
Total reclassifications
15

 
75

 
52

 
103

 
 
Income tax benefit
(6
)
 
(32
)
 
(20
)
 
(42
)
 
Income tax provision
Total reclassifications, net of tax
$
9

 
$
43

 
$
32

 
$
61

 
 
(1)
Amortization of amounts included in net periodic benefit cost include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 8—Benefit Plans .
No amounts were reclassified out of Accumulated other comprehensive loss related to the interest rate swap designated as a cash flow hedge. As of December 5, 2015 , the Company expects to reclassify $2 out of Accumulated other comprehensive loss into Interest expense, net during the following twelve month period.

NOTE 11—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Potential Separation of Save-A-Lot Business
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it had begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company. On January 7, 2016, the Company filed a Form 10 with the Securities and Exchange Commission (the “SEC”) as part of its ongoing exploration into a potential separation of Save-A-Lot. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur.
Guarantees
The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various independent retail customers as of December 5, 2015 . These guarantees were generally made to support the business growth of independent retail customers. The guarantees are generally for the entire terms of the leases or other debt obligations with remaining terms that range from less than one year to 15 years, with a weighted average remaining term of approximately eight years. For each guarantee issued, if the independent retail customer defaults on a payment, the Company would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the independent retail customer.
The Company reviews performance risk related to its guarantees of independent retail customer obligations based on internal measures of credit performance. As of December 5, 2015 , the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $69 ( $52 on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under the Company’s guarantee arrangements.
The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

17

The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to the Company’s commercial contracts, transition services agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their work. While the Company’s aggregate indemnification obligation could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability.
Following the sale of New Albertson’s, Inc. (“NAI”), the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by SUPERVALU INC. with respect to the obligations of NAI that were incurred while NAI was a subsidiary of the Company. As of December 5, 2015 , using actuarial estimates as of June 30, 2015, the total undiscounted amount of all such guarantees was estimated at $169 ( $151 on a discounted basis). Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous states. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees.
Agreements with AB Acquisition LLC and Affiliates
In connection with the sale of NAI on March 21, 2013, the Company entered into various agreements with AB Acquisition LLC 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. At the time of the sale of NAI, these arrangements had initial terms ranging from 12 months to five years , and 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 operates a distribution center owned by NAI for an initial term of five years , subject to renewal at the Company's option for two additional five year terms and certain termination rights for each of the Company and NAI.
On April 16, 2015, the Company entered into a letter agreement pursuant to which the Company is providing services to NAI and Albertson’s LLC as needed to transition and wind down the TSA. In exchange for these transition and wind down services, the Company is entitled to receive eight payments of approximately $6 every six months for aggregate fees of $50 . These payments are separate from and incremental to the fixed and variable fees the Company receives under the TSA. The Company estimates that the complete transition and wind down of the TSA could take approximately three more years.
On May 28, 2015, the Company entered into a letter agreement with NAI and Albertson's LLC pursuant to which the Company received certain additional rights and benefits, and the Company and NAI and Albertson's LLC (and certain of their affiliates, including Safeway, with respect to provisions of the letter agreement applicable to them) agreed to resolve several issues. Among other matters resolved, NAI, Albertson's LLC and AB Acquisition agreed to no longer challenge, and waive all rights relating to, the Company's filing with the IRS in fiscal 2015 for a change in accounting method for NAI and its subsidiaries pursuant to the tangible property repair regulations. In consideration for the granting of the additional rights and benefits to the Company and the resolution of the various matters under the letter agreement, the Company paid $35 to AB Acquisition, the parent entity of NAI and Albertson's LLC.
Haggen
The Company entered into a transition services agreement with Haggen in December 2014 (the “Haggen TSA”) to provide certain services to 164 stores owned and being acquired by Haggen in five states. The Haggen TSA is similar to the TSA supporting NAI and Albertson’s LLC and has a term of two years with three one -year automatic renewal periods unless earlier notice of nonrenewal is given by either party. The Company is also party to a supply agreement with Haggen to supply goods and products to Haggen stores in Washington and Oregon. On September 8, 2015, Haggen announced that it has filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Through the bankruptcy process, Haggen has begun to sell some of its 164 stores to various third parties and to close others. The Company is currently providing services for 21 stores under the Haggen TSA and supplying 21 stores under the supply agreement. The Company has filed for approximately $2 of administrative 503(b)(9) priority claims and for approximately $8 of other claims with the bankruptcy court. The Company could be exposed to claims from third parties from which the Company sourced products, services, licenses and similar benefits on behalf of Haggen. The Company has reserved for probable losses related to a portion of these claims and receivables. It is reasonably possible that the Company could experience losses in excess of the amount of such reserves; however, at this time the Company cannot reasonably estimate a range of such excess losses because of the factual

18

and legal issues related to whether the Company would have liability for any such third-party claims, if such third-party claims were asserted against the Company.
Information Technology Intrusions
Computer Network Intrusions – The Company announced during fiscal 2015 that it had experienced two separate criminal intrusions into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail stores, including some of its associated stand-alone liquor stores. An investigation of those intrusions supported by third-party data forensics experts is ongoing. Given the continuing nature of the investigation, it is possible that it will be determined that information was stolen from the Company during one or both of these intrusions, or that new or different time frames, locations, at-risk data, and/or other facts will be identified in the future.
Some stores owned and operated by Albertson's LLC and NAI experienced related criminal intrusions. The Company provides information technology services to these Albertson's LLC and NAI stores pursuant to the TSA, and the Company has been working together with Albertson's LLC and NAI to respond to the intrusions into their stores. The Company believes that any losses incurred by Albertson's LLC or NAI as a result of the intrusions affecting their stores would not be the Company's responsibility.
Investigations and Proceedings – As a result of the criminal intrusions, the payment card brands are conducting investigations and, although the Company’s network has previously been found to be compliant with applicable data security standards, the forensic investigator working on behalf of the payment card brands has concluded that the Company was not in compliance at the time of the intrusions and that the alleged non-compliance caused at least some portion of the compromise of payment card data that allegedly occurred during the intrusions. As a result, the Company expects the payment card brands to allege that the Company was not compliant with the applicable data security standards at the time of the intrusions and that such alleged non-compliance caused the compromise of payment card data during the intrusions. The Company believes the payment card brands will make claims against the Company for non-ordinary course operating expenses and incremental counterfeit fraud losses allegedly incurred by them or their issuers by reason of the intrusions and the Company expects to dispute those claims. While the Company does not believe that a loss is probable by reason of these as yet unasserted claims, the Company believes that a loss in connection with these claims, should they be asserted, is reasonably possible; however, at this time the Company cannot reasonably estimate a range of possible losses because the payment card brands’ investigation is ongoing and the payment card brands have not alleged what payment cards they consider to have been compromised, what data from those cards they consider to have been compromised, or the amount of their and/or their issuers' claimed losses. The Company does not currently believe that the amount, if any, paid on any payment card brand claims that might be asserted would be material to the Company’s consolidated results of operations, cash flows or financial condition. In addition, we have been advised that one payment card brand intends to place us in a “probationary status” for a period of two years following our re-validation as PCI-DSS compliant, during which time our failure to comply with the probationary requirements set forth by the payment card brand could result in the imposition of further conditions, including but not limited to disqualification from the payment system.  While the Company does not currently anticipate material costs to comply with the probationary requirements, the Company is continuing to engage with the payment card brand about the nature of any final probationary requirements, and assess the impact of any final probationary requirements.
On October 23, 2015, the Company received a letter from a multistate group of Attorneys General seeking information regarding the intrusions. The Company is cooperating with the request. To date, no claims have been asserted against the Company related to this inquiry. If any claims are asserted, the Company expects to dispute those claims.
As discussed in more detail below in this Note 11 under Legal Proceedings , four class action complaints related to the intrusions have been filed against the Company and consolidated into one action and are currently pending. As indicated below, the Company believes that the likelihood of a material loss from the consolidated class action is remote. It is possible that other similar complaints by consumers, banks or others may be filed against the Company in connection with the intrusions.
Insurance Coverage – The Company had $50 of cyber threat insurance above a per incident deductible of $1 at the time of the intrusions, which it believes should mitigate the financial effect of these intrusions, including claims made or that might be made against the Company based on these intrusions. The Company now maintains $75 of cyber threat insurance above a per incident deductible of approximately $3 , in each case subject to certain sublimits.
Expenses – Anticipated insurance proceeds recorded for the insurance receivable were based on the Company’s insurance recovery assessment. This assessment included the review of applicable insurance policies, correspondence with the insurance carriers and analysis by legal counsel.

19

Other Contractual Commitments
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of December 5, 2015 , the Company had approximately $359 of non-cancellable future purchase obligations.
Legal Proceedings
The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, it is remote that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position.
In September 2008, a class action complaint was filed against the Company, as well as International Outsourcing Services, LLC (“IOS”); Inmar, Inc.; Carolina Manufacturer’s Services, Inc.; Carolina Coupon Clearing, Inc. and Carolina Services in the United States District Court in the Eastern District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery co-operative and a retailer marketing services company that allege on behalf of a purported class that the Company and the other defendants (i) conspired to restrict the markets for coupon processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The plaintiffs seek monetary damages, attorneys’ fees and injunctive relief. The Company intends to vigorously defend this lawsuit; however, all proceedings have been stayed in the case pending the result of the criminal prosecution of certain former officers of IOS.
In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against the Company alleging that a 2003 transaction between the Company and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, the Company purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain assets of the Company to C&S that were located in New England. Since December 2008, three other retailers have filed similar complaints in other jurisdictions. The cases were consolidated and are proceeding in the United States District Court in Minnesota. The complaints allege that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that the Company and C&S purchased from each other. Plaintiffs are seeking monetary damages, injunctive relief and attorneys’ fees. On July 5, 2011, the District Court granted the Company’s Motion to Compel Arbitration for those plaintiffs with arbitration agreements and plaintiffs appealed. On July 16, 2012, the District Court denied plaintiffs’ Motion for Class Certification and on January 11, 2013, the District Court granted the Company’s Motion for Summary Judgment and dismissed the case regarding the non-arbitration plaintiffs. On February 12, 2013, the 8th Circuit reversed the District Court decision requiring plaintiffs with arbitration agreements to arbitrate and remanded to the District Court. On October 30, 2013, the parties attended a District Court ordered mandatory mediation, which was not successful in resolving the matter. On May 21, 2014, a panel of the 8th Circuit (1) reversed the District Court’s decision granting summary judgment in favor of the Company, and (2) affirmed the District Court’s decision denying class certification of a class consisting of all retailers located in the States of Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin that purchased wholesale grocery products from the Company between December 31, 2004 and September 13, 2008, but remanded the case for the District Court to consider whether to certify a narrower class of purchasers supplied from the Company’s Champaign, Illinois distribution center and potentially other distribution centers. On January 16, 2015, the Company filed a Petition for Certiorari to the United States Supreme Court seeking to appeal certain aspects of the 8th Circuit decision and on June 8, 2015, the United States Supreme Court denied the Petition. On June 19, 2015, the District Court Magistrate Judge entered an order that decided a number of matters including granting plaintiffs' request to seek class certification for certain Midwest Distribution Centers and denying plaintiffs' request to add an additional New England plaintiff and denying plaintiffs’ request to seek class certification for a group of New England retailers. On August 20, 2015, the District Court affirmed the Magistrate Judge’s order. In September 2015, the plaintiffs appealed to the 8th Circuit the denial of the request to add an additional New England plaintiff and to seek class certification for a group of New England retailers.
In August and November 2014, four class action complaints were filed against the Company relating to the criminal intrusions into its computer network announced by the Company in fiscal 2015 (the “Criminal Intrusion”). The cases were centralized in the Federal District Court for the District of Minnesota under the caption In Re: Supervalu Inc. Customer Data Security Breach Litigation . On June 26, 2015, the plaintiffs filed a Consolidated Class Action Complaint. The Company filed a Motion to Dismiss the Consolidated Class Action Complaint and the hearing took place on November 3, 2015. On January 7, 2016, the District Court granted the Motion to Dismiss and dismissed the case without prejudice, holding that the plaintiffs did not have standing to sue as they had not met their burden of showing any compensable damages.

20

On June 30, 2015, the Company received a letter from the Office for Civil Rights of the U.S. Department of Health and Human Services (“OCR”) seeking documents and information regarding the Company’s HIPAA breach notification and reporting from 2009 to the present. The letter indicates that the OCR Midwest Region is doing a compliance review of the Company’s alleged failure to report small breaches of protected health information related to its pharmacy operations (e.g., any incident involving less than 500 individuals). On September 4, 2015, the Company submitted its response to OCR’s letter. While the Company does not believe that a loss is probable by reason of the compliance review, the Company believes that a loss is reasonably possible; however, at this time the Company cannot reasonably estimate a range of possible losses because the OCR's review is at the very early stages and the Company does not know if OCR will find a violation(s) and, if so, what violation(s) and whether OCR will proceed with corrective action, issuance of penalties or monetary settlement. The potential penalties related to the issues being investigated are up to $50 thousand per violation (which can be counted per day) with a $1.5 per calendar year maximum for multiple violations of a single provision (with the potential for finding violations of multiple provisions each with a separate $1.5 per calendar year maximum); however, as noted above, any actual penalties will be determined only after consideration by OCR of various factors, including the nature of any violation, remedial actions taken by the Company and other factors determined relevant by OCR.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. The Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures.
With respect to the IOS, C&S, Criminal Intrusion and OCR matters discussed above, the Company believes the chance of a material loss is remote. It is possible, although management believes it is remote, that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

NOTE 12—SEGMENT INFORMATION
Refer to the Condensed Consolidated Segment Financial Information for the Company’s segment information.
Segment operating earnings include revenues and costs attributable to each of the respective business segments and allocated corporate overhead, based on the segment's estimated consumption of corporately managed resources. Variances to planned corporate overhead allocated to business segments remain in Corporate because allocated corporate overhead affecting segment operating profit is centrally managed. Reported segment information is presented on the same basis as it is reviewed by executive management.

NOTE 13—DISCONTINUED OPERATIONS
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
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net sales
$
—

 
$
—

 
$
—

 
$
—

Income (loss) before income taxes from discontinued operations
1

 
—

 
(2
)
 
5

Income tax provision (benefit)
1

 
(69
)
 
(5
)
 
(63
)
Income from discontinued operations, net of tax
$
—

 
$
69

 
$
3

 
$
68

Income from discontinued operations, net of tax for fiscal 2016 and 2015 year-to-date primarily reflects tax settlement matters, including pre-tax resolution matters and discrete income tax benefits and expenses.

NOTE 14—SUBSEQUENT EVENTS

Refer to Note 5—Long-Term Debt for information regarding the redemption of the remaining $278 of the 2016 Notes subsequent to the third quarter ended December 5, 2015.

21

Refer to Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements for information regarding the Company's filing of a Form 10 as part of it ongoing exploration into a potential separation of Save-A-Lot.
Subsequent to the third quarter ended December 5, 2015, the Company determined it would close 11 nonstrategic Save-A-Lot corporate stores and estimated it would incur store closure impairment costs and charges of approximately $7 .

22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars and shares in millions, except per share data)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act” in this Quarterly Report on Form 10-Q and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 .
MANAGEMENT OVERVIEW
Third Quarter of Fiscal 2016 Highlights
Financial highlights for the third quarter of fiscal 2016 compar ed to the third quarter of fiscal 2015 include:
•
Net sales were $4,114 , a decrease of $111 or 2.6 percent , primarily due to lower sales to existing customers and lost stores supplied by Independent Business and licensed by Save-A-Lot, and lower existing corporate store sales within Save-A-Lot and Retail Food, partially offset by new corporate stores within Save-A-Lot and new retail stores within Retail Food, and sales to new Independent Business customers and new stores operated by Independent Business existing customers.
•
Gross profit was $601 , an increase of $5 or 0.8 percent , primarily due to higher base margins and lower logistics costs.
•
Operating earnings were $101 , an increase of $45 or 80.4 percent . When adjusted for $16 of charges and costs in fiscal 2016, comprised of an intangible asset impairment charge, costs related to the potential separation of Save-A-Lot, store closure impairment charges and severance costs, and $64 of net charges and costs in fiscal 2015, comprised of a pension settlement charge and net information technology costs, operating earnings decreased $3 primarily due to higher employee-related, occupancy and contracted services costs and lower operating earnings from lower sales, offset by higher base margins, lower logistics costs and higher TSA fees.

Year-To-Date Fiscal 2016 Highlights
Financial highlights for the year-to-date period of fiscal 2016 compared to the year-to-date period of fiscal 2015 include:
•
Net sales were $13,583 , an increase of $53 or 0.4 percent , primarily due to new corporate stores within Save-A-Lot and new retail stores within Retail Food, and sales to new Independent Business customers and new stores operated by existing Independent Business customers, offset in part by lost stores supplied by Independent Business and licensed by Save-A-Lot and lower sales to existing Independent Business customers and lower Retail Food existing store sales.
•
Gross profit was $1,994 , an increase of $69 or 3.6 percent , primarily due to higher base margins, lower logistics costs and higher sales volume.
•
Operating earnings were $353 , an increase of $68 or 23.9 percent . When adjusted for $27 of charges and costs, comprised of costs related to the potential separation of Save-A-Lot, an intangible asset impairment charge, severance costs and store closure impairment charges in fiscal 2016 and $66 of net charges and costs, comprised a pension settlement charge, net information technology costs and severance costs in fiscal 2015, operating earnings increased $29 primarily due to higher base margins, lower logistics costs and higher sales volume.
•
Net cash provided by operating activities of continuing operations was $251 , an increase of $147 , primarily due to lower levels of cash utilized in operating assets and liabilities, and lower benefit plan contributions.
•
Net cash used in investing activities was $198 , a decrease of $11 , primarily due to a $46 decrease in cash paid for acquisitions, offset by a $27 net increase in cash paid for intangible and other assets, a $5 increase in capital expenditures and $3 of lower proceeds from the sale of assets.
Business Strategy and Initiatives
Management continues to focus on sales, Adjusted EBITDA and operating cash flow, as well as improvements in the balance sheet, including lowering the risk of the Company's capital structure and reducing pension obligations.
Independent Business
Independent Business continues to target sales growth through affiliating new customers, driving sales to existing customers and enhancing professional service offerings while also improving the efficiency of its operations. Independent Business continues to strengthen core merchandising and marketing programs under the Essential Everyday® and Equaline® labels while marketing and adding depth to the Wild Harvest® and Culinary Circle® brands. In addition, Independent Business continues to look at expanding its professional services, including a focus on digital and analytics.

23
Table of Contents

Save-A-Lot
Save-A-Lot continues to drive sales and performance through its meat and produce programs, pricing enhancements and improved grocery and merchandise offerings. Save-A-Lot is focused on long-term sales and earnings growth through execution of these initiatives at existing locations and expansion through corporate and licensee store development.
The Company continues to open new Save-A-Lot corporate and licensed stores including in new geographic markets, with the majority of those stores expected to be corporate stores in fiscal 2016. In fiscal 2016 year-to-date, the Company and its licensees opened 38 new Save-A-Lot stores, comprised of 21 new licensee stores and 17 new corporate stores, and closed 36 Save-A-Lot stores, comprised of 33 licensee stores and three corporate stores.
Total Company-operated retail square footage for Save-A-Lot stores as of the third quarter of fiscal 2016 was approximately 7.7 million, an increase of approximately 6.9 percent from the fourth quarter of fiscal 2015 , primarily attributable to new corporate stores and stores acquired from licensees.
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it had begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company. On January 7, 2016, the Company filed a Form 10 with the Securities and Exchange Commission (the “SEC”) as part of its ongoing exploration into a potential separation of Save-A-Lot. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur.
Retail Food
Retail Food continues to focus on driving sales and performance through competitive pricing and promotional activities, enhanced perishable offerings, and store remodels and resets. Private label product offerings, including organic products, and marketing investments continue to expand. Management believes the Company has a quality private label program for Retail Food that can continue to build customer loyalty and also drive profitable sales growth. The Company adjusted its pricing and promotional activity in fiscal 2016 year-to-date to partially mitigate compressed pharmacy margins due to lower managed care reimbursement rates. Management believes these adjustments negatively impacted Retail Food net sales in the third quarter of fiscal 2016. Management believes this pharmacy compression will continue to impact Retail Food and is actively working to balance this pressure by driving sales and performance.
Total Retail Food square footage as of the third quarter of fiscal 2016 was approximately 11.5 million, an increase of approximately 2.0 percent from the fourth quarter of fiscal 2015 , primarily due to acquired stores.
Impact of Inflation and Deflation
The Company monitors product cost inflation and deflation and evaluates whether to absorb cost increases or decreases, or pass on pricing changes. The Company has experienced a mix of inflation and deflation across product categories within all three of its business segments during fiscal 2016, with higher deflation levels in certain meat and dairy categories.
In aggregate across all of the Company’s businesses when taking into account the overall mix of products, management estimates the Company’s businesses experienced slight cost deflation in the third quarter of fiscal 2016. The Company estimates that Save-A-Lot experienced cost deflation in the mid-single digits as a percentage in both the second and the third quarters of fiscal 2016, with cost deflation in the low-single digits as a percentage in the first quarter of fiscal 2016. Save-A-Lot cost deflation is primarily due to deflation within certain meat and dairy categories. The impact of deflation was greater at Save-A-Lot, particularly its wholesale business, compared to Independent Business and Retail Food due to product mix and product sourcing on private-label products. This deflationary environment in certain product categories in fiscal 2016 year-to-date has been more significant than management’s expectations for fiscal 2016. Management expects that this deflationary environment in certain product categories will not change significantly for at least the remainder of fiscal 2016.
Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit.
Competitive Environment
The United States grocery channel is highly competitive and management expects operating results will continue to be impacted by the effects of operating in a highly competitive and price-sensitive marketplace.


24
Table of Contents

Transition Services Agreements
New Albertson's, Inc. and Albertson's LLC
In connection with the sale of NAI, the Company entered into various agreements with AB Acquisition LLC and its affiliates, including a Transition Services Agreement with each of New Albertson’s, Inc. (“NAI”) and Albertson’s LLC (collectively, the “TSA”) under which the Company provides certain services to each of NAI and Albertson’s LLC, and NAI and Albertson’s LLC provide certain services to the Company, in each case as described therein. On April 16, 2015, the Company entered into a letter agreement pursuant to which the Company will provide services to NAI and Albertson’s LLC as needed to transition and wind down the TSA. For additional discussion of the TSA and this letter agreement, see “Risk Factors — Changes in the Company’s relationships with NAI, Albertson’s LLC or Haggen could adversely impact the Company’s results of operations” in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2015 .
Haggen
On December 6, 2014, the Company entered into a Transition Services Agreement with Haggen (the “Haggen TSA”) to provide certain services to 164 Haggen stores owned and being acquired by Haggen in five states. The Haggen TSA is similar to the TSA supporting NAI and Albertson’s LLC and has a term of two years with three one-year automatic renewal periods unless earlier notice of nonrenewal is given by either party. On September 8, 2015, Haggen announced that it filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Through the bankruptcy process, Haggen has begun to sell some of its 164 stores to various third parties and to close others. The Company is currently providing services for 21 stores under the Haggen TSA and supplying 21 stores under the supply agreement. For additional discussion of the Haggen TSA and Haggen's bankruptcy, see “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Information Technology Intrusions
During fiscal 2015, the Company announced it had experienced two separate criminal intrusions into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail stores, including some of its associated stand-alone liquor stores. The intrusions are discussed in more detail in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


25
Table of Contents

RESULTS OF OPERATIONS

The following table summarizes key operating data we believe is important to our business:
 
Third Quarter Ended
 
Year-To-Date Ended
Results of Operations
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net sales
$
4,114

 
$
4,225

 
$
13,583

 
$
13,530

Cost of sales
3,513

 
3,629

 
11,589

 
11,605

Gross profit
601

 
596

 
1,994

 
1,925

Selling and administrative expenses
494

 
540

 
1,635

 
1,640

Intangible asset impairment charge
6

 
—

 
6

 
—

Operating earnings
101

 
56

 
353

 
285

Interest expense, net
45

 
46

 
148

 
156

Equity in earnings of unconsolidated affiliates
(1
)
 
(1
)
 
(3
)
 
(3
)
Earnings from continuing operations before income taxes
57

 
11

 
208

 
132

Income tax provision (benefit)
22

 
(1
)
 
79

 
41

Net earnings from continuing operations
35

 
12

 
129

 
91

Income from discontinued operations, net of tax
—

 
69

 
3

 
68

Net earnings including noncontrolling interests
35

 
81

 
132

 
159

Less net earnings attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Net earnings attributable to SUPERVALU INC.
$
34

 
$
79

 
$
126

 
$
153

Diluted continuing operations net earnings per share attributable to SUPERVALU INC.
$
0.13

 
$
0.04

 
$
0.46

 
$
0.33

Weighted average shares outstanding—diluted
268

 
265

 
268

 
263

Other Statistics
 
 
 
 
 
 
 
Depreciation and amortization
$
64

 
$
65

 
$
211

 
$
219

Capital expenditures (1)
$
83

 
$
80

 
$
187

 
$
165

Adjusted EBITDA (2)
$
182

 
$
187

 
$
594

 
$
574

Financial Position
 
 
 
 
 
 
 
Working capital (3)
 
 
 
 
$
298

 
$
486

Total assets
 
 
 
 
$
4,643

 
$
5,078

Total debt and capital lease obligations
 
 
 
 
$
2,714

 
$
3,223

Stores Supplied and Operated:
 
 
 
 
 
 
 
Independent Business primary stores
 
 
 
 
1,871

 
1,832

Save-A-Lot licensee stores
 
 
 
 
883

 
912

Save-A-Lot corporate stores
 
 
 
 
453

 
422

Retail Food stores
 
 
 
 
200

 
195

Subtotal
 
 
 
 
3,407

 
3,361

Independent Business secondary stores
 
 
 
 
224

 
217

Total number of stores
 
 
 
 
3,631

 
3,578

(1)
Capital expenditures include cash payments for purchases of property, plant and equipment and non-cash capital lease additions, and exclude cash payments for business acquisitions.
(2)
Adjusted EBITDA is a non-GAAP financial measure that the Company provides as a supplement to its results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Refer to the “Non-GAAP Financial Measures” section below for additional information regarding the Company’s use of non-GAAP financial measures.
(3)
Working capital of continuing operations is calculated using the first-in, first-out method for inventories, after adding back the last-in, first-out method (“LIFO”) reserve. The LIFO reserve was $217 and $209 as of December 5, 2015 and November 29, 2014 , respectively.

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The following table summarizes identical store sales variances in percentages compared to the prior period:
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
Save-A-Lot Network:
 
 
 
Identical store sales percent variance (1)
(3.4
)%
 
(0.3
)%
Corporate Save-A-Lot Stores:
 
 
 
Identical store sales percent variance (2)
(0.4
)%
 
1.2
 %
Average basket percent variance (3)
1.1
 %
 
2.0
 %
Customer count percent variance (4)
(1.5
)%
 
(0.8
)%
Retail Food:
 
 
 
Identical store sales percent variance (5)
(2.6
)%
 
(2.0
)%
Average basket percent variance (3)
1.7
 %
 
0.8
 %
Customer count percent variance (4)
(4.3
)%
 
(2.8
)%
(1)
Save-A-Lot network identical store sales are defined as the sales attributable to Company-operated stores and sales to licensee stores operating for four full quarters, including store expansions and excluding planned store dispositions.
(2)
Corporate Stores identical store sales are defined as the sales attributable to Company-operated stores operating for four full quarters, including store expansions and excluding planned store dispositions.
(3)
Average basket is defined as the average purchases by our customers per transaction within our corporate retail stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
(4)
Customer count is defined as the number of transactions by our retail customers within our corporate retail stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
(5)
Retail Food identical store sales are defined as net sales from stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
We believe the lower Save-A-Lot corporate stores customer count in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 was driven by lower promotional spending. We believe lower licensee identical store sales in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 were driven by the lower number of product units sold and product cost deflation passed on to licensees.
We believe the lower Retail Food identical store sales and customer count in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 were driven by adjustments to pricing and promotional activity to partially mitigate compressed pharmacy margins.
Third Quarter of Fiscal 2016
The following discussion summarizes operating results in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 :
Net Sales
Net sales for the third quarter of fiscal 2016 were $4,114 , compared with $4,225 last year, a decrease of $111 or 2.6 percent . Independent Business net sales were 46.2 percent of Net sales, Save-A-Lot net sales were 26.0 percent of Net sales, Retail Food net sales were 26.7 percent of Net sales and Corporate transition services agreement fees were 1.1 percent of Net sales for the third quarter of fiscal 2016 , compared with 46.7 percent , 25.7 percent , 26.6 percent and 1.0 percent , respectively, for the third quarter of fiscal 2015 .
Independent Business net sales for the third quarter of fiscal 2016 were $1,902 , compared with $1,972 last year, a decrease of $70 or 3.5 percent . The decrease is due to $146 of lost stores and lower sales to existing customers, offset in part by $77 from increased sales to new customers and new stores operated by existing customers. Lower sales from lost stores includes the impact of 17 lost Albertson’s LLC stores in the southeast that have transitioned to self-distribution.
Save-A-Lot net sales for the third quarter of fiscal 2016 were $1,069 , compared with $1,085 last year, a decrease of $16 or 1.5 percent . The decrease is primarily due to $42 of lower sales to existing stores primarily due to lower sales to licensees and $28 of lower sales due to store dispositions by licensees and closed corporate stores, offset in part by $55 of higher sales due to new stores.

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Retail Food net sales for the third quarter of fiscal 2016 were $1,097 , compared with $1,125 last year, a decrease of $28 or 2.5 percent . The decrease is primarily due to a $37 decrease in sales at existing stores and $8 of lower sales from closed stores and lower other revenue, offset in part by an $18 increase in sales due to acquired and new stores.
Corporate net sales for the third quarter of fiscal 2016 include fees earned under transition services agreements of $46 , compared with $43 last year, an increase of $3 primarily driven by incremental transition services agreements.
Gross Profit
Gross profit for the third quarter of fiscal 2016 was $601 , compared with $596 last year, an increase of $5 or 0.8 percent . Gross profit as a percent of Net sales was 14.6 percent for the third quarter of fiscal 2016 , compared with 14.1 percent last year. The $5 increase in Gross profit is primarily due to $14 of higher base margins, $7 of lower logistics costs and $3 of higher transition services agreements fees, offset in part by $13 of lower gross profit from lower sales, $5 of higher employee-related costs and $3 of higher occupancy costs.
Independent Business gross profit for the third quarter of fiscal 2016 was $94 or 4.9 percent of Independent Business net sales, compared with $93 or 4.7 percent last year. Independent Business gross profit increased $1 primarily due to $5 of higher base margins partly due to promotional funding and $3 of lower logistics costs, offset in part by $5 of higher employee-related costs and $3 of lower gross profit from decreased sales.
Save-A-Lot gross profit for the third quarter of fiscal 2016 was $164 or 15.3 percent of Save-A-Lot net sales, compared with $160 or 14.7 percent last year. Save-A-Lot gross profit increased $4 primarily due to $3 of higher base margins driven by higher growth of corporate stores compared to licensee stores and product costs declining faster than retail prices and $2 of lower logistics costs, offset in part by $2 of lower gross profit from decreased sales.
Retail Food gross profit for the third quarter of fiscal 2016 was $296 or 27.0 percent of Retail Food net sales, compared with $300 or 26.6 percent last year. Retail Food gross profit decreased $4 primarily due to $8 of lower gross profit from decreased sales, offset in part by $5 of higher base margins.
Selling and Administrative Expenses
Selling and administrative expenses for the third quarter of fiscal 2016 were $494 or 12.0 percent of Net sales, compared with $540 or 12.8 percent of Net sales last year, a decrease of $46 or 8.5 percent . Selling and administrative expenses for the third quarter of fiscal 2016 include charges and costs of $10, comprised of costs related to the potential separation of Save-A-Lot of $5, store closure impairment charges of $3 and severance costs of $2. Selling and administrative expenses for the third quarter of fiscal 2015 included a $63 non-cash pension settlement charge and $1 of information technology intrusion costs, net of insurance recoverable. When adjusted for these items, the remaining $8 increase in Selling and administrative expenses is primarily due to $7 of higher employee-related costs and $9 of higher contracted services, net periodic pension expense and other administrative costs, offset in part by $10 of lower selling and administrative costs due to lower sales.
Intangible Asset Impairment Charge
In the third quarter ended December 5, 2015, the Company received a notice pursuant to which the Company could exercise certain options to purchase operating assets. As a result, the Company performed a review of the associated indefinite-lived intangible assets for impairment, which indicated the carrying value of the intangible exceeded its estimated value. The Company recorded a non-cash intangible impairment charge of $6 within its Independent Business segment.
Operating Earnings
Operating earnings for the third quarter of fiscal 2016 were $101 , compared with $56 last year. Operating earnings for the third quarter of fiscal 2016 include charges and costs of $16, comprised of intangible asset impairment charges, costs related to the potential separation of Save-A-Lot, store closure impairment charges and severance costs. Operating earnings for the third quarter of fiscal 2015 included a $63 non-cash pension settlement charge and $1 of information technology intrusion costs, net of insurance recoverable. When adjusted for these items, the remaining $3 decrease in Operating earnings is primarily due to $12 of higher employee-related costs, $5 of higher occupancy costs, $3 of higher contracted services and other administrative expenses and $3 of lower operating earnings from lower sales, offset in part by $14 of higher gross profit from higher base margins, $7 of lower logistics costs and $3 of higher transition services agreements fees.
Independent Business operating earnings for the third quarter of fiscal 2016 were $54 or 2.8 percent of Independent Business net sales, compared with $60 or 3.1 percent last year. Independent Business operating earnings for the third quarter of fiscal 2016 include a $6 intangible asset impairment charge. When adjusted for this item, Independent Business operating earnings were flat to last year.

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Table of Contents

Save-A-Lot operating earnings for the third quarter of fiscal 2016 were $32 or 2.9 percent of Save-A-Lot net sales, compared with $34 or 3.1 percent last year. Save-A-Lot operating earnings for the third quarter of fiscal 2016 include store closure impairment charges of $2. When adjusted for this item, Save-A-Lot’s operating earnings were flat to last year, reflecting the impacts of higher gross profit from higher base margins and lower logistics costs, offset by higher occupancy costs and depreciation expense related to new stores.
Retail Food operating earnings for the third quarter of fiscal 2016 were $21 or 2.0 percent of Retail Food net sales, compared with $28 or 2.5 percent last year. Retail Food operating earnings for the third quarter of fiscal 2016 include store closure impairment charges of $1. When adjusted for this item, Retail Food's operating earnings decreased by $6, which was primarily due to $8 of higher employee-related costs.
Corporate operating loss for the third quarter of fiscal 2016 was $6 , compared with an operating loss of $66 last year. Corporate operating loss for the third quarter of fiscal 2016 includes $5 of costs related to the potential separation of Save-A-Lot and $2 of severance costs. Corporate operating loss for the third quarter of fiscal 2015 included $63 of a non-cash pension settlement charge and $1 of information technology intrusion costs, net of insurance recoverable. When adjusted for these items, the remaining $3 increase in Corporate operating earnings was primarily due to $5 of lower employee-related costs, primarily due to lower entity wide incentive compensation, $3 of higher TSA fees and $3 of lower occupancy costs, offset in part by $6 of higher pension expense and contracted services.
Interest Expense, Net
Interest expense, net was $45 for the third quarter of fiscal 2016 , compared with $46 last year. Interest expense, net for the third quarter of fiscal 2015 included $1 of costs related to interest expense on the additional 7.75 percent Senior Notes due 2022 outstanding during the third quarter of fiscal 2015. When adjusted for these items, Interest expense, net was flat to last year.
Income Tax Provision
Income tax expense for the third quarter of fiscal 2016 was $22 or 37.6 percent of earnings from continuing operations before income taxes, compared with an income tax benefit of $1 or 8.9 percent of earnings from continuing operations before income taxes last year. The increase in the effective tax rate is primarily due to the pension settlement charge included in the prior year.
Net Earnings from Continuing Operations
Net earnings from continuing operations for the third quarter of fiscal 2016 were $35 , compared with $12 last year. Net earnings from continuing operations for the third quarter of fiscal 2016 include after-tax charges and costs of $11, comprised of intangible asset impairment charges of $4 after-tax, costs related to the potential separation of Save-A-Lot of $4 after-tax, store closure impairment charges of $2 after-tax and severance costs of $1 after-tax, and the third quarter of fiscal 2015 included a $36 after-tax non-cash pension settlement charge and $1 of after-tax information technology intrusion costs, net of insurance recoverable. When adjusted for these items, the remaining $3 after-tax decrease is due to the variances discussed in the Operating Earnings, Interest Expense, Net and Income Tax Provision sections above.

Fiscal 2016 Year-To-Date
The following discussion summarizes operating results for fiscal 2016 year-to-date compared to fiscal 2015 year-to-date:
Net Sales
Net sales for fiscal 2016 year-to-date were $13,583 , compared with $13,530 last year, an increase of $53 or 0.4 percent . Independent Business net sales were 45.6 percent of Net sales, Save-A-Lot net sales were 26.3 percent of Net sales, Retail Food net sales were 27.0 percent of Net sales and Corporate transition services agreement fees were 1.1 percent of Net sales for fiscal 2016 year-to-date, compared with 46.0 percent , 25.8 percent , 27.1 percent and 1.1 percent , respectively, for last year.
Independent Business net sales for fiscal 2016 year-to-date were $6,195 , compared with $6,227 last year, a decrease of $32 or 0.5 percent . The decrease is primarily due to $350 of lower sales from lost customers and lower sales to existing customers, offset in part by $318 of increased sales to new stores operated by new and existing customers.
Save-A-Lot net sales for fiscal 2016 year-to-date were $3,568 , compared with $3,498 last year, an increase of $70 or 2.0 percent . The increase is primarily due to $186 of additional sales due to new store openings and $25 of higher sales at existing corporate stores, offset in part by a decrease of $104 due to store dispositions by licensees and corporate store closures, and $43 of lower sales to existing licensees.

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Table of Contents

Retail Food net sales for fiscal 2016 year-to-date were $3,662 , compared with $3,660 last year, an increase of $2 or 0.1 percent . The increase in Retail Food net sales includes a $99 increase in sales due to acquired and new stores, offset in part by $97 of lower sales to existing stores and from closed stores, and lower other revenue.
Corporate net sales for fiscal 2016 year-to-date include fees earned under transition services agreements of $158 , compared with $145 last year, an increase of $13 primarily driven by incremental transition services agreements.
Gross Profit
Gross profit for fiscal 2016 year-to-date was $1,994 , compared with $1,925 last year, an increase of $69 or 3.6 percent . Gross profit as a percent of Net sales was 14.7 percent for fiscal 2016 year-to-date, compared with 14.2 percent last year. The $69 increase in Gross profit is primarily due to $43 of higher base margins, $24 of lower logistics costs, $13 of higher TSA fees and $9 of higher gross profit from increased sales, offset in part by $10 of higher shrink and $10 of higher employee-related costs.
Independent Business gross profit was $299 or 4.8 percent of Independent Business net sales, compared with $292 or 4.7 percent last year. Independent Business gross profit increased $7 primarily due to $12 of higher base margins partly due to promotional funding, $11 of lower logistics costs and $3 of lower pension expense, offset in part by $12 of higher employee-related costs, $6 of higher occupancy costs and $1 of lower gross profit from decreased sales.
Save-A-Lot gross profit was $550 or 15.4 percent of Save-A-Lot net sales, compared with $508 or 14.5 percent last year. Save-A-Lot gross profit increased $42 primarily due to $20 from higher base margins driven by higher growth of corporate stores compared to licensee stores and product costs declining faster than retail prices, $10 of higher gross profit from increased sales and $9 of lower logistics costs.
Retail Food gross profit was $985 or 26.9 percent of Retail Food net sales, compared with $980 or 26.8 percent last year. Retail Food gross profit increased $5 primarily due to $19 from higher base margins, lower logistics costs and lower employee-related costs, offset in part by $11 of higher shrink.
Selling and Administrative Expenses
Selling and administrative expenses for fiscal 2016 year-to-date were $1,635 compared with $1,640 last year, a decrease of $5 or 0.3 percent . Selling and administrative expenses for fiscal 2016 year-to-date include costs and charges of $21, comprised of costs related to the potential separation of Save-A-Lot of $12, severance costs of $6 and store closure impairment charges of $3. Selling and administrative expenses for fiscal 2015 year-to-date included net charges and costs of $66, comprised of a non-cash pension settlement charge of $63, information technology intrusion costs, net of insurance recoverable, of $2 and severance costs of $1. When adjusted for these items, the remaining $40 increase in Selling and administrative expenses is primarily due to $13 of higher other administrative costs, $11 of higher employee-related costs, $9 of higher net periodic pension expense, $10 of occupancy and contracted services costs and $8 of higher expenses from increased sales, offset in part by $12 of lower depreciation and amortization expense.
Intangible Asset Impairment Charge
In the third quarter ended December 5, 2015, the Company received a notice pursuant to which the Company could exercise certain options to purchase operating assets. As a result, the Company performed a review of the associated indefinite-lived intangible assets for impairment, which indicated the carrying value of the intangible exceeded its estimated value. The Company recorded a non-cash intangible impairment charge of $6 within its Independent Business segment.
Operating Earnings
Operating earnings for fiscal 2016 year-to-date were $353 , compared with $285 last year, an increase of $68 or 23.9 percent . Operating earnings for fiscal 2016 year-to-date include net costs and charges of $27, comprised of costs related to the potential separation of Save-A-Lot, intangible asset impairment charges, severance costs and store closure impairment charges. Operating earnings for fiscal 2015 year-to-date included net charges and costs of $66, comprised of a non-cash pension settlement charge, information technology intrusion costs, net of insurance recoverable, and severance costs. When adjusted for these items, the remaining $29 increase in Operating earnings is primarily due to $43 of higher base margins, $24 of lower logistics costs and $13 of higher TSA fees, offset in part by $21 of higher employee-related costs, $15 of higher other administrative costs and contracted services and $10 of higher shrink.
Independent Business operating earnings for fiscal 2016 year-to-date were $180 or 2.9 percent of Independent Business net sales, compared with $180 or 2.9 percent last year. Independent Business operating earnings for fiscal 2016 year-to-date include $6 of an intangible asset impairment charge. Independent Business operating earnings for fiscal 2015 year-to-date included $1 of severance costs. When adjusted for these items, the remaining $5 increase in Independent Business operating earnings is

30
Table of Contents

primarily due to $12 of higher base margins partly due to promotional funding, $11 of lower logistics costs and $3 of lower pension expense, and fees received from an early supply agreement termination, offset in part by $13 of higher employee-related costs and $6 of higher occupancy costs.
Save-A-Lot operating earnings for fiscal 2016 year-to-date were $115 or 3.2 percent of Save-A-Lot net sales, compared with $106 or 3.0 percent last year. Save-A-Lot operating earnings for fiscal 2016 year-to-date include $2 of store closure impairment charges. When adjusted for this item, the $11 increase in Save-A-Lot operating earnings is primarily due to $20 of higher base margins and $9 of lower logistics costs, offset in part by $9 of higher occupancy costs and $7 of higher employee-related costs.
Retail Food operating earnings for fiscal 2016 year-to-date were $64 or 1.8 percent of Retail Food net sales, compared with $78 or 2.1 percent last year. Retail Food operating earnings for fiscal 2016 year-to-date include $1 of store closure impairment charges. When adjusted for this item, the $13 decrease in Retail Food operating earnings is primarily due to $18 of higher employee-related costs, $11 of higher shrink and $5 of higher other administrative costs and costs of sales, offset in part by $16 of higher base margins and lower logistics costs, and $11 of lower depreciation and amortization expense.
Corporate operating loss for fiscal 2016 year-to-date was $6 , compared with a $79 operating loss last year. Corporate expenses for fiscal 2016 year-to-date include $12 of costs related to the potential separation of Save-A-Lot and $6 of severance costs. Corporate expenses for fiscal 2015 year-to-date included a $63 non-cash pension settlement charge and $2 of information technology intrusion costs, net of insurance recoverable. When adjusted for these items, the remaining $26 net decrease in Corporate operating loss is primarily due to $17 of lower employee-related costs, primarily due to lower entity-wide incentive compensation, and $13 of higher transition services agreement fees.
Interest Expense, Net
Interest expense, net for fiscal 2016 year-to-date was $148 , compared with $156 last year. Interest expense, net for fiscal 2015 year-to-date includes $2 of unamortized financing cost charges and $1 of costs related to interest expense on the additional 7.75 percent Senior Notes due 2022 outstanding during the third quarter of fiscal 2015. When adjusted for these items, the remaining $5 decrease in Interest expense, net is primarily due to lower average outstanding balances of debt and capital lease obligations.
Income Tax Provision
Income tax expense for fiscal 2016 year-to-date was $79 or 37.8 percent of earnings from continuing operations before income taxes, compared with income tax expense of $41 or 31.0 percent of earnings from continuing operations before income taxes last year. The increase in the effective tax rate is primarily due to the pension settlement charge included in the prior year.
Net Earnings from Continuing Operations
Net earnings from continuing operations for fiscal 2016 year-to-date were $129 , compared with $91 last year. Net earnings from continuing operations for fiscal 2016 year-to-date include after-tax costs and charges of $19, comprised of costs related to the potential separation of Save-A-Lot of $9 after-tax, an intangible asset impairment charges of $4 after-tax, severance costs of $4 after-tax and store closure impairment charges of $2 after-tax, and fiscal 2015 year-to-date net after-tax charges and costs of $40, comprised of a non-cash pension settlement charge of $36 after-tax, information technology intrusion costs, net of insurance recoverable, of $1 after-tax, unamortized financing cost charges of $1 after-tax, severance costs of $1 after-tax and debt refinancing costs of $1 after-tax. When adjusted for these items, the remaining $17 after-tax increase is due to the variances discussed in the Operating Earnings, Interest Expense, Net and Income Tax Provision sections above.

NON-GAAP FINANCIAL MEASURES
The Company’s Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles (“GAAP”). In addition to the above analysis of results of operations, the Company also considers certain other non-GAAP financial measures to assess the performance of our businesses. The measures and items identified below, such as Adjusted EBITDA, are provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude certain items that are occasionally recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. All measurements are provided with a reconciliation from a GAAP measurement. The non-GAAP financial measures below should only be considered as an additional supplement to the Company’s financial results reported in accordance with GAAP and

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Table of Contents

should be reviewed in conjunction with the Company’s results prepared in accordance with GAAP in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 .
The Company utilizes certain non-GAAP measures, including Adjusted EBITDA, to analyze underlying core business trends to understand operating performance. Adjusted EBITDA is a non-GAAP supplemental performance measure the Company uses to facilitate operating performance comparisons of our businesses on a consistent basis. In addition, management believes Adjusted EBITDA as a measure of business performance provides investors with useful supplemental information. Adjusted EBITDA provides additional understanding of other factors and trends affecting our business which are used in the business planning process to understand expected performance, to evaluate results against those expectations, and as one of the compensation performance measures under certain compensation programs and plans.
The Company defines Adjusted EBITDA as Net earnings (loss) from continuing operations, plus Interest expense, net and Income tax provision (benefit), less Net earnings attributable to noncontrolling interests calculated in accordance with GAAP, plus non-GAAP adjustments for Depreciation and amortization, LIFO charge (credit), certain non-recurring or unusual employee-related costs and pension related items (including severance costs, accelerated stock-based compensation charges, multiemployer pension withdrawal charges and other items), charges and costs related to debt financing activities, non-cash asset impairment and other charges and gains (including store closures, market exits and certain gains on the sale of property), goodwill and intangible asset impairment charges, legal settlement charges and gains, contract breakage costs and certain other non-cash charges or unusual items.
These items are omitted either because they are non-cash items or are items that are not considered in our supplemental assessment of on-going business performance. Certain of these adjustments are considered in similar supplemental analyses by other companies, such as Depreciation and amortization, LIFO charge (credit) and certain other adjustments. Adjusted EBITDA is less disposed to variances in actual performance resulting from depreciation, amortization and other non-cash charges and credits, and more reflective of other factors that affect the Company’s underlying operating performance.
There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting cash expenditures for capital assets or contractual commitments, changes in working capital, income taxes and debt service expenses that are recurring in our results of operations.
The following summarizes the calculation of Adjusted EBITDA for the third quarters and year-to-date of fiscal 2016 and 2015 :
 
Third Quarter Ended
 
Year-To-Date Ended
 
December 5, 
 2015 
 (12 weeks)
 
November 29, 
 2014 
 (12 weeks)
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
Net earnings from continuing operations
$
35

 
$
12

 
$
129

 
$
91

Less net earnings attributable to noncontrolling interests
(1
)
 
(2
)
 
(6
)
 
(6
)
Income tax provision (benefit)
22

 
(1
)
 
79

 
41

Interest expense, net
45

 
46

 
148

 
156

Depreciation and amortization
64

 
65

 
211

 
219

LIFO charge
1

 
3

 
6

 
7

Unusual employee-related costs
2

 
63

 
6

 
64

Intangible asset impairment charge
6

 
—

 
6

 
—

Costs related to the potential separation of Save-A-Lot
5

 
—

 
12

 
—

Store closure impairment charges
3

 
—

 
3

 
—

Information technology intrusion costs, net of insurance recoverable
—

 
1

 
—

 
2

Adjusted EBITDA
$
182

 
$
187

 
$
594

 
$
574


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Comparison of Adjusted EBITDA for Third Quarter Fiscal 2016 to Third Quarter Fiscal 2015
Adjusted EBITDA for the third quarter of fiscal 2016 was $182 or 4.4 percent of Net sales, compared with $187 or 4.4 percent of Net sales last year, a decrease of $5. The decrease in Adjusted EBITDA is primarily due to $12 of higher employee-related costs, $5 of higher occupancy costs, $5 of lower Adjusted EBITDA from lower sales, and $4 of higher contracted services and other administrative expenses, offset in part by $14 of higher gross profit from higher base margins, $7 of lower logistics costs and $3 of higher transition services agreement fees.
Comparison of Fiscal 2016 Year-To-Date Adjusted EBITDA to Fiscal 2015 Year-To-Date Adjusted EBITDA
Adjusted EBITDA for fiscal 2016 year-to-date was $594 or 4.4 percent of Net sales, compared with $574 or 4.2 percent of Net sales last year, an increase of $20. The increase in Adjusted EBITDA is primarily due to $43 of higher base margins, $24 of lower logistics costs, $13 of higher transition services agreement fees, offset in part by $21 of higher employee-related costs, $15 of higher other administrative costs and contracted services, $11 of higher occupancy costs and $10 of higher shrink.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resource Highlights
•
Unused available credit under the Revolving ABL Credit Facility increased to $931 from $871 as of December 5, 2015 compared to February 28, 2015 .
•
Working capital decreased $80 from $378 as of February 28, 2015 to $298 as of December 5, 2015 , excluding the impacts of the LIFO reserve, primarily due to the classification of the $138 of 8.00 percent Senior Notes due May 2016 (the “2016 Notes”) as current, an increase in accounts payable associated with inventory build and a decrease in Other current assets due to the utilization of the Company's income tax receivable, offset in part by an increase in inventories and Cash and cash equivalents.
•
Subsequent to the third quarter of fiscal 2016, the Company used borrowings under the Revolving ABL Credit Facility of $140 , which resulted in the classification of that portion of the 2016 Notes as long-term as of December 5, 2015, together with cash from operations, to fund the redemption of the 2016 Notes and to pay accrued and unpaid interest on the redeemed 2016 Notes, and the applicable redemption premium of approximately $6.
•
As of December 5, 2015 , debt maturities and estimated mandatory prepayments due in the remainder of fiscal 2016 and fiscal 2017 were $278 and $63, respectively, reflecting the impact of the redemption of the 2016 Notes as described immediately above and the estimated $60 of Excess Cash Flow prepayment required under the Secured Term Loan Facility.
•
Management expects that the Company will be able to fund debt maturities through internally generated funds, borrowings under the Revolving ABL Credit Facility, additional term loans under the Secured Term Loan Facility (subject to identifying term loan lenders or other institutional lenders and satisfying certain terms and conditions) or through new debt issuances.
•
Payments to reduce Capital lease obligations are expected to total approximately $28 in fiscal 2016 and $25 in fiscal 2017 .
•
Total debt was $2,481 and $2,489 as of December 5, 2015 and February 28, 2015 , respectively, including the original issue discount, under senior secured credit agreements and debentures.
•
No minimum pension contributions are required under ERISA for fiscal 2016, but the Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $40 to $50 .

Sources and Uses of Cash
Management expects that the Company will continue to replenish operating assets with internally generated funds and pay down debt obligations with internally generated funds and new debt issuances or existing credit facilities. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on the Company’s operating cash flow, which may limit the Company’s ability to pay down its outstanding indebtedness as planned. The Company's credit facilities are secured by a substantial portion of the Company's total assets and certain subsidiary equity interests.
The Company’s primary sources of liquidity are from internally generated funds and from borrowing capacity under its credit facilities. The Company will continue to obtain short-term or long-term financing from its credit facilities. Long-term financing will be maintained through existing and new debt issuances and its credit facilities. The Company’s short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to fund debt obligations and to fund capital expenditures as opportunities arise. There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels or that it will continually have access to credit on acceptable terms. Maturities

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of debt issued will depend on management’s views with respect to the relative attractiveness of interest rates at the time of issuance and other debt maturities.
Primary uses of cash include debt servicing and maturities, capital expenditures, working capital maintenance, contributions to various retirement plans and income tax payments. The Company’s working capital needs are generally greater during the months leading up to high sales periods, such as the time period from prior to Thanksgiving through December. The Company typically finances these working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories. Strategic and operational investments in the Company’s businesses are funded by cash provided from operating activities and on a short-term basis through available liquidity.
The Company’s continued access to short-term and long-term financing through credit markets depends on numerous factors including the condition of the credit markets and the Company’s results of operations, cash flows, financial position and credit ratings.
Cash Flow Information
The following summarizes our Condensed Consolidated Statements of Cash Flows:
 
Year-To-Date Ended
 
December 5, 
 2015 
 (40 weeks)
 
November 29, 
 2014 
 (40 weeks)
 
Change
Cash flow activities
 
 
 
 
 
Net cash provided by operating activities – continuing operations
$
251

 
$
104

 
$
147

Net cash used in investing activities
(198
)
 
(209
)
 
11

Net cash (used in) provided by financing activities
(34
)
 
438

 
(472
)
Net cash provided by discontinued operations
1

 
2

 
(1
)
Net increase in cash and cash equivalents
20

 
335

 
(315
)
Cash and cash equivalents at beginning of period
114

 
83

 
31

Cash and cash equivalents at the end of period
$
134

 
$
418

 
$
(284
)
The increase in net cash provided by operating activities from continuing operations in fiscal 2016 year-to-date compared to last year is primarily due to lower levels of cash utilized in operating assets and liabilities and lower benefit plan contributions.
The decrease in cash used in investing activities in fiscal 2016 year-to-date compared to last year is primarily due to a $46 decrease in cash paid for acquisitions, offset in part by a $27 net increase in cash paid for intangible and other assets, a $5 increase in capital expenditures and $3 of lower proceeds from the sale of assets.
The increase in cash used in financing activities in fiscal 2016 year-to-date compared to last year is primarily due to the issuance of $350 of the 7.75 percent Senior Notes due 2022 and $134 of borrowings under the Revolving ABL Credit Facility in fiscal 2015 year-to-date.
Credit Facilities and Debt Agreements
The Company’s credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions which generally provide, subject to the Company’s right to cure, for the acceleration of payments due in the event of a breach of a covenant or a default in the payment of a specified amount of indebtedness due under certain other debt agreements. The Company was in compliance with all such covenants and provisions for all periods presented. Refer to Note 5—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of the Company's credit facilities and certain long-term debt agreements and additional information.
As of December 5, 2015 and February 28, 2015 , the Company had outstanding borrowings of $1,459 and $1,469 , respectively, under its $1,500 term loan facility (the “Secured Term Loan Facility”), which is secured by substantially all of the Company’s real estate, equipment and certain other assets, and bears interest at the rate of LIBOR plus 3.50 percent subject to a floor on LIBOR of 1.00 percent . The Secured Term Loan Facility is guaranteed by the Company’s material subsidiaries (together with the Company, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Company granted a perfected first-priority security interest for the benefit of the facility lenders in the Term Loan Parties’ equity interests in Moran Foods, LLC, the main operating entity of the Company’s Save-A-Lot business, and the Term Loan Parties granted a perfected first-priority security interest in substantially all of their intellectual property and a first-priority mortgage lien and

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security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of December 5, 2015 and February 28, 2015 , there was $765 and $776 , respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility are secured by second-priority security interests in the collateral securing the Company’s $1,000 asset-based revolving ABL credit facility (the “Revolving ABL Credit Facility”). Including the original issue discount and the estimated Excess Cash Flow prepayment required under the Secured Term Loan Facility, as described immediately below, $63 and $9 of the Secured Term Loan Facility was classified as current as of December 5, 2015 and February 28, 2015 , respectively.
The loans under the Secured Term Loan Facility may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs. Pursuant to the Secured Term Loan Facility, the Company must, subject to certain customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility. The Company must also prepay loans outstanding under the facility no later than 90 days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from 0 to 50 percent depending on the Company’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on the Company's estimated Excess Cash Flow for fiscal 2016 as of December 5, 2015, the Company determined it was reasonably probable that it would be required to make a prepayment on the Secured Term Loan Facility as of December 5, 2015. As such, $60 of the Secured Term Loan Facility was classified as current. This estimated prepayment could change significantly based on the Company's actual results of operations, financial condition and cash flows for fiscal 2016.
As of December 5, 2015 and February 28, 2015 , there were no outstanding borrowings under the Revolving ABL Credit Facility. As of December 5, 2015 , letters of credit outstanding under the Revolving ABL Credit Facility were $69 at fees of 1.625 percent , and the unused available credit under this facility was $931 with facility fees of 0.375 percent . As of February 28, 2015 , letters of credit outstanding under the Revolving ABL Credit Facility were $76 at fees of 1.625 percent , and the unused available credit under this facility was $871 with facility fees of 0.375 percent . As of December 5, 2015 , the Revolving ABL Credit Facility was secured on a first priority basis by $1,379 of certain inventory assets included in Inventories, net, $230 of certain receivables included in Receivables, net, $32 of certain amounts included in Cash and cash equivalents and all of the Company’s pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets. As of February 28, 2015 , the Revolving ABL Credit Facility was secured on a first-priority basis by $1,188 of certain inventory assets included in Inventories, net, $220 of certain receivables included in Receivables, net, $28 of certain amounts included in Cash and cash equivalents and all of the Company's pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets.
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit the Company’s ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends to stockholders. The Secured Term Loan Facility caps the aggregate amount of Restricted Payments that may be made over the life of the Secured Term Loan Facility. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions taken by the Company, including certain debt prepayments and Permitted Investments (as defined in the Secured Term Loan Facility). As of December 5, 2015 , the aggregate cap on Restricted Payments was approximately $294 . The Revolving ABL Credit Facility permits regularly scheduled dividends up to $50 in aggregate per fiscal year as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. The Revolving ABL Credit Facility permits other Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met. In addition, the Revolving ABL Credit Facility, as amended, provides that the Company may incur additional term loans under the Secured Term Loan Facility in an aggregate principal amount of up to $500, subject to identifying term loan lenders or other institutional lenders willing to provide the additional loans and satisfying certain terms and conditions.
In the third quarter ended December 5, 2015, the Company delivered a redemption notice for the remaining $278 of 8.00 percent Senior Notes due May 2016 (the “2016 Notes”). Subsequent to the third quarter ended December 5, 2015 , the Company used borrowings under the Revolving ABL Credit Facility of $140 , which resulted in the classification of that portion of the 2016 Notes as long-term as of December 5, 2015, together with cash from operations, to fund the redemption of the 2016 Notes and to pay accrued and unpaid interest on the redeemed 2016 Notes, and the applicable redemption premium of approximately $6. In addition, non-cash charges of $1 for the write-off of the remaining unamortized financing costs were incurred subsequent to the third quarter ended December 5, 2015 .

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Capital Expenditures
Capital expenditures in fiscal 2016 year-to-date were $187 , excluding cash paid for business acquisitions, and primarily consisted of investments into Save-A-Lot new corporate stores and store remodels, Retail Food store remodels and new stores and information technology investments. In addition, during fiscal 2016 the Company paid $9 for 12 acquired stores. Capital expenditures and cash paid for business acquisitions for fiscal 2016 are projected to be approximately $280 to $300, including capital lease additions.
Pension and Other Postretirement Benefit Obligations
Cash contributions to defined benefit pension and other postretirement benefit plans were $38 and $115 in fiscal 2016 and 2015 year-to-date, respectively. Fiscal 2016 contributions year-to-date consist primarily of a $25 discretionary contribution and an $11 contribution in connection with the closing of a postretirement benefit plan audit.
No minimum pension contributions are required to the Company's pension plans in fiscal 2016 in accordance with the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”). The Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $40 to $50 .
The Company’s funding policy for defined benefit pension plans is to contribute the minimum contribution amount required under ERISA and the Pension Protection Act of 2006 as determined by the Company’s external actuarial consultant. At the Company’s discretion, additional funds may be contributed to the pension plan. The Company may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. The Company assesses the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, and the ability to reduce or eliminate required Pension Benefit Guarantee Corporation variable rate premiums or to achieve exemption from participant notices of underfunding.
During the third quarter ended December 5, 2015, the Company amended the SUPERVALU Retiree Benefit Plan to eliminate benefits provided by the plan for certain participants under a collective bargaining agreement. As a result of the plan amendment, certain SUPERVALU Retiree Benefit Plan obligations were re-measured using a discount rate of 4.25 percent and the MP-2015 mortality improvement scale. This re-measurement resulted in a $28 reduction of postretirement benefit obligations within Pension and other postretirement benefit obligations with a corresponding decrease to Accumulated other comprehensive loss, net of tax.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
The Company has outstanding guarantees to its independent retail customers and is contingently liable under other contractual arrangements. See Part I, Item I in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption "Guarantees" of this Quarterly Report on Form 10-Q.
Legal Proceedings
The Company is a party to various legal proceedings arising from the normal course of business as described in Part I, Item I, Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements of this Quarterly Report on Form 10-Q, none of which, in management’s opinion, is expected to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.
Multiemployer Pension Plans
The Company contributes to various multiemployer pension plans, which are primarily defined benefit pension plans, under collective bargaining agreements. During fiscal 2016 and 2015 year-to-date, the Company contributed $31 and $29 , respectively, to these multiemployer pension plans. There have been no material changes in the Company's multiemployer pension plan arrangements since the end of fiscal 2015 . Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 for information regarding these arrangements.

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Contractual Obligations
Except as described below and in Note 5—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations since the end of fiscal 2015 . Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 for additional information regarding the Company’s contractual obligations.
Subsequent to the third quarter ended December 5, 2015, the Company used borrowings under the Revolving ABL Credit Facility of $140 and cash from operations to fund the redemption of the remaining $278 aggregate principal amount of the 2016 Notes and to pay the accrued and unpaid interest and the applicable redemption premium. The impact of this redemption to the Company’s long-term debt contractual obligations is primarily a reduction and extension of debt maturities, resulting in a decrease of $278 of maturities due in fiscal 2017-2018, with a corresponding partial increase in maturities due in fiscal 2019-2020. In addition, this redemption resulted in an increase in longer term interest amounts due to the extension of debt maturities and a decrease in nearer term interest amounts due to an interest rate reduction. Interest on long-term debt contractual obligations decreased $1 for interest due in fiscal 2017-2018 and increased $8 for interest due in fiscal 2019-2020 as a result of the extension of debt maturities noted above. These changes in long-term debt maturities are exclusive of any payments due under the prepayment provisions of the Company’s Secured Term Loan Facility.
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of December 5, 2015 , the Company had approximately $359 of non-cancellable future purchase obligations.

CRITICAL ACCOUNTING POLICIES
There were no material changes in the Company’s critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 .

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for the Company’s businesses and their respective markets, such as projections of future performance, guidance, statements of the Company’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on the Company’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “will benefit,” “is anticipated,” “estimate,” “project,” “believes,” “intends” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, SUPERVALU INC. claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.
Certain factors could cause the Company’s future results to differ materially from those expressed or implied in any forward-looking statements contained in this report. These factors include the factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 under the heading “Risk Factors,” the factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under heading “Risk Factors,” the factors discussed below and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.
Competition
•
The Company’s ability to attract and retain customers, and the success of the Company’s independent retailers and licensees
•
Increased competition resulting from consolidation in the grocery industry, and the Company’s ability to effectively respond
•
Competition from other food or drug retail chains, supercenters, hard discount, dollar stores, online retailers, non-traditional competitors and alternative formats in the Company’s markets

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•
Customer reaction to the increased presence of competitors, including non-traditional competitors, in the Company’s markets
•
Competition for employees, store sites and products
•
The ability of the Company’s Independent Business to maintain or increase sales due to wholesaler competition, increased competition faced by customers and increased customer self-distribution
•
Changes in economic conditions or consumer preferences that affect consumer spending or buying habits
•
The success of the Company’s promotional and sales programs and the Company’s ability to respond to the promotional and pricing practices of competitors
Execution of Initiatives
•
The Company’s ability to identify and effectively execute on performance improvement and customer service initiatives
•
The Company’s ability to offer competitive products and services at low prices and maintain high levels of productivity and efficiency
•
The ability to grow by driving sales, attracting new customers and new licensees and successfully opening new locations
•
The ability to successfully execute on initiatives involving acquisitions or dispositions
•
The Company’s ability to continue to become a more cost-efficient organization
•
The Company’s ability to respond appropriately to competitors’ initiatives
•
The Company’s ability to execute on its exploration process for a separation of Save-A-Lot and, to the extent any transaction or other change in the Company’s overall structure or business model is ultimately completed, to deliver anticipated benefits and enhanced shareholder value

Substantial Indebtedness
•
The impact of the Company’s substantial indebtedness, including the restrictive operating covenants in the underlying debt instruments, on its business and financial flexibility
•
The Company’s ability to comply with debt covenants or to refinance the Company’s debt obligations
•
A downgrade in the Company’s debt ratings, which may increase the cost of borrowing or adversely affect the Company’s ability to access one or more financial markets
•
The availability of favorable credit and trade terms

Labor Relations
•
The Company’s ability to renegotiate labor agreements with its unions
•
Resolution of issues associated with rising pension, healthcare and employee benefit costs
•
Potential for work disruption from labor disputes

Increased Employee Benefit Costs
•
Increased operating costs resulting from rising employee benefit costs
•
Potential increases in health plan costs resulting from health care reform
•
Pension funding obligations related to current and former employees of the Company and the Company’s divested operations
•
Required funding of multiemployer pension plans and any withdrawal liability
•
The effect of the financial condition of the Company’s pension plans on the Company’s debt ratings

Relationships with Albertson’s LLC, New Albertson’s, Inc. (“NAI”) and Haggen
•
Disruptions in current plans, operations and business relationships
•
Ability to effectively manage the Company’s cost structure to realize benefits from the Transition Services Agreement with each of Albertson’s LLC and NAI (collectively, the “TSA”) and the Transition Services Agreement with Haggen (the “Haggen TSA”)
•
Impact of the Safeway acquisition by Albertson’s on the Company’s relationships with Albertson’s LLC and NAI, including the transition and wind down of the TSA, certain supply relationships and the operating agreement under which the Company operates a distribution center owned by NAI
•
Ability to provide services and transition and wind down services to NAI and Albertson’s LLC under the TSA and the letter agreement regarding the TSA, as well as services to Haggen under the Haggen TSA, in an efficient manner that is not disruptive to the Company, while eliminating costs directly and not directly tied to providing these services
•
Ability to attract and retain qualified personnel to perform services under the TSA and the Haggen TSA
•
The effect of the information technology intrusions that also impacted Albertson’s LLC and NAI
•
Impact of Haggen's bankruptcy filing, including on the Haggen TSA and the supply agreement with Haggen, and the Company's ability to eliminate costs and replace lost revenue if these relationships were to end or further diminish

Intrusions to and Disruptions of Information Technology Systems

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•
Dependence of the Company’s businesses on computer hardware and software systems that are vulnerable to security breach by computer hackers and cyber terrorists or to technical malfunction
•
The intrusions into the Company’s information technology systems and the Company’s continued investigation to determine the full extent of their impact, if any, on its business and future operating results
•
Risk of misappropriation of sensitive data, including customer and employee data, as a result of the information technology intrusions or any future cyber-attack or breach and potential related claims
•
Costs of responding to inquiries, claims or enforcement actions in connection with the information technology intrusions or any future attack or breach resulting in fees and penalties, the loss, damage or misappropriation of information, and potential related damage to the Company’s reputation
•
Inability to timely obtain the Company’s PCI DSS report on compliance that could result in fines or assessments
•
Costs of complying with stricter privacy and information security laws
•
Ability of the information technology systems of the Company or its vendors to operate properly and to prevent, contain or detect cyber-attacks or security breaches
•
Difficulties in developing, maintaining or upgrading information technology systems
•
Major disasters, business disruptions or losses resulting from failure of these systems to perform as anticipated for any reason or data theft, information espionage, or other criminal activity directed at the Company’s computer or communications systems
•
Inability to keep pace with changing customer expectations and new developments and technology investments by the Company’s competitors

Economic Conditions
•
Worsening economic conditions, consumer confidence or unemployment rates, each of which affect consumer spending or buying habits
•
Increases in unemployment, insurance, healthcare costs or energy costs and changes in commodity prices, which could impact consumer spending or buying habits and the cost of doing business
•
Increases in interest rates, labor costs and tax rates, and other changes in applicable law
•
Food and drug inflation or deflation
•
The Company's ability to address the compression of pharmacy gross margins

Governmental Regulation
•
Costs of compliance with existing laws and regulations and changes in applicable laws and regulations that impose additional requirements or restrictions on the operation of the Company’s businesses
•
The ability to timely obtain permits, comply with government regulations or make capital expenditures required to maintain compliance with government regulations, including those governing ethical, anti-bribery and similar business practices
•
Potential costs of compliance with additional foreign laws and regulations if the Company seeks and attains a larger international footprint
•
Potential costs of compliance with environmental laws and regulations, including relating to disposal of hazardous waste and any required removal or remediation of contamination at current or former locations

Food and Drug Safety
•
Events that give rise to actual or potential food contamination, drug contamination or foodborne illness or injury or any adverse publicity relating to these types of concerns, whether or not valid
•
Potential recall costs and product liability claims

Legal Proceedings
•
Unfavorable outcomes and the costs to defend litigation, governmental or administrative proceedings or other disputes, including those related to the information technology intrusions experienced by the Company
•
Adverse publicity related to such unfavorable outcomes

Severe Weather, Natural Disasters and Adverse Climate Changes
•
Property damage or business disruption resulting from severe weather conditions and natural disasters that affect the Company and the Company’s customers or suppliers
•
Unseasonably adverse climate conditions that impact the availability or cost of certain products in the grocery supply chain

Disruption to Supply Chain and Distribution Network
•
The Company’s ability to effectively maintain its supply chain and distribution network without interruption
•
Disruptions due to weather, product recalls, crop conditions, regulatory actions, supplier instability, transportation interruptions, labor supply or vendor disputes

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Changes in Military Business
•
Competition in the Company’s military business
•
Changes in the commissary system, reductions in government expenditures or funding, or changes in military staffing levels or the locations of bases

Adequacy of Insurance
•
Variability in actuarial projections regarding workers’ compensation liability and associated medical costs and automobile and general liability
•
Potential increase in the number or severity of claims for which the Company is self-insured
•
Adequacy of cybersecurity insurance maintained by the Company to offset any losses or damages related to the information technology intrusions and any future intrusions experienced by the Company

Volatility in Fuel and Energy Costs
•
Availability and cost of energy and fuel to store and transport products
•
Volatility of fuel, energy and natural gas prices
•
Risks associated with possession of compressed natural gas equipment and a fueling station

Asset Impairment Charges
•
Unfavorable changes in the Company’s industry, the broader economy, market conditions, business operations, competition or the Company’s stock price and market capitalization that could require impairment to intangible assets, including goodwill, and tangible assets, including property, plant and equipment

Stock Price Volatility
•
Fluctuations in the Company’s stock price related to actual or perceived operating performance, any of the factors listed above or general stock market fluctuations

RECENTLY ISSUED ACCOUNTING STANDARDS

No recently issued accounting standards are expected to have a material impact on the Company's financial statements. Refer to Note 1—Summary of Significant Accounting Policies of this Quarterly Report on Form 10-Q for a discussion of the anticipated impact of accounting standards issued but not yet adopted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except as described below and in Note 5—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes in market risk for the Company in the period covered by this report. See the discussion of market risk in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 .
Subsequent to the third quarter ended December 5, 2015, the Company used borrowings under the Revolving ABL Credit Facility and cash from operations to fund the redemption of the remaining $278 of the 2016 Notes and to pay accrued and unpaid interest on the redeemed 2016 Notes, and the applicable redemption premium. The impact from this redemption on the Company’s exposure to interest rate risk is primarily an extension of maturities at a reduced interest rate.

ITEM 4. CONTROLS AND PROCEDURES
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of December 5, 2015 . Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
There has been no change to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, it is remote that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position. See Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q under the caption “Legal Proceedings” for a discussion of certain of the Company’s legal proceedings.

ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the discussion of risk factors in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015. Other than the risks described below, there were no material changes in risk factors for the Company in the period covered by this report.
The following paragraph replaces the last paragraph of the risk factor entitled “Changes in the Company’s relationship with NAI, Albertson's LLC or Haggen could adversely impact the Company’s results of operations” in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2015:
On September 8, 2015, Haggen announced that it filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Through the bankruptcy process, Haggen has begun to sell some of its 164 stores to various third parties and to close others. The Company is currently providing services for 21 stores under the Haggen TSA and supplying 21 stores under the supply agreement the Company entered into with Haggen. Despite a minimum fee provision in the Haggen TSA, this smaller Haggen operation has reduced the amount of revenue to the Company and could adversely impact the Company’s results of operations. Further, Haggen has not assumed or rejected the Company’s supply agreement or the Haggen TSA as part of its bankruptcy process. If Haggen were to reject one or both of these agreements or seek to negotiate terms less favorable to the Company, that could further reduce the amount of revenue to the Company and could adversely impact the Company’s results of operations, including if the Company was not able to eliminate costs and overhead in connection with the termination of the Haggen TSA and/or the supply agreement or if one or both agreements had a reduced scope or volume. Additionally, the Company has filed for approximately $2 of administrative 503(b)(9) priority claims and for approximately $8 of other claims with the bankruptcy court. The Company could be exposed to claims from third parties from which the Company sourced products, services, licenses and similar benefits on behalf of Haggen. Failure to recover the amounts payable by Haggen or any adverse results from any such claims from third parties could adversely impact the Company’s results of operations.
The following risk factors reflect material changes in risk factors for the Company since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2015:
The results and impact of the Company’s announcement that it is exploring a separation of its Save-A-Lot segment and that it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company are uncertain and cannot be determined.
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company, including engaging financial and legal advisors. On January 7, 2016, the Company filed a Form 10 with the SEC as part of its ongoing exploration into a potential separation of Save-A-Lot. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur. Any transaction or other change in the Company’s overall structure or business model that is ultimately completed may not deliver the anticipated benefits or enhance shareholder value. The Company has, and expects to continue to, incur expenses associated with preparing for a possible spin-off, and the process of considering, preparing for and implementing such a course of action may distract the Company’s management team from their day-to-day responsibilities and make it more difficult to retain employees, and may otherwise be disruptive to the Company’s business operations. Any of these risks or uncertainties could adversely affect the Company’s business, financial condition, results of operations or cash flows.
Disruptions to the Company’s or third-party information technology systems, including future cyber-attacks and security breaches, and the costs of maintaining secure and effective information technology systems could negatively affect the Company’s business and results of operations.

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The efficient operation of the Company’s businesses is highly dependent on computer hardware and software systems, including customized information technology systems. Information systems are vulnerable to disruptions and security breaches by computer hackers and cyber terrorists. The Company relies on industry accepted security measures and technology to securely maintain confidential and proprietary information stored on the Company’s information systems, and continues to invest in maintaining and upgrading the systems and applications to control risk. The Company also relies on third-party systems and software that are critical to the operation of its business, including accepting credit, debit, EBT and gift cards. In response to the information technology intrusions the Company experienced in the second quarter of fiscal 2015, the Company has taken and is continuing to take actions to strengthen the security of its information technology systems. Nevertheless, these measures and technology may not adequately prevent security breaches in the future or the Company may not be able to timely implement these measures and technology. There can be no assurance that the Company will not suffer another intrusion or that a third-party relied on by the Company will not suffer an intrusion, that unauthorized parties will not gain access to confidential or personal information, or that any such incident will be discovered promptly. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target, and the Company or our third-party provider may be unable to anticipate these techniques or implement adequate preventative measures. The failure to promptly detect, determine the extent of and appropriately respond to a significant data security breach could have a material adverse impact on the Company’s business, financial condition and results of operations. In addition, the unavailability of the information systems or failure of these systems or software to perform as anticipated for any reason, including a major disaster, technical malfunction or business interruption, and any inability to respond to, or recover from, such an event, or any inability to timely implement new security measures or technology, could disrupt the Company’s business, impact the Company’s customers and could result in decreased performance, increased overhead costs and increased risk for liability, causing the Company’s business and results of operations to suffer.

Additionally, the Company’s businesses involve the receipt and storage of sensitive data, including personal information about the Company’s customers and employees and proprietary business information of the Company and its customers and vendors. The Company may also share information with vendors that assist the Company in conducting its business, as required by law, with the permission of the individual or as permitted under the Company’s privacy policy. As a merchant that accepts debit and credit cards for payment, the Company is subject to the Payment Card Industry Data Security Standard (“PCI DSS”), issued by the PCI Council. PCI DSS contains compliance guidelines and standards with regard to the Company’s security surrounding the physical and electronic storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, the Company is also subject to compliance with American National Standards Institute data encryption standards and payment network security operating guidelines. The payment card industry has set October 1, 2015 as the date on which it will shift liability for certain transactions to retailers who are not able to accept Europay, MasterCard, Visa (EMV) transactions. The Company expects to implement the EMV technology in calendar year 2016. As a result, before the implementation of the EMV technology, the Company may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees. As a result of the intrusions, the Company engaged a new third-party security firm to provide the Company a report on compliance with PCI DSS. This transition of security firms delayed the Company’s receipt of its report on PCI DSS compliance. On June 30, 2015, the Company received its merchant report on compliance and on September 30, 2015, the Company received its service provider report on compliance with respect to PCI DSS version 3.1.

Despite any certifications and the utilization of other information security measures, the Company cannot be certain that all of its IT systems or the IT systems of its vendors operate properly or will be able to prevent, contain or detect any future cyber-attacks or security breaches from known malware, malware that may be developed in the future or otherwise. Cyber-attacks are rapidly evolving and becoming increasingly sophisticated and difficult to detect, and therefore, the Company may be unable to anticipate these attacks or implement adequate preventive measures. Additionally, unauthorized parties may attempt to gain access to the Company’s or a vendor’s systems or facilities through fraud, trickery or other forms of deception involving the Company’s employees or vendors. To the extent that any attack or breach results in the loss, damage or misappropriation of information, the Company may be adversely affected by claims from customers, financial institutions, payment card brands, stockholders and others and by costly inquiries or enforcement actions on the part of regulatory authorities. The Company’s operations could also be significantly disrupted by these claims, as well as by the need to spend significant time and expense to upgrade, fix or replace its systems. The Company could also lose credibility with its customers and suffer damage to its reputation and future sales. In addition, the cost of complying with stricter privacy and information security laws and standards, including PCI DSS version 3.1, and developing, maintaining and upgrading technology systems to address future advances in technology, could be significant and the Company could experience problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems.


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Customers are increasingly using computers, tablets, mobile phones and other devices to shop in stores and online and provide feedback and public commentary on their shopping experience, including prices. Multichannel retailing is rapidly evolving. If the Company does not keep pace with changing customer expectations and new developments and technology investments by its competitors, the Company’s ability to compete and results of operations could be adversely affected. In addition, if the customer-facing technology systems do not reliably function as designed, the Company may experience a loss of customer confidence or data security breaches or be exposed to fraudulent purchases, which, if significant, could adversely affect the Company’s reputation and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(in millions, except shares and per share amounts)
Period (1)
 
Total Number of Shares Purchased (2)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
First four weeks
 
 
 
 
 
 
 
 
September 13, 2015 to October 10, 2015
 
—

 
$
—

 
—

 
$
—

Second four weeks
 
 
 
 
 
 
 
 
October 11, 2015 to November 7, 2015
 
4,251

 
$
7.21

 
—

 
$
—

Third four weeks
 
 
 
 
 
 
 
 
November 8, 2015 to December 5, 2015
 
—

 
$
—

 
—

 
$
—

Totals
 
4,251

 
$
7.21

 
—

 
$
—


(1)
The reported periods conform to the Company's fiscal calendar composed of thirteen 28-day periods. The third quarter of fiscal 2016 contains three 28-day periods.
(2)
These amounts include the deemed surrender by participants in the Company's compensatory stock plans of 4,251 shares of previously issued common stock. These are in payment of the purchase price of shares acquired pursuant to the exercise of stock options and satisfaction of tax obligations arising from such exercises, as well as from the vesting of restricted stock awards granted under such plans.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
None.


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ITEM 6. EXHIBITS
10.1
 
Letter Agreement, dated December 2, 2015, between SUPERVALU INC. and Eric Claus.*
 
 
 
12.1
 
Ratio of earnings to fixed charges.
 
 
 
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the fiscal quarter ended December 5, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Stockholders’ Deficit, (vi) the Condensed Consolidated Statements of Cash Flows and (vii) the Notes to Condensed Consolidated Financial Statements.

* Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.




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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
SUPERVALU INC. (Registrant)
 
 
 
 
Dated: January 13, 2016
 
 
/s/ SUSAN S. GRAFTON
 
 
 
Susan S. Grafton
Executive Vice President, Chief Financial Officer
(principal financial and accounting officer)

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EXHIBIT INDEX
10.1
 
Letter Agreement, dated December 2, 2015, between SUPERVALU INC. and Eric Claus.*
 
 
 
12.1
 
Ratio of earnings to fixed charges.
 
 
 
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the fiscal quarter ended December 5, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Stockholders’ Deficit, (vi) the Condensed Consolidated Statements of Cash Flows and (vii) the Notes to Condensed Consolidated Financial Statements.

* Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.


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Exhibit 10.1

SUPERVALU INC.


P.O. Box 990
Minneapolis, MN 55440
952 828 4623
November 30, 2015
Eric A. Claus

Dear Eric:
We are pleased to set forth the terms of your employment in the position of Chief Executive Officer of Save-A-Lot (the “ SAL Business ”), a segment of SUPERVALU INC. (“ Supervalu ”), beginning on a date mutually agreed by Supervalu and you, but in no event later than February 3, 2016 (the “ Start Date ”). Until the separation of the SAL Business from Supervalu by means of a spinoff of all or substantially all of the common stock of Save-A-Lot, Inc. (“ Save-A-Lot ”), a newly formed direct or indirect subsidiary of Supervalu, to Supervalu’s stockholders or a similar transaction following which all or substantially all of the SAL Business becomes held by Supervalu’s stockholders (the “ Separation ”), you shall have primary responsibility for Moran Foods LLC, through which the SAL Business operates, including preparing the SAL Business for the Separation, and report to the Chief Executive Officer of Supervalu and, if, as and when requested by the Board of Directors of Supervalu (the “ Supervalu Board ”), the Supervalu Board. Contemporaneously with the Separation, Supervalu shall cause Save-A-Lot to assume this letter agreement (the “ Letter Agreement ”) and all of the obligations hereunder in writing, including, without limitation, that you shall become Chief Executive Officer of Save-A-Lot, shall have primary responsibility for Save-A-Lot, shall become a member of the Board of Directors of Save-A-Lot (the “ Save-A-Lot Board ”), and shall report to the Save-A-Lot Board. For the avoidance of doubt, you agree that Supervalu may satisfy the preceding sentence by causing Save-A-Lot to assume this Letter Agreement and the obligations set forth herein in a writing in which Save-A-Lot also assumes other agreements relating to the SAL Business.

The specific terms of your employment are as follows:

EFFECTIVE DATE : This Letter Agreement shall become effective upon execution by both you and Supervalu (the “ Effective Date ”).

ADDITIONAL CONDITIONS OF OFFER : You agree as a condition of your
employment with Supervalu and the SAL Business to fully comply with the terms of your
agreement(s) with the Red Apple Stores Inc. and its subsidiaries (the “ Prior Employer ”),
including, without limitation, any such terms pertaining to the nondisclosure of confidential
information, nonsolicitation of employees and customers, clients, vendors, and suppliers, and the return of documents and information to the Prior Employer. Without limiting the immediately preceding sentence, you shall return to the Prior Employer and shall not knowingly keep any documents or files (whether in hard copy or electronic format) that you obtained in the course of your employment with the Prior Employer (whether or not you believe such documents or files constitute or contain confidential information), other than documents and files belonging to you

1




and relating to your own terms and conditions of employment, compensation, and benefits. In
addition, you agree that, if the Start Date occurs prior to February 3, 2016, prior to the Start Date you shall provide Supervalu with a written waiver from the Prior Employer of the notice
requirement set forth in Section 5.6 of your employment agreement with the Prior Employer.

POSITIONS AND DUTIES : While you are employed with Supervalu or Save-A-Lot,
as applicable (the “ Employer ”), you shall have authority, duties and responsibilities that are
commensurate with your position as set forth in the initial paragraph of this Letter Agreement
and as are customarily exercised by a person holding such position, including, without limitation, (a) overall responsibility for leading and supervising the businesses and operations of the SAL Business, prior to the Separation, and Save-A-Lot, following the Separation, (b) responsibility for developing, refining and implementing the strategic plans of the SAL Business, prior to the Separation, and Save-A-Lot, following the Separation, (c) hiring, supervising and firing of your direct reports, and (d) such other duties as the person or body to whom you report may assign to you from time to time (consistent with your title and position) and, in each case, subject to the ultimate authority and direction of such person or body. Your primary place of employment will be in the St. Louis metropolitan area (i) at the executive offices of the SAL Business, prior to the Separation, and (ii) the executive offices of Save-A-Lot, after the separation, or at such other place as is mutually agreed by you and the Employer.

BASE SALARY : You will be paid a base salary while you are employed by the
Employer at an annualized rate of $850,000 (subject to applicable taxes and withholdings) (the “ Base Salary ”), which will be paid in substantially equal installments in accordance with the Employer’s usual and customary payroll policies.

ANNUAL BONUS : You will have the opportunity to earn a bonus for each fiscal year
of the Employer that you are employed by the Employer (the “ Annual Bonus ”), with a minimum of zero, a target of 100% of your Base Salary (the “ Target Bonus ”), and a maximum bonus of 200% of your Base Salary, to be paid not later than 2-1/2 months following the end of such fiscal year (subject to your continued employment through the applicable performance period). The Annual Bonus shall be based on the attainment of performance goals proposed by the Employer’s management to, and subject to the final approval of, the Leadership Development and Compensation Committee of the Supervalu Board (the “ Supervalu LDCC ”), in respect of fiscal years which commence prior to the Separation, and the Leadership Development and Compensation Committee of the Save-A-Lot Board (the “ Save-A-Lot LDCC ”), in respect of fiscal years which begin on or following the Separation. For the fiscal year of Supervalu ending in 2016, your Annual Bonus will be prorated based on actual performance (i.e., at the same payout percentage of the Target Bonus as applies to the current President and Chief Executive Officer of Save-A-Lot) and the number of days you are employed with Supervalu during such fiscal year. If the Separation does not occur prior to the time performance goals are established for the fiscal year ending in 2017 in the ordinary course of business, the performance goals for the Annual Bonus for the fiscal year ending in 2017 will be established by the Supervalu LDCC for the entire fiscal year ending in 2017. Such performance goals will be based solely on the performance of the SAL Business, and shall be transferred to Save-A-Lot without alteration in connection with the Separation. If the Separation occurs prior to the time performance goals are established for the fiscal year ending in 2017 in the ordinary course of business, the performance
goals for the Annual Bonus for the fiscal year ending in 2017 will be established by the Save-A-Lot LDCC.


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SIGNING BONUS : As soon as administratively practicable following the Start Date
(and in no event more than fifteen business days after the Start Date), Supervalu will make a cash payment to you of $325,000 (the “ Signing Bonus ”). If, however, you are terminated by the Employer for Cause (as defined in Supervalu’s Executive & Officer Severance Pay Plan as in effect on the Effective Date (the “ Supervalu Severance Plan ”)) or you resign for any reason other than for Good Reason (as defined below), in each case, prior to the first anniversary of the Start Date, then you will repay to the Employer the Signing Bonus within ten business days following your termination or resignation of employment. For purposes of this Letter Agreement, “ Good Reason ” means any one or more of the following events: (a) your Base Salary is reduced below the amount set forth herein; (b) your Target Bonus is reduced below the amount set forth herein; (c) your title is reduced from the title set forth herein, or your duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities that you have under this Letter Agreement, other than in a general reduction of the number or scope of personnel for which you are responsible for supervising, which reduction occurs in connection with a restructuring or recapitalization of the Employer or the division of the Employer in which you work; (d) the program of long-term incentive compensation is materially and adversely diminished in comparison to the program of long-term incentive compensation as it exists for you under this Letter Agreement (for purposes of this clause (d), a reduction of 15% or more of the annualized target dollar amount of your long-term incentive compensation opportunity shall be considered to be material and adverse); (e) you are required to be based at a location more than 45 miles from St. Louis metropolitan area; (f) failure by the Employer to provide for the assumption of this Letter Agreement by any successor entity; or (g) a material breach by the Employer of the terms of this Letter Agreement; provided , however , that any diminution of duties or responsibilities that occurs solely as a result of the fact that the Employer ceases to be a public company shall not, in and of itself, constitute Good Reason. A resignation shall not constitute a resignation for Good Reason unless (i) you give notice to the Employer of any event or condition purported to give rise to Good Reason hereunder within 60 days following the date of the occurrence of any such event or condition, (ii) the Employer fails to cure such event or condition within 30 days following the receipt of such notice, and (iii) you terminate your employment within 30 days following the expiration of such cure period. For the avoidance of doubt, a Qualifying Sale Resignation (as defined below) shall not be deemed either a termination for Cause or a resignation without Good Reason for purposes of this paragraph.

INITIAL LTI AWARD(S) : Subject to your continued employment, upon the earlier of
(a) the date of the Separation (the “ Separation Date ”) and (b) the date on which ordinary course long-term incentive awards for the fiscal year ending in 2017 are granted to senior executives of Supervalu generally (the “ FY 2017 Grant Date ”), you will be granted either (i) a Save-A-Lot long-term incentive award having an aggregate grant date value of $1.7 million (in the case of a grant under clause (a)) or (ii) a Supervalu long-term incentive award having an aggregate grant date value of $1.7 million (in the case of a grant under clause (b)) (the long-term incentive award described in this paragraph, the “ Initial LTI Award ”). In connection with the Separation, any Supervalu award granted to you prior to the Separation pursuant to this paragraph will be converted into a corresponding Save-A-Lot award having the same terms, conditions, and value (subject to non-material rounding) as applied to the Supervalu award granted to you prior to the
Separation, applying the same conversion methodology that applies to similar Supervalu awards held by Save-A-Lot employees in the Separation generally. The form, calculation methodology of the number, and the terms and conditions of the Initial LTI Award will be determined by the Save-A-Lot LDCC or the Supervalu LDCC, as applicable.


3




ANNUAL LTI AWARDS : In each fiscal year of Save-A-Lot following the Separation,
commencing with the fiscal year ending in 2018, provided that you remain employed with Save- A-Lot through the grant date, you will receive an annual long-term incentive award from Save- A-Lot with an aggregate grant date value of $1.7 million, with the allocation between award types, calculation methodology of the number, and terms and conditions to be determined by the Save-A-Lot LDCC.

BENEFITS : In addition to your compensation described in the preceding paragraphs,
you will be entitled to participate in the Employer’s comprehensive benefits programs including, without limitation, all programs available to senior executives of the Employer, subject to the eligibility requirements thereof. These programs as in effect on the Start Date are summarized in a document that you have received from Supervalu.

REIMBURSEMENT OF EXPENSES : The Employer will pay or reimburse you for all reasonable travel and other business related expenses incurred by you in performing your duties for the Employer in accordance with the Employer’s policies and procedures as in effect from time to time. You will be entitled to relocation benefits in accordance with Supervalu’s Relocation Policy – Tier 1, a copy of which you have received from Supervalu.

PAID TIME OFF : Supervalu has a Paid Time Off (PTO) policy that provides paid time off for needs such as vacation, personal illness, family needs, etc. You will be eligible for
27 days of PTO annually, which will be prorated during your first calendar year of employment based on the Start Date.

SEVERANCE : Prior to the Separation, you will be eligible for a severance benefit as
though you were a participant in the Supervalu Severance Plan at a “Tier I” level; provided ,
however , that in no event shall your severance benefit pursuant to this Letter Agreement be less favorable than the severance benefits in effect under the Supervalu Severance Plan on the
Effective Date (i.e., you will be entitled to such benefits even if the Supervalu Severance Plan is thereafter eliminated and/or modified to include less favorable benefits (the “ Guaranteed
Minimum Severance Benefits ”)). Upon and following the Separation, you will be eligible to
participate in a Save-A-Lot severance plan having terms and conditions that are substantially no less favorable to you than the Guaranteed Minimum Severance Benefits. The severance benefits provided under this Paragraph are hereinafter referred to in this Letter Agreement as the “ Termination Benefits .”

LIMITED TERMINATION RIGHT : If neither the Separation nor the consummation of a sale of all or substantially all of the SAL Business to one or more independent third parties (a “ Sale ” and such independent third party or parties, the “ Buyers ”) has occurred by the date that is 12 months following the Start Date (the “ Outside Date ”), then Supervalu shall have the right, but not the obligation, to extend you a Qualifying Offer during the 30-day period following the Outside Date (the “ Offer Period ”). A “ Qualifying Offer ” means a written offer of continued

employment that includes (a) your primary place of employment in the St. Louis metropolitan
area, or at such other place as is mutually agreed by you and Supervalu, (b) title, duties, and
reporting structure that are, in each case, no less favorable to you than as set forth in this Letter Agreement, (c) an annual base salary, target and maximum annual bonus opportunity, and severance benefits that are no less favorable to you than those set forth in this Letter Agreement, and (d) an annual long-term incentive opportunity with an aggregate grant date value of no less

4




than $1.7 million that is established in a manner no less favorable to you than as set forth in this Letter Agreement. A “ Nonqualifying Offer ” is any offer other than a Qualifying Offer.

If Supervalu does not make you a Qualifying Offer during the Offer Period (i.e., makes no offer or makes a Nonqualifying Offer during the Offer Period), you will have the right to give Supervalu notice of your resignation during the 30-day period following the earlier of Supervalu making a Nonqualifying Offer and the expiration of the Offer Period, with such resignation to be effective 30 days following Supervalu’s receipt of such notice or such other date mutually agreed by Supervalu and you. Upon such resignation, you will be entitled, subject to your execution, delivery, and non-revocation of a release of claims substantially in the form set forth in Exhibit B hereto (a “ Release ”), to receive the Termination Benefits.

If, prior to the Separation Date or, if applicable, the Outside Date, (i) a Sale is
consummated (the date on which a Sale is consummated, the “ Sale Date ”), (ii) the Buyers do not make a Qualifying Offer to you on or prior to the Sale Date, and (iii) you do not commence employment with the Buyers or any of their respective affiliates as of the Sale Date, then you will have the right to give Supervalu notice of your resignation during the 30-day period following the Sale Date (such resignation, a “ Qualifying Sale Resignation ”), with such resignation to be effective 30 days following Supervalu’s receipt of such notice or such other date mutually agreed by Supervalu and you. Upon a Qualifying Sale Resignation, you will be entitled, subject to your execution, delivery, and non-revocation of a Release, to the Termination Benefits; provided , however , that, if you become employed by the Buyers or any of their respective affiliates within two years following your termination of employment with Supervalu, you will be required to repay to Supervalu any Termination Benefits paid to you promptly following your commencement of employment with the Buyers or their respective affiliates.

If, prior to the Separation Date or, if applicable, the Outside Date: (i) a Sale is
consummated and (ii) on or prior to the Sale Date, you receive a Qualifying Offer from the
Buyers but do not accept such Qualifying Offer on or prior to the Sale Date, then Supervalu may terminate your employment within the 30 day period following the Sale Date. Such termination of employment by Supervalu will be deemed a voluntary resignation by you for purposes of the Supervalu Severance Plan and any other plan, policy, agreement, or arrangement of Supervalu, and will not entitle to you to any severance or separation benefits pursuant to this Letter Agreement or otherwise.

If the time period for executing, delivery, and not revoking a Release referenced above
(as set forth in such Release) begins and ends in different taxable years, any payments or benefits under this Letter Agreement that constitute nonqualified deferred compensation under
Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the payment or settlement of which is conditioned on the effectiveness of the Release shall be paid in the later taxable year.
CERTAIN REPRESENTATIONS AND COVENANTS : You represent and warrant
that, as of the Effective Date, you are not a party to any agreement containing or otherwise
subject to a noncompetition provision or other restriction with respect to (a) the nature of any
services that you are entitled or obligated to perform or conduct for Supervalu, Save-A-Lot, or
any of their respective affiliates under this Letter Agreement, or (b) the disclosure or use of any confidential information that directly or indirectly relates to the nature of the business of
Supervalu, Save-A-Lot, or any of their respective affiliates, or the services that you are entitled or obligated to perform under this Letter Agreement. In addition, you represent and warrant that

5




(i) you are a lawful permanent resident of the United States, (ii) you are authorized to work in the United States, and (iii) you will not require employer sponsorship in order to maintain such status and work authorization. You agree to complete Form I-9 in accordance with Supervalu procedures upon commencement of employment and to maintain such status and work authorization throughout your employment with the Employer. You acknowledge and agree that any breach of the foregoing representations and covenants shall constitute Cause for purposes of this Letter Agreement, all equity awards granted to you by the Employer, and all severance arrangements for which you may otherwise be eligible. Supervalu represents and warrants that it has the power and authority to execute and deliver this Letter Agreement and to perform its obligations hereunder.

MISCELLANEOUS : Your employment with the Employer will be “at-will.” “At-will” means that either you or the Employer are free to terminate the employment relationship at any time, for any reason. This Letter Agreement does not change the nature of your “at-will” employment and does not guarantee employment for any specific period of time. You will be provided with a Supervalu Tier II Change of Control Severance Agreement (the “ Supervalu COC Agreement ”), with terms consistent with other Supervalu Tier II COC Agreements of other senior executives of Supervalu, which will become effective on the Start Date. On the Separation Date, Supervalu will cause the Supervalu COC Agreement to be replaced with a Save-A-Lot Change of Control Severance Agreement (the “ Save-A-Lot COC Agreement ”) having terms and conditions substantially no less favorable than the Supervalu COC Agreement.In the event that you become entitled to severance payments or benefits as provided pursuant to this Letter Agreement, such payments and benefits will be your sole and exclusive severance payments and benefits and you will not be entitled to any other severance payments or benefits from the Employer. You acknowledge and agree that neither the Separation nor a Sale shall constitute a “change of control” (or a term of similar import) for the purposes of your Supervalu COC Agreement or any other plan, policy, agreement, or arrangement of Supervalu, or an event entitling you to severance or separation benefits pursuant to this Letter Agreement or otherwise (other than as set forth in the section entitled “Limited Termination Right” above).

NONCOMPETITION, NONSOLICITATION, CONFIDENTIALITY, AND
MANDATORY ARBITRATION : By accepting this offer, you agree, effective as of the
Effective Date, to the confidentiality, noncompetition, and nonsolicitation provisions contained in the “Terms and Conditions of Employment” attached as Exhibit A , and that are incorporated herein by reference. You also agree that any and all employment disputes occurring during or after your employment with the Employer are subject to mandatory arbitration as set forth in the “Terms and Conditions of Employment.” In addition, you acknowledge and agree that this Letter Agreement and the discussions and correspondences that led to this Letter Agreement shall constitute “Confidential Information” for purposes of the Confidentiality Agreement, dated
as of October 23, 2015, by and between Supervalu and you (unless such information is already publicly available through no fault of your own).

LEGAL FEES : Upon presentation of appropriate documentation, Supervalu will pay or reimburse you for your reasonable counsel fees incurred in connection with the negotiation and documentation of this Letter Agreement (at such counsel’s standard hourly rates), up to a
maximum of $20,000 in the aggregate.


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ENTIRE AGREEMENT : This Letter Agreement is intended to be the entire agreement between Supervalu and you with respect to the matters described herein. No waiver or modification hereof shall be valid unless made in writing, signed by both you and Supervalu.
SECTION 409A . The Employer and you intend that the payments and benefits provided for in this Letter Agreement either be exempt from the application of Section 409A of the Code and the rules and regulations thereunder, or be provided in a manner that does not result in tax penalties to you under Section 409A of the Code, and any ambiguity herein shall be interpreted so as to be consistent with the intent of this paragraph. Notwithstanding anything contained herein to the contrary, all payments and benefits paid on account of your termination of employment that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code shall be paid or provided only at the time of a termination of your employment that constitutes a “separation from service” from the Employer within the meaning of Section 409A of the Code and the regulations and guidance promulgated thereunder (determined after applying the presumptions set forth in Treas. Reg. Section 1.409A-1(h)(1)). Further, if at the time of your termination of employment with the Employer you are a “specified employee” as defined in Section 409A of the Code as determined by the Employer in accordance with Section 409A of the Code, and the Employer determines that the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary to prevent any accelerated or additional tax or interest on account of Section 409A of the Code, then the Employer will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in payments or benefits ultimately paid or provided to you) until the date that is six months following the date of your termination of employment with the Employer (or, if earlier, the date of your death), whereupon the Employer will pay you a lump sum amount equal to the cumulative amounts that would have otherwise been previously paid to you under this Letter Agreement during the period in which such payments or benefits were deferred. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Letter Agreement shall be treated as a separate payment of compensation for purposes of applying the exclusion under Section 409A of the Code for certain short-term deferral amounts and otherwise. In no event may you, directly or indirectly, designate the calendar year of any payment under this Letter Agreement.
Notwithstanding anything to the contrary in this Letter Agreement, in-kind benefits and reimbursements provided under this Letter Agreement during any calendar year shall not affect in-kind benefits or reimbursements to be provided in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and are not subject to liquidation or exchange for another benefit. Notwithstanding anything to the contrary in this Letter Agreement, reimbursement requests must be timely
submitted by you and, if timely submitted, reimbursement payments shall be promptly made to you following such submission, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred. In no event shall you be entitled to any reimbursement payments after December 31st of the calendar year following the calendar year in which the expense was incurred. This paragraph shall only apply to in-kind benefits and reimbursements that would result in taxable compensation income to you.

CONTROLLING LAW : This Letter Agreement shall in all respects be interpreted,
enforced and governed by the laws of the State of Minnesota without regard to its conflicts of
laws principles.


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SEVERABILITY : You agree that the terms of this Letter Agreement (including,
without limitation, Exhibit A hereto) are severable, and if any provision of this Letter Agreement (including, without limitation, Exhibit A hereto) is found to be void and unenforceable by a court, that judgment will not affect, impair or invalidate the remainder of this Letter Agreement.

COUNTERPARTS : This Letter Agreement may be executed in separate counterparts
(including by facsimile or other electronic means), each of which shall deemed to be an original but all of which taken together shall constitute one and the same instrument.

( Signature Page Follows )





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If the foregoing accurately expresses our mutual understanding, please execute the enclosed copy of this letter in the space provided below, and return to the undersigned.

Sincerely,

SUPERVALU INC.



By:
/s/ Matthew E. Ruebel ______________
Name: Matthew E. Rubel
Title: Chair, Leadership Development and
Compensation Committee

Date: 11/30/2015


AGREED AND ACCEPTED:


/s/ Eric A. Claus
Name: Eric A. Claus



Date: 11/30/2015





















[Signature Page to Offer Letter]


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EXHIBIT A
TERMS AND CONDITIONS OF EMPLOYMENT
The following are confidentiality, noncompetition, nonsolicitation and mandatory arbitration agreements referenced in the attached offer letter. By accepting this offer of employment, you agree to these terms and conditions. As they concern important legal rights, you are urged to read carefully, and consult counsel, if necessary, to ensure you understand these provisions.
As used below, “You” refers to the individual to whom this offer of employment is being extended. The “Employer” in this Exhibit A refers to (a) prior to the Separation, SUPERVALU INC. and all of its subsidiaries, affiliates, and related companies, and (b) upon and following the Separation, Save-A-Lot, Inc., and all of its subsidiaries, affiliates, and related companies and SUPERVALU INC. and all of its subsidiaries, affiliates, and related companies.
You affirm, agree and understand that the offer letter, as attached (the “ Letter Agreement ”), includes the following provisions, and that by accepting the Employer’s offer of employment, You agree to abide by, and be bound by, the following:
1.
Confidentiality . You acknowledge that, in the course of your employment with the Employer, You will have access to confidential information that was obtained or developed by the Employer at great expense and that is zealously guarded from unauthorized disclosure. Your access to and possession of this information will be due solely to your employment with the Employer. You agree that You will not, at any time during or following termination of employment for any reason, disclose, use, or otherwise make available to any third party, any confidential information relating to the Employer’s business, products, services, customers, vendors, or suppliers; trade secrets, data, specifications, techniques; long- and short-term plans, existing and prospective client, vendor, supplier, and employee lists, contacts, and information; financial, personnel, and information system information and applications; and any other information concerning the business of the Employer that is not disclosed to the general public or known in the industry, except with the express written consent of the Employer. All confidential information, including all copies, notes regarding, and replications of such confidential information will remain the sole property of the Employer, as applicable, and must be returned to the Employer immediately upon your termination from the Employer.

2.
Nonsolicitation of Customers, Vendors, and Suppliers . You specifically acknowledge that the confidential information described above includes confidential data pertaining to existing and prospective customers, vendors, and suppliers of the Employer, that such data is a valuable and unique asset of the business of the Employer, and that the success or failure of their businesses depends upon their ability to establish and maintain close and continuing personal contacts and working relationships with such existing and prospective customers, vendors, and suppliers and to develop proposals which are specific to such existing and prospective customers, vendors and suppliers. Therefore, You agree that for 12 months following the date of your termination from the Employer, You will not (except on behalf of the Employer, or with the Employer’s express written consent) solicit, approach, contact or attempt to solicit, approach, or contact, either directly or indirectly, on your own behalf or on behalf of any other person or entity, any existing or prospective customers, vendors, or suppliers of the Employer with whom You had contact or about

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whom You gained confidential information during your employment with the Employer for the purpose of obtaining business or engaging in any commercial relationship that would be competitive with the Business of the Employer (as defined below) or cause such customer, supplier, or vendor to materially change or terminate its business or commercial relationship with the Employer. This provision is in addition to, and not in lieu of, similar provisions in any other agreement(s) between You and the Employer.

3.
Nonsolicitation of Employees . You specifically acknowledge that the confidential information described above also includes confidential data pertaining to employees and agents of the Employer, and You further agree that for 12 months following your termination of employment, You will not, directly or indirectly, on your own behalf or on behalf of any other person or entity, solicit, contact, approach, encourage, induce or attempt to solicit, contact, approach, encourage, or induce any of the employees or agents of the Employer to terminate their employment or agency with the Employer.

4.
Noncompetition . You covenant and agree that for 12 months following your termination of employment, You will not, in any geographic market in which You worked or had direct or indirect responsibilities on behalf of the Employer, and for any business line or lines for or other functions for which You had direct or indirect responsibility for any sales, marketing, operational, logistical, or other management or oversight responsibility, engage in or carry on, directly or indirectly, as an owner, employee, agent, associate, consultant, partner, or in any other capacity, a business competitive with the Business of the Employer.

a.
The “ Business of the Employer ” shall mean any business or activity involved in grocery or general merchandise retailing and supply chain logistics, including but not limited to grocery distribution, business-to-business portal, retail support services, and third-party logistics, of the type provided by the Employer, or presented in concept to You by the Employer at any time during your employment with the Employer, for which you had or were proposed to have any business or business line or operational responsibilities.

b.
To “ engage in or carry on ” shall mean to have ownership in such business (excluding ownership of up to 1% of the outstanding shares of a publicly traded company) or to consult, work in, direct, or have responsibility for any area of such business, including but not limited to operations, logistics, sales, marketing, finance, recruiting, sourcing, purchasing, information technology, or customer service.

5.
Remedies . You and the Employer each acknowledges and agrees that the Employer will suffer irreparable harm from a breach by You of any of the covenants or agreements contained in Section 1, 2, 3, or 4 of this Exhibit A . You further acknowledge that the restrictive covenants set forth in Section 4 of this Exhibit A are of a special, unique, and extraordinary character, the loss of which cannot be adequately compensated by monetary damages. You agree that the terms and provisions of Sections 1, 2, 3, and 4 of this Exhibit A are fair and reasonable and are reasonably required for the protection of the Employer in whose favor such restrictions operate. You acknowledge that, but for your agreements to be bound by the restrictive covenants set forth in this Exhibit A , the Employer would not have entered into the Letter Agreement. In the event of an alleged or threatened breach by You of any of the provisions of Section 1, 2, 3, or 4 of this Exhibit A ,

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the Employer or its successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof.

6.
Mandatory Arbitration . You covenant and agree that any controversy or claim arising out of or relating to your employment relationship with the Employer or the termination of that relationship must be submitted for final and binding resolution by a private and impartial arbitration, under the Employment Dispute Resolution rules of the American Arbitration Association. This includes, but is not limited to, any claim that could be asserted in court or before an administrative agency or claims for which You have an alleged cause of action, including without limitation claims for breach of any contract or covenant (express or implied); tort claims; claims for discrimination, harassment or retaliation under local, state or federal statutes; claims for wrongful discharge; claims for violations of the Family and Medical Leave Act or any other local, state, federal or other governmental law, statute, regulation, and whether based on statute or common law. This includes claims against the Employer, any of its affiliated or subsidiary entities, or its individual officers, directors, or employees.
This does not include the following claims:
a.
claims for workers compensation or unemployment benefits;

b.
claims under the National Labor Relations Act, as amended;

c.
claims based on current or future employee benefit and/or welfare plans that contain a dispute resolution procedure therein; or

d.
claims by the Employer for injunctive or other equitable relief based on your alleged breach of covenants under this Exhibit A .

The burden of proof at arbitration shall be on the party seeking relief. Each party shall bear its own costs and attorneys’ fees. In reaching a decision, the arbitrator shall apply the governing substantive law applicable to the claims, causes of action and defenses asserted by the parties. The arbitrator shall have the power to award all remedies (including attorneys’ fees) that could be awarded by a court or administrative agency in accordance with the governing and applicable substantive law.
However, you agree that, if your employment with the Employer is terminated by the Employer prior to a Change of Control (as defined in the Supervalu COC Agreement or Save-A-Lot COC Agreement (as each such term is defined in the Letter Agreement), as applicable), any severance payments payable in connection with such termination will be as set forth in the Letter Agreement and not the Supervalu COC Agreement or Save-A-Lot COC Agreement, as applicable, unless such termination is an “Anticipatory Separation,” as defined in the Supervalu COC Agreement or Save-A-Lot COC Agreement, as applicable.
You also agree that the arbitration procedure described herein does not alter your status as an “at-will” employee, meaning both you and the Employer have the right to terminate employment at any time and for any reason.

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7.
Governing Law . You agree that the internal law, and not the law of conflicts, of the State of Minnesota, shall govern all questions concerning the validity, construction and effect of this Exhibit A. The exclusive venue for any arbitration or court proceeding relating to this Agreement shall be a state court or arbitration forum, as required above, within the state of Minnesota unless the parties mutually agree to a different venue. You consent to personal jurisdiction in Minnesota.


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EXHIBIT B
FORM OF RELEASE

AGREEMENT AND GENERAL RELEASE

This Agreement and General Release (“Release”) is entered into between SUPERVALU INC., and all its past and present subsidiary, related, and affiliated companies including [IDENTIFY SPECIFIC AFFILIATE] (the “Company”) and [NAME] (the “Executive”).

The Executive and the Company understand that all words used in this Release have their plain meanings in ordinary English. The Executive and the Company agree as follows:

1.
Termination Date . On [DATE] (the “Termination Date”), the Executive’s employment, as an employee and officer of the Company and any of its affiliates, shall terminate.

2.
Severance Pay; Time and Form of Payment .

a. In accordance with the terms of the Executive and Officer Severance Plan, the Company will provide to the Executive the following payments and benefits:

i. [LIST AMOUNTS PURSUANT TO THE AGREEMENT PROVISIONS]

b. The consideration referenced in this Section 2 shall be deemed income to the Executive solely in the year in which it is received by the Executive. The payments and benefits provided under this Section 2 shall be in full satisfaction of the Company’s obligations to the Executive upon [his/her]termination of employment. Subject to the aforesaid, the Executive shall not be entitled to any other payments or benefits of any kind (or other damages in respect of a termination or claim for breach of this Release) beyond those specified in this Section 2, including but not limited to under any company bonus, stock compensation, incentive, or benefit plan or agreement; nor will the consideration referenced in this Section 2 entitle the Executive to any increased retirement, 401(k) benefits or matching benefits, or deferred compensation or any other benefits.

c. With the exception of the Executive’s continued participation in the Company’s medical, dental, and life insurance plans as set forth in the Severance Plan, the Executive’s current participation in all other Company benefit plans will end on [DATE]. Appropriate continuation and/or conversion documents for these benefit plans, if any, shall be provided by the Company to the Executive.

d. Required taxes will be withheld from payments under this Release, and appropriate tax documents will be issued reflecting amounts received pursuant

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to this Release. Severance pay is not eligible for contributions to the 401(k) plan, flexible spending account plan or any deferred compensation plan.

3.
Tax Consequences of Severance Payment . Executive agrees that 100% of the amounts referenced in Section 2 will be treated as income subject to W-2 reporting and withholdings pursuant to state and federal laws. It is understood that the Company makes no representations or warranties with respect to the tax consequences of the payments referenced in Section 2. Executive agrees to pay any amount that may be determined to be due and owing by [him/her] as taxes, interest, penalties, or other government-required payments, arising out of the payments set forth in Section 2, for which [s]he is solely responsible. Executive further agrees that [s]he shall hold the Company harmless against, and indemnify the Company for, any and all claims, demands, deficiencies, judgments or recoveries by the Internal Revenue Service, or any other taxing authority or other governmental agency (whether federal, state or local), which may be made against the Company to withhold any portion of the amounts referenced in Section 2 or otherwise pay taxes in connection with the amounts referenced in Section 2, including amounts paid by the Company as taxes, attorneys’ fees, fines, penalties, interest or otherwise.

4.
Release of the Company . In exchange for the aforementioned payment and benefits described in Section 2, the Executive agrees as follows:

a. “Released Parties” means SUPERVALU INC. and all its past and present subsidiary, related, and affiliated companies; all present or past officers, directors, employees, agents, representatives, successors and assigns thereof; and any person who acted on behalf of or on instructions of SUPERVALU INC.

b. By this Release, the Executive voluntarily waives and releases any and all liabilities, debts, promises, agreements, costs or expenses (including but not limited to attorneys’ fees and/or dispute resolution costs), damages (including but not limited to liquidated damages or punitive damages), causes of action, judgments or claims of any kind or description, known or unknown, suspected or unsuspected, fixed or contingent, which the Executive ever had, now has or may have against the Released Parties arising from or related to the Executive’s employment with and/or Termination from the Company or any other act or omission occurring before the Executive’s execution of this Release. This release includes, but is not limited to, any claims the Executive may have for wages, commissions, penalties, vacation pay or other benefits; breach of contract or promise; promissory estoppel; fraud or misrepresentation; violation of public policy; discrimination or retaliation, including but not limited to any claim arising under, or based upon, the Family Medical Leave Act, the Age Discrimination in Employment Act, as amended, the Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, sections 1981 through 1988 of Title 42 of

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the United States Code, as amended, the Rehabilitation Act of 1973; the Americans with Disabilities Act, [INSERT STATE LAW], or other federal, state, or local civil rights laws or common laws; defamation, including libel, slander, and self-publication defamation; infliction of emotional distress; breach of the covenant of good faith and fair dealing; negligence; wrongful termination of employment; any other wrongful or unlawful acts, omissions, statements or practices; and/or any other claim of any kind whatsoever, including but not limited to any claim for damages or declaratory or injunctive relief of any kind.

c. The Executive further acknowledges and agrees that the Executive shall not institute nor authorize any other party, whether governmental or otherwise, to institute any proceeding against any of the Released Parties based upon any claims of any kind or description which the Executive has released under Section 4.b. If any agency or court assumes jurisdiction of any complaints, claims, or actions against any of the Released Parties by or on behalf of the Executive arising out of any act or omission occurring before the Executive’s execution of this Release, the Executive will request that the agency or court withdraw the matter or dismiss the matter in its entirety, with prejudice, and will execute all necessary documents to effect such withdrawal and/or dismissal.

d. Nothing in this Release is intended to or does: (1) impose any condition, penalty, or other limitation affecting the Executive’s right to challenge this Release; (2) constitute an unlawful release or waiver of any of the Executive’s rights under any laws; (3) waive or release any claim or right that the Executive has as a SUPERVALU shareholder, or as a participant in SUPERVALU Employment Stock Ownership Plan, 401(k) plan, pension plan or profit sharing plan; (4) waive or release any pending claim that the Executive has for workers’ compensation benefits or pending or future claims for benefits under the Company’s health and welfare benefit plans or qualified retirement plans; (5) waive or release any claim that arises after this Release is signed; (6) waive or release the Executive’s right to file an administrative charge with any local, state, or federal administrative agency with jurisdiction to receive and investigate the Executive’s claims under applicable law, although the Executive does waive and release the Executive’s right to recover any monetary or other damages under such applicable law, including but not limited to compensatory damages, punitive damages, liquidated damages, or attorneys’ fees and costs; or (7) prevent or interfere with the Executive’s ability or right to provide truthful testimony, if under subpoena or court order to do so, or respond as otherwise provided by law.

5.
ADEA [& MHRA OR OTHER APPLICABLE STATE LAW] Compliance.

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This Release includes, but is not limited to, a release of claims arising under the Age Discrimination in Employment Act (“ADEA”) [and the Minnesota Human Rights Act (“MHRA”), Minn. Stat. § 363A, et seq]. The Executive has been informed of [his/her] right to review and consider this Agreement & Release for 21-calendar days, if the Executive so chooses, and understands that [s]he may sign this Release before the 21-day period has ended, but if the Executive does so, the Executive is waiving and releasing any rights to the full 21-day period. In no case may the Executive sign the Release before close of business on the Executive’s last day of work. The Executive further agrees and acknowledges that (a) the Executive has read and understands this Release in its entirety; (b) the Company advises the Executive to consult with an attorney prior to executing this Release; (c) the Executive’s waiver of rights under this Release is knowing and voluntary as required under the ADEA; and (d) nothing contained in this Release waives any claim that may arise after the date of its execution. The Executive may rescind this Release insofar as it extends to potential claims under the ADEA [and MHRA] by providing written notice to the Company within fifteen/seven (15/7) calendar days after the date of [his/her] signature below. To be effective, the rescission must be in writing and delivered to the Company either by hand or by mail within the fifteen/seven (15/7)-day period. If delivered by mail, the rescission must be: (i) postmarked within the fifteen/seven (15/7)-day period; properly addressed to Michele Murphy, 7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344; and (iii) sent by certified mail, return receipt requested. In the event of such a rescission, all of the Company’s obligations under the Release shall be null and void, but the cessation of the Executive’s employment will be unaffected.

6.
Confidentiality . The Executive acknowledges that the Executive has received access to Confidential Information (as defined below) about the Company or its affiliates, that this Confidential Information was obtained or developed by the Company or its affiliates at great expense and is zealously guarded by the Company and its affiliates from unauthorized disclosure, and that the Executive’s possession of this special knowledge is due solely to the Executive’s employment with the Company. In recognition of the foregoing, the Executive will not, at any time during or following Termination of employment for any reason, disclose, use, or otherwise make available to any third party, any information relating to the Company’s or affiliates’ business, products, services, customers, vendors, or suppliers; trade secrets, data, specifications, developments, inventions and research activity; marketing and sales strategies, information and techniques; long and short term plans; existing and prospective client, vendor, supplier, and employee lists, contacts, and information; financial, personnel, and information system information and applications; and any other information concerning the business of the Company or its affiliates which is not disclosed to the general public or known in the industry (the “Confidential Information”), except with the express written consent of the Company. All Confidential Information, including all copies, notes regarding, and replications of such Confidential Information will remain the sole property of the Company, as applicable, and must be returned to the Company immediately upon the ending of the Executive’s employment. This provision is in addition to, and not in lieu of, similar provisions in any other agreement(s) between the Executive and the Company.

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7.
Non-Solicitation of Existing or Prospective Customers, Vendors, or Suppliers . The Executive specifically acknowledges that the Confidential Information described in Section 6 above includes confidential data pertaining to existing and prospective customers, vendors, and suppliers of the Company, that such data is a valuable and unique asset of the business of the Company, and that the success or failure of the Company’s businesses depends upon its ability to establish and maintain close and continuing personal contacts and working relationships with such existing and prospective customers, vendors, and suppliers and to develop proposals which are specific to such existing and prospective customers, vendors and suppliers. Therefore, the Executive agrees that for twelve (12) months following the Termination Date, the Executive will not (except with the Company’s express written consent) solicit, approach, contact or attempt to solicit, approach, or contact, either directly or indirectly, on the Executive’s own behalf or on behalf of any other person or entity, any existing or prospective customers, vendors, or suppliers of the Company with whom the Executive had contact or about whom the Executive gained Confidential Information during the Executive’s employment with the Company for the purpose of obtaining business or engaging in any commercial relationship that would be competitive with the “Business of the Company” (as defined below) or cause such customer, supplier, or vendor to materially change or terminate its business or commercial relationship with the Company. This provision is in addition to, and not in lieu of, similar provisions in any other agreement(s) between the Executive and the Company.

8.
Non-Solicitation of Employees . The Executive specifically acknowledges that the Confidential Information described above also includes confidential data pertaining to employees and agents of the Company, and the Executive further agrees that for twelve (12) months following the Termination Date, the Executive will not, directly or indirectly, on the Executive’s own behalf or on behalf of any other person or entity, solicit, contact, approach, encourage, induce or attempt to solicit, contact, approach, encourage, or induce any of the employees or agents of the Company to terminate their employment or agency with the Company.

9.
Noncompetition . You covenant and agree that for 12 months following your termination of employment, You will not, in any geographic market in which You worked or had direct or indirect responsibilities on behalf of the Employer, and for any business line or lines for or other functions for which You had direct or indirect responsibility for any sales, marketing, operational, logistical, or other management or oversight responsibility, engage in or carry on, directly or indirectly, as an owner, employee, agent, associate, consultant, partner, or in any other capacity, a business competitive with the Business of the Employer.

a. The “Business of the Employer” shall mean any business or activity involved in grocery or general merchandise retailing and supply chain logistics, including but not limited to grocery distribution, business-to-business portal, retail support services, and third-party logistics, of the type provided by the Employer, or presented in concept to You by the Employer at any time during

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your employment with the Employer, for which you had or were proposed to have any business or business line or operational responsibilities.

b. To “engage in or carry on” shall mean to have ownership in such business (excluding ownership of up to 1% of the outstanding shares of a publicly traded company) or to consult, work in, direct, or have responsibility for any area of such business, including but not limited to operations, logistics, sales, marketing, finance, recruiting, sourcing, purchasing, information technology, or customer service.

10.
Non-Disparagement . The Executive agrees [s]he will not make, cause to be made, issue, release, authorize or confirm any comments or statements concerning the Company, either in writing, electronically, orally, or otherwise that (a) are disparaging or defamatory or portray the Company in a negative light, (b) in any way impair the reputation, goodwill, or legitimate business interest of the Company; or (c) disparage the employees, agents, officers, directors, pricing, products, policies, or services of the Company. This will apply, without limitation, to any (i) member of the general public; (ii) social media websites including but not limited to Facebook, LinkedIn Twitter, My Space, Google Plus, YouTube, etc.; (iii) current, former or prospective employees and agents of the Company; (iv) current or future customers, licensees or vendors, referral sources; or (v) members of the press or other media. Notwithstanding the above, nothing herein shall preclude the Executive from testifying under oath under power of a subpoena.

11.
Remedies for Breach . Any breach by the Executive of the covenants in Sections 6-10 will likely cause irreparable harm to the Company or its affiliates for which money damages could not reasonably or adequately compensate the Company or its affiliates. Accordingly, the Company or any of its affiliates shall be entitled to all forms of injunctive relief (whether temporary, emergency, preliminary, prospective, or permanent) to enforce such covenants, in addition to damages and other available remedies, and the Executive consents to the issuance of such an injunction without the necessity of the Company or any such affiliate posting a bond, or if a court requires a bond to be posted, with a bond of no greater than $500 in principal amount. In the event that injunctive relief or damages are awarded to the Company or any affiliate for any breach by the Executive of the covenants contained in Sections 6-10, the Executive further agrees that the Company shall be entitled to recover its costs and attorney’s fees necessary to obtain such remedies. In addition, the Executive agrees that upon the Executive’s breach of any covenant in Sections 6-10, all unexercised options issued under any stock option plans of the Company will immediately terminate and the Company shall have the right to exercise any and all of the rights described above.

12.
Advice of Counsel . The Executive has carefully read and understands all the provisions of this Release and understands that important rights are being released. The Executive acknowledges that the Company has advised the Executive to consult with counsel before signing this Release, and that [s]he has done so.


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13.
Agreement to Cooperate . The Executive agrees to cooperate with the Company in regard to any legal matter, litigation, pre-litigation, administrative, governmental, or other judicial proceeding, inquiry, or investigation involving the Company and concerning any matters as to which the Executive was involved or had knowledge during the Executive’s employment. This includes, but is not limited to, providing the Company with information or providing testimony in any proceeding. The Company shall reimburse the Executive for reasonable out-of-pocket expenses incurred by the Executive in connection with such undertakings, and shall compensate the Executive for time involved at an hourly rate based on the Executive’s final base salary at time of [his/her] Termination Date.

14.
Return of Property . The Executive acknowledges that [s]he has returned all Company property in the Executive’s possession prior to the date hereof including, but not limited to, equipment, ID cards, Corporate Cards, all copies of customer lists, forms, plans, documents, systems designs, product features, technology, other written and computer materials belonging to the Company or its clients. The Executive will not at any time copy or reproduce any of the Company’s or its clients’ property. The Executive further understands that all designs, improvements, writings and discoveries made by the Executive during employment that relate to the Company’s business is the exclusive property of the Company and the Executive cannot use, sell or give them to anyone else.

15.
Terms of Severance Agreement and General Release Confidential . The Executive shall keep the terms of this Release strictly confidential. The Executive may disclose the terms to [his/her] attorney, tax advisor and spouse/domestic partner (with any such person required to agree to be subject to the confidentiality requirements of this Section 15), but the terms otherwise shall not be disclosed by the Executive to third persons unless required by law.

16.
Dispute Resolution .

a.
ERISA §503 Procedure . The Executive and the Company agree that any controversy, claim or dispute arising out of or relating to this Release or relating to the Executive’s employment with the Company or the Termination/end of such relationship (including, but not limited to, any dispute concerning the amount of compensation due to Executive), shall be subject to a claims adjudication process analogous to the ERISA §503 process set forth in the current SUPERVALU INC. Executive & Officer Severance Pay Plan. Notwithstanding the foregoing, in any litigation or arbitration regarding such matter, deference shall not be afforded to any determination that is made in whole or in part under that process.

b.
Arbitration Process . Any controversy, claim or dispute which is not resolved after exhausting the process set forth in Section 16.a., excluding claims by the Company relating to Executive’s breach of any of Executive’s covenants set forth in Sections 6-10 herein, shall be resolved by final and binding arbitration

-7


under the Employment Dispute Resolution rules and auspices of the American Arbitration Association, or other neutral arbitrator and rules as mutually agreed to by the Executive and the Company. Executive and the Company agree that such claims may be brought in an appropriate administrative forum, but at the point at which Executive or the Company seeks a judicial forum to resolve the matter, the agreement for binding arbitration becomes effective, and Executive and the Company hereby knowingly and voluntarily waive any right to have any such dispute tried and adjudicated by a judge or jury. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq. The place of arbitration shall be Minneapolis, Minnesota, or other location mutually agreed to by the Executive and the Company. The arbitrator shall apply the law as established by decisions of the applicable federal and state courts in deciding the merits of claims and defenses. The arbitrator is required to state, in writing, the reasoning on which the award rests.

c.
Judicial Enforcement . The foregoing not to the contrary, the Company may seek to enforce the Executive’s covenants set forth in Sections 6-10 above in any court of competent jurisdiction. Executive and the Company agree that any award rendered by the arbitrator shall be final and binding and that judgment upon the final award may be entered in any court having jurisdiction thereof. The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, including any remedy or relief that would have been available to Executive, the Company or any of its affiliates had the matter been heard in court. All expenses of the arbitration, including the required travel and other expenses of the arbitrator and any witnesses, and the costs relating to any proof produced at the direction of the arbitrator, shall be borne equally by Executive and the Company unless otherwise mutually agreed or unless the arbitrator directs otherwise in the award. The arbitrator’s compensation shall be borne equally by Executive and the Company unless otherwise mutually agreed or unless the law provides otherwise.

d.
Attorneys’ Fees. The Executive and the Company each shall pay their own attorneys’ fees for any dispute addressed by Section 16.

e.
Injunction and Finality . Executive agrees that any breach of the covenants contained in Sections 6-10 would irreparably injure the Company. Accordingly, Executive agrees that the Company may, in addition to pursuing any other remedies it may have in law or in equity, cease making any payments or providing any benefits otherwise required by this Release and obtain an injunction against Executive from any court having jurisdiction over the matter restraining any further violation of this Agreement by Executive; provided, however, that the Company may not cease making any payments required by this Agreement until a court or arbitrator(s) having jurisdiction

-8


over the matter has made a final non-appealable determination on the merits of such action in the Company's favor.

17.
409A . [ Set forth compliance].

18.
No Assignment . The terms and conditions of this Release are personal to the Executive and may not be assigned to any person or entity without the prior written consent of the Company.

19.
Entire Agreement . Except for any confidentiality, non-competition or nonsolicitation provisions or similar provisions in other agreements between the Company and the Executive that continue to be applicable after the Executive’s employment ends, this Release is the entire agreement between the Executive and the Company concerning the Executive’s employment and the Termination of the Executive’s employment and it supersedes all other agreements and arrangements relating to severance or end of employment payments. It is the Executive’s intent to be legally bound by the terms of the Release. No amendments, modifications or waivers of this Release shall be binding unless made in writing and signed by both the Executive and the Company.

20.
No Waivers . No waiver by either party, at any time, of any breach by the other party of, or of compliance by the other party with, any condition or provision of this Release to be performed or complied with by such other party shall be deemed a waiver of any similar or dissimilar provision or condition of this Release or any other breach of or failure to comply with the same condition or provision at the same time or at any prior or subsequent time.

21.
Severability . The Executive and the Company agree that if any part, term, or provision of these Terms and Conditions should be held to be unenforceable, invalid, or illegal under any applicable law or rule, the offending term or provision shall be applied to the fullest extent enforceable, valid, or lawful under such law or rule, or, if that is not possible, the offending term or provision shall be struck and the remaining provisions of these Terms and Conditions shall not be affected or impaired in any way. To the extent permitted by applicable law, the Executive and the Company waive any provision of law that renders any provision of this Release invalid or unenforceable in any respect. However, if the Executive’s release of claims set forth in this Release is held invalid, illegal, or unenforceable, the Company may void this Agreement.

22.
Governing Law . This Release will be governed by the laws of the State of Minnesota, without giving effect to its conflict of laws rules. Any action brought by Executive or the Company with respect to this Release shall be brought and maintained in a court of competent jurisdiction in the State of Minnesota.

23.
Construction . Executive acknowledges and agrees that no promises or representations have been made to induce [him/her] to sign this Release other than as expressly set forth herein and that [s]he has signed this Release as a free and voluntary act. Further, this
Release has been entered into after review of its terms by the Executive and [his/her] counsel. Therefore, there shall be no strict construction for or against either party. No ambiguity or admission shall be construed against the Company on the grounds that this Release or any of its provisions was drafted or prepared by the Company.

IN WITNESS WHEREOF, the parties, the Executive and SUPERVALU INC., hereby execute this Agreement and General Release.


Dated:          
                                 [NAME]

Dated:     
SUPERVALU INC.

    
By: [Name]
Its: [Title]

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Exhibit 12.1  
Ratio of Earnings to Fixed Charges
(In millions, except ratios)  
 
Year-To-Date Ended
 
Fiscal Year Ended
 
December 5, 
 2015 
 (40 weeks)
 
February 28, 
 2015 
 (53 weeks)
 
February 22, 2014
(52 weeks)
 
February 23, 2013 (1)
(52 weeks)
 
February 25, 2012 (2)
(52 weeks)
 
February 26, 2011 (3)  
 (52 weeks)
Earnings (loss) from continuing operations before income taxes
$
208

 
$
185

 
$
18

 
$
(416
)
 
$
(138
)
 
$
(253
)
Less net earnings attributable to noncontrolling interests
(6
)
 
(7
)
 
(7
)
 
(10
)
 
(13
)
 
(7
)
Net overdistributed earnings of less than fifty percent owned affiliates
1

 
—

 
1

 
1

 
—

 
—

Fixed charges
179

 
281

 
444

 
313

 
295

 
279

Amortized capitalized interest
(1
)
 
(1
)
 
(1
)
 
(4
)
 
(6
)
 
(8
)
Earnings (loss) available to cover fixed charges
$
381

 
$
458

 
$
455

 
$
(116
)
 
$
138

 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
148

 
244

 
407

 
272

 
251

 
235

Capitalized interest
1

 
1

 
1

 
4

 
6

 
8

Interest on operating leases
30

 
36

 
36

 
37

 
38

 
36

Total fixed charges
$
179

 
$
281

 
$
444

 
$
313

 
$
295

 
$
279

 
 
 
 
 
 
 
 
 
 
 
 
Excess (deficiency) of earnings to fixed charges
$
202

 
$
177

 
$
11

 
$
(429
)
 
$
(157
)
 
$
(268
)
Ratio of earnings to fixed charges
2.13

 
1.63

 
1.02

 
N/A

 
N/A

 
N/A


N/A represents a ratio of less than one.
(1)
The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2013 due to $227 of non-cash asset impairment and other charges before tax, administrative expenses related to divested NAI operations, $36 of severance costs before tax, $22 of store closure charges and costs before tax, $22 of non-cash unamortized financing costs before tax and $6 of non-cash intangible asset impairment charges before tax, offset in part by $10 in a cash settlement received from credit card companies before tax.
(2)
The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2012 due to administrative expenses related to divested NAI operations, $92 of non-cash goodwill impairment charges before tax and severance costs of $15 before tax.
(3)
The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2011 due to administrative expenses related to divested NAI operations, $110 of non-cash goodwill impairment charges before tax, $49 of store closure charges and retail market exit charges and costs before tax and $38 of charges for severance, labor buyout and other costs before tax.





Exhibit 31.1
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Sam Duncan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended December 5, 2015 ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 13, 2016
 
/s/ SAM DUNCAN
 
 
Sam Duncan
Chief Executive Officer and President




Exhibit 31.2
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Susan S. Grafton, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended December 5, 2015 ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 13, 2016
 
/s/ SUSAN S. GRAFTON
 
 
Susan S. Grafton
Executive Vice President, Chief Financial Officer
(principal financial and accounting officer)




Exhibit 32.1
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended December 5, 2015 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: January 13, 2016
 
/s/ SAM DUNCAN
 
 
Sam Duncan
Chief Executive Officer and President




Exhibit 32.2
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended December 5, 2015 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: January 13, 2016
 
/s/ SUSAN S. GRAFTON
 
 
Susan S. Grafton
Executive Vice President, Chief Financial Officer
(principal financial and accounting officer)