Notes to Financial Statements
Years Ended
December 31, 2018
and
2017
1. Plan Description
The following description of the United Natural Foods, Inc. Retirement Plan (the “Plan”) provides only general information. Participants should refer to the plan document, including the adoption agreement, for a more complete description of the Plan’s provisions.
The Plan is a defined contribution plan providing retirement benefits for all eligible employees of United Natural Foods, Inc. and its subsidiaries (the “Company” or “Plan Administrator”). On October 22, 2018, the Company acquired all of the outstanding equity securities of SUPERVALU INC. (“Supervalu”). As of December 31, 2018, Supervalu employees were not eligible to participate in the Plan. Substantially all other employees who have completed a thirty day service period are eligible to participate in the Plan. The Plan is governed by the Plan Sponsor Committee, who has established the Plan’s Investment Committee with discretionary authority over and duties with respect to the investment of the Plan’s assets. The Plan Sponsor Committee assigned the Plan’s Administrative Committee with discretionary authority over and duties with respect to the administration of the Plan, excluding for the investments of the Plan’s assets.
The Plan is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Each year, participants may contribute up to 75% of their eligible pretax compensation, as defined by the Plan, subject to limitations established by the Internal Revenue Code. Participants may also elect to contribute up to 100% of their bonus pay or profit sharing bonus, pay out subject to overall company performance.
The Company may elect to make discretionary matching contributions or non-elective contributions to the Plan. During the years ended
December 31, 2018
and
2017
, the Company matched 50% of the first 8% of eligible compensation that a participant contributed to the Plan. Company contributions totaled $
10,597,878
and
$10,113,944
for the years ended
December 31, 2018
and
2017
, respectively. The Plan also permits participants to make catch-up contributions and rollover contributions. Catch-up contributions and rollover contributions are not eligible for Company matching contributions.
The Plan utilizes Fidelity Management Trust Company (“Fidelity”) as its record keeper and maintains an account in the name of each participant to which each participant’s contributions, the Company’s contributions for such participant, and the participant’s share of the net earnings, losses and expenses, if any, of the various investments are recorded. Allocations are generally based on participants’ eligible compensation or account balances, as defined by the Plan. The earnings on the assets held in each of the investments and all proceeds from the sale of such assets are held and reinvested in the respective investments.
Participants may rollover contributions of before-tax dollars from a prior employer’s eligible retirement plan, as defined in the Plan, or an Individual Retirement Account, into their plan accounts. Rollovers must be made within the time limits prescribed by the Internal Revenue Service (“IRS”). Rollover contributions totaled
$4,624,791
and
$3,425,144
for the years ended
December 31, 2018
and
2017
, respectively.
Participants are immediately fully vested in their contributions transferred from previous employers’ plans, employee pretax contributions and any earnings thereon. Vesting in the Company’s contribution portion of a participant’s account (whether through matching or non-elective contributions), plus any earnings thereon, is generally based on years of continuous service. A participant is 100% vested in such contributions after four years of credited service, with 25% vesting each year. Participants earn one year of service for each twelve months of service completed with the Company. Participants also become fully vested in the Company’s contributions regardless of years of service at age 59 or upon death or permanent and total disability.
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(e)
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Notes Receivable from Participants
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Participants (other than eligible employees who have made rollover contributions to the Plan but are not yet active participants) may borrow from their investment accounts. Loans are secured by the vested portion of a participant’s account balance, with a $1,000 minimum principal amount for each loan and a maximum principal amount that cannot exceed the lesser of $50,000 or 50% of the participant’s vested account balance. The loans have a maximum term of five years (except for loans used to purchase principal residences), but become immediately payable upon death, termination, or disability. The loans bear interest at rates that range from
4.00%
to
9.50%
, which are commensurate with prevailing rates as determined by the Plan Administrator at the date of the loan. Principal and interest are paid ratably through automatic payroll deductions.
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(f)
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Distribution of Benefits
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Participants (or, in the event of a participant’s death, their beneficiary) may request a distribution of all or part of the value in their accounts in accordance with the terms and conditions of the Plan upon retirement, termination of service, disability, or death. In addition, participants who have attained age 59 ½ may elect to withdraw all or a portion of their vested accounts while they are still employed by the Company. Participants with account balances greater than $1,000 may defer receipt of their distributions until they are required by law to receive minimum required distributions. Distributions made to individuals who have not attained the age of 59 ½ may be subject to a 10% early distribution penalty.
Benefit payments may be made in a lump-sum distribution or in installments. The participant or beneficiary is entitled to select the manner in which benefit payments are received subject to the terms of the Plan. If the participant’s vested account balance is $1,000 or less, payment must be made in a lump-sum distribution.
Withdrawals for financial hardship are permitted provided they meet regulations prescribed by the IRS and are for a severe and immediate financial need. The participant must have exhausted all other assets reasonably available, including obtaining a loan from the Plan and any other qualified plan maintained by the Company, prior to obtaining the hardship withdrawal.
At
December 31, 2018
and
2017
, the balance of non-vested forfeited accounts totaled
$189,179
and
$461,226
, respectively. These account balances are used to reduce future employer contributions. During the years ended
December 31, 2018
and
2017
, forfeited amounts totaling
$463,973
and
$16,442
, respectively, were used to reduce employer contributions.
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).
Benefits are recorded when paid.
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(c)
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Valuation of Investments
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The Plan’s investments are stated at fair value. Shares of registered investment companies and United Natural Foods, Inc. common stock are valued at quoted market prices in active markets. Money market funds are valued at cost which approximates fair value. See Note 3 for further discussion of the methods used to determine the fair value of investments held by the Plan.
The Fidelity Managed Income Portfolio and the Wells Fargo Stable Value Fund investment options are common collective trusts that are invested in guaranteed investment contracts deemed to be fully benefit-responsive within the meaning of Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 962-325,
Defined Contribution Pension Plans - Investments (Other)
and are recorded at fair value.
Purchases and sales of securities are recorded on a trade-date basis. Net appreciation in the fair value of investments includes both realized and unrealized gains and losses. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
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(d)
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Valuation of Notes Receivable from Participants
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Notes receivable from participants are measured at their unpaid principal balance plus accrued but unpaid interest. Interest income is recorded on the accrual basis. No allowance for credit losses was recorded at December 31, 2018 or 2017. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be in default, the participant loan balance is reduced to zero and a benefit payment is recorded.
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(e)
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Administrative Expenses
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Administrative expenses as reported on the financial statements include various fees charged to participants for transactions. All other administrative expenses, including legal and audit fees, are paid by the Company.
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.
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(g)
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Risks and Uncertainties
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The Plan invests in various types of investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits.
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(h)
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Recently Issued Accounting Pronouncements
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In August 2018, the Financial Accounting Standards Board issued accounting standard update 2018-13, “Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” (ASU 2018-13). The updated guidance improves fair value measurement disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Plan is currently assessing the timing of adopting the updated provisions. The effect of adopting this standard is not expected to be significant.
3. Fair Value Measurements
The Plan applies ASC 820,
Fair Value Measurements and Disclosures
(“ASC 820”), which provides a framework for measuring fair value and specifies required disclosure about fair value measurements of assets and liabilities.
ASC 820 defines fair value 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.” Its objective is to provide a consistent definition of fair value which focuses on exit price and emphasizes the use of market-based inputs over entity-specific inputs. ASC 820 places a higher priority on the use of observable inputs over unobservable inputs. A fair value hierarchy based on inputs was developed to categorize assets into three levels:
Level 1:
Assets that have observable inputs that reflect quoted prices for identical assets or liabilities in active markets (NYSE, NASDAQ). Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.
Level 2:
Assets that have inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset. Inputs are observable but do not solely rely on quoted market prices to establish fair value.
Level 3:
Assets with unobservable inputs. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
An asset’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for the Plan’s investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy.
Common Stock
As of December 31, 2018 and December 31, 2017, the Company’s common stock (“UNFI Common Stock”) was valued at the closing price reported on the NASDAQ Global Select Market and is therefore, presented as a Level 1 asset. Beginning on January 2, 2019, UNFI Common Stock began trading on the New York Stock Exchange.
Mutual Funds
Mutual funds within the Plan are classified as Level 1 assets and are valued at the published closing price in active markets.
Common Collective Trusts
The guaranteed investment contracts (or “GIC”) are comprised of wrapper contracts and underlying investments. The fair value of the wrapper contracts represent the difference between the replacement cost and actual cost of the contracts and are calculated using a discounted cash flow model, which considers recent fee bids as determined by recognized dealers, an appropriate discount rate and the duration of the underlying portfolio securities. These inputs are considered unobservable inputs in that they reflect the Plan’s own assumptions about the inputs that market participants would use in pricing the asset or liability and therefore would be considered Level 3 assets. The Plan believes that this is the best information available for use in the fair value measurement. The underlying assets are commingled funds which are valued using the Net Asset Value (or “NAV”) which is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market as defined above under “Mutual Funds”, and are therefore classified as Level 2 assets. As the fair market value of the wrapper contracts represent an insignificant amount of the total value of the Common Collective Trusts, they have been shown combined as a Level 2 asset.
Below are the Plan’s investments carried at fair value on a recurring basis classified by the ASC 820 fair value hierarchy levels as of
December 31, 2018
and
2017
:
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December 31, 2018
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Level 1
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Level 2
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Level 3
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Total
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UNFI Common Stock
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$
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10,755,677
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$
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—
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$
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—
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$
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10,755,677
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Mutual Funds
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Balanced Funds
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196,297,638
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—
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—
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196,297,638
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Domestic Funds
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52,838,334
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—
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—
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52,838,334
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Bond Funds
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10,714,233
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—
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—
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10,714,233
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Common Collective Trust
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—
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16,849,527
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—
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16,849,527
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Totals
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$
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270,605,882
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$
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16,849,527
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$
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—
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$
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287,455,409
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December 31, 2017
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Level 1
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Level 2
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Level 3
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Total
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UNFI Common Stock
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$
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48,798,088
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$
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—
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$
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—
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$
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48,798,088
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Mutual Funds
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Balanced Funds
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195,154,222
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—
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—
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195,154,222
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Domestic Funds
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56,249,728
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—
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—
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56,249,728
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Bond Funds
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11,861,038
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—
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—
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11,861,038
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Common Collective Trusts
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—
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16,545,146
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—
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16,545,146
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Totals
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$
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312,063,076
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$
|
16,545,146
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$
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—
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$
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328,608,222
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4. Related Party Transactions (Party-In-Interest)
Certain Plan investments are shares of registered investment companies and common collective trusts managed by Fidelity. Fidelity is the trustee and custodian as defined by the Plan. Activities involving these funds qualify as party-in-interest transactions. In addition, at
December 31, 2018
and
2017
, the Plan held
1,015,550
and
990,384
shares of the Company’s $0.01 par value per share common stock, respectively.
5. Plan Termination
Although it has not expressed any intent to do so, the Company has the right to terminate the Plan at any time subject to the provisions set forth in ERISA and the Internal Revenue Code. In the event of Plan termination, participants will become 100% vested in their accounts.
6. Income Tax Status
As of October 30, 2015, to reflect the merger of the Employee Stock Ownership Plan into the Plan, the Plan was amended and restated as an individually-designed plan. The Plan has not received a tax determination letter or a favorable tax ruling. The Plan Administrator maintains the Plan and intends to continue to operate the Plan in accordance with the applicable requirements of the IRS so that the Plan is qualified and the related trust is tax-exempt. In addition, the Plan Administrator intends to obtain an initial determination letter for the Plan. Therefore, no provision for income taxes has been recorded in these financial statements.
U.S. GAAP requires the Plan’s management to evaluate tax positions taken by the Plan and recognize a tax liability or asset if the Plan has taken an uncertain tax position that more likely than not would not be sustained upon examination. The Plan Administrator believes that there are no uncertain tax positions that would have a material impact on the financial statements of the Plan.
7. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of
December 31, 2018
and
2017
:
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2018
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2017
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Net assets available for benefits per the financial statements
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$
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298,739,744
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$
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339,654,410
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Excess contributions payable as of plan year end
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161,305
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—
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Net assets available for benefits per Form 5500
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$
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298,901,049
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$
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339,654,410
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The following is a reconciliation of employee contributions, total (reductions) additions, and total deductions per the financial statements to the Form 5500 for the years ended
December 31, 2018
and
2017
:
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2018
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2017
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Employee contributions per the financial statements
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$
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28,630,347
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$
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25,209,464
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Excess contributions payable
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161,305
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—
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Difference between prior year accrual and actual for excess contributions
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(1,051
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)
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14,650
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Employee contributions per Form 5500
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$
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28,790,601
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$
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25,224,114
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Total (reductions) additions per the financial statements
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$
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(7,843,167
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)
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$
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79,931,454
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Items to reconcile employee contributions per the financial statements to employee contributions per the Form 5500
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161,305
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14,650
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Total (loss) income per Form 5500
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$
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(7,681,862
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)
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$
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79,946,104
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Total deductions per the financial statements
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$
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33,071,499
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$
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31,357,567
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Excess (distributions) contributions paid during the current year
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(1,051
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)
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307,821
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Total expenses per Form 5500
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$
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33,070,448
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$
|
31,665,388
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