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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 2023
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: 001-15723
UNITED NATURAL FOODS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or
organization)
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05-0376157
(I.R.S. Employer Identification No.)
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313 Iron Horse Way, Providence, RI 02908
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(Address of principal executive offices) (Zip Code) |
Registrant’s telephone number, including area
code:
(401) 528-8634
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Common stock, par value $0.01 |
UNFI |
New York Stock Exchange |
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 ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of March 3, 2023 there were 59,397,933 shares of the
registrant’s common stock, $0.01 par value per share,
outstanding.
TABLE OF CONTENTS
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Part I.
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Financial Information
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except for par values)
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January 28,
2023 |
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July 30,
2022 |
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ASSETS |
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Cash and cash equivalents |
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$ |
40 |
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$ |
44 |
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Accounts receivable, net |
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992 |
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1,214 |
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Inventories, net |
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2,512 |
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2,355 |
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Prepaid expenses and other current assets |
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197 |
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184 |
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Total current assets |
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3,741 |
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3,797 |
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Property and equipment, net |
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1,719 |
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1,690 |
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Operating lease assets |
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1,218 |
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1,176 |
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Goodwill |
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20 |
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20 |
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Intangible assets, net |
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783 |
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819 |
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Other long-term assets |
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154 |
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126 |
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Total assets |
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$ |
7,635 |
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$ |
7,628 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
1,797 |
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$ |
1,742 |
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Accrued expenses and other current liabilities |
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249 |
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260 |
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Accrued compensation and benefits |
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166 |
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232 |
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Current portion of operating lease liabilities |
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161 |
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156 |
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Current portion of long-term debt and finance lease
liabilities |
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23 |
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27 |
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Total current liabilities |
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2,396 |
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2,417 |
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Long-term debt |
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2,065 |
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2,109 |
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Long-term operating lease liabilities |
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1,107 |
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1,067 |
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Long-term finance lease liabilities |
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18 |
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23 |
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Pension and other postretirement benefit obligations |
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18 |
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18 |
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Deferred income taxes |
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14 |
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8 |
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Other long-term liabilities |
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172 |
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194 |
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Total liabilities |
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5,790 |
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5,836 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value, authorized 5.0 shares; none
issued or outstanding
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— |
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— |
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Common stock, $0.01 par value, authorized 100.0 shares; 60.9 shares
issued and 59.6 shares outstanding at January 28, 2023; 58.9
shares issued and 58.3 shares outstanding at July 30,
2022
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1 |
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1 |
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Additional paid-in capital |
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592 |
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608 |
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Treasury stock at cost |
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(53) |
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(24) |
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Accumulated other comprehensive loss |
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(9) |
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(20) |
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Retained earnings |
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1,311 |
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1,226 |
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Total United Natural Foods, Inc. stockholders’ equity |
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1,842 |
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1,791 |
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Noncontrolling interests |
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3 |
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1 |
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Total stockholders’ equity |
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1,845 |
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1,792 |
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Total liabilities and stockholders’ equity |
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$ |
7,635 |
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$ |
7,628 |
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See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except for per share data)
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13-Week Period Ended |
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26-Week Period Ended |
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January 28,
2023 |
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January 29,
2022 |
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January 28,
2023 |
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January 29,
2022 |
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Net sales |
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$ |
7,816 |
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$ |
7,416 |
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$ |
15,348 |
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$ |
14,413 |
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Cost of sales |
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6,747 |
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6,341 |
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13,183 |
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12,296 |
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Gross profit |
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1,069 |
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1,075 |
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2,165 |
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2,117 |
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Operating expenses |
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1,002 |
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944 |
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2,002 |
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1,876 |
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Restructuring, acquisition and integration related
expenses |
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3 |
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5 |
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5 |
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8 |
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Loss (gain) on sale of assets |
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1 |
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1 |
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(4) |
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1 |
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Operating income |
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63 |
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125 |
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162 |
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232 |
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Net periodic benefit income, excluding service cost |
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(7) |
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(10) |
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(14) |
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(20) |
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Interest expense, net |
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39 |
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44 |
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74 |
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84 |
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Other income, net |
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— |
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(2) |
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(1) |
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(1) |
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Income before income taxes |
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31 |
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93 |
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103 |
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169 |
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Provision for income taxes |
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9 |
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25 |
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14 |
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24 |
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Net income including noncontrolling interests |
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22 |
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68 |
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89 |
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145 |
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Less net income attributable to noncontrolling
interests |
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(3) |
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(2) |
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(4) |
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(3) |
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Net income attributable to United Natural Foods, Inc. |
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$ |
19 |
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$ |
66 |
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$ |
85 |
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$ |
142 |
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Basic earnings per share
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$ |
0.32 |
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$ |
1.13 |
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$ |
1.43 |
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$ |
2.47 |
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Diluted earnings per share
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$ |
0.31 |
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$ |
1.08 |
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$ |
1.38 |
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$ |
2.33 |
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Weighted average shares outstanding: |
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Basic |
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59.8 |
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58.3 |
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59.3 |
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57.6 |
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Diluted |
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61.0 |
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61.0 |
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61.3 |
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61.0 |
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See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in millions)
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13-Week Period Ended |
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26-Week Period Ended |
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January 28,
2023 |
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January 29,
2022 |
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January 28,
2023 |
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January 29,
2022 |
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Net income including noncontrolling interests |
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$ |
22 |
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$ |
68 |
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$ |
89 |
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$ |
145 |
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Other comprehensive (loss) income: |
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Recognition of pension and other postretirement benefit
obligations, net of tax |
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1 |
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1 |
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1 |
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2 |
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Recognition of interest rate swap cash flow hedges, net of
tax(1)
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(4) |
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15 |
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14 |
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28 |
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Foreign currency translation adjustments |
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1 |
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(2) |
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(2) |
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(2) |
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Recognition of other cash flow derivatives, net of
tax(2)
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(2) |
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1 |
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(2) |
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2 |
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Total other comprehensive (loss) income |
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(4) |
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15 |
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11 |
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30 |
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Less comprehensive income attributable to noncontrolling
interests |
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(3) |
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(2) |
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(4) |
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(3) |
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Total comprehensive income attributable to United Natural Foods,
Inc. |
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$ |
15 |
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$ |
81 |
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$ |
96 |
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$ |
172 |
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(1)Amounts
are net of tax (benefit) expense of $(1) million and $6
million for the second quarters of fiscal 2023 and 2022,
respectively, and $5 million and $10 million for fiscal 2023
and 2022 year-to-date, respectively.
(2)Amounts
are net of tax (benefit) expense of $(1) million and $1
million for the second quarters of fiscal 2023 and 2022,
respectively, and $(1) million and $1 million for fiscal 2023
and 2022 year-to-date, respectively.
See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
For the 13-week periods ended January 28, 2023 and January 29,
2022
(in millions)
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Common Stock |
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Treasury Stock |
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Additional
Paid-in Capital |
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Accumulated
Other
Comprehensive Loss |
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Retained Earnings |
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Total United Natural Foods, Inc.
Stockholders’ Equity |
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Noncontrolling Interests |
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Total Stockholders’ Equity |
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Shares |
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Amount |
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Shares |
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Amount |
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Balances at October 29, 2022 |
60.9 |
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$ |
1 |
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1.0 |
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$ |
(36) |
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$ |
583 |
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$ |
(5) |
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$ |
1,292 |
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$ |
1,835 |
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$ |
— |
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$ |
1,835 |
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Restricted stock vestings |
— |
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— |
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— |
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— |
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(2) |
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— |
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— |
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(2) |
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— |
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(2) |
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Share-based compensation |
— |
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— |
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— |
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— |
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11 |
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— |
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— |
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11 |
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— |
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11 |
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Repurchases of common stock |
— |
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— |
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0.3 |
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(17) |
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— |
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— |
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— |
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(17) |
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— |
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(17) |
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Other comprehensive loss |
— |
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— |
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— |
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— |
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— |
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(4) |
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— |
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(4) |
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— |
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(4) |
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Net income |
— |
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— |
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— |
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— |
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— |
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— |
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19 |
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19 |
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3 |
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22 |
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Balances at January 28, 2023 |
60.9 |
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$ |
1 |
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1.3 |
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$ |
(53) |
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$ |
592 |
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$ |
(9) |
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$ |
1,311 |
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$ |
1,842 |
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$ |
3 |
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$ |
1,845 |
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Balances at October 30, 2021 |
58.7 |
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$ |
1 |
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0.6 |
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$ |
(24) |
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$ |
582 |
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$ |
(24) |
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$ |
1,054 |
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$ |
1,589 |
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$ |
(2) |
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$ |
1,587 |
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Restricted stock vestings |
0.1 |
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— |
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— |
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— |
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(2) |
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— |
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— |
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(2) |
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— |
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(2) |
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Share-based compensation |
— |
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— |
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— |
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— |
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12 |
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— |
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— |
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12 |
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— |
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12 |
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Other comprehensive income |
— |
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— |
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— |
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— |
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— |
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15 |
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— |
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15 |
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— |
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15 |
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Distributions to noncontrolling interests |
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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(1) |
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(1) |
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Proceeds from issuance of common stock, net |
— |
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— |
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— |
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— |
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4 |
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— |
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— |
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|
4 |
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— |
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|
4 |
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Net income |
— |
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— |
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— |
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|
— |
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|
— |
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|
— |
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|
66 |
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|
66 |
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|
2 |
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|
68 |
|
|
Balances at January 29, 2022 |
58.8 |
|
|
$ |
1 |
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|
0.6 |
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$ |
(24) |
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$ |
596 |
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$ |
(9) |
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$ |
1,120 |
|
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$ |
1,684 |
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$ |
(1) |
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$ |
1,683 |
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See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
For the 26-week periods ended January 28, 2023 and January 29,
2022
(in millions)
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Common Stock |
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Treasury Stock |
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Additional
Paid-in Capital |
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Accumulated
Other
Comprehensive Loss |
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Retained Earnings |
|
Total United Natural Foods, Inc.
Stockholders’ Equity |
|
Noncontrolling Interests |
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Total Stockholders’ Equity |
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Shares |
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Amount |
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Shares |
|
Amount |
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|
|
|
|
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|
Balances at July 30, 2022 |
58.9 |
|
|
$ |
1 |
|
|
0.6 |
|
|
$ |
(24) |
|
|
$ |
608 |
|
|
$ |
(20) |
|
|
$ |
1,226 |
|
|
$ |
1,791 |
|
|
$ |
1 |
|
|
$ |
1,792 |
|
|
Restricted stock vestings |
2.0 |
|
|
— |
|
|
— |
|
|
— |
|
|
(39) |
|
|
— |
|
|
— |
|
|
(39) |
|
|
— |
|
|
(39) |
|
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
23 |
|
|
— |
|
|
— |
|
|
23 |
|
|
— |
|
|
23 |
|
|
Repurchases of common stock |
— |
|
|
— |
|
|
0.7 |
|
|
(29) |
|
|
— |
|
|
— |
|
|
— |
|
|
(29) |
|
|
— |
|
|
(29) |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
Distributions to noncontrolling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2) |
|
|
(2) |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
85 |
|
|
85 |
|
|
4 |
|
|
89 |
|
|
Balances at January 28, 2023 |
60.9 |
|
|
$ |
1 |
|
|
1.3 |
|
|
$ |
(53) |
|
|
$ |
592 |
|
|
$ |
(9) |
|
|
$ |
1,311 |
|
|
$ |
1,842 |
|
|
$ |
3 |
|
|
$ |
1,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 31, 2021 |
57.0 |
|
|
$ |
1 |
|
|
0.6 |
|
|
$ |
(24) |
|
|
$ |
599 |
|
|
$ |
(39) |
|
|
$ |
978 |
|
|
$ |
1,515 |
|
|
$ |
(1) |
|
|
$ |
1,514 |
|
|
Restricted stock vestings |
1.8 |
|
|
— |
|
|
— |
|
|
— |
|
|
(35) |
|
|
— |
|
|
— |
|
|
(35) |
|
|
— |
|
|
(35) |
|
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
23 |
|
|
— |
|
|
— |
|
|
23 |
|
|
— |
|
|
23 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
|
— |
|
|
30 |
|
|
— |
|
|
30 |
|
|
Distributions to noncontrolling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(3) |
|
|
Proceeds from issuance of common stock, net |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9 |
|
|
— |
|
|
— |
|
|
9 |
|
|
— |
|
|
9 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
142 |
|
|
142 |
|
|
3 |
|
|
145 |
|
|
Balances at January 29, 2022 |
58.8 |
|
|
$ |
1 |
|
|
0.6 |
|
|
$ |
(24) |
|
|
$ |
596 |
|
|
$ |
(9) |
|
|
$ |
1,120 |
|
|
$ |
1,684 |
|
|
$ |
(1) |
|
|
$ |
1,683 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended |
|
(in millions) |
|
January 28,
2023 |
|
January 29,
2022 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
Net income including noncontrolling interests |
|
$ |
89 |
|
|
$ |
145 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization |
|
147 |
|
|
138 |
|
|
Share-based compensation |
|
23 |
|
|
23 |
|
|
(Gain) loss on sale of property and equipment |
|
(9) |
|
|
1 |
|
|
Closed property and other restructuring charges |
|
— |
|
|
1 |
|
|
Net pension and other postretirement benefit income |
|
(14) |
|
|
(20) |
|
|
Deferred income tax expense |
|
1 |
|
|
— |
|
|
LIFO charge |
|
50 |
|
|
30 |
|
|
Provision for losses on receivables |
|
(3) |
|
|
1 |
|
|
Non-cash interest expense and other adjustments |
|
8 |
|
|
15 |
|
|
Changes in operating assets and liabilities |
|
(22) |
|
|
(291) |
|
|
Net cash provided by operating activities
|
|
270 |
|
|
43 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
Payments for capital expenditures |
|
(151) |
|
|
(106) |
|
|
Proceeds from dispositions of assets |
|
12 |
|
|
3 |
|
|
Payments for investments |
|
(4) |
|
|
(26) |
|
|
Net cash used in investing activities
|
|
(143) |
|
|
(129) |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under revolving credit line |
|
1,944 |
|
|
2,521 |
|
|
|
|
|
|
|
Repayments of borrowings under revolving credit line |
|
(1,861) |
|
|
(2,232) |
|
|
Repayments of long-term debt and finance leases |
|
(143) |
|
|
(168) |
|
|
Repurchases of common stock |
|
(29) |
|
|
— |
|
|
Proceeds from the issuance of common stock and exercise of stock
options |
|
— |
|
|
9 |
|
|
Payments of employee restricted stock tax withholdings |
|
(39) |
|
|
(35) |
|
|
Payments for debt issuance costs |
|
— |
|
|
(1) |
|
|
Distributions to noncontrolling interests |
|
(2) |
|
|
(3) |
|
|
Repayments of other loans |
|
(1) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
(131) |
|
|
91 |
|
|
EFFECT OF EXCHANGE RATE ON CASH |
|
— |
|
|
— |
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
(4) |
|
|
5 |
|
|
Cash and cash equivalents, at beginning of period |
|
44 |
|
|
40 |
|
|
Cash and cash equivalents, at end of period |
|
$ |
40 |
|
|
$ |
45 |
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
Cash paid for interest |
|
$ |
65 |
|
|
$ |
67 |
|
|
Cash payments for federal, state, and foreign income taxes,
net |
|
$ |
3 |
|
|
$ |
— |
|
|
Leased assets obtained in exchange for new operating lease
liabilities |
|
$ |
133 |
|
|
$ |
123 |
|
|
Leased assets obtained in exchange for new finance lease
liabilities |
|
$ |
— |
|
|
$ |
1 |
|
|
Additions of property and equipment included in Accounts
payable |
|
$ |
31 |
|
|
$ |
16 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
United Natural Foods, Inc. and its subsidiaries (the “Company”
or “UNFI”) is a leading distributor of natural, organic, specialty,
produce and conventional grocery and non-food products, and
provider of support services to retailers. The Company sells its
products primarily throughout the United States and
Canada.
Fiscal Year
The Company’s fiscal years end on the Saturday closest to
July 31 and contain either 52 or 53 weeks. References to
the second quarter of
fiscal 2023 and 2022 relate to the 13-week
fiscal quarters ended January 28,
2023 and January 29, 2022, respectively. References
to fiscal 2023 and 2022 year-to-date relate to the 26-week fiscal
periods ended January 28, 2023 and January 29,
2022, respectively.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”)
for interim financial information, including the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain information and note disclosures normally required in
complete financial statements prepared in conformity with
accounting principles generally accepted in the United States
(“GAAP”) have been condensed or omitted. In the Company’s opinion,
these Condensed Consolidated Financial Statements include all
adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim
periods presented. However, the results of operations for interim
periods may not be indicative of the results that may be expected
for a full year. These Condensed Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the fiscal year ended July 30,
2022 (the “Annual Report”). There were no material changes in
significant accounting policies from those described in the Annual
Report.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements
in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. The Company’s banking
arrangements allow it to fund outstanding checks when presented to
the financial institution for payment. The Company funds all
intraday bank balance overdrafts during the same business day.
Checks outstanding in excess of bank balances create book
overdrafts, which are recorded in Accounts payable in the
Condensed Consolidated Balance Sheets and are reflected as an
operating activity in the Condensed Consolidated Statements of Cash
Flows. As of January 28, 2023 and July 30,
2022, the Company had net book overdrafts
of $263 million and $266 million,
respectively.
Reclassifications
Within the Condensed Consolidated Financial Statements certain
immaterial amounts have been reclassified to conform with current
period presentation. These reclassifications had no impact on
reported net income, cash flows, or total assets and
liabilities.
Inventories, Net
Substantially all of the Company’s inventories consist of finished
goods. To value discrete inventory items at lower of cost or net
realizable value before application of any last-in, first-out
(“LIFO”) reserve, the Company utilizes the weighted average cost
method, perpetual cost method, the retail inventory method and the
replacement cost method. Allowances for vendor funds and cash
discounts received from suppliers are recorded as a reduction to
Inventories, net and subsequently within Cost of sales upon the
sale of the related products. Inventory quantities are evaluated
throughout each fiscal year based on actual physical counts in the
Company’s distribution facilities and stores. Allowances for
inventory shortages are recorded based on the results of these
counts to provide for estimated variances as of the end of each
fiscal year. The LIFO reserve was approximately $275 million
and $225 million as of January 28, 2023 and July 30,
2022, respectively, which is recorded within Inventories, net on
the Condensed Consolidated Balance Sheets.
NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING
PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement
(Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions. ASU 2022-03 clarifies that a
contractual restriction on the sale of an equity security is not
part of the unit of account of the equity security and, therefore,
is not considered in measuring fair value. The amendments in this
update also require additional disclosures for equity securities
subject to contractual sale restrictions. The Company is required
to adopt this guidance in the first quarter of fiscal 2025. The
Company is in the process of reviewing the provisions of the new
standard but does not expect the adoption to have a material impact
on the Company’s consolidated financial statements.
NOTE 3—REVENUE RECOGNITION
Disaggregation of Revenues
The Company records revenue to five customer channels within Net
sales, which are described below:
•Chains,
which consists of customer accounts that typically have more than
10 operating stores and excludes stores included within the
Supernatural and Other channels defined below;
•Independent
retailers,
which includes smaller size accounts, including single store and
multiple store locations, and group purchasing entities that are
not classified within Chains above or Other discussed
below;
•Supernatural,
which consists of chain accounts that are national in scope and
carry primarily natural products, and currently consists solely of
one customer;
•Retail,
which reflects the Company’s Retail segment, including Cub Foods
and Shoppers stores, and
•Other,
which includes international customers outside of Canada,
foodservice, eCommerce, conventional military business and other
sales.
The following tables detail the Company’s Net sales for the periods
presented by customer channel for each of its segments. The Company
does not record its revenues within its Wholesale reportable
segment for financial reporting purposes by product group, and it
is therefore impracticable for it to report them
accordingly.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales for the 13-Week Period Ended |
|
(in millions) |
|
January 28, 2023 |
|
Customer Channel |
|
Wholesale |
|
Retail |
|
Other |
|
Eliminations(1)
|
|
Consolidated |
|
Chains |
|
$ |
3,322 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,322 |
|
|
Independent retailers |
|
1,980 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,980 |
|
|
Supernatural |
|
1,659 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,659 |
|
|
Retail |
|
— |
|
|
660 |
|
|
— |
|
|
— |
|
|
660 |
|
|
Other |
|
553 |
|
|
— |
|
|
56 |
|
|
— |
|
|
609 |
|
|
Eliminations |
|
— |
|
|
— |
|
|
— |
|
|
(414) |
|
|
(414) |
|
|
Total |
|
$ |
7,514 |
|
|
$ |
660 |
|
|
$ |
56 |
|
|
$ |
(414) |
|
|
$ |
7,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales for the 13-Week Period Ended |
|
(in millions) |
|
January 29, 2022
|
|
Customer Channel |
|
Wholesale |
|
Retail |
|
Other |
|
Eliminations(1)
|
|
Consolidated |
|
Chains |
|
$ |
3,243 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,243 |
|
|
Independent retailers |
|
1,905 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,905 |
|
|
Supernatural |
|
1,453 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,453 |
|
|
Retail |
|
— |
|
|
643 |
|
|
— |
|
|
— |
|
|
643 |
|
|
Other |
|
531 |
|
|
— |
|
|
50 |
|
|
— |
|
|
581 |
|
|
Eliminations |
|
— |
|
|
— |
|
|
— |
|
|
(409) |
|
|
(409) |
|
|
Total |
|
$ |
7,132 |
|
|
$ |
643 |
|
|
$ |
50 |
|
|
$ |
(409) |
|
|
$ |
7,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales for the 26-Week Period Ended |
|
(in millions) |
|
January 28, 2023 |
|
Customer Channel |
|
Wholesale |
|
Retail |
|
Other |
|
Eliminations(1)
|
|
Consolidated |
|
Chains |
|
$ |
6,546 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,546 |
|
|
Independent retailers |
|
3,927 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,927 |
|
|
Supernatural |
|
3,172 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,172 |
|
|
Retail |
|
— |
|
|
1,273 |
|
|
— |
|
|
— |
|
|
1,273 |
|
|
Other |
|
1,128 |
|
|
— |
|
|
116 |
|
|
— |
|
|
1,244 |
|
|
Eliminations |
|
— |
|
|
— |
|
|
— |
|
|
(814) |
|
|
(814) |
|
|
Total |
|
$ |
14,773 |
|
|
$ |
1,273 |
|
|
$ |
116 |
|
|
$ |
(814) |
|
|
$ |
15,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales for the 26-Week Period Ended |
|
(in millions) |
|
January 29, 2022
|
|
Customer Channel |
|
Wholesale |
|
Retail |
|
Other |
|
Eliminations(1)
|
|
Consolidated |
|
Chains |
|
$ |
6,325 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,325 |
|
|
Independent retailers |
|
3,655 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,655 |
|
|
Supernatural |
|
2,831 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,831 |
|
|
Retail |
|
— |
|
|
1,245 |
|
|
— |
|
|
— |
|
|
1,245 |
|
|
Other |
|
1,055 |
|
|
— |
|
|
106 |
|
|
— |
|
|
1,161 |
|
|
Eliminations |
|
— |
|
|
— |
|
|
— |
|
|
(804) |
|
|
(804) |
|
|
Total |
|
$ |
13,866 |
|
|
$ |
1,245 |
|
|
$ |
106 |
|
|
$ |
(804) |
|
|
$ |
14,413 |
|
(1)Eliminations
primarily includes the net sales elimination of Wholesale to Retail
sales and the elimination of sales from segments included within
Other to Wholesale.
The Company serves customers in the United States and Canada, as
well as customers located in other countries. However, all of the
Company’s revenue is earned in the United States and Canada, and
international distribution occurs through freight-forwarders. The
Company does not have any performance obligations on international
shipments subsequent to delivery to the domestic port.
Accounts and Notes Receivable Balances
Accounts and notes receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
January 28, 2023 |
|
July 30, 2022 |
|
Customer accounts receivable |
|
$ |
989 |
|
|
$ |
1,213 |
|
|
Allowance for uncollectible receivables |
|
(17) |
|
|
(18) |
|
|
Other receivables, net |
|
20 |
|
|
19 |
|
|
Accounts receivable, net |
|
$ |
992 |
|
|
$ |
1,214 |
|
|
|
|
|
|
|
|
Notes receivable, net, included within Prepaid expenses and other
current assets
|
|
$ |
5 |
|
|
$ |
6 |
|
|
Long-term notes receivable, net, included within Other long-term
assets
|
|
$ |
10 |
|
|
$ |
12 |
|
During the second quarter of fiscal 2023, the Company entered into
a purchase agreement with a third-party financial institution for
the sale of certain customer accounts receivable up to a maximum
outstanding amount of $300 million, without recourse, subject
to eligibility criteria established by the financial institution.
Pursuant to the terms of the agreement, certain customer
receivables are sold to the third-party financial institution on a
revolving basis, subject to certain limitations. After these sales,
the Company does not retain any interest in the receivables. The
Company’s continuing involvement in transferred receivables is
limited to servicing the receivables.
Accounts receivable that the Company is servicing on behalf of the
financial institution, which would have otherwise been outstanding
as of January 28, 2023, was approximately $292 million.
Net proceeds received are included within net cash provided by
operating activities in the Condensed Consolidated Statements of
Cash Flows in the period of sale. The loss on sale of receivables
was $5 million during the second quarter of fiscal 2023 and is
recorded within Loss (gain) on sale of assets in the Condensed
Consolidated Statements of Operations.
NOTE 4—GOODWILL AND INTANGIBLE ASSETS, NET
Changes in the carrying value of Goodwill by reportable segment
that have goodwill consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
Wholesale |
|
Other |
|
Total |
|
Goodwill as of July 30, 2022
|
$ |
10 |
|
(1)
|
$ |
10 |
|
(2)
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign exchange rates |
— |
|
|
— |
|
|
— |
|
|
Goodwill as of January 28, 2023
|
$ |
10 |
|
(1)
|
$ |
10 |
|
(2)
|
$ |
20 |
|
|
|
|
|
|
|
(1)Wholesale
amounts are net of accumulated goodwill impairment charges of $717
million as of July 30, 2022 and January 28,
2023.
(2)Other
amounts are net of accumulated goodwill impairment charges of $10
million as of July 30, 2022 and January 28,
2023.
Identifiable intangible assets, net consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2023 |
|
July 30, 2022 |
|
(in millions) |
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Net |
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Net |
|
Amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
$ |
1,007 |
|
|
$ |
324 |
|
|
$ |
683 |
|
|
$ |
1,007 |
|
|
$ |
294 |
|
|
$ |
713 |
|
|
Pharmacy prescription files |
33 |
|
|
20 |
|
|
13 |
|
|
33 |
|
|
18 |
|
|
15 |
|
|
Operating lease intangibles |
6 |
|
|
4 |
|
|
2 |
|
|
6 |
|
|
4 |
|
|
2 |
|
|
Trademarks and tradenames |
84 |
|
|
55 |
|
|
29 |
|
|
84 |
|
|
51 |
|
|
33 |
|
|
Total amortizing intangible assets |
1,130 |
|
|
403 |
|
|
727 |
|
|
1,130 |
|
|
367 |
|
|
763 |
|
|
Indefinite lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
56 |
|
|
— |
|
|
56 |
|
|
56 |
|
|
— |
|
|
56 |
|
|
Intangibles assets, net |
$ |
1,186 |
|
|
$ |
403 |
|
|
$ |
783 |
|
|
$ |
1,186 |
|
|
$ |
367 |
|
|
$ |
819 |
|
Amortization expense was $18 million and $18 million for the second
quarters of fiscal 2023 and 2022, respectively, and
$36 million and $36 million for fiscal 2023 and 2022
year-to-date, respectively. The estimated future amortization
expense for each of the next five fiscal years and thereafter on
amortizing intangible assets existing as of January 28, 2023
is as shown below:
|
|
|
|
|
|
|
Fiscal Year: |
(in millions) |
|
Remaining fiscal 2023 |
$ |
36 |
|
|
2024 |
72 |
|
|
2025 |
70 |
|
|
2026 |
66 |
|
|
2027 |
63 |
|
|
Thereafter |
420 |
|
|
|
$ |
727 |
|
NOTE 5—FAIR VALUE MEASUREMENTS OF FINANCIAL
INSTRUMENTS
Recurring Fair Value Measurements
The following tables provide the fair value hierarchy for financial
assets and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets Location |
|
Fair Value at January 28, 2023 |
|
(in millions) |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps designated as hedging instruments |
|
Prepaid expenses and other current assets |
|
$ |
— |
|
|
$ |
17 |
|
|
$ |
— |
|
|
Interest rate swaps designated as hedging instruments |
|
Other long-term assets |
|
$ |
— |
|
|
$ |
5 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Fuel derivatives designated as hedging instruments |
|
Accrued expenses and other current liabilities |
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets Location |
|
Fair Value at July 30, 2022 |
|
(in millions) |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
Fuel derivatives designated as hedging instruments |
|
Prepaid expenses and other current assets |
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
— |
|
|
Interest rate swaps designated as hedging instruments |
|
Prepaid expenses and other current assets |
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
— |
|
|
Interest rate swaps designated as hedging instruments |
|
Other long-term assets |
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Interest rate swaps designated as hedging instruments |
|
Other long-term liabilities |
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
— |
|
Interest Rate Swap Contracts
The fair values of interest rate swap contracts are measured using
Level 2 inputs. The interest rate swap contracts are valued using
an income approach interest rate swap valuation model incorporating
observable market inputs including interest rates, SOFR swap rates
and credit default swap rates. As of January 28, 2023, a
100-basis point increase in forward SOFR interest rates would
increase the fair value of the interest rate swaps by
approximately $12 million; a 100-basis point decrease in
forward SOFR interest rates would decrease the fair value of the
interest rate swaps by approximately $12 million. Refer to
Note 6—Derivatives for further information on interest rate swap
contracts.
Fair Value Estimates
For certain of the Company’s financial instruments including cash
and cash equivalents, receivables, accounts payable, accrued
vacation, compensation and benefits, and other current assets and
liabilities the fair values approximate carrying amounts due to
their short maturities. The fair value of notes receivable is
estimated by using a discounted cash flow approach prior to
consideration for uncollectible amounts and is calculated by
applying a market rate for similar instruments using Level 3
inputs. The fair value of debt is estimated based on market quotes,
where available, or market values for similar instruments, using
Level 2 and 3 inputs. In the table below, the carrying value of the
Company’s long-term debt is net of original issue discounts and
debt issuance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2023 |
|
July 30, 2022 |
|
(in millions) |
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
|
Fair Value |
|
Notes receivable, including current portion |
|
$ |
20 |
|
|
$ |
14 |
|
|
$ |
23 |
|
|
$ |
17 |
|
|
Long-term debt, including current portion |
|
$ |
2,077 |
|
|
$ |
2,091 |
|
|
$ |
2,123 |
|
|
$ |
2,153 |
|
|
|
|
|
|
|
|
|
|
NOTE 6—DERIVATIVES
Management of Interest Rate Risk
The Company enters into interest rate swap contracts from time to
time to mitigate its exposure to changes in market interest rates
as part of its overall strategy to manage its debt portfolio to
achieve an overall desired position of notional debt amounts
subject to fixed and floating interest rates. Interest rate swap
contracts are entered into for periods consistent with related
underlying exposures and do not constitute positions independent of
those exposures. The Company’s interest rate swap contracts are
designated as cash flow hedges as of January 28, 2023.
Interest rate swap contracts are reflected at their fair values in
the Condensed Consolidated Balance Sheets. Refer to Note 5—Fair
Value Measurements of Financial Instruments for further information
on the fair value of interest rate swap contracts.
Details of active swap contracts as of January 28, 2023, which
are all pay fixed and receive floating, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Date |
|
Swap Maturity |
|
Notional Value (in millions) |
|
Pay Fixed Rate |
|
Receive Floating Rate |
|
Floating Rate Reset Terms |
|
November 16, 2018 |
|
March 31, 2023 |
|
150 |
|
|
2.7770 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 23, 2019 |
|
March 31, 2023 |
|
50 |
|
|
2.4245 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
November 30, 2018 |
|
September 30, 2023 |
|
50 |
|
|
2.6980 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
October 26, 2018 |
|
October 31, 2023 |
|
100 |
|
|
2.7880 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 11, 2019 |
|
March 28, 2024 |
|
100 |
|
|
2.3600 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 23, 2019 |
|
March 28, 2024 |
|
100 |
|
|
2.4250 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
November 30, 2018 |
|
October 31, 2024 |
|
100 |
|
|
2.7385 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 11, 2019 |
|
October 31, 2024 |
|
100 |
|
|
2.4025 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 24, 2019 |
|
October 31, 2024 |
|
50 |
|
|
2.4090 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
October 26, 2018 |
|
October 22, 2025 |
|
50 |
|
|
2.8725 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
November 16, 2018 |
|
October 22, 2025 |
|
50 |
|
|
2.8750 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
November 16, 2018 |
|
October 22, 2025 |
|
50 |
|
|
2.8380 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
January 24, 2019 |
|
October 22, 2025 |
|
50 |
|
|
2.4750 |
% |
|
One-Month Term SOFR |
|
Monthly |
|
|
|
|
|
$ |
1,000 |
|
|
|
|
|
|
|
The Company performs an initial quantitative assessment of hedge
effectiveness using the “Hypothetical Derivative Method” in the
period in which the hedging transaction is entered. Under this
method, the Company assesses the effectiveness of each hedging
relationship by comparing the changes in cash flows of the
derivative hedging instrument with the changes in cash flows of the
designated hedged transactions. In future reporting periods, the
Company performs a qualitative analysis for quarterly prospective
and retrospective assessments of hedge effectiveness. The Company
also monitors the risk of counterparty default on an ongoing basis
and noted that the counterparties are reputable financial
institutions. The entire change in the fair value of the derivative
is initially reported in Other comprehensive income (outside of
earnings) in the Condensed Consolidated Statements of Comprehensive
Income and subsequently reclassified to earnings in Interest
expense, net in the Condensed Consolidated Statements of Operations
when the hedged transactions affect earnings.
The location and amount of gains or losses recognized in the
Condensed Consolidated Statements of Operations for interest rate
swap contracts for each of the periods, presented on a pre-tax
basis, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended |
|
26-Week Period Ended |
|
|
January 28, 2023 |
|
January 29, 2022 |
|
January 28, 2023 |
|
January 29, 2022 |
|
(in millions) |
|
Interest expense, net |
|
Interest expense, net |
|
Total amounts of expense line items presented in the Condensed
Consolidated Statements of Operations in which the effects of cash
flow hedges are recorded
|
|
$ |
39 |
|
|
$ |
44 |
|
|
$ |
74 |
|
|
$ |
84 |
|
|
Loss on cash flow hedging relationships: |
|
|
|
|
|
|
|
|
|
Loss reclassified from comprehensive income into
earnings |
|
$ |
4 |
|
|
$ |
(10) |
|
|
$ |
4 |
|
|
$ |
(21) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7—LONG-TERM DEBT
The Company’s long-term debt consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
Average Interest Rate at
January 28, 2023
|
|
Fiscal Maturity Year |
|
January 28,
2023 |
|
July 30,
2022 |
|
Term Loan Facility |
7.69% |
|
2026 |
|
$ |
670 |
|
|
$ |
800 |
|
|
ABL Credit Facility |
5.46% |
|
2027 |
|
923 |
|
|
840 |
|
|
Senior Notes |
6.75% |
|
2029 |
|
500 |
|
|
500 |
|
|
Other secured loans |
5.01% |
|
2024-2025 |
|
16 |
|
|
23 |
|
|
Debt issuance costs, net |
|
|
|
|
(25) |
|
|
(29) |
|
|
Original issue discount on debt |
|
|
|
|
(7) |
|
|
(11) |
|
|
Long-term debt, including current portion |
|
|
|
|
2,077 |
|
|
2,123 |
|
|
Less: current portion of long-term debt |
|
|
|
|
(12) |
|
|
(14) |
|
|
Long-term debt |
|
|
|
|
$ |
2,065 |
|
|
$ |
2,109 |
|
Senior Notes
On October 22, 2020, the Company issued $500 million of
unsecured 6.750% senior notes due October 15, 2028 (the “Senior
Notes”). The Senior Notes, which are presented net of debt issuance
costs of $7 million as of January 28, 2023 and July 30,
2022 in the Condensed Consolidated Balance Sheets, are guaranteed
by each of the Company’s subsidiaries that are borrowers under or
that guarantee the ABL Credit Facility or the Term Loan Facility
(defined below).
ABL Credit Facility
The revolving credit agreement dated as of June 3, 2022 (the “ABL
Loan Agreement”), by and among the Company (the “U.S. Borrower”),
UNFI Canada (the “Canadian Borrower” and, together with the U.S.
Borrower, the “Borrowers”), the financial institutions that are
parties thereto as lenders (collectively, the “ABL Lenders”), Wells
Fargo Bank, N.A. as administrative agent for the ABL Lenders, and
the other parties thereto, provides for a secured asset-based
revolving credit facility (the “ABL Credit Facility”), of which up
to $2,600 million is available to the Borrowers, including a
U.S. Dollar equivalent of $100 million sublimit for borrowings
in Canadian dollars. Under the ABL Loan Agreement, the Borrowers
may, at their option, increase the aggregate amount of the ABL
Credit Facility in an amount of up to $750 million without the
consent of any ABL Lenders not participating in such increase,
subject to certain customary conditions and applicable lenders
committing to provide the increase in funding. There is no
assurance that additional funding would be available.
The Borrowers’ obligations under the ABL Credit Facility are
guaranteed by most of the Company’s wholly owned subsidiaries
(collectively, the “Guarantors”), subject to customary exceptions
and limitations. The Borrowers’ obligations under the ABL Credit
Facility and the Guarantors’ obligations under the related
guarantees are secured by (i) a first-priority lien on certain
accounts receivable, certain inventory and certain other assets
arising therefrom or related thereto of the Borrowers and
Guarantors (including substantially all of their deposit accounts,
collectively, the “ABL Assets”) and (ii) a second-priority lien on
all of the Borrowers’ and Guarantors’ assets that do not constitute
ABL Assets, in each case, subject to customary exceptions and
limitations.
Availability under the ABL Credit Facility is subject to a
borrowing base (the “Borrowing Base”), which is based on 90% of
eligible accounts receivable, plus 90% of eligible credit card
receivables, plus 90% to 92.5% of the net orderly liquidation value
of eligible inventory, plus 90% of eligible pharmacy receivables,
plus certain pharmacy prescription files availability to the
Borrowers, after adjusting for customary reserves, but at no time
shall exceed the lesser of the aggregate commitments under the ABL
Credit Facility (currently $2,600 million) or the Borrowing
Base.
The assets included in the Condensed Consolidated Balance Sheets
securing the outstanding obligations under the ABL Credit Facility
on a first-priority basis, and the unused credit and fees under the
ABL Credit Facility, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets securing the ABL Credit Facility (in millions): |
January 28,
2023 |
|
July 30,
2022 |
|
Certain inventory assets included in Inventories, net |
$ |
1,950 |
|
|
$ |
1,789 |
|
|
Certain receivables included in Accounts receivable,
net |
667 |
|
|
878 |
|
|
Pharmacy prescription files included in Intangible assets,
net |
13 |
|
|
15 |
|
|
Total |
$ |
2,630 |
|
|
$ |
2,682 |
|
As of January 28, 2023, the Borrowers’ Borrowing Base, net of
$95 million of reserves, was $2,740 million, which is above
the $2,600 million limit of availability, resulting in total
availability of $2,600 million for loans and letters of credit
under the ABL Credit Facility. As of January 28, 2023, the
Borrowers had $923 million of loans outstanding under the ABL
Credit Facility, which are presented net of debt issuance costs of
$9 million and are included in Long-term debt in the Condensed
Consolidated Balance Sheets. As of January 28, 2023, the U.S.
Borrowers had $144 million in letters of credit outstanding under
the ABL Credit Facility. The Company’s resulting remaining
availability under the ABL Credit Facility was $1,533 million as of
January 28, 2023.
|
|
|
|
|
|
|
Availability under the ABL Credit Facility (in
millions): |
January 28, 2023 |
|
Total availability for ABL loans and letters of credit |
$ |
2,600 |
|
|
ABL loans |
$ |
923 |
|
|
Letters of credit |
$ |
144 |
|
|
Unused credit |
$ |
1,533 |
|
The applicable interest rates, unutilized commitment fees and
letter of credit fees under the ABL Credit Facility are variable
and are dependent upon the prior fiscal quarter’s daily Average
Availability (as defined in the ABL Loan Agreement), and were as
follows:
|
|
|
|
|
|
|
|
|
|
Interest rates and fees under the ABL Credit Facility: |
Range of Facility Rates and Fees (per annum) |
January 28, 2023 |
|
Borrowers’ applicable margin for base rate loans |
0.00% - 0.25%
|
0.00 |
% |
|
Borrowers’ applicable margin for SOFR and BA
loans(1)
|
1.00% - 1.25%
|
1.00 |
% |
|
Unutilized commitment fees |
0.20%
|
0.20 |
% |
|
Letter of credit fees |
1.125% - 1.375%
|
1.125 |
% |
(1) The U.S. Borrower utilizes SOFR-based loans and the Canadian
Borrower utilizes bankers’ acceptance rate-based
loans.
Term Loan Facility
The term loan agreement dated as of October 22, 2018 (as amended,
the “Term Loan Agreement”), by and among the Company and SUPERVALU
INC. (“Supervalu” and, collectively with the Company, the “Term
Borrowers”), the financial institutions that are parties thereto as
lenders (collectively, the “Term Lenders”), Credit Suisse, as
administrative agent for the Term Lenders, and the other parties
thereto, provides for senior secured first lien term loans in an
initial aggregate principal amount of $1,950 million, consisting of
a $1,800 million seven-year tranche and a $150 million
364-day tranche that was repaid in fiscal 2020 (the “Term Loan
Facility”). The net proceeds from the Term Loan Facility were used
to finance the Supervalu acquisition and related transaction costs.
Any amounts then outstanding will be payable in full on October 22,
2025.
The obligations under the Term Loan Facility are guaranteed by the
Guarantors, subject to customary exceptions and limitations. The
Term Borrowers’ obligations under the Term Loan Facility and the
Guarantors’ obligations under the related guarantees are secured by
(i) a first-priority lien on substantially all of the Term
Borrowers’ and the Guarantors’ assets other than the ABL Assets and
(ii) a second-priority lien on substantially all of the Term
Borrowers’ and the Guarantors’ ABL Assets, in each case, subject to
customary exceptions and limitations, including an exception for
owned real property with net book values of less than $10 million.
As of January 28, 2023 and July 30, 2022, there was $618
million and $629 million, respectively, of owned real property
pledged as collateral that was included in Property and equipment,
net in the Condensed Consolidated Balance Sheets.
The Company must prepay loans outstanding under the Term Loan
Facility no later than 130 days after the fiscal year end in an
aggregate principal amount equal to a specified percentage (which
percentage ranges from 0 to 75 percent depending on the
Consolidated First Lien Net Leverage Ratio as of the last day of
such fiscal year) of Excess Cash Flow (as defined in the Term Loan
Agreement), minus certain types of voluntary prepayments of
indebtedness made during such fiscal year. As of January 28,
2023, there is no Excess Cash Flow payment expected to be required
in fiscal 2024.
As of January 28, 2023, the Company had borrowings of $670
million outstanding under the Term Loan Facility, which are
presented in the Condensed Consolidated Balance Sheets net of debt
issuance costs of $9 million and an original issue discount on debt
of $7 million. As of January 28, 2023, no amount of the Term
Loan Facility was classified as current.
In the second quarter of fiscal 2023, the Company made a
$125 million voluntary prepayment on the Term Loan Facility
with a portion of the proceeds received from monetizing certain
receivables within Accounts receivable, net associated with the
Company’s purchase agreement with a third-party financial
institution as previously discussed within Note 3—Revenue
Recognition. This voluntary prepayment will count towards any
requirement to prepay the Term Loan Facility from Excess Cash Flow
(as defined in the Term Loan Agreement) generated during fiscal
2023, which would be due in fiscal 2024.
NOTE 8—COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE
LOSS
Changes in Accumulated other comprehensive loss by component, net
of tax, for fiscal 2023 year-to-date were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Other Cash Flow Derivatives |
|
Benefit Plans |
|
Foreign Currency Translation |
|
Swap Agreements |
|
Total |
|
Accumulated other comprehensive income (loss) at July 30,
2022 |
|
$ |
2 |
|
|
$ |
(3) |
|
|
$ |
(19) |
|
|
$ |
— |
|
|
$ |
(20) |
|
|
Other comprehensive (loss) income before
reclassifications |
|
(3) |
|
|
— |
|
|
(2) |
|
|
17 |
|
|
12 |
|
|
Amortization of amounts included in net periodic benefit
income |
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
Amortization of cash flow hedges |
|
1 |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(2) |
|
|
Net current period Other comprehensive (loss) income |
|
(2) |
|
|
1 |
|
|
(2) |
|
|
14 |
|
|
11 |
|
|
Accumulated other comprehensive income (loss) at January 28,
2023 |
|
$ |
— |
|
|
$ |
(2) |
|
|
$ |
(21) |
|
|
$ |
14 |
|
|
$ |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated other comprehensive loss by component, net
of tax, for fiscal 2022 year-to-date were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Other Cash Flow Derivatives |
|
Benefit Plans |
|
Foreign Currency Translation |
|
Swap Agreements |
|
Total |
|
Accumulated other comprehensive income (loss) at July 31,
2021 |
|
$ |
— |
|
|
$ |
37 |
|
|
$ |
(16) |
|
|
$ |
(60) |
|
|
$ |
(39) |
|
|
Other comprehensive income (loss) before
reclassifications |
|
1 |
|
|
— |
|
|
(2) |
|
|
13 |
|
|
12 |
|
|
Amortization of amounts included in net periodic benefit
income |
|
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
|
Amortization of cash flow hedges |
|
1 |
|
|
— |
|
|
— |
|
|
15 |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period Other comprehensive income (loss) |
|
2 |
|
|
2 |
|
(2) |
|
|
28 |
|
30 |
|
|
Accumulated other comprehensive income (loss) at January 29,
2022 |
|
$ |
2 |
|
|
$ |
39 |
|
|
$ |
(18) |
|
|
$ |
(32) |
|
|
$ |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
Items reclassified out of Accumulated other comprehensive loss had
the following impact on the Condensed Consolidated Statements of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended |
|
26-Week Period Ended |
|
Affected Line Item on the Condensed Consolidated Statements of
Operations |
|
(in millions) |
|
January 28,
2023 |
|
January 29,
2022 |
|
January 28,
2023 |
|
January 29,
2022 |
|
|
Pension and postretirement benefit plan net assets: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of amounts included in net periodic benefit
income(1)
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
Net periodic benefit income, excluding service cost |
|
Income tax benefit |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Provision for income taxes |
|
Total reclassifications, net of tax |
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap agreements: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of cash flow hedges |
|
$ |
(4) |
|
|
$ |
10 |
|
|
$ |
(4) |
|
|
$ |
21 |
|
|
Interest expense, net |
|
Income tax expense (benefit) |
|
1 |
|
|
(3) |
|
|
1 |
|
|
(6) |
|
|
Provision for income taxes |
|
Total reclassifications, net of tax |
|
$ |
(3) |
|
|
$ |
7 |
|
|
$ |
(3) |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of cash flow hedge |
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
Cost of sales |
|
Income tax benefit |
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
Provision for income taxes |
|
Total reclassifications, net of tax |
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Reclassification
of amounts included in net periodic benefit income include
reclassification of prior service cost and reclassification of net
actuarial loss as reflected in Note 10—Benefit
Plans.
As of January 28, 2023, the Company expects to reclassify
$16 million related to unrealized derivative gains on interest
rate swap hedges out of Accumulated other comprehensive loss and
primarily into Interest expense, net during the following
twelve-month period.
NOTE 9—SHARE-BASED AWARDS
In fiscal 2023 year-to-date, the Company granted restricted stock
units and performance share units to its directors, executive
officers and certain employees representing a right to receive an
aggregate of 1.6 million shares. As of January 28, 2023,
there were 1.6 million shares available for issuance under the
Amended and Restated 2020 Equity Incentive Plan.
NOTE 10—BENEFIT PLANS
Net periodic benefit income and contributions to defined benefit
pension and other postretirement benefit plans consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended |
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
January 28, 2023 |
|
January 29, 2022 |
|
January 28, 2023 |
|
January 29, 2022 |
|
Net Periodic Benefit (Income) Cost |
|
|
|
|
|
|
|
|
Interest cost |
$ |
15 |
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Expected return on plan assets |
(23) |
|
|
(20) |
|
|
— |
|
|
— |
|
|
Amortization of prior service cost |
— |
|
|
— |
|
|
1 |
|
|
1 |
|
|
Net periodic benefit (income) cost |
$ |
(8) |
|
|
$ |
(11) |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
Contributions to benefit plans |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended |
|
Pension Benefits |
|
Other Postretirement Benefits |
|
(in millions) |
January 28, 2023 |
|
January 29, 2022 |
|
January 28, 2023 |
|
January 29, 2022 |
|
Net Periodic Benefit (Income) Cost |
|
|
|
|
|
|
|
|
Interest cost |
$ |
32 |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Expected return on plan assets |
(47) |
|
|
(41) |
|
|
— |
|
|
— |
|
|
Amortization of prior service cost |
— |
|
|
— |
|
|
1 |
|
|
2 |
|
|
Net periodic benefit (income) cost |
$ |
(15) |
|
|
$ |
(22) |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
Contributions to benefit plans |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2) |
|
Contributions
No minimum pension contributions are required to be made under the
SUPERVALU INC. Retirement Plan under the Employee Retirement Income
Security Act of 1974, as amended, (“ERISA”) in fiscal 2023. The
Company expects to contribute approximately $1 million to its
other defined benefit pension plans and $1 million to its
postretirement benefit plans in fiscal 2023.
Multiemployer Pension Plans
The Company contributed $12 million and $11 million in
the second quarters of fiscal 2023 and 2022, respectively, and $23
million and $22 million in fiscal 2023 and 2022 year-to-date,
respectively, to multiemployer pension plans, which are included
within Operating expenses.
NOTE 11—INCOME TAXES
The effective tax rate for the second quarter of fiscal 2023 was
29.0% compared to 26.9% for the second quarter of fiscal 2022. The
change was driven primarily by the reduction in pre-tax income
during the second quarter of fiscal 2023.
The effective tax rate for fiscal 2023 year-to-date was 13.6%
compared to 14.2% for fiscal 2022 year-to-date. The effective tax
rate for both fiscal 2023 and fiscal 2022 year-to-date was reduced
by the impact of discrete tax benefits related to the vesting of
employee stock awards.
NOTE 12—EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted number
of shares used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended |
|
26-Week Period Ended |
|
(in millions, except per share data) |
|
January 28,
2023 |
|
January 29,
2022 |
|
January 28,
2023 |
|
January 29,
2022 |
|
Basic weighted average shares outstanding |
|
59.8 |
|
|
58.3 |
|
|
59.3 |
|
|
57.6 |
|
|
Net effect of dilutive stock awards based upon the treasury stock
method
|
|
1.2 |
|
|
2.7 |
|
|
2.0 |
|
|
3.4 |
|
|
Diluted weighted average shares outstanding |
|
61.0 |
|
|
61.0 |
|
|
61.3 |
|
|
61.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share(1)
|
|
$ |
0.32 |
|
|
$ |
1.13 |
|
|
$ |
1.43 |
|
|
$ |
2.47 |
|
|
Diluted earnings per share(1)
|
|
$ |
0.31 |
|
|
$ |
1.08 |
|
|
$ |
1.38 |
|
|
$ |
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive share-based awards excluded from the calculation of
diluted earnings per share |
|
0.8 |
|
|
0.4 |
|
|
0.8 |
|
|
0.9 |
|
(1)Earnings
per share amounts are calculated using actual unrounded
figures.
NOTE 13—BUSINESS SEGMENTS
The Company has two reportable segments: Wholesale and Retail.
These reportable segments are two distinct businesses, each with a
different customer base, marketing strategy and management
structure. The Company organizes and operates the Wholesale
reportable segment through four U.S geographic regions: Atlantic;
South; Central; and Pacific; and Canada Wholesale, which is
operated separately from the U.S. Wholesale business. The U.S.
Wholesale and Canada Wholesale operating segments have similar
products and services, customer channels, distribution methods and
economic characteristics, and therefore have been aggregated into a
single reportable segment. Reportable segments are reviewed on an
annual basis, or more frequently if events or circumstances
indicate a change in reportable segments has occurred.
In fiscal 2022, the Company changed its measure of segment profit
to exclude the impact of the non-cash LIFO charge or benefit from
Adjusted EBITDA. Prior period Adjusted EBITDA amounts and the
reconciliation to Income before income taxes have been recast to
reflect this change in the measure of segment profit.
The following table provides Net sales and Adjusted EBITDA by
reportable segment and reconciles that information to consolidated
Net sales and Income before income taxes,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended |
|
26-Week Period Ended |
|
(in millions) |
|
January 28, 2023 |
|
January 29, 2022 |
|
January 28, 2023 |
|
January 29, 2022 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
Wholesale(1)
|
|
$ |
7,514 |
|
|
$ |
7,132 |
|
|
$ |
14,773 |
|
|
$ |
13,866 |
|
|
Retail |
|
660 |
|
|
643 |
|
|
1,273 |
|
|
1,245 |
|
|
Other |
|
56 |
|
|
50 |
|
|
116 |
|
|
106 |
|
|
Eliminations |
|
(414) |
|
|
(409) |
|
|
(814) |
|
|
(804) |
|
|
Total Net sales |
|
$ |
7,816 |
|
|
$ |
7,416 |
|
|
$ |
15,348 |
|
|
$ |
14,413 |
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
Wholesale(2)
|
|
$ |
137 |
|
|
$ |
176 |
|
|
$ |
308 |
|
|
$ |
351 |
|
|
Retail(2)
|
|
28 |
|
|
32 |
|
|
48 |
|
|
54 |
|
|
Other |
|
15 |
|
|
12 |
|
|
34 |
|
|
16 |
|
|
Eliminations |
|
1 |
|
|
— |
|
|
(2) |
|
|
(1) |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests |
|
3 |
|
|
2 |
|
|
4 |
|
|
3 |
|
|
Net periodic benefit income, excluding service cost |
|
7 |
|
|
10 |
|
|
14 |
|
|
20 |
|
|
Interest expense, net |
|
(39) |
|
|
(44) |
|
|
(74) |
|
|
(84) |
|
|
Other income, net |
|
— |
|
|
2 |
|
|
1 |
|
|
1 |
|
|
Depreciation and amortization |
|
(73) |
|
|
(69) |
|
|
(147) |
|
|
(138) |
|
|
Share-based compensation |
|
(11) |
|
|
(12) |
|
|
(23) |
|
|
(23) |
|
|
LIFO charge(2)
|
|
(29) |
|
|
(19) |
|
|
(50) |
|
|
(30) |
|
|
Restructuring, acquisition and integration related
expenses |
|
(3) |
|
|
(5) |
|
|
(5) |
|
|
(8) |
|
|
(Loss) gain on sale of assets |
|
(1) |
|
|
(1) |
|
|
4 |
|
|
(1) |
|
|
Multiemployer pension plan withdrawal benefit |
|
— |
|
|
8 |
|
|
— |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retail benefit |
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
Business transformation costs
|
|
(4) |
|
|
— |
|
|
(9) |
|
|
— |
|
|
Income before income taxes |
|
$ |
31 |
|
|
$ |
93 |
|
|
$ |
103 |
|
|
$ |
169 |
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
62 |
|
|
$ |
61 |
|
|
$ |
126 |
|
|
$ |
122 |
|
|
Retail |
|
10 |
|
|
8 |
|
|
18 |
|
|
15 |
|
|
Other |
|
1 |
|
|
— |
|
|
3 |
|
|
1 |
|
|
Total depreciation and amortization |
|
$ |
73 |
|
|
$ |
69 |
|
|
$ |
147 |
|
|
$ |
138 |
|
|
Payments for capital expenditures: |
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
74 |
|
|
$ |
46 |
|
|
$ |
131 |
|
|
$ |
98 |
|
|
Retail |
|
10 |
|
|
4 |
|
|
20 |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
84 |
|
|
$ |
50 |
|
|
$ |
151 |
|
|
$ |
106 |
|
(1)As
presented in Note 3—Revenue Recognition, the Company recorded $353
million and $356 million for the second quarters of fiscal 2023 and
2022, respectively, and $687 million and $695 million in fiscal
2023 and 2022 year-to-date, respectively, within Net sales in its
Wholesale reportable segment attributable to Wholesale to Retail
sales that have been eliminated upon consolidation.
(2)As
a result of the segment profit measurement revision discussed
above, previously reported Adjusted EBITDA disclosures by segment
and the reconciliation to Income before income taxes has been
recast to exclude the impact of the non-cash LIFO
charge.
Total assets by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
January 28,
2023 |
|
July 30,
2022 |
|
Assets: |
|
|
|
|
|
Wholesale |
|
$ |
6,684 |
|
|
$ |
6,733 |
|
|
Retail |
|
637 |
|
|
599 |
|
|
Other |
|
352 |
|
|
335 |
|
|
|