Item 1. Financial Statements
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except for par values)
January 28,
2023 July 30,
2022
ASSETS
Cash and cash equivalents $ 40 $ 44
Accounts receivable, net 992 1,214
Inventories, net 2,512 2,355
Prepaid expenses and other current assets 197 184
Total current assets 3,741 3,797
Property and equipment, net 1,719 1,690
Operating lease assets 1,218 1,176
Goodwill 20 20
Intangible assets, net 783 819
Other long-term assets 154 126
Total assets $ 7,635 $ 7,628
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 1,797 $ 1,742
Accrued expenses and other current liabilities 249 260
Accrued compensation and benefits 166 232
Current portion of operating lease liabilities 161 156
Current portion of long-term debt and finance lease liabilities 23 27
Total current liabilities 2,396 2,417
Long-term debt 2,065 2,109
Long-term operating lease liabilities 1,107 1,067
Long-term finance lease liabilities 18 23
Pension and other postretirement benefit obligations 18 18
Deferred income taxes 14 8
Other long-term liabilities 172 194
Total liabilities 5,790 5,836
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $ 0.01 par value, authorized 5.0 shares; none issued or outstanding
— —
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
1 1
Additional paid-in capital 592 608
Treasury stock at cost ( 53 ) ( 24 )
Accumulated other comprehensive loss ( 9 ) ( 20 )
Retained earnings 1,311 1,226
Total United Natural Foods, Inc. stockholders’ equity 1,842 1,791
Noncontrolling interests 3 1
Total stockholders’ equity 1,845 1,792
Total liabilities and stockholders’ equity $ 7,635 $ 7,628
See accompanying Notes to Condensed Consolidated Financial Statements.
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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions, except for per share data)
13-Week Period Ended 26-Week Period Ended
January 28,
2023 January 29,
2022 January 28,
2023 January 29,
2022
Net sales $ 7,816 $ 7,416 $ 15,348 $ 14,413
Cost of sales 6,747 6,341 13,183 12,296
Gross profit 1,069 1,075 2,165 2,117
Operating expenses 1,002 944 2,002 1,876
Restructuring, acquisition and integration related expenses 3 5 5 8
Loss (gain) on sale of assets 1 1 ( 4 ) 1
Operating income 63 125 162 232
Net periodic benefit income, excluding service cost ( 7 ) ( 10 ) ( 14 ) ( 20 )
Interest expense, net 39 44 74 84
Other income, net — ( 2 ) ( 1 ) ( 1 )
Income before income taxes 31 93 103 169
Provision for income taxes 9 25 14 24
Net income including noncontrolling interests 22 68 89 145
Less net income attributable to noncontrolling interests ( 3 ) ( 2 ) ( 4 ) ( 3 )
Net income attributable to United Natural Foods, Inc. $ 19 $ 66 $ 85 $ 142
Basic earnings per share
$ 0.32 $ 1.13 $ 1.43 $ 2.47
Diluted earnings per share
$ 0.31 $ 1.08 $ 1.38 $ 2.33
Weighted average shares outstanding:
Basic 59.8 58.3 59.3 57.6
Diluted 61.0 61.0 61.3 61.0
See accompanying Notes to Condensed Consolidated Financial Statements.
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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(in millions)
13-Week Period Ended 26-Week Period Ended
January 28,
2023 January 29,
2022 January 28,
2023 January 29,
2022
Net income including noncontrolling interests $ 22 $ 68 $ 89 $ 145
Other comprehensive (loss) income:
Recognition of pension and other postretirement benefit obligations, net of tax 1 1 1 2
Recognition of interest rate swap cash flow hedges, net of tax (1)
( 4 ) 15 14 28
Foreign currency translation adjustments 1 ( 2 ) ( 2 ) ( 2 )
Recognition of other cash flow derivatives, net of tax (2)
( 2 ) 1 ( 2 ) 2
Total other comprehensive (loss) income ( 4 ) 15 11 30
Less comprehensive income attributable to noncontrolling interests ( 3 ) ( 2 ) ( 4 ) ( 3 )
Total comprehensive income attributable to United Natural Foods, Inc. $ 15 $ 81 $ 96 $ 172
(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.
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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)
Common Stock Treasury Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive Loss Retained Earnings Total United Natural Foods, Inc.
Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balances at October 29, 2022 60.9 $ 1 1.0 $ ( 36 ) $ 583 $ ( 5 ) $ 1,292 $ 1,835 $ — $ 1,835
Restricted stock vestings — — — — ( 2 ) — — ( 2 ) — ( 2 )
Share-based compensation — — — — 11 — — 11 — 11
Repurchases of common stock — — 0.3 ( 17 ) — — — ( 17 ) — ( 17 )
Other comprehensive loss — — — — — ( 4 ) — ( 4 ) — ( 4 )
Net income — — — — — — 19 19 3 22
Balances at January 28, 2023 60.9 $ 1 1.3 $ ( 53 ) $ 592 $ ( 9 ) $ 1,311 $ 1,842 $ 3 $ 1,845
Balances at October 30, 2021 58.7 $ 1 0.6 $ ( 24 ) $ 582 $ ( 24 ) $ 1,054 $ 1,589 $ ( 2 ) $ 1,587
Restricted stock vestings 0.1 — — — ( 2 ) — — ( 2 ) — ( 2 )
Share-based compensation — — — — 12 — — 12 — 12
Other comprehensive income — — — — — 15 — 15 — 15
Distributions to noncontrolling interests — — — — — — — — ( 1 ) ( 1 )
Proceeds from issuance of common stock, net — — — — 4 — — 4 — 4
Net income — — — — — — 66 66 2 68
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.
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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)
Common Stock Treasury Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive Loss Retained Earnings Total United Natural Foods, Inc.
Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
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.
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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.
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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.
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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.
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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.
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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.
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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 $ —
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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.
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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 )
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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.
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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.
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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 )
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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 )
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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.
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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.
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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.
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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
Eliminations ( 38 ) ( 39 )
Total assets $ 7,635 $ 7,628
NOTE 14—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees and Contingent Liabilities
The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of January 28, 2023. These guarantees were generally made to support the business growth of wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to seven years , with a weighted average remaining term of approximately four years . For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, the Company would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees. The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of January 28, 2023, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $ 16 million ($ 14 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, as of January 28, 2023, a total estimated loss of $ 1 million is recorded in the Condensed Consolidated Balance Sheets.
The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to the Company’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their work. While the Company’s aggregate indemnification obligations could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.
In connection with Supervalu’s sale of New Albertson’s, Inc. (“NAI”) on March 21, 2013, the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary. Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous state governmental authorities. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.
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Agreements with Save-A-Lot and Onex
The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business in 2016 (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, Supervalu entered into a Separation Agreement (the “Separation Agreement”) with Moran Foods, LLC d/b/a Save-A-Lot (“Moran Foods”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from the Company. The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company provided Save-A-Lot with various technical, human resources, finance and other operational services. The Company primarily ceased providing services under the Services Agreement in fiscal 2022. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement. While the Company’s aggregate indemnification obligations to Save-A-Lot and Onex, the purchaser of Save-A-Lot, could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. The Company has recorded the de minimis fair value of the guarantee in the Condensed Consolidated Balance Sheets within Other long-term liabilities.
Other Contractual Commitments
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and service contracts for fixed asset and information technology systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of January 28, 2023, the Company had approximately $ 562 million of non-cancelable future purchase obligations, most of which will be paid and utilized in the ordinary course within one year.
As of January 28, 2023, the Company had commitments of $ 755 million for future undiscounted minimum lease payments on leases signed but not yet commenced with terms of up to 21 years from commencement date.
Legal Proceedings
The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 43 suits pending in the United States District Court for the Northern District of Ohio where thousands of cases have been consolidated as Multi-District Litigation (“MDL”). In accordance with the Stock Purchase Agreement dated January 10, 2013, between New Albertson’s Inc. (“New Albertson’s”) and the Company (the “Stock Purchase Agreement”), New Albertson’s is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. On October 7, 2022, the MDL Court issued an order directing the Company and numerous other “non-litigating” defendants to submit by November 1, 2022, a list of opioid cases where the Company is named and opioid dispensing and distribution data. The Company produced the data in compliance with the order. The Company believes these claims are without merit and is vigorously defending this matter.
On January 21, 2021, various health plans filed a complaint in Minnesota state court against the Company, Albertson’s Companies, LLC (“Albertson’s”) and Safeway, Inc. alleging the defendants committed fraud by improperly reporting inflated prices for prescription drugs for members of health plans. The Plaintiffs assert six causes of action against the defendants: common law fraud, fraudulent nondisclosure, negligent misrepresentation, unjust enrichment, violation of the Minnesota Uniform Deceptive Trade Practices Act and violation of the Minnesota Prevention of Consumer Fraud Act. The plaintiffs allege that between 2006 and 2016, Supervalu overcharged the health plans by not providing the health plans, as part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that Supervalu match competitor prices. Plaintiffs seek an unspecified amount of damages. Similar to the above case, for the majority of the relevant period Supervalu and Albertson’s operated as a combined company. In March 2013, Supervalu divested Albertson’s and pursuant to the Stock Purchase Agreement, Albertson’s is responsible for any claims regarding its pharmacies. On February 19, 2021, Albertson’s and Safeway removed the case to Minnesota Federal District Court and on March 22, 2021 plaintiffs’ filed a motion to remand to state court. On February 26, 2021, defendants filed a motion to dismiss. The hearing on the remand motion and motions to dismiss occurred on May 20, 2021. On September 21, 2021, the Federal District Court remanded the case to Minnesota state court and did not rule on the motion to dismiss, which was refiled in state court. On February 1, 2022, the state court denied the motion to dismiss. The Company believes these claims are without merit and is vigorously defending this matter.
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UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators’ allegations and declined to intervene. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim. Relators elected to pursue the case on their own and have alleged FCA damages against Supervalu and New Albertson’s in excess of $ 100 million, not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant to the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value by relators) would be approximately $ 24 million, not including trebling and statutory penalties. Both sides moved for summary judgment. On August 5, 2019, the Court granted one of the relators’ summary judgment motions finding that the defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. On July 2, 2020, the Court granted the defendants’ summary judgment motion and denied the relators’ motion, dismissing the case. On July 9, 2020, the relators filed a notice of appeal with the 7th Circuit Court of Appeals, and on September 30, 2020 filed an appellate brief. On November 30, 2020, the Company filed its response. The hearing before the 7th Circuit Court of Appeals occurred on January 19, 2021. On August 12, 2021, the 7th Circuit affirmed the District Court’s decision granting summary judgment in defendants’ favor. On September 23, 2021, the relators filed a petition for rehearing and defendants filed a response on November 9, 2021. On December 3, 2021, the 7th Circuit denied the petition for rehearing. On April 1, 2022, the relators filed a petition for a writ of certiorari with the United States Supreme Court. The Company filed its response on June 20, 2022. On August 22, 2022, the Supreme Court issued an order inviting the Solicitor General to file a brief setting forth the views of the government on the petition for a writ of certiorari. On December 6, 2022, the Solicitor General submitted its brief recommending that the Supreme Court grant the petition for certiorari. On January 13, 2023, the Supreme Court granted the petition for certiorari and oral argument is set for April 18, 2023.
From time to time, the Company receives notice of claims or potential claims or becomes involved in litigation, alternative dispute resolution, such as arbitration, or other legal and regulatory proceedings that arise in the ordinary course of its business, including investigations and claims regarding employment law, including wage and hour (including class actions); pension plans; labor union disputes, including unfair labor practices, such as claims for back-pay in the context of labor contract negotiations and other matters; supplier, customer and service provider contract terms and claims, including matters related to supplier or customer insolvency or general inability to pay obligations as they become due; product liability claims, including those where the supplier may be insolvent and customers or consumers are seeking recovery against the Company; real estate and environmental matters, including claims in connection with its ownership and lease of a substantial amount of real property, both retail and warehouse properties; and antitrust. Other than as described above, there are no pending material legal proceedings to which the Company is a party or to which its property is subject.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. Management regularly monitors the Company’s exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of January 28, 2023, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.
Although management believes it has made appropriate assessments of potential and contingent loss in each of these cases based on current facts and circumstances, and application of prevailing legal principles, there can be no assurance that material differences in actual outcomes from management’s current assessments, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates will not occur. The occurrence of any of the foregoing, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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