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3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover HTML 73K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 151K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 42K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 110K
(Unaudited)
15: R5 Condensed Consolidated Statements of Comprehensive HTML 59K
Income (Unaudited)
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Income (Unaudited) (Parenthetical)
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Equity (Unaudited)
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20: R10 Recently Adopted and Issued Accounting HTML 34K
Pronouncements
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22: R12 Goodwill and Intangible Assets, Net HTML 67K
23: R13 Fair Value Measurements of Financial Instruments HTML 70K
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25: R15 Long-Term Debt HTML 69K
26: R16 Comprehensive Income and Accumulated Other HTML 91K
Comprehensive Loss
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28: R18 Benefit Plans HTML 45K
29: R19 Income Taxes HTML 26K
30: R20 Earnings Per Share HTML 36K
31: R21 Business Segments HTML 80K
32: R22 Commitments, Contingencies and Off-Balance Sheet HTML 41K
Arrangements
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36: R26 Fair Value Measurements of Financial Instruments HTML 69K
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Comprehensive Loss (Tables)
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43: R33 Significant Accounting Policies (Details) HTML 26K
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46: R36 REVENUE RECOGNITION - Accounts Receivable HTML 35K
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Value of Goodwill (Details)
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Intangible Assets (Details)
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Future Amortization Expense (Details)
51: R41 FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS - HTML 61K
Recurring Fair Value Measurements (Details)
52: R42 FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS - HTML 25K
Narrative (Details)
53: R43 FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS - HTML 30K
Fair Value Estimates (Details)
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(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (i401) i528-8634
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol
Name of each exchange on which registered
iCommon stock, par value $0.01
iUNFI
iNew
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: iYes☒ 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). iYes☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 i☐ No ☒
As of December 2, 2022 there were i59,831,508
shares of the registrant’s common stock, $0.01 par value per share, outstanding.
Current
portion of long-term debt and finance lease liabilities
i27
i27
Total
current liabilities
i2,565
i2,417
Long-term
debt
i2,485
i2,109
Long-term
operating lease liabilities
i1,078
i1,067
Long-term
finance lease liabilities
i20
i23
Pension
and other postretirement benefit obligations
i18
i18
Deferred
income taxes
i17
i8
Other
long-term liabilities
i181
i194
Total
liabilities
i6,364
i5,836
Commitments
and contingencies
i
i
Stockholders’ equity:
Preferred
stock, $ii0.01/ par value, authorized
ii5.0/ shares; iiiinone///
issued or outstanding
i—
i—
Common
stock, $ii0.01/ par value, authorized ii100.0/
shares; i60.9 shares issued and i59.9 shares outstanding at October 29, 2022; i58.9
shares issued and i58.3 shares outstanding at July 30, 2022
i1
i1
Additional
paid-in capital
i583
i608
Treasury
stock at cost
(i36)
(i24)
Accumulated
other comprehensive loss
(i5)
(i20)
Retained
earnings
i1,292
i1,226
Total
United Natural Foods, Inc. stockholders’ equity
i1,835
i1,791
Noncontrolling
interests
i—
i1
Total
stockholders’ equity
i1,835
i1,792
Total
liabilities and stockholders’ equity
$
i8,199
$
i7,628
See
accompanying Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
i
NOTE
1—SIGNIFICANT ACCOUNTING POLICIES
i
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.
iFiscal Year
The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the first quarter of fiscal 2023 and 2022 relate to the 13-week fiscal quarters ended October 29, 2022 and October 30, 2021, respectively.
i
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.
i
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.
iCash
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 October 29, 2022 and July 30,
2022, the Company had net book overdrafts of $i305 million and $i266 million, respectively.
i
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.
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 shortages as of the end of each fiscal year. The LIFO reserve was approximately $i246 million and $i225 million
as of October 29, 2022 and July 30, 2022, respectively, which is recorded within Inventories, net on the Condensed Consolidated Balance Sheets.
/
i
NOTE
2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
i
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.
/
i
NOTE
3—REVENUE RECOGNITION
Disaggregation of Revenues
The Company records revenue to ifive customer channels within Net sales, which are described below:
•Chains, which consists of customer accounts that
typically have more than i10 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.
(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.
Subsequent to the end of the first quarter of fiscal 2023, the Company entered into a purchase agreement with a third-party financial institution for the sale of certain accounts receivable up to $i300 million, subject to eligibility criteria established by the financial institution. The Company
initially sold $i253 million of accounts receivable under this agreement without recourse, in exchange for cash less a discount, as specified in the agreement. After the initial sale, the Company does not retain any interest in the receivables. The Company’s continuing involvement in transferred receivables is limited to servicing the receivables. Pursuant to the terms of the agreement, certain receivables
are sold to the third-party financial institution on a revolving basis, subject to certain limitations.
i
NOTE 4—GOODWILL AND INTANGIBLE ASSETS, NET
i
Changes
in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following:
Amortization
expense was $i18 million and $i18 million for the first quarters of fiscal 2023 and 2022, respectively. iThe
estimated future amortization expense for each of the next five fiscal years and thereafter on amortizing intangible assets existing as of October 29, 2022 is as shown below:
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 October 29, 2022, a 100-basis point increase in forward SOFR interest rates would increase the fair value of the interest rate swaps by approximately $i14
million; a 100-basis point decrease in forward SOFR interest rates would decrease the fair value of the interest rate swaps by approximately $i14 million. Refer to Note 6—Derivatives for further information on interest rate swap contracts.
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. iIn
the table below, the carrying value of the Company’s long-term debt is net of original issue discounts and debt issuance costs.
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 October 29, 2022. 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.
i
Details
of active swap contracts as of October 29, 2022, which are all pay fixed and receive floating, are as follows:
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.
i
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:
Total amounts of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
$
i35
$
i40
Loss
on cash flow hedging relationships:
Loss reclassified from comprehensive income into earnings
$
i—
$
(i11)
/
i
NOTE
7—LONG-TERM DEBT
i
The Company’s long-term debt consisted of the following:
On October 22, 2020, the Company issued $i500 million of unsecured i6.750%
senior notes due October 15, 2028 (the “Senior Notes”). The Senior Notes, which are presented net of debt issuance costs of $ii7/ million
as of October 29, 2022 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 $i2,600 million is available to the Borrowers, including a U.S. Dollar equivalent of $i100 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 $i750 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 all of the Borrowers’ and Guarantors’ accounts receivable, inventory and certain other assets arising therefrom or related thereto (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 i90% of eligible accounts receivable, plus i90%
of eligible credit card receivables, plus i90% to i92.5% of the net orderly liquidation value of eligible inventory, plus i90%
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 $i2,600 million) or the Borrowing Base.
i
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):
Certain inventory assets included
in Inventories, net
$
i2,153
$
i1,789
Certain
receivables included in Accounts receivable, net
i783
i878
Pharmacy
prescription files included in Intangible assets, net
i14
i15
Total
$
i2,950
$
i2,682
/
As
of October 29, 2022, the Borrowers’ Borrowing Base, net of $i110 million of reserves, was $i2,898 million,
which is above the $i2,600 million limit of availability, resulting in total availability of $ii2,600/
million for loans and letters of credit under the ABL Credit Facility. As of October 29, 2022, the Borrowers had $ii1,217/
million of loans outstanding under the ABL Credit Facility, which are presented net of debt issuance costs of $i10 million and are included in Long-term debt in the Condensed Consolidated Balance Sheets. As of October 29, 2022, the U.S. Borrowers had $i133
million in letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was $i1,250 million as of October 29, 2022.
Availability
under the ABL Credit Facility (in millions):
Total availability for ABL loans and letters of credit
$
ii2,600/
ABL
loans
$
ii1,217/
Letters
of credit
$
i133
Unused credit
$
i1,250
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:
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 $i1,950 million, consisting of a $i1,800 million
iseven-year tranche and a $i150 million i364-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 $i10 million. As of October 29, 2022 and July 30, 2022, there was $i623
million and $i629 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 i130
days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from i0 to i75
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. The potential amount of prepayment from Excess Cash Flow in fiscal 2023 that may be required in fiscal 2024 is not reasonably estimable as of October 29, 2022.
As of October 29, 2022, the Company had borrowings of $i800
million outstanding under the Term Loan Facility, which are presented in the Condensed Consolidated Balance Sheets net of debt issuance costs of $i11 million and an original issue discount on debt of $i10
million. As of October 29, 2022, ino amount of the Term Loan Facility was classified as current.
Subsequent to the end of the first quarter of fiscal 2023, the Company made a $i125 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.
i
NOTE
8—COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
i
Changes in Accumulated other comprehensive loss by component, net of tax, for the first quarter of fiscal 2023 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
$
i2
$
(i3)
$
(i19)
$
i—
$
(i20)
Other
comprehensive (loss) income before reclassifications
(i1)
—
(i3)
i18
i14
Amortization
of cash flow hedges
i1
—
—
—
i1
Net
current period Other comprehensive (loss) income
i—
i—
(i3)
i18
i15
Accumulated
other comprehensive income (loss) at October 29, 2022
Pension and postretirement benefit plan net assets:
Amortization
of amounts included in net periodic benefit income(1)
$
i—
$
i1
Net
periodic benefit income, excluding service cost
Income tax benefit
i—
i—
Benefit
for income taxes
Total reclassifications, net of tax
$
i—
$
i1
Swap
agreements:
Reclassification of cash flow hedges
$
i—
$
i11
Interest
expense, net
Income tax benefit
i—
(i3)
Benefit
for income taxes
Total reclassifications, net of tax
$
i—
$
i8
Other
cash flow hedges:
Reclassification of cash flow hedge
$
i1
$
i—
Cost
of sales
Income tax benefit
i—
i—
Benefit
for income taxes
Total reclassifications, net of tax
$
i1
$
i—
(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 October 29, 2022, the Company expects to reclassify $i19 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.
iNOTE 9—SHARE-BASED AWARDS
In the first quarter of fiscal
2023, 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 i1.5 million shares. As of October 29, 2022, there were i1.6 million
shares available for issuance under the Amended and Restated 2020 Equity Incentive Plan.
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 $i1 million to its other defined benefit pension plans and $i1 million
to its postretirement benefit plans in fiscal 2023.
Multiemployer Pension Plans
The Company contributed $i11 million and $i11 million
in the first quarters of fiscal 2023 and 2022, respectively, to multiemployer pension plans, which are included within Operating expenses.
/
i
NOTE 11—INCOME TAXES
The effective tax rate for the first quarter of fiscal 2023 was an expense
rate of i6.9% compared to a benefit rate of i1.3% for the first quarter of fiscal 2022. The effective tax rate for both periods was reduced
by the impact of discrete tax benefits related to the vesting of employee stock awards. The change from the first quarter of fiscal 2022 was primarily driven by the reduction of these discrete tax benefits during the first quarter of fiscal 2023.
/
i
NOTE 12—EARNINGS PER SHARE
i
The
following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:
The Company has itwo reportable segments: Wholesale and Retail. These reportable segments are itwo
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:
Net income attributable to noncontrolling interests
i1
i1
Net
periodic benefit income, excluding service cost
i7
i10
Interest
expense, net
(i35)
(i40)
Other
(income) expense, net
i1
(i1)
Depreciation
and amortization
(i74)
(i69)
Share-based
compensation
(i12)
(i11)
LIFO
charge(2)
(i21)
(i11)
Restructuring,
acquisition and integration related expenses
(i2)
(i3)
Gain
on sale of assets
i5
i—
Other(3)
(i5)
i—
Income
before income taxes
$
i72
$
i76
Depreciation
and amortization:
Wholesale
$
i64
$
i61
Retail
i8
i7
Other
i2
i1
Total
depreciation and amortization
$
i74
$
i69
Payments
for capital expenditures:
Wholesale
$
i57
$
i52
Retail
i10
i4
Total
capital expenditures
$
i67
$
i56
(1)As
presented in Note 3—Revenue Recognition, for the first quarters of fiscal 2023 and 2022, the Company recorded $i334 million and $i339
million, 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.
(3)Includes costs for certain technology-related initiatives.
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 October 29, 2022. 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 ione
year to ieight years, with a weighted average remaining term of approximately ifour 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 October 29, 2022, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $i17
million ($i15 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, as of October 29, 2022, a total estimated loss of $i1 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. iNo
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.
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 October 29, 2022, the Company had approximately $i582
million of non-cancelable future purchase obligations, most of which will be paid and utilized in the ordinary course within one year.
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 i43 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 substantially complied with the order and is working to provide the remaining data. UNFI is vigorously defending these matters, which it believes are without merit.
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 isix 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 intends to vigorously defend this matter.
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 $i100 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 $i24
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.
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 October 29, 2022, 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.
Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,”“believe,”“could,”“estimate,”“expect,”“intend,”“may,”“plan,”“seek,”“should,”“will” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.
Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:
•our dependence on principal customers;
•the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures;
•the impact and duration of any pandemics or disease outbreaks;
•our ability to operate, and rely on third parties to operate, reliable and secure technology systems;
•labor and other workforce shortages and
challenges;
•our ability to realize anticipated benefits of our strategic initiatives, including any acquisitions;
•the addition or loss of significant customers or material changes to our relationships with these customers;
•our sensitivity to general economic conditions including inflation, changes in disposable income levels and consumer spending trends;
•our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth;
•increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains, direct
distribution by large retailers and the growth of online distributors;
•our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;
•the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortage or work stoppages or otherwise;
•moderated supplier promotional activity, including decreased
forward buying opportunities;
•union-organizing activities that could cause labor relations difficulties and increased costs;
•the potential for additional asset impairment charges;
•our ability to maintain food quality and safety;
•volatility in fuel costs;
•volatility in foreign exchange rates; and
•our ability to identify and successfully complete asset or business acquisitions.
You should carefully review the risks described under “Part I. Item 1A Risk Factors” of our Annual
Report on Form 10-K for the year ended July 30, 2022 (the “Annual Report”) as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” and the information in the Annual Report.
Business Overview
UNFI is a leading distributor of grocery and non-food products, and support services provider to retailers in the United States and Canada. We believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in the country to smaller independents. We
offer approximately 260,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general merchandise; produce; perishables and frozen foods; nutritional supplements and sports nutrition; bulk and foodservice products; and personal care items. We believe we are North America’s premier wholesaler with 56 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. We are a coast-to-coast distributor with customers in all 50 states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers. We believe our total product assortment and service offerings are unmatched by our wholesale competitors. We plan to continue to pursue new business opportunities with independent retailers that operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs. Our business
is classified into two reportable segments: Wholesale and Retail; and also includes a manufacturing division and a branded product line division.
We are committed to executing our Fuel the Future strategy with the mission of building a food ecosystem that is better for all by delivering great food, more choices and fresh thinking for our customers and suppliers. Our Fuel the Future strategy consists of six pillars and is underpinned by four focus areas, which are detailed in “Part I. Item 1. Business” of our Annual Report. Collectively, the actions and plans behind each focus area are meant to capitalize on what we believe is our unique position in the food distribution industry, including the number and location of distribution centers we operate, the array of services and the data driven
insights that we are able to customize for each of our customers, our innovation platforms and the growth potential we see in each, our commitment to our people and the planet and the positioning of our retail operations.
We expect to continue to use available capital to re-invest in our business to support our Fuel the Future initiatives and to reduce outstanding debt, and we remain committed to improving our financial leverage. The decline in our financial leverage in recent years offers us increased flexibility to invest in growing our business and selectively return cash to shareholders as appropriate.
We believe our Fuel the Future strategy will accelerate our growth through increasing sales of products and services,
providing tailored, data-driven solutions to help our customers run their businesses more efficiently and contributing to customer acquisitions. We believe the key drivers for new customer growth will be the benefits of our significant scale, product and service offerings and nationwide footprint.
Trends and Other Factors Affecting our Business
Our results are impacted by macroeconomic and demographic trends, changes in the food distribution market structure and changes in consumer behavior. We believe food-at-home expenditures as a percentage of total food expenditures are subject to these trends, including changes in consumer behaviors in response to social and economic trends, such as levels of disposable income and the health of the economy in which our customers and our stores operate.
The
U.S. economy has experienced economic volatility in recent years due to uncertain economic conditions, which have had and we expect may continue to have an impact on consumer confidence. Consumer spending may be impacted by levels of discretionary income and consumers trading down to a less expensive mix of products for grocery items. In addition, inflation has increased and continues to be unpredictable. For example, we experienced volatility in our energy operating costs, and commodity and labor input costs have impacted the prices of products we procured from manufacturers. We believe our product mix ranging from high-quality natural and organic products to national and local conventional brands, including cost conscious private label brands, positions us to serve a broad cross section of North American retailers and end customers, and may lessen the impact of any shifts in consumer and industry trends in grocery product mix.
We continue to experience a tight labor market for our warehouse and driver associates, which has caused additional reliance on third-party resources, incremental hiring and increases in wages, all of which has led to higher labor expenses. We believe this operating environment has been impacted by labor force availability, in part as a result of the COVID-19 pandemic, which we refer to as the pandemic. We continue to take actions to maintain existing employment levels, fill open roles and prepare for future employment needs.
Uncertainty remains regarding the longer-term impact of the pandemic on our business as global economies, markets and supply chains respond to the ongoing effects. We continue to monitor guidelines released by the Centers for Disease Control and Prevention and the World
Health Organization and, when appropriate, implement mitigation measures to protect our associates, including safety protocols and strongly encouraging vaccinations/boosters. Our results could be impacted by, among other factors, any resurgence of infection rates and new variants of COVID-19 with higher transmissibility, the availability and efficacy of vaccines and treatments, actions taken by governmental authorities and other third parties in response to the pandemic such as health and safety orders and mandates, companies’ remote work policies, any economic downturn, the impact on capital and financial markets, food-at-home purchasing levels and other consumer trends, each of which is uncertain. Any of these disruptions could adversely impact our business and results of operations.
We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store
deliveries and other methods of distribution. Our Wholesale customers manage their businesses independently and operate in a competitive environment.
Wholesale Distribution Center Network
We evaluate our distribution center network to optimize performance and expect to incur incremental expenses related to any future network realignment, expansion or improvements. We are working to both minimize these potential future costs and obtain new business to further improve the efficiency of our transforming distribution network.
In fiscal 2022, our Allentown, Pennsylvania distribution center began operations, with a capacity of 1.3 million square feet to service customers in the surrounding geographic area. We incurred start-up
costs and operating losses, as the volume in this facility continues to ramp up to its operating capacity.
Retail Operations
We currently operate 76 Retail grocery stores, including 54 Cub Foods corporate stores and 22 Shoppers Food Warehouse stores. In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements. We operate 81 pharmacies primarily within the stores we operate and the stores of our franchisees. In addition, we operate 23 “Cub Wine and Spirit” and “Cub Liquor” stores.
We plan to continue to invest in our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology and operational
tools. Cub Foods and Shoppers Food Warehouse anticipate continued investment in improving the customer and associate experience through express remodels focused on customer facing elements.
Impact of Product Cost Inflation
We experienced a mix of inflation across product categories during the first quarter of fiscal 2023. In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately ten percent in the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022. Cost inflation estimates are based on individual like items sold during the periods being compared. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of
inflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, inflation generally has the effect of increasing sales. Under the last-in, first out (“LIFO”) method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year-end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory during periods of inflation.
Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to our customers. Generally in an inflationary environment as a wholesaler, rising vendor costs result in higher Net sales driven by higher vendor prices when other variables such as quantities sold and vendor promotions are constant.
Composition of Condensed Consolidated Statements of Operations and Business Performance Assessment
Net sales
Our Net sales consist primarily of product sales of natural, organic, specialty, produce and conventional grocery and non-food products, and support services revenue from retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges.
Cost of sales and Gross profit
The
principal components of our Cost of sales include the amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, our distribution centers and retail stores, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.
Operating expenses
Operating expenses include distribution expenses of warehousing, delivery, purchasing, receiving, selecting, and outbound transportation expenses, and selling and administrative expenses. These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense and share-based compensation expense.
Restructuring,
acquisition and integration related expenses
Restructuring, acquisition and integration related expenses reflect expenses resulting from restructuring activities, including severance costs, facility closure asset impairment charges and costs, share-based compensation acceleration charges and acquisition and integration related expenses. Integration related expenses include certain professional consulting expenses related to business transformation and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.
Net periodic benefit income, excluding service cost
Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit
plan assets and interest costs on plan liabilities.
Interest expense, net
Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, loss on debt extinguishment, interest expense on finance lease obligations, amortization of financing costs and discounts and interest income.
Adjusted EBITDA
Our Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand
underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or items that do not reflect management’s assessment of ongoing business performance.
We believe
Adjusted EBITDA is useful to investors and financial institutions because it provides additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of its importance as a measure of underlying operating performance, as the primary compensation performance measure under certain compensation programs and plans. We believe Adjusted EBITDA is reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results
for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report on Form 10-Q.
There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting the cost of cash expenditures for capital assets or certain other contractual commitments, finance lease obligation and debt service expenses, income taxes and any impacts from changes in working capital.
We define Adjusted EBITDA as a consolidated measure which we reconcile by adding Net income (loss) including noncontrolling interests, less Net income attributable to noncontrolling interests, plus non-operating
income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other (income) expense, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, and certain other non-cash charges or other items, as determined by management. The changes to the definition of Adjusted EBITDA from prior periods reflect changes to line item references in our Condensed Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA.
During fiscal 2022, we revised our definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge
or benefit. We believe that this change provides a better indicator of our underlying operating performance and permits better comparability between periods. Refer to footnote one in the table below and Note 13—Business Segments in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the impact of the change in definition of Adjusted EBITDA.
The following table sets forth a summary of our results of operations and Adjusted EBITDA for
the periods indicated. We have revised the following tables for the change in segment profit measurement for Adjusted EBITDA as discussed in Note 13—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q.
Adjustments to net income including noncontrolling interests:
Less net income attributable to noncontrolling interests
(1)
(1)
Net
periodic benefit income, excluding service cost
(7)
(10)
Interest expense, net
35
40
Other (income) expense, net
(1)
1
Provision
(benefit) for income taxes
5
(1)
Depreciation and amortization
74
69
Share-based compensation
12
11
LIFO
charge(1)
21
11
Restructuring, acquisition and integration related expenses
2
3
Gain on sale of assets
(5)
—
Other(2)
5
—
Adjusted
EBITDA
$
207
$
200
(1)During fiscal 2022, the Company revised its definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit. The following
illustrates the impact of the revised definition on previously reported periods to show the effect of this change:
Our Net sales for the first quarter of fiscal 2023 increased approximately 7.6% from the first quarter of fiscal 2022. The increase in Net sales was primarily driven by inflation and new business. This new business resulted from selling new or expanded categories to existing customers and adding new customers from our robust pipeline. These increases were partially offset by an expected decrease in unit volume consistent with the overall industry.
Chains
Net sales increased primarily due to growth in sales to existing and new customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by a decrease in units sold.
Independent retailers Net sales increased primarily due to sales under a supply agreement with a new customer within the Atlantic region commencing in the first quarter of fiscal 2022 and growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by a decrease in units sold.
Supernatural Net sales increased primarily due to growth in existing store sales, including the supply of new fresh categories, inflation, and increased sales to new stores.
Retail
Net sales increased primarily due to a 2.0% increase in identical store sales from higher average basket sizes driven by inflation, offset by lower volume.
Other Net sales increased primarily due to higher e-commerce sales.
Cost of Sales and Gross Profit
Our gross profit increased $54 million, or 5.2%, to $1,096 million for the first quarter of fiscal 2023, from $1,042 million for the first quarter of fiscal 2022. Our gross profit as a percentage of Net sales decreased to 14.6% for the first quarter of fiscal 2023 compared to 14.9% for the first quarter of fiscal 2022. The LIFO charge was $21 million and $11 million in the first quarter of fiscal 2023 and 2022, respectively.
Excluding the non-cash LIFO charge, gross profit rate was 14.8% of Net sales and 15.0% of Net sales for the first quarter of fiscal 2023 and 2022, respectively. The decrease in gross profit rate, excluding the LIFO charge, was driven by changes in customer mix as we continued to grow sales with larger customers.
Operating Expenses
Operating expenses increased $68 million, or 7.3%, to $1,000 million, or 13.3% of Net sales, for the first quarter of fiscal 2023 compared to $932 million, or 13.3% of Net sales, for the first quarter of fiscal 2022. Operating expenses as a percent of Net sales for the first quarter of fiscal 2023 were approximately flat compared to the first quarter of fiscal
2022, primarily driven by continued investments in servicing our customers, which led to higher transportation and distribution center labor costs in the first quarter of fiscal 2023, and higher occupancy costs, partially offset by leveraging fixed expenses across higher sales.
Operating Income
Reflecting the factors described above, Operating income decreased $8 million to $99 million for the first quarter of fiscal 2023, compared to $107 million for the first quarter of fiscal 2022. The decrease in operating income was primarily driven by an increase in operating expenses in excess of an increase in gross profit as described above.
Interest expense on long-term debt, net of capitalized interest
$
32
$
33
Interest
expense on finance lease obligations
1
4
Amortization of financing costs and discounts
2
3
Interest
expense, net
$
35
$
40
The decrease in interest expense, net, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily driven by lower outstanding debt balances. In addition, our interest expense included the benefit of lower interest expense on our portfolio of interest rate swaps, partially offset by higher average floating interest rates on the
company’s credit facilities.
The effective tax rate for the first quarter of fiscal 2023 was an expense rate of 6.9% compared to a benefit rate of 1.3% for the first quarter of fiscal 2022. The effective tax rate for both periods was reduced by the impact of discrete tax benefits related to the vesting of employee stock awards. The change from the first quarter of fiscal 2022 was primarily driven by the reduction of these discrete tax benefits during the first quarter
of fiscal 2023.
Net Income Attributable to United Natural Foods, Inc.
Reflecting the factors described in more detail above, Net income attributable to United Natural Foods, Inc. was $66 million, or $1.07 per diluted common share, for the first quarter of fiscal 2023, compared to $76 million, or $1.25 per diluted common share, for the first quarter of fiscal 2022.
Segment Results of Operations
In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed
and reconciled within Note 13—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the above table within the Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.
(1)Adjusted EBITDA amounts as previously reported by segment have been recast to conform with the revised segment profit measure of Adjusted EBITDA, which excludes the non-cash LIFO charge recorded by segment. The effect of the revision increased Adjusted EBITDA for Wholesale by
$11 million for the first quarter of fiscal 2022. The impact on Retail was insignificant.
Net Sales
Wholesale’s Net sales increased primarily due to growth in sales to new and existing customers, including an increase from higher product costs, in Independent retailers, Chains and Supernatural channels, as discussed in Results of Operations - Net Sales section above.
Retail’s Net sales increased primarily due to a 2.0% increase in identical store sales from higher average basket sizes driven by inflation, offset by lower volume.
The increase in eliminations Net sales was driven by higher sales from Other to Wholesale.
Wholesale’s Adjusted EBITDA decreased 2.3% for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022. The decrease was driven by an increase in operating expenses in excess of gross profit growth excluding the LIFO charge. Wholesale’s Gross profit increase excluding the LIFO charge for the first quarter of fiscal 2023 was $65 million with a gross profit rate decrease of approximately 4 basis points primarily driven by changes in customer mix. Wholesale’s Operating expense increased $69 million, which excludes depreciation and amortization, share-based compensation and other adjustments as outlined in Note 13—Business Segments. Wholesale’s operating expense rate increased 18 basis points primarily driven by continued investments in servicing our customers,
which led to higher transportation and distribution labor costs in the first quarter of fiscal 2023, and higher occupancy costs. These increases were partially offset by leveraging fixed costs. Wholesale’s depreciation and amortization expense increased $3 million compared to the first quarter of fiscal 2022.
Retail’s Adjusted EBITDA decreased 9.1% for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022. Retail’s gross profit rate was approximately flat compared to the first quarter of fiscal 2022 and operating expenses increased primarily due to higher employee-related costs. Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 13—Business Segments. Retail’s depreciation and amortization expense increased $1 million compared to the first quarter of fiscal 2022.
LIQUIDITY
AND CAPITAL RESOURCES
Highlights
•Total liquidity as of October 29, 2022 was $1,289 million and consisted of the following:
◦Unused credit under the ABL Credit Facility was $1,250 million, which decreased $377 million from $1,627 million as of July 30, 2022, primarily due to increased cash utilized to fund seasonal working capital increases.
◦Cash and cash equivalents was $39 million, which decreased $5 million from $44 million as of July 30, 2022.
•Our
total debt increased $376 million to $2,499 million as of October 29, 2022 from $2,123 million as of July 30, 2022, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal working capital increases.
•Working capital increased $415 million to $1,795 million as of October 29, 2022 from $1,380 million as of July 30, 2022, primarily due to seasonal increases in inventory and accounts receivable levels, partially offset by an increase in accounts payable related to inventories.
•Subsequent to the end of the first quarter of fiscal 2023, we monetized certain receivables within Accounts receivable, net, pursuant
to a purchase agreement with a third-party financial institution for the sale of certain receivables up to $300 million, which generated net cash proceeds of $253 million. These proceeds were used to make a $125 million voluntary prepayment on the Term Loan Facility and reduce outstanding borrowings under the ABL Credit Facility.
Sources and Uses of Cash
We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned. Our credit facilities are secured by a substantial portion of our total assets. We expect to be able to fund debt maturities
and finance lease liabilities through fiscal 2023 with internally generated funds and borrowings under the ABL Credit Facility.
Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility. We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.
Primary uses of cash include debt service, capital expenditures, working capital maintenance and income tax payments.
We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories.
We currently do not pay a dividend on our common stock. In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility and Senior Notes. Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred,
including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business.
Long-Term Debt
During the first quarter of fiscal 2023, we borrowed a net $377 million under the ABL Credit Facility. Subsequent to the end of the first quarter of fiscal 2023, we 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.
Our Term Loan Agreement and
Senior Notes do not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio of at least 1.0 to 1.0, calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability is ever less than the greater of (i) $210 million and (ii) 10% of the aggregate borrowing base. We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Quarterly Report on Form 10-Q. The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or
sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis. We were in compliance with all such covenants for all periods presented. If we fail to comply with any of these covenants, we may be in default under the applicable debt agreement, and all amounts due thereunder may become immediately due and payable.
Derivatives and Hedging Activity
We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy
to manage our 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.
As of October 29, 2022, we had an aggregate of $1,200 million of floating rate notional debt subject to active interest rate swap contracts, which effectively hedge the SOFR component of our interest rate payments through pay fixed and receive floating interest rate swap agreements. These fixed rates range from 2.274% to 2.875%, with maturities between
October 2022 and October 2025. The fair value of these interest rate derivatives represent a current asset of $16 million and a long-term asset of $11 million as of October 29, 2022, and are subject to volatility based on changes in market interest rates.
From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of October 29, 2022, we had fixed price fuel contracts and foreign currency forward agreements outstanding. Gains and losses and the outstanding assets and liabilities from these arrangements are insignificant.
Payments for Capital Expenditures
Our
capital expenditures for the first quarter of fiscal 2023 were $67 million compared to $56 million for the first quarter of fiscal 2022, an increase of $11 million. Our capital spending for the first quarter of fiscal 2023 and 2022 principally included information technology and supply chain expenditures, including continued investment in the new Allentown, Pennsylvania distribution center during the first quarter of fiscal 2022. Fiscal 2023 capital spending is expected to be approximately $350 million and include projects that automate, optimize and expand our distribution network, and finance our technology platform investments. We expect to finance fiscal 2023 capital expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility and cash from operations.
Net (decrease) increase in cash and cash equivalents
(5)
5
(10)
Cash
and cash equivalents, at beginning of period
44
41
3
Cash and cash equivalents, at end of period
$
39
$
46
$
(7)
The increase in net cash used in operating
activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to higher levels of cash utilized to build inventories and a decrease in accounts payable relative to inventory increases, partly due to earlier seasonal inventory purchases in the first quarter of fiscal 2023.
The decrease in net cash used in investing activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to a reduction in payments for investments.
The increase in net cash provided by financing activities in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was primarily due to a larger increase in net borrowings under the ABL Credit Facility resulting from increases in net cash used in operating activities, net
of cash used in investing activities, as described above.
Other Obligations and Commitments
Our principal contractual obligations and commitments consist of obligations under our long-term debt, interest on long-term debt, operating and finance leases, purchase obligations, self-insurance liabilities and multiemployer plan withdrawal liabilities.
There have been no material changes in our contractual obligations since the end of fiscal 2022. Refer to Item 7 of the Annual Report for additional information regarding our contractual obligations.
Pension and Other Postretirement Benefit Obligations
In
fiscal 2023, no minimum pension contributions are required to be made under the SUPERVALU INC. Retirement Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). An insignificant amount of contributions are expected to be made to defined benefit pension plans and postretirement benefit plans in fiscal 2023. We fund our defined benefit pension plans based on the minimum contribution required under ERISA, the Pension Protection Act of 2006 and other applicable laws and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating
required Pension Benefit Guaranty Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding.
We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the relevant collective bargaining
agreement. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us.
Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions
will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that could require us to record a withdrawal liability obligation and make withdrawal liability payments to the fund. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans, and recognized expense of $45 million in fiscal 2022. In fiscal 2023, we expect to contribute approximately $51 million to multiemployer plans, subject to the outcome of collective bargaining
and capital market conditions. We expect required cash payments to fund multiemployer pension plans from which we have withdrawn to be insignificant in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities. Any future withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.
We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare
expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.
Refer to Note 13—Benefit Plans in Part II, Item 8 of the Annual Report for additional information regarding the plans in which we participate.
Share Repurchases
In September 2022, our Board of Directors authorized a new repurchase program for up to $200 million of our common stock over a term of four years (the “2022 Repurchase Program”). Upon approval of the 2022 Repurchase Program, our Board terminated the repurchase program authorized in October 2017 (the “2017 Repurchase Program”). In the first quarter of fiscal 2023,
we repurchased approximately 0.4 million shares of our common stock for a total cost of $12 million under the 2022 Repurchase Program. As of October 29, 2022, we had $188 million remaining authorized under the 2022 Repurchase Program.
We will manage the timing of any repurchases of our common stock in response to market conditions and other relevant factors, including any limitations on our ability to make repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes. We may implement the 2022 Repurchase Program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act.
Critical
Accounting Policies and Estimates
There were no material changes to our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of our Annual Report.
Seasonality
Overall product sales are fairly balanced throughout the year, although demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events. Our working capital needs are generally greater during the months of and leading up to high sales periods, such as the buildup in inventory
leading to the calendar year-end holidays. Our inventory, accounts payable and accounts receivable levels may be impacted by macroeconomic impacts and changes in food-at-home purchasing rates. These effects can result in normal operating fluctuations in working capital balances, which in turn can result in changes to Cash flow from operations that are not necessarily indicative of long-term operating trends.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and our interest rate swap agreements, and price increases in diesel fuel. Except as described in Note 6—Derivatives and Note 7—Long-Term
Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, which are incorporated herein, there have been no other material changes to our exposure to market risks from those disclosed in our Annual Report.
(a) Evaluation of disclosure controls and procedures. We carried out an evaluation,
under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
(b) Changes in internal controls. There has been no change in our internal control over financial reporting that occurred during the first quarter of fiscal 2023 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in routine litigation or other legal proceedings that arise in the ordinary course of our business, including investigations and claims regarding employment law including wage and hour, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, products liability, real
estate and antitrust. Other than as set forth in Note 14—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein, there are no pending material legal proceedings to which we are a party or to which our property is subject.
Item 1A. Risk Factors
There have been no material changes to our risk factors contained in Part I, Item 1A. Risk Factors, of our Annual Report.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
In September 2022, our Board of Directors authorized a new repurchase program for up to $200 million of our common stock over a term of four years (the “2022 Repurchase Program”). Upon approval of the 2022 Repurchase Program, our Board terminated the repurchase program authorized in October 2017 (the “2017 Repurchase Program”). Any repurchases will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise. We may also implement the repurchase program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
The following table presents purchases of our common stock and related information for each of the months in the quarter
ended October 29, 2022.
(in millions, except shares and per share amounts)
Total Number of Shares Purchased(2)
Average
Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(3)
(1)The
reported periods conform to our fiscal calendar.
(2)These amounts represent the deemed surrender by participants in our compensatory stock plans of 1,052,101 shares of our common stock to cover withholding taxes from the vesting of restricted stock units granted under such plans and the repurchase of 338,961 shares of our common stock under the 2022 Repurchase Program.
(3)The amounts shown in this column represent the amount remaining under the 2017 Repurchase Program as of September 3, 2022 prior to its termination, and the amount remaining under the 2022 Repurchase Program as of October 1, 2022 and October 29, 2022.
The following materials from the United Natural Foods, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
104
The
cover page from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2023, filed with the SEC on December 7, 2022, formatted in Inline XBRL (included as Exhibit 101).
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
