UNITED NATURAL FOODS, INC. | |||
(Exact Name of Registrant as Specified in its Charter) | |||
Delaware | 001-15723 | 05-0376157 | |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | |
313 Iron Horse Way, Providence, RI 02908 | |||
(Address of Principal Executive Offices) (Zip Code) |
N/A |
Exhibit Number | Description | |
Consent of KPMG LLP, independent registered public accounting firm for SUPERVALU INC. | ||
Unaudited condensed consolidated financial statements of SUPERVALU INC. as of September 8, 2018 and February 24, 2018, and for the 12 and 28 weeks ended September 8, 2018 and September 9, 2017 are incorporated by reference from SUPERVALU INC.’s Quarterly Report on Form 10-Q filed with the SEC on October 15, 2018. | ||
Audited consolidated financial statements of SUPERVALU INC. as of February 24, 2018 and February 25, 2017, and for the fiscal years ended February 24, 2018, February 25, 2017 and February 27, 2016 are incorporated by reference from SUPERVALU INC.’s Annual Report on Form 10-K filed with the SEC on April 24, 2018. | ||
Unaudited pro forma condensed combined financial statements for the fiscal year (52 weeks) ended July 28, 2018 and for the first fiscal Quarter (13 Weeks) ended October 27, 2018. | ||
Unaudited pro forma presentation of Adjusted EBITDA, a non-GAAP measure. |
UNITED NATURAL FOODS, INC. | ||||
By: | /s/ Michael P. Zechmeister | |||
Name: | Michael P. Zechmeister | |||
Title: | Chief Financial Officer | |||
(Principal Financial Officer) | ||||
Date: | January 4, 2019 |
• | the acquisition and transfer of the assets (including the equity interests of certain subsidiaries) and liabilities of the Supervalu business to UNFI, including the associated historical presentation of Supervalu’s results of operations; |
• | the acquisition and transfer of the assets (including the equity interests of certain subsidiaries) and liabilities of the AG Florida business to Supervalu, including the associated historical presentation of AG Florida’s results of operations; |
• | the net cash UNFI used in the acquisition of Supervalu, including adjustments to (i) repay indebtedness attributable to Supervalu through UNFI-issued borrowings, (ii) purchase of all of Supervalu’s common shares, (iii) pay transaction costs and Supervalu employee costs pursuant to the Merger Agreement, and (iv) fund benefit plans; |
• | the net cash Supervalu used in the acquisition of AG Florida, including adjustments to (i) purchase Class A, B, C and D shares of AG Florida’s member-owners, (ii) repay indebtedness attributable to AG Florida through Supervalu-issued borrowings, (iii) pay AG Florida employees in accordance with change-in-control agreements, patronage amounts to AG Florida cooperative members, former member retired stock obligations, and transaction costs; |
• | the change in ownership of AG Florida from a cooperative entity to an entity owned by a corporation; and |
• | the recognition of the income tax effects of the acquisitions and related transactions. |
• | UNFI’s historical unaudited Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements for the first quarter ended October 27, 2018, filed with the SEC on December 6, 2018; |
• | UNFI’s historical audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements contained in UNFI’s Annual Report on Form 10-K for the year ended July 28, 2018, filed with the SEC on September 24, 2018; |
• | Supervalu’s historical unaudited Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements for the second quarter ended September 8, 2018, contained in Exhibit 99.1 to the Current Report on Form 8-K/A to which this Exhibit 99.3 is filed; |
• | Supervalu’s historical audited Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements for the fiscal year ended February 24, 2018, contained in Exhibit 99.2 to the Current Report on Form 8-K/A to which this Exhibit 99.3 is filed; |
• | AG Florida’s historical unaudited Condensed Consolidated Financial Statements and the accompanying notes to the unaudited Condensed Consolidated Financial Statements of AG Florida for the first quarter (16 weeks) ended November 18, 2017 contained in Exhibit 99.1 to the Current Report on Form 8-K filed by Supervalu on June 12, 2018; and |
• | AG Florida’s historical audited Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements for the fiscal year ended July 29, 2017, contained in Exhibit 99.1 to the Current Report on Form 8-K/A filed by Supervalu on February 23, 2018. |
Historical | Pro Forma | ||||||||||||||||||||||||||||
UNFI | Supervalu2(a) | AG Florida2(b) | Unified2(c) | Discontinued Operations Adjustment2(d) | Adjustments | Note | Combined | ||||||||||||||||||||||
Net sales | $ | 10,226,683 | $ | 15,394,641 | $ | 323,709 | $ | 71,889 | $ | (1,800,508 | ) | $ | (32,358 | ) | 2(e) | $ | 24,184,056 | ||||||||||||
Cost of sales | 8,703,916 | 12,810,720 | 281,185 | 63,934 | (980,863 | ) | (40,561 | ) | 2(f) | 20,838,331 | |||||||||||||||||||
Gross profit | 1,522,767 | 2,583,921 | 42,524 | 7,955 | (819,645 | ) | 8,203 | 3,345,725 | |||||||||||||||||||||
Operating expenses | 1,279,529 | 2,427,822 | 41,497 | 7,733 | (711,136 | ) | 104,174 | 2(g) | 3,149,619 | ||||||||||||||||||||
Restructuring, asset impairment, acquisition, and integration related expenses | 16,013 | 78,516 | — | — | (22,526 | ) | — | 72,003 | |||||||||||||||||||||
Operating income | 227,225 | 77,583 | 1,027 | 222 | (85,983 | ) | (95,971 | ) | 124,103 | ||||||||||||||||||||
Other expense (income): | |||||||||||||||||||||||||||||
Net periodic benefit income, excluding service cost | — | (58,814 | ) | — | (20 | ) | 463 | — | (58,371 | ) | |||||||||||||||||||
Interest expense | 16,471 | 141,154 | 1,253 | 9 | 1,379 | 76,515 | 2(i) | 236,781 | |||||||||||||||||||||
Interest income | (446 | ) | (2,555 | ) | (273 | ) | (9 | ) | (304 | ) | — | (3,587 | ) | ||||||||||||||||
Other, net | (1,545 | ) | (22,189 | ) | — | 1 | 19,668 | — | (4,065 | ) | |||||||||||||||||||
Total other expense, net | 14,480 | 57,596 | 980 | (19 | ) | 21,206 | 76,515 | 170,758 | |||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 212,745 | 19,987 | 47 | 241 | (107,189 | ) | (172,486 | ) | (46,655 | ) | |||||||||||||||||||
Provision (benefit) for income taxes | 47,075 | 7,269 | 16 | 88 | (38,231 | ) | (21,111 | ) | 2(j) | (4,894 | ) | ||||||||||||||||||
Net income (loss) from continuing operations | $ | 165,670 | $ | 12,718 | $ | 31 | $ | 153 | $ | (68,958 | ) | $ | (151,375 | ) | $ | (41,761 | ) | ||||||||||||
Net income (loss) from continuing operations per share attributable to UNITED NATURAL FOODS, INC.: | |||||||||||||||||||||||||||||
Basic | $ | 3.28 | $ | (0.83 | ) | ||||||||||||||||||||||||
Diluted | $ | 3.26 | $ | (0.83 | ) | ||||||||||||||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||||||||||
Basic | 50,530 | 2(k) | 50,530 | ||||||||||||||||||||||||||
Diluted | 50,837 | 2(k) | 50,530 |
Historical | Pro Forma | ||||||||||||||||||||
UNFI | Supervalu 2(a) | Discontinued Operations Adjustment2(d) | Adjustments | Note | Combined | ||||||||||||||||
Net sales | $ | 2,868,156 | $ | 3,512,269 | $ | (395,013 | ) | $ | (442 | ) | 2(e) | $ | 5,984,970 | ||||||||
Cost of sales | 2,455,825 | 2,940,393 | (222,002 | ) | (4,484 | ) | 2(f) | 5,169,732 | |||||||||||||
Gross profit | 412,331 | 571,876 | (173,011 | ) | 4,042 | 815,238 | |||||||||||||||
Operating expenses | 363,165 | 563,516 | (155,908 | ) | 30,539 | 2(g) | 801,312 | ||||||||||||||
Restructuring, acquisition, and integration related expenses | 68,004 | 67,310 | (37,353 | ) | (67,935 | ) | 2(h) | 30,026 | |||||||||||||
Operating loss | (18,838 | ) | (58,950 | ) | 20,250 | 41,438 | (16,100 | ) | |||||||||||||
Other expense (income): | |||||||||||||||||||||
Net periodic benefit income, excluding service cost | (844 | ) | (8,810 | ) | 107 | — | (9,547 | ) | |||||||||||||
Interest expense | 7,671 | 27,733 | 278 | 21,021 | 2(i) | 56,703 | |||||||||||||||
Interest income | (146 | ) | (13 | ) | (118 | ) | — | (277 | ) | ||||||||||||
Other, net | 97 | 1,376 | (1,194 | ) | — | 279 | |||||||||||||||
Total other expense, net | 6,778 | 20,286 | (927 | ) | 21,021 | 47,158 | |||||||||||||||
Loss from continuing operations before income taxes | (25,616 | ) | (79,236 | ) | 21,177 | 20,417 | (63,258 | ) | |||||||||||||
Benefit for income taxes | (4,255 | ) | (24,745 | ) | 7,184 | 6,451 | 2(j) | (15,365 | ) | ||||||||||||
Net loss from continuing operations | $ | (21,361 | ) | $ | (54,491 | ) | $ | 13,993 | $ | 13,966 | $ | (47,893 | ) | ||||||||
Net loss from continuing operations per share attributable to UNITED NATURAL FOODS, INC.: | |||||||||||||||||||||
Basic | $ | (0.42 | ) | $ | (0.95 | ) | |||||||||||||||
Diluted | $ | (0.42 | ) | $ | (0.95 | ) | |||||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||
Basic | 50,583 | 2(k) | 50,583 | ||||||||||||||||||
Diluted | 50,583 | 2(k) | 50,583 |
(a) | The results of operations of Supervalu as they appear in this column have been adjusted to conform to UNFI’s consolidated financial statement presentation. These adjustments primarily include the following: |
• | For fiscal 2018, the “Supervalu” column reflects the results of operations attributable to Supervalu for a 52 week period ended June 16, 2018. |
• | For the first quarter of fiscal 2019, the “Supervalu” column reflects the results of operations attributable to Supervalu for the 12 week period ended September 8, 2018. The results of operations of Supervalu for the period between October 22, 2018 and October 27, 2018 is included in the “UNFI” column. |
• | The presentation of logistics expense, including employee-related costs, depreciation expense, warehouse costs, and transportation and other costs, within Operating expenses that were previously presented in Cost of sales within Supervalu’s historical consolidated financial statements. |
• | The presentation of gains and losses on sales of businesses, assets and investments within Other, net, that were previously presented in Selling and administrative expenses within Supervalu’s historical consolidated financial statements. |
(b) | The results of operations of AG Florida as they appear in this column have been adjusted to conform to UNFI’s consolidated financial statement presentation. These adjustments primarily include the following: |
• | For fiscal 2018, the “AG Florida” column reflects the results of operations attributable to AG Florida for a 25 week period prior to Supervalu’s acquisition date of December 8, 2017. The results of operations of AG Florida for the 27 week period ended June 16, 2018 are included in the “Supervalu” column. |
• | For fiscal 2018, revenue classification changes were made to conform AG Florida’s revenue presentation with UNFI’s and Supervalu’s presentation of similar transactions for principal versus agent revenue considerations. Since the Supervalu acquisition date of AG Florida, the revenue presentation included within the “Supervalu” column aligns with its and UNFI’s accounting practices. |
(c) | The results of operations of Unified as they appear in this column have been adjusted to conform with UNFI’s consolidated financial statement presentation. |
• | For fiscal 2018, the “Unified” column reflects the results of operations attributable to Unified for a one week period prior to Supervalu’s acquisition date of June 23, 2017. The results of operations of Unified for the 51 week period ended June 16, 2018 are included in the “Supervalu” column. |
(d) | In conjunction with the Supervalu acquisition, UNFI announced its plan to sell the remaining acquired retail operations of Supervalu. This “Discontinued Operations Adjustment” column includes the following: |
• | The reclassification of the results of operations attributable to Cub Foods, Hornbacher’s, Shoppers, Shop ‘n Save St. Louis and Shop ‘n Save East retail operations to discontinued operations due to their held-for-sale status and meeting the discontinued operations presentation requirements, which is consistent with the presentation in UNFI’s first quarter fiscal 2019 Quarterly Report on Form 10-Q. |
• | An increase in Net sales of continuing operations of $1,129 million for fiscal 2018 and $272 million for the first quarter of fiscal 2019 attributable to inter-company product purchases by certain banners presented within discontinued operations, which we expect will be ongoing sales to these banners subsequent to their disposal due to the anticipation that these banners will enter into a supply arrangement with UNFI. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. |
(e) | This adjustment reflects the elimination of sales transactions to Supervalu that are required to be eliminated upon consolidation after the Supervalu acquisition, offset in part by the elimination of the historical customer incentive amortization expense related to payments made prior to the acquisition for in-place contracts. These contracts were recognized as intangible assets at fair value in the acquisition and the associated expense is recognized as amortization expense within operating expenses. |
(f) | This adjustment reflects the elimination of Cost of sales related to adjustment 2(e) for sales transactions to Supervalu that are required to be eliminated upon consolidation. In addition, the adjustment for the first quarter of fiscal 2019 includes the removal of expenses for the derecognition of the inventory at fair value adjustment that was recorded by UNFI as a result of the Supervalu acquisition. |
(g) | This adjustment reflects the following: |
October 27, 2018 (13 weeks) | July 28, 2018 (52 weeks) | |||||||
Elimination of historical Supervalu, AG Florida and Unified depreciation and amortization expense | $ | (33,794 | ) | $ | (147,934 | ) | ||
Elimination of historical Supervalu share-based compensation expense | (5,524 | ) | (18,076 | ) | ||||
Elimination of historical UNFI fiscal 2018 acquisition costs (refer to note 2(h)) | — | (4,967 | ) | |||||
Elimination of historical AG Florida patronage expense to cooperative members | — | (6,292 | ) | |||||
Estimated share-based compensation expense for acquired Supervalu equity awards related to the terms of the Merger Agreement | 5,026 | 22,119 | ||||||
Estimated UNFI depreciation and amortization expense based on the preliminary assigned fair values and estimated useful lives of the acquired property, plant and equipment, and intangible assets of Supervalu, AG Florida, and Unified | 64,831 | 259,324 | ||||||
Total Operating expenses adjustment | $ | 30,539 | $ | 104,174 |
(h) | This adjustment reflects the elimination of historical transaction costs, change-in-control expenses and incremental share-based compensation expense associated with the Merger Agreement incurred during the first quarter ended October 27, 2018. This adjustment removes historical transaction costs associated with the Supervalu business combination prior to and subsequent to the Supervalu acquisition date that were included in the “UNFI” and “Supervalu” columns. UNFI expects to incur approximately $125 million of restructuring, acquisition and integration costs in its fiscal year ending August 3, 2019, which does not include costs expected to be incurred in relation to the divestiture of retail operations, and which are not included in the pro forma adjustment amounts. |
October 27, 2018 (13 weeks) | July 28, 2018 (52 weeks) | |||||||
Elimination of historical interest expense associated with long-term debt and the revolving line of credit extinguished as of the transaction date, and amortization of debt issuance costs(1) | $ | (29,467 | ) | $ | (125,442 | ) | ||
Recognition of interest on the $1,800 million and $150 million of tranches under UNFI’s new secured term loan facility at the rate of LIBOR plus 4.25 percent and LIBOR plus 2.00 percent, respectively(2) | 31,169 | 124,678 | ||||||
Recognition of interest on the $1,475 million of additional borrowings under UNFI’s asset-based revolving credit facility at the rate of LIBOR plus 1.25 percent and prime rate plus 0.25 percent(3) | 15,029 | 60,117 | ||||||
Recognition of amortization of capitalized borrowing costs incurred by UNFI in connection with the additional borrowings under UNFI’s secured term loan facility and revolving credit facility | 4,290 | 17,162 | ||||||
Total Interest expense, net adjustment | $ | 21,021 | $ | 76,515 |
(1) | Amounts associated with interest expense associated with capital lease obligations have not been eliminated and are not reflected in this pro forma adjustment. |
(2) | Applying a 1/8 point increase in the LIBOR interest rate would have impacted Income (loss) from continuing operations before income taxes by approximately $2.44 million. |
(3) | Applying a 1/8 point increase in the LIBOR and prime interest rates would impacted Income (loss) from continuing operations before income taxes by approximately $1.84 million. |
(j) | This adjustment reflects the tax effect of the pro forma adjustments using the blended federal and state statutory tax rates of the applicable jurisdictions during each period presented. The effective tax rate of the combined company could be different than the historical UNFI, Supervalu, Unified and AG Florida effective tax rates depending on the geographic mix of earnings, tax elections made at time of acquisition and various other factors. |
(k) | UNFI converted outstanding equity awards into time-vesting awards (“Replacement Award”) with a settlement value equal to the merger consideration ($32.50 per share) multiplied by the number of shares of Supervalu common stock subject to such awards. The Merger Agreement originally provided that the Replacement Awards were payable in cash, however, the Merger Agreement was amended on October 10, 2018, to provide that the Replacement Awards could be settled at UNFI’s election, in cash and/or an equal value in shares of common stock of UNFI. Since these Replacement Awards are settleable in cash at UNFI’s election, these awards are not included in the calculation of weighted average shares outstanding. |
(in thousands) | October 27, 2018 (13 weeks) | July 28, 2018 (52 weeks) | ||||||
Net loss from continuing operations(1) | $ | (47,893 | ) | $ | (41,761 | ) | ||
Benefit for income taxes(1) | (15,365 | ) | (4,894 | ) | ||||
Total other expense, net(1) | 47,158 | 170,758 | ||||||
Depreciation and amortization(2) | 92,180 | 362,624 | ||||||
Share-based compensation(2) | 13,115 | 47,902 | ||||||
Restructuring, asset impairment, acquisition, and integration related expenses(1) | 30,026 | 72,003 | ||||||
Other adjustments(3) | — | (5,185 | ) | |||||
Adjusted EBITDA of discontinued operations(4) | 31,143 | 188,948 | ||||||
Adjusted EBITDA | $ | 150,364 | $ | 790,395 |
(1) | Reflects amounts presented as separate unaudited pro forma combined financial statement line items within the Unaudited Pro Forma Condensed Combined Statements of Income contained in Exhibit 99.3 to the Current Report on Form 8-K/A to which this exhibit is filed. Refer to this exhibit for a further reconciliation to the historical financial statements of the combined companies. |
(2) | Reflects unaudited pro forma combined financial statement expenses included within “Operating expenses” of the Unaudited Pro Forma Condensed Combined Statements of Income contained in Exhibit 99.3 to the Current Report on Form 8-K/A to which this exhibit is filed. |
(3) | Reflects vendor settlement income received related to prior year claim settlements. |
(4) | Reflects the total amount of Adjusted EBITDA attributable to discontinued operations, as the above line items only reflect continuing operations results of operations and adjustments. Refer to the the table below for this amounts reconciliation to its most directly comparable GAAP measure. |
(in thousands) | October 27, 2018 (13 weeks) | July 28, 2018 (52 weeks) | ||||||
(Loss) income from discontinued operations, net of tax(1) | $ | (14,205 | ) | $ | 69,567 | |||
(Benefit) provision for income taxes(1) | (7,152 | ) | 13,822 | |||||
Total other expense (income), net(1) | (1,974 | ) | (55,112 | ) | ||||
Depreciation and amortization(1)(2) | 10,303 | 58,603 | ||||||
Share-based compensation(1) | 348 | 2,439 | ||||||
Restructuring, asset impairment, acquisition, and integration related expenses(1)(3) | 41,601 | 88,098 | ||||||
Other adjustments(1)(4) | 2,222 | 11,531 | ||||||
Adjusted EBITDA of discontinued operations(1) | $ | 31,143 | $ | 188,948 |
(1) | Reflects amounts derived from Supervalu’s historical consolidated financial statements for the same 13 and 52 week periods utilized in the Unaudited Pro Forma Condensed Combined Statements of Income. |
(2) | Reflects unadjusted historical depreciation and amortization derived from Supervalu’s historical consolidated financial statements for the same 13 and 52 week periods utilized in the Unaudited Pro Forma Condensed Combined Statements of Income. No pro forma adjustments were applied to depreciation and amortization to illustrate the effect of holding the retail operations for sale as of July 30, 2017, since this pro forma adjustment would not impact the calculation of Adjusted EBITDA of discontinued operations. |
(3) | Reflects primarily asset impairment charges attributable to retail banners, lease reserve charges, severance costs and other restructuring costs. |
(4) | Reflects incremental retail store closure operating costs in the period of closure. |