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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on September 26, 2013October 19, 2020.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Southeastern Grocers, LLCSOUTHEASTERN GROCERS, INC.
(to be converted into Southeastern Grocers, Inc.)
(Exact name of registrant as specified in its charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) | 5411 (Primary Standard Industrial Classification Code Number) | 27-1845190 | ||
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5050 Edgewood Court8928 Prominence Parkway #200
Jacksonville, Florida 32256
(904) 783-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
M. Sandlin Grimm
Chief Legal Officer
8928 Prominence Parkway #200
Jacksonville, Florida 3225432256
(904) 783-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Randall Onstead
Chief Executive Officer
Southeastern Grocers, LLC
5050 Edgewood Court
Jacksonville, Florida 32254
(904) 783-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.Registration Statement.
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:box. ¨o
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. ¨o
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨o
If this formForm is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:offering. ¨o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer," "smaller reporting company" and “smaller reporting company”"emerging growth company" in Rule 12b-2 of the Exchange Act in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company Emerging growth company o |
(Do �� If an emerging growth company, indicate by check mark if the registrant has elected not check if a smaller reporting company)
to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering | Amount of Registration Fee | ||
Common Stock, par value $0.001 per share | $500,000,000 | $68,200 | ||
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| Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1)(2) | Amount of Registration Fee | ||
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Common stock, $0.001 par value per share | $100,000,000 | $10,910.00 | ||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. WeThe selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated , 2020
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 2013
PRELIMINARY PROSPECTUS
Shares
Shares
Southeastern Grocers, Inc.
Common Stock
This is thean initial public offering of ourshares of common stock. Westock of Southeastern Grocers, Inc. (the "Company"). The selling stockholders named in this prospectus are sellingoffering shares of our common stock. We will not be selling any shares in this offering and will not receive any proceeds from the sale of our common stock by the selling stockholders.
Prior to this offering, there has been no public market for our common stock. It is currently expectestimated that the initial public offering price toper share will be between $ and $ per share of common stock.
We have granted to the underwriters an option to purchase up to additional shares of common stock.
. We intend to apply to listhave our common stock listed on the New York Stock Exchange ("NYSE") under the symbol “SEG.”"SEGR."
Investing in our common stock involves risks.a high degree of risk. See “"Risk Factors”" beginning on page 13.17 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||||||||||
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Underwriting | $ | $ | ||||||||||||||
Proceeds, before expenses, to | $ | $ | ||||||||||||||
To the extent that the underwriters sell more than shares of common stock, the underwriters have an option to purchase up to an additional shares of common stock from the selling stockholders at the initial public offering price less the underwriting discounts and commissions, for 30 days after the date of this prospectus. We will not receive any proceeds from the sale of our common stock by the selling stockholders pursuant to any exercise of the underwriters' option to purchase additional shares.
The underwriters expect to deliver the shares to purchasersinvestors against payment in New York, New York on or about , 2013 through the book-entry facilities of the Depository Trust Company.
2020Joint Book-Running Managers.
| BofA Securities | Goldman Sachs & Co. LLC |
| Deutsche Bank Securities | ||||||
| BMO Capital Markets | ||
| Wells Fargo Securities |
The date of this prospectus is , 20132020.
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Selected Historical Consolidated | |||||||||
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Description of | |||||||||
Description of | |||||||||
Certain Material U.S. Federal Income Tax Considerations for Non-U.S. Holders | |||||||||
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Until (25 daysThrough and including , 2020 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock,effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to theiran unsold allotmentsallotment or subscriptions.subscription.
Neither we, the selling stockholders nor the underwriters (or any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we, the selling stockholders nor the underwriters (or any of our or their respective affiliates) take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling stockholders and the underwriters (or any of our or their respective affiliates) are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any free-writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
EXPLANATORY NOTETrademarks and Trade Names
We and our subsidiaries own or have the rights to various trademarks, trade names, service marks and copyrights, including the following: Winn-Dixie, Harveys, Fresco y Más, BI-LO, Chek, SE Grocers and Prestige. Solely for convenience, the trademarks, trade names, service marks and copyrights referred to herein are listed without the ©, ® and ™ symbols, but such references are not intended to
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indicate, in any way, that we, or the applicable owner, will not assert, to the fullest extent under applicable law, our or their, as applicable, rights to these trademarks, trade names, service marks and copyrights. Other trademarks, trade names, service marks or copyrights appearing in this prospectus are the property of their respective owners.
Market and Industry Information
Southeastern Grocers, LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Immediately prior to the effectiveness of this registration statement, Southeastern Grocers, LLC will be converted into a Delaware corporation and renamed Southeastern Grocers, Inc., which we refer to as our corporate conversion. Shares of common stock of Southeastern Grocers, Inc. are being offered by this prospectus.
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MARKET AND INDUSTRY DATA AND FORECASTS
MarketUnless otherwise indicated, market data and industry data and certain industry forecastsinformation used throughout this prospectus were obtained from internalis based on management's knowledge of the industry and the good faith estimates of management. We also relied, to the extent available, upon management's review of independent industry surveys market research, consultant surveys,and publications, other publicly available information prepared by a number of sources, including IRI Worldwide industry data, Moody's Analytics and U.S. Census Bureau. All of the market data and industry publicationsinformation used in this prospectus involves a number of assumptions and surveys, includinglimitations and you are cautioned not to give undue weight to such estimates. Although we believe that these sources are reliable, neither we, the selling stockholders nor the underwriters can guarantee the accuracy or completeness of this information and neither we, the selling stockholders nor the underwriters have independently verified this information. While we believe the estimated market position, market opportunity and market size information included in this prospectus is generally reliable, such information, which is derived in part from the Progressive Grocer, as well as our ownmanagement's estimates and research. The Progressive Grocer provides market data for our industrybeliefs, is inherently uncertain and targets its core audience as top management in the retail food industry. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of our industry and markets, which we believe to be reasonable. In addition, projections,imprecise. Projections, assumptions and estimates of our future performance and the future performance of ourthe industry and our future performancein which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.”"Risk Factors," "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates madeprepared by the independent parties and by us.parties.
After giving effect to the Planned Dispositions (as defined below), we will operate 420 stores in Florida, Alabama, Louisiana, Georgia and Mississippi. The six major markets in which we compete, as grouped by IRI Worldwide industry data, are (i) Birmingham and Montgomery, Alabama, (ii) Jacksonville, Florida, (iii) Miami and Ft. Lauderdale, Florida, (iv) New Orleans, Louisiana and Mobile, Alabama, (v) Orlando, Florida and (vi) Tampa and St. Petersburg, Florida (collectively, the "six major markets"). References to "MULO" refer to one of the markets available from IRI. MULO stands for "Multi Outlet" and includes the following channels: Food/Grocery, Drug, Mass Merchandisers, Walmart, Club Stores, Dollar Stores, Military DECA (commissaries).
BASIS OF PRESENTATIONBasis of Presentation
We have historically operatedreport our year-end financial position, results of operations and cash flows on athe last Wednesday in December. The last five fiscal years consisted of the 52-week periods ended December 25, 2019 ("fiscal year ending on2019"), the Saturday closest to30 weeks ended December 31. Our 26, 2018 and the 22 weeks ended May 30, 2018 (combined, "fiscal year 2018"), December 27, 2017 ("fiscal years include 13 four-week reporting periods. Ouryear 2017"), December 28, 2016 ("fiscal year 2016") and December 30, 2015 ("fiscal year 2015"). The first quarter of each fiscal year includes four reporting periods (or 16 weeks),weeks while the remaining quarters include three reporting periods (or 12 weeks each quarter).quarter.
We completed our reorganization on May 31, 2018, and elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. Therefore, the historical consolidated financial data is presented in this prospectus on a Predecessor and Successor basis. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the day prior to our emergence from bankruptcy. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. Our 2010historical consolidated financial results as of and for periods ending after May 30, 2018 may
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not be comparable to our historical consolidated financial results as of and for periods ending on or before May 30, 2018. See "Prospectus Summary—Reorganization."
Non-GAAP Financial Measures
As used in this prospectus, (i) "Adjusted EBITDA" is defined as generally accepted accounting principles ("GAAP") net income before interest expense, income taxes, and depreciation and amortization ("EBITDA"), adjusted for loss (gain) on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise taxes; expenses (income) in connection with the Reorganization (as defined below), business optimization and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs; incremental costs attributable to opening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start accounting adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; and board of directors fees, (ii) "Net Sales Adjusted for the Planned Dispositions" is defined as net sales less the net sales of the stores to be sold in connection with the Planned Dispositions (as defined below) or closed in the normal course since the beginning of fiscal year ended on January 1, 2011, our 20112019, (iii) "Total Debt" is defined as the sum of long-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and finance/capital lease obligations (including the current portion thereof) and other financing obligations for fiscal year ended on December 31, 2011 and our 20122015 through fiscal year ended on December 26, 20122018, (iv) "Total Net Debt" is defined as Total Debt less cash, and each consisted(v) Net Debt Leverage is defined as Total Net Debt divided by Adjusted EBITDA.
Adjusted EBITDA, Net Sales Adjusted for the Planned Dispositions, Total Debt, Total Net Debt and Net Debt Leverage (collectively, the "Non-GAAP Measures") are performance measures that provide supplemental information. We believe that these supplemental Non-GAAP Measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental Non-GAAP Measures internally to understand, manage and evaluate our business and make operating decisions. These Non-GAAP Measures are among the factors management uses in planning for and forecasting future periods. In addition, the instruments governing our indebtedness use Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants such as interest coverage and debt incurrence. Non-GAAP Measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. For a reconciliation of 52 weeks. Beginningthese Non-GAAP Measures to the most directly comparable GAAP financial measures, see "Prospectus Summary—Summary Historical Consolidated Financial and Other Data."
Non-GAAP Measures have limitations as analytical tools, and you should not consider them in fiscal 2012, we revisedisolation or as substitutes for analysis of our fiscal yearoperating results or cash flows as reported under GAAP. The primary material limitations associated with the use of Non-GAAP Measures include the following: (i) they may not be comparable to end onsimilarly titled measures used by other companies, including those in our industry, (ii) they may exclude financial information and events, such as the last Wednesdayeffects of fresh start accounting adjustments and expenses in December,connection with the Reorganization, business optimization, and other strategic initiatives, that some may consider important in orderevaluating our performance, value or prospects for the future, (iii) they may exclude items or types of items that may continue to facilitate aligning fiscal weeksoccur from period to period in the future and periods with(iv) they may not exclude all unusual or non-recurring items, which could increase or decrease these measures, which investors may consider to be unrelated to our recently acquired subsidiary, Winn-Dixie Stores, Inc. Our 2013 fiscal year ends on December 25, 2013long-term operations. These Non-GAAP measures are not, and will consistshould not be viewed as, substitutes for their U.S. GAAP equivalents. We encourage investors to review our consolidated financial statements in their entirety and caution investors to use U.S. GAAP measures as the primary means of 52 weeks.evaluating
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our performance, value and prospects for the future, and Non-GAAP Measures for supplemental purposes.
COMPARABLE STORE SALESComparable Store Sales
As used in this prospectus, the term “comparable"comparable store sales growth”growth" refers to the percentage change in our comparable store sales as compared to the prior comparable period. We define comparable store sales as sales from continuing operations ofall stores that have been ownedoperated by us and open for at least a full year, including stores that we remodeled, enlarged or enlargedrelocated during the period, and for fiscal 2010, 2011 and 2012, excluding stores that opened were acquired or closed during the period. Comparable store sales for fiscal 2008 and 2009 includesRemodeled stores that opened, were acquired or closed during the period. Since we did not own any Winn-Dixie stores prior to our acquisition of Winn-Dixie on March 9, 2012, sales from Winn-Dixie stores are excluded from comparable store sales for all periods through the first quarter of fiscal 2013, but are included in comparable store sales for the second quarter of fiscal 2013.include banner conversions. This definition may differ from the methods that other retailers use to calculate comparable store sales.
As used in In this prospectus, “pro formawhen we give quarterly comparable store sales” gives effect,sales, we adjust such sales for the estimated impact of the timing of Easter.
Explanatory Notes
Planned Dispositions
On May 29, 2020, we entered into an agreement (the "Food Lion Store Sales Agreement") to sell 62 stores (comprised of 46 BI-LO stores and 16 Harveys stores) to Food Lion, LLC. We also entered into an agreement with Ahold Delhaize USA Distribution, LLC ("Ahold Delhaize") to transition our distribution center located in Mauldin, South Carolina to Ahold Delhaize. Under the terms of these agreements, we will sell substantially all periods beginning withof the store-related assets (including the owned and leased real property), exclusive of certain assets including inventory and pharmacy prescription files. The sale transaction is expected to close during the first quarter of fiscal 2012,year 2021, subject to our acquisitionregulatory approvals and other customary closing conditions.
Also in May 2020, we entered into agreements to sell the pharmacy prescription files for 58 of Winn-Dixie as if it had taken place on the first dayin-store pharmacies that we operate, included in the dispositions mentioned in the above and below paragraphs, to CVS and Walgreens, which sales closed in the late part of fiscal 2011. Pro forma comparable store sales through fiscal 2011 reflect only sales from BI-LO stores, while pro forma comparable store sales beginning with the firstsecond quarter of fiscal 2012 also include sales from Winn-Dixie stores.year 2020. The total sale price was $56.3 million for the pharmacy prescription files and $6.8 million for the acquired inventory.
In addition, in this prospectusJune 2020, we sometimes referannounced our intention to comparable store sales growth on a “two-year stack basis,” which is computedsell an additional 63 stores, comprised of 61 BI-LO stores and two Harveys stores, in North Carolina, South Carolina and Georgia by adding the pro forma comparable store sales growthend of first half of fiscal year 2021. In September 2020, we announced an agreement to sell 23 of the period referenced and63 stores (together with the pro forma comparable store sales growthFood Lion Store Sales Agreement, the "Store Sales Agreements"), comprised of the corresponding fiscal period in the prior fiscal year.
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RECENT TRANSACTIONS
On April 24, 2013, one of our subsidiaries entered into a sale leaseback transaction whereby our Baldwin distribution center and certain related personal property was sold to AR Capital, LLC and, immediately thereafter, we leased back the property, or the Baldwin Sale/Leaseback. See “Description of Indebtedness—Baldwin Sale/Leaseback”.
On May 10, 2013, we entered into a new eight-year supply agreement, which we refer to, as amended, as the C&S supply arrangement, under which C&S Wholesale Grocers, Inc., or C&S, agreed to provide inventory supply services for all of our22 BI-LO stores and we agreed to purchase our retail merchandise exclusively from C&S, subject to certain exceptions. We also agreed to license the use of certain facilities to C&S, to transfer ownership of our existing inventory, certain equipment and other tangible assets to C&S, and to assign certain agreements related to the operation of the licensed facilities to C&S. See “Business—Sources of Supply.”
On May 27, 2013, we entered into an Agreement and Plan of Merger with Delhaize America, LLC and certain of its subsidiaries, which we refer to collectively as Delhaize, pursuant to which we will acquire 155 operating supermarkets under the “Sweetbay,” “Harveys” and “Reid’s” banners, constituting substantially all stores operating under those banners, plus ten previously closed locations, for $265.0 million in cash, subject to certain adjustments, and the assumption of all related lease liabilities, including approximately $92.0 million of capital lease liabilities of Delhaize, or the Delhaize transaction. The financial information relating to the Delhaize business located elsewhere in this prospectus is based on information provided by Delhaize prepared under International Financial Reporting Standards, or IFRS.
We expect the Delhaize transaction to close in the first quarter of fiscal 2014. Consummation of the Delhaize transaction is subject to the satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act, which could be conditional upon us divesting certain stores. In addition, the Delhaize merger agreement may be terminated by either party if the initial closing is not consummated by November 30, 2014. We intend to finance the Delhaize transaction with a combination of borrowings under the ABL facility, a five-year $700 million revolving senior secured credit facility with Deutsche Bank Trust Company Americas, as administrative agent, and a lender, and Citibank N.A. and the other financial institutions party thereto as lenders, and with cash on hand. Consummation of the Delhaize transaction is not conditioned on our receipt of financing. This offering is not conditioned upon the closing of the Delhaize transaction and there can be no assurance that the Delhaize transaction will be completed. See “Summary—Our Company.”
On July 22, 2013, we entered into an agreement with Publix Super Markets, Inc. to sell seven leased stores for approximately $59 million, with an expected pre-tax gain of approximately $50 million. The transaction is expected to close in the fourth quarter of fiscal 2013. These seven stores are, and will continue to be until the transaction closes, included in our total store count.
On September 4, 2013, we entered into an agreement with Piggly Wiggly Carolina Company, Inc. to purchase 21 Piggly Wiggly operating supermarkets locatedone Harveys, in South Carolina and Georgia to Alex Lee, Inc. and its affiliates Floco Foods, Inc. and Lowes Foods, LLC (together, "Alex Lee"), under which Alex Lee will purchase 20 stores and Brunson and Triplett Enterprises LLC ("B&T Foods") will purchase three stores pursuant to a right of assignment held by Alex Lee. After these dispositions, we will no longer operate stores under the BI-LO banner. Approximately 87% of our remaining portfolio will consist of the Winn-Dixie banner subsequent to the dispositions.
In this prospectus we refer to the planned sale of the 40 remaining stores, together with the 85 stores that are being sold pursuant to the Store Sales Agreements, as the "Planned Dispositions." Unless otherwise stated, historical financial data provided in this prospectus does not give effect to the Planned Dispositions. Unless otherwise stated, or the context otherwise requires, descriptions of our business and operational data provided in this prospectus give effect to the Planned Dispositions.
Reorganization
On March 27, 2018, Southeastern Grocers, LLC and 26 of its subsidiaries filed voluntary petitions for reorganization under chapter 11 of the federal bankruptcy laws ("Chapter 11") in the
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United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") pursuant to a purchase priceprepackaged plan of approximately $35 millionreorganization. On May 30, 2018, we converted from a limited liability company to a corporation. As a result, all of our membership interests were canceled and new equity interests were issued in cash.the form of common stock. We emerged from bankruptcy on May 31, 2018 (the "Emergence Date"). We refer to this reorganization as the Delhaize transaction and the Piggly Wiggly transaction together"Reorganization" in this prospectusprospectus. Although we emerged from bankruptcy on May 31, 2018, we elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. In addition, on the Emergence Date, we entered into (i) an ABL credit agreement, among BI-LO Holding, LLC, BI-LO, LLC, the lenders party thereto, Suntrust Bank, as administrative agent, Joint FILO Lead Arrangers and Joint FILO Bookrunners, Joint Tranche A Lead Arrangers and Joint Tranche A Bookrunners and Documentation Agents (the "ABL Credit Agreement"), which included both a $550 million revolving credit facility (the "Revolving Credit Facility") and a $50 million first-in, last out facility (the "FILO Facility") and (ii) a term loan credit agreement, among BI-LO Holding, LLC, BI-LO, LLC, the pending transactions. We expectlenders party thereto, Suntrust Bank, as administrative agent, and Joint Lead Arrangers and Joint Bookrunners (the "Term Loan Agreement"), governing our $475 million term loan (the "Term Loan"). Subsequent to July 8, 2020, we repaid $23.8 million on the Piggly Wiggly transaction to closeTerm Loan including $22.9 million repurchased on the open market and $0.9 million of scheduled amortization. In addition, we repaid in full and terminated the fourth quarter of fiscal 2013.FILO Facility on August 6, 2020, including $30.1 million through an optional prepayment.
Refinancing Transactions
On September 13, 2013,October 9, 2020, we agreed to enter into a sale leaseback transaction whereby we will sell sixrepaid the outstanding balance of our stores located in FloridaTerm Loan and Louisiana for considerationterminated our Term Loan Agreement with proceeds from the issuance of approximately $45 million and, immediately thereafter, we will lease back these store locations. The transaction is subject to customary conditions, including completion of due diligence by our counterparty. The transaction is expected to close in the fourth quarter of fiscal 2013.
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On September 20, 2013, we issued $475$325 million aggregate principal amount of our 8.625%/9.375%5.625% Senior PIK ToggleSecured Notes due 2018, which2028 (the "Notes") together with cash on hand and drawings under the Revolving Credit Facility of approximately $31 million. We refer to the Notes offering, the use of cash on hand and the drawdown of amounts under the Revolving Credit Facility and the use of proceeds thereof to fund the repayment of the Term Loan in full and pay associated fees and expenses as the "Refinancing Transactions" in this prospectus.
In connection with the Refinancing Transactions, we referamended the ABL Credit Agreement to, among other things, provide any necessary consents to consummate the Refinancing Transactions, reduce the commitments under the Revolving Credit Facility from $550 million to $450 million and join SEG Holding Finance, LLC as a guarantor under the ABL Credit Agreement.
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This summary highlights information contained elsewhere in this prospectus as our PIK toggle notes. The PIK toggle notes were sold to qualified institutional buyers under Rule 144A and to persons outside the United States under Regulation Sdoes not contain all of the Securities Act of 1933, as amended. Also on September 20, 2013, we made a distribution of approximately $458 million to Lone Star frominformation that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the proceeds ofrelated notes included elsewhere in this prospectus. You should also consider the offering of our PIK toggle notes.
ABOUT THIS PROSPECTUS
Except where the context otherwise requires or where otherwise indicated, the terms “we,” “us,” “our,” the “Company” and “our business” refer to Southeastern Grocers, Inc. and its consolidated subsidiaries, which we operatematters described under the banners “BI-LO”, “Super BI-LO”, “BI-LO at the Beach”sections titled "Risk Factors" and “Winn-Dixie”.
Throughout this prospectus, we provide a number of key performance indicators used by management and typically used by our competitors in the supermarket industry. These key performance indicators are discussed in more detail in the section entitled “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Definitions.” In this prospectus we also reference EBITDA, adjusted EBITDA, adjusted EBITDAR and adjusted EBITDA margin, which are not presentedOperations," in accordance with U.S. generally accepted accounting principles, or GAAP. See “Summary—Summary Selected Historical and Pro Forma Financial and Other Data” for a discussion of these non-GAAP measures, as well as a reconciliation to the most directly comparable financial measure required by, or presented in accordance with GAAP.
GLOSSARY
In this prospectus:
“banner” refers to the brand under which a store operates. We operate supermarkets under the “BI-LO”, “Super BI-LO”, “BI-LO at the Beach” and “Winn-Dixie” banners. References to the “BI-LO” banner include the “BI-LO”, “Super BI-LO” and “BI-LO at the Beach” banners.
“$4/$10 generic Rx” refers to our generic drug discount program under which selected generic drugs are specially priced at a discounted rate for 30-day, 60-day and 90-day supplies.
“fuelperks!” refers to our program that provides customers with the ability to earn fuel discounts based on their in-store spending habits. The fuel discounts can be redeemed at retailers such as BP, Shell, Chevron, Spinx and Sunoco. In order to participate in fuelperks!, customers must use their BONUSCARD or Customer Rewards Card.
“high / low” refers to a pricing strategy whereby a retailer promotes low prices on some items while charging higher prices on other items.
“loyalty card programs” refers to BI-LO’s BONUSCARD and Winn-Dixie’s Customer Rewards Card, which provide cardholders with instant discounts and promotions on items throughout the store and other rewards for use.
“loyalty programs” refers to our loyalty card programs, fuelperks!, $4/$10 generic RX and Real Fresh or any of them.
“peers” refers to Ahold USA, Delhaize America, Kroger, Ingles Markets, Publix, Roundy’s, Safeway, and Supervalu (Retail Food). Our peers operate in some of or all of our markets and may also operate in markets in which we are not present.
“Real Fresh” refers to our “Real Fresh” merchandising program, which emphasizes the quality and freshness of our produce and meat offerings, signature items and clean stores.
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“supermarkets” refers to:
“conventional supermarkets” and “conventional supermarket operators”, such as Winn-Dixie, BI-LO, Kroger and Publix;
“supercenters”, such as Walmart;
limited assortment supermarkets, such as Save-A-Lot, Aldi and Grocery Outlet;
natural/gourmet food supermarkets, such as Whole Foods and Fresh Market;
warehouse clubs, such as Costco, Sam’s Club and BJ’s Wholesale Club; and
military commissaries.
Supermarkets excludes conventional convenience stores, gas stations/kiosks, superettes, conventional club stores and military convenience stores.
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The following summary highlights selected information about us contained in this prospectus. It does not contain all of the information that may be important to you and all of the information that you should consider before you invest in our common stock. Before deciding to invest in our common stock, you should carefully review this prospectus in its entirety, including the “Risk Factors” beginning on page 13, the financial statements and the related notes appearing elsewhere in this prospectus and the Management’s Discussion and Analysis of Financial Condition and Results of Operations appearingeach case included elsewhere in this prospectus. Some ofUnless otherwise stated, the statementsterms "Southeastern Grocers," "SEG," the "Company," "we," "us" and "our" refer to Southeastern Grocers, Inc. and its consolidated subsidiaries. Unless otherwise stated, historical financial data provided in this prospectus constitute forward-looking statements. For more information, see “Forward-Looking Statements.”does not give effect to the Planned Dispositions. Unless otherwise stated, or the context otherwise requires, descriptions of our business and operational data provided in this prospectus give effect to the Planned Dispositions.
We are a leading supermarket operatorregional food retailer based on revenue and number of stores we operate with a stronglong-standing history in the Southeastern United States, and a non-union work force. As of July 10, 2013, we operated 685 stores serving many key metropolitan areas inhighly attractive markets throughout Florida, Georgia, Alabama, Louisiana Mississippi, South Carolina, North Carolina, and TennesseeMississippi. We operate 420 stores under the “Winn-Dixie”, “BI-LO”, “Super BI-LO”,"Winn-Dixie," "Harveys" and “BI-LO at the Beach”"Fresco y Más" supermarket banners. We believe we are the sixth largest conventional supermarket operator in the United States based on number of stores and the second largest conventional supermarket operator in the eightfive states in which we operate, respectively, based on aggregate number of stores we operate. According to IRI Worldwide industry data, we maintain the #2 market share position by revenue among conventional supermarkets within the six major markets in these states. We strive to differentiate ourselves fromwhich we compete in the five states in which we operate. Additionally, we operate 140 liquor stores, 231 in-store pharmacies and one centralized specialty pharmacy, which supplement our competitors by providing our customers with a value proposition that combines conveniently locatedproduct assortment and well-maintained stores (averaging 40,000-50,000 square feet), with a strong focus on customer service, high-quality food products, and prices that are competitive with other supermarket operators in our markets. For the fiscal year ended December 26, 2012, we generated approximately $8.6 billion of net sales, approximately $103.1 million of net income (including approximately $7.6 million of tax expense) and approximately $370.4 million of adjusted EBITDA. For the 28 weeks ended July 10, 2013, we generated approximately $5.6 billion of net sales, approximately $208.0 million of net income (including approximately $56.1 million of tax benefits) and approximately $276.4 million of adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income and a discussion of why we consider it useful, see “—Summary Selected Historical and Pro Forma Financial and Other Data.”drive incremental sales.
We have experienced substantial growth in recent years through a combination of organic operating initiatives and acquisitions. We have achieved strong financial results during this period, as evidenced by the following:
Through July 10, 2013, we have achieved 18 consecutive quarters of positive pro forma comparable store sales growth.
We have achieved average pro forma comparable store sales growth of 3.1% over our last six consecutive quarters.
We have grown our store count from 207 stores at January 1, 2011 to 685 stores at July 10, 2013, and we anticipate that our pending Delhaize transaction and Piggly Wiggly transaction will significantly expand the number of operating stores in our footprint.
We have increased our net income and adjusted EBITDA from fiscal year 2008 when we had a net loss of approximately $88.8 million and adjusted EBITDA of approximately $142.4 million, to net income and adjusted EBITDA of approximately $103.1 million and $370.4 million, respectively, for fiscal 2012. For a reconciliation of adjusted EBITDA to net income and a discussion of why we consider it useful, see “—Summary Selected Historical and Pro Forma Financial and Other Data.”
We operate a network of attractive, well-maintained stores and seek to locate our stores in high-traffic areas that are in close proximity to residential neighborhoods. We operate our business as a single unit with a single management team, but execute our go-to-market strategy through three well-positioned banners with differentiated strengths and distinct heritages. Over our more than 95+ year history, we operate under different bannershave established a difficult to replicate network of attractive, well-maintained stores, which are often located in different markets.high-traffic areas in close proximity to densely populated residential neighborhoods. We generate revenuesstrive to build a strong connection with our customers and differentiate ourselves from our competitors by selling an
assortment of grocery products, including dryproviding a compelling shopping experience that combines a full-service, one-stop shop, emphasizing high-quality, fresh and canned groceries, frozen items, produce, dairy, meatlocally tailored offerings, with excellent customer service and seafood, bread and baked goods, and other fresh product offerings. In addition, acompetitive prices. While our stores account for the vast majority of our stores include pharmacies.sales today, we also utilize third-party partners to provide eCommerce shopping—allowing us to serve our customers when, where and how they choose to shop. In addition, our sophisticated loyalty program currently covers more than seven million active customers who generated more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019, which we believe gives us an advantage against our competitors who do not have established loyalty programs and customer specific shopping data. Our loyalty program provides us with a deep understanding of our customer base and enables us to offer a compelling, connected personalization experience in order to increase connectivity and capture a larger share of wallet.
We believe the impact of the novel coronavirus ("COVID-19") global pandemic has enabled us to solidify our competitive positioning, enhance our value proposition and connect us more closely with our customers. Our focus has remained on providing a safe environment for our customers and our approximately 36,000 associates, while also maintaining adequate in-stock positions throughout our stores in order to service what we believe is an increased customer preference for full service, one-stop shop grocery trips. As a result, we have experienced a significant increase in sales over multiple months since the COVID-19 pandemic began to impact the markets we serve, which has provided us incremental cash flow to accelerate our in-store and digital investments, customer connectivity
On
initiatives and further deleveraging. For the March 9,through July 2020 period (with June and July giving effect for the Planned Dispositions), our median comparable store sales growth was 26%. Importantly, we are incredibly proud of the performance of our associates who have consistently demonstrated strong dedication to safely support their teammates, customers and communities.
In fiscal 2019, without giving effect to the Planned Dispositions, we generated net sales of $8.3 billion, net loss of $116.2 million and Adjusted EBITDA of $292.5 million, and for the 28 weeks ended July 8, 2020 we generated net sales of $5.3 billion, net income of $205.7 million and Adjusted EBITDA of $363.6 million. As adjusted for the Planned Dispositions, we generated over $6.7 billion of net sales, or Net Sales Adjusted for the Planned Dispositions, in fiscal 2019 and $4.3 billion of Net Sales Adjusted for the Planned Dispositions for the 28 weeks ended July 8, 2020. See "—Summary Historical Consolidated Financial and Other Data" for more information regarding Adjusted EBITDA and Net Sales Adjusted for the Planned Dispositions, as well as reconciliations of these Non-GAAP Measures to net income (loss) and their limitations.
Successful Repositioning of the Business has Driven Strong Financial Momentum
The merger of BI-LO and Winn-Dixie in 2012 significantly enhanced our scale and marked the beginning of a period of rapid store expansion through acquisition activity. As a result of the merger, the acquisition of the Sweetbay and Harveys banners in 2013 and various other bolt-on acquisitions, we acquired Winn-Dixie Stores, Inc. for a total cash purchase price of $559.3 million. The Winn-Dixie acquisition significantly expandedincreased our store base by approximately 265% from 2011 through 2015. While we realized positive initial results from our expansion and geographichave benefited from exposure to the attractive Florida market, area, with no overlapthe increased attention required to integrate these stores and implement a new supply agreement, as well as significant price investments, including a switch to an everyday low price strategy in markets between BI-LO2016, hampered our financial performance.
Anthony Hucker became our Chief Executive Officer in 2017, and, Winn-Dixie. The Winn-Dixie acquisition hasunder his leadership, we established a transformation plan to better position us for sustainable growth in the future. This plan focused on deleveraging the balance sheet and stabilizing the business through a series of retail best-practices and cost-savings initiatives targeted at improving cost controls, increasing sourcing and labor productivity and returning to our historical high-low pricing architecture. We also increased investments in our store base, loyalty program and private-label "Own Brands" capabilities.
In May 2018, we emerged from the Reorganization 65 days after we initially filed for bankruptcy pursuant to a prepackaged plan that significantly reduced our financial leverage by over $600 million and allowed us to realize significant cost savings. We have achieved over $180 millionfurther optimize our store base. As a result, we exited the Reorganization with greater flexibility to accelerate the implementation of annual run-rate cost savings from operational improvements and synergies to date and expect to realize moderate additional cost savings prior to completionour key initiatives. These initiatives, which act as the foundation of the integration. We have incurred approximately $71.8 million in upfront integration-related costsour current growth strategy, were aimed at further rejuvenating our store fleet through July 10, 2013, and we anticipate we will incur modest additional costs through completion of integration. Consistent withincreased renewals, aligning our strategy of reducing operating costs and reinvesting these savings in the business to stimulate customer traffic, we are investingpromotional activity, optimizing our product assortment including a portion of these cost savings in merchandising and pricing initiatives to drive sales.
On May 27, 2013, we entered into the Delhaize merger agreement, pursuant to which we agreed to acquire 155 operating supermarkets (subject to regulatory approvals, which may require divestitures) under the “Sweetbay”, “Harveys”, and “Reid’s” banners, for $265.0 million in cash and the assumption of all related lease liabilities, including approximately $92.0 million of capital lease liabilities. Basedgreater focus on information provided by Delhaize, for the 52-week period ended December 29, 2012, we believe the 155 operating supermarkets generated approximately $1.7 billion of revenues. In addition, based on information provided by Delhaizefresh and our management’s estimateOwn Brands portfolio and enhancing customer connectivity utilizing our sophisticated loyalty program.
In May 2020, as the latest step in our transformation plan, we reached an agreement to sell 62 stores, comprising 46 BI-LO stores and 16 Harveys, located throughout the Carolinas and Georgia to Food Lion, a subsidiary of allocable corporate costs, we believe that the average per store operating performance of the 155 operating supermarkets for the 52-week period ended December 29, 2012 was substantially equivalent to the average per store pro forma operating performance of our stores for fiscal 2012. The financial information relating to the Delhaize business being acquired is based on information provided by Delhaize, has not been audited or otherwise been subject to auditor review, and does not give effect to any required store divestitures.Ahold Delhaize. We expect the Delhaize transaction to close in the first quarter of 2014. In addition, on September 4, 2013, wealso entered into an agreement to transition our distribution center located in Mauldin, South Carolina, to Ahold Delhaize. In September 2020, we announced an agreement to sell an additional 23 stores in South Carolina and Georgia to Alex Lee, under which Alex Lee will purchase 21 Piggly Wiggly operating supermarkets20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. We are actively exploring strategic options for the remaining 39 BI-LO stores and one Harveys in the region. In addition, in May 2020 we announced the sale of prescription files at 58 stores to CVS and Walgreens. These were important strategic decisions that allow for greater focus and investment in growing the Winn-Dixie, Harveys and Fresco y Más banners. These dispositions also enhance our relative exposure to the attractive Florida market, which will
account for approximately 76% of our total stores. The remaining stores also had stronger financial performance in fiscal year 2019, as well as a purchase pricelower average age and a higher percentage of approximately $35remodeled stores in the last five years.
The execution of our transformation plan and strategic initiatives has resulted in significant operational and financial momentum in our business, as well as tailwinds from COVID-19, as evidenced by the following key financial metrics:
We believe our customer relationships, merchandising initiatives and experienced management team, combined with our focus on operational excellence, have positioned us to deliver strong financial results.
Our Competitive Strengths
We believe the following key competitive strengthscontinued execution of our operational initiatives will contribute to our success:
Leading Market Positions with Well Recognized Local Banners. We are the second largestgrowth as a leading conventional supermarket operator in the eight Southeastern statesmarkets where we operate.
We believe operating as a locally relevant food retailer is core to the fundamental success of our business. As a result, we have implemented a "Smart Localization" strategy, which provides a framework for our decision making as well as a roadmap for our strategic initiatives and go-to-market strategy. Smart Localization integrates our data-rich loyalty program, our customer connectivity strategies and our commitment to the communities in which we operate, as defined by aggregate numberto deliver customers a personalized, high-touch service model, with a distinct and locally relevant product range at an attractive value.
Leading Market Position Established Through Portfolio of stores. We are ranked as the number one or number two conventional supermarket operator in 44 of the major metropolitan markets in which we operate, where approximately 83% of our stores are located. Our BI-LO and Winn-Dixie banners have deep local heritages that go back many decades and are well known institutions in the communities they serve.Well-Recognized Local Banners. We believe our leading market positions and the strong brand recognition of our banners help generate customer traffic and loyalty. We are the largest or second largest conventional supermarket by revenue in all of the major metropolitan markets within the Southeastern states in which we operate. Our go-to-market strategy is based on the operation of three banners that provide our customers a differentiated product offering and shopping experience at a compelling value. Our multi-banner approach allows for broad reach to various demographics across income brackets and ethnicities while allowing for a personalized approach to customer service, store operations and assortment in a way that maximizes overall customer value proposition. Our Winn-Dixie and Harveys banners have deep local heritages that go back more than 90 years and are well established neighborhood markets within the communities they serve. Since the creation and implementation of our Fresco y Más banner in 2016, we have established a strong local following within our 26 stores by providing an authentic shopping experience targeted at the rapidly growing Hispanic demographic.
We believe that our regional focus also provides us several competitive advantages compared to national grocers, including (i) a differentiated value proposition driven by convenience and preferred
store locations; (ii) expertise in assortment and merchandising driven by a deep understanding of our customers and neighborhoods; (iii) a fresh produce offering that drives traffic and loyalty; (iv) a private-label offering that creates brand-specific loyalty; (v) flexible operations with ability to quickly react to changing market environment; and (vi) superior customer service model. Regional grocers have been growing revenue at a median CAGR of 6% between 2017 and 2019, compared to median CAGR of 3% for national grocers.
Strategically Positioned to Capitalize on Attractive, High-Growth Markets with Favorable Market Demographics in the Southeastern U.S.Demographics. We believe that the Southeastern U.S.United States is an attractive region for supermarket retailing that is characterized by:
an established competitive landscape, including relative saturation of supercenters.
According to IHS Global Insight,Moody's Analytics, the eightfive states in which we operate are expected to have a weighted average overall projected population growth between 20122019 and 20302025 of 19.5%4.3%, as compared to a weighted averagean overall projected population growth of 13.1%3.2% in the rest of the U.S. IHS Global InsightUnited States. Moody's Analytics estimates that Florida, which is the third most populous state in the U.S. and was the number one state in population inflow in 2019 and where 48%76% of our stores are located, will experience aan overall population growth of 27.6% in6.0% during this period, driven by higher birth rates compared to the national average, continuing high levels of immigration and an overall aging U.S.United States population that is drawn to Florida. Key markets within Florida also outpace the United States on population and income growth, represented in the below graph:
We believe aggressivemultiple key markets within Florida are underpenetrated relative to the national average as measured by grocery square footage per capita (4.3 square feet per capita), including Miami (3.2 square feet per capita with an estimated market size of approximately $19.6 billion), Tampa (3.6 square feet per capita with an estimated market size of approximately $10.0 billion), Jacksonville (3.6 square feet per capita with an estimated market size of approximately $4.8 billion), and Orlando (3.7 square feet per capita with an estimated market size of approximately $7.7 billion). In addition, we believe 89% of our Florida leases are at or below market rate and typically have initial lease terms of up to 25 years, representing approximately $30.0 million in total savings or approximately $2.0 per square foot.
According to the U.S. Census Bureau, approximately 26% of Florida's population is Hispanic, and growing at a rate significantly above the broader population. We believe our Fresco y Más banner, which was developed organically to address the market opportunity presented by this demographic shift, as well as our Winn-Dixie and Harveys banners, are well-positioned to deliver a unique and compelling offering to this growing and underserved segment of the population.
We also believe supportive government promotionsprograms and incentives for businesses are driving industrialcommercial growth in the Southeast. We believe that state governments across the region, seeking to createSoutheast, creating jobs for their residents, areand offering attractive tax incentives for businesses
that build in or relocate to these states. We believe the Southeast also offers an attractive labor market for us, with lower average wage rates than the national average and a generally non-union work force. Unlike the employees of many supermarket operators in other regions of the U.S., none of our employees are covered by a collective bargaining agreement.
We believe the competitive landscape in the Southeast is well established, with relative saturation of supercenters such as Walmart, and dollar stores such as Dollar General, Dollar Tree and Family Dollar. As of January 31, 2012, in the states we serve, there were approximately 14 Walmarts per million people, compared to approximately 9 per million in the rest of the U.S., and there were approximately 113 dollar stores per million people compared to approximately 56 per million in the rest of the U.S. Given this saturation, although the new store opening strategies of competitors operating these formats are unknown, we believe it is likely that we will be confronted with fewer new store openings by these formats in the future, compared to the rest of the U.S. Additionally, we believe we have developed an effective strategy and shopping experience to compete with these formats, as evidenced by our consistent positive pro forma comparable store sales growth over the past several years.
average.
Compelling Robust Loyalty Program Supports Strong Customer Value Proposition that Promotes LoyaltyProposition.. We are a competitively priced “high"high / low”low" operator. ThisThrough this pricing strategy, allows uswe set comparatively lower prices on selected merchandise using targeted discounts or promotions to target a broad customer base and drive customer traffic through periodic promotionsand sales, while maintaining comparatively higher prices on selected items.other merchandise in order to maintain consistent overall profitability across the store. In addition, we utilize our well-developed loyalty program to offer further savings beyond the in-store shelf price. Inclusive of loyalty program discounts, we believe we provide a highly competitive value proposition to our customer, especially when factoring in our full-service specialty departments, extensive product offerings and personalized customer service.
Our sophisticated loyalty program currently covers more than seven million active customers who generated more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019. In addition to the direct discount and point redemption savings provided to loyalty members, we have developed a number of additional customer loyalty and merchandising initiatives, including our BONUSCARDMystery Bonus Shop and Customer Reward Card loyalty programs, our fuelperks! program, our $4/$10 generic Rx program and our “Real Fresh” program.
Supported by fuelperks!,Deal of the Week programs. We have historically found that as customers engage in additional aspects of our loyalty card programs now include over 15 million active card holders. Theprogram, basket sizes increase significantly. For example, the basket size increase was approximately 1.2 times on average dollar valuefor a customer who engages in both our Mystery Bonus Shop and Deal of the Week initiatives, as well as our standard loyalty card transactions was 176% greater than the average dollar value of transactions by non-card holdersprogram, as compared to a customer who engages only in the first 28 weeks of fiscal 2013.our standard loyalty program.
We also use our loyalty card programsprogram to track customer sales transaction data in aaugment our frequent shopper database to generate insights on customer preferences, which enables us to target our promotions to specific customer groups. Supported by these initiatives, we have experienced positive pro forma comparable store sales growth for 18 consecutive quarters through the second quarter of fiscal 2013. Additionally, our last six quarters comparable store sales growth on a two-year stack basis averaged 6.6%, significantly outpacing that of our peers, which averaged 1.7% over this timeframe based on publicly available information.
Attractive, Well Maintained Stores. Within the last five fiscal years, 46% of our stores have been remodeled. We believe our store remodels have driven further trafficability to leverage our stores. We intendloyalty program and our robust data allow us to continue remodeling selected stores, focusing our capital spending decisions ondeliver a holistic loyalty offering that increases customer spend and retention. One of the anticipated return on our investment in these remodels. We seek to locate our stores in high-traffic areas that are in close proximity to residential neighborhoods. Mostcentral goals of our stores occupy between 40,000loyalty program is to create one-to-one relationships in order to influence customer behavior and 50,000 square feet, providingdrive further sales. At our customerscore, loyalty and data are deeply embedded in our culture and inform all key decisions.
High-Quality, Relevant Offering With an Emphasis on Fresh. We believe we deliver a compelling merchandising offering with a balance of conveniencean emphasis on local and assortment.
Strong Free Cash Flow Generation and Minimal Contingent Liabilities. Our business model relies on controlling costs, combined with a disciplined approach to capital expenditures and working capital controls to drive strong operating profits and free cash flow. We have few closed store lease liabilities and,fresh products that serves as a non-union
operator, unlikepoint of differentiation compared to many of our competitorscompetitors. Fresh sales accounted for approximately 32% of net sales in the grocery industry, we benefit from a lack of burdensome and often underfunded multi-employer pension plan obligations. We believe our cash flow generation is a competitive advantage that will allow for strong operational and financial flexibility.
Track Record of Expansion and Platform for Future Growth Through Acquisitions. We acquired Winn-Dixie in March 2012, which more than tripled our store base. This year, we have entered into definitive agreements with Delhaize and Piggly Wiggly to acquire a large number of operating stores, which we expect will further strengthen our market position in the Southeast. Our management team has gained valuable experience and established a track record of identifying and executing strategic acquisitions, and we believe that our corporate infrastructure, systems and centralized functions have the capacity to accommodate further growth through acquisitions. As a result, we believe we are well positioned to take advantage of future acquisition opportunities.
Realization of Value-Creating Synergies. We have extensive experience in creating value through strategic acquisitions. As demonstrated by the combination of BI-LO and Winn Dixie, our increased scale allows us to lower our purchasing costs, achieve efficiencies in distribution and further decrease our fixed cost structure to improve profitability. The Winn-Dixie merger presented us with a significant opportunity to generate synergies which, in conjunction with our belief that we could more efficiently deploy capital and conduct operations at Winn-Dixie, underpinned our rationale in pursuing the acquisition. We have achieved over $180 million of annual run-rate cost savings from operational improvements and synergies to date and expect to realize moderate additional cost savings prior to completion of the integration. We have incurred approximately $71.8 million in upfront integration-related costs through July 10, 2013, and we anticipate we will incur modest additional costs through completion of integration.
Proven and Experienced Management Team. The executive team of BI-LO Holding, which manages our operations, averages 32 years of retail industry experience. Randall Onstead, our CEO, is a 33-year industry veteran. Prior to his tenure with us, he served as Chairman and CEO of Randall’s Food Markets, Inc., a Houston-based supermarket chain, and as President of Dominick’s Finer Foods. Our management team also includes Brian Carney (Executive Vice President and Chief Financial Officer), Larry Stablein (Executive Vice President and Chief Merchandising Officer) and Mark Prestidge (Executive Vice President and Chief Operations Officer). Mr. Onstead, as a director and as CEO, Mr. Carney and the management team have led several core initiatives,fiscal 2019, which we believe is competitive relative to national industry averages such as the MULO market, whose average fresh sales accounted for 25% of sales for the last twelve months ended July 5, 2020. Our fresh sales have resulted in:
18 consecutive quartershistorically carried higher margin profiles, represented by an approximate gross margin of positive pro forma comparable32% for fresh offerings compared to 25% for center store sales growth;
the expansion, prior to our Winn-Dixie acquisition, of BI-LO’s adjusted EBITDA margins, which increased from 5.6%offerings in fiscal 2010 to 6.0%2019. We have invested heavily in fiscal 2011. For a reconciliation of adjusted EBITDA margin and a discussion of why we consider it useful, see “—Summary Selected Historical and Pro Forma Financial and Other Data”;
an expansionoptimizing the perimeter of our store baseassortment, including our extensive selection of Certified Angus Beef, our high-quality produce and organic offerings, bakery with artisan breads and inviting floral displays. Our fresh and perimeter-of-store offerings are complemented by 478 operating stores since the beginningrobust center-of-store and specialty assortments, all of fiscal 2011, through the identificationwhich deliver a convenient, full-shop experience at a compelling value.
Well-Developed Own Brands Portfolio Drives Sales and executionEnhances Profitability. We have developed an award-winning portfolio of the Winn-Dixie acquisition;over 8,000 high-quality fresh, frozen and
the realization of significant cost savings and synergies from the acquisition of Winn-Dixie.
Our Strategy
We plan shelf-stable private-label products at value-oriented prices that we believe are similar or higher quality to pursue strategies that will allow us to maintain our strong financial performance and further expand our market share and store base, including:
Continue to Drive Strong Sales Performance. We are focused on driving additional sales and household penetration by increasing customer loyalty and attracting new customers into existing stores. We believe our promotional and merchandising programs, quality product offerings, attractive and well-maintained stores, and competitive prices will facilitate the achievement of this goal by delivering a superior and value-oriented shopping experience. We believe we have the opportunity to further increase our market share by remodeling selected stores to improve their sales productivity. Our strong focus on customer service, coupled with our well maintained store base, provides our customers with an attractive shopping experience that helps drive sales.
Continue to Focus on Growing Profitability. We believe we can continue to grow our profitability by reducing costs, leveraging our fixed cost base and improving comparable store sales through our merchandising programs. We plan to continue reducing operating expenses in ways that do not negatively impact our customers’ shopping experience, while investing in programs that increase customer loyalty and drive top-line sales growth.brand-name counterparts. For example, since relaunching the Winn-Dixie acquisition,platform in 2016, we have significantly cut expenseswon numerous quality awards for our yogurt, ice cream and realized synergies through scale efficiencies and operational improvements while at the same time improving our comparable store sales performance.
Our private label program is one example of a merchandising program that exemplifies this strategy. Private label products are similar in quality to their brand name counterparts, they benefit our customers through lower prices and they are generally more profitable to us than their branded counterparts. Private label products represented 16.9% of our sales volume and 20.8% of our unit volume for the first 28 weeks of fiscal 2013.other dairy products. We employ a multi-tiered private labelprivate-label strategy, through which we seek to satisfy the needs of customers seeking premium, standard or core value products.
We believe our Own Brands portfolio has been a meaningful contributor to same store sales growth, and these products generally have higher margins than branded counterparts, enhancing our
overall profitability. Our own brand portfolio generated $1.0 billion and $1.6 billion in total sales (after giving effect to the Planned Dispositions) for the 28 weeks ended July 8, 2020 and fiscal year 2019, respectively (of which 44% and 39% was attributable to market, 14% and 14% to dairy, 7% and 8% to produce, and the remaining 35% and 39% to deli, floral, frozen food, general merchandise and other grocery items, respectively). We have successfully increased our Own Brands penetration of overall net sales from 26% in fiscal 2017, to approximately 27% for fiscal year 2019 and seek to continually introduce innovative items in underpenetrated categories to further expand penetration. In periods of challenging economic growth where customers are seeking value, we believe our Own Brands portfolio remains a key area to create further differentiation from our competition.
Selectively Experienced Management Team with Proven Track Record of Achieving Results. We believe our people and culture are essential to our success. We have assembled an experienced and dynamic management team comprised of a balanced mix of long-tenured Southeastern Grocers executives as well as recent hires who bring fresh perspectives and relevant areas of expertise. Our executive team is led by Anthony Hucker, our Chief Executive Officer, since 2017. Mr. Hucker is an over 30-year industry veteran with prior experience as Chief Operating Officer and President of Schnucks, President of Ahold USA's banner Food Giant and has held various senior leadership positions at Walmart and Aldi. On average, Mr. Hucker, Brian Carney, our Executive Vice President and Chief Financial Officer, and the other four members of our senior executive management team have over 30 years of retail industry experience. Our cohesive and results-driven management team has led several core strategic initiatives for us, which we believe have resulted in improved top-line results, significant cost savings, enhanced profitability and reduced leverage.
We expect to drive sales growth and enhance profitability by executing on the following strategies, many of which are a continuation of our existing playbook, which has successfully driven our strong financial momentum over the last several years:
Drive Comparable Store Sales Growth. We intend to continue generating comparable store sales growth through our strategic growth initiatives:
believe our fresh initiatives provide a differentiated product offering and value proposition for our customers and will continue to drive future sales growth.
Strengthen Existing Stores Through the Renewal Program and Strategically Pursue Expansion Through AcquisitionsOpportunities to Open New Stores.
Industry Overview Enhance Profitability Through Leveraging Reduced Cost Base.
We operate in the approximately $600 billion U.S. supermarket industry, which is a highly fragmented sector, with a large number of players competing in each region and few truly national players. According to Progressive Grocer, there are approximately 37,000 supermarkets in the United States with at least $2 million of annual sales, with the top 10 supermarket operators accounting for approximately 10,000 locations or approximately 27% of total supermarkets. We believe we arecan continue to grow our profitability by leveraging our fixed cost base and improving comparable store sales through our merchandising programs. We have successfully introduced cost savings programs addressing goods-not-for-resale, goods-for-resale, store labor, vendor funding and leveraging selling, general and administrative ("SG&A") expenses. Between fiscal 2015 and 2017, without giving effect to the sixth largest conventional supermarket operator based on number of stores. According to Progressive Grocer, conventional supermarkets accounted for 67% ofPlanned Dispositions, we reduced total U.S. supermarket sales in 2012, having grown their share from 65% of total U.S. supermarket sales in 2009.
According to Progressive Grocer, sales at supermarkets increased 3.1% in 2012 to $602.6 billion. This growth was partially driven by moderate food retail price inflation. The Consumer Price Index (CPI) for food at home increased 1.3% in 2012, down from a 6.0% increase in 2011. Over the past 5 years, CPI for food at home has grownexpenses by approximately 3% annually,$465 million. In 2020, we are continuing to improve our labor model by leveraging "Smart Localization" to optimize required labor costs per store, informed by customer expectations and the U.S. Department of Agriculture is forecasting food at home inflation of 1.5%behavior.
Employ a Disciplined Approach to 2.5% in 2013Capital Priorities and 2.5%Investment. We will pursue opportunities to 3.5% in 2014.
Our stores are located in attractive markets wherethoughtfully invest capital into our business to drive our future success. In recent years, we have faceddisplayed our primary competitors for an extended periodcommitment to growth through our core markets and banners. We have chosen to invest in the renewal of time.our existing stores, while also investing in digital tools and systems that allow us to better serve our customers and drive comparable sales growth. We believe the competitive landscapewill also continue to assess adjacent markets to expand our store footprint while simultaneously assessing infill opportunities, and will seek to expand our liquor store opportunities. We are committed to maintaining a strong balance sheet and to continue to generate strong free cash flow, which will provide us with ample liquidity and allow us to self-fund our growth initiatives. We intend to deploy free cash flow to delever and to invest in projects with strong returns. We will also seek to proactively return capital to shareholders through modest dividends. As we continue to grow, we will remain disciplined in our markets is well established and that we can successfully manage the incremental impactapproach to capital priorities, with a focus on achieving our sustainable, long-term growth strategy.
Risks Associated with Our SponsorBusiness
Lone Star Fund V (U.S.), L.P. and Lone Star Fund VII (U.S.), L.P., which we refer toInvesting in this prospectus, along with their affiliates and associates (excluding us and other companies that they own as a result of their investment activity), as Lone Star, or our sponsor, are part of a leading private equity firm. Since the establishment of its first fund in 1995, Lone Star has organized 11 private equity funds with aggregate capital commitments totaling over $38 billion. The funds are structured as closed-end, private-equity limited partnerships, the limited partners of which include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, fund of funds and high net worth individuals. Immediately prior to this offering, Lone Star owned all of our outstanding equity interests, and will own approximately % of our common stock immediately following consummationinvolves a number of this offering, assuming no exerciserisks. These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:
For a discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled "Risk Factors."
We are a Delaware corporation. We were incorporated as Southeastern Grocers, Inc. on May 30, 2018. Our principal executive offices are located at 5050 Edgewood Court,8928 Prominence Parkway #200, Jacksonville, Florida 32254.32256. Our principal mailing address is also 5050 Edgewood Court, Jacksonville, Florida 32254, and our telephone number is (904) 783-5000. Our corporate website address iswww.biloholdings.com.Information www.segrocers.com. Our website and the information contained on, or that can be accessed through, our website is not part ofdeemed to be incorporated by reference in, and is not incorporated by reference intoconsidered part of, this prospectus. BI-LO, Super BI-LO, Southern Home, Winn-Dixie,You should not rely on any such information in making your decision whether to purchase our common stock.
On March 27, 2018, Southeastern Grocers, LLC and other trademarks or service marks26 of ours appearingits subsidiaries filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court pursuant to a prepackaged plan of reorganization. On May 30, 2018, we converted from a limited liability company to a corporation. As a result, all of our membership interests were canceled and new equity interests were issued in the form of common stock. We emerged from bankruptcy on May 31, 2018. We refer to this reorganization as the "Reorganization" in this prospectus are our property. Other trademarksprospectus. Although we emerged from bankruptcy on May 31, 2018, we elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and service marks appearing in this prospectus areMay 31, 2018 were evaluated and management concluded that the propertyuse of their respective holders.
Summary Risk Factors
An investment in our common stock involves various risks. You should consider carefullyan accounting convenience date did not have a material impact on the risks discussed below and under “Risk Factors” before purchasing our common stock. If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected.or financial position. In such case,addition, on the trading priceEmergence Date, we entered into (i) the ABL Credit Agreement, which included both our $550 million Revolving Credit Facility and our $50 million FILO Facility, and (ii) the Term Loan Agreement, governing our $475 million Term Loan. Subsequent to July 8, 2020, we repaid $23.8 million on the Term Loan including $22.9 million repurchased on the open market and $0.9 million of scheduled amortization. In addition, we repaid in full and terminated the FILO Facility on August 6, 2020, including $30.1 million through an optional prepayment.
On October 9, 2020, we repaid the outstanding balance of our sharesTerm Loan and terminated our Term Loan Agreement with proceeds from the issuance of common stock would likely decline$325 million aggregate principal amount of 5.625% Senior Secured Notes due 2028 (the "Notes") together with cash on hand and you may lose all or partdrawings under the Revolving Credit Facility of your investment. The following is a summaryapproximately $31 million. We refer to the Notes offering, the use of somecash on hand and the drawdown of amounts under the Revolving Credit Facility and the use of proceeds thereof to fund the repayment of the principal risks we face:Term Loan in full and pay associated fees and expenses as the "Refinancing Transactions" in this prospectus.
We rely on a principal supplier for a substantial portion of our retail merchandise.
We may not realize the benefits of outsourcing operations inIn connection with the C&S supply arrangement, including integration synergies.
We operate in a highly competitive industry with low profit margins,Refinancing Transactions, we amended the ABL Credit Agreement to, among other things, provide any necessary consents to consummate the Refinancing Transactions, reduce the commitments under the Revolving Credit Facility from $550 million to $450 million and actions taken by our competitors can negatively affect our results of operations.
Adverse economic conditions could negatively affect our results of operations and financial condition.
Failure to execute successfully our core strategic initiatives could adversely affect us.
We may not fully realize the benefits of integrating our Winn-Dixie acquisition, including merger integration synergies.
This offering is not conditioned upon the closing of the pending transactions, and there can be no assurance that the pending transactions will be completed or, if completed, that we will obtain all of the anticipated benefits of the pending transactions.
We may not fully realize the anticipated benefits of the pending transactions.
Our operating costs can be significantly impacted by various factors which could negatively affect our financial position.
Conflicts of Interest
Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities,join SEG Holding Finance, LLC each of whom are underwriters in this offering, are, or their affiliates are, expected to receive more than 5% of the net proceeds of this offering in connection with the prepayment of a portion of our ABL facility. See “Use of Proceeds.” Accordingly, this offering is being made in compliance with the requirements of Financial Industry Regulatory Authority, or FINRA, Rule 5121, which requires a “qualified independent underwriter,” as defined by the FINRA rules, participate in the preparation of the registration statement and the prospectus and exercise the usual standards of due diligence in respect thereto, and has served in that capacity and will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnifyagainst liabilities incurred in connection with acting as a qualified independent underwriter, including liabilitiesguarantor under the Securities Act. To comply with FINRA Rule 5121,will not confirm sales to any account over which it exercises discretionary authority without the specific written approvalABL Credit Agreement.
Table of the transaction of the accountholder. See “Underwriting—Conflicts of Interest.”Contents
Issuer | Southeastern Grocers, Inc. | |
Common stock outstanding | shares of common stock. | |
Common stock offered by | shares (or shares if the underwriters' option to purchase additional shares is exercised in full) of common stock. |
|
Option to purchase additional shares | The underwriters have an option to purchase an additional shares of common stock from the selling stockholders. The underwriters can exercise this option at any time within 30 days from the date of this prospectus. |
Use of proceeds | We | |
Dividend policy | We do not anticipate paying any dividends on our common stock for the |
Risk factors | Investing in | |
Listing | We intend to apply to have our common stock listed on the NYSE under the symbol "SEGR." |
Unless we indicate otherwise or unless the context otherwise requires, all information in this prospectus:
|
|
The number
Unless otherwise indicated, this prospectus:
assumes the completion of our corporate conversion, as a result of which all membership interests of Southeastern Grocers, LLC will be converted into shares of common stock of Southeastern Grocers, Inc.;
offering; and
assumes no exercise of the underwriters’ option to purchase up to an additional shares of our common stock.
Summary Selected Historical and Pro FormaConsolidated Financial and Other Data
The following table sets forth our summary selected historical and pro formaconsolidated financial and other data for fiscal 2010, fiscal 2011the periods and fiscal 2012.as of the dates indicated. As a result of the Reorganization, the accompanying historical financial statements and summary historical consolidated financial data are presented on a Predecessor and Successor basis. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the day prior to our emergence from bankruptcy, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. The consolidated financial statements for the Successor periods are not comparable to those of the Predecessor periods.
We derived the summary selected historical consolidated financial data as of December 31, 2011 and December 26, 2012 and for fiscal 2010, fiscal 2011 and fiscal 2012 (retrospectively adjusted for discontinued operations) from the audited consolidated financial statements which are included elsewhere in this prospectus. We derived the summary selected financial information as of January 1, 2011 from our audited consolidated financial statements which are not included in this prospectus. We derived the summary selected historical financial data as of July 10, 2013 and for the 28-week periods28 weeks ended July 14, 2012 (retrospectively adjusted for discontinued operations)8, 2020 and the 28 weeks ended July 10, 20132019 from theour unaudited condensed consolidated financial statements which are also included elsewhere in this prospectus. We derived the summary historical consolidated financial data as of July 14, 2012and for the year ended December 25, 2019 and for the 30 weeks ended December 26, 2018 and for the 22 weeks ended May 30, 2018, as of December 26, 2018 and for the year ended December 27, 2017 from our unaudited condensedaudited consolidated financial statements which are not included elsewhere in this prospectus. Such unauditedWe derived the summary historical consolidated financial information has been prepared on a basis consistent withdata as of December 27, 2017 and as of and for the annualyears December 28, 2016 and December 30, 2015 from our audited financial statements. In the opinion of management, such unauditedconsolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these data. Thenot included elsewhere in this prospectus.
Our historical results for the 28-week periods ended July 14, 2012 and July 10, 2013 are not necessarily indicative of the results for a full year or forto be expected in any future period. The information included under “Other Financial and Store Data” was derived from our accounting records.
The summary selected historical financial information as ofYou should read the end of and for fiscal 2012 and as of and for the 28-week period ended July 14, 2012 includes Winn-Dixie results since the acquisition date of March 9, 2012. The summary selected pro forma financial and other data as of the end of and for fiscal 2012 gives pro forma effect to the Winn-Dixie acquisition as of the first day of fiscal 2012 and should be read in conjunction with the “Unaudited Pro Forma Combined Financial Information.”
The information set forth below should be read in conjunctiontogether with “Management’s"Non-GAAP Financial Measures," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations," "Capitalization," and the complete historicalour consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
| | Successor | | Predecessor | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Year Ended December 25, 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Year Ended December 27, 2017 | Year Ended December 28, 2016 | Year Ended December 30, 2015 | ||||||||||||||||||
| | (in thousands, other than per share, margin, comparable store sales and number of stores data) | ||||||||||||||||||||||||||
Statements of Operations and Comprehensive Income (Loss) Data(1)(2): | |||||||||||||||||||||||||||
Net Sales | $ | 5,262,757 | $ | 4,502,670 | $ | 8,277,374 | $ | 4,829,732 | $ | 3,942,780 | $ | 9,875,104 | $ | 10,451,420 | $ | 11,257,471 | |||||||||||
Cost of sales, including warehouse and delivery expense | 3,806,942 | 3,325,132 | 6,117,224 | 3,586,009 | 2,914,222 | 7,278,280 | 7,787,276 | 8,388,147 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross Profit | 1,455,815 | 1,177,538 | 2,160,150 | 1,243,723 | 1,028,558 | 2,596,824 | 2,664,144 | 2,869,324 | |||||||||||||||||||
Operating, general and administrative expenses | 1,210,910 | 1,195,708 | 2,195,046 | 1,313,863 | 1,024,666 | 2,638,828 | 2,597,371 | 2,720,904 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | 244,905 | (18,170 | ) | (34,896 | ) | (70,140 | ) | 3,892 | (42,004 | ) | 66,773 | 148,420 | |||||||||||||||
Interest expense | 36,881 | 44,607 | 82,339 | 64,497 | 50,988 | 135,083 | 134,437 | 139,135 | |||||||||||||||||||
Reorganization items, net | — | — | — | — | (792,260 | ) | — | — | — | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | 208,024 | (62,777 | ) | (117,235 | ) | (134,637 | ) | 745,164 | (177,087 | ) | (67,664 | ) | 9,285 | ||||||||||||||
Income tax expense (benefit) | 2,334 | (533 | ) | (995 | ) | (48,274 | ) | (16,263 | ) | (38,301 | ) | 400,606 | 3,633 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | $ | 205,690 | $ | (62,244 | ) | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | $ | (468,270 | ) | $ | 5,652 | ||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) as a percent of net sales | 3.91 | % | (1.38 | )% | (1.40 | )% | (1.79 | )% | 19.31 | % | (1.41 | )% | (4.48 | )% | 0.05 | % | |||||||||||
Weighted-average common shares outstanding— | |||||||||||||||||||||||||||
Basic | 10,064 | 10,001 | 10,001 | 10,000 | |||||||||||||||||||||||
Diluted | 10,228 | 10,001 | 10,001 | 10,000 | |||||||||||||||||||||||
Basic earnings (loss) per share | $ | 20.44 | $ | (6.22 | ) | $ | (11.62 | ) | $ | (8.64 | ) | ||||||||||||||||
Diluted earnings (loss) per share | $ | 20.11 | $ | (6.22 | ) | $ | (11.62 | ) | $ | (8.64 | ) | ||||||||||||||||
Pro Forma net income per common share | |||||||||||||||||||||||||||
Basic | |||||||||||||||||||||||||||
Diluted | |||||||||||||||||||||||||||
Statements of Cash Flows Data(1)(2): | |||||||||||||||||||||||||||
Net cash provided by (used in): | |||||||||||||||||||||||||||
Operating activities | $ | 398,435 | $ | (17,409 | ) | $ | 56,945 | $ | 89,975 | $ | 89,928 | $ | 216,291 | $ | 98,532 | $ | 182,801 | ||||||||||
Investing activities | $ | (13,112 | ) | $ | (76,085 | ) | $ | (141,248 | ) | $ | (116,526 | ) | $ | (3,916 | ) | $ | (104,980 | ) | $ | (86,874 | ) | $ | (13,077 | ) | |||
Financing activities | $ | (363,092 | ) | $ | 87,150 | $ | 108,939 | $ | 17,021 | $ | (79,538 | ) | $ | (93,692 | ) | $ | (27,955 | ) | $ | (193,650 | ) | ||||||
Other Financial Data (non-GAAP)(1)(2): | |||||||||||||||||||||||||||
Adjusted EBITDA(3)(4) | $ | 363,604 | $ | 175,386 | $ | 292,453 | $ | 136,134 | $ | 165,068 | $ | 315,620 | $ | 250,161 | $ | 305,695 | |||||||||||
Adjusted EBITDA margin | 6.9 | % | 3.9 | % | 3.5 | % | 2.8 | % | 4.2 | % | 3.2 | % | 2.4 | % | 2.7 | % | |||||||||||
Net Sales Adjusted for the Planned Dispositions(4) | $ | 4,324,634 | $ | 3,608,720 | $ | 6,667,380 | — | — | — | — | — | ||||||||||||||||
Rent expense | $ | 102,258 | $ | 101,856 | $ | 188,927 | $ | 97,741 | $ | 74,964 | $ | 207,632 | $ | 214,597 | $ | 226,463 | |||||||||||
Capital expenditures | $ | 71,721 | $ | 93,693 | $ | 164,651 | $ | 120,578 | $ | 50,429 | $ | 115,653 | $ | 156,626 | $ | 103,232 | |||||||||||
Other Operating Data(1)(2): | |||||||||||||||||||||||||||
Comparable store sales increase (decrease)(5) | 18.4 | % | 0.1 | % | 0.4 | %(6) | —(8) | — | (8) | (2.2 | )% | (3.6 | )% | (0.5 | )% | ||||||||||||
Number of stores at end of fiscal period | 545 | 551 | 547 | 573 | — | 702 | 736 | 755 | |||||||||||||||||||
Gross square footage at end of period | 24,988 | 25,229 | 25,069 | 26,268 | — | 31,634 | 33,089 | 33,908 | |||||||||||||||||||
The pro forma information set forth below does
| | As of July 8, 2020 | As of December 25, 2019 | As of December 26, 2018 | | As of December 27, 2017 | As of December 28, 2016 | As of December 30, 2015 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data(1)(2): | |||||||||||||||||||||
Cash and cash equivalents | $ | 93,070 | $ | 70,299 | $ | 44,512 | $ | 50,908 | $ | 33,289 | $ | 49,586 | |||||||||
Total assets | $ | 2,614,493 | $ | 2,730,204 | $ | 2,413,138 | $ | 1,874,165 | $ | 2,076,608 | $ | 2,531,620 | |||||||||
Stockholders' equity (Membership deficiency) | $ | 428,598 | $ | 220,181 | $ | 372,739 | $ | (750,743 | ) | $ | (610,304 | ) | $ | (140,833 | ) | ||||||
Current portion of long-term debt | $ | 16,696 | $ | 16,000 | $ | 12,250 | $ | 774,785 | — | — | |||||||||||
Long-term debt | $ | 407,148 | $ | 752,521 | $ | 674,279 | $ | 424,208 | $ | 1,232,586 | $ | 1,221,445 | |||||||||
Current maturities of obligations under finance/capital leases | $ | 4,548 | $ | 6,465 | $ | 6,076 | $ | 13,286 | $ | 16,766 | $ | 18,069 | |||||||||
Obligations under finance/capital leases | $ | 61,299(a | ) | $ | 49,715 | $ | 56,057 | $ | 101,026 | $ | 114,483 | $ | 134,241 | ||||||||
Total Debt(7) | $ | 507,962 | $ | 850,805 | $ | 915,341 | $ | 1,523,690 | $ | 1,596,156 | $ | 1,626,247 | |||||||||
Total Net Debt(7) | $ | 414,892 | $ | 780,506 | $ | 870,829 | $ | 1,472,782 | $ | 1,562,867 | $ | 1,576,661 | |||||||||
| Pro Forma | 28-Week Period Ended | |||||||||||||||||||||||
| Fiscal 2010 (52 weeks)(1) | Fiscal 2011 (52 weeks)(1) | Fiscal 2012 (52 weeks) | Fiscal 2012 (52 weeks)(2) | July 14, 2012 | July 10, 2013 | |||||||||||||||||||
| (In millions of dollars, except Per Share and Other Financial and Store Data) | ||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Net sales | $ | 2,641.1 | $ | 2,779.2 | $ | 8,632.9 | $ | 9,735.6 | $ | 4,097.1 | $ | 5,574.5 | ||||||||||||
Gross profit(3) | 685.2 | 717.8 | 2,350.4 | 2,675.6 | 1,124.6 | 1,508.6 | ||||||||||||||||||
Operating, general and administrative expenses | 616.2 | 621.6 | 2,136.3 | 2,436.0 | 1,024.3 | 1,308.4 | ||||||||||||||||||
Interest expense | 62.4 | 85.9 | 76.9 | 81.0 | 39.5 | 46.6 | ||||||||||||||||||
Income tax provision (benefit) | 3.3 | 4.1 | 7.6 | 7.5 | 2.2 | (56.1 | ) | |||||||||||||||||
Income from continuing operations | 7.6 | 6.2 | 129.6 | 151.0 | 58.6 | 209.7 | ||||||||||||||||||
Income (loss) from discontinued operations | 7.4 | (0.5 | ) | (26.5 | ) | (24.2 | ) | 1.2 | (1.7 | ) | ||||||||||||||
Net income | $ | 15.0 | $ | 5.7 | $ | 103.1 | $ | 126.8 | $ | 59.8 | $ | 208.0 | ||||||||||||
Per Share Data: | ||||||||||||||||||||||||
Pro forma basic and diluted earnings per share(4) | ||||||||||||||||||||||||
As adjusted pro forma basic and diluted earnings per share(4)(5) | ||||||||||||||||||||||||
Balance Sheet Data (end of period): | ||||||||||||||||||||||||
Total assets | $ | 768.3 | $ | 793.0 | $ | 2,171.7 | $ | 2,160.7 | $ | 2,298.0 | ||||||||||||||
Long-term debt (including current portion)(6) | 187.3 | 285.0 | 655.9 | 385.0 | 530.4 | |||||||||||||||||||
Obligations under capitalized leases | 84.4 | 79.3 | 112.3 | 119.6 | 95.0 | |||||||||||||||||||
Other financing obligations(7) | 201.8 | 185.4 | 176.3 | 168.9 | 269.9 | |||||||||||||||||||
Other long-term liabilities (including long term portion of self-insurance liabilities) | 27.2 | 26.6 | 241.7 | 251.7 | 235.3 | |||||||||||||||||||
Total membership interests (deficiency) | 47.2 | (23.1 | ) | 75.5 | 311.6 | 283.5 | ||||||||||||||||||
Working capital | 105.5 | 126.8 | 236.3 | 246.8 | 275.1 | |||||||||||||||||||
Cash Flow Data: | ||||||||||||||||||||||||
Net cash provided by operating activities before reorganization items | $ | 89.8 | $ | 89.9 | $ | 277.7 | $ | 200.6 | $ | 170.5 | ||||||||||||||
Net cash provided by (used in) financing activities | 10.1 | (16.8 | ) | 282.2 | 307.4 | (39.1 | )(8) | |||||||||||||||||
Net cash (used in) investing activities | (17.1 | ) | (46.9 | ) | (555.0 | ) | (493.3 | ) | (131.2 | )(8) | ||||||||||||||
Net cash provided by continuing operations | 17.1 | 26.2 | 4.9 | 14.7 | 0.2 | |||||||||||||||||||
Capital expenditures | 17.9 | 47.8 | 140.9 | 76.8 | 50.7 | |||||||||||||||||||
Other Financial and Store Data: | ||||||||||||||||||||||||
Adjusted EBITDA(9) | $ | 147.3 | $ | 167.3 | $ | 370.4 | $ | 411.5 | $ | 192.1 | $ | 276.4 | ||||||||||||
Adjusted EBITDAR(9) | $ | 169.9 | $ | 189.3 | $ | 536.9 | $ | 605.5 | $ | 266.9 | $ | 385.5 | ||||||||||||
Number of stores (at end of period) | 207 | 207 | 689 | 687 | 685 | |||||||||||||||||||
Average sales per store (000s) | $ | 12,608 | $ | 13,338 | $ | 14,422 | $ | 7,856 | $ | 8,054 | ||||||||||||||
Average store size (in square feet) (000s) | 43 | 43 | 46 | 45 | 46 | |||||||||||||||||||
Total square feet (at end of period) (000s) | 8,857 | 8,857 | 31,517 | 31,381 | 31,642 | |||||||||||||||||||
Sales per average square foot | $ | 295 | $ | 312 | $ | 317 | $ | 174 | $ | 175 | ||||||||||||||
Comparable store sales increases (decreases) (%)(10) | 3.7 | 5.5 | 3.1 | 3.3 | 0.8 | |||||||||||||||||||
Pro forma comparable store sales increases (decreases) (%)(11) | — | — | 3.8 | 3.3 | 1.8 | |||||||||||||||||||
results, operating trends and performance between periods. We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization and income (loss) from discontinued operations. We define adjustedAdjusted EBITDA as EBITDA, plus (minus) (a) reorganization losses (gains), (b) chargesadjusted for loss (gain) on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise taxes; expenses (income) in connection with the Reorganization, business optimization and other strategic initiatives, primarily consisting of professional and consulting fees related to certain corporate transactions, (c) other charges relateda review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to our bankruptcy proceedings, (d) mergerthe Planned Dispositions and integrationpublic company preparation costs; incremental costs (e) lossesattributable to opening, remodeling or converting a store; (gain) loss from closed stores, (f) losses (gains) on asset disposals, (g) impairment expense, (h) franchise taxes and (i)natural disasters, net of insurance recoveries; share-based compensation expense; fresh start adjustments; fees and expense reimbursementsreimbursement to our sponsor.LSF Southeastern Grocery Holdings LLC; and board of directors fees. We define adjusted EBITDARNet Sales Adjusted for the Planned Dispositions as adjusted EBITDA plus rent expense.net sales less the net sales of the stores to be sold in connection with the Planned Dispositions or closed in the normal course since the beginning of fiscal year 2019. We define adjusted EBITDA marginTotal Debt as adjusted EBITDA as a percentagethe sum of net sales. We caution investors that amounts presented in accordance with our definitions of EBITDA, adjusted EBITDA, adjusted EBITDARlong-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and adjusted EBITDA margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA, adjusted EBITDA, adjusted EBITDAR and adjusted EBITDA margin infinance/capital lease obligations (including the same manner. We present EBITDA, adjusted EBITDA, adjusted EBITDAR and adjusted EBITDA margin because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investorscurrent portion thereof) and other interested parties in the evaluation of companies in our industry. Management believesfinancing obligations and we define Total Net Debt as Total Debt less cash.
as a measurement of operating performance because they assist us in comparing the operating performance of our stores on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budget and financial projections;
to evaluate the performance and effectiveness of our operational strategies;
to evaluate our capacity to fund capital expenditures and expand our business; and
to calculate incentive compensation payments for our employees, including assessing performance under our annual incentive compensation plan.
By providing these non-GAAP financial measures, together with a reconciliation, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Items excluded from these non-GAAP measures are significant components in understanding and assessing financial performance. In addition, the instruments governing our indebtedness use EBITDA (with additional adjustments) to measure our compliance with covenants such as interest coverage and debt incurrence. EBITDA, adjusted EBITDA, adjusted EBITDAR and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements and in accordance with GAAP as indicators of financial performance. Some of the limitations of non-GAAP financial measures are:
such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
such measures do not reflect changes in, or cash requirements for, our working capital needs;
such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
such measures do not reflect our tax expense or the cash requirements to pay our taxes;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Due to these limitations, EBITDA, adjusted EBITDA, adjusted EBITDAR and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally.
| | Successor | | Predecessor | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Year Ended December 25, 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Year Ended December 27, 2017 | Year Ended December 28, 2016 | Year Ended December 30, 2015 | |||||||||||||||||||
| | (in thousands) | |||||||||||||||||||||||||||
Net income (loss) | $ | 205,690 | $ | (62,244 | ) | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | $ | (468,270 | ) | $ | 5,652 | |||||||
Depreciation and amortization expense(a) | 98,155 | 142,305 | 238,403 | 146,337 | 68,045 | 180,297 | 166,964 | 174,837 | ||||||||||||||||||||
Interest expense | 36,881 | 44,607 | 82,339 | 64,497 | 50,988 | 135,083 | 134,437 | 139,135 | ||||||||||||||||||||
Income tax expense (benefit) | 2,334 | (533 | ) | (995 | ) | (48,274 | ) | (16,263 | ) | (38,301 | ) | 400,606 | 3,633 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA | 343,060 | 124,135 | 203,507 | 76,197 | 864,197 | 138,293 | 233,737 | 323,257 | ||||||||||||||||||||
Adjustments to reconcile EBITDA to Adjusted EBITDA: | ||||||||||||||||||||||||||||
(Gain) Loss on sale or disposition of assets(b) | (22,491 | ) | 3,383 | 7,681 | 3,577 | (32,111 | ) | (3,260 | ) | (38,309 | ) | (56,417 | ) | |||||||||||||||
Expenses associated with the closing or disposition of stores(c) | 333 | 18,124 | 20,324 | 14,047 | 59,167 | 19,334 | 14,426 | 6,225 | ||||||||||||||||||||
Impairment expense(d) | 31,338 | 1,082 | 21,188 | — | 35,603 | 115,111 | 10,183 | 3,828 | ||||||||||||||||||||
Franchise taxes | 283 | 181 | 488 | 2 | 89 | 154 | 186 | 756 | ||||||||||||||||||||
Expenses (income) in connection with the Reorganization, business optimization, and other strategic initiatives(e) | 6,203 | 22,150 | 25,631 | 21,239 | (7,851 | ) | 32,447 | 16,387 | 23,821 | |||||||||||||||||||
Incremental costs attributable to opening, remodeling or converting a store(f) | 4,856 | 7,301 | 12,710 | 14,013 | 6,632 | 8,298 | 5,099 | — | ||||||||||||||||||||
(Gain) loss from natural disasters, net of insurance recoveries(g) | (2,980 | ) | (2,758 | ) | (4,889 | ) | 6,411 | (8,112 | ) | 34 | 4,272 | — | ||||||||||||||||
Share-based compensation expense(h) | 2,733 | 1,497 | 5,272 | 359 | —- | — | — | — | ||||||||||||||||||||
Fresh start adjustments(i) | — | — | — | — | (752,546 | ) | — | — | — | |||||||||||||||||||
Fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC(j) | — | — | — | — | — | 5,209 | 4,180 | 4,225 | ||||||||||||||||||||
Board of directors fees | 269 | 291 | 541 | 289 | — | — | — | — | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | $ | 363,604 | $ | 175,386 | $ | 292,453 | $ | 136,134 | $ | 165,068 | $ | 315,620 | $ | 250,161 | $ | 305,695 | ||||||||||||
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Net sales | $ | 5,262,757 | $ | 4,502,670 | $ | 8,277,374 | — | — | — | — | — | |||||||||||||||||
Planned Dispositions stores net sales | 934,815 | 806,336 | 1,501,718 | — | — | — | — | — | ||||||||||||||||||||
Closed stores | 3,308 | 87,614 | 108,276 | — | — | — | — | — | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Sales Adjusted for the Planned Dispositions | $ | 4,324,634 | $ | 3,608,720 | $ | 6,667,380 | — | — | — | — | — | |||||||||||||||||
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| Pro Forma | 28 Week Period Ended | |||||||||||||||||||||||
| Fiscal 2010 (52weeks)(a) | Fiscal 2011 (52weeks)(a) | Fiscal 2012 (52weeks) | Fiscal 2012 (52weeks)(b) | July 14, 2012 | July 10, 2013 | |||||||||||||||||||
| (In millions of dollars, except for margin data) | ||||||||||||||||||||||||
Reconciliation of EBITDA and EBITDAR: | ||||||||||||||||||||||||
Net income | $ | 15.0 | $ | 5.7 | $ | 103.1 | $ | 126.8 | $ | 59.8 | $ | 208.0 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Depreciation and amortization expense(c) | 64.2 | 53.8 | 98.1 | 105.7 | 44.3 | 64.5 | ||||||||||||||||||
Interest expense | 62.4 | 85.9 | 76.9 | 81.0 | 39.5 | 46.6 | ||||||||||||||||||
Income tax provision (benefit) | 3.3 | 4.1 | 7.6 | 7.5 | 2.2 | (56.1 | ) | |||||||||||||||||
(Income) loss from discontinued operations | (7.4 | ) | 0.5 | 26.5 | 24.2 | (1.2 | ) | 1.7 | ||||||||||||||||
EBITDA | $ | 137.5 | $ | 150.0 | $ | 312.2 | $ | 345.2 | $ | 144.6 | $ | 264.7 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Charges related to bankruptcy proceedings and corporate reorganization(d) | 2.3 | 7.0 | 4.2 | 4.2 | 3.5 | — | ||||||||||||||||||
Loss from closed stores | 8.7 | 0.3 | 2.2 | 2.0 | 1.0 | 0.8 | ||||||||||||||||||
(Gain) on assets disposals | (0.5 | ) | — | (0.9 | ) | (0.8 | ) | (0.2 | ) | 0.2 | ||||||||||||||
Impairment expense | 1.6 | 1.8 | — | — | — | — | ||||||||||||||||||
Franchise taxes | 0.4 | 0.4 | 0.6 | 0.5 | 0.3 | 0.3 | ||||||||||||||||||
Fees and expense reimbursement to our sponsor(e) | 1.5 | 4.5 | 2.5 | 2.5 | 0.6 | 1.8 | ||||||||||||||||||
Merger and integration costs | — | 3.4 | 59.9 | 68.1 | 42.3 | 13.1 | ||||||||||||||||||
Other nonoperating (income) | (4.2 | ) | (0.1 | ) | (10.3 | ) | (10.2 | ) | — | (4.5 | ) | |||||||||||||
Adjusted EBITDA | $ | 147.3 | $ | 167.3 | $ | 370.4 | $ | 411.5 | $ | 192.1 | $ | 276.4 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Rent expense(f) | 22.6 | 22.0 | 166.5 | 194.0 | 74.8 | 109.1 | ||||||||||||||||||
Adjusted EBITDAR | $ | 169.9 | $ | 189.3 | $ | 536.9 | $ | 605.5 | $ | 266.9 | $ | 385.5 | ||||||||||||
Adjusted EBITDA margin | 5.6 | 6.0 | 4.3 | 4.2 | 4.7 | 5.0 | ||||||||||||||||||
and Results of Operations—Key Components of Results of Operations and Key Metrics—Net Sales—Comparable store sales."
| | Successor | | Predecessor | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | As of July 8, 2020 | As of December 25, 2019 | As of December 26, 2018 | | As of December 27, 2017 | As of December 28, 2016 | As of December 30, 2015 | |||||||||||||||
| | | |||||||||||||||||||||
| | | |||||||||||||||||||||
| | (in thousands, other than Net Debt Leverage) | |||||||||||||||||||||
Long-term debt (including current portion) | $ | 423,844 | $ | 768,521 | $ | 686,529 | $ | 1,198,993 | $ | 1,232,586 | $ | 1,221,445 | ||||||||||
Unamortized debt issuance cots | 7,606 | 10,865 | 13,454 | 3,690 | 7,847 | 12,005 | ||||||||||||||||
Unamortized debt discount (premium), net | 10,665 | 15,239 | 18,892 | (417 | ) | (433 | ) | (450 | ) | |||||||||||||
Finance/capital lease obligations (including current portion) | 65,847(a | ) | 56,180 | 62,133 | 114,312 | 131,249 | 152,310 | |||||||||||||||
Other financing obligations (including current portion) | — | — | 134,333 | 207,112 | 224,907 | 240,937 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total Debt(b) | $ | 507,962 | $ | 850,805 | $ | 915,341 | $ | 1,523,690 | $ | 1,596,156 | $ | 1,626,247 | ||||||||||
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Cash and cash equivalents | 93,070 | 70,299 | 44,512 | 50,908 | 33,289 | 49,586 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total Net Debt | $ | 414,892 | $ | 780,506 | $ | 870,829 | $ | 1,472,782 | $ | 1,562,867 | $ | 1,576,661 | ||||||||||
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| | | | | | | | | | | | | | | | | | | | | | | |
Net Debt Leverage(c) | 2.7x | 2.9x | 4.7x | 6.2x | 5.2x | |||||||||||||||||
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well asfollowing risk factors and all of the other information includedcontained in this prospectus before making a decision to invest inpurchasing our common stock. AnyIf any of the following risks as well as other risks and uncertainties, could harmoccur, our business, financial condition and results of operations could be materially and cash flows and causeadversely affected. In that case, the valuetrading price of our common stock tocould decline, which in turn could causeand you tomay lose allsome or partall of your investment.
Risks Related to Our Business and Industry
We rely on a principal supplier for a substantial portion of our retail merchandise.
We rely on a single supplier, C&S, to provide all of the retail merchandise (other than merchandise that is delivered directly from the manufacturers to our stores (known as “direct store delivery”) and prescription drugs) pursuant to a long-term supply agreement. During the 28-week period ended July 10, 2013, C&S supplied approximately 22% of our retail merchandise. On May 10, 2013, we entered into the C&S supply arrangement in which the scope of C&S’s services has been expanded to cover the Winn-Dixie stores. Under the C&S supply arrangement, C&S will supply all of the retail merchandise (other than direct store delivery and prescription drugs) to all of our 685 stores as of July 10, 2013, including the 479 stores under the Winn-Dixie banner. See “Business—Sources of Supply.” This will result in a substantially higher proportion of our merchandise being supplied by one supplier. We anticipate approximately 75-80% of our retail merchandise will be supplied by C&S under this arrangement.
Due to our significantly increased reliance on C&S to supply our merchandise, the cancellation of the C&S supply arrangement or the disruption, delay or inability of C&S to deliver products to our storesAdverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.
The retail food industry is sensitive to changes in overall economic conditions that impact customer spending and purchasing habits. Macroeconomic conditions in our markets, such as inflation and deflation in food and energy prices, employment levels, interest rates, changes in the housing market and overall customer confidence, could materially adversely affect the disposable income of our customers and decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses. Furthermore, changes in the real estate markets could impact the availability of attractive store locations or result in an increase of our fixed lease obligations.
For the beginning of 2020 and in prior years, the combination of an improving economy, lower unemployment, higher wages and lower gasoline prices had contributed to increased customer confidence. However, at present, as a result of the coronavirus ("COVID-19") pandemic, there is substantial uncertainty about the strength of the economy, and the impact of the recession and rapid increases in unemployment rates, as well as uncertainty about the pace of recovery despite the fiscal stimulus packages and other measures that the United States Congress has enacted. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are currently highly uncertain and cannot be predicted, including, but not limited, to the duration, spread, severity and impact of the COVID-19 pandemic as well as any future resurgences, the effects of the pandemic on our customers and suppliers, the duration of the federal, state and local declarations of emergency and the associated remedial actions and stimulus measures adopted by federal, state and local governments, including measures to assure social distancing and to what extent normal economic and operating conditions can resume. We are also unable to predict the extent, implementation and effectiveness of any government-funded benefit programs and stimulus packages on employment levels and on demand for our products or whether any further programs or stimulus packages will be adopted.
We may experience materially adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur as a result of efforts to curb the spread of COVID-19 or otherwise. Customers' perception or uncertainty related to the economy, including their spending habits and proclivity to visit our stores, as well as a decrease in their personal financial condition, could hurt overall customer confidence and reduce demand for shoppers in our stores. Customers may reduce spending on non-essential items, purchase value-oriented products or increasingly rely on food discounters in an effort to secure the food and drug products that they need, all of which could impact our sales and profit.
An increase in fuel prices could also have an effect on customer spending and on our costs of producing and procuring the products that we sell. Moreover, both inflation and deflation affect our business. Other suppliersFood deflation could reduce sales growth and earnings, while food inflation could reduce gross profit margins. Several food items and categories, including poultry and fresh fruit, experienced price deflation in fiscal year 2019; however, prices for most other major food categories increased. We
cannot predict when or the extent to which any inflation or deflation may impact our business in the future.
Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S. dollar, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in laws, regulations and policies and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses and materially adversely affect our business, financial condition and results of operations. These factors, as well as other material adverse consequences which may be beyond our control, could provide similar productsalso materially adversely affect our ability to plan and execute our strategic initiatives, invest in and open new stores, prevent current stores from closing, all of which may materially adversely affect our sales, cash flow, results of operations and performance. We are limitedunable to predict the direction of the economy or fuel prices or if deflationary or inflationary trends will occur.
In addition, many of our customers rely on food stamps and other governmental assistance programs. Our experience has been that restrictive changes to these programs have adversely impacted traffic and spending in numberour stores.
If the economy weakens and there is no assurance that we would be able to secure an alternative supplier on commercially reasonable terms or at all. In addition, a changegeneral reduction in suppliersthe level of customer spending, it may reduce our sales and profit results and could cause a delay in distribution and a possible loss of sales, which would have a material adverse effect on our business, financial condition and results of operations.
We may not realizeOur business has been, and we expect will continue to be, impacted by the benefits of outsourcing operations in connection with the C&S supply arrangement, including integration synergies.COVID-19 pandemic.
COVID-19 poses a risk to our employees, our customers, our suppliers and the communities in which we operate, which could negatively impact our business. As the COVID-19 pandemic has grown, customer fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to social distance or self-quarantine have increased. Many states in which we operate and have a significant number of stores, have declared a state of emergency, closed schools and non-essential businesses and enacted limitations on the number of people allowed to gather at one time in the same space. These rules, as well as the general fear that causes people to avoid gathering in public places, may adversely affect our customer traffic, our ability to adequately staff our stores and operations, and our ability to transport product on a timely basis.
To We currently operate our stores as an "essential" business under relevant federal, state and local mandates. If the classification of what is an "essential" business changes or other government regulations are adopted, we may be successfulrequired to severely curtail operations, which would significantly and adversely impact our sales and revenue. Even though our stores are considered essential businesses, state and local mandates may impose limitations on the operations of our stores, including customer traffic. While we have taken many protective measures in our recent logistics outsourcing to C&S, we will need to turn over certain warehousestores, including, among others, spacing requirements, single direction aisles, senior and trucking operationscompromised customer-only hours, plexiglass shields at checkout and personnel to C&S in a manner that does not disrupt store operations or supplyproviding masks and integrate our ordering and purchasing systems. This will require substantial management attention and could distract attention from our day-to-day business. If we cannot implement the C&S supply arrangement successfully, we may fail to realize the expected benefits and our operations could be adversely affected. In addition, any interruption of supplygloves to our store locations could lead to a loss of sales. We expect that the C&S supply arrangement will result in significant savings on the cost of inventory and supplies if successfully implemented. Therefront line employees, there can be no assurance that anythese measures will be sufficient to protect our store employees and customers. We may in the future be required to temporarily close a store, office or distribution center for cleaning and/or quarantine employees in the event that an employee contracts COVID-19. We have proactively paused self-service operations, such as soup bars, wing bars, salad bars and olive bars. These factors could impact the ability of these savings willour stores to operate normal hours of operation or have sufficient inventory which may disrupt our business and negatively impact our financial results. If we do not respond appropriately to the COVID-19 pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation and our brands, which could adversely affect our business in fact be realized.the future.
Further, COVID-19 may also impact our ability to access and ship product to and from impacted locations. Items such as customer staples, paper goods, key cleaning supplies and protective
equipment for our employees, and more recently, meat products have been, and may continue to be, in short supply. While we have put temporary limits on certain products to help our customers to get the items they need, supply for certain products may be negatively impacted as overall demand has increased. Any planned construction and opening of new stores may be negatively impacted due to state or county requirements that workers leave their homes only for essential business and the suspension of governmental permitting processes in some areas during the COVID-19 pandemic in some locations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including IT, phishing and other cybersecurity attacks.
In the event that an employee tests positive for COVID-19, we may have to temporarily close one or more stores, offices or distribution centers for cleaning and/or quarantine one or more employees, which could negatively impact our financial results. In addition, if one or more of our employees or customers becomes ill from COVID-19 and attributes their exposure to such illness to us or one of our stores, we could be subject to allegations of failure to adequately mitigate the risk of such exposure. Such allegations could harm our reputation and sales and expose us to the risks of litigation and liability.
While we have experienced an increase in demand as a result of the impact the COVID-19 pandemic has had on consumer behaviors, including due to various stay-at-home orders and restaurant and other restrictions that were effected throughout much of the United States in response to the COVID-19 pandemic, this increased demand may not be sustained following the pandemic as various restrictions on consumer dining options are lifted, or if economic conditions worsen, which could negatively impact consumer spending. Additionally, if the increase in demand currently being experienced for our products declines more abruptly than expected this could adversely impact our inventory levels and may result in excess inventory, which we may be unable to sell. Furthermore, because the COVID-19 pandemic did not begin to impact our results until the first quarter of 2020, any current or future impacts may not be directly comparable to those incurred in historical periods and are not necessarily indicative of any future impacts that the COVID-19 pandemic may have on our results for the remainder of 2020 or any subsequent periods. The impact of the COVID-19 pandemic on our revenues and expenses may also fluctuate differently over the duration of the pandemic.
The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time. Moreover, COVID-19 may also have the effect of heightening many of the other risks described in this "Risk Factors" section. For example, we may experience an impact to the timing and availability of key products from suppliers, broader quarantines or other restrictions that limit customer visits to our stores, increased employee impacts from illness, school closures and other community response measures, all of which could have a material adverse effect on our business, financial condition and results of operations. We continually monitor the situation and regularly adjust our policies and practices as more information and guidance becomes available.
We operate in a highly competitive industry with low profit margins, and actions taken byFailure to successfully execute our competitors can negativelystrategic initiatives could materially adversely affect our business, financial condition and results of operations.
Our multi-year transformational plan is designed to create a differentiated customer experience and improve the customer value proposition. A key component of our plan is investing in our store network. Deployment of maintenance and investment capital has allowed us to, and will continue to allow us to, position our fleet of stores to best compete in their respective local communities. We believe this store renewal approach creates a platform for other growth initiatives, which includes a system-wide refresh of our stores, improved automated ordering systems, our Own Brands strategy, an emphasis on fresh merchandising, our pricing strategy, our loyalty program, and an improved overall customer experience.
We compete with various types If our plan does not meet the expectations of retailers, including local, regionalour customers or achieve the time and national supermarket operators, conveniencefinancial budgets we have forecasted, it could have a material adverse effect on our business, brand value, financial condition and results of operations.
In May 2020, as the latest step in our transformation plan, we reached an agreement to sell 62 stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, super-centers, warehousecomprising 46 BI-LO stores and independent and specialty grocers. Our competitors include national and regional supermarket chains that compete16 Harveys, to Food Lion, a subsidiary of Ahold Delhaize. The sale is anticipated to close by the end of the first half of fiscal year 2021, although it is possible the sale may not close in the expected timeframe, on the basis of location, quality of products, service, price, product mix, store conditions and promotional offerings.expected terms, or at all. We also face heightened competition from restaurantsentered into an agreement to transition our distribution center located in Mauldin, South Carolina, to Ahold Delhaize. In September 2020, we announced an agreement to sell an additional 23 stores, comprising 22 BI-LO stores and fast food chains dueone Harveys, in South Carolina and Georgia to the increasing portionAlex Lee, under which Alex Lee will purchase 20 stores and B&T Foods will purchase three stores pursuant to a right of household food expenditures directed to the purchase of food prepared outside the home. In addition, over the past several years, we have experienced a significant number of competitor store openings in the regions in which we operate.
Our industry is highly competitive with low profit margins. Pricing is a significant driver of consumer choice in our industry and we regularly engage in price competition, particularly through our promotional programs. To the extent that our competitors lower prices, through increased promotional activity or otherwise, our ability to maintain gross profit margins and sales levels may be negatively impacted. Several of our primary competitors are larger thanassignment held by Alex Lee. Additionally, we are have greater financial resources available to themactively exploring strategic options for our remaining 39 BI-LO stores and therefore, mayone additional Harveys. There can be no assurances that we will be able to devote greater resourcestimely complete a sale of the remaining BI-LO stores or the one additional Harveys or otherwise find a buyer for these assets, or if we do complete a sale transaction for such stores, that it will be on terms favorable to invest in pricing and promotional programs. Additionally,us. If the planned sales are not achieved, we may be forced to continue to operate such stores indefinitely and we may have to seek other strategic alternatives, which may include the suspending or winding down of operations of those stores. Even if we successfully sell such stores, if we are not have sufficient resourcesable to responddo so in the timeframe we expect or on terms favorable to significant investments by our competitors in pricing or promotional programs or store base.
Actions taken by our competitorsus, it may have a material adverse effect on our business, financial condition and results of operations.
Adverse economic conditions could negatively affect our results of operations and financial condition.
The retail foodWe operate in a highly competitive industry is sensitive to changes in overall economic conditions that impact consumer spending and purchasing habits, both nationally and locally. General economic conditions in our market areas, such as higher levels of unemployment, weakness in the housing market, inflation in food and energy, and lagging consumer confidence, could reduce consumer spending and cause consumers to switch to a less expensive mix of products or trade down to discounters for grocery items. Furthermore, we may experience additional reductions in traffic in our supermarkets or limitations on the prices that we can charge for our products, either of which may reduce our sales andwith low profit margins, and haveany failure to compete successfully, as a material adverse effect onresult of actions taken by our competitors or otherwise, could materially adversely affect our business, financial condition and results of operations.
Failure to execute successfully our core strategic initiatives could adversely affect us.
The food retail business is highly competitive. We compete with several national, regional, and local supermarket chains, as well as retailers selling grocery products through other channels, such as supercenters, dollar stores, drug stores and warehouse club stores. These businesses provide alternative options for the customers whom we aim to serve. Increased competition may be driven by such competitors offering lower prices, increasing the number of or significantly renovating their stores and expanding their capabilities further into eCommerce.
Our multi-year strategic initiatives include building customer loyalty, improving As a result of customers' growing desire to shop online, we also face increasing competition from both our brand imageexisting competitors that have incorporated the internet as a direct-to-customer channel and growing profitable sales. Over the last several years,online providers that sell grocery products. In addition, we face increasing competition from online distributors of pharmaceutical products. Although we have focused on creatingexpanded our eCommerce business, including to respond to increased customer demand as a positive, “freshresult of the COVID-19 pandemic, and local” shopping experience inoffer our stores which we expect will further evolve and improve our brand image. Our strategy focuses on improving our customers’ shopping experiences through improved service, product selection and price.
Successful execution of this strategy requires a balance between sales growth and generating cost savings and reinvesting in our business. Maintaining this strategy requirescustomers the ability to developshop online for both home delivery and execute planscurbside pickup, there is no assurance that these online initiatives will be successful. Moreover, we rely on third-party business partners to generate cost savings and productivity improvements that can be invested in the merchandising and pricing initiatives necessary to supportmanage our customer-focused programs, as well as recognizing and implementing organizational changes as required. Because many of our operating costs—such as rent, utilities and minimum labor staffing levels—are largely fixed, low levels of sales productivity negatively impact profitability.
eCommerce business. If we are unable to executeintegrate or interface with third-party technologies effectively, we may experience disruptions in our plans,operations, lose market share or incur additional costs. In addition, we pay these third-party providers fees, which impacts our costs on sales and may, in turn, have an adverse impact on our profitability as a result of lower gross profits, greater operating costs to compete and reduced customer demand if our plans failwe have to meet our customers’ expectations, our business, financialincrease prices as a result of such fees.
We generally compete on the basis of location, quality of products, service, price, variety, store condition and resultschannel preference. In each of operationsthese areas, traditional and non-traditional competitors compete with us and may successfully attract our customers by matching or exceeding what we offer or by providing greater shopping convenience. In recent years, many of our competitors have aggressively added locations and adopted a multi-channel approach to marketing and advertising. Our responses to competitive pressures, such as additional promotions, increased advertising, additional capital
investment and the development of our eCommerce offerings, could be adversely affected.affect our profitability and cash flow. We cannot guarantee that our competitive response will succeed in increasing or maintaining our share of retail food sales.
Periodic deflation in the prices of certain foods in an already increasingly competitive industry have made it difficult for food retailers to achieve positive sales growth on a consistent basis. We and our competitors have attempted to maintain or grow our and their respective share of retail food sales through capital and price investment, new and remodeled stores, increased promotional activity, new marketing programs and advertising campaigns, productivity improvements, shrink-reduction initiatives, energy efficiency programs and other similar strategies. However, such operating strategies create a more difficult environment to consistently increase year-over-year sales. Some of our primary competitors are larger than we are or have greater financial resources and, therefore, may not fully realize the benefitsbe able to devote greater resources to invest in price, promotional activity and new or remodeled stores in order to grow their share of integratingretail food sales. Price investment by our Winn-Dixie acquisition, including merger integration synergies.
Whilecompetitors has also, from time to time, adversely affected our operating margins. In recent years, we have operated for over five full fiscal quarters since our acquisition of Winn-Dixie, work remainsinvested in price in order to be done to combineremain competitive and integrate the operations of BI-LO and Winn-Dixie into one company, with particular emphasis on aligning and upgrading key retail information technology and related systems. Integration will continue to require substantial management attention and could detract attention from day-to-day business. We could encounter difficulties in the integration process, such as the need to revise assumptions about revenues, capital expenditures, operating costs and projected cost savings and merger integration synergies, the loss of key employees or commercial relationships, the need to address unanticipated liabilities or the deployment of technologies disrupting on-going operations and affected stores. If we cannot continue to integrate the BI-LO and
Winn-Dixie businesses successfully, we may fail to realize fully the expected benefits of the acquisition of Winn-Dixie, including the expected cost savings and merger integration synergies.
This offering is not conditioned upon the closing of the pending transactions, andgenerate sales growth; however, there can be no assurance that the pending transactionsthis strategy will be completed or, if completed, thatsuccessful.
Because we will obtain all of the anticipated benefits of the pending transactions.
In May 2013,face intense competition, we signed a definitive merger agreement under which we will acquire substantially all of the operating supermarkets under the “Sweetbay,” “Harveys”need to anticipate and “Reid’s” banners from Delhaizerespond to changing customer preferences and certain of its subsidiaries for $265.0 million in cash (subjectdemands. We devote significant resources to certain adjustments) and the assumption of all related lease liabilities, including approximately $92.0 million of capital lease liabilities of Delhaize. We expect the Delhaize transaction to closedifferentiating ourselves in the first quarterlocal markets where we operate and have invested and will continue to invest in our loyalty program to drive traffic. Our merchandising teams spend considerable time working with store directors to make sure we are satisfying customer preferences. In addition, we strive to achieve and maintain favorable recognition of 2014, subjectour Own Brand offerings by marketing these offerings to the satisfaction or waivercustomers and enhancing a perception of customary closing conditions. Either party may terminate the agreement if the closing does not occur by November 30, 2014. This offering is not conditioned upon the closing of the Delhaize transaction andvalue for customers. While we seek to continuously respond to changing customer preferences, there can beare no assuranceassurances that the Delhaize transactionour responses will be completed.successful.
Completion ofOur continued success is impacted by our ability to control operating expenses to effectively compete in the Delhaize transaction is conditioned upon, among other things, the receipt of certain governmental clearances or approvals, including those required by antitrust laws, such as the expiration or termination of applicable waiting periods under the HSR Act. We cannot assure you that these clearances or approvals will be obtained or, if obtained, when. In addition, the governmental authorities from which these approvals are required have broad discretion in administering the governing regulations. As a condition to approval of the acquisition, these governmental authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conductfood retail industry. Several of our business after the completion of the acquisition. On July 8, 2013, the Federal Trade Commission, or the FTC, issued a request for additional information, or a second request,primary competitors, including regional and national drugstore chains and pharmacy providers, are larger than we are, allowing them to usmore effectively leverage their fixed costs, more easily reduce operating expenses and Delhaize. The FTC has indicated on a preliminary basis that it believes the transactionmore competitively negotiate with suppliers. Finally, we need to source, market and merchandise efficiently. Changes in our product mix also may raise competitive concerns in certain regionsnegatively affect our profitability. Failure to accomplish our objectives could impair our ability to compete successfully and could require us to divest certain stores as a condition to the FTC’s approval of the transaction.
On September 4, 2013, we entered into an agreement to purchase 21 Piggly Wiggly operating supermarkets. We expect this acquisition to close during the fourth quarter of fiscal 2013, subject to the satisfaction or waiver of customary closing conditions. This offering is not conditioned upon the closing of the Piggly Wiggly transaction and there can be no assurance that the Piggly Wiggly transaction will be completed.
If we become subject to any term, condition, obligation or restriction (whether by governmental order, consent or because the terms of the merger agreement require it), the imposition of such term, condition, obligation or restriction could reduce the anticipated benefits of the affected pending transactions or otherwise materially adversely affect our business and results of operations after the completion of the affected pending transactions.profitability.
We may not fully realize the anticipated benefits of the pending transactions.
Integration of the pending transactions will require substantial management attention and could detract attention from day-to-day business. We could encounter difficulties in the integration process of the pending transactions, such as the need to revise assumptions about revenues, capital expenditures, operating costs and projected cost savings and business integration synergies, the loss of key employees or commercial relationships or the need to address unanticipated liabilities. If we cannot integrate the businesses successfully, we may fail to realize fully the expected benefits of the pending transactions.
Our operating costs can be significantly impacted by various factors which could negatively affectsuccessfully respond to competitive pressures in our financial position.
We and our suppliers depend on trucksindustry or to distribute goodseffectively implement strategies to our markets. Therefore, fluctuations in fuel and oil prices affect our cost of doing business. Increases in the cost of electricity, which will remain our responsibility
under the C&S supply arrangement, and other utilities affect the cost of illuminating and operating our stores and warehouse and distribution facilities. Many products we sell include ingredients such as wheat, corn, oils, milk, sugar, cocoa and other commodities and any increase in commodity prices may cause our vendorsrespond to seek price increases from us. Also, the cost of plastic and paper bags can be significantly impacted by increases in commodity prices. The cost of our promotional mailings depends on postal rates and paper and printing costs. We also rely on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting by zip code and carrier routes. In addition, as the use of payment cards grows and banks continue to raise their fees for accepting payment cards at the point of sale, bank interchange fees continue to decrease profit margins. Furthermore, changes in federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefit costs. We may not be able to recover these or other rising costs through increased prices charged to our customers. Increases in the cost of one or more of these or other itemspressures, it could have a material adverse effect on our business, financial condition and results of operations.
ChangesWe may not timely identify or effectively respond to customer trends, which could negatively affect our relationship with our customers, the demand for our products and services and our market share, and could have a material adverse effect on our business, financial condition and results of operations.
It is difficult to predict consistently and successfully the products and services our customers will demand over time. Our success depends, in laws, rulespart, on our ability to identify and regulations affectingrespond to evolving trends in demographics and preferences. Failure to timely identify or effectively respond to changing customer tastes, preferences (including those relating to sustainability of product sources) and spending patterns could lead us to offer our industrycustomers a mix of products or a level of pricing that they do not find attractive. This could negatively affect our relationship with our customers, leading them to reduce their visits to our stores and the amount they spend. In addition, we base our purchases of inventory, in part, on our sales forecasts. If our sales forecasts overestimate customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins. Conversely, if our sales forecasts underestimate customer demand, we may
have insufficient inventory to meet demand, leading to lost sales, either of which could materially adversely affect our results of operations.financial performance.
WeFurther, while we intend to expand our digital capabilities and grow our loyalty program, as technology advances, and as the way our customers interact with technology changes, we will need to continue to engage with our third-party partnerships, expand our partnerships or develop internal capabilities to offer eCommerce and loyalty solutions that are subjectboth cost effective and compelling. Our failure to numerous federal, stateanticipate or respond to customer expectations for products, services, eCommerce and local laws, rulesloyalty program may adversely affect the demand for our products and regulations that affectservices and our business, such as those affecting food manufacturing, foodmarket share and drug distribution and retailing, labor and environmental practices, accounting standards and taxation requirements. We must also comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling and safety, equal employment opportunity, minimum wages, and licensing for the sale of food, drugs, and alcoholic beverages.
Ongoing efforts related to the implementation of recently enacted food safety and health care reform legislation create uncertainty about the probability and impact of future regulatory changes. In addition, new mandates, fees and taxes and stricter regulatory oversight can significantly impact operations and compliance costs.
We cannot predict future laws, rules and regulations or the effect they will have on our operations. In any event, however, they could significantly increase the cost of doing business. These changes could result in additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling. Any or all of these requirements could have a material adverse effect on our business, financial condition and results of operations.
In addition, manyWe rely on a principal supplier for a significant portion of our customersretail merchandise, and a significant change to our relationship with our principal supplier could have a material adverse effect on our business, financial condition and results of operations.
We rely on food stamps and other governmental assistance programsa single supplier, C&S, to supplement their grocery-shopping budget. Assupply a result, anysignificant amount of our merchandise. Any material change in the abilityC&S's method of operation, or a termination or material modification of our customerscontractual relationships with C&S could have an adverse impact on our supply chain, sales and earnings. Our supply contract with C&S (the "C&S Supply Contract") expires on August 18, 2021 and provides for two renewal options, each for a period of one-year and exercisable at our option. On August 11, 2020 we provided written notice to obtain food stampsC&S of our intention to renew our contract through August 18, 2022. However, we may choose not to renew the contract beyond August 18, 2022 or may make material modifications to the terms thereof. If our supply contract with C&S is terminated or the services that C&S provides under the supply contract are materially reduced or the quality of their merchandise deteriorates, we may be unable to locate alternative, comparable sources from which to purchase our retail merchandise in a timely manner, or at all, which could increase costs, cause a delay in distribution and other governmental assistancea possible loss of sales, which could have a material adverse effect on our business, financial condition and results of operations.
Healthcare reform legislation could adversely affect our business.
The Federal Patient Protection and Affordable Care Act as well as other healthcare reform legislation considered by Congress and state legislators could significantly impact our business. These health care reform laws require employers such as usProduct supply disruptions, especially those to provide health insurance for all qualifying employees or pay penalties for not providing coverage. We cannot predict the effects this legislation or any future state or federal healthcare legislation or regulation willfresh products, may have an adverse effect on our business because of the breadthprofitability and complexity of the legislation and because many of the rules, reforms and regulations required to implement these laws have not yet been adopted. However, we expect these reforms to significantly increase our employee healthcare and other related costs. We are currently evaluating the potential impact the healthcare reform legislation will have on our business and the steps necessary to mitigate the impacts, including potential modifications to our current benefit plans, operational changes to minimize the impact of the legislation to our cost structure and other changes to minimize the expected cost increases. As the provisions of this legislation are phased in over time, the resulting changes to our healthcare cost structure and any inability to effectively modify our programs and operations in response to this legislationoperating results, which could have a material adverse effect on our business, financial conditionscondition and results of operations.
Disruptions Our business is dependent on our ability to strategically source a sufficient volume and variety of opportunistic products at attractive pricing. While opportunistic buying, operating with appropriate inventory levels and frequent inventory turns are key elements of our business strategy, they subject us to risks related to the pricing, quantity, mix, quality and timing of inventory flowing to our stores. We do not have significant control over the supply, cost or compromisesavailability of many of the products offered for sale in our information technology systemsstores. Shortages or disruptions in the availability of quality products that appeal to our customers could adversely affect our operations and our reputation and have a material adverse effect on our business, financial condition and results of operations.
Reflecting customer preferences, we have a significant focus on fresh products. Fresh sales accounted for approximately 32% of net sales in the 28 weeks ended July 8, 2020 and in fiscal year 2019. We rely primarily on C&S to provide and deliver our fresh and other product inventory on a continuous basis. We could suffer significant fresh and other product inventory losses and significant lost revenue in the event of a supplier disruption or shutdown of C&S or its major suppliers, vendors or distribution network, extended power outages, natural disasters or other catastrophic occurrences. Due to the COVID-19 pandemic and the resulting dislocation of workplaces and the economy, the ability of vendors to supply required products may be impaired because of illness or absenteeism in their workforces, government mandated shutdown orders or impaired financial conditions. The supply of each of our products may return to pre-COVID-19 levels at different times, including as a result of resurgences of the COVID-19 pandemic, and there can be no assurance that our efforts to ensure
in-stock positions for all of the products that our customers require will be successful. Disruptions to our or our principal supplier's product supply could have a material adverse effect on our business, financial condition and results of operations.
Any significant disruption to our principal supplier's distribution network and our timely receipt of inventory could have a material adverse effect on our business, financial condition and results of operations..
Our business is increasingly dependentWe rely on information technology systemsC&S's transportation network, including by means of truck, ocean and rail, to provide goods to our stores in a timely and cost-effective manner. Deliveries to our stores occur from our principal supplier's distribution centers. Any disruption, unanticipated or unusual expense or operational failure related to this process could affect our store operations negatively. For example, delivery delays or increases in costs that are complexpassed on to us pursuant to our supply contract, such as fuel costs, could significantly decrease our ability to generate sales and vitalearn profits. Moreover, if there are increases in C&S's fixed costs, C&S may seek to continuing operations. If we wererenegotiate our contract, which could have a material impact on our ability to experience difficulties maintaining existing systems or integrating BI-LO systems with Winn-Dixie systems, we could incur significant lossesgenerate sales and earn profits. In addition, events beyond our control, such as disruptions in operations due to disruptions in our operations. Our information technology systems are subject to damagefire, flood, hurricane, pandemic, natural disasters or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches,other catastrophic events and user errors. Our information technology systems are also subject to security breaches, including cyber security breaches and breaches of transaction processing, that couldor labor disagreements, may result in delays in the compromisedelivery of confidential customer data, including debit and credit cardholder data or personal information about customers from their frequent shopper cards. Any disruptions in information technology systems or a security breach could require that we expend significant additional resources relatedmerchandise to our information security systems, adversely affectstores. While we maintain business interruption insurance for weather-related property damage, in the event the distribution centers we rely on are shut down, such insurance may not be sufficient, and any related insurance proceeds may not be paid to us on a timely basis, or at all. If any of the above factors occur, it could have a material adverse effect on our reputation with our customers, result in litigation against us or the imposition of penaltiesbusiness, financial condition and adversely affect our results of operations. Also, various third parties, such as our suppliers and payment processors, rely on information technology systems, which are subject to the same risks.
We face risks inherent in providing pharmacy services at our stores,stores.
Our pharmacies operate in a complex and continuedevolving business environment. Sales of prescription drugs reimbursed by third-party payers, including government programs like Medicare Part D and Medicaid, represent a significant portion of our pharmacy sales. We participate in pharmacy benefit manager ("PBM") networks, including some where we receive certain quality or other incentive-based bonuses and/or where we are a "preferred provider," which means the customer pays a lower cost-sharing amount relative to other pharmacies. Continued reimbursement rate pressures in general, our relationships with PBMs and increased regulatory requirements related to government third-party payers in the pharmacy industry mayparticular, could adversely affect our gross margins. A reduction in reimbursement rates, government or otherwise, or a failure to comply with applicable laws or regulations relating to our pharmacy services could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous federal and state regulations. Each of our in-store pharmacies must be licensed by the state government. The licensing requirements vary from state to state. An additional registration certificate must be granted by the U.S. Drug Enforcement Administration, and, in some states, a separate controlled substance license must be obtained to dispense controlled substances. In addition, pharmacies selling controlled substances are required to maintain extensive records and often report information to state and federal agencies. If we fail to comply with existing or future laws and regulations, we could suffer substantial civil or criminal penalties, including the loss of our licenses to operate pharmacies and our ability to participate in federal and state healthcare programs. As a consequence of the severe penalties we could face, we must devote significant operational and managerial resources to complying with these laws and regulations. Recently, pharmaceutical manufacturers, wholesale distributors and retailers have faced intense scrutiny and, in some cases, investigations and litigation relating to the distribution of prescription opioid pain medications.
Application of federal and state laws and regulations could subject our current practices to allegations of impropriety or illegality, or could require us to make significant changes to our
operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our pharmacy business or assure that we will be able to obtain or maintain the regulatory approvals required to operate our business. If any of these risks ensue, they could have a material adverse effect on our business, financial condition and results of operations. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, PBM agreements and other business arrangements and include, but are not limited to:
To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and referral sources, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and resource-consuming and can divert management's attention from the business. Additionally, as a result of these investigations, entities may also have to agree to additional compliance and reporting requirements as part of a consent decree, non-prosecution or corporate integrity agreement. Any such investigation or settlements could increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to respond. See "Risk Factors—Risks Related to Our Business and Industry—Litigation or legal proceedings could expose us to significant liabilities and may materially adversely affect our businesses, financial condition and results of operations."
Pharmacies We currently operate 231 in-store pharmacies and one centralized specialty pharmacy and, as a result, we are exposed to risks inherent in the packaging, dispensing, distribution and disposal of pharmaceuticals and other healthcare products, such as fillingrisks of liability for products which cause harm to customers, as well as increased regulatory risks and labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and expiration of drugs.related costs. Although we maintain professional liability and errors and omissions liability insurance, we cannot guarantee that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will be able to maintain this insurance on acceptable terms in the future, or at all. Our business, financial condition and results of operations, financial condition or cash flows may be materially adversely affected if in the future our insurance coverage isproves to be inadequate or unavailable, or there is an increase in the liability for which we self-insure, or we suffer harm to our reputation as a result of a claim.
Sales of prescription drugs reimbursed by third party payers, including Medicare Part D and state sponsored Medicaid agencies, represent a significant portion of our pharmacy sales. Continued reimbursement rate pressures, and increased regulatory requirements related to such third party payers, may adversely affect our business and results of operations.
an error or omission.
Unexpected changes in the insurance marketIf we cannot open, relocate or factors affecting self-insurance reserve estimatesremodel stores on schedule, it could have a material adverse effect on us.our business, financial condition and results of operations.
Part of our growth strategy is to target new store openings in existing and adjacent markets where we believe we are well positioned to capitalize on opportunities. We use a combination of insurance coverage and self-insurancealso intend to provide for potential liability for workers’ compensation, general liability, property losses, fleet liability, employee benefits and directors and officers liability. There is no assuranceseek value-enhancing store acquisitions that complement our existing store base. However, we cannot assure you that we will be successful in finding and executing such opportunities. Our ability to open stores in a timely manner depends in part on the following factors: the availability of, and ability to identify, attractive store locations and rent prices; the absence of entitlement processes or occupancy delays; the ability to negotiate acceptable lease and development terms; our relationships with current and prospective landlords; the ability to secure and manage the inventory necessary for the launch and operation of new stores; general economic conditions; and the availability of capital funding for expansion.
Our construction and opening of new stores may be negatively impacted due to state or county shelter-in-place requirements and the closure of government offices resulting from the COVID-19 pandemic. We may not have the level of cash flow or financing necessary to support our growth strategy. Additionally, our expansion would place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores. If we experience a decline in performance, we may slow or discontinue store openings, or we
may decide to close stores that are unable to operate in a profitable manner. Delays or failures in opening new stores or completing relocations or remodels could materially adversely affect our growth and/or profitability. Additionally, new stores might not always align with our expectations in terms of sales or capital expenditures and we may not achieve projected results. If we fail to successfully implement our growth strategy, including by opening new stores, it could have a material adverse effect on our business, financial condition and results of operations.
Our success depends upon our marketing, advertising and promotional efforts. If costs associated with these efforts increase, or if we are unable to implement such efforts successfully, it could have a material adverse effect on our business, financial condition and results of operations.
We use marketing and promotional programs to attract customers into our stores and to encourage purchases. If we are unable to develop and implement effective marketing, advertising and promotional strategies, we may be unable to achieve and maintain brand awareness and repeat store visits. For example, purchases by customers that are members of our loyalty program made up approximately 85% of net sales in fiscal year 2019 and 89% of net sales for the 28 weeks ended July 8, 2020. We may not be able to advertise cost effectively in new or smaller markets in which we have fewer stores, which could slow growth at such stores. If the efficacy of our marketing or promotional activities declines or we cannot implement our strategies effectively, it could have a material adverse effect on our business, financial condition and results of operations.
If we fail to maintain our reputation and the value of our brands, including protection of our intellectual property, our sales and operating results may decline.
We believe our continued success depends on our ability to maintain and grow the value of our Winn-Dixie, Harveys and Fresco y Más brands, as well as our Own Brands portfolio. Brand value is based in large part on perceptions of subjective qualities. Even isolated incidents involving our Company, suppliers, agents or third-party service providers, or the products we sell, can erode the trust and confidence of our customers and damage the strength of our brands. This is particularly the case if such incidents result in adverse publicity, governmental investigations or litigation. Our reputation and our brands may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an employee or agent violating our core values and standards. Similarly, challenges or reactions to action (or inaction) or perceived action (or inaction), by us on issues such as social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics, and any perceived lack of transparency about such matters, could harm our reputation, particularly as expectations of companies and of companies' corporate responsibility may continue to change. The increasing use of social media platforms and online forums may increase the chance that an adverse event could negatively affect the reputation of our brands. The online dissemination of negative information about our brands, including inaccurate information, could harm our reputation, business, competitive advantage and goodwill. Damage to our reputation could result in declines in customer loyalty and sales, relationships with our suppliers, business development opportunities, divert attention and resources from management, including by requiring responses to inquiries or additional regulatory scrutiny, and otherwise materially adversely affect our results. Our brands could be materially adversely affected if our public image or reputation were to be tarnished by negative publicity.
We regard our intellectual property, including trademarks and service marks, as having significant value, and our brands are an important factor in the marketing of our stores. We may not be able or willing to successfully enforce our trademarks or intellectual property rights against competitors or defend them against challenges by others. If we fail to protect our trademarks or other intellectual property rights, others may copy or use our trademarks or intellectual property without authorization, which may harm the value of our brands, reputation, competitive advantages and goodwill and
adversely affect our financial condition, cash flows or results of operations. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. Additionally, we are susceptible to others infringing, misappropriating, diluting or otherwise violating our intellectual property rights. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets or other intellectual property. Actions we have taken to establish and protect our intellectual property rights may not be adequate to prevent infringement of our intellectual property by others or to prevent others from seeking to invalidate our trademarks or other intellectual property rights. In addition, unilateral actions in the United States or other countries, including changes to or the repeal of laws recognizing trademark or other intellectual property rights, could have an impact on our ability to obtain, protect or enforce those rights.
There may in the future be concurrent use, opposition, cancellation, and similar proceedings from time to time with respect to some of our intellectual property rights. In some cases, litigation may be necessary to protect or enforce our trademarks and other intellectual property rights. Furthermore, third parties may assert intellectual property claims against us, and we may be subject to liability, required to enter into costly license agreements, if available at all, required to rebrand our products and/or prevented from selling some of our products if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate, dilute or otherwise violate their trademarks, copyrights, patents or other intellectual property rights. Bringing or defending any such claim, regardless of merit, and whether successful or unsuccessful, could be expensive and time-consuming, and have a negative effect on our business, reputation, results of operations and financial condition.
We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.
We currently lease substantially all of our store locations, primary distribution centers and administrative offices, and a number of these leases expire or are up for renewal each year. Our operating leases typically have initial lease terms of up to 25 years with renewal options for variable periods.
Typically, the largest portion of a store's operating expense that we bear is the cost associated with leasing the location. Our lease payment obligations for all operating leases in existence as of December 25, 2019 are $195.5 million for fiscal year 2020 and $541.2 million in aggregate for fiscal years 2021 through 2025 and $297.9 million thereafter. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations—Contractual Obligations." We are also generally responsible for property taxes, insurance and common area maintenance for our leased properties. We expect that many of the new stores we open will also be leased to us under operating leases, which will further increase our operating lease expenditures. If we are unable to make the required payments under our leases, the lenders or owners of the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under our Term Loan, which could cause the counterparties under those agreements to accelerate the obligations due thereunder.
The operating leases for our store locations, distribution centers and administrative offices expire at various dates. When the lease term for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms. Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations.
Over time, current store locations may not continue to be desirable because of changes in demographics within the surrounding area or a decline in shopping traffic. While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so. If we decide to close stores, we are generally required to continue to maintainperform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term. When we assign leases or sublease space to third parties, we can remain liable on the lease obligations if the assignee or sublessee does not perform.
We may have liability under certain operating leases that were assigned to third parties.
We may have liability under certain operating leases that were assigned to third parties. If any of these third parties fail to perform their obligations under the leases, including as a result of the economic dislocation caused by the response to the COVID-19 pandemic, we could be responsible for the lease obligation. Due to the wide dispersion among third parties and the variety of remedies available, we believe that if an assignee became insolvent it would not have a material effect on our insurance coveragebusiness, financial condition, results of operations or obtain comparable insurance coverage atcash flows. However, if some or all assignees become insolvent within a reasonable cost. Self-insurance reservesshort period of time, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may be required to recognize impairment expenses on the value of our long-lived assets.
Upon emergence from bankruptcy, we applied fresh start accounting, and our long-lived assets were adjusted to fair values. In addition to fixed assets, long-lived assets also include intangible assets, such as tradenames, right of use assets, pharmacy prescription files and liquor licenses. The determination of fair values requires that we make significant estimates and assumptions regarding long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are determined based on actual claimshistorical experience, current market trends and other information. Changes in estimates of future cash flows caused by items such as increased competition or other adverse market conditions could negatively affect fair value and result in an estimateimpairment expense. We have experienced, and may continue to experience, impairment of claims incurred butthese assets which could result in material non-cash charges to our results of operations. Long-lived asset impairment expenses were $6.3 million, $13.2 million, $24.6 million and $39.6 million for the 28 weeks ended July 8, 2020, fiscal year 2019, the 22 weeks ended May 30, 2018 and fiscal year 2017, respectively. Tradename impairment expenses were $25.0 million, $8.0 million, $11.0 million, and $75.5 million for the 28 weeks ended July 8, 2020, fiscal year 2019, the 22 weeks ended May 30, 2018 and fiscal year 2017, respectively. There was no impairment recorded in the 30 weeks ended December 26, 2018. Future impairment expenses could have a material adverse effect on our financial condition and results of operations.
Information contained in our historical financial statements will not reportedbe comparable to the information contained in our financial statements after the application of fresh start accounting.
Our financial statements reflect the consummation of Reorganization and the adoption of fresh start accounting. As a result, our assets and liabilities were adjusted to fair values and our financial statements from and after May 30, 2018, will not be comparable to our financial statements for prior periods. Our financial results for future periods following the application of fresh start accounting will be different from historical trends, and the differences may be material. As a result of all these factors, our historical financial information may not be indicative of our future financial performance.
Failure to maintain the privacy and security of confidential customer and business information, and the resulting unfavorable publicity, could have a material adverse effect on our business, financial condition and results of operations.
We receive, retain, use and transmit confidential business information and certain personal information relating to customers, employees, suppliers and other third parties in connection with our payment systems, pharmacy business, loyalty program and marketing and human resources organizations, including where necessary, actuarial studies. Actuarial projectionsprotected health information ("PHI") and personally identifiable information, and entrust certain of lossesthat information to third-party service providers. We depend upon the secure transmission of confidential information, including customer payments, over external networks. Despite our considerable efforts to secure our computer networks, security could be compromised, confidential information could be misappropriated or system disruptions could occur, as has occurred with a number of other retailers. If we experience a data security breach, we could be exposed to government enforcement actions, possible assessments from the card brands if credit card data was involved and potential litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to alter their spending behavior, including amount of spend or frequency of visits to our stores.
Additionally, the use of personal information by us and our third-party service providers is subject to federal, state and local laws and regulations. As a merchant that accepts debit and credit cards for payment, we are subject to the Payment Card Industry ("PCI") Data Security Standard ("PCI DSS"), issued by the PCI Council. PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical administrative and technical storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute ("ANSI") data encryption standards and payment network security operating guidelines. Failure to be PCI compliant or to meet other payment card standards may result in the imposition of financial penalties or the allocation by the card brands of the costs of fraudulent charges to us. As well, the Fair and Accurate Credit Transactions Act ("FACTA") requires systems that print payment card receipts to employ personal account number truncation so that the customer's full account number is not viewable on the slip. With respect to our pharmacy operations, we are also subject to regulation under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act, which establishes privacy and security standards that limit our use and disclosure of PHI and requires us to implement administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of PHI. HIPAA also requires us to provide individuals with certain rights with respect to their PHI. Further, in the event of a high degreebreach of variability causedunsecured PHI we must notify each customer whose PHI is breached, as well as federal regulators and in some cases, must publicize the breach in local or national media. For those third-party service providers and partners who handle PHI on our behalf, we are required to enter into a business associate agreement that establishes specifically what the business associate has been engaged to do and requires the business associate to comply with the requirements of HIPAA. Penalties for failure to comply with a requirement of HIPAA vary significantly depending on the nature of violation and could include civil monetary or criminal penalties. HIPAA also authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs and attorneys' fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for HIPAA violations, its standards have been used as the basis for a duty of care claim in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.
Despite our efforts to comply with HIPAA and PCI DSS, ANSI and FACTA or other payment card standards and other information security measures, we have experienced "phishing" attacks, hacking incidents and other unauthorized access to certain data and information, and we cannot be certain that all of our IT and cybersecurity systems and processes will be able to prevent, contain or
detect all cyber-attacks or intrusions from known malware or malware that may be developed in the future, particularly as we grow our technology platforms and expand our eCommerce offerings. To the extent that any disruption results in the loss, damage or misappropriation of information, we may be adversely affected by butclaims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, privacy and information security laws and standards continue to evolve and could expose us to further regulatory burdens. The cost of complying with stricter laws and standards, including HIPAA, PCI DSS, ANSI and FACTA data encryption standards, could be significant.
The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often cannot be recognized until launched against a target. Accordingly, we may not limitedbe able to anticipate these frequently changing techniques or implement adequate preventive measures for all of them. Any unauthorized access into our customers' sensitive information, or data belonging to us or our suppliers, even if we are compliant with industry security standards, could put us at a competitive disadvantage, result in deterioration of our customers' confidence in us and subject us to potential litigation, liability, fines and penalties and consent decrees, which could require us to expend significant resources related to remediation or result in a disruption of our operations, any of which could have a material adverse effect on our business, financial condition, and results of operations.
Further, the scope of laws and regulations regarding privacy, data protection, information security and the storing, sharing, use, processing, transfer, disclosure, retention and protection of personal information is rapidly changing. We are also subject to the terms of our privacy policies and contractual obligations to third parties related to privacy, data protection and information security. We strive to comply with applicable laws, regulations, policies and other legal obligations relating to privacy, data protection and information security. However, the regulatory framework for privacy, data protection and information security is, and is likely to remain, uncertain for the foreseeable future, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We also expect that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. Various states throughout the United States, are increasingly adopting or revising privacy, information security and data protection laws and regulations that could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of customer, consumer and/or employee information, as well as any other third-party information we receive, and some of our current or planned business activities.
We face the risk of litigation resulting from unauthorized text messages sent in violation of the Telephone Consumer Protection Act.
We send short message service, or SMS, text messages to customers. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws. Numerous class-action suits under federal and state laws have been filed in recent years against companies who conduct SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such factors aslitigation against us could be costly and time-consuming to defend. For example, the Telephone Consumer Protection Act (TCPA) of 1991, a federal statute that protects consumers from unwanted telephone calls, faxes and text messages, restricts telemarketing and the use of automated SMS text messages without proper consent. Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain or our SMS texting practices are not adequate or violate applicable law. This may in the future interestresult in civil claims against us. The scope and inflation rates, future economic conditions, litigation trendsinterpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and benefit level changes. Ourdeveloping. If we do not comply with these laws or regulations or if we become liable under these laws or regulations,
we could face direct liability, could be required to change some portions of our business model, could face negative publicity and our business, financial condition and results of operations could be adversely affectedaffected. Even an unsuccessful challenge of our SMS texting practices by anour customers, regulatory authorities or other third parties could result in negative publicity and could require a costly response from and defense by us.
Disruptions of or compromises to our information technology system, including as a result of unauthorized computer intrusions, could have a material adverse effect on our business, financial condition and results of operations, and on our reputation.
We are dependent on complex information technology systems to operate our business, enhance customer service, improve the efficiency of our supply chain and increase employee efficiency. Certain of these information technology systems are hosted by third-party service providers. Such third-party service providers may fail to monitor their or our systems effectively, may fail to maintain appropriate safeguards, may misuse the personal and/or confidential information to which they have access, may attempt to circumvent our security measures, may purposefully or inadvertently allow unauthorized access to our or their systems or to personal and/or confidential information or may otherwise disrupt our business operations. We and our customers could suffer harm if valuable business data or employee, customer and other proprietary information were corrupted, lost or accessed or misappropriated by third parties due to a security failure in our systems or those of our suppliers or service providers. Any such failure or breach could require significant expenditures to remediate, severely damage our reputation and our relationships with customers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability. Further, our information technology systems, as well as those of our third-party service providers, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malicious service disruptions, catastrophic events and user errors.
As a result of the COVID-19 pandemic, we have transitioned to a remote work environment, which may exacerbate certain risks to our business, including increasing the stress on, and our vulnerability to disruptions of, our technology infrastructure and systems, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of personal or confidential information.
While we have implemented additional security software and hardware designed to provide additional protections against unauthorized intrusions, there can be no assurance that unauthorized individuals will not discover a means to circumvent our security. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex attacks. Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy malicious software programs that attack our systems or otherwise exploit any security vulnerabilities. Computer intrusions could adversely affect our brands, may cause us to incur legal and other fees, may cause us to incur additional expenses for additional security measures and could discourage customers from shopping in our stores.
Significant disruptions in our information technology systems or our third-party service providers could have a material adverse effect on our business, financial condition and results of operations, and on our reputation.
A loss in customer confidence in the frequencysafety and quality of our products and the resulting unfavorable publicity could have a material adverse effect on our business, financial condition and results of operations.
The packaging, marketing, production, distribution and sale of grocery, pharmaceutical and other products purchased from suppliers or costsproduced by us entails an inherent risk of product liability claims, product recalls, and changescould potentially result in actuarial assumptions.adverse publicity. We cannot be sure that
consumption or use of our products will not cause side effects, illness, injury or death in the future, as product deficiencies might not be identified before we sell such products to our customers. Concerns regarding the safety and quality of our food products or our food supply chain, whether valid or not, could cause customers to avoid purchasing certain products from us, or to stop shopping in our stores entirely. To the extent that a pathogen is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our customers to eat less of such product. For example, adverse publicity about these types of concerns, such as the current concerns relating to the COVID-19 pandemic and concerns relating to romaine lettuce in 2018 may discourage customers from buying our products. Any report linking us to food contamination, food tampering, mislabeling, illness, injury, or other food safety issues, whether relating to one of our products or any product sold in one of our stores, could lead to product recalls, materially adversely impact sales or possibly lead to further product liability claims or litigation and brand damage, any of which could harm our reputation with existing and potential customers and have a material adverse effect on our business, financial condition and results of operations.
We may not be able to retain the loyalty of our customers, the failure of which could have a material adverse effect on our business, financial condition and results of operations.
We depend on repeat visits by our customer base to drive our consistent sales and sales growth. Competition for customers has also intensified from the use of mobile and web-based technology that facilitates online shopping and real-time product and price comparisons. We expect this competition to continue to increase. Our competitors may be able to offer their customers promotions or loyalty program incentives that are more attractive than the promotions and incentives we offer, which could result in fewer shopping trips to or purchases from our stores. If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.
Litigation or legal proceedings could expose us to significant liabilities and may materially adversely affect our businesses, financial condition and results of operations.
Our operations are characterized by a high volume of customer traffic and by transactions involving a wide variety of product selections. These operations carry a higher exposure to consumercustomer and employee litigation risk when compared to the operations of companies operating in many other industries.industries due to the nature of our business, including high volume of customer traffic, product variety, supply-chain matters and number of employees. Consequently, we may be a party to
individual personal injury,or class action lawsuits regarding contractual, human resources, product liability and other legal actions in the ordinary course of our business. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuitsquantify, and plaintiffs may seek recovery of very large or indeterminate amounts, and the magnitude of thesignificant damages. The potential loss relating to such lawsuits may remain unknown for substantial periods of time. Thetime and the cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumercustomer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may materially adversely affect our business, financial condition and results of operations.
Product liability claims, product recalls and the resulting unfavorable publicity could adversely affect us.
The packaging, marketing, distribution and sale of grocery, drug and other products purchased from suppliers or manufactured by us entails an inherent risk of product liability claims, product recalls and the resulting adverse publicity. Such products may contain contaminants that we may inadvertently distribute. These contaminants may, in certain cases, result in illness, injury or death if processing at the consumer level does not eliminate the contaminants. Even an inadvertent shipment of adulterated products is a violation of law and may lead to a product recall and/or an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against us or that we will not be obligated to perform product recalls in the future. If a product liability claim is successful, our insurance coverage may not be adequate to pay all liabilities, and we may not be able to continue to maintain such insurance coverage or obtain comparable insurance coverage at a reasonable cost. If we do not have adequate insurance coverage or contractual indemnification available, product liability claims relating to defective products could have ana material adverse effect on our ability to successfully market our products and on our business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that our products caused illness or injury could have an adverse effect on our reputation with existing and potential customers and on our business, financial condition and results of operations.
In August 2018, we received a subpoena from the United States Department of Defense, Office of Inspector General, requesting documents and other materials that relate to our pharmacies' generic drug program and the manner in which we determine usual and customary drug pricing for purposes of reporting to federal health care programs from September 1, 2014 to December 31, 2016. In February 2020, we were informed by the Department of Justice Civil Division the existence of a sealed qui tam ("whistleblower") lawsuit against us regarding the usual and customary pricing claims submitted by us to federal health care programs for certain generic drugs sold in our stores from 2006 through 2013 when we discontinued certain discount programs related to these drugs. Due to the complex nature of this lawsuit, we do not know the full substance of the allegations. At this stage of
Failurethe proceedings, we are not able to maintainpredict the servicesvalidity or outcome of key personnel,these matters or estimate a potential range of loss with respect to these matters. We are cooperating with the government's requests for documents and information. On September 30, 2020 we received a notice from the U.S. Department of Justice that they have declined to intervene in the qui tam lawsuit. Additionally, they advised that they do not have information regarding whether the relators intend to pursue the asserted claims on behalf of the United States or whether they will voluntarily dismiss the lawsuit. Responding to investigations can be time-and resource-consuming and can divert management's attention from the business. Additionally, we could be subject to suspension, exclusion or debarment from government health care programs, and/or have to agree to settlements that can include monetary penalties and onerous compliance and reporting requirements as part of a consent decree or corporate integrity or monitoring agreement. Any such investigation, exclusion, suspension, debarment or settlement could increase our costs or otherwise have an adverse effect on our business.
We are also one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to the national opioid epidemic. At present, we are named in over 40 suits pending in various state courts as well as attracting, trainingin the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation ("MDL") pursuant to 28 U.S.C. §1407. The MDL cases are currently stayed pending bellwether trials, and retainingwe do not currently have any active matters. At this stage in the proceedings, we are unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.
Changes in laws, rules and regulations affecting our industry could have a qualifiedmaterial adverse effect on our business, financial condition and results of operations.
We are subject to numerous and frequently changing federal, state and local laws, rules and regulations that affect our business. We routinely incur significant costs in complying with these regulations. The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to additional legal and regulatory requirements, our expanding operations and increased enforcement efforts. Further, uncertainties exist regarding the future application of certain of these legal requirements to our business. New or existing laws, regulations and policies, liabilities arising thereunder and the related interpretations and enforcement practices, particularly those dealing with environmental product and compliance, taxation, zoning and land use, workplace safety, public health, community right-to-know, product safety or labeling, food safety, alcohol and beverage sales, pharmacy and drug sales, vitamin and supplements, information security and privacy, labor staffand employment and any new provisions relating to the COVID-19 pandemic, among others, or changes in existing laws, regulations, policies and the related interpretations and enforcement practices, particularly those governing the sale of products, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business.
For example, our operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the storage, handling, management, disposal and cleanup of hazardous materials. Some environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes, impose strict, and under certain circumstances joint and several, liability for costs to remediate a contaminated site, and also impose liability for damages to natural resources. Third-party claims in connection with releases of or exposure to hazardous materials relating to our current or former properties or third-party waste disposal sites can also arise. In addition, the presence of contamination at any of our properties could impair our ability to sell or lease the contaminated properties or to borrow money using any of these properties as collateral. The costs and liabilities associated with any such contamination could be substantial and could have a material adverse effect on our business.
Federal regulations under the Clean Air Act require phase out of the production of ozone depleting refrigerants that include hydrochlorofluorocarbons, the most common of which is R-22. As of January 1, 2020, industry production of new R-22 refrigerant gas has been completely phased out; however, recovered and recycled/reclaimed R-22 will be available for servicing systems after 2020. We are reducing our R-22 footprint while continuing to repair leaks, thus extending the useful lifespan of existing equipment. In fiscal year 2019, we incurred approximately $1.2 million for system retrofits, and we have budgeted approximately $1.5 million per year for subsequent years. Leak repairs are part of the ongoing refrigeration maintenance budget. We may be required to spend additional capital above and beyond what is currently budgeted for system retrofits and leak repairs which could have a significant impact on our business, results of operations and financial condition. We are also subject to a Consent Decree that required us to pay a $300,000 penalty and address commercial refrigerant repair and recordkeeping requirements. If we are unable to comply with the Consent Decree going forward or if we are subject to any other violations or penalties in connection therewith, it could have a material adverse effect on our business, financial condition, results of operations and our reputation.
In addition, the increased focus on climate change, waste management and other environmental issues may result in new environmental laws or regulations that negatively affect us directly or indirectly through increased costs on our suppliers. There can be no assurance that other environmental changes will not adversely affect us through, for example, business interruption, cost of remediation or adverse publicity.
Further, a considerable number of our employees are paid at rates related to the federal minimum wage. Additionally, many of our stores are located in Florida, where the minimum wage is greater than the federal minimum wage and where a considerable number of employees receive compensation equal to the state's minimum wage. Any further increases in the federal minimum wage or the enactment of additional state or local minimum wage increases could increase our labor costs, which may adversely affect our results of operations and financial condition.
Many of our customers rely on electronic benefit transfers ("EBT"), or food stamps, under the Supplemental Nutrition Assistance Program ("SNAP"), and other governmental assistance programs to supplement their grocery shopping budget. Payments via EBT under SNAP accounted for approximately 9.3% to 12.3% of our net sales for fiscal years 2016 through 2019. Accordingly, changes in EBT regulations by the U.S. Department of Agriculture or in SNAP benefits by Congress, particularly if the SNAP budget is lowered, could adversely affect our abilityfinancial performance. We cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional governmental laws, regulations or administrative procedures, when and if promulgated, or disparate federal, state, local and foreign regulatory schemes would have on our future business.
In addition, regulatory changes could require the reformulation of certain products to carry out strategic initiatives and ultimately impact our financial performance.
Our continued success depends onmeet new standards, the availability and performancerecall or discontinuance of our key personnel. The losscertain products not able to be reformulated, additional record keeping, expanded documentation of the servicesproperties of anycertain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have a material adverse effect on our executive officers or other key employees could adversely affect our business. In addition, it is critical that we are able to adequately meet our labor needs. Maintaining a qualified labor staff, while controlling wagebusiness, financial condition and labor-related costs, is subject to numerous external factors, including the availabilityresults of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation.
We must maintain the services of key personnel as well as attract, train and retain a qualified labor staff in order to continue to operate our business.
operations.
The geographic concentration of our locations in the Southeastsoutheastern United States increases our exposurevulnerability to the risks of the local economy, vulnerability tonatural events including severe storm damage, natural disasters and other local adverse conditions.weather conditions, which could have a material adverse effect on our business, financial condition and results of operations.
OurA substantial portion of our operations are concentrated in states along the Gulf of Mexico and the Atlantic Ocean, which makes us vulnerable to regional economic downturnsevents and increases the likelihood of
being negatively affectedimpacted by events such as tornadoes, hurricanes and windstorm activity. Specificwindstorms. Among the specific risks that we face include:
our ability
Any unforeseen events or circumstances in our region (such as changes in the economy, weather conditions, including hurricanes and floods, earthquakes, fires, demographics, population outflows or increased levels of unemployment)operating areas could also materially adversely affecthave a material adverse effect on our business, financial condition and results of operations.
Any failure to maintain our brand recognitionIn addition, adverse climate conditions and valueadverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops yielded by food producers may adversely affect the availability or cost of certain products within the grocery supply chain. Any of these factors may disrupt our business.
We believe our leading market positions have contributed to our banners’ strong brand recognition and value. Our BI-LO and Winn-Dixie banners have deep local heritages that go back several decades and are well known institutions in the communities they serve, which we believe helps generate customer traffic and loyalty. Maintaining and developing our brand recognition and value will depend largely on the success of our marketing and merchandising efforts and our ability to provide consistent, high-quality customer service. In addition, brand recognition and value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. Our company, including our brand recognition and value, could be adversely affected if our public image or reputation is tarnished by negative publicity. Any loss of confidence on the part of customers in our brands would be difficult and costly to overcomebusiness and could have a material adverse effect on our business, financial condition and results of operations.
Threats or potential threats to security of food and drug safety, the occurrence of a widespread health epidemic and/or pandemic or other incidents beyond our control could have a material adverse effect on our business, financial condition and results of operations.
Acts or threats, whether perceived or real, of war or terror or other criminal activity directed at the food and drug industry or the transportation industry, whether or not directly involving our stores, could increase our operating costs and operations, or impact general customer behavior and customer spending. Other events that give rise to actual or potential food contamination, drug contamination or food-borne illnesses, or a widespread regional, national or global health epidemic and/or pandemic, such as influenza, or, specifically, the recent COVID-19 pandemic, could have an adverse effect on our operating results or disrupt production and delivery of products to our stores, our ability to appropriately and safely staff our stores and cause customers to avoid public gathering places or otherwise change their shopping behaviors.
The costs associated with implementing and maintaining the safety measures designed to protect our associates and customers in the COVID-19 pandemic have to date been more than offset by increased sales, but in the event our sales decline as stay-at-home guidance subsides and the economy begins to re-open, we may be required to continue to implement and maintain these protective measures despite lower sales, thereby reducing our profitability.
Attempts to organize our employees could adversely affect our business.
None of our employees are currently subject to a collective bargaining agreement, unlike many playerscompetitors in our industry. Unions may attempt to organize some or all of our employee base at certain stores, within certain states or under one or more of our banners. In addition, some or all of our employees may independently explore the possibility of organizing. Addressing any attempts at organization may distract management and our employees and could have a material adverse effect on individual stores, certain groups of stores or our business as a whole. In addition, any attempts to unionize some or all of our workforce that are successful could increase our operating costs and otherwise negatively affect our business, financial condition and results of operations.
WeSeasonality may be unable to maintain or increase comparable store sales, which could adversely affectcause fluctuations in our business.revenue.
We believe there are seasonal factors that may notcause us to record higher revenue in some quarters compared with others. We believe that a larger share of our annual revenues may be ablegenerated in our first and fourth quarters due to maintain or improve the levelsmajor holidays in November and December and an increase of comparable store sales thatvisitors in Florida from November to March. While we believe we have experiencedvisibility into the seasonality of our business, various factors, including difficult weather conditions (such as flooding, hurricanes, prolonged rain or periods of unseasonably cold or hot weather or snow storms) in the past. Our comparable storeany quarter, may adversely reduce sales could be inconsistent with or lower than our historical average or prior periods for many reasons, including:
actions by our existing or new competitors, including pricing changes;
general U.S. economic and political conditions;
performance of theat affected stores and banners we have acquired and those that we may acquire in the future;
the effectiveness of our inventory management;
timing and effectiveness of our marketing activities;
supply shortages; and
seasonal fluctuations due to, among other things, extreme weather conditions.
These and other factors may cause our comparable store sales to be inconsistent with or materially lower than in prior periods, which could have a material adverse effect on our business, financial condition and results of operations.
Our high level of fixed lease obligations could adversely affect our business.
Our high level of fixed lease obligations require usWe may not be able to commitutilize a significant portion of cashour net operating loss or other tax attributes, which could have a material adverse effect on our financial condition, results of operations and profitability.
As of December 25, 2019, we had NOLs of approximately $579 million due to prior period losses. Approximately $526 million of such NOLs are subject to existing limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). If not utilized, our NOLs will begin to expire in 2025 for U.S. federal income tax purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results of Operations—The Reorganization and Fresh Start Accounting." Our NOLs could expire unused and be unavailable to offset future income tax liabilities, which could have a material adverse effect on our financial condition and results of operations.
In addition, our ability to utilize NOLs or other tax attributes in any taxable year may be further limited under Sections 382 and 383 of the Code if we experience another "ownership change." A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. This offering or future issuances of our stock could cause an "ownership change." It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our NOLs or other tax attributes, which could have a material adverse effect on our financial condition, results of operations and profitability.
Additionally, a significant portion of our NOLs and other deferred tax assets maintain a valuation allowance as of fiscal 2019 year end. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated by operating activities to satisfy these obligations. If wepermit use of existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 25, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 25, 2019, $187.8 million was recorded to recognize only a portion of the deferred tax assets that are unablemore likely than not to makebe realized. The amount of the required lease payments,deferred tax assets (including our NOLs) considered realizable, however, could be adjusted if estimates of future taxable income during the lenderscarryforward period are reduced or owners may take appropriate action under the applicable lease, including commencing foreclosure activities, repossessing the applicable assetsincreased or accelerating our outstanding obligations due thereunder. Furthermore, our fixed lease obligations could increase because of changesif objective negative evidence in the real estate markets, includingform of cumulative losses is no longer present and additional weight is given to the availability of attractive store locations.
We generally cannot terminatesubjective evidence such as our leases. If we decide to close or relocate a location, we may nonetheless be committed to perform our obligations under the applicable lease, including paying the base rentprojections for the remaining lease term. We are currently obligated to pay rent under leases for 21 Winn-Dixie and BI-LO locations that have been closed, with lease expiration dates ranging from October 2013 to November 2023. There can be no assurances that we will not close or relocate additional store locations or that the aggregate rent we are committed to pay in respect of closed or relocated stores will not increase over time.
growth.
Risks Related to ourOur Indebtedness
Our substantial level of indebtedness could adversely affect our ability to raise additional capital to fund our operationsbusiness, financial condition, and limit our ability to plan for and react to changes in the economy, our industry or our business, and we may not be able to generate sufficient cash to service allresults of our indebtedness.operations.
We have, and expect to continue to have, a substantial amount of debt. As of July 10, 2013,8, 2020 on an as adjusted basis after giving effect to the issuance of our PIK toggle notesRefinancing Transactions and the applicationrepayment of proceeds therefromthe FILO Facility, we would have had $396.0 million of debt outstanding (other than finance lease obligations).
As of July 8, 2020, on an as if it had occurred on that date, our total consolidated indebtednessadjusted basis after giving effect to the Refinancing Transactions, the repayment in full of the FILO Facility and the reduction in commitments under the ABL Credit Agreement, we would have been approximately $1,364.9able to borrow an additional $308.7 million (excluding $131under the Revolving Credit Facility. As of July 8, 2020, we had $65.8 million of letters of credit under our senior secured ABL credit facility). In addition, as of July 10, 2013,finance lease obligations.
Our outstanding indebtedness and any additional indebtedness we had approximately $1.1 billion in other current and noncurrent liabilities recorded on our balance sheet, and there was approximately $469 million of available borrowings under the ABL facility. Our significant leverage couldincur may have important consequences for us, including, the following:without limitation, that:
it
it may require usbe required to dedicate a substantialsignificant portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducinglimiting the availability of our cash flow for other purposes, such as capital expenditures;
because borrowings under the ABL facility are at variable rates of interest, wefor general corporate and other purposes may be exposedlimited;
itrates because certain of our borrowings, including our borrowings under the Revolving Credit Facility, are at variable rates of interest;
we may be vulnerable to a downturn in general economic conditions or in
Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. Weborrow additional funds.
In addition, we cannot assure you that we will maintain a levelbe able to refinance any of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations,or that we maywill be forcedable to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructurerefinance our debt on commercially reasonable terms. If we were unable to make payments or refinance our indebtedness. Wedebt or obtain new financing under these circumstances, we would have to consider other options, such as sales of assets, sales of equity or negotiations with our lenders to restructure the applicable debt. Further, pursuant to the agreements governing our debt, we are subject to certain covenants which may restrict our financial flexibility. Our ability to service our debt obligations and achieve compliance with affirmative and negative debt covenants will largely depend on our future operating performance, which cannot assure you thatbe assured.
Despite our substantial indebtedness, we wouldand our subsidiaries may still be able to takeincur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
We may incur substantial additional indebtedness in the future. Although the agreement governing our Revolving Credit Facility and the indenture governing the Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness we can incur in compliance with these restrictions could be substantial. In addition, as of July 8, 2020, on an as adjusted basis after giving effect to the Refinancing Transactions and the reduction in commitments under the ABL Credit Agreement, we would have been able to borrow an additional $308.7 million under the Revolving Credit Facility. If we incur additional debt, the risks associated with our substantial leverage would increase.
In addition to the Notes and borrowings under the ABL Credit Agreement, the covenants under any of these actions, that these actions would be successful and permitfuture debt instruments could allow us to meet our scheduled debt service obligations orincur a significant amount of additional indebtedness. In addition to any amounts that these actions wouldmight be permittedavailable to us for borrowing under the termsABL
Credit Agreement, subject to certain conditions, we have the right to request an increase of aggregate commitments under the ABL Credit Agreement by an aggregate amount of up to $300.0 million by obtaining additional commitments from either one or more of the lenders under the ABL Credit Agreement or other lending institutions. See "Description of Material Indebtedness—ABL Credit Agreement." The more leveraged we become, the more we, and in turn holders of our existing or future debt agreements, includingcommon stock, will be exposed to certain risks described above under "—Our substantial level of indebtedness could adversely affect our business, financial condition, and results of operations."
The ABL Credit Agreement and the ABL facility or the indentures governing our 9.25% senior secured notes due 2019 and our PIK toggle notes. If
we face substantial liquidity problems, we might be required to dispose of material assets or operations to meet our debt service and other obligations. The credit agreementindenture governing the ABL facilityNotes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the indentures governingeconomy or our senior secured notesindustry or to take certain actions, which could harm our long term interests and our PIK toggle notesmay restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions and these proceeds may not be adequate or available to meet any debt service obligations then due.
Restrictive covenants in the agreements governingpursue our indebtedness may adversely affect our operations.business strategies.
The agreementsABL Credit Agreement and the indenture governing our indebtedness contain various covenants thatthe Notes impose significant operating and financial restrictions on us. These restrictions limit our ability, to, among other things:things, to:
make investments;
create liens;
transfer or sell assets, including stock
enter into certain types ofrestricted subsidiaries to pay dividends or make other payments to us;
As a result of these restrictions, we may be:
enter into mergers, consolidations
The ABL facilityCredit Agreement also requires us to maintain specified financial ratios and satisfy other financial condition tests under certain conditions based on the amount available for borrowing under the ABL facility.Revolving Credit Facility. The ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet them. These restrictions and any inability to meet the financial ratios and tests could have a material adverse effect on our business, financial condition and results of operations.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Our borrowings under the ABL facility bear interest at variable rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same, and our net income would decrease. A hypothetical 0.50% increase in LIBOR rates applicable to borrowings under the ABL facility would result in an estimated increase of $3.5 million per year of interest expense related to such debt, assuming the ABL facility is fully borrowed.
Risks Related to this Offering and Ownership of our Common Stock
There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.
Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market, and if developed, the extent to which it will be sustained, or how liquid any trading market might become. The initial public offering price for our common stock was determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. If you purchase shares of our common stock, you may not be able to sell those shares at or above the initial offering price. The lack of an active market may also reduce the fair market value of your shares. An inactive market may impair our ability to raise capital by selling shares of capital stock in the future and may impair our ability to acquire other companies by using our shares as consideration. If an active trading market does not develop, you may have difficulty selling any shares of our common stock that you buy at the time you wish to sell them or at a price that you consider reasonable.
Our stock price may be volatile, the market price of our common stock may decline and you could lose all or a significant part of your investment.
Even if an active trading market for our common stock develops, the market price of our common stock could be subject to wide fluctuations in response to many factors, some of which are beyond our control, including:
our quarterly or annual earnings or those of other companies in our industry;
the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts who follow our company and our industry;
announcements by us or our competitors of new openings, entry into key markets, strategic investments or acquisitions;
actual or anticipated variations in our or our competitors’ operating results, and our and our competitors’ growth rates;
failure by us or our competitors to meet analysts’ projections or guidance that we or our competitors may give the market;
general or regional economic conditions or events;
fluctuations in operating results;
additions to or departures of our senior management personnel;
terrorist acts;
changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles;
short sales, hedging and other derivative transactions in the shares of our common stock;
future sales or issuances of our common stock, including sales or issuances by us, our directors or executive officers and our significant stockholders;
our dividend policy; and
investor perceptions of us, our competitors and our industry.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, governmental monetary policy or interest rate changes, may cause the market price of our common stock to decline. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
In addition, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
If securities or industry analysts do not publish research or reports about our business, publish inaccurate or unfavorable research about our business or change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced in part by the research and other reports that industry or securities analysts may publish about us or our business. We do not currently have, and may never
obtain, research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely be negatively impacted. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, or if analysts issue other unfavorable commentary or inaccurate research, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Lone Star owns a substantial portion of our common stock, it may have conflicts of interest with other stockholders in the future and its significant ownership may limit your ability to influence corporate matters.
Immediately after this offering, Lone Star will beneficially own approximately % (or % if the underwriters’ over-allotment option is exercised in full) of our outstanding common stock. See “Principal Stockholders” for more information on our beneficial ownership. As a result of this concentration of stock ownership, Lone Star acting on its own has sufficient voting power to effectively control all matters submitted to our stockholders for approval, including director elections and proposed amendments to our bylaws. We currently expect that, following this offering, four of the nine members of our board of directors will be employees or affiliates of Lone Star.
In addition, this concentration of ownership may delay or prevent a merger, consolidation or other business combination or change in control of our company and make some transactions that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock more difficult or impossible without the support of Lone Star. The interests of Lone Star may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, Lone Star could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. This concentration of ownership may also adversely affect our share price. After the lock-up period expires, Lone Star will be able to transfer control of us to a third-party by transferring their common stock, which would not require the approval of our board of directors or other stockholders.
Additionally, Lone Star is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Lone Star may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star and its affiliates and investment funds may serve as our directors or officers, our certificate of incorporation to be adopted in connection with this offering will provide, among other things, that none of Lone Star or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of Lone Star has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any of these persons or entities acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in such corporate opportunity, and these persons and entities will not have any duty to communicate or offer such corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if, among other things, attractive corporate opportunities are allocated by the sponsors to themselves or their other affiliates. The terms of our certificate of incorporation to be adopted are more fully described in “Description of Capital Stock—Corporate Opportunities and Transactions with Lone Star.”
We will be a “controlled company” within the meaning of the rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
Upon completion of this offering, Lone Star will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards. Under the rules, a company of which more than 50% of the voting
power is held by a person or group is a “controlled company” and need not comply with certain requirements, including the requirement that a majority of the board of directors consist of independent directors and the requirements that our compensation and nominating and corporate governance committees be comprised entirely of independent directors. Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors and our nominating and compensation committees may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements.
Future sales of our common stock in the public market could cause our stock price to fall.
If our existing stockholder sells substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholder might sell substantial amounts of our common stock could also depress the market price of our common stock. Any such sale or perception could also impair our ability to raise capital or pay for acquisitions using our equity securities.
Immediately after completion of this offering, we will have shares of common stock outstanding, including �� shares that will be beneficially owned by Lone Star. Following completion of this offering, Lone Star will beneficially own approximately % of our outstanding shares of common stock (or % if the underwriters exercise their over-allotment option in full) and, unless such shares are registered under the Securities Act of 1933, as amended, or the Securities Act, such shares may only be resold into the public markets in accordance with the requirements of Rule 144, including the volume limitations, manner of sale requirements and notice requirements thereof. See “Shares Eligible for Future Sale.” In addition, the remaining shares of our common stock that will be outstanding immediately after completion of this offering will become eligible for sale in the public markets from time to time, subject to Securities Act restrictions, following the expiration of lock-up agreements. We, Lone Star, and our officers and directors have signed lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the sale of shares of our common stock held by them for 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. The underwriters may, without notice except in certain limited circumstances, release all or any portion of the shares of common stock subject to lock-up agreements. See “Underwriting” for a description of these lock-up agreements. Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in the public market, subject in the case of shares held by our affiliates, to the volume, manner of sale and other limitations under Rule 144. We expect that Lone Star will be considered an affiliate of us after this offering based on their expected share ownership following this offering.
After completion of this offering, Lone Star will have the right to demand that we file a registration statement with respect to the shares of our common stock held by it, and will have the right to include its shares in any registration statement that we file with the Securities and Exchange Commission, or SEC, subject to certain exceptions. See “Shares Eligible for Future Sale.” Any registration of the shares owned by Lone Star would enable those shares to be sold in the public market, subject to certain restrictions in our registration rights agreement and the restrictions under the lock-up agreements referred to above.
The market price for shares of our common stock may drop significantly when the restrictions on resale by our existing stockholder lapse or if those restrictions on resale are waived. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities. In addition, following this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering shares under our stock incentive plan. Subject to the terms of the awards granting the shares included in this registration statement and except for shares held by affiliates who will have certain restrictions on their ability to sell, the shares will be available for sale in the public market immediately after the registration statement is filed. We expect that the initial registration statement on Form S-8 will cover shares of our common stock. See “Shares Eligible for Future Sale.”
If you purchase shares of common stock sold in this offering, you will experience immediate and substantial dilution.
If you purchase shares in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our common stock. If you purchase shares in this offering, you will suffer, as of July 10, 2013, immediate dilution of $ per share, in the net tangible book value after giving effect to the sale of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus, less underwriting discounts and commissions and the estimated expenses payable by us, and the application of the net proceeds as described in “Use of Proceeds.” If outstanding options to purchase our shares of common stock are exercised in the future, you will experience additional dilution. In addition, if we raise funds by issuing additional securities, the newly issued shares will further dilute your percentage ownership of our company.
In the future, we expect to issue options, restricted stock and other forms of stock-based compensation, which have the potential to dilute stockholder value and cause the price of our common stock to decline.
We expect to offer stock options, restricted stock and other forms of stock-based compensation to our directors, officers and employees in the future. If any options that we issue are exercised, or any restricted stock that we may issue vests, and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under our equity incentive plan, or the grant of stock options, restricted stock or other forms of stock-based compensation, may adversely affect the market price of our common stock.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
We are a holding company and depend on the cash flow of our subsidiaries.
We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets and intellectual property. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries directly or indirectly to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations.
Provisions of our charter documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.
Provisions in our certificate of incorporation and bylaws that we intend to adopt prior to the consummation of this offering may have the effect of delaying or preventing a change of control or changes in our management. For example, our certificate of incorporation and bylaws will include provisions that:
permit us to issue, without stockholder approval, preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series;
prevent stockholders from calling special meetings;
restrict the ability of stockholders to act by written consent after such time as Lone Star owns less than a majority of our common stock;
limit the ability of stockholders to amend our certificate of incorporation and bylaws;
require advance notice for nominations for election to the board of directors and for stockholder proposals;
do not permit cumulative voting in the election of our directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election; and
initially establish a classified board of directors with staggered three-year terms.
These provisions may discourage, delay or prevent a merger or acquisition of our company, including a transaction in which the acquiror may offer a premium price for our common stock.
We are also subject to Section 203 of the Delaware General Corporation Law, or the DGCL, which, subject to certain exceptions, prohibits us from engaging in any business combination with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. In addition, our equity incentive plan will permit vesting of stock options and restricted stock, and payments to be made to the employees thereunder in certain circumstances, in connection with a change of control of our company, which could discourage, delay or prevent a merger or acquisition at a premium price. In addition, our ABL credit facility and the indentures governing our notes include, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of certain change of control events relating to our company, which also could discourage, delay or prevent a business combination transaction. See “Description of Capital Stock—Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect.”
If we are unable to implement and maintain the effectiveness of our internal control over financial reporting or if we fail to remediate an identified material weakness in our internal controls over financial reporting, our independent registered public accounting firm may not be able to provide an unqualified report on our internal controls, which could adversely affect our stock price.
Subsequent to the completion of our financial statements for and as of the 28 weeks ended July 10, 2013, we identified a classification error related to the cash flow presentation of the Baldwin Sale/Leaseback. This error had no impact on net cash flow, and did not affect the accompanying balance sheets, statements of operations and comprehensive income, or statements of changes in membership interests. In connection with the error, a material weakness in our internal controls over financial reporting was identified based on a lack of sufficient financial presentation analysis. A “material weakness” is a deficiency in internal controls such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected in a timely basis. We have taken and continue to take steps to remediate the identified material weakness, and we
expect that this material weakness will be remediated before the end of the 40-week period ending October 2, 2013. However, there is no guarantee that we will be able to successfully remediate this material weakness by such time or at all, or that additional material weaknesses will not be identified in the future. Any failure to remediate this material weakness or implement new or improved controls could cause us to fail to meet our future reporting obligations, including potential misstatements of our accounts and disclosures that would not be prevented or detected and could result in a material misstatement to our annual or interim consolidated financial statements in future periods.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that we file with the SEC after the consummation of this offering, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we, together with our independent registered public accounting firm, conclude, that our internal control over financial reporting is not effective, investor confidence and our stock price could decline.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the price of our common stock.
Even though we intend to pay dividends, our cash dividends are not guaranteed and may fluctuate, and our ability to pay dividends is restricted by our indebtedness.
We expect our board of directors will implement a regular, cash dividend program following consummation of this offering. However, we are not required to distribute our cash and cash dividends are not guaranteed, may fluctuate and may not be paid at all. The amount of dividends, if any, will be determined at the sole discretion of our board of directors. Our ability to pay dividends, and the timing and amount thereof, will also depend on our ability to generate sufficient cash from operations, which, in turn, will be affected by all of the factors discussed in “—Risks Related to Our Business.” Our ability to pay dividends may also be restricted by, among other things, applicable laws and regulations and the terms of the agreements governing our indebtedness, including the ABL Facility and the indentures governing our senior secured notes and our PIK toggle notes, which restrict our ability to pay dividends. See “Description of Indebtedness.” In addition, such instruments contain certain other covenants that could limit our ability to pay dividends. For example, the ABL facility also require us to maintain specified financial ratios and satisfy other financial condition tests under certain conditions based on the amount available for borrowing under the ABL facility. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet them. A breach of the covenants under the indenture governing the Notes or the ABL Credit Agreement could result in an event of default under the applicable indebtedness. Such an event of default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an event of default under the ABL Credit Agreement would permit the lenders under the ABL Credit Agreement to terminate all commitments to extend further credit under the ABL Credit Agreement. Furthermore, if we were unable to repay the amounts due and payable under the ABL Credit Agreement, those lenders could proceed against the collateral securing such covenantsindebtedness. Our assets may not be sufficient to repay in full that debt or any other debt that may become due as a result of that acceleration. These restrictions and any inability to meet the financial ratios and tests could have a material adverse effect on our business, financial condition and results of operations.
In the future, we may be dependent upon our lenders for financing to execute our business strategy and to meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could have a material adverse effect on our business, financial condition, and results of operations.
During periods of volatile credit markets, there is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to, extending credit up to the maximum amount permitted by the Revolving Credit Facility. If our lenders are unable to fund borrowings under their revolving credit commitments or we are unable to borrow, it could be difficult to obtain sufficient funding to execute our business strategy or to meet our liquidity needs, which could have a material adverse effect on our business, financial condition, and results of operations.
Our debt may be downgraded, which could have a material adverse effect on our business, financial condition, and results of operations.
A reduction in the ratings that rating agencies assign to our short- and long-term debt may negatively impact our access to the debt capital markets and increase our cost of borrowing, which could have a material adverse effect on our business, financial condition, and results of operations.
Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.
Banking and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us. These factors, including the tightening of credit markets, could adversely affect our ability to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more difficult and more expensive for us to refinance outstanding indebtedness and to obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws, or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a defaultreduction in the amount of available credit or an increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties. Any of these results could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Initial Public Offering and Ownership of Our Common Stock
There is no existing market for our common stock and an active, liquid trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. Although we will apply to list our common stock on the NYSE under the termssymbol "SEGR," we cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our shares that you purchase. The initial public offering price of our common stock will be determined by negotiation between us and the underwriters, and may not be indicative of prices that will prevail after the completion of this offering. The market price of our common stock may decline below the initial public offering price, and you may not be able to resell your shares at, or above, the initial public offering price.
The price of our common stock may be volatile and you could lose all or part of your investment.
Securities markets worldwide have experienced in the past, and are likely to experience in the future, significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions could reduce the market price of our common stock regardless of our results of operations. The trading price of our common stock is likely to be highly volatile and could be subject to wide price fluctuations in response to various factors, including, among other things, the risk factors described herein and other factors beyond our control. Factors affecting the trading price of our common stock could include:
These and other factors may cause the market price and demand for shares of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock sometimes have
instituted securities class action litigation against the company that issued the stock. Securities litigation against us, regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from our business, which could have a material adverse effect on our business, financial condition, and results of operations.
Future sales of our common stock, or the indentures governingperception in the public markets that these sales may occur, could cause the market price for our senior secured notescommon stock to decline.
Upon consummation of this offering, there will be shares of our common stock outstanding. All shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act. At the time of this offering, we also will have registered shares of common stock reserved for issuance under our equity incentive plans of which restricted stock units representing shares of common stock are outstanding and restricted stock units representing shares of common stock will be issued in connection with this offering, which shares may be issued upon issuance and once vested, subject to any applicable lock-up restrictions then in effect. We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline. Of the remaining shares of common stock outstanding, will be restricted securities within the meaning of Rule 144 under the Securities Act and subject to certain restrictions on resale following the consummation of this offering and the concurrent private placement. Restricted securities may be sold in the public market only if they are registered under the Securities Act, or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in "Shares Eligible for Future Sale."
We, each of our officers and directors, and substantially all our existing stockholders have agreed that (subject to certain exceptions), for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of BofA Securities, Inc. and Goldman Sachs & Co. LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. BofA Securities, Inc. and Goldman Sachs & Co. LLC, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. See "Underwriting." Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period, and other limitations of Rule 144. See "Shares Eligible for Future Sale" for a discussion of the shares of common stock that may be sold into the public market in the future.
If securities or industry analysts publish unfavorable research about our business, or if our competitors' stock performance decline, the price of our common stock and our PIK toggle notes,trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently publish research on our Company. Once securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish unfavorable research about our business, the price of our common stock likely would decline. Additionally, if one of our competitor's stock performance declines, the price of our common stock and our trading volume could decline as well. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, or if one of our competitor's stock performance declines, demand for our common stock could decrease, which might cause the price of our common stock and trading volume to decline.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect prior to the completion of this offering provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Pursuant to our charter, our directors will not be liable to the Company or any stockholders for monetary damages for any breach of fiduciary duty, except (i) acts that breach his or her duty of loyalty to the Company or its stockholders, (ii) acts or omissions without good faith or involving intentional misconduct or knowing violation of the law, (iii) pursuant to Section 174 of the Delaware General Corporation Law (the "DGCL") or (iv) for any transaction from which the director derived an improper personal benefit. The bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Because we do not intend to pay cash dividends in the event of any such default, no dividends can be paid and our stockholders, and our lenders could elect to accelerate the maturity of all outstanding notes or loans. Future financing agreements may also contain restrictions or prohibitions on the payment of dividends. We cannot assure you that the agreements governing our current andforeseeable future, indebtedness will permit us to pay dividends. If we are unable to pay dividends, you may not receive any return on your investment unless you are able to sell your common stock for a price greater than your purchase price.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or to pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. We do not intend in the foreseeable future to pay any dividends to holders of our common stock. We currently intend to retain our future earnings, if any, for the foreseeable future to repay indebtedness and to support our general corporate purposes. Therefore, you paidare not likely to receive any dividends on your common stock for it.
Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act") could have a material adverse effect on our business, financial condition, and results of operations.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of our IPO and in each year thereafter. Our auditors will also need to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information accurately on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules, may breach the covenants under our credit facilities and incur additional costs. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have a material adverse effect on our business, financial condition and results of operations.
We will incur increased costs as a result of being a publicly-tradedpublicly traded company.
As a company with publicly-tradedpublicly traded securities, we will incur significant legal, accounting and other expenses not presently incurred.incurred as a private company. In addition, the Sarbanes-Oxley Act, of 2002, as well asthe Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated by the SEC and the stock exchange on which weNYSE, will list our common stock, require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs and may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.
FORWARD-LOOKING STATEMENTSAnti-takeover protections in our amended and restated certificate of incorporation, our amended and restated bylaws or our contractual obligations may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders.
Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as amended, as well as provisions of the DGCL, could delay or make it more difficult to remove incumbent directors or could impede a merger, takeover or other business combination involving us or the replacement of our management, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock, even if it would benefit our stockholders. Among other things, these provisions:
In addition, our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price, or prices and liquidation preferences of such series. The issuance of shares of preferred stock or the adoption of a stockholder rights plan may have the effect of delaying, deferring or preventing a change in control of our Company without further action by the stockholders, even where stockholders are offered a premium for their shares. See "Description of Capital Stock—Anti-takeover Provisions."
Our amended and restated certificate of incorporation provides, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us, any director or our officers or employees arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us, any director or our officers or employees that are governed by the internal affairs doctrine. This exclusive forum provision does not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws and rules and regulations promulgated thereunder for which there is exclusive federal or concurrent federal and state jurisdiction. The federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act, the Exchange Act or the rules and regulations promulgated thereunder, and investors cannot waive the Company's compliance with these laws, rules and regulations. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees, or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision that is contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations.
General Risk Factors
Failure to maintain the services of key personnel, as well as attracting, training and retaining qualified staff could adversely affect our business, financial condition and results of operations.
Our continued success depends on the skills, experience, efforts and performance of our key personnel. The unexpected loss of the services of any of our executive officers or other key employees could adversely affect our business. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. We do not maintain key person insurance on any of our key personnel. There can be no assurance that our executive succession planning, retention or hiring efforts will be successful. Competition for skilled and experienced management in our industry and the markets we operate in is intense, and we may not be successful in attracting and retaining qualified personnel.
Furthermore, it is critical that we are able to meet our broader labor needs with qualified employees. Maintaining a qualified staff is subject to numerous external factors, including the competition for talent, prevailing wage rates, the availability of qualified employees in the markets in which we operate, unemployment levels, unionization, changing demographics, health and other insurance costs and changes in employment legislation, including minimum wage laws. Any of these factors could require us to increase wage and labor-related costs in order to better compete for and retain qualified employees.
Any failure to maintain the services of key personnel, or inability to attract, train and retain qualified staff, may significantly increase our operating costs and have a material adverse effect on our business, financial condition, and results of operations.
Our operating costs could increase or fluctuate considerably as a result of various factors, many of which are not under our control, and could have a material adverse effect on our business, financial condition and results of operations.
We have exposure to operating costs such as wages, employee benefits, commodities, fuel and oil prices, utilities, facility maintenance costs, paper and circular printing and mailing, bank interchange fees, fixed lease obligations and other operational costs that can increase considerably due to inflation, changes to laws and regulations and other factors.
Commodity prices worldwide have been volatile. Any increase in commodity prices may cause an increase in our input costs or the prices our suppliers seek from us. Although we typically are able to pass on modest commodity price increases or mitigate suppliers efforts to increase our costs, we may be unable to continue to do so, either in whole or in part, if commodity prices increase materially. Suppliers, like us, are incurring additional costs to respond to the COVID-19 pandemic and may continue to do so for the foreseeable future, and may seek to pass those costs through to us. If we are forced to increase prices, our customers may reduce their purchases at our stores or trade down to less profitable products, both of which may adversely impact our profitability as a result of reduced revenue or reduced margins. We may not be able to recover rising costs through increased prices passed on to our customers. Increases in the costs of these or other items could have a material adverse effect on our business, financial condition and results of operations.
In addition, our operations are dependent upon the availability of a significant amount of energy and fuel to store, transport and sell our products. Volatility in fuel and energy costs could have a material adverse effect on our business, financial condition and results of operations.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters may materially impact reporting of our financial condition and results of operations.
Accounting principles generally accepted in the United States and related accounting pronouncements, implementation guidelines, and interpretations we apply to a wide range of matters that are relevant to our business, such as accounting for long-lived asset impairment and share-based compensation, are complex and involve subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change or add significant volatility to our reported or expected financial performance.
Unanticipated changes in the insurance market or factors affecting self-insurance reserve estimates could have a material adverse effect on our business, financial condition and results of operations.
We use a combination of insurance and self-insurance coverage to provide for potential liabilities for workers' compensation, general liability, property losses, auto liability, directors and officers liability, pharmacy liability and employee health care benefits. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, actions based on certain customer protection laws, certain cyber events and some natural and other disasters or similar events. If we incur these losses and they are material, our business could suffer. Liabilities associated with the risks that are retained by us are determined, based in part, by considering historical claims experience, severity factors, inflation, and other actuarial assumptions. Our determination of the risk we retain is subject to a high degree of variability related to, among other things, future interest and inflation rates, future economic conditions, litigation trends and benefit-level changes. Any deviation of actual claims and other expenses related to these and other risks in excess of our assumptions, estimates, and historical trends, may have a material adverse effect on our business, financial condition and results of operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includescontains forward-looking statements.statements, including, without limitation, statements concerning the conditions of our industry and our operations, performance and financial condition, including in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements are those that do not relate solelycan be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," and similar references to historical fact and are about future events, which involve risks and uncertainties. Theyperiods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, any statement that may predict, forecast, indicate or implystatements we make regarding the outlook for our future results, performance, achievements or events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “could,” “may,” “plan,” “potential,” “likely,” “goal,” “target,” “objective,” “outlook,” “seek” and similar expressions identify forward-looking statements.
Important factors relating to forward-looking statements may include, among others, assumptions regarding:
supply problems, including our dependence on a principal supplier;
our ability to realize the benefits of outsourcing operations in connection with the C&S supply arrangement;
pricing, market strategies, the expansion and other activities of competitors, and our ability to respond to the promotional practices of competitors;
adverse economic conditions and the impact on consumer demand and spending and our pricing strategy;
our ability to execute our core strategic initiatives;
our ability to realize the benefits of integrating our Winn-Dixie acquisition;
consummation of the pending transactions and our ability to realize the benefits of such transactions;
our ability to effectively increase or maintain our profit margins;
changes in, or the failure or inability to comply with, laws and governmental regulations applicable to the operation of our pharmacy and other businesses;
risks of liability under environmental laws and regulations;
the adequacy of our information technology systems;
the adequacy of our insurance coverage against claims of our consumers in connection with our pharmacy services;
our ability to maintain our existing insurance coverage and accurately estimate self-insurance reserves;
litigation claims or legal proceedings against us;
events that give rise to food and drug safety concerns or product liability claims, product recalls, or any adverse publicity relating to these types of concerns, whether or not valid;
our ability to attract, train and retain qualified key personnel;
our exposure to the local economy and other adverse conditions due to our geographic concentration;
decisions by our sponsor that may conflict with the interests of the holders of our common stock; and
other factors discussed in “Risk Factors” and elsewhere in this prospectus.
Forward-looking statements reflect our current expectations, based on currently available information, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in “Risk Factors.” For these reasons, we caution you against relying on
forward-looking statements, which speak only as of the date on which they are made. Except as may be required by applicable law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which they are made or to reflect the occurrence of unanticipated events. You should carefully read this prospectus in its entirety as it contains important information about our business and the risks we face.
Our net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters exercisefinancial performance, such as those contained in full their over-allotment option to purchase up to additional shares of our common stock), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus. We intend to use the net proceeds from this offering as follows:
to repay outstanding indebtedness, including:
$ million of our senior secured notes (which includes approximately $ million in respect of a 3% pre-payment premium on the notes to be redeemed),
$ million outstanding under the ABL facility, and/or
$ million of our PIK toggle notes (which includes approximately $ million in respect of a 2% pre-payment premium on the notes to be redeemed); and
the remainder for working capital and other general corporate purposes.
The terms of our senior secured notes, the ABL facility and our PIK toggle notes are described in detail under “Description of Indebtedness.” Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities, LLC, each of whom are underwriters in this offering, are, or their affiliates are, expected to receive more than 5% of the net proceeds of this offering in connection with the prepayment of a portion of our ABL facility. Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121. See “Underwriting—Conflicts of Interest.”
Pending use of the net proceeds from this offering described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We paid aggregate distributions to Lone Star of $76 million and $305 million in fiscal 2011 and fiscal 2012, respectively. In addition, on September 20, 2013, we made a distribution to Lone Star of approximately $458 million from the proceeds from the issuance of our PIK toggle notes. These distributions were effected to return capital to Lone Star. We have not made any other distributions on our equity since the beginning of fiscal 2011.
Following the consummation of this offering, our board of directors expects to implement a regular, cash dividend program. However, there can be no assurances that we will institute such a program or that, if implemented, for how long it will run. All future decisions concerning the payment of dividends on our common shares will depend upon our results of operations, financial condition, contractual restrictions, business prospects and capital expenditure plans, as well as any other factors that our board of directors may consider relevant. The agreements governing our indebtedness place restrictions on our ability to pay dividends. Specifically:
the ABL facility imposes certain minimum excess availability and minimum fixed charge coverage ratio conditions on our ability to, among other things, pay dividends or make other distributions, and if excess availability falls below a minimum threshold, we will be subject to a minimum fixed charge coverage ratio of 1.00:1.00, which will further limit our ability to pay dividends; and
the indentures governing our senior secured notes and our PIK toggle notes contain covenants that, among other things and subject in each case to certain specified exceptions, limit our ability to make restricted payments, including the payment of dividends.
See “Description of Indebtedness.” In addition, the agreements governing any future indebtedness may also impose restrictions on our ability to pay dividends.
The table below sets forth our cash and cash equivalents and capitalization as of July 10, 2013:
on an actual basis;
on a pro forma basis to reflect (i) the completion of our corporate conversion whereby Southeastern Grocers, LLC will be converted into a Delaware corporation and renamed Southeastern Grocers, Inc., (ii) the issuance of $475 million aggregate principal amount of our PIK toggle notes and the application of the net proceeds therefrom, including the payment of an approximately $458 million distribution to Lone Star effected on September 20, 2013; and
on a pro forma as adjusted basis to give effect to the matters described above and the issuance and sale of shares of our common stock offered by us in this offering at an assumed offering price of $ per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of such proceeds as described in “Use of Proceeds.”
You should read this table together with the information in this prospectus under “Use of Proceeds,” “Selected Consolidated and Combined Financial Data,” “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations."
Forward-looking statements are based on our current expectations and “Descriptionassumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following:
See "Risk Factors" for a further description of these and other factors. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make such statement. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.
We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholders. The selling stockholders will receive all of the net proceeds and bear the underwriting discount, if any, attributable to their sale of our common stock. We will pay certain expenses associated with this offering. See "Principal and Selling Stockholders."
We do not currently intend to pay cash dividends on our common stock in the foreseeable future. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends.
Our ability to pay dividends is currently restricted by the terms of the agreements governing our indebtedness and may be further restricted by any future indebtedness we incur. See "Description of Material Indebtedness."
We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay cash dividends on our common stock is dependent upon cash dividends and distributions and other transfers from our subsidiaries.
In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.
Any future determination to pay dividends will be at the discretion of our board of directors and will take into account:
See "Risk Factors—Risks Related to Our Initial Public Offering and Ownership of Our Common Stock—Because we do not intend to pay cash dividends in the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price," "Risk Factors—Risks Related to Our Indebtedness—The ABL Credit Agreement and the indenture governing the Notes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long term interests and may restrict our ability to pursue our business strategies," "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources," "Description of Material Indebtedness," and "Description of Capital Stock,”Stock."
The following table sets forth our cash and cash equivalents and our capitalization as of July 8, 2020:
This table should be read in conjunction with "Use of Proceeds," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock" as well as the consolidated financial statements and the related notes to those statements includedthereto appearing elsewhere in this prospectus.
| As of July 10, 2013 | ||||||||||||
| Actual | Pro Forma | Pro Forma As Adjusted | ||||||||||
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Cash and cash equivalents | $ | 51.7 | $ | $ | ||||||||
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Debt: | ||||||||||||
ABL Facility(1) | $ | 100.0 | $ | $ | ||||||||
9.25% Senior Secured Notes due 2019(2) | 425.0 | (3) | ||||||||||
Capital leases and other financing obligations(4) | 364.9 | |||||||||||
8.625%/9.375% Senior PIK Toggle Notes due 2018(5) | — | (6) | ||||||||||
Total debt | $ | 889.9 | $ | $ | ||||||||
Stockholders’ equity: | ||||||||||||
Membership interests (deficiency) | 71.1 | |||||||||||
Undesignated preferred stock, par value $0.001 per share: no shares authorized, issued or outstanding actual, shares authorized, no shares issued and outstanding pro forma and pro forma as adjusted | — | |||||||||||
Common stock, par value $0.001 per share: no shares authorized, issued or outstanding actual, shares authorized, shares issued and outstanding pro forma and shares issued and outstanding pro forma as adjusted | — | |||||||||||
Additional paid-in capital | — | |||||||||||
Accumulated other comprehensive loss | (1.6 | ) | ||||||||||
Retained earnings | $ | 214.0 | $ | $ | ||||||||
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Total stockholders’ equity | $ | 283.5 | $ | $ | ||||||||
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Total capitalization | $ | 1,173.4 | $ | $ | ||||||||
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Each $1.00 increase or decrease
| | As of July 8, 2020 | ||||||
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| | Actual | As adjusted | |||||
| | (in thousands) | ||||||
Cash and cash equivalents | $ | 93,070 | 40,000 | ||||
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Total Debt, including current maturities, without giving effect to debt discounts and deferred debt issuance costs(1): | |||||||
Notes | — | 325,000 | |||||
Term Loan Facility(2) | 372,015 | — | |||||
Revolving Credit Facility(3) | 40,000 | 71,044 | |||||
FILO Facility(4) | 30,100 | — | |||||
Finance lease obligations | 65,847 | 65,847 | |||||
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| 507,962 | 461,891 | ||||||
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Stockholders' equity: | |||||||
Common stock, $0.001 par value per share, 15,000,000 shares authorized, 10,003,033 shares issued and 10,001,936 shares outstanding | 10 | 10 | |||||
Additional paid-in capital | 466,705 | 466,705 | |||||
Accumulated deficit | (35,220 | ) | (35,220 | ) | |||
Accumulated other comprehensive loss | (2,897 | ) | (2,897 | ) | |||
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Total stockholders' equity | 428,598 | 428,598 | |||||
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Total capitalization | $ | 936,560 | $ | 890,489 | |||
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effect to the Refinancing Transactions and the repayment in full of the FILO Facility, borrowing availability on an as adjusted basis would increase or decrease the pro formabe $308.7 million, net of $71.0 million outstanding borrowings and $70.3 million outstanding letters of credit. See "Description of Material Indebtedness—ABL Credit Agreement." The as adjusted amount reflects a drawing of each$31.0 million under the Revolving Credit Facility in connection with the Refinancing Transactions. The actual amount drawn under the Revolving Credit Facility in connection with the Refinancing Transactions was lower as a result of cash amounts on hand on October 9, 2020.
All shares of our common stock being sold in the offering were issued and outstanding prior to this offering. As a result, this offering will not have a dilutive effect on our stockholders.
Our tangible book value represents the amount of total stockholders’ equitytangible assets less total liabilities, and total capitalizationour tangible book value per share represents tangible book value divided by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted netcommon stock outstanding. As of , our tangible book value per share of our common stock immediately after this offering.was $ .
The data in this section have been derived from our consolidated balance sheet as of July 10, 2013. Net tangible book value per share is equal to our total tangible assets less the amount of our total liabilities, divided by the sum offollowing table summarizes the number of our shares of common stock outstanding. Our net tangible book value as of July 10, 2013 was $ million, or $ per share of common stock.
After giving effect to our receipt of the estimated net proceeds from our sale of common stock in this offering at an assumed offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us and the application of such proceeds as described in “Use of Proceeds,” our net tangible book value, as adjusted, as of July 10, 2013 would have been $ million, or $ per share of common stock. This represents an immediate decrease in net tangible book value to our existing stockholders of $ per share and an immediate dilution to new investors in this offering of $ per share. The following table illustrates this per share dilution:
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The following table shows on a pro forma basis at July 10, 2013, after giving effect to the completion of our corporate conversion,purchased, the total cash consideration paid to us and the average price per share paid by our existing stockholderthe selling stockholders and by new investors participating in this offering, before deducting underwriting discounts and estimated offering expenses payable by us.
| Shares Purchased | Total Consideration | Average Price Per Share | ||||||||||||||||
| Number | % | Amount | % | |||||||||||||||
Existing stockholder | % | $ | % | $ | ||||||||||||||
New investors | ||||||||||||||||||
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Total | 100 | % | $ | 100 | % | |||||||||||||
The information inbased upon the preceding table has been calculated using an assumed initial public offering price of $ per share,share.
| | Shares Purchased | Total Consideration | Average Price Per Share | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number | Percent | Amount | Percent | ||||||||||||
Existing Stockholders | % | $ | % | $ | ||||||||||||
Purchasers of common stock in this offering | % | $ | % | $ | ||||||||||||
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Total | 100.0 | % | $ | 100.0 | % | $ | ||||||||||
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected historical consolidated financial and other data for the midpointperiods and as of the estimated price range set forthdates indicated. As a result of the Reorganization, the accompanying historical financial statements and selected historical consolidated financial data are presented on a Predecessor and Successor basis. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the cover pageday prior to our emergence from bankruptcy, to coincide with the timing of this prospectus. A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, respectively, the as adjusted net tangible book value per share of common stock after this offering by $ per sharea normal weekly close. The events between May 30, 2018 and increase or decrease, respectively, the dilution per share of common stock to new investors in this offering by $ per share, in each case calculated as described aboveMay 31, 2018 were evaluated and assumingmanagement concluded that the numberuse of shares offered by us, as set forthan accounting convenience date did not have a material impact on our results of operations or financial position. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. The consolidated financial statements for the cover page of this prospectus, remains the same.
If the underwriters exercise their over-allotment option in full, our existing stockholders would own approximately % and our new investors would own approximately %Successor periods are not comparable to those of the total number of shares of our common stock outstanding immediately after this offering, based on shares outstanding after this offering, and the total consideration paid by our existing stockholder and new investors would be approximately $ (or %) and $ (or %), respectively.Predecessor periods.
An aggregate of additional shares of our common stock will initially be available for future awards under the equity incentive plan that we intend to implement in connection with this offering and are not included in the above discussion and table. To the extent that we grant awards in the future with exercise prices below the initial public offering price in this offering, investors purchasing in this offering will incur additional dilution.
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
We derived the selected historical consolidated financial data as of the end of fiscal 2011 and fiscal 2012 and for fiscal 2010, 2011 and 2012 (retrospectively adjusted for discontinued operations) from the audited consolidated financial statements which are included elsewhere in this prospectus. We derived the consolidated financial data as of the end of fiscal 2008, 2009 and 2010 and for fiscal 2008 and 2009 from our audited consolidated financial statements not included elsewhere in this prospectus. We derived the summary selected historical financial data as of July 10, 2013 and for the 28-week periods28 weeks ended July 14, 20128, 2020 and 28 weeks ended July 10, 20132019 from theour unaudited condensed consolidated financial statements included elsewhere in this prospectus. We derived the summaryselected historical consolidated financial data as of July 14, 2012and for the year ended December 25, 2019 and for the 30 weeks ended December 26, 2018 and for the 22 weeks ended May 30, 2018, as of December 26, 2018 and for the year ended December 27, 2017 from our unaudited condensedaudited consolidated financial statements included elsewhere in this prospectus. We derived the selected historical consolidated financial data as of December 27, 2017 and as of and for the years December 28, 2016 and December 30, 2015 from our audited consolidated financial statements not included elsewhere in this prospectus. Such
We have prepared the unaudited financial information has been prepared on a basis consistent with the annual audited financial statements. In the opinion of management, such unauditedconsolidated financial statements containon the same basis as the audited consolidated financial statements and have included all adjustments, (consistingconsisting of normal recurring adjustments)adjustments, that we consider necessary for athe fair presentationstatement of these data. Theour financial position and operating results for the 28-week periods ended July 14, 2012 and July 10, 2013such periods.
Our historical results are not necessarily indicative of the results for a full year or forto be expected in any future period. The information included in “Other Financial and Store Data” was derived from accounting records.
The selected consolidated and combined financial data below represent portions of our financial statements and are not complete. You should read thisthe information set forth below together with “Management’s"Prospectus Summary—Summary Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations," "Capitalization," and our consolidated financial statements and the related notes to those statementsthereto included elsewhere in this prospectus. Historical results are not necessarily indicative
| | Successor | | Predecessor | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Year Ended December 25, 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Year Ended December 27, 2017 | Year Ended December 28, 2016 | Year Ended December 30, 2015 | ||||||||||||||||||
| | (in thousands, other than per share data) | ||||||||||||||||||||||||||
Statements of Operations and Comprehensive Income (Loss) Data: | |||||||||||||||||||||||||||
Net Sales | $ | 5,262,757 | $ | 4,502,670 | $ | 8,277,374 | $ | 4,829,732 | $ | 3,942,780 | $ | 9,875,104 | $ | 10,451,420 | $ | 11,257,471 | |||||||||||
Cost of sales, including warehouse and delivery expense | 3,806,942 | 3,325,132 | 6,117,224 | 3,586,009 | 2,914,222 | 7,278,280 | 7,787,276 | 8,388,147 | |||||||||||||||||||
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Gross Profit | 1,455,815 | 1,177,538 | 2,160,150 | 1,243,723 | 1,028,558 | 2,596,824 | 2,664,144 | 2,869,324 | |||||||||||||||||||
Operating, general and administrative expenses | 1,210,910 | 1,195,708 | 2,195,046 | 1,313,863 | 1,024,666 | 2,638,828 | 2,597,371 | 2,720,904 | |||||||||||||||||||
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Income (Loss) from operations | 244,905 | (18,170 | ) | (34,896 | ) | (70,140 | ) | 3,892 | (42,004 | ) | 66,773 | 148,420 | |||||||||||||||
Interest expense | 36,881 | 44,607 | 82,339 | 64,497 | 50,988 | 135,083 | 134,437 | 139,135 | |||||||||||||||||||
Reorganization items, net | — | — | — | — | (792,260 | ) | — | — | — | ||||||||||||||||||
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Income (loss) before income taxes | 208,024 | (62,777 | ) | (117,235 | ) | (134,637 | ) | 745,164 | (177,087 | ) | (67,664 | ) | 9,285 | ||||||||||||||
Income tax expense (benefit) | 2,334 | (533 | ) | (995 | ) | (48,274 | ) | (16,263 | ) | (38,301 | ) | 400,606 | 3,633 | ||||||||||||||
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Net income (loss) | $ | 205,690 | $ | (62,244 | ) | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | $ | (468,270 | ) | $ | 5,652 | ||||||
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| Fiscal | 28-Week Period Ended | |||||||||||||||||||||||||||
| 2008(1) (52 weeks) | 2009(1) (53 weeks) | 2010(1) (52 weeks) | 2011(1) (52 weeks) | 2012 (52 weeks) | July 14, 2012 | July 10, 2013 | ||||||||||||||||||||||
| (In millions, except Per Share Data and Other Financial and Store Data) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Net sales | $ | 2,626.4 | $ | 2,558.5 | $ | 2,641.1 | $ | 2,779.2 | $ | 8,632.9 | $ | 4,097.1 | $ | 5,574.5 | ||||||||||||||
Gross profit(2) | 713.6 | 682.9 | 685.2 | 717.8 | 2,350.4 | 1,124.6 | 1,508.6 | |||||||||||||||||||||
Operating, general and administration expenses | 710.1 | 621.4 | 616.2 | 621.6 | 2,136.3 | 1,024.3 | 1,308.4 | |||||||||||||||||||||
Interest expense | 71.1 | 62.9 | 62.4 | 85.9 | 76.9 | 39.5 | 46.6 | |||||||||||||||||||||
Income tax provision (benefit) | (33.2 | ) | 3.9 | 3.3 | 4.1 | 7.6 | 2.2 | (56.1 | ) | |||||||||||||||||||
Income (loss) from continuing operations | (34.3 | ) | (28.8 | ) | 7.6 | 6.2 | 129.6 | 58.6 | 209.7 | |||||||||||||||||||
Income (loss) from discontinued operations | (54.5 | ) | 3.7 | 7.4 | (0.5 | ) | (26.5 | ) | 1.2 | (1.7 | ) | |||||||||||||||||
Net (loss) income | $ | (88.8 | ) | $ | (25.1 | ) | $ | 15.0 | $ | 5.7 | $ | 103.1 | $ | 59.8 | $ | 208.0 | ||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||
Pro forma basic and diluted earnings per share(3) | ||||||||||||||||||||||||||||
As adjusted pro forma basic and diluted earnings per share(3)(4) | ||||||||||||||||||||||||||||
Balance Sheet Data (end of period): | ||||||||||||||||||||||||||||
Total assets | $ | 881.4 | $ | 826.9 | $ | 768.3 | $ | 793.0 | $ | 2,171.7 | $ | 2,160.7 | $ | 2,298.0 | ||||||||||||||
Long-term debt (including current portion)(5) | 260.0 | 31.0 | 187.3 | 285.0 | 655.9 | 385.0 | 530.4 | |||||||||||||||||||||
Obligations under capitalized leases | 103.1 | 92.3 | 84.4 | 79.3 | 112.3 | 119.6 | 95.0 | |||||||||||||||||||||
Other financing obligations(6) | 253.4 | 224.6 | 201.8 | 185.4 | 176.3 | 168.9 | 269.9 | |||||||||||||||||||||
Other long-term liabilities (including long term portion of self-insurance liabilities) | 32.9 | | 25.9 | | 27.2 | 26.6 | 241.7 | 251.7 | 235.3 | |||||||||||||||||||
Total membership interests (deficiency) | | (108.9 | ) | (117.8 | ) | 47.2 | (23.1 | ) | 75.5 | 311.6 | 283.5 | |||||||||||||||||
Working capital | (232.4 | ) | 88.9 | 105.5 | 126.8 | 236.3 | 246.8 | 275.1 | ||||||||||||||||||||
Cash Flow Data: Net cash provided by operating activities before reorganization items Net cash provided by (used in) financing activities (7) Net cash (used in) investing activities (7) Net cash provided by continuing operations Capital expenditures Other Financial and Store Data: Adjusted EBITDA (8) Adjusted EBITDAR (8) Number of stores (at end of period) Average sales per store (000s) Average store size (in square feet) (000s) Total square feet (at end of period) (000s) Sales per average square foot Comparable store sales increases (decreases) (%)(9) Pro forma comparable store sales increases (decreases)(%)(10) Fiscal 28-Week
Period Ended 2008(1)
(52 weeks) 2009(1)
(53 weeks) 2010(1)
(52 weeks) 2011(1)
(52 weeks) 2012
(52 weeks) July 14,
2012 July 10,
2013 (In millions, except Per Share Data and Other Financial and Store Data) $ 98.4 $ 59.8 $ 89.8 $ 89.9 $ 277.7 $ 200.6 $ 170.5 (48.6 ) (13.4 ) 10.1 (16.8 ) 282.2 307.4 (39.1 ) (37.7 ) (9.7 ) (17.1 ) (46.9 ) (555.0 ) (493.3 ) (131.2 ) 12.1 9.7 17.1 26.2 4.9 14.7 0.2 49.4 10.8 17.9 47.8 140.9 76.8 50.7 $ 142.4 $ 138.0 $ 147.3 $ 167.3 $ 370.4 $ 192.1 $ 276.4 $ 164.1 $ 161.2 $ 169.9 $ 189.3 $ 536.9 $ 266.9 $ 385.5 222 214 207 207 689 687 685 $ 11,712 $ 11,953 $ 12,608 $ 13,338 $ 14,422 $ 7,856 $ 8,054 43 43 43 43 46 45 46 9,516 9,176 8,857 8,857 31,517 31,382 31,642 $ 274 $ 279 $ 295 $ 312 $ 317 $ 174 $ 175 (3.3 ) 2.3 3.7 5.5 3.1 3.3 0.8 — — — — 3.8 3.3 1.8
Contents
| Fiscal | 28 Week Period Ended | |||||||||||||||||||||||||||
| 2008(a) (52 weeks) | 2009(a) (53 weeks) | 2010(a) (52 weeks) | 2011(a) (52 weeks) | 2012 (52 weeks) | July 14, 2012 | July 10, 2013 | ||||||||||||||||||||||
(In millions of dollars, except for margin data) | ||||||||||||||||||||||||||||
Reconciliation of EBITDA and EBITDAR: | ||||||||||||||||||||||||||||
Net income (loss) | $ | (88.8 | ) | $ | (25.1 | ) | $ | 15.0 | $ | 5.7 | $ | 103.1 | $ | 59.8 | $ | 208.0 | ||||||||||||
Plus: | ||||||||||||||||||||||||||||
Depreciation and amortization expense(b) | 79.9 | 72.4 | 64.2 | 53.8 | 98.1 | 44.3 | 64.5 | |||||||||||||||||||||
Interest expense | 71.1 | 62.9 | 62.4 | 85.9 | 76.9 | 39.5 | 46.6 | |||||||||||||||||||||
Income tax provision (benefit) | (33.2 | ) | 3.9 | 3.3 | 4.1 | 7.6 | 2.2 | (56.1 | ) | |||||||||||||||||||
(Income) loss from discontinued operations | 54.5 | (3.7 | ) | (7.4 | ) | 0.5 | 26.5 | (1.2 | ) | 1.7 | ||||||||||||||||||
EBITDA | 83.5 | 110.4 | $ | 137.5 | $ | 150.0 | $ | 312.2 | $ | 144.6 | $ | 264.7 | ||||||||||||||||
Plus: | ||||||||||||||||||||||||||||
Charges related to bankruptcy proceedings and corporate reorganization(c) | — | (1.2 | ) | 2.3 | 7.0 | 4.2 | 3.5 | — | ||||||||||||||||||||
Loss from closed stores | 5.0 | 0.4 | 8.7 | 0.3 | 2.2 | 1.0 | 0.8 | |||||||||||||||||||||
(Gain) on assets disposals | (0.6 | ) | 0.2 | (0.5 | ) | — | (0.9 | ) | (0.2 | ) | 0.2 | |||||||||||||||||
Impairment expense | 46.2 | 3.4 | 1.6 | 1.8 | — | — | — | |||||||||||||||||||||
Franchise taxes | 0.4 | 0.6 | 0.4 | 0.4 | 0.6 | 0.3 | 0.3 | |||||||||||||||||||||
Fees and expense reimbursement to our sponsor(d) | 0.5 | 0.8 | 1.5 | 4.5 | 2.5 | 0.6 | 1.8 | |||||||||||||||||||||
Merger and integration costs | — | — | — | 3.4 | 59.9 | 42.3 | 13.1 | |||||||||||||||||||||
Other nonoperating (income) | 7.4 | 23.4 | (4.2 | ) | (0.1 | ) | (10.3 | ) | — | (4.5 | ) | |||||||||||||||||
Adjusted EBITDA | 142.4 | 138.0 | $ | 147.3 | $ | 167.3 | $ | 370.4 | $ | 192.1 | $ | 276.4 | ||||||||||||||||
Plus: | ||||||||||||||||||||||||||||
Rent expense(e) | 21.7 | 23.2 | 22.6 | 22.0 | 166.5 | 74.8 | 109.1 | |||||||||||||||||||||
Adjusted EBITDAR | 164.1 | 161.2 | $ | 169.9 | $ | 189.3 | $ | 536.9 | $ | 266.9 | $ | 385.5 | ||||||||||||||||
Adjusted EBITDA margin | 5.4 | 5.3 | 5.6 | 6.0 | 4.3 | 4.7 | 5.0 | |||||||||||||||||||||
| | Successor | | Predecessor | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Year Ended December 25, 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Year Ended December 27, 2017 | Year Ended December 28, 2016 | Year Ended December 30, 2015 | ||||||||||||||||||
| | (in thousands, other than per share data) | ||||||||||||||||||||||||||
Net income (loss) as a percent of net sales | 3.91 | % | (1.38 | )% | (1.40 | )% | (1.79 | )% | 19.31 | % | (1.41 | )% | (4.48 | )% | 0.05 | % | |||||||||||
Weighted-average common shares outstanding— | |||||||||||||||||||||||||||
Basic | 10,064 | 10,001 | 10,001 | 10,000 | |||||||||||||||||||||||
Diluted | 10,228 | 10,001 | 10,001 | 10,000 | |||||||||||||||||||||||
Basic earnings (loss) per share | $ | 20.44 | $ | (6.22 | ) | $ | (11.62 | ) | $ | (8.64 | ) | ||||||||||||||||
Diluted earnings (loss) per share | $ | 20.11 | $ | (6.22 | ) | $ | (11.62 | ) | $ | (8.64 | ) | ||||||||||||||||
Pro Forma net income per common share | |||||||||||||||||||||||||||
Basic | |||||||||||||||||||||||||||
Diluted | |||||||||||||||||||||||||||
| | Successor | | Predecessor | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | As of July 8, 2020 | As of December 25, 2019 | As of December 26, 2018 | | As of December 27, 2017 | As of December 28, 2016 | As of December 30, 2015 | ||||||||||||||
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Consolidated Balance Sheet Data: | |||||||||||||||||||||
Cash and cash equivalents | $ | 93,070 | $ | 70,299 | $ | 44,512 | $ | 50,908 | $ | 33,289 | $ | 49,586 | |||||||||
Total assets | $ | 2,614,493 | $ | 2,730,204 | $ | 2,413,138 | $ | 1,874,165 | $ | 2,076,608 | $ | 2,531,620 | |||||||||
Stockholders' equity (Membership deficiency) | $ | 428,598 | $ | 220,181 | $ | 372,739 | $ | (750,743 | ) | $ | (610,304 | ) | $ | (140,833 | ) | ||||||
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined statements of operations give effect to the acquisition of Winn-Dixie on March 9, 2012, including:
the allocation of the consideration paid in connection with the acquisition of Winn-Dixie to the fair value of assets acquired and liabilities assumed;
additional debt and interest expense incurred to effect the acquisition of Winn-Dixie;
the reduction of depreciation and amortization expense due to the fair values of the acquired tangible and intangible assets being reduced from their historical book values;
the exclusion of acquisition related expenses and compensation expense for one time change of control cost; and
reclassifications made to conform Winn-Dixie to BI-LO’s historical financial statement presentations.
The unaudited pro forma combined statements of operations do not give effect to the pending transactions, the C&S supply arrangement, the Baldwin Sale/Leaseback, the issuance of the PIK toggle notes and the related distribution made to Lone Star or this offering. The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our actual results of operations would have been had the Winn-Dixie acquisition actually occurred on the date indicated, nor does this information purport to project our results of operations for any future period.
The fair value estimate of assets acquired and liabilities assumed and the allocation of the purchase price to the net assets acquired has been determined by management with the assistance of independent valuation specialists. The determination of the assets acquired and liabilities assumed was based on the established fair value of the assets acquired and the liabilities assumed as of the acquisition date. The stock acquisition generated no adjustments to the original tax reporting values of the assets held by Winn-Dixie on the date of the acquisition.
Unaudited Pro Forma Combined Statement of Operations Year Ended December 26, 2012Contents
| Year Ended December 26, 2012 | Period From January 12, 2012 to March 9, 2012(1) | Year Ended December 26, 2012 | ||||||||||||||
| BI-LO(2) | Winn-Dixie | Pro Forma Adjustments | Total Pro Forma | |||||||||||||
| (Amounts in thousands) | ||||||||||||||||
Net sales | $ | 8,632,861 | $ | 1,102,755 | $ | — | $ | 9,735,616 | ||||||||
Cost of sales, including warehouse and delivery expense | 6,282,443 | 781,368 | (3,789 | )(3)(4) | 7,060,022 | |||||||||||
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Gross profit | 2,350,418 | 321,387 | 3,789 | 2,675,594 | ||||||||||||
Operating, general and administrative expenses | 2,136,317 | 344,107 | (44,446 | )(4)(5) | 2,435,978 | |||||||||||
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Income (loss) from operations | 214,101 | (22,720 | ) | 48,235 | 239,616 | |||||||||||
Interest expense | 76,867 | 1,929 | 2,240 | (6) | 81,036 | |||||||||||
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Income (loss) from continuing operations before income taxes | 137,234 | (24,649 | ) | 45,995 | 158,580 | |||||||||||
Income tax provision (benefit) | 7,647 | (152 | ) | — | (7) | 7,495 | ||||||||||
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Income (loss) from continuing operations | 129,587 | (24,497 | ) | 45,995 | 151,085 | |||||||||||
(Loss) income from discontinued operations | (26,465 | ) | 2,228 | — | (24,237 | ) | ||||||||||
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Net income (loss) | $ | 103,122 | $ | (22,269 | ) | $ | 45,995 | $ | 126,848 | |||||||
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MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our historical consolidated financial conditionstatements includes periods before the Reorganization as described below under "—Key Factors Affecting Our Results of Operations—The Reorganization and Fresh Start Accounting." Accordingly, the discussion and analysis of such periods does not reflect the significant impact the Reorganization has had and will have on our results of operations. As a result, our historical results of operations are not comparable and may not be indicative of our future results of operations. In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity and capital resources and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by the forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Selected Historical Consolidated Financial and Other Data," "—Liquidity and Capital Resources" and the financial statements and the related notes thereto included elsewhere in this prospectus.
Information presented for the 28 weeks ended July 10, 2013 and July 14, 2012 and for the fiscal years ended December 26, 2012, December 31, 2011 and January 1, 2011 should be read in conjunction with “Selected Consolidated and Combined Financial Data,” “Unaudited Pro Forma Combined Financial Information”8, 2020 (Successor) and the historical audited consolidated financial statements and the28 weeks ended July 10, 2019 (Successor) is derived from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. Some ofInformation presented for the information contained in this discussionyear ended December 25, 2019 (Successor), the 30 weeks ended December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and analysis or set forththe year ended December 27, 2017 (Predecessor) is derived from our audited consolidated financial statements included elsewhere in this prospectus, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section entitled “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in this prospectus.
Our CompanyOverview
We are a supermarket operatorleading regional food retailer based on revenue and number of stores we operate with a long-standing history in Jacksonville, Florida. Prior to the acquisition of Winn-Dixie (as discussed below) on March 9, 2012, we operated retailSoutheastern United States, serving highly attractive markets throughout Florida, Georgia, Alabama, Louisiana and Mississippi. We operate 420 stores under the “BI-LO”, “Super BI-LO”"Winn-Dixie," "Harveys" and “BI-LO at the Beach”"Fresco y Más" supermarket banners. Subsequent to the acquisition, we added retail stores operated under the “Winn-Dixie” banner. As of July 10, 2013, we operated 685 retail stores in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee.
We strive to differentiate ourselves from our competitors by providing our customers with a value proposition that combines conveniently located and well-maintained stores (averaging 40,000-50,000 square feet), with a strong focus on customer service, high-quality food products, and prices that are competitive with other conventional supermarket operators in our markets. We generate revenues by selling an assortment of grocery products, including dry and canned groceries, frozen items, produce, dairy, meat and seafood, bread and baked goods, and other fresh product offerings. In addition, a majority of our stores include pharmacies. We have experienced a total of 18 consecutive quarters of positive pro forma comparable stores growth.
Performance Highlights
Key highlights of our recent performance are provided below and are discussed in further detail throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Key Financial Definitions
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Outlook
We intend to continue our profitable growth by driving sales while increasing or preserving operating margins. Key elements of our strategy include increasing customer loyalty, offering high-quality products, creating innovative merchandising initiatives and promotions and continuing to provide a superior, value-oriented in-store experience. We also intend to enhance our operating margins through continued cost discipline and enhancements to our merchandise offerings. In addition, we intend to selectively pursue expansion through acquisitions and organic store growth, and will target new store growth in existing markets where we believe we are well positioned to capitalize on opportunities.
We believe that we are well positioned to capitalize on evolving consumer preferences and other trends currently shaping the food retail industry. These trends include: a growing emphasis on the customer shopping experience; an increasing consumer focus on healthy eating choices and fresh, quality offerings; and an improving perception of private-label product quality.
Acquisition of Winn-Dixie
On March 9, 2012, we acquired all of the common stock of Winn-Dixie at a total purchase price of approximately $559.3 million ($416.7 million, net of cash acquired). Founded in 1925, Winn-Dixie is a grocery retailer which, as of the acquisition date, operated 482 retail locations in southeastern states or market areas in which BI-LO did not previously operate, including Florida, Alabama, Louisiana, Georgia and Mississippi.
The Winn-Dixie acquisition significantly expanded our store base and geographic market area, with no overlap in markets between BI-LO and Winn-Dixie. Both BI-LO and Winn-Dixie are strong regional brands, and we will continue to operate under both brand names in their respective markets. The acquired Winn-Dixie stores contain substantially the same selling departments, sell substantially the same products within those departments and are substantially the same size as the BI-LO stores. No BI-LO or Winn-Dixie stores were closed as a result of the merger.
On March 12, 2012, we announced the relocation of the Company’s headquarters to Jacksonville, Florida. Our relocation and integration efforts that are currently in progress will continue through 2013.
The Winn-Dixie acquisition has significantly expanded our store base and geographic market area. We believe we are the sixth largest conventional supermarket operator in the United States and the second largest conventional supermarket operator in the five states in which we operate, respectively, based on aggregate number of stores. The combination of BI-LOstores we operate. According to IRI Worldwide industry data, we maintain the #2 market share position by revenue among the 13 conventional supermarkets that are our competitors within the six major markets in which we compete in the five states in which we operate. Additionally, we operate 140 liquor stores, 231 in-store pharmacies and Winn-Dixie has presented usone centralized specialty pharmacy, which supplement our product assortment and drive incremental customer traffic to our stores.
We operate our business as a single unit with a significant opportunitysingle management team, but execute our go-to-market strategy through three well-positioned banners with differentiated strengths and distinct heritages. We strive to generate merger integration synergies. This synergy opportunity, in conjunctionbuild a strong connection with our beliefcustomers and differentiate ourselves from our competitors by providing a compelling shopping experience that combines a full-service, one-stop shop, emphasizing high-quality, fresh and locally tailored offerings, with excellent customer service and competitive prices.
While the descriptions of our business and operational data provided in this prospectus, including in this "Overview" section, give effect to the Planned Dispositions, our discussion and analysis of our financial condition and historical results of operations below do not give effect to the Planned Dispositions.
Key Components of Results of Operations and Key Metrics
Stores
The following table shows stores operating, opened, closed and sold and average square footage during the periods presented:
| | Successor | | Predecessor | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | Fiscal 2016 | Fiscal 2015 | ||||||||||||||||||
Opened during fiscal period(1) | 1 | 3 | 3 | — | 1 | 1 | 2 | — | |||||||||||||||||||
Closed or sold during fiscal period(2) | 3 | 25 | 29 | 3 | 127 | 35 | 21 | 48 | |||||||||||||||||||
In operation at fiscal period-end | 545 | 551 | 547 | 573 | 576 | 702 | 736 | 755 | |||||||||||||||||||
Period-end average supermarket square footage (in thousands) | 45.8 | 45.8 | 45.8 | 45.8 | 45.8 | 45.1 | 45.0 | 44.9 | |||||||||||||||||||
Net Sales
Net sales is recognized at the point of sale when the product is provided to the customer. Sales are recorded net of discounts and exclude any sales tax. Discounts provided to customers by vendors, usually in the form of coupons, are not recognized as a reduction in sales, provided the coupons are redeemable at any retailer that accepts coupons. We recognize revenue and record a corresponding receivable from the vendor for the difference between the sales prices and the cash received from the customer. Comparable store sales, average item value, unit volume, items per transaction and number of transactions are key indicators of net sales.
Comparable store sales
Comparable store sales are sales from all stores that have been operated by us and open for at least a full year, including stores that we can more efficiently deployremodeled, enlarged or relocated during the period, and excluding stores that opened or closed during the period. Remodeled stores include banner conversions. We compute the percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating weeks in the comparable reporting period of the prior year. Also, the quarterly comparable store sales are adjusted for the estimated impact of the timing of Easter. This definition may differ from the methods that other retailers use to calculate comparable store sales.
The following chart sets forth the percentage change in our comparative store sales for each quarter during fiscal year 2018, 2019 and 2020:
Comparable store sales for the first two quarters of 2020 reflect the impact of COVID-19.
Cost of sales and gross profit
Cost of sales includes the cost of inventory sold during the period (net of discounts and vendor allowances), inventory shortages and purchasing, transportation and warehouse costs as well as depreciation and amortization related to transportation and warehouses.
Gross profit represents total revenues, which includes net sales and other operating income, less cost of sales. Gross profit is impacted by changes in the mix of products, the rate at which we open or acquire new stores, adjustments to our merchandising plans, pricing and promotion programs and distribution expenses, including fuel costs.
Operating, general and administrative expenses
Operating, general and administrative expenses includes store labor and benefits expense, advertising expense, lease expense, net of sublease income, other store operating expenses, administrative expense, depreciation and amortization expense, impairment expense and other expenses and charges.
Interest expense
Interest expense includes capital lease interest, other interest and conduct operations at Winn-Dixie, underpinnedamortization of deferred financings costs.
Comprehensive income (loss)
Comprehensive income (loss) represents net income (loss) plus unrealized post-retirement benefit plan gain (loss).
Non-GAAP Earnings Measures
In addition to reporting GAAP results, we evaluate performance and report our rationale in pursuingresults on certain Non-GAAP Measures. We believe that the acquisition. A substantial portionpresentation of these expected synergies has already been realized,Non-GAAP Measures provides useful information to investors regarding our results, operating trends and we expect that the full impactperformance between periods. We define Adjusted EBITDA as EBITDA, adjusted for loss (gain) on sale or disposition of these synergies on a run-rate basis will be realized by the end of fiscal year 2014. Key areas where we have realized savings and where we expect to generate additional savings are in elimination of duplicative overhead costs, strategic sourcing and vendor initiatives, advertising efficiencies and optimization of store labor hours.
During the integration process, we have incurred certain one-time costs specific to the integration, including the costs of professionals to assistassets; expenses associated with the integration tasks and employee-related costs, such as severance, retention and relocation. We incurred approximately $71.8 millionclosing or disposition of these costs through July 10, 2013, includingstores; impairment expense; franchise taxes; expenses (income) in connection with the relocationReorganization (as discussed below), business optimization, and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our headquarters during fiscal 2012,pricing and expectpromotional strategy, cost savings initiatives, as well as activities relating to incur modest additionalthe Planned Dispositions and public company preparation costs; incremental costs
attributable to completeopening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; and board of directors fees. We define Net Sales Adjusted for the integration efforts. However, we believe thatPlanned Dispositions as net sales less the expected long-term savings and synergies will enhance our long-term profitability.
Innet sales of the stores to be sold in connection with the merger,Planned Dispositions or closed in the normal course since the beginning of fiscal year 2019. We define Total Debt as the sum of long-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and finance/capital lease obligations (including the current portion thereof) and other financing obligations and we entered intodefine Total Net Debt as Total Debt less cash.
We believe that these supplemental Non-GAAP Measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental Non-GAAP Measures internally to understand, manage and evaluate our business and make operating decisions. Non-GAAP Measures should be viewed in addition to, and not as an alternative to our reported results prepared in accordance with GAAP. See "Summary Historical Consolidated Financial and Other Data—Non-GAAP Financial Measures."
Key Factors Affecting Our Results of Operations
Coronavirus (COVID-19)
On March 11, 2020, the ABL facility, which maturesWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a global pandemic, and on March 13, 2020, the United States declared the pandemic to be a national emergency. Since then, COVID-19 has resulted in March 2017,national, state and which replaced our $100 million revolving credit facility entered intolocal authorities mandating or recommending isolation measures for large portions of the population, including shelter-in-place orders, social distancing measures, business and school closures, quarantines, travel restrictions and multi-step policies with the goal of re-opening. While some of these restrictions have been lifted or eased in February 2011.many jurisdictions as the rates of COVID-19 infections have decreased or stabilized, a resurgence of the pandemic in some areas has slowed or halted the reopening process altogether. The purchase price was funded principally by a $260 million drawimpact of these measures on the ABL facilityU.S. economy, as well as the effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, is uncertain.
We have been classified as an essential business in all jurisdictions in which we operate and have remained open to serve the needs of our customers. Our priority has been to continue to serve our customers in a $275 million equity contribution from Lone Star. The remaining purchase priceway that protects the health and acquisition-related costs were funded from cash on hand.
The fair value estimate of assets acquired and liabilities assumed and Since the allocationbeginning of the purchase priceCOVID-19 pandemic, our results of operations have benefited from a significant increase in sales over multiple months due to increased demand from our customers stockpiling groceries and consuming more food at home as restaurants have not fully reopened to pre-pandemic levels. Consumer staples, paper goods, meat, alcoholic beverages and cleaning supplies have been among the products being purchased in significant quantities. We have experienced significant increases in basket sizes with fewer transactions as customers' behaviors are adjusting to these new circumstances. We believe that because of the COVID-19 pandemic customers consolidated trips to our stores, which has resulted in a lower transaction count but a higher spend per visit. In addition, there has been a substantial increase in customer demand and engagement with our online orders for home delivery, which we offer at most of our stores through our third-party partnerships.
In response to the COVID-19 pandemic, we have made, and plan to continue to make, significant investments to support and safeguard our front-line store associates. These investments primarily relate to items within Operating, General and Administrative expenses, and include additional compensation and benefits, such as associate appreciation awards and pay, and personal protective equipment and supplies, such as partitions installed at check lanes. In addition, we have implemented additional cleaning of high-touch areas in our stores, including check stands, service counters and
shopping carts, as well as added floor decals to promote physical distancing. We have also made significant investments in our communities. For example, we raised $2.2 million for Folds of Honor and $1.3 million for local food banks.
The significant increase in net assets acquiredincome and cash flow generated during the COVID-19 pandemic has enabled us to further deleverage, and accelerate our in-store and digital investments and our customer connectivity initiatives. In addition, we have been determined by management withable to maintain our capital expenditures plan for fiscal year 2020, which includes investments in our new store and store renewal program.
We rely on various suppliers and vendors to provide and deliver our product inventory on a continuous basis. While we have experienced disruptions in product availability due to the assistance of independent valuation specialists. The determinationCOVID-19 pandemic, we could suffer significant lost revenue in the event of the assets acquired and liabilities assumed was based onloss or shutdown of a major supplier or vendor. The ability of vendors to supply required products to us may be interrupted due to illness or absenteeism in their workforces, government mandated shutdown orders or impaired financial conditions.
While we continue to closely monitor the established fair valueeconomic impact of the assets acquiredCOVID-19 pandemic and government mandates on our business, the liabilities assumed aslong-term impact of the acquisition date.
Our operating results and cash flows forpandemic is unknown at this time. We expect the 28 weeks ended July 10, 2013, and July 14, 2012, included 28 weeks and 18 weeks, respectively,impact of the Winn-DixieCOVID-19 pandemic and government mandates on our financial condition, results of operations and cash flows afterwill largely depend on the March 2012 acquisition. Therefore,extent and duration of the pandemic, the governmental and public actions taken in response, and the effect the pandemic will have on the U.S. economy. Moreover, the COVID-19 pandemic and government mandates make it more challenging for us to estimate future performance of our operating resultsbusiness, particularly over the near term. See "Risk Factors—Risks Related to Our Business and cash flowsIndustry—Our business has been, and we expect will continue to be, impacted by the COVID-19 pandemic" for the 28 weeks ended July 10, 2013,additional information.
The Reorganization and July 14, 2012, are not comparable.Fresh Start Accounting
Similarly, our operating resultsOn March 27, 2018, we filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court pursuant to a prepackaged plan of reorganization. We emerged from bankruptcy on May 31, 2018 and cash flows forwe elected to apply fresh start accounting effective May 30, 2018 (the "Effective Date"), to coincide with the 52 weeks ended December 26, 2012, includetiming of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the Winn-Dixie resultsuse of operations and cash flows from the acquisitionan accounting convenience date of March 9, 2012, through December 26, 2012. Due to the acquisition of Winn-Dixie in fiscal 2012,did not have a material impact on the results of operations or financial position.
Upon emergence from bankruptcy, we adopted fresh start accounting and became a new entity for financial reporting purposes with no ending retained earnings or deficit balance as of the Effective Date. Upon adoption of fresh start accounting, our assets and liabilities were recorded at their fair values as of May 30, 2018, which differed materially from the recorded values of those same assets and liabilities prior to May 30, 2018. As a result, our financial statements of financial conditionafter May 30, 2018 are not comparable with the Predecessor's financial statements on and prior to prior periods.May 30, 2018. For additional information about our application of fresh start accounting, please see Note 3 to the audited consolidated financial statements included elsewhere in this prospectus.
As of December 25, 2019, we had NOLs for U.S. federal income tax purposes of $578.8 million, which will begin to expire in 2025. Additionally, we had U.S. state NOLs of $579.7 million, subject to various carryforward limitations depending upon the state authority, which expire at various times beginning in 2022. Due to the change in control associated with bankruptcy, the U.S. federal NOLs are subject to a limitation calculated under Section 382 of the Code. The federal annual limitation on these NOLs is $10.5 million, which limitation is expected to be increased under the built-in gain rules of Section 382 of the Code in the first five years following the bankruptcy for recognition of built-in gains of approximately $327 million. It is expected our U.S. state NOLs will have
Recent EventsTable of Contents
limitations similar to those imposed under Section 382 of the Code. For additional information, please see Note 12 to our audited financial statements included elsewhere in this prospectus.
Baldwin Sale/LeasebackImplementation of our Transformation Plan
On April 24,We have been implementing a multi-year transformation plan designed to reposition our business and create a better customer experience. Prior to 2017, our transformation plan focused on growth and regional consolidation, pursuant to which we undertook numerous, large-scale acquisitions, including the Winn-Dixie and Harveys banners in 2012 and 2013, onerespectively. In 2017, we began implementing the next phase of our subsidiaries entered into the Baldwin Sale/Leaseback,plan, which focused on our efficient deployment of capital and investment in our infrastructure, including a sale leaseback transaction with AR Capital, LLC whereby our Baldwin distribution center and certain related personal property was sold to AR Capital, LLC and, immediately thereafter, we leased back the property. The lease has an initial term of 20 years with four five-year extension options. The consideration for the sale was approximately $99.8 million, of which approximately $83.5 million is required under the termssystem-wide refresh of our senior secured notesstores, improved automated ordering systems and the re-launch of our Owned Brands strategy and loyalty program, among other initiatives. In 2018, in connection with the Reorganization, we reduced outstanding debt by $635.9 million.
The current phase of our multiyear plan is focused on rejuvenating our store fleet through increased renewals, aligning our promotional activity, optimizing our product assortment, including a greater focus on fresh and our Own Brands portfolio, and enhancing customer connectivity utilizing our sophisticated loyalty program. After giving effect to the Planned Dispositions, from the beginning of fiscal 2016 through July 8, 2020, we have renewed 51% of our stores. By the end of 2020, we expect to have over 180 store renewals completed, which, together with our banner conversions, will put our percentage of stores renewed at 55% since the beginning of fiscal 2016. We aim to renew another 42% of stores in the next four years bringing our total stores renewed to 97% by the end of 2024. We also aim to obtain an average store age of less than four years by the end of 2024. For the 125 renewed stores that have been open for longer than 12 months, as of July 8, 2020, we experienced an average sales increase of approximately 10% and a return on investment that consistently exceeded our internal 20% target. Our results of operations have been and will continue to be held in a collateral account pending reinvestment. See “Descriptionimpacted by the success of Indebtedness—Baldwin Sale/Leaseback”. This transaction is accounted for similarly to a nonqualified sale/leaseback. Therefore, the related asset remains on the balance sheet and continues to be depreciated, and another financing obligation was recorded for the amount of $99.8 million, which is being amortized over the life of the lease.
these initiatives.
C&S Supply ArrangementStore Openings and Closings
Opening new stores and closing existing stores impact our results of operations. Costs related to both openings and closings are charged to operations as incurred. New stores require an initial capital investment in the store build-outs, fixtures and equipment which we amortize over time as well as cash required for inventory and pre-opening expenses. See "—Key Components of Results of Operations and Key Metrics—New Stores." Costs of closing stores include, among other things, non-cancelable lease payments, real estate taxes, common area maintenance charges and utility costs.
Store Count as of July 8, 2020
As of July 8, 2020, we operated 545 stores located in Florida, South Carolina, Georgia, Alabama, Louisiana, North Carolina and Mississippi. After giving effect to the Planned Dispositions,
we will operate 420 stores in Florida, Alabama, Louisiana, Georgia and Mississippi. The following table shows the number of stores we operate in each state:
| | STORE COUNT | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | Current(1) | | After Planned Dispositions | ||||||
Florida | 320 | 320 | |||||||
South Carolina | 84 | — | |||||||
Georgia | 55 | 25 | |||||||
Alabama | 39 | 39 | |||||||
Louisiana | 29 | 29 | |||||||
North Carolina | 11 | — | |||||||
Mississippi | 7 | 7 | |||||||
| | | | | | | | | | |
Total | 545 | 420 | |||||||
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Planned Dispositions
On May 10, 2013,29, 2020, we entered into the C&S supply arrangement, under which C&S agreedFood Lion Store Sales Agreement to provide inventory supply services, including warehouse, transportation and inventory procurement, maintenance and purchasing services, for both thesell 62 stores (comprised of 46 BI-LO and Winn-Dixie brand stores and subject16 Harveys stores) to certain exceptions, certain stores thatFood Lion, LLC. In connection with the Planned Dispositions, we may acquirealso entered into an agreement with Ahold Delhaize to transition the distribution center located in the future.Mauldin, South Carolina to Ahold Delhaize. Under the C&S supply arrangement, C&S provides products to us at prices based on manufacturer’s prices, market conditions, availability and the aggregate volumeterms of items thatthese agreements, we purchase. Upon full implementation, the C&S supply arrangement replaces the existing inventory supply arrangements that the BI-LO brand stores have had with C&S, and requires us to exclusively purchase retail merchandise, other than direct store delivery items and pharmaceutical drugs, from C&S for resale at substantially all of our stores. The C&S supply arrangement, when fully implemented, will reduce our capital lease balance by approximately $23 million and will reduce our inventory by approximately $186 million (based upon inventory balances as of July 10, 2013). We project that, after full implementation, the new arrangements with C&S will result in cost reductions of approximately $35 million per year, consisting of reductions in the cost of inventory and supplies. We anticipate that these benefits will be realized on a run-rate basis by the end of fiscal year 2014. The term of the C&S supply arrangement is eight years.
Delhaize Transaction
On May 27, 2013, the Company entered into the Delhaize merger agreement with Delhaize to acquiresell substantially all of the store-related assets (including the owned and assume the leasesleased real property), exclusive of 155 stores operating under the “Sweetbay,” “Harveys”certain assets including inventory and “Reid’s” banners plus ten previously closed locations, subject to regulatory approvals, which may require divestitures, for cash consideration of $265 million plus lease assumptions.pharmacy prescription files. The transaction is expected to
close in the first quarter of 2014, subject to regulatory approvals, which may require divestitures, and other customary closing conditions, including expiration or termination of the waiting period under the HSR Act. We intend to finance the Delhaize transaction with a combination of borrowings under the ABL facility and with cash on hand, including a substantial portion of the funds on deposit with the trustee for our senior secured notes from the Baldwin Sale/Leaseback.
Store Disposition
On July 22, 2013, we entered into an agreement with Publix Super Markets, Inc. to sell seven leased stores for approximately $59 million, with an expected pre-tax gain of approximately $50 million. Thesale transaction is expected to close induring the fourthfirst quarter of fiscal 2013.year 2021, subject to regulatory approvals and other customary closing conditions.
Also in May 2020, we entered into agreements to sell the pharmacy prescription files for 58 of the in-store pharmacies that we operate under the BI-LO, Harveys and Winn-Dixie supermarket banners to CVS and Walgreens, which sales closed in the late part of the second quarter of fiscal year 2020. The total sale price was $56.3 million for the pharmacy prescription files and $6.8 million for the acquired inventory.
In addition, in June 2020, we announced our intention to sell an additional 63 stores, comprised of 61 BI-LO stores and two Harveys stores, in North Carolina, South Carolina and Georgia by the end of first half of fiscal year 2021. In September 2020, we announced an agreement to sell 23 of the 63 stores (together with the Food Lion Store Sales Agreement, the "Store Sales Agreements"), comprised of 22 BI-LO stores and one Harveys, in South Carolina and Georgia to Alex Lee, under which Alex Lee will purchase 20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. After these dispositions, we will no longer operate stores under the BI-LO banner. Approximately 87% of our remaining portfolio will consist of the Winn-Dixie banner subsequent to the dispositions. We refer to the planned sale of these 40 remaining stores, together with 85 stores that are being sold pursuant to the Store Sales Agreement, as the "Planned Dispositions."
See "Prospectus Summary—Successful Repositioning of the Business has Driven Strong Financial Momentum."
Piggly Wiggly TransactionImpact of Competition
On September 4, 2013, we enteredOur net sales are impacted by competitive store openings in our market areas, competitors expanding their capabilities further into an agreementeCommerce, as well as competition from new channels. See, "Risk Factors—Risks Related to Our Business and Industry—We operate in a highly competitive industry with Piggly Wiggly Carolina Companylow profit margins, and any failure to purchase 21 Piggly Wiggly operating supermarkets forcompete successfully, as a purchase priceresult of approximately $35 million in cash. We expect this transaction to close in the fourth quarteractions taken by our competitors or otherwise, could materially adversely affect our business, financial condition and results of fiscal 2013.
operations."
Florida and Louisiana Store Sale LeasebackIncremental Public Company Expenses
On September 13, 2013, we agreed to enter into a sale leaseback transaction wherebyFollowing our initial public offering, we will sell six of our stores located in Floridaincur significant expenses on an ongoing basis that we did not incur as a private company. Those costs include additional director and Louisiana for consideration of approximately $45 millionofficer liability insurance expenses, as well as third-party and immediately thereafter, weinternal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal and investor and public relations expenses. These costs will lease back these store locations. The transaction is subject to customary conditions, including completion of due diligence by our counterparty. The transaction is expected to close in the fourth quarter of fiscal 2013.generally be expensed under SG&A.
Issuance of PIK Toggle Notes
On September 20, 2013, we issued $475 million aggregate principal amount of our PIK toggle notes. The net proceeds from the issuance of the notes were used to make an approximately $458 million distribution to Lone Star. Lone Star made a $15 million capital contribution on September 20, 2013.
Fiscal Periods
Beginning with fiscal 2012,We end our fiscal year ends on the last Wednesday in December. Prior to fiscal 2012,December and report our fiscal year ended on the Saturday closest to December 31. The three day change in our fiscal 2012 year was not significant to ouryear-end financial condition,position, results of operations orand cash flows. Fiscal 2010 andflows accordingly. The last three fiscal 2011 were each comprisedyears consisted of 52 weeksthe 52-week periods ended January 1, 2011, and December 31, 2011, respectively. Fiscal 2012 was comprised of 5225, 2019 (Successor), the 30 weeks ended December 26, 2012, as previously described.2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and December 27, 2017 (Predecessor). The first quarter of each fiscal year includes 16 weeks while the remaining quarters include 12 weeks each quarter.
Results of Operations
As a result of the Reorganization on May 31, 2018, the historical financial statements and information are presented on a Successor and Predecessor basis. The following tables set forth our historical results of operations for the periods indicated below:
| | Successor | | Predecessor | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||||||
Net sales | $ | 5,262.8 | $ | 4,502.7 | $ | 8,277.4 | $ | 4,829.7 | $ | 3,942.8 | $ | 9,875.1 | |||||||||
Gross profit | 1,455.8 | 1,177.5 | 2,160.2 | 1,243.7 | 1,028.6 | 2,596.8 | |||||||||||||||
Operating, general and administrative expenses | 1,210.9 | 1,195.7 | 2,195.0 | 1,313.9 | 1,024.7 | 2,638.8 | |||||||||||||||
Interest expense | 36.9 | 44.6 | 82.3 | 64.5 | 51.0 | 135.1 | |||||||||||||||
Reorganization items, net | — | — | — | — | (792.3 | ) | — | ||||||||||||||
Income tax expense (benefit) | 2.3 | (0.5 | ) | (1.0 | ) | (48.3 | ) | (16.3 | ) | (38.3 | ) | ||||||||||
We believe that combining the net sales and gross profits of the Predecessor and Successor periods within fiscal year 2018 is useful for the assessment of our ongoing financial and operational performance and trends because there was continuity of our operations before and after the Reorganization and these results were not impacted by the adoption of fresh start accounting. Accordingly, in the discussion below, we compare our net sales and gross profit from fiscal year 2019
and fiscal year 2017 to the combined Predecessor and Successor periods for fiscal year 2018. References to "fiscal year 2018" below refer to the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) periods combined, which reflects the addition of the two periods with no other adjustments.
The 28-Week Period Ended July 10, 2013 as Compared to the 28-Week Period Ended July 14, 2012
The following discussion summarizes ourComparison of operating results for the 28-week periods28 weeks ended July 14, 2012 and8, 2020 (Successor) to the 28 weeks ended July 10, 2013, including the results of operations and cash flows of Winn-Dixie after its March 9, 2012 acquisition date.2019 (Successor)
Net Sales
The following table summarizes our increase in comparable store sales between the 28-week period ended July 14, 2012 and the 28-week period ended July 10, 2013:
| 28 weeks ended | Increase (Decrease) | |||||||||||||||
| July 14, 2012 | July 10, 2013 | $ | % | |||||||||||||
| (dollar amounts in millions) | ||||||||||||||||
Net sales | $ | 4,097.1 | $ | 5,574.5 | $ | 1,477.4 | ||||||||||
Other income | (28.9 | ) | (43.7 | ) | (14.8 | ) | ||||||||||
Acquired Winn-Dixie stores(1) | — | (1,484.2 | ) | (1,484.2 | ) | |||||||||||
Closed/new stores | (5.3 | ) | (13.3 | ) | (8.0 | ) | ||||||||||
3 days ended July 14, 2012(2) | (90.8 | ) | — | 90.8 | ||||||||||||
3 days ended December 31, 2011(2) | 28.4 | — | (28.4 | ) | ||||||||||||
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Comparable store sales | $ | 4,000.5 | $ | 4,033.3 | $ | 32.8 | 0.8 | % | ||||||||
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The following table summarizes our increase in pro forma comparable store sales between the 28-week period ended July 14, 2012 and the 28-week period ended July 10, 2013:
| 28 weeks ended | Increase (Decrease) | |||||||||||||||
| July 14, 2012 | July 10, 2013 | $ | % | |||||||||||||
| (dollar amounts in millions) | ||||||||||||||||
Net sales | $ | 4,097.1 | $ | 5,574.5 | $ | 1,477.4 | ||||||||||
Other income | (28.9 | ) | (43.7 | ) | (14.8 | ) | ||||||||||
Acquired Winn-Dixie stores(1) | 1,417.2 | — | (1,417.2 | ) | ||||||||||||
Closed/new stores | (5.3 | ) | (13.3 | ) | (8.0 | ) | ||||||||||
3 days ended July 14, 2012(2) | (90.8 | ) | — | 90.8 | ||||||||||||
3 days ended December 31, 2011(2) | 28.4 | — | (28.4 | ) | ||||||||||||
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Pro forma comparable store sales | $ | 5,417.7 | $ | 5,517.5 | $ | 99.8 | 1.8 | % | ||||||||
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Net sales for the 28 weeks ended July 8, 2020 (Successor) were $5.3 billion compared to $4.5 billion for the 28 weeks ended July 10, 2013, increased2019 (Successor), an increase of 16.9% as compared to the same period in the prior fiscal year, primarily due primarily to sales from acquired Winn-Dixie stores.the increase in demand for products due to COVID-19.
ForThe following table presents comparable store sales for the 28 weeks ended July 8, 2020 (Successor) and July 10, 2013, comparable store sales increased 0.8% as compared to the corresponding period in the prior fiscal year resulting from a 0.6% increase in average transaction size and a 0.2% increase in number2019 (Successor), respectively:
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| (in millions) | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | | $ | % | ||||||||||
Net sales | $ | 5,262.8 | $ | 4,502.7 | 760.1 | 16.9 | % | ||||||||
Other income(1) | 6.8 | (4.3 | ) | 11.1 | |||||||||||
Closed/new stores | (66.5 | ) | (103.9 | ) | 37.4 | ||||||||||
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Comparable store sales | 5,203.1 | $ | 4,394.5 | 808.6 | 18.4 | % | |||||||||
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The $14.8 million increase in other operating income was due primarily to other operating income from the acquired Winn-Dixie stores primarilyrevenue from products and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product packaging and fees related to customer money transfers).
Gross Profit We define comparable store sales as sales from stores that have been open for at least a year, including stores that we remodeled, enlarged, or relocated during the period and excluding stores that opened or closed during the period. Remodeled stores include banner conversions.
Gross profit was $1,508.6 million, or 27.1% of netComparable store sales and $1,124.6 million, or 27.4% of net sales,were $5.2 billion for the 28 weeks ended July 8, 2020 as compared to $4.4 billion for the 28 weeks ended July 10, 2013 and July 14, 2012, respectively.2019. The $384.0 millionincrease of 18.4% resulted from the increase in gross profit dollars wasvolume due primarily to the grossincrease in demand for products due to COVID-19.
Gross Profit
Gross profit fromfor the acquired Winn-Dixie stores. The gross profit as a percent28 weeks ended July 8, 2020 (Successor) and the 28 weeks ended July 10, 2019 (Successor) was $1.5 billion, or 27.7% of net sales, decreaseand $1.2 billion, or 26.2% of 30 basis points is due primarily to pricingnet sales, respectively. The increase was driven by the additional sales leverage, including shrink benefits, from COVID-19 and promotion programs focused on driving sales.
a lower promotional environment.
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the 28 weeks ended July 10, 20138, 2020 (Successor) and July 14, 2012 was $1,308.3 million10, 2019 (Successor) were $1.2 billion, or 23.0% of net sales, and $1,024.3 million,$1.2 billion, or 26.6% of net sales, respectively. The $299.7 million increase for the 28 weeks ended July 10, 2013,decrease as compareda percentage of net sales is due to the same period in the prior fiscal year was due primarily toimproved sales leverage from higher sales partially offset by additional costs such as payroll and other costs related to the acquired Winn-Dixie stores, offset by a decrease in store labor and benefits in Winn-Dixie stores as these stores were integrated into the BI-LO store labor model, and income from the early terminationCOVID-19.
Table of a software capital lease agreement.
The majority of corporate and support functions are in the process of being combined or restructured in order to provide integrated support to the combined store base. As the integration efforts are completed and one-time costs are incurred related to employee severance, retention, and relocation, we expect to experience additional reductions in certain corporate and support costs.
Merger and integration expense includes estimated employee severance costs of $3.0 million and $18.8 million, respectively, and professional fees and other costs of $10.1 million and $23.5 million, respectively, resulting from the headquarters relocation and the integration efforts. Severance resulting from the headquarters relocation will be paid as certain jobs are eliminated continuing through fiscal 2013.
Contents
Interest Expense
Interest expense for the 28 weeks ended July 10, 2013, and July 14, 20128, 2020 (Successor) was $46.6$36.9 million and $39.5 million, respectively. The $7.1 million increase was attributable primarilyas compared to interest on $140 million of our senior secured notes that were issued in October 2012 and additional interest expense on the ABL facility. See “—Liquidity and Capital Resources,” “Description of Indebtedness—The ABL Facility” and “Description of Indebtedness—Our Senior Secured Notes.”
Income Tax (Benefit) Expense
Income tax (benefit) expense for the 28 weeks ended July 10, 2013 and July 14, 2012 was $(56.1) million and $2.2 million, respectively.2019 (Successor) of $44.6 million. The $58.3 million changedecline is due primarily to lower interest on our determination that approximately $159.6 million of our deferredRevolving Credit Facility and Term Loan Facility due to reduced debt balances as well as lower variable interest rates.
Income Tax Expense (Benefit)
Income tax assets previously subject to a valuation allowance is more likely than not realizable in either the current or future tax years as a result of 3 years of cumulative pre tax profit and management’s expectation of future profitability. This release of the valuation allowance is reflected as an approximate $76.9 million discrete deferred tax benefit recorded duringexpense for the 28 weeks ended July 10, 2013, with8, 2020 (Successor) was $2.3 million as compared to the remaining deferred tax benefit recognized as a reduction of our effective income tax rate throughout the current fiscal year as such additional deferred tax assets are utilized to offset current expected taxable income. This amount was offset by increased state and federal taxes on taxable income. Our estimated effective tax rate for fiscal 2013, excluding the $76.9 million discrete deferred tax benefit is 13.5%. We may not be able to fully offset federal or certain state taxable income with NOL carryforwards in the current or future years as the use of certain NOLs are limited.
We released the portion of the valuation allowance on our deferred tax assets for which there is sufficient positive evidence to conclude that such deferred tax assets will be realized. We maintain a valuation allowance against substantially all of our net deferred tax assets that are not currently more likely than not expected to be
realized due primarily to continued limitations on their use. The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that those net deferred tax assets will be realized.
We recognized deferred tax expense of $2.2 million during the 28 weeks ended July 14, 2012 resulting from a difference in the book and tax treatment of our trade name assets. This expense recognition did not have a cash effect.
Income (Loss) from Discontinued Operations
Loss (income) from discontinued operations was $(1.7) million and $1.2 million for the 28 weeks ended July 10, 20132019 (Successor) of $0.5 million. The expense (benefit) is a result of the change in valuation allowance due to changes in deferred tax assets and July 14, 2012, respectively. We closed four stores duringliabilities and the 28 weeks ended July 10, 2013. Results of operations for three of these closed stores were classified as discontinued operations for all periods presented. Net sales from discontinued operations for the 28 weeks ended July 10, 2013 were $2.9 million and $7.2 million for the 28 weeks ended July 14, 2012.associated valuation allowance. For the 28 weeks ended July 10, 2013, the loss on disposal of discontinued operations consisted primarily of $1.4 million of lease termination costs.
Net Income and Comprehensive Income
Net8, 2020 (Successor), income was $208.0 million and $59.8 million for the 28 weeks ended July 10, 2013 and July 14, 2012, respectively,tax expense is also due to the items discussed above. Comprehensive income differs fromexpected current taxes owed in excess of the net income for the 28 weeks ended July 10, 2013 due to the amortization of actuarial gains relating to the post-retirement benefit plan of Winn-Dixie.
operating loss ("NOL") carryforwards available.
Fiscal 2012 as Compared to Fiscal 2011
The following discussion summarizes ourComparison of operating results for fiscal 2012 and fiscal 2011, includingyear ended December 25, 2019 ("2019") (Successor) to the results of operations and cash flows of Winn-Dixie from its March 9, 2012, acquisition date. As of30 weeks ended December 26, 2012, we operated 689 stores compared to 207 stores as of December 31, 2011. The increase in stores was due to2018 (Successor) and the acquisition of the Winn-Dixie stores on March 9, 2012.
22 weeks ended May 30, 2018 (Predecessor)
Net Sales
Net sales were $8.3 billion for fiscal year 2019 (Successor) as compared to $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.9 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.8 billion for fiscal year 2018. The decrease of 5.6% was due primarily to a loss of sales from closed or sold stores.
The following table summarizes our increase in comparable store sales between fiscal 2011 and fiscal 2012:
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Net sales | $ | 2,779.2 | $ | 8,632.9 | $ | 5,853.6 | ||||||||||
Other income | (18.2 | ) | (63.3 | ) | (45.1 | ) | ||||||||||
Acquired Winn-Dixie stores | — | (5,759.3 | ) | (5,759.3 | ) | |||||||||||
Closed/new stores | (6.0 | ) | (0.2 | ) | 5.8 | |||||||||||
3 days ended Dec. 31, 2011 | (28.4 | ) | 28.4 | |||||||||||||
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Comparable store sales (361 days) | $ | 2,726.7 | $ | 2,810.0 | $ | 83.4 | 3.1 | % | ||||||||
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The following table summarizes our increase in pro forma comparable store sales between fiscal 2011 and fiscal 2012:
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Net sales | $ | 2,779.2 | $ | 8,632.9 | $ | 5,853.6 | ||||||||||
Other income | (18.2 | ) | (63.3 | ) | (45.1 | ) | ||||||||||
Acquired Winn-Dixie stores | 6,830.1 | 1,347.4 | (5,482.7 | ) | ||||||||||||
Closed/new stores | (18.4 | ) | (13.2 | ) | 5.2 | |||||||||||
3 days ended Dec 31, 2011 | (28.4 | ) | — | 28.4 | ||||||||||||
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Pro forma comparable store sales (361 days) | $ | 9,544.4 | $ | 9,903.7 | $ | 359.4 | 3.8 | % | ||||||||
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Net sales increase was attributable primarily to sales from acquired Winn-Dixie stores and a 3.1% increase in BI-LO stores comparable store sales as compared to the prior fiscal year. Comparable store sales exclude sales from the acquired Winn-Dixie stores. Ourpresents comparable store sales for the prior fiscal year have been adjusted to reflect2019 (Successor), the current fiscal year change.
The 3.1% comparable store sales increase for BI-LO stores resulted from a 1.6% increase in average transaction size (driven by a 1.4% increase in average item value30 weeks ended December 26, 2018 (Successor) and a 0.2% increase in items per transaction) and a 1.5% increase in numberthe 22 weeks ended May 30, 2018 (Predecessor):
| | Successor | | Predecessor | | Increase (Decrease) | |||||||||||||||
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| (in millions) | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | | $ | % | |||||||||||||
Net sales | $ | 8,277.4 | $ | 4,829.7 | $ | 3,942.8 | (495.1 | ) | (5.6 | )% | ||||||||||
Other income(1) | (2.1 | ) | (0.1 | ) | (13.1 | ) | 11.1 | |||||||||||||
Closed/new stores | (141.3 | ) | (193.8 | ) | (467.9 | ) | 520.4 | |||||||||||||
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Comparable store sales | $ | 8,134.0 | $ | 4,635.8 | $ | 3,461.8 | 36.4 | 0.4 | % | |||||||||||
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The acquired Winn-Dixie stores achieved a 4.0% comparable store sales increase as compared to the prior fiscal year, resulting from a 2.8% increase in average transaction size and a 1.2% increase in number of transactions. The Winn-Dixie comparable store sales increase was due primarily to our product pricing and promotion initiatives, as well as an increase in sales from our fuelperks! program and store remodels.
If the pro forma comparable store sales were included for 361 days of both years, pro forma comparable sales would be a 3.8% increase.
The $45.0 million increase in other operating income was due primarily to the acquired Winn-Dixie stores totaling $46.1 million, primarilyrevenue from products and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product packaging and fees related to customer money transfers).
Comparable store sales were $8.1 billion for fiscal year 2019 (Successor) as compared to $4.6 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.5 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.1 billion for fiscal year 2018. The increase of 0.4% resulted from the impact of our pricing promotions, partially offset by a decrease in transactions.
Gross Profit
Gross profit was $2,350.4 million,$2.2 billion, or 27.2%26.1% of net sales, and $717.8 million,for fiscal year 2019 (Successor) as compared to $1.2 billion, or 25.8% of net sales, for fiscal 2012the 30 weeks ended December 26, 2018 (Successor) and fiscal 2011, respectively. The $1,632.6 million increase in gross profit dollars was due primarily to the gross profit from the acquired Winn-Dixie stores totaling $1,618.0 million. The gross profit excluding the acquired Winn-Dixie stores was $732.4 million,$1.0 billion, or 26.1% of net sales, as compared to $717.8 million, or 26.0% of sales, in the prior year due primarily to the increase in comparable store sales for the BI-LO stores from our merchandising initiatives. The gross profit rate also benefited from an adjustment to our merchandising plans and improved product mix, offset by increased costs for the BI-LO BONUSCARD rewards (due primarily to the expansion of our fuelperks! program in the Chattanooga market during the third quarter of fiscal 2011).
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the 5222 weeks ended December 26, 2012 and December 31, 2011 was $2,136.3 million and $621.6 million, respectively. The $1,515.0 million increase was primarily due to expenses of the acquired Winn-Dixie stores totaling $1,479.2 million and increases in merger and integration expense totaling $56.5 million partially offset by reductions in corporate and support cost and a reduction in bankruptcy related expenses.
The majority of corporate and support functions are in the process of being combinedMay 30, 2018 (Predecessor), or restructured in order to provide integrated support to the combined store base. As the integration efforts are completed and one-time costs are incurred related to employee severance, retention, and relocation, we expect to experience additional reductions in certain corporate and support costs.
Merger and integration expenses include estimated employee severance costs of $24.7 million and professional fees and other cost of $35.2 million.
Interest Expense
Interest expense was $76.9 million and $85.9 million in fiscal 2012 and fiscal 2011, respectively. The $9.0 million decrease was attributable primarily to the write-off of deferred financing costs totaling $17.4 million and a prepayment penalty of $5.8 million during fiscal 2011, partially offset by additional interest expense on the ABL facility and interest on $425 million of our senior secured notes issued in February 2011 and October 2012. During fiscal 2012, the write-off of deferred financing costs was $2.0 million.
Income Tax Expense
Income tax expense was $7.6 million and $4.1 million for fiscal 2012 and fiscal 2011, respectively.
For fiscal 2012, we recognized $3.6 million of state income tax expense due to expected taxable income generated within certain state jurisdictions. We are not able to fully offset the state taxable income with state NOL carryforwards as the use of the NOLs are limited. For fiscal 2011, we did not incur any income tax liability resulting from continuing operations.
We have established a full valuation allowance against substantially all of our net deferred tax assets. The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized.
We recognized deferred tax expense of $4.2 and $4.1 million in fiscal 2012 and fiscal 2011, respectively, resulting from a difference in the book and tax treatment of our trade name assets. This expense recognition did not have a cash effect.
Loss from Discontinued Operations
Loss from discontinued operations was $26.5 million and $0.6 million for fiscal 2012, and fiscal 2011, respectively. The increase was due to the settlement of litigation related to Bruno’s Supermarkets, LLC, our former subsidiary, in the amount of approximately $27.1 million relating to Bruno’s withdrawal from its pension fund.
Net Income
Net income was $103.1 million and $5.7 million for fiscal 2012 and fiscal 2011, respectively, due to the items discussed above.
Comprehensive Income
Comprehensive income was $101.5 million and $5.7 million for fiscal 2012 and fiscal 2011, respectively, due to the items discussed above and changes in the post-retirement benefit obligation.
Fiscal 2011 as Compared to Fiscal 2010
The following discussion summarizes our operating results for fiscal 2011 as compared to fiscal 2010.
Net Sales
The following table summarizes our increase in comparable store sales between fiscal 2010 and fiscal 2011:
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Net sales | $ | 2,641.1 | $ | 2,779.2 | $ | 138.1 | ||||||||||
Other operating income | (17.1 | ) | (18.1 | ) | (1.0 | ) | ||||||||||
Closed/new stores(1) | (6.6 | ) | — | 6.6 | ||||||||||||
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Comparable store sales | $ | 2,617.4 | $ | 2,761.1 | $ | 143.7 | 5.5 | % | ||||||||
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The $138.1 million increase in net sales was attributable to a 5.5% increase in comparable store sales ($143.7 million impact) due primarily to an increase in average transaction size. The comparable store sales increase was partially offset by a $6.6 million decrease due to seven store closings in the first quarter of fiscal 2010.
The 5.5% comparable store sales increase resulted from a 5.5% increase in average transaction size (driven by a 2.5% increase in items per transaction and a 3.0% increase in average item value). The number of transactions was flat from fiscal 2010 to fiscal 2011. Our comparable store sales benefited in 2011 from our merchandising initiatives including our fuelperks! program. This program was introduced in our Chattanooga market during the third quarter of fiscal 2011, and is now operating in all of our markets.
Our remodeling initiative also contributed to the sales increase, with 25 store remodels completed since June of 2010 (inception of the remodel program). The remodeled stores in the first year since grand reopening contributed 0.7% to our overall comparable store sales increase for fiscal 2011, with comparable store sales in the remodeled stores increasing 14.2% for fiscal 2011 and the remainder of the chain increasing 4.8% on a comparable store sales basis.
Gross Profit
Gross profit was $717.8 million, or 25.8% of net sales, and $685.2 million,$2.3 billion, or 25.9% of net sales, for fiscal 2011 and fiscal 2010, respectively.year 2018. The $32.6 million increase in gross profit dollarsof 20 basis points was due
primarily to the increase inbenefit of lower inventory shrink (20 basis points), pricing and promotional programs and the net sales (gross profit effectbenefit of $35.8 million),our optimized store network (30 basis points) partially offset by a $3.2 million ratethe impact due primarilyfrom sunsetting our prior loyalty rewards program during 2018 (20 basis points), and an increase in lease expense related to higher costs for our fuelperks! program, as well as higher distribution expenses (due primarily to higher fuel costs)adoption of ASU 2016-02 during 2019 (10 basis points).
Operating, General and Administrative Expenses
Operating, general and administrative expenses were $2.2 billion, or 26.5% of net sales, for fiscal year 2019 (Successor) as compared to $1.3 billion, or 27.2% of net sales, for the 5230 weeks ended December 31, 201126, 2018 (Successor) and January 1, 2011$1.0 billion, or 26.0% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 26.7% of net sales, for fiscal 2018. The decrease as a percentage of sales of 20 basis points was $621.6due to a decrease in store operating expenses due to an optimized store network (30 basis points), a decrease in other expenses and charges which were primarily related to bankruptcy and store sales and closures during the 22 weeks ended May 30, 2018 (35 basis points), and a decrease in impairment expense (15 basis points) which was $21.2 million for fiscal 2019 (Successor) and $616.2$35.6 million for the 22 weeks ended May 30, 2018 (Predecessor), respectively. The $5.4 million increaseThere was primarily due to
expenses associated with our store and management incentive plan, overhead staff positions at our corporate office filled sinceno impairment recognized in the beginning of fiscal 2010, and higher credit and debit card fees (due to higher rates and higher sales volume),30 weeks ended December 26, 2018 (Successor). These decreases were partially offset by reductionan increase in depreciation and amortizationexpense (30 basis points) as well as the increase in lease expense due to certain assets becoming fully depreciatedthe adoption of ASU 2016-02 during the fiscal year and store labor efficiencies and favorable trends in our self-insured medical claims.
2019 (30 basis points).
Interest Expense
Interest expense was $85.9 million and $62.4$82.3 million for fiscal 2011year 2019 (Successor) as compared to $64.5 million for the 30 weeks ended December 26, 2018 (Successor) and $51.0 million for the 22 weeks ended May 30, 2018 (Predecessor). Interest expense for fiscal 2010, respectively. The $23.5 million increase was attributable primarily to one-time chargesyear 2019 (Successor) and the 30 weeks ended December 26, 2018 (Successor) includes interest on the ABL Credit Agreement and Term Loan Facility as well as the interest related to our February 2011 refinancing. Specifically, we incurred a $17.4 million chargecapital leases, which were adjusted to fair value as of the Effective Date. Interest expense for the 30 weeks ended December 26, 2018 (Successor) also includes interest related to other financing obligations which were adjusted to fair value as of the Effective Date. Interest expense for the 22 weeks ended May 30, 2018 (Predecessor) includes interest associated with the previous capital structure and is therefore not comparable. In addition, interest accrual on the write-offPIK Toggle Notes ceased on March 27, 2018 due to the commencement of deferred financingthe Chapter 11 cases.
Reorganization Items, net
Reorganization items, net was $792.3 million for the 22 weeks ended May 30, 2018 (Predecessor), all of which were recorded by the Predecessor. There were no reorganization items for fiscal year 2019 (Successor) or the 30 weeks ended December 26, 2018 (Successor). Reorganization items, net includes the unamortized debt issuance costs and original issue discount related to our previousPredecessor debt, facilities, as well as a $5.8 million prepayment penalty onlease adjustments, professional fees during the early payoffbankruptcy proceedings, fresh start adjustments and the extinguishment of the PIK Toggle Notes in exchange for the holders' pro-rata share of our previous term loan.
Reorganization Gain
We recognized a $4.2 million reorganization gain in fiscal 2010. This gain resulted from a $14.1 million gain recognized on the discharge of liabilities and a $15.9 million gain attributable to lease rejections and assignments, partially offset by $21.1 million of professional fees and $4.7 million of lease rejection expense, in connection withnew common stock. See our emergence from bankruptcy in fiscal 2010. The reorganization was completed in fiscal 2010, and accordingly, no reorganization gain or loss was recognized in fiscal 2011.
Income Tax Expense
For both fiscal 2011 and fiscal 2010, we did not incur any income tax liability resulting from current operations.
We recognized deferred tax expense of $4.1 million in fiscal 2011 and fiscal 2010 resulting from a difference in the book and tax treatment of our trade name asset. This expense recognition did not have a cash effect. In fiscal 2010, we also recognized a $0.9 million benefit related to a federal income tax carryback which had a cash effect (no such benefit in fiscal 2011).
Discontinued Operations
The results of non-operating BI-LO properties which were closed or sold in connection with our purchase by Lone Star in 2005 as well as any costs associated with our former Bruno’s subsidiary are classified as discontinued operations in our financial statements.
We reported $0.6 million of expense associated with discontinued operations in fiscal 2011 compared to a gain on discontinued operations of $7.5 million in fiscal 2010. The expense in fiscal 2011 related primarily to costs associated with Bruno’s. The gain in fiscal 2010 was due primarily to bankruptcy-related gains on lease rejections of store properties that were classified as discontinued operations.
Net Income
Net income was $5.7 million for fiscal 2011, compared to net income of $15.0 million for fiscal 2010, due to the items discussed above.
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly consolidated statement of operations data for the six most recent quarters. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus for additional information.
Income Tax Benefit
Income tax benefit was $1.0 million for fiscal year 2019 (Successor) as compared to $48.3 million for the 30 weeks ended December 26, 2018 (Successor) and $16.3 million for the 22 weeks ended May 30, 2018 (Predecessor). The benefit is a result of the change in valuation allowance due to changes in the opinionindefinite-lived deferred tax assets and liabilities.
Table of management, includes all adjustments necessaryContents
Comparison of operating results for the fair presentation30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) to the fiscal year ended December 27, 2017 ("2017") (Predecessor)
Net Sales
Net sales were $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.9 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.8 billion for fiscal year 2018, as compared to $9.9 billion for fiscal year 2017 (Predecessor). The decrease of 11.2% was due primarily to a loss of sales from closed or sold stores and a decrease in comparable store sales. We estimate that 1.5%, or $135 million, of the decline was due to cycling Hurricane Irma and the incremental Disaster Supplemental Nutrition Assistance Program ("DSNAP") benefits in our market place in fiscal year 2017.
The following table presents comparable store sales for the 30 weeks ended December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and fiscal year 2017 (Predecessor):
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| (in millions) | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | | $ | % | |||||||||||||
Net sales | $ | 4,829.7 | $ | 3,942.8 | $ | 9,875.1 | (1,102.6 | ) | (11.2 | )% | ||||||||||
Other income(1) | (0.1 | ) | (13.1 | ) | (86.1 | ) | 72.9 | |||||||||||||
Closed/new stores | (46.6 | ) | (360.7 | ) | (1,341.8 | ) | 934.5 | |||||||||||||
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Comparable store sales | $ | 4,783.0 | $ | 3,569.0 | $ | 8,447.2 | (95.2 | ) | (1.1 | )% | ||||||||||
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Comparable store sales were $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.6 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.4 billion for fiscal year 2018, as compared to $8.4 billion for fiscal year 2017 (Predecessor). A decrease of 1.1% was driven by a decrease in transactions, primarily due to the impact of net competitor openings, the cycling of Hurricane Irma and the incremental DSNAP benefits in our market place in fiscal year 2017 (Predecessor), which was partially offset by the positive impact of pricing and promotional programs.
Gross Profit
Gross profit was $1.2 billion, or 25.8% of net sales, for the 30 weeks ended December 26, 2018 (Successor) and $1.0 billion, or 26.1% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 25.9% of net sales, for fiscal year 2018, as compared to $2.6 billion, or 26.3% of net sales fiscal year 2017 (Predecessor). The decrease as a percent of sales of 40 basis points was due primarily to higher distribution costs and the impact of closed stores (20 basis points), costs incurred in 2018 related to our distribution network consolidation (10 basis points), negative impact on our inventory shrink results as a percentage of operationssales from cycling the increased sales from Hurricane Irma and other pricing and promotional programs (30 basis points), partially offset by the impact from sunsetting our prior loyalty rewards program during 2018 (20 basis points).
Operating, General and Administrative Expenses
Operating, general and administrative expenses were $1.3 billion, or 27.2% of net sales, for such periods. This data should be readthe 30 weeks ended December 26, 2018 (Successor) and $1.0 billion, or 26.0% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 26.7% of net sales for fiscal year 2018, as compared to $2.6 billion, or 26.7% of net sales for fiscal year 2017 (Predecessor). Operating, general and administrative expense as a percent of sales was unchanged. The operating and general administrative expense as a percent of sales was unchanged due to an increase in conjunction withdepreciation and amortization expense (50 basis points) and increase in other expenses and charges primarily due to costs incurred related to bankruptcy and store sales and closures during the historical22 weeks ended May 30, 2018 (30 basis points) offset by a decrease in impairment expense (80 basis points) which was $35.6 million and $115.1 million for the 22 weeks ended May 30, 2018 (Predecessor) and fiscal 2017 (Predecessor), respectively. There was no impairment recognized in the 30 weeks ended December 26, 2018.
Interest Expense
Interest expense was $64.5 million for the 30 weeks ended December 26, 2018 (Successor) and $51.0 million for the 22 weeks ended May 30, 2018 (Predecessor), as compared to $135.1 million for fiscal year 2017 (Predecessor). Due to the bankruptcy filing, we ceased accrual of interest related to the PIK Toggle Notes from March 27, 2018 through the Effective Date when the PIK Toggle Notes were canceled in exchange for equity interests in us and, as a result, interest expense on the PIK Toggle Notes was $32.7 million less than fiscal year 2017 (Predecessor). Interest expense for the 30 weeks ended December 26, 2018 includes interest on the ABL Credit Agreement and Term Loan Facility as well as the interest related to capital leases and other financing obligations which were adjusted to fair value as of the Effective Date.
Reorganization Items, net
Reorganization items, net was $792.3 million for the 22 weeks ended May 30, 2018 (Predecessor), all of which were recorded by the Predecessor. There were no reorganization items for the 30 weeks ended December 26, 2018 (Successor) or fiscal year 2017 (Predecessor). Reorganization items, net includes the unamortized debt issuance costs and discount related to Predecessor debt, lease adjustments, professional fees during the bankruptcy proceedings, fresh start adjustments and the extinguishment of the PIK Toggle Notes in exchange for the holders' pro-rata share of our new common stock. See our audited consolidated financial statements included elsewhere in this prospectus for additional information.
Income Tax Benefit
Income tax benefit was $48.3 million for the 30 weeks ended December 26, 2018 (Successor) and $16.3 million for the 22 weeks ended May 30, 2018 (Predecessor), as compared to $38.3 million for fiscal year 2017 (Predecessor). The increase in benefit is due to the effect of the valuation allowance and the unaudited condensed consolidated financial statements and the related notes included in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for any future period.
| Quarters Ended | ||||||||||||||||||||||||
| April 21, 2012 (16 Weeks) | July 14, 2012 (12 Weeks) | October 6, 2012 (12 Weeks) | December 26, 2012 (12 Weeks) | April 17, 2013 (16 Weeks) | July 10, 2013 (12 Weeks) | |||||||||||||||||||
| (In Millions of Dollars) | ||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Net sales | $ | 1,745.2 | $ | 2,351.9 | $ | 2,270.6 | $ | 2,265.2 | $ | 3,221.1 | $ | 2,353.4 | ||||||||||||
Gross profit(1) | 479.1 | 645.5 | 616.3 | 609.5 | 883.9 | 624.7 | ||||||||||||||||||
Income from continuing operations | 22.6 | 36.0 | 21.8 | 49.2 | 176.5 | 33.2 | ||||||||||||||||||
Income (loss) from discontinued operations | (0.1 | ) | 1.2 | (27.3 | ) | (0.3 | ) | (2.2 | ) | 0.5 | ||||||||||||||
Net income (loss) | $ | 22.6 | $ | 37.2 | $ | (5.5 | ) | $ | 48.9 | $ | 174.3 | $ | 33.7 | |||||||||||
Reconciliation of EBITDA and EBITDAR: | ||||||||||||||||||||||||
Net income (loss) | $ | 22.3 | $ | 37.2 | $ | (5.3 | ) | $ | 48.9 | $ | 174.4 | $ | 33.6 | |||||||||||
Plus: | ||||||||||||||||||||||||
Depreciation and amortization expense(2) | 20.6 | 23.7 | 23.6 | 30.2 | 36.3 | 28.2 | ||||||||||||||||||
Total interest expense | 22.2 | 17.4 | 18.6 | 18.7 | 27.1 | 19.5 | ||||||||||||||||||
Income tax provision (benefit) | 1.3 | 0.9 | 2.5 | 2.9 | (66.7 | ) | 10.6 | |||||||||||||||||
(Income) loss from discontinued operations | 0.1 | (1.2 | ) | 27.3 | 0.3 | 2.2 | (0.5 | ) | ||||||||||||||||
EBITDA(3) | 66.5 | 78.0 | 66.7 | 101.0 | 173.3 | 91.4 | ||||||||||||||||||
Plus: | ||||||||||||||||||||||||
Charges related to bankruptcy proceedings and corporate reorganization(4) | 2.2 | 1.3 | 0.6 | 0.1 | — | — | ||||||||||||||||||
Loss from closed stores | 0.4 | 0.6 | 0.6 | 0.6 | 0.6 | 0.2 | ||||||||||||||||||
(Gain) on assets disposals | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.6 | ) | (0.6 | ) | 0.8 | |||||||||||||
Impairment expense | — | — | — | — | — | — | ||||||||||||||||||
Franchise taxes | 0.2 | 0.1 | 0.1 | 0.2 | 0.1 | 0.2 | ||||||||||||||||||
Fees and expense reimbursement to our sponsor(5) | 0.3 | 0.3 | 0.9 | 1.0 | 1.2 | 0.6 | ||||||||||||||||||
Merger and integration costs | 23.8 | 18.6 | 11.7 | 5.8 | 8.0 | 5.1 | ||||||||||||||||||
Other nonoperating (income) | — | — | — | (10.3 | ) | (7.3 | ) | 2.8 | ||||||||||||||||
Adjusted EBITDA(3) | 93.3 | 98.8 | 80.5 | 97.8 | 175.3 | 101.1 | ||||||||||||||||||
Plus: | ||||||||||||||||||||||||
Rent expense(6) | 28.1 | 46.7 | 46.5 | 45.2 | 62.4 | 46.7 | ||||||||||||||||||
Adjusted EBITDAR(3) | $ | 121.4 | $ | 145.5 | $ | 127.0 | $ | 143.0 | $ | 237.7 | $ | 147.8 | ||||||||||||
Store Data: | ||||||||||||||||||||||||
Pro forma comparable store sales(7) increases (%) | 3.1 | 3.5 | 4.1 | 4.5 | 3.0 | 0.1 | ||||||||||||||||||
tax expense associated with indefinite-lived intangible assets.
Liquidity and Capital Resources
Our primary liquidity needs on an ongoing basis are to fund our general working capital requirements and our capital expenditures. Currently, our primary capital resource is net cash flow generated from our operations and borrowing availability under the ABL facility.Summary
As of July 10, 2013,8, 2020, (i) on an actual basis, we had $520.7$449.5 million of liquidity, comprised of $469.0$356.4 million of borrowing availability under the Revolving Credit Facility and $93.1 million of cash and cash equivalents and (ii) on an as adjusted basis after giving effect to the Refinancing Transactions, the repayment in full of the FILO Facility and the reduction in commitments under the ABL facilityCredit Agreement we would have had $348.7 million of liquidity, comprised of $308.7 million of borrowing
availaibility uder the Revolving Credit Facility and $51.7$40.0 million of cash and cash equivalents. As of July 10, 2013,a result, we had $83.5 million of restricted cash held by the trustee for our senior secured notes, which is anticipated to be released upon purchases of permitted replacement assets as defined in the indenture governing our senior secured notes. See “Description of Indebtedness—Baldwin Sale/Leaseback.” We believe that cash generated from operations and borrowingsavailability under the ABL facilityRevolving Credit Facility, subject to any applicable covenants or restrictions, will be sufficient to meet our working capital, capital expenditures and financing requirements for the remainder12 months subsequent to the issuance of fiscal 2013 and beyond.the financial statements.
ABL Credit Agreement
As indicated above, in connection with the acquisition of Winn-Dixie on March 9, 2012, weOn May 31, 2018, BI-LO, LLC entered into the $700ABL Credit Agreement, which included a $550 million ABL facility withRevolving Credit Facility and a five-year term to replace our prior $100$50 million revolving credit facilityFILO Facility. The Revolving Credit Facility matures on May 31, 2023 and to fund a portionthe FILO Facility matures on May 31, 2022. As of the acquisition price. At July 10, 2013,8, 2020, we had approximately $469.0$356.4 million of borrowing ability,availability, net of $100.0$40.0 million of outstanding borrowings and $131.0$70.3 million in outstanding letters of credit for the Revolving Credit Facility. Subsequent to July 8, 2020, we repaid in full the FILO Facility including $30.1 million through an optional prepayment. After giving effect to the Refinancing Transactions, the repayment in full of the FILO Facility and the reduction in commitments under the ABL facility.Credit Agreement, borrowing availability would be $308.7 million, net of $71.0 million of outstanding borrowings and $70.3 million outstanding letters of credit. See "Description of Material Indebtedness—ABL Credit Agreement."
Term Loan Agreement
On February 3, 2011,May 31, 2018, BI-LO, LLC entered into a $475.0 million Term Loan Agreement. Subsequent to July 8, 2020, we repurchased $22.9 million principal amount of the Term Loan in the open market and $0.9 million of scheduled amortization, thereby reducing the aggregate principal amount of the Term Loan Facility to $348.2 million. On October 16, 2012,9, 2020, we issued $285.0 millionrepaid in full and $140.0 million, respectively, of our senior secured notes due in 2019. We usedterminated the netTerm Loan Agreement with proceeds from the February 3, 2011 notes andissuance of the Notes, together with cash on hand to repayand drawings under the $192.5 million balance of our previous term loan, pay a dividend of $76.0 million to our sponsor, pay $7.7 million of deferred financing costs associated with the refinancing and pay a prepayment penalty of $5.8 million on the early payment of our previous term loan. We used the net proceeds from the October 26, 2012 notes and cash on hand to pay a dividend of $145.0 million to our sponsor and to pay fees and expenses related to the offering.
Cash Flow Information
Revolving Credit Facility.
The 28-week Period Ended July 10, 2013 as Compared to the 28-Week Period Ended July 14, 2012Notes
On October 9, 2020, SEG Holding, LLC ("Holdings") and SEG Finance Corp. issued $325.0 million aggregate principal amount of 5.625% Senior Secured Notes due 2028. See "Description of Material Indebtedness—Notes."
Historical Cash Flow Data
The table below sets forthpresents certain condensed consolidated statementsinformation from the accompanying Consolidated Statements of cash flows dataCash Flows included elsewhere in this prospectus for fiscal year 2019 (Successor), the 2830 weeks ended July 14, 2012December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and July 10, 2013 (in millions):fiscal year 2017 (Predecessor).
| | Successor | | Predecessor | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | 28 Weeks Ended July 8, 2020 | 28 Weeks Ended July 10, 2019 | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||||||
Net cash provided by (used in) operating activities | $ | 398,435 | $ | (17,409 | ) | $ | 56,945 | $ | 89,975 | $ | 89,928 | $ | 216,291 | ||||||||
Net cash used in investing activities | (13,112 | ) | (76,085 | ) | (141,248 | ) | (116,526 | ) | (3,916 | ) | (104,980 | ) | |||||||||
Net cash (used in) provided by financing activities | (363,092 | ) | 87,150 | 108,939 | 17,021 | (79,538 | ) | (93,692 | ) | ||||||||||||
| 28 weeks ended | ||||||||||||
| July 14, 2012 | July 10, 2013 | Change | ||||||||||
Cash provided by (used in): | ||||||||||||
Operating activities | $ | 200.6 | $ | 170.5 | $ | (30.1 | ) | |||||
Investing activities | $ | (493.3 | ) | $ | (131.2 | )(1) | $ | 362.1 | ||||
Financing activities | $ | 307.4 | $ | (39.1 | )(1) | $ | (346.5 | ) | ||||
Operating activitiesActivities
NetOur net cash provided by operating activities for the 28 weeks ended July 10, 20138, 2020 increased as compared to the same period in the prior year due to improvements in operating performance and changes in working capital primarily related to inventory and accounts payable as our business adjusts for the significant increase in sales volume during the 28 weeks ended July 14, 20128, 2020 related to the COVID-19 pandemic. Also contributing to the increase in cash flow from operations was the deferral of approximately $17.7 million of the employer-paid portion of social security taxes provided under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") signed into law on March 27, 2020. Cash provided by operating activities was similarly impacted during both the 28 weeks ended July 8, 2020 and the same period in the prior year from the impact of the reduction of terms in accordance with the C&S Supply Contract which were extended during the 22 weeks ended May 30, 2018. The final reduction in terms occurred during the 28 weeks ended July 8, 2020.
Our net cash provided by operating activities for 2019 declined when compared to the comparative period in 2018 due primarily to working capital changes including the inventory liquidations related to store closures in the 22 weeks ended May 30, 2018 which did not reoccur in 2019 and the impact of the reduction of payment terms in accordance with the C&S Supply Contract which were extended during the 22 weeks ended May 30, 2018. In addition, the adoption of ASU 2016-02 resulted in payments on lease obligations of approximately $25 million which were included in cash flows from financing activities in the 30 weeks ended December 26, 2018 and the 22 weeks ended May 30, 2018 to be reflected in cash flows from operating activities in 2019.
Our net cash provided by operating activities for 2018 increased when compared to the comparative period of 2017 primarily due to working capital changes including the liquidation of inventory related to store closings in the 22 weeks ended May 30, 2018 and the impact of the extension of payment terms in accordance with the C&S Supply Contract.
Investing Activities
Net cash used in investing activities for the 28 weeks ended July 8, 2020 (Successor) was due primarily to cash flows from operating income as a resultpurchases of the acquired Winn-Dixie stores,long-lived assets of $71.7 million offset by changes in working capital.proceeds from sale of assets of $57.2 million.
Investing activities
Net cash used in investing activities for the 28 weeks ended July 10, 20132019 (Successor) was due primarily to the $83.5 million of Baldwin Sale/Leaseback proceeds held by the trustee for our senior secured notes and $50.7 million of purchases of propertylong-lived assets of $93.7 million, offset by proceeds from insurance of $8.7 million and equipment. Theproceeds from sale of assets of $8.4 million related to store closures.
Net cash that is held by the trusteeused in investing activities for our senior secured notes will be released uponfiscal year 2019 (Successor) was due primarily to purchases of permitted replacementlong-lived assets as defined in the indenture governing our senior secured notes.of $164.7 million, offset by proceeds from sale of assets of $12.3 million related to store closures and proceeds from insurance of $10.6 million.
Net cash used in investing activities for the 2830 weeks ended July 14, 2012December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) was due primarily to the acquisitionpurchases of Winn-Dixie for $416.7long-lived assets of $171.0 million, and the purchasepartially offset by proceeds from sale of property and equipment for $76.8assets of $43.2 million.
Net cash used in investing activities for fiscal year 2017 (Predecessor) was due primarily to purchases of long-lived assets of $115.7 million, partially offset by proceeds from sale of assets of $8.7 million.
Financing activitiesActivities
Net cash used in financing activities for the 28 weeks ended July 10, 20138, 2020 (Successor) was due primarily to net repaymentspayments of $248.0 million under the ABL facilityRevolving Credit Facility, $99.7 million on the Term Loan
Facility and $22.6the FILO Facility, $11.5 million inon the various financed agreements, and payments of $4.0 million on obligationsfinance leases.
Net cash provided by financing activities for the 28 weeks ended July 10, 2019 (Successor) was due to net borrowings of $60.0 million under capital leasesthe Revolving Credit Facility and other financing obligations, offset in part by $99.8 million of other financing proceeds related to the Baldwin Sale/Leaseback and $8.7 million in net proceeds from various financed insurance policies.agreements of $39.4 million, including the $23.0 million third party litigation agreement, partially offset by payments of $3.7 million on finance leases.
Net cash provided by financing activities for fiscal year 2019 (Successor) was due to net borrowings of $88.0 million under the Revolving Credit Facility and proceeds from various financed agreements of $49.4 million, including the $33.0 million third-party litigation agreement. This is partially offset by payments of $6.1 million on finance leases, $12.3 million on the Term Loan and the FILO Facility and $10.1 million on the various financed agreements. The Total Net Debt was $0.8 billion as of December 25, 2019 as compared to $0.9 billion as of December 26, 2018, an decrease by $0.1 billion.
Net cash used in financing activities for the 2830 weeks ended July 14, 2012December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) was due primarily to the acquisition of Winn-Dixie, which was financed primarily by an additional capital contribution from Lone Star of $275.0 million and an initial drawpayments on the ABL facilitySenior Secured Notes of $260.0$425.0 million, offset by decrease in cash overdraftnet payments of $29.4$280.0 million $20.4 million inunder the 2014 Revolving Credit Facility, payments on obligations under capital leases and other financing obligations of $22.1 million and $17.8payments on the Global Settlement of $10.1 million. This was offset by proceeds from the Successor debt, including the Revolving Credit Facility, the Term Loan and the FILO Facility, of $650.8 million, in deferred financingnet of debt issue costs, incurred in connection withand net borrowings on the ABL facility.
Fiscal 2012Revolving Credit Facility of $30.0 million. The Total Net Debt was $0.9 billion as Compared to Fiscal 2011
The following discussion summarizes information related to our cash flow for fiscal 2011of December 26, 2018 as compared to fiscal 2012. The table below sets forth certain consolidated statements$1.5 billion as of cash flows data for fiscal 2011 and fiscal 2012 (in millions):December 27, 2017, a decrease by $0.6 billion.
| Fiscal | ||||||||||||
| 2011 | 2012 | Change | ||||||||||
Cash provided by (used in): | ||||||||||||
Operating activities | $ | 89.9 | $ | 277.7 | $ | 187.8 | ||||||
Investing activities | $ | (46.9 | ) | $ | (555.0 | ) | $ | (508.1 | ) | |||
Financing activities | $ | (16.8 | ) | $ | 282.2 | $ | 299.0 | |||||
Operating activities
The $187.8 million increase in cash provided by operating activities was due primarily to additional cash flows from improved operating income as a result of the acquired Winn-Dixie stores and net changes in working capital items.
Investing activities
The $508.1 million increase in netNet cash used in investingfinancing activities for fiscal year 2017 (Predecessor) was due primarily to the acquisition of Winn-Dixie for $416.7 million, as well as higher capital spending in fiscal 2012 totaling $140.9 million, of which
$68.0 million was related to the BI-LO capital spending primarily for store remodels, with the remaining $72.9 million related to Winn-Dixie capital expenditures, primarily store remodel activity.
Financing activities
The acquisition of Winn-Dixie was financed primarily by an additional capital contribution from Lone Star of $275.0 million and an initial draw on the ABL facility of $260.0 million. In October 2012, we also issued an additional $140.0 million of our senior secured notes. Cash outflows during fiscal 2012 included $35.0 million in net repayments onof $60.0 million under the ABL facility, $17.3 million financing costs related to the ABL facility, $37.2 million2014 Revolving Credit Facility and payments on capital leaseleases and other financing obligations and $305.0 million in distributions to our sponsor.of $33.7 million.
Capital Expenditures
Capital expenditures for the 28 weeks ended July 8, 2020 (Successor) and fiscal year 2019 (Successor) totaled $71.7 million and $164.7 million, respectively, a majority of which related to store maintenance, technology and other capital projects with the remainder invested in information technology and remodeled stores, including banner conversions.
The financing cash activity in For fiscal 2011 was related primarily to the February 2011 refinancing. During the first quarteryear 2020, we estimate a total capital budget of fiscal 2011, we issued $285.0 million of our senior secured notes. The proceeds from these notes were used to repay the $192.5 million balance of our previous term loan, pay a distribution of $76.0approximately $150.0 million to Lone Star, and pay $7.7$160.0 million. Of this amount, approximately $60.0 million of financing costs associated with the refinancing. Additional cash outflows for financing activities in fiscal 2011 were related primarily to $21.5 million of capital lease and other financing obligations payments.
Capital Expenditures
For fiscal 2012 and fiscal 2011, capital expenditures were $140.9 million and $47.7 million, respectively. The $93.2 million increase in capital expenditures was related primarily to a $72.9 million increase in spending for Winn-Dixie and a $20.3 million increase for the BI-LO remodeling program. During fiscal 2012, 39 BI-LO store remodels and 7 Winn-Dixie store remodels were completed, and we opened two new Winn-Dixie stores.
In fiscal 2013, we expect capital expenditures to total approximately $130.0 million. Approximately $40.0$65.0 million is related to newstore maintenance and remodeled stores and approximately $90.0other capital projects, $30.0 million is related to technology, and other$60.0 million to $65.0 million is related to store renewal or new store projects. We target an annual capital goods.expenditure of approximately 3% of net sales.
Contractual Obligations
We assume various financial obligations and commitments in the normal course of our operating and financing activities. Contractual obligations represent known future cash payments that we will be required to make under existing arrangements, such as debt and lease agreements.
The following table presents our contractual obligations as of December 25, 2019:
| (In millions) | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt(1) | $ | 794.6 | $ | 16.0 | $ | 37.0 | $ | 741.6 | $ | — | ||||||
Interest on long-term debt(2) | 253.3 | 63.1 | 119.5 | 70.7 | — | |||||||||||
Finance leases | 86.4 | 12.7 | 22.1 | 19.4 | 32.2 | |||||||||||
Operating leases | 1,034.6 | 195.5 | 322.8 | 218.4 | 297.9 | |||||||||||
Post-retirement benefits(3) | 41.2 | 1.5 | 3.0 | 3.1 | 33.6 | |||||||||||
Purchase obligations(4) | 16.3 | 16.3 | — | — | — | |||||||||||
Other(5) | 59.4 | 27.2 | 27.2 | 5.0 | — | |||||||||||
| | | | | | | | | | | | | | | | | |
Total | $ | 2,285.8 | $ | 332.3 | $ | 531.6 | $ | 1,058.2 | $ | 363.7 | ||||||
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Off-Balance Sheet Arrangements
Other than our operating leases, and outstanding letters of credit, we aredo not a party tohave any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, resultsfinancing activities.
Table of operations, liquidity, capital expenditures or capital resources.
Contents
Contractual ObligationsNew Accounting Policies
The table below illustratesSee Note 2—New Accounting Pronouncements in our significant contractual obligations and other commercial commitments, based on year of maturity or settlement, as of December 26, 2012. These obligations and commitments do not include obligations under the PIK toggle notes, the C&S supply arrangement, the Baldwin Sale/Leaseback or the Delhaize transaction:
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
| (dollar amounts in millions) | ||||||||||||||||||||
Long-term debt(1) | $ | 425.0 | — | — | — | $ | 425.0 | |||||||||||||
Interest on long term debt(2)(2) | 317.2 | 47.0 | 141.1 | 121.4 | 7.7 | |||||||||||||||
Capital lease obligations | 151.3 | 42.5 | 59.2 | 28.7 | 20.9 | |||||||||||||||
Other financing obligations(3) | 314.6 | 31.4 | 62.5 | 61.9 | 158.8 | |||||||||||||||
Operating lease obligations | 1,371.8 | 237.7 | 404.9 | 284.5 | 444.7 | |||||||||||||||
Retirement Plans(4) | 12.9 | 1.2 | 2.5 | 2.5 | 6.7 | |||||||||||||||
Other(5) | 32.0 | 32.0 | — | — | — | |||||||||||||||
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Total contractual obligations | $ | 2,624.8 | $ | 391.8 | $ | 670.2 | $ | 499.0 | $ | 1,063.8 | ||||||||||
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consolidated financial statements, included elsewhere in this prospectus, for new accounting pronouncements which have been adopted.
Critical Accounting Policies and Estimates
OurThe preparation of financial statements are prepared in accordance with U.S. GAAP which requires usmanagement to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and liabilities andexpenses, as well as disclosure of contingent assets and liabilities atliabilities. We believe that the datespolicies below are our critical accounting policies, as they are most important to the portrayal of our financial condition and results, and require management's most difficult, subjective or complex judgments, often because of the financial statementsneed to estimate the effect of inherently uncertain matters. See Note 1—Summary of Significant Accounting Policies and the reported amounts of revenues and expenses during the reported periods. We have provided a description of all ofOther Matters" in our significant accounting policies in Note 1 to our audited consolidated financial statements, included elsewhere in this prospectus. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity.
Fair Value Determination of Acquired Assets and Assumed Liabilities
The fair value estimate of the Winn-Dixie assets acquired and liabilities assumed and the allocation of the purchase price to the net assets acquired has been determined by management with the assistance of independent valuation specialists. We estimate the fair value of assets and liabilities as required, including intangible assets, based on various methods, including market prices, discounted cash flows, and other present value valuation techniques. The allocation of the purchase price to the net assets acquired and the fair value of assets and liabilities acquired requires management to use numerous estimates and assumptions.
Vendor Allowances
WeConsistent with standard practices in the retail industry, we receive allowances from many of the vendors whose products are sold in our stores. Allowances are received for a variety of merchandising activities, including placement of the vendor’svendor's products in our advertising, placement of vendor products in prominent locations, introduction of new products, exclusivity rights in certain categories of products and temporary price reductions offered by vendors. We also receive vendor funds associated with buying activities, such as volume purchase rebates and rebates for purchases made during specific periods.
We record a receivable for vendor allowances for which we have fulfilled our contractual commitments but have not received payment from the vendor. When payment for vendor allowances is received prior to fulfillment of contractual terms or before the programs necessary to earn such allowances are initiated, we record such amounts as “unearned"unearned vendor allowances”allowances" or “vendor"vendor funds received in advance,”" respectively, which are classified within current and long-term liabilities. Once all contractual commitments have been met, we record vendor allowances as a reduction of the cost of the related inventory items. Accordingly, when the inventory is sold, the vendor allowance is recognized as a reduction of merchandise costs.
The amount and timing of recognition of vendor allowances, as well as the amount of vendor allowances remaining as “unearned"unearned vendor allowances”allowances" or “vendor"vendor funds received in advance”advance" requires management judgment and estimates. Management determines these amounts based on estimates of current year purchase volume using forecasted and historical data and review of average inventory turnover.
These judgments and estimates affect our reported gross profit and inventory amounts. Our historical estimates have been reliable in the past and we believe the methodology will continue to be reliable in the future.
Long-LivedLong-lived Assets and Intangible Assets
We review our long-lived assets, such as property plant and equipment and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Intangible assets not subject to amortization are reviewed for impairment annually in the fourth quarter. When such events occur, we compare the carrying amount of the asset to our best estimate of the net undiscounted cash flows expected to result from the use and eventual disposition of the asset. If this comparison indicates that there is impairment, we record an impairment loss for the excess of net book value over the fair value of the impaired asset. We estimate the fair value based on the best information available, including prices for similar assets and the results of other valuation techniques.
Factors such as changes in economic conditions and changes in operating performance significantly affect our judgments and estimates related to the expected useful lives and cash flows of long-lived assets and intangible assets. Adverse changes in these factors could cause us to recognize a material impairment charge.
Intangible AssetsSelf-Insurance
We report intangible assets in accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” which requires that an intangible asset with indefinite useful economic life not be amortized, but instead be separately tested for impairment at least annually using a fair-value approach. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate the carrying value of an asset may not be recoverable. The evaluation of possible impairment of intangible assets is affected by factors such as changes in economic conditions and changes in operating performance. These factors could cause us to recognize a material impairment charge as we assess the ongoing expected cash flows and carrying amounts of intangible assets.
Self-Insurance Reserves
We self-insure for certain insurable risks, primarily workers’workers' compensation, business interruptions, general liability, automobile liability and property losses, as well as employee medical benefits. We obtain insurance coverage for catastrophic property and casualty exposures, as well as risks that require insurance by law or contract. We estimate the liabilities related to self-insured programs with the assistance of an independent actuary. The accounting estimates for self-insurance liabilities include both known and incurred, but not reported insurance claims, and reflect certain actuarial assumptions and management judgments regarding claim reporting and settlement patterns, judicial decisions, legislation and economic conditions and the effect of our Chapter 11 filings.conditions. Unanticipated changes in these factors may materially affect our results of operations and financial position.
Inventory Valuation
We value inventories atposition as recorded amounts are based on estimates, the lower of cost or market. For a majority of grocery and general merchandise inventories, cost is determined using the retail method of accounting. Under the retail method of accounting, the
currentultimate cost of inventories is calculated by applying a cost-to-retail ratio toall incurred claims and related expenses may be more or less than the current retail value of inventories. The cost of pharmacy inventories is determined on the FIFO basis. The cost of distribution center inventories is determined at average cost. The cost of fresh products is determined based on weighted average cost.
Our inventory balances consist primarily of finished goods. Inventory costs include the purchase price of the product and freight charges to deliver the product, and are net of certain consideration received from vendors.
For fresh products, physical inventory counts are taken periodically and at the end of the fiscal year. For nonperishable products, physical inventory counts are taken on a cycle basis. We record an estimated inventory shrinkage reserve for the period between each store’s last physical inventory and the balance sheet date.
Under the retail method, the valuation of inventories, and the resulting gross profits, is determined by applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost, as well as the resulting gross profits. Our cost-to-retail ratios contain uncertainties as the calculation requires management to make assumptions and apply judgment regarding inventory mix, inventory spoilage and shrink.
Leases
We lease equipment and buildings under various operating and capital leases. Leases are classified as capital leases or operating leases based upon the criteria established by GAAP. For leases determined to be capital leases, an asset and liability are recognized at the lower of the fair value of the leased asset or the present value of the minimum lease payments during the lease term. Such assets are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset taking into account the residual value, with amortization included in depreciation and amortization expense. Leases that do not qualify as capital leases are classified as operating leases, and the related rental payments are expensed on a straight-line basis (taking into account rent escalation clauses and rent holiday periods at the inception of the lease) over the lease term. Payments made to us representing incentives to enter into a new lease are recorded as deferred rent income and amortized to income on a straight-line basis over the term of the lease. For purposes of expensing rental payments, the lease term commences when we become obligated under the terms of the lease agreement, and includes option renewal periods where failure to exercise such options would result in an economic penalty such that renewal appears, at the inception of the lease, to be reasonably assured.
Determining whether a lease is a capital or an operating lease requires judgment on various aspects, including the fair value of the lease asset, the economic life of the leased asset, whether or not to include renewal options in the lease term and determining an appropriate discount rate to calculate the present value of the minimum lease payments.
liabilities.
Income Taxes
Deferred income taxes represent the future net tax effects resulting from temporary differences between the financial statement and tax basesbasis of assets and liabilities, including net operating loss or NOL, carryforwards, using the enacted tax rates in effect for the year in which the differences are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. The calculation of our tax liabilities requires management judgment and estimates,estimate, particularly as it relates to determination of valuation allowances.
Recent Accounting PronouncementsQuantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate changes of our long-term debt. We do not use financial instruments for trading or other speculative purposes.
In June 2011,Interest Rate Risk
Our principal exposure to market risk relates to changes in interest rates with respect to our Revolving Credit Facility. After giving effect to the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2011-05, which isreduction in commitments pursuant to an updateamendment effective on October 9, 2020 in connection with the Refinancing Transactions, the ABL Credit Agreement provides for a $450.0 million Revolving Credit Facility. As of July 8, 2020, we had borrowing availability of $339.7 million, net of $40.0 million outstanding borrowings and $70.3 million outstanding letters of credit. After giving effect to Topic 220, “Comprehensive Income”. The update eliminates the option of
presentingRefinancing Transactions and the components of other comprehensive income as partrepayment in full of the statementFILO Facility, borrowing availability on an as adjusted basis would be $308.7 million, net of changes$71.0 million outstanding borrowings and $70.3 million outstanding letters of credit. Borrowings under the Revolving Credit Facility bear interest at the applicable margin, plus, at the Company's election either (i) a base rate determined by reference to the greatest of (a) a base rate determined by reference to the rate of interest per annum announced by the administrative agent (currently Truist Bank) as its prime rate on such day, (b) the federal funds effective rate in stockholders’ equity. Instead, comprehensive income musteffect on such day plus 1/2 of 1.00% and (c) the London interbank offered rate ("LIBOR") that would be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the new standard by presenting the components of other comprehensive income in the Company’s Statement of Operations and Comprehensive Income.
In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. This allows for the same evaluation as described in ASU 2011-08 for “Intangibles—Goodwill and Other”. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performedcalculated as of such day (or, if such day is not a date before July 27, 2012, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company’s adoption of ASU 2012-02 as of December 26, 2012, did not have any impact on the Company’s Consolidated Financial Statements.
Controls and Procedures
Subsequent to the completion of our financial statements for andbusiness day, as of the 28 weeks ended July 10, 2013, we identifiednext preceding business day) with a classification error relatedone month maturity plus 1.00% or (ii), if available, LIBOR for U.S. dollars determined by reference to the cash flow presentationapplicable Reuters screen page two business days prior to the commencement of the Baldwin Sale/Leaseback. This error had no impact on net cash flow, and did not affectinterest period relevant to the accompanying balance sheets, statements of operations and comprehensive income, or statements of changes in membership interests. In connection with the error, a material weakness in our internal controls over financial reporting was identified based on a lack of sufficient financial presentation analysis. A “material weakness” is a deficiency in internal controls such that there is a reasonable possibility that a material misstatement of our financial statements willsubject borrowing, adjusted for certain additional costs, which may not be prevented or detected in a timely basis. Since the time the material weakness described above was identified, we have modified our processes to address the material weakness in internal controls. Specifically, we have modified the designless than 0.00%.
Quantitative and Qualitative Disclosure About Market RisksContents
Our borrowings under the ABL facility bear interest at variable rates and expose us to interest rate risk. IfTherefore, if interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and our net income would decrease. A hypothetical 0.50% increase100 basis point change in LIBORinterest rates applicable to borrowings under the ABL facilityRevoling Credit Facility would result in an estimated increase of $3.5$0.4 million based on a $40.0 million balance as of July 8, 2020 per year of interest expense related to such debt, assuming the ABL facility is fully borrowed.debt.
Unless otherwise stated, historical financial data provided in this prospectus does not give effect to the Planned Dispositions. Unless otherwise stated, or the context otherwise requires, descriptions of our business and operational data provided in this prospectus give effect to the Planned Dispositions.
Our Company Overview
We are a leading supermarket operatorregional food retailer based on revenue and number of stores we operate with a stronglong-standing history in the Southeastern United States, and a non-union work force. As of July 10, 2013, we operated 685 stores serving many key metropolitan areas inhighly attractive markets throughout Florida, Georgia, Alabama, Louisiana Mississippi, South Carolina, North Carolina, and TennesseeMississippi. We operate 420 stores under the “Winn-Dixie”, “BI-LO”, “Super BI-LO”,"Winn-Dixie," "Harveys" and “BI-LO at the Beach”"Fresco y Más" supermarket banners. We believe we are the sixth largest conventional supermarket operator in the United States based on number of stores and the second largest conventional supermarket operator in the eightfive states in which we operate, respectively, based on aggregate number of stores in these states. We strivewe operate. According to differentiate ourselves fromIRI Worldwide industry data, we maintain the #2 market share position by revenue among the 13 conventional supermarkets that are our competitors by providingwithin the six major markets in which we compete in the five states in which we operate. Additionally, we operate 140 liquor stores, 231 in-store pharmacies and one centralized specialty pharmacy, which supplement our customers with a value proposition that combines conveniently locatedproduct assortment and well-maintained stores (averaging 40,000-50,000 square feet), with a strong focus on customer service, high-quality food products, and prices that are competitive with other supermarket operators in our markets. For the fiscal year ended December 26, 2012, we generated approximately $8.6 billion of net sales, approximately $103.1 million of net income (including approximately $7.6 million of tax expense) and approximately $370.4 million of adjusted EBITDA. For the 28 weeks ended July 10, 2013, we generated approximately $5.6 billion of net sales, approximately $208.0 million of net income (including approximately $56.1 million of tax benefits) and approximately $276.4 million of adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income and a discussion of why we consider it useful, see “Summary—Summary Selected Historical and Pro Forma Financial and Other Data.”drive sales.
We have experienced substantial growth in recent years through a combination of organic operating initiatives, supported by our operational improvements, and acquisitions. We have achieved strong financial results during this period, as evidenced by the following:
Through July 10, 2013, we have achieved 18 consecutive quarters of positive pro forma comparable store sales growth.
We have achieved average pro forma comparable store sales growth of 3.1% over the last six consecutive quarters.
We have grown our store count from 207 stores at January 1, 2011 to 685 stores at July 10, 2013, and we anticipate that our pending Delhaize transaction and Piggly Wiggly transaction will significantly expand the number of operating stores in our footprint.
We have increased our net income and adjusted EBITDA from fiscal year 2008 when we had a net loss of approximately $88.8 million and adjusted EBITDA of approximately $142.4 million, to net income and adjusted EBITDA of approximately $103.1 million and $370.4 million, respectively, for fiscal 2012. For a reconciliation of adjusted EBITDA to net income and a discussion of why we consider it useful, see “Summary—Summary Selected Historical and Pro Forma Financial and Other Data.”
We operate a network of attractive, well-maintained stores and seek to locate our stores in high-traffic areas that are in close proximity to residential neighborhoods. We operate our business as a single unit with a single management team, but execute our go-to-market strategy through three well-positioned banners with differentiated strengths and distinct heritages. Over our more than 95+ year history, we operate under different bannershave established a difficult to replicate network of attractive, well-maintained stores, which are often located in different markets.high-traffic areas in close proximity to densely populated residential neighborhoods. We generate revenuesstrive to build a strong connection with our customers and differentiate ourselves from our competitors by selling an assortment of grocery products, including dryproviding a compelling shopping experience that combines a full-service, one-stop shop, emphasizing high-quality, fresh and canned groceries, frozen items, produce, dairy, meatlocally tailored offerings, with excellent customer service and seafood, bread and baked goods, and other fresh product offerings. In addition, acompetitive prices. While our stores account for the vast majority of our stores include pharmacies.sales today, we also utilize third-party partners to provide eCommerce shopping—allowing us to serve our customers when, where and how they choose to shop. In addition, our sophisticated loyalty program currently covers more than seven million active customers who generated $6.0 billion, or more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019 and 89% (excluding pharmacy sales) of our net sales and approximately 80% of all transactions for the 28 weeks ended July 8, 2020, which we believe gives us an advantage against our competitors who do not have established loyalty programs and customer specific shopping data. Our loyalty program provides us with a deep understanding of our customer base and enables us to offer a compelling, connected personalization experience in order to increase connectivity and capture a larger share of wallet.
We believe the impact of the COVID-19 global pandemic has enabled us to solidify our competitive positioning, enhance our value proposition and connect us more closely with our customers. Our focus has remained on providing a safe environment for our customers and our approximately 36,000 associates, while also maintaining adequate in-stock positions throughout our stores in order to service what we believe is an increased customer preference for full service, one-stop shop grocery trips. As a result, we have experienced a significant increase in sales over multiple months since the COVID-19 pandemic began to impact the markets we serve, which has provided us incremental cash flow to accelerate our in-store and digital investments, customer connectivity initiatives and further deleveraging. We believe that our median comparable sales growth from the March through July 2020 period (with June and July giving effect for the Planned Dispositions) of 26% is higher than six of our competitors, whose median comparable sales growth during the same period ranged from 9% to 21%. Importantly, we are incredibly proud of the performance of our associates who have consistently demonstrated strong dedication to safely support their teammates, customers and communities.
On March 9, In fiscal 2019, without giving effect to the Planned Dispositions, we generated net sales of $8.3 billion, net loss of $116.2 million and Adjusted EBITDA of $292.5 million, and for the 28 weeks ended July 8, 2020 we generated net sales of $5.3 billion, net income of $205.7 million and Adjusted EBITDA of $363.6 million. As adjusted for the Planned Dispositions, we generated over $6.7 billion of net sales, or Net Sales Adjusted for the Planned Dispositions, in fiscal 2019 and $4.3 billion of Net Sales Adjusted for the Planned Dispositions for the 28 weeks ended July 8, 2020. See "Prospectus Summary—Summary Historical Consolidated Financial and Other Data" for more information regarding Adjusted EBITDA and Net Sales Adjusted for the Planned Dispositions, as well as reconciliations of these Non-GAAP Measures to net income (loss) and their limitations.
Successful Repositioning of the Business has Driven Strong Financial Momentum
The merger of BI-LO and Winn-Dixie in 2012 significantly enhanced our scale and marked the beginning of a period of rapid store expansion through acquisition activity. As a result of the merger, the acquisition of the Sweetbay and Harveys banners in 2013 and various other bolt-on acquisitions, we acquired Winn-Dixie Stores, Inc. for a total cash purchase price of $559.3 million. The Winn-Dixie acquisition significantly expandedincreased our store base by approximately 265% from 2011 through 2015. While we realized positive initial results from our expansion and geographichave benefited from exposure to the attractive Florida market, area, with no overlapthe increased attention required to integrate these stores and implement a new supply agreement, as well as significant price investments, including a switch to an everyday low price strategy in markets between BI-LO2016, hampered our financial performance.
Anthony Hucker became our Chief Executive Officer in 2017, and, Winn-Dixie. The Winn-Dixie acquisition hasunder his leadership, we established a transformation plan to better position us for sustainable growth in the future. This plan focused on deleveraging the balance sheet and stabilizing the business through a series of retail best-practices and cost-savings initiatives targeted at improving cost controls, increasing sourcing and labor productivity and returning to our historical high-low pricing architecture. We also increased investments in our store base, loyalty program and Own Brands capabilities.
In May 2018, we emerged from the Reorganization 65 days after we initially filed for bankruptcy pursuant to a prepackaged plan that significantly reduced our financial leverage by over $600 million and allowed us to realize significant cost savings. We have achieved over $180 millionfurther optimize our store base. As a result, we exited the Reorganization with greater flexibility to accelerate the implementation of annual run-rate cost savings from operational improvements and synergies to date and expect to realize moderate additional cost savings prior to completionour key initiatives. These initiatives, which act as the foundation of the integration. We have incurred approximately $71.8 million in upfront integration-related costsour current growth strategy, were aimed at further rejuvenating our store fleet through July 10, 2013, and we
anticipate we will incur modest additional costs through completion of integration. Consistent withincreased renewals, aligning our strategy of reducing operating costs and reinvesting these savings in the business to stimulate customer traffic, we are investingpromotional activity, optimizing our product assortment including a portion of these cost savings in merchandising and pricing initiatives to drive sales.
On May 27, 2013, we entered into the Delhaize merger agreement, pursuant to which we agreed to acquire 155 operating supermarkets (subject to regulatory approvals, which may require divestitures) under the “Sweetbay”, “Harveys”, and “Reid’s” banners, for $265.0 million in cash and the assumption of all related lease liabilities, including approximately $92.0 million of capital lease liabilities. Basedgreater focus on information provided by Delhaize, for the 52-week period ended December 29, 2012, we believe the 155 operating supermarkets generated approximately $1.7 billion of revenues. In addition, based on information provided by Delhaizefresh and our management’s estimateOwn Brands portfolio and enhancing customer connectivity utilizing our sophisticated loyalty program.
In May 2020, as the latest step in our transformation plan, we reached an agreement to sell 62 stores, comprising 46 BI-LO stores and 16 Harveys, located throughout the Carolinas and Georgia to Food Lion, a subsidiary of allocable corporate costs, we believe that the average per store operating performance of the 155 operating supermarkets for the 52-week period ended December 29, 2012 was substantially equivalent to the average per store pro forma operating performance of our stores for fiscal 2012. The financial information relating to the Delhaize business being acquired is based on information provided by Delhaize, has not been audited or otherwise been subject to auditor review, and does not give effect to any required store divestitures.Ahold Delhaize. We expect the Delhaize transaction to close in the first quarter of 2014. In addition, on September 4, 2013, wealso entered into an agreement to purchase 21 Piggly Wiggly operating supermarkets for a purchase price of approximately $35 million in cash. We expect the Piggly Wiggly transaction to close during the fourth quarter of fiscal 2013. These transactions, covering storestransition our distribution center located in Florida, Georgia andMauldin, South Carolina to Ahold Delhaize. In September 2020, we announced an agreement to sell an additional 23 stores, to Alex Lee, under which Alex Lee will further build onpurchase 20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. We are actively exploring strategic options for the strengthremaining 39 BI-LO stores and one Harveys in the region. In addition, in May 2020 we announced the sale of prescription files at 58 stores to CVS and Walgreens. These were important strategic decisions that allow for greater focus and investment in growing the Winn-Dixie, Harveys and Fresco y Más banners. These dispositions also enhance our relative exposure to the attractive Florida market, which will account for approximately 76% of our BI-LOtotal stores. The remaining stores also had stronger financial performance in fiscal year 2019, as well as a lower average age and Winn-Dixiea higher percentage of remodeled stores and will expand our customer base.in the last five years.
Approximately 83%The execution of our stores are locatedtransformation plan and strategic initiatives has resulted in areas where, based on market share data compiled by Metro Market Studies, we ranksignificant operational and financial momentum in our business, as the number one or number two conventional supermarket operator. We believe our strong market position is the result of a long operating history, strong brand recognition, innovative marketing campaigns and a merchandising strategy that caters to the needs of local communities. When customers choose conventional supermarket operators, suchwell as BI-LO and Winn-Dixie, over supercenters and warehouse clubs, we believe they do so based on their desire for an enhanced food shopping experience, including convenience, higher quality food items, compelling promotional value and overall service. We believe we have successfully defended our leading market positions,tailwinds from COVID-19, as evidenced by the following key financial metrics:
Market | Banner | Conventional Supermarket Operator Rank(1) | # of Stores(2) | |||||||
Miami, FL | Winn-Dixie | 2 | 83 | |||||||
Greenville/Spartanburg/Anderson, SC | BI-LO | 1 | 46 | |||||||
Jacksonville, FL | Winn-Dixie | 2 | 44 | |||||||
Tampa-St. Petersburg, FL | Winn-Dixie | 3 | 36 | |||||||
Orlando, FL | Winn-Dixie | 2 | 31 | |||||||
Charlotte, NC | BI-LO | 3 | 27 | |||||||
New Orleans, LA | Winn-Dixie | 2 | 26 | |||||||
Chattanooga, TN | BI-LO | 1 | 23 | |||||||
We are committed to providing our customers with a superior shopping experience, through a focus on delivering “Savings without Sacrifice,” which emphasizes our conveniently located stores, great customer service
and high-quality fresh food offerings at competitive prices. We support our customer value with our loyalty programs, which provide cardholders with instant discounts and promotions on items throughout the store and other rewards.
Our loyalty programs now include over 15 million active card holders, with 76.5% of 28 weeks ended July 8, 2020;
We believe our loyalty card programs are enhanced by their connection to our fuelperks! program. In order to participate in fuelperks!, customers must use their BONUSCARD or Customer Rewards Card. The fuelperks! program was fully implemented throughout all banners by the end of 2012. Currently, approximately 3.0 million households participate in our fuelperks! program.
We believe thatthe continued execution of our BONUSCARD, Customer Rewards Card, fuelperks! and $4/$10 generic Rx program have fostered increased customer loyalty, whichoperational initiatives will contribute to our growth as a leading conventional supermarket in the Southeastern markets where we believe has been partially responsible for our strong financial results.operate.
We believe our customer relationships, merchandising initiatives and experienced management team, combined with our focus on operational excellence, have positioned us to deliver strong financial results.
Our Competitive Strengths
We believe operating as a locally relevant food retailer is core to the following key competitive strengths contributefundamental success of our business. As a result, we have implemented a "Smart Localization" strategy, which provides a framework for our decision making as well as a roadmap for our strategic initiatives and go-to-market strategy. Smart Localization integrates our data-rich loyalty program, our customer connectivity strategies and our commitment to our success:
Leading Market Positions with Well Recognized Local Banners. We are the second largest conventional supermarket operator in the eight Southeastern statescommunities in which we operate, as defined by aggregate numberto deliver customers a personalized high-touch service model, with a distinct and locally relevant product range at an attractive value.
Leading Market Position Established Through Portfolio of stores. We are ranked as the number one or number two conventional supermarket operator in 44 of the major metropolitan markets in which we operate, where approximately 83% of our stores are located. Our BI-LO and Winn-Dixie banners have deep local heritages that go back many decades and are well known institutions in the communities they serve.Well-Recognized Local Banners. We believe our leading market positions and the strong brand recognition of our banners help generate customer traffic and loyalty. We are the largest or second largest conventional supermarket by revenue in all of the major metropolitan markets within the Southeastern states in which we operate. Our go-to-market strategy is based on the operation of three banners that provide our customers a differentiated product offering and shopping experience at a compelling value. Our multi-banner approach allows for broad reach to various demographics across income brackets and ethnicities while allowing for a personalized approach to customer service, store operations and assortment in a way that maximizes overall customer value proposition. Our Winn-Dixie and Harveys banners have deep local heritages that go back more than 90 years and are well established neighborhood markets within the communities they serve. Since the creation and implementation of our Fresco y Más banner in 2016, we have established a strong local following within our 26 stores by providing an authentic shopping experience targeted at the rapidly growing Hispanic demographic.
We believe that our regional focus also provides us several competitive advantages compared to national grocers, including (i) a differentiated value proposition driven by convenience and preferred store locations; (ii) expertise in assortment and merchandising driven by a deep understanding of our customers and neighborhoods; (iii) a fresh produce offering that drives traffic and loyalty; (iv) a private-label offering that creates brand-specific loyalty; (v) flexible operations with ability to quickly
react to changing market environment; and (vi) superior customer service model. Regional grocers have been growing revenue at a median CAGR of 6% between 2017 and 2019, compared to median CAGR of 3% for national grocers.
Strategically Positioned to Capitalize on Attractive, High-Growth Markets with Favorable Market Demographics in the Southeastern U.S.Demographics. We believe that the Southeastern U.S.United States is an attractive region for supermarket retailing that is characterized by:
an established competitive landscape, including relative saturation of supercenters.
According to IHS Global Insight,Moody's Analytics, the eightfive states in which we operate are expected to have a weighted average overall projected population growth between 20122019 and 20302025 of 19.5%4.3%, as compared to a weighted averagean overall projected population growth of 13.1%3.2% in the rest of the U.S. IHS Global InsightUnited States. Moody's Analytics estimates that Florida, which is the third most populous state in the U.S. and was the number state in population inflow in 2019 and where 48%76% of our stores are located, will experience aan overall population growth of 27.6% in6.0% during this period, driven by higher birth rates compared to the national average, continuing high levels of immigration and an overall aging U.S.United States population that is drawn to Florida. Key markets within Florida also outpace the United States on population and income growth, represented in the below graph:
We believe aggressivemultiple key markets within Florida are underpenetrated relative to the national average as measured by grocery square footage per capita (4.3 square feet per capita), including Miami (3.2 square feet per capita with an estimated market size of approximately $19.6 billion), Tampa (3.6 square feet per capita with an estimated market size of approximately $10.0 billion), Jacksonville (3.6 square feet per capita with an estimated market size of approximately $4.8 billion), and Orlando (3.7 square feet per capita with an estimated market size of approximately $7.7 billion). In addition, we believe 89% of our Florida leases are at or below market rate and typically have initial lease terms of up to 25 years, representing approximately $30.0 million in total savings or approximately $2.0 per square foot.
According to the U.S. Census Bureau, approximately 26% of Florida's population is Hispanic, and growing at a rate significantly above the broader population. We believe our Fresco y Más banner, which was developed organically to address the market opportunity presented by this demographic shift, as well as our Winn-Dixie and Harveys banners, are well-positioned to deliver a unique and compelling offering to this growing and underserved segment of the population.
We also believe supportive government promotionsprograms and incentives for businesses are driving industrialcommercial growth in the Southeast. We believe that state governments across the region, seeking to createSoutheast, creating jobs for their residents, are
and offering attractive tax incentives for businesses that build in or relocate to these states. We believe the Southeast also offers an attractive labor market for us, with lower average wage rates than the national average and a generally non-union work force. Unlike the employeesaverage.
We believe the competitive landscape in the Southeast is well established, with relative saturation of supercenters such as Walmart, and dollar stores such as Dollar General, Dollar Tree and Family Dollar. As of January 31, 2012, in the states we serve, there were approximately 14 Walmarts per million people, compared to approximately 9 per million in the rest of the U.S., and there were approximately 113 dollar stores per million people compared to approximately 56 per million in the rest of the U.S. Given this saturation, although the new store opening strategies of competitors operating these formats are unknown, we believe it is likely that we will be confronted with fewer new store openings by these formats in the future, compared to the rest of the U.S. Additionally, we believe we have developed an effective strategy and shopping experience to compete with these formats, as evidenced by our consistent positive pro forma comparable store sales growth over the past several years.
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Compelling Robust Loyalty Program Supports Strong Customer Value Proposition that Promotes LoyaltyProposition.. We are a competitively priced “high"high / low”low" operator. ThisThrough this pricing strategy, allows uswe set comparatively lower prices on selected merchandise using targeted discounts or promotions to target a broad customer base and drive customer traffic through periodic promotionsand sales, while maintaining comparatively higher prices on selected items.other merchandise in order to maintain consistent overall profitability across the store. In addition, we utilize our well-developed loyalty program to offer further savings beyond the in-store shelf price. Inclusive of loyalty program discounts, we believe we provide a highly competitive value proposition to our customer, especially when factoring in our full-service specialty departments, extensive product offerings and personalized customer service.
Our sophisticated loyalty program currently covers more than seven million active customers who generated $6.0 billion, or more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019 and 89% (excluding pharmacy sales) of our net sales and approximately 80% of all transactions for the 28 weeks ended July 8, 2020. In addition to the direct discount and point redemption savings provided to loyalty members, we have developed a number of additional customer loyalty and merchandising initiatives, including our BONUSCARDMystery Bonus Shop and Customer Reward Card loyalty programs, our fuelperks! program, our $4/$10 generic Rx program and our “Real Fresh” program.
Supported by fuelperks!,Deal of the Week programs. We have historically found that as customers engage in additional aspects of our loyalty card programs now include over 15 million active card holders. Theprogram, basket sizes increase significantly. For example, the basket size increase was approximately 1.2 times on average dollar valuefor a customer who engages in both our Mystery Bonus Shop and Deal of the Week initiatives, as well as our standard loyalty card transactions was 176% greater than the average dollar value of transactions by non-card holdersprogram, as compared to 1.0 times for a customer who engages only in the first 28 weeks of fiscal 2013.our standard loyalty program.
We also use our loyalty card programsprogram to track customer sales transaction data in aaugment our frequent shopper database to generate insights on customer preferences, which enables us to target our promotions to specific customer groups. Supported by these initiatives, we have experienced positive pro forma comparable store sales growth for 18 consecutive quarters through the second quarter of fiscal 2013. Additionally, our last six quarters comparable store sales growth on a two year stack basis averaged 6.6%, significantly outpacing that of our peers, which averaged 1.7% over this timeframe based on publicly available information.
Attractive, Well Maintained Stores. Within the last five fiscal years, 46% of our stores have been remodeled. We believe our store remodels have driven further trafficability to leverage our stores. We intendloyalty program and our robust data allow us to continue remodeling selected stores, focusing our capital spending decisions ondeliver a holistic loyalty offering that increases customer spend and retention. One of the anticipated return on our investment in these remodels. We seek to locate our stores in high-traffic areas that are in close proximity to residential neighborhoods. Mostcentral goals of our stores occupy between 40,000loyalty program is to create one-to-one relationships in order to influence customer behavior and 50,000 square feet, providingdrive further sales. At our customerscore, loyalty and data are deeply embedded in our culture and inform all key decisions.
High-Quality, Relevant Offering With an Emphasis on Fresh. We believe we deliver a compelling merchandising offering with a balance of conveniencean emphasis on local and assortment.
Strong Free Cash Flow Generation and Minimal Contingent Liabilities. Our business model relies on controlling costs, combined with a disciplined approach to capital expenditures and working capital controls to drive strong operating profits and free cash flow. We have few closed store lease liabilities and,fresh products that serves as a non-union operator, unlikepoint of differentiation compared to many of our competitorscompetitors. Fresh sales accounted for approximately 32% of net sales in the grocery industry, we benefit from a lack of burdensome28 weeks ended July 8, 2020 and often underfunded multi-employer pension plan obligations. We believe our cash flow generation is a competitive advantage that will allow for strong operational and financial flexibility.
Track Record of Expansion and Platform for Future Growth Through Acquisitions. We acquired Winn-Dixie in March 2012, which more than tripled our store base. This year, we have entered into definitive agreements with Delhaize and Piggly Wiggly to acquire a large number of operating stores, which we expect will further strengthen our market position in the Southeast. Our management team has gained valuable experience and established a track record of identifying and executing strategic acquisitions, and we believe that our corporate infrastructure, systems and centralized functions have the capacity to accommodate further growth through acquisitions. As a result, we believe we are well positioned to take advantage of future acquisition opportunities.
Realization of Value-Creating Synergies. We have extensive experience in creating value through strategic acquisitions. As demonstrated by the combination of BI-LO and Winn Dixie, our increased scale allows us to lower our purchasing costs, achieve efficiencies in distribution and further decrease our fixed cost structure to improve profitability. The Winn-Dixie merger presented us with a significant opportunity to generate synergies which, in conjunction with our belief that we could more efficiently deploy capital and conduct operations at Winn-Dixie, underpinned our rationale in pursuing the acquisition. We have achieved over $180 million of annual run-rate cost savings from operational improvements and synergies to date and expect to realize moderate additional cost savings prior to completion of the integration. We have incurred approximately $71.8 million in upfront integration-related costs through July 10, 2013, and we anticipate we will incur modest additional costs through completion of integration.
Proven and Experienced Management Team. The executive team of BI-LO Holding, which manages our operations, averages 32 years of retail industry experience. Randall Onstead, our CEO, is a 33-year industry veteran. Prior to his tenure with us, he served as Chairman and CEO of Randall’s Food Markets, Inc., aHouston-based supermarket chain, and as President of Dominick’s Finer Foods. Our management team also includes Brian Carney (Executive Vice President and Chief Financial Officer), Larry Stablein (Executive Vice President and Chief Merchandising Officer) and Mark Prestidge (Executive Vice President and Chief Operations Officer). Mr. Onstead, as a director and as CEO, Mr. Carney and the management team have led several core initiatives,fiscal 2019, which we believe is competitive relative to national industry averages, such as the MULO market, whose average fresh sales accounted for 25% of sales for the last twelve months ended July 5, 2020. Our fresh sales have resulted in:
18 consecutive quartershistorically carried higher margin profiles, represented by an approximate gross margin of positive pro forma comparable32% for fresh offerings compared to 25% for center store sales growth;
the expansion, prior to our Winn-Dixie acquisition, of BI-LO’s adjusted EBITDA margins, which increased from 5.6%offerings in fiscal 2010 to 6.0%2019. We have invested heavily in fiscal 2011. For a reconciliation of adjusted EBITDA margin and a discussion of why we consider it useful, see “Summary—Summary Selected Historical and Pro Forma Financial and Other Data”;
an expansionoptimizing the perimeter of our store baseassortment, including our extensive selection of Certified Angus Beef, our high-quality produce and organic offerings, bakery with artisan breads and inviting floral displays. Our fresh and perimeter-of-store offerings are complemented by 478 operating stores since the beginningrobust center-of-store and specialty assortments, all of fiscal 2011, through the identificationwhich deliver a convenient, full-shop experience at a compelling value.
Well-Developed Own Brands Portfolio Drives Sales and executionEnhances Profitability. We have developed an award-winning portfolio of the Winn-Dixie acquisition;over 8,000 high-quality fresh, frozen and
the realization of significant cost savings and synergies from the acquisition of Winn-Dixie.
Our Strategy
We plan shelf-stable private-label products at value-oriented prices that we believe are similar or higher quality to pursue strategies that will allow us to maintain our strong financial performance and further expand our market share and store base, including:
Continue to Drive Strong Sales Performance. We are focused on driving additional sales and household penetration by increasing customer loyalty and attracting new customers into existing stores. We believe our promotional and merchandising programs, quality product offerings, attractive and well-maintained stores, and competitive prices will facilitate the achievement of this goal by delivering a superior and value-oriented shopping experience. We believe we have the opportunity to further increase our market share by remodeling selected stores to improve their sales productivity. Our strong focus on customer service, coupled with our well maintained store base, provides our customers with an attractive shopping experience that helps drive sales.
Continue to Focus on Growing Profitability. We believe we can continue to grow our profitability by reducing costs, leveraging our fixed cost base and improving comparable store sales through our merchandising programs. We plan to continue reducing operating expenses in ways that do not negatively impact our customers’ shopping experience, while investing in programs that increase customer loyalty and drive top-line sales growth.brand-name counterparts. For example, since relaunching the Winn-Dixie acquisition,platform in 2016, we have significantly cut expenseswon numerous quality awards for our yogurt, ice cream and realized synergies through scale efficiencies and operational improvements while at the same time improving our comparable store sales performance.
Our private label program is one example of a merchandising program that exemplifies this strategy. Private label products are similar in quality to their brand name counterparts, they benefit our customers through lower
prices and they are generally more profitable to us than their branded counterparts. Private label products represented 16.9% of our sales volume and 20.8% of our unit volume for the first 28 weeks of fiscal 2013.other dairy products. We employ a multi-tiered private labelprivate-label strategy, through which we seek to satisfy the needs of customers seeking premium, standard or core value products.
We believe our Own Brands portfolio has been a meaningful contributor to same store sales growth, and these products generally have higher margins than branded counterparts, enhancing our overall profitability. Our own brand portfolio generated $1.0 and $1.6 billion in total sales (after giving effect to the Planned Dispositions) for the 28 weeks ended July 8, 2020 and fiscal year 2019,
respectively (of which 44% and 39% was attributable to market, 14% and 14% to dairy, 7% and 8% to produce, and the remaining 35% and 39% to deli, floral, frozen food, general merchandise and other grocery items, respectively). We have successfully increased our Own Brands penetration of overall net sales from 26% in fiscal 2017, to approximately 27% for fiscal year 2019 and approximately 26% for the 28 weeks ended July 8, 2020 and seek to continually introduce innovative items in underpenetrated categories to further expand penetration. In periods of challenging economic growth where customers are seeking value, we believe our Own Brands portfolio remains a key area to create further differentiation from our competition.
Selectively Experienced Management Team with Proven Track Record of Achieving Results. We believe our people and culture are essential to our success. We have assembled an experienced and dynamic management team comprised of a balanced mix of long-tenured Southeastern Grocers executives as well as recent hires who bring fresh perspectives and relevant areas of expertise. Our executive team is led by Anthony Hucker, our Chief Executive Officer, since 2017. Mr. Hucker is an over 30-year industry veteran with prior experience as Chief Operating Officer and President of Schnucks, President of Ahold USA's banner Food Giant and has held various senior leadership positions at Walmart and Aldi. On average, Mr. Hucker, Brian Carney, our Executive Vice President and Chief Financial Officer, and the other four members of our senior executive management team have over 30 years of retail industry experience. Our cohesive and results-driven management team has led several core strategic initiatives for us, which we believe have resulted in improved top-line results, significant cost savings, enhanced profitability and reduced leverage.
Our Growth Strategies
We expect to drive sales growth and enhance profitability by executing on the following strategies, many of which are a continuation of our existing playbook, which has successfully driven our strong financial momentum over the last several years:
Drive Comparable Store Sales Growth. We intend to continue generating comparable store sales growth through our strategic growth initiatives:
Strengthen Existing Stores Through the Renewal Program and Strategically Pursue Expansion Through AcquisitionsOpportunities to Open New Stores.
Enhance Profitability Through Leveraging Reduced Cost Base. We believe we can continue to grow our profitability by leveraging our fixed cost base and improving comparable store sales through our merchandising programs. We have successfully introduced cost savings programs addressing goods-not-for-resale, goods-for-resale, store labor, vendor funding and leveraging SG&A expenses. Between fiscal 2015 and 2017, without giving effect to the Planned Dispositions, we reduced total expenses by approximately $465 million. In 2020, we are continuing to improve our labor model by leveraging "Smart Localization" to optimize required labor costs per store, informed by customer expectations and behavior.
Employ a Disciplined Approach to Capital Priorities and Investment. We will pursue opportunities to thoughtfully invest capital into our business to drive our future success. In recent years, we have displayed our commitment to growth through our core markets and banners. We have chosen to invest in the renewal of our existing stores, while also investing in digital tools and systems that allow us to better serve our customers and drive comparable sales growth. We will also continue to assess adjacent markets to expand our store footprint while simultaneously assessing infill opportunities, and will seek to expand our liquor store opportunities. We are committed to maintaining a strong balance sheet and to continue to generate strong free cash flow which will provide us with ample liquidity and allow us to self-fund our growth initiatives. We are committed to maintaining a long-term Net Debt Leverage target of 1.0x to 1.5x. We intend to deploy free cash flow to delever and to invest in projects with strong returns. We will also seek to proactively return capital to shareholders through modest dividends. As we continue to grow, we will remain disciplined in our approach to capital priorities, with a focus on achieving our sustainable, long-term growth strategy.
The U.S. Supermarket Landscape
We operate in the approximately $600 billion$1.2 trillion U.S. supermarketfood retail industry. This large and resilient sector through various economic cycles has posted a 2.7% compound annual growth rate from 2009-2019. The food retail industry which is aalso considered to be highly fragmented sector, with a large number of players competing in each region and few truly national players. According to Progressive Grocer, there are approximately 37,000 supermarkets in the United States with at least $2 million of annual sales, withWall Street Research, the top 10 supermarket operators accountingaccounted for approximately 10,000 locations or approximately 27% of total supermarkets. We believe we are the sixth largest conventional supermarket operator based on number of stores.
According to Progressive Grocer, sales at supermarkets increased 3.1% in 2012 to $602.6 billion. This growth was partially driven by moderate food retail price inflation. The Consumer Price Index (CPI) for food at home increased 1.3% in 2012, down from a 6.0% increase in 2011. Over the past five years, CPI for food at home has grown by approximately 3% annually, and the U.S. Department of Agriculture is forecasting food at home inflation of 1.5% to 2.5% in 2013 and 2.5% to 3.5% in 2014.
According to Progressive Grocer, conventional supermarkets accounted for 67%57% of total supermarket sales in 2012, having grown their share from 65%2019. The industry has also seen the widespread introduction of "limited assortment" retail stores, as well as local chains and standalone stores that often cater to the individual preferences of specific neighborhoods. Although traditional brick and mortar food retailers account for an overwhelming majority of total U.S. supermarketindustry sales, in 2009. The U.S. grocery industry also includes supercenters, convenience stores, alternative format stores, including wholesale clubs, dollar or deep discount stores, and online grocers. Conventional supermarketseCommerce alternatives continue to servegain broader consumer adoption, driven by new pure-play internet-based companies as well as traditional food retailers expanding their omni-channel capabilities to meet evolving consumer preferences.
Sales growth within the predominant outlet for food retail sales. Supercenters, which experienced significant growth in grocery sales in the late 1990’s and early 2000’s, represented 25% ofindustry has been largely driven by economic conditions (including food retail sales in 2012.price inflation or deflation) as well as a number of key consumer trends. These trends, which we believe have grown consumer demand, include an increasing focus on value and convenience, expansion of fresh and organic product offerings, broader private-label adoption and greater desire for local products. In addition, natural / organic storesthe increased use of data by retailers to enhance their merchandising and dollar stores have seen significant growth in number of stores. Conventional supermarket operators are executing a variety of strategies in order to compete more effectively and maintain market share. Several conventional supermarket operators are experimenting with new formats by increasing services, including the addition of pharmacies, gasoline pumps, and other ancillary services in an effort to increase customer traffic. Other common themes among grocery retailers are reducing costs of operations, renewing focus on customer service, and offering specialized marketing programs to increase customer loyalty.
Our stores are located in attractive markets where we have faced our primary competitors for an extended period of time. We believe the competitive landscape in our markets is well established and that we can successfully manage the incremental impact of any new competing store openings by executing our key strategies and delivering on our strong customer value proposition.
advertising initiatives has helped drive growth.
EmployeesHuman Capital Resources
As of September 6, 2013,July 8, 2020, without giving effect to the Planned Dispositions, we employed approximately 58,00045,000 employees. After giving effect to the Planned Dispositions, we employed approximately 36,000 employees as of July 8, 2020, of whom approximately 20,00028% are employed on a full-time basis and 38,00072% on a part-time basis. Approximately 97% of our employees are supermarket personnel. None of our employees are covered by a collective bargaining agreement. Management considers employeeWe believe that our relations to bewith our employees are good. We value our employees and believe that employee loyalty and enthusiasm are key elements of our operating performance.
Our human capital strategy is aligned with the Company's vision and commitments across the core people pillars of Attracting, Developing, Motivating, and Retaining top talent. We monitor our progress with insights across human capital metrics such as turnover, time to attract, internal/external hires, and store leadership bench strength.
Competition
We operate in a highly competitive industry generally characterized by high inventory turnover and narrow profit margins. We compete based onagainst a diverse group of food and/or drug retailers, supercenters, club stores, online retailers, specialty and niche supermarkets, general merchandisers, wholesale stores, discount stores, convenience stores, natural food stores, restaurants and online home delivery and meal solution companies. The competitive landscape within our geographic footprint is highly fragmented, and while the number and type of competitors vary by market area, we believe the competitive landscape in our markets is well established. Our primary competitors include Publix Supermarkets, Inc. (876 stores within our markets), Walmart, Inc. (578 stores within our markets), Food Lion, LLC, Ingles Markets Inc., Kroger Co., Rouses Markets and ALDI, Inc. (166 stores within our markets). After giving effect to the Planned Dispositions, a large percentage of our stores will be within five miles of one or more competitors (including 87% near a Walmart store, 77% near a Publix store, 56% near a Target store, 50% near an ALDI store and 50% near a Save A Lot store) and our stores will no longer compete with stores operated by Food Lion, LLC, Ingles Markets Inc. and Kroger Co.
The principal factors that affect our business include product quality, variety and price, as well as location, service, convenience and store condition. We compete directly with national, regionalThe operating environment for the food and local supermarket chains in additiondrug
retailing industry continues to independent supermarkets. We also compete with supercentersbe characterized by ongoing consolidation, broad price competition, increasing focus on alternative and otheronline formats and the entry of non-traditional supermarket retailers such as dollar-discount, drug, convenience, natural / organic and warehouse club stores. Beyond food retailers, we also face competition from restaurants and fast-food chains due to consumers purchasing and consuming food away from home. The number and type of our competitors vary by market area. Our primary competitors include Publix Supermarkets, Inc., Walmart, Inc., Food Lion, LLC, Ingles Markets Inc. and Kroger Co. We believe the competitive landscape in our markets is well established.competitors.
We expect our competition to continue to apply pricing and other competitive pressures as they strive to grow their market share in our market areas. Some of our larger competitors may have an advantage over us through stronger buying power and more significant capital resources. However, we believe we are well positioned in our markets given our convenient store locations, localized assortment, high-touch service model, differentiated loyalty program and, ultimately, a compelling value proposition that we provide our customers. See “Risk"Risk Factors—Risks Related to Our Business—Business and Industry—We operate in a highly competitive industry with low profit margins, and any failure to compete successfully, as a result of actions taken by our competitors can negativelyor otherwise, could materially adversely affect our business, financial condition and results of operations.”"
Our Stores
We believe operating as a locally relevant food retailer is core to the fundamental success of our business. As a result, we have implemented a "Smart Localization" strategy, which provides a framework for our decision making as well as a roadmap for our strategic initiatives and go-to-market strategy. Smart Localization integrates our data-rich loyalty program, our customer connectivity strategies and our commitment to the communities in which we operate, to deliver customers a personalized high-touch service model, with a distinct and locally relevant product range at an attractive value. Our Winn-Dixie and Harveys banners have deep local heritages that go back more than 90 years and are well established neighborhood markets within the communities they serve.
As of July 8, 2020, excluding locations that are part of the Planned Dispositions, we have 420 stores across three banners: Winn-Dixie, Harveys and Fresco y Más. We believe each of these banners provide a compelling value proposition to our customers based on differentiated characteristics, including:
We seek to locate our stores in high-traffic areas that are in close proximity to residential neighborhoods. As a result, as of July 8, 2020, approximately 99% of our stores were profitable on a store level basis.
Furthermore, our store renewal programs reinforce the customer experience and typically generate increased sales lift in refreshed stores. We continue to invest in store renewals with the expectation of driving comparable store sales growth and positively impacting customer loyalty. After giving effect to the Planned Dispositions, from the beginning of fiscal 2016 through July 8, 2020, we have renewed 51% of our stores. By the end of 2020, we expect to have over 180 store renewals completed, which, together with our banner conversions, will put our percentage of stores renewed at 55% since the beginning of fiscal 2016. We aim to renew another 42% of stores in the next four years, bringing our total stores renewed to 97% by the end of 2024. We also aim to obtain an average store age of less than four years by the end of 2024. For the 125 renewed stores that have been open for longer than 12 months, as of July 8, 2020, we experienced an average sales increase of approximately 10% and a return on investment that consistently exceeded our internal 20% target. We expect our renewal programs will continue to reinforce the customer experience and generate strong returns.
Additionally, we will target new store openings in existing and adjacent markets where we believe we are well positioned to capitalize on opportunities. We believe our new store economics are compelling. We target an investment of $7.15 million to open our new Winn-Dixie stores. The economics of our new Winn-Dixie stores vary by location, but on average, we target year-one sales of $20.0 million with sales growth of 5.0%, 4.0%, and 1.0% in each of the first three years after opening, respectively. In aggregate, we target a 19.0% return on invested capital in the first-year.
Loyalty
We utilize our well-developed loyalty program to offer further savings beyond the in-store shelf price. Our sophisticated loyalty program currently covers more than seven million active customers who generated $6.0 billion, or more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019. In addition to the direct discount provided and point redemption savings provided to loyalty members, we have developed a number of additional customer loyalty and merchandising initiatives, including our Mystery Bonus Shop and Deal of the Week programs. We also use our loyalty program to augment our frequent shopper database in order to generate insights on customer preferences, which enables us to target our promotions to specific customer groups.
Merchandising
Our supermarkets provide a wide variety of high quality nationally advertised food and non-food products, local specialties and private labelprivate-label items for customers seeking premium products, products comparable to national brands or value brands. In addition, we offer services such as full-service in-store butchers, produce departments, home meal replacement items, delicatessens, bakeries, organic products, produce departments, floral departments, greeting cards and a wide variety of health and beauty care items.
We believe our merchandising strategies deliver a compelling, localized product offering with an emphasis on fresh that is an appealing element of differentiation compared to our competitors. Fresh sales accounted for approximately 32% of net sales in the 28 weeks ended July 8, 2020 and in fiscal 2019, which we believe is highly competitive relative to food retail industry benchmarks such as the MULO market, whose average fresh sales accounted for 25% of sales for the last twelve months ended July 5, 2020. Fresh sales have historically carried higher margin profiles represented by an approximate gross margin of 32% for fresh offerings compared to 25% for center store offerings in fiscal 2019. In addition to our fresh offering, we have a broad selection of natural and organic products across many key categories throughout our stores.
We have developed an award-winning portfolio of over 8,000 high-quality fresh, frozen and shelf-stable private-label products at value-oriented prices. Our own brand portfolio generated
$1.6 billion in total sales for fiscal year 2019. We employ a multi-tiered private-label strategy, through which we strive to satisfy customers seeking premium, standard or core value products. Our largest Own Brand is SE Grocers, which we believe matches or beats the quality of the leading national brands and has won numerous awards, in particular for our dairy items. SE Grocers contains over 2,300 SKUs across a variety of product categories and as of August 5, 2020, generated over $372 million in sales in 2020. Our premium Own Brand, Prestige, provides our customers an indulgent experience at a competitive price. We offer over 130 Prestige SKUs, primarily located throughout our perimeter of store offerings. Our Essentials brand is focused on value, offering our customers dependable quality on a broad selection of products at an affordable price. As a complement to our three main tiers, our Naturally Better brand offers a selection of high quality, natural and organic products, which we believe is well positioned for further growth given the shifting consumer preferences towards natural, organic and healthier food alternatives.
We believe our Own Brands portfolio has been a meaningful contributor to same store sales growth, and the products generally have higher margins than branded counterparts, enhancing our overall profitability. We have successfully increased our Own Brands penetration of overall net sales from 26% in fiscal 2017, to approximately 27% for fiscal year 2019 and approximately 26% for the 28 weeks ended July 8, 2020 and seek to continually introduce innovative items in underpenetrated categories to further expand penetration. Market, dairy and produce items comprised 65% and 61% of our Own Brands sales in the 28 weeks ended July 8, 2020 and fiscal 2019, respectively, with the remaining 35% and 39%, respectively, of our Own Brands sales comprised of deli, floral, frozen food, general merchandise and other grocery items. We believe our merchandising strategy has created strong brand recognition in the markets in which we operate. Additionally, we drive customer loyalty through our loyalty programs, which provide incentives through price discounts and special promotions, including discounts on gasoline prices at certain gas stations in our fuelperks! network. These loyalty programs also provide us with valuable customer data. Through the accumulation of this information, we are able to identify our customers’ shopping patterns, preferences and demographics, and optimize our merchandising and inventory management.
We seek to maintain a reputation for friendly service, quality merchandise and customer value and community involvement. We employ various advertising and promotional strategies to reinforce the quality and value of our products. We promote these attributes using all of the traditional advertising vehicles, including radio, television, direct mail and newspapers.
Sources of Supply
We obtain the products sold in our stores and the raw materials used in our food preparation operations from a number of sources. C&S is our largest supplier, providing approximately 22%69% of our retail merchandise during the 28-week period ended July 10, 2013.fiscal 2019. Cardinal Health 112, LLC, our pharmaceutical supplier, provided approximately 7% of our retail merchandise sold during fiscal 2019. Approximately 3,000800 different vendors and third partythird-party food manufacturers delivered the remaining approximately 78%24% of our retail merchandise for the 28-week period ended July 10, 2013. See “Risk Factors—Risks Related to Our Business—We rely on a principal supplier for a substantial portion of our retail merchandise.”fiscal 2019. C&S supplies grocery, bakery, meat, deli, produce, dairy, floral, frozen and other retail merchandise for all of our store locations. See "Risk Factors—Risks Related to Our Business and Industry—We rely on a principal supplier for a significant portion of our retail merchandise, and a significant change to our relationship with our principal supplier could have a material adverse effect on our business, financial condition and results of operations." We are one of the largest partners of C&S and we accounted for 18% of C&S's total sales in fiscal 2019.
We believe that our inventory is available in sufficient quantities to adequately meet near term customer demand. As with any supermarket, many brands have high consumercustomer recognition. Though we may be able to find alternate suppliers for a particular product type, we would likely experience negative customer response if we were unable to supply a particular brand of product. See "Risk Factors—Risks Related to Our Business and Industry—If we fail to maintain our reputation and the value of our brands, including protection of our intellectual property, our sales and operating results may decline." In addition to supplying a significant percentage of our retail merchandise, C&S provides distribution and delivery services to our stores. Our retail products are delivered by C&S primarily from warehouses that are either subleased to C&S from us orwith the exception of one facility that is owned by C&S. These distribution facilities comprise the C&S distribution centers for our stores.
On May 10, 2013, we entered into the Under our C&S supply arrangement, under which C&S agreed to provideprovides the inventory supply services, including warehouse, transportation and inventory procurement, maintenance and purchasing services, for botheach of the BI-LOWinn-Dixie, Harveys and Winn-Dixie brand storesFresco y Más supermarket banners and, subject to certain exceptions, certain stores that we may acquire in the future. Under the C&S supply arrangement, C&S provides
products to us at prices based on manufacturer’smanufacturer's prices, market conditions, availability and the aggregate volume of items that we purchase. We remain responsible for certain fixed and variable costs relating to the operation of the warehouses and transportation network. The C&S supply arrangement requires us to exclusively purchase retail merchandise, other than direct store delivery items and pharmaceutical drugs, from C&S for resale at substantially all of our stores. In connection with the C&S supply arrangement, we have licensed the use of sixfive warehouses to C&S for the term of the C&S supply arrangement. The C&SOur supply arrangement, when fully implemented, is expected to reduce our capital lease balance by approximately $23 million and is expected to reduce our inventory by approximately $186 million (based upon inventory balances as of July 10, 2013). We estimate that, after full implementation, the new arrangementscontract with C&S will result inexpires on August 18, 2021 and provides for two renewal options, each for a period of one-year and exercisable at our option.
Business Technology
Our technology and information systems deliver an extensive array of solutions which allow us to leverage real-time operational, financial, and customer data to support and optimize our operational execution, financial reporting and connected personalization strategies.
We believe we have implemented a full suite of robust back end systems to manage our business and better connect with our customers. For example, our labor and inventory management systems have significantly enhanced our in-store labor efficiency, improved working capital usage and minimized shrink. Additionally, we have entered into strategic relationships with a variety of data and Customer Relationship Management providers to enhance our connected personalization capabilities and better connect with our customers.
We have adopted an asset-light approach to support our eCommerce offering, that leverages third-party vendors, which we believe provides us with a highly flexible and cost reductionseffective investment model. We currently employ a number of approximately $35 millionthird-party vendors, including Uber, Shipt and Instacart, among others, to execute the eCommerce, delivery and Click and Collect functions across our store network. Ecommerce has driven higher average order values and average items per year, consisting of reductionsbasket in the costpast verses in-store comparable figures with average order value increasing from $41 for in-store orders to $89 for online orders and average items per basket increasing from 10 for in-store orders compared to 28 for online orders for the second quarter of inventory2020.
We believe our ongoing investment in technology and supplies.systems has resulted in operational improvements and has provided management with beneficial intelligence into our business. We anticipate thatexpect to make further investments in these benefits will be realized on a run-rate basis by the end of fiscal year 2014. The term of the C&S supply arrangement is eight years.
areas in order to drive ongoing productivity, operational excellence and customer connectivity. We believe our systems are scalable to support future growth.
Trademarks
We utilize various trademarks and service marks in our business. We actively enforce and defend our rights related to our intellectual property portfolio, which management believes is an important way to establish and protect our brands in a competitive environment. Including theWinn-Dixie, Harveys, Fresco y Más, BI-LO, Super BI-LO, Southern Home,Chek, SE Grocers andWinn-DixiePrestige trademarks, we own approximately 6041 trademarks that are registered in the United States Patent and Trademark Office. Trademarks are generally renewable on a 10 year cycle.
Seasonality
Our business is subject to some seasonality as a larger share of our annual revenues may be generated in our first and fourth quarters due to the major holidays in November and December and an increase of visitors in Florida from November to March. Difficult weather conditions (such as flooding, hurricanes, prolonged rain or periods of unseasonably cold or hot weather, or snowstorms) in any quarter, however, may adversely reduce sales at affected stores and may have an adverse impact on our earnings for that period.
Government Licenses and Regulation
Our stores require a variety of government issued licenses and permits that are renewed on a periodic basis. Payment of a fee is generally the only condition to maintaining such licenses and permits. We believe we have all material licenses and permits necessary to conduct our business.
We are subject to regulation by a variety of governmental authorities, including federal, state and local agencies that regulate trade practices, building standards, labor, health and safety matters, such as the U.S. Food and Drug Administration, the U.S. Department of Agriculture and the Occupational Health and Safety Administration. We are also subject to the oversight of government agencies that regulate the distribution and sale of alcoholic beverages, pharmaceuticals, tobacco products, milk and other agricultural products and food items. We believe that our locations are in material compliance with such laws and regulations. See “Risk"Risk Factors—Risks Related to Our Business—Business and Industry—We face risks inherent in providing pharmacy services at our stores" and "Risk Factors—Risks Related to Our Business and Industry—Changes in laws, rules and regulations affecting our industry could adversely affecthave a material adverse effect on our business, financial condition and results of operations.”"
We believe that our expenditures for compliance with government regulations have not had a material effect on our capital expenditures, operating results or competitive position. However, it is possible that future regulations or new interpretations of existing regulations could impose material costs and have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to service our debt.
Data Privacy and Security
We or our partners may be subject to numerous federal and state laws and regulations, including state data breach notification laws, federal and state health information privacy and security laws, and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act) that govern the collection, use, disclosure, and protection of personal information, including PHI. See "Risk Factors—Risks Related to Our Business and Industry—Failure to maintain the privacy and security of confidential customer and business information, and the resulting unfavorable publicity, could have a material adverse effect on our business, financial condition and results of operations." and "Risk Factors—Risks Related to Our Business and Industry—Failure to maintain the privacy and security of confidential customer and business information, and the resulting unfavorable publicity, could have a material adverse effect on our business, financial condition and results of operations."
Environmental Matters
We are subject to federal, state and local environmental laws that applyand regulations relating to property ownership, property development, store operationsthe protection of the environment, including those governing the storage, management, disposal and related supportcleanup of hazardous materials. Some environmental laws, such as the Comprehensive Environmental Response, Compensation and distribution operations.Liability Act and similar state statutes, impose strict, and under certain circumstances joint and several, liability for costs to remediate a contaminated site, and also impose liability for damages to natural resources. We may be subject to certain environmental regulations or obligations regardless of whether we lease or own stores or land or whether environmental conditions were created by the owner, a prior tenant of the premises or us.
Third-party claims in connection with releases of or exposure to hazardous materials relating to our current or former properties or third-party waste disposal sites can also arise. In addition, the presence of contamination at any of our properties could impair our ability to sell or lease the contaminated properties or to borrow money using any of these properties as collateral. The costs and liabilities associated with any such contamination could be substantial and could have a material adverse effect on our business.
In addition, the increased focus on climate change, waste management and other environmental issues may result in new environmental laws or regulations that negatively affect us directly or indirectly through increased costs on our suppliers. There can be no assurance that other environmental changes will not adversely affect us through, for example, business interruption, cost of remediation or adverse publicity.
We believe that our expenditures for compliance with federal, state, and local environmental laws and regulations have not had a material effect on our capital expenditures, operating results or competitive position. However, it is possible that our environmental investigations might not reveal all potential environmental liabilities or might underestimate the severity of certain potential environmental problems. It is also possible that future environmental laws and regulations or new interpretations of existing environmental laws will impose
material environmental liabilities on us, or that properties that we own or lease will be adversely affected by hazardous substances, including those associated with other nearby properties or the actions of unrelated third parties. The costs to defend any future environmental claims, perform any future environmental remediation, satisfy any environmental liabilities or respond to changed environmental conditions could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to service our debt.
Federal regulations under the Clean Air Act require phase out of the production of ozone depleting refrigerants that include hydrochlorofluorocarbons, the most common of which is R-22. As of January 1, 2020, industry production of new R-22 refrigerant gas has been completely phased out; however, recovered and recycled/reclaimed R-22 will be available for servicing systems after 2020. We are reducing our R-22 footprint while continuing to repair leaks, thus extending the useful lifespan of existing equipment. In fiscal year 2019, we incurred approximately $1.2 million for system retrofits, and we have budgeted approximately $1.5 million per year for subsequent years. Leak repairs are part of the ongoing refrigeration maintenance budget. We may be required to spend additional capital above and beyond what is currently budgeted for system retrofits and leak repairs which could have a significant impact on our business, results of operations and financial condition.
�� On January 21, 2020, the United States District Court for the Middle District of Florida entered a Consent Decree negotiated by us, the EPA and the USDOJ to resolve EPA's allegations of various violations of certain commercial refrigerant repair and recordkeeping requirements pursuant to Section 608 of the Clean Air Act and implementing regulations pursuant to 40 CFR Part 82, Subpart F. This Consent Decree was one of several that EPA pursued through a national enforcement initiative to control emissions from refrigerant leaks at large potential sources, including grocers. SEG is currently complying with the terms of the Consent Decree. The Consent Decree requires SEG to follow certain refrigerant compliance management practices, implement certain equipment upgrades, and meet corporate-wide refrigerant leak rate requirements for three years spanning from April 1, 2020 through March 31, 2023. A civil penalty of $300,000 was assessed as part of the Consent Decree, which been paid in full.
We believe we are in material compliance with applicable environmental requirements. We also maintain a pollution liability insurance policy to cover clean-up costs and third partythird-party damages resulting from certain releases of hazardous materials at our currently owned and leased locations, as well as several historic properties. However, there can be no assurance that our insurance will be adequate or available to cover all costs, or that changes in existing requirements or their enforcement or discovery of previously unknown conditions will not result in significant costs in the future.
Properties
As of July 10, 2013,8, 2020, we operated 685545 stores located in Florida, South Carolina, Georgia, Alabama, Louisiana, North Carolina and Mississippi. After giving effect to the Planned Dispositions,
we will operate 420 stores in Florida, Alabama, Louisiana, Georgia North Carolina, Tennessee and Mississippi. The following table shows the number of stores we operate in each state:
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Florida | 320 | 320 | |||||||
South Carolina | 84 | — | |||||||
Georgia | 55 | 25 | |||||||
Alabama | 39 | 39 | |||||||
Louisiana | 29 | 29 | |||||||
North Carolina | 11 | — | |||||||
Mississippi | 7 | 7 | |||||||
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Total | 545 | 420 | |||||||
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With the exception of our stores that are leased on a month-to-month basis or that are owned (as discussed below), our stores are leased with expiration dates ranging from August 2020 to October 2013 to June 2032.2039. The majority of our leases have one or more renewal options in five-year increments. We believe our stores are well maintained. Since 2007, 46%2016, over 50% of our stores have been remodeled. We continue to be obligated to pay rent under leases for 21 Winn-Dixie and BI-LO locationsfive stores where we no longer operate, with lease expiration dates ranging from October 2013January 2022 to November 2023.March 2025. We have entered into subleases with respect to threeone of these 21five locations to reduce our associated costs.costs and may seek to enter into subleases with the remaining four properties.
In addition, we lease offices and five distribution facilities in South Carolina (Greenville)(Mauldin), Florida (Jacksonville Orlando, Miami and Pompano)Miami), Alabama (Montgomery) and Louisiana (Hammond) under leases with expiration dates ranging from June 2016July 2021 to February 2026.April 2033. We sublease a portion of our Greenville,Mauldin, South Carolina distribution facilities to C&S pursuant to the C&S supply arrangement. See “—Sources of Supply.” During the period of implementation of the C&S supply arrangement, weWe expect to enter into licenses with C&S for the use of a portion oftransition our distribution facilities forcenter located in Mauldin to Ahold Delhaize in connection with the termPlanned Dispositions in the first half of the agreement for purposes of serving us under the C&S supply arrangement for the term of the agreement.fiscal year 2021. We believe we have adequate facilities and space for our current and future activities at our administrative offices and our distribution facilities.
We own stores located in Florida (Tallahassee, St. Augustine,(Tampa, Sebring and Miami)Crystal River) and Louisiana (Baton RougeGeorgia (Quitman and Walker)Nashville). We also own a shopping center located in Marathon, Florida in which one of our stores is located. On September 13, 2013, we agreed to enter into a sale leaseback transaction whereby we will sell these properties and, immediately thereafter, lease back the six store locations. The transaction is expected to close in the fourth quarter of fiscal 2013. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—Florida and Louisiana Store Sale Leaseback.”
We own parcels of undeveloped real estate in South Carolina, Florida,Georgia, Virginia, Kentucky, Mississippi, North Carolina and Tennessee.
Legal Proceedings
In August 2018, we received a subpoena from the United States Department of Defense, Office of Inspector General, requesting documents and other materials that relate to our pharmacies' generic drug program and the manner in which we determine usual and customary drug pricing for purposes of reporting to federal health care programs from September 1, 2014 to December 31, 2016. In February 2020, we were informed by the Department of Justice Civil Division the existence of a
whistleblower lawsuit against Winn-Dixie and its affiliates pending in Federal Court in Louisiana. The action was filed under seal by an unknown relator and remains sealed. The action was brought under the False Claims Act and concerns allegations that Winn Dixie and its affiliates overcharged various federal agencies in connection with the sale of certain prescription drugs from 2006 through 2013 when we discontinued certain discount programs related to these drugs. Specifically, the relator alleged that Winn Dixie did not include lower prices offered to members of Winn Dixie's Prescription Drug Plan in their calculation of the usual and customary charges offered to the general public, and that the various agencies were entitled to the lower charges offered to plan members. Notably, summary judgment has recently been entered in favor of similarly situated grocers (i.e. Safeway and SuperValu) on the basis that the defendants' interpretation of "usual and customary" as the retail price was objectively reasonable and they therefore lacked the requisite knowledge for the false claims to be actionable. These cases have been dismissed pending potential appeal by the relators and the United States Department of Justice. Although we believe these defendants had similar discount prescription drug programs as those offered by Winn Dixie during the applicable time period, we do not know the full substance of the allegations and cannot provide any assurances that we will similarly prevail in our case. If the court rules adversely to us, we could be subject to suspension, exclusion or debarment from government health care programs, and/or have to agree to settlements that can include monetary penalties and onerous compliance and reporting requirements as part of a consent decree or corporate integrity or monitoring agreement. At this stage of the proceedings, however, we do not currently consider the possible loss, if any, in connection with this matter to be material to our financial statements. On September 30, 2020 we received a notice from the U.S. Department of Justice that they have declined to intervene in the qui tam lawsuit. Additionally, they advised that they do not have information regarding whether the relators intend to pursue the asserted claims on behalf of the United States or whether they will voluntarily dismiss the lawsuit.
We are also subject to variousother legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business that we believe are incidental to the operation of our business. We are also subject tobusiness, and a limited number of environmental claims. See "Risk Factors—Risks Related to Our Business and Industry—Litigation or legal proceedings could expose us to significant liabilities and may materially adversely affect our businesses, financial condition and results of operations." While the outcome of these claims cannot be predicted with certainty, our management does not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Directors and Executive Officers
The following table shows information forsets forth the names and ages, as of the date of this prospectus, and titles of the individuals who will serve as our sole director, director nominees and executive officers asand members of September 26, 2013.our board of directors at the time of the offering.
Name | Age | Position | |||
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| Anthony Hucker |
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Brian Carney | Executive Vice President and Chief Financial Officer | ||||
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| 57 | Executive Vice President and Chief Growth Officer | |||
| Andrew P. Nadin | 46 | Executive Vice President and Chief Customer Officer | |||
| Deborah F. Goldstein | 56 | Executive Vice President and Chief Supply Chain Officer | |||
| Anthony Abate | 55 | ||||
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Executive OfficersAnthony Hucker
R. Randall Onstead, Jr.—Mr. Onstead has served asHucker is our President and Chief Executive Officer, a position he has held since March 2012.July 2017. He has also served as President and Chief Executive Officer of Winn-Dixie Stores, Inc., a subsidiary of BI-LO since March 2012. He previously served as BI-LO Holding’s Interim Chief Executive Officer and President from October 2008 to February 2009 and as a director of BI-LO Holding from February 2009 to March 2012. Mr. Onstead has over 33 years of experience in the retail food industry. He is the former Chairman and Chief Executive Officer of Randall’s Food Markets, Inc., a Houston-based supermarket chain. After Randall’s, Mr. Onstead became a Managing Director of Chapman Partners, EEC, a private investment-banking firm, and became President of Onstead Investments, L.P. Later he became President and Chief Executive Officer of Garden Ridge Corp., a Houston-based crafts and decor retailer with 44 stores in 13 states, and then President of Dominick’s Finer Foods, based in Oak Brook, IL. Mr. Onstead has served as a member of our Advisory Board since 2008.
As our President and Chief Executive Officer, Mr. Onstead brings a deep understanding of our business, industry, operations and strategic plan to the board of directors. Mr. Onstead’s other senior leadership and more than 33 years of experience in the retail food industry also enables him to provide valuable insight and guidance to the board on our industry as a whole. In addition, Mr. Onstead’s investment-banking and investment experience assists the board in capital markets and other financial matters. Mr. Onstead’s board service also provides a direct open channel of communication between the board and senior management.
Brian Carney—Mr. Carney has served as our Chief Financial Officer and Executive Vice President since October 2005. Prior to joining us, he spent eight years as Executive Vice President and Chief Financial Officer of Jo-Ann Stores and eight years as Senior Vice President and Chief Financial Officer for Revco Drug Stores. He also spent seven years at Arthur Andersen. Mr. Carney is also a member of the board of directors of Citi-Trends, Inc., a publicly-traded apparel retailer. Mr. Carney served as our Chief Financial Officer and Executive Vice President at the time of our reorganization under Chapter 11 of the United States Bankruptcy Code.
D. Mark Prestidge—Mr. Prestidge has served as our Executive Vice President and Chief Operations Officer since January 2013. He joined the company with 36 years of experience in leadership roles with such companies as The Kroger Co., where he served as President of the Delta Division from 2006 to 2012 and Vice President, Operations, Southwest Division from 2004 to 2006. Mr. Prestige also held leadership positions with Tom Thumb, where he served as President from 1996 to 2001, and Randall’s Food Markets, Inc., where he served as Senior Vice President of Operations from 1998 to 2001.
Lawrence A. Stablein—Mr. Stablein has served as our Executive Vice President and Chief Merchandising Officer since March 2012. Mr. Stablein guides our overall merchandising and marketing efforts, as well as Own Brands, Pharmacy, Pricing, and Supply Chain & Logistics groups. Prior to joining our company, Mr. Stablein ran his own independent consulting company, L.A.S. Management Ltd., beginning in 2006. Mr. Stablein previously served as Executive Vice President Merchandising, Ontario with Loblaw Companies Ltd. from 2004 to 2006, Executive Vice President, Marketing & Merchandising with Albertsons from 2000 to 2004, Senior Vice President, Marketing with Jewel Osco (a division of Albertsons) from 1997 to 2000 and Senior Vice President, Marketing & Formats with American Stores from 1995 to 1997. Mr. Stablein served as a member of our Advisory Board from 2009 to 2012.
Directors
Bradley P. Boggess—Mr. Boggess has served as a member of our board of directors since September 2013. Mr. Boggess has been a member ofJuly 2017 and was previously our Advisory Board since 2011. Mr. Boggess has been a Director of Hudson Americas, LLC, an affiliate of ours and Lone Star since June 2011. His responsibilities include identifying investment opportunities, managing acquisition processes, and driving portfolio company performance. Mr. Boggess’s asset management responsibilities include Lone Star’s operating companies that include grocery, restaurants, and building products.Chief Operating Officer when he joined the Company in February 2016. Prior to joining Hudson Americas,us, Mr. Boggess workedHucker was President and Chief Operating Officer of Schnuck Markets Inc. ("Schnucks") from November 2014 to November 2015, and previously served as Chief Merchandising Officer and Chief Strategy Officer of Schnucks from September 2013 until November 2014. Prior to Schnucks, Mr. Hucker held the position of President of Giant Food of Maryland, LLC and served on the executive board of Ahold USA. Prior to joining Giant Food, Mr. Hucker spent seven years at Walmart and 10 years with Aldi, both in a turnaroundvariety of leadership positions, internationally and restructuring advisor with AlixPartners, a leading management consulting and turnaround services firm, from May 2007 to June 2011.domestically. Mr. Boggess is a former Armor Officer in the United States Army. Mr. Boggess is also a member ofHucker has served on the board of directors of Del Frisco’s Restaurant Group, Inc., Lone Star SteakhouseFood Marketing Institute since 2018, National Retail Federation since 2018 and Continental Building Products.
Symphony Retail AI since 2019. Mr. Boggess’s background as a management consultant, turnaround advisor and private equity executive in a wide range of industries, including the retail industry, allows him to assist the board in understanding and addressing the wide variety of issues it faces. Mr. Boggess specifically advised BI-LO and Winn Dixie during his consulting career and has deep institutional knowledge of our company and the supermarket industry. His responsibilities for Lone Star’s companies, including our company, also provide Mr. Boggess with a deep working knowledge of our business and operations.
Director Nominees
Richard L. Davis—Mr. Davis will become a director upon the listing of our common stock. Mr. Davis hasHucker previously served as a member of our Advisory Board since 2011. Mr. Davis’s 40 year business career has been devoted to managing and developing various businesses in retail, printing services and the restaurant and entertainment industries. Mr. Davis was the founder and owner of Main Street Crossing, a restaurant and live entertainment venue, JoeAuto, a chain of auto repair shops, Extreme Logic, a software training company and Night-Rider Overnight Copy Service, a printing business. Mr. Davis was the Chief Executive Officer of CCG Venture Partners from 1992 to 2010. Mr. Davis is also a member ofon the board of directors for the Chicago Trading Company from 2015 to 2019 and Jacent Retail from 2015 to 2018.
We believe that Mr. Hucker's extensive transformational leadership experience and institutional knowledge of Del Frisco’s Restaurant Group, Inc.grocery retail qualify him to serve as one of our directors.
Brian Carney
Mr. Davis’ extensive experience in business development across a wide range of industries will allow him to provide insight to the board of directors regarding developing and implementing strategies for growingCarney is our business. His service on our Advisory Board also provides Mr. Davis with working knowledge of our business and operations that will be important to the development of the board following the completion of this offering.
John Fleming—Mr. Fleming will become a director upon the listing of our common stock. Mr. Fleming has been a member of our Advisory Board since 2012. Mr. Fleming served in a number of executive roles with Wal-mart Stores, Inc., a global retail operator of 69 banners, from 2000 to 2010. Most recently, Mr. Fleming served as Executive Vice President, Chief Merchandising Officer for Wal-Mart U.S. from 2007 to 2010. Mr. Fleming also served as Executive Vice President, Chief Marketing Officer for Wal-Mart U.S. and Chief Executive Officer and Chief Operating Officer of Walmart.com. Prior to joining Wal-Mart, Mr. Fleming served in various roles for Dayton Hudson, Marshall Field’s, including as Senior Vice-President, Merchandising.
Mr. Fleming’s extensive experience in retail and merchandising across a number of formats will allow him to provide insight to the board of directors regarding developing and implementing strategies for growing sales, improving supply chain efficiencies and reducing costs. He will also bring valuable experience regarding customer strategy, insight and communications. His service on our Advisory Board also provides Mr. Fleming with working knowledge of our business and operations that will be important to the development of the board following the completion of this offering.
Samuel D. Loughlin—Mr. Loughlin will become a director and Chairman of the Board upon the listing of our common stock. Mr. Loughlin has been a member of our Advisory Board since 2011. Mr. Loughlin is currently a Managing Director of Lone Star U.S. Acquisitions, LLC, an affiliate of ours and Lone Star, where he focuses on originations initiatives. Previously, from 2008 to 2011, he served in various capacities at Hudson Americas, LLC, an affiliate of ours and Lone Star, with responsibility for its retail and restaurant operating companies, in addition to leading teams in special originations initiatives. Mr. Loughlin joined Hudson Americas in 2008 and focused on asset management, origination and monetization strategies of a number of assets. Mr. Loughlin has more than 14 years of finance and legal experience, including mergers and acquisitions, financing, private equity investment, originations and asset management transactions. Prior to joining Hudson Americas, Mr. Loughlin was a Partner of CCG Venture Partners, a private equity firm with real estate, operating company and securities holdings, where he was responsible for legal oversight, deal structuring, asset evaluation, acquisitions and sales. Previously, Mr. Loughlin was an attorney in the Business and Corporate Securities Group at Vinson & Elkins LLP, where he supported clients in venture capital and mezzanine financing transactions, private and public securities offerings, mergers and acquisitions, management buyouts and debt financing transactions. Mr. Laughlin is also chairman of the board of directors of Del Frisco’s Restaurant Group, Inc.
Mr. Loughlin has significant experience with the strategic, financial and operational requirements facing companies in the retail and related industries, allowing him to guide the board in analyzing, shaping, and overseeing our execution of important operational and policy issues. His responsibilities for Lone Star’s retail companies, including our company, and his service on our Advisory Board also provide Mr. Loughlin with a working knowledge of our business and operations that will be important to the development of the board following the completion of this offering.
Michael O. Moore—Mr. Moore will become a director upon the listing of our common stock. Mr. Moore has been a member of our Advisory Board since 2012. Mr. Moore currently serves as Executive Vice President, Chief Financial Officer and Assistant Secretary of Ruby Tuesday, Inc., a national owner, operator or franchisor of casual dining restaurants, a position he has held since April 2012. Prior to joining Ruby Tuesday, Mr. Moore was employed with Sun Capital Partners as Executive Vice President and Chief Financial Officer, of Pamida Stores from February 2009 to March 2012 and as Interim Chief Financial Officer of Kellwood, Inc. from November 2008 to February 2009.a position he has held since October 2005. Prior to his tenure with Sun Capital Partners,joining us, Mr. MooreCarney served as Executive Vice President and Chief Financial Officer of Advanced Auto Partsspecialty retailer Jo-Ann Stores Inc. from December1997 to 2005 to February 2008. Additionally,and prior to December 2005, among otherthat, served in various financial positions for drug store retailer Revco D.S. Inc. from 1989 to 1997, most recently as Senior Vice President of Finance. Previously, Mr. Moore served asCarney spent seven years with the public accounting firm Arthur Andersen & Co. Mr. Carney serves on the board of directors for Citi Trends since 2007.
Elizabeth C. Thompson
Ms. Thompson is our Executive Vice President and Chief FinancialPeople Officer, of The Cato Corporation anda position she has held since March 2019. She previously served as our Senior Vice President and Chief FinancialPeople Officer from July 2017 until March 2019, as our Vice President of Bloomingdales.Talent and Development from October 2015 until July 2017 and as our Senior Director of Organizational Effectiveness from September 2014 until October 2015. Prior to joining us, Ms. Thompson was President of Intuitive Quest, LLC, a human resources consulting and leadership coaching firm, which she successfully ran from July 2012 to
Mr. Moore brings a significant levelSeptember 2014. During this time, Ms. Thompson also served as Senior Director of financialOrganizational Development and accounting expertiseEffectiveness for Hooters of America, Inc. from July 2012 to the Board developed during his more than 30 year career. Mr. Moore’s wealth of public company experience provides valuable insight regarding public company reporting matters,June 2014, as well as insight into management’s day-to-day duties and responsibilities. His service on our Advisory Board also provides Mr. Moorevarious leadership roles over a 12-year tenure with working knowledge of our business and operations that will be importantStarbucks Coffee Co. from March 2000 to the developmentJune 2012. Ms. Thompson serves as a member of the board following the completion of this offering.
Kyle S. Volluz—Mr. Volluz will become a director upon the listing ofSoutheastern Grocers Gives Foundation Board, our common stock. Mr. Volluz has been a Director with Hudson Americas, LLC, an affiliate of ours and Lone Star,charitable arm, since 2010, with responsibility for the management of the Legal Department. In such capacity, Mr. Volluz oversees all legal issues impacting operating companies that are affiliates of Lone Star within North America, as well as other corporate investments
for which Hudson Americas provides asset management services in North America. In particular, Mr. Volluz has been actively involved in the negotiation and closing of several of our lending transactions, acquisitions, and asset sales since joining Hudson Americas in 2009. Prior to joining Hudson Americas, Mr. Volluz was Senior Vice President and Director of Legal Services for Goldman Sachs Specialty Lending Group, an affiliate of Goldman, Sachs & Co., a position he held from 2005 to 2009. Previously, Mr. Volluz was an attorney with Baker Botts LLP andJuly 2019. Ms. Thompson & Knight LLP, where he supported clients in various types of commercial banking transactions, mergers and acquisitions, private and public securities offerings, and debt financing transactions.
Mr. Volluz’s knowledge of our company allows him to bring a well-informed perspective toalso serves on the board of directors regardingfor the American Heart Association First Coast Chapter since January 2020 and was appointed to serve on the board of directors for Teach for America Jacksonville in June 2020.
Eduardo Garcia
Mr. Garcia is our operationsExecutive Vice President and Chief Growth Officer, a position he has held since March 2019. Mr. Garcia previously served as our Senior Vice President of Operations from December 2017 to March 2019 and as Regional Vice President for Winn-Dixie from April 2014 to December 2017. Mr. Garcia has served in various leadership positions during his 40-year career. Prior to joining Winn-Dixie, Mr. Garcia served as Vice President of Retail Operations for Sweetbay Supermarket. Before joining Sweetbay Supermarket, Mr. Garcia served in various leadership roles with Kash n' Karry Food Stores Inc.
Andrew P. Nadin
Mr. Nadin is our Executive Vice President and Chief Customer Officer, a position he has held since March 2019. He previously served as our Executive Vice President and Chief Marketing Officer from July 2018 until March 2019. Prior to joining us, Mr. Nadin served as Chief Marketing Officer for Schnucks from September 2014 to July 2018. Prior to this, Mr. Nadin was Chief Executive Officer of the associated legal risks. Hisbrand marketing agency APN Consulting, Inc., served as the head of brand at The Jordans & Ryvita Company, part of Associated British Foods, and held various management positions at Scottish & Newcastle plc and Aldi UK. Mr. Nadin previously served as European Brand Director for Mars Incorporated.
Deborah F. Goldstein
Ms. Goldstein is our Executive Vice President and Chief Supply Chain Officer, a position she has held since March 2019. She previously served as our Senior Vice President of Supply Chain Planning and Central Operations from July 2018 to March 2019, as our Vice President of Supply Chain Planning and Central Operations from June 2018 to July 2018 and our Vice President of Supply Chain Planning from December 2015 to June 2018. Prior to joining us, Ms. Goldstein owned and operated DFG Consulting, a global supply chain consulting business, from November 2014 to November 2015. Previously, she was Vice President of Industrial Demand Planning and Customer Fulfillment at McCormick & Company from July 2011 to October 2014. Ms. Goldstein also previously served in various strategic positions at the Consumer Healthcare Division of Pfizer, Inc., L'Oréal USA, Guinness Bass Import Co., KPMG LLP and Pharmavite LLC.
Anthony Abate
Mr. Abate is the Chairman of our board of directors, a position he has held since May 2018. Mr. Abate has served as the Chief Operating Officer and Chief Financial Officer of Echo360, Inc., an education technology company, since August 2007, as well as a director for Tops Markets Corporation, a private regional grocery chain, since November 2018, and Denbury, Inc., an independent energy company, a position he has held since September 2020. Mr. Abate's previous experience includes serving as Chief Financial Officer of Grab Networks and as a director for Broadview Networks and Cbeyond. As an investor at Battery Ventures and Whitney & Co., he served on the board of several venture backed start-ups. Mr. Abate graduated summa cum laude with a BSE in Electrical Engineering from Duke University and holds an MBA with honors from Harvard Business School. He recently received the Northern Virginia Tech Council's CFO of the Year Award for growth companies. We
believe that Mr. Abate's extensive business experience with capital market transactions, both involving our company and other affiliates of Lone Star Fund, also allowscorporate finance background qualify him to make valuable contributions with respect to our capital structure and financing and investing activities. His legal background also provides valuable insight to the board regarding issues we may face.
David West—Mr. West will become a director upon the listingserve as one of our common stock.directors.
Neal Goldman
Mr. West has beenGoldman is a member of our Advisory Boardboard of directors, a position he has held since 2011.May 2018. Mr. WestGoldman has over 25 years of experience in investing and working with companies, in a variety of industries, to maximize shareholder value. Since January 2013, Mr. Goldman has served as the PresidentManaging Member of RidgetopSAGE Capital Investments, LLC, a privately held investment companyconsulting firm specializing in independent board of director services, restructuring, strategic planning and transformations for companies in numerous industries, including energy, technology, media, retail, gaming and industrials. Mr. Goldman was formerly a Managing Director at Och Ziff Capital Management, LP from 2014 to 2016 and before that, investsa Founding Partner of Brigade Capital Management, LLC, from 2007 to 2012, which he helped build to over $12 billion in real estate, oil & gas, distressed debt, public securities and small operating companies, since 2006. From 1998assets under management. Prior to 2006,this, Mr. WestGoldman was a principal with Lone Star where he servedPortfolio Manager at MacKay Shields, LLC and also held various positions at Salomon Brothers Inc, both as President of Lone Star U.S.a mergers and directed all investmentacquisitions banker and asset management activitiesas an investor in the Americas. Prior to joining Lone Star,high yield trading group. Mr. West spent one year at L.J. Melody and Company where he arranged debt and equity for large real estate transactions. His professional experience also includes 15 years with G.E. Real Estate, an affiliate of G.E. Capital, where he most recently servedGoldman currently serves as Senior Vice President/Territory Manager for the Central and Southwest Territory of the United States. Mr. West served as the Chairman of the Boardboard of U.S. Restaurant Properties from 2001 to 2005.directors of Talos Energy Inc. and is a member of the board of directors of Weatherford International plc. He has also served on the Board of several of privately owned companies.
Mr. West has substantial investment and asset management experience, allowing him to advise the board in its analysis and consideration of significant investment and other long-term financial planning matters. Mr. West’s real estate background is also of great importance to the board because of the impact real estate matters can have on our business. In addition, Mr. West’s experience onnumerous other public and private company boards throughout his career including Fairway Markets, Eddie Bauer, Toys R Us, J. Crew, Ultra Petroleum, Ditech Holding, Midstates Petroleum and NII Holdings. He earned a BA from the University of directors provides valuable insight regardingMichigan and an MBA from the University of Illinois. We believe that Mr. Goldman's extensive corporate governance and other related issues.
Grant Wilbeck—Mr. Wilbeck will becomestrategic planning expertise and his experience serving as a director upon the listingfor various public and private companies qualify him to serve as one of our common stock.directors.
Mark Gross
Mr. Wilbeck has beenGross is a member of our Advisory Boardboard of directors, a position he has held since 2012.September 2020. Mr. WilbeckGross has also served as Director of Lone Star U.S. Acquisitions, LLC, an affiliate of ours and Lone Star, since 2013, where he focuses on origination and underwriting activities related to corporate private equity and debt investments. Previously, from 2007 to 2013, he served in various capacities at Hudson Americas, LLC, an affiliate of ours and Lone Star, with asset management responsibility across all retail and restaurant operating companies focusing on operational performance, capital structure and acquisition opportunities. Prior to joining Hudson Americas, LLC, Mr. Wilbeck was at APS Financial Corp. where he was a research analyst focused on distressed debt and special situations. Mr. Wilbeck currently serves as a director of several privately-held companies owned or controlled by Lone Star.
Mr. Wilbeck brings broad expertise in financial management to the board of directors. His extensive experience in the financial markets also allows him to make valuable contributions with respect to our capital structure and financing and investing activities. His prior service on our Advisory Board also provides Mr. Wilbeck with a working knowledge of our business and operations.
There are no family relationships among any of our directors, director nominees or executive officers.
Director Compensation
Historically, we have not paid any compensation to our directors for their services as directors. However, we intend to pay compensation to independent directors following the completion of this offering. We expect to pay an annual retainer of $70,000 per year to eachlead independent director and chairman of the audit committee for his or her services, with an additional annual fee of $5,000 for service asTops Markets Corporation, a private regional grocery chain, since November 2018, and the chairman of the board or as chairperson of aaudit committee of Acosta Inc., a private full service sales, marketing and service company for consumer packaged goods companies, grocery retailers and other entities, since January 2020. Mr. Gross is also President of Surry Investment Advisors LLC, an industry advisory firm for grocery companies and investors regarding strategy operations, acquisitions and divestitures, a position he has held since November 2018. Mr. Gross is the board. In addition, we expectformer Chief Executive Officer and President of Supervalu, Inc. from 2016 to pay2018, which operated conventional grocery, hard discount retail (Sav A lot) and grocery wholesale. He served at C&S Wholesale Grocers, Inc. from 1997 to 2006, where he held various roles, including that of Co-President, Chief Financial Officer, General Counsel and board member. Prior to that, he was an attorney with Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Gross began his career as an analyst for a New York commercial bank. He graduated from Dartmouth College with highest honors in the major, and received his law degree, cum laude, from the University of Pennsylvania. We believe that Mr. Gross's extensive grocery and business management expertise and his experience serving as a leader and director for various public and private companies qualify him to serve as one of our independent directors an additional fee of $2,500 for each meeting attended in person and $200 for each meeting attended telephonically. We also expect independent directors to receive an annual equity grant. Such cash fees are expected to be paid quarterly in arrears.directors.
Board of Directors
Our certificatebusiness and affairs are managed under the direction of incorporation will provide that upon completionour board of directors. Contemporaneously with this offering, our board of directors will initially be divided into three classescomposed of directors, with the classes to be as nearly equal in number as possible. The members of each class will initially serve for a three-year term. As a result, one-third of ourdirectors.
Board Committees
Our board of directors will be elected each year, and Messrs. Boggess, Loughlin and Wilbeck will be class I directors, initially up for election in 2014, Messrs. Onstead, Volluz and West will be class II directors, initially up for election in 2015, and Messrs. Davis, Fleming and Moore will be class III directors, initially up for election in 2016. This staggered board structure will be phased out beginning with our 2017 annual meeting, and nominated directors will thereafter be elected for a term expiring at the next annual meeting. See “Description of our Capital Stock—Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect—Classified Board of Directors.”
Before the completion of this offering, our board of directors will establishhas established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee each of which will operate pursuant tounder a charter that will be adoptedapproved by our board of directors. Members will serve on these committees until their resignations or
until otherwise determined by our board of directors. Following this offering, copies of each committee's charter will be available on our website.
Audit Committee. The primary purpose of our audit committee is to assist the board of directors' oversight of, among other things:
Upon the closingconsummation of this offering, the compositionaudit committee will be composed of Mark Gross and functioningAnthony Abate. Mr. Gross will serve as chair of allthe audit committee. qualifies as an "audit committee financial expert" as such term has been defined by the SEC in Item 407(d) of our committees willRegulation S-K. Our board of directors has affirmatively determined that Messrs. Gross and Abate meet the definition of an "independent director" for the purposes of serving on the audit committee under applicable NYSE rules and Rule 10A-3 under the Exchange Act. We intend to comply with the independence and composition requirements for all applicable requirementsmembers of the Sarbanes-Oxley Act of 2002,audit committee within the SEC rules and regulations andtime periods specified under such rules. The audit committee will be governed by a charter that complies with the rules of the stock exchange on which we apply to list.NYSE.
Following this offering, Lone Starboth our independent registered public accounting firm and management personnel will continue to control more than 50% of the voting powerperiodically meet privately with our audit committee.
Compensation Committee. The primary purposes of our common stock incompensation committee is to assist the election of directors. Accordingly, we intend to avail ourselves of the “controlled company” exception available under stock exchange rules which eliminates certain requirements, such as the requirements that a company have a majority of independent directors on its board of directors thatin overseeing our management compensation of the executive officers be determined, or recommendedpolicies and practices, including, among other things:
Audit Committee
The primary responsibilities of our audit committee will beCEO and other executive officers;
Upon the systemconsummation of internal controls established by management andthis offering, the board of directors. The audit committee will oversee the independent auditors, including their independence and objectivity. However, the committee members will not act as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee will be empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist it in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors.
The audit committee will be comprised of three members, Messrs. Moore, Davis and Wilbeck, with Mr. Moore serving as chair. Our board of directors has determined that each of and is independent, as defined under and required by the federal securities laws and the rules. Our board of directors has determined that Mr. Moore qualifies as an audit committee financial expert under the federal securities laws and that each member of the audit committee has the financial sophistication required under rules. The rules of the SEC and require us to have a fully independent audit committee within one year of the date of the effectiveness of the registration statement of which this prospectus is a part and the listing of our common stock, respectively.
Compensation Committee
The primary responsibilities of our compensation committee will be to periodically reviewcomposed of Mark Gross and approveAnthony Abate. Mr. Abate will serve as chair of the compensation and other benefits for our employees, officers and independent directors. This will include reviewing and approving corporate goals and objectives relevant to the compensation of our executive officers in light of those goals and objectives, and setting compensation for these officers based on those evaluations. Our compensation committee will also administer and have discretionary authority over the issuance of stock awards under our equity incentive plan.
The compensation committee may delegate authority to review and approve the compensation of certain of our employees to certain of our executive officers, including with respect to awards made under our equity incentive plan. Even where the compensation committee does not delegate authority, our executive officers will typically make recommendations to the compensation committee regarding compensation to be paid to our employees and the size of grants of stock option, restricted stock and other forms of stock-based compensation.
committee. The compensation committee will be comprisedgoverned by a charter, to be effective prior to the completion of three members, Messrs. Boggess, Davis and West,this offering, that complies with Mr. Boggess serving as chair. For so long as we are a controlled company, we are not required to have a compensation committee comprisedthe rules of independent directors under stock exchange rules. The board has nonetheless determined that is independent under rules.
the NYSE.
Nominating and Corporate Governance CommitteeCommittee. The primary purposes of our nominating and corporate governance committee is to:
OurUpon the consummation of this offering, the nominating and corporate governance committee will oversee all aspectsbe composed of ourNeal Goldman, Anthony Hucker, Mark Gross and Anthony Abate. Mr. Goldman will serve as the chair of the nominating and corporate governance functions. The committee will make recommendations to our board of directors regarding director candidates and assist our board of directors in determining the composition of our board of directors and its committees.committee. The nominating and corporate governance committee will be comprisedgoverned by a charter that complies with the rules of three members, Messrs. Loughlin, Moore and Volluz, with Mr. Loughlin serving as chair. For so long as we are a controlled company, we are not requiredthe NYSE, subject to have a nominating and governance committee comprised of independent directors under stock exchangepermitted phase-in rules. The board has nonetheless determined that is independent under rules.
Code of Conduct and Ethics
Our board of directors will adopt a code of conduct and ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of our company, including our principal executive, financial and accounting officers. The code will address, among other things, conflicts of interest, compliance with disclosure controls and procedures and internal control over financial reporting, corporate opportunities and confidentiality requirements. The audit committee will be responsible for applying and interpreting our code of conduct and ethics in situations where questions are presented to it. We expect that any amendments to the code or any waivers of its requirements applicable to our principal executive, financial or accounting officer or controller will be disclosed on our website at www.bi-lo.com by following the links to . Our website is not part of this prospectus.
Compensation Committee Interlocks and Insider Participation
Our compensation committee will be comprised of Messrs. Boggess, Davis and West. None of our executive officers currently serves, except for Anthony Hucker, our President and Chief Executive Officer, or has served duringin the last completed fiscal year has served, as a member of the board of directors or as a member of the compensation or similar committee (or other committee performing equivalent functions) of any entity that has one or more executive officers who servedserving on our board of directors. For a description ofdirectors or compensation committee. No interlocking relationship exists between any transactions between us and membersmember of the compensation committee (or other committee performing equivalent functions) and entities affiliatedany executive, member of the board of directors or member of the compensation committee (or other committee performing equivalent functions) and of any other Company.
Indemnification of Directors and Officers
Our amended and restated certificate of incorporation will provide that we will indemnify our directors and officers to the fullest extent permitted by the DGCL.
We intend to enter into indemnification agreements with such members, seeeach of our directors prior to the transactions describedcompletion of this offering. The indemnification agreements will provide the directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the section entitled “Certain RelationshipsDGCL, subject to certain exceptions contained in those agreements.
Code of Business Conduct and Related Party Transactions.”
Prior to the completion of this offering, we will amend our code of business conduct and ethics that applies to all of our employees, officers, directors, agents, consultants, representatives, affiliates, subsidiaries and anyone who is authorized to act on our behalf. A copy of the amended code will be available on our website located at www.segrocers.com. Any amendments or waivers from our code for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, to our code will be disclosed on our website promptly following the date of such amendment or waiver.
Corporate Governance Guidelines
Prior to the completion of this offering, our board of directors will adopt corporate governance guidelines in accordance with the corporate governance rules of the NYSE, which serve as a flexible framework within which our board of directors and its committees operate. These guidelines will cover a number of areas, including the duties and responsibilities of the board of directors, director independence, board leadership structure, executive sessions, succession planning, director nomination, qualification and election, director orientation and continuing education, annual board and committee performance evaluations and other governance guidelines for our board of directors. A copy of our corporate governance guidelines will be posted on our website located at www.segrocers.com.
EXECUTIVE AND DIRECTOR COMPENSATION
The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures that follow. This discussion contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the programs summarized in this discussion. The following discussion may also contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Compensation Discussion and Analysis
Overview
Overview
This Compensation Discussion and Analysis provides an overview of our executive compensation program and explains our compensation philosophy, objectives and design. The discussion that follows focuses on our executive compensation provided to our chief executive officer, our chief financial officer, and our three other most highly compensated executive officers duringprogram for the fiscal year 2012,ended December 25, 2019 ("fiscal year 2019"). The following discussion also includes compensation arrangements sponsored, maintained or collectively, the named executive officers, is set forth in detail in the tables and narratives that follow this section.
Our named executive officers for fiscal 2012 are:
R. Randall Onstead Jr., Chief Executive Officer;
Brian P. Carney, Chief Financial Officer;
Lawrence A. Stablein, Chief Merchandising Officer;
D. Mark Prestidge, Chief Operating Officer; and
Michael D. Byars, former President of BI-LO, LLC, who terminated employment effective March 1, 2013.
The Company does not directly employ any individuals. All of our named executive officers, with the exception of Mr. Byars, are employed and compensatedentered into by BI-LO Holding, LLC, (“BI-LO”),a Delaware limited liability company and a direct, wholly-owned subsidiary of the Company. Mr. Byars was employed by our indirect, wholly-owned subsidiary, BI-LO, LLC.Company ("BI-LO"). References to "we," "our," "us" or "the Company" herein include BI-LO.
Our board of directors has final oversightThis Compensation Discussion and responsibility with respect toAnalysis focuses on the compensation provided to the employees of BI-LOour Chief Executive Officer, our Chief Financial Officer and BI-LO, LLC. After this offering, we expect that the compensation of our three most highly compensated executive officers will be determined by our compensation committee.(our "NEOs" or "named executive officers") for the fiscal year ended December 25, 2019:
Name | Title | |
|---|---|---|
Anthony Hucker | President and Chief Executive Officer | |
Brian Carney | Executive Vice President and Chief Financial Officer | |
Elizabeth C. Thompson | Executive Vice President and Chief People Officer | |
Eduardo Garcia | Executive Vice President, Store Growth | |
Andrew P. Nadin | Executive Vice President and Chief Customer Officer |
Executive Compensation Objectives and Philosophy
Our primary executive compensation objective has been to attract and retain top talent from within a highly competitive global marketplace to maximize value to our equity holder.stockholders. We seek to recruit and retain individuals who have demonstrated a high level of expertise and who are market leaders in the grocery industry. We believe that the compensation paid to our executives is competitive in this marketplace. While we do not formally benchmark the compensation of our executives to any particular group of peer companies, we regularly review publicly available information regarding executive compensation in the grocery industry to assess whether our executives are generally compensated at competitive levels. During fiscal year 2012 we did not engage a compensation consultant to provide services with respect to the determination of named executive officer compensation.
Compensation Program
In fiscal 2012,year 2019, our compensation program was a cash-based program, composed of annual base salary, annual cash incentive compensation and long-term cash incentive compensation. Historically, BI-LO has not maintained an equity-basedequity incentive compensation program.in the form of time-based and performance-based restricted stock units ("RSUs").
We anticipate that uponin connection with the completion of this offering, our compensation committee will evaluate our executive compensation program will be composedand determine the extent to which any changes to our compensation program are necessary and/or appropriate in light of three principal components:
our becoming a
annual base salary;
annual cash-based incentive compensation; and
long-term equity-based incentive compensation (as discussed in further detail under “2013 Stock Incentive Plan”).
publicly-traded company. We anticipate that we will set base salaries for our executivesexecutive officers at levels sufficient to attract and retain talent and provide a fixed level of income, which would enable them to focus on short-term execution objectives.talent. In addition, we willexpect to use variable cash and equity incentives usingunder both shortshort- and long-term incentive compensation plans to ensure a performance-based delivery of pay that closely aligns our named executive officers’officers' compensation with stockholders’stockholders' interests, which would enable them to focus on long-term sustained performance of the Company. In connection with the offering, we will adopt a new equity incentive plan. After the completion of this offering, and periodically from time to time thereafter, our compensation committee will review our compensation program and may alter or adjust some or all of its components based on various factors, including compensation levels within our industry, corporate performance and individual performance of our named executive officers.
Elements of CompensationOur compensation committee believes it is important to reward our executives for strong performance and to incentivize them to continue to take actions to deliver strong results.
We believe that our executive compensation program is structured in a manner to support us and to achieve our business objectives. For fiscal year 2019, our executive compensation approach was designed with the following goals:
Base salaries We designed our compensation program to incentivize results that drove our strategy and fostered our culture. We aimed to deliver a sound compensation program, reflecting consideration of a comprehensive set of data points that created appropriate incentives without promoting excessive risk taking.
We have adopted the following best practices:
financial statements, with respect to annual incentive bonus payments, and other compensation, benefits or awards pursuant to each of the NEO's employment agreements with our direct and wholly-owned subsidiary BI-LO, as described further below in the section titled "—Employment Agreements."
Elements of NEO Compensation; Compensation Decisions in 2019
In fiscal year 2019, we compensated our NEOs through a combination of base salary, annual cash incentive compensation and long-term equity incentive compensation in the form of RSUs under the terms of our Amended and Restated 2018 Omnibus Equity Incentive Plan (the "EIP"). Our named executive officers were also eligible to participate in our 401(k) plan with matching contributions, and broad-based health and welfare benefit plans. We provided all our salaried employees, including our named executive officers, with basic life insurance and the option for additional life insurance. In addition, we provided our named executive officers with limited perquisites and other benefits, including certain financial planning services, physical examinations, continuing education and relocation services. Our 2019 executive compensation program contained the following key components:
Component | Objective | Key Features | ||
|---|---|---|---|---|
Base Salary | Provide a fixed level of pay that is not at risk and reflects individual experience and ongoing contribution and performance. | Designed to retain key executive officers by being competitive but not considered to be the primary means of incentivizing or recognizing performance. | ||
Short-Term Incentive Plan | Motivate and reward achievement of annual financial results against established annual goals of the Company. | Cash payments that are variable based on performance-based objectives. Payable based on financial metrics. | ||
Equity Incentive Plan | Promote long-term growth and tie our executives' financial interests to those of our stockholders. | For 2019, 35% of RSU awards granted to our NEOs were time-based and 65% of such RSU awards were performance-based. | ||
Benefits | Provide benefits to promote employee health and support employees in attaining financial security. | Health and welfare benefits, life insurance benefits, qualified retirement benefits and 401(k) compensation deferrals with employer matching contributions. | ||
Perquisites and other Personal Benefits | Provide low cost/high value business-related benefits to assist in attracting and retaining executives. | Limited perquisites such as executive health and financial planning. |
Base Salary
Base salaries reflect the fixed component of the compensation for an executive officer's ongoing contribution to the operating performance of his or her area of responsibility. We paid our named executive officers 2019 base salaries that were intended to provide them with a level of assured, regularly paid cash compensation that is competitive and reasonable. Our named executive officers' base salaries were based on their respective employment agreements with us and are reviewed by the Chief Executive Officer and the board of directors from time to time in connection with performance reviews, as well as market competitiveness. Basein the event of promotions or other changes in our named executive officers' positions or responsibilities. When establishing base salary levels, were initially determined in connection withour board of directors considers a number of qualitative factors, including the arms-length negotiationnamed executive officer's experience, knowledge, skills, level of each executive officer’s employment agreement. For fiscal year 2012, Messrs. Onstead, Carney, Stablein, Prestidgeresponsibility and Byars were paid annual base salaries of $950,000, $650,000 (increased from $425,000, effective March 9, 2012), $650,000, $475,000 and $575,000, respectively.performance.
Following the completion of this offering, we expect that our compensation committee will conduct a review of each named executive officer’sofficer's base salary on an annual basis or at such timetimes as responsibilities change, and we expect that our compensation committee will consider factors such as individual and Company performance, base salaries of executives at similarly situated companies and the competitive environment in our industry in determining whether salary adjustments are warranted.
Cash-Based AnnualShort-Term Incentive CompensationPlan
Effective March, 9, 2012, BI-LO implemented an Annual Incentive Plan, or the AIP, for certain corporate-level employees of BI-LO and its subsidiaries. For the remainder ofIn fiscal year 2012 (or, more specifically, March 9, 2012-December 26, 2012), all participants, including2019, we awarded annual cash incentive opportunities to each of our named executive officers other than Mr. Byars, were potentially eligibleunder our STIP. We use the STIP to receive anprovide a form of at-risk, performance-based pay that is focused on achievement of pre-established critical, objectively measurable, annual performance-based cash bonus equalfinancial objectives, coupled with a smaller discretionary component determined by reference to a target percentage of their annual salary (100% for eachsubjective analysis of the named executive officers who participated in the AIP). Mr. Carney’s potential bonus under the AIP was pro-ratedNEO's performance for the portionyear. The 2019 annual cash incentives were conditioned upon the achievement of pre-defined financial objectives, which were determined by our board of directors. The STIP plays an important role in our approach to total compensation. It motivates participants to work hard and proficiently toward improving our operating performance for a fiscal year, 2012and it requires that the AIP was in place, as he was alsowe achieve defined annual financial performance goals before participants become eligible for a pro-rated bonus under a legacy BI-LO bonus plan, oran incentive payout.
The 2019 STIP provided that no annual incentive payments would be payable to our NEOs if the Legacy Plan, forpre-established, minimum annual performance levels were not met, and payments were capped at the portion of fiscal year 2012 prior to the implementation of the AIP. Mr. Prestidge’s potential bonus under the AIP was pro-rated for the portion of the fiscal year that he was employed by BI-LO. Mr. Byars was eligible for a bonus under the Legacy Plan and not under the AIP.
Fiscal 2012 AIP
maximum performance payout level. The performance goals under the AIPSTIP for fiscal 2012 were (1) adjustedyear 2019 were:
For fiscal year 2019, the endspecific performance targets and actual results for the pre-established quantitative performance objectives were as follows:
Measure | Threshold Performance | Target Performance | Maximum Performance | Actual Performance | ||||
|---|---|---|---|---|---|---|---|---|
Adjusted EBITDA (50%) | 90% of target | 100% = $358 million | 110% of target | $359.8 million | ||||
Same Store Sales (30%) | Plan - 1% of target | Plan = 1% increase | Plan + 1% of target | 0.44% increase |
Adjusted EBITDA for purposes of our 2019 STIP is calculated as GAAP net income before interest expense, income taxes, and depreciation and amortization ("EBITDA"), adjusted for loss (gain)
on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise taxes; expenses (income) in connection with the Reorganization, business optimization and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to Planned Dispositions and public company preparation costs; incremental costs attributable to opening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start accounting adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; board of directors fees; and 2019 STIP payouts. Please see "Prospectus Summary—Summary Historical Consolidated Financial and Other Data—Non-GAAP Financial Measures" for a detailed description of adjustments of and reconciliations to our financial measures that are not reported in accordance with GAAP.
In fiscal year Mr. Onstead made recommendations2019, with respect to each named executive officer’sofficer's individual performance, bonusthe discretionary payout (other than his own)with respect to that portion of the STIP was at the 20% level based upon each such executive’s overall performance and contributions overon the prior year. Mr. Onstead’s recommendations were reviewed by ourdetermination of the board of directors which retains final discretionthat each of the named executive officers met their individual performance goals and performance indicators as follows: Mr. Carney's individual performance goals were based on return on capital investment improvements and AOP goals; Ms. Thompson's individual performance goals were based on achieving improvement in determiningreducing stores turnover; Mr. Garcia's individual performance goals were based on sales and EBITDA improvements; and Mr. Nadin's individual performance goals are based on customer connections improvements. Each of the amount of any bonuses actually paid.named executives achieved their individual performance targets.
Under the AIP, a participantSTIP, Mr. Hucker receives a payout of $0 if the minimum threshold performance levels are not achieved, a payout of 50%62.5% of the target payouthis base salary if minimum threshold performance levels are achieved, a payout of 100%125% of the target payouthis base salary if target performance levels are achieved, and a maximum payout of 200% of the target payouthis base salary if maximum performance levels are achieved, with linear interpolation used to determine payouts
for performance levels between threshold and target, and target and maximum. Further, unless BI-LO achieves the threshold performance level of adjusted EBITDA for a performance period, the payout related to individual performance may not exceed the target payout level.
For fiscal year 2012, the specific performance targets and actual results for the quantitative measures were as follows:
Measure | Threshold | Target | Maximum | Actual | ||||
Adjusted EBITDA1 | $286.5 million | $301.6 million | $331.7 million | $353.5 million | ||||
Same Store Sales Rate | 1.8% | 2.8% | 4.5% | 3.7% |
For fiscal year 2012, with respect to each of the named executive officer’s individual performance, performance was judged to be superior and the payout with respect to that portion of the AIP was at the maximum level. In making its determination, the board of directors noted that adjusted EBITDA performance exceeded the AIP maximum performance measure.
Pursuant to their employment agreements, Messrs. Onstead, Carney and Stablein were entitled to guaranteed minimum bonus payments for fiscal year 2012 equal to 25% of their base salaries. Notwithstanding, based on actual performance, these executives earned well above the guaranteed amount.
Legacy Plan
Mr. Carney participated in the Legacy Plan for the portion of fiscal year 2012 prior to the implementation of the AIP. Mr. Byars participated in the Legacy Plan for all of fiscal year 2012. Under the Legacy Plan, Messrs. Carney and Byars were potentially eligible toHucker) receive an annual performance-based cash bonus equal to a target percentage of their annual salary (100% for each), with Mr. Carney’s potential bonus pro-rated for the portion of fiscal year 2012 that he participated in the Legacy Plan.
The performance goals under the Legacy Plan were (1) adjusted EBITDA (50% weighting) and (2) total company sales (50% weighting). Under the Legacy Plan, a participant receives a payout of $0 if the minimum threshold performance levels are not achieved, a payout of 85%50% of the target payoutsuch NEO's base salary if minimum threshold performance levels are achieved, a payout of 100% of the target payoutsuch NEO's base salary if target performance levels are achieved, and a maximum payout of 210%200% of the target payoutsuch NEO's base salary if maximum performance levels are achieved.achieved, with linear interpolation used to determine payouts for performance levels between threshold and target, and target and maximum.
For fiscalAt the end of the year, 2012, the specific performance targets and actual results were as follows:
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Cash Incentive Bonus Amounts Earned for Fiscal 2012
Based on the results summarized above, the board of directors approved the payouts under the STIP, resulting in payment of the following bonus payouts forannual cash incentive awards under the STIP to each of our named executive officers, as reflected in the "Non-Equity Incentive Plan Compensation" column in the Summary Compensation Table: Mr. Hucker, $1,163,900; Mr. Carney, $758,770; Ms. Thompson, $469,538; Mr. Garcia, $323,956; and Mr. Nadin, $371,011.
Amended and Restated 2018 Omnibus Equity Incentive Plan
In fiscal year 2012:
Name | AIP | Legacy Plan | Total | |||||||||
R. Randall Onstead Jr. | $ | 1,757,850 | — | $ | 1,757,850 | |||||||
Brian P. Carney | $ | 1,058,480 | $ | 94,523 | $ | 1,153,003 | ||||||
Lawrence A. Stablein | $ | 1,202,739 | — | $ | 1,202,739 | |||||||
D. Mark Prestidge | $ | 666,438 | — | $ | 666,438 | |||||||
Michael D. Byars | — | $ | 582,187 | $ | 582,187 | |||||||
Cash-Based Long-Term Incentive Compensation
LSF Southeastern Grocery Holdings, LLC, or LSF, our sole equity holder, maintains, and is obligated for all payments with respect to, the Executive Incentive Pool Plan, or the IPP, for certain corporate-level employees of BI-LO and its subsidiaries, including BI-LO, LLC, which IPP was effective March 9, 2012. On September 19, 2013, the IPP was amended, with the IPP being assumed by the Company, and on September 24, 2013, the IPP was further amended, with the IPP being assumed by LSF. Under the IPP, participants are granted pool units entitling them, subject to the terms of the IPP, to a potential cash payout upon a monetization event, as described in further detail below.
During fiscal year 2012,2019, the board of directors madegranted long-term incentive awards under our EIP in the following grantsform of time-based and performance-based RSUs. The underlying principles of the EIP are to align our executives' financial interests with those of our stockholders by tying the value of their long-term awards to the value of our common stock in order to retain, motivate, incentivize and reward management for executing on our long-term strategy and financial goals and delivering significant financial return to our stockholders.
Time-Based RSUs. On May 29, 2019, the board of directors granted time-based RSUs to each of our named executive officers, which vest at a rate of 12.5% on each 6 month anniversary of the grant date (the "Time-Based RSUs"), subject to continued service with us or one of our subsidiaries on the applicable vesting date. Vesting of the Time-Based RSUs will accelerate upon a Change in Control
(as defined in the Time-Based RSU award agreements) in which cash, cash equivalents and/or Marketable Securities (as defined in the Time-Based RSU award agreements) are received for at least 80% of the Company's outstanding stock or assets in any transaction or series of related or unrelated transactions, or a "qualified IPO" (a "Time-Based RSU Exit Event"), subject to the named executive officers underofficer's continued service with us or one of our subsidiaries through the IPP: Mr. Onstead—200,000 pool units, Mr. Carney—80,000 pool units, Mr. Stablein—80,000 pool units, Mr. Prestidge—60,000 pool units and Mr. Byars—35,000 pool units. In determining grant amounts forconsummation of such Time-Based RSU Exit Event. Upon a named executive officer's termination of employment, except as described below upon certain qualifying terminations of employment, all of his or her unvested Time-Based RSUs will be forfeited for no consideration. Our named executive officers elected to defer the settlement of their Time-Based RSUs until the first to occur of a Time-Based RSU Exit Event and the NEO's termination of service.
Performance-Based RSUs. On May 29, 2019, the board of directors consideredgranted two tranches of performance-based RSUs to each executive’s level of experience, responsibilities and expected future contributions to our success. The total number of pool units authorized under the IPP is 1,000,000, and the total number of pool units outstanding as of this offering is 688,856.
Generally, the pool units become 50% vested three years after the grant date and 50% vested only upon the occurrence ofnamed executive officers: one with a vesting monetization event (as defined under “—Potential Payments Upon Termination or Change in Control”), in each case, subject to continued employmentperformance threshold of $52.22 and the terms and conditions of the IPP. 50% of the pool units held by Messrs. Carney and Byars, however, vested on March 9, 2012, because these executives were participating in a prior transaction bonus program and waived their rights under the prior program in connectionanother with their participation in the IPP. There was no payout associated with this vesting. The remaining 50% of these individual’s pool units will vest only upon the occurrence of a vesting monetization event, subject to continued employment and the terms and conditionsperformance threshold of the IPP. In addition, the pool units, to the extent then unvested, become 100% vested on a vesting monetization event, subject to the terms and conditions of the IPP, if such event occurs prior to March 9, 2017, subject to continued employment.
The value of a participant’s pool units is determined as of the closing date of each monetization event relative to that participant’s interest in the incentive pool (relative to the total number of units authorized under the IPP) and amount of profits credited to the incentive pool based upon the Company’s internal rate of return of the Company’s direct and indirect equity holders as of immediately prior to this offering in connection with such monetization event. To the extent prior payments have been made under the IPP, such payments are subtracted when determining payouts under subsequent monetization events. Upon any given monetization event, the incentive pool will not be credited with any amounts and no payouts will be made unless the Company’s internal rate of return is at least 15% and, when combined with any prior monetization event, the monetization event results in a return to the Company’s direct and indirect equity holders as of immediately prior to this offering of at least their beginning equity value. There were no payouts under the IPP in fiscal year 2012.
The amount of Company profits that are credited to the incentive pool upon a monetization event is summarized below.
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Pursuant to the terms of the IPPPerformance-Based RSU award agreements, the Performance-Based RSUs will vest in full when our stockholders receive Equity Proceeds (as defined in the Performance-Based RSU award agreements) which equal or exceed the vesting performance threshold attributable to each Performance-Based RSU on one or more Measurement Dates, (as defined in the Performance-Based RSU award agreements) subject to the applicable named executive officer's continued service with us until any such date. However, in the event of an asset sale that constitutes a "change in control" in which cash, cash equivalents and/or "marketable securities" are received for at least 80% of the Company's outstanding stock or assets in any transaction or series of related or unrelated transactions or upon a "qualified IPO" (each, a "Performance-Based Exit Event"), a percentage of the Performance-Based RSUs corresponding to the percentage of the value of the Company's assets sold in such Performance-Based Exit Event vest if the Equity Proceeds received by our stockholders in such Performance-Based Exit Event equal or exceed an amount per share equal to the product of (x) the percentage of the value of the Company's assets sold in such Performance-Based Exit Event and (y) the applicable price threshold attributed to the Performance-Based RSUs. Upon a named executive officer's termination of employment, except as described above, includingbelow upon certain qualifying terminations of employment, all of his or her unvested Performance-Based RSUs will be forfeited for no consideration.
On May 5, 2020, our board of directors determined that it was in the payment matrix,best interest of the Company to approve an amendment and restatement to each Performance-Based RSU award to eliminate the $52.22 vesting performance threshold entirely and reduce it to $0, and to reduce the $78.33 vesting performance threshold to $30. The values reported in the tables that follow this discussion do not reflect these amendments, which were approved in 2020.
2020 Equity Incentive Plan
In connection with the offering, we intend to adopt an omnibus equity incentive plan (the "2020 EIP"). The 2020 EIP is intended to provide flexibility to motivate, attract and retain the service providers who are expected to make significant contributions to our success and allow participants to share in such success.
All Other Compensation
Employee Benefits. Our named executive officers whogenerally participate in the IPP becamesame retirement and other benefit plans as our other executives and employees. They are also entitled to the following payments from LSF under the IPP in connection with the issuance of our PIK toggle notes and the approximately $458 million distribution to Lone Star on September 20, 2013: Mr. Onstead – $4,213,189, Mr. Carney – $1,685,276, Mr. Stablein – $1,685,276, Mr. Prestidge – $1,263,957 and Mr. Byars – $368,654. This offering is not expected to trigger any payments under the IPP. A secondary
offering by Lone Star could potentially trigger a payment under the IPP, subjectreceive severance benefits upon certain termination events pursuant to the terms of their employment agreements, as described further in the IPP described above.
All Other Compensation
We provide our named executive officers with health and welfare benefits, qualified retirement benefits, limited perquisites and severance benefitssection titled "—Potential Payments Upon Termination or Change-In-Control," that are intended to be part of a competitive compensation program.
We do not have
offer our named executive officers (or other employees) any pension plans or non-qualified deferred compensation plans.
401(k) Plan. We sponsor a defined contribution savings plan that is intended to be qualified under Section 401(a) of Code, in which all of our employees, including our named executive officers, are eligible to participate. Participating employees may contribute up to seventy 75% of their compensation, but not more than statutory limits, generally $19,000 in 2019. We provide a safe harbor matching contribution equal to one 100% of up to the first 3% of the participant's compensation contributed to the plan and 50% of up to the next 2% of the participant's compensation contributed to the plan as a voluntary contribution. These matching contributions are 100% vested as of the date on which the contribution is made. We are also permitted to make discretionary matching contributions to the plan not to exceed 4% of a participant's eligible compensation. The Company's matching contributions are reflected below under "—Summary Compensation Table" under the column "All Other Compensation" and the related footnote.
Health and Welfare Benefits. We sponsor various broad-based health and welfare benefit plans for our salaried employees, including our named executive officers. We provide all our salaried employees, including our named executive officers, with basic life insurance and the option to purchase additional life insurance.
Perquisites and Other Personal BenefitsBenefits. We provide limited perquisites to our executives that are not offered to our employees generally. In general, the perquisites provided are intended to provide relatively low-cost but high-value benefits to help our executives be more productive and efficient and to protect us and the executive from certain business risks and potential threats. In fiscal year 2019, the only benefits provided to our executives were certain financial planning services, physical examinations, continuing education and relocation benefits. For further details on these benefits, please see the section titled "—Summary Compensation Table" under the column "All Other Compensation" and the related footnote.
The employment agreements with Messrs. Onstead, Carney, Stablein and Prestidge provide for certain benefits, including reimbursement of relocation costs of up to $75,000 incurred in connection with each executive’s transfer to Jacksonville, Florida, reimbursement for commuter and temporary housing benefits until November 9, 2012 and up to $150,000 if the executive suffers a loss on the sale of his home (in connection with relocation). Mr. Byars was also entitled to similar relocation benefits.
Following the completion of this offering, we expect to continue from time to time to provide limited perquisites and other personal benefits to our executives consistent with the compensation practices within our industry.
Severance and Change of Control Arrangements
During fiscal year 2012, the2019, our named executive officers were eligible forto receive severance benefits and other termination-related benefits under certain termination scenarios as set forth in their employment agreements, and in the case of the IPP, upon a monetization event, as described in greater detail below under “—"—Potential Payments Upon Termination or Change-in-Control." These severance benefits are intended to provide reasonable protection to our named executive officers to help enable them to focus on the best interests of Change of Control.”the Company and its shareholders in all contexts, including those in which the officer's job security may be at risk. We believe these termination and change of control arrangementsseverance benefits are standard in our industry and are intendednecessary to attract and retain qualified executives.
Mr. Byars terminated employment on March 1, 2013. See “—Potential Payments Upon Termination or Change in Control” for a discussion of the payments he received in connection with his termination.
ClawbackTax Deductibility
PursuantFor income tax purposes, public companies may not deduct any portion of compensation that is in excess of $1 million paid in a taxable year to the terms of the AIP, the board of BI-LO may require reimbursement to BI-LO of bonuses paid to any participant, where (i) the payment was predicated in whole or in part upon the achievement of certain financial results that were subsequently the subject of a material restatement, and (ii) a lower bonus payment would have been made to the Participant based upon the restated financial results. Under the AIP, BI-LO may also seek reimbursement of bonuses paid to participants in other circumstances involving fraud or misconduct by the participant where the board of BI-LO determines that such fraud or misconduct caused substantial harm to BI-LO even in the absence of a subsequent restatement of BI-LO’s financial statements.
Under the employment agreements with each of Messrs. Onstead, Carney, Stablein and Prestidge, if the executive has committed fraud, embezzlement, a felony or a misdemeanor involving dishonesty, in each case that relates to BI-LO, or Misconduct, or if BI-LO’s financial statements are restated as a result of an audit by a nationally recognized auditing firm and the executive’s AIP, IPP, or other compensation, employee benefit or vesting was based upon such financial statements, then the board of BI-LO will generally have the right to (i) require reimbursement of any AIP or IPP payment or other compensation, benefit or award paid to the executive within 2 years of any such restatement as a result of such financial statements that were restated; (ii) reinstatement of risk of forfeiture and vesting schedule of any IPP award or other compensation, benefit or award that was vested based on such incorrect financial statements (and recoupment of any gains already realized
if such awards or benefits were sold, transferred, disposed of, paid out, or otherwise reduced to cash); (iii) require recoupment of any AIP or IPP benefit or other compensation, benefit or award paid within 2 years of any such Misconduct; (iv) forfeit any vested or unvested IPP benefits or other compensation, benefits or awards previously granted to the executive within 2 years of any such Misconduct; and/or (v) recoup any gains the executive has previously realized from any such AIP, IPP benefit, or other compensation, benefit or award within 2 years of any such Misconduct, in each case only to the extent such Misconduct resulted in an excess benefit or unjust enrichment to the executive or resulted in damages or costs and expenses to BI-LO or its affiliates.
Tax Deductibility
We have considered the potential future effects of"covered employees," including our NEOs, under Section 162(m) of the Internal Revenue Code of 1986, as amended or(the "Code"). Even if Section 162(m) of the Code on thewere to apply to compensation paid to our NEOs, our board of directors believes that it should not be constrained by the limitations of Section 162(m) of the Code if those requirements would impair flexibility in compensating our NEOs in a manner that can best promote our corporate objectives. We intend to continue to compensate our executive officers in a manner that we believe to be consistent with the best interests of the Company and our stockholders, and may
accordingly pay compensation that may not be deductible under Section 162(m) where we believe it is appropriate to do so.
Setting Compensation
Our board of directors designs our compensation programs to motivate our executives to lead us toward achieving short- and long-term financial and strategic goals. The board of directors oversees the overall compensation philosophy and compensation programs for the Company, Chief Executive Officer and other executive officers. The board of directors also establishes, reviews and approves corporate goals and objectives relevant to the compensation of the Chief Executive Officer and other executive officers, including annual and long-term performance goals and objectives. The board of directors evaluates the performance of the Chief Executive Officer and other executive officers in light of those goals and objectives and determines and approves their compensation levels based on this evaluation and makes all other determinations regarding the compensation of such persons. Each of our named executive officers. Section 162(m) placesofficers has employment or other agreements which govern certain elements of his or her compensation. For a limitdescription of $1 million on the amount ofsuch agreements, see "Employment Agreements" below. We anticipate that following this offering our compensation that a publicly held corporation may deduct in any one year with respect to its chiefcommittee will be primarily responsible for setting and reviewing executive officer and eachcompensation.
Within the framework of the next three most highly compensated executive officers (other than its chief financial officer). In general, certain performance-based compensation programs approved by stockholders is not subjectthe board of directors and based on management's review of market competitive positions, our Chief Executive Officer considers each other executive officer's performance and makes a recommendation to this deduction limit. As we are not currently publicly-traded, we have not previously taken the deductibility limit imposedboard of directors on base salary, STIP and EIP for each named executive officer other than himself. The Chief Executive Officer participates in board of directors meetings at the board of directors' request to provide background information regarding the Company's strategic objectives and to evaluate the performance of and compensation recommendations for the other executive officers. The board of directors utilizes the information provided by Section 162(m) into considerationthe Chief Executive Officer in making compensation decisions. We expectExecutive officers do not propose or seek approval for their own compensation. The board of directors approves the Chief Executive Officer's compensation in an executive session not attended by the Chief Executive Officer.
Our board of directors did not engage an independent compensation consultant to advise on executive compensation. In 2020, our board of directors engaged Mercer as an independent compensation consultant to advise on executive compensation, and we anticipate that following the consummation ofour board and/or compensation committee will use a compensation consultant going forward to advise on our executive compensation structure.
Hedging/Pledging Policy
In connection with this offering, we anticipate adopting a hedging and pledging policy under which our directors and executive officers will adopt a policy that, where reasonably practicable, we will seekbe prohibited from hedging Company stock and from pledging, or using as collateral, their Company stock.
The following table sets forth certain information regarding the total compensation awarded to, qualify the variable compensationearned by or paid to our named executive officers in respect of our fiscal year 2019.
Name and Principal Position | Year | Salary ($)(1) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Anthony Hucker | 2019 | 1,000,000 | 3,238,690 | 1,163,900 | 17,452 | 5,420,042 | |||||||||||||
Brian Carney | 2019 | 700,000 | 1,868,475 | 758,770 | 11,511 | 3,338,756 | |||||||||||||
Elizabeth C. Thompson | 2019 | 419,231 | 622,825 | 469,538 | 23,950 | 1,535,544 | |||||||||||||
Eduardo Garcia | 2019 | 344,231 | 622,825 | 323,956 | 22,000 | 1,313,012 | |||||||||||||
Andrew P. Nadin | 2019 | 394,231 | 435,978 | 371,011 | 43,966 | 1,245,186 | |||||||||||||
Names | 401(k) Matching Contributions ($) | Financial Planning Services ($) | Executive Health ($) | Relocation and Commuting Costs ($) | Total ($) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Anthony Hucker | 11,000 | — | 6,452 | — | 17,452 | |||||||||||
Brian Carney | 11,000 | — | 511 | — | 11,511 | |||||||||||
Elizabeth C. Thompson | 11,000 | 11,000 | 1,950 | — | 23,950 | |||||||||||
Eduardo Garcia | 11,000 | 11,000 | — | — | 22,000 | |||||||||||
Andrew P. Nadin | — | 11,000 | — | 32,966 | 43,966 | |||||||||||
Grants of Section 162(m). However, we may authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate to attract and retain executive talent.
Summary Compensation TablePlan-Based Awards
The following table sets forth information regarding compensation earned by our named executive officers and paid by their respective employers during the fiscal year ended December 26, 2012:
Name and Principal Position | Year | Salary($)(1) | Bonus($)(2) | Non-Equity Incentive Plan Compensation($)(3) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
R. Randall Onstead Jr. Chief Executive Officer | 2012 | 998,955 | 237,500 | $ | 1,520,350 | 21,794 | 2,778,600 | |||||||||||||||||
Brian P. Carney Chief Financial Officer | 2012 | 610,144 | 162,500 | 990,503 | 64,393 | 1,827,540 | ||||||||||||||||||
Lawrence A. Stablein Chief Merchandising Officer | 2012 | 678,437 | 162,500 | 1,040,239 | 113,292 | 1,994,468 | ||||||||||||||||||
D. Mark Prestidge Chief Operating Officer | 2012 | 360,792 | — | 666,438 | 137,947 | 1,165,177 | ||||||||||||||||||
Michael D. Byars Former President of BI-LO, LLC | 2012 | 567,525 | — | 582,187 | 136,001 | 1,285,713 | ||||||||||||||||||
Name | Company-paid Group Life Insurance($) | Relocation($)(a) | Other($)(b) | Total All Other Compensation ($) | ||||||||||||
R. Randall Onstead Jr. | 3,438 | 18,356 | — | 21,794 | ||||||||||||
Brian P. Carney | 1,393 | 63,000 | — | 64,393 | ||||||||||||
Lawrence A. Stablein | 1,445 | 111,847 | — | 113,292 | ||||||||||||
D. Mark Prestidge | 587 | 135,097 | 2,263 | 137,947 | ||||||||||||
Michael D. Byars | — | 133,062 | 2,939 | 136,001 | ||||||||||||
Grants of Plan-Based Awards in 2012
The following table provides information regardingconcerning grants of plan-based awards to each of our named executive officers during the fiscal year ended December 26, 2012. No equity-based compensation awards were granted2019.
| | | | | | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | |||||||||||||||||||||
| | | | | Grant Date Fair Value of Stock Awards(4)(5) ($) | |||||||||||||||||||||||
Name | Grant Date | Approval Date | Award Type | Threshold ($) | Target ($) | Maximum ($) | Target (#) | ||||||||||||||||||||
Anthony Hucker | 1/16/2019 | 1/16/2019 | STIP | 625,000 | 1,250,000 | 2,000,000 | |||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Time-Based RSU | 91,000 | 3,238,690 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 91,000 | 0 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 78,000 | 0 | |||||||||||||||||||||||
Brian Carney | 1/16/2019 | 1/16/2019 | STIP | 350,000 | 700,000 | 1,400,000 | |||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Time-Based RSU | 52,500 | 1,868,475 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 52,500 | 0 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 45,000 | 0 | |||||||||||||||||||||||
Elizabeth C. Thompson | 1/16/2019 | 1/16/2019 | STIP | 212,5000 | 425,000 | 850,000 | |||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Time-Based RSU | 17,500 | 622,825 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 17,500 | 0 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 15,000 | 0 | |||||||||||||||||||||||
Eduardo Garcia | 1/16/2019 | 1/16/2019 | STIP | 175,000 | 350,000 | 700,000 | |||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Time-Based RSU | 17,500 | 622,825 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 17,500 | 0 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 15,000 | 0 | |||||||||||||||||||||||
Andrew P. Nadin | 1/16/2019 | 1/16/2019 | STIP | 200,000 | 400,000 | 800,000 | |||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Time-Based RSU | 12,250 | 435,978 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 12,250 | 0 | |||||||||||||||||||||||
| 5/29/2019 | 5/23/2019 | Performance-Based RSU | 10,500 | 0 | |||||||||||||||||||||||
| Estimated Future Payouts Under Non- Equity Incentive Plan Awards | ||||||||||||||||
Name | Award Type | Threshold ($) | Target ($) | Maximum ($) | ||||||||||||
R. Randall Onstead Jr. | AIP | (1) | 475,000 | 950,000 | 1,900,000 | |||||||||||
| IPP | (2) | — | * | — | ||||||||||||
Brian P. Carney | AIP | (1) | 264,286 | 528,571 | 1,057,143 | |||||||||||
| Legacy Plan | (3) | 39,698 | 79,396 | 158,791 | ||||||||||||
| IPP | (2) | — | * | — | ||||||||||||
Lawrence A. Stablein | AIP | (1) | 325,000 | 650,000 | 1,300,000 | |||||||||||
| IPP | (2) | — | * | — | ||||||||||||
D. Mark Prestidge | AIP | (1) | 180,082 | 360,165 | 720,330 | |||||||||||
| IPP | (2) | — | * | — | ||||||||||||
Michael D. Byars | Legacy Plan | (3) | 287,500 | 575,000 | 1,150,000 | |||||||||||
| IPP | (2) | — | * | — | ||||||||||||
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Narrative Disclosure to the Summary Compensation Table and Grantsare further described above under "Short-Term Incentive Plan."
Employee Agreements
Mr. Onstead. Pursuant to his employment agreement, effective on March 9, 2012, Mr. Onstead’s base salarythe 2019 Time-Based RSU awards was initially set at $950,000. His salary may be increased at the board’s discretion. In addition, pursuant to the employment agreement, Mr. Onstead is entitled to participate in the AIP with a target bonus payment equal to 100% of his base salary,$35.59 computed in accordance with ASC Topic 718, excluding forfeiture assumptions. The fair value of Time-Based RSUs is recognized on a straight-line basis, with forfeitures being recognized as they occur.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to outstanding equity awards held by our named executive officers at December 25, 2019.
| | | Stock Awards | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Grant Type | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | ||||||||||
Anthony Hucker | Time-Based RSU | 79,625 | |||||||||||||
| Performance-Based RSU | 91,000 | ||||||||||||||
| Performance-Based RSU | 78,000 | ||||||||||||||
Brian Carney | Time-Based RSU | 45,938 | |||||||||||||
| Performance-Based RSU | 52,500 | ||||||||||||||
| Performance-Based RSU | 45,000 | ||||||||||||||
Elizabeth C. Thompson | Time-Based RSU | 15,313 | |||||||||||||
| Performance-Based RSU | 17,500 | ||||||||||||||
| Performance-Based RSU | 15,000 | ||||||||||||||
Eduardo Garcia | Time-Based RSU | 15,313 | |||||||||||||
| Performance-Based RSU | 17,500 | ||||||||||||||
| Performance-Based RSU | 15,000 | ||||||||||||||
Andrew P. Nadin | Time-Based RSU | 10,719 | |||||||||||||
| Performance-Based RSU | 12,250 | 435,978 | |||||||||||||
| Performance-Based RSU | 10,500 | 373,695 | |||||||||||||
Mr. Carney. Prior to March 9, 2012, Mr. Carney was party to an employment agreement with BI-LO, LLC. In connection with entering into a new employment agreement with BI-LO, effective on March 9, 2012, the prior agreement was terminated. Under the new agreement, Mr. Carney’s base salary was initially set at $650,000 (his salary was $425,000 under the prior agreement). His salary may be increased at the board’s discretion. In addition, pursuant to the employment agreement, Mr. Carney is entitled to participate in the AIP with a target bonus payment equal to 100% of his base salary, in accordance with the terms of the AIP (with a guaranteed minimum bonus for fiscal 2012 of 25% of base salary). Mr. Carney is also eligible to participate in the IPP. Mr. Carney is generally eligible to participate in the same employee benefit plans and programs offered to other employees of BI-LO. Mr. Carney’s employment agreement also provides for certain perquisites, including reimbursement of relocation costs of up to $75,000 incurred in connection with his transfer to Jacksonville, Florida, reimbursement for commuter and temporary housing benefits until November 9, 2012 and up to $150,000 if Mr. Carney suffers a loss on the sale of his home in Greer, South Carolina.
Mr. Stablein. Pursuant to his employment agreement, effective on March 9, 2012, Mr. Stablein’s base salary was initially set at $650,000. His salary may be increased at the board’s discretion. In addition, pursuant to the employment agreement, Mr. Stablein is entitled to participate in the AIP with a target bonus payment equal to 100% of his base salary, in accordance with the terms of the AIP (with a guaranteed minimum bonus for fiscal 2012 of 25% of base salary). Mr. Stablein is also eligible to participate in the IPP. Mr. Stablein is generally eligible to participate in the same employee benefit plans and programs offered to other employees of BI-LO. Mr. Stablein’s employment agreement also provides for certain perquisites, including reimbursement of relocation costs of up to $75,000 incurred in connection with his transfer to Jacksonville, Florida, reimbursement
for commuter and temporary house benefits until November 9, 2012 and up to $150,000 if Mr. Stablein suffers a loss on the sale of his home in Naperville, Illinois.Stock Vested
Mr. Prestidge. PursuantThe following table sets forth certain information with respect to his employment agreement, effective on March 9, 2012, Mr. Prestidge’s base salaryoutstanding equity awards held by our named executive officers at December 25, 2019.
| Stock Awards | |||||||
|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1)(2) | |||||
Anthony Hucker | 11,375 | ||||||
Brian Carney | 6,563 | ||||||
Elizabeth C. Thompson | 2,188 | ||||||
Eduardo Garcia | 2,188 | ||||||
Andrew P. Nadin | 1,531 | ||||||
Non-Qualified Deferred Compensation Table
Mr. Byars. PursuantThe table below sets forth details regarding the deferral of the Time-Based RSUs by each of our named executive officers. As described above, such Time-Based RSUs have been deferred until the first to his second amended and restated employment agreement, effective on March 9, 2012, Mr. Byars’ base salary was initially set at $575,000. In addition, pursuant to the employment agreement, Mr. Byars was entitled to participate in the AIPoccur of a Time-Based RSU Exit Event and the IPP. Mr. Byars terminated employment with BI-LO, LLCNEO's termination of service.
Name | Executive Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($)(3) | Aggregate Balance at Last FYE ($)(2) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Anthony Hucker | — | — | |||||||||||
Brian Carney | — | — | |||||||||||
Elizabeth C. Thompson | — | — | |||||||||||
Eduardo Garcia | — | — | |||||||||||
Andrew P. Nadin | — | — | |||||||||||
Employment Agreements
BI-LO, has entered into employment agreements with our named executive officers. Additional information regarding post-termination benefits provided under these employment agreements can be found under "—Potential Payments Upon Termination or Change in ControlControl" below.
Anthony Hucker
Mr. Hucker serves as our Chief Executive Officer pursuant to an employment agreement effective July 1, 2017 (the "Hucker Employment Agreement"). Pursuant to the Hucker Employment Agreement, Mr. Hucker receives a base salary of $1,000,000 per year and is eligible to earn an annual incentive compensation bonus under the STIP, based on attainment of certain budgeted performance goals of the Company. Mr. Hucker's target bonus is set at 125% of his base salary, with the actual amount payable to Mr. Hucker equal to (i) $0 if threshold performance is not achieved, (ii) 62.5% of his base salary if threshold performance is achieved, (iii) 125% of his base salary if target performance is achieved and (iv) 200% of his base salary if maximum performance is achieved. Mr. Hucker's bonus amount is prorated for any performance levels achieved between the threshold and maximum performance levels, and for any performance bonus period of less than one year.
Mr. Hucker is eligible to participate in the health and welfare benefit programs and retirement plans offered to our other similarly situated executives and he is entitled to four weeks of paid vacation each year in accordance with our vacation policy. He is also entitled to attend the Harvard Business School Advanced Management Program at our expense. We also reimburse Mr. Hucker for all reasonable business expenses incurred by him in the performance of his duties in accordance with our policies.
Under the Hucker Employment Agreement, Mr. Hucker is subject to customary non-competition and non-solicitation restrictive covenants. The information below describesHucker Employment Agreement also includes customary confidentiality provisions and a mutual non-disparagement covenant.
In addition, our board of directors has the ability to grant Mr. Hucker more favorable compensation terms than those provided in the Hucker Employment Agreement.
The Hucker Employment Agreement provides for the payment of benefits upon certain termination events. The details of these provisions are set forth under "—Potential Payments Upon Termination or Change-in-Control" below.
Brian Carney
Mr. Carney serves as our Chief Financial Officer pursuant to an employment agreement that was entered into on February 4, 2012 and amended effective March 26, 2018 (the "Carney Employment Agreement"). Pursuant to the Carney Employment Agreement, Mr. Carney receives a base salary of $700,000 per year, and is eligible to earn an annual incentive compensation bonus under the STIP, based on attainment of certain budgeted performance goals of the Company. Mr. Carney's target bonus is set at 100% of his base salary, with the actual amount payable to Mr. Carney equal to (i) $0 if threshold performance is not achieved, (ii) 50% of his base salary if threshold performance is achieved, (iii) 100% of his base salary if target performance is achieved and (iv) 200% of his base salary if maximum performance is achieved. Mr. Carney's bonus amount is prorated for any performance levels achieved between the threshold and maximum performance levels, and for any performance bonus period of less than one year.
Mr. Carney is eligible to participate in the health and welfare benefit programs and retirement plans offered to our other similarly situated executives and he is entitled to five weeks of paid vacation each year. We also reimburse Mr. Carney for all reasonable business expenses incurred by him in the performance of his duties in accordance with our policies.
Under the Carney Employment Agreement, Mr. Carney is subject to customary non-competition and non-solicitation restrictive covenants. The Carney Employment Agreement also includes customary confidentiality provisions and a non-disparagement covenant in favor of the Company.
In addition, our board of directors has the ability to grant Mr. Carney more favorable compensation terms than those provided in the Carney Employment Agreement.
The Carney Employment Agreement provides for the payment of benefits upon certain termination events. The details of these provisions are set forth under "—Potential Payments Upon Termination or Change-in-Control" below.
Elizabeth C. Thompson
Ms. Thompson serves as our EVP and Chief People Officer pursuant to an employment agreement effective March 18, 2019 (the "Thompson Employment Agreement"). Pursuant to the Thompson Employment Agreement, Ms. Thompson receives a base salary of $425,000 per year, and is eligible to earn an annual incentive compensation bonus under the STIP, based on attainment of certain budgeted performance goals of the Company. Ms. Thompson's target bonus is set at 100% of her base salary, with the actual amount payable to Ms. Thompson equal to (i) $0 if threshold performance is not achieved, (ii) 50% of her base salary if threshold performance is achieved, (iii) 100% of her base salary if target performance is achieved and (iv) 200% of her base salary if maximum performance is achieved. Ms. Thompson's bonus amount is prorated for any performance levels achieved between the threshold and maximum performance levels, and for any performance bonus period of less than one year.
Ms. Thompson is eligible to participate in the health and welfare benefit programs and retirement plans offered to other similarly situated executives of the Company and she is entitled to paid vacation each year in accordance with our vacation policy. We also reimburse Ms. Thompson for all reasonable business expenses incurred by her in the performance of her duties in accordance with our policies.
Under the Thompson Employment Agreement, Ms. Thompson is subject to customary non-competition and non-solicitation restrictive covenants. The Thompson Employment Agreement also includes customary confidentiality provisions and a mutual non-disparagement covenant.
In addition, our board of directors has the ability to grant Ms. Thompson more favorable compensation terms than those provided in the Thompson Employment Agreement.
The Thompson Employment Agreement provides for the payment of benefits upon certain termination events. The details of these provisions are set forth under "—Potential Payments Upon Termination or Change-in-Control" below.
Eduardo Garcia
Mr. Garcia serves as our EVP, Store Growth pursuant to an employment agreement effective March 18, 2019 (the "Garcia Employment Agreement"). Pursuant to the Garcia Employment Agreement, Mr. Garcia receives a base salary of $350,000 per year, and is eligible to earn an annual incentive compensation bonus under the STIP, based on attainment of certain budgeted performance goals of the Company. Mr. Garcia's target bonus is set at 100% of his base salary, with the actual amount payable to Mr. Garcia equal to (i) $0 if threshold performance is not achieved, (ii) 50% of his base salary if threshold performance is achieved, (iii) 100% of his base salary if target performance is achieved and (iv) 200% of his base salary if maximum performance is achieved. Mr. Garcia's bonus amount is prorated for any performance levels achieved between the threshold and maximum performance levels, and for any performance bonus period of less than one year.
Mr. Garcia is eligible to participate in the health and welfare benefit programs and retirement plans offered to our other similarly situated executives and he is entitled to paid vacation each year in accordance with our vacation policy. We also reimburse Mr. Garcia for all reasonable business expenses incurred by him in the performance of his duties in accordance with our policies.
Under the Garcia Employment Agreement, Mr. Garcia is subject to customary non-competition and non-solicitation restrictive covenants. The Garcia Employment Agreement also includes customary confidentiality provisions and a mutual non-disparagement covenant.
In addition, our board of directors has the ability to grant Mr. Garcia more favorable compensation terms than those provided in the Garcia Employment Agreement.
The Garcia Employment Agreement provides for the payment of benefits upon certain termination events. The details of these provisions are set forth under "—Potential Payments Upon Termination or Change-in-Control" below.
Andrew P. Nadin
Mr. Nadin serves as our EVP and Chief Customer Officer pursuant to an employment agreement effective March 18, 2019 (the "Nadin Employment Agreement"). Pursuant to the Nadin Employment Agreement, Mr. Nadin receives a base salary of $400,000 per year, and is eligible to earn an annual incentive compensation bonus under the STIP, based on attainment of certain budgeted performance goals of the Company. Mr. Nadin's target bonus is set at 100% of his base salary, with the actual amount payable to Mr. Nadin equal to (i) $0 if threshold performance is not achieved, (ii) 50% of his base salary if threshold performance is achieved, (iii) 100% of his base salary if target
performance is achieved and (iv) 200% of his base salary if maximum performance is achieved. Mr. Nadin's bonus amount is prorated for any performance levels achieved between the threshold and maximum performance levels, and for any performance bonus period of less than one year.
Mr. Nadin is eligible to participate in the health and welfare benefit programs and retirement plans offered to our other similarly situated executives and he is entitled to paid vacation each year in accordance with our vacation policy. We also reimburse Mr. Nadin for all reasonable business expenses incurred by him in the performance of his duties in accordance with our policies.
Under the Nadin Employment Agreement, Mr. Nadin is subject to customary non-competition and non-solicitation restrictive covenants. The Nadin Employment Agreement also includes customary confidentiality provisions and a mutual non-disparagement covenant.
In addition, our board of directors has the ability to grant Mr. Nadin more favorable compensation terms than those provided in the Nadin Employment Agreement.
The Nadin Employment Agreement provides for the payment of benefits upon certain termination events. The details of these provisions are set forth under "—Potential Payments Upon Termination or Change-in-Control" below.
Potential Payments Upon Termination or Change-In-Control
In this section, we discuss the nature and estimated value of payments and benefits we would provide to which our named executive officers are entitled in the event of termination of employment (including in connection with a change in control). The amounts described in this section reflect amounts that would have been payable under the named executive officers' employment agreements if their employment ishad terminated on December 25, 2019, and the value of the RSUs that would have become vested upon such a termination (where applicable) under certain circumstances. As explained belowthe named executive officers' Time-Based RSU award agreements and summarized inPerformance-Based RSU award agreements.
For the table that follows this section, each of our named executive officers, other than Mr. Byars, would have been entitled to such compensationthe types of termination situations include a voluntary termination by the executive, with or without "good reason," a termination by us either for "cause" or without "cause" and termination in the event of disability or death. The actual payments and benefits assumingthat would be provided upon a termination of employment had occurredare based on December 26, 2012. Mr. Byars terminatedthe named executive officers' compensation and benefit levels at the time of the termination of employment.
We have not described or provided an estimate of the value of any payments or benefits payable in connection with employment on March 1, 2013. A discussiontermination under plans or arrangements that do not discriminate in scope, terms or operation in favor of what he received upon termination follows the table.
a named executive officer and that are generally available to salaried employees.
Potential Payments under Employment Agreements with Messrs. Onstead, Carney, Stablein and Prestidge
Pursuant to each of theirAs discussed above, the Company has entered into employment agreements uponwith our named executive officers. The employment agreements provide for the payment of severance benefits following certain termination events. Below is a summary of the payments and benefits that the named executive officers would receive in connection with various employment termination scenarios.
Termination without Cause or by the Executive for Good Reason
Under the terms of each employment agreement, if the executive's employment is terminated by the Company for any reason other than for cause and not due to death or a resignationdisability, or by the executive for good reason, notin addition to any accrued obligations (which include the executive's then-base salary through the effective date of his or her termination, reimbursement for any unreimbursed business expense properly incurred and documented by the executive, and any employee benefits as to which the executive may be entitled under our employee benefit plans in accordance with their terms), subject to the executive's execution of a resultvalid and effective release of death or disability and that occurs prior to a monetization event (as definedclaims in the IPP and described below), eachfavor of the executivesCompany, the executive is entitled to receive, in addition to accrued benefits and as applicable:
Termination without Cause or by the Executive for Good Reason in connection with a Change of Control
Under the terms of each employment agreement, if the executive's employment is terminated by us for any reason other than for cause and his spouse and covered dependents for two years. Upon a termination without causenot due to death or a resignationdisability, or by the executive for good reason, that occursin either case, within 24 months following a monetization event,"change of control," subject to the executive's execution of a valid and effective release of claims in favor of the Company, then the executive is entitled to receive the base salary and target bonus severance payment shall be madepayments described above in a single lump sum.
Termination Due to Death or Disability
Upon termination If the executive's employment terminates due to death or disability, eachsubject to the executive's, or his or her estate's, execution of a valid and effective release of claims in favor of the executives is entitled to receive, in addition toCompany, the Company will pay the executive, or his or her estate:
Termination for Cause or by the yearExecutive without Good Reason
If the executive's employment is terminated by us for cause or by the executive without good reason, our only obligation is the payment of termination and the numberany accrued obligations.
Summary of full months worked in the year of termination. Further, if such termination occurs prior to the first anniversaryEstimated Cash Severance Payments
The following table provides a summary of the effective datepayments that the NEOs would have been eligible to receive in each of the applicable employment agreement, eachscenarios, assuming that the relevant termination and, if applicable, "change in control," occurred on December 25, 2019. The severance amounts shown below do not include the amounts paid to the named executive officers pursuant to the 2019 STIP and reflected in the "Non-Equity Incentive Plan Compensation" column of the executives is also entitled to (i) a payment equal to 100% of base salary (less disability insurance payments), payable over 12 months, and (ii) continued health coverage forSummary Compensation
Table, since the named executive and his spouse and covered dependents for 1 year.
All benefits payable upon a termination, other than accrued benefits, are conditioned upon the executive’s execution of a separation agreement and general release of claims in favor of BI-LO and its affiliates and ongoing compliance with restrictive covenants contained in the employment agreement.
Upon termination for any other reason, the executives are not entitled to any severance or other termination benefits, but only to payment of his accrued compensationofficers would have been paid based on their service through the date of termination.
“Cause” generally means (i) a material breachend of the employment agreement byyear and therefore would have received the executive; (ii) intentional misconduct as an officeramount whether or employee of BI-LO or a material violation bynot the executive of material written policies of BI-LO or specific written directions of the persons to whom the executive reports and under whose direction the executive is subject; (iii) a material breach of any fiduciary duty which the executive owes to BI-LO in his capacity as an employee or officer; (iv) the conviction or plea of guilty or no contest by the executive with respect to (A) a felony or (B) embezzlement, dishonesty, a crime involving moral turpitude, or intentional and actual fraud; (v) the habitual use of illicit drugs or other illicit substances or the addiction to licit drugs or other substances; or (vi) an unexplained absence from work for more than 10 consecutive days in any 12 month period.termination occurred.
“Good reason” is generally deemed to exist if: (i) there is a material diminution in title and/or duties, responsibilities, or authority, or reporting relationship of the executive to whom the executive reports and under whose direction the executive is subject; (ii) after the executive’s relocation to Jacksonville, Florida (or, if BI-LO so elects, to Greenville, South Carolina), BI-LO requires the executive to move to another location of BI-LO or any of its affiliates, and the distance between the executive’s former residence and new job site is at least 50 miles greater than the distance between the executive’s former residence and former job site; (iii) there is a failure or refusal or default by BI-LO to perform any material obligation under the employment agreement; or (iv) there is a reduction in the executive’s then base salary or AIP target amount, other than a reduction which is part of a general cost reduction affecting at least 90% of similarly situated employees and which does not exceed ten percent 10% of the executive’s then base salary and AIP target amount in the aggregate when combined with any such prior reductions.
Name/Form of Compensation | Without Cause ($) | Qualifying Resignation | Death or Disability ($) | Post Change in Control Termination ($) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Anthony Hucker | |||||||||||||
Severance | $ | 4,524,039 | $ | 4,524,039 | $ | — | $ | 4,524,039 | |||||
Prorated Annual Bonus | $ | 1,250,000 | $ | 1,250,000 | $ | 1,250,000 | $ | 1,250,000 | |||||
Brian Carney | |||||||||||||
Severance | $ | 2,840,065 | $ | 2,840,065 | $ | — | $ | 2,840,065 | |||||
Prorated Annual Bonus | $ | 700,000 | $ | 700,000 | $ | 700,000 | $ | 700,000 | |||||
Elizabeth C. Thompson | |||||||||||||
Severance | $ | 1,700,963 | $ | 1,700,963 | $ | — | $ | 1,700,963 | |||||
Prorated Annual Bonus | $ | 419,231 | $ | 419,231 | $ | 419,231 | $ | 419,231 | |||||
Eduardo Garcia | |||||||||||||
Severance | $ | 1,440,065 | $ | 1,440,065 | $ | — | $ | 1,440,065 | |||||
Prorated Annual Bonus | $ | 350,000 | $ | 350,000 | $ | 350,000 | $ | 350,000 | |||||
Andrew P. Nadin | |||||||||||||
Severance | $ | 1,616,989 | $ | 1,616,989 | $ | — | $ | 1,616,989 | |||||
Prorated Annual Bonus | $ | 394,231 | $ | 394,231 | $ | 394,231 | $ | 394,231 | |||||
Incentive Pool PlanPotential Payments under RSU Award Agreements
As discussed above, under “Compensation Discussioneach named executive officer held outstanding unvested RSUs awarded on December 25, 2019. Upon a Time-Based RSU Exit Event (as defined above), the Time-Based RSUs will accelerate and Analysis—Cash-Based Long-Term Incentive Compensation”, pursuant tofully vest. In addition, the IPP, pool units become 50% vested three years afterTime-Based RSUs will accelerate and fully vest upon the grant date and 50% vested only uponNEO's termination of employment either by us without "cause" or by the NEO for "good reason," in either case, within 12 months following the occurrence of a vesting monetization event,"change in each case, subject to continued employmentcontrol" that does not also constitute a Time-Based RSU Exit Event (a "Post-CIC Termination"). Upon a Performance-Based RSU Exit Event, the Performance-Based RSUs will accelerate and the terms and conditions of the IPP. As described above, 50% of the pool units held by Messrs. Carney and Byars vested on March 9, 2012. The remaining 50% of these individual’s pool units will vest only upon the occurrence of a vesting monetization event, subject to continued employment and the terms and conditions of the IPP. In addition, the pool units become 100% vested on a vesting monetization event, subject to the terms and conditions of the IPP, if such event occurs prior to March 9, 2017, subject to continued employment.
Further, participants who are not otherwise vested in their pool units, and who are terminated from employment because of death, disability, termination without cause, or resignation for good reason will be 50% vested in their pool units (and are not eligible for additional vesting with respect upon a monetization event). If there were no monetization event that results in pool units vesting by March 9, 2017, any participant not then employed by the Company or its subsidiaries or who subsequently ceases to be employed prior to a monetization event, forfeits any previously vested pool units; provided that, if the termination of employment is because of death, disability, a termination without cause, or a resignation for good reason, then these foregoing will not apply until the later of March 9, 2017 or one year after such termination of employment.
Generally, for purposes of the IPP, a monetization event occurs when:
the Company is converted, merged, consolidated or reorganized into or with another corporation or other legal person and, immediately after such conversion, merger, consolidation, or reorganization, less than a majority of the combined voting power of the then-outstanding equity securities of such corporation or other legal person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediately prior to such transaction;
(A) the equityholders of the Company sell, transfer or exchange more than 50% of the combined voting power of the then-outstanding equity securities of the Company to an unrelated third party, or (B) the Company or its subsidiaries sell, transfer or exchange more than 50% in value of their aggregate assets to any other entity or other legal person, and less than a majority of the combined voting power of the then-outstanding equity securities of such entity or person immediately after such sale are held in the aggregate by the holders of voting securities of the Company immediately prior to such sale;
a firm commitment underwritten public offering occurs that is registered under the Securities Act of 1933, as amended, of the equity interests of the Company, a subsidiary or a respective successor entity where either (A) the members’ interest in the voting securities of the Company, a subsidiary or a respective successor entity, as applicable, is reduced to below 50% as a result of such public offering or (B) the Company determines, in its sole and absolute discretion, that such public offering constitutes a monetization event for purposes of the IPP; or
the Company pays dividends or distributions (whether pursuant to a regular dividend, extraordinary dividend, non-dividend distribution, redemption, recapitalization, or otherwise) (a “cash distribution”). In turn, a vesting monetization event is any of the events described in the subsections that is not a cash distribution, provided that at the time of such event, the Cumulative IRR of the Company’s direct and indirect equity holders as of immediately prior to this offering is at least 15% and, when combined with any prior monetization event, results in a return to such direct and indirect equity holders of the Company of at least their beginning equity value.
The determination of payments under the IPP (which occur only upon certain monetization events) is described above under “Compensation Discussion and Analysis—Cash-Based Long-Term Incentive Compensation.”
fully vest.
Potential Payments Table
The table below sets forth the estimated value of the potential payments to each of our named executive officers, other than Mr. Byars, assuming the executive’s employment had terminated on December 26, 2012. Mr. Byars terminated employment on March 1, 2013. A discussion of what he received upon termination follows the table.
| R. Randall Onstead Jr. | Brian P. Carney | Lawrence A. Stablein | D. Mark Prestidge | |||||||||||||||||
Termination Without Cause or for Good Reason | Cash Severance | $ | 2,850,000 | $ | 1,950,000 | $ | 1,950,000 | $ | 1,425,000 | |||||||||||
| Pro-rata AIP | 1,757,850 | 1,058,480 | 1,202,739 | 666,438 | ||||||||||||||||
| Health/Medical | 22,772 | 29,028 | 26,050 | 28,139 | ||||||||||||||||
| IPP | — | — | — | — | ||||||||||||||||
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| |||||||||||||
| Total: | $ | 4,630,622 | $ | 3,037,508 | $ | 3,178,789 | $ | 2,119,577 | ||||||||||||
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| |||||||||||||
Monetization Event | Cash Severance | — | — | — | — | |||||||||||||||
| Pro-rata AIP | — | — | — | — | ||||||||||||||||
| Health/Medical | — | — | — | — | ||||||||||||||||
| IPP | * | * | * | * | ||||||||||||||||
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| Total: | * | * | * | * | ||||||||||||||||
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| |||||||||||||
Death/Disability | Cash Severance | $ | 950,000 | $ | 650,000 | $ | 650,000 | $ | 475,000 | |||||||||||
| Pro-rata AIP | 1,757,850 | 1,058,480 | 1,202,739 | 666,438 | ||||||||||||||||
| Health/Medical | 11,386 | 14,514 | 13,025 | 14,069 | ||||||||||||||||
| IPP | — | — | — | — | ||||||||||||||||
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|
|
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| |||||||||||||
| Total: | $ | 2,719,236 | $ | 1,722,994 | $ | 1,865,764 | $ | 1,155,507 | ||||||||||||
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Termination of Employment Following Fiscal Year 2012
On March 1, 2013, Mr. Byars terminated employment with BI-LO, LLC. Mr. Byars became entitled to receive a payment of $1,260,577 (equal to a cash severance amount of $1,150,000 and a pro-rata annual bonus payment of $110,577 for the first quarter of fiscal year 2013) in connection with his termination of employment, payable in accordance with his release and separation agreement. Mr. Byars will also receive 18 months of continued health benefits. Mr. Byars retained the portion of his IPP units that were vested as of his termination of employment and forfeited the right to any of the units that were unvested as of his termination of employment.
Executive Incentive Pool Plan
As discussed above, under “—Compensation Discussion & Analysis—Cash-Based Long-Term Incentive Compensation” and “—Potential Payments Upon Termination or Change in Control,” LSF maintains, and is obligated for all payments with respect to, the IPP, which was effective as of March 9, 2012, for certain corporate-level employees of BI-LO and its subsidiaries. Under the IPP, participants are granted pool units entitling them, subject Pursuant to the terms of the IPP, to a potential cash payout upon a monetization event. The total number of pool units authorized under the IPP is 1,000,000,Time-Based RSU award agreements and the total numberPerformance-Based RSU award agreements, if the named executive officer's employement is terminated either by the Company without "cause" or by the named executive officer for "good reason," in either case, prior to the consummation of pool units outstandinga Time-Based RSU Exit Event and/or Performance-Based RSU Exit (as applicable) but following our board of directors having approved a formal action with respect to the occurrence of such Time-Based RSU Exit Event and/or Performance-Based RSU Exit (as applicable) (a "Pre-Exit Event Termination"), any unvested RSUs as of the date hereofof such termination will remain outstanding until the earlier of: (i) the consummation of the contemplated Time-Based RSU Exit Event and/or Performance-Based RSU Exit (as applicable), in which case such unvested RSUs will vest in accordance with the applicable award agreement, (ii) the date on which the contemplated Time-Based RSU Exit Event and/or Performance-Based RSU Exit (as applicable) is 688,856.
The IPP was developed to reward the creation of long-term value through a monetization event,formally terminated as described under “—Potential Payments Upon Termination or Change in Control,” and to motivate certain executive employees of BI-LO and its subsidiaries to put forth maximum efforts toward the continued growth, profitability and success ofdetermined by our company by providing incentives to such individuals through cash bonus payments. Our board of directors, in which case such unvested RSUs will be forfeited without consideration or a designated committee(iii) 12 months following our board of director's action that gave rise to the contemplated Time-Based RSU Exit Event and/or Performance-Based RSU Exit (as applicable), in which case such unvested RSUs will be forfeited without consideration.
Time-Based RSUs and Performance-Based RSUs do not vest or accelerate upon death, disability or termination events other than as described above.
Summary of Estimated Equity Acceleration
The following market values as of December 25, 2019, have been determined assuming an initial public offering price of $ per share (the midpoint of the board administersestimated public offering price range set forth on the IPP and has total and exclusive responsibility to control, operate, manage and administercover page of this prospectus).
The estimated value of the IPP in accordance with its terms.
The vesting of awards, valuation of awardsTime-Based RSUs held by the named executive officers that would vest upon a monetization event, treatment of awards(i) Time-Based RSU Exit Event, (ii) Pre-Exit Event Termination Event or (iii) Post-CIC Termination, would be as follows: Mr. Hucker ($ ); Mr. Carney ($ ); Ms. Thompson ($ ); Mr. Garcia ($ ); and Mr. Nadin ($ ). The value attributable to each NEO's Time-Based RSUs upon a termination of employment and other material termsPost-CIC Termination may vary depending on the date on which the NEO is terminated during the 12 month period following a change in control, as described above. Our estimate of the IPP arevalue of the unvested RSUs that would accelerate or become eligible to accelerate assumes that each of the applicable scenarios described above under “—Compensation Discussion and Analysis—Cash-Based Long-Term Incentive Compensation” and “—"—Potential Payments Upon Termination or Change in Control.”under Employment Agreements," as applicable, occurred on December 25, 2019.
2013 Stock Incentive Plan
Prior to completion of this offering, we will adopt the 2013 Plan. The purpose of the 2013 Plan is to promote and closely align the interests of our employees and non-employee directors and our stockholders by providing stock-based compensation and other performance-based compensation. The objectives of the 2013 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to participants and to optimize the profitability and growth of our company through incentives that are consistent with our goals and that link the personal interests of participants to those of our stockholders. The 2013 Plan allows for the grant of stock options, both incentive stock options and “non-qualified” stock options; stock appreciation rights, or SARs, alone or in conjunction with other awards; restricted stock and restricted stock units, or RSUs; and incentive bonuses, which may be paid in cash or stock or a combination thereof.
The following description of the 2013 Plan is not intended to be complete and is qualified in its entirety by the complete text of the 2013 Plan, which has been filed as an exhibit to the registration statement of which this prospectus is a part. Stockholders are urged to read the 2013 Plan in its entirety. Any capitalized terms which are used in this summary description but not defined here or elsewhere in this registration statement have the meanings assigned to them in the 2013 Plan.
Administration
The 2013 Plan is administered by the compensation committee of the board of directors, or in the absence of the compensation committee, the board of directors itself. The compensation committee has broad authority, subject to the provisions of the 2013 Plan, to administer and interpret the 2013 Plan. All decisions and actions of the compensation committee are final.
Stock Subject to 2013 Plan
The maximum number of shares that may be issued under the 2013 Plan is equal to , subject to certain adjustments in the event of a change in the Company’s capitalization. Shares of common stock issued under the 2013 Plan may be either authorized and unissued shares or previously issued shares acquired by the Company. On termination or expiration of an unexercised option, SAR or other stock-based award under the 2013 Plan, in whole or in part, the number of shares of common stock subject to such award will again become available for grant under the 2013 Plan.
Stock Options
All stock options granted under the 2013 Plan will be evidenced by a written agreement with the participant, which provides, among other things, whether the option is intended to be an incentive stock option or a non-qualified stock option, the number of shares subject to the option, the exercise price, exercisability (or vesting), the term of the option, which may not generally exceed ten years, and other terms and conditions. Subject to the express provisions of the 2013 Plan, options generally may be exercised over such period, in installments or otherwise, as the compensation committee may determine. The exercise price for any stock option granted may not generally be less than the fair marketestimated value of the common stock subject to that option on the grant date. The exercise price may be paid in cash or such other method as determinedPerformance-Based RSUs held by the compensation committee, including an irrevocable commitment bynamed executive officers that would vest upon a broker to pay over such amount from a sale(i) Performance-Based RSU Exit Event or (ii) Pre-Exit Termination, would be as follows: Mr. Hucker ($ ); Mr. Carney ($ ); Ms. Thompson ($ ); Mr. Garcia ($ ); and Mr. Nadin ($ ). The foregoing estimated values represent the aggregate value of the shares issuable underPerformance-Based RSUs with a $52.22 performance vesting threshold and the Performance-Based RSUs with a $78.33 performance vesting threshold.
Directors who are employees receive no additional compensation for services as a director or as a member of a committee of our board of directors. In fiscal year 2019, each of our non-employee directors only received an option, the deliveryannual board retainer of previously owned shares$125,000, payable quarterly in arrears and withholdingdid not receive any other equity-based or other compensation. We also reimburse each of shares deliverable upon exercise. Other thanour directors for all reasonable out-of-pocket expenses incurred in connection with a change in the Company’s capitalization, we will not, without stockholder approval, reduce the exercise priceattendance at board and committee meetings, as well as with any director education programs they attend relating to their service on our board of a previously awarded option, and, at any time when the exercise price of a previously awarded option is above the fair market value of a share of common stock, we will not, without stockholder approval, cancel and re-grant or exchange such option for cash or a new award with a lower (or no) exercise price.directors.
Stock Appreciation Rights
SARs may be granted alone or in conjunction with all or part of a stock option. Upon exercising a SAR, the participant is entitled to receive the amount by which the fair market value of the common stock at the time of exercise exceeds the exercise price of the SAR. This amount is payable in common stock, cash, or a combination of common stock and cash, atThe following table sets forth information concerning the compensation committee’s discretion.of our directors for fiscal year 2019.
Name | Fees Earned or Paid in Cash ($) | Total ($) | |||||
|---|---|---|---|---|---|---|---|
| 125,000 | 125,000 | |||||
| 125,000 | 125,000 | |||||
| 125,000 | 125,000 | |||||
| 125,000 | 125,000 | |||||
In 2018, our non-employee directors were each awarded Performance-Based and Time-Based RSUs. As of December 25, 2019, the following were the outstanding Performance-Based and Time-Based RSU awards for each of our non-employee directors: .
Restricted Stock and RSUs
The compensation committee may award restricted stock and RSUs. Awards of restricted stock consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. RSUs result in the transfer of shares of cash or stock to the participant only after specified conditions are satisfied. The compensation committee will determine the restrictions and
conditions applicable to each award of restricted stock or RSUs, which may include performance vesting conditions.
Incentive Bonuses
Each incentive bonus will confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a specified performance period. The compensation committee will establish the performance criteria and level of achievement versus these criteria that will determine the threshold, target and maximum amount payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations. Payment of the amount due under an incentive bonus may be made in cash or shares, as determined by the compensation committee.
Performance Criteria
The compensation committee may specify certain performance criteria which must be satisfied before stock options, SARs, restricted stock, RSUs, and incentive bonuses will be granted or will vest. The performance goals may vary from participant to participant, group to group, and period to period.
Transferability
Awards generally may not be sold, transferred for value, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or SAR may be exercisable only by the participant during his or her lifetime.
Amendment and Termination
The board of directors has the right to amend, alter, suspend or terminate the 2013 Plan at any time, provided certain enumerated material amendments may not be made without stockholder approval. No amendment or alteration to the 2013 Plan or an award or award agreement will be made that would impair the rights of the holder, without such holder’s consent, however, no consent will be required if the compensation committee determines in its sole discretion and prior to the date of any change in control that such amendment or alteration either is required or advisable in order for us, the 2013 Plan or the award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or is not reasonably likely to significantly diminish the benefits provided under such award, or that any such diminishment has been adequately compensated. The 2013 Plan will be adopted by the board of directors and the Company’s sole equityholder inIn connection with this offering, we expect that our compensation committee and will automatically terminate, unless earlier terminated by the board of directors 10 years after approval by the boardwill establish a non-employee director compensation program.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table presentsshows information concerningregarding the beneficial ownership of the shares of our common stock as of September 26, 2013, assuming our corporate conversion had been effective, 2020, (i) immediately prior to the consummation of this offering and (ii) as of such date, by (1) adjusted to give effect to this offering by:
Beneficial ownership of shares is determined under rules of the outstandingSEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock (2) eachshown as beneficially owned by them. Percentage of our directors and named executive officers and (3) all of our directors and executive officers as a group. The table also contains information about beneficial ownership as adjusted, to reflect the sale of common stock in this offering assuming:
is based on shares of common stock outstanding as of ;, 2020 and
shares of common stock outstanding after giving effect to this offering, assuming no exercise of the underwriters’underwriters' option to purchase additional shares, of common stock.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock, shown as beneficially owned byassuming the stockholder.underwriters exercise their option to purchase additional shares in full. Shares of common stock subject to options and warrants that arecurrently exercisable or exercisable within 60 days of September 26, 2013the date of this prospectus are considereddeemed to be outstanding and beneficially owned by the person holding the options for the purposepurposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not treated asdeemed outstanding for the purpose of computing the percentage of beneficial ownership offor any other person. Except as otherwise indicated, the persons named in the table below have sole voting and investment power with respect to all shares of capital stock held by them. Unless otherwise indicated, below, the address offor each individualholder listed below is c/o Southeastern Grocers, LLC, 5050 Edgewood Court,8928 Prominence Parkway #200, Jacksonville, Florida 32254.32256.
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All executive officers, directors and director nominees as a group(12 persons)
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationships with Lone StarSet forth below is a description of certain relationships and Affiliates
Asset Advisory Fees
Effective February 3, 2011, we entered into an Asset Advisory Agreement with Hudson Americas LLCrelated person transactions between us or our subsidiaries and Lone Star Fund V (U.S.), L.P., both affiliates of our sole equityholder. Pursuant to the Asset Advisory Agreement, Hudson Americas provides us with certain oversight functions in connection with the management of our business and assets, including: (i) communicating and coordinating with our personnel and service providers; (ii) assisting and advising us in the pursuit of our strategic plan and managing our assets in furtherance of our strategic plan; and (iii) obtaining and maintaining all required licenses, permits, certificates, consents and other approvals with respect to our assets. In addition, Hudson Americas may, but is not required to, provide us with certain ancillary services, such as financial accounting and reporting, tax accounting, preparation and reporting, treasury, risk management, legal and compliance, record keeping and operating company oversight. Pursuant to the Asset Advisory Agreement, we pay Hudson Americas an amount equal to 110% of the actual costs of the manager and ancillary services or 110% of the hourly billing rates of the individual billing rates of the individuals performing such services, as applicable. The Asset Advisory Agreement is terminable by any party thereto upon 30 days’ notice from one party to the others for any reason or no reason.
We paid Hudson Americas advisory fees totaling approximately $2.5 million, $4.5 million and $1.5 million in 2012, 2011 and 2010, respectively. In 2012, we also paid approximately $3.8 million to Hudson Americas related to merger and integration costs. As of July 10, 2013, we owed a total of $730,000 under the Asset Advisory Agreement.
Guaranty Agreement
On May 12, 2010, in connection with the confirmation and effective date of the Fourth Amended Plan of Reorganization of BI-LO Holding and its then subsidiaries, or the Debtors, affiliates of Lone Star entered into a Guaranty Agreement with the United Food and Commercial Workers Unions and Employers Pension Fund and the liquidating trustee controlling the proofs of claims related to Bruno’s Supermarkets, LLC, a former subsidiary pursuant to which the affiliates of Lone Star guaranteed certain payment obligations that may be owed by the Debtors to the pension fund and the liquidating trustee. Pursuant to the Guaranty Agreement, the affiliates of Lone Star agreed to guaranty the payment of the payment obligations on the same percentage (i.e., cents on the dollar) as was received by the holders of the Debtors’ general unsecured claims pursuant to the Debtors’ plan of reorganization with respect to their claims. We are responsible for our legal fees and expenses associated with our litigation with the pension fund and liquidating trustee. Pursuant to these arrangements, the affiliates of Lone Star paid $27.1 million (net of insurance reimbursements) in settlement of the payment obligations in the fourth quarter of 2012. See Note 14,Commitments and Contingencies, in the notes to consolidated financial statements.
General
Lone Star currently owns all of our outstanding equity interests. Upon completion of this offering, Lone Star will own % of our outstanding common stock (or % if the underwriters fully exercise their option to purchase additional shares).
For as long as Lone Star and its affiliates continue to beneficially own shares of common stock representing more than a majority of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors, and exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, Lone Star will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in our control and could take other actions that might be favorable to them.
Lone Star is not subject to any contractual obligations to retain its controlling interest, except that it has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of the representatives. Except for this period, there can be no assurance as to the period of time during which Lone Star will maintain its beneficial ownership of our common stock following this offering. Following this period, Lone Star will have rights to cause us to register its shares as described under “—Registration Rights Agreement” below.
Registration Rights Agreement
We will enter into a registration rights agreement with Lone Star in connection with the consummation of this offering. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star. The registration rights agreement will not provide for the payment of any consideration by us to Lone Star if a registration statement for the resale of shares of common stock held by Lone Star is not declared effective or if the effectiveness is not maintained. shares of our common stock will be entitled to these registration rights following completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares of common stock. However, the underwriting agreement and lock-up agreements prohibit us from a filing any registration statement for the resale of shares of common stock held by Lone Star for a period of 180 days after the date of this prospectus without the prior consent of the representatives. Shares registered with the SEC pursuant to these registrations rights will be eligible for sale in the public markets, subject to the lock-up agreements described in “Underwriting.” See “Shares Eligible for Future Sale—Registration Rights Agreement.”
Director Indemnification Agreements
Our bylaws will permit us to indemnify our executive officers and directors to the fullest extent permitted by law, subject to limited exceptions. We will enter into indemnification agreements with each of our executive officers and directors that will provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf.
Review and Approval of Related Party Transactions
We will implement a written policy in connection with this offering pursuant to which our board of directors or the audit committee will review and approve transactions with our directors, officers and holders of more than 5% of our voting securities and their affiliates.securities.
Advisory Agreement
Prior to approving any transactionthe Reorganization, we were a party to an asset advisory agreement (the "Advisory Agreement") with Hudson Americas LLC, an affiliate of Lone Star Fund V (U.S.), L.P. and Lone Star Fund VII (U.S.), L.P., our previous stockholder. The Advisory Agreement was terminated as of the Emergence Date.
We had expenses of $0.4 million and $5.2 million for the 22 weeks ended May 30, 2018 and the year ended December 27, 2017, respectively, related to the Advisory Agreement. There was no expense related to the Advisory Agreement for the year ended December 25, 2019 or the 30 weeks ended December 26, 2018.
Service Agreement
Pursuant to the Reorganization, we entered into the global settlement (the "Global Settlement"), which formed a relatedspecial purpose entity, SEG II, which received certain leases from us. Pursuant to the Global Settlement, we made payments of $20.0 million, $0.0 million and $15.4 million during the year ended December 25, 2019, the 30 weeks ended December 26, 2018 and the 22 weeks ended May 30, 2018, respectively.
We are a party to a service agreement with SEG II (the "Service Agreement"). Pursuant to the Service Agreement, we agree to provide maintenance services for certain of the lease premises. We are also a party to a master sublease agreement with SEG II for certain of its operating locations for no additional rent.
Stockholders Agreement
On May 31, 2018, we entered into a stockholders agreement with certain holders of our common stock (the "Stockholders Agreement"). The Stockholders Agreement includes provisions relating to the election of directors to our board of directors, customary information and registration rights, stock preemptive rights, tag-along rights and drag-long rights. The Stockholders Agreement will be amended and restated in connection with this offering to terminate upon consummation of the IPO.
Registration Rights Agreement
In connection with this offering, we expect to enter into a registration rights agreement (the "Registration Rights Agreement") with certain of our stockholders. The Registration Rights Agreement will provide these holders (and their permitted transferees) with the right to require us, at our expense, to register the resale of shares of our common stock held by such holders under the Securities Act and, if requested, to maintain a shelf registration statement effective with respect to such shares. Each holder that is a party to the Registration Rights Agreement will also be entitled to customary "piggyback" registration rights and entitled to participate in certain registrations of our common stock under the Securities Act that we undertake. The Registration Rights Agreement will also provide that we will pay certain expenses of such holders relating to such registration and indemnify them against certain liability that may arise under the Securities Act.
Policies and Procedures for Related Person Transactions
Our board of directors will adopt a written related person transaction policy, to be effective upon the closing of this offering, setting forth the policies and procedures for the review and approval or ratification by our audit committee (in each case, composed of disinterested directors), as applicable,related person transactions. This policy will considercover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material facts as tointerest, including without limitation, purchases of goods or services by or from the related party’s relationship withperson or entities in which the company orrelated person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm's length transaction and the extent of the related person's interest in the transaction. Related partyAll of the transactions willdescribed in this section occurred prior to the adoption of this policy.
DESCRIPTION OF MATERIAL INDEBTEDNESS
ABL Credit Agreement
Effective May 31, 2018 certain of our wholly-owned subsidiaries, including BI-LO, LLC (the "Borrower"), entered into an ABL Credit Agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the "ABL Credit Agreement"), which included both (a) an up to $550.0 million senior secured asset based revolving credit facility (the "Revolving Credit Facility") and (b) $50.0 million first-in, last-out facility (the "FILO Facility"). Up to $235.0 million under the Revolving Credit Facility may be used by the Borrower and its affiliates to request letters of credit.
Subsequent to July 8, 2020, we repaid the full amount and terminated the FILO Facility. In connection with the Refinancing Transactions, we entered into an amendment to the ABL Credit Agreement, dated October 5, 2020, to (among other things) (i) consent to the issuance of the Notes, (ii) reduce the commitments thereunder to $450.0 million and (iii) join SEG Holding Finance, LLC as a guarantor.
Interest Rate and Fees
Borrowings under the Revolving Credit Facilitiy bear interest at the applicable margin, plus, at the Borrower's election, either (i) a base rate determined by reference to the greatest of the (a) a base rate determined by reference to the rate of interest per annum announced by the administrative agent (currently Truist Bank) as its prime rate on such day, (b) the federal funds effective rate in effect on such day plus 1/2 of 1.00% and (c) LIBOR that would be calculated as of such day (or, if such day is not a business day, as of the next preceding business day) with a one month maturity plus 1.00% or (ii), if available, LIBOR for U.S. dollars determined by reference to the applicable Reuters screen page two business days prior to the commencement of the interest period relevant to the subject borrowing, adjusted for certain additional costs, which may not be approved unlessless than 0.00%.
The applicable margin for the boardRevolving Credit Facility is determined in accordance with the table set forth below:
Historical Revolving Credit Facility Excess Availability | Applicable Margin for LIBOR Loans | Applicable Margin for Base Rate Loans | |||||
|---|---|---|---|---|---|---|---|
Category 1 | |||||||
Equal to or greater than 50% | 1.25 | % | 0.25 | % | |||
Category 2 | |||||||
Less than 50% and equal to or greater than 25% | 1.50 | % | 0.50 | % | |||
Category 3 | |||||||
Less than 25% | 1.75 | % | 0.75 | % | |||
The following fees are required to be paid under the ABL Credit Agreement:
Voluntary Prepayments
Subject to certain notice requirements, the Borrower may voluntarily prepay outstanding loans and/or the audit committee (in each case, composed of disinterested directors),terminate commitments, as applicable, has approvedunder the Revolving Credit Facility, in whole or in part without premium or penalty provided that any prepayment must include customary "breakage" costs with respect to LIBOR loans.
Mandatory Prepayment
The ABL Credit Agreement requires the Borrower to prepay the loans outstanding under the Revolving Credit Facility by the amount by which the outstanding revolving loans exceed the borrowing base applicable to revolving loans under the ABL Credit Agreement on any date.
Final Maturity and Amortization
The Revolving Credit Facility will mature on May 31, 2023. The Revolving Credit Facility does not require amortization payments.
Guarantors
The obligations of the transaction. We did notBorrower under the ABL Credit Agreement are guaranteed by the Borrower's direct parent companies, Holdings and SEG Holding Finance, LLC ("Holding Finance"), and each of the Borrower's wholly-owned material domestic subsidiaries, subject to certain customary exceptions (the "Guarantors").
Security
The obligations of the Borrower under the ABL Credit Agreement are secured by a first-priority security interest in certain collateral including accounts receivable, inventory, prescription lists and other related collateral and proceeds thereof of Holding Finance, Holdings the Borrower and the Guarantors (the "ABL Priority Collateral") and a second-priority security interest in substantially all other assets of Holding Finance, Holdings, the Borrower and the Guarantors, other than certain customary excluded assets.
Certain Covenants, Representations and Warranties
The ABL Credit Agreement contains customary representations and warranties, affirmative covenants (including reporting obligations) and negative covenants. With respect to the negative covenants, these restrictions include, among other things and subject to certain exceptions, restrictions on the ability of Holdings, Holding Finance, the Borrower and its subsidiaries' ability to:
Financial Covenant
The ABL Credit Agreement requires the Borrower to maintain a minimum fixed charge coverage ratio (as defined in the ABL Credit Agreement) in the event that excess availability (as defined in the ABL Credit Agreement) were to fall below a specified threshold.
Events of Default
The lenders under the ABL Credit Agreement are permitted under certain circumstances to accelerate the loans and/or terminate commitments thereunder, and exercise other remedies upon the occurrence of certain customary events of default, subject to grace periods, thresholds and exceptions. These events of default include, among others, payment defaults, cross-defaults to certain material indebtedness, covenant defaults, material inaccuracy of representations and warranties, bankruptcy events, material judgments, certain ERISA-related events, material defects with respect to guarantees and collateral and change of control.
Notes
On October 9, 2020, Holdings and SEG Finance Corp. (in such capacity, the "Issuers") issued $325.0 million aggregate principal amount of 5.625% Senior Secured Notes due 2028. The Notes have a formal reviewmaturity date of October 15, 2028 and approval policy for related party transactionspay interest semi-annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2021. The obligations of the Issuers under the Notes are guaranteed by the same entities that guarantee our obligations under the ABL Credit Agreement, and are secured by second-priority security interests in the ABL Priority Collateral and first-priority security interests in substantially all other assets of the Issuers and guarantors, other than certain customary excluded assets.
The Notes may be redeemed at our option, in whole or in part, on specified redemption dates and at the timeredemption prices specified in the indenture governing the Notes. We may be required to make an offer to purchase the New Notes upon the sale of any transaction described above.
The indenture governing the Notes contains customary affirmative covenants (including reporting obligations) and negative covenants. With respect to the negative covenants, these restrictions include, among other things and subject to certain exceptions, restrictions on the ability of Holdings and its subsidiaries to: (i) incur additional indebtedness; (ii) grant liens; (iii) enter into consolidations or mergers; (iv) dispose of all or substantially all of our property or business; (v) dispose of certain property or assets; (vi) pay dividends or make other distributions in respect of equity; (vii) make payments in respect of subordinated debt; (viii) make advances, investments and loans; and (ix) enter into certain transactions with affiliates. The indenture governing the Notes also contains customary events of default.
The following is a summarydescription of (i) the material provisions of our capital stock, as well as other material terms of our amended and restated certificate of incorporation and amended and restated bylaws which we will adopt prior to the consummation of this offering, as they will be in effect as ofupon the consummation of this offering. This summary does not purportoffering and (ii) certain applicable provisions of Delaware law. We refer you to be completeour amended and is subject to and qualified by ourrestated certificate of incorporation and amended and restated bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is a part, and by the provisions of applicable law.
part.
GeneralAuthorized Capitalization
Upon consummation ofFollowing this offering, our authorized capital stock willshall consist of shares of common stock, par value $0.001 per share and shares of preferred stock, par value $0.001$ per share. Following the consummation of this offering, shares of common stock and no shares of preferred stock shall be issued and outstanding.
Common Stock
Our certificate of incorporation will authorize the issuance of up to shares of common stock. All outstanding shares of common stock are validly issued, fully paid and nonassessable, and the shares of common stock that will be issued on completion of this offering will be validly issued, fully paid and nonassessable.
The holdersHolders of our common stock are entitled to one vote per share on all matters submittedthe rights set forth below.
Voting Rights
Directors will be elected by a majority of the votes cast; provided, that if as of the record date for such meeting the number of nominees exceeds the number of directors to be elected, the directors shall be elected by a voteplurality of the votes cast. Our stockholders will not have cumulative voting rights. Except as otherwise provided in our amended and ourrestated certificate of incorporation will not provide for cumulative voting inor as required by law, all matters to be voted on by our stockholders must be approved by the electionvote of directors. Subject to preferences that may be applicable to any outstanding series of preferred stock, the holders of ourshares of stock having a majority of the voting power present in person or represented by proxy and entitled to vote on the matter.
Dividend Rights
Holders of common stock will receive ratablyshare equally in any dividendsdividend declared by our board of directors, outsubject to the rights of funds legally available for the paymentholders of dividends.any outstanding preferred stock.
Liquidation Rights
In the event of ourany voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up,winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution and/or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.
Other Rights
Our stockholders have no preemptive or other rights to subscribe for additional shares. All holders of our common stock are entitled to share ratablyequally on a share-for-share basis in any assets available for distribution to common stockholders upon our liquidation, dissolution or winding up. All outstanding shares are, and all assets remaining after paymentshares offered by this prospectus will be, when sold, validly issued, fully paid and non-assessable.
Contents
Preferred StockStockholders Agreement
Our certificate of incorporation will provide that our board of directors has the authority, without further action by the stockholders, to issue up to shares of preferred stock. Our board of directors will be able to issue preferred stock in one or more series and determine the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon our preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms, any or all of which may be greater than the rightsCertain of our existing stockholders have certain registration rights with respect to our common stock. Issuancesstock pursuant to the Stockholders Agreement. See "Certain Relationships and Related Party Transactions—Stockholders Agreement."
Registration Rights
Concurrent with the closing of preferred stock could adversely affect the voting powerthis offering, we expect to enter into a registration rights agreement with certain of holders of our common stock. See "Certain Relationships and Related Party Transactions—Registration Rights Agreement."
Anti-takeover Provisions
Our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that delay, defer, or discourage transactions involving an actual or potential change in control of us or change in our management. We expect that these provisions will discourage coercive takeover practices or inadequate takeover bids. These provisions, summarized below, will be designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they will also give our board of directors the power to discourage transactions that some stockholders may favor, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Accordingly, these provisions could adversely affect the price of our common stock.
Stockholders Not Entitled to Cumulative Voting
Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock and reduceentitled to vote in any election of directors can elect all of the likelihooddirectors standing for election, if they choose, other than any directors that holders of our common stock will receive dividend payments and payments upon liquidation. Any issuance of preferred stock also could have the effect of decreasing the market price of our common stock and could delay, deter or prevent a change in control of our company. Our board of directors does not presently have any plansmay be entitled to issue shares of preferred stock.
elect.
Limitations on Directors’ LiabilityStockholder Meetings
Our governing documents will limit the liability of,amended and provide for us to indemnify, our directors to the fullest extent permitted by the DGCL. The DGCL permits a corporation to limit or eliminate a director’s personal liability to the corporation or the holders of its capital stock for breach of fiduciary duty. This limitation is generally unavailable for acts or omissions by a director which (i) were not in good faith, (ii) were the result of intentional misconduct or a knowing violation of law, (iii) the director derived an improper personal benefit from (such as a financial profit or other advantage to which the director was not legally entitled) or (iv) breached the director’s duty of loyalty. The DGCL also prohibits limitations on director liability under Section 174 of the DGCL, which relates to certain unlawful dividend declarations and stock repurchases. The limitation of liability and indemnification provisions in ourrestated certificate of incorporation and amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board of directors, chief executive officer, or by a majority of our board of directors then in office.
No Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and amended and restated bylaws do not allow the right of stockholders to act by written consent without a meeting unless the directors then in office unanimously recommend that such action be permitted to be adopted may discourage stockholders from bringingtaken by written consent of stockholders.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated certificate of incorporation and amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a lawsuit againststockholder meeting and the nomination of candidates for election as directors, for breachother than nominations made by or at the direction of their fiduciary duty. These provisions maythe board of directors or a committee of the board of directors.
Number of Directors
also have Our amended and restated certificate of incorporation and amended and restated bylaws delegate the effectsole power to fix the number of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us andto fill any vacancy on our stockholders. In addition, your investment may be adversely affectedboard of directors to a majority of the extent we pay the costsboard of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
We maintain insurance that insures our directors and officers against certain losses and which insures us against our obligations to indemnify the directors and officers, and we intend to obtain greater coverage. We also intend to enter into indemnification agreements with our directors and executive officers.
then in office.
Exclusive Forum Selection Clause
Unless we consent in writingOur amended and restated certificate of incorporation provides, subject to the selection of an alternative forum,limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf,behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or agentsto us or our stockholders,stockholders; (iii) any action asserting a claim against us, any director or our officers or employees arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us, any director or our officers or employees that are governed by the internal affairs doctrine, in each such case subjectdoctrine. This exclusive forum provision does not apply to said Courtclaims arising under the Securities Act, the Exchange Act or other federal securities laws and rules and regulations promulgated thereunder for which there is exclusive federal or concurrent federal and state jurisdiction. The federal district courts of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act, the Exchange Act or the rules and regulations promulgated thereunder, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock of the corporation willshall be deemed to have notice of and to have consented to the forum selection clause.
Provisionsprovisions of Our Certificate of Incorporationour amended and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect
Provisions of the DGCL and ourrestated certificate of incorporation and bylawsdescribed above.
Preferred Stock
Our board of directors has the authority to be adopted prior to the completionissue shares of this offering could make itpreferred stock in one or more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bidsseries and to encourage persons seekingfix the rights, preferences and limitations thereof, including dividend rights, conversion rights, voting rights, terms of redemption, specification of par value, liquidation preferences and to acquire controlfix the number of usshares constituting any such series, without further vote or action by our stockholders. Any preferred stock so issued may rank senior to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset orcommon stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the boardpayment of directors, including discouraging attempts that might result in a premium over the market price for thedividends or amounts upon liquidation, dissolution or winding up, or both. In addition, any such shares of commonpreferred stock held by stockholders.
Requirements for Advance Notificationmay have class or series voting rights. The issuance of Stockholder Meetings, Nominations and Proposals
Our bylaws will provide that special meetings of the stockholders may be called only by or at the direction of the board of directors, the chairman of our board or the chief executive officer with the concurrence of a majority of the board of directors. Our bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisionspreferred stock may have the effect of delaying, deferring delaying or discouraging hostile takeovers, or changespreventing a change in control or management of our company.
Our bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Our bylaws will allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Any amendment to our certificate of incorporation will requireCompany without further action by the affirmative vote of at least 66 2/3%stockholders and may adversely affect the voting and other rights of the voting power of all sharesholders of our common stock then outstanding.stock. Our certificate of incorporation will provide that the board of directors is expressly authorized to adopt, amend or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of at least 66 2/3% of the voting power of all shares of our common stock then outstanding.
No Cumulative Voting
The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation will not provide for cumulative voting.
Classified Board of Directors
Our certificate of incorporation will provide that our board of directors will initially be divided into three classes of directors, with the classes to be as nearly equal in number as possible. The members of each class serve for a three-year term. However, pursuant to our certificate of incorporation, this classified structure will be phased out beginning with our fourth annual meeting of stockholders following the consummation of this offering, resulting in full declassification and all directors being subject to annual elections beginning with our sixth annual meeting of stockholders following consummation of this offering. As a result, approximately one-third of our board of directors will be elected at each of our first four annual meetings of stockholders. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board of directors. Our certificate of incorporation will provide that the number of directors will be fixed from time to time pursuant to a resolution adopted by the board of directors, but must consist of not less than three or more than 15 directors.
Removal of Directors
Our certificate of incorporation and bylaws will provide that (i) prior to the date on which Lone Star and its affiliates cease to beneficially own, in aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed with or without cause upon the affirmative vote of holders of at least a majority of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class and (ii) on and after the date Lone Star and its affiliates cease to beneficially own, in aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. In addition, our certificate of incorporation and bylaws will also provide that any newly created directorships and any vacancies on our board of directors will be filled only by the affirmative vote of the majority of remaining directors; provided that so long as affiliates of Lone Star own at least 25% of the total voting power of our capital stock, the positions can only be filled by our stockholders.
Stockholder Action by Written Consent
The DGCL permits any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock entitled to vote thereon were present and voted, unless the certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws will preclude stockholder action by written consent after the date on which Lone Star and its affiliates cease to beneficially own, in the aggregate, at least a majority of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors.
Limitations on Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our organizational documents will include provisions that eliminate, to the extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer, as the case may be. Our organizational documents will also provide that we must indemnify and advance reasonable expenses to our directors and officers to the fullest extent authorized by the DGCL. We will also be expressly authorized to carry directors’ and officers’ insurance for our directors, officers and certain employees for some liabilities.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws to be adopted may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. The DGCL does not require stockholder approval for any issuance of authorized shares. However, the listing requirements require stockholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or the then-outstanding number of shares of common stock. No assurances can be given that our shares will remain so listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. As discussed above, our board of directors has not authorized the ability to issueissuance of any shares of preferred stock with voting rightsand we have no agreements or other preferences, without stockholder approval. The existenceplans for the issuance of authorized but unissuedany shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
stock.
Corporate Opportunities and Transactions with Lone StarListing
In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star and its affiliates (other than us) and affiliated investment funds, referredWe intend to as the Lone Star entities, may serve as our directors or officers, and that the Lone Star entities may engage in similar activities or lines of business that we do, our certificate of incorporation will provide for the allocation of certain corporate opportunities between us and the Lone Star entities. Specifically, none of the Lone Star entities or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of the Lone
Star entities has any dutyapply to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in the corporate opportunity, and the Lone Star entity will not have any duty to communicate or offer the corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. In addition, if a director or officer of our company who is also a principal, member, director, manager, partner, stockholder, officer, employee or other representative of any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for us and a Lone Star entity, we will not have any expectancy in the corporate opportunity unless the corporate opportunity is expressly offered to the person solely in his or her capacity as a director or officer of our company.
In recognition that we may engage in material business transactions with the Lone Star entities, from which we are expected to benefit, our certificate of incorporation will provide that any of our directors or officers who are also principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of any Lone Star entity will have fully satisfied and fulfilled his or her fiduciary duty to us and our stockholders with respect to such transaction, if:
the transaction was approved, after being made aware of the material facts of the relationship between each of us or one of our subsidiaries and the Lone Star entity and the material terms and facts of the transaction, by (1) an affirmative vote of a majority of the members of our board of directors who do not have a material financial interest in the transaction, known as disinterested persons, or (2) an affirmative vote of a majority of the members of a committee of our board of directors consisting of members who are disinterested persons; or
the transaction was fair to us at the time we entered into the transaction; or
the transaction was approved by an affirmative vote of the holders of a majority of shares of our common stock entitled to vote, excludinglisted on the Lone Star entities and any holder who has a material financial interest inNYSE under the transaction.symbol "SEGR."
By becoming a stockholder in our company, you will be deemed to have received notice of and consented to these provisions of our certificate of incorporation.
Transfer Agent and Registrar
The Transfer Agenttransfer agent and Registrarregistrar for our common stock is .American Stock Transfer and Trust Co.
We intend to apply to list our common stock on under the symbol “SEG.”
The ABL Facility
Effective March 9, 2012, we entered into the ABL facility, a five-year $700 million revolving senior secured credit facility with Deutsche Bank Trust Company Americas, as administrative agent, and a lender, Wells Fargo Bank, National Association, as a co-documentation agent, and a lender, and Citibank N.A. and the other financial institutions party thereto as lenders.
The ABL facility may be used for revolving credit loans, swingline loans and letters of credit from time to time up to an initial maximum principal amount of $700 million, subject to the limitations described below. Under certain conditions, we may solicit the lenders or other prospective lenders to provide additional revolving loan commitments under the ABL facility in an aggregate amount not to exceed $200 million. The maximum amount of letters of credit that may be outstanding at any one time is $250 million (which amount may be increased by up to 35% of any incremental commitments) and the amount available under the revolving credit facility is limited by a borrowing base. The borrowing base is redetermined every four weeks based on a formula involving a percentage of the value of certain of our accounts receivable, inventory and pharmacy scripts.
The ABL facility permits both base rate borrowings and LIBOR borrowings plus a floating spread. The spread will float up or down based on our average excess availability under our borrowing base. The spread can range from 0.75% to 1.25% above the base rate and from 1.75% to 2.25% above LIBOR. We will incur a commitment fee on the unused portion of the revolving credit facility at a rate ranging from 0.375% to 0.50% based upon the aggregate amount of outstanding loans under the ABL facility.
The ABL facility matures on March 9, 2017, unless extended based on certain conditions. In addition, customary mandatory prepayments of the revolving loans are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business and certain casualty and condemnation events. With respect to base rate loans, accrued interest must be paid quarterly in arrears on the last business day of each calendar quarter and, with respect to LIBOR loans, accrued interest must be paid on the last day of any applicable interest period, but not less frequently than on each date occurring at three month intervals after the first day of such interest period.
Our obligations under the ABL facility are guaranteed by certain of our subsidiaries and secured by, subject to certain permitted liens security interests in substantially all of the personal property assets of our affiliate parties to the ABL facility and mortgages on certain of our owned real property with a value that exceeds a minimum threshold.
The liens and security interests are, subject to certain permitted liens, first-priority security interests with respect to certain of the collateral including, without limitation, accounts receivable, inventory, prescription lists and other related collateral and proceeds thereof, and second-priority security interests with respect to the certain of the other collateral.
The ABL facility contains customary representations and warranties, customary events of default and customary negative covenants including, without limitation: limitations on liens, restricted payments, indebtedness and asset sales. The ABL facility also imposes certain minimum excess availability and minimum fixed charge coverage ratio conditions on our ability to make certain acquisitions or investments, pay dividends or other distributions, incur certain indebtedness and make prepayments or redemptions of indebtedness. Further, if excess availability falls below a minimum threshold, we will be subject to a minimum fixed charge coverage ratio of 1.00:1.00, which will further limit our ability to pay the dividends.
As of July 10, 2013, the aggregate principal amount of revolving loans outstanding under the ABL facility was $100.0 million, the amount of letters of credit outstanding under the ABL facility was $131.0 million, there were no swingline loans outstanding under the ABL facility and the amount available for us to borrow under the ABL facility was $469.0 million.
The foregoing description of the ABL facility does not purport to be complete and is qualified in its entirety by a copy of the ABL facility, which has been filed as an exhibit to the registration statement of which this prospectus forms a part.
Our Senior Secured Notes
BI-LO Finance Corp. and BI-LO, LLC previously issued $425 million aggregate principal amount of 9.25% senior secured notes due 2019 under an Indenture, dated as of February 3, 2011, as amended by the Supplemental Indenture, dated as of March 9, 2012, among BI-LO Finance Corp. and BI-LO, LLC, as issuers, certain guarantors and Wells Fargo Bank National Association, as trustee.
The senior secured notes mature on February 15, 2019. The senior secured notes bear interest at the rate of 9.25% per annum. Interest on the senior secured notes is payable in cash semiannually in arrears on February 15 and August 15 of each year.
Payment of the senior secured notes is guaranteed, jointly and severally, on a senior secured basis by certain existing and certain future domestic, restricted subsidiaries. Our obligations under the senior secured notes are secured by, subject to certain exceptions, thresholds and permitted liens first-priority liens on the collateral, which includes existing and after acquired real property interests, intellectual property interests, equipment, a pledge of all of the equity interests held by us, if any, and substantially all of our other assets that do not constitute priority collateral under the ABL facility, and second-priority security liens in the priority collateral under the ABL facility, which includes present and future cash, deposit accounts, accounts receivable, inventory and certain related assets.
At any time prior to February 15, 2015, we may redeem all or a portion of the senior secured notes at a price equal to 100% of the aggregate principal amount of senior secured notes to be redeemed, plus a make-whole premium, plus accrued and unpaid interest to the date of redemption. On or after February 15, 2015 through February 14, 2016, we may redeem all or a portion of the senior secured notes, at a redemption price equal to 104.625%, plus accrued and unpaid interest to the date of the redemption. On or after February 15, 2016 through February 14, 2016, we may redeem all or a portion of the senior secured notes at a redemption price equal to 102.313%, plus accrued and unpaid interest to the date of the redemption. On or after February 15, 2017, we may redeem all or a portion of the senior secured notes at a redemption price equal to 100%, plus accrued and unpaid interest to the date of the redemption. In addition, at any time prior to February 15, 2014, we may use the net proceeds of certain equity offerings, including this offering, to redeem up to an aggregate of 35% of the aggregate principal of the senior secured notes at a redemption price equal to 109.25%, plus accrued and unpaid interest to the date of the redemption. At any time prior to February 15, 2015, we may redeem, in the aggregate, up to 10% of the original aggregate principal amount of the senior secured notes annually at a redemption price of 103% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of redemption. If we dispose of certain assets or experience certain changes of control, we may be required to make an offer to purchase the senior secured notes at specified prices.
The indenture governing the senior secured notes contains covenants that, among other things and subject in each case to certain specified exceptions, limit our ability to: incur additional indebtedness; make restricted payments, including the payment of dividends; enter into transactions with affiliates; enter into, create, incur, assume or suffer to exist any liens; consummate asset sales; merge or consolidate with, or dispose of all or substantially all assets to, a third party; and create or cause to exist any consensual encumbrance or restriction on the ability of restricted subsidiaries to pay dividends, make distributions, pay indebtedness, make investments or make certain transfers of assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
As of July 10, 2013 we had $425.0 million in aggregate principal amount of senior secured notes outstanding. The foregoing description of the indenture governing the senior secured notes does not purport to be
complete and is qualified in its entirety by reference to the complete text of the indenture and the supplemental indenture, which have been filed as exhibits to the registration statement of which this prospectus forms a part.
PIK Toggle Notes
BI-LO Holding Finance, LLC and BI-LO Holding Finance, Inc. previously issued $475 million aggregate principal amount of 8.625%/9.375% Senior PIK Toggle Notes due 2018, or the PIK toggle notes, under an Indenture, dated as of September 20, 2013 , among BI-LO Holding Finance, LLC and BI-LO Holding Finance, Inc. and Wells Fargo Bank National Association, as trustee.
The PIK toggle notes mature on September 15, 2018. Each note bears cash interest at the rate of 8.625% per annum unless the conditions described in the indenture are satisfied, in which case the issuers will be entitled to pay, to the extent described in the indenture, interest by increasing the principal amount of the notes or issuing new notes at the rate of 9.375% per annum. Interest on the notes is payable semiannually in arrears on March 15 and September 15 of each year.
Payment of the PIK toggle notes may be guaranteed, jointly and severally, in the future on the terms and conditions specified in the indenture. Our obligations under the notes are unsecured.
At any time prior to September 15, 2014, we may redeem all or a portion of the PIK toggle notes at a price equal to 100.00% of the aggregate principal amount to be redeemed, plus a make-whole premium, plus accrued and unpaid interest to the date of redemption. On or after September 15, 2014 through September 14, 2015, we may redeem all or a portion of the notes, at a redemption price equal to 102.00%, plus accrued and unpaid interest to the date of the redemption. On or after September 15, 2015 through September 14, 2016, we may redeem all or a portion of the notes at a redemption price equal to 101.00%, plus accrued and unpaid interest to the date of the redemption. On or after September 15, 2016, we may redeem all or a portion of the notes at a redemption price equal to 100.00%, plus accrued and unpaid interest to the date of the redemption. In addition, at any time prior to September 15, 2014, we may use the net proceeds of certain equity offerings, including this offering, to redeem all or a portion of the aggregate principal amount of the notes at a redemption price equal to 102.00%, plus accrued and unpaid interest to the date of the redemption. If we dispose of certain assets or experience certain changes of control, we may be required to make an offer to purchase the PIK toggle notes at specified prices.
Among other covenants, the indenture contains covenants that, subject in each case to certain specified exceptions, limit our ability to: (i) incur additional indebtedness; (ii) make restricted payments, including the payment of distributions; (iii) enter into transactions with affiliates; (iv) enter into, create, incur, assume or suffer to exist any liens; (v) consummate asset sales; (vi) merge or consolidate with, or dispose of all or substantially all assets to, a third party; and (vii) create or cause to exist any consensual encumbrance or restriction on the ability of restricted subsidiaries to pay dividends, make distributions, pay indebtedness, make investments or transfer assets to Holding Finance or any restricted subsidiary.
As of September 20, 2013 we had $475.0 million in aggregate principal amount of PIK toggle notes outstanding. The foregoing description of the indenture does not purport to be complete and is qualified in its entirety by reference to the complete text of the indenture, which has been filed as an exhibit to the registration statement of which this prospectus forms a part.
Baldwin Sale/Leaseback
On April 24, 2013, one of our subsidiaries entered into a sale leaseback transaction with AR Capital, LLC, whereby our Baldwin Distribution Center and certain related personal property was sold to AR Capital, LLC and, immediately thereafter, we leased back the property. The lease has an initial term of 20 years with four five-year extension options. The consideration for the sale was approximately $99.8 million, of which approximately
$83.5 million is required under the terms of the senior secured notes to be held in a collateral account pending reinvestment. This transaction is accounted for similar to a nonqualified sale/ leaseback. Therefore, the related asset remains on the balance sheet and continues to be depreciated, and another financing obligation was recorded in the amount of $99.8 million, which is being amortized over the life of the lease.
Florida and Louisiana Store Sale Leaseback
On September 13, 2013, we agreed to enter into a sale leaseback transaction whereby we will sell six of our stores located in Florida and Louisiana for consideration of approximately $45 million and, immediately thereafter, we will lease back these store locations. The transaction is subject to customary conditions, including completion of due diligence by our counterparty. The transaction is expected to close in the fourth quarter of fiscal 2013.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Immediately followingFuture sales of our common stock in the public market, or the perception that sales may occur, could materially adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital in the future.
Sale of Restricted Securities
Upon consummation of thethis offering, based on shares outstanding as of , we will have an aggregateshares of shares ofour common stock outstanding (or shares, if the underwriters exercise their option to purchase additional shares in full). Of the outstandingthese shares, theall shares sold in this offering (or shares if the underwriters exercise their over-allotment option in full) will be freely tradable without further restriction or registration under the Securities Act, except that any shares purchased by our affiliates may generally only be sold in compliance with Rule 144, which is described below. Of the remaining outstanding shares, shares will be deemed "restricted securities" under the Securities Act.
Lock-Up Arrangements and Registration Rights
In connection with this offering, we, each of our directors, executive officers and substantially all of our stockholders, including the selling stockholders, will enter into lock-up agreements that restrict the sale of our securities for a period of up to 180 days after the date of this prospectus, subject to certain exceptions or an extension in certain circumstances.
In addition, following the expiration of the lock-up period, certain stockholders will have the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under federal securities laws. See "Certain Relationships and Related Party Transactions—Registration Rights Agreement."
Following the lock-up periods described above, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.
Rule 144
The shares of our common stock sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined in Rule 144 of the Securities Act, may generally be sold only in compliance with the limitations described below. The remaining outstanding shares of our common stock will be deemed restricted securities, as defined in Rule 144. We expect that Lone Star will be considered an affiliate after this offering based on its expected share ownership (consisting of shares owned by Lone Star assuming no exercise of the underwriters’ over-allotment option). Certain other of our stockholders may also be considered affiliates at that time.
Lock-Up Agreements
We, our officers and directors and the holder of all of our outstanding shares of common stock immediately prior to this offering will be subject to lock-up agreements with the underwriters that will restrict the sale of shares of our common stock held by them for 180 days afteran "affiliate" of ours may not be resold publicly except in compliance with the date of this prospectus, subject to certain exceptions. See “Underwriting” for a description of these lock-up agreements.
Sales of Restricted Securities
Other than the shares sold in this offering, allregistration requirements of the remaining shares of our common stock will be available for sale, subject to the lock-up agreements described above, after the date of this prospectus in registered salesSecurities Act or pursuant to Rule 144 or another exemption from registration. For the purpose of the volume, manner of sale and other limitations under Rule 144 applicable to affiliates described below, we expect that Lone Star will be considered an affiliate after this offering based on its expected share ownership (consisting of shares owned by Lone Star assuming no exercise of the underwriters’ option to purchase additional shares).
Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration including under Rule 144 or 701 promulgated under the Securities Act, each of which is summarized below.
In general, underotherwise. Rule 144 beginning 90 days after the date of this prospectus,permits our common stock that has been acquired by a person who is not ouran affiliate andof ours, or has not been ouran affiliate at any time duringof ours within the precedingpast three months, will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to the volume limitations summarized below. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.
In addition, under Rule 144, a person may sell shares of our common stock acquired from us immediately afterinto the consummation of this offering, without regard to volume limitations or the availability of public information about us, if: (i) the person is not our affiliate and has not been our affiliate at any time during the preceding three months; and (ii) the person has beneficially owned the shares to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates.
Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of sharesmarket in an amount that does not exceed, during any three-month period, the greater of: (i) 1%
approximately shares immediately after the consummation of this offering; and (ii) outstanding; or
Sales under Rule 144 by our affiliatesSuch sales are also subject to specific manner of sale provisions, anda six-month holding period requirement, notice requirements and to the availability of current public information about us.
Rule 701144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has for at least six months beneficially owned shares of our common stock acquired upon the exercisethat are restricted securities, will be entitled to freely sell such shares of currently outstanding options or pursuant to other rights granted under our equity incentive plan may be resold by persons, other than our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part,common stock subject only to the manneravailability of current public information regarding us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, provisionsand who has beneficially owned for at least one year shares of Rule 144, and by our affiliatescommon stock that
are restricted securities, will be entitled to freely sell such shares of our common stock under Rule 144 without complianceregard to the current public information requirements of Rule 144.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our Company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with its one-year minimumthe public information, holding period. Asperiod, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our Company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus no optionsbefore selling those shares pursuant to purchase shares of our common stock were outstanding.Rule 701.
As a result of the provisions of Rules 144 and 701, additional shares will be available for sale in the public market upon the expiration or, if earlier, the waiver of the lock-up period provided for in the lock-up agreements, subject, in some cases, to volume limitations.
Additional Registration Statements
In addition, shares of common stock may be granted under our stock incentive plan. See “Executive Compensation—2013 Stock Incentive Plan.” We intend to file one or morea registration statementsstatement on Form S-8 under the Securities Act after this offering to register up to shares of our common stock to be issued or reserved for issuance under our equity incentive plans. These registration statements will become effective upon filing, and shares covered by these registration statements will be eligible for sale in the public market immediately after the effective dates of these registration statements, subject to any limitations on exercise under our equity incentive plan, the lock-up agreements described in “Underwriting” and Rule 144 limitations applicable to affiliates.
Registration Rights Agreement
Prior to the consummation of this offering, we will enter into a registration rights agreement with Lone Star. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star. The registration rights agreement will not provide for the payment of any consideration by us to Lone Star if a. Such registration statement for the resale of shares of common stock held by Lone Star is not declared effective or if the effectiveness is not maintained. Immediately following consummation of this offering, shares of our common stock willexpected to be entitled to these registration rights. Shares registered with the SEC pursuant to these registration rights will be eligible for sale in the public markets upon effectiveness of the registration statement covering those shares. However, the underwriting agreement and lock-up agreements prohibit us from a filing any registration statement for the resale of shares of common stock held by Lone Star for a period of 180 daysfiled soon after the date of this prospectus withoutand will automatically become effective upon filing with the prior consent of the representatives. By exercising itsSEC. Accordingly, shares registered under such registration rights and causing a large number of shares tostatement will be registered and soldavailable for sale in the publicopen market, Lone Star could cause the price of the common stock to fall. In addition, any demand to include these shares in our registration statements could have a material adverse effect on our ability to raise needed capital. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”
Subject to the terms of the registration rights agreement, Lone Star, the holder of shares of our common stock, will have the right to require that we register its shares under the Securities Act for sale to the public. We must pay all expenses, except for underwriters’ discounts and commissions, incurred in connection with the exercise of these demand registration rights.
Lone Star, the holder of shares of our common stock, will have piggyback registration rights under the terms of the registration rights agreement. The registration rights agreement will provide that Lone Star has the right to include its shares in any registration that we effect under the Securities Act, other than a registration
effected pursuant to an exercise of demand registration rights, subject to specified exceptions. We must pay all expenses, except for underwriters’ discountsapplicable vesting restrictions, the lock-up restrictions described above and commissions, incurred in connection with these piggyback registration rights.other limitations that may apply under applicable law or policy.
No predictions can be made as to the effect, if any, that sales of shares of our common stock from time to time, or the availability of shares of our common stock for future sale, may have on the market price for shares of our common stock. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to obtain capital through an offering of equity securities.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussionsummary of certain material U.S. federal income and estate tax consequences ofconsiderations for non-U.S. holders (as defined below) relating to the acquisition,purchase, ownership and disposition of our common stock, purchased pursuantbut does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, regulations promulgated thereunder by the U.S. Department of the Treasury, administrative rulings and judicial decisions, all as in effect on the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service ("IRS") with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, under U.S. federal gift and estate tax laws, or under any U.S. federal tax laws other than U.S. federal income tax laws. In addition, this offering bydiscussion does not address tax considerations applicable to a non-U.S. holder. As usedholder's particular circumstances or to non-U.S. holders that may be subject to special tax rules, including, without limitation:
If a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner or such partnership generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules
or under the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, a non-U.S. holder is neithera beneficial owner of shares of our common stock (other than a partnership nor any of the following:or other entity treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes:
Columbia;
An individual who is not a citizen of the United States may, subject to certain restrictions as well as limitations contained in any applicable income tax treaties, be deemed to be a resident of the United States by reason of being present in the United States for at least 31 days in the calendar year and an aggregate of at least 183 days during a three year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the immediate preceding calendar year and one-sixth of the days present in the second preceding calendar year). U.S. residents are generally taxed for U.S. federal income tax purposes in the same manner as U.S. citizens.Distributions on Common Stock
This discussion assumes that you will holdIf we make a distribution of cash or other property (other than certain pro rata distributions of our common stock issued pursuant to this offering as a capital asset within the meaning of the Internal Revenue Code of 1986, as amended, or the Code (i.e., generally, property held for investment). This discussion does not address all aspects of U.S. federal taxation that may be relevant to a particular non-U.S. holderstock) in light of the holder’s individual investment or tax circumstances, or to non-U.S. holders that are subject to special tax rules. In addition, this description of U.S. tax consequences does not address:
U.S. state and local or non-U.S. tax consequences;
U.S. federal gift tax consequences;
specific facts and circumstances that may be relevant to a particular non-U.S. holder’s tax position;
the tax consequences for the stockholders, partners or beneficiaries of a non-U.S. holder;
special tax rules that may apply to some non-U.S. holders, including without limitation, banks, insurance companies, financial institutions, hybrid entities, broker-dealers, tax-exempt entities, controlled foreign corporations, passive foreign investment companies or U.S. expatriates; or
special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a straddle, hedge or conversion transaction or other integrated investment.
If a partnership is a beneficial ownerrespect of our common stock, the treatment ofdistribution will be treated as a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner of our common stock that is a partnership and partners in such a partnership should consult their tax advisors regarding the U.S. federal income tax consequences of acquiring, owning, and disposing of our common stock.
This discussion is based on current provisions of the Code, final, temporary and proposed U.S. Treasury regulations, judicial opinions, published positions of the U.S. Internal Revenue Service, or IRS, and other applicable authorities, all as in effect on the date hereof and all of which are subject to differing interpretations or change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any
opinion of counsel with respectdividend to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained.
We urge you to consult your tax advisor regarding the U.S. federal tax consequences of acquiring, owning or disposing our common stock, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing jurisdiction or under any applicable tax treaty.
Dividends
If distributions of cash or property (other than certain stock distributions) are made to non-U.S. holders on shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits as(as determined under U.S. federal income tax principles. Distributions in excessprinciples). If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will constitutebe treated as a tax-free return of capital that is applied against and reducesto the extent of the non-U.S. holder’sholder's adjusted tax basis in our common stock. Any remaining excessstock, and thereafter will be treated as gain realizedcapital gain. Such determination may be required to be made on the sale or other disposition of thea share-by-share basis. Distributions treated as dividends on our common stock and will be treated as described under “—Gain on Sale, Exchange or Other Taxable Disposition of Common Stock” below.
Dividends paid toheld by a non-U.S. holder that are notgenerally will be subject to U.S. federal withholding tax at a rate of 30%, or at a lower rate if provided by an applicable income tax treaty and the non-U.S. holder has provided the documentation required to claim benefits under such treaty. Generally, to claim the benefits of an income tax treaty, a non-U.S. holder will be required to provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E.
If, however, a dividend is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States generally will be subject to withholding of U.S. federal income tax atby the rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits undernon-U.S. holder (and, if an applicable income tax treaty and the requirements for and manner of claiming the benefits of such treaty (including, without limitation, the need to obtain a U.S. taxpayer identification number).
If the non-U.S. holderso provides, is engaged in a trade or business in the United States, either directly or through an entity treated as a partnership for U.S. tax purposes, and the dividends are effectively connected with the conduct of such trade or business, and, if provided in an applicable income tax treaty, are dividends attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States, thenStates), the dividends aredividend will not be subject to the 30% U.S. federal withholding tax (provided the non-U.S. holder has provided the appropriate documentation, generally an IRS Form W-8ECI, to the withholding agent), but instead arethe non-U.S. holder generally will be subject to U.S. federal income tax in respect of the dividend on a net income basis, and at applicable graduated U.S. federal income tax rates, and in asubstantially the same manner applicable toas U.S. persons. Certain certification and disclosure requirements must be complied with for effectively connected income or income attributable to a permanent establishment to be exempt from withholding. Any effectively connectedIn addition, dividends or dividends attributable to a permanent establishment received by a non-U.S. holder that is treated as a foreign corporation for U.S. federal income tax purposes may be subject to an additional “branch profits tax” at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty.
To claim the benefit of a tax treaty or an exemption from withholding because dividendsand which are effectively connected with the conduct of a U.S. trade or business in the United States,may also be subject to a branch profits tax at a 30% rate (or a lower rate if provided by an applicable income tax treaty) on its effectively connected earnings and profits, as adjusted for certain items.
A non-U.S. holder must provide to the withholding agent a properly executed IRS Form W-8BEN (or successor form) for treaty benefits or IRS Form W-8ECI (or successor form) for effectively connected income, before the payment of dividends, and, if claiming the benefit of a tax treaty, must certify under penalties of perjury on the appropriate forms that such non-U.S. holder is not a U.S. person and is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty benefits. These forms must be periodically updated. Non-U.S. holders may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund alongtogether with the required information. However,
information with the IRS.
in the case of common stock held by a foreign trust, the certification requirement generally will be applied to the trust or the beneficial owners of the trust depending on whether the trust is a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the U.S. Treasury regulations; and
look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.
A non-U.S. holder that is a foreign partnership or a foreign trust is urged to consult its own tax advisor regarding its status under U.S. tax law and the certification requirements applicable to it.
Contents
Gain on Sale, Exchange or Other Taxable DispositionDispositions of Common Stock
ASubject to the discussion below of the Foreign Account Tax Compliance Act ("FATCA") and backup withholding, a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax including by way of withholding, on any gain recognizedrealized on athe sale exchange or other taxable disposition of our common stock unless any oneunless:
We believe that we have not been and are not currently a trade or business in the United States (and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder in the United States); or
A non-U.S. holder that is an individual and we do not expect to become awho is present in the United States real property holding corporation. However, no assurances can be madefor 183 days or more in this regard. Furthermore, no assurances can be provided that our stock will be considered to be regularly traded on an established securities market for purposesthe taxable year of Section 897 of the Code.
Non-U.S. holders described in clause (1) abovesuch sale or disposition, if certain other conditions are taxed on their gains (including gains from sales of our common stock and net of applicable U.S. losses from sales or exchanges of other capital assets incurred during the year) at a flat rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders described in clause (2) or (3) abovemet, will be subject to tax at a gross rate of 30% on the netamount by which such non-U.S. holder's taxable capital gains allocable to U.S. sources, including gain derived from the sale under regular graduated U.S. federal income tax rates and in a manner applicableor other disposition of our common stock, exceed capital losses allocable to U.S. persons, unlesssources, except as otherwise provided in an applicable income tax treaty provides otherwise. If a non-U.S. holder described in clause (2) or (3) is a corporation, it may be subject to the additional branch profits tax at a rate equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. In addition, if we are determined to be a United States real property holding corporation and our common stock is not regularly traded on an established securities market, then a purchaser may be required to withhold 10% of the proceeds payable to a non-U.S. holder from a sale or other taxable disposition of our common stock.
U.S. Federal Estate Taxes
Our common stock beneficially owned or treated as beneficially ownedGain realized by an individual who at the time of death is a non-U.S. holder, and certain lifetime transfers of an interest in common stock made by such an individual, will be included in his or her gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise and, therefore, may be subject to U.S. federal estate tax. Estates of non-resident alien individuals are generally allowed a statutory credit that has the effect of offsetting the U.S. federal estate tax imposed on the first $60,000 of the taxable estate.
Legislation Affecting Taxation of Common Stock Held by or Through Foreign Entities
Under legislation enacted in 2010, a 30% U.S. federal withholding tax will be imposed on dividends on stock of U.S. corporations, and on the gross proceeds from the disposition of such stock, paid to a “foreign financial institution” (as specially defined for this purpose), unless such institution enters into an agreement with the U.S. Treasury to collect and provide to the U.S. Treasury substantial information regarding its U.S. account holders and certain account holders that are foreign entities with U.S. owners. A 30% U.S. federal withholding tax will also apply to dividends paid on stock of U.S. corporations and on the gross proceeds from the disposition of such stock paid to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity. The taxes described above may be modified under “intergovernmental agreements” entered into by the United States with certain foreign countries. The withholding taxes described above will apply to dividend payments made after June 30, 2014 and payments of gross proceeds made after December 31, 2016. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of such withholding taxes. Investors are urged to consult with their own tax advisors regarding the possible application of these rules to their investment in our common stock.
Information Reporting and Backup Withholding
Under U.S. Treasury regulations, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such non-U.S. holder and the tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected to the conduct of the non-U.S. holder’s trade or business within the United States or withholding was reduced or eliminated by an applicable tax treaty. Copies of the information returns reporting those dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement.
The gross amount of dividends paid to a non-U.S. holder that fails to certify itsis effectively connected with such non-U.S. holder status in accordance with applicable U.S. Treasury regulations and fails to otherwise establish an exemption generally will be reduced by backup withholding at the applicable rate (currently 28%).
A non-U.S. holder is required to certify its non-U.S. status under penalties of perjury or otherwise establish an exemption in order to avoid information reporting and backup withholding on disposition proceeds where the transaction is effected by or through a U.S. office of a broker.
U.S. information reporting and backup withholding generally will not apply to a payment of proceeds of a disposition of common stock where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. However, information reporting requirements, but not backup withholding, generally will apply to such a payment if the broker is (i) a U.S. person; (ii) a foreign person that derives 50% or more of its gross income for certain periods from theholder's conduct of a trade or business in the United States; (iii)States generally will be subject to U.S. federal income tax on a controlled foreign corporationnet income basis, and at graduated rates, in substantially the same manner as defined in the Code; (iv) a foreign partnership with certain U.S. connections, unless the broker has documentary evidence in its records that theperson (except as provided by an applicable income tax treaty). In addition, if such non-U.S. holder is a corporation for U.S. federal income tax purposes, it may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable income tax treaty) on its effectively connected earnings and profits, as adjusted for certain items.
Generally, a corporation is a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We have historically owned and continue to own significant U.S. real property interests, as determined for U.S. federal income tax purposes. Because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other assets used or held for use in a trade or business, we cannot provide any assurances that we are not a USRPHC now nor that we will not become a USRPHC in the future. Even if we are or were a USRPHC during the applicable testing period, as long as our common stock is regularly traded on an established securities market (such as the NYSE), our common stock will be treated as U.S. real property interests only for a non-U.S. holder and certain conditions are metwho actually or constructively holds (at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holder's holding period) more than 5% of such regularly traded stock. Although we intend and expect our common stock to remain regularly traded, we can provide no assurance that our common stock will remain regularly traded.
Foreign Entities
Sections 1471 through 1474 of the Internal Revenue Code, the FATCA provisions, impose U.S. withholding taxes on certain types of payments made to foreign entities. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA
could result in U.S. withholding tax being imposed on payments of dividend distributions paid to a foreign entity. Prospective investors should consult their own tax advisors regarding FATCA and its effect on them.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to a non-U.S. holder, otherwisethe non-U.S. holder's name and address, and the amount of tax withheld, if any. A similar report is sent to the non-U.S. holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the non-U.S. holder's country of residence.
Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to information reporting and backup withholding unless the non-U.S. holder establishes an exemption;exemption, for example by properly certifying the non-U.S. holder's status on an IRS Form W-8BEN, IRS Form W-8BEN-E or (v)another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that the non-U.S. holder is a U.S. branch of a foreign bank or a foreign insurance company.person.
Backup withholding is not an additional tax. Amounts that we withhold undertax; rather, the backup withholding rules may be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability if any,of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that certainthe required information is furnished to the IRS in a timely manner. Non-U.S. holders should consult their own tax advisors regarding application
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
The foregoing discussion is only a summary of certain U.S. federal income and estate tax consequences of the acquisition, ownership and disposition of our common stock by non-U.S. holders. You are urged to consult
your own tax advisor with respect to the particular tax consequences to you of ownership and disposition of our common stock, including the effect of any U.S., state, local, non-U.S. or other tax laws and any applicable income or estate tax treaty.
Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Deutsche BankBofA Securities, Inc. and Goldman Sachs & Co. LLC are acting as joint book-running managersrepresentatives of the offering and as representativeseach of the underwriters named below, and, together with William Blair & Company, L.L.C. and Wells Fargo Securities, LLC, are acting as jointbook-running managers of the offering.below. Subject to the terms and conditions statedset forth in thean underwriting agreement datedamong us, the date of this prospectus, each underwriter named below has severally agreed to purchase,selling stockholders and wethe underwriters, the selling stockholders have agreed to sell to that underwriter,the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from the selling stockholders, the number of shares of common stock set forth opposite the underwriter’s name.its name below.
Underwriter | Number of Shares | |||
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Deutsche Bank Securities Inc. | ||||
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Truist Securities, Inc. | ||||
Wells Fargo Securities, LLC | ||||
Total | ||||
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TheSubject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the obligationspurchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We and the selling stockholders have agreed to purchaseindemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, included in this offering aresubject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and to other conditions. The underwriters are obligated to purchase allincluding the validity of the shares, (other than those covered byand other conditions contained in the underwriters’ option to purchase additional shares described below) if they purchase any ofunderwriting agreement, such as the shares.
Shares soldreceipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public willand to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us and the selling stockholders that the underwriters propose initially be offeredto offer the shares to the public at the initial public offering price set forth on the cover page of this prospectus. Any shares soldprospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their option to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share. If all the shares are not sold at the initialpurchase additional shares.
| Per Share | Without Option | With Option | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Public offering price | $ | $ | $ | |||||||
Underwriting discount | $ | $ | $ | |||||||
Proceeds, before expenses, to the selling stockholders | $ | $ | $ | |||||||
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us and the selling stockholders. We have also agreed to reimburse the underwriters may change the offering price and the otherfor certain of their expenses in an amount up to $ .
Option to Purchase Additional Shares
The selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary accounts.
If the underwriters sell more shares than the total number set forth in the table above, westockholders have granted an option to the underwriters, an option, exercisable for 30 days fromafter the date of this prospectus, to purchase up to additional shares at the initial public offering price, less the underwriting discount. TheIf the underwriters may exercise this option, each will be obligated, subject to conditions contained in the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter mustunderwriting agreement, to purchase a number of additional shares approximately proportionate to that underwriter’sunderwriter's initial purchase commitment. Any shares issued or sold underamount reflected in the option will be issued and sold on the same terms and conditions as the other shares that are the subjectabove table.
No Sales of this offering.Similar Securities
We, our executive officers and directors and our stockholderother existing security holders, including the selling stockholders, have agreed that, subjectnot to certain exceptions,sell or transfer any common stock or securities convertible into, exchangeable for, a period ofexercisable for, or repayable with common stock, for 180 days fromafter the date of this prospectus we and they will not, without first obtaining the prior written consent of BofA Securities, Inc. and Goldman Sachs & Co. LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for ouror repayable with common stock. The representatives, in their sole discretion, may release anyIt also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
Listing
We expect the securitiesshares to be approved for listing on the NYSE, subject to these lock-up agreements at any time, which, innotice of issuance, under the case of officers and directors, shall be with notice. Notwithstanding the foregoing, if (i) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news, or a material event relating to our company occurs; or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.symbol "SEGR."
Prior toBefore this offering, there has been no public market for our shares. Consequently, thecommon stock. The initial public offering price for the shares waswill be determined bythrough negotiations among us, the selling stockholders and the representatives. AmongIn addition to prevailing market conditions, the
factors to be considered in determining the initial public offering price were are
An active trading market for the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however,shares may not develop. It is also possible that after the price at whichoffering the shares will sellnot trade in the public market after this offering will not be lower thanat or above the initial public offering price or that an active trading market in our shares will develop and continue after this offering.price.
We intendThe underwriters do not expect to apply to have our shares listed on the under the symbol “SEG.”
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercisesell more than 5% of the underwriters’ optionshares in the aggregate to purchase additional shares.accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
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We estimate that our total expenses of this offering will be $ , which includes certain fees and expensesUntil the distribution of the shares is completed, SEC rules may limit underwriters incurredand selling group members from bidding for and purchasing our common stock. However, the representatives may engage in connection with this offeringtransactions that we have agreedstabilize the price of the common stock, such as bids or purchases to reimburse.peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase and sell sharesour common stock in the open market. Purchases and sales in the open marketThese transactions may include short sales, purchases on the open market to cover positions created by short positions, which may include purchases pursuant to the underwriters’ option to purchase additional shares,sales and stabilizing purchases.
transactions. Short sales involve secondary market salesthe sale by the underwriters of a greater number of shares than they are required to purchase in the offering.
“Covered” "Covered" short sales are sales of sharesmade in an amount up tonot greater than the number of shares represented by the underwriters’underwriters' option to purchase additional shares.
“Naked”shares described above. The underwriters may close out any covered short sales are sales of shares in an amount in excess of the number of shares representedposition by the underwriters’ option to purchase additional shares.
Covering transactions involve purchases of shares either pursuant to the underwriters’exercising their option to purchase additional shares or in the open market in order to cover short positions.
To close a naked short position, the underwriters must purchasepurchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
To close a covered short position, the underwriters must purchase shares in the open market or must exercise the option to purchase additional shares. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option granted to them. "Naked" short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase additional shares.
in the offering. Stabilizing transactions involveconsist of various bids to purchasefor or purchases of shares so long as the stabilizing bids do not exceed a specified maximum.
Purchases to cover short positions and stabilizing purchases, as well as other purchasesof common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for their own accounts,the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the shares. They may also causeour common stock. As a result, the price of the shares toour common stock may be higher than the price that wouldmight otherwise exist in the open market in the absence of these transactions.market. The underwriters may conduct these transactions on the , in the over-the-counter market or otherwise. If
Neither we, the selling stockholders nor any of the underwriters commencemake any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we, the selling stockholders nor any of the underwriters make any representation that the representatives will engage in these transactions they may discontinue them at any time.
Conflicts of InterestElectronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. TheOther Relationships
Some of the underwriters and their respective affiliates have engaged in, and may in the past performed commercial banking,future engage in, investment banking and advisory services forother commercial dealings in the ordinary course of business with us, from time to time for which theythe selling stockholders or our respective affiliates. They have received, or may in the future receive, customary fees and reimbursement of expenses and may, from time to time, engage in transactions with and perform servicescommissions for usthese transactions.
In addition, in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include(including bank loans and/or credit default swaps)loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments.customers. Such investments and securities activities may involve securities and/or instruments of ours, the selling stockholders or our respective affiliates. In addition, affiliates of some of the underwriters are lenders, and in the case of Deutsche Bank Securities Inc., and Wells Fargo Bank, National Association, administrative agent and co-documentation agent, respectively, for the lenders, under our ABL Facility. Furthermore, certain of the underwriters acted as initial purchasers in connection with our recent offering of PIK toggle notes.
Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities, LLC, each of whom are underwriters in this offering, are, or their affiliates are, expected to receive more than 5% of the net proceeds of this offering in connection with the prepayment of a portion of our ABL facility. See “Use of Proceeds.” Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121, which requires which requires that a “qualified independent underwriter,” as defined by the FINRA rules, participate in the preparation of the registration statement and the prospectus and exercise the usual standards of due diligence in respect thereto, and has served in that capacity and will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. To comply with FINRA Rule 5121, will not confirm sales to any account over which it exercises discretionary authority without the specific written approval of the transaction of the accountholder.
Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. A typical such hedging strategy would include these underwriters or their affiliates hedging such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Financial Advisor
We have agreed PJ Solomon Securities, LLC ("PJS"), is acting as our independent financial advisor in connection with this offering, for which it will receive customary fees. PJS is engaged to indemnifyrepresent our interests only, is independent of the underwriters against certain liabilities, including liabilities under the Securities Act, orand is not a party to contribute to paymentsany securities purchase agreement with us, the underwriters may be requiredor investors in relation to make because ofthis offering. PJS is not acting as an underwriter and will not sell or offer to sell any of those liabilities.
securities in this offering, nor will it identify or solicit potential investors in this offering.
Notice to Prospective Investors in the European Economic Area and the United Kingdom
In relation to each member stateMember State of the European Economic Area and the United Kingdom (each a "Relevant State"), no shares have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the shares which has implementedbeen approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Directive (each, a relevant member state)Regulation), with effect from and including the date on which the Prospectus Directive is implemented inexcept that relevant member state (the relevant implementation date), an offeroffers of shares described in this prospectus may not be made to the public in that relevant member state other than:Relevant State at any time under the following exemptions under the Prospectus Regulation:
Regulation;
provided that no such offer of shares shall require usthe Issuer or any underwriterManager to publish a prospectus pursuant to Article 3 of the Prospectus Directive.Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
Each person in a Relevant State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the Company and the Managers that it is a qualified investor within the meaning of the Prospectus Regulation.
In the case of any shares being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than
their offer or resale in a Relevant State to qualified investors, in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale.
The Company, the selling stockholders, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer of securities"offer to the public”public" in relation to any shares in any relevant member stateRelevant State means the communication in any form and by any means of sufficient information on the terms of the offer and theany shares to be offered so as to enable an investor to decide to purchase or subscribe for theany shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive”"Prospectus Regulation" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive,Regulation (EU) 2017/1129.
References to the extent implementedProspectus Regulation includes, in relation to the relevant member state) and includes any relevant implementing measure inUK, the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellersProspectus Regulation as it forms part of UK domestic law by virtue of the shares have not authorized and do not authorize the making ofEuropean Union (Withdrawal) Act 2018.
The above selling restriction is in addition to any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.selling restrictions set out below.
Notice to Prospective Investors in the United Kingdom
This prospectusdocument is for distribution only being distributed to persons who (i) have professional experience in matters relating to investments and is only directed at, persons in the United Kingdom that are qualified investorswho qualify as investment professionals within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”(as amended, the "Financial Promotion Order") or, (ii) high net worth entities, and otherare persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (each(iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended ("FSMA")) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such personpersons together being referred to as a “relevant person”"relevant persons"). This prospectusdocument is directed only at relevant persons and its contents are confidential and shouldmust not be distributed, publishedacted on or reproduced (in wholerelied on by persons who are not relevant persons. Any investment or in part) or disclosed by recipientsinvestment activity to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely onwhich this document or any of its contents.
relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in FranceSwitzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectusdocument nor any other offering or marketing material relating to the shares describedor the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA ("FINMA"), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA"). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission ("ASIC"), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the "Corporations Act"), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the "Exempt Investors") who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus has been submittedis appropriate to the clearance procedures of theAutorité des Marchés Financiers or of the competent authority of another member state of the European Economic Areatheir needs, objectives and notifiedcircumstances, and, if necessary, seek expert advice on those matters.
Notice to theAutorité des Marchés Financiers.Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
released, issued, distributed or caused to be released, issued or distributed to the public in France; or
used in connection with any offer for subscription or sale of the shares to the public in France.
Such offers, sales and distributions will be made in France only:
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to investment services providers authorized to engage in portfolio management on behalf of third parties; or
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The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the FrenchCode monétaire et financier.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong, by means of any document, other than (i)(a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and nothat Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposepurposes of issue, (in each case whether in Hong Kong or elsewhere),elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public inof Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of"professional investors" as defined in the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.under that Ordinance.
Notice to Prospective Investors in Japan
The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or soldJapan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or to or for the accountbenefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident ofin Japan, (includingincluding any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the shares were not offered or sold or caused to be made the subject of an invitation for subscription or purchase and will not be offered or sold or caused to be made the subject of an invitation for subscription or purchase, and this prospectus andor any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, mayhas not been circulated or distributed, nor will it be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to personsany person in Singapore other than (i) to an institutional investor under(as defined in Section 2744A of the Securities and Futures Act Chapter 289(Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”"SFA"),) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1), of the SFA, or any person pursuant to Section 275(1A), of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
shares, debentures and unitssecurities or securities-based derivatives contracts (each term as defined in Section 2(1) of shares and debenturesthe SFA) of that corporation or the beneficiaries’beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
Notice to Prospective Investors in AustraliaCanada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale
of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
No prospectus or other disclosure document (as defined inWeil, Gotshal & Manges LLP, New York, New York, has passed upon the Corporations Act 2001 (Cth) of Australia, or the Corporations Act) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission, or ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
you confirm and warrant that you are either:
a ‘‘sophisticated investor’’ under section 708(8)(a) or (b) of the Corporations Act;
a ‘‘sophisticated investor’’ under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;
a person associated with the company under section 708(12) of the Corporations Act; or
a ‘‘professional investor’’ within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and
you warrant and agree that you will not offer anyvalidity of the common stock for resale in Australia within 12 monthsoffered hereby on behalf of that common stock being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.
The validity of the shares of common stock offered herebyus. Certain legal matters will be passed upon for us by Gibson, Dunn & Crutcher LLP. Certain legal matters in connection with this offering will be passed upon foron behalf of the underwriters by KingLatham & Spalding LLP. King & SpaldingWatkins LLP, has also represented Lone Star and us on a variety of past and current matters.
New York, New York.
The consolidated financial statements as of December 26, 201225, 2019 and December 31, 201126, 2018, and for each of the three years in the period ended December 26, 2012, December 31, 2011 and January 1, 2011,25, 2019, included in this prospectus and the related financial statement schedules included in this prospectusschedule, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, (whichwhich report expresses an unqualified opinion on the consolidated financial statements and financial statement schedulesschedule and includes explanatory paragraphs referringan emphasis-of-matter paragraph relating to the Company’s reorganizationSuccessor Period financial statements not being comparable to the Predecessor Period financial statements as a result of fresh-start reporting and subsequent emergence from Bankruptcy under Chapter 11 as well as retrospective adjustments for discontinued operations).an explanatory paragraph relating to the Company's adoption of ASU No. 2016-02. Such financial statements and financial statement schedulesschedule have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows of Winn-Dixie Stores, Inc. and subsidiaries for the years ended June 29, 2011, June 30, 2010 and June 24, 2009, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report refers to a change in accounting for business combinations as of June 25, 2009.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 including exhibits and schedules, of which this prospectus is a part, under the Securities Act with respect to the shares of our common stock offered by this prospectus. For purposes of this section, the term "registration statement" means the original registration statement and any and all amendments including the schedules and exhibits to be sold in this offering.the original registration statement or any amendment. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement andor the exhibits and schedules tothereto as permitted by the registration statement.rules and regulations of the SEC. For further information with respect toabout us and our company and the shares of common stock, to be sold in this offering, reference is madeyou should refer to the registration statement, including the exhibitsexhibits. This prospectus summarizes provisions that we consider material of certain contracts and schedulesother documents to which we refer you. Because the registration statement. Our SEC filings, including our registration statement, are available to you for free onsummaries may not contain all of the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s web site at prescribed rates,information that you may complete an online form at http://www.sec.gov, sendfind important, you should review the full text of those documents. The SEC also maintains a fax to (202) 772-9337 or submit a written request towebsite that contains reports and other information regarding issuers, like us, that file with the SEC, OfficeSEC. The address of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information. Upon consummation ofthat website is www.sec.gov.
Following this offering, we will becomebe subject to the informational andinformation reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be required to file reportsavailable for inspection and other information. You will be able to obtain copies of these materials and inspect them without chargecopying at the SEC’s website.website of the SEC referred to above. We intendalso maintain a website at www.segrocers.com. Our website and the information contained on, or that can be accessed through, our website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.
We have not authorized anyone to give you any information or to make availableany representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to our common stockholders annual reports containing consolidated financial statements audited bysell or a solicitation of an independent registered public accounting firm.offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law.
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the 28 weeks ended July 8, 2020 (Successor) and the 28 weeks ended July 10, 2019 (Successor) | ||||
Condensed Consolidated Balance Sheets (Unaudited) as of July 8, 2020 (Successor) and December 25, 2019 (Successor) | ||||
Condensed Consolidated Statements of Cash Flows (Unaudited) for the 28 weeks ended July 8, 2020 (Successor) and the 28 weeks ended July 10, 2019 (Successor) | ||||
Condensed Consolidated Statements of | ||||
Notes to Unaudited Interim Condensed Consolidated Financial Statements (Unaudited) | ||||
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Consolidated Statements of Operations and Comprehensive (Loss) Income | ||||
Consolidated | ||||
Consolidated Statements of | ||||
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Notes to Consolidated Financial Statements | ||||
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Southeastern Grocers, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(Amounts in thousands, except per share data)
| | 28 Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|
| | July 8, 2020 | July 10, 2019 | |||||
Net sales | $ | 5,262,757 | $ | 4,502,670 | |||
Cost of sales, including warehouse and delivery expense | 3,806,942 | 3,325,132 | |||||
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Gross profit | 1,455,815 | 1,177,538 | |||||
Operating, general and administrative expenses | 1,210,910 | 1,195,708 | |||||
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Income (loss) from operations | 244,905 | (18,170 | ) | ||||
Interest expense | 36,881 | 44,607 | |||||
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Income (loss) before income taxes | 208,024 | (62,777 | ) | ||||
Income tax expense (benefit) | 2,334 | (533 | ) | ||||
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Net income (loss) | 205,690 | (62,244 | ) | ||||
Unrealized post-retirement benefit plan gain | 6 | — | |||||
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Comprehensive income (loss) | $ | 205,696 | $ | (62,244 | ) | ||
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Weighted-average common shares outstanding: | |||||||
Basic | 10,064 | 10,001 | |||||
Diluted | 10,228 | 10,001 | |||||
Earnings (loss) per share: | |||||||
Basic | $ | 20.44 | $ | (6.22 | ) | ||
Diluted | 20.11 | (6.22 | ) | ||||
See accompanying notes to condensed consolidated financial statements (unaudited)
Southeastern Grocers, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Amounts in thousands, except par value and share data)
| | July 8, 2020 | December 25, 2019 | |||||
|---|---|---|---|---|---|---|---|
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 93,070 | $ | 70,299 | |||
Accounts receivable, net of allowance for doubtful receivables of $2,510 and $2,534 as of July 8, 2020 and December 25, 2019, respectively | 72,849 | 88,516 | |||||
Inventories | 455,175 | 518,944 | |||||
Prepaid expenses and other current assets | 41,076 | 31,143 | |||||
Assets held for sale | 159,667 | — | |||||
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Total current assets | 821,837 | 708,902 | |||||
Noncurrent assets: | |||||||
Property and equipment, net | 476,055 | 534,798 | |||||
Operating lease assets | 741,255 | 834,415 | |||||
Finance lease assets | 46,964 | 51,945 | |||||
Intangible assets, net | 503,164 | 573,515 | |||||
Other long-term assets | 25,218 | 26,629 | |||||
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Total noncurrent assets | 1,792,656 | 2,021,302 | |||||
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Total assets | $ | 2,614,493 | $ | 2,730,204 | |||
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Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 295,704 | $ | 325,776 | |||
Accrued payroll and related expenses | 105,114 | 83,024 | |||||
Self-insurance liabilities | 59,937 | 54,794 | |||||
Current portion of long-term debt (Note 5) | 16,696 | 16,000 | |||||
Current maturities of obligations under operating leases | 125,628 | 141,371 | |||||
Current maturities of obligations under finance leases | 4,548 | 6,465 | |||||
Other accrued expenses | 202,347 | 184,041 | |||||
Liabilities held for sale | 113,455 | — | |||||
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Total current liabilities | 923,429 | 811,471 | |||||
Noncurrent liabilities: | |||||||
Long-term debt (Note 5) | 407,148 | 752,521 | |||||
Obligations under operating leases | 574,101 | 652,435 | |||||
Obligations under finance leases | 47,340 | 49,715 | |||||
Self-insurance liabilities | 157,767 | 159,867 | |||||
Deferred income taxes | 18,908 | 17,634 | |||||
Other long-term liabilities | 57,202 | 66,380 | |||||
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Total noncurrent liabilities | 1,262,466 | 1,698,552 | |||||
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Total liabilities | 2,185,895 | 2,510,023 | |||||
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Commitments and contingencies (Note 11) | |||||||
Stockholders' equity: | |||||||
Common stock, $0.001 par value; 15,000,000 shares authorized; 10,003,033 shares issued and 10,001,936 shares outstanding, July 8, 2020; 10,001,908 shares issued and 10,001,145 shares outstanding, December 25, 2019 | 10 | 10 | |||||
Additional paid-in capital | 466,705 | 463,984 | |||||
Accumulated deficit | (35,220 | ) | (240,910 | ) | |||
Accumulated other comprehensive loss | (2,897 | ) | (2,903 | ) | |||
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Total stockholders' equity | 428,598 | 220,181 | |||||
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Total liabilities and stockholders' equity | $ | 2,614,493 | $ | 2,730,204 | |||
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See accompanying notes to condensed consolidated financial statements (unaudited)
Southeastern Grocers, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
| | 28 Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|
| | July 8, 2020 | July 10, 2019 | |||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | 205,690 | $ | (62,244 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 87,170 | 128,951 | |||||
Non-cash lease expense | 84,200 | 87,223 | |||||
Amortization of deferred debt issuance costs, discount and premium | 4,063 | 4,247 | |||||
Gain on insurance settlement | (2,980 | ) | (2,766 | ) | |||
Impairment expense | 31,338 | 1,082 | |||||
(Gain) loss on sale of assets and lease terminations | (21,629 | ) | 8,067 | ||||
Deferred income tax expense (benefit) | 1,274 | (531 | ) | ||||
Payments on Global Settlement | (5,000 | ) | (15,000 | ) | |||
Share-based compensation | 2,733 | 1,496 | |||||
Gain on debt buyback | (179 | ) | — | ||||
Changes in assets and liabilities: | |||||||
Accounts receivable | 17,272 | 12,018 | |||||
Inventories | 63,769 | 6,347 | |||||
Prepaid expenses and other current assets | (9,743 | ) | (10,497 | ) | |||
Accounts payable | (23,855 | ) | (72,033 | ) | |||
Accrued payroll and related expenses | 22,090 | (22,840 | ) | ||||
Operating lease liabilities | (85,940 | ) | (78,182 | ) | |||
Other accrued expenses and other long term assets/liabilities | 25,119 | (4,877 | ) | ||||
Self-insurance liabilities | 3,043 | 2,130 | |||||
| | | | | | | | |
Net cash provided by (used in) operating activities | 398,435 | (17,409 | ) | ||||
| | | | | | | | |
Cash flows from investing activities: | |||||||
Purchases of long-lived assets | (71,721 | ) | (93,693 | ) | |||
Proceeds from sale of assets | 57,234 | 8,387 | |||||
Proceeds from notes receivable and long-term deposits | — | 484 | |||||
Proceeds from insurance | 1,375 | 8,737 | |||||
| | | | | | | | |
Net cash used in investing activities | (13,112 | ) | (76,085 | ) | |||
| | | | | | | | |
Cash flows from financing activities: | |||||||
Gross borrowings on credit facilities | 528,000 | 1,624,500 | |||||
Gross payments on credit facilities | (776,000 | ) | (1,564,500 | ) | |||
Payments on FILO Facility | (8,478 | ) | (3,750 | ) | |||
Payments on Term Loan | (91,195 | ) | (2,375 | ) | |||
Payments on obligations under finance leases | (3,951 | ) | (3,749 | ) | |||
Proceeds from financed agreements | — | 39,380 | |||||
Payments on financed agreements | (11,456 | ) | (2,356 | ) | |||
Repurchase of common stock related to share-based awards | (12 | ) | — | ||||
| | | | | | | | |
Net cash (used in) provided by financing activities | (363,092 | ) | 87,150 | ||||
| | | | | | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 22,231 | (6,344 | ) | ||||
Cash, cash equivalents, and restricted cash, beginning balance | 72,488 | 47,852 | |||||
| | | | | | | | |
Cash, cash equivalents, and restricted cash, ending balance | $ | 94,719 | $ | 41,508 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying notes to condensed consolidated financial statements (unaudited)
Southeastern Grocers, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(Amounts in thousands, except share amounts)
| | 28 Weeks Ended July 8, 2020 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||
Balance as of December 25, 2019 | 10,001,145 | $ | 10 | $ | 463,984 | $ | (240,910 | ) | $ | (2,903 | ) | $ | 220,181 | ||||||
Net income | — | — | — | 97,741 | — | 97,741 | |||||||||||||
Share-based compensation | — | — | 1,657 | — | — | 1,657 | |||||||||||||
Unrealized post-retirement benefit plan gain | — | — | — | — | 3 | 3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of April 15, 2020 | 10,001,145 | 10 | 465,641 | (143,169 | ) | (2,900 | ) | 319,582 | |||||||||||
Net income | — | — | — | 107,949 | — | 107,949 | |||||||||||||
Share-based compensation | — | — | 1,076 | — | — | 1,076 | |||||||||||||
Issuance of common stock related to share-based awards | 1,125 | — | — | — | — | — | |||||||||||||
Repurchase of common stock related to share-based awards | (334 | ) | — | (12 | ) | — | — | (12 | ) | ||||||||||
Unrealized post-retirement benefit plan gain | — | — | — | — | 3 | 3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of July 8, 2020 | 10,001,936 | $ | 10 | $ | 466,705 | $ | (35,220 | ) | $ | (2,897 | ) | $ | 428,598 | ||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 28 Weeks Ended July 10, 2019 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | |||||||||||||
Balance as of December 26, 2018 | 10,000,000 | $ | 10 | $ | 458,739 | $ | (86,363 | ) | $ | 353 | $ | 372,739 | |||||||
Adoption of ASU 2016-02 related to leases | — | — | — | (38,307 | ) | — | (38,307 | ) | |||||||||||
Net loss | — | — | — | (40,279 | ) | — | (40,279 | ) | |||||||||||
Share-based compensation | — | — | 73 | — | — | 73 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of April 17, 2019 | 10,000,000 | 10 | 458,812 | (164,949 | ) | 353 | 294,226 | ||||||||||||
Net loss | — | — | — | (21,965 | ) | — | (21,965 | ) | |||||||||||
Share-based compensation | — | — | 1,423 | — | — | 1,423 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of July 10, 2019 | 10,000,000 | $ | 10 | $ | 460,235 | $ | (186,914 | ) | $ | 353 | $ | 273,684 | |||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements (unaudited)
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters
The Company: Southeastern Grocers, Inc., and its subsidiaries, (collectively the "Company") operates as a food retailer in the Southeastern United States. As of July 8, 2020, the Company operated 545 supermarkets in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina under the "Winn-Dixie", "BI-LO", "Super BI-LO", "BI-LO at the Beach", "Harveys" and "Fresco y Más" supermarket banners. Of these stores, 231 have in-store pharmacies and 140 have liquor stores. In addition, the Company has one centralized specialty pharmacy. The Company's headquarters are based in Jacksonville, Florida.
Basis of Presentation: The accompanying financial statements include the consolidated accounts of the Southeastern Grocers, Inc. and its wholly-owned subsidiaries. The December 25, 2019 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by U.S. generally accepted accounting principles ("U.S. GAAP"). All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company's financial position and results of operations for the interim periods, but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures required by U.S. GAAP for complete financial statements have been omitted, pursuant to SEC regulations. Accordingly, the interim financial information included herein should be read in conjunction with the Company's Annual Report for the fiscal year ended December 25, 2019.
The unaudited information in the condensed consolidated financial statements for the two quarters ended July 8, 2020 and July 10, 2019, includes the results of operations of the Company for the 28-week periods then ended.
Business Reporting Segments: The Company operates supermarkets in the Southeastern United States. These retail operations account for substantially all of its net sales and is the only reportable segment. The Company aggregates its operating regions into one reportable segment due to the operating regions being geographically based, having similar economic characteristics, and similar long-term financial performance. In addition, the operating regions offer the same general mix of products with similar pricing to similar categories of customers, have similar distribution methods, operates in similar regulatory environments and purchases merchandise from similar or the same vendors. Each operating region constitutes a business for which discrete financial information is available and for which management regularly reviews the operating results. The geographical separation is the primary differentiation between these retail operating regions. The geographical basis of organization reflects how the business is managed and how the Company's Chief Executive Officer, who acts as its chief operating decision maker, assesses performance internally.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
Restricted Cash: The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that total to the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
| | July 8, 2020 | December 25, 2019 | |||||
|---|---|---|---|---|---|---|---|
Cash | $ | 93,070 | $ | 70,299 | |||
Restricted cash included in other long-term assets | 1,649 | 2,189 | |||||
| | | | | | | | |
Cash, cash equivalents, and restricted cash, ending balance | $ | 94,719 | $ | 72,488 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company's restricted cash represents cash required to be on deposit under the Global Settlement (as defined in Footnote 10, Related-Party Transactions).
Fair Value Measurements: Fair value for certain of the Company's assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, a three level hierarchy for inputs is used by the Company. Those levels are:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2: Observable inputs other than prices included in level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates the fair value due to their short-term nature. The fair value of the Company's 2018 Revolving Credit Facility, FILO Facility, and Senior Secured Term Loan (as defined in Footnote 5, Debt) is determined based on estimated current market prices applied to the debt outstanding, thus falling within level 2 of the fair value hierarchy. Refer to Footnote 5, Debt, for additional information related to the Company's debt instruments. Intangible assets and fixed assets are measured at fair value on a non-recurring basis, that is, the assets are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment. These measures of fair value, and related inputs, are considered Level 3 measures under the fair value hierarchy.
Sales: The Company recognizes revenue from retail sales at the point of sale when control of the product is transferred to the customer. Sales are recorded net of discounts and exclude any sales tax. Discounts provided to customers by vendors, usually in the form of coupons, are not recognized as a reduction in sales, provided the coupons are redeemable at any retailer that accepts coupons. The
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
Company recognizes revenue and records a corresponding receivable from the vendor for the difference between the sales prices and the cash received from the customer.
Loyalty Program: The Company's loyalty program, SEG Rewards, allows members to earn points on purchases that may be redeemed for future purchases at any of the Company's stores or for discounts on fuel at participating fuel centers. The Company defers revenue associated with the estimated standalone selling price of points earned by its program members as each point is earned, and a corresponding liability is established within "Other accrued expenses" on the Condensed Consolidated Balance Sheets. The estimated standalone selling price of each point earned is based on the estimated value of the product for which the reward is expected to be redeemed, net of points the Company does not expect to be redeemed, based on historical redemption patterns. Points issued in 2019 expire at the end of the calendar year following the year of issuance. Points issued in 2020 expire at the end of the sixth month after issuance.
When a customer redeems an earned reward or when the points expire, the Company recognizes revenue for the redeemed product or the value of points which expired and reduces the related loyalty program liability. The Company had accrued contract liabilities related to the points of $9.8 million and $8.2 million as of July 8, 2020 and December 25, 2019, respectively, which is included within "Other accrued expenses" on the Condensed Consolidated Balance Sheets. During the 28 weeks ended July 10, 2019, the Company recognized an out-of-period favorable adjustment to revenue (and corresponding contract liability) related to its updated estimate of amounts expected to expire of $10.8 million.
Gift Cards: The Company does not recognize revenue when it sells its own gift cards. Rather, it records a deferred revenue liability equal to the amount received. Revenue is then recognized when the gift cards are redeemed to purchase the Company's products. The Company's gift cards do not expire. The Company had accrued contract liabilities related to gift cards of $6.3 million and $6.5 million as of July 8, 2020 and December 25, 2019, respectively, which is included in "Other accrued expenses" on the Condensed Consolidated Balance Sheets. Revenue for the unused portion of gift cards was insignificant for the 28 weeks ended July 8, 2020 and July 10, 2019.
Income Taxes: The Company recognizes deferred tax assets and liabilities for estimated future tax consequences that are attributable to differences between the financial statement basis of assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using the enacted tax rates for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. Refer to Footnote 7, Income Taxes, for additional information regarding the valuation allowance and the Company's evaluation of its deferred tax position.
The Company classifies interest expense related to income tax uncertainties as a component of interest expense. Any related penalties are included in "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). There were no unrecognized tax benefits or penalties during the 28 weeks ended July 8, 2020 and July 10, 2019.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
2. New Accounting Pronouncements
Recently Issued Accounting Guidance
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this update provide optional guidance related to changes in contracts, hedging relationships, and other transactions affected by reference rate reform. This update only applies to modifications made prior to December 31, 2022. No such modifications occurred in the 28 weeks ended July 8, 2020. The Company will evaluate the impact of this update if and when it is applicable.
3. Earnings (loss) per share
Net earnings (loss) per basic common share equals net earnings (loss) divided by the weighted average number of common shares outstanding. Net earnings (loss) per diluted common share equals net earnings (loss) divided by the weighted average number of common shares outstanding, after giving effect to dilutive restricted stock units and warrants.
The following table provides a reconciliation of net earnings (loss) and shares used in calculating net loss attributable per basic common share to those used in calculating net loss per diluted common share (in thousands, except per share data):
| | 28 Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|
| | July 8, 2020 | July 10, 2019 | |||||
Net income (loss) | $ | 205,690 | $ | (62,244 | ) | ||
| | | | | | | | |
Weighted-average common shares outstanding, basic | 10,064 | 10,001 | |||||
Dilutive impact of share-based awards | 164 | — | |||||
| | | | | | | | |
Weighted-average common shares outstanding, diluted | 10,228 | 10,001 | |||||
| | | | | | | | |
Earnings (loss) per common share: | |||||||
Basic | $ | 20.44 | $ | (6.22 | ) | ||
Diluted | 20.11 | (6.22 | ) | ||||
For the 28 weeks ended July 8, 2020, the computation of diluted earnings per share does not include 708.0 thousand unvested performance-based restricted stock units as the performance conditions have not been met. In addition, the computation did not include the Company's warrant outstanding, convertible into 526.3 thousand shares of common stock, because the inclusion would have an anti-dilutive effect on earnings per diluted share.
For the 28 weeks ended July 10, 2019, the computation of diluted earnings per share does not include 952.7 thousand unvested restricted stock units or the Company's warrant outstanding because their inclusion would have an anti-dilutive effect on loss per diluted share as the Company had a net loss for this period.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Impairment Expense of Long-lived and Intangible Assets
Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company uses store performance reviews for indications that changes in market factors, traffic patterns, competition and other factors may negatively impact the operating results of store locations. Such factors resulted in the identification of underperforming stores. The Company also reviews stores for other triggering events, such as the planned disposition of 125 stores. The Company compared the net book value of those underperforming store assets to the Company's estimated net undiscounted cash flows expected to result from the use and eventual disposition of the assets and, in some cases, the Company concluded that the net undiscounted cash flows were less than the net book value of the related assets. For those stores, the excess of the net book value of the assets over their fair value was recorded as an impairment expense as discussed below.
Fair value estimates for property and equipment are determined using a discounted cash flow methodology, which incorporates the terminal value of equipment, and the market value of operating and finance lease assets based on broker quotes or the Company's best estimate. Fair value estimates for liquor licenses, land, and buildings also incorporate the market value based on broker quotes or the Company's best estimate. Fair value estimates for pharmacy scripts are determined using a market approach and utilize recent sales data. The fair value estimates are based on assumptions the Company believes to be reasonable but are inherently uncertain, thus fall within level 3 of the fair value hierarchy, except for liquor license fair values that are corroborated with observable data and, therefore, fall within level 2 of the fair value hierarchy.
Impairment expense related to property and equipment, operating lease assets, and held for sale assets of $6.3 million was recorded during the 28 weeks ended July 8, 2020. For the 28 weeks ended July 10, 2019 impairment expense related to property and equipment was $1.1 million. Impairment expense is included in "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Intangible Assets
Indefinite-lived intangible assets are tested for impairment annually during the fourth quarter, or on an interim basis upon occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
During the second quarter of fiscal year 2020, the Company announced the planned disposition of 125 stores, which acted as a triggering event, causing an impairment evaluation to be performed. The Company determined that the carrying value of two of the Company's trade names exceeded their estimated fair values resulting in non-cash impairment charges of $25.0 million, which is included in "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Fair value measurements were determined using market-derived royalty rates to estimate discounted projected future cash flows which reflect lower levels of expected sales growth than previous years.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
5. Debt
As of July 8, 2020 and December 25, 2019, the Company's outstanding debt consisted of the following:
| | July 8, 2020 | December 25, 2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
2018 Revolving Credit Facility | $ | 40,000 | $ | 40,000 | $ | 288,000 | $ | 288,000 | |||||
FILO Facility(1) | 28,766 | 29,950 | 36,759 | 35,844 | |||||||||
Senior Secured Term Loan(2) | 355,078 | 370,155 | 443,762 | 432,784 | |||||||||
| | | | | | | | | | | | | | |
Total debt | 423,844 | $ | 440,105 | 768,521 | $ | 756,628 | |||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Less: Current maturities of long-term debt | (16,696 | ) | (16,000 | ) | |||||||||
| | | | | | | | | | | | | | |
Total long-term debt | $ | 407,148 | $ | 752,521 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
2018 ABL Credit Agreement
Effective May 31, 2018 the Company's wholly-owned subsidiary, BI-LO, LLC (the "Borrower"), entered into an ABL Credit Agreement (the "2018 ABL Credit Agreement"), which includes both a $550 million senior secured asset based revolving credit facility (the "2018 Revolving Credit Facility") and a $50 million first-in, last-out facility (the "FILO Facility").
2018 Revolving Credit Facility
The 2018 Revolving Credit Facility matures on May 31, 2023. Outstanding amounts accrue interest at a variable rate based on Historical Tranche A Excess Availability (as defined in the 2018 ABL Credit Agreement) at the Borrower's option based on either (i) the Alternate Base Rate (as defined in the 2018 ABL Credit Agreement) plus a margin of 0.25% to 0.75% or (ii) the Adjusted LIBO Rate (as defined in the 2018 ABL Credit Agreement), plus a margin of 1.25% to 1.75%. Interest is payable depending on the interest type or period selected. As of July 8, 2020, the borrowing rates in effect for the Revolving Credit Facility were the Alternate Base Rate plus 0.50% or the Adjusted LIBO Rate plus 1.50%, at the Borrower's option. The letter of credit fee in effect as of July 8, 2020 was 1.63% (including a 0.13% facing fee to the issuing letter of credit bank). In addition, the commitment fee of the unused portion of the 2018 Revolving Credit Facility was 0.25% as of the same date.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
5. Debt (Continued)
As of July 8, 2020, Excess Availability (as defined in the 2018 ABL Credit Agreement) related to the 2018 Revolving Credit Facility was as follows:
Availability(1) | $ | 466,644 | ||
Outstanding letters of credit | (70,276 | ) | ||
Outstanding borrowings | (40,000 | ) | ||
| | | | | |
Excess Availability | $ | 356,368 | ||
| | | | | |
| | | | | |
| | | | | |
FILO Facility
The FILO Facility matures on May 31, 2022. The FILO Facility was issued at a $2.0 million discount, with the unamortized discount recognized as part of the carrying value and amortized to "Interest expense" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Debt issuance costs capitalized in connections with the FILO Facility were $1.3 million, with deferred debt issuance costs recorded as part of the carrying value and amortized to "Interest expense" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
As of July 8, 2020 and December 25, 2019, the components of the carrying value of the FILO Facility were as follows:
| | July 8, 2020 | December 25, 2019 | |||||
|---|---|---|---|---|---|---|---|
Principal amount of debt | $ | 30,100 | $ | 38,750 | |||
Original issue discount, net of amortization | (814 | ) | (1,214 | ) | |||
Debt issuance costs, net of amortization | (520 | ) | (777 | ) | |||
| | | | | | | | |
Carrying value | $ | 28,766 | $ | 36,759 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Outstanding amounts under the FILO Facility accrue interest at a variable rate, at the Borrower's option based on (i) the Alternate Base Rate (as defined in the 2018 ABL Credit Agreement) plus a margin of 4.25% or 7.25% or (ii) the Adjusted LIBO Rate (as defined in the 2018 ABL Credit Agreement), subject to a 1.00% floor, plus a margin of 5.25% or 8.25%. The margin varies based on the FILO rating as determined by S&P or Moody's. Interest is payable depending on the interest type or period selected. As of July 8, 2020, the borrowing rates in effect for the FILO Facility were the Alternate Base Rate plus 4.25% or the Adjusted LIBO Rate plus 5.25%, at the Borrower's option.
During the second quarter of fiscal year 2020, the Company repurchased $4.9 million face value of the FILO Facility on the open market. The Company may, from time to time, continue to reduce the amount of the FILO Facility (through open market repurchases, private transactions or other optional prepayments).
Following the second quarter, the Company repaid in full the remaining $30.1 million principal balance of the FILO Facility through an optional prepayment.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
5. Debt (Continued)
As of July 8, 2020, Excess Availability (as defined in the 2018 ABL Credit Agreement) related to the FILO Facility was as follows:
Availability(1) | $ | 30,100 | ||
Outstanding borrowings | (30,100 | ) | ||
| | | | | |
Excess Availability | $ | — | ||
| | | | | |
| | | | | |
| | | | | |
The 2018 ABL Credit Agreement has a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the Borrower's and its restricted subsidiaries' ability to (1) incur additional debt, (2) grant liens, (3) enter into consolidations or mergers, (4) liquidate or dissolve the business, (5) dispose of all or substantially all of the Company's property or business, (6) dispose of certain property or assets, (7) make Restricted Payments (as defined therein), (8) make advances, investments and loans, (9) make certain voluntary payments, and (10) enter into certain transactions with affiliates. In addition, the 2018 ABL Credit Agreement requires the Borrower to maintain a minimum Fixed Charge Coverage Ratio (as defined in the 2018 ABL Credit Agreement) in the event that Excess Availability (as defined in the 2018 ABL Credit Agreement) were to fall below a specified threshold. The Company was in compliance with its financial covenants under the 2018 ABL Credit Agreement as of July 8, 2020.
The lenders under the 2018 ABL Credit Agreement are secured by a first-priority security interest in certain collateral including accounts receivable, inventory, prescription lists and other related collateral and proceeds thereof (the "ABL Priority Collateral") and a second-priority security interest in substantially all other assets, other than certain excluded assets.
Senior Secured Term Loan
Effective May 31, 2018, the Borrower entered into a $475.0 million senior secured term loan credit agreement (the "Term Loan Agreement"). The term loan under the Term Loan Agreement (the "Term Loan") was issued at a $19.0 million discount, with the unamortized discount recognized as part of the carrying value and amortized to "Interest expense" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Debt issuance costs capitalized in connection with the Term Loan were $13.7 million, with deferred debt issuance costs recorded as part of the carrying value and amortized to "Interest expense" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
5. Debt (Continued)
As of July 8, 2020 and December 25, 2019, the components of the carrying value of the Term Loan were as follows:
| | July 8, 2020 | December 25, 2019 | |||||
|---|---|---|---|---|---|---|---|
Principal amount of debt | $ | 372,015 | $ | 467,875 | |||
Original issue discount, net of amortization | (9,851 | ) | (14,024 | ) | |||
Debt issuance costs, net of amortization | (7,086 | ) | (10,089 | ) | |||
| | | | | | | | |
Carrying value | $ | 355,078 | $ | 443,762 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Term Loan matures May 31, 2024 and bears interest at a variable rate at the Company's option, based on the Alternate Base Rate (as defined in the Term Loan Agreement) plus a margin of 7.00% or the Adjusted LIBO Rate (as defined in the Term Loan Agreement), subject to a 1.00% floor, plus a margin of 8.00%. Interest is payable depending on the interest type or period selected.
During the second quarter of fiscal year 2020, the Company repurchased $93.7 million face value of the Term Loan on the open market. The Company may, from time to time, continue to reduce the amount of the Term Loan (through open market repurchases, private transactions or other optional prepayments). As a result of the repurchases, the scheduled principal amortization payments have been reduced to $0.9 million due on the last day of each fiscal quarter, with the remaining principal balance due at maturity. In addition, customary mandatory prepayments are required upon occurrence of certain events including application of a certain percentage of annual excess cash flow, consummation of certain non-ordinary course asset sales, incurrence of certain debt, and occurrence of certain casualty or condemnation events, all as described in the Term Loan Agreement.
The Term Loan is collateralized by second-priority security interests in the ABL Priority Collateral and first-priority security interest, in substantially all other assets of the Borrower and the other credit parties other than certain excluded assets.
The Term Loan Agreement has a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the ability of the Borrower's and its restricted subsidiaries ability to (1) incur additional debt, (2) grant liens, (3) enter into consolidations or mergers, (4) liquidate or dissolve the business, (5) dispose of all or substantially all of the Company's property or business, (6) dispose of certain property or assets, (7) make Restricted Payments (as defined in the Term Loan Agreement), (8) make advances, investments and loans, (9) make certain voluntary payments, and (10) enter into certain transactions with affiliates. In addition, the Term Loan Agreement includes a financial covenant requiring the Company's total net leverage not to exceed certain levels. The Borrower was in compliance with its financial covenants under the Term Loan Agreement as of July 8, 2020.
Following the second quarter, the Company repurchased an additional $22.9 million face value of the Term Loan on the open market and scheduled amortization of $0.9 million, reducing the aggregate principal amount of the Term Loan to $348.2 million.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
6. Interest Expense
The following tables show the components of interest expense for the periods indicated:
| | 28 Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|
| (in thousands) | July 8, 2020 | July 10, 2019 | |||||
2018 Revolving Credit Facility | $ | 4,957 | $ | 7,233 | |||
FILO Facility | 1,368 | 1,906 | |||||
Senior Secured Term Loan | 22,806 | 27,394 | |||||
FILO Facility discount amortization | 263 | 268 | |||||
Senior Secured Term Loan discount amortization | 1,597 | 1,699 | |||||
Finance/capital lease interest | 3,680 | 3,841 | |||||
Amortization of deferred financing costs | 2,203 | 2,280 | |||||
Other interest | 7 | (14 | ) | ||||
| | | | | | | | |
Total interest expense | $ | 36,881 | $ | 44,607 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
7. Income Taxes
The following tables show the income tax and effective tax rates for the periods indicated:
| | 28 Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|
| (in thousands) | July 8, 2020 | July 10, 2019 | |||||
Income tax expense (benefit) | $ | 2,334 | $ | (533 | ) | ||
Effective tax rate | 1.1 | % | 0.8 | % | |||
Income tax expense or benefit is recognized based on the Company's estimated annual effective tax rate, which is based upon the tax rate expected for the full calendar year applied to the pretax income or loss of the interim period. The Company's combined federal and state statutory tax rate is 26.0%. The effective rate differs from the statutory rate primarily due to changes in deferred tax assets and liabilities and the associated valuation allowance.
The Company has significant deferred tax assets, including net operating losses ("NOLs"), for which the Company regularly assesses the positive and negative evidence available to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. As of July 8, 2020 and December 25, 2019, the Company maintained a valuation allowance against all of its deferred tax assets. The Company intends to continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
8. Held for Sale and Sales Transactions
Held for Sale
As of July 8, 2020, the following disposal groups were classified as held for sale and stated at the lower of net book value or estimated sales value less costs to sell in accordance with Accounting Standards Codification ("ASC") 360, "Property, Plant, and Equipment":
The amounts classified as assets and liabilities held for sale as of July 8, 2020 include the following:
| | July 8, 2020 | |||
|---|---|---|---|---|
Assets held for sale: | ||||
Property and equipment, net | $ | 47,169 | ||
Operating lease assets | 98,051 | |||
Finance lease assets | 14,447 | |||
| | | | | |
Total assets held for sale | $ | 159,667 | ||
| | | | | |
| | | | | |
| | | | | |
Liabilities held for sale: | ||||
Operating lease liabilities | $ | 99,496 | ||
Finance lease liabilities | 13,959 | |||
| | | | | |
Total liabilities held for sale | $ | 113,455 | ||
| | | | | |
| | | | | |
| | | | | |
Pharmacy Sale
In May 2020, the Company also entered into agreements under which the Company sold inventory and pharmacy prescription files for 58 of its in-store pharmacies to CVS and Walgreens.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
8. Held for Sale and Sales Transactions (Continued)
Under the terms of the agreements, the Company closed all pharmacies impacted by the sale transactions, which were completed on July 1, 2020.
The sale price was $56.3 million for the pharmacy prescription files and $6.8 million for the acquired inventory. During the second quarter of fiscal year 2020, the Company recognized a pre-tax gain of $20.9 million, which is inclusive of $4.7 million of closing costs and other transaction related expenses. The pre-tax gain was included in "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
9. Share-Based Payments
Under the 2018 Omnibus Equity Incentive Plan (the "Plan"), the Company is authorized to grant up to 1.17 million equity based awards in the form of stock options, restricted stock and restricted stock units, as well as other forms of share-based awards. Restricted stock units ("RSUs") granted include both time-based and performance conditions to vest, payable upon vesting as one share of common stock for each unit. During May 2020, the performance RSU's were modified to better align market condition metrics with the current market. Share-based compensation expense totaled $2.7 million and $1.5 million for the 28 weeks ended July 8, 2020 and July 10, 2019, respectively. These amounts were included in "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The following table summarizes the RSU activity during the 28 weeks ended July 8, 2020:
| | Time-based RSUs | Performance- based RSUs | |||||
|---|---|---|---|---|---|---|---|
Unvested as of December 25, 2019 | 339,498 | 566,452 | |||||
Granted | 10,500 | 162,298 | |||||
Vested | (51,483 | ) | — | ||||
Forfeited/canceled | (17,156 | ) | (20,750 | ) | |||
| | | | | | | | |
Unvested as of July 8, 2020 | 281,359 | 708,000 | |||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Vested and not issued as of July 8, 2020 | 100,935 | — | |||||
10. Related-Party Transactions
Pursuant to the Plan of Reorganization, the Company entered into the Global Settlement (the "Global Settlement") which formed a special purpose entity, SEG II, in conjunction with Lone Star, the primary beneficiary of the entity, which received certain leases from the Company, an initial settlement payment of $15.4 million, and an additional settlement of $25.0 million to be paid at a later date, which was secured by a letter of credit. During the first quarter of fiscal year 2020, the Company paid the last $5.0 million related to the additional settlement of $25.0 million, which completed its remaining funding requirements.
The Company entered into a service agreement with SEG II to provide maintenance services for certain of these lease premises, provide limited bookkeeping services, and receives variable reimbursements and fees for the services provided. The Company has entered into a master sublease
Southeastern Grocers, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, unless otherwise stated)
10. Related-Party Transactions (Continued)
agreement with SEG II for certain of its operating locations for no additional rent. The Company has no significant additional obligations to SEG II other than under the foregoing agreements.
11. Commitments and Contingencies
Third Party Litigation Agreement
During the quarters ended July 10, 2019 and December 25, 2019, the Company entered into a third party litigation agreement and received $23.0 million and $10.0 million, respectively, which the Company recorded in "Other long-term liabilities" within the Condensed Consolidated Balance Sheets as of July 8, 2020. The Company is the plaintiff in various related litigation and is required to continue to pursue the active lawsuits that are subject to this agreement. The Company recognizes gain contingencies when claims are settled and amounts are known. As a result, the Company has determined that amounts received will be deferred until claims are settled and are therefore realized.
During the first quarter of fiscal year 2020, one of the claims was settled resulting in a net gain of $5.6 million realized within "Operating, general and administrative expenses" within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Legal Proceedings
From time to time, the Company is involved in various legal and administrative proceedings and claims arising in the normal course of business, including labor and employment, premises, product liability and general liability claims. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's consolidated financial statements.
In February 2020, Winn-Dixie and its affiliates became defendants in a Qui Tam action pending in Federal Court in Louisiana. The action was filed under seal by an unknown Relator and remains under seal. The action is brought under the False Claims Act and concerns allegations that Winn Dixie and its affiliates overcharged various federal agencies in connection with the sale of certain prescription drugs. Specifically, the Relator has alleged that Winn Dixie did not include lower prices offered to members of Winn Dixie's Prescription Drug Plan in their calculation of the usual and customary charges offered to the general public, and that the various agencies were entitled to the lower charges offered to plan members. Notably, summary Judgment has recently been entered in favor of similarly situated grocers based upon inadequate guidance provided in connection with discount prescription card programs that are virtually identical to the program offered by Winn Dixie. These cases have been dismissed pending potential appeal by the Relators and the United States Department of Justice. On September 30, 2020 the Company received a notice from the U.S. Department of Justice that they have declined to intervene in the qui tam lawsuit. Additionally, they advised that they do not have information regarding whether the relators intend to pursue the asserted claims on behalf of the United States or whether they will voluntarily dismiss the lawsuit. The Company is vigorously defending itself against this action. The Company does not consider the possible loss, if any, in connection with this matter to be material to its financial statements.
12. Subsequent Events
The Company evaluated transactions through October 1, 2020, the date at which the condensed consolidated financial statements were available to be issued, for subsequent events requiring recognition in or disclosure to the condensed consolidated financial statements as of July 8, 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Southeastern Grocers, LLC and Subsidiaries
Inc.
Jacksonville, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Southeastern Grocers, LLCInc. and its subsidiaries (the “Company”"Company") as of December 26, 201225, 2019 and December 31, 2011,26, 2018 (Successor Company balance sheets), the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows, for the year ended December 25, 2019 and the 30 week period ended December 26, 2018 (Successor Company operations), and the related consolidated statements of operations and comprehensive income (loss), changes in membership interests (deficiency),deficiency, and cash flows for eachthe 22 week period ended May 30, 2018 and the year ended December 27, 2017 (Predecessor Company operations), and the related notes and financial statement schedule (collectively referred to as the "financial statements"). In our opinion, the Successor Company financial statements present fairly, in all material respects, the financial position of the three fiscal yearsCompany as of December 25, 2019, and December 26, 2018 the results of its operations and its cash flows for the year ended December 25, 2019 and the 30 week period ended December 26, 2012. Our audits also included2018, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company financial statements present fairly, in all material respects, the results of its operations and its cash flows for the 22 week period ended May 30, 2018, and for the year ended December 27, 2017, in conformity with accounting principles generally accepted in the United States of America.
Fresh-Start Reporting
As discussed in Note 3 to the financial statement schedulesstatements, on May 14, 2018, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on May 31, 2018. Accordingly, the accompanying these consolidatedfinancial statements have been prepared in conformity with Financial Accounting Standards Board Accounting Standard Codification 852, Reorganizations, for the Successor Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 4 to the financial statements.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in fiscal year ended December 25, 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements and financial statement schedules are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company's financial statements and financial statement schedules based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Southeastern Grocers, LLC and its subsidiaries as of December 26, 2012 and December 31, 2011, and the results of their operations, and their cash flows for each of the three fiscal years ended December 26, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 4 to the consolidated financial statements, the Company filed for reorganization under Chapter 11 of the United States Bankruptcy Code on March 23, 2009. On April 30, 2010, the Bankruptcy Court entered its order confirming the Company’s Fourth Amended Plan of Reorganization, and the Company emerged from bankruptcy protection on May 12, 2010. The principal terms of the approved Plan of Reorganization are described more fully in Note 4 to the consolidated financial statements.
Also, as discussed in Note 18, the Company’s consolidated statement of operations and comprehensive income and consolidated statement of cash flows have been retrospectively adjusted for discontinued operations.
/s/ DeloitteDELOITTE & ToucheTOUCHE LLP
Certified Public Accountants
Jacksonville, Florida
August 18, 2020
September 25, 2013We have served as the Company's auditor since at least 2005; however, an earlier year could not be reliably determined.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended January 1, 2011, December 31, 2011,
Southeastern Grocers, Inc. and December 26, 2012
| 2010 | 2011 | (As retrospectively adjusted; see note 18) 2012 | ||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||
Net sales | $ | 2,641,071 | 2,779,237 | 8,632,861 | ||||||||
Cost of sales, including warehouse and delivery expense | 1,955,822 | 2,061,429 | 6,282,443 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 685,249 | 717,808 | 2,350,418 | |||||||||
Operating, general and administrative expenses | 616,156 | 621,629 | 2,136,317 | |||||||||
|
|
|
|
|
| |||||||
Income from operations | 69,093 | 96,179 | 214,101 | |||||||||
Interest expense | 62,390 | 85,897 | 76,867 | |||||||||
Reorganization gain | (4,195 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Income from continuing operations before income taxes | 10,898 | 10,282 | 137,234 | |||||||||
Income tax expense | 3,307 | 4,070 | 7,647 | |||||||||
|
|
|
|
|
| |||||||
Income from continuing operations | 7,591 | 6,212 | 129,587 | |||||||||
|
|
|
|
|
| |||||||
(Loss) income from discontinued operations (net of tax) | 7,453 | (560 | ) | (26,465 | ) | |||||||
|
|
|
|
|
| |||||||
Net income | 15,044 | 5,652 | 103,122 | |||||||||
|
|
|
|
|
| |||||||
Change in post-retirement benefit obligation* | — | — | (1,619 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 15,044 | 5,652 | 101,503 | ||||||||
|
|
|
|
|
| |||||||
Pro forma earnings per common share, basic and diluted (unaudited): | ||||||||||||
Income from continuing operations | $ | — | ||||||||||
(Loss) from discontinued operations (net of tax) | — | |||||||||||
|
| |||||||||||
Pro forma earnings per common share, basic and diluted | $ | — | ||||||||||
|
| |||||||||||
Adjusted pro forma earnings per common share, basic and diluted (unaudited): | ||||||||||||
Income from continuing operations | $ | — | ||||||||||
(Loss) from discontinued operations | — | |||||||||||
|
| |||||||||||
Adjusted pro forma earnings per common share, basic and diluted | $ | — | ||||||||||
|
| |||||||||||
See notes to Subsidiaries
Consolidated Financial Statements
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
| December 31, 2011 | December 26, 2012 | |||||||
| (Amounts in thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 57,927 | 56,425 | |||||
Accounts receivable, net | 40,491 | 119,540 | ||||||
Inventories | 198,810 | 883,620 | ||||||
Prepaid expenses and other current assets | 6,891 | 39,008 | ||||||
Deferred income taxes | 3,916 | — | ||||||
|
|
|
| |||||
Total current assets | 308,035 | 1,098,593 | ||||||
|
|
|
| |||||
Noncurrent assets: | ||||||||
Property and equipment, net | 331,631 | 599,332 | ||||||
Intangible assets, net | 141,984 | 445,482 | ||||||
Other long-term assets | 11,398 | 28,280 | ||||||
|
|
|
| |||||
Total noncurrent assets | 485,013 | 1,073,094 | ||||||
|
|
|
| |||||
Total assets | $ | 793,048 | 2,171,687 | |||||
|
|
|
| |||||
Liabilities and membership interests (deficiency) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 56,392 | 417,937 | |||||
Accrued payroll and related expenses | 36,136 | 123,358 | ||||||
Self-insurance liabilities | 11,630 | 83,760 | ||||||
Other accrued expenses | 62,367 | 204,567 | ||||||
Current maturities of obligations under capital leases | 14,681 | 29,072 | ||||||
Deferred income taxes | — | 3,622 | ||||||
|
|
|
| |||||
Total current liabilities | 181,206 | 862,316 | ||||||
|
|
|
| |||||
Noncurrent liabilities: | ||||||||
Senior secured notes | 285,000 | 430,945 | ||||||
Obligations under revolving credit facility | — | 225,000 | ||||||
Obligations under capital leases | 64,571 | 83,264 | ||||||
Other financing obligations | 234,483 | 220,099 | ||||||
Unfavorable leases | 24 | 68,329 | ||||||
Deferred income taxes | 24,152 | 32,868 | ||||||
Self-insurance liabilities | 11,983 | 119,234 | ||||||
Other long-term liabilities | 14,754 | 54,152 | ||||||
|
|
|
| |||||
Total noncurrent liabilities | 634,967 | 1,233,891 | ||||||
|
|
|
| |||||
Total liabilities | 816,173 | 2,096,207 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Membership interests (deficiency): | ||||||||
Membership interests | 74,000 | 71,102 | ||||||
Retained earnings (accumulated deficit) | (97,125 | ) | 5,997 | |||||
Accumulated other comprehensive loss | — | (1,619 | ) | |||||
|
|
|
| |||||
Total membership interests (deficiency) | (23,125 | ) | 75,480 | |||||
|
|
|
| |||||
Total liabilities and membership interests (deficiency) | $ | 793,048 | 2,171,687 | |||||
|
|
|
| |||||
See notes to Consolidated Financial Statements
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 1, 2011, December 31, 2011, of Operations and December 26, 2012
| 2010 | 2011 | (As retrospectively adjusted; see note 18) 2012 | ||||||||||
| (Amounts in thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 15,044 | 5,652 | 103,122 | ||||||||
(Loss) income from discontinued operations | 7,453 | (560 | ) | (26,465 | ) | |||||||
|
|
|
|
|
| |||||||
Income from continuing operations | 7,591 | 6,212 | 129,587 | |||||||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 64,231 | 53,781 | 98,094 | |||||||||
Amortization of deferred financing costs and discount | 4,237 | 1,737 | 3,817 | |||||||||
Write-off of deferred financing costs and term loan discount | — | 17,402 | 1,990 | |||||||||
Impairment expense | 1,628 | 1,756 | — | |||||||||
Gain on sale of property and equipment and lease terminations | (195 | ) | (190 | ) | (765 | ) | ||||||
Deferred income tax provision | 4,130 | 4,130 | 4,202 | |||||||||
Reorganization gain | (4,195 | ) | — | — | ||||||||
Changes in assets and liabilities providing (using) cash (net of acquired assets): | ||||||||||||
Accounts receivable | 10,962 | (3,862 | ) | (6,054 | ) | |||||||
Inventories | (2,120 | ) | (7,990 | ) | (10,384 | ) | ||||||
Prepaid expenses and other current assets | 3,261 | (1,229 | ) | (669 | ) | |||||||
Income taxes receivable/payable | (584 | ) | 1,131 | 2,970 | ||||||||
Other long-term assets | 971 | 116 | (572 | ) | ||||||||
Accounts payable | (6,956 | ) | 1,563 | 40,384 | ||||||||
Accrued payroll and related expenses | (2,482 | ) | 5,439 | (7,302 | ) | |||||||
Other accrued expenses | 8,327 | 9,838 | 22,622 | |||||||||
Other long-term liabilities | 996 | 60 | (260 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities before reorganization items | 89,802 | 89,894 | 277,660 | |||||||||
Cash effect of reorganization items | (65,700 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 24,102 | 89,894 | 277,660 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property and equipment | (17,873 | ) | (47,748 | ) | (140,887 | ) | ||||||
Proceeds from sale of property and equipment | 770 | 803 | 2,573 | |||||||||
Acquisition of Winn-Dixie, net of cash acquired of $142,621 | — | — | (416,663 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (17,103 | ) | (46,945 | ) | (554,977 | ) | ||||||
|
|
|
|
|
| |||||||
| (Continued | ) | |||||||||||
See notes to Consolidated Financial Statements
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 1, 2011, December 31, 2011, and December 26, 2012
| 2010 | 2011 | (As retrospectively adjusted; see note 18) 2012 | ||||||||||
| (Amounts in thousands) | ||||||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from Senior Secured Notes borrowing | $ | — | 285,000 | 146,300 | ||||||||
Proceeds from borrowings under March 2012 Revolving Credit Facility | — | — | 815,200 | |||||||||
Principal repayments under March 2012 Revolving Credit Facility | — | — | (590,200 | ) | ||||||||
Proceeds from borrowings under May 2010 Revolving Credit Facility | 1,757,924 | 118,190 | — | |||||||||
Principal repayments under May 2010 Revolving Credit Facility | (1,757,924 | ) | (118,190 | ) | — | |||||||
Proceeds from borrowings under DIP Credit Facility | 1,197,824 | — | — | |||||||||
Principal repayments under DIP Credit Facility | (1,228,870 | ) | — | — | ||||||||
Proceeds from May 2010 Term Loan | 194,000 | — | — | |||||||||
Principal repayments under March 2010 Term Loan | (7,500 | ) | (192,500 | ) | — | |||||||
Principal repayments under March 2007 Term Loan | (260,000 | ) | — | — | ||||||||
Capital contributions from Parent | 150,000 | — | 275,000 | |||||||||
Dividend payments to Parent | — | (76,000 | ) | (305,000 | ) | |||||||
Decrease in cash overdraft | (689 | ) | (1,576 | ) | — | |||||||
Payments on obligations under capital leases | (12,398 | ) | (13,612 | ) | (28,142 | ) | ||||||
Payments on other financing obligations | (7,180 | ) | (7,884 | ) | (9,067 | ) | ||||||
Deferred financing costs incurred | (15,132 | ) | (10,212 | ) | (21,882 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash provided by (used in) financing activities | 10,055 | (16,784 | ) | 282,209 | ||||||||
|
|
|
|
|
| |||||||
Net increase in cash and cash equivalents from continuing operations | 17,054 | 26,165 | 4,892 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from discontinued operations: | ||||||||||||
Operating activities—net cash used in operating activities | (16,079 | ) | (893 | ) | (6,394 | ) | ||||||
Investing activities—proceeds from sale of property and equipment | — | 510 | — | |||||||||
Financing activities—payments on obligations under capital leases | (117 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Net cash used in discontinued operations | (16,196 | ) | (383 | ) | (6,394 | ) | ||||||
|
|
|
|
|
| |||||||
Net (decrease) increase in cash and cash equivalents | 858 | 25,782 | (1,502 | ) | ||||||||
Cash and cash equivalents: | ||||||||||||
Beginning balance | 31,287 | 32,145 | 57,927 | |||||||||
|
|
|
|
|
| |||||||
Ending balance | $ | 32,145 | 57,927 | 56,425 | ||||||||
|
|
|
|
|
| |||||||
Supplemental cash flow information: | ||||||||||||
Cash paid for interest: | ||||||||||||
Capital lease interest—continuing operations | 11,601 | 10,693 | $ | 12,728 | ||||||||
Capital lease interest—discontinued operations | 266 | — | — | |||||||||
Other interest—continuing operations | 39,725 | 40,794 | 53,584 | |||||||||
Prepayment penalty—continuing operations | — | 5,775 | — | |||||||||
Adequate protection payments—continuing operations | 7,250 | — | — | |||||||||
Cash (paid) received for income taxes, net—continuing operations | 239 | 1,191 | (419 | ) | ||||||||
Noncash investing activity— | ||||||||||||
Property and equipment purchase accruals | 941 | 964 | 2,964 | |||||||||
Noncash financing activity— | ||||||||||||
Payment of discontinued operations legal settlement by Parent | — | — | 27,102 | |||||||||
Property and equipment acquired under capital leases | — | — | 5,315 | |||||||||
Original issue discount on May 2010 Term Loan | 6,000 | — | — | |||||||||
Adjustment of capital lease obligation and asset for change in lease term | 2,055 | — | — | |||||||||
Cancellation of membership interests in connection with the Plan of Reorganization | 90,614 | — | — | |||||||||
(Concluded)
See notes to Consolidated Financial Statements
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERSHIP INTERESTS (DEFICIENCY)
| Membership Interests | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Total Membership Interests (Deficiency) | |||||||||||||
| (Amounts in thousands) | ||||||||||||||||
Balance—January 2, 2010 | $ | 90,614 | (208,435 | ) | — | (117,821 | ) | |||||||||
Cancellation of membership interests in connection with the Plan of Reorganization | (90,614 | ) | 90,614 | — | — | |||||||||||
Capital contribution from Parent | 150,000 | — | — | 150,000 | ||||||||||||
Net income | — | 15,044 | — | 15,044 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance—January 1, 2011 | 150,000 | (102,777 | ) | — | 47,223 | |||||||||||
Dividend payment to Parent | (76,000 | ) | — | — | (76,000 | ) | ||||||||||
Net income | — | 5,652 | — | 5,652 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance—December 31, 2011 | 74,000 | (97,125 | ) | — | (23,125 | ) | ||||||||||
Net income | — | 103,122 | — | 103,122 | ||||||||||||
Change in post-retirement benefit obligation* | — | — | (1,619 | ) | (1,619 | ) | ||||||||||
Capital contribution from Parent | 275,000 | — | — | 275,000 | ||||||||||||
Capital contribution from Parent for legal settlement | 27,102 | — | — | 27,102 | ||||||||||||
Dividend payments to Parent | (305,000 | ) | — | — | (305,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance—December 26, 2012 | $ | 71,102 | 5,997 | (1,619 | ) | 75,480 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
See notes to Consolidated Financial Statements
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amountsComprehensive (Loss) Income
(Amounts in thousands, except per share data,data)
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | 30 Weeks Ended December 26, 2018 | | | | ||||||||||
| | | | 22 Weeks Ended May 30, 2018 | | |||||||||||
| | Fiscal 2019 | | Fiscal 2017 | ||||||||||||
Net sales | $ | 8,277,374 | $ | 4,829,732 | $ | 3,942,780 | $ | 9,875,104 | |||||||
Cost of sales, including warehouse and delivery expense | 6,117,224 | 3,586,009 | 2,914,222 | 7,278,280 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross profit | 2,160,150 | 1,243,723 | 1,028,558 | 2,596,824 | |||||||||||
Operating, general and administrative expenses | 2,195,046 | 1,313,863 | 1,024,666 | 2,638,828 | |||||||||||
| | | | | | | | | | | | | | | | |
(Loss) income from operations | (34,896 | ) | (70,140 | ) | 3,892 | (42,004 | ) | ||||||||
Interest expense | 82,339 | 64,497 | 50,988 | 135,083 | |||||||||||
Reorganization items, net | — | — | (792,260 | ) | — | ||||||||||
| | | | | | | | | | | | | | | | |
(Loss) income before income taxes | (117,235 | ) | (134,637 | ) | 745,164 | (177,087 | ) | ||||||||
Income tax benefit | (995 | ) | (48,274 | ) | (16,263 | ) | (38,301 | ) | |||||||
| | | | | | | | | | | | | | | | |
Net (loss) income | (116,240 | ) | (86,363 | ) | 761,427 | (138,786 | ) | ||||||||
Unrealized post-retirement benefit plan (loss) gain | (3,256 | ) | 353 | — | (1,653 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Comprehensive (loss) income | $ | (119,496 | ) | $ | (86,010 | ) | $ | 761,427 | $ | (140,439 | ) | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted-average common shares outstanding—Basic and diluted | 10,001 | 10,000 | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Basic and diluted loss per share | $ | (11.62 | ) | $ | (8.64 | ) | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements
Southeastern Grocers, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except par value and share data)
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 70,299 | $ | 44,512 | |||
Accounts receivable, net of allowance for doubtful receivables of $2,534 and $2,346 as of December 25, 2019 and December 26, 2018, respectively | 88,516 | 97,048 | |||||
Inventories | 518,944 | 518,966 | |||||
Prepaid expenses and other current assets | 31,143 | 35,918 | |||||
| | | | | | | | |
Total current assets | 708,902 | 696,444 | |||||
Noncurrent assets: | |||||||
Property and equipment, net | 534,798 | 935,123 | |||||
Operating lease assets | 834,415 | — | |||||
Finance lease assets | 51,945 | — | |||||
Intangible assets, net | 573,515 | 756,649 | |||||
Other long-term assets | 26,629 | 24,922 | |||||
| | | | | | | | |
Total noncurrent assets | 2,021,302 | 1,716,694 | |||||
| | | | | | | | |
Total assets | $ | 2,730,204 | $ | 2,413,138 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 325,776 | $ | 386,518 | |||
Accrued payroll and related expenses | 83,024 | 90,696 | |||||
Self-insurance liabilities | 54,794 | 57,910 | |||||
Current portion of long-term debt (Note 10) | 16,000 | 12,250 | |||||
Current maturities of obligations under operating leases | 141,371 | — | |||||
Current maturities of obligations under finance/capital leases | 6,465 | 6,076 | |||||
Other accrued expenses | 184,041 | 235,199 | |||||
| | | | | | | | |
Total current liabilities | 811,471 | 788,649 | |||||
Noncurrent liabilities: | |||||||
Long-term debt (Note 10) | 752,521 | 674,279 | |||||
Obligations under operating leases | 652,435 | — | |||||
Obligations under finance/capital leases | 49,715 | 56,057 | |||||
Other financing obligations | — | 261,766 | |||||
Unfavorable leases | — | 34,037 | |||||
Self-insurance liabilities | 159,867 | 164,950 | |||||
Deferred income taxes | 17,634 | 18,952 | |||||
Other long-term liabilities | 66,380 | 41,709 | |||||
| | | | | | | | |
Total noncurrent liabilities | 1,698,552 | 1,251,750 | |||||
| | | | | | | | |
Total liabilities | 2,510,023 | 2,040,399 | |||||
| | | | | | | | |
Commitments and contingencies (Note 22) | |||||||
Stockholders' equity: | |||||||
Common stock, $0.001 par value; 15,000,000 shares authorized; 10,001,908 shares issued and 10,001,145 shares outstanding, December 25, 2019; 10,000,000 shares issued and outstanding, December 26, 2018 | 10 | 10 | |||||
Additional paid-in-capital | 463,984 | 458,739 | |||||
Accumulated deficit | (240,910 | ) | (86,363 | ) | |||
Accumulated other comprehensive (loss) income | (2,903 | ) | 353 | ||||
| | | | | | | | |
Total stockholders' equity | 220,181 | 372,739 | |||||
| | | | | | | | |
Total liabilities and stockholders' equity | $ | 2,730,204 | $ | 2,413,138 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying notes to consolidated financial statements
Southeastern Grocers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | | ||||||||||
| | Fiscal 2019 | | Fiscal 2017 | ||||||||||||
| | | ||||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net (loss) income | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 213,699 | 146,337 | 68,045 | 180,297 | |||||||||||
Non-cash lease expense | 157,486 | — | — | — | |||||||||||
Amortization of deferred debt issuance costs, discount and premium | 7,886 | 4,550 | 2,268 | 6,794 | |||||||||||
Non- cash reorganization items, net | — | — | (811,604 | ) | — | ||||||||||
Gain on insurance settlement | (6,718 | ) | (173 | ) | (10,207 | ) | — | ||||||||
Impairment expense | 21,188 | — | 35,603 | 115,111 | |||||||||||
Loss (gain) on sale of assets and lease terminations | 10,319 | 3,457 | (31,980 | ) | (2,877 | ) | |||||||||
Deferred income tax benefit | (991 | ) | (48,282 | ) | (16,263 | ) | (38,316 | ) | |||||||
Paid-in-kind interest | — | — | 11,504 | 35,530 | |||||||||||
Payment on Global Settlement | (20,000 | ) | — | (5,316 | ) | — | |||||||||
Share-based compensation | 5,272 | 359 | — | — | |||||||||||
Changes in assets and liabilities: | |||||||||||||||
Accounts receivable | 4,161 | 6,492 | 18,542 | 13,829 | |||||||||||
Inventories | 22 | 16,653 | 104,165 | 3,941 | |||||||||||
Prepaid expenses and other current assets | 336 | 26,066 | (18,621 | ) | 184 | ||||||||||
Accounts payable | (60,472 | ) | 12,963 | 59,476 | (9,772 | ) | |||||||||
Accrued payroll and related expenses | (7,672 | ) | 20,049 | (18,396 | ) | 13,457 | |||||||||
Operating lease liabilities | (122,423 | ) | — | — | — | ||||||||||
Other accrued expenses and other long term assets/liabilities | (20,709 | ) | (11,957 | ) | (50,108 | ) | 35,179 | ||||||||
Self-insurance liabilities | (8,199 | ) | (176 | ) | (8,607 | ) | 1,720 | ||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | 56,945 | 89,975 | 89,928 | 216,291 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | |||||||||||||||
Purchases of long-lived assets | (164,651 | ) | (120,578 | ) | (50,429 | ) | (115,653 | ) | |||||||
Proceeds from sale of assets | 12,313 | 2,803 | 40,351 | 8,663 | |||||||||||
Increase in long-term deposits | — | — | (116 | ) | — | ||||||||||
Proceeds from note receivable and long-term deposits | 484 | 1,249 | 806 | 2,010 | |||||||||||
Proceeds from insurance | 10,606 | — | 5,472 | — | |||||||||||
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | (141,248 | ) | (116,526 | ) | (3,916 | ) | (104,980 | ) | |||||||
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | |||||||||||||||
Payments on senior notes borrowings | — | — | (425,000 | ) | — | ||||||||||
Gross borrowings on Predecessor credit facilities | — | — | 376,700 | 1,982,200 | |||||||||||
Gross payments on Predecessor credit facilities | — | — | (656,700 | ) | (2,042,200 | ) | |||||||||
Gross borrowings on Successor credit facilities | 2,399,900 | 2,315,000 | 170,000 | — | |||||||||||
Gross payments on Successor credit facilities | (2,311,900 | ) | (2,285,000 | ) | — | — | |||||||||
Proceeds from FILO Facility, net | — | — | 48,000 | — | |||||||||||
Proceeds from Term Loan, net | — | — | 456,000 | — | |||||||||||
Payments on FILO Facility | (7,500 | ) | (3,750 | ) | — | — | |||||||||
Payments on Term Loan | (4,750 | ) | (2,375 | ) | — | — | |||||||||
Payments on Global Settlement | — | — | (10,101 | ) | — | ||||||||||
Payments on obligations under finance leases | (6,081 | ) | — | — | — | ||||||||||
Payments on obligations under capital leases and other financing obligations | — | (6,854 | ) | (15,240 | ) | (33,692 | ) | ||||||||
Proceeds from financed agreements | 49,380 | — | — | — | |||||||||||
Payments on financed agreements | (10,083 | ) | — | — | — | ||||||||||
Debt issuance costs | — | — | (23,197 | ) | — | ||||||||||
Repurchase of common stock related to share-based awards | (27 | ) | — | — | — | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | 108,939 | 17,021 | (79,538 | ) | (93,692 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 24,636 | (9,530 | ) | 6,474 | 17,619 | ||||||||||
Cash, cash equivalents, and restricted cash, beginning balance | 47,852 | 57,382 | 50,908 | 33,289 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash, ending balance | $ | 72,488 | $ | 47,852 | $ | 57,382 | $ | 50,908 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements
Southeastern Grocers, Inc. and Subsidiaries
Consolidated Statements of Changes in Membership Deficiency (Predecessor)
(Amounts in thousands)
| | Membership Deficiency | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Membership Deficiency | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of December 28, 2016 (Predecessor) | $ | (534,695 | ) | $ | (77,345 | ) | $ | 1,736 | $ | (610,304 | ) | ||
Net loss | — | (138,786 | ) | — | (138,786 | ) | |||||||
Unrealized post-retirement benefit plan loss | — | — | (1,653 | ) | (1,653 | ) | |||||||
| | | | | | | | | | | | | | |
Balance as of December 27, 2017 (Predecessor) | (534,695 | ) | (216,131 | ) | 83 | (750,743 | ) | ||||||
Net income | — | 761,427 | — | 761,427 | |||||||||
| | | | | | | | | | | | | | |
Balance as of May 30, 2018 (Predecessor) | (534,695 | ) | 545,296 | 83 | 10,684 | ||||||||
Cancellation of Predecessor membership interests | 534,695 | (545,296 | ) | (83 | ) | (10,684 | ) | ||||||
| | | | | | | | | | | | | | |
Balance as of May 30, 2018 (Predecessor) | $ | — | $ | — | $ | — | $ | — | |||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Consolidated Statements of Stockholders' Equity (Successor)
(Amounts in thousands, except share amounts)
| | Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Issuance of Successor common stock and warrants | 10,000,000 | $ | 10 | $ | 458,380 | $ | — | $ | — | $ | 458,390 | ||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of May 30, 2018 (Successor) | 10,000,000 | 10 | 458,380 | — | — | 458,390 | |||||||||||||
Net loss | — | — | — | (86,363 | ) | — | (86,363 | ) | |||||||||||
Share-based compensation | — | — | 359 | — | — | 359 | |||||||||||||
Unrealized post-retirement benefit plan gain | — | — | — | — | 353 | 353 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 26, 2018 (Successor) | 10,000,000 | 10 | 458,739 | (86,363 | ) | 353 | 372,739 | ||||||||||||
Adoption of ASU 2016-02 related to leases | — | — | — | (38,307 | ) | — | (38,307 | ) | |||||||||||
Net loss | — | — | — | (116,240 | ) | — | (116,240 | ) | |||||||||||
Share-based compensation | — | — | 5,272 | — | — | 5,272 | |||||||||||||
Issuance of common stock related to share-based awards | 1,908 | — | — | — | — | — | |||||||||||||
Repurchase of common stock related to share-based awards | (763 | ) | — | (27 | ) | — | — | (27 | ) | ||||||||||
Unrealized post-retirement benefit plan loss | — | — | — | — | (3,256 | ) | (3,256 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 25, 2019 (Successor) | 10,001,145 | $ | 10 | $ | 463,984 | $ | (240,910 | ) | $ | (2,903 | ) | $ | 220,181 | ||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, unless otherwise statedstated)
1. Summary of Significant Accounting Policies and Other Matters
The Company: Southeastern Grocers, LLC,Inc., and its subsidiaries, (collectively the "Company") operates as a regional food retailer in the Southeastern United States through, BI-LO Holding, LLC whose principal operating subsidiary is BI-LO, LLC (together the “Company” or “BI-LO”). As discussed in Note 2, on March 9, 2012, BI-LO Holding, LLC, acquired all of the common stock of Winn-Dixie Stores, Inc. (“Winn-Dixie”).
States. As of December 26, 2012, Southeastern Grocers, LLC25, 2019, the Company operated 689547 supermarkets in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina and Tennessee under the “Winn-Dixie”"Winn-Dixie",“BI-LO” "BI-LO", “Super BI-LO” and “BI-LO "Super BI-LO", "BI-LO at the Beach”Beach", "Harveys", and "Fresco y Más" supermarket banners. Of these stores, 290 have in-store pharmacies and 138 have liquor stores. In addition, the Company has one centralized specialty pharmacy. The Company's headquarters are based in Jacksonville, Florida.
On March 27, 2018 (the "Petition Date"), Southeastern Grocers, LLC (formerly named LSF5 Grocery Holdings, LLC) is a wholly owned subsidiaryand 26 of LSF5 BI-LO Holdings, LLC (“Parent”its subsidiaries (collectively, the "Debtors") who is wholly owned by Lone Star Fund V (U.S.), L.P., LSF V International Finance, L.P., and their affiliates (“Lone Star”filed voluntary petitions for reorganization under chapter 11 of the federal bankruptcy laws ("Chapter 11" or “Ultimate Parent”).
On August 12, 2013, LSF5 Grocery Holdings, LLC was renamed to Southeastern Grocery Holdings, LLC. On September 23, 2013, Southeastern Grocery Holdings, LLC was renamed to Southeastern Grocers, LLC to be the parent filer to a newly formed holding company, BI-LO Holding Finance, LLC, (“Holding Finance”"Bankruptcy Code") which operates through its subsidiary, BI-LO Holding, LLC. BI-LO Holding Finance, LLC was formed on June 5, 2013,in the United States Bankruptcy Court for the purposeDistrict of issuing senior unsecured notes as further described as a subsequent event in note 19.
Delaware (the "Bankruptcy Court"). On April 25, 2018, the Debtors filed the BasisAmended Joint Prepackaged Chapter 11 Plan of Consolidation: The Consolidated Financial Statements include the assets, liabilities, results of operations, and cash flowsReorganization of Southeastern Grocers, LLC and its subsidiaries,Its Affiliated Debtors (the "Prepackaged Plan"). On May 14, 2018, the Bankruptcy Court entered an order confirming the Prepackaged Plan with respect to all Debtors other than Winn-Dixie Warehouse Leasing, LLC ("Warehouse Leasing"). The confirmation of the Prepackaged Plan with respect to Warehouse Leasing was adjourned to provide Warehouse Leasing additional time to resolve certain lease disputes in the Bankruptcy Court. The Prepackaged Plan became effective with respect to all Debtors other than Warehouse Leasing on May 31, 2018 (the "Effective Date") when all conditions to the effectiveness of the Prepackaged Plan were satisfied or waived.
On May 30, 2018, the Company converted from a limited liability company to a corporation. As a result, all of which are fully consolidated. Intercompanythe Company's membership interests were canceled and new equity interests were issued in the form of common stock.
On September 14, 2018, the Bankruptcy Court entered a final decree closing the chapter 11 cases of all of the Debtors other than Southeastern Grocers, LLC, Samson Merger Sub, LLC, Winn-Dixie Stores Leasing, LLC, and Winn-Dixie Warehouse Leasing, LLC. Subsequently, on March 15, 2019, the Bankruptcy Court entered a final decree closing the chapter 11 cases of Winn-Dixie Stores Leasing, LLC and Samson Merger Sub, LLC. On May 30, 2019, the Bankruptcy Court entered an order confirming the Prepackaged Plan with respect to Warehouse Leasing. On the same date, the Prepackaged Plan became effective for Warehouse Leasing. On September 6, 2019, the Bankruptcy Court entered a final decree closing the chapter 11 cases of Southeastern Grocers, LLC and Warehouse Leasing. Refer to Footnote 3, Proceedings Under Chapter 11 of the Bankruptcy Code, for additional details.
Basis of Consolidation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and include the accounts of Southeastern Grocers, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Upon emergence from bankruptcy, the Company elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of the Company's accounting week. Refer to Footnote 4, Fresh Start Accounting, for additional information on the selection of this date. Upon adoption of fresh start accounting, the Successor adopted the significant accounting policies of the Predecessor. As a result of the application of fresh start accounting, as well as the effects of the
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
implementation of the Prepackaged Plan, a new entity for financial reporting purposes was created, and as such, the consolidated financial statements on or after May 31, 2018 are not comparable with the consolidated financial statements prior to that date.
References to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Company subsequent to May 30, 2018. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operation of the Company on and prior to May 30, 2018.
Fiscal Year: Beginning in fiscal 2012, the Company’s fiscal year ends The Company reports its year-end financial position, results of operations and cash flows on the last Wednesday in December. Prior toThe last three fiscal 2012,years consisted of the Company’s fiscal year52-week period ended on the Saturday closest to December 31.25, 2019, December 26, 2018, and December 27, 2017.
Business Reporting Segments: The three day changeCompany operates supermarkets in the Company’s fiscal 2012 year was not significant to its financial condition, results ofSoutheastern United States. These retail operations or cash flows. Fiscal 2010 and fiscal 2011 were each comprised of 52 weeks ended January 1, 2011, and December 31, 2011, respectively. Fiscal 2012 was comprised of 52 weeks ended December 26, 2012, as previously described.
Business Reporting Segments: The Company’s retail stores account for substantially all of its net sales. These stores are located in a limited geographic area,sales and is the southeast region ofonly reportable segment. The Company aggregates its operating regions into one reportable segment due to the United States. Each retail store contains substantiallyoperating regions being geographically based, having similar economic characteristics, and similar long-term financial performance. In addition, the operating regions offer the same selling departmentsgeneral mix of products with similar pricing to similar categories of customers, have similar distribution methods, operates in similar regulatory environments and sells substantiallypurchases merchandise from similar or the same products within those departments. Accordingly,vendors. Each operating region constitutes a business for which discrete financial information is available and for which management regularly reviews the Company has determined thatoperating results. The geographical separation is the primary differentiation between these retail operating regions. The geographical basis of organization reflects how the business is managed and how the Company's Chief Executive Officer, who acts as its chief operating segments aggregate as one reporting segment.decision maker, assesses performance internally.
The following table provides detail on the percentage of net sales by product category for each groupthe fiscal years 2019, 2018, and 2017 were as follows:
| | 2019 | 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Non-perishable(1) | 59.7 | % | 60.3 | % | 60.7 | % | ||||
Perishable(2) | 31.4 | % | 31.1 | % | 30.6 | % | ||||
Pharmacy | 8.1 | % | 7.8 | % | 7.8 | % | ||||
Other(3) | 0.8 | % | 0.8 | % | 0.9 | % | ||||
| | | | | | | | | | | |
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 2010 | 2011 | 2012 | ||||||||||
Non-perishable(1) | 64.0 | % | 63.9 | % | 61.6 | % | ||||||
Perishable(2) | 28.1 | % | 28.3 | % | 29.8 | % | ||||||
Pharmacy | 7.3 | % | 7.2 | % | 7.9 | % | ||||||
Other(3) | 0.6 | % | 0.6 | % | 0.7 | % | ||||||
|
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|
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| |||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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| |||||||
and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product packaging, and fees related to customer money transfers).
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
Southeastern Grocers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
Estimates: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”)U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. The Company cannot determine future events and their effects with certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. The Company periodically reviews these significant factors and makes adjustments when appropriate. Actual results could differ from those estimates.
Cash and cash equivalents:Cash includesEquivalents: Cash consists of on-hand balances, demand deposits, and in-transit amounts from debit, credit, and electronic benefit transactions. Cash equivalents consist of highly liquid investments with an original or remaining maturity of 90 days or less when purchased. Cash and cash equivalents are stated at cost plus accrued interest, which approximates fair value.the date of purchase. As of December 25, 2019 and December 26, 2012,2018, cash and cash equivalents consisted of $55,925 cash in the amount of $70.3 million and $500$44.5 million, respectively, with no cash equivalents as of United States government obligations money market funds.the same dates.
Restricted Cash: The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that total to the same such amounts shown in the Consolidated Statements of Cash Flows:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||
Cash | $ | 70,299 | $ | 44,512 | |||
Restricted cash included in other long-term assets | 2,189 | 3,340 | |||||
| | | | | | | | |
Cash, cash equivalents, and restricted cash, ending balance | $ | 72,488 | $ | 47,852 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of December 31, 2011, cash25, 2019 and cash equivalents consisted of $57,927 cash. The Company was not in a cash overdraft position as of December 26, 2012, and December 31, 2011.2018, the Company's restricted cash represents cash required to be on deposit under the Global Settlement (as defined in Footnote 3, Proceedings Under Chapter 11 of the Bankruptcy Code).
Accounts Receivable, Net of Allowance for Doubtful Accounts:Receivable: Accounts receivable net of allowance for doubtful accounts consist primarily of amounts due from vendorsto the Company related to vendor allowances and pharmacy billings from third-party insurance companies for pharmacy billings less an allowance for doubtful receivables. The allowance for doubtful receivables is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. On a quarterly basis, the Company evaluates its accounts receivable and establishesmaintains an allowance for doubtful receivables for estimated credit losses based on its history of past write-offscertain factors, such as historical collection and collections, andwrite-off experience, current credit conditions.conditions, and the aging of accounts receivable. No interest is accrued on past due receivables. Refer to Footnote 6, Accounts Receivable, for additional information related to the Company's accounts receivable.
Inventories: Inventories are stated at the lower of cost or market. Asand net realizable value. The cost of December 26, 2012, and December 31, 2011,non-perishable inventory is determined using the retail inventory method, (currentunder which the current cost of inventories is calculated by applying a cost-to-retail ratio to the current retail value of inventories)inventories. Pharmacy and perishable inventory is used to determinevalued at the last purchased cost, for grocery and general merchandise inventory, thewhich approximates first-in, first-out (“FIFO”("FIFO") method is used to determine cost for pharmacy inventory and thecost. The weighted-average cost method is used to determine the cost for freshinventory
Southeastern Grocers, Inc. and warehouse inventory.Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
held at the warehouse and the inventory received from the warehouse in the Company's retail locations.
The Company recognizes inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages from the date of the physical count to the balance sheet date.
Inventory shortages are included in "Cost of sales, including warehouse and delivery expense" within the SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESConsolidated Statements of Operations and Comprehensive (Loss) Income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Property and Equipment:Equipment, Net: Property and equipment is stated at historical cost or fair valuenet of accumulated depreciation and amortization. As a result of fresh start accounting, property and equipment was revalued and the estimated lives were reset as of May 30, 2018. Refer to Footnote 4, Fresh Start Accounting, for additional information. Property and equipment purchased subsequent to May 30, 2018, is stated at date of acquisition,historical cost less accumulated depreciation and amortization. Cost includes expenditures that are directly attributable to the acquisition of the item. Interest incurred during construction iscosts on significant projects constructed for the Company's own use are capitalized as part of the costs of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related asset. Capitalizedaccumulated depreciation are removed from the balance sheet and any gain or loss is reflected in "Cost of sales, including warehouse and delivery expense" and "Operating, general and administrative expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. There was no capitalization of interest of $536 was recordedon construction projects during fiscal 2012years 2019, 2018, and none was capitalized during fiscal 2011.2017.
Depreciation and amortization is calculated on thea straight-line basis over the estimated useful lives of the related asset. Real propertyassets. Property and equipment leased under capital leases is amortized over the terms of the respective leases or their economic useful lives, whichever is shorter. The adoption of ASU 2016-02, Leases (Topic 842) ("ASU 2016-02") resulted in a change in naming convention of leases historically classified as capital leases. Refer to Footnote 2, New Accounting Pronouncements, for additional information. The estimated useful lives of the principal asset categories are as follows:
Asset | Estimated Useful Life | ||||
|---|---|---|---|---|---|
Buildings and land improvements | |||||
Leasehold improvements | Lesser of 15 years or the term of the lease, | ||||
Furniture, | 3 to 10 years | ||||
|
The Company periodically evaluates the period of depreciation or amortization for long-lived assets, which include property and equipment and intangible assets with finite lives, to determine whether current circumstances warrant revised estimates of useful lives.
Intangible Assets:Assets, Net: Intangible assets consist primarily of favorable leases, pharmacy prescription files, favorable leases, software, liquor licenses, tradenames and trademarks and naming rights for the BI-LO Center (a sports and entertainment arena located in Greenville, South Carolina).trade names. As a result of fresh start accounting, intangible assets were revalued as of May 30, 2018. Intangible assets related to favorable leases are lease agreements with contract rates below market value rates.rates that are assumed or entered into in connection with a business combination. Amortization of favorable leases is recognized over the lesser of 15 years or the term of the lease including renewal options notlease. Amortization expense related to exceed 15 years andfavorable leases is recognized as an increase in rent expense within operating,"Cost of sales, including warehouse and delivery expense" and
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
"Operating, general and administrative expenses.expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. As a result of the adoption of ASU 2016-02, favorable leases are included in the measurement of the new lease assets. Refer to Footnote 2, New Accounting Pronouncements, for additional information. Other intangible assets with finite lives are amortized on a straight-line basis over the estimated useful lives of the assets, which range from five to eightseven years. Liquor licenses tradenames and trademarkstrade names have indefinite lives and are not amortized.
Impairment:The Company periodically evaluates the period of depreciation or amortization for long-lived assets, which include property, plant and equipment and intangible assets with finite lives, to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the Company’sCompany's best estimate of the net undiscounted cash flows expected to result from the use and eventual disposition of the asset. If this comparison indicates that there is impairment, an impairment loss is recorded for the excess of net book value over the fair value of the impaired asset. Fair value is estimated based on the best information available, including prices for similar assets and the results of other valuation techniques.
Intangible assets with indefinite lives are not amortized, but are instead reviewed for impairment annually during the fourth quarter, or more frequently if events or circumstances indicate that the asset may be impaired.
Vendor Allowances: The Company receives allowances or rebates from certain vendors in the form of promotional allowances, quantity discounts, payments under merchandising agreements and other allowances that relate to new item introductions, slotting fees, placement of the vendors' products in premier locations within the stores, and temporary price reductions offered to customers. The allowances reduce cost of sales if the product has been sold, and reduce ending inventory if the product has not yet been sold.
Promotional allowances received in advance are deferred and reported in "Other accrued expenses" and "Other long-term liabilities" within the Consolidated Balance Sheets until earned. Promotional allowances are recognized based on the terms of the underlying agreements, which require either specific performance or time-based merchandising of vendor products. Accordingly, the Company recognizes allowances when it meets the performance criteria or on the expiration of the agreement. Quantity discounts and payments under merchandising agreements are recognized when specified purchase or sales volume levels are achieved and are typically not received in advance. The amounts due the Company under such agreements are reported in "Accounts receivable, net of allowance for doubtful receivables" within the Consolidated Balance Sheets.
Closed Lease Liabilities: As a result of the adoption of ASU 2016-02, closed lease liabilities related to lease obligations are included in the measurement of the operating lease assets. Refer to Footnote 2, New Accounting Pronouncements, for additional information.
Prior to the adoption of ASU 2016-02, the Company recorded a closed lease liability associated with locations that are no longer being utilized in current operations. In determining the fair value of closed lease liabilities as of their cease-use date, the Company used a discount rate based on a credit-adjusted risk-free rate to calculate the present value of expected payments over the remaining lease terms, net of estimated sublease income. Expected payments included, among others, non-cancelable
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
lease payments, real estate taxes, common area maintenance charges and utility costs. As a result of fresh start accounting, closed lease liabilities were revalued as of May 30, 2018. Refer to Footnote 4, Fresh Start Accounting, for additional information.
The Company estimated future cash flows, including sublease income, based on the Company's experience and knowledge of the market in which the closed property is located. The Company also used third-parties, such as real-estate brokers, when necessary. Adjustments to closed lease liabilities primarily related to changes in associated costs and sublease income. All adjustments were recorded in the period in which the changes become known. Lease payments for operating leases included in the closed lease reserve were paid over the remaining terms of the respective leases.
Prior to the adoption of ASU 2016-02, current and long-term portions of the closed lease liabilities were recorded in "Other accrued expenses" and "Other long-term liabilities," respectively, within the Consolidated Balance Sheets. Expenses related to closed lease liabilities were recognized as a component of "Operating, general and administrative expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income Expense amounts also included the accretion of the present value of the expected future rental payments and any adjustments to underlying assumptions for previously closed stores.
Variable Interest Entity: The Company considers for consolidation an entity, in which the Company has certain interests, where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity ("VIE"), is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it.
As of December 25, 2019 and December 26, 2018, the Company possessed a variable interest in SEG II (as defined in Footnote 3, Proceedings Under Chapter 11 of the Bankruptcy Code). As the Company does not have the power to significantly impact its economic performance, the Company is not required to consolidate this entity. See Footnote 20, Investment in Unconsolidated Variable Interest Entity, for additional information.
As of December 26, 2018, the Company possessed variable interests in certain leased properties. As the Company had the power to direct the activities that most significantly impacted the economic performance of these properties, the Company was considered to be the primary beneficiary of the VIEs. See Footnote 10, Debt, for additional information.
As a result of fresh start accounting, the VIEs were revalued as of May 30, 2018. Refer to Footnote 4, Fresh Start Accounting, for additional information.
Fair Value Measurements: Fair value for certain of the Company's assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
transaction between market participants at the measurement date. In determining fair value, a three level hierarchy for inputs is used by the Company. Those levels are:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2: Observable inputs other than prices included in level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates the fair value due to their short-term nature. The fair value of the Company's 2018 Revolving Credit Facility, FILO Facility, and Senior Secured Term Loan (as defined in Footnote 10, Debt) is determined based on estimated current market prices applied to the debt outstanding, thus falling within level 2 of the fair value hierarchy. Refer to Footnote 10, Debt, for additional information related to the Company's debt instruments. Intangible assets and fixed assets are measured at fair value on a non-recurring basis, that is, the assets are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment. These measures of fair value, and related inputs, are considered Level 3 measures under the fair value hierarchy. See Footnote 4, Fresh Start Accounting, for further description of the fair value used for Fresh Start reporting purposes.
Sales: The Company recognizes revenue from retail sales at the point of sale when control of the product is transferred to the customer. Sales are recorded net of discounts and exclude any sales tax. Discounts provided to customers by vendors, usually in the form of coupons, are not recognized as a reduction in sales, provided the coupons are redeemable at any retailer that accepts coupons. The Company recognizes revenue and records a corresponding receivable from the vendor for the difference between the sales prices and the cash received from the customer.
Loyalty Program: The Company's loyalty program, SEG Rewards, allows members to earn points on purchases that may be redeemed for future purchases at any of the Company's stores or for discounts on fuel at participating fuel centers. The Company defers revenue associated with the estimated standalone selling price of points earned by our program members as each point is earned, and a corresponding liability is established within "Other accrued expenses" on the Consolidated Balance Sheets. The estimated standalone selling price of each point earned is based on the estimated value of the product for which the reward is expected to be redeemed, net of points the Company does not expect to be redeemed, based on historical redemption patterns. Points expire at the end of the calendar year following the year of issuance.
When a customer redeems an earned reward or when the points expire, the Company recognizes revenue for the redeemed product or the value of points which expired and reduces the
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
related loyalty program liability. The Company had accrued contract liabilities related to the points of $8.2 million and $22.9 million as of December 25, 2019 and December 26, 2018, respectively, which are included within "Other accrued expenses" on the Consolidated Balance Sheets. During fiscal year 2019, the Company recognized an out-of-period favorable adjustment to revenue (and corresponding contract liability) related to its updated estimate of amounts expected to expire of $9.4 million.
Prior to fiscal year 2018, the Company's loyalty program was a component of "Cost of sales, including warehouse and delivery expense" on the Consolidated Statements of Operations and Comprehensive (Loss) Income.
Gift Cards: The Company does not recognize revenue when it sells its own gift cards. Rather, it records a deferred revenue liability equal to the amount received. Revenue is then recognized when the gift cards are redeemed to purchase the Company's products. The Company's gift cards do not expire. The Company had accrued contract liabilities related to gift cards of $6.5 million and $6.8 million as of December 25, 2019 and December 26, 2018, respectively, which is included in "Other accrued expenses" on the Consolidated Balance Sheets. Revenue for the unused portion of gift cards was insignificant for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018 and fiscal year 2017.
Cost of Sales: Cost of sales includes the cost of inventory sold during the period (net of discounts and vendor allowances), inventory shortages, and purchasing, transportation and warehousing costs as well as depreciation and amortization related to transportation and warehouses. The Company's primary supplier of inventory is C&S Wholesale Grocers, Inc. Refer to Footnote 21, Supply Agreement, for additional information.
Advertising Costs: The Company expenses the costs of advertising and promotions as incurred and reports these costs in "Operating, general and administrative expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. Advertising and promotional expense totaled $74.9 million, $53.6 million, $39.4 million, and $115.3 million for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017, respectively.
Unfavorable Leases: Unfavorable leases are lease agreements with contract rates in excess of market value rates.rates that are assumed or entered into in connection with a business combination. As a result of fresh start accounting, unfavorable leases were revalued as of May 30, 2018. Refer to Footnote 4, Fresh Start Accounting, for additional information. Amortization is recognized on a straight-line basis over the non-cancelable existing lease term. Amortization is recognized as a reduction in rent expense within operating,in "Cost of sales, including warehouse and delivery expense" and "Operating, general and administrative expenses.expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. As a result of the adoption of ASU 2016-02, unfavorable leases are included in the measurement of new lease assets. Refer to Footnote 2, New Accounting Pronouncements, for additional information.
Self-Insurance: The Company self-insureshas a self-funded program for certain insurable risks, primarily workers’workers' compensation, business interruptions, general liability, automobile liability, and property losses, as well as employee medical benefits. Insurance coverage is obtained for catastrophic property and
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
casualty exposures, as well as risks that require insurance by law or contract. Liabilities are determined by management using certain actuarial assumptions and management judgments regarding claim reporting and settlement patterns, judicial decisions, legislation and economic conditions, and include both a liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. When applicable, anticipated recoveries are recorded inbased on management's best estimate of amounts due from insurance providers within the
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Consolidated Statements of Operations and Comprehensive (Loss) Income and in the same lines in which the losses are recorded, and are based on management’s best estimate of amounts due from insurance providers.recorded. Unanticipated changes in thesethe aforementioned factors may materially affect the Consolidated Financial Statements.
consolidated financial statements.
Facility Opening and Closing Costs: The costs of both opening new facilities and closing existing facilities are charged to operations as incurred.
Sale-Leaseback Transactions: The Company occasionally entersentered into sale-leaseback arrangements where the Company sellssold properties and simultaneously leasesleased them back from the purchaser. In the event these transactions arewere based on fair value and substantially all risks and rewards of ownership arewere transferred to the buyer-lessor, the transactions arewere accounted for as a sale-leaseback, whereby the property that iswas sold iswas removed from the books and the associated lease iswas accounted for according to ASCin accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 840, “Leases”Leases ("ASC 840"). Any gaingains on the transaction issuch transactions were deferred and amortized over the term of the lease andwhile any loss islosses were recognized immediately. If the transactions dodid not qualify for sale-leaseback accounting, they arewere recorded as a financing transaction andwhereby the Company reportsreported the sales proceeds as a liability and continuescontinued to report the property as an asset subject to depreciation. Refer to Footnote 10, Debt ("Other Financing Obligations"), for additional information. As a result of ASU 2016-02, all financing obligations and related assets were derecognized. Refer to Footnote 2, New Accounting Pronouncements, for additional information.
Deferred Rent: The Company recognizes rent holidays, including the period that it has access to a property for construction of buildings or improvements, as well as construction allowances and escalating rent provisions, on a straight-line basis over the term of the lease.
Facility Opening and Closing Costs: The costs As a result of both opening new facilities and closing existing facilities are charged to operations as incurred. The Company accrues for obligations related to closed facilities, atASU 2016-02, deferred rent is included in the cease-use date, based upon the present value of expected payments over the remaining lease terms, net of estimated sublease income, using a discount rate based on a credit-adjusted risk-free rate. Expected payments include lease payments, real estate taxes, common area maintenance charges and utility costs. The Company estimates sublease income and future cash flows based on the Company’s experience and knowledgemeasurement of the market in which the closed property is located. Adjustmentsnew lease assets. Refer to closed facility liabilities relate primarily to changes in sublease income and changes in costs. All adjustments are recorded in the period in which the changes become known. Closed store obligations are paid over the remaining lease terms.Footnote 2,
Revenue Recognition: The Company recognizes revenue at the time of saleNew Accounting Pronouncements, for retail sales. In the Consolidated Statements of Operations and Comprehensive Income, “net sales” are reported net of sales taxes and similar taxes.
Sales discounts may be offered to customers at the time of sale as part of the Company’s Customer Reward Card program, as well as other promotional events. All sales discounts are recorded as a reduction of sales at the time of sale.
In addition, the Company periodically offers awards to customers in the form of sales discounts to be used on a future purchase, based on an accumulation of points as part of its Customer Reward Card program. The obligation related to the award of a future sales discount is recognized as a reduction of sales, based on a systematic and rational allocation of the cost of the award earned and claimed to each of the underlying revenue transactions that result in progress by the customer toward earning the award.
Cost of Sales: Cost of sales includes the cost of inventory sold during the period, net of discounts and vendor allowances; purchasing costs; transportation costs, including inbound freight and internal transfer costs; warehousing costs, including receiving and inspection costs; depreciation and amortization related to transportation and warehouses; and other costs of the Company’s distribution network.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESadditional information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Vendor Allowances: The Company receives allowances or rebates from certain vendors in the form of promotional allowances, quantity discounts, payments under merchandising agreements and other allowances that relate to new item introductions, slotting fees, placement of the vendors’ products in premier locations within the stores, and temporary price reductions offered to customers. The allowances reduce cost of sales if the product has been sold, and reduce ending inventory if the product has not yet been sold.
Promotional allowances are recognized based on the terms of the underlying agreements, which require either specific performance or time-based merchandising of vendor products. Thus, the Company recognizes allowances when it meets the performance criteria or on the expiration of the agreement. Promotional allowances received in advance that are contractually refundable, in whole or in part, are deferred and reported in accounts payable and other liabilities until earned. Quantity discounts and payments under merchandising agreements are recognized when specified purchase or sales volume levels are achieved and are typically not received in advance. The amounts due the Company under such agreements are reported in trade and other receivables.
Advertising Costs: The Company expenses the costs of advertising and promotions as incurred and reports these costs in operating, general and administrative expenses. Advertising and promotional expense totaled $86,692, $26,208 and $27,813, for 2012, 2011 and 2010, respectively.
Income Taxes: The Company recognizes deferred tax assets and liabilities for estimated future tax consequences that are attributable to differences between the financial statement basesbasis of assets and liabilities and their respective tax bases.basis.
Deferred tax assets and liabilities are measured using the enacted tax rates for the year in which those temporary differences are expected to be recovered or settled. The Company maintains a valuation allowance onValuation allowances are established when necessary to reduce deferred tax assets until management determinesto the amount that there is sufficient positive evidence to conclude that it iswill more likely than not that such deferred tax assets will be realized. The Company adjustsRefer to Footnote 12, Income Taxes, for additional information regarding the valuation allowance againstand the Company's evaluation of its net deferred tax assets based upon its assessment of the likelihood of realization of such assets in the future; such adjustments may be material. Although the Company believes that the estimates and judgments used to prepare its various tax returns are reasonable and appropriate, such returns are subject to audit by the respective tax authorities.position.
The Company classifies interest expense related to income tax uncertainties as a component of interest expense. Any related penalties are included in operating,"Operating, general and administrative expenses.
Comprehensive Income: Comprehensive income differs from net income as shown onexpenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. There were no uncertain tax positions or penalties during fiscal years 2019, 2018, and 2017.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
1. Summary of Significant Accounting Policies and Other Matters (Continued)
Comprehensive (Loss) Income: As shown on the Consolidated Statements of Operations and Comprehensive (Loss) Income, "Comprehensive (loss) income" differs from "Net (loss) income" due to changes in the post-retirement benefit obligation. These items are excluded from operations and are instead recorded to accumulated other comprehensive loss,as a component of changes"Total Stockholders' Equity" in membership interests (deficiency)"Accumulated other comprehensive (loss) income" within the Consolidated Balance Sheets.
2. New Accounting Pronouncements
Recently Adopted Accounting Guidance
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company adopted the standard in fiscal year 2018 using the modified retrospective approach that uses the adoption date of the requirements as the application date and, therefore, did not restate comparative periods. This adoption resulted in $58.4 million, $36.8 million, and $17.3 million related to the Company's loyalty program and certain pharmacy fees to be included in "Net sales" in the Consolidated Statements of Operations and Comprehensive (Loss) Income for fiscal year 2019, the 30 weeks ended December 26, 2018, and the 22 weeks ended May 30, 2018, respectively. Prior to the adoption of this standard these costs were included in "Cost of sales, including warehouse and delivery expense." There was no impact of "Net (loss) income", the Consolidated Balance Sheets, and the Consolidated Statements of Cash Flows.
Reclassifications: Certain prior year amounts, principallyIn February 2016, the classificationFASB issued ASU 2016-02. The new guidance was issued to increase transparency and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements. The Company adopted the standard as of self-insurance reserves and non-qualified sale-leaseback obligations, have been reclassifiedDecember 27, 2018, the first day of fiscal 2019. The Company transitioned to conform toASU 2016-02 by applying the current year’s presentation.
2. Acquisition of Winn-Dixie Stores, Inc.
On March 9, 2012, BI-LO completedmodified retrospective transition approach that uses the acquisition of all outstanding shares of Winn-Dixie stock and Winn-Dixie became a wholly owned subsidiary of BI-LO. Under the termsadoption date of the acquisition agreement, each issuedrequirements as the application date and, outstanding sharetherefore, did not restate comparative periods. The Company elected the package of common stockpractical expedients permitted under the transition guidance within the new standard, which among other things, permits companies not to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company also has elected the practical expedient to not separate its lease and nonlease components for its real estate leases and will account for such components as a single lease component. The Company did not elect the hindsight practical expedient or the short-term lease exception.
The adoption of Winn-Dixie was converted into the right to receive $9.50 per sharestandard resulted in cash for an aggregate cash considerationthe recognition of $559,284. Founded in 1925, Winn-Dixie is a grocery retailer which,operating lease assets and liabilities of approximately $900.2 million and $816.9 million, respectively, based on the lease portfolio as of the acquisition date, operated 482 retail locations including approximately 378 in-store pharmacies and employed approximately 46,000 people. Winn-Dixie operatesDecember 27, 2018. Included in the southeastern states including Florida, Alabama, Louisiana, Georgiameasurement of the new lease assets is the reclassification of balances historically recorded as prepaid and Mississippi.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
With no overlap in markets between BI-LOdeferred rent, favorable and Winn-Dixie,unfavorable leases, unearned lease incentives, and closed lease liabilities. The Company recognized a cumulative effect adjustment, which increased the combined company has a geographic fit that creates a stronger platform from which to provide our customers the products and service that they have come to expect. Both BI-LO and Winn-Dixie are strong regional brands, and the Company will continue to operate under both brand names in their respective markets. The acquired Winn-Dixie stores contain substantially the same selling departments, sell substantially the same products within those departments and are substantially the same size as the BI-LO stores. No BI-LO or Winn-Dixie stores were closedaccumulated deficit by $38.3 million, net of tax, as a result of the merger.
In connection withadoption of this standard. This adjustment was driven by the acquisition, the Company entered into a new $700,000 senior secured, asset-based revolving credit facility as further described in Note 9. The purchase price was funded principally by a $275,000 equity contribution from Lone Starderecognition of lease obligations and a $260,000 draw on the March 2012 Revolving Credit Facility. The remaining purchase price and acquisition-related costs were funded from cash on hand.
The fair value estimate of assets acquired and liabilities assumed and the allocation of the purchase price to the net assets acquired hasrelated to leases that had been determined by management withclassified as financing lease obligations under the assistanceformer failed-sale lease back guidance under ASC 840. This reclassification also resulted in the recognition of independent valuation specialists. The determination of the assets acquiredlease expense which
Southeastern Grocers, Inc. and liabilities assumed was based on the established fair value of the assets acquired and the liabilities assumed as of the acquisition date. The stock acquisition generated no adjustments to the original tax reporting values of the assets held by Winn-Dixie on the date of the acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.
Net assets acquired and liabilities assumed:
| (amounts in thousands) | As of March 9, 2012 | |||
Current assets | ||||
Accounts receivable | $ | 75,965 | ||
Inventories | 674,426 | |||
Prepaid expenses and other current assets | 31,497 | |||
Deferred income taxes—current | 6,598 | |||
Noncurrent assets | ||||
Property and equipment | 221,241 | |||
Intangible assets | 316,318 | |||
Other long-term assets | 590 | |||
Current liabilities | ||||
Accounts payable | 321,161 | |||
Accrued payroll and related expenses | 94,524 | |||
Self-insurance liabilities—current | 75,770 | |||
Other accrued expenses | 111,710 | |||
Current maturities of obligations under capital leases | 14,874 | |||
Noncurrent liabilities | ||||
Obligations under capital leases—noncurrent | 41,107 | |||
Unfavorable leases | 78,380 | |||
Deferred income taxes—noncurrent | 18,650 | |||
Self-insurance liabilities—noncurrent | 115,247 | |||
Other long-term liabilities | 38,549 | |||
|
| |||
Total allocated purchase price, net of cash acquired of $ 142,621 | $ | 416,663 | ||
|
| |||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
2. New Accounting Pronouncements (Continued)
was previously reported as interest expense under the former failed sale-leaseback guidance. The accounting policiesadjustment to accumulated deficit was also impacted by closed lease adjustments.
The adoption of this standard also resulted in a change in naming convention for leases classified historically as capital leases. These leases are now referred to as finance leases.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU 2016-15"). The amendments of this update provide guidance for cash flow presentation of specific transactions including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and proceeds from the settlement of insurance claims, among others. The Company adopted this standard in fiscal year 2018 using the retrospective transition method for each period presented. This adoption resulted in the retroactive reclassification of $13.5 million of proceeds received for inventory from cash flows from investing activities to cash flows from operating activities in the Company's Consolidated Statements of Cash Flows for the 22 weeks ended May 30, 2018.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted this standard in fiscal year 2018 using the retrospective transaction method for each period presented. This adoption resulted in the retroactive decrease of $15.9 million for the 22 weeks ended May 30, 2018 and a retroactive increase of $12.6 million for the 30 weeks ended December 26, 2018 to "Net cash used in investing activities."
Recently Issued Accounting Guidance
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). The amendments in this update provide optional guidance related to the acquired assetschanges in contracts, hedging relationships, and assumed liabilities of Winn-Dixie subsequentother transactions affected by reference rate reform. This update only applies to the acquisition are similarmodifications made prior to those used historically by BI-LO. Additional information on certain assets acquired and liabilities assumed as of the March 9, 2012, acquisition date follows:
Inventories include $475,409 of retail store inventories and $199,017 of warehouse inventories.
Property and equipment consist of the following:
| As of March 9, 2012 | ||||
Land and buildings | $ | 71,561 | ||
Store equipment | 83,312 | |||
Warehouse equipment | 4,615 | |||
Administrative equipment | 2,529 | |||
Leasehold improvements | 51,128 | |||
Capital leases | 8,096 | |||
|
| |||
Total | $ | 221,241 | ||
|
| |||
Intangible assets consist of the following:
| As of March 9, 2012 | Weighted average remaining amortization period (years) | |||||||
Favorable leases | $ | 142,655 | 13 | |||||
Pharmacy prescription files | 132,921 | 7 | ||||||
Trademark and tradenames | 22,979 | NA | ||||||
Liquor licenses | 12,485 | NA | ||||||
Software | 5,278 | 2 | ||||||
|
| |||||||
Total | $ | 316,318 | ||||||
|
| |||||||
Accounts payable are primarily amounts owed to vendors under normal business terms, of which approximately 50% relate to warehouse inventories.
Winn-Dixie self-insures its workers’ compensation, general liability, automobile liability, and employee medical coverage up to a set retention level, beyond which excess insurance coverage is maintained. Liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. The fair value of these liabilities assumed include $77,929 for workers’ compensation claims, $100,651 for general liability claims, $2,177 for automobile claims and $10,260 for group medical claims.
Winn-Dixie had net sales of $5,821,560 and net income of $103,448 for the period March 10, 2012, through December 26, 2012, which is included31, 2022. No such modifications occurred in the Condensed Consolidated Statementfirst two quarters of Operationsfiscal year 2020. The Company will evaluate the impact of this update if and Comprehensive Income for fiscal 2012. If the acquisition of Winn-Dixie occurred on January 13, 2011, revenue would have been $9,735,616 and $9,737,181 for fiscal 2012 and fiscal 2011, respectively, and net income would have been $126,848 and $93,347 for fiscal 2012 and fiscal 2011, respectively.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESwhen it is applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
3. Merger and Integration
On March 12, 2012, the Company announced the relocation of its headquarters to Jacksonville, Florida. In connection with the headquarters relocation and organizational restructuring, the Company is recognizing severance costs related to the displacement of certain employees, is paying certain employees bonuses to retain their services until their functions are transferred to the new headquarters, and is recognizing costs associated with relocating certain employees to its new headquarters. All such employee termination costs are classified as operating, general and administrative expenses either when incurred (i.e., relocation) or, in the case of retention benefits, over the period benefited. Severance cost is being recognized in the period that management communicates the plan of termination and the termination benefits. Management estimates that such severance, retention and relocation benefits will cost up to $41,000.
In addition, professional fees, travel and other costs related to the organizational restructuring are estimated to cost up to $49,000. These costs are expected to be recognized as incurred primarily in fiscal 2012 and the first half of fiscal 2013 but will continue through the remainder of fiscal 2013.
The following table reflects changes in merger and integration accruals during fiscal 2012.
| Professional Fees | Employee Termination Costs | Other Costs | Total | |||||||||||||
Balance as of Dec. 31, 2011 | $ | — | — | — | — | |||||||||||
Expense | 33,376 | 24,664 | 1,873 | 59,913 | ||||||||||||
Payments | 30,891 | 10,360 | 1,844 | 43,095 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of Dec. 26, 2012 | $ | 2,485 | 14,304 | 29 | 16,818 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Included in merger and integration expense is approximately $19,300 in acquisition related costs classified as operating, general and administrative expenses.
Accruals for professional fees and employee termination costs are included in other accrued expenses and accrued payroll and related expenses, respectively, in the Consolidated Balance Sheet at December 26, 2012.
4. Proceedings Under Chapter 11 of the United States Bankruptcy Code
Emergence from Chapter 11 Reorganization
On March 23, 200927, 2018 (the “Petition Date”"Petition Date"), BI-LO Holding, LLC, BI-LO,Southeastern Grocers, LLC and each26 of their then respectiveits subsidiaries (collectively, the “Debtors”"Debtors") filed voluntary petitions for reorganization under Chapterchapter 11 of the United States Bankruptcy Code (“federal bankruptcy laws ("Chapter 11”11" or “Bankruptcy Code”the "Bankruptcy Code") in the United States Bankruptcy Court for the District of South CarolinaDelaware (the “Court”"Bankruptcy Court"). On April 30, 2010,25, 2018, the Debtors filed the Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Southeastern Grocers, LLC and Its Affiliated Debtors (the "Prepackaged Plan"). On May 14, 2018, the Bankruptcy Court entered itsan order confirming the Debtor’s proposed Fourth AmendedPrepackaged Plan with respect to all Debtors other than Winn-Dixie Warehouse Leasing, LLC ("Warehouse Leasing"). The confirmation of Reorganization (“the Prepackaged Plan with respect to
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
3. Proceedings Under Chapter 11 of Reorganization”the Bankruptcy Code (Continued)
Warehouse Leasing was adjourned to provide Warehouse Leasing additional time to resolve certain lease disputes in the Bankruptcy Court.
The Prepackaged Plan became effective with respect to all Debtors other than Warehouse Leasing on May 31, 2018 (the "Effective Date"), and when all conditions to the effectiveness of the Prepackaged Plan were satisfied or waived.
On September 14, 2018, the Bankruptcy Court entered a final decree closing the chapter 11 cases of all of the Debtors emerged from bankruptcy protectionother than Southeastern Grocers, LLC, Samson Merger Sub, LLC, Winn-Dixie Stores Leasing, LLC, and Winn-Dixie Warehouse Leasing, LLC. Subsequently, on March 15, 2019, the Bankruptcy Court entered a final decree closing the chapter 11 cases of Winn-Dixie Stores Leasing, LLC and Samson Merger Sub, LLC. On May 12, 2010.30, 2019, the Bankruptcy Court entered an order confirming the Prepackaged Plan with respect to Warehouse Leasing. On the same date, the Prepackaged Plan became effective for Warehouse Leasing. On September 6, 2019, the Bankruptcy Court entered a final decree closing the chapter 11 cases of Southeastern Grocers, LLC and Warehouse Leasing.
Key elements ofOn the Company’s Plan of Reorganization included:Effective Date, the Company:
The Company
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
3. Proceedings Under Chapter 11 of the Bankruptcy Code (Continued)
On the Effective Date, all of the following agreements, and all outstanding interest and obligations thereunder, were terminated:
The foregoing is a summary of the substantive provisions of the Prepackaged Plan and the transactions related to and contemplated thereunder and is not intended to be a complete description of, or a substitute for, a full and complete reading of the Prepackaged Plan and the other documents referred to above. Refer to Footnote 15, Restructuring Activities for further discussion related to the Company's Operational Restructuring (as defined in Footnote 15) which contemplated, among other things, a store reduction plan to sell or close underperforming stores.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
3. Proceedings Under Chapter 11 of the Bankruptcy Code (Continued)
Reorganization Items, net
A summary of reorganization items, net reported in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the 22 weeks ended May 30, 2018 are presented in the following table:
| | Predecessor | |||
|---|---|---|---|---|
| | 22 Weeks Ended May 30, 2018 | |||
Debt issuance costs and debt discount related to PIK Toggle Notes | $ | 1,638 | ||
Debt issuance costs and debt premium related to Senior Secured Notes | 496 | |||
Debt issuance costs related to 2014 Revolving Credit Facility | 2,587 | |||
Fresh Start Adjustment (Note 4) | (752,546 | ) | ||
Gain on debt extinguishment (Note 4) | (74,245 | ) | ||
Gain related to the Global Settlement (Note 4) | (2,948 | ) | ||
Lease adjustments | 10,245 | |||
Professional fees | 20,478 | |||
U.S. Trustee fees | 2,035 | |||
| | | | | |
Reorganization items, net | $ | (792,260 | ) | |
| | | | | |
| | | | | |
| | | | | |
Cash effect of reorganization items, net: | ||||
Lease adjustments | $ | 11,658 | ||
Professional fees | 7,197 | |||
U.S. Trustee fees | 489 | |||
| | | | | |
Cash effect of reorganization items, net | $ | 19,344 | ||
| | | | | |
| | | | | |
| | | | | |
4. Fresh Start Accounting
In connection with the Company's emergence from chapter 11 on the Effective Date, the Company applied the provisions of fresh start accounting, pursuant to Accounting Standards Codification 852 ("ASC 852"), "Reorganization", to the consolidated financial statements. Under ASC 852, fresh start accounting is required upon emergence from chapter 11 if (i) the reorganization value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all postpetition liabilities and allowed claims and (ii) holders of existing voting membership interests immediately before confirmation receive less than 50% of the voting shares of the emerging entity. Although the Company emerged from bankruptcy on May 31, 2018, the Company elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated, and management concluded that the use of an accounting convenience date of May 30, 2018 did not have a material impact on the results of operations or financial position.
The implementation of the Prepackaged Plan and the application of fresh start accounting materially changed the carrying amounts and classifications reported in the consolidated financial statements and resulted in a new entity for financial reporting purposes. As a result, the Successor
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Fresh Start Accounting (Continued)
Company's financial statements after May 30, 2018 are not comparable with the Predecessor Company's financial statements on and prior to May 30, 2018.
Fresh start accounting reflects the value of the Successor Company as determined in the confirmed Prepackaged Plan. Under fresh start accounting, asset values are remeasured and allocated based on their respective fair values in conformity with the purchase method of accounting for business combinations in Accounting Standards Codification 805 ("ASC 805"), "Business Combinations". See Note 9.Liabilities existing as of the Effective Date, other than deferred taxes, were recorded at fair value determined at appropriate risk adjusted interest rates. Deferred taxes were determined in conformity with applicable income tax accounting standards. Adopting fresh start accounting results in a new financial reporting entity with no beginning retained earnings or deficit.
Reorganization value represents the fair value of the Successor Company's assets before considering liabilities. In the disclosure statement associated with the Prepackaged Plan, confirmed by the Bankruptcy Court, the range of enterprise values was estimated to be between $1.32 billion and $1.60 billion, with a midpoint of $1.46 billion. The Company deemed it appropriate to use the midpoint between the low end and high end of the range to determine the final enterprise value of $1.46 billion utilized for fresh start accounting.
The estimated enterprise value and the equity value were highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the Prepackaged Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding revenue growth, operating expenses, the amount and timing of capital expenditures and the discount rate utilized.
The following table reconciles the enterprise value to the stockholders' equity of the Successor Company, as of the Effective Date:
| | May 30, 2018 | |||
|---|---|---|---|---|
Enterprise Value | $ | 1,460,000 | ||
Fair value of Term Loan, FILO Facility, and 2018 Revolving Credit Facility | (679,250 | ) | ||
Fair value of capital leases and other financing obligations | (203,360 | ) | ||
Fair value of other obligations | (119,000 | ) | ||
| | | | | |
Stockholders' equity of Successor Company | $ | 458,390 | ||
| | | | | |
| | | | | |
| | | | | |
Pursuant to fresh start accounting, the Company allocated the determined reorganization value to the Successor Company's assets at emergence as follows:
| | May 30, 2018 | |||
|---|---|---|---|---|
Enterprise value | $ | 1,460,000 | ||
Other liabilities(1) | 1,064,345 | |||
| | | | | |
Reorganization value | $ | 2,524,345 | ||
| | | | | |
| | | | | |
| | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Fresh Start Accounting (Continued)
The following table presents the implementation of the Prepackaged Plan and adoption of fresh start accounting as of May 30, 2018. The "Reorganization Adjustments" have been recorded within the Consolidated Balance Sheets to reflect the effects of the Prepackaged Plan. The "Fresh Start Adjustments" reflect the estimated fair value adjustments as a result of fresh start accounting.
| | Predecessor Company | Reorganization Adjustments | | Fresh Start Adjustments | | Successor Company | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||
Current assets: | |||||||||||||||||
Cash and cash equivalents | $ | 195,623 | $ | (154,175 | ) | A | $ | — | $ | 41,448 | |||||||
Accounts receivable, net | 92,398 | — | 8,477 | K | 100,875 | ||||||||||||
Inventories | 535,619 | — | — | 535,619 | |||||||||||||
Prepaid expenses and other current assets | 56,207 | 18,222 | B,C | (594 | ) | L | 73,835 | ||||||||||
| | | | | | | | | | | | | | | | | | |
Total current assets | 879,847 | (135,953 | ) | 7,883 | 751,777 | ||||||||||||
Noncurrent assets: | |||||||||||||||||
Property and equipment, net | 642,056 | (12,914 | ) | C | 325,524 | M | 954,666 | ||||||||||
Goodwill | 17,600 | — | (17,600 | ) | N | — | |||||||||||
Intangible assets, net | 247,455 | — | 544,825 | N | 792,280 | ||||||||||||
Other long-term assets | 15,876 | 9,746 | C,D | — | 25,622 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Total noncurrent assets | 922,987 | (3,168 | ) | 852,749 | 1,772,568 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Total assets | $ | 1,802,834 | $ | (139,121 | ) | $ | 860,632 | $ | 2,524,345 | ||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity (membership deficiency) | |||||||||||||||||
Current liabilities: | |||||||||||||||||
Accounts payable | $ | 388,539 | $ | (3,403 | ) | E | $ | — | $ | 385,136 | |||||||
Accrued payroll and related expenses | 70,647 | — | — | 70,647 | |||||||||||||
Self-insurance liabilities | 72,171 | — | — | 72,171 | |||||||||||||
Current portion of long-term debt | 728,504 | (717,441 | ) | F | — | 11,063 | |||||||||||
Current maturities of obligations under capital leases | 8,358 | (303 | ) | C | (2,393 | ) | L | 5,662 | |||||||||
Other accrued expenses | 295,368 | 6,106 | C,F,G,H | (42,025 | ) | L,O | 259,449 | ||||||||||
| | | | | | | | | | | | | | | | | | |
Total current liabilities | 1,563,587 | (715,041 | ) | (44,418 | ) | 804,128 | |||||||||||
| | | | | | | | | | | | | | | | | | |
Noncurrent liabilities: | |||||||||||||||||
Long-term debt | — | 647,991 | F | — | 647,991 | ||||||||||||
Obligations under capital leases | 59,714 | (1,036 | ) | C | 271 | L | 58,949 | ||||||||||
Other financing obligations | 235,437 | (37,719 | ) | C | 60,744 | L | 258,462 | ||||||||||
Unfavorable leases | 6,397 | — | 31,282 | L | 37,679 | ||||||||||||
Self-insurance liabilities | 150,865 | — | — | 150,865 | |||||||||||||
Deferred income taxes | 7,216 | — | 60,018 | P | 67,234 | ||||||||||||
Other long-term liabilities | 40,375 | — | 272 | L,O,Q | 40,647 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Total noncurrent liabilities | 500,004 | 609,236 | 152,587 | 1,261,827 | |||||||||||||
| | | | | | | | | | | | | | | | | | |
Total liabilities not subject to compromise | 2,063,591 | (105,805 | ) | 108,169 | 2,065,955 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Liabilities subject to compromise | 546,940 | (546,940 | ) | H | — | — | |||||||||||
| | | | | | | | | | | | | | | | | | |
Total liabilities | 2,610,531 | (652,745 | ) | 108,169 | 2,065,955 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Stockholders' equity (membership deficiency): | |||||||||||||||||
Membership (deficiency) interests | (534,695 | ) | 534,695 | I | — | — | |||||||||||
Common stock | — | 10 | H | — | 10 | ||||||||||||
Additional paid-in-capital | — | 458,380 | H,I | — | 458,380 | ||||||||||||
(Accumulated deficit) retained earnings | (273,085 | ) | (479,461 | ) | J | 752,546 | R | — | |||||||||
Accumulated other comprehensive income | 83 | — | (83 | ) | R | — | |||||||||||
| | | | | | | | | | | | | | | | | | |
Total stockholders' equity (membership deficiency) | (807,697 | ) | 513,624 | 752,463 | 458,390 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders' equity (membership deficiency) | $ | 1,802,834 | $ | (139,121 | ) | $ | 860,632 | $ | 2,524,345 | ||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Fresh Start Accounting (Continued)
Reorganization Adjustments:
A. The cash payments and receipts recorded on the Effective Date from the implementation of the Prepackaged Plan include the following (in thousands):
| | | |||
|---|---|---|---|---|
Sources: | ||||
Amounts borrowed under Exit Facilities | $ | 695,000 | ||
Less debt issuance costs and discount on Exit Facilities | (40,475 | ) | ||
Receipt of utility adequate assurance deposit | 1,294 | |||
| | | | | |
Total sources | 655,819 | |||
| | | | | |
Uses: | ||||
Payment of Predecessor Senior Secured Notes and accrued interest | (436,575 | ) | ||
Payment of Predecessor Revolving Credit Facility and accrued interest | (306,851 | ) | ||
Payment of 502(b)(6) claims | (23,551 | ) | ||
Payment of SEG II Global Settlement | (15,417 | ) | ||
Payment of professional fees | (12,749 | ) | ||
Professional fees in escrow | (11,851 | ) | ||
Payment related to amended supply agreement | (3,000 | ) | ||
| | | | | |
Total uses | (809,994 | ) | ||
| | | | | |
Total net uses | $ | (154,175 | ) | |
| | | | | |
| | | | | |
| | | | | |
B. Reclassifies $11.9 million to a professional fee escrow for professional fee claims related to the bankruptcy, $3.0 million to a prepaid account related to the amended supply agreement, and $1.3 million from an escrow account to cash for the utility adequate assurance deposit. The remaining $4.6 million adjustment relates to the Global Settlement (see note C).
C. Pursuant to the Prepackaged Plan, the Company entered into the Global Settlement which formed a special purpose entity, SEG II, which received certain leases from the Company as well as an initial settlement payment of $15.4 million and an additional settlement of $25.0 million to be paid at a later date, which is secured by a letter of credit. The Company has no significant additional obligation to SEG II other than the two settlement payments. The adjustments reflect eliminating assets and lease obligations related to these leases and establishing the initial funding and future settlement payment for the Global Settlement.
D. Represents $8.2 million of debt issuance costs incurred on the Successor Revolving Credit Facility, extinguishment of $2.6 million of debt issuance costs on the Predecessor 2014 Revolving Credit Facility and $4.1 million escrow funds related to the Global Settlement (see note C).
E. Represents $3.4 million payment from accounts payable for professional fees.
F. Adjustment reflects the extinguishment of $304.0 million Predecessor 2014 Revolving Credit Facility plus accrued interest of $2.9 million and $424.5 million Predecessor Senior Secured Notes plus accrued interest of $11.6 million, inclusive of debt premium and net of debt issuance costs, with proceeds from the issuance of the Exit Facilities of $170.0 million Successor Revolving Credit
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Fresh Start Accounting (Continued)
Facility, $46.7 million FILO Facility, net of debt issuance costs and discount, and $442.3 million Successor Senior Secured Term Loan, net of debt issuance costs and discount.
G. Adjustment reflects a net $2.7 million increase for professional fees.
H. The adjustment to liabilities subject to compromise relates to the extinguishment of the $522.03 million PIK Toggle Notes, which was considered an allowed unsecured notes claim, comprised of the outstanding debt obligation of $520.57 million and accrued interest of $1.46 million, and $24.91 million allowed claim on rejected leases. The notes claim received a settlement of new term loan agreement for $200,000. See Note 9.
Administrativecommon stock and the allowed claims and priority claimson rejected leases were paid in full, as required bywith $23.55 million paid on the Bankruptcy Code, unless otherwise agreed byEffective Date and $1.36 million reclassified to accrued expenses.
I. Pursuant to the Prepackaged Plan, the Company's membership interests were canceled and the former holders thereof received warrants. The adjustment eliminated the Predecessor membership interests of $534.7 million and recorded warrants with a fair value of $10.6 million. The warrants are valued at $20.14 per share using the Black-Scholes valuation model. Significant assumptions used in determining the fair value of such claims.warrants at issuance included an assumed dividend yield of 0.0%, share price volatility of 52.0% and a risk-free rate of return of 2.6% with a 5 year term.
J. This adjustment reflects the net effect of the transaction related to the consummation of the Prepackaged Plan on Predecessor's accumulated deficit. The unsecured creditors, have been or will be paid protable below provides a summary of the adjustments to accumulated deficit as it pertains to the Plan:
| | | |||
|---|---|---|---|---|
Liabilities subject to compromise eliminated: | ||||
PIK Toggle Notes claim | $ | 522,034 | ||
Rejected lease claim | 24,906 | |||
| | | | | |
Total liabilities subject to compromise eliminated | 546,940 | |||
Consideration given: | ||||
Issuance of new common stock | (447,789 | ) | ||
Lease claim payment and accrual | (24,906 | ) | ||
| | | | | |
Gain on debt extinguishment | 74,245 | |||
| | | | | |
Other adjustments to accumulated deficit: | ||||
Elimination of debt issuance costs and debt premium on extinguished debt | (3,083 | ) | ||
Professional fees | (8,275 | ) | ||
Gain related to the Global Settlement | 2,948 | |||
| | | | | |
Total other adjustments to accumulated deficit | (8,410 | ) | ||
Extinguishment of Predecessor membership | (534,695 | ) | ||
Issuance of warrants | (10,601 | ) | ||
| | | | | |
Total adjustment to accumulated deficit | $ | (479,461 | ) | |
| | | | | |
| | | | | |
| | | | | |
Fresh Start Accounting Adjustments:
K. The adjustment reflects an $8.5 million favorable adjustment to current receivables.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
4. Fresh Start Accounting (Continued)
|
HoldersL. As prescribed in ASC 805, lease arrangements are recognized at fair value as of the Company’s outstanding membership interests received no distributions,Effective Date based on third party independent appraisals. This adjustment reflects the elimination of Predecessor straight-line rent and unearned lease incentives and establishes the membership interests were cancelled (recognized as a reduction of $90,614 in membership interests and accumulated deficit). In exchange for $150,000, LSF5 Grocery Holdings, LLC and its permitted assignees or designees purchased from BI-LO Holding, LLC 100%Successor fair value of the issued and outstanding equity interests in the reorganized BI-LO Holding, LLC.
In connection with the emergence from bankruptcy, the Company assumed a number ofcapital lease obligations, unfavorable leases, and other executory contracts and made cure payments for amounts past due (if any) on these contracts.
The Company also entered into a Second Amended and Restated BI-LO LLC Supply Agreement, which has been further amended with C&S Wholesale Grocers, Inc. (“C&S”) (see Note 14).
Reorganization items are summarized as follows for the fiscal year ended January 1, 2011:
Professional fees | $ | 16,871 | ||
Creditors’ Committee fees | 4,220 | |||
Lease rejection expense | 4,734 | |||
Gain on lease rejections and assignments | (15,954 | ) | ||
Gain on discharge of pre-petition liabilities and other, net | (14,066 | ) | ||
|
| |||
Reorganization gain | $ | (4,195 | ) | |
|
|
Professional fees include financial, legal, and real estate services directly associated with the bankruptcy filing and reorganization process. Creditors’ Committee fees represent legal andfinancing obligations, other fees paid on behalf of the Creditors’ Committee. Lease rejection expense includes seven rejected store leases, of which, six were closed subsequent to the Petition Date. Gain on lease rejections and assignments primarily related to a reduction in future lease obligations, and resultclosed lease liability using the income approach. The following summarizes the adjustments:
Adjustment to prepaid expenses and other current assets to eliminate straight-line rent | $ | (594 | ) | |
Adjustment to current maturities of obligations under capital lease | (2,393 | ) | ||
Adjustment to obligations under capital leases | 271 | |||
Adjustment to unfavorable leases, long-term | 31,282 | |||
Adjustment to other financing obligations, long-term | 60,744 | |||
Eliminate straight-line rent and unearned lease incentives | (44,309 | ) | ||
Adjustment to closed lease liability | 183 | |||
Adjustment to other financing obligations | (3,343 | ) | ||
Adjustment to other lease obligation | 4,348 | |||
Adjustment to unfavorable leases | 6,069 | |||
| | | | | |
Total adjustments to other accrued expenses | (37,052 | ) | ||
| | | | | |
Eliminate unearned lease incentives | (2,135 | ) | ||
Adjustment to other lease obligation | 4,447 | |||
Adjustment to closed lease liability | 1,227 | |||
| | | | | |
Total adjustments to other long-term liabilities | $ | 3,539 | ||
| | | | | |
M. An adjustment of $325.5 million was recorded to adjust the net book value of property and equipment to fair value. The Company obtained third party independent appraisals to assist in the recognitiondetermination of noncash gainsthe fair values of property and losses. Gainequipment. The property and equipment appraisal included an analysis of recent comparable sales and offerings of land parcels in each of the subject's markets. Fair value estimates were based on dischargethe following valuation methods:
N. Adjustment eliminated the balance of pre-petition liabilitiesgoodwill and other net results primarily fromunamortized intangible assets of the difference betweenPredecessor Company and records the amountfair value of unsecured pre-petition liabilities recorded onidentifiable intangible assets of $792.3 million, determined as follows: trade names of $364.7 million were valued using the Company’s booksincome approach,
Southeastern Grocers, Inc. and the $40,000 paid to the previously described Trust in settlement of such claims.
See Note 13 for a discussion of reorganization items that are a component of income (loss) from discontinued operations in fiscal 2010.
Net cash paid (received) for reorganization items is summarized as follows for the fiscal year ended January 1, 2011:
Professional fees | $ | 20,026 | ||
Creditors’ Committee fees | 6,035 | |||
Net cash received to dispose of assets at lease rejection stores | (361 | ) | ||
Contribution to Trust | 40,000 | |||
|
| |||
Cash effect of reorganization items | $ | 65,700 | ||
|
|
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
4. Fresh Start Accounting (Continued)
specifically the relief from royalty method, pharmacy relationships of $210.0 million using the market approach, liquor licenses of $29.4 million using the market approach, favorable leases of $153.9 million using the income approach, internal software of $20.5 million using the cost approach, and software and other intangibles of $13.8 million at net book value, which approximated market as the assets had been recently purchased.
O. Reflects a reduction of $4.4 million related to short-term unearned vendor incentive and $2.0 million related to long-term unearned vendor incentive.
P. Represents the net increase in deferred tax liabilities associated with adjustments for fresh start accounting.
Q. The adjustment reflects a decrease of $1.3 million to the post-retirement obligations.
R. The Predecessor Company's accumulated deficit and accumulated other comprehensive other income is eliminated in conjunction with the adoption of fresh start accounting. The Predecessor Company recognized a $752.5 million gain related to the fresh start accounting adjustments as follows:
Elimination of Predecessor Company's goodwill | $ | 17,600 | ||
Establishment of Successor Company's other intangible assets | (792,280 | ) | ||
Elimination of Predecessor Company's other intangible assets | 247,455 | |||
Property and equipment adjustments, net | (325,524 | ) | ||
Capital, financing, and other lease adjustments, net | 19,634 | |||
Unfavorable lease adjustments, net | 37,351 | |||
Other fair value adjustments, net | 43,218 | |||
| | | | | |
Gain on fresh start accounting adjustments | $ | (752,546 | ) | |
| | | | | |
| | | | | |
| | | | | |
5. Loss Per Share
Net (loss) earnings per basic common share equals net (loss) earnings divided by the weighted average number of common shares outstanding. Net (loss) earnings per diluted common share equals net (loss) earnings divided by the weighted average number of common shares outstanding, after giving effect to dilutive restricted stock units and warrants.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
5. Loss Per Share (Continued)
The following table provides a reconciliation of net loss and shares used in calculating net loss attributable per basic common share to those used in calculating net loss per diluted common share (in thousands, except per share data, unless otherwise stateddata).
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | |||||
Loss per common share, basic and diluted: | |||||||
Net loss | $ | (116,240 | ) | $ | (86,363 | ) | |
| | | | | | | | |
Weighted average number of shares | 10,001 | 10,000 | |||||
| | | | | | | | |
Loss per common share, basic and diluted | $ | (11.62 | ) | $ | (8.64 | ) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
For the 22 weeks ended May 30, 2018 and fiscal 2017 there was one membership unit outstanding.
The Company had unvested restricted stock units outstanding of approximately 906.0 thousand and 37.4 thousand for the year ended December 25, 2019 and the 30 weeks ended December 26, 2018, respectively. In addition, the Company had a warrant outstanding convertible into 526,316 shares of common stock during the year ended December 25, 2019 and the 30 weeks ended December 26, 2018.
The units and warrant were excluded from the computations of net loss per diluted common share because their inclusion would have had an anti-dilutive effect on net loss per diluted share as the Company had a net loss for fiscal 2019 and the 30 weeks ended December 26, 2018.
5.6. Accounts Receivable
Accounts receivable, net of allowance for doubtful accounts, arereceivables, were comprised of the following atas of December 25, 2019 and December 26, 2012,2018:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | 2019 | 2018 | |||||
Vendor receivables | $ | 45,395 | $ | 49,600 | |||
Pharmacy | 28,874 | 25,003 | |||||
Insurance-related(1) | 4,175 | 15,179 | |||||
Other receivables | 12,606 | 9,612 | |||||
| | | | | | | | |
Accounts receivable, gross | 91,050 | 99,394 | |||||
Allowance for doubtful receivables | (2,534 | ) | (2,346 | ) | |||
| | | | | | | | |
Accounts receivable, net | $ | 88,516 | $ | 97,048 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| December 31, 2011 | December 26, 2012 | |||||||
Vendors | 29,423 | $ | 87,600 | |||||
Pharmacy | 9,744 | 26,571 | ||||||
Other | 2,992 | 10,939 | ||||||
|
|
|
| |||||
Total accounts receivable | 42,159 | 125,110 | ||||||
Allowance for doubtful accounts | (1,668 | ) | (5,570 | ) | ||||
|
|
|
| |||||
Accounts receivable, net | 40,491 | $ | 119,540 | |||||
|
|
|
| |||||
6. Property
Southeastern Grocers, Inc. and Equipment
| December 31, 2011 | December 26, 2012 | |||||||
Property and equipment: | ||||||||
Land and improvements | 67,280 | $ | 92,767 | |||||
Buildings | 167,629 | 211,020 | ||||||
Furniture, fixtures and equipment | 287,469 | 447,051 | ||||||
Leasehold improvements | 132,948 | 229,232 | ||||||
Construction in progress | 964 | 12,150 | ||||||
|
|
|
| |||||
Sub-total | 656,290 | 992,220 | ||||||
Accumulated depreciation and amortization | (358,515 | ) | (430,435 | ) | ||||
|
|
|
| |||||
Sub-total property and equipment | 297,775 | 561,785 | ||||||
Assets under capital leases: | ||||||||
Facilities | 84,476 | 80,985 | ||||||
Transportation and equipment | — | 5,309 | ||||||
Information technology assets | — | 6,001 | ||||||
|
|
|
| |||||
Sub-total | 84,476 | 92,295 | ||||||
Accumulated depreciation and amortization | (50,620 | ) | (54,748 | ) | ||||
|
|
|
| |||||
Capital leases, net | 33,856 | 37,547 | ||||||
|
|
|
| |||||
Property and equipment, net | 331,631 | $ | 599,332 | |||||
|
|
|
| |||||
Depreciation expense for property and equipment was $72,745, $53,112 and $62,889 for fiscal 2012, fiscal 2011 and fiscal 2010, respectively.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
7. Property and Equipment, Net
Major classifications of property and equipment as of December 25, 2019 and December 26, 2018 were as follows:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | 2019 | 2018 | |||||
Land and improvements(1) | $ | 11,457 | $ | 83,162 | |||
Buildings(1) | 16,350 | 253,783 | |||||
Furniture, fixtures and equipment | 441,312 | 382,334 | |||||
Leasehold improvements | 298,145 | 230,571 | |||||
Construction in progress | 13,958 | 28,489 | |||||
| | | | | | | | |
Property and equipment, gross | 781,222 | 978,339 | |||||
Less: Accumulated depreciation and amortization | (246,424 | ) | (106,032 | ) | |||
| | | | | | | | |
Property and equipment, net | 534,798 | 872,307 | |||||
| | | | | | | | |
Assets under capital leases: | |||||||
Facilities(2) | — | 68,166 | |||||
Less: Accumulated amortization | — | (5,350 | ) | ||||
| | | | | | | | |
Property and equipment under capital leases, net | — | 62,816 | |||||
| | | | | | | | |
Total property and equipment, net | $ | 534,798 | $ | 935,123 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Property and equipment were revalued and accumulated depreciation and amortization were eliminated as a result of fresh start accounting (see Footnote 4, Fresh Start Accounting, for further information). Depreciation and amortization expense, which included amortization of assets held under capital leases for fiscal year 2018 and 2017, was $163.4 million, $110.7 million, $49.7 million, and $141.4 million for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017, respectively.
Southeastern Grocers, Inc. and Subsidiaries
7.Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
8. Intangible Assets
Intangible assets consisted of the following as of December 25, 2019 and December 26, 2018:
| Weighted average remaining amortization period (years) | December 31, 2011 | December 26, 2012 | ||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||
Amortized Intangible Assets | ||||||||||||||||||||
Favorable leases | 12 | 2,466 | (1,108 | ) | $ | 145,121 | (10,017 | ) | ||||||||||||
Pharmacy prescription files | 6 | 21,481 | (20,948 | ) | 154,283 | (35,840 | ) | |||||||||||||
Software | 2 | 19,756 | (17,443 | ) | 38,611 | (19,877 | ) | |||||||||||||
Other | 1 | 1,462 | (1,165 | ) | 1,462 | (1,336 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total | �� | 45,165 | (40,664 | ) | $ | 339,477 | (67,070 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Unamortized Intangible Assets | ||||||||||||||||||||
Trade names and trademarks | 137,483 | $ | 160,462 | |||||||||||||||||
Liquor licenses | — | 12,613 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Total | 137,483 | $ | 173,075 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Estimated Amortization Expense | ||||||||||||||||||||
Fiscal 2013 | $ | 38,417 | ||||||||||||||||||
Fiscal 2014 | 34,029 | |||||||||||||||||||
Fiscal 2015 | 33,284 | |||||||||||||||||||
Fiscal 2016 | 32,867 | |||||||||||||||||||
Fiscal 2017 | 32,703 | |||||||||||||||||||
Thereafter | 101,107 | |||||||||||||||||||
|
| |||||||||||||||||||
| $ | 272,407 | |||||||||||||||||||
|
| |||||||||||||||||||
| | Successor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2019 | 2018 | |||||||||||
| | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||
Finite-lived intangible assets: | |||||||||||||
Favorable leases(1) | $ | — | $ | — | $ | 153,910 | $ | (17,244 | ) | ||||
Pharmacy prescription files | 204,665 | (44,957 | ) | 210,000 | (16,154 | ) | |||||||
Software | 49,226 | (20,501 | ) | 41,208 | (8,240 | ) | |||||||
Indefinite-lived intangible assets: | |||||||||||||
Trade names | 356,691 | — | 364,691 | — | |||||||||
Liquor licenses | 28,391 | — | 28,478 | — | |||||||||
| | | | | | | | | | | | | | |
Total intangible assets | $ | 638,973 | $ | (65,458 | ) | $ | 798,287 | $ | (41,638 | ) | |||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Intangible assets were revalued and accumulated amortization was eliminated as a result of fresh start accounting (see Footnote 4, Fresh Start Accounting, for further information). Amortization expense for intangibles with finite lives was $26,496, $568finite-lived intangible assets totaled $41.8 million, $41.6 million, $20.5 million, and $1,342$46.2 million for fiscal 2012, fiscal 2011year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018 and fiscal 2010,year 2017, respectively.
As of December 25, 2019, future amortization expense on intangible assets is expected to be as follows:
Fiscal Year: | ||||
2020 | $ | 38,099 | ||
2021 | 35,177 | |||
2022 | 35,009 | |||
2023 | 34,329 | |||
2024 | 32,301 | |||
Thereafter | 13,518 | |||
| | | | | |
| $ | 188,433 | |||
| | | | | |
| | | | | |
| | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
8. Impairment ChargesIntangible Assets (Continued)
The remaining weighted-average useful life for intangible assets, in total and by major asset class, is as follows:
| (in years) | ||||
|---|---|---|---|---|
Pharmacy prescription files | 5.5 | |||
Software | 2.4 | |||
Total intangible assets | 4.6 | |||
9. Impairment Expense of Long-lived and Intangible Assets
Long-lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company uses store performance reviews for indications that changes in market factors, traffic patterns, competition and other factors that may have negatively impactedimpact the operating results of store locations. Such changesfactors resulted in the identification of underperforming stores that experienced a current period cash flow loss combined with a history of cash flow losses.stores. The Company compared the net book value of those underperforming store assets to the Company’sCompany's estimated net undiscounted cash flows expected to result from the use and eventual disposition of the assets and, in some cases, the Company concluded that the net undiscounted cash flows were less than the net book value of the related assets. For those stores, the excess of the net book value of the assets over their fair value was recorded as an impairment chargeexpense as discussed below.
The Company gathers information related to the surrounding economic area and physical condition of non-operating related assets for indications that those asset values have been negatively affected.
Intangible assets with indefinite lives are reviewed for impairment on an annual basis or more frequently if events or circumstances indicate that the asset may be impaired.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Fair value estimates for tangible assetsproperty and equipment are determined using a discounted cash flow methodology, which incorporates the terminal value of equipment, based on broker quotes and the market value of favorable leases, and the market value of capital leases based on broker quotes.quotes or the Company's best estimate. Fair value estimates for liquor licenses, land, and landbuildings also incorporate the market value based on broker quotes.quotes or the Company's best estimate. Fair value estimates for pharmacy scripts are determined using a market approach and utilize recent sales data. The fair value estimates are based on assumptions the Company believes to be reasonable but are inherently uncertain, thus fall within level 3 of the fair value hierarchy, except for liquor license fair values whichthat are corroborated with observable data and, therefore, fall within level 2 of the fair value hierarchy.
No impairment charges were recorded during fiscal 2012. Impairment chargesexpense related to property and equipment of $1,756$13.2 million, $24.6 million and $1,628 were$39.6 million was recorded during fiscal 2011year 2019, the 22 weeks ended May 30, 2018, and fiscal 2010,year 2017, respectively, and was included as a component of operating,in "Operating, general and administrative expenses inexpenses" within the Consolidated Statements of Operations and Comprehensive Income.
(Loss) Income. There was no impairment recorded in the 30 weeks ended December 26, 2018.
9. Long-Term DebtIntangible Assets
Balances outstanding under borrowing arrangementsIndefinite-lived intangible assets are summarized as follows:tested for impairment annually during the fourth quarter, or on an interim basis upon occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
During the annual evaluation of indefinite-lived intangible assets performed during the fourth quarter of fiscal year 2019, the 22 weeks ended May 30, 2018, and the fourth quarter of fiscal year
| December 31, 2011 | December 26, 2012 | |||||||
Senior secured notes principal | 285,000 | $ | 425,000 | |||||
Unamortized premium on senior secured notes | — | 5,945 | ||||||
Revolving credity facility | — | 225,000 | ||||||
|
|
|
| |||||
Total long-term borrowings | 285,000 | $ | 655,945 | |||||
|
|
|
| |||||
Senior Secured Notes
Southeastern Grocers, Inc. and Subsidiaries
The Company issued Senior Secured Notes of $140,000 and $285,000 on October 16, 2012, and February 3, 2011, respectively. The Senior Secured Notes bear interest at a fixed rate of 9.25% and mature February 15, 2019, and require semiannual interest payments. The $140,000 Senior Secured Notes issued on October 16, 2012, were issued at a $6,300 premium, with the unamortized premium recognized as part of the carrying value. During fiscal 2012, the Company recognized $355 of premium amortization as a reduction of interest expense.
The Senior Secured Notes have a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the Company’s ability to (1) incur additional debt, (2) make Restricted Payments (as defined), (3) enter into certain transactions with affiliates, (4) grant liens, (5) sell assets, and (6) enter into consolidations or mergers. The limitation on Restricted Payments is 50% of aggregate net income beginning January 1, 2011, through December 26, 2012, plus Net Cash Proceeds (as defined) from Capital Contributions (as defined) or Stock Issuance (as defined) since February 3, 2011, less any previous Restricted Payments. At December 26, 2012, the Company’s Restricted Payments limitation and restricted net assets were $72,444 and $2,099,243, respectively. At December 26, 2012, the Company was in compliance with the applicable restrictive covenants.
The Senior Secured Notes are collateralized by second-priority security interests in the March 2012 Revolving Credit Facility Priority Collateral (as defined) and first-priority security interest, subject to certain permitted liens, in substantially all tangible and intangible assets of the Company other than the March 2012 Revolving Credit Facility Priority Collateral and certain other excluded assets.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESConsolidated Financial Statements (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
9. Impairment Expense of Long-lived and Intangible Assets (Continued)
2017, the Company determined that the carrying value of the Company's trade names exceeded their estimated fair values resulting in non-cash impairment charges of $8.0 million, $11.0 million, and $75.5 million, respectively, which are included in "Operating, general and administrative expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. Fair value measurements were determined using market-derived royalty rates to estimate discounted projected future cash flows which reflect lower levels of expected sales growth than previous years. Also during fiscal year 2017, the Company made a strategic marketing decision to phase out certain brand names which resulted in a change in the expected useful life of certain trade names and trademarks and their categorization as finite-lived intangible assets.
The annual evaluation of indefinite-lived intangible assets for the 30 weeks ended December 26, 2018 did not result in impairment.
10. Debt
As of December 25, 2019 and December 26, 2018, the Company's outstanding debt consisted of the following:
| | Successor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||||||||
| | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
2018 Revolving Credit Facility | $ | 288,000 | $ | 288,000 | $ | 200,000 | $ | 200,000 | |||||
FILO Facility(1) | 36,759 | 35,844 | 43,442 | 44,516 | |||||||||
Senior Secured Term Loan(2) | 443,762 | 432,784 | 443,087 | 454,902 | |||||||||
| | | | | | | | | | | | | | |
Total debt | 768,521 | $ | 756,628 | 686,529 | $ | 699,418 | |||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Less: Current maturities of long-term debt | (16,000 | ) | (12,250 | ) | |||||||||
| | | | | | | | | | | | | | |
Total long-term debt | $ | 752,521 | $ | 674,279 | |||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Successor Company Debt
2018 ABL Credit Agreement
Effective May 31, 2018 the Company's wholly-owned subsidiary, BI-LO, LLC (the "Borrower"), entered into an ABL Credit Agreement (the "2018 ABL Credit Agreement"), which includes both a $550 million senior secured asset based revolving credit facility (the "2018 Revolving Credit Facility") and a $50 million first-in, last-out facility (the "FILO Facility").
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
10. Debt (Continued)
March 20122018 Revolving Credit Facility
Effective March 9, 2012, the Company entered into a new $700,000 revolving credit facility (“March 2012 Revolving Credit Facility”) in connection with the Winn-Dixie acquisition to replace its February 2011 Revolving Credit Facility (see discussion below). The March 20122018 Revolving Credit Facility matures March 9, 2017, at which time all principal amounts outstanding under the agreement will be due and payable.
on May 31, 2023. Outstanding amounts under the March 2012 Revolving Credit Facility accrue interest at a variable rate based on Historical Tranche A Excess Availability (as defined in the Company’s2018 ABL Credit Agreement) at the Borrower's option based on LIBOR (as defined) or aeither (i) the Alternate Base Rate (as defined)defined in the 2018 ABL Credit Agreement) plus a margin of 0.25% to 0.75% or (ii) the Adjusted LIBO Rate (as defined in the 2018 ABL Credit Agreement), plus an applicablea margin that varies basedof 1.25% to 1.75%. Interest is payable depending on the level of Historical Excess Availability (as defined).interest type or period selected. As of December 25, 2019 and December 26, 2012,2018, the borrowing rates in effect for the Revolving Credit Facility were LIBOR plus 2.0% orthe Alternate Base Rate plus 1.0%0.50% or the Adjusted LIBO Rate plus 1.50%, at the Company’sBorrower's option. The effective borrowing rates ranged between 3.24% to 5.25% and 3.93% to 4.12%, respectively, as of the same dates. The letter of credit fee in effect as of December 26, 2012,25, 2019, was 2.25%1.63% (including a 0.25%0.13% facing fee to the issuing letter of credit bank). In addition, theThe commitment commissionfee on the unused portion of the facility2018 Revolving Credit Facility was 0.375%0.25% as of the same date.
As of December 25, 2019, Excess Availability (as defined in the 2018 ABL Credit Agreement) related to the 2018 Revolving Credit Facility was as follows:
Availability(1) | $ | 535,669 | ||
Outstanding letters of credit | (73,837 | ) | ||
Outstanding borrowings | (288,000 | ) | ||
| | | | | |
Excess Availability | $ | 173,832 | ||
| | | | | |
| | | | | |
| | | | | |
FILO Facility
The FILO Facility matures on May 31, 2022. The FILO Facility was issued at a $2.0 million discount, with the unamortized discount recognized as part of the carrying value and amortized to "Interest expense" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. Debt issuance costs capitalized in connection with the FILO Facility were $1.3 million, with deferred debt issuance costs recorded as part of the carrying value and amortized to "Interest expense" within the Consolidated Statements of Operations and Comprehensive (Loss) Income.
As of December 25, 2019 and December 26, 2018, the components of the carrying value of the FILO Facility were as follows:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||
Principal amount of debt | $ | 38,750 | $ | 46,250 | |||
Original issue discount, net of amortization | (1,214 | ) | (1,713 | ) | |||
Debt issuance costs, net of amortization | (777 | ) | (1,095 | ) | |||
| | | | | | | | |
Carrying value | $ | 36,759 | $ | 43,442 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
10. Debt (Continued)
Outstanding amounts under the FILO Facility accrue interest at a variable rate, at the Borrower's option based on (i) the Alternate Base Rate (as defined in the 2018 ABL Credit Agreement) plus a margin of 4.25% or 7.25% or (ii) the Adjusted LIBO Rate (as defined in the 2018 ABL Credit Agreement), subject to a 1.00% floor, plus a margin of 5.25% or 8.25%. The margin varies based on the FILO rating as determined by S&P or Moody's. Interest is payable either monthly or quarterly depending on the interest type or period selected. As of December 25, 2019 and December 26, 2018, the borrowing rates in effect for the FILO Facility were the Alternate Base Rate plus 4.25% or the Adjusted LIBO Rate plus 5.25%, at the Borrower's option. The effective borrowing rates were 7.16% and 7.87%, respectively, as of the same dates. Repayment of principal is required as follows: $7.5 million for each of the first two years (payable in eight equal installments), $15.0 million for the following year (payable in four equal installments), and $20.0 million for the year thereafter (payable in four equal installments). With certain exceptions, prepayment of the FILO Facility is subject to a prepayment penalty.
As of December 25, 2019, Excess Availability (as defined in the 2018 ABL Credit Agreement) related to the FILO Facility was as follows:
Availability(1) | $ | 38,750 | ||
Outstanding borrowings | (38,750 | ) | ||
| | | | | |
Excess Availability | $ | — | ||
| | | | | |
| | | | | |
| | | | | |
The March 2012 Revolving2018 ABL Credit FacilityAgreement has a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the Company’sBorrower's and its restricted subsidiaries' ability to (1) incur additional debt, (2) grant liens, (2) liquidate or dissolve the business, (3) enter into consolidations or mergers, (4) enter into sale-leasebacks,liquidate or dissolve the business, (5) dispose of all or substantially all of the Company's property or business, (6) dispose of certain property or assets, (6) acquire property or assets outside of the normal course of business, (7) declare or pay certain dividends,make Restricted Payments (as defined therein), (8) incur additional debt, (9) make advances, investments and loans, (9) make certain voluntary payments, and (10) enter into certain transactions with affiliates, (11) make modificationsaffiliates. In addition, the 2018 ABL Credit Agreement requires the Borrower to certain agreements (including the certificate of incorporation), (12) make certain voluntary payments, (13) issue certain equity interests, and (14) create certain new subsidiaries. If Excess Availability under the March 2012 Revolving Credit Facility falls below a specified threshold, the Company must maintain a minimum Fixed Charge Coverage Ratio (as defined). At December 26, 2012,defined in the Company’s2018 ABL Credit Agreement) in the event that Excess Availability exceeded(as defined in the 2018 ABL Credit Agreement) were to fall below a specified threshold, and thethreshold. The Company was in compliance with its financial covenants under the loan covenants.2018 ABL Credit Agreement as of December 25, 2019.
The lenders under the March 2012 Revolving2018 ABL Credit FacilityAgreement are secured by a first-priority security interest in certain collateral including accounts receivable, inventory, prescription lists and other related collateral and proceeds thereof (the "ABL Priority Collateral") and a second-priority security interest in substantially all other assets, other than certain excluded assets.
The outstanding borrowings underSubsequent to the revolving credit facilities were $225,000fiscal year ended December 25, 2019, the Company repaid in full the remaining principal balance of the FILO Facility through an open market repurchase and zero asan optional prepayment, in addition to the scheduled repayment of December 26, 2012, and December 31, 2011, respectively.principal.
Excess Availability (as defined) was $326,627 asTable of December 26, 2012, as summarized below:
| December 26, 2012 | ||||
Availability(1) | $ | 688,271 | ||
Outstanding letters of credit | (136,644 | ) | ||
Outstanding borrowings | (225,000 | ) | ||
|
| |||
Excess Availability | $ | 326,627 | ||
|
| |||
Contents
February 2011 Revolving Credit Facility
Southeastern Grocers, Inc. and Subsidiaries
Effective February 3, 2011, the Company entered into a $100,000 Revolving Credit Facility (“February 2011 Revolving Credit Facility”). The February 2011 Revolving Credit Facility had a five-year term, and
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
10. Debt (Continued)
Senior Secured Term Loan
Effective May 31, 2018, the Borrower entered into a $475.0 million senior secured term loan credit agreement (the "Term Loan Agreement"). The term loan under the Term Loan Agreement (the "Term Loan") was issued at a $19.0 million discount, with the unamortized discount recognized as part of the carrying value and amortized to "Interest expense" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. Debt issuance costs capitalized in connection with the Term Loan were $13.7 million, with deferred debt issuance costs recorded as part of the carrying value and amortized to "Interest expense" within the Consolidated Statements of Operations and Comprehensive (Loss) Income.
As of December 25, 2019 and December 26, 2018, the components of the carrying value of the Term Loan were as follows:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||
Principal amount of debt | $ | 467,875 | $ | 472,625 | |||
Original issue discount, net of amortization | (14,024 | ) | (17,180 | ) | |||
Debt issuance costs, net of amortization | (10,089 | ) | (12,358 | ) | |||
| | | | | | | | |
Carrying value | $ | 443,762 | $ | 443,087 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
outstanding amounts accrued The Term Loan matures May 31, 2024 and bears interest at a variable rate equal to either (i) LIBORat the Company's option, based on the Alternate Base Rate (as defined),defined in the Term Loan Agreement) plus a 2.25%margin of 7.00% or the Adjusted LIBO Rate (as defined in the Term Loan Agreement), subject to 2.75% margin or (ii) a base rate (as defined),1.00% floor, plus a 1.25% to 1.75% margin.margin of 8.00%. Interest wasis payable either monthly or quarterly depending on the interest type or period selected. As of December 25, 2019 and December 26, 2018, the borrowing rates in effect for the Term Loan ranged between 9.85% to 9.89% and 10.44% to 10.78%, respectively.
The February 2011 Revolving Credit Facility was replaced with the March 2012 Revolving Credit Facility on March 9, 2012 (as discussed above). In connection with the March 2012 refinancing, the Company wrote off $1,990 of unamortized deferred financing costs associated with the February 2011 Credit Facilities (classified as a component of interest expense in the Consolidated Statement of Operations and Comprehensive Income).
May 2010 Credit Facilities
Effective May 12, 2010, the Company entered into a $150,000 Revolving Credit Facility (“May 2010 Revolving Credit Facility”) to replace its DIP Credit Facility. The May 2010 Revolving Credit Facility had a three year term. Based on the terms of the credit agreement, the parties agreed to reduce the maximum principal amount of the Revolving Credit Facility to $130,000, effective August 10, 2010.
Outstanding amounts under the May 2010 Revolving Credit Facility accrued interest at a variable rate equal to either (i) LIBOR (as defined), plus a 3.5% to 4.0% margin or (ii) a base rate (as defined), plus a 2.5% to 3.0% margin. Interest was payable either monthly or quarterly depending on the interest type or period selected.
Effective May 12, 2010, the Company entered into a $200,000 senior secured term loan (“Term Loan” and together with the May 2010 Revolving Credit Facility the “May 2010 Credit Facilities”) with a five-year term. The Term Loan was issued with a $6,000 discount, with the unamortized balance of the discounted netted against the Term Loan balance.
Outstanding amounts under the Term Loan accrued interest at a variable rate equal to either (i) a LIBOR (as defined), subject to a 2% floor, plus a 7.5% margin or (ii) a base rate (as defined), plus a 6.5% margin. Interest was payable either monthly or quarterly depending on the interest type or period selected.
Term Loanrequires scheduled principal amortization payments of $2,500 were$1.2 million due on the last day of each calendar quarter.fiscal quarter, beginning October 3, 2018, with the remaining principal balance due at maturity. In addition, customary mandatory prepayments are required upon occurrence of certain events including application of a certain percentage of annual excess cash flow, consummation of certain non-ordinary course asset sales, incurrence of certain debt, and occurrence of certain casualty or condemnation events, all as described in the Term Loan Agreement. With certain exceptions, prepayments of the Term Loan wereprior to May 31, 2020 are subject to a prepayment fee.
The May 2010 Credit Facilities were replaced withTerm Loan is collateralized by second-priority security interests in the February 2011 Revolving Credit FacilityABL Priority Collateral and first-priority security interest, in substantially all other assets of the Borrower and the Senior Secured other credit parties other than certain excluded assets.
The Term Loan Agreement has a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the ability of the Borrower's and its restricted subsidiaries ability to (1) incur additional debt, (2) grant liens, (3) enter into consolidations or mergers, (4) liquidate or dissolve the business, (5) dispose of all or substantially all of the Company's property or business, (6) dispose of certain property or assets, (7) make Restricted Payments (as defined in the Term Loan Agreement), (8) make advances, investments and loans, (9) make certain voluntary
Southeastern Grocers, Inc. and Subsidiaries
Notes on February 3, 2011.to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
10. Debt (Continued)
payments, and (10) enter into certain transactions with affiliates. In connectionaddition, the Term Loan Agreement includes a financial covenant requiring the Company's total net leverage not to exceed certain levels. The Borrower was in compliance with its financial covenants under the February 2011 refinancing,Term Loan Agreement as of December 25, 2019.
Subsequent to the fiscal year ended December 25, 2019, the Company wrote off $12,266repurchased $116.6 million face value of unamortized deferred financing costs associated with the May 2010 Credit Facilities and $5,136 of unamortized original issue discount related to the May 2010 Term Loan (both classified as a component of interest expense and discount inon the Fiscal 2011 Consolidated Statement of Operations and Comprehensive Income).
Fair Value
open market. The carryingCompany may, from time to time, continue to reduce the amount of the Company’sTerm Loan (through open market repurchases or private transactions).
The provisions of the 2018 ABL Credit Agreement and the Term Loan Agreement restrict all of the net assets of the Company's consolidated subsidiaries, which constitutes all of the net assets on the Company's Consolidated Balance Sheet as of December 25, 2019, from being used to pay any dividends or make other restricted payments to the Company without prior written consent from the financial intuitions that are a party to the 2018 ABL Credit Agreement and the Term Loan Agreement, subject to material exceptions including proforma compliance with applicable conditions described in the 2018 ABL Credit Agreement and the Term Loan Agreement.
As of December 25, 2019, maturities on long-term debt under borrowing arrangements, was $655,945excluding unamortized discount amortization and the fair value was approximately $679,750deferred debt issuance costs, are as of December 26, 2012. Fair value was based on estimated current market prices applied to the debt outstanding, thus fall within level 2 of the fair value hierarchy.follows:
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Fiscal Year | Total Debt | |||
|---|---|---|---|---|
2020 | $ | 16,000 | ||
2021 | 22,250 | |||
2022 | 14,750 | |||
2023 | 292,750 | |||
2024 | 448,875 | |||
| | | | | |
Total minimum payments | $ | 794,625 | ||
| | | | | |
| | | | | |
| | | | | |
Other Financing Obligations
As of December 26, 2018, the Company was involved in various transactions whereby they sold property to a limited liability entity created for each leased location for the sole purpose of owning and leasing the properties under the lease, with no other assets or activities other than those related to its investment in the properties (VIEs). Because the Company possessed variable interests in the leased properties and had the power to direct the activities that most significantly impact the economic performance of these properties, the Company was considered the primary beneficiary of the VIEs. The Company recorded the transaction for the VIEs that require consolidation similar to a non-qualified sale-leaseback, which management believes is substantially equivalent to the consolidated financial statement results presented in consolidation. As of December 27, 2018, the Company determined that certain leases were no longer determined to be variable interests under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, Consolidation ("ASC 810") and therefore no longer consolidate the aforementioned entities.
Properties
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
10. Debt (Continued)
As of December 26, 2018, properties sold as part of non-qualified sale-leaseback transactions are accounted for in a manner similar to a financing arrangement, consisted of:
| December 31, 2011 | December 26, 2012 | |||||||
Current | ||||||||
Building obligations(2) | 8,457 | $ | 11,739 | |||||
Noncurrent | ||||||||
Land obligations(1) | 57,575 | 55,540 | ||||||
Building obligations(2) | 176,908 | 164,559 | ||||||
|
|
|
| |||||
Total noncurrent | 234,483 | 220,099 | ||||||
|
|
|
| |||||
Total other financing obligations | 242,940 | $ | 231,838 | |||||
|
|
|
| |||||
Current obligations are included in other"Other accrued expensesexpenses" and noncurrent"Other financing obligationsobligations" within the Consolidated Balance Sheets. The assets associated with the non-qualified sale-leaseback transactions are included in "Property and equipment, net" within the Consolidated Balance Sheets. As a result of the adoption of ASU 2016-02, all financing obligations and related assets were derecognized.
As of December 26, 2018, other financing obligations onconsisted of the Consolidated Balance Sheets.following:
| | Successor | |||
|---|---|---|---|---|
| | December 26, 2018 | |||
Current Obligations: | ||||
Buildings(1) | $ | 12,405 | ||
Noncurrent Obligations: | ||||
Land and building residual value(2) | 139,838 | |||
Buildings(1) | 121,928 | |||
| | | | | |
Total noncurrent obligations | 261,766 | |||
| | | | | |
Total other financing obligations | $ | 274,171 | ||
| | | | | |
| | | | | |
| | | | | |
Other financing obligations also include $2,278, and $2,659,total $134.3 million as of December 26, 2012, and December 31, 2011, respectively,2018. Current amounts are included in "Other accrued expenses" within the
In connection with fresh start, other financing obligations were valued at fair value. See Footnote 4, Fresh Start Accounting, (“C&S”) affiliates. In 2005, the Company recorded $19,393 of cash received from C&S for the financing of the warehouse and distribution assets, which is being amortized as a reduction of depreciation and amortization expense over the 10-year period through fiscal 2015. Since the terms of the repurchase obligation require the Company pay C&S the net book value of the warehouse and distribution assets if the repurchase option is elected, the obligation is being amortized in an amount equivalent to the Company’s depreciation expense on the warehouse and distribution assets. See Note 14 for more information on C&S.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESfurther information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The assets associated with these non-qualified sale-leaseback transactions are included in "Property and equipment, net" within the Consolidated Balance Sheets.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except per share data, unless otherwise statedstated)
11. Interest Expense
Interest expense for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017 consisted of the following:
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
2018 Revolving Credit Facility | $ | 13,314 | $ | 6,760 | $ | — | $ | — | |||||||
FILO Facility | 3,330 | 2,171 | — | — | |||||||||||
Senior Secured Term Loan | 49,801 | 28,557 | — | — | |||||||||||
FILO Facility discount amortization | 498 | 288 | — | — | |||||||||||
Senior Secured Term Loan discount amortization | 3,155 | 1,820 | — | — | |||||||||||
Other financing obligations interest(1) | — | 18,181 | 8,219 | 21,223 | |||||||||||
Finance/capital lease interest | 6,956 | 4,343 | 3,934 | 11,482 | |||||||||||
Amortization of deferred financing costs | 4,233 | 2,442 | 2,407 | 6,810 | |||||||||||
Other interest | 1,052 | (65 | ) | (54 | ) | 66 | |||||||||
2014 Revolving Credit Facility | — | — | 8,056 | 12,068 | |||||||||||
Senior Secured Notes | — | — | 17,061 | 39,206 | |||||||||||
PIK Toggle Notes(2) | — | — | 11,504 | 44,244 | |||||||||||
Senior Secure Notes premium amortization | — | — | (371 | ) | (965 | ) | |||||||||
PIK Toggle Notes discount amortization(3) | — | — | 232 | 949 | |||||||||||
| | | | | | | | | | | | | | | | |
Total interest expense | $ | 82,339 | $ | 64,497 | $ | 50,988 | $ | 135,083 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
12. Income Taxes
For fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017, income tax benefit was as follows:
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Current: | |||||||||||||||
Federal | $ | — | $ | — | $ | — | $ | — | |||||||
State | (4 | ) | 8 | — | 14 | ||||||||||
| | | | | | | | | | | | | | | | |
Total current | (4 | ) | 8 | — | 14 | ||||||||||
Deferred: | |||||||||||||||
Federal | (1,636 | ) | (37,283 | ) | (15,106 | ) | (36,850 | ) | |||||||
State | 645 | (10,999 | ) | (1,157 | ) | (1,465 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Total deferred | (991 | ) | (48,282 | ) | (16,263 | ) | (38,315 | ) | |||||||
| | | | | | | | | | | | | | | | |
Income tax benefit | $ | (995 | ) | $ | (48,274 | ) | $ | (16,263 | ) | $ | (38,301 | ) | |||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The following table presents the reconciliation of the federal statutory income tax rate to the effective income tax rates for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017:
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 35.0 | % | |||||||
Increase (decrease) in taxes: | |||||||||||||||
State and local income taxes, net of federal benefit | 5.0 | 5.4 | (0.2 | ) | 4.2 | ||||||||||
Change in valuation allowance | (25.9 | ) | 8.4 | (1.1 | ) | (36.7 | ) | ||||||||
Impairment of intangible assets | — | — | — | 16.6 | |||||||||||
Change in tax rates | 0.9 | 1.6 | — | 6.3 | |||||||||||
Gain on debt exchange | — | — | (2.1 | ) | — | ||||||||||
Gain on fresh start adjustments | — | — | (21.0 | ) | — | ||||||||||
Reorganization items | — | — | 1.2 | — | |||||||||||
Tax credits | — | — | — | (0.6 | ) | ||||||||||
Other | (0.2 | ) | (0.5 | ) | — | (3.2 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effective tax rate | 0.8 | % | 35.9 | % | (2.2 | )% | 21.6 | % | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
On December 22, 2017, tax reform legislation (the "2017 Act") was enacted. In accordance with U.S. GAAP, the Company recorded the impact of the 2017 Act as a discrete item in the income tax provision and remeasured its deferred tax assets and liabilities at the enacted federal rate of 21%. While the reduction in the deferred tax assets was fully offset by a reduction in the valuation allowance
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
12. Income Taxes (Continued)
maintained during the period, the 2017 Act lowered the net deferred tax liabilities as of December 27, 2017 and resulted in additional income tax benefit for fiscal year 2017 in the amount of $11.9 million.
As of December 25, 2019 and December 26, 2012,2018, deferred tax assets and deferred tax liabilities consisted of the following:
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | 2019 | 2018 | |||||
Deferred tax assets: | |||||||
Self-insurance liabilities | $ | 50,647 | $ | 52,212 | |||
Closed store liabilities | 933 | 2,344 | |||||
Compensation | 11,912 | 11,668 | |||||
Property and equipment, including finance leases | 23,605 | — | |||||
Unfavorable leases | — | 10,642 | |||||
Operating lease liabilities | 206,389 | — | |||||
Post-retirement benefits | 7,065 | 6,228 | |||||
Net operating loss carryforwards | 152,814 | 162,389 | |||||
Tax credits | 24,585 | 24,323 | |||||
Interest | 18,706 | 16,346 | |||||
Other | 20,713 | 20,821 | |||||
| | | | | | | | |
Subtotal | 517,369 | 306,973 | |||||
Less: valuation allowance | (187,772 | ) | (148,346 | ) | |||
| | | | | | | | |
Total deferred tax assets | 329,597 | 158,627 | |||||
Deferred tax liabilities: | |||||||
Favorable leases | — | (35,533 | ) | ||||
Property and equipment, including capital leases | — | (4,501 | ) | ||||
Operating lease assets | (216,948 | ) | — | ||||
Intangible assets | (130,283 | ) | (137,545 | ) | |||
| | | | | | | | |
Total deferred tax liabilities | (347,231 | ) | (177,579 | ) | |||
| | | | | | | | |
Deferred tax liabilities, net | $ | (17,634 | ) | $ | (18,952 | ) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company evaluated the future contractual minimum paymentsrealization of its net deferred tax assets and considered all available positive and negative evidence, including cumulative losses experienced during the most recent three years. As a result of this analysis, the Company determined that it was more likely than not that all of the net deferred tax assets will not be realized and, therefore, continues to maintain a valuation allowance.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
12. Income Taxes (Continued)
For fiscal years 2019, 2018, and 2017, the valuation allowance activity on deferred tax assets was as follows:
| | 2019 | 2018 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Beginning Balance | $ | 148,346 | $ | 337,111 | $ | 430,685 | ||||
Additions charged to income tax expense | 210,396 | 1,776 | 60,789 | |||||||
Reductions charged to income tax expense | (170,970 | ) | (4,528 | ) | (154,363 | ) | ||||
Other reductions from fresh start accounting | — | (186,013 | ) | — | ||||||
| | | | | | | | | | | |
Ending Balance | $ | 187,772 | $ | 148,346 | $ | 337,111 | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
As of December 25, 2019, the Company had net operating loss ("NOL") carryforwards for federal income tax purposes of $578.8 million which expire at various times beginning in 2025. As of the same date, the Company had NOL carryforwards for state income tax purposes of $579.7 million which expire at various times beginning in 2022. The Company's utilization of NOLs generated before the Restructuring in 2018 ($525.9 million for federal and $502.0 million for state) are limited under Internal Revenue Code Section 382. The federal annual limit on these NOLs is $10.5 million, increased in the first five years for the other financing obligations thatbuilt in gain of $326.9 million. Similarly, the Company will have remaining termsan annual limitation on the use of the state NOL carryforwards.
In addition, the Company had tax credit carryforwards for federal income tax purposes as of December 25, 2019 in excessthe amount of one year are:$23.0 million which expire at various times beginning in 2025. As of the same date, the Company had tax credit carryforwards for state income tax purposes of $1.4 million which expire at various times beginning in 2020.
The Company had no unrecognized tax benefits as of December 25, 2019, December 26, 2018 and December 27, 2017.
Fiscal Year | ||||
2013 | $ | 31,385 | ||
2014 | 31,252 | |||
2015 | 31,252 | |||
2016 | 31,038 | |||
2017 | 30,905 | |||
Thereafter | 158,802 | |||
|
| |||
Total minimum payments | 314,634 | |||
Non cash land obligations | 55,540 | |||
Amount representing interest | (138,336 | ) | ||
|
| |||
Present value of minimum financing obligations | 231,838 | |||
Less: current portion of financing obligations | 11,739 | |||
|
| |||
Long term portion of financing obligations | $ | 220,099 | ||
|
| |||
Generally, the statute of limitations remains open for the Company's federal and state income tax returns for its 2016 through 2019 tax years.
10.13. Leases
The Company leases certain stores, distribution centers, and administrative offices. The Company determines if an arrangement is a lease at inception. The Company's lease assets represent a right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at the lease commencement date (date on which the Company gains the right to control the use of the property) based on the estimated present value of lease payments over the lease term, net of landlord allowances to be received. Rent expense begins to be recognized at the lease commencement date. The Company accounts for the lease and non-lease components as a single lease component for real estate leases.
Most of the Company's lease agreements include variable payments related to pass-through costs for maintenance, taxes, and insurance. Additionally, some of the Company's lease agreements include rental payments based on a percentage of retail sales over contractual levels. These variable
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
13. Leases (Continued)
payments are not included in the measurement of the lease liability or asset and are presented and disclosed as variable lease cost in the period that they are incurred.
Since the Company does not have the ability to determine the rate implicit in the lease, it uses an estimated incremental borrowing rate, which is derived from third-party information, in determining the present value of lease payments. The rate used is for a secured borrowing of a similar term as the lease. To estimate the Company's specific incremental borrowing rates that align with applicable lease terms, the Company utilizes a model consistent with the credit quality of the Company's outstanding debt instruments.
The typical real estate lease period ranges up to 25 years with renewal options for variable periods. The exercise of lease renewal options is at the Company's sole discretion. The lease term generally does not include options to extend the lease unless it is reasonably certain that the option will be exercised, as would be the case if there were significant lessee-installed leasehold improvements that would still have economic value when the option becomes exercisable. The Company's lease arrangements do not contain any residual value guarantees or material restrictive covenants.
The Company subleases certain real estate to third parties, which have all been classified as operating leases. The Company recognizes sublease income on a straight-line basis over the sublease term.
Lease costs includes both the fixed and variable expenses recorded for leases. The components of lease costs for the fiscal year 2019 were as follows:
| | Classification | Fiscal 2019 | ||||
|---|---|---|---|---|---|---|
Operating lease cost | Cost of sales and Operating, general and administrative expenses(1) | $ | 219,316 | |||
Finance lease cost: | ||||||
Amortization | Operating, general and administrative expenses | 8,517 | ||||
Interest on lease liabilities | Interest expense | 6,956 | ||||
Variable lease cost | Cost of sales and Operating, general and administrative expenses(1) | 53,462 | ||||
Sublease income | Operating, general and administrative expenses | (5,797 | ) | |||
| | | | | | | |
Total net lease cost | $ | 282,454 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
13. Leases (Continued)
The following table provides the weighted-average lease term and discount rate for operating and finance leases:
| December 25, 2019 | ||||
|---|---|---|---|---|
Weighted average remaining lease term (years) | ||||
Operating leases | 7.0 | |||
Finance leases | 8.1 | |||
Weighted-average discount rate | ||||
Operating leases | 7.49 | % | ||
Finance leases | 11.72 | % | ||
The following table provides supplemental cash flow information related to leases:
| | Fiscal 2019 | |||
|---|---|---|---|---|
Cash paid for amounts included in measurement of lease liabilities | ||||
Operating cash flows for operating leases | $ | 184,253 | ||
Operating cash flows for finance leases | 6,956 | |||
Financing cash flows for finance leases | 6,081 | |||
Lease assets obtained in exchange for lease liabilities | ||||
Operating leases | 114,405 | |||
Finance leases | — | |||
Maturities of operating and finance lease liabilities are listed below. Amounts in the table include options to extend lease terms that are reasonably certain of being exercised.
| | Operating Leases | Finance Leases | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
2020 | $ | 195,532 | $ | 12,734 | $ | 208,266 | ||||
2021 | 175,253 | 11,620 | 186,873 | |||||||
2022 | 147,504 | 10,496 | 158,000 | |||||||
2023 | 122,685 | 9,774 | 132,459 | |||||||
2024 | 95,737 | 9,574 | 105,311 | |||||||
Thereafter | 297,896 | 32,217 | 330,113 | |||||||
| | | | | | | | | | | |
Total lease payments | 1,034,607 | 86,415 | 1,121,022 | |||||||
Less: Imputed interest | (240,801 | ) | (30,235 | ) | (271,036 | ) | ||||
| | | | | | | | | | | |
Total lease liabilities | 793,806 | 56,180 | 849,986 | |||||||
Less: Current portion | (141,371 | ) | (6,465 | ) | (147,836 | ) | ||||
| | | | | | | | | | | |
Long-term lease liabilities | $ | 652,435 | $ | 49,715 | $ | 702,150 | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The Company adopted ASU 2016-02 in the first quarter of fiscal year 2019, and as required, the following disclosures are provided for periods prior to adoption. Refer to Footnote 2, New Accounting Pronouncements, for additional information.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
13. Leases (Continued)
The Company operates primarily in leased facilities and has a number of leases in effect for store properties, warehouses, and equipment. Initial lease terms generally range up to 25 years and expire at various times through 2032,2034, with options to renew for additional periods. The majority of store leases provide for base rental, plus real estate taxes, maintenance, and other operating expenses applicable to the leased premises. Some leases contain escalation clauses for future rents or require contingent rental payments if sales volumes exceed specified amounts.
The Company is the guarantor to nine assigned leases with lease terms ranging up to nine years. Although the Company retains no possession or other interests in the leaseholds, it remains contingently obligated under the leases. The maximum potential undiscounted future payments is $18,588.
Rent Expense
Net rentalFor the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017, net rent expense for operating leases consistsconsisted of the following:
| 2010 | 2011 | 2012 | ||||||||||
Store and administrative | 24,496 | 24,110 | $ | 155,055 | ||||||||
Equipment | 4,928 | 4,701 | 2,534 | |||||||||
Sublease income | (6,786 | ) | (6,707 | ) | (7,044 | ) | ||||||
|
|
|
|
|
| |||||||
Rent expense, net of sublease income | 22,638 | 22,104 | 150,545 | |||||||||
Warehouse and transportation | — | — | 14,870 | |||||||||
|
|
|
|
|
| |||||||
Net rent expense | 22,638 | 22,104 | $ | 165,415 | ||||||||
|
|
|
|
|
| |||||||
Warehouse and transportation rental costs are included in cost of sales, including warehouse and delivery expense in the accompanying Consolidated Statements of Operations and Comprehensive Income.
| | Successor | | Predecessor | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||
Minimum rentals | $ | 102,022 | $ | 86,363 | $ | 214,933 | ||||||
Contingent rentals | 404 | 242 | 720 | |||||||||
Sublease income | (4,707 | ) | (3,275 | ) | (7,999 | ) | ||||||
| | | | | | | | | | | | | |
Total | $ | 97,719 | $ | 83,330 | $ | 207,654 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Future Minimum Lease Payments
As of December 26, 2012,2018, future contractual minimum lease payments for both capital and noncancelablenon-cancelable operating leases that have remaining terms in excess of one year are:are expected to be as follows:
Fiscal Year | Capital | Operating | Subleases | Net | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2019 | $ | 13,038 | $ | 167,154 | $ | (7,188 | ) | $ | 173,004 | ||||
2020 | 12,656 | 151,252 | (7,041 | ) | 156,867 | ||||||||
2021 | 11,562 | 131,268 | (6,880 | ) | 135,950 | ||||||||
2022 | 10,496 | 105,269 | (6,786 | ) | 108,979 | ||||||||
2023 | 9,774 | 81,241 | (6,781 | ) | 84,234 | ||||||||
Thereafter | 41,791 | 194,298 | (13,727 | ) | 222,362 | ||||||||
| | | | | | | | | | | | | | |
Total minimum lease payments | 99,317 | $ | 830,482 | $ | (48,403 | ) | $ | 881,396 | |||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Less: interest | (37,184 | ) | |||||||||||
| | | | | | | | | | | | | | |
Present value of net minimum lease payments | $ | 62,133 | |||||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Fiscal Year | Capital | Operating | Subleases(1) | Net | ||||||||||||
2013 | $ | 42,451 | 237,738 | (8,759 | ) | 271,430 | ||||||||||
2014 | 34,400 | 215,498 | (7,819 | ) | 242,079 | |||||||||||
2015 | 24,745 | 189,431 | (7,441 | ) | 206,735 | |||||||||||
2016 | 16,096 | 162,065 | (2,772 | ) | 175,389 | |||||||||||
2017 | 12,670 | 122,461 | (812 | ) | 134,319 | |||||||||||
Thereafter | 20,892 | 444,679 | (1,373 | ) | 464,198 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total minimum lease payments | 151,254 | 1,371,872 | (28,976 | ) | 1,494,150 | |||||||||||
|
|
|
|
|
| |||||||||||
Amount representing interest | (38,918 | ) | ||||||||||||||
|
| |||||||||||||||
Present value of net minimum lease payments | 112,336 | |||||||||||||||
Less: current portion of obligations under capital leases | 29,072 | |||||||||||||||
|
| |||||||||||||||
Long term portion of obligations under capital leases | $ | 83,264 | ||||||||||||||
|
| |||||||||||||||
Closed Store Reserves
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In March 2012, the Company assumed $21,976 of closed store liabilities for Winn-Dixie stores that were closed prior to the acquisition. During fiscal 2010, the Company closed seven stores, (none closed(Dollar amounts in fiscal 2012 and fiscal 2011 prior to lease expirations) that required a closed store liability.thousands, unless otherwise stated)
13. Leases (Continued)
Closed Lease Liabilities
The Company recognized expense related to these store closures included asrecords a component of operating, general and administrative expensesreserve for future lease obligations associated with locations that are no longer being utilized in the Consolidated Statements of Operations and Comprehensive Income.
current operations. The following table summarizes the changes in closed lease liabilities during fiscal year 2018:
| | | |||
|---|---|---|---|---|
Predecessor | ||||
Balance as of December 27, 2017 | $ | 25,390 | ||
Expenses, net(1) | 13,919 | |||
Cash payments | (9,435 | ) | ||
Reclassification to liabilities subject to compromise | (12,175 | ) | ||
Fresh Start and reorganization adjustments | (6,501 | ) | ||
| | | | | |
Balance as of May 30, 2018 | 11,198 | |||
| | | | | |
Successor | ||||
Expenses, net(2) | 4,792 | |||
Cash payments | (6,974 | ) | ||
| | | | | |
Balance as of December 26, 2018 | $ | 9,016 | ||
| | | | | |
| | | | | |
| | | | | |
| Liability for Closed Stores | ||||
Balance at January 1, 2011 | $ | 3,411 | ||
Cash payments | (665 | ) | ||
|
| |||
Balance at December 31, 2011 | 2,746 | |||
Assumption of Winn-Dixie liability | 21,976 | |||
Expense | 1,124 | |||
Cash payments | (8,493 | ) | ||
|
| |||
Balance at December 26, 2012 | $ | 17,353 | ||
|
| |||
The expense As of December 26, 2018, the short-term portion of closed lease liabilities in the amount includes the accretion of the present value of the expected future rental payments and adjustments to underlying assumptions for closed stores. Current and long-term portions of the closed store reserves are recorded$2.1 million was included in "Other accrued expenses" within the Consolidated Balance Sheets. The long-term portion, in accrued expenses and otherthe amount of $6.9 million was included in "Other long-term liabilities, respectively.
liabilities" within the SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIESConsolidated Balance Sheets as of the same date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of the adoption of ASU 2016-02, closed lease liabilities related to lease obligations are included in the measurement of the operating lease asset. Refer to Footnote 2, New Accounting Pronouncements, for additional information.
Dollar amounts in thousands, except per share data, unless otherwise stated
11.14. Benefit and Compensation Plans
BI-LOSoutheastern Grocers 401(k) Savings Plan
Employees who areThe Company sponsors a 401(k) Savings Plan (the "Plan") which is available to all employees electing to participate after meeting certain minimum eligibility requirements. Pursuant to the Plan, employees age 21 or older are eligible to participate in the BI-LO 401(k) Savings Plan (the “Savings Plan”) aton the beginningfirst day of the first pay periodmonth after completing 9060 days of continuous employment. EmployeesEach participant may contribute from 1% to 25% of their earnings on a pretax basis to the Savings Plan subjectup to certain Internal Revenue Code limitations.75% of his or her pre-tax annual compensation, as defined in the Plan, up to the annual IRS contribution limit. The Company is required to make safe-harbor matching contributions to each eligible participant's 401(k) account based upon the participant's contributions, which are funded to the Plan
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
14. Benefit and Compensation Plans (Continued)
subsequent to year-end. Employees are eligible to receive a Company-matching contribution after one year of service (with a minimum of 1,000 hours of service). The Company matches 100% of the employee contributions up to 3% of an employee’semployee's eligible paycompensation and matches 50% of the employee’semployee's next 2% of eligible pay.compensation. Employee contributions and the Company’sCompany's matching contributions vest immediately.
The SavingsCompany may make a discretionary contribution to eligible participants, as determined by the Company. The vesting period for these contributions is 20% after one year of service (1,000 hours of service within 12 consecutive months), increasing 20% per year of service (1,000 hours of service with 12 consecutive months) for the next four years. The Plan offers a choice of numerous investment options and has a loan provision. There were no discretionary contributions during fiscal years 2019, 2018, or 2017.
The Company recognized expense for Company contributions toof $14.1 million, $8.1 million, $6.5 million, and $15.2 million for fiscal year 2019, the Savings Plan was $4,223, $4,100 and $4,506 in fiscal 2012, fiscal 2011,30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal 2010, respectively, recognized within operating,year 2017, respectively. These amounts were included in "Operating, general and administrative expenses inexpenses" within the accompanying Consolidated Statements of Operations and Comprehensive Income.
(Loss) IncomeWinn-Dixie Profit Sharing/401(k) Plan
Winn-Dixie has a Profit Sharing/401(k) Plan that has a noncontributory, trusteed profit-sharing feature and a contributory, trusteed 401(k) feature. Employees who are age 21 or older are eligible to participate in the Winn-Dixie Profit Sharing/401(k) Plan at the beginning of the first pay period after completing 90 days of continuous employment for full-time associates or after completing one year of service with a minimum of 1,000 hours of service for part-time associates. Employees may contribute from 1% to 100% of their eligible earnings on a pretax basis subject to certain Internal Revenue Code limitations. Employees are eligible to receive a Company-matching contribution of 50 cents for every dollar, up to 5% of their base annual earnings after one year of service. Employee contributions vest immediately and the Company-matching contributions vest at 20% per year. The expense for the Profit Sharing/401(k) Plan for the 42 weeks (since acquisition) ended December 26, 2012, was $6,293 recognized within operating, general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income.
Winn-Dixie Post-retirement benefits
Winn-Dixie provides medical insurance benefits to current and future retirees until age 65. Employees are eligible for benefits after attaining 55 years of age and ten years of full-time service with the Company. Other than retirees and active employees who had reached 55 years of age and had twenty years of service as of January 1, 2003, all covered individuals contribute amounts expected to be the full cost of coverage under the plan. In addition, Winn-Dixie has a non-qualified defined benefit plan that provides death benefits for those covered as of November 21, 2006. The plan was frozen with no new enrollees as of that date.
The net periodic benefit expense for the retiree medical plan and the death benefit plan consisted of $836 interest cost.
Accumulated loss not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income was $1,619 as of December 26, 2012. The Company expects to recognize $23 of the accumulated loss as a component of net periodic benefit expense in fiscal 2013.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Changes in the post-retirement benefit obligation for the retiree medical plan and the death benefit plan were as follows:
Benefit obligation as of March 9, 2012 | $ | 24,627 | ||
Interest cost | 836 | |||
Actuarial loss | 1,619 | |||
Benefits paid | (1,088 | ) | ||
|
| |||
Benefit obligation as of December 26, 2012 | $ | 25,994 | ||
|
|
The benefit obligation is included in other accrued expenses and other long-term liabilities in the accompanying Consolidated Balance Sheets.
The discount rate used to determine net periodic benefit expense for the retiree medical plan was 3.72% for fiscal 2012.
Assumed health care cost trend rates significantly affect amounts related to the retiree medical plan. The health care cost trend rate assumed was 8.1% for fiscal 2012 subsequent to March 9, 2012. The rate to which the cost trend is assumed to decline (the ultimate trend rate) is 5.0%, which is assumed to be reached in 2029. The effect of a one-percentage point change in assumed health care cost trend rates is not significant.
The Company expects to pay the following benefits during the indicated years:
2013 | $ | 1,196 | ||
2014 | 1,222 | |||
2015 | 1,232 | |||
2016 | 1,248 | |||
2017 | 1,243 | |||
2018-2021 | 6,757 |
Executive Incentive Pool Plan
In 2012, the Company established an Executive Incentive Pool Plan (the “Plan”). Under the terms of the Plan, certain executives who are participants in the Plan may earn amounts upon the occurrence of a monetization event (as defined), including a sale of more than 50% of the Company or through a public offering of more than 50% of the Company’s equity, or upon cash distributions (as defined) preceding a monetization event. The funding of the incentive pool upon the occurrence of a monetization event or certain cash distributions is contingent on a number of factors, including the sales proceeds or cash distributions and the internal rate of return earned on such events. As a result, the amount, if any, that is contributed to the incentive pool plan is not determinable until a monetization event or certain cash distributions occur and certain financial objectives are met. Therefore, it is not possible to determine what amounts, if any, are earned under the Plan until a monetization event or certain cash distributions occur, and accordingly, no amounts have been recognized for the Plan in the Company’s consolidated financial statements at December 26, 2012.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
12. Income Taxes
Income tax expense (benefit) for continuing operations consisted of:
| 2010 | 2011 | 2012 | ||||||||||
Current | ||||||||||||
Federal | (870 | ) | — | $ | (147 | ) | ||||||
State | 47 | (60 | ) | 3,592 | ||||||||
|
|
|
|
|
| |||||||
Total current | (823 | ) | (60 | ) | 3,445 | |||||||
Deferred | ||||||||||||
Federal | 3,706 | 3,706 | 3,772 | |||||||||
State | 424 | 424 | 430 | |||||||||
|
|
|
|
|
| |||||||
Total deferred | 4,130 | 4,130 | 4,202 | |||||||||
|
|
|
|
|
| |||||||
Total | 3,307 | 4,070 | $ | 7,647 | ||||||||
|
|
|
|
|
| |||||||
The current income tax expense for fiscal 2012 is due to taxable income generated within certain state jurisdictions. The Company is not able to fully offset certain state taxable income with state net operating loss (“NOL”) carryforwards as the use of the NOLs are limited as described below.
The Company recognizes deferred income tax expense related to a difference in the book and tax accounting for certain intangible assets. This expense does not have a cash effect.
The following table reconciles the federal statutory income tax rate to the effective income tax rates for continuing operations:
| 2010 | 2011 | 2012 | ||||||||||
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local income taxes, net of federal income tax benefits | 4.0 | 4.0 | 6.9 | |||||||||
Change in valuation allowance—current operations | (66.1 | ) | (5.2 | ) | (38.8 | ) | ||||||
Nondeductible bankruptcy-related costs | 56.9 | 2.8 | — | |||||||||
Other | 0.5 | 3.0 | 2.5 | |||||||||
|
|
|
|
|
| |||||||
Effective tax rate on continuing operations | 30.3 | % | 39.6 | % | 5.6 | % | ||||||
|
|
|
|
|
| |||||||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Deferred tax assets and liabilities consisted of the following:
| December 31, 2011 | December 26, 2012 | |||||||
Deferred tax assets: | ||||||||
Self-insurance reserves | 7,907 | $ | 75,062 | |||||
Closed store reserve | 818 | 6,837 | ||||||
Compensation | 9,382 | 28,565 | ||||||
Property and equipment | 47,673 | 108,208 | ||||||
Unfavorable leases | 1,508 | 26,307 | ||||||
Retirement benefits | — | 9,701 | ||||||
Net operating loss carryforwards | 98,789 | 160,638 | ||||||
Tax credits | 1,257 | 38,678 | ||||||
Other | 3,966 | 18,541 | ||||||
|
|
|
| |||||
Total deferred tax assets | 171,300 | 472,537 | ||||||
Valuation allowance | (168,086 | ) | (402,992 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | 3,214 | 69,545 | ||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Favorable leases | — | 52,022 | ||||||
Intangible assets | 19,056 | 36,489 | ||||||
Other | 4,394 | 17,524 | ||||||
|
|
|
| |||||
Total deferred tax liabilities | 23,450 | 106,035 | ||||||
|
|
|
| |||||
Net deferred tax liabilities | 20,236 | $ | 36,490 | |||||
|
|
|
| |||||
The Company maintains a full valuation allowance against substantially all of its net deferred tax assets. The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized.
As of December 26, 2012, the Company had net operating losses (NOL) carryforwards for federal income tax purposes of $403,551 that will begin to expire in 2027 and NOL carryforwards for state income tax purposes of $442,517 that will begin to expire in 2019. The Company’s utilization of $212,406 of the federal NOLs is limited under Internal Revenue Code Section 382 to $13,939 annually. The Company’s utilization of NOL carryforwards in the states of Alabama, Florida, Georgia, Louisiana, and Mississippi are generally limited as well.
In addition, the Company had tax credit carryforwards of $38,678 for federal income tax purposes, which will begin to expire in 2023.
As of December 26, 2012 and December 31, 2011, no material uncertain tax positions were identified.
The Company’s federal and state tax returns are generally open for examination for fiscal 2009 and subsequent tax years. None of the Company’s tax returns are currently under examination.
13. Discontinued Operations
In evaluating whether store closures qualify for discontinued operations classification, the Company considers each store to be a component of a business, as this is the lowest level at which the operations and cash
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
flows can be clearly distinguished, operationally and for financial reporting purposes. If the cash flows of a store to be exited will not be significant to the Company’s ongoing operations and cash inflows of nearby Company stores are not expected to increase significantly because of the exit, the results of operations of the store are reported in discontinued operations. Costs incurred to dispose of a location are included in loss on disposal of discontinued operations only if the location qualifies for discontinued operations classification; otherwise, such costs are reported as continuing operations. See Note 18 for information regarding the retrospective adjustments resulting from store closures in 2013.
During fiscal 2012, two outstanding claims related to the Company’s former Bruno’s subsidiary (which was spun off to Lone Star in March 2007) were settled and paid by the Parent for $27,102 (net of insurance reimbursements). This amount was recognized as an expense of discontinued operations and contributed capital from the Parent. See Note 14 for information on the claims.
During fiscal 2010, the Company recognized an $8,182 gain from certain reorganization items incurred as a direct result of the Chapter 11 filings. This gain was offset by $729 other discontinued operations expenses and is included in (loss) income from discontinued operations.
14. Commitments and Contingencies
C&S Supply Agreement
In December 2004, the Company entered into a supply agreement (Agreement) with C&S, commencing April 3, 2005, to purchase grocery products, except for those products that are locally delivered to the stores by vendors, exclusively through C&S. In connection with the Plan of Reorganization, the Company entered into an amended supply agreement (Amended Agreement) with C&S that expires on October 17, 2015 (see Note 4). The Amended Agreement automatically renews for an additional year, through October 17, 2016, unless the Company provides written notice prior to March 17, 2015, that it elects to have the term end on October 17, 2015.
The Amended Agreement includes guidelines for the amounts that the Company will pay for purchases from C&S and provides for future price adjustments based on the volume of product purchased and changes in C&S’s delivery costs. In addition, under the Amended Agreement, the Company pays C&S for inventory shrinkage in the distribution centers. If certain minimum purchase volumes are not met, the Company may be required to pay reduced volume surcharges. During fiscal 2012, fiscal 2011, and fiscal 2010, $1,655,592, $1,626,202, and $1,537,533 of merchandise was purchased from C&S, respectively.
At the expiration or termination of the Amended Agreement, either party can elect to have the Company purchase the distribution assets at the then net book value, including the book value of distribution assets purchased by C&S during the term of the Supply Agreement. At December 26, 2012, the net book value of such distribution assets, including distribution assets purchased by C&S since commencement of the agreement was $6,943. If, upon expiration of the term, neither party makes this election, C&S may sell the assets, and any gain or loss is shared equally between the Company and C&S. Also, upon termination or expiration of the Amended Supply Agreement, C&S may require the Company to purchase the inventory on hand, assume C&S leases or other contractual obligations related to servicing the Company’s stores, and reimburse C&S for any severance costs and other costs incurred related to shutting down facilities used to service the Company’s stores.
Bankruptcy Claims
See Note 4 for a discussion of claims which were settled as part of the Company’s Chapter 11 reorganization.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
Bruno’s Claims
On March 25, 2007, BI-LO completed a spin-off of 100% of the membership interest in Bruno’s to an affiliate of Lone Star.
On February 5, 2009, Bruno’s filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. In June 2009, Bruno’s filed a plan of liquidation, which its Bankruptcy Court confirmed in September 2009.
The Unsecured Creditors’ Committee in Bruno’s bankruptcy proceedings (succeeded by the Liquidating Trustee of Bruno’s) alleged various claims against BI-LO, including (a) that Bruno’s insolvency resulted from the spin-off from BI-LO and related actions taken by BI-LO and its Parent, (b) that BI-LO caused Bruno’s to enter into an unfavorable supply agreement with C&S Wholesale Grocers, Inc., (c) alleged preferential payments made to BI-LO by Bruno’s, and (d) fraudulent transfer of certain leases and agreements to Bruno’s for the benefit of BI-LO.
In addition, the United Food and Commercial Workers Unions and Employers Pension Fund (“Pension Fund”) alleged that BI-LO is a member of Bruno’s “control group” as that term is defined in Section 4001(b) of Employee Retirement Income Security Act of 1974 (“ERISA”) and the regulations promulgated thereunder. Therefore, the Pension Fund alleged that Bruno’s and BI-LO are jointly and severally liable for any withdrawal liability incurred by Bruno’s.
Both of these matters were resolved in September 2012, and $27,102 (net of insurance reimbursements) was paid by the Parent to settle these two claims in October and November 2012.
The $27,102 payment was recognized by the Company as an expense of discontinued operations and contributed capital from the Parent during fiscal 2012. The settlement activity did not have a cash effect to the Company.
Other Claims
In January 2012, a total of eight complaints challenging the proposed merger between BI-LO, LLC, and Winn-Dixie Stores, Inc., were filed by plaintiffs seeking to represent a class of Winn-Dixie shareholders. Seven complaints have been filed in the Circuit Court of the Fourth Judicial District in and for Duval County, Florida, and one case was filed in the United States District Court for the Middle District of Florida. The case filed in the United States District Court has since been dismissed. The cases filed in state court have been consolidated, a Lead Plaintiff appointed, and the Lead Plaintiff has filed an amended complaint. The plaintiffs in the consolidated case pending in state court generally allege, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to Winn-Dixie shareholders, that the proposed proxy statement contains materially misleading disclosures or omissions regarding the proposed transaction, and that the members of Winn-Dixie’s Board of Directors breached their fiduciary duties in approving the Merger Agreement and issuing a proxy statement. The plaintiffs also allege that those alleged breaches of fiduciary duty were aided and abetted by Winn-Dixie and the entities affiliated with BI-LO, LLC, named in the amended consolidated complaint. The plaintiffs initially sought equitable relief, including an injunction prohibiting consummation of the merger. Now that the merger has been completed, the plaintiffs have amended their claims to seek rescission or rescissory damages. The case will now move into the discovery and class certification phases. The Company believes that it has valid defenses and intends to vigorously defend against the claims. The litigation is at an early stage and there is no basis to determine the ultimate outcome or range of potential loss, if any. The Company has tendered this matter to its insurance program, which it believes will provide defense and indemnification
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
coverage for all or a portion of the Company’s defense expenses and any future losses in excess of the Company’s insurance deductible that are associated with this matter. Accordingly, no loss estimate has been recorded by the Company at December 26, 2012.
Other Legal Matters
The Company is involved in various other legal actions arising in the normal course of business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Consolidated Balance Sheets or results of operations of the Company.
15. Recently Adopted Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, which is an update to Topic 220, “Comprehensive Income”. The update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the new standard by presenting the components of other comprehensive income in the Company’s Statement of Operations and Comprehensive Income.
In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. This allows for the same evaluation as described in ASU 2011-08 for “Intangibles—Goodwill and Other”. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company adoption of ASU 2012-02 as of December 26, 2012, did not have any impact on the Company’s Consolidated Financial Statements.
16. Related-Party Transactions and Balances
The Company has an advisory agreement, dated February 2011, with Hudson Americas LLC (“Hudson”), an affiliate of Lone Star, which provides that the Company pay Hudson management fees and expenses.
The following table reflects management fees and expenses to Hudson included in operating, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
| 2010 | 2011 | 2012 | ||||||||||
Other expenses and charges, net | 1,500 | 4,515 | $ | 2,524 | ||||||||
Merger and integration expense | — | — | 3,779 | |||||||||
|
|
|
|
|
| |||||||
Hudson management fees and expenses | 1,500 | 4,515 | $ | 6,303 | ||||||||
|
|
|
|
|
| |||||||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
During fiscal 2012 and fiscal 2011, the Company paid dividends of $305,000 and $76,000, respectively, to its Parent. During fiscal 2012, the Parent made a $275,000 contribution to the Company as part of the financing of the acquisition of Winn-Dixie.
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended December 26, 2012, and December 31, 2011.
| Quarters Ended | ||||||||||||||||||||
| April 21 (16 Weeks) | July 14 (12 Weeks) | Oct. 6 (12 Weeks) | Dec. 26 (12 Weeks) | Total (52 weeks) | ||||||||||||||||
Fiscal 2012 | ||||||||||||||||||||
Net sales | $ | 1,745,169 | 2,351,935 | 2,270,588 | 2,265,169 | 8,632,861 | ||||||||||||||
Gross profit | $ | 479,096 | 645,517 | 616,270 | 609,535 | 2,350,418 | ||||||||||||||
Income from continuing operations | $ | 22,649 | 35,922 | 21,795 | 49,221 | 129,587 | ||||||||||||||
(Loss) income from discontinued operations | $ | (64 | ) | 1,251 | (27,332 | ) | (320 | ) | (26,465 | ) | ||||||||||
Net income (loss) | $ | 22,585 | 37,173 | (5,537 | ) | 48,901 | 103,122 | |||||||||||||
| Quarters Ended | ||||||||||||||||||||
| April 23 (16 Weeks) | July 16 (12 Weeks) | Oct. 8 (12 Weeks) | Dec. 31 (12 Weeks) | Total (52 weeks) | ||||||||||||||||
Fiscal 2011 | ||||||||||||||||||||
Net sales | $ | 838,376 | 660,941 | 634,646 | 645,274 | 2,779,237 | ||||||||||||||
Gross profit | $ | 222,223 | 168,538 | 162,870 | 164,177 | 717,808 | ||||||||||||||
Income (loss) from continuing operations | $ | (10,447 | ) | 8,258 | (861 | ) | 9,262 | 6,212 | ||||||||||||
Loss from discontinued operations | $ | — | (61 | ) | (162 | ) | (337 | ) | (560 | ) | ||||||||||
Net income (loss) | $ | (10,447 | ) | 8,197 | (1,023 | ) | 8,925 | 5,652 | ||||||||||||
In the fourth quarter of fiscal 2012, the Company recorded an adjustment to its self-insurance reserves, which included a reduction in expenses of approximately $16,000 related to favorable claims development, primarily workers’ compensation and general liability claims.
In the fourth quarter of fiscal 2012, the Company recorded a $7,800 reduction to merchandise costs related to the Company’s estimate of the fiscal 2012 amount to be received by the Company from its participation in a member-owned private label procurement cooperative. Receipt of the money is expected in the first quarter of fiscal 2013.
In the fourth quarter of fiscal 2012, the Company recorded a vacation accrual reduction for BI-LO stores of $4,731, which reduced operating, general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income.
In the fourth quarter of fiscal 2012, the Company recorded a $3,979 one-time catch up of depreciation and amortization based on final fair values of acquired Winn-Dixie assets.
Also during the fourth quarter of fiscal 2012, the Company issued $140,000 of additional notes under the indenture of the February 2011 Senior Secured Notes (see Note 9 for additional information) and the Company paid a $145,000 dividend to its Parent (see Note 16 for related party transactions information).
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
18. Retrospective Adjustment for Discontinued Operations
The Company’s fiscal 2012 Consolidated Statement of Operations and Consolidated Statement of Cash Flows were retrospectively reclassified from continuing to discontinued operations for the effect of three Winn Dixie stores which were closed in the 1st quarter of fiscal 2013.
The following is a summary reflecting the previously reported results compared to the retrospectively adjusted results for fiscal year ended December 26, 2012.
| Fiscal 2012 | ||||||||||||
| As Retrospectively Adjusted | As Previously Reported | Change | ||||||||||
Statement of Operations Data: | ||||||||||||
Net sales | $ | 8,632,861 | 8,649,033 | (16,172 | ) | |||||||
Gross profit | $ | 2,350,418 | 2,354,744 | (4,326 | ) | |||||||
Income from continuing operations | $ | 129,587 | 128,888 | 699 | ||||||||
Net (loss) from discontinued operations | $ | (26,465 | ) | (25,766 | ) | (699 | ) | |||||
Net income | $ | 103,122 | 103,122 | — | ||||||||
Statement of Cash Flow Data: | ||||||||||||
Loss from discontinued operations | $ | (26,465 | ) | (25,766 | ) | (699 | ) | |||||
Net cash provided by operating activities | $ | 277,660 | 276,961 | 699 | ||||||||
Net cash used in discontinued operations | $ | (6,394 | ) | (5,695 | ) | (699 | ) | |||||
Net decrease in cash and cash equivalents | $ | (1,502 | ) | (1,502 | ) | — | ||||||
19. Subsequent Events
On April 24, 2013, the Company sold its only owned warehouse located in Baldwin, Florida to AR Capital, LLC (“AR Capital”) for gross proceeds of $99,768 and subsequently leased the property back for an initial period of 20 years with four five-year options. $83,466 of the cash proceeds will be held by the Senior Secured Notes trustee and will be classified in the Condensed Consolidated Balance Sheets as other long-term assets and the cash is anticipated to be released upon purchases of permitted replacement assets as defined in the indenture governing the Senior Secured Notes.
Under this arrangement, the Company is considered the primary beneficiary of the variable interest entity (“VIE”), AR Capital, and is required to consolidate the VIE. The Company is unable to obtain the financial information of the VIE, and accordingly, has recorded the transaction similar to a non-qualified sale-leaseback, which management believes is substantially equivalent to the consolidated financial statement results that would occur if the VIE were consolidated.
On May 10, 2013, the Company entered into a new supply agreement (“Supply Agreement”) with C&S Wholesale Grocers, Inc. (“C&S”) to provide inventory supply services, including warehouse, transportation and inventory procurement, maintenance and purchasing services for both the BI-LO and Winn-Dixie banners. This Supply Agreement terminates the previous supply agreement with C&S and expires in 2021 with two one-year renewal options. Upon termination or expiration, the Company may be required to perform certain tasks such as purchase the C&S assets at net book value and the inventory located at the facilities and assume any C&S lease or service agreement related to the operations of the facilities. In connection with the Supply Agreement, the Company sold its warehouse and distribution assets to C&S. The distribution centers and the functions that support them were transitioned to C&S during September 2013.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
On May 27, 2013, the Company entered into an agreement with Delhaize America, LLC, to acquire substantially all of the store-related assets and assume the leases of 165 stores operating under the Sweetbay, Harvey’s and Reid’s banners, including 10 previously closed locations, for cash consideration of $265,000 plus lease assumptions. The transaction is expected to close during the first quarter of fiscal 2014, subject to regulatory approvals and other customary closing conditions, including expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The purchase price is expected to be provided by cash on hand and availability under the Company’s revolving credit facility.
On July 22, 2013, the Company entered into an agreement to sell seven leased stores to Publix Super Markets, Inc. for approximately $59,000, with an expected pre-tax gain of approximately $50,000. The transaction is expected to close in the second half of Fiscal 2013, upon satisfactory completion of buyer due diligence and other customary closing requirements.
On September 4, 2013, the Company entered into an agreement with Piggly Wiggly Carolina Company, Inc. (“Piggly Wiggly Carolina Company”) to purchase 21 Piggly Wiggly operating supermarkets located in South Carolina and Georgia for a purchase price of approximately $35,000 (the “Piggly Wiggly Transaction” and, together with the Delhaize Transaction, the “Pending Transactions”). The transaction is expected to close in the fourth quarter of fiscal 2013.
As of September 13, 2013, the Company agreed to enter into a sale-leaseback transaction with KRC Acquisition Corp. whereby the Company will sell six stores located in Florida and Louisiana for consideration of approximately $45,000 and, immediately thereafter, will lease back these store locations. The transaction is subject to customary conditions, including completion of due diligence by our counterparty. The transaction is expected to close in the fourth quarter of fiscal 2013.
On September 20, 2013, Holding Finance, which is the immediate parent company of BILO Holding, LLC, and BI-LO Holding Finance, Inc. (“Co-Issuer”, and together with Holding Finance, the “Issuers”) issued $475,000 aggregate principal amount of 8.625%/9.375% Senior PIK Toggle Notes due 2018 (the “PIK Toggle Notes”) under an indenture, dated as of September 20, 2013 (as may be amended, restated, modified or supplemented from time to time, the “PIK Toggle Notes Indenture”), among the Issuers, as issuers, and Wells Fargo Bank, National Association, as trustee.
Each PIK Toggle Note bears cash interest at the rate of 8.625% per annum unless the conditions described in the PIK Toggle Notes Indenture are satisfied, in which case the Issuers will be entitled to pay, to the extent described in the PIK Toggle Notes Indenture, interest by increasing the principal amount of the notes or issuing new notes at the rate of 9.375% per annum. Interest on the PIK Toggle Notes is payable semiannually in arrears on March 15 and September 15 of each year. The issuance of the PIK Toggle Notes is considered a monetization event under the Executive Incentive Pool Plan as discussed in Note 11.
On September 20, 2013 the Company paid dividends of $457,894 to its Parent using proceeds from the issuance of the PIK Toggle Notes and the Parent made a capital contribution of $14,673 to the Company.
Subsequent events were evaluated through the date the financial statements were issued.
20. Earnings Per Share
Basic earnings per common share is based on the weighted-average number of common shares outstanding for the periods presented. Diluted earnings per share is based on the weighted-average number of common shares outstanding, plus the incremental shares that would have been outstanding on the assumed vesting and exercise of all common stock equivalents subject to anti-dilution limitations. For fiscal 2012, 2011 and 2010 there was one membership unit outstanding.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands, except per share data, unless otherwise stated
The unaudited pro forma earnings per common share, basic and diluted, for fiscal 2012 gives effect to the number of shares whose proceeds would be necessary to pay the dividend on September 20, 2013. Additionally, the Company intends to use a portion of the net proceeds of the offering to pay down indebtedness. Adjusted pro forma earnings per common share, basic and diluted, gives effect to the number of shares whose proceeds would be necessary to pay the dividend and the number of shares whose proceeds would be necessary to pay down indebtedness.
The following table sets forth the computation of the unaudited pro forma and unaudited adjusted pro forma earnings per common share, basic and diluted (in thousands, except per share data).
| 2012 | ||||
Pro forma earnings per common share, basic and diluted (unaudited): | ||||
Net income | $ | 103,122 | ||
Pro forma weighted average number of shares | ||||
Weighted average number of common shares | — | |||
Shares issued in offering necessary to pay dividend | — | |||
|
| |||
Pro forma weighted average number of common shares | — | |||
|
| |||
Pro forma earnings per common share, basic and diluted | $ | 103,122 | ||
|
| |||
Adjusted pro forma earnings per common share, basic and diluted (unaudited): | ||||
Net income | $ | 103,122 | ||
Pro forma weighted average number of shares | ||||
Weighted average number of common shares | — | |||
Shares issued in offering necessary to pay dividend | — | |||
|
| |||
Pro forma weighted average number of common shares | — | |||
|
| |||
Adjusted pro forma earnings per common share, basic and diluted | $ | 103,122 | ||
|
| |||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED PARENT STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended January 1, 2011, December 31, 2011, and December 26, 2012
| 2010 | 2011 | 2012 | ||||||||||
| (Amounts in thousands) | ||||||||||||
Equity in net income of subsidiaries | $ | 15,044 | 5,652 | 103,122 | ||||||||
|
|
|
|
|
| |||||||
Net income | 15,044 | 5,652 | 103,122 | |||||||||
Post-retirement benefit plan loss | — | — | (1,619 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 15,044 | 5,652 | $ | 101,503 | |||||||
|
|
|
|
|
| |||||||
See notes to Consolidated Financial Information.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED PARENT COMPANY BALANCE SHEETS
As of December 31, 2011 and December 26, 2012
| December 31, 2011 | December 26, 2012 | |||||||
| (Amounts in thousands) | ||||||||
Assets | ||||||||
Investment in subsidiary | $ | — | 75,480 | |||||
|
|
|
| |||||
Total assets | $ | — | 75,480 | |||||
|
|
|
| |||||
Liabilities and membership interests (deficiency) | ||||||||
Liabilities | ||||||||
Liabilities to subsidiary | $ | 23,125 | — | |||||
|
|
|
| |||||
Total Liabilities | 23,125 | — | ||||||
|
|
|
| |||||
Membership interest (deficiency) | ||||||||
Membership interests | 74,000 | 71,102 | ||||||
Retained Earnings (accumulated deficit) | (97,125 | ) | 5,997 | |||||
Accumulated other comprehensive loss | — | (1,619 | ) | |||||
|
|
|
| |||||
Total membership interests (deficiency) | (23,125 | ) | 75,480 | |||||
|
|
|
| |||||
Total liabilities and membership interests (deficiency) | $ | — | 75,480 | |||||
|
|
|
| |||||
See notes to Condensed Financial Information.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
Years ended January 1, 2011, December 31, 2011, and December 26, 2012
| 2010 | 2011 | 2012 | ||||||||||
| (Amounts in thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 15,044 | 5,652 | 103,122 | ||||||||
Adjustments to reconcile income to net cash provided by operating activities: | ||||||||||||
Distribution of earnings of subsidiary | — | 20,696 | 103,122 | |||||||||
Equity in earnings of subsidiary | (15,044 | ) | (5,652 | ) | (103,122 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | — | 20,696 | 103,122 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Capital contribution to subsidiary | (150,000 | ) | — | (275,000 | ) | |||||||
Distribution from subsidiary | — | 55,304 | 201,878 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by investing activities | (150,000 | ) | 55,304 | (73,122 | ) | |||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities: | ||||||||||||
Capital contribution from parent | 150,000 | — | 275,000 | |||||||||
Distribution to parent | — | (76,000 | ) | (305,000 | ) | |||||||
|
|
|
|
|
| |||||||
Net cash provided by financing activities | 150,000 | (76,000 | ) | (30,000 | ) | |||||||
|
|
|
|
|
| |||||||
Increase in cash and cash equivalents | — | — | — | |||||||||
Cash and cash equivalents: | ||||||||||||
Cash and cash equivalents, beginning balance | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents, ending balance | $ | — | — | — | ||||||||
|
|
|
|
|
| |||||||
Supplemental cash flow information: | ||||||||||||
Interest paid | $ | — | — | — | ||||||||
Income taxes paid, net | — | — | — | |||||||||
Noncash transactions | ||||||||||||
Payment of legal settlement by Parent | $ | — | — | 27,102 | ||||||||
See notes to Condensed Financial Information.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO THE CONDENSED PARENT COMPANY STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise stated)
Pursuant to rules and regulations of the SEC, the condensed financial statements of Southeastern Grocers, LLC do not reflect all of the information and notes normally included with financial statements prepared in accordance with GAAP. Therefore, these financial statements should be read in conjunction with our consolidated financial statements and related notes.
We have accounted for the income of our subsidiaries under the equity method in the condensed financial statements.
Southeastern Grocers, LLC, was created in February 2010 in connection with the BI-LO Holding, LLC reorganization proceedings under Chapter 11 of the United States Bankruptcy Code. Prior to its incorporation in February, the investment in the subsidiary was held directly by another entity under common control of the Parent. Southeastern Grocers, LLC received a $150,000 capital contribution from the Parent, which was used to purchase 100% of the equity interests in BI-LO Holding, LLC. An additional contribution of $275,000 was received in connection with the acquisition of Winn-Dixie (see Note 2 for additional information). During fiscal 2011 and 2012, dividends were paid to the Parent totaling $76,000 and $305,000, respectively.
During fiscal 2012, two outstanding claims related to the Company’s former Bruno’s subsidiary (which was spun off to Lone Star in March 2007) were settled and paid by the Parent for $27,102 (net of insurance reimbursements). This amount was recognized as an expense of discontinued operations and contributed capital from the Parent.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
SCHEDULE II—CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description | Balance at beginning of period | Additions charged to expense | Deductions from reserves | Balance at end of period | ||||||||||||
Fiscal year ended December 26, 2012: | ||||||||||||||||
Reserves deducted from assets accounts: | ||||||||||||||||
Allowance for doubtful receivables | $ | 1,668 | 5,771 | 1,869 | 5,570 | |||||||||||
Valuation allowance on deferred tax assets | $ | 168,086 | 377,728 | (2) | 142,822 | 402,992 | ||||||||||
Reserves not deducted from assets: | ||||||||||||||||
Reserve for self-insurance liabilities | $ | 18,432 | 220,778 | (1) | 51,066 | 188,144 | ||||||||||
Fiscal year ended December 31, 2011: | ||||||||||||||||
Reserves deducted from assets accounts: | ||||||||||||||||
Allowance for doubtful receivables | $ | 2,516 | (35 | ) | 813 | 1,668 | ||||||||||
Valuation allowance on deferred tax assets | $ | 168,429 | — | 343 | 168,086 | |||||||||||
Reserves not deducted from assets: | ||||||||||||||||
Reserve for self-insurance liabilities | $ | 18,599 | 6,147 | 6,314 | 18,432 | |||||||||||
Fiscal year ended January 1, 2011: | ||||||||||||||||
Reserves deducted from assets accounts: | ||||||||||||||||
Allowance for doubtful receivables | $ | 3,356 | 36 | 876 | 2,516 | |||||||||||
Valuation allowance on deferred tax assets | $ | 172,925 | — | 4,496 | 168,429 | |||||||||||
Reserves not deducted from assets: | ||||||||||||||||
Reserve for self-insurance liabilities | $ | 18,511 | 5,977 | 5,889 | 18,599 | |||||||||||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
| 28 weeks ended | ||||||||
| July 14, 2012 | July 10, 2013 | |||||||
| (Amounts in thousands) | ||||||||
Net sales | $ | 4,097,104 | 5,574,462 | |||||
Cost of sales, including warehouse and delivery expense | 2,972,491 | 4,065,903 | ||||||
|
|
|
| |||||
Gross profit | 1,124,613 | 1,508,559 | ||||||
Operating, general and administrative expenses | 1,024,310 | 1,308,352 | ||||||
|
|
|
| |||||
Income from operations | 100,303 | 200,207 | ||||||
Interest expense | 39,508 | 46,642 | ||||||
|
|
|
| |||||
Income from continuing operations before income taxes | 60,795 | 153,565 | ||||||
Income tax (benefit) expense | 2,224 | (56,111 | ) | |||||
|
|
|
| |||||
Income from continuing operations | 58,571 | 209,676 | ||||||
(Loss) income from discontinued operations, net of tax | 1,187 | (1,714 | ) | |||||
|
|
|
| |||||
Net income | 59,758 | 207,962 | ||||||
Post-retirement benefit plan gain* | — | 12 | ||||||
|
|
|
| |||||
Comprehensive income | $ | 59,758 | 207,974 | |||||
|
|
|
| |||||
Pro forma earnings per common share, basic and diluted (unaudited): | ||||||||
Income from continuing operations | $ | — | ||||||
(Loss) from discontinued operations | — | |||||||
|
| |||||||
Pro forma earnings per common share, basic and diluted | $ | — | ||||||
|
| |||||||
Adjusted pro forma earnings per common share, basic and diluted (unaudited): | ||||||||
Income from continuing operations | $ | — | ||||||
(Loss) from discontinued operations | — | |||||||
|
| |||||||
Adjusted pro forma earnings per common share, basic and diluted | $ | — | ||||||
|
| |||||||
See accompanying notes to Condensed Consolidated Financial Statements (unaudited)
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| (a) December 26, 2012 | Unaudited July 10, 2013 | |||||||
| (Amounts in thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 56,425 | 51,678 | |||||
Accounts receivable, less allowance for doubtful receivables of $5,907 ($5,570 at December 26, 2012) | 119,540 | 127,125 | ||||||
Inventories | 883,620 | 889,486 | ||||||
Prepaid expenses and other current assets | 39,008 | 55,711 | ||||||
Deferred income taxes | — | 20,531 | ||||||
|
|
|
| |||||
Total current assets | 1,098,593 | 1,144,531 | ||||||
|
|
|
| |||||
Noncurrent assets: | ||||||||
Property and equipment, net | 599,332 | 596,429 | ||||||
Intangible assets, net | 445,482 | 430,389 | ||||||
Deferred income taxes | — | 17,659 | ||||||
Other long-term assets | 28,280 | 108,956 | ||||||
|
|
|
| |||||
Total noncurrent assets | 1,073,094 | 1,153,433 | ||||||
|
|
|
| |||||
Total assets | $ | 2,171,687 | 2,297,964 | |||||
|
|
|
| |||||
Liabilities and membership interests | ||||||||
Current liabilities: | ||||||||
Accounts payable | 417,937 | 430,703 | ||||||
Accrued payroll and related expenses | 123,358 | 96,254 | ||||||
Self-insurance liabilities | 83,760 | 79,601 | ||||||
Current maturities of obligations under capital leases | 29,072 | 28,491 | ||||||
Deferred income taxes | 3,622 | — | ||||||
Other accrued expenses | 204,567 | 234,359 | ||||||
|
|
|
| |||||
Total current liabilities | 862,316 | 869,408 | ||||||
|
|
|
| |||||
Noncurrent liabilities: | ||||||||
Senior secured notes | 430,945 | 430,425 | ||||||
Obligations under revolving credit facility | 225,000 | 100,000 | ||||||
Obligations under capital leases | 83,264 | 66,462 | ||||||
Other financing obligations | 220,099 | 312,943 | ||||||
Unfavorable leases | 68,329 | 61,100 | ||||||
Deferred income taxes | 32,868 | — | ||||||
Self-insurance liabilities | 119,234 | 119,269 | ||||||
Other long-term liabilities | 54,152 | 54,903 | ||||||
|
|
|
| |||||
Total noncurrent liabilities | 1,233,891 | 1,145,102 | ||||||
|
|
|
| |||||
Total liabilities | 2,096,207 | 2,014,510 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Membership interests | ||||||||
Membership interests | 71,102 | 71,102 | ||||||
Retained earnings | 5,997 | 213,959 | ||||||
Accumulated other comprehensive loss | (1,619 | ) | (1,607 | ) | ||||
|
|
|
| |||||
Total membership interests | 75,480 | 283,454 | ||||||
|
|
|
| |||||
Total liabilities and membership interests | $ | 2,171,687 | 2,297,964 | |||||
|
|
|
| |||||
See accompanying notes to Condensed Consolidated Financial Statements (unaudited)
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| 28 weeks ended | ||||||||
| July 14, 2012 | (as restated) July 10, 2013 | |||||||
| (Amounts in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 59,758 | 207,962 | |||||
(Loss) income from discontinued operations | 1,187 | (1,714 | ) | |||||
|
|
|
| |||||
Income from continuing operations | 58,571 | 209,676 | ||||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 44,306 | 64,566 | ||||||
Amortization of deferred financing costs and discount | 1,958 | 2,195 | ||||||
Write-off of deferred financing costs and term loan discount | 1,990 | — | ||||||
Gain on sale of property and equipment and lease terminations | (166 | ) | (1,457 | ) | ||||
Deferred income tax (benefit) provision | 2,224 | (74,670 | ) | |||||
Changes in assets and liabilities net of effect from Winn-Dixie acquisition: | ||||||||
Accounts receivable | 8,679 | (7,593 | ) | |||||
Inventories | 13,318 | (5,866 | ) | |||||
Prepaid expenses and other current assets | (12,228 | ) | (16,703 | ) | ||||
Income taxes receivable/payable | 3,025 | (784 | ) | |||||
Accounts payable | 21,543 | 12,766 | ||||||
Accrued payroll and related expenses | 12,406 | (27,104 | ) | |||||
Other accrued expenses and other assets/liabilities | 38,400 | 19,584 | ||||||
Self-insurance liabilities | 6,541 | (4,124 | ) | |||||
|
|
|
| |||||
Net cash provided by operating activities | 200,567 | 170,486 | ||||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (76,848 | ) | (50,731 | ) | ||||
Proceeds from sale of property and equipment | 228 | 3,012 | ||||||
Increase in restricted cash | — | (83,466 | ) | |||||
Acquisition of Winn-Dixie, net of cash acquired of $142,621 | (416,663 | ) | — | |||||
|
|
|
| |||||
Net cash used in investing activities | (493,283 | ) | (131,185 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Proceeds from borrowings under Revolving Credit Facility | 289,800 | 699,000 | ||||||
Principal repayments under Revolving Credit Facility | (189,800 | ) | (824,000 | ) | ||||
Capital contributions from Parent | 275,000 | — | ||||||
Decrease in cash overdraft | (29,412 | ) | — | |||||
Proceeds from other financings | — | 99,768 | ||||||
Payments on obligations under capital leases and other financing obligations | (20,427 | ) | (22,597 | ) | ||||
Proceeds from financed insurance policies | — | 14,548 | ||||||
Payments on financed insurance policies | — | (5,804 | ) | |||||
Deferred financing costs incurred | (17,769 | ) | (12 | ) | ||||
|
|
|
| |||||
Net cash (used in) provided by financing activities | 307,392 | (39,097 | ) | |||||
|
|
|
| |||||
Increase in cash and cash equivalents from continuing operations | 14,676 | 204 | ||||||
Cash flows used in discontinued operations: | ||||||||
Operating activities—net cash used in operating activities | (5,225 | ) | (6,036 | ) | ||||
Investing activities—net cash provided by sale of property | — | 1,085 | ||||||
|
|
|
| |||||
Net cash used in discontinued operations | (5,225 | ) | (4,951 | ) | ||||
(Decrease) increase in cash and cash equivalents | 9,451 | (4,747 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning balance | 57,927 | 56,425 | ||||||
|
|
|
| |||||
Ending balance | $ | 67,378 | 51,678 | |||||
|
|
|
| |||||
See accompanying notes to Condensed Consolidated Financial Statements (unaudited)
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERSHIP INTERESTS (DEFICIENCY) (UNAUDITED)
| Membership Interests | Retained Earnings | Accumulated Other Comprehensive Loss | Total Membership Interests | |||||||||||||
| (Amounts in thousands) | ||||||||||||||||
Balance—December 26, 2012(a) | $ | 71,102 | 5,997 | (1,619 | ) | 75,480 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Unaudited | ||||||||||||||||
Net income | — | 207,962 | — | 207,962 | ||||||||||||
Post-retirement benefit plan gain* | — | — | 12 | 12 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance—July 10, 2013 | $ | 71,102 | 213,959 | (1,607 | ) | 283,454 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
| Membership Interests | Retained Earnings | Other Comprehensive Loss | Total Membership Interests | |||||||||||||
| (Amounts in thousands) | ||||||||||||||||
Balance—December 31, 2011(a) | $ | 74,000 | (97,125 | ) | — | (23,125 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Unaudited | ||||||||||||||||
Net income | — | 59,758 | — | 59,758 | ||||||||||||
Capital contribution from Parent | 275,000 | — | — | 275,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance—July 14, 2012 | $ | 349,000 | (37,367 | ) | — | 311,633 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
See accompanying notes to Condensed Consolidated Financial Statements (unaudited)
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
1. Summary of Significant Accounting Policies and Other Matters
General: All information in this quarterly report should be read in conjunction with the Consolidated Financial Statements included in the Company’s (as defined below) Annual Financial Report for the fiscal year ended December 26, 2012. See Note 1 to the Consolidated Financial Statements in that report for a more detailed discussion of the Company’s significant accounting policies.
The Company: Southeastern Grocers, LLC, operates as a regional food retailer in the Southeastern United States through, BI-LO Holding, LLC whose principal operating subsidiary is BI-LO, LLC (together the “Company” or “BI-LO”). As of July 10, 2013, Southeastern Grocers, LLC operated 685 supermarkets in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee under the “Winn-Dixie”, “BI-LO”, “Super BI-LO” and “BI-LO at the Beach” supermarket banners. The Company’s operations aggregate as a single reportable segment.
Southeastern Grocers, LLC, (formerly named LSF5 Grocery Holdings, LLC) is a wholly owned subsidiary of LSF5 BI-LO Holdings, LLC (“Parent”) who is wholly owned by Lone Star Fund V (U.S.), L.P., LSF V International Finance, L.P., and their affiliates (“Lone Star” or “Ultimate Parent”).
On August 12, 2013, LSF5 Grocery Holdings, LLC was renamed to Southeastern Grocery Holdings, LLC. On September 23, 2013, Southeastern Grocery Holdings, LLC was renamed to Southeastern Grocers, LLC to be the parent filer to a newly formed holding company, BI-LO Holding Finance, LLC, (“Holding Finance”) which operates through its subsidiary, BI-LO Holding, LLC. BI-LO Holding Finance, LLC was formed on June 5, 2013, for the purpose of issuing senior unsecured notes as further described as a subsequent event in note 11.
Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Intercompany balances and transactions have been eliminated in consolidation. Operating results for the 28 weeks ended July 10, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2013, or any other period. The Company’s operating results and cash flows for the 28 weeks ended July 10, 2013, and July 14, 2012, included 28 weeks and 18 weeks, respectively, of the Winn-Dixie results of operations and cash flows after the March 2012 acquisition (see Note 2). Therefore, the Company’s operating results and cash flows for the 28 weeks ended July 10, 2013, and July 14, 2012, are not comparable.
The Condensed Consolidated Balance Sheet as of December 26, 2012, was derived from the audited consolidated financial statements as of that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Financial Report for the fiscal year ended December 26, 2012.
Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. The Company cannot determine future events and their effects with certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. The Company
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
periodically reviews these significant factors and makes adjustments when appropriate. Actual results could differ from those estimates.
Comprehensive Income: Comprehensive income differs from net income as shown on the Condensed Consolidated Statements of Operations and Comprehensive Income due to the post-retirement benefit plan gain. These items are excluded from operations and are instead recorded to accumulated other comprehensive loss, a component of changes in membership interests.
Reclassifications: Certain prior year amounts have been reclassified to conform to the current year’s presentation including reclassifications for discontinued operations (see Note 6) and the statement of cash flow classification error (see Note 12).
2. Merger and Acquisitions
On March 9, 2012, BI-LO completed the acquisition of all outstanding shares of Winn-Dixie stock and Winn-Dixie became a wholly owned subsidiary of BI-LO. Under the terms of the acquisition agreement, each issued and outstanding share of common stock of Winn-Dixie was converted into the right to receive $9.50 per share in cash for an aggregate cash consideration of $559,284. Founded in 1925, Winn-Dixie is a grocery retailer which, as of the acquisition date, operated 482 retail locations including approximately 378 in-store pharmacies and employed approximately 46,000 people. Winn-Dixie operates in the southeastern states including Florida, Alabama, Louisiana, Georgia and Mississippi.
With no overlap in markets between BI-LO and Winn-Dixie, the combined company has a geographic fit that creates a stronger platform from which to provide our customers the products and service that they have come to expect. Both BI-LO and Winn-Dixie are strong regional brands, and the Company will continue to operate under both brand names in their respective markets. The acquired Winn-Dixie stores contain substantially the same selling departments, sell substantially the same products within those departments and are substantially the same size as the BI-LO stores. No BI-LO or Winn-Dixie stores were closed as a result of the merger.
In connection with the acquisition, the Company entered into a new $700,000 senior secured, asset-based revolving credit facility as further described in Note 9. The purchase price was funded principally by a $275,000 equity contribution from Lone Star and a $260,000 draw on the March 2012 Revolving Credit Facility. The remaining purchase price and acquisition-related costs were funded from cash on hand.
The fair value estimate of assets acquired and liabilities assumed and the allocation of the purchase price to the net assets acquired has been determined by management with the assistance of independent valuation specialists. The determination of the assets acquired and liabilities assumed was based on the established fair value of the assets acquired and the liabilities assumed as of the acquisition date. The stock acquisition generated no adjustments to the original tax reporting values of the assets held by Winn-Dixie on the date of the acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
Net assets acquired and liabilities assumed:
| (amounts in thousands) | As of March 9, 2012 | |||
Current assets | ||||
Accounts receivable | $ | 75,965 | ||
Inventories | 674,426 | |||
Prepaid expenses and other current assets | 31,497 | |||
Deferred income taxes—current | 6,598 | |||
Noncurrent assets | ||||
Property and equipment | 221,241 | |||
Intangible assets | 316,318 | |||
Other long-term assets | 590 | |||
Current liabilities | ||||
Accounts payable | 321,161 | |||
Accrued payroll and related expenses | 94,524 | |||
Self-insurance liabilities—current | 75,770 | |||
Other accrued expenses | 111,710 | |||
Current maturities of obligations under capital leases | 14,874 | |||
Noncurrent liabilities | ||||
Obligations under capital leases—noncurrent | 41,107 | |||
Unfavorable leases | 78,380 | |||
Deferred income taxes—noncurrent | 18,650 | |||
Self-insurance liabilities—noncurrent | 115,247 | |||
Other long-term liabilities | 38,549 | |||
|
| |||
Total allocated purchase price, net of cash acquired of $ 142,621 | $ | 416,663 | ||
|
| |||
The accounting policies related to the acquired assets and assumed liabilities of Winn-Dixie subsequent to the acquisition are similar to those used historically by BI-LO. Additional information on certain assets acquired and liabilities assumed as of the March 9, 2012, acquisition date follows:
Inventories include $475,409 of retail store inventories and $199,017 of warehouse inventories.
Property and equipment consist of the following:
| As of March 9, 2012 | ||||
Land and buildings | $ | 71,561 | ||
Store equipment | 83,312 | |||
Warehouse equipment | 4,615 | |||
Administrative equipment | 2,529 | |||
Leasehold improvements | 51,128 | |||
Capital leases | 8,096 | |||
|
| |||
Total | $ | 221,241 | ||
|
| |||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
Intangible assets consist of the following:
| As of March 9, 2012 | Weighted average remaining amortization period (years) | |||||||
Favorable leases | $ | 142,655 | 13 | |||||
Pharmacy prescription files | 132,921 | 7 | ||||||
Trademark and tradenames | 22,979 | NA | ||||||
Liquor licenses | 12,485 | NA | ||||||
Software | 5,278 | 2 | ||||||
|
| |||||||
Total | $ | 316,318 | ||||||
|
| |||||||
Accounts payable are primarily amounts owed to vendors under normal business terms, of which approximately 50% relate to warehouse inventories.
Winn-Dixie self-insures its workers’ compensation, general liability, automobile liability, and employee medical coverage up to a set retention level, beyond which excess insurance coverage is maintained. Liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. The fair value of these liabilities assumed include $77,929 for workers’ compensation claims, $100,651 for general liability claims, $2,177 for automobile claims and $10,260 for group medical claims.
The following table shows the Winn-Dixie net sales and net income included in the Condensed Consolidated Statements of Operations and Comprehensive Income.
| 28 weeks ended July 10, 2013 | March 10, 2012 through July 14, 2012 | |||||||
Net sales | $ | 4,046,148 | 2,551,594 | |||||
Net income | $ | 106,317 | 54,625 | |||||
If the acquisition of Winn-Dixie occurred on January 12, 2012, revenue would have been $5,199,859 and net income would have been $83,484 for the 28 weeks ended July 14, 2012.
On May 27, 2013, the Company entered into an agreement with Delhaize America, LLC, to acquire substantially all of the store-related assets and assume the leases of 165 stores operating under the Sweetbay, Harvey’s and Reid’s banners, including 10 previously closed locations, for cash consideration of $265 million plus lease assumptions (the “Delhaize Transaction”). The transaction is expected to close by the end of the first quarter of fiscal 2014, subject to regulatory approvals and other customary closing conditions, including expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Company intends to finance the Delhaize Transaction with a combination of borrowings under the March 2012 Revolving Credit Facility and with cash on hand, including a substantial portion of the funds held by the Senior Secured Notes trustee from the Baldwin non-qualified sale-leaseback (classified as other long term assets in the accompanying condensed consolidated balance sheet at July 10, 2013). See Note 3 for further information on the Baldwin non-qualified sale-leaseback.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
The following table reflects changes in merger and integration accruals.
| Professional Fees | Employee Termination Costs | Other Costs | Total | |||||||||||||
Balance as of Dec. 26, 2012 | $ | 2,485 | 14,304 | 29 | 16,818 | |||||||||||
Expense | 7,846 | 3,047 | 2,233 | 13,126 | ||||||||||||
Payments | (7,296 | ) | (12,306 | ) | (2,262 | ) | (21,864 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of July 10, 2013 | $ | 3,035 | 5,045 | — | 8,080 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Accruals for professional fees and employee termination costs are included in other accrued expenses and accrued payroll and related expenses, respectively, in the Condensed Consolidated Balance Sheet as of July 10, 2013.
3. Debt
March 2012 Revolving Credit Facility
Effective March 9, 2012, the Company entered into a new $700,000 revolving credit facility (“March 2012 Revolving Credit Facility”) in connection with the Winn-Dixie acquisition to replace its then existing $100,000 revolving credit facility. The March 2012 Revolving Credit Facility matures March 9, 2017, at which time all principal amounts outstanding under the agreement will be due and payable.
Outstanding amounts under the March 2012 Revolving Credit Facility accrue interest at the Company’s option based on LIBOR (as defined) or a Base Rate (as defined), plus an applicable margin that varies based on the level of Historical Excess Availability (as defined). As of July 10, 2013, the borrowing rates in effect were LIBOR plus 2.0% or Base Rate plus 1.0% at the Company’s option. The letter of credit fee in effect as of July 10, 2013, was 2.25% (including a 0.25% facing fee to the issuing letter of credit bank). In addition, the commitment commission on the unused portion of the facility was 0.375%. Interest is payable either monthly or quarterly depending on the interest type or period selected.
The March 2012 Revolving Credit Facility has a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the Company’s ability to (1) grant liens, (2) liquidate or dissolve the business, (3) enter into consolidations or mergers, (4) enter into sale-leasebacks, (5) dispose of certain property or assets, (6) acquire property or assets outside of the normal course of business, (7) declare or pay certain dividends, (8) incur additional debt, (9) make advances, investments and loans, (10) enter into certain transactions with affiliates, (11) make modifications to certain agreements (including the certificate of incorporation), (12) make certain voluntary payments, (13) issue certain equity interests, and (14) create certain new subsidiaries. If Excess Availability under the March 2012 Revolving Credit Facility falls below a specified threshold, the Company must maintain a minimum Fixed Charge Coverage Ratio (as defined). At July 10, 2013, the Company’s Excess Availability exceeded the specified threshold, and the Company was in compliance with the loan covenants.
The lenders under the March 2012 Revolving Credit Facility are secured by a first-priority security interest in certain collateral including accounts receivable, inventory, prescription lists and other related collateral and proceeds thereof (the “ABL Priority Collateral”) and a second-priority security interest in substantially all other assets.
The outstanding borrowings under the revolving credit facilities were $100,000 and $225,000 as of July 10, 2013, and December 26, 2012, respectively.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
Excess Availability (as defined) was $468,954 as of July 10, 2013, as summarized below:
| July 10, 2013 | ||||
Availability(1) | $ | 700,000 | ||
Outstanding letters of credit | (131,046 | ) | ||
Outstanding borrowings | (100,000 | ) | ||
|
| |||
Excess Availability | $ | 468,954 | ||
|
| |||
Senior Secured Notes
The Company issued Senior Secured Notes of $140,000 and $285,000 on October 16, 2012, and February 3, 2011, respectively. The Senior Secured Notes bear interest at a fixed rate of 9.25% and mature February 15, 2019, and require semiannual interest payments. The $140,000 Senior Secured Notes issued on October 16, 2012, were issued at a $6,300 premium, with the unamortized premium recognized as part of the carrying value. During the 28 weeks ended July 10, 2013, the Company recognized $520 of premium amortization as a reduction of interest expense.
The Senior Secured Notes have a number of restrictive covenants (subject to certain exceptions and exclusions) which, among other things, limit the Company’s ability to (1) incur additional debt, (2) make restricted payments (as defined), (3) enter into certain transactions with affiliates, (4) grant liens, (5) sell assets, and (6) enter into consolidations or mergers. At July 10, 2013, the Company was in compliance with the applicable restrictive covenants.
The Senior Secured Notes are collateralized by second-priority security interests in the March 2012 Revolving Credit Facility ABL Priority Collateral and first-priority security interest, subject to certain permitted liens, in substantially all tangible and intangible assets of the Company other than the March 2012 Revolving Credit Facility ABL Priority Collateral and certain other excluded assets.
Other Financing Obligations
On April 24, 2013, the Company sold its only owned warehouse located in Baldwin, Florida to AR Capital, LLC (“AR Capital”) for gross proceeds of $99,768 and subsequently leased the property back for an initial period of 20 years with four five-year options. $83,466 of the cash proceeds will be held by the Senior Secured Notes trustee and will be classified in the Condensed Consolidated Balance Sheets as other long-term assets and the cash is anticipated to be released upon purchases of permitted replacement assets as defined in the indenture governing the Senior Secured Notes.
Under this arrangement, the Company is considered the primary beneficiary of the variable interest entity (“VIE”), AR Capital, and is required to consolidate the VIE. The Company is unable to obtain the financial information of the VIE, and accordingly, has recorded the transaction similar to a non-qualified sale-leaseback, which management believes is substantially equivalent to the consolidated financial statement results that would occur if the VIE were consolidated.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
Properties sold as part of non-qualified sale-leaseback transactions, accounted for in a manner similar to a financing arrangement, consisted of:
| (3) | ||||||||
| December 26, 2012 | July 10, 2013 | |||||||
Current | ||||||||
Building obligations(2) | 11,739 | $ | 12,467 | |||||
Noncurrent | ||||||||
Land obligations(1) | 55,540 | 55,540 | ||||||
Building obligations(2) | 164,559 | 257,403 | ||||||
|
|
|
| |||||
Total noncurrent | 220,099 | 312,943 | ||||||
|
|
|
| |||||
Total other financing obligations | 231,838 | $ | 325,410 | |||||
|
|
|
| |||||
Current obligations are included in other accrued expenses and noncurrent financing obligations are included in other financing obligations on the Condensed Consolidated Balance Sheets. The assets associated with the nonqualified sale-leaseback transactions are included in property and equipment, net.
4. Interest Expense
Interest expense consisted of the following:
| 28 weeks ended | ||||||||
| July 14, 2012 | July 10, 2013 | |||||||
Capital lease interest | 7,073 | $ | 6,374 | |||||
Other financing obligation interest | 12,243 | 12,516 | ||||||
Senior secured notes and revolving credit facility interest | 17,316 | 25,466 | ||||||
Senior secured notes premium amortization | — | (520 | ) | |||||
Amortization of deferred financing costs | 1,961 | 2,715 | ||||||
Write off of deferred financing costs | 1,990 | — | ||||||
Other interest | (1,075 | ) | 91 | |||||
|
|
|
| |||||
Interest expense | 39,508 | $ | 46,642 | |||||
|
|
|
| |||||
5. Income Taxes
Income tax (benefit) expense for continuing operations consisted of:
| 28 weeks ended | ||||||||
| July 14, 2012 | July 10, 2013 | |||||||
Current income tax expense | — | $ | 18,559 | |||||
Deferred income tax (benefit) expense | 2,224 | (74,670 | ) | |||||
|
|
|
| |||||
Income tax (benefit) expense | 2,224 | $ | (56,111 | ) | ||||
|
|
|
| |||||
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
The income tax benefit for the 28 weeks ended July 10, 2013, is due primarily to the Company’s determination that approximately $159,609 of the deferred tax assets previously subject to a valuation allowance as described below is more likely than not realizable in either the current or future tax years as a result of 3 years of cumulative pre-tax profit and managements expectation of future profitability. This release of the valuation allowance is reflected as an approximate $76,894 discrete deferred tax benefit recorded during the 28 weeks ended July 10, 2013, with the remaining deferred tax benefit recognized as a reduction of the Company’s effective income tax rate throughout the current fiscal year as such additional deferred tax assets are utilized to offset current expected taxable income. The Company’s estimated effective tax rate for the 28 weeks ended July 10, 2013, excluding the $76,894 discrete deferred tax benefit, is 13.5%. The Company may not be able to fully offset federal or certain state taxable income with NOL carryforwards as the use of certain NOLs are limited as described below.
During the 28 weeks ended July 10, 2013, the Company released a portion of the valuation allowance on its deferred tax assets, as there is sufficient positive evidence from current profitable operations to conclude that a portion of the Company’s deferred tax assets will be realized. The Company maintains a valuation allowance against substantially all of its net deferred tax assets that are not currently more likely than not expected to be realized due primarily to continued limitations on their use as discussed below. The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that those net deferred tax assets will be realized.
As of July 10, 2013, the Company had NOL carryforwards for federal income tax purposes of $431,652 that will begin to expire in 2026 and NOL carryforwards for state income tax purposes of $442,517 that will begin to expire in 2019. The Company’s utilization of $212,406 of the federal NOLs, as well as certain future tax depreciation deductions related to assets acquired in the Winn-Dixie acquisition, are limited under Internal Revenue Code Section 382 to $13,939 annually. The Company’s utilization of NOL carryforwards in the states of Alabama, Florida, Georgia, Louisiana, and Mississippi are generally limited as well.
In addition, the Company had tax credit carryforwards of $39,446 for federal income tax purposes, substantially all of which are subject to similar limitations on annual usage as the NOLs discussed above, which will begin to expire in 2023.
6. Discontinued Operations
In evaluating whether store closures qualify for discontinued operations classification, the Company considers each store to be a component of a business, as this is the lowest level at which the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. If the cash flows of a store to be exited will not be significant to the Company’s ongoing operations and cash inflows of nearby Company stores are not expected to increase significantly because of the exit, the results of operations of the store are reported in discontinued operations. Costs incurred to dispose of a location are included in loss on disposal of discontinued operations only if the location qualifies for discontinued operations classification; otherwise, such costs are reported as continuing operations.
The Company closed four stores during the 28 weeks ended July 10, 2013. Results of operations for three of these closed stores were classified as discontinued operations for all periods presented. Net sales from discontinued operations for the 28 weeks ended July 10, 2013, were $2,866, and $7,197 for the 28 weeks ended July 14, 2012. For the 28 weeks ended July 10, 2013, the loss on disposal of discontinued operations consisted primarily of $1,391 of lease termination costs.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
The following table summarizes the changes in the closed store liabilities.
| Liability for Closed Stores | ||||
Balance at December 26, 2012 | $ | 17,353 | ||
Expense | 2,946 | |||
Cash payments | (5,345 | ) | ||
|
| |||
Balance at July 10, 2013 | $ | 14,954 | ||
|
| |||
7. Commitments and Contingencies
Other Claims
In January 2012, a total of eight complaints challenging the proposed merger between BI-LO, LLC, and Winn-Dixie Stores, Inc., were filed by plaintiffs seeking to represent a class of Winn-Dixie shareholders. Seven complaints have been filed in the Circuit Court of the Fourth Judicial District in and for Duval County, Florida, and one case was filed in the United States District Court for the Middle District of Florida. The case filed in the United States District Court has since been dismissed. The cases filed in state court have been consolidated, a Lead Plaintiff appointed, and the Lead Plaintiff has filed an amended complaint. The plaintiffs in the consolidated case pending in state court generally allege, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to Winn-Dixie shareholders, that the proposed proxy statement contains materially misleading disclosures or omissions regarding the proposed transaction, and that the members of Winn-Dixie’s Board of Directors breached their fiduciary duties in approving the Merger Agreement and issuing a proxy statement. The plaintiffs also allege that those alleged breaches of fiduciary duty were aided and abetted by Winn-Dixie and the entities affiliated with BI-LO, LLC, named in the amended consolidated complaint. The plaintiffs initially sought equitable relief, including an injunction prohibiting consummation of the merger. Now that the merger has been completed, the plaintiffs have amended their claims to seek rescission or rescissory damages. The case will now move into the discovery and class certification phases. The Company believes that it has valid defenses and intends to vigorously defend against the claims. The litigation is at an early stage and there is no basis to determine the ultimate outcome or range of potential loss, if any. The Company has tendered this matter to its insurance program, which it believes will provide defense and indemnification coverage for all or a portion of the Company’s defense expenses and any future losses in excess of the Company’s insurance deductible that are associated with this matter. Accordingly, no loss estimate has been recorded by the Company at July 10, 2013.
Other Legal Matters
The Company is involved in various other legal actions arising in the normal course of business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Operations of the Company.
8. Recently Adopted Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, which is an update to Topic 220, “Comprehensive Income”. The update eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the new standard by presenting the components of other comprehensive income in the Company’s Statement of Operations and Comprehensive Income.
9. Related-Party Transactions and Balances
The Company has an advisory agreement, dated February 2011, with Hudson Americas LLC (“Hudson”), an affiliate of Lone Star, which provides that the Company pay Hudson management fees and expenses.
| 28 weeks ended | ||||||||
| July 14, 2012 | July 10, 2013 | |||||||
Statement of operations line: | ||||||||
Other expenses and charges, net | 621 | 1,826 | ||||||
Merger and integration expense | 3,779 | — | ||||||
|
|
|
| |||||
Hudson management fees and expenses | 4,400 | 1,826 | ||||||
|
|
|
| |||||
As of July 10, 2013, amounts due to Hudson were $730.
10. Supply Agreement
On May 10, 2013, the Company entered into a new supply agreement (“Supply Agreement”) with C&S Wholesale Grocers, Inc. (“C&S”) to provide inventory supply services, including warehouse, transportation and inventory procurement, maintenance and purchasing services for both the BI-LO and Winn-Dixie banners. The Company is required to exclusively purchase retail merchandise, other than merchandise that is delivered directly from the manufacturers to the stores, from C&S for resale at substantially all of the stores. C&S is required to maintain a sufficient inventory of the supplied goods and provide products to the Company at prices based on manufacturer’s prices, market conditions, availability and the aggregate volume of items that the Company purchases. The Company remains responsible for certain fixed and variable costs relating to the operation of the warehouses and transportation network. This Supply Agreement terminates the previous supply agreement with C&S and expires in 2021 with two one-year renewal options. Upon termination or expiration, the Company may be required to perform certain tasks such as purchase the C&S assets at net book value and the inventory located at the facilities and assume any C&S lease or service agreement related to the operations of the facilities.
The Company will enter into a license agreement for each Winn-Dixie distribution facility covered under the agreement to transition the use of the facilities to C&S to perform their obligations under the Supply Agreement. As of July 10, 2013, one facility was converted under the Supply Agreement and the five remaining are expected to be transitioned during the third quarter of fiscal 2013. As part of this transition, the Company will also enter into assignment agreements with C&S to transfer certain liabilities including leases related to the operation of the facilities.
In connection with the Supply Agreement, the Company sold its warehouse and distribution assets to C&S for $9,000. The sale of these assets will be accounted for similar to a financing lease and the assets will remain in the Condensed Consolidated Balance Sheets. The $9,000 purchase price will be amortized over the term of the Supply Agreement beginning with the final warehouse conversion.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
11. Subsequent Events
On July 22, 2013, the Company entered into an agreement to sell seven leased stores to Publix Super Markets, Inc. for approximately $59,000, with an expected pre-tax gain of approximately $50,000. The transaction is expected to close in the second half of fiscal 2013, upon satisfactory completion of buyer due diligence and other customary closing requirements.
On September 4, 2013, the Company entered into an agreement with Piggly Wiggly Carolina Company, Inc. (“Piggly Wiggly Carolina Company”) to purchase 21 Piggly Wiggly operating supermarkets located in South Carolina and Georgia for a purchase price of approximately $35,000 (the “Piggly Wiggly Transaction” and, together with the Delhaize Transaction, the “Pending Transactions”). The transaction is expected to close in the fourth quarter of fiscal 2013.
As of September 13, 2013, the Company agreed to enter into a sale-leaseback transaction with KRC Acquisition Corp. whereby the Company will sell six stores located in Florida and Louisiana for consideration of approximately $45,000 and, immediately thereafter, will lease back these store locations. The transaction is subject to customary conditions, including completion of due diligence by our counterparty. The transaction is expected to close in the fourth quarter of fiscal 2013.
On September 20, 2013, Holding Finance, which is the immediate parent company of BILO Holding, LLC, and BI-LO Holding Finance, Inc. (“Co-Issuer”, and together with Holding Finance, the “Issuers”) issued $475,000 aggregate principal amount of 8.625%/9.375% Senior PIK Toggle Notes due 2018 (the “PIK Toggle Notes”) under an indenture, dated as of September 20, 2013 (as may be amended, restated, modified or supplemented from time to time, the “PIK Toggle Notes Indenture”), among the Issuers, as issuers, and Wells Fargo Bank, National Association, as trustee.
Each PIK Toggle Note bears cash interest at the rate of 8.625% per annum unless the conditions described in the PIK Toggle Notes Indenture are satisfied, in which case the Issuers will be entitled to pay, to the extent described in the PIK Toggle Notes Indenture, interest by increasing the principal amount of the notes or issuing new notes at the rate of 9.375% per annum. Interest on the PIK Toggle Notes is payable semiannually in arrears on March 15 and September 15 of each year. The issuance of the PIK Toggle Notes is considered a monetization event under the Executive Incentive Pool Plan.
On September 20, 2013 the Company paid dividends of $457,894 to its Parent using proceeds from the issuance of the PIK Toggle Notes and the Parent made a capital contribution of $14,673 to the Company.
12. Restatement of Condensed Consolidated Financial Statements
Subsequent to the completion of the Company’s Condensed Consolidated Financial Statements as of July 10, 2013, the Company identified a classification error in the Condensed Consolidated Statement of Cash Flows for the 28 weeks ended July 10, 2013. This error related to the cash flow presentation of the Baldwin non-qualified sale-leaseback (see Note 3). This error had no impact on net cash flow, and did not affect the accompanying Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Income, or Condensed Consolidated Statements of Changes in Membership Interests.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
The following is a summary reflecting the previously reported results compared to the reclassification adjustment for the Condensed Consolidated Statement of Cash Flows for the 28 weeks ended July 10, 2013.
| 28 weeks ended July 10, 2013 | ||||||||||||
| As Restated | As Previously Reported | Change | ||||||||||
Statement of Cash Flows Data: | ||||||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds for the sales of property and equipment | $ | 3,012 | 102,780 | (99,768 | ) | |||||||
Net cash used in investing activities | $ | (131,185 | ) | (31,417 | ) | (99,768 | ) | |||||
Cash flows from financing activities: | ||||||||||||
Proceeds from other financings | $ | 99,768 | — | 99,768 | ||||||||
Net cash (used in) provided by financing activities | $ | (39,097 | ) | (138,865 | ) | 99,768 | ||||||
13. Earnings Per Share
Basic earnings per common share is based on the weighted-average number of common shares outstanding for the periods presented. Diluted earnings per share is based on the weighted-average number of common shares outstanding, plus the incremental shares that would have been outstanding on the assumed vesting and exercise of all common stock equivalents subject to anti-dilution limitations. For the 28 weeks ended July 10, 2013 and July 14, 2012, there was one membership unit outstanding.
The unaudited pro forma earnings per common share, basic and diluted, for fiscal the 28 weeks ended July 10, 2013, gives effect to the number of shares whose proceeds would be necessary to pay the dividend on September 20, 2013. Additionally, the Company intends to use a portion of the net proceeds of the offering to redeem a portion of the Parent Notes. Adjusted pro forma earnings per common share, basic and diluted, gives effect to the number of shares whose proceeds would be necessary to pay the dividend and the number of shares whose proceeds would be necessary to redeem the Parent Notes.
SOUTHEASTERN GROCERS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar amounts in thousands, unless otherwise stated
The following table sets forth the computation of the unaudited pro forma and unaudited adjusted pro forma earnings per common share, basic and diluted (in thousands, except per share data).
| 28 weeks ended July 10, 2013 | ||||
Pro forma earnings per common share,basic and diluted (unaudited): | ||||
Net income | $ | 207,962 | ||
Pro forma weighted average number of shares | ||||
Weighted average number of common shares | — | |||
Shares issued in offering necessary to pay dividend | — | |||
|
| |||
Pro forma weighted average number of common shares | — | |||
|
| |||
Pro forma earnings per common share, basic and diluted | $ | 207,962 | ||
|
| |||
Adjusted pro forma earnings per common share,basic and diluted (unaudited): | ||||
Net income | $ | 207,962 | ||
Pro forma weighted average number of shares | ||||
Weighted average number of common shares | — | |||
Shares issued in offering necessary to pay dividend | — | |||
|
| |||
Pro forma weighted average number of common shares | — | |||
|
| |||
Adjusted pro forma earnings per common share, basic and diluted | $ | 207,962 | ||
|
| |||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Winn-Dixie Stores, Inc.:
We have audited the accompanying consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows of Winn-Dixie Stores, Inc. and subsidiaries for the years ended June 29, 2011, June 30, 2010 and June 24, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Winn-Dixie Stores, Inc. and subsidiaries for the years ended June 29, 2011, June 30, 2010 and June 24, 2009, in conformity with U.S. generally accepted accounting principles.
As discussed in notes 5 and 14 to the consolidated financial statements, the Company adopted the provisions of ASC Topic 805 “Business Combinations” as of June 25, 2009.
/s/ KPMG LLP
Certified Public Accountants
Jacksonville, Florida
August 29, 2011
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
COMPREHENSIVE INCOME (LOSS)
Years ended June 24, 2009, June 30, 2010, and June 29, 2011
| 2009 | 2010(1) | 2011 | ||||||||||
| amounts in thousands except per share data | ||||||||||||
Net sales | $ | 7,079,127 | $ | 6,980,118 | $ | 6,880,776 | ||||||
Cost of sales, including warehouse and delivery expenses | 5,061,960 | 4,988,193 | 4,962,508 | |||||||||
|
|
|
|
|
| |||||||
Gross profit on net sales | 2,017,167 | 1,991,925 | 1,918,268 | |||||||||
Operating and administrative expenses | 1,952,984 | 1,950,205 | 1,938,902 | |||||||||
Gain on insurance settlement | (22,430 | ) | — | — | ||||||||
Impairment charges | 5,174 | 4,592 | 5,174 | |||||||||
|
|
|
|
|
| |||||||
Operating (loss) income | 81,439 | 37,128 | (25,808 | ) | ||||||||
Interest expense, net | 4,978 | 4,650 | 7,217 | |||||||||
|
|
|
|
|
| |||||||
(Loss) income from continuing operations before income tax | 76,461 | 32,478 | (33,025 | ) | ||||||||
Income tax (benefit) expense | 36,209 | (4,306 | ) | (3,233 | ) | |||||||
|
|
|
|
|
| |||||||
Net (loss) income from continuing operations | 40,252 | 36,784 | (29,792 | ) | ||||||||
|
|
|
|
|
| |||||||
Discontinued operations: | ||||||||||||
Loss from discontinued operations | (752 | ) | (7,887 | ) | (12,958 | ) | ||||||
Loss on disposal of discontinued operations | — | — | (27,380 | ) | ||||||||
Income tax benefit | (289 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Net loss from discontinued operations | (463 | ) | (7,887 | ) | (40,338 | ) | ||||||
|
|
|
|
|
| |||||||
Net (loss) income | 39,789 | 28,897 | (70,130 | ) | ||||||||
Change in post-retirement benefit obligation(2) | (1,826 | ) | (1,386 | ) | (415 | ) | ||||||
|
|
|
|
|
| |||||||
Comprehensive (loss) income | $ | 37,963 | $ | 27,511 | $ | (70,545 | ) | |||||
|
|
|
|
|
| |||||||
Basic (loss) earnings per share: | ||||||||||||
(Loss) earnings from continuing operations | $ | 0.74 | $ | 0.67 | $ | (0.54 | ) | |||||
Loss from discontinued operations | (0.01 | ) | (0.14 | ) | (0.72 | ) | ||||||
|
|
|
|
|
| |||||||
Basic (loss) earnings per share | $ | 0.73 | $ | 0.53 | $ | (1.26 | ) | |||||
|
|
|
|
|
| |||||||
Diluted (loss) earnings per share: | ||||||||||||
(Loss) earnings from continuing operations | $ | 0.74 | $ | 0.67 | $ | (0.54 | ) | |||||
Loss from discontinued operations | (0.01 | ) | (0.15 | ) | (0.72 | ) | ||||||
|
|
|
|
|
| |||||||
Diluted (loss) earnings per share | $ | 0.73 | $ | 0.52 | $ | (1.26 | ) | |||||
|
|
|
|
|
| |||||||
Weighted-average common shares outstanding-Basic | 54,347 | 54,911 | 55,654 | |||||||||
|
|
|
|
|
| |||||||
Weighted-average common shares outstanding-Diluted | 54,583 | 55,196 | 55,654 | |||||||||
|
|
|
|
|
| |||||||
|
|
See accompanying notes to consolidated financial statements.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 24, 2009, June 30, 2010, and June 29, 2011
| 2009 | 2010* | 2011 | ||||||||||
| amounts in thousands | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | 39,789 | $ | 28,897 | $ | (70,130 | ) | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 99,566 | 103,554 | 116,595 | |||||||||
Deferred income taxes | 35,920 | 165 | 124 | |||||||||
Share-based compensation | 15,469 | 16,984 | 10,197 | |||||||||
Other, net | 10,324 | 8,043 | 620 | |||||||||
Gain on insurance settlement | (22,430 | ) | — | — | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade, insurance and other receivables | 26,379 | 10,068 | (7,536 | ) | ||||||||
Merchandise inventories | (16,459 | ) | 7,441 | 77,951 | ||||||||
Prepaid expenses and other current assets | 9,528 | 4,474 | (898 | ) | ||||||||
Accounts payable and accrued expenses | 6,695 | (1,368 | ) | 13,918 | ||||||||
Reserve for self-insurance liabilities | (5,225 | ) | (6,239 | ) | 3,558 | |||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 199,556 | 172,019 | 144,399 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Purchases of long-lived assets | (223,271 | ) | (189,062 | ) | (92,632 | ) | ||||||
(Increase) decrease in other assets, net | 8,085 | 115 | (1 | ) | ||||||||
Sales of assets | 1,316 | 1,203 | 13,459 | |||||||||
Proceeds from insurance | 17,601 | — | — | |||||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (196,269 | ) | (187,744 | ) | (79,174 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities: | ||||||||||||
Gross borrowings on credit facilities | 12,777 | 9,090 | 22,028 | |||||||||
Gross payments on credit facilities | (12,835 | ) | (9,090 | ) | (22,028 | ) | ||||||
Increase (decrease) in book overdrafts | (12,623 | ) | (3,522 | ) | 10,756 | |||||||
Principal payments on capital leases | (9,097 | ) | (11,393 | ) | (12,133 | ) | ||||||
Debt issuance costs | — | — | (8,530 | ) | ||||||||
Other, net | 39 | 144 | 119 | |||||||||
|
|
|
|
|
| |||||||
Net cash used in financing activities | (21,739 | ) | (14,771 | ) | (9,788 | ) | ||||||
|
|
|
|
|
| |||||||
Increase (decrease) in cash and cash equivalents | (18,452 | ) | (30,496 | ) | 55,437 | |||||||
Cash and cash equivalents at beginning of year | 201,275 | 182,823 | 152,327 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of year | $ | 182,823 | $ | 152,327 | $ | 207,764 | ||||||
|
|
|
|
|
| |||||||
See accompanying notes to consolidated financial statement.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Number of Common Shares | Par Value of Common Stock | Additional Paid-In- Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
| amounts in thousands | ||||||||||||||||||||||||
Balances as of June 25, 2008 | 54,081 | $ | 54 | $ | 776,059 | $ | 41,277 | $ | 8,237 | $ | 825,627 | |||||||||||||
|
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|
|
| |||||||||||||
Net income | — | — | — | 39,789 | — | 39,789 | ||||||||||||||||||
Change in post-retirement benefit obligation* | — | — | — | — | (1,826 | ) | (1,826 | ) | ||||||||||||||||
Restricted stock units vested | 399 | — | — | — | — | — | ||||||||||||||||||
Share-based compensation expense | — | — | 15,469 | — | — | 15,469 | ||||||||||||||||||
Stock issued under Employee Stock Purchase Plan | 4 | — | 39 | — | — | 39 | ||||||||||||||||||
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Balances as of June 24, 2009 | 54,484 | $ | 54 | 791,567 | 81,066 | 6,411 | $ | 879,098 | ||||||||||||||||
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Net income | — | — | — | 28,897 | — | 28,897 | ||||||||||||||||||
Change in post-retirement benefit obligation* | — | — | — | — | (1,386 | ) | (1,386 | ) | ||||||||||||||||
Restricted stock units vested | 592 | — | — | — | — | — | ||||||||||||||||||
Share-based compensation expense | — | — | 16,984 | — | — | 16,984 | ||||||||||||||||||
Treasury activity | (14 | ) | — | — | — | — | — | |||||||||||||||||
Stock issued under Employee Stock Purchase Plan | 13 | 1 | 143 | — | — | 144 | ||||||||||||||||||
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Balances as of June 30, 2010 | 55,075 | $ | 55 | 808,694 | 109,963 | 5,025 | $ | 923,737 | ||||||||||||||||
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Net loss | — | — | — | (70,130 | ) | — | (70,130 | ) | ||||||||||||||||
Change in post-retirement benefit obligation* | — | — | — | — | (415 | ) | (415 | ) | ||||||||||||||||
Restricted stock units vested | 728 | — | — | — | — | — | ||||||||||||||||||
Share-based compensation expense | — | — | 10,197 | — | — | 10,197 | ||||||||||||||||||
Stock issued under Employee Stock Purchase Plan | 17 | 1 | 118 | — | — | 119 | ||||||||||||||||||
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Balances as of June 29, 2011 | 55,820 | $ | 56 | $ | 819,009 | $ | 39,833 | $ | 4,610 | $ | 863,508 | |||||||||||||
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See accompanying notes to consolidated financial statements.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
1. Summary of Significant Accounting Policies and Other Matters
The Company: As of June 29, 2011, Winn-Dixie Stores, Inc. (the “Company” or “Winn-Dixie”) operated as a major food retailer in five states in the southeastern United States. The Company operated 484 retail stores, with 4 fuel centers and 75 liquor stores. In support of its stores, the Company operated six distribution centers.
Fiscal Year: The fiscal year ends on the last Wednesday in June. Fiscal 2010 was comprised of 53 weeks ended June 30, 2010, and fiscal 2011 and fiscal 2009 were each comprised of 52 weeks ended June 29, 2011, and June 24, 2009, respectively.
Basis of Consolidation: The Consolidated Financial Statements include the accounts of Winn-Dixie Stores, Inc. and its subsidiaries, all of which are wholly owned and fully consolidated. Intercompany accounts and transactions are eliminated in consolidation.
Business Reporting Segments: The Company’s retail stores account for substantially all of its net sales. These stores are located in a limited geographic area, the southeast region of the United States. Each retail store contains substantially the same selling departments and sells substantially the same products within those departments. Accordingly, the Company has determined that it has one operating segment that is one reportable segment. No aggregation of operating segments has occurred.
The following table provides detail on the percentage of net sales for each group of similar products sold:
| 2009 | 2010 | 2011 | ||||||||||
Non-perishable(1) | 62.2 | % | 61.5 | % | 60.9 | % | ||||||
Perishable(2) | 28.4 | % | 28.9 | % | 29.7 | % | ||||||
Pharmacy | 8.9 | % | 9.0 | % | 8.7 | % | ||||||
Other(3) | 0.5 | % | 0.6 | % | 0.7 | % | ||||||
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Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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The principal characteristic in determining each group of products that make up net sales is based on similar economic factors, including similar gross margin percentage, shelf life or inventory shrink losses.
Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The Company cannot determine future events and their effects with certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. The Company periodically reviews these significant factors and makes adjustments when appropriate. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity of 90 days or less when purchased. Cash and cash equivalents are stated at cost plus accrued interest,
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
which approximates fair value. Cash includes in-transit amounts from debit, credit and electronic benefit transactions.
Trade and Other Receivables, Less Allowance for Doubtful Receivables: Trade and other receivables, less allowance for doubtful receivables consist primarily of amounts due from vendors related to vendor allowances and from third-party insurance companies for pharmacy billings less an allowance for doubtful receivables. Receivables are recorded at an amount based on agreements with vendors. The allowance for doubtful receivables is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. On a quarterly basis, the Company evaluates its trade and other receivables and establishes an allowance for doubtful receivables, based on its history of past write-offs and collections, and current credit conditions. No interest is accrued on past due receivables.
Merchandise Inventories: Merchandise inventories are stated at the lower of cost or market. As of both June 29, 2011, and June 30, 2010, the dollar-value, link-chain last-in, first-out (“LIFO”) method was used to determine the cost of approximately 85% of inventories, primarily non-perishable merchandise in stores and distribution centers. The LIFO reserve represents the amount of the excess of the replacement or current cost over the stated LIFO amount.
Pharmacy, produce, deli and bakery inventories are valued at the lower of first-in, first-out (“FIFO”) cost or market.
The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the balance sheet date.
Property, Plant and Equipment: Property, plant and equipment is stated at historical cost less accumulated depreciation and amortization. Interest costs on construction projects are capitalized as part of the costs of the newly constructed facilities. Depreciation and amortization is computed using the straight-line method over the estimated useful life of the related asset. Building depreciation is based on a life of forty years. Furniture, fixture and equipment depreciation is based on lives varying from five to ten years. Amortization of improvements to leased facilities is based on the term of the lease or the estimated useful life of the improvement, whichever is less.
Long-lived Assets: The Company periodically evaluates the period of depreciation or amortization for long-lived assets, which include property, plant and equipment and intangible assets with finite lives, to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the Company’s best estimate of the net undiscounted cash flows expected to result from the use and eventual disposition of the asset. If this comparison indicates that there is impairment, an impairment loss is recorded for the excess of net book value over the fair value of the impaired asset. Fair value is estimated based on the best information available, including prices for similar assets and the results of other valuation techniques.
Intangible Assets: Intangible assets consist primarily of favorable leases, pharmacy prescription files, software, liquor licenses, and the Company’s trade name and trademark. Intangible assets related to favorable leases are amortized over the lesser of the remaining lease term, including renewal options, or seventeen years. Amortization of favorable leases is recognized as an increase in rent expense within operating and administrative
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
expenses. Other intangible assets with finite lives are amortized on a straight-line basis over the estimated useful lives of the assets, which range from five to seven years.
Intangible assets with indefinite lives are not amortized, but are instead reviewed for impairment annually in the fourth fiscal quarter or more frequently if events or circumstances indicate that the asset may be impaired.
Deferred Rent: The Company recognizes rent holidays, including the period that it has access to a property for construction of buildings or improvements, as well as construction allowances and escalating rent provisions, on a straight-line basis over the term of the lease.
Unfavorable Leases: Unfavorable leases are lease agreements with contract rates in excess of market value rates. Amortization is recognized on a straight-line basis over the lesser of the remaining lease term, including renewal options, or seventeen years. Amortization is recognized as a reduction in rent expense within operating and administrative expenses.
Income Taxes: The Company recognizes deferred tax assets and liabilities for estimated future tax consequences that are attributable to differences between the financial statement bases of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates for the year in which those temporary differences are expected to be recovered or settled. The Company adjusts the valuation allowance against its net deferred tax assets based upon its assessment of the likelihood of realization of such assets in the future; such adjustments may be material. Although the Company believes that the estimates and judgments used to prepare its various tax returns are reasonable and appropriate, such returns are subject to audit by the respective tax authorities.
The Company classifies interest expense related to income tax uncertainties as a component of interest expense. Any related penalties are included in operating and administrative expenses.
Self-Insurance: The Company self-insures for certain insurable risks, primarily workers’ compensation, business interruptions, general liability, automobile liability, and property losses, as well as employee medical benefits. Insurance coverage is obtained for catastrophic property and casualty exposures, as well as risks that require insurance by law or contract. Liabilities are determined by management using information such as independent actuarial estimates, and include both a liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. When applicable, anticipated recoveries are recorded in the Consolidated Statements of Operations in the same lines in which the losses are recorded, and are based on management’s best estimate of amounts due from insurance providers.
The Company’s accruals for insurance reserves reflect certain actuarial assumptions and management judgments regarding claim reporting and settlement patterns, judicial decisions, legislation, economic conditions and the effect of our 2005 Chapter 11 filing. Unanticipated changes in these factors may materially affect the Consolidated Financial Statements.
Facility Opening and Closing Costs: The costs of both opening new facilities and closing existing facilities are charged to operations as incurred. The Company accrues for obligations related to closed facilities, at the cease-use date, based upon the present value of expected payments over the remaining lease terms, net of estimated sublease income, using a discount rate based on a credit-adjusted risk-free rate. Expected payments include lease payments, real estate taxes, common area maintenance charges and utility costs. Adjustments to closed facility liabilities relate primarily to changes in sublease income and changes in costs. All adjustments are recorded in the period in which the changes become known.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
Revenue Recognition: The Company recognizes revenue at the time of sale for retail sales. In the Consolidated Statements of Comprehensive Income (Loss), “net sales” are reported net of sales taxes and similar taxes.
Sales discounts may be offered to customers at the time of sale as part of the Company’s Customer Reward Card program, as well as other promotional events. All sales discounts are recorded as a reduction of sales at the time of sale.
In addition, the Company periodically offers awards to customers in the form of sales discounts to be used on a future purchase, based on an accumulation of points as part of its Customer Reward Card program. The obligation related to the award of a future sales discount is recognized as a reduction of sales, based on a systematic and rational allocation of the cost of the award earned and claimed to each of the underlying revenue transactions that result in progress by the customer toward earning the award.
Cost of Sales: Cost of sales includes the cost of inventory sold during the period, net of discounts and vendor allowances; purchasing costs; transportation costs, including inbound freight and internal transfer costs; warehousing costs, including receiving and inspection costs; depreciation and amortization related to transportation and warehouses; and other costs of the Company’s distribution network.
Vendor Allowances: The Company receives allowances or rebates from certain vendors in the form of promotional allowances, quantity discounts, payments under merchandising agreements and other allowances that relate to new item introductions, slotting fees, placement of the vendors’ products in premier locations within the stores, and temporary price reductions offered to customers. The allowances reduce cost of sales if the product has been sold, and reduce ending inventory if the product has not yet been sold.
Promotional allowances are recognized based on the terms of the underlying agreements, which require either specific performance or time-based merchandising of vendor products. Thus, the Company recognizes allowances when it meets the performance criteria or on the expiration of the agreement. Promotional allowances received in advance that are contractually refundable, in whole or in part, are deferred and reported in accounts payable and other liabilities until earned. Quantity discounts and payments under merchandising agreements are recognized when specified purchase or sales volume levels are achieved and are typically not received in advance. The amounts due the Company under such agreements are reported in trade and other receivables.
Advertising: The Company expenses the costs of advertising and promotions as incurred and reports these costs in operating and administrative expenses. Advertising and promotional expense totaled $84.3 million, $91.2 million and $95.5 million, for 2011, 2010 and 2009, respectively.
Comprehensive (Loss) Income: Comprehensive (loss) income differs from net (loss) income as shown on the Consolidated Statements of Comprehensive Income (Loss) due to changes in the post-retirement benefit obligation. These items are excluded from operations and are instead recorded to accumulated other comprehensive (loss) income, a component of shareholders’ equity.
Share-Based Payments: The Company accounts for share-based compensation plans using the fair value method established by ASC Topic 718, “Compensation—Stock Compensation” (“Topic 718”).
Reclassifications and Revisions: Certain prior year amounts have been reclassified to conform to the current year’s presentation.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
2. (Loss) Earnings per Share
Basic (loss) earnings per common share is based on the weighted-average number of common shares outstanding for the periods presented. Diluted (loss) earnings per share is based on the weighted-average number of common shares outstanding, plus the incremental shares that would have been outstanding on the assumed vesting and exercise of all common stock equivalents which include options and restricted stock units (collectively “CSEs”), subject to anti-dilution limitations.
For 2011, there were no dilutive CSEs. For 2010 and 2009, the weighted-average number of common shares outstanding used in the calculation of diluted (loss) earnings per share included approximately 0.3 million and 0.2 million CSEs, respectively. The 2011 calculation excluded approximately 4.8 million CSEs due to a net loss for 2011. The 2010 and 2009 calculations excluded approximately 3.4 million and 4.4 million options, respectively. Such options are considered anti-dilutive because the exercise prices of these options were greater than the average market price of the common shares during the reporting periods.
3. Intangible Assets
Amortization of intangible assets was $23.2 million and $23.4 million for 2011 and 2010, respectively. Amortization for favorable leases was $11.7 million and $12.8 million for 2011 and 2010, respectively.
4. Impairment Charges
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company uses store performance reviews for indications that changes in market factors, traffic patterns, competition and other factors have negatively impacted the operating results of store locations. Such changes resulted in the identification of underperforming stores that experienced a current period cash flow loss combined with a history of cash flow losses. The Company compared the net book value of those underperforming store assets to the Company’s best estimate of the net undiscounted cash flows expected to result from the use and eventual disposition of the assets and, in some cases, the Company concluded that the net undiscounted cash flows were less than the net book value of the related assets. For those stores, the excess of the net book value of the assets over their fair value was recorded as an impairment charge as detailed below.
Intangible assets with indefinite lives are reviewed for impairment on an annual basis or more frequently if events or circumstances indicate that the asset may be impaired. In 2011 and 2009, the Company recorded liquor license impairment charges of $215 and $605, respectively, related to the decline in market values.
Fair value estimates are based on assumptions the Company believes to be reasonable but are inherently uncertain, thus fall within level 3 of the fair value hierarchy. Fair value is determined using a discounted cash flow methodology, which incorporates the terminal value of equipment based on broker quotes and the market value of favorable leases based on broker quotes. Pharmacy scripts and liquor licenses also incorporate the market value based on broker quotes.
Impairment charges from continuing operations were comprised of the following:
| 2009 | 2010 | 2011 | ||||||||||
Store facilities | $ | 4,569 | $ | 4,592 | $ | 4,959 | ||||||
Indefinite-lived intangible assets | 605 | — | 215 | |||||||||
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Total impairment charges | $ | 5,174 | $ | 4,592 | $ | 5,174 | ||||||
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WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
Impairment charges in store facilities included leasehold improvements, store fixtures and favorable leases.
Discontinued operations for 2011, 2010 and 2009 included impairment charges of $0.9 million, $1.1 million, and $0.4 million, respectively.
5. Income Taxes
Income tax (benefit) expense for continuing operations consisted of:
| 2009 | 2010 | 2011 | ||||||||||
Current | ||||||||||||
Federal | $ | — | $ | (4,505 | ) | $ | (3,260 | ) | ||||
State | — | 34 | (97 | ) | ||||||||
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| — | (4,471 | ) | (3,357 | ) | ||||||||
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Deferred | ||||||||||||
Federal | 31,333 | 165 | 124 | |||||||||
State | 4,876 | — | — | |||||||||
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| 36,209 | 165 | 124 | ||||||||||
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Total | $ | 36,209 | $ | (4,306 | ) | $ | (3,233 | ) | ||||
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The following table reconciles the federal statutory income tax rate to the effective income tax rate for continuing operations:
| 2009 | 2010 | 2011 | ||||||||||
Federal statutory income tax rate | 35.00 | % | 35.00 | % | 35.00 | % | ||||||
State and local income taxes, net of federal income tax benefits | 3.93 | 5.28 | 3.49 | |||||||||
Tax credits | (0.29 | ) | (0.65 | ) | 0.67 | |||||||
Effect of permanent differences related to bankruptcy | 0.66 | 9.75 | (0.45 | ) | ||||||||
Valuation allowance | — | (66.55 | ) | (26.98 | ) | |||||||
Prior year tax return to provision adjustment | 2.25 | — | — | |||||||||
Other, net | 5.81 | 3.91 | (1.94 | ) | ||||||||
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Effective tax rate on continuing operations | 47.36 | % | (13.26 | )% | 9.79 | % | ||||||
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The Company maintains a full valuation allowance against substantially all of its net deferred tax assets. The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized.
As of June 29, 2011, the Company had net operating losses (NOL) carryforwards for federal income tax purposes of $776.5 million that will begin to expire in 2025 and NOL carryforwards for state income tax purposes of $996.3 million that will begin to expire in 2019. In addition, the Company had tax credit carryforwards of $37.9 million for federal income tax purposes, which will begin to expire in 2023.
As of June 25, 2009, the Company adopted Accounting Standards Codification Topic 805, “Business Combinations,” whereby increases or decreases in the valuation allowance for deferred tax assets increase or
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
decrease tax expense. Prior to the adoption, decreases in the valuation allowance for deferred tax assets that existed at the time of emergence from bankruptcy did not decrease income tax expense and instead reduced intangible assets.
Generally, the statute of limitations remains open for the Company’s federal and state income tax returns for its 2009 through 2011 tax years.
6. Interest Expense, Net
Interest expense, net, consisted of the following:
| 2009 | 2010 | 2011 | ||||||||||
Interest expense | $ | 8,160 | $ | 6,267 | $ | 8,194 | ||||||
Capitalized interest | (1,108 | ) | (1,331 | ) | (699 | ) | ||||||
Interest income | (2,074 | ) | (286 | ) | (278 | ) | ||||||
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Interest expense, net | $ | 4,978 | $ | 4,650 | $ | 7,217 | ||||||
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7. Retirement Plans
Profit Sharing/401(k) Plan
The Company has a Profit Sharing/401(k) Plan that has a noncontributory, trusteed profit-sharing feature and a contributory, trusteed 401(k) feature. The plan is in effect for eligible team members and may be amended or terminated at any time. For 2011, 2010, and 2009, charges to operations for plan contributions amounted to $8.0 million, $8.5 million and $8.6 million, respectively. The assets and liabilities of this plan are excluded from the Consolidated Balance Sheets.
Post-retirement Benefits
The Company provides medical insurance benefits to current and future retirees until age 65. Employees are eligible for benefits after attaining 55 years of age and ten years of full-time service with the Company. Other than retirees and active employees who had reached 55 years of age and had twenty years of service as of January 1, 2003, all covered individuals contribute amounts expected to be the full cost of coverage under the plan. In addition, the Company has a non-qualified defined benefit plan that provides death benefits for those covered as of the Effective Date.November 21, 2006. The plan was frozen with no new enrollees as of that date.
The components of net periodic benefit expense for the retiree medical plandeath benefit for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017 were as follows:
| | Successor | Predecessor | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Interest cost | $ | 1,015 | $ | 571 | $ | 397 | $ | 986 | |||||||
| | | | | | | | | | | | | | | | |
Net periodic benefit expense | $ | 1,015 | $ | 571 | $ | 397 | $ | 986 | |||||||
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The accumulated loss as of December 25, 2019 and the death benefit consistedaccumulated gain as of the following:
| 2009 | 2010 | 2011 | ||||||||||
Interest cost | $ | 1,292 | $ | 1,239 | $ | 1,123 | ||||||
Recognized net actuarial gain | (429 | ) | (423 | ) | (523 | ) | ||||||
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Net periodic benefit expense | $ | 863 | $ | 816 | $ | 600 | ||||||
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Accumulated gainDecember 26, 2018 not yet reflected in the net periodic benefit cost of $3.3 million and $0.4 million, respectively, were included in accumulated"Accumulated other comprehensive income(loss) income" within the Consolidated Balance Sheets. Tax expense related to the unrealized post-retirement benefit plan gain was $4.6 million, $5.0insignificant for 2019, 2018, and 2017, respectively.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
14. Benefit and Compensation Plans (Continued)
Changes in the post-retirement benefit obligation for the death benefit plan during fiscal years 2019 and 2018 were as follows:
Predecessor | ||||
Balance as of December 27, 2017 | $ | 25,816 | ||
Interest cost | 397 | |||
Actuarial gain | (1,231 | ) | ||
Benefits paid | (855 | ) | ||
| | | | | |
Balance as of May 30, 2018 | 24,127 | |||
| | | | | |
Successor | ||||
Interest cost | 571 | |||
Actuarial gain | (353 | ) | ||
Benefits paid | (390 | ) | ||
| | | | | |
Balance as of December 26, 2018 | 23,955 | |||
Interest cost | 1,015 | |||
Actuarial loss | 3,256 | |||
Benefits paid | (1,053 | ) | ||
| | | | | |
Balance as of December 25, 2019 | $ | 27,173 | ||
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As of December 25, 2019 and December 26, 2018, the short-term portion of the benefit obligation in the amount of $1.5 million and $6.4$1.4 million, respectively, was included in "Other accrued expenses" within the Consolidated Balance Sheets. As of December 25, 2019 and December 26, 2018, the long-term portion in the amount of $25.7 million and $22.6 million, respectively, was included in "Other long-term liabilities" within the Consolidated Balance Sheets. The total amount recognized within the Consolidated Balance Sheets represents the unfunded status, as of June 29, 2011, June 30, 2010, and June 24, 2009, respectively. The Company expects to recognize $0.5 million of the accumulated gain as a component of net periodic benefit expense in 2012.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Statedthere are no plan assets.
The discount rate used to determine net periodic benefit expense for the retiree medicaldeath benefit plan was 5.25%4.36%, 6.19%4.17%, 3.70%, and 6.75%4.27% for 2011, 2010fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and 2009,fiscal year 2017. The discount rate used to determine the benefit obligation as of December 25, 2019 and December 26, 2018, was 3.29% and 4.36%, respectively.
Assumed health care cost trend rates significantly affect amounts related to the retiree medical plan. The health care cost trend rate assumed was 8.3% for 2011 and 8.5% for 2010 and 2009. The rate to which the cost trend is assumed to decline (the ultimate trend rate) is 5.0%, which is assumed to be reached in 2029. The effect of a one-percentage point change in assumed health care cost trend rates is not significant.
The Company expects to pay the following benefits, which reflect expected future services, during the indicated years:
Fiscal Year | | |||
|---|---|---|---|---|
2020 | $ | 1,487 | ||
2021 | 1,493 | |||
2022 | 1,504 | |||
2023 | 1,519 | |||
2024 | 1,537 | |||
2025-2029 | 7,966 | |||
2012 | $ | 1,326 | ||
2013 | 1,224 | |||
2014 | 1,203 | |||
2015 | 1,214 | |||
2016 | 1,208 | |||
2017-2021 | 6,443 |
8.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
15. Restructuring Activities
2018 Operational Restructuring
During 2018, the Company commenced certain operational restructuring activities related to the Company's comprehensive financing and restructuring plan to be implemented through the chapter 11 cases (the "Operational Restructuring"). Specifically, the Operational Restructuring, contemplated a store rationalization effort through closure or sale of 123 underperforming stores, termination or rejection of related leases through the bankruptcy proceedings, closure and rejection of leases of two distribution center warehouses, and lease cost-reduction initiatives. As of the end of fiscal year 2018, this activity was complete.
As of December 26, 2018, all 123 stores that were identified for closure were closed and sales were completed. Of the closed stores, 41 were sold during the 22 weeks ended May 30, 2018 for proceeds, excluding inventory, of $15.1 million, and one store was sold during the 30 weeks ended December 26, 2018 for proceeds, excluding inventory, of $0.8 million. In addition, during the 22 weeks ended May 30, 2018, the Company sold pharmacy prescription files related to 40 pharmacies for total proceeds, excluding inventory of $23.3 million. There were no sales of stores or pharmacy prescription files pending as of December 26, 2018.
During the 30 weeks ended December 26, 2018, the Company ceased use of two warehouse locations in an effort to consolidate warehouse operations within the network.
Assumption or rejection of prepetition executory contracts and unexpired leases under the Bankruptcy Code is more fully described in Footnote 2, Proceedings Under Chapter 11 of the Bankruptcy Code.
Costs related to the Restructuring activities are included in "Operating, general and administrative expenses" and "Cost of sales, including warehouse and delivery expense" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. Restructuring costs for the 30 weeks ended December 26, 2018, and the 22 weeks ended May 30, 2018 consisted of the following:
| | Successor | Predecessor | |||||||
|---|---|---|---|---|---|---|---|---|---|
| | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | ||||||
Loss (gain) on asset sales | $ | 8 | $ | (44,204 | ) | ||||
Lease termination loss | 8,497 | 21,148 | |||||||
Warehouse closure costs | 8,846 | 2,909 | |||||||
Professional fees | 6,467 | 28,794 | |||||||
Severance and benefit costs, net | (224 | ) | 10,760 | ||||||
Other | 5,765 | 3,533 | |||||||
| | | | | | | | | | |
| $ | 29,359 | $ | 22,940 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
There were no outstanding liabilities other than severance and benefit costs liability related to the Restructuring, which are included in "Accrued payroll and related expenses" within the Consolidated Balance Sheets in fiscal year 2018. The following table summarizes the change in severance
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
15. Restructuring Activities (Continued)
and benefit costs liability related to the Restructuring for the 22 weeks ended May 30, 2018 and the 30 weeks ended December 26, 2018:
Predecessor | ||||
Balance as of December 27, 2017 | $ | — | ||
Expenses, net | 10,760 | |||
Cash payments | (9,779 | ) | ||
| | | | | |
Balance as of May 30, 2018 | $ | 981 | ||
| | | | | |
Successor | ||||
Expenses, net | (224 | ) | ||
Cash payments | (737 | ) | ||
| | | | | |
Balance as of December 26, 2018 | $ | 20 | ||
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16. Share-Based Payments
General Information
Under the Fiscal 20102018 Omnibus Equity Incentive Plan (“2010 EIP Plan”(the "Plan"), the Compensation Committee of the Company’s Board of Directors mayCompany is authorized to grant up to 6.11.17 million share-based payments to officers, employees and non-employee directors, among others. The 2010 EIP Plan was approved by shareholders on November 4, 2009, and is effective for all grants made on or after November 4, 2009. Grants may includeequity based awards in the form of stock options, restricted stock and restricted stock units, and performance awards as well as other forms of share-based payments. As of June 29, 2011, 1.7 million share-based payments were available for future grant under the 2010 EIP Plan.
The shares will be issued from authorized and unissued shares of the Company’s common stock. Expired and/or forfeited awards become available for re-issuance. Vesting and exercise of share-based awards are contingent on continued employment.
The Company recognizes compensation expense on a straight-line basis over the vesting period of share-based payments. Total compensation expense related to share-based payments was $10.2 million, $17.0 million and $15.5 million for 2011, 2010, 2009, respectively. As of June 29, 2011, the Company had $14.8 million of unrecognized compensation expense related to share-based payments, which it expects to recognize over a weighted-average period of 1.7 years.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
Options
In accordance with the 2010 EIP Plan, the exercise price of an option cannot be less than the fair value of the Company’s common stock on the grant date. Options generally vest in equal installments on the first three or four anniversary dates of the grants. In addition, performance options included in a one-time grant to certain executives allow for cliff vesting at the end of five years if performance targets are achieved at that time. All options expire seven years from the grant date. Changes during 2011 were as follows:
| Number of Shares | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value ($) | |||||||||||||
| (thousands) | ||||||||||||||||
Outstanding as of June 30, 2010 | 4,306 | $ | 14.94 | |||||||||||||
Granted | 416 | 7.11 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (355 | ) | 11.49 | |||||||||||||
Expired | (330 | ) | 18.08 | |||||||||||||
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Outstanding as of June 29, 2011 | 4,037 | $ | 14.18 | 4.09 | $ | 513 | ||||||||||
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Exercisable as of June 29, 2011 | 2,407 | $ | 16.30 | 3.29 | $ | — | ||||||||||
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Vested and expected to vest as of June 29, 2011 | 4,434 | $ | 14.89 | 3.95 | $ | 461 | ||||||||||
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The fair value of options is estimated at the grant date using the Black-Scholes option-pricing model, which requires the use of various assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the grant date. The Company assumes a dividend yield of 0%, since it does not pay dividends and has no current plans to do so. The volatility assumptions are based on historical volatilities of comparable publicly traded companies using daily closing prices for the historical period commensurate with the expected term of the option and, for grants subsequent to January 7, 2009, are based on both historical volatilities of comparable publicly traded companies and the Company’s own historical volatility. The expected life of the options is determined based on the simplified assumption that the options will be exercised evenly from vesting to expiration. The weighted-average grant-date fair value of the options granted (excluding exchanged options in 2010) during 2011, 2010 and 2009 was $3.23, $5.43 and $4.38, respectively, which was determined using the following assumptions.
| 2009 | 2010 | 2011 | ||||
Risk-free interest rate range | 1.78% - 2.81% | 1.92% - 2.68% | 1.08% | |||
Expected dividend yield | 0.0% | 0.0% | 0.0% | |||
Expected life (years) | 4.75 | 4.50 - 5.83 | 4.50 | |||
Volatility range | 30.60% - 51.07% | 50.78% - 52.04% | 55.15% |
Restricted Stock Units
awards. Restricted stock units (“RSUs”("RSUs") aregranted include both time-based and performance conditions to vest, payable upon vesting as one share of new common stock for each unit. Time-based RSUs generally vest in equal installmentsThe Company measures and recognizes compensation expense for share-based payment awards based on the first three or four anniversary dates of the grants. Performance based RSUs generally vest on the achievement of one or more performance targets including RSUs that provide for potential vesting in three equal installments over a three-year period if financial metric targets
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
are met. In addition, performance-based RSUs included in a one-time grant to certain executives allow for cliff vesting at the end of five years if performance targets are achieved at that time. RSUs do not have voting rights and are not entitled to dividends, if declared. The grant-date fair value of RSUs is equal to the closing price of the Company’scommon stock on the grant dates.date of the grant. The totalfair value of shares vested during 2011, 2010 and 2009 was $4.0 million, $8.9time-based RSUs, which generally vest between six months to four years, is recognized on a straight-line basis, with forfeitures being recognized as they occur. Share-based compensation expense totaled $5.3 million and $5.1$0.4 million respectively. Changes during 2011 were:
| Number of Shares | Weighted-Average Grant Date Fair Value per share | |||||||
| (thousands) | ||||||||
Nonvested balance as of June 30, 2010 | 1,937 | $ | 12.91 | |||||
Granted | 1,200 | 7.16 | ||||||
Vested | (591 | ) | 13.76 | |||||
Forfeited | (281 | ) | 10.96 | |||||
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Nonvested balance as of June 29, 2011 | 2,265 | $ | 9.89 | |||||
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Vested and expected to vest as of June 29, 2011 | 4,152 | $ | 12.37 | |||||
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9. Leases
The Company leases substantially all of its storesfor fiscal year 2019 and other facilities, as well as certain information technologythe 30 weeks ended December 26, 2018, respectively, and transportation equipment. The majority of the Company’s lease obligations relate to real properties with remaining terms ranging from less than one year to twenty years. Many of the Company’s leases contain renewal options after the initial term. In addition to minimum rents, certain store leases require contingent rental payments if sales volumes exceed specified amounts.
Lease Commitments
As of June 29, 2011, future contractual minimum lease payments under both capital and operating leases that have remaining terms in excess of one year are:
| Capital | Operating | Subleases | Net | |||||||||||||
Fiscal Year: | ||||||||||||||||
2012 | $ | 13,344 | $ | 205,779 | $ | (1,336 | ) | $ | 217,787 | |||||||
2013 | 10,936 | 188,707 | (981 | ) | 198,662 | |||||||||||
2014 | 13,509 | 176,396 | (351 | ) | 189,554 | |||||||||||
2015 | 7,012 | 155,748 | (181 | ) | 162,579 | |||||||||||
2016 | 4,692 | 133,218 | (170 | ) | 137,740 | |||||||||||
Thereafter | 1,274 | 415,025 | (322 | ) | 415,977 | |||||||||||
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Total minimum lease payments | 50,767 | $ | 1,274,873 | $ | (3,341 | ) | $ | 1,322,299 | ||||||||
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Less: Amount representing interest | 8,004 | |||||||||||||||
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Present value of net minimum lease payments | $ | 42,763 | ||||||||||||||
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WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
Minimum rentals, contingent rentals and sublease rentals under operating leases were as follows:
| 2009 | 2010 | 2011 | ||||||||||
Minimum rentals | $ | 185,803 | $ | 188,036 | $ | 183,991 | ||||||
Contingent rentals | 398 | 460 | 371 | |||||||||
Less: Sublease rentals | (954 | ) | (1,032 | ) | (877 | ) | ||||||
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Total | $ | 185,247 | $ | 187,464 | $ | 183,485 | ||||||
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10. Discontinued Operations
In evaluating whether store closures qualify for discontinued operations classification, the Company considers each store to be a component of a business, as this is the lowest level at which the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. If the cash flows of a store to be exited will not be significant to the Company’s ongoing operations and cash inflows of nearby Company stores are not expected to increase significantly because of the exit, the results of operations of the store are reported in discontinued operations. Costs incurred to dispose of a location are included in loss on disposal of discontinued operations only if"Operating, general and administrative expenses" within the location qualifies for discontinued operations classification; otherwise, such costs are reported as continuing operations.
During 2011, the Company closed 30 non-remodeled, underperforming stores. Results of operations for the 30 stores were classified as discontinued operations. Net sales from discontinued operations for 2011, 2010 and 2009 were $49.1 million, $267.6 million and $287.8 million, respectively. For 2011, the loss on disposal of discontinued operations consisted of $7.6 million net gain on sale or retirement of assets, including pharmacy prescription files, $31.4 million of lease termination costs and $3.6 million of other costs.
The balance at June 30, 2010, includes $4.8 million of closed store lease liability related to stores closed prior to the 30 closures and $7.7 million of accrued expenses related to the leases of the 30 closures that were reclassified to the closed store lease liability in 2011. The expense amount includes leases added to the accrual and the effect on operations from the accretion of the present value of the expected future rental payments, and adjustments due to the settlement of certain leases. The cash payments include payments made for rent and related costs.
11. Insurance
The Company’s primary commercial general liability, business interruption, workers’ compensation, property loss and auto liability insurance coverages are issued under arrangements with insurance carriers pursuant to which the Company effectively self-insures such primary coverages. Above the respective primary policy limits, the Company maintains commercial property and liability umbrella and excess workers’ compensation liability stop-loss coverage. Excess insurance applies above retentions of $2.0 million per occurrence for automobile and general liability, $1.5 million per occurrence for workers’ compensation, $10.0 million per occurrence for property losses and business interruption losses related to named windstorms, $2.0 million per occurrence and $5.0 million aggregate for all other property losses in excess of $0.1 million per occurrence. The Company also self-insures its employee medical benefits program.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
The Company incurred losses and damage due to hurricanes in 2006, particularly in the New Orleans and coastal Mississippi areas due to Hurricane Katrina. During fiscal 2009, the Company reached a final settlement with its insurers related to its claim resulting from these hurricanes. Final payments totaling approximately $25.0 million received during 2009 exceeded the insurance receivable. Accordingly, the Company recorded a gain of $22.4 million in the Consolidated Statements of Operations during 2009.and Comprehensive (Loss) Income. There was no share-based compensation expense for the 22 weeks ended May 30, 2018 and fiscal year 2017.
The following table summarizes the RSU activity during fiscal year 2019 and the 30 weeks ended December 26, 2018:
| | Time-based RSUs | Performance-based RSUs | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | |||||||||
Unvested as of May 30, 2018 | — | $ | — | — | $ | — | |||||||
Granted | �� | 18,702 | 44.78 | 18,702 | 44.78 | ||||||||
| | | | | | | | | | | | | | |
Unvested as of December 26, 2018 | 18,702 | 44.78 | 18,702 | 44.78 | |||||||||
Granted | 373,750 | 35.59 | 547,750 | 35.59 | |||||||||
Vested | (52,954 | ) | 36.67 | — | |||||||||
| | | | | | | | | | | | | | |
Unvested as of December 25, 2019 | 339,498 | 35.94 | 566,452 | 35.89 | |||||||||
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Vested and not issued as of December 25, 2019 | 51,046 | $ | 36.37 | — | |||||||||
12.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
16. Share-Based Payments (Continued)
Total fair value of shares of RSUs vested during fiscal year 2019 was $1.9 million. Total unrecognized compensation costs related to time-based RSUs was $8.5 million and is expected to be recognized over a weighted-average period of 2.0 years. Total unrecognized compensation costs related to performance-based RSUs was $20.3 million and will not be recognized unless the performance conditions are met.
17. Supplemental Cash FlowsFlow Information
Supplemental cash flow information for fiscal year 2019, the 30 weeks ended December 26, 2018, the 22 weeks ended May 30, 2018, and fiscal year 2017 were as follows:
| 2009 | 2010 | 2011 | ||||||||||
Interest paid | $ | 5,708 | $ | 4,499 | $ | 4,918 | ||||||
Interest and dividends received | 2,375 | 307 | $ | 266 | ||||||||
Income taxes paid | 56 | 155 | $ | 47 | ||||||||
Income taxes received | $ | 4,629 | $ | 4,333 | $ | 3,695 | ||||||
| | Successor | Predecessor | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Interest paid | $ | 76,745 | $ | 43,206 | $ | 38,619 | $ | 104,274 | |||||||
Interest received | 20 | 63 | 67 | 27 | |||||||||||
Income taxes paid | — | 8 | — | 25 | |||||||||||
Income taxes received | — | — | — | 10 | |||||||||||
Non-cash investing and financing activities: | |||||||||||||||
Capital expenditures incurred but not yet paid | $ | 19,034 | $ | 20,974 | $ | 32,173 | $ | 17,606 | |||||||
Paid-in-kind interest(1) | — | — | 24,768 | 22,266 | |||||||||||
Terminated capital lease obligations and other financing obligations | — | — | 50,664 | — | |||||||||||
Retired assets related to terminated capital lease and other financing obligations | — | — | 30,707 | — | |||||||||||
During the 22 weeks ended May 30, 2018 the Company canceled the PIK Toggle Notes in exchange for common stock. Refer to Footnote 4, Fresh Start Accounting, for additional information.
18. Warrants
On the Effective Date, the Company issued a warrant to Lone Star entitling the holder thereof to 5% of the new common stock, subject to dilution by the new management incentive plan. The exercise price of the warrants is $52.22 per share, exercisable at any time through May 31, 2023. The value of the warrant was determined based on the Black-Scholes model on the Effective Date and has been classified as equity in the Consolidated Balance Sheets. See Footnote 4, Fresh Start Accounting, for further information.
19. Related-Party Transactions
The Company had an advisory agreement with Hudson Americas LLC ("Hudson"), an affiliate of Lone Star, the Company's previous owner, which was deemed terminated as of the Effective Date of the Prepackaged Plan on May 31, 2018.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
19. Related-Party Transactions (Continued)
Hudson management fees and expenses totaled $0.4 million and $5.2 million for the 22 weeks ended May 30, 2018 and fiscal year 2017, respectively, and were included in "Operating, general and administrative expenses" within the Consolidated Statements of Operations and Comprehensive (Loss) Income. No amounts were due to Hudson as of December 25, 2019 and December 26, 2018.
Pursuant to the Plan of Reorganization, the Company entered into the Global Settlement which formed a special purpose entity, SEG II, in conjunction with Lone Star, the primary beneficiary of the entity, which received certain leases from the Company, an initial settlement payment of $15.4 million, and an additional settlement of $25.0 million to be paid at a later date, which was secured by a letter of credit. See Footnote 4, Fresh Start Accounting, and Footnote 20, Investment in Unconsolidated Variable Interest Entity, for further information regarding this variable interest entity.
The Company entered into capital leases totaling $13.4a service agreement with SEG II to provide maintenance services for certain of these lease premises, provide limited bookkeeping services, and receive variable reimbursements and fees for the services. The Company has entered into a master sublease agreement with SEG II for certain of its operating locations for no additional rent. The Company has no significant additional obligation to SEG II other than under the foregoing agreements and the additional settlement payment of $25.0 million, $5.8of which $5.0 million is remaining and $19.0 million during 2011, 2010 and 2009, respectively. Purchases of property, plant and equipmentis included in accounts payable"Other accrued expenses" within the Consolidated Balance Sheets.
During fiscal year 2019, total payments related to the additional settlement of $25.0 million were $8.5$20.0 million. There were no settlement payments during the 30 weeks ended December 26, 2018. Total payments related to the settlement totaled $15.4 million $18.6for the 22 weeks ended May 30, 2018.
20. Investment in Unconsolidated Variable Interest Entity
In evaluating whether the Company has the power to direct the activities of SEG II that most significantly impact its economic performance, as described in Footnote 19, Related Party Transactions, the Company considered the purpose for which it was created, the importance of each of the activities in which it is engaged and the Company's decision-making role, if any, in those activities that significantly determine the entity's economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity's future performance and the exercise of professional judgment in deciding which decision-making rights are most important.
Because the nature of the Company's involvement with the activities of SEG II does not give the Company power over decisions that significantly affect its economic performance, the Company is not required to consolidate this entity.
The Company's maximum exposure to SEG II at December 25, 2019 is $5.0 million and $17.3 millionbased on the remaining settlement payment which is unpaid as of June 29, 2011, June 30, 2010,December 25, 2019.
The classification of the Company's variable interest in SEG II in the consolidated financial statements is based on the nature of the interest the Company holds.
21. Supply Agreement
On March 26, 2018, the Company entered into a new supply agreement ("Supply Agreement") with C&S Wholesale Grocers, Inc. ("C&S") which terminated the previous supply agreement with C&S
Southeastern Grocers, Inc. and June 24, 2009, respectively.
Subsidiaries
13.Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
21. Supply Agreement (Continued)
and expires in 2021 with two one-year renewal options. Under the Supply Agreement, C&S provides inventory supply services, including warehouse, transportation and inventory procurement, maintenance and purchasing services for all of the Company's stores. Unless otherwise excluded under the Supply Agreement, the Company is required to exclusively purchase retail merchandise, other than merchandise that is delivered directly from the manufacturers to the stores, from C&S for resale at substantially all of the Company's stores. C&S is required to maintain a sufficient inventory of the supplied goods and provide products to the Company at prices based on manufacturer's prices, market conditions, availability, and the aggregate volume of items that the Company purchases. The Company remains responsible for certain fixed and variable costs relating to the operation of the warehouses and transportation network. Upon termination or expiration, the Company may be required to purchase the C&S assets at net book value and the inventory located at the facilities and assume any C&S lease or service agreement related to the operations of the facilities. In addition, under certain circumstances, the Company may be required to purchase certain real property at appraised value. The new agreement extended credit payment terms throughout the chapter 11 case and returned to the pre-emergence terms in May 2020.
22. Commitments and Contingencies
Purchase Commitments
The Company enters into supply contracts to purchase products for resale in the ordinary course of business. These contracts may include specific merchandising obligations related to the products, and, if so, typically include either a volume commitment or a fixed expiration date; pricing terms based on the vendor’svendor's published list price; termination provisions; and other standard contractual considerations. Certain of these contracts are cancelable, typically upon return of the related vendor allowances. Remaining purchase obligations for both non-cancelable contracts, contracts for which the Company’sCompany's obligations on cancellation are not specified, and open purchase orders totaled $161.3$16.3 million and $20.0 million as of June 29, 2011,December 25, 2019 and December 26, 2018, respectively, with remaining terms that range from one to three years, based on anticipated purchase volumes when applicable. These contracts are not recorded in the Consolidated Balance Sheets.Sheets.
Third Party Litigation Agreement
During the second and fourth quarter of fiscal year 2019, the Company entered into third party litigation agreements and received $23.0 million and $10.0 million, respectively, which the Company recorded in "Other long-term liabilities" within the Consolidated Balance Sheet as of December 25, 2019. The Company is the plaintiff in various related litigation and is required to continue to pursue the active lawsuits that are subject to this agreement. The Company recognizes gain contingencies when claims are settled and amounts are known. As a result, the Company has determined that amounts received will be deferred until claims are settled and are therefore realized.
Lease Assignments
Pursuant to the contractual provisions of assigned leases and subleases related to divested stores, the Company is not the primary obligor but remains contingently liable for lease obligations related to 32 stores in the event the assignee or subtenant does not fulfill its obligations. The Company
Litigation
Southeastern Grocers, Inc. and ClaimsSubsidiaries
Notes to Consolidated Financial Statements (Continued)
On August 21, 2009,(Dollar amounts in thousands, unless otherwise stated)
22. Commitments and Contingencies (Continued)
believes that most or all of these contingent obligations will not revert to it and to the extent they do, will be resolved for substantially less due to mitigating factors.
As of December 25, 2019, the maximum potential undiscounted future payments under these 32 store leases totaled $49.0 million, which have been properly excluded from amounts presented in the maturities table in Footnote 13, Leases.
Legal Proceedings
From time to time, the Company was served with a putative class action lawsuit filed by two former employeesis involved in the United States District Court for the Middle District of Florida against Winn-Dixie Stores, Inc., alleging company-wide violations of the federal Fair Credit Reporting Act related to the Company’s background check procedures. The Company denied all allegations raised in the lawsuit, answered the complaintvarious legal and filed motions asserting various defenses to the claims. On October 21, 2010, the parties reached a mutually agreed upon resolution of the case. The resolution of this claim will not result in a material adverse impact on the Company’s financial condition or results of operations.
Variousadministrative proceedings and claims and lawsuits arising in the normal course of business, are pending againstincluding labor and employment, premises, product liability and general liability claims. Although occasional adverse decisions (or settlements) may occur, the Company including claims alleging violations of certain employment or civil rights laws, claims relating to both regulated and non-regulated aspects of the business and claims arising under federal, state or local environmental regulations. The Company vigorously defends these actions.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
While no one can predict the outcome of any pending or threatened litigation with certainty, management believes that any resolutionthe final disposition of these proceedingssuch matters will not have a material adverse effect on the Company's consolidated financial statements.
In February 2020, Winn-Dixie and its affiliates became defendants in a qui tam action pending in Federal Court in Louisiana. The action was filed under seal by an unknown Relator and remains under seal. The action is brought under the False Claims Act and concerns allegations that Winn Dixie and its affiliates overcharged various federal agencies in connection with the sale of certain prescription drugs. Specifically, the Relator has alleged that Winn Dixie did not include lower prices offered to members of Winn Dixie's Prescription Drug Plan in their calculation of the usual and customary charges offered to the general public, and that the various agencies were entitled to the lower charges offered to plan members. Notably, summary Judgment has recently been entered in favor of similarly situated grocers based upon inadequate guidance provided in connection with discount prescription card programs that are virtually identical to the program offered by Winn Dixie. These cases have been dismissed pending potential appeal by the Relators and the United States Department of Justice. The Company is vigorously defending itself against this action. The Company does not consider the possible loss, if any, in connection with this matter to be material to its financial condition or results of operations.
statements.
14. Recently Adopted Accounting Standards23. Subsequent Events
The Company adopted ASC Topic 805, “Business Combinations” (“Topic 805”), on June 25, 2009. Topic 805 addressesevaluated transactions through August 18, 2020, the accountingdate at which the consolidated financial statements were available to be issued, for business combinations with acquisition dates subsequent events requiring recognition in or disclosure to the adoptionconsolidated financial statements as of December 25, 2019. The subsequent events identified are described below.
Sale Transactions
On May 29, 2020, the Company entered into an agreement to sell 62 stores (comprised of 46 BI-LO stores and requires changes16 Harveys stores) to Food Lion, LLC (the "Store Sale") and announced that it is considering strategic options for an additional 63 stores operating under the BI-LO and Harveys banners in valuation allowances for acquired deferred tax assetsNorth Carolina, South Carolina, and acquired income tax uncertaintiesGeorgia, including other potential transactions. In addition, in a business combinationconnection with the Store Sale, the Company has entered into an agreement with Ahold Delhaize USA Distribution, LLC ("Ahold Delhaize") to adjust income tax expense. Thetransition the distribution center located in Mauldin, South Carolina to Ahold Delhaize.
Southeastern Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, unless otherwise stated)
23. Subsequent Events (Continued)
Under the terms of the agreements, the Company currently maintains a full valuation allowance againstwill sell substantially all of the store-related assets (including the owned and leased real property), exclusive of certain assets including inventory and pharmacy prescription files. The sale transaction is expected to close during the first quarter of fiscal year 2021, subject to regulatory approvals and other customary closing conditions. The planned disposition activities are incomplete and the stores remain open. The Company is still evaluating the overall impact these activities will have on the Company's consolidated financial statements.
As a result of these planned dispositions, a triggering event occurred, resulting in an impairment charge of $25.0 million to be recorded on two of the Company's trade names during the second quarter of fiscal year 2020.
In May 2020, the Company also entered into agreements to sell the inventory and pharmacy prescription files for 58 of its net deferred tax assets. Decreasesin-store pharmacies to CVS and Walgreens, which sales closed in the valuation allowancesecond quarter of fiscal year 2020. The total price for deferred tax assets that existed at the timesale was $56.3 million for the pharmacy prescription files plus $6.8 million for the acquired inventory. During the second quarter of emergence from bankruptcy protection previously reduced intangible assets. Decreases infiscal year 2020, the valuation allowance reduced income tax expense for 2010 and 2011. There were no business combinations during 2011.Company recognized a pre-tax gain of $20.9 million.
COVID-19
In June 2011,On March 11, 2020, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2011-05, an update to Topic 220, “Comprehensive Income.” The standard eliminatesWorld Health Organization declared the option to report other comprehensive income and its components in the statementoutbreak of changes in shareholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income containing two sections, net income and other comprehensive income, or in two consecutive statements reporting net income and other comprehensive income. The ASU became effective for interim and annual periods beginning after December 15, 2011 and required retrospective application. We adopted the ASU by presenting the Consolidated Statements of Comprehensive Income (Loss)novel coronavirus (COVID-19) as a single continuous statement of comprehensive income.
15. Quarterly Results of Operations (Unaudited)
The following ispandemic, and on March 13, 2020, the United States declared the pandemic to be a summarynational emergency. COVID-19 has resulted in national, state and local authorities mandating or recommending isolation measures for large portions of the unaudited quarterlypopulation, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. The effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, is uncertain.
The Company has been classified as an essential business in all jurisdictions in which it operates and has remained open to serve the needs of its customers. The Company's priority is to continue to serve its customers in a way that protects the health and safety of its employees and customers. The results of operations for the years ended June 29, 2011, and June 30, 2010. Amounts for all periods in 2010 were reclassified from those originally reported to the SEC on Form 10-Q or Form 10-K in order to separately present discontinued operations that occurred in 2011, as discussed in Note 13. As a result, net sales changed by $60.6 million, $81.2 million, $62.2 million and $63.6 million for the quarters ended September 16, 2009, January 6, 2010, March 31, 2010, and June 30, 2010, respectively. Gross profit on net sales also changed by $16.9 million, $22.7 million, $17.0 million and $17.8 million for the quarters ended September 16, 2009, January 6, 2010, March 31, 2010, and June 30, 2010, respectively. Earnings per share amounts for each quarter are computed individually and may not equal the amount computed for the entire year.
| Quarters Ended | ||||||||||||||||||||
Fiscal 2011 | Sept. 22 (12 Weeks) | Jan. 12 (16 Weeks) | April 6 (12 Weeks) | June 29 (12 Weeks) | Total (52 weeks) | |||||||||||||||
Net sales from continuing operations | $ | 1,544,350 | $ | 2,098,005 | $ | 1,620,535 | $ | 1,617,886 | $ | 6,880,776 | ||||||||||
Gross profit on net sales from continuing operations | $ | 423,789 | 580,991 | 465,841 | 447,647 | 1,918,268 | ||||||||||||||
Net (loss) income from continuing operations | $ | (36,643 | ) | (22,302 | ) | 23,524 | 5,629 | (29,792 | ) | |||||||||||
Net (loss) gain from discontinued operations | $ | (40,148 | ) | (1,703 | ) | (159 | ) | 1,672 | (40,338 | ) | ||||||||||
Net (loss) income | $ | (76,791 | ) | (24,005 | ) | 23,365 | 7,301 | (70,130 | ) | |||||||||||
Basic and diluted (loss) earnings per share from continuing operations | $ | (0.66 | ) | $ | (0.40 | ) | $ | 0.42 | 0.10 | (0.54 | ) | |||||||||
Basic and diluted (loss) earnings per share | $ | (1.39 | ) | $ | (0.43 | ) | $ | 0.42 | 0.13 | (1.26 | ) | |||||||||
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
| Quarters Ended | ||||||||||||||||||||
Fiscal 2010 | Sept. 16 (12 Weeks) | Jan. 6 (16 Weeks) | Mar. 31 (12 Weeks) | June 30 (13 Weeks) | Total (53 weeks) | |||||||||||||||
Net sales from continuing operations | $ | 1,580,982 | $ | 2,094,335 | $ | 1,623,279 | $ | 1,681,522 | $ | 6,980,118 | ||||||||||
Gross profit on net sales from continuing operations | $ | 448,298 | $ | 590,844 | $ | 462,194 | $ | 490,589 | $ | 1,991,925 | ||||||||||
Net (loss) income from continuing operations | $ | (5,633 | ) | $ | 4,276 | $ | 22,102 | $ | 16,039 | $ | 36,784 | |||||||||
Net loss from discontinued operations | $ | (2,425 | ) | $ | (2,181 | ) | $ | (1,221 | ) | $ | (2,060 | ) | $ | (7,887 | ) | |||||
Net (loss) income | $ | (8,058 | ) | $ | 2,095 | $ | 20,881 | $ | 13,979 | $ | 28,897 | |||||||||
Basic and diluted (loss) earnings per share from continuing operations | $ | (0.10 | ) | $ | 0.08 | $ | 0.40 | $ | 0.29 | $ | 0.67 | |||||||||
Basic (loss) earnings per share | $ | (0.15 | ) | $ | 0.04 | $ | 0.38 | $ | 0.25 | $ | 0.53 | |||||||||
Diluted (loss) earnings per share | $ | (0.15 | ) | $ | 0.04 | $ | 0.38 | $ | 0.25 | $ | 0.52 | |||||||||
| Fourth Quarter Results of Operations | ||||||||
| June 30, 2010 (13 Weeks) | June 29, 2011 (12 Weeks) | |||||||
Net sales | $ | 1,681,522 | $ | 1,617,886 | ||||
Cost of sales, including warehouse and delivery expense | 1,190,933 | 1,170,239 | ||||||
|
|
|
| |||||
Gross profit on net sales | 490,589 | 447,647 | ||||||
Operating and administrative expenses | 473,846 | 440,697 | ||||||
Impairment charges | 436 | 681 | ||||||
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| |||||
Operating income | 16,307 | 6,269 | ||||||
Interest expense, net | 940 | 1,160 | ||||||
|
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| |||||
Income from continuing operations before income tax | 15,367 | 5,109 | ||||||
Income tax benefit | (672 | ) | (520 | ) | ||||
|
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| |||||
Net income from continuing operations | 16,039 | 5,629 | ||||||
Discontinued operations: | ||||||||
Loss from discontinued operations | (2,060 | ) | (68 | ) | ||||
Gain on disposal of discontinued operations | — | 1,740 | ||||||
|
|
|
| |||||
Net gain (loss) from discontinued operations | (2,060 | ) | 1,672 | |||||
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| |||||
Net income | $ | 13,979 | $ | 7,301 | ||||
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| |||||
During the first threetwo quarters of eachfiscal year 2020 have benefited from increased demand from customers stockpiling groceries and consuming more food at home, and the Company uses an estimated annual inflation rate to calculate LIFO inventory. Duringin turn has made significant investments in compensation, benefits and personal protective equipment for its front-line store team members. However, the fourth quarterultimate impact of each year, the Company uses its actual annual inflation rate inCOVID-19 pandemic on the calculations. The fourth quarter results of operations for 2011 reflectfuture periods will ultimately depend on the length and severity of the pandemic and governmental and consumer actions taken in response, which the Company cannot predict. The Company may experience an impact to the timing and availability of key products from suppliers, broader quarantines or other restrictions that limit customer visits to its stores, increased employee impacts from illness, school closures and other community response measures, all of which could have a charge from LIFO of $3.8 million, which includes a credit of $5.0 million in layer liquidations. The fourth quartermaterial adverse effect on its business, financial condition and results of operations for 2010 reflect a benefit from LIFO of $4.4 million from a reduction in the estimated inflation rate and layer liquidations.operations.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
Southeastern Grocers, Inc.
Schedule I—Condensed Financial Information of Registrant
Condensed Balance Sheets
(Amounts in thousands, except par value and share data)
| | Successor | ||||||
|---|---|---|---|---|---|---|---|
| | December 25, 2019 | December 26, 2018 | |||||
Assets | |||||||
Total current assets | $ | — | $ | — | |||
Noncurrent assets: | |||||||
Investment in subsidiaries | 220,181 | 372,739 | |||||
| | | | | | | | |
Total assets | $ | 220,181 | $ | 372,739 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Liabilities and stockholders' equity | |||||||
Total current liabilities | $ | — | $ | — | |||
Total noncurrent liabilities | — | — | |||||
| | | | | | | | |
Total liabilities | — | — | |||||
| | | | | | | | |
Stockholders' equity: | |||||||
Common stock, $0.001 par value; 15,000,000 shares authorized; 10,001,908 shares issued and 10,001,145 shares outstanding, December 25, 2019; 10,000,000 shares issued and outstanding, December 26, 2018 | 10 | 10 | |||||
Additional paid-in-capital | 463,984 | 458,739 | |||||
Accumulated deficit | (240,910 | ) | (86,363 | ) | |||
Accumulated other comprehensive (loss) income | (2,903 | ) | 353 | ||||
| | | | | | | | |
Total stockholders' equity | 220,181 | 372,739 | |||||
| | | | | | | | |
Total liabilities and stockholders' equity | $ | 220,181 | $ | 372,739 | |||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Southeastern Grocers, Inc.
Schedule I—Condensed Financial Information of Registrant
Condensed Income Statements
(Amounts in thousands)
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Equity of net (loss) income of subsidiaries | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | ||||
| | | | | | | | | | | | | | | | |
Net (loss) income | (116,240 | ) | (86,363 | ) | 761,427 | (138,786 | ) | ||||||||
Equity in other comprehensive (loss) income of subsidiaries | (3,256 | ) | 353 | — | (1,653 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Comprehensive (loss) income | $ | (119,496 | ) | $ | (86,010 | ) | $ | 761,427 | $ | (140,439 | ) | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Southeastern Grocers, Inc.
Schedule I—Condensed Financial Information of Registrant
Condensed Cash Flows
(Amounts in thousands)
| | Successor | | Predecessor | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2019 | 30 Weeks Ended December 26, 2018 | | 22 Weeks Ended May 30, 2018 | Fiscal 2017 | ||||||||||
Cash flows from operating activities: | |||||||||||||||
Net (loss) income | $ | (116,240 | ) | $ | (86,363 | ) | $ | 761,427 | $ | (138,786 | ) | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||
Equity in net loss (income) of subsidiaries | 116,240 | 86,363 | (761,427 | ) | 138,786 | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
Cash flows from investing activities | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
Cash flows from financing activities | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | — | — | — | — | |||||||||||
Cash, cash equivalents, and restricted cash, beginning balance | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash, ending balance | $ | — | $ | — | $ | — | $ | — | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Southeastern Grocers, Inc.
Schedule I—Condensed Financial Information of Registrant
Notes to Condensed Financial Statements
COMPREHENSIVE LOSS (UNAUDITED)1. Basis of Presentation
| 28 weeks ended | ||||||||
| January 12, 2011 | January 11, 2012 | |||||||
| amounts in thousands except per share data | ||||||||
Net sales | $ | 3,637,243 | $ | 3,733,509 | ||||
Cost of sales, including warehouse and delivery expenses | 2,633,590 | 2,710,918 | ||||||
|
|
|
| |||||
Gross profit on net sales | 1,003,653 | 1,022,591 | ||||||
Operating and administrative expenses | 1,056,707 | 1,061,544 | ||||||
Impairment charges | 4,249 | 487 | ||||||
|
|
|
| |||||
Operating loss | (57,303 | ) | (39,440 | ) | ||||
Interest expense, net | 3,152 | 3,560 | ||||||
|
|
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| |||||
Loss from continuing operations before income tax | (60,455 | ) | (43,000 | ) | ||||
Income tax benefit | (1,977 | ) | — | |||||
|
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| |||||
Net loss from continuing operations | (58,478 | ) | (43,000 | ) | ||||
|
|
|
| |||||
Discontinued operations: | ||||||||
Loss from discontinued operations | (13,336 | ) | (308 | ) | ||||
Gain (loss) on disposal of discontinued operations | (28,982 | ) | 1,220 | |||||
|
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| |||||
Net earnings (loss) from discontinued operations | (42,318 | ) | 912 | |||||
|
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|
| |||||
Net loss | (100,796 | ) | (42,088 | ) | ||||
Change in post-retirement benefit obligation* | (282 | ) | (252 | ) | ||||
|
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|
| |||||
Comprehensive loss | $ | (101,078 | ) | $ | (42,340 | ) | ||
|
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| |||||
Basic and diluted earnings (loss) per share: | ||||||||
Loss from continuing operations | $ | (1.05 | ) | $ | (0.77 | ) | ||
Earnings (loss) from discontinued operations | (0.77 | ) | 0.02 | |||||
|
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|
| |||||
Basic and diluted loss per share | $ | (1.82 | ) | $ | (0.75 | ) | ||
|
|
|
| |||||
Weighted average common shares outstanding—basic | 55,516 | 56,173 | ||||||
|
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| |||||
Weighted average common shares outstanding—diluted | 55,516 | 56,173 | ||||||
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See accompanying notesPursuant to rules and regulations of the SEC, the condensed consolidated financial statements (unaudited).
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| 28 weeks ended | ||||||||
| January 12, 2011 | January 11, 2012 | |||||||
| dollar amounts in thousands | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (100,796 | ) | $ | (42,088 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 62,470 | 64,983 | ||||||
Share-based compensation | 4,990 | 5,677 | ||||||
Deferred income taxes | 111 | — | ||||||
Other, net | (2,283 | ) | 1,389 | |||||
Change in operating assets and liabilities: | ||||||||
Trade, insurance and other receivables | (2,073 | ) | (77 | ) | ||||
Merchandise inventories | 59,054 | (961 | ) | |||||
Prepaid expenses and other current assets | 668 | (2,650 | ) | |||||
Accounts payable and accrued expenses | (35,982 | ) | (34,999 | ) | ||||
Reserve for self-insurance liabilities | 7,838 | 1,964 | ||||||
|
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| |||||
Net cash used in operating activities | (6,003 | ) | (6,762 | ) | ||||
|
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|
| |||||
Cash flows from investing activities: | ||||||||
Purchases of long-lived assets | (44,644 | ) | (69,508 | ) | ||||
Sales of assets and other | 10,316 | 1,633 | ||||||
|
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|
| |||||
Net cash used in investing activities | (34,328 | ) | (67,875 | ) | ||||
|
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| |||||
Cash flows from financing activities: | ||||||||
Gross borrowings on credit facilities | 7,762 | 9,776 | ||||||
Gross payments on credit facilities | (7,762 | ) | (9,776 | ) | ||||
Increase in book overdrafts | 3,258 | 6,882 | ||||||
Principal payments on capital leases | (6,766 | ) | (10,333 | ) | ||||
Debt issuance costs | — | (75 | ) | |||||
Other, net | 74 | 93 | ||||||
|
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| |||||
Net cash used in financing activities | (3,434 | ) | (3,433 | ) | ||||
|
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| |||||
Decrease in cash and cash equivalents | (43,765 | ) | (78,070 | ) | ||||
Cash and cash equivalents at beginning of period | 152,327 | 207,764 | ||||||
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| |||||
Cash and cash equivalents at end of period | $ | 108,562 | $ | 129,694 | ||||
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See accompanyingof Southeastern Grocers, Inc. (the "Company") do not reflect all of the information and notes to condensed consolidatednormally included with financial statements (unaudited).
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar Amountsprepared in Thousands Except Per Share Data, Unless Otherwise Stated
1. Summary of Significant Accounting Policies and Other Matters
General: All information inaccordance with GAAP. Therefore, these unaudited condensed financial statements should be read in conjunction with the annualour consolidated financial statements for the fiscal year ended June 29, 2011.and related notes.
The Company: As of January 11, 2012, the Company operated as a major food retailer in five states in the southeastern United States with 482 retail stores, with four fuel centers and 77 liquor stores at the retail stores. In support of its stores, the Company operated six distribution centers. The Company’s operations are reported as a single reportable segment.
Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclosure of contingent assets and liabilities. The Company cannot determine future events and their effects with certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions and, in some cases, actuarial calculations. The Company periodically reviews these significant factors and makes adjustments when appropriate. Actual results could differ from those estimates.
Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 28 weeks ended January 11, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending June 27, 2012.
Cash and Cash Equivalents: Cash and cash equivalents consisted of United States government obligations money market funds and cash in stores.
Earnings (Loss) Per Share: Basic earnings (loss) per common share is based on the weighted-average number of common shares outstanding for the periods presented. Diluted earnings (loss) per share is based on the weighted-average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed vesting and exercise of all common stock equivalents (options, restricted stock and restricted stock units, collectively “CSEs”) using the treasury stock method, subject to anti-dilution limitations.
The calculation of diluted earnings (loss) per share included no potentially dilutive CSEs for the 28 weeks ended January 11, 2012, and January 12, 2011. Excluded from the calculation are approximately 4.8 million and 5.0 million anti-dilutive CSEs for the 28 weeks ended January 11, 2012, and January 12, 2011, respectively.
Comprehensive Loss: Comprehensive loss was $42.3 million and $101.1 million for the 28 weeks ended January 11, 2012, and January 12, 2011, respectively. Other comprehensive loss consists of changes in the Company’s post-retirement benefits obligation.
Reclassifications and Revisions: Certain prior year amounts have been reclassified to conform to the current year’s presentation.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
2. Impairment Charges
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company uses store performance reviews for indications that changes in market factors, traffic patterns, competition and other factors have negatively impacted the operating results of store locations. Such changes resulted in the identification of underperforming stores that experienced a current period cash flow loss combined with a history of cash flow losses. The Company compared the net book value of those underperforming store assets to the Company’s best estimate of the net undiscounted cash flows expected to result from the use and eventual disposition of the assets and, in some cases, the Company concluded that the net undiscounted cash flows were less than the net book value of the related assets. For those stores, the excess of the net book value of the assets over their fair value was recorded as an impairment charge.
Fair value estimates are based on assumptions the Company believes to be reasonable but are inherently uncertain, thus fall within level 3 of the fair value hierarchy. Fair value is determined using a discounted cash flow methodology, which incorporates the terminal value of equipment based on broker quotes and the market value of favorable leases and pharmacy scripts based on broker quotes.
Continuing operations impairment charges of $0.5 million and $4.2 million were recorded for the 28 weeks ended January 11, 2012, and January 12, 2011, respectively. Discontinued operations for the 28 weeks ended January 12, 2011, included impairment charges of $1.1 million. No impairment charges were included in discontinued operations for the 28 weeks ended January 11, 2012.
3. Share-Based Payments
Under the Fiscal 2012 Equity Incentive Plan (“2012 EIP Plan”), the Compensation Committee of the Company’s Board of Directors may grant up to 6.0 million share-based payments to officers, employees and non-employee directors, among others. The 2012 EIP Plan was approved by shareholders on November 9, 2011, and is effective for all grants made subsequent to November 9, 2011.
Total compensation expense related to share-based payments was $5.7 million for the 28 weeks ended January 11, 2012, and $5.0 million for the 28 weeks ended January 12, 2011. As of January 11, 2012, the Company had $14.0 million of unrecognized compensation expense related to share-based payments, which it expects to recognize over a weighted-average period of 1.5 years.
Options
Changes in options during the 28 weeks ended January 11, 2012, were as follows:
| Number of Shares | Weighted- Average Exercise Price per share | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| (thousands) | ||||||||||||||||
Outstanding as of June 29, 2011 | 4,037 | $ | 14.18 | |||||||||||||
Granted | 324 | 6.24 | ||||||||||||||
Exercised | (3 | ) | 7.11 | |||||||||||||
Forfeited | (66 | ) | 10.77 | |||||||||||||
Expired | (41 | ) | 12.16 | |||||||||||||
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| |||||||||||||
Outstanding as of January 11, 2012 | 4,251 | $ | 13.65 | 3.8 | $ | 1,790 | ||||||||||
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WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
The fair value of options is estimated at the grant date using the Black-Scholes option-pricing model, which requires the use of various assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the grant date. The Company assumes a dividend yield of 0%, since it does not pay dividends and has no current plans to do so. The volatility assumptions for grants issued subsequent to September 21, 2011, are based on the Company’s own historical volatility. For grants issued between January 8, 2009, and September 21, 2011, the volatility assumptions are based on both historical volatilities of comparable publicly traded companies and the Company’s own historical volatility. Prior to January 8, 2009, the volatility assumptions are based on historical volatilities of comparable publicly traded companies using daily closing prices for the historical period commensurate with the expected term of the option. The expected life of the options is determined based on the simplified assumption that the options will be exercised evenly from vesting to expiration. The weighted-average grant-date fair value of the options granted during the 28 weeks ended January 11, 2012, and January 12, 2011, was $2.95 and $3.23, respectively, which was determined using the following assumptions:
| 28 weeks ended | ||||||||
| January 12, 2011 | January 11, 2012 | |||||||
Risk-free interest rate | 1.08 | % | 0.75 | % | ||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected life (years) | 4.50 | 4.50 | ||||||
Volatility | 55.15 | % | 58.21 | % | ||||
Restricted Stock Units
Changes in the restricted stock units during the 28 weeks ended January 11, 2012, were as follows:
| Number of Shares | Weighted- Average Grant Date Fair Value per share | |||||||
| (thousands) | ||||||||
Nonvested balance as of June 29, 2011 | 2,265 | $ | 9.89 | |||||
Granted | 751 | 6.48 | ||||||
Vested | (720 | ) | 10.01 | |||||
Forfeited | (103 | ) | 9.91 | |||||
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| |||||
Nonvested balance as of January 11, 2012 | 2,193 | $ | 8.68 | |||||
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4. Discontinued Operations
In evaluating whether store closures qualify for discontinued operations classification, the Company considers each store to be a component of a business, as this is the lowest level at which the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. If the cash flows of a store to be exited will not be significant to the Company’s ongoing operations and cash inflows of nearby Company stores are not expected to increase significantly because of the exit, the results of operations of the store are reported in discontinued operations. Costs incurred to dispose of a location are included in gain (loss) on disposal of discontinued operations only if the location qualifies for discontinued operations classification; otherwise, such costs are reported as continuing operations.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
The Company closed one non-remodeled, underperforming store during the 28 weeks ended January 11, 2012. During the 28 weeks ended January 12, 2011, the Company closed 30 non-remodeled, underperforming stores.
Results of operations for the 31 closed stores were classified as discontinued operations. Net sales from discontinued operations for the 28 weeks ended January 11, 2012, and January 12, 2011, were $2.2 million and $54.2 million, respectively.
The following summarizes the costs included in gain (loss) on disposal of discontinued operations:
| 28 weeks ended | ||||||||
| Jan. 12, 2011 | Jan. 11, 2012 | |||||||
Gain on sale/retirement, net | $ | 8,351 | $ | 321 | ||||
Lease termination gain (loss) | (33,860 | ) | 1,004 | |||||
Other location closing costs | (3,473 | ) | (105 | ) | ||||
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Net gain (loss) on disposal | $ | (28,982 | ) | $ | 1,220 | |||
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5. Commitments and Contingencies
Litigation and Claims
In January 2012, a total of eight complaints challenging the proposed merger between BI-LO, LLC, and Winn-Dixie Stores, Inc., were filed by plaintiffs seeking to represent a class of Winn-Dixie shareholders. Seven complaints have been filed in the Circuit Court of the Fourth Judicial District in and for Duval County, Florida, and one case was filed in the United States District Court for the Middle District of Florida. The cases filed in state court have been consolidated, a Lead Plaintiff appointed, and the Lead Plaintiff has filed an amended complaint. The plaintiffs in the consolidated case pending in state court and in the case pending in federal court generally allege, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to Winn-Dixie shareholders, that the proposed proxy statement contains materially misleading disclosures or omissions regarding the proposed transaction, and that the members of Winn-Dixie’s Board of Directors breached their fiduciary duties in approving the Merger Agreement and issuing a proxy statement. The plaintiffs also allege that those alleged breaches of fiduciary duty were aided and abetted by Winn-Dixie and the entities affiliated with BI-LO, LLC, named in the various complaints. The plaintiffs seek equitable relief, including an injunction prohibiting consummation of the merger, and rescission or rescissory damages if the merger is consummated. The defendants’ responses to these complaints are not yet due.
Various claims and lawsuits arising in the normal course of business are pending against the Company, including claims alleging violations of certain employment or civil rights laws, claims relating to both regulated and non-regulated aspects of the business and claims arising under federal, state or local environmental regulations. The Company vigorously defends these actions.
While no one can predict the outcome of any pending or threatened litigation with certainty, management believes that any resolution of these proceedings will not have a material adverse effect on its financial condition or results of operations.
WINN-DIXIE STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollar Amounts in Thousands Except Per Share Data, Unless Otherwise Stated
6. Recently Adopted Accounting Standards
In June 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2011-05, an update to Topic 220, “Comprehensive Income”. The standard eliminates the option to report other comprehensive income and its components in the statement of changes in shareholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income containing two sections, net income and other comprehensive income, or in two consecutive statements reporting net income and other comprehensive income. The ASU became effective for interim and annual periods beginning after December 15, 2011 and required retrospective application. We adopted the ASU by presenting the Condensed Consolidated Statements of Comprehensive Income (Loss) as a continuous statement of comprehensive income.
Shares
Southeastern Grocers, Inc. has no material assets or stand-alone operations other than its ownership in BI-LO Holding Finance, LLC and its subsidiaries. The Company has accounted for the income of its subsidiaries under the equity method in the condensed financial statements.
Common Stock
PRELIMINARY PROSPECTUS
Until , 2013
Until2020 (25 days after the date of this prospectus), all dealers that buy, sell or trade in shares of our common stock,these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’dealers' obligation to deliver a prospectus when acting as an underwriterunderwriters and with respect to their unsold allotments or subscriptions.
Shares
Southeastern Grocers, Inc.
Common Stock
PART IIPROSPECTUS
BofA Securities
Goldman Sachs & Co. LLC
Deutsche Bank Securities
BMO Capital Markets
Truist Securities
Wells Fargo Securities
PART II—INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and DistributionDistribution.
The following table shows thesets forth all costs and expenses, other than the underwriting discounts and commissions,discount, paid or payable by us in connection with the sale and distribution of the securitiescommon stock being registered. Except as otherwise noted, we will pay all of these amounts. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the FINRAlisting fee are estimated.for the NYSE.
Type | Amount | |||
SEC registration fee | $ | 68,200 | ||
FINRA filing fee | 75,500 | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Printing and engraving expenses | * | |||
Transfer agent and registrar fees | * | |||
Miscellaneous expenses | * | |||
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Total | $ | * | ||
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| | Amount Paid or to be Paid | |||
|---|---|---|---|---|
SEC registration fee | $ | 10,910 | ||
FINRA filing fee | $ | 15,500 | ||
NYSE Listing fee | * | |||
Blue sky qualification fees and expenses | * | |||
Printing and engraving expenses | * | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Transfer agent and registrar fees and expenses | * | |||
Miscellaneous expenses | * | |||
| | | | | |
Total | $ | * | ||
| | | | | |
| | | | | |
| | | | | |
Item 14. Indemnification of DirectorsOfficers and OfficersDirectors.
Our bylaws will provideThe Registrant is governed by the Delaware General Corporation Law, or DGCL. Section 145 of the DGCL provides that eacha corporation may indemnify any person, including an officer or director, who was or is, party or is threatened to be made, a party to or was or is otherwise involved in, any threatened, pending or completed proceeding by reason of the fact that he or she is or was a director or officer of our company or was serving at the request of our company as a director, officer, employee, agent or trustee of another entity shall be indemnified and held harmless by us to the full extent authorized by the Delaware General Corporation Law, or DGCL, against all expense, liability and loss actually and reasonably incurred in connection therewith, subject to certain limitations.
Section 145(a) of the DGCL authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to a threatened, pending or completedlegal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of thesuch corporation), by reason of the fact that thesuch person was or is or was aan officer, director, officer, employee or agent of thesuch corporation or is or was serving at the request of thesuch corporation as a director, officer, employee or agent of another corporation partnership, joint venture, trust or other enterprise, againstenterprise. The indemnity may include expenses (including attorneys’attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by thesuch person in connection with such action, suit or proceeding, if the personprovided such officer, director, employee or agent acted in good faith and in a manner thesuch person reasonably believed to be in, or not opposed to, the corporation's best interests of the corporationinterest and, with respect to anyfor criminal action or proceeding,proceedings, had no reasonable cause to believe the person’sthat such person's conduct was unlawful.
Section 145(b) of the DGCL provides in relevant part that a A Delaware corporation may indemnify any person, including an officer or director, who was or is, a party or is threatened to be made, a party to any threatened, pending or completedcontemplated action or suit by or in the right of such corporation, under the corporationsame conditions, except that such indemnification is limited to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’attorneys' fees) actually and reasonably incurred by thesuch person, in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shallis permitted without judicial approval if such person is adjudged to be madeliable to such corporation. Where an officer or director of a corporation is successful, on the merits or otherwise, in respectthe defense of any action, suit or proceeding referred to above, or any claim, issue or matter as totherein, the corporation must indemnify that person against the expenses (including attorneys' fees) which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chanceryofficer or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability
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but in view of all the circumstances of the case, such person is fairlydirector actually and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.incurred in connection therewith.
The DGCL also provides that indemnification under Sections 145(a)Registrant's amended and (b) can only be made upon a determination thatrestated bylaws will authorize the indemnification of the present or former director, officer or employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 145(a)its officers and (b). Such determination shall be made,directors, consistent with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of directors who are not a party to the action at issue (even though less than a quorum), or (2) by a majority vote of a designated committee of these directors (even though less than a quorum), or (3) if there are no such directors, or these directors authorize, by the written opinion of independent legal counsel, or (4) by the stockholders.
Section 145(g) of the DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.
Section 102(b)(7) of the DGCL, permits a corporationas amended. The Registrant intends to provide for eliminating or limiting the personal liability of one of its directors for any monetary damages related to a breach of fiduciary duty as a director, as long as the corporation does not eliminate or limit the liability of a director for acts or omissions which (1) were in bad faith, (2) were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, (3) the director derived an improper personal benefit from (such as a financial profit or other advantage to which such director was not legally entitled) or (4) breached the director’s duty of loyalty.
We will enter into indemnification agreements with each of our officers and directors that provide, in general, that weits directors. These agreements, among other things, will require the Registrant to indemnify themeach director to the fullest extent permitted by Delaware law,
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including indemnification of expenses such as attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in connection with their service to usany action or on our behalf.proceeding, including any action or proceeding by or in right of the Registrant, arising out of the person's services as a director or executive officer.
Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit.
The Registrant expects to maintain standard policies of insurance that provide coverage (i) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (ii) to the Registrant with respect to indemnification payments that it may make to such directors and officers.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification of ourto the Registrant's directors and officers by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
We have not issued any securities that were not registered underAs previously disclosed, upon our emergence from bankruptcy on the Securities Act since September 26, 2010 other than the following:
On February 3, 2011, we completed the sale and issuance of $285 million aggregate principal amount of our 9.25% senior secured notes due 2019, or our senior secured notes. The senior secured notes were sold to qualified institutional buyersEffective Date, pursuant to Rule 144A under the Securities Actterms of 1933,the Amended Joint Prepackaged Chapter 11 Plan of Reorganization, as amended, or the Securities Act, and to persons outsideconfirmed by written order of the United States Bankruptcy Court for the District of Delaware, we issued or reserved for issuance the following securities:
The saleissuance of the senior secured notes to the initial purchasers wasshares of common stock and warrant described above is exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) thereof as a transaction by an issuer not involving any public offering.1145(a)(1) of the United States Bankruptcy Code (the "Bankruptcy Code"). Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of certain securities from registration under Section 5 of the Securities Act and state laws if certain requirements are satisfied.
On October 16, 2012,In May 2018, we completed the salegranted 18,702 time-based restricted stock units and issuance of an additional $140 million aggregate principal amount18,702 performance-based restricted stock units to members of our senior secured notes atboard of directors.
In May 2019, we granted 373,750 time-based restricted stock units and 547,750 performance-based restricted stock units to members of our management and we issued 1,145 shares of common stock to members of our management and a $6.3 million premium. These senior secured notesmember of the board of directors in settlement for restricted stock units that vested.
In November 2019, we issued 791 shares of common stock to a member of our management in settlement for restricted stock units that vested.
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In May 2020, we granted 10,500 time-based restricted stock units and 162,298 performance-based restricted stock units to members of our management and board of directors.
The issuances of the restricted stock units and shares of common stock issued upon vesting thereof described above were solddeemed to qualified institutional buyersbe exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 144A701 promulgated under the Securities Act and to persons outside the United States in compliance with Regulation S under the Securities Act. This sale of senior secured notes to the initial purchasers was exempt from the registration requirements of the Securities Actas transactions pursuant to Section 4(2) thereof as a transaction by an issuer not involving any public offering.
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On September 20, 2013, we completed the sale and issuance of $475 million aggregate principal amount of our 8.625%/9.375% Senior PIK Toggle Notes due 2018, or the PIK toggle notes, at a discount of $4.75 million. The PIK toggle notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States in compliance with Regulation S under the Securities Act. The sale of the PIK toggle notes to the initial purchasers was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer not involving any public offering.
compensatory benefit plans.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
| Exhibit No. | Description | ||
|---|---|---|---|
| 1.1 | * | Form of Underwriting Agreement. | |
See the Exhibit Index following the signature page.
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| Exhibit No. | Description | ||
|---|---|---|---|
| 10.6 | Amendment to Employment Agreement, dated as of March 26, 2018, between BI-LO Holding, LLC and Brian Carney. | ||
| 10.7 | Employment Agreement, dated as of March 18, 2019, between BI-LO Holding, LLC and Elizabeth C. Thompson. | ||
| 10.8 | Employment Agreement, dated as of March 18, 2019, between BI-LO Holding, LLC and Eduardo Garcia. | ||
| 10.9 | Employment Agreement, dated as of March 18, 2019, and Andrew P. Nadin. | ||
| 10.10 | * | Form of Director Indemnification Agreement for Southeastern Grocers, Inc., as of , 2020. | |
| 10.11 | * | Southeastern Grocers Supply Agreement, dated as of March 26, 2018, by and between BI-LO, LLC and C&S Wholesale Grocers, Inc. | |
| 10.12 | * | First Amendment to Southeastern Grocers Supply Agreement, dated April 5, 2019, by and between BI-LO, LLC and C&S Wholesale Grocers, Inc. | |
| 10.12.1 | * | Second Amendment to Southeastern Grocers Supply Agreement, dated April 26, 2019, by and between BI-LO, LLC and C&S Wholesale Grocers, Inc. | |
| 10.13 | Indenture, dated as of October 9, 2020, by and among SEG Holding, LLC, SEG Finance Corp., the guarantors party thereto and Truist Bank, as trustee, registrar, paying agent and notes collateral agent. | ||
| 10.14 | Amended and Restated 2018 Omnibus Equity Incentive Plan. | ||
| 10.15 | * | Form of Amended and Restated Time-Based Restricted Stock Unit Award Agreement under the Amended and Restated 2018 Omnibus Equity Incentive Plan for executive officers. | |
| 10.16 | * | Form of Amended and Restated $0 Performance-Based Restricted Stock Unit Award Agreement under the Amended and Restated 2018 Omnibus Equity Incentive Plan for executive officers. | |
| 10.17 | * | Form of Amended and Restated $30 Performance-Based Restricted Stock Unit Award Agreement under the Amended and Restated 2018 Omnibus Equity Incentive Plan for executive officers. | |
| 10.18 | * | Form of Amended and Restated Performance and Time-Based Restricted Stock Unit Award Agreement under the Amended and Restated 2018 Omnibus Equity Incentive Plan for directors. | |
| 10.19 | * | Form of Amended and Restated Performance-Based Restricted Stock Unit Award Agreement under the Amended and Restated 2018 Omnibus Equity Incentive Plan for directors. | |
| 10.20 | * | Form of 2020 Omnibus Equity Incentive Plan. | |
| 21.1 | List of subsidiaries. | ||
| 23.1 | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm. | ||
| 23.2 | * | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). | |
| 24.1 | Power of Attorney (included on signature page). | ||
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(b) Financial Statement Schedules
Schedule I—Condensed Financial Information of Southeastern Grocers, Inc.
None. Financial statement schedules Schedules other than the above have been omitted because they are not applicable or the required information is includedshown in our consolidatedthe financial statements included elsewhere in this Registration Statement.
or notes thereto.
(a) The undersigned registrant hereby undertakes to provide to the underwriterunderwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriterunderwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i)
(ii)
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Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Jacksonville, State of Florida on September 26, 2013.October 19, 2020.
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| By: | /s/ ANTHONY HUCKER | ||||
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| Name: | Anthony Hucker | ||||
| Title: | Chief Executive
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KNOW ALL MENPERSONS BY THESE PRESENTS, that each person whose signature appears belowof the undersigned constitutes and appoints each of Anthony Hucker, Brian Carney D. Michael Byrum and M. Sandlin Grimm, and eachor any of them, each acting alone, his or her true and lawful attorneys-in-factattorney-in-fact and agents, eachagent, with full power of substitution and resubstitution, for him or hersuch person and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement on Form S-1 (including all pre-effective and anypost-effective amendments and registration statement relating to the offering covered by this Registration Statement andstatements filed pursuant to Rule 462462(b) under the Securities Act of 1933, as amended,1933), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,SEC, granting unto said attorneys-in-fact and agents, and each of them,acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-factany such attorney-in-fact and agentsagent, or theirhis substitute or substitutes, may lawfully sodo or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons have signed this Registration Statement in the capacities andindicated on the date indicated.October 19, 2020.
Signature | Title | |||
|---|---|---|---|---|
| /s/
Anthony Hucker |
Chief Executive Officer and Director | |||
Brian Carney
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Jayson Roy |
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/s/ ANTHONY ABATE Anthony Abate | Chairman | |||
Neal Goldman | Director | |||
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EXHIBIT INDEX
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