ALBERTSONS COMPANIES, INC. FORWARD-LOOKING STATEMENTS AND FACTORS THAT IMPACT OUR OPERATING RESULTS AND TRENDS
This Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws. The "forward-looking statements" include our current expectations, assumptions, estimates and projections about our business, our industry, the outcome of the Merger and the payment of the Special Dividend. They include statements relating to our future operating or financial performance which the Company believes to be reasonable at this time. You can identify forward-looking statements by the use of words such as "outlook," "may," "should," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future" and "intends" and similar expressions which are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties which are beyond our control and difficult to predict and could cause actual results to differ materially from the results expressed or implied by the statements. Risks and uncertainties that could cause actual results to differ materially from such statements include:
• changes in macroeconomic conditions and uncertainty regarding the geopolitical environment;
• rates of food price inflation or deflation, as well as fuel and commodity prices;
• changes in market interest rates and wage rates; • changes in retail consumer behavior, including in the digital space;
• ability to attract and retain qualified associates and negotiate acceptable contracts with labor unions;
• failure to achieve productivity initiatives, unexpected changes in our objectives and plans, inability to implement our strategies, plans, programs and initiatives, or enter into strategic transactions, investments or partnerships in the future on terms acceptable to us, or at all, or to close the transactions contemplated by the Merger Agreement;
• litigation related to the transactions contemplated by the Merger Agreement;
• litigation related to the payment of the Special Dividend;
• restrictions on our ability to operate as a result of the Merger Agreement;
• challenges in attracting, retaining and motivating our employees until the Closing;
• availability and cost of goods used in our food products; • challenges with our supply chain;
• cybersecurity events affecting us and related costs and impact to the business; and
• health epidemics and pandemics including the continued impact of the COVID-19 pandemic, about which there are still many unknowns and the extent of their impact on our business and the communities we serve including factors that could cause a reduction in the current levels of revenue from administering vaccines and providing test kits. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements and risk factors. Forward-looking statements contained in this Form 10-Q reflect our view only as of the date of this Form 10-Q. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In evaluating our financial results and forward-looking statements, you should carefully consider the risks and uncertainties more fully described in the "Risk Factors" section or other sections in our reports filed with theSEC including the most recent annual report on Form 10-K and any subsequent periodic reports on Form 10-Q and current reports on Form 8-K. 23
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As used in this Form 10-Q, unless the context otherwise requires, references to "Albertsons," the "Company," "we," "us" and "our" refer toAlbertsons Companies, Inc. and, where appropriate, its subsidiaries.
NON-GAAP FINANCIAL MEASURES
We define EBITDA as generally accepted accounting principles ("GAAP") earnings
(net loss) before interest, income taxes, depreciation and amortization. We
define Adjusted EBITDA as earnings (net loss) before interest, income taxes,
depreciation and amortization, further adjusted to eliminate the effects of
items management does not consider in assessing our ongoing core performance. We
define Adjusted net income as GAAP Net income adjusted to eliminate the effects
of items management does not consider in assessing our ongoing core performance.
We define Adjusted net income per Class A common share as Adjusted net income
divided by the weighted average diluted Class A common shares outstanding, as
adjusted to reflect all restricted stock units ("RSUs") and restricted common
stock ("RSAs") outstanding at the end of the period, as well as the conversion
of Convertible Preferred Stock when it is antidilutive for GAAP. See "Results of
Operations" for further discussion and a reconciliation of Adjusted EBITDA,
Adjusted net income and Adjusted net income per Class A common share.
EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per Class A
common share (collectively, the "Non-GAAP Measures") are performance measures
that provide supplemental information we believe is useful to analysts and
investors to evaluate our ongoing results of operations, when considered
alongside other GAAP measures such as net income, operating income, gross margin
and net income per Class A common share. These Non-GAAP Measures exclude the
financial impact of items management does not consider in assessing our ongoing
core operating performance, and thereby provide useful measures to analysts and
investors of our operating performance on a period-to-period basis. Other
companies may have different definitions of Non-GAAP Measures and provide for
different adjustments, and comparability to our results of operations may be
impacted by such differences. We also use Adjusted EBITDA for board of director
and bank compliance reporting. Our presentation of Non-GAAP Measures should not
be construed as an inference that our future results will be unaffected by
unusual or non-recurring items.
Non-GAAP Measures 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 Non-GAAP Measures
only for supplemental purposes.
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THIRD QUARTER OF FISCAL 2022 OVERVIEW
As ofDecember 3, 2022 , we operated 2,270 retail food and drug stores with 1,720 pharmacies, 402 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. During the third quarter of fiscal 2022, we executed on our Customer for Life strategy as we continued to invest in our strategic priorities, including deepening our digital connection and engagement with our customers, differentiating our store experience, enhancing what we offer and modernizing our capabilities. Identical sales increased 7.9%, excluding fuel, during the third quarter of fiscal 2022.
Merger Agreement
OnOctober 13, 2022 Albertsons Companies, Inc. (the "Company"), The Kroger Co. ("Parent") andKettle Merger Sub, Inc. , a wholly owned subsidiary of Parent ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as the surviving corporation and a direct, wholly owned subsidiary of Parent. Pursuant to the Merger Agreement, (i) each share of Class A common stock of the Company issued and outstanding immediately prior to the effective time of the Merger (the "Effective Time"), shall be converted automatically at the Effective Time into the right to receive from Parent$34.10 per share in cash, without interest, and (ii) each share of Series A convertible preferred stock of the Company issued and outstanding immediately prior to the Effective Time shall be converted automatically at the Effective Time into the right to receive from Parent$34.10 per share in cash on an as-converted basis, without interest. The$34.10 per share is subject to certain reductions as described in Note 2 - Merger Agreement and Special Dividend in the unaudited interim Condensed Consolidated Financial Statements located elsewhere in this Form 10-Q. The Company has filed with theSecurities and Exchange Commission ("SEC") a preliminary information statement on Schedule 14C with respect to the approval of the Merger, which is subject toSEC comment. Once theSEC has no further comments, the Company will mail the definitive information statement to the Company's stockholders. You may obtain copies of all documents filed by the Company with theSEC regarding this transaction, free of charge, at theSEC's website, www.sec.gov or from the Company's website at https://www.albertsonscompanies.com/investors/overview/.
Special Dividend
Separate from the Merger, onOctober 13, 2022 , we declared a special cash dividend of$6.85 per share of Class A common stock (the "Special Dividend"), payable to stockholders of record, including holders of Series A convertible preferred stock on an as-converted basis, as of the close of business onOctober 24, 2022 , and was to be paid onNovember 7, 2022 . As discussed in Note 2 - Merger Agreement and Special Dividend located elsewhere in this Form 10-Q, the payment of the Special Dividend is subject to a temporary restraining order issued by the courts of theState of Washington . The Special Dividend of$3,921.3 million is recorded in Special dividend payable on the Condensed Consolidated Balance Sheets. 25
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Third quarter of fiscal 2022 highlights
In summary, our financial and operating highlights for the third quarter of fiscal 2022 include:
•Identical sales increased 7.9%
•Digital sales increased 33%
•Loyalty members increased 16% to 33 million
•Net income of
•Adjusted net income of
•Adjusted EBITDA of
Stores
The following table shows stores operating, acquired, opened and closed during
the periods presented:
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Stores, beginning of period 2,272 2,278 2,276 2,277
Acquired - 2 - 3
Opened 1 - 2 6
Closed (3) (2) (8) (8)
Stores, end of period 2,270 2,278 2,270 2,278
The following table summarizes our stores by size:
Number of stores Percent of Total Retail Square Feet (1)
December 3, December 4, December 3, December 4, December 3, December 4,
Square Footage 2022 2021 2022 2021 2022 2021
Less than 30,000 218 223 9.6 % 9.8 % 5.0 5.1
30,000 to 50,000 779 782 34.3 % 34.3 % 32.6 32.7
More than 50,000 1,273 1,273 56.1 % 55.9 % 75.2 75.2
Total Stores 2,270 2,278 100.0 % 100.0 % 112.8 113.0
(1) In millions, reflects total square footage of retail stores operating at the end of the period.
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Table of Contents RESULTS OF OPERATIONS
Comparison of the Third Quarter of Fiscal 2022 and the First 40 weeks of Fiscal 2022 to the Third Quarter of Fiscal 2021 and the First 40 weeks of Fiscal 2021.
The following tables and related discussion set forth certain information and comparisons regarding the components of our Condensed Consolidated Statements of Operations for the 12 and 40 weeks endedDecember 3, 2022 ("third quarter of fiscal 2022" and "first 40 weeks of fiscal 2022") to the 12 and 40 weeks endedDecember 4, 2021 ("third quarter of fiscal 2021" and "first 40 weeks of fiscal 2021") (dollars in millions, except per share data). 12 weeks ended December 3, December 4, 2022 % of Sales 2021 % of Sales Net sales and other revenue$ 18,154.9 100.0 %$ 16,728.4 100.0 % Cost of sales 13,033.2 71.8 11,898.3 71.1 Gross margin 5,121.7 28.2 4,830.1 28.9 Selling and administrative expenses 4,532.0 25.0 4,243.9 25.4 Loss (gain) on property dispositions and impairment losses, net 7.3 - (13.4) (0.1) Operating income 582.4 3.2 599.6 3.6 Interest expense, net 84.3 0.5 111.3 0.7 Loss on debt extinguishment - - 3.7 - Other expense (income), net 1.7 - (38.3) (0.2) Income before income taxes 496.4 2.7 522.9 3.1 Income tax expense 120.9 0.7 98.4 0.6 Net income$ 375.5 2.0 %$ 424.5 2.5 % Basic net income per Class A common share$ 0.20 $ 0.78 Diluted net income per Class A common share 0.20 0.74 40 weeks ended December 3, December 4, 2022 % of Sales 2021 % of Sales Net sales and other revenue$ 59,384.6 100.0 %$ 54,503.5 100.0 % Cost of sales 42,713.3 71.9 38,765.4 71.1 Gross margin 16,671.3 28.1 15,738.1 28.9 Selling and administrative expenses 14,883.9 25.1 13,978.8 25.6 Gain on property dispositions and impairment losses, net (86.1) (0.1) (13.3) - Operating income 1,873.5 3.1 1,772.6 3.3 Interest expense, net 313.0 0.5 373.9 0.7 Loss on debt extinguishment - - 3.7 - Other income, net (23.5) - (100.7) (0.2) Income before income taxes 1,584.0 2.6 1,495.7 2.8 Income tax expense 381.6 0.6 331.2 0.6 Net income$ 1,202.4 2.0 %$ 1,164.5 2.2 % Basic net income per Class A common share$ 1.74 $ 1.97 Diluted net income per Class A common share 1.72 1.95
Net sales and other revenue increased 8.5% to$18,154.9 million for the third quarter of fiscal 2022 from$16,728.4 million for the third quarter of fiscal 2021. The increase in Net sales and other revenue was driven by our 7.9% 27
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increase in identical sales and higher fuel sales, with retail price inflation as the primary driver of the identical sales increase.
Net sales and other revenue increased 9.0% to$59,384.6 million for the first 40 weeks of fiscal 2022 from$54,503.5 million for the first 40 weeks of fiscal 2021. The increase in Net sales and other revenue was driven by our 7.3% increase in identical sales and higher fuel sales, with retail price inflation as the primary driver of the identical sales increase.
Identical Sales, Excluding Fuel
Identical sales include stores operating during the same period in both the current year and the prior year, comparing sales on a daily basis. Direct to consumer digital sales are included in identical sales, and fuel sales are excluded from identical sales. Acquired stores become identical on the one-year anniversary date of the acquisition. Identical sales for the 12 and 40 weeks endedDecember 3, 2022 and the 12 and 40 weeks endedDecember 4, 2021 , respectively, were: 12 weeks ended 40 weeks ended December 3, December 4, December 3, December 4, 2022 2021 2022 2021 Identical sales, excluding fuel 7.9% 5.2% 7.3% (2.3)% The following table represents Net sales and other revenue by product type (dollars in millions): 12 weeks ended 40 weeks ended December 3, December 4, December 3, December 4, 2022 2021 2022 2021 Amount (1) % of Total Amount (1) % of Total Amount (1) % of Total Amount (1) % of Total Non-perishables (2)$ 9,255.2 51.0 %$ 8,519.0 50.9 %$ 29,705.7 50.0 %$ 27,650.5 50.7 % Fresh (3) 5,762.6 31.7 5,583.8 33.4 19,588.6 33.0 18,675.6 34.3 Pharmacy 1,724.4 9.5 1,436.7 8.6 5,124.2 8.6 4,418.7 8.1 Fuel 1,111.1 6.1 906.6 5.4 3,968.6 6.7 2,874.4 5.3 Other (4) 301.6 1.7 282.3 1.7 997.5 1.7 884.3 1.6 Net sales and other revenue$ 18,154.9 100.0 %$ 16,728.4 100.0 %$ 59,384.6 100.0 %$ 54,503.5 100.0 %
(1) Digital related sales are included in the categories to which the revenue pertains.
(2) Consists primarily of general merchandise, grocery, dairy and frozen foods.
(3) Consists primarily of produce, meat, deli and prepared foods, bakery, floral and seafood.
(4) Consists primarily of wholesale revenue to third parties, commissions and other miscellaneous revenue.
Gross Margin
Gross margin represents the portion of Net sales and other revenue remaining
after deducting Cost of sales during the period, including purchase and
distribution costs. These costs include, among other things, purchasing and
sourcing costs, inbound freight costs, product quality testing costs, warehouse
and distribution costs, Own Brands program costs and digital-related delivery
and handling costs. Advertising, promotional expenses and vendor allowances are
also components of Cost of sales.
Gross margin rate decreased to 28.2% during the third quarter of fiscal 2022
compared to 28.9% during the third quarter of fiscal 2021. Excluding the impact
of fuel and LIFO expense, gross margin rate decreased 47 basis points compared
to the third quarter of fiscal 2021. The decrease was primarily driven by
increases in product, shrink and
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supply chain costs, fewer COVID-19 vaccines in the third quarter of fiscal 2022, and increases in picking and delivery costs related to the growth in digital sales, partially offset by the benefits of ongoing productivity initiatives and an increase in COVID at-home test kit revenue. Gross margin rate decreased to 28.1% during the first 40 weeks of fiscal 2022 compared to 28.9% during the first 40 weeks of fiscal 2021. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 38 basis points compared to the first 40 weeks of fiscal 2021. The decrease was primarily driven by increases in product, shrink and supply chain costs, increases in picking and delivery costs related to the growth in digital sales, and fewer COVID-19 vaccines in the first 40 weeks of fiscal 2022, partially offset by the benefits of ongoing productivity initiatives and an increase in COVID at-home test kit revenue. We administered approximately 3.7 million COVID-19 vaccinations during the first 40 weeks of fiscal 2022, compared to approximately 8.7 million during the first 40 weeks of fiscal 2021.
Selling and Administrative Expenses
Selling and administrative expenses consist primarily of store level costs, including wages, employee benefits, rent, depreciation and utilities, in addition to certain back-office expenses related to our corporate and division offices.
Selling and administrative expenses decreased to 25.0% of Net sales and other revenue during the third quarter of fiscal 2022 compared to 25.4% during the third quarter of fiscal 2021. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 29 basis points. The decrease in Selling and administrative expenses was primarily attributable to the benefit of ongoing productivity initiatives and sales leverage, partially offset by investments related to the acceleration of our digital and omnichannel capabilities, merger-related costs, and market-driven wage rate increases. Selling and administrative expenses decreased to 25.1% of Net sales and other revenue during the first 40 weeks of fiscal 2022 compared to 25.6% during the first 40 weeks of fiscal 2021. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 24 basis points. The decrease in Selling and administrative expenses was primarily attributable to the benefit of ongoing productivity initiatives, together with lower COVID-19 related expenses and sales leverage, partially offset by investments related to the acceleration of our digital and omnichannel capabilities, market-driven wage rate increases, higher depreciation and amortization, higher equity-based compensation expense and merger-related costs.
Loss (Gain) on Property Dispositions and Impairment Losses, Net
For the third quarter of fiscal 2022, net loss on property dispositions and impairment losses was$7.3 million , driven by$3.9 million of asset impairments and$3.4 million of losses primarily from the disposal of assets. For the third quarter of fiscal 2021, net gain on property dispositions and impairment losses was$13.4 million , primarily driven by$15.8 million of gains from the sale of assets, partially offset by$2.4 million of asset impairments, primarily related to right-of-use assets. For the first 40 weeks of fiscal 2022, net gain on property dispositions and impairment losses was$86.1 million , driven by$91.2 million of gains primarily from the sale of real estate assets, partially offset by$5.1 million of asset impairments. For the first 40 weeks of fiscal 2021, net gain on property dispositions and impairment losses was$13.3 million , primarily driven by$31.6 million of gains from the sale of assets, partially offset by$18.3 million of asset impairments, primarily related to right-of-use assets and intangible assets.
Interest Expense, Net
Interest expense, net was$84.3 million during the third quarter of fiscal 2022 compared to$111.3 million during the third quarter of fiscal 2021. The decrease in Interest expense, net was primarily attributable to higher interest 29
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income, as well as lower average interest rates. The weighted average interest rate during the third quarter of fiscal 2022 was 5.3%, excluding deferred financing costs and original issue discount, compared to 5.4% during the third quarter of fiscal 2021. Interest expense, net was$313.0 million during the first 40 weeks of fiscal 2022 compared to$373.9 million during the first 40 weeks of fiscal 2021. The decrease in Interest expense, net was primarily attributable to higher interest income, as well as lower average interest rates. The weighted average interest rate during first 40 weeks of fiscal 2022 was 5.3%, excluding amortization and write-off of deferred financing costs and original issue discount, compared to 5.5% during the first 40 weeks of fiscal 2021.
Loss on Debt Extinguishment
There was no Loss on debt extinguishment during both the third quarter of fiscal 2022 and first 40 weeks of fiscal 2022. Loss on debt extinguishment was$3.7 million during both the third quarter of fiscal 2021 and first 40 weeks of fiscal 2021. The loss on debt extinguishment during the third quarter and first 40 weeks of fiscal 2021 primarily consisted of a make-whole premium and write-off of deferred financing costs associated with the redemption of our 5.750% Senior Unsecured Notes due 2025.
Other Expense (Income), Net
For the third quarter of fiscal 2022, other expense, net was$1.7 million compared to other income, net of$38.3 million for the third quarter of fiscal 2021. Other expense, net during the third quarter of fiscal 2022 was primarily driven by unrealized losses from non-operating investments, partially offset by non-service cost components of net pension and post-retirement income and income related to our equity investment. Other income, net during the third quarter of fiscal 2021 was primarily driven by non-service cost components of net pension and post-retirement income, unrealized gains from non-operating investments and income related to our equity investment. For the first 40 weeks of fiscal 2022, other income, net was$23.5 million compared to$100.7 million for the first 40 weeks of fiscal 2021. Other income, net during the first 40 weeks of fiscal 2022 was primarily driven by non-service cost components of net pension and post-retirement income and income related to our equity investment, partially offset by unrealized losses from non-operating investments. Other income, net during the first 40 weeks of fiscal 2021 was primarily driven by non-service cost components of net pension and post-retirement income, including pension settlement gain, realized and unrealized gains from non-operating investments and income related to our equity investment, partially offset by unrealized losses from non-operating investments.
Income Taxes
Income tax expense was$120.9 million , representing a 24.4% effective tax rate, for the third quarter of fiscal 2022. Income tax expense was$98.4 million , representing a 18.8% effective tax rate, for the third quarter of fiscal 2021. The favorability in the effective income tax rate in the third quarter of fiscal 2021 was primarily driven by incremental discrete state income tax benefits related to expired statutes and audit settlements. Income tax expense was$381.6 million , representing a 24.1% effective tax rate, for the first 40 weeks of fiscal 2022. Income tax expense was$331.2 million , representing a 22.1% effective tax rate, for the first 40 weeks of fiscal 2021. The favorability in the effective income tax rate during the first 40 weeks of fiscal 2021 was primarily driven by the recognition of discrete state income tax benefits. 30
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Net Income and Adjusted Net Income
Net income was$375.5 million , or$0.20 per Class A common share, during the third quarter of fiscal 2022 compared to$424.5 million , or$0.74 per Class A common share, during the third quarter of fiscal 2021. Net income per Class A common share during the third quarter of fiscal 2022 includes a$0.45 per share reduction related to the Special Dividend that is attributable to holders of Convertible Preferred Stock on an as-converted basis. Adjusted net income was$505.1 million , or$0.87 per Class A common share, during the third quarter of fiscal 2022 compared to$457.2 million , or$0.79 per Class A common share, during the third quarter of fiscal 2021. Net income was$1,202.4 million , or$1.72 per Class A common share, during the first 40 weeks of fiscal 2022 compared to$1,164.5 million , or$1.95 per Class A common share, during the first 40 weeks of fiscal 2021. Adjusted net income was$1,505.4 million , or$2.59 per Class A common share, during the first 40 weeks of fiscal 2022 compared to$1,344.2 million , or$2.32 per Class A common share, during the first 40 weeks of fiscal 2021.
Adjusted EBITDA
For the third quarter of fiscal 2022, Adjusted EBITDA was$1,158.0 million , or 6.4% of Net sales and other revenue, compared to$1,051.2 million , or 6.3% of Net sales and other revenue, for the third quarter of fiscal 2021. For the first 40 weeks of fiscal 2022, Adjusted EBITDA was$3,626.8 million , or 6.1% of Net sales and other revenue, compared to$3,324.7 million , or 6.1% of Net sales and other revenue for the first 40 weeks of fiscal 2021. 31
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Reconciliation of Non-GAAP Measures
The following tables reconcile Net income to Adjusted net income, and Net income
per Class A common share to Adjusted net income per Class A common share (in
millions, except per share data):
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Numerator:
Net income $ 375.5 $ 424.5 $ 1,202.4 $ 1,164.5
Adjustments:
Loss (gain) on interest rate swaps and
energy hedges, net (d) 2.0 (1.3) (12.9) (8.8)
Business transformation (1)(b) 17.2 10.2 64.5 45.8
Equity-based compensation expense (b) 33.4 26.4 96.6 75.4
Loss (gain) on property dispositions and
impairment losses, net 7.3 (13.4) (86.1) (13.3)
LIFO expense (a) 64.5 29.5 181.4 58.6
Government-mandated incremental COVID-19
pandemic related pay (2)(b) 1.0 5.6 10.8 53.0
Merger-related costs (3)(b) 14.4 - 23.8 -
Amortization of debt discount and deferred
financing costs (c) 3.9 4.8 12.9 15.9
Loss on debt extinguishment - 3.7 - 3.7
Amortization of intangible assets resulting
from acquisitions (b) 11.7 9.5 39.1 37.1
Combined Plan (b) - - (19.0) -
Miscellaneous adjustments (4)(f) 16.4 (33.7) 89.8 (32.5)
Tax impact of adjustments to Adjusted net
income (42.2) (8.6) (97.9) (55.2)
Adjusted net income $ 505.1 $ 457.2 $ 1,505.4 $ 1,344.2
Denominator:
Weighted average Class A common shares
outstanding - diluted 538.6 574.2 529.8 471.2
Adjustments:
Convertible Preferred Stock (5) 37.6 - 45.2 101.6 Restricted stock units and awards (6) 6.6 6.5 6.1 7.3 Adjusted weighted average Class A common shares outstanding - diluted 582.8 580.7 581.1 580.1 Adjusted net income per Class A common share - diluted$ 0.87 $ 0.79 $ 2.59 $ 2.32 32
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12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Net income per Class A common share -
diluted $ 0.20 $ 0.74 $ 1.72 $ 1.95
Convertible Preferred Stock (5) 0.45 - 0.37 0.09
Non-GAAP adjustments (7) 0.23 0.06 0.53 0.31
Restricted stock units and awards (6) (0.01) (0.01) (0.03) (0.03)
Adjusted net income per Class A
common share - diluted $ 0.87 $ 0.79 $ 2.59 $ 2.32
The following table is a reconciliation of Adjusted net income to Adjusted
EBITDA:
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Adjusted net income (8) $ 505.1 $ 457.2 $ 1,505.4 $ 1,344.2
Tax impact of adjustments to Adjusted
net income 42.2 8.6 97.9 55.2
Income tax expense 120.9 98.4 381.6 331.2
Amortization of debt discount and
deferred financing costs (c) (3.9) (4.8) (12.9) (15.9)
Interest expense, net 84.3 111.3 313.0 373.9
Amortization of intangible assets
resulting from acquisitions (b) (11.7) (9.5) (39.1) (37.1)
Depreciation and amortization (e) 421.1 390.0 1,380.9 1,273.2
Adjusted EBITDA $ 1,158.0 $ 1,051.2 $ 3,626.8 $ 3,324.7 (1) Includes costs associated with third-party consulting fees related to our operational priorities and associated business transformation, as well as closures of operating facilities.
(2) Represents incremental pay that is legislatively required in certain municipalities in which we operate.
(3) Primarily relates to third-party advisor fees related to the proposed Merger with Parent and costs in connection with our previously-announced Board-led review of potential strategic alternatives.
(4) Miscellaneous adjustments include the following (see table below):
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Non-cash lease-related adjustments $ 1.4
$ 3.4 $ 5.5
Lease and lease-related costs for
surplus and closed stores 4.7 5.8 17.4 22.5
Net realized and unrealized loss (gain)
on non-operating investments 13.7 (22.0) 19.4 (31.7)
Certain legal and regulatory accruals
and settlements, net - (23.8) 43.7 (27.9)
Other (i) (3.4) 3.9 5.9 (0.9)
Total miscellaneous adjustments
$ 89.8 $ (32.5)
(i) Primarily includes adjustments for unconsolidated equity investments and other costs not considered in our core performance.
(5) Represents the conversion of Convertible Preferred Stock to the fully
outstanding as-converted Class A common shares as of the end of each respective
period, for periods in which the Convertible Preferred Stock is antidilutive
under GAAP. The third quarter of fiscal 2022 and first 40 weeks of fiscal 2022
reflect the impact of the Special Dividend that is attributable to the holders
of Convertible Preferred Stock on an as-converted basis.
(6) Represents incremental unvested RSUs and unvested RSAs to adjust the diluted
weighted average Class A common shares outstanding during each respective period
to the fully outstanding RSUs and RSAs as of the end of each respective period.
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(7) Reflects the per share impact of Non-GAAP adjustments for each period. See the reconciliation of Net income to Adjusted net income above for further details.
(8) See the reconciliation of Net income to Adjusted net income above for further details.
Non-GAAP adjustment classifications within the Condensed Consolidated Statements of Operations:
(a) Cost of sales
(b) Selling and administrative expenses
(c) Interest expense, net
(d) Loss (gain) on interest rate swaps and energy hedges, net:
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Cost of sales $ 2.8 $ (0.3) $ (2.7) $ (6.6)
Selling and administrative expenses 0.5 (0.3) (1.6) (1.8)
Other expense (income), net (1.3) (0.7) (8.6) (0.4)
Total Loss (gain) on interest rate swaps
and energy hedges, net $ 2.0 $ (1.3) $ (12.9) $ (8.8) (e) Depreciation and amortization:
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Cost of sales $ 39.5 $ 38.8 $ 129.2 $ 125.6
Selling and administrative expenses 381.6 351.2 1,251.7 1,147.6
Total Depreciation and amortization
$ 1,380.9 $ 1,273.2
(f) Miscellaneous adjustments:
12 weeks ended 40 weeks ended
December 3, December 4, December 3, December 4,
2022 2021 2022 2021
Selling and administrative expenses $ 6.5
$ 64.6 $ 3.1 Other expense (income), net 9.9 (19.7) 25.2 (35.6)
Total Miscellaneous adjustments
$ 89.8 $ (32.5)
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