Albertsons Companies, Inc.: Form 10-Q for the period ended Dec 2, 2023

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 and the outcome of the Merger. 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;
• changes in consumer behavior and spending due to the impact of macroeconomic factors, including the expiration of student loan payment deferments;
• changes in wage rates, 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;
• uncertainties related to the Merger, including our ability to close the transactions contemplated by the Merger Agreement, and the impact of the costs related to the Merger;
• erosion of consumer confidence as a result of the Merger and the transactions contemplated by the Merger Agreement;
• litigation related to the transactions contemplated by the Merger Agreement;
• restrictions on our ability to operate as a result of the Merger Agreement;
• challenges in attracting, retaining and motivating our employees until the closing of the Merger;
• availability and cost of goods used in our food products;
• challenges with our supply chain;
• operational and financial effects resulting from cyber incidents, including outages in the cloud environment and the effectiveness of business continuity plans during a ransomware or other cyber incident; and
• continued reduction in administering COVID-19 vaccines and dispensing 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 the SEC 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.

As used in this Form 10-Q, unless the context otherwise requires, references to "Albertsons," the "Company," "we," "us" and "our" refer to Albertsons Companies, Inc. and, where appropriate, its subsidiaries.

NON-GAAP FINANCIAL MEASURES

We define EBITDA as 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 RSUs and 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.

THIRD QUARTER OF FISCAL 2023 OVERVIEW

We are one of the largest food retailers in the United States, with 2,271 stores across 34 states and the District of Columbia as of December 2, 2023. We operate 24 banners including Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw's, Star Market, United Supermarkets, Market Street, Haggen, Kings Food Markets and Balducci's Food Lovers Market, with approximately 290,000 talented and dedicated employees, as of December 2, 2023, who serve on average 35.0 million customers each week. Additionally, as of December 2, 2023, we operated 1,726 pharmacies, 1,332 in-store branded coffee shops, 401 associated fuel centers, 22 dedicated distribution centers, 19 manufacturing facilities and various digital platforms.

Merger Agreement

On October 13, 2022 Albertsons Companies, Inc. (the "Company"), The Kroger Co. ("Kroger" or "Parent") and Kettle 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, 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. The $34.10 per share cash payment is subject to reduction as a result of the Special Dividend paid on January 20, 2023 as described in Note 2 - Merger Agreement in the unaudited interim Condensed Consolidated Financial Statements located elsewhere in this Form 10-Q.

In connection with the Merger, on September 8, 2023, the Company and Kroger announced that the parties had entered into a definitive agreement, dated September 8, 2023, with C&S Wholesale Grocers, LLC ("C&S") for the sale of select stores, banners, distribution centers, offices and private label brands to C&S. Also on September 8, 2023, Kroger notified the Company that, in accordance with the Merger Agreement, Kroger intends to sell the SpinCo Business (as defined in the Merger Agreement) to C&S. As a result, the creation of SpinCo and spin-off previously contemplated by the Company and Kroger is no longer a requirement under the Merger Agreement and will no longer be pursued by the Company and Kroger. Details regarding the definitive agreement with C&S can be found in the Form 8-K filed on September 8, 2023 and the joint press release issued by the Company and Kroger on September 8, 2023.

The Company has filed with the SEC a definitive information statement on Schedule 14C with respect to the approval of the Merger and has mailed the definitive information statement to the Company's stockholders. You may obtain copies of all documents filed by the Company with the SEC regarding this transaction, free of charge, at the SEC's website, www.sec.gov (http://www.sec.gov) or from the Company's website at https://www.albertsonscompanies.com/investors/overview/.

Third quarter of fiscal 2023 highlights

In summary, our financial and operating highlights for the third quarter of fiscal 2023 include:

• Identical sales increased 2.9%
• Digital sales increased 21%
• Loyalty members increased 17% to 38.5 million
• Net income of $361 million, or $0.62 per Class A common share
• Adjusted net income of $462 million, or $0.79 per Class A common share
• Adjusted EBITDA of $1,107 million

Stores

The following table shows stores operating, opened and closed during the periods presented:

The following table summarizes our stores by size:

(1) In millions, reflects total square footage of retail stores operating at the end of the period.

RESULTS OF OPERATIONS

Comparison of the Third Quarter of Fiscal 2023 and the First 40 weeks of Fiscal 2023 to the Third Quarter of Fiscal 2022 and the First 40 weeks of Fiscal 2022.

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 ended December 2, 2023 ("third quarter of fiscal 2023" and "first 40 weeks of fiscal 2023") and 12 and 40 weeks ended December 3, 2022 ("third quarter of fiscal 2022" and "first 40 weeks of fiscal 2022") (dollars in millions, except per share data).

Net Sales and Other Revenue

Net sales and other revenue increased 2.2% to $18,557.3 million for the third quarter of fiscal 2023 from $18,154.9 million for the third quarter of fiscal 2022. The increase in Net sales and other revenue was driven by our 2.9% increase in identical sales, with growth in pharmacy sales driving the identical sales increase. We also continued to grow our digital business during the third quarter of fiscal 2023.

Net sales and other revenue increased 2.5% to $60,898.2 million for the first 40 weeks of fiscal 2023 from $59,384.6 million for the first 40 weeks of fiscal 2022. The increase in Net sales and other revenue was primarily driven by our 3.7% increase in identical sales, with growth in pharmacy sales, retail price inflation across most categories and increasing digital sales being the primary contributors to the identical sales increase. The increase in Net sales and other revenue was partially offset by lower fuel sales.

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 ended December 2, 2023 and the 12 and 40 weeks ended December 3, 2022, respectively, were:

The following table represents Net sales and other revenue by product type (dollars in millions):

(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 28.0% during the third quarter of fiscal 2023 compared to 28.2% during the third quarter of fiscal 2022. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 64 basis points compared to the third quarter of fiscal 2022. Pharmacy operations and increases in shrink were the primary drivers of the decrease, partially offset by our procurement and sourcing productivity initiatives.

Gross margin rate decreased to 27.8% during the first 40 weeks of fiscal 2023 compared to 28.1% during the first 40 weeks of fiscal 2022. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 66 basis points compared to the first 40 weeks of fiscal 2022. The rate decrease was primarily driven by pharmacy operations, increases in shrink, and an increase in promotional activity in the first quarter of fiscal 2023 relative to the first quarter of fiscal 2022. Our procurement and sourcing productivity initiatives partially offset these decreases in our gross profit rate.

The gross margin rate decrease in the third quarter of fiscal 2023 and first 40 weeks of fiscal 2023 related to pharmacy operations was primarily due to growth in pharmacy sales and a lower margin rate on COVID-19 vaccines. In addition, the benefits from our productivity initiatives allowed us to provide incremental targeted price investments to our customers during the third quarter of fiscal 2023 and first 40 weeks of fiscal 2023.

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 24.8% of Net sales and other revenue during the third quarter of fiscal 2023 compared to 25.0% during the third quarter of fiscal 2022. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 28 basis points. The decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to lower employee costs, which includes the benefit of ongoing productivity initiatives, and lower depreciation and amortization, partially offset by an increase in operating expenses related to the expansion of our digital and omnichannel capabilities, ongoing Merger-related costs, increased store occupancy costs and additional third-party store security services.

Selling and administrative expenses decreased to 25.0% of Net sales and other revenue during both the first 40 weeks of fiscal 2023 compared to 25.1% during the first 40 weeks of fiscal 2022. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 32 basis points during the first 40 weeks of fiscal 2023 compared to the first 40 weeks of fiscal 2022. The decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to sales leverage of employee costs, which includes the benefit of ongoing productivity initiatives, lower depreciation and amortization and lower legal and regulatory accruals and settlements, partially offset by ongoing Merger-related costs, an increase in operating expenses related to the expansion of our digital and omnichannel capabilities and additional third-party store security services.

Loss (Gain) on Property Dispositions and Impairment Losses, Net

For the third quarter of fiscal 2023, net loss on property dispositions and impairment losses was $23.9 million, primarily driven by the write-off of certain technology assets, partially offset by net gains from the sale of assets. 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 first 40 weeks of fiscal 2023, net loss on property dispositions and impairment losses was $43.1 million, primarily driven by the write-off of certain technology assets, partially offset by net gains from the sale of 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.

Interest Expense, Net

Interest expense, net was $116.3 million during the third quarter of fiscal 2023 compared to $84.3 million during the third quarter of fiscal 2022. The increase in interest expense, net was primarily attributable to lower interest income, as well as higher average outstanding borrowings and higher average interest rates. The weighted average interest rate during the third quarter of fiscal 2023 was 5.6%, excluding deferred financing costs and original issue discount, compared to 5.3% during the third quarter of fiscal 2022.

Interest expense, net was $383.1 million during the first 40 weeks of fiscal 2023 compared to $313.0 million during the first 40 weeks of fiscal 2022. The increase in interest expense, net was primarily attributable to higher average outstanding borrowings and higher average interest rates, as well as lower interest income. The weighted average interest rate during the first 40 weeks of fiscal 2023 was 5.6%, excluding amortization and write-off of deferred financing costs and original issue discount, compared to 5.3% during the first 40 weeks of fiscal 2022.

Other (Income) Expense, Net

For the third quarter of fiscal 2023, other income, net was $6.7 million compared to other expense, net of $1.7 million for the third quarter of fiscal 2022. Other income, net during the third quarter of fiscal 2023 was primarily driven by realized and unrealized gains from non-operating investments and non-service cost components of net pension and post-retirement income, partially offset by unrealized losses from non-operating investments. 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.

For the first 40 weeks of fiscal 2023, other income, net was $14.6 million compared to $23.5 million for the first 40 weeks of fiscal 2022. Other income, net during the first 40 weeks of fiscal 2023 was primarily driven by non-service cost components of net pension and post-retirement income, realized and unrealized gains from non-operating investments and income related to our equity interest and gain on sale of El Rancho in the first quarter of fiscal 2023, partially offset by realized and unrealized losses from non-operating investments. 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.

Income Taxes

Income tax expense was $95.1 million, representing a 20.8% effective tax rate, for the third quarter of fiscal 2023. Income tax expense was $120.9 million, representing a 24.4% effective tax rate, for the third quarter of fiscal 2022. The favorability in the effective income tax rate in the third quarter of fiscal 2023 was primarily due to an increase in federal tax credits.

Income tax expense was $228.7 million, representing a 17.9% effective tax rate, for the first 40 weeks of fiscal 2023. Income tax expense was $381.6 million, representing a 24.1% effective tax rate, for the first 40 weeks of fiscal 2022. The favorability in the effective income tax rate for the first 40 weeks of fiscal 2023 was driven by the reduction of a reserve of $49.7 million for an uncertain tax position due to the expiration of a foreign statute during the first quarter of fiscal 2023, federal tax credits, as well as discrete benefits recognized for state income taxes.

Net Income and Adjusted Net Income

Net income was $361.4 million, or $0.62 per Class A common share, during the third quarter of fiscal 2023 compared to $375.5 million, or $0.20 per Class A common share, during the third quarter of fiscal 2022. 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 attributable to holders of Convertible Preferred Stock on an as-converted basis. Adjusted net income was $462.3 million, or $0.79 per Class A common share, during the third quarter of fiscal 2023 compared to $505.1 million, or $0.87 per Class A common share, during the third quarter of fiscal 2022.

Net income was $1,045.5 million, or $1.80 per Class A common share, during the first 40 weeks of fiscal 2023 compared to $1,202.4 million, or $1.72 per Class A common share, during the first 40 weeks of fiscal 2022. The first 40 weeks of fiscal 2023 included the $49.7 million or $0.09 per share benefit related to the reduction in the reserve for an uncertain tax position. Adjusted net income was $1,375.7 million, or $2.34 per Class A common share (which includes the tax benefit discussed above), during the first 40 weeks of fiscal 2023 compared to $1,505.4 million, or $2.59 per Class A common share, during the first 40 weeks of fiscal 2022.

Adjusted EBITDA

For the third quarter of fiscal 2023, Adjusted EBITDA was $1,106.5 million, or 6.0% of Net sales and other revenue, compared to $1,158.0 million, or 6.4% of Net sales and other revenue, for the third quarter of fiscal 2022. For the first 40 weeks of fiscal 2023, Adjusted EBITDA was $3,401.9 million, or 5.6% of Net sales and other revenue, compared to $3,626.8 million, or 6.1% of Net sales and other revenue for the first 40 weeks of fiscal 2022.

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):

30

The following table is a reconciliation of Adjusted net income to Adjusted EBITDA:

(1) Includes costs associated with third-party consulting fees related to our operational priorities and associated business transformation.

(2) Represents incremental COVID-19 related pay legislatively required in certain municipalities in which we operate.

(3) Primarily relates to third-party legal and advisor fees and retention program expense related to the proposed Merger and costs in connection with our previously-announced Board-led review of potential strategic alternatives.

(4) Miscellaneous adjustments include the following (see table below):

(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.

(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.

(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) (Gain) loss on interest rate swaps and energy hedges, net:

(e) Depreciation and amortization:

(f) Miscellaneous adjustments:

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth the major sources and uses of cash and cash equivalents and restricted cash for each period (in millions):

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $1,730.8 million for the first 40 weeks of fiscal 2023 compared to $2,072.0 million for the first 40 weeks of fiscal 2022. The decrease in cash flow from operations compared to the first 40 weeks of fiscal 2022 was due to a decrease in Adjusted EBITDA and more cash paid for income taxes, interest, legal settlements and ongoing Merger-related costs during the first 40 weeks of fiscal 2023, partially offset by changes in working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1,328.8 million for the first 40 weeks of fiscal 2023 compared to $1,478.7 million for the first 40 weeks of fiscal 2022.

For the first 40 weeks of fiscal 2023, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $1,535.0 million, partially offset by proceeds from the sale of assets of $201.3 million, primarily related to the sale of our equity interest in El Rancho during the first quarter of fiscal 2023. Payments for property, equipment and intangibles in the first 40 weeks of fiscal 2023 included the completion of 115 remodels, the opening of five new stores and continued investment in our digital and technology platforms. For the first 40 weeks of fiscal 2022, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $1,566.9 million, partially offset by proceeds from the sale of assets of $99.4 million, primarily related to real estate. Payments for property, equipment and intangibles in the first 40 weeks of fiscal 2022 included continued investment in our digital and technology platforms, the completion of 135 remodels and the opening of two new stores.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $638.6 million during the first 40 weeks of fiscal 2023 compared to net cash provided by financing activities of $874.4 million during the first 40 weeks of fiscal 2022.

Net cash used in financing activities during the first 40 weeks of fiscal 2023 consisted primarily of the $500.0 million partial repayment of the ABL Facility, dividends paid on our Class A common stock and tax withholding payments on vesting of restricted stock units, partially offset by $150.0 million of proceeds from the issuance of debt under the ABL Facility. Net cash provided by financing activities during the first 40 weeks of fiscal 2022 consisted primarily of the $1.4 billion borrowing, which was used with cash on hand to fund the payment of the Special Dividend, partially offset by the $200.0 million subsequent partial repayment of the ABL Facility and dividends paid on our Class A common stock and Convertible Preferred Stock, as well as tax withholding payments on vesting of restricted stock units.

Dividends

We have established a dividend policy pursuant to which we intend to pay a quarterly dividend on our Class A common stock. Cash dividends paid on our Class A common stock were $207.1 million ($0.36 per common share) and $190.9 million ($0.36 per common share) during the first 40 weeks of fiscal 2023 and first 40 weeks of fiscal 2022, respectively. On January 9, 2024, we announced the next quarterly dividend payment of $0.12 per share of Class A common stock to be paid on February 9, 2024 to stockholders of record as of the close of business on January 26, 2024.

During the first quarter of fiscal 2023, the conversion of the remaining Convertible Preferred Stock was completed. The holders of Convertible Preferred Stock were entitled to a quarterly dividend at a rate per annum of 6.75% of the liquidation preference per share of the Convertible Preferred Stock. In addition, the holders of Convertible Preferred Stock participate in cash dividends that we pay on our common stock to the extent that such cash dividends exceed $206.25 million per fiscal year and shares of Convertible Preferred Stock remain outstanding as of the applicable record date to participate in such dividends. Cash dividends paid to holders of the Convertible Preferred Stock were $0.8 million and $50.2 million during the first 40 weeks of fiscal 2023 and first 40 weeks of fiscal 2022, respectively.

On October 13, 2022, we declared 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 on October 24, 2022, and was to be paid on November 7, 2022. As of December 3, 2022, the Special Dividend of $3,921.3 million was recorded in Special dividend payable on the Condensed Consolidated Balance Sheets, and was subsequently paid on January 20, 2023.

Liquidity

Based on current operating trends, we believe that we have significant sources of cash to meet our liquidity needs for the next 12 months and for the foreseeable future, including cash on hand, cash flows from operating activities and other sources of liquidity, including borrowings under our ABL Facility. We estimate our liquidity needs over the next 12 months to be in the range of $5.0 billion to $5.7 billion. This includes $650.0 million related to outstanding borrowings under our ABL Facility for which we may, at our discretion, elect to pay all or a portion of the outstanding balance within the next 12 months; and anticipated requirements for incremental working capital, incremental Merger costs, capital expenditures, pension obligations, interest payments, quarterly dividends on Class A common stock, operating leases and finance leases. In addition, we may enter into refinancing and sale leaseback transactions from time to time. We believe we have adequate cash flow to continue to maintain our current debt ratings and to respond effectively to competitive conditions.

As of December 2, 2023, we had $650.0 million in borrowings outstanding under our ABL Facility and total availability of $3,302.2 million (net of letter of credit usage). See Note 4 – Long-Term Debt and Finance Lease Obligations located elsewhere in this Form 10-Q for further discussion.

CRITICAL ACCOUNTING POLICIES

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a fair and consistent manner. See the Critical Accounting Policies section included in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023, filed with the SEC on April 25, 2023, for a discussion of our significant accounting policies.

RECENTLY ISSUED AND RECENTLY ADOPTED ACCOUNTING STANDARDS

See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of our unaudited interim Condensed Consolidated Financial Statements located elsewhere in this Form 10-Q.

There have been no material changes in our exposure to market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023, filed with the SEC on April 25, 2023.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this Form 10-Q, our Principal Executive Officer and Principal Financial Officer concluded our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously included in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023, filed with the SEC on April 25, 2023, under the heading "Risk Factors."