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REVENUE RECOGNITION | 6 Months Ended
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Jan. 26, 2019
Revenue from Contract with Customer [Abstract] |
REVENUE RECOGNITION | REVENUE RECOGNITION Revenue Recognition Accounting Policy The Company recognizes revenue in an amount that reflects the consideration that is expected to be received for goods or services when its performance obligations are satisfied by transferring control of those promised goods or services to its customers. ASC 606 defines a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when or as the performance obligation is satisfied. This footnote addresses the Company’s revenue recognition policies for its continuing operations only; refer to Note 18. “Discontinued Operations” for additional information about our revenue recognition policies of discontinued operations. Revenues from wholesale product sales are recognized when control is transferred, which typically happens upon either shipment or delivery, depending on the contract terms with the customer. Typically, shipping and customer receipt of wholesale products occur on the same business day. Discounts and allowances provided to customers are recognized as a reduction in Net sales as control of the products is transferred to customers. The Company recognizes freight revenue related to transportation of its products when control of the product is transferred, which is typically upon delivery. Sales tax is excluded from Net sales. Limited rights of return or product warranties exist with the Company’s customers due to the nature of the products it sells. Product sales The Company enters into wholesale customer distribution agreements that provide terms and conditions of our order fulfillment. The Company’s distribution agreements often specify levels of required minimum purchases in order to earn certain rebates or incentives. Certain contracts include rebates and other forms of variable consideration, including consideration payable to the customer up-front, over time or at the end of a contract term. In transactions for goods or services where the Company engages third-parties to participate in its order fulfillment process, it evaluates whether it is the principal or an agent in the transaction. The Company’s analysis considers whether it controls the goods or services before they are transferred to its customer, including an evaluation of whether the Company has the ability to direct the use of, and obtain substantially all the remaining benefits from, the specified good or service before it is transferred to the customer. Agent transactions primarily reflect circumstances where the Company is not involved in order fulfillment or where it is involved in the order fulfillment but is not contractually obligated to purchase the related goods or services from vendors, and instead extends wholesale customers credit by paying vendor trade accounts payable and do not control products prior to their sale. Under ASC 606, if the Company determines that it is acting in an agent capacity, transactions are recorded on a net basis. If the Company determines that it is acting in a principal capacity, transactions are recorded on a gross basis. The Company also evaluates vendor sales incentives to determine whether they reduce the transaction price with its customers. The Company’s analysis considers which party tenders the incentive, whether the incentive reflects a direct reimbursement from a vendor, whether the incentive is influenced by or negotiated in conjunction with any other incentive arrangements and whether the incentive is subject to an agency relationship with the vendor, whether expressed or implied. Typically, when vendor incentives are offered directly by vendors to the Company’s customers, require the achievement of vendor-specified requirements to be earned by customers, and are not negotiated by the Company or in conjunction with any other incentive agreement whereby it does not control the direction or earning of these incentives, then Net sales are not reduced as part of the Company’s determination of the transaction price. In circumstances where the vendors provide the Company consideration to promote the sale of their goods and the Company determines the specific performance requirements for its customers to earn these incentives, Net sales are reduced for these customer incentives as part of the determination of the transaction price. Certain customer agreements provide for the right to license one or more of the Company’s tradenames, such as FESTIVAL FOODS®, SENTRY®, COUNTY MARKET®, NEWMARKET®, FOODLAND®, JUBILEE® and SUPERVALU®. The Company typically does not separately charge for the right to license its tradenames. The Company believes that these tradenames are capable of being distinct, but are not distinct within the context of the contracts with its customers. Accordingly, the Company does not separately recognize revenue related to tradenames utilized by its customers. In addition, the Company enters into franchise agreements to separately charge its customers, who the Company also sells wholesale products to, for the right to use its CUB FOODS® tradename. The Company enters into distribution agreements with manufacturers to provide wholesale supplies to the Defense Commissary Agency (“DeCA”) and other government agency locations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. The Company contracts with manufacturers to distribute products to the commissaries after being authorized by the manufacturers to be a military distributor to DeCA. The Company must adhere to DeCA’s delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is contracted by the manufacturer for a particular commissary or exchange location, and then places a product order with that distributor that is covered under DeCA’s master contract with the applicable manufacturer. The Company supplies product from its existing inventory, delivers it to the DeCA designated location, and bills the manufacturer for the product price plus a drayage fee. The manufacturer then bills DeCA under the terms of its master contract. The Company has determined that it controls the goods before they are transferred to the customer, and as such it is the principal in the transaction. Revenue is recognized on a gross basis when control of the product passes to the DeCA designated location. Professional services and equipment sales Many of the Company’s agreements with customers include various professional services and other promises to customers, in addition to the sale of the product itself, such as retail store support, advertising, store layout and design services, merchandising support, couponing, e-commerce, network and data hosting solutions, training and certifications classes, and administrative back-office solutions. These professional services may contain a single performance obligation for each respective service, in which case such services revenues are recognized when delivered. The Company determined that certain services provided are immaterial within the overall context of the respective contract, and as such has not allocated the transaction price to these obligations. Wholesale equipment sales are recorded as direct sales to customers when shipped or delivered, consistent with the recognition of product sales. Customer incentives The Company provides incentives to its wholesale customers in various forms established under the applicable agreement, including advances, payments over time that are earned by achieving specified purchasing thresholds, and upon the passage of time. The Company typically records customer advances within Other assets and Other current assets and typically recognizes customer incentive payments that are based on expected purchases over the term of the agreement as a reduction to Net sales. To the extent that the transaction price for product sales includes variable consideration, such as certain of these customer incentives, the Company estimates the amount of variable consideration that should be included in the transaction price primarily by utilizing the expected value method. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the agreement will not occur. The Company believes that there will not be significant changes to its estimates of variable consideration, as the uncertainty will be resolved within a relatively short time and there is a significant amount of historical data that is used in the estimation of the amount of variable consideration to be received. Therefore, the Company has not constrained its estimates of variable consideration. Customer incentive assets are reviewed for impairment when circumstances exist for which the Company no longer expects to recover the applicable customer incentives. Disaggregation of Revenues The Company records revenue to four customer channels, which are described below:
• | Supernatural, which consists of chain accounts that are national in scope and carry primarily natural products, and at this time currently consists solely of Whole Foods Market;
• | Independents, which include single store and chain accounts (excluding supernatural, as defined above), which carry primarily natural products and buying clubs of consumer groups joined to buy products;
• | Supermarkets, which include accounts that also carry conventional products, and at this time currently include chain accounts, supermarket independents, and gourmet and ethnic specialty stores; and
• | Other, which includes foodservice, e-commerce and international customers outside of Canada, as well as sales to Amazon.com, Inc.
The following tables detail the Company’s revenue recognition for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly.
|  | Net Sales for the 13-Week Period Ended
(in millions) |  | January 26, 2019
Customer Channel |  | Wholesale |  | Other |  | Eliminations |  | Consolidated
Supernatural |  | $ | 1,100 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,100 |
Independents |  | 810 |  |  | — |  |  | — |  |  | 810 |
Supermarkets |  | 3,902 |  |  | — |  |  | — |  |  | 3,902 |
Other |  | 318 |  |  | 58 |  |  | (39 | ) |  | 337 |
Total |  | $ | 6,130 |  |  | $ | 58 |  |  | $ | (39 | ) |  | $ | 6,149 |
|  | Net Sales for the 13-Week Period Ended
(in millions) |  | January 27, 2018 (1)
Customer Channel |  | Wholesale |  | Other |  | Eliminations |  | Consolidated
Supernatural |  | $ | 931 |  |  | $ | — |  |  | $ | — |  |  | $ | 931 |
Independents |  | 646 |  |  | — |  |  | — |  |  | 646 |
Supermarkets |  | 716 |  |  | — |  |  | — |  |  | 716 |
Other |  | 222 |  |  | 55 |  |  | (42 | ) |  | 235 |
Total |  | $ | 2,515 |  |  | $ | 55 |  |  | $ | (42 | ) |  | $ | 2,528 |
|  | Net Sales for the 26-Week Period Ended
(in millions) |  | January 26, 2019 (2)
Customer Channel |  | Wholesale |  | Other |  | Eliminations |  | Consolidated
Supernatural |  | $ | 2,127 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,127 |
Independents |  | 1,502 |  |  | — |  |  | — |  |  | 1,502 |
Supermarkets |  | 4,807 |  |  | — |  |  | — |  |  | 4,807 |
Other |  | 550 |  |  | 107 |  |  | (76 | ) |  | 581 |
Total |  | $ | 8,986 |  |  | $ | 107 |  |  | $ | (76 | ) |  | $ | 9,017 |
|  | Net Sales for the 26-Week Period Ended
(in millions) |  | January 27, 2018 (3)
Customer Channel |  | Wholesale |  | Other |  | Eliminations |  | Consolidated
Supernatural |  | $ | 1,784 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,784 |
Independents |  | 1,309 |  |  | — |  |  | — |  |  | 1,309 |
Supermarkets |  | 1,412 |  |  | — |  |  | — |  |  | 1,412 |
Other |  | 455 |  |  | 113 |  |  | (87 | ) |  | 481 |
Total |  | $ | 4,960 |  |  | $ | 113 |  |  | $ | (87 | ) |  | $ | 4,986 |
(1) | During the second quarter of fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. As a result of this adjustment, net sales to our supermarkets channel and to our other channel for the second quarter of fiscal 2018 decreased approximately $12 million and $15 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the second quarter of fiscal 2018 increased approximately $27 million compared to the previously reported amounts.
(2) | During the second quarter of fiscal 2019, the presentation of net sales attributable to Supervalu was incorporated into our definitions of sales by customer channel. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. Net sales as reported in the first quarter of fiscal 2019 by customer channel were recast, resulting in an increase in supermarket sales of $198 million, independents of $25 million, and other of $1 million with an offsetting decrease to the Supervalu customer channel.
(3) | During the second quarter of fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. As a result of this adjustment, net sales to our supermarkets channel and to our other channel for the 26-week period ended January 27, 2018 decreased approximately $20 million and $31 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the 26-week period ended January 27, 2018 increased approximately $51 million compared to the previously reported amounts.
The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada and international distribution occurs through freight-forwarders. The Company does not have any performance obligations on international shipments subsequent to delivery to the domestic port. Contract Balances The Company does not typically incur costs that are required to be capitalized in connection with obtaining a contract with a customer. Expenses related to contract origination primarily relate to employee costs that the Company would incur regardless of whether the contract was obtained with the customer. The Company typically does not have any performance obligations to deliver products under its contracts until its customers submit a purchase order, as it stands ready to deliver product upon receipt of a purchase order under contracts with its customers. These performance obligations are generally satisfied within a very short period of time. Therefore, the Company has utilized the practical expedient that provides an exemption from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. The Company does not typically receive pre-payments from its customers. Customer payments are due when control of goods or services are transferred to the customer and are typically not conditional on anything other than payment terms, which typically range less than 30 days. Since no significant financing components exist between the period of time the Company transfers goods or services to the customer and when it receives payment for those goods or services, the Company has elected not to adjust its revenue recognition policy to recognize financing components. Customer incentives are not considered contract assets as they are not generated through the transfer of goods or services to the customers. No material contract assets exist for any period reported within these Condensed Consolidated Financial Statements. Accounts and notes receivable are as follows:
(in thousands) |  | January 26, 2019 |  | July 28, 2018
Customer accounts receivable |  | $ | 1,093,195 |  |  | $ | 595,698 |
Allowance for uncollectible receivables |  | (15,278 | ) |  | (15,996 | )
Other receivables, net |  | 16,957 |  |  | — |
Accounts receivable, net |  | $ | 1,094,874 |  |  | $ | 579,702 |
Customer notes receivable, included within Prepaid expenses and other current assets |  | $ | 16,473 |  |  | $ | — |
Long-term notes receivable, included within Other assets |  | $ | 37,863 |  |  | $ | — |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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