UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 2019October 31, 2020  
or 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Commission File Number: 001-15723
unfi-20201031_g1.jpg
UNITED NATURAL FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware05-0376157
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
313 Iron Horse Way,Providence,Rhode Island02908
(Address of principal executive offices)(Zip Code)
 Registrant’s telephone number, including area code: (401) (401) 528-8634
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.01UNFINew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.     
Large accelerated filer☒☐Accelerated filer☐☒
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒
As of December 6, 20194, 2020 there were 53,508,14756,135,393 shares of the registrant’s common stock, $0.01 par value per share, outstanding.


Table of Contents


TABLE OF CONTENTS
 
Part I.Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited)
3
4
5
6
7
8
3630
5147
5147
5147
5248
5248
5349
5450


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Table of Contents
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except for per share data)
October 31,
2020		August 1,
2020
ASSETS  
Cash and cash equivalents$49,046 $46,993 
Accounts receivable, net1,165,946 1,120,199 
Inventories2,446,604 2,280,767 
Prepaid expenses and other current assets273,211 251,891 
Current assets of discontinued operations5,687 5,067 
Total current assets3,940,494 3,704,917 
Property and equipment, net1,662,659 1,701,216 
Operating lease assets1,010,744 982,808 
Goodwill19,671 19,607 
Intangible assets, net946,581 969,600 
Deferred income taxes106,931 107,624 
Other assets94,110 97,285 
Long-term assets of discontinued operations2,407 3,915 
Total assets$7,783,597 $7,586,972 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Accounts payable$1,729,786 $1,633,448 
Accrued expenses and other current liabilities278,790 281,956 
Accrued compensation and benefits184,752 228,832 
Current portion of operating lease liabilities145,295 131,022 
Current portion of long-term debt and finance lease liabilities25,712 83,378 
Current liabilities of discontinued operations9,889 11,438 
Total current liabilities2,374,224 2,370,074 
Long-term debt2,620,587 2,426,994 
Long-term operating lease liabilities888,979 873,990 
Long-term finance lease liabilities137,694 143,303 
Pension and other postretirement benefit obligations274,698 292,128 
Other long-term liabilities339,541 336,487 
Long-term liabilities of discontinued operations15 1,738 
Total liabilities6,635,738 6,444,714 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5,000 shares; NaN issued or outstanding0 0 
Common stock, $0.01 par value, authorized 100,000 shares; 56,749 shares issued and 56,135 shares outstanding at October 31, 2020; 55,306 shares issued and 54,691 shares outstanding at August 1, 2020568 553 
Additional paid-in capital572,170 568,736 
Treasury stock at cost(24,231)(24,231)
Accumulated other comprehensive loss(225,722)(237,946)
Retained earnings827,353 837,633 
Total United Natural Foods, Inc. stockholders’ equity1,150,138 1,144,745 
Noncontrolling interests(2,279)(2,487)
Total stockholders’ equity1,147,859 1,142,258 
Total liabilities and stockholders’ equity$7,783,597 $7,586,972 
  November 2,
2019		 August 3,
2019
ASSETS  
  
Cash and cash equivalents $39,758
 $42,350
Accounts receivable, net 1,136,924
 1,065,699
Inventories 2,324,979
 2,089,416
Prepaid expenses and other current assets 192,463
 226,727
Current assets of discontinued operations 155,883
 143,729
Total current assets 3,850,007
 3,567,921
Property and equipment, net 1,494,309
 1,639,259
Operating lease assets 1,051,128
 —
Goodwill 19,791
 442,256
Intangible assets, net 999,586
 1,041,058
Deferred income taxes 98,768
 31,087
Other assets 106,038
 107,319
Long-term assets of discontinued operations 343,892
 352,065
Total assets $7,963,519
 $7,180,965
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  
Accounts payable $1,606,470
 $1,476,857
Accrued expenses and other current liabilities 246,563
 249,426
Accrued compensation and benefits
164,605

148,296
Current portion of operating lease liabilities 127,327
 —
Current portion of long-term debt and finance lease liabilities 34,458
 112,103
Current liabilities of discontinued operations 100,878
 122,265
Total current liabilities 2,280,301
 2,108,947
Long-term debt 3,051,238
 2,819,050
Long-term operating lease liabilities 949,978
 —
Long-term finance lease liabilities 68,682
 108,208
Pension and other postretirement benefit obligations 220,550
 237,266
Deferred income taxes 1,047
 1,042
Other long-term liabilities 267,080
 393,595
Long-term liabilities of discontinued operations 1,403
 1,923
Total liabilities 6,840,279
 5,670,031
Commitments and contingencies 


 


Stockholders’ equity:    
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding —
 —
Common stock, $0.01 par value, authorized 100,000 shares; 54,121 shares issued and 53,506 shares
outstanding at November 2, 2019; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019		 541
 535
Additional paid-in capital 532,958
 530,801
Treasury stock at cost (24,231) (24,231)
Accumulated other comprehensive loss (111,691) (108,953)
Retained earnings 728,979
 1,115,519
Total United Natural Foods, Inc. stockholders’ equity 1,126,556
 1,513,671
Noncontrolling interests (3,316) (2,737)
Total stockholders' equity 1,123,240
 1,510,934
Total liabilities and stockholders’ equity $7,963,519
 $7,180,965

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except for per share data) 
 13-Week Period Ended
 October 31,
2020		November 2,
2019
Net sales$6,672,607 $6,296,612 
Cost of sales5,706,108 5,389,401 
Gross profit966,499 907,211 
Operating expenses900,962 883,688 
Goodwill and asset impairment charges0 425,405 
Restructuring, acquisition and integration related expenses16,428 14,672 
Gain on sale of assets(230)(90)
Operating income (loss)49,339 (416,464)
Other expense (income):  
Net periodic benefit income, excluding service cost(17,033)(11,384)
Interest expense, net69,133 49,709 
Other, net(798)(400)
Total other expense, net51,302 37,925 
Loss from continuing operations before income taxes(1,963)(454,389)
Benefit for income taxes(991)(66,955)
Net loss from continuing operations(972)(387,434)
Income from discontinued operations, net of tax1,296 4,026 
Net income (loss) including noncontrolling interests324 (383,408)
Less net income attributable to noncontrolling interests(1,367)(519)
Net loss attributable to United Natural Foods, Inc.$(1,043)$(383,927)
  
Basic (loss) earnings per share:
Continuing operations$(0.04)$(7.29)
Discontinued operations$0.02 $0.08 
Basic loss per share$(0.02)$(7.21)
Diluted (loss) earnings per share:
Continuing operations$(0.04)$(7.29)
Discontinued operations$0.02 $0.08 
Diluted loss per share$(0.02)$(7.21)
Weighted average shares outstanding:
Basic55,171 53,213 
Diluted55,171 53,213 
 
13-Week Period Ended
 
November 2,
2019
October 27,
2018
Net sales
$6,019,585

$2,868,156
Cost of sales
5,248,543

2,455,825
Gross profit
771,042

412,331
Operating expenses
775,414

363,165
Goodwill and asset impairment charges 425,405
 —
Restructuring, acquisition and integration related expenses
14,250

68,004
Operating loss
(444,027)
(18,838)
Other expense (income):
 

 
Net periodic benefit income, excluding service cost (11,384) (844)
Interest expense, net 49,518
 7,525
Other, net
(46)
97
Total other expense, net
38,088

6,778
Loss from continuing operations before income taxes
(482,115)
(25,616)
Benefit for income taxes
(73,753)
(4,255)
Net loss from continuing operations (408,362) (21,361)
Income from discontinued operations, net of tax 24,954
 2,070
Net loss including noncontrolling interests (383,408) (19,291)
Less net income attributable to noncontrolling interests (519) (3)
Net loss attributable to United Natural Foods, Inc.
$(383,927)
$(19,294)


 

 
Basic (loss) earnings per share:    
Continuing operations $(7.67) $(0.42)
Discontinued operations $0.46
 $0.04
Basic loss per share $(7.21) $(0.38)
Diluted (loss) earnings per share:    
Continuing operations $(7.67) $(0.42)
Discontinued operations $0.46
 $0.04
Diluted loss per share $(7.21) $(0.38)
Weighted average shares outstanding:





Basic
53,213
 50,583
Diluted
53,213
 50,583

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS) (unaudited)
(In thousands)
13-Week Period Ended
October 31,
2020		November 2,
2019
Net income (loss) including noncontrolling interests$324 $(383,408)
Other comprehensive income (loss):  
Recognition of pension and other postretirement benefit obligations, net of tax(1)
(206)572 
Recognition of interest rate swap cash flow hedges, net of tax(2)
12,458 (3,681)
Foreign currency translation adjustments405 371 
Recognition of other cash flow derivatives, net of tax(3)
(433)0 
Total other comprehensive income (loss)12,224 (2,738)
Less comprehensive income attributable to noncontrolling interests(1,367)(519)
Total comprehensive income (loss) attributable to United Natural Foods, Inc.$11,181 $(386,665)
  13-Week Period Ended
  November 2,
2019		 October 27,
2018
Net loss including noncontrolling interests $(383,408) $(19,291)
Other comprehensive (loss) income:  
  
Recognition of pension and other postretirement benefit obligations, net of tax(1)
 572
 —
Recognition of interest rate swap cash flow hedges, net of tax(2)
 (3,681) 196
Foreign currency translation adjustments 371
 (672)
Total other comprehensive loss (2,738) (476)
Less comprehensive income attributable to noncontrolling interests (519) (3)
Total comprehensive loss attributable to United Natural Foods, Inc. $(386,665) $(19,770)

(1)Amounts are net of tax (benefit) expense of $(0.1) million and $0.2 million, respectively.
(2)Amounts are net of tax expense (benefit) of $4.3 million and $(1.3) million, respectively.
(3)Amounts are net of tax (benefit) expense of $(0.1) million and $0.0 million, respectively.

(1)Amounts are net of tax (benefit) expense of $0.2 million and $0.0 million for the 13-week periods ended November 2, 2019 and October 27, 2018, respectively.
(2)Amounts are net of tax (benefit) expense of $(1.3) million and $0.3 million for the 13-week periods ended November 2, 2019 and October 27, 2018, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.


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UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY (unaudited)
For the 13-week periods ended October 31, 2020 and November 2, 2019
(In thousands)
 Common StockTreasury StockAdditional
Paid-in Capital		Accumulated
Other
Comprehensive Loss		Retained EarningsTotal United Natural Foods, Inc.
Stockholders’ Equity		Noncontrolling InterestsTotal Stockholders’ Equity
SharesAmountSharesAmount
Balances at August 1, 202055,306 $553 615 $(24,231)$568,736 $(237,946)$837,633 $1,144,745 $(2,487)$1,142,258 
Cumulative effect of change in accounting principle— — — — — — (9,237)(9,237)— (9,237)
Restricted stock vestings and stock option exercises1,438 15 — — (8,879)— — (8,864)— (8,864)
Share-based compensation— — — — 12,242 — — 12,242 — 12,242 
Other comprehensive income— — — — — 12,224 — 12,224 — 12,224 
Distributions to noncontrolling interests— — — — — — — — (1,159)(1,159)
Proceeds from issuance of common stock, net5 — — — 71 — — 71 — 71 
Net (loss) income— — — — — — (1,043)(1,043)1,367 324 
Balances at October 31, 202056,749 $568 615 $(24,231)$572,170 $(225,722)$827,353 $1,150,138 $(2,279)$1,147,859 
Balances at August 3, 201953,501 $535 615 $(24,231)$530,801 $(108,953)$1,108,890 $1,507,042 $(2,737)$1,504,305 
Cumulative effect of change in accounting principle— — — — — — (2,613)(2,613)— (2,613)
Restricted stock vestings and stock option exercises424 4 — — (823)— — (819)— (819)
Share-based compensation— — — — 1,247 — — 1,247 — 1,247 
Other comprehensive loss— — — — — (2,738)— (2,738)— (2,738)
Distributions to noncontrolling interests— — — — — — — — (1,098)(1,098)
Proceeds from issuance of common stock, net196 2 — — 1,733 — — 1,735 — 1,735 
Net (loss) income— — — — — — (383,927)(383,927)519 (383,408)
Balances at November 2, 201954,121 $541 615 $(24,231)$532,958 $(111,691)$722,350 $1,119,927 $(3,316)$1,116,611 
 Common Stock Treasury Stock 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive Loss
 Retained Earnings 
Total United Natural Foods, Inc.
Stockholders’ Equity
 Noncontrolling Interests Total Stockholders’ Equity
 Shares Amount Shares Amount      
Balances at August 3, 201953,501
 $535
 615
 $(24,231) $530,801
 $(108,953) $1,115,519
 $1,513,671
 $(2,737) $1,510,934
Cumulative effect of change in accounting principle 
  
        
 (2,613) (2,613)   (2,613)
Restricted stock vestings and stock option exercises424
 4
     (823)  
  
 (819)   (819)
Share-based compensation   
     1,247
  
  
 1,247
   1,247
Other comprehensive loss          (2,738)   (2,738)   (2,738)
Distributions to noncontrolling interests              

 (1,098) (1,098)
Proceeds from issuance of common stock, net196
 2
     1,733
     1,735
   1,735
Net loss 
  
      
  
 (383,927) (383,927) 519
 (383,408)
Balances at November 2, 201954,121
 $541
 615
 $(24,231) $532,958
 $(111,691) $728,979
 $1,126,556
 $(3,316) $1,123,240
 Common Stock Treasury Stock 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive Loss
 Retained Earnings 
Total
Stockholders’ Equity
 Noncontrolling Interests Total Stockholders’ Equity
 Shares Amount Shares Amount      
Balances at July 28, 201851,025
 $510
 615
 $(24,231) $483,623
 $(14,179) $1,400,232
 $1,845,955
 $—
 $1,845,955
Cumulative effect of change in accounting principle 
  
     

  
 277
 277
   277
Restricted stock vestings and stock option exercises, net of tax401
 4
     (3,012)  
  
 (3,008)   (3,008)
Share-based compensation   
     8,089
  
  
 8,089
   8,089
Other/share-based compensation 
  
     403
  
  
 403
   403
Other comprehensive loss          (476)   (476)   (476)
Acquisition of noncontrolling interests                (1,633) (1,633)
Net loss 
  
      
  
 (19,294) (19,294) 3
 (19,291)
Balances at October 27, 201851,426
 $514
 615
 $(24,231) $489,103
 $(14,655) $1,381,215
 $1,831,946
 $(1,630) $1,830,316

See accompanying Notes to Condensed Consolidated Financial Statements.Statements


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UNITED NATURAL FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 13-Week Period Ended 13-Week Period Ended
(In thousands) November 2,
2019		 October 27,
2018		(In thousands)October 31,
2020		November 2,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:  
  
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss including noncontrolling interests $(383,408) $(19,291)
Net income (loss) including noncontrolling interestsNet income (loss) including noncontrolling interests$324 $(383,408)
Income from discontinued operations, net of tax 24,954
 2,070
Income from discontinued operations, net of tax1,296 4,026 
Net loss from continuing operations (408,362) (21,361)Net loss from continuing operations(972)(387,434)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:  
  
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:  
Depreciation and amortization 75,141
 24,793
Depreciation and amortization77,189 75,141 
Share-based compensation 1,247
 8,089
Share-based compensation12,242 1,247 
(Gain) loss on disposition of assets (1,308) 6
Gain on sale of assetsGain on sale of assets(230)(90)
Closed property and other restructuring charges 4,969
 412
Closed property and other restructuring charges497 3,108 
Goodwill and asset impairment charges 425,405
 —
Goodwill and asset impairment charges0 425,405 
Net pension and other postretirement benefit income (11,370) (844)Net pension and other postretirement benefit income(17,021)(11,370)
Deferred income tax (benefit) expense (62,560) 1,214
Deferred income tax benefitDeferred income tax benefit2,254 (61,762)
LIFO charge 6,546
 —
LIFO charge6,670 6,873 
Provision for doubtful accounts 13,098
 3,037
Provision for losses on receivables, netProvision for losses on receivables, net(278)13,098 
Loss on debt extinguishment 73
 1,114
Loss on debt extinguishment23,750 73 
Non-cash interest expense 3,833
 345
Changes in operating assets and liabilities, net of acquired businesses (182,257) (118,124)
Non-cash interest expense and other adjustmentsNon-cash interest expense and other adjustments3,750 3,833 
Changes in operating assets and liabilitiesChanges in operating assets and liabilities(163,033)(202,503)
Net cash used in operating activities of continuing operations (135,545) (101,319)Net cash used in operating activities of continuing operations(55,182)(134,381)
Net cash provided by (used in) operating activities of discontinued operations 676
 (5,701)
Net cash used in operating activities of discontinued operationsNet cash used in operating activities of discontinued operations(2,484)(488)
Net cash used in operating activities (134,869) (107,020)Net cash used in operating activities(57,666)(134,869)
CASH FLOWS FROM INVESTING ACTIVITIES:  
  
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures (41,122) (16,381)Capital expenditures(41,380)(45,048)
Purchases of acquired businesses, net of cash acquired —
 (2,273,829)
Proceeds from dispositions of assets 1,605
 149,529
Proceeds from dispositions of assets4,446 1,669 
Payments for long-term investment (162) (110)
Payments of company owned life insurance premiums (1,204) —
OtherOther(58)(1,366)
Net cash used in investing activities of continuing operations (40,883) (2,140,791)Net cash used in investing activities of continuing operations(36,992)(44,745)
Net cash provided by (used in) investing activities of discontinued operations 17,002
 (89)
Net cash provided by investing activities of discontinued operationsNet cash provided by investing activities of discontinued operations1,486 20,864 
Net cash used in investing activities (23,881) (2,140,880)Net cash used in investing activities(35,506)(23,881)
CASH FLOWS FROM FINANCING ACTIVITIES:  
  
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from borrowings of long-term debt 2,050
 1,905,547
Proceeds from borrowings of long-term debt500,000 2,050 
Proceeds from borrowings under revolving credit line 1,338,446
 1,805,300
Proceeds from borrowings under revolving credit line1,569,088 1,338,446 
Repayments of borrowings under revolving credit line (1,100,746) (688,000)Repayments of borrowings under revolving credit line(1,339,100)(1,100,746)
Repayments of long-term debt and finance leases (83,510) (110,000)Repayments of long-term debt and finance leases(614,010)(83,510)
Proceeds from the issuance of common stock and exercise of stock options 1,735
 118
Proceeds from the issuance of common stock and exercise of stock options71 1,735 
Payment of employee restricted stock tax withholdings (819) (3,126)Payment of employee restricted stock tax withholdings(8,879)(819)
Payments for debt issuance costs —
 (60,309)Payments for debt issuance costs(10,582)0 
Net cash provided by financing activities of continuing operations 157,156
 2,849,530
Net cash used in financing activities of discontinued operations (1,060) —
Net cash provided by financing activities 156,096
 2,849,530
Distributions to noncontrolling interestsDistributions to noncontrolling interests(1,159)(1,060)
Repayments of other loansRepayments of other loans(164)0 
Net provided by financing activitiesNet provided by financing activities95,265 156,096 
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10) (49)EFFECT OF EXCHANGE RATE CHANGES ON CASH56 (10)
NET INCREASE IN CASH AND CASH EQUIVALENTS (2,664) 601,581
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTSNET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS2,149 (2,664)
Cash and cash equivalents, at beginning of period 45,267
 23,315
Cash and cash equivalents, at beginning of period47,070 45,267 
Cash and cash equivalents, including restricted cash at end of period 42,603
 624,896
Cash and cash equivalents at end of periodCash and cash equivalents at end of period49,219 42,603 
Less: cash and cash equivalents of discontinued operations (2,845) (4,633)Less: cash and cash equivalents of discontinued operations(173)(726)
Cash and cash equivalents including restricted cash of continuing operations $39,758
 $620,263
Cash and cash equivalentsCash and cash equivalents$49,046 $41,877 
Supplemental disclosures of cash flow information:    Supplemental disclosures of cash flow information:
Cash paid for interest $49,296
 $7,325
Cash paid for interest$44,120 $49,296 
Cash (refunds) payments for federal and state income taxes, net $(28,874) $462
Cash payments (refunds) for federal and state income taxes, netCash payments (refunds) for federal and state income taxes, net5,728 (28,874)
Leased assets obtained in exchange for new operating lease liabilitiesLeased assets obtained in exchange for new operating lease liabilities70,833 37,020 
Leased assets obtained in exchange for new finance lease liabilitiesLeased assets obtained in exchange for new finance lease liabilities346 0 
Capital expenditures included in accounts payableCapital expenditures included in accounts payable$21,399 $33,605 
 See accompanying Notes to Condensed Consolidated Financial Statements.

7

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UNITED NATURAL FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Business

United Natural Foods, Inc. and its subsidiaries (the “Company”, “we”, ”us”, “UNFI”, or “UNFI”“our”) is a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services. The Company sells its products primarily throughout the United States and Canada.

Fiscal Year

The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the first quarterquarters of fiscal 20202021 and 20192020 relate to the 13-week fiscal quarters ended October 31, 2020 and November 2, 2019, and October 27, 2018, respectively.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition.consolidation. Unless otherwise indicated, references to the Condensed Consolidated Statements of Operations, the Condensed Consolidated Balance Sheets and the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. Refer to Note 17—16—Discontinued Operations for additional information about the Company’s discontinued operations.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. In the Company’s opinion, these Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. However, the results of operations for interim periods may not be indicative of the results that may be expected for a full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 20191, 2020 (the “Annual Report”). Except as described for lease accounting below, thereThere were no material changes in significant accounting policies from those described in the Company’s Annual Report.

Discontinued Operations

In the fourth quarter of fiscal 2020, the Company determined it no longer met the held for sale criterion for a probable sale to be completed within 12 months for the Cub Foods business and the majority of the remaining Shoppers locations excluding five Shoppers locations that are held for sale (collectively “Retail”). As a result, the Company revised its Condensed Consolidated Financial Statements to reclassify Retail from discontinued operations to continuing operations. This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations. Prior periods presented in these Condensed Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods. Retail was acquired as part of the SUPERVALU INC. (“Supervalu”) acquisition in the first quarter of fiscal 2019 on October 22, 2018.

Use of Estimates

The preparation of the Condensed 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to fund outstanding checks when presented to the financial institution for payment. The Company funds all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of November 2, 2019October 31, 2020 and August 3, 2019,1, 2020, the Company had net book overdrafts of $242.5$275.8 million and $236.9$267.8 million, respectively.


Reclassifications

Within the Condensed Consolidated Statements of Cash Flows certain immaterial amounts have been reclassified to conform with current year presentation: prior year amounts for Proceeds from disposal of investments have been combined into a line titled Proceeds from dispositions of assets; and prior year amounts for Payments for long-term investment and Payment of company owned life insurance premiums have been combined into a line titled Other. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

Inventories, Net

Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventories consist of finished goods and a substantial portion of its inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-endyear end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each fiscal year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately $30.7$49.9 million and $24.1$43.3 million at November 2, 2019October 31, 2020 and August 3, 2019,1, 2020, respectively.

Leases

At the inception or modification of contract, the Company determines whether a lease exists and classifies its leases as an operating or finance lease at commencement. Subsequent to commencement, lease classification is only reassessed upon a change to the expected lease term or contract modification. Finance and operating lease assets represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease. These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the lease term. Incremental borrowing rates are estimated based on the Company’s borrowing rate as of the lease commencement date to determine the present value of lease payments, when lease contracts do not provide a readily determinable implicit rate. Incremental borrowing rates are determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms include option extension periods when it is reasonably certain that those options will be exercised. Leases with an initial expected term of 12 months or less are not recorded in the consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term.

The Company recognizes contractual obligations and receipts on a gross basis, such that the related lease obligation to the landlord is presented separately from the sublease created by the lease assignment to the assignee. As a result, the Company continues to recognize on its Condensed Consolidated Balance Sheets the operating lease assets and liabilities, and finance lease assets and obligations.

The Company records operating lease expense and income using the straight-line method within Operating expenses, and lease income on a straight-line method for leases with its customers within Net sales. Finance lease expense is recognized as amortization expense within Operating expenses, and interest expense within Interest expense, net. For leases with step rent provisions whereby the rental payments increase over the life of the lease, and for leases where the Company receives rent-free periods, the Company recognizes expense and income based on a straight-line basis based on the total minimum lease payments to be made or lease receipts expected to be received over the expected lease term. The Company is generally obligated for property tax, insurance and maintenance expenses related to leased properties, which often represent variable lease expenses.  For contractual obligations on properties where the Company remains the primary obligor upon assignment of the lease and does not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts, the Company continues to recognize rent expense and rent income within Operating expenses.

Operating and finance lease assets are reviewed for impairment based on an ongoing review of circumstances that indicate the assets may no longer be recoverable, such as closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations, and other factors. The Company calculates operating and finance lease impairments using a discount rate to calculate the present value of estimated subtenant rentals that could be reasonably obtained for the property. Lease impairment charges are recorded as a component of Restructuring, acquisition and integration related expenses in the Condensed Consolidated Statements of Operations.

The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on the Company’s experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions. Impairment reserves are reflected as a reduction to Operating lease assets. Refer to Note 11—Leases for additional information.


NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standardstandards update (“ASU”) No. 2016-02, Leases2016‐13, Financial Instruments—Credit Losses (Topic 842), which provides326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018‐19, ASU 2019‐04, ASU 2019‐05, and ASU 2019‐11 (collectively, “Topic 326”). Topic 326 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, guarantees and other instruments, entities are required to use a new comprehensive lease accounting guidanceforward‐looking expected loss model that supersedesreplaces the previous lease guidance. The objectiveincurred loss model and generally results in earlier recognition of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital and operating leases in previous lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In addition, this ASU expands the disclosure requirements of lease arrangements.credit losses. The Company adopted this standard in the first quarter of fiscal 20202021 on August 4, 2019,2, 2020, the effective and initial application date, using a modified‐retrospective basis as required by the additional transition method under ASU 2018-11, which allows forstandard by means of a cumulative cumulative‐effect adjustment within retainedto the opening balance of Retained earnings in the period of adoption. In addition, the Company elected the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The impact of the adoption to the Company’s Condensed Consolidated Balance Sheets includes the recognitionStatement of operating lease liabilities of $1.1 billion with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases.Stockholders’ Equity. The difference between reserves and allowances recorded under the former incurred loss model and the amount of right-of-use assets and lease liabilities recognized is primarily related to adjustments to prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves. In addition,determined under the adoption of the standard resulted in the derecognition of existing property and equipment for certain properties that did not qualify for sale accounting because the Company was determined to be the accounting owner during the construction phase. In addition, at the transition date the Company is constructing one facility that, when complete, the Company will perform a sale-leaseback assessment. For properties where the Company was deemed the accounting owner during construction for which construction has been completed, the difference between the assets and liabilities derecognized,current expected loss model, net of the deferred tax impact, was recorded as an adjustment to retainedRetained earnings. Lessor accounting guidance remained largely unchanged from previous guidance. Adoption of this standard did not have a material impact to the Company’s Condensed Consolidated Statements of Operations or Cash Flows. The Company has revised its accounting policies, processes and controls, and systems as applicable to comply with the provisions and disclosure requirements of the standard.Financial Statements.

The effects of the changes, including those discussed above, made to the Company’s Condensed Consolidated Balance Sheets as of August 3, 2019 for the adoption of the new lease guidance were as follows (in thousands):
  Balance at August 3, 2019 Adjustments due to adoption of the new lease guidance Adjusted Balance at August 4, 2019
Assets      
Prepaid expenses and other current assets $226,727
 $(14,733) $211,994
Property and equipment, net 1,639,259
 (142,541) 1,496,718
Operating lease assets —
 1,059,473
 1,059,473
Intangible assets, net 1,041,058
 (17,671) 1,023,387
Deferred income taxes $31,087
 1,052
 $32,139
Total increase to assets   $885,580
  
       
Liabilities and Stockholder’s Equity     
Accrued expense and other current liabilities $249,426
 $(7,260) $242,166
Current portion of operating lease liabilities —
 137,741
 137,741
Current portion of long-term debt and finance lease liabilities 112,103
 (6,936) 105,167
Long-term operating lease liabilities —
 936,728
 936,728
Long-term finance lease obligations 108,208
 (37,565) 70,643
Other long-term liabilities 393,595
 (134,515) 259,080
Total stockholder’s equity $1,510,934
 (2,613) $1,508,321
Total increase to liabilities and stockholder’s equity   $885,580
  


In October 2018, the FASB issued authoritative guidance under ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU adds the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes. This ASU is effective for public companies with interim and fiscal years beginning after December 15, 2018, which for the Company is the first quarter of fiscal year 2020. The Company adopted this standard in the first quarter of fiscal 2020 with no impact to the Company’s consolidated financial statements as LIBOR is still being used as benchmark interest rate.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2018.  The Company adopted this ASU in the first quarter of fiscal 2020. The adoption of this ASU had no impact to Accumulated other comprehensive loss or Retained earnings.

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825. This ASU clarifies the accounting treatment for the measurement of credit losses under ASC 236 and provides further clarification on previously issued updates including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities and ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities have beenwere adopted by the Company in the first quarter of fiscal 2020. The remaining amendments within ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. The Company adopted this standard in the first quarter of fiscal 2020, with no impact to Accumulated other comprehensive loss or Retained earnings for fiscal 2020, as the Company did not have separately measured ineffectiveness related to its cash flow hedges. The remaining amendments within ASU 2019-04 were adopted in the first quarter of fiscal 2021 with the adoption of Topic 326. Adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. ASU 2018-05 requires implementation costs incurred by customers in cloud computing arrangements (i.e. hosting arrangements) to be capitalized under the same premises ofas authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company adopted this standard on a prospective basis in the first quarter of fiscal 2021. The Company expects to incur immaterial implementation costs in fiscal 2021. Under this standard, the Company is required to adoptdefer these costs and recognize these costs as a service expense over future periods. Adoption of this newstandard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14,Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company adopted this guidance in the first quarter of fiscal 2021. The provisions of the new standard do not have any effect on the Company’s interim financial statements but will require additional disclosures in its annual consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions to Topic 740’s general principles. The amendments also improve consistent application and simplifies its application. The Company has outstanding cloud computing arrangements and continues to incur costs that it believes would beis required to be capitalized under ASU 2018-05.adopt this guidance in the first quarter of fiscal 2022. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company is required to adopt this guidance in the first quarter of fiscal 2021. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. The Company is required to adopt this new guidance in the first quarter of fiscal 2021. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.



NOTE 3—REVENUE RECOGNITION

Disaggregation of Revenues

The Company records revenue to four6 customer channels, which are described below:

•Chains, which consists of customer accounts that typically have more than 10 operating stores and exclude stores included within the Supernatural and Other channels defined below;
•Independent retailers, which include smaller size accounts and include single store and multiple store locations, but are not classified within Chains above or Other discussed below;
•Supernatural, which consists of chain accounts that are national in scope and carry primarily natural products, and currently consists solely of Whole Foods Market.Market;
Supermarkets, which include accounts that also carry conventional products, and include chain accounts, supermarket independents, and gourmet and ethnic specialty stores.
Independents, which include single store and chain accounts (excluding supernatural, as defined above)•Retail, which carry primarily natural products and buying clubs of consumer groups joined to buy products,includes our Retail segment, including the Cub Foods business and the majority of the remaining Shoppers locations, excluding 5 Shoppers locations that are held for sale; and
•Other, which includes international customers outside of Canada, foodservice, eCommerce, conventional military business.business and other sales.
•
Other, which includes foodservice, e-commerce and international customers outside of Canada, as well as sales to Amazon.com, Inc.
•Eliminations, which primarily includes the elimination of Wholesale sales to the Retail segment and the elimination of sales from segments included within Other to Wholesale.

9

The following tables detail the Company’s revenue recognitionnet sales for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its wholesaleWholesale 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)October 31, 2020
Customer ChannelWholesaleRetailOtherEliminationsConsolidated
Chains$3,020 $0 $0 $— $3,020 
Independent retailers1,672 0 0 — 1,672 
Supernatural1,214 0 0 — 1,214 
Retail0 595 0 — 595 
Other525 0 56 — 581 
Eliminations— — — (409)(409)
Total$6,431 $595 $56 $(409)$6,673 
Net Sales for the 13-Week Period Ended
(in millions)
November 2, 2019(1)
Customer ChannelWholesaleRetailOtherEliminationsConsolidated
Chains$2,875 $0 $0 $— $2,875 
Independent retailers1,557 0 0 — 1,557 
Supernatural1,111 0 0 — 1,111 
Retail0 515 0 — 515 
Other525 0 65 — 590 
Eliminations— — — (351)(351)
Total$6,068 $515 $65 $(351)$6,297 
  Net Sales for the 13-Week Period Ended
(in millions) November 2, 2019
Customer Channel Wholesale Other Eliminations Consolidated
Supermarkets $3,769
 $—
 $—
 $3,769
Supernatural 1,111
 —
 —
 1,111
Independents 758
 —
 —
 758
Other 368
 64
 (51) 381
Total $6,006
 $64
 $(51) $6,019
         
  Net Sales for the 13-Week Period Ended
(in millions) 
October 27, 2018(1)
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $1,027
 $—
 $—
 $1,027
Supermarkets 930
 —
 —
 930
Independents 667
 —
 —
 667
Other 233
 49
 (38) 244
Total $2,857
 $49
 $(38) $2,868
(1)In first quarter of fiscal 2021, the presentation of net sales by customer channel has been recast to present the Chains and Other channel exclusive of the intercompany eliminations and present total eliminations as a separate sales channel. There was no impact to the Condensed Consolidated Statements of Operations. UNFI believes this new basis better reflects its channel presentation, as it further aligns with segment presentation and how sales channel information would appear following disposition of Retail, assuming all banners retain a supply agreement. In addition, during the fourth quarter of fiscal 2020, the presentation of net sales by customer channel was recast to be presented on a basis consistent with customer size. International customers other than Canada, and alternative format sales continue to be classified within Other. The main effect of the change was to re-categorize the former Supermarkets and Independents channels, previously classified by the majority of product carried by those customers between conventional and natural products, respectively, to classify those stores by the number of customer locations we supply. There was no impact to the Condensed Consolidated Statements of Operations as a result of the reclassification of customer types. We believe this new basis better reflects the nature and economic risks of cash flows from customers.

(1)During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management’s determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a Supermarket customer given that customer’s operations. In addition, during the second quarter of fiscal 2019, net sales attributable to Supervalu was incorporated into the Company’s definition of sales by customer channel. There was no impact to the Condensed Consolidated Statements of Operations as a result of the reclassification of customer types. As a result of these adjustments, net sales to the Company’s Supermarkets channel for the first quarter of fiscal 2019 increased approximately $223 million compared to the previously reported amounts, while net sales to the Other channel increased approximately $1 million, with an offsetting elimination of the Supervalu customer channel.

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, asand international distribution occurs through freight-forwarders. The Company does not have any performance obligations related toon international shipments subsequent to delivery to the domestic port.



Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net Sales when the Company holds the business for sale with a supply agreement that it anticipates the sale of the retail banner to include upon its disposal. The Company recorded $244.6 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the first quarter of fiscal 2020, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No net sales were recorded within continuing operations for purchases by retail bannersstores within discontinued operations that the Company disposed of and expects to dispose of without a supply agreement, which wereagreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to $113.0$14.4 million and $56.0 million in the first quarterquarters of fiscal 2020.2021 and 2020, respectively.

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Contract Balances

Accounts and notes receivable are as follows:
(in thousands)October 31, 2020August 1, 2020
Customer accounts receivable$1,207,609 $1,156,694 
Allowance for uncollectible receivables(57,987)(55,928)
Other receivables, net16,324 19,433 
Accounts receivable, net$1,165,946 $1,120,199 
Customer notes receivable, net, included within Prepaid expenses and other current assets$45,264 $49,268 
Long-term notes receivable, net, included within Other assets$19,497 $25,800 
(in thousands) November 2, 2019 August 3, 2019
Customer accounts receivable $1,143,836
 $1,063,167
Allowance for uncollectible receivables (27,812) (20,725)
Other receivables, net 20,900
 23,257
Accounts receivable, net $1,136,924
 $1,065,699
     
Customer notes receivable, net, included within Prepaid expenses and other current assets $11,235
 $11,912
Long-term notes receivable, net, included within Other assets $25,683
 $34,408


NOTE 4—ACQUISITIONS

Supervalu Acquisition

On July 25, 2018, the Company entered into an agreement and plan of merger to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, 2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock, par value $0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $32.50 per share, without interest. Total consideration related to this acquisition was $2.3 billion, $1.3 billion of which was paid in cash to Supervalu shareholders and $1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s Consolidated Financial Statements on a preliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note 17—Discontinued Operations for more information on discontinued operations.


The following table summarizes the final consideration, fair value of assets acquired and liabilities assumed, and the resulting goodwill.
(in thousands) Final Acquisition Date Fair Values
Consideration:  
Outstanding shares $1,258,450
Outstanding debt, excluding acquired senior notes 1,046,170
Equity-based awards 18,411
Total consideration $2,323,031
   
Fair value of assets acquired and liabilities assumed:  
Cash and cash equivalents $25,102
Accounts receivable 552,381
Inventories 1,156,781
Prepaid expenses and other current assets 112,449
Current assets of discontinued operations 196,848
Property, plant and equipment 1,207,115
Goodwill 376,181
Intangible assets 918,103
Other assets 77,008
Long-term assets of discontinued operations 433,839
Accounts payable (974,252)
Current portion of long-term debt and finance lease obligations (579,565)
Other current liabilities (331,693)
Current liabilities of discontinued operations (148,763)
Long-term debt (34,355)
Long-term finance lease obligations (103,289)
Pension and other postretirement benefit obligations (234,324)
Deferred income taxes (18,254)
Other long-term liabilities (308,516)
Long-term liabilities of discontinued operations (1,398)
Noncontrolling interests 1,633
Total consideration 2,323,031
Less: Cash and cash equivalents(1)
 (30,596)
Total consideration, net of cash and cash equivalents acquired $2,292,435

(1)Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations.

Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. A substantial portion of goodwill is deductible for income tax purposes. Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which in the first quarter of fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 6—Goodwill and Intangible Assets. NaN goodwill was attributed to the Company’s Retail reporting unit within discontinued operations.

During the first quarter of fiscal 2020, the Company finalized its preliminary fair value estimates of its net assets, primarily by completing income tax returns and reviews of carrying values of other assets and liabilities. There were no material changes to preliminary amounts previously reported.


The following table summarizes the identifiable intangible assets and liabilities recorded based on final valuations. The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated. The fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.
   Final Acquisition Date Fair Values
(in thousands)Estimated Useful Life Continuing Operations Discontinued Operations
Customer relationship assets10–17 years $810,000
 $—
Favorable operating leases1-19 years 21,629
 —
Leases in place1-8 years 10,474
 —
Tradenames2-9 years 66,000
 17,000
Pharmacy prescription files5-7 years —
 45,900
Non-compete agreement2 years 10,000
 —
Unfavorable operating leases1-12 years (21,754) —
Total  $896,349
 $62,900
The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, which are quantified in Note 5—Restructuring, Acquisition and Integration Related Expenses.

The accompanying Condensed Consolidated Statements of Operations include the results of operations of Supervalu from October 22, 2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note 17—Discontinued Operations.

The following table presents unaudited supplemental pro forma consolidated Net sales and Net loss from continuing operations based on the Company’s historical reporting periods as if the acquisition of Supervalu had occurred as of July 30, 2017:
  13-Week Period Ended
(in thousands, except per share data) 
October 27, 2018(1)
 
October 28, 2017(2)
Net sales $5,984,970
 $5,910,484
Net loss from continuing operations $(47,893) $(53,367)
Basic net loss continuing operations per share $(0.95) $(1.05)
Diluted net loss from continuing operations per share $(0.95) $(1.05)
(1)Includes 12 weeks of pro forma Supervalu results for the period ended September 8, 2018.
(2)Includes 13 weeks of pro forma Supervalu results for the period ended September 17, 2017 and 13 weeks of pro forma Associated Grocers of Florida, Inc. results for the period ended August 5, 2017, which was acquired by Supervalu on December 8, 2017.

These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisitions occurred at the beginning of the periods being presented, nor are they indicative of future results of operations.

NOTE 5—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES


Restructuring, acquisition and integration related expenses incurred were as follows:
13-Week Period Ended
(in thousands)October 31, 2020November 2, 2019
2019 SUPERVALU INC. restructuring expenses$0 $1,837 
Restructuring and integration costs14,760 9,294 
Closed property charges and costs1,668 3,541 
Total$16,428 $14,672 
 13-Week Period Ended
(in thousands)November 2, 2019 October 27, 2018
2019 SUPERVALU INC. restructuring expenses$1,837
 $36,069
Acquisition and integration costs9,294
 31,935
Closed property charges and costs3,119
 —
Total$14,250
 $68,004




Restructuring Programs

The following is a summary of the current period activity within restructuring reserves by program included in the Condensed Consolidated Balance Sheets, primarily within Accrued compensation and benefits for severance and other employee separation costs and related tax payments.
(in thousands)2019 SUPERVALU INC. 2018 Earth Origins Market 2017 Cost Saving and Efficiency Initiatives Total
Balances at August 3, 2019$11,857
 $383
 701
 $12,941
Restructuring program charge1,837
 —
 —
 1,837
Cash payments(7,078) —
 —
 (7,078)
Balances at November 2, 2019$6,616
 $383
 $701
 $7,700
        
Cumulative program charges incurred from inception to date$76,251
 $2,219
 $6,864
 $85,334


2019 SUPERVALU INC.

As part of its acquisition of Supervalu and in order to achieve synergies from this combination, the Company is taking certain actions, which began during the first quarter of fiscal 2019 and is expected to continue through fiscal 2020 to: (i) review its organizational structure and the strategic needs of the business going forward to identify and place talent with the appropriate skills, experience and qualifications to meet these needs; and (ii) dispose of and exit the Supervalu legacy retail operations, as efficiently and economically as possible in order to focus on the Company’s core wholesale distribution business. Actions associated with retail divestitures and adjustments to the Company’s core cost-structure for its wholesale food distribution business are expected to result in headcount reductions and other costs and charges.

NOTE 6—5—GOODWILL AND INTANGIBLE ASSETS

The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the acquisition date at their respective estimated fair values. Goodwill represents the excess acquisition cost over the fair value of net assets acquired in a business combination. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill. The Company has five5 goodwill reporting units, twounits: 2 of which represent separate operating segments and are aggregated within the Wholesale reportable segment (U.S. Wholesale and Canada Wholesale), two; 1 separate Retail operating and reportable segment and 2 of which are separate operating segments (Woodstock Farms and Blue Marble Brands) that do not meet the criteria for being disclosed as separate reportable segments, and a single retail reporting unit, which is included within discontinued operations.segments. The Canada Wholesale operating segment, which is aggregated with U.S. Wholesale, would not meet the quantitative thresholds for separate reporting if it did not meet the aggregation criteria. The composition of goodwill reporting units is evaluated for events or changes in circumstances indicating a goodwill reporting unit has changed. Relative fair value allocations are performed when components of an aggregated goodwill reporting unit become separate reporting units or move from one reporting unit to another.

The Company reviews goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount. The annual review for goodwill impairment is performed as of the first day of the fourth quarter of each fiscal year. The Company tests for goodwill impairment at the reporting unit level, which is at or one level below the operating segment level.

Supervalu Acquisition Goodwill

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the previous Supervalu Wholesale reporting unit and the previous legacy Company Wholesale reporting unit, as both of these reporting units were expected to benefit from the synergies of the business combination. The assignment was based on the relative synergistic value estimated as of the acquisition date. This systematic approach utilized the relative cash flow contributions and value created from the acquisition to each reporting unit on a stand-alone basis. As of the acquisition date, approximately $80.9 million was attributed to the legacy Company Wholesale reporting unit.



As discussed in Note 7—Goodwill and Intangible Assets in the Consolidated Financial Statements of the Annual Report, the Company impaired all goodwill attributed to the Supervalu Wholesale reporting unit prior to the finalization of its purchase accounting within the opening balance sheet. In the first quarter of fiscal 2020, as discussed further in Note 4—Acquisitions the Company finalized purchase accounting and the opening balance sheet related to the Supervalu acquisition. Adjustments to the opening balance sheet goodwill in the first quarter of fiscal 2020, resulted in an additional goodwill impairment charge of $2.5 million.

Fiscal 2020 Goodwill Impairment Review

During the first quarter of fiscal 2020, the Company changed its management structure and internal financial reporting, which resulted in the requirement to combine the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit into one U.S. Wholesale reporting unit, and experienced a further sustained decline in market capitalization and enterprise value. As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, the Company performed an interim quantitative impairment review of goodwill for the Wholesale reporting unit, which included a determination of the fair value of all reporting units.

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The Company estimated the fair values of all reporting units using both the market approach, applying a multiple of earnings based on observable multiples for guideline publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of 8.5%, which considered observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums, including those reflected in the Company’s market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. Based on this analysis, the Company determined that the carrying value of its U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded its assigned goodwill. As a result, the Company recorded a goodwill impairment charge of $421.5 million in the first quarter of fiscal 2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of Operations. The goodwill impairment charge reflects the impairment of all of the U.S. Wholesale’sWholesale reporting unitunit’s goodwill.

Goodwill and Intangible Assets Changes

Changes in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following:
(in thousands)WholesaleOtherTotal
Goodwill as of August 1, 2020$9,747 (1)$9,860 (2)$19,607 
Change in foreign exchange rates64 0 64 
Goodwill as of October 31, 2020$9,811 (1)$9,860 (2)$19,671 
(in thousands)Wholesale Other Total
Goodwill as of August 3, 2019$432,103
(1) 
$10,153
(2) 
$442,256
Goodwill adjustment for prior fiscal year business combinations1,424
 —
 1,424
Impairment charges(423,712) (293) (424,005)
Change in foreign exchange rates116
 —
 116
Goodwill as of November 2, 2019$9,931
(1) 
$9,860
(2) 
$19,791
(1)Amounts are net of accumulated goodwill impairment charges of $716.5 million as of August 1, 2020 and October 31, 2020.
(2)Amounts are net of accumulated goodwill impairment charges of $9.6 million as of August 1, 2020 and October 31, 2020.

(1)Amounts are net of accumulated goodwill impairment charges of $292.8 million and $716.5 million as of August 3, 2019 and November 2, 2019, respectively.
(2)Amounts are net of accumulated goodwill impairment charges of $9.3 million and $9.6 million as of August 3, 2019 and November 2, 2019.



Identifiable intangible assets consisted of the following:
 November 2, 2019 August 3, 2019
(in thousands)
Gross Carrying
Amount
 
Accumulated
Amortization
 Net 
Gross Carrying
Amount
 
Accumulated
Amortization
 Net
Amortizing intangible assets:           
Customer relationships$1,008,103
 $127,906
 $880,197
 $1,007,089
 $111,940
 $895,149
Non-compete agreements12,900
 7,571
 5,329
 12,900
 6,237
 6,663
Operating lease intangibles11,748
 2,451
 9,297
 32,103
 2,209
 29,894
Trademarks and tradenames67,700
 18,750
 48,950
 67,700
 14,161
 53,539
Total amortizing intangible assets1,100,451
 156,678
 943,773
 1,119,792
 134,547
 985,245
Indefinite lived intangible assets:           
Trademarks and tradenames55,813
 —
 55,813
 55,813
 —
 55,813
Intangible assets, net$1,156,264
 $156,678
 $999,586
 $1,175,605
 $134,547
 $1,041,058

October 31, 2020August 1, 2020
(in thousands)Gross Carrying
Amount		Accumulated
Amortization		NetGross Carrying
Amount		Accumulated
Amortization		Net
Amortizing intangible assets:
Customer relationships$1,007,195 $188,006 $819,189 $1,007,118 $172,832 $834,286 
Pharmacy prescription files32,900 9,422 23,478 32,900 7,964 24,936 
Non-compete agreements12,900 12,786 114 12,900 11,500 1,400 
Operating lease intangibles8,193 4,420 3,773 8,193 4,020 4,173 
Trademarks and tradenames83,700 39,486 44,214 83,700 34,708 48,992 
Total amortizing intangible assets1,144,888 254,120 890,768 1,144,811 231,024 913,787 
Indefinite lived intangible assets:      
Trademarks and tradenames55,813 0 55,813 55,813 0 55,813 
Intangible assets, net$1,200,701 $254,120 $946,581 $1,200,624 $231,024 $969,600 
Amortization expense was $22.1$23.0 million and $3.7$22.1 million for the 13-week periods ended November 2, 2019first quarters of fiscal 2021 and October 27, 2018,2020, respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of November 2, 2019October 31, 2020 is shown below:
Fiscal Year:(In thousands)
Remaining fiscal 2020$64,180
202171,510
202265,893
202365,842
202466,054
2025 and thereafter610,294
 $943,773
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Fiscal Year:(In thousands)
Remaining fiscal 2021$55,173 
202272,170 
202371,950 
202472,412 
202570,305 
2026 and thereafter548,758 
$890,768 


NOTE 7—6—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

The following table provides the fair value hierarchy for financial assets and liabilities measured on a recurring basis:
Condensed Consolidated Balance Sheets LocationFair Value at October 31, 2020
(in thousands)Level 1Level 2Level 3
Assets:
Foreign currency derivatives designated as hedging instrumentsPrepaid expenses and other current assets$0 $70 $0 
Mutual fundsOther assets$1,635 $0 $0 
Liabilities:
Foreign currency derivatives not designated as hedging instrumentsAccrued expenses and other current liabilities$0 $15 $0 
Fuel derivatives designated as hedging instrumentsAccrued expenses and other current liabilities$0 $699 $0 
Foreign currency derivatives designated as hedging instrumentsAccrued expenses and other current liabilities$0 $311 $0 
Interest rate swaps designated as hedging instrumentsAccrued expenses and other current liabilities$0 $37,526 $0 
Interest rate swaps designated as hedging instrumentsOther long-term liabilities$0 $73,714 $0 
    Fair Value at November 2, 2019
(In thousands) Balance Sheet Location Level 1 Level 2 Level 3
Assets:        
Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $—
 $279
 $—
Interest rate swaps designated as hedging instruments Other assets $—
 $89
 $—
Mutual funds Other assets $1,759
 $—
 $—
         
Liabilities:        
Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $—
 $20,645
 $—
Interest rate swaps designated as hedging instruments Other long-term liabilities $—
 $61,370
 $—



    Fair Value at August 3, 2019
(in thousands) Balance Sheet Location Level 1 Level 2 Level 3
Assets:        
Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $—
 $389
 $—
Mutual funds Prepaid expenses and other current assets $7
 $—
 $—
Interest rate swaps designated as hedging instruments Other assets $—
 $145
 $—
Mutual funds Other assets 1,799
 —
 —
         
Liabilities:        
Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $—
 $16,360
 $—
Interest rate swaps designated as hedging instruments Other long-term liabilities $—
 $60,737
 $—

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Condensed Consolidated Balance Sheets LocationFair Value at August 1, 2020
(in thousands)Level 1Level 2Level 3
Assets:
Foreign currency derivatives not designated as hedging instrumentsPrepaid expenses and other current assets$0 $26 $0 
Fuel derivatives designated as hedging instrumentsPrepaid expenses and other current assets$0 $36 $0 
Foreign currency derivatives designated as hedging instrumentsPrepaid expenses and other current assets$0 $94 $0 
Fuel derivatives designated as hedging instrumentsOther assets$0 $23 $0 
Mutual fundsOther assets$1,678 $0 $0 
Liabilities:
Fuel derivatives designated as hedging instrumentsAccrued expenses and other current liabilities$0 $197 $0 
Foreign currency derivatives designated as hedging instrumentsAccrued expenses and other current liabilities$0 $357 $0 
Interest rate swaps designated as hedging instrumentsAccrued expenses and other current liabilities$0 $46,743 $0 
Interest rate swaps designated as hedging instrumentsOther long-term liabilities$0 $91,994 $0 

Interest Rate Swap Contracts

The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of November 2, 2019,October 31, 2020, a 100 basis point increase in forward LIBOR interest rates would decrease the fair value of the interest rate swap liabilities by approximately $44.3 million; a 100 basis point decrease in forward LIBOR interest rates would increase the fair value of the interest rate swapsswap liabilities by approximately $64.9 million; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately $67.8$46.1 million. Refer to Note 8—7—Derivatives for further information on interest rate swap contracts.

Mutual Funds

Mutual fund assets consist of balances held in investments to fund certain deferred compensation plans. The fair values of mutual fund assets are based on quoted market prices of the mutual funds held by the plan at each reporting period. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy.

Fuel Supply Agreements and Derivatives

To reduce diesel price risk, the Company has entered into derivative financial instruments and/or forward purchase commitments for a portion of our projected monthly diesel fuel requirements at fixed prices. The fair values of fuel derivative agreements are measured using Level 2 inputs.

Foreign Exchange Derivatives

To reduce foreign exchange risk, the Company has entered into derivative financial instruments for a portion of our projected monthly foreign currency requirements at fixed prices. The fair values of foreign exchange derivatives are measured using Level 2 inputs.
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Fair Value Estimates

For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. Notes receivable estimatedThe fair value of notes receivable is determinedestimated by using a discounted cash flow approach calculated by applying a market rate for similar instruments that is determined using Level 3 inputs.

The estimated fair values arevalue of debt is estimated based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs. In the table below, the carrying value of the Company’s long-term debt is net of original issue discounts and debt issuance costs.
 October 31, 2020August 1, 2020
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
Notes receivable, including current portion$74,581 $75,627 $77,598 $78,877 
Long-term debt, including current portion$2,633,400 $2,688,668 $2,497,626 $2,535,851 
  November 2, 2019 August 3, 2019
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
Notes receivable, including current portion $36,918
 $37,218
 $46,320
 $45,232
Long-term debt, including current portion $3,070,456
 $2,812,437
 $2,906,483
 $2,730,271


Fuel Supply Agreements and Derivatives

To reduce diesel price risk, the Company has in the past, and may in the future, periodically enter in to derivative financial instruments and/or forward purchase commitments for a portion of its projected monthly diesel fuel requirements at fixed prices. As of August 3, 2019, the Company had no outstanding fuel supply agreements and derivative agreements. As of November 2, 2019, the Company’s fuel supply agreements and derivatives were immaterial.



Foreign Exchange Derivatives

To reduce foreign exchange risk, the Company has in the past, and may in the future, periodically enter in to derivative financial instruments for a portion of its projected monthly foreign currency requirements at fixed prices. As of November 2, 2019 and August 3, 2019, the Company’s outstanding foreign currency forward contracts were immaterial.

NOTE 7—DERIVATIVES
NOTE 8—DERIVATIVES

Management of Interest Rate Risk

The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges at November 2, 2019.October 31, 2020. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note 7—6—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts.


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Details of outstanding swap contracts as of November 2, 2019,October 31, 2020, which are all pay fixed and receive floating, are as follows:
Effective DateSwap MaturityOutstanding Notional Value (in millions)Pay Fixed Rate
Receive Floating Rate(2)
Floating Rate Reset Terms
March 21, 2019April 15, 2022100.0 2.3645 %One-Month LIBORMonthly
April 2, 2019June 30, 2022100.0 2.2170 %One-Month LIBORMonthly
June 28, 2019June 30, 202250.0 2.1840 %One-Month LIBORMonthly
August 3, 2015(1)
August 15, 202236.0 1.7950 %One-Month LIBORMonthly
October 26, 2018October 31, 2022100.0 2.8915 %One-Month LIBORMonthly
January 11, 2019October 31, 202250.0 2.4678 %One-Month LIBORMonthly
January 23, 2019October 31, 202250.0 2.5255 %One-Month LIBORMonthly
November 16, 2018March 31, 2023150.0 2.8950 %One-Month LIBORMonthly
January 23, 2019March 31, 202350.0 2.5292 %One-Month LIBORMonthly
November 30, 2018September 30, 202350.0 2.8315 %One-Month LIBORMonthly
October 26, 2018October 31, 2023100.0 2.9210 %One-Month LIBORMonthly
January 11, 2019March 28, 2024100.0 2.4770 %One-Month LIBORMonthly
January 23, 2019March 28, 2024100.0 2.5420 %One-Month LIBORMonthly
November 30, 2018October 31, 2024100.0 2.8480 %One-Month LIBORMonthly
January 11, 2019October 31, 2024100.0 2.5010 %One-Month LIBORMonthly
January 24, 2019October 31, 202450.0 2.5210 %One-Month LIBORMonthly
October 26, 2018October 22, 202550.0 2.9550 %One-Month LIBORMonthly
November 16, 2018October 22, 202550.0 2.9590 %One-Month LIBORMonthly
November 16, 2018October 22, 202550.0 2.9580 %One-Month LIBORMonthly
January 24, 2019October 22, 202550.0 2.5558 %One-Month LIBORMonthly
$1,486.0 
Swap Maturity Notional Value (in millions) Pay Fixed Rate Receive Floating Rate Floating Rate Reset Terms
April 29, 2021(1)
 $25.0
 1.0650% One-Month LIBOR Monthly
April 29, 2021(2)
 25.0
 0.9260% One-Month LIBOR Monthly
August 15, 2022(3)
 58.5
 1.7950% One-Month LIBOR Monthly
August 15, 2022(4)
 39.0
 1.7950% One-Month LIBOR Monthly
October 31, 2020(5)
 100.0
 2.8240% One-Month LIBOR Monthly
October 31, 2022(5)
 100.0
 2.8915% One-Month LIBOR Monthly
October 31, 2023(5)
 100.0
 2.9210% One-Month LIBOR Monthly
October 22, 2025(5)
 50.0
 2.9550% One-Month LIBOR Monthly
March 31, 2023(6)
 150.0
 2.8950% One-Month LIBOR Monthly
October 22, 2025(6)
 50.0
 2.9580% One-Month LIBOR Monthly
October 22, 2025(6)
 50.0
 2.9590% One-Month LIBOR Monthly
October 29, 2021(7)
 100.0
 2.8084% One-Month LIBOR Monthly
September 30, 2023(7)
 50.0
 2.8315% One-Month LIBOR Monthly
October 31, 2024(7)
 100.0
 2.8480% One-Month LIBOR Monthly
October 31, 2022(8)
 50.0
 2.4678% One-Month LIBOR Monthly
March 28, 2024(8)
 100.0
 2.4770% One-Month LIBOR Monthly
October 31, 2024(8)
 100.0
 2.5010% One-Month LIBOR Monthly
April 29, 2021(9)
 50.0
 2.5500% One-Month LIBOR Monthly
October 31, 2022(9)
 50.0
 2.5255% One-Month LIBOR Monthly
March 31, 2023(9)
 50.0
 2.5292% One-Month LIBOR Monthly
March 28, 2024(9)
 100.0
 2.5420% One-Month LIBOR Monthly
October 31, 2024(10)
 50.0
 2.5210% One-Month LIBOR Monthly
October 22, 2025(10)
 50.0
 2.5558% One-Month LIBOR Monthly
April 15, 2022(11)
 100.0
 2.3645% One-Month LIBOR Monthly
December 13, 2019(12)
 100.0
 2.4925% One-Month LIBOR Monthly
May 15, 2020(12)
 100.0
 2.4490% One-Month LIBOR Monthly
June 30, 2021(13)
 100.0
 2.2520% One-Month LIBOR Monthly
June 30, 2022(13)
 100.0
 2.2170% One-Month LIBOR Monthly
June 30, 2021(14)
 50.0
 2.2290% One-Month LIBOR Monthly
June 30, 2022(15)
 50.0
 2.1840% One-Month LIBOR Monthly
  $2,197.5
      
(1)The swap contract has an amortizing notional principal amount which is reduced by $1.0 million on a quarterly basis.
(2)For these swap contracts that are indexed to LIBOR, the Company is monitoring and evaluating risks related to the expected future cessation of LIBOR.

(1)This swap was executed on June 7, 2016 with an effective date of June 9, 2016.
(2)This swap was executed on June 24, 2016 with an effective date of June 24, 2016.
(3)This swap contract was executed on January 23, 2015 with an effective date of August 3, 2015. On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $140 million to $84 million. The swap contract has an amortizing notional principal amount which is reduced by $1.5 million on a quarterly basis.
(4)This swap was executed on March 31, 2015 with an effective date of August 3, 2015. The swap contract has an amortizing notional principal amount which is reduced by $1.0 million on a quarterly basis.
(5)This swap contract was executed on October 26, 2018 with an effective date of October 26, 2018.
(6)This swap contract was executed on November 16, 2018 with an effective date of November 16, 2018.
(7)This swap contract was executed on November 30, 2018 with an effective date of November 30, 2018.
(8)This swap contract was executed on January 11, 2019 with an effective date of January 11, 2019.
(9)This swap contract was executed on January 23, 2019 with an effective date of January 23, 2019.
(10)This swap contract was executed on January 24, 2019 with an effective date of January 24, 2019.
(11)This swap contract was executed on March 18, 2019 with an effective date of March 21, 2019.
(12)This swap contract was executed on March 21, 2019 with an effective date of March 21, 2019.

In the first quarter of fiscal 2021, in conjunction with the $500.0 million fixed senior unsecured notes offering described below in Note 8—Long-Term Debt, the Company paid $11.3 million to terminate or novate certain outstanding interest rate swaps with a notional amount of $504.0 million and certain forward starting interest rate swaps with a notional amount of $450.0 million. The payments equaled the fair value of the interest rate swaps at the time of their termination or novation. NaN gain or loss was recorded as a result of the swap termination and novations. Since the hedged interest payments remain probable of occurring, the unrecognized gains and losses resulting from the early termination and novation of these interest rate swap agreements will be amortized out of Accumulated other comprehensive income and into to Interest expense, net over the remaining period of the original terminated or novated interest rate swap agreements. Cash payments resulting from the termination and novation of interest rate swaps are classified as operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.

(13)This swap contract was executed on April 2, 2019 with an effective date of April 2, 2019.
(14)This swap contract was executed on April 2, 2019 with an effective date of June 10, 2019.
(15)This swap contract was executed on April 2, 2019 with an effective date of June 28, 2019.

The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. In future reporting periods, the Company performs a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The Company also monitors the risk of counterparty default on an ongoing basis and noted that the counterparties are reputable financial institutions. The entire change in the fair value of the derivative is initially reported in Other comprehensive income (outside of earnings) in the Condensed Consolidated Statements of Comprehensive LossIncome and subsequently reclassified to earnings in Interest expense, net in the Condensed Consolidated Statements of Operations when the hedged transactions affect earnings.

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The location and amount of gains or losses recognized in the Condensed Consolidated Statements of Operations for interest rate swap contracts for each of the periods, presented on a pretax basis, are as follows:
13-Week Period Ended
October 31, 2020November 2, 2019
(In thousands)Interest expense, net
Total amounts of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded$69,133 $49,709 
Loss on cash flow hedging relationships:
Loss reclassified from comprehensive income into income$(12,036)$(2,370)
  13-Week Period Ended
  November 2, 2019 October 27, 2018
(In thousands) Interest Expense, net
Total amounts of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded $49,518
 $7,525
Gain or (loss) on cash flow hedging relationships:    
Gain or (loss) reclassified from comprehensive income into income $(2,370) $551
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:    
Gain or (loss) recognized as interest expense $—
 $(88)


NOTE 9—8—LONG-TERM DEBT

The Company’s long-term debt consisted of the following:
(in thousands)Average Interest Rate at
October 31, 2020		Fiscal Maturity YearOctober 31,
2020		August 1,
2020
Term Loan Facility4.40%2026$1,165,000 $1,773,000 
ABL Credit Facility1.60%2024986,700 756,712 
Senior Notes6.75%2029500,000 0 
Other secured loans5.19%2024-202546,138 49,268 
Debt issuance costs, net(42,122)(45,846)
Original issue discount on debt(22,316)(35,508)
Long-term debt, including current portion2,633,400 2,497,626 
Less: current portion of long-term debt(12,813)(70,632)
Long-term debt$2,620,587 $2,426,994 
(in thousands)
Average Interest Rate at
November 2, 2019
 Calendar Maturity Year November 2,
2019		 August 3,
2019
Term Loan Facility6.04% 2025 $1,786,500
 $1,864,900
ABL Credit Facility3.14% 2023 1,317,700
 1,080,000
Other secured loans5.20% 2023-2024 58,417
 57,649
Debt issuance costs, net    (52,374) (54,891)
Original issue discount on debt    (39,787) (41,175)
Long-term debt, including current portion    3,070,456
 2,906,483
Less: current portion of long-term debt    (19,218) (87,433)
Long-term debt    $3,051,238
 $2,819,050

Refinancing Activities

During the first quarter of fiscal 2021, the Company repaid $500.0 million of outstanding borrowings under the Term Loan Facility (defined below) funded primarily by the net proceeds from the issuance of new eight-year senior unsecured notes (as described below). This refinancing transaction extended the maturity of a significant portion of the Company’s outstanding debt by approximately three years. Also during the quarter, the Company made $108.0 million of additional repayments under the Term Loan Facility, including $72.0 million related to the material cash flow generation in fiscal 2020, as required under the Term Loan Agreement (as described below) and a voluntary prepayment of $36.0 million with incremental borrowings under the ABL Credit Facility (as described below). The Company also executed a third amendment to the ABL Loan Agreement (as described below) during the first quarter of fiscal 2021, which added certain assets to the Borrowing Base (defined below) and increased the Company’s capacity to issue letters of credit under the facility, in addition to other administrative changes. The amendment did not change the aggregate amount or maturity date of the ABL Credit Facility. In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs and a loss on unamortized original issue discount of $12.0 million and $11.8 million, respectively, which were recorded within Interest expense, net in the Condensed Consolidated Statements of Operations for the first quarter of fiscal 2021.

Senior Notes

On October 22, 2020, the Company issued $500.0 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”). The Senior Notes are guaranteed by each of the Company’s subsidiaries that are borrowers under or that guarantee the ABL Credit Facility or the Term Loan Facility. The net proceeds from the offering of the Senior Notes, together with borrowings under the ABL Credit Facility (defined below), were used to repay $500.0 million of the amounts outstanding under the Term B Tranche of the Term Loan Facility (defined below) and for the payment of all financing costs related to the offering of the Senior Notes. Financing costs of approximately $9.0 million were paid and capitalized in the first quarter ending October 31, 2020.

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The Senior Notes contain covenants customary for debt securities of this type that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. The Company is in compliance with all such covenants for all periods presented.

ABL Credit Facility

On August 30, 2018, the Company entered into a loan agreement (as amended by that certain First Amendmentfrom time to Loan Agreement, dated as of October 19, 2018, and as further amended by that certain Second Amendment to Loan Agreement, dated January 24, 2019,time, the “ABL Loan Agreement”), by and among the Company and United Natural Foods West, Inc. (together with the Company, the “U.S. Borrowers”) and UNFI Canada, Inc. (the “Canadian Borrower” and, together with the U.S. Borrowers, the “Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “ABL Lenders”), Bank of America, N.A. as administrative agent for the ABL Lenders (the “ABL Administrative Agent”), Bank of America, N.A. (acting through its Canada branch), as Canadian agent for the ABL Lenders, and the other parties thereto.


On August 14, 2020, the Company entered into the Third Amendment to Loan Agreement, which provides for, among other things, (i) the addition of certain perishable inventory to the calculation of the Borrowing Base (as defined in the ABL Loan Agreement), (ii) the addition of income attributable to the business associated with the Cub Foods banner and the Shoppers banner accounted for within discontinued operations (if any) to the definition of Consolidated Net Income (as defined in the ABL Loan Agreement), (iii) an increase of the sublimit of availability for letters of credit to $300 million which includes an increased further sublimit for the Canadian Borrower of $25 million, and (iv) other administrative changes.

The ABL Loan Agreement provides for a secured asset-based revolving credit facility (the “ABL Credit Facility” and the loans thereunder, the “ABL Loans”), of which up to (i) $2,050.0 million is available to the U.S. Borrowers and (ii) $50.0 million is available to the Canadian Borrower. The ABL Loan Agreement also provides for (i) a $125.0$300.0 million sublimit of availability for letters of credit of which there is a further $5.0$25.0 million sublimit for the Canadian Borrower and (ii) a $100.0 million sublimit for short-term borrowings on a swingline basis of which there is a further $3.5 million sublimit for the Canadian Borrower. The ABL Credit Facility replaced the Company’s $900.0 million prior asset-based revolving credit facility. In addition, $1,475.0 million of proceeds from the ABL Credit Facility were drawn to finance the Supervalu acquisition and related transaction costs on the Supervalu acquisition date (the “Closing Date”).

Under the ABL Loan Agreement, the Borrowers may, at their option, increase the aggregate amount of the ABL Credit Facility in an amount of up to $600.0 million without the consent of any ABL Lenders not participating in such increase, subject to certain customary conditions and applicable lenders committing to provide the increase in funding. There is no assurance that additional funding would be available.

The Borrowers’ obligations under the ABL Credit Facility are guaranteed by most of the Company’s wholly-owned subsidiaries who are not also Borrowers (collectively, the “ABL Guarantors”), subject to customary exceptions and limitations. The Borrowers’ obligations under the ABL Credit Facility and the ABL Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Borrowers’ and ABL Guarantors’ accounts receivable, inventory and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL Assets”) and (ii) a second-priority lien on all of the Borrowers’ and ABL Guarantors’ assets that do not constitute ABL Assets, in each case, subject to customary exceptions and limitations.

Availability under the ABL Credit Facility is subject to a borrowing base (the “Borrowing Base”), which is based on 90% of eligible accounts receivable, plus 90% of eligible credit card receivables, plus 90% of the net orderly liquidation value of eligible inventory, plus 90% of eligible pharmacy receivables, plus certain pharmacy scripts availability of the Borrowers, after adjusting for customary reserves. The aggregate amount of the ABL Loans made and letters of credit issued under the ABL Credit Facility shall at no time exceed the lesser of the aggregate commitments under the ABL Credit Facility (currently $2,100.0 million or, if increased at the Borrowers’ option as described above, up to $2,700.0 million) or the Borrowing Base. To the extent that the Borrowers’ Borrowing Base declines, the availability under the ABL Credit Facility may decrease below $2,100.0 million.

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As of November 2, 2019,October 31, 2020, the U.S. Borrowers’ Borrowing Base, net of $143.9$231.9 million of reserves, was $2,333.7$2,185.8 million, which is above the $2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. As of November 2, 2019,October 31, 2020, the Canadian Borrower’s Borrowing Base, net of $4.0$4.1 million of reserves, was $40.8$42.2 million, which is below the $50$50.0 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in a total Borrowing Baseavailability of $2,090.8$2,092.2 million supporting thefor ABL Loans and outstanding letters of credit under the ABL Credit Facility. As of November 2, 2019,October 31, 2020, the U.S. Borrowers had $1,317.7$986.7 million of ABL Loans outstanding, which are presented net of debt issuance costs of $12.2$10.6 million and are included in Long-term debt in the Condensed Consolidated Balance Sheets, and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit Facility. As of November 2, 2019,October 31, 2020, the U.S. Borrowers had $77.4$97.2 million in letters of credit and the Canadian Borrower had no0 letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was $695.7$1,008.3 million as of November 2, 2019.October 31, 2020.

The ABL Loans of the U.S. Borrowers under the ABL Credit Facility bear interest at rates that, at the U.S. Borrowers’ option, can be either: (i) a base rate and an applicable margin or (ii) a LIBOR rate and an applicable margin. As of November 2, 2019,October 31, 2020, the applicable margin for base rate loans was 0.25%, and the applicable margin for LIBOR loans was 1.25%. The ABL Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available. The ABL Loans of the Canadian Borrower under the ABL Credit Facility bear interest at rates that, at the Canadian Borrower’s option, can be either: (i) prime rate and an applicable margin or (ii) a Canadian dollar bankers’ acceptance equivalent rate and an applicable margin. As of November 2, 2019,October 31, 2020, the applicable margin for prime rate loans was 0.25%, and the applicable margin for Canadian dollar bankers’ acceptance equivalent rate loans was 1.25%. Commencing on the first day of the calendar month following the ABL Administrative Agent’s receipt of the Company’s aggregate availability calculation for the prior fiscal quarter, ending on November 2, 2019, and quarterly thereafter, the applicable margins for borrowings by the U.S. Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility. Unutilized commitments under the ABL Credit Facility are subject to a per annum fee of (i) 0.375% if the average daily total outstandings were less than 25% of the aggregate commitments during the preceding fiscal quarter or (ii) 0.25% if such average daily total outstandings were 25% or more of the aggregate commitments during the preceding fiscal quarter. As of November 2, 2019,October 31, 2020, the unutilized commitment fee was 0.25% per annum. The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit, as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.



The ABL Loan Agreement subjects the Company to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each fiscal quarter on a rolling four quarter basis when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. The Company washas not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, duringincluding through the first quarterfiling date of fiscal 2020.this Quarterly Report.

The assets included in the Condensed Consolidated Balance Sheets securing the outstanding obligations under the ABL Credit Facility on a first-priority basis, and the unused available credit and fees under the ABL Credit Facility, were as follows:
Assets securing the ABL Credit Facility (in thousands)(1):
October 31,
2020		August 1,
2020
Certain inventory assets included in Inventories and Current assets of discontinued operations$2,476,391 $2,270,892 
Certain receivables included in Accounts receivable, net and Current assets of discontinued operations$1,123,306 $1,077,682 
Assets securing the ABL Credit Facility (in thousands)(1):
November 2, 2019
Certain inventory assets included in Inventories and Current assets of discontinued operations$2,447,555
Certain receivables included in Accounts receivables, net and Current assets of discontinued operations$1,077,978
(1)The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Intangibles, net in the Condensed Consolidated Balance Sheets as of October 31, 2020 and August 1, 2020.

(1)TheUnused credit and fees under the ABL Credit Facility is also secured by all(in thousands, except percentages):October 31, 2020
Outstanding letters of the Company’s pharmacy scripts, which are included in Long-term assetscredit$97,207 
Letter of discontinued operations in the Condensed Consolidated Balance Sheets as of November 2, 2019.credit fees1.375 %
Unused credit$1,008,288 
Unused facility fees0.25 %

Unused available credit and fees under the ABL Credit Facility (in thousands, except percentages):November 2, 2019
Outstanding letters of credit$77,413
Letter of credit fees1.375%
Unused available credit$695,704
Unused facility fees0.25%
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The ABL Loan Agreement contains other customary affirmative and negative covenants and customary representations and warranties that must be accurate in order for the Borrowers to borrow under the ABL Credit Facility. The ABL Loan Agreement also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Credit Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Borrowers may be required to immediately to repay all amounts outstanding under the ABL Loan Agreement.

Term Loan Facility

On the Supervalu acquisition date (“Closing Date,Date”), the Company entered into a new term loan agreement (the “Term Loan Agreement”), by and among the Company and Supervalu (collectively, the “Term Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “Term Lenders”), Goldman Sachs Bank USA, as administrative agent for the Lenders, and the other parties thereto. The Term Loan Agreement provides for senior secured first lien term loans in an aggregate principal amount of $1,950.0 million, consisting of a $1,800.0 million seven yearseven-year tranche (the “Term B Tranche”) and a $150.0 million 364-day tranche (the “364-day Tranche” and, together with the Term B Tranche, collectively, the “Term Loan Facility”). The entire amount of the net proceeds from the Term Loan Facility was used to finance the Supervalu acquisition and related transaction costs.

The loans under the Term B Tranche will be payable in full on October 22, 2025; provided that, if on or prior to December 31, 2024, that certain Agreement for Distribution of Products, dated as of October 30, 2015, by and between Whole Foods Market Distribution, Inc., a Delaware corporation, and the Company has not been extended until at least October 23, 2025 on terms not materially less favorable, taken as a whole, to the Company and its subsidiaries than those in effect on the date of the Acquisition,Closing Date, then the loans under the Term B Tranche will be payable in full on December 31, 2024.

In the first quarter ending October 31, 2020, the Company made prepayments on the Term B Tranche of $608.0 million as described above.

Subsequent to the end of the first quarter of fiscal 2021, the Company made a voluntary prepayment of $150.0 million on the Term Loan funded with incremental borrowings under the ABL Credit Facility that reduces its interest costs. This prepayment will count towards any requirement from Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, which would be due in fiscal 2022. In the second quarter of fiscal 2021, the Company expects to record an accelerated charge related to deferred financing fees and original issue discounts based on the proportionate payment amount to the Term Loan Facility balance.
The loans under the 364-day Tranche were paid in full on October 21, 2019. The Company funded the scheduled maturity of the $52.8 million outstanding borrowings under the 364-day Tranche with incremental borrowings under the ABL Credit Facility on October 21, 2019. In addition, in the first quarter of fiscal 2020, the Company made mandatory prepayments and voluntary prepayments of $15.3 million and $5.8 million, respectively, on the 364-day Tranche with asset sale proceeds. In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $0.1 million, which was recorded within Interest expense, net in the Condensed Consolidated Statements of Operations for the first quarter of fiscal 2020.



Under the Term Loan Agreement, the Term Borrowers may, at their option, increase the amount of the Term B Tranche, add one or more additional tranches of term loans or add one or more additional tranches of revolving credit commitments, without the consent of any Term Lenders not participating in such additional borrowings, up to an aggregate amount of $656.3 million plus additional amounts based on satisfaction of certain leverage ratio tests, subject to certain customary conditions and applicable lenders committing to provide the additional funding. There can be no assurance that additional funding would be available.

The Term Borrowers’ obligations under the Term Loan Facility are guaranteed by most of the Company’s wholly-owned domestic subsidiaries who are not also Term Borrowers (collectively, the “Term Guarantors”), subject to customary exceptions and limitations, including an exception for immaterial subsidiaries designated by the Company from time to time. The Term Borrowers’ obligations under the Term Loan Facility and the Term Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ assets other than the ABL Assets and (ii) a second-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ ABL Assets, in each case, subject to customary exceptions and limitations, including an exception for owned real property with net book values of less than $10.0 million. As of November 2, 2019,October 31, 2020, there was $590.7$594.9 million of owned real property pledged as collateral that was included in Property and equipment, net and Prepaid expenses and Other current assets in the Condensed Consolidated Balance Sheets.

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The loans under the Term Loan Facility may be voluntarily prepaid, subject to certain minimum payment thresholds and the payment of breakage or other similar costs. Under the Term Loan Facility, the Company is required, subject to certain exceptions and customary reinvestment rights, to apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility. Commencing with the fiscal year ending August 1, 2020, the Company must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year. Based on the Company’s Excess Cash Flow in fiscal 2020, a $72.0 million prepayment was required and paid in the quarter ending October 31, 2020. The potential amount of prepayment from Excess Cash Flow in fiscal 20202021 that may be required in fiscal 20212022 is not reasonably estimable as of November 2, 2019.October 31, 2020.

The borrowings under the Term B Tranche of the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either: (i) a base rate and a margin of 3.25% or (ii) a LIBOR rate and a margin of 4.25%; provided that the LIBOR rate shall never be less than 0.0%. The Term Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available.

The Term Loan Agreement does not include any financial maintenance covenants but contains other customary affirmative and negative covenants and customary representations and warranties. The Term Loan Agreement also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Term Borrowers may be required to immediately to repay all amounts outstanding under the Term Loan Agreement.

As of November 2, 2019,October 31, 2020, the Company had borrowings of $1,786.5$1,165.0 million and no amounts outstanding under the Term B Tranche, and 364-day Tranche, respectively, which are presented net of debt issuance costs of $40.2$22.5 million and an original issue discount on debt of $39.4$22.1 million. As of November 2, 2019, $18.0 millionOctober 31, 2020, 0 amount of the Term B Tranche was classified as current, excluding debt issuance costs and original issue discount on debt.current.

NOTE 10—9—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in Accumulated other comprehensive loss by component net of tax for 13-week period ended November 2, 2019the first quarter of fiscal 2021 are as follows:
(in thousands)Other Cash Flow DerivativesBenefit PlansForeign CurrencySwap AgreementsTotal
Accumulated other comprehensive loss at August 1, 2020$(67)$(115,296)$(21,419)$(101,164)$(237,946)
Other comprehensive (loss) gain before reclassifications(557)0 405 3,652 3,500 
Reclassification of amounts included in net periodic benefit income— (206)— — (206)
Reclassification of cash flow hedges124 — — 8,806 8,930 
Net current period Other comprehensive (loss) income(433)(206)405 12,458 12,224 
Accumulated other comprehensive loss at October 31, 2020$(500)$(115,502)$(21,014)$(88,706)$(225,722)
(in thousands)Benefit Plans Foreign Currency Swap Agreements Total
Accumulated other comprehensive loss at August 3, 2019, net of tax$(32,458) $(20,082) $(56,413) $(108,953)
Other comprehensive loss before reclassifications—
 371
 (1,739) (1,368)
Amortization of amounts included in net periodic benefit income572
 —
 —
 572
Amortization of cash flow hedge—
 —
 (1,942) (1,942)
Net current period Other comprehensive loss572
 371
 (3,681) (2,738)
Accumulated other comprehensive loss at November 2, 2019, net of tax$(31,886) $(19,711) $(60,094) $(111,691)


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Changes in Accumulated other comprehensive loss by component net of tax for 13-week period ended October 27, 2018the first quarter of fiscal 2020 are as follows:
(in thousands)Benefit PlansForeign CurrencySwap AgreementsTotal
Accumulated other comprehensive loss at August 3, 2019$(32,458)$(20,082)$(56,413)$(108,953)
Other comprehensive income (loss) before reclassifications0 371 (5,623)(5,252)
Reclassification of amounts included in net periodic benefit income572 — — 572 
Reclassification of cash flow hedge— — 1,942 1,942 
Net current period Other comprehensive income (loss)572 371 (3,681)(2,738)
Accumulated other comprehensive loss at November 2, 2019$(31,886)$(19,711)$(60,094)$(111,691)
(in thousands)Foreign Currency Swap Agreements Total
Accumulated other comprehensive (loss) income at July 28, 2018, net of tax$(19,053) $4,874
 $(14,179)
Other comprehensive loss before reclassifications(672) (245) (917)
Amortization of cash flow hedge—
 441
 441
Net current period Other comprehensive loss(672) 196
 (476)
Accumulated other comprehensive (loss) income at October 27, 2018, net of tax$(19,725) $5,070
 $(14,655)


Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
13-Week Period Ended
Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands)October 31,
2020		November 2,
2019
Pension and postretirement benefit plan obligations:
Reclassification of amounts included in net periodic benefit income(1)
$(309)$774 Net periodic benefit income, excluding service cost
Income tax expense (benefit)103 (202)Benefit for income taxes
Total reclassifications, net of tax$(206)$572 
Swap agreements:
Reclassification of cash flow hedge$12,036 $2,370 Interest expense, net
Income tax expense (benefit)(3,230)(428)Benefit for income taxes
Total reclassifications, net of tax$8,806 $1,942 
Other cash flow hedges:
Reclassification of cash flow hedge$169 $0 Cost of sales
Income tax expense (benefit)(45)0 Benefit for income taxes
Total reclassifications, net of tax$124 $0 
  13-Week Period Ended 
Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands) November 2,
2019		 October 27,
2018		 
Pension and postretirement benefit plan obligations:      
Amortization of amounts included in net periodic benefit income(1)
 $774
 $—
 Net periodic benefit income, excluding service cost
Income tax (benefit) expense (202) —
 Benefit for income taxes
Total reclassifications, net of tax $572
 $—
  
       
Swap agreements:      
Reclassification of cash flow hedge $(2,370) $551
 Interest expense, net
Income tax (benefit) expense (428) 110
 Benefit for income taxes
Total reclassifications, net of tax $(1,942) $441
  
(1)Reclassification of amounts included in net periodic benefit income include reclassification of prior service benefit and reclassification of net actuarial loss as reflected in Note 11—Benefit Plans.

(1)Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 12—Benefit Plans.

NOTE 11—LEASES

The Company leases certain of its distribution centers, retail stores, office facilities, transportation equipment, and other operating equipment from third parties. Many of these leases include renewal options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. For all classes of underlying assets, the Company has elected to not separate fixed lease components, from the fixed nonlease components.

Lease assets and liabilities are as follows (in thousands):
Lease Type Balance Sheet Location November 2, 2019
Operating lease assets Operating lease assets $1,051,128
Finance lease assets Property and equipment, net 68,429
Total lease assets   $1,119,557
     
Operating liabilities Current portion of operating lease liabilities $127,327
Finance liabilities Current portion of long-term debt and finance lease liabilities 15,239
Operating liabilities Long-term operating lease liabilities 949,978
Finance liabilities Long-term finance lease liabilities 68,682
Total lease liabilities   $1,161,226




The Company's lease cost under ASC 842 for the 13-week period ended November 2, 2019 is as follows:
(in thousands) Statement of Operations Location 13-Week Period Ended
 November 2, 2019
Operating lease cost Operating expenses $67,141
Short-term lease cost Operating expenses 10,514
Variable lease cost Operating expenses 34,956
Sublease income Operating expenses (10,940)
Sublease income Net sales (4,835)
Net operating lease cost(1)
   96,836
Amortization of leased assets Operating expenses 4,703
Interest on lease liabilities Interest expense, net 2,118
Finance lease cost   6,821
Total net lease cost   $103,657
(1)Rent expense as presented here includes $12.5 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as the Company expects to remain primarily obligated under these leases

The Company leases certain property to third parties and receives lease and subtenant rental payments under operating leases, including assigned leases for which the Company has future minimum lease payment obligations. Future minimum lease payments (“Lease Liabilities”) to be made by the Company or certain third parties in the case of assigned leases for noncancellable operating leases and finance leases have not been reduced for future minimum lease and subtenant rentals (“Lease Receipts”) under certain operating subleases, including lease assignments for stores sold to third parties, which they operate. As of November 2, 2019, these lease obligations and lease receipts consisted of the following (in thousands):
Maturity of Lease Liabilities and Lease ReceiptsLease Liabilities Lease Receipts Net Lease Obligations
Fiscal Year
Operating Leases(1)
 
Finance Leases(2)
 Operating Leases Finance Leases Operating Leases Finance Leases
Remaining fiscal 2020$187,380
 $18,874
 $(43,449) $(161) $143,931
 $18,713
2021209,552
 19,252
 (46,516) —
 163,036
 19,252
2022198,343
 17,760
 (41,562) —
 156,781
 17,760
2023171,756
 16,653
 (31,360) —
 140,396
 16,653
2024145,338
 15,702
 (24,236) —
 121,102
 15,702
Thereafter1,050,386
 21,526
 (55,542) —
 994,844
 21,526
Total undiscounted lease liabilities and receipts$1,962,755
 $109,767
 $(242,665) $(161) $1,720,090
 $109,606
Less interest (3)
(885,450) (25,846)        
Present value of lease liabilities1,077,305
 83,921
        
Less current lease liabilities(127,327) (15,239)        
Long-term lease liabilities$949,978
 $68,682
        
(1)Operating lease payments include $14.7 million related to extension options that are reasonably certain of being exercised and exclude $48.5 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)Finance lease payments include $0.0 million related to extension options that are reasonably certain of being exercised and exclude $0.0 million of legally binding minimum lease payments for leases signed but not yet commenced.
(3)Calculated using the interest rate for each lease.



As of August 3, 2019, future minimum lease payments to be made byOctober 31, 2020, the Company or certain third parties in the caseexpects to reclassify $45.2 million out of assigned leases for noncancellable operating leases and finance leases, which have not been reduced for future minimum subtenant rentals under certain operating subleases, including assignments, consisted ofAccumulated other comprehensive loss into Interest expense, net during the following amounts (in thousands):twelve-month period.

  Lease Obligations Lease Receipts Net Lease Obligations
Fiscal Year Operating Leases Capital Leases Operating Leases Capital Leases Operating Leases Capital Leases
2020 $223,612
 $41,550
 $(55,922) $(319) $167,690
 $41,231
2021 190,845
 32,804
 (41,425) —
 149,420
 32,804
2022 179,326
 29,869
 (35,998) —
 143,328
 29,869
2023 154,812
 26,699
 (25,591) —
 129,221
 26,699
2024 135,795
 23,095
 (18,183) —
 117,612
 23,095
Thereafter 1,063,674
 46,999
 (59,186) —
 1,004,488
 46,999
Total future minimum obligations (receipts) $1,948,064
 $201,016
 $(236,305) $(319) $1,711,759
 $200,697
Less interest   (68,138)        
Present value of capital lease obligations   132,878
        
Less current capital lease obligations   (24,670)        
Long-term capital lease obligations   $108,208
        


The following tables provide other information required by ASC 842:NOTE 10—SHARE-BASED AWARDS

Lease Term and Discount RateNovember 2, 2019
Weighted-average remaining lease term (years)
Operating leases11.1 years
Finance leases5.7 years
Weighted-average discount rate
Operating leases10.7%
Finance leases9.9%
In the first quarter of fiscal 2021, the Company granted restricted stock units and performance share units to its directors, executive officers, and certain employees representing a right to receive an aggregate of 2.6 million. As of October 31, 2020, there were 113 thousand shares available for issuance under the 2020 Equity Incentive Plan.

Other Information13-Week Period Ended
(in thousands)November 2, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases55,750
Operating cash flows from finance leases1,880
Financing cash flows from finance leases3,074
Leased assets obtained in exchange for new finance lease liabilities—
Leased assets obtained in exchange for new operating lease liabilities37,020
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NOTE 12—11—BENEFIT PLANS

Net periodic benefit (income) costincome and contributions to defined benefit pension and other post-retirement benefit plans consisted of the following:
13-Week Period Ended
Pension BenefitsOther Postretirement Benefits
(in thousands)October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Net Periodic Benefit (Income) Cost
Service cost$0 $0 $12 $14 
Interest cost9,164 16,690 103 236 
Expected return on plan assets(25,965)(27,482)(26)(54)
Amortization of prior service credit0 0 (350)(350)
Amortization of net actuarial loss (gain)356 3 (315)(427)
Net periodic benefit income$(16,445)$(10,789)$(576)$(581)
Contributions to benefit plans$(375)$(4,100)$(950)$(100)
 First Quarter Ended
 Pension Benefits Other Postretirement Benefits
(in thousands)November 2, 2019 October 27, 2018 November 2, 2019 October 27, 2018
Net Periodic Benefit (Income) Cost       
Service cost$—
 $—
 $14
 $4
Interest cost16,690
 1,847
 236
 38
Expected return on plan assets(27,482) (2,724) (54) (5)
Amortization of net actuarial loss (gain)3
 —
 (777) —
Net periodic benefit (income) cost$(10,789) $(877) $(581) $37
        
Contributions to benefit plans$(4,100) $(37) $(100) $(9)


Pension Contributions

No minimum pension contributions are required to be made tounder either the SUPERVALU Inc. Retirement Plan in fiscal 2020. Minimum pension contributions of $8.25 million are required to be made underor the Unified Grocers, Inc. Cash Balance Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal 2020.2021. The Company expects to contribute approximately $0.0 million to $6.0$5.3 million to its other defined benefitnon-qualified pension plans and postretirement benefit plans in fiscal 2020.2021.

Multiemployer Pension Plans

The Company contributed $13.5$11.9 million and $0.1$13.5 million in the first quarters of fiscal 20202021 and 2019,2020, respectively, to continuing and discontinued operations multiemployer pension plans.

Lump Sum Pension Settlement Offering

On August 1, 2019, the Company amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window. On August 2, 2019, the Company sent plan participants lump sum settlement election offerings that committed the plan to pay certain deferred vested pension plan participants and retirees, who make such an election, a lump sum payment in exchange for their rights to receive ongoing payments from the plan. The lump sum payment amounts are equal to the present value of the participant’s pension benefits, and were made to certain former (i) retired associates and beneficiaries who are receiving their monthly pension benefit payment and (ii) terminated associates who are deferred vested in the plan, had not yet begun receiving monthly pension benefit payments and who are not eligible for any prior lump sum offerings under the plan. Benefit obligations associated with the lump sum offering have been incorporated into the funded status utilizing the actuarially determined lump sum payments based on estimated offer acceptances. The plan made aggregate lump sum settlement payments of $664.0 million to plan participants on November 4, 2019 and November 12, 2019. The Company expects that the lump sum settlement payments will result in an estimated non-cash pension settlement charge of approximately $10.0 million in the second quarter of fiscal 2020 from the acceleration of a portion of the accumulated unrecognized actuarial loss, which will be based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. The settlement and subsequent re-measurement is expected to result in a decrease to accumulated other comprehensive loss and an improvement to the SUPERVALU Retirement Plan’s unfunded status.

NOTE 13—12—INCOME TAXES

The effective income tax rate for continuing operations was a benefit of 15.3%50.5% compared to a benefit of 16.6%14.7% on pre-tax lossesincome for the first quarter of fiscal 20202021 and 2019,2020, respectively. The change in the effective income tax rate for the first quarter of fiscal 20202021 was primarily driven by the impact of the goodwill impairment charge.



The tax provision included $64.0 million ofa discrete tax benefit and $0.5 millionin the first quarter of fiscal 2021 related to employee stock awards compared to a discrete tax expense for this item in the first quarter of fiscal 2020. In addition, the first quarter of fiscal 2020 was impacted by a goodwill impairment charge. The tax provision included $0.5 million and fiscal 2019, respectively. The$64.2 million of discrete tax benefit for the first quarter of fiscal 2020 is primarily due to a tax benefit of approximately $68.0 million related to the pre-tax goodwill impairment charge, which was partially offset by a discrete tax expense related to stock-based compensation2021 and unrecognized tax positions of approximately $3.0 million and $0.8 million, respectively. Excluding the impact of the discrete items noted above, the effective tax rate benefit on continuing operations would be 16.4%, compared to 18.7% for the first quarter of fiscal 2020, and 2019, respectively. The effective tax rate benefit on the pre-tax losses is being reduced by the impact

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Table of other permanently non-deductible items for the first quarters of fiscal 2020 and 2019.Contents


NOTE 14—13—EARNINGS PER SHARE
 
The following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:
 13-Week Period Ended
(in thousands, except per share data)October 31,
2020		November 2,
2019
Basic weighted average shares outstanding55,171 53,213 
Net effect of dilutive stock awards based upon the treasury stock method0 0 
Diluted weighted average shares outstanding55,171 53,213 
Basic (loss) earnings per share:
Continuing operations$(0.04)$(7.29)
Discontinued operations$0.02 $0.08 
Basic loss per share$(0.02)$(7.21)
Diluted (loss) earnings per share:
Continuing operations$(0.04)$(7.29)
Discontinued operations(1)
$0.02 $0.08 
Diluted loss per share$(0.02)$(7.21)
Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share5,247 8,272 
  13-Week Period Ended
(in thousands, except per share data) November 2,
2019		 October 27,
2018
Basic weighted average shares outstanding 53,213
 50,583
Net effect of dilutive stock awards based upon the treasury stock method —
 —
Diluted weighted average shares outstanding 53,213
 50,583
     
Basic per share data:    
Continuing operations $(7.67) $(0.42)
Discontinued operations $0.46
 $0.04
Basic loss per share $(7.21) $(0.38)
Diluted per share data:    
Continuing operations $(7.67) $(0.42)
Discontinued operations(1)
 $0.46
 $0.04
Diluted loss per share $(7.21) $(0.38)
     
Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 8,272
 839
(1)The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards, of approximately 3.95 million and 63 thousand for the first quarters of fiscal 2021 and 2020, respectively.

(1)The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards, of approximately 63 thousand shares and 598 thousand for the 13-week periods ended November 2, 2019 and October 27, 2018, respectively.

NOTE 15—14—BUSINESS SEGMENTS

The Company has two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure. The Wholesale reportable segment is the aggregation of 2 operating segments aggregated under the Wholesale reportable segment:segments: U.S. Wholesale and Canada Wholesale. In addition, the Company’s Retail operating segment is a separate reportable segment, which consists of discontinued operations disposal groups. The U.S. Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. Reportable segments are reviewed on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.

The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, produce and conventional grocery and non-food products, and is also a provider of supportproviding retail services in the United States and Canada. The Retail reportable segment derives revenues from the sale of groceries and other products at retail locations operated by the Company. The Company has additional operating segments that do not meet the quantitative thresholds for reportable segments and are therefore aggregated under the caption of Other. Other includes a manufacturing division, which engages in the importing, roasting, packaging and distributing of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, and the Company’s branded product lines, and the Company’s brokerage business, which markets various products on behalf of food vendors directly and exclusively to the Company’s customers.lines. Other also includes certain corporate operating expenses that are not allocated to operating segments, which include, among other expenses, restructuring, acquisition, and integration related expenses, share-based compensation and salaries, retainers, and other related expenses of certain officers and all directors. Wholesale records revenues related to sales to Retail at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business.

Segment earnings include revenues and costs attributable to each of the respective business segments and allocated corporate overhead, based on the segment’s estimated consumption of corporately managed resources. The Company allocates certain corporate capital expenditures and identifiable assets to its business segments and retains certain depreciation expense related to those assets within Other. In the first quarter of fiscal 2020, the Company changed its measurement of segment profit, which resulted in additional Supervalu-related corporate expenses that were previously included in Other now being attributed to the Wholesale business. The change is immaterial with respect to the results presented in the first quarter of fiscal 2019, given the five day time period between the acquisition date and the end of the first quarter of fiscal 2019. Non-operating expenses that are not allocated to the operating segments are underincluded in the captionOther segment. In the fourth quarter of Unallocated (Income)/Expenses.fiscal 2020, the Company updated its segment profit measure to Adjusted EBITDA. Prior period amounts have been recast to reflect this change in segment profit measure.



 (in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
13-Week Period Ended November 2, 2019:  
  
  
  
  
Net sales(1)
 $6,007,095
 $63,749
 $(51,259) $—
 $6,019,585
Goodwill and asset impairment charges 423,703
 1,702
 —
 —
 425,405
Restructuring, acquisition and integration related expenses 7,952
 6,298
 —
 —
 14,250
Operating loss (416,229) (29,310) 1,512
 —
 (444,027)
Total other expense, net —
 —
 —
 38,088
 38,088
Loss from continuing operations before income taxes 


 


 


 


 (482,115)
Depreciation and amortization 68,199
 6,942
 —
 —
 75,141
Capital expenditures 40,129
 993
 —
 —
 41,122
Total assets of continuing operations 6,996,425
 513,174
 (45,855) —
 7,463,744
           
13-Week Period Ended October 27, 2018:  
  
  
  
  
Net sales(2)
 $2,856,966
 $48,754
 $(37,564) $—
 $2,868,156
Restructuring, acquisition and integration related expenses —
 68,004
 —
 —
 68,004
Operating loss 60,237
 (78,329) (746) —
 (18,838)
Total other expense, net —
 —
 —
 6,778
 6,778
Loss from continuing operations before income taxes 


 


 


 


 (25,616)
Depreciation and amortization 23,517
 1,276
 —
 —
 24,793
Capital expenditures 15,737
 644
 —
 —
 16,381
Total assets of continuing operations 7,164,623
 847,897
 (39,013) —
 7,973,507

(1)For the first quarter of fiscal 2020, the Company recorded $244.6 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.
(2)For the first quarter of fiscal 2019, the Company recorded $21.8 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.

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The following table provides continuing operations net sales and Adjusted EBITDA by reportable segment and reconciles that information to Loss from continuing operations before income taxes:
13-Week Period Ended
 (in thousands)October 31, 2020November 2, 2019
Net sales:
Wholesale(1)
$6,431,283 $6,067,307 
Retail594,911 515,226 
Other55,612 65,079 
Eliminations(409,199)(351,000)
Total Net sales$6,672,607 $6,296,612 
Continuing Operations Adjusted EBITDA:
Wholesale$122,961 $106,312 
Retail24,282 10,562 
Other4,150 (1,597)
Eliminations5,724 1,159 
Adjustments:
Net income attributable to noncontrolling interests1,367 519 
Total other expense, net(51,302)(37,925)
Depreciation and amortization(77,189)(75,141)
Share-based compensation(14,149)(3,925)
Restructuring, acquisition and integration related expenses(16,428)(14,672)
Goodwill and asset impairment charges0 (425,405)
Gain on sale of assets230 90 
Notes receivable charges0 (12,516)
Legal reserve charge0 (1,850)
Other retail expense(1,609)0 
Loss from continuing operations before income taxes$(1,963)$(454,389)
Depreciation and amortization:
Wholesale$67,821 $67,993 
Retail7,388 1,458 
Other1,980 5,690 
Total depreciation and amortization$77,189 $75,141 
Capital expenditures:
Wholesale$37,991 $42,259 
Retail3,201 2,676 
Other188 113 
Total capital expenditures$41,380 $45,048 
(1)As presented in Note 3—Revenue Recognition, for the first quarters of fiscal 2021 and 2020, the Company recorded $357.6 million and $297.7 million, respectively, within Net sales in its Wholesale reportable segment attributable to Wholesale sales to its Retail segment that have been eliminated upon consolidation. Refer to Note 3—Revenue Recognition for additional information regarding Wholesale sales to discontinued operations.

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Total assets of continuing operations by reportable segment were as follows:

(in thousands)October 31,
2020		August 1,
2020
Assets:
Wholesale$6,758,322 $6,588,836 
Retail553,198 542,470 
Other516,952 501,468 
Eliminations(52,969)(54,784)
Total assets of continuing operations$7,775,503 $7,577,990 

NOTE 16—15—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Guarantees and Contingent Liabilities

The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of November 2, 2019.October 31, 2020. These guarantees were generally made to support the business growth of wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to eleventen years, with a weighted average remaining term of approximately sevensix years. For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, the Company would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the primary obligor/retailer.guarantees.

The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of November 2, 2019,October 31, 2020, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $35.1$31.3 million ($24.026.2 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, the Company believes the likelihood that it will be required to assume a material amounttotal estimated loss of these obligations$1.0 million is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under the Company’s guarantee arrangements as the fair value has been determined to be de minimis.Sheets.



The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of the Company’s lease assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote. For leases that have been assigned, the Company has recorded the associated right of use operating lease assets and obligations within the Condensed Consolidated Balance Sheets. NoNaN associated lessor receivables are reflected on the Condensed Consolidated Balance Sheets; however, within Note 11—Leases expected cash flows fromthe Company expects its assignees to make lease receipts reflecting the assignees payments to the landlord are reflected as lease receipts within the future maturity table, along with the Wholesale customers future lease receipts.its landlords. For the Company’s lease guarantee arrangements, no0 amounts have been recorded within the Condensed Consolidated Balance Sheets as the fair value has been determined to be de minimis.

The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to the Company’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their work. While the Company’s aggregate indemnification obligations could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. NoNaN amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.

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In connection with Supervalu’s sale of New Albertson’s, Inc. (“NAI”) on March 21, 2013, the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary. Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous state governmental authorities. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.

Agreements with Save-A-Lot and Onex

The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business in 2016 (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, Supervalu entered into a Separation Agreement (the “Separation Agreement”) with Moran Foods, LLC d/b/a Save-A-Lot (“Moran Foods”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from the Company. The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company is providing Save-A-Lot with various technical, human resources, finance and other operational services for a term of five years, subject to termination provisions that can be exercised by each party. The initial annual base charge under the Services Agreement is $30 million, subject to adjustments. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement. While the Company’s aggregate indemnification obligations to Save-A-Lot and Onex, the purchaser of Save-A-Lot, could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. The Company has recorded the fair value of the guarantee in the Condensed Consolidated Balance Sheets within Other long-term liabilities.

Other Contractual Commitments

In the ordinary course of business, the Company enters into supply contracts to purchase products for resale, and service contracts for fixed asset and information technology systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of November 2, 2019,October 31, 2020, the Company had approximately $247.0$203 million of non-cancelable future purchase obligations.



Legal Proceedings

In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against Supervalu alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, Supervalu purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain of Supervalu’s assets to C&S that were located in New England. NaN other retailers filed similar complaints in other jurisdictions and the cases were consolidated in the United States District Court in Minnesota. The complaints alleged that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that Supervalu and C&S purchased from each other. Plaintiffs were divided into Midwest plaintiffs and a New England plaintiff and are seeking monetary damages, injunctive relief and attorney’s fees. As previously disclosed, the Company settled with the Midwest plaintiffs in November 2017. The New England plaintiff was not a party to the settlement and is pursuing its individual claims and potential class action claims against Supervalu, which at this time are determined as remote. On February 15, 2018, Supervalu filed a summary judgment and Daubert motion and the New England plaintiff filed a motion for class certification and on July 27, 2018, the District Court granted Supervalu’s motions. The New England plaintiff appealed to the 8th Circuit on August 15, 2018. Briefing on the appeal is complete and the hearing occurred on October 15, 2019. The Company is awaiting the 8th Circuit’s decision.

The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 3842 suits pending in the United States District Court for the Northern District of Ohio where over 1,800 cases have been consolidated as Multi-District Litigation (“MDL”). In accordance with the Stock Purchase Agreement dated January 10, 2013, between New Albertson’s Inc. (“New Albertson’s”) and the Company (the “Stock Purchase Agreement”), New Albertson’s Inc. is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. UNFI is vigorously defending these matters, which it believes are without merit.

UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators'relators’ allegations and declined to intervene. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim. Relators elected to pursue the case on their own and have alleged FCA damages against Supervalu and New AlbertsonsAlbertson’s in excess of $100 million, not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant to the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a
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potential award (at the currently claimed value by relators) would be approximately $24 million, not including trebling and statutory penalties. Both sides moved for summary judgment. Discovery is complete, and trial will be set after the Court rules on the pending motions. On August 5, 2019, the Court granted one of the relators’ summary judgment motions finding that the defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. There are additional pending motions forOn July 2, 2020 the Court granted the defendants’ summary judgment filed by defendantsmotion and relators that await rulings bydenied the Court, including on key FCA elements of materiality and knowledge.relators’ motion, dismissing the case. On August 30, 2019, defendantsJuly 9, 2020 the relators filed a motionnotice of appeal with the District7th Circuit Court seeking certification of the summary judgment decision for interlocutory appealAppeals, and on September 30, 2020 filed an appellate brief. On November 7, 2019, the District Court denied the motion. UNFI is vigorously defending this matter and believes that it should be successful on the merits, however, in light of the most recent summary judgment decision,30, 2020, the Company now believes the risk of loss is reasonably possible. However, management is unable to estimate a range of reasonably possible loss because there are several disputed factual and legal matters that have not yet been resolved, including fundamentally whether the FCA violations actually occurred (which defendants still strongly believe and continue to argue did not), and the appropriate methodology of determining potential damages, if any.filed its response.



In November 2018, a putative nationwide class action was filed in Rhode Island state court, which the Company removed to U.S. District Court for the District of Rhode Island. In North Country Store v. United Natural Foods, Inc., plaintiff asserts that the Company made false representations about the nature of fuel surcharges charged to customers and asserts claims for alleged violations of Connecticut’s Unfair Trade Practices Act, breach of contract, unjust enrichment and breach of the covenant of good faith and fair dealing arising out of the Company’s fuel surcharge practices. On March 5, 2019, the Company answered the complaint denying the allegations. At a court-ordered mediation on October 15, 2019, the Company reached an agreed resolution,agreement, which wasis immaterial in amount, to avoid costs and uncertainty of litigation. The potential settlement must go throughOn August 10, 2020, the Court granted final approval of the settlement, and notice process, which will take several months.this matter is now closed.

From time to time, the Company receives notice of claims or potential claims or becomes involved in litigation, alternative dispute resolution, such as arbitration, or other legal and regulatory proceedings that arise in the ordinary course of its business, including investigations and claims regarding employment law; pension plans; labor union disputes, including unfair labor practices, such as claims for back-pay itin the context of labor contract negotiations; supplier, customer and service provider contract terms and claims, including matters related to supplier or customer insolvency or general inability to pay obligations as they become due; real estate and environmental matters, including claims in connection with the Company’sits ownership and lease of a substantial amount of real property, both neutralretail and warehouse properties; and antitrust. Other than as described above, there are no pending material legal proceedings to which the Company is a party or to which its property is subject.

Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. The CompanyManagement regularly monitors itsthe Company’s exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of November 2, 2019,October 31, 2020, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.

Although management believes it has made appropriate assessments of potential and contingent loss in each of these cases based on current facts and circumstances, and application of prevailing legal principles, there can be no assurance that material differences in actual outcomes from management’s current assessments, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates will not occur. The occurrence of any of the foregoing, could have a material adverse effect on the Company’sour financial condition, results of operations or cash flows.

NOTE 17—16—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu (“Retail”). TheSupervalu. Since the acquisition, the Company sold Hornbacher’s, and sold and exited the retail operations of certain Shoppers locations, Shop ‘n Save St. Louis and Shop ‘n Save East. As discussed further in Note 1—Significant Accounting Policies, in the fourth quarter of fiscal 2020, the Company determined Retail no longer qualified for held for sale presentation and the results of operations, financial position and cash flows of Cub Foods,Retail have been revised in order to present Retail within continuing operations. Subsequent to the presentation changes in the fourth quarter of fiscal 2020, discontinued operations contains the historical results of operations, financial position and cash flows of Hornbacher’s, certain Shoppers andlocations, Shop ‘n Save St. Louis and Shop ‘n Save East retail operations have been presented as discontinued operations and the related assets and liabilities have been classified as held-for-sale.

Subsequent to the end of the first quarter of fiscal 2020, the Company announced that it had entered into agreements to sell 13 Shopper’s stores, and decided to close 4 locations. The Company expects to incur approximately $32.0 million to $42.0 million in pre-tax aggregate costs and charges related to these transactions, consisting of $13.0 million to $16.0 million of estimated severance and employee-related costs, $11.0 million to $14.0 million of estimated operating losses during the period of wind-down, primarily related to inventory, $2.0 million to $3.0 million of estimated transaction costs, and $6.0 million to $9.0 million of estimated non-cash asset impairment charges, primarily associated with real estate assets and leasehold improvements. The Company continues to hold the remaining Shoppers stores for sale. In the second quarter, the Company will assess the remaining composition of the Shoppers disposal group and review the recoverability of the remaining assets, as the Company continues to hold these locations for sale.

In fiscal 2019, the Company completed the sale of 7 of its 8 Hornbacher's locations, as well as Hornbacher’s newest store in West Fargo, North Dakota, to Coborn's Inc. (“Coborn’s”). The Company did not incur a gain or loss on the sale of this disposal group. The Hornbacher’s store in Grand Forks, North Dakota was not included in the sale to Coborn’s and has closed pursuant to the terms of the definitive agreement. As part of the sale, Coborn's entered into a long-term agreement for the Company to serve as the primary supplier of the Hornbacher’s locations and expand its existing supply arrangements for other Coborn’s locations.

In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group.East. As of November 2, 2019,October 31, 2020, only the Cub Foods and5 Shoppers locations are contained in remaining disposal groups that continue to be classified as operations held for sale as discontinued operations.


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Operating results of discontinued operations are summarized below:
13-Week Period Ended
(In thousands)October 31, 2020November 2,
2019
Net sales$24,816 $95,595 
Cost of sales16,772 65,086 
Gross profit8,044 30,509 
Operating expenses6,231 25,076 
Restructuring expenses and charges(9)175 
Operating income1,822 5,258 
Other expense (income), net0 (61)
Income from discontinued operations before income taxes1,822 5,319 
Income tax provision526 1,293 
Income from discontinued operations, net of tax$1,296 $4,026 
 13-Week Period Ended
(In thousands)November 2, 2019 
October 27, 2018(1)
Net sales$610,821
 $46,598
Cost of sales441,071
 34,534
Gross profit169,750
 12,064
Operating expenses136,435
 9,494
Restructuring, acquisition and integration related expenses1,362
 —
Operating income31,953
 2,570
Other income, net(1,091) (249)
Income from discontinued operations before income taxes33,044
 2,819
Income tax provision8,090
 749
Income from discontinued operations, net of tax$24,954
 $2,070
(1)These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to October 27, 2018.

The Company recorded $244.6 million and $21.8 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the 13-week periods ended November 2, 2019 and October 27, 2018, respectively, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No net sales were recorded within continuing operations for retail bannersstores within discontinued operations that the Company disposed of and expects to dispose of without a supply agreement, which wereagreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to $113.0$14.4 million and $9.8$56.0 million in the 13-week periods ended November 2, 2019first quarters of fiscal 2021 and October 27, 2018,2020, respectively.



The carrying amounts (in thousands) of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets follows in the table below.
(In thousands)October 31, 2020August 1, 2020
Current assets
Cash and cash equivalents$173 $119 
Receivables, net532 350 
Inventories4,348 4,233 
Other current assets634 365 
Total current assets of discontinued operations5,687 5,067 
Long-term assets
Property and equipment1,965 3,450 
Other assets442 465 
Total long-term assets of discontinued operations2,407 3,915 
Total assets of discontinued operations$8,094 $8,982 
Current liabilities
Accounts payable$3,505 $3,613 
Accrued compensation and benefits2,744 4,501 
Other current liabilities3,640 3,324 
Total current liabilities of discontinued operations9,889 11,438 
Long-term liabilities
Other long-term liabilities15 1,738 
Total liabilities of discontinued operations9,904 13,176 
Net liabilities of discontinued operations$(1,810)$(4,194)
(In thousands) November 2, 2019 August 3, 2019
Current assets    
Cash and cash equivalents $2,845
 $2,917
Receivables, net 4,532
 1,471
Inventories 139,409
 129,142
Other current assets 9,097
 10,199
Total current assets of discontinued operations 155,883
 143,729
Long-term assets    
Property and equipment 292,154
 301,395
Intangible assets 49,687
 48,788
Other assets 2,051
 1,882
Total long-term assets of discontinued operations 343,892
 352,065
Total assets of discontinued operations $499,775
 $495,794
     
Current liabilities    
Accounts payable $54,781
 $61,634
Accrued compensation and benefits 34,574
 45,887
Other current liabilities 11,523
 14,744
Total current liabilities of discontinued operations 100,878
 122,265
Long-term liabilities    
Other long-term liabilities 1,403
 1,923
Total liabilities of discontinued operations 102,281
 124,188
Net assets of discontinued operations $397,494
 $371,606


As of November 2, 2019, the fair value of disposal groups were estimated based on each group’s expected consideration less costs to sell. Stand-alone fair values are estimated based on fair value reviews and indications of value for long-lived assets exclusive of transferring multiemployer pension plan obligations. Based on the impairment reviews in the first quarter of fiscal 2020, no indications of impairment existed.

If transactions were to occur at a level lower than the disposal groups, the Company would disaggregate the disposal group and perform a recoverability review of the long-lived assets based on the asset group at that time. In addition, the sale of the Company’s retail disposal groups may result in charges that may be materially different than the Company’s prior estimates. Estimates most sensitive to changes that could result in material charges include expected consideration, including the extent to which the Company is able transfer multiemployer pension plan obligations, and the potential sale of the disposal groups at a lower level.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT

This Quarterly Report and the documents incorporated by reference in this Quarterly Report containcontains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will,” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

•the impact and duration of the COVID-19 outbreak;
•our dependence on principal customers;
the potential for additional asset impairment charges;
•our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;
•our ability to realize anticipated benefits of our acquisitions and dispositions, in particular, our acquisition of SUPERVALU INC. (“Supervalu”);
the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations exceed our current expectations;
•our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products;
•increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors;
•the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations;
•increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains;
•the addition or loss of significant customers or material changes to our relationships with these customers;
•union-organizing activities that could cause labor relations difficulties and increased costs;
•our ability to operate, and rely on third-parties to operate, reliable and secure technology systems;
•the relatively low margins of our business;
•moderated supplier promotional activity, including decreased forward buying opportunities;
•our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;
•the addition or loss of significant customers or material changes to our relationships with these customers;potential for additional asset impairment charges;
volatility in fuel costs;
volatility in foreign exchange rates;
•our sensitivity to inflationary and deflationary pressures;
the relatively low margins and economic sensitivity of our business;
•the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control;control, including a health epidemic;
•the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise;
moderated supplier promotional activity, including decreased forward buying opportunities;•volatility in fuel costs;
union-organizing activities that could cause labor relations difficulties•volatility in foreign exchange rates; and increased costs; and
•our ability to identify and successfully complete asset or business acquisitions.

You should carefully review the risks described under Part II.“Part I. Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended August 3, 2019. Risk Factors1, 2020 as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.


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EXECUTIVE OVERVIEW

Business Overview

As a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products, and provider of supportretailer services in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. We offer more than 250,000275,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general merchandise; produce; perishables and frozen foods; nutritional supplements and sports nutrition; bulk and food service products; and personal care items. Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 6355 distribution centers and warehouses representing approximately 3229 million square feet of warehouse space. We believe our totalOur business is classified into two reportable segments: Wholesale and Retail; and also includes a manufacturing division and a branded product assortment and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs.line division.

Our StrategyGrowth Drivers

A key component of our business and growth strategy has been to acquire wholesalers differentiated by product offerings, service offerings and market area. In fiscal 2019, the acquisition of Supervalu accelerated our build“build out the storestore” strategy, diversified our customer base, enabled cross-selling opportunities, expanded our market reach and scale, enhanced our technology, capacity and systems, and is expected to continue to deliver significant synergies and accelerate potential growth. We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, and enabled us to provide a broader array of products to our customers. As one of the largest wholesale grocery distributors in North America, and in light of the continued expansion of our distribution network and “build out the store” strategy, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which we operate, and are actively pursuing new customers.

We believe our significant scale and footprint will generate long-term shareholder value by positioning us to continue to grow sales of natural, organic, specialty, produce and conventional grocery and non-food products, including our Private Brands and professional services across our network.Brands. We also believe we willhave an opportunity to sell additional services to our customers to help them more efficiently operate their business while leveraging the infrastructure investments we’ve made. Services often sold to our customers include coupon processing, consumer marketing, retail technology and payments and consumer services. We have realized and expect to continue to realize significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure and eliminating redundant administrative costs.

We maintain long-standing customer relationships withexpect the benefits of our significant scale, product and service offerings and nationwide footprint to attract new customers, in our supernatural, supermarket, independentsuch as Key Food Stores co-operative, Inc. (“Key Food”). On October 6, 2020, we announced UNFI had been selected as the primary grocery wholesaler by Key Food, a Co-Operative of 315 member-owned and other channels. Some of these long-standing customer relationships are established through contracts with our customerscorporate grocery stores located in the formNortheast and Florida. UNFI’s supply agreement with Key Food has a term of distribution agreements.10 years with expected sales over that time period of approximately $10 billion.

We currently operate approximately 95 retail grocery stores acquired in the Supervalu acquisition. We intend to thoughtfully and economically divest these stores, and, as described below, subsequent to the end of the first quarter of fiscal 2020, we entered into agreements to sell 13 retail stores and close four additional stores. These stores are reported within discontinued operations in our Condensed Consolidated Financial Statements included in this Quarterly Report.

We have been the primary distributor to Whole Foods Market for more than 20 years. We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025.

We currently operate 72 Retail grocery stores acquired in the Supervalu acquisition. We intend to maximize the value of these assets while, over time, thoughtfully and economically divesting these stores. However, we no longer expect to divest Retail within one year and, as a result, beginning in the fourth quarter of fiscal 2020, prior period information in our Condensed Consolidated Financial Statements included in this Quarterly Report has been revised to reclassify Retail from discontinued operations to continuing operations from information previously presented in its Quarterly Reports. This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations. Prior periods presented in the Condensed Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods.

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Other Factors Affecting our Business

Our results are impacted by macroeconomic and demographic trends, and changes in the food distribution market structure. Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods has benefited the Company; however, consumer spending in the food-away-from-home industry had increased steadily as a percentage of total food expenditures. This trend paused during the 2008 recession, and then continued to increase. In fiscal 2020, the COVID-19 pandemic caused a significant increase in food-at-home expenditures as a percentage of total food expenditures. We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years until consumer behaviors return to pre-pandemic patterns. We believe that changes in work being done outside of the traditional office setting will contribute to more food being consumed at home. Many large corporations have announced long-term or permanent changes that allow their workforce to work from home. In addition, the elevated levels of unemployment and underemployment due to the pandemic are expected to persist for some time and even after the near-term impact of COVID-19 has passed. In general, economic recessions usually result in higher food-at home expenditures, which would be expected to continue to benefit our customers and result in higher sales. The COVID-19 pandemic also drove significant growth in e-commerce utilization by grocery consumers, and we expect that trend to continue. We expect to benefit from this trend through the growth of our traditional eCommerce customers, our EasyOptions, a business-verified buyer’s site for retailers, which directly services non-traditional customers, such as bakeries or yoga studios, and through customers adopting our turnkey e-commerce platform.

We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store deliveries and other methods of distribution. Our Wholesale customers manage their businesses independently and operate in a competitive environment. We seek to obtain security interests and other credit support in connection with the financial accommodations we extend these customers; however, we may incur additional credit or inventory charges related to our customers, as we expect the competitive environment to continue to lead to financial stress on some customers. The magnitude of these risks increases as the size of our Wholesale customers increases.

COVID-19 Impact

Beginning in the third quarter of fiscal 2020, we took actions to respond to the pandemic, support our associates’ safety and well-being and maximize our logistics network to serve the communities we supply. In fiscal 2020, and continuing into fiscal 2021, we experienced a year-over-year increase in sales and gross profit due to higher Wholesale customer purchases driven by higher food-at-home expenditures, as a result of the economic and social responses to the COVID-19 pandemic. We have been able to leverage fixed operating and administrative expenses, which were partially offset by incremental costs related to COVID-19, including additional costs for safety protocols and procedures at our distribution centers and retail stores. Our business model allows us to leverage sales increases, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses. Despite incremental labor and operating costs, additional volume experienced by our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses.

We expect to continue to benefit from sales and margin growth as compared to historical periods while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical precedent, and higher on a year-over-year basis. Trends in increased sales and gross margin benefits have lessened since the initial onset of the COVID-19 pandemic. In addition, as discussed below in the section “Impact of Inflation or Deflation” and above in the section “Other Factors Affecting our Business,” we could also be affected by changes in product mix and product category inflation changes, especially if customers change their purchasing habits as a result of sustained downturns in the U.S. and Canadian economies. The ultimate impact on our results is dependent upon the severity and duration of the COVID-19 pandemic and any economic downturn, food-at-home purchasing levels and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain and rapidly changing. Any of these disruptions could adversely impact our business and results of operations. Considerable uncertainty remains regarding the future impact of the COVID-19 pandemic on our business, which is discussed further in Part I. Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended August 1, 2020.
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Distribution Center Network

Network Optimization and Construction

Within the Pacific Northwest, we are transferringcompleted the consolidation of the volume of five distribution centers and thetheir related supporting off-site storage facilities into two distribution centers. This transition and operational consolidation is expected to be completedcenters during fiscal 2020, after which we2020. We expect to achieve synergies and cost savings bythrough eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses. TheWe also expect that the optimization of the Pacific Northwest distribution network will also help deliver meaningful synergies contemplated in the Supervalu acquisition. This plan includes expandingWe expanded the Ridgefield, WA distribution center to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate greater technology to deliver a better customer experience. The Ridgefield distribution center will deploy a warehouse automation solution that supports our slow-moving stock-keeping unit (SKU)SKU portfolio. The operational start-up of the Centralia, WA distribution center began in the fourth quarter of fiscal 2019 and continued to ramp-upwas completed in the firstfourth quarter of fiscal 2020. We ceased operations in our Tacoma, WA, Auburn, WA, and Auburn, CA and Milwaukie, OR (Portland) distribution centers and have transitioned to supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers. In order to maintain service levels of these higher volume pacific northwest distribution centers, we incurred incremental operating costs in the first quarter of fiscal 2021 that we believe temporarily reduced the realization of synergy benefits from this network consolidation.

To support our continued growth on the East coast, we entered into a new lease agreement that has not yet commenced for an approximately 1.3 million square foot facility that is currently under construction. We expect to recognize a lease liability for this distribution center when we begin making our tenant improvements in fiscal 2021. We expect to begin distribution out of this facility in the second half of calendar 2021.

To support our continued growth within southern California, we began operating a newly leased facility with approximately 1.2 million square feet upon completion of its construction in the fourth quarter of fiscal 2020. This facility provides significant capacity to service our customers in this market. On February 24, 2020, we executed a purchase option to acquire the real property of this distribution center, agreeing to pay approximately $151.9 million for the facility, subject to finalization. We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property compared to current levels, which we expect would occur on or before June 2022.

We continue to evaluate our distribution center network to optimize its performance and expect to incur incremental expenses related to theany future network realignment and are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.



Distribution Center Sales

InSubsequent to the fourthend of the first quarter of fiscal 2019,2021, we entered into an agreement to sell our Tacoma distribution center for $43.2received $35.1 million from the collection of a short-term note receivable, representing the remaining proceeds related to our Pacific Northwest consolidation strategy, which we expect to close inthe fiscal 2020. This facility is classified as held for2020 sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets.a distribution center. As we consolidate our distribution networks,network, we may sell additional owned facilities or exit leased facilities.

Operating Efficiency

As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities, including acquired Supervalu facilities, onto one nationalized platform across the organization. We continue to be focusedfocus on the automation of our new or expanded distribution centers that are at different stages of construction and implementation. These steps and others are intended to promote operational efficiencies and improve operating expenses as a percentage of net sales.

Goodwill Impairment Review
33

During the first quarterTable of fiscal 2020, the Company changed its management structure and internal financial reporting to combine the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit into one U.S. Wholesale reporting unit, and experienced a further sustained decline in market capitalization and enterprise value. As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, the Company performed an interim quantitative impairment review of goodwill for the Wholesale reporting unit, which included a determination of the fair value of all reporting units. Based on this analysis, we determined that the carrying value of its U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded its assigned goodwill. As a result, we recorded a goodwill impairment charge of $421.5 million in the first quarter of fiscal 2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of Operations. The goodwill impairment charge reflects the impairment of all of the U.S. Wholesale’s reporting unit goodwill.Contents

Quantitatively, the goodwill impairment was driven by the incorporation of the negative value associated the legacy Supervalu wholesale reporting unit that was combined into the legacy Company Wholesale goodwill reporting unit and a decrease in estimated long-range cash flows required to be prepared as part of the quantitative assessment. The goodwill impairment review indicated that the estimated fair value of the Canada Wholesale reporting, which had goodwill of $9.9 million as of November 2, 2019, exceeded its carrying values by approximately 13%. Other continuing operations reporting units, which had goodwill of $9.9 million as of November 2, 2019, were substantially in excess of their carrying value. If circumstances indicate that the value of one of these other reporting units has decreased, we may be required to perform additional reviews of goodwill and incur additional impairment charges. The first quarter of fiscal 2020 quantitative goodwill impairment review included a reconciliation of all of the reporting units’ fair value of to our market capitalization and enterprise value.

Divestiture of Retail Operations

We have announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition as soon as practical in an efficient and economic manner in order to focus on our core wholesale distribution business. During the fourth quarter of fiscal 2020, we determined we no longer met the held for sale criterion for a probable sale to be completed within 12 months for the Cub Foods business and the majority of the remaining Shoppers locations, collectively referred to as the Retail segment. The Retail segment excludes retail banners and stores previously sold or closed. We reviewed our reportable segments and determined we were required to report Retail as a separate segment. As a result, we revised our Condensed Consolidated Financial Statements to reclassify Retail from discontinued operations to continuing operations. This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations. Prior periods presented in the Condensed Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods.

The revision of our Condensed Consolidated Statements of Operations to present Retail within continuing operations resulted in an increase in our consolidated net sales, gross profit and operating expenses, and an increase in consolidated gross profit as a percentage of net sales, which was partially offset by an increase in operating expenses as a percent of net sales. In order to present Retail’s results of operations within continuing operations, Wholesale sales to Retail have been eliminated upon consolidation. The Wholesale segment’s net sales to discontinued operations retail stores are eliminated within the Wholesale segment.

Our strategy remains unchanged and we expect to divest all of our Retail operation in the future. As part of that process we plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures. We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but we anticipate some reductions in supply volume willmay result from the divestiture of certain of these retail operations. Actions associated with retail divestitures and adjustments to our core cost structure for our wholesale food distribution business are expected to result in headcount reductions and other costs and charges. These costs and charges, which may be material, include multiemployer plan charges, severance costs, store closure charges, and related costs. A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time. The extent of these costs and charges will be determined based on outcomes achieved under the divestiture process. At this time, however, we are unable to make an estimate with reasonable certainty of the amount or type of costs and charges expected to be incurred in connection with the foregoing actions.



Our discontinued operations as of the end of the first quarter of fiscal 20202021 include Cub Foodsfive Shoppers stores, and Shoppers disposal groups, and ourfor historical periods, results of discontinued operations include the Hornbacher’s and Shop ‘n Save and Shop ‘n Save East retail banners, which were divested in the second and third quarters of fiscal 2019, respectively.and Shoppers stores that were sold or closed in fiscal 2020. In addition, cash flows from discontinued operations includes certaininclude real estate sales related to those historical retail operations. These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented. As of the Supervalu acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to the acquisitionthat date, we reviewreviewed the fair value, less costscost to sell, of these disposal groups.

Subsequent to the end of the first quarter of fiscal 2020, we announced that we have entered into agreements to sell 13 Shoppers stores, and decided to close 4 locations. We expect tomay incur approximately $32 million to $42 million in pre-tax aggregateadditional costs and charges in the future related to these transactions, consistingthe divestiture of $13 million to $16 million of estimated severance and employee-related costs, $11 million to $14 million of estimated operating losses during the period of wind-down, primarily related to inventory, $2 million to $3 million of estimated transaction costs, and $6 million to $9 million of estimated non-cash asset impairment charges, primarily associated with real estate assets and leasehold improvements. We continue to hold the remaining Shopper’s stores for sale. In the second quarter, we will assess the remaining composition of the Shoppers disposal group and review the recoverability of the remaining assets, as we continue to holdRetail if these locations for sale. Ifare subsequently sold, indicators exist that the disposal group is disaggregatedbusiness may be impaired, or our estimate of consideration decreases,if we may incur additionalemployee-related charges related to our fair value assessment of the business.or wind-down costs.

Supervalu Professional Services Agreements

In connection with the sale of Save-A-Lot on December 5, 2016, Supervalu entered into a services agreement (the “Services Agreement”) with Moran Foods, LLC, (“Moran Foods”), the entity that operates the Save-A-Lot business. Pursuant to the Services Agreement, we provide certain technical, human resources, finance and other operational services to Save-A-Lot for a term of five years, on the terms and subject to the conditions set forth therein. The initial annual base charge under the Services Agreement is $30 million, subject to adjustments. IfDuring fiscal 2021, we expect to earn less than $20 million under this agreement. We expect that services are no longer provided under the Services Agreement afterwill wind down at or near the end of the initial term,term. At that time, we would lose the revenue associated with this agreement, and if we are not able to eliminate fixed or variable costs associated with servicing this agreement concurrent with the decline in revenue, we would incur a decrease in operating profit.

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Impact of Inflation or Deflation

We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, andor pass on pricing changes to our customers. We experienced a mix of inflation and deflation across product categories during the first quarter of fiscal 2020.2021. In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation in the low single digitsof less than one percent in the first quarter of fiscal 2020.2021. Cost inflation and deflation estimates are based on individual like items sold during the periods being compared. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales. Under the LIFO method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory.

Other Factors Affecting our Business

We are also impacted by macroeconomic and demographic trends, and changes in the food distribution market structure. Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods have benefited us; however, consumer spending in the food-away-from-home industry has increased steadily as a percentage of total food expenditures. This trend paused during the 2008 recession, and then continued to increase. We are also impacted by changes in food distribution trends to our wholesale customers, such as direct store deliveries and other methods of distribution.

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

Net sales

Our net sales consist primarily of sales of conventional, natural, organic, specialty, produce and produceconventional grocery and non-food products, and support services to retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges.



Cost of sales and Gross profit

The principal components of our cost of sales include the amounts paid to suppliers for product sold, plus the cost of transportation necessary to bring the product to, or move product between, our various distribution centers, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products. Cost of sales also includes amounts incurred by us at our manufacturing subsidiary, Woodstock Farms Manufacturing, for inbound transportation costs offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.costs. Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses.

Operating expenses

Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation, and amortization expense. These expenses relate to warehousing and delivery expenses including purchasing, receiving, selecting and outbound transportation expenses.

Restructuring, acquisition and integration expenses

Restructuring, acquisition and integration expenses reflect expenses resulting from restructuring activities, including severance costs, change-in-control related charges, share-basedfacility closure asset impairment charges and costs, stock-based compensation acceleration charges, facility closure charges, and acquisition and integration expenses. Integration expenses include incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Interest expense, net

Interest expense, net includes primarily interest expense on long-term debt, net of capitalized interest, interest expense on capitalfinance and direct financingfinance lease obligations, and amortization of financing costs and discounts.

Net periodic benefit income, excluding service cost

Net periodic benefit income, excluding service cost reflects the recognition of expected returns on benefit plan assets in excess of interest costs.

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Adjusted EBITDA

Our Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or are items that do not reflect management’s assessment of on-going business performance.

We believe Adjusted EBITDA is useful to investors and financial institutions because it provides additional understanding of factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and as the primary compensation performance measure under certain compensation programs and plans. We believe Adjusted EBITDA is more reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Quarterly Report.

There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting the cost of cash expenditures for capital assets or certain other contractual commitments, finance lease obligation and debt service expenses, income taxes, and any impacts from changes in working capital.

We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net (loss) income from continuing operations, plus Total other expense, net and (Benefit) provision for income taxes, plus Depreciation and amortization calculated in accordance with GAAP, plus non-GAAP adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, goodwillGoodwill and asset impairment charges, Loss (gain) on sale of assets, certain legal charges and gains, certain other non-cash charges or items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in manner consistent with the results of continuing operations, outlined above.


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Assessment of Our Business Results

The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated:indicated. We have revised the following table for the presentation of Retail within continuing operations discussed in Note 1—Significant Accounting Policies in Part II, Item 8 of the Annual Report on Form 10-K.
13-Week Period Ended
(in thousands)October 31, 2020November 2, 2019Change
Net sales$6,672,607 $6,296,612 $375,995 
Cost of sales5,706,108 5,389,401 316,707 
Gross profit966,499 907,211 59,288 
Operating expenses900,962 883,688 17,274 
Goodwill and asset impairment charges— 425,405 (425,405)
Restructuring, acquisition and integration related expenses16,428 14,672 1,756 
Gain on sale of assets(230)(90)(140)
Operating income (loss)49,339 (416,464)465,803 
Other expense (income):
Net periodic benefit income, excluding service cost(17,033)(11,384)(5,649)
Interest expense, net69,133 49,709 19,424 
Other, net(798)(400)(398)
Total other expense, net51,302 37,925 13,377 
Loss from continuing operations before income taxes(1,963)(454,389)452,426 
Benefit for income taxes(991)(66,955)65,964 
Net loss from continuing operations(972)(387,434)386,462 
Income from discontinued operations, net of tax1,296 4,026 (2,730)
Net income (loss) including noncontrolling interests324 (383,408)383,732 
Less net income attributable to noncontrolling interests(1,367)(519)(848)
Net loss attributable to United Natural Foods, Inc.$(1,043)$(383,927)$382,884 
 
Adjusted EBITDA$158,957 $121,694 $37,263 

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 13-Week Period Ended  
(in thousands)November 2, 2019 October 27, 2018 Change
Net sales$6,019,585
 $2,868,156
 $3,151,429
Cost of sales5,248,543
 2,455,825
 2,792,718
Gross profit771,042
 412,331
 358,711
Operating expenses775,414
 363,165
 412,249
Goodwill and asset impairment charges425,405
 —
 425,405
Restructuring, acquisition and integration related expenses14,250
 68,004
 (53,754)
Operating loss(444,027) (18,838) (425,189)
Other expense (income):    
Net periodic benefit income, excluding service cost(11,384) (844) (10,540)
Interest expense, net49,518
 7,525
 41,993
Other, net(46) 97
 (143)
Total other expense, net38,088
 6,778
 31,310
Loss from continuing operations before income taxes(482,115) (25,616) (456,499)
Benefit for income taxes(73,753) (4,255) (69,498)
Net loss from continuing operations(408,362) (21,361) (387,001)
Income from discontinued operations, net of tax24,954
 2,070
 22,884
Net loss including noncontrolling interests(383,408) (19,291) (364,117)
Less net income attributable to noncontrolling interests(519) (3) (516)
Net loss attributable to United Natural Foods, Inc.$(383,927) $(19,294) $(364,633)
      
Adjusted EBITDA$121,694
 $86,194
 $35,500


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The following table reconciles Adjusted EBITDA to Net loss from continuing operations and to Income from discontinued operations, net of tax.
13-Week Period Ended
(in thousands)October 31, 2020November 2, 2019
Net loss from continuing operations$(972)$(387,434)
Adjustments to continuing operations net loss:
Less net income attributable to noncontrolling interests(1,367)(519)
Total other expense, net51,302 37,925 
Benefit for income taxes(991)(66,955)
Depreciation and amortization77,189 75,141 
Share-based compensation14,149 3,925 
Goodwill and asset impairment charges(1)
— 425,405 
Restructuring, acquisition and integration related expenses(2)
16,428 14,672 
Gain on sale of assets(230)(90)
Note receivable charges(3)
— 12,516 
Legal reserve charge(4)
— 1,850 
Other retail expense(5)
1,609 — 
Adjusted EBITDA of continuing operations157,117 116,436 
Adjusted EBITDA of discontinued operations(6)
1,840 5,258 
Adjusted EBITDA$158,957 $121,694 
 
Income from discontinued operations, net of tax$1,296 $4,026 
Adjustments to discontinued operations net income:
Total other expense, net— (61)
Provision for income taxes526 1,293 
Restructuring, store closure and other charges, net18 — 
Adjusted EBITDA of discontinued operations$1,840 $5,258 
(1)Fiscal 2020 reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge.
(2)Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition. Fiscal 2020 primarily reflects closed property reserve charges and administrative and operational restructuring costs. Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
(3)Reflects reserves and charges for notes receivable issued by the Supervalu business prior to its acquisition to finance the purchase of stores by its customers.
(4)Reflects a charge to settle a legal proceeding.
(5)Reflects expenses associated with event-specific damages to certain retail stores.
(6)We believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

38
 13-Week Period Ended
(in thousands)November 2, 2019 October 27, 2018
Net loss from continuing operations$(408,362) $(21,361)
Adjustments to continuing operations net loss:   
Total other expense, net38,088
 6,778
Benefit for income taxes(73,753) (4,255)
Depreciation and amortization75,141
 24,793
Share-based compensation3,672
 8,089
Restructuring, acquisition and integration related expenses(1)
14,250
 68,004
Goodwill and asset impairment charges(2)
425,405
 —
Note receivable charges(3)
12,516
 —
Inventory fair value adjustment(4)
—
 1,819
Legal reserve charge(5)
1,850
 —
Adjusted EBITDA of discontinued operations(6)
32,887
 2,327
Adjusted EBITDA$121,694
 $86,194
    
Income from discontinued operations, net of tax$24,954
 $2,070
Adjustments to discontinued operations net income:   
Less net income attributable to noncontrolling interests(519) (3)
Total other expense, net(1,091) (249)
Provision for income taxes8,090
 749
Other expense (income)—
 (140)
Share-based compensation253
 —
Restructuring, store closure and other charges, net(7)
1,200
 (100)
Adjusted EBITDA of discontinued operations(6)
$32,887
 $2,327
(1)Primarily reflects expenses resulting from the acquisition of Supervalu, including severance costs, store closure charges, and acquisition and integration expenses. First quarter of fiscal 2020 primarily reflects closed property reserve charges and administrative and operational restructuring costs. First quarter of fiscal 2019 primarily reflects expenses resulting from the acquisition of Supervalu and acquisition and integration expenses, including employee-related costs. Refer to Note 5—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
(2)Reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge.
(3)Refer to Note 6—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
(4)Reflects reserves and charges for notes receivable issued by the Supervalu business prior to its acquisition to finance the purchase of stores by its customers.
(5)Reflects a non-cash charge related to the step-up of acquired Supervalu inventory as part of purchase accounting.
(6)Reflects reserve for certain legal proceeding.
(7)Adjusted EBITDA of discontinued operations excludes rent expense of $12.5 million and $0.9 million, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, we believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.
(8)Amounts represent store closure charges and costs, and operational wind-down and inventory charges related to discontinued operations.


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RESULTS OF OPERATIONS

Our analysis within the Results of Operations section below of Net sales, Gross profit, Operating expenses and Operating loss is presented on a consolidated basis, as our single reportable segment principally comprises the entire operations of our business. The quantification of Supervalu’s impact on our results of operations presented below is to discuss the incremental impact of Supervalu, and provide analysis of our underlying business for year-over-year comparability purposes. Our analysis of Net sales is presented on a customer channel basis inclusive of all segments. References to legacy company results are presented to provide a comparative results analysis excluding the Supervalu acquired business impacts.

Net Sales

Our net sales by customer channel was as follows (in millions):
 Net Sales for the 13-Week Period EndedIncrease (Decrease)
Customer Channel(1)
October 31,
2020		% of
Net Sales		November 2,
2019		% of
Net Sales		$%
Chains$3,020 45 %$2,875 46 %$145 5 %
Independent retailers1,672 25 %1,557 25 %115 7 %
Supernatural1,214 18 %1,111 18 %103 9 %
Retail595 9 %515 8 %80 16 %
Other581 9 %590 9 %(9)(2)%
Eliminations(409)(6)%(351)(6)%(58)17 %
Total net sales$6,673 100 %$6,297 100 %$376 6 %
  Net Sales for the 13-Week Period Ended Increase (Decrease)
Customer Channel November 2,
2019		 
% of
Net Sales
 
October 27, 2018(1)
 
% of
Net Sales
 $ % Total Net Sales
Supermarkets $3,769
 63% $930
 32% $2,839
 31 %
Supernatural 1,111
 18% $1,027
 36% 84
 (18)%
Independents 758
 13% 667
 23% 91
 (10)%
Other 381
 6% 244
 9% 137
 (3)%
Total net sales $6,019
 100% $2,868
 100% $3,151
 — %
(1)During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management’s determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a Supermarket customer given that customer’s operations. In addition, during the second quarter of fiscal 2019, 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 Operations as a result of the reclassification of customer types. As a result of these adjustments, net sales to our Supermarkets channel for the first quarter of fiscal 2019 increased approximately $223 million compared to the previously reported amounts, while net sales to our Other channel increased approximately $1 million with an offsetting elimination of the Supervalu customer channel.

(1)Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and for information regarding the recast of sales by customer channel to align with the current period presentation.

Our net sales for the first quarter of fiscal 20202021 increased approximately $3.15 billion, or 109.9%, to $6.02 billion6.0% from $2.87 billion for the first quarter of fiscal 2019. Net sales for the first quarter of fiscal 2020 included Supervalu net sales of approximately $3.30 billion compared to $224 million in the first quarter of fiscal 2019. Excluding Supervalu’s net sales, net sales increased $74 million, or 2.8%, which was driven primarily by our supernatural channel.

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the first quarter of fiscal 2020 increased by approximately $84 million, or 8.2%, as compared to the first quarter of fiscal 2019, and accounted for approximately 18% and 36% of our total net sales for the first quarter of fiscal 2020 and 2019, respectively.2020. The increase in net sales was primarily driven by strong customer demand in response to Whole Foods Market is the COVID-19 pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Chains net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Independent retailers net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Supernatural net sales increased primarily due to increased sales related to the COVID-19 pandemic, growth in existing and new product categories, and increased sales to existing and new stores.stores, partially offset by the impact of categories that have been adversely impacted by COVID, such as bulk and ingredients used for prepared foods. Net sales within our supernatural channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other channel.channel.

NetRetail’s net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic. Retail identical store sales are defined as net product sales from stores operating since the beginning of the prior-year period, including store expansions and excluding fuel costs and announced planned store dispositions. Identical store sales is a common metric used to understand the sales performance of retail stores as it removes the impact of new and closed stores. The increase in Retail sales included the benefit of an approximately 200 percent increase in eCommerce sales at Cub Foods.

Other net sales decreased primarily due to a 41% (or $48 million) decline in sales to food service customers resulting from the lower purchases due to the COVID-19 pandemic, which were partially offset by higher e-commerce sales. We also expect sales to our independents channel increased by approximately $91 million, or 13.6%, forfood service customers in the firstsecond quarter of fiscal 20202021 to decrease as compared to the first quarter of fiscal 2019, and represented approximately 13% and 23% of our total net sales for the first quarter of fiscal 2020 and 2019, respectively. The increase in independents net sales is primarily due to an increaseas a result of $106 million from the acquired Supervalu business, offset by a decrease of $15 million, or 2.3% primarily due to sales declines to existing customers.COVID-19 pandemic.

Net sales to our supermarkets channel increased by approximately $2,839 million, or 305.3%, for the first quarter of fiscal 2020, compared to the first quarter of fiscal 2019, and represented approximately 63% and 32% of our total net sales for the first quarter of fiscal 2020 and 2019, respectively. The increase in supermarkets net sales is primarily due to an increase of $2,813 million from the acquired Supervalu business with the remaining increase of $26 million, or 3.6% due to sales growth to existing customers.

Net sales to our other channel, which include foodservice customer sales, sales from the United States to other countries, military sales, e-commerce sales, branded product lines, manufacturing division, and our brokerage business, increased by approximately $137 million, or 56.1%, for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019, and represented approximately 6% and 9% of our total net sales for the first quarter of fiscal 2020 and 2019, respectively. The increase in other net sales is primarily due to an increase of $158 million from the acquired Supervalu business, partially offset by a decrease of $21 million, or 9.0% due to sales declines to existing customers.

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Cost of Sales and Gross Profit

Our gross profit increased $358.7$59.3 million, or 87.0%6.5%, to $771.0$966.5 million for the first quarter of fiscal 2020,2021, from $412.3$907.2 million for the first quarter of fiscal 2019.2020. Our gross profit as a percentage of net sales decreasedincreased to 12.81%14.48% for the first quarter of fiscal 20202021 compared to 14.38%14.41% for the first quarter of fiscal 2019. Our Gross2020. The increase in gross profit dollar growth was primarily driven by higher Wholesale and Retail sales volume. The 7 basis point increase is primarily duein gross profit rate was driven by an increase from Retail, which contributed approximately 17 basis points to the incremental contribution fromgrowth in the Supervalu business for the 12 additional weeks when compared to the first quarter of fiscal 2019. Ourconsolidated gross profit for the first quarter of fiscal 2020 included an estimated incremental 12 weeks of gross profit from the acquired Supervalu business of approximately $347.9 million, net of its related LIFO inventory charge. Gross profitmargin rate as a result of lower promotional spending and the Retail segment representing a greater percentage of total net sales decreased primarily due to lowersales. Wholesale and the remaining business reduced the growth in the consolidated gross profit rates on conventional products and margin dilution from the faster growth of the supernatural channel relative to the other customer channels, offset in partrate by approximately 10 basis points driven by lower inbound freight expense. The LIFO inventory costing method decreased our first quarter fiscal 2020 Gross profit by $6.5 million or 11 basis points.levels of supplier-related income.

Operating Expenses

Operating expenses increased $412.2$17.3 million, or 113.5%2.0%, to $775.4$901.0 million, or 12.88%13.50% of net sales, for the first quarter of fiscal 20202021 compared to $363.2$883.7 million, or 12.66%14.03% of net sales, for the first quarter of fiscal 2019.2020. Operating expenses in the first quarter of fiscal 2020 included $12.5$18.0 million of notecharges and expenses, primarily related to customer notes receivable charges, $3.6 million ofand surplus property depreciation expense and a $1.9 million legal reserve charge.depreciation. The increaseremaining decrease in operating expenses as a percent of net sales was driven by $50.3 millionlower administrative costs and leveraging fixed operating expenses over higher depreciation and amortization expense resulting from the Supervalu acquisition,net sales, which was partially offset by the mix impact from the acquired Supervalu business, including the impact of cost synergies.higher operating costs related to starting up three distribution centers. Total operating expenses also included share-based compensation expense of $3.7$14.1 million and $8.1$3.9 million for the first quarter of fiscal 20202021 and 2019,2020, respectively.

Goodwill and Asset Impairment Charges

InA goodwill impairment adjustment of $425.4 million was recorded in the first quarter of fiscal 2020, we recorded goodwill and asset impairment charges of $425.4 million, which reflects $421.5 million from an impairment charge on the remaining goodwillwas attributable to changes in the U.S. Wholesalepreliminary fair value of net assets, which affected the initial goodwill reporting unit, $2.5 million related to purchase accounting adjustments to finalizeresulting from the opening balance sheet goodwill and $1.4 million of property and equipment asset impairment charges during the first quarter of fiscal 2020. Refer to the Executive Overview section above, andSupervalu acquisition.

As discussed further in Note 6—5—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report, on Form 10-Q for additional information onwe recorded a goodwill impairment charges.charge of $421.5 million in the first quarter of fiscal 2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of Operations. The goodwill impairment charge reflects the impairment of all of the U.S. Wholesale’s reporting unit goodwill.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $14.3$16.4 million for the first quarter of fiscal 2021, which included $14.8 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition and $1.7 million of closed property charges and costs. Expenses incurred were $14.7 million for the first quarter of fiscal 2020, which included $9.3 million of integration related costs, including a charge for an off-site storage contract, $3.1$3.5 million of closed property reserve charges and costs, and $1.8 million of restructuring costs. Expenses incurred in the first quarter of fiscal 2019 primarily related to $36.1 million of acquisition related costs associated with the Supervalu acquisition, including $33.8 million of charges related to change-in-control payments made to satisfy outstanding equity awards, and severance related costs and acquisition approximately $31.9 million.

We expect to incur additional costs associated with advisory and integration activities, and restructuringdistribution center integration costs throughout fiscal 20202021 related to our operational and administrative restructuring to achieve cost synergies and supply chain efficiencies ofwithin continuing operations. In addition, further restructuring costs may be incurred related to the divestiture of retail operations.

Operating LossIncome (Loss)

Reflecting the factors described above, operating lossincome increased $425.2$465.8 million to $444.0$49.3 million for the first quarter of fiscal 2020,2021, from $18.8an operating loss of $416.5 million for the first quarter of fiscal 2019.2020. The increase in operating lossincome increase was primarily driven by the fiscal 2020 goodwill impairment charges, offset by lower restructuring, acquisitioncharge and integration related expenses.

The first quarter of fiscal 2020 operating loss includes $12.5 millionan increase in gross profit in excess of operating lease rent expense and $2.7 millionexpenses discussed above.

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Table of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. In addition, continuing operations operating loss includes certain retail related overhead costs that are related to retail but are required to be presented within continuing operations.Contents



Total Other Expense, Net
 13-Week Period Ended  13-Week Period Ended
(in thousands) November 2, 2019 October 27, 2018 Increase (Decrease)(in thousands)October 31, 2020November 2, 2019Increase (Decrease)
Net periodic benefit income, excluding service cost $(11,384) $(844) $(10,540)Net periodic benefit income, excluding service cost$(17,033)$(11,384)$(5,649)
Interest expense on long-term debt, net of capitalized interest 43,335
 5,462
 37,873
Interest expense on long-term debt, net of capitalized interest37,196 43,539 (6,343)
Interest expense on finance and direct financing lease obligations 2,243
 1,209
 1,034
Interest expense on finance lease obligationsInterest expense on finance lease obligations4,868 2,243 2,625 
Amortization of financing costs and discounts 3,956
 345
 3,611
Amortization of financing costs and discounts3,999 3,943 56 
Debt refinancing costs and unamortized financing charges 73
 655
 (582)
Loss on debt extinguishmentLoss on debt extinguishment23,750 73 23,677 
Interest income (89) (146) 57
Interest income(680)(89)(591)
Interest expense, net 49,518
 7,525
 41,993
Interest expense, net69,133 49,709 19,424 
Other, net (46) 97
 (143)Other, net(798)(400)(398)
Total other expense, net $38,088
 $6,778
 $31,310
Total other expense, net$51,302 $37,925 $13,377 
 
NetThe increase in net periodic benefit income, excluding service costs reflects the recognition of expected returnslower interest costs due to a lower discount rate utilized in the measurement of pension liabilities.

The decrease in interest expense on benefit plan assetslong-term debt, net of capitalized interest was driven by lower amounts of outstanding debt and lower average interest rates.

The increase in excessloss on debt extinguishment costs primarily reflects the acceleration of interest costs. unamortized debt issuance costs and original issue discounts related to mandatory and voluntary prepayments on the Term Loan Facility made in the first quarter of fiscal 2021. Refer to Note 8—Long-Term Debt for further information.

The increase in interest expense on long-term debt was primarily due to an increase in outstanding debt year-over-year driven by Supervalu acquisition financing. The increase in interest on finance and direct financing leases primarily reflects lease obligationsinterest related to retail stores of discontinued operations acquired in the Supervalu acquisition, buta distribution center for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases until settlementexecuted a purchase option with the respective landlords.a delayed purchase provision.

Benefit for Income Taxes

The effective income tax rate for continuing operations was a benefit of 15.3%50.5% compared to a benefit of 16.6%14.7% on pre-tax lossesincome for the first quarterquarters of fiscal 20202021 and 2019,2020, respectively. The change in the effective income tax rate for the first quarter of fiscal 20202021 was primarily driven by the impact of the goodwill impairment charge.

The tax provision included $64.0 million ofa discrete tax benefit and $0.5 millionin the first quarter of fiscal 2021 related to employee stock awards compared to a discrete tax expense for this item in the first quarter of fiscal 2020. In addition, the first quarter of fiscal 2020 and fiscal 2019, respectively. The benefit for the first quarter of fiscal 2020 is primarily due towas impacted by a tax benefit of approximately $68 million related to the pre-tax goodwill impairment charge, which was partially offset by a discrete tax expense related to stock-based compensation and unrecognized tax positions of approximately $3.0 million and $0.8 million, respectively. Excluding the impact of the discrete items noted above, the effective tax rate benefit on continuing operations would be 16.4%, compared to 18.7% for the first quarter of fiscal 2020 and 2019, respectively. The effective tax rate benefit on the pre-tax losses is being reduced by the impact of other permanently non-deductible items for the first quarters of fiscal 2020 and 2019.charge.

Income from Discontinued Operations, Net of Tax

The results of operations for the first quarter of fiscal 20202021 reflect net sales of $610.8$24.8 million for which we recognized $169.8$8.0 million of gross profit and Income from discontinued operations, net of tax of $25.0$1.3 million. As noted above, pre-tax incomeNet sales and gross profit of discontinued operations decreased $70.8 million and $22.5 million, respectively, for the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 from discontinued operations excludes $12.5 millionprimarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020, which was partially offset by an increase in identical store sales results driven by the impacts of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations. In addition, store closure charges related to leases are recorded within continuing operations. Discontinued operations included $1.4 million of restructuring expenses.COVID-19 pandemic.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note 17—16—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

Net Loss Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of $1.0 million, or $0.02 per diluted common share, for the first quarter of fiscal 2021, compared to $383.9 million, or $7.21 per diluted common share, for the first quarter of fiscal 2020 primarily due to goodwill impairment charges, compared to net loss2020.

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Table of $19.3 million, or $0.38 per diluted common share, forContents
As described in more detail in Note 10—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in the first quarter of fiscal 2019.2021, we granted restricted stock units and performance share units representing a right to receive an aggregate of 2.6 million shares of common stock under our 2020 Equity Incentive Plan.



As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 20192020 we issued approximately 2.01.3 million shares of common stock to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition. We have approximately 3.0 million additional shares authorized for issuanceacquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year.

Segment Results of Operations

In evaluating financial performance in each business segment, management primarily uses Net sales and registered withAdjusted EBITDA of its business segments as discussed and reconciled within Note 14—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the SECabove table within the Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the issuanceperiods indicated.
13-Week Period Ended
(in thousands)October 31, 2020November 2, 2019Increase (Decrease)
Net sales:
Wholesale$6,431,283 $6,067,307 $363,976 
Retail594,911 515,226 79,685 
Other55,612 65,079 (9,467)
Eliminations(409,199)(351,000)(58,199)
Total Net sales$6,672,607 $6,296,612 $375,995 
Continuing operations Adjusted EBITDA:
Wholesale$122,961 $106,312 $16,649 
Retail24,282 10,562 13,720 
Other4,150 (1,597)5,747 
Eliminations5,724 1,159 4,565 
Total continuing operations Adjusted EBITDA$157,117 $116,436 $40,681 

Net Sales

Wholesale net sales increased primarily due to growth in ordersales to satisfy replacement awardexisting customers in the Chains, Independent retailers and option issuance obligations. InSupernatural channels. Sales growth was primarily driven by strong customer demand in response to the COVID-19 pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic.

The increase in eliminations net sales was driven by higher Wholesale sales to Retail to support Retail’s continued sales growth.

Adjusted EBITDA

Wholesale’s Adjusted EBITDA increased 16% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020. The increase was driven by leveraged sales growth, which was partially offset by higher operating costs related to starting up three distribution centers. Gross profit dollar growth for the first quarter of fiscal 2021 was $28.3 million with a gross profit rate decrease of 26 basis points driven by lower supplier income, which outpaced operating expense increases, excluding depreciation and amortization and stock-based compensation, of $11.6 million. Operating expense rate decreased 42 basis points primarily driven by leveraging fixed and variable costs, which was partially offset by higher operating costs related to starting up three distribution centers. Wholesale depreciation expense was approximately flat to last year.

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Retail’s Adjusted EBITDA increased 130% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020. The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores. Gross profit dollar growth for the first quarter of fiscal 2021 was $27.1 million with gross profit rate increasing 99 basis points from lower promotional activity, which outpaced operating expense growth of $12.5 million with an operating expense rate decrease of 117 basis points driven by fixed and variable cost leveraging. Retail depreciation and amortization expense increased $5.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we may issue additional sharesare required to fund replacement award obligations in full, issue shares to partially fund the obligations, or utilize cash on hand to fund the obligations.begin recording depreciation and amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

Highlights

•Total liquidity as of October 31, 2020 was $1.06 billion and consisted of the following:
◦Unused available credit under our revolving line of creditABL Credit Facility was $695.7$1,008.3 million, as of November 2, 2019, which decreased $223.5$226.5 million from $919.2$1,234.8 million as of August 3, 2019,1, 2020, primarily due to increased cash utilized to fund seasonal working capital increases.
We paidincreases and prepayments on the remaining maturities under our 364-day Term Loan Facility in the first quarterFacility.
◦Cash and cash equivalents was $49.0 million, which increased $2.1 million from $47.0 million as of fiscal 2020, and as a result, we have no material scheduled maturities due until fiscal 2024, although prepayments may be required upon the occurrence of specified events as discussed in Note 9—Long-Term Debt in Part I, ItemAugust 1, of this Quarterly Report on Form 10-Q.2020.
•Our total debt increased $164.0$135.8 million to $3,070.5$2,633.4 million as of November 2, 2019October 31, 2020 from $2,906.5$2,497.6 million as of August 3, 2019,1, 2020, primarily related to the additional borrowings under the ABL Credit Facility to fund seasonal inventory build in excess of accounts payable and increases in accounts receivable. We funded
•In the scheduled maturitiesfirst quarter of fiscal 2021, we issued $500.0 million of unsecured 6.750% Senior Notes due under our Term Loan Facility Maturities withOctober 15, 2028 (the “Senior Notes”) and utilized the net proceeds and borrowings under the ABL Credit Facility to make a $500.0 million prepayment on our Term Loan Facility. In addition, during the quarter, the Company made $108.0 million of additional repayments under the Term Loan Facility, including $72.0 million related to cash flow generated in fiscal 2020, as required under the Term Loan Agreement and a voluntary prepayment of $36.0 million with proceeds from asset sales inincremental borrowings under the first quarter of fiscal 2020.
ScheduledABL Credit Facility. Other debt maturities are expected to be $23.7$9.6 million for the remainder ofin fiscal 2020 and2021. We are also obligated to make payments to reduce finance lease obligations are expected to be approximately $11.9 million for the remainder of fiscal 2020.obligations. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to and will be, used to make additional Term Loan Facility payments.payments or be reinvested in the business.
•Subsequent to the end of the first quarter of fiscal 2021, we made a voluntary prepayment of $150.0 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs. This prepayment will count towards satisfying any requirement to make a mandatory prepayment with Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, if any, which would be due in fiscal 2022. In the second quarter of fiscal 2021, we expect to record an accelerated charge related to deferred financing fees and original issue discounts based on the proportionate amount of this prepayment to the Term Loan Facility balance.
•We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from the asset sales or borrowings under the ABL Credit Facility.
Cash and cash equivalents decreased $2.6•Working capital increased $231.4 million to $39.8$1,566.3 million as of November 2, 2019October 31, 2020 from $42.4$1,334.8 million as of August 3, 2019.
Working capital increased $110.7 million to $1,569.7 million as of November 2, 2019 from $1,459.0 million as of August 3, 2019,1, 2020, primarily due to seasonal inventory build in excess of accounts payable increases. In addition, the adoptionincreases, an increase in accounts payable, a reduction of the new lease standard, resulted in a decrease in working capital from the recognition of a current portion of operating lease liabilities of $127.3 million.long-term debt resulting from the Term Loan Facility Excess Cash Flow prepayment described above, and an increase in accounts receivable driven by credit extended to higher sales growth customers.

Sources and Uses of Cash

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds and sale of surplus and/or non-core assets. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned. Our credit facilities are secured by a substantial portion of our total assets.

Our primary sources of liquidity are from internally generated funds and from borrowing capacity under our credit facilities. Our short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.

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Primary uses of cash include debt service, capital expenditures, working capital maintenance and income tax payments. We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories.

We currently do not pay a dividend on our common stock, and have no current plans to do so. In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, and our ABL Credit Facility.Facility, and Senior Notes. Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities.



Long-Term Debt

InDuring the first quarter of fiscal 2020,2021, we borrowed $237.7a net $230.0 million under the ABL Credit Facility, and repaid $78.4$608.0 million of scheduled maturities underon the Term Loan Facility.Facility related to mandatory prepayments and voluntary prepayments, and issued $500.0 million of Senior Notes. Refer to Note 9—8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, whenif the adjusted aggregate availability (as defined in the ABL Loan Agreement) is ever less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. We werehave not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, duringincluding through the first quarterfiling date of fiscal 2020.this Quarterly Report. The ABL Loan Agreement and the Term Loan Agreement contain certain customary operational and informational covenants. If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

The Senior Notes contain covenants customary for debt securities of this type that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. We were in compliance with all such covenants for all periods presented.

Derivatives and Hedging Activity

We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our overall strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.

As of November 2, 2019,October 31, 2020, we had an aggregate of $2.20$1.49 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of our floating LIBOR based debt at fixed rates ranging from 0.926%1.795% to 2.959%, with maturities between December 2019April 2022 and October 2025. The fair value of these interest rate derivatives represents a total net liability of $81.6$111 million and are subject to volatility based on changes in market interest rates. See Note 8—7—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

In the first quarter of fiscal 2021, we paid $11.3 million to terminate $954 million of notional value interest rate swaps, $504 million of which were effective interest swaps and $450 million of which were forward starting. The termination payment reflects the amount of accumulated other comprehensive loss that will continue to be amortized into interest expense over the original interest rate swap contract terms as long as the hedged interest rate transactions are still probable of occurring.

From time-to-time,time to time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of November 2, 2019,October 31, 2020, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding. Gains and losses and the outstanding net asset from these arrangements are insignificant.

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Capital Expenditures

Our capital expenditures for fiscal 2020 were $41.1 million, compared to $16.4 million for the first quarter of fiscal 2019, an increase2021 were $41.4 million, compared to $45.0 million for the first of $24.7 million driven primarily by distribution center expansionsfiscal 2020, a decrease of approximately $18 million (primarily$3.6 million. In the Ridgefield expansion), new distribution centersfirst quarter of approximately $2 million, andfiscal 2021, our capital expenditures principally included information technology and equipment and other. We do not expect to spend more than 1.0% of net sales on capital expenditures in fiscal 2020.expenditures. Fiscal 20202021 capital spending is expected to be in the range of $250 million to $300 million and include projects that optimize and expand our distribution network and our technology platform. Longer term, capital spending is expected to be at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.



Cash Flow Information

The following summarizes our Condensed Consolidated Statements of Cash Flows:
13-Week Period Ended
(in thousands)October 31, 2020November 2, 2019Change
Net cash used in operating activities of continuing operations$(55,182)$(134,381)$79,199 
Net cash used in investing activities of continuing operations(36,992)(44,745)7,753 
Net cash provided by financing activities of continuing operations95,265 156,096 (60,831)
Net cash (used in) provided by discontinued operations(998)20,376 (21,374)
Effect of exchange rate on cash56 (10)66 
Net increase (decrease) in cash and cash equivalents2,149 (2,664)4,813 
Cash and cash equivalents, at beginning of period47,070 45,267 1,803 
Cash and cash equivalents at end of period$49,219 $42,603 $6,616 
 13-Week Period Ended
(in thousands)November 2, 2019 October 27, 2018 Change
Net cash used in operating activities of continuing operations$(135,545) $(101,319) $(34,226)
Net cash used in investing activities of continuing operations(40,883) (2,140,791) 2,099,908
Net cash provided by financing activities of continuing operations157,156
 2,849,530
 (2,692,374)
Net cash flows from discontinued operations16,618
 (5,790) 22,408
Effect of exchange rate on cash(10) (49) 39
Net (decrease) increase in cash and cash equivalents(2,664) 601,581
 (604,245)
Cash and cash equivalents, at beginning of period45,267
 23,315
 21,952
Cash and cash equivalents, including restricted cash at end of period$42,603
 $624,896
 $(582,293)

The increasedecrease in net cash used byin operating activities of continuing operations was primarily due to higher amounts of cash utilized in the first quarter of fiscal 2020 related2021 compared to seasonal inventory acquisition and credit extension. In the first quarter of fiscal 2019, we acquired Supervalu with seasonally high levels of inventory and accounts receivable and in the first quarter of fiscal 2020 usedwas primarily due lower cash utilized to build inventory. These increases in cash uses were offset in part by decreases from cash payments made in the first quarter of fiscal 2019 for assumed liabilities from the Supervalu acquisition, including transaction-related expenses, accrued employee costs,inventories, and restructuring costs associated with reductions in force. In addition, accounts payable provided an inflow of cash as accounts payable grew with inventory build.higher earnings before taxes, depreciation and amortization, and impairments.

The decrease in net cash used in investing activities of continuing operations was primarily due to $2,273.8 million of cash paid to purchase Supervalu in the first quarter of fiscal 2019, partially offset by $147.9 million2021 compared to the first quarter of lessfiscal 2020 was primarily due to lower cash received frompayments for capital expenditures and higher cash proceeds for the sale of property and equipment, primarily due to cash received from the sale and leaseback of two distribution centers in the first quarter of fiscal 2019, one of which was a short-term lease related to the exit of that facility.equipment.

The decrease in net cash provided by financing activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to first quarter of fiscal 2019 borrowings on long-term debt to finance the Supervalu acquisition, and a net decrease in cash provided by the revolving credit facility borrowings of $879.6 million, which was driven by first quarter fiscal 2019 borrowings to finance the Supervalu acquisition and changes in net borrowings for operating and investing activities. These decreases in cash provided by financing activities, were offset in part by $60.3 million of first quarter fiscal 2019 payments for debt issuance costs, and a decrease inhigher payments of long-term debt attributable to the mandatory and finance lease obligations of $26.5 million.voluntary prepayments on the Term Loan Facility, partially offset by new borrowings from the Senior Notes.

NetThe decrease in cash flows from discontinued operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily include operating activitydue to lower investing activities cash flow from operating income of the retail disposal groups. Net cash flows from discontinued operations investing activities include proceeds from the sale of a former dedicated retail distribution center and retail stores, partially offset by capital expenditures of discontinued operations.property.

Other

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock. The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million. We did not purchase any shares of our common stock in the 13-week period ended November 2, 2019 or October 27, 2018.first quarters of fiscal 2020 and 2021 pursuant to the share repurchase program. As of November 2, 2019,October 31, 2020, we have $175.8 million remaining authorized under the share repurchase program. We do not expect to purchase shares under the share repurchase program during fiscal 2020.2021. Additionally, our ABL Credit Facility, Term Loan Facility, and Senior Notes contain terms that limit our ability to repurchase of common stock above certain levels unless certain conditions and financial tests are met.


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Pension and Other Postretirement Benefit Obligations

In fiscal 2020, $8.3 million of minimum2021, no pension contributions are required to be made under either the SUPERVALU Inc. Retirement Plan or the Unified Grocers, Inc. Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan under ERISA in fiscal 2020. We anticipate fiscal 2020 discretionary2021 non-qualified pension contributions and required minimum other postretirement benefit plan contributions to be approximately $0.0 million to $6.0$5.3 million. We fund our defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by us, including our external actuarial consultant, and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums, or in order to achieve exemption from participant notices of underfunding.

Lump Sum Pension Settlement Offering

On August 1, 2019, we amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window. On August 2, 2019, we sent plan participants lump sum settlement election offerings that committed the plan to pay certain deferred vested pension plan participants and retirees, who make such an election, a lump sum payment in exchange for their rights to receive ongoing payments from the plan. The lump sum payment amounts are equal to the present value of the participant’s pension benefits, and were made to certain former (i) retired associates and beneficiaries who are receiving their monthly pension benefit payment and (ii) terminated associates who are deferred vested in the plan, had not yet begun receiving monthly pension benefit payments and who are not eligible for any prior lump sum offerings under the plan. Benefit obligations associated with the lump sum offering have been incorporated into the funded status utilizing the actuarially determined lump sum payments based on estimated offer acceptances. The plan made aggregate lump sum settlement payments of $664.0 million to plan participants on November 4, 2019 and November 12, 2019. We expect that the lump sum settlement payments will result in an estimated non-cash pension settlement charge of approximately $10.0 million in the second quarter of fiscal 2020 from the acceleration of a portion of the accumulated unrecognized actuarial loss, which will be based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. The settlement and subsequent re-measurement is expected to result in a decrease to accumulated other comprehensive loss and an improvement to the SUPERVALU Retirement Plan’s unfunded status.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Off-Balance Sheet Arrangements

Guarantees and Contingent Liabilities

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of November 2, 2019.October 31, 2020. We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions. We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note 16—15—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption Guarantees and Contingent Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q for further information regarding our outstanding guarantees and contingent liabilities.

Multiemployer Benefit Plans

We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the collective bargaining agreement. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us.



Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code.

Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that would require us to record a withdrawal liability. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans, and recognized continuing and discontinued operations expense, of $41$52 million in fiscal 2019.2020. In fiscal 2020,2021, we expect to contribute approximately $37$45 million related to continuing and discontinued operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, it could trigger a partial or complete withdrawal that would require us to record a withdrawal liability. Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.

We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.

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Refer to Note 14—Benefit Plans in Part II, Item 8 of the Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the plans in which we participate.

Contractual Obligations

The following schedule summarizes our significantExcept as otherwise disclosed in Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations assince the end of November 2, 2019:fiscal 2020. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the Company’s contractual obligations.

 Payments Due Per Period
(in millions)Total Remaining Fiscal 2020 Fiscal 2021 Fiscal 2022-2023 Fiscal 2024-2025 Thereafter
Contractual obligations(1)(2):
           
Long-term debt(3)
$3,163
 $24
 $31
 $62
 $1,363
 $1,683
Interest on long-term debt(4)
866
 128
 166
 311
 237
 24
Operating leases(5)
1,730
 146
 166
 300
 214
 904
Finance leases(6)
100
 16
 17
 31
 25
 11
Purchase obligations(7)
247
 140
 67
 34
 4
 2
Self-insurance liabilities(8)
96
 31
 21
 22
 11
 11
Multiemployer plan withdrawal liability74
 1
 2
 5
 7
 59
Deferred compensation4
 4
 —
 —
 —
 —
Total contractual obligations$6,280

$490

$470

$765

$1,861

$2,694

(1)
Because the timing of certain future payments beyond fiscal 2020 cannot be reasonably determined, contractual obligations payments due per fiscal period presented here exclude our discretionary funding of our pension plans and required funding of our postretirement benefit obligations. Pension and postretirement benefit obligations were $222.5 million as of November 2, 2019. We expect to contribute approximately $0.0 million to $6.0 million to pension and postretirement benefit plans during fiscal 2020.
(2)
Unrecognized tax benefits, which totaled $45.3 million as of November 2, 2019, were excluded from the contractual obligations table because an estimate of the timing of future tax settlements cannot be reasonably determined.
(3)Long-term debt amounts exclude original issue discounts and deferred financing costs. Long-term debt payments due per fiscal period for 2020 through thereafter exclude any prepayments that may be required under the provisions of the Term Loan Facility because the amount of such future prepayment amounts, if any, are not reasonably estimable as of November 2, 2019.
(4)Amounts include contractual interest payments (net of our interest rate swap payments) using the face value and interest rate as of November 2, 2019 applicable to our variable interest debt instruments (including the Term Loan Facility and ABL Credit Facility) and other fixed rate debt instruments. As of November 2, 2019, the face value of our variable interest debt instruments with a variable rate equal to one-month LIBOR plus an applicable margin was $3,039.0 million. As of November 2, 2019, the face value of our variable interest debt instruments with a variable rate equal to the prime rate plus an applicable margin was $65.2 million.
(5)Represents the minimum rents payable under operating leases, excluding common area maintenance, insurance or tax payments, for which we are also obligated, offset by minimum subtenant rentals of $233 million total, $41 million, $44 million, $70 million, $38 million, and $40 million, respectively.


(6)Represents the minimum payments under finance leases, excluding common area maintenance, insurance or tax payments, for which we are also obligated, offset by minimum subtenant rentals of $10 million total, $3 million, $2 million, $3 million, $2 million, and $0 million, respectively.
(7)Our purchase obligations include various obligations that have annual purchase commitments of $1 million or greater. As of November 2, 2019, future purchase obligations existed that primarily related to fixed asset, information technology and inventory purchase commitments. In addition, in the ordinary course of business, we enter into supply contracts to purchase product for resale to wholesale customers and retail customers, which are typically of a short-term nature with limited or no purchase commitments. The majority of our supply contracts are short-term in nature and relate to fixed assets, information technology and contracts to purchase product for resale. These supply contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. The supply contracts that are cancelable have not been included above.
(8)Our insurance reserves include the undiscounted obligations related to workers’ compensation, general and automobile liabilities at the estimated ultimate cost of reported claims and claims incurred but not yet reported and related expenses.

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended August 3, 2019.1, 2020.

Seasonality
 
Generally, we do not experience any material seasonality. However, our inventory levels and related demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events. In addition, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages and general economic conditions.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and our interest rate swap agreements, and price increases in diesel fuel. Except as described in Note 8—7—Derivatives and Note 9—8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, which are incorporated herein, there have been no other material changes to our exposure to market risks from those disclosed in our Annual Report.Report on Form 10-K for the fiscal year ended August 1, 2020.
 
Item 4. Controls and Procedures

(a)     Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
 
(b)    Changes in internal controls. On October 22, 2018, we completed the acquisition of Supervalu. The Company has extended its Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include Supervalu. The Company will report on its assessment of the effectiveness of internal control over financial reporting for the combined operations at August 1, 2020. We are currently in process of integrating Supervalu’s internal controls over financial reporting. In the first quarter of fiscal 2020, we adopted ASU 2016-02, Leases, and updated our accounting policies and implemented new internal controls in conjunction with the new lease standard. Except for the ongoing integration of Supervalu and the new lease standard adoption, thereThere has been no change in our internal control over financial reporting that occurred during the first quarter of fiscal 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in routine litigation or other legal proceedings that arise in the ordinary course of our business, including investigations and claims regarding employment law, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, real estate and antitrust. Other than as set forth below and in Note 16—15—Commitments,


Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein, there are no pending material legal proceedings to which we are a party or to which our property is subject.

In 2016, as part of a hazardous waste enforcement campaign by the California Attorney General’s Office and local district attorneys, Unified Grocers received a subpoena from the Yolo County District Attorney regarding hazardous waste management and storage at its Stockton and Commerce, California distribution centers. We have provided requested documents and cooperated fully with the investigation. On May 24, 2018, the District Attorney toured the Stockton distribution center and generally found the distribution center to be in compliance, and minor items noted regarding labeling have been addressed.
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Subsequent to the end of the first quarter, we negotiated a settlement with the District Attorney, which includes the payment of an immaterial amount for penalties and costs as well as certain agreed upon additional reporting and compliance obligations.


Item 1A. Risk Factors

There have been no material changes to our risk factors contained in Part I, Item 1A. Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 3, 2019.1, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock. The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million. RepurchasesAny repurchases will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise. We do not expect to purchase shares under the share repurchase program during fiscal 2021. We may also implement all or part of the repurchase program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

(in millions, except shares and per share amounts)
Total Number of Shares Purchased(2)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(3)
Period(1):
August 2, 2020 to September 5, 2020— $— — $— 
September 6, 2020 to October 3, 2020149,479 17.08 — — 
October 4, 2020 to October 31, 2020459,811 16.79 — 175.8 
Total609,290 $16.86 — $— 
There were no share repurchases
(1)The reported periods conform to our fiscal calendar.
(2)These amounts represent the deemed surrender by participants in our compensatory stock plans of 609,290 shares of our common stock to cover taxes from the vesting of restricted stock awards and restricted stock units granted under the share repurchase program for the first quarter of fiscal 2020. such plans.
(3)As of November 2, 2019,October 31, 2020, there was approximately $175.8 million that may yet be purchased under the share repurchase program. There were no share repurchases under the share repurchase program in the first quarter of fiscal 2021.
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(in millions, except shares and per share amounts) 
Total Number of Shares Purchased(2)
 Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Period(1):
        
August 4, 2019 to September 7, 2019 —
 $—
 —
 $—
September 8, 2019 to October 5, 2019 73,429
 11.15
 —
 —
October 6, 2019 to November 2, 2019 71
 7.45
 —
 175.8
Total 73,500
 11.15
 —
 $—

(1)The reported periods conform to our fiscal calendar.
(2)These amounts include the deemed surrender by participants in our compensatory stock plans of 73,500 shares of our common stock to cover taxes from the vesting of restricted stock awards and restricted stock units granted under such plans.

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Item 6.  Exhibits

Exhibit Index

Exhibit No.Description
Exhibit No.Description
2.1
Agreement and Plan of Merger, dated July 25, 2018, by and among SUPERVALU INC., SUPERVALU Enterprises, Inc., the Registrant and Jedi Merger Sub, Inc. (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on July 26, 2018 (File No. 1-15723)001-15723)).
2.2
First Amendment to Agreement and Plan of Merger, dated as of October 10, 2018, by and among United Natural Foods, Inc., Jedi Merger Sub, Inc., SUPERVALU INC. and SUPERVALU Enterprises, Inc. (incorporated by reference to Registrant’s Current Report on Form 8-K, filed on October 10, 2018 (File No. 1-15723)001-15723)).
3.1
Certificate of Incorporation of the Registrant, as amended (restated for SEC filing purposes only) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2015 (File No. 1-15723)001-15723)).
3.13.2
Fourth Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on October 19, 2018 (File No. 1-15723)001-15723)).
10.1**
Offer Letter, effective August 23, 2019, between John W. Howard, Interim Chief Financial Officer, andForm of RSU Award Agreement (Employee) pursuant to the RegistrantRegistrant’s 2020 Equity Incentive Plan (for grants made beginning September 2020) (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on Octoberfor the year ended August 1, 2019)2020 (File No. 001-15723)).
10.2**
Form of AmendedPSU Award Agreement pursuant to the Registrant’s 2020 Equity Incentive Plan (for grants made beginning September 2020) (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended August 1, 2020 (File No. 001-15723)).
10.3
Third Amendment to Loan Agreement, dated August 14, 2020, by and Restated Severance Agreementamong the Registrant and United Natural Foods West, Inc., UNFI Canada, Inc., the financial institutions that are parties thereto as lenders, Bank of America, N.A., Bank of America, N.A. (acting through its Canada branch), and the other parties thereto (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended August 1, 2020 (File No. 001-15723)).
10.4
Indenture, dated October 22, 2020, among United Natural Foods, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on October 29, 2019)26, 2020 (File No. 001-15723)).
10.3*10.5* **
Senior Management Annual Cash Incentive Plan, as amended.
31.1*
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following materials from the United Natural Foods, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2019,October 31, 2020, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss,Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
104The cover page from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2020,2021, filed with the SEC on December 11, 2019,9, 2020, formatted in Inline XBRL (included as Exhibit 101).

*Filed herewith.
**     Denotes a management contract or compensatory plan or arrangement.

*                 *                 *


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
UNITED NATURAL FOODS, INC.
/s/ JOHN W. HOWARD
John W. Howard
Interim Chief Financial Officer
(Principal Financial Officer)Officer and duly authorized officer)
 
Dated:  December 11, 20199, 2020



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