UNITED NATURAL FOODS INC 10-Q

Item 1. Financial Statements UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (In thousands, except for per share data) January 30, 2021 August 1, 2020 ASSETS Cash and cash equivalents $ 40,496 $ 46,993 Accounts receivable, net 1,136,135 1,120,199 Inventories, net 2,228,772 2,280,767 Prepaid expenses and other current assets 238,572 251,891 Current assets of discontinued operations 4,716 5,067 Total current assets 3,648,691 3,704,917 Property and equipment, net 1,671,755 1,701,216 Operating lease assets 1,016,836 982,808 Goodwill 20,084 19,607 Intangible assets, net 928,053 969,600 Deferred income taxes 107,779 107,624 Other long-term assets 95,551 97,285 Long-term assets of discontinued operations 1,391 3,915 Total assets $ 7,490,140 $ 7,586,972 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $ 1,618,288 $ 1,633,448 Accrued expenses and other current liabilities 273,520 281,956 Accrued compensation and benefits 220,318 228,832 Current portion of operating lease liabilities 148,359 131,022 Current portion of long-term debt and finance lease liabilities 24,840 83,378 Current liabilities of discontinued operations 8,313 11,438 Total current liabilities 2,293,638 2,370,074 Long-term debt 2,374,250 2,426,994 Long-term operating lease liabilities 894,831 873,990 Long-term finance lease liabilities 134,554 143,303 Pension and other postretirement benefit obligations 255,071 292,128 Other long-term liabilities 308,715 336,487 Long-term liabilities of discontinued operations 15 1,738 Total liabilities 6,261,074 6,444,714 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; 56,763 shares issued and 56,148 shares outstanding at January 30, 2021; 55,306 shares issued and 54,691 shares outstanding at August 1, 2020 568 553 Additional paid-in capital 581,096 568,736 Treasury stock at cost ( 24,231 ) ( 24,231 ) Accumulated other comprehensive loss ( 213,529 ) ( 237,946 ) Retained earnings 886,313 837,633 Total United Natural Foods, Inc. stockholders’ equity 1,230,217 1,144,745 Noncontrolling interests ( 1,151 ) ( 2,487 ) Total stockholders’ equity 1,229,066 1,142,258 Total liabilities and stockholders’ equity $ 7,490,140 $ 7,586,972 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except for per share data) 13-Week Period Ended 26-Week Period Ended January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net sales $ 6,888,133 $ 6,431,382 $ 13,560,740 $ 12,727,994 Cost of sales 5,897,774 5,514,057 11,603,882 10,903,458 Gross profit 990,359 917,325 1,956,858 1,824,536 Operating expenses 866,880 862,732 1,767,842 1,746,420 Goodwill and asset impairment charges — — — 425,405 Restructuring, acquisition and integration related expenses 17,783 36,522 34,211 51,194 Loss on sale of assets 399 524 169 434 Operating income (loss) 105,297 17,547 154,636 ( 398,917 ) Other expense (income): Net periodic benefit income, excluding service cost ( 17,127 ) ( 3,277 ) ( 34,160 ) ( 14,661 ) Interest expense, net 50,944 48,836 120,077 98,545 Other, net ( 1,674 ) ( 1,220 ) ( 2,472 ) ( 1,620 ) Total other expense, net 32,143 44,339 83,445 82,264 Income (loss) from continuing operations before income taxes 73,154 ( 26,792 ) 71,191 ( 481,181 ) Provision (benefit) for income taxes 16,392 ( 12,808 ) 15,401 ( 79,763 ) Net income (loss) from continuing operations 56,762 ( 13,984 ) 55,790 ( 401,418 ) Income (loss) from discontinued operations, net of tax 3,803 ( 16,076 ) 5,099 ( 12,050 ) Net income (loss) including noncontrolling interests 60,565 ( 30,060 ) 60,889 ( 413,468 ) Less net income attributable to noncontrolling interests ( 1,605 ) ( 650 ) ( 2,972 ) ( 1,169 ) Net income (loss) attributable to United Natural Foods, Inc. $ 58,960 $ ( 30,710 ) $ 57,917 $ ( 414,637 ) Basic earnings (loss) per share: Continuing operations $ 0.98 $ ( 0.27 ) $ 0.95 $ ( 7.54 ) Discontinued operations $ 0.07 $ ( 0.30 ) $ 0.09 $ ( 0.23 ) Basic earnings (loss) per share $ 1.05 $ ( 0.57 ) $ 1.04 $ ( 7.77 ) Diluted earnings (loss) per share: Continuing operations $ 0.93 $ ( 0.27 ) $ 0.89 $ ( 7.54 ) Discontinued operations $ 0.06 $ ( 0.30 ) $ 0.09 $ ( 0.23 ) Diluted earnings (loss) per share $ 1.00 $ ( 0.57 ) $ 0.98 $ ( 7.77 ) Weighted average shares outstanding: Basic 56,138 53,523 55,717 53,368 Diluted 59,205 53,523 59,119 53,368 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) (In thousands) 13-Week Period Ended 26-Week Period Ended January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net income (loss) including noncontrolling interests $ 60,565 $ ( 30,060 ) $ 60,889 $ ( 413,468 ) Other comprehensive income (loss): Recognition of pension and other postretirement benefit obligations, net of tax (1) ( 300 ) 7,370 ( 506 ) 7,942 Recognition of interest rate swap cash flow hedges, net of tax (2) 9,253 ( 3,752 ) 21,711 ( 7,433 ) Foreign currency translation adjustments 2,852 ( 347 ) 3,257 24 Recognition of other cash flow derivatives, net of tax (3) 388 — ( 45 ) — Total other comprehensive income 12,193 3,271 24,417 533 Less comprehensive income attributable to noncontrolling interests ( 1,605 ) ( 650 ) ( 2,972 ) ( 1,169 ) Total comprehensive income (loss) attributable to United Natural Foods, Inc. $ 71,153 $ ( 27,439 ) $ 82,334 $ ( 414,104 ) (1) Amounts are net of tax (benefit) expense of $( 0.1 ) million, $ 2.4 million, $( 0.2 ) million and $ 2.6 million, respectively. (2) Amounts are net of tax expense (benefit) of $ 3.2 million, $( 1.3 ) million, $ 7.4 million and $( 2.5 ) million, respectively. (3) Amounts are net of tax expense of $ 0.1 million, $— million, $— million and $— million, respectively. See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) For the 13-week periods ended January 30, 2021 and February 1, 2020 (In thousands) 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 October 31, 2020 56,749 $ 568 615 $ ( 24,231 ) $ 572,170 $ ( 225,722 ) $ 827,353 $ 1,150,138 $ ( 2,279 ) $ 1,147,859 Restricted stock vestings 5 — — — ( 1,533 ) — — ( 1,533 ) — ( 1,533 ) Share-based compensation — — — — 10,687 — — 10,687 — 10,687 Other comprehensive income — — — — — 12,193 — 12,193 — 12,193 Distributions to noncontrolling interests — — — — — — — — ( 301 ) ( 301 ) Proceeds from issuance of common stock, net 9 — — — 136 — — 136 — 136 Acquisition of noncontrolling interests — — — — ( 364 ) — — ( 364 ) ( 176 ) ( 540 ) Net income — — — — — — 58,960 58,960 1,605 60,565 Balances at January 30, 2021 56,763 $ 568 615 $ ( 24,231 ) $ 581,096 $ ( 213,529 ) $ 886,313 $ 1,230,217 $ ( 1,151 ) $ 1,229,066 Balances at November 2, 2019 54,121 $ 541 615 $ ( 24,231 ) $ 532,958 $ ( 111,691 ) $ 722,350 $ 1,119,927 $ ( 3,316 ) $ 1,116,611 Restricted stock vestings 19 1 — — ( 54 ) — — ( 53 ) — ( 53 ) Share-based compensation — — — — 2,704 — — 2,704 — 2,704 Other comprehensive income — — — — — 3,271 — 3,271 — 3,271 Distributions to noncontrolling interests — — — — — — — — ( 300 ) ( 300 ) Proceeds from issuance of common stock, net 35 — — — 292 — — 292 — 292 Net (loss) income — — — — — — ( 30,710 ) ( 30,710 ) 650 ( 30,060 ) Balances at February 1, 2020 54,175 $ 542 615 $ ( 24,231 ) $ 535,900 $ ( 108,420 ) $ 691,640 $ 1,095,431 $ ( 2,966 ) $ 1,092,465 See accompanying Notes to Condensed Consolidated Financial Statements 6 Table of Contents UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) For the 26-week periods ended January 30, 2021 and February 1, 2020 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 1, 2020 55,306 $ 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 1,443 15 — — ( 10,412 ) — — ( 10,397 ) — ( 10,397 ) Share-based compensation — — — — 22,929 — — 22,929 — 22,929 Other comprehensive income — — — — — 24,417 — 24,417 — 24,417 Distributions to noncontrolling interests — — — — — — — — ( 1,460 ) ( 1,460 ) Proceeds from issuance of common stock, net 14 — — — 207 — — 207 — 207 Acquisition of noncontrolling interests — — — — ( 364 ) — — ( 364 ) ( 176 ) ( 540 ) Net income — — — — — — 57,917 57,917 2,972 60,889 Balances at January 30, 2021 56,763 $ 568 615 $ ( 24,231 ) $ 581,096 $ ( 213,529 ) $ 886,313 $ 1,230,217 $ ( 1,151 ) $ 1,229,066 Balances at August 3, 2019 53,501 535 615 ( 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 443 5 — — ( 877 ) — — ( 872 ) — ( 872 ) Share-based compensation — — — — 3,951 — — 3,951 — 3,951 Other comprehensive income — — — — — 533 — 533 — 533 Distributions to noncontrolling interests — — — — — — — — ( 1,398 ) ( 1,398 ) Proceeds from issuance of common stock, net 231 2 — — 2,025 — — 2,027 — 2,027 Net (loss) income — — — — — — ( 414,637 ) ( 414,637 ) 1,169 ( 413,468 ) Balances at February 1, 2020 54,175 $ 542 615 $ ( 24,231 ) $ 535,900 $ ( 108,420 ) $ 691,640 $ 1,095,431 $ ( 2,966 ) $ 1,092,465 See accompanying Notes to Condensed Consolidated Financial Statements. 7 Table of Contents UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 26-Week Period Ended (In thousands) January 30, 2021 February 1, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) including noncontrolling interests $ 60,889 $ ( 413,468 ) Income (loss) from discontinued operations, net of tax 5,099 ( 12,050 ) Net income (loss) from continuing operations 55,790 ( 401,418 ) Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities: Depreciation and amortization 143,723 144,360 Share-based compensation 22,929 3,951 Loss on sale of assets 169 434 Closed property and other restructuring charges 3,496 23,586 Goodwill and asset impairment charges — 425,405 Net pension and other postretirement benefit income ( 34,136 ) ( 14,633 ) Deferred income tax benefit ( 841 ) ( 60,260 ) LIFO charge 13,343 13,879 (Recoveries) provision for losses on receivables, net ( 3,860 ) 45,503 Loss on debt extinguishment 29,494 73 Non-cash interest expense and other adjustments 9,562 7,393 Changes in operating assets and liabilities ( 33,994 ) ( 153,543 ) Net cash provided by operating activities of continuing operations 205,675 34,730 Net cash provided by operating activities of discontinued operations 1,324 4,352 Net cash provided by operating activities 206,999 39,082 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 91,516 ) ( 91,128 ) Proceeds from dispositions of assets 39,908 12,330 Other ( 97 ) ( 1,472 ) Net cash used in investing activities of continuing operations ( 51,705 ) ( 80,270 ) Net cash provided by investing activities of discontinued operations 1,467 22,585 Net cash used in investing activities ( 50,238 ) ( 57,685 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings of long-term debt 500,000 2,050 Proceeds from borrowings under revolving credit line 2,666,239 2,269,989 Repayments of borrowings under revolving credit line ( 2,537,951 ) ( 2,162,821 ) Repayments of long-term debt and finance leases ( 768,983 ) ( 93,326 ) Proceeds from the issuance of common stock and exercise of stock options 207 2,027 Payment of employee restricted stock tax withholdings ( 10,397 ) ( 872 ) Payments for debt issuance costs ( 10,444 ) — Distributions to noncontrolling interests ( 1,460 ) ( 1,398 ) Repayments of other loans ( 163 ) — Other ( 540 ) — Net cash (used in) provided by financing activities ( 163,492 ) 15,649 EFFECT OF EXCHANGE RATE CHANGES ON CASH 265 19 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 6,466 ) ( 2,935 ) Cash and cash equivalents, at beginning of period 47,117 45,263 Cash and cash equivalents, at end of period 40,651 42,328 Less: cash and cash equivalents of discontinued operations ( 155 ) ( 133 ) Cash and cash equivalents $ 40,496 $ 42,195 Supplemental disclosures of cash flow information: Cash paid for interest $ 74,734 $ 94,010 Cash payments (refunds) for federal and state income taxes, net 42,990 ( 24,376 ) Leased assets obtained in exchange for new operating lease liabilities 116,725 121,455 Leased assets obtained in exchange for new finance lease liabilities 468 — Capital expenditures included in accounts payable $ 31,309 $ 20,193 See accompanying Notes to Condensed Consolidated Financial Statements. 8 Table of Contents 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 “our”) is a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services to retailers. The Company sells its products primarily throughout the United States and Canada. Fiscal Year The Company’s fiscal year ends on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the second quarter of fiscal 2021 and 2020 relate to the 13-week fiscal quarters ended January 30, 2021 and February 1, 2020, respectively. References to fiscal 2021 and 2020 year-to-date relate to the 26-week fiscal periods ended January 30, 2021 and February 1, 2020, 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. 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 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 1, 2020 (the “Annual Report”). There 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 Shoppers locations that are held for sale within discontinued operations (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. 9 Table of Contents 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 January 30, 2021 and August 1, 2020, the Company had net book overdrafts of $ 268.6 million and $ 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. 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 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 $ 56.6 million and $ 43.3 million at January 30, 2021 and August 1, 2020, respectively. NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2016‐13, Financial Instruments—Credit Losses (Topic 326): 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 forward‐looking expected loss model that replaces the previous incurred loss model and generally results in earlier recognition of credit losses. The Company adopted this standard in the first quarter of fiscal 2021 on August 2, 2020, the effective and initial application date, using a modified‐retrospective basis as required by the standard by means of a cumulative‐effect adjustment to the opening balance of Retained earnings in the Company’s Condensed Consolidated Statement of Stockholders’ Equity. The difference between reserves and allowances recorded under the former incurred loss model and the amount determined under the current expected loss model, net of the deferred tax impact, was recorded as an adjustment to Retained earnings. Adoption of this standard did not have a material impact to the Company’s Condensed Consolidated Financial Statements. 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 326 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, which were adopted by the Company 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. 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 as authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any optional 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 defer these costs and recognize these costs as a service expense over future periods. Adoption of this standard 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 is required to 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. NOTE 3—REVENUE RECOGNITION Disaggregation of Revenues The Company records revenue to five customer channels within Net sales, 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; • Retail , which reflects our Retail segment, including the Cub Foods business and the remaining Shoppers locations, excluding Shoppers locations that are held for sale within discontinued operations; and • Other , which includes international customers outside of Canada, foodservice, eCommerce, conventional military business and other sales. The following tables detail the Company’s net sales for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its Wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly. 10 Table of Contents Net Sales for the 13-Week Period Ended (in millions) January 30, 2021 Customer Channel Wholesale Retail Other Eliminations (2) Consolidated Chains $ 3,097 $ — $ — $ — $ 3,097 Independent retailers 1,701 — — — 1,701 Supernatural 1,298 — — — 1,298 Retail — 621 — — 621 Other 513 — 55 — 568 Eliminations — — — ( 397 ) ( 397 ) Total $ 6,609 $ 621 $ 55 $ ( 397 ) $ 6,888 Net Sales for the 13-Week Period Ended (in millions) February 1, 2020 (1) Customer Channel Wholesale Retail Other Eliminations (2) Consolidated Chains $ 2,909 $ — $ — $ — $ 2,909 Independent retailers 1,561 — — — 1,561 Supernatural 1,211 — — — 1,211 Retail — 539 — — 539 Other 525 — 41 — 566 Eliminations — — — ( 355 ) ( 355 ) Total $ 6,206 $ 539 $ 41 $ ( 355 ) $ 6,431 Net Sales for the 26-Week Period Ended (in millions) January 30, 2021 Customer Channel Wholesale Retail Other Eliminations (2) Consolidated Chains $ 6,117 $ — $ — $ — $ 6,117 Independent retailers 3,373 — — — 3,373 Supernatural 2,512 — — — 2,512 Retail — 1,216 — — 1,216 Other 1,038 — 111 — 1,149 Eliminations — — — ( 806 ) ( 806 ) Total $ 13,040 $ 1,216 $ 111 $ ( 806 ) $ 13,561 Net Sales for the 26-Week Period Ended (in millions) February 1, 2020 (1) Customer Channel Wholesale Retail Other Eliminations (2) Consolidated Chains $ 5,784 $ — $ — $ — $ 5,784 Independent retailers 3,118 — — — 3,118 Supernatural 2,322 — — — 2,322 Retail — 1,054 — — 1,054 Other 1,050 — 106 — 1,156 Eliminations — — — ( 706 ) ( 706 ) Total $ 12,274 $ 1,054 $ 106 $ ( 706 ) $ 12,728 11 Table of Contents (1) In the first quarter of fiscal 2021, the presentation of net sales by customer channel was recast to present the Chains and Other channel exclusive of the intercompany eliminations and present total eliminations separately. There was no impact to the Condensed Consolidated Statements of Operations. The Company believes this modified basis better reflects its channel presentation, as it further aligns with segment presentation and how sales channel information would appear following the potential 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. The Company believes this modified basis better reflects the nature and economic risks of cash flows from customers. (2) Eliminations primarily includes the net sales elimination of Wholesale’s sales to the Retail segment and the elimination of sales from segments included within Other to Wholesale. The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada, and international distribution occurs through freight-forwarders. The Company does not have any performance obligations on international shipments subsequent to delivery to the domestic port. No net sales were recorded within continuing operations for retail stores within discontinued operations that the Company disposed of and expects to dispose of without a supply agreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to $ 13.4 million and $ 36.1 million in the second quarters of fiscal 2021 and 2020, respectively, and $ 27.8 million and $ 92.1 million in fiscal 2021 and 2020 year-to-date, respectively. Accounts and Notes Receivable Balances Accounts and notes receivable are as follows: (in thousands) January 30, 2021 August 1, 2020 Customer accounts receivable $ 1,176,126 $ 1,156,694 Allowance for uncollectible receivables ( 56,356 ) ( 55,928 ) Other receivables, net 16,365 19,433 Accounts receivable, net $ 1,136,135 $ 1,120,199 Notes receivable, net, included within Prepaid expenses and other current assets $ 13,023 $ 49,268 Long-term notes receivable, net, included within Other assets $ 19,101 $ 25,800 NOTE 4—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES Restructuring, acquisition and integration related expenses incurred were as follows: 13-Week Period Ended 26-Week Period Ended (in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 2019 SUPERVALU INC. restructuring expenses $ — $ 664 $ — $ 2,501 Restructuring and integration costs 14,682 15,411 29,442 24,705 Closed property charges and costs 3,101 20,447 4,769 23,988 Total $ 17,783 $ 36,522 $ 34,211 $ 51,194 NOTE 5—GOODWILL AND INTANGIBLE ASSETS, NET The Company has five goodwill reporting units: two of which represent separate operating segments and are aggregated within the Wholesale reportable segment (U.S. Wholesale and Canada Wholesale); one separate Retail operating and reportable segment and two 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. 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. 12 Table of Contents 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. 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 reporting unit’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) Wholesale Other Total Goodwill as of August 1, 2020 $ 9,747 (1) $ 9,860 (2) $ 19,607 Change in foreign exchange rates 477 — 477 Goodwill as of January 30, 2021 $ 10,224 (1) $ 9,860 (2) $ 20,084 (1) Amounts are net of accumulated goodwill impairment charges of $ 716.5 million as of August 1, 2020 and January 30, 2021. (2) Amounts are net of accumulated goodwill impairment charges of $ 9.6 million as of August 1, 2020 and January 30, 2021. Identifiable intangible assets, net consisted of the following: January 30, 2021 August 1, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Amortizing intangible assets: Customer relationships $ 1,007,695 $ 203,748 $ 803,947 $ 1,007,118 $ 172,832 $ 834,286 Pharmacy prescription files 32,900 10,597 22,303 32,900 7,964 24,936 Non-compete agreements 1,200 1,145 55 12,900 11,500 1,400 Operating lease intangibles 8,193 4,818 3,375 8,193 4,020 4,173 Trademarks and tradenames 83,700 41,140 42,560 83,700 34,708 48,992 Total amortizing intangible assets 1,133,688 261,448 872,240 1,144,811 231,024 913,787 Indefinite lived intangible assets: Trademarks and tradenames 55,813 — 55,813 55,813 — 55,813 Intangible assets, net $ 1,189,501 $ 261,448 $ 928,053 $ 1,200,624 $ 231,024 $ 969,600 Amortization expense was $ 18.6 million and $ 21.5 million for the second quarters of fiscal 2021 and 2020, respectively, and $ 41.6 million and $ 43.6 million for fiscal 2021 and 2020 year-to-date, respectively. The estimated future amortization expense 13 Table of Contents for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of January 30, 2021 is shown below: Fiscal Year: (In thousands) Remaining fiscal 2021 $ 36,650 2022 72,170 2023 71,950 2024 72,404 2025 70,308 2026 and thereafter 548,758 $ 872,240 NOTE 6—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS Recurring Fair Value Measurements The following tables provides the fair value hierarchy for financial assets and liabilities measured on a recurring basis: Condensed Consolidated Balance Sheets Location Fair Value at January 30, 2021 (in thousands) Level 1 Level 2 Level 3 Assets: Foreign currency derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 63 $ — Fuel derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 680 $ — Mutual funds Other long-term assets $ 1,592 $ — $ — Liabilities: Foreign currency derivatives not designated as hedging instruments Accrued expenses and other current liabilities $ — $ 3 $ — Fuel derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 1 $ — Foreign currency derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 774 $ — Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ — $ 34,779 $ — Interest rate swaps designated as hedging instruments Other long-term liabilities $ — $ 66,374 $ — 14 Table of Contents Condensed Consolidated Balance Sheets Location Fair Value at August 1, 2020 (in thousands) Level 1 Level 2 Level 3 Assets: Foreign currency derivatives not designated as hedging instruments Prepaid expenses and other current assets $ — $ 26 $ — Fuel derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 36 $ — Foreign currency derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 94 $ — Fuel derivatives designated as hedging instruments Other long-term assets $ — $ 23 $ — Mutual funds Other long-term assets $ 1,678 $ — $ — Liabilities: Fuel derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 197 $ — Foreign currency derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 357 $ — Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ — $ 46,743 $ — Interest rate swaps designated as hedging instruments Other long-term liabilities $ — $ 91,994 $ — 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 January 30, 2021, a 100 basis point increase in forward LIBOR interest rates would decrease the fair value of the interest rate swap liabilities by approximately $ 40.6 million; a 100 basis point decrease in forward LIBOR interest rates would increase the fair value of the interest rate swap liabilities by approximately $ 42.2 million. Refer to Note 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. 15 Table of Contents 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. The fair value of notes receivable is estimated by using a discounted cash flow approach prior to consideration for uncollectible amounts and is calculated by applying a market rate for similar instruments using Level 3 inputs. The fair value 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. January 30, 2021 August 1, 2020 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Notes receivable, including current portion $ 41,264 $ 40,655 $ 77,598 $ 78,877 Long-term debt, including current portion $ 2,387,241 $ 2,474,902 $ 2,497,626 $ 2,535,851 NOTE 7—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 January 30, 2021. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note 6—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts. Details of active swap contracts as of January 30, 2021, which are all pay fixed and receive floating, are as follows: Effective Date Swap Maturity Notional Value (in millions) Pay Fixed Rate Receive Floating Rate (2) Floating Rate Reset Terms March 21, 2019 April 15, 2022 $ 100.0 2.3645 % One-Month LIBOR Monthly April 2, 2019 June 30, 2022 100.0 2.2170 % One-Month LIBOR Monthly June 28, 2019 June 30, 2022 50.0 2.1840 % One-Month LIBOR Monthly August 3, 2015 (1) August 15, 2022 35.0 1.7950 % One-Month LIBOR Monthly October 26, 2018 October 31, 2022 100.0 2.8915 % One-Month LIBOR Monthly January 11, 2019 October 31, 2022 50.0 2.4678 % One-Month LIBOR Monthly January 23, 2019 October 31, 2022 50.0 2.5255 % One-Month LIBOR Monthly November 16, 2018 March 31, 2023 150.0 2.8950 % One-Month LIBOR Monthly January 23, 2019 March 31, 2023 50.0 2.5292 % One-Month LIBOR Monthly November 30, 2018 September 30, 2023 50.0 2.8315 % One-Month LIBOR Monthly October 26, 2018 October 31, 2023 100.0 2.9210 % One-Month LIBOR Monthly January 11, 2019 March 28, 2024 100.0 2.4770 % One-Month LIBOR Monthly January 23, 2019 March 28, 2024 100.0 2.5420 % One-Month LIBOR Monthly November 30, 2018 October 31, 2024 100.0 2.8480 % One-Month LIBOR Monthly January 11, 2019 October 31, 2024 100.0 2.5010 % One-Month LIBOR Monthly January 24, 2019 October 31, 2024 50.0 2.5210 % One-Month LIBOR Monthly October 26, 2018 October 22, 2025 50.0 2.9550 % One-Month LIBOR Monthly November 16, 2018 October 22, 2025 50.0 2.9590 % One-Month LIBOR Monthly November 16, 2018 October 22, 2025 50.0 2.9580 % One-Month LIBOR Monthly January 24, 2019 October 22, 2025 50.0 2.5558 % One-Month LIBOR Monthly $ 1,485.0 (1) The swap contract has an amortizing notional principal amount which is reduced by $ 1.0 million on a quarterly basis. 16 Table of Contents (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. In the first quarter of fiscal 2021, in conjunction with the $ 500.0 million fixed rate 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. No 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. If any of the hedged interest payments were not probable of occurring, then a charge representing an accelerated amortization of the unrecognized gains and losses would be recorded. 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. 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 Income (Loss) and subsequently reclassified to earnings in Interest expense, net in the Condensed Consolidated Statements of Operations when the hedged transactions affect earnings. 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 26-Week Period Ended January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 (In thousands) Interest expense, net 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 $ 50,944 $ 48,836 $ 120,077 $ 98,545 Loss on cash flow hedging relationships: Loss reclassified from comprehensive income into earnings $ ( 9,303 ) $ ( 4,251 ) $ ( 20,563 ) $ ( 6,621 ) Loss on interest rate swap contracts not designated as hedging instruments: Loss recognized in earnings $ ( 2,195 ) $ — $ ( 2,971 ) $ — 17 Table of Contents NOTE 8—LONG-TERM DEBT The Company’s long-term debt consisted of the following: (in thousands) Average Interest Rate at January 30, 2021 Fiscal Maturity Year January 30, 2021 August 1, 2020 Term Loan Facility 4.37 % 2026 $ 1,015,000 $ 1,773,000 ABL Credit Facility 1.52 % 2024 885,000 756,712 Senior Notes 6.75 % 2029 500,000 — Other secured loans 5.18 % 2024-2025 42,966 49,268 Debt issuance costs, net ( 37,128 ) ( 45,846 ) Original issue discount on debt ( 18,597 ) ( 35,508 ) Long-term debt, including current portion 2,387,241 2,497,626 Less: current portion of long-term debt ( 12,991 ) ( 70,632 ) Long-term debt $ 2,374,250 $ 2,426,994 Refinancing Activities Subsequent to the end of the second quarter of fiscal 2021, on February 11, 2021, the Company entered into an amendment agreement (the “First Term Loan Amendment”) amending the Term Loan Agreement (as defined below). The amendment provides for, among other things, (i) the reduction of the applicable margin for LIBOR loans from 4.25 % to 3.50 % and the applicable margin for base rate loans from 3.25 % to 2.50 %, (ii) the appointment of a replacement administrative and collateral agent, and (iii) other administrative changes. The amendment did not change the aggregate amount or maturity date of the Term Loan Facility. During the second quarter of fiscal 2021, the Company made a voluntary prepayment of $ 150.0 million on the Term Loan Facility (as defined below) funded with incremental borrowings under the ABL Credit Facility (as defined below) 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 connection with this prepayment, the Company incurred a loss on debt extinguishment of $ 5.7 million related to unamortized debt issuance costs and a loss on unamortized original issue discount, which were recorded within Interest expense, net in the Condensed Consolidated Statements of Operations in the second quarter of fiscal 2021. During the first quarter of fiscal 2021, the Company repaid $ 500.0 million of outstanding borrowings under the Term Loan Facility 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 first 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). 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 in the first quarter of fiscal 2021. The Company also executed a third amendment to the ABL Loan Agreement (as defined below) during the first quarter of fiscal 2021, which added certain assets to the Borrowing Base (as 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. 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, were used to repay $ 500.0 million of the amounts outstanding under the Term B Tranche of the Term Loan Facility and for the payment of all financing costs related to the offering of the Senior Notes. Financing costs of $ 8.9 million were paid and capitalized in fiscal 2021 year-to-date. Table of Contents 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 from time to 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. During the first quarter of fiscal 2021, 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 $ 300.0 million sublimit of availability for letters of credit of which there is a further $ 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. 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. 19 Table of Contents As of January 30, 2021, the U.S. Borrowers’ Borrowing Base, net of $ 208.0 million of reserves, was $ 2,216.1 million, which is above the $ 2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. As of January 30, 2021, the Canadian Borrower’s Borrowing Base, net of $ 4.2 million of reserves, was $ 48.6 million, which is below the $ 50.0 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in total availability of $ 2,098.6 million for ABL Loans and letters of credit under the ABL Credit Facility. As of January 30, 2021, the U.S. Borrowers had $ 885.0 million of ABL Loans outstanding and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit Facility, which are presented net of debt issuance costs of $ 9.7 million and are included in Long-term debt in the Condensed Consolidated Balance Sheets. As of January 30, 2021, the U.S. Borrowers had $ 95.8 million in letters of credit and the Canadian Borrower had no letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was $ 1,117.8 million as of January 30, 2021. 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 January 30, 2021, 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 January 30, 2021, 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, 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 January 30, 2021, 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 has not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of 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 credit and fees under the ABL Credit Facility, were as follows: Assets securing the ABL Credit Facility (in thousands) (1) : January 30, 2021 August 1, 2020 Certain inventory assets included in Inventories, net and Current assets of discontinued operations $ 2,261,209 $ 2,270,892 Certain receivables included in Accounts receivable, net and Current assets of discontinued operations $ 1,104,388 $ 1,077,682 (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 January 30, 2021 and August 1, 2020. Unused credit and fees under the ABL Credit Facility (in thousands, except percentages): January 30, 2021 Outstanding letters of credit $ 95,789 Letter of credit fees 1.375 % Unused credit $ 1,117,774 Unused facility fees 0.25 % 20 Table of Contents 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 repay all amounts outstanding under the ABL Loan Agreement. Term Loan Facility On the Supervalu acquisition date (“Closing 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-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 (the “Whole Foods Supply Agreement”) 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 Closing Date, then the loans under the Term B Tranche will be payable in full on December 31, 2024. On March 3, 2021, we entered into an amendment to the Whole Foods Supply Agreement, which extended the term of the agreement from September 28, 2025 to September 27, 2027, and which satisfies the extension requirement in the Term Loan Agreement. In fiscal 2021 year-to-date, the Company made prepayments on the Term B Tranche of $ 758.0 million as described above. 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. 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 January 30, 2021, there was $ 587.1 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. 21 Table of Contents 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 2021 that may be required in fiscal 2022 is not reasonably estimable as of January 30, 2021. As of January 30, 2021, 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 repay all amounts outstanding under the Term Loan Agreement. As of January 30, 2021, the Company had borrowings of $ 1,015.0 million outstanding under the Term B Tranche, which are presented net of debt issuance costs of $ 18.8 million and an original issue discount on debt of $ 18.4 million. As of January 30, 2021, no amount of the Term B Tranche was classified as current. NOTE 9—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS Changes in Accumulated other comprehensive loss by component, net of tax, for fiscal 2021 year-to-date are as follows: (in thousands) Other Cash Flow Derivatives Benefit Plans Foreign Currency Translation Swap Agreements Total Accumulated other comprehensive loss at August 1, 2020 $ ( 67 ) $ ( 115,296 ) $ ( 21,419 ) $ ( 101,164 ) $ ( 237,946 ) Other comprehensive (loss) income before reclassifications ( 165 ) — 3,257 4,494 7,586 Reclassification of amounts included in net periodic benefit income — ( 506 ) — — ( 506 ) Reclassification of cash flow hedges 120 — — 17,217 17,337 Net current period Other comprehensive (loss) income ( 45 ) ( 506 ) 3,257 21,711 24,417 Accumulated other comprehensive loss at January 30, 2021 $ ( 112 ) $ ( 115,802 ) $ ( 18,162 ) $ ( 79,453 ) $ ( 213,529 ) 22 Table of Contents Changes in Accumulated other comprehensive loss by component, net of tax, for fiscal 2020 year-to-date are as follows: (in thousands) Benefit Plans Foreign Currency Translation Swap Agreements Total Accumulated other comprehensive loss at August 3, 2019 $ ( 32,458 ) $ ( 20,082 ) $ ( 56,413 ) $ ( 108,953 ) Other comprehensive income (loss) before reclassifications 1,480 24 ( 2,588 ) ( 1,084 ) Reclassification of amounts included in net periodic benefit income ( 1,148 ) — — ( 1,148 ) Reclassification of cash flow hedges — — ( 4,845 ) ( 4,845 ) Pension settlement charge 7,610 — — 7,610 Net current period Other comprehensive income (loss) 7,942 24 ( 7,433 ) 533 Accumulated other comprehensive loss at February 1, 2020 $ ( 24,516 ) $ ( 20,058 ) $ ( 63,846 ) $ ( 108,420 ) Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations: 13-Week Period Ended 26-Week Period Ended Affected Line Item on the Condensed Consolidated Statements of Operations (in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Pension and postretirement benefit plan obligations: Reclassification of amounts included in net periodic benefit income (1) $ ( 404 ) $ ( 777 ) $ ( 713 ) $ ( 1,551 ) Net periodic benefit income, excluding service cost Pension settlement charge — 10,303 — 10,303 Net periodic benefit income, excluding service cost Total reclassifications ( 404 ) 9,526 ( 713 ) 8,752 Income tax expense (benefit) 104 ( 2,492 ) 207 ( 2,290 ) Provision (benefit) for income taxes Total reclassifications, net of tax $ ( 300 ) $ 7,034 $ ( 506 ) $ 6,462 Swap agreements: Reclassification of cash flow hedge $ 11,498 $ ( 4,251 ) $ 23,534 $ ( 6,621 ) Interest expense, net Income tax benefit ( 3,087 ) ( 1,348 ) ( 6,317 ) ( 1,776 ) Provision (benefit) for income taxes Total reclassifications, net of tax $ 8,411 $ ( 2,903 ) $ 17,217 $ ( 4,845 ) Other cash flow hedges: Reclassification of cash flow hedge $ ( 5 ) $ — $ 164 $ — Cost of sales Income tax expense (benefit) 1 — ( 44 ) — Provision (benefit) for income taxes Total reclassifications, net of tax $ ( 4 ) $ — $ 120 $ — (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. As of January 30, 2021, the Company expects to reclassify $ 44.1 million out of Accumulated other comprehensive loss and primarily into Interest expense, net during the following twelve-month period. 23 Table of Contents NOTE 10—SHARE-BASED AWARDS During the second quarter of fiscal 2021, the Company authorized for issuance and registered an additional 3.6 million shares of common stock under the Amended and Restated 2020 Equity Incentive Plan. In fiscal 2021 year-to-date, 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 shares. As of January 30, 2021, there were 3.9 million shares available for issuance under the 2020 Equity Incentive Plan. NOTE 11—BENEFIT PLANS Net periodic benefit income (cost) and contributions to defined benefit pension and other post-retirement benefit plans consisted of the following: 13-Week Period Ended Pension Benefits Other Postretirement Benefits (in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net Periodic Benefit (Income) Cost Service cost $ — $ — $ 12 $ 14 Interest cost 9,164 13,602 103 236 Expected return on plan assets ( 25,964 ) ( 26,587 ) ( 26 ) ( 54 ) Amortization of prior service credit — — ( 350 ) ( 350 ) Amortization of net actuarial loss (gain) 261 3 ( 315 ) ( 430 ) Pension settlement charge — 10,303 — — Net periodic benefit income $ ( 16,539 ) $ ( 2,679 ) $ ( 576 ) $ ( 584 ) Contributions to benefit plans $ ( 375 ) $ ( 1,150 ) $ ( 950 ) $ ( 60 ) 26-Week Period Ended Pension Benefits Other Postretirement Benefits (in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net Periodic Benefit (Income) Cost Service cost $ — $ — $ 24 $ 28 Interest cost 18,328 30,292 206 472 Expected return on plan assets ( 51,929 ) ( 54,069 ) ( 52 ) ( 108 ) Amortization of prior service credit — — ( 700 ) ( 700 ) Amortization of net actuarial loss (gain) 617 6 ( 630 ) ( 857 ) Pension settlement charge — 10,303 — — Net periodic benefit income $ ( 32,984 ) $ ( 13,468 ) $ ( 1,152 ) $ ( 1,165 ) Contributions to benefit plans $ ( 750 ) $ ( 5,250 ) $ ( 1,900 ) $ ( 160 ) Pension Contributions No minimum pension contributions are required to be made under either the SUPERVALU Inc. Retirement Plan or the Unified Grocers, Inc. Cash Balance Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal 2021. The Company expects to contribute approximately $ 5.3 million to its other non-qualified pension plans and postretirement benefit plans in fiscal 2021. 24 Table of Contents Multiemployer Pension Plans The Company contributed $ 11.8 million and $ 12.6 million in the second quarters of fiscal 2021 and 2020, respectively, and $ 23.7 million and $ 26.1 million in fiscal 2021 and 2020 year-to-date, respectively, to continuing and discontinued operations multiemployer pension plans. In connection with the Company’s consolidation of distribution centers in the Pacific Northwest, during the second quarter of fiscal 2020, the Company recorded a $ 10.6 million multiemployer pension plan withdrawal liability, under which payments will be made over a one-year period beginning in fiscal 2022. The withdrawal liability is included in Other long-term liabilities and the withdrawal charge was recorded within Restructuring, acquisition and integration related expenses. Lump Sum Pension Settlement 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 during the second quarter of fiscal 2020. The lump sum settlement payments resulted in a non-cash pension settlement charge of $ 10.3 million in the second quarter of fiscal 2020 from the acceleration of a portion of the accumulated unrecognized actuarial loss, which was based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. As a result of the settlement payments, the SUPERVALU Retirement Plan obligations were remeasured using a discount rate of 3.1 percent and the MP-2019 mortality improvement scale. This remeasurement resulted in a $ 1.5 million decrease to Accumulated other comprehensive loss. NOTE 12—INCOME TAXES The effective income tax rate for continuing operations was an expense of 22.4 % on pre-tax income compared to a benefit of 47.8 % on pre-tax losses for the second quarters of fiscal 2021 and 2020, respectively. The change in the effective income tax rate for the second quarter of fiscal 2021 was primarily driven by a pre-tax loss of approximately $ 26.8 million in the second quarter of fiscal 2020 compared to pre-tax income of approximately $ 73.2 million in the second quarter of fiscal 2021. In addition, the change in the rate is partially driven by a discrete tax benefit of approximately $ 2.8 million in the second quarter of fiscal 2021 related to the release of unrecognized tax positions versus a discrete tax benefit of approximately $ 0.5 million for this item in the second quarter of fiscal 2020. The tax provision had $ 3.1 million and $ 0.1 million of discrete tax benefits, including those mentioned above, for the second quarters of fiscal 2021 and fiscal 2020, respectively. The effective income tax rate for continuing operations was an expense of 21.6 % on pre-tax income compared to a benefit of 16.6 % on pre-tax losses for fiscal 2021 year-to-date and fiscal 2020 year-to-date, respectively. The change in the effective income tax rate was primarily driven by a discrete tax benefit in fiscal 2021 year-to-date for employee stock vestings versus a discrete tax expense for this item in fiscal 2020 year-to-date, as well as a discrete tax benefit for the release of unrecognized tax positions in fiscal 2021 year-to-date versus a discrete tax expense for this item in fiscal 2020 year-to-date. In addition, fiscal 2020 year-to-date was impacted by a goodwill impairment charge that did not repeat in fiscal 2021 year-to-date. The tax provision had $ 3.5 million and $ 64.4 million of discrete tax benefits for fiscal 2021 and fiscal 2020 year-to-date, respectively. 25 Table of Contents NOTE 13—EARNINGS (LOSS) PER SHARE The following is a reconciliation of the basic and diluted number of shares used in computing earnings (loss) per share: 13-Week Period Ended 26-Week Period Ended (in thousands, except per share data) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Basic weighted average shares outstanding 56,138 53,523 55,717 53,368 Net effect of dilutive stock awards based upon the treasury stock method 3,067 — 3,402 — Diluted weighted average shares outstanding 59,205 53,523 59,119 53,368 Basic earnings (loss) per share: Continuing operations $ 0.98 $ ( 0.27 ) $ 0.95 $ ( 7.54 ) Discontinued operations $ 0.07 $ ( 0.30 ) $ 0.09 $ ( 0.23 ) Basic earnings (loss) per share $ 1.05 $ ( 0.57 ) $ 1.04 $ ( 7.77 ) Diluted earnings (loss) per share: Continuing operations $ 0.93 $ ( 0.27 ) $ 0.89 $ ( 7.54 ) Discontinued operations $ 0.06 $ ( 0.30 ) $ 0.09 $ ( 0.23 ) Diluted earnings (loss) per share $ 1.00 $ ( 0.57 ) $ 0.98 $ ( 7.77 ) Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 1,140 7,413 1,214 7,834 NOTE 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 two operating segments: U.S. Wholesale and Canada Wholesale. 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 providing professional 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. 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. Non-operating expenses that are not allocated to the operating segments are included in the Other segment. In the fourth quarter of 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. The following table provides continuing operations net sales and Adjusted EBITDA by reportable segment and reconciles that information to Income (loss) from continuing operations before income taxes: 26 Table of Contents 13-Week Period Ended 26-Week Period Ended (in thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net sales: Wholesale (1) $ 6,608,775 $ 6,206,918 $ 13,040,058 $ 12,274,225 Retail 620,871 538,629 1,215,782 1,053,855 Other 55,428 41,073 111,040 106,152 Eliminations ( 396,941 ) ( 355,238 ) ( 806,140 ) ( 706,238 ) Total Net sales $ 6,888,133 $ 6,431,382 $ 13,560,740 $ 12,727,994 Continuing Operations Adjusted EBITDA: Wholesale $ 186,768 $ 102,454 $ 309,729 $ 208,766 Retail 25,330 11,428 49,612 21,990 Other ( 7,845 ) 14,425 ( 3,695 ) 12,828 Eliminations ( 1,778 ) ( 665 ) 3,946 494 Adjustments: Net income attributable to noncontrolling interests 1,605 650 2,972 1,169 Total other expense, net ( 32,143 ) ( 44,339 ) ( 83,445 ) ( 82,264 ) Depreciation and amortization ( 66,534 ) ( 69,219 ) ( 143,723 ) ( 144,360 ) Share-based compensation ( 12,673 ) ( 5,134 ) ( 26,822 ) ( 9,059 ) Restructuring, acquisition and integration related expenses ( 17,783 ) ( 36,522 ) ( 34,211 ) ( 51,194 ) Goodwill and asset impairment charges — — — ( 425,405 ) Loss on sale of assets ( 399 ) ( 524 ) ( 169 ) ( 434 ) Notes receivable charges — — — ( 12,516 ) Legal settlement income (reserve charge) — 654 — ( 1,196 ) Other retail expense ( 1,394 ) — ( 3,003 ) — Income (loss) from continuing operations before income taxes $ 73,154 $ ( 26,792 ) $ 71,191 $ ( 481,181 ) Depreciation and amortization: Wholesale $ 58,766 $ 65,768 $ 126,587 $ 133,761 Retail 6,764 843 14,152 2,301 Other 1,004 2,608 2,984 8,298 Total depreciation and amortization $ 66,534 $ 69,219 $ 143,723 $ 144,360 Capital expenditures: Wholesale $ 45,882 $ 43,370 $ 83,873 $ 85,629 Retail 4,109 2,619 7,310 5,295 Other 145 91 333 204 Total capital expenditures $ 50,136 $ 46,080 $ 91,516 $ 91,128 (1) As presented in Note 3—Revenue Recognition, for the second quarters of fiscal 2021 and 2020, the Company recorded $ 345.3 million and $ 308.1 million, respectively, and $ 702.9 million and $ 605.8 million in fiscal 2021 and 2020 year-to-date, 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. 27 Table of Contents Total assets of continuing operations by reportable segment were as follows: (in thousands) January 30, 2021 August 1, 2020 Assets: Wholesale $ 6,454,162 $ 6,588,836 Retail 565,252 542,470 Other 521,752 501,468 Eliminations ( 57,133 ) ( 54,784 ) Total assets of continuing operations $ 7,484,033 $ 7,577,990 NOTE 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 January 30, 2021. 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 nine years , with a weighted average remaining term of approximately five 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. The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of January 30, 2021, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $ 28.7 million ($ 25.0 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, a total estimated loss of $ 1.0 million is recorded in the Condensed Consolidated Balance 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. No associated lessor receivables are reflected on the Condensed Consolidated Balance Sheets; however, the Company expects its assignees to make lease payments to its landlords. For the Company’s lease guarantee arrangements, no 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. No 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. 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. 28 Table of Contents 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. We expect that services provided under the Services Agreement will wind down at or near the end of the initial term in December 2021. 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 January 30, 2021, the Company had approximately $ 305 million of non-cancelable future purchase obligations. Legal Proceedings 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 42 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 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. On January 21, 2021, various health plans filed a complaint in Minnesota state court against the Company, Albertson’s Companies, LLC (“Albertson’s”) and Safeway, Inc. alleging the defendants committed fraud by improperly reporting inflated prices for prescription drugs for members of health plans. The Plaintiffs assert six causes of action against the defendants: common law fraud, fraudulent nondisclosure, negligent misrepresentation, unjust enrichment, violation of the Minnesota Uniform Deceptive Trade Practices Act and violation of the Minnesota Prevention of Consumer Fraud Act. The plaintiffs allege that between 2006 and 2016, Supervalu overcharged the health plans by not providing the health plans, as part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that Supervalu match competitor prices. Plaintiffs seek an unspecified amount of damages. Similar to the above case, for the majority of the relevant period Supervalu and Albertson’s operated as a combined company. In March 2013, Supervalu divested Albertson’s and pursuant to the Stock Purchase Agreement, Albertson’s is responsible for any claims regarding its pharmacies. The Company believes these claims are without merit and intends to vigorously defend this matter. 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’ 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 Albertson’s in excess of $ 100 million, 29 Table of Contents 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 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. 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. On July 2, 2020 the Court granted the defendants’ summary judgment motion and denied the relators’ motion, dismissing the case. On July 9, 2020 the relators filed a notice of appeal with the 7th Circuit Court of Appeals, and on September 30, 2020 filed an appellate brief. On November 30, 2020, the Company filed its response. The hearing before the 7th Circuit Court of Appeals occurred on January 19, 2021. 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 in 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 its ownership and lease of a substantial amount of real property, both retail 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. Management regularly monitors the 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 January 30, 2021, 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 our financial condition, results of operations or cash flows. NOTE 16—DISCONTINUED OPERATIONS In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. 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 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 locations, Shop ‘n Save St. Louis and Shop ‘n Save East. As of January 30, 2021, only four Shoppers locations are contained in remaining disposal groups that continue to be classified as operations held for sale as discontinued operations. In the second quarter of fiscal 2020, the Company entered into agreements to sell 13 Shoppers stores and decided to close six locations. During fiscal 2020 year-to-date, within discontinued operations the Company incurred approximately $ 23.6 million in pre-tax aggregate costs and charges related to Shoppers stores that remain within discontinued operations, consisting of $ 18.8 million of operating losses, severance costs and transaction costs during the period of wind-down and $ 5.5 million of property and equipment impairment charges related to impairment reviews. 30 Table of Contents Operating results of discontinued operations are summarized below: 13-Week Period Ended 26-Week Period Ended (In thousands) January 30, 2021 February 1, 2020 January 30, 2021 February 1, 2020 Net sales $ 22,973 $ 75,076 $ 47,789 $ 170,671 Cost of sales 15,748 56,553 32,520 121,639 Gross profit 7,225 18,523 15,269 49,032 Operating expenses 3,528 15,228 9,759 40,304 Restructuring expenses and charges 792 24,009 783 24,184 Operating income (loss) 2,905 ( 20,714 ) 4,727 ( 15,456 ) Other expense (income), net — ( 3 ) — ( 64 ) Income (loss) from discontinued operations before income taxes 2,905 ( 20,711 ) 4,727 ( 15,392 ) Benefit for income taxes ( 898 ) ( 4,635 ) ( 372 ) ( 3,342 ) Income (loss) from discontinued operations, net of tax $ 3,803 $ ( 16,076 ) $ 5,099 $ ( 12,050 ) No net sales were recorded within continuing operations for retail stores within discontinued operations that the Company disposed of and expects to dispose of without a supply agreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to $ 13.4 million and $ 36.1 million in the second quarters of fiscal 2021 and 2020, respectively, and $ 27.8 million and $ 92.1 million in fiscal 2021 and 2020 year-to-date, respectively. The following table summarizes the carrying amounts of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets: (In thousands) January 30, 2021 August 1, 2020 Current assets Cash and cash equivalents $ 155 $ 119 Accounts receivable, net 578 350 Inventories, net 3,329 4,233 Other current assets 654 365 Total current assets of discontinued operations 4,716 5,067 Long-term assets Property and equipment 927 3,450 Other long-term assets 464 465 Total long-term assets of discontinued operations 1,391 3,915 Total assets of discontinued operations $ 6,107 $ 8,982 Current liabilities Accounts payable $ 3,405 $ 3,613 Accrued compensation and benefits 2,575 4,501 Other current liabilities 2,333 3,324 Total current liabilities of discontinued operations 8,313 11,438 Long-term liabilities Other long-term liabilities 15 1,738 Total liabilities of discontinued operations 8,328 13,176 Net liabilities of discontinued operations $ ( 2,221 ) $ ( 4,194 ) 31 Table of Contents