United Natural Foods(UNFI) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period ended October 31, 2020 Condensed Consolidated Balance Sheets (unaudited) This statement details the company's assets, liabilities, and stockholders' equity at the end of the reporting period Condensed Consolidated Balance Sheets (October 31, 2020 vs. August 1, 2020) | Metric (in thousands) | October 31, 2020 | August 1, 2020 | Change | % Change | | :-------------------------------------- | :--------------- | :------------- | :----- | :------- | | ASSETS | | | | | | Total current assets | $3,940,494 | $3,704,917 | $235,577 | 6.4% | | Total assets | $7,783,597 | $7,586,972 | $196,625 | 2.6% | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | Total current liabilities | $2,374,224 | $2,370,074 | $4,150 | 0.2% | | Long-term debt | $2,620,587 | $2,426,994 | $193,593 | 8.0% | | Total liabilities | $6,635,738 | $6,444,714 | $191,024 | 3.0% | | Total stockholders' equity | $1,147,859 | $1,142,258 | $5,601 | 0.5% | Condensed Consolidated Statements of Operations (unaudited) This statement presents the company's revenues, expenses, and net loss for the thirteen-week period ended October 31, 2020 Condensed Consolidated Statements of Operations (13-Week Period Ended Oct 31, 2020 vs. Nov 2, 2019) | Metric (in thousands, except per share data) | Oct 31, 2020 | Nov 2, 2019 | Change | % Change | | :------------------------------------------- | :----------- | :---------- | :----- | :------- | | Net sales | $6,672,607 | $6,296,612 | $375,995 | 6.0% | | Gross profit | $966,499 | $907,211 | $59,288 | 6.5% | | Operating income (loss) | $49,339 | $(416,464) | $465,803 | N/A | | Loss from continuing operations before income taxes | $(1,963) | $(454,389) | $452,426 | N/A | | Net loss attributable to United Natural Foods, Inc. | $(1,043) | $(383,927) | $382,884 | N/A | | Basic loss per share | $(0.02) | $(7.21) | $7.19 | N/A | | Diluted loss per share | $(0.02) | $(7.21) | $7.19 | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) This statement outlines the components of net income (loss) and other comprehensive income (loss) for the reporting period Condensed Consolidated Statements of Comprehensive Income (Loss) (13-Week Period Ended Oct 31, 2020 vs. Nov 2, 2019) | Metric (in thousands) | Oct 31, 2020 | Nov 2, 2019 | Change | | :-------------------------------------------------- | :----------- | :---------- | :----- | | Net income (loss) including noncontrolling interests | $324 | $(383,408) | $383,732 | | Total other comprehensive income (loss) | $12,224 | $(2,738) | $14,962 | | Total comprehensive income (loss) attributable to UNFI | $11,181 | $(386,665) | $397,846 | Condensed Consolidated Statements of Stockholders' Equity (unaudited) This statement details the changes in the company's stockholders' equity during the thirteen-week period ended October 31, 2020 Changes in Stockholders' Equity (13-Week Period Ended Oct 31, 2020) | Metric (in thousands) | Balances at August 1, 2020 | Net (loss) income | Other comprehensive income | Balances at October 31, 2020 | | :-------------------------------- | :------------------------- | :---------------- | :------------------------- | :--------------------------- | | Total United Natural Foods, Inc. stockholders' equity | $1,144,745 | $(1,043) | $12,224 | $1,150,138 | - The company recorded a cumulative effect of change in accounting principle of $(9,237) thousand to retained earnings as of August 1, 2020[19] Condensed Consolidated Statements of Cash Flows (unaudited) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities during the period Condensed Consolidated Statements of Cash Flows (13-Week Period Ended Oct 31, 2020 vs. Nov 2, 2019) | Metric (in thousands) | Oct 31, 2020 | Nov 2, 2019 | Change | | :------------------------------------------ | :----------- | :---------- | :----- | | Net cash used in operating activities | $(57,666) | $(134,869) | $77,203 | | Net cash used in investing activities | $(35,506) | $(23,881) | $(11,625) | | Net provided by financing activities | $95,265 | $156,096 | $(60,831) | | Net increase (decrease) in cash and cash equivalents | $2,149 | $(2,664) | $4,813 | | Cash and cash equivalents at end of period | $49,219 | $42,603 | $6,616 | Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1—SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's primary business activities, fiscal year definition, and key accounting policies and reclassifications - United Natural Foods, Inc (UNFI) is a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products, primarily in the United States and Canada[21] - The company's fiscal year ends on the Saturday closest to July 31[22] - In Q4 FY20, the Retail segment (Cub Foods and most Shoppers locations) was reclassified from discontinued operations to continuing operations, with prior periods conformed to this presentation[25] - As of October 31, 2020, and August 1, 2020, the Company had net book overdrafts of $275.8 million and $267.8 million, respectively, recorded in Accounts payable[27] - If the first-in, first-out (FIFO) method had been used, Inventories, net would have been higher by approximately $49.9 million at October 31, 2020, and $43.3 million at August 1, 2020[29] NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS This note describes the recent accounting standards adopted by the company and their impact on the financial statements - The Company adopted Topic 326 (Financial Instruments—Credit Losses) in Q1 FY21 using a modified-retrospective basis, with no material impact on its Condensed Consolidated Financial Statements[30] - ASU 2018-15 (Intangibles—Goodwill and Other—Internal-Use Software) was adopted prospectively in Q1 FY21, requiring capitalization and deferral of cloud computing implementation costs, with no material impact expected[32] - ASU 2018-14 (Compensation—Retirement Benefits—Defined Benefit Plans) was adopted in Q1 FY21, affecting annual disclosures but not interim financial statements[33] - ASU 2019-12 (Income Taxes) is required to be adopted in Q1 FY22, and the Company is currently evaluating its impact[34] NOTE 3—REVENUE RECOGNITION This note provides a disaggregation of the company's revenue by customer channel for the reported periods - The Company disaggregates revenue into six customer channels: Chains, Independent retailers, Supernatural (primarily Whole Foods Market), Retail, Other (international, foodservice, eCommerce, military), and Eliminations[35] Net Sales by Customer Channel (in millions) | Customer Channel | Oct 31, 2020 | Nov 2, 2019 | | :----------------- | :----------- | :---------- | | Chains | $3,020 | $2,875 | | Independent retailers | $1,672 | $1,557 | | Supernatural | $1,214 | $1,111 | | Retail | $595 | $515 | | Other | $581 | $590 | | Eliminations | $(409) | $(351) | | Total | $6,673 | $6,297 | - Net sales from discontinued operations retail stores eliminated upon consolidation amounted to $14.4 million in Q1 FY21 and $56.0 million in Q1 FY20[39] NOTE 4—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES This note details the expenses incurred related to restructuring, acquisition, and integration activities Restructuring, Acquisition and Integration Related Expenses (in thousands) | Expense Type | Oct 31, 2020 | Nov 2, 2019 | | :-------------------------------------- | :----------- | :---------- | | 2019 SUPERVALU INC. restructuring expenses | $0 | $1,837 | | Restructuring and integration costs | $14,760 | $9,294 | | Closed property charges and costs | $1,668 | $3,541 | | Total | $16,428 | $14,672 | - Total restructuring, acquisition and integration related expenses increased by $1.756 million (11.9%) from Q1 FY20 to Q1 FY21[42] NOTE 5—GOODWILL AND INTANGIBLE ASSETS This note provides information on the company's goodwill and other identifiable intangible assets, including impairment charges - In Q1 FY20, the Company recorded a goodwill impairment charge of $421.5 million for the U.S. Wholesale reporting unit due to a change in management structure and a sustained decline in market capitalization[46] Goodwill by Reportable Segment (in thousands) | Segment | October 31, 2020 | August 1, 2020 | | :-------- | :--------------- | :------------- | | Wholesale | $9,811 | $9,747 | | Other | $9,860 | $9,860 | | Total | $19,671 | $19,607 | Identifiable Intangible Assets, Net (in thousands) | Asset Type | October 31, 2020 (Net) | August 1, 2020 (Net) | | :-------------------------- | :--------------------- | :------------------- | | Customer relationships | $819,189 | $834,286 | | Trademarks and tradenames (amortizing) | $44,214 | $48,992 | | Trademarks and tradenames (indefinite lived) | $55,813 | $55,813 | | Total Intangible assets, net | $946,581 | $969,600 | - Amortization expense was $23.0 million for Q1 FY21, up from $22.1 million in Q1 FY20[49] NOTE 6—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS This note discloses the fair value measurements of the company's financial instruments using a three-level hierarchy - The Company measures foreign currency derivatives, fuel derivatives, and interest rate swaps using Level 2 inputs (observable market data)[52][56][57] - Mutual fund assets are measured using Level 1 inputs (quoted market prices in active markets)[55] Fair Value of Financial Instruments (in thousands) | Instrument | October 31, 2020 (Fair Value) | August 1, 2020 (Fair Value) | | :-------------------------------------- | :---------------------------- | :-------------------------- | | Foreign currency derivatives (asset) | $70 | $120 | | Fuel derivatives (asset) | $0 | $59 | | Interest rate swaps (liability) | $111,240 | $138,737 | | Notes receivable (carrying value) | $74,581 | $77,598 | | Long-term debt (carrying value) | $2,633,400 | $2,497,626 | NOTE 7—DERIVATIVES This note details the company's use of derivative instruments, primarily interest rate swaps, to manage market risk - As of October 31, 2020, the Company had $1.486 billion in outstanding notional value of interest rate swap contracts, all designated as cash flow hedges, to mitigate exposure to changes in market interest rates[62] - In Q1 FY21, the Company paid $11.3 million to terminate or novate $954.0 million of outstanding and forward starting interest rate swaps[64] Loss on Cash Flow Hedging Relationships (in thousands) | Metric | 13-Week Period Ended Oct 31, 2020 | 13-Week Period Ended Nov 2, 2019 | | :---------------------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Loss reclassified from comprehensive income into income (Interest expense, net) | $(12,036) | $(2,370) | NOTE 8—LONG-TERM DEBT This note provides a detailed breakdown of the company's long-term debt obligations and recent financing activities Long-Term Debt Composition (in thousands) | Debt Type | Average Interest Rate (Oct 31, 2020) | Oct 31, 2020 | August 1, 2020 | | :-------------------------------------- | :----------------------------------- | :----------- | :------------- | | Term Loan Facility | 4.40% | $1,165,000 | $1,773,000 | | ABL Credit Facility | 1.60% | $986,700 | $756,712 | | Senior Notes | 6.75% | $500,000 | $0 | | Other secured loans | 5.19% | $46,138 | $49,268 | | Long-term debt, including current portion | | $2,633,400 | $2,497,626 | - In Q1 FY21, the Company issued $500.0 million of 6.750% Senior Notes due October 15, 2028, and used the net proceeds, along with ABL Credit Facility borrowings, to repay $500.0 million of the Term Loan Facility[68][69] - Additional Term Loan Facility repayments of $108.0 million were made in Q1 FY21, including a $72.0 million mandatory prepayment and a $36.0 million voluntary prepayment, resulting in a $23.8 million loss on debt extinguishment[68] - Subsequent to Q1 FY21, the Company made a voluntary prepayment of $150.0 million on the Term Loan Facility, funded by ABL Credit Facility borrowings, to reduce interest costs[86] - As of October 31, 2020, the Company had $1,008.3 million in remaining availability under the ABL Credit Facility[77] NOTE 9—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS This note reconciles the changes in each component of accumulated other comprehensive loss for the period Changes in Accumulated Other Comprehensive Loss (in thousands) | Component | August 1, 2020 | October 31, 2020 | Net Current Period Change | | :-------------------------------------- | :------------- | :--------------- | :------------------------ | | Other Cash Flow Derivatives | $(67) | $(500) | $(433) | | Benefit Plans | $(115,296) | $(115,502) | $(206) | | Foreign Currency | $(21,419) | $(21,014) | $405 | | Swap Agreements | $(101,164) | $(88,706) | $12,458 | | Total Accumulated other comprehensive loss | $(237,946) | $(225,722) | $12,224 | - The Company expects to reclassify $45.2 million from Accumulated other comprehensive loss into Interest expense, net during the next twelve months[95] NOTE 10—SHARE-BASED AWARDS This note provides information on share-based compensation awards granted to directors, officers, and employees - In Q1 FY21, the Company granted 2.6 million restricted stock units and performance share units to directors, executive officers, and employees[96] - As of October 31, 2020, 113 thousand shares were available for issuance under the 2020 Equity Incentive Plan[96] NOTE 11—BENEFIT PLANS This note details the components of net periodic benefit income and the company's contributions to various pension plans Net Periodic Benefit Income (in thousands) | Benefit Type | Oct 31, 2020 | Nov 2, 2019 | | :-------------------------- | :----------- | :---------- | | Pension Benefits | $(16,445) | $(10,789) | | Other Postretirement Benefits | $(576) | $(581) | | Total Net periodic benefit income | $(17,021) | $(11,370) | - No minimum pension contributions are required for the SUPERVALU Inc. Retirement Plan or Unified Grocers, Inc. Cash Balance Plan in fiscal 2021[99] - The Company expects to contribute approximately $5.3 million to other non-qualified pension plans and postretirement benefit plans in fiscal 2021[99] - Contributions to multiemployer pension plans were $11.9 million in Q1 FY21, down from $13.5 million in Q1 FY20[100] NOTE 12—INCOME TAXES This note explains the significant difference in the effective income tax rate between the current and prior-year periods - The effective income tax rate for continuing operations was a benefit of 50.5% in Q1 FY21, significantly higher than the 14.7% benefit in Q1 FY20[101] - This change was primarily driven by a discrete tax benefit in Q1 FY21 related to employee stock awards, compared to a discrete tax expense in Q1 FY20, and the impact of a goodwill impairment charge in Q1 FY20[101] NOTE 13—EARNINGS PER SHARE This note presents the calculation of basic and diluted earnings per share for the reported periods Basic and Diluted Loss Per Share (13-Week Period Ended Oct 31, 2020 vs. Nov 2, 2019) | Metric | Oct 31, 2020 | Nov 2, 2019 | | :-------------------------------- | :----------- | :---------- | | Basic weighted average shares outstanding (in thousands) | 55,171 | 53,213 | | Diluted weighted average shares outstanding (in thousands) | 55,171 | 53,213 | | Basic loss per share | $(0.02) | $(7.21) | | Diluted loss per share | $(0.02) | $(7.21) | - Anti-dilutive stock-based awards excluded from diluted EPS calculation were 5,247 thousand in Q1 FY21, down from 8,272 thousand in Q1 FY20[102] NOTE 14—BUSINESS SEGMENTS This note provides financial information for the company's reportable segments: Wholesale, Retail, and Other - The Company has two reportable segments: Wholesale (U.S. Wholesale and Canada Wholesale) and Retail[103][104] - The segment profit measure was updated to Adjusted EBITDA in Q4 FY20, with prior periods recast[105] Net Sales by Reportable Segment (in thousands) | Segment | Oct 31, 2020 | Nov 2, 2019 | | :---------- | :----------- | :---------- | | Wholesale | $6,431,283 | $6,067,307 | | Retail | $594,911 | $515,226 | | Other | $55,612 | $65,079 | | Eliminations | $(409,199) | $(351,000) | | Total Net sales | $6,672,607 | $6,296,612 | Adjusted EBITDA by Reportable Segment (in thousands) | Segment | Oct 31, 2020 | Nov 2, 2019 | | :---------- | :----------- | :---------- | | Wholesale | $122,961 | $106,312 | | Retail | $24,282 | $10,562 | | Other | $4,150 | $(1,597) | | Eliminations | $5,724 | $1,159 | | Total Continuing Operations Adjusted EBITDA | $157,117 | $116,436 | Capital Expenditures by Reportable Segment (in thousands) | Segment | Oct 31, 2020 | Nov 2, 2019 | | :---------- | :----------- | :---------- | | Wholesale | $37,991 | $42,259 | | Retail | $3,201 | $2,676 | | Other | $188 | $113 | | Total Capital expenditures | $41,380 | $45,048 | NOTE 15—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS This note discloses the company's commitments, contingent liabilities, and legal proceedings - The Company has outstanding guarantees related to leases, fixture financing loans, and other debt obligations of various retailers, with a maximum undiscounted payment of $31.3 million as of October 31, 2020[109] - A total estimated loss of $1.0 million is recorded for guarantee obligations[110] - The Company is named in approximately 42 lawsuits alleging contribution to the national opioid epidemic, with New Albertson's Inc. defending and indemnifying UNFI in a majority of these cases[116] - A False Claims Act (FCA) action against Supervalu and New Albertson's was dismissed in July 2020, but relators filed an appeal[118] - As of October 31, 2020, the Company had approximately $203 million of non-cancelable future purchase obligations[115] NOTE 16—DISCONTINUED OPERATIONS This note presents the operating results and financial position of operations classified as discontinued - Discontinued operations primarily consist of five Shoppers locations classified as held-for-sale as of October 31, 2020[123] Operating Results of Discontinued Operations (in thousands) | Metric | Oct 31, 2020 | Nov 2, 2019 | | :-------------------------------------- | :----------- | :---------- | | Net sales | $24,816 | $95,595 | | Gross profit | $8,044 | $30,509 | | Income from discontinued operations, net of tax | $1,296 | $4,026 | Assets and Liabilities of Discontinued Operations (in thousands) | Category | October 31, 2020 | August 1, 2020 | | :-------------------------------------- | :--------------- | :------------- | | Total current assets of discontinued operations | $5,687 | $5,067 | | Total long-term assets of discontinued operations | $2,407 | $3,915 | | Total assets of discontinued operations | $8,094 | $8,982 | | Total current liabilities of discontinued operations | $9,889 | $11,438 | | Total liabilities of discontinued operations | $9,904 | $13,176 | | Net liabilities of discontinued operations | $(1,810) | $(4,194) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, strategic initiatives, and the impact of COVID-19 on the business CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT This section outlines the forward-looking statements in the report and the associated risks and uncertainties - The report contains forward-looking statements subject to substantial risks and uncertainties, including the impact and duration of the COVID-19 outbreak, dependence on principal customers, general economic conditions, and the ability to realize anticipated benefits of acquisitions and dispositions[127][129] EXECUTIVE OVERVIEW This overview covers the company's business strategy, recent major contracts, COVID-19 impacts, and ongoing integration and divestiture plans - UNFI is a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products in North America, offering over 275,000 products and operating 55 distribution centers[130] - The acquisition of Supervalu in fiscal 2019 accelerated UNFI's 'build out the store' strategy, diversified its customer base, expanded market reach, and is expected to deliver significant synergies[131][132] - UNFI secured a 10-year primary grocery wholesaler agreement with Key Food Stores Co-operative, Inc., with expected sales of approximately $10 billion over the term[133] - The Retail segment (Cub Foods and most Shoppers locations) was reclassified from discontinued to continuing operations in Q4 FY20, as divestiture is no longer expected within one year, though the strategy to divest remains[135][146][148] - The COVID-19 pandemic led to a significant year-over-year increase in sales and gross profit due to higher food-at-home expenditures, allowing UNFI to leverage fixed operating and administrative expenses despite incremental COVID-19 costs[138] - UNFI completed the consolidation of five distribution centers into two in the Pacific Northwest during fiscal 2020, expecting synergies and cost savings[140] - The Company is converting to a single national warehouse management and procurement system to integrate facilities and improve operational efficiencies[145] - The Services Agreement with Moran Foods (Save-A-Lot) is expected to wind down near the end of its five-year term, with expected revenue of less than $20 million in fiscal 2021[151] Assessment of Our Business Results This section provides a high-level summary of the company's consolidated financial performance for the quarter Consolidated Financial Performance (13-Week Period Ended October 31, 2020 vs. November 2, 2019) | Metric (in thousands) | Oct 31, 2020 | Nov 2, 2019 | Change | % Change | | :--------------------------------------- | :----------- | :---------- | :----- | :------- | | Net sales | $6,672,607 | $6,296,612 | $375,995 | 6.0% | | Gross profit | $966,499 | $907,211 | $59,288 | 6.5% | | Operating income (loss) | $49,339 | $(416,464) | $465,803 | N/A | | Net loss attributable to United Natural Foods, Inc. | $(1,043) | $(383,927) | $382,884 | N/A | | Adjusted EBITDA | $158,957 | $121,694 | $37,263 | 30.6% | - Fiscal 2020 included a $425.4 million goodwill impairment charge attributable to a reorganization of reporting units and a sustained decrease in market capitalization[167] RESULTS OF OPERATIONS This section details the 6.0% year-over-year increase in net sales and analyzes changes in gross profit, operating expenses, and interest - Net sales for Q1 FY21 increased 6.0% YoY to $6.67 billion, primarily driven by strong customer demand due to the COVID-19 pandemic and cross-selling benefits[172] Net Sales Growth by Customer Channel (Q1 FY21 vs. Q1 FY20) | Customer Channel | % Change | | :----------------- | :------- | | Chains | 5% | | Independent retailers | 7% | | Supernatural | 9% | | Retail | 16% | | Other | (2)% | - Retail's net sales increase was driven by a 15.7% increase in identical store sales and approximately 200% growth in eCommerce sales at Cub Foods[176] - Other net sales decreased primarily due to a 41% ($48 million) decline in sales to foodservice customers, partially offset by higher e-commerce sales[177] - Gross profit increased $59.3 million (6.5%) to $966.5 million, with the gross profit rate increasing 7 basis points to 14.48%, primarily due to Retail's contribution (17 bps) from lower promotional spending[179] - Operating expenses increased $17.3 million (2.0%) to $901.0 million but decreased as a percentage of net sales to 13.50% (from 14.03%), driven by lower administrative costs and leveraging fixed operating expenses over higher net sales[180] - Operating income increased $465.8 million to $49.3 million, primarily due to the absence of the $425.4 million goodwill impairment charge in Q1 FY20 and increased gross profit[185] - Interest expense, net increased $19.4 million to $69.1 million, primarily due to a $23.8 million loss on debt extinguishment from Term Loan Facility prepayments, partially offset by lower interest on long-term debt[186][187] Segment Results of Operations This section analyzes the financial performance of the Wholesale and Retail segments - Wholesale net sales increased $364.0 million, driven by growth in sales to existing customers across Chains, Independent retailers, and Supernatural channels, primarily due to COVID-19 demand and cross-selling[197] - Wholesale's Adjusted EBITDA increased 16% YoY, benefiting from leveraged sales growth, despite higher operating costs from new distribution centers[200] - Retail net sales increased $79.7 million, primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic[198] - Retail's Adjusted EBITDA increased 130% YoY, driven by leveraged sales growth from increased food-at-home purchases[201] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, debt management, working capital, and cash flow activities - Total liquidity as of October 31, 2020, was $1.06 billion, comprising $1,008.3 million in unused ABL Credit Facility and $49.0 million in cash and cash equivalents[204] - Total debt increased $135.8 million to $2,633.4 million as of October 31, 2020, primarily due to additional borrowings under the ABL Credit Facility to fund seasonal working capital[204] - In Q1 FY21, the Company issued $500.0 million in Senior Notes and used the proceeds, along with ABL borrowings, to make a $500.0 million prepayment on its Term Loan Facility[204] - Subsequent to Q1 FY21, a voluntary $150.0 million prepayment was made on the Term Loan Facility, funded by ABL Credit Facility borrowings, to reduce interest costs[204] - Working capital increased $231.4 million to $1,566.3 million, driven by seasonal inventory build, increased accounts receivable, and a reduction of the current portion of long-term debt[204] - Capital expenditures for Q1 FY21 were $41.4 million, a decrease of $3.6 million YoY; fiscal 2021 capital spending is projected to be $250 million to $300 million[214] - Net cash used in operating activities of continuing operations decreased by $79.2 million YoY, primarily due to lower cash utilized for inventory build and higher earnings[215] - As of October 31, 2020, the Company had $1.49 billion of notional debt hedged through interest rate swap contracts[211] COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS This section details the company's financial commitments, contingent liabilities, and multiemployer pension plan obligations - The Company has outstanding guarantees related to leases and debt obligations of various retailers, and is contingently liable for assigned leases, with no material liabilities currently expected[221] - The Company contributes to various multiemployer pension plans, most of which are underfunded; contributions could increase, and a significant reduction in contributions could trigger a material withdrawal liability[222][223] - Expected contributions to multiemployer pension plans for fiscal 2021 are approximately $45 million[223] Critical Accounting Policies and Estimates This section confirms that there were no material changes to the company's critical accounting policies during the quarter - There were no material changes to the Company's critical accounting policies during the period covered by this Quarterly Report on Form 10-Q[227] Seasonality This section notes that the company's business generally does not experience material seasonality - The Company generally does not experience any material seasonality, but sales and operating results may vary significantly from quarter to quarter due to various factors[228] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks from interest rates and fuel prices - The Company's exposure to market risk primarily results from fluctuations in interest rates on borrowings and interest rate swap agreements, and price increases in diesel fuel[229] - There have been no other material changes to market risk exposure from those disclosed in the Annual Report on Form 10-K for the fiscal year ended August 1, 2020[229] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and reports no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of October 31, 2020[230] - There has been no material change in the Company's internal control over financial reporting during the first quarter of fiscal 2021[231] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section updates the status of significant legal matters, including opioid litigation, a False Claims Act appeal, and a settled class action - UNFI is named in approximately 42 lawsuits related to the national opioid epidemic, with New Albertson's Inc. defending and indemnifying UNFI in a majority of these cases[116][232] - A qui tam action alleging False Claims Act violations against Supervalu and New Albertson's was dismissed by the Court on July 2, 2020, but the relators filed a notice of appeal on July 9, 2020[117][118] - A putative nationwide class action regarding fuel surcharges was settled and received final court approval on August 10, 2020, and is now closed[119] Item 1A. Risk Factors This section confirms no material changes to the risk factors disclosed in the company's most recent Annual Report on Form 10-K - There have been no material changes to the risk factors contained in Part I, Item 1A. Risk Factors, of the Annual Report on Form 10-K for the fiscal year ended August 1, 2020[235] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program and shares surrendered for tax withholdings - The Board of Directors authorized a share repurchase program for up to $200.0 million of common stock, with $175.8 million remaining authorized as of October 31, 2020[236][238] - No shares were purchased under the share repurchase program in the first quarters of fiscal 2020 and 2021[219][236] - 609,290 shares of common stock were deemed surrendered by participants in compensatory stock plans to cover taxes from the vesting of restricted stock awards and units in Q1 FY21[238] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various agreements, corporate documents, and certifications - The exhibit index includes merger agreements, corporate bylaws, loan agreements (e.g., Third Amendment to Loan Agreement), indenture for Senior Notes, and certifications (CEO/CFO Sarbanes-Oxley)[240] Signatures This section provides the official signatures authenticating the report - The report was signed by John W. Howard, Chief Financial Officer, on December 9, 2020[245]