UNITED NATURAL FOODS INC [UNFI] Filings

10-Q 1 unfi-20221029.htm 10-Q unfi-20221029

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-15723

UNITED NATURAL FOODS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)						05-0376157 (I.R.S. Employer Identification No.)

313 Iron Horse Way, Providence, RI 02908
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (401) 528-8634

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.01	UNFI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of December 2, 2022 there were 59,831,508 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

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TABLE OF CONTENTS


Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

	Condensed Consolidated Statements of Operations (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

Part II.	Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37







Item 6.	Exhibits	38

	Signatures	39

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except for par values)


	October 29, 2022		July 30, 2022
ASSETS
Cash and cash equivalents	$	39	$	44
Accounts receivable, net	1,351		1,214
Inventories, net	2,756		2,355
Prepaid expenses and other current assets	214		184
Total current assets	4,360		3,797
Property and equipment, net	1,684		1,690
Operating lease assets	1,187		1,176
Goodwill	20		20
Intangible assets, net	801		819
Other long-term assets	147		126
Total assets	$	8,199	$	7,628
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,924	$	1,742
Accrued expenses and other current liabilities	258		260
Accrued compensation and benefits	199		232
Current portion of operating lease liabilities	157		156
Current portion of long-term debt and finance lease liabilities	27		27
Total current liabilities	2,565		2,417
Long-term debt	2,485		2,109
Long-term operating lease liabilities	1,078		1,067
Long-term finance lease liabilities	20		23
Pension and other postretirement benefit obligations	18		18
Deferred income taxes	17		8
Other long-term liabilities	181		194
Total liabilities	6,364		5,836
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5.0 shares; none issued or outstanding	—		—
Common stock, $0.01 par value, authorized 100.0 shares; 60.9 shares issued and 59.9 shares outstanding at October 29, 2022; 58.9 shares issued and 58.3 shares outstanding at July 30, 2022	1		1
Additional paid-in capital	583		608
Treasury stock at cost	(36)		(24)
Accumulated other comprehensive loss	(5)		(20)
Retained earnings	1,292		1,226
Total United Natural Foods, Inc. stockholders’ equity	1,835		1,791
Noncontrolling interests	—		1
Total stockholders’ equity	1,835		1,792
Total liabilities and stockholders’ equity	$	8,199	$	7,628

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in millions, except for per share data)


	13-Week Period Ended
		October 29, 2022		October 30, 2021
Net sales		$	7,532	$	6,997
Cost of sales		6,436		5,955
Gross profit		1,096		1,042
Operating expenses		1,000		932
Restructuring, acquisition and integration related expenses		2		3
Gain on sale of assets		(5)		—
Operating income		99		107
Net periodic benefit income, excluding service cost		(7)		(10)
Interest expense, net		35		40
Other (income) expense, net		(1)		1
Income before income taxes		72		76
Provision (benefit) for income taxes		5		(1)
Net income including noncontrolling interests		67		77
Less net income attributable to noncontrolling interests		(1)		(1)
Net income attributable to United Natural Foods, Inc.		$	66	$	76

Basic earnings per share		$	1.12	$	1.34
Diluted earnings per share		$	1.07	$	1.25

Weighted average shares outstanding:
Basic		58.8		57.0
Diluted		61.6		61.1

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in millions)


	13-Week Period Ended
		October 29, 2022		October 30, 2021
Net income including noncontrolling interests		$	67	$	77
Other comprehensive income (loss):
Recognition of pension and other postretirement benefit obligations, net of tax		—		1
Recognition of interest rate swap cash flow hedges, net of tax(1)		18		13
Foreign currency translation adjustments		(3)		—
Recognition of other cash flow derivatives, net of tax		—		1
Total other comprehensive income		15		15
Less comprehensive income attributable to noncontrolling interests		(1)		(1)
Total comprehensive income attributable to United Natural Foods, Inc.		$	81	$	91

(1)Amounts are net of tax expense of $6 million and $4 million for the first quarters of fiscal 2023 and fiscal 2022, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

For the 13-week periods ended October 29, 2022 and October 30, 2021

(in millions)


	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 July 30, 2022	58.9	$	1	0.6	$	(24)	$	608	$	(20)	$	1,226	$	1,791	$	1	$	1,792

Restricted stock vestings	2.0	—		—	—		(37)		—		—		(37)		—		(37)
Share-based compensation	—	—		—	—		12		—		—		12		—		12
Repurchases of common stock	—	—		0.4	(12)		—		—		—		(12)		—		(12)
Other comprehensive income	—	—		—	—		—		15		—		15		—		15
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(2)		(2)


Net income	—	—		—	—		—		—		66		66		1		67
Balances at October 29, 2022	60.9	$	1	1.0	$	(36)	$	583	$	(5)	$	1,292	$	1,835	$	—	$	1,835

Balances at July 31, 2021	57.0	$	1	0.6	$	(24)	$	599	$	(39)	$	978	$	1,515	$	(1)	$	1,514
Restricted stock vestings	1.7	—		—	—		(33)		—		—		(33)		—		(33)
Share-based compensation	—	—		—	—		11		—		—		11		—		11
Other comprehensive income	—	—		—	—		—		15		—		15		—		15
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(2)		(2)
Proceeds from issuance of common stock, net	—	—		—	—		5		—		—		5		—		5
Net income	—	—		—	—		—		—		76		76		1		77
Balances at October 30, 2021	58.7	$	1	0.6	$	(24)	$	582	$	(24)	$	1,054	$	1,589	$	(2)	$	1,587

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	13-Week Period Ended
(in millions)	October 29, 2022		October 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interests	$	67	$	77
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	74		69
Share-based compensation	12		11
Gain on sale of assets	(5)		—
Closed property and other restructuring charges	—		1
Net pension and other postretirement benefit income	(7)		(10)
Deferred income tax expense	2		—
LIFO charge	21		11
Provision for losses on receivables	—		1
Non-cash interest expense and other adjustments	3		5
Changes in operating assets and liabilities	(429)		(246)
Net cash used in operating activities	(262)		(81)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for capital expenditures	(67)		(56)
Proceeds from dispositions of assets	7		1
Payments for investments	(1)		(26)
Net cash used in investing activities	(61)		(81)
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings under revolving credit line	1,206		1,238

Repayments of borrowings under revolving credit line	(829)		(1,028)
Repayments of long-term debt and finance leases	(6)		(13)
Repurchases of common stock	(12)		—
Proceeds from the issuance of common stock and exercise of stock options	—		5
Payments of employee restricted stock tax withholdings	(37)		(33)
Distributions to noncontrolling interests	(2)		(2)
Repayments of other loans	(1)		—


Net cash provided by financing activities	319		167
EFFECT OF EXCHANGE RATE ON CASH	(1)		—
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(5)		5
Cash and cash equivalents, at beginning of period	44		41
Cash and cash equivalents, at end of period	$	39	$	46
Supplemental disclosures of cash flow information:
Cash paid for interest	$	40	$	46
Cash (refunds) for federal, state, and foreign income taxes, net	$	(1)	$	(1)
Leased assets obtained in exchange for new operating lease liabilities	$	57	$	71

Additions of property and equipment included in Accounts payable	$	26	$	17

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

United Natural Foods, Inc. and its subsidiaries (the “Company” or “UNFI”) 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 years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the first quarter of fiscal 2023 and 2022 relate to the 13-week fiscal quarters ended October 29, 2022 and October 30, 2021, 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.

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 July 30, 2022 (the “Annual Report”). There were no material changes in significant accounting policies from those described in the Annual Report.

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.

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 October 29, 2022 and July 30, 2022, the Company had net book overdrafts of $305 million and $266 million, respectively.

Reclassifications

Within the Condensed Consolidated Financial Statements certain immaterial amounts have been reclassified to conform with current period presentation. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

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Inventories, Net

Substantially all of the Company’s inventories consist of finished goods. To value discrete inventory items at lower of cost or net realizable value before application of any last-in, first-out (“LIFO”) reserve, the Company utilizes the weighted average cost method, perpetual cost method, the retail inventory method and the replacement cost method. Allowances for vendor funds and cash discounts received from suppliers are recorded as a reduction to Inventories, net and subsequently within Cost of sales upon the sale of the related products. Inventory quantities are evaluated throughout each fiscal year based on actual physical counts in the Company’s distribution facilities and stores. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the end of each fiscal year. The LIFO reserve was approximately $246 million and $225 million as of October 29, 2022 and July 30, 2022, respectively, which is recorded within Inventories, net on the Condensed Consolidated Balance Sheets.

NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update also require additional disclosures for equity securities subject to contractual sale restrictions. The Company is required to adopt this guidance in the first quarter of fiscal 2025. The Company is in the process of reviewing the provisions of the new standard but does not expect the adoption to have a material 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 excludes stores included within the Supernatural and Other channels defined below;

•Independent retailers, which includes smaller size accounts, including single store and multiple store locations, and group purchasing entities that 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 one customer;

•Retail, which reflects the Company’s Retail segment, including Cub Foods and Shoppers stores, and

•Other, which includes international customers outside of Canada, foodservice, eCommerce, conventional military business and other sales.

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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.


	Net Sales for the 13-Week Period Ended
(in millions)	October 29, 2022
Customer Channel	Wholesale		Retail		Other		Eliminations(1)		Consolidated
Chains	$	3,224	$	—	$	—	$	—	$	3,224
Independent retailers	1,947		—		—		—		1,947
Supernatural	1,513		—		—		—		1,513
Retail	—		613		—		—		613
Other	575		—		60		—		635
Eliminations	—		—		—		(400)		(400)
Total	$	7,259	$	613	$	60	$	(400)	$	7,532

	Net Sales for the 13-Week Period Ended
(in millions)	October 30, 2021
Customer Channel	Wholesale		Retail		Other		Eliminations(1)		Consolidated
Chains	$	3,082	$	—	$	—	$	—	$	3,082
Independent retailers	1,750		—		—		—		1,750
Supernatural	1,378		—		—		—		1,378
Retail	—		602		—		—		602
Other	524		—		56		—		580
Eliminations	—		—		—		(395)		(395)
Total	$	6,734	$	602	$	56	$	(395)	$	6,997

(1)Eliminations primarily includes the net sales elimination of Wholesale to Retail sales 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 United States 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.

Accounts and Notes Receivable Balances

Accounts and notes receivable are as follows:


(in millions)	October 29, 2022		July 30, 2022
Customer accounts receivable	$	1,340	$	1,213
Allowance for uncollectible receivables	(15)		(18)
Other receivables, net	26		19
Accounts receivable, net	$	1,351	$	1,214

Notes receivable, net, included within Prepaid expenses and other current assets	$	5	$	6
Long-term notes receivable, net, included within Other long-term assets	$	11	$	12

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Subsequent to the end of the first quarter of fiscal 2023, the Company entered into a purchase agreement with a third-party financial institution for the sale of certain accounts receivable up to $300 million, subject to eligibility criteria established by the financial institution. The Company initially sold $253 million of accounts receivable under this agreement without recourse, in exchange for cash less a discount, as specified in the agreement. After the initial sale, the Company does not retain any interest in the receivables. The Company’s continuing involvement in transferred receivables is limited to servicing the receivables. Pursuant to the terms of the agreement, certain receivables are sold to the third-party financial institution on a revolving basis, subject to certain limitations.

NOTE 4—GOODWILL AND INTANGIBLE ASSETS, NET

Changes in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following:


(in millions)	Wholesale			Other			Total
Goodwill as of July 30, 2022	$	10	(1)	$	10	(2)	$	20



Change in foreign exchange rates	—			—			—
Goodwill as of October 29, 2022	$	10	(1)	$	10	(2)	$	20

(1)Wholesale amounts are net of accumulated goodwill impairment charges of $717 million as of July 30, 2022 and October 29, 2022.

(2)Other amounts are net of accumulated goodwill impairment charges of $10 million as of July 30, 2022 and October 29, 2022.

Identifiable intangible assets, net consisted of the following:


	October 29, 2022						July 30, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortizing intangible assets:
Customer relationships	$	1,007	$	309	$	698	$	1,007	$	294	$	713
Pharmacy prescription files	33		19		14		33		18		15
Operating lease intangibles	6		4		2		6		4		2
Trademarks and tradenames	84		53		31		84		51		33
Total amortizing intangible assets	1,130		385		745		1,130		367		763
Indefinite lived intangible assets:
Trademarks and tradenames	56		—		56		56		—		56
Intangibles assets, net	$	1,186	$	385	$	801	$	1,186	$	367	$	819

Amortization expense was $18 million and $18 million for the first quarters of fiscal 2023 and 2022, respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on amortizing intangible assets existing as of October 29, 2022 is as shown below:


Fiscal Year:	(in millions)
Remaining fiscal 2023	$	54
2024	72
2025	70
2026	66
2027	63
Thereafter	420
	$	745

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NOTE 5—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

The following tables provide the fair value hierarchy for financial assets and liabilities measured on a recurring basis:


	Condensed Consolidated Balance Sheets Location	Fair Value at October 29, 2022
(in millions)		Level 1		Level 2		Level 3
Assets:
Fuel derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	2	$	—
Foreign currency derivatices designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	2	$	—
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	16	$	—
Interest rate swaps designated as hedging instruments	Other long-term assets	$	—	$	11	$	—

Liabilities:
Fuel derivatives designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	1	$	—


	Condensed Consolidated Balance Sheets Location	Fair Value at July 30, 2022
(in millions)		Level 1		Level 2		Level 3
Assets:
Fuel derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	3	$	—
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	3	$	—
Interest rate swaps designated as hedging instruments	Other long-term assets	$	—	$	1	$	—

Liabilities:
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	2	$	—

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, SOFR swap rates and credit default swap rates. As of October 29, 2022, a 100-basis point increase in forward SOFR interest rates would increase the fair value of the interest rate swaps by approximately $14 million; a 100-basis point decrease in forward SOFR interest rates would decrease the fair value of the interest rate swaps by approximately $14 million. Refer to Note 6—Derivatives for further information on interest rate swap contracts.

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Fair Value Estimates

For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. 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.


	October 29, 2022				July 30, 2022
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable, including current portion	$	21	$	14	$	23	$	17
Long-term debt, including current portion	$	2,499	$	2,507	$	2,123	$	2,153

NOTE 6—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 as of October 29, 2022. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note 5—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 October 29, 2022, 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	Floating Rate Reset Terms
October 26, 2018	October 31, 2022	100		2.8170	%	One-Month Term SOFR	Monthly
January 11, 2019	October 31, 2022	50		2.3770	%	One-Month Term SOFR	Monthly
January 23, 2019	October 31, 2022	50		2.2740	%	One-Month Term SOFR	Monthly
November 16, 2018	March 31, 2023	150		2.7770	%	One-Month Term SOFR	Monthly
January 23, 2019	March 31, 2023	50		2.4245	%	One-Month Term SOFR	Monthly
November 30, 2018	September 30, 2023	50		2.6980	%	One-Month Term SOFR	Monthly
October 26, 2018	October 31, 2023	100		2.7880	%	One-Month Term SOFR	Monthly
January 11, 2019	March 28, 2024	100		2.3600	%	One-Month Term SOFR	Monthly
January 23, 2019	March 28, 2024	100		2.4250	%	One-Month Term SOFR	Monthly
November 30, 2018	October 31, 2024	100		2.7385	%	One-Month Term SOFR	Monthly
January 11, 2019	October 31, 2024	100		2.4025	%	One-Month Term SOFR	Monthly
January 24, 2019	October 31, 2024	50		2.4090	%	One-Month Term SOFR	Monthly
October 26, 2018	October 22, 2025	50		2.8725	%	One-Month Term SOFR	Monthly
November 16, 2018	October 22, 2025	50		2.8750	%	One-Month Term SOFR	Monthly
November 16, 2018	October 22, 2025	50		2.8380	%	One-Month Term SOFR	Monthly
January 24, 2019	October 22, 2025	50		2.4750	%	One-Month Term SOFR	Monthly
		$	1,200

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

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value of the derivative is initially reported in Other comprehensive income (outside of earnings) in the Condensed Consolidated Statements of Comprehensive Income 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 pre-tax basis, are as follows:


	13-Week Period Ended
		October 29, 2022		October 30, 2021
(in millions)	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		$	35	$	40
Loss on cash flow hedging relationships:
Loss reclassified from comprehensive income into earnings		$	—	$	(11)

NOTE 7—LONG-TERM DEBT

The Company’s long-term debt consisted of the following:


(in millions)	Average Interest Rate at October 29, 2022	Fiscal Maturity Year	October 29, 2022		July 30, 2022
Term Loan Facility	6.40%	2026	$	800	$	800
ABL Credit Facility	4.64%	2027	1,217		840
Senior Notes	6.75%	2029	500		500
Other secured loans	5.06%	2024-2025	20		23
Debt issuance costs, net			(28)		(29)
Original issue discount on debt			(10)		(11)
Long-term debt, including current portion			2,499		2,123
Less: current portion of long-term debt			(14)		(14)
Long-term debt			$	2,485	$	2,109

Senior Notes

On October 22, 2020, the Company issued $500 million of unsecured 6.750% senior notes due October 15, 2028 (the “Senior Notes”). The Senior Notes, which are presented net of debt issuance costs of $7 million as of October 29, 2022 and July 30, 2022 in the Condensed Consolidated Balance Sheets, 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 (defined below).

ABL Credit Facility

The revolving credit agreement dated as of June 3, 2022 (the “ABL Loan Agreement”), by and among the Company (the “U.S. Borrower”), UNFI Canada (the “Canadian Borrower” and, together with the U.S. Borrower, the “Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “ABL Lenders”), Wells Fargo Bank, N.A. as administrative agent for the ABL Lenders, and the other parties thereto, provides for a secured asset-based revolving credit facility (the “ABL Credit Facility”), of which up to $2,600 million is available to the Borrowers, including a U.S. Dollar equivalent of $100 million sublimit for borrowings in Canadian dollars. 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 $750 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.

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The Borrowers’ obligations under the ABL Credit Facility are guaranteed by most of the Company’s wholly owned subsidiaries (collectively, the “Guarantors”), subject to customary exceptions and limitations. The Borrowers’ obligations under the ABL Credit Facility and the Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Borrowers’ and 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 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% to 92.5% of the net orderly liquidation value of eligible inventory, plus 90% of eligible pharmacy receivables, plus certain pharmacy prescription files availability to the Borrowers, after adjusting for customary reserves, but at no time shall exceed the lesser of the aggregate commitments under the ABL Credit Facility (currently $2,600 million) or the Borrowing Base.

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 millions):	October 29, 2022		July 30, 2022
Certain inventory assets included in Inventories, net	$	2,153	$	1,789