UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~April 27, 2019~~ February 1, 2020

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




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

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

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



Title of each 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: YesX☒ No _☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ~~(§232.405 of this chapter)~~ during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesX☒ 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 filerX	☒	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 X

☒

As of ~~May 30, 2019~~March 6, 2020 there were ~~52,704,476~~53,617,855 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of contents

TABLE OF CONTENTS



Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

	Condensed Consolidated Statements of ~~Income~~Operations (unaudited)	4

	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4840

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6557

Item 4.	Controls and Procedures	6557

Part II.	Other Information

Item 1.	Legal Proceedings	6557

Item 1A.	Risk Factors	66
	��
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	6657

Item 3.2.	~~Defaults Upon Senior~~Unregistered Sales of Equity Securities and Use of Proceeds	6657

Item 4.6.	~~Mine Safety Disclosures~~Exhibits	66

~~Item 5.~~	~~Other Information~~	66

~~Item 6.~~	~~Exhibits~~	6759

	Signatures	6860

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except for per share data)


	April 27, 2019			July 28, 2018			February 1, 2020			August 3, 2019
ASSETS
Cash and cash equivalents	$	37,861		$	23,315		$	40,064		$	42,350
Accounts receivable, net	1,049,273			579,702			1,074,941			1,065,699
Inventories	2,214,950			1,135,775			2,134,905			2,089,416
Prepaid expenses and other current assets	185,498			50,122			224,174			226,727
Current assets of discontinued operations	147,521			—			145,369			143,729
Total current assets	3,635,103			1,788,914			3,619,453			3,567,921
Property and equipment, net	1,648,156			571,146			1,470,704			1,639,259
Operating lease assets							1,061,946			—
Goodwill	471,843			362,495			19,734			442,256
Intangible assets, net	1,071,898			193,209			978,170			1,041,058
Deferred income taxes							96,044			31,087
Other assets	107,078			48,708			108,470			107,319
Long-term assets of discontinued operations	393,143			—			327,905			352,065
Total assets	$	7,327,221		$	2,964,472		$	7,682,426		$	7,180,965

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,472,250		$	517,125		$	1,462,843		$	1,476,857
Accrued expenses and other current liabilities	227,356			103,526			245,800			249,426
Accrued compensation and benefits	152,757			66,132			164,112			148,296
Current portion of long-term debt and capital lease obligations	133,676			12,441
Current portion of operating lease liabilities							131,315			—
Current portion of long-term debt and finance lease liabilities							32,218			112,103
Current liabilities of discontinued operations	116,110			—			122,761			122,265
Total current liabilities	2,102,149			699,224			2,159,049			2,108,947
Long-term debt	2,943,992			308,836			2,917,131			2,819,050
Long-term capital lease obligations	122,936			31,487
Long-term operating lease liabilities							967,933			—
Long-term finance lease liabilities							56,799			108,208
Pension and other postretirement benefit obligations	208,816			—			205,651			237,266
Deferred income taxes	43,232			44,384			1,041			1,042
Other long-term liabilities	374,949			34,586			275,082			393,595
Long-term liabilities of discontinued operations	935			—			646			1,923
Total liabilities	5,797,009			1,118,517			6,583,332			5,670,031
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 5,000 shares; issued none	—			—
Common stock, par value $0.01 per share, authorized 100,000 shares; 51,719 shares issued and 51,104 shares outstanding at April 27, 2019, 51,025 shares issued and 50,411 shares outstanding at July 28, 2018	517			510
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding							—			—
Common stock, $0.01 par value, authorized 100,000 shares; 54,175 shares issued and 53,560 shares outstanding at February 1, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019							542			535
Additional paid-in capital	502,733			483,623			535,900			530,801
Treasury stock at cost	(24,231		)	(24,231		)	(24,231		)	(24,231		)
Accumulated other comprehensive loss	(43,385		)	(14,179		)	(108,420		)	(108,953		)
Retained earnings	1,096,582			1,400,232			698,269			1,115,519
Total United Natural Foods, Inc. stockholders’ equity	1,532,216			1,845,955			1,102,060			1,513,671
Noncontrolling interests	(2,004		)	—			(2,966		)	(2,737		)
Total stockholders’ equity	1,530,212			1,845,955
Total stockholders' equity							1,099,094			1,510,934
Total liabilities and stockholders’ equity	$	7,327,221		$	2,964,472		$	7,682,426		$	7,180,965

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (unaudited)

(In thousands, except for per share data)


	13-Week Period Ended						39-Week Period Ended						13-Week Period Ended						26-Week Period Ended
	April 27, 2019			April 28, 2018			April 27, 2019			April 28, 2018			February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net sales	$	5,962,620		$	2,648,879		$	14,979,982		$	7,634,435		$	6,137,604		$	6,149,206		$	12,157,189		$	9,017,362
Cost of sales	5,174,070			2,240,792			13,017,318			6,487,610			5,362,144			5,387,423			10,610,687			7,843,248
Gross profit	788,550			408,087			1,962,664			1,146,825			775,460			761,783			1,546,502			1,174,114
Operating expenses	737,681			325,779			1,852,768			957,964			750,845			751,922			1,526,259			1,115,087
Goodwill and asset impairment (adjustment) charges	(38,250		)	—			332,621			11,242
Restructuring, acquisition, and integration related expenses	19,438			151			134,567			151
Operating income (loss)	69,681			82,157			(357,292		)	177,468
Goodwill and asset impairment charges													—			370,871			425,405			370,871
Restructuring, acquisition and integration related expenses													29,686			47,125			43,936			115,129
Operating loss													(5,071		)	(408,135		)	(449,098		)	(426,973		)
Other expense (income):
Net periodic benefit income, excluding service cost	(10,941		)	—			(22,691		)	—			(3,277		)	(10,906		)	(14,661		)	(11,750		)
Interest expense, net	54,917			4,347			121,149			12,060			48,621			58,707			98,139			66,232
Other, net	958			(24		)	231			(1,305		)	(520		)	(824		)	(566		)	(727		)
Total other expense, net	44,934			4,323			98,689			10,755			44,824			46,977			82,912			53,755
Income (loss) from continuing operations before income taxes	24,747			77,834			(455,981		)	166,713
(Benefit) provision for income taxes	(8,027		)	25,943			(104,091		)	33,831
Net income (loss) from continuing operations	32,774			51,891			(351,890		)	132,882
Loss from continuing operations before income taxes													(49,895		)	(455,112		)	(532,010		)	(480,728		)
Benefit for income taxes													(17,728		)	(91,809		)	(91,481		)	(96,064		)
Net loss from continuing operations													(32,167		)	(363,303		)	(440,529		)	(384,664		)
Income from discontinued operations, net of tax	24,370			—			47,847			—			2,107			21,407			27,061			23,477
Net income (loss) including noncontrolling interests	57,144			51,891			(304,043		)	132,882
Net loss including noncontrolling interests													(30,060		)	(341,896		)	(413,468		)	(361,187		)
Less net (income) loss attributable to noncontrolling interests	(52		)	—			116			—			(650		)	171			(1,169		)	168
Net income (loss) attributable to United Natural Foods, Inc.	$	57,092		$	51,891		$	(303,927	)	$	132,882
Net loss attributable to United Natural Foods, Inc.													$	(30,710	)	$	(341,725	)	$	(414,637	)	$	(361,019	)

Basic earnings per share:
Basic (loss) earnings per share:
Continuing operations	$	0.64		$	1.03		$	(6.93	)	$	2.63		$	(0.60	)	$	(7.15	)	$	(8.25	)	$	(7.59	)
Discontinued operations	$	0.48		$	—		$	0.95		$	—		$	0.03		$	0.42		$	0.49		$	0.46
Basic income (loss) per share	$	1.12		$	1.03		$	(5.99	)	$	2.63
Diluted earnings per share:
Basic loss per share													$	(0.57	)	$	(6.72	)	$	(7.77	)	$	(7.12	)
Diluted (loss) earnings per share:
Continuing operations	$	0.64		$	1.02		$	(6.93	)	$	2.61		$	(0.60	)	$	(7.15	)	$	(8.25	)	$	(7.59	)
Discontinued operations	$	0.48		$	—		$	0.94		$	—		$	0.03		$	0.42		$	0.48		$	0.46
Diluted income (loss) per share	$	1.12		$	1.02		$	(5.99	)	$	2.61
Weighted average share outstanding:
Diluted loss per share													$	(0.57	)	$	(6.72	)	$	(7.77	)	$	(7.12	)
Weighted average shares outstanding:
Basic	50,846			50,424			50,748			50,563			53,523			50,815			53,368			50,699
Diluted	50,964			50,751			50,748			50,816			53,523			50,815			53,368			50,699

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS (unaudited)

(In thousands)

13-Week Period Ended 39-Week Period Ended
April 27,
2019 April 28,
2018 April 27,
2019 April 28,
2018
Net income (loss) including noncontrolling interests $ 57,144
$ 51,891
$ (304,043 ) $ 132,882
Other comprehensive (loss) income:

Recognition of interest rate swap cash flow hedges⁽¹⁾
(16,196 ) 729
(26,898 ) 3,649
Foreign currency translation adjustments (1,326 ) (3,159 ) (2,308 ) (2,320 )
Total other comprehensive (loss) income (17,522 ) (2,430 ) (29,206 ) 1,329
Less comprehensive (income) loss attributable to noncontrolling interests (52 ) —
116
—
Total comprehensive income (loss) attributable to United Natural Foods, Inc. $ 39,570
$ 49,461
$ (333,133 ) $ 134,211



	13-Week Period Ended						26-Week Period Ended
	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net loss including noncontrolling interests	$	(30,060	)	$	(341,896	)	$	(413,468	)	$	(361,187	)
Other comprehensive (loss) income:
Recognition of pension and other postretirement benefit obligations, net of tax⁽¹⁾	7,370			—			7,942			—
Recognition of interest rate swap cash flow hedges, net of tax⁽²⁾	(3,752		)	(10,898		)	(7,433		)	(10,702		)
Foreign currency translation adjustments	(347		)	(310		)	24			(982		)
Total other comprehensive income (loss)	3,271			(11,208		)	533			(11,684		)
Less comprehensive (income) loss attributable to noncontrolling interests	(650		)	171			(1,169		)	168
Total comprehensive loss attributable to United Natural Foods, Inc.	$	(27,439	)	$	(352,933	)	$	(414,104	)	$	(372,703	)


(1)	Amounts are net of tax (benefit) expense of $2.4 million, $0.0 million, $2.6 million and $0.0 million, respectively.


(2)	Amounts are net of tax (benefit) expense of ~~$(6.0)~~$(1.3) million, $(3.9) million, $(2.5) million and ~~$0.3~~$(4.0) million, ~~for the 13-week periods ended April 27, 2019 and April 28, 2018, respectively, and $(9.9) million and $1.6 million for the 39-week periods ended April 27, 2019 and April 28, 2018,~~ respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY (unaudited)

For the 13-week periods ended February 1, 2020 and January 26, 2019

(In thousands)

Common Stock Treasury Stock
Additional
Paid-in Capital

Accumulated
Other
Comprehensive (Loss) Income
Retained Earnings
Total United Natural Foods, Inc.
Stockholders’ Equity
Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balances at July 28, 2018 51,025
$ 510
615
$ (24,231 ) $ 483,623
$ (14,179 ) $ 1,400,232
$ 1,845,955
$ —
$ 1,845,955
Cumulative effect of change in accounting principle

277
277
277
Restricted stock vestings and stock option exercises 408
4
(3,023 )

(3,019 ) (3,019 )
Share-based compensation
14,511

14,511
14,511
Other/share-based compensation

403

403
403
Recognition of interest rate swap cash flow hedges, net of tax (10,702 ) (10,702 ) (10,702 )
Foreign currency translation

(982 ) (982 ) (982 )
Acquisition of noncontrolling interests

(1,633 ) (1,633 )
Distributions to noncontrolling interests

(255 ) (255 )
Net loss

(361,019 ) (361,019 ) (168 ) (361,187 )
Balances at January 26, 2019 51,433
$ 514
615
$ (24,231 ) $ 495,514
$ (25,863 ) $ 1,039,490
$ 1,485,424
$ (2,056 ) $ 1,483,368
Restricted stock vestings and stock option exercises 26
—
(115 )

(115 ) (115 )
Share-based compensation

4,316

4,316
4,316
Recognition of interest rate swap cash flow hedges, net of tax (16,196 ) (16,196 ) (16,196 )
Foreign currency translation

(1,326 )
(1,326 ) (1,326 )
Proceeds from issuance of common stock, net 260
3
3,018
3,021
3,021
Net income

57,092
57,092
52
57,144
Balances at April 27, 2019 51,719
$ 517
615
$ (24,231 ) $ 502,733
$ (43,385 ) $ 1,096,582
$ 1,532,216
$ (2,004 ) $ 1,530,212



	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			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total United Natural Foods, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balances at November 2, 2019	54,121	$	541	615	$	(24,231	)	$	532,958		$	(111,691	)	$	728,979		$	1,126,556		$	(3,316	)	$	1,123,240
Restricted stock vestings and stock option exercises	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														(30,710		)	(30,710		)	650			(30,060		)
Balances at February 1, 2020	54,175	$	542	615	$	(24,231	)	$	535,900		$	(108,420	)	$	698,269		$	1,102,060		$	(2,966	)	$	1,099,094


Balances at October 27, 2018	51,426	$	514	615	$	(24,231	)	$	489,103		$	(14,655	)	$	1,381,215		$	1,831,946		$	(1,630	)	$	1,830,316
Restricted stock vestings and stock option exercises	7							(11		)							(11		)				(11		)
Share-based compensation								6,422									6,422						6,422
Other comprehensive loss											(11,208		)				(11,208		)				(11,208		)
Distributions to noncontrolling interests																	—			(255		)	(255		)
Net loss														(341,725		)	(341,725		)	(171		)	(341,896		)
Balances at January 26, 2019	51,433	$	514	615	$	(24,231	)	$	495,514		$	(25,863	)	$	1,039,490		$	1,485,424		$	(2,056	)	$	1,483,368

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)

For the 26-week periods ended February 1, 2020 and January 26, 2019

(In thousands)

Common Stock Treasury Stock
Additional
Paid-in Capital

Accumulated
Other
Comprehensive (Loss) Income
Retained Earnings
Total
Stockholders’ Equity
Shares Amount Shares Amount
Balances at July 29, 2017 50,622
$ 506
—
$ —
$ 460,011
$ (13,963 ) $ 1,235,367
$ 1,681,921
Cumulative effect of change in accounting principle

1,314

(805 ) 509
Restricted stock vestings and stock option exercises, net of tax 350
4
(4,160 )

(4,156 )
Share-based compensation
13,846

13,846
Repurchase of common stock 565
(22,237 ) (22,237 )
Other/share-based compensation

107

107
Recognition of interest rate swap cash flow hedges, net of tax 2,920
2,920
Foreign currency translation

839

839
Net income

80,991
80,991
Balances at January 27, 2018 50,972
$ 510
565
$ (22,237 ) $ 471,118
$ (10,204 ) $ 1,315,553
$ 1,754,740
Restricted stock vestings and stock option exercises, net of tax 34
—
236
236
Share-based compensation 7,866
7,866
Recognition of interest rate swap cash flow hedges, net of tax 729
729
Foreign currency translation
(3,159 ) (3,159 )
Net income
51,891
51,891
Balances at April 28, 2018 51,006
$ 510
565
$ (22,237 ) $ 479,220
$ (12,634 ) $ 1,367,444
$ 1,812,303



	Common Stock			Treasury Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balances at August 3, 2019	53,501	$	535	615	$	(24,231	)	$	530,801		$	(108,953	)	$	1,115,519		$	1,513,671		$	(2,737	)	$	1,510,934
Cumulative effect of change in accounting principle														(2,613		)	(2,613		)				(2,613		)
Restricted stock vestings and stock option exercises	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														(414,637		)	(414,637		)	1,169			(413,468		)
Balances at February 1, 2020	54,175	$	542	615	$	(24,231	)	$	535,900		$	(108,420	)	$	698,269		$	1,102,060		$	(2,966	)	$	1,099,094


Balances at July 28, 2018	51,025	510		615	(24,231		)	483,623			(14,179		)	1,400,232			1,845,955			—			1,845,955
Cumulative effect of change in accounting principle														277			277						277
Restricted stock vestings and stock option exercises, net of tax	408	4						(3,023		)							(3,019		)				(3,019		)
Share-based compensation								14,511									14,511						14,511
Other/share-based compensation								403									403						403
Other comprehensive loss											(11,684		)				(11,684		)				(11,684		)
Distributions to noncontrolling interests																	—			(1,888		)	(1,888		)
Net loss														(361,019		)	(361,019		)	(168		)	(361,187		)
Balances at January 26, 2019	51,433	$	514	615	$	(24,231	)	$	495,514		$	(25,863	)	$	1,039,490		$	1,485,424		$	(2,056	)	$	1,483,368

See accompanying Notes to Condensed Consolidated Financial Statements.

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UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	39-Week Period Ended						26-Week Period Ended
(In thousands)	April 27, 2019			April 28, 2018			February 1, 2020			January 26, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income including noncontrolling interests	$	(304,043	)	$	132,882
Net loss including noncontrolling interests							$	(413,468	)	$	(361,187	)
Income from discontinued operations, net of tax	47,847			—			27,061			23,477
Net (loss) income from continuing operations	(351,890		)	132,882
Adjustments to reconcile net (loss) income from continuing operations to net cash provided by (used in) operating activities:
Net loss from continuing operations							(440,529		)	(384,664		)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	169,780			65,982			144,360			97,993
Share-based compensation	18,827			21,712			3,951			14,511
(Gain) loss on disposition of assets	(1,147		)	111
Gain associated with disposal of investments	—			(699		)
Loss (gain) on disposition of assets							1,269			(60		)
Closed property and other restructuring charges	21,368			—			16,907			20,701
Goodwill and asset impairment charges	332,621			11,242			425,405			370,871
Net pension and other postretirement benefit income	(22,691		)	—			(14,633		)	(11,750		)
Deferred income taxes	(65,552		)	(21,866		)
Deferred income tax benefit							(60,260		)	(65,605		)
LIFO charge	13,686			—			12,943			6,265
Change in accounting estimate	—			(20,909		)
Provision for doubtful accounts	12,486			8,805			45,503			7,958
Loss on debt extinguishment	2,562			—			73			2,117
Non-cash interest expense	6,375			594			7,393			4,298
Changes in operating assets and liabilities, net of acquired businesses	(130,051		)	(229,130		)	(151,247		)	(62,679		)
Net cash provided by (used in) operating activities of continuing operations	6,374			(31,276		)
Net cash used in operating activities of continuing operations							(8,865		)	(44		)
Net cash provided by operating activities of discontinued operations	70,816			—			47,947			25,910
Net cash provided by (used in) operating activities	77,190			(31,276		)
Net cash provided by operating activities							39,082			25,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(136,953		)	(29,646		)	(84,627		)	(80,137		)
Purchase of acquired businesses, net of cash acquired	(2,282,327		)	(29		)
Purchases of acquired businesses, net of cash acquired							—			(2,281,934		)
Proceeds from dispositions of assets	169,274			47			11,737			168,274
Proceeds from disposal of investments	—			756
Long-term investment	(110		)	(3,397		)
Payments for long-term investment							(162		)	(110		)
Payments of company owned life insurance premiums							(1,310		)	—
Other	299			—			—			363
Net cash used in investing activities of continuing operations	(2,249,817		)	(32,269		)	(74,362		)	(2,193,544		)
Net cash provided by investing activities of discontinued operations	50,065			—			16,677			44,263
Net cash used in investing activities	(2,199,752		)	(32,269		)	(57,685		)	(2,149,281		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt	1,912,178			—			2,050			1,905,000
Proceeds from borrowings under revolving credit line	3,313,014			500,061			2,269,989			2,698,604
Proceeds from issuance of other loans	22,719			—
Repayments of borrowings under revolving credit line	(2,306,104		)	(394,671		)	(2,162,821		)	(1,666,600		)
Repayments of long-term debt and capital lease obligations	(736,949		)	(9,043		)
Repurchase of common stock	—			(22,237		)
Repayments of long-term debt and finance leases							(93,326		)	(713,366		)
Proceeds from the issuance of common stock and exercise of stock options	1,589			602			2,027			118
Payment of employee restricted stock tax withholdings	(3,253		)	(4,522		)	(872		)	(3,141		)
Payments for capitalized debt issuance costs	(62,587		)	—
Payments for debt issuance costs							—			(64,519		)
Net cash provided by financing activities of continuing operations	2,140,607			70,190			17,047			2,156,096
Net cash used in financing activities of discontinued operations	(254		)	—			(1,398		)	(254		)
Net cash provided by financing activities	2,140,353			70,190			15,649			2,155,842
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(226		)	(301		)	19			(1,868		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	17,565			6,344
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(2,935		)	30,559
Cash and cash equivalents, at beginning of period	23,315			15,414			45,263			23,315
Cash and cash equivalents, at end of period	40,880			21,758
Cash and cash equivalents at end of period							42,328			53,874
Less: cash and cash equivalents of discontinued operations	(3,019		)	—			(2,264		)	(4,359		)
Cash and cash equivalents of continuing operations	$	37,861		$	21,758
Cash and cash equivalents							$	40,064		$	49,515
Supplemental disclosures of cash flow information:
Cash paid for interest	$	115,378		$	12,368		$	94,010		$	66,016
Cash paid for federal and state income taxes, net of refunds	$	71,643		$	45,021
Cash (refunds) payments for federal and state income taxes, net							$	(24,376	)	$	13,449

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of contents

UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

~~April 27, 2019~~ ~~(unaudited)~~

1. NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

United Natural Foods, Inc. and its subsidiaries (the “Company”~~, “we”, “us”,~~ or ~~“our”~~“UNFI”) is a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services. ~~On October 22, 2018, we acquired all of the outstanding equity securities of SUPERVALU INC. (“Supervalu”); refer to Note 4. “Acquisitions” for further information.~~ The Company sells its products primarily throughout the United States and Canada.

Fiscal Year

~~Our~~The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the ~~third~~second quarter of fiscal ~~2019~~2020 and ~~2018~~2019 relate to the 13-week fiscal quarters ended ~~April 27,~~February 1, 2020 and January 26, 2019, ~~and April 28, 2018,~~ respectively. References to fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date relate to the ~~39-week~~26-week fiscal periods ended ~~April 27,~~February 1, 2020 and January 26, 2019, ~~and April 28, 2018,~~ respectively.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in ~~consolidation.~~

consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition. Unless otherwise indicated, references to the Condensed Consolidated Statements of ~~Income and~~Operations, the Condensed Consolidated Balance Sheets inand the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. Refer to Note ~~19. “Discontinued Operations”~~18—Discontinued Operations for additional information ~~including accounting policies,~~ about ~~our~~ 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~~Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~July 28, 2018~~August 3, 2019 (the “Annual Report”). Except as described for lease accounting below, there were no material changes in significant accounting policies from those described in the Company’s Annual Report.

~~Net sales consist primarily~~Use of sales of natural, organic, specialty, and conventional grocery and non-food products to retailers, adjusted for customer volume discounts, returns, and allowances, and professional services revenue. Net sales also include amounts charged by the Company to customers for shipping and handling and fuel surcharges. The Company recognizes freight revenue related to transportation of its products when control of the product is transferred, which is typically upon delivery. The principal components of cost of sales include the amounts paid to suppliers for product sold, plus the cost of transportation necessary to bring the product to, or move product between, the Company’s distribution facilities, offset by consideration received from suppliers in connection with the purchase, transportation, or promotion of the suppliers’ products. Cost of sales also includes amounts incurred by the Company’s manufacturing subsidiary, United Natural Trading, LLC, which does business as Woodstock Farms Manufacturing, for inbound transportation costs. Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation, and amortization expense. Other expense (income), net includes interest on outstanding indebtedness, including direct financing and capital lease obligations, net periodic benefit plan income, excluding service costs, interest income and miscellaneous income and expenses.Estimates

As noted above, the Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are generally recorded in cost of sales, whereas shipping and handling costs for receiving, selecting, quality assurance, and outbound transportation are recorded in operating expenses. Outbound shipping and handling costs, including allocated employee benefit expenses that are recorded in Operating expenses, totaled $370.8 million and $148.4 million for the third quarter of fiscal 2019 and 2018, respectively. Outbound shipping and handling costs, including allocated employee benefit expenses, totaled $908.2 million and $432.8 million for the first 39 weeks of fiscal 2019 and 2018, respectively.

~~Vendor Funds~~

The ~~Company receives funds from many~~preparation of the vendors whose products it buys for resale. These vendor funds are provided to increase the sell-through of the related products. The Company receives vendor funds for a variety of merchandising activities; placement of the vendors’ products in its advertising; display of the vendors’ products in prominent locations in stores; supporting the introduction of new products into stores and distribution centers; exclusivity rights in certain categories; and to compensate for temporary price reductions offered to customers on products held for sale. The Company also receives vendor funds for buying activities such as volume commitment rebates, credits for purchasing products in advance of their need and cash discounts for the early payment of merchandise purchases. The majority of the vendor fund contracts have terms of less than a year, with a small proportion of the contracts longer than one year.

The Company recognizes vendor funds for merchandising activities as a reduction of Cost of sales when the related products are sold. Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as a reduction to the cost of inventory.

~~Business Dispositions~~

~~The Company reviews the presentation of planned business dispositions in~~ the Condensed Consolidated Financial Statements ~~based on~~in conformity with GAAP requires management to make estimates and assumptions that affect the ~~available information and events that have occurred. The review consists~~reported amounts of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, the Company evaluates whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year.

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Income, and assets and liabilities and disclosure of contingent assets and liabilities at the date of the ~~business component planned~~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 ~~be disposed of are~~fund outstanding checks when presented ~~as separate lines within~~to the ~~Condensed Consolidated Balance Sheets. See Note 19. “Discontinued Operations”~~financial institution for ~~additional information.~~

The carrying value of the business held for sale is reviewed for recoverability upon meeting the classification requirements. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill, indefinite lived intangible assets and other assets are assessed. After the valuation process is completed, the held for sale business is reported at the lower of its carrying value or fair value less cost to sell, and no additional depreciation or amortization expense is recognized.

There are inherent judgments and estimates used in determining the fair value less costs to sell of a business and any impairment charges. The sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to closing.

~~Benefit Plans~~

payment. The Company ~~recognizes~~funds all intraday bank balance overdrafts during the ~~funded status~~same business day. Checks outstanding in excess of ~~its company-sponsored defined benefit plans,~~bank balances create book overdrafts, which ~~it acquired~~are recorded in ~~the first quarter of fiscal 2019 through the acquisition of Supervalu,~~Accounts payable in the Condensed Consolidated Balance Sheets and ~~gains or losses and prior service costs or credits not yet recognized~~are reflected as ~~a component of Accumulated other comprehensive loss, net of tax,~~an operating activity in the Condensed Consolidated ~~Balance Sheets. The Company sponsors pension~~Statements of Cash Flows. As of February 1, 2020 and other postretirement plans in various forms covering employees who meet eligibility requirements. The determination of the Company’s obligation and related income or expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare and compensation costs. These assumptions are disclosed in Note 17. “Benefit Plans”. Actual results that differ from the assumptions are accumulated and amortized over future periods.

The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. Pension expense for these plans is recognized as contributions are funded. See Note 17. “Benefit Plans” for additional information on participation in multiemployer plans.

~~The Company also contributes to 401(k) retirement savings plans for its employees.~~

~~Change in Accounting Estimate~~

As a result of growth in net sales and inventory for the 13 and 39-week periods ended April 28, 2018, and the changes in processing and the resulting increase in the Company’s estimate of its accrual for inventory purchasesAugust 3, 2019, the Company ~~initiated a review~~had net book overdrafts of ~~its vendor invoicing processes~~$236.8 million and ~~undertook a review~~$236.9 million, respectively.

Table of its estimate of its accrual for inventory purchases. In the third quarter of fiscal 2018, the Company finalized its analysis and review of its accrual for inventory purchases, including a historical data analysis of unmatched and partially matched amounts that were aged greater than twelve months and the ultimate resolution of such aged accruals. Based on its analysis, the Company determined that it could reasonably estimate the outcome of its partially matched vendor invoices upon receipt of such invoice rather than when the amount was aged greater than twelve months and a liability was no longer considered probable. As a result of this change in estimate, accounts payable was reduced by $20.9 million, resulting in an increase to net income of $13.9 million, or $0.27 per diluted share, for both the 13 and 39-weeks ended April 28, 2018.contents

~~Change in Inventory Accounting Policy~~Inventories, Net

Inventories are valued at the lower of cost or ~~net realizable value. For historical United Natural Foods, Inc. inventory prior to~~market. Substantially all of the ~~acquisition~~Company’s inventories consist of ~~Supervalu, cost was determined using the first-in, first-out (“FIFO”) method. For~~finished goods and a substantial portion of ~~legacy Supervalu inventory, cost was determined using the~~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 ~~with~~is computed at the ~~rest primarily determined using FIFO.~~end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, ~~acquired~~net would have been higher by approximately $37.1 million and $24.1 million at February 1, 2020 and August 3, 2019, respectively.

Leases

At the inception or modification of contract, the Company determines whether a lease exists and classifies its leases as ~~part~~an operating or finance lease at commencement. Subsequent to commencement, lease classification is only reassessed upon a change to the expected lease term or contract modification. Finance and operating lease assets represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease. These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the ~~Supervalu acquisition were recorded at their fair market values~~lease term. Incremental borrowing rates are estimated based on the Company’s borrowing rate as of the ~~acquisition date. During~~lease commencement date to determine the ~~second quarter~~present value of ~~fiscal 2019,~~lease payments, when lease contracts do not provide a readily determinable implicit rate. Incremental borrowing rates are determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms include option extension periods when it is reasonably certain that those options will be exercised. Leases with an initial expected term of 12 months or less are not recorded in the consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term. For all classes of underlying assets, the Company ~~completed its evaluation of its combined inventory accounting policies and changed its method of inventory costing for certain historical United Natural Foods, Inc. inventory~~has elected to not separate fixed lease components from the ~~FIFO accounting method~~fixed nonlease components.

The Company recognizes contractual obligations and receipts on a gross basis, such that the related lease obligation to the ~~LIFO accounting method. The Company concluded that~~landlord is presented separately from the ~~LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected~~sublease created by the lease assignment to ~~continue in~~ the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group.assignee. As a result, of the ~~change~~Company continues to the LIFO method, certain Company inventories, excluding Supervalu inventories, were reduced by $4.1 million and $7.3 million for the 13- and 39-week periods ended April 27, 2019, respectively, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Condensed Consolidated Statement of Income for the 13- and 39-week periods ended April 27, 2019. This resulted in a decrease to net income from continuing operations of $3.2 million, or $0.06 per diluted share, for the 13-week period ended April 27, 2019 and an increase to net loss from continuing operations of $4.8 million, or $0.09 per diluted share, for the 39-week period ended April 27, 2019. The Company has not retrospectively adjusted amounts prior to fiscal 2019 inrecognize on its Condensed Consolidated Balance Sheets ~~or Statement~~the operating lease assets and liabilities, and finance lease assets and obligations, for assigned leases.

The Company records operating lease expense and income using the straight-line method within Operating expenses, and lease income on a straight-line method for leases with its customers within Net sales. Finance lease expense is recognized as amortization expense within Operating expenses, and interest expense within Interest expense, net. For operating leases with step rent provisions whereby the rental payments increase over the life of ~~Income, as applying~~ the ~~change in accounting policy prior to fiscal 2019 is not practicable due to data limitations of inventory costs in prior periods.~~

~~Change in Book Overdraft Accounting Policy~~

~~In the first quarter of fiscal 2019,~~lease, and for leases where the Company ~~changed its accounting policy~~receives rent-free periods, the Company recognizes expense and income based on a straight-line basis based on the total minimum lease payments to be made or lease receipts expected to be received over the expected lease term, including rent-free periods. The Company is generally obligated for ~~reporting book overdrafts~~property tax, insurance and maintenance expenses related to leased properties, which often represent variable lease expenses. For contractual obligations on properties where the Company remains the primary obligor upon assignment of the lease and does not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts, the Company continues to recognize rent expense and rent income within Operating expenses.

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

The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on the ~~Condensed Consolidated Statements~~Company’s experience and knowledge of ~~Cash Flows represent outstanding checks issued but not yet presented~~the market in which the property is located, previous efforts to ~~financial institutions for disbursement in excess~~dispose of positive balances held at financial institutions, and as such represent book overdrafts. Book overdrafts are included within the Accounts payable balance in the Condensed Consolidated Balance Sheets. The change in these book overdraft amounts were previously reported as financing activities cash flows on the Condensed Consolidated Statements of Cash Flows, on a line item titled Increase in bank overdrafts. The Company has elected a preferable accounting policy presentation for classifying the change in book overdrafts from financing activities to operating activities, which resulted in the reclassification of prior period amounts to conform to the current period presentation. The Company concluded that operating activity classification is preferable, as book overdrafts do not result in financial institution borrowing or repayment activity at the end of respective reporting periodssimilar assets and the ~~presentation presents~~assessment of existing market conditions. Impairment reserves are reflected as a ~~more accurate disclosure of its cash generation and consumption activities. The reclassification resulted in a decrease~~reduction to ~~cash used in operating activities of $23.9 million and a corresponding decrease in cash provided by financing activities~~Operating lease assets. Refer to Note 11—Leases for the 39-week period ended April 28, 2018. The reclassification had no effect on previously reported Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income, or Condensed Consolidated Statements of Stockholders’ Equity.additional information.

~~Reclassifications~~

~~Certain prior year amounts within the Condensed Consolidated Balance Sheets, Statements of Income and Statements of Cash Flows have been reclassified to conform to the current period’s presentation.~~

~~Reclassifications of prior year amounts within the Condensed Consolidated Balance Sheets include:~~

~~the reclassification of~~ ~~Accrued compensation and benefits~~ ~~to present separately from~~ ~~Accrued expenses and other current liabilities~~;

~~the reclassification of Notes payable balances into~~ ~~Long-term debt~~;

~~the reclassification of the long-term portion of capital lease obligations from~~ ~~Long-term debt~~ ~~to present separately within~~ ~~Long-term capital lease obligations; and~~

the reclassification of residual financing obligations associated with build-to-suit properties for which the Company is not obligated to fund unless it is obligated under a future extension of a lease agreement from the ~~Long-term capital lease obligations~~ to ~~Other long-term liabilities~~.

~~Reclassifications of prior year amounts within the Condensed Consolidated Statements of Income include:~~

the reclassification of goodwill and asset impairment charges from a line item previously titled Restructuring and asset impairment charges to a new line item titled Goodwill and asset impairment (adjustment) charges; and

~~the combination of Interest expense and Interest income to present within Interest expense, net.~~

Within the Condensed Consolidated Statements of Cash Flows, prior year amounts for asset impairment charges have been reclassified within operating activities in a line item titled Goodwill and asset impairment charges. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

Table of contents

NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In ~~March 2017,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting ~~standard~~standards update (“ASU”) ~~2017-07,~~ ~~Compensation—Retirement Benefits~~No. 2016-02, Leases (Topic ~~715): Improving~~842), which provides new comprehensive lease accounting guidance that supersedes previous lease guidance. The objective of this ASU is to establish the ~~Presentation~~principles that lessees and lessors shall apply to report useful information to users of ~~Net Periodic Pension Cost~~financial statements about the amount, timing, and ~~Net Periodic Postretirement Benefit Cost.~~uncertainty of cash flows arising from a lease. Criteria for distinguishing between finance and operating leases are substantially similar to criteria for distinguishing between capital and operating leases in previous lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In addition, this ASU ~~2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in~~expands the ~~statement~~disclosure requirements of ~~operations.~~lease arrangements. The Company adopted this ~~guidance~~standard in the first quarter of fiscal 2020 on August 4, 2019, the effective and it presents non-service cost components of net periodic benefit income, as disclosed in Note 17. “Benefit Plans”, in an other income and expense line titled “Net periodic benefit income, excluding service cost”initial application date, using the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption. In addition, the Company elected the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The impact of the adoption to the Company’s Condensed Consolidated ~~Statements~~Balance Sheets includes the recognition of ~~Income.~~operating lease liabilities of $1.1 billion with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases. The ~~service cost components are~~difference between the amount of right-of-use assets and lease liabilities recognized is primarily related to adjustments to prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves. In addition, the adoption of the standard resulted in the derecognition of existing property and equipment for certain properties that did not previously qualify for sale accounting because the Company was determined to be the accounting owner during the construction phase. In addition, at the transition date the Company was constructing one facility that, when complete, the Company will perform a sale-leaseback assessment. For properties where the Company was deemed the accounting owner during construction for which construction has been completed, the difference between the assets and liabilities derecognized, net of the deferred tax impact, was recorded ~~within Operating expenses. The adoption~~as an adjustment to retained earnings. Lessor accounting guidance remained largely unchanged from previous guidance. Adoption of this standard did not have ana material impact onto the Company’s ~~prior period~~ Condensed Consolidated Statements of ~~Income,~~Operations or Cash Flows. The Company has revised its accounting policies, processes and controls, and systems as ~~all benefit plan costs for defined benefit pension~~applicable to comply with the provisions and ~~other postretirement benefit plans incurred are attributable~~disclosure requirements of the standard.

The effects of the changes, including those discussed above, made to the ~~Supervalu business,~~Company’s Condensed Consolidated Balance Sheets as of August 3, 2019 for the adoption of the new lease guidance were as follows (in thousands):



	Balance at August 3, 2019		Adjustments due to adoption of the new lease guidance			Adjusted Balance at August 4, 2019
Assets
Prepaid expenses and other current assets	$	226,727	$	(14,733	)	$	211,994
Property and equipment, net	1,639,259		(142,541		)	1,496,718
Operating lease assets	—		1,059,473			1,059,473
Intangible assets, net	1,041,058		(17,671		)	1,023,387
Deferred income taxes	$	31,087	1,052			$	32,139
Total increase to assets			$	885,580

Liabilities and Stockholders’ Equity
Accrued expense and other current liabilities	$	249,426	$	(7,260	)	$	242,166
Current portion of operating lease liabilities	—		137,741			137,741
Current portion of long-term debt and finance lease liabilities	112,103		(6,936		)	105,167
Long-term operating lease liabilities	—		936,728			936,728
Long-term finance lease obligations	108,208		(37,565		)	70,643
Other long-term liabilities	393,595		(134,515		)	259,080
Total stockholders’ equity	$	1,510,934	(2,613		)	$	1,508,321
Total increase to liabilities and stockholders’ equity			$	885,580

In October 2018, the FASB issued authoritative guidance under ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU adds the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes. This ASU is effective for public companies with interim and fiscal years beginning after December 15, 2018, which for the Company was ~~acquired~~the first quarter of fiscal year 2020. The Company adopted this standard in the first quarter of fiscal ~~2019.~~2020 with no impact to the Company’s consolidated financial statements as LIBOR is still being used as benchmark interest rate.

In ~~November 2016,~~February 2018, the FASB issued ASU ~~No. 2016-18,~~ ~~Statement~~2018-02, Reclassification of ~~Cash Flows (Topic 230): Restricted Cash (a consensus~~Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of ~~the FASB Emerging Issues Task Force)~~. This ASU clarifies the presentation of restricted cash on the statement of cash flows by requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amount generally described as restricted cash or restricted cash equivalents.2017. This ASU is effective for all entities for annual ~~reporting periods,~~ and interim ~~reporting~~ periods ~~contained therein,~~in fiscal years beginning after December 15, ~~2017, with retrospective application required.~~2018. The Company adopted this ASU in the first quarter of fiscal ~~2019.~~2020. The adoption of this ASU had no impact to ~~the Condensed Consolidated Statement of Cash Flows for the 39-week period ended April 28, 2018~~Accumulated other comprehensive loss or ~~April 27, 2019, as the Company did not have restricted cash in its beginning or ended amounts for those periods.~~Retained earnings.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the new standard in the first quarter of fiscal 2019, with no impact to its financial position, results of operations, or cash flows.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight specific issues are (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Businesses Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; (6) Distributions Received from Equity Method Investees; (7) Beneficial Interests in Securitization Transactions; and (8) Separately Identifiable Cash and Application of the Predominance Principle. This ASU is effective for public companies with interim periods and fiscal years beginning after December 15, 2017. The Company adopted this standard in the first quarter of fiscal 2019, with no impact to its Condensed Consolidated Statements of Cash Flows.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers, (Topic 606)~~, which has been updated by multiple amending ASUs (collectively “ASC 606”) and supersedes previous revenue recognition requirements (“ASC 605”). The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the ASU requires new, enhanced quantitative and qualitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The collective guidance is effective for public companies with annual periods, and interim periods within those periods, beginning after December 15, 2017. The new standard permits either of the following adoption methods: (i) a full retrospective application with restatement of each period presented in the financial statements with the option to elect certain practical expedients, or (ii) a retrospective application with the cumulative effect of adopting the guidance recognized as of the date of initial application (“modified retrospective method”). The Company has adopted this new guidance in the first quarter of fiscal 2019 using the modified retrospective method, with no significant impact to our Condensed Consolidated Balance sheets, Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash flows.

The primary impact of adopting the new standard, contained within the wholesale distribution reportable segment, is related to the sale of certain private label products for which revenue is recognized over time under the new standard as opposed to at a point in time under ASC 605. Private label products are specific to the customer to which they are sold, and are typically packaged with the customer’s logo or other products for which the customer has an exclusive right to sell. The Company is contractually restricted from selling private label products with the customer’s logo or other exclusive products to other third-party customers. As a result, the underlying good has no alternative use to the Company. In some instances, the Company’s contracts also require the customer to purchase private label inventory held by the Company if the agreement is terminated, the customer discontinues selling the specific product, or the product is nearing its expiration date. This gives the Company an enforceable right to payment for performance completed to date from certain customers, once it has procured private label product. As a result, the Company now recognizes revenue from these product sales over time, as control is transferred to the customer, using a cost-incurred input measure of progress, as opposed to at a point in time, typically upon delivery, under ASC 605. Control of these products is transferred to the customer upon incurrence of substantially all of the Company’s costs related to the product, and therefore the cost-incurred input method is determined to be a faithful depiction of the transfer of goods.

The effect of adopting this change resulted in an increase to Retained earnings of $0.3 million, which was recorded in the first quarter of fiscal 2019. This change did not materially impact our Condensed Consolidated Statements of Income for the third quarter of fiscal 2019 or the 39-week period ended April 27, 2019. Refer to Note 3. “Revenue Recognition” for further discussion of our adoption of the new standard.

~~Recently Issued Accounting Pronouncements~~

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825. This ASU clarifies the accounting treatment for the measurement of credit losses under ASC 236 and provides further clarification on previously issued updates including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities and ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities ~~are effective for~~have been adopted by the Company in the first quarter of fiscal 2020. The remaining amendments within ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. ~~The~~The Company ~~is currently reviewing~~adopted the ~~provisions~~relevant portions of ~~the new~~this standard ~~and evaluating its impact on the Company’s consolidated financial statements.~~

~~In October 2018, the FASB issued authoritative guidance under ASU No. 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.~~ This ASU adds the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes. This ASU is effective for public companies with interim and fiscal years beginning after December 15, 2018, which for the Company isin the first quarter of fiscal ~~year 2020. The~~2020 with no impact to Accumulated other comprehensive loss or Retained earnings for fiscal 2020, as the Company ~~is currently reviewing the provisions of the new standard and evaluating~~did not have separately measured ineffectiveness related to its ~~impact on the Company’s consolidated financial statements.~~cash flow hedges.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. ASU 2018-05 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises ofas authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of fiscal 2021. The Company has outstanding cloud computing arrangements and continues to incur costs that it believes would be required to be capitalized under ASU 2018-05. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company is required to adopt this guidance in the first quarter of fiscal ~~2021.~~2022. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020, with early adoption permitted. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments—Credit~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentsand subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, “Topic 326”). ~~ASU 2016-13~~Topic 326 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, ~~held-to-maturity debt securities, loans~~guarantees and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in the earlier recognition of ~~allowances for~~credit losses. ~~For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance.~~ The Company is required to adopt this new guidance in the first quarter of fiscal 2021. The Company is currently reviewing the provisions of the new standard, establishing revised processes and controls to estimate expected losses for trade and other receivables, guarantees and other instruments, and evaluating its impact on the Company’s consolidated financial statements.

In ~~February 2016,~~December 2019, the FASB issued ASU ~~No. 2016-02,~~ ~~Leases~~(2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions to Topic ~~842),~~ ~~which has been updated by subsequent amending ASUs (collectively “ASC 842”),~~740’s general principles. The amendments also improve consistent application and provides new comprehensive lease accounting guidance that supersedes existing lease guidance. The objective of ASC 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In addition, ASC 842 expands the disclosure requirements of lease arrangements. ASC 842 will require the Company to recognize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases, which the Company believes will result in a significant impact tosimplifies its ~~consolidated balance sheets.~~application. The Company expects to use the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption. In addition, the Company currently expects to elect the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. ASC 842 is ~~effective for public companies in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020, with early adoption permitted. The Company expects~~required to adopt this ~~standard~~guidance in the first quarter of fiscal ~~2020 and continues its assessment~~2022. The Company is currently reviewing the provisions of the ~~impacts of ASC 842~~new standard and evaluating its impact on the Company’s consolidated financial ~~statements and any necessary changes to our accounting policies, processes and controls, and systems. The Company expects that ASC 842 will have a material effect on its financial~~ statements. The Company currently believes the most significant effects will relate to (1) the recognition of new right-of-use assets and lease liabilities on the balance sheet for existing operating leases, and (2) the derecognition of existing assets and liabilities for certain sale-leaseback transactions that do not qualify for sale accounting, including build-to-suit arrangements for which construction is complete and the Company is leasing the constructed asset. Information about the amounts and timing of our undiscounted future operating lease payments can be found in Note 16. “Leases”.

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NOTE 3—REVENUE RECOGNITION

~~Revenue Recognition Accounting Policy~~

The Company recognizes revenue in an amount that reflects the consideration that is expected to be received for goods or services when its performance obligations are satisfied by transferring control of those promised goods or services to its customers. ASC 606 defines a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when or as the performance obligation is satisfied. This footnote addresses the Company’s revenue recognition policies for its continuing operations only; refer to Note 19. “Discontinued Operations” for additional information about our revenue recognition policies of discontinued operations.

Revenues from wholesale product sales are recognized when control is transferred, which typically happens upon either shipment or delivery, depending on the contract terms with the customer. Typically, shipping and customer receipt of wholesale products occur on the same business day. Discounts and allowances provided to customers are recognized as a reduction in Net sales as control of the products is transferred to customers. The Company recognizes freight revenue related to transportation of its products when control of the product is transferred, which is typically upon delivery.

~~Sales tax is excluded from Net sales. Limited rights of return or product warranties exist with the Company’s customers due to the nature of the products it sells.~~

~~Product sales~~

The Company enters into wholesale customer distribution agreements that provide terms and conditions of our order fulfillment. The Company’s distribution agreements often specify levels of required minimum purchases in order to earn certain rebates or incentives. Certain contracts include rebates and other forms of variable consideration, including consideration payable to the customer up-front, over time or at the end of a contract term.

In transactions for goods or services where the Company engages third-parties to participate in its order fulfillment process, it evaluates whether it is the principal or an agent in the transaction. The Company’s analysis considers whether it controls the goods or services before they are transferred to its customer, including an evaluation of whether the Company has the ability to direct the use of, and obtain substantially all the remaining benefits from, the specified good or service before it is transferred to the customer. Agent transactions primarily reflect circumstances where the Company is not involved in order fulfillment or where it is involved in the order fulfillment but is not contractually obligated to purchase the related goods or services from vendors, and instead extends wholesale customers credit by paying vendor trade accounts payable and do not control products prior to their sale. Under ASC 606, if the Company determines that it is acting in an agent capacity, transactions are recorded on a net basis. If the Company determines that it is acting in a principal capacity, transactions are recorded on a gross basis.

The Company also evaluates vendor sales incentives to determine whether they reduce the transaction price with its customers. The Company’s analysis considers which party tenders the incentive, whether the incentive reflects a direct reimbursement from a vendor, whether the incentive is influenced by or negotiated in conjunction with any other incentive arrangements and whether the incentive is subject to an agency relationship with the vendor, whether expressed or implied. Typically, when vendor incentives are offered directly by vendors to the Company’s customers, require the achievement of vendor-specified requirements to be earned by customers, and are not negotiated by the Company or in conjunction with any other incentive agreement whereby it does not control the direction or earning of these incentives, then Net sales are not reduced as part of the Company’s determination of the transaction price. In circumstances where the vendors provide the Company consideration to promote the sale of their goods and the Company determines the specific performance requirements for its customers to earn these incentives, Net sales are reduced for these customer incentives as part of the determination of the transaction price.

Certain customer agreements provide for the right to license one or more of the Company’s tradenames, such as FESTIVAL FOODS®, SENTRY®, COUNTY MARKET®, NEWMARKET®, FOODLAND®, JUBILEE® and SUPERVALU®. The Company typically does not separately charge for the right to license its tradenames. The Company believes that these tradenames are capable of being distinct, but are not distinct within the context of the contracts with its customers. Accordingly, the Company does not separately recognize revenue related to tradenames utilized by its customers. In addition, the Company enters into franchise agreements to separately charge its customers, who the Company also sells wholesale products to, for the right to use its CUB FOODS® tradename.

The Company enters into distribution agreements with manufacturers to provide wholesale supplies to the Defense Commissary Agency (“DeCA”) and other government agency locations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. The Company contracts with manufacturers to distribute products to the commissaries after being authorized by the manufacturers to be a military distributor to DeCA. The Company must adhere to DeCA’s delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is contracted by the manufacturer for a particular commissary or exchange location, and then places a product order with that distributor that is covered under DeCA’s master contract with the applicable manufacturer. The Company supplies product from its existing inventory, delivers it to the DeCA designated location, and bills the manufacturer for the product price plus a drayage fee. The manufacturer then bills DeCA under the terms of its master contract. The Company has determined that it controls the goods before they are transferred to the customer, and as such it is the principal in the transaction. Revenue is recognized on a gross basis when control of the product passes to the DeCA designated location.

~~Professional services and equipment sales~~

Many of the Company’s agreements with customers include various professional services and other promises to customers, in addition to the sale of the product itself, such as retail store support, advertising, store layout and design services, merchandising support, couponing, e-commerce, network and data hosting solutions, training and certifications classes, and administrative back-office solutions. These professional services may contain a single performance obligation for each respective service, in which case such services revenues are recognized when delivered. The Company determined that certain services provided are immaterial within the overall context of the respective contract, and as such has not allocated the transaction price to these obligations.

~~Wholesale equipment sales are recorded as direct sales to customers when shipped or delivered, consistent with the recognition of product sales.~~

~~Customer incentives~~

The Company provides incentives to its wholesale customers in various forms established under the applicable agreement, including advances, payments over time that are earned by achieving specified purchasing thresholds, and upon the passage of time. The Company typically records customer advances within Other assets and Other current assets and typically recognizes customer incentive payments that are based on expected purchases over the term of the agreement as a reduction to Net sales. To the extent that the transaction price for product sales includes variable consideration, such as certain of these customer incentives, the Company estimates the amount of variable consideration that should be included in the transaction price primarily by utilizing the expected value method. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the agreement will not occur. The Company believes that there will not be significant changes to its estimates of variable consideration, as the uncertainty will be resolved within a relatively short time and there is a significant amount of historical data that is used in the estimation of the amount of variable consideration to be received. Therefore, the Company has not constrained its estimates of variable consideration.

~~Customer incentive assets are reviewed for impairment when circumstances exist for which the Company no longer expects to recover the applicable customer incentives.~~

Disaggregation of Revenues

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

Supernatural,, which consists of chain accounts that are national in scope and carry primarily natural products, and ~~at this time~~ currently consists solely of Whole Foods ~~Market;~~

Market.

Supermarkets, which include accounts that also carry conventional products, and include chain accounts, supermarket independents, and gourmet and ethnic specialty stores.

Independents,, which include single store and chain accounts (excluding supernatural, as defined above), which carry primarily natural products and buying clubs of consumer groups joined to buy ~~products;~~

products.

~~Supermarkets, which include accounts that also carry conventional products, and at this time currently include chain accounts, supermarket independents, and gourmet and ethnic specialty stores;~~ ~~and~~

Other,, which includes ~~foodservice, e-commerce and~~conventional military business, international customers outside of Canada, as well as sales to Amazon.com, Inc., e-commerce, and foodservice

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The following tables detail the Company’s revenue recognition for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly.



	Net Sales for the 13-Week Period Ended
(in millions)	February 1, 2020
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	3,879	$	—	$	—		$	3,879
Supernatural	1,210		—		—			1,210
Independents	631		—		—			631
Other	425		38		(45		)	418
Total	$	6,145	$	38	$	(45	)	$	6,138

	Net Sales for the 13-Week Period Ended
(in millions)	January 26, 2019⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	3,928	$	—	$	—		$	3,928
Supernatural	1,100		—		—			1,100
Independents	675		—		—			675
Other	428		57		(39		)	446
Total	$	6,131	$	57	$	(39	)	$	6,149

	Net Sales for the 26-Week Period Ended
(in millions)	February 1, 2020⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	7,648	$	—	$	—		$	7,648
Supernatural	2,321		—		—			$	2,321
Independents	1,299		—		—			1,299
Other	883		102		(96		)	889
Total	$	12,151	$	102	$	(96	)	$	12,157

	Net Sales for the 26-Week Period Ended
(in millions)	January 26, 2019⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	4,858	$	—	$	—		$	4,858
Supernatural	2,127		—		—			2,127
Independents	1,334		—		—			1,334
Other	668		106		(76		)	698
Total	$	8,987	$	106	$	(76	)	$	9,017

Net Sales for the 13-Week Period Ended
(in millions) April 27, 2019
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 1,102
$ —
$ —
$ 1,102
Independents 829
—
—
829
Supermarkets 3,675
—
—
3,675
Other 338
63
(44 ) 357
Total $ 5,944
$ 63
$ (44 ) $ 5,963

Net Sales for the 13-Week Period Ended
(in millions)
April 28, 2018 ⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 992
$ —
$ —
$ 992
Independents 689
—
—
689
Supermarkets 706
—
—
706
Other 246
62
(46 ) 262
Total $ 2,633

$ 62
$ (46 ) $ 2,649

Net Sales for the 39-Week Period Ended
(in millions)
April 27, 2019 ⁽²⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 3,229
$ —
$ —
$ 3,229
Independents 2,331
—
—
2,331
Supermarkets 8,482
—
—
8,482
Other 889
169
(120 ) 938
Total $ 14,931
$ 169
$ (120 ) $ 14,980

Net Sales for the 39-Week Period Ended
(in millions)
April 28, 2018 ⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 2,776
$ —
$ —
$ 2,776
Independents 1,998
—
—
1,998
Supermarkets 2,118
—
—
2,118
Other 700
175
(133 ) 742
Total $ 7,592

$ 175
$ (133 ) $ 7,634

(1)

During the ~~second~~first quarter of fiscal ~~2019,~~2020, the presentation of net sales by customer channel was adjusted to reflect ~~changes in the classification~~reclassification of customer types resulting from management’s determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a ~~result~~Supermarket customer given that customer’s operations. During the second quarter of ~~a detailed review~~fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect conventional military sales within Other instead of Independents based on management’s determination to better reflect the focus of its ongoing business and the definition of customer ~~channel definitions.~~channels above. There was no impact to the Condensed Consolidated Statements of ~~Income~~Operations as a result of ~~revising~~ the ~~classification~~reclassification of customer types. As a result of ~~this adjustment,~~these adjustments, net sales to ~~our supermarkets channel and to our other~~the Company’s Supermarkets channel for the ~~third~~second quarter of fiscal ~~2018 decreased~~2019 and for fiscal 2019 year-to-date increased approximately ~~$12~~$26 million and ~~$13~~$51 million, respectively, compared to the previously reported amounts, while net sales to the ~~independents~~Other channel for the ~~third~~second quarter of fiscal ~~2018~~2019 and for fiscal 2019 year-to-date increased ~~approximately $25~~$109 million and $117 million, respectively, compared to previously reported amounts. Net sales to the Company’s Independents channel for the second quarter of fiscal 2019 and fiscal 2019 year-to-date decreased $135 million and $168 million, respectively, compared to the previously reported amounts. In addition, net sales to ~~our supermarkets channel and to our other~~the Company’s Other channel for the ~~39-week period ended April 28, 2018 decreased approximately $32~~first quarter of fiscal 2020 increased $90 million ~~and $45 million, respectively,~~ compared to the previously reported amounts, ~~while net sales to the independents channel for the 39-week period ended April 28, 2018 increased approximately $77 million compared to the previously reported amounts.~~

~~(2)~~

During the second quarter of fiscal 2019, the presentation of net sales attributable to Supervalu was incorporated into our definitions of sales by customer channel. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. Net sales as reported in the first quarter of fiscal 2019 by customer channel were recast, resulting in an increase in supermarket sales of $198 million, independents of $25 million, and other of $1 million with an offsetting ~~decrease~~elimination to the ~~Supervalu customer~~Independents channel.

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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~~as international distribution occurs through freight-forwarders. The Company does not have any performance obligations onrelated to international shipments subsequent to delivery to the domestic port.

Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net Sales when the Company holds the business for sale with a supply agreement that it anticipates the sale of the retail banner to include upon its disposal. The Company recorded $251.5 million and $265.2 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the second quarters of fiscal 2020 and 2019, respectively, and $496.1 million and $287.0 million for fiscal 2020 and 2019 year-to-date, respectively, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for purchases by retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $96.6 million and $153.6 million in the second quarters of fiscal 2020 and 2019, respectively, and $209.6 million and $163.4 million in fiscal 2020 and 2019 year-to-date, respectively.

Contract Balances

The Company does not typically incur costs that are required to be capitalized in connection with obtaining a contract with a customer. Expenses related to contract origination primarily relate to employee costs that the Company would incur regardless of whether the contract was obtained with the customer.

The Company typically does not have any performance obligations to deliver products under its contracts until its customers submit a purchase order, as it stands ready to deliver product upon receipt of a purchase order under contracts with its customers. These performance obligations are generally satisfied within a very short period of time. Therefore, the Company has utilized the practical expedient that provides an exemption from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. The Company does not typically receive pre-payments from its customers.

Customer payments are due when control of goods or services are transferred to the customer and are typically not conditional on anything other than payment terms, which typically range less than 30 days. Since no significant financing components exist between the period of time the Company transfers goods or services to the customer and when it receives payment for those goods or services, the Company has elected not to adjust its revenue recognition policy to recognize financing components. Customer incentives are not considered contract assets as they are not generated through the transfer of goods or services to the customers. No material contract assets exist for any period reported within these Condensed Consolidated Financial Statements.

Accounts and notes receivable are as follows:



(in thousands)	February 1, 2020			August 3, 2019
Customer accounts receivable	$	1,111,173		$	1,063,167
Allowance for uncollectible receivables	(59,724		)	(20,725		)
Other receivables, net	23,492			23,257
Accounts receivable, net	$	1,074,941		$	1,065,699

Customer notes receivable, net, included within Prepaid expenses and other current assets	$	12,878		$	11,912
Long-term notes receivable, net, included within Other assets	$	24,344		$	34,408

(in thousands) April 27, 2019 July 28, 2018
Customer accounts receivable $ 1,045,690
$ 595,698
Allowance for uncollectible receivables (13,972 ) (15,996 )
Other receivables, net 17,555
—
Accounts receivable, net $ 1,049,273
$ 579,702

Customer notes receivable, included within Prepaid expenses and other current assets $ 13,118
$ —
Long-term notes receivable, included within Other assets $ 35,388
$ —

4.~~ACQUISITIONS~~

NOTE 4—ACQUISITIONS

Supervalu Acquisition

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

The assets and liabilities of Supervalu were recorded in the Company’s ~~consolidated financial statements~~Consolidated Financial Statements on a ~~provisional~~preliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note ~~19. “Discontinued Operations”~~18—Discontinued Operations for more ~~information.~~information on discontinued operations.

Table of contents

The following table summarizes the final consideration, ~~paid, preliminary~~ fair ~~values~~value of ~~the Supervalu~~ assets acquired and liabilities assumed, and the resulting ~~preliminary~~ goodwill. Due to the recent closing of the transaction, management’s ongoing assessment of the fair values of acquired assets and assumed liabilities, and its further review of certain disposal components being classified as held for sale, as of April 27, 2019, the purchase price allocation was preliminary and will be finalized when valuations and final assessments of the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations, and such changes may result in increases or decreases to the goodwill impairment charge recorded in fiscal 2019 year-to-date due to changes in the opening balance sheet value of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible assets acquired, and liabilities assumed.



(in thousands)	Final Acquisition Date Fair Values
Consideration:
Outstanding shares	$	1,258,450
Outstanding debt, excluding acquired senior notes	1,046,170
Equity-based awards	18,411
Total consideration	$	2,323,031

Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	$	25,102
Accounts receivable	552,381
Inventories	1,156,781
Prepaid expenses and other current assets	112,449
Current assets of discontinued operations	196,848
Property, plant and equipment	1,207,115
Goodwill	376,181
Intangible assets	918,103
Other assets	77,008
Long-term assets of discontinued operations	433,839
Accounts payable	(974,252		)
Current portion of long-term debt and finance lease obligations	(579,565		)
Other current liabilities	(331,693		)
Current liabilities of discontinued operations	(148,763		)
Long-term debt	(34,355		)
Long-term finance lease obligations	(103,289		)
Pension and other postretirement benefit obligations	(234,324		)
Deferred income taxes	(18,254		)
Other long-term liabilities	(308,516		)
Long-term liabilities of discontinued operations	(1,398		)
Noncontrolling interests	1,633
Total consideration	2,323,031
Less: Cash and cash equivalents⁽¹⁾	(30,596		)
Total consideration, net of cash and cash equivalents acquired	$	2,292,435

As of October 22, 2018
(in thousands) Preliminary as of October 27, 2018 Preliminary as of April 27, 2019
Cash and cash equivalents $ 25,102
$ 25,102
Accounts receivable 557,680
543,570
Inventories 1,162,360
1,162,175
Prepaid expenses and other current assets 66,440
69,850
Current assets of discontinued operations⁽¹⁾
196,615
204,917
Property, plant and equipment 1,148,001
1,209,486
Goodwill 347,485
444,572
Intangible assets⁽²⁾
1,077,541
923,099
Other assets⁽²⁾
109,445
77,266
Long-term assets of discontinued operations⁽¹⁾
404,301
439,235
Accounts payable (967,429 ) (973,394 )
Other current liabilities (282,692 ) (327,619 )
Current portion of long term debt and capital lease obligations (579,677 ) (579,566 )
Current liabilities of discontinued operations⁽¹⁾
(150,611 ) (150,690 )
Long-term debt and capital lease obligations⁽³⁾
(179,262 ) (137,644 )
Pension and other postretirement benefit obligations (234,324 ) (234,324 )
Deferred income taxes (177,231 ) (74,254 )
Other long-term liabilities⁽³⁾
(200,913 ) (299,598 )
Long-term liabilities of discontinued operations⁽¹⁾
(1,401 ) (753 )
Total fair value of net assets acquired 2,321,430
2,321,430
Plus: noncontrolling interests 1,633
1,633
Less: cash and cash equivalents⁽⁴⁾
(30,596 ) (30,596 )
Less: assumed equity award liabilities (18,638 ) (18,638 )
Plus: cash paid for equity awards —
8,498
Total consideration paid in cash 2,273,829
2,282,327
Plus: unpaid assumed equity award liabilities⁽⁵⁾
18,638
9,914
Total consideration $ 2,292,467
$ 2,292,241


(1)	~~Refer to Note 19. “Discontinued Operations” for additional information regarding the carrying value of discontinued operations within the Condensed Consolidated Balance Sheets.~~


~~(2)~~	~~During the second quarter of fiscal 2019, the Company reclassified favorable operating lease intangible assets of $23.7 million from Other assets to Intangible assets within this table.~~

~~(3)~~

During the second quarter of fiscal 2019, the Company reclassified residual financing obligations associated with build-to-suit properties for which the Company is not obligated to fund unless it is obligated under a future extension of a lease agreement. This reclassification resulted in a reduction of Long-term debt and capital lease obligations of $23.8 million, with an offsetting increase in Other long-term liabilities assumed within this table. If the terms of the respective leases are extended and a cash obligation for a portion of this residual value balance exists, the Company will present these contractual obligations within Long-term capital lease obligations within the Condensed Consolidated Balance Sheets.


~~(4)~~	Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations.


~~(5)~~	Includes equity consideration for share-based awards that have not yet been paid, which reflects non-cash consideration for the third quarter of fiscal 2019 that will become cash consideration in subsequent periods.

~~Preliminary goodwill~~Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. ~~The Company is currently evaluating the tax deductibility of the provisional goodwill amount, however it currently expects a~~A substantial portion of ~~its~~ goodwill ~~to be~~is deductible for income tax purposes. ~~Based on the preliminary valuation, goodwill resulting~~Goodwill from the acquisition was ~~primarily~~ attributed to the Company’s ~~wholesale segment,~~Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which ~~is presented in Goodwill~~ in the ~~table above. No~~first quarter of fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 6—Goodwill and Intangible Assets. NaN goodwill was attributed to the ~~retail~~Company’s Retail reporting unit within discontinued operations. ~~Refer to Note 7. “Goodwill and Intangible Assets” for additional information regarding the assignment of goodwill to the Company’s reporting units.~~

During the ~~second and third quarters~~first quarter of fiscal ~~2019,~~2020, the Company ~~updated~~finalized its ~~preliminary~~ fair value estimates of its net assets, primarily ~~due to a review~~by completing income tax returns and reviews of the cash flows used to measure fair value of intangible assets, updated estimates of expected fair value, less costs to sell, of its retail disposal groups based on indications of value, and updates to estimated carrying values of other assets and ~~liabilities based on an ongoing review~~liabilities. There were no material changes to preliminary amounts previously reported.

Table of ~~their fair values.~~contents

The following table summarizes the identifiable intangible assets and liabilities recorded based on ~~provisional~~final valuations. The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated. The ~~preliminary~~ fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.


		As of October 22, 2018						Final Acquisition Date Fair Values
(in thousands)	Estimated Useful Life	Continuing Operations			Discontinued Operations		Estimated Useful Life	Continuing Operations			Discontinued Operations
Customer relationship assets	11–19 years	$	815,000		$	—	10–17 years	$	810,000		$	—
Favorable operating leases	3–25 years	33,099			—		1-19 years	21,629			—
Leases in place							1-8 years	10,474			—
Tradenames	2-9 years	66,000			17,000		2-9 years	66,000			17,000
Pharmacy prescription files	5–7 years	—			41,100		5-7 years	—			45,900
Non-compete agreement	2 years	9,000			—		2 years	10,000			—
Unfavorable operating leases	2 years	(11,199		)	—		1-12 years	(21,754		)	—
Total		$	911,900		$	58,100		$	896,349		$	62,900

~~In addition to~~The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, ~~of assets and assumption of liabilities above, the Company also began a restructuring plan~~ which ~~resulted~~are quantified in ~~additional expenses recorded in its Condensed Consolidated Statements of Income for the 13-week period and 39-week period ended April 27, 2019. Refer to~~ Note ~~5. “Restructuring,~~5—Restructuring, Acquisition and Integration Related ~~Expenses” and Note 14. “Share-Based Awards” for further information.~~Expenses.

The accompanying Condensed Consolidated Statements of ~~Income~~Operations include the results of operations of Supervalu ~~since the~~from October 22, ~~2018 acquisition date through April 27, 2019, which consisted of net sales from continuing operations of $6.94 billion, of which $3.24 billion was recorded in the 13-week period ended April 27, 2019.~~2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note ~~19. “Discontinued Operations”.~~18—Discontinued Operations.

The following table presents unaudited supplemental pro forma consolidated Net sales and Net ~~income (loss)~~loss from continuing operations based on ~~UNFI’s~~the Company’s historical reporting periods as if the acquisition of Supervalu had occurred as of July 30, 2017:

13-Week Period Ended 39-Week Period Ended
(in thousands, except per share data)
April 28, 2018⁽¹⁾

April 27, 2019⁽²⁾

April 28, 2018⁽²⁾
Net sales $ 6,067,869
$ 18,096,796
$ 18,125,148
Net income (loss) from continuing operations $ 73,853
$ (303,364 ) $ 42,855
Basic net income (loss) from continuing operations per share $ 1.46
$ (5.98 ) $ 0.85
Diluted net income (loss) from continuing operations per share $ 1.46
$ (5.98 ) $ 0.84



	13-Week Period Ended			26-Week Period Ended
(in thousands, except per share data)	January 27, 2018⁽²⁾			January 26, 2019⁽¹⁾			January 27, 2018⁽²⁾
Net sales	$	6,159,106		$	12,134,176		$	12,056,161
Net loss from continuing operations	$	(25,388	)	$	(411,196	)	$	(34,349	)
Basic net loss continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)
Diluted net loss from continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)


(1)	~~Includes 13 weeks of pro forma Supervalu results for the period ended April 28, 2018.~~


~~(2)~~	Includes 12 weeks of pro forma Supervalu results for the period ended September 8, 2018.


~~(3)~~(2)	Includes 3913 and 26 weeks of pro forma Supervalu results for the period ended ~~April 28, 2018~~December 2, 2017 and ~~an additional~~6 and 19 weeks of pro forma Associated Grocers of Florida, Inc. results for the period ended November 4, 2017, which was acquired by Supervalu on December 8, 2017.

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

5.NOTE 5—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)	February 1, 2020		January 26, 2019		February 1, 2020		January 26, 2019
2019 SUPERVALU INC. restructuring expenses	$	664	$	18,097	$	2,501	$	54,166
Acquisition and integration costs	15,411		9,481		24,705		41,416
Closed property charges and costs	13,611		19,547		16,730		19,547
Total	$	29,686	$	47,125	$	43,936	$	115,129

Table of contents

13-Week Period Ended 39-Week Period Ended
(in thousands) April 27, 2019 April 27, 2019
2019 SUPERVALU INC. restructuring expenses $ 12,257
$ 66,423
Acquisition and integration costs 6,084
47,500
Closed property charges 1,097
20,644
Total $ 19,438
$ 134,567

~~Closed Property Reserves~~

~~Changes in reserves for closed properties, included additions noted above, consisted of the following:~~

(in thousands)
April 27, 2019
(39 weeks)
Reserves for closed properties at beginning of the fiscal year $ —
Acquired liabilities 34,426
Additions, accretion and changes in estimates 17,861
Payments (8,021 )
Reserves for closed properties at the end of the fiscal period $ 44,266

Reserves for closed property are included in the Condensed Consolidated Balance Sheets within Accrued expenses and other current liabilities and Other long-term liabilities. Closed property charges recorded in fiscal 2019 year-to-date primarily relate to 17 retail stores, including certain Shop ‘n Save and Shop ‘n Save East branded stores, and are net of estimated sublease assumptions.

Restructuring Programs

The following is a summary of the current period activity within restructuring reserves by ~~reserve type~~program included in the Condensed Consolidated Balance Sheets, primarily within Accrued compensation and benefits for severance and other employee separation costs and related tax payments, within Accrued expenses and other current liabilities for the current portion of closed property reserves and within Other long-term liabilities for the long-term portion of closed property reserves.payments.



(in thousands)	2019 SUPERVALU INC.			2018 Earth Origins Market		2017 Cost Saving and Efficiency Initiatives		Total
Balances at August 3, 2019	$	11,857		$	383	701		$	12,941
Restructuring program charge	2,501			—		—		2,501
Cash payments	(9,799		)	—		—		(9,799		)
Balances at February 1, 2020	$	4,559		$	383	$	701	$	5,643

Cumulative program charges incurred from inception to date	$	76,915		$	2,219	$	6,864	$	85,998

(in thousands) 2019 SUPERVALU INC. 2018 Earth Origins Market Total
Balances at July 28, 2018 $ —
$ 2,219
$ 2,219
Restructuring program charge⁽¹⁾
66,423
—
66,423
Acquired restructuring liability 6,193
—
6,193
Cash payments (58,005 ) (2,219 ) (60,224 )
Balances at April 27, 2019 $ 14,611
$ —
$ 14,611

Cumulative program charges incurred from inception to date $ 66,423
$ 2,219
$ 68,642


~~(1)~~	~~Includes $40.0 million of charges related to change-in-control expense to satisfy outstanding equity awards and severance related costs.~~

2019 SUPERVALU INC.

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

The Company expects to incur approximately $2 million of additional restructuring expense for the remainder of fiscal 2019. The estimate of additional restructuring expense does not include costs and charges that may be incurred related to the divestiture of retail operations, which may be material, including multiemployer plan charges, severance costs, store closure charges, and related costs. The extent of these costs and charges will be determined based on outcomes achieved under the divestiture process. At this time, however, the Company is unable to make an estimate with reasonable certainty of the amount or type of costs and charges expected to be incurred in connection with the foregoing actions.

~~2018 Earth Origins Market~~

During the second quarter of fiscal 2018 the Company made the decision to close three non-core, under-performing stores of its total twelve stores related to its Earth Origins Market Retail business. Based on this decision, the Company recorded restructuring costs of $2.2 million during fiscal 2018. In the fourth quarter of fiscal 2018, the Earth Origins Retail business was sold and the Company recorded a loss on disposition of assets of $2.7 million.

6.~~EARNINGS PER SHARE~~

~~The following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:~~

13-Week Period Ended 39-Week Period Ended
(in thousands, except per share data) April 27,
2019 April 28,
2018 April 27,
2019 April 28,
2018
Basic weighted average shares outstanding 50,846
50,424
50,748
50,563
Net effect of dilutive stock awards based upon the treasury stock method 118
327
—
253
Diluted weighted average shares outstanding 50,964
50,751
50,748
50,816

Basic per share data:
Continuing operations $ 0.64
$ 1.03
$ (6.93 ) $ 2.63
Discontinued operations $ 0.48
$ —
$ 0.95
$ —
Basic income (loss) per share $ 1.12
$ 1.03
$ (5.99 ) $ 2.63
Diluted per share data:
Continuing operations $ 0.64
$ 1.02
$ (6.93 ) $ 2.61
Discontinued operations⁽¹⁾
$ 0.48
$ —
$ 0.94
$ —
Diluted income (loss) per share $ 1.12
$ 1.02
$ (5.99 ) $ 2.61

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 5,176
85
2,723
96


~~(1)~~	The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards, of approximately 275 thousand shares for the 39-week period ended April 27, 2019.

7.NOTE 6—GOODWILL AND INTANGIBLE ASSETS

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

~~During fiscal 2019, a relative fair value allocation was performed when the Canada Wholesale~~units or move from one reporting unit ~~became a separate operating segment and reporting unit.~~to another.

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, as both of these reporting units are expected to benefit from the synergies of the business combination. The assignment was based on the relative synergistic value estimated as of the acquisition date. This systematic approach utilized the relative cash flow contributions and value created from the acquisition to each reporting unit on a stand-alone basis. As of the acquisition date, approximately $112 million was attributed to the legacy Company Wholesale reporting unit, which is preliminary and subject to the final determinations of the fair value of net assets acquired and a proportionate assignment adjustment between the Supervalu Wholesale reporting unit and the legacy Company reporting unit.

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

Supervalu Acquisition Goodwill

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

Table of contents

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

Fiscal 2020 Goodwill Impairment Review

During the first quarter of fiscal ~~2019,~~2020, the Company ~~experienced a decline in~~changed its ~~stock price~~management structure and ~~market capitalization. During the second quarter of fiscal 2019, the stock price continued~~internal financial reporting to decline, and the decline in the stock price and market capitalization became significant and sustained. Due to this sustained decline in stock price, the Company determined that it was more likely than not that the carrying value ofcombine the Supervalu Wholesale reporting unit ~~exceeded its fair~~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, ~~and~~the Company performed an interim quantitative impairment ~~test~~review of ~~goodwill.~~ 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 ~~guidelines~~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 ~~10%~~8.5%, which considered ~~guidelines for~~observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums, including those reflected in the ~~current~~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 ~~Supervalu~~U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded ~~the~~its assigned ~~goodwill as of the acquisition date.~~goodwill. As a result, the Company recorded a goodwill impairment charge of ~~$332.6~~$421.5 million ~~for fiscal 2019 year-to-date, which reflects the preliminary goodwill impairment charge of $370.9 million and an adjustment to the charge of $38.3 million recorded~~ in the ~~second and third quarters of fiscal 2019, respectively. The goodwill impairment charge adjustment recorded in the third~~first quarter of fiscal ~~2019 was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition.~~2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of ~~Income.~~Operations. The goodwill impairment charge reflects the impairment of all of ~~Supervalu~~the U.S. Wholesale’s reporting unit ~~goodwill, based on the preliminary acquisition date assigned fair values.~~goodwill.

The goodwill impairment charge recorded in fiscal 2019 year-to-date is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition. There can be no assurance that such final assessments will not result in material increases or decreases to the recorded goodwill impairment charge based upon the preliminary purchase price allocations, due to changes in the provisional opening balance sheet estimates of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date). Refer to Note 4. “Acquisitions” for further information about the preliminary purchase price allocation and provisional goodwill estimated as of the acquisition date.

~~2018 Earth Origins Market Impairment~~

During the second quarter of fiscal 2018, the Company made the decision to close three non-core, under-performing stores of its total twelve stores. Based on this decision, coupled with the decline in results in the first half of fiscal 2018 and the future outlook as a result of competitive pressure, the Company determined that both a test for recoverability of long-lived assets and a goodwill impairment analysis should be performed. The determination of the need for a goodwill analysis was based on the assertion that it was more likely than not that the fair value of the reporting unit was below its carrying amount. As a result of both these analyses, the Company recorded a total impairment charge of $3.4 million on long-lived assets and $7.9 million to goodwill, respectively, during the second quarter of fiscal 2018. During the fourth quarter of fiscal 2018 the Company disposed of its Earth Origins retail business.

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 3, 2019	$	432,103		⁽¹⁾	$	10,153		⁽²⁾	$	442,256
Goodwill adjustment for prior fiscal year business combinations	1,424				—				1,424
Impairment charges	(423,712		)		(293		)		(424,005		)
Change in foreign exchange rates	59				—				59
Goodwill as of February 1, 2020	$	9,874		⁽¹⁾	$	9,860		⁽²⁾	$	19,734

(in thousands) Wholesale Other Total
Goodwill as of July 28, 2018 $ 352,342
⁽¹⁾
$ 10,153
⁽²⁾
$ 362,495
Preliminary goodwill from current fiscal year business combinations 444,572
—
444,572
Impairment charge (332,602 ) —
(332,602 )
Other adjustments (1,952 ) —
(1,952 )
Change in foreign exchange rates (670 ) —
(670 )
Goodwill as of April 27, 2019 $ 461,690
⁽¹⁾
$ 10,153
⁽²⁾
$ 471,843


(1)	Amounts are net of accumulated goodwill impairment charges of ~~$0.0~~$292.8 million and ~~$332.6~~$716.5 million as of ~~July 28, 2018~~August 3, 2019 and ~~April 27, 2019,~~February 1, 2020, respectively.


(2)	Amounts are net of accumulated goodwill impairment charges of $9.3 million and $9.6 million as of ~~both July 28, 2018~~August 3, 2019 and ~~April 27, 2019.~~February 1, 2020.

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Identifiable intangible assets consisted of the following:



	February 1, 2020						August 3, 2019
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortizing intangible assets:
Customer relationships	$	1,007,084	$	142,306	$	864,778	$	1,007,089	$	111,940	$	895,149
Non-compete agreements	12,900		8,881		4,019		12,900		6,237		6,663
Operating lease intangibles	10,482		1,481		9,001		32,103		2,209		29,894
Trademarks and tradenames	67,700		23,141		44,559		67,700		14,161		53,539
Total amortizing intangible assets	1,098,166		175,809		922,357		1,119,792		134,547		985,245
Indefinite lived intangible assets:
Trademarks and tradenames	55,813		—		55,813		55,813		—		55,813
Intangible assets, net	$	1,153,979	$	175,809	$	978,170	$	1,175,605	$	134,547	$	1,041,058

April 27, 2019 July 28, 2018
(in thousands)
Gross Carrying
Amount

Accumulated
Amortization
Net
Gross Carrying
Amount

Accumulated
Amortization
Net
Amortizing intangible assets:
Customer relationships $ 1,011,880
$ 93,104
$ 918,776
$ 197,246
$ 61,543
$ 135,703
Non-compete agreements 11,900
3,229
8,671
2,900
1,914
986
Operating lease intangibles 33,099
905
32,194
—
—
—
Trademarks and tradenames 67,700
11,255
56,445
1,700
981
719
Total amortizing intangible assets 1,124,579
108,493
1,016,086
201,846
64,438
137,408
Indefinite lived intangible assets:
Trademarks and tradenames 55,812
—
55,812
55,801
—
55,801
Intangible assets, net $ 1,180,391
$ 108,493
$ 1,071,898
$ 257,647
$ 64,438
$ 193,209

Amortization expense was ~~$19.5~~$21.5 million and ~~$3.7~~$20.9 million for the ~~13-week periods ended April 27,~~second quarters of fiscal 2020 and 2019, ~~and April 28, 2018,~~ respectively, and ~~$44.1~~$43.6 million and ~~$11.2~~$24.6 million for ~~the 39-week periods ended April 27,~~fiscal 2020 and 2019 ~~and April 28, 2018,~~year-to-date, respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of ~~April 27, 2019~~February 1, 2020 is shown below:



Fiscal Year:	(In thousands)
Remaining fiscal 2020	$	42,774
2021	71,510
2022	65,893
2023	65,842
2024	66,054
2025 and thereafter	610,284
	$	922,357

Fiscal Year: (In thousands)
Remaining fiscal 2019 $ 24,170
2020 84,313
2021 70,739
2022 66,880
2023 67,092
2024 and thereafter 702,892
$ 1,016,086

8.NOTE 7—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

The following table provides the fair value hierarchy for financial assets and liabilities ~~under the fair value hierarchy that are~~ measured on a recurring basis:

Fair Value at April 27, 2019
(In thousands) Balance Sheet Location Level 1 Level 2 Level 3
Assets:
Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $ —
$ 1,826
$ —
Mutual funds Prepaid expenses and other current assets $ 34
$ —
$ —
Interest rate swaps designated as hedging instruments Other assets $ —
$ 1,143
$ —
Mutual funds Other assets $ 1,809
$ —
$ —

Liabilities:
Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ —
$ 4,820
$ —
Interest rate swaps designated as hedging instruments Other long-term liabilities $ —
$ 27,657
$ —



		Fair Value at February 1, 2020
(In thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	216	$	—
Interest rate swaps designated as hedging instruments	Other assets	$	—	$	21	$	—
Mutual funds	Other assets	$	1,731	$	—	$	—

Liabilities:
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	22,679	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	64,540	$	—

Table of contents

Fair Value at July 28, 2018
(in thousands) Balance Sheet Location Level 1 Level 2 Level 3
Assets:
Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $ —
$ 1,459
$ —
Interest rate swaps designated as hedging instruments Other assets $ —
$ 5,860
$ —



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

Liabilities:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	16,360	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	60,737	$	—

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 ~~April 27, 2019,~~February 1, 2020, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swaps by approximately ~~$72.5~~$60.2 million; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately ~~$76.1~~$62.9 million. Refer to Note ~~9. “Derivatives”~~8—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. ~~Deferred compensation liabilities consist~~

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 ~~obligations to participants in deferred compensation plans,~~its projected monthly diesel fuel requirements at fixed prices. As of August 3, 2019, the Company had no outstanding fuel supply agreements and ~~are determined based on~~derivative agreements. As of February 1, 2020, the fair value of the ~~related deferred compensation plan investments or designated phantom investments~~Company’s fuel supply agreements and derivatives were immaterial.

Foreign Exchange Derivatives

To reduce foreign exchange risk, the Company has entered into derivative financial instruments for a portion of its projected monthly foreign currency requirements at fixed prices. As of August 3, 2019, the Company’s outstanding foreign currency forward contracts were immaterial. As of February 1, 2020, the fair value of the ~~plan at each reporting period.~~Company’s outstanding foreign currency forward contracts were immaterial.

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 carrying amount of borrowings on the ABL Credit Facility approximates fair value as interest rates on the ABL Credit Facility approximate current market rates (Level 2 criteria).~~

Notes receivable estimated fair value is determined by a discounted cash flow approach applying a market rate for similar instruments that is determined using Level 3 inputs.

The estimated fair values are 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 ~~borrowings under~~ the Company’s ~~Term Loan Facility, including current portion,~~long-term debt is ~~determined by using available market information~~net of original issue discounts and appropriate valuation methodologies taking into account the instruments’ interest rate, terms, maturity date and collateral, if any, in comparison to the Company’s incremental borrowing rate for similar financial instruments and are therefore deemed Level 2 inputs. However, considerable judgment is required in interpreting market data to develop the estimatesdebt issuance costs.

Table of ~~fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.~~contents



	February 1, 2020				August 3, 2019
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable, including current portion	$	37,222	$	36,781	$	46,320	$	45,232
Long-term debt, including current portion	$	2,935,976	$	2,842,994	$	2,906,483	$	2,730,271

April 27, 2019 July 28, 2018
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
Assets:
Notes receivable, including current portion $ 48,506
$ 47,326
$ —
$ —
Liabilities:

Long-term debt, including current portion and original issue discount, excluding debt issuance costs $ 3,108,881
$ 2,930,352
$ 320,000
$ 320,000

9.NOTE 8—DERIVATIVES

Management of Interest Rate Risk

The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges at ~~April 27, 2019.~~February 1, 2020. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note ~~8. “Fair~~7—Fair Value Measurements of Financial ~~Instruments”~~Instruments for further information on the fair value of interest rate swap contracts.

Table of contents

Details of outstanding swap contracts as of ~~April 27, 2019,~~February 1, 2020, 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⁽³⁾	Floating Rate Reset Terms
March 21, 2019	May 15, 2020	$	100.0	2.4490	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2020	100.0		2.8240	%	One-Month LIBOR	Monthly
June 9, 2016	April 29, 2021	25.0		1.0650	%	One-Month LIBOR	Monthly
June 24, 2016	April 29, 2021	25.0		0.9260	%	One-Month LIBOR	Monthly
January 23, 2019	April 29, 2021	50.0		2.5500	%	One-Month LIBOR	Monthly
April 2, 2019	June 30, 2021	100.0		2.2520	%	One-Month LIBOR	Monthly
June 10, 2019	June 30, 2021	50.0		2.2290	%	One-Month LIBOR	Monthly
November 30, 2018	October 29, 2021	100.0		2.8084	%	One-Month LIBOR	Monthly
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	58.5		1.7950	%	One-Month LIBOR	Monthly
August 3, 2015⁽²⁾	August 15, 2022	39.0		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
		$	2,097.5

Swap Maturity Notional Value (in millions) Pay Fixed Rate Receive Floating Rate Floating Rate Reset Terms
June 9, 2019⁽¹⁾
50.0
0.8725 % One-Month LIBOR Monthly
April 29, 2021⁽¹⁾
25.0
1.0650 % One-Month LIBOR Monthly
June 30, 2019⁽²⁾
50.0
0.7265 % One-Month LIBOR Monthly
April 29, 2021⁽²⁾
25.0
0.9260 % One-Month LIBOR Monthly
August 15, 2022⁽³⁾
63.0
1.7950 % One-Month LIBOR Monthly
August 15, 2022⁽⁴⁾
42.0
1.7950 % One-Month LIBOR Monthly
October 31, 2020⁽⁵⁾
100.0
2.8240 % One-Month LIBOR Monthly
October 31, 2022⁽⁵⁾
100.0
2.8915 % One-Month LIBOR Monthly
October 31, 2023⁽⁵⁾
100.0
2.9210 % One-Month LIBOR Monthly
October 22, 2025⁽⁵⁾
50.0
2.9550 % One-Month LIBOR Monthly
March 31, 2023⁽⁶⁾
150.0
2.8950 % One-Month LIBOR Monthly
October 22, 2025⁽⁶⁾
50.0
2.9580 % One-Month LIBOR Monthly
October 22, 2025⁽⁶⁾
50.0
2.9590 % One-Month LIBOR Monthly
October 29, 2021⁽⁷⁾
100.0
2.8084 % One-Month LIBOR Monthly
September 30, 2023⁽⁷⁾
50.0
2.8315 % One-Month LIBOR Monthly
October 31, 2024⁽⁷⁾
100.0
2.8480 % One-Month LIBOR Monthly
October 31, 2022⁽⁸⁾
50.0
2.4678 % One-Month LIBOR Monthly
March 28, 2024⁽⁸⁾
100.0
2.4770 % One-Month LIBOR Monthly
October 31, 2024⁽⁸⁾
100.0
2.5010 % One-Month LIBOR Monthly
April 29, 2021⁽⁹⁾
50.0
2.5500 % One-Month LIBOR Monthly
October 31, 2022⁽⁹⁾
50.0
2.5255 % One-Month LIBOR Monthly
March 31, 2023⁽⁹⁾
50.0
2.5292 % One-Month LIBOR Monthly
March 28, 2024⁽⁹⁾
100.0
2.5420 % One-Month LIBOR Monthly
October 31, 2024⁽¹⁰⁾
50.0
2.5210 % One-Month LIBOR Monthly
October 22, 2025⁽¹⁰⁾
50.0
2.5558 % One-Month LIBOR Monthly
April 15, 2022⁽¹¹⁾
100.0
2.3645 % One-Month LIBOR Monthly
December 13, 2019⁽¹²⁾
100.0
2.4925 % One-Month LIBOR Monthly
May 15, 2020⁽¹²⁾
100.0
2.4490 % One-Month LIBOR Monthly
June 30, 2021⁽¹³⁾
100.0
2.5200 % One-Month LIBOR Monthly
June 30, 2022⁽¹³⁾
100.0
2.2170 % One-Month LIBOR Monthly
June 30, 2021⁽¹⁴⁾
—
2.2290 % One-Month LIBOR Monthly
June 30, 2022⁽¹⁴⁾
—
2.1840 % One-Month LIBOR Monthly
$ 2,205.0

(1)

On June 7, 2016, the Company entered into two pay fixed and receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of June 9, 2016 and expire at varied dates between June 2019 and April 2021. These interest rate swap contracts have an aggregate notional principal amount of $75 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 0.8725% and 1.0650%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(2)~~

On June 24, 2016, the Company entered into two pay fixed and receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of June 24, 2016 and expire at varied dates between June 2019 and April 2021. These interest rate swap contracts have an aggregate notional principal amount of $75 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 0.7265% and 0.9260%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(3)~~

On January 23, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of August 3, 2015 and expires in August 2022. On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $140 million to $84 million. The ~~interest rate~~ swap contract has an amortizing notional principal amount which ~~adjusts down~~is reduced by $1.5 million on a quarterly basis and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.7950%, while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.basis.

~~(4)~~(2)

On March 31, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The ~~agreement has an effective date of August 3, 2015 and expires in August 2022. The interest rate~~ swap contract has an amortizing notional principal amount which ~~adjusts down~~is reduced by $1.0 million on a quarterly basis and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.7950%, while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.basis.

~~(5)~~(3)

~~On October 26, 2018,~~For these swap contracts that are indexed to LIBOR, the Company ~~entered into four pay fixed receive floating interest rate swap contracts~~is monitoring and evaluating risks related to ~~effectively fix~~ the ~~underlying variability in~~ expected ~~interest payment cash outflows on its LIBOR based debt. The agreements have an effective date~~future cessation of October 26, 2018 and expire at varied dates between October 2020 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $350 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8240% and 2.9550%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(6)~~

On November 16, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 16, 2018 and expire at varied dates between March 2023 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8950% and 2.9590%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(7)~~

On November 30, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 30, 2018 and expire at varied dates between October 2021 and October 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8084% and 2.8480%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(8)~~

On January 11, 2019, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 11, 2019 and expire at varied dates between October 2022 and October 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4678% and 2.5010%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(9)~~

On January 23, 2019, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 23, 2019 and expire at varied dates between April 2021 and March 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5255% and 2.5500%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(10)~~

On January 24, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 24, 2019 and expire at varied dates between October 2024 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5210% and 2.5558%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(11)~~

On March 18, 2019, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of March 21, 2019 and expires in April 2022. The interest rate swap contract has an aggregate notional principal amount of $100 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 2.3645%, while receiving interest for the same respective contract period at one-month LIBOR on the same aggregate notional principal amount.LIBOR.

~~(12)~~

On March 21, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of March 21, 2019 and expire at varied dates between December 2019 and May 2020. These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4490% and 2.4925%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(13)~~

On April 2, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of April 2, 2019 and expire at varied dates between June 2021 and June 2022. These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.2170% and 2.2520%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

~~(14)~~

On April 2, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of June 10, 2019 and June 28, 2019 and expire at varied dates between June 2021 and June 2022. These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.1840% and 2.2290%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

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 Loss and subsequently reclassified to earnings in ~~interest~~Interest expense, net in the Condensed Consolidated Statements of Operations when the hedged transactions affect earnings.

Table of contents

The location and amount of gains or losses recognized in the Condensed Consolidated Statements of ~~Income~~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
	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
(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	$	48,621		$	58,707		$	98,139		$	66,232
Gain or (loss) on cash flow hedging relationships:
Gain or (loss) reclassified from comprehensive income into income	$	(4,251	)	$	(108	)	$	(6,621	)	$	443
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:
Gain or (loss) recognized as interest expense	$	—		$	22		$	—		$	(66	)

13-Week Period Ended 39-Week Period Ended
April 27, 2019 April 28, 2018 April 27, 2019 April 28, 2018
(In thousands) Interest Expense, net Interest Expense, net Interest Expense, net Interest Expense, net
Total amounts of expense line items presented in the consolidated statements of income in which the effects of cash flow hedges are recorded $ 54,917
$ 4,347
$ 121,149
$ 12,060
Gain or (loss) on cash flow hedging relationships:
Gain or (loss) reclassified from comprehensive income into income $ 15
$ 287
$ 458
$ 338
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:
Gain or (loss) recognized as interest expense $ 51
$ —
$ (15 ) $ —

~~10.TREASURY STOCK~~

On October 6, 2017, the Company announced that its Board of Directors authorized a share repurchase program for up to $200.0 million of the Company’s outstanding common stock. The repurchase program is scheduled to expire upon the Company’s repurchase of shares of the Company’s common stock having an aggregate purchase price of $200.0 million. Repurchases will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise. The Company may also implement all or part of the repurchase program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

The Company records the repurchase of shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. The Company repurchased 614,660 shares of its common stock at an aggregate cost of $24.2 million in the fiscal year ended July 28, 2018. The Company did not purchase any shares of the Company’s common stock in the 39-week period ended April 27, 2019.

~~11.COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS~~

Comprehensive income (loss) is reported in the Condensed Consolidated Statements of Comprehensive Income. Comprehensive income includes all changes in stockholders’ equity during the reporting period, other than those resulting from investments by and distributions to stockholders. Our comprehensive income is calculated as net earnings (loss) including noncontrolling interests, plus or minus adjustments for foreign currency translation, and changes in the fair value of cash flow hedges, net of tax, less comprehensive income attributable to noncontrolling interests.

Accumulated other comprehensive loss represents the cumulative balance of other comprehensive (loss) income, net of tax, as of the end of the reporting period and relates to foreign current translation adjustments, net of tax, and unrealized gains or losses on cash flow hedges, net of tax.

~~Changes in Accumulated other comprehensive loss by component for 39-week period ended April 27, 2019 are as follows:~~

(in thousands) Foreign Currency Swap Agreements Total
Accumulated other comprehensive (loss) income at July 28, 2018, net of tax $ (19,053 ) $ 4,874
$ (14,179 )
Other comprehensive loss before reclassifications (2,308 ) (26,545 ) (28,853 )
Amortization of cash flow hedge —
(353 ) (353 )
Net current period Other comprehensive loss (2,308 ) (26,898 ) (29,206 )
Accumulated other comprehensive loss at April 27, 2019, net of tax $ (21,361 ) $ (22,024 ) $ (43,385 )

~~Changes in Accumulated other comprehensive loss by component for 39-week period ended April 28, 2018 are as follows:~~

(in thousands) Foreign Currency Swap Agreements Total
Accumulated other comprehensive (loss) income at July 27, 2017, net of tax $ (15,262 ) $ 1,299
(13,963 )
Other comprehensive (loss) income before reclassifications (2,320 ) 3,918
1,598
Amortization of cash flow hedge —
(269 ) (269 )
Net current period Other comprehensive (loss) income (2,320 ) 3,649
1,329
Accumulated other comprehensive (loss) income at April 28, 2018, net of tax $ (17,582 ) $ 4,948
$ (12,634 )

~~Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Income:~~

13-Week Period Ended 39-Week Period Ended Affected Line Item on the Condensed Consolidated Statements of Income
(in thousands) April 27,
2019 April 28,
2018 April 27,
2019 April 28,
2018
Swap agreements:
Reclassification of cash flow hedge $ 15
$ 287
$ 458
$ 338
Interest expense, net
Income tax (benefit) expense (5 ) 96
105
69
(Benefit) provision for income taxes
Total reclassifications, net of tax $ 20
$ 191
$ 353
$ 269

~~12.INCOME TAXES~~

~~Effective Tax Rate~~

Our effective income tax rate for continuing operations was (32.4)% compared to 33.3% on pre-tax income for the 13-week periods ended April 27, 2019 and April 28, 2018, respectively, and 22.8% and 20.3% for the 39-week periods ended April 27, 2019 and April 28, 2018, respectively. The decrease in the rate for the quarter was primarily driven by purchase accounting adjustments that impacted the goodwill impairment charge adjustment that was recorded in the quarter. The Company also realized the full benefit of the reduced federal income tax rate due to tax reform during the 39-week period ended April 27, 2019.

~~The total (benefit) provision for income taxes included in the Condensed Consolidated Statements of Income consisted of the following:~~

13-Week Period Ended 39-Week Period Ended
(in thousands) April 27, 2019 April 28, 2018 April 27, 2019 April 28, 2018
Continuing operations $ (8,027 ) $ 25,943
$ (104,091 ) $ 33,831
Discontinued operations 7,772
—
13,759
—
Total $ (255 ) $ 25,943
$ (90,332 ) $ 33,831

~~Effects of the Tax Cuts and Jobs Act~~

The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017. Given the significance of the legislation, the Securities and Exchange Commission (“SEC”) staff issued SAB 118, which allowed registrants to record provisional or estimated amounts concerning TCJA impacts during a one year “measurement period” similar to that used when accounting for business combinations. The measurement period was deemed to end when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting.

As of the current quarterly period, the Company has closed the measurement period relating to the effects of TCJA. The final amounts the Company has reported may change further only in the event of return to provision adjustments.

~~Uncertain Tax Positions~~

~~A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:~~

39-Week Period Ended
(in thousands) April 27, 2019
Unrecognized tax benefits at beginning of period $ 1,104
Unrecognized tax benefits assumed in a business combination 49,566
Decreases in unrecognized tax benefits due to statute expiration (10,033 )
Unrecognized tax benefits at end of period $ 40,637

In addition, the Company has $14 million paid on deposit to various governmental agencies to cover the above liability. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. For the 13-week period ended April 27, 2019, total gross interest and penalties were $0.6 million. For the 39-week period ended April 27, 2019, total accrued interest and penalties was $15.1 million.

The Company is currently under examination in several taxing jurisdictions and remains subject to examination until the statute of limitations expires for the respective taxing jurisdiction or an agreement is reached between the taxing jurisdiction and the Company. As of April 27, 2019, the Company is no longer subject to federal income tax examinations for fiscal years before 2015 and in most states is no longer subject to state income tax examinations for fiscal years before 2008 and 2014 for Supervalu and United Natural Foods, Inc., respectively.

Based on the possibility of the closing of pending audits and appeals, or expiration of the statute of limitations, it is reasonably possible that the amount of unrecognized tax benefits will decrease by up to $1 million during the next 12 months.

~~Other~~

Under ASU 2016-09, the Company accounts for excess tax benefits or tax deficiencies related to share-based payments in its provision for income taxes as opposed to additional paid-in capital. The Company recognized $1.5 million of income tax expense related to excess tax deficiencies for share-based payments for the 39-week period ended April 27, 2019 and $0.9 million of income tax expense related to tax deficiencies for share-based payments for the 39-week period ended April 28, 2018.

~~13. BUSINESS SEGMENTS~~

The Company has three operating segments: legacy Company Wholesale; Supervalu Wholesale and Canada Wholesale, aggregated under the Wholesale reportable segment. In addition, the Company’s Retail operating segment is a separate reportable segment, which is primarily comprised of discontinued operations activities. The legacy Company Wholesale, Supervalu Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, and conventional grocery and non-food products, and in the provision of support services in the United States and Canada. 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 former retail division, that engaged in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, 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, the Company’s branded product lines, and the Company’s brokerage business, which markets various products on behalf of food vendors directly and exclusively to the Company’s customers. “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. The Company allocates certain corporate Supervalu 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 under the caption of “Unallocated (Income)/Expenses.”

(in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
13-Week Period Ended April 27, 2019:

Net sales⁽¹⁾
$ 5,943,928
$ 62,503
$ (43,811 ) $ —
$ 5,962,620
Goodwill and asset impairment (adjustment) charges (38,250 ) —
—
—
(38,250 )
Restructuring, acquisition, and integration related expenses —
19,438
—
—
19,438
Operating income (loss) 131,888
(60,024 ) (2,183 ) —
69,681
Total other expense, net —
—
—
44,934
44,934
Income (loss) from continuing operations before income taxes —
—
—
—
24,747
Depreciation and amortization 63,348
8,439
—
—
71,787
Capital expenditures 56,655
161
—
—
56,816
Total assets of continuing operations 6,403,512
423,663
(40,618 ) —
6,786,557

13-Week Period Ended April 28, 2018:

Net sales $ 2,633,024
$ 62,158
$ (46,303 ) $ —
$ 2,648,879
Restructuring, acquisition, and integration related expenses —
151
—
—
151
Operating income (loss) 86,633
(3,984 ) (492 ) —
82,157
Total other expense, net —
—
—
4,323
4,323
Income (loss) from continuing operations before income taxes —
—
—
—
77,834
Depreciation and amortization 21,261
472
—
—
21,733
Capital expenditures 13,694
417
—
—
14,111
Total assets of continuing operations 2,935,420
184,301
(40,875 ) —
3,078,846


~~(1)~~	For the third quarter of fiscal 2019, the Company recorded $233.4 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.

(in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
39-Week Period Ended April 27, 2019:

Net sales⁽¹⁾
$ 14,931,170
$ 169,116
$ (120,304 ) $ —
$ 14,979,982
Goodwill and asset impairment (adjustment) charges 332,621
—
—
—
332,621
Restructuring, acquisition, and integration related expenses 4
134,563
—
—
134,567
Operating income (loss) (120,083 ) (233,961 ) (3,248 ) —
(357,292 )
Total other expense, net —
—
—
98,689
98,689
Income (loss) from continuing operations before income taxes —
—
—
—
(455,981 )
Depreciation and amortization 149,201
20,579
—
—
169,780
Capital expenditures 136,065
888
—
—
136,953

39-Week Period Ended April 28, 2018:

Net sales $ 7,592,352
$ 175,083
$ (133,000 ) $ —
$ 7,634,435
Goodwill and asset impairment (adjustment) charges 67
11,175
—
—
11,242
Restructuring, acquisition, and integration related expenses —
151
—
—
151
Operating income (loss) 200,530
(25,124 ) 2,062
—
177,468
Total other expense, net —
—
—
10,755
10,755
Income (loss) from continuing operations before income taxes —
—
—
—
166,713
Depreciation and amortization 64,237
1,745
—
—
65,982
Capital expenditures 27,297
2,349
—
—
29,646


~~(1)~~	For the 39-week period ended April 27, 2019, the Company recorded $520.4 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.

~~14.SHARE-BASED AWARDS~~

Pursuant to the Merger Agreement, dated as of July 25, 2018, as amended, each outstanding Supervalu stock option, whether vested or unvested, that was unexercised as of immediately prior to the effective time of the Merger (“SVU Option”) was converted, effective as of the effective time of the Merger, into a stock option exercisable for shares of common stock of the Company (“Replacement Option”) in accordance with the adjustment provisions of the Supervalu stock plan pursuant to which such SVU Option was granted and the Merger Agreement, with such Replacement Option generally having the same terms and conditions as the underlying SVU Option. In addition, pursuant to the Merger Agreement, each outstanding Supervalu restricted share award, restricted stock unit award, deferred share unit award and performance share unit award (“SVU Equity Award”) was converted, effective as of the effective time of the Merger, into time-vesting awards (“Replacement Award”) with a settlement value equal to the merger consideration ($32.50 per share) multiplied by the number of shares of Supervalu common stock subject to such SVU Equity Award, and generally upon the same terms of the SVU Equity Award including the applicable change in control termination protections. The Merger Agreement originally provided that the Replacement Awards were payable in cash, however, the Merger Agreement was amended on October 10, 2018, to provide that the Replacement Awards could be settled at the Company’s election, in cash and/or an equal value in shares of common stock of the Company.

On October 22, 2018, the Company authorized for issuance and registered on a Registration Statement on Form S-8 filed with the SEC 5,000,000 shares of common stock for issuance in order to satisfy the Replacement Options and Replacement Awards. On March 28, 2019, the Company filed a Registration Statement on Form S-3 with the SEC, which was declared effective on April 5, 2019. During the third quarter of fiscal 2019, the Company issued 259,866 shares of common stock at an average price of $12.06 per share for $3.1 million of cash, of which $1.6 million was received subsequent to the end of the third quarter. In addition, subsequent to the end of the third quarter of fiscal 2019, the Company issued approximately 1.6 million shares of common stock at an average market price of $12.27 per share for $19.3 million of cash. Proceeds from these issuances were used to fund settlement of Replacement Award obligations.

The Replacement Awards are liability classified awards as they may ultimately be settled in cash or shares at the discretion of the employee. The Replacement Awards liabilities are expensed over the service period based on the fixed value of $32.50 per share.

The Company recognized total share-based compensation expense of $9.3 million and $27.8 million during the third quarter and 39-week period ended April 27, 2019, respectively, which included share-based compensation expense of $4.8 million and $9.6 million, respectively, for Supervalu Replacement Options and Awards related to the post-combination period, beginning on the acquisition date through April 27, 2019. The total income tax benefit for share-based compensation, excluding change-in-control charges, was $2.5 million and $2.5 million for the third quarters of fiscal 2019 and fiscal 2018, respectively and $7.4 million and $6.8 million for the 39-week periods ended April 27, 2019 and April 28, 2018, respectively. Share-based compensation expense does not include $32.1 million of charges for the settlement of share-based awards recorded as part of ~~Restructuring, acquisition, and integration related expenses~~, described in Note 5. “Restructuring, Acquisition, and Integration Related Expenses” of which $23.7 million relates to change-in-control payments. The Company recorded share-based compensation expense of $7.9 million and $21.7 million in the third quarter and 39-week period ended April 28, 2018, respectively.

Supervalu Replacement Awards generally vest in three equal installments or cliff-vest after three years from the date they were originally granted by Supervalu. The Company’s other time vesting awards are typically four equal annual installments for employees and two equal installments for non-employee directors with the first installment on the date of grant and the second installment on the six-month anniversary of the grant date. As of April 27, 2019, there was $60.9 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock options, restricted stock units and performance-based restricted stock units) of which $27.7 million relates to Supervalu Replacement Awards. Unrecognized compensation cost related to Replacement Options is de minimis. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.2 years.

~~New Retirement Provision~~

During the second quarter of fiscal 2019, after reviewing retirement provisions and practices for the treatment of equity awards at comparable companies, the Compensation Committee of the Company’s Board of Directors determined to change the terms of its long-term compensation awards to executives who might consider retiring and to better assure that their awards provided an incentive to work for the long term best interests of the Company up to their termination date, and regardless of their retirement plans. Accordingly, the Compensation Committee determined that time-based vesting restricted stock units, with the exception of Replacement Awards, will continue to vest during retirement after termination of employment on the same terms as they would if the executive had not retired, but without the requirement that they remain employed. Performance share-units will be treated similarly on retirement, but subject to actual performance at the time achievement of performance objectives is measured. In addition, an executive’s equity awards granted in the year of retirement will be prorated to reflect the service period prior to the date of retirement. Retirement vesting will only be available to employees age 59 or older who voluntarily terminate employment after at least 10 years of service to the Company. As a result of these retirement provisions, the Company recorded a share-based compensation charge of approximately $6.6 million~~during the second quarter of fiscal 2019.~~

~~15.~~NOTE 9—LONG-TERM DEBT

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



(in thousands)	Average Interest Rate at February 1, 2020	Calendar Maturity Year	February 1, 2020			August 3, 2019
Term Loan Facility	5.90%	2025	$	1,782,000		$	1,864,900
ABL Credit Facility	3.40%	2023	1,187,168			1,080,000
Other secured loans	5.20%	2023-2024	55,408			57,649
Debt issuance costs, net			(50,220		)	(54,891		)
Original issue discount on debt			(38,380		)	(41,175		)
Long-term debt, including current portion			2,935,976			2,906,483
Less: current portion of long-term debt			(18,845		)	(87,433		)
Long-term debt			$	2,917,131		$	2,819,050

(in thousands)
Average Interest Rate at
January 26, 2019
Maturity Year April 27,
2019 July 28,
2018
Term Loan Facility 6.64% 2019-2025 $ 1,888,800
$ —
ABL Credit Facility 4.07% 2023 1,217,100
—
Other secured loans 5.70% 2023 45,710
—
Former ABL Credit Facility —
210,000
Former Term Loan Facility —
110,000
Debt issuance costs, net (57,608 ) (1,164 )
Original issue discount on debt (42,729 ) —
Long-term debt, including current portion $ 3,051,273
$ 318,836
Less: current portion of long-term debt obligations (107,281 ) (10,000 )
Long-term debt $ 2,943,992
$ 308,836

ABL Credit Facility

On August 30, 2018, the Company entered into a loan agreement (as amended by that certain First Amendment to Loan Agreement, dated as of October 19, 2018, and as further amended by that certain Second Amendment to Loan Agreement, dated January 24, 2019, 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, ~~(the “Canadian Agent”),~~ and the other parties thereto.

The ABL Loan Agreement provides for ana secured asset-based revolving credit facility (the “ABL Credit Facility” and the loans thereunder, the “ABL Loans”), of which up to (i) $2,050.0 million is available to the U.S. Borrowers and (ii) $50.0 million is available to the Canadian Borrower. The ABL Loan Agreement also provides for (i) a $125.0 million sublimit of availability for letters of credit of which there is a further $5.0 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 (the “Former ABL Credit Facility”), and~~facility. In addition, $1,475.0 million of proceeds from the ABL Credit Facility were drawn ~~on the Closing Date~~ to finance the Supervalu acquisition and related transaction costs on the ~~Closing Date.~~Supervalu acquisition date (the “Closing Date”).

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

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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.

As of ~~April 27, 2019,~~February 1, 2020, the U.S. Borrowers’ Borrowing Base, net of ~~$93.4~~$179.1 million of reserves, was ~~$2,149.0~~$2,103.1 million, which ~~exceeds~~is above the $2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. As of ~~April 27, 2019,~~February 1, 2020, the Canadian Borrower’s Borrowing Base, net of ~~$3.6~~$3.7 million of reserves, was ~~$39.0~~$38.1 million, which is below the $50.0 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in total ~~Borrowing Base~~availability of ~~$2,089.0~~$2,088.1 million ~~supporting~~for ABL Loans and letters of credit under the ABL ~~Loans.~~Credit Facility. As of February 1, 2020, the U.S. ~~Borrowers’~~Borrowers had ~~$1,217.1~~$1,187.2 million of ABL Loans ~~and Canadian Borrower’s had no ABL Loans as of April 27, 2019,~~outstanding, which are presented net of debt issuance costs of ~~$13.5~~$11.4 million and are included in Long-term debt in the Condensed Consolidated Balance ~~Sheets.~~Sheets, and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit Facility. As of ~~April 27, 2019,~~February 1, 2020, the ~~Company~~U.S. Borrowers had ~~$80.6~~$76.8 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 ~~$791.4~~$824.1 million as of ~~April 27, 2019.~~February 1, 2020.

The ~~borrowings~~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 ~~April 27, 2019,~~February 1, 2020, the applicable margin for base rate loans was ~~0.50%~~0.25%, and the ~~initial~~ applicable margin for LIBOR loans was ~~1.50%~~1.25%. The ~~borrowings~~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 ~~April 27, 2019,~~February 1, 2020, the applicable margin for prime rate loans was ~~0.50%~~0.25%, and the applicable margin for Canadian dollar bankers’ acceptance equivalent rate loans was ~~1.50%~~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 fiscal quarter ending on ~~April 27,~~January 26, 2019, and quarterly thereafter, the applicable margins for borrowings by the U.S. Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility. Unutilized commitments under the ABL Credit Facility are subject to a per annum fee of (i) 0.375% if the average daily total outstandings were less than 25% of the aggregate commitments during the preceding fiscal quarter or (ii) 0.25% if such average daily total outstandings were 25% or more of the aggregate commitments during the preceding ~~Fiscal Quarter.~~fiscal quarter. As of ~~April 27, 2019,~~February 1, 2020, the unutilized commitment fee was 0.25% per annum. The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit, as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.

The ABL Loan Agreement subjects the Company to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each ~~of our~~ fiscal ~~quarters~~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. ~~We were~~The Company has not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, ~~during~~including through the ~~third quarter~~filing date of ~~fiscal 2019.~~this Quarterly Report.

The assets included in the Condensed Consolidated Balance Sheets securing the outstanding ~~borrowings~~obligations under the ABL Credit Facility on a first-priority basis, and the unused available credit and fees under the ABL Credit Facility, were as follows:

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Assets securing the ABL Credit Facility (in thousands)⁽¹⁾:
April 27, 2019
Certain inventory assets included in Inventories and Current assets of discontinued operations $ 2,276,895
Certain receivables included in Receivables and Current assets of discontinued operations $ 917,296



Assets securing the ABL Credit Facility (in thousands)⁽¹⁾:	February 1, 2020
Certain inventory assets included in Inventories and Current assets of discontinued operations	$	2,233,585
Certain receivables included in Accounts receivables, net and Current assets of discontinued operations	$	1,056,052


(1)	The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Long-term assets of discontinued operations in the Condensed Consolidated Balance Sheets as of ~~April 27, 2019.~~February 1, 2020.


Unused available credit and fees under the ABL Credit Facility (in thousands, except percentages):	April 27, 2019			February 1, 2020
Outstanding letters of credit	$	80,606		$	76,757
Letter of credit fees	1.625		%	1.375		%
Unused available credit	$	791,352		$	824,149
Unused facility fees	0.25		%	0.25		%

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 immediately to repay all amounts outstanding under the ABL Loan Agreement.

Term Loan Facility

On August 14, 2014, the Company and certain of its subsidiaries entered into a real estate-backed term loan agreement (as amended by the First Amendment Agreement, dated April 29, 2016, and the Second Amendment Agreement, dated September 1, 2016, the “Former Term Loan Agreement”). The Former Term Loan Agreement provided for secured first lien term loans in an aggregate amount of $150.0 million (the “Former Term Loan Facility”). Proceeds from this Former Term Loan Facility were used to pay down borrowings under the Former ABL Credit Facility.

Borrowings under the Former Term Loan Facility bore interest at rates that, at the Company’s option, could have been either: (1) a base rate and a margin of 0.75%; or, (2) a LIBOR rate and a margin of 1.75%. The borrowers’ obligations under the Former Term Loan Facility were secured by certain parcels of the Company’s real property.

The Former Term Loan Agreement included financial covenants that required (i) the ratio of the Company’s consolidated EBITDA (as defined in the Former Term Loan Agreement) minus the unfinanced portion of Capital Expenditures (as defined in the Former Term Loan Agreement) to the Company’s consolidated Fixed Charges (as defined in the Former Term Loan Agreement) to be at least 1.20 to 1.00 as of the end of any period of four fiscal quarters, (ii) the ratio of the Company’s Consolidated Funded Debt (as defined in the Former Term Loan Agreement) to the Company’s EBITDA for the four fiscal quarters most recently ended to be not more than 3.00 to 1.00 as of the end of any fiscal quarter and (iii) the ratio, expressed as a percentage, of the Company’s outstanding borrowings under the Former Term Loan Facility), divided by the Mortgaged Property Value (as defined in the Former Term Loan Agreement) to be not more than 75% at any time.

On August 22, 2018, the Company notified its lenders of its intention to prepay its borrowings outstanding under its Former Term Loan Facility on October 1, 2018. The Former Term Loan Facility was previously scheduled to terminate on the earlier of (a) August 14, 2022 and (b) the date that is ninety days prior to the termination date of the Former ABL Loan Agreement. On October 1, 2018, the Company prepaid the $110.0 million of borrowings outstanding under the Former Term Loan Agreement utilizing borrowings under its Former ABL Credit Facility and terminated the Former Term Loan Agreement. In connection with the prepayment, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $0.4 million, which was recorded as Other expense in the Condensed Consolidated Statements of Income for the first quarter of fiscal 2019.

On the 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~~“Term Lenders”), Goldman Sachs Bank USA, as administrative agent for the Lenders, ~~(the “TLB Administrative Agent”),~~ 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~~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 ~~were~~was used to finance the Supervalu acquisition and related transaction costs.

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

In fiscal year-to-date 2020, the Company made mandatory prepayments and voluntary prepayments of $15.3 million and $5.8 million, respectively, on the 364-day Tranche with asset sale proceeds. In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $0.1 million, which was recorded within Interest expense, net in the Condensed Consolidated Statements of Operations for the first quarter of fiscal 2020.

The loans under the 364-day Tranche ~~will be payable~~were then 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 ~~$656.25~~$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

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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 ~~April 27, 2019,~~February 1, 2020, there was ~~$556.8~~$585.7 million of owned real property pledged as collateral that was included in Property and equipment, net in the Condensed Consolidated Balance Sheets.

The loans under the Term Loan Facility may be voluntarily prepaid, insubject to certain minimum ~~principal amounts, subject to~~payment thresholds and the payment of breakage or other similar costs. ~~Pursuant to~~Under the Term Loan Facility, ~~we must,~~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, wethe 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 ~~our~~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. The potential amount of prepayment from Excess Cash Flow in fiscal 2020 that may be required in fiscal 2021 is not reasonably estimable as of February 1, 2020.

The borrowings under the Term B Tranche of the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either: (i) a base rate and a margin of ~~(A) with respect to the Term B Tranche,~~ 3.25% ~~and (B), with respect to the 364-day Tranche, 1.00%,~~ or (ii) a LIBOR rate and a margin of ~~(A) with respect to the Term B Tranche,~~ 4.25% ~~and (B), with respect to the 364-day Tranche, 2.00%~~; 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.~~

Incovenants 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 second quarter of fiscal 2019, the Company made mandatory prepayments of $47.0 million on the 364-day Tranche with asset sale proceeds. In connection with the prepayment, the Company incurred a loss on debt extinguishment relatedTerm Loan Facility to ~~unamortized debt issuance costs of $1.0 million, which was recorded as Other expense~~be in ~~the Condensed Consolidated Statements of Income for the second quarter of fiscal 2019.~~

~~In the third quarter of fiscal 2019, the Company made mandatory prepayments of $8.7 million~~full force and $5.5 million on the 364-day Tranche and Term B Tranche, respectively, with asset sale proceeds. In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costseffect, and a ~~loss on unamortized original issue discount~~change of ~~$0.2 million~~control. If an event of default occurs and ~~$0.1 million, respectively, which were recorded as Interest expense, net in~~is continuing, the ~~Condensed Consolidated Statements of Income for~~Term Borrowers may be required immediately to repay all amounts outstanding under the ~~third quarter of fiscal 2019.~~Term Loan Agreement.

As of ~~April 27, 2019,~~February 1, 2020, the Company had borrowings of ~~$1,794.5~~$1,782.0 million and ~~$94.3 million~~no amounts outstanding under the Term B Tranche and 364-day Tranche, respectively, which are presented net of debt issuance costs of ~~$44.1~~$38.8 million and an original issue discount on debt of ~~$42.2~~$38.0 million. As of ~~April 27, 2019, $17 million and $94.3~~February 1, 2020, $18.0 million of the Term B Tranche ~~and 364-day Tranche, respectively,~~ was classified as current, excluding debt issuance costs and original issue discount on debt.

~~Supervalu Senior Notes~~

On October 22, 2018, the Company delivered an irrevocable redemption notice for the remaining $350.0 million of 7.75% Supervalu Senior Notes and the remaining $180.0 million of 6.75% Supervalu Senior Notes assumed in conjunction with the Supervalu acquisition. In connection with the redemption notice, the Company placed $566.4 million on account with the trustee of the Supervalu Senior Notes to satisfy and discharge its obligations under the indenture governing the Supervalu Senior Notes. On November 21, 2018, following the required 30-day notice period, the trustee used this $566.4 million to extinguish the remaining principal balances, to pay the required redemption premiums and to pay accrued and unpaid interest on the redeemed Supervalu Senior Notes. As a result of the satisfaction and discharge of the indenture governing the redemption of the Supervalu Senior Notes, the Company has fully satisfied and discharged its obligations under the Supervalu Senior Notes.

~~16.LEASES~~NOTE 10—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

~~On October 23, 2018,~~

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			Swap Agreements			Total
Accumulated other comprehensive loss at August 3, 2019	$	(32,458	)	$	(20,082	)	$	(56,413	)	$	(108,953	)
Other comprehensive gain (loss) before reclassifications	1,480			24			(2,588		)	(1,084		)
Amortization of amounts included in net periodic benefit income	(1,148		)	—			—			(1,148		)
Amortization of cash flow hedge	—			—			(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	)

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Changes in Accumulated other comprehensive loss by component net of tax for fiscal 2019 year-to-date are as follows:



(in thousands)	Foreign Currency			Swap Agreements			Total
Accumulated other comprehensive (loss) income at July 28, 2018	$	(19,053	)	$	4,874		$	(14,179	)
Other comprehensive loss before reclassifications	(982		)	(11,035		)	(12,017		)
Amortization of cash flow hedge	—			333			333
Net current period Other comprehensive loss	(982		)	(10,702		)	(11,684		)
Accumulated other comprehensive loss at January 26, 2019	$	(20,035	)	$	(5,828	)	$	(25,863	)

Items reclassified out of Accumulated other comprehensive loss had the Company received $101.0 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of its final distribution center of eight distribution center sale-leaseback transactions entered into by Supervalu in April 2018. On October 26, 2018, the Company received $48.5 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of a separate distribution center under an agreement entered into by Supervalu in March 2018, as amended. Both distribution center sale-leasebacks qualified for sale accounting, with the lease-backs being classified as operating leases. No gain or loss was recognized or deferredfollowing impact on the ~~sale~~Condensed Consolidated Statements of ~~these facilities, as these facilities were valued at their contractual sales price as of the Supervalu acquisition date.~~Operations:

During the second quarter of fiscal 2019, the Company closed the remaining Shop ‘n Save St. Louis-based retail stores and the dedicated distribution center, and we continue to hold the owned real estate assets related to these locations for sale. The Company recorded a closed store reserve charge of approximately $17.1 million in the second quarter of fiscal 2019.



	13-Week Period Ended						26-Week Period Ended					Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Pension and postretirement benefit plan obligations:
Amortization of amounts included in net periodic benefit income⁽¹⁾	$	(777	)	$	—		$	(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	9,526			—			8,752			—
Income tax benefit	2,492			—			2,290			—		Benefit for income taxes
Total reclassifications, net of tax	$	7,034		$	—		$	6,462		$	—

Swap agreements:
Reclassification of cash flow hedge	$	(4,251	)	$	(108	)	$	(6,621	)	$	443	Interest expense, net
Income tax (expense) benefit	(1,348		)	—			(1,776		)	110		Benefit for income taxes
Total reclassifications, net of tax	$	(2,903	)	$	(108	)	$	(4,845	)	$	333


(1)	Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 13—Benefit Plans.

~~In the first quarter of fiscal 2019, the Company entered into a lease for a new distribution facility in California for approximately 1.2 million square feet.~~

NOTE 11—LEASES

The Company leases certain of its distribution centers, ~~and leases most of its~~ retail stores, ~~and leases certain~~ office facilities, transportation equipment, and other operating equipment from third parties. Many of these leases include renewal ~~options~~options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease assets and ~~in certain instances, also include options to purchase. Rent expense, other operating~~liabilities are as follows (in thousands):



Lease Type	Balance Sheet Location	February 1, 2020
Operating lease assets	Operating lease assets	$	1,061,946
Finance lease assets	Property and equipment, net	56,242
Total lease assets		$	1,118,188

Operating liabilities	Current portion of operating lease liabilities	$	131,315
Finance liabilities	Current portion of long-term debt and finance lease liabilities	13,373
Operating liabilities	Long-term operating lease liabilities	967,933
Finance liabilities	Long-term finance lease liabilities	56,799
Total lease liabilities		$	1,169,420

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The Company's lease ~~expense~~cost under ASC 842 for the 13-week and ~~subtenant rentals all under operating leases included within Operating expenses, and subtenant rentals under operating leases with customers included within Net sales, consisted of the following:~~26-week periods ended February 1, 2020 is as follows:

13-Week Period Ended 39-Week Period Ended
(in thousands) April 27,
2019 April 28,
2018 April 27,
2019 April 28,
2018
Minimum rent 56,278
22,186
$ 146,411
$ 64,180
Contingent rent 6
—
41
—
Rent expense⁽¹⁾
56,284
22,186
146,452
64,180
Less subtenant rentals (9,165 ) (412 ) (19,184 ) (1,237 )
Total net rent expense $ 47,119
$ 21,774
$ 127,268
$ 62,943



(in thousands)	Statement of Operations Location	13-Week Period Ended			26-Week Period Ended
(in thousands)	Statement of Operations Location	February 1, 2020			February 1, 2020
Operating lease cost	Operating expenses⁽²⁾	$	66,263		$	133,404
Short-term lease cost	Operating expenses	1,475			11,989
Variable lease cost	Operating expenses⁽²⁾	43,951			78,907
Sublease income	Operating expenses⁽²⁾	(12,258		)	(23,198		)
Sublease income	Net sales	(5,912		)	(10,747		)
Net operating lease cost⁽¹⁾		93,519			190,355
Amortization of leased assets	Operating expenses	3,693			8,396
Interest on lease liabilities	Interest expense, net	1,899			4,017
Finance lease cost		$	5,592		12,413
Total net lease cost		$	99,111		$	202,768

(1)

Rent expense as presented here includes ~~$11.6~~$11.9 million and $24.4 million in the ~~third~~second quarter and year-to-date of fiscal ~~2019, and $24.3 million year-to-date in fiscal 2019,~~2020, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as ~~we expect~~the Company expects to remain primarily obligated under these leases. Rent expense as presented here also includes immaterial amounts of variable lease expense of discontinued operations.


(2)	Includes certain lease expense or income that is recorded within Restructuring, acquisition and integration related expenses for surplus, non-operating properties for which the Company is restructuring its obligations and which are not separately material.

The Company leases certain property to third parties and receives lease and subtenant rental payments under operating leases, including assigned leases for which the Company has future minimum lease payment obligations. Future minimum lease payments (“Lease Liabilities”) to be made by the Company or certain third parties in the case of assigned leases for noncancellable operating leases and finance leases have not been reduced for future minimum lease and subtenant rentals (“Lease Receipts”) under certain operating subleases, including lease assignments for stores sold to third parties, which they operate. As of February 1, 2020, these lease obligations and lease receipts consisted of the following (in thousands):



Maturity of Lease Liabilities and Lease Receipts	Lease Liabilities						Lease Receipts						Net Lease Obligations
Fiscal Year	Operating Leases⁽¹⁾			Finance Leases⁽²⁾			Operating Leases			Finance Leases			Operating Leases		Finance Leases
Remaining fiscal 2020	$	129,751		$	11,346		$	(30,660	)	$	(40	)	$	99,091	$	11,306
2021	221,930			17,241			(52,039		)				169,891		17,241
2022	211,515			16,185			(46,847		)				164,668		16,185
2023	184,300			15,292			(36,032		)				148,268		15,292
2024	157,651			14,228			(27,894		)				129,757		14,228
Thereafter	1,078,576			15,530			(62,525		)				1,016,051		15,530
Total undiscounted lease liabilities and receipts	$	1,983,723		$	89,822		$	(255,997	)	$	(40	)	$	1,727,726	$	89,782
Less interest ⁽³⁾	(884,475		)	(19,650		)
Present value of lease liabilities	1,099,248			70,172
Less current lease liabilities	(131,315		)	(13,373		)
Long-term lease liabilities	$	967,933		$	56,799


(1)	Operating lease payments include $14.5 million related to extension options that are reasonably certain of being exercised and exclude $10.8 million of legally binding minimum lease payments for leases signed but not yet commenced.


(2)	Finance lease payments include $0.0 million related to extension options that are reasonably certain of being exercised and exclude $0.0 million of legally binding minimum lease payments for leases signed but not yet commenced.


(3)	Calculated using the interest rate for each lease.

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As of August 3, 2019, future minimum lease payments to be made by the Company or certain third parties in the case of assigned leases for noncancellable operating leases and ~~capital~~finance leases, which have not been reduced for future minimum subtenant rentals under certain operating subleases, including ~~assignments. As~~assignments, consisted of ~~April 27, 2019, these lease obligations consisted of~~the following amounts (in thousands):


	Lease Obligations					Lease Obligations					Lease Receipts						Net Lease Obligations
Fiscal Year	Operating Leases		Capital Leases			Operating Leases		Capital Leases			Operating Leases			Capital Leases			Operating Leases		Capital Leases
Remaining fiscal 2019	$	52,497	$	15,049
2020	183,901		43,556			$	223,612	$	41,550		$	(55,922	)	$	(319	)	$	167,690	$	41,231
2021	160,734		35,259			190,845		32,804			(41,425		)	—			149,420		32,804
2022	145,768		32,082			179,326		29,869			(35,998		)	—			143,328		29,869
2023	124,538		28,895			154,812		26,699			(25,591		)	—			129,221		26,699
2024						135,795		23,095			(18,183		)	—			117,612		23,095
Thereafter	1,021,406		74,433			1,063,674		46,999			(59,186		)	—			1,004,488		46,999
Total future minimum obligations	$	1,688,844	229,274
Total future minimum obligations (receipts)						$	1,948,064	$	201,016		$	(236,305	)	$	(319	)	$	1,711,759	$	200,697
Less interest			(79,944		)			(68,138		)
Present value of net future minimum obligations			149,330
Present value of capital lease obligations								132,878
Less current capital lease obligations			(26,394		)			(24,670		)
Long-term capital lease obligations			$	122,936				$	108,208

The Company leases certain property to third parties under operating, capital and direct financing leases, including assigned leases for which we have future minimum lease payment obligations that are included in the table above. Future minimum lease and subtenant rentals to be received under lease assignments and noncancellable operating and deferred financing income leases, under which the Company is the lessor, as of April 27, 2019, consisted of the following ~~(in thousands):~~tables provide other information required by ASC 842:



Lease Term and Discount Rate	February 1, 2020
Weighted-average remaining lease term (years)
Operating leases	10.9 years
Finance leases	5.2 years
Weighted-average discount rate
Operating leases	10.7	%
Finance leases	9.9	%

Lease Receipts
Fiscal Year Operating Leases Direct Financing Leases
Remaining fiscal 2019 $ 11,068
$ 161
2020 33,824
281
2021 27,097
—
2022 23,416
—
2023 15,887
—
Thereafter 32,173
—
Total minimum lease receipts $ 143,465
$ 442



Other Information		26-Week Period Ended
(in thousands)		February 1, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		110,221
Operating cash flows from finance leases		3,568
Financing cash flows from finance leases		6,135
Leased assets obtained in exchange for new finance lease liabilities		—
Leased assets obtained in exchange for new operating lease liabilities		121,455

During the second quarter of fiscal 2020, the Company ~~acquired various pension~~authorized for issuance and ~~other post retirement benefit plans with~~registered 7.2 million shares of common stock for issuance under the ~~acquisition~~2020 Equity Incentive Plan. In addition, the remaining shares that were available for issuance under the Company’s Amended and Restated 2012 Equity Incentive Plan may be issued under the 2020 Equity Incentive Plan. In the second quarter of ~~Supervalu, which resulted in~~fiscal 2020, the ~~revaluation~~Company granted restricted stock units and performance share units representing a right to receive an aggregate of ~~pension and other postretirement benefit plan obligations as of the acquisition date.~~

13-Week Period Ended April 27, 2019 39-Week Period Ended April 27, 2019
Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
Service cost $ —
$ 55
$ —
$ 114
Interest cost 24,004
478
49,855
993
Expected return on plan assets (35,416 ) (58 ) (73,555 ) (121 )
Net periodic benefit (income) cost $ (11,412 ) $ 475
$ (23,700 ) $ 986
Contributions to benefit plans $ (2,386 ) $ (92 ) $ (2,574 ) $ (218 )

October 22,
2018
Pension Benefits Other Postretirement Benefits
Benefit obligation as of October 22, 2018 $ 2,499,954
$ 52,276
Fair value of plan assets at October 22, 2018 2,305,020
11,586
Unfunded status at October 22, 2018 $ (194,934 ) $ (40,690 )

October 22,
2018
Pension Benefits Other Postretirement Benefits
Accrued compensation and benefits $ 1,300
$ —
Pension and other postretirement benefit obligations 193,634
40,690
Total $ 194,934
$ 40,690



	~~October 22,~~ ~~2018~~
~~Benefit obligation assumptions:~~
~~Discount rate~~	~~4.30% - 4.42%~~



	13-Week Period Ended
	Pension Benefits						Other Postretirement Benefits
(in thousands)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net Periodic Benefit (Income) Cost
Service cost	$	—		$	—		$	14		$	55
Interest cost	13,602			24,004			236			477
Expected return on plan assets	(26,587		)	(35,415		)	(54		)	(58		)
Amortization of net actuarial loss (gain)	3			—			(780		)	—
Pension settlement charge	10,303			—			—			—
Net periodic benefit (income) cost	$	(2,679	)	$	(11,411	)	$	(584	)	$	474

Contributions to benefit plans	$	(1,150	)	$	(151	)	$	(60	)	$	(117	)

The Company reviews and select the discount rate to be used in connection with measuring our pension and other postretirement benefit obligations annually. In determining the discount rate, the Company uses the yield on corporate bonds (rated AA or better) that coincides with the cash flows of the plans’ estimated benefit payouts. The model uses a yield curve approach to discount each cash flow of the liability stream at an interest rate specifically applicable to the timing of each respective cash flow. The model totals the present values of all cash flows and calculates the equivalent weighted average discount rate by imputing the singular interest rate that equates the total present value with the stream of future cash flows. This resulting weighted average discount rate is then used in evaluating the final discount rate to be used.

For those retirees whose health plans provide for variable employer contributions, the assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation before age 65 was 7.80 percent as of October 22, 2018. The assumed healthcare cost trend rate for retirees before age 65 will decrease each year through fiscal 2026, until it reaches the ultimate trend rate of 4.50 percent. For those retirees whose health plans provide for variable employer contributions, the assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation after age 65 was 8.70 percent as of October 22, 2018. The assumed healthcare cost trend rate for retirees after age 65 will decrease through fiscal 2026, until it reaches the ultimate trend rate of 4.50 percent. For those retirees whose health plans provide for a fixed employer contribution rate, a healthcare cost trend is not applicable. The healthcare cost trend rate assumption would have had the following impact on the amounts reported: a 100 basis point increase in the trend rate would have impacted the Company’s service and interest cost by approximately $0.1 million for the portion of the Company’s fiscal year following the transaction date; a 100 basis point decrease in the trend rate would have decreased the Company’s accumulated postretirement benefit obligation as of the Company’s acquisition date by approximately $2.7 million; and a 100 basis point increase would have increased our accumulated postretirement benefit obligation by approximately $3.2 million.



	26-Week Period Ended
	Pension Benefits						Other Postretirement Benefits
(in thousands)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net Periodic Benefit (Income) Cost
Service cost	$	—		$	—		$	28		$	59
Interest cost	30,292			25,851			472			515
Expected return on plan assets	(54,069		)	(38,139		)	(108		)	(63		)
Amortization of net actuarial loss (gain)	6			—			(1,557		)	—
Pension settlement charge	10,303			—			—			—
Net periodic benefit (income) cost	$	(13,468	)	$	(12,288	)	$	(1,165	)	$	511

Contributions to benefit plans	$	(5,250	)	$	(188	)	$	(160	)	$	(126	)

Pension ~~Plan Assets~~Contributions

Pension plan assets are held in a master trust and invested in separately managed accounts and other commingled investment vehicles holding domestic and international equity securities, domestic fixed income securities and other investment classes. The Company employs a total return approach whereby a diversified mix of asset class investments is used to maximize the long-term return of plan assets for an acceptable level of risk. Alternative investments are also used to enhance risk-adjusted long-term returns while improving portfolio diversification. Risk is managed through diversification across asset classes, multiple investment manager portfolios and both general and portfolio-specific investment guidelines. Risk tolerance is established through careful consideration of the plan liabilities, plan funded status and our financial condition. This asset allocation policy mix is reviewed annually and actual versus target allocations are monitored regularly and rebalanced on an as-needed basis. Plan assets are invested using a combination of active and passive investment strategies. Passive, or “indexed” strategies, attempt to mimic rather than exceed the investment performance of a market benchmark. The plan’s active investment strategies employ multiple investment management firms. Managers within each asset class cover a range of investment styles and approaches and are combined in a way that controls for capitalization, and style biases (equities) and interest rate exposures (fixed income) versus benchmark indices. Monitoring activities to evaluate performance against targets and measure investment risk take place on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

Asset Category Target October 22,
2018
Domestic equity 20.8 % 19.8 %
International equity 6.0 % 5.4 %
Private equity 5.0 % 5.0 %
Fixed income 64.8 % 64.2 %
Real estate 3.4 % 5.6 %
Total 100.0 % 100.0 %

~~Common stock—Valued at the closing price reported in the active market in which the individual securities are traded.~~

~~Common collective trusts~~—Investments in common/collective trust funds are stated at net asset value (“NAV”) as determined by the issuer of the common/collective trust funds and is based on the fair value of the underlying investments held by the fund less its liabilities. The majority of the common/collective trust funds have a readily determinable fair value and are classified as Level 2. Other investments in common/collective trust funds determine NAV on a less frequent basis and/or have redemption restrictions. For these investments, NAV is used as a practical expedient to estimate fair value.

~~Corporate bonds~~—Valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the fair value is based upon an industry valuation model, which maximizes observable inputs.

~~Government securities~~—Certain government securities are valued at the closing price reported in the active market in which the security is traded. Other government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.

~~Mortgage backed securities~~—Valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the fair value is based upon an industry valuation model, which maximizes observable inputs.

~~Mutual funds—Mutual funds are valued at the closing price reported in the active market in which the individual securities are traded.~~

~~Private equity and real estate partnerships~~—Valued based on NAV provided by the investment manager, updated for any subsequent partnership interests’ cash flows or expected changes in fair value. The NAV is used as a practical expedient to estimate fair value.

~~Other—Valued under an approach that maximizes observable inputs, such as gathering consensus data from the market participant’s best estimate of mid-market pricing for actual trades or positions held.~~

Level 1 Level 2 Level 3 Measured at NAV Total
Common stock $ 299,234
$ —
$ —
$ —
$ 299,234
Common collective trusts —
739,822
—
78,230
818,052
Corporate bonds —
368,145
—
—
368,145
Government securities 51,030
155,279
—
—
206,309
Mutual funds 887
309,582
—
—
310,469
Mortgage-backed securities —
14,920
—
—
14,920
Other 52,952
2,193
—
—
55,145
Private equity and real estate partnerships —
—
—
244,332
244,332
Total plan assets at fair value $ 404,103
$ 1,589,941
$ —
$ 322,562
$ 2,316,606

No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan in fiscal 2020. Minimum pension contributions of $8.25 million are required to be made under the Unified Grocers, Inc. Cash Balance Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal ~~2019.~~2020. The Company expects to contribute approximately ~~$5.0~~$0.0 million and $6.0 million to ~~$10.0 million to~~ its other defined benefit pension plans and postretirement benefit plans, respectively, in fiscal ~~2019.~~2020.

~~Estimated Future Benefit Payments~~

~~The estimated future benefit payments to be made from our defined benefit pension and other postretirement benefit plans, which reflect expected future service, are as follows (in thousands):~~

Fiscal Year Pension Benefits
Other Postretirement
Benefits
Remaining fiscal 2019 $ 41,128
$ 1,321
2020 158,500
4,800
2021 163,100
4,700
2022 169,900
4,600
2023 174,600
4,500
Years 2024-2027 849,500
19,400

~~Defined Contribution Plans~~

~~Post-Employment Benefits~~

Post-Employment Benefits
April 27,
2019
Accrued compensation and benefits $ 2,730
Other long-term liabilities 5,084
Total $ 7,814

Multiemployer Pension Plans

The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets heldcontributed $12.6 million and $7.6 million in ~~trust for that purpose. Plan trustees typically are responsible for determining~~ the ~~level~~second quarters of ~~benefits to be provided to participants as well as the investment of the assets~~fiscal 2020 and ~~plan administration. Trustees are appointed~~2019, respectively, and $26.1 million and $7.7 million in ~~equal number by employers~~fiscal 2020 and ~~the unions that are parties to the relevant collective bargaining agreements.~~

EIN—Pension
Plan Number

Plan
Month/Day
End Date
Pension Protection Act Zone Status
FIP/RP Status
Pending/ Implemented
Contributions
Surcharges
Imposed⁽¹⁾

Amortization
Provisions
Pension Fund 2019 39-Week Period Ended April 27, 2019
Minneapolis Food Distributing Industry Pension Plan⁽²⁾
416047047-001 12/31 Green No $ 5
No No
Minneapolis Retail Meat Cutters and Food Handlers Pension Fund⁽³⁾
410905139-001 2/28 Red Implemented 4
No No
Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund⁽³⁾
83-2598425 12/31 N/A N/A 1
N/A N/A
Central States, Southeast and Southwest Areas Pension Fund⁽²⁾
366044243-001 12/31 Deep Red Implemented 3
No Yes
UFCW Unions and Participating Employer Pension Fund⁽³⁾
526117495-001 12/31 Red Implemented 3
No No
Western Conference of Teamsters Pension Plan Trust⁽²⁾
916145047-001 12/31 Green No 8
No No
UFCW Unions and Employers Pension Plan⁽³⁾
396069053-001 10/31 Deep Red Implemented 1
Yes Yes
All Other Multiemployer Pension Plans⁽⁴⁾
2

Total $ 27

~~The following table describes the expiration of the Company’s collective bargaining agreements associated with the significant multiemployer plans in which we participate:~~

Most Significant Collective Bargaining Agreement
Pension Fund Range of Collective Bargaining Agreement Expiration Dates Total Collective Bargaining Agreements Expiration Date
% of Associates under Collective Bargaining Agreement ⁽¹⁾
Over 5% Contribution 2018
Minneapolis Food Distributing Industry Pension Plan⁽²⁾
5/31/2022 1
5/31/2022 �� 100.0 % Yes
Minneapolis Retail Meat Cutters and Food Handlers Pension Fund⁽³⁾
3/4/2023 1
3/4/2023 100.0 % Yes
Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund (‘VAP”)⁽³⁾
3/4/2023 1
3/4/2023 100.0 % N/A (contrib. began 1/1/2019)
Central States, Southeast and Southwest Areas Pension Fund⁽²⁾
5/31/2019 - 9/14/2019 4
9/14/2019 42.0 % No
UFCW Unions and Participating Employer Pension Fund⁽³⁾
7/11/2020 2
7/11/2020 71.7 % Yes
Western Conference of Teamsters Pension Trust⁽²⁾
4/20/2019 - 4/22/2023 21
7/17/2021 15.8 % No
UFCW Unions and Employers Pension Plan⁽³⁾
4/9/2022 1
4/9/2022 100.0 % Yes

In connection with the ~~closure~~Company’s consolidation of distribution centers in the ~~Shop ‘n Save locations and~~Pacific Northwest, during the ~~acquisition~~second quarter of ~~Supervalu, we acquired~~fiscal 2020, the Company recorded a ~~$35.7~~$10.6 million multiemployer pension plan withdrawal liability, under which payments will be made over ~~the next 20 years and~~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 14—INCOME TAXES

The effective income tax rate for continuing operations was a benefit of 35.5% compared to a benefit of 20.2% on pre-tax losses for the second quarter of fiscal 2020 and 2019, respectively. The change in the effective income tax rate for the second quarter of fiscal 2020 was primarily driven by a tax benefit on the impairment of goodwill and a tax benefit on the release of unrecognized tax positions that both occurred in the second quarter of fiscal 2019 but did not recur in the second quarter of fiscal 2020.

The tax provision included $0.2 million and $77.0 million of discrete tax benefit for the second quarter of fiscal 2020 and fiscal 2019, respectively. The discrete tax benefit for the second quarter of fiscal 2019 was primarily due to a tax benefit of approximately $68.4 million related to the goodwill impairment charge, as well as a tax benefit related to unrecognized tax positions of approximately $8.7 million.

The effective income tax rate for continuing operations was a benefit of 17.2% compared to a benefit of 20.0% on pre-tax losses for fiscal 2020 year-to-date and fiscal 2019 year-to-date, respectively. The decrease in the effective income tax benefit rate was primarily driven by a tax benefit of approximately $8.7 million recorded in fiscal 2019 for the release of unrecognized tax positions that did not recur in fiscal 2020.



	13-Week Period Ended						26-Week Period Ended
(in thousands, except per share data)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Basic weighted average shares outstanding	53,523			50,815			53,368			50,699
Net effect of dilutive stock awards based upon the treasury stock method	—			—			—			—
Diluted weighted average shares outstanding	53,523			50,815			53,368			50,699

Basic per share data:
Continuing operations	$	(0.60	)	$	(7.15	)	$	(8.25	)	$	(7.59	)
Discontinued operations	$	0.03		$	0.42		$	0.49		$	0.46
Basic loss per share	$	(0.57	)	$	(6.72	)	$	(7.77	)	$	(7.12	)
Diluted per share data:
Continuing operations	$	(0.60	)	$	(7.15	)	$	(8.25	)	$	(7.59	)
Discontinued operations⁽¹⁾	$	0.03		$	0.42		$	0.48		$	0.46
Diluted loss per share	$	(0.57	)	$	(6.72	)	$	(7.77	)	$	(7.12	)

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share	7,413			4,094			7,834			1,969

NOTE 16—BUSINESS SEGMENTS

The Company ~~contributed $13.8 million~~has 2 operating segments aggregated under the Wholesale reportable segment: Wholesale and ~~$0.1 million~~Canada Wholesale. In addition, the Company’s Retail operating segment is a separate reportable segment, which consists of discontinued operations disposal groups. The Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. The Wholesale reportable segment is engaged in the ~~third quarters~~national distribution of natural, organic, specialty, produce, and conventional grocery and non-food products, and is also a provider of support services in the United States and Canada. 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. The Company allocates certain corporate capital expenditures and identifiable assets to its business segments and retains certain depreciation expense related to those assets within Other. In the first quarter of fiscal ~~2019 and 2018, respectively, and $27.4 million and $0.4 million in fiscal 2019 and 2018 year-to-date, respectively, to multiemployer pension plans.~~

~~Multiemployer Postretirement Benefit Plans Other than Pensions~~

The company contributed $42.3 million in fiscal 2019 year-to-date to multiemployer health and welfare plans. If healthcare provisions within these plans cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating ~~expenses could increase in the future.~~

~~Collective Bargaining Agreements~~

Table of contents



(in thousands)	Wholesale			Other			Eliminations			Unallocated (Income)/Expenses		Consolidated
13-Week Period Ended February 1, 2020:
Net sales⁽¹⁾	$	6,144,381		$	38,267		$	(45,044	)	$	—	$	6,137,604
Restructuring, acquisition and integration related expenses	11,410			18,276			—			—		29,686
Operating loss	18,745			(22,817		)	(999		)	—		(5,071		)
Total other expense, net										44,824		44,824
Loss from continuing operations before income taxes												(49,895		)
Depreciation and amortization	65,562			3,657			—			—		69,219
Capital expenditures	43,220			285						—		43,505
Total assets of continuing operations	6,622,768			633,031			(46,644		)	—		7,209,155

13-Week Period Ended January 26, 2019:
Net sales⁽²⁾	$	6,131,418		$	56,717		$	(38,929	)	$	—	$	6,149,206
Restructuring, acquisition and integration related expenses	4			47,121			—			—		47,125
Operating loss	(352,678		)	(55,138		)	(319		)	—		(408,135		)
Total other expense, net	—			—			—			46,977		46,977
Loss from continuing operations before income taxes												(455,112		)
Depreciation and amortization	69,801			3,399			—			—		73,200
Capital expenditures	63,673			83			—			—		63,756
Total assets of continuing operations	6,497,883			361,063			(36,203		)	—		6,822,743



(in thousands)	Wholesale			Other			Eliminations			Unallocated (Income)/Expenses		Consolidated
26-Week Period Ended February 1, 2020:
Net sales⁽¹⁾	$	12,151,476		$	102,016		$	(96,303	)	$	—	$	12,157,189
Goodwill and asset impairment charges	423,703			1,702			—			—		425,405
Restructuring, acquisition and integration related expenses	19,362			24,574			—			—		43,936
Operating loss	(397,484		)	(52,127		)	513			—		(449,098		)
Total other expense, net	—			—			—			82,912		82,912
Loss from continuing operations before income taxes	—			—			—			—		(532,010		)
Depreciation and amortization	133,761			10,599			—			—		144,360
Capital expenditures	83,349			1,278			—			—		84,627

26-Week Period Ended January 26, 2019:
Net sales⁽²⁾	$	8,988,384		$	105,471		$	(76,493	)	$	—	9,017,362
Goodwill and asset impairment charges	370,871			—			—			—		370,871
Restructuring, acquisition and integration related expenses	4			115,125			—			—		115,129
Operating loss	(292,441		)	(133,467		)	(1,065		)	—		(426,973		)
Total other expense, net	—			—			—			53,755		53,755
Loss from continuing operations before income taxes	—			—			—			—		(480,728		)
Depreciation and amortization	93,318			4,675			—			—		97,993
Capital expenditures	79,410			727			—			—		80,137

~~18.~~NOTE 17—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 ~~April 27, 2019.~~February 1, 2020. These guarantees were generally made to support the business growth of wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to eleven years, with a weighted average remaining term of approximately ~~seven~~six years. For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, wethe Company would be required to make payments under ~~our~~its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the primary obligor/retailer.

The Company reviews performance risk related to ~~our~~its guarantee obligations based on internal measures of credit performance. As of ~~April 27, 2019,~~February 1, 2020, the maximum amount of undiscounted payments wethe Company would be required to make in the event of default of all guarantees was ~~$41.9~~$34.5 million ($~~29.1~~26.0 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, ~~we believe~~the Company believes the likelihood that weit 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 contingent obligations under ~~our~~the Company’s guarantee arrangements as the fair value has been determined to be de minimis.

The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. WeThe 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 ~~our~~the Company’s lease assignments among third parties, and various other remedies available, ~~we believe~~the Company believes the likelihood that weit will be required to assume a material amount of these obligations is remote. ~~No amount~~For leases that have been assigned, the Company has ~~been~~ recorded inthe associated right of use operating lease assets and obligations within the Condensed Consolidated Balance ~~Sheets for these contingent obligations under our~~Sheets. No associated lessor receivables are reflected on the Condensed Consolidated Balance Sheets; however, within Note 11—Leases expected cash flows from lease receipts reflecting the assignees payments to the landlord are reflected as lease receipts within the future maturity table, along with the Wholesale customers future lease receipts. 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 weit 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 ~~our~~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 usthe Company and agreements to indemnify officers, directors and employees in the performance of their work. While ~~our~~the Company’s aggregate indemnification obligations could result in a material liability, ~~we are~~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, ~~we remain~~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 ~~our~~the Company’s commitments, ~~we believe~~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 ~~we remain~~the Company remains contingently liable, ~~we believe~~the Company believes that the likelihood that weit will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.

Agreements with Save-A-Lot and Onex

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

In connection with the sale of NAI, Supervalu entered into various agreements with AB Acquisition LLC and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the “TSA”). Supervalu is now providing services to NAI and Albertson’s LLC to transition and wind down the TSA. On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that we are providing to Albertson’s LLC and NAI, other than with respect to certain limited transition and wind down services. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond October 2019. We also agreed that Albertson’s would no longer provide services to us after September 21, 2019.

Other Contractual Commitments

In the ordinary course of business, ~~we enter~~the Company enters into supply contracts to purchase products for resale, and ~~purchase, and~~ service contracts for fixed asset and information technology ~~commitments.~~systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of ~~April 27, 2019, we~~February 1, 2020, the Company had approximately ~~$0.3~~$236.0 million of non-cancelable future purchase obligations.

We are subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, the likelihood that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on our overall results of our operations, cash flows or financial position is remote.

In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against Supervalu alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, Supervalu purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain of Supervalu’s assets to C&S that were located in New England. ~~Three~~NaN other retailers filed similar complaints in other jurisdictions and the cases were consolidated ~~and are proceeding~~ in the United States District Court in Minnesota. The complaints alleged that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that Supervalu and C&S purchased from each other. Plaintiffs ~~are~~were divided into Midwest plaintiffs and a New England plaintiff and are seeking monetary damages, injunctive relief and attorney’s fees. ~~At a mediation on May 25, 2017, Supervalu reached a settlement~~As previously disclosed, the Company settled with the ~~non-arbitration Champaign distribution center class, which was the one~~ Midwest ~~class suing Supervalu. The court granted final approval of the settlement on~~plaintiffs in November ~~17,~~ 2017. The material terms of the settlement include: (1) denial of wrongdoing and liability by Supervalu; (2) release of all Midwest plaintiffs’ claims against Supervalu related to the allegations and transactions at issue in the litigation that were raised or could have been raised by the non-arbitration Champaign distribution center class; and (3) payment by Supervalu of $9 million. The New England plaintiff iswas not a party to the settlement and is pursuing its individual claims and potential class action claims against Supervalu, which at this time are determined as remote. On February 15, 2018, Supervalu filed a summary judgment and Daubert motion and the New England plaintiff filed a motion for class certification and on July 27, 2018, the District Court granted Supervalu’s motions. The New England plaintiff appealed to the 8th Circuit on August 15, 2018. Briefing on the appeal is complete and the hearing occurred on October 15, 2019. On December 20, 2019, the 8th Circuit affirmed the District Court’s decision.

The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 38 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. and the Company (the “Stock Purchase Agreement”), New Albertson’s Inc. is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. UNFI is vigorously defending these matters, which it believes are without merit.

UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators' 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 Albertsons in excess of $100 million, not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant 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. Discovery is complete, and trial will be set after the Court rules on the pending motions. On August 5, 2019, the Court granted one of relators’ summary judgment motions finding that defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. There are additional pending motions for summary judgment filed by defendants and relators that await rulings by the Court, including on key FCA elements of materiality and knowledge. On August 30, 2019, defendants filed a motion with the District Court seeking certification of the summary judgment decision for interlocutory appeal and on November ~~2014, four~~7, 2019, the District Court denied the motion. UNFI is vigorously defending this matter and believes that it should be successful on the merits, however, in light of the most recent summary judgment decision, the Company now believes the risk of loss is reasonably possible. However, management is unable to estimate a range of reasonably possible loss because there are several disputed factual and legal matters that have not yet been resolved, including fundamentally whether the FCA violations actually occurred (which defendants still strongly believe and continue to argue did not), and the appropriate methodology of determining potential damages, if any.

In November 2018, a putative nationwide class action ~~complaints were~~was filed ~~against Supervalu relating~~in Rhode Island state court, which the Company removed to ~~the criminal intrusion into Supervalu’s computer network that were previously announced by Supervalu in its fiscal 2015. The cases were centralized in the Federal~~U.S. District Court for the District of ~~Minnesota under the caption~~ Rhode Island. In ~~Re: SUPERVALU~~North Country Store v. United Natural Foods, Inc. ~~Customer Data Security Breach Litigation~~. On June 26, 2015, the plaintiffs filed a Consolidated Class Action Complaint. Supervalu filed a Motion to Dismiss the Consolidated Class Action Complaint and the hearing took place on November 3, 2015. On January 7, 2016, the District Court granted the Motion to Dismiss and dismissed the case without prejudice, holding, plaintiff asserts that the ~~plaintiffs did not have standing~~Company made false representations about the nature of fuel surcharges charged to ~~sue as they had not met their burden~~customers and asserts claims for alleged violations of ~~showing any compensable damages. On February 4, 2016, the plaintiffs filed a motion to vacate the District Court’s dismissal~~Connecticut’s Unfair Trade Practices Act, breach of contract, unjust enrichment and breach of the ~~complaint or in the alternative to conduct discovery~~covenant of good faith and file an amended complaint, and Supervalu filed its response in opposition on March 4, 2016. On April 20, 2016, the District Court denied plaintiffs’ motion to vacate the District Court’s dismissal or in the alternative to amend the complaint. On May 18, 2016, plaintiffs appealed to the 8th Circuit and on May 31, 2016, Supervalu filed a cross-appeal to preserve its additional arguments for dismissal of the plaintiffs’ complaint. On August 30, 2017, the 8th Circuit affirmed the dismissal for 14fair dealing arising out of the 15 plaintiffs finding they had no standing. The 8th Circuit did not consider Supervalu’s cross-appeal and remanded the case back for consideration of Supervalu’s additional arguments for dismissal against the one remaining plaintiff. On October 30, 2017, Supervalu filed a motion to dismiss the remaining plaintiff and on November 7, 2017, the plaintiff filed a motion to amend its complaint. The court held a hearing on the motions on December 14, 2017, and on March 7, 2018, the District Court denied plaintiff’s motion to amend and granted Supervalu’s

~~motion to dismiss.~~Company’s fuel surcharge practices. On March ~~14, 2018, plaintiff appealed to the 8th Circuit and on May 31,~~5, 2019, the ~~8th Circuit denied plaintiff’s appeal affirming~~Company answered the ~~District Court’s dismissal~~complaint denying the allegations. At a court-ordered mediation on October 15, 2019, the Company reached an agreed resolution, which was immaterial in amount, to avoid costs and uncertainty of litigation. The potential settlement must go through the ~~case. Supervalu had $50 million~~Court approval and notice process, which will take several months.

From time to time, the Company receives notice of ~~cyber threat insurance~~claims or potential claims, 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 it the context of labor contract negotiations; supplier, customer and service provider contract terms and claims including matters related to supplier or customer insolvency or general inability to pay obligations as they become due; real estate and environmental matters, including claims in connection with the Company’s ownership and lease of a substantial amount of real property, both neutral and warehouse properties; and antitrust. Other than as described above, ~~a per incident deductible of $1 million at the time of the criminal intrusion,~~there are no pending material legal proceedings to which the Company ~~believes should cover any potential loss related~~is a party or to ~~this litigation.~~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. WeThe Company regularly ~~monitor our~~monitors its exposure to the loss contingencies associated with these matters and may from time to time change ~~our~~its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of February 1, 2020, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.

~~With respect to the matters discussed above, we believe the chance of a material loss is remote. It is possible, although~~

Although management believes ~~that the likelihood is remote,~~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~~the Company’s financial condition, results of operations or cash flows.

~~19.~~NOTE 18—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu (“Retail”). The results of operations, financial position and cash flows of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save St. Louis and Shop ‘n Save East retail operations have been presented as discontinued operations and the related assets and liabilities have been classified as held-for-sale.

In the second quarter of fiscal ~~2019,~~2020, the Company ~~closed three~~entered into agreements to sell 13 Shoppers stores and decided to close 6 locations. During the second quarter of ~~its eight Shop ‘n Save East stores~~fiscal 2020, within discontinued operations the Company incurred approximately $30.5 million in pre-tax aggregate costs and charges, consisting of $12.4 million of operating losses and transaction costs during the period of wind-down, $8.6 million of property and equipment impairment charges related to impairment reviews on the remaining locations (discussed below), $6.2 million of severance costs and $3.2 million of losses on sale. The Company expects to incur additional related costs and charges in the third quarter of fiscal 2020. In the second quarter of fiscal 2020, the Company reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values. Based on the announced transactions and an updated impairment assessment, the Company recorded property and equipment impairment charges of $8.6 million for the remaining Shoppers assets within discontinued operations, which is included above.

The Company continues to hold the remaining Shoppers stores and the Cub Foods business for sale. The Company may incur additional costs and charges in the future related to Cub Foods or Shoppers if there are declines in their estimated fair values or if we incur additional wind-down or employee-related costs or charges.

In fiscal 2019, the Company ~~sold~~completed the ~~remaining five Shop ‘n Save East stores~~sale of 7 of its 8 Hornbacher's locations, as well as Hornbacher’s newest store in West Fargo, North Dakota, to ~~GIANT Food Store, LLC, and~~Coborn's Inc. (“Coborn’s”). The Company did not incur a gain or loss on the sale of this disposal group.

In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group. As of February 1, 2020, only the Cub Foods and Shoppers disposal groups continue to be classified as operations held for sale as discontinued operations.

Operating results of discontinued operations ~~(in thousands)~~ are summarized below:

Ended April 27, 2019⁽¹⁾

January, 26, 2019⁽¹⁾

The Company recorded ~~$233.4~~$251.5 million and ~~$520.4~~$265.2 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the ~~13-week~~second quarters of fiscal 2020 and ~~39-week periods ended April 27,~~ 2019, respectively, and $496.1 million and $287.0 million in fiscal 2020 and 2019 year-to-date, respectively, which ~~we expect~~the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to ~~$128.3~~$96.6 million and ~~$291.7~~$153.6 million in the ~~13-week~~second quarters of fiscal 2020 and ~~39-week period ended April 27, 2019.~~2019, respectively, and $209.6 million and $163.4 million in fiscal 2020 and 2019 year-to-date, respectively.

The carrying amounts (in thousands) of major classes of assets and liabilities that were classified as held-for-sale on the Condensed Consolidated Balance Sheets follows in the table below. ~~The assets and liabilities~~



(In thousands)	February 1, 2020		August 3, 2019
Current assets
Cash and cash equivalents	$	2,264	$	2,917
Receivables, net	17,756		1,471
Inventories	120,231		129,142
Other current assets	5,118		10,199
Total current assets of discontinued operations	145,369		143,729
Long-term assets
Property and equipment	276,132		301,395
Intangible assets	49,687		48,788
Other assets	2,086		1,882
Total long-term assets of discontinued operations	327,905		352,065
Total assets of discontinued operations	$	473,274	$	495,794

Current liabilities
Accounts payable	$	68,024	$	61,634
Accrued compensation and benefits	39,893		45,887
Other current liabilities	14,844		14,744
Total current liabilities of discontinued operations	122,761		122,265
Long-term liabilities
Other long-term liabilities	646		1,923
Total liabilities of discontinued operations	123,407		124,188
Net assets of discontinued operations	$	349,867	$	371,606

As of discontinued operations were acquired as part of the Supervalu acquisition, and as of April 27, 2019, the purchase price allocation related to these assets and liabilities was preliminary and will be finalized when valuations are complete and final assessments ofFebruary 1, 2020, the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations. Due to the recent closing of the transaction, some amounts reported are provisional pending the review of valuations obtained from third parties. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible asset acquired and liabilities assumed. The fair value of discontinued operations, determined as of the acquisition date, includesdisposal groups were estimated ~~consideration~~based on each group’s expected ~~to be received,~~consideration less costs to sell. ~~Within~~Estimated fair values include indications of values that are based on the stand-alone fair values of the long-lived assets of the disposal group exclusive of transferring multiemployer pension plan obligations. The sale of the Company’s ~~determination of fair value of the respective~~retail disposal groups may result in charges that may be materially different than the Company’s prior estimates. Estimates most sensitive to changes that could result in material charges include expected consideration, including the extent to which the Company ~~incorporates the impact of the fair value of off-balance sheet~~is able transfer multiemployer pension plan obligations, ~~that it expects to sell so that long-lived assets are not reduced below their fair value.~~and the potential sale of the disposal groups at a lower level.

(in thousands) April 27, 2019
Current assets
Cash and cash equivalents $ 3,019
Receivables, net 2,182
Inventories 136,713
Other current assets 5,607
Total current assets of discontinued operations 147,521
Long-term assets
Property, plant and equipment 337,591
Intangible assets 53,486
Other assets 2,067
Total long-term assets of discontinued operations 393,143
Total assets of discontinued operations $ 540,664

Current liabilities
Accounts payable $ 55,261
Accrued compensation and benefits 39,497
Other current liabilities 21,352
Total current liabilities of discontinued operations 116,110
Long-term liabilities
Other long-term liabilities 935
Total long-term liabilities of discontinued operations 935
Total liabilities of discontinued operations 117,045
Net assets of discontinued operations $ 423,619

~~Additional Retail Accounting Policies~~NOTE 19—SUBSEQUENT EVENTS

~~Revenues from retail product sales are recognized at~~On February 24, 2020, the ~~point~~Company executed a purchase option to acquire a distribution center facility with approximately 1.2 million square feet that is currently under construction. Upon completion of ~~sale upon customer check-out. Sales tax is excluded from Net sales. Limited rights~~the construction the purchase price of ~~return exist with our customers due~~the facility will be determined. The purchase of the distribution center may occur anytime between the fourth quarter of fiscal 2020 and the fourth quarter of fiscal 2022 pursuant to the nature of the products we sell. Advertising income earned from franchisees that participate in the Company’s retail advertising program are recognized as Net sales. Loyalty program expense in the form of fuel rewards is recognized as a reduction of Net sales. Franchise agreement revenue is recognized within Net sales.landlord’s determination.

Retail advertising expenses are included in cost of sales of discontinued operations, net of cooperative advertising reimbursements. Operating expenses of discontinued operations include employee-related costs, such as salaries and wages, incentive compensation, health and welfare and workers’ compensation, and occupancy costs, including utilities and operating costs of retail stores, and depreciation and amortization expense, impairment charges on property, plant and equipment and other administrative costs. Rent expense on operating leases and capital lease amortization expense of retail stores have not been included in discontinued operations, as we expect to remain primarily obligated under these leases. Refer to Note 16. “Leases” for additional information.

Retail inventories are valued at the lower of cost or market under LIFO. Substantially all of our inventory consists of finished goods and are valued under the retail inventory method (“RIM”) or replacement cost method to value discrete inventory items at lower of cost or market under the FIFO method before application of any LIFO reserve.

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

This Quarterly Report ~~on Form 10-Q contains~~and the documents incorporated by reference in this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act, ~~of 1933, as amended,~~ and Section 21E of the ~~Securities~~ Exchange Act, ~~of 1934, as amended,~~ that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” ~~“plans,” “planned,~~“plan,” “seek,” “should,” “will,” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.

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

~~This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive.~~ You should carefully review the risks described under Part II. Item ~~1A. Risk Factors~~1A of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~period~~year ended ~~October 27, 2018 filed with the SEC on December 6, 2018 or our~~August 3, 2019. Risk Factors as well as any other ~~reports filed with the SEC from time to time,~~cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, ~~and~~ financial ~~condition.~~condition or cash flows.

EXECUTIVE OVERVIEW

We are a Delaware corporation based in Providence, Rhode Island and Eden Prairie, Minnesota, and we conduct business through our various subsidiaries. Since the formation of our predecessor in 1976, we have grown our business both organically and through acquisitions, which have expanded our distribution network, product selection and customer base.

Business Overview

~~We are~~As a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products, and provider of support services in the United States and ~~Canada. We~~Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. Through our October 2018 acquisition of SUPERVALU INC. (“Supervalu”), we are transforming into North America’s premier wholesaler with 60 distribution centers representing nearly 28 million square feet of warehouse space.

We offer more than ~~110,000 natural, organic and specialty foods and non-food~~250,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general ~~merchandise, produce,~~merchandise; produce; perishables and frozen ~~foods,~~foods; nutritional supplements and sports ~~nutrition,~~nutrition; bulk and food service ~~products~~products; and personal care items. ~~Our~~Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 60 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. We believe our total product ~~offering now also includes over 175,000 items available from the Supervalu acquisition, giving us a total~~ assortment ~~that we believe to be~~and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, ~~military commissaries,~~ as well as international customers with wide-ranging needs.

Our Strategy

A key component of our business and growth strategy has been to acquire wholesalers differentiated by product offerings, service offerings and market area. In fiscal 2019, the acquisition of Supervalu accelerated our “build out the store” strategy, diversified our customer base, enabled cross-selling opportunities, expanded our market reach and scale, enhanced our technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth.

We believe our significant scale and footprint will generate long-term shareholder value by positioning us to continue to grow sales of natural, organic, specialty, produce, ~~and~~ conventional grocery and non-food products, including our Private Brands Business and professional services across our network. We believe we will realize significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, by cross-selling to our customers, by integrating our merchandising offerings into existing warehouses, by optimizing our network footprint to lower our cost structure, and by eliminating redundant administrative costs.

~~Our three-year strategy and focus include:~~

~~Successful integration of Supervalu into UNFI;~~

~~Realizing cost synergies;~~

~~Optimizing our distribution center network;~~

~~Driving cross selling of products and services across our businesses; and~~

~~Generating cash to pay down debt.~~

In the third quarter of fiscal 2019, we announced that to accelerate our integration of Supervalu into one organization the Company will now operate under a national UNFI leadership team. We believe this change will advance the execution of our long-term strategic objectives and short-term synergy, revenue and Adjusted EBITDA growth objectives.

~~Our Operating Structure~~

~~Our continuing operations are generally comprised of two principal divisions:~~

~~our~~ ~~wholesale division, which includes:~~


◦	~~Our broadline natural, organic and specialty distribution business in the United States, including our Select Nutrition business which distributes vitamins, minerals and supplements;~~


◦	~~Our Supervalu business, which distributes grocery and other products, includes a Private Brands business with the~~ ~~Essential Everyday®, Wild Harvest®, and~~ ~~Culinary Circle®~~ ~~brands, and provides logistics and professional service solutions to retailers across the United States and internationally;~~


◦	~~Tony’s, which distributes a wide array of specialty protein, cheese, deli, foodservice and bakery goods, principally throughout the Western United States;~~


◦	Albert’s, which distributes organically grown produce and non-produce perishable items within the United States, and includes the operations of Nor-Cal, a distributor of organic and conventional produce and non-produce perishable items principally in Northern California; and


◦	~~UNFI Canada, Inc. (“UNFI Canada”), which is our natural, organic and specialty distribution business in Canada.~~

~~our~~ ~~manufacturing and branded products division, consisting of:~~


◦	~~Our Blue Marble Brands branded product lines;~~


◦	Woodstock Farms Manufacturing, which specializes in importing, roasting, packaging and the distribution of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections.

We currently operate approximately 96 retail grocery stores acquired from Supervalu. Our intent is to thoughtfully and economically divest these stores. These stores are reported within discontinued operations in our Condensed Consolidated Financial Statements.

~~Our Customers~~

Our legacy UNFI business continues to serve more than 40,000 customer locations primarily located across the United States and Canada, which we classify along with the Supervalu customers into four customer channels:

~~Supernatural, which consists of chain accounts that are national in scope and carry primarily natural products, and at this time currently consists solely of Whole Foods Market;~~

~~Independents, which include single store and chain accounts (excluding supernatural, as defined above), which carry primarily natural products and buying clubs of consumer groups joined to buy products;~~

~~Other, which includes foodservice, e-commerce and international customers outside of Canada, as well as sales to Amazon.com, Inc.~~

Our Supervalu business continues to supply over 5,500 store locations, including over 3,300 stores where we are the primary supplier and 2,200 stores where we are the secondary supplier, which we determine based on certain dollar thresholds of product category purchases over consecutive fiscal periods. Our Supervalu customers include single and multiple independent grocery store operators, regional chains and the military, many of which are long tenured customers.

We maintain long-standing customer relationships with customers in our supernatural, supermarket, independent and ~~independent channels, and within our Supervalu business.~~other channels. Some of these long-standing customer relationships are established through contracts with our customers in the form of distribution agreements.

~~Our Operations~~

~~In recent years,~~We currently operate approximately 76 retail grocery stores acquired in the Supervalu acquisition. We intend to thoughtfully and economically divest these stores, and, as described below, during the second quarter of fiscal 2020, we entered into agreements to sell 13 retail stores and closed six additional stores. These stores are reported within discontinued operations in our ~~sales to existing and new customers have increased through the continued growth of the natural and organic products industry~~Condensed Consolidated Financial Statements included in general; increased market share as a result of our high quality service and a broader product selection, including specialty products; the acquisition of, or merger with, natural and specialty products distributors and most recently the largest publicly traded conventional distributor, Supervalu; the expansion of our existing distribution centers; the construction of new distribution centers; the introduction of new products and the development of our own line of natural and organic branded products. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Our strategic plan is focused on increasing the type of products we distribute to our customers, including perishable products and conventional produce to “build out the store” and cover center of the store, as well as perimeter offerings.this Quarterly Report.

We have been the primary distributor to Whole Foods Market for more than ~~twenty~~20 years. We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025. Following the acquisition of Whole Foods Market by Amazon.com, Inc. in August 2017, our sales to Whole Foods Market increased resulting in year-over-year growth in net sales. Refer to “Results of Operations” section below for further information.

~~To maintain our market position and improve our operating efficiencies, we seek to continually:~~

~~expand our marketing and customer service programs across regions;~~

~~expand our national purchasing opportunities;~~

~~offer a broader selection of products to our customers than our competitors;~~

~~offer operational excellence with high service levels and a higher percentage of on-time deliveries than our competitors;~~

~~centralize general and administrative functions to reduce expenses;~~

~~consolidate systems applications among physical locations and regions;~~

~~increase our investment in people, facilities, equipment and technology;~~

~~integrate administrative and accounting functions; and~~

~~reduce the geographic overlap between regions.~~

~~Our continued growth has allowed us to expand our existing facilities and open new facilities in an effort to achieve increasing operating efficiencies.~~

~~Acquisition of Supervalu~~

On July 25, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which we agreed to acquire Supervalu for an aggregate purchase price of approximately $2.3 billion (the “Merger”), including the assumption of outstanding debt and liabilities. The transaction closed on October 22, 2018. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge. The redemption of the Senior Notes was financed by borrowings under our Term Loan Facility. The acquisition of Supervalu accelerates our build out the store strategy, diversifies the Company’s customer base, enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth.

Distribution Center Network

Network ~~optimization~~Optimization and Construction

Supervalu acquired Unified Grocers, Inc. (“Unified”) and Associated Grocers of Florida, Inc. (“AG Florida”) in June 2017 and December 2017, respectively, as well as opened new distribution centers in Harrisburg, Pennsylvania and Joliet, Illinois in 2017. As we integrate the distribution networks of Supervalu, Unified and AG Florida with our distribution network, expand our capacity and take steps to improve the efficiency of our warehouse capabilities including with our Joliet distribution center, we expect to incur start-up and transition costs including higher employee, trucking and inventory shrink costs. During fiscal 2019, we incurred higher than expected distribution expenses from our distribution network realignment due to the following:

During the second and third quarters, we incurred higher operating and shrink costs resulting from our transition from the Lancaster distribution center to our Harrisburg distribution center. These transition costs have sequentially improved in the third quarter, but we expect to incur higher operating costs in the Harrisburg facility than were historically incurred at Lancaster, which contained warehouse automation.

Within the Pacific Northwest, we ~~expect to move~~are transferring the volume of five distribution centers and the related supporting off-site storage facilities into two distribution centers. ~~After the completion of the~~This transition and operational consolidation ~~into the new Centralia, Washington distribution center,~~is expected to be completed during fiscal 2020, after which we expect to achieve synergies and cost savings by eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses. The optimization of the Pacific Northwest distribution network will also help deliver meaningful synergies contemplated in Supervalu acquisition. This plan includes expanding ~~another~~the Ridgefield distribution center to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate ~~best in class~~greater technology to deliver a better customer experience. The ~~optimization~~Ridgefield distribution center will deploy a warehouse automation solution that supports our slow-moving stock-keeping unit (SKU) portfolio. The operational start-up of the ~~Pacific Northwest~~Centralia, WA distribution ~~network will also help deliver meaningful synergies contemplated~~center began in the ~~acquisition~~fourth quarter of ~~Supervalu~~fiscal 2019 and continued to ramp-up in ~~October 2018.~~the first and second quarters of fiscal 2020. We ~~accelerated~~ceased operations in our Tacoma, WA, Auburn, WA and Auburn, CA distribution centers and have transitioned to supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers. We expect to incur incremental expenses related to the ~~Pacific Northwest consolidation timeline in comparison to prior legacy Supervalu projections to accelerate the realization of synergies from the Pacific Northwest consolidation.~~

~~Certain of these costs are expected to subside as we complete this work to realign our~~ network realignment and we are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.

Table of contents

~~Once construction~~

In connection with our consolidation of distribution centers in the Pacific Northwest, during the second quarter of fiscal 2020, we 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.

On February 24, 2020, we executed a purchase option to acquire a distribution center facility with approximately 1.2 million square feet that is currently under construction. Upon completion of the ~~new Centralia~~construction the purchase price of the facility will be determined. The purchase of the distribution center ~~is complete~~may occur anytime between the fourth quarter of fiscal 2020 and the ~~expansion~~fourth quarter of fiscal 2022 pursuant to the ~~Ridgefield distribution center is finished, we plan to close our Tacoma, Portland and Auburn warehouses, as well as reduce our dependency on outside storage and third-party logistics services.~~landlord’s determination.

We are expanding our Ridgefield, Washington facility by 541 thousand square feet (to a total of nearly 800 thousand square feet) to provide capacity for our growing customer base in the natural, organic and specialty channel. This facility will deploy a warehouse automation solution that supports our slow-moving SKU portfolio.

Distribution Center Sales

~~We have received $172.5 million in aggregate proceeds in fiscal 2019 year-to-date from the sale of operating and surplus distribution centers.~~

In the ~~first~~fourth quarter of fiscal 2019, we closed on the sale and leaseback of two acquired Supervalu distribution centers and received aggregate proceeds of approximately $149.5 million. One of these distribution centers was the last remainingentered into an agreement to sell our Tacoma distribution center ~~Supervalu sold and leased back as part of a previous portfolio transaction, which contained a longer-term lease. The other distribution center was a Pacific Northwest distribution center~~for $43.2 million related to our Pacific Northwest consolidation strategy, which ~~was subject to a short-term lease. In addition,~~ we ~~sold surplus facilities and received aggregate proceeds of approximately $13.7 million and $9.3 million, during the second quarter and third quarters of fiscal 2019, respectively. We currently~~ expect to close in fiscal 2020. This facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets. As we consolidate our distribution networks, we may sell ~~at least one~~ additional owned ~~distribution center in the future.~~facilities or exit leased facilities.

Operating Efficiency

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

Goodwill Impairment Review

During the first quarter of fiscal ~~2019, the Company experienced a decline in its stock price~~2020, we changed our management structure and ~~market capitalization. During the second quarter of fiscal 2019, the stock price continued~~internal financial reporting to decline, and the decline in the stock price and market capitalization became significant and sustained. Due to this sustained decline in stock price, the Company determined that it was more likely than not that the carrying value ofcombine the Supervalu Wholesale reporting unit ~~exceeded its fair~~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, ~~and~~we performed an interim quantitative impairment ~~test~~review of ~~goodwill.~~

~~The Company estimated~~goodwill for the Wholesale reporting unit, which included a determination of the fair ~~values~~value of all reporting units using both the market approach, applying a multiple of earnings based on guidelines for 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 10%, which considered guidelines for publicly traded companies, capital structure and risk premiums, including those reflected in the current market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization.units. Based on this analysis, ~~the Company~~we determined that the carrying value of ~~its Supervalu~~our U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded ~~the~~its assigned ~~goodwill as of the acquisition date.~~goodwill. As a result, ~~the Company~~we recorded a goodwill impairment charge of ~~$332.6~~$421.5 million ~~for fiscal 2019 year-to-date, which reflects the preliminary goodwill impairment charge of $370.9 million and an adjustment to the charge of $38.3 million recorded~~ in the ~~second and third quarters of fiscal 2019, respectively. The goodwill impairment charge adjustment recorded in the third~~first quarter of fiscal ~~2019 was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition.~~2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of ~~Income.~~Operations. The goodwill impairment charge reflects the impairment of all of ~~Supervalu~~the U.S. Wholesale’s reporting unit ~~goodwill, based on~~goodwill.

Quantitatively, the ~~preliminary acquisition date assigned fair values.~~

~~The~~ goodwill impairment ~~charge recorded in fiscal 2019 year-to-date is subject to change based upon~~was driven by the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition. There can be no assurance that such final assessments will not result in material increases or decreases to the recorded goodwill impairment charge based upon the preliminary purchase price allocations, due to changes in the provisional opening balance sheet estimates of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date).

~~The estimated fair value~~incorporation of the negative value associated with the legacy Supervalu ~~Wholesale~~wholesale reporting unit that was ~~below its~~combined into the legacy Company Wholesale goodwill reporting unit and a decrease in estimated ~~carrying value by approximately 20%.~~long-range cash flows required to be prepared as part of the quantitative assessment. The goodwill impairment review indicated that the estimated fair value of the ~~legacy Company Wholesale and~~ Canada Wholesale reporting, ~~units were in excess~~which had goodwill of ~~their~~$9.9 million as of November 2, 2019, exceeded its carrying values by ~~over 20%~~approximately 13%. Other continuing operations reporting units, which had goodwill of $9.9 million as of November 2, 2019, were substantially in excess of their carrying value. If ~~the estimated fair value of the Company were to decrease further, or other~~ circumstances ~~were to arise~~indicate that ~~indicate~~ the value of one of these other reporting units ~~have~~has decreased, ~~the Company~~we may be required to perform additional reviews of goodwill and incur additional impairment ~~charges for other reporting units based on additional impairment reviews.~~charges. The ~~Company’s~~first quarter of fiscal 2020 quantitative goodwill impairment review included a reconciliation of all of the reporting units’ fair value of to ~~the Company’s~~our market capitalization and enterprise value.

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Refer to Note 4. “Acquisitions” in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information about the preliminary purchase price allocation and provisional goodwill estimated as of the acquisition date.

Divestiture of Retail Operations

We have announced our intention to divest ~~Supervalu’s~~our retail businesses acquired as part of the Supervalu acquisition as soon as practical in an efficient and economic manner in order to focus on our core wholesale distribution business. We plan to ~~minimize~~maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures. We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but we anticipate some reductions in supply volume will result ~~from certain of these retail~~ from the divestiture of certain of these retail operations. Actions associated with retail divestitures and adjustments to our core ~~cost-structure~~cost structure for our wholesale food distribution business are expected to result in headcount reductions and other costs and charges. These costs and charges, which may be material, include multiemployer plan charges, severance costs, store closure charges, and related costs. A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time. The extent of these costs and charges will be determined based on outcomes achieved under the divestiture process. At this time, however, we are unable to make an estimate with reasonable certainty of the amount or type of costs and charges expected to be incurred in connection with the foregoing actions.

Our discontinued operations as of the end of ~~third~~second quarter of fiscal ~~2019~~2020 include Cub Foods and ~~Shopper’s~~Shoppers disposal groups, and our historical results of discontinued operations include Hornbacher’s and Shop ‘n Save, which were divested in the second and third quarters of fiscal 2019, respectively. In addition, discontinued operations includes certain real estate related to historical retail operations. These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented. ~~The~~As of the acquisition date, retail assets ~~of these retail operations~~and liabilities were recorded at ~~what we believe to be~~ their estimated fair value less costs to ~~sell.~~

~~Prior~~sell, and subsequent to the ~~Supervalu~~ acquisition date, ~~19 St. Louis-based Shop ‘n Save stores, 15 in-store pharmacies, one stand-alone pharmacy, four fuel centers and all remaining prescription files were sold~~we review the fair value less costs to Schnuck Markets, Inc. (“Schnucks”). Schnucks agreed to assume the multi-employer pension obligations related to the Shop ‘n Save stores it has agreed to acquire. The sale of the stores was completed in the first quarter of fiscal 2019, and we closed the remaining Shop ‘n Save St. Louis-based retail stores and the dedicated distribution center in the second quarter of fiscal 2019, and we continue to hold the owned real estate assets related tosell these locations for sale. In addition, we entered into a supply agreement to serve as the primary supplier to nine Schnucks stores across northern Illinois, Iowa and Wisconsin. In connection with the closure of the Shop ‘n Save locations and the acquisition of Supervalu, we assumed a $35.7 million multiemployer pension plan withdrawal liability, and recorded a closed stores’ reserve charge of approximately $17.1 million in the second quarter of fiscal 2019 based on the retail stores’ November cease-use date.disposal groups.

In the second quarter of fiscal ~~2019,~~2020, we entered into agreements to sell 13 Shoppers stores and decided to close six locations. During the ~~Company closed three~~second quarter of ~~its eight Shop ‘n Save East stores~~fiscal 2020, in aggregate between discontinued operations and continuing operations we incurred approximately $44.7 million of pre-tax aggregate costs and charges, consisting of $17.5 million of property and equipment and lease asset impairment charges related to impairment reviews on the remaining locations (as described below), $12.4 million of operating losses and transaction costs during the period of wind-down, $8.6 million of lease termination charges and losses on sale and $6.2 million of severance costs. We expect to incur additional related costs and charges in the third quarter of fiscal ~~2019, the Company sold the remaining five Shop ‘n Save East stores to GIANT Food Store, LLC, and did not incur a gain or loss on the sale of this disposal group.~~

2020. In the second quarter of fiscal ~~2019,~~2020, we reviewed the ~~Company completed~~recoverability of the remaining assets held for sale and assessed the remaining composition of ~~seven~~the Shoppers disposal group based on updated fair values. Based on the announced transactions and an updated impairment assessment, we recorded property and equipment, and operating lease asset impairment charges of ~~its eight Hornbacher's locations, as well as Hornbacher’s newest store currently under development in West Fargo, North Dakota,~~$17.5 million for the remaining Shoppers assets, which is included above.

We continue to ~~Coborn's Inc. (“Coborn’s”). The Hornbacher’s store in Grand Forks, North Dakota was not included~~hold the remaining Shoppers stores and the Cub Foods business for sale. We may incur additional costs and charges in the ~~sale~~future related to Coborn’s and has closed pursuant to the terms of the definitive agreement. As part of the sale, Coborn's entered into a long-term agreement for the Company to serve as the primary supplier of the Hornbacher's locations and expand its existing supply arrangements for other Coborn’s locations.Cub Foods or Shoppers if there are declines in their estimated fair values or if we incur additional wind-down or employee-related costs or charges.

~~We previously disposed of our retail business, Earth Origins Market (“Earth Origins”), during fiscal 2018.~~

Supervalu Professional Services Agreements

In connection with the sale of Save-A-Lot on December 5, 2016, Supervalu entered into a services agreement (the “Services Agreement”) with Moran Foods, LLC (“Moran Foods”), the entity that operates the Save-A-Lot business. Pursuant to the Services Agreement, we provide certain technical, human resources, finance and other operational services to Save-A-Lot for a term of five years, on the terms and subject to the conditions set forth therein. The initial annual base charge under the Services Agreement is $30 million, subject to adjustments.

~~Supervalu has~~ If services are no longer provided ~~back-office administrative support services~~ under ~~transition services agreements (“TSA”)~~the Services Agreement after the initial term, we would lose the revenue associated with ~~New Albertson’s, Inc. (“NAI”)~~this agreement, and Albertson’s LLC and also provide services as needed to transition and wind down the TSA with NAI and Albertson’s LLC. On October 17, 2017, we entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services thatif we are ~~providing~~not able to ~~Albertson’s LLC and NAI, other than~~eliminate fixed or variable costs associated with ~~respect to certain limited services. We continued to provide transition and wind down services as previously agreed. In addition,~~servicing this agreement concurrent with the decline in revenue, we provided services to Albertson’s LLC for one distribution center until October 2018, and provided services for another distribution center until April 2019 where we continue to provide transition and wind down services. Other than with respect to these distribution centers, the TSA expired on September 21, 2018. The parties do not expect anywould incur a decrease in operating profit.

Table of ~~the transition and wind down services, to extend beyond October 2019. We also agreed that Albertson’s LLC and NAI would no longer provide services to us after September 21, 2019.~~contents

Impact of Inflation or Deflation

We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, orand pass on pricing ~~changes.~~

changes to our customers. We ~~have~~ experienced a mix of inflation and deflation across product categories ~~within our business segments~~ during the second quarter of fiscal ~~2018 and 2019.~~2020. In aggregate across all of our legacy businesses ~~excluding Supervalu,~~ and taking into account the mix of products, management estimates our businesses experienced ~~single digit~~ cost inflation in the ~~third~~low single digits in the second quarter of fiscal ~~2019.~~2020. Cost inflation and deflation estimates are based on individual like items sold during the periods being compared. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales. Under the LIFO method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory.

Other Factors Affecting our Business

We are also impacted by macroeconomic and demographic trends, and changes in the food distribution market structure. Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods have benefited us; however, consumer spending in the food-away-from-home industry has increased steadily as a percentage of total food expenditures. This trend paused during the 2008 recession, and then continued to increase. We are also impacted by changes in food distribution trends to our wholesale customers, such as direct store deliveries and other methods of distribution. Our wholesale customers manage their businesses independently and operate in a competitive environment. We seek to obtain security interests and other credit support in connection with the financial accommodations we extend; however, we may incur additional credit or inventory charges related to our customers, as we expect the competitive environment to continue. The magnitude of these risks increases as the size of our wholesale customers increases.

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

Net sales

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

Cost of sales and Gross profit

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

Operating expenses

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

Restructuring, acquisition and integration expenses

Restructuring, acquisition and integration expenses reflect expenses resulting from restructuring activities, including severance costs, change-in-control related charges, share-based compensation acceleration charges, facility closure charges, and acquisition and integration expenses.

Interest expense, net

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

Net periodic benefit income, excluding service cost

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

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Adjusted EBITDA

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

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

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

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

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Assessment of Our Business Results

The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated:



	13-Week Period Ended									26-Week Period Ended
(in thousands)	February 1, 2020			January 26, 2019			Change			February 1, 2020			January 26, 2019			Change
Net sales	$	6,137,604		$	6,149,206		$	(11,602	)	$	12,157,189		$	9,017,362		$	3,139,827
Cost of sales	5,362,144			5,387,423			(25,279		)	10,610,687			7,843,248			2,767,439
Gross profit	775,460			761,783			13,677			1,546,502			1,174,114			372,388
Operating expenses	750,845			751,922			(1,077		)	1,526,259			1,115,087			411,172
Goodwill and asset impairment charges	—			370,871			(370,871		)	425,405			370,871			54,534
Restructuring, acquisition and integration related expenses	29,686			47,125			(17,439		)	43,936			115,129			(71,193		)
Operating loss	(5,071		)	(408,135		)	403,064			(449,098		)	(426,973		)	(22,125		)
Other expense (income):
Net periodic benefit income, excluding service cost	(3,277		)	(10,906		)	7,629			(14,661		)	(11,750		)	(2,911		)
Interest expense, net	48,621			58,707			(10,086		)	98,139			66,232			31,907
Other, net	(520		)	(824		)	304			(566		)	(727		)	161
Total other expense, net	44,824			46,977			(2,153		)	82,912			53,755			29,157
Loss from continuing operations before income taxes	(49,895		)	(455,112		)	405,217			(532,010		)	(480,728		)	(51,282		)
Benefit for income taxes	(17,728		)	(91,809		)	74,081			(91,481		)	(96,064		)	4,583
Net loss from continuing operations	(32,167		)	(363,303		)	331,136			(440,529		)	(384,664		)	(55,865		)
Income from discontinued operations, net of tax	2,107			21,407			(19,300		)	27,061			23,477			3,584
Net loss including noncontrolling interests	(30,060		)	(341,896		)	311,836			(413,468		)	(361,187		)	(52,281		)
Less net (income) loss attributable to noncontrolling interests	(650		)	171			(821		)	(1,169		)	168			(1,337		)
Net loss attributable to United Natural Foods, Inc.	$	(30,710	)	$	(341,725	)	$	311,015		$	(414,637	)	$	(361,019	)	$	(53,618	)

Adjusted EBITDA	$	131,110		$	142,574		$	(11,464	)	$	252,804		$	228,767		$	24,037

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The following table reconciles Adjusted EBITDA to Net loss from continuing operations and to Income from discontinued operations, net of tax.



	13-Week Period Ended						26-Week Period Ended
(in thousands)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net loss from continuing operations	$	(32,167	)	$	(363,303	)	$	(440,529	)	$	(384,664	)
Adjustments to continuing operations net loss:
Total other expense, net	44,824			46,977			82,912			53,755
Benefit for income taxes	(17,728		)	(91,809		)	(91,481		)	(96,064		)
Depreciation and amortization	69,219			73,200			144,360			97,993
Share-based compensation	4,880			10,423			8,552			18,512
Restructuring, acquisition and integration related expenses⁽¹⁾	29,686			47,125			43,936			115,129
Goodwill and asset impairment charges⁽²⁾	—			370,871			425,405			370,871
Note receivable charges⁽³⁾	—			—			12,516			—
Inventory fair value adjustment⁽⁴⁾	—			8,644			—			10,463
Legal (settlement income) reserve charge⁽⁵⁾	(654		)	—			1,196			—
Adjusted EBITDA of discontinued operations⁽⁶⁾	33,050			40,446			65,937			42,772
Adjusted EBITDA	$	131,110		$	142,574		$	252,804		$	228,767

Income from discontinued operations, net of tax	$	2,107		$	21,407		$	27,061		$	23,477
Adjustments to discontinued operations net income:
Less net income attributable to noncontrolling interests	(650		)	171			(1,169		)	168
Total other expense, net	41			(339		)	(1,050		)	(588		)
Provision for income taxes	286			5,239			8,376			5,987
Other expense	—			378			—			238
Share-based compensation	253			532			506			532
Restructuring, store closure and other charges, net⁽⁷⁾	31,013			13,058			32,213			12,958
Adjusted EBITDA of discontinued operations⁽⁶⁾	$	33,050		$	40,446		$	65,937		$	42,772

(1)

Primarily reflects expenses resulting from the acquisition of Supervalu, including severance costs, store closure charges, and acquisition and integration expenses. Fiscal 2020 year-to-date primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs. Fiscal 2019 year-to-date primarily reflects expenses resulting from the acquisition of Supervalu and acquisition and integration expenses, including employee-related costs. Refer to Note 5—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

(2)

Fiscal 2020 year-to-date reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge. Fiscal 2019 year-to-date reflects a goodwill impairment charge attributable to the Supervalu acquisition. Refer to Note 6—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.


(3)	Reflects reserves and charges for notes receivable issued by the Supervalu business prior to its acquisition to finance the purchase of stores by its customers.


(4)	Reflects a non-cash charge related to the step-up of acquired Supervalu inventory as part of purchase accounting.


(5)	Reflects income received to settle a legal proceeding, a charge to settle a legal proceeding, and a charge related to our assessment of legal proceedings.

(6)

Adjusted EBITDA of discontinued operations excludes rent expense of $11.0 million and $12.4 million in the second quarters of fiscal 2020 and 2019, respectively, and $23.5 million and $13.3 million in fiscal 2020 and 2019 year-to-date, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, we believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.


(7)	Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.

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RESULTS OF OPERATIONS

Our analysis within the Results of Operations section below of Net sales, Gross profit, Operating expenses and Operating loss is presented on a consolidated basis, as our single reportable segment principally comprises the entire operations of our business. The ~~following discussion summarizes operating~~quantification of Supervalu’s impact on our results of operations below in our year-to-date analysis is presented to discuss the incremental impact of Supervalu, and provide analysis of our underlying business for ~~the third quarter~~year-over-year comparability purposes. Our analysis of ~~fiscal 2019 and fiscal 2019 year-to-date compared to comparative fiscal 2018 periods.~~Net sales is presented on a customer channel basis inclusive of all segments. References to ~~fiscal 2019 and 2018 year-to-date relate~~legacy company results are presented to provide a comparative results analysis excluding the ~~39-week fiscal periods ended April 27, 2019 and April 28, 2018, respectively.~~Supervalu acquired business impacts.

Net Sales

Our net sales by customer channel ~~including Supervalu since its acquisition date,~~ was as follows (in millions):

Net Sales for the 13-Week Period Ended Net Sales for the 39-Week Period Ended
Customer Channel April 27,
2019
% of
Net Sales

April 28, 2018⁽¹⁾

% of
Net Sales
April 27,
2019
% of
Net Sales

April 28, 2018⁽¹⁾

% of
Net Sales
Supernatural $ 1,102
18 % $ 992
37 % $ 3,229
22 % $ 2,776
36 %
Independents 829
14 % 689
26 % �� 2,331
16 % 1,998
26 %
Supermarkets 3,675
62 % 706
27 % 8,482
57 % 2,118
28 %
Other 357
6 % 262
10 % 938
6 % 742
10 %
Total net sales $ 5,963
100 % $ 2,649
100 % $ 14,980
100 % * $ 7,634
100 %

* Reflects rounding



	Net Sales for the 13-Week Period Ended								Net Sales for the 26-Week Period Ended
Customer Channel	February 1, 2020		% of Net Sales		January 26, 2019⁽¹⁾		% of Net Sales		February 1, 2020⁽¹⁾		% of Net Sales		January 26, 2019⁽¹⁾		% of Net Sales
Supermarkets	$	3,879	63	%	$	3,928	64	%	$	7,648	63	%	$	4,858	54	%
Supernatural	1,210		20	%	$	1,100	18	%	2,321		19	%	2,127		23	%
Independents	631		10	%	675		11	%	1,299		11	%	1,334		15	%
Other	418		7	%	446		7	%	889		7	%	698		8	%
Total net sales	$	6,138	100	%	$	6,149	100	%	$	12,157	100	%	$	9,017	100	%

(1)

~~During the second quarter~~Refer to Note 3—Revenue Recognition in Part 1, Item 1 of ~~fiscal 2019, the presentation of~~this Quarterly Report on Form 10-Q for additional information regarding adjustments to net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. As a result of this adjustment, net sales to our supermarkets channel and to our other channel for the third quarter of fiscal 2018 decreased approximately $12 million and $13 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the third quarter of fiscal 2018 increased approximately $25 million compared to the previously reported amounts. In addition, net sales to our supermarkets channel and to our other channel for the 39-week period ended April 28, 2018 decreased approximately $32 million and $45 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the 39-week period ended April 28, 2018 increased approximately $77 million compared to the previously reported amounts.channel.

~~Third~~Second Quarter Variances

Our net sales for the ~~third~~second quarter of fiscal 2020 decreased approximately $0.01 billion, or 0.2%, to $6.14 billion from $6.15 billion for the second quarter of fiscal 2019.

Net sales to our supermarkets channel decreased by approximately $49 million, or 1.2%, for the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019, ~~increased~~and represented approximately ~~$3.31 billion, or 125.1%, to $5.96 billion from $2.65 billion~~63% and 64% of our total net sales for the ~~third~~second quarter of fiscal ~~2018. Net sales for the third quarter of fiscal~~2020 and 2019, ~~included Supervalu~~respectively. The decrease in supermarkets net sales ~~of approximately $3.24 billion. Excluding Supervalu’s net~~is primarily due to sales ~~net~~declines from lost customers, lower sales ~~increased $75 million, or 2.8%, which was driven primarily~~to smaller existing customers, and lower sales due to store closings, partially offset by ~~our supernatural channel.~~increases in sales to larger and new customers.

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the ~~third~~second quarter of fiscal ~~2019~~2020 increased by approximately $110 million, or ~~11%~~10.0%, as compared to the ~~third~~second quarter of fiscal ~~2018,~~2019, and accounted for approximately ~~18%~~20% and ~~37%~~18% of our total net sales for the ~~third~~second quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in net sales to Whole Foods Market is ~~primarily~~primarily due to growth in new product categories, ~~most notably the health, beauty and supplement categories,~~ and increased sales ~~from~~to existing and new stores. Net sales within our supernatural ~~chain~~ channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other ~~channel.~~channel.

Net sales to our independents channel ~~increased~~decreased by approximately ~~$140~~$44 million, or ~~20%~~6.5%, for the ~~third~~second quarter of fiscal 2020 compared to the second quarter of fiscal 2019, ~~compared to the third quarter of fiscal 2018,~~ and represented approximately ~~14%~~10% and ~~26%~~11% of our total net sales for the ~~third~~second quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase~~decrease in independents net sales is primarily due to ~~$122 million of net~~lost customers, and lower sales from ~~the acquired Supervalu business with the remaining increase of $18 million, or 2.5% primarily due to sales growth to~~ existing ~~customers.~~customers and store closings.

Net sales to our ~~supermarkets~~other channel ~~increased~~decreased by approximately ~~$2,969~~$28 million, or ~~421%~~6.3%, for the ~~third~~second quarter of fiscal 2020 compared to the second quarter of fiscal 2019, ~~compared to the third quarter of fiscal 2018,~~ and represented approximately ~~62%~~7% and ~~27%~~7% of our total net sales for the ~~third~~second quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase in supermarkets net sales is primarily due to $2,982 million of net sales from the acquired Supervalu business with the remaining~~ decrease ~~of $13 million due to sales declines to existing customers.~~

Net sales to our other channel, which include foodservice customer sales, sales from the United States to other countries, military sales, e-commerce sales, branded product lines, the former Earth Origins retail division, manufacturing division, and our brokerage business, increased by approximately $95 million, or 36%, for the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018, and represented approximately 6% and 10% of our total net sales for the third quarter of fiscal 2019 and 2018, respectively. The increase in other net sales is primarily due to $135 million of net sales from the acquired Supervalu business with the remaining decrease of $40 million due to sales declines driven by our e-commerce business and lack of sales from our retail business, Earth Origins, which was disposed in the fourth quarter of fiscal 2018.lower military sales.

Year-to-Date Variances

Our net sales for fiscal ~~2019~~2020 year-to-date increased approximately ~~$7.35~~$3.14 billion, or ~~96.2%~~34.8%, to ~~$14.98~~$12.16 billion from ~~$7.63~~$9.02 billion for fiscal ~~2018~~2019 year-to-date. Net sales for fiscal ~~2019~~2020 year-to-date included incremental Supervalu net sales from the first quarter of fiscal 2020 of approximately ~~$6.94~~$3.08 billion. Excluding ~~Supervalu’s~~the incremental first quarter of fiscal 2020 Supervalu net sales, net sales increased ~~$409~~$63 million, or ~~5.4%~~0.7%, which was driven primarily ~~driven~~ by our supernatural channel.

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Net sales to our supermarkets channel for fiscal 2020 year-to-date increased by approximately $2,790 million, or 57.4%, from fiscal 2019 year-to-date, and represented approximately 63% and 54% of our total net sales for fiscal 2020 and 2019 year-to-date, respectively. The increase in supermarkets net sales is primarily due to an increase of $2,813 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business with the remaining decrease of $23 million, or 0.5% due to sales declines from lost customers, lower sales to smaller existing customers, and lower sales due to store closings, partially offset by increases in sales to larger and new customers.

Net sales to Whole Foods Market for fiscal ~~2019~~2020 year-to-date increased by approximately ~~$453~~$194 million, or ~~16%~~9.1%, as compared to the prior fiscal year’s comparable period, and accounted for approximately ~~22%~~19% and ~~36%~~23% of our total net sales for fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date, respectively. The increase in ~~net~~net sales to Whole Foods Market is primarily due to ~~an increase in same store sales following its acquisition by Amazon.com, Inc. in August 2017 coupled with~~ growth in new product categories, ~~most notably the health, beauty and supplement categories,~~ and increased sales ~~from~~to existing and new stores.

Net sales to our independents channel ~~increased~~decreased by approximately ~~$333~~$35 million, or ~~17%~~2.6%, during fiscal ~~2019~~2020 year-to-date as compared to ~~the prior~~ fiscal ~~year’s comparative period,~~2019 year-to-date, and accounted for ~~16%~~11% and ~~26%~~15% of our total net sales for fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date, respectively. The ~~increase~~decrease in independents net sales ~~is primarily due to $267~~includes an increase of $24 million from incremental first quarter of fiscal 2020 net sales ~~from the acquired Supervalu business with the remaining increase of $66 million primarily due~~attributable to ~~sales growth to existing customers.~~

Net sales to our supermarkets channel for fiscal 2019 year-to-date increased by approximately $6,364 million, or 300%, from fiscal 2018 year-to-date, and represented approximately 57% and 28% of total net sales for fiscal 2019 year-to-date and fiscal 2018 year-to-date, respectively. The increase in supermarkets net sales is primarily due to $6,381 million of net sales from the acquired Supervalu business, with the remaining decrease of ~~$17~~$59 million, or 4.4% being primarily due to lost customers, and lower sales ~~declines to~~from existing ~~customers.~~customers and store closings.

Net sales to our other channel increased by approximately ~~$196~~$191 million, or ~~26%~~27.4%, during fiscal ~~2019~~2020 year-to-date compared to fiscal ~~2018~~2019 year-to-date, and ~~accounted for~~represented approximately 6%7% and ~~10%~~8% of our total net sales for fiscal ~~2019 year-to-date~~2020 and ~~fiscal 2018~~2019 year-to-date, respectively. The increase in other net sales is primarily due to ~~$289~~an increase of $240 million from incremental first quarter of fiscal 2020 net sales ~~from~~attributable to the acquired Supervalu business, ~~with the remaining~~partially offset by a decrease of ~~$93~~$49 million, or 7.0%, primarily due to ~~sales declines driven by our e-commerce business and lack of sales from our retail business, Earth Origins, which was disposed in the fourth quarter of fiscal 2018.~~lower military sales.

Cost of Sales and Gross Profit

Our gross profit increased ~~$380.5~~$13.7 million, or ~~93.2%~~1.8%, to ~~$788.6~~$775.5 million for the ~~third~~second quarter of fiscal 2020, from $761.8 million for the second quarter of fiscal 2019. Our gross profit as a percentage of net sales increased to 12.63% for the second quarter of fiscal 2020 compared to 12.39% for the second quarter of fiscal 2019. Gross profit for the second quarter of fiscal 2019 ~~from $408.1~~included a $8.6 million inventory charge related to the step-up of acquired Supervalu inventory. The increase in gross margin rate was primarily driven by lower inbound freight expense. Included in gross margin for the ~~third~~second quarter of fiscal ~~2018.~~2020 was inventory shrink expense of approximately $4.2 million, or 7 basis points as a percent of net sales, associated with customer bankruptcies.

Our gross profit increased $372.4 million, or 31.7%, to $1,546.5 million for fiscal 2020 year-to-date, from $1,174.1 million for fiscal 2019 year-to-date. Our gross profit as a percentage of net sales decreased to ~~13.22%~~12.72% for ~~the third quarter of~~fiscal 2020 year-to-date compared to 13.02% for fiscal 2019 ~~compared to 15.41% for the third quarter of fiscal 2018.~~year-to-date. Our Gross profit dollar increase for ~~the third quarter of~~fiscal 2020 year-to-date when compared to fiscal 2019 ~~included a contribution~~year-to-date is primarily due to an estimated incremental 12 weeks of gross profit from the acquired Supervalu business of approximately ~~$386.9~~$347.9 million, ~~including the~~net of its related LIFO ~~charge, and our legacy company Wholesale business~~inventory charge. The remaining increase in Gross profit was $24.5 million, which included a ~~LIFO~~fiscal 2019 year-to-date inventory charge related to a step-up of ~~$4.1 million. In addition, our third quarter fiscal 2018 gross profit included a benefit~~acquired Supervalu inventory of ~~$20.9~~$10.5 million ~~from a change in accounting estimate. When excluding these items, gross profit increased $18.6 million. In addition, gross~~. Gross profit as a percentage of net sales ~~includes a~~decreased primarily due to lower gross profit ~~rate~~rates on ~~a legacy company basis~~conventional products and margin dilution from ~~faster~~the faster growth of the supernatural channel relative to the other customer channels, offset in part by lower inbound freight expense. We recorded a LIFO charge of $12.9 million and $6.3 million for fiscal 2020 and 2019 year-to-date, respectively.

~~Refer~~Operating Expenses

Operating expenses decreased $1.1 million, or 0.1%, to ~~Note 1. “Significant Accounting Policies” in Part I, Item 1~~$750.8 million, or 12.23% of ~~this Quarterly Report on Form 10-Q and below under the heading “Net Income (Loss) Attributable to United Natural Foods, Inc.” for additional information regarding the positive impact of a change in estimate~~net sales, for the ~~gross profit impact of $20.9 million recorded during the third~~second quarter of fiscal ~~2018.~~

~~With the adoption~~2020 compared to $751.9 million, or 12.23% of ~~the LIFO inventory costing method, our consolidated Cost of~~net sales, ~~and Gross profit~~ for the ~~third~~second quarter of fiscal ~~2019 and~~2019. Operating expenses for the second quarter of fiscal ~~2019 year-to-date include a LIFO charge~~2020 included $28.9 million of ~~$7.4~~customer bankruptcy bad debt expense. In addition, Operating expenses for the second quarter of fiscal 2020 included $1.5 million ~~or 12 basis points, and $13.7 million or 9 basis points, respectively.~~

~~Our gross profit increased $815.8 million, or 71.1%, to $1.96 billion for fiscal 2019 year-to-date, from $1,146.8 million for fiscal 2018 year-to-date. Our gross profit~~of surplus property depreciation expense. Operating expenses as a ~~percentage~~percent of net sales ~~decreased~~was approximately flat to ~~13.10%~~last year, with higher bad debt expense approximately offset by lower employee-related costs, outbound freight expense and depreciation expense. Total operating expenses also included share-based compensation expense of $4.9 million and $10.4 million for the second quarter of fiscal 2020 and 2019, ~~year-to-date compared to 15.02% for fiscal 2018 year-to-date. Our Gross profit for fiscal 2019 year-to-date included a contribution from the Supervalu business~~respectively.

Table of approximately $800.9 million, including the related LIFO charge, and our legacy company Wholesale business included a LIFO charge of $7.3 million. In addition, our fiscal 2018 year-to-date gross profit included a benefit of $20.9 million from a change in accounting estimate. When excluding these items, gross profit increased $43.1 million. In addition, gross profit as a percentage of net sales includes a lower gross profit rate on a legacy company basis from faster growth of the supernatural channel relative to the other customer channels, offset in part lower inbound freight expense.contents

~~Operating Expenses~~

Operating expenses increased ~~$411.9~~$411.2 million, or ~~126.4%~~36.9%, to ~~$737.7~~$1,526.3 million, or 12.55% of net sales, for fiscal 2020 year-to-date compared to $1,115.1 million, or 12.37% of net sales, for ~~the third quarter of~~ fiscal 2019 year-to-date. The increase in Operating expenses in fiscal 2020 year-to-date primarily reflects the incremental contribution from the Supervalu business for an additional 12 weeks when compared to ~~$325.8~~fiscal 2019 year-to-date. Operating expenses for fiscal 2020 year-to-date included $28.9 million ~~or 12.30%~~ of ~~net sales, for the third quarter~~customer bankruptcy bad debt expense. In addition, Operating expenses in fiscal 2020 year-to-date included $12.5 million of ~~fiscal 2018.~~notes receivable charges, $5.1 million of surplus property depreciation expense and a $2 million legal reserve charge. The increase in operating expenses, as a percent of net sales, was driven by higher bad debt, occupancy and depreciation ~~and amortization expense resulting from the Supervalu acquisition~~expenses, partially offset by the ~~benefit~~mix impact from the acquired Supervalu business and lower employee costs, including the impact of cost synergies. Total operating expenses also included share-based compensation expense of ~~$9.3~~$8.6 million and ~~$7.9~~$18.5 million for fiscal 2020 and 2019 year-to-date, respectively.

Goodwill and Asset Impairment Charges

Goodwill and asset impairment charges of $370.9 million were recorded in the ~~third~~second quarter of fiscal 2019, which was attributable to a portion of the goodwill recorded from the Supervalu acquisition, compared to no charges in the second quarter of fiscal 2020.

Goodwill and ~~2018, respectively.~~

~~Operating expenses increased $894.8~~asset impairment charges of $425.4 million ~~or 93.4%,~~were recorded for fiscal 2020 year-to-date, which reflects $421.5 million from an impairment charge on the remaining goodwill attributable to ~~$1.85 billion, or 12.37%~~the U.S. Wholesale goodwill reporting unit, $2.5 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1.4 million of ~~net sales,~~property and equipment asset impairment charges. Goodwill and asset impairment charges of $370.9 million were recorded for fiscal 2019 year-to-date, ~~compared~~which reflects a portion of the goodwill recorded from the Supervalu acquisition.

Refer to ~~$958.0 million, or 12.55%~~the Executive Overview section above, and Note 6—Goodwill and Intangible Assets in Part I, Item 1 of ~~net sales,~~this Quarterly Report on Form 10-Q for fiscal 2018 year-to-date. The decrease in operating expenses, as a percent of net sales, was driven by the addition of Supervalu at a lower operating expense rate, lower health care costs, and fixed cost leverage, partially offset by higher depreciation and amortization expense. Total operating expenses also included share-based compensation expense of $27.8 million and $21.7 million for fiscal 2019 and 2018 year-to-date, respectively.additional information on goodwill impairment charges.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were ~~$19.4~~$29.7 million for the ~~third~~second quarter of fiscal 2020, which included $15.4 million of integration costs primarily related to a multiemployer pension plan withdrawal obligation, $13.6 million of closed property reserve charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $0.7 million of restructuring costs. Expenses incurred were $47.1 million for the second quarter of fiscal 2019, ~~and primarily~~which included ~~$12.3~~$19.5 million of closed property reserve charges related to the divestiture of retail banners, $18.1 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, ~~$6.1~~and approximately $9.5 million of other acquisition and integration related ~~costs and $1.1 million of closed property reserve charges related to the divestiture of retail banners.~~costs.

Restructuring, acquisition and integration related expenses were ~~$134.6~~$43.9 million for fiscal ~~2019~~2020 year-to-date and primarily included ~~$66.4~~$24.7 million of integration costs including a multiemployer pension plan withdrawal obligation and a charge for an off-site storage contract, $16.7 million of closed property reserve charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $2.5 million of restructuring costs. Expenses incurred in fiscal 2019 year-to-date were $115.1 million and primarily included $54.2 million of employee related costs due to change-in-control payments made to satisfy outstanding equity awards, severance costs, and benefits costs, ~~$47.5~~$41.4 million of other acquisition and integration related costs, and ~~$20.6~~$19.5 million of closed property reserve charges related to the divestiture of retail banners.

We expect to incur ~~approximately $13 million~~additional integration and restructuring costs throughout fiscal 2020 related to our operational and administrative restructuring to achieve cost synergies and supply chain efficiencies of ~~additional acquisition and integration~~continuing operations. In addition, further restructuring costs and $2 million of additional restructuring expenses throughout the remainder of fiscal 2019. The estimate of additional restructuring, acquisition and integration costs does not include costs and charges that may be incurred related to the divestiture of retail operations.

~~Goodwill and Asset Impairment (Adjustment) Charges~~

During fiscal 2019 year-to-date we recorded a $332.6 million goodwill impairment charge, which reflects the preliminary goodwill impairment charge of $370.9 million recorded in the second quarter of fiscal 2019 and an adjustment of $38.25 million recorded in the third quarter of fiscal 2019 to decrease the initial charge due to changes in the preliminary purchase price allocation. The goodwill impairment charge adjustment recorded in the third quarter of fiscal 2019 was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition. As discussed above, the goodwill impairment charge recorded in the second quarter of fiscal 2019 and adjusted in the third quarter of fiscal 2019 is subject to further change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date). Refer to the section above “—Goodwill Impairment Review” and Note 7. “Goodwill and Intangible Assets” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

During the second quarter of fiscal 2018, the Company made the decision to close three non-core, under-performing stores of its total of twelve Earth Origins stores. Based on this decision, coupled with the decline in results in the first half of fiscal 2018 and the future outlook as a result of competitive pressure, the Company determined that both a test for recoverability of long-lived assets and a goodwill impairment analysis should be performed. The determination of the need for a goodwill analysis was based on the assertion that it was more likely than not that the fair value of the reporting unit was below its carrying amount. As a result of both these analyses, the Company recorded a total impairment charge of $3.4 million on long-lived assets and $7.9 million to goodwill, respectively, during the second quarter of fiscal 2018. During the fourth quarter of fiscal 2018 the Company disposed of its Earth Origins retail business.

Operating ~~Income (Loss)~~Loss

Reflecting the factors described above, operating ~~income~~loss decreased ~~$12.5~~$403.1 million to ~~$69.7~~$5.1 million for the ~~third~~second quarter of fiscal 2020, from $408.1 million for the second quarter of fiscal 2019. The operating loss decrease was primarily driven by non-recurrence of the second quarter of fiscal 2019 from $82.2 million for the third quarter of fiscal 2018. As a percentage of net sales, operating income was 1.17% for the third quarter of fiscal 2019, compared to operating income of 3.10% for the third quarter of fiscal 2018. The decrease in operating income was drivengoodwill impairment charge and by ~~higher Operating expenses, including higher depreciation and amortization expense, the change in accounting estimate benefit from last year, higher~~lower restructuring, acquisition and integration related ~~expenses, offset~~expenses.

Reflecting the factors described above, operating loss increased $22.1 million, to an operating loss of $449.1 million for fiscal 2020 year-to-date, from $427.0 million for fiscal 2019 year-to-date. The increase in ~~part~~operating loss was primarily driven by ~~higher Gross profit, excluding~~ the ~~change~~increase in ~~accounting estimate discussed above, and the~~ goodwill impairment ~~charge adjustment.~~charges and increases in operating expenses in excess of gross profit increases, partially offset by lower restructuring, acquisition and integration related expenses.

~~Operating income (loss) includes $11.6 million in~~

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The operating loss for the ~~third~~second quarter and year-to-date of fiscal ~~2019 (and $24.3~~2020 includes $11.9 million ~~year-to-date in fiscal 2019)~~and $24.4 million, respectively, of operating lease rent expense and $1.4 million and $3.7 million, respectively, of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. In addition, continuing operations ~~Operating income (loss)~~operating loss includes certain retail related overhead costs that are ~~indirectly~~ related to retail ~~which~~but are required to be presented within continuing operations.

Reflecting the factors described above, operating income decreased $534.8 million, to an operating loss of $357.3 million for fiscal 2019 year-to-date, from operating income of $177.5 million for fiscal 2018 year-to-date. As a percentage of net sales, operating loss was 2.39% for fiscal 2019 year-to-date as compared to operating income of 2.32% for fiscal 2018 year-to-date. The decrease in operating income was driven by higher Operating expenses, including depreciation and amortization expense, the goodwill impairment charge incurred in fiscal 2019 year-to-date, higher restructuring, acquisition and integration related expenses, and the change in accounting estimate benefit from last year, offset in part by higher Gross profit, excluding the change in accounting estimate discussed above.

Total Other Expense, Net



	13-Week Period Ended						26-Week Period Ended
(in thousands)	February 1, 2020			January 26, 2019			February 1, 2020			January 26, 2019
Net periodic benefit income, excluding service cost	$	(3,277	)	$	(10,906	)	$	(14,661	)	$	(11,750	)
Interest expense on long-term debt, net of capitalized interest	42,934			45,386			86,269			50,848
Interest expense on finance and direct financing lease obligations	2,021			4,824			4,264			6,033
Amortization of financing costs and discounts	3,777			5,170			7,733			5,515
Debt refinancing costs and unamortized financing charges	—			3,511			73			4,166
Interest income	(111		)	(184		)	(200		)	(330		)
Interest expense, net	48,621			58,707			98,139			66,232
Other, net	(520		)	(824		)	(566		)	(727		)
Total other expense, net	$	44,824		$	46,977		$	82,912		$	53,755

Total other expense, net includes interest expense incurred on indebtedness, pension benefit income and gains and losses on business sales. Total other expense, net increased approximately $40.6 million to $44.9 million for the third quarter of fiscal 2019 compared to $4.3 million for the third quarter of fiscal 2018. Interest expense, net was $54.9 million for the third quarter of fiscal 2019, compared to $4.3 million for the third quarter of fiscal 2018. Net periodic benefit income, excluding service ~~cost, was $10.9 million~~costs reflects the recognition of expected returns on benefit plan assets in excess of interest costs. Net periodic benefit income for the ~~13-week period ended April 27, 2019~~second quarter of fiscal 2020 and ~~had no impact~~fiscal 2020 year-to-date includes a $10.3 million non-cash pension settlement charge from the lump sum pension settlement offering completed in the ~~prior year as the~~second quarter of fiscal 2020. Fiscal 2019 year-to-date net periodic benefit income ~~is attributable~~reflects a partial year due to the acquisition of Supervalu ~~pension plans. Other~~near the end of the first quarter of fiscal 2019.

The decrease in interest expense ~~was $1.0 million for~~on long-term debt in the ~~third~~second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 ~~compared~~was primarily due to ~~$0.0 million of other expense for the third quarter of fiscal 2018.~~lower average debt balances outstanding. The increase in interest expense on long-term debt for fiscal 2020 year-to-date compared to fiscal 2019 year-to-date was primarily due to an increase in average outstanding debt ~~year-over-year~~ driven by ~~acquisition financing.~~

Total other expense, net was $98.7 million and $10.8 million for fiscal 2019 year-to-date and fiscal 2018 year-to-date, respectively. Interest expense, net was $121.1 million for fiscal 2019 year-to-date compared to $12.1 million for fiscal 2018 year-to-date. Net periodic benefit income, excluding service cost, was $22.7 million for fiscal 2019 year-to-date and had no impact in the prior year as net periodic pension income is attributable to Supervalu assumed pension plan obligations. Other income was $0.2 million for fiscal 2019 year-to-date compared to other expense of $1.3 million for fiscal 2018 year-to-date. The increase in interest expense was primarily due to an increase in outstanding debt year-over-year driven by the Supervalu acquisition financing.

~~We expect interest expense~~Interest on finance and direct financing leases for fiscal 2020 year-to-date primarily reflects lease obligations related to ~~increase substantially~~retail stores of discontinued operations acquired in ~~future periods as compared to period prior to~~ the Supervalu acquisition, ~~due~~but for which GAAP requires the expense to ~~the increased indebtedness incurred to finance the acquisition of Supervalu. As a result of the Supervalu acquisition,~~be included within continuing operations, as we ~~acquired defined benefit pension and other postretirement benefit obligations and~~ expect to ~~record net periodic benefit plan income, excluding service costs, of approximately $35 million for fiscal 2019.~~remain primarily obligated under these leases until settlement with the respective landlords.

~~Provision (Benefit)~~Benefit for Income Taxes

~~Our~~The effective income tax rate for continuing operations was ~~(32.4)% and 33.3%~~a benefit of 35.5% compared to a benefit of 20.2% on pre-tax losses for the ~~third~~second quarter of fiscal 2020 and 2019, respectively. The change in the effective income tax rate for the second quarter of fiscal 2020 was primarily driven by a tax benefit on the impairment of goodwill and a tax benefit on the release of unrecognized tax positions that both occurred in the second quarter of fiscal 2019 but did not recur in the second quarter of fiscal 2020.

The tax provision included $0.2 million of discrete tax benefit and ~~2018,~~$77.0 million of discrete tax benefit, for the second quarter of fiscal 2020 and fiscal 2019, respectively. The ~~decrease in the rate~~discrete tax benefit for the second quarter of fiscal 2019 was primarily ~~driven by purchase accounting adjustments that impacted~~due to a tax benefit of approximately $68.4 million related to the goodwill impairment charge, ~~that was recorded in the quarter. The Company also realized the full~~as well as a tax benefit ~~of the reduced federal income~~related to unrecognized tax ~~rate due to tax reform. The Company made cash tax payments~~positions of approximately $59 million early in the third quarter of fiscal 2019 on ordinary income associated with anticipated section 338(g) tax elections made with respect to the acquisition of Supervalu. The elections allow UNFI to utilize a portion of Supervalu’s $2.9 billion capital loss carryforward to generate estimated net cash tax savings of approximately $300 million over the next 15 years.$8.7 million.

~~Our~~The effective income tax rate for continuing operations was ~~22.8%~~a benefit of 17.2% compared to a benefit of 20.0% on pre-tax losses for fiscal 2020 year-to-date and ~~20.3% for the 39-week periods ended April 27,~~fiscal 2019 ~~and April 28, 2018,~~year-to-date, respectively. The third quarter of fiscal 2019 effective tax rate reflects a tax benefit based on a consolidated pre-tax loss from continuing operations while the third quarter of fiscal 2018 reflected a tax expense on pre-tax income. The changedecrease in the effective income tax benefit rate was primarily driven by ~~one-time non-cash net~~a tax ~~benefits~~benefit of ~~$21.9~~approximately $8.7 million recorded in fiscal ~~2018~~2019 for the ~~estimated impact~~release of ~~the re-measurement of the U.S. net deferred~~unrecognized tax ~~liabilities due to tax reform. This is primarily offset by the full impact of the reduced federal tax rate for fiscal 2019, as well as the tax cost associated with stock compensation payments~~positions that did not ~~expected to be deductible~~recur in fiscal ~~2019 under the Section 162(m) tax reform rules.~~2020.

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Income from Discontinued Operations, Net of Tax

The results of operations for the ~~third~~second quarter of fiscal ~~2019~~2020 reflect net sales of ~~$640.1~~$613.7 million for which we recognized $162.7 million of gross profit and Income from discontinued operations, net of tax of ~~$24.4~~$2.1 million. As noted above, pre-tax income for the second quarter of fiscal 2020 from discontinued operations excludes $11.9 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations. In addition, store closure charges related to leases are recorded within continuing operations. Discontinued operations included $30.9 million of restructuring expenses primarily related to store closures charges and expenses related to exited locations, and asset impairment charges related to store exits and impairment reviews discussed above.

The results of operations for fiscal ~~2019~~2020 year-to-date reflect net sales of ~~$1,413.8~~$1,224.5 million for which we recognized $332.4 million of gross profit and Income from discontinued operations, net of tax of ~~$47.8~~$27.1 million. As noted above, pretax income for fiscal 2020 year-to-date excludes $24.4 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations. In addition, store closure charges related to leases are recorded within continuing operations. Discontinued operations included $32.2 million of primarily related to store closures charges and expenses, and asset impairment charges related to exited locations.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note ~~19. “Discontinued Operations”~~18—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

Net ~~Income (Loss)~~Loss Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, our net income attributable to United Natural Foods, Inc. was $57.1 million, or $1.12 per diluted common share, for the third quarter of fiscal 2019, compared to net income of $51.9 million, or $1.02 per diluted common share, for the third quarter of fiscal 2018.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of ~~$303.9~~$30.7 million, or ~~$5.99~~$0.57 per diluted common share, for the second quarter of fiscal 2020, which included the after-tax effects of restructuring, acquisition and integration related expenses and customer bankruptcy charges, compared to net loss of $341.7 million, or $6.72 per diluted common share, for the second quarter of fiscal 2019.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of $414.6 million, or $7.77 per diluted common share, for fiscal 2020 year-to-date primarily due to goodwill impairment charges, compared to net loss of $361.0 million, or $7.12 per diluted common share, for fiscal 2019 ~~year-to-date, compared to net income of $132.9 million, or $2.61 per diluted common share, for fiscal 2018~~ year-to-date.

As described in more detail in Note ~~1. “Significant Accounting Policies”~~12—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, ~~during the first three quarters~~we granted restricted stock units and performance share units representing a right to receive an aggregate of ~~fiscal 2018 we experienced an increased volume in~~5.8 million shares of common stock under our accrual for inventory purchases as a result of increasing volumes of inventory purchases and work flow changes to our practices resulting from the establishment of a centralized processing function for supplier payables. In the third quarter of fiscal 2018, we changed our estimate for the accrual for inventory purchases as a result of our review of the criteria for determining amounts where a liability is no longer considered probable as well as a review of historical data and data relating to fiscal 2018 purchases of inventory. As a result of this change in estimate, accounts payable was reduced by $20.9 million, resulting in an increase to net income of $13.9 million, or $0.27 per diluted share, for both the third quarter and 39 weeks ended April 28, 2018. Absent the change in accounting estimate, we would have expected to recognize the benefit to operating income of the change in estimate within the following four quarters, as the accrual would be expected to be reduced in accordance with our prior estimate methodology.

2020 Equity Incentive Plan. As described in more detail within Note ~~14. “Share-Based Awards”,~~13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2019 we ~~have~~ issued approximately ~~1.8~~2.0 million shares of common stock to fund the settlement of ~~Replacement Award~~time-vesting replacement award obligations ~~of which only 259,866 were outstanding~~from the Supervalu acquisition. We have approximately 3.0 million additional shares authorized for issuance and ~~included~~registered with the SEC for the issuance in ~~basic~~order to satisfy replacement award and ~~diluted Weighted average~~option issuance obligations. In fiscal 2020, we may issue additional shares ~~outstanding as of~~to fund replacement award obligations in full, issue shares to partially fund the ~~end of~~obligations, or utilize cash on hand to fund the third quarter of fiscal 2019. The remaining shares issued subsequent to the end of the third quarter of fiscal 2019 will have a dilutive effect on future measures of basic and diluted earnings per share.obligations.

LIQUIDITY AND CAPITAL RESOURCES

~~Overview~~

Highlights

Unused available credit under our revolving line of credit was $824.1 million as of February 1, 2020, which decreased $95.0 million from $919.2 million as of August 3, 2019, primarily due to the funding of scheduled maturities due under our Term Loan Facility with borrowings under the ABL Credit Facility and other net increases in ABL Credit Facility borrowings.

We paid the remaining maturities under our 364-day Term Loan Facility in the first quarter of fiscal 2020, and as a result, we have no material scheduled maturities due until fiscal 2024, although prepayments may be required upon the occurrence of specified events as discussed in Note 9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our total debt increased $29.5 million to $2,936.0 million as of February 1, 2020 from $2,906.5 million as of August 3, 2019, primarily related to the additional borrowings under the ABL Credit Facility to fund inventory build in excess of accounts payable and increases in accounts receivable.

Scheduled debt maturities are expected to be $15.1 million for the remainder of fiscal 2020 and payments to reduce finance lease obligations are expected to be approximately $6.9 million for the remainder of fiscal 2020. Proceeds from

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the sale of properties mortgaged and encumbered under our Term Loan Facility are required to, and will be, used to make additional Term Loan Facility payments.

We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from the asset sales or borrowings under the ABL Credit Facility.

Cash and cash equivalents decreased $2.3 million to $40.1 million as of February 1, 2020 from $42.4 million as of August 3, 2019.

Working capital increased $1.4 million to $1,460.4 million as of February 1, 2020 from $1,459.0 million as of August 3, 2019, primarily due to lower current maturities of long-term debt and inventory build in excess of accounts payable increases, which were partially offset by the adoption of the new lease standard, which resulted in a decrease in working capital from the recognition of a new liability for the current portion of operating lease liabilities, which was $131.3 million as of February 1, 2020.

Sources and Uses of Cash

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

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

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

We currently do not pay a dividend on our common stock, and have no current plans to do so. In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility and our ABL Credit Facility.

~~Working capital increased by $443.3 million, or 40.7%, from $1.09 billion at July 28, 2018 to $1.53 billion at April 27, 2019, primarily due to the acquisition of Supervalu.~~

Long-Term Debt

During ~~the first quarter of~~ fiscal ~~2019 our capital structure materially changed in connection with~~2020 year-to-date, we borrowed a net $107.2 million under the ~~Supervalu acquisition. Obligations under our Former~~ ABL Credit Facility and ~~Former Term Loan Facility were~~ repaid ~~and we established new credit facilities consisting~~$82.9 million of ~~our ABL Credit Facility and~~scheduled maturities under the Term Loan Facility. During the second quarter of fiscal 2019, we paid $566.4 million to extinguish the Supervalu Senior Notes assumed in the acquisition and paid related prepayment premiums and accrued interest with $566.4 million of restricted cash set aside on the Closing Date for this purpose. In addition, during fiscal 2019 year-to-date the Company made mandatory prepayments of $61.2 million under the Term Loan Facility with asset sale proceeds. Refer to Note ~~15. “Long-Term Debt”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis 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. We have 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 ABL Loan Agreement and the Term Loan Agreement contain certain customary operational and informational covenants. If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

Derivatives and Hedging Activity

~~The Company enters~~

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

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As of ~~April 27, 2019, the Company~~February 1, 2020, we had an aggregate of ~~$2.2~~$2.10 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of ~~its~~our floating LIBOR based debt at fixed rates ranging from ~~0.7265%~~0.926% to ~~2.9590%~~2.959%, with maturities between ~~June 2019 to~~May 2020 and October 2025. The fair value of these interest rate derivatives represents a total net liability of $87.0 million and are subject to volatility based on changes in market interest rates. See Note ~~9. “Derivatives”~~8—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

From ~~time-to-time,~~time to time, we enter into fixed price fuel supply ~~agreements.~~agreements and foreign currency hedges. As of ~~April 27, 2019~~February 1, 2020, we had fixed price fuel contracts outstanding and ~~April 28, 2018, we were not a party to any such agreements.~~foreign currency forward agreements outstanding. Gains and losses and the outstanding net asset from these arrangements are insignificant.

Capital Expenditures

Our capital expenditures for fiscal ~~2019~~2020 year-to-date were ~~$137.0~~$84.6 million, compared to ~~$29.6~~$80.1 million for fiscal ~~2018~~2019 year-to-date, an increase of ~~$107.3 million driven primarily by~~$4.5 million. Fiscal 2020 year-to-date includes capital expenditures for distribution center expansions ~~and~~of approximately $30 million (primarily the Ridgefield expansion), new distribution ~~centers. In light~~centers of ~~the Supervalu acquisition, we are further evaluating our capital spending plans for fiscal 2019 but~~approximately $13 million, and information technology, equipment and other. We do not expect to spend more than ~~1.5%~~1.0% of net ~~sales.~~sales on capital expenditures in fiscal 2020. Fiscal ~~2019~~2020 capital spending is expected to include projects that optimize ~~both the~~and expand our distribution network ~~as well as~~and our technology platform. Longer term, capital spending is expected to be ~~approximately~~at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

Cash Flow Information

The following summarizes our Condensed Consolidated Statements of Cash Flows:


	39-Week Period Ended									26-Week Period Ended
(in thousands)	April 27, 2019			April 28, 2018			Change			February 1, 2020			January 26, 2019			Change
Net cash provided by (used in) operating activities of continuing operations	$	6,374		$	(31,276	)	$	37,650
Net cash used in operating activities of continuing operations										$	(8,865	)	$	(44	)	$	(8,821	)
Net cash used in investing activities of continuing operations	(2,249,817		)	(32,269		)	(2,217,548		)	(74,362		)	(2,193,544		)	2,119,182
Net cash provided by financing activities of continuing operations	2,140,607			70,190			2,070,417			17,047			2,156,096			(2,139,049		)
Net cash flows from discontinued operations	120,627			—			120,627			63,226			69,919			(6,693		)
Effect of exchange rate changes on cash	(226		)	(301		)	75
Net increase in cash and cash equivalents	17,565			6,344			11,221
Effect of exchange rate on cash										19			(1,868		)	1,887
Net (decrease) increase in cash and cash equivalents										(2,935		)	30,559			(33,494		)
Cash and cash equivalents, at beginning of period	23,315			15,414			7,901			45,263			23,315			21,948
Cash and cash equivalents, at end of period	$	40,880		$	21,758		$	19,122
Cash and cash equivalents at end of period										$	42,328		$	53,874		$	(11,546	)

The increase in net cash ~~provided~~used by operating activities of continuing operations was primarily due to higher amounts of cash utilized in fiscal ~~2018~~2020 year-to-date inrelated to inventory acquisition and credit ~~extension to meet increased product demand and our service level agreements and cash provided in~~extension. In fiscal 2019 year-to-date, ~~by the reduction~~we acquired Supervalu with seasonally high levels of inventory ~~including~~and accounts receivable and in fiscal 2020 year-to-date received cash ~~inflows~~ from the ~~reduction of Supervalu inventory since the acquisition date, as the acquisition occurred at a time when inventories were seasonally high.~~decrease in inventory. These increases in cash uses were offset in part by decreases from cash ~~utilized~~payments made in ~~payments of~~fiscal 2019 year-to-date for assumed liabilities and the payment of transaction costs from the Supervalu acquisition, including transaction-related expenses, accrued employee costs, and restructuring costs associated with reductions in force, higher cash paid for interest expense, higher cash utilized to reduce accounts payable primarily related to inventory reductions, and higher cash paid for taxes including a $59 million cash tax payment related to the Supervalu acquisition.force.

The ~~increase~~decrease in net cash used in investing activities of continuing operations was primarily due to ~~$2,282.3~~$2,281.9 million ~~paid for the Supervalu acquisition and $107.3 million more~~ of cash ~~utilized for capital expenditures,~~paid to purchase Supervalu in fiscal 2019 year-to-date, partially offset ~~in part~~ by $156.5 million of less cash received from the sale of property and equipment, primarily due to cash received from the sale and leaseback of two distribution centers ~~for aggregate proceeds~~in fiscal 2019 year-to-date, one of ~~$149.5 million, as discussed above. In addition, we received aggregate proceeds of approximately $13.7 million~~which was a short-term lease related to the ~~sale~~exit of ~~a surplus distribution center this year.~~that facility.

The ~~increase~~decrease in net cash provided by financing activities of continuing operations was primarily due to fiscal 2019 year-to-date borrowings on long-term debt ~~of $1,912.2 million to finance the Supervalu acquisition, a net increase in revolving credit facility borrowings of $901.5 million, including payments~~ to finance the Supervalu acquisition, and ~~other~~a net decrease in cash provided by the revolving credit facility borrowings of ~~$22.7~~$924.8 million, which was driven by borrowings to finance the Supervalu acquisition and ~~lower uses of~~changes in net borrowings for operating and investing activities. These decreases in cash ~~to repurchase common stock of $22.2~~provided by financing activities, were offset in part by $64.5 million ~~partially offset by an increase~~fiscal 2019 year-to-date payments for debt issuance costs, and a decrease in ~~repayments~~payments of long-term debt and ~~capital~~finance lease obligations of ~~$727.9 million including the repayment~~$620.0 million.

Net cash flows from discontinued operations primarily include operating activity cash flow from operating income ~~and~~of the retail disposal groups. The decrease in net cash flows from discontinued operations investing ~~activity cash flows~~activities for fiscal 2020 year-to-date compared to fiscal 2019 year-to-date reflect higher proceeds received in fiscal 2019 year-to-date related to the sale of retail locations, including Hornbacher’s, than proceeds received in fiscal 2020 year-to-date, including proceeds from the sale of ~~Hornbacher’s,~~ a ~~surplus~~former dedicated retail distribution center and ~~surplus~~ retail ~~stores, partially offset by capital expenditures of discontinued operations.~~stores.

On October 6, 2017, ~~the Company~~we announced that ~~its~~our Board of Directors authorized a share repurchase program for up to $200.0 million of ~~the Company’s~~our outstanding common stock. The repurchase program is scheduled to expire upon ~~the Company’s~~our repurchase of shares of ~~the Company’s~~our common stock having an aggregate purchase price of $200.0 million. ~~The Company repurchased 614,660 shares of its common stock at an aggregate cost of $24.2 million in the fiscal year ended July 28, 2018. The Company~~We did not purchase any shares of ~~the Company’s~~our common stock in fiscal 2020 and 2019 year-to-date. As of February 1, 2020, we have $175.8 million remaining authorized under the ~~39-week period ended April 27, 2019.~~share repurchase program. We do not expect to purchase shares under the share repurchase program during fiscal 2020.

Pension and Other Postretirement Benefit Obligations

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

Lump Sum Pension Settlement

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 ~~Company no longer intends~~lump sum payment amounts are equal to ~~indefinitely reinvest accumulated earnings~~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 ~~Company’s Canada operations. Accordingly,~~plan, had not yet begun receiving monthly pension benefit payments and who are not eligible for any prior lump sum offerings under the ~~Company has recorded~~plan. Benefit obligations associated with the ~~tax impacts~~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 ~~this treatment (a tax benefit~~$664.0 million to plan participants during the second quarter of ~~$0.6~~fiscal 2020. The lump sum settlement payments resulted in a non-cash pension settlement charge of $10.3 million ~~due to the foreign exchange loss on previously taxed income)~~ in the ~~39-week period ended April 27, 2019.~~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.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Off-Balance Sheet Arrangements

Guarantees and Contingent Liabilities

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of February 1, 2020. We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions. We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other ~~contractual arrangements. See~~party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note ~~18. “Commitments,~~17—Commitments, Contingencies and Off-Balance Sheet ~~Arrangements”~~Arrangements under the caption ~~“Guarantees~~Guarantees and Contingent ~~Liabilities” in Part I, Item I of this Quarterly Report on Form 10-Q.~~

~~Legal Proceedings~~

~~We are a party to various legal proceedings arising from the normal course of business as described in Note 18. “Commitments, Contingencies and Off-Balance Sheet Arrangements”~~Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q ~~none~~for further information regarding our outstanding guarantees and contingent liabilities.

Table of ~~which, in our opinion, is expected to have a material adverse impact on our financial condition, results of operations or cash flows.~~contents

Multiemployer ~~Pension~~Benefit Plans

~~The Company assumed~~

We contribute to various multiemployer ~~plan obligations related to continuing and discontinued operations as part of the Supervalu acquisition that are subject to~~pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the collective bargaining agreement.

~~Expense is recognized in connection with~~ Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans asand the underfunding is not a direct obligation or liability to us.

Our contributions ~~are funded,~~can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in accordance with GAAP. During Supervalu’s fiscal year ended February 24, 2018, prior to the Supervalu acquisition date, Supervalu contributed $50 million to its multiemployer pension plans related to both continuing and discontinued operations.headcount. Our contributions to ~~assumed multiemployer pension plan commitments~~these plans could increase in the near term. Future contributions will be impacted by the extent to which multiemployer pension plan contribution requirements related to the acquired Supervalu retail discontinued operations are assumed by a buyer in sale transactions. In addition,However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code.

~~Based on the assessment of the most recent information available from the multiemployer~~

Expense is recognized in connection with these plans ~~we believe that most of the plans to which we contribute~~as contributions are ~~underfunded.~~funded, in accordance with GAAP. We ~~are only one of a number of employers contributing~~made contributions to these plans, and ~~the underfunding is not a direct obligation or liability to us. Our contributions can fluctuate from year to year due to facility or store closures~~recognized continuing and ~~reductions~~discontinued operations expense, of $41 million in ~~headcount. Annually,~~fiscal 2019. In fiscal 2020, we expect to contribute approximately ~~$40 to $50~~$37 million related to continuing ~~and discontinued~~ operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market ~~conditions, exclusive of multiemployer pension plan withdrawal obligations.~~conditions. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, it could trigger ~~one or more~~a partial or complete ~~withdrawals~~withdrawal that would require us to record a withdrawal liability. Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.

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

Refer to Note ~~17. “Benefit Plans”~~14—Benefit Plans in Part I,II, Item I8 of ~~this Quarterly~~the Annual Report on Form ~~10-Q~~10-K for additional information regarding ~~these plans.~~the plans in which we participate.

Contractual Obligations

~~The following table represents our significant~~

Except as otherwise disclosed in Note 9—Long-Term Debt and Note 11—Leases in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations assince the end of ~~April 27, 2019:~~fiscal 2019. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2019 for additional information regarding the Company’s contractual obligations.

Payments Due Per Period
(in millions) Total Remaining Fiscal 2019 Fiscal 2020 Fiscal 2021-2022 Fiscal 2023-2024 Thereafter
Contractual obligations⁽¹⁾⁽²⁾:

Long-term debt⁽³⁾
$ 3,152
$ 6
$ 121
$ 56
$ 1,268
$ 1,701
Interest on long-term debt ⁽⁴⁾
1,025
57
177
346
302
143
Operating leases⁽⁵⁾
1,567
43
156
263
202
903
Capital leases⁽⁶⁾
208
13
38
60
48
49
Purchase obligations⁽⁷⁾
275
78
128
61
6
2
Deferred compensation 6
—
1
2
1
2
Multiemployer plan withdrawal liability 74
1
2
3
5
63
Self-insurance liabilities⁽⁸⁾
94
18
26
26
11
13
Total contractual obligations $ 6,401

$ 216

$ 649

$ 817

$ 1,843

$ 2,876

~~(1)~~

Because the timing of certain future payments beyond fiscal 2019 cannot be reasonably determined, contractual obligations payments due per fiscal period presented here exclude our discretionary funding of our pension plans and required funding of our postretirement benefit obligations. Pension and postretirement benefit obligations were $210.1 million as of April 27, 2019. We expect to contribute approximately $5.0 million to $10.0 million to pension and ~~postretirement benefit plans during fiscal 2019.~~


~~(2)~~	~~Unrecognized tax benefits, which totaled $40.6 million~~ as ~~of April 27, 2019, were excluded from the contractual obligations table because an estimate of the timing of future tax settlements cannot be reasonably determined.~~


~~(3)~~	Long-term debt amounts exclude original issue discounts and deferred financing costs. Long-term debt payments due per fiscal period for 2019 through thereafter exclude any prepayments that may be required under the provisions of the Term Loan Facility because the amount of such future prepayment amounts, if any, are not reasonably estimable as of April 27, 2019.

~~(4)~~

Amounts include contractual interest payments (net of our interest rate swap payments) using the face value and interest rate as of April 27, 2019 applicable to our variable interest debt instruments (including the Term Loan Facility and ABL Credit Facility) and other fixed rate debt instruments. As of April 27, 2019, the face value of our variable interest debt instruments with a variable rate equal to one-month LIBOR plus an applicable margin was $3,068.5 million. As of April 27, 2019, the face value of our variable interest debt instruments with a variable rate equal to the prime rate plus an applicable margin was $44.6 million.


~~(5)~~	Represents the minimum rents payable under operating leases, excluding common area maintenance, insurance or tax payments, for which we are also obligated, offset by minimum subtenant rentals of $122 million total, $9 million, $28 million, $44 million, $23 million, and $19 million, respectively.


~~(6)~~	Represents the minimum payments under capital leases, excluding common area maintenance, insurance or tax payments, for which we are also obligated, offset by minimum subtenant rentals of $22 million total, $2 million, $6 million, $7 million, $4 million, and $3 million, respectively.

~~(7)~~

Our purchase obligations include various obligations that have annual purchase commitments of $1 million or greater. As of April 27, 2019, future purchase obligations existed that primarily related to fixed asset, information technology and inventory purchase commitments. In addition, in the ordinary course of business, we enter into supply contracts to purchase product for resale to wholesale customers and to consumers, which are typically of a short-term nature with limited or no purchase commitments. The majority of our supply contracts are short-term in nature and relate to fixed assets, information technology and contracts to purchase product for resale. These supply contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. The supply contracts that are cancelable have not been included above.


~~(8)~~	Our insurance reserves include the undiscounted obligations related to workers’ compensation, general and automobile liabilities at the estimated ultimate cost of reported claims and claims incurred but not yet reported and related expenses.

Critical Accounting Policies and Estimates

~~Except as described below, there~~There were no material changes into our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. ~~During~~Refer to the ~~first quarter~~description of ~~fiscal 2019, in connection with the acquisition of Supervalu, the Company evaluated its critical accounting policies. As a result of this evaluation, in addition to the~~ critical accounting policies ~~described~~included in Item 7 of ~~the Company’s~~our Annual ~~Report, we believe our critical accounting policies also include the following policies:~~

~~Inventories~~

Inventories are valued at the lower of cost or market. Substantially all of our inventory consists of finished goods. Inventories are recorded net of vendor allowances and cash discounts. We evaluate inventory shortages (shrink) throughout each fiscal year based on actual physical counts in our facilities. 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.

Inventories are valued at the lower of cost or net realizable value. For historical United Natural Foods, Inc. inventory prior to the acquisition of Supervalu, cost was determined using the first-in, first-out (“FIFO”) method. For a substantial portion of legacy Supervalu inventory, cost was determined using the last-in, first-out (“LIFO”) method, with the rest primarily determined using FIFO. Inventories acquired as part of the Supervalu acquisition were recorded at their fair market values as of the acquisition date. During the second quarter of fiscal 2019, the Company completed its evaluation of its combined inventory accounting policies and changed its method of inventory costing for certain historical United Natural Foods, Inc. inventory from the FIFO accounting method to the LIFO accounting method. The Company concluded that the LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group. As a result of the change to the LIFO method, certain Company inventories, excluding Supervalu inventories, were reduced by $4.1 million and $7.3 million for the 13- and 39-week periods ended April 27, 2019, respectively, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Condensed Consolidated Statement of Income for the 13- and 39-week periods ended April 27, 2019. The change to the LIFO method, combined with a higher inflation assumption for the combined business, is expected to result in additional non-cash expense between $10 million to $15 million in fiscal 2019.

~~Vendor Funds~~

We receive funds from many of the vendors whose products we buy for resale. These vendor funds are provided to increase the sell-through of the related products. We receive vendor funds for a variety of merchandising activities: placement of the vendors’ products in our advertising; display of the vendors’ products in prominent locations in our stores; supporting the introduction of new products into our stores and distribution centers; exclusivity rights in certain categories; and to compensate for temporary price reductions offered to customers on products held for sale. We also receive vendor funds for buying activities such as volume commitment rebates, credits for purchasing products in advance of their need and cash discounts for the early payment of merchandise purchases. The majority of the vendor fund contracts have terms of less than a year, although some of the contracts have terms of longer than one year.

We recognize vendor funds for merchandising activities as a reduction of Cost of sales when the related products are sold. Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as reductions of inventory.

The amount and timing of recognition of vendor funds as well as the amount of vendor funds to be recognized as a reduction to ending inventory requires management judgment and estimates. Management determines these amounts based on estimates of current year purchase volume using forecast and historical data, and a review of average inventory turnover data. These judgments and estimates impact our reported gross profit, operating income and inventory amounts. The historical estimates have been reliable in the past, and we believe our methodology will continue to be reliable in the future. Based on previous experience, we do not expect significant changes in the level of vendor support. However, if such changes were to occur, cost of sales and advertising expense could change, depending on the specific vendors involved. If vendor advertising allowances were substantially reduced or eliminated, we would consider changing the volume, type and frequency of the advertising, which could increase or decrease our advertising expense.

~~Benefit Plans~~

We sponsor pension and other postretirement plans in various forms covering substantially all employees who meet eligibility requirements. Pension benefits associated with these plans are generally based on each participant’s years of service, compensation, and age at retirement or termination. Our defined benefit pension plan, the SUPERVALU Retirement Plan, and certain supplemental executive retirement plans were closed to new participants and service crediting ended for all participants as of December 31, 2007.

While we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The determination of our obligation and related expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions used in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in compensation and healthcare costs. Refer to Note 17. “Benefit Plans” in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for information related to the actuarial assumptions used in determining pension and postretirement healthcare liabilities and expenses.~~

We review and select the discount rate to be used in connection with our pension and other postretirement obligations annually. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits.

Our expected long-term rate of return on plan assets assumption is determined based on the portfolio’s actual and target composition, current market conditions, forward-looking return and risk assumptions by asset class, and historical long-term investment performance. The assumed long-term rate of return on pension assets ranged from 6.25 percent to 6.5 percent10-K for the ~~first quarter of~~ fiscal year ended August 3, 2019. The 10-year rolling average annualized return for a portfolio of investments applied in a manner consistent with our target allocations have generated average returns of approximately 8.04 percent based on returns from 1990 to 2017. In accordance with Accounting Standards, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, affect expense and obligations in future periods.

For fiscal 2019, each 25 basis point reduction in the discount rate would decrease pension expense by approximately $3.5 million and each 25 basis point reduction in expected return on plan assets would increase pension expense by approximately $5.6 million. Similarly, for postretirement benefits, a 100 basis point increase in the healthcare cost trend rate would increase the accumulated postretirement benefit obligation by approximately $3.2 million as of the end of the third quarter of fiscal 2019 and would increase service and interest cost by less than $0.1 million. Conversely, a 100 basis point decrease in the healthcare cost trend rate would decrease the accumulated postretirement benefit obligation as of the end of the third quarter of fiscal 2019 by approximately $2.6 million and would decrease service and interest cost by less than $0.1 million. Although we believe our assumptions are appropriate, the actuarial assumptions may differ from actual results due to changing market and economic conditions, higher or lower withdrawal rates and longer or shorter life spans of participants.

~~Amortization of net actuarial loss expense recognition~~

We recognize the amortization of net actuarial loss on the SUPERVALU Retirement Plan over the remaining life expectancy of inactive participants based on our determination that almost all of the defined benefit pension plan participants are inactive and the plan is frozen to new participants. For the purposes of inactive participants, we utilized an over approximately 90 percent threshold established under our policy.

~~Full yield curve expense recognition~~

We utilize the “full yield curve” approach for determining the interest and service cost components of net periodic benefit cost for defined benefit pension and other postretirement benefit plans. Under this method, the discount rate assumption used in the interest and service cost components of net periodic benefit cost is built through applying the specific spot rates along the yield curve used in the determination of the benefit obligation described above, to the relevant projected future cash flows of our pension and other postretirement benefit plans. We believe the “full yield curve” approach reflects a greater correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of interest and service costs.

~~Business Dispositions~~

The Company reviews the presentation of planned business dispositions in the Condensed Consolidated Financial Statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, the Company evaluates whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year.

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Income, and assets and liabilities of the business component planned to be disposed of are presented as separate lines within the Condensed Consolidated Balance Sheets. See Note 19. “Discontinued Operations” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

There are inherent judgments and estimates used in determining impairment charges. The sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to closing.

Seasonality

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and our interest rate swap agreements, and price increases in diesel fuel. Except as described in Note ~~9. “Derivatives”~~8—Derivatives and Note ~~15. “Long-Term Debt”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no other material changes to our exposure to market risks from those disclosed in our Annual Report.

Item 4. Controls and Procedures

(a)Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

(b)Changes in internal controls. On October 22, 2018, ~~the Company~~we completed ~~its~~the acquisition of ~~SUPERVALU INC. (“Supervalu”). The Company is~~Supervalu. We have extended our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include Supervalu. We will report on its assessment of the effectiveness of internal control over financial reporting for the combined operations as of August 1, 2020. We are currently in process of integrating Supervalu’s internal controls over financial reporting. In the first quarter of fiscal 2020, we adopted ASU 2016-02, Leases, and updated our accounting policies and implemented new internal controls in conjunction with the new lease standard. Except for the ongoing integration of Supervalu and the new lease standard adoption, there has been no change in our internal control over financial reporting that occurred during the ~~third~~second quarter of fiscal ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

WeFrom time to time, we are ~~party to various~~involved in routine litigation or other legal proceedings ~~arising from~~that arise in the ~~normal~~ordinary course of our business, including investigations and claims regarding employment law, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, real estate and antitrust. Other than as ~~described~~set forth below and in Note ~~18. “Commitments,~~17—Commitments, Contingencies and Off-Balance Sheet ~~Arrangements”~~Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, ~~none~~there are no pending material legal proceedings to which we are a party or to which our property is subject.

In 2016, as part of a hazardous waste enforcement campaign by the California Attorney General’s Office and local district attorneys, Unified Grocers received a subpoena from the Yolo County District Attorney regarding hazardous waste management and storage at its Stockton and Commerce, California distribution centers. We have provided requested documents and cooperated fully with the investigation. On May 24, 2018, the District Attorney toured the Stockton distribution center and generally found the distribution center to be in compliance, and minor items noted regarding labeling have been addressed. We are in negotiations with the District Attorney to reach a settlement, which we expect will be immaterial in ~~our opinion, is expected to have a material adverse impact on our financial condition, results~~amount but may include penalties of ~~operations~~$100,000 or ~~cash flows.~~more.

Item 1A. Risk Factors

There have been no material changes to our risk factors contained in Part ~~II,~~I, Item ~~1A, “Risk~~1A. Risk Factors,” of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~period~~fiscal year ended ~~October 27, 2018.~~August 3, 2019.

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

On October 6, 2017, ~~the Company~~we announced that ~~its~~our Board of Directors ~~had~~ authorized a share repurchase program for up to $200.0 million of ~~the Company’s~~our outstanding common stock. The repurchase program is scheduled to expire upon ~~the Company’s~~our repurchase of shares of ~~the Company’s~~our common stock having an aggregate purchase price of $200.0 million. Repurchases will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise. ~~The Company~~We may also implement all or part of the repurchase program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

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There were no share repurchases under the share repurchase program for the 13-week period ended April 27, 2019. As of April 27, 2019, there was approximately $175.8 million that may yet be purchased under the share repurchase program.


(in millions, except shares and per share amounts)	Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs		Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs⁽³⁾
Period⁽¹⁾:
January 27, 2019 to March 2, 2019	345	$	14.58	—	$	—
March 3, 2019 to March 30, 2019	—	—		—	—
March 31, 2019 to April 27, 2019	—	—		—	175.8
November 3, 2019 to December 7, 2019							1,367	$	7.97	—	$	—
December 8, 2019 to January 4, 2020							—	—		—	—
January 5, 2020 to February 1, 2020							4,660	9.21		—	175.8
Total	345	14.58		—	$	175.8	6,027	$	8.93	—	$	—

~~Item 3.Defaults Upon Senior Securities~~

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~~Item 4. Mine Safety Disclosures~~

~~Item 5. Other Information~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	UNITED NATURAL FOODS, INC.

	/s/ ~~Michael P. Zechmeister~~JOHN W. HOWARD
	~~Michael P. Zechmeister~~John W. Howard
	Chief Financial Officer
	(~~Duly Authorized Officer and~~ Principal Financial Officer)

Dated: ~~June 5, 2019~~March 11, 2020

6860



	Net Sales for the 13-Week Period Ended
(in millions)	April 28, 2018 ⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	992	$	—	$	—		$	992
Independents	689		—		—			689
Supermarkets	706		—		—			706
Other	246		62		(46		)	262
Total	$	2,633	$	62	$	(46	)	$	2,649



	Net Sales for the 39-Week Period Ended
(in millions)	April 27, 2019 ⁽²⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	3,229	$	—	$	—		$	3,229
Independents	2,331		—		—			2,331
Supermarkets	8,482		—		—			8,482
Other	889		169		(120		)	938
Total	$	14,931	$	169	$	(120	)	$	14,980



(in thousands)	April 27, 2019			July 28, 2018
Customer accounts receivable	$	1,045,690		$	595,698
Allowance for uncollectible receivables	(13,972		)	(15,996		)
Other receivables, net	17,555			—
Accounts receivable, net	$	1,049,273		$	579,702

Customer notes receivable, included within Prepaid expenses and other current assets	$	13,118		$	—
Long-term notes receivable, included within Other assets	$	35,388		$	—



	As of October 22, 2018
(in thousands)	Preliminary as of October 27, 2018			Preliminary as of April 27, 2019
Cash and cash equivalents	$	25,102		$	25,102
Accounts receivable	557,680			543,570
Inventories	1,162,360			1,162,175
Prepaid expenses and other current assets	66,440			69,850
Current assets of discontinued operations⁽¹⁾	196,615			204,917
Property, plant and equipment	1,148,001			1,209,486
Goodwill	347,485			444,572
Intangible assets⁽²⁾	1,077,541			923,099
Other assets⁽²⁾	109,445			77,266
Long-term assets of discontinued operations⁽¹⁾	404,301			439,235
Accounts payable	(967,429		)	(973,394		)
Other current liabilities	(282,692		)	(327,619		)
Current portion of long term debt and capital lease obligations	(579,677		)	(579,566		)
Current liabilities of discontinued operations⁽¹⁾	(150,611		)	(150,690		)
Long-term debt and capital lease obligations⁽³⁾	(179,262		)	(137,644		)
Pension and other postretirement benefit obligations	(234,324		)	(234,324		)
Deferred income taxes	(177,231		)	(74,254		)
Other long-term liabilities⁽³⁾	(200,913		)	(299,598		)
Long-term liabilities of discontinued operations⁽¹⁾	(1,401		)	(753		)
Total fair value of net assets acquired	2,321,430			2,321,430
Plus: noncontrolling interests	1,633			1,633
Less: cash and cash equivalents⁽⁴⁾	(30,596		)	(30,596		)
Less: assumed equity award liabilities	(18,638		)	(18,638		)
Plus: cash paid for equity awards	—			8,498
Total consideration paid in cash	2,273,829			2,282,327
Plus: unpaid assumed equity award liabilities⁽⁵⁾	18,638			9,914
Total consideration	$	2,292,467		$	2,292,241



(in thousands)	April 27, 2019 (39 weeks)
Reserves for closed properties at beginning of the fiscal year	$	—
Acquired liabilities	34,426
Additions, accretion and changes in estimates	17,861
Payments	(8,021		)
Reserves for closed properties at the end of the fiscal period	$	44,266



		Fair Value at April 27, 2019
(In thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	1,826	$	—
Mutual funds	Prepaid expenses and other current assets	$	34	$	—	$	—
Interest rate swaps designated as hedging instruments	Other assets	$	—	$	1,143	$	—
Mutual funds	Other assets	$	1,809	$	—	$	—

Liabilities:
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	4,820	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	27,657	$	—



		Fair Value at July 28, 2018
(in thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	1,459	$	—
Interest rate swaps designated as hedging instruments	Other assets	$	—	$	5,860	$	—



(in thousands)	Average Interest Rate at January 26, 2019	Maturity Year	April 27, 2019			July 28, 2018
Term Loan Facility	6.64%	2019-2025	$	1,888,800		$	—
ABL Credit Facility	4.07%	2023	1,217,100			—
Other secured loans	5.70%	2023	45,710			—
Former ABL Credit Facility			—			210,000
Former Term Loan Facility			—			110,000
Debt issuance costs, net			(57,608		)	(1,164		)
Original issue discount on debt			(42,729		)	—
Long-term debt, including current portion			$	3,051,273		$	318,836
Less: current portion of long-term debt obligations			(107,281		)	(10,000		)
Long-term debt			$	2,943,992		$	308,836



	13-Week Period Ended April 27, 2019						39-Week Period Ended April 27, 2019
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Service cost	$	—		$	55		$	—		$	114
Interest cost	24,004			478			49,855			993
Expected return on plan assets	(35,416		)	(58		)	(73,555		)	(121		)
Net periodic benefit (income) cost	$	(11,412	)	$	475		$	(23,700	)	$	986
Contributions to benefit plans	$	(2,386	)	$	(92	)	$	(2,574	)	$	(218	)



	October 22, 2018
	Pension Benefits			Other Postretirement Benefits
Benefit obligation as of October 22, 2018	$	2,499,954		$	52,276
Fair value of plan assets at October 22, 2018	2,305,020			11,586
Unfunded status at October 22, 2018	$	(194,934	)	$	(40,690	)



Asset Category	Target		October 22, 2018
Domestic equity	20.8	%	19.8	%
International equity	6.0	%	5.4	%
Private equity	5.0	%	5.0	%
Fixed income	64.8	%	64.2	%
Real estate	3.4	%	5.6	%
Total	100.0	%	100.0	%



Fiscal Year	Pension Benefits		Other Postretirement Benefits
Remaining fiscal 2019	$	41,128	$	1,321
2020	158,500		4,800
2021	163,100		4,700
2022	169,900		4,600
2023	174,600		4,500
Years 2024-2027	849,500		19,400



	Post-Employment Benefits
	April 27, 2019
Accrued compensation and benefits	$	2,730
Other long-term liabilities	5,084
Total	$	7,814


a.	~~Assets contributed to the multiemployer plan by one employer are held in trust and may be used to provide benefits to employees of other participating employers.~~


b.	~~If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.~~


c.	If we choose to stop participating in some multiemployer plans, or make market exits or closures or otherwise have participation in the plan drop below certain levels, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.


~~(1)~~	~~PPA surcharges are 5 percent or 10 percent of eligible contributions and may not apply to all collective bargaining agreements or total contributions to each plan.~~


~~(2)~~	~~These multiemployer pension plans are associated with continuing operations.~~


~~(4)~~	~~All Other Multiemployer Pension Plans include 6 plans, none of which is individually significant when considering contributions to the plan, severity of the underfunded status or other factors.~~



			Most Significant Collective Bargaining Agreement
Pension Fund	Range of Collective Bargaining Agreement Expiration Dates	Total Collective Bargaining Agreements	Expiration Date		% of Associates under Collective Bargaining Agreement ⁽¹⁾		Over 5% Contribution 2018
Minneapolis Food Distributing Industry Pension Plan⁽²⁾	5/31/2022	1	5/31/2022	��	100.0	%	Yes
Minneapolis Retail Meat Cutters and Food Handlers Pension Fund⁽³⁾	3/4/2023	1	3/4/2023		100.0	%	Yes
Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund (‘VAP”)⁽³⁾	3/4/2023	1	3/4/2023		100.0	%	N/A (contrib. began 1/1/2019)
Central States, Southeast and Southwest Areas Pension Fund⁽²⁾	5/31/2019 - 9/14/2019	4	9/14/2019		42.0	%	No
UFCW Unions and Participating Employer Pension Fund⁽³⁾	7/11/2020	2	7/11/2020		71.7	%	Yes
Western Conference of Teamsters Pension Trust⁽²⁾	4/20/2019 - 4/22/2023	21	7/17/2021		15.8	%	No
UFCW Unions and Employers Pension Plan⁽³⁾	4/9/2022	1	4/9/2022		100.0	%	Yes


~~(1)~~	~~Company participating employees in the most significant collective bargaining agreement as a percent of all Company employees participating in the respective fund.~~


(1)	For the second quarter of fiscal 2020, the Company recorded $251.5 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.


(2)	For the second quarter of fiscal 2019, the Company recorded $265.2 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.


(1)	For fiscal 2020 year-to-date, the Company recorded $496.1 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.


(2)	For fiscal 2019 year-to-date, the Company recorded $287.0 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.


	13-Week Period Ended April 27, 2019			39-Week Period Ended April 27, 2019⁽¹⁾			13-Week Period Ended					26-Week Period Ended

(In thousands)							February 1, 2020		January 26, 2019			February 1, 2020			January, 26, 2019⁽¹⁾
Net sales	$	640,121		$	1,413,756		$	613,705	$	727,037		$	1,224,526		$	773,635
Cost of sales	463,157			1,031,330			451,007		533,639			892,078			568,173
Gross profit	176,964			382,426			162,698		193,398			332,448			205,462
Operating expenses	145,191			321,777			129,413		156,710			265,848			166,204
Restructuring expenses and charges							30,851		10,382			32,213			10,382
Operating income	31,773			60,649			2,434		26,306			34,387			28,876
Interest expense	284			738
Net periodic benefit income, excluding service cost	(146		)	(304		)
Equity in earnings of unconsolidated subsidiaries	(507		)	(1,391		)
Other income, net							41		(339		)	(1,050		)	(588		)
Income from discontinued operations before income taxes	32,142			61,606			2,393		26,645			35,437			29,464
Income tax provision	7,772			13,759			286		5,239			8,376			5,987
Income from discontinued operations, net of tax	$	24,370		$	47,847		$	2,107	$	21,407		$	27,061		$	23,477


(1)	These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to ~~April 27,~~January 26, 2019.



	Payments Due Per Period
(in millions)	Total		Remaining Fiscal 2019		Fiscal 2020		Fiscal 2021-2022		Fiscal 2023-2024		Thereafter
Contractual obligations⁽¹⁾⁽²⁾:
Long-term debt⁽³⁾	$	3,152	$	6	$	121	$	56	$	1,268	$	1,701
Interest on long-term debt ⁽⁴⁾	1,025		57		177		346		302		143
Operating leases⁽⁵⁾	1,567		43		156		263		202		903
Capital leases⁽⁶⁾	208		13		38		60		48		49
Purchase obligations⁽⁷⁾	275		78		128		61		6		2
Deferred compensation	6		—		1		2		1		2
Multiemployer plan withdrawal liability	74		1		2		3		5		63
Self-insurance liabilities⁽⁸⁾	94		18		26		26		11		13
Total contractual obligations	$	6,401	$	216	$	649	$	817	$	1,843	$	2,876


(2)	These amounts include the deemed surrender by participants in our compensatory stock plans of ~~345~~6,027 shares of ~~the Company’s~~our common stock to cover taxes from the vesting of restricted stock awards and restricted stock units granted under such plans.


(3)	As of February 1, 2020, there was approximately $175.8 million that may yet be purchased under the share repurchase program. There were no share repurchases under the share repurchase program for the second quarter of fiscal 2020.