UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~May 2, 2020~~January 30, 2021

☐ 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)~~

Delaware

(State or other jurisdiction of incorporation or organization)

05-0376157

(I.R.S. Employer Identification No.)

313 Iron Horse Way,

Providence,

~~Rhode Island~~

RI 02908

(Address of principal executive offices)

~~(Zip~~ (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: Yes ☒ No ☐

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

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

Large accelerated filer

☒☐

Accelerated filer

☐☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~June~~March 5, ~~2020~~2021 there were ~~54,686,954~~56,296,036 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of ~~contents~~Contents

TABLE OF CONTENTS


Part I.			Financial Information

~~Part I.~~Item 1.			Financial ~~Information~~Statements

~~Item 1.~~			~~Financial Statements~~

	Condensed Consolidated Balance Sheets (unaudited)	3

			Condensed Consolidated Statements of Operations (unaudited)		4

			Condensed Consolidated Statements of Comprehensive ~~Loss~~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		4032

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		6051

Item 4.			Controls and Procedures		6051

Part II.			Other Information

Item 1.			Legal Proceedings		6151

Item 1A.			Risk Factors		6151

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		6252





Item 6.5.			~~Exhibits~~Other Information		6352

			~~Signatures~~Item 6.	64Exhibits		54

			Signatures		55

Table of ~~contents~~Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except for per share data)


	January 30, 2021		August 1, 2020
ASSETS

Cash and cash equivalents	$	40,496	$	46,993

Accounts receivable, net	1,136,135		1,120,199
Inventories, net	2,228,772		2,280,767
Prepaid expenses and other current assets	238,572		251,891
Current assets of discontinued operations	4,716		5,067
Total current assets	3,648,691		3,704,917
Property and equipment, net	1,671,755		1,701,216
Operating lease assets	1,016,836		982,808
Goodwill	20,084		19,607
Intangible assets, net	928,053		969,600
Deferred income taxes	107,779		107,624
Other long-term assets	95,551		97,285
Long-term assets of discontinued operations	1,391		3,915
Total assets	$	7,490,140	$	7,586,972
LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable	$	1,618,288	$	1,633,448
Accrued expenses and other current liabilities	273,520		281,956
Accrued compensation and benefits	220,318		228,832
Current portion of operating lease liabilities	148,359		131,022
Current portion of long-term debt and finance lease liabilities	24,840		83,378
Current liabilities of discontinued operations	8,313		11,438
Total current liabilities	2,293,638		2,370,074
Long-term debt	2,374,250		2,426,994
Long-term operating lease liabilities	894,831		873,990
Long-term finance lease liabilities	134,554		143,303
Pension and other postretirement benefit obligations	255,071		292,128

Other long-term liabilities	308,715		336,487
Long-term liabilities of discontinued operations	15		1,738
Total liabilities	6,261,074		6,444,714
Commitments and contingencies	0		0
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5,000 shares; NaN issued or outstanding	0		0
Common stock, $0.01 par value, authorized 100,000 shares; 56,763 shares issued and 56,148 shares outstanding at January 30, 2021; 55,306 shares issued and 54,691 shares outstanding at August 1, 2020	568		553
Additional paid-in capital	581,096		568,736
Treasury stock at cost	(24,231)		(24,231)
Accumulated other comprehensive loss	(213,529)		(237,946)
Retained earnings	886,313		837,633
Total United Natural Foods, Inc. stockholders’ equity	1,230,217		1,144,745
Noncontrolling interests	(1,151)		(2,487)
Total stockholders’ equity	1,229,066		1,142,258
Total liabilities and stockholders’ equity	$	7,490,140	$	7,586,972

May 2,
2020 August 3,
2019
ASSETS

Cash and cash equivalents $ 56,425
$ 42,350
Accounts receivable, net 1,232,612
1,065,699
Inventories 2,025,694
2,089,416
Prepaid expenses and other current assets 279,886
226,727
Current assets of discontinued operations 128,855
143,729
Total current assets 3,723,472
3,567,921
Property and equipment, net 1,534,270
1,639,259
Operating lease assets 984,039
—
Goodwill 19,148
442,256
Intangible assets, net 956,717
1,041,058
Deferred income taxes 67,690
31,087
Other assets 94,181
107,319
Long-term assets of discontinued operations 321,256
352,065
Total assets $ 7,700,773
$ 7,180,965
LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable $ 1,716,263
$ 1,476,857
Accrued expenses and other current liabilities 271,633
249,426
Accrued compensation and benefits
182,029

148,296
Current portion of operating lease liabilities 138,698
—
Current portion of long-term debt and finance lease liabilities 33,440
112,103
Current liabilities of discontinued operations 135,503
122,265
Total current liabilities 2,477,566
2,108,947
Long-term debt 2,541,657
2,819,050
Long-term operating lease liabilities 877,229
—
Long-term finance lease liabilities 145,672
108,208
Pension and other postretirement benefit obligations 191,105
237,266
Deferred income taxes 979
1,042
Other long-term liabilities 289,706
393,595
Long-term liabilities of discontinued operations 8,899
1,923
Total liabilities 6,532,813
5,670,031
Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding —
—
Common stock, $0.01 par value, authorized 100,000 shares; 55,292 shares issued and 54,677 shares outstanding at May 2, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019 553
535
Additional paid-in capital 558,738
530,801
Treasury stock at cost (24,231 ) (24,231 )
Accumulated other comprehensive loss (151,645 ) (108,953 )
Retained earnings 786,400
1,115,519
Total United Natural Foods, Inc. stockholders’ equity 1,169,815
1,513,671
Noncontrolling interests (1,855 ) (2,737 )
Total stockholders' equity 1,167,960
1,510,934
Total liabilities and stockholders’ equity $ 7,700,773
$ 7,180,965

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In thousands, except for per share data)


	13-Week Period Ended				26-Week Period Ended
	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net sales	$	6,888,133	$	6,431,382	$	13,560,740	$	12,727,994
Cost of sales	5,897,774		5,514,057		11,603,882		10,903,458
Gross profit	990,359		917,325		1,956,858		1,824,536
Operating expenses	866,880		862,732		1,767,842		1,746,420
Goodwill and asset impairment charges	0		0		0		425,405
Restructuring, acquisition and integration related expenses	17,783		36,522		34,211		51,194
Loss on sale of assets	399		524		169		434
Operating income (loss)	105,297		17,547		154,636		(398,917)
Other expense (income):
Net periodic benefit income, excluding service cost	(17,127)		(3,277)		(34,160)		(14,661)
Interest expense, net	50,944		48,836		120,077		98,545
Other, net	(1,674)		(1,220)		(2,472)		(1,620)
Total other expense, net	32,143		44,339		83,445		82,264
Income (loss) from continuing operations before income taxes	73,154		(26,792)		71,191		(481,181)
Provision (benefit) for income taxes	16,392		(12,808)		15,401		(79,763)
Net income (loss) from continuing operations	56,762		(13,984)		55,790		(401,418)
Income (loss) from discontinued operations, net of tax	3,803		(16,076)		5,099		(12,050)
Net income (loss) including noncontrolling interests	60,565		(30,060)		60,889		(413,468)
Less net income attributable to noncontrolling interests	(1,605)		(650)		(2,972)		(1,169)
Net income (loss) attributable to United Natural Foods, Inc.	$	58,960	$	(30,710)	$	57,917	$	(414,637)

Basic earnings (loss) per share:
Continuing operations	$	0.98	$	(0.27)	$	0.95	$	(7.54)
Discontinued operations	$	0.07	$	(0.30)	$	0.09	$	(0.23)
Basic earnings (loss) per share	$	1.05	$	(0.57)	$	1.04	$	(7.77)
Diluted earnings (loss) per share:
Continuing operations	$	0.93	$	(0.27)	$	0.89	$	(7.54)
Discontinued operations	$	0.06	$	(0.30)	$	0.09	$	(0.23)
Diluted earnings (loss) per share	$	1.00	$	(0.57)	$	0.98	$	(7.77)
Weighted average shares outstanding:
Basic	56,138		53,523		55,717		53,368
Diluted	59,205		53,523		59,119		53,368

13-Week Period Ended
39-Week Period Ended

May 2,
2020
April 27,
2019
May 2,
2020
April 27,
2019
Net sales
$ 6,667,681

$ 5,962,620

$ 18,824,870

$ 14,979,982
Cost of sales
5,811,151

5,174,070

16,421,838

13,017,318
Gross profit
856,530

788,550

2,403,032
1,962,664
Operating expenses
774,376

737,681

2,300,635

1,852,768
Goodwill and asset impairment (adjustment) charges —
(38,250 ) 425,405

332,621
Restructuring, acquisition and integration related expenses
10,449

19,438

54,385

134,567
Operating income (loss)
71,705

69,681

(377,393 ) (357,292 )
Other expense (income):

Net periodic benefit income, excluding service cost (12,758 ) (10,941 ) (27,419 ) (22,691 )
Interest expense, net 47,108
54,917
145,247
121,149
Other, net
(973 )
958

(1,539 )
231
Total other expense, net
33,377

44,934

116,289
98,689
Income (loss) from continuing operations before income taxes
38,328

24,747

(493,682 ) (455,981 )
Benefit for income taxes
(14,849 )
(8,027 )
(106,330 )
(104,091 )
Net income (loss) from continuing operations 53,177
32,774
(387,352 ) (351,890 )
Income from discontinued operations, net of tax 37,192
24,370
64,253
47,847
Net income (loss) including noncontrolling interests 90,369
57,144
(323,099 ) (304,043 )
Less net (income) loss attributable to noncontrolling interests (2,238 ) (52 ) (3,407 ) 116
Net income (loss) attributable to United Natural Foods, Inc.
$ 88,131

$ 57,092

$ (326,506 ) $ (303,927 )

Basic earnings (loss) per share:
Continuing operations $ 0.99
$ 0.64
$ (7.24 ) $ (6.93 )
Discontinued operations $ 0.65
$ 0.48
$ 1.14
$ 0.95
Basic earnings (loss) per share $ 1.64
$ 1.12
$ (6.10 ) $ (5.99 )
Diluted earnings (loss) per share:
Continuing operations $ 0.96
$ 0.64
$ (7.24 ) $ (6.93 )
Discontinued operations $ 0.63
$ 0.48
$ 1.12
$ 0.94
Diluted earnings (loss) per share $ 1.60
$ 1.12
$ (6.10 ) $ (5.99 )
Weighted average shares outstanding:

Basic
53,718
50,846
53,485
50,748
Diluted
55,217
50,964
53,485
50,748

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

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

(In thousands)


	13-Week Period Ended				26-Week Period Ended
	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net income (loss) including noncontrolling interests	$	60,565	$	(30,060)	$	60,889	$	(413,468)
Other comprehensive income (loss):
Recognition of pension and other postretirement benefit obligations, net of tax(1)	(300)		7,370		(506)		7,942
Recognition of interest rate swap cash flow hedges, net of tax(2)	9,253		(3,752)		21,711		(7,433)
Foreign currency translation adjustments	2,852		(347)		3,257		24
Recognition of other cash flow derivatives, net of tax(3)	388		0		(45)		0
Total other comprehensive income	12,193		3,271		24,417		533
Less comprehensive income attributable to noncontrolling interests	(1,605)		(650)		(2,972)		(1,169)
Total comprehensive income (loss) attributable to United Natural Foods, Inc.	$	71,153	$	(27,439)	$	82,334	$	(414,104)

13-Week Period Ended 39-Week Period Ended
May 2,
2020 April 27,
2019 May 2,
2020 April 27,
2019
Net income (loss) including noncontrolling interests $ 90,369
$ 57,144
$ (323,099 ) $ (304,043 )
Other comprehensive (loss) income:

Recognition of pension and other postretirement benefit obligations, net of tax⁽¹⁾
(574 ) —
7,368
—
Recognition of interest rate swap cash flow hedges, net of tax⁽²⁾
(39,066 ) (16,196 ) (46,499 ) (26,898 )
Foreign currency translation adjustments (3,585 ) (1,326 ) (3,561 ) (2,308 )
Total other comprehensive loss (43,225 ) (17,522 ) (42,692 ) (29,206 )
Less comprehensive (income) loss attributable to noncontrolling interests (2,238 ) (52 ) (3,407 ) 116
Total comprehensive income (loss) attributable to United Natural Foods, Inc. $ 44,906
$ 39,570
$ (369,198 ) $ (333,133 )


~~(1)~~	~~Amounts are net of tax (benefit) expense of $(0.2) million, $0.0 million, $2.4 million and~~ ~~$0.0~~(1)Amounts are net of tax (benefit) expense of $(0.1) million, $2.4 million, $(0.2) million and $2.6 million, respectively.


~~(2)~~	~~Amounts are net of tax (benefit) expense of $(13.4) million, $(6.0) million, $(15.9) million and $(9.9) million, respectively.~~

(2)Amounts are net of tax expense (benefit) of $3.2 million, $(1.3) million, $7.4 million and $(2.5) million, respectively.

(3)Amounts are net of tax expense of $0.1 million, $— million, $— million and $— million, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

For the 13-week periods ended ~~May 2,~~January 30, 2021 and February 1, 2020 ~~and April 27, 2019~~

(In thousands)

Common Stock Treasury Stock
Additional
Paid-in Capital

Accumulated
Other
Comprehensive Loss
Retained Earnings
Total United Natural Foods, Inc.
Stockholders’ Equity
Noncontrolling Interests Total Stockholders’ Equity
Shares Amount Shares Amount
Balances at February 1, 2020 54,175
$ 542
615
$ (24,231 ) $ 535,900
$ (108,420 ) $ 698,269
$ 1,102,060
$ (2,966 ) $ 1,099,094
Restricted stock vestings and stock option exercises 21
—
—
—
(143 ) —
—
(143 ) —
(143 )
Share-based compensation —
—
—
—
11,137
—
—
11,137
—
11,137
Other comprehensive loss —
—
—
—
—
(43,225 ) —
(43,225 ) —
(43,225 )
Distributions to noncontrolling interests —
—
—
—
—
—
—
—
(1,127 ) (1,127 )
Proceeds from issuance of common stock, net 1,096
11
—
—
11,844
—
—
11,855
—
11,855
Net income —
—
—
—
—
—
88,131
88,131
2,238
90,369
Balances at May 2, 2020 55,292
$ 553
615
$ (24,231 ) $ 558,738
$ (151,645 ) $ 786,400
$ 1,169,815
$ (1,855 ) $ 1,167,960

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
Other comprehensive loss —
—
—
—
—
(17,522 ) —
(17,522 ) —
(17,522 )
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
Balances at October 31, 2020	56,749	$	568	615	$	(24,231)	$	572,170	$	(225,722)	$	827,353	$	1,150,138	$	(2,279)	$	1,147,859

Restricted stock vestings	5	—		—	—		(1,533)		—		—		(1,533)		—		(1,533)
Share-based compensation	—	—		—	—		10,687		—		—		10,687		—		10,687
Other comprehensive income	—	—		—	—		—		12,193		—		12,193		—		12,193
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(301)		(301)
Proceeds from issuance of common stock, net	9	—		—	—		136		—		—		136		—		136
Acquisition of noncontrolling interests	—	—		—	—		(364)		—		—		(364)		(176)		(540)
Net income	—	—		—	—		—		—		58,960		58,960		1,605		60,565
Balances at January 30, 2021	56,763	$	568	615	$	(24,231)	$	581,096	$	(213,529)	$	886,313	$	1,230,217	$	(1,151)	$	1,229,066


Balances at November 2, 2019	54,121	$	541	615	$	(24,231)	$	532,958	$	(111,691)	$	722,350	$	1,119,927	$	(3,316)	$	1,116,611

Restricted stock vestings	19	1		—	—		(54)		—		—		(53)		—		(53)
Share-based compensation	—	—		—	—		2,704		—		—		2,704		—		2,704
Other comprehensive income	—	—		—	—		—		3,271		—		3,271		—		3,271
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(300)		(300)
Proceeds from issuance of common stock, net	35	—		—	—		292		—		—		292		—		292
Net (loss) income	—	—		—	—		—		—		(30,710)		(30,710)		650		(30,060)
Balances at February 1, 2020	54,175	$	542	615	$	(24,231)	$	535,900	$	(108,420)	$	691,640	$	1,095,431	$	(2,966)	$	1,092,465

See accompanying Notes to Condensed Consolidated Financial Statements

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

For the ~~39-week~~26-week periods ended ~~May 2,~~January 30, 2021 and February 1, 2020 ~~and April 27, 2019~~

~~(In thousands)~~


																																Common Stock								Treasury Stock						Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total United Natural Foods, Inc. Stockholders’ Equity				Noncontrolling Interests				Total Stockholders’ Equity
																																Shares			Amount					Shares			Amount
Balances at August 1, 2020																														Balances at August 1, 2020		55,306			$	553				615			$	(24,231)				$	568,736						$	(237,946)			$	837,633			$	1,144,745			$	(2,487)	$	1,142,258
Cumulative effect of change in accounting principle																														Cumulative effect of change in accounting principle		—			—					—			—			—				—			(9,237)				(9,237)				—				(9,237)
Restricted stock vestings																														Restricted stock vestings		1,443			15					—			—			(10,412)				—			—				(10,397)				—				(10,397)
Share-based compensation																														Share-based compensation		—			—					—			—			22,929				—			—				22,929				—				22,929
Other comprehensive income																														Other comprehensive income		—			—					—			—			—				24,417			—				24,417				—				24,417
Distributions to noncontrolling interests																														Distributions to noncontrolling interests		—			—					—			—			—				—			—				—				(1,460)				(1,460)
Proceeds from issuance of common stock, net																														Proceeds from issuance of common stock, net		14			—					—			—			207				—			—				207				—				207
Acquisition of noncontrolling interests																														Acquisition of noncontrolling interests		—			—					—			—			(364)				—			—				(364)				(176)				(540)
Net income																														Net income		—			—					—			—			—				—			57,917				57,917				2,972				60,889
Balances at January 30, 2021																														Balances at January 30, 2021		56,763			$	568				615			$	(24,231)		$	581,096			$	(213,529)		$	886,313			$	1,230,217			$	(1,151)			$	1,229,066
	Common Stock			Treasury Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total Stockholders’ Equity				Noncontrolling Interests				Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at August 3, 2019	53,501	$	535	615	$	(24,231	)				$		530,801					$				(108,953				)					$	1,115,519	$	1,513,671		$	(2,737	)	$	1,510,934	Balances at August 3, 2019	53,501			535				615			(24,231)				530,801				(108,953)				1,108,890				1,507,042		(2,737)	1,504,305
Cumulative effect of change in accounting principle	—	—		—	—			—				—			(2,613		)		(2,613		)		—				(2,613		)	Cumulative effect of change in accounting principle		—			—					—			—			—				—			(2,613)				(2,613)				—				(2,613)
Restricted stock vestings and stock option exercises	464	5		—	—			(1,020		)		—			—				(1,015		)		—				(1,015		)
Restricted stock vestings																														Restricted stock vestings		443			5					—			—			(877)				—			—				(872)				—				(872)
Share-based compensation	—	—		—	—			15,088				—			—				15,088				—				15,088			Share-based compensation		—			—					—			—			3,951				—			—				3,951				—				3,951
Other comprehensive loss	—	—		—	—			—				(42,692		)	—				(42,692		)		—				(42,692		)

Other comprehensive income																														Other comprehensive income		—			—					—			—			—				533			—				533				—				533

Distributions to noncontrolling interests	—	—		—	—			—				—			—				—				(2,525		)		(2,525		)	Distributions to noncontrolling interests		—			—					—			—			—				—			—				—				(1,398)				(1,398)
Proceeds from issuance of common stock, net	1,327	13		—	—			13,869				—			—				13,882				—				13,882			Proceeds from issuance of common stock, net		231			2					—			—			2,025				—			—				2,027				—				2,027
Net loss	—	—		—	—			—				—			(326,506		)		(326,506		)		3,407				(323,099		)
Balances at May 2, 2020	55,292	$	553	615	$	(24,231	)	$	558,738			$	(151,645	)	$	786,400			$	1,169,815			$	(1,855	)		$	1,167,960


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	434	4		—	—			(3,138		)		—			—				(3,134		)		—				(3,134		)
Share-based compensation	—	—		—	—			18,827				—			—				18,827				—				18,827
Other/share-based compensation	—	—		—	—			403				—			—				403				—				403
Other comprehensive loss	—	—		—	—			—				(29,206		)	—				(29,206		)		—				(29,206		)
Acquisition of noncontrolling interests	—	—		—	—			—				—			—				—				(1,633		)		(1,633		)
Distributions to noncontrolling interests	—	—		—	—			—				—			—				—				(255		)		(255		)
Proceeds from issuance of common stock, net	260	3		—	—			3,018				—			—				3,021				—				3,021
Net loss	—	—		—	—			—				—			(303,927		)		(303,927		)		(116		)		(304,043		)
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
Net (loss) income																														Net (loss) income		—			—					—			—			—				—			(414,637)				(414,637)				1,169				(413,468)
Balances at February 1, 2020																														Balances at February 1, 2020		54,175			$	542				615			$	(24,231)		$	535,900			$	(108,420)		$	691,640			$	1,095,431			$	(2,966)			$	1,092,465

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	39-Week Period Ended							26-Week Period Ended
(In thousands)	May 2, 2020			April 27, 2019			(In thousands)	January 30, 2021		February 1, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss including noncontrolling interests	$	(323,099	)	$	(304,043	)
Income from discontinued operations, net of tax	64,253			47,847
Net loss from continuing operations	(387,352		)	(351,890		)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Net income (loss) including noncontrolling interests							Net income (loss) including noncontrolling interests	$	60,889	$	(413,468)
Income (loss) from discontinued operations, net of tax							Income (loss) from discontinued operations, net of tax	5,099		(12,050)
Net income (loss) from continuing operations							Net income (loss) from continuing operations	55,790		(401,418)
Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities:							Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities:
Depreciation and amortization	214,002			169,780			Depreciation and amortization	143,723		144,360
Share-based compensation	15,088			18,827			Share-based compensation	22,929		3,951
Loss (gain) on disposition of assets	1,784			(1,147		)
Loss on sale of assets							Loss on sale of assets	169		434

Closed property and other restructuring charges	24,976			21,368			Closed property and other restructuring charges	3,496		23,586
Goodwill and asset impairment charges	425,405			332,621			Goodwill and asset impairment charges	0		425,405
Net pension and other postretirement benefit income	(27,419		)	(22,691		)	Net pension and other postretirement benefit income	(34,136)		(14,633)
Deferred income tax benefit	(17,381		)	(65,552		)	Deferred income tax benefit	(841)		(60,260)
LIFO charge	19,256			13,686			LIFO charge	13,343		13,879
Provision for doubtful accounts, net	44,238			12,486
(Recoveries) provision for losses on receivables, net							(Recoveries) provision for losses on receivables, net	(3,860)		45,503
Loss on debt extinguishment	73			2,562			Loss on debt extinguishment	29,494		73
Non-cash interest expense	10,993			6,375
Changes in operating assets and liabilities, net of acquired businesses	(12,525		)	(130,051		)
Non-cash interest expense and other adjustments							Non-cash interest expense and other adjustments	9,562		7,393
Changes in operating assets and liabilities							Changes in operating assets and liabilities	(33,994)		(153,543)

Net cash provided by operating activities of continuing operations	311,138			6,374			Net cash provided by operating activities of continuing operations	205,675		34,730
Net cash provided by operating activities of discontinued operations	141,141			70,816			Net cash provided by operating activities of discontinued operations	1,324		4,352
Net cash provided by operating activities	452,279			77,190			Net cash provided by operating activities	206,999		39,082
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(118,245		)	(136,953		)	Capital expenditures	(91,516)		(91,128)
Purchases of acquired businesses, net of cash acquired	—			(2,282,327		)

Proceeds from dispositions of assets	19,592			169,274			Proceeds from dispositions of assets	39,908		12,330
Proceeds from disposal of investments	9,434			—
Payments for long-term investment	—			(110		)
Payments of company owned life insurance premiums	(1,335		)	—

Other	(1,045		)	299			Other	(97)		(1,472)
Net cash used in investing activities of continuing operations	(91,599		)	(2,249,817		)	Net cash used in investing activities of continuing operations	(51,705)		(80,270)
Net cash provided by investing activities of discontinued operations	18,569			50,065			Net cash provided by investing activities of discontinued operations	1,467		22,585
Net cash used in investing activities	(73,030		)	(2,199,752		)	Net cash used in investing activities	(50,238)		(57,685)
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt	2,050			1,912,178			Proceeds from borrowings of long-term debt	500,000		2,050
Proceeds from borrowings under revolving credit line	3,244,573			3,313,014			Proceeds from borrowings under revolving credit line	2,666,239		2,269,989
Proceeds from issuance of other loans	6,266			22,719

Repayments of borrowings under revolving credit line	(3,508,573		)	(2,306,104		)	Repayments of borrowings under revolving credit line	(2,537,951)		(2,162,821)
Repayments of long-term debt and finance leases	(111,923		)	(736,949		)	Repayments of long-term debt and finance leases	(768,983)		(93,326)

Proceeds from the issuance of common stock and exercise of stock options	5,662			1,589			Proceeds from the issuance of common stock and exercise of stock options	207		2,027
Payment of employee restricted stock tax withholdings	(1,015		)	(3,253		)	Payment of employee restricted stock tax withholdings	(10,397)		(872)

Payments for debt issuance costs	—			(62,587		)	Payments for debt issuance costs	(10,444)		0
Net cash (used in) provided by financing activities of continuing operations	(362,960		)	2,140,607
Net cash used in financing activities of discontinued operations	(2,525		)	(254		)
Distributions to noncontrolling interests							Distributions to noncontrolling interests	(1,460)		(1,398)
Repayments of other loans							Repayments of other loans	(163)		0
Other							Other	(540)		0

Net cash (used in) provided by financing activities	(365,485		)	2,140,353			Net cash (used in) provided by financing activities	(163,492)		15,649
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(290		)	(226		)	EFFECT OF EXCHANGE RATE CHANGES ON CASH	265		19
NET INCREASE IN CASH AND CASH EQUIVALENTS	13,474			17,565
NET DECREASE IN CASH AND CASH EQUIVALENTS							NET DECREASE IN CASH AND CASH EQUIVALENTS	(6,466)		(2,935)
Cash and cash equivalents, at beginning of period	45,263			23,315			Cash and cash equivalents, at beginning of period	47,117		45,263
Cash and cash equivalents at end of period	58,737			40,880
Cash and cash equivalents, at end of period							Cash and cash equivalents, at end of period	40,651		42,328
Less: cash and cash equivalents of discontinued operations	(2,312		)	(3,019		)	Less: cash and cash equivalents of discontinued operations	(155)		(133)
Cash and cash equivalents	$	56,425		$	37,861		Cash and cash equivalents	$	40,496	$	42,195
Supplemental disclosures of cash flow information:							Supplemental disclosures of cash flow information:
Cash paid for interest	$	139,040		$	115,378		Cash paid for interest	$	74,734	$	94,010
Cash (refunds) payments for federal and state income taxes, net	$	(24,236	)	$	71,643
Cash payments (refunds) for federal and state income taxes, net							Cash payments (refunds) for federal and state income taxes, net	42,990		(24,376)
Leased assets obtained in exchange for new operating lease liabilities							Leased assets obtained in exchange for new operating lease liabilities	116,725		121,455
Leased assets obtained in exchange for new finance lease liabilities							Leased assets obtained in exchange for new finance lease liabilities	468		0
Capital expenditures included in accounts payable							Capital expenditures included in accounts payable	$	31,309	$	20,193

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~contents~~Contents

UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Fiscal Year

The Company’s fiscal ~~years end~~year ends on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the ~~third~~second quarter of fiscal ~~2020~~2021 and ~~2019~~2020 relate to the 13-week fiscal quarters ended ~~May 2,~~January 30, 2021 and February 1, 2020, ~~and April 27, 2019,~~ respectively. References to fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date relate to the ~~39-week~~26-week fiscal periods ended ~~May 2,~~January 30, 2021 and February 1, 2020, ~~and April 27, 2019,~~ respectively.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in ~~consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition.~~consolidation. Unless otherwise indicated, references to the Condensed Consolidated Statements of Operations, the Condensed Consolidated Balance Sheets and the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. Refer to Note ~~18—~~16—Discontinued Operations for additional information about the Company’s discontinued operations.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. In the Company’s opinion, these Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. However, the results of operations for interim periods may not be indicative of the results that may be expected for a full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August ~~3, 2019~~1, 2020 (the “Annual Report”). ~~Except as described for lease accounting below, there~~There were no material changes in significant accounting policies from those described in the Company’s Annual Report.

Discontinued Operations

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

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Table of Contents

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to fund outstanding checks when presented to the financial institution for payment. The Company funds all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of ~~May 2, 2020~~January 30, 2021 and August ~~3, 2019,~~1, 2020, the Company had net book overdrafts of ~~$290.3~~$268.6 million and ~~$236.9~~$267.8 million, respectively.

Reclassifications

~~Table~~

Within the Condensed Consolidated Statements of ~~contents~~

Cash Flows certain immaterial amounts have been reclassified to conform with current year presentation. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

Inventories, Net

Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventories consist of finished goods and a substantial portion of its inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected ~~year-end~~year end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each fiscal year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately ~~$43.4~~$56.6 million and ~~$24.1~~$43.3 million at ~~May 2, 2020~~January 30, 2021 and August ~~3, 2019,~~1, 2020, respectively.

~~Leases~~

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

The Company recognizes contractual obligations and receipts on a gross basis, such that the related lease obligation to the landlord is presented separately from the sublease created by the lease assignment to the assignee. As a result, the Company continues to recognize on its Condensed Consolidated Balance Sheets the operating lease assets and liabilities, and finance lease assets and obligations, 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 the lease, and for leases where the Company receives rent-free periods, the Company recognizes expense and income based on a straight-line basis based on the total minimum lease payments to be made or lease receipts expected to be received over the expected lease term, including rent-free periods. The Company is generally obligated for property tax, insurance and maintenance expenses related to leased properties, which often represent variable lease expenses. For contractual obligations on properties where the Company remains the primary obligor upon assignment of the lease and does not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts, the Company continues to recognize rent expense and rent income within Operating expenses.

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

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

~~Table of contents~~

NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) ~~No. 2016-02, Leases~~2016‐13, Financial Instruments—Credit Losses (Topic ~~842), which provides~~326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018‐19, ASU 2019‐04, ASU 2019‐05, and ASU 2019‐11 (collectively, “Topic 326”). Topic 326 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, guarantees and other instruments, entities are required to use a new ~~comprehensive lease accounting guidance~~forward‐looking expected loss model that ~~supersedes~~replaces the previous ~~lease guidance. The objective~~incurred loss model and generally results in earlier recognition of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Criteria for distinguishing 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 expands the disclosure requirements of lease arrangements.credit losses. The Company adopted this standard in the first quarter of fiscal ~~2020~~2021 on August ~~4, 2019,~~2, 2020, the effective and initial application date, using a modified‐retrospective basis as required by the ~~additional transition method under ASU 2018-11, which allows for~~standard by means of a ~~cumulative~~ cumulative‐effect adjustment ~~within retained~~to the opening balance of Retained earnings in the period of adoption. In addition, the Company elected the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The impact of the adoption to the Company’s Condensed Consolidated ~~Balance Sheets includes the recognition~~Statement of operating lease liabilities of $1.1 billion with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases.Stockholders’ Equity. The difference between reserves and allowances recorded under the former incurred loss model and the amount of right-of-use assets and lease liabilities recognized is primarily related to adjustments to prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves. In addition,determined under the adoption of the standard resulted in the derecognition of existing property and equipment for certain properties that did not previously qualify for sale accounting because the Company was determined to be the accounting owner during the construction phase and did not qualify for sale-leaseback accounting upon completion of the construction. At the transition date, the Company was constructing one facility, which was completed in the fourth quarter of fiscal 2020. The Company exercised a purchase option for the facility in the third quarter of fiscal 2020, which resulted in the Company continuing to account for the facility as its accounting owner. For properties where the Company was deemed the accounting owner during construction for which construction has been completed, the difference between the assets and liabilities derecognized,current expected loss model, net of the deferred tax impact, was recorded as an adjustment to ~~retained~~Retained earnings. ~~Lessor accounting guidance remained largely unchanged from previous guidance.~~ Adoption of this standard did not have a material impact to the Company’s Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows. The Company has revised its accounting policies, processes and controls, and systems as applicable to comply with the provisions and disclosure requirements of the standard.Financial Statements.

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

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

Liabilities and 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 the first quarter of fiscal year 2020. The Company adopted this standard in the first quarter of fiscal 2020 with no impact to the Company’s consolidated financial statements as LIBOR is still being used as benchmark interest rate.

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

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825. This ASU clarifies the accounting treatment for the measurement of credit losses under ASC ~~236~~326 and provides further clarification on previously issued updates including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities and ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities, ~~have been~~which were 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. Th~~e Company adopted the relevant portions of this standard~~ in the first quarter of fiscal 2020, with no impact to Accumulated other comprehensive loss or Retained earnings for fiscal 2020, as the Company did not have separately measured ineffectiveness related to its cash flow hedges.

~~In March 2020, the FASB issued~~ The remaining amendments within ASU ~~2020-04,~~ ~~Reference rate reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. This ASU provides optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. The Company2019-04 were adopted ~~this ASU~~ in the ~~third~~first quarter of fiscal ~~2020, which is effective on a prospective basis. The~~2021 with the adoption of Topic 326. Adoption of this ~~ASU~~standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company adopted this guidance in the first quarter of fiscal 2021. The provisions of the new standard do not have any effect on the Company’s interim financial statements but will require additional disclosures in its annual consolidated financial statements. The Company has elected the expedient to assert probability of its hedged interest rate transactions, which is effective March 12, 2020 until superseded by subsequent documentation or December 31, 2022, whichever occurs first.

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 as 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 2022. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, “Topic 326”). Topic 326 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, 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 credit losses. The Company is required to adopt this new guidance in the first quarter of fiscal 2021 on a modified-retrospective basis as required by the standard by means of a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial position and stockholders’ equity as of the effective date. 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions to Topic 740’s general principles. The amendments also improve consistent application and simplifies its application. The Company is required to adopt this guidance in the first quarter of fiscal 2022. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

NOTE 3—REVENUE RECOGNITION

Disaggregation of Revenues

The Company records revenue to ~~four~~5 customer channels within Net sales, which are described below:

~~Supermarkets,~~•Chains, which consists of customer accounts that typically have more than 10 operating stores and exclude stores included within the Supernatural and Other channels defined below;

•Independent retailers, which include smaller size accounts ~~that also carry conventional products,~~ and include ~~chain accounts, supermarket independents,~~single store and ~~gourmet and ethnic specialty stores.~~multiple store locations, but are not classified within Chains above or Other discussed below;

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

~~Independents, which include single store and chain accounts (excluding supernatural, as defined above)~~•Retail, which ~~carry primarily natural products~~reflects our Retail segment, including the Cub Foods business and ~~buying clubs of consumer groups joined to buy products.~~the remaining Shoppers locations, excluding Shoppers locations that are held for sale within discontinued operations; and

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

~~Table of contents~~

The following tables detail the Company’s ~~revenue recognition~~net sales for the periods presented by customer channel for each of its segments. The Company does not record its revenues within its ~~wholesale~~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) May 2, 2020
Customer Channel Wholesale Other Eliminations Consolidated
Supermarkets $ 4,267
$ —
$ —
$ 4,267
Supernatural 1,279
—
—
1,279
Independents 684
—
—
684
Other 441
56
(59 ) 438
Total $ 6,671
$ 56
$ (59 ) $ 6,668

Net Sales for the 13-Week Period Ended
(in millions)
April 27, 2019⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supermarkets $ 3,701
$ —
$ —
$ 3,701
Supernatural 1,102
—
—
1,102
Independents 707
—
—
707
Other 435
62
(44 ) 453
Total $ 5,945
$ 62
$ (44 ) $ 5,963

Net Sales for the 39-Week Period Ended
(in millions)
May 2, 2020⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supermarkets $ 11,915
$ —
$ —
$ 11,915
Supernatural 3,600
—
—
3,600
Independents 1,983
—
—
1,983
Other 1,324
158
(155 ) 1,327
Total $ 18,822
$ 158
$ (155 ) $ 18,825

Net Sales for the 39-Week Period Ended
(in millions)
April 27, 2019⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supermarkets $ 8,559
$ —
$ —
$ 8,559
Supernatural 3,229
—
—
3,229
Independents 2,041
—
—
2,041
Other 1,104
167
(120 ) 1,151
Total $ 14,933
$ 167
$ (120 ) $ 14,980

Table of Contents

~~(1)~~

During the first quarter of fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect reclassification of customer types resulting from management’s determination that a customer serviced by both legacy Supervalu and UNFI should be classified as a Supermarket customer given that customer’s operations. During the second quarter of 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 channels above. There was no impact to the Condensed Consolidated Statements of Operations as a result of the reclassification of customer types. As a result of these adjustments, net sales to the Company’s Supermarkets channel for the third quarter of fiscal 2019 and for fiscal 2019 year-to-date increased approximately $26 million and $77 million, respectively, compared to the previously reported amounts, while net sales to the Other channel for the third quarter of fiscal 2019 and for fiscal 2019 year-to-date increased $96 million and $213 million, respectively, compared to previously reported amounts. Net sales to the Company’s Independents channel for the third quarter of fiscal 2019 and fiscal 2019 year-to-date decreased $122 million and $290 million, respectively, compared to the previously reported amounts.


	Net Sales for the 13-Week Period Ended
(in millions)	January 30, 2021
Customer Channel	Wholesale		Retail		Other		Eliminations(2)		Consolidated
Chains	$	3,097	$	0	$	0	$	—	$	3,097
Independent retailers	1,701		0		0		—		1,701
Supernatural	1,298		0		0		—		1,298
Retail	0		621		0		—		621
Other	513		0		55		—		568
Eliminations	—		—		—		(397)		(397)
Total	$	6,609	$	621	$	55	$	(397)	$	6,888

	Net Sales for the 13-Week Period Ended
(in millions)	February 1, 2020(1)
Customer Channel	Wholesale		Retail		Other		Eliminations(2)		Consolidated
Chains	$	2,909	$	0	$	0	$	—	$	2,909
Independent retailers	1,561		0		0		—		1,561
Supernatural	1,211		0		0		—		1,211
Retail	0		539		0		—		539
Other	525		0		41		—		566
Eliminations	—		—		—		(355)		(355)
Total	$	6,206	$	539	$	41	$	(355)	$	6,431

	Net Sales for the 26-Week Period Ended
(in millions)	January 30, 2021
Customer Channel	Wholesale		Retail		Other		Eliminations(2)		Consolidated
Chains	$	6,117	$	0	$	0	$	—	$	6,117
Independent retailers	3,373		0		0		—		3,373
Supernatural	2,512		0		0		—		2,512
Retail	0		1,216		0		—		1,216
Other	1,038		0		111		—		1,149
Eliminations	—		—		—		(806)		(806)
Total	$	13,040	$	1,216	$	111	$	(806)	$	13,561

	Net Sales for the 26-Week Period Ended
(in millions)	February 1, 2020(1)
Customer Channel	Wholesale		Retail		Other		Eliminations(2)		Consolidated
Chains	$	5,784	$	0	$	0	$	—	$	5,784
Independent retailers	3,118		0		0		—		3,118
Supernatural	2,322		0		0		—		2,322
Retail	0		1,054		0		—		1,054
Other	1,050		0		106		—		1,156
Eliminations	—		—		—		(706)		(706)
Total	$	12,274	$	1,054	$	106	$	(706)	$	12,728

Table of ~~contents~~Contents

(1)In the first quarter of fiscal 2021, the presentation of net sales by customer channel was recast to present the Chains and Other channel exclusive of the intercompany eliminations and present total eliminations separately. There was no impact to the Condensed Consolidated Statements of Operations. The Company believes this modified basis better reflects its channel presentation, as it further aligns with segment presentation and how sales channel information would appear following the potential disposition of Retail, assuming all banners retain a supply agreement. In addition, during the fourth quarter of fiscal 2020, the presentation of net sales by customer channel was recast to be presented on a basis consistent with customer size. International customers other than Canada, and alternative format sales continue to be classified within Other. The main effect of the change was to re-categorize the former Supermarkets and Independents channels, previously classified by the majority of product carried by those customers between conventional and natural products, respectively, to classify those stores by the number of customer locations we supply. There was no impact to the Condensed Consolidated Statements of Operations as a result of the reclassification of customer types. The Company believes this modified basis better reflects the nature and economic risks of cash flows from customers.

(2)Eliminations primarily includes the net sales elimination of Wholesale’s sales to the Retail segment and the elimination of sales from segments included within Other to Wholesale.

The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada, asand international distribution occurs through freight-forwarders. The Company does not have any performance obligations ~~related to~~on 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 as of the end of the reporting period with a supply agreement that it anticipates the sale of the retail banner to include upon the disposal of the business. The Company recorded $273.2 million and $227.1 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the third quarters of fiscal 2020 and 2019, respectively, and $756.9 million and $505.5 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 net sales were recorded within continuing operations for ~~purchases by~~ retail ~~banners~~stores within discontinued operations that the Company disposed of and expects to dispose of without a supply ~~agreement, which were~~agreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to ~~$99.3~~$13.4 million and ~~$134.9~~$36.1 million in the ~~third~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$320.0~~$27.8 million and ~~$308.0~~$92.1 million in fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date, respectively.

~~Contract~~Accounts and Notes Receivable Balances

Accounts and notes receivable are as follows:


(in thousands)	January 30, 2021		August 1, 2020
Customer accounts receivable	$	1,176,126	$	1,156,694
Allowance for uncollectible receivables	(56,356)		(55,928)
Other receivables, net	16,365		19,433
Accounts receivable, net	$	1,136,135	$	1,120,199

Notes receivable, net, included within Prepaid expenses and other current assets	$	13,023	$	49,268
Long-term notes receivable, net, included within Other assets	$	19,101	$	25,800

(in thousands) May 2, 2020 August 3, 2019
Customer accounts receivable $ 1,264,869
$ 1,063,167
Allowance for uncollectible receivables (52,144 ) (20,725 )
Other receivables, net 19,887
23,257
Accounts receivable, net $ 1,232,612
$ 1,065,699

Customer notes receivable, net, included within Prepaid expenses and other current assets $ 12,122
$ 11,912
Long-term notes receivable, net, included within Other assets $ 25,472
$ 34,408

NOTE 4—~~ACQUISITIONS~~

~~Supervalu Acquisition~~

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

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

~~Table of contents~~

~~The following table summarizes the final consideration, fair value of assets acquired and liabilities assumed, and the resulting goodwill.~~

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

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


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

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

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

~~Table of contents~~

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

Final Acquisition Date Fair Values
(in thousands) Estimated Useful Life Continuing Operations Discontinued Operations
Customer relationship assets 10-17 years $ 810,000
$ —
Favorable operating leases 1-19 years 21,629
—
Leases in place 1-8 years 10,474
—
Tradenames 2-9 years 66,000
17,000
Pharmacy prescription files 5-7 years —
45,900
Non-compete agreement 2 years 10,000
—
Unfavorable operating leases 1-12 years (21,754 ) —
Total $ 896,349
$ 62,900

~~The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, which are quantified in Note 5—Restructuring, Acquisition and Integration Related Expenses.~~

The accompanying Condensed Consolidated Statements of Operations include the results of operations of Supervalu from October 22, 2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note 18—Discontinued Operations.

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

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

April 27, 2019⁽²⁾

April 28, 2018⁽³⁾
Net sales $ 6,067,869
$ 18,096,796
$ 18,125,148
Net income (loss) from continuing operations $ 73,853
$ (378,422 ) $ 42,855
Basic net income (loss) from continuing operations per share $ 1.46
$ (7.46 ) $ 0.85
Diluted net income (loss) from continuing operations per share $ 1.46
$ (7.46 ) $ 0.84


~~(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)~~	Includes 39 weeks of pro forma Supervalu results for the period ended April 28, 2018 and 19 weeks of pro forma Associated Grocers of Florida, Inc. results, which was acquired by Supervalu on December 8, 2017.

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

~~NOTE 5—~~RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES

Restructuring, acquisition and integration related expenses incurred were as follows:


	13-Week Period Ended				26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
2019 SUPERVALU INC. restructuring expenses	$	0	$	664	$	0	$	2,501


Restructuring and integration costs	14,682		15,411		29,442		24,705
Closed property charges and costs	3,101		20,447		4,769		23,988

Total	$	17,783	$	36,522	$	34,211	$	51,194

13-Week Period Ended 39-Week Period Ended
(in thousands) May 2, 2020 April 27, 2019 May 2, 2020 April 27, 2019
2019 SUPERVALU INC. restructuring expenses $ 1,492
$ 12,257
$ 3,993
$ 66,423
Acquisition and integration costs 552
6,084
25,257
47,500
Closed property charges and costs 8,405
1,097
25,135
20,644
Total $ 10,449
$ 19,438
$ 54,385
$ 134,567

~~Table of contents~~

~~Restructuring Programs~~

The following is a summary of the current period activity within restructuring reserves by program included in the Condensed Consolidated Balance Sheets, primarily within Accrued compensation and benefits for severance and other employee separation costs and related tax payments.

(in thousands) 2019 SUPERVALU INC. 2018 Earth Origins Market 2017 Cost Saving and Efficiency Initiatives Total
Balances at August 3, 2019 $ 11,857
$ 383
$ 701
$ 12,941
Restructuring program charge 3,993
—
—
3,993
Cash payments (13,432 ) (383 ) (701 ) (14,516 )
Balances at May 2, 2020 $ 2,418
$ —
$ —
$ 2,418

Cumulative program charges incurred from inception to date $ 78,407
$ 2,219
$ 6,864
$ 87,490

~~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 are expected to continue through fiscal 2020 to: (i) review its organizational structure and the strategic needs of the business going forward to identify and place talent with the appropriate skills, experience and qualifications to meet these needs; and (ii) dispose of and exit the Supervalu legacy retail operations, as efficiently and economically as possible in order to focus on the Company’s core wholesale distribution business. Actions associated with retail divestitures and adjustments to the Company’s core cost-structure for its wholesale food distribution business are expected to result in headcount reductions and other costs and charges.

NOTE 6—5—GOODWILL AND INTANGIBLE ASSETS, NET

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 ~~five~~5 goodwill reporting ~~units, two~~units: 2 of which represent separate operating segments and are aggregated within the Wholesale reportable segment (U.S. Wholesale and Canada Wholesale)~~, two~~; 1 separate Retail operating and reportable segment and 2 of which are separate operating segments (Woodstock Farms and Blue Marble Brands) that do not meet the criteria for being disclosed as separate reportable ~~segments, and a single retail reporting unit, which is included within discontinued operations.~~segments. The Canada Wholesale operating segment, which is aggregated with U.S. Wholesale, would not meet the quantitative thresholds for separate reporting if it did not meet the aggregation criteria. The composition of goodwill reporting units is evaluated for events or changes in circumstances indicating a goodwill reporting unit has changed. Relative fair value allocations are performed when components of an aggregated goodwill reporting unit become separate reporting units or move from one reporting unit to another.

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

~~Supervalu Acquisition Goodwill~~

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

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

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

Goodwill and Intangible Assets Changes

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


(in thousands)	Wholesale			Other			Total
Goodwill as of August 1, 2020	$	9,747	(1)	$	9,860	(2)	$	19,607



Change in foreign exchange rates	477			0			477
Goodwill as of January 30, 2021	$	10,224	(1)	$	9,860	(2)	$	20,084

(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 (527 ) —
(527 )
Goodwill as of May 2, 2020 $ 9,288
⁽¹⁾
$ 9,860
⁽²⁾
$ 19,148
(1)Amounts are net of accumulated goodwill impairment charges of $716.5 million as of August 1, 2020 and January 30, 2021.

(2)Amounts are net of accumulated goodwill impairment charges of $9.6 million as of August 1, 2020 and January 30, 2021.


~~(1)~~	~~Amounts are net of accumulated goodwill impairment charges of $292.8 million and $716.5 million as of August 3, 2019 and May 2, 2020, respectively.~~


~~(2)~~	~~Amounts are net of accumulated goodwill impairment charges of $9.3 million and $9.6 million as of August 3, 2019 and May 2, 2020.~~

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Identifiable intangible assets, net consisted of the following:

May 2, 2020 August 3, 2019
(in thousands)
Gross Carrying
Amount

Accumulated
Amortization
Net
Gross Carrying
Amount

Accumulated
Amortization
Net
Amortizing intangible assets:
Customer relationships $ 1,005,776
$ 156,471
$ 849,305
$ 1,007,089
$ 111,940
$ 895,149
Non-compete agreements 12,900
10,191
2,709
12,900
6,237
6,663
Operating lease intangibles 10,482
1,771
8,711
32,103
2,209
29,894
Trademarks and tradenames 67,700
27,521
40,179
67,700
14,161
53,539
Total amortizing intangible assets 1,096,858
195,954
900,904
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 $ 1,152,671
$ 195,954
$ 956,717
$ 1,175,605
$ 134,547
$ 1,041,058


	January 30, 2021						August 1, 2020
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortizing intangible assets:
Customer relationships	$	1,007,695	$	203,748	$	803,947	$	1,007,118	$	172,832	$	834,286
Pharmacy prescription files	32,900		10,597		22,303		32,900		7,964		24,936
Non-compete agreements	1,200		1,145		55		12,900		11,500		1,400
Operating lease intangibles	8,193		4,818		3,375		8,193		4,020		4,173
Trademarks and tradenames	83,700		41,140		42,560		83,700		34,708		48,992
Total amortizing intangible assets	1,133,688		261,448		872,240		1,144,811		231,024		913,787
Indefinite lived intangible assets:
Trademarks and tradenames	55,813		0		55,813		55,813		0		55,813
Intangible assets, net	$	1,189,501	$	261,448	$	928,053	$	1,200,624	$	231,024	$	969,600

Amortization expense was ~~$21.9~~$18.6 million and ~~$19.5~~$21.5 million for the ~~third~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$65.5~~$41.6 million and ~~$44.1~~$43.6 million for fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date, respectively. The estimated future amortization expense

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for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of ~~May 2, 2020~~January 30, 2021 is shown below:


Fiscal Year:	(In thousands)
Remaining fiscal 2021	$	36,650
2022	72,170
2023	71,950
2024	72,404
2025	70,308
2026 and thereafter	548,758
	$	872,240

Fiscal Year: (In thousands)
Remaining fiscal 2020 $ 21,391
2021 71,431
2022 65,895
2023 65,844
2024 66,251
2025 and thereafter 610,092
$ 900,904

NOTE 7—6—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

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


	Condensed Consolidated Balance Sheets Location	Fair Value at January 30, 2021
(in thousands)		Level 1		Level 2		Level 3
Assets:


Foreign currency derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	0	$	63	$	0
Fuel derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	0	$	680	$	0
Mutual funds	Other long-term assets	$	1,592	$	0	$	0

Liabilities:
Foreign currency derivatives not designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	3	$	0
Fuel derivatives designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	1	$	0
Foreign currency derivatives designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	774	$	0
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	34,779	$	0
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	0	$	66,374	$	0

Fair Value at May 2, 2020
(In thousands) Balance Sheet Location Level 1 Level 2 Level 3
Assets:
Foreign exchange derivatives not designated as hedging instruments Prepaid expenses and other current assets $ —
$ 756
$ —
Mutual funds Other assets $ 1,715
$ —
$ —

Liabilities:
Fuel derivatives not designated as hedging instruments Accrued expenses and other current liabilities $ —
$ 2,424
$ —
Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ —
$ 45,684
$ —
Interest rate swaps designated as hedging instruments Other long-term liabilities $ —
$ 94,745
$ —

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

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

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	Condensed Consolidated Balance Sheets Location	Fair Value at August 1, 2020
(in thousands)		Level 1		Level 2		Level 3
Assets:
Foreign currency derivatives not designated as hedging instruments	Prepaid expenses and other current assets	$	0	$	26	$	0
Fuel derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	0	$	36	$	0
Foreign currency derivatives designated as hedging instruments	Prepaid expenses and other current assets	$	0	$	94	$	0
Fuel derivatives designated as hedging instruments	Other long-term assets	$	0	$	23	$	0
Mutual funds	Other long-term assets	$	1,678	$	0	$	0

Liabilities:
Fuel derivatives designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	197	$	0
Foreign currency derivatives designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	357	$	0
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	0	$	46,743	$	0
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	0	$	91,994	$	0

Interest Rate Swap Contracts

The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of ~~May 2, 2020,~~January 30, 2021, a 100 basis point increase in forward LIBOR interest rates would decrease the fair value of the interest rate swap liabilities by approximately $40.6 million; a 100 basis point decrease in forward LIBOR interest rates would increase the fair value of the interest rate ~~swaps~~swap liabilities by approximately ~~$65.5 million; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately $63.5~~$42.2 million. Refer to Note 8—7—Derivatives for further information on interest rate swap contracts.

Mutual Funds

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

Fuel Supply Agreements and Derivatives

To reduce diesel price risk, the Company has entered into derivative financial instruments and/or forward purchase commitments for a portion of ~~its~~our projected monthly diesel fuel requirements at fixed prices. The fair values of fuel derivative agreements are measured using Level 2 inputs. ~~As of August 3, 2019, the Company had no outstanding fuel supply agreements and derivative agreements.~~

Foreign Exchange Derivatives

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

Table of ~~August 3, 2019, the Company’s outstanding foreign currency forward contracts were immaterial.~~Contents

Fair Value Estimates

For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. The fair value of notes receivable is estimated by using a discounted cash flow approach prior to consideration for uncollectible amounts and is calculated by applying a market rate for similar instruments using Level 3 inputs. The fair value of debt is estimated based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs. In the table below, the carrying value of the Company’s long-term debt is net of original issue discounts and debt issuance costs.

~~Table of contents~~


	January 30, 2021				August 1, 2020
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable, including current portion	$	41,264	$	40,655	$	77,598	$	78,877
Long-term debt, including current portion	$	2,387,241	$	2,474,902	$	2,497,626	$	2,535,851

May 2, 2020 August 3, 2019
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
Notes receivable, including current portion $ 37,594
$ 39,701
$ 46,320
$ 45,232
Long-term debt, including current portion $ 2,560,876
$ 2,473,690
$ 2,906,483
$ 2,730,271

NOTE 7—DERIVATIVES

~~NOTE 8—DERIVATIVES~~

Management of Interest Rate Risk

The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges at ~~May 2, 2020.~~January 30, 2021. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note 7—6—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts.

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Details of ~~outstanding~~active swap contracts as of ~~May 2, 2020,~~January 30, 2021, which are all pay fixed and receive floating, are as follows:


Effective Date	Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate(2)	Floating Rate Reset Terms
March 21, 2019	April 15, 2022	$	100.0	2.3645	%	One-Month LIBOR	Monthly
April 2, 2019	June 30, 2022	100.0		2.2170	%	One-Month LIBOR	Monthly
June 28, 2019	June 30, 2022	50.0		2.1840	%	One-Month LIBOR	Monthly
August 3, 2015(1)	August 15, 2022	35.0		1.7950	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2022	100.0		2.8915	%	One-Month LIBOR	Monthly
January 11, 2019	October 31, 2022	50.0		2.4678	%	One-Month LIBOR	Monthly
January 23, 2019	October 31, 2022	50.0		2.5255	%	One-Month LIBOR	Monthly
November 16, 2018	March 31, 2023	150.0		2.8950	%	One-Month LIBOR	Monthly
January 23, 2019	March 31, 2023	50.0		2.5292	%	One-Month LIBOR	Monthly
November 30, 2018	September 30, 2023	50.0		2.8315	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2023	100.0		2.9210	%	One-Month LIBOR	Monthly
January 11, 2019	March 28, 2024	100.0		2.4770	%	One-Month LIBOR	Monthly
January 23, 2019	March 28, 2024	100.0		2.5420	%	One-Month LIBOR	Monthly
November 30, 2018	October 31, 2024	100.0		2.8480	%	One-Month LIBOR	Monthly
January 11, 2019	October 31, 2024	100.0		2.5010	%	One-Month LIBOR	Monthly
January 24, 2019	October 31, 2024	50.0		2.5210	%	One-Month LIBOR	Monthly
October 26, 2018	October 22, 2025	50.0		2.9550	%	One-Month LIBOR	Monthly
November 16, 2018	October 22, 2025	50.0		2.9590	%	One-Month LIBOR	Monthly
November 16, 2018	October 22, 2025	50.0		2.9580	%	One-Month LIBOR	Monthly
January 24, 2019	October 22, 2025	50.0		2.5558	%	One-Month LIBOR	Monthly
		$	1,485.0

Effective Date Swap Maturity Outstanding Notional Value (in millions) Pay Fixed Rate
Receive Floating Rate⁽⁷⁾
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 55.5
1.7950 % One-Month LIBOR Monthly
August 3, 2015⁽²⁾
August 15, 2022 37.0
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
October 30, 2020⁽³⁾
October 31, 2022 —
0.4540 % 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
April 29, 2021⁽⁴⁾
April 28, 2023 —
0.5680 % One-Month LIBOR Monthly
June 30, 2021⁽⁵⁾
June 30, 3023 —
0.6070 % One-Month LIBOR Monthly
November 30, 2018 September 30, 2023 50.0
2.8315 % One-Month LIBOR Monthly
October 29, 2021⁽⁶⁾
October 20, 2023 —
0.6810 % 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
$ 2,092.5

(1)The swap contract has an amortizing notional principal amount which is reduced by $1.0 million on a quarterly basis.

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~~(1)~~	On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $140.0 million to $84.0 million. The swap contract has an amortizing notional principal amount which is reduced by $1.5 million on a quarterly basis.


~~(2)~~	~~The swap contract has an amortizing notional principal amount which is reduced by $1.0 million on a quarterly basis.~~


~~(3)~~	~~This forward starting swap contract has a notional principal amount of $100.0 million.~~


~~(4)~~	~~This forward starting swap contract has a notional principal amount of~~ ~~$100.0 million~~.


~~(5)~~	~~This forward starting swap contract has a notional principal amount of~~ ~~$150.0 million~~.


~~(6)~~	~~This forward starting swap contract has a notional principal amount of~~ ~~$100.0 million~~.


~~(7)~~	~~For these swap contracts that are indexed to LIBOR, the Company is monitoring and evaluating risks related to the expected future cessation of LIBOR.~~

~~Table~~(2)For these swap contracts that are indexed to LIBOR, the Company is monitoring and evaluating risks related to the expected future cessation of ~~contents~~LIBOR.

In the first quarter of fiscal 2021, in conjunction with the $500.0 million fixed rate senior unsecured notes offering described below in Note 8—Long-Term Debt, the Company paid $11.3 million to terminate or novate certain outstanding interest rate swaps with a notional amount of $504.0 million and certain forward starting interest rate swaps with a notional amount of $450.0 million. The payments equaled the fair value of the interest rate swaps at the time of their termination or novation. NaN gain or loss was recorded as a result of the swap termination and novations. Since the hedged interest payments remain probable of occurring, the unrecognized gains and losses resulting from the early termination and novation of these interest rate swap agreements will be amortized out of Accumulated other comprehensive income and into to Interest expense, net over the remaining period of the original terminated or novated interest rate swap agreements. If any of the hedged interest payments were not probable of occurring, then a charge representing an accelerated amortization of the unrecognized gains and losses would be recorded. Cash payments resulting from the termination and novation of interest rate swaps are classified as operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.

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

The location and amount of gains or losses recognized in the Condensed Consolidated Statements of Operations for interest rate swap contracts for each of the periods, presented on a pretax basis, are as follows:


	13-Week Period Ended				26-Week Period Ended
	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
(In thousands)	Interest expense, net				Interest expense, net
Total amounts of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	50,944	$	48,836	$	120,077	$	98,545
Loss on cash flow hedging relationships:
Loss reclassified from comprehensive income into earnings	$	(9,303)	$	(4,251)	$	(20,563)	$	(6,621)
Loss on interest rate swap contracts not designated as hedging instruments:
Loss recognized in earnings	$	(2,195)	$	0	$	(2,971)	$	0

13-Week Period Ended 39-Week Period Ended
May 2, 2020 April 27, 2019 May 2, 2020 April 27, 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 $ 47,108
$ 54,917
$ 145,247
$ 121,149
(Loss) or gain on cash flow hedging relationships:
(Loss) or gain reclassified from comprehensive income into income $ (6,191 ) $ 15
$ (12,812 ) $ 458
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:
Gain or (loss) recognized as interest expense $ —
$ 51
$ —
$ (15 )

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NOTE 9—8—LONG-TERM DEBT

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


(in thousands)	Average Interest Rate at January 30, 2021	Fiscal Maturity Year	January 30, 2021		August 1, 2020
Term Loan Facility	4.37%	2026	$	1,015,000	$	1,773,000
ABL Credit Facility	1.52%	2024	885,000		756,712
Senior Notes	6.75%	2029	500,000		0
Other secured loans	5.18%	2024-2025	42,966		49,268
Debt issuance costs, net			(37,128)		(45,846)
Original issue discount on debt			(18,597)		(35,508)
Long-term debt, including current portion			2,387,241		2,497,626
Less: current portion of long-term debt			(12,991)		(70,632)
Long-term debt			$	2,374,250	$	2,426,994

(in thousands)
Average Interest Rate at
May 2, 2020
Calendar Maturity Year May 2,
2020 August 3,
2019
Term Loan Facility 4.65% 2025 $ 1,777,500
$ 1,864,900
ABL Credit Facility 1.96% 2023 816,000
1,080,000
Other secured loans 5.20% 2023-2024 52,358
57,649
Debt issuance costs, net (48,030 ) (54,891 )
Original issue discount on debt (36,952 ) (41,175 )
Long-term debt, including current portion 2,560,876
2,906,483
Less: current portion of long-term debt (19,219 ) (87,433 )
Long-term debt $ 2,541,657
$ 2,819,050

Refinancing Activities

Subsequent to the end of the second quarter of fiscal 2021, on February 11, 2021, the Company entered into an amendment agreement (the “First Term Loan Amendment”) amending the Term Loan Agreement (as defined below). The amendment provides for, among other things, (i) the reduction of the applicable margin for LIBOR loans from 4.25% to 3.50% and the applicable margin for base rate loans from 3.25% to 2.50%, (ii) the appointment of a replacement administrative and collateral agent, and (iii) other administrative changes. The amendment did not change the aggregate amount or maturity date of the Term Loan Facility.

During the second quarter of fiscal 2021, the Company made a voluntary prepayment of $150.0 million on the Term Loan Facility (as defined below) funded with incremental borrowings under the ABL Credit Facility (as defined below) that reduces its interest costs. This prepayment will count towards any requirement from Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, which would be due in fiscal 2022. In connection with this prepayment, the Company incurred a loss on debt extinguishment of $5.7 million related to unamortized debt issuance costs and a loss on unamortized original issue discount, which were recorded within Interest expense, net in the Condensed Consolidated Statements of Operations in the second quarter of fiscal 2021.

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

Senior Notes

On October 22, 2020, the Company issued $500.0 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”). The Senior Notes are guaranteed by each of the Company’s subsidiaries that are borrowers under or that guarantee the ABL Credit Facility or the Term Loan Facility. The net proceeds from the offering of the Senior Notes, together with borrowings under the ABL Credit Facility, were used to repay $500.0 million of the amounts outstanding under the Term B Tranche of the Term Loan Facility and for the payment of all financing costs related to the offering of the Senior Notes. Financing costs of $8.9 million were paid and capitalized in fiscal 2021 year-to-date.

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

ABL Credit Facility

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

~~Table~~During the first quarter of ~~contents~~

fiscal 2021, on August 14, 2020, the Company entered into the Third Amendment to Loan Agreement, which provides for, among other things, (i) the addition of certain perishable inventory to the calculation of the Borrowing Base (as defined in the ABL Loan Agreement), (ii) the addition of income attributable to the business associated with the Cub Foods banner and the Shoppers banner accounted for within discontinued operations (if any) to the definition of Consolidated Net Income (as defined in the ABL Loan Agreement), (iii) an increase of the sublimit of availability for letters of credit to $300 million which includes an increased further sublimit for the Canadian Borrower of $25 million, and (iv) other administrative changes.

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

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

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

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

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As of ~~May 2, 2020,~~January 30, 2021, the U.S. Borrowers’ Borrowing Base, net of ~~$239.0~~$208.0 million of reserves, was ~~$2,027.2~~$2,216.1 million, which is ~~below~~above the $2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. As of ~~May 2, 2020,~~January 30, 2021, the Canadian Borrower’s Borrowing Base, net of ~~$4.0~~$4.2 million of reserves, was ~~$37.8~~$48.6 million, which is below the $50.0 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in total availability of ~~$2,065.0~~$2,098.6 million for ABL Loans and letters of credit under the ABL Credit Facility. As of ~~May 2, 2020,~~January 30, 2021, the U.S. Borrowers had ~~$816.0~~$885.0 million of ABL Loans outstanding ~~which are presented net of debt issuance costs of $10.6 million and are included in Long-term debt in the Condensed Consolidated Balance Sheets,~~ and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit ~~Facility.~~Facility, which are presented net of debt issuance costs of $9.7 million and are included in Long-term debt in the Condensed Consolidated Balance Sheets. As of ~~May 2, 2020,~~January 30, 2021, the U.S. Borrowers had ~~$95.1~~$95.8 million in letters of credit and the Canadian Borrower had no0 letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was ~~$1,153.9~~$1,117.8 million as of ~~May 2, 2020.~~January 30, 2021.

The ABL Loans of the U.S. Borrowers under the ABL Credit Facility bear interest at rates that, at the U.S. Borrowers’ option, can be either: (i) a base rate and an applicable margin or (ii) a LIBOR rate and an applicable margin. As of ~~May 2, 2020,~~January 30, 2021, the applicable margin for base rate loans was 0.25%, and the applicable margin for LIBOR loans was 1.25%. The ABL Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available. The ABL Loans of the Canadian Borrower under the ABL Credit Facility bear interest at rates that, at the Canadian Borrower’s option, can be either: (i) prime rate and an applicable margin or (ii) a Canadian dollar bankers’ acceptance equivalent rate and an applicable margin. As of ~~May 2, 2020,~~January 30, 2021, the applicable margin for prime rate loans was 0.25%, and the applicable margin for Canadian dollar bankers’ acceptance equivalent rate loans was 1.25%. Commencing on the first day of the calendar month following the ABL Administrative Agent’s receipt of the Company’s aggregate availability calculation for the prior fiscal quarter, the applicable margins for borrowings by the U.S. Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility. Unutilized commitments under the ABL Credit Facility are subject to a per annum fee of (i) 0.375% if the average daily total outstandings were less than 25% of the aggregate commitments during the preceding fiscal quarter or (ii) 0.25% if such average daily total outstandings were 25% or more of the aggregate commitments during the preceding fiscal quarter. As of ~~May 2, 2020,~~January 30, 2021, the unutilized commitment fee was 0.25% per annum. The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit, as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.

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

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


Assets securing the ABL Credit Facility (in thousands)(1):	January 30, 2021		August 1, 2020
Certain inventory assets included in Inventories, net and Current assets of discontinued operations	$	2,261,209	$	2,270,892
Certain receivables included in Accounts receivable, net and Current assets of discontinued operations	$	1,104,388	$	1,077,682

Assets securing the ABL Credit Facility (in thousands)⁽¹⁾:
May 2, 2020
Certain inventory assets included in Inventories and Current assets of discontinued operations $ 2,099,976
Certain receivables included in Accounts receivables, net and Current assets of discontinued operations $ 1,197,501
(1)The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Intangibles, net in the Condensed Consolidated Balance Sheets as of January 30, 2021 and August 1, 2020.


~~(1)~~	~~The~~Unused credit and fees under the ABL Credit Facility ~~is also secured by all~~(in thousands, except percentages):	January 30, 2021
Outstanding letters of ~~the Company’s pharmacy scripts, which are included in Long-term assets~~credit	$	95,789
Letter of ~~discontinued operations in the Condensed Consolidated Balance Sheets as of May 2, 2020.~~credit fees	1.375		%
Unused credit	$	1,117,774
Unused facility fees	0.25		%

Unused credit and fees under the ABL Credit Facility (in thousands, except percentages): May 2, 2020
Outstanding letters of credit $ 95,057
Letter of credit fees 1.375 %
Unused credit $ 1,153,861
Unused facility fees 0.25 %

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

Term Loan Facility

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

The loans under the Term B Tranche will be payable in full on October 22, 2025; provided that, if on or prior to December 31, 2024, that certain Agreement for Distribution of Products, dated as of October 30, 2015, by and between Whole Foods Market Distribution, Inc., a Delaware corporation, and the Company (the “Whole Foods Supply Agreement”) has not been extended until at least October 23, 2025 on terms not materially less favorable, taken as a whole, to the Company and its subsidiaries than those in effect on the Closing Date, then the loans under the Term B Tranche will be payable in full on December 31, 2024. On March 3, 2021, we entered into an amendment to the Whole Foods Supply Agreement, which extended the term of the agreement from September 28, 2025 to September 27, 2027, and which satisfies the extension requirement in the Term Loan Agreement.

In fiscal 2021 year-to-date, ~~2020,~~ the Company made ~~mandatory~~ prepayments ~~and voluntary prepayments of $15.3 million and $5.8 million, respectively,~~ on the ~~364-day~~Term B 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~~$758.0 million ~~which was recorded within Interest expense, net in the Condensed Consolidated Statements of Operations for the first quarter of fiscal 2020.~~as described above.

The loans under the 364-day Tranche 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.

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

The Term Borrowers’ obligations under the Term Loan Facility are guaranteed by most of the Company’s wholly-owned domestic subsidiaries who are not also Term Borrowers (collectively, the “Term Guarantors”), subject to customary exceptions and limitations, including an exception for immaterial subsidiaries designated by the Company from time to time. The Term Borrowers’ obligations under the Term Loan Facility and the Term Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ assets other than the ABL Assets and (ii) a second-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ ABL Assets, in each case, subject to customary exceptions and limitations, including an exception for owned real property with net book values of less than $10.0 million. As of ~~May 2, 2020,~~January 30, 2021, there was ~~$649.9~~$587.1 million of owned real property pledged as collateral that was included in Property and equipment, net and Prepaid expenses and Other current assets in the Condensed Consolidated Balance Sheets.

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The loans under the Term Loan Facility may be voluntarily prepaid, subject to certain minimum payment thresholds and the payment of breakage or other similar costs. Under the Term Loan Facility, the Company is required, subject to certain exceptions and customary reinvestment rights, to apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility. Commencing with the fiscal year ending August 1, 2020, the Company must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year. Based on the Company’s Excess Cash Flow in fiscal 2020, a $72.0 million prepayment was required and paid in the quarter ending October 31, 2020. The potential amount of prepayment from Excess Cash Flow in fiscal ~~2020~~2021 that may be required in fiscal ~~2021~~2022 is not reasonably estimable as of ~~May 2, 2020.~~January 30, 2021.

~~The~~As of January 30, 2021, the borrowings under the Term B Tranche of the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either: (i) a base rate and a margin of 3.25% or (ii) a LIBOR rate and a margin of 4.25%; provided that the LIBOR rate shall never be less than 0.0%. The Term Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available.

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

As of ~~May 2, 2020,~~January 30, 2021, the Company had borrowings of ~~$1,777.5~~$1,015.0 million ~~and no amounts~~ outstanding under the Term B Tranche, ~~and 364-day Tranche, respectively,~~ which are presented net of debt issuance costs of ~~$37.4~~$18.8 million and an original issue discount on debt of ~~$36.6~~$18.4 million. As of ~~May 2, 2020, $18.0 million~~January 30, 2021, 0 amount of the Term B Tranche was classified as ~~current, excluding debt issuance costs and original issue discount on debt.~~current.

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

Changes in Accumulated other comprehensive loss by component, net of tax, for fiscal 2021 year-to-date are as follows:


(in thousands)	Other Cash Flow Derivatives		Benefit Plans		Foreign Currency Translation		Swap Agreements		Total
Accumulated other comprehensive loss at August 1, 2020	$	(67)	$	(115,296)	$	(21,419)	$	(101,164)	$	(237,946)
Other comprehensive (loss) income before reclassifications	(165)		0		3,257		4,494		7,586
Reclassification of amounts included in net periodic benefit income	—		(506)		—		—		(506)
Reclassification of cash flow hedges	120		—		—		17,217		17,337

Net current period Other comprehensive (loss) income	(45)		(506)		3,257		21,711		24,417
Accumulated other comprehensive loss at January 30, 2021	$	(112)	$	(115,802)	$	(18,162)	$	(79,453)	$	(213,529)

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Changes in Accumulated other comprehensive loss by component, net of tax, for fiscal 2020 year-to-date are as follows:


(in thousands)	Benefit Plans		Foreign Currency Translation		Swap Agreements		Total
Accumulated other comprehensive loss at August 3, 2019	$	(32,458)	$	(20,082)	$	(56,413)	$	(108,953)
Other comprehensive income (loss) before reclassifications	1,480		24		(2,588)		(1,084)
Reclassification of amounts included in net periodic benefit income	(1,148)		—		—		(1,148)
Reclassification of cash flow hedges	—		—		(4,845)		(4,845)
Pension settlement charge	7,610		—		—		7,610
Net current period Other comprehensive income (loss)	7,942		24		(7,433)		533
Accumulated other comprehensive loss at February 1, 2020	$	(24,516)	$	(20,058)	$	(63,846)	$	(108,420)

(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
(3,561 ) (55,874 ) (57,955 )
Amortization of amounts included in net periodic benefit income (1,722 ) —
—
(1,722 )
Amortization of cash flow hedge —
—
9,375
9,375
Pension settlement charge 7,610
—
—
7,610
Net current period Other comprehensive income (loss) 7,368
(3,561 ) (46,499 ) (42,692 )
Accumulated other comprehensive loss at May 2, 2020 $ (25,090 ) $ (23,643 ) $ (102,912 ) $ (151,645 )

~~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 (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 $ (21,361 ) $ (22,024 ) $ (43,385 )

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


	13-Week Period Ended				26-Week Period Ended				Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Pension and postretirement benefit plan obligations:
Reclassification of amounts included in net periodic benefit income(1)	$	(404)	$	(777)	$	(713)	$	(1,551)	Net periodic benefit income, excluding service cost
Pension settlement charge	0		10,303		0		10,303		Net periodic benefit income, excluding service cost
Total reclassifications	(404)		9,526		(713)		8,752
Income tax expense (benefit)	104		(2,492)		207		(2,290)		Provision (benefit) for income taxes
Total reclassifications, net of tax	$	(300)	$	7,034	$	(506)	$	6,462

Swap agreements:
Reclassification of cash flow hedge	$	11,498	$	(4,251)	$	23,534	$	(6,621)	Interest expense, net
Income tax benefit	(3,087)		(1,348)		(6,317)		(1,776)		Provision (benefit) for income taxes
Total reclassifications, net of tax	$	8,411	$	(2,903)	$	17,217	$	(4,845)

Other cash flow hedges:
Reclassification of cash flow hedge	$	(5)	$	0	$	164	$	0	Cost of sales
Income tax expense (benefit)	1		0		(44)		0		Provision (benefit) for income taxes
Total reclassifications, net of tax	$	(4)	$	0	$	120	$	0

13-Week Period Ended 39-Week Period Ended
Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands) May 2,
2020 April 27,
2019 May 2,
2020 April 27,
2019
Pension and postretirement benefit plan obligations:
Amortization of amounts included in net periodic benefit income⁽¹⁾
$ (777 ) $ —
$ (2,328 ) $ —
Net periodic benefit income, excluding service cost
Pension settlement charge —
—
10,303
—
Net periodic benefit income, excluding service cost
Total reclassifications (777 ) —
7,975
—

Income tax (expense) benefit (203 ) —
2,087
—
Benefit for income taxes
Total reclassifications, net of tax $ (574 ) $ —
$ 5,888
$ —

Swap agreements:
Amortization of cash flow hedge expense (income) $ 6,191
$ (15 ) $ 12,812
$ (458 ) Interest expense, net
Income tax benefit (expense) 1,661
5
3,437
(105 ) Benefit for income taxes
Total reclassifications, net of tax $ 4,530
$ (20 ) $ 9,375
$ (353 )
(1)Reclassification of amounts included in net periodic benefit income include reclassification of prior service benefit and reclassification of net actuarial loss as reflected in Note 11—Benefit Plans.


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

As of ~~May 2, 2020,~~January 30, 2021, the Company expects to reclassify ~~$45.8~~$44.1 million out of ~~pre-tax accumulated~~Accumulated other comprehensive loss and primarily into Interest expense, net during the ~~succeeding~~following twelve-month period.

~~NOTE 11—LEASES~~

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

~~Lease assets and liabilities are as follows (in thousands):~~

Lease Type Balance Sheet Location May 2, 2020
Operating lease assets Operating lease assets $ 984,039
Finance lease assets Property and equipment, net 134,357
Total lease assets $ 1,118,396

Operating liabilities Current portion of operating lease liabilities $ 138,698
Finance liabilities Current portion of long-term debt and finance lease liabilities 14,221
Operating liabilities Long-term operating lease liabilities 877,229
Finance liabilities Long-term finance lease liabilities 145,672
Total lease liabilities $ 1,175,820

~~Lease assets and liabilities presented in the table above include lease contracts related to our discontinued operations, as the Company expects to remain primarily obligated under these leases.~~

~~The Company’s lease cost under ASC 842 is as follows:~~

(in thousands) Statement of Operations Location 13-Week Period Ended 39-Week Period Ended
May 2, 2020 May 2, 2020
Operating lease cost
Operating expenses⁽²⁾
$ 62,928
$ 196,332
Short-term lease cost Operating expenses 8,021
20,010
Variable lease cost
Operating expenses⁽²⁾
35,392
114,299
Sublease income
Operating expenses⁽²⁾
(7,836 ) (31,034 )
Sublease income Net sales (5,991 ) (16,738 )
Net operating lease cost⁽¹⁾
92,514
282,869
Amortization of leased assets Operating expenses 3,876
12,272
Interest on lease liabilities Interest expense, net 2,894
6,911
Finance lease cost 6,770
19,183
Total net lease cost $ 99,284
$ 302,052

~~(1)~~

~~Rent expense as presented here includes $9.1 million and $33.5 million in the third quarter and year-to-date of fiscal 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 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.

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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 May 2, 2020, these Lease Liabilities 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 $ 62,422
$ 6,991
$ (14,801 ) $ —
$ 47,621
$ 6,991
2021 217,690
22,777
(50,944 ) —
166,746
22,777
2022 206,416
119,387
(45,784 ) —
160,632
119,387
2023 179,364
15,292
(35,889 ) —
143,475
15,292
2024 153,729
14,228
(27,871 ) —
125,858
14,228
Thereafter 990,394
15,541
(62,184 ) —
928,210
15,541
Total undiscounted lease liabilities and receipts $ 1,810,015
$ 194,216
$ (237,473 ) $ —
$ 1,572,542
$ 194,216
Less interest ⁽³⁾
(794,088 ) (34,323 )
Present value of lease liabilities 1,015,927
159,893

Less current lease liabilities (138,698 ) (14,221 )
Long-term lease liabilities $ 877,229
$ 145,672


~~(1)~~	Operating lease payments include $11.4 million related to extension options that are reasonably certain of being exercised and exclude $38.5 million of legally binding minimum lease payments for leases signed but not yet commenced.

~~(2)~~

Finance lease payments include $0.0 million related to extension options that are reasonably certain of being exercised and exclude $0.5 million of legally binding minimum lease payments for leases signed but not yet commenced. This table excludes payments related to a facility the Company is deemed the accounting owner, which is recognized as a residual obligation, and is subject to an underlying lease.


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

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 finance leases, which have not been reduced for future minimum subtenant rentals under certain operating subleases, including assignments, consisted of the following amounts (in thousands):

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

Less current capital lease obligations (24,670 )
Long-term capital lease obligations $ 108,208

~~Table of contents~~

~~The following tables provide other information required by ASC 842:~~



~~Lease Term and Discount Rate~~	~~May 2, 2020~~
~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~10.7 years~~
~~Finance leases~~	~~3.4 years~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~10.7~~	%
~~Finance leases~~	~~8.8~~	%

Other Information 39-Week Period Ended
(in thousands) May 2, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 166,441
Operating cash flows from finance leases 6,181
Financing cash flows from finance leases 17,183
Leased assets obtained in exchange for new finance lease liabilities 92,843
Leased assets obtained in exchange for new operating lease liabilities 154,888

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On February 24, 2020, the Company executed a purchase option to acquire the real property of a distribution center facility. Upon execution of the purchase option, the previously constructed facility accounted for as an operating lease has been re-classified as a finance lease.

NOTE 10—SHARE-BASED AWARDS

~~NOTE 12—SHARE-BASED AWARDS~~

During the second quarter of fiscal ~~2020,~~2021, the Company authorized for issuance and registered ~~7.2~~an additional 3.6 million shares of common stock ~~for issuance~~ under the Amended and Restated 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 fiscal ~~2020,~~2021 year-to-date, the Company granted restricted stock units and performance share units to its directors, executive officers, and certain employees representing a right to receive an aggregate of ~~5.8~~2.6 million ~~shares to its directors, executive officers and certain employees.~~shares. As of ~~May 2, 2020,~~January 30, 2021, there were ~~2.6~~3.9 million shares available for issuance under the 2020 Equity Incentive Plan.

During the third quarter of fiscal 2020, the Company issued approximately 1.1 million shares of common stock at an average market price of $11.12 per share for $12.2 million of cash. Proceeds from these issuances were received in the third and fourth quarters of fiscal 2020 and were used to fund settlement of replacement award obligations.

~~Table of contents~~

NOTE ~~13—~~11—BENEFIT PLANS

Net periodic benefit ~~(income) cost~~income (cost) and contributions to defined benefit pension and other post-retirement benefit plans consisted of the following:


	13-Week Period Ended
	Pension Benefits				Other Postretirement Benefits
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net Periodic Benefit (Income) Cost
Service cost	$	0	$	0	$	12	$	14
Interest cost	9,164		13,602		103		236
Expected return on plan assets	(25,964)		(26,587)		(26)		(54)
Amortization of prior service credit	0		0		(350)		(350)
Amortization of net actuarial loss (gain)	261		3		(315)		(430)
Pension settlement charge	0		10,303		0		0
Net periodic benefit income	$	(16,539)	$	(2,679)	$	(576)	$	(584)

Contributions to benefit plans	$	(375)	$	(1,150)	$	(950)	$	(60)

13-Week Period Ended
Pension Benefits Other Postretirement Benefits
(in thousands) May 2, 2020 April 27, 2019 May 2, 2020 April 27, 2019
Net Periodic Benefit (Income) Cost
Service cost $ —
$ —
$ 14
$ 55
Interest cost 13,602
24,004
236
478
Expected return on plan assets (25,765 ) (35,416 ) (54 ) (58 )
Amortization of net actuarial loss (gain) 3
—
(780 ) —
Net periodic benefit (income) cost $ (12,160 ) $ (11,412 ) $ (584 ) $ 475

Contributions to benefit plans $ (1,500 ) $ (2,386 ) $ (175 ) $ (92 )

39-Week Period Ended
Pension Benefits Other Postretirement Benefits
(in thousands) May 2, 2020 April 27, 2019 May 2, 2020 April 27, 2019
Net Periodic Benefit (Income) Cost
Service cost $ —
$ —
$ 42
$ 114
Interest cost 43,894
49,855
708
993
Expected return on plan assets (79,834 ) (73,555 ) (162 ) (121 )
Amortization of net actuarial loss (gain) 9
—
(2,337 ) —
Pension settlement charge 10,303
—
—
—
Net periodic benefit (income) cost $ (25,628 ) $ (23,700 ) $ (1,749 ) $ 986

Contributions to benefit plans $ (6,750 ) $ (2,574 ) $ (335 ) $ (218 )


	26-Week Period Ended
	Pension Benefits				Other Postretirement Benefits
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net Periodic Benefit (Income) Cost
Service cost	$	0	$	0	$	24	$	28
Interest cost	18,328		30,292		206		472
Expected return on plan assets	(51,929)		(54,069)		(52)		(108)
Amortization of prior service credit	0		0		(700)		(700)
Amortization of net actuarial loss (gain)	617		6		(630)		(857)
Pension settlement charge	0		10,303		0		0
Net periodic benefit income	$	(32,984)	$	(13,468)	$	(1,152)	$	(1,165)

Contributions to benefit plans	$	(750)	$	(5,250)	$	(1,900)	$	(160)

Pension Contributions

No minimum pension contributions are required to be made tounder either the SUPERVALU Inc. Retirement Plan ~~in fiscal 2020. Minimum pension contributions of $8.25 million are required to be made under~~or the Unified Grocers, Inc. Cash Balance Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal ~~2020.~~2021. The Company expects to contribute approximately ~~$0.0 million and $6.0~~$5.3 million to its other ~~defined benefit~~non-qualified pension plans and postretirement benefit plans ~~respectively,~~ in fiscal ~~2020.~~2021.

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Multiemployer Pension Plans

The Company contributed ~~$12.3~~$11.8 million and ~~$13.8~~$12.6 million in the ~~third~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$38.4~~$23.7 million and ~~$27.4~~$26.1 million in fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date, respectively, to continuing and discontinued operations multiemployer pension plans.

In connection with the Company’s consolidation of distribution centers in the Pacific Northwest, during the second quarter of fiscal 2020, the Company recorded a $10.6 million multiemployer pension plan withdrawal liability, under which payments will be made over a one-year period beginning in fiscal 2022. The withdrawal liability is included in Other long-term liabilities and the withdrawal charge was recorded within Restructuring, acquisition and integration related expenses.

~~Table of contents~~

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—~~12—INCOME TAXES

The effective income tax rate for continuing operations was ~~a benefit~~an expense of ~~38.7%~~22.4% on pre-tax income compared to a benefit of ~~32.4%~~47.8% on pre-tax ~~income~~losses for the ~~third quarter~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively. The change in the effective income tax rate for the ~~third~~second quarter of fiscal ~~2020~~2021 was primarily driven by a ~~tax benefit recorded on net operating~~pre-tax loss ~~deferred tax assets~~of approximately $26.8 million in the ~~third~~second quarter of fiscal 2020 compared to pre-tax income of approximately $73.2 million in ~~connection with~~ the ~~Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), discussed below.~~second quarter of fiscal 2021. In addition, the change in the rate is partially driven by a discrete tax benefit of approximately $2.8 million in the second quarter of fiscal 2021 related to the release of unrecognized tax positions versus a discrete tax benefit of approximately $0.5 million for this item in the second quarter of fiscal 2020. The tax provision ~~included $26.9~~had $3.1 million and ~~$3.2~~$0.1 million of discrete tax ~~benefit~~benefits, including those mentioned above, for the ~~third quarter~~second quarters of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively. The discrete tax benefit for the third quarter of fiscal 2020 was primarily due to a tax benefit of approximately $28.4 million driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed below.

The effective income tax rate for continuing operations was ~~a benefit~~an expense of ~~21.5%~~21.6% on pre-tax income compared to a benefit of ~~22.8%~~16.6% on pre-tax losses for fiscal ~~2020~~2021 year-to-date and fiscal ~~2019~~2020 year-to-date, respectively. The ~~decrease~~change in the effective income tax ~~benefit~~ rate was primarily driven by a discrete tax benefit ~~of approximately $8.3 million recorded~~ in fiscal ~~2019~~2021 year-to-date for employee stock vestings versus a discrete tax expense for this item in fiscal 2020 year-to-date, as well as a discrete tax benefit for the release of unrecognized tax positions in fiscal 2021 year-to-date versus a discrete tax expense for this item in fiscal 2020 year-to-date. In addition, fiscal 2020 year-to-date was impacted by a goodwill impairment charge that did not ~~recur~~repeat in fiscal ~~2020, as well as a goodwill impairment benefit~~2021 year-to-date. The tax provision had $3.5 million and $64.4 million of ~~approximately $72.2 million recorded in fiscal 2019 compared to a goodwill impairment benefit of approximately $66.4 million recorded in fiscal 2020. In addition, effective income~~discrete tax ~~rate~~benefits for fiscal ~~2020 includes a benefit of approximately $28.4 million related to revaluation of net operating loss deferred tax assets in connection with the CARES Act.~~

The CARES Act was enacted on March 27, 2020 and contains significant business tax provision changes to the U.S. tax code, including temporary expansion of the limitations to the deductibility of net operating losses and interest expense and the ability to treat qualified improvement property as eligible for bonus depreciation. In addition, the CARES Act changed the required filing of the Company��s federal income tax return from May 2020 to July 2020, and allows remittances of employer FICA payments previously due March 2020 to December 2020 to be deferred until December 2021 and December 2022. Prior to the application of the CARES Act, the Company had a deferred tax asset related to $203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely. The CARES Act provides the Company the ability to carry these losses back at a 35% federal tax rate during the carry back periods, as opposed to the current 21% federal tax rate. This resulted in a tax benefit of approximately $28.4 million, which the Company recorded in the third quarter of fiscal 2020. This estimated tax benefit will be finalized in the fourth quarter of fiscal 2020 as the 2019 tax return due July 2020 is finalized. The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the third quarter of fiscal 2020.year-to-date, respectively.

Table of ~~contents~~Contents

NOTE ~~15—~~13—EARNINGS (LOSS) PER SHARE

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


	13-Week Period Ended				26-Week Period Ended
(in thousands, except per share data)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Basic weighted average shares outstanding	56,138		53,523		55,717		53,368
Net effect of dilutive stock awards based upon the treasury stock method	3,067		0		3,402		0
Diluted weighted average shares outstanding	59,205		53,523		59,119		53,368

Basic earnings (loss) per share:
Continuing operations	$	0.98	$	(0.27)	$	0.95	$	(7.54)
Discontinued operations	$	0.07	$	(0.30)	$	0.09	$	(0.23)
Basic earnings (loss) per share	$	1.05	$	(0.57)	$	1.04	$	(7.77)
Diluted earnings (loss) per share:
Continuing operations	$	0.93	$	(0.27)	$	0.89	$	(7.54)
Discontinued operations	$	0.06	$	(0.30)	$	0.09	$	(0.23)
Diluted earnings (loss) per share	$	1.00	$	(0.57)	$	0.98	$	(7.77)

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share	1,140		7,413		1,214		7,834

13-Week Period Ended 39-Week Period Ended
(in thousands, except per share data) May 2,
2020 April 27,
2019 May 2,
2020 April 27,
2019
Basic weighted average shares outstanding 53,718
50,846
53,485
50,748
Net effect of dilutive stock awards based upon the treasury stock method 1,499
118
—
—
Diluted weighted average shares outstanding 55,217
50,964
53,485
50,748

Basic earnings (loss) per share:
Continuing operations $ 0.99
$ 0.64
$ (7.24 ) $ (6.93 )
Discontinued operations $ 0.65
$ 0.48
$ 1.14
$ 0.95
Basic earnings (loss) per share $ 1.64
$ 1.12
$ (6.10 ) $ (5.99 )
Diluted earnings (loss) per share:
Continuing operations $ 0.96
$ 0.64
$ (7.24 ) $ (6.93 )
Discontinued operations⁽¹⁾
$ 0.63
$ 0.48
$ 1.12
$ 0.94
Diluted earnings (loss) per share $ 1.60
$ 1.12
$ (6.10 ) $ (5.99 )

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 1,771
5,176
1,868
2,723


~~(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 and 821 thousand and 275 thousand shares for fiscal 2020 and 2019 year-to-date, respectively.

NOTE ~~16—~~14—BUSINESS SEGMENTS

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

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

Segment earnings include revenues and costs attributable to each of the respective business segments and allocated corporate overhead, based on the segment’s estimated consumption of corporately managed resources. The Company allocates certain corporate capital expenditures and identifiable assets to its business segments and retains certain depreciation expense related to those assets within Other. In the first quarter of fiscal 2020, the Company changed its measurement of segment profit, which resulted in additional corporate expenses that were previously included in Other now being attributed to the Wholesale business. Prior period amounts have been recast to reflect this new measurement approach. Non-operating expenses that are not allocated to the operating segments are ~~under~~included in the ~~caption~~Other segment. In the fourth quarter of ~~Unallocated (Income)/Expenses.~~fiscal 2020, the Company updated its segment profit measure to Adjusted EBITDA. Prior period amounts have been recast to reflect this change in segment profit measure.

The following table provides continuing operations net sales and Adjusted EBITDA by reportable segment and reconciles that information to Income (loss) from continuing operations before income taxes:

Table of ~~contents~~Contents

(in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
13-Week Period Ended May 2, 2020:

Net sales⁽¹⁾
$ 6,670,044
$ 56,361
$ (58,724 ) $ —
$ 6,667,681
Restructuring, acquisition and integration related expenses 4,030
6,419
—
—
10,449
Operating income (loss) 119,809
(47,505 ) (599 ) —
71,705
Total other expense, net —
—
—
33,377
33,377
Income (loss) from continuing operations before income taxes

38,328
Depreciation and amortization 66,754
2,888
—
—
69,642
Capital expenditures 33,216
402
—
—
33,618
Total assets of continuing operations 6,686,382
614,356
(50,076 ) —
7,250,662

13-Week Period Ended April 27, 2019:

Net sales⁽²⁾
$ 5,944,521
$ 61,910
$ (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) 103,142
(31,278 ) (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 63,375
8,412
—
—
71,787
Capital expenditures 56,655
161
—
—
56,816
Total assets of continuing operations 6,403,512
423,663
(40,618 ) —
6,786,557


~~(1)~~	For the third quarter of fiscal 2020, the Company recorded $273.2 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.


~~(2)~~	For the third quarter of fiscal 2019, the Company recorded $227.1 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.


	13-Week Period Ended				26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net sales:
Wholesale(1)	$	6,608,775	$	6,206,918	$	13,040,058	$	12,274,225
Retail	620,871		538,629		1,215,782		1,053,855
Other	55,428		41,073		111,040		106,152
Eliminations	(396,941)		(355,238)		(806,140)		(706,238)
Total Net sales	$	6,888,133	$	6,431,382	$	13,560,740	$	12,727,994
Continuing Operations Adjusted EBITDA:
Wholesale	$	186,768	$	102,454	$	309,729	$	208,766
Retail	25,330		11,428		49,612		21,990
Other	(7,845)		14,425		(3,695)		12,828
Eliminations	(1,778)		(665)		3,946		494
Adjustments:
Net income attributable to noncontrolling interests	1,605		650		2,972		1,169
Total other expense, net	(32,143)		(44,339)		(83,445)		(82,264)
Depreciation and amortization	(66,534)		(69,219)		(143,723)		(144,360)
Share-based compensation	(12,673)		(5,134)		(26,822)		(9,059)
Restructuring, acquisition and integration related expenses	(17,783)		(36,522)		(34,211)		(51,194)
Goodwill and asset impairment charges	0		0		0		(425,405)
Loss on sale of assets	(399)		(524)		(169)		(434)
Notes receivable charges	0		0		0		(12,516)
Legal settlement income (reserve charge)	0		654		0		(1,196)
Other retail expense	(1,394)		0		(3,003)		0
Income (loss) from continuing operations before income taxes	$	73,154	$	(26,792)	$	71,191	$	(481,181)
Depreciation and amortization:
Wholesale	$	58,766	$	65,768	$	126,587	$	133,761
Retail	6,764		843		14,152		2,301
Other	1,004		2,608		2,984		8,298
Total depreciation and amortization	$	66,534	$	69,219	$	143,723	$	144,360
Capital expenditures:
Wholesale	$	45,882	$	43,370	$	83,873	$	85,629
Retail	4,109		2,619		7,310		5,295
Other	145		91		333		204
Total capital expenditures	$	50,136	$	46,080	$	91,516	$	91,128

(1)As presented in Note 3—Revenue Recognition, for the second quarters of fiscal 2021 and 2020, the Company recorded $345.3 million and $308.1 million, respectively, and $702.9 million and $605.8 million in fiscal 2021 and 2020 year-to-date, respectively, within Net sales in its Wholesale reportable segment attributable to Wholesale sales to its Retail segment that have been eliminated upon consolidation. Refer to Note 3—Revenue Recognition for additional information regarding Wholesale sales to discontinued operations.

Table of ~~contents~~Contents

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


(in thousands)	January 30, 2021		August 1, 2020
Assets:
Wholesale	$	6,454,162	$	6,588,836
Retail	565,252		542,470
Other	521,752		501,468
Eliminations	(57,133)		(54,784)
Total assets of continuing operations	$	7,484,033	$	7,577,990

(in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
39-Week Period Ended May 2, 2020:

Net sales⁽¹⁾
$ 18,821,520
$ 158,377
$ (155,027 ) $ —
$ 18,824,870
Goodwill and asset impairment (adjustment) charges 423,703
1,702
—
—
425,405
Restructuring, acquisition and integration related expenses 23,392
30,993
—
—
54,385
Operating income (loss) (277,675 ) (99,632 ) (86 ) —
(377,393 )
Total other expense, net —
—
—
116,289
116,289
Income (loss) from continuing operations before income taxes —
—
—
—
(493,682 )
Depreciation and amortization 200,515
13,487
—
—
214,002
Capital expenditures 116,565
1,680
—
—
118,245

39-Week Period Ended April 27, 2019:

Net sales⁽²⁾
$ 14,932,905
$ 167,381
$ (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) (189,299 ) (164,745 ) (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 156,693
13,087
—
—
169,780
Capital expenditures 136,065
888
—
—
136,953


~~(1)~~	For fiscal 2020 year-to-date, the Company recorded $756.9 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 $505.5 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.

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NOTE ~~17—~~15—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Guarantees and Contingent Liabilities

The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of ~~May 2, 2020.~~January 30, 2021. These guarantees were generally made to support the business growth of wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to ~~ten~~nine years, with a weighted average remaining term of approximately ~~six~~five years. For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, the Company would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal ~~guarantees of the primary obligor/retailer.~~guarantees.

The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of ~~May 2, 2020,~~January 30, 2021, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was ~~$32.9~~$28.7 million ($~~25.8~~25.0 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, ~~the Company believes the likelihood that it will be required to assume~~ a ~~material amount~~total estimated loss of ~~these obligations~~$1.0 million is ~~remote. Accordingly, no amount has been~~ recorded in the Condensed Consolidated Balance ~~Sheets for these contingent obligations under the Company’s guarantee arrangements as the fair value has been determined to be de minimis.~~Sheets.

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

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

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

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Agreements with Save-A-Lot and Onex

The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business in 2016 (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, Supervalu entered into a Separation Agreement (the “Separation Agreement”) with Moran Foods, LLC d/b/a Save-A-Lot (“Moran Foods”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from the Company. The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company is providing Save-A-Lot with various technical, human resources, finance and other operational services for a term of five years, subject to termination provisions that can be exercised by each party. The initial annual base charge under the Services Agreement is $30 million, subject to adjustments. We expect that services provided under the Services Agreement will wind down at or near the end of the initial term in December 2021. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement. While the Company’s aggregate indemnification obligations to Save-A-Lot and Onex, the purchaser of Save-A-Lot, could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability. The Company has recorded the fair value of the guarantee in the Condensed Consolidated Balance Sheets within Other long-term liabilities.

Other Contractual Commitments

In the ordinary course of business, the Company enters into supply contracts to purchase products for resale, and service contracts for fixed asset and information technology systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of ~~May 2, 2020,~~January 30, 2021, the Company had approximately ~~$252.0~~$305 million of non-cancelable future purchase obligations.

Legal Proceedings

In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against Supervalu alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. As previously disclosed, the Company settled with the certain plaintiffs in November 2017. The remaining plaintiff (the “New England plaintiff”) was not a party to the settlement and pursued its individual claims and potential class action claims against Supervalu. 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, and a hearing was held on October 15, 2019. In the second quarter of fiscal 2020, the 8th Circuit Court of Appeals denied the appeal.

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

On January 21, 2021, various health plans filed a complaint in Minnesota state court against the Company, Albertson’s Companies, LLC (“Albertson’s”) and Safeway, Inc. alleging the defendants committed fraud by improperly reporting inflated prices for prescription drugs for members of health plans. The Plaintiffs assert 6 causes of action against the defendants: common law fraud, fraudulent nondisclosure, negligent misrepresentation, unjust enrichment, violation of the Minnesota Uniform Deceptive Trade Practices Act and violation of the Minnesota Prevention of Consumer Fraud Act. The plaintiffs allege that between 2006 and 2016, Supervalu overcharged the health plans by not providing the health plans, as part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that Supervalu match competitor prices. Plaintiffs seek an unspecified amount of damages. Similar to the above case, for the majority of the relevant period Supervalu and Albertson’s operated as a combined company. In March 2013, Supervalu divested Albertson’s and pursuant to the Stock Purchase Agreement, Albertson’s is responsible for any claims regarding its pharmacies. The Company believes these claims are without merit and intends to vigorously defend this matter.

UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the ~~relators'~~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~~Albertson’s in excess of $100 million,

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not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant to the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value by relators) would be approximately $24 million, not including trebling and statutory penalties. Both sides moved for summary judgment. ~~Discovery is complete, and trial will be set after the Court rules on the pending motions.~~ On August 5, 2019, the Court

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granted one of the relators’ summary judgment motions finding that the defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. ~~There are additional pending motions for~~On July 2, 2020 the Court granted the defendants’ summary judgment ~~filed by defendants~~motion and ~~relators that await rulings by~~denied the ~~Court, including on key FCA elements of materiality and knowledge.~~relators’ motion, dismissing the case. On ~~August 30, 2019, defendants~~July 9, 2020 the relators filed a ~~motion~~notice of appeal with the ~~District~~7th Circuit Court ~~seeking certification~~ of ~~the summary judgment decision for interlocutory appeal~~Appeals, and on September 30, 2020 filed an appellate brief. On November 7, 2019, the District Court denied the motion. UNFI is vigorously defending this matter and believes that it should be successful on the merits, however, in light of the most recent summary judgment decision,30, 2020, the Company ~~now believes~~filed its response. The hearing before the ~~risk~~7th Circuit Court 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 any FCA violations actuallyAppeals occurred ~~(which defendants still strongly believe and continue to argue did not), and the appropriate methodology of determining potential damages, if any.~~on January 19, 2021.

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

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

Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. ~~The Company~~Management regularly monitors ~~its~~the Company’s exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of ~~May 2, 2020,~~January 30, 2021, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.

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

NOTE ~~18—~~16—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of ~~Supervalu (“Retail”). The~~Supervalu. Since the acquisition, the Company sold Hornbacher’s, and sold and exited the retail operations of certain Shoppers locations, Shop ‘n Save St. Louis and Shop ‘n Save East. As discussed further in Note 1—Significant Accounting Policies, in the fourth quarter of fiscal 2020, the Company determined Retail no longer qualified for held for sale presentation and the results of operations, financial position and cash flows of ~~Cub Foods,~~Retail have been revised in order to present Retail within continuing operations. Subsequent to the presentation changes in the fourth quarter of fiscal 2020, discontinued operations contains the historical results of operations, financial position and cash flows of Hornbacher’s, certain Shoppers ~~and~~locations, Shop ‘n Save St. Louis and Shop ‘n Save ~~East retail~~East. As of January 30, 2021, only 4 Shoppers locations are contained in remaining disposal groups that continue to be classified as operations ~~have been presented~~held for sale as discontinued ~~operations and the related assets and liabilities have been classified as held-for-sale.~~operations.

As of May 2, 2020, the Company held the remaining Shoppers stores and the Cub Foods business for sale. As discussed in more detail in Note 19—Subsequent Events, subsequent to the end of the third quarter of fiscal 2020, the Company determined it would no longer classify the Cub Foods business and the majority of the remaining Shoppers locations (collectively “Remaining Retail”) as discontinued operations. The Company may incur additional costs and charges in the future related to the Remaining Retail business if these locations are subsequently sold, if indicators exist that the business may be impaired while classified as held and used as continuing operations, or if the Company incurs additional wind-down or employee-related costs or charges.

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In the second quarter of fiscal 2020, the Company entered into agreements to sell 13 Shoppers stores and decided to close 6 locations. During fiscal 2020 year-to-date, within discontinued operations the Company incurred approximately ~~$39.1~~$23.6 million in pre-tax aggregate costs and charges related to Shoppers stores that remain within discontinued operations, consisting of ~~$14.2~~$18.8 million of operating losses, severance costs and transaction costs during the period of wind-down ~~$15.1~~and $5.5 million of property and equipment impairment charges related to impairment ~~reviews, $8.7 million~~reviews.

Table of severance costs and $1.1 million of losses on sale. The Company expects to incur additional related costs and charges in the fourth quarter of fiscal 2020. In the second and third quarters 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.Contents

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

In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group. As of May 2, 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 are summarized below:


	13-Week Period Ended				26-Week Period Ended
(In thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net sales	$	22,973	$	75,076	$	47,789	$	170,671
Cost of sales	15,748		56,553		32,520		121,639
Gross profit	7,225		18,523		15,269		49,032
Operating expenses	3,528		15,228		9,759		40,304
Restructuring expenses and charges	792		24,009		783		24,184
Operating income (loss)	2,905		(20,714)		4,727		(15,456)



Other expense (income), net	0		(3)		0		(64)
Income (loss) from discontinued operations before income taxes	2,905		(20,711)		4,727		(15,392)
Benefit for income taxes	(898)		(4,635)		(372)		(3,342)
Income (loss) from discontinued operations, net of tax	$	3,803	$	(16,076)	$	5,099	$	(12,050)

13-Week Period Ended 39-Week Period Ended
(In thousands) May 2, 2020 April 27,
2019 May 2, 2020
April 27, 2019⁽¹⁾
Net sales $ 667,003
$ 640,121
$ 1,891,529
$ 1,413,756
Cost of sales 479,175
463,157
1,371,253
1,031,330
Gross profit 187,828
176,964
520,276
382,426
Operating expenses 128,232
144,547
394,080
310,751
Restructuring expenses and charges 8,091
644
40,304
11,026
Operating income 51,505
31,773
85,892
60,649
Other expense (income), net 2,242
(369 ) 1,192
(957 )
Income from discontinued operations before income taxes 49,263
32,142
84,700
61,606
Income tax provision 12,071
7,772
20,447
13,759
Income from discontinued operations, net of tax $ 37,192
$ 24,370
$ 64,253
$ 47,847


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

The Company recorded $273.2 million and $227.1 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the third quarters of fiscal 2020 and 2019, respectively, and $756.9 million and $505.5 million in 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 net sales were recorded within continuing operations for retail ~~banners~~stores within discontinued operations that the Company disposed of and expects to dispose of without a supply ~~agreement, which were~~agreement. These net sales have been eliminated upon consolidation within the Wholesale segment of continuing operations and amounted to ~~$99.3~~$13.4 million and ~~$134.9~~$36.1 million in the ~~third~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$320.0~~$27.8 million and ~~$308.0~~$92.1 million in fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date, respectively.

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The following table summarizes 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.~~Sheets:


(In thousands)	January 30, 2021		August 1, 2020
Current assets
Cash and cash equivalents	$	155	$	119
Accounts receivable, net	578		350
Inventories, net	3,329		4,233
Other current assets	654		365
Total current assets of discontinued operations	4,716		5,067
Long-term assets
Property and equipment	927		3,450



Other long-term assets	464		465
Total long-term assets of discontinued operations	1,391		3,915
Total assets of discontinued operations	$	6,107	$	8,982

Current liabilities
Accounts payable	$	3,405	$	3,613
Accrued compensation and benefits	2,575		4,501

Other current liabilities	2,333��		3,324
Total current liabilities of discontinued operations	8,313		11,438
Long-term liabilities


Other long-term liabilities	15		1,738
Total liabilities of discontinued operations	8,328		13,176
Net liabilities of discontinued operations	$	(2,221)	$	(4,194)

(In thousands) May 2, 2020 August 3, 2019
Current assets
Cash and cash equivalents $ 2,312
$ 2,917
Receivables, net 11,822
1,471
Inventories 110,449
129,142
Other current assets 4,272
10,199
Total current assets of discontinued operations 128,855
143,729
Long-term assets
Property and equipment 269,272
301,395
Intangible assets 49,687
48,788
Other assets 2,297
1,882
Total long-term assets of discontinued operations 321,256
352,065
Total assets of discontinued operations $ 450,111
$ 495,794

Current liabilities
Accounts payable $ 73,546
$ 61,634
Accrued compensation and benefits 42,679
45,887
Other current liabilities 19,278
14,744
Total current liabilities of discontinued operations 135,503
122,265
Long-term liabilities
Other long-term liabilities 8,899
1,923
Total liabilities of discontinued operations 144,402
124,188
Net assets of discontinued operations $ 305,709
$ 371,606

As of May 2, 2020, the fair value of disposal groups were estimated based on each group’s expected consideration less costs to sell. 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 retail disposal groups may result in charges that may be materially different than the Company’s prior estimates. Estimates most sensitive to changes that could result in material charges include expected consideration, including the extent to which the Company is able transfer multiemployer pension plan obligations, and the potential sale of the disposal groups at a lower level.

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~~NOTE 19—SUBSEQUENT EVENTS~~

Subsequent to the end of the third quarter of fiscal 2020, the Company determined it was no longer probable that a sale of Remaining Retail would occur within one year. As a result, the Company determined it no longer met the criteria to classify Remaining Retail as discontinued operations. In the fourth quarter of fiscal 2020, the Company expects to present Remaining Retail as held and used as part of continuing operations in its fiscal 2020 Consolidated Financial Statements based on this assessment. This expected change in financial statement presentation will require the Company to restate the presentation and classification of Remaining Retail within its Consolidated Financial Statements for fiscal 2019, which will result in Remaining Retail’s results of operations, financial position, cash flows and related disclosures being within continuing operations.

In the fourth quarter of fiscal 2020, the Company expects to record an adjustment to the carrying value of certain long-lived assets, including property and equipment and intangible assets, to record the assets at the carrying amount at the acquisition date adjusted for any depreciation expense that would have been recognized had the assets been held and used as part of continuing operations since their acquisition date.

As discussed in Note 3—Revenue Recognition, certain sales from the Wholesale segment to the retail discontinued operations are presented within Net sales. In order to present Remaining Retail’s results of operations within continuing operations these Wholesale sales to retail discontinued operations will be eliminated upon consolidation. Remaining Retail’s net sales will be included in the Net sales line of the Consolidated Statement of Operations. As discussed in Note 3—Revenue Recognition, the Company currently holds Shoppers stores for sale without an expectation of a supply agreement and therefore no Wholesale sales were recorded within continuing operations. Within the restatement of the Company’s segment financial information, the Company expects to recognize Wholesale segment sales to the majority of the remainder of the Shoppers locations, which will be eliminated upon consolidation as described above.

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

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

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

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

•the impact and duration of the COVID-19 ~~outbreak;~~pandemic;

•our dependence on principal customers;

~~the potential for additional asset impairment charges;~~

•our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;

•our ability to realize anticipated benefits of our acquisitions and dispositions, in particular, our acquisition of SUPERVALU INC. (“Supervalu”);

•our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products;

•increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors;

•the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations;

~~our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products;~~

increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors;

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increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains;

•the addition or loss of significant customers or material changes to our relationships with these customers;

•union-organizing activities that could cause labor relations difficulties and increased costs;

•our ability to operate, and rely on third-parties to operate, reliable and secure technology systems;

•the relatively low margins of our business;

•moderated supplier promotional activity, including decreased forward buying opportunities;

•our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;

•the ~~addition or loss of significant customers or material changes to our relationships with these customers;~~potential for additional asset impairment charges;

~~volatility in fuel costs;~~

~~volatility in foreign exchange rates;~~

•our sensitivity to inflationary and deflationary pressures;

~~the relatively low margins and economic sensitivity of our business;~~

•the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health ~~epidemic (such as the recent outbreak of COVID-19, or the novel coronavirus);~~epidemic;

•the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise;

~~moderated supplier promotional activity, including decreased forward buying opportunities;~~•volatility in fuel costs;

~~union-organizing activities that could cause labor relations difficulties~~•volatility in foreign exchange rates; and ~~increased costs; and~~

•our ability to identify and successfully complete asset or business acquisitions.

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

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EXECUTIVE OVERVIEW

Business Overview

As a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services to retailers in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. We offer more than ~~250,000~~275,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general merchandise; produce; perishables and frozen foods; nutritional supplements and sports nutrition; bulk and food service products; and personal care items. Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 5958 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. ~~We believe our total~~Our business is classified into two reportable segments: Wholesale and Retail; and also includes a manufacturing division and a branded product assortment and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs.line division.

~~Our Strategy~~Growth Drivers

A key component of our business and growth strategy has been to acquire ~~wholesalers~~distribution companies 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 continue to deliver ~~significant~~ synergies and accelerate ~~potential~~ growth. We believe the Supervalu acquisition allows us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, which enabled us to provide a broader array of products to our customers. As one of the largest wholesale grocery distributors in North America, and in light of the continued expansion of our distribution network and “build out the store” strategy, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which we operate, and are actively pursuing new customers.

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

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

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We currently operate approximately 76 retail grocery stores acquired in the Supervalu acquisition. We intend to thoughtfully and economically divest these stores over the long-term; however, as discussed below within Divestiture of Retail Operations, we have determined that we no longer expect to divest the Cub Foods business and the majority of the remaining Shoppers locations (collectively “Remaining Retail”) within one year. Accordingly, we will present the Remaining Retail business within continuing operations beginning in the fourth quarter of fiscal 2020. In our third quarter fiscal 2020 Condensed Consolidated Financial Statements included in this Quarterly Report, Remaining Retail is presented within Discontinued Operations, as the determination to change the plan of sale occurred subsequent to the end of the third quarter of fiscal 2020. As described below we entered into agreements to sell 13 retail stores and closed six additional stores. In the third quarter of fiscal 2020, we closed on the sale of 12 of these Shoppers stores.

We have been the primary distributor to Whole Foods Market for more than 20 years. We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to aan amended distribution agreement. On March 3, 2021, we entered into an amendment to our distribution agreement ~~that expires on~~dated October 30, 2015. The Amendment extended the term of the distribution agreement from September 28, ~~2025.~~2025 to September 27, 2027.

~~COVID-19 Impact~~

~~Impact and Response~~

Consistent with our values, with the spread of COVID-19 and continuing impacts created by the virus, we remain focused on the safety and well-being of our associates, customers and end consumers and supporting our wholesale customers.

~~As COVID-19 spread in March 2020, shelter-in-place orders and national and state emergencies were issued~~We currently operate 71 Retail grocery stores acquired in the ~~U.S.,~~Supervalu acquisition. We intend to maximize the value of these assets while, over time, thoughtfully and economically divesting these stores. However, we no longer expect to divest Retail within one year and, as a result, beginning in the fourth quarter of fiscal 2020, prior period information in our ~~business was designated~~Condensed Consolidated Financial Statements included in this Quarterly Report has been revised to reclassify Retail from discontinued operations to continuing operations from information previously presented in our Quarterly Reports. This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations. Prior periods presented in the Condensed Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods.

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Trends and Other Factors Affecting our Business

Our results are impacted by macroeconomic and demographic trends, and changes in the food distribution market structure. Changes in trends in consumer behavior could impact our results. Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods has benefited the Company; however, consumer spending in the food-away-from-home industry had increased steadily as ~~an essential business~~a percentage of total food expenditures. This trend paused during the 2008 recession, and then continued to ~~enable us~~increase.

In fiscal 2020, the COVID-19 pandemic, which we refer to as the pandemic, caused a significant increase in food-at-home expenditures as a percentage of total food expenditures. We experienced year-over-year increases in sales and gross profit due to higher Wholesale customer purchases. We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years until consumer behaviors return to pre-pandemic patterns. We believe that changes in work being done outside of the traditional office setting will contribute to more food being consumed at home. In addition, the elevated levels of unemployment and underemployment due to the pandemic are expected to persist for some time and even after the near-term impact of the pandemic has passed. In general, economic recessions usually result in higher food-at-home expenditures, which would be expected to continue to ~~serve~~benefit our customers ~~during~~and result in higher sales. The pandemic also drove significant growth in eCommerce utilization by grocery consumers, and we expect that trend to continue. We expect to benefit from this trend through the ~~COVID-19 pandemic. We experienced an initial surge in demand~~growth of our traditional eCommerce customers, our EasyOptions, a business-verified buyer’s site for retailers, which directly services non-traditional customers, such as bakeries or yoga studios, and ~~sales in March and April of 2020 as consumers undertook efforts to stock their pantries and~~through customers adopting our related wholesale customer purchases surged. During the initial spreading of the virus and implementation of shelter-in-place and restaurant closures, we experienced a surge in demand, which impacted fill and service rates and depleted inventory levels. Based on historical purchasing levels, temporary customer supply allocation limits were put in place to ensure continued service to our wholesale customers’ locations, which were removed as we added capacity. In response to the surge in demand,turnkey eCommerce platform.

Beginning in the third quarter of fiscal 2020, in response to the outbreak of the pandemic, we took ~~immediate~~ actions to respond to the pandemic, to support our associates’ safety and ~~wellbeing,~~well-being and maximize our logistics network to serve the communities we ~~supply, while delivering operational and financial results. These actions included:~~

~~hiring over 2,000 associates, and providing existing associates with temporary state of emergency wage~~supply. Our business model allows us to leverage sales increases, and ~~increased overtime~~provides growth in operating earnings margin. We have been able to ~~warehouse, driver~~leverage the fixed and ~~in-store associates;~~

~~implementing heightened associate~~variable costs of our supply chain network and administrative expenses. We have incurred incremental costs related to the pandemic, including additional costs for safety protocols ~~to keep our workforce healthy, including social distancing practices, implementing extensive safety protocols~~and procedures at our distribution centers and retail ~~locations to protect associates~~stores. Despite incremental labor and ~~customers, and engaging~~operating costs, additional ~~professional cleaning companies in our facilities;~~

~~enhancing employee benefits, including wellbeing resources and covering COVID-19 testing expenses and providing coverage for COVID-19 illness or quarantine directed~~volume experienced by ~~the Company or a regulatory agency;~~

~~expanding warehouse operational hours and entering into service provider agreements to facilitate the transportation of our products to meet heightened demand and increase service levels;~~

~~donating over six million pounds of food and essential items to food banks across the country;~~

~~working with suppliers to prioritize the procurement and sale of high-volume stock-keeping units;~~

~~implementing enhanced high food safety standards for customers and consumers; and~~

~~reassuring the public that the supply chain remains intact, and that food and essential products are available and safe.~~

We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, as well as providing a broader array of products to our customers. As one of the largest wholesale grocery distributors in North America and in light of the continued expansion of our distribution network and ~~build-out-the-store initiative, we believe we are well positioned to~~retail stores drove higher leverage ~~our infrastructure in the current economic~~on fixed facility costs, semi-variable costs and ~~social environment to continue to serve our customers~~general and ~~the communities in which they operate.~~administrative expenses.

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~~We experienced the following impacts from COVID-19 in the third quarter of fiscal 2020:~~


•	~~Sales.~~ Our increase in sales in the third quarter was primarily driven by higher sales volume due to the increase in food-at-home expenditures from the economic impacts created by the COVID-19 pandemic, partially offset by previously lost business.


•	~~Gross Profit.~~ ~~Gross profit rates were impacted negatively by mix shifts toward lower margin products and lower vendor promotions, which was partially offset by lower levels of inventory shrink.~~

•

~~Operating Expenses.~~ Operating expense rates were positively impacted by our ability to leverage fixed operating and administrative expenses, which were partially offset by incremental costs related to COVID-19, including the impact of temporary pandemic related incentives and additional costs for safety protocols and procedures at the Company’s distribution centers and retail stores. When COVID-19 related health and safety requirements are eased, we expect these costs to subside. These costs were necessary to protect our employees, product quality standards, and wholesale and retail customers. We estimate we incurred approximately $20 million of incremental operating expenses within continuing operations related to our response to the pandemic and operating our business at a higher through-put capacity.

•

~~Operating Earnings.~~ Our business model drives sales leverage, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses. Despite incremental labor and operating costs, incremental volume through our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses.

~~Working Capital and Liquidity~~

Reflecting the initial impact from the COVID-19 pandemic, working capital was reduced in the third quarter of fiscal 2020 by $214.5 million, as compared to the second quarter of fiscal 2020, which provided a strong source of cash flows from operating activities in the quarter. The surge in demand during the quarter discussed above initially depleted inventory levels of continuing operations, which ended $109.2 million lower in the quarter compared to the second quarter of fiscal 2020. Our Accounts payable fluctuated greatly during the quarter related to swings in Inventories, net, ending the quarter $253.4 million higher as compared to the second quarter of fiscal 2020, as we worked to respond to our customers’ modified purchase patterns and prioritize the procurement of high-volume stock-keeping units. The elevated sales levels caused Accounts receivable, net to grow by $157.7 million as compared to the second quarter of fiscal 2020 due to higher sales.

In response to the potential impacts of the COVID-19 pandemic, we temporarily borrowed an additional $278.5 million on our $2.1 billion ABL Credit Facility, which we fully repaid in the third quarter of fiscal 2020. These borrowings were made as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. We made additional net payments of $371.2 million on the ABL Credit Facility in the third quarter of fiscal 2020 to further reduce our debt. Our unused credit under our ABL Credit Facility increased $329.7 million as of the end of the third quarter of fiscal 2020 compared to the second quarter of fiscal 2020.

~~Outlook~~

We expect to continue to benefit from elevated sales and margin ~~growth~~buying activity as compared to historical periods prior to the pandemic while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical ~~precedent. We also expect the favorable~~periods, and higher on a year-over-year sales, margin growth and cost leveraging to continue in the near term. We expect fourth quarter of fiscal 2020 gross margin rate to be diluted as compared to last year driven by continued impacts of wholesale customer and product mix changes. We continue to make progress to increase fill rates and service level as our and our vendors’ logistics capacity grows, which we expect will result in lower out of stock rates.

basis. Trends in increased sales and gross margin benefits ~~may lessen or reverse in~~have lessened since the ~~intermediate months if customers alter their purchasing habits. In addition, as discussed below in~~initial onset of the ~~sections~~ ~~Impact of Inflation or Deflationand~~ ~~Other Factors Affecting our Business~~ we could also be affected by changes in product mix and product category inflation changes, especially if the U.S. and Canadian economies enter into and maintain an economic recession, and customers change their purchasing habits. These potential developments could impact food-at-home expenditures and prompt consumers to trade down to lower priced product categories or change their purchasing habits in a manner that would impact our wholesale supply to our wholesale customers. However, the expected benefits from food-at-home expenditures remaining elevated and those impacts benefiting our wholesale customers are expected to outweigh product mix changes and other factors as it pertains to our results of operations and cash flows.pandemic. The ultimate impact on our results is dependent upon the severity and duration of the ~~COVID-19~~ pandemic and any economic downturn, food-at-home purchasing levels and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain and rapidly ~~changing and difficult to predict.~~changing. Any of these disruptions could adversely impact our business and results of operations. Considerable uncertainty remains regarding the future impact of the pandemic on our business, which is discussed further in Part I. Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended August 1, 2020.

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

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We could experience disruptions to our supply chain through the shutdown of one or more of our distribution centers or warehouses, the inability to transport products to serve our customers or the inability of our vendors and contract manufacturers to supply products to us. In addition, the contraction of financial markets may impact our ability to execute transactions to dispose of or acquire real estate or distribution assets, including potential impacts to our ability to divest our retail operations.

~~CARES Act~~

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 and contains significant business tax provision changes to the U.S. tax code, including temporary expansion of the limitations to the deductibility of net operating losses and interest expense and the ability to treat qualified improvement property as eligible for bonus depreciation. In addition, the CARES Act changed the required filing of our federal income tax return from May 2020 to July 2020, and allows remittances of employer FICA payments previously due March 2020 to December 2020 to be deferred until December 2021 and December 2022. Prior to the application of the CARES Act, we had a deferred tax asset related to $203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely. The CARES Act provides us the ability to carry these losses back at a 35% federal tax rate during the carry back periods, as opposed to the current 21% federal tax rate. This resulted in a tax benefit of approximately $28.4 million, which we recorded in the third quarter of fiscal 2020. This estimated tax benefit will be finalized in the fourth quarter of fiscal 2020 as the 2019 tax return due July 2020 is finalized. The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the third quarter of fiscal 2020.

Distribution Center Network

Network Optimization and Construction

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

To support our continued growth on the East coast, we entered into a new lease agreement for approximately 1.3 million square foot facility. The lease agreement commenced in the third quarter of fiscal 2021 when we took control of the facility to make our tenant improvements. We expect to ~~incur incremental expenses related to the network realignment~~recognize an operating lease asset and ~~are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming~~an operating lease liability for this distribution ~~network.~~

~~In connection with our consolidation of distribution centers~~center in the ~~Pacific Northwest, during the second~~third 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~~2021 and expect to begin distribution out of this facility in ~~fiscal 2022.~~the second half of calendar 2021.

To support our continued growth within southern California, we began operating a newly leased facility with approximately ~~1.1~~1.2 million square feet upon completion of its construction in the fourth quarter of fiscal 2020. This facility provides significant capacity to service our customers in this ~~market and provides us the future flexibility to potentially monetize existing owned facilities in the southern California~~ market. On February 24, 2020, we executed a purchase option with a delayed purchase provision to acquire the real property of athis distribution center, agreeing to pay approximately ~~$156.9~~$151.9 million for the facility, subject to finalization. We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property ~~from~~compared to current ~~rents,~~levels, which we expect would occur on or before June 2022.

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

Distribution Center Sales

In the ~~fourth~~second quarter of fiscal ~~2019,~~2021, we ~~entered into an agreement to sell our Tacoma, WA distribution center~~received $35.1 million from the collection of a short-term note receivable, representing the remaining proceeds related to ~~our Pacific Northwest consolidation strategy. We closed on~~ the ~~sale in the fourth quarter of~~ fiscal 2020 ~~and received consideration of $42.3 million in the form~~sale of a $38.0 million note receivable and cash. As of May 2, 2020, the facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets.distribution center. As we consolidate our distribution ~~networks,~~network, we may sell additional owned facilities or exit leased facilities.

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~~In the third quarter of fiscal 2020, we sold a warehouse in Stockton, CA for $4.8 million.~~

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

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

Divestiture of Retail Operations

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

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

Our strategy remains unchanged and we expect to divest all of our Retail operations in the future. As part of that process we plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures. We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but ~~we anticipate~~ some reductions in supply volume ~~will~~may result from the divestiture of certain of these retail operations. Actions associated with retail divestitures and potential resulting adjustments to our core cost structure for our wholesale food distribution business, are expected to ~~result in~~generate 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.~~time, or one-time lump sum payments on a net present value basis. In addition, we are evaluating various options to address our off-balance sheet liability under certain of our multiemployer pension plans, irrespective of the retail divestiture process, which actions may result in significant costs or charges. The extent of these costs and charges will be determined based on outcomes achieved under the ~~divestiture process.~~process undertaken to minimize or eliminate the liability for the respective multiemployer pension plan. 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~~the second quarter of fiscal ~~2020~~2021 include ~~Cub Foods~~four Shoppers stores, and ~~Shoppers disposal groups, and our~~for historical periods, results of discontinued operations include the Hornbacher’s and Shop ‘n Save and Shop ‘n Save East retail banners, which were divested in ~~the second and third quarters of~~ fiscal 2019, ~~respectively.~~and Shoppers stores that were sold or closed in fiscal 2020 and fiscal 2021. In addition, cash flows from discontinued operations ~~includes certain~~include real estate sales related to those historical retail operations. These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented. As of the Supervalu acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to ~~the acquisition~~that date, we ~~review~~reviewed the fair value, less ~~costs~~cost to sell, of these disposal groups.

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In the second quarter of fiscal 2020, we entered into agreements to sell 13 Shoppers stores and decided to close six locations, and in the third quarter of fiscal 2020 we closed on the sale of 12 of these Shoppers stores. During fiscal 2020 year-to-date, in the aggregate between discontinued operations and continuing operations we incurred approximately $57.3 million of pre-tax aggregate costs and charges related to Shoppers, consisting of $33.3 million of lease asset impairment and property and equipment charges, including lease termination charges and charges related to impairment reviews, $14.2 million of operating losses and transaction costs during the period of wind-down, $8.7 million of severance costs and $1.1 million of losses on sale of assets. We may incur additional related costs and charges in the fourth quarter of fiscal 2020. In the second and third quarter of fiscal 2020, we 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.

~~As of May 2, 2020, we held the remaining Shoppers stores and the Cub Foods business for sale.~~

Subsequent to the end of the third quarter of fiscal 2020, we determined it was no longer probable that a sale of Remaining Retail would occur within one year. As a result, we determined we no longer met the criteria to classify Remaining Retail as discontinued operations. In the fourth quarter of fiscal 2020, we expect to present Remaining Retail as held and used as part of continuing operations in our fiscal 2020 Consolidated Financial Statements based on this assessment. This expected change in financial statement presentation will require us to restate the presentation and classification of Remaining Retail within our Consolidated Financial Statements for fiscal 2019, which will result in Remaining Retail’s results of operations, financial position, cash flows and related disclosures being within continuing operations.

In the fourth quarter of fiscal 2020, we expect to record an adjustment to the carrying value of certain long-lived assets, including property and equipment and intangible assets, to record the assets at the carrying amount at the acquisition date adjusted for any depreciation expense that would have been recognized had the assets been held and used as part of continuing operations since their acquisition date. We estimate the adjustment to account for the incremental depreciation and amortization expense required to be recorded in the fourth quarter of fiscal 2020 will be approximately $48 million, which reflects an estimate of depreciation and amortization from the date of the Supervalu acquisition date through fiscal 2020 based on useful lives assigned to the underlying retail assets expected to be brought back into continuing operations.

As discussed in Note 3—Revenue Recognition, certain sales from the Wholesale segment to the retail discontinued operations are presented within Net sales. In order to present Remaining Retail’s results of operations within continuing operations these Wholesale sales to retail discontinued operations will be eliminated upon consolidation, resulting in no consolidated effect on Net sales resulting from our Wholesale segment. Remaining Retail’s net sales will be included in the Net sales line of the Consolidated Statement of Operations. As discussed in Note 3—Revenue Recognition, we currently hold Shoppers stores for sale without an expectation of a supply agreement and therefore no Wholesale sales were recorded within continuing operations. Within the restatement of our segment financial information, we expect to recognize Wholesale segment sales to the majority of the remainder of the Shoppers locations, which will be eliminated upon consolidation as described above.

Subsequent to the restatement of our Consolidated Financial Statements, we expect consolidated net sales, gross profit and operating expenses to increase compared to the current presentation, and expect our consolidated gross profit as a percentage of net sales to increase, which we expect will be partially offset by an increase in operating expenses as a percent of net sales.

We may incur additional costs and charges in the future related to the ~~divesture~~divestiture of ~~Remaining~~ Retail if these locations are subsequently sold, indicators exist that the business may be impaired, or if we incur ~~additional~~employee-related charges or wind-down ~~or employee-related costs or charges.~~costs.

~~Supervalu~~ Professional Services Agreements

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

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Impact of Inflation or Deflation

We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, or pass on pricing changes to our customers. We experienced a mix of inflation and deflation across product categories during the ~~third~~second quarter of fiscal ~~2020.~~2021. In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation of less than one percent in the ~~low single digits in the third~~second quarter of fiscal ~~2020.~~2021. Cost inflation and deflation estimates are based on individual like items sold during the periods being compared. Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales. Under the LIFO method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory.

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~~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. In fiscal 2020, the COVID-19 impact has caused a significant increase in food-at-home expenditures as a percentage of total food expenditures. We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years during time periods that shelter-in-place orders exist until businesses are allowed to fully reopen and any related economic recession has ended.

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

Cost of sales and Gross profit

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

Operating expenses

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

Restructuring, acquisition and integration expenses

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

Interest expense, net

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

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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.

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 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

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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 income (loss) ~~income~~ from continuing operations, less net income attributable to noncontrolling interests, 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~~Goodwill and asset impairment charges, Loss (gain) on sale of assets, certain legal charges and gains, certain other non-cash charges or items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

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Assessment of Our Business Results

The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods ~~indicated:~~indicated. We have revised the following table for the presentation of Retail within continuing operations discussed in Note 1—Significant Accounting Policies in Part II, Item 8 of the Annual Report on Form 10-K.


	13-Week Period Ended						26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		Change		January 30, 2021		February 1, 2020		Change
Net sales	$	6,888,133	$	6,431,382	$	456,751	$	13,560,740	$	12,727,994	$	832,746
Cost of sales	5,897,774		5,514,057		383,717		11,603,882		10,903,458		700,424
Gross profit	990,359		917,325		73,034		1,956,858		1,824,536		132,322
Operating expenses	866,880		862,732		4,148		1,767,842		1,746,420		21,422
Goodwill and asset impairment charges	—		—		—		—		425,405		(425,405)
Restructuring, acquisition and integration related expenses	17,783		36,522		(18,739)		34,211		51,194		(16,983)
Loss on sale of assets	399		524		(125)		169		434		(265)
Operating income (loss)	105,297		17,547		87,750		154,636		(398,917)		553,553
Other expense (income):
Net periodic benefit income, excluding service cost	(17,127)		(3,277)		(13,850)		(34,160)		(14,661)		(19,499)
Interest expense, net	50,944		48,836		2,108		120,077		98,545		21,532
Other, net	(1,674)		(1,220)		(454)		(2,472)		(1,620)		(852)
Total other expense, net	32,143		44,339		(12,196)		83,445		82,264		1,181
Income (loss) from continuing operations before income taxes	73,154		(26,792)		99,946		71,191		(481,181)		552,372
Provision (benefit) for income taxes	16,392		(12,808)		29,200		15,401		(79,763)		95,164
Net income (loss) from continuing operations	56,762		(13,984)		70,746		55,790		(401,418)		457,208
Income (loss) from discontinued operations, net of tax	3,803		(16,076)		19,879		5,099		(12,050)		17,149
Net income (loss) including noncontrolling interests	60,565		(30,060)		90,625		60,889		(413,468)		474,357
Less net income attributable to noncontrolling interests	(1,605)		(650)		(955)		(2,972)		(1,169)		(1,803)
Net income (loss) attributable to United Natural Foods, Inc.	$	58,960	$	(30,710)	$	89,670	$	57,917	$	(414,637)	$	472,554

Adjusted EBITDA	$	206,295	$	131,110	$	75,185	$	365,252	$	252,804	$	112,448

13-Week Period Ended 39-Week Period Ended
(in thousands) May 2, 2020 April 27, 2019 Change May 2, 2020 April 27, 2019 Change
Net sales $ 6,667,681
$ 5,962,620
$ 705,061
$ 18,824,870
$ 14,979,982
$ 3,844,888
Cost of sales 5,811,151
5,174,070
637,081
16,421,838
13,017,318
3,404,520
Gross profit 856,530
788,550
67,980
2,403,032
1,962,664
440,368
Operating expenses 774,376
737,681
36,695
2,300,635
1,852,768
447,867
Goodwill and asset impairment (adjustment) charges —
(38,250 ) 38,250
425,405
332,621
92,784
Restructuring, acquisition and integration related expenses 10,449
19,438
(8,989 ) 54,385
134,567
(80,182 )
Operating income (loss) 71,705
69,681
2,024
(377,393 ) (357,292 ) (20,101 )
Other expense (income):
Net periodic benefit income, excluding service cost (12,758 ) (10,941 ) (1,817 ) (27,419 ) (22,691 ) (4,728 )
Interest expense, net 47,108
54,917
(7,809 ) 145,247
121,149
24,098
Other, net (973 ) 958
(1,931 ) (1,539 ) 231
(1,770 )
Total other expense, net 33,377
44,934
(11,557 ) 116,289
98,689
17,600
Income (loss) from continuing operations before income taxes 38,328
24,747
13,581
(493,682 ) (455,981 ) (37,701 )
Benefit for income taxes (14,849 ) (8,027 ) (6,822 ) (106,330 ) (104,091 ) (2,239 )
Net income (loss) from continuing operations 53,177
32,774
20,403
(387,352 ) (351,890 ) (35,462 )
Income from discontinued operations, net of tax 37,192
24,370
12,822
64,253
47,847
16,406
Net income (loss) including noncontrolling interests 90,369
57,144
33,225
(323,099 ) (304,043 ) (19,056 )
Less net (income) loss attributable to noncontrolling interests (2,238 ) (52 ) (2,186 ) (3,407 ) 116
(3,523 )
Net income (loss) attributable to United Natural Foods, Inc. $ 88,131
$ 57,092
$ 31,039
$ (326,506 ) $ (303,927 ) $ (22,579 )

Adjusted EBITDA $ 222,208
$ 168,175
$ 54,033
$ 475,012
$ 396,942
$ 78,070

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


	13-Week Period Ended				26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net income (loss) from continuing operations	$	56,762	$	(13,984)	$	55,790	$	(401,418)
Adjustments to continuing operations net income (loss):
Less net income attributable to noncontrolling interests	(1,605)		(650)		(2,972)		(1,169)
Total other expense, net	32,143		44,339		83,445		82,264
Provision (benefit) for income taxes	16,392		(12,808)		15,401		(79,763)
Depreciation and amortization	66,534		69,219		143,723		144,360
Share-based compensation	12,673		5,134		26,822		9,059
Goodwill and asset impairment charges(1)	—		—		—		425,405
Restructuring, acquisition and integration related expenses(2)	17,783		36,522		34,211		51,194
Loss on sale of assets	399		524		169		434
Note receivable charges(3)	—		—		—		12,516

Legal (settlement income) reserve charge(4)	—		(654)		—		1,196
Other retail expense(5)	1,394		—		3,003		—
Adjusted EBITDA of continuing operations	202,475		127,642		359,592		244,078
Adjusted EBITDA of discontinued operations(6)	3,820		3,468		5,660		8,726
Adjusted EBITDA	$	206,295	$	131,110	$	365,252	$	252,804

Income (loss) from discontinued operations, net of tax	$	3,803	$	(16,076)	$	5,099	$	(12,050)
Adjustments to discontinued operations net income:
Total other expense, net	—		(3)		—		(64)
Benefit for income taxes	(898)		(4,635)		(372)		(3,342)


Restructuring, store closure and other charges, net	915		24,182		933		24,182
Adjusted EBITDA of discontinued operations	$	3,820	$	3,468	$	5,660	$	8,726

(1)Fiscal 2020 reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge.

(2)Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post Supervalu acquisition. Fiscal 2020 primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs. Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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

(4)Reflects a charge to settle a legal proceeding, net of income received to settle a separate legal proceeding.

(5)Reflects expenses associated with event-specific damages to certain retail stores.

(6)We believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

13-Week Period Ended 39-Week Period Ended
(in thousands) May 2, 2020 April 27, 2019 May 2, 2020 April 27, 2019
Net income (loss) from continuing operations $ 53,177
$ 32,774
$ (387,352 ) $ (351,890 )
Adjustments to continuing operations net income (loss):
Total other expense, net 33,377
44,934
116,289
98,689
Benefit for income taxes⁽¹⁾
(14,849 ) (8,027 ) (106,330 ) (104,091 )
Depreciation and amortization 69,642
71,787
214,002
169,780
Share-based compensation 12,755
9,251
21,307
27,763
Restructuring, acquisition and integration related expenses⁽²⁾
10,449
19,438
54,385
134,567
Goodwill and asset impairment (adjustment) charges⁽³⁾
—
(38,250 ) 425,405
332,621
Note receivable charges⁽⁴⁾
—
—
12,516
—
Inventory fair value adjustment⁽⁵⁾
—
—
—
10,463
Legal reserve charge, net of settlement income⁽⁶⁾
—
2,200
1,196
2,200
Adjusted EBITDA of discontinued operations⁽⁷⁾
57,657
34,068
123,594
76,840
Adjusted EBITDA $ 222,208
$ 168,175
$ 475,012
$ 396,942

Income from discontinued operations, net of tax⁽⁷⁾
$ 37,192
$ 24,370
$ 64,253
$ 47,847
Adjustments to discontinued operations net income:
Less net (income) loss attributable to noncontrolling interests (2,238 ) (52 ) (3,407 ) 116
Total other expense, net 2,242
(369 ) 1,192
(957 )
Provision for income taxes 12,071
7,772
20,447
13,759
Other expense —
591
—
829
Share-based compensation 238
774
744
1,306
Restructuring, store closure and other charges, net⁽⁸⁾
8,152
982
40,365
13,940
Adjusted EBITDA of discontinued operations⁽⁷⁾
$ 57,657
$ 34,068
$ 123,594
$ 76,840


~~(1)~~	~~Fiscal 2020 includes the tax benefit from the CARES Act, which includes the impact of tax loss carrybacks to 35% tax years allowed under the CARES Act.~~

~~(2)~~

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.

~~(3)~~

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.


~~(4)~~	~~Reflects reserves and charges for notes receivable issued by the Supervalu business prior to its acquisition to finance the purchase of stores by its customers.~~


~~(5)~~	~~Reflects a non-cash charge related to the step-up of inventory values as part of purchase accounting.~~


~~(6)~~	~~Reflects a charge to settle a legal proceeding and a charge related to our assessment of legal proceedings, net of income received to settle a legal proceeding.~~

~~(7)~~

Income from discontinued operations, net of tax and Adjusted EBITDA of discontinued operations excludes rent expense of $8.9 million and $11.6 million in the third quarters of fiscal 2020 and 2019, respectively, and $32.5 million and $24.3 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.

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~~(8)~~	~~Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations.~~

RESULTS OF OPERATIONS

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

Net Sales

Our net sales by customer channel was as follows (in ~~millions)~~millions except percentages):


	Net Sales for the 13-Week Period Ended				Increase (Decrease)				Net Sales for the 26-Week Period Ended				Increase (Decrease)
Customer Channel(1)	January 30, 2021		February 1, 2020		$		%		January 30, 2021		February 1, 2020		$		%
Chains	$	3,097	$	2,909	$	188	6	%	$	6,117	$	5,784	$	333	6	%
Independent retailers	1,701		1,561		140		9	%	3,373		3,118		255		8	%
Supernatural	1,298		1,211		87		7	%	2,512		2,322		190		8	%
Retail	621		539		82		15	%	1,216		1,054		162		15	%
Other	568		566		2		—	%	1,149		1,156		(7)		(1)	%
Eliminations	(397)		(355)		(42)		12	%	(806)		(706)		(100)		14	%
Total net sales	$	6,888	$	6,431	$	457	7	%	$	13,561	$	12,728	$	833	7	%

Net Sales for the 13-Week Period Ended Net Sales for the 39-Week Period Ended
Customer Channel May 2,
2020
% of
Net Sales

April 27, 2019⁽¹⁾

% of
Net Sales

May 2, 2020⁽¹⁾
% of Net Sales
April 27, 2019⁽¹⁾
% of Net Sales
Supermarkets $ 4,267
64 % $ 3,701
62 % $ 11,915
63 % $ 8,559
57 %
Supernatural 1,279
19 % 1,102
18 % 3,600
19 % 3,229
21 %
Independents 684
10 % 707
12 % 1,983
11 % 2,041
14 %
Other 438
7 % 453
8 % 1,327
7 % 1,151
8 %
Total net sales $ 6,668
100 % $ 5,963
100 % $ 18,825
100 % $ 14,980
100 %


~~(1)~~	~~Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding adjustments to net sales by customer channel.~~

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

~~Third~~

Second Quarter ~~Variances~~

Our net sales for the ~~third~~second quarter of fiscal ~~2020~~2021 increased approximately ~~$0.71 billion, or 11.8%, to $6.67 billion~~7.1% from ~~$5.96 billion for~~ the ~~third~~second quarter of fiscal ~~2019.~~

Net sales to our supermarkets channel increased by approximately $566 million, or 15.3%, for the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019, and represented approximately 64% and 62% of ou~~r total net sales for the third quarter of fiscal 2020 and 2019, respectively.~~2020. The increase in ~~supermarkets~~ net sales is was primarily driven by strong customer demand in response to the pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

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

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

~~Whole Foods Market is our only supernatural customer, and~~Supernatural net sales ~~to Whole Foods Market for the third quarter of fiscal 2020~~ increased by approximately $177 million, or 16.1%, as compared to the third quarter of fiscal 2019, and accounted for approximately 19% and 18% of our total net sales for the third quarter of fiscal 2020 and 2019, respectively. The increase in net sales to Whole Foods Market is pri~~marily~~primarily due to increased sales related to the pandemic, growth in existing and new product categories, and increased sales to existing ~~locations~~ and new stores, partially offset by the ~~economic impacts~~impact of categories that have been adversely impacted by the ~~COVID-19 pandemic.~~pandemic, such as bulk and ingredients used for prepared foods. Net sales within our supernatural channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other channel.

Net sales to our independents channel decreased by approximately $23 million, or 3.3%, for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, and represented approximately 10% and 12% of our totalRetail’s net sales ~~for the third quarter of fiscal 2020 and 2019, respectively. The decrease in independents net sales is~~increased primarily due to ~~previously lost customers and~~a 15.3% increase in identical store ~~closings, partially offset by strong~~ sales ~~growth in existing customer sales driven by the response~~from higher average basket sizes related to the ~~COVID-19~~ pandemic. Retail identical store sales are defined as net product sales from stores operating since the beginning of the prior-year period, including store expansions and excluding fuel costs and announced planned store dispositions. Identical store sales is a common metric used to understand the sales performance of retail stores as it removes the impact of new and closed stores. The increase in Retail sales included the benefit of a 187% increase in eCommerce sales at Cub Foods.

Net sales to our other channel decreased by approximately $15 million, or 3.3%, for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, and represented approximately 7% and 8% of our totalOther net sales ~~for the third quarter of fiscal 2020 and 2019, respectively. The decrease in other net sales is~~increased primarily due to ~~lower~~higher eCommerce sales, which were primarily offset by a 41% (or $42 million) decline in sales to ~~foodservice~~food service customers ~~and lower military sales~~resulting from the ~~resignation of certain business, partially offset by e-commerce sales growth.~~lower purchases due to the pandemic.

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Year-to-Date ~~Variances~~

Our net sales for fiscal ~~2020~~2021 year-to-date increased approximately ~~$3.84 billion, or 25.7%, to $18.82 billion~~6.5% from ~~$14.98 billion for fiscal 2019 year-to-date. Net sales for~~ fiscal 2020 ~~year-to-date included incremental Supervalu~~year-to-date. The increase in net sales was primarily driven by strong customer demand in response to the pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the ~~first quarter of fiscal 2020 of approximately $3.08 billion. Excluding the incremental first quarter of fiscal 2020 Supervalu net sales,~~pandemic.

Chains net sales increased ~~$768 million, or 5.1%, which was driven primarily by incremental sales resulting from the COVID-19 pandemic and continued growth in our supernatural channel.~~

Net sales to our supermarkets channel for fiscal 2020 year-to-date increased by approximately $3,356 million, or 39.2%, from fiscal 2019 year-to-date, and represented approximately 63% and 57% 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 and a net increase of $543 million, or 6.3% primarily driven by~~ growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the pandemic, partially offset by lower sales from customers and stores lost prior to the pandemic.

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Net sales to Whole Foods Market for fiscal 2020 year-to-date increased by approximately $371 million, or 11.5%, as compared to the prior fiscal year’s comparable period, and accounted for approximately 19% and 21% of our totalSupernatural net sales ~~for fiscal 2020 and 2019 year-to-date, respectively. The increase in net sales to Whole Foods Market is~~increased primarily due to increased sales related to the ~~COVID-19~~ pandemic, growth in existing and new product categories, and increased sales to existing and new stores, ~~prior~~partially offset by the impact of categories that have been adversely impacted by the pandemic, such as bulk and ingredients used for prepared foods.

Retail’s net sales increased primarily due to a 15.5% increase in identical store sales from higher average basket sizes related to the pandemic. The increase in Retail sales included the benefit of a 191% increase in eCommerce sales at Cub Foods.

~~Net sales to our independents channel decreased by approximately $58 million, or 2.8%, during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date, and accounted for 11% and 14% of our total~~Other net sales for fiscal 2020 and 2019 year-to-date, respectively. The decrease in independents net sales includes an increase of $24 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, with the remaining decrease of $82 million, or 4.0% beingdecreased primarily due to ~~lost~~a 41% (or $90 million) decline in sales to food service customers ~~and~~resulting from the lower ~~sales from existing customers and store closings,~~purchases due to the pandemic, which were partially offset by ~~strong sales growth in existing customer sales driven by the response to the COVID-19 pandemic~~higher eCommerce sales.

Net sales to our other channel increased by approximately $176 million, or 15.3%, during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date, and represented approximately 7% and 8% of our total net sales for fiscal 2020 and 2019 year-to-date, respectively. The increase in other net sales is primarily due to an increase of $240 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, partially offset by a decrease of $64 million, or 5.6%, primarily due to lower sales to foodservice customers and lower military sales from the resignation of certain business, partially offset by e-commerce sales growth.

Cost of Sales and Gross Profit

Our gross profit increased ~~$68.0~~$73.0 million, or ~~8.6%~~8.0%, to ~~$856.5~~$990.4 million for the ~~third~~second quarter of fiscal ~~2020,~~2021, from ~~$788.6~~$917.3 million for the ~~third~~second quarter of fiscal ~~2019.~~2020. Our gross profit as a percentage of net sales ~~decreased~~increased to ~~12.85%~~14.38% for the ~~third~~second quarter of fiscal ~~2020~~2021 compared to ~~13.22%~~14.26% for the ~~third~~second quarter of fiscal ~~2019.~~2020. The ~~decrease~~increase in gross profit dollar growth was primarily driven by higher Wholesale and Retail sales volume. The 12 basis point increase in gross profit rate was driven by an increase from Retail, which contributed approximately 0.13% to the growth in the consolidated gross margin rate as a result of lower Retail promotional spending and the Retail segment representing a greater percentage of total net sales. Wholesale and the remaining business’s gross margin rate was ~~primarily driven by a mix shift toward~~approximately flat and included the benefits of lower ~~margin conventional products and lower levels of vendor funding, partially~~shrink offset by lower levels of supplier-related income. Included in gross margin for the second quarter of fiscal 2020 was inventory ~~shrink.~~

shrink expense of approximately $4.2 million, or 0.07% of net sales, associated with customer bankruptcies.

Our gross profit increased ~~$440.4~~$132.3 million, or ~~22.4%~~7.3%, to ~~$2,403.0~~$1,956.9 million for fiscal ~~2020~~2021 year-to-date, from ~~$1,962.7~~$1,824.5 million for fiscal ~~2019~~2020 year-to-date. Our gross profit as a percentage of net sales ~~decreased~~increased to ~~12.77%~~14.43% for fiscal 2021 year-to-date compared to 14.33% for fiscal 2020 ~~year-to-date compared to 13.10%~~year-to-date. The increase in gross profit dollar growth for fiscal ~~2019 year-to-date. Our Gross profit dollar increase for fiscal 2020~~2021 year-to-date when compared to fiscal ~~2019~~2020 year-to-date iswas primarily ~~due to an estimated incremental 12 weeks of~~driven by higher Wholesale and Retail sales volume. The increase in gross profit rate was driven by a mix increase from Retail resulting from lower promotional spending, and the ~~acquired Supervalu business of approximately $347.9 million, net of its related LIFO inventory charge. The remaining increase in Gross profit was $92.5 million, which included~~Retail segment representing a ~~fiscal 2019 year-to-date inventory charge related to a step-up of acquired Supervalu inventory of $10.5 million~~. ~~Gross profit as a~~greater percentage of total net ~~sales decreased primarily due to lower~~sales. In addition, gross profit ~~rates on conventional products and margin dilution from~~included lower levels of supplier-related income, partially offset by the ~~faster growth~~benefits of ~~the supernatural channel relative to the other customer channels, offset in part by~~ lower ~~inbound freight expense. We recorded a~~ ~~LIFO charge of $19.3 million and $13.7 million for fiscal 2020 and 2019 year-to-date, respectively.~~shrink.

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Operating Expenses

Operating expenses increased ~~$36.7~~$4.1 million, or ~~5.0%~~0.5%, to ~~$774.4~~$866.9 million, or ~~11.61%~~12.59% of net sales, for the ~~third~~second quarter of fiscal ~~2020~~2021 compared to ~~$737.7~~$862.7 million, or ~~12.37%~~13.41% of net sales, for the ~~third~~second quarter of fiscal ~~2019.~~2020. Operating expenses ~~for~~in the ~~third~~second quarter of fiscal 2020 included ~~$1.4~~$28.9 million of bad debt expense associated with customer bankruptcies. The remaining decrease in operating expenses as a percent of net sales resulted from leveraging fixed operating expenses over higher net sales and lower benefit costs. Total operating expenses also included share-based compensation expense of $12.7 million and $5.1 million for the second quarters of fiscal 2021 and 2020, respectively.

Operating expenses increased $21.4 million, or 1.2%, to $1,767.8 million, or 13.04% of net sales, for fiscal 2021 year-to-date compared to $1,746.4 million, or 13.72% of net sales, for fiscal 2020 year-to-date. Operating expenses in fiscal 2020 year-to-date included $28.9 million of bad debt expense associated with customer bankruptcies, and $18.8 million of charges and expenses, primarily related to customer notes receivable, surplus property depreciation ~~expense.~~and a legal reserve charge. The remaining decrease in ~~Operating~~operating expenses as a percent of net sales was driven by leveraging fixed operating expenses over higher net sales and ~~administrative expenses and the~~lower benefit ~~of synergy and integration efforts,~~costs, which was partially offset by ~~incremental~~higher operating costs related to ~~COVID-19, including the impact of temporary pandemic-related incentives and additional costs for safety protocols and procedures at the Company’s~~starting up three distribution centers. Total operating expenses also included share-based compensation expense of ~~$12.8~~$26.8 million and ~~$9.3 million for the third quarter of fiscal 2020 and 2019, respectively.~~

Operating expenses increased $447.9 million, or 24.2%, to $2,300.6 million, or 12.22% of net sales, for fiscal 2020 year-to-date compared to $1,852.8 million, or 12.37% of net sales, for 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 fiscal 2019 year-to-date. Operating expenses for fiscal 2020 year-to-date included $26.8 million of customer bankruptcy bad debt expense. In addition, Operating expenses in fiscal 2020 year-to-date included $12.5 million of notes receivable charges, $6.6 million of surplus property depreciation expense and a $1 million legal reserve charge. The decrease in operating expenses, as a percent of net sales, was driven by fixed and variable expense leveraging and the mix impact from the acquired Supervalu business and lower employee costs, including the impact of cost synergies, partially offset by higher bad debt, occupancy and depreciation expenses. Total operating expenses also included share-based compensation expense of $21.3 million and $27.8$9.1 million for fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date, respectively.

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

A goodwill impairment adjustment of $38.3 million was recorded in the third quarter of fiscal 2019, which was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition.

Goodwill and asset impairment charges of $425.4 million were recorded for fiscal 2020 year-to-date, which reflects $421.5 million from an impairment charge on the remaining goodwill attributable to 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 ~~property and equipment~~other asset impairment charges. ~~Goodwill and asset impairment charges of $332.6 million were recorded for fiscal 2019 year-to-date, which reflects a portion of the goodwill recorded from the Supervalu acquisition.~~

Refer to the Executive Overview section above, and Note 6—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on goodwill impairment charges.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were ~~$10.4~~$17.8 million for the ~~third~~second quarter of fiscal 2021, which included $14.7 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition and $3.1 million of closed property charges and costs. Expenses for the second quarter of fiscal 2020 were $36.5 million, which included ~~$8.4~~$20.4 million of closed property ~~reserve~~ charges and costs primarily related to lease asset impairments ~~$1.5~~on Shoppers store and surplus properties exits, $15.4 million of integration related costs primarily related to a multiemployer pension plan withdrawal obligation resulting from distribution center consolidation and $0.7 million of restructuring ~~costs and $0.6 million of integration~~ costs. Expenses incurred were $19.4 million for the third quarter of fiscal 2019, which included $12.3 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, and $6.1 million of other acquisition and integration related costs and $1.1 million of closed property reserve charges related to the divestiture of retail banners.

Restructuring, acquisition and integration related expenses were ~~$54.4~~$34.2 million for fiscal 2021 year-to-date, which included $29.4 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value creation post Supervalu acquisition and $4.8 million of closed property charges and costs. Expenses for fiscal 2020 year-to-date ~~and primarily~~were $51.2 million, which included ~~$25.3~~$24.7 million of integration costs including a multiemployer pension plan withdrawal obligation ~~$25.1~~resulting from distribution center consolidation and a charge for an off-site storage contract, $24.0 million of closed property ~~reserve~~ charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and ~~$4.0~~$2.5 million of restructuring costs. ~~Expenses incurred in fiscal 2019 year-to-date were $134.6 million and primarily included $66.4 million of employee related~~

We expect to incur additional costs ~~due to change-in-control payments made to satisfy outstanding equity awards, severance costs, and benefits costs, $47.5 million of other acquisition~~associated with advisory and integration ~~related~~activities, and distribution center integration costs ~~and $20.6 million closed property reserve charges related to the divestiture of retail banners.~~

~~We may incur additional integration and restructuring costs through the remainder of~~throughout fiscal ~~2020~~2021 related to our operational ~~and administrative~~ restructuring to achieve cost synergies and supply chain efficiencies ofwithin continuing operations. ~~In addition, further restructuring costs may be incurred related to the divestiture of retail operations.~~

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Operating Income (Loss)

Reflecting the factors described above, operating income increased ~~$2.0~~$87.8 million to ~~$71.7~~$105.3 million for the ~~third~~second quarter of fiscal ~~2020, from $69.7~~2021, compared to $17.5 million for the ~~third~~second quarter of fiscal ~~2019.~~2020. The operating income increase was primarily driven by an increase in gross profit in excess of operating expenses and lower ~~restructuring,~~Restructuring, acquisition and integration related expenses ~~partially offset by the goodwill impairment adjustment.~~discussed above.

Reflecting the factors described above, operating ~~loss~~income increased ~~$20.1~~$553.6 million, to $154.6 million for fiscal 2021 year-to-date, from an operating loss of ~~$377.4~~$398.9 million for fiscal 2020 ~~year-to-date, from $357.3 million for fiscal 2019~~ year-to-date. The increase in operating ~~loss~~income was primarily driven by the fiscal 2020 goodwill impairment charge, an increase in ~~goodwill impairment charges and increases in operating expenses~~gross profit in excess of ~~gross profit increases, partially offset by~~operating expenses and lower ~~restructuring,~~Restructuring, acquisition and integration related ~~expenses.~~expenses discussed above.

The operating loss for the third quarter and year-to-date of fiscal 2020 includes $9.1 million and $33.5 million, respectively, of operating lease rent expense and $0.9 million and $4.6 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 loss includes certain retail related overhead costs that are related to retail but are required to be presented within continuing operations.

Total Other Expense, Net


	13-Week Period Ended						39-Week Period Ended							13-Week Period Ended				26-Week Period Ended
(in thousands)	May 2, 2020			April 27, 2019			May 2, 2020			April 27, 2019			(in thousands)	January 30, 2021		February 1, 2020		January 30, 2021		February 1, 2020
Net periodic benefit income, excluding service cost	$	(12,758	)	$	(10,941	)	$	(27,419	)	$	(22,691	)	Net periodic benefit income, excluding service cost	$	(17,127)	$	(3,277)	$	(34,160)	$	(14,661)
Interest expense on long-term debt, net of capitalized interest	41,512			45,594			127,781			96,442			Interest expense on long-term debt, net of capitalized interest	37,793		43,137		74,989		86,676
Interest expense on finance and direct financing lease obligations	2,974			4,455			7,238			10,488
Interest expense on finance lease obligations													Interest expense on finance lease obligations	4,678		2,020		9,546		4,263
Amortization of financing costs and discounts	3,837			4,666			11,570			10,181			Amortization of financing costs and discounts	3,010		3,790		7,009		7,733
Debt refinancing costs and unamortized financing charges	—			395			73			4,561
Loss on debt extinguishment													Loss on debt extinguishment	5,744		—		29,494		73
Interest income	(1,215		)	(193		)	(1,415		)	(523		)	Interest income	(281)		(111)		(961)		(200)
Interest expense, net	47,108			54,917			145,247			121,149			Interest expense, net	50,944		48,836		120,077		98,545
Other, net	(973		)	958			(1,539		)	231			Other, net	(1,674)		(1,220)		(2,472)		(1,620)
Total other expense, net	$	33,377		$	44,934		$	116,289		$	98,689		Total other expense, net	$	32,143	$	44,339	$	83,445	$	82,264

~~Net~~

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The increase in net periodic benefit income, excluding service costs reflects the recognition of expected returns on benefit plan assets in excess of interest costs. Net periodic benefit income for 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 second quarter of fiscal ~~2020. Fiscal 2019~~2021 and year-to-date ~~net periodic benefit income~~fiscal 2021 reflects ~~a partial year~~the recognition of lower interest costs due to a lower discount rate utilized in the ~~acquisition~~measurement of ~~Supervalu near the end of the first quarter of fiscal 2019.~~pension liabilities.

The decrease in interest expense on long-term debt, net of capitalized interest, in the ~~third~~second quarter of fiscal ~~2020 compared~~2021 and year-to-date fiscal 2021 was driven by lower amounts of outstanding debt.

The increase in loss on debt extinguishment costs primarily reflects the acceleration of unamortized debt issuance costs and original issue discounts related to mandatory and voluntary prepayments on the ~~third~~Term Loan Facility made in the second quarter of fiscal ~~2019 was primarily due~~2021 and fiscal 2021 year-to-date. Refer to ~~lower average amounts of outstanding debt and lower average interest rates.~~ Note 8—Long-Term Debt for further information.

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~~finance leases in ~~average outstanding debt driven by Supervalu acquisition financing executed near~~ the ~~end of the first~~second quarter of fiscal ~~2019.~~

~~Interest on finance~~2021 and ~~direct financing leases~~year-to-date fiscal 2021 primarily reflects lease obligations related to retail stores of discontinued operations acquired in the Supervalu acquisition, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases until settlement with the respective landlords. Beginning in the third quarter of fiscal 2020, interest on financing leases includes interest related to a distribution center for which we executed a purchase option with a delayed purchase provision.

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

The effective income tax rate for continuing operations was ~~a benefit~~an expense of ~~38.7%~~22.4% on pre-tax income compared to a benefit of ~~32.4%~~47.8% on pre-tax ~~income~~losses for the ~~third~~second quarters of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively. The change in the effective income tax rate for the ~~third~~second quarter of fiscal ~~2020~~2021 was primarily driven by a ~~tax benefit recorded on net operating~~pre-tax loss ~~deferred tax assets~~of approximately $26.8 million in the ~~third~~second quarter of fiscal 2020 compared to pre-tax income of approximately $73.2 million in ~~connection with~~ the ~~CARES Act, discussed above.~~second quarter of fiscal 2021. In addition, the change in the rate is partially driven by a discrete tax benefit of approximately $2.8 million in the second quarter of fiscal 2021 related to the release of unrecognized tax positions versus a discrete tax benefit of approximately $0.5 million for this item in the second quarter of fiscal 2020. The tax provision ~~included $26.9~~had $3.1 million and ~~$3.2~~$0.1 million of discrete tax ~~benefit~~benefits, including those mentioned above, for the ~~third quarter~~second quarters of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively. The discrete tax benefit for the third quarter of fiscal 2020 was primarily due to a tax benefit of approximately $28.4 million driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above.

The effective income tax rate for continuing operations was ~~a benefit~~an expense of ~~21.5%~~21.6% on pre-tax income compared to a benefit of ~~22.8%~~16.6% on pre-tax losses for fiscal ~~2020~~2021 year-to-date and fiscal ~~2019~~2020 year-to-date, respectively. The ~~decrease~~change in the effective income tax ~~benefit~~ rate was primarily driven by a discrete tax benefit ~~of approximately $8.3 million recorded~~ in fiscal ~~2019~~2021 year-to-date for employee stock vestings versus a discrete tax expense for this item in fiscal 2020 year-to-date, as well as a discrete tax benefit for the release of unrecognized tax positions in fiscal 2021 year-to-date versus a discrete tax expense for this item in fiscal 2020 year-to-date. In addition, fiscal 2020 year-to-date was impacted by a goodwill impairment charge that did not ~~recur~~repeat in fiscal ~~2020, as well as a goodwill impairment benefit~~2021 year-to-date. The tax provision had $3.5 million and $64.4 million of ~~approximately $72.2 million recorded in fiscal 2019 compared to a goodwill impairment benefit of approximately $66.4 million recorded in fiscal 2020. In addition, effective income~~discrete tax ~~rate~~benefits for fiscal 2021 and fiscal 2020 ~~includes a benefit of approximately $28.4 million related to revaluation of net operating loss deferred tax assets in connection with the CARES Act.~~year-to-date, respectively.

Income (Loss) from Discontinued Operations, Net of Tax

The results of operations for the ~~third~~second quarter of fiscal ~~2020~~2021 reflect net sales of ~~$667.0~~$23.0 million for which we recognized ~~$187.8~~$7.2 million of gross profit and Income (loss) from discontinued operations, net of tax of ~~$37.2~~$3.8 million. As noted above, pre-tax income for the third quarter of fiscal 2020 from discontinued operations excludes $9.1 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 $8.1 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. Net sales and gross profit of discontinued operations ~~increased $26.9~~decreased $52.1 million and ~~$10.9~~$11.3 million, respectively, for the ~~third~~second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020 ~~as compared to last year~~ primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020, which was partially offset by an increase in identical store sales results driven by the impacts of the ~~COVID-19 pandemic, which was partially offset by the lower store base operating in the third quarter of fiscal 2020 compared to last year.~~pandemic.

The results of operations for fiscal ~~2020~~2021 year-to-date reflect net sales of ~~$1,891.5~~$47.8 million for which we recognized ~~$520.3~~$15.3 million of gross profit and Income (loss) from discontinued operations, net of tax of ~~$64.3~~$5.1 million. ~~As noted above, pretax income~~Net sales and gross profit of discontinued operations decreased $122.9 million and $33.8 million, respectively, for the fiscal 2021 year-to-date as compared to fiscal 2020 year-to-date primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020 year-to-date, which was partially offset by an increase in identical store sales results driven by the impacts of the pandemic. Discontinued operations for fiscal 2020 year-to-date ~~excludes $33.5~~included $24.2 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 $40.3 million of~~and costs primarily related to store closures charges and expenses, and asset impairment charges related to exited locations. Net sales and gross profit of discontinued operations increased $477.8 million and $137.9 million, respectively, for the fiscal 2020 year-to-date as compared to last year primarily due the incremental twelve weeks of discontinued operations and an increase in identical store sales resulting driven by the impacts of the COVID-19 pandemic, which was partially offset by the lower store base operating during fiscal 2020 year-to-date compared to last year.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note ~~18—~~16—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

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

Reflecting the factors described in more detail above, ~~net~~Net income attributable to United Natural Foods, Inc. was ~~$88.1~~$59.0 million, or ~~$1.60~~$1.00 per diluted common share, for the ~~third~~second quarter of fiscal ~~2020,~~2021, compared to a net ~~income~~loss of ~~$57.1~~$30.7 million, or ~~$1.12~~$0.57 loss per diluted common share, for the ~~third~~second quarter of fiscal ~~2019.~~2020.

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Reflecting the factors described in more detail above, ~~we incurred a net loss~~Net income attributable to United Natural Foods, Inc. ~~of $326.5~~was $57.9 million, or ~~$6.10~~$0.98 per diluted common share, for fiscal 2021 year-to-date, compared to a net loss of 414.6 million, or $7.77 loss per diluted common share, for fiscal 2020 year-to-date, ~~compared to net loss of 303.9 million, or $5.99 per diluted common share, for fiscal 2019 year-to-date, primarily~~which was driven lower due to goodwill impairment charges.

As described in more detail in Note ~~12—~~10—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in ~~the second quarter of~~ fiscal ~~2020,~~2021 year-to-date, we granted restricted stock units and performance share units representing a right to receive an aggregate of ~~5.8~~2.6 million shares of common stock under our 2020 Equity Incentive Plan.

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As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2019 we issued approximately 2.0 million shares of common stock, of which 0.3 million shares were issued through the third quarter of fiscal 2019, to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year. During the third quarter of fiscal 2020, the Company issued approximately 1.1 million shares of common stock at an average market price of $11.12 per share for $12.2 million of cash. Proceeds from these issuances were used to fund settlement of replacement award obligations. As of May 2, 2020, we have approximately 1.7 million additional shares authorized for issuance and registered with the SEC in order to satisfy replacement award and option issuance obligations.

LIQUIDITY AND CAPITAL RESOURCES

Highlights

•Total liquidity as of ~~May 2, 2020~~January 30, 2021 was ~~$1.21~~$1.16 billion and ~~was comprised~~consisted of the following:


◦	◦Unused credit under our revolving line of credit was $1,153.9 million as of May 2, 2020, which increased $234.7 million from $919.2 million as of August 3, 2019, primarily due to net payments made on the ABL Credit Facility as cash flow generated from the business was utilized to reduce outstanding debt.


◦	~~Cash and cash equivalents was $56.4 million as of May 2, 2020, which increased $14.1 million from $42.4 million as of August 3, 2019.~~

~~We paid the remaining maturities~~ under our ~~364-day~~ABL Credit Facility was $1,117.8 million, which decreased $117.0 million from $1,234.8 million as of August 1, 2020, primarily due to an incremental borrowing under the ABL Credit Facility in the second quarter of fiscal 2021 to fund the voluntary prepayment of $150.0 million on the Term Loan Facility.

◦Cash and cash equivalents was $40.5 million, which decreased $6.5 million from $47.0 million as of August 1, 2020.

•Our total debt decreased $110.4 million to $2,387.2 million as of January 30, 2021 from $2,497.6 million as of August 1, 2020, primarily driven by net positive cash flows from operating activities, partially offset by cash capital expenditures, during fiscal 2021 year-to-date.

•Subsequent to the end of the second quarter of fiscal 2021, we amended our Term Loan Agreement which, among other things, reduced the applicable margin for LIBOR and base rate loans under the Term Loan Facility by 75 basis points.

•In the second quarter of fiscal 2021, we made a voluntary prepayment of $150.0 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs. This prepayment will count towards satisfying any requirement to make a mandatory prepayment with Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, if any, which would be due in fiscal 2022.

•In the first quarter of fiscal ~~2020,~~2021, we issued $500.0 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”) and ~~as a result, we have no material scheduled maturities due until fiscal 2024, although prepayments may be required upon~~utilized 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 decreased $345.6 million to $2,560.9 million as of May 2, 2020 from $2,906.5 million as of August 3, 2019, primarily related to~~ net ~~payments made on~~proceeds and borrowings under the ABL Credit Facility ~~and~~to make a $500.0 million prepayment on our ~~364-day~~Term Loan Facility. In addition, during the first quarter of fiscal 2021, the Company made $108.0 million of additional repayments under the Term Loan Facility, ~~payment.~~

~~Scheduled~~including $72.0 million related to cash flow generated in fiscal 2020, as required under the Term Loan Agreement and a voluntary prepayment of $36.0 million with incremental borrowings under the ABL Credit Facility. Other debt maturities are expected to be ~~$7.6~~$6.5 million ~~for the remainder of~~in fiscal ~~2020 and~~2021. We are also obligated to make payments to reduce finance lease ~~obligations are expected to be approximately $3.3 million for the remainder of fiscal 2020.~~obligations. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to ~~and will,~~ be used to make additional Term Loan Facility ~~payments.~~payments or to be reinvested in the business.

•We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from asset sales or borrowings under the ABL Credit ~~Facility.~~Facility, which expires in fiscal 2024.

•Working capital ~~decreased $213.1~~increased $20.2 million to ~~$1,245.9~~$1,355.1 million as of ~~May 2, 2020~~January 30, 2021 from ~~$1,459.0~~$1,334.8 million as of August ~~3, 2019,~~1, 2020, primarily due to ~~an increase in accounts payable~~a reduction of the current portion of long-term debt resulting from inventory being sold through faster than payments are made to vendors, the adoption of the new lease standard from the recognition of a new current portion liability for operating leases, the payment of a current maturity under the Term Loan Facility ~~and inventory reductions, offset in part by increases in accounts receivable.~~Excess Cash Flow prepayment described above.

Sources and Uses of Cash

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

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

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

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

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Long-Term Debt

During fiscal ~~2020~~2021 year-to-date, we ~~repaid~~borrowed a net ~~$264.0~~$128.3 million under the ABL Credit Facility, ~~and~~ repaid ~~$87.4~~$758.0 million ~~of scheduled maturities under~~on the Term Loan ~~Facility.~~Facility related to mandatory prepayments and voluntary prepayments, and issued $500.0 million of Senior Notes. Refer to Note 9—8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement ~~does~~and Senior Notes do 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~~if the adjusted aggregate availability (as defined in the ABL Loan Agreement) is ever less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. We 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 Term Loan Agreement, ABL Loan Agreement and ~~the Term Loan Agreement~~Senior Notes contain certain ~~customary~~ operational and informational ~~covenants.~~covenants customary for debt securities of these types that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. We were in compliance with all such covenants for all periods presented.. 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

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

As of ~~May 2, 2020,~~January 30, 2021, we had an aggregate of ~~$2.09 billion~~$1,485.0 million of floating rate notional debt ~~hedged~~subject to active interest rate swap contracts, which effectively hedge the LIBOR component of our interest rate payments through pay fixed and receive floating interest rate swap ~~contracts to effectively fix the LIBOR component of our floating LIBOR based debt at~~agreements. These fixed rates ~~ranging~~range from ~~0.454%~~1.795% to 2.959%, with maturities between ~~May 2020~~April 2022 and October 2025. The fair ~~values~~value of these interest rate derivatives represents a total net liability of ~~$140.4~~$101.2 million and are subject to volatility based on changes in market interest rates. See Note 8—7—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

In the first quarter of fiscal 2021, we paid $11.3 million to terminate $954.0 million of notional value interest rate swaps, $504.0 million of which were effective interest swaps and $450.0 million of which were forward starting. The termination payment reflects the amount of accumulated other comprehensive loss that will continue to be amortized into interest expense over the original interest rate swap contract terms as long as the hedged interest rate transactions are still probable of occurring.

From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of ~~May 2, 2020,~~January 30, 2021, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding. Gains and losses and the outstanding net ~~asset~~liability from these arrangements are insignificant.

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Capital Expenditures

Our capital expenditures for fiscal ~~2020~~2021 year-to-date were ~~$118.2~~$91.5 million, compared to ~~$137.0~~$91.1 million for fiscal ~~2019~~2020 year-to-date, aan ~~decrease~~increase of ~~$18.8~~$0.4 million. ~~Fiscal 2020~~In fiscal 2021 year-to-date, ~~includes~~our capital expenditures ~~for distribution center expansions of approximately $33 million (primarily the Ridgefield, WA expansion), new distribution centers of approximately $21 million, and~~principally included information technology ~~equipment~~ and ~~other. We estimate we will spend approximately $190 million for fiscal 2020.~~supply chain expenditures. Fiscal ~~2020~~2021 capital spending is expected to be in the range of $250 million to $300 million and include projects that optimize and expand our distribution network and our technology platform. Longer term, capital spending is expected to be at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

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Cash Flow Information

The following summarizes our Condensed Consolidated Statements of Cash Flows:


	26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		Change
Net cash provided by operating activities of continuing operations	$	205,675	$	34,730	$	170,945
Net cash used in investing activities of continuing operations	(51,705)		(80,270)		28,565
Net cash (used in) provided by financing activities of continuing operations	(163,492)		15,649		(179,141)
Net cash provided by discontinued operations	2,791		26,937		(24,146)
Effect of exchange rate on cash	265		19		246
Net decrease in cash and cash equivalents	(6,466)		(2,935)		(3,531)
Cash and cash equivalents, at beginning of period	47,117		45,263		1,854
Cash and cash equivalents, at end of period	$	40,651	$	42,328	$	(1,677)

39-Week Period Ended
(in thousands) May 2, 2020 April 27, 2019 Change
Net cash provided by operating activities of continuing operations $ 311,138
$ 6,374
$ 304,764
Net cash used in investing activities of continuing operations (91,599 ) (2,249,817 ) 2,158,218
Net cash (used in) provided by financing activities of continuing operations (362,960 ) 2,140,607
(2,503,567 )
Net cash flows from discontinued operations 157,185
120,627
36,558
Effect of exchange rate on cash (290 ) (226 ) (64 )
Net increase in cash and cash equivalents 13,474
17,565
(4,091 )
Cash and cash equivalents, at beginning of period 45,263
23,315
21,948
Cash and cash equivalents at end of period $ 58,737
$ 40,880
$ 17,857

The increase in net cash provided by operating activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to lower cash utilized to build inventories, and higher ~~amounts of cash provided in fiscal 2020 year-to-date related to working capital benefits from the sell through of inventory~~earnings before taxes, depreciation and collection of receivables faster than payments were made on accounts payable related to inventory. In fiscal 2019 year-to-date, we benefited from the reduction of the seasonally high levels of inventoryamortization, and accounts receivable at the time of the Supervalu acquisition; however, these cash inflows were offset in part by decreases from cash payments made in 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.impairments.

The decrease in net cash used in investing activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to ~~$2,282.3 million of~~higher cash ~~paid to purchase Supervalu in fiscal 2019 year-to-date, partially offset by $149.7 million of less cash received from~~proceeds for the sale of property and ~~equipment, primarily due to cash received from the sale and leaseback of two distribution centers in fiscal 2019 year-to-date, one of which was a short-term lease related to the exit of that facility.~~equipment.

The ~~decrease~~increase in net cash ~~provided by~~used in financing activities of continuing operations for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to fiscal 2019 year-to-date borrowings on long-term debt to finance the Supervalu acquisition, and a net decrease in cash provided by the revolving credit facility borrowings of $1,270.9 million, which was driven by borrowings to finance the Supervalu acquisition in fiscal 2019 year-to-date, offset in part by net payments made in fiscal 2020 year-to-date from operating activities cash flows in excess of investing activities. These decreases in cash provided by financing activities, were offset in part by a decrease inhigher payments of long-term debt attributable to the mandatory and ~~finance lease obligations of $625.0 million driven~~voluntary prepayments on the Term Loan Facility, partially offset by new borrowings from the ~~repayment of acquired senior notes~~Senior Notes.

The decrease in ~~fiscal 2019 year-to-date and $62.6 million of payments for debt issuance costs in fiscal 2019 year-to-date.~~

~~Net~~ cash flows from discontinued operations ~~primarily include operating activity cash flow from operating income of the retail disposal groups. The increase in net cash flows from discontinued operations is~~for fiscal 2021 year-to-date compared to fiscal 2020 year-to-date was primarily due to lower investing activities cash flows generated from operations in fiscal 2020 year-to-date as a result of higher earnings, inventory sell through and an increase in accounts payable, which was partially offset by 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 proceedsflow from the sale of ~~a former dedicated retail distribution center and retail stores.~~property.

Other

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock. The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million. We did not purchase any shares of our common stock in fiscal ~~2020~~2021 and ~~2019~~2020 year-to-date pursuant to the share repurchase program. As of ~~May 2, 2020,~~January 30, 2021, we have $175.8 million remaining authorized under the share repurchase program. We do not expect to purchase shares under the share repurchase program during fiscal ~~2020.~~2021. Additionally, our ABL Credit Facility, Term Loan Facility, and Senior Notes contain terms that limit our ability to repurchase shares of common stock above certain levels unless certain conditions and financial tests are met.

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Pension and Other Postretirement Benefit Obligations

In fiscal ~~2020, $8.3 million of minimum~~2021, no pension contributions are required to be made under either the SUPERVALU Inc. Retirement Plan or the Unified Grocers, Inc. Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). ~~No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan under ERISA in fiscal 2020.~~ We anticipate fiscal ~~2020 discretionary~~2021 non-qualified pension contributions and ~~required minimum~~ other postretirement benefit plan contributions to be approximately ~~$0.0 million and $6.0 million, respectively.~~$5.3 million. We fund our defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by us, including our external actuarial consultant, and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums, or in order to achieve exemption from participant notices of underfunding.

~~Lump Sum Pension Settlement~~

Segment Results of Operations

~~On August~~

In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 14—Business Segments within Part I, Item 1 ~~2019,~~of this Quarterly Report on Form 10-Q and the ~~Company amended~~above table within the ~~SUPERVALU Retirement Plan~~Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.


	13-Week Period Ended						26-Week Period Ended
(in thousands)	January 30, 2021		February 1, 2020		Change		January 30, 2021		February 1, 2020		Change
Net sales:
Wholesale	$	6,608,775	$	6,206,918	$	401,857	$	13,040,058	$	12,274,225	$	765,833
Retail	620,871		538,629		82,242		1,215,782		1,053,855		161,927
Other	55,428		41,073		14,355		111,040		106,152		4,888
Eliminations	(396,941)		(355,238)		(41,703)		(806,140)		(706,238)		(99,902)
Total Net sales	$	6,888,133	$	6,431,382	$	456,751	$	13,560,740	$	12,727,994	$	832,746
Continuing operations Adjusted EBITDA:
Wholesale	$	186,768	$	102,454	$	84,314	$	309,729	$	208,766	$	100,963
Retail	25,330		11,428		13,902		49,612		21,990		27,622
Other	(7,845)		14,425		(22,270)		(3,695)		12,828		(16,523)
Eliminations	(1,778)		(665)		(1,113)		3,946		494		3,452
Total continuing operations Adjusted EBITDA	$	202,475	$	127,642	$	74,833	$	359,592	$	244,078	$	115,514

Net Sales

Second Quarter

Wholesale’s net sales increased primarily due to ~~provide for a lump sum settlement window. On August 2, 2019,~~growth in sales to existing customers in the ~~Company sent plan participants lump sum settlement election offerings that committed the plan to pay certain deferred vested pension plan participants~~Chains, Independent retailers and ~~retirees, who make such an election, a lump sum payment~~ Supernatural channels. Sales growth was primarily driven by strong customer demand in ~~exchange for their rights to receive ongoing payments from the plan. The lump sum payment amounts are equal~~response to the ~~present value of~~pandemic as well as the ~~participant’s pension~~ benefits from cross selling, which was partially offset by lower sales from previously lost customers and ~~were made~~stores prior to ~~certain former (i) retired associates and beneficiaries who are receiving their monthly pension benefit payment and (ii) terminated associates who are deferred vested~~the pandemic.

Retail’s net sales increased primarily due to a 15.3% increase in identical store sales from higher average basket sizes related to the pandemic.

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

Year-to-Date

Wholesale’s net sales increased primarily due to growth in sales to existing customers in the ~~plan, had not yet begun receiving monthly pension benefit payments~~Chains, Independent retailers and ~~who are not eligible~~Supernatural channels. Sales growth was primarily driven by strong customer demand in response to the pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

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Retail’s net sales increased primarily due to a 15.5% increase in identical store sales from higher average basket sizes related to the pandemic.

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

Adjusted EBITDA

Second Quarter

Wholesale’s Adjusted EBITDA increased 82.3% 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 paymentssecond quarter of ~~$664.0 million to plan participants during~~fiscal 2021 from the second quarter of fiscal 2020. The ~~lump sum settlement payments resulted in a non-cash pension settlement charge of $10.3 million in~~increase was driven by leveraged sales growth. Wholesale’s gross profit dollar growth for the second quarter of fiscal ~~2020~~2021 was $49.5 million and gross profit rate was flat to the second quarter of fiscal 2020; however, it included the benefits of lower shrink offset by lower levels of supplier-related income. Wholesale’s operating expense, excluding depreciation and amortization and stock-based compensation, decreased $34.8 million driven by $28.9 million of lower bad debt expense associated with customer bankruptcies. Wholesale’s operating expense rate decreased 117 basis points primarily driven by leveraging fixed and variable costs, and lower bad debt expense. Wholesale depreciation expense decreased $7.0 million compared to last year.

Retail’s Adjusted EBITDA increased 121.6% for the second quarter of fiscal 2021 from the ~~acceleration~~second quarter of ~~a portion~~fiscal 2020. The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores. Wholesale’s gross profit dollar growth for the second quarter of fiscal 2021 was $26.3 million and gross profit rate increased 76 basis points from lower promotional activity. Retail’s operating expense increased $11.4 million, excluding depreciation and amortization and stock-based compensation, and operating expense rate decreased 133 basis points driven by fixed and variable cost leveraging. Retail’s depreciation and amortization expense increased $5.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the ~~accumulated unrecognized actuarial loss,~~fourth quarter of fiscal 2020 for which we are required to begin recording depreciation and amortization expense.

Year-To-Date

Wholesale’s Adjusted EBITDA increased 48.4% for fiscal 2021 year-to-date from fiscal 2020 year-to-date. The increase was driven by leveraged sales growth, which was ~~based on~~partially offset by higher operating costs related to starting up three distribution centers. Gross profit dollar growth for fiscal 2021 year-to-date was $77.8 million and gross profit rate decreased 13 basis points driven by lower supplier income, partially offset by lower shrink. Wholesale’s operating expense increased $23.2 million, excluding depreciation and amortization and stock-based compensation. Wholesale’s operating expense rate decreased 80 basis points primarily driven by leveraging fixed and variable costs, and lower bad debt expense, which was partially offset by higher operating costs related to starting up three distribution centers. Wholesale depreciation expense decreased $7.2 million.

Retail’s Adjusted EBITDA increased 125.6% for fiscal 2021 year-to-date from fiscal 2020 year-to-date. The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores. Gross profit dollar growth for fiscal 2021 year-to-date was $53.4 million and gross profit rate increased 87 basis points from lower promotional activity. Retail’s operating expense increased $23.9 million, excluding depreciation and amortization and stock-based compensation, and operating expense rate decreased 125 basis points driven by fixed and variable cost leveraging. Retail’s depreciation and amortization expense increased $11.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the ~~fair value~~fourth quarter of ~~SUPERVALU Retirement Plan assets~~fiscal 2020 for which we are required to begin recording depreciation and ~~remeasured liabilities. As a result~~amortization expense.

Table 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.Contents

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 ~~May 2, 2020.~~January 30, 2021. We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions. We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note ~~17—~~15—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption Guarantees and Contingent Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q for further information regarding our outstanding guarantees and contingent liabilities.

Multiemployer Benefit Plans

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

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

Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that would require us to record a withdrawal liability. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans, and recognized continuing and discontinued operations expense, of ~~$41~~$52 million in fiscal ~~2019.~~2020. In fiscal ~~2020,~~2021, we expect to contribute approximately ~~$37~~$45 million related to continuing and discontinued operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, it could trigger a partial or complete withdrawal that would require us to record a withdrawal liability. Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time.

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

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

Contractual Obligations

Except as otherwise disclosed in Note 9—8—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 since the end of fiscal ~~2019.~~2020. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August ~~3, 2019~~1, 2020 for additional information regarding the Company’s contractual obligations.

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Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended August ~~3, 2019.~~1, 2020.

Seasonality

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and 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.

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(b) Changes in internal controls. On October 22, 2018, we completed the acquisition of 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, thereThere has been no change in our internal control over financial reporting that occurred during the ~~third~~second quarter of fiscal ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in routine litigation or other legal proceedings that arise in the ordinary course of our business, including investigations and claims regarding employment law, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, real estate and antitrust. Other than as set forth below and in Note ~~17—~~15—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, which is incorporated herein, there are no pending material legal proceedings to which we are a party or to which our property is subject.

In 2016, as part of a hazardous waste enforcement campaign by the California Attorney General’s Office and local district attorneys, Unified Grocers received a subpoena from the Yolo County District Attorney regarding hazardous waste management and storage at its Stockton and Commerce, California distribution centers. We have provided requested documents and cooperated fully with the investigation. On May 24, 2018, the District Attorney toured the Stockton distribution center and generally found the distribution center to be in compliance, and minor items noted regarding labeling have been addressed. ~~We are in negotiations~~In the second quarter of fiscal 2021, we negotiated a settlement with the District Attorney, ~~to reach~~which includes the payment of an immaterial amount for penalties and costs as well as certain agreed upon additional reporting and compliance obligations. The settlement is memorialized in a ~~settlement, which we expect will be immaterial in amount but may include penalties~~Stipulation for Entry of ~~$100,000 or more.~~Final Judgment and Permanent Injunction signed by all parties. The Court entered the order approving the final judgment and injunction on December 10, 2020.

Item 1A. Risk Factors

~~Except as described below, there~~There have been no material changes to our risk factors contained in Part I, Item 1A. Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August ~~3, 2019.~~

Pandemics or disease outbreaks, such as the COVID-19 pandemic, may disrupt our business, including among other things, increasing our costs, impacting our supply chain, and driving change in customer and consumer demand for our products, and could have a material adverse impact on our business.

The outbreak of COVID-19 in the United States and Canada has had sudden and significant impacts on our industry, including increased demand for the products we distribute as consumers began pantry loading and food-at-home increased due to social distancing and stay-at-home orders. This increased wholesale customer and end-consumer demand may decrease relative to current levels if and when the need for social distancing and stay-at-home mandates decreases, and we are unable to predict the nature and timing of when that impact may occur. These measures have also had an adverse impact on the economies of North America. The ultimate impact of COVID-19 on our business and the economy, and the duration thereof, is uncertain.

1, 2020.

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Our business may be negatively impacted as a result of the COVID-19 outbreak. For example, we have incurred, and expect to continue to incur, increased costs, including: labor costs resulting from the payment of temporary state of emergency bonuses that we implemented in March 2020, overtime, paid sick leave, or leaves of absence; costs associated with safety measures throughout our facilities, including enhanced sanitation, social distancing practices, such as partitions, decals, pre-shift temperature screenings, and the provision of personal protective equipment to our associates; and other operating costs due to short-term significant increases in demand spikes. If there were a rapid reduction in demand for the products we distribute, and we were unable to sufficiently reduce these costs, our results may be negatively impacted. We have experienced higher than usual levels of out-of-stocks leading to reduced fill rates, which may result in higher costs, fees, or penalties. We have experienced temporary facility closures due to outbreaks, and we may experience future facility closures due to additional outbreaks, reduced workforce or government mandates. Changes in consumer purchasing habits, including potential reduced sales to our wholesale customer in the future due to previous pantry-loading activities that occurred in the third fiscal quarter of 2020 may negatively impact our results. In addition, our business could be negatively impacted by reduced workforces due to illness or other restrictions related to COVID-19; a shortage of qualified labor to support meeting increased demand; any failure of third parties on which we rely, including our suppliers, contract manufacturers, contractors and external business partners to meet their obligations to us, or significant disruptions in their ability to do so; or diversion of management’s attention, including if any key employee becomes ill, and resources primarily focused on reducing operating expenses may be redirected. We cannot predict the duration of the impact of COVID-19 or any related policies, such as stay-at-home orders or business or school closures. In the near term, we expect our inventory and sales levels to stabilize to higher than pre-COVID levels, and we expect to utilize cash flow to pay down accounts payable, which would result in higher levels of inventory and accounts receivable than prior to the pandemic. If there were a rapid reduction in demand for the products we distribute, our results and cash flows may be negatively impacted if we are unable to monetize working capital.

Any of the foregoing factors, or other effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage the Company’s financial condition, results of operations, cash flows and its liquidity position, possibly to a significant degree. Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control.

The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates and whether additional waves of COVID-19 will affect the United States and Canada, our ability and the ability of our suppliers to continue to operate manufacturing facilities and maintain the supply chain without material disruption, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and purchasing habits. We cannot predict the duration or scope of the disruption. Therefore, the ultimate financial impact cannot be reasonably estimated at this time.

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

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


(in millions, except shares and per share amounts)	Total Number of Shares Purchased(2)	Average Price Paid Per 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):
November 1, 2020 to December 5, 2020	320	$	16.62	—	$	—
December 6, 2020 to January 2, 2021	1,655	15.63		—	—
January 3, 2021 to January 30, 2021	347	22.81		—	175.8
Total	2,322	$	16.84	—	$	—

(1)The reported periods conform to our fiscal calendar.

(2)These amounts represent the deemed surrender by participants in our compensatory stock plans of 2,322 shares of our common stock to cover taxes from the vesting of restricted stock awards and restricted stock units granted under such plans.

(3)As of January 30, 2021, there was approximately $175.8 million that may yet be purchased under the share repurchase program. There were no share repurchases under the share repurchase program in the second quarter of fiscal 2021.

Item 5. Other Information

(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⁽³⁾
Period⁽¹⁾:

February 2, 2020 to February 29, 2020 —
$ —
—
$ —
March 1, 2020 to March 28, 2020 16,190
7.39
—
—
March 29, 2020 to May 2, 2020 9,754
11.94
—
175.8
Total 25,944
$ 9.10
—
$ —

On March 9, 2021, we entered into the Second Amendment to Mr. Spinner’s Amended and Restated Employment Agreement (“Employment Agreement”), which had been amended pursuant to the First Amendment entered into on February 6, 2020 (“First Amendment”). In the First Amendment, Mr. Spinner agreed to serve as the Company’s CEO until the earlier of July 31, 2021, or the appointment of a new CEO as his successor. The First Amendment set forth certain payments to Mr. Spinner in connection with his agreement to extend the Employment Agreement significantly beyond Mr. Spinner’s desired retirement date.


~~(1)~~	~~The reported periods conform to our fiscal calendar.~~


~~(2)~~	These amounts represent the deemed surrender by participants in our compensatory stock plans of 25,944 shares of our common stock to cover taxes from the vesting of restricted stock awards and restricted stock units granted under such plans.

~~(3)~~

As of May 2, 2020, there was approximately $175.8 million that may yet be purchased under the share repurchase program. There were no share repurchases under the share repurchase program in the third quarter of fiscal 2020.

With the active continuation of the Company’s search for a CEO to replace Mr. Spinner, which, as previously announced, includes both internal and external candidates, the Board requested and Mr. Spinner has agreed, to extend the date of his services as either CEO, or after a new CEO is appointed, to provide consultancy services, as applicable, for an additional three months from the end of his current Employment Agreement (July 31, 2021), to October 31, 2021.

In particular, the Second Amendment provides that Mr. Spinner will continue to serve as CEO until his successor is appointed (the “Transition Date”), but no later than October 31, 2021; and, Mr. Spinner will, at the Company’s discretion, continue to serve as an executive management and board advisor for twelve months after the Transition Date. In exchange for Mr. Spinner agreeing to serve as the Company’s CEO until the Transition Date, and thereafter to provide consultancy services to the Company, if applicable, until at least October 31, 2021, and, at the Company’s discretion, for up to twelve months after the Transition Date, the Company has agreed, that:

a.with respect to the Company’s 2021 fiscal year, Mr. Spinner’s annual cash incentive compensation (short-term bonus) that otherwise would be prorated under the First Amendment if Mr. Spinner ceased being CEO prior to July 31, 2021, will not be prorated regardless of when the Transition Date occurs;

b.with respect to the Company’s 2022 fiscal year, provided that Mr. Spinner is serving as CEO on or after August 1, 2021, Mr. Spinner’s 2022 cash incentive compensation shall be prorated, on an annual basis based on the number of full calendar months elapsed in the fiscal year between August 1, 2021 and the Transition Date (three months maximum to October 31, 2021), based on Mr. Spinner’s cash incentive target of $1,800,000;

c.Mr. Spinner’s fiscal 2021 equity award under the long-term incentive plan, granted in October of 2020, that otherwise would be prorated under the First Amendment if Mr. Spinner ceased being CEO prior to October 12, 2021, will not be prorated regardless of when the Transition Date occurs; and

d.as of the Transition Date, when Mr. Spinner ceases to be CEO, and begins to provide consultant services, his compensation as CEO shall end, except as described above, and he will receive, on an annualized basis, $250,000 in consideration for the consultant services.

Table of ~~contents~~Contents

The Second Amendment also expressly provides that Mr. Spinner shall not be eligible for any additional equity grants under the long-term incentive plan whatsoever, for fiscal year 2022 or otherwise, even if he remains the Company’s CEO after the fiscal year 2022 equity grant date on or about October 15, 2021. Except as described above, all of the other material terms of Mr. Spinner’s Amended and Restated Employment Agreement remain substantially unchanged and in full force and effect. A copy of the Second Amendment to Amended and Restated Employment Agreement is filed herewith as Exhibit 10.11.

On March 8, 2021, in connection with the Company’s ongoing CEO search, we entered into a Retention Agreement with Christopher Testa, our President. Pursuant to the agreement, Mr. Testa will be entitled to a retention payment of $675,000, provided that he continues his service with the Company through February 1, 2022, or upon his earlier termination by the Company other than for Cause (as defined in the Retention Agreement). A copy of the Retention Agreement is filed herewith as Exhibit 10.10.

Table of Contents

Item 6. Exhibits

Exhibit Index


Exhibit No.		Description


~~Exhibit No.~~		~~Description~~









2.1		Agreement and Plan of Merger, dated July 25, 2018, by and among SUPERVALU INC., SUPERVALU Enterprises, Inc., the Registrant and Jedi Merger Sub, Inc. (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on July 26, 2018 (File No. 001-15723)).
2.2		First Amendment to Agreement and Plan of Merger, dated as of October 10, 2018, by and among United Natural Foods, Inc., Jedi Merger Sub, Inc., SUPERVALU INC. and SUPERVALU Enterprises, Inc. (incorporated by reference to Registrant’s Current Report on Form 8-K, filed on October 10, 2018 (File No. 001-15723)).
3.1		Certificate of Incorporation of the Registrant, as amended (restated for SEC filing purposes only) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2015 (File No. 001-15723)).
3.2		Fourth Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on October 19, 2018 (File No. 001-15723)).

10.1**		~~Offer Letter, effective February 9, 2020, between John W. Howard, Chief Financial Officer, and the Registrant~~Annual Incentive Plan, as amended (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~February 1,~~October 31, 2020, filed on December 9, 2020 (File No. 001-15723)).
10.2		Form of Inducement RSU Award Agreement.
10.3*		Amendment No. 1 to Term Loan Agreement, dated as of Februar y 11 , 2021, by and among the Registrant and SUPERVALU INC.,Credit Suisse AG, Cayman Islands Branch ,Goldman Sachs Bank USA and the other lender parties thereto.
10.4		First Amendment to Agreement for Distribution of Products, dated as of March 3, 2021, by and among the Registrant and Whole Foods Market Distribution, Inc. (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on March 4, 2021 (File No. 001-15723)).
10.5* **		Change of Control Severance Agreement, dated as of November 30, 2015, by and among SUPERVALU INC. and Michael Stigers.
10.6* **		Transition Agreement, dated as of October 22, 2018, by and among the Registrant, SUPERVALU INC. and Michael Stigers.
10.7* **		First Amendment to Transition Agreement, dated as of March 27, 2019, by and among the Registrant, SUPERVALU INC. and Michael Stigers.
10.8* **		Second Amendment to Transition Agreement, dated as of May 12, 2020, by and among the Registrant, SUPERVALU INC. and Michael Stigers.
10.9* **		Third Amendment to Transition Agreement, dated as of March 9 , 2021, by and among the Registrant, SUPERVALU INC. and Michael Stigers.
10.10* **		Retention Agreement, dated as March 8, 2021, by and between the Registrant and Christopher Testa.
10.11* **		Second Amendment to Amended and Restated Employment Agreement, dated as of ~~February 6, 2020,~~March 9, 2021, by and between the Registrant and Steven L. ~~Spinner (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2020 (File No. 001-15723)).~~Spinner.
10.3*31.1		Amendment to Employment Agreement, dated as of February 6, 2020, by and between the Registrant and Sean F. Griffin (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2020 (File No. 001-15723)).
10.4**	Form of RSU Award Agreement (Director) pursuant to the Registrant’s 2020 Equity Incentive Plan (for grants made beginning March 2020) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2020 (File No. 001-15723)).
10.5**	Form of RSU Award Agreement (Employee I) pursuant to the Registrant’s 2020 Equity Incentive Plan (for grants made beginning March 2020) (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2020 (File No. 001-15723)).
31.1*	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from the United Natural Foods, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~May 2, 2020,~~January 30, 2021, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive ~~Loss,~~Income (Loss), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
104		The cover page from our Quarterly Report on Form 10-Q for the ~~third~~second quarter of fiscal ~~2020,~~2021, filed with the SEC on ~~June~~March 10, ~~2020,~~2021, formatted in Inline XBRL (included as Exhibit 101).

* Filed herewith.

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

* * *

Table of ~~contents~~Contents

SIGNATURES

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



			UNITED NATURAL FOODS, INC.

			/s/ JOHN W. HOWARD
			John W. Howard
			Chief Financial Officer
			(Principal Financial ~~Officer)~~Officer and duly authorized officer)

Dated: ~~June~~March 10, ~~2020~~2021



	May 2, 2020			August 3, 2019
ASSETS
Cash and cash equivalents	$	56,425		$	42,350
Accounts receivable, net	1,232,612			1,065,699
Inventories	2,025,694			2,089,416
Prepaid expenses and other current assets	279,886			226,727
Current assets of discontinued operations	128,855			143,729
Total current assets	3,723,472			3,567,921
Property and equipment, net	1,534,270			1,639,259
Operating lease assets	984,039			—
Goodwill	19,148			442,256
Intangible assets, net	956,717			1,041,058
Deferred income taxes	67,690			31,087
Other assets	94,181			107,319
Long-term assets of discontinued operations	321,256			352,065
Total assets	$	7,700,773		$	7,180,965
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,716,263		$	1,476,857
Accrued expenses and other current liabilities	271,633			249,426
Accrued compensation and benefits	182,029			148,296
Current portion of operating lease liabilities	138,698			—
Current portion of long-term debt and finance lease liabilities	33,440			112,103
Current liabilities of discontinued operations	135,503			122,265
Total current liabilities	2,477,566			2,108,947
Long-term debt	2,541,657			2,819,050
Long-term operating lease liabilities	877,229			—
Long-term finance lease liabilities	145,672			108,208
Pension and other postretirement benefit obligations	191,105			237,266
Deferred income taxes	979			1,042
Other long-term liabilities	289,706			393,595
Long-term liabilities of discontinued operations	8,899			1,923
Total liabilities	6,532,813			5,670,031
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding	—			—
Common stock, $0.01 par value, authorized 100,000 shares; 55,292 shares issued and 54,677 shares outstanding at May 2, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019	553			535
Additional paid-in capital	558,738			530,801
Treasury stock at cost	(24,231		)	(24,231		)
Accumulated other comprehensive loss	(151,645		)	(108,953		)
Retained earnings	786,400			1,115,519
Total United Natural Foods, Inc. stockholders’ equity	1,169,815			1,513,671
Noncontrolling interests	(1,855		)	(2,737		)
Total stockholders' equity	1,167,960			1,510,934
Total liabilities and stockholders’ equity	$	7,700,773		$	7,180,965



	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 thousands)	May 2, 2020			August 3, 2019
Customer accounts receivable	$	1,264,869		$	1,063,167
Allowance for uncollectible receivables	(52,144		)	(20,725		)
Other receivables, net	19,887			23,257
Accounts receivable, net	$	1,232,612		$	1,065,699

Customer notes receivable, net, included within Prepaid expenses and other current assets	$	12,122		$	11,912
Long-term notes receivable, net, included within Other assets	$	25,472		$	34,408



(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



		Final Acquisition Date Fair Values
(in thousands)	Estimated Useful Life	Continuing Operations			Discontinued Operations
Customer relationship assets	10-17 years	$	810,000		$	—
Favorable operating leases	1-19 years	21,629			—
Leases in place	1-8 years	10,474			—
Tradenames	2-9 years	66,000			17,000
Pharmacy prescription files	5-7 years	—			45,900
Non-compete agreement	2 years	10,000			—
Unfavorable operating leases	1-12 years	(21,754		)	—
Total		$	896,349		$	62,900



(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	3,993			—			—			3,993
Cash payments	(13,432		)	(383		)	(701		)	(14,516		)
Balances at May 2, 2020	$	2,418		$	—		$	—		$	2,418

Cumulative program charges incurred from inception to date	$	78,407		$	2,219		$	6,864		$	87,490



Fiscal Year:	(In thousands)
Remaining fiscal 2020	$	21,391
2021	71,431
2022	65,895
2023	65,844
2024	66,251
2025 and thereafter	610,092
	$	900,904



		Fair Value at May 2, 2020
(In thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Foreign exchange derivatives not designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	756	$	—
Mutual funds	Other assets	$	1,715	$	—	$	—

Liabilities:
Fuel derivatives not designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	2,424	$	—
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	45,684	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	94,745	$	—



		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	$	—



Effective Date	Swap Maturity	Outstanding Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate⁽⁷⁾	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	55.5		1.7950	%	One-Month LIBOR	Monthly
August 3, 2015⁽²⁾	August 15, 2022	37.0		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
October 30, 2020⁽³⁾	October 31, 2022	—		0.4540	%	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
April 29, 2021⁽⁴⁾	April 28, 2023	—		0.5680	%	One-Month LIBOR	Monthly
June 30, 2021⁽⁵⁾	June 30, 3023	—		0.6070	%	One-Month LIBOR	Monthly
November 30, 2018	September 30, 2023	50.0		2.8315	%	One-Month LIBOR	Monthly
October 29, 2021⁽⁶⁾	October 20, 2023	—		0.6810	%	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
		$	2,092.5



(in thousands)	Average Interest Rate at May 2, 2020	Calendar Maturity Year	May 2, 2020			August 3, 2019
Term Loan Facility	4.65%	2025	$	1,777,500		$	1,864,900
ABL Credit Facility	1.96%	2023	816,000			1,080,000
Other secured loans	5.20%	2023-2024	52,358			57,649
Debt issuance costs, net			(48,030		)	(54,891		)
Original issue discount on debt			(36,952		)	(41,175		)
Long-term debt, including current portion			2,560,876			2,906,483
Less: current portion of long-term debt			(19,219		)	(87,433		)
Long-term debt			$	2,541,657		$	2,819,050



Unused credit and fees under the ABL Credit Facility (in thousands, except percentages):	May 2, 2020
Outstanding letters of credit	$	95,057
Letter of credit fees	1.375		%
Unused credit	$	1,153,861
Unused facility fees	0.25		%



(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			(3,561		)	(55,874		)	(57,955		)
Amortization of amounts included in net periodic benefit income	(1,722		)	—			—			(1,722		)
Amortization of cash flow hedge	—			—			9,375			9,375
Pension settlement charge	7,610			—			—			7,610
Net current period Other comprehensive income (loss)	7,368			(3,561		)	(46,499		)	(42,692		)
Accumulated other comprehensive loss at May 2, 2020	$	(25,090	)	$	(23,643	)	$	(102,912	)	$	(151,645	)



Lease Type	Balance Sheet Location	May 2, 2020
Operating lease assets	Operating lease assets	$	984,039
Finance lease assets	Property and equipment, net	134,357
Total lease assets		$	1,118,396

Operating liabilities	Current portion of operating lease liabilities	$	138,698
Finance liabilities	Current portion of long-term debt and finance lease liabilities	14,221
Operating liabilities	Long-term operating lease liabilities	877,229
Finance liabilities	Long-term finance lease liabilities	145,672
Total lease liabilities		$	1,175,820



(in thousands)	Statement of Operations Location	13-Week Period Ended			39-Week Period Ended
(in thousands)	Statement of Operations Location	May 2, 2020			May 2, 2020
Operating lease cost	Operating expenses⁽²⁾	$	62,928		$	196,332
Short-term lease cost	Operating expenses	8,021			20,010
Variable lease cost	Operating expenses⁽²⁾	35,392			114,299
Sublease income	Operating expenses⁽²⁾	(7,836		)	(31,034		)
Sublease income	Net sales	(5,991		)	(16,738		)
Net operating lease cost⁽¹⁾		92,514			282,869
Amortization of leased assets	Operating expenses	3,876			12,272
Interest on lease liabilities	Interest expense, net	2,894			6,911
Finance lease cost		6,770			19,183
Total net lease cost		$	99,284		$	302,052



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	$	62,422		$	6,991		$	(14,801	)	$	—	$	47,621	$	6,991
2021	217,690			22,777			(50,944		)	—		166,746		22,777
2022	206,416			119,387			(45,784		)	—		160,632		119,387
2023	179,364			15,292			(35,889		)	—		143,475		15,292
2024	153,729			14,228			(27,871		)	—		125,858		14,228
Thereafter	990,394			15,541			(62,184		)	—		928,210		15,541
Total undiscounted lease liabilities and receipts	$	1,810,015		$	194,216		$	(237,473	)	$	—	$	1,572,542	$	194,216
Less interest ⁽³⁾	(794,088		)	(34,323		)
Present value of lease liabilities	1,015,927			159,893
Less current lease liabilities	(138,698		)	(14,221		)
Long-term lease liabilities	$	877,229		$	145,672



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



	Net Sales for the 13-Week Period Ended								Net Sales for the 39-Week Period Ended
Customer Channel	May 2, 2020		% of Net Sales		April 27, 2019⁽¹⁾		% of Net Sales		May 2, 2020⁽¹⁾		% of Net Sales		April 27, 2019⁽¹⁾		% of Net Sales
Supermarkets	$	4,267	64	%	$	3,701	62	%	$	11,915	63	%	$	8,559	57	%
Supernatural	1,279		19	%	1,102		18	%	3,600		19	%	3,229		21	%
Independents	684		10	%	707		12	%	1,983		11	%	2,041		14	%
Other	438		7	%	453		8	%	1,327		7	%	1,151		8	%
Total net sales	$	6,668	100	%	$	5,963	100	%	$	18,825	100	%	$	14,980	100	%



(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⁽³⁾
Period⁽¹⁾:
February 2, 2020 to February 29, 2020	—	$	—	—	$	—
March 1, 2020 to March 28, 2020	16,190	7.39		—	—
March 29, 2020 to May 2, 2020	9,754	11.94		—	175.8
Total	25,944	$	9.10	—	$	—