UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~January 26,~~November 2, 2019

ORor

_ ☐ 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~~name of ~~Registrant~~registrant as ~~Specified~~specified in ~~Its Charter)~~its charter)



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




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

Registrant’s ~~Telephone Number, Including Area Code:~~ ~~(401)~~ telephone number, including area code: (401) 528-8634

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



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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesX☒ No _☐

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



Large accelerated filerX	☒	Accelerated filer __	☐
Non-accelerated filer __	☐	Smaller reporting company __	☐
~~Emerging growth company __~~
~~If an emerging~~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. __	☐

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

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

☒

As of ~~March 1,~~December 6, 2019 there were ~~50,819,894~~53,508,147 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS



Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

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

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

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

	~~Notes to Condensed Consolidated Financial Statements (unaudited)~~Item 2.	9

~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4736

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6351

Item 4.	Controls and Procedures	6351

Part II.	Other Information

Item 1.	Legal Proceedings	6351

Item 1A.	Risk Factors	6352

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6352

Item 3.6.	~~Defaults Upon Senior Securities~~Exhibits	64

~~Item 4.~~	~~Mine Safety Disclosures~~	64

~~Item 5.~~	~~Other Information~~	64

~~Item 6.~~	~~Exhibits~~	6553

	Signatures	6654

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 26, 2019			July 28, 2018			November 2, 2019			August 3, 2019
ASSETS
Cash and cash equivalents	$	49,515		$	23,315		$	39,758		$	42,350
Accounts receivable, net	1,094,874			579,702			1,136,924			1,065,699
Inventories	2,242,724			1,135,775			2,324,979			2,089,416
Prepaid expenses and other current assets	119,659			50,122			192,463			226,727
Current assets of discontinued operations	159,893			—			155,883			143,729
Total current assets	3,666,665			1,788,914			3,850,007			3,567,921
Property and equipment, net	1,658,010			571,146			1,494,309			1,639,259
Operating lease assets							1,051,128			—
Goodwill	481,095			362,495			19,791			442,256
Intangible assets, net	1,054,222			193,209			999,586			1,041,058
Deferred income taxes							98,768			31,087
Other assets	122,644			48,708			106,038			107,319
Long-term assets of discontinued operations	415,648			—			343,892			352,065
Total assets	$	7,398,284		$	2,964,472		$	7,963,519		$	7,180,965

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,452,643		$	517,125		$	1,606,470		$	1,476,857
Accrued expenses and other current liabilities	277,158			103,526			246,563			249,426
Accrued compensation and benefits	171,669			66,132			164,605			148,296
Current portion of long-term debt and capital lease obligations	143,614			12,441
Current portion of operating lease liabilities							127,327			—
Current portion of long-term debt and finance lease liabilities							34,458			112,103
Current liabilities of discontinued operations	133,981			—			100,878			122,265
Total current liabilities	2,179,065			699,224			2,280,301			2,108,947
Long-term debt	2,965,336			308,836			3,051,238			2,819,050
Long-term capital lease obligations	124,599			31,487
Long-term operating lease liabilities							949,978			—
Long-term finance lease liabilities							68,682			108,208
Pension and other postretirement benefit obligations	222,231			—			220,550			237,266
Deferred income taxes	75,462			44,384			1,047			1,042
Other long-term liabilities	347,082			34,586			267,080			393,595
Long-term liabilities of discontinued operations	1,141			—			1,403			1,923
Total liabilities	5,914,916			1,118,517			6,840,279			5,670,031
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 5,000 shares; issued none	—			—
Common stock, par value $0.01 per share, authorized 100,000 shares; 51,433 shares issued and 50,818 shares outstanding at January 26, 2019, 51,025 shares issued and 50,411 shares outstanding at July 28, 2018	514			510
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding							—			—
Common stock, $0.01 par value, authorized 100,000 shares; 54,121 shares issued and 53,506 shares outstanding at November 2, 2019; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019							541			535
Additional paid-in capital	495,514			483,623			532,958			530,801
Treasury stock at cost	(24,231		)	(24,231		)	(24,231		)	(24,231		)
Accumulated other comprehensive loss	(25,863		)	(14,179		)	(111,691		)	(108,953		)
Retained earnings	1,039,490			1,400,232			728,979			1,115,519
Total United Natural Foods, Inc. stockholders’ equity	1,485,424			1,845,955			1,126,556			1,513,671
Noncontrolling interests	(2,056		)	—			(3,316		)	(2,737		)
Total stockholders’ equity	1,483,368			1,845,955
Total stockholders' equity							1,123,240			1,510,934
Total liabilities and stockholders’ equity	$	7,398,284		$	2,964,472		$	7,963,519		$	7,180,965

See accompanying Notes to Condensed Consolidated Financial Statements.

UNITED NATURAL FOODS, INC.

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

(In thousands, except for per share data)


	13-Week Period Ended						26-Week Period Ended						13-Week Period Ended
	January 26, 2019			January 27, 2018			January 26, 2019			January 27, 2018			November 2, 2019			October 27, 2018
Net sales	$	6,149,206		$	2,528,011		$	9,017,362		$	4,985,556		$	6,019,585		$	2,868,156
Cost of sales	5,387,423			2,156,489			7,843,248			4,246,818			5,248,543			2,455,825
Gross profit	761,783			371,522			1,174,114			738,738			771,042			412,331
Operating expenses	751,922			320,076			1,115,087			632,185			775,414			363,165
Goodwill and asset impairment charges	370,871			11,242			370,871			11,242			425,405			—
Restructuring, acquisition, and integration related expenses	47,125			—			115,129			—
Operating (loss) income	(408,135		)	40,204			(426,973		)	95,311
Restructuring, acquisition and integration related expenses													14,250			68,004
Operating loss													(444,027		)	(18,838		)
Other expense (income):
Net periodic benefit income, excluding service cost	(10,906		)	—			(11,750		)	—			(11,384		)	(844		)
Interest expense, net	58,707			4,137			66,232			7,713			49,518			7,525
Other, net	(824		)	(418		)	(727		)	(1,281		)	(46		)	97
Total other expense, net	46,977			3,719			53,755			6,432			38,088			6,778
(Loss) income from continuing operations before income taxes	(455,112		)	36,485			(480,728		)	88,879
(Benefit) provision for income taxes	(91,809		)	(14,001		)	(96,064		)	7,888
Net (loss) income from continuing operations	(363,303		)	50,486			(384,664		)	80,991
Loss from continuing operations before income taxes													(482,115		)	(25,616		)
Benefit for income taxes													(73,753		)	(4,255		)
Net loss from continuing operations													(408,362		)	(21,361		)
Income from discontinued operations, net of tax	21,407			—			23,477			—			24,954			2,070
Net (loss) income including noncontrolling interests	(341,896		)	50,486			(361,187		)	80,991
Less net loss (income) attributable to noncontrolling interests	171			—			168			—
Net (loss) income attributable to United Natural Foods, Inc.	$	(341,725	)	$	50,486		$	(361,019	)	$	80,991
Net loss including noncontrolling interests													(383,408		)	(19,291		)
Less net income attributable to noncontrolling interests													(519		)	(3		)
Net loss attributable to United Natural Foods, Inc.													$	(383,927	)	$	(19,294	)

Basic per share data:
Basic (loss) earnings per share:
Continuing operations	$	(7.15	)	$	1.00		$	(7.59	)	$	1.60		$	(7.67	)	$	(0.42	)
Discontinued operations	$	0.42		$	—		$	0.46		$	—		$	0.46		$	0.04
Basic (loss) income per share	$	(6.72	)	$	1.00		$	(7.12	)	$	1.60
Diluted per share data:
Basic loss per share													$	(7.21	)	$	(0.38	)
Diluted (loss) earnings per share:
Continuing operations	$	(7.15	)	$	0.99		$	(7.59	)	$	1.59		$	(7.67	)	$	(0.42	)
Discontinued operations	$	0.42		$	—		$	0.46		$	—		$	0.46		$	0.04
Diluted (loss) income per share	$	(6.72	)	$	0.99		$	(7.12	)	$	1.59
Weighted average share outstanding:
Diluted loss per share													$	(7.21	)	$	(0.38	)
Weighted average shares outstanding:
Basic	50,815			50,449			50,699			50,633			53,213			50,583
Diluted	50,815			50,741			50,699			50,849			53,213			50,583

See accompanying Notes to Condensed Consolidated Financial Statements.

UNITED NATURAL FOODS, INC.

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

(In thousands)

13-Week Period Ended 26-Week Period Ended
January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018
Net (loss) income including noncontrolling interests $ (341,896 ) $ 50,486
$ (361,187 ) $ 80,991
Other comprehensive income (loss):

Change in fair value of swap agreements⁽¹⁾
(10,898 ) 2,256
(10,702 ) 2,920
Foreign currency translation adjustments (310 ) 3,045
(982 ) 839
Total other comprehensive (loss) income (11,208 ) 5,301
(11,684 ) 3,759
Less comprehensive loss (income) attributable to noncontrolling interests 171
—
168
—
Total comprehensive (loss) income attributable to United Natural Foods, Inc. $ (352,933 ) $ 55,787
$ (372,703 ) $ 84,750



	13-Week Period Ended
	November 2, 2019			October 27, 2018
Net loss including noncontrolling interests	$	(383,408	)	$	(19,291	)
Other comprehensive (loss) income:
Recognition of pension and other postretirement benefit obligations, net of tax⁽¹⁾	572			—
Recognition of interest rate swap cash flow hedges, net of tax⁽²⁾	(3,681		)	196
Foreign currency translation adjustments	371			(672		)
Total other comprehensive loss	(2,738		)	(476		)
Less comprehensive income attributable to noncontrolling interests	(519		)	(3		)
Total comprehensive loss attributable to United Natural Foods, Inc.	$	(386,665	)	$	(19,770	)


(1)	Amounts are net of tax (benefit) expense of ~~($3.9 million)~~$0.2 million and ~~$0.8~~$0.0 million for the 13-week periods ended ~~January 26,~~November 2, 2019 and ~~January 27, 2018, respectively, and ($4.0 million) and $1.3 million for the 26-week periods ended January 26, 2019 and January~~October 27, 2018, respectively.


(2)	Amounts are net of tax (benefit) expense of $(1.3) million and $0.3 million for the 13-week periods ended November 2, 2019 and October 27, 2018, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

UNITED NATURAL FOODS, INC.

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

(In thousands)

Common Stock Treasury Stock
Additional
Paid-in Capital

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

277
277
277
Stock option exercises and restricted stock vestings, net of tax 401
4
(3,012 )

(3,008 ) (3,008 )
Share-based compensation
8,089

8,089
8,089
Other/share-based compensation

403

403
403
Fair value of swap agreements, net of tax 196
196
196
Foreign currency translation

(672 )
(672 ) (672 )
Acquisition of noncontrolling interests

(1,633 ) (1,633 )
Net (loss) income

(19,294 ) (19,294 ) 3
(19,291 )
Balances at October 27, 2018 51,426
$ 514
615
$ (24,231 ) $ 489,103
$ (14,655 ) $ 1,381,215
$ 1,831,946
$ (1,630 ) $ 1,830,316
Stock option exercises and restricted stock vestings, net of tax 7

(11 )

(11 ) (11 )
Share-based compensation

6,422

6,422
6,422
Fair value of swap agreements, net of tax (10,898 ) (10,898 ) (10,898 )
Foreign currency translation

(310 )
(310 ) (310 )
Distributions to noncontrolling interests

(255 ) (255 )
Net loss

(341,725 ) (341,725 ) (171 ) (341,896 )
Balances at January 26, 2019 51,433
$ 514
615
$ (24,231 ) $ 495,514
$ (25,863 ) $ 1,039,490
$ 1,485,424
$ (2,056 ) $ 1,483,368



	Common Stock			Treasury Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total United Natural Foods, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total United Natural Foods, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balances at August 3, 2019	53,501	$	535	615	$	(24,231	)	$	530,801		$	(108,953	)	$	1,115,519		$	1,513,671		$	(2,737	)	$	1,510,934
Cumulative effect of change in accounting principle														(2,613		)	(2,613		)				(2,613		)
Restricted stock vestings and stock option exercises	424	4						(823		)							(819		)				(819		)
Share-based compensation								1,247									1,247						1,247
Other comprehensive loss											(2,738		)				(2,738		)				(2,738		)
Distributions to noncontrolling interests																				(1,098		)	(1,098		)
Proceeds from issuance of common stock, net	196	2						1,733									1,735						1,735
Net loss														(383,927		)	(383,927		)	519			(383,408		)
Balances at November 2, 2019	54,121	$	541	615	$	(24,231	)	$	532,958		$	(111,691	)	$	728,979		$	1,126,556		$	(3,316	)	$	1,123,240

Common Stock Treasury Stock
Additional
Paid-in Capital

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

1,314

(805 ) 509
Stock option exercises and restricted stock vestings, net of tax 341
3
(4,241 )

(4,238 )
Share-based compensation
7,275

7,275
Repurchase of common stock 162
(6,449 ) (6,449 )
Other/share-based compensation

107

107
Fair value of swap agreements, net of tax 664
664
Foreign currency translation

(2,206 )
(2,206 )
Net income

30,505
30,505
Balances at October 28, 2017 50,963
$ 509
162
$ (6,449 ) $ 464,466
$ (15,505 ) $ 1,265,067
$ 1,708,088
Stock option exercises and restricted stock vestings, net of tax 9
1
81

82
Share-based compensation
6,571

6,571
Repurchase of common stock 403
(15,788 ) (15,788 )
Fair value of swap agreements, net of tax 2,256
2,256
Foreign currency translation

3,045

3,045
Net income

50,486
50,486
Balances at January 27, 2018 50,972
$ 510
565
$ (22,237 ) $ 471,118
$ (10,204 ) $ 1,315,553
$ 1,754,740



	Common Stock			Treasury Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
Balances at 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	401	4						(3,012		)							(3,008		)				(3,008		)
Share-based compensation								8,089									8,089						8,089
Other/share-based compensation								403									403						403
Other comprehensive loss											(476		)				(476		)				(476		)
Acquisition of noncontrolling interests																				(1,633		)	(1,633		)
Net loss														(19,294		)	(19,294		)	3			(19,291		)
Balances at October 27, 2018	51,426	$	514	615	$	(24,231	)	$	489,103		$	(14,655	)	$	1,381,215		$	1,831,946		$	(1,630	)	$	1,830,316

See accompanying Notes to Condensed Consolidated Financial Statements.

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	26-Week Period Ended						13-Week Period Ended
(In thousands)	January 26, 2019			January 27, 2018			November 2, 2019			October 27, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income including noncontrolling interests	$	(361,187	)	$	80,991
Net loss including noncontrolling interests							$	(383,408	)	$	(19,291	)
Income from discontinued operations, net of tax	23,477			—			24,954			2,070
Net (loss) income from continuing operations	(384,664		)	80,991
Adjustments to reconcile net (loss) income from continuing operations to net cash used in operating activities:
Net loss from continuing operations							(408,362		)	(21,361		)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	97,993			44,249			75,141			24,793
Share-based compensation	14,511			13,846			1,247			8,089
(Gain) loss on disposition of assets	(60		)	100			(1,308		)	6
Gain associated with disposal of investments	—			(699		)
Restructuring charges	20,701			—
Closed property and other restructuring charges							4,969			412
Goodwill and asset impairment charges	370,871			11,242			425,405			—
Net pension and other postretirement benefit income	(11,750		)	—			(11,370		)	(844		)
Deferred income taxes	(65,605		)	(22,733		)
Deferred income tax (benefit) expense							(62,560		)	1,214
LIFO charge	6,265			—			6,546			—
Provision for doubtful accounts	7,958			5,569			13,098			3,037
Loss on debt extinguishment	2,117			—			73			1,114
Non-cash interest expense	4,298			956			3,833			345
Changes in operating assets and liabilities, net of acquired businesses	(62,679		)	(136,932		)	(182,257		)	(118,124		)
Net cash used in operating activities of continuing operations	(44		)	(3,411		)	(135,545		)	(101,319		)
Net cash provided by operating activities of discontinued operations	25,910			—
Net cash provided by (used in) operating activities	25,866			(3,411		)
Net cash provided by (used in) operating activities of discontinued operations							676			(5,701		)
Net cash used in operating activities							(134,869		)	(107,020		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(80,137		)	(15,535		)	(41,122		)	(16,381		)
Purchase of acquired businesses, net of cash acquired	(2,281,934		)	(19		)
Purchases of acquired businesses, net of cash acquired							—			(2,273,829		)
Proceeds from dispositions of assets	168,274			36			1,605			149,529
Proceeds from disposal of investments	—			756
Long-term investment	(110		)	(3,010		)
Other	363			—
Payments for long-term investment							(162		)	(110		)
Payments of company owned life insurance premiums							(1,204		)	—
Net cash used in investing activities of continuing operations	(2,193,544		)	(17,772		)	(40,883		)	(2,140,791		)
Net cash provided by investing activities of discontinued operations	44,263			—
Net cash provided by (used in) investing activities of discontinued operations							17,002			(89		)
Net cash used in investing activities	(2,149,281		)	(17,772		)	(23,881		)	(2,140,880		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt	1,905,000			—			2,050			1,905,547
Proceeds from borrowings under revolving credit line	2,698,604			311,061			1,338,446			1,805,300
Repayments of borrowings under revolving credit line	(1,666,600		)	(247,632		)	(1,100,746		)	(688,000		)
Repayments of long-term debt and capital lease obligations	(713,366		)	(6,054		)
Repurchase of common stock	—			(22,237		)
Proceeds from exercise of stock options	118			268
Repayments of long-term debt and finance leases							(83,510		)	(110,000		)
Proceeds from the issuance of common stock and exercise of stock options							1,735			118
Payment of employee restricted stock tax withholdings	(3,141		)	(4,424		)	(819		)	(3,126		)
Payments for capitalized debt issuance costs	(64,519		)	—
Payments for debt issuance costs							—			(60,309		)
Net cash provided by financing activities of continuing operations	2,156,096			30,982			157,156			2,849,530
Net cash used in financing activities of discontinued operations	(254		)	—			(1,060		)	—
Net cash provided by financing activities	2,155,842			30,982			156,096			2,849,530
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(1,868		)	188			(10		)	(49		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	30,559			9,987			(2,664		)	601,581
Cash and cash equivalents, at beginning of period	23,315			15,414			45,267			23,315
Cash and cash equivalents, at end of period	53,874			25,401
Cash and cash equivalents, including restricted cash at end of period							42,603			624,896
Less: cash and cash equivalents of discontinued operations	(4,359		)	—			(2,845		)	(4,633		)
Cash and cash equivalents of continuing operations	$	49,515		$	25,401
Cash and cash equivalents including restricted cash of continuing operations							$	39,758		$	620,263
Supplemental disclosures of cash flow information:
Cash paid for interest	$	66,016		$	7,900		$	49,296		$	7,325
Cash paid for federal and state income taxes, net of refunds	$	13,449		$	36,929
Cash (refunds) payments for federal and state income taxes, net							$	(28,874	)	$	462

See accompanying Notes to Condensed Consolidated Financial Statements.

UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

~~January 26, 2019~~ ~~(unaudited)~~

1. NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Fiscal Year

~~Our~~The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the ~~second~~first quarter of fiscal ~~2019~~2020 and ~~2018~~2019 relate to the 13-week fiscal quarters ended ~~January 26,~~November 2, 2019 and ~~January 27, 2018, respectively. References to fiscal 2019 and 2018 year-to-date relate to the 26-week fiscal periods ended January 26, 2019 and January~~October 27, 2018, respectively.

Basis of Presentation

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

consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition. Unless otherwise indicated, references to the Condensed Consolidated Statements of ~~Income and~~Operations, the Condensed Consolidated Balance Sheets inand the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. Refer to Note ~~18. “Discontinued Operations”~~17—Discontinued Operations for additional information ~~including accounting policies,~~ about ~~our~~ discontinued operations.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. In the Company’s opinion, these Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. However, the results of operations for interim periods may not be indicative of the results that may be expected for a full year. These Condensed Consolidated Financial Statements should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~July 28, 2018.~~August 3, 2019 (the “Annual Report”). Except as described for lease accounting below, there were no material changes in significant accounting policies from those described in the Company’s Annual ~~Report on Form 10-K for the fiscal year ended July 28, 2018.~~Report.

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

As noted above, the Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are generally recorded in cost of sales, whereas shipping and handling costs for receiving, selecting, quality assurance, and outbound transportation are recorded in operating expenses. Outbound shipping and handling costs, including allocated employee benefit expenses that are recorded in Operating expenses, totaled $363.4 million and $146.4 million for the

second quarter of fiscal 2019 and 2018, respectively. Outbound shipping and handling costs, including allocated employee benefit expenses, totaled $537.4 million and $284.4 million for the first 26 weeks of fiscal 2019 and 2018, respectively.

~~Vendor Funds~~

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

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

~~Business Dispositions~~

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

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Income, and assets and liabilities and disclosure of contingent assets and liabilities at the date of the ~~business component planned~~financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to ~~be disposed of are~~fund outstanding checks when presented ~~as separate lines within~~to the ~~Condensed Consolidated Balance Sheets. See Note 18. “Discontinued Operations”~~financial institution for ~~additional information.~~

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

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

~~Benefit Plans~~

payment. The Company ~~recognizes~~funds all intraday bank balance overdrafts during the ~~funded status~~same business day. Checks outstanding in excess of ~~its company-sponsored defined benefit plans,~~bank balances create book overdrafts, which ~~it acquired~~are recorded in ~~the first quarter of fiscal 2019 through the acquisition of Supervalu,~~Accounts payable in the Condensed Consolidated Balance Sheets and ~~gains or losses and prior service costs or credits not yet recognized~~are reflected as ~~a component of Accumulated other comprehensive loss, net of tax,~~an operating activity in the Condensed Consolidated ~~Balance Sheets. The~~Statements of Cash Flows. As of November 2, 2019 and August 3, 2019, the Company ~~sponsors pension~~had net book overdrafts of $242.5 million and other postretirement plans in various forms covering employees who meet eligibility requirements. The determination of the Company’s obligation and related income or expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare and compensation costs. These assumptions are disclosed in Note 16. “Benefit Plans”. Actual results that differ from the assumptions are accumulated and amortized over future periods.$236.9 million, respectively.

The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. Pension expense for these plans is recognized as contributions are funded. See Note 16. “Benefit Plans” for additional information on participation in multiemployer plans.

Inventories, Net

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

~~Change in Inventory Accounting Policy~~

Inventories are valued at the lower of cost or ~~net realizable value. For historical United Natural Foods, Inc. inventory prior to~~market. Substantially all of the ~~acquisition~~Company’s inventories consist of ~~Supervalu, cost was determined using the first-in, first-out (“FIFO”) method. For~~finished goods and a substantial portion of ~~legacy Supervalu inventory, cost was determined using the~~its inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method ~~with~~is computed at the ~~rest primarily determined using FIFO.~~end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, ~~acquired~~net would have been higher by approximately $30.7 million and $24.1 million at November 2, 2019 and August 3, 2019, respectively.

Leases

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

The Company ~~completed its evaluation of its combined inventory accounting policies~~recognizes contractual obligations and ~~changed its method of inventory costing for certain historical United Natural Foods, Inc. inventory~~receipts on a gross basis, such that the related lease obligation to the landlord is presented separately from the ~~FIFO accounting method~~sublease created by the lease assignment to the LIFO accounting method. The Company concluded that the LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group.assignee. As a result, of the ~~change~~Company continues to the LIFO method, Inventories were reduced by $3.3 million as of January 26, 2019, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Condensed Consolidated Statement of Income for the 13- and 26-week periods ended January 26, 2019. This resulted in an increase to Net loss from continuing operations of $2.2 million, or $0.04 per diluted share, for both the 13- and 26-week periods ended January 26, 2019. The Company has not retrospectively adjusted amounts prior to fiscal 2019 inrecognize on its Condensed Consolidated Balance Sheets ~~or Statement~~the operating lease assets and liabilities, and finance lease assets and obligations.

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 leases with step rent provisions whereby the rental payments increase over the life of ~~Income, as applying~~ the ~~change in accounting policy prior to fiscal 2019 is not practicable due to data limitations of inventory costs in prior periods.~~

~~Change in Book Overdraft Accounting Policy~~

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

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

The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on the ~~Condensed Consolidated Statements~~Company’s experience and knowledge of ~~Cash Flows represent outstanding checks issued but not yet presented~~the market in which the property is located, previous efforts to ~~financial institutions for disbursement in excess~~dispose of positive balances held at financial institutions, and as such represent book overdrafts. Book overdrafts are included within the Accounts payable balance in the Condensed Consolidated Balance Sheets. The change in these book overdraft amounts were previously reported as financing activities cash flows on the Condensed Consolidated Statements of Cash Flows, on a line item titled Increase in bank overdrafts. The Company has elected a preferable accounting policy presentation for classifying the change in book overdrafts from financing activities to operating activities, which resulted in the reclassification of prior period amounts to conform to the current period presentation. The Company concluded that operating activity classification is preferable, as book overdrafts do not result in financial institution borrowing or repayment activity at the end of respective reporting periodssimilar assets and the ~~presentation presents~~assessment of existing market conditions. Impairment reserves are reflected as a ~~more accurate disclosure of its cash generation and consumption activities. The reclassification resulted in a decrease~~reduction to ~~cash used in operating activities of $31.7 million and a corresponding decrease in cash provided by financing activities~~Operating lease assets. Refer to Note 11—Leases for the 26-week period ended January 27, 2018. The reclassification had no effect on previously reported Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income, or Condensed Consolidated Statements of Stockholders’ Equity.additional information.

~~Reclassifications~~

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

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

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

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

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

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

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

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

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

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

NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In ~~March 2017,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standard update (“ASU”) ~~2017-07,~~ ~~Compensation—Retirement Benefits~~No. 2016-02, Leases (Topic ~~715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.~~ ~~ASU 2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in the statement of operations.~~842), which provides new comprehensive lease accounting guidance that supersedes previous lease guidance. The Company adopted this guidance in the first quarter of fiscal 2019, and it presents non-service cost components of net periodic benefit income, as disclosed in Note 16. “Benefit Plans”, in an other income and expense line titled “Net periodic benefit income, excluding service cost” in the Condensed Consolidated Statements of Income. The service cost components are recorded within Operating expenses. The adoptionobjective of this ~~standard did not have an impact on~~ASU is to establish the ~~Company’s prior period Condensed Consolidated Statements~~principles that lessees and lessors shall apply to report useful information to users of ~~Income, as all benefit plan costs for defined benefit pension~~financial statements about the amount, timing, and ~~other postretirement benefit plans incurred are attributable to the Supervalu business, which was acquired in the first quarter of fiscal 2019.~~

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies the presentation of restricted cash on the statement~~uncertainty of cash flows ~~by requiring~~arising from a lease. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital and operating leases in previous lease guidance. Lease agreements that ~~a statement of cash flows explain~~are 12 months or less are permitted to be excluded from the change during the period in the total of cash, cash equivalents, and amount generally described as restricted cash or restricted cash equivalents. This ASU is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, with retrospective application required. The Company adoptedbalance sheet. In addition, this ASU inexpands the ~~first quarter~~disclosure requirements of fiscal 2019. The adoption of this ASU had no impact to the Condensed Consolidated Statement of Cash Flows for the 26-week period ended January 27, 2018 or January 26, 2019, as the Company did not have restricted cash in its beginning or ended amounts for those periods.

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

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight specific issues are (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Businesses Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; (6) Distributions Received from Equity Method Investees; (7) Beneficial Interests in Securitization Transactions; and (8) Separately Identifiable Cash and Application of the Predominance Principle. This ASU is effective for public companies with interim periods and fiscal years beginning after December 15, 2018.lease arrangements. The Company adopted this standard in the first quarter of fiscal 2020 on August 4, 2019, the effective and initial application date, using the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption. In addition, the Company elected the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The impact of the adoption to the Company’s Condensed Consolidated Balance Sheets includes the recognition of operating lease liabilities of $1.1 billion with nocorresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases. The difference between the amount of right-of-use assets and lease liabilities recognized is primarily related to adjustments to prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves. In addition, the adoption of the standard resulted in the derecognition of existing property and equipment for certain properties that did not qualify for sale accounting because the Company was determined to be the accounting owner during the construction phase. In addition, at the transition date the Company is constructing one facility that, when complete, the Company will perform a sale-leaseback assessment. For properties where the Company was deemed the accounting owner during construction for which construction has been completed, the difference between the assets and liabilities derecognized, net of the deferred tax impact, was recorded as an adjustment to retained earnings. Lessor accounting guidance remained largely unchanged from previous guidance. Adoption of this standard did not have a material impact to ~~its~~the Company’s Condensed Consolidated Statements of Operations or Cash Flows.

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

The effects of the changes, including those discussed above, made to ~~our~~the Company’s Condensed Consolidated Balance ~~sheets, Condensed Consolidated Statements~~Sheets as of ~~Income or Condensed Consolidated Statements of Cash flows.~~

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

The effect of adopting this change resulted in an increase to Retained earnings of $0.3 million, which was recorded in the first quarter of fiscal 2019. This change did not materially impact our Condensed Consolidated Statements of IncomeAugust 3, 2019 for the ~~second quarter of fiscal 2019 or the 26-week period ended January 26, 2019. Refer to Note 3. “Revenue Recognition” for further discussion of our~~ adoption of the new ~~standard.~~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 Stockholder’s 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 stockholder’s equity	$	1,510,934	(2,613		)	$	1,508,321
Total increase to liabilities and stockholder’s equity			$	885,580

~~Recently Issued Accounting Pronouncements~~

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 is the first quarter of fiscal year 2020. The Company ~~is currently reviewing~~adopted this standard in the ~~provisions~~first quarter of ~~the new standard and evaluating its~~fiscal 2020 with no impact onto the Company’s consolidated financial ~~statements.~~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 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 adopted by the Company in the first quarter of fiscal 2020. The remaining amendments within ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. The Company adopted 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.

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 of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of fiscal 2021. The Company has outstanding cloud computing arrangements and continues to incur costs that it believes would be required to be capitalized under ASU 2018-05. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

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

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

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

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases(Topic 842),~~ which provides new comprehensive lease accounting guidance that supersedes existing lease guidance. The objective 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 leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In addition, this ASU expands the disclosure requirements of lease arrangements. This ASU will require the Company to recognize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases, which the Company believes will result in a significant impact to its consolidated balance sheets. The Company expects to use the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption. In addition, the Company currently expects to elect the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The ASU is effective for public companies in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020, with early adoption permitted. The Company expects to adopt this standard in the first quarter of fiscal 2020 and continues its assessment of the impacts of this ASU on the Company’s consolidated financial statements and any necessary changes to our accounting policies, processes and controls, and systems. Information about the amounts and timing of our undiscounted future operating lease payments can be found in Note 15. “Leases”.

NOTE 3—REVENUE RECOGNITION

~~Revenue Recognition Accounting Policy~~

The Company recognizes revenue in an amount that reflects the consideration that is expected to be received for goods or services when its performance obligations are satisfied by transferring control of those promised goods or services to its customers. ASC 606 defines a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when or as the performance obligation is satisfied. This footnote addresses the Company’s revenue recognition policies for its continuing operations only; refer to Note 18. “Discontinued Operations” for additional information about our revenue recognition policies of discontinued operations.

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

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

~~Product sales~~

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

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

The Company also evaluates vendor sales incentives to determine whether they reduce the transaction price with its customers. The Company’s analysis considers which party tenders the incentive, whether the incentive reflects a direct reimbursement from

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

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

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

~~Professional services and equipment sales~~

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

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

~~Customer incentives~~

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

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

Disaggregation of Revenues

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

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

Market.

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

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

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


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

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

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



	Net Sales for the 13-Week Period Ended
(in millions)	November 2, 2019
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	3,769	$	—	$	—		$	3,769
Supernatural	1,111		—		—			1,111
Independents	758		—		—			758
Other	368		64		(51		)	381
Total	$	6,006	$	64	$	(51	)	$	6,019

	Net Sales for the 13-Week Period Ended
(in millions)	October 27, 2018⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	1,027	$	—	$	—		$	1,027
Supermarkets	930		—		—			930
Independents	667		—		—			667
Other	233		49		(38		)	244
Total	$	2,857	$	49	$	(38	)	$	2,868

Net Sales for the 13-Week Period Ended
(in millions) January 26, 2019
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 1,100
$ —
$ —
$ 1,100
Independents 810
—
—
810
Supermarkets 3,902
—
—
3,902
Other 318
58
(39 ) 337
Total $ 6,130
$ 58
$ (39 ) $ 6,149

Net Sales for the 13-Week Period Ended
(in millions)
January 27, 2018 ⁽¹⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 931
$ —
$ —
$ 931
Independents 646
—
—
646
Supermarkets 716
—
—
716
Other 222
55
(42 ) 235
Total $ 2,515

$ 55
$ (42 ) $ 2,528

Net Sales for the 26-Week Period Ended
(in millions)
January 26, 2019 ⁽²⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 2,127
$ —
$ —
$ 2,127
Independents 1,502
—
—
1,502
Supermarkets 4,807
—
—
4,807
Other 550
107
(76 ) 581
Total $ 8,986
$ 107
$ (76 ) $ 9,017

Net Sales for the 26-Week Period Ended
(in millions)
January 27, 2018 ⁽³⁾
Customer Channel Wholesale Other Eliminations Consolidated
Supernatural $ 1,784
$ —
$ —
$ 1,784
Independents 1,309
—
—
1,309
Supermarkets 1,412
—
—
1,412
Other 455
113
(87 ) 481
Total $ 4,960

$ 113
$ (87 ) $ 4,986

(1)

to our supermarkets channel and to our other channel for the second quarter of fiscal 2018 decreased approximately $12 million and $15 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the second quarter of fiscal 2018 increased approximately $27 million compared to the previously reported amounts.

~~(2)~~

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

~~(3)~~

During the second quarter of fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classificationreclassification of customer types. As a result of ~~this adjustment,~~these adjustments, net sales to ~~our supermarkets channel and to our other~~the Company’s Supermarkets channel for the ~~26-week period ended January 27, 2018 decreased~~first quarter of fiscal 2019 increased approximately ~~$20~~$223 million ~~and $31 million, respectively,~~ compared to the previously reported amounts, while net sales to the ~~independents~~Other channel ~~for the 26-week period ended January 27, 2018~~ increased approximately ~~$51~~$1 million, ~~compared to~~with an offsetting elimination of the ~~previously reported amounts.~~Supervalu customer channel.

The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada, ~~and~~as international distribution occurs through freight-forwarders. The Company does not have any performance obligations onrelated to international shipments subsequent to delivery to the domestic port.

~~Contract Balances~~

Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net Sales when the Company holds the business for sale with a supply agreement that it anticipates the sale of the retail banner to include upon its disposal. The Company ~~does not typically incur costs that are required~~recorded $244.6 million within Net sales from continuing operations attributable to ~~be capitalized~~discontinued operations inter-company product purchases in ~~connection~~the first quarter of fiscal 2020, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with ~~obtaining a contract with a customer. Expenses related~~sales to ~~contract origination primarily relate to employee costs~~other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for purchases by retail banners that the Company ~~would incur regardless~~expects to dispose of ~~whether~~without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $113.0 million in the ~~contract was obtained with the customer.~~first quarter of fiscal 2020.

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

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

Accounts and notes receivable are as follows:



(in thousands)	November 2, 2019			August 3, 2019
Customer accounts receivable	$	1,143,836		$	1,063,167
Allowance for uncollectible receivables	(27,812		)	(20,725		)
Other receivables, net	20,900			23,257
Accounts receivable, net	$	1,136,924		$	1,065,699

Customer notes receivable, net, included within Prepaid expenses and other current assets	$	11,235		$	11,912
Long-term notes receivable, net, included within Other assets	$	25,683		$	34,408

(in thousands) January 26, 2019 July 28, 2018
Customer accounts receivable $ 1,093,195
$ 595,698
Allowance for uncollectible receivables (15,278 ) (15,996 )
Other receivables, net 16,957
—
Accounts receivable, net $ 1,094,874
$ 579,702

Customer notes receivable, included within Prepaid expenses and other current assets $ 16,473
$ —
Long-term notes receivable, included within Other assets $ 37,863
$ —

4.NOTE 4—ACQUISITIONS

Supervalu Acquisition

On July 25, 2018, the Company entered into an agreement and plan of merger ~~(the “Merger Agreement”)~~ to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded ~~food wholesaler~~conventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, ~~2018.~~2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock,

par value $0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $32.50 per share, without interest. Total consideration related to this acquisition was ~~approximately~~ $2.3 billion, $1.3 billion of which was paid in cash to Supervalu shareholders and $1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s ~~consolidated financial statements~~Consolidated Financial Statements on a ~~provisional~~preliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note ~~18. “Discontinued Operations”~~17—Discontinued Operations for more ~~information.~~information on discontinued operations.

The following table summarizes the final consideration, ~~paid, preliminary~~ fair ~~values~~value of ~~the Supervalu~~ assets acquired and liabilities assumed, and the resulting ~~preliminary~~ goodwill. Due to the recent closing of the transaction, management’s ongoing assessment of the fair values of acquired assets and liabilities, and its further review of certain disposal components being classified as held for sale, as of January 26, 2019, the purchase price allocation was preliminary and will be finalized when valuations are complete and final assessments of the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations, and such changes may result in increases or decreases to the goodwill impairment charge recorded in the second quarter of fiscal 2019 due to changes in the opening balance sheet value of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible asset acquired and liabilities assumed.



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

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

As of October 22, 2018
(in thousands) Preliminary as of October 27, 2018 Preliminary as of January 26, 2019
Cash and cash equivalents $ 25,102
$ 25,102
Accounts receivable 557,680
556,562
Inventories 1,162,360
1,162,360
Prepaid expenses and other current assets 66,440
70,440
Current assets of discontinued operations⁽¹⁾
196,615
196,615
Property, plant and equipment 1,148,001
1,221,925
Goodwill 347,485
491,695
Intangible assets⁽²⁾
1,077,541
885,658
Other assets⁽²⁾
109,445
80,105
Long-term assets of discontinued operations⁽¹⁾
404,301
442,701
Accounts payable (967,429 ) (972,340 )
Other current liabilities (282,692 ) (327,713 )
Current portion of long term debt and capital lease obligations (579,677 ) (579,677 )
Current liabilities of discontinued operations⁽¹⁾
(150,611 ) (150,690 )
Long-term debt and capital lease obligations⁽³⁾
(179,262 ) (138,163 )
Pension and other postretirement benefit obligations (234,324 ) (234,324 )
Deferred income taxes (177,231 ) (100,612 )
Other long-term liabilities⁽³⁾
(200,913 ) (306,816 )
Long-term liabilities of discontinued operations⁽¹⁾
(1,401 ) (1,398 )
Total fair value of net assets acquired 2,321,430
2,321,430
Plus: noncontrolling interests 1,633
1,633
Less: cash and cash equivalents⁽⁴⁾
(30,596 ) (30,596 )
Less: assumed equity award liabilities (18,638 ) (18,638 )
Plus: cash paid for equity awards —
8,105
Total consideration paid in cash 2,273,829
2,281,934
Plus: unpaid assumed equity award liabilities⁽⁵⁾
18,638
10,533
Total consideration $ 2,292,467
$ 2,292,467


(1)	Refer to Note 18. “Discontinued Operations” for additional Condensed Consolidated Balance Sheets information regarding the carrying value of discontinued operations at the end of the second quarter of fiscal 2019, subsequent to the acquisition date.


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

~~(3)~~

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


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


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

~~Preliminary goodwill~~Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. ~~The Company is currently evaluating the tax deductibility of the provisional goodwill amount, however it currently expects a~~A substantial portion of ~~its~~ goodwill ~~to be~~is deductible for income tax purposes. ~~Based on the preliminary valuation, goodwill resulting~~Goodwill from the acquisition was ~~primarily~~ attributed to the Company’s ~~wholesale segment,~~Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which ~~is presented in Goodwill~~ in the ~~table above. In addition, $201 thousand~~first quarter of ~~preliminary~~fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 6—Goodwill and Intangible Assets. NaN goodwill was attributed to the ~~retail~~Company’s Retail reporting unit within discontinued operations. ~~Refer to Note 7. “Goodwill and Intangible Assets” for additional information regarding the assignment of goodwill to the Company’s reporting units.~~

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

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


		As of October 22, 2018						Final Acquisition Date Fair Values
(in thousands)	Estimated Useful Life	Continuing Operations			Discontinued Operations		Estimated Useful Life	Continuing Operations			Discontinued Operations
Customer relationship assets	11–19 years	$	785,000		$	—	10–17 years	$	810,000		$	—
Favorable operating leases	3–25 years	23,658			—		1-19 years	21,629			—
Leases in place							1-8 years	10,474			—
Tradenames	2-9 years	66,000			17,000		2-9 years	66,000			17,000
Pharmacy prescription files	5–7 years	—			41,100		5-7 years	—			45,900
Non-compete agreement	2 years	11,000			—		2 years	10,000			—
Unfavorable operating leases	2 years	(20,777		)	—		1-12 years	(21,754		)	—
Total Supervalu finite-lived intangibles acquired		$	864,881		$	58,100
Total								$	896,349		$	62,900

~~In addition to~~The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, ~~of assets and assumption of liabilities above, the Company also began a restructuring plan~~ which ~~resulted~~are quantified in ~~additional costs and expenses recorded in its Condensed Consolidated Statements of Income for the 13-week period and 26-week period ended January 26, 2019. Refer to~~ Note ~~5. “Restructuring,~~5—Restructuring, Acquisition and Integration Related ~~Expenses” and Note 13. “Share-Based Awards” for further information.~~Expenses.

The accompanying Condensed Consolidated Statements of ~~Income~~Operations include the results of operations of Supervalu ~~since the~~from October 22, 2018 acquisition date through January 26, 2019, which consisted of net sales from continuing operations of $3.70 billion, of which $3.47 billion was recorded in the 13-week period ended January 26, 2019.2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note ~~18. “Discontinued Operations”.~~17—Discontinued Operations.

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


	13-Week Period Ended			26-Week Period Ended						13-Week Period Ended
(in thousands, except per share data)	January 27, 2018⁽²⁾			January 26, 2019⁽¹⁾			January 27, 2018⁽²⁾			October 27, 2018⁽¹⁾			October 28, 2017⁽²⁾
Net sales	$	6,159,106		$	12,134,176		$	12,056,161		$	5,984,970		$	5,910,484
Net loss from continuing operations	$	(25,388	)	$	(411,196	)	$	(34,349	)	$	(47,893	)	$	(53,367	)
Basic net loss from continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)
Basic net loss continuing operations per share										$	(0.95	)	$	(1.05	)
Diluted net loss from continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)	$	(0.95	)	$	(1.05	)


(1)	~~These~~Includes 12 weeks of pro forma Supervalu results ~~reflect an additional 12 weeks from Supervalu~~ for the period ended September 8, 2018.


(2)	~~These~~Includes 13 weeks of pro forma Supervalu results ~~reflect Supervalu’s~~for the period ended September 17, 2017 and 13 weeks of pro forma Associated Grocers of Florida, Inc.~~’s,~~ results for the period ended August 5, 2017, which was acquired by Supervalu on December 8, ~~2017, 13-week and 26-week periods ended December 2, 2017, respectively.~~2017.

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

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

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



	13-Week Period Ended
(in thousands)	November 2, 2019		October 27, 2018
2019 SUPERVALU INC. restructuring expenses	$	1,837	$	36,069
Acquisition and integration costs	9,294		31,935
Closed property charges and costs	3,119		—
Total	$	14,250	$	68,004

13-Week Period Ended 26-Week Period Ended
(in thousands) January 26, 2019 January 26, 2019
2019 SUPERVALU INC. restructuring expenses $ 18,097
$ 54,166
Acquisition and integration costs 9,481
41,416
Closed property charges 19,547
19,547
Total $ 47,125
$ 115,129

~~Closed Property Reserves~~

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

(in thousands)
January 26, 2019
(26 weeks)
Reserves for closed properties at beginning of the fiscal year $ —
Acquired liabilities 34,426
Additions, accretion and changes in estimates 17,671
Payments (4,051 )
Reserves for closed properties at the end of the fiscal period $ 48,046

Reserves for closed property are included in the Condensed Consolidated Balance Sheets within Accrued expenses and other current liabilities and Other long-term liabilities. Closed property charges recorded in the second quarter of fiscal 2018 primarily relate to 15 retail stores, including certain Shop ‘n Save and Shop ‘n Save East branded stores, and are net of estimated sublease assumptions.

Restructuring Programs

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



(in thousands)	2019 SUPERVALU INC.			2018 Earth Origins Market		2017 Cost Saving and Efficiency Initiatives		Total
Balances at August 3, 2019	$	11,857		$	383	701		$	12,941
Restructuring program charge	1,837			—		—		1,837
Cash payments	(7,078		)	—		—		(7,078		)
Balances at November 2, 2019	$	6,616		$	383	$	701	$	7,700

Cumulative program charges incurred from inception to date	$	76,251		$	2,219	$	6,864	$	85,334

(in thousands) 2019 SUPERVALU INC. 2018 Earth Origins Market Total
Balances at July 28, 2018 $ —
$ 2,219
$ 2,219
Restructuring program charge⁽¹⁾
54,166
—
54,166
Acquired restructuring liability 6,193
—
6,193
Adjustments —
—
—
Cash payments (41,820 ) (2,164 ) (43,984 )
Balances at January 26, 2019 $ 18,539
$ 55
$ 18,594

Cumulative program charges incurred from inception to date $ 54,166
$ 2,219
$ 56,385


~~(1)~~	~~Includes $33.8 million of charges related to change-in-control expense to satisfy outstanding equity awards and severance related costs.~~

2019 SUPERVALU INC.

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

~~The Company expects to incur approximately $9 million of additional restructuring expense throughout the remainder of fiscal 2019.~~

~~2018 Earth Origins Market~~

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

6.~~EARNINGS PER SHARE~~

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

13-Week Period Ended 26-Week Period Ended
(in thousands, except per share data) January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018
Basic weighted average shares outstanding 50,815
50,449
50,699
50,633
Net effect of dilutive stock awards based upon the treasury stock method⁽¹⁾
—
292
—
216
Diluted weighted average shares outstanding⁽¹⁾
50,815
50,741
50,699
50,849

Basic per share data:
Continuing operations $ (7.15 ) $ 1.00
$ (7.59 ) $ 1.60
Discontinued operations⁽¹⁾
$ 0.42
$ —
$ 0.46
$ —
Basic (loss) earnings per share $ (6.72 ) $ 1.00
$ (7.12 ) $ 1.60
Diluted per share data:
Continuing operations $ (7.15 ) $ 0.99
$ (7.59 ) $ 1.59
Discontinued operations⁽¹⁾
$ 0.42
$ —
$ 0.46
$ —
Diluted (loss) earnings per share $ (6.72 ) $ 0.99
$ (7.12 ) $ 1.59

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 4,094
293
1,969
582


~~(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, or approximately 107 thousand shares for the 13-week period ended January 26, 2019 and 353 thousand shares for the 26-week period ended January 26, 2019.

7.NOTE 6—GOODWILL AND INTANGIBLE ASSETS

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

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

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, as both of these reporting units are expected to benefit from the synergies of the business combination. The assignment was based on the relative synergistic value estimated as of the acquisition date. This systematic approach utilized the relative cash flow contributions and value created from the acquisition to each reporting unit on a stand-alone basis. As of the acquisition date, approximately $121 million was attributed to the legacy Company Wholesale reporting unit, which is preliminary and subject to the final determinations of the fair value of net assets acquired and a proportionate assignment adjustment between the Supervalu Wholesale reporting unit and the legacy Company reporting unit.

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

Supervalu Acquisition Goodwill

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

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

Fiscal 2020 Goodwill Impairment Review

During the first quarter of fiscal ~~2019,~~2020, the Company ~~experienced a decline in~~changed its ~~stock price~~management structure and ~~market capitalization. During the second quarter of fiscal 2019, the stock price continued~~internal financial reporting to decline, and the decline in the stock price and market capitalization became significant and sustained. Due to this sustained decline in stock price, the Company determined that it was more likely than not that the carrying value ofcombine the Supervalu Wholesale reporting unit ~~exceeded its fair~~and the legacy Company Wholesale reporting unit into one U.S. Wholesale reporting unit, and experienced a further sustained decline in market capitalization and enterprise value. As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, ~~and~~the Company performed an interim quantitative impairment ~~test~~review of ~~goodwill.~~ goodwill for the Wholesale reporting unit, which included a determination of the fair value of all reporting units.

The Company estimated the fair values of all reporting units using both the market approach, applying a multiple of earnings based on ~~guidelines~~observable multiples for guideline publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of ~~10%~~8.5%, which considered ~~guidelines for~~observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums, including those reflected in the ~~current~~Company’s market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization. Based on this analysis, the Company determined that the carrying value of its ~~Supervalu~~U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded ~~the~~its assigned ~~goodwill as of the acquisition date.~~goodwill. As a result, the Company recorded a goodwill impairment charge of ~~$370.9~~$421.5 million ~~which~~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 ~~Income for the second quarter of fiscal 2019.~~Operations. The goodwill impairment charge reflects the impairment of all of ~~Supervalu~~the U.S. Wholesale’s reporting unit ~~goodwill, based on the preliminary acquisition date assigned fair values.~~goodwill.

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

~~2018 Earth Origins Market Impairment~~

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

Goodwill and Intangible Assets Changes

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



(in thousands)	Wholesale				Other				Total
Goodwill as of August 3, 2019	$	432,103		⁽¹⁾	$	10,153		⁽²⁾	$	442,256
Goodwill adjustment for prior fiscal year business combinations	1,424				—				1,424
Impairment charges	(423,712		)		(293		)		(424,005		)
Change in foreign exchange rates	116				—				116
Goodwill as of November 2, 2019	$	9,931		⁽¹⁾	$	9,860		⁽²⁾	$	19,791

(in thousands) Wholesale Other Total
Goodwill as of July 28, 2018 $ 352,342
⁽¹⁾
$ 10,153
⁽²⁾
$ 362,495
Preliminary goodwill from current fiscal year business combinations 491,695
—
491,695
Impairment charge (370,871 ) —
(370,871 )
Other adjustments (1,952 ) —
(1,952 )
Change in foreign exchange rates (272 ) —
(272 )
Goodwill as of January 26, 2019 $ 470,942
⁽¹⁾
$ 10,153
⁽²⁾
$ 481,095


(1)	Amounts are net of accumulated goodwill impairment charges of ~~$0.0~~$292.8 million and ~~$370.9~~$716.5 million as of ~~July 28, 2018~~August 3, 2019 and ~~January 26,~~November 2, 2019, respectively.


(2)	Amounts are net of accumulated goodwill impairment charges of $9.3 million and $9.6 million as of ~~both July 28, 2018~~August 3, 2019 and ~~January 26,~~November 2, 2019.

Identifiable intangible assets consisted of the following:



	November 2, 2019						August 3, 2019
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortizing intangible assets:
Customer relationships	$	1,008,103	$	127,906	$	880,197	$	1,007,089	$	111,940	$	895,149
Non-compete agreements	12,900		7,571		5,329		12,900		6,237		6,663
Operating lease intangibles	11,748		2,451		9,297		32,103		2,209		29,894
Trademarks and tradenames	67,700		18,750		48,950		67,700		14,161		53,539
Total amortizing intangible assets	1,100,451		156,678		943,773		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	$	1,156,264	$	156,678	$	999,586	$	1,175,605	$	134,547	$	1,041,058

January 26, 2019 July 28, 2018
(in thousands)
Gross Carrying
Amount

Accumulated
Amortization
Net
Gross Carrying
Amount

Accumulated
Amortization
Net
Amortizing intangible assets:
Customer relationships $ 982,097
$ 79,756
$ 902,341
$ 197,246
$ 61,543
$ 135,703
Non-compete agreements 13,900
2,805
11,095
2,900
1,914
986
Operating lease intangibles 23,658
594
23,064
—
—
—
Trademarks and tradenames 67,700
5,790
61,910
1,700
981
719
Total amortizing intangible assets 1,087,355
88,945
998,410
201,846
64,438
137,408
Indefinite lived intangible assets:
Trademarks and tradenames 55,812
—
55,812
55,801
—
55,801
Intangible assets, net $ 1,143,167
$ 88,945
$ 1,054,222
$ 257,647
$ 64,438
$ 193,209

Amortization expense was ~~$24.6~~$22.1 million and ~~$7.5~~$3.7 million for ~~26-week~~the 13-week periods ended ~~January 26,~~November 2, 2019 and ~~January~~October 27, 2018, respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of ~~January 26,~~November 2, 2019 is shown below:



Fiscal Year:	(In thousands)
Remaining fiscal 2020	$	64,180
2021	71,510
2022	65,893
2023	65,842
2024	66,054
2025 and thereafter	610,294
	$	943,773

Fiscal Year: (In thousands)
Remaining fiscal 2019 $ 41,940
2020 79,953
2021 69,194
2022 65,225
2023 65,642
2024 and thereafter 676,456
$ 998,410

8.NOTE 7—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

Recurring Fair Value Measurements

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


		Fair Value at January 26, 2019							Fair Value at November 2, 2019
(In thousands)	Balance Sheet Location	Level 1		Level 2		Level 3		Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	2,393	$	—	Prepaid expenses and other current assets	$	—	$	279	$	—
Interest rate swap not designated as a hedging instrument	Prepaid expenses and other current assets	$	—	$	220	$	—
Mutual funds	Prepaid expenses and other current assets	$	1,053	$	—	$	—
Interest rate swaps designated as hedging instruments	Other Assets	$	—	$	2,876	$	—	Other assets	$	—	$	89	$	—
Mutual funds	Other Assets	$	1,845	$	—	$	—	Other assets	$	1,759	$	—	$	—

Liabilities:
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	2,502	$	—	Accrued expenses and other current liabilities	$	—	$	20,645	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	10,128	$	—	Other long-term liabilities	$	—	$	61,370	$	—

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



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

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

Interest Rate Swap Contracts

The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of ~~January 26,~~November 2, 2019, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swaps by approximately ~~$65.5~~$64.9 million; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately ~~$69.0~~$67.8 million. Refer to Note ~~9. “Derivatives”~~8—Derivatives for further information on interest rate swap contracts.

Mutual fund assets consist of balances held in investments to fund certain deferred compensation plans. The fair values of mutual fund assets are based on quoted market prices of the mutual funds held by the plan at each reporting period. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Deferred compensation liabilities consist of obligations to participants in deferred compensation plans, and are determined based on the fair value of the related deferred compensation plan investments or designated phantom investments of the plan at each reporting period.

Fair Value Estimates

For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. ~~The carrying amount of borrowings on the ABL Credit Facility approximates fair value as interest rates on the ABL Credit Facility approximate current market rates (Level 2 criteria).~~

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

The estimated fair values are based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs. In the table below, the carrying value of ~~borrowings under~~ the Company’s ~~Term Loan Facility, including current~~long-term debt is net of original issue discounts and debt issuance costs.



	November 2, 2019				August 3, 2019
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable, including current portion	$	36,918	$	37,218	$	46,320	$	45,232
Long-term debt, including current portion	$	3,070,456	$	2,812,437	$	2,906,483	$	2,730,271

Fuel Supply Agreements and Derivatives

To reduce diesel price risk, the Company has in the past, and may in the future, periodically enter in to derivative financial instruments and/or forward purchase commitments for a portion ~~is determined by using available market information~~of its projected monthly diesel fuel requirements at fixed prices. As of August 3, 2019, the Company had no outstanding fuel supply agreements and ~~appropriate valuation methodologies taking into account the instruments’ interest rate, terms, maturity date and collateral, if any, in comparison to~~derivative agreements. As of November 2, 2019, the Company’s ~~incremental borrowing rate for similar~~fuel supply agreements and derivatives were immaterial.

Foreign Exchange Derivatives

To reduce foreign exchange risk, the Company has in the past, and may in the future, periodically enter in to derivative financial instruments for a portion of its projected monthly foreign currency requirements at fixed prices. As of November 2, 2019 and ~~are therefore deemed Level 2 inputs. However, considerable judgment is required in interpreting market data to develop~~August 3, 2019, the ~~estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.~~Company’s outstanding foreign currency forward contracts were immaterial.

Management of Interest Rate Risk

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

as cash flow hedges at ~~January 26, 2019, except for one interest rate swap contract which matures on March 21, 2019 and is described in more detail in footnote 1 to the table below.~~November 2, 2019. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Refer to Note ~~8. “Fair~~7—Fair Value Measurements of Financial ~~Instruments”~~Instruments for further information on the fair value of interest rate swap contracts.

Details of outstanding swap contracts as of ~~January 26,~~November 2, 2019, which are all pay fixed and receive floating, are as follows:



Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate	Floating Rate Reset Terms
April 29, 2021⁽¹⁾	$	25.0	1.0650	%	One-Month LIBOR	Monthly
April 29, 2021⁽²⁾	25.0		0.9260	%	One-Month LIBOR	Monthly
August 15, 2022⁽³⁾	58.5		1.7950	%	One-Month LIBOR	Monthly
August 15, 2022⁽⁴⁾	39.0		1.7950	%	One-Month LIBOR	Monthly
October 31, 2020⁽⁵⁾	100.0		2.8240	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁵⁾	100.0		2.8915	%	One-Month LIBOR	Monthly
October 31, 2023⁽⁵⁾	100.0		2.9210	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁵⁾	50.0		2.9550	%	One-Month LIBOR	Monthly
March 31, 2023⁽⁶⁾	150.0		2.8950	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁶⁾	50.0		2.9580	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁶⁾	50.0		2.9590	%	One-Month LIBOR	Monthly
October 29, 2021⁽⁷⁾	100.0		2.8084	%	One-Month LIBOR	Monthly
September 30, 2023⁽⁷⁾	50.0		2.8315	%	One-Month LIBOR	Monthly
October 31, 2024⁽⁷⁾	100.0		2.8480	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁸⁾	50.0		2.4678	%	One-Month LIBOR	Monthly
March 28, 2024⁽⁸⁾	100.0		2.4770	%	One-Month LIBOR	Monthly
October 31, 2024⁽⁸⁾	100.0		2.5010	%	One-Month LIBOR	Monthly
April 29, 2021⁽⁹⁾	50.0		2.5500	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁹⁾	50.0		2.5255	%	One-Month LIBOR	Monthly
March 31, 2023⁽⁹⁾	50.0		2.5292	%	One-Month LIBOR	Monthly
March 28, 2024⁽⁹⁾	100.0		2.5420	%	One-Month LIBOR	Monthly
October 31, 2024⁽¹⁰⁾	50.0		2.5210	%	One-Month LIBOR	Monthly
October 22, 2025⁽¹⁰⁾	50.0		2.5558	%	One-Month LIBOR	Monthly
April 15, 2022⁽¹¹⁾	100.0		2.3645	%	One-Month LIBOR	Monthly
December 13, 2019⁽¹²⁾	100.0		2.4925	%	One-Month LIBOR	Monthly
May 15, 2020⁽¹²⁾	100.0		2.4490	%	One-Month LIBOR	Monthly
June 30, 2021⁽¹³⁾	100.0		2.2520	%	One-Month LIBOR	Monthly
June 30, 2022⁽¹³⁾	100.0		2.2170	%	One-Month LIBOR	Monthly
June 30, 2021⁽¹⁴⁾	50.0		2.2290	%	One-Month LIBOR	Monthly
June 30, 2022⁽¹⁵⁾	50.0		2.1840	%	One-Month LIBOR	Monthly
	$	2,197.5

Swap Maturity Notional Value (in millions) Pay Fixed Rate Receive Floating Rate Floating Rate Reset Terms
March 21, 2019⁽¹⁾
$ 300.0
2.0075 % One-Month LIBOR Monthly
June 9, 2019⁽²⁾
50.0
0.8725 % One-Month LIBOR Monthly
April 29, 2021⁽²⁾
25.0
1.0650 % One-Month LIBOR Monthly
June 30, 2019⁽³⁾
50.0
0.7265 % One-Month LIBOR Monthly
April 29, 2021⁽³⁾
25.0
0.9260 % One-Month LIBOR Monthly
August 15, 2022⁽⁴⁾
64.5
1.7950 % One-Month LIBOR Monthly
August 15, 2022⁽⁵⁾
43.0
1.7950 % One-Month LIBOR Monthly
October 31, 2020⁽⁶⁾
100.0
2.8240 % One-Month LIBOR Monthly
October 31, 2022⁽⁶⁾
100.0
2.8915 % One-Month LIBOR Monthly
October 31, 2023⁽⁶⁾
100.0
2.9210 % One-Month LIBOR Monthly
October 22, 2025⁽⁶⁾
50.0
2.9550 % One-Month LIBOR Monthly
March 31, 2023⁽⁷⁾
150.0
2.8950 % One-Month LIBOR Monthly
October 22, 2025⁽⁷⁾
50.0
2.9580 % One-Month LIBOR Monthly
October 22, 2025⁽⁷⁾
50.0
2.9590 % One-Month LIBOR Monthly
October 29, 2021⁽⁸⁾
100.0
2.8084 % One-Month LIBOR Monthly
September 30, 2023⁽⁸⁾
50.0
2.8315 % One-Month LIBOR Monthly
October 31, 2024⁽⁸⁾
100.0
2.8480 % One-Month LIBOR Monthly
October 31, 2022⁽⁹⁾
50.0
2.4678 % One-Month LIBOR Monthly
March 28, 2024⁽⁹⁾
100.0
2.4770 % One-Month LIBOR Monthly
October 31, 2024⁽⁹⁾
100.0
2.5010 % One-Month LIBOR Monthly
April 29, 2021⁽¹⁰⁾
50.0
2.5500 % One-Month LIBOR Monthly
October 31, 2022⁽¹⁰⁾
50.0
2.5255 % One-Month LIBOR Monthly
March 31, 2023⁽¹⁰⁾
50.0
2.5292 % One-Month LIBOR Monthly
March 28, 2024⁽¹⁰⁾
100.0
2.5420 % One-Month LIBOR Monthly
October 31, 2024⁽¹¹⁾
50.0
2.5210 % One-Month LIBOR Monthly
October 22, 2025⁽¹¹⁾
50.0
2.5558 % One-Month LIBOR Monthly
$ 2,007.5

The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. Under this method, the Company assesses the effectiveness of each hedging

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

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



	13-Week Period Ended
	November 2, 2019			October 27, 2018
(In thousands)	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	$	49,518		$	7,525
Gain or (loss) on cash flow hedging relationships:
Gain or (loss) reclassified from comprehensive income into income	$	(2,370	)	$	551
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:
Gain or (loss) recognized as interest expense	$	—		$	(88	)

~~10.TREASURY STOCK~~

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

The Company records the repurchase of shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. The Company repurchased 614,660 shares of its common stock at an aggregate cost of $24.2 million in the fiscal year ended July 28, 2018. The Company did not purchase any shares of the Company’s common stock in the 26-week period ended January 26, 2019.

~~Effective Tax Rate~~

Our effective income tax rate for continuing operations was 20.2%, which represents a tax benefit on a pre-tax loss, compared to a benefit of 38.4% on pre-tax income for the 13-week periods ended January 26, 2019 and January 27, 2018, respectively, and 20.0% and 8.9% for the 26-week periods ended January 26, 2019 and January 27, 2018, respectively. The increase in the effective income tax rate was primarily driven by the one-time tax benefit of $21.9 million recorded in fiscal 2018 for the impact of the re-measurement of U.S. net deferred tax liabilities due to tax reform.

~~The total (benefit) provision for income taxes included in the consolidated statements of income consisted of the following:~~

13-Week Period Ended 26-Week Period Ended
(in thousands) January 26, 2019 January 27, 2018 January 26, 2019 January 27, 2018
Continuing operations $ (91,809 ) $ (14,001 ) $ (96,064 ) $ 7,888
Discontinued operations 5,239
—
5,987
—
Total $ (86,570 ) $ (14,001 ) $ (90,077 ) $ 7,888

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

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

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

~~Uncertain Tax Positions~~

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

26-Week Period Ended
(in thousands) January 26,
2019
Unrecognized tax benefits at beginning of period $ 1,104
Unrecognized tax benefits assumed in a business combination 49,566
Decreases in unrecognized tax benefits due to statute expiration (9,789 )
Unrecognized tax benefits at end of period $ 40,881

In addition, the Company has $14 million paid on deposit to various governmental agencies to cover the above liability. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. For the 13-week period ended January 26, 2019, total gross interest and penalties was a benefit of $1.2 million due to the expiration of the statute of limitations on various reserves. For the 26-week period ended January 26, 2019, total gross interest and penalties was a benefit of $1.1 million.

The Company is currently under examination in several taxing jurisdictions and remains subject to examination until the statute of limitations expires for the respective taxing jurisdiction or an agreement is reached between the taxing jurisdiction and the Company. As of January 26, 2019, the Company is no longer subject to federal income tax examinations for fiscal years before 2015 and in most states is no longer subject to state income tax examinations for fiscal years before 2008 and 2014 for Supervalu and United Natural Foods, Inc., respectively.

Under ASU 2016-09, the Company accounts for excess tax benefits or tax deficiencies related to share-based payments in its provision for income taxes as opposed to additional paid-in capital. The Company recognized $1.3 million of income tax expense related to excess tax deficiencies for share-based payments for the 26-week period ended January 26, 2019 and $0.9 million of income tax expense related to tax deficiencies for share-based payments for the 26-week period ended January 27, 2018.

The Company has three operating segments: legacy Company Wholesale; Supervalu Wholesale and Canada Wholesale, aggregated under the Wholesale reportable segment. In addition, the Company’s Retail operating segment is a separate reportable segment, which is primarily comprised of discontinued operations activities. The legacy Company Wholesale, Supervalu Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, and conventional grocery and non-food products, and in the provision of support services in the United States and Canada. The Company has additional operating segments that do not meet the quantitative thresholds for reportable segments and are therefore aggregated under the caption of “Other.” “Other” includes a former retail division, that engaged in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, a manufacturing division, which engages in the importing, roasting, packaging, and distributing of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, the Company’s branded product lines, and the Company’s brokerage business, which markets various products on behalf of food vendors directly and exclusively to the Company’s customers. “Other” also includes certain corporate operating expenses that are not allocated to operating segments, which include, among other expenses, restructuring, acquisition, and integration related expenses, share-based compensation, and salaries, retainers, and other related expenses of certain officers and all directors. Non-operating expenses that are not allocated to the operating segments are under the caption of “Unallocated (Income)/Expenses.”

(in thousands) Wholesale Other Eliminations Unallocated (Income)/Expenses Consolidated
13-Week Period Ended January 26, 2019:

Net sales⁽¹⁾
$ 6,130,276
$ 57,859
$ (38,929 ) $ —
$ 6,149,206
Goodwill and asset impairment charges 370,871
—
—
—
370,871
Restructuring, acquisition, and integration related expenses 4
47,121
—
—
47,125
Operating income (loss) (312,208 ) (95,608 ) (319 ) —
(408,135 )
Total other expense, net —
—
—
46,977
46,977
(Loss) income from continuing operations before income taxes —
—
—
—
(455,112 )
Depreciation and amortization 62,336
10,864
—
—
73,200
Capital expenditures 63,673
83
—
—
63,756
Total assets of continuing operations 6,497,883
361,063
(36,203 ) —
6,822,743

13-Week Period Ended January 27, 2018:

Net sales $ 2,514,670
$ 55,493
$ (42,152 ) $ —
$ 2,528,011
Goodwill and asset impairment charges 67
11,175
—
—
11,242
Operating income (loss) 53,941
(16,549 ) 2,812
—
40,204
Total other expense, net —
—
—
3,719
3,719
(Loss) income from continuing operations before income taxes —
—
—
—
36,485
Depreciation and amortization 21,437
370
—
—
21,807
Capital expenditures 9,426
852
—
—
10,278
Total assets of continuing operations 2,909,175
183,180
(42,675 ) —
3,049,680

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

During the first quarter of fiscal 2019, the Company authorized for issuance and registered on a Registration Statement on Form S-8 filed with the SEC on October 22, 2018 (the “Form S-8”) an additional 5,000,000 shares for issuance in order to satisfy the Replacement Options and Replacement Awards. In accordance with ASC 718, ~~Compensation- Stock Compensation~~, the Replacement Awards are liability classified awards as they may ultimately be settled in cash or shares at the discretion of the employee because employees holding such equity awards were offered the opportunity to participate in an immediate sale program established by the Company on their behalf. The liability will not be marked-to-market each reporting period as the share-based awards will be settled in cash or shares based on the fixed value of $32.50 per share.

The Company recognized total share-based compensation expense of $10.4 million and $18.5 million during the second quarter and 26-week period ended January 26, 2019, respectively, which included share-based compensation expense of $4.2 million and $4.8 million for Supervalu Replacement Awards, respectively, related to the post-combination period, beginning on the acquisition date through January 26, 2019. Share-based compensation expense does not include $25.2 million of charges for the settlement

of share-based awards recorded as part of restructuring costs, described in Note 5. “Restructuring, Acquisition, and Integration Related Expenses” of which $20.6 million relates to change-in-control payments. The Company recorded share-based compensation expense of $6.6 million and $13.8 million in the second quarter and 26-week period ended January 27, 2018, respectively. The total income tax benefit for share-based compensation arrangements was $2.7 million and $1.5 million for the second quarters of fiscal 2019 and fiscal 2018, respectively and $4.6 million and $3.7 million for the 26 week periods ended January 26, 2019 and January 27, 2018.

Supervalu Replacement Awards generally vest in three equal installments or cliff-vest after three years from the date they were originally granted by Supervalu. The Company’s other time vesting awards are typically four equal annual installments for employees and two equal installments for non-employee directors with the first installment on the date of grant and the second installment on the six-month anniversary of the grant date. As of January 26, 2019, there was $79.8 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock options, restricted stock units and performance-based restricted stock units) of which $40.0 million relates to Supervalu Replacement Awards. Unrecognized compensation cost related to Replacement Options is de minimis. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.4 years.

~~New Retirement Provision~~

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

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



(in thousands)	Average Interest Rate at November 2, 2019	Calendar Maturity Year	November 2, 2019			August 3, 2019
Term Loan Facility	6.04%	2025	$	1,786,500		$	1,864,900
ABL Credit Facility	3.14%	2023	1,317,700			1,080,000
Other secured loans	5.20%	2023-2024	58,417			57,649
Debt issuance costs, net			(52,374		)	(54,891		)
Original issue discount on debt			(39,787		)	(41,175		)
Long-term debt, including current portion			3,070,456			2,906,483
Less: current portion of long-term debt			(19,218		)	(87,433		)
Long-term debt			$	3,051,238		$	2,819,050

(in thousands)
Average Interest Rate at
January 26, 2019
Maturity Year January 26,
2019 July 28,
2018
Term Loan Facility 6.65% 2019-2025 $ 1,903,000
$ —
ABL Credit Facility 3.81% 2023 1,242,004
—
Other secured loans 5.74% 2023 40,396
—
Former ABL Credit Facility —
210,000
Former Term Loan Facility —
110,000
Debt issuance costs, net (60,631 ) (1,164 )
Original issue discount on debt (43,638 ) —
Long-term debt, including current portion $ 3,081,131
$ 318,836
Less: current portion of long-term debt obligations (115,795 ) (10,000 )
Long-term debt $ 2,965,336
$ 308,836

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

The ABL Loan Agreement provides for ana secured asset-based revolving credit facility (the “ABL Credit Facility” and the loans thereunder, the “ABL Loans”), of which up to (i) $2,050.0 million is available to the U.S. Borrowers and (ii) $50.0 million is available to the Canadian Borrower. The ABL Loan Agreement also provides for (i) a $125.0 million sublimit of availability for letters of credit of which there is a further $5.0 million sublimit for the Canadian Borrower, and (ii) a $100.0 million sublimit for short-term borrowings on a swingline basis of which there is a further $3.5 million sublimit for the Canadian Borrower. The ABL Credit Facility replaced the Company’s $900.0 million prior asset-based revolving credit ~~facility (the “Former ABL Credit Facility”), and~~facility. In addition, $1,475.0 million of proceeds from the ABL Credit Facility were drawn ~~on the Closing Date~~ to finance the Supervalu acquisition and related transaction ~~costs.~~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 ~~receivable,~~receivables, plus 90% of the net orderly liquidation value of eligible inventory, plus 90% of eligible pharmacy receivables, plus certain pharmacy scripts availability of the Borrowers, after adjusting for customary reserves. The aggregate amount of the ABL Loans made and letters of credit issued under the ABL Credit Facility shall at no time exceed the lesser of the aggregate commitments under the ABL Credit Facility (currently $2,100.0 million or, if increased at the Borrowers’ option as described above, up to $2,700.0 million) or the Borrowing Base. To the extent that the Borrowers’ Borrowing Base declines, the availability under the ABL Credit Facility may decrease below $2,100.0 million.

As of ~~January 26,~~November 2, 2019, the U.S. Borrowers’ Borrowing Base, net of ~~$88.8~~$143.9 million of reserves, was ~~$2,259.6~~$2,333.7 million, which ~~exceeds~~is above the $2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. As of ~~January 26,~~November 2, 2019, the Canadian Borrower’s Borrowing Base, net of ~~$3.3~~$4.0 million of reserves, was ~~$35.2~~$40.8 million, which is below the $50 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in a total Borrowing Base of ~~$2,085.2~~$2,090.8 million supporting the ABL ~~Loans. The Company~~Loans and outstanding letters of credit under the ABL Credit Facility. As of November 2, 2019, the U.S. Borrowers had ~~$1,242.0~~$1,317.7 million of ABL Loans ~~as of January 26, 2019,~~outstanding, which are presented net of debt issuance costs of ~~$14.2~~$12.2 million and are included in Long-term debt in the Condensed Consolidated Balance ~~Sheet.~~Sheets, and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit Facility. As of ~~January 26,~~November 2, 2019, the ~~Company~~U.S. Borrowers had ~~$76.8~~$77.4 million in letters of credit and the Canadian Borrower had no letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was ~~$766.4~~$695.7 million as of ~~January 26,~~November 2, 2019.

The ~~borrowings~~ABL Loans of the U.S. Borrowers under the ABL Credit Facility bear interest at rates that, at the U.S. Borrowers’ option, can be either: (i) a base rate and an applicable margin, or (ii) a LIBOR rate and an applicable margin. ~~The initial~~As of November 2, 2019, the applicable margin for base rate loans iswas 0.25%, and the ~~initial~~ applicable margin for LIBOR loans iswas 1.25%. The ~~borrowings~~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. ~~The initial~~As of November 2, 2019, the applicable margin for prime rate loans iswas 0.25%, and the ~~initial~~ applicable margin for Canadian dollar bankers’ acceptance equivalent rate loans iswas 1.25%. Commencing on the first day of the calendar month following the ABL Administrative Agent’s receipt of the Company’s aggregate availability calculation for the fiscal quarter ending on ~~January 26,~~November 2, 2019, and quarterly thereafter, the applicable margins for borrowings by the U.S. Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility. Unutilized commitments under the ABL Credit Facility are subject to a per annum fee of (i) ~~from and after the Closing Date through and including the first day of the calendar month that is three months following the Closing Date, 0.375% and (ii) thereafter, (x)~~ 0.375% if the average daily total outstandings were less than 25% of the aggregate commitments during the preceding fiscal quarter or ~~(y)~~(ii) 0.25% if such average daily total outstandings were 25% or more of the aggregate ~~commitments.~~commitments during the preceding fiscal quarter. As of November 2, 2019, the unutilized commitment fee was 0.25% per annum. The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit, as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.

The ABL Loan Agreement subjects the Company to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each ~~of our~~ fiscal ~~quarters~~quarter on a rolling four quarter basis when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. ~~We were~~The Company was not subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement during the ~~second~~first quarter of fiscal ~~2019.~~2020.

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

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

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

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

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

On August 22, 2018, the Company notified its lenders of its intention to prepay its borrowings outstanding under its Former Term Loan Facility on October 1, 2018. The Former Term Loan Facility was previously scheduled to terminate on the earlier of (a) August 14, 2022 and (b) the date that is ninety days prior to the termination date of the Former ABL Loan Agreement. On October 1, 2018, the Company prepaid the $110.0 million of borrowings outstanding under the Former Term Loan Agreement utilizing borrowings under its Former ABL Credit Facility and terminated the Former Term Loan Agreement. In connection with the prepayment, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $1.0 million, which was recorded as Other expense in the Condensed Consolidated Statements of Income for the first quarter of fiscal 2019.

On the Closing Date, the Company entered into a new term loan agreement (the “Term Loan Agreement”), by and among the Company and Supervalu (collectively, the “Term Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the ~~“ Term~~“Term Lenders”), Goldman Sachs Bank USA, as administrative agent for the Lenders, ~~(the “TLB Administrative Agent”),~~ and the other parties thereto. The Term Loan Agreement provides for senior secured first lien term loans in an aggregate principal amount of $1,950.0 million, consisting of a $1,800.0 million ~~seven-year~~seven year tranche (the “Term B Tranche”) and a $150.0 million 364-day tranche (the “364-day Tranche” and, together with the Term B Tranche, collectively, the “Term Loan Facility”). The entire amount of the net proceeds from the Term Loan Facility ~~were~~was used to finance the Supervalu acquisition and related transaction costs.

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

materially less favorable, taken as a whole, to the Company and its subsidiaries than those in effect on the date of the Acquisition, then the loans under the Term B Tranche will be payable in full on December 31, 2024.

The loans under the 364-day Tranche ~~will be payable~~were paid in full on October 21, 2019. The Company funded the scheduled maturity of the $52.8 million outstanding borrowings under the 364-day Tranche with incremental borrowings under the ABL Credit Facility on October 21, 2019. In addition, in the first quarter of fiscal 2020, the Company made mandatory prepayments and voluntary prepayments of $15.3 million and $5.8 million, respectively, on the 364-day Tranche with asset sale proceeds. In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $0.1 million, which was recorded within Interest expense, net in the Condensed Consolidated Statements of Operations for the first quarter of fiscal 2020.

Under the Term Loan Agreement, the Term Borrowers may, at their option, increase the amount of the Term B Tranche, add one or more additional tranches of term loans or add one or more additional tranches of revolving credit commitments, without the consent of any Term Lenders not participating in such additional borrowings, up to an aggregate amount of ~~$656.25~~$656.3 million plus additional amounts based on satisfaction of certain leverage ratio tests, subject to certain customary conditions and applicable lenders committing to provide the additional funding. There can be no assurance that additional funding would be available.

The Term Borrowers’ obligations under the Term Loan Facility are guaranteed by most of the Company’s wholly-owned domestic subsidiaries who are not also Term Borrowers (collectively, the “Term Guarantors”), subject to customary exceptions and limitations, including an exception for immaterial subsidiaries designated by the Company from time to time. The Term Borrowers’ obligations under the Term Loan Facility and the Term Guarantors’ obligations under the related guarantees are secured by (i) a 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 November 2, 2019, there was $590.7 million of owned real property pledged as collateral that was included in Property and equipment, net in the Condensed Consolidated Balance Sheets.

The loans under the Term Loan Facility may be voluntarily prepaid, insubject to certain minimum ~~principal amounts, subject to~~payment thresholds and the payment of breakage or other similar costs. ~~Pursuant to~~Under the Term Loan Facility, ~~we must,~~the Company is required, subject to certain exceptions and customary reinvestment rights, to apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility. Commencing with the fiscal year ending August 1, 2020, wethe Company must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on ~~our~~the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year. The potential amount of prepayment from Excess Cash Flow in fiscal 2020 that may be required in fiscal 2021 is not reasonably estimable as of November 2, 2019.

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 ~~(ii) (A) with respect to the Term B Tranche,~~ 3.25% ~~and (B), with respect to the 364-day Tranche, 1.00%,~~ or (ii) a LIBOR rate and a margin of ~~(ii) (A) with respect to the Term B Tranche,~~ 4.25% ~~and (B), with respect to the 364-day Tranche, 2.00%~~; provided that the LIBOR rate shall never be less than 0.0%.

The Term Loan Agreement does not include any financial maintenance ~~covenants.~~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 immediately to repay all amounts outstanding under the Term Loan Agreement.

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

As of ~~January 26,~~November 2, 2019, the Company had borrowings of ~~$1,800.0~~$1,786.5 million and ~~$103.0 million~~no amounts outstanding under the Term B Tranche and 364-day Tranche, respectively, which are presented net of debt issuance costs of ~~$46.4~~$40.2 million and an original issue discount on debt of ~~$43.6~~$39.4 million. As of ~~January 26,~~November 2, 2019, $18.0 ~~million and $103.0~~ million of the Term B Tranche ~~and 364-day Tranche, respectively,~~ was classified as current, excluding debt issuance costs and original issue discount on debt.

~~Supervalu Senior Notes~~

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



(in thousands)	Benefit Plans			Foreign Currency			Swap Agreements			Total
Accumulated other comprehensive loss at August 3, 2019, net of tax	$	(32,458	)	$	(20,082	)	$	(56,413	)	$	(108,953	)
Other comprehensive loss before reclassifications	—			371			(1,739		)	(1,368		)
Amortization of amounts included in net periodic benefit income	572			—			—			572
Amortization of cash flow hedge	—			—			(1,942		)	(1,942		)
Net current period Other comprehensive loss	572			371			(3,681		)	(2,738		)
Accumulated other comprehensive loss at November 2, 2019, net of tax	$	(31,886	)	$	(19,711	)	$	(60,094	)	$	(111,691	)



(in thousands)	Foreign Currency			Swap Agreements			Total
Accumulated other comprehensive (loss) income at July 28, 2018, net of tax	$	(19,053	)	$	4,874		$	(14,179	)
Other comprehensive loss before reclassifications	(672		)	(245		)	(917		)
Amortization of cash flow hedge	—			441			441
Net current period Other comprehensive loss	(672		)	196			(476		)
Accumulated other comprehensive (loss) income at October 27, 2018, net of tax	$	(19,725	)	$	5,070		$	(14,655	)

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



	13-Week Period Ended					Affected Line Item on the Condensed Consolidated Statements of Operations
(in thousands)	November 2, 2019			October 27, 2018
Pension and postretirement benefit plan obligations:
Amortization of amounts included in net periodic benefit income⁽¹⁾	$	774		$	—	Net periodic benefit income, excluding service cost
Income tax (benefit) expense	(202		)	—		Benefit for income taxes
Total reclassifications, net of tax	$	572		$	—

Swap agreements:
Reclassification of cash flow hedge	$	(2,370	)	$	551	Interest expense, net
Income tax (benefit) expense	(428		)	110		Benefit for income taxes
Total reclassifications, net of tax	$	(1,942	)	$	441

NOTE 11—LEASES

~~15.LEASES~~

On October 23, 2018, the Company received $101.0 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of its final distribution center of eight distribution center sale-leaseback transactions entered into by Supervalu in April 2018. On October 26, 2018, the Company received $48.5 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of a separate distribution center under an agreement entered into by Supervalu in March 2018, as amended. Both distribution center sale-leasebacks qualified for sale accounting, with the lease-backs being classified as operating leases. No gain or loss was recognized or deferred on the sale of these facilities, as these facilities were valued at their contractual sales price as of the Supervalu acquisition date.

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

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

The Company leases certain of its distribution centers, ~~and leases most of its~~ retail stores, ~~and leases certain~~ office facilities, transportation equipment, and other operating equipment from third parties. Many of these leases include renewal ~~options~~options. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. For all classes of underlying assets, the Company has elected to not separate fixed lease components, from the fixed nonlease components.

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



Lease Type	Balance Sheet Location	November 2, 2019
Operating lease assets	Operating lease assets	$	1,051,128
Finance lease assets	Property and equipment, net	68,429
Total lease assets		$	1,119,557

Operating liabilities	Current portion of operating lease liabilities	$	127,327
Finance liabilities	Current portion of long-term debt and finance lease liabilities	15,239
Operating liabilities	Long-term operating lease liabilities	949,978
Finance liabilities	Long-term finance lease liabilities	68,682
Total lease liabilities		$	1,161,226

The Company's lease ~~expense and subtenant rentals all~~cost under ~~operating leases included within Operating expenses consisted of~~ASC 842 for the ~~following:~~13-week period ended November 2, 2019 is as follows:

13-Week Period Ended 26-Week Period Ended
(in thousands) January 26,
2019 January 27,
2018 January 26,
2019 January 27,
2018
Minimum rent 63,793
21,295
$ 90,133
$ 41,994
Contingent rent 46
—
35
—
Rent expense⁽¹⁾
63,839
21,295
90,168
41,994
Less subtenant rentals (4,159 ) (403 ) (4,819 ) (824 )
Total net rent expense $ 59,680
$ 20,892
$ 85,349
$ 41,170



(in thousands)	Statement of Operations Location	13-Week Period Ended
(in thousands)	Statement of Operations Location	November 2, 2019
Operating lease cost	Operating expenses	$	67,141
Short-term lease cost	Operating expenses	10,514
Variable lease cost	Operating expenses	34,956
Sublease income	Operating expenses	(10,940		)
Sublease income	Net sales	(4,835		)
Net operating lease cost⁽¹⁾		96,836
Amortization of leased assets	Operating expenses	4,703
Interest on lease liabilities	Interest expense, net	2,118
Finance lease cost		6,821
Total net lease cost		$	103,657

(1)

Rent expense as presented here includes ~~$12.4~~$12.5 million ~~in the second quarter of fiscal 2019, and $13.3 million year-to-date in fiscal 2019,~~ of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as ~~we expect~~the Company expects to remain primarily obligated under these ~~leases.~~leases

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 November 2, 2019, these lease obligations and lease receipts consisted of the following (in thousands):



Maturity of Lease Liabilities and Lease Receipts	Lease Liabilities						Lease Receipts						Net Lease Obligations
Fiscal Year	Operating Leases⁽¹⁾			Finance Leases⁽²⁾			Operating Leases			Finance Leases			Operating Leases		Finance Leases
Remaining fiscal 2020	$	187,380		$	18,874		$	(43,449	)	$	(161	)	$	143,931	$	18,713
2021	209,552			19,252			(46,516		)	—			163,036		19,252
2022	198,343			17,760			(41,562		)	—			156,781		17,760
2023	171,756			16,653			(31,360		)	—			140,396		16,653
2024	145,338			15,702			(24,236		)	—			121,102		15,702
Thereafter	1,050,386			21,526			(55,542		)	—			994,844		21,526
Total undiscounted lease liabilities and receipts	$	1,962,755		$	109,767		$	(242,665	)	$	(161	)	$	1,720,090	$	109,606
Less interest ⁽³⁾	(885,450		)	(25,846		)
Present value of lease liabilities	1,077,305			83,921
Less current lease liabilities	(127,327		)	(15,239		)
Long-term lease liabilities	$	949,978		$	68,682


(1)	Operating lease payments include $14.7 million related to extension options that are reasonably certain of being exercised and exclude $48.5 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 $0.0 million of legally binding minimum lease payments for leases signed but not yet commenced.


(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 ~~capital~~finance leases, which have not been reduced for future minimum subtenant rentals under certain operating subleases, including ~~assignments. As~~assignments, consisted of ~~January 26, 2019, these lease obligations consisted of~~the following amounts (in thousands):


	Lease Obligations					Lease Obligations					Lease Receipts						Net Lease Obligations
Fiscal Year	Operating Leases		Capital Leases			Operating Leases		Capital Leases			Operating Leases			Capital Leases			Operating Leases		Capital Leases
Remaining fiscal 2019	$	97,688	$	26,255
2020	185,238		42,904			$	223,612	$	41,550		$	(55,922	)	$	(319	)	$	167,690	$	41,231
2021	157,999		34,871			190,845		32,804			(41,425		)	—			149,420		32,804
2022	139,821		31,013			179,326		29,869			(35,998		)	—			143,328		29,869
2023	121,034		27,814			154,812		26,699			(25,591		)	—			129,221		26,699
2024						135,795		23,095			(18,183		)	—			117,612		23,095
Thereafter	1,006,721		74,339			1,063,674		46,999			(59,186		)	—			1,004,488		46,999
Total future minimum obligations	$	1,708,501	237,196
Total future minimum obligations (receipts)						$	1,948,064	$	201,016		$	(236,305	)	$	(319	)	$	1,711,759	$	200,697
Less interest			(84,778		)			(68,138		)
Present value of net future minimum obligations			152,418
Present value of capital lease obligations								132,878
Less current capital lease obligations			(27,819		)			(24,670		)
Long-term capital lease obligations			$	124,599				$	108,208

The Company leases certain property to third parties under operating, capital and direct financing leases, including assigned leases for which we have future minimum lease payment obligations that are included in the table above. Future minimum lease and subtenant rentals to be received under lease assignments and noncancellable operating and deferred financing income leases, under which the Company is the lessor, as of January 26, 2019, consisted of the following ~~(in thousands):~~

tables provide other information required by ASC 842:



Lease Term and Discount Rate	November 2, 2019
Weighted-average remaining lease term (years)
Operating leases	11.1 years
Finance leases	5.7 years
Weighted-average discount rate
Operating leases	10.7	%
Finance leases	9.9	%

Lease Receipts
Fiscal Year Operating Leases Direct Financing Leases
Remaining fiscal 2019 $ 18,648
$ 225
2020 32,510
225
2021 25,953
—
2022 22,389
—
2023 14,631
—
Thereafter 31,342
—
Total minimum lease receipts $ 145,473
$ 450



Other Information	13-Week Period Ended
(in thousands)	November 2, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	55,750
Operating cash flows from finance leases	1,880
Financing cash flows from finance leases	3,074
Leased assets obtained in exchange for new finance lease liabilities	—
Leased assets obtained in exchange for new operating lease liabilities	37,020

The Company acquired various pension and other post retirement benefit plans with the acquisition of Supervalu, which resulted in the revaluation of pension and other postretirement benefit plan obligations as of the acquisition date.



	First Quarter Ended
	Pension Benefits						Other Postretirement Benefits
(in thousands)	November 2, 2019			October 27, 2018			November 2, 2019			October 27, 2018
Net Periodic Benefit (Income) Cost
Service cost	$	—		$	—		$	14		$	4
Interest cost	16,690			1,847			236			38
Expected return on plan assets	(27,482		)	(2,724		)	(54		)	(5		)
Amortization of net actuarial loss (gain)	3			—			(777		)	—
Net periodic benefit (income) cost	$	(10,789	)	$	(877	)	$	(581	)	$	37

Contributions to benefit plans	$	(4,100	)	$	(37	)	$	(100	)	$	(9	)



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

Pension ~~Plan Assets~~Contributions

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

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

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

The Company funds its defined benefit pension plans based on the minimum contribution required under the Code, ERISA the Pension Protection Act of 2006 and other applicable laws, as determined by our external actuarial consultant, and additional contributions made at its discretion. The Company 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. The Company assesses the relative attractiveness of the use of cash including such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or the ability to achieve exemption from participant notices of underfunding.

~~Estimated Future Benefit Payments~~

Other Postretirement

~~Defined Contribution Plans~~

~~Post-Employment Benefits~~

Multiemployer Pension Plans

The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets heldcontributed $13.5 million and $0.1 million in ~~trust for that purpose. Plan trustees typically are responsible for determining~~ the ~~level~~first quarters of ~~benefits to be provided to participants as well as the investment of the assets~~fiscal 2020 and ~~plan administration. Trustees are appointed in equal number by employers and the unions that are parties to the relevant collective bargaining agreements.~~

Lump Sum Pension Settlement Offering

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 ~~Supervalu acquisition.~~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 ~~risks~~plan made aggregate lump sum settlement payments of ~~participating~~$664.0 million to plan participants on November 4, 2019 and November 12, 2019. The Company expects that the lump sum settlement payments will result in ~~these multiemployer plans are different~~an estimated non-cash pension settlement charge of approximately $10.0 million in the second quarter of fiscal 2020 from the ~~risks associated with single-employer plans~~acceleration of a portion of the accumulated unrecognized actuarial loss, which will be based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. The settlement and subsequent re-measurement is expected to result in a decrease to accumulated other comprehensive loss and an improvement to the SUPERVALU Retirement Plan’s unfunded status.

NOTE 13—INCOME TAXES

The effective income tax rate for continuing operations was a benefit of 15.3% compared to a benefit of 16.6% on pre-tax losses for the first quarter of fiscal 2020 and 2019, respectively. The change in the ~~following respects:~~effective income tax rate for the first quarter of fiscal 2020 was primarily driven by the impact of the goodwill impairment charge.

The ~~Company’s participation in these plans~~tax provision included $64.0 million of discrete tax benefit and $0.5 million of discrete tax expense, for the first quarter of fiscal 2020 and fiscal 2019, respectively. The benefit for the first quarter of fiscal 2020 is outlined in the table below. The EIN-Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) zone status available in 2018 and 2017 relatesprimarily due to a tax benefit of approximately $68.0 million related to the ~~plans’ two most recent~~pre-tax goodwill impairment charge, which was partially offset by a discrete tax expense related to stock-based compensation and unrecognized tax positions of approximately $3.0 million and $0.8 million, respectively. Excluding the impact of the discrete items noted above, the effective tax rate benefit on continuing operations would be 16.4%, compared to 18.7% for the first quarter of fiscal ~~year-ends.~~2020 and 2019, respectively. The ~~zone status~~effective tax rate benefit on the pre-tax losses is based on information that we received from the plan and is annually certified by each plan’s actuary. Among other factors, red zone status plans are generally less than 65 percent funded and are considered in critical status, plans in yellow zone status are less than 80 percent funded and are considered in endangered or seriously endangered status, and green zone plans are at least 80 percent funded. The Multiemployer Pension Reform Act of 2014 (“MPRA”) created a new zone status called “critical and declining” or “Deep Red”. Plans are generally considered Deep Red if they are projected to become insolvent within 15 years. The FIP/RP Status Pending/Implemented column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implementedbeing reduced by the ~~trustees~~impact of ~~each plan.~~other permanently non-deductible items for the first quarters of fiscal 2020 and 2019.



	13-Week Period Ended
(in thousands, except per share data)	November 2, 2019			October 27, 2018
Basic weighted average shares outstanding	53,213			50,583
Net effect of dilutive stock awards based upon the treasury stock method	—			—
Diluted weighted average shares outstanding	53,213			50,583

Basic per share data:
Continuing operations	$	(7.67	)	$	(0.42	)
Discontinued operations	$	0.46		$	0.04
Basic loss per share	$	(7.21	)	$	(0.38	)
Diluted per share data:
Continuing operations	$	(7.67	)	$	(0.42	)
Discontinued operations⁽¹⁾	$	0.46		$	0.04
Diluted loss per share	$	(7.21	)	$	(0.38	)

Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share	8,272			839

~~Pending/ Implemented~~

NOTE 15—BUSINESS SEGMENTS

The Company has 2 operating segments aggregated under the Wholesale reportable segment: 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 Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, produce, and conventional grocery and non-food products, and is also a provider of support services in the United States and Canada. The Company has additional operating segments that do not meet the quantitative thresholds for reportable segments and are therefore aggregated under the caption of Other. Other includes a manufacturing division, which engages in the importing, roasting, packaging, and distributing of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, the Company’s branded product lines, and the Company’s brokerage business, which markets various products on behalf of food vendors directly and exclusively to the Company’s customers. Other also includes certain corporate operating expenses that are not allocated to operating segments, which include, among other expenses, restructuring, acquisition, and integration related expenses, share-based compensation, and salaries, retainers, and other related expenses of certain officers and all directors. The Company allocates certain corporate 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 Supervalu-related corporate expenses that were previously included in Other now being attributed to the Wholesale business. The change is immaterial with respect to the results presented in the first quarter of fiscal 2019, given the five day time period between the acquisition date and the end of the first quarter of fiscal 2019. Non-operating expenses that are not allocated to the operating segments are under the caption of Unallocated (Income)/Expenses.



(in thousands)	Wholesale			Other			Eliminations			Unallocated (Income)/Expenses		Consolidated
13-Week Period Ended November 2, 2019:
Net sales⁽¹⁾	$	6,007,095		$	63,749		$	(51,259	)	$	—	$	6,019,585
Goodwill and asset impairment charges	423,703			1,702			—			—		425,405
Restructuring, acquisition and integration related expenses	7,952			6,298			—			—		14,250
Operating loss	(416,229		)	(29,310		)	1,512			—		(444,027		)
Total other expense, net	—			—			—			38,088		38,088
Loss from continuing operations before income taxes												(482,115		)
Depreciation and amortization	68,199			6,942			—			—		75,141
Capital expenditures	40,129			993			—			—		41,122
Total assets of continuing operations	6,996,425			513,174			(45,855		)	—		7,463,744

13-Week Period Ended October 27, 2018:
Net sales⁽²⁾	$	2,856,966		$	48,754		$	(37,564	)	$	—	$	2,868,156
Restructuring, acquisition and integration related expenses	—			68,004			—			—		68,004
Operating loss	60,237			(78,329		)	(746		)	—		(18,838		)
Total other expense, net	—			—			—			6,778		6,778
Loss from continuing operations before income taxes												(25,616		)
Depreciation and amortization	23,517			1,276			—			—		24,793
Capital expenditures	15,737			644			—			—		16,381
Total assets of continuing operations	7,164,623			847,897			(39,013		)	—		7,973,507

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

~~Multiemployer Postretirement Benefit Plans Other than Pensions~~

~~Collective Bargaining Agreements~~

~~17.~~NOTE 16—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Guarantees and Contingent Liabilities

The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of ~~January 26,~~November 2, 2019. 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 ~~twelve~~eleven years, with a weighted average remaining term of approximately ~~six~~seven years. For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, wethe Company would be required to make payments under ~~our~~its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the primary obligor/retailer.

The Company reviews performance risk related to ~~our~~its guarantee obligations based on internal measures of credit performance. As of ~~January 26,~~November 2, 2019, the maximum amount of undiscounted payments wethe Company would be required to make in the event of default of all guarantees was ~~$44.6~~$35.1 million ($~~31.8~~24.0 million on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, ~~we believe~~the Company believes the likelihood that weit will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under ~~our~~the Company’s guarantee arrangements as the fair value has been determined to be de minimis.

The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. WeThe Company could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of ~~our~~the Company’s lease assignments among third parties, and various other remedies available, ~~we believe~~the Company believes the likelihood that weit will be required to assume a material amount of these obligations is remote. ~~No amount~~For leases that have been assigned, the Company has ~~been~~ recorded inthe associated right of use operating lease assets and obligations within the Condensed Consolidated Balance ~~Sheets for these contingent obligations under our~~Sheets. No associated lessor receivables are reflected on the Condensed Consolidated Balance Sheets; however, within Note 11—Leases expected cash flows from lease receipts reflecting the assignees payments to the landlord are reflected as lease receipts within the future maturity table, along with the Wholesale customers future lease receipts. For the Company’s lease guarantee arrangements no amounts have been recorded within the Condensed Consolidated Balance Sheets as the fair value has been determined to be de minimis.

The Company is a party to a variety of contractual agreements under which weit may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to ~~our~~the Company’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to usthe Company and agreements to indemnify officers, directors and employees in the performance of their work. While ~~our~~the Company’s aggregate indemnification obligations could result in a material liability, ~~we are~~the Company is not aware of any matters that are expected to result in a material liability. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.

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

Agreements with Save-A-Lot and Onex

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

~~Agreements with AB Acquisition LLC and Affiliates~~

In connection with the sale of NAI, Supervalu entered into various agreements with AB Acquisition LLC and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the “TSA”). Supervalu is now providing services to NAI and Albertson’s LLC to transition and wind down the TSA. On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that we are providing to Albertson’s LLC and NAI, other than with respect to certain limited services. NAI may notify us that it requires services for certain stores beyond September 21, 2018. The fees for these extended services, if any, will be the same per-store weekly fee (subject to a minimum fee) and the same weekly fee for the distribution center that Albertson’s LLC and NAI currently pay to us. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond April 2019. We also agreed that Albertson’s would no longer provide services to us after September 21, 2019.

Other Contractual Commitments

In the ordinary course of business, ~~we enter~~the Company enters into supply contracts to purchase products for resale, and ~~purchase, and~~ service contracts for fixed asset and information technology ~~commitments.~~systems. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of ~~January 26,~~November 2, 2019, wethe Company had approximately ~~$0.3~~$247.0 million of non-cancelable future purchase obligations.

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

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

The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 38 suits pending in the United States District Court for the Northern District of Ohio where over 1,800 cases have been consolidated as Multi-District Litigation (“MDL”). In accordance with the Stock Purchase Agreement dated January 10, 2013, between New Albertson’s Inc. and the Company (the “Stock Purchase Agreement”), New Albertson’s Inc. is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. UNFI is vigorously defending these matters, which it believes are without merit.

UNFI is currently subject to a qui tam action alleging violations of the False Claims Act (“FCA”). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson’s, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators' allegations and declined to intervene. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim. Relators elected to pursue the case on their own and have alleged FCA damages against Supervalu and New Albertsons in excess of $100 million, not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value by relators) would be approximately $24 million, not including trebling and statutory penalties. Both sides moved for summary judgment. Discovery is complete, and trial will be set after the Court rules on the pending motions. On August 5, 2019, the Court granted one of relators’ summary judgment motions finding that defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices. There are additional pending motions for summary judgment filed by defendants and relators that await rulings by the Court, including on key FCA elements of materiality and knowledge. On August 30, 2019, defendants filed a motion with the District Court seeking certification of the summary judgment decision for interlocutory appeal and on November ~~2014, four~~7, 2019, the District Court denied the motion. UNFI is vigorously defending this matter and believes that it should be successful on the merits, however, in light of the most recent summary judgment decision, the Company now believes the risk of loss is reasonably possible. However, management is unable to estimate a range of reasonably possible loss because there are several disputed factual and legal matters that have not yet been resolved, including fundamentally whether the FCA violations actually occurred (which defendants still strongly believe and continue to argue did not), and the appropriate methodology of determining potential damages, if any.

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

From time to time, the ~~oral argument occurred on February 12, 2019. Supervalu had $50 million~~Company receives notice of ~~cyber threat insurance~~claims or potential claims, becomes involved in litigation, alternative dispute resolution such as arbitration, or other legal and regulatory proceedings that arise in the ordinary course of its business, including investigations and claims regarding employment law; pension plans; labor union disputes, including unfair labor practices, such as claims for back-pay it the context of labor contract negotiations; supplier, customer and service provider contract terms and claims including matters related to supplier or customer insolvency or general inability to pay obligations as they become due; real estate and environmental matters, including claims in connection with the Company’s ownership and lease of a substantial amount of real property, both neutral and warehouse properties; and antitrust. Other than as described above, ~~a per incident deductible of $1 million at the time of the Criminal Intrusion,~~there are no pending material legal proceedings to which the Company ~~believes should cover any potential loss related~~is a party or to ~~this litigation.~~which its property is subject.

On September 21, 2016, Supervalu’s Farm Fresh retail banner, which Supervalu exited in May 2018, received an administrative subpoena issued by the Drug Enforcement Administration (“DEA”). In addition to requesting information on Farm Fresh’s pharmacy policies and procedures generally, the subpoena also requested the production of documents that are required to be kept and maintained by Farm Fresh pursuant to the Controlled Substances Act and its implementing regulations. On November 23, 2016, Farm Fresh responded to the subpoena and cooperated fully with DEA’s additional requests for information. On February 8, 2018, Farm Fresh received a letter from the US Attorney’s Office asserting violations of the Controlled Substances Act and the potential for penalties. Farm Fresh’s response to the alleged violations was due April 30, 2018. In March 2018, representatives for Farm Fresh engaged in discussions with representatives for the DEA and the US Attorney’s Office. On January 28, 2019, the Company settled this matter for an immaterial amount.

Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. WeThe Company regularly ~~monitor our~~monitors its exposure to the loss contingencies associated with these matters and may from time to time change ~~our~~its predictions with respect to outcomes and estimates with respect to related costs and exposures. As of November 2, 2019, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings.

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

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

~~18.~~NOTE 17—DISCONTINUED OPERATIONS

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

~~On November 7, 2018,~~

Subsequent to the end of the first quarter of fiscal 2020, the Company announced that it had entered into ~~a definitive agreement~~agreements to sell ~~five of its eight Shop ‘n Save East~~13 Shopper’s stores, ~~to GIANT Food Store, LLC. The transaction is expected~~and decided to close 4 locations. The Company expects to incur approximately $32.0 million to $42.0 million in ~~early 2019, subject~~pre-tax aggregate costs and charges related to ~~customary closing conditions, including compliance~~these transactions, consisting of $13.0 million to $16.0 million of estimated severance and employee-related costs, $11.0 million to $14.0 million of estimated operating losses during the period of wind-down, primarily related to inventory, $2.0 million to $3.0 million of estimated transaction costs, and $6.0 million to $9.0 million of estimated non-cash asset impairment charges, primarily associated with ~~certain federal~~real estate assets and ~~state level requirements. During~~leasehold improvements. The Company continues to hold the ~~second quarter of fiscal 2019, the Company closed three Shop ‘n Save East stores.~~

In fiscal 2019, ~~the Company closed the remaining Shop ‘n Save St. Louis retail stores and the distribution center that were not sold prior to the acquisition date.~~

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 November 2, 2019, only the Cub Foods and Shoppers disposal groups continue to be classified as operations held for sale as discontinued operations.

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

October 27, 2018⁽¹⁾

The Company recorded ~~$265.2~~$244.6 million and ~~$287~~$21.8 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the 13-week ~~and 26-week~~ periods ended ~~January 26,~~November 2, 2019 and October 27, 2018, respectively, which ~~we expect~~the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to ~~$153.6~~$113.0 million and ~~$163.4~~$9.8 million in the 13-week periods ended November 2, 2019 and ~~26-week period ended January 26, 2019.~~October 27, 2018, respectively.

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



(In thousands)	November 2, 2019		August 3, 2019
Current assets
Cash and cash equivalents	$	2,845	$	2,917
Receivables, net	4,532		1,471
Inventories	139,409		129,142
Other current assets	9,097		10,199
Total current assets of discontinued operations	155,883		143,729
Long-term assets
Property and equipment	292,154		301,395
Intangible assets	49,687		48,788
Other assets	2,051		1,882
Total long-term assets of discontinued operations	343,892		352,065
Total assets of discontinued operations	$	499,775	$	495,794

Current liabilities
Accounts payable	$	54,781	$	61,634
Accrued compensation and benefits	34,574		45,887
Other current liabilities	11,523		14,744
Total current liabilities of discontinued operations	100,878		122,265
Long-term liabilities
Other long-term liabilities	1,403		1,923
Total liabilities of discontinued operations	102,281		124,188
Net assets of discontinued operations	$	397,494	$	371,606

As of ~~discontinued operations were acquired as part of the Supervalu acquisition, and as of January 26,~~November 2, 2019, ~~the purchase price allocation related to these assets and liabilities was preliminary and will be finalized when valuations are complete and final assessments of~~ the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations. Due to the recent closing of the transaction, some amounts reported are provisional pending the review of valuations obtained from third parties. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible asset acquired and liabilities assumed. The fair value of discontinued operations, determined as of the acquisition date, includesdisposal groups were estimated ~~consideration~~based on each group’s expected ~~to be received,~~consideration less costs to sell. ~~Within the Company’s determination of~~Stand-alone fair values are estimated based on fair value reviews and indications of value for long-lived assets exclusive of transferring multiemployer pension plan obligations. Based on the ~~respective~~impairment reviews in the first quarter of fiscal 2020, no indications of impairment existed.

If transactions were to occur at a level lower than the disposal groups, the Company ~~incorporates~~would disaggregate the ~~impact~~disposal group and perform a recoverability review of the ~~fair value~~long-lived assets based on the asset group at that time. In addition, the sale of ~~off-balance sheet~~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, ~~that it expects to sell so that long-lived assets are not reduced below their fair value.~~

~~Additional Retail Accounting Policies~~

~~Revenues from retail product sales are recognized at~~and the ~~point of~~potential sale ~~upon customer check-out. Sales tax is excluded from Net sales. Limited rights of return exist with our customers due to the nature~~ of the products we sell. Advertising income earned from franchisees that participate in the Company’s retail advertising program are recognized as Net sales. Loyalty program expense in the form of fuel rewards is recognized asdisposal groups at a ~~reduction of Net sales. Franchise agreement revenue is recognized within Net sales.~~

Retail advertising expenses are included in cost of sales of discontinued operations, net of cooperative advertising reimbursements. Operating expenses of discontinued operations include employee-related costs, such as salaries and wages, incentive compensation, health and welfare and workers’ compensation, and occupancy costs, including utilities and operating costs of retail stores, and depreciation and amortization expense, impairment charges on property, plant and equipment and other administrative costs. Rent expense on operating leases and capital lease amortization expense of retail stores have not been included in discontinued operations, as we expect to remain primarily obligated under these leases. Refer to Note 15. “Leases” for additional information.

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

~~19. SUBSEQUENT EVENTS~~

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

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

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

EXECUTIVE OVERVIEW

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

Business Overview

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

We offer more than ~~110,000 natural, organic and specialty foods and non-food~~250,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general ~~merchandise, produce,~~merchandise; produce; perishables and frozen ~~foods,~~foods; nutritional supplements and sports ~~nutrition,~~nutrition; bulk and food service ~~products~~products; and personal care items. ~~Our~~Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 63 distribution centers and warehouses representing approximately 32 million square feet of warehouse space. We believe our total product ~~offering now also includes over 175,000 items available from the Supervalu acquisition, giving us a total~~ assortment ~~that we believe to be~~and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, ~~military commissaries,~~ as well as international customers with wide-ranging needs.

Our Strategy

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

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

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

~~Successful integration of Supervalu into UNFI;~~

~~Realizing cost synergies;~~

~~Optimizing our distribution center network;~~

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

~~Generating cash to pay down debt.~~

~~Our Operating Structure~~

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

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


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


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


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


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


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

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


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


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

We currently operate approximately 101 retail grocery stores acquired from Supervalu. Our intent is to thoughtfully and economically divest these stores. These stores are reported within discontinued operations in our Condensed Consolidated Financial Statements.

~~Our Customers~~

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

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

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

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

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

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

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

~~Our Operations~~

~~In recent years, our sales~~We currently operate approximately 95 retail grocery stores acquired in the Supervalu acquisition. We intend to ~~existing~~thoughtfully and ~~new customers have increased through~~economically divest these stores, and, as described below, subsequent to the ~~continued growth~~end of the ~~natural~~first quarter of fiscal 2020, we entered into agreements to sell 13 retail stores and ~~organic products industry~~close four additional stores. These stores are reported within discontinued operations in ~~general; increased market share as a result of~~ our high quality service and a broader product selection, including specialty products; the acquisition of, or merger with, natural and specialty products distributors and most recently the largest publicly traded conventional distributor, Supervalu; the expansion of our existing distribution centers; the construction of new distribution centers; the introduction of new products and the development of our own line of natural and organic branded products. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Our strategic plan is focused on increasing the type of products we distribute to our customers, including perishable products and conventional produce to “build out the store” and cover center of the store, as well as perimeter offerings. Refer to “Results of Operations” section below for further information.Condensed Consolidated Financial Statements included in this Quarterly Report.

We have been the primary distributor to Whole Foods Market for more than ~~twenty~~20 years. We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025. ~~Following~~

Distribution Center Network

Network Optimization and Construction

Within the ~~acquisition~~Pacific Northwest, we are transferring the volume of ~~Whole Foods Market~~five distribution centers and the related supporting off-site storage facilities into two distribution centers. This transition and operational consolidation is expected to be completed during fiscal 2020, after which we expect to achieve synergies and cost savings by ~~Amazon.com, Inc.~~eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses. The optimization of the Pacific Northwest distribution network will also help deliver meaningful synergies contemplated in ~~August 2017,~~Supervalu acquisition. This plan includes expanding the Ridgefield 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 ~~sales to Whole Foods Market increased resulting in year-over-year growth in net sales to this customer~~slow-moving stock-keeping unit (SKU) portfolio. The operational start-up of the Centralia, WA distribution center began in the ~~second quarter of fiscal 2019 of 18% compared to the second quarter fiscal 2018. Whole Foods Market accounted for approximately 18% and 37% of our net sales for the second~~fourth quarter of fiscal 2019 and ~~2018, respectively. For~~continued to ramp-up in the ~~26-week period ended January 26, 2019, year-over-year growth~~first quarter of fiscal 2020. We ceased operations in ~~net sales~~our Tacoma, WA, Auburn, WA and Auburn, CA distribution centers and have transitioned to Whole Foods Market increased 19% compared to the 26-week period ended January 27, 2018. Whole Foods Market accounted for approximately 24% and 36% of our net sales for the 26-week period ended January 26, 2019 and 26-week period ended January 27, 2018, respectively.

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

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

~~expand our national purchasing opportunities;~~

~~offer a broader selection of products~~supplying customers served by these locations to our ~~customers than our competitors;~~

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

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

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

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

~~integrate administrative and accounting functions; and~~

~~reduce the geographic overlap between regions.~~

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

~~Acquisition of Supervalu~~

On July 25, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which we agreed to acquire Supervalu for an aggregate purchase price of approximately $2.3 billion (the “Merger”), including the assumption of outstanding debt and liabilities. The transaction closed on October 22, 2018. The acquisition of Supervalu accelerates our build out the store strategy and diversifies the Company’s customer base, enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth.

~~Distribution Center Network~~

~~Supervalu acquired Unified Grocers, Inc. (“Unified”) and Associated Grocers of Florida, Inc. (“AG Florida”) in June 2017 and December 2017, respectively, as well as opened new~~Gilroy, CA distribution centers in Harrisburg, Pennsylvania and Joliet, Illinois in 2017. As we integrate the distribution networks of Supervalu, Unified and AG Florida with our distribution network, transition from the Lancaster distribution center to our Harrisburg distribution center, expand our capacity and take steps to improve the efficiency of our warehouse capabilities including with our Joliet distribution center, wecenters. We expect to incur ~~start-up~~incremental expenses related to the network realignment and ~~transition costs including higher employee, trucking and inventory shrink costs. Certain of these costs are expected to subside as we complete this work to realign our network, and we~~ 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 ~~first~~fourth quarter of fiscal 2019, we closed on the sale and leaseback of two acquired Supervalu distribution centers and received aggregate proceeds of approximately $149.5 million. One of these distribution centers was the last remainingentered into an agreement to sell our Tacoma distribution center ~~Supervalu sold and leased back as part of a previous portfolio transaction, and the other is~~for $43.2 million related to our ~~pacific northwest~~Pacific Northwest consolidation ~~strategy. In addition,~~strategy, which we ~~sold an~~expect to close in fiscal 2020. This facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets. As we consolidate our distribution networks, we may sell additional ~~surplus facility during the second quarter of fiscal 2019 and received aggregate proceeds of approximately $13.7 million.~~owned facilities or exit leased facilities.

Operating Efficiency

As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities, including acquired Supervalu facilities, onto one nationalized ~~processing~~ platform across the organization. We continue to be focused on the automation of our new or expanded distribution centers that are at different stages of construction and implementation. These steps and others are intended to promote operational efficiencies and improve operating expenses as a percentage of net ~~sales as we attempt to offset the lower gross margins we expect to generate by increased sales to the supernatural and supermarkets channels and as a result of additional competition in our business.~~sales.

Goodwill Impairment Review

~~The Company estimated~~goodwill for the Wholesale reporting unit, which included a determination of the fair ~~values~~value of all reporting units using both the market approach, applying a multiple of earnings based on guidelines for publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of 10%, which considered guidelines for publicly traded companies, capital structure and risk premiums, including those reflected in the current market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization.units. Based on this analysis, ~~the Company~~we determined that the carrying value of its ~~Supervalu~~U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded ~~the~~its assigned ~~goodwill as of the acquisition date.~~goodwill. As a result, ~~the Company~~we recorded a goodwill impairment charge of ~~$370.9~~$421.5 million ~~which~~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 ~~Income for the second quarter of fiscal 2019.~~Operations. The goodwill impairment charge reflects the impairment of all of ~~Supervalu~~the U.S. Wholesale’s reporting unit ~~goodwill, based on~~goodwill.

Quantitatively, the ~~preliminary acquisition date assigned fair values. Following this impairment charge, approximately $481.1 million of goodwill remains on the balance sheet.~~

~~The~~ goodwill impairment ~~charge recorded in~~was driven by the second quarter of fiscal 2019 is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition. There can be no assurance that such final assessments will not result in material increases or decreases to

the recorded goodwill impairment charge based upon the preliminary purchase price allocations, due to changes in the provisional opening balance sheet estimates of goodwill. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date).

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

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

Divestiture of Retail Operations

We have announced our intention to divest ~~Supervalu’s~~our retail businesses acquired as part of the Supervalu acquisition as soon as practical in an efficient and economic manner in order to focus on our core wholesale distribution business. We plan to ~~effectively minimize~~maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures. We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but we anticipate some reductions in supply volume will result from the divestiture of certain of these retail ~~divestitures.~~operations. Actions associated with retail divestitures and adjustments to our core ~~cost-structure~~cost structure for ~~its~~our wholesale food distribution business are expected to result in headcount reductions and other costs and charges. These costs and charges, which may be material, include ~~severance,~~ multiemployer plan charges, severance costs, store closure charges, and related costs. A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time. The extent of these costs and charges will be determined based on outcomes achieved under the divestiture process. At this time, however, we are unable to make aan estimate with reasonable ~~estimate~~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 first quarter of fiscal 2020 include ~~the following retail banners:~~ Cub ~~Foods; Hornbacher’s; Shopper’s;~~Foods and Shoppers disposal groups, and our historical results of discontinued operations include Hornbacher’s and Shop ‘n ~~Save.~~Save, which were divested in the second and third quarters of fiscal 2019, respectively. In addition, discontinued operations includes certain real estate related to historical retail operations. These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented. ~~The~~As of the acquisition date, retail assets ~~of these retail operations~~and liabilities were recorded at ~~what we believe to be~~ their estimated fair value less costs to ~~sell.~~

~~Prior~~sell, and subsequent to the ~~Supervalu~~ acquisition date, ~~19 St. Louis-based Shop ‘n Save stores, 15 in-store pharmacies, one stand-alone pharmacy, four fuel centers and all remaining prescription files were sold~~we review the fair value less costs to ~~Schnuck Markets, Inc. (“Schnucks”). Schnucks agreed to assume the multi-employer pension obligations related~~sell these disposal groups.

Subsequent to the ~~Shop ‘n Save stores it has agreed to acquire. The sale~~end of ~~the stores was completed in~~ the first quarter of fiscal ~~2019,~~2020, we announced that we have entered into agreements to sell 13 Shoppers stores, and ~~we closed~~decided to close 4 locations. We expect to incur approximately $32 million to $42 million in pre-tax aggregate costs and charges related to these transactions, consisting of $13 million to $16 million of estimated severance and employee-related costs, $11 million to $14 million of estimated operating losses during the period of wind-down, primarily related to inventory, $2 million to $3 million of estimated transaction costs, and $6 million to $9 million of estimated non-cash asset impairment charges, primarily associated with real estate assets and leasehold improvements. We continue to hold the remaining ~~Shop ‘n Save St. Louis-based retail~~Shopper’s stores ~~and the dedicated distribution center in~~for sale. In the second quarter, we will assess the remaining composition of ~~fiscal 2019,~~the Shoppers disposal group and review the recoverability of the remaining assets, as we continue to hold ~~the owned real estate assets related to~~ these locations for sale. ~~In addition,~~If the disposal group is disaggregated or our estimate of consideration decreases, we ~~entered into a supply agreement~~may incur additional charges related to ~~serve as the primary supplier to nine Schnucks stores across northern Illinois, Iowa and Wisconsin. In connection with the closure~~our fair value assessment of the Shop ‘n Save locations and the acquisition of Supervalu, we assumed a $35.7 million multiemployer pension plan withdrawal liability, and recorded a closed stores’ reserve charge of approximately $17.1 million in the second quarter of fiscal 2019 based on the retail stores’ November cease-use date.business.

We entered into a definitive agreement to sell five of our eight Shop ‘n Save corporately-owned grocery stores on the East coast to GIANT Food Stores, LLC, of Carlisle, Pennsylvania. The transaction is expected to close in early 2019, subject to customary closing conditions, including compliance with certain federal and state level requirements.

In December 2018, the Company completed the sale of seven of our eight Hornbacher's locations, as well as Hornbacher's newest store currently under development in West Fargo, North Dakota, to Coborn's Inc. (“Coborn’s”). The Hornbacher's store in Grand Forks, North Dakota is not included in the sale to Coborn's and will close 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 an expanded supply agreement for Coborn’s other locations.

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

Supervalu Professional Services Agreements

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

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

Impact of Inflation or Deflation

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

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

Other Factors Affecting our Business

We are also impacted by macroeconomic and demographic trends, and changes in the food distribution market structure. Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods have benefited us; however, consumer spending in the food-away-from-home industry has increased steadily as a percentage of total food expenditures. This trend paused during the 2008 recession, and then continued to increase. We are also impacted by changes in food distribution trends to our wholesale customers, such as direct store deliveries and other methods of distribution.

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

Net sales

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

Cost of sales and Gross profit

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

Operating expenses

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

Restructuring, acquisition and integration expenses

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

Interest expense, net

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

Net periodic benefit income, excluding service cost

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

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 underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Adjusted EBITDA excludes certain items because they are non-cash items or are items that do not reflect management’s assessment of on-going business performance.

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

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

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

Assessment of Our Business Results

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



	13-Week Period Ended
(in thousands)	November 2, 2019			October 27, 2018			Change
Net sales	$	6,019,585		$	2,868,156		$	3,151,429
Cost of sales	5,248,543			2,455,825			2,792,718
Gross profit	771,042			412,331			358,711
Operating expenses	775,414			363,165			412,249
Goodwill and asset impairment charges	425,405			—			425,405
Restructuring, acquisition and integration related expenses	14,250			68,004			(53,754		)
Operating loss	(444,027		)	(18,838		)	(425,189		)
Other expense (income):
Net periodic benefit income, excluding service cost	(11,384		)	(844		)	(10,540		)
Interest expense, net	49,518			7,525			41,993
Other, net	(46		)	97			(143		)
Total other expense, net	38,088			6,778			31,310
Loss from continuing operations before income taxes	(482,115		)	(25,616		)	(456,499		)
Benefit for income taxes	(73,753		)	(4,255		)	(69,498		)
Net loss from continuing operations	(408,362		)	(21,361		)	(387,001		)
Income from discontinued operations, net of tax	24,954			2,070			22,884
Net loss including noncontrolling interests	(383,408		)	(19,291		)	(364,117		)
Less net income attributable to noncontrolling interests	(519		)	(3		)	(516		)
Net loss attributable to United Natural Foods, Inc.	$	(383,927	)	$	(19,294	)	$	(364,633	)

Adjusted EBITDA	$	121,694		$	86,194		$	35,500

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



	13-Week Period Ended
(in thousands)	November 2, 2019			October 27, 2018
Net loss from continuing operations	$	(408,362	)	$	(21,361	)
Adjustments to continuing operations net loss:
Total other expense, net	38,088			6,778
Benefit for income taxes	(73,753		)	(4,255		)
Depreciation and amortization	75,141			24,793
Share-based compensation	3,672			8,089
Restructuring, acquisition and integration related expenses⁽¹⁾	14,250			68,004
Goodwill and asset impairment charges⁽²⁾	425,405			—
Note receivable charges⁽³⁾	12,516			—
Inventory fair value adjustment⁽⁴⁾	—			1,819
Legal reserve charge⁽⁵⁾	1,850			—
Adjusted EBITDA of discontinued operations⁽⁶⁾	32,887			2,327
Adjusted EBITDA	$	121,694		$	86,194

Income from discontinued operations, net of tax	$	24,954		$	2,070
Adjustments to discontinued operations net income:
Less net income attributable to noncontrolling interests	(519		)	(3		)
Total other expense, net	(1,091		)	(249		)
Provision for income taxes	8,090			749
Other expense (income)	—			(140		)
Share-based compensation	253			—
Restructuring, store closure and other charges, net⁽⁷⁾	1,200			(100		)
Adjusted EBITDA of discontinued operations⁽⁶⁾	$	32,887		$	2,327

(1)

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

(2)

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.


(3)	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 acquired Supervalu inventory as part of purchase accounting.


(6)	Reflects reserve for certain legal proceeding.

(7)

Adjusted EBITDA of discontinued operations excludes rent expense of $12.5 million and $0.9 million, 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.


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

RESULTS OF OPERATIONS

~~Second Quarter~~Our analysis within the Results of ~~Fiscal 2019 Compared To Second Quarter~~Operations section below of ~~Fiscal 2018~~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 presented below is 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 for the second quarter of fiscal 2019 increased approximately $3.62 billion, or 143.2%, to $6.15 billion from $2.53 billion for the second quarter of fiscal 2018. Net sales for the second quarter of fiscal 2019 included Supervalu net sales of approximately $3.47 billion. Excluding Supervalu’s net sales, net sales increased $147 million, or 5.8%, driven by our Supernatural channel. Our net sales by customer channel ~~including Supervalu since its acquisition date, were~~was as follows (in millions):

Net Sales for the 13-Week Period Ended
Customer Channel
January 26, 2019⁽²⁾

% of
Net Sales

January 27, 2018⁽¹⁾

% of
Net Sales
Supernatural $ 1,100
18 %
$ 931
37 %
Independents 810
13 %
646
26 %
Supermarkets 3,902
63 %
716
28 %
Other 337
5 %
235
9 %
Total net sales $ 6,149
100 % * $ 2,528
100 %

* Reflects rounding



	Net Sales for the 13-Week Period Ended								Increase (Decrease)
Customer Channel	November 2, 2019		% of Net Sales		October 27, 2018⁽¹⁾		% of Net Sales		$		% Total Net Sales
Supermarkets	$	3,769	63	%	$	930	32	%	$	2,839	31	%
Supernatural	1,111		18	%	$	1,027	36	%	84		(18	)%
Independents	758		13	%	667		23	%	91		(10	)%
Other	381		6	%	244		9	%	137		(3	)%
Total net sales	$	6,019	100	%	$	2,868	100	%	$	3,151	—	%

(1)

During the ~~second~~first quarter of fiscal ~~2019,~~2020, the presentation of net sales by customer channel was adjusted to reflect ~~changes in the classification~~reclassification of customer types resulting from management’s determination that a customer serviced by both Supervalu and legacy UNFI should be classified as a ~~result~~Supermarket customer given that customer’s operations. In addition, during the second quarter of ~~a detailed review~~fiscal 2019, net sales attributable to Supervalu was incorporated into our definitions of sales by customer ~~channel definitions.~~channel. There was no impact to the Condensed Consolidated Statements of ~~Income~~Operations as a result of ~~revising~~ the ~~classification~~reclassification of customer types. As a result of ~~this adjustment,~~these adjustments, net sales to our ~~supermarkets channel and to our other~~Supermarkets channel for the ~~second~~first quarter of fiscal ~~2018 decreased~~2019 increased approximately ~~$12~~$223 million ~~and $15 million, respectively,~~ compared to the previously reported amounts, while net sales to ~~the independents~~our Other channel ~~for the second quarter of fiscal 2018~~ increased approximately ~~$27~~$1 million ~~compared to~~with an offsetting elimination of the ~~previously reported amounts.~~Supervalu customer channel.

Our net sales for the first quarter of fiscal 2020 increased approximately $3.15 billion, or 109.9%, to $6.02 billion from $2.87 billion for the first quarter of fiscal 2019. Net sales for the first quarter of fiscal 2020 included Supervalu net sales of approximately $3.30 billion compared to $224 million in the first quarter of fiscal 2019. Excluding Supervalu’s net sales, net sales increased $74 million, or 2.8%, which was driven primarily by our supernatural channel.


~~(2)~~	~~Net sales by customer channel for the 13-week period ended January 26, 2019 includes SUPERVALU.~~

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the ~~second~~first quarter of fiscal ~~2019~~2020 increased by approximately ~~$169~~$84 million, or ~~18%~~8.2%, as compared to the ~~second~~first quarter of fiscal ~~2018,~~2019, and accounted for approximately 18% and ~~37%~~36% of our total net sales for the ~~second~~first quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in net sales to Whole Foods Market is primarily due to ~~an increase in same store sales following its acquisition by Amazon.com, Inc. in August 2017 coupled with~~ growth in new product categories, ~~most notably the health, beauty~~ and ~~supplement categories.~~increased sales to existing and new stores. Net sales within our supernatural ~~chain~~ channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other channel.

Net sales to our independents channel increased by approximately ~~$164~~$91 million, or ~~25%~~13.6%, for the ~~second~~first quarter of fiscal 2020 compared to the first quarter of fiscal 2019, ~~compared to the second quarter of fiscal 2018,~~ and represented approximately 13% and ~~26%~~23% of our total net sales for the ~~second~~first quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in independents net sales is primarily due to ~~$134~~an increase of $106 million from the acquired Supervalu business, offset by a decrease of $15 million, or 2.3% primarily due to sales declines to existing customers.

Net sales to our supermarkets channel increased by approximately $2,839 million, or 305.3%, for the first quarter of fiscal 2020, compared to the first quarter of fiscal 2019, and represented approximately 63% and 32% of our total net sales for the first quarter of fiscal 2020 and 2019, respectively. The increase in supermarkets net sales is primarily due to an increase of $2,813 million from the acquired Supervalu business with the remaining increase of ~~$30~~$26 million, ~~primarily~~or 3.6% due to sales growth to existing customers.

Net sales to our supermarkets channel increased by approximately $3,186 million, or 445%, for the second quarter of fiscal 2019, compared to the second quarter of fiscal 2018, and represented approximately 63% and 28% of our total net sales for the second quarter of fiscal 2019 and 2018, respectively. The increase in net sales to conventional supermarkets was primarily driven by the acquisition of Supervalu. The increase in supermarkets net sales is primarily due to $3,196 million of net sales from the acquired Supervalu business with the remaining decrease of $10 million due to sales declines to existing customers.

Net sales to our other channel, which include foodservice customer sales, sales from the United States to other countries, military sales, e-commerce sales, branded product lines, ~~the former Earth Origins Market retail division,~~ manufacturing division, and our brokerage business, increased by approximately ~~$102~~$137 million, or ~~43%~~56.1%, for the ~~second~~first quarter of fiscal 2020 compared to the first quarter of fiscal 2019, ~~compared to the second quarter of fiscal 2018,~~ and represented approximately 5%6% and 9% of our total net sales for the ~~second~~first quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in other net sales is primarily due to ~~$144~~an increase of $158 million ~~of net sales~~ from the acquired Supervalu business, ~~with the remaining~~partially offset by a decrease of ~~$42~~$21 million, or 9.0% due to sales declines to existing customers. ~~The decrease in other net sales was primarily driven by our e-commerce business and lack of sales from our retail business, Earth Origins, which was disposed in the fourth quarter of fiscal 2018.~~

Cost of Sales and Gross Profit

Our gross profit increased ~~$390.3~~$358.7 million, or ~~105.0%~~87.0%, to ~~$761.8~~$771.0 million for the ~~second~~first quarter of fiscal ~~2019,~~2020, from ~~$371.5~~$412.3 million for the ~~second~~first quarter of fiscal ~~2018. Gross profit from the acquired Supervalu business was approximately $386.9 million.~~

2019. Our gross profit as a percentage of net sales decreased to ~~12.39%~~12.81% for the ~~second~~first quarter of fiscal ~~2019~~2020 compared to ~~14.70%~~14.38% for the ~~second~~first quarter of fiscal ~~2018. The decline in~~2019. Our Gross profit dollar increase is primarily due to the incremental contribution from the Supervalu business for the 12 additional weeks when compared to the first quarter of fiscal 2019. Our gross profit for the first quarter of fiscal 2020 included an estimated incremental 12 weeks of gross profit from the acquired Supervalu business of approximately $347.9 million, net of its related LIFO inventory charge. Gross profit as a percentage of net sales ~~in the second quarter of fiscal 2019 was driven by the addition of Supervalu at a~~decreased primarily due to lower gross profit ~~rate as well as a shift in customer mix, including~~rates on conventional products and margin dilution from the faster growth of the supernatural channel relative to the other customer ~~channels. In addition, we recognized an $8.6~~channels, offset in part by lower inbound freight expense. The LIFO inventory costing method decreased our first quarter fiscal 2020 Gross profit by $6.5 million ~~inventory fair value adjustment charge related to the acquisition of Supervalu.~~or 11 basis points.

Operating Expenses

Operating expenses increased ~~$431.8~~$412.2 million, or ~~134.9%~~113.5%, to ~~$751.9~~$775.4 million, or ~~12.23%~~12.88% of net sales, for the ~~second~~first quarter of fiscal ~~2019~~2020 compared to ~~$320.1~~$363.2 million, or 12.66% of net sales, for the ~~second~~first quarter of fiscal ~~2018.~~2019. Operating expenses in the first quarter of fiscal 2020 included $12.5 million of note receivable charges, $3.6 million of surplus property depreciation expense and a $1.9 million legal reserve charge. The ~~decrease~~increase in operating expenses, as a percent of net sales, was driven by $50.3 million higher depreciation and amortization expense resulting from the ~~benefit~~Supervalu acquisition, partially offset by the mix impact from the acquired Supervalu business, including the impact of ~~acquisition~~cost synergies. Total operating expenses also included share-based compensation expense of ~~$10.4~~$3.7 million and ~~$6.6~~$8.1 million for the ~~second~~first quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively.

~~Restructuring, Acquisition, and Integration Related Expenses~~

Restructuring, acquisition and integration related expenses were $47.1 million for the second quarter of fiscal 2019 and primarily included $18.1 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, $19.5 million of closed property reserve charges related to the divestiture of retail banners, and approximately $9 million of other acquisition and integration related costs. The Company expects to incur approximately $20 million of additional acquisition and integration costs and $9 million of additional restructuring expenses throughout the remainder of fiscal 2019. The estimate of additional restructuring, acquisition and integration costs does not include costs that may be incurred related to the divestiture of retail operations.

Goodwill and Asset Impairment Charges

~~During~~In the ~~second~~first quarter of fiscal ~~2019, the Company~~2020, we recorded a goodwill and asset impairment charges of $425.4 million, which reflects $421.5 million from an impairment charge ~~of $370.9 million~~on the remaining goodwill attributable to ~~a portion~~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 asset impairment charges during the ~~goodwill recorded from the Supervalu acquisition. As discussed above, the goodwill impairment charge recorded in the second~~first quarter of fiscal 2019 is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition.2020. Refer to the Executive Overview section above, ~~“—Goodwill Impairment Review”~~ and Note ~~7. “Goodwill~~6—Goodwill and Intangible ~~Assets”~~Assets in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional ~~information.~~information on goodwill impairment charges.

~~During~~Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $14.3 million for the ~~second~~first quarter of fiscal ~~2018, the Company made the decision to close three non-core, under-performing stores~~2020, which included $9.3 million of ~~its total twelve Earth Origins stores. Based on this decision, coupled with the decline in results~~integration costs including a charge for an off-site storage contract, $3.1 million of closed property reserve charges and $1.8 million of restructuring costs. Expenses incurred in the first half of fiscal 2018 and the future outlook as a result of competitive pressure, the Company determined that both a test for recoverability of long-lived assets and a goodwill impairment analysis should be performed. The determination of the need for a goodwill analysis was based on the assertion that it was more likely than not that the fair value of the reporting unit was below its carrying amount. As a result of both these analyses, the Company recorded a total impairment charge of $3.4 million on long-lived assets and $7.9 million to goodwill, respectively, during the second quarter of fiscal ~~2018. During~~2019 primarily related to $36.1 million of acquisition related costs associated with the ~~fourth quarter~~Supervalu acquisition, including $33.8 million of charges related to change-in-control payments made to satisfy outstanding equity awards, and severance related costs and acquisition approximately $31.9 million.

We expect to incur additional integration and restructuring costs throughout fiscal ~~2018~~2020 related to our operational and administrative restructuring to achieve cost synergies and supply chain efficiencies of continuing operations. In addition, further restructuring costs may be incurred related to the ~~Company disposed~~divestiture of ~~its Earth Origins~~ retail ~~business.~~operations.

Operating ~~(Loss) Income~~Loss

Reflecting the factors described above, operating ~~income decreased $448.3~~loss increased $425.2 million to ~~an operating loss of $408.1~~$444.0 million for the ~~second~~first quarter of fiscal ~~2019,~~2020, from ~~operating income of $40.2~~$18.8 million for the ~~second~~first quarter of fiscal ~~2018. As a percentage of net sales,~~2019. The increase in operating loss was ~~6.64% for the second quarter of fiscal 2019, compared to operating income of 1.59% for the second quarter of fiscal 2018. The decrease in operating income was~~primarily driven by ~~the~~ goodwill impairment ~~charge,~~charges, offset by lower restructuring, acquisition and integration related expenses.

The first quarter of fiscal 2020 operating loss includes $12.5 million of operating lease rent expense and $2.7 million of depreciation and amortization expenses ~~and an inventory fair value adjustment charge associated with~~related to stores within discontinued operations, but for which GAAP requires the ~~purchase of Supervalu.~~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

Total other expense, net includes interest expense incurred on indebtedness, pension benefit income and gains and losses on business sales. Total other expense, net increased approximately $43.3 million to $47.0 million for the second quarter of fiscal 2019 compared to $3.7 million for the second quarter of fiscal 2018. Interest expense, net was $58.7 million for the second quarter of fiscal 2019 compared to $4.1 million for the second quarter of fiscal 2018.



	13-Week Period Ended
(in thousands)	November 2, 2019			October 27, 2018			Increase (Decrease)
Net periodic benefit income, excluding service cost	$	(11,384	)	$	(844	)	$	(10,540	)
Interest expense on long-term debt, net of capitalized interest	43,335			5,462			37,873
Interest expense on finance and direct financing lease obligations	2,243			1,209			1,034
Amortization of financing costs and discounts	3,956			345			3,611
Debt refinancing costs and unamortized financing charges	73			655			(582		)
Interest income	(89		)	(146		)	57
Interest expense, net	49,518			7,525			41,993
Other, net	(46		)	97			(143		)
Total other expense, net	$	38,088		$	6,778		$	31,310

Net periodic benefit income, excluding service ~~cost, was $10.9 million for~~costs reflects the ~~13-week period ended January 26, 2019 and had no impact~~recognition of expected returns on benefit plan assets in ~~the prior year as it is attributable to Supervalu pension plans. Other income was $0.8 million for the second quarter~~excess of ~~fiscal 2019, compared to $0.4 million of other expense for the second quarter of fiscal 2018.~~interest costs. The increase in interest expense on long-term debt was primarily due to an increase in outstanding debt year-over-year driven by Supervalu acquisition financing. ~~As a result~~The increase in interest on finance and direct financing leases 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 ~~acquired defined benefit pension and other postretirement benefit obligations and~~ expect to ~~record net periodic benefit plan income, excluding service costs, of approximately $35 million for fiscal 2019.~~remain primarily obligated under these leases until settlement with the respective landlords.

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

~~Our~~The effective income tax rate for continuing operations was ~~20.2%, which represents~~ a ~~tax~~ benefit ~~on a pre-tax loss,~~of 15.3% compared to a benefit of ~~38.4%~~16.6% on pre-tax ~~income~~losses for the ~~13-week periods ended January 26,~~first quarter of fiscal 2020 and 2019, ~~and January 27, 2018,~~ respectively. The ~~increase~~change in the effective income tax rate for the first quarter of fiscal 2020 was primarily driven by the ~~one-time non-cash net~~impact of the goodwill impairment charge.

The tax provision included $64.0 million of discrete tax benefit and $0.5 million of discrete tax expense, for the first quarter of fiscal 2020 and fiscal 2019, respectively. The benefit for the first quarter of fiscal 2020 is primarily due to a tax benefit of ~~$21.9~~approximately $68 million ~~recorded in fiscal 2018 for~~related to the ~~estimated~~pre-tax goodwill impairment charge, which was partially offset by a discrete tax expense related to stock-based compensation and unrecognized tax positions of approximately $3.0 million and $0.8 million, respectively. Excluding the impact of the ~~re-measurement of U.S. net deferred~~discrete items noted above, the effective tax ~~liabilities due~~rate benefit on continuing operations would be 16.4%, compared to ~~tax reform. The Company made cash tax payments of approximately $59 million early in~~18.7% for the ~~third~~first quarter of fiscal 2020 and 2019, respectively. The effective tax rate benefit on ~~ordinary income associated with anticipated section 338(g) tax elections made with respect to~~ the ~~acquisition~~pre-tax losses is being reduced by the impact of Supervalu. The elections allow UNFI to utilize a portion of Supervalu’s $2.9 billion capital loss carryforward to generate estimated net cash tax savings of approximately $300 million over the next 15 years.

~~Net (Loss) Income~~

~~The Company had a net loss of $341.7 million, a loss of $6.72 per diluted common share,~~other permanently non-deductible items for the ~~second quarter~~first quarters of fiscal ~~2019, compared to net income of $50.5 million, or $0.99 per diluted common share, for the second quarter of fiscal 2018. The decrease in net income was primarily the result of goodwill~~2020 and ~~asset impairment charges as well as restructuring, acquisition, and integration related expenses and increased interest expense.~~2019.

Income from Discontinued Operations, Net of Tax

Discontinued operations primarily include the results of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save East. During the second quarter of fiscal 2018, the Company sold the Hornbacher’s banner, and is currently holding for sale the remaining three

~~banners.~~ The results of operations for the first quarter of fiscal 2020 reflect net sales of ~~$727.0~~$610.8 million for which we recognized $169.8 million of gross profit and Income from discontinued operations, net of tax ~~$21.4~~of $25.0 million. As noted above, pre-tax income for the first quarter of fiscal 2020 from discontinued operations excludes $12.5 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 $1.4 million of restructuring expenses.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note ~~18. “Discontinued Operations”~~17—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

Net Loss Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of $383.9 million, or $7.21 per diluted common share, for the first quarter of fiscal 2020 primarily due to goodwill impairment charges, compared to net loss of $19.3 million, or $0.38 per diluted common share, for the first quarter of fiscal 2019.

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 to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition. We have approximately 3.0 million additional shares authorized for issuance and registered with the SEC for the issuance in order to satisfy replacement award and option issuance obligations. In fiscal 2020, we may issue additional shares to fund replacement award obligations in full, issue shares to partially fund the obligations, or utilize cash on hand to fund the obligations.

~~Fiscal~~LIQUIDITY AND CAPITAL RESOURCES

Highlights

Unused available credit under our revolving line of credit was $695.7 million as of November 2, 2019, ~~Year-To-Date (26-week period ended January 26, 2019) Compared~~which decreased $223.5 million from $919.2 million as of August 3, 2019, due to ~~Fiscal 2018 Year-To-Date (26-week period ended January 27, 2018)~~increased cash utilized to fund seasonal working capital increases.

~~Net Sales~~

~~Our net sales for~~We paid the 26-week period ended January 26, 2019 increased approximately $4.03 billion, or 80.9%, to $9.02 billion, from $4.99 billion for the 26-week period ended January 27, 2018. Net sales for the 26-week period ended January 26, 2019 included Supervalu net sales of approximately $3.70 billion. Excluding Supervalu’s net sales, net sales increased $334 million, or 6.7% was primarily driven byremaining maturities under our ~~Supernatural channel. Our net sales by customer channel, including Supervalu since its acquisition date, were as follows (in millions):~~

Net Sales for the 26-Week Period Ended
Customer Channel
January 26, 2019⁽¹⁾

% of
Net Sales

January 27, 2018⁽²⁾

% of
Net Sales
Supernatural $ 2,127
24 %
$ 1,784
36 %
Independents 1,502
17 %
1,309
26 %
Supermarkets 4,807
53 %
1,412
28 %
Other 581
6 %
481
10 %
Total net sales $ 9,017

100 %
$ 4,986
100 %

~~(1)~~

During the second quarter of fiscal 2019, the presentation of net sales attributable to Supervalu was incorporated into our definitions of sales by customer channel. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. Net sales as reported364-day Term Loan Facility in the first quarter of fiscal 2019 by customer channel were recast, resulting in an increase in supermarkets sales of $198 million, independents of $25 million, and other of $1 million with an offsetting decrease to the Supervalu customer channel.

~~(2)~~

During the second quarter of fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions. There was no impact to the Condensed Consolidated Statements of Income as a result of revising the classification of customer types. As a result of this adjustment, net sales to our supermarkets channel and to our other channel for the 26-week period ended January 27, 2018 decreased approximately $20 million and $31 million, respectively, compared to the previously reported amounts, while net sales to the independents channel for the 26-week period ended January 27, 2018 increased approximately $51 million compared to the previously reported amounts.

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the 26-week period ended January 26, 2019 increased by approximately $343 million, or 19%, as compared to the prior fiscal year’s comparable period, and accounted for approximately 24% and 36% of our total net sales for the 26-week period ended January 26, 2019 and the 26-week period ended January 27, 2018, respectively. The increase in net sales to Whole Foods Market is primarily due to an increase in same store sales following its acquisition by Amazon.com, Inc. in August 2017 coupled with growth in new product categories, most notably the health, beauty and supplement categories. Net sales within our supernatural chain channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other channel.

Net sales to our independents channel increased by approximately $193 million, or 15%, during the 26-week period ended January 26, 2019 compared to the 26-week period ended January 27, 2018, and accounted for 17% and 26% of our total net sales for the 26-week period ended January 26, 2019 and January 27, 2018, respectively. The increase in net sales in this channel is primarily due to growth in our wholesale division, which includes our broadline distribution business. The increase in independents net sales is primarily due to $145 million of net sales from the acquired Supervalu business with the remaining increase of $48 million primarily due to sales growth to existing customers.

Net sales to our supermarkets channel for the 26-week period ended January 26, 2019 increased by approximately $3,395 million, or 240%, from the 26-week period ended January 27, 2018, and represented approximately 53% and 28% of total net sales for the 26-week period ended January 26, 2019 and January 27, 2018, respectively. The increase in net sales in this channel is primarily due to growth in our wholesale division, which includes our broadline distribution business. The increase in supermarkets net sales

~~is primarily due to $3.40 billion of net sales from the acquired Supervalu business with the remaining decrease of $4 million due to sales declines to existing customers.~~

Net sales to our other channel, which include foodservice customer sales, sales from the United States to other countries, military sales, e-commerce sales, branded product lines, the former Earth Origins retail division, manufacturing division, and our brokerage business, increased by approximately $100 million, or 21%, during the 26-week period ended January 26, 2019 compared to the 26-week period ended January 27, 2018, and accounted for approximately 6% and 10% of total net sales for the 26-week period ended January 26, 2019 and January 27, 2018, respectively. The increase in other net sales is primarily due to $154 million of net sales from the acquired Supervalu business with the remaining decrease of $54 million due to sales declines to existing customers. The decrease in other net sales was primarily driven by our e-commerce business and lack of sales from our retail business, Earth Origins, which was disposed in the fourth quarter of fiscal ~~2018.~~

~~Cost of Sales~~2020, and ~~Gross Profit~~

Our gross profit increased $435.4 million, or 58.9%, to $1.17 billion for the 26-week period ended January 26, 2019, from $738.7 million for the 26-week period ended January 27, 2018. Gross profit from the acquired Supervalu business was approximately $414.1 million. Our gross profit as a ~~percentage~~result, we have no material scheduled maturities due until fiscal 2024, although prepayments may be required upon the occurrence of ~~net sales decreased to 13.02% for the 26-week period ended January 26, 2019 compared to 14.82% for the 26-week period ended January 27, 2018. The decline~~specified events as discussed in the gross profit was driven by the addition of Supervalu at a lower gross profit rate as well as a shift in customer mix, including the faster growth of the supernatural channel relative to the other customer channels.

~~Operating Expenses~~

Operating expenses increased $482.9 million, or 76.4%, to $1.12 billion, or 12.37% of net sales, for the 26-week period ended January 26, 2019 compared to $632.2 million, or 12.68% of net sales, for the 26-week period ended January 27, 2018. The decrease in operating expenses, as a percent of net sales, was driven by the addition of Supervalu, at a lower operating expense rate, lower health care costs, and fixed cost leverage. In addition, we recognized a $10.5 million inventory fair value adjustment charge related to the acquisition of Supervalu.

~~Restructuring, Acquisition, and Integration Related Expenses~~

Restructuring, acquisition and integration related expenses were $115.1 million for the 26-week period ended January 26, 2019 and primarily included $54.2 million of employee related costs due to change-in-control payments made to satisfy outstanding equity awards, severance costs, and benefits costs, $41.4 million of other acquisition and integration related costs, and $19.5 million of closed property reserve charges related to the divestiture of retail banners. The Company expects to incur approximately $9 million of additional restructuring expense, and approximately $20 million of additional acquisition and integration costs throughout the remainder of fiscal 2019. The estimate of additional restructuring, acquisition and integration costs does not include costs expected to be incurred in relation to the divestiture of retail operations.

~~Goodwill and Asset Impairment Charges~~

As discussed above, during the second quarter of fiscal 2019, the Company recorded a goodwill impairment charge of $370.9 million attributable to a portion of the goodwill recorded from the Supervalu acquisition and during the second quarter of fiscal 2018, the Company recorded a total impairment charge of $3.4 million on long-lived assets and $7.9 million to goodwill, respectively. The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date). Refer to Note ~~7. “Goodwill and Intangible Assets”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for additional information.~~10-Q.

~~Operating (Loss) Income~~

~~Reflecting the factors described above, operating income decreased approximately 548.0%, or $522.3~~Our total debt increased $164.0 million to ~~an operating loss~~$3,070.5 million as of ~~$427.0~~November 2, 2019 from $2,906.5 million as of August 3, 2019, primarily related to the additional borrowings under the ABL Credit Facility to fund seasonal inventory build in excess of accounts payable and increases in accounts receivable. We funded the scheduled maturities due under our Term Loan Facility Maturities with borrowings under the ABL Credit Facility and with proceeds from asset sales in the first quarter of fiscal 2020.

Scheduled debt maturities are expected to be $23.7 million for the ~~26-week period ended January 26, 2019, from operating income~~remainder of ~~$95.3~~fiscal 2020 and payments to reduce finance lease obligations are expected to be approximately $11.9 million for the ~~26-week period ended January 27, 2018. As a percentage~~remainder of ~~net~~fiscal 2020. Proceeds from the sale of properties mortgaged and encumbered under our Term Loan Facility are required to, and will be, used to make additional Term Loan Facility payments.

We expect to be able to fund near-term debt maturities through fiscal 2023 with internally generated funds, proceeds from the asset sales ~~operating loss was 4.74% for~~or borrowings under the ~~26-week period ended January 26,~~ABL Credit Facility.

Cash and cash equivalents decreased $2.6 million to $39.8 million as of November 2, 2019 from $42.4 million as ~~compared~~of August 3, 2019.

Working capital increased $110.7 million to ~~operating income~~$1,569.7 million as of ~~1.91% for the 26-week period ended January 27, 2018.~~

~~Total Other Expense, Net~~

~~Other expense, net was $53.8~~November 2, 2019 from $1,459.0 million ~~and $6.4 million for the 26-week periods ended January 26,~~as of August 3, 2019, and January 27, 2018, respectively. Net periodic benefit income, excluding service cost, was $11.8 million for the 26-week period ended January 26, 2019 and had no impact in the prior year as it is attributable to Supervalu pension plans. Interest expense, net was $66.2 million for the 26-week period ended January 26, 2019 compared to $7.7 million for the 26-week period ended January 27, 2018. The increase in interest expense was primarily due to ~~an increase~~seasonal inventory build in ~~outstanding debt year-over-year driven by acquisition financing. Interest income was $0.3 million and $0.2 million for~~excess of accounts payable increases. In addition, the 26-week period ended January 26, 2019 and January 27, 2018, respectively. Other income was $0.7 million for the 26-week period ended January 26, 2019 compared to other income of $1.3 million for the 26-week period ended January 27, 2018. We expect interest expense to increase substantially in future periods due to the increased indebtedness incurred to finance the acquisition of Supervalu. As a resultadoption of the ~~Supervalu acquisition, we acquired defined benefit pension and other postretirement benefit obligations and expect to record net periodic benefit plan income, excluding service costs,~~new lease standard, resulted in a decrease in working capital from the recognition of ~~approximately $35 million for fiscal 2019.~~

~~(Benefit) Provision for Income Taxes~~

Our effective income tax rate for continuing operations was 20.0% and 8.9% for the 26-week periods ended January 26, 2019 and January 27, 2018, respectively. The second quarter of fiscal 2019 effective tax rate reflects a tax benefit based on a consolidated pre-tax loss from continuing operations while the second quarter of fiscal 2018 reflected a tax expense on pre-tax income. The increase in the effective income tax rate was primarily driven by the one-time non-cash net tax benefit of $21.9 million recorded in fiscal 2018 for the estimated impact of the re-measurement of U.S. net deferred tax liabilities due to tax reform. The Company made cash tax payments of approximately $59 million early in the third quarter of fiscal 2019 on ordinary income associated with anticipated section 338(g) tax elections made with respect to the acquisition of Supervalu. The elections allow UNFI to utilize acurrent portion of ~~Supervalu’s $2.9 billion capital loss carryforward to generate estimated net cash tax savings~~operating lease liabilities of ~~approximately $300 million over the next 15 years.~~$127.3 million.

~~Net (Loss) Income~~Sources and Uses of Cash

Reflecting the factors described in more detail above, the Company had a net loss of $361.0 million, a loss of $7.12 per diluted common share, for the 26-week period ended January 26, 2019, compared to net income of $81.0 million, or $1.59 per diluted common share, for the 26-week period ended January 27, 2018.

~~Income from Discontinued Operations, Net of Tax~~

Discontinued operations primarily include the results of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save East reflect assets, liabilities, operations results and cash flows of these four banners. During the second quarter of fiscal 2018, the Company sold the Hornbacher’s banner, and is currently holding for sale the remaining three banners. The results of operations for the 26-week period ended January 26, 2019 reflect net sales of $773.6 million and Income from discontinued operations, net of tax of $23.5 million. Refer to Note 18. “Discontinued Operations” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Overview~~

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

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

Primary uses of cash include debt ~~servicing and maturities,~~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. ~~Strategic and operational investments in our businesses are funded by cash provided from operating activities and on a short-term basis through available~~

liquidity. 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.

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

~~Working capital increased by $397.9 million, or 36.5%, from $1.09 billion at July 28, 2018 to $1.49 billion at January 26, 2019, primarily due to the acquisition of Supervalu.~~

Long-Term Debt

~~During~~

In the first quarter of fiscal ~~2019 our capital structure materially changed with respect to~~2020, we borrowed $237.7 million under the ~~Supervalu acquisition. Obligations under our existing Former~~ ABL Credit Facility and ~~Former Term Loan Facility were~~ repaid ~~and we established new credit facilities~~$78.4 million of scheduled maturities under ~~our ABL Credit Facility and~~ the Term Loan Facility. During the second quarter of fiscal 2019, we paid $566.4 million to extinguish the acquired Supervalu Senior Notes and pay related prepayment premiums and accrued interest with $566.4 million of restricted cash set aside on the Closing Date for this purpose. In addition, the Company made mandatory prepayments of $47.0 million under the Term Loan Facility with asset sale proceeds. Refer to Note ~~14. “Long-Term Debt”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. We were not subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement during the first quarter of fiscal 2020. The ABL Loan Agreement and the Term Loan Agreement contain certain customary operational and informational covenants. If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

Derivatives and Hedging Activity

~~The Company enters~~

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

As of ~~January 26,~~November 2, 2019, ~~the Company~~we had an aggregate ~~$2.0~~of $2.20 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of ~~its~~our floating LIBOR based debt at fixed rates ranging from ~~0.7265%~~0.926% to ~~2.9590%~~2.959%, with maturities between ~~March~~December 2019 toand October 2025. The fair value of these interest rate derivatives represents a total net liability of $81.6 million and are subject to volatility based on changes in market interest rates. See Note ~~9. “Derivatives”~~8—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

From time-to-time, we enter into fixed price fuel supply ~~agreements.~~agreements and foreign currency hedges. As of ~~January 26,~~November 2, 2019, we had fixed price fuel contracts outstanding and ~~January 27, 2018, we were not a party to any such agreements.~~foreign currency forward agreements outstanding. Gains and losses and the outstanding net asset from these arrangements are insignificant.

Capital Expenditures

Our capital expenditures for ~~the 26-week period ended January 26, 2019~~fiscal 2020 were ~~$80.1~~$41.1 million, compared to ~~$15.5~~$16.4 million for the ~~26-week period ended January 27, 2018,~~first quarter of fiscal 2019, an increase of ~~$64.6~~$24.7 million driven primarily by distribution center ~~expansions. In light~~expansions of approximately $18 million (primarily the ~~Supervalu acquisition, the company is further evaluating its capital spending plans for fiscal 2019 but does~~Ridgefield expansion), new distribution centers of approximately $2 million, and information technology, equipment and other. We do not expect to spend more than ~~1.5%~~1.0% of net ~~sales.~~sales on capital expenditures in fiscal 2020. Fiscal ~~2019~~2020 capital spending is expected to include projects that optimize ~~both the~~and expand our distribution network ~~as well as the Company’s~~and our technology platform. Longer term, capital spending is expected to be ~~approximately~~at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

Cash ~~Flows~~Flow Information

~~Net~~

The following summarizes our Condensed Consolidated Statements of Cash Flows:



	13-Week Period Ended
(in thousands)	November 2, 2019			October 27, 2018			Change
Net cash used in operating activities of continuing operations	$	(135,545	)	$	(101,319	)	$	(34,226	)
Net cash used in investing activities of continuing operations	(40,883		)	(2,140,791		)	2,099,908
Net cash provided by financing activities of continuing operations	157,156			2,849,530			(2,692,374		)
Net cash flows from discontinued operations	16,618			(5,790		)	22,408
Effect of exchange rate on cash	(10		)	(49		)	39
Net (decrease) increase in cash and cash equivalents	(2,664		)	601,581			(604,245		)
Cash and cash equivalents, at beginning of period	45,267			23,315			21,952
Cash and cash equivalents, including restricted cash at end of period	$	42,603		$	624,896		$	(582,293	)

The increase in net cash ~~provided~~used by operating activities of continuing operations was ~~$25.9 million~~primarily due to higher amounts of cash utilized in the first quarter of fiscal 2020 related to seasonal inventory acquisition and credit extension. In the first quarter of fiscal 2019, we acquired Supervalu with seasonally high levels of inventory and accounts receivable and in the first quarter of fiscal 2020 used cash to build inventory. These increases in cash uses were offset in part by decreases from cash payments made in the first quarter of fiscal 2019 for ~~the 26-week period ended January 26, 2019, a change of $29.3 million~~assumed liabilities from the ~~$3.4 million used~~Supervalu acquisition, including transaction-related expenses, accrued employee costs, and restructuring costs associated with reductions in ~~operations for the 26-week period ended January 27, 2018.~~force. In addition, accounts payable provided an inflow of cash as accounts payable grew with inventory build.

~~Net~~The decrease in net cash used in investing activities ~~was $2.15 billion for the 26-week period ended January 26, 2019, compared to $17.8 million for the 26-week period ended January 27, 2018. This change~~of continuing operations was primarily due to ~~an increase in~~$2,273.8 million of cash paid ~~for acquisitions~~to purchase Supervalu in the ~~26-week period ended January 26,~~first quarter of fiscal 2019, ~~for~~partially offset by $147.9 million of less cash received from the ~~acquisition~~sale of ~~Supervalu compared~~property and equipment, primarily due to ~~the 26-week period ended January 27, 2018, offset in part by~~ cash received from the sale and leaseback of two distribution centers ~~for $149.5 million. In addition, we sold an additional surplus facility during~~in the ~~second~~first quarter of fiscal 2019, ~~and received aggregate proceeds~~one of ~~approximately $13.7 million.~~which was a short-term lease related to the exit of that facility.

~~Net cash provided by financing activities was $2.16 billion for the 26-week period ended January 26, 2019.~~ The decrease in net cash provided by financing activities of continuing operations was primarily due to ~~borrowings on our amended and restated revolving credit facility~~first quarter of ~~$2.70 billion and~~fiscal 2019 borrowings on long-term debt ~~of $1.91 billion partially offset~~to finance the Supervalu acquisition, and a net decrease in cash provided by ~~gross repayments on our amended and restated~~the revolving credit facility borrowings of ~~$1.67 billion~~$879.6 million, which was driven by first quarter fiscal 2019 borrowings to finance the Supervalu acquisition and ~~long-term debt~~changes in net borrowings for operating and ~~capital lease obligations of $713.4 million. Net~~investing activities. These decreases in cash provided by financing activities, ~~was $31.0~~were offset in part by $60.3 million of first quarter fiscal 2019 payments for debt issuance costs, and a decrease in payments of long-term debt and finance lease obligations of $26.5 million.

Net cash flows from discontinued operations primarily include operating activity cash flow from operating income of the ~~26-week period ended January 27, 2018, primarily due to borrowings on our amended~~retail disposal groups. Net cash flows from discontinued operations investing activities include proceeds from the sale of a former dedicated retail distribution center and ~~restated~~

~~revolving credit facility of $311.1 million~~retail stores, partially offset by ~~repayments on our amended and restated revolving credit facility and long-term debt~~capital expenditures of ~~$247.6 million and $6.1 million.~~discontinued operations.

Other

On October 6, 2017, ~~the Company~~we announced that ~~its~~our Board of Directors authorized a share repurchase program for up to $200.0 million of ~~the Company’s~~our outstanding common stock. The repurchase program is scheduled to expire upon ~~the Company’s~~our repurchase of shares of ~~the Company’s~~our common stock having an aggregate purchase price of $200.0 million. ~~The Company repurchased 614,660~~We did not purchase any shares of ~~its~~our common stock in the 13-week period ended November 2, 2019 or October 27, 2018. As of November 2, 2019, 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.

Pension and Other Postretirement Benefit Obligations

In fiscal 2020, $8.3 million of minimum pension contributions are required to be made under the Unified Grocers, Inc. Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan under ERISA in fiscal 2020. We anticipate fiscal 2020 discretionary pension contributions and required minimum other postretirement benefit plan contributions to be approximately $0.0 million to $6.0 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 ~~an aggregate~~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 ~~$24.2~~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 Offering

On August 1, 2019, we amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window. On August 2, 2019, we 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 on November 4, 2019 and November 12, 2019. We expect that the lump sum settlement payments will result in an estimated non-cash pension settlement charge of approximately $10.0 million in the second quarter of fiscal ~~year ended July 28, 2018. The Company has not purchased any shares~~2020 from the acceleration of a portion of the ~~Company’s common stock~~accumulated unrecognized actuarial loss, which will be based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. The settlement and subsequent re-measurement is expected to result in ~~fiscal 2019 year-to-date.~~

~~The Company no longer intends~~a decrease to ~~indefinitely reinvest~~ accumulated ~~earnings in the Company’s Canada operations. Accordingly, the Company has recorded the tax impacts of this treatment (a tax benefit of $0.8 million due~~other comprehensive loss and an improvement to the ~~foreign exchange loss on previously taxed income) in the 26-week period ended January 26, 2019.~~SUPERVALU Retirement Plan’s unfunded status.

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 November 2, 2019. We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions. We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other ~~contractual arrangements. See~~party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note ~~17. “Commitments,~~16—Commitments, Contingencies and Off-Balance Sheet ~~Arrangements”~~Arrangements under the caption ~~“Guarantees~~Guarantees and Contingent ~~Liabilities” in Part I, Item I of this Quarterly Report on Form 10-Q.~~

~~Legal Proceedings~~

~~We are a party to various legal proceedings arising from the normal course of business as described in Note 17. “Commitments, Contingencies and Off-Balance Sheet Arrangements”~~Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q ~~none of which, in~~for further information regarding our ~~opinion, is expected to have a material adverse impact on our financial condition, results of operations or cash flows.~~outstanding guarantees and contingent liabilities.

Multiemployer ~~Pension~~Benefit Plans

~~The Company assumed~~

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

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

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

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

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

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

Refer to Note ~~16. “Benefit Plans”~~14—Benefit Plans in Part I,II, Item I8 of ~~this Quarterly~~the Annual Report on Form ~~10-Q~~10-K for additional information regarding ~~these plans.~~the plans in which we participate.

Contractual Obligations

The following ~~table represents~~schedule summarizes our significant contractual obligations as of ~~January 26,~~November 2, 2019:


	Payments Due Per Period												Payments Due Per Period
(in millions)	Total		Remaining Fiscal 2019		Fiscal 2020		Fiscal 2021-2022		Fiscal 2023-2024		Thereafter		Total		Remaining Fiscal 2020		Fiscal 2021		Fiscal 2022-2023		Fiscal 2024-2025		Thereafter
Contractual obligations⁽¹⁾⁽²⁾:
Long-term debt⁽³⁾	$	3,185	$	13	$	128	$	53	$	1,290	$	1,701	$	3,163	$	24	$	31	$	62	$	1,363	$	1,683
Interest on long-term debt ⁽⁴⁾	1,060		100		174		342		300		144		866		128		166		311		237		24
Operating leases⁽⁵⁾	1,587		82		158		257		204		886		1,730		146		166		300		214		904
Capital leases⁽⁶⁾	237		26		43		66		50		52
Finance leases⁽⁶⁾													100		16		17		31		25		11
Purchase obligations⁽⁷⁾	324		152		110		54		6		2		247		140		67		34		4		2
Self-insurance liabilities⁽⁸⁾													96		31		21		22		11		11
Multiemployer plan withdrawal liability													74		1		2		5		7		59
Deferred compensation	31		25		1		2		1		2		4		4		—		—		—		—
Multiemployer plan withdrawal liability	72		1		1		3		5		62
Self-insurance liabilities⁽⁸⁾	92		21		24		25		10		12
Total contractual obligations	$	6,588	$	420	$	639	$	802	$	1,866	$	2,861	$	6,280	$	490	$	470	$	765	$	1,861	$	2,694

Because the timing of certain future payments beyond fiscal ~~2019~~2020 cannot be reasonably determined, contractual obligations payments due per fiscal period presented here exclude our discretionary funding of our pension plans and required funding of our postretirement benefit obligations. Pension and postretirement benefit obligations were ~~$222.2~~$222.5 million as of ~~January 26,~~November 2, 2019. We expect to contribute approximately ~~$5.0~~$0.0 million to ~~$10.0~~$6.0 million to pension and postretirement benefit plans during fiscal ~~2019.~~2020.

Unrecognized tax benefits, which totaled ~~$40.9~~$45.3 million as of ~~January 26,~~November 2, 2019, were excluded from the contractual obligations table because an estimate of the timing of future tax settlements cannot be reasonably determined.

~~Except as described below, there~~There were no material changes into our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. ~~During~~Refer to the ~~first quarter~~description of ~~fiscal 2019, in connection with the acquisition of Supervalu, the Company evaluated its critical accounting policies. As a result of this evaluation, in addition to the~~ critical accounting policies ~~described~~included in Item 7 of ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended ~~July 28, 2018, we believe our critical accounting policies also include the following policies:~~

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

Inventories are valued at the lower of cost or net realizable value. For historical United Natural Foods, Inc. inventory prior to the acquisition of Supervalu, cost was determined using the first-in, first-out (“FIFO”) method. For a substantial portion of legacy Supervalu inventory, cost was determined using the last-in, first-out (“LIFO”) method, with the rest primarily determined using FIFO. Inventories acquired as part of the Supervalu acquisition were recorded at their fair market values as of the acquisition date. During the second quarter of fiscal 2019, the Company completed its evaluation of its combined inventory accounting policies and changed its method of inventory costing for certain historical United Natural Foods, Inc. inventory from the FIFO accounting method to the LIFO accounting method. The Company concluded that the LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group. As a result of the change to the LIFO method, Inventories were reduced by $3.3 million as of January 26, 2019, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Condensed Consolidated Statement of Income for the 13- and 26-week periods ended January 26, 2019. The change to the LIFO method, combined with a higher inflation assumption for the combined business, is expected to result in additional non-cash expense of approximately $10-$15 million in fiscalAugust 3, 2019.

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

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

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

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

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

The determination of our obligation and related expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions used in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in compensation and healthcare costs. Refer to Note 16. “Benefit Plans” in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to the actuarial assumptions used in determining pension and postretirement healthcare liabilities and expenses.

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

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

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

~~Amortization of net actuarial loss expense recognition~~

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

~~Full yield curve expense recognition~~

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

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

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Income, and assets and liabilities of the business component planned to be disposed of are presented as separate lines within the Condensed Consolidated Balance Sheets. See Note 18. “Discontinued Operations” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and our interest rate swap agreements, and price increases in diesel fuel. Except as described in Note ~~9. “Derivatives”~~8—Derivatives and Note ~~14. “Long-Term Debt”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no other material changes to our exposure to market risks from those disclosed in our Annual ~~Report on Form 10-K for the year ended July 28, 2018.~~Report.

(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 Interim 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~~Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

(b)Changes in internal controls. On October 22, 2018, ~~the Company~~we completed ~~its~~the acquisition of ~~SUPERVALU INC. (“Supervalu”).~~Supervalu. The Company ishas extended its Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include Supervalu. The Company will report on its assessment of the effectiveness of internal control over financial reporting for the combined operations at 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 ~~inclusion~~ongoing integration of Supervalu and the new lease standard adoption, there has been no change in our internal control over financial reporting that occurred during the ~~second~~first quarter of fiscal ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

WeFrom time to time, we are ~~party to various~~involved in routine litigation or other legal proceedings ~~arising from~~that arise in the ~~normal~~ordinary course of our business, including investigations and claims regarding employment law, pension plans, unfair labor practices, labor union disputes, supplier, customer and service provider contract terms, real estate and antitrust. Other than as ~~described~~set forth in Note ~~17. “Commitments,~~ 16—Commitments,

Contingencies and Off-Balance Sheet ~~Arrangements”~~Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, ~~none of~~there are no pending material legal proceedings to which inwe are a party or to which our ~~opinion,~~property is ~~expected to have a material adverse impact on our financial condition, results of operations or cash flows.~~subject.

Item 1A. Risk Factors

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

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 will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise. 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.

~~None.~~There were no share repurchases under the share repurchase program for the first quarter of fiscal 2020. As of November 2, 2019, there was approximately $175.8 million that may yet be purchased under the share repurchase program.



(in millions, except shares and per share amounts)	Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Period⁽¹⁾:
August 4, 2019 to September 7, 2019	—	$	—	—	$	—
September 8, 2019 to October 5, 2019	73,429	11.15		—	—
October 6, 2019 to November 2, 2019	71	7.45		—	175.8
Total	73,500	11.15		—	$	—

~~Item 3.Defaults Upon Senior Securities~~

~~Item 4. Mine Safety Disclosures~~

~~Item 5. Other Information~~



	Net Sales for the 13-Week Period Ended
(in millions)	January 27, 2018 ⁽¹⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	931	$	—	$	—		$	931
Independents	646		—		—			646
Supermarkets	716		—		—			716
Other	222		55		(42		)	235
Total	$	2,515	$	55	$	(42	)	$	2,528



	Net Sales for the 26-Week Period Ended
(in millions)	January 26, 2019 ⁽²⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	2,127	$	—	$	—		$	2,127
Independents	1,502		—		—			1,502
Supermarkets	4,807		—		—			4,807
Other	550		107		(76		)	581
Total	$	8,986	$	107	$	(76	)	$	9,017



	Net Sales for the 26-Week Period Ended
(in millions)	January 27, 2018 ⁽³⁾
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	1,784	$	—	$	—		$	1,784
Independents	1,309		—		—			1,309
Supermarkets	1,412		—		—			1,412
Other	455		113		(87		)	481
Total	$	4,960	$	113	$	(87	)	$	4,986



(in thousands)	January 26, 2019			July 28, 2018
Customer accounts receivable	$	1,093,195		$	595,698
Allowance for uncollectible receivables	(15,278		)	(15,996		)
Other receivables, net	16,957			—
Accounts receivable, net	$	1,094,874		$	579,702

Customer notes receivable, included within Prepaid expenses and other current assets	$	16,473		$	—
Long-term notes receivable, included within Other assets	$	37,863		$	—



	As of October 22, 2018
(in thousands)	Preliminary as of October 27, 2018			Preliminary as of January 26, 2019
Cash and cash equivalents	$	25,102		$	25,102
Accounts receivable	557,680			556,562
Inventories	1,162,360			1,162,360
Prepaid expenses and other current assets	66,440			70,440
Current assets of discontinued operations⁽¹⁾	196,615			196,615
Property, plant and equipment	1,148,001			1,221,925
Goodwill	347,485			491,695
Intangible assets⁽²⁾	1,077,541			885,658
Other assets⁽²⁾	109,445			80,105
Long-term assets of discontinued operations⁽¹⁾	404,301			442,701
Accounts payable	(967,429		)	(972,340		)
Other current liabilities	(282,692		)	(327,713		)
Current portion of long term debt and capital lease obligations	(579,677		)	(579,677		)
Current liabilities of discontinued operations⁽¹⁾	(150,611		)	(150,690		)
Long-term debt and capital lease obligations⁽³⁾	(179,262		)	(138,163		)
Pension and other postretirement benefit obligations	(234,324		)	(234,324		)
Deferred income taxes	(177,231		)	(100,612		)
Other long-term liabilities⁽³⁾	(200,913		)	(306,816		)
Long-term liabilities of discontinued operations⁽¹⁾	(1,401		)	(1,398		)
Total fair value of net assets acquired	2,321,430			2,321,430
Plus: noncontrolling interests	1,633			1,633
Less: cash and cash equivalents⁽⁴⁾	(30,596		)	(30,596		)
Less: assumed equity award liabilities	(18,638		)	(18,638		)
Plus: cash paid for equity awards	—			8,105
Total consideration paid in cash	2,273,829			2,281,934
Plus: unpaid assumed equity award liabilities⁽⁵⁾	18,638			10,533
Total consideration	$	2,292,467		$	2,292,467



(in thousands)	January 26, 2019 (26 weeks)
Reserves for closed properties at beginning of the fiscal year	$	—
Acquired liabilities	34,426
Additions, accretion and changes in estimates	17,671
Payments	(4,051		)
Reserves for closed properties at the end of the fiscal period	$	48,046



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


(5)	This swap contract was executed on October 26, 2018 with an effective date of ~~the contract at a fixed annual rate of 1.7950%, while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.~~October 26, 2018.


(11)	~~On January 24,~~This swap contract was executed on March 18, 2019 the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements havewith an effective date of ~~January 24,~~March 21, 2019.


(12)	This swap contract was executed on March 21, 2019 ~~and expire at varied dates between October 2024 and October 2025. These interest rate~~with an effective date of March 21, 2019.


(13)	This swap ~~contracts have~~contract was executed on April 2, 2019 with an ~~aggregate notional principal amount~~effective date of ~~$100 million and require the Company to pay interest payments during the duration~~April 2, 2019.


(14)	This swap contract was executed on April 2, 2019 with an effective date of ~~the respective contracts at fixed annual rates between 2.5210% and 2.5558%, while receiving interest for the same respective~~June 10, 2019.


(15)	This swap contract ~~periods at one-month LIBOR~~was executed on ~~the same aggregate notional principal amounts.~~April 2, 2019 with an effective date of June 28, 2019.


~~(1)~~	For the second quarter of fiscal 2019, the Company recorded $265.2 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.


~~(1)~~	For the 26-week period ended January 26, 2019, the Company recorded $287.0 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.



(in thousands)	Average Interest Rate at January 26, 2019	Maturity Year	January 26, 2019			July 28, 2018
Term Loan Facility	6.65%	2019-2025	$	1,903,000		$	—
ABL Credit Facility	3.81%	2023	1,242,004			—
Other secured loans	5.74%	2023	40,396			—
Former ABL Credit Facility			—			210,000
Former Term Loan Facility			—			110,000
Debt issuance costs, net			(60,631		)	(1,164		)
Original issue discount on debt			(43,638		)	—
Long-term debt, including current portion			$	3,081,131		$	318,836
Less: current portion of long-term debt obligations			(115,795		)	(10,000		)
Long-term debt			$	2,965,336		$	308,836


Assets securing the ABL Credit Facility (in thousands)⁽¹⁾:	January 26, 2019		November 2, 2019
Certain inventory assets included in Inventories and Current assets of discontinued operations	$	2,297,742	$	2,447,555
Certain receivables included in Receivables and Current assets of discontinued operations	$	953,726
Certain receivables included in Accounts receivables, net and Current assets of discontinued operations			$	1,077,978


(1)	The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Long-term assets of discontinued operations in the Condensed Consolidated Balance Sheets as of ~~January 26,~~November 2, 2019.


Unused available credit and fees under the ABL Credit Facility (in thousands, except percentages):	January 26, 2019			November 2, 2019
Outstanding letters of credit	$	76,763		$	77,413
Letter of credit fees	1.375		%	1.375		%
Unused available credit	$	731,234		$	695,704
Unused facility fees	0.375		%	0.25		%



	13-Week Period Ended January 26, 2019						26-Week Period Ended January 26, 2019
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Service cost	$	—		$	55		$	—		$	59
Interest cost	24,004			477			25,851			515
Expected return on plan assets	(35,415		)	(58		)	(38,139		)	(63		)
Net periodic benefit (income) cost	$	(11,411	)	$	474		$	(12,288	)	$	511
Contributions to benefit plans	$	(151	)	$	(117	)	$	(188	)	$	(126	)



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



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



Fiscal Year	Pension Benefits		Other Postretirement Benefits
Remaining fiscal 2019	$	79,319	$	2,547
2020	158,500		4,800
2021	163,100		4,700
2022	169,900		4,600
2023	174,600		4,500
Years 2024-2027	849,500		19,400



	Post-Employment Benefits
	January 26, 2019
Accrued compensation and benefits	$	2,730
Other long-term liabilities	5,135
Total	$	7,865


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


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


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



	~~EIN—Pension~~ ~~Plan Number~~	~~Plan~~ ~~Month/Day~~ ~~End Date~~	~~Pension Protection Act Zone Status~~	~~FIP/RP Status~~ ~~Pending/ Implemented~~	~~Surcharges~~ ~~Imposed~~⁽¹⁾	~~Amortization~~ ~~Provisions~~
~~Pension Fund~~	~~EIN—Pension~~ ~~Plan Number~~	~~Plan~~ ~~Month/Day~~ ~~End Date~~	~~2019~~	~~FIP/RP Status~~ ~~Pending/ Implemented~~	~~Surcharges~~ ~~Imposed~~⁽¹⁾	~~Amortization~~ ~~Provisions~~
~~Minneapolis Food Distributing Industry Pension Plan~~⁽²⁾	~~416047047-001~~	~~12/31~~	~~Green~~	No	No	No
~~Minneapolis Retail Meat Cutters and Food Handlers Pension Fund~~⁽³⁾	~~410905139-001~~	~~2/28~~	~~Red~~	~~Implemented~~	No	No
~~Central States, Southeast and Southwest Areas Pension Fund~~⁽²⁾⁽³⁾	~~366044243-001~~	~~12/31~~	~~Deep Red~~	~~Implemented~~	No	~~Yes~~
~~UFCW Unions and Participating Employer Pension Fund~~⁽³⁾	~~526117495-001~~	~~12/31~~	~~Red~~	~~Implemented~~	No	No
~~Western Conference of Teamsters Pension Plan Trust~~⁽²⁾	~~916145047-001~~	~~12/31~~	~~Green~~	No	No	No
~~UFCW Unions and Employers Pension Plan~~⁽³⁾	~~396069053-001~~	~~10/31~~	~~Deep Red~~	~~Implemented~~	~~Yes~~	~~Yes~~
~~All Other Multiemployer Pension Plans~~⁽⁴⁾


(1)	For the first quarter of fiscal 2020, the Company recorded $244.6 million within Net sales in its wholesale reportable segment attributable to ~~all collective bargaining agreements or total contributions~~discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to ~~each plan.~~the sale of certain retail banners.


(2)	~~These multiemployer pension plans reflect plans underlying continuing operations.~~