UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1. NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Fiscal Year

~~Our~~The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks. References to the third quarter of fiscal ~~2019~~2020 and ~~2018~~2019 relate to the 13-week fiscal quarters ended May 2, 2020 and April 27, 2019, ~~and April 28, 2018,~~ respectively. References to fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date relate to the 39-week fiscal periods ended May 2, 2020 and April 27, 2019, ~~and April 28, 2018,~~ respectively.

Basis of Presentation

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

consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition. Unless otherwise indicated, references to the Condensed Consolidated Statements of ~~Income and~~Operations, the Condensed Consolidated Balance Sheets inand the Notes to the Condensed Consolidated Financial Statements exclude all amounts related to discontinued operations. Refer to Note ~~19. “Discontinued Operations”~~18—Discontinued Operations for additional information ~~including accounting policies,~~ about ~~our~~ discontinued operations.

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

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

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

~~Vendor Funds~~

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

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

~~Business Dispositions~~

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

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

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to ~~be disposed of are~~fund outstanding checks when presented ~~as separate lines within~~to the ~~Condensed Consolidated Balance Sheets. See Note 19. “Discontinued Operations”~~financial institution for ~~additional information.~~

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

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

~~Benefit Plans~~

payment. The Company ~~recognizes~~funds all intraday bank balance overdrafts during the ~~funded status~~same business day. Checks outstanding in excess of ~~its company-sponsored defined benefit plans,~~bank balances create book overdrafts, which ~~it acquired~~are recorded in ~~the first quarter of fiscal 2019 through the acquisition of Supervalu,~~Accounts payable in the Condensed Consolidated Balance Sheets and ~~gains or losses and prior service costs or credits not yet recognized~~are reflected as ~~a component of Accumulated other comprehensive loss, net of tax,~~an operating activity in the Condensed Consolidated ~~Balance Sheets. The Company sponsors pension~~Statements of Cash Flows. As of May 2, 2020 and other postretirement plans in various forms covering employees who meet eligibility requirements. The determination of the Company’s obligation and related income or expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare and compensation costs. These assumptions are disclosed in Note 17. “Benefit Plans”. Actual results that differ from the assumptions are accumulated and amortized over future periods.

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

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

~~Change in Accounting Estimate~~

As a result of growth in net sales and inventory for the 13 and 39-week periods ended April 28, 2018, and the changes in processing and the resulting increase in the Company’s estimate of its accrual for inventory purchasesAugust 3, 2019, the Company ~~initiated a review~~had net book overdrafts of ~~its vendor invoicing processes~~$290.3 million and ~~undertook a review~~$236.9 million, respectively.

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

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

Inventories are valued at the lower of cost or ~~net realizable value. For historical United Natural Foods, Inc. inventory prior to~~market. Substantially all of the ~~acquisition~~Company’s inventories consist of ~~Supervalu, cost was determined using the first-in, first-out (“FIFO”) method. For~~finished goods and a substantial portion of ~~legacy Supervalu inventory, cost was determined using the~~its inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method ~~with~~is computed at the ~~rest primarily determined using FIFO.~~end of each fiscal 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 $43.4 million and $24.1 million at May 2, 2020 and August 3, 2019, respectively.

Leases

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

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

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

~~Change in Book Overdraft Accounting Policy~~

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

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

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

~~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~~reduction of the ~~long-term portion~~carrying value of ~~capital~~the right of use asset and are reflected as a reduction to Operating lease ~~obligations from~~ ~~Long-term debt~~assets. Refer to ~~present separately within~~ ~~Long-term capital lease obligations; and~~

Note 11—Leases for additional information.

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

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

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

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

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

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NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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

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



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

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

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

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

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

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

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

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

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

~~Recently Issued Accounting Pronouncements~~

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

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

In March 2020, the FASB issued ASU 2020-04, Reference rate reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. The Company adopted this ASU in the third quarter of fiscal 2020, which is ~~currently reviewing the provisions~~effective on a prospective basis. The adoption of ~~the new standard and evaluating its~~this ASU did not have a material impact on the ~~Company’s~~ consolidated financial statements. The Company has elected the expedient to assert probability of its hedged interest rate transactions, which is effective March 12, 2020 until superseded by subsequent documentation or December 31, 2022, whichever occurs first.

Recently Issued Accounting Pronouncements

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

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

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

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

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions to Topic 740’s general principles. The amendments also improve consistent application and simplifies its application. The Company is required to adopt this guidance in the first quarter of fiscal 2022. The Company is currently reviewing the provisions of the new standard and evaluating its impact on the Company’s consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases(Topic 842),~~ which has been updated by subsequent amending ASUs (collectively “ASC 842”), and provides new comprehensive lease accounting guidance that supersedes existing lease guidance. The objective of ASC 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In addition, ASC 842 expands the disclosure requirements of lease arrangements. ASC 842 will require the Company to recognize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases, which the Company believes will result in a significant impact 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. ASC 842 is effective for public companies in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020, with early adoption permitted. The Company expects to adopt this standard in the first quarter of fiscal 2020 and continues its assessment of the impacts of ASC 842 on the Company’s consolidated financial statements and any necessary changes to our accounting policies, processes and controls, and systems. The Company expects that ASC 842 will have a material effect on its financial statements. The Company currently believes the most significant effects will relate to (1) the recognition of new right-of-use assets and lease liabilities on the balance sheet for existing operating leases, and (2) the derecognition of existing assets and liabilities for certain sale-leaseback transactions that do not qualify for sale accounting, including build-to-suit arrangements for which construction is complete and the Company is leasing the constructed asset. Information about the amounts and timing of our undiscounted future operating lease payments can be found in Note 16. “Leases”.

3.NOTE 3—REVENUE RECOGNITION

~~Revenue Recognition Accounting Policy~~

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

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

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

~~Product sales~~

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

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

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

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

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

~~Professional services and equipment sales~~

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

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

~~Customer incentives~~

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

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

Disaggregation of Revenues

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

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

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.

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

Table of contents

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)	May 2, 2020
Customer Channel	Wholesale		Other		Eliminations			Consolidated
Supermarkets	$	4,267	$	—	$	—		$	4,267
Supernatural	1,279		—		—			1,279
Independents	684		—		—			684
Other	441		56		(59		)	438
Total	$	6,671	$	56	$	(59	)	$	6,668

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

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

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

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

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

$ 62
$ (46 ) $ 2,649

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

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

$ 175
$ (133 ) $ 7,634

(1)

During the ~~second~~first quarter of fiscal ~~2019,~~2020, the presentation of net sales by customer channel was adjusted to reflect ~~changes in the classification~~reclassification of customer types resulting from management’s determination that a customer serviced by both legacy Supervalu and UNFI should be classified as a ~~result~~Supermarket customer given that customer’s operations. During the second quarter of ~~a detailed review~~fiscal 2020, the presentation of net sales by customer channel was adjusted to reflect conventional military sales within Other instead of Independents based on management’s determination to better reflect the focus of its ongoing business and the definition of customer ~~channel definitions.~~channels above. There was no impact to the Condensed Consolidated Statements of ~~Income~~Operations as a result of ~~revising~~ the ~~classification~~reclassification of customer types. As a result of ~~this adjustment,~~these adjustments, net sales to ~~our supermarkets channel and to our other~~the Company’s Supermarkets channel for the third quarter of fiscal ~~2018 decreased~~2019 and for fiscal 2019 year-to-date increased approximately ~~$12~~$26 million and ~~$13~~$77 million, respectively, compared to the previously reported amounts, while net sales to the ~~independents~~Other channel for the third quarter of fiscal ~~2018~~2019 and for fiscal 2019 year-to-date increased ~~approximately $25~~$96 million and $213 million, respectively, compared to ~~the~~ previously reported amounts. ~~In addition, net~~Net sales to ~~our supermarkets channel and to our other~~the Company’s Independents channel for the ~~39-week period ended April 28, 2018~~third quarter of fiscal 2019 and fiscal 2019 year-to-date decreased ~~approximately $32~~$122 million and ~~$45~~$290 million, respectively, compared to the previously reported ~~amounts, while net sales to the independents channel for the 39-week period ended April 28, 2018 increased approximately $77 million compared to the previously reported~~ amounts.

~~(2)~~

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

Table of contents

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

Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net sales when the Company holds the business for sale as of the end of the reporting period with a supply agreement that it anticipates the sale of the retail banner to include upon the disposal of the business. The Company recorded $273.2 million and $227.1 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in the third quarters of fiscal 2020 and 2019, respectively, and $756.9 million and $505.5 million for fiscal 2020 and 2019 year-to-date, respectively, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for purchases by retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $99.3 million and $134.9 million in the third quarters of fiscal 2020 and 2019, respectively, and $320.0 million and $308.0 million in fiscal 2020 and 2019 year-to-date, respectively.

Contract Balances

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

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

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

Accounts and notes receivable are as follows:



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

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

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

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

4.NOTE 4—ACQUISITIONS

Supervalu Acquisition

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

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

Table of contents

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



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

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

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


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


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

~~(3)~~

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


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


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

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

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

Table of ~~their fair values.~~contents

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


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

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

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

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


	13-Week Period Ended		39-Week Period Ended					13-Week Period Ended		39-Week Period Ended
(in thousands, except per share data)	April 28, 2018⁽¹⁾		April 27, 2019⁽²⁾			April 28, 2018⁽²⁾		April 28, 2018⁽¹⁾		April 27, 2019⁽²⁾			April 28, 2018⁽³⁾
Net sales	$	6,067,869	$	18,096,796		$	18,125,148	$	6,067,869	$	18,096,796		$	18,125,148
Net income (loss) from continuing operations	$	73,853	$	(303,364	)	$	42,855	$	73,853	$	(378,422	)	$	42,855
Basic net income (loss) from continuing operations per share	$	1.46	$	(5.98	)	$	0.85	$	1.46	$	(7.46	)	$	0.85
Diluted net income (loss) from continuing operations per share	$	1.46	$	(5.98	)	$	0.84	$	1.46	$	(7.46	)	$	0.84

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 59 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. We believe our total product ~~offering now also includes over 175,000 items available from the Supervalu acquisition, giving us a total~~ assortment ~~that we believe to be~~and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, ~~military commissaries,~~ as well as international customers with wide-ranging needs.

Our Strategy

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

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

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

~~Successful integration of Supervalu into UNFI;~~

~~Realizing cost synergies;~~

~~Optimizing our distribution center network;~~

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

~~Generating cash to pay down debt.~~

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

~~Our Operating Structure~~

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

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


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


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


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


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


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

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


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


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

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

~~Our Customers~~

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

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

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

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

~~Other, which includes foodservice, e-commerce and 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~~

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We currently operate approximately 76 retail grocery stores acquired in the Supervalu acquisition. We intend to thoughtfully and economically divest these stores over the long-term; however, as discussed below within Divestiture of Retail Operations,

~~In recent years, our sales~~ we have determined that we no longer expect to ~~existing~~divest the Cub Foods business and ~~new customers have increased through~~ the ~~continued growth~~majority of the ~~natural and organic products industry~~remaining Shoppers locations (collectively “Remaining Retail”) within one year. Accordingly, we will present the Remaining Retail business within continuing operations beginning in ~~general; increased market share~~the fourth quarter of fiscal 2020. In our third quarter fiscal 2020 Condensed Consolidated Financial Statements included in this Quarterly Report, Remaining Retail is presented within Discontinued Operations, as ~~a result~~the determination to change the plan of ~~our high quality service and a broader product selection, including specialty products;~~sale occurred subsequent to 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 centerend of the ~~store, as well as perimeter offerings.~~third quarter of fiscal 2020. As described below we entered into agreements to sell 13 retail stores and closed six additional stores. In the third quarter of fiscal 2020, we closed on the sale of 12 of these Shoppers stores.

We have been the primary distributor to Whole Foods Market for more than ~~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~~

COVID-19 Impact

Impact and Response

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

As COVID-19 spread in March 2020, shelter-in-place orders and national and state emergencies were issued in the U.S., our business was designated as an essential business to enable us to continue to serve our customers during the COVID-19 pandemic. We experienced an initial surge in demand and sales in March and April of 2020 as consumers undertook efforts to stock their pantries and our related wholesale customer purchases surged. During the initial spreading of the virus and implementation of shelter-in-place and restaurant closures, we experienced a surge in demand, which impacted fill and service rates and depleted inventory levels. Based on historical purchasing levels, temporary customer supply allocation limits were put in place to ensure continued service to our wholesale customers’ locations, which were removed as we added capacity. In response to the surge in demand, in the third quarter of fiscal 2020, we took immediate actions to respond to the pandemic, to support our associates’ safety and wellbeing, and maximize our logistics network to serve the communities we supply, while delivering operational and financial results. These actions included:

hiring over 2,000 associates, and providing existing associates with temporary state of emergency wage increases and increased overtime to warehouse, driver and in-store associates;

implementing heightened associate safety protocols to keep our workforce healthy, including social distancing practices, implementing extensive safety protocols at our retail locations to protect associates and customers, and engaging additional professional cleaning companies in our facilities;

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

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

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

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

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

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

We believe the Supervalu acquisition ~~of Whole Foods Market~~allowed us to better serve our wholesale customers’ needs and compete in the current environment by ~~Amazon.com, Inc. in August 2017, our sales to Whole Foods Market increased resulting in year-over-year growth in net sales. Refer to “Results of Operations” section below for further information.~~

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

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

~~expand our national purchasing opportunities;~~

~~offer~~transportation capacity, as well as providing a broader ~~selection~~array of products to our customers. As one of the largest wholesale grocery distributors in North America and in light of the continued expansion of our distribution network and build-out-the-store initiative, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers ~~than our competitors;~~

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

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

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

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

~~integrate administrative and accounting functions; and~~

~~reduce the geographic overlap between regions.~~which they operate.

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~~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,~~We experienced 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. Includedfollowing impacts from COVID-19 in the ~~liabilities assumed~~third quarter of fiscal 2020:


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


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

•

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

•

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

Working Capital and Liquidity

Reflecting the initial impact from the COVID-19 pandemic, working capital was reduced in the ~~Supervalu acquisition were the Supervalu Senior Notes with a fair value~~third quarter of ~~$546.6 million. These Senior Notes were redeemed in~~fiscal 2020 by $214.5 million, as compared to the second quarter of fiscal ~~2019 following~~2020, which provided a strong source of cash flows from operating activities in the quarter. The surge in demand during the quarter discussed above initially depleted inventory levels of continuing operations, which ended $109.2 million lower in the quarter compared to the second quarter of fiscal 2020. Our Accounts payable fluctuated greatly during the quarter related to swings in Inventories, net, ending the quarter $253.4 million higher as compared to the second quarter of fiscal 2020, as we worked to respond to our customers’ modified purchase patterns and prioritize the procurement of high-volume stock-keeping units. The elevated sales levels caused Accounts receivable, net to grow by $157.7 million as compared to the second quarter of fiscal 2020 due to higher sales.

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

Outlook

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

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

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

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 and contains significant business tax provision changes to the U.S. tax code, including temporary expansion of the limitations to the deductibility of net operating losses and interest expense and the ability to treat qualified improvement property as eligible for bonus depreciation. In addition, the CARES Act changed the required ~~30-day notice period, resulting in their satisfaction~~filing of our federal income tax return from May 2020 to July 2020, and ~~discharge. The redemption~~allows remittances of employer FICA payments previously due March 2020 to December 2020 to be deferred until December 2021 and December 2022. Prior to the application of the ~~Senior Notes was financed by borrowings under our Term Loan Facility.~~CARES Act, we had a deferred tax asset related to $203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely. The ~~acquisition~~CARES Act provides us the ability to carry these losses back at a 35% federal tax rate during the carry back periods, as opposed to the current 21% federal tax rate. This resulted in a tax benefit of ~~Supervalu accelerates our build out~~approximately $28.4 million, which we recorded in the ~~store strategy, diversifies~~third quarter of fiscal 2020. This estimated tax benefit will be finalized in the ~~Company’s customer base, enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and~~fourth quarter of fiscal 2020 as the 2019 tax return due July 2020 is ~~expected to deliver significant synergies and accelerate potential growth.~~finalized. The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the third quarter of fiscal 2020.

Distribution Center Network

Network ~~optimization~~Optimization and Construction

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

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

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

~~Certain of these costs are~~fiscal 2019 and is expected to ~~subside as we complete this work~~be completed in the fourth quarter of fiscal 2020. We ceased operations in our Tacoma, WA, Auburn, WA and Auburn, CA distribution centers and have transitioned to ~~realign~~supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers. We expect to incur incremental expenses related to the network realignment and we are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.

~~Once~~In connection with our consolidation of distribution centers in the Pacific Northwest, during the second quarter of fiscal 2020, we recorded a $10.6 million multiemployer pension plan withdrawal liability, under which payments will be made over a one-year period beginning in fiscal 2022.

To support our continued growth within southern California, we began operating a newly leased facility with approximately 1.1 million square feet upon completion of its construction in the fourth quarter of fiscal 2020. This facility provides significant capacity to service our customers in this market and provides us the ~~new Centralia~~future flexibility to potentially monetize existing owned facilities in the southern California market. On February 24, 2020, we executed a purchase option to acquire the real property of a distribution center ~~is complete and~~agreeing to pay approximately $156.9 million for the ~~expansion~~facility, subject to finalization. We expect to engage a real estate partner to monetize the real property of ~~the Ridgefield distribution center is finished,~~this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property from current rents, which we ~~plan to close our Tacoma, Portland and Auburn warehouses, as well as reduce our dependency~~expect would occur on ~~outside storage and third-party logistics services.~~or before June 2022.

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

Distribution Center Sales

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

In the ~~first~~fourth quarter of fiscal 2019, we closed on the sale and leaseback of two acquired Supervalu distribution centers and received aggregate proceeds of approximately $149.5 million. One of these distribution centers was the last remaining distribution center Supervalu sold and leased back as part of a previous portfolio transaction, which contained a longer-term lease. The other distribution center was a Pacific Northwestentered into an agreement to sell our Tacoma, WA distribution center related to our Pacific Northwest consolidation ~~strategy, which was subject to~~strategy. We closed on the sale in the fourth quarter of fiscal 2020 and received consideration of $42.3 million in the form of a ~~short-term lease.~~ $38.0 million note receivable and cash. As of May 2, 2020, the facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets. As we consolidate our distribution networks, we may sell additional owned facilities or exit leased facilities.

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In ~~addition,~~the third quarter of fiscal 2020, we sold surplus facilities and received aggregate proceeds of approximately $13.7 million and $9.3 million, during the second quarter and third quarters of fiscal 2019, respectively. We currently expect to sell at least one additional owned distribution centera warehouse in ~~the future.~~Stockton, CA for $4.8 million.

Operating Efficiency

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

Goodwill Impairment Review

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

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

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

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

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

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

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

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

Table of fiscal 2019, and we closed the remaining Shop ‘n Save St. Louis-based retail stores and the dedicated distribution center in the second quarter of fiscal 2019, and we continue to hold the owned real estate assets related to these locations for sale. In addition, we entered into a supply agreement to serve as the primary supplier to nine Schnucks stores across northern Illinois, Iowa and Wisconsin. In connection with the closure of the Shop ‘n Save locations and the acquisition of Supervalu, we assumed a $35.7 million multiemployer pension plan withdrawal liability, and recorded a closed stores’ reserve charge of approximately $17.1 million in the second quarter of fiscal 2019 based on the retail stores’ November cease-use date.contents

In the second quarter of fiscal ~~2019, the Company closed three of its eight Shop ‘n Save East~~2020, we entered into agreements to sell 13 Shoppers stores and decided to close six locations, and in the third quarter of fiscal ~~2019, the Company sold the remaining five Shop ‘n Save East stores to GIANT Food Store, LLC, and did not incur a gain or loss~~2020 we closed on the sale of 12 of these Shoppers stores. During fiscal 2020 year-to-date, in the aggregate between discontinued operations and continuing operations we incurred approximately $57.3 million of pre-tax aggregate costs and charges related to Shoppers, consisting of $33.3 million of lease asset impairment and property and equipment charges, including lease termination charges and charges related to impairment reviews, $14.2 million of operating losses and transaction costs during the period of wind-down, $8.7 million of severance costs and $1.1 million of losses on sale of assets. We may incur additional related costs and charges in the fourth quarter of fiscal 2020. In the second and third quarter of fiscal 2020, we reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values.

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

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

In the ~~second~~fourth quarter of fiscal ~~2019,~~2020, we expect to record an adjustment to the ~~Company completed~~carrying value of certain long-lived assets, including property and equipment and intangible assets, to record the ~~sale~~assets at the carrying amount at the acquisition date adjusted for any depreciation expense that would have been recognized had the assets been held and used as part of ~~seven~~continuing operations since their acquisition date. We estimate the adjustment to account for the incremental depreciation and amortization expense required to be recorded in the fourth quarter of ~~its eight Hornbacher's locations, as well as Hornbacher’s newest store currently under development~~fiscal 2020 will be approximately $48 million, which reflects an estimate of depreciation and amortization from the date of the Supervalu acquisition date through fiscal 2020 based on useful lives assigned to the underlying retail assets expected to be brought back into continuing operations.

As discussed in ~~West Fargo, North Dakota,~~Note 3—Revenue Recognition, certain sales from the Wholesale segment to ~~Coborn's Inc. (“Coborn’s”). The Hornbacher’s store~~the retail discontinued operations are presented within Net sales. In order to present Remaining Retail’s results of operations within continuing operations these Wholesale sales to retail discontinued operations will be eliminated upon consolidation, resulting in ~~Grand Forks, North Dakota was not~~no consolidated effect on Net sales resulting from our Wholesale segment. Remaining Retail’s net sales will be included in the Net sales line of the Consolidated Statement of Operations. As discussed in Note 3—Revenue Recognition, we currently hold Shoppers stores for sale without an expectation of a supply agreement and therefore no Wholesale sales were recorded within continuing operations. Within the restatement of our segment financial information, we expect to ~~Coborn’s and has closed pursuant~~recognize Wholesale segment sales to the ~~terms~~majority of the ~~definitive agreement. As part~~remainder of the ~~sale, Coborn's entered into~~Shoppers locations, which will be eliminated upon consolidation as described above.

Subsequent to the restatement of our Consolidated Financial Statements, we expect consolidated net sales, gross profit and operating expenses to increase compared to the current presentation, and expect our consolidated gross profit as a ~~long-term agreement for the Company~~percentage of net sales to ~~serve~~increase, which we expect will be partially offset by an increase in operating expenses as ~~the primary supplier~~a percent of ~~the Hornbacher's locations and expand its existing supply arrangements for other Coborn’s locations.~~net sales.

We ~~previously disposed~~may incur additional costs and charges in the future related to the divesture of ~~our retail~~Remaining Retail if these locations are subsequently sold, indicators exist that the business ~~Earth Origins Market (“Earth Origins”), during fiscal 2018.~~may be impaired, or if we incur additional wind-down or employee-related costs or charges.

Supervalu Professional Services Agreements

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

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

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

Impact of Inflation or Deflation

We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, or 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 third quarter of fiscal ~~2018 and 2019.~~2020. In the 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 low single digits in the third 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. In fiscal 2020, the COVID-19 impact has caused a significant increase in food-at-home expenditures as a percentage of total food expenditures. We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years during time periods that shelter-in-place orders exist until businesses are allowed to fully reopen and any related economic recession has ended.

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

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

Net sales

Our net sales consist primarily of sales of natural, organic, specialty, produce and conventional grocery and non-food products, and 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.

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Net periodic benefit income, excluding service cost

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

Adjusted EBITDA

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

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

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

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

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Assessment of Our Business Results

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



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

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

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



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

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


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

(2)

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

(3)

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


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


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


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

(7)

Income from discontinued operations, net of tax and Adjusted EBITDA of discontinued operations excludes rent expense of $8.9 million and $11.6 million in the third quarters of fiscal 2020 and 2019, respectively, and $32.5 million and $24.3 million in fiscal 2020 and 2019 year-to-date, respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, we believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

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

RESULTS OF OPERATIONS

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

Net Sales

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

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

April 28, 2018⁽¹⁾

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

April 28, 2018⁽¹⁾

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

* Reflects rounding



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

(1)

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

Third Quarter Variances

Our net sales for the third quarter of fiscal ~~2019~~2020 increased approximately ~~$3.31~~$0.71 billion, or ~~125.1%~~11.8%, to ~~$5.96~~$6.67 billion from ~~$2.65~~$5.96 billion for the third quarter of fiscal ~~2018.~~ 2019.

Net sales to our supermarkets channel increased by approximately $566 million, or 15.3%, for the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019, and represented approximately 64% and 62% of our total net sales for the third quarter of fiscal 2020 and 2019, ~~included Supervalu~~respectively. The increase in supermarkets net sales ~~of approximately $3.24 billion. Excluding Supervalu’s net~~is primarily due to an increase in demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales ~~net sales increased $75 million, or 2.8%, which was driven primarily by our supernatural channel.~~from previously lost customers and stores prior to the pandemic.

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the third quarter of fiscal ~~2019~~2020 increased by approximately ~~$110~~$177 million, or ~~11%~~16.1%, as compared to the third quarter of fiscal ~~2018,~~2019, and accounted for approximately ~~18%~~19% and ~~37%~~18% of our total net sales for the third quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in net sales to Whole Foods Market is ~~primarily~~primarily due to ~~growth in new product categories, most notably the health, beauty and supplement categories, and~~ increased sales ~~from new stores.~~to existing locations and the economic impacts of the COVID-19 pandemic. Net sales within our supernatural ~~chain~~ channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other ~~channel.~~channel.

Net sales to our independents channel ~~increased~~decreased by approximately ~~$140~~$23 million, or ~~20%~~3.3%, for the third quarter of fiscal ~~2019~~2020 compared to the third quarter of fiscal ~~2018,~~2019, and represented approximately ~~14%~~10% and ~~26%~~12% of our total net sales for the third quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase~~decrease in independents net sales is primarily due to ~~$122 million of net sales from the acquired Supervalu business with the remaining increase of $18 million, or 2.5% primarily due to~~previously lost customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to ~~existing customers.~~the COVID-19 pandemic.

Net sales to our ~~supermarkets~~other channel ~~increased~~decreased by approximately ~~$2,969~~$15 million, or ~~421%~~3.3%, for the third quarter of fiscal ~~2019,~~2020 compared to the third quarter of fiscal ~~2018,~~2019, and represented approximately ~~62%~~7% and ~~27%~~8% of our total net sales for the third quarter of fiscal 2020 and 2019, respectively. The decrease in other net sales is primarily due to lower sales to foodservice customers and ~~2018,~~lower military sales from the resignation of certain business, partially offset by e-commerce sales growth.

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Year-to-Date Variances

Our net sales for fiscal 2020 year-to-date increased approximately $3.84 billion, or 25.7%, to $18.82 billion from $14.98 billion for fiscal 2019 year-to-date. Net sales for fiscal 2020 year-to-date included incremental Supervalu net sales from the first quarter of fiscal 2020 of approximately $3.08 billion. Excluding the incremental first quarter of fiscal 2020 Supervalu net sales, net sales increased $768 million, or 5.1%, which was driven primarily by incremental sales resulting from the COVID-19 pandemic and continued growth in our supernatural channel.

Net sales to our supermarkets channel for fiscal 2020 year-to-date increased by approximately $3,356 million, or 39.2%, from fiscal 2019 year-to-date, and represented approximately 63% and 57% of our total net sales for fiscal 2020 and 2019 year-to-date, respectively. The increase in supermarkets net sales is primarily due to ~~$2,982~~an increase of $2,813 million from incremental first quarter of fiscal 2020 net sales ~~from~~attributable to the acquired Supervalu business ~~with the remaining decrease~~and a net increase of ~~$13 million due to sales declines to existing customers.~~

Net sales to our other channel, which include foodservice customer sales, sales from the United States to other countries, military sales, e-commerce sales, branded product lines, the former Earth Origins retail division, manufacturing division, and our brokerage business, increased by approximately $95$543 million, or 36%, for the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018, and represented approximately 6% and 10% of our total net sales for the third quarter of fiscal 2019 and 2018, respectively. The increase in other net sales is primarily due to $135 million of net sales from the acquired Supervalu business with the remaining decrease of $40 million due to sales declines driven by our e-commerce business and lack of sales from our retail business, Earth Origins, which was disposed in the fourth quarter of fiscal 2018.

~~Year-to-Date Variances~~

Our net sales for fiscal 2019 year-to-date increased approximately $7.35 billion, or 96.2%, to $14.98 billion, from $7.63 billion for fiscal 2018 year-to-date. Net sales for fiscal 2019 year-to-date included Supervalu net sales of approximately $6.94 billion. Excluding Supervalu’s net sales, net sales increased $409 million, or 5.4%, which was6.3% primarily driven by ~~our supernatural channel.~~growth in sales to existing customers, including the demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Net sales to Whole Foods Market for fiscal ~~2019~~2020 year-to-date increased by approximately ~~$453~~$371 million, or ~~16%~~11.5%, as compared to the prior fiscal year’s comparable period, and accounted for approximately ~~22%~~19% and ~~36%~~21% of our total net sales for fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date, respectively. The increase in ~~net~~net sales to Whole Foods Market is primarily due to ~~an increase in same store~~increased sales ~~following its acquisition by Amazon.com, Inc. in August 2017 coupled with~~related to the COVID-19 pandemic, growth in new product categories, ~~most notably the health, beauty and supplement categories,~~ and increased sales ~~from~~to existing and new ~~stores.~~stores prior to the pandemic.

Net sales to our independents channel ~~increased~~decreased by approximately ~~$333~~$58 million, or ~~17%~~2.8%, during fiscal ~~2019~~2020 year-to-date as compared to ~~the prior~~ fiscal ~~year’s comparative period,~~2019 year-to-date, and accounted for ~~16%~~11% and ~~26%~~14% of our total net sales for fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date, respectively. The ~~increase~~decrease in independents net sales ~~is primarily due to $267~~includes an increase of $24 million from incremental first quarter of fiscal 2020 net sales ~~from the acquired Supervalu business with the remaining increase of $66 million primarily due~~attributable to ~~sales growth to existing customers.~~

Net sales to our supermarkets channel for fiscal 2019 year-to-date increased by approximately $6,364 million, or 300%, from fiscal 2018 year-to-date, and represented approximately 57% and 28% of total net sales for fiscal 2019 year-to-date and fiscal 2018 year-to-date, respectively. The increase in supermarkets net sales is primarily due to $6,381 million of net sales from the acquired Supervalu business, with the remaining decrease of ~~$17~~$82 million, or 4.0% being primarily due to lost customers, and lower sales ~~declines~~from existing customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to ~~existing customers.~~the COVID-19 pandemic.

Net sales to our other channel increased by approximately ~~$196~~$176 million, or ~~26%~~15.3%, during fiscal ~~2019~~2020 year-to-date compared to fiscal ~~2018~~2019 year-to-date, and ~~accounted for~~represented approximately 6%7% and ~~10%~~8% of our total net sales for fiscal ~~2019 year-to-date~~2020 and ~~fiscal 2018~~2019 year-to-date, respectively. The increase in other net sales is primarily due to ~~$289~~an increase of $240 million from incremental first quarter of fiscal 2020 net sales ~~from~~attributable to the acquired Supervalu business, ~~with the remaining~~partially offset by a decrease of ~~$93~~$64 million, or 5.6%, primarily due to lower sales ~~declines driven by our e-commerce business~~to foodservice customers and ~~lack of~~lower military sales from ~~our retail~~the resignation of certain business, ~~Earth Origins, which was disposed in the fourth quarter of fiscal 2018.~~partially offset by e-commerce sales growth.

Cost of Sales and Gross Profit

Our gross profit increased ~~$380.5~~$68.0 million, or ~~93.2%~~8.6%, to $856.5 million for the third quarter of fiscal 2020, from $788.6 million for the third quarter of fiscal ~~2019, from $408.1 million for the third quarter of fiscal 2018.~~2019. Our gross profit as a percentage of net sales decreased to 12.85% for the third quarter of fiscal 2020 compared to 13.22% for the third quarter of fiscal ~~2019 compared to 15.41% for the third quarter~~2019. The decrease in gross margin rate was primarily driven by a mix shift toward lower margin conventional products and lower levels of ~~fiscal 2018. Our Gross profit for the third quarter~~vendor funding, partially offset by lower levels of fiscal 2019 included a contribution from the Supervalu business of approximately $386.9 million, including the related LIFO charge, and our legacy company Wholesale business included a LIFO charge of $4.1 million. In addition, our third quarter fiscal 2018 gross profit included a benefit of $20.9 million from a change in accounting estimate. When excluding these items,inventory shrink.

Our gross profit increased ~~$18.6 million. In addition,~~$440.4 million, or 22.4%, to $2,403.0 million for fiscal 2020 year-to-date, from $1,962.7 million for fiscal 2019 year-to-date. Our gross profit as a percentage of net sales ~~includes~~decreased to 12.77% for fiscal 2020 year-to-date compared to 13.10% for fiscal 2019 year-to-date. Our Gross profit dollar increase for fiscal 2020 year-to-date when compared to fiscal 2019 year-to-date is primarily due to 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. The remaining increase in Gross profit was $92.5 million, which included a fiscal 2019 year-to-date inventory charge related to a step-up of acquired Supervalu inventory of $10.5 million. Gross profit as a percentage of net sales decreased primarily due to lower gross profit ~~rate~~rates on ~~a legacy company basis~~conventional products and margin dilution from ~~faster~~the faster growth of the supernatural channel relative to the other customer channels, offset in part by lower inbound freight expense. We recorded a LIFO charge of $19.3 million and $13.7 million for fiscal 2020 and 2019 year-to-date, respectively.

~~Refer~~

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Operating Expenses

Operating expenses increased $36.7 million, or 5.0%, to ~~Note 1. “Significant Accounting Policies” in Part I, Item 1~~$774.4 million, or 11.61% of ~~this Quarterly Report on Form 10-Q and below under the heading “Net Income (Loss) Attributable to United Natural Foods, Inc.” for additional information regarding the positive impact of a change in estimate for the gross profit impact of $20.9 million recorded during the third quarter of fiscal 2018.~~

~~With the adoption of the LIFO inventory costing method, our consolidated Cost of~~net sales, ~~and Gross profit~~ for the third quarter of fiscal ~~2019 and fiscal 2019 year-to-date include a LIFO charge of $7.4 million or 12 basis points, and $13.7 million or 9 basis points, respectively.~~

Our gross profit increased $815.8 million, or 71.1%, to $1.96 billion for fiscal 2019 year-to-date, from $1,146.8 million for fiscal 2018 year-to-date. Our gross profit as a percentage of net sales decreased to 13.10% for fiscal 2019 year-to-date2020 compared to 15.02% for fiscal 2018 year-to-date. Our Gross profit for fiscal 2019 year-to-date included a contribution from the Supervalu business of approximately $800.9 million, including the related LIFO charge, and our legacy company Wholesale business included a LIFO charge of $7.3 million. In addition, our fiscal 2018 year-to-date gross profit included a benefit of $20.9 million from a change in accounting estimate. When excluding these items, gross profit increased $43.1 million. In addition, gross profit as a percentage of net sales includes a lower gross profit rate on a legacy company basis from faster growth of the supernatural channel relative to the other customer channels, offset in part lower inbound freight expense.

~~Operating Expenses~~

~~Operating expenses increased $411.9 million, or 126.4%,~~ to $737.7 million, or 12.37% of net sales, for the third quarter of fiscal ~~2019 compared to $325.8 million, or 12.30% of net sales,~~2019. Operating expenses for the third quarter of fiscal ~~2018.~~2020 included $1.4 million of surplus property depreciation expense. The ~~increase~~decrease in ~~operating~~Operating expenses as a percent of net sales was driven by ~~higher depreciation~~leveraging fixed operating and ~~amortization expense resulting from~~administrative expenses and the ~~Supervalu acquisition~~benefit of synergy and integration efforts, partially offset by incremental costs related to COVID-19, including the ~~benefit~~impact of ~~cost synergies.~~temporary pandemic-related incentives and additional costs for safety protocols and procedures at the Company’s distribution centers. Total operating expenses also included share-based compensation expense of ~~$9.3~~$12.8 million and ~~$7.9~~$9.3 million for the third quarter of fiscal ~~2019~~2020 and ~~2018,~~2019, respectively.

Operating expenses increased ~~$894.8~~$447.9 million, or ~~93.4%~~24.2%, to ~~$1.85 billion,~~$2,300.6 million, or 12.22% of net sales, for fiscal 2020 year-to-date compared to $1,852.8 million, or 12.37% of net sales, for fiscal 2019 year-to-date. The increase in Operating expenses in fiscal 2020 year-to-date primarily reflects the incremental contribution from the Supervalu business for an additional 12 weeks when compared to ~~$958.0 million, or 12.55% of net sales,~~fiscal 2019 year-to-date. Operating expenses for fiscal ~~2018 year-to-date.~~2020 year-to-date included $26.8 million of customer bankruptcy bad debt expense. In addition, Operating expenses in fiscal 2020 year-to-date included $12.5 million of notes receivable charges, $6.6 million of surplus property depreciation expense and a $1 million legal reserve charge. The decrease in operating expenses, as a percent of net sales, was driven by fixed and variable expense leveraging and the ~~addition~~mix impact from the acquired Supervalu business and lower employee costs, including the impact of ~~Supervalu at a lower operating expense rate, lower health care costs, and fixed~~ cost ~~leverage,~~synergies, partially offset by higher bad debt, occupancy and depreciation ~~and amortization expense.~~expenses. Total operating expenses also included share-based compensation expense of ~~$27.8~~$21.3 million and ~~$21.7~~$27.8 million for fiscal ~~2019~~2020 and ~~2018~~2019 year-to-date, respectively.

Goodwill and Asset Impairment (Adjustment) Charges

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

Goodwill and asset impairment charges of $425.4 million were recorded for fiscal 2020 year-to-date, which reflects $421.5 million from an impairment charge on the remaining goodwill attributable to the U.S. Wholesale goodwill reporting unit, $2.5 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1.4 million of property and equipment asset impairment charges. Goodwill and asset impairment charges of $332.6 million were recorded for fiscal 2019 year-to-date, which reflects a portion of the goodwill recorded from the Supervalu acquisition.

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

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $10.4 million for the third quarter of fiscal 2020, which included $8.4 million of closed property reserve charges and costs primarily related to lease asset impairments, $1.5 million of restructuring costs and $0.6 million of integration costs. Expenses incurred were $19.4 million for the third quarter of fiscal 2019, ~~and primarily~~which included $12.3 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, and $6.1 million of other acquisition and integration related costs and $1.1 million of closed property reserve charges related to the divestiture of retail banners.

Restructuring, acquisition and integration related expenses were ~~$134.6~~$54.4 million for fiscal 2020 year-to-date and primarily included $25.3 million of integration costs including a multiemployer pension plan withdrawal obligation, $25.1 million of closed property reserve charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $4.0 million of restructuring costs. Expenses incurred in fiscal 2019 year-to-date were $134.6 million and primarily included $66.4 million of employee related costs due to change-in-control payments made to satisfy outstanding equity awards, severance costs, and benefits costs, $47.5 million of other acquisition and integration related costs, and $20.6 million of closed property reserve charges related to the divestiture of retail banners.

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

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

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

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

Operating Income (Loss)

Reflecting the factors described above, operating income ~~decreased $12.5~~increased $2.0 million to $71.7 million for the third quarter of fiscal 2020, from $69.7 million for the third quarter of fiscal ~~2019, from $82.2 million for the third quarter of fiscal 2018. As a percentage of net sales,~~2019. The operating income increase was ~~1.17% for the third quarter of fiscal 2019, compared to operating income of 3.10% for the third quarter of fiscal 2018. The decrease in operating income was~~primarily driven by ~~higher Operating expenses, including higher depreciation~~an increase in gross profit and ~~amortization expense, the change in accounting estimate benefit from last year, higher~~lower restructuring, acquisition and integration related expenses, partially offset ~~in part~~ by ~~higher Gross profit, excluding the change in accounting estimate discussed above, and~~ the goodwill impairment ~~charge~~ adjustment.

~~Operating income (loss) includes $11.6~~Reflecting the factors described above, operating loss increased $20.1 million, to an operating loss of $377.4 million for fiscal 2020 year-to-date, from $357.3 million for fiscal 2019 year-to-date. The increase in operating loss was primarily driven by the increase in goodwill impairment charges and increases in operating expenses in excess of gross profit increases, partially offset by lower restructuring, acquisition and integration related expenses.

The operating loss for the third quarter and year-to-date of fiscal ~~2019 (and $24.3~~2020 includes $9.1 million ~~year-to-date in fiscal 2019)~~and $33.5 million, respectively, of operating lease rent expense and $0.9 million and $4.6 million, respectively, of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. In addition, continuing operations ~~Operating income (loss)~~operating loss includes certain retail related overhead costs that are ~~indirectly~~ related to retail ~~which~~but are required to be presented within continuing operations.

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

Total Other Expense, Net



	13-Week Period Ended						39-Week Period Ended
(in thousands)	May 2, 2020			April 27, 2019			May 2, 2020			April 27, 2019
Net periodic benefit income, excluding service cost	$	(12,758	)	$	(10,941	)	$	(27,419	)	$	(22,691	)
Interest expense on long-term debt, net of capitalized interest	41,512			45,594			127,781			96,442
Interest expense on finance and direct financing lease obligations	2,974			4,455			7,238			10,488
Amortization of financing costs and discounts	3,837			4,666			11,570			10,181
Debt refinancing costs and unamortized financing charges	—			395			73			4,561
Interest income	(1,215		)	(193		)	(1,415		)	(523		)
Interest expense, net	47,108			54,917			145,247			121,149
Other, net	(973		)	958			(1,539		)	231
Total other expense, net	$	33,377		$	44,934		$	116,289		$	98,689

~~Total other expense,~~Net periodic benefit income, excluding service costs reflects the recognition of expected returns on benefit plan assets in excess of interest costs. Net periodic benefit income for fiscal 2020 year-to-date includes a $10.3 million non-cash pension settlement charge from the lump sum pension settlement offering completed in the second quarter of fiscal 2020. Fiscal 2019 year-to-date net ~~includes~~periodic benefit income reflects a partial year due to the acquisition of Supervalu near the end of the first quarter of fiscal 2019.

The decrease in interest expense ~~incurred~~ on ~~indebtedness, pension benefit income and gains and losses on business sales. Total other expense, net increased approximately $40.6 million~~long-term debt in the third quarter of fiscal 2020 compared to ~~$44.9 million for~~ the third quarter of fiscal 2019 ~~compared~~was primarily due to ~~$4.3 million for the third quarter~~lower average amounts of fiscal 2018. Interest expense, net was $54.9 million for the third quarter of fiscal 2019, compared to $4.3 million for the third quarter of fiscal 2018. Net periodic benefit income, excluding service cost, was $10.9 million for the 13-week period ended April 27, 2019outstanding debt and had no impact in the prior year as the benefit income is attributable to Supervalu pension plans. Other expense was $1.0 million for the third quarter of fiscal 2019, compared to $0.0 million of other expense for the third quarter of fiscal 2018.lower average interest rates. The increase in interest expense on long-term debt for fiscal 2020 year-to-date compared to fiscal 2019 year-to-date was primarily due to an increase in average outstanding debt ~~year-over-year~~ driven by Supervalu acquisition ~~financing.~~financing executed near the end of the first quarter of fiscal 2019.

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

~~We expect interest~~but for which GAAP requires the expense to ~~increase substantially in future periods~~be included within continuing operations, as ~~compared to period prior to the Supervalu acquisition due to the increased indebtedness incurred to finance the acquisition of Supervalu. As a result 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,~~remain primarily obligated under these leases until settlement with the respective landlords. Beginning in the third quarter of ~~approximately $35 million~~fiscal 2020, interest on financing leases includes interest related to a distribution center for ~~fiscal 2019.~~which we executed a purchase option with a delayed purchase provision.

~~Provision (Benefit)~~

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Benefit for Income Taxes

~~Our~~The effective income tax rate for continuing operations was ~~(32.4)%~~a benefit of 38.7% compared to a benefit of 32.4% on pre-tax income for the third quarters of fiscal 2020 and ~~33.3%~~2019, respectively. The change in the effective income tax rate for the third quarter of fiscal ~~2019 and 2018, respectively. The decrease in the rate for the quarter~~2020 was primarily driven by ~~purchase accounting adjustments that impacted the goodwill impairment charge that was~~a tax benefit recorded ~~in the quarter. The Company also realized the full benefit of the reduced federal income~~on net operating loss deferred tax ~~rate due to tax reform. The Company made cash tax payments of approximately $59 million early~~assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above. The tax provision included $26.9 million and $3.2 million of discrete tax benefit for the third quarter of fiscal 2020 and fiscal 2019, ~~on ordinary income associated with anticipated section 338(g)~~respectively. The discrete tax ~~elections made with respect~~benefit for the third quarter of fiscal 2020 was primarily due to ~~the acquisition of Supervalu. The elections allow UNFI to utilize~~ a ~~portion of Supervalu’s $2.9 billion capital loss carryforward to generate estimated net cash~~ tax ~~savings~~benefit of approximately ~~$300~~$28.4 million ~~over~~driven by a tax benefit recorded on net operating loss deferred tax assets in the ~~next 15 years.~~third quarter of fiscal 2020 in connection with the CARES Act, discussed above.

~~Our~~The effective income tax rate for continuing operations was a benefit of 21.5% compared to a benefit of 22.8% on pre-tax losses for fiscal 2020 year-to-date and ~~20.3% for the 39-week periods ended April 27,~~fiscal 2019 ~~and April 28, 2018,~~year-to-date, respectively. The third quarter of fiscal 2019 effective tax rate reflects a tax benefit based on a consolidated pre-tax loss from continuing operations while the third quarter of fiscal 2018 reflected a tax expense on pre-tax income. The changedecrease in the effective income tax benefit rate was primarily driven by ~~one-time non-cash net~~a tax ~~benefits~~benefit of ~~$21.9~~approximately $8.3 million recorded in fiscal ~~2018~~2019 for the ~~estimated impact~~release of ~~the re-measurement~~unrecognized tax positions that did not recur in fiscal 2020, as well as a goodwill impairment benefit of ~~the U.S. net deferred tax liabilities due~~approximately $72.2 million recorded in fiscal 2019 compared to ~~tax reform. This is primarily offset by the full impact~~a goodwill impairment benefit of ~~the reduced federal~~approximately $66.4 million recorded in fiscal 2020. In addition, effective income tax rate for fiscal ~~2019, as well as~~2020 includes a benefit of approximately $28.4 million related to revaluation of net operating loss deferred tax assets in connection with the ~~tax cost associated with stock compensation payments not expected to be deductible in fiscal 2019 under the Section 162(m) tax reform rules.~~CARES Act.

Income from Discontinued Operations, Net of Tax

The results of operations for the third quarter of fiscal ~~2019~~2020 reflect net sales of ~~$640.1~~$667.0 million for which we recognized $187.8 million of gross profit and Income from discontinued operations, net of tax of ~~$24.4~~$37.2 million. As noted above, pre-tax income for the third quarter of fiscal 2020 from discontinued operations excludes $9.1 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations. In addition, store closure charges related to leases are recorded within continuing operations. Discontinued operations included $8.1 million of restructuring expenses primarily related to store closures charges and expenses related to exited locations, and asset impairment charges related to store exits and impairment reviews discussed above. Net sales and gross profit of discontinued operations increased $26.9 million and $10.9 million, respectively, for the third quarter of fiscal 2020 as compared to last year primarily due to an increase in identical store sales results driven by the impacts of the COVID-19 pandemic, which was partially offset by the lower store base operating in the third quarter of fiscal 2020 compared to last year.

The results of operations for fiscal ~~2019~~2020 year-to-date reflect net sales of ~~$1,413.8~~$1,891.5 million for which we recognized $520.3 million of gross profit and Income from discontinued operations, net of tax of ~~$47.8~~$64.3 million. As noted above, pretax income for fiscal 2020 year-to-date excludes $33.5 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 $40.3 million of primarily related to store closures charges and expenses, and asset impairment charges related to exited locations. Net sales and gross profit of discontinued operations increased $477.8 million and $137.9 million, respectively, for the fiscal 2020 year-to-date as compared to last year primarily due the incremental twelve weeks of discontinued operations and an increase in identical store sales resulting driven by the impacts of the COVID-19 pandemic, which was partially offset by the lower store base operating during fiscal 2020 year-to-date compared to last year.

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

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

Reflecting the factors described in more detail above, ~~our~~ net income attributable to United Natural Foods, Inc. was $88.1 million, or $1.60 per diluted common share, for the third quarter of fiscal 2020, compared to net income of $57.1 million, or $1.12 per diluted common share, for the third quarter of fiscal ~~2019, compared to net income of $51.9 million, or $1.02 per diluted common share, for the third quarter of fiscal 2018.~~2019.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of ~~$303.9~~$326.5 million, or $6.10 per diluted common share, for fiscal 2020 year-to-date, compared to net loss of 303.9 million, or $5.99 per diluted common share, for fiscal 2019 year-to-date, ~~compared~~primarily due to ~~net income of $132.9 million, or $2.61 per diluted common share, for fiscal 2018 year-to-date.~~goodwill impairment charges.

As described in more detail in Note ~~1. “Significant Accounting Policies”~~12—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, ~~during~~in the first three quarters of fiscal 2018 we experienced an increased volume in our accrual for inventory purchases as a result of increasing volumes of inventory purchases and work flow changes to our practices resulting from the establishment of a centralized processing function for supplier payables. In the thirdsecond quarter of fiscal ~~2018,~~2020, we ~~changed~~granted restricted stock units and performance share units representing a right to receive an aggregate of 5.8 million shares of common stock under our ~~estimate for the accrual for inventory purchases as a result~~2020 Equity Incentive Plan.

Table of our review of the criteria for determining amounts where a liability is no longer considered probable as well as a review of historical data and data relating to fiscal 2018 purchases of inventory. As a result of this change in estimate, accounts payable was reduced by $20.9 million, resulting in an increase to net income of $13.9 million, or $0.27 per diluted share, for both the third quarter and 39 weeks ended April 28, 2018. Absent the change in accounting estimate, we would have expected to recognize the benefit to operating income of the change in estimate within the following four quarters, as the accrual would be expected to be reduced in accordance with our prior estimate methodology.contents

As described in more detail within Note ~~14. “Share-Based Awards”,~~13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2019 we ~~have~~ issued approximately ~~1.8~~2.0 million shares of common stock, ~~to fund settlement of Replacement Award obligations,~~ of which ~~only 259,866~~0.3 million shares were ~~outstanding and included in basic and diluted Weighted average shares outstanding as of the end of the third quarter of fiscal 2019. The remaining shares~~ issued ~~subsequent to the end of~~through the third quarter of fiscal 2019, ~~will have~~to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on ~~future measures of basic and diluted~~our weighted average earnings per ~~share.~~share as compared to last year. During the third quarter of fiscal 2020, the Company issued approximately 1.1 million shares of common stock at an average market price of $11.12 per share for $12.2 million of cash. Proceeds from these issuances were used to fund settlement of replacement award obligations. As of May 2, 2020, we have approximately 1.7 million additional shares authorized for issuance and registered with the SEC in order to satisfy replacement award and option issuance obligations.

LIQUIDITY AND CAPITAL RESOURCES

~~Overview~~

Highlights

Total liquidity as of May 2, 2020 was $1.21 billion and was comprised of the following:


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


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

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

Our total debt decreased $345.6 million to $2,560.9 million as of May 2, 2020 from $2,906.5 million as of August 3, 2019, primarily related to net payments made on the ABL Credit Facility and our 364-day Term Loan Facility payment.

Scheduled debt maturities are expected to be $7.6 million for the remainder of fiscal 2020 and payments to reduce finance lease obligations are expected to be approximately $3.3 million for the remainder of fiscal 2020. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to, and will, be used to make additional Term Loan Facility payments.

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

Working capital decreased $213.1 million to $1,245.9 million as of May 2, 2020 from $1,459.0 million as of August 3, 2019, primarily due to an increase in accounts payable resulting from inventory being sold through faster than payments are made to vendors, the adoption of the new lease standard from the recognition of a new current portion liability for operating leases, the payment of a current maturity under the Term Loan Facility and inventory reductions, offset in part by increases in accounts receivable.

Sources and Uses of Cash

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

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

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

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

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

Table of ~~Supervalu.~~contents

Long-Term Debt

During ~~the first quarter of~~ fiscal ~~2019 our capital structure materially changed in connection with~~2020 year-to-date, we repaid a net $264.0 million under the ~~Supervalu acquisition. Obligations under our Former~~ ABL Credit Facility and ~~Former Term Loan Facility were~~ repaid ~~and we established new credit facilities consisting~~$87.4 million of ~~our ABL Credit Facility and~~scheduled maturities under the Term Loan Facility. During the second quarter of fiscal 2019, we paid $566.4 million to extinguish the Supervalu Senior Notes assumed in the acquisition and paid related prepayment premiums and accrued interest with $566.4 million of restricted cash set aside on the Closing Date for this purpose. In addition, during fiscal 2019 year-to-date the Company made mandatory prepayments of $61.2 million under the Term Loan Facility with asset sale proceeds. Refer to Note ~~15. “Long-Term Debt”~~9—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants. Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0, calculated at the end of each of our fiscal quarters on a rolling four quarter basis, when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is ever less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base. We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Quarterly Report. The 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 ~~April 27, 2019, the Company~~May 2, 2020, we had an aggregate of ~~$2.2~~$2.09 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%~~0.454% to ~~2.9590%~~2.959%, with maturities between ~~June 2019 to~~May 2020 and October 2025. The fair values of these interest rate derivatives represents a total net liability of $140.4 million and are subject to volatility based on changes in market interest rates. See Note ~~9. “Derivatives”~~8—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

From ~~time-to-time,~~time to time, we enter into fixed price fuel supply ~~agreements.~~agreements and foreign currency hedges. As of ~~April 27, 2019~~May 2, 2020, we had fixed price fuel contracts outstanding and ~~April 28, 2018, we were not a party to any such agreements.~~foreign currency forward agreements outstanding. Gains and losses and the outstanding net asset from these arrangements are insignificant.

Capital Expenditures

Our capital expenditures for fiscal ~~2019~~2020 year-to-date were ~~$137.0~~$118.2 million, compared to ~~$29.6~~$137.0 million for fiscal ~~2018~~2019 year-to-date, ~~an increase~~a decrease of ~~$107.3 million driven primarily by~~$18.8 million. Fiscal 2020 year-to-date includes capital expenditures for distribution center expansions ~~and~~of approximately $33 million (primarily the Ridgefield, WA expansion), new distribution ~~centers. In light~~centers of ~~the Supervalu acquisition,~~approximately $21 million, and information technology, equipment and other. We estimate we ~~are further evaluating our capital spending plans~~will spend approximately $190 million for fiscal ~~2019 but do not expect to spend more than 1.5% of net sales.~~2020. Fiscal ~~2019~~2020 capital spending is expected to include projects that optimize ~~both the~~and expand our distribution network ~~as well as~~and our technology platform. Longer term, capital spending is expected to be ~~approximately~~at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

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Cash Flow Information

The following summarizes our Condensed Consolidated Statements of Cash Flows:


	39-Week Period Ended									39-Week Period Ended
(in thousands)	April 27, 2019			April 28, 2018			Change			May 2, 2020			April 27, 2019			Change
Net cash provided by (used in) operating activities of continuing operations	$	6,374		$	(31,276	)	$	37,650
Net cash provided by operating activities of continuing operations										$	311,138		$	6,374		$	304,764
Net cash used in investing activities of continuing operations	(2,249,817		)	(32,269		)	(2,217,548		)	(91,599		)	(2,249,817		)	2,158,218
Net cash provided by financing activities of continuing operations	2,140,607			70,190			2,070,417
Net cash (used in) provided by financing activities of continuing operations										(362,960		)	2,140,607			(2,503,567		)
Net cash flows from discontinued operations	120,627			—			120,627			157,185			120,627			36,558
Effect of exchange rate changes on cash	(226		)	(301		)	75
Effect of exchange rate on cash										(290		)	(226		)	(64		)
Net increase in cash and cash equivalents	17,565			6,344			11,221			13,474			17,565			(4,091		)
Cash and cash equivalents, at beginning of period	23,315			15,414			7,901			45,263			23,315			21,948
Cash and cash equivalents, at end of period	$	40,880		$	21,758		$	19,122
Cash and cash equivalents at end of period										$	58,737		$	40,880		$	17,857

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

Off-Balance Sheet Arrangements

Guarantees and Contingent Liabilities

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of May 2, 2020. We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions. We are also a party to a variety of contractual agreements under which we may be obligated to indemnify the other ~~contractual arrangements. See~~party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note ~~18. “Commitments,~~17—Commitments, Contingencies and Off-Balance Sheet ~~Arrangements”~~Arrangements under the caption ~~“Guarantees~~Guarantees and Contingent ~~Liabilities” in Part I, Item I of this Quarterly Report on Form 10-Q.~~

~~Legal Proceedings~~

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

Table of contents

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

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

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

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

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

Contractual Obligations

~~The following table represents our significant~~

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

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

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

$ 216

$ 649

$ 817

$ 1,843

$ 2,876

~~(1)~~

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


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


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

~~(4)~~

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


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


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

~~(7)~~

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


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

Critical Accounting Policies and Estimates

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

~~Inventories~~

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

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

~~Vendor Funds~~

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

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

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

~~Benefit Plans~~

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

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

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

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

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

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

~~Amortization of net actuarial loss expense recognition~~

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

~~Full yield curve expense recognition~~

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

~~Business Dispositions~~

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

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

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

Seasonality

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

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

Table of contents

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Item 1A. Risk Factors

~~There~~Except as described below, 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.

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

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

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

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

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

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

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

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


(in millions, except shares and per share amounts)	Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs		Total Number of Shares Purchased⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs⁽³⁾
Period⁽¹⁾:
January 27, 2019 to March 2, 2019	345	$	14.58	—	$	—
March 3, 2019 to March 30, 2019	—	—		—	—
March 31, 2019 to April 27, 2019	—	—		—	175.8
February 2, 2020 to February 29, 2020							—	$	—	—	$	—
March 1, 2020 to March 28, 2020							16,190	7.39		—	—
March 29, 2020 to May 2, 2020							9,754	11.94		—	175.8
Total	345	14.58		—	$	175.8	25,944	$	9.10	—	$	—



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




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



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



Large accelerated filerX	☒	Accelerated filer __	☐
Non-accelerated filer __	☐	Smaller reporting company __	☐
		Emerging growth company __	☐



Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

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

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

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6560

Item 4.	Controls and Procedures	6560

Part II.	Other Information

Item 1.	Legal Proceedings	6561

Item 1A.	Risk Factors	66
	��
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	6661

Item 3.2.	~~Defaults Upon Senior~~Unregistered Sales of Equity Securities and Use of Proceeds	6662

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

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

~~Item 6.~~	~~Exhibits~~	6763

	Signatures	6864


	April 27, 2019			July 28, 2018			May 2, 2020			August 3, 2019
ASSETS
Cash and cash equivalents	$	37,861		$	23,315		$	56,425		$	42,350
Accounts receivable, net	1,049,273			579,702			1,232,612			1,065,699
Inventories	2,214,950			1,135,775			2,025,694			2,089,416
Prepaid expenses and other current assets	185,498			50,122			279,886			226,727
Current assets of discontinued operations	147,521			—			128,855			143,729
Total current assets	3,635,103			1,788,914			3,723,472			3,567,921
Property and equipment, net	1,648,156			571,146			1,534,270			1,639,259
Operating lease assets							984,039			—
Goodwill	471,843			362,495			19,148			442,256
Intangible assets, net	1,071,898			193,209			956,717			1,041,058
Deferred income taxes							67,690			31,087
Other assets	107,078			48,708			94,181			107,319
Long-term assets of discontinued operations	393,143			—			321,256			352,065
Total assets	$	7,327,221		$	2,964,472		$	7,700,773		$	7,180,965

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	1,472,250		$	517,125		$	1,716,263		$	1,476,857
Accrued expenses and other current liabilities	227,356			103,526			271,633			249,426
Accrued compensation and benefits	152,757			66,132			182,029			148,296
Current portion of long-term debt and capital lease obligations	133,676			12,441
Current portion of operating lease liabilities							138,698			—
Current portion of long-term debt and finance lease liabilities							33,440			112,103
Current liabilities of discontinued operations	116,110			—			135,503			122,265
Total current liabilities	2,102,149			699,224			2,477,566			2,108,947
Long-term debt	2,943,992			308,836			2,541,657			2,819,050
Long-term capital lease obligations	122,936			31,487
Long-term operating lease liabilities							877,229			—
Long-term finance lease liabilities							145,672			108,208
Pension and other postretirement benefit obligations	208,816			—			191,105			237,266
Deferred income taxes	43,232			44,384			979			1,042
Other long-term liabilities	374,949			34,586			289,706			393,595
Long-term liabilities of discontinued operations	935			—			8,899			1,923
Total liabilities	5,797,009			1,118,517			6,532,813			5,670,031
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 5,000 shares; issued none	—			—
Common stock, par value $0.01 per share, authorized 100,000 shares; 51,719 shares issued and 51,104 shares outstanding at April 27, 2019, 51,025 shares issued and 50,411 shares outstanding at July 28, 2018	517			510
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding							—			—
Common stock, $0.01 par value, authorized 100,000 shares; 55,292 shares issued and 54,677 shares outstanding at May 2, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019							553			535
Additional paid-in capital	502,733			483,623			558,738			530,801
Treasury stock at cost	(24,231		)	(24,231		)	(24,231		)	(24,231		)
Accumulated other comprehensive loss	(43,385		)	(14,179		)	(151,645		)	(108,953		)
Retained earnings	1,096,582			1,400,232			786,400			1,115,519
Total United Natural Foods, Inc. stockholders’ equity	1,532,216			1,845,955			1,169,815			1,513,671
Noncontrolling interests	(2,004		)	—			(1,855		)	(2,737		)
Total stockholders’ equity	1,530,212			1,845,955
Total stockholders' equity							1,167,960			1,510,934
Total liabilities and stockholders’ equity	$	7,327,221		$	2,964,472		$	7,700,773		$	7,180,965


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


	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			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										Shares					Total United Natural Foods, Inc. Stockholders’ Equity			Amount					Total Stockholders’ Equity			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 July 28, 2018	51,025	$	510	615	$	(24,231	)	Additional Paid-in Capital			$	Accumulated Other Comprehensive (Loss) Income	483,623			Retained Earnings	$	(14,179	)		$	1,400,232		Noncontrolling Interests			$	1,845,955			$	—		$	1,845,955
Cumulative effect of change in accounting principle																277				277								277
Balances at February 1, 2020																															54,175		$	542		615	$	(24,231	)	$	535,900		$	(108,420	)	$	698,269	$	1,102,060		$	(2,966	)	$	1,099,094
Restricted stock vestings and stock option exercises	408	4						(3,023		)										(3,019		)						(3,019		)	21		—			—	—			(143		)	—			—		(143		)	—			(143		)
Share-based compensation								14,511												14,511								14,511			—		—			—	—			11,137			—			—		11,137			—			11,137
Other/share-based compensation								403												403								403
Recognition of interest rate swap cash flow hedges, net of tax												(10,702		)						(10,702		)						(10,702		)
Foreign currency translation												(982		)						(982		)						(982		)
Acquisition of noncontrolling interests																								(1,633		)		(1,633		)
Other comprehensive loss																															—		—			—	—			—			(43,225		)	—		(43,225		)	—			(43,225		)
Distributions to noncontrolling interests																								(255		)		(255		)	—		—			—	—			—			—			—		—			(1,127		)	(1,127		)
Net loss																(361,019		)		(361,019		)		(168		)		(361,187		)
Proceeds from issuance of common stock, net																															1,096		11			—	—			11,844			—			—		11,855			—			11,855
Net income																															—		—			—	—			—			—			88,131		88,131			2,238			90,369
Balances at May 2, 2020																															55,292		$	553		615	$	(24,231	)	$	558,738		$	(151,645	)	$	786,400	$	1,169,815		$	(1,855	)	$	1,167,960


Balances at January 26, 2019	51,433	$	514	615	$	(24,231	)	$	495,514			$	(25,863	)		$	1,039,490			$	1,485,424			$	(2,056	)		$	1,483,368		51,433		$	514		615	$	(24,231	)	$	495,514		$	(25,863	)	$	1,039,490	$	1,485,424		$	(2,056	)	$	1,483,368
Restricted stock vestings and stock option exercises	26	—						(115		)										(115		)						(115		)	26		—			—	—			(115		)	—			—		(115		)	—			(115		)
Share-based compensation								4,316												4,316								4,316			—		—			—	—			4,316			—			—		4,316			—			4,316
Recognition of interest rate swap cash flow hedges, net of tax												(16,196		)						(16,196		)						(16,196		)
Foreign currency translation												(1,326		)						(1,326		)						(1,326		)
Other comprehensive loss																															—		—			—	—			—			(17,522		)	—		(17,522		)	—			(17,522		)
Proceeds from issuance of common stock, net	260	3						3,018												3,021								3,021			260		3			—	—			3,018			—			—		3,021			—			3,021
Net income																57,092				57,092				52				57,144			—		—			—	—			—			—			57,092		57,092			52			57,144
Balances at April 27, 2019	51,719	$	517	615	$	(24,231	)	$	502,733			$	(43,385	)		$	1,096,582			$	1,532,216			$	(2,004	)		$	1,530,212		51,719		$	517		615	$	(24,231	)	$	502,733		$	(43,385	)	$	1,096,582	$	1,532,216		$	(2,004	)	$	1,530,212



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



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



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

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



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


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


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


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



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



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

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


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


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


(1)	Amounts are net of accumulated goodwill impairment charges of ~~$0.0~~$292.8 million and ~~$332.6~~$716.5 million as of ~~July 28, 2018~~August 3, 2019 and ~~April 27, 2019,~~May 2, 2020, respectively.



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



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


		Fair Value at April 27, 2019							Fair Value at May 2, 2020
(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	$	—	$	1,826	$	—
Mutual funds	Prepaid expenses and other current assets	$	34	$	—	$	—
Interest rate swaps designated as hedging instruments	Other assets	$	—	$	1,143	$	—
Foreign exchange derivatives not designated as hedging instruments								Prepaid expenses and other current assets	$	—	$	756	$	—
Mutual funds	Other assets	$	1,809	$	—	$	—	Other assets	$	1,715	$	—	$	—

Liabilities:
Fuel derivatives not designated as hedging instruments								Accrued expenses and other current liabilities	$	—	$	2,424	$	—
Interest rate swaps designated as hedging instruments	Accrued expenses and other current liabilities	$	—	$	4,820	$	—	Accrued expenses and other current liabilities	$	—	$	45,684	$	—
Interest rate swaps designated as hedging instruments	Other long-term liabilities	$	—	$	27,657	$	—	Other long-term liabilities	$	—	$	94,745	$	—



		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	$	—



Effective Date	Swap Maturity	Outstanding Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate⁽⁷⁾	Floating Rate Reset Terms
March 21, 2019	May 15, 2020	$	100.0	2.4490	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2020	100.0		2.8240	%	One-Month LIBOR	Monthly
June 9, 2016	April 29, 2021	25.0		1.0650	%	One-Month LIBOR	Monthly
June 24, 2016	April 29, 2021	25.0		0.9260	%	One-Month LIBOR	Monthly
January 23, 2019	April 29, 2021	50.0		2.5500	%	One-Month LIBOR	Monthly
April 2, 2019	June 30, 2021	100.0		2.2520	%	One-Month LIBOR	Monthly
June 10, 2019	June 30, 2021	50.0		2.2290	%	One-Month LIBOR	Monthly
November 30, 2018	October 29, 2021	100.0		2.8084	%	One-Month LIBOR	Monthly
March 21, 2019	April 15, 2022	100.0		2.3645	%	One-Month LIBOR	Monthly
April 2, 2019	June 30, 2022	100.0		2.2170	%	One-Month LIBOR	Monthly
June 28, 2019	June 30, 2022	50.0		2.1840	%	One-Month LIBOR	Monthly
August 3, 2015⁽¹⁾	August 15, 2022	55.5		1.7950	%	One-Month LIBOR	Monthly
August 3, 2015⁽²⁾	August 15, 2022	37.0		1.7950	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2022	100.0		2.8915	%	One-Month LIBOR	Monthly
January 11, 2019	October 31, 2022	50.0		2.4678	%	One-Month LIBOR	Monthly
January 23, 2019	October 31, 2022	50.0		2.5255	%	One-Month LIBOR	Monthly
October 30, 2020⁽³⁾	October 31, 2022	—		0.4540	%	One-Month LIBOR	Monthly
November 16, 2018	March 31, 2023	150.0		2.8950	%	One-Month LIBOR	Monthly
January 23, 2019	March 31, 2023	50.0		2.5292	%	One-Month LIBOR	Monthly
April 29, 2021⁽⁴⁾	April 28, 2023	—		0.5680	%	One-Month LIBOR	Monthly
June 30, 2021⁽⁵⁾	June 30, 3023	—		0.6070	%	One-Month LIBOR	Monthly
November 30, 2018	September 30, 2023	50.0		2.8315	%	One-Month LIBOR	Monthly
October 29, 2021⁽⁶⁾	October 20, 2023	—		0.6810	%	One-Month LIBOR	Monthly
October 26, 2018	October 31, 2023	100.0		2.9210	%	One-Month LIBOR	Monthly
January 11, 2019	March 28, 2024	100.0		2.4770	%	One-Month LIBOR	Monthly
January 23, 2019	March 28, 2024	100.0		2.5420	%	One-Month LIBOR	Monthly
November 30, 2018	October 31, 2024	100.0		2.8480	%	One-Month LIBOR	Monthly
January 11, 2019	October 31, 2024	100.0		2.5010	%	One-Month LIBOR	Monthly
January 24, 2019	October 31, 2024	50.0		2.5210	%	One-Month LIBOR	Monthly
October 26, 2018	October 22, 2025	50.0		2.9550	%	One-Month LIBOR	Monthly
November 16, 2018	October 22, 2025	50.0		2.9590	%	One-Month LIBOR	Monthly
November 16, 2018	October 22, 2025	50.0		2.9580	%	One-Month LIBOR	Monthly
January 24, 2019	October 22, 2025	50.0		2.5558	%	One-Month LIBOR	Monthly
		$	2,092.5



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


(3)	This forward starting swap contract athas 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.~~amount of $100.0 million.


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



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



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


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


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



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



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