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Item 2. Management’s Discussion and Analysis

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT 
 
 This Quarterly Report and the documents incorporated by reference in this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will,” and “would,” or similar words. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information. 
 
 Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to: 
 
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 the impact and duration of the COVID-19 outbreak; 
 
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 our dependence on principal customers; 
 
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 the potential for additional asset impairment charges; 
 
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 our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends; 
 
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 our ability to realize anticipated benefits of our acquisitions and dispositions, in particular, our acquisition of SUPERVALU INC. (“Supervalu”); 
 
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 the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations; 
 
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 our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products; 
 
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 increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors; 
 
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 increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains; 
 
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 our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts; 
 
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 the addition or loss of significant customers or material changes to our relationships with these customers; 
 
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 volatility in fuel costs; 
 
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 volatility in foreign exchange rates; 
 
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 our sensitivity to inflationary and deflationary pressures; 
 
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 the relatively low margins and economic sensitivity of our business; 
 
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 the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health epidemic (such as the recent outbreak of COVID-19, or the novel coronavirus); 
 
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 the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; 
 
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 moderated supplier promotional activity, including decreased forward buying opportunities; 
 
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 union-organizing activities that could cause labor relations difficulties and increased costs; and 
 
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 our ability to identify and successfully complete asset or business acquisitions. 
 
 You should carefully review the risks described under “Part II. Item 1A Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I. Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended August 3, 2019 as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows. 
 
 EXECUTIVE OVERVIEW 
 
 Business Overview 
 
 As a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America. We offer more than 250,000 products consisting of national, regional and private label brands grouped into six product categories: grocery and general merchandise; produce; perishables and frozen foods; nutritional supplements and sports nutrition; bulk and food service products; and personal care items. Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 59 distribution centers and warehouses representing approximately 30 million square feet of warehouse space. We believe our total product assortment and service offerings are unmatched by our wholesale competitors. We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs. 
 
 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, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure, and eliminating redundant administrative costs. 
 
 We maintain long-standing customer relationships with customers in our supernatural, supermarket, independent and other channels. Some of these long-standing customer relationships are established through contracts with our customers in the form of distribution agreements. 
 
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 We currently operate approximately 76 retail grocery stores acquired in the Supervalu acquisition. We intend to thoughtfully and economically divest these stores over the long-term; however, as discussed below within Divestiture of Retail Operations, we have determined that we no longer expect to divest the Cub Foods business and the majority of the remaining Shoppers locations (collectively “Remaining Retail”) within one year. Accordingly, we will present the Remaining Retail business within continuing operations beginning in the fourth quarter of fiscal 2020. In our third quarter fiscal 2020 Condensed Consolidated Financial Statements included in this Quarterly Report, Remaining Retail is presented within Discontinued Operations, as the determination to change the plan of sale occurred subsequent to the end of the third quarter of fiscal 2020. As described below we entered into agreements to sell 13 retail stores and closed six additional stores. In the third quarter of fiscal 2020, we closed on the sale of 12 of these Shoppers stores. 
 
 We have been the primary distributor to Whole Foods Market for more than 20 years. We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025. 
 
 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: 
 
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 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; 
 
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 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; 
 
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 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; 
 
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 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; 
 
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 donating over six million pounds of food and essential items to food banks across the country; 
 
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 working with suppliers to prioritize the procurement and sale of high-volume stock-keeping units; 
 
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 implementing enhanced high food safety standards for customers and consumers; and 
 
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 reassuring the public that the supply chain remains intact, and that food and essential products are available and safe. 
 
 We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, as well as providing a broader array of products to our customers. As one of the largest wholesale grocery distributors in North America and in light of the continued expansion of our distribution network and build-out-the-store initiative, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which they operate. 
 
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 We experienced the following impacts from COVID-19 in the third quarter of fiscal 2020: 
 
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 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. 
 
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 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. 
 
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 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. 
 
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 Operating Earnings. Our business model drives sales leverage, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses. Despite incremental labor and operating costs, incremental volume through our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses. 
 
 Working Capital and Liquidity 
 
 Reflecting the initial impact from the COVID-19 pandemic, working capital was reduced in the third quarter of fiscal 2020 by $214.5 million , as compared to the second quarter of fiscal 2020, which provided a strong source of cash flows from operating activities in the quarter. The surge in demand during the quarter discussed above initially depleted inventory levels of continuing operations, which ended $109.2 million lower in the quarter compared to the second quarter of fiscal 2020. Our Accounts payable fluctuated greatly during the quarter related to swings in Inventories, net, ending the quarter $253.4 million higher as compared to the second quarter of fiscal 2020, as we worked to respond to our customers’ modified purchase patterns and prioritize the procurement of high-volume stock-keeping units. The elevated sales levels caused Accounts receivable, net to grow by $157.7 million as compared to the second quarter of fiscal 2020 due to higher sales. 
 
 In response to the potential impacts of the COVID-19 pandemic, we temporarily borrowed an additional $278.5 million on our $2.1 billion ABL Credit Facility, which we fully repaid in the third quarter of fiscal 2020. These borrowings were made as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. We made additional net payments of $371.2 million on the ABL Credit Facility in the third quarter of fiscal 2020 to further reduce our debt. Our unused credit under our ABL Credit Facility increased $329.7 million as of the end of the third quarter of fiscal 2020 compared to the second quarter of fiscal 2020. 
 
 Outlook 
 
 We expect to continue to benefit from 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 Deflation and 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 filing of our federal income tax return from May 2020 to July 2020, and allows remittances of employer FICA payments previously due March 2020 to December 2020 to be deferred until December 2021 and December 2022. Prior to the application of the CARES Act, we had a deferred tax asset related to $203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely. The CARES Act provides us the ability to carry these losses back at a 35% federal tax rate during the carry back periods, as opposed to the current 21% federal tax rate. This resulted in a tax benefit of approximately $28.4 million , which we recorded in the third quarter of fiscal 2020. This estimated tax benefit will be finalized in the fourth quarter of fiscal 2020 as the 2019 tax return due July 2020 is finalized. The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the third quarter of fiscal 2020. 
 
 Distribution Center Network 
 
 Network Optimization and Construction 
 
 Within the Pacific Northwest, we are transferring the volume of five distribution centers and the related supporting off-site storage facilities into two distribution centers. This transition and operational consolidation is expected to be completed during fiscal 2020, after which we expect to achieve synergies and cost savings by eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses. The optimization of the Pacific Northwest distribution network will also help deliver meaningful synergies contemplated in the 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 the Centralia, WA distribution center began in the fourth quarter of fiscal 2019 and is expected to be completed in the fourth quarter of fiscal 2020. We ceased operations in our Tacoma, WA, Auburn, WA and Auburn, CA distribution centers and have transitioned to 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 are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network. 
 
 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 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 agreeing to pay approximately $156.9 million for the facility, subject to finalization. We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property from current rents, which we expect would occur on or before June 2022. 
 
 Distribution Center Sales 
 
 In the fourth quarter of fiscal 2019, we entered into an agreement to sell our Tacoma, WA distribution center related to our Pacific Northwest consolidation strategy. We closed on the sale in the fourth quarter of fiscal 2020 and received consideration of $42.3 million in the form of a $38.0 million note receivable and cash. As of May 2, 2020, the facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets . As we consolidate our distribution networks, we may sell additional owned facilities or exit leased facilities. 
 
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 In the third quarter of fiscal 2020, we sold a warehouse in Stockton, CA for $4.8 million. 
 
 Operating Efficiency 
 
 As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities, including acquired Supervalu facilities, onto one nationalized platform across the organization. We continue to be focused on the automation of our new or expanded distribution centers that are at different stages of construction and implementation. These steps and others are intended to promote operational efficiencies and improve operating expenses as a percentage of net sales. 
 
 Goodwill Impairment Review 
 
 During the first quarter of fiscal 2020, we changed our management structure and internal financial reporting to combine the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit into one U.S. Wholesale reporting unit, and experienced a further sustained decline in market capitalization and enterprise value. As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, we performed an interim quantitative impairment review of goodwill for the Wholesale reporting unit, which included a determination of the fair value of all reporting units. Based on this analysis, we determined that the carrying value of our U.S. Wholesale reporting unit exceeded its fair value by an amount that exceeded its assigned goodwill. As a result, we recorded a goodwill impairment charge of $421.5 million in the first quarter of fiscal 2020. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Condensed Consolidated Statements of Operations. The goodwill impairment charge reflects the impairment of all of the U.S. Wholesale’s reporting unit goodwill. 
 
 Quantitatively, the goodwill impairment was driven by the incorporation of the negative value associated with the legacy Supervalu wholesale reporting unit that was combined into the legacy Company Wholesale goodwill reporting unit and a decrease in estimated long-range cash flows required to be prepared as part of the quantitative assessment. The goodwill impairment review indicated that the estimated fair value of the Canada Wholesale reporting, which had goodwill of $9.9 million as of November 2, 2019, exceeded its carrying values by approximately 13% . Other continuing operations reporting units, which had goodwill of $9.9 million as of November 2, 2019, were substantially in excess of their carrying value. If circumstances indicate that the value of one of these other reporting units has decreased, we may be required to perform additional reviews of goodwill and incur additional impairment charges. The first quarter of fiscal 2020 quantitative goodwill impairment review included a reconciliation of all of the reporting units’ fair value to our market capitalization and enterprise value. 
 
 Divestiture of Retail Operations 
 
 We have announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition as soon as practical in an efficient and economic manner in order to focus on our core wholesale distribution business. We plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures. We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but we anticipate some reductions in supply volume will result from the divestiture of certain of these retail operations. Actions associated with retail divestitures and adjustments to our core 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 2020 include Cub Foods and 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. As of the acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to the acquisition date, we review the fair value less costs to sell of these disposal groups. 
 
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 In the second quarter of fiscal 2020, we entered into agreements to sell 13 Shoppers stores and decided to close six locations, and in the third quarter of fiscal 2020 we closed on the sale of 12 of these Shoppers stores. During fiscal 2020 year-to-date, in the aggregate between discontinued operations and continuing operations we incurred approximately $57.3 million of pre-tax aggregate costs and charges related to Shoppers, consisting of $33.3 million of lease asset impairment and property and equipment charges, including lease termination charges and charges related to impairment reviews, $14.2 million of operating losses and transaction costs during the period of wind-down, $8.7 million of severance costs and $1.1 million of losses on sale of assets. We may incur additional related costs and charges in the fourth quarter of fiscal 2020. In the second and third quarter of fiscal 2020, we reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values. 
 
 As of May 2, 2020, we held the remaining Shoppers stores and the Cub Foods business for sale. 
 
 Subsequent to the end of the third quarter of fiscal 2020, we determined it was no longer probable that a sale of Remaining Retail would occur within one year. As a result, we determined we no longer met the criteria to classify Remaining Retail as discontinued operations. In the fourth quarter of fiscal 2020, we expect to present Remaining Retail as held and used as part of continuing operations in our fiscal 2020 Consolidated Financial Statements based on this assessment. This expected change in financial statement presentation will require us to restate the presentation and classification of Remaining Retail within our Consolidated Financial Statements for fiscal 2019, which will result in Remaining Retail’s results of operations, financial position, cash flows and related disclosures being within continuing operations. 
 
 In the fourth quarter of fiscal 2020, we expect to record an adjustment to the carrying value of certain long-lived assets, including property and equipment and intangible assets, to record the assets at the carrying amount at the acquisition date adjusted for any depreciation expense that would have been recognized had the assets been held and used as part of continuing operations since their acquisition date. We estimate the adjustment to account for the incremental depreciation and amortization expense required to be recorded in the fourth quarter of fiscal 2020 will be approximately $48 million, which reflects an estimate of depreciation and amortization from the date of the Supervalu acquisition date through fiscal 2020 based on useful lives assigned to the underlying retail assets expected to be brought back into continuing operations. 
 
 As discussed in Note 3—Revenue Recognition , certain sales from the Wholesale segment to the retail discontinued operations are presented within Net sales. In order to present Remaining Retail’s results of operations within continuing operations these Wholesale sales to retail discontinued operations will be eliminated upon consolidation, resulting in no consolidated effect on Net sales resulting from our Wholesale segment. Remaining Retail’s net sales will be included in the Net sales line of the Consolidated Statement of Operations. As discussed in Note 3—Revenue Recognition , we currently hold Shoppers stores for sale without an expectation of a supply agreement and therefore no Wholesale sales were recorded within continuing operations. Within the restatement of our segment financial information, we expect to recognize Wholesale segment sales to the majority of the remainder of the Shoppers locations, which will be eliminated upon consolidation as described above. 
 
 Subsequent to the restatement of our Consolidated Financial Statements, we expect consolidated net sales, gross profit and operating expenses to increase compared to the current presentation, and expect our consolidated gross profit as a percentage of net sales to increase, which we expect will be partially offset by an increase in operating expenses as a percent of net sales. 
 
 We may incur additional costs and charges in the future related to the divesture of Remaining Retail if these locations are subsequently sold, indicators exist that the business 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, 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. If services are no longer provided under the Services Agreement after the initial term, we would lose the revenue associated with this agreement, and if we are not able to eliminate fixed or variable costs associated with servicing this agreement concurrent with the decline in revenue, we would incur a decrease in operating profit. 
 
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 Impact of Inflation or Deflation 
 
 We monitor product cost inflation and deflation and evaluate whether to absorb cost increases or decreases, or pass on pricing changes to our customers. We experienced a mix of inflation and deflation across product categories during the third quarter of fiscal 2020. In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation in the low single digits in the third quarter of fiscal 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 
 
 49 

 Table of contents 

 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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 Table of contents 

 (8) 
 Amounts represent store closure charges and costs, operational wind-down and inventory charges, and asset impairment charges related to discontinued operations. 
 
 RESULTS OF OPERATIONS 
 
 Our analysis within the Results of Operations section below of Net sales, Gross profit, Operating expenses and Operating loss is presented on a consolidated basis, as our single reportable segment principally comprises the entire operations of our business. The quantification of Supervalu’s impact on our results of operations below in our year-to-date analysis is presented to discuss the incremental impact of Supervalu, and provide analysis of our underlying business for year-over-year comparability purposes. Our analysis of Net sales is presented on a customer channel basis inclusive of all segments. References to legacy company results are presented to provide a comparative results analysis excluding the Supervalu acquired business impacts. 
 
 Net Sales 
 
 Our net sales by customer channel was as follows (in millions): 
 
 Net Sales for the 13-Week Period Ended 
 
 Net Sales for the 39-Week Period Ended 
 
 Customer Channel 
 
 May 2, 
2020 
 
 % of 
 Net Sales 
 
 April 27, 2019 (1) 
 
 % of 
 Net Sales 
 
 May 2, 2020 (1) 
 
 % of Net Sales 
 
 April 27, 2019 (1) 
 
 % of Net Sales 
 
 Supermarkets 
 
 $ 
 4,267 
 
 64 
 % 
 
 $ 
 3,701 
 
 62 
 % 
 
 $ 
 11,915 
 
 63 
 % 
 
 $ 
 8,559 
 
 57 
 % 
 
 Supernatural 
 
 1,279 
 
 19 
 % 
 
 1,102 
 
 18 
 % 
 
 3,600 
 
 19 
 % 
 
 3,229 
 
 21 
 % 
 
 Independents 
 
 684 
 
 10 
 % 
 
 707 
 
 12 
 % 
 
 1,983 
 
 11 
 % 
 
 2,041 
 
 14 
 % 
 
 Other 
 
 438 
 
 7 
 % 
 
 453 
 
 8 
 % 
 
 1,327 
 
 7 
 % 
 
 1,151 
 
 8 
 % 
 
 Total net sales 
 
 $ 
 6,668 
 
 100 
 % 
 
 $ 
 5,963 
 
 100 
 % 
 
 $ 
 18,825 
 
 100 
 % 
 
 $ 
 14,980 
 
 100 
 % 
 
 (1) 
 Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding adjustments to net sales by customer channel. 
 
 Third Quarter Variances 
 
 Our net sales for the third quarter of fiscal 2020 increased approximately $0.71 billion , or 11.8% , to $6.67 billion from $5.96 billion for the third quarter of fiscal 2019 . 
 
 Net sales to our supermarkets channel increased by approximately $566 million , or 15.3% , for the third quarter of fiscal 2020 , compared to the third quarter of fiscal 2019 , and represented approximately 64% and 62% of ou r total net sales for the third quarter of fiscal 2020 and 2019 , respectively. The increase in supermarkets net sales 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 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 2020 increased by approximately $177 million , or 16.1% , as compared to the third quarter of fiscal 2019 , and accounted for approximately 19% and 18% of our total net sales for the third quarter of fiscal 2020 and 2019 , respectively. The increase in net sales to Whole Foods Market is pri marily due to increased sales to existing locations and the economic impacts of the COVID-19 pandemic. Net sales within our supernatural channel do not include net sales to Amazon.com, Inc. in either the current period or the prior period, as these net sales are reported in our other ch annel. 
 
 Net sales to our independents channel decreased by approximately $23 million , or 3.3% , for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 , and represented approximately 10% and 12% of our total net sales for the third quarter of fiscal 2020 and 2019 , respectively. The decrease in independents net sales is primarily due to previously lost customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to the COVID-19 pandemic. 
 
 Net sales to our other channel decreased by approximately $15 million , or 3.3% , for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 , and represented approximately 7% and 8% of our 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 lower military sales from the resignation of certain business, partially offset by e-commerce sales growth. 
 
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 Table of contents 

 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 an increase of $2,813 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business and a net increase of $543 million , or 6.3% primarily driven by growth in sales to existing customers, including 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 2020 year-to-date increased by approximately $371 million , or 11.5% , as compared to the prior fiscal year’s comparable period, and accounted for approximately 19% and 21% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively. The increase in ne t sales to Whole Foods Market is primarily due to increased sales related to the COVID-19 pandemic, growth in new product categories, and increased sales to existing and new stores prior to the pandemic. 
 
 Net sales to our independents channel decreased by approximately $58 million , or 2.8% , during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date , and accounted for 11% and 14% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively. The decrease in independents net sales includes an increase of $24 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, with the remaining decrease of $82 million , or 4.0% being primarily due to lost customers, and lower sales from existing customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to the COVID-19 pandemic . 
 
 Net sales to our other channel increased by approximately $176 million , or 15.3% , during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date , and represented approximately 7% and 8% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively. The increase in other net sales is primarily due to an increase of $240 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, partially offset by a decrease of $64 million , or 5.6% , primarily due to lower sales to foodservice customers and lower military sales from the resignation of certain business, partially offset by e-commerce sales growth. 
 
 Cost of Sales and Gross Profit 
 
 Our gross profit increased $68.0 million , or 8.6% , to $856.5 million for the third quarter of fiscal 2020 , from $788.6 million for the third quarter of fiscal 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 . The decrease in gross margin rate was primarily driven by a mix shift toward lower margin conventional products and lower levels of vendor funding, partially offset by lower levels of inventory shrink. 
 
 Our gross profit increased $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 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 rates on conventional products and margin dilution from the faste r 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. 
 
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 Table of contents 

 Operating Expenses 
 
 Operating expenses increased $36.7 million , or 5.0% , to $774.4 million , or 11.61% of net sales, for the third quarter of fiscal 2020 compared to $737.7 million , or 12.37% of net sales, for the third quarter of fiscal 2019 . Operating expenses for the third quarter of fiscal 2020 included $1.4 million of surplus property depreciation expense. The decrease in Operating expenses as a percent of net sales was driven by leveraging fixed operating and administrative expenses and the benefit of synergy and integration efforts, 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. Total operating expenses also included share-based compensation expense of $12.8 million and $9.3 million for the third quarter of fiscal 2020 and 2019 , respectively. 
 
 Operating expenses increased $447.9 million , or 24.2% , to $2,300.6 million , or 12.22% of net sales, for fiscal 2020 year-to-date compared to $1,852.8 million , or 12.37% of net sales, for fiscal 2019 year-to-date . The increase in Operating expenses in fiscal 2020 year-to-date primarily reflects the incremental contribution from the Supervalu business for an additional 12 weeks when compared to fiscal 2019 year-to-date. Operating expenses for fiscal 2020 year-to-date included $26.8 million of customer bankruptcy bad debt expense. In addition, Operating expenses in fiscal 2020 year-to-date included $12.5 million of notes receivable charges, $6.6 million of surplus property depreciation expense and a $1 million legal reserve charge. The decrease in operating expenses, as a percent of net sales, was driven by fixed and variable expense leveraging and the mix impact from the acquired Supervalu business and lower employee costs, including the impact of cost synergies, partially offset by higher bad debt, occupancy and depreciation expenses. Total operating expenses also included share-based compensation expense of $21.3 million and $27.8 million for fiscal 2020 and 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 , which included $12.3 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, and $6.1 million of other acquisition and integration related costs and $1.1 million of closed property reserve charges related to the divestiture of retail banners. 
 
 Restructuring, acquisition and integration related expenses were $54.4 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 closed property reserve charges related to the divestiture of retail banners. 
 
 We may incur additional integration and restructuring costs through the remainder of fiscal 2020 related to our operational and administrative restructuring to achieve cost synergies and supply chain efficiencies of continuing operations. In addition, further restructuring costs may be incurred related to the divestiture of retail operations. 
 
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 Table of contents 

 Operating Income (Loss) 
 
 Reflecting the factors described above, operating income 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 . The operating income increase was primarily driven by an increase in gross profit and lower restructuring, acquisition and integration related expenses, partially offset by the goodwill impairment adjustment. 
 
 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 2020 includes $9.1 million and $33.5 million , respectively, of operating lease rent expense and $0.9 million and $4.6 million , respectively, of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases. In addition, continuing operations operating loss includes certain retail related overhead costs that are related to retail but are required to be presented within continuing operations. 
 
 Total Other Expense, Net 
 
 13-Week Period Ended 
 
 39-Week Period Ended 
 
 (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 
 
 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 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 on long-term debt in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 was primarily due to lower average amounts of outstanding debt and 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 driven by Supervalu acquisition financing executed near the end of the first quarter of fiscal 2019. 
 
 Interest on finance and direct financing leases primarily reflects lease obligations related to retail stores of discontinued operations acquired in the Supervalu acquisition, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases until settlement with the respective landlords. Beginning in the third quarter of fiscal 2020, interest on financing leases includes interest related to a distribution center for which we executed a purchase option with a delayed purchase provision. 
 
 54 

 Table of contents 

 Benefit for Income Taxes 
 
 The effective income tax rate for continuing operations was a benefit of 38.7% compared to a benefit of 32.4% on pre-tax income for the third quarter s of fiscal 2020 and 2019 , respectively. The change in the effective income tax rate for the third quarter of fiscal 2020 was primarily driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above. The tax provision included $26.9 million and $3.2 million of discrete tax benefit for the third quarter of fiscal 2020 and fiscal 2019 , respectively. The discrete tax benefit for the third quarter of fiscal 2020 was primarily due to a tax benefit of approximately $28.4 million driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above. 
 
 The effective income tax rate for continuing operations was a benefit of 21.5% compared to a benefit of 22.8% on pre-tax losses for fiscal 2020 year-to-date and fiscal 2019 year-to-date, respectively. The decrease in the effective income tax benefit rate was primarily driven by a tax benefit of approximately $8.3 million recorded in fiscal 2019 for the release of unrecognized tax positions that did not recur in fiscal 2020, as well as a goodwill impairment benefit of approximately $72.2 million recorded in fiscal 2019 compared to a goodwill impairment benefit of approximately $66.4 million recorded in fiscal 2020. In addition, effective income tax rate for fiscal 2020 includes a benefit of approximately $28.4 million related to revaluation of net operating loss deferred tax assets in connection with the CARES Act. 
 
 Income from Discontinued Operations, Net of Tax 
 
 The results of operations for the third quarter of fiscal 2020 reflect net sales of $667.0 million for which we recognized $187.8 million of gross profit and Income from discontinued operations, net of tax of $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 2020 year-to-date reflect net sales of $1,891.5 million for which we recognized $520.3 million of gross profit and Income from discontinued operations, net of tax of $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 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, 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 . 
 
 Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc. of $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 , primarily due to goodwill impairment charges. 
 
 As described in more detail in Note 12—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in the second quarter of fiscal 2020, we 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 2020 Equity Incentive Plan. 
 
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 As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2019 we issued approximately 2.0 million shares of common stock, of which 0.3 million shares were issued through the third quarter of fiscal 2019, to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year. During the third quarter of fiscal 2020, the Company issued approximately 1.1 million shares of common stock at an average market price of $11.12 per share for $12.2 million of cash. Proceeds from these issuances were used to fund settlement of replacement award obligations. As of May 2, 2020, we have approximately 1.7 million additional shares authorized for issuance and registered with the SEC in order to satisfy replacement award and option issuance obligations. 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 
 Highlights 
 
 • 
 Total liquidity as of May 2, 2020 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 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. 
 
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 Long-Term Debt 
 
 During fiscal 2020 year-to-date, we repaid a net $264.0 million under the ABL Credit Facility and repaid $87.4 million of scheduled maturities under the Term Loan Facility. Refer to Note 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 
 
 We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our overall strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. 
 
 As of May 2, 2020 , we had an aggregate of $2.09 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of our floating LIBOR based debt at fixed rates ranging from 0.454% to 2.959% , with maturities between 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 8—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. 
 
 From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges. As of May 2, 2020 , we had fixed price fuel contracts outstanding and 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 2020 year-to-date were $118.2 million , compared to $137.0 million for fiscal 2019 year-to-date, a decrease of $18.8 million . Fiscal 2020 year-to-date includes capital expenditures for distribution center expansions of approximately $33 million (primarily the Ridgefield, WA expansion), new distribution centers of approximately $21 million , and information technology, equipment and other. We estimate we will spend approximately $190 million for fiscal 2020. Fiscal 2020 capital spending is expected to include projects that optimize and expand our distribution network and our technology platform. Longer term, capital spending is expected to be at or below 1.0% of net sales. We expect to finance requirements with cash generated from operations and borrowings under our ABL Credit Facility. Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility. 
 
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 Cash Flow Information 
 
 The following summarizes our Condensed Consolidated Statements of Cash Flows : 
 
 39-Week Period Ended 
 
 (in thousands) 
 May 2, 2020 
 
 April 27, 2019 
 
 Change 
 
 Net cash provided by operating activities of continuing operations 
 $ 
 311,138 
 
 $ 
 6,374 
 
 $ 
 304,764 
 
 Net cash used in investing activities of continuing operations 
 (91,599 
 ) 
 
 (2,249,817 
 ) 
 
 2,158,218 
 
 Net cash (used in) provided by financing activities of continuing operations 
 (362,960 
 ) 
 
 2,140,607 
 
 (2,503,567 
 ) 
 
 Net cash flows from discontinued operations 
 157,185 
 
 120,627 
 
 36,558 
 
 Effect of exchange rate on cash 
 (290 
 ) 
 
 (226 
 ) 
 
 (64 
 ) 
 
 Net increase in cash and cash equivalents 
 13,474 
 
 17,565 
 
 (4,091 
 ) 
 
 Cash and cash equivalents, at beginning of period 
 45,263 
 
 23,315 
 
 21,948 
 
 Cash and cash equivalents at end of period 
 $ 
 58,737 
 
 $ 
 40,880 
 
 $ 
 17,857 
 
 The increase in net cash provided by operating activities of continuing operations was primarily due to higher amounts of cash provided in fiscal 2020 year-to-date related to working capital benefits from the sell through of inventory and collection of receivables faster than payments were made on accounts payable related to inventory. In fiscal 2019 year-to-date, we benefited from the reduction of the seasonally high levels of inventory and accounts receivable at the time of the Supervalu acquisition; however, these cash inflows were offset in part by decreases from cash payments made in fiscal 2019 year-to-date for assumed liabilities and the payment of transaction costs from the Supervalu acquisition, including transaction-related expenses, accrued employee costs, and restructuring costs associated with reductions in force. 
 
 The decrease in net cash used in investing activities of continuing operations was primarily due to $2,282.3 million of cash paid to purchase Supervalu in fiscal 2019 year-to-date, partially offset by $149.7 million of less cash received from the sale of property and equipment, primarily due to cash received from the sale and leaseback of two distribution centers in fiscal 2019 year-to-date, one of which was a short-term lease related to the exit of that facility. 
 
 The decrease in net cash provided by financing activities of continuing operations was primarily due to fiscal 2019 year-to-date borrowings on long-term debt to finance the Supervalu acquisition, and a net decrease in cash provided by the revolving credit facility borrowings of $1,270.9 million , which was driven by borrowings to finance the Supervalu acquisition in fiscal 2019 year-to-date, offset in part by net payments made in fiscal 2020 year-to-date from operating activities cash flows in excess of investing activities. These decreases in cash provided by financing activities, were offset in part by a decrease in payments of long-term debt and finance lease obligations of $625.0 million driven by the repayment of acquired senior notes in fiscal 2019 year-to-date and $62.6 million of payments for debt issuance costs in fiscal 2019 year-to-date. 
 
 Net cash flows from discontinued operations primarily include operating activity cash flow from operating income of the retail disposal groups. The increase in net cash flows from discontinued operations is primarily due to cash flows generated from operations in fiscal 2020 year-to-date as a result of higher earnings, inventory sell through and an increase in accounts payable, which was partially offset by higher proceeds received in fiscal 2019 year-to-date related to the sale of retail locations, including Hornbacher’s, than proceeds received in fiscal 2020 year-to-date, including proceeds from the sale of a former dedicated retail distribution center and retail stores. 
 
 Other 
 
 On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock. The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million . We did no t purchase any shares of our common stock in fiscal 2020 and 2019 year-to-date pursuant to the share repurchase program. As of May 2, 2020 , we have $175.8 million remaining authorized under the share repurchase program. We do not expect to purchase shares under the share repurchase program during fiscal 2020. 
 
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 Pension and Other Postretirement Benefit Obligations 
 
 In fiscal 2020, $8.3 million of minimum pension contributions are required to be made under the Unified Grocers, Inc. Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan under ERISA in fiscal 2020. We anticipate fiscal 2020 discretionary pension contributions and required minimum other postretirement benefit plan contributions to be approximately $0.0 million and $6.0 million , respectively. We fund our defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by us, including our external actuarial consultant, and additional contributions made at our discretion. We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums, or in order to achieve exemption from participant notices of underfunding. 
 
 Lump Sum Pension Settlement 
 
 On August 1, 2019, the Company amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window. On August 2, 2019, the Company sent plan participants lump sum settlement election offerings that committed the plan to pay certain deferred vested pension plan participants and retirees, who make such an election, a lump sum payment in exchange for their rights to receive ongoing payments from the plan. The lump sum payment amounts are equal to the present value of the participant’s pension benefits, and were made to certain former (i) retired associates and beneficiaries who are receiving their monthly pension benefit payment and (ii) terminated associates who are deferred vested in the plan, had not yet begun receiving monthly pension benefit payments and who are not eligible for any prior lump sum offerings under the plan. Benefit obligations associated with the lump sum offering have been incorporated into the funded status utilizing the actuarially determined lump sum payments based on estimated offer acceptances. The plan made aggregate lump sum settlement payments of $664.0 million to plan participants during the second quarter of fiscal 2020 . The lump sum settlement payments resulted in a non-cash pension settlement charge of $10.3 million in the second quarter of fiscal 2020 from the acceleration of a portion of the accumulated unrecognized actuarial loss, which was based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities. As a result of the settlement payments, the SUPERVALU Retirement Plan obligations were remeasured using a discount rate of 3.1 percent and the MP-2019 mortality improvement scale. This remeasurement resulted in a $1.5 million decrease to Accumulated other comprehensive loss. 
 
 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 party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. Refer to Note 17—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption Guarantees and Contingent Liabilities in Part I, Item I of this Quarterly Report on Form 10-Q for further information regarding our outstanding guarantees and contingent liabilities. 
 
 Multiemployer Benefit Plans 
 
 We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and unions that are parties to the collective bargaining agreement. Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us. 
 
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 Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code. 
 
 Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. We made contributions to these plans, and recognized continuing and discontinued operations expense, of $41 million in fiscal 2019. In fiscal 2020, we expect to contribute approximately $37 million related to continuing operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, it could trigger a partial or complete withdrawal that would require us to record a withdrawal liability. Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time. 
 
 We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future. 
 
 Refer to Note 14—Benefit Plans in Part II, Item 8 of the Annual Report on Form 10-K for additional information regarding the plans in which we participate. 
 
 Contractual Obligations 
 
 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 since the end of 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. 
 
 Critical Accounting Policies and Estimates 
 
 There were no material changes to our critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended August 3, 2019 . 
 
 Seasonality 
 
 Generally, we do not experience any material seasonality. However, our inventory levels and related demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events. In addition, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages and general economic conditions.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
UNITED NATURAL FOODS INC 10-Q

Item 2. Management’s Discussion and Analysis
