What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-09-29 compared with 2019-10-01 · 836 added, 722 removed, 1369 unchanged (53% of the section changed)

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We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc.

and subsidiaries (the Company) as of August 3, 2019 and July 28, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended August 3, 2019, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of August 1, 2020 and August 3, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended August 1, 2020, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of August 1, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 3, 2019 and July 28, 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended August 3, 2019, in conformity with U.S.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 1, 2020 and August 3, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended August 1, 2020, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 1, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired SUPERVALU Inc.

(Supervalu) on October 22, 2018, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of August 3, 2019, Supervalu’s internal control over financial reporting associated with total assets of $4.4 billion (of which $923 million represents goodwill and intangible assets included within the scope of management’s assessment) and total revenues of $10.5 billion included in the consolidated financial statements of the Company as of and for the year ended August 3, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Supervalu.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of August 4, 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases .

Basis for Opinions

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the acquisition-date fair value of customer relationship assets

As discussed in Note 4 to the consolidated financial statements, on October 22, 2018, the Company acquired Supervalu.

As a result of the transaction, the Company acquired customer relationship assets representing the generation of future income from Supervalu’s existing customers.

The acquisition-date fair value for the customer relationship assets was $810 million.

We identified the evaluation of the acquisition-date fair value of the Supervalu customer relationship assets as a critical audit matter due to the high degree of subjectivity in evaluating certain inputs in the discounted cash flow model used to determine the fair value of such assets.

The discounted cash flow model included the following internally-developed assumptions for which there was limited observable market information, and the calculated fair value of such assets was sensitive to possible changes to these key assumptions:

forecasted revenues attributable to existing customers

forecasted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for the acquired business

estimated annual customer attrition rates

estimated discount rate

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the development of the key assumptions listed above.

We performed sensitivity analyses to assess the impact of reasonably possible changes to forecasted revenues, EBITDA margins, annual customer attrition rates, and the discount rate.

We evaluated the forecasted revenue growth rates from existing customers by comparing the growth assumptions to those of the Company’s peers and industry reports.

In connection with our assessment of the forecasts used in the valuation, we compared (1) forecasted revenue, cost of sales, and operating expense margins to Supervalu’s historical actual results and (2) estimated annual customer attrition rates to historical Supervalu customer attrition data.

We tested the Company’s determined weighted average cost of capital (WACC), which was used to determine the discount rate, by comparing it to the WACC of comparable companies.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

evaluating the selected discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable companies, and

developing an estimate of the acquisition-date fair value of the customer relationship assets using the Company’s cash flow forecasts and the independently developed discount rate, and comparing the result to the Company’s fair value estimate.

Evaluation of the acquisition-date fair value of property, plant, and equipment assets

As discussed in Note 4 to the consolidated financial statements, the Supervalu acquisition resulted in the acquisition of property, plant, and equipment assets, which were recorded at fair value as of the acquisition date.

The acquisition-date fair value of the acquired property, plant, and equipment was $1.2 billion.

We identified the evaluation of the acquisition-date fair value of the Supervalu property, plant, and equipment assets as a critical audit matter.

A high degree of subjectivity was involved in evaluating the methodologies and certain key inputs and assumptions used to determine the acquisition-date fair values of those assets.

The Company used a combination of cost and market approaches to determine the estimated fair values of such assets, which were sensitive to changes in the following key inputs and internally-developed assumptions:

external transactions and other information related to comparable assets

estimated replacement or reproduction costs

estimated useful lives and salvage values

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the selection of the valuation methodologies used as well as the key inputs and assumptions listed above.

Assessment of the Company’s goodwill impairment

As discussed in Note 7 to the consolidated financial statements, during the first quarter of fiscal 2020, the Company changed its 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.

In addition, as a result of a further sustained decline in market capitalization and enterprise value, the Company determined that it was more likely than not that the fair value of its U.S.

Wholesale reporting unit was below its carrying amount.

Accordingly, the Company performed a quantitative impairment test of goodwill for its U.S.

Wholesale reporting unit utilizing the income and market approaches.

Based on the results of this test, the Company determined that the carrying value of its U.S.

Wholesale reporting unit exceeded its fair value by an amount that was greater than its assigned goodwill.

As a result, the Company recorded a goodwill impairment charge of $421.5 million, which represented all of the U.S.

Wholesale reporting unit’s goodwill.

We identified the assessment of the Company’s goodwill impairment as a critical audit matter because of the auditor judgment required to evaluate the assumptions used in the income approach to estimate the fair value of the Company’s U.S.

Wholesale reporting unit.

Specifically, assessing certain internally-developed assumptions, including cash flow forecasts, long-term revenue growth rates, and the discount rate required a high degree of auditor judgment as there was limited observable market information, and the determined reporting unit fair value was sensitive to changes to such assumptions.

Additionally, the audit effort associated with the evaluation of the discount rate required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the goodwill impairment process, including controls related to the development of the assumptions listed above.

We compared the Company’s previous forecasts to historical actual results to assess the Company’s ability to accurately forecast cash flows.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

evaluating the valuation methodologies selected

evaluating the relevance and reliability of the Company’s inputs and assumptions by comparing them to industry sources

developing estimates of the property, plant, and equipment fair values using independently obtained external information and comparing the results to the Company’s fair value estimates

performing sensitivity analyses to assess the impact of reasonably possible changes to the key inputs and assumptions on the acquisition-date fair values.

Evaluation of the Company’s second quarter goodwill impairment assessment

As discussed in Note 7 to the consolidated financial statements, due to a sustained decline in stock price through the second quarter, the Company determined that there was more than a 50% likelihood that the carrying value of the Supervalu wholesale reporting unit exceeded its fair value.

Accordingly, the Company performed an interim quantitative impairment test of goodwill for all of its reporting units.

Based on this analysis, the Company determined that the carrying value of its Supervalu wholesale reporting unit exceeded its fair value by an amount that was greater than its assigned goodwill.

As a result, the Company recorded a goodwill impairment charge of $292.8 million.

The goodwill impairment charge represented the impairment of all of the Supervalu wholesale reporting unit’s goodwill.

We identified the evaluation of the goodwill impairment assessment as a critical audit matter because of the high degree of subjectivity in evaluating the assumptions used to estimate the fair values of the Company’s reporting units.

The reporting unit fair values were used as the basis to determine whether goodwill impairment existed in one or more of the Company’s reporting units.

The fair value estimation methodologies used the following internally-developed assumptions for which there was limited observable market information, and the determined fair values were sensitive to changes to the following key assumptions:

forecasted reporting unit cash flows

estimated long-term growth rates

estimated discount rates

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s quantitative impairment test process, including controls related to the development of the key assumptions listed above.

We performed sensitivity analyses to assess the impact of reasonably possible changes to forecasted cash flows, long-term growth rates, and discount rates.

We evaluated the Company’s forecasted growth rates by comparing the growth assumptions to those of the Company’s peers and industry reports.

We compared the Company’s forecasted revenue, cost of sales, and operating expense margins to historical actual results to assess the Company’s ability to accurately forecast cash flows.

We tested the Company’s determined WACC, which was used to determine the discount rates, by comparing it to the WACC of comparable companies.

Evaluating the Company’s estimated long-term revenue growth rates by comparing those revenue growth rates to historical revenue growth rates of the Company’s peers and industry reports;

Performing a sensitivity analysis to assess the impact of possible changes to the discount rate;

Evaluating the discount rate used by the Company by comparing it to discount rate ranges that were developed using publicly available market data;

Developing an estimated range of indicated values for the U.S.

Wholesale reporting unit, using the Company’s cash flow forecasts and the range of discount rates developed using publicly available market data, and comparing the results to the Company’s fair value estimate.

Evaluation of the Incremental Borrowing Rates Used to Calculate Operating Lease Assets and Liabilities upon the Adoption of ASC Topic 842, Leases

As discussed in Note 2 to the consolidated financial statements, the Company recognized $1.1 billion of operating lease assets and $1.1 billion of operating lease liabilities upon adoption of ASC Topic 842, Leases on August 4, 2019.

To calculate the present value of the lease payments used to record the operating lease assets and liabilities upon transition, the Company estimated incremental borrowing rates based on the remaining lease terms as of the adoption date.

The Company’s estimated incremental borrowing rates reflect considerations such as the Company’s credit rating, market rates for the Company’s outstanding collateralized debt, interpolations of rates for leases with terms that differ from the Company’s outstanding debt, and market rates for debt of companies with similar credit ratings.

We identified the evaluation of the incremental borrowing rates used to calculate operating lease assets and liabilities recorded upon the adoption of ASC Topic 842 as a critical audit matter.

There was a high degree of auditor judgment in evaluating the Company’s estimated incremental borrowing rates due to the sensitivity of the present value of the lease payments to possible changes in the estimated incremental borrowing rates.

Additionally, the audit effort associated with the evaluation of the incremental borrowing rates required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s ASC Topic 842 adoption process, including a control related to the Company’s determination of the incremental borrowing rates utilized in the calculation of operating lease assets and liabilities.

In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:

evaluating the discount rates used by the Company by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable companies, and

developing an estimate of fair value for each of the Company’s reporting units, using the Company’s cash flow forecasts and the independently developed discount rates, and comparing the results to the Company’s fair value estimates.

Evaluating the Company’s methodology used to estimate the incremental borrowing rates;

Assessing the Company’s use of its credit rating and market rates for its outstanding collateralized debt as of the adoption date as inputs to estimate the incremental borrowing rates;

Developing estimates of the incremental borrowing rates using a combination of a benchmark yield curve and market rates for the Company’s outstanding collateralized debt and compared these estimates to the Company’s estimated incremental borrowing rates.

Assessment of the value of the defined benefit pension obligation

As discussed in Note 14 to the consolidated financial statements, the Company sponsors defined benefit pension plans, acquired in connection with the Supervalu acquisition, covering primarily former Supervalu employees who meet certain eligibility requirements.

The fair value of the defined benefit pension obligation at the date of acquisition and at year end was $2.5 billion and $2.7 billion, respectively, partially offset by plan assets totaling $2.3 billion and $2.5 billion as of the acquisition date and year end, respectively.

The determination of the Company’s defined benefit pension obligation with respect to these plans is dependent, in part, on the selection of certain actuarial assumptions, including the discount rate used.

As discussed in Note 14 to the consolidated financial statements, the Company sponsors defined benefit pension plans, covering primarily former Supervalu employees who meet certain eligibility requirements.

The fair value of the defined benefit pension obligation at year-end was $2.4 billion, partially offset by plan assets totaling $2.0 billion.

We identified the assessment of the value of the defined benefit pension obligation as a critical audit matter because of the subjectivity in evaluating the discount rates used, and the impact small changes in this assumption would have on the measurement of the defined benefit pension obligation.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s defined benefit pension obligation process, including controls related to the development of the discount rates used.

We compared the methodology used in the current year to develop the discount rates to the methodology used by Supervalu in periods prior to the acquisition.

In addition, we involved actuarial professionals with specialized skills and knowledge, who assisted in the evaluation of the Company’s discount rates, by understanding the methodology used by the Company and assessing the selected discount rates against publicly available discount rate benchmark information.

Additionally, the audit effort associated with the evaluation of the discount rates required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s defined benefit pension obligation process, including a control related to the development of the discount rates used.

We compared the methodology used in the current year to develop the discount rates to the methodology used in prior periods.

In addition, we involved an actuarial professional with specialized skills and knowledge, who assisted in the evaluation of the Company’s discount rates, by evaluating the methodology utilized by the Company and assessing the selected discount rates against publicly available discount rate benchmark information.

We have served as the Company’s auditor since 1993.

Providence, Rhode Island

October 1, 2019

September 29, 2020

UNITED NATURAL FOODS, INC.

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Property and equipment, net

Operating lease assets

Intangible assets, net

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Accrued compensation and benefits

Current portion of long-term debt and capital lease obligations

Current portion of operating lease liabilities

Current portion of long-term debt and finance lease liabilities

Current liabilities of discontinued operations

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Long-term debt

Long-term capital lease obligations

Long-term operating lease liabilities

Long-term finance lease liabilities

Pension and other postretirement benefit obligations

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55,306 shares issued and 54,691 shares outstanding at August 1, 2020;

51,025 issued and 50,411 shares outstanding shares at July 28, 2018

53,501 shares issued and 52,886 shares outstanding at August 3, 2019

Additional paid-in capital

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Fiscal Year Ended

August 1, 2020

August 3, 2019

July 28, 2018

Cost of sales

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Restructuring, acquisition and integration related expenses

Loss (gain) on sale of assets

Operating (loss) income

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Net (loss) income from continuing operations

Income from discontinued operations, net of tax

(Loss) income from discontinued operations, net of tax

Net (loss) income including noncontrolling interests

Less net (income) loss attributable to noncontrolling interests

Less net income attributable to noncontrolling interests

Net (loss) income attributable to United Natural Foods, Inc.

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Discontinued operations

Basic (loss) income per share

Basic (loss) earnings per share

Diluted (loss) earnings per share:

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Discontinued operations

Diluted (loss) income per share

Diluted (loss) earnings per share

Weighted average shares outstanding:

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August 1, 2020

July 28, 2018

August 3, 2019

July 28, 2018

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Foreign currency translation adjustments

Recognition of other cash flow derivatives, net of tax

Total other comprehensive (loss) income

Less comprehensive (income) loss attributable to noncontrolling interests

Less comprehensive income attributable to noncontrolling interests

Total comprehensive (loss) income attributable to United Natural Foods, Inc.

Amounts are net of tax (benefit) expense of $(11.3) million , $0 million and $0 million for the fiscal years ended August 3, 2019 , July 28, 2018 and July 29, 2017 , respectively.

Amounts are net of tax (benefit) expense of $(22.5) million , $1.5 million and 3.2 million for the fiscal years ended August 3, 2019 , July 28, 2018 and July 29, 2017 , respectively.

Amounts are net of tax (benefit) expense of $( 29.3 ) million , $( 11.3 ) million and $ 0.0 million for the fiscal years ended August 1, 2020 , August 3, 2019 and July 28, 2018 , respectively.

Amounts are net of tax (benefit) expense of $( 16.4 ) million , $( 22.5 ) million and 1.5 million for the fiscal years ended August 1, 2020 , August 3, 2019 and July 28, 2018 , respectively.

See accompanying Notes to Consolidated Financial Statements.

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Balances at July 29, 2017

Restricted stock vestings and stock option exercises, net

Share-based compensation

Tax deficit associated with stock plans

Other comprehensive income

Balances at July 29, 2017

Cumulative effect of change in accounting principle

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Distributions to noncontrolling interests

Proceeds from issuance of common stock, net

Net (loss) income

Balances at August 3, 2019

Cumulative effect of change in accounting principle

Restricted stock vestings and stock option exercises, net

Share-based compensation

Other comprehensive loss

Distributions to noncontrolling interests

Proceeds from the issuance of common stock, net

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August 1, 2020

July 28, 2018

August 3, 2019

July 28, 2018

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Net (loss) income including noncontrolling interests

Income from discontinued operations, net of tax

(Loss) income from discontinued operations, net of tax

Net (loss) income from continuing operations

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Share-based compensation

Loss on disposal of assets

Gain associated with disposal of investment

Loss (gain) on disposal of assets

Closed property and other restructuring charges

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Change in accounting estimate

Provision for doubtful accounts

Loss on debt extinguishment

Excess tax deficit from share-based payment arrangements

Non-cash interest expense

Provision for doubtful accounts, net

Non-cash interest expense and other adjustments

Changes in operating assets and liabilities, net of acquired businesses

Accounts receivable

Accounts and notes receivable

Prepaid expenses and other assets

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Net cash provided by operating activities of continuing operations

Net cash provided by operating activities of discontinued operations

Net cash provided by (used in) operating activities of discontinued operations

Net cash provided by operating activities

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Proceeds from dispositions of assets

Proceeds from disposal of investments

Payments for long-term investment

Payment of company owned life insurance premiums

Net cash used in investing activities of continuing operations

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Repayments of borrowings under revolving credit line

Repayments of long-term debt and capital lease obligations

Repayments of long-term debt and finance leases

Repayments of other loans

Repurchase of common stock

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Payment of employee restricted stock tax withholdings

Excess tax deficit from share-based payment arrangements

Payments for debt issuance costs

Net cash provided by (used in) financing activities of continuing operations

Net cash used in by financing activities of discontinued operations

Net cash provided by (used in) financing activities

Distributions to noncontrolling interests

Net cash (used in) provided by financing activities

EFFECT OF EXCHANGE RATE ON CASH

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET INCREASE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents, at beginning of period

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cash and cash equivalents of discontinued operations

Cash and cash equivalents of continuing operations

Cash and cash equivalents

Fiscal Year Ended

(In thousands)

August 1, 2020

August 3, 2019

July 28, 2018

Supplemental disclosures of cash flow information:

Cash paid for interest

Cash paid for federal and state income taxes, net of refunds

Cash (refunds) payments for federal and state income taxes, net

See accompanying Notes to Consolidated Financial Statements.

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United Natural Foods, Inc.

and its subsidiaries (the “Company”, “we”, “us”, or “our”) is 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 .

On October 22, 2018, we acquired all of the outstanding equity securities of SUPERVALU INC.

(“Supervalu”);

refer to Note 4—Acquisitions for further information.

The Company sells its products primarily throughout the United States and Canada.

Our fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks.

References to fiscal 2019 or 2019, as presented in tabular disclosure, fiscal 2018 or 2018, and fiscal 2017 or 2017, relate to the 53-week, 52-week and 52-week fiscal periods ended August 3, 2019 , July 28, 2018 and July 29, 2017 , respectively.

The Company’s fiscal years end on the Saturday closest to July 31 and contain either 52 or 53 weeks.

References to fiscal 2020 , fiscal 2019 and fiscal 2018 , or 2020 , 2019 and 2018 , as presented in tabular disclosure, relate to the 52 -week, 53 -week and 52 -week fiscal periods ended August 1, 2020 , August 3, 2019 and July 28, 2018 , respectively.

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly and majority-owned subsidiaries.

The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries.

The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

All significant intercompany transactions and balances have been eliminated in consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply discussed further in Note 3—Revenue Recognition .

All significant intercompany transactions and balances have been eliminated in consolidation, with the exception of sales transactions from continuing to discontinued operations for wholesale supply to a retail disposal group that was sold with a supply agreement in fiscal 2019 discussed further in Note 3—Revenue Recognition .

Unless otherwise indicated, references to the Consolidated Statements of Operations and the Consolidated Balance Sheets in the Notes to the Consolidated Financial Statements exclude all amounts related to discontinued operations.

Refer to Note 19—Discontinued Operations for additional information, including accounting policies, about the Company’s discontinued operations.

Discontinued Operations

In the fourth quarter of fiscal 2020, the Company determined it no longer met the held for sale criterion for a probable sale to be completed within 12 months for the Cub Foods business and the majority of the remaining Shoppers locations (collectively “Retail”).

As a result, the Company revised its Consolidated Financial Statements to reclassify Retail from discontinued operations to continuing operations.

This change in financial statement presentation resulted in the inclusion of Retail’s results of operations, financial position, cash flows and related disclosures within continuing operations.

Prior periods presented in the Consolidated Financial Statements have been conformed to the current period presentation, resulting in Retail being presented in continuing operations for all periods.

Retail was acquired as part of SUPERVALU INC.

(“Supervalu”) acquisition in the first quarter of fiscal 2019.

The Company may incur additional costs and charges in the future related to the Retail business if these locations are subsequently sold, if indicators exist that the business may be impaired while classified as held and used, or if the Company incurs additional wind-down or employee-related costs or charges.

Inventory Costing Correction

As discussed in further detail in Note 20—Immaterial Correction to Prior Period Financial Statements , the Company has revised its prior period financial statements to correct immaterial misstatements related to the carrying value of inventory to include income received under certain vendor funds programs.

Net sales consist primarily of sales of conventional, natural, organic, specialty, and produce grocery and non-food products, and provision of support services to retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue .

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Cost of Sales

Cost of sales consist primarily of amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, the Company’s distribution facilities, offset by consideration received from suppliers in connection with the purchase, transportation, or promotion of the suppliers’ products.

Cost of sales consist primarily of amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, the Company’s distribution facilities and retail stores, offset by consideration received from suppliers in connection with the purchase, transportation, or promotion of the suppliers’ products.

Cost of sales also includes production and labor costs for the Company’s Woodstock Farms manufacturing business.

Retail store advertising expenses and Wholesale advertising services provided to Wholesale customers are components of Cost of sales and are expensed as incurred.

The Company receives allowances and credits from vendors for buying activities, such as volume incentives, promotional allowances directed by the Company to customers, cash discounts, and new product introductions (collectively referred to as “vendor funds”), which are typically based on contractual arrangements covering a period of one year or less.

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However, when attaining the milestone is not probable, the payment or rebate is recognized only when and if the milestone is achieved.

Any upfront payments received for multi-period contracts are generally deferred and

amortized over the life of the contracts.

Any upfront payments received for multi-period contracts are generally deferred and amortized over the life of the contracts.

The majority of the vendor fund contracts have terms of less than a year, with a small proportion of the contracts longer than one year.

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Other expense (income), net includes interest on outstanding indebtedness, including direct financing and capital lease obligations, net periodic benefit plan income, excluding service costs, interest income and miscellaneous income and expenses.

Restructuring, Acquisition and Integration Expenses

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

Integration expenses include incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Loss (Gain) on Sale of Assets

Loss (gain) on sale of assets includes loss (gain) on sale of assets and non-cash charges related to changes in plans of sales of discontinued operations.

In fiscal 2020, the Company recorded a non-cash charge of $ 50.0 million to reduce the carrying amount of Retail’s property and equipment, and intangible assets for any depreciation and amortization expense that would have been recognized had the assets been held and used as part of continuing operations since their acquisition date through the end of fiscal 2020, which was comprised of $ 38.8 million related to property and equipment, and $ 11.2 million related to intangible assets.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein.

Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based on amounts that differ from those estimates.

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

Actual results could differ from those estimates.

Change in Accounting Estimate

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Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group.

As a result of the change to the LIFO method, certain Company inventories, excluding Supervalu inventories, were reduced by $15.0 million for fiscal 2019, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Consolidated Statements of Operations for fiscal 2019.

As a result of the change to the LIFO method, the value of certain Company inventories, excluding Supervalu inventories, were reduced by $ 15.0 million for fiscal 2019, which resulted in increases to Cost of sales and Loss from continuing operations before income taxes of the same amount in the Consolidated Statements of Operations for fiscal 2019.

This resulted in an increase to Net loss from continuing operations of $ 11.0 million , or $ 0.21 per diluted share, for fiscal 2019.

The Company has not retrospectively adjusted amounts prior to fiscal 2019 in its Consolidated Balance Sheets or Consolidated Statements of Operations, as applying the change in accounting policy prior to fiscal 2019 is not practicable due to data limitations of inventory costs in prior periods.

Change in Book Overdraft Accounting Policy

In the first quarter of fiscal 2019, the Company changed its accounting policy for reporting book overdrafts in the Consolidated Statements of Cash Flows.

Amounts previously reported as increase in bank overdrafts on the Consolidated Statements of Cash Flows represent outstanding checks issued but not yet presented to financial institutions for disbursement in excess of positive balances held at financial institutions, and as such represent book overdrafts.

Book overdrafts are included within the Accounts payable balance in the Consolidated Balance Sheets.

The change in these book overdraft amounts were previously reported as financing activities cash flows on the Consolidated Statements of Cash Flows, on a line item titled Increase in bank overdrafts.

The Company has elected a preferable accounting policy presentation for classifying the change in book overdrafts from financing activities to operating activities, which resulted in the reclassification of prior period amounts to conform to the current period presentation.

The Company concluded that operating activity classification is preferable, as book overdrafts do not result in financial institution borrowing or repayment activity at the end of respective reporting periods and the presentation presents a more accurate disclosure of its cash generation and consumption activities.

The reclassification resulted in decreases to cash provided by operating activities of $0.4 million and $7.4 million , and corresponding decreases in cash used in financing activities for fiscal 2018 and 2017, respectively.

The reclassification had no effect on previously reported Consolidated Balance Sheets, Consolidated Statements of Operations or Consolidated Statements of Stockholders’ Equity.

Reclassifications

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

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

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

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

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

the reclassification of residual financing obligations of $7.4 million associated with build-to-suit properties for which the Company is not obligated to fund unless it is obligated under a future extension of a lease agreement from the Long-term capital lease obligations to Other long-term liabilities.

Reclassifications of prior year amounts within the Consolidated Statements of Operations include:

the reclassification of goodwill and asset impairment charges of $11.2 million from a line item previously titled Restructuring and asset impairment charges to a new line item titled Goodwill and asset impairment charges ;

the reclassification of acquisition costs previously included within Operating expenses of $5.0 million to a new line item titled Restructuring, acquisition and integration related expenses ;

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

Within the Consolidated Statements of Cash Flows, prior year amounts for asset impairment charges have been reclassified within operating activities in a line item titled Goodwill and asset impairment charges.

Within the Consolidated Statements of Cash Flows certain immaterial amounts have been reclassified to conform with current year presentation:

prior year amounts for Loss on debt extinguishment, Gain associated with disposal of investments and Non-cash interest expense have been combined into a line item titled Non-cash interest expense and other adjustments;

a portion of prior year amounts for Loss (gain) on disposal of assets have been reclassified to Closed property and other restructuring charges;

prior year amounts for Proceeds from disposal of investments have been combined into a line titled Proceeds from dispositions of assets;

and prior year amounts for Payments for long-term investment and Payment of company owned life insurance premiums have been combined into a line titled Other.

These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

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Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Our banking arrangements allow us to fund outstanding checks when presented to the financial institution for payment.

We fund all intraday bank balance overdrafts during the same business day.

The Company’s banking arrangements allow it to fund outstanding checks when presented to the financial institution for payment.

The Company funds all intraday bank balance overdrafts during the same business day.

Checks outstanding in excess of bank balances create book overdrafts, which are recorded in Accounts payable in the Consolidated Balance Sheets and are reflected as an operating activity in the Consolidated Statements of Cash Flows.

As of August 3, 2019 and July 28, 2018, we had net book overdrafts of $236.9 million and $115.8 million , respectively.

As of August 1, 2020 and August 3, 2019 , the Company had net book overdrafts of $ 267.8 million and $ 236.9 million , respectively.

Accounts Receivable, Net

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a failure to pay results in held or canceled orders.

Inventories consist primarily of finished goods and are valued at the lower of cost or net realizable value, with cost primarily being determined using the LIFO method, and under FIFO for inventories such as perishables and other inventory.

Inventories consist primarily of finished goods and are valued at the lower of cost or market.

Allowances for vendor funds received from suppliers are recorded as a reduction to Inventories and subsequently within Cost of sales upon the sale of the related products.

As of August 3, 2019, approximately $1.6 billion of inventory was valued under the LIFO method and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the FIFO method and primarily included meat, dairy and deli products.

Substantially all of the Company’s inventories consist of finished goods and a substantial portion of its inventories have a LIFO reserve applied.

We use the weighted average cost method, standard costs, the retail inventory method (“RIM”) or replacement cost method to value discrete inventory items at lower of cost or market under the FIFO method before application of any LIFO reserve.

Inventories are evaluated for shortages throughout each fiscal year based on actual physical counts in our distribution facilities and stores.

Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the end of each fiscal year.

As of August 1, 2020 and August 3, 2019 , approximately $ 1.8 billion and $ 1.6 billion , respectively, of inventory was valued under the LIFO method and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the FIFO method and primarily included meat, dairy and deli products.

Property and Equipment, Net

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Refer to Note 6—Property and Equipment for additional information.

Capital lease assets are stated at the lower of the present value of minimum lease payments at the inception of the lease or the fair value of the asset.

Property and equipment includes the non-cash expenditures made by the landlord for the Aurora, Colorado and Moreno Valley, California distribution centers, and office Corporate headquarters office space in Providence, Rhode Island.

Refer to Note 12—Leases for additional information.

The Company reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

The Company reviews long-lived assets, including amortizing intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

Cash flows expected to be generated by the related assets are estimated over the assets’ useful lives based on updated projections.

If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model or a market approach method.

The Company groups long-lived assets with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

If the evaluation indicates that the carrying amount of an asset group may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model or a market approach method.

The Company accounts for income taxes under the asset and liability method.

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discontinued operations, other comprehensive income).

We account for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the acquisition date at their respective estimated fair values.

Goodwill and Intangible Assets, Net

The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the acquisition date at their respective estimated fair values.

Goodwill represents the excess acquisition cost over the fair value of net assets acquired in a business combination.

Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill.

Goodwill reporting units at or one level below the operating segment level, and are evaluated for events or changes in circumstances indicating a goodwill reporting unit has changed.

Relative fair value allocations are performed when components of an aggregated goodwill reporting unit become separate reporting units.

Refer to Note 7—Goodwill and Intangible Assets for additional information regarding the Company’s fiscal 2019 impairment reviews, changes to its reporting units and other information.

Refer to Note 4—Acquisitions for further detail on the valuation of goodwill and intangible assets related to specific acquisitions.

Intangible Assets, Net

Indefinite-lived intangible assets include a branded product line asset group and a Tony’s Fine Foods (“Tony’s”) tradename.

Goodwill reporting units exist at one level below the operating segment level unless they are determined to be economically similar, and are evaluated for events or changes in circumstances indicating a goodwill reporting unit has changed.

Relative fair value allocations are performed when components of an aggregated goodwill reporting unit become separate reporting units or move from one reporting unit to another.

Goodwill is reviewed for impairment at least annually as of the first day of the fourth fiscal quarter and if events occur or circumstances change that would indicate that the value of the asset may be impaired.

The Company performs qualitative assessments of goodwill for impairment.

If the qualitative assessment indicates it is more likely than not that a reporting unit’s fair value is less than the carrying value, or the Company bypasses the qualitative assessment, a quantitative assessment would be performed.

The Company estimates the fair values of its reporting units in a quantitative assessment by using the market approach, applying a multiple of earnings based on guidelines for publicly traded companies, and/or the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit.

Refer to Note 7—Goodwill and Intangible Assets for additional information regarding the Company’s fiscal 2020 and 2019 impairment reviews, changes to its reporting units and other information.

Refer to Note 4—Acquisitions for further detail on the valuation of goodwill and intangible assets related to the Supervalu acquisition.

Indefinite-lived intangible assets include a branded product line and a Tony’s Fine Foods (“Tony’s”) tradename.

Indefinite-lived intangible assets are reviewed for impairment at least annually as of the first day of the fourth fiscal quarter and if events occur or circumstances change that would indicate that the value of the asset may be impaired.

The Company performed a qualitative review of its indefinite lived intangible assets in fiscal 2019, which indicated a quantitative assessment was not required.

The Company performed qualitative reviews of its indefinite lived intangible assets in fiscal 2020 and 2019, which indicated a quantitative assessment was not required.

During fiscal 2018, the Company performed its annual qualitative assessment of its indefinite lived intangible assets and determined that a quantitative analysis was required for the Tony’s tradename.

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Refer to Note 7—Goodwill and Intangible Assets and Note 4—Acquisitions for additional information on the Company’s intangible assets.

The Company performs qualitative assessments of goodwill and indefinite lived intangibles assets for impairment.

If the qualitative assessment indicates it is more likely than not that a reporting unit’s or intangible asset’s fair value is less than the carrying value, or the Company bypasses the qualitative assessment, a quantitative assessment would be performed.

The Company reviews long-lived assets, including definite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

Cash flows expected to be generated by the related assets are estimated over the assets’ useful lives based on updated projections.

If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based using the income approach.

The Company groups long-lived assets with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

Intangible assets with definite lives are amortized on a straight-line basis over the following lives:

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The sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to closing.

The Company has long term investments in unconsolidated entities, which it accounts for using either the cost method or the equity method of accounting.

Investments in which the Company cannot exercise significant influence over the operating and financial policies of the investee are recorded at their historical cost.

Investments where the Company has the ability to exercise significant influence over the investee are accounted for using the equity method, with income or loss attributable to the Company from the investee adjusting the carrying value of the investment and recorded in the Company’s Consolidated Statements of Operations.

The carrying values of both cost and equity method investments were not material for fiscal 2019 or 2018 , either individually or in the aggregate, and are included within Other assets in the Consolidated Balance Sheets.

Investments in companies over which the Company has the ability to exercise significant influence are stated at cost plus our share of undistributed earnings or losses.

Investments in companies the Company does not exercise a significant influence in are stated at fair value, unless a fair value is not determinable and then are carried at cost, plus or minus changes resulting from observable changes in the price of the same or similar investments.

The carrying values of these investments were not material for fiscal 2020 or 2019 , either individually or in the aggregate, and are included within Other assets in the Consolidated Balance Sheets.

Income attributable to investments accounted for using the equity method is not material for fiscal 2020 , 2019 or 2018 , and is recorded in Other, net, within the Consolidated Statements of Operations.

On May 24, 2017, the Company sold its stake in Kicking Horse Coffee, a Canadian roaster and marketer of organic and fair trade coffee, which was accounted for using the cost method of accounting.

As a result of the sale, the Company recognized a pre-tax gain of $6.1 million in fiscal 2017, which is included in Other, net in the Consolidated Statements of Operations.

Fair Value of Financial Instruments

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The Company repurchased 614,660 shares of its common stock at an aggregate cost of $ 24.2 million in fiscal 2018.

The Company did no t repurchase any shares of its common stock in fiscal 2019.

Comprehensive Income (Loss)

The Company did no t repurchase any shares of its common stock in fiscal 2020 or fiscal 2019.

Comprehensive (Loss) Income

Comprehensive income (loss) is reported in the Consolidated Statements of Comprehensive Income.

Comprehensive income (loss) includes all changes in stockholders’ equity during the reporting period, other than those resulting from investments by and distributions to stockholders.

Our comprehensive income is calculated as Net (loss) income including noncontrolling interests , plus or minus adjustments for foreign currency translation related to the translation of UNFI Canada, Inc.

The Company’s comprehensive income is calculated as Net (loss) income including noncontrolling interests , plus or minus adjustments for foreign currency translation related to the translation of UNFI Canada, Inc.

(“UNFI Canada”) from the functional currency of Canadian dollars to U.S.

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The present value of such claims was calculated using discount rates ranging from 0.4 percent to 2.0 percent .

Changes in our insurance liabilities consisted of the following:

Changes in the Company’s insurance liabilities consisted of the following:

(in thousands)

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Ending balance

The current portion of self-insurance liabilities is included in Accrued expenses and other current liabilities and the long-term portion is included in Other long-term liabilities in the Consolidated Balance Sheets.

The insurance liabilities as of the end of the fiscal year are net of discounts of $6.6 million and $1.3 million as of August 3, 2019 and July 28, 2018 , respectively.

Amounts due from insurance companies were $11.1 million as of August 3, 2019 .

Operating Lease Expense

The current portion of the self-insurance liability was $ 34.3 million and $ 32.7 million as of August 1, 2020 and August 3, 2019 , respectively, and is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

The long-term portion was $ 66.5 million and $ 56.1 million as of August 1, 2020 and August 3, 2019 , respectively, and is included in Other long-term liabilities in the Consolidated Balance Sheets.

The insurance liabilities as of the end of the fiscal year are net of discounts of $ 6.5 million and $ 6.6 million as of August 1, 2020 and August 3, 2019 , respectively.

Amounts due from insurance companies were $ 12.1 million and $ 11.1 million as of August 1, 2020 and August 3, 2019 recorded in Prepaid expenses and other current assets and Other assets .

Leases, After ASC 842 Adoption

At the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating or finance lease at commencement.

Subsequent to commencement, lease classification is only reassessed upon a change to the expected lease term or contract modification.

Finance and operating lease assets represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the lease term.

Incremental borrowing rates are estimated based on the Company’s borrowing rate as of the lease commencement date to determine the present value of lease payments, when lease contracts do not provide a readily determinable implicit rate.

Incremental borrowing rates are determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk.

The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received.

The Company’s lease terms include option extension periods when it is reasonably certain that those options will be exercised.

Leases with an initial expected term of 12 months or less are not recorded in the consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term.

For all classes of underlying assets, the Company has elected to not separate fixed lease components from the fixed nonlease components.

The Company recognizes contractual obligations and receipts on a gross basis, such that the related lease obligation to the landlord is presented separately from the sublease created by the lease assignment to the assignee.

As a result, the Company continues to recognize on its Consolidated Balance Sheets the operating lease assets and liabilities, and finance lease assets and obligations, for assigned leases.

The Company records operating lease expense and income using the straight-line method within Operating expenses, and lease income on a straight-line method for leases with its customers within Net sales.

Finance lease expense is recognized as amortization expense within Operating expenses, and interest expense within Interest expense, net.

For operating leases with step rent provisions whereby the rental payments increase over the life of the lease, and for leases with rent-free periods, the Company recognizes expense and income on a straight-line basis over the expected lease term, based on the total minimum lease payments to be made or lease receipts expected to be received.

The Company is generally obligated for property tax, insurance and maintenance expenses related to leased properties, which often represent variable lease expenses.

For contractual obligations on properties where the Company remains the primary obligor upon assignment of the lease and does not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts, the Company continues to recognize rent expense and rent income within Operating expenses.

Operating and finance lease assets are reviewed for impairment based on an ongoing review of circumstances that indicate the assets may no longer be recoverable, such as closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations, and other factors.

The Company calculates operating and finance lease impairments using a discount rate to calculate the present value of estimated subtenant rentals that could be reasonably obtained for the property.

Lease impairment charges are recorded as a component of Restructuring, acquisition and integration related expenses in the Consolidated Statements of Operations.

The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on the Company’s experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions.

Impairments are recognized as a reduction of the carrying value of the right of use asset and finance lease assets.

Refer to Note 12—Leases for additional information.

Leases, Prior to Adoption of ASC 842

The Company records lease expense and income using the straight-line method within Operating expenses.

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As a result, the Company continues to recognize on its Consolidated Balance Sheets the carrying value of capital lease assets and obligations, and property and equipment where the Company determined it was the accounting owner pursuant to a lease agreement.

Reserves for Closed Properties

The Company maintains reserves for costs associated with closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations.

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Recently Adopted Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board (“FASB”) issued accounting standard update (“ASU”) 2017-07, Compensation-Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost .

ASU 2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in the statement of operations.

The Company adopted this guidance in the first quarter of fiscal 2019, and it presents non-service cost components of net periodic benefit income, as disclosed in Note 14—Benefit Plans , in an other income and expense line titled “Net periodic benefit income, excluding service cost” in the Consolidated Statements of Operations.

The service cost components are recorded within Operating expenses.

The adoption of this standard did not have an impact on the Company’s prior period Consolidated Statements of Operations, as all benefit plan costs for defined benefit pension and other postretirement benefit plans incurred are attributable to the Supervalu business, which was acquired in the first quarter of fiscal 2019.

In November 2016, the FASB issued ASU No.

2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash (a consensus of the FASB Emerging Issues Task Force).

This ASU clarifies the presentation of restricted cash on the statement of cash flows by requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amount generally described as restricted cash or restricted cash equivalents.

This ASU is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, with retrospective application required.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASC 842”), which provides new comprehensive lease accounting guidance that supersedes previous lease guidance.

The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

Criteria for distinguishing between finance and operating leases are substantially similar to criteria for distinguishing between capital and operating leases in previous lease guidance.

Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet.

In addition, this ASU expands the disclosure requirements of lease arrangements.

The Company adopted this standard in the first quarter of fiscal 2020 on August 4, 2019, the effective and initial application date, using the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption.

In addition, the Company elected the “package of three” practical expedients which allows companies to not reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs.

The impact of the adoption to the Company’s Consolidated Balance Sheets includes the recognition of operating lease liabilities with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases.

The difference between the amount of right-of-use assets and lease liabilities recognized is primarily related to adjustments to prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves.

In addition, the adoption of the standard resulted in the derecognition of existing property and equipment for certain properties that did not previously qualify for sale accounting because the Company was determined to be the accounting owner during the construction phase and did not qualify for sale-leaseback accounting upon completion of the construction.

At the transition date, the Company was constructing one facility, which was completed in the fourth quarter of fiscal 2020.

The Company exercised a purchase option for the facility in the third quarter of fiscal 2020, which resulted in the Company continuing to account for the facility as its accounting owner.

For properties where the Company was deemed the accounting owner during construction for which construction has been completed, the difference between the assets and liabilities derecognized, net of the deferred tax impact, was recorded as an adjustment to retained earnings.

Lessor accounting guidance remained largely unchanged from previous guidance.

Adoption of this standard did not have a material impact to the Company’s Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Equity or Consolidated Statements of Cash Flows.

The Company has revised its accounting policies, processes and controls, and systems as applicable to comply with the provisions and disclosure requirements of the standard.

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

Balance at August 3, 2019

Adjustments due to adoption of the new lease guidance

Adjusted Balance at August 4, 2019

Prepaid expenses and other current assets

Property and equipment, net

Operating lease assets

Intangible assets, net

Deferred income taxes

Total increase to assets

Liabilities and Stockholders’ Equity

Accrued expense and other current liabilities

Current portion of operating lease liabilities

Current portion of long-term debt and finance lease liabilities

Long-term operating lease liabilities

Long-term finance lease obligations

Other long-term liabilities

Total stockholders’ equity

Total increase to liabilities and stockholders’ equity

In October 2018, the FASB issued authoritative guidance under ASU No.

2018-16, Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes .

This ASU adds the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes.

This ASU is effective for public companies with interim and fiscal years beginning after December 15, 2018, which for the Company was the first quarter of fiscal year 2020.

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

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.

This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2018.

The Company adopted this ASU in the first quarter of fiscal 2020.

The adoption of this ASU had no impact to the Consolidated Statement of Cash Flows for fiscal 2019, as the Company did not have restricted cash in its beginning or ending amounts for those periods.

In October 2016, the FASB issued ASU No.

2016-16, Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.

The Company adopted the new standard in the first quarter of fiscal 2019, with no impact to its financial position, results of operations, or cash flows.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments , to address eight specific cash flow issues with the objective of reducing the existing diversity in practice.

The eight specific issues are (1) Debt Prepayment or Debt Extinguishment Costs;

(2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing;

(3) Contingent Consideration Payments Made after a Businesses Combination;

(4) Proceeds from the Settlement of Insurance Claims;

(5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies;

(6) Distributions Received from Equity Method Investees;

(7) Beneficial Interests in Securitization Transactions;

and (8) Separately Identifiable Cash and Application of the Predominance Principle.

This ASU is effective for public companies with interim periods and fiscal years beginning after December 15, 2017.

The Company adopted this standard in the first quarter of fiscal 2019, with no impact to its Consolidated Statements of Cash Flows.

In April 2015, the FASB issued ASU 2015-04, Compensation—Retirement Benefits (Topic 715):

Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, which allows employers with a fiscal year end that does not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end.

ASU 2015-04 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with prospective application required.

The Company adopted this ASU in fiscal 2019 and measures its defined benefit plan assets and obligations as of the month end closest to the applicable measurement date.

The adoption of this standard did not have an impact on the Company’s prior period financial statements, as all defined benefit pension and other postretirement benefit plans are attributable to the Supervalu business, which was acquired in the first quarter of fiscal 2019.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers, (Topic 606) , which has been updated by multiple amending ASUs (collectively “ASC 606”) and supersedes previous revenue recognition requirements (“ASC 605”).

The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Additionally, the ASU requires new, enhanced quantitative and qualitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The collective guidance is effective for public companies with annual periods, and interim periods within those periods, beginning after December 15, 2017.

The new standard permits either of the following adoption methods:

(i) a full retrospective application with restatement of each period presented in the financial statements with the option to elect certain practical expedients, or (ii) a retrospective application with the cumulative effect of adopting the guidance recognized as of the date of initial application (“modified retrospective method”).

The Company has adopted this new guidance in the first quarter of fiscal 2019 using the modified retrospective method, with no significant impact to our Consolidated Balance sheets, Consolidated Statements of Operations or Consolidated Statements of Cash flows.

The primary impact of adopting the new standard, contained within the wholesale distribution reportable segment, is related to the sale of certain private label products for which revenue is recognized over time under the new standard as opposed to at a point in time under ASC 605.

Private label products are specific to the customer to which they are sold, and are typically packaged with the customer’s logo or other products for which the customer has an exclusive right to sell.

The Company is contractually restricted from selling private label products with the customer’s logo or other exclusive products to other third-party customers.

As a result, the underlying good has no alternative use to the Company.

In some instances, the Company’s contracts also require the customer to purchase private label inventory held by the Company if the agreement is terminated, the customer discontinues selling the specific product, or the product is nearing its expiration date.

This gives the Company an enforceable right to payment for performance completed to date from certain customers, once it has procured private label product.

As a result, the Company now recognizes revenue from these product sales over time, as control is transferred to the customer, using a cost-incurred input measure of progress, as opposed to at a point in time, typically upon delivery, under ASC 605.

Control of these products is transferred to the customer upon incurrence of substantially all of the Company’s costs related to the product, and therefore the cost-incurred input method is determined to be a faithful depiction of the transfer of goods.

The effect of adopting this change resulted in an increase to Retained earnings of $0.3 million , which was recorded in the first quarter of fiscal 2019.

This change did not materially impact our Consolidated Statements of Operations for fiscal 2019.

Refer to Note 3—Revenue Recognition for further discussion of our adoption of the new standard.

Recently Issued Accounting Pronouncements

The adoption of this ASU had no impact to Accumulated other comprehensive loss or Retained earnings.

In April 2019, the FASB issued ASU No.

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Recognition and Measurement of Financial Assets and Financial Liabilities.

Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities are effective for the Company in the first quarter of fiscal 2020.

The remaining amendments within ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021.

Early adoption is permitted.

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

In October 2018, the FASB issued authoritative guidance under ASU No.

2018-16, Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes .

This ASU adds the Overnight Index Swap (OIS) rate based on Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes.

This ASU is effective for public companies with interim and fiscal years beginning after December 15, 2018, which for the Company is the first quarter of fiscal year 2020.

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

Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities have been adopted by the Company in the first quarter of fiscal 2020.

The Company adopted the relevant portions of this standard in the first quarter of fiscal 2020 with no impact to Accumulated other comprehensive loss or Retained earnings for fiscal 2020, as the Company did not have separately measured ineffectiveness related to its cash flow hedges.

The remaining amendments within ASU 2019-04 pertaining to ASC 326 are effective for fiscal years beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021 (see Topic 326 below).

In March 2020, the FASB issued ASU 2020-04, Reference rate reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform.

The Company adopted this ASU in the third quarter of fiscal 2020, which is effective on a prospective basis.

The adoption of this ASU did not have a material impact on the consolidated financial statements.

Optional expedients elected from Topic 848 are effective until superseded by subsequent documentation or December 31, 2022, whichever occurs first.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software:

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The Company has outstanding cloud computing arrangements and continues to incur costs that it believes would be required to be capitalized under ASU 2018-05.

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

The Company has reviewed the provisions of the new standard.

Adopting the standard will not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General:

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ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans.

The Company is required to adopt this guidance in the first quarter of fiscal 2021.

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

This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020, with early adoption permitted.

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

The Company is required to adopt this guidance in fiscal 2021.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in the earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance.

The Company is required to adopt this new guidance in the first quarter of fiscal 2021.

Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance:

ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, “Topic 326”).

Topic 326 changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, guarantees and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in the earlier recognition of credit losses.

The Company is required to adopt this new guidance in the first quarter of fiscal 2021 on a modified-retrospective basis as required by the standard by means of a cumulative-effect adjustment to the opening balance of retained earnings in the statements of financial position and stockholders’ equity as of the effective date.

The Company has reviewed the provisions of the new standard;

established revised processes and controls to estimate expected losses for trade and other receivables, guarantees and other instruments.

Adopting the standard will not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 eliminates certain exceptions to Topic 740’s general principles.

The amendments also improve consistent application and simplifies its application.

The Company is required to adopt this guidance in the first quarter of fiscal 2022.

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

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) , which provides new comprehensive lease accounting guidance that supersedes existing lease guidance.

Criteria for distinguishing leases between finance leases and operating leases are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance.

ASC 842 will require the Company to recognize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating lease payments.

Lease agreements with terms that are 12 months or less are permitted to be excluded

from the balance sheet.

In addition, this ASU expands the disclosure requirements of lease arrangements.

The Company is required to adopt this standard in the first quarter of fiscal 2020 on August 4, 2019, the effective and initial application date.

The Company will utilize the additional transition method under ASU 2018-11, which allows for a cumulative effect adjustment within retained earnings in the period of adoption.

The estimated impact of the adoption to the Company’s Consolidated Balance Sheets includes the recognition of operating lease liabilities of approximately $1.1 billion with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining lease payments for existing operating leases.

In addition, the adoption of the standard is expected to result in the derecognition of existing assets of approximately $140.0 million and liabilities of $130.0 million for certain sale-leaseback transactions that do not qualify for sale accounting, including build-to-suit arrangements for which construction is complete and the Company is leasing the constructed asset.

The difference between the assets and liabilities derecognized for these sale-leaseback transactions, net of the deferred tax impact, is expected to be recorded as an adjustment to retained earnings.

The difference between the amount of right-of-use assets and lease liabilities recognized upon the adoption of ASC 842 is primarily related to adjustments to existing prepaid rent, deferred rent, lease intangible assets/liabilities, and closed property reserves.

The Company does not expect a material impact on its lessor accounting from the adoption of this standard.

Adoption of this standard is not expected to have a material impact to the Company’s Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

The Company is in the process of revising its accounting policies, processes and controls, and systems as applicable to comply with the provisions and disclosure requirements of the standard.

NOTE 3—REVENUE RECOGNITION

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ASC 606 defines a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when or as the performance obligation is satisfied.

This footnote addresses the Company’s revenue recognition policies for its continuing operations only;

refer to Note 19—Discontinued Operations for additional information about our revenue recognition policies of discontinued operations.

This footnote addresses the Company’s revenue recognition policies.

Revenues from wholesale product sales are recognized when control is transferred, which typically happens upon either shipment or delivery, depending on the contract terms with the customer.

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The Company recognizes freight revenue related to transportation of its products when control of the product is transferred, which is typically upon delivery.

Revenues from Retail product sales are recognized at the point of sale upon customer check-out.

Advertising income earned from our franchisees that participate in our Retail advertising program are recognized as Net sales.

We recognize loyalty program expense in the form of fuel rewards as a reduction of Net sales.

Sales tax is excluded from Net sales.

Limited rights of return or product warranties exist with the Company’s customers due to the nature of the products it sells.

Limited rights of return exist with our customers due to the nature of the products we sell.

Product sales

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Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net Sales when the Company holds the business for sale with a supply agreement that it anticipates the sale of the retail banner to include upon its disposal.

The Company recorded $769.8 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in fiscal 2019 , which the Company expects will continue subsequent to the sale of certain retail banners.

The Company recorded $ 0.0 million and $ 12.4 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in fiscal 2020 and 2019 , respectively, related to retail disposal groups, which were sold with a supply agreement and were classified within discontinued operations prior to their disposal.

These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business.

No sales were recorded within continuing operations for retail banners that the Company expects to dispose of without a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $411.9 million in fiscal 2019 .

No net sales were recorded within continuing operations for retail banners that the Company disposed of and expects to dispose of without a supply agreement, as they have been eliminated upon consolidation within continuing operations and amounted to $ 125.0 million and $ 221.4 million in fiscal 2020 and 2019 , respectively.

Certain customer agreements provide for the right to license one or more of the Company’s tradenames, such as FESTIVAL FOODS®, SENTRY®, COUNTY MARKET®, NEWMARKET®, FOODLAND®, JUBILEE® and SUPERVALU®.

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Disaggregation of Revenues

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

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

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

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

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

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

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

Independent retailers , which include smaller size accounts and include single store and multiple store locations, but are not classified within Chains above or Other discussed below ;

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

Retail , which includes our Retail segment, including the Cub Foods business and the majority of the remaining Shoppers locations, excluding five Shoppers locations that are held for sale ;

Other , which includes international customers outside of Canada, foodservice, e-commerce, conventional military business and other sales .

The following tables detail the Company’s net sales for the periods presented by customer channel for each of its segments.

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Customer Channel

Independent retailers

(in millions)

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Customer Channel

Independent retailers

(in millions)

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Customer Channel

During fiscal 2019, the presentation of net sales by customer channel was adjusted to reflect changes in the classification of customer types as a result of a detailed review of customer channel definitions.

There was no impact to the Consolidated Statements of Operations as a result of revising the classification of customer types.

As a result of this adjustment, net sales to our supermarkets channel and to our other channel for fiscal 2018 decreased approximately $36 million and $58 million , respectively, compared to the previously reported amounts, while net sales to the independents channel for fiscal 2018 increased approximately $95 million compared to the previously reported amounts.

In addition, based on the consistent application of these impacts to fiscal 2017, net sales to our supermarkets channel and to our other channel for fiscal 2017 decreased approximately $16 million and

$47 million , respectively, compared to the previously reported amounts, while net sales to the independents channel for fiscal 2017 increased approximately $63 million compared to the previously reported amounts.

Independent retailers

Certain prior period amounts in the above tables have been reclassified to conform with the Company’s current sales channel presentation.

Whole Foods Market, Inc.

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The Company does not typically incur costs that are required to be capitalized in connection with obtaining a contract with a customer.

Expenses related to contract origination primarily relate to employee costs that the Company would incur regardless of whether the contract was obtained with the customer.

The Company typically does not have any performance obligations to deliver products under its contracts until its customers submit a purchase order, as it stands ready to deliver product upon receipt of a purchase order under contracts with its customers.

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The Company does not typically receive pre-payments from its customers.

Customer payments are due when control of goods or services are transferred to the customer and are typically not conditional on anything other than payment terms, which typically range less than 30 days.

Since no significant financing components exist between the period of time the Company transfers goods or services to the customer and when it receives payment for those goods or services, the Company has elected not to adjust its revenue recognition policy to recognize financing components.

Since no significant financing components exist between the period of time the Company transfers goods or services to the customer and when it receives payment for those goods or services, the Company generally does not adjust the transaction price to recognize a financing component.

Customer incentives are not considered contract assets as they are not generated through the transfer of goods or services to the customers.

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August 1, 2020

July 28, 2018

August 3, 2019

Customer accounts receivable

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Accounts receivable, net

Customer notes receivable, net, included within Prepaid expenses and other current assets

Notes receivable, net, included within Prepaid expenses and other current assets

Long-term notes receivable, net, included within Other assets

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NOTE 4—ACQUISITIONS

SUPERVALU INC.

On July 25, 2018, the Company entered into an agreement and plan of merger (the “Merger Agreement”) to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States.

Supervalu Acquisition

On July 25, 2018, the Company entered into an agreement and plan of merger to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States.

The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth.

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These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s consolidated financial statements on a preliminary basis at their estimated fair values as of the acquisition date.

The assets and liabilities of Supervalu were recorded in the Company’s Consolidated Financial Statements at their estimated fair values as of the acquisition date.

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu.

In the fourth quarter of the current fiscal year, the Company announced its plan to retain certain retail operations and as a result the acquired retail assets and assumed liabilities of Supervalu were recast to reflect the revised discontinued operations of the Company.

Refer to Note 19—Discontinued Operations for more information on discontinued operations.

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

As of August 3, 2019 , the Company is continuing its assessment of fair values of assets acquired and liabilities assumed.

There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations, and such changes may result in increases or decreases to the goodwill impairment charge recorded in fiscal 2019 due to changes in the opening balance sheet value of goodwill.

The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as the Company finalizes the valuations of certain tangible and intangible assets acquired, and liabilities assumed.

As of August 3, 2019 , the primary areas of the purchase price allocation that are not yet finalized relate to current and deferred income taxes and certain discontinued operations real and personal property.

Any potential fair value changes to these areas, would be assessed to determine whether identifiable intangible assets or the allocation of goodwill between reporting units should also be updated.

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

(in thousands)

Preliminary Acquisition Date Fair Values as of August 3, 2019

Final Acquisition Date Fair Values As Recast

Consideration:

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Total consideration

Preliminary fair value of assets acquired and liabilities assumed:

Fair value of assets acquired and liabilities assumed:

Cash and cash equivalents

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Accounts payable

Current portion of long-term debt and capital lease obligations

Current portion of long-term debt and finance lease obligations

Other current liabilities

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Long-term debt

Long-term capital lease obligations

Long-term finance lease obligations

Pension and other postretirement benefit obligations

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Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations.

Preliminary goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized.

The Company is currently evaluating the tax deductibility of the provisional goodwill amount, however it currently expects a substantial portion of its goodwill to be deductible for income tax purposes.

Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit.

No goodwill was attributed to the Retail reporting unit within discontinued operations.

Refer to Note 7—Goodwill and Intangible Assets for additional information regarding the assignment of goodwill to the Company’s reporting units.

During fiscal 2019, the Company updated its preliminary fair value estimates of its net assets primarily due to a review of the cash flows used to measure fair value of intangible assets, estimates of current and deferred income taxes, estimates of expected fair value, less costs to sell, of its retail disposal groups based on indications of value, and estimates of carrying values of other assets and liabilities.

The following table summarizes the identifiable intangible assets and liabilities recorded based on preliminary valuations.

Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized.

A substantial portion of goodwill is deductible for income tax purposes.

Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which in the first quarter of fiscal 2020 was reorganized into a single U.S.

Wholesale reporting unit, as discussed further in Note 7—Goodwill and Intangible Assets .

No goodwill was attributed to the Company’s Retail reporting unit or any other reporting units.

During the first quarter of fiscal 2020, the Company finalized its fair value estimates of the acquired net assets, which primarily related to immaterial changes to income taxes and property and equipment.

The fair value of assets acquired and liabilities assumed has been revised to present Retail within continuing operations.

The following table summarizes the identifiable intangible assets and liabilities recorded based on final valuations, as recast.

The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated.

The preliminary fair value of identifiable intangible assets acquired was determined using income approaches.

The fair value of identifiable intangible assets acquired was determined using income approaches.

Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.

Preliminary Acquisition Date Fair Values as of August 3, 2019

Final Acquisition Date Fair Values As Recast

(in thousands)

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

The accompanying Consolidated Statements of Operations include the results of operations of Supervalu since the October 22, 2018 acquisition date through August 3, 2019 , which consisted of net sales from continuing operations of $10.47 billion .

The accompanying Consolidated Statements of Operations for fiscal 2019 include the results of operations of Supervalu since the October 22, 2018 acquisition date through August 3, 2019, which consisted of net sales from continuing operations of $ 11.40 billion .

Supervalu’s net sales from discontinued operations for this time period are reported in Note 19—Discontinued Operations

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

(in thousands, except per share data)

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

(unaudited, in thousands, except per share data)

August 3, 2019

As Recast (1)

July 28, 2018

As Recast (2)

Net (loss) income from continuing operations

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

Gourmet Guru, Inc.

On August 10, 2016, the Company acquired all of the outstanding equity securities of Gourmet Guru, Inc.

(“Gourmet Guru”).

Gourmet Guru is a distributor and merchandiser of fresh and organic food focusing on new and emerging brands.

Total cash consideration related to this acquisition was approximately $10.0 million , subject to certain customary post-closing adjustments.

The fair value of identifiable intangible assets acquired was determined by using an income approach.

The identifiable intangible asset recorded based on a provisional valuation consisted of customer lists of $1.0 million , which are being amortized on a straight-line basis over an estimated useful life of approximately 2 years .

During the first quarter of fiscal 2018, in finalizing the purchase accounting related to the Gourmet Guru acquisition, the Company recorded an increase to goodwill of approximately $0.2 million with a decrease to prepaid expenses.

The goodwill of $10.3 million represents the future economic benefits expected to arise that could not be individually identified and separately recognized.

Cash paid for Gourmet Guru was financed through borrowings under the Company’s Former ABL Credit Facility .

The results of the acquired business’s operations have been included in the Consolidated Financial Statements since the applicable date of acquisition.

Operations for this acquisition have been combined with the Company’s existing wholesale distribution business and therefore results are not separable from the rest of the wholesale distribution business.

The Company has not furnished pro forma financial information relating to this acquisition as such information is not material to the Company’s financial results.

NOTE 5—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES

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restructuring expenses

Acquisition and integration costs

Closed property charges

Integration and acquisition costs

Closed property charges and costs

2018 Earth Origins Market restructuring expenses and loss on sale

2017 Cost Saving and Efficiency Initiatives

Closed Property Reserves

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

(in thousands)

Beginning balance

Acquired liabilities

Additions, accretion and changes in estimates, net

Ending balance

Reserves for closed property are included in the Consolidated Balance Sheets within Accrued expenses and other current liabilities and Other long-term liabilities.

Closed property charges recorded in fiscal 2019 primarily relate to 17 retail stores, including certain Shop ‘n Save and Shop ‘n Save East branded stores, and are net of estimated sublease assumptions.

In addition, 12 property leases including non-retail properties with reserves were terminated in fiscal 2019 .

2019 SUPERVALU INC.

As part of its acquisition of Supervalu and in order to achieve synergies from this combination, the Company has taken certain actions, which began during the first quarter of fiscal 2019 to:

(i) review its organizational structure and the strategic needs of the business going forward to identify and place talent with the appropriate skills, experience and qualifications to meet these needs;

and (ii) dispose of and exit certain Supervalu legacy retail operations, as efficiently and economically as possible in order to focus on the Company’s core wholesale distribution business.

Expenses related to this program primarily related to actions associated the Company’s core cost-structure, which resulted in headcount reductions and other costs and charges.

Incremental and identifiable expenses associated with integrating the legacy companies operations and information technology systems are reflected within integration costs, and asset impairments related to retail are included in Closed property charges and costs.

Integration and Acquisition Costs

Integration and acquisition costs for fiscal 2020 primarily relate to expenses associated with integrating and consolidating distribution centers and certain professional fees for distribution center network and administrative integration activities.

Fiscal 2019 acquisition and integration costs primarily reflect transaction expenses and professional fees related to the Supervalu acquisition.

Closed Property Charges and Costs

Prior to the adoption of ASC 842, reserves for closed property were included in the Consolidated Balance Sheets within Accrued expenses and other current liabilities and Other long-term liabilities.

Closed property charges recorded in fiscal 2019 primarily relate to retail stores and non-operating properties for which leases were terminated.

In fiscal 2020, subsequent to the adoption of ASC 842, closed property charges relate to lease and property and equipment asset impairments related to retail stores, lease terminations of non-operating stores and distribution center consolidation and are included within Restructuring, acquisition and integration related expenses .

Restructuring Programs

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

(in thousands)

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Restructuring program charge (1)

Acquired restructuring liability

Cash payments

Balances at July 28, 2018

Balances at August 3, 2019

Restructuring program charge

Acquired restructuring liability

Cash payments

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Includes $ 43.0 million of charges related to change-in-control expense to satisfy outstanding equity awards and severance related costs.

2019 SUPERVALU INC.

As part of its acquisition of Supervalu and in order to achieve synergies from this combination, the Company is taking certain actions, which began during the first quarter of fiscal 2019 and will continue through at least fiscal 2020 to:

and (ii) dispose of and exit the Supervalu legacy retail operations, as efficiently and economically as possible in order to focus on the Company’s core wholesale distribution business.

Actions associated with retail divestitures and adjustments to the Company’s core cost-structure for its wholesale food distribution business are expected to result in headcount reductions and other costs and charges.

2018 Earth Origins Market

During the second quarter of fiscal 2018 the Company made the decision to close three non-core, under-performing stores of its total twelve stores related to its Earth Origins Market Retail business.

Based on this decision, the Company recorded restructuring costs of $9.7 million during fiscal 2018.

In the fourth quarter of fiscal 2018, the Earth Origins Retail business was sold and the Company recorded a loss on disposition of assets of $2.7 million .

2017 Cost Saving and Efficiency Initiatives

During fiscal 2017, the Company announced a restructuring program in conjunction with various cost saving and efficiency initiatives, including the planned opening of a shared services center.

NOTE 6—PROPERTY AND EQUIPMENT

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Motor vehicles

Capital lease assets

Finance lease assets

Construction in progress

Property and equipment

Less accumulated depreciation and amortization

Property and equipment, net

The Company capitalized $3.3 million of interest during fiscal 2019 .

The Company did no t capitalize interest during fiscal 2018 and 2017 .

The Company capitalized $ 5.3 million and $ 3.3 million of interest during fiscal 2020 and 2019, respectively.

The Company did no t capitalize interest during fiscal 2018 .

Depreciation and amortization expense on property and equipment was $ 197.7 million , $ 179.6 million and $ 71.5 million for fiscal 2020 , 2019 and 2018 , respectively.

In the fourth quarter of fiscal 2019, the Company entered into an agreement to sell a distribution center for $43.2 million related to our Pacific Northwest consolidation strategy, which is expected to close in the first quarter of fiscal 2020.

This facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Consolidated Balance Sheets.

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

The Company has seven goodwill reporting units, three of which represent separate operating segments and are aggregated within the Wholesale reportable segment, three of which are separate operating segments that do not qualify as separate reportable segments, and a single retail reporting unit, which is included within discontinued operations.

During fiscal 2019, a relative fair value allocation was performed when the Canada Wholesale reporting unit became a separate operating segment and reporting unit.

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, as both of these reporting units are expected to benefit from the synergies of the business combination.

The Company has five goodwill reporting units:

two of which represent separate operating segments and are aggregated within the Wholesale reportable segment (U.S.

Wholesale and Canada Wholesale);

one separate Retail operating and reportable segment and two of which are separate operating segments (Woodstock Farms and Blue Marble Brands) that do not meet the criteria for being disclosed as separate reportable segments.

The Canada Wholesale operating segment, which is aggregated with U.S.

Wholesale, would not meet the quantitative thresholds for separate reporting if it did not meet the aggregation criteria.

Supervalu Acquisition Goodwill

In conjunction with the acquisition of Supervalu, goodwill resulting from the acquisition was assigned to the previous Supervalu Wholesale reporting unit and the previous legacy Company Wholesale reporting unit, as both of these reporting units were expected to benefit from the synergies of the business combination.

The assignment was based on the relative synergistic value estimated as of the acquisition date.

This systematic approach utilized the relative cash flow contributions and value created from the acquisition to each reporting unit on a stand-alone basis.

As of the acquisition date, approximately $82.0 million was attributed to the legacy Company Wholesale reporting unit, which is preliminary and subject to the final determinations of the fair value of net assets acquired and a proportionate assignment adjustment between the Supervalu Wholesale reporting unit and the legacy Company reporting unit.

The Company reviews goodwill for impairment at least annually and more frequently if events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount.

The annual review for goodwill impairment is performed as of the first day of the fourth quarter of each fiscal year.

The Company tests for goodwill impairment at the reporting unit level, which is one level below the operating segment level.

Goodwill Impairment Reviews

As of the acquisition date, approximately $ 80.9 million was assigned to the legacy Company Wholesale reporting unit.

As discussed below, the Company impaired all goodwill attributed to the Supervalu Wholesale reporting unit prior to finalization of its purchase accounting.

In the first quarter of fiscal 2020, as discussed further in Note 4—Acquisitions , the Company finalized purchase accounting and the opening balance sheet related to Supervalu acquisition.

Adjustments to the opening balance sheet goodwill in the first quarter of fiscal 2020, resulted in an additional goodwill impairment charge of $ 2.5 million .

Fiscal 2020 Goodwill Impairment Reviews

During the first quarter of fiscal 2020, the Company changed its management structure and internal financial reporting, which resulted in the requirement to combine the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit into one U.S.

Wholesale reporting unit, and experienced a further sustained decline in market capitalization and enterprise value.

As a result of the change in reporting units and the sustained decline in market capitalization and enterprise value, the Company performed an interim quantitative impairment review of goodwill for the Wholesale reporting unit, which included a determination of the fair value of all reporting units.

The Company estimated the fair values of all reporting units using both the market approach, applying a multiple of earnings based on observable multiples for guideline publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit.

The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities.

The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of 8.5%, which considered observable data about guideline publicly traded companies, an estimated market participant’s expectations about capital structure and risk premiums, including those reflected in the Company’s market capitalization.

The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling to its enterprise value and market capitalization.

Based on this analysis, the Company determined that the carrying value of its U.S.

Wholesale reporting unit exceeded its fair value by an amount that exceeded its assigned goodwill.

As a result, the Company recorded a goodwill impairment charge of $ 421.5 million in the first quarter of fiscal 2020.

The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Consolidated Statements of Operations.

The goodwill impairment charge reflects the impairment of all of the U.S.

Wholesale reporting unit’s goodwill.

In the fourth quarter of fiscal 2020, the Company performed its annual goodwill qualitative impairment test and determined that a quantitative impairment test was not required for any of its reporting units.

Fiscal 2019 Goodwill Impairment Reviews

During the first quarter of fiscal 2019, the Company experienced a decline in its stock price and market capitalization.

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Other continuing operations reporting units were substantially in excess of their carrying value.

The goodwill impairment charge recorded in fiscal 2019 is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition.

There can be no assurance that such final assessments will not result in material increases or decreases to the recorded goodwill impairment charge based upon the preliminary purchase price allocations, due to changes in the provisional opening balance sheet estimates of goodwill.

The Company’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date).

The goodwill impairment charge recorded in fiscal 2019 was subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition.

There were no material increases or decreases to the recorded goodwill impairment charge based upon the final purchase price allocations.

Refer to Note 4—Acquisitions for further information about the preliminary purchase price allocation and provisional goodwill estimated as of the acquisition date.

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Goodwill as of July 28, 2018 (1)(2)

Impairment charge

Goodwill adjustment for prior fiscal year business combinations

Change in foreign exchange rates

Goodwill as of July 28, 2018 (1)(2)

Goodwill from current fiscal year business combinations

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Goodwill as of August 3, 2019 (1)(2)

Goodwill adjustment from prior fiscal year business combinations

Impairment charge

Change in foreign exchange rates

Goodwill as of August 1, 2020 (1)(2)

Wholesale amounts are net of accumulated goodwill impairment charges of $ 0.0 million , $ 292.8 million and $ 716.5 million for fiscal 2018 , 2019 and 2020 , respectively.

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Customer relationships

Pharmacy prescription files

Non-compete agreements

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Recurring Fair Value Measurements

The following table provides the fair value hierarchy for financial assets and liabilities measured on a recurring basis as of August 3, 2019 and July 28, 2018 :

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

Fair Value at August 1, 2020

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Consolidated Balance Sheets Location

Interest rate swaps designated as hedging instruments

Foreign currency derivatives not designated as hedging instruments

Prepaid expenses and other current assets

Fuel derivatives designated as hedging instruments

Prepaid expenses and other current assets

Interest rate swaps designated as hedging instruments

Foreign currency derivatives designated as hedging instruments

Prepaid expenses and other current assets

Fuel derivatives designated as hedging instruments

Accrued expenses and other current liabilities

Foreign currency derivatives designated as hedging instruments

Accrued expenses and other current liabilities

Interest rate swaps designated as hedging instruments

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Other long-term liabilities

Fair Value at July 28, 2018

Fair Value at August 3, 2019

(In thousands)

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Prepaid expenses and other current assets

Interest rate swaps designated as hedging instruments

Accrued expenses and other current liabilities

Interest rate swaps designated as hedging instruments

Other long-term liabilities

Interest Rate Swap Contracts

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Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy.

Fuel Supply Agreements and Derivatives

To reduce diesel price risk, the Company has entered into derivative financial instruments and/or forward purchase commitments for a portion of our projected monthly diesel fuel requirements at fixed prices.

The fair values of fuel derivative agreements are measured using Level 2 inputs.

As of August 1, 2020, the Company’s outstanding fuel supply agreements and derivative agreements had fair values with a net liability of $ 0.1 million .

As of August 3, 2019, the Company had no outstanding fuel supply agreements and derivative agreements.

Foreign Exchange Derivatives

To reduce foreign exchange risk, the Company has entered into derivative financial instruments for a portion of our projected monthly foreign currency requirements at fixed prices.

The fair values of foreign exchange derivatives are measured using Level 2 inputs.

As of August 1, 2020, the Company’s outstanding foreign exchange derivatives had fair values with a net liability of $ 0.2 million .

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

Fair Value Estimates

For certain of the Company’s financial instruments including cash and cash equivalents, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities.

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

The fair value of notes receivable is estimated by using a discounted cash flow approach calculated by applying a market rate for similar instruments using Level 3 inputs.

The fair value of debt is estimated based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs.

In the table below, the carrying value of the Company’s long-term debt is net of original issue discounts and debt issuance costs.

Refer to Note 1—Significant Accounting Policies for additional information regarding the fair value hierarchy.

The estimated fair value of our long-term debt was $176.2 million less than the carrying value as of August 3, 2019 .

There was no difference in the estimated fair value and carrying value of our long-term debt as of July 28, 2018 .

The estimated fair values are based on market quotes, where available, or market values for similar instruments, using Level 2 and 3 inputs.

In the table below, the carrying value of our long-term debt is net of original issue discounts and debt issuance costs.

August 1, 2020

July 28, 2018

August 3, 2019

(in thousands)

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Long-term debt, including current portion

Fuel Supply Agreements and Derivatives

To reduce diesel price risk, we have in the past, and may in the future, periodically enter in to derivative financial instruments and/or forward purchase commitments for a portion of our projected monthly diesel fuel requirements at fixed prices.

During the fiscal years ended August 3, 2019 and July 28, 2018 , the Company did not enter into any such agreements or derivatives.

Foreign Exchange Derivatives

To reduce foreign exchange risk, we have in the past, and may in the future, periodically enter in to derivative financial instruments for a portion of our projected monthly foreign currency requirements at fixed prices.

As of August 3, 2019 and July 28, 2018 , our outstanding foreign currency forward contracts were immaterial.

NOTE 9—DERIVATIVES

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Details of outstanding swap contracts as of August 1, 2020 , which are all pay fixed and receive floating, are as follows:

Effective Date

Swap Maturity

Notional Value (in millions)

Outstanding Notional Value (in millions)

Pay Fixed Rate

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Floating Rate Reset Terms

October 26, 2018

October 31, 2020

One-Month LIBOR

April 29, 2021

One-Month LIBOR

June 24, 2016

April 29, 2021

One-Month LIBOR

January 23, 2019

April 29, 2021

One-Month LIBOR

April 2, 2019

June 30, 2021

One-Month LIBOR

June 10, 2019

June 30, 2021

One-Month LIBOR

November 30, 2018

October 29, 2021

One-Month LIBOR

March 21, 2019

April 15, 2022

One-Month LIBOR

April 2, 2019

June 30, 2022

One-Month LIBOR

June 28, 2019

June 30, 2022

One-Month LIBOR

August 3, 2015 (1)

August 15, 2022

One-Month LIBOR

August 3, 2015 (2)

August 15, 2022

One-Month LIBOR

October 26, 2018

October 31, 2022

One-Month LIBOR

January 11, 2019

October 31, 2022

One-Month LIBOR

January 23, 2019

October 31, 2022

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October 30, 2020 (3)

October 31, 2022

One-Month LIBOR

November 16, 2018

March 31, 2023

One-Month LIBOR

October 22, 2025 (6)

January 23, 2019

March 31, 2023

One-Month LIBOR

October 22, 2025 (6)

April 29, 2021 (4)

April 28, 2023

One-Month LIBOR

October 29, 2021 (7)

June 30, 2021 (5)

June 30, 2023

One-Month LIBOR

November 30, 2018

September 30, 2023

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October 29, 2021 (6)

One-Month LIBOR

October 20, 2023

One-Month LIBOR

March 28, 2024 (8)

One-Month LIBOR

October 26, 2018

One-Month LIBOR

April 29, 2021 (9)

One-Month LIBOR

October 31, 2023

One-Month LIBOR

January 11, 2019

March 28, 2024

One-Month LIBOR

January 23, 2019

March 28, 2024

One-Month LIBOR

November 30, 2018

October 31, 2024

One-Month LIBOR

January 11, 2019

October 31, 2024

One-Month LIBOR

April 15, 2022 (11)

One-Month LIBOR

December 13, 2019 (12)

One-Month LIBOR

May 15, 2020 (12)

January 24, 2019

October 31, 2024

One-Month LIBOR

June 30, 2021 (13)

October 26, 2018

October 22, 2025

One-Month LIBOR

June 30, 2022 (13)

November 16, 2018

October 22, 2025

One-Month LIBOR

June 30, 2021 (14)

November 16, 2018

October 22, 2025

One-Month LIBOR

June 30, 2022 (14)

January 24, 2019

October 22, 2025

One-Month LIBOR

On June 7, 2016, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreement has an effective date of June 9, 2016 and expires in April 2021.

The interest rate swap contract has a notional principal amount of $25 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.0650% , while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

On June 24, 2016, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreement has an effective date of June 24, 2016 and expires in April 2021.

The interest rate swap contract has a notional principal amount of $25 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 0.9260% , while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

On January 23, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreement has an effective date of August 3, 2015 and expires in August 2022.

On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $ 140 million to $ 84 million .

The interest rate swap contract has an amortizing notional principal amount which adjusts down on a quarterly basis and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.7950% , while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.

On March 31, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreement has an effective date of August 3, 2015 and expires in August 2022.

On October 26, 2018, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of October 26, 2018 and expire at varied dates between October 2020 and October 2025.

These interest rate swap contracts have an aggregate notional principal amount of $350 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8240% and 2.9550% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On November 16, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of November 16, 2018 and expire at varied dates between March 2023 and October 2025.

These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8950% and 2.9590% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On November 30, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of November 30, 2018 and expire at varied dates between October 2021 and October 2024.

These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8084% and 2.8480% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On January 11, 2019, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of January 11, 2019 and expire at varied dates between October 2022 and October 2024.

These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4678% and 2.5010% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On January 23, 2019, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of January 23, 2019 and expire at varied dates between April 2021 and March 2024.

These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5255% and 2.5500% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On January 24, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of January 24, 2019 and expire at varied dates between October 2024 and October 2025.

These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5210% and 2.5558% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On March 18, 2019, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreement has an effective date of March 21, 2019 and expires in April 2022.

The interest rate swap contract has a notional principal amount of $100.0 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 2.3645% , while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

On March 21, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of March 21, 2019 and expire at varied dates between December 2019 and May 2020.

These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4490% and 2.4925% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

On April 2, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt.

The agreements have an effective date of April 2, 2019 and expire at varied dates between June 2021 and June 2022.

These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.2170% and 2.2520% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

The agreements have an effective date of June 10, 2019 and June 28, 2019 and expire at varied dates between June 2021 and June 2022.

These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.1840% and 2.2290% , while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

The swap contract has an amortizing notional principal amount which is reduced by $ 1.5 million on a quarterly basis.

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

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

This forward starting swap contract has a notional principal amount of $ 150.0 million .

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

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

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

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Total amounts of expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded

Gain or (loss) on cash flow hedging relationships:

Gain or (loss) reclassified from comprehensive income into income

(Loss) or gain on cash flow hedging relationships:

(Loss) or gain reclassified from comprehensive income into income

Gain or (loss) on interest rate swap contracts not designated as hedging instruments:

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August 1, 2020

Calendar Maturity Year

Fiscal Maturity Year

August 1, 2020

July 28, 2018

August 3, 2019

Term Loan Facility

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Other secured loans

Former ABL Credit Facility

Former Term Loan Facility

Debt issuance costs, net

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ABL Credit Facility

On August 30, 2018, the Company entered into a loan agreement (as amended by that certain First Amendment to Loan Agreement, dated as of October 19, 2018, and as further amended by that certain Second Amendment to Loan Agreement, dated January 24, 2019, the “ABL Loan Agreement”), by and among the Company and United Natural Foods West, Inc.

On August 30, 2018, the Company entered into a loan agreement (as amended by that certain First Amendment to Loan Agreement, dated as of October 19, 2018, as further amended by that certain Second Amendment to Loan Agreement, dated January 24, 2019, and as further amended by that certain Third Amendment to Loan Agreement, dated as of August 14, 2020, the “ABL Loan Agreement”), by and among the Company and United Natural Foods West, Inc.

(together with the Company, the “U.S.

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as administrative agent for the ABL Lenders (the “ABL Administrative Agent”), Bank of America, N.A.

(acting through its Canada branch), as Canadian agent for the ABL Lenders (the “Canadian Agent”), and the other parties thereto.

(acting through its Canada branch), as Canadian agent for the ABL Lenders, and the other parties thereto.

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

The ABL Loan Agreement provides for a secured asset-based revolving credit facility (the “ABL Credit Facility” and the loans thereunder, the “ABL Loans”), of which up to (i) $ 2,050.0 million is available to the U.S.

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The ABL Loan Agreement also provides for (i) a $ 300.0 million sublimit of availability for letters of credit of which there is a further $ 25.0 million sublimit for the Canadian Borrower, and (ii) a $ 100.0 million sublimit for short-term borrowings on a swingline basis of which there is a further $ 3.5 million sublimit for the Canadian Borrower.

The ABL Credit Facility replaced the Company’s $900.0 million prior asset-based revolving credit facility (the “Former ABL Credit Facility”).

The ABL Credit Facility replaced the Company’s $ 900.0 million prior asset-based revolving credit facility.

In addition, $ 1,475.0 million of proceeds from the ABL Credit Facility were drawn to finance the Supervalu acquisition and related transaction costs on the Supervalu acquisition date (the “Closing Date”).

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Borrowers under the ABL Credit Facility.

As of August 3, 2019 , the Canadian Borrower’s Borrowing Base, net of $3.6 million of reserves, was $38.9 million , resulting in total Borrowing Base of $2,075.4 million supporting the ABL Loans.

As of August 1, 2020 , the Canadian Borrower’s Borrowing Base, net of $ 3.9 million of reserves, was $ 39.6 million , which is below the $ 50.0 million limit of availability to the Canadian Borrower under the ABL Credit facility, resulting in total availability of $ 2,087.4 million for ABL Loans and letters of credit under the ABL Credit Facility.

As of August 1, 2020 , the U.S.

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As of August 1, 2020 , the applicable margin for base rate loans was 0.25 % , and the applicable margin for LIBOR loans was 1.25 % .

The ABL Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available.

The ABL Loans of the Canadian Borrower under the ABL Credit Facility bear interest at rates that, at the Canadian Borrower’s option, can be either:

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As of August 1, 2020 , the applicable margin for prime rate loans was 0.25 % , and the applicable margin for Canadian dollar bankers’ acceptance equivalent rate loans was 1.25 % .

Commencing on the first day of the calendar month following the ABL Administrative Agent’s receipt of the Company’s aggregate availability calculation for the fiscal quarter ending on August 3, 2019 , and quarterly thereafter, the applicable margins for borrowings by the U.S.

Commencing on the first day of the calendar month following the ABL Administrative Agent’s receipt of the Company’s aggregate availability calculation for the prior fiscal quarter, the applicable margins for borrowings by the U.S.

Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility.

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As of August 1, 2020 , the unutilized commitment fee was 0.25 % per annum.

The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125% per annum of the amount available to be drawn under each such letter of credit (or such other amount as may be mutually agreed by the Borrowers and the applicable letter of credit issuer), as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.

The ABL Loan Agreement subjects the Company to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is less than the greater of (i) $235.0 million and (ii) 10% of the aggregate borrowing base.

We were not subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement during the fourth quarter of fiscal 2019.

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

The Borrowers are also required to pay a letter of credit fronting fee to each letter of credit issuer equal to 0.125 % per annum of the amount available to be drawn under each such letter of credit, as well as a fee to all lenders equal to the applicable margin for LIBOR or Canadian dollar bankers’ acceptance equivalent rate loans, as applicable, times the average daily amount available to be drawn under all outstanding letters of credit.

The ABL Loan Agreement subjects the Company to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each fiscal quarter on a rolling four quarter basis when the adjusted aggregate availability (as defined in the ABL Loan Agreement) is less than the greater of (i) $ 235.0 million and (ii) 10 % of the aggregate borrowing base.

The Company has not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Annual Report.

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

Assets securing the ABL Credit Facility (in thousands) (1) :

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Certain receivables included in Accounts receivable, net and Current assets of discontinued operations

The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Long-term assets of discontinued operations in the Consolidated Balance Sheets as of August 3, 2019 .

The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Intangible assets, net in the Consolidated Balance Sheets as of August 1, 2020 .

Unused available credit and fees under the ABL Credit Facility (in thousands, except percentages):

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Term Loan Facility

On August 14, 2014, the Company and certain of its subsidiaries entered into a real estate-backed term loan agreement (as amended by the First Amendment Agreement, dated April 29, 2016, and the Second Amendment Agreement, dated September 1, 2016, the “Former Term Loan Agreement”).

The Former Term Loan Agreement provided for secured first lien term loans in an aggregate amount of $150.0 million (the “Former Term Loan Facility”).

Proceeds from this Former Term Loan Facility were used to pay down borrowings under the Former ABL Credit Facility.

Borrowings under the Former Term Loan Facility bore interest at rates that, at the Company’s option, could have been either:

(i) a base rate and a margin of 0.75% ;

or, (ii) a LIBOR rate and a margin of 1.75% .

The borrowers’ obligations under the Former Term Loan Facility were secured by certain parcels of the Company’s real property.

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

On August 22, 2018, the Company notified its lenders of its intention to prepay its borrowings outstanding under its Former Term Loan Facility on October 1, 2018.

The Former Term Loan Facility was previously scheduled to terminate on the earlier of (a) August 14, 2022 and (b) the date that is ninety days prior to the termination date of the Former ABL Loan Agreement.

On October 1, 2018, the Company prepaid the $110.0 million of borrowings outstanding under the Former Term Loan Agreement utilizing borrowings under its Former ABL Credit Facility and terminated the Former Term Loan Agreement.

In connection with the prepayment, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $0.4 million , which was recorded as Other expense in the Consolidated Statements of Operations for the first quarter of fiscal 2019.

On the Closing Date, the Company entered into a new term loan agreement (the “Term Loan Agreement”), by and among the Company and Supervalu (collectively, the “Term Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “ Term Lenders”), Goldman Sachs Bank USA, as administrative agent for the Lenders (the “TLB Administrative Agent”), and the other parties thereto.

The Term Loan Agreement provides for senior secured first lien term loans in an aggregate principal amount of $ 1,950.0 million , consisting of a $ 1,800.0 million seven -year tranche (the “Term B Tranche”) and a $ 150.0 million 364 -day tranche (the “ 364 -day Tranche” and, together with the Term B Tranche, collectively, the “Term Loan Facility”).

The entire amount of the net proceeds from the Term Loan Facility were used to finance the Supervalu acquisition and related transaction costs.

The entire amount of the net proceeds from the Term Loan Facility was used to finance the Supervalu acquisition and related transaction costs.

The loans under the Term B Tranche will be payable in full on October 22, 2025;

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

The loans under the 364-day Tranche will be payable in full on October 21, 2019.

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

In fiscal 2020, the Company made mandatory prepayments and voluntary prepayments of $ 15.3 million and $ 5.8 million , respectively, on the 364 -day Tranche with asset sale proceeds.

In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $ 0.1 million , which was recorded within Interest expense, net in the Consolidated Statements of Operations for the first quarter of fiscal 2020.

The loans under the 364 -day Tranche were then paid in full on October 21, 2019.

The Company funded the scheduled maturity of the $ 52.8 million outstanding borrowings under the 364-day Tranche with incremental borrowings under the ABL Credit Facility on October 21, 2019.

Under the Term Loan Agreement, the Term Borrowers may, at their option, increase the amount of the Term B Tranche, add one or more additional tranches of term loans or add one or more additional tranches of revolving credit commitments, without the consent of any Term Lenders not participating in such additional borrowings, up to an aggregate amount of $ 656.3 million plus additional amounts based on satisfaction of certain leverage ratio tests, subject to certain customary conditions and applicable lenders committing to provide the additional funding.

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The loans under the Term Loan Facility may be voluntarily prepaid, subject to certain minimum payment thresholds and the payment of breakage or other similar costs.

Under the Term Loan Facility, we are required to, subject to certain exceptions and customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility.

Commencing with the fiscal year ending August 1, 2020, we must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on our Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year.

The borrowings under the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either:

(i) a base rate and a margin of (A) with respect to the Term B Tranche, 3.25% and (B), with respect to the 364-day Tranche, 1.00% , or (ii) a LIBOR rate and a margin of (A) with respect to the Term B Tranche, 4.25% and (B), with respect to the 364-day Tranche, 2.00% ;

Under the Term Loan Facility, the Company is required, subject to certain exceptions and customary reinvestment rights, to apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility.

Commencing with the fiscal year ending August 1, 2020, the Company must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $ 10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year.

The amount of prepayment from Excess Cash Flow generated in fiscal 2020 that is required in fiscal 2021 is $ 72.0 million .

The borrowings under the Term B Tranche of the Term Loan Facility bear interest at rates that, at the Term Borrowers’ option, can be either:

(i) a base rate and a margin of 3.25 % or (ii) a LIBOR rate and a margin of 4.25 % ;

provided that the LIBOR rate shall never be less than 0.0 % .

The Term Loan Agreement contains provisions for the establishment of an alternative rate of interest in the event that LIBOR is no longer available.

The Term Loan Agreement does not include any financial maintenance covenants but contains other customary affirmative and negative covenants and customary representations and warranties.

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If an event of default occurs and is continuing, the Term Borrowers may be required immediately to repay all amounts outstanding under the Term Loan Agreement.

In the second quarter of fiscal 2019, the Company made mandatory prepayments of $47.0 million on the 364-day Tranche with asset sale proceeds.

In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs of $1.0 million , which was recorded as Other expense in the Consolidated Statements of Operations for the second quarter of fiscal 2019.

In the third quarter of fiscal 2019, the Company made mandatory prepayments of $8.7 million and $5.5 million on the 364-day Tranche and Term B Tranche, respectively, with asset sale proceeds.

In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs and a loss on unamortized original issue discount of $0.2 million and $0.1 million , respectively, which were recorded as Other expense in the Consolidated Statements of Operations for the third quarter of fiscal 2019.

In the fourth quarter of fiscal 2019, the Company made mandatory prepayments of $20.4 million and $3.5 million on the 364-day Tranche and Term B Tranche, respectively, with asset sale proceeds.

In connection with the prepayments, the Company incurred a loss on debt extinguishment related to unamortized debt issuance costs and a loss on unamortized original issue discount of $0.3 million and $0.1 million , respectively, which were recorded as Other expense in the Consolidated Statements of Income for the fourth quarter of fiscal 2019.

As of August 3, 2019 , the Company had borrowings of $1,791.0 million and $73.9 million under the Term B Tranche and 364-day Tranche, respectively, which are presented net of debt issuance costs of $42.0 million and an original issue discount on debt of $40.7 million .

As of August 3, 2019 , $18.0 million and $73.9 million of the Term B Tranche and 364-day Tranche, respectively, was classified as current, excluding debt issuance costs and original issue discount on debt.

Supervalu Senior Notes

On October 22, 2018, the Company delivered an irrevocable redemption notice for the remaining $350.0 million of 7.75% Supervalu Senior Notes and the remaining $180.0 million of 6.75% Supervalu Senior Notes assumed in conjunction with the Supervalu acquisition.

In connection with the redemption notice, the Company placed $566.4 million on account with the trustee of the Supervalu Senior Notes to satisfy and discharge its obligations under the indenture governing the Supervalu Senior Notes.

On November 21, 2018, following the required 30-day notice period, the trustee used this $566.4 million to extinguish the remaining principal balances, to pay the required redemption premiums and to pay accrued and unpaid interest on the redeemed Supervalu Senior Notes.

As a result of the satisfaction and discharge of the indenture governing the redemption of the Supervalu Senior Notes, the Company has fully satisfied and discharged its obligations under the Supervalu Senior Notes.

As of August 1, 2020 , the Company had borrowings of $ 1,773.0 million and no amounts outstanding under the Term B Tranche and 364-day Tranche, respectively, which are presented net of debt issuance costs of $ 36.0 million and an original issue discount on debt of $ 35.2 million .

As of August 1, 2020 , $ 72.0 million of the Term B Tranche was classified as current, excluding debt issuance costs and original issue discount on debt.

NOTE 11—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive (loss) income changes by component for fiscal 2019 , fiscal 2018 and fiscal 2017 are as follows:

Changes in Accumulated other comprehensive (loss) income by component net of tax for fiscal 2020 , fiscal 2019 and fiscal 2018 are as follows:

(in thousands)

Other Cash Flow Derivatives

Benefit Plans

1 unchanged sentence

Swap Agreements

Accumulated other comprehensive loss at July 30, 2016, net of tax

Other comprehensive income before reclassifications

Amortization of cash flow hedge

Net current period Other comprehensive loss

Accumulated other comprehensive (loss) income at July 29, 2017, net of tax

Accumulated other comprehensive (loss) income at July 29, 2017

Other comprehensive (loss) income before reclassifications

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Net current period Other comprehensive (loss) income

Accumulated other comprehensive (loss) income at July 28, 2018, net of tax

Accumulated other comprehensive (loss) income at July 28, 2018

Other comprehensive loss before reclassifications

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Net current period Other comprehensive loss

Accumulated other comprehensive loss at August 3, 2019, net of tax

Amortization of amounts included in net periodic benefit (income) cost includes amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 14—Benefit Plans .

Accumulated other comprehensive loss at August 3, 2019

Other comprehensive loss before reclassifications

Amortization of amounts included in net periodic benefit income

Amortization of cash flow hedges

Pension settlement charge

Net current period Other comprehensive loss

Accumulated other comprehensive loss at August 1, 2020

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

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Affected Line Item on the Consolidated Statements of Operations

Pension and postretirement benefit plan obligations:

Amortization of amounts included in net periodic benefit income (1)

Net periodic benefit income, excluding service cost

Pension settlement charges

Net periodic benefit income, excluding service cost

Total reclassifications

Income tax benefit

(Benefit) provision for income taxes

Total reclassifications, net of tax

Swap agreements:

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Total reclassifications, net of tax

Other cash flow hedges:

Reclassification of cash flow hedge

Cost of sales

Income tax benefit

(Benefit) provision for income taxes

Total reclassifications, net of tax

Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 14—Benefit Plans .

As of August 1, 2020 , the Company expects to reclassify $ 46.4 million out of Accumulated other comprehensive loss into Interest expense, net during the following twelve-month period.

NOTE 12—LEASES

The Company leases certain of its distribution centers, retail stores, office facilities, transportation equipment, and other operating equipment from third parties.

Many of these leases include renewal options.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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

Consolidated Balance Sheets Location

August 1, 2020

Operating lease assets

Finance lease assets

Property and equipment, net

Total lease assets

Operating liabilities

Current portion of operating lease liabilities

Finance liabilities

Current portion of long-term debt and finance lease liabilities

Operating liabilities

Long-term operating lease liabilities

Finance liabilities

Long-term finance lease liabilities

Total lease liabilities

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

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

(in thousands)

Consolidated Statements of Operations Location

August 1, 2020

Operating lease cost

Operating expenses

Short-term lease cost

Operating expenses

Variable lease cost

Operating expenses

Sublease income

Operating expenses

Sublease income

Other sublease income, net

Restructuring, acquisition and integration related expenses (2)

Net operating lease cost (1)

Amortization of leased assets

Operating expenses

Interest on lease liabilities

Interest expense, net

Finance lease cost

Total net lease cost

Rent expense as presented here includes $ 6.8 million in fiscal 2020 of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as the Company expects to remain primarily obligated under these leases.

Rent expense as presented here also includes immaterial amounts of variable lease expense of discontinued operations.

Includes $ 35.5 million of lease expense and $( 40.6 ) million of lease income that is recorded within Restructuring, acquisition and integration related expenses for assigned leases related to previously sold locations and surplus, non-operating properties for which the Company is restructuring its obligations .

On October 23, 2018, the Company received $ 101.0 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of its final distribution center of eight distribution center sale-leaseback transactions entered into by Supervalu in April 2018.

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No gain or loss was recognized or deferred on the sale of these facilities, as the fair value of these facilities as of the Supervalu acquisition date was determined to be equal to their contractual sale–leaseback amounts.

During the second quarter of fiscal 2019, the Company closed the remaining Shop ‘n Save St.

Louis-based retail stores and the dedicated distribution center, and we continue to hold the owned real estate assets related to these locations for sale.

The Company recorded a closed store reserve charge of approximately $17.1 million in the second quarter of fiscal 2019.

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

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

The Company had identified two buildings on the same distribution center campus:

one in which it was deemed the accounting owner of related to construction activity and another for which it was a lessee.

Upon the adoption of ASC 842, the Company continued to account for the building as if it was the accounting owner of due to ongoing construction activity.

On February 24, 2020, the Company executed a purchase option to acquire the entire distribution center campus.

Upon execution of the purchase option, the previously constructed facility accounted for as an operating lease has been re-classified as a finance lease.

Upon completion of the construction in fiscal 2020, the Company did not qualify for sale accounting on the other building due to the outstanding purchase option.

The Company leases certain of its distribution centers and leases most of its retail stores, and leases certain office facilities and equipment from third parties.

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Rent expense, other operating lease expense and subtenant rentals all under operating leases included within Operating expenses, and subtenant rentals under operating leases with customers included within Net sales, consisted of the following.

Rent expense as presented below under ASC 840 excludes variable lease rent that is included in total net lease cost under ASC 842 in the table above.

(in thousands)

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Total net rent expense

Rent expense as presented here includes $32.2 million , $0.0 million , and $0.0 million in fiscal 2019 , 2018 and 2017 , 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.

The Company leases certain property to third parties and receives lease and subtenant rental payments under operating, capital and direct financing leases, including assigned leases for which we have future minimum lease payment obligations.

Future minimum lease payments (“lease obligations”) to be made by the Company or certain third parties in the case of assigned leases for noncancellable operating leases and capital leases have not been reduced for future minimum lease and subtenant rentals (“lease receipts”) under certain operating subleases, including assignments.

As of August 3, 2019 , these lease obligations and lease receipts consisted of the following (in thousands):

Rent expense as presented here includes $ 9.5 million and $ 0.0 million in fiscal 2019 and 2018, 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.

The Company leases certain property to third parties and receives lease and subtenant rental payments under operating leases, including assigned leases for which the Company has future minimum lease payment obligations.

Future minimum lease payments (“Lease Liabilities”) include payments to be made by the Company or certain third parties in the case of assigned noncancellable operating leases and finance leases.

Future minimum lease and subtenant rentals (“Lease Receipts”) include expected cash receipts from operating subleases, and in the case of assigned noncancellable leases receipts for stores sold to third parties, which they operate.

As of August 1, 2020 , these Lease Liabilities and Lease Receipts consisted of the following (in thousands):

Lease Liabilities

Lease Receipts

Net Lease Obligations

Operating Leases (1)

Finance Leases (2)

Operating Leases

Finance Leases

Operating Leases

Finance Leases

Total undiscounted lease liabilities and receipts

Less interest (3)

Present value of lease liabilities

Less current lease liabilities

Long-term lease liabilities

Operating lease payments include $ 11.4 million related to extension options that are reasonably certain of being exercised and exclude $ 23.0 million of legally binding minimum lease payments for leases signed but not yet commenced.

Finance lease payments include $ 0.0 million related to extension options that are reasonably certain of being exercised and exclude $ 0.4 million of legally binding minimum lease payments for leases signed but not yet commenced.

This table excludes a $ 59.5 million payment related to a facility the Company is deemed the accounting owner, which is recognized as a residual obligation, and is subject to an underlying lease.

Calculated using the interest rate for each lease.

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

Lease Obligations

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Long-term capital lease obligations

The following tables provide other information required by ASC 842:

Lease Term and Discount Rate

August 1, 2020

Weighted-average remaining lease term (years)

Operating leases

Finance leases

Weighted-average discount rate

Operating leases

Finance leases

Other Information

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Leased assets obtained in exchange for new finance lease liabilities

Leased assets obtained in exchange for new operating lease liabilities

NOTE 13—SHARE-BASED AWARDS

As of August 3, 2019, the Company has restricted stock awards and performance share units and stock options under three equity incentive plans:

As of August 1, 2020 , the Company has restricted stock awards and performance share units and stock options under four equity incentive plans:

the 2002 Stock Incentive Plan;

the 2004 Equity Incentive Plan, as amended;

and the 2012 Equity Incentive Plan, as amended and restated.

the 2012 Equity Incentive Plan, as amended and restated;

and the 2020 Equity Incentive Plan.

The terms of each stock-based award will be determined by the Board of Directors or the Compensation Committee.

As of August 3, 2019, the Company has 1,472,441 shares authorized and available for grant under the 2012 Plan.

As of August 1, 2020 , the Company has 2,865,125 shares authorized and available for grant under the 2020 Equity Incentive Plan and the 2012 Equity Incentive Plan.

The authorization for new grants under the 2002 Plan and 2004 Plan has expired.

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Amounts are derived entirely from liability classified awards.

Includes liability classified awards of $31.7 million and equity classified awards of $1.4 million for fiscal 2019.

Amounts recorded in fiscal 2018 and 2017 are derived entirely from equity classified awards.

Vesting requirements for awards are generally at the discretion of the Company’s Board of Directors, or the Compensation Committee thereof, and for time vesting awards are typically four equal annual installments for employees and two equal installments for non-employee directors with the first installment on the date of grant and the second installment on the six month anniversary of the grant date.

Vesting requirements for Supervalu replacement awards are typically three equal annual installments.

Includes liability classified awards of $ 1.0 million and equity classified awards of $ 0.0 million for fiscal 2020, and liability classified awards $ 31.7 million and equity classified awards of $ 1.4 million for fiscal 2019.

Amounts recorded in fiscal 2018 are derived entirely from equity classified awards.

Vesting requirements for awards are generally at the discretion of the Company’s Board of Directors, or the Compensation Committee thereof.

Time-based vesting awards for employees typically vest in three or four equal installments.

The Board has adopted a policy in connection with the 2020 Equity Incentive Plan that sets forward grant, vesting and settlement dates for equity awards, a one-year vesting period for awards issued to non-employee directors has been established, and a three-year equal installment vesting period for designated employee restricted stock awards.

Performance awards are now set at a three-year cliff vest, subject to achievement of the performance objective.

As of August 1, 2020 , there was $ 47.2 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock options, restricted stock units, Supervalu replacement awards and performance-based restricted stock units) of which $ 6.3 million relates to Supervalu Replacement Awards.

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Outstanding at July 28 2018

Outstanding at July 28, 2018

Supervalu replacement awards

Outstanding at August 3, 2019

Outstanding at August 1, 2020

(in thousands)

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During fiscal 2020 , the Company granted 977,860 performance share units to its executives (subject to the issuance of up to 977,860 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $ 8.07 .

These performance units are tied to fiscal 2020 performance metrics, including adjusted EBITDA and adjusted return on invested capital (“ROIC”).

During fiscal 2019 , 6,260 performance share units were forfeited and as of August 3, 2019 , there are 333,022 performance share units outstanding that are tied to the Company’s fiscal 2020 performance.

These performance units are tied to fiscal 2020, 2021 and 2022 performance metrics, including adjusted EPS Growth, adjusted return on invested capital (“ROIC”) and adjusted EBITDA leverage.

There were no performance share units forfeited during fiscal 2020 , and as of August 1, 2020 , there are 977,860 performance share units outstanding.

During fiscal 2019 , the Company granted 339,282 performance share units to its executives (subject to the issuance of up to 339,282 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $ 22.56 .

These performance units were tied to fiscal 2019 performance metrics.

During fiscal 2017 , the Company granted 397,242 performance share units to its executives (subject to the issuance of 221,242 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $40.82 tied to the Company’s performance in fiscal years 2017, 2018 and 2019.

As of the fiscal year ended July 29, 2017 , 150,396 of these performance share units vested, based on the Company’s earnings per diluted share, adjusted EBITDA, adjusted ROIC, and net sales with an estimated intrinsic value of approximately $5.7 million using the Company’s stock price as of July 28, 2017.

As of the fiscal year ended July 31, 2018, 111,860 performance units vested, based on the Company’s earnings per diluted share, adjusted EBITDA, adjusted ROIC, and net sales with an estimated intrinsic value of approximately $3.6 million using the Company’s stock price as of July 27, 2018.

As of August 3, 2019 , 77,234 performance units were issuable based on the

Company’s adjusted EBITDA and net sales, with an intrinsic value of approximately $0.7 million using the Company stock price as of August 2, 2019.

These performance units were tied to fiscal 2020 performance metrics, including adjusted EBITDA and ROIC.

During fiscal 2020 and fiscal 2019 , there were 261,483 and 6,620 , respectively, of performance share units forfeited, and as of August 1, 2020 , 71,539 performance share units have been earned and will be issued in fiscal 2021.

During fiscal 2018 , the Company granted 109,100 performance share units to its executives (subject to the issuance of 109,100 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $ 39.74 .

These performance units were tied to fiscal 2019 performance metrics, the majority of which did not vest.

Stock Options

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Outstanding at beginning of year

Supervalu replacement options

Outstanding at end of year

Exercisable at end of year

The aggregate intrinsic value of options exercised during fiscal 2019 , 2018 and 2017 was $0.1 million , $0.7 million and $0.1 million , respectively.

The aggregate intrinsic value of options exercised during fiscal 2020 , 2019 and 2018 was less than $ 0.1 million , $ 0.1 million and $ 0.7 million , respectively.

Supervalu Replacement Awards

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On October 22, 2018, the Company authorized for issuance and registered on a Registration Statement on Form S-8 filed with the SEC 5,000,000 shares of common stock for issuance in order to satisfy the Replacement Options and Replacement Awards.

On March 28, 2019, the Company filed a Registration Statement on Form S-3 with the SEC, which was declared effective on April 5, 2019.

During fiscal 2019, the Company issued 2,004,730 shares of common stock at an average price of $ 12.00 per share for $ 23.9 million of cash, of which $ 0.4 million was received subsequent to the end of fiscal 2019.

During fiscal 2020, the Company issued 1,349,655 shares of common stock at an average price of $ 10.66 per share for $ 14.3 million of cash.

The Replacement Awards are liability classified awards as they may ultimately be settled in cash or shares at the discretion of the employee.

2 unchanged sentences

During the second quarter of fiscal 2019, after reviewing retirement provisions and practices for the treatment of equity awards at comparable companies, the Compensation Committee of the Company’s Board of Directors determined to change the terms of its long-term compensation awards to executives who might consider retiring and to better assure that their awards provided an incentive to work for the long term best interests of the Company up to their termination date, and regardless of their retirement plans.

Accordingly, the Compensation Committee determined that time-based vesting restricted stock units, with the exception of Replacement Awards, will continue to vest during retirement after termination of employment on the same terms as they would

if the executive had not retired, but without the requirement that they remain employed.

Performance share-units will be treated similarly on retirement, but subject to actual performance at the time achievement of performance objectives is measured.

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Pay increases were reflected in the amount of benefits accrued in these plans until December 31, 2012.

Approximately one-half of the union employees participate in multiemployer retirement plans under collective bargaining agreements.

Approximately 60 % of the union employees participate in multiemployer retirement plans under collective bargaining agreements.

The remaining either participate in plans sponsored by the Company or are not currently eligible to participate in a retirement plan.

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Other Postretirement Benefits

Pension Benefits

Other Postretirement Benefits

Changes in Benefit Obligation

Benefit Obligation at beginning of year

Benefit obligation at acquisition date of October 22, 2018

2 unchanged sentences

Actuarial loss (gain)

Settlements paid

Benefits paid

1 unchanged sentence

Changes in Plan Assets

Fair value of plan assets at beginning of year

Fair value of plan assets at acquisition date of October 22, 2018

1 unchanged sentence

Employer contributions

Settlements paid

Benefits paid

5 unchanged sentences

Other Postretirement Benefits

Pension Benefits

Other Postretirement Benefits

Net Periodic Benefit (Income) Cost

1 unchanged sentence

Expected return on plan assets

Amortization of net actuarial gain

Pension settlement charge

Net periodic benefit (income) cost

Other Changes in Plan Assets and Benefits Obligations Recognized in Other Comprehensive Income (Loss)

Other Changes in Plan Assets and Benefits Obligations Recognized in Other Comprehensive (Loss) Income

Prior service benefit

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Net actuarial loss (gain)

Total expense (benefit) recognized in Other comprehensive income (loss)

Total expense (benefit) recognized in net periodic benefit cost (income) and Other comprehensive income (loss)

No estimated net actuarial loss is expected to be amortized from Accumulated other comprehensive loss into net periodic benefit cost for the defined benefit pension plans during fiscal 2020.

Amortization of net actuarial loss

Total expense (benefit) recognized in Other comprehensive (loss) income

Total expense (benefit) recognized in net periodic benefit cost (income) and Other comprehensive (loss) income

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 offer acceptances.

As disclosed in the preceding two tables, in fiscal 2020, the plan made aggregate lump sum settlement payments, which resulted in a non-cash pension settlement charges 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 reported in the second quarter of fiscal 2020, 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.

Estimated net actuarial loss expected to be amortized from Accumulated other comprehensive loss into net periodic benefit cost for the defined benefit pension plans during fiscal 2021 is $ 0.8 million .

The estimated net amount of prior service benefit and net actuarial gain for the postretirement benefit plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost during fiscal 2021 is $ 2.7 million .

Amounts recognized in the Consolidated Balance Sheets as of August 3, 2019 consist of the following:

Amounts recognized in the Consolidated Balance Sheets as of August 1, 2020 and August 3, 2019 consist of the following:

August 1, 2020

August 3, 2019

(in thousands)

1 unchanged sentence

Other Postretirement Benefits

Pension Benefits

Other Postretirement Benefits

Accrued compensation and benefits

4 unchanged sentences

1.74% - 2.37%

2.99% - 3.49%

Net periodic benefit cost assumptions:

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2.99% - 3.49%

4.30% - 4.42%

Rate of compensation increase

1 unchanged sentence

2.00% - 5.75%

2.25% - 6.50%

Expected return on plan assets is estimated by utilizing forward-looking, long-term return, risk and correlation assumptions developed and updated annually by the Company.

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The NAV is used as a practical expedient to estimate fair value.

Other - Consists primarily of options, futures, and money market investments priced at $1.

Other - Consists primarily of options, futures, and money market investments priced at $1 per unit.

The valuation methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

Furthermore, while the Company believes our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

The fair value of assets of our defined benefit pension plans and other postretirement benefits plans held in master trusts as of August 3, 2019 , by asset category, consisted of the following (in thousands):

The fair value of assets of our defined benefit pension plans held in master trusts as of August 1, 2020 , by asset category, consisted of the following (in thousands):

Measured at NAV as a Practical Expedient

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Total plan assets at fair value

The fair value of assets of our defined benefit pension plans held in master trusts as of August 3, 2019 , by asset category, consisted of the following (in thousands):

Measured at NAV as a Practical Expedient

Common collective trusts

Corporate bonds

Government securities

Mortgage-backed securities

Private equity and real estate partnerships

Total plan assets at fair value

Contributions

No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan in fiscal 2020.

Minimum pension contributions of $8.25 million are required to be made under the Unified Grocers, Inc.

No minimum pension contributions are required to be made under either the SUPERVALU Retirement Plan or the Unified Grocers, Inc.

Cash Balance Plan under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) in fiscal 2021.

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The Company assesses the relative attractiveness of the use of cash including such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or the ability to achieve exemption from participant notices of underfunding.

Lump Sum Pension Settlement Offering

On August 1, 2019, we amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window.

On August 2, 2019, we sent plan participants lump sum settlement election offerings that committed the SUPERVALU Retirement Plan to pay certain deferred vested pension plan participants and retirees, that 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 will be 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 Company expects the Plan to make lump sum settlement payments to Plan participants on or around November 1, 2019, which we anticipate will result in a required remeasurement of the defined benefit pension obligations under the plan at that time.

Estimated Future Benefit Payments

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August 1, 2020

August 3, 2019

Accrued compensation and benefits

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None of our collective bargaining agreements require that a minimum contribution be made to these plans.

At the date the financial statements were issued, Forms 5500 were generally not available for the plan years ending in 2018.

At the date the financial statements were issued, Forms 5500 of the plans were generally not available for the plan years ending in 2019.

The following table contains information about the Company’s significant multiemployer plans (in millions):

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Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund

832598425-001

Central States, Southeast and Southwest Areas Pension Fund

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

These multiemployer pension plans are associated with continuing operations.

These multiemployer pension plans are associated with discontinued operations.

These multiemployer pension plans are associated with continued and discontinued operations.

All Other Multiemployer Pension Plans include 7 plans, none of which is individually significant when considering contributions to the plan, severity of the underfunded status or other factors.

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Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund

N/A (contributions began 1/1/2019)

Central States, Southeast and Southwest Areas Pension Fund

9/14/2019 - 5/31/2025

UFCW Unions and Participating Employer Pension Fund (2)

Western Conference of Teamsters Pension Plan Trust

5/31/2020 - 4/22/2023

UFCW Unions and Employers Pension Plan

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

These multiemployer pension plans are associated with continuing operations.

These multiemployer pension plans are associated with discontinued operations.

These multiemployer pension plans are associated with continued and discontinued operations.

In connection with the closure of the Shop ‘n Save locations and the acquisition of Supervalu, we acquired a $ 35.7 million multiemployer pension plan withdrawal liability, under which payments will be made over the next 20 years and is included in Other long-term liabilities.

In addition, the Company had a withdrawal liability related to one of its multi-employer plans of approximately $3.4 million .

In addition, the Company had withdrawal liabilities related to five of its other multi-employer plans of approximately $ 9.7 million .

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

The withdrawal liability is included in Other long-term liabilities and the withdrawal charge was recorded within Restructuring, acquisition and integration related expenses.

Accrued multiemployer pension plan withdrawal liabilities included in other-long-term liabilities were $ 51.6 million and $ 43.2 million , in fiscal 2020 and 2019 respectively for seven multiemployer plans.

The Company contributed $ 52.3 million , $ 41.3 million and $ 0.5 million in fiscal 2020 , 2019 and 2018 , respectively, to multiemployer pension plans.

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However, the Company is unable to separate contribution amounts to postretirement benefit plans from contribution amounts paid to benefit active employees.

The company contributed $58.5 million in fiscal 2019 to multiemployer health and welfare plans.

The company contributed $ 88.5 million and $ 72.5 million in fiscal 2020 and fiscal 2019 , respectively, to multiemployer health and welfare plans.

If healthcare provisions within these plans cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.

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As of August 1, 2020 , we had approximately 28,300 employees.

Approximately 4,800 employees are covered by 46 collective bargaining agreements, and negotiations are in progress for two initial collective bargaining agreements covering approximately 33 employees.

Approximately 11,800 employees are covered by 51 collective bargaining agreements.

During fiscal 2020, 2 collective bargaining agreements covering approximately 200 employees were renegotiated and 7 collective bargaining agreements covering approximately 1,600 employees expired without their terms being renegotiated.

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For the fiscal year ended August 1, 2020 , (loss) income before income taxes, consists of $( 340.8 ) million from U.S.

operations and $7.0 million from foreign operations.

For the fiscal year ended July 28, 2018, income before income taxes consists of $205.3 million from U.S.

operations and $7.4 million from foreign operations.

continuing operations and $( 3.6 ) million ) from foreign continuing operations.

For the fiscal year ended August 3, 2019 , (loss) income before income taxes consists of $( 351.6 ) million from U.S.

continuing operations and $ 7.0 million from foreign continuing operations.

For the fiscal year ended July 28, 2018 , income before income taxes consists of $ 202.6 million from U.S.

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Income tax expense

Stockholders’ equity, difference between compensation expense for tax purposes and amounts recognized for financial statement purposes

Other comprehensive income

Total federal and state income tax (benefit) expense in continuing operations consists of the following:

Total federal, state, and foreign income tax (benefit) expense in continuing operations consists of the following:

(in thousands)

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Impacts related to the TCJA

Impacts related to the CARES Act

Total income tax expense

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Unrecognized tax benefits assumed in a business combination

Decreases in unrecognized tax benefits due to statute expiration and payments

Decreases in unrecognized tax benefits due to statute expiration

Decreases in unrecognized tax benefits due to settlements

Unrecognized tax benefits at end of period

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As of August 1, 2020 , the Company is no longer subject to federal income tax examinations for fiscal years before 2014 and in most states is no longer subject to state income tax examinations for fiscal years before 2008 and 2015 for Supervalu and United Natural Foods, Inc., respectively.

Due to the implementation of the CARES Act, NOLs were carried back into fiscal years 2014 and 2015, which extends the federal statute of limitations on those years up to the amount of the carryback claim.

Based on the possibility of the closing of pending audits and appeals, or expiration of the statute of limitations, it is reasonably possible that the amount of unrecognized tax benefits will decrease by up to $ 8.3 million during the next 12 months.

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at August 3, 2019 and July 28, 2018 are presented below:

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at August 1, 2020 and August 3, 2019 are presented below:

(in thousands)

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Net operating loss carryforwards

Non-loss tax carryforwards

Other tax carryforwards (interest, charitable contributions)

Foreign tax credits

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Plant and equipment, principally due to differences in depreciation

Inventories, principally due to additional costs inventoried for tax purposes

Intangible assets

Interest rate swap agreements

Accrued expenses

Total deferred tax liabilities

Net deferred tax assets (liabilities)

Effects of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017.

Given the significance of the legislation, the Securities and Exchange Commission (“SEC”) staff issued SAB 118, which allowed registrants to record provisional or estimated amounts concerning TCJA impacts during a one year “measurement period” similar to that used when accounting for business combinations.

The measurement period was deemed to end when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting.

As of August 3, 2019 , the Company has closed the measurement period relating to the effects of TCJA.

The final amounts the Company has reported may change further only in the event of return to provision adjustments.

Net deferred tax assets

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 to the deductibility of interest expense and the ability to treat qualified improvement property as eligible for bonus depreciation as well as the ability to carry back net operating losses.

In addition, the CARES Act changed the required filing of the Company’s federal income tax return from May 2020 to July 2020, and allows remittances of employer FICA payments previously due between March 2020 and December 2020 to be deferred until December 2021 and December 2022.

Prior to the application of the CARES Act, the Company had a deferred tax asset related to $ 203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely.

The CARES Act provides the Company the ability to carry these losses back at a 35 % federal tax rate during the carry back periods, as compared to the current 21 % federal tax rate.

This resulted in a tax benefit of approximately $ 39.5 million , an estimate of which the Company recorded in the third quarter of Fiscal 2020, and which was finalized during the fourth quarter of fiscal 2020.

The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the Consolidated Balance Sheet as of August 1, 2020.

Tax Credits and Valuation Allowances

At August 1, 2020, the Company had gross deferred tax assets of approximately $ 278.8 million .

The Company regularly reviews its deferred tax assets for recoverability to evaluate whether it is more likely than not that they will be realized.

In making this evaluation, the Company considers the statutory recovery periods for the assets, along with available sources of future taxable income, including reversals of existing taxable temporary differences, tax planning strategies, history of taxable income, and projections of future income.

The Company gives more significance to objectively verifiable evidence, such as the existence of deferred tax liabilities that are forecast to generate taxable income within the relevant carryover periods, and a history of earnings.

A valuation allowance is provided when the Company concludes, based on all available evidence, that it is more likely than not that the deferred tax assets will not be realized during the applicable recovery period.

The Company has reviewed these factors

in evaluating the recoverability of its deferred tax assets.

As of August 1, 2020, the Company anticipates sufficient future taxable income to realize all of its deferred tax assets within the applicable recovery periods with the exception of certain foreign tax credits and state net operating losses.

Accordingly, the Company has established valuation allowances against that portion of its state net operating losses and foreign tax credits that, in the Company’ s judgment, are not likely to be realized within the applicable recovery periods.

At August 1, 2020 , the Company had net operating loss carryforwards of approximately $ 4.1 million for federal income tax purposes.

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These Section 382-limited carryforwards expire at various times between fiscal years 2021 and 2027 .

As of August 3, 2019 , the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods in which the net operating losses can be utilized.

As of August 1, 2020 , the Company anticipates sufficient future taxable income over the periods in which the net operating losses can be utilized.

The Company also has the availability of future reversals of taxable temporary differences that are expected to generate taxable income in the future.

Therefore, the ultimate realization of net operating losses federal and state tax purposes appears more likely than not at August 3, 2019 and correspondingly no valuation allowance has been established.

The remaining $211.5 million of net operating losses for federal purposes are available for unlimited carryforward (but no carryback) pursuant to provisions of the TCJA permitting taxpayers to carryforward net operating losses indefinitely.

As of August 3, 2019 , the Company anticipates sufficient taxable income, including the impacts to the Company of limitations on interest deductibility under TCJA provisions, to make utilization

of these unlimited net operating losses more likely than not during the indefinite carryforward period, and correspondingly, no valuation allowance has been established.

At August 3, 2019, the Company had disallowed interest expense carryforwards of approximately $37.8 million .

Internal Revenue Code Section 163(j) as revised under the TCJA, which creates the deduction limitation, permits taxpayers to carryforward any interest disallowed thereunder indefinitely for use in a period in which the interest deductibility limit exceeds the then-current deductible interest.

As of August 3, 2019, the Company anticipates sufficient future interest deductibility capacity to make utilization of the disallowed interest expense carryforwards more likely than not during the indefinite carryforward period, and correspondingly, no valuation allowance has been established.

Therefore, the ultimate realization of net operating losses for federal purposes appears more likely than not at August 1, 2020 and correspondingly no valuation allowance has been established.

At August 1, 2020, the Company had disallowed charitable contribution carryforwards of approximately $ 26.7 million that are available for carryforward over five years.

As of August 1, 2020, the Company anticipates sufficient future taxable income to fully utilize the charitable contribution carryovers within the applicable five-year carryforward period and correspondingly, no valuation allowance has been established.

The retained earnings of the Company’s non-U.S.

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Such credits are offset by a valuation allowance.

The Company considers these unremitted earnings to be indefinitely reinvested;

therefore, we have not provided a deferred tax liability for any residual tax that may be due upon repatriation of these earnings.

Effective Tax Rate

Our effective income tax rate for continuing operations was 19.44% , 22.13% , and 39.3% on pre-tax income for fiscal 2019, 2018 and 2017, respectively.

The decrease in the rate for fiscal 2019 was primarily driven by purchase accounting adjustments that impacted the goodwill impairment charge adjustment that was recorded in the year.

The Company also realized the full benefit of the reduced federal income tax rate due to tax reform during fiscal 2019.

Our effective income tax rate for continuing operations was a benefit rate of 26.3 % and 17.1 % on pre-tax losses for fiscal 2020 and 2019 respectively and an expense rate of 22.1 % on pre-tax income for fiscal 2018.

The increase in the benefit rate for fiscal 2020 was primarily driven by the NOL carryback provisions of the CARES Act.

Under ASU 2016-09, the Company accounts for excess tax benefits or tax deficiencies related to share-based payments in its provision for income taxes as opposed to additional paid-in capital.

The Company recognized income tax expense of $1.6 million of income tax expense related to tax deficiencies for share-based payments for fiscal 2019 and $1.1 million of income tax expense related to tax deficiencies for share-based payments for fiscal 2018.

The Company recognized income tax expense of $ 4.2 million related to tax deficiencies for share-based payments for fiscal 2020, $ 1.6 million of income tax expense related to tax deficiencies for share-based payments for fiscal 2019 and $ 1.1 million of income tax expense related to tax deficiencies for share-based payments for fiscal 2018.

NOTE 16—EARNINGS PER SHARE

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Diluted weighted average shares outstanding

Basic per share data:

Basic (loss) earnings per share:

Continuing operations

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Basic (loss) income per share

Diluted per share data:

Diluted (loss) earnings per share:

Continuing operations

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Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share

The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards, of approximately 292 thousand shares for fiscal 2019 .

NOTE 17—BUSINESS SEGMENTS

The Company has three operating segments aggregated under the Wholesale reportable segment:

legacy Company Wholesale;

Supervalu Wholesale and Canada Wholesale.

In addition, the Company’s Retail operating segment is a separate reportable segment, which is primarily comprised of discontinued operations activities.

The legacy Company Wholesale, Supervalu Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics.

The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, produce, and conventional grocery and non-food products, and provider of support services in the United States and Canada .

The Company has two reportable segments:

Wholesale and Retail.

These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure.

The Wholesale reportable segment is the aggregation of two operating segments:

Wholesale and Canada Wholesale.

Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics.

Reportable segments are reviewed on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.

The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, produce, and conventional grocery and non-food products, and providing retail services in the United States and Canada.

The Retail reportable segment derives revenues from the sale of groceries and other products at retail locations operated by the Company.

The Company has additional operating segments that do not meet the quantitative thresholds for reportable segments and are therefore aggregated under the caption of Other .

Other includes a former retail division, that engaged in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, a manufacturing division, which engages in the importing, roasting, packaging, and distributing of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, the Company’s branded product lines, and the Company’s brokerage business, which markets various products on behalf of food vendors directly and exclusively to the Company’s customers.

Other includes a manufacturing division, which engages in the importing, roasting, packaging, and distributing of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections, and the Company’s branded product lines.

Other also includes certain corporate operating expenses that are not allocated to operating segments, which include, among other expenses, restructuring, acquisition and integration related expenses, share-based compensation, and salaries, retainers, and other related expenses of certain officers and all directors.

Wholesale records revenues related to sales to Retail at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business.

Segment earnings include revenues and costs attributable to each of the respective business segments and allocated corporate overhead, based on the segment’s estimated consumption of corporately managed resources.

The Company allocates certain corporate capital expenditures and identifiable assets to its business segments and retains certain depreciation expense related to those assets within Other.

In fiscal 2020, the Company changed its measurement of segment profit, which resulted in additional corporate expenses that were previously included in Other now being attributed to the Wholesale segment, and updated its segment profit measure to Adjusted EBITDA.

Prior period amounts have been recast to reflect these changes in segment profit.

Non-operating expenses that are not allocated to the operating segments are under the caption of Unallocated (Income)/Expenses.

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

(in thousands)

Unallocated (Income)/

Fiscal year ended August 3, 2019

Net sales (1)

Goodwill and asset impairment charges

Restructuring, acquisition and integration related expenses

Operating loss

Total other expense, net

Loss from continuing operations before income taxes

Depreciation and amortization

Capital expenditures

Total assets of continuing operations

Fiscal year ended July 28, 2018

Goodwill and asset impairment charges

Restructuring, acquisition and integration related expenses

Operating income (loss)

Wholesale (1)

Total Net sales

Continuing operations Adjusted EBITDA:

Net income attributable to noncontrolling interests

Total other expense, net

Income from continuing operations before income taxes

Depreciation and amortization

Capital expenditures

Total assets of continuing operations

Fiscal year ended July 29, 2017

Restructuring, acquisition and integration related expenses

Operating income (loss)

Total other expense, net

Income from continuing operations before income taxes

Share-based compensation

Restructuring, impairment, acquisition, and integration related expenses

Goodwill and asset impairment

(Loss) gain on sale of assets

Note receivable and lost customer bankruptcy charge

Inventory fair value adjustment

Legal reserve charge

Other retail expense

(Loss) income from continuing operations before income taxes

Depreciation and amortization:

Total depreciation and amortization

Capital expenditures:

Total capital expenditures

As presented in Note 3—Revenue Recognition , for fiscal 2020 and 2019, the Company recorded $ 1,319 million and $ 937 million , respectively, within Net sales in its Wholesale reportable segment attributable to Wholesale sales to its Retail segment that have been eliminated upon consolidation.

For fiscal 2020 and 2019, the Company recorded $ 0.0 million and $ 12.4 million , respectively, within Net sales in its Wholesale reportable segment attributable to discontinued operations inter-company product purchases for certain retail banners it sold with a supply agreement.

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

(in thousands)

Total assets of continuing operations

For the fiscal year ended August 3, 2019 , the Company recorded $769.8 million within Net sales in its Wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.

NOTE 18—COMMITMENTS, CONTINGENCIES AND 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 August 3, 2019 .

The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of August 1, 2020 .

These guarantees were generally made to support the business growth of wholesale customers.

The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to eleven years , with a weighted average remaining term of approximately seven years .

For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, we would be required to make payments under our guarantee.

The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to ten years , with a weighted average remaining term of approximately six years .

For each guarantee issued, if the wholesale customer or other third-party defaults on a payment, the Company would be required to make payments under its guarantee.

Generally, the guarantees are secured by indemnification agreements or personal guarantees of the primary obligor/retailer.

We review performance risk related to our guarantee obligations based on internal measures of credit performance.

As of August 3, 2019 , the maximum amount of undiscounted payments we would be required to make in the event of default of all guarantees was $36.9 million ( $26.0 million on a discounted basis).

Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, we believe the likelihood that we will be required to assume a material amount of these obligations is remote.

Accordingly, no amount has been recorded in the Consolidated Balance Sheets for these contingent obligations under our guarantee arrangements that we are not making direct payments to the landlord already, as the fair value has been determined to be de minimis.

We are contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions.

We could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations.

Due to the wide distribution of our lease assignments among third parties, and various other remedies available, we believe the likelihood that we will be required to assume a material amount of these obligations is remote.

No amount has been recorded in the Consolidated Balance Sheets for these contingent obligations under our guarantee arrangements as the fair value has been determined to be de minimis.

We are 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.

These agreements primarily relate to our commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to us and agreements to indemnify officers, directors and employees in the performance of their work.

While our aggregate indemnification obligations could result in a material liability, we are not aware of any matters that are expected to result in a material liability.

The Company reviews performance risk related to its guarantee obligations based on internal measures of credit performance.

As of August 1, 2020 , the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $ 32.3 million ( $ 26.9 million on a discounted basis).

Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

Accordingly, no amount has been recorded in the Consolidated Balance Sheets for these contingent obligations under the Company’s guarantee arrangements as the fair value has been determined to be de minimis.

The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions.

The Company could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations.

Due to the wide distribution of the Company’s lease assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

For leases that have been assigned, the Company has recorded the associated right of use operating lease assets and obligations within the Consolidated Balance Sheets.

No associated lessor receivables are reflected on the Consolidated Balance Sheets;

however, within Note 12—Leases expected cash flows from lease receipts reflecting the assignees payments to the landlord are reflected as Lease Receipts within the future maturity table, along with the Wholesale customers future Lease Receipts.

For the Company’s lease guarantee arrangements, no amounts have been recorded within the Consolidated Balance Sheets as the fair value has been determined to be de minimis.

The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise.

These agreements primarily relate to the Company’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their work.

While the Company’s aggregate indemnification obligations could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability.

No amount has been recorded in the Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.

In connection with Supervalu’s sale of New Albertson’s, Inc.

(“NAI”) on March 21, 2013, we remain contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary.

Based on the expected settlement of the self-insurance claims that underlie our commitments, we believe that such contingent liabilities will continue to decline.

(“NAI”) on March 21, 2013, the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary.

Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline.

Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous state governmental authorities.

Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which we remain contingently liable, we believe that the likelihood that we will be required to assume a material amount of these obligations is remote.

Accordingly, no amount has been recorded in the Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.

Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote.

no amount has been recorded in the Consolidated Balance Sheets for these guarantees, as the fair value has been determined to be de minimis.

Agreements with Save-A-Lot and Onex

The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business in 2016 (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement.

Similarly, Supervalu entered into a Separation Agreement (the “Separation Agreement”) with Moran Foods, LLC d/b/a Save-A-Lot (“Moran Foods”), which contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from us.

We also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which we are providing Save-A-Lot various technical, human resources, finance

and other operational services for a term of five years, subject to termination provisions that can be exercised by each party.

The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company is providing Save-A-Lot various technical, human resources, finance and other operational services for a term of five years , subject to termination provisions that can be exercised by each party.

The initial annual base charge under the Services Agreement is $ 30 million , subject to adjustments.

The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt of services under the Services Agreement.

While our aggregate indemnification obligations to Save-A-Lot and Onex could result in a material liability, we are not aware of any matters that are expected to result in a material liability.

The fair value of the guarantee is immaterial and is included within Other long-term liabilities in the Consolidated Balance Sheets.

While the Company’s aggregate indemnification obligations to Save-A-Lot and Onex, the purchaser of Save-A-Lot, could result in a material liability, the Company is not aware of any matters that are expected to result in a material liability.

The Company has recorded the fair value of the guarantee in the Consolidated Balance Sheets within Other long-term liabilities.

Other Contractual Commitments

In the ordinary course of business, we enter into supply contracts to purchase products for resale and purchase, and service contracts for fixed asset and information technology commitments.

In the ordinary course of business, the Company enters into supply contracts to purchase products for resale, and service contracts for fixed asset and information technology systems.

These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations.

As of August 3, 2019 , we had approximately $260 million of non-cancelable future purchase obligations.

The Company did not have any outstanding commitments for the purchase of diesel fuel as of August 3, 2019 .

As of August 1, 2020 , the Company had approximately $ 181 million of non-cancelable future purchase obligations.

Legal Proceedings

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(“C&S”) was a conspiracy to restrain trade and allocate markets.

In the 2003 transaction, Supervalu purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain of Supervalu’s assets to C&S that were located in New England.

Three other retailers filed similar complaints in other jurisdictions and the cases were consolidated in the United States District Court in Minnesota.

The complaints alleged that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that Supervalu and C&S purchased from each other.

Plaintiffs were divided into Midwest plaintiffs and a New England plaintiff and are seeking monetary damages, injunctive relief and attorney’s fees.

As previously disclosed, the Company settled with the Midwest plaintiffs in November 2017.

The New England plaintiff was not a party to the settlement and is pursuing its individual claims and potential class action claims against Supervalu, which at this time are determined as remote.

As previously disclosed, the Company settled with the certain plaintiffs in November 2017.

The remaining plaintiff (the “New England plaintiff”) was not a party to the settlement and pursued its individual claims and potential class action claims against Supervalu.

On February 15, 2018, Supervalu filed a summary judgment and Daubert motion and the New England plaintiff filed a motion for class certification and on July 27, 2018, the District Court granted Supervalu’s motions.

The New England plaintiff appealed to the 8th Circuit on August 15, 2018.

Briefing on the appeal is complete and a hearing date has been set for October 15, 2019.

The New England plaintiff appealed to the 8th Circuit on August 15, 2018, and a hearing was held on October 15, 2019.

In the second quarter of fiscal 2020, the 8th Circuit Court of Appeals denied the appeal, and this matter is now closed.

The Company is one of dozens of companies that have been named in various lawsuits alleging that drug manufacturers, retailers and distributors contributed to the national opioid epidemic.

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and the Company (the “Stock Purchase Agreement”), New Albertson’s Inc.

is defending and indemnifying UNFI in 19 of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies.

is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies.

In one of the MDL cases, MDL No.

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In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant the Stock Purchase Agreement.

Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value by relators) would be approximately $24 million , not including trebling and statutory penalties.

Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value

by relators) would be approximately $ 24 million , not including trebling and statutory penalties.

Both sides moved for summary judgment.

Discovery is complete, and trial will be set after the Court rules on the pending motions.

On August 5, 2019, the Court granted one of relators’ summary judgment motions finding that defendants’ lower matched prices are the usual and customary prices and that Medicare Part D and Medicaid were entitled to those prices.

There are additional pending motions for summary judgment filed by defendants and relators that await rulings by the Court, including on key FCA elements of materiality and knowledge.

On August 30, 2019, defendants filed a motion with the District Court seeking certification of the summary judgment

decision for interlocutory appeal.

UNFI is vigorously defending this matter and believes that it should be successful on the merits.

In light of the most recent summary judgment decision, the Company now believes the risk of loss is reasonably possible.

However, management is unable to estimate a range of reasonably possible loss because there are several disputed factual and legal matters that have not yet been resolved, including fundamentally whether the FCA violations actually occurred (which defendants still strongly believe and continue to argue did not), and the appropriate methodology of determining potential damages, if any.

In November 2018, a putative nationwide class action was filed in Rhode Island state court, and which the Company removed to U.S.

On July 2, 2020, the Court granted defendants’ summary judgment motion and denied relators’ motion, dismissing the case.

On July 9, 2020 the relators filed a notice of appeal with the 7th Circuit Court of Appeals.

In November 2018, a putative nationwide class action was filed in Rhode Island state court, which the Company removed to U.S.

District Court for the District of Rhode Island.

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On March 5, 2019, the Company answered the complaint denying the allegations.

A court-ordered mediation is scheduled for October 2019.

While the Company believes that it has meritorious defenses to the allegations and should be successful upon ultimate resolution of this matter, it also believes the risk of loss is now reasonably possible.

Management is unable to estimate a range of reasonably possible loss because the case is in the very early stages, no discovery has been conducted and the plaintiff has not asserted a damage amount.

At a court-ordered mediation on October 15, 2019, the Company reached an agreement, which is immaterial in amount, to avoid costs and uncertainty of litigation.

On August 10, 2020, the Court granted final approval of the settlement and this matter is now closed.

From time to time, the Company receives notice of claims or potential claims, becomes involved in litigation, alternative dispute resolution such as arbitration, or other legal and regulatory proceedings that arise in the ordinary course of its business, including investigations and claims regarding employment law;

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supplier, customer and service provider contract terms and claims including matter related to supplier or customer insolvency or general inability to pay obligations as they become due;

real estate and environmental matters, including claims in connection with our ownership and lease of a substantial amount of real property, both neutral and warehouse properties;

real estate and environmental matters, including claims in connection with our ownership and lease of a substantial amount of real property, both retail and warehouse properties;

and antitrust.

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NOTE 19—DISCONTINUED OPERATIONS

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu (“Retail”).

The results of operations, financial position and cash flows of Cub Foods, Hornbacher’s, Shoppers and Shop ‘n Save St.

Louis and Shop ‘n Save East retail operations have been presented as discontinued operations and the related assets and liabilities have been classified as held-for-sale.

In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu.

Since the acquisition, the Company sold Hornbacher’s, and sold and exited the retail operations of certain Shoppers locations, Shop ‘n Save St.

Louis and Shop ‘n Save East.

As discussed further in Note 1—Significant Accounting Policies , in the fourth quarter of fiscal 2020, the Company determined Retail no longer qualified for held for sale presentation and the results of operations, financial position and cash flows of Retail have been revised in order to present Retail within continuing operations.

Subsequent to the presentation changes in the fourth quarter of fiscal 2020, discontinued operations contains the historical results of operations, financial position and cash flows of Hornbacher’s, certain Shoppers locations, Shop ‘n Save St.

Louis and Shop ‘n Save East.

As of August 1, 2020, only certain Shoppers locations are contained in remaining disposal groups that continue to be classified as operations held for sale as discontinued operations.

In the second quarter of fiscal 2020, the Company entered into agreements to sell 13 Shoppers stores and decided to close six locations.

During fiscal 2020, within discontinued operations the Company incurred approximately $ 31.1 million in pre-tax aggregate costs and charges related to Shoppers stores that remain within discontinued operations, consisting of $ 24.6 million of operating losses, severance costs and transaction costs during the period of wind-down and $ 6.5 million of property and equipment impairment charges related to impairment reviews.

In the second, third and fourth quarters of fiscal 2020, the Company reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values.

In fiscal 2019, the Company closed three of its eight Shop ‘n Save East stores and sold the remaining five Shop ‘n Save East stores to GIANT Food Store, LLC, and did not incur a gain or loss on the sale of this disposal group.

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Louis retail stores and the distribution center that were not sold prior to the Supervalu acquisition date.

In fiscal 2019, the Company completed the sale of seven of its eight Hornbacher's locations, as well as Hornbacher’s newest store currently under development in West Fargo, North Dakota, to Coborn's Inc.

In fiscal 2019, the Company completed the sale of seven of its eight Hornbacher's locations, as well as a Hornbacher’s store that was previously being developed in West Fargo, North Dakota, to Coborn's Inc.

(“Coborn’s”).

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In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group.

As of August 3, 2019, only the Cub Foods and Shoppers disposal groups continue to be classified as operations held for sale as discontinued operations.

Operating results of discontinued operations are summarized below:

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Operating expenses

Restructuring expenses

Operating income

Interest expense

Net periodic benefit income, excluding service cost

Equity in earnings of unconsolidated subsidiaries

Income from discontinued operations before income taxes

Income tax provision

Income from discontinued operations, net of tax

Restructuring expenses and charges

Operating loss

Other (income) expense, net

Loss from discontinued operations before income taxes

Benefit for income taxes

(Loss) income from discontinued operations, net of tax

These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to August 3, 2019.

The Company recorded $769.8 million within Net sales from continuing operations attributable to discontinued operations inter-company product purchases in fiscal 2019 , which we expect will continue subsequent to the sale of certain retail banners.

These amounts were recorded at gross margin rates consistent with sales to other similar wholesale customers of the acquired Supervalu business.

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

The assets and liabilities of discontinued operations were acquired as part of the Supervalu acquisition, and as of August 3, 2019 , the purchase price allocation related to these assets and liabilities was preliminary and will be finalized when valuations are complete and final assessments of the fair value of other acquired assets and assumed liabilities are completed.

There can be no assurance that such final assessments will not result in material changes from the preliminary purchase price allocations.

The fair value of discontinued operations, determined as of the acquisition date, includes estimated consideration expected to be received, less costs to sell.

Within the Company’s determination of fair value of the respective disposal groups, the Company incorporates the impact of the fair value of off-balance sheet multiemployer pension plan obligations that it expects to sell so that long-lived assets are not reduced below their fair value.

(in thousands)

August 1, 2020

August 3, 2019

Current assets

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Property and equipment

Intangible assets

Total long-term assets of discontinued operations

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Total liabilities of discontinued operations

Net assets of discontinued operations

Additional Retail Accounting Policies

Revenues from retail product sales are recognized at the point of sale upon customer check-out.

Sales tax is excluded from Net sales.

Limited rights of return exist with our customers due to the nature of the products we sell.

Advertising income earned from franchisees that participate in the Company’s retail advertising program are recognized as Net sales.

Loyalty program expense in the form of fuel rewards is recognized as a reduction of Net sales.

Franchise agreement revenue is recognized within Net sales.

Retail advertising expenses are included in cost of sales of discontinued operations, net of cooperative advertising reimbursements.

Operating expenses of discontinued operations include employee-related costs, such as salaries and wages, incentive compensation, health and welfare and workers’ compensation, and occupancy costs, including utilities and operating costs of retail stores, and depreciation and amortization expense, impairment charges on property, plant and equipment and other administrative costs.

Rent expense on operating leases and capital lease amortization expense of retail stores have not been included in discontinued operations, as we expect to remain primarily obligated under these leases.

Refer to Note 12—Leases for additional information.

Retail inventories are valued at the lower of cost or market under LIFO.

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

Net (liabilities) assets of discontinued operations

NOTE 20—IMMATERIAL CORRECTION TO PRIOR PERIOD FINANCIAL STATEMENTS

For certain of the Company’s subsidiaries prior to fiscal 2020, the Company recognized vendor consideration for vendor rebate programs, product defect allowances, slotting fees and similar programs when received in connection with inventory procurement, instead of deferring the recognition of the vendor consideration as a reduction of inventory on its Consolidated Balance Sheets and subsequently recognizing the vendor consideration within Cost of goods sold when the inventory was sold.

The Company considered both the quantitative and qualitative factors within the provisions of SEC Staff Accounting Bulletin No.

99, Materiality , and Staff Accounting Bulletin No.

108, Considering the Effect of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements .

Based on evaluation of the misstatements on an individual and aggregate basis, the Company concluded the prior period errors were immaterial to the previously issued consolidated financial statements.

As such, the Company has elected to correct the identified error in the prior periods within the current Consolidated Financial Statements.

Components of this assessment included that the identified misstatements accumulated over several years and the income statement effect of the correction in any period never materially impacted results of operations.

Previously reported balances were revised for these identified misstatements.

The revisions reflect the accounting treatment that would have been in place had the vendor consideration been appropriately deferred against the procured inventory and recognized when the inventory was sold.

In doing so, balances in the Consolidated Financial Statements to which this note relates have been adjusted to reflect the correction in the proper periods.

The correction of the error resulted in a decrease to Inventories of $ 9.0 million in fiscal 2019 and an increase to Deferred income taxes (asset) of $ 2.4 million in fiscal 2019.

This resulted in a decrease to Retained earnings of $ 6.6 million , $ 6.9 million and $ 4.0 million for fiscal 2019, 2018 and 2017, respectively.

The correction of the error resulted in a Cost of sales decrease of $ 0.4 million and an increase of $ 2.8 million in fiscal 2019 and 2018, respectively, and an increase to (Benefit) provision for income taxes of $ 0.1 million and $ 0.1 million in fiscal 2019 and 2018, respectively.

NOTE 21—QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain key interim financial information for fiscal 2019 (53 weeks) and 2018 (52 weeks):

Selected quarterly data provided below has been revised, as compared to the selected quarterly financial data presented in the Company’s Quarterly Reports on Form 10-Q, to present Retail within continuing operations of the Company’s Consolidated Financial Statements and for the immaterial correction discussed within Note 20—Immaterial Correction to Prior Period Financial Statements .

In the first quarter of fiscal 2019, the Company acquired Supervalu and recognized certain of its retail disposal groups as businesses held for sale as discontinued operations, which impacted Net (loss) income attributable to United Natural Foods, Inc.

and basic and total basic and diluted earnings per share.

The following table sets forth certain interim financial information for fiscal 2020 ( 52 weeks) and 2019 ( 53 weeks):

(In thousands except per share data)

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Net (loss) income from continuing operations

Income from discontinued operations, net of tax

(Loss) income from discontinued operations, net of tax

Net (loss) income including noncontrolling interests

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Continuing operations

Basic (loss) income per share

Basic (loss) earnings per share

Diluted (loss) earnings per share:

Continuing operations

Diluted (loss) income per share

Diluted (loss) earnings per share

Fiscal 2020 results reflect 52 weeks of operating results, as compared to fiscal 2019 53 weeks.

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Income from discontinued operations, net of tax

Net income including noncontrolling interests

Net income attributable to United Natural Foods, Inc.

Net income (loss) including noncontrolling interests

Net income (loss) attributable to United Natural Foods, Inc.

Basic earnings per share:

Continuing operations

Basic income per share

Basic income (loss) per share

Diluted earnings per share:

Continuing operations

Diluted income per share

In the first quarter of fiscal 2019, the Company acquired Supervalu and recognized its retail disposal groups as businesses held for sale as discontinued operations, which impacted Net (loss) income attributable to United Natural Foods, Inc.

and basic and total basic and diluted earnings per share.

Diluted income (loss) per share

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data