UNITED NATURAL FOODS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 61 Consolidated Balance Sheets 64 Consolidated Statements of Operations 65 Consolidated Statements of Comprehensive Income 66 Consolidated Statements of Stockholders' Equity 67 Consolidated Statements of Cash Flows 68 Notes to Consolidated Financial Statements 70 All other schedules are omitted because they are not applicable or not required. 60 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors United Natural Foods, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc. 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 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. 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 The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 61 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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. 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 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; and – 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. 62 Table of Contents 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 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; and – 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, 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. 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 rates used. 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. 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. /s/ KPMG LLP We have served as the Company’s auditor since 1993. Providence, Rhode Island September 29, 2020 63 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except for per share data) August 1, 2020 August 3, 2019 ASSETS Cash and cash equivalents $ 46,993 $ 44,468 Accounts receivable, net 1,120,199 1,067,012 Inventories 2,280,767 2,190,681 Prepaid expenses and other current assets 251,891 235,774 Current assets of discontinued operations 5,067 20,994 Total current assets 3,704,917 3,558,929 Property and equipment, net 1,701,216 1,896,164 Operating lease assets 982,808 — Goodwill 19,607 442,256 Intangible assets, net 969,600 1,089,846 Deferred income taxes 107,624 34,262 Other assets 97,285 107,921 Long-term assets of discontinued operations 3,915 44,957 Total assets $ 7,586,972 $ 7,174,335 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 1,633,448 $ 1,532,310 Accrued expenses and other current liabilities 281,956 260,531 Accrued compensation and benefits 228,832 188,484 Current portion of operating lease liabilities 131,022 — Current portion of long-term debt and finance lease liabilities 83,378 112,103 Current liabilities of discontinued operations 11,438 15,517 Total current liabilities 2,370,074 2,108,945 Long-term debt 2,426,994 2,819,050 Long-term operating lease liabilities 873,990 — Long-term finance lease liabilities 143,303 108,208 Pension and other postretirement benefit obligations 292,128 237,266 Deferred income taxes — 1,042 Other long-term liabilities 336,487 394,749 Long-term liabilities of discontinued operations 1,738 770 Total liabilities 6,444,714 5,670,030 Commitments and contingencies Stockholders equity: Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding — — Common stock, $0.01 par value, authorized 100,000 shares; 55,306 shares issued and 54,691 shares outstanding at August 1, 2020; 53,501 shares issued and 52,886 shares outstanding at August 3, 2019 553 535 Additional paid-in capital 568,736 530,801 Treasury stock at cost ( 24,231 ) ( 24,231 ) Accumulated other comprehensive loss ( 237,946 ) ( 108,953 ) Retained earnings 837,633 1,108,890 Total United Natural Foods, Inc. stockholders’ equity 1,144,745 1,507,042 Noncontrolling interests ( 2,487 ) ( 2,737 ) Total stockholders' equity 1,142,258 1,504,305 Total liabilities and stockholders’ equity $ 7,586,972 $ 7,174,335 See accompanying Notes to Consolidated Financial Statements. 64 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for per share data) Fiscal Year Ended August 1, 2020 (52 weeks) August 3, 2019 (53 weeks) July 28, 2018 (52 weeks) Net sales $ 26,514,267 $ 22,307,456 $ 10,226,683 Cost of sales 22,639,475 19,098,850 8,706,669 Gross profit 3,874,792 3,208,606 1,520,014 Operating expenses 3,541,487 2,967,912 1,274,562 Goodwill and asset impairment charges 425,405 292,770 11,242 Restructuring, acquisition and integration related expenses 86,383 148,195 9,738 Loss (gain) on sale of assets 17,132 ( 499 ) — Operating (loss) income ( 195,615 ) ( 199,772 ) 224,472 Other expense (income): Net periodic benefit income, excluding service cost ( 39,177 ) ( 35,041 ) — Interest expense, net 191,607 180,789 16,025 Other, net ( 3,591 ) ( 1,063 ) ( 1,545 ) Total other expense, net 148,839 144,685 14,480 (Loss) income from continuing operations before income taxes ( 344,454 ) ( 344,457 ) 209,992 (Benefit) provision for income taxes ( 90,445 ) ( 58,936 ) 47,215 Net (loss) income from continuing operations ( 254,009 ) ( 285,521 ) 162,777 (Loss) income from discontinued operations, net of tax ( 15,202 ) 898 — Net (loss) income including noncontrolling interests ( 269,211 ) ( 284,623 ) 162,777 Less net income attributable to noncontrolling interests ( 4,929 ) ( 107 ) — Net (loss) income attributable to United Natural Foods, Inc. $ ( 274,140 ) $ ( 284,730 ) $ 162,777 Basic (loss) earnings per share: Continuing operations $ ( 4.81 ) $ ( 5.57 ) $ 3.22 Discontinued operations $ ( 0.28 ) $ 0.02 $ — Basic (loss) earnings per share $ ( 5.10 ) $ ( 5.56 ) $ 3.22 Diluted (loss) earnings per share: Continuing operations $ ( 4.81 ) $ ( 5.57 ) $ 3.20 Discontinued operations $ ( 0.28 ) $ 0.02 $ — Diluted (loss) earnings per share $ ( 5.10 ) $ ( 5.56 ) $ 3.20 Weighted average shares outstanding: Basic 53,778 51,245 50,530 Diluted 53,778 51,245 50,837 See accompanying Notes to Consolidated Financial Statements. 65 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Fiscal Year Ended August 1, 2020 (52 weeks) August 3, 2019 (53 weeks) July 28, 2018 (52 weeks) Net (loss) income including noncontrolling interests $ ( 269,211 ) $ ( 284,623 ) $ 162,777 Other comprehensive (loss) income: Recognition of pension and other postretirement benefit obligations, net of tax (1) ( 82,838 ) ( 32,458 ) — Recognition of interest rate swap cash flow hedges, net of tax (2) ( 44,751 ) ( 61,287 ) 3,575 Foreign currency translation adjustments ( 1,337 ) ( 1,029 ) ( 3,791 ) Recognition of other cash flow derivatives, net of tax ( 67 ) — — Total other comprehensive (loss) income ( 128,993 ) ( 94,774 ) ( 216 ) Less comprehensive income attributable to noncontrolling interests ( 4,929 ) ( 107 ) — Total comprehensive (loss) income attributable to United Natural Foods, Inc. $ ( 403,133 ) $ ( 379,504 ) $ 162,561 (1) 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. (2) 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. 66 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total United Natural Foods, Inc. Stockholders’ Equity Noncontrolling Interests Total Stockholders’ Equity Common Stock Treasury Stock Shares Amount Shares Amount Balances at July 29, 2017 50,622 $ 506 — $ — $ 460,011 $ ( 13,963 ) $ 1,231,371 $ 1,677,925 $ — $ 1,677,925 Cumulative effect of change in accounting principle — — — — 1,314 — ( 805 ) 509 — 509 Restricted stock vestings and stock option exercises, net 403 4 ( 3,592 ) — — ( 3,588 ) — ( 3,588 ) Share-based compensation — — — — 25,890 — — 25,890 — 25,890 Repurchase of common stock — — 615 ( 24,231 ) — — — ( 24,231 ) — ( 24,231 ) Other comprehensive loss — — — — — ( 216 ) — ( 216 ) — ( 216 ) Net income — — — — — — 162,777 162,777 — 162,777 Balances at July 28, 2018 51,025 $ 510 615 $ ( 24,231 ) $ 483,623 $ ( 14,179 ) $ 1,393,343 $ 1,839,066 $ — $ 1,839,066 Cumulative effect of change in accounting principle — — — — — — 277 277 — 277 Restricted stock vestings and stock option exercises, net 471 5 ( 2,613 ) — — ( 2,608 ) — ( 2,608 ) Share-based compensation — — — — 25,954 — — 25,954 — 25,954 Other comprehensive loss — — — — — ( 94,774 ) — ( 94,774 ) — ( 94,774 ) Acquisition of noncontrolling interests — — — — — — — — ( 1,633 ) ( 1,633 ) Distributions to noncontrolling interests — — — — — — — — ( 1,211 ) ( 1,211 ) Proceeds from issuance of common stock, net 2,005 20 23,837 — — 23,857 — 23,857 Net (loss) income — — — — — — ( 284,730 ) ( 284,730 ) 107 ( 284,623 ) Balances at August 3, 2019 53,501 $ 535 615 $ ( 24,231 ) $ 530,801 $ ( 108,953 ) $ 1,108,890 $ 1,507,042 $ ( 2,737 ) $ 1,504,305 Cumulative effect of change in accounting principle — — — — — — 2,883 2,883 — 2,883 Restricted stock vestings and stock option exercises, net 473 5 — — ( 1,028 ) — — ( 1,023 ) — ( 1,023 ) Share-based compensation — — — — 24,643 — — 24,643 — 24,643 Other comprehensive loss — — — — — ( 128,993 ) — ( 128,993 ) — ( 128,993 ) Distributions to noncontrolling interests — — — — — — — — ( 4,679 ) ( 4,679 ) Proceeds from the issuance of common stock, net 1,332 13 — — 14,320 — — 14,333 — 14,333 Net (loss) income — — — — — — ( 274,140 ) ( 274,140 ) 4,929 ( 269,211 ) Balances at August 1, 2020 55,306 $ 553 615 $ ( 24,231 ) $ 568,736 $ ( 237,946 ) $ 837,633 $ 1,144,745 $ ( 2,487 ) $ 1,142,258 See accompanying Notes to Consolidated Financial Statements. 67 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended (In thousands) August 1, 2020 (52 weeks) August 3, 2019 (53 weeks) July 28, 2018 (52 weeks) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income including noncontrolling interests $ ( 269,211 ) $ ( 284,623 ) $ 162,777 (Loss) income from discontinued operations, net of tax ( 15,202 ) 898 — Net (loss) income from continuing operations ( 254,009 ) ( 285,521 ) 162,777 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 281,535 247,746 87,631 Share-based compensation 24,643 25,551 25,783 Loss (gain) on disposal of assets 17,132 ( 499 ) — Closed property and other restructuring charges 45,501 30,204 2,820 Goodwill and asset impairments 425,405 292,770 11,242 Net pension and other postretirement benefit income ( 39,177 ) ( 34,868 ) — Deferred income tax benefit ( 70,933 ) ( 61,208 ) ( 14,679 ) LIFO charge 17,900 25,372 — Change in accounting estimate — — ( 20,909 ) Provision for doubtful accounts, net 46,032 9,749 12,006 Non-cash interest expense and other adjustments 14,706 15,654 ( 424 ) Changes in operating assets and liabilities, net of acquired businesses Accounts and notes receivable ( 123,970 ) 53,351 ( 67,283 ) Inventories ( 111,267 ) 183,105 ( 106,042 ) Prepaid expenses and other assets 112,771 ( 47,708 ) 4,473 Accounts payable 107,050 ( 24,833 ) 3,961 Accrued expenses, other liabilities and other ( 40,954 ) ( 139,879 ) 7,682 Net cash provided by operating activities of continuing operations 452,365 288,986 109,038 Net cash provided by (used in) operating activities of discontinued operations 4,171 ( 4,456 ) — Net cash provided by operating activities 456,536 284,530 109,038 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 172,568 ) ( 228,477 ) ( 44,608 ) Purchases of acquired businesses, net of cash acquired — ( 2,292,435 ) ( 39 ) Proceeds from dispositions of assets 147,382 180,362 1,039 Other ( 2,498 ) ( 280 ) ( 3,397 ) Net cash used in investing activities of continuing operations ( 27,684 ) ( 2,340,830 ) ( 47,005 ) Net cash provided by investing activities of discontinued operations 26,218 82,043 — Net cash used in investing activities ( 1,466 ) ( 2,258,787 ) ( 47,005 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings of long-term debt 2,050 1,926,642 — Proceeds from borrowings under revolving credit line 4,278,202 3,971,504 556,061 Proceeds from issuance of other loans 6,266 22,358 — Repayments of borrowings under revolving credit line ( 4,601,490 ) ( 3,101,679 ) ( 569,671 ) Repayments of long-term debt and finance leases ( 122,302 ) ( 779,909 ) ( 12,128 ) Repayments of other loans ( 24,408 ) — — Repurchase of common stock — — ( 24,231 ) Proceeds from the issuance of common stock and exercise of stock options 14,276 23,975 975 Payment of employee restricted stock tax withholdings ( 1,023 ) ( 2,727 ) ( 4,563 ) Payments for debt issuance costs — ( 62,600 ) — Distributions to noncontrolling interests ( 4,642 ) ( 1,212 ) — Net cash (used in) provided by financing activities ( 453,071 ) 1,996,352 ( 53,557 ) EFFECT OF EXCHANGE RATE ON CASH ( 154 ) ( 143 ) ( 575 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 1,845 21,952 7,901 Cash and cash equivalents, at beginning of period 45,267 23,315 15,414 Cash and cash equivalents, at end of period 47,112 45,267 23,315 Less: cash and cash equivalents of discontinued operations ( 119 ) ( 799 ) — Cash and cash equivalents $ 46,993 $ 44,468 $ 23,315 68 Table of Contents Fiscal Year Ended (In thousands) August 1, 2020 (52 weeks) August 3, 2019 (53 weeks) July 28, 2018 (52 weeks) Supplemental disclosures of cash flow information: Cash paid for interest $ 181,815 $ 183,042 $ 16,471 Cash (refunds) payments for federal and state income taxes, net $ ( 21,886 ) $ 77,676 $ 64,042 See accompanying Notes to Consolidated Financial Statements. 69 Table of Contents UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1—SIGNIFICANT ACCOUNTING POLICIES Nature of Business 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. The Company sells its products primarily throughout the United States and Canada. Fiscal Year 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 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 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. 70 Table of Contents Net Sales 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 . Net sales also include amounts charged by the Company to customers for shipping and handling, and fuel surcharges. Vendor incentives do not reduce sales in circumstances where the vendor tenders the incentive to the customer, when the incentive is not a direct reimbursement from a vendor, when the incentive is not influenced by or negotiated in conjunction with any other incentive arrangements and when the incentive is not subject to an agency relationship with the vendor, whether expressed or implied. Refer to Note 3—Revenue Recognition for additional information regarding the Company’s revenue recognition policies. 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 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. The Company recognizes vendor funds for merchandising activities as a reduction of Cost of sales when the related products are sold, unless it has been determined that a discrete identifiable benefit has been provided to the vendor, in which case the related amounts are recognized within Net sales. Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as a reduction to the cost of inventory. When payments or rebates can be reasonably estimated and it is probable that the specified target will be met, the payment or rebate is accrued. 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. 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. Shipping and Handling Fees and Costs The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are recorded in Cost of sales, whereas shipping and handling costs for receiving, selecting, quality assurance, and outbound transportation are recorded in Operating expenses. Outbound shipping and handling costs, including allocated employee benefit expenses that are recorded in Operating expenses, totaled $ 1,505.1 million , $ 1,298.9 million and $ 582.9 million for fiscal 2020 , 2019 and 2018 , respectively. Operating Expenses and Other Expenses Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation, and amortization expense. Other expense (income), net includes interest on outstanding indebtedness, including direct financing and capital lease obligations, net periodic benefit plan income, excluding service costs, interest income and miscellaneous income and expenses. 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. 71 Table of Contents 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 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 As a result of growth in net sales and inventory in fiscal 2018, and the changes in processing and the resulting increase in the Company’s estimate of its accrual for inventory purchases, the Company initiated a review of its vendor invoicing processes and undertook a review of its estimate of its accrual for inventory purchases. In the third quarter of fiscal 2018, the Company finalized its analysis and review of its accrual for inventory purchases, including a historical data analysis of unmatched and partially matched amounts that were aged greater than twelve months and the ultimate resolution of such aged accruals. Based on its analysis, the Company determined that it could reasonably estimate the outcome of its partially matched vendor invoices upon receipt of such invoice rather than when the amount was aged greater than twelve months and a liability was no longer considered probable. As a result of this change in estimate, Accounts payable was reduced by $ 20.9 million , resulting in an increase to net income of $ 13.9 million , or $ 0.27 per diluted share, for fiscal 2018. Change in Inventory Accounting Policy Inventories are valued at the lower of cost or market. Prior to fiscal 2019, inventory cost was determined using the first-in, first-out (“FIFO”) method. For a substantial portion of legacy Supervalu inventory, cost was determined using the last-in, first-out (“LIFO”) method, with the rest primarily determined using FIFO. Inventories acquired as part of the Supervalu acquisition were recorded at their fair market values as of the acquisition date. During the second quarter of fiscal 2019, the Company completed its evaluation of its combined inventory accounting policies and changed its method of inventory costing for certain historical United Natural Foods, Inc. inventory from the FIFO accounting method to the LIFO accounting method. The Company concluded that the LIFO method of inventory costing is preferable because it allows for better matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. Additionally, LIFO allows for better comparability of the results of the Company’s operations with those of similar companies in its peer group. As a result of the change to the LIFO method, 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. Reclassifications 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. 72 Table of Contents Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to fund outstanding checks when presented to the financial institution for payment. The Company funds all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create book overdrafts, which are recorded in Accounts payable in the Consolidated Balance Sheets and are reflected as an operating activity in the Consolidated Statements of Cash Flows. 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 Accounts receivable primarily consist of trade receivables from customers and net receivable balances from suppliers. In determining the adequacy of the allowances, management analyzes customer creditworthiness, aging of receivables, payment terms, the value of the collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. In instances where a reserve has been recorded for a particular customer, future sales to the customer are conducted using either cash-on-delivery terms, or the account is closely monitored so that as agreed upon payments are received, orders are released; a failure to pay results in held or canceled orders. Inventories 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. 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 Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is based on the estimated useful lives of the assets using the straight-line method. Applicable interest charges incurred during the construction of new facilities are capitalized as one of the elements of cost and are amortized over the assets’ estimated useful lives if certain criteria are met. Refer to Note 6—Property and Equipment for additional information. 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. 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. Income Taxes The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 73 Table of Contents The Company records liabilities to address uncertain tax positions we have taken in previously filed tax returns or that we expect to take in a future tax return. The determination for required liabilities is based upon an analysis of each individual tax position, taking into consideration whether it is more likely than not that our tax position, based on technical merits, will be sustained upon examination. For those positions for which we conclude it is more likely than not it will be sustained, we recognize the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimate resolution of these tax positions may be greater or less than the liabilities recorded. The Company allocates tax expense among specific financial statement components using a “with-or-without” approach. Under this approach, the Company first determines the total tax expense or benefit (current and deferred) for the period. The Company then calculates the tax effect of pretax income from continuing operations only. The residual tax expense is allocated on a proportional basis to other financial statement components (i.e. discontinued operations, other comprehensive income). 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 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 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. Based on the results of its quantitative test performed, the Company determined that the fair value was in excess of its carrying value and no impairment existed. In determining the estimated fair value for intangible assets, we typically utilize the income approach, which discounts the projected future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow. Refer to Note 7—Goodwill and Intangible Assets and Note 4—Acquisitions for additional information on the Company’s intangible assets. 74 Table of Contents Intangible assets with definite lives are amortized on a straight-line basis over the following lives: Customer relationships 7-20 years Non-competition agreements 2-10 years Trademarks and tradenames 2-10 years Leases in place 1-8 years Favorable operating leases 1-8 years Unfavorable operating leases 2-11 years Pharmacy prescription files 7 years Business Dispositions The Company reviews the presentation of planned business dispositions in the Consolidated Financial Statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, the Company evaluates whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year. Planned business dispositions are presented as discontinued operations when all the criteria described above are met. Operations of the business components meeting the discontinued operations requirements are presented within Income from discontinued operations, net of tax in the Consolidated Statements of Operations, and assets and liabilities of the business component planned to be disposed of are presented as separate lines within the Consolidated Balance Sheets. See Note 19—Discontinued Operations for additional information. The carrying value of the business held for sale is reviewed for recoverability upon meeting the classification requirements. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill, indefinite lived intangible assets and other assets are assessed. After the valuation process is completed, the held for sale business is reported at the lower of its carrying value or fair value less cost to sell, and no additional depreciation or amortization expense is recognized. There are inherent judgments and estimates used in determining the fair value less costs to sell of a business and any impairment charges. The sale of a business can result in the recognition of a gain or loss that differs from that anticipated prior to closing. Investments 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. Fair Value of Financial Instruments Financial assets and liabilities measured on a recurring basis, and non-financial assets and liabilities that are recognized on a non-recurring basis, are recognized or disclosed at fair value on at least an annual basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value: 75 Table of Contents • Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. • Level 3 Inputs—One or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. The carrying amounts of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable and certain accrued expenses and other assets and liabilities approximate fair value due to the short-term nature of these instruments. Share-Based Compensation Share-based compensation consists of restricted stock units, performance units, stock options and Supervalu replacement awards. Share-based compensation expense is measured by the fair value of the award on the date of grant. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period of the individual grants. Forfeitures are recognized as reductions to share-based compensation when they occur. The grant date closing price per share of the Company’s stock is used to determine the fair value of restricted stock units. Supervalu Replacement Awards are liability classified awards as they may ultimately be settled in cash or shares at the discretion of the employee. The Company’s Chief Executive Officer and Chairman and other executive officers and members of senior management have been granted performance units which vest, when and if earned, in accordance with the terms of the related performance unit award agreements. The Company recognizes share-based compensation expense based on the target number of shares of common stock and the Company’s stock price on the date of grant and subsequently adjusts expense based on actual and forecasted performance compared to planned targets. Stock options are granted at exercise prices equal to the fair market value of the Company’s stock at the dates of grant. The fair value of stock option grants is estimated at the date of grant using the Black-Scholes option pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield and expected life. Expected volatilities utilized in the model are based on the historical volatility of the Company’s stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The model incorporates exercise and post-vesting forfeiture assumptions based on an analysis of historical data. The expected term is derived from historical information and other factors. Share-based compensation expense is recognized within Operating expenses for ongoing employees and is recorded within Restructuring, acquisition and integration related expenses when an employee is notified of termination and their awards become accelerated. Refer to Note 13—Share-Based Awards for additional information. Benefit Plans The Company recognizes the funded status of its company-sponsored defined benefit plans, which it assumed in the first quarter of fiscal 2019 through the acquisition of Supervalu, in the Consolidated Balance Sheets and gains or losses and prior service costs or credits not yet recognized as a component of Accumulated other comprehensive loss, net of tax, in the Consolidated Balance Sheets. The Company measures its defined benefit pension and other postretirement plan obligations as of the nearest calendar month end. The Company records net periodic benefit income or expense related to interest cost, expected return on plan assets and the amortization of actuarial gains and losses, excluding service costs, in the Consolidated Statements of Operations within Total other expense, net. Service costs are recorded in Operating expenses in the Consolidated Statements of Operations. The Company sponsors pension and other postretirement plans in various forms covering participants who meet eligibility requirements. The determination of the Company’s obligation and related income or expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in healthcare costs. These assumptions are disclosed in Note 14—Benefit Plans . Actual results that differ from the assumptions are accumulated and amortized over future periods. The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. Pension expense for these plans is recognized as contributions are funded. See Note 14—Benefit Plans for additional information on participation in multiemployer plans. 76 Table of Contents Earnings Per Share Basic earnings per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by adding the dilutive potential common shares to the weighted average number of common shares that were outstanding during the period. For purposes of the diluted earnings per share calculation, outstanding stock options, restricted stock units and performance-based awards, if applicable, are considered common stock equivalents, using the treasury stock method. Treasury Stock The Company records the repurchase of shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares. On October 6, 2017, the Company announced that its Board of Directors authorized a share repurchase program for up to $ 200.0 million of the Company’s outstanding common stock. The repurchase program is scheduled to expire upon the Company’s repurchase of shares of the Company’s common stock having an aggregate purchase price of $ 200.0 million . 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 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. 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. dollar reporting currency, changes in the fair value of cash flow hedges, net of tax, and changes in defined pension and other postretirement benefit plan obligations, net of tax, less comprehensive income attributable to noncontrolling interests. Accumulated other comprehensive loss represents the cumulative balance of other comprehensive (loss) income, net of tax, as of the end of the reporting period and relates to foreign current translation adjustments, and unrealized gains or losses on cash flow hedges, net of tax and changes in defined pension and other postretirement benefit plan obligations, net of tax. Derivative Financial Instruments The Company is exposed to market risks arising from changes in interest rates, fuel costs, and with the operation of UNFI Canada, foreign currency exchange rates. The Company uses derivatives principally in the management of interest rate and fuel price exposure. From time to time the Company may use contracts to hedge transactions in foreign currency. The Company does not utilize derivatives that contain leverage features. For derivative transactions accounted for as hedges, on the date the Company enters into the derivative transaction, the exposure is identified. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction. In this documentation, the Company specifically identifies the asset, liability, firm commitment, forecasted transaction, or net investment that has been designated as the hedged item and states how the hedging instrument is expected to reduce the risks related to the hedged item. The Company measures effectiveness of its hedging relationships both at hedge inception and on an ongoing basis as needed. Self-Insurance Liabilities The Company is primarily self-insured for workers’ compensation, general and automobile liability insurance. It is the Company’s policy to record the self-insured portion of workers’ compensation, general and automobile liabilities based upon actuarial methods to estimate the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported, discounted at a risk-free interest rate. The present value of such claims was calculated using discount rates ranging from 0.4 percent to 2.0 percent . 77 Table of Contents Changes in the Company’s insurance liabilities consisted of the following: (in thousands) 2020 2019 2018 Beginning balance $ 88,838 $ 24,703 $ 22,776 Assumed liabilities from the Supervalu acquisition — 55,213 — Expense 44,125 42,764 14,274 Claim payments ( 36,395 ) ( 33,087 ) ( 12,347 ) Reclassifications 4,177 ( 755 ) — Ending balance $ 100,745 $ 88,838 $ 24,703 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. 78 Table of Contents 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. For leases with step rent provisions whereby the rental payments increase over the life of the lease, and for leases where the Company receives rent-free periods, the Company recognizes expense and income based on a straight-line basis based on the total minimum lease payments to be made over the expected lease term. Deferred rent obligations are included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets. For contractual obligations on properties where we remain the primary obligor upon assignment of the lease and do 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. In addition, the Company continues to recognize 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 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. 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. We calculate closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, reduced by estimated subtenant rentals that could be reasonably obtained for the property. Lease reserve impairment charges are recorded as a component of Restructuring, acquisition and integration related expenses in the Consolidated Statements of Operations. The closed property lease liabilities are usually paid over the remaining lease terms, which generally range from one to 12 years . Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known. The calculation of the closed property charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on our experience and knowledge of the market in which the closed property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions. Reserves for closed properties are included in Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets. 79 Table of Contents NOTE 2—RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements 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. 80 Table of Contents 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 Assets Prepaid expenses and other current assets $ 235,774 $ ( 14,733 ) $ 221,041 Property and equipment, net 1,896,164 ( 142,541 ) 1,753,623 Operating lease assets — 1,059,473 1,059,473 Intangible assets, net 1,089,846 ( 17,671 ) 1,072,175 Deferred income taxes $ 34,262 ( 839 ) $ 33,423 Total increase to assets $ 883,689 Liabilities and Stockholders’ Equity Accrued expense and other current liabilities $ 260,531 $ ( 7,260 ) $ 253,271 Current portion of operating lease liabilities — 137,741 137,741 Current portion of long-term debt and finance lease liabilities 112,103 ( 6,936 ) 105,167 Long-term operating lease liabilities — 936,728 936,728 Long-term finance lease obligations 108,208 ( 37,565 ) 70,643 Other long-term liabilities 394,749 ( 141,901 ) 252,848 Total stockholders’ equity $ 1,504,305 2,882 $ 1,507,187 Total increase to liabilities and stockholders’ equity $ 883,689 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 Accumulated other comprehensive loss or Retained earnings. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 . This ASU clarifies the accounting treatment for the measurement of credit losses under ASC 236 and provides further clarification on previously issued updates including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities and ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Since the Company adopted ASU 2017-12 in the fourth quarter of fiscal 2018, the amendments in ASU 2019-04 related to clarifications on Accounting for Hedging Activities have been adopted by the Company in the first quarter of fiscal 2020. The 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). 81 Table of Contents 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: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract . ASU 2018-05 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of fiscal 2021. The Company has outstanding cloud computing arrangements and continues to incur costs that it believes would be required to be capitalized under ASU 2018-05. The Company 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: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans . ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company is required to adopt this guidance in 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 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. NOTE 3—REVENUE RECOGNITION Revenue Recognition Accounting Policy The Company recognizes revenue in an amount that reflects the consideration that is expected to be received for goods or services when its performance obligations are satisfied by transferring control of those promised goods or services to its customers. ASC 606 defines a five-step process to recognize revenue that requires judgment and estimates, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when or as the performance obligation is satisfied. This footnote addresses the Company’s revenue recognition policies. Revenues from wholesale product sales are recognized when control is transferred, which typically happens upon either shipment or delivery, depending on the contract terms with the customer. Typically, shipping and customer receipt of wholesale products occur on the same business day. Discounts and allowances provided to customers are recognized as a reduction in Net sales as control of the products is transferred to customers. The Company recognizes freight revenue related to transportation of its products when control of the product is transferred, which is typically upon delivery. 82 Table of Contents 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 exist with our customers due to the nature of the products we sell. Product sales The Company enters into wholesale customer distribution agreements that provide terms and conditions of our order fulfillment. The Company’s distribution agreements often specify levels of required minimum purchases in order to earn certain rebates or incentives. Certain contracts include rebates and other forms of variable consideration, including consideration payable to the customer up-front, over time or at the end of a contract term. Many of the Company’s contracts with customers outline various other promises to be performed in conjunction with the sale of product. The Company determined that these promises provided are immaterial within the overall context of the respective contract, and as such has not allocated the transaction price to these obligations. In transactions for goods or services where the Company engages third-parties to participate in its order fulfillment process, it evaluates whether it is the principal or an agent in the transaction. The Company’s analysis considers whether it controls the goods or services before they are transferred to its customer, including an evaluation of whether the Company has the ability to direct the use of, and obtain substantially all the remaining benefits from, the specified good or service before it is transferred to the customer. Agent transactions primarily reflect circumstances where the Company is not involved in order fulfillment or where it is involved in the order fulfillment but is not contractually obligated to purchase the related goods or services from vendors, and instead extends wholesale customers credit by paying vendor trade accounts payable and does not control products prior to their sale. Under ASC 606, if the Company determines that it is acting in an agent capacity, transactions are recorded on a net basis. If the Company determines that it is acting in a principal capacity, transactions are recorded on a gross basis. The Company also evaluates vendor sales incentives to determine whether they reduce the transaction price with its customers. The Company’s analysis considers which party tenders the incentive, whether the incentive reflects a direct reimbursement from a vendor, whether the incentive is influenced by or negotiated in conjunction with any other incentive arrangements and whether the incentive is subject to an agency relationship with the vendor, whether expressed or implied. Typically, when vendor incentives are offered directly by vendors to the Company’s customers, require the achievement of vendor-specified requirements to be earned by customers, and are not negotiated by the Company or in conjunction with any other incentive agreement whereby the Company does not control the direction or earning of these incentives, then Net sales are not reduced as part of the Company’s determination of the transaction price. In circumstances where the vendors provide the Company consideration to promote the sale of their goods and the Company determines the specific performance requirements for its customers to earn these incentives, Net sales are reduced for these customer incentives as part of the determination of the transaction price. 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 $ 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 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®. In addition, the Company enters into franchise agreements to separately charge its customers, who the Company also sells wholesale products to, for the right to use its CUB FOODS® tradename. The Company typically does not separately charge for the right to license its tradenames. The Company believes that these tradenames are capable of being distinct, but are not distinct within the context of the contracts with its customers. Accordingly, the Company does not separately recognize revenue related to tradenames utilized by its customers. 83 Table of Contents The Company enters into distribution agreements with manufacturers to provide wholesale supplies to the Defense Commissary Agency (“DeCA”) and other government agency locations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. The Company contracts with manufacturers to distribute products to the commissaries after being authorized by the manufacturers to be a military distributor to DeCA. The Company must adhere to DeCA’s delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is contracted by the manufacturer for a particular commissary or exchange location, and then places a product order with that distributor that is covered under DeCA’s master contract with the applicable manufacturer. The Company supplies product from its existing inventory, delivers it to the DeCA designated location, and bills the manufacturer for the product price plus a drayage fee. The manufacturer then bills DeCA under the terms of its master contract. The Company has determined that it controls the goods before they are transferred to the customer, and as such it is the principal in the transaction. Revenue is recognized on a gross basis when control of the product passes to the DeCA designated location. Customer incentives The Company provides incentives to its wholesale customers in various forms established under the applicable agreement, including advances, payments over time that are earned by achieving specified purchasing thresholds, and upon the passage of time. The Company typically records customer advances within Other assets and Other current assets and typically recognizes customer incentive payments that are based on expected purchases over the term of the agreement as a reduction to Net sales. To the extent that the transaction price for product sales includes variable consideration, such as certain of these customer incentives, the Company estimates the amount of variable consideration that should be included in the transaction price primarily by utilizing the expected value method. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the agreement will not occur. The Company believes that there will not be significant changes to its estimates of variable consideration, as the uncertainty will be resolved within a relatively short time and there is a significant amount of historical data that is used in the estimation of the amount of variable consideration to be received. Therefore, the Company has not constrained its estimates of variable consideration. Customer incentive assets are reviewed for impairment when circumstances exist for which the Company no longer expects to recover the applicable customer incentives. Professional services and equipment sales Separate from the services provided in conjunction with the sale of product describe above, many of the Company’s agreements with customers also include distinct professional services and other promises to customers, in addition to the sale of the product itself, such as retail store support, advertising, store layout and design services, merchandising support, couponing, e-commerce, network and data hosting solutions, training and certifications classes, and administrative back-office solutions. These professional services may contain a single performance obligation for each respective service, in which case such services revenues are recognized when delivered. Relative to total Net sales, revenue from professional services is insignificant. Wholesale equipment sales are recorded as direct sales to customers when shipped or delivered, consistent with the recognition of product sales. Disaggregation of Revenues 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 ; and • 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. The Company does not record its revenues within its wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly. 84 Table of Contents (in millions) Net Sales for Fiscal 2020 (52 weeks) Customer Channel Wholesale Retail Other Eliminations Consolidated Chains $ 11,982 $ — $ — $ ( 1,319 ) $ 10,663 Independent retailers 6,699 — — — 6,699 Supernatural 4,720 — — — 4,720 Retail — 2,331 — — 2,331 Other 2,095 — 228 ( 222 ) 2,101 Total $ 25,496 $ 2,331 $ 228 $ ( 1,541 ) $ 26,514 (in millions) Net Sales for Fiscal 2019 (1) (53 weeks) Customer Channel Wholesale Retail Other Eliminations Consolidated Chains $ 9,749 $ — $ — $ ( 937 ) $ 8,812 Independent retailers 5,536 — — — 5,536 Supernatural 4,394 — — — 4,394 Retail — 1,653 — — 1,653 Other 1,851 — 235 ( 174 ) 1,912 Total $ 21,530 $ 1,653 $ 235 $ ( 1,111 ) $ 22,307 (in millions) Net Sales for Fiscal 2018 (1) (52 weeks) Customer Channel Wholesale Other Eliminations Consolidated Chains $ 3,299 $ — $ — $ 3,299 Supernatural 3,758 — — 3,758 Independent retailers 2,100 — — 2,100 Other 1,014 228 ( 172 ) 1,070 Total $ 10,171 $ 228 $ ( 172 ) $ 10,227 (1) 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. was the Company’s largest customer in each fiscal year presented. Whole Foods Market, Inc. accounted for approximately 18 % , 20 % and 37 % of the Company’s net sales for fiscal 2020 , 2019 and 2018 , respectively. There were no other customers that individually generated 10% or more of the Company’s net sales during those periods. The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada and international distribution occurs through freight-forwarders. The Company does not have any performance obligations on international shipments subsequent to delivery to the domestic port. Contract Balances The Company does not typically incur costs that are required to be capitalized in connection with obtaining a contract with a customer. The Company typically does not have any performance obligations to deliver products under its contracts until its customers submit a purchase order, as it stands ready to deliver product upon receipt of a purchase order under contracts with its customers. These performance obligations are generally satisfied within a very short period of time. Therefore, the Company has utilized the practical expedient that provides an exemption from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. The Company does not typically receive pre-payments from its customers. Customer payments are due when control of goods or services are transferred to the customer and are typically not conditional on anything other than payment terms, which typically are 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 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. No material contract asset or liability exist for any period reported within these Consolidated Financial Statements. 85 Table of Contents Accounts and notes receivable are as follows: (in thousands) August 1, 2020 August 3, 2019 Customer accounts receivable $ 1,156,694 $ 1,064,502 Allowance for uncollectible receivables ( 55,928 ) ( 20,725 ) Other receivables, net 19,433 23,235 Accounts receivable, net $ 1,120,199 $ 1,067,012 Notes receivable, net, included within Prepaid expenses and other current assets $ 49,268 $ 11,912 Long-term notes receivable, net, included within Other assets $ 25,800 $ 34,408 The allowance for uncollectible receivables, and estimated variable consideration allowed for as sales concessions consists of the following: (in thousands) 2020 2019 2018 Balance at beginning of year $ 20,725 $ 15,996 $ 14,509 Additions charged to operating expenses 37,849 9,749 12,006 Reductions of net sales 12,470 7,061 — Deductions ( 15,116 ) ( 12,081 ) ( 10,519 ) Balance at end of year $ 55,928 $ 20,725 $ 15,996 NOTE 4—ACQUISITIONS Supervalu Acquisition On July 25, 2018, the Company entered into an agreement and plan of merger to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, 2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock, par value $ 0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $ 32.50 per share, without interest. Total consideration related to this acquisition was $ 2.3 billion , $ 1.3 billion of which was paid in cash to Supervalu shareholders and $ 1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $ 546.6 million . These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge. The assets and liabilities of Supervalu were recorded in the Company’s Consolidated Financial Statements 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. 86 Table of Contents The following table summarizes the final consideration, fair value of assets acquired and liabilities assumed, and the resulting goodwill. (in thousands) Final Acquisition Date Fair Values As Recast Consideration: Outstanding shares $ 1,258,450 Outstanding debt, excluding acquired senior notes 1,046,170 Equity-based awards 18,411 Total consideration $ 2,323,031 Fair value of assets acquired and liabilities assumed: Cash and cash equivalents $ 27,142 Accounts receivable 554,311 Inventories 1,274,624 Prepaid expenses and other current assets 118,283 Current assets of discontinued operations 69,201 Property, plant and equipment 1,457,951 Goodwill 376,181 Intangible assets 967,003 Other assets 77,093 Long-term assets of discontinued operations 134,019 Accounts payable ( 1,020,328 ) Current portion of long-term debt and finance lease obligations ( 579,565 ) Other current liabilities ( 380,239 ) Current liabilities of discontinued operations ( 54,142 ) Long-term debt ( 34,355 ) Long-term finance lease obligations ( 103,289 ) Pension and other postretirement benefit obligations ( 234,324 ) Deferred income taxes ( 18,254 ) Other long-term liabilities ( 309,144 ) Long-term liabilities of discontinued operations ( 770 ) Noncontrolling interests 1,633 Total consideration 2,323,031 Less: Cash and cash equivalents (1) ( 30,596 ) Total consideration, net of cash and cash equivalents acquired $ 2,292,435 (1) Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations. Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. A substantial portion of goodwill is deductible for income tax purposes. Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which in the first quarter of fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 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. 87 Table of Contents 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 fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. Final Acquisition Date Fair Values As Recast (in thousands) Estimated Useful Life Continuing Operations Discontinued Operations Customer relationship assets 10-17 years $ 810,000 $ — Favorable operating leases 1-19 years 21,629 — Leases in place 1-8 years 10,474 — Tradenames 2-9 years 82,000 1,000 Pharmacy prescription files 5-7 years 32,900 13,000 Non-compete agreement 2 years 10,000 — Unfavorable operating leases 1-12 years ( 21,754 ) — Total $ 945,249 $ 14,000 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 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 (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) (53 weeks) July 28, 2018 As Recast (2) (52 weeks) Net sales $ 25,639,516 $ 25,189,850 Net (loss) income from continuing operations $ ( 225,544 ) $ 48,394 Basic net (loss) income from continuing operations per share $ ( 4.40 ) $ 0.96 Diluted net (loss) income from continuing operations per share $ ( 4.40 ) $ 0.95 (1) Includes 12 weeks of pro forma Supervalu results for the period ended September 8, 2018. (2) Includes 52 weeks of pro forma Supervalu results for the period ended July 28, 2018, including 19 weeks of pro forma Associated Grocers of Florida, Inc. results, which was acquired by Supervalu on December 8, 2017. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisitions occurred at the beginning of the periods being presented, nor are they indicative of future results of operations. NOTE 5—RESTRUCTURING, ACQUISITION AND INTEGRATION RELATED EXPENSES Restructuring, acquisition and integration related expenses were as follows: (in thousands) 2020 2019 2018 2019 SUPERVALU INC. restructuring expenses $ 4,898 $ 74,414 $ — Integration and acquisition costs 41,610 51,245 4,967 Closed property charges and costs 39,875 22,536 — 2018 Earth Origins Market restructuring expenses and loss on sale — — 4,771 Total $ 86,383 $ 148,195 $ 9,738 88 Table of Contents 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. (in thousands) 2019 SUPERVALU INC. 2018 Earth Origins Market 2017 Cost Saving and Efficiency Initiatives Total Balances at July 28, 2018 $ — $ 383 $ 701 $ 1,084 Restructuring program charge (1) 74,414 — — 74,414 Acquired restructuring liability 12,573 — — 12,573 Cash payments ( 75,130 ) — ( 75,130 ) Balances at August 3, 2019 11,857 383 701 12,941 Restructuring program charge 4,898 — — 4,898 Cash payments ( 13,217 ) ( 383 ) ( 701 ) ( 14,301 ) Balances at August 1, 2020 $ 3,538 $ — $ — $ 3,538 Cumulative program charges incurred from inception to date $ 79,312 $ 2,219 $ 6,864 $ 88,395 (1) Includes $ 43.0 million of charges related to change-in-control expense to satisfy outstanding equity awards and severance related costs. 89 Table of Contents NOTE 6—PROPERTY AND EQUIPMENT Property and equipment, net consisted of the following: (in thousands) Original Estimated Useful Lives 2020 2019 Land $ 142,737 $ 177,970 Buildings and improvements 20-40 years 970,528 1,081,887 Leasehold improvements 5-20 years 205,537 151,311 Equipment 3-30 years 878,483 768,800 Motor vehicles 3-7 years 74,395 76,186 Finance lease assets 1-11 years 161,395 114,107 Construction in progress 79,145 169,999 Property and equipment 2,512,220 2,540,260 Less accumulated depreciation and amortization 811,004 644,096 Property and equipment, net $ 1,701,216 $ 1,896,164 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. NOTE 7—GOODWILL AND INTANGIBLE ASSETS 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 $ 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. 90 Table of Contents 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. During the second quarter of fiscal 2019, the stock price continued to decline, and the decline in the stock price and market capitalization became significant and sustained. Due to this sustained decline in stock price, the Company determined that it was more likely than not that the carrying value of the Supervalu Wholesale reporting unit exceeded its fair value and performed an interim quantitative impairment test of goodwill. The Company estimated the fair values of all reporting units using both the market approach, applying a multiple of earnings based on guidelines for publicly traded companies, and the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment for each reporting unit. The calculation of the impairment charge includes substantial fact-based determinations and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The rates used to discount projected future cash flows under the income approach reflect a weighted average cost of capital of 10 % , which considered guidelines for publicly traded companies, capital structure and risk premiums, including those reflected in the Company’s then-current market capitalization. The Company corroborated the reasonableness of the estimated reporting unit fair values by reconciling those fair values to its enterprise value and market capitalization. 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 exceeded the assigned goodwill as of the acquisition date. As a result, the Company recorded a goodwill impairment charge of $ 292.8 million in fiscal 2019, which reflects the preliminary goodwill impairment charge recorded in the second quarter of fiscal 2019 and adjustments to the charge recorded in the third and fourth quarters of fiscal 2019. The goodwill impairment charge adjustments recorded in the third and fourth quarters of fiscal 2019 were attributable to changes in the preliminary fair value of net assets, most notably changes in tax assets and liabilities, intangible assets and property and equipment, which affected the initial goodwill resulting from the Supervalu acquisition. The goodwill impairment charge is reflected in Goodwill and asset impairment charges in the Consolidated Statements of Operations. The goodwill impairment charge reflects all of Supervalu Wholesale’s reporting unit goodwill, based on preliminary acquisition date assigned fair values. The quantitative goodwill impairment review indicated that the estimated fair value of the legacy Company Wholesale and Canada Wholesale reporting units were in excess of their carrying values by over 20 % . Other continuing operations reporting units were substantially in excess of their carrying value. 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. In fiscal 2019, the Company performed quarterly reviews of the composition of its reporting units. Any future changes in the Company’s goodwill reporting units would require a relative fair value allocation of goodwill, and may require a quantitative impairment assessment of goodwill, which may result in material goodwill impairment charges. In the fourth quarter of fiscal 2019, 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. 91 Table of Contents 2018 Earth Origins Market Impairment During the second quarter of fiscal 2018, the Company made the decision to close three non-core, under-performing stores of its total twelve stores. Based on this decision, coupled with the decline in results in the first half of fiscal 2018 and the future outlook as a result of competitive pressure, the Company determined that both a test for recoverability of long-lived assets and a goodwill impairment analysis should be performed. The determination of the need for a goodwill analysis was based on the assertion that it was more likely than not that the fair value of the reporting unit was below its carrying amount. As a result of both these analyses, the Company recorded a total impairment charge of $ 3.4 million on long-lived assets and $ 7.9 million to goodwill, respectively, during the second quarter of fiscal 2018. During the fourth quarter of fiscal 2018 the Company disposed of its Earth Origins retail business. Goodwill and Intangible Assets Changes Changes in the carrying value of Goodwill by reportable segment that have goodwill consisted of the following: (in thousands) Wholesale Other Total Goodwill as of July 28, 2018 (1)(2) $ 352,342 $ 10,153 $ 362,495 Goodwill from current fiscal year business combinations 374,757 — 374,757 Impairment charge ( 292,757 ) — ( 292,757 ) Other adjustments ( 1,951 ) — ( 1,951 ) Change in foreign exchange rates ( 288 ) — ( 288 ) Goodwill as of August 3, 2019 (1)(2) 432,103 10,153 442,256 Goodwill adjustment from prior fiscal year business combinations 1,424 — 1,424 Impairment charge ( 423,712 ) ( 293 ) ( 424,005 ) Change in foreign exchange rates ( 68 ) — ( 68 ) Goodwill as of August 1, 2020 (1)(2) $ 9,747 $ 9,860 $ 19,607 (1) 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. (2) Other amounts are net of accumulated goodwill impairment charges of $ 9.3 million , $ 9.3 million and $ 9.6 million for fiscal 2018 , 2019 and 2020 , respectively. Intangible assets, net consisted of the following: 2020 2019 (in thousands) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Amortizing intangible assets: Customer relationships $ 1,007,118 $ 172,832 $ 834,286 $ 1,007,089 $ 111,940 $ 895,149 Pharmacy prescription files 32,900 7,964 24,936 32,900 — 32,900 Non-compete agreements 12,900 11,500 1,400 12,900 6,237 6,663 Operating lease intangibles 8,193 4,020 4,173 32,103 2,321 29,782 Trademarks and tradenames 83,700 34,708 48,992 83,700 14,161 69,539 Total amortizing intangible assets 1,144,811 231,024 913,787 1,168,692 134,659 1,034,033 Indefinite lived intangible assets: Trademarks and tradenames 55,813 — 55,813 55,813 — 55,813 Intangibles assets, net $ 1,200,624 $ 231,024 $ 969,600 $ 1,224,505 $ 134,659 $ 1,089,846 92 Table of Contents Amortization expense was $ 90.8 million , $ 70.3 million and $ 15.0 million for fiscal 2020 , 2019 and 2018 , respectively. The estimated future amortization expense for each of the next five fiscal years and thereafter on definite lived intangible assets existing as of August 1, 2020 is shown below: Fiscal Year: (In thousands) 2021 $ 78,185 2022 72,170 2023 71,950 2024 72,417 2025 70,305 Thereafter 548,760 $ 913,787 NOTE 8—FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS Recurring Fair Value Measurements The following table provides the fair value hierarchy for financial assets and liabilities measured on a recurring basis: Fair Value at August 1, 2020 (In thousands) Consolidated Balance Sheets Location Level 1 Level 2 Level 3 Assets: Foreign currency derivatives not designated as hedging instruments Prepaid expenses and other current assets $ — $ 26 $ — Fuel derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 36 $ — Foreign currency derivatives designated as hedging instruments Prepaid expenses and other current assets $ — $ 94 $ — Fuel derivatives designated as hedging instruments Other assets $ — $ 23 $ — Mutual funds Other assets $ 1,678 $ — $ — Liabilities: Fuel derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 197 $ — Foreign currency derivatives designated as hedging instruments Accrued expenses and other current liabilities $ — $ 357 $ — Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ — $ 46,743 $ — Interest rate swaps designated as hedging instruments Other long-term liabilities $ — $ 91,994 $ — 93 Table of Contents Fair Value at August 3, 2019 (In thousands) Consolidated Balance Sheets Location Level 1 Level 2 Level 3 Assets: Interest rate swaps designated as hedging instruments Prepaid expenses and other current assets $ — $ 389 $ — Mutual Funds Prepaid expenses and other current assets $ 7 $ — $ — Interest rate swaps designated as hedging instruments Other assets $ — $ 145 $ — Mutual Funds Other assets $ 1,799 $ — $ — Liabilities: Interest rate swaps designated as hedging instruments Accrued expenses and other current liabilities $ — $ 16,360 $ — Interest rate swaps designated as hedging instruments Other long-term liabilities $ — $ 60,737 $ — Interest Rate Swap Contracts The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of August 1, 2020 , a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swaps by approximately $ 60.4 million ; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately $ 57.1 million . Refer to Note 9—Derivatives for further information on interest rate swap contracts. Mutual Funds Mutual fund assets consist of balances held in investments to fund certain deferred compensation plans. The fair values of mutual fund assets are based on quoted market prices of the mutual funds held by the plan at each reporting period. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Fuel Supply Agreements and Derivatives To reduce diesel price risk, the Company has entered into derivative financial instruments and/or forward purchase commitments for a portion of 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. 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. 94 Table of Contents August 1, 2020 August 3, 2019 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Notes receivable, including current portion $ 77,598 $ 78,877 $ 46,320 $ 46,320 Long-term debt, including current portion $ 2,497,626 $ 2,535,851 $ 2,906,483 $ 2,730,271 NOTE 9—DERIVATIVES Management of Interest Rate Risk The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges at August 1, 2020 . Interest rate swap contracts are reflected at their fair values in the Consolidated Balance Sheets. Refer to Note 8—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts. 95 Table of Contents 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 Outstanding Notional Value (in millions) Pay Fixed Rate Receive Floating Rate (7) Floating Rate Reset Terms October 26, 2018 October 31, 2020 $ 100.0 2.8240 % One-Month LIBOR Monthly June 9, 2016 April 29, 2021 25.0 1.0650 % One-Month LIBOR Monthly June 24, 2016 April 29, 2021 25.0 0.9260 % One-Month LIBOR Monthly January 23, 2019 April 29, 2021 50.0 2.5500 % One-Month LIBOR Monthly April 2, 2019 June 30, 2021 100.0 2.2520 % One-Month LIBOR Monthly June 10, 2019 June 30, 2021 50.0 2.2290 % One-Month LIBOR Monthly November 30, 2018 October 29, 2021 100.0 2.8084 % One-Month LIBOR Monthly March 21, 2019 April 15, 2022 100.0 2.3645 % One-Month LIBOR Monthly April 2, 2019 June 30, 2022 100.0 2.2170 % One-Month LIBOR Monthly June 28, 2019 June 30, 2022 50.0 2.1840 % One-Month LIBOR Monthly August 3, 2015 (1) August 15, 2022 55.5 1.7950 % One-Month LIBOR Monthly August 3, 2015 (2) August 15, 2022 37.0 1.7950 % One-Month LIBOR Monthly October 26, 2018 October 31, 2022 100.0 2.8915 % One-Month LIBOR Monthly January 11, 2019 October 31, 2022 50.0 2.4678 % One-Month LIBOR Monthly January 23, 2019 October 31, 2022 50.0 2.5255 % One-Month LIBOR Monthly October 30, 2020 (3) October 31, 2022 — 0.4540 % One-Month LIBOR Monthly November 16, 2018 March 31, 2023 150.0 2.8950 % One-Month LIBOR Monthly January 23, 2019 March 31, 2023 50.0 2.5292 % One-Month LIBOR Monthly April 29, 2021 (4) April 28, 2023 — 0.5680 % One-Month LIBOR Monthly June 30, 2021 (5) June 30, 2023 — 0.6070 % One-Month LIBOR Monthly November 30, 2018 September 30, 2023 50.0 2.8315 % One-Month LIBOR Monthly October 29, 2021 (6) October 20, 2023 — 0.6810 % One-Month LIBOR Monthly October 26, 2018 October 31, 2023 100.0 2.9210 % One-Month LIBOR Monthly January 11, 2019 March 28, 2024 100.0 2.4770 % One-Month LIBOR Monthly January 23, 2019 March 28, 2024 100.0 2.5420 % One-Month LIBOR Monthly November 30, 2018 October 31, 2024 100.0 2.8480 % One-Month LIBOR Monthly January 11, 2019 October 31, 2024 100.0 2.5010 % One-Month LIBOR Monthly January 24, 2019 October 31, 2024 50.0 2.5210 % One-Month LIBOR Monthly October 26, 2018 October 22, 2025 50.0 2.9550 % One-Month LIBOR Monthly November 16, 2018 October 22, 2025 50.0 2.9580 % One-Month LIBOR Monthly November 16, 2018 October 22, 2025 50.0 2.9590 % One-Month LIBOR Monthly January 24, 2019 October 22, 2025 50.0 2.5558 % One-Month LIBOR Monthly $ 1,992.5 (1) On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $ 140 million to $ 84 million . The swap contract has an amortizing notional principal amount which is reduced by $ 1.5 million on a quarterly basis. (2) The swap contract has an amortizing notional principal amount which is reduced by $ 1.0 million on a quarterly basis. (3) This forward starting swap contract has a notional principal amount of $ 100.0 million . (4) This forward starting swap contract has a notional principal amount of $ 100.0 million . (5) This forward starting swap contract has a notional principal amount of $ 150.0 million . (6) This forward starting swap contract has a notional principal amount of $ 100.0 million . (7) For these swap contracts that are indexed to LIBOR, the Company is monitoring and evaluating risks related to the expected future cessation of LIBOR. 96 Table of Contents The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. In future reporting periods, the Company performs a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The Company also monitors the risk of counterparty default on an ongoing basis and noted that the counterparties are reputable financial institutions. The entire change in the fair value of the derivative is initially reported in Other comprehensive income (outside of earnings) in the Consolidated Statements of Comprehensive Income and subsequently reclassified to earnings in Interest expense, net in the Consolidated Statements of Operations when the hedged transactions affect earnings. The location and amount of gains or losses recognized in the Consolidated Statements of Operations for interest rate swap contracts for each of the periods, presented on a pretax basis, are as follows: Interest Expense, net (In thousands) 2020 2019 2018 Total amounts of expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded $ 191,607 $ 180,789 $ 16,025 (Loss) or gain on cash flow hedging relationships: (Loss) or gain reclassified from comprehensive income into income $ ( 24,505 ) $ 13 $ 827 Gain or (loss) on interest rate swap contracts not designated as hedging instruments: Gain or (loss) recognized as interest expense $ — $ 51 $ — NOTE 10—LONG-TERM DEBT The Company’s long-term debt consisted of the following: (in thousands) Average Interest Rate at August 1, 2020 Fiscal Maturity Year August 1, 2020 August 3, 2019 Term Loan Facility 4.41 % 2026 $ 1,773,000 $ 1,864,900 ABL Credit Facility 1.58 % 2024 756,712 1,080,000 Other secured loans 5.19 % 2024-2025 49,268 57,649 Debt issuance costs, net ( 45,846 ) ( 54,891 ) Original issue discount on debt ( 35,508 ) ( 41,175 ) Long-term debt, including current portion 2,497,626 2,906,483 Less: current portion of long-term debt ( 70,632 ) ( 87,433 ) Long-term debt $ 2,426,994 $ 2,819,050 Future maturities of long-term debt, excluding debt issuance costs and original issue and purchase accounting discounts on debt, as of August 1, 2020 , consist of the following: Fiscal Year (In thousands) 2021 $ 84,773 2022 13,465 2023 14,196 2024 764,669 2025 18,877 2026 and thereafter 1,683,000 $ 2,578,980 97 Table of Contents 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, 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. Borrowers”) and UNFI Canada, Inc. (the “Canadian Borrower” and, together with the U.S. Borrowers, the “Borrowers”), the financial institutions that are parties thereto as lenders (collectively, the “ABL Lenders”), Bank of America, N.A. as administrative agent for the ABL Lenders (the “ABL Administrative Agent”), Bank of America, N.A. (acting through its Canada branch), as Canadian agent for the ABL Lenders, and the other parties thereto. 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. Borrowers and (ii) $ 50.0 million is available to the Canadian Borrower. 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. In addition, $ 1,475.0 million of proceeds from the ABL Credit Facility were drawn to finance the Supervalu acquisition and related transaction costs on the Supervalu acquisition date (the “Closing Date”). Under the ABL Loan Agreement, the Borrowers may, at their option, increase the aggregate amount of the ABL Credit Facility in an amount of up to $ 600.0 million without the consent of any ABL Lenders not participating in such increase, subject to certain customary conditions and applicable lenders committing to provide the increase in funding. There is no assurance that additional funding would be available. The Borrowers’ obligations under the ABL Credit Facility are guaranteed by most of the Company’s wholly-owned subsidiaries who are not also Borrowers (collectively, the “ABL Guarantors”), subject to customary exceptions and limitations. The Borrowers’ obligations under the ABL Credit Facility and the ABL Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Borrowers’ and ABL Guarantors’ accounts receivable, inventory and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL Assets”) and (ii) a second-priority lien on all of the Borrowers’ and ABL Guarantors’ assets that do not constitute ABL Assets, in each case, subject to customary exceptions and limitations. Availability under the ABL Credit Facility is subject to a borrowing base (the “Borrowing Base”), which is based on 90 % of eligible accounts receivable, plus 90 % of eligible credit card receivables, plus 90 % of the net orderly liquidation value of eligible inventory, plus 90 % of eligible pharmacy receivables, plus certain pharmacy scripts availability of the Borrowers, after adjusting for customary reserves. The aggregate amount of the ABL Loans made and letters of credit issued under the ABL Credit Facility shall at no time exceed the lesser of the aggregate commitments under the ABL Credit Facility (currently $ 2,100.0 million or, if increased at the Borrowers’ option as described above, up to $ 2,700.0 million ) or the Borrowing Base. To the extent that the Borrowers’ Borrowing Base declines, the availability under the ABL Credit Facility may decrease below $ 2,100.0 million . As of August 1, 2020 , the U.S. Borrowers’ Borrowing Base, net of $ 254.7 million of reserves, was $ 2,047.8 million , which is below the $ 2,050.0 million limit of availability to the U.S. Borrowers under the ABL Credit Facility. 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. Borrowers had $ 756.7 million of ABL Loans outstanding, which are presented net of debt issuance costs of $ 9.9 million and are included in Long-term debt in the Consolidated Balance Sheets, and the Canadian Borrower had no ABL Loans outstanding under the ABL Credit Facility. As of August 1, 2020 , the U.S. Borrowers had $ 95.9 million in letters of credit and the Canadian Borrower had no letters of credit outstanding under the ABL Credit Facility. The Company’s resulting remaining availability under the ABL Credit Facility was $ 1,234.8 million as of August 1, 2020 . 98 Table of Contents The ABL Loans of the U.S. Borrowers under the ABL Credit Facility bear interest at rates that, at the U.S. Borrowers’ option, can be either: (i) a base rate and an applicable margin, or (ii) a LIBOR rate and an applicable margin. As of 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: (i) prime rate and an applicable margin, or (ii) a Canadian dollar bankers’ acceptance equivalent rate and an applicable margin. 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 prior fiscal quarter, the applicable margins for borrowings by the U.S. Borrowers and Canadian Borrower will be subject to adjustment based upon the aggregate availability under the ABL Credit Facility. Unutilized commitments under the ABL Credit Facility are subject to a per annum fee of (i) 0.375 % if the average daily total outstandings were less than 25 % of the aggregate commitments during the preceding fiscal quarter, or (ii) 0.25 % if such average daily total outstandings were 25 % or more of the aggregate commitments during the preceding fiscal quarter. As of 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, 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) : August 1, 2020 Certain inventory assets included in Inventories and Current assets of discontinued operations $ 2,270,892 Certain receivables included in Accounts receivable, net and Current assets of discontinued operations $ 1,077,682 (1) 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): August 1, 2020 Outstanding letters of credit $ 95,906 Letter of credit fees 1.375 % Unused available credit $ 1,234,758 Unused facility fees 0.25 % The ABL Loan Agreement contains other customary affirmative and negative covenants and customary representations and warranties that must be accurate in order for the Borrowers to borrow under the ABL Credit Facility. The ABL Loan Agreement also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the ABL Credit Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Borrowers may be required immediately to repay all amounts outstanding under the ABL Loan Agreement. Term Loan Facility 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, 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 was used to finance the Supervalu acquisition and related transaction costs. 99 Table of Contents 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 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. There can be no assurance that additional funding would be available. The Term Borrowers’ obligations under the Term Loan Facility are guaranteed by most of the Company’s wholly-owned domestic subsidiaries who are not also Term Borrowers (collectively, the “Term Guarantors”), subject to customary exceptions and limitations, including an exception for immaterial subsidiaries designated by the Company from time to time. The Term Borrowers’ obligations under the Term Loan Facility and the Term Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ assets other than the ABL Assets and (ii) a second-priority lien on substantially all of the Term Borrowers’ and the Term Guarantors’ ABL Assets, in each case, subject to customary exceptions and limitations, including an exception for owned real property with net book values of less than $ 10.0 million . As of August 1, 2020 , there was $ 599.9 million of owned real property pledged as collateral that was included in Property and equipment, net in the Consolidated Balance Sheets. The loans under the Term Loan Facility may be voluntarily prepaid, subject to certain minimum payment thresholds and the payment of breakage or other similar costs. Under the Term Loan Facility, the Company is required, subject to certain exceptions and customary reinvestment rights, to apply 100 percent of Net Cash Proceeds (as defined in the Term Loan Agreement) from certain types of asset sales to prepay the loans outstanding under the Term Loan Facility. Commencing with the fiscal year ending August 1, 2020, the Company must also prepay loans outstanding under the Term Loan Facility no later than 130 days after the fiscal year end in an aggregate principal amount equal to a specified percentage (which percentage ranges from 0 to 75 percent depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $ 10 million for the fiscal year then ended, minus any voluntary prepayments of the loans under the Term Loan Facility, the ABL Credit Facility (to the extent they permanently reduce commitments under the ABL Facility) and certain other indebtedness made during such fiscal year. 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. The Term Loan Agreement also contains customary events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Term Loan Facility to be in full force and effect, and a change of control. If an event of default occurs and is continuing, the Term Borrowers may be required immediately to repay all amounts outstanding under the Term Loan Agreement. 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. 100 Table of Contents NOTE 11—COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS 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 Foreign Currency Swap Agreements Total Accumulated other comprehensive (loss) income at July 29, 2017 $ — $ — $ ( 15,262 ) $ 1,299 $ ( 13,963 ) Other comprehensive (loss) income before reclassifications — — ( 3,791 ) 4,219 428 Amortization of cash flow hedge — — — ( 644 ) ( 644 ) Net current period Other comprehensive (loss) income — — ( 3,791 ) 3,575 ( 216 ) Accumulated other comprehensive (loss) income at July 28, 2018 $ — $ — $ ( 19,053 ) $ 4,874 $ ( 14,179 ) Other comprehensive loss before reclassifications — ( 32,458 ) ( 1,029 ) ( 61,277 ) ( 94,764 ) Amortization of cash flow hedge — — — ( 10 ) ( 10 ) Net current period Other comprehensive loss — ( 32,458 ) ( 1,029 ) ( 61,287 ) ( 94,774 ) Accumulated other comprehensive loss at August 3, 2019 $ — $ ( 32,458 ) $ ( 20,082 ) $ ( 56,413 ) $ ( 108,953 ) Other comprehensive loss before reclassifications ( 88 ) ( 89,152 ) ( 1,337 ) ( 62,679 ) ( 153,256 ) Amortization of amounts included in net periodic benefit income — ( 2,296 ) — — ( 2,296 ) Amortization of cash flow hedges 21 — — 17,928 17,949 Pension settlement charge — 8,610 — — 8,610 Net current period Other comprehensive loss ( 67 ) ( 82,838 ) ( 1,337 ) ( 44,751 ) ( 128,993 ) Accumulated other comprehensive loss at August 1, 2020 $ ( 67 ) $ ( 115,296 ) $ ( 21,419 ) $ ( 101,164 ) $ ( 237,946 ) Items reclassified out of Accumulated other comprehensive loss had the following impact on the Consolidated Statements of Operations: (in thousands) 2020 2019 2018 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) $ ( 3,107 ) $ — $ — Net periodic benefit income, excluding service cost Pension settlement charges 11,303 — — Net periodic benefit income, excluding service cost Total reclassifications 8,196 — — Income tax benefit 1,882 — — (Benefit) provision for income taxes Total reclassifications, net of tax $ 6,314 $ — $ — Swap agreements: Reclassification of cash flow hedge $ 24,505 $ ( 13 ) $ ( 827 ) Interest expense, net Income tax benefit (expense) 6,577 ( 3 ) ( 183 ) (Benefit) provision for income taxes Total reclassifications, net of tax $ 17,928 $ ( 10 ) $ ( 644 ) Other cash flow hedges: Reclassification of cash flow hedge $ 29 $ — $ — Cost of sales Income tax benefit 8 — — (Benefit) provision for income taxes Total reclassifications, net of tax $ 21 $ — $ — (1) Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 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): Lease Type Consolidated Balance Sheets Location August 1, 2020 Operating lease assets Operating lease assets $ 982,808 Finance lease assets Property and equipment, net 129,517 Total lease assets $ 1,112,325 Operating liabilities Current portion of operating lease liabilities $ 131,022 Finance liabilities Current portion of long-term debt and finance lease liabilities 12,746 Operating liabilities Long-term operating lease liabilities 873,990 Finance liabilities Long-term finance lease liabilities 143,303 Total lease liabilities $ 1,161,061 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 $ 223,016 Short-term lease cost Operating expenses 30,992 Variable lease cost Operating expenses 151,065 Sublease income Operating expenses ( 3,504 ) Sublease income Net sales ( 22,543 ) Other sublease income, net Restructuring, acquisition and integration related expenses (2) ( 5,075 ) Net operating lease cost (1) 373,951 Amortization of leased assets Operating expenses 16,052 Interest on lease liabilities Interest expense, net 11,617 Finance lease cost 27,669 Total net lease cost $ 401,620 (1) 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. (2) 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. On October 26, 2018, the Company received $ 48.5 million in aggregate proceeds, excluding taxes and closing costs, for the sale and leaseback of a separate distribution center under an agreement entered into by Supervalu in March 2018, as amended. Both distribution center sale-leasebacks qualified for sale accounting, with the lease-backs being classified as operating leases. No gain or loss was recognized or deferred on the sale of these facilities, as the fair value of these facilities as of the Supervalu acquisition date was determined to be equal to their contractual sale–leaseback amounts. 101 Table of Contents 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. Many of these leases include renewal options and, in certain instances, also include options to purchase. 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) 2019 2018 Rent expense (1) $ 211,807 $ 88,697 Less subtenant rentals recorded in Net sales ( 17,475 ) — Less subtenant rentals recorded in Operating expenses ( 13,683 ) ( 1,649 ) Total net rent expense $ 180,649 $ 87,048 (1) 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 Fiscal Year Operating Leases (1) Finance Leases (2) Operating Leases Finance Leases Operating Leases Finance Leases 2021 $ 226,081 $ 23,801 $ ( 51,750 ) $ — $ 174,331 $ 23,801 2022 217,353 118,812 ( 46,642 ) — 170,711 118,812 2023 184,360 14,717 ( 36,361 ) — 147,999 14,717 2024 157,528 13,602 ( 28,347 ) — 129,181 13,602 2025 114,577 9,316 ( 18,155 ) — 96,422 9,316 Thereafter 868,870 6,239 ( 45,093 ) — 823,777 6,239 Total undiscounted lease liabilities and receipts $ 1,768,769 $ 186,487 $ ( 226,348 ) $ — $ 1,542,421 $ 186,487 Less interest (3) ( 763,757 ) ( 30,438 ) Present value of lease liabilities 1,005,012 156,049 Less current lease liabilities ( 131,022 ) ( 12,746 ) Long-term lease liabilities $ 873,990 $ 143,303 (1) 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. (2) 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. (3) Calculated using the interest rate for each lease. 102 Table of Contents As of August 3, 2019 , future minimum lease payments to be made by the Company or certain third parties in the case of assigned leases for noncancellable operating leases and finance leases, which have not been reduced for future minimum subtenant rentals under certain operating subleases, including assignments, consisted of the following amounts (in thousands): Lease Obligations Lease Receipts Net Lease Obligations Fiscal Year Operating Leases Capital Leases Operating Leases Capital Leases Operating Leases Capital Leases 2020 $ 223,612 $ 41,550 $ ( 55,922 ) $ ( 319 ) $ 167,690 $ 41,231 2021 190,845 32,804 ( 41,425 ) — 149,420 32,804 2022 179,326 29,869 ( 35,998 ) — 143,328 29,869 2023 154,812 26,699 ( 25,591 ) — 129,221 26,699 2024 135,795 23,095 ( 18,183 ) — 117,612 23,095 Thereafter 1,063,674 46,999 ( 59,186 ) — 1,004,488 46,999 Total future minimum obligations (receipts) $ 1,948,064 $ 201,016 $ ( 236,305 ) $ ( 319 ) $ 1,711,759 $ 200,697 Less interest ( 68,138 ) Present value of capital lease obligations 132,878 Less current capital lease obligations ( 24,670 ) Long-term capital lease obligations $ 108,208 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 10.4 years Finance leases 3.1 years Weighted-average discount rate Operating leases 10.6 % Finance leases 8.8 % Other Information (in thousands) 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 231,272 Operating cash flows from finance leases 9,334 Financing cash flows from finance leases 19,972 Leased assets obtained in exchange for new finance lease liabilities 93,060 Leased assets obtained in exchange for new operating lease liabilities 195,087 NOTE 13—SHARE-BASED AWARDS 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; 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 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. 103 Table of Contents Share-Based Compensation Expense The following table presents information regarding share-based compensation expenses and the related tax impacts: (in thousands) 2020 2019 2018 Restricted stock awards $ 23,260 $ 22,979 $ 19,872 Supervalu replacement awards (1) 9,046 14,304 — Performance-based share awards 1,494 3,013 5,569 Stock option awards ( 111 ) 199 342 Share-based compensation expense recorded in Operating expenses 33,689 40,495 25,783 Income tax benefit ( 9,043 ) ( 10,458 ) ( 6,538 ) Share-based compensation expense, net of tax $ 24,646 $ 30,037 $ 19,245 Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses (2) $ 1,023 $ 33,021 $ 107 Income tax benefit ( 275 ) ( 8,870 ) ( 29 ) Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses, net of tax $ 748 $ 24,151 $ 78 (1) Amounts are derived entirely from liability classified awards. (2) 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. Unrecognized compensation cost related to Replacement Options is de minimis. This cost is expected to be recognized over a weighted-average period of 1.9 years . Restricted Stock Awards The fair value of restricted stock units and performance share units are determined based on the number of units granted and the quoted price of the Company’s common stock as of the grant date. The following summary presents information regarding restricted stock units, Supervalu replacement awards and performance units: 104 Table of Contents Number of Shares Weighted Average Grant-Date Fair Value Outstanding at July 29, 2017 1,270,111 $ 44.56 Granted 716,952 40.06 Vested ( 434,730 ) 47.24 Forfeited ( 207,731 ) 41.38 Outstanding at July 28 2018 1,344,602 41.78 Supervalu replacement awards 4,301,233 32.50 Granted 1,665,233 23.30 Vested ( 2,038,290 ) 34.81 Forfeited ( 852,045 ) 30.83 Outstanding at August 3, 2019 4,420,733 31.11 Granted 6,058,519 7.67 Vested ( 1,043,628 ) 20.59 Forfeited ( 2,018,975 ) 12.39 Outstanding at August 1, 2020 7,416,649 $ 18.54 (in thousands) 2020 2019 2018 Intrinsic value of restricted stock units vested $ 21,007 $ 36,071 $ 12,420 Performance-Based Share Awards 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, 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 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 The Company did no t grant stock options in fiscal 2020 , 2019 or 2018 . 105 Table of Contents The following summary presents information regarding outstanding stock options as of August 1, 2020 and changes during the fiscal year then ended: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at beginning of year 1,769,237 $ 43.06 Exercised ( 3,519 ) 14.77 Forfeited ( 429,225 ) 51.52 Canceled ( 206,420 ) 46.75 Outstanding at end of year 1,130,073 46.46 4.4 years $ — Exercisable at end of year 1,130,073 $ 46.46 4.4 years $ — 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 Pursuant to the Merger Agreement, dated as of July 25, 2018, as amended, each outstanding Supervalu stock option, whether vested or unvested, that was unexercised immediately prior to the effective time of the Merger (“SVU Option”) was converted, effective as of the effective time of the Merger, into a stock option exercisable for shares of common stock of the Company (“Replacement Option”) in accordance with the adjustment provisions of the Supervalu stock plan pursuant to which such SVU Option was granted and the Merger Agreement, with such Replacement Option generally having the same terms and conditions as the underlying SVU Option. In addition, pursuant to the Merger Agreement, each outstanding Supervalu restricted share award, restricted stock unit award, deferred share unit award and performance share unit award (“SVU Equity Award”) was converted, effective as of the effective time of the Merger, into time-vesting awards (“Replacement Award”) with a settlement value equal to the merger consideration ( $ 32.50 per share) multiplied by the number of shares of Supervalu common stock subject to such SVU Equity Award, and generally upon the same terms of the SVU Equity Award including the applicable change in control termination protections. The Merger Agreement originally provided that the Replacement Awards were payable in cash, however, the Merger Agreement was amended on October 10, 2018, to provide that the Replacement Awards could be settled in cash and/or an equal value in shares of common stock of the Company. 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. 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. The Replacement Awards liabilities are expensed over the service period based on the fixed value of $ 32.50 per share. Retirement Provision During the second quarter of fiscal 2019, after reviewing retirement provisions and practices for the treatment of equity awards at comparable companies, the Compensation Committee of the Company’s Board of Directors determined to change the terms of its long-term compensation awards to executives who might consider retiring and to better assure that their awards provided an incentive to work for the long term best interests of the Company up to their termination date, and regardless of their retirement plans. Accordingly, the Compensation Committee determined that time-based vesting restricted stock units, with the exception of Replacement Awards, will continue to vest during retirement after termination of employment on the same terms as they would if the executive had not retired, but without the requirement that they remain employed. Performance share-units will be treated similarly on retirement, but subject to actual performance at the time achievement of performance objectives is measured. In addition, an executive’s equity awards granted in the year of retirement will be prorated to reflect the service period prior to the date of retirement. Retirement vesting will only be available to employees age 59 or older who voluntarily terminate employment after at least 10 years of service to the Company. As a result of these retirement provisions, the Company recorded a share-based compensation charge of approximately $ 6.6 million during the second quarter of fiscal 2019 related to the amendment of outstanding awards. Future grants made to employees who are retirement eligible will result in an accelerated pattern of expense recognition compared to non-retirement eligible employees. 106 Table of Contents NOTE 14—BENEFIT PLANS The Company’s employees who participate are covered by various contributory and non-contributory pension, profit sharing or 401(k) plans. The Company’s primary defined benefit pension plans are the SUPERVALU INC. Retirement Plan, Unified Grocers pension plan and certain supplemental executive retirement plans. These plans were closed to new participants and service crediting ended for all participants as of December 31, 2007. Pay increases were reflected in the amount of benefits accrued in these plans until December 31, 2012. 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. In addition to sponsoring both defined benefit and defined contribution pension plans, the Company provides healthcare and life insurance benefits for eligible retired employees under postretirement benefit plans. The Company also provides certain health and welfare benefits, including short-term and long-term disability benefits, to inactive disabled employees prior to retirement. The terms of the postretirement benefit plans vary based on employment history, age and date of retirement. For many retirees, the Company provides a fixed dollar contribution and retirees pay contributions to fund the remaining cost. For the defined benefit pension plans, the accumulated benefit obligation is equal to the projected benefit obligation. The benefit obligation, fair value of plan assets and funded status of our defined benefit pension plans and other postretirement benefit plans consisted of the following: 2020 2019 (in thousands) Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Changes in Benefit Obligation Benefit Obligation at beginning of year $ 2,709,274 $ 37,682 $ — $ — Benefit obligation at acquisition date of October 22, 2018 — — 2,499,954 52,276 Plan amendment — — — ( 4,199 ) Service cost — 54 — 173 Interest cost 57,495 943 75,706 1,447 Actuarial loss (gain) 276,635 719 249,899 ( 9,836 ) Settlements paid ( 689,989 ) — — — Benefits paid ( 93,928 ) ( 2,285 ) ( 116,285 ) ( 2,179 ) Benefit obligation at end of year 2,259,487 37,113 2,709,274 37,682 Changes in Plan Assets Fair value of plan assets at beginning of year 2,496,547 11,243 — — Fair value of plan assets at acquisition date of October 22, 2018 — — 2,305,020 11,586 Actual return on plan assets 261,839 845 303,696 260 Employer contributions 16,099 2,601 4,116 1,636 Settlements paid ( 689,989 ) — — — Benefits paid ( 93,928 ) ( 2,285 ) ( 116,285 ) ( 2,239 ) Fair value of plan assets at end of year 1,990,568 12,404 2,496,547 11,243 Unfunded status at end of year $ ( 268,919 ) $ ( 24,709 ) $ ( 212,727 ) $ ( 26,439 ) 107 Table of Contents Net periodic benefit (income) cost and other changes in plan assets and benefit obligations recognized consist of the following: 2020 2019 (in thousands) Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Net Periodic Benefit (Income) Cost Service cost $ — $ 54 $ — $ 173 Interest cost 57,495 943 75,706 1,447 Expected return on plan assets ( 105,596 ) ( 215 ) ( 111,695 ) ( 184 ) Amortization of net actuarial gain — ( 3,107 ) — — Pension settlement charge 11,303 — — — Net periodic benefit (income) cost ( 36,798 ) ( 2,325 ) ( 35,989 ) 1,436 Other Changes in Plan Assets and Benefits Obligations Recognized in Other Comprehensive (Loss) Income Prior service benefit — — — ( 4,199 ) Amortization of prior service benefit — 1,400 — — Net actuarial loss (gain) 108,990 89 57,902 ( 9,912 ) Amortization of net actuarial loss — 1,707 — — Total expense (benefit) recognized in Other comprehensive (loss) income 108,990 3,196 57,902 ( 14,111 ) Total expense (benefit) recognized in net periodic benefit cost (income) and Other comprehensive (loss) income $ 72,192 $ 871 $ 21,913 $ ( 12,675 ) 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 1, 2020 and August 3, 2019 consist of the following: August 1, 2020 August 3, 2019 (in thousands) Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Accrued compensation and benefits $ 1,500 $ — $ 1,900 $ — Pension and other postretirement benefit obligations 267,419 24,709 210,827 26,439 Total $ 268,919 $ 24,709 $ 212,727 $ 26,439 Assumptions Weighted average assumptions used to determine benefit obligations and net periodic benefit cost consisted of the following: 108 Table of Contents 2020 2019 Benefit obligation assumptions: Discount rate 1.74% - 2.37% 2.99% - 3.49% Net periodic benefit cost assumptions: Discount rate 2.99% - 3.49% 4.30% - 4.42% Rate of compensation increase — — % Expected return on plan assets (1) 2.00% - 5.75% 2.25% - 6.50% (1) 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. These assumptions are weighted by the actual or target allocation to each underlying asset class represented in the pension plan asset portfolio. We also assess the expected long-term return on plan assets assumption by comparison to long-term historical performance on an asset class to ensure the assumption is reasonable. Long-term trends are also evaluated relative to market factors such as inflation, interest rates, and fiscal and monetary policies in order to assess the capital market assumptions. The Company reviews and selects the discount rate to be used in connection with measuring our pension and other postretirement benefit obligations annually. In determining the discount rate, the Company uses the yield on corporate bonds (rated AA or better) that coincides with the cash flows of the plans’ estimated benefit payouts. The model uses a yield curve approach to discount each cash flow of the liability stream at an interest rate specifically applicable to the timing of each respective cash flow. The model totals the present values of all cash flows and calculates the equivalent weighted average discount rate by imputing the singular interest rate that equates the total present value with the stream of future cash flows. This resulting weighted average discount rate is then used in evaluating the final discount rate to be used. For those retirees whose health plans provide for variable employer contributions, the assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation before age 65 was 7.80 percent as of August 1, 2020 . The assumed healthcare cost trend rate for retirees before age 65 will decrease each year through fiscal 2029, until it reaches the ultimate trend rate of 4.50 percent . For those retirees whose health plans provide for variable employer contributions, the assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation after age 65 was 8.00 percent as of August 1, 2020 . The assumed healthcare cost trend rate for retirees after age 65 will decrease through fiscal 2029, until it reaches the ultimate trend rate of 4.50 percent . For those retirees whose health plans provide for a fixed employer contribution rate, a healthcare cost trend is not applicable. The healthcare cost trend rate assumption would have had the following impact on the amounts reported: a 100 basis point increase in the trend rate would increase the accumulated postretirement benefit obligation by approximately $ 0.8 million as of the end of fiscal 2020 and would increase service and interest cost by less than $ 0.1 million . Conversely, a 100 basis point decrease in the healthcare cost trend rate would decrease the Company’s accumulated postretirement benefit obligation as of the end of fiscal 2020 by approximately $ 0.7 million and would decrease service and interest cost by less than $ 0.1 million . Pension Plan Assets Pension plan assets are held in a master trust and invested in separately managed accounts and other commingled investment vehicles holding domestic and international equity securities, domestic fixed income securities and other investment classes. The Company employs a total return approach whereby a diversified mix of asset class investments is used to maximize the long-term return of plan assets for an acceptable level of risk. Alternative investments are also used to enhance risk-adjusted long-term returns while improving portfolio diversification. Risk is managed through diversification across asset classes, multiple investment manager portfolios and both general and portfolio-specific investment guidelines. Risk tolerance is established through careful consideration of the plan liabilities, plan funded status and our financial condition. This asset allocation policy mix is reviewed annually and actual versus target allocations are monitored regularly and rebalanced on an as-needed basis. Plan assets are invested using a combination of active and passive investment strategies. Passive, or “indexed” strategies, attempt to mimic rather than exceed the investment performance of a market benchmark. The plan’s active investment strategies employ multiple investment management firms. Managers within each asset class cover a range of investment styles and approaches and are combined in a way that controls for capitalization, and style biases (equities) and interest rate exposures (fixed income) versus benchmark indices. Monitoring activities to evaluate performance against targets and measure investment risk take place on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. 109 Table of Contents The asset allocation targets and the actual allocation of pension plan assets are as follows: Asset Category Target 2020 2019 Domestic equity 22.4 % 22.6 % 22.1 % International equity 6.8 % 6.0 % 6.2 % Private equity 5.3 % 4.7 % 4.2 % Fixed income 59.7 % 60.4 % 62.3 % Real estate 5.8 % 6.3 % 5.2 % Total 100.0 % 100.0 % 100.0 % The following is a description of the valuation methodologies used for investments measured at fair value: Common stock - Valued at the closing price reported in the active market in which the individual securities are traded. Common collective trusts - Investments in common/collective trust funds are stated at net asset value (“NAV”) as determined by the issuer of the common/collective trust funds and is based on the fair value of the underlying investments held by the fund less its liabilities. The majority of the common/collective trust funds have a readily determinable fair value and are classified as Level 2. Other investments in common/collective trust funds determine NAV on a less frequent basis and/or have redemption restrictions. For these investments, NAV is used as a practical expedient to estimate fair value. Corporate bonds - Valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the fair value is based upon an industry valuation model, which maximizes observable inputs. Government securities - Certain government securities are valued at the closing price reported in the active market in which the security is traded. Other government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. Mortgage backed securities - Valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar securities, the fair value is based upon an industry valuation model, which maximizes observable inputs. Mutual funds - Mutual funds are valued at the closing price reported in the active market in which the individual securities are traded. Private equity and real estate partnerships - Valued based on NAV provided by the investment manager, updated for any subsequent partnership interests’ cash flows or expected changes in fair value. 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 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. 110 Table of Contents 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): Level 1 Level 2 Level 3 Measured at NAV as a Practical Expedient Total Common stock $ 334,194 $ — $ — $ — $ 334,194 Common collective trusts — 901,258 — 59,454 960,712 Corporate bonds — 310,694 — — 310,694 Government securities — 131,424 — — 131,424 Mutual funds 456 42,867 — — 43,323 Mortgage-backed securities — 3,979 — — 3,979 Other 10,314 23,137 — — 33,451 Private equity and real estate partnerships — — — 172,791 172,791 Total plan assets at fair value $ 344,964 $ 1,413,359 $ — $ 232,245 $ 1,990,568 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): Level 1 Level 2 Level 3 Measured at NAV as a Practical Expedient Total Common stock $ 397,800 $ — $ — $ — $ 397,800 Common collective trusts — 1,046,590 — 83,504 1,130,094 Corporate bonds — 362,251 — — 362,251 Government securities — 248,872 — — 248,872 Mutual funds 469 62,254 — — 62,723 Mortgage-backed securities — 10,920 — — 10,920 Other 5,603 73,745 — — 79,348 Private equity and real estate partnerships — — — 204,539 204,539 Total plan assets at fair value $ 403,872 $ 1,804,632 $ — $ 288,043 $ 2,496,547 Contributions 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. The Company expects to contribute approximately $ 0.0 million to $ 5.3 million to its other defined benefit pension plans and postretirement benefit plans in fiscal 2021. The Company funds its defined benefit pension plans based on the minimum contribution required under the Code, ERISA the Pension Protection Act of 2006 and other applicable laws, as determined by our external actuarial consultant, and additional contributions made at its discretion. The Company may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. The Company assesses the relative attractiveness of the use of cash including such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or the ability to achieve exemption from participant notices of underfunding. 111 Table of Contents Estimated Future Benefit Payments The estimated future benefit payments to be made from our defined benefit pension and other postretirement benefit plans, which reflect expected future service, are as follows (in thousands): Fiscal Year Pension Benefits Other Postretirement Benefits 2021 $ 117,700 $ 3,800 2022 112,900 3,600 2023 114,500 3,400 2024 118,000 3,200 2025 123,200 3,000 Years 2026-2030 592,300 12,000 Defined Contribution Plans The Company sponsors defined contribution and profit sharing plans pursuant to Section 401(k) of the Internal Revenue Code. Employees may contribute a portion of their eligible compensation to the plans on a pre-tax basis. We match a portion of certain employee contributions by contributing cash into the investment options selected by the employees. The total amount contributed by us to the plans is determined by plan provisions or at our discretion. Total employer contribution expenses for these plans were $ 21.0 million , $ 21.0 million and $ 11.6 million for fiscal 2020 , 2019 and 2018 , respectively. Post-Employment Benefits The Company recognizes an obligation for benefits provided to former or inactive employees. The company is self-insured for certain disability plan programs, which comprise the primary benefits paid to inactive employees prior to retirement. Amounts recognized in the Consolidated Balance Sheets consisted of the following (in thousands): Post-Employment Benefits August 1, 2020 August 3, 2019 Accrued compensation and benefits $ 2,356 $ 2,356 Other long-term liabilities 5,053 5,053 Total $ 7,409 $ 7,409 Multiemployer Pension Plans The Company contributes to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration. Trustees are appointed in equal number by employers and the unions that are parties to the relevant collective bargaining agreements. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. The Company acquired multiemployer plan obligations related to continuing and discontinued operations as part of the Supervalu acquisition. The risks of participating in these multiemployer plans are different from the risks associated with single-employer plans in the following respects: a. Assets contributed to the multiemployer plan by one employer are held in trust and may be used to provide benefits to employees of other participating employers. b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. c. If we choose to stop participating in some multiemployer plans, or make market exits or closures or otherwise have participation in the plan drop below certain levels, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. 112 Table of Contents The Company’s participation in these plans is outlined in the table below. The EIN-Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) zone status available in 2019 relates to the plans’ most recent fiscal year-end. The zone status is based on information that we received from the plan and is annually certified by each plan’s actuary. Among other factors, red zone status plans are generally less than 65 percent funded and are considered in critical status, plans in yellow zone status are less than 80 percent funded and are considered in endangered or seriously endangered status, and green zone plans are at least 80 percent funded. The Multiemployer Pension Reform Act of 2014 (“MPRA”) created a new zone status called “critical and declining” or “Deep Red”. Plans are generally considered Deep Red if they are projected to become insolvent within 15 years . The FIP/RP Status Pending/Implemented column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each plan. Certain plans have been aggregated in the All Other Multiemployer Pension Plans line in the following table, as the contributions to each of these plans are not individually material. 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 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): Pension Protection Act Zone Status Contributions Pension Fund EIN-Pension Plan Number Plan Month/Day End Date 2020 FIP/RP Status Pending/Implemented 2020 2019 Surcharges Imposed (1) Amortization Provisions Minneapolis Food Distributing Industry Pension Plan 416047047-001 12/31 Green No $ 11 $ 8 No ☐ Minneapolis Retail Meat Cutters and Food Handlers Pension Fund 410905139-001 2/28 Red Implemented 9 7 No ☒ Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund 832598425-001 12/31 NA NA 3 1 NA ☐ Central States, Southeast and Southwest Areas Pension Fund 366044243-001 12/31 Deep Red Implemented 6 5 No ☒ UFCW Unions and Participating Employer Pension Fund (2) 526117495-001 12/31 Red Implemented 7 4 No ☐ Western Conference of Teamsters Pension Plan Trust 916145047-001 12/31 Green No 13 12 No ☐ UFCW Unions and Employers Pension Plan 396069053-001 10/31 Deep Red Implemented 1 1 No ☒ All Other Multiemployer Pension Plans (3) 2 3 Total $ 52 $ 41 (1) 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. (2) These multiemployer pension plans are associated with continued and discontinued operations. (3) 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. 113 Table of Contents The following table describes the expiration of the Company’s collective bargaining agreements associated with the significant multiemployer plans in which we participate: Most Significant Collective Bargaining Agreement Pension Fund Range of Collective Bargaining Agreement Expiration Dates Total Collective Bargaining Agreements Expiration Date % of Associates under Collective Bargaining Agreement (1) Over 5% Contributions 2020 Minneapolis Food Distributing Industry Pension Plan 5/31/2022 1 5/31/2022 100.0 % ☒ Minneapolis Retail Meat Cutters and Food Handlers Pension Fund 3/4/2023 1 3/4/2023 100.0 % ☒ Minneapolis Retail Meat Cutters and Food Handlers Variable Annuity Pension Fund 3/4/2023 1 3/4/2023 100.0 % ☒ Central States, Southeast and Southwest Areas Pension Fund 9/14/2019 - 5/31/2025 4 8/3/2024 39.2 % ☐ UFCW Unions and Participating Employer Pension Fund (2) 11/8/2020 2 11/8/2020 66.2 % ☒ Western Conference of Teamsters Pension Plan Trust 5/31/2020 - 4/22/2023 15 9/19/2020 20.7 % ☐ UFCW Unions and Employers Pension Plan 4/9/2022 1 4/9/2022 100.0 % ☒ (1) Company participating employees in the most significant collective bargaining agreement as a percent of all Company employees participating in the respective fund. (2) 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 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. Multiemployer Postretirement Benefit Plans Other than Pensions The Company also makes contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. These plans provide medical, dental, pharmacy, vision and other ancillary benefits to active employees and retirees as determined by the trustees of each plan. The vast majority of the Company’s contributions benefit active employees and as such, may not constitute contributions to a postretirement benefit plan. However, the Company is unable to separate contribution amounts to postretirement benefit plans from contribution amounts paid to benefit active employees. 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. 114 Table of Contents Collective Bargaining Agreements As of August 1, 2020 , we had approximately 28,300 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. Negotiations are expected to continue with the bargaining units representing the employees subject to those agreements. During fiscal 2021, 19 collective bargaining agreements covering approximately 1,400 employees are scheduled to expire. NOTE 15—INCOME TAXES Income Tax (Benefit) Expense For the fiscal year ended August 1, 2020 , (loss) income before income taxes, consists of $( 340.8 ) million from U.S. 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. operations and $ 7.4 million from foreign operations. The total (benefit) provision for income taxes included in the Consolidated Statements of Operations consisted of the following: (in thousands) 2020 2019 2018 Continuing operations $ ( 90,445 ) $ ( 58,936 ) $ 47,215 Discontinued operations ( 4,465 ) ( 3,723 ) — Total $ ( 94,910 ) $ ( 62,659 ) $ 47,215 The income tax expense (benefit) in continuing operations for fiscal 2020, 2019 and 2018 was allocated as follows: (in thousands) 2020 2019 2018 Income tax expense $ ( 90,445 ) $ ( 58,936 ) $ 47,215 Other comprehensive income ( 45,700 ) ( 33,854 ) 1,561 Total $ ( 136,145 ) $ ( 92,790 ) $ 48,776 Total federal, state, and foreign income tax (benefit) expense in continuing operations consists of the following: (in thousands) Current Deferred Total Fiscal 2020 U.S. Federal $ ( 22,681 ) $ ( 45,315 ) $ ( 67,996 ) State and Local 654 ( 23,058 ) ( 22,404 ) Foreign 2,515 ( 2,560 ) ( 45 ) $ ( 19,512 ) $ ( 70,933 ) $ ( 90,445 ) Fiscal 2019 U.S. Federal $ 11,402 $ ( 59,528 ) $ ( 48,126 ) State and Local ( 11,049 ) ( 1,767 ) ( 12,816 ) Foreign 1,919 87 2,006 $ 2,272 $ ( 61,208 ) $ ( 58,936 ) Fiscal 2018 U.S. Federal $ 46,210 $ ( 16,508 ) $ 29,702 State and Local 13,310 1,878 15,188 Foreign 2,374 ( 49 ) 2,325 $ 61,894 $ ( 14,679 ) $ 47,215 115 Table of Contents Total income tax expense (benefit) in continuing operations was different than the amounts computed by applying the statutory federal income tax rate to income before income taxes because of the following: (in thousands) 2020 2019 2018 Computed “expected” tax expense $ ( 72,335 ) $ ( 70,740 ) $ 57,499 State and local income tax, net of Federal income tax benefit ( 19,344 ) ( 17,524 ) 10,501 Non-deductible expenses 3,033 5,670 955 Tax effect of share-based compensation 2,715 125 149 General business credits ( 1,855 ) ( 1,757 ) ( 552 ) Unrecognized tax benefits ( 7,441 ) ( 8,130 ) 618 Nondeductible goodwill impairment 44,226 32,619 — Impacts related to the TCJA — — ( 21,719 ) Impacts related to the CARES Act ( 39,497 ) — — Other, net 53 801 ( 236 ) Total income tax expense $ ( 90,445 ) $ ( 58,936 ) $ 47,215 Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows: (in thousands) 2020 2019 2018 Unrecognized tax benefits at beginning of period $ 40,142 $ 1,104 $ 478 Unrecognized tax benefits added during the period 5,950 — 626 Unrecognized tax benefits assumed in a business combination — 49,566 — Decreases in unrecognized tax benefits due to statute expiration ( 1,595 ) ( 10,528 ) — Decreases in unrecognized tax benefits due to settlements ( 12,375 ) — — Unrecognized tax benefits at end of period $ 32,122 $ 40,142 $ 1,104 In addition, the Company has $ 8.4 million paid on deposit to various governmental agencies to cover the above liability. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. For fiscal 2020 , 2019 and 2018 , total accrued interest and penalties was $ 7.0 million , $ 15.6 million , and $ 0.1 million , respectively. The Company is currently under examination in several taxing jurisdictions and remains subject to examination until the statute of limitations expires for the respective taxing jurisdiction or an agreement is reached between the taxing jurisdiction and the Company. As of 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. 116 Table of Contents 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 1, 2020 and August 3, 2019 are presented below: (in thousands) August 1, 2020 August 3, 2019 Deferred tax assets: Inventories, principally due to additional costs inventoried for tax purposes $ 78 $ 2 Compensation and benefits related 103,312 100,942 Accounts receivable, principally due to allowances for uncollectible accounts 12,217 3,355 Accrued expenses 32,844 15,022 Net operating loss carryforwards 13,464 44,396 Other tax carryforwards (interest, charitable contributions) 6,971 10,143 Foreign tax credits 445 445 Intangible assets 67,226 5,869 Interest rate swap agreements 36,949 20,518 Other deferred tax assets 5,258 2,946 Total gross deferred tax assets 278,764 203,638 Less valuation allowance ( 3,098 ) ( 445 ) Net deferred tax assets $ 275,666 $ 203,193 Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ 125,463 $ 117,195 Inventories 42,579 51,392 Intangible assets — 1,016 Other — 370 Total deferred tax liabilities 168,042 169,973 Net deferred tax assets $ 107,624 $ 33,220 CARES Act The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 and contains significant business tax provision changes to the U.S. tax code, including temporary expansion 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 117 Table of Contents 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. Of this amount, approximately $ 2.3 million of the federal carryforwards are subject to an annual limitation of approximately $ 0.3 million under Internal Revenue Code Section 382. These Section 382-limited carryforwards expire at various times between fiscal years 2021 and 2027 . 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 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. subsidiary were subject to deemed U.S. repatriation and taxation during fiscal 2017 pursuant to the TCJA, and existing foreign tax credits were utilized to offset the resulting liability. We have established a deferred tax asset for the remaining U.S. foreign tax credits of $ 0.4 million . Such credits are offset by a valuation allowance. Effective Tax Rate 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. Other 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 $ 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. 118 Table of Contents NOTE 16—EARNINGS PER SHARE The following is a reconciliation of the basic and diluted number of shares used in computing earnings per share: (in thousands, except per share data) 2020 2019 2018 Basic weighted average shares outstanding 53,778 51,245 50,530 Net effect of dilutive stock awards based upon the treasury stock method — — 307 Diluted weighted average shares outstanding 53,778 51,245 50,837 Basic (loss) earnings per share: Continuing operations $ ( 4.81 ) $ ( 5.57 ) $ 3.22 Discontinued operations $ ( 0.28 ) $ 0.02 $ — Basic (loss) income per share $ ( 5.10 ) $ ( 5.56 ) $ 3.22 Diluted (loss) earnings per share: Continuing operations $ ( 4.81 ) $ ( 5.57 ) $ 3.20 Discontinued operations (1) $ ( 0.28 ) $ 0.02 $ — Diluted (loss) income per share $ ( 5.10 ) $ ( 5.56 ) $ 3.20 Anti-dilutive stock-based awards excluded from the calculation of diluted earnings per share 3,649 3,434 93 (1) The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding, which includes the net effect of dilutive stock awards, of approximately 0 thousand and 292 thousand shares for fiscal 2020 and 2019, respectively. NOTE 17—BUSINESS SEGMENTS The Company has two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure. The Wholesale reportable segment is the aggregation of two operating segments: U.S. Wholesale and Canada Wholesale. The U.S. Wholesale and Canada Wholesale operating segments have similar products and services, customer channels, distribution methods and economic characteristics. Reportable segments are reviewed on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred. The Wholesale reportable segment is engaged in the national distribution of natural, organic, specialty, produce, and conventional grocery and non-food products, and 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 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. 119 Table of Contents 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) 2020 2019 2018 Net sales: Wholesale (1) $ 25,496,597 $ 21,530,183 $ 10,169,840 Retail 2,330,694 1,653,596 — Other 227,984 234,838 228,465 Eliminations ( 1,541,008 ) ( 1,111,161 ) ( 171,622 ) Total Net sales $ 26,514,267 $ 22,307,456 $ 10,226,683 Continuing operations Adjusted EBITDA: Wholesale 591,028 462,996 343,104 Retail 86,401 34,149 — Other ( 15,903 ) 41,918 12,337 Eliminations ( 2,464 ) ( 1,162 ) 3,425 Adjustments: Net income attributable to noncontrolling interests 4,929 107 — Total other expense, net ( 148,839 ) ( 144,685 ) ( 14,480 ) Depreciation and amortization ( 281,535 ) ( 247,746 ) ( 87,631 ) Share-based compensation ( 33,689 ) ( 40,495 ) ( 25,783 ) Restructuring, impairment, acquisition, and integration related expenses ( 86,383 ) ( 148,195 ) ( 9,738 ) Goodwill and asset impairment ( 425,405 ) ( 292,770 ) ( 11,242 ) (Loss) gain on sale of assets ( 17,132 ) 499 — Note receivable and lost customer bankruptcy charge ( 12,516 ) — — Inventory fair value adjustment — ( 10,463 ) — Legal reserve charge ( 1,196 ) 1,390 — Other retail expense ( 1,750 ) — — (Loss) income from continuing operations before income taxes $ ( 344,454 ) $ ( 344,457 ) $ 209,992 Depreciation and amortization: Wholesale $ 267,236 $ 227,946 $ 84,971 Retail 3,493 6,430 — Other 10,806 13,370 2,660 Total depreciation and amortization $ 281,535 $ 247,746 $ 87,631 Capital expenditures: Wholesale $ 159,758 $ 206,812 $ 43,402 Retail 12,344 20,660 — Other 466 1,005 1,206 Total capital expenditures $ 172,568 $ 228,477 $ 44,608 (1) 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: 120 Table of Contents (in thousands) August 1, 2020 August 3, 2019 Assets: Wholesale $ 6,588,836 $ 6,246,306 Retail 542,470 545,050 Other 501,468 362,100 Eliminations ( 54,784 ) ( 45,072 ) Total assets of continuing operations $ 7,577,990 $ 7,108,384 NOTE 18—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS Guarantees and Contingent Liabilities The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of 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 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. 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, the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was Supervalu’s subsidiary. Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous state governmental authorities. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, 121 Table of Contents 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 the Company. The Company also entered into a Services Agreement with Moran Foods (the “Services Agreement”), pursuant to which the Company is providing Save-A-Lot 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 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, 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 1, 2020 , the Company had approximately $ 181 million of non-cancelable future purchase obligations. Legal Proceedings In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against Supervalu alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. As previously disclosed, the Company settled with the certain plaintiffs in November 2017. The remaining plaintiff (the “New England plaintiff”) was not a party to the settlement and pursued its individual claims and potential class action claims against Supervalu. On February 15, 2018, Supervalu filed a summary judgment and Daubert motion and the New England plaintiff filed a motion for class certification and on July 27, 2018, the District Court granted Supervalu’s motions. The New England plaintiff appealed to the 8th Circuit on August 15, 2018, and a hearing was held on October 15, 2019. In the second quarter of fiscal 2020, the 8th Circuit Court of Appeals denied the appeal, 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. Currently, UNFI, primarily through its subsidiary, Advantage Logistics, is named in approximately 38 suits pending in the United States District Court for the Northern District of Ohio where over 1,800 cases have been consolidated as Multi-District Litigation (“MDL”). In accordance with the Stock Purchase Agreement dated January 10, 2013, between New Albertson’s Inc. and the Company (the “Stock Purchase Agreement”), New Albertson’s Inc. is defending and indemnifying UNFI in a majority of the cases under a reservation of rights as those cases relate to New Albertson’s pharmacies. In one of the MDL cases, MDL No. 2804 filed by The Blackfeet Tribe of the Blackfeet Indian Reservation, all defendants were ordered to Answer the Complaint, which UNFI did on July 26, 2019. To date, no discovery has been conducted against UNFI in any of the actions. UNFI is vigorously defending these matters, which it believes are without merit. UNFI is currently subject to a qui tam action alleging violations of the False Claims Act ("FCA"). In United States ex rel. Schutte and Yarberry v. Supervalu, New Albertson's, Inc., et al, which is pending in the U.S. District Court for the Central District of Illinois, the relators allege that defendants overcharged government healthcare programs by not providing the government, as a part of usual and customary prices, the benefit of discounts given to customers purchasing prescription medication who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. The government previously investigated the relators' allegations and declined to intervene. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim. Relators elected to pursue the case on their own and have alleged FCA damages against Supervalu and New Albertsons in excess of $ 100 million , not including trebling and statutory penalties. For the majority of the relevant period Supervalu and New Albertson’s operated as a combined company. In March 2013, Supervalu divested New Albertson’s (and related assets) pursuant the Stock Purchase Agreement. Based on the claims that are currently pending and the Stock Purchase Agreement, Supervalu’s share of a potential award (at the currently claimed value 122 Table of Contents by relators) would be approximately $ 24 million , not including trebling and statutory penalties. Both sides moved for summary judgment. 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. 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. In North Country Store v. United Natural Foods, Inc., plaintiff asserts that the Company made false representations about the nature of fuel surcharges charged to customers and asserts claims for alleged violations of Connecticut’s Unfair Trade Practices Act, breach of contract, unjust enrichment and breach of the covenant of good faith and fair dealing arising out of the Company’s fuel surcharge practices. On March 5, 2019, the Company answered the complaint denying the allegations. At a court-ordered mediation on October 15, 2019, the Company reached an 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; pension plans; labor union disputes, including unfair labor practices, such as claims for back-pay it the context of labor contract negotiations; supplier, customer and service provider contract terms and claims including 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 retail and warehouse properties; and antitrust. Other than as described above, there are no pending material legal proceedings to which the Company is a party or to which its property is subject. Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. We regularly monitor our exposure to the loss contingencies associated with these matters and may from time to time change our predictions with respect to outcomes and estimates with respect to related costs and exposures. As of August 1, 2020, no material accrued obligations, individually or in the aggregate, have been recorded for these legal proceedings. Although management believes it has made appropriate assessments of potential and contingent loss in each of these cases based on current facts and circumstances, and application of prevailing legal principles, there can be no assurance that material differences in actual outcomes from management’s current assessments, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates will not occur. The occurrence of any of the foregoing, could have a material adverse effect on our financial condition, results of operations or cash flows. NOTE 19—DISCONTINUED OPERATIONS 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. The Company closed the remaining Shop ‘n Save St. Louis retail stores and the distribution center that were not sold prior to the Supervalu acquisition date. 123 Table of Contents 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”). The Company did not incur a gain or loss on the sale of this disposal group. The Hornbacher’s store in Grand Forks, North Dakota was not included in the sale to Coborn’s and has closed pursuant to the terms of the definitive agreement. As part of the sale, Coborn's entered into a long-term agreement for the Company to serve as the primary supplier of the Hornbacher's locations and expand its existing supply arrangements for other Coborn’s locations. In the fourth quarter of fiscal 2019, the Company completed the sale of the pharmacy prescription files and inventory of the Shoppers disposal group. Operating results of discontinued operations are summarized below: (in thousands) 2020 2019 (1) (41 weeks) Net sales $ 228,523 $ 440,450 Cost of sales 162,099 312,200 Gross profit 66,424 128,250 Operating expenses 52,625 105,981 Restructuring expenses and charges 33,470 24,944 Operating loss ( 19,671 ) ( 2,675 ) Other (income) expense, net ( 4 ) 150 Loss from discontinued operations before income taxes ( 19,667 ) ( 2,825 ) Benefit for income taxes ( 4,465 ) ( 3,723 ) (Loss) income from discontinued operations, net of tax $ ( 15,202 ) $ 898 (1) These results reflect retail operations from the Supervalu acquisition date of October 22, 2018 to August 3, 2019. 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 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. 124 Table of Contents 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. (in thousands) August 1, 2020 August 3, 2019 Current assets Cash and cash equivalents $ 119 $ 799 Receivables, net 350 158 Inventories 4,233 18,885 Other current assets 365 1,152 Total current assets of discontinued operations 5,067 20,994 Long-term assets Property and equipment 3,450 44,489 Other assets 465 468 Total long-term assets of discontinued operations 3,915 44,957 Total assets of discontinued operations $ 8,982 $ 65,951 Current liabilities Accounts payable $ 3,613 $ 6,181 Accrued compensation and benefits 4,501 3,637 Other current liabilities 3,324 5,699 Total current liabilities of discontinued operations 11,438 15,517 Long-term liabilities Other long-term liabilities 1,738 770 Total liabilities of discontinued operations 13,176 16,287 Net (liabilities) assets of discontinued operations $ ( 4,194 ) $ 49,664 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. 125 Table of Contents NOTE 21—QUARTERLY FINANCIAL DATA (UNAUDITED) 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): 2020 (In thousands except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter (1) Full Year (1) Net sales $ 6,296,612 $ 6,431,382 $ 7,031,718 $ 6,754,555 $ 26,514,267 Gross profit 907,211 917,325 1,050,232 1,000,024 3,874,792 Net (loss) income from continuing operations ( 387,434 ) ( 13,984 ) 94,447 52,962 ( 254,009 ) (Loss) income from discontinued operations, net of tax 4,026 ( 16,076 ) ( 4,078 ) 926 ( 15,202 ) Net (loss) income including noncontrolling interests ( 383,408 ) ( 30,060 ) 90,369 53,888 ( 269,211 ) Net (loss) income attributable to United Natural Foods, Inc. ( 383,927 ) ( 30,710 ) 88,131 52,366 ( 274,140 ) Basic (loss) earnings per share: Continuing operations $ ( 7.29 ) $ ( 0.27 ) $ 1.72 $ 0.94 $ ( 4.81 ) Basic (loss) earnings per share $ ( 7.21 ) $ ( 0.57 ) $ 1.64 $ 0.96 $ ( 5.10 ) Diluted (loss) earnings per share: Continuing operations $ ( 7.29 ) $ ( 0.27 ) $ 1.67 $ 0.88 $ ( 4.81 ) Diluted (loss) earnings per share $ ( 7.21 ) $ ( 0.57 ) $ 1.60 $ 0.89 $ ( 5.10 ) (1) Fiscal 2020 results reflect 52 weeks of operating results, as compared to fiscal 2019 53 weeks. The fourth quarter of fiscal 2020 includes 13 weeks and the fourth quarter of fiscal 2019 contains 14 weeks. 2019 (In thousands except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Full Year Net sales 2,879,158 6,449,542 6,247,462 6,731,294 $ 22,307,456 Gross profit 419,367 898,087 922,173 968,979 3,208,606 Net income from continuing operations ( 19,579 ) ( 344,241 ) 56,493 21,806 ( 285,521 ) Income from discontinued operations, net of tax 288 2,345 651 ( 2,386 ) 898 Net income (loss) including noncontrolling interests ( 19,291 ) ( 341,896 ) 57,144 19,420 ( 284,623 ) Net income (loss) attributable to United Natural Foods, Inc. ( 19,294 ) ( 341,725 ) 57,092 19,197 ( 284,730 ) Basic earnings per share: Continuing operations $ ( 0.39 ) $ ( 6.77 ) $ 1.11 $ 0.41 $ ( 5.57 ) Basic income (loss) per share $ ( 0.38 ) $ ( 6.72 ) $ 1.12 $ 0.36 $ ( 5.56 ) Diluted earnings per share: Continuing operations $ ( 0.39 ) $ ( 6.77 ) $ 1.11 $ 0.41 $ ( 5.57 ) Diluted income (loss) per share $ ( 0.38 ) $ ( 6.72 ) $ 1.12 $ 0.36 $ ( 5.56 ) 126 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.