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Item 2. Management’s Discussion and Analysis

2020-12-09 compared with 2020-06-10 · 298 added, 362 removed, 213 unchanged (76% of the section changed)

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CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT

This Quarterly Report and the documents incorporated by reference in this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties.

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties.

In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will,” and “would,” or similar words.

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• our dependence on principal customers;

the potential for additional asset impairment charges;

• our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;

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(“Supervalu”);

the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations;

• our reliance on the continued growth in sales of our higher margin natural and organic foods and non-food products in comparison to lower margin conventional grocery products;

• increased competition in our industry as a result of increased distribution of natural, organic and specialty products, and direct distribution of those products by large retailers and online distributors;

• the possibility that restructuring, asset impairment, and other charges and costs we may incur in connection with the sale or closure of our retail operations will exceed our current expectations;

• increased competition as a result of continuing consolidation of retailers in the natural product industry and the growth of supernatural chains;

our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;

• the addition or loss of significant customers or material changes to our relationships with these customers;

volatility in fuel costs;

volatility in foreign exchange rates;

• union-organizing activities that could cause labor relations difficulties and increased costs;

• our ability to operate, and rely on third-parties to operate, reliable and secure technology systems;

• the relatively low margins of our business;

• moderated supplier promotional activity, including decreased forward buying opportunities;

• our ability to timely and successfully deploy our warehouse management system throughout our distribution centers and our transportation management system across the Company and to achieve efficiencies and cost savings from these efforts;

• the potential for additional asset impairment charges;

• our sensitivity to inflationary and deflationary pressures;

the relatively low margins and economic sensitivity of our business;

the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health epidemic (such as the recent outbreak of COVID-19, or the novel coronavirus);

• the potential for disruptions in our supply chain or our distribution capabilities by circumstances beyond our control, including a health epidemic;

• the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise;

moderated supplier promotional activity, including decreased forward buying opportunities;

union-organizing activities that could cause labor relations difficulties and increased costs;

• volatility in fuel costs;

• volatility in foreign exchange rates;

• our ability to identify and successfully complete asset or business acquisitions.

You should carefully review the risks described under “Part II.

Item 1A Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I.

You should carefully review the risks described under “Part I.

Item 1A Risk Factors” of our Annual Report on Form 10-K for the year ended August 1, 2020 as well as any other cautionary language in this Quarterly Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

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EXECUTIVE OVERVIEW

Business Overview

As a leading distributor of natural, organic, specialty, produce and conventional grocery and non-food products, and provider of support services in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America.

As a leading distributor of natural, organic, specialty, produce, and conventional grocery and non-food products, and provider of retailer services in the United States and Canada, we believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America.

We offer more than 275,000 products consisting of national, regional and private label brands grouped into six product categories:

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Through our October 2018 acquisition of Supervalu, we are transforming into North America’s premier wholesaler with 55 distribution centers and warehouses representing approximately 29 million square feet of warehouse space.

We believe our total product assortment and service offerings are unmatched by our wholesale competitors.

We plan to aggressively pursue new business opportunities to independent retailers who operate diverse formats, regional and national chains, as well as international customers with wide-ranging needs.

Our business is classified into two reportable segments:

Wholesale and Retail;

and also includes a manufacturing division and a branded product line division.

Growth Drivers

A key component of our business and growth strategy has been to acquire wholesalers differentiated by product offerings, service offerings and market area.

In fiscal 2019, the acquisition of Supervalu accelerated our “build out the store” strategy, diversified our customer base, enabled cross-selling opportunities, expanded our market reach and scale, enhanced our technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth.

We believe our significant scale and footprint will generate long-term shareholder value by positioning us to continue to grow sales of natural, organic, specialty, produce and conventional grocery and non-food products, including our Private Brands Business and professional services across our network.

We believe we will realize significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure, and eliminating redundant administrative costs.

We maintain long-standing customer relationships with customers in our supernatural, supermarket, independent and other channels.

Some of these long-standing customer relationships are established through contracts with our customers in the form of distribution agreements.

We currently operate approximately 76 retail grocery stores acquired in the Supervalu acquisition.

We intend to thoughtfully and economically divest these stores over the long-term;

however, as discussed below within Divestiture of Retail Operations, we have determined that we no longer expect to divest the Cub Foods business and the majority of the remaining Shoppers locations (collectively “Remaining Retail”) within one year.

Accordingly, we will present the Remaining Retail business within continuing operations beginning in the fourth quarter of fiscal 2020.

In our third quarter fiscal 2020 Condensed Consolidated Financial Statements included in this Quarterly Report, Remaining Retail is presented within Discontinued Operations, as the determination to change the plan of sale occurred subsequent to the end of the third quarter of fiscal 2020.

As described below we entered into agreements to sell 13 retail stores and closed six additional stores.

In the third quarter of fiscal 2020, we closed on the sale of 12 of these Shoppers stores.

In fiscal 2019, the acquisition of Supervalu accelerated our “build out the store” strategy, diversified our customer base, enabled cross-selling opportunities, expanded our market reach and scale, enhanced our technology, capacity and systems, and is expected to continue to deliver significant synergies and accelerate potential growth.

We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, and enabled us to provide a broader array of products to our customers.

As one of the largest wholesale grocery distributors in North America, and in light of the continued expansion of our distribution network and “build out the store” strategy, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which we operate, and are actively pursuing new customers.

We also believe we have an opportunity to sell additional services to our customers to help them more efficiently operate their business while leveraging the infrastructure investments we’ve made.

Services often sold to our customers include coupon processing, consumer marketing, retail technology and payments and consumer services.

We have realized and expect to continue to realize significant cost and revenue synergies from the acquisition of Supervalu by leveraging the scale and resources of the combined company, cross-selling to our customers, integrating our merchandising offerings into existing warehouses, optimizing our network footprint to lower our cost structure and eliminating redundant administrative costs.

We expect the benefits of our significant scale, product and service offerings and nationwide footprint to attract new customers, such as Key Food Stores co-operative, Inc.

(“Key Food”).

On October 6, 2020, we announced UNFI had been selected as the primary grocery wholesaler by Key Food, a Co-Operative of 315 member-owned and corporate grocery stores located in the Northeast and Florida.

UNFI’s supply agreement with Key Food has a term of 10 years with expected sales over that time period of approximately $10 billion.

We have been the primary distributor to Whole Foods Market for more than 20 years.

We continue to serve as the primary distributor to Whole Foods Market in all of its regions in the United States pursuant to a distribution agreement that expires on September 28, 2025.

We currently operate 72 Retail grocery stores acquired in the Supervalu acquisition.

We intend to maximize the value of these assets while, over time, thoughtfully and economically divesting these stores.

However, we no longer expect to divest Retail within one year and, as a result, beginning in the fourth quarter of fiscal 2020, prior period information in our Condensed Consolidated Financial Statements included in this Quarterly Report has been revised to reclassify Retail from discontinued operations to continuing operations from information previously presented in its Quarterly Reports.

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

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Other Factors Affecting our Business

Our results are impacted by macroeconomic and demographic trends, and changes in the food distribution market structure.

Over the past several decades, total food expenditures on a constant dollar basis within the United States has continued to increase in total, and the focus in recent decades on natural, organic and specialty foods has benefited the Company;

however, consumer spending in the food-away-from-home industry had increased steadily as a percentage of total food expenditures.

This trend paused during the 2008 recession, and then continued to increase.

In fiscal 2020, the COVID-19 pandemic caused a significant increase in food-at-home expenditures as a percentage of total food expenditures.

We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years until consumer behaviors return to pre-pandemic patterns.

We believe that changes in work being done outside of the traditional office setting will contribute to more food being consumed at home.

Many large corporations have announced long-term or permanent changes that allow their workforce to work from home.

In addition, the elevated levels of unemployment and underemployment due to the pandemic are expected to persist for some time and even after the near-term impact of COVID-19 has passed.

In general, economic recessions usually result in higher food-at home expenditures, which would be expected to continue to benefit our customers and result in higher sales.

The COVID-19 pandemic also drove significant growth in e-commerce utilization by grocery consumers, and we expect that trend to continue.

We expect to benefit from this trend through the growth of our traditional eCommerce customers, our EasyOptions, a business-verified buyer’s site for retailers, which directly services non-traditional customers, such as bakeries or yoga studios, and through customers adopting our turnkey e-commerce platform.

We are also impacted by changes in food distribution trends affecting our Wholesale customers, such as direct store deliveries and other methods of distribution.

Our Wholesale customers manage their businesses independently and operate in a competitive environment.

We seek to obtain security interests and other credit support in connection with the financial accommodations we extend these customers;

however, we may incur additional credit or inventory charges related to our customers, as we expect the competitive environment to continue to lead to financial stress on some customers.

The magnitude of these risks increases as the size of our Wholesale customers increases.

COVID-19 Impact

Impact and Response

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

As COVID-19 spread in March 2020, shelter-in-place orders and national and state emergencies were issued in the U.S., our business was designated as an essential business to enable us to continue to serve our customers during the COVID-19 pandemic.

We experienced an initial surge in demand and sales in March and April of 2020 as consumers undertook efforts to stock their pantries and our related wholesale customer purchases surged.

During the initial spreading of the virus and implementation of shelter-in-place and restaurant closures, we experienced a surge in demand, which impacted fill and service rates and depleted inventory levels.

Based on historical purchasing levels, temporary customer supply allocation limits were put in place to ensure continued service to our wholesale customers’ locations, which were removed as we added capacity.

In response to the surge in demand, in the third quarter of fiscal 2020, we took immediate actions to respond to the pandemic, to support our associates’ safety and wellbeing, and maximize our logistics network to serve the communities we supply, while delivering operational and financial results.

These actions included:

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

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

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

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

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

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

implementing enhanced high food safety standards for customers and consumers;

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

We believe the Supervalu acquisition allowed us to better serve our wholesale customers’ needs and compete in the current environment by providing additional warehouse and transportation capacity, as well as providing a broader array of products to our customers.

As one of the largest wholesale grocery distributors in North America and in light of the continued expansion of our distribution network and build-out-the-store initiative, we believe we are well positioned to leverage our infrastructure in the current economic and social environment to continue to serve our customers and the communities in which they operate.

We experienced the following impacts from COVID-19 in the third quarter of fiscal 2020:

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

Gross Profit.

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

Operating Expenses.

Operating expense rates were positively impacted by our ability to leverage fixed operating and administrative expenses, which were partially offset by incremental costs related to COVID-19, including the impact of temporary pandemic related incentives and additional costs for safety protocols and procedures at the Company’s distribution centers and retail stores.

When COVID-19 related health and safety requirements are eased, we expect these costs to subside.

These costs were necessary to protect our employees, product quality standards, and wholesale and retail customers.

We estimate we incurred approximately $20 million of incremental operating expenses within continuing operations related to our response to the pandemic and operating our business at a higher through-put capacity.

Operating Earnings.

Our business model drives sales leverage, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses.

Despite incremental labor and operating costs, incremental volume through our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses.

Working Capital and Liquidity

Reflecting the initial impact from the COVID-19 pandemic, working capital was reduced in the third quarter of fiscal 2020 by $214.5 million , as compared to the second quarter of fiscal 2020, which provided a strong source of cash flows from operating activities in the quarter.

The surge in demand during the quarter discussed above initially depleted inventory levels of continuing operations, which ended $109.2 million lower in the quarter compared to the second quarter of fiscal 2020.

Our Accounts payable fluctuated greatly during the quarter related to swings in Inventories, net, ending the quarter $253.4 million higher as compared to the second quarter of fiscal 2020, as we worked to respond to our customers’ modified purchase patterns and prioritize the procurement of high-volume stock-keeping units.

The elevated sales levels caused Accounts receivable, net to grow by $157.7 million as compared to the second quarter of fiscal 2020 due to higher sales.

In response to the potential impacts of the COVID-19 pandemic, we temporarily borrowed an additional $278.5 million on our $2.1 billion ABL Credit Facility, which we fully repaid in the third quarter of fiscal 2020.

These borrowings were made as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.

We made additional net payments of $371.2 million on the ABL Credit Facility in the third quarter of fiscal 2020 to further reduce our debt.

Our unused credit under our ABL Credit Facility increased $329.7 million as of the end of the third quarter of fiscal 2020 compared to the second quarter of fiscal 2020.

We expect to continue to benefit from sales and margin growth as compared to historical periods while food-at-home expenditures as a percentage of total expenditures remains higher than recent historical precedent.

We also expect the favorable year-over-year sales, margin growth and cost leveraging to continue in the near term.

We expect fourth quarter of fiscal 2020 gross margin rate to be diluted as compared to last year driven by continued impacts of wholesale customer and product mix changes.

We continue to make progress to increase fill rates and service level as our and our vendors’ logistics capacity grows, which we expect will result in lower out of stock rates.

Trends in increased sales and gross margin benefits may lessen or reverse in the intermediate months if customers alter their purchasing habits.

In addition, as discussed below in the sections Impact of Inflation or Deflation and Other Factors Affecting our Business we could also be affected by changes in product mix and product category inflation changes, especially if the U.S.

and Canadian economies enter into and maintain an economic recession, and customers change their purchasing habits.

These potential developments could impact food-at-home expenditures and prompt consumers to trade down to lower priced product categories or change their purchasing habits in a manner that would impact our wholesale supply to our wholesale customers.

However, the expected benefits from food-at-home expenditures remaining elevated and those impacts benefiting our wholesale customers are expected to outweigh product mix changes and other factors as it pertains to our results of operations and cash flows.

The ultimate impact on our results is dependent upon the severity and duration of the COVID-19 pandemic, food-at-home purchasing levels, actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain, rapidly changing and difficult to predict.

Beginning in the third quarter of fiscal 2020, we took actions to respond to the pandemic, support our associates’ safety and well-being and maximize our logistics network to serve the communities we supply.

In fiscal 2020, and continuing into fiscal 2021, we experienced a year-over-year increase in sales and gross profit due to higher Wholesale customer purchases driven by higher food-at-home expenditures, as a result of the economic and social responses to the COVID-19 pandemic.

We have been able to leverage fixed operating and administrative expenses, which were partially offset by incremental costs related to COVID-19, including additional costs for safety protocols and procedures at our distribution centers and retail stores.

Our business model allows us to leverage sales increases, and provided growth in operating earnings margin, as we leveraged the fixed and variable costs of our supply chain network and administrative expenses.

Despite incremental labor and operating costs, additional volume experienced by our distribution network and retail stores drove higher leverage on fixed facility costs, semi-variable costs and general and administrative expenses.

We expect to continue to benefit from sales and margin growth as compared to historical periods while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical precedent, and higher on a year-over-year basis.

Trends in increased sales and gross margin benefits have lessened since the initial onset of the COVID-19 pandemic.

In addition, as discussed below in the section “Impact of Inflation or Deflation” and above in the section “Other Factors Affecting our Business,” we could also be affected by changes in product mix and product category inflation changes, especially if customers change their purchasing habits as a result of sustained downturns in the U.S.

and Canadian economies.

The ultimate impact on our results is dependent upon the severity and duration of the COVID-19 pandemic and any economic downturn, food-at-home purchasing levels and actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain and rapidly changing.

Any of these disruptions could adversely impact our business and results of operations.

We could experience disruptions to our supply chain through the shutdown of one or more of our distribution centers or warehouses, the inability to transport products to serve our customers or the inability of our vendors and contract manufacturers to supply products to us.

In addition, the contraction of financial markets may impact our ability to execute transactions to dispose of or acquire real estate or distribution assets, including potential impacts to our ability to divest our retail operations.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 and contains significant business tax provision changes to the U.S.

tax code, including temporary expansion of the limitations to the deductibility of net operating losses and interest expense and the ability to treat qualified improvement property as eligible for bonus depreciation.

In addition, the CARES Act changed the required filing of our federal income tax return from May 2020 to July 2020, and allows remittances of employer FICA payments previously due March 2020 to December 2020 to be deferred until December 2021 and December 2022.

Prior to the application of the CARES Act, we had a deferred tax asset related to $203 million of federal net operating losses that were available for unlimited carryforward (but no carryback) pursuant to provisions of the 2017 Tax Cuts and Jobs Act, which permitted taxpayers to carryforward net operating losses indefinitely.

The CARES Act provides us the ability to carry these losses back at a 35% federal tax rate during the carry back periods, as opposed to the current 21% federal tax rate.

This resulted in a tax benefit of approximately $28.4 million , which we recorded in the third quarter of fiscal 2020.

This estimated tax benefit will be finalized in the fourth quarter of fiscal 2020 as the 2019 tax return due July 2020 is finalized.

The entire tax benefit associated with the net operating loss carry back has been recorded as a current tax receivable in the third quarter of fiscal 2020.

Considerable uncertainty remains regarding the future impact of the COVID-19 pandemic on our business, which is discussed further in Part I.

Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended August 1, 2020.

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Distribution Center Network

Network Optimization and Construction

Within the Pacific Northwest, we are transferring the volume of five distribution centers and the related supporting off-site storage facilities into two distribution centers.

This transition and operational consolidation is expected to be completed during fiscal 2020, after which we expect to achieve synergies and cost savings by eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses.

The optimization of the Pacific Northwest distribution network will also help deliver meaningful synergies contemplated in the Supervalu acquisition.

This plan includes expanding the Ridgefield, WA distribution center to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate greater technology to deliver a better customer experience.

The Ridgefield distribution center will deploy a warehouse automation solution that supports our slow-moving stock-keeping unit portfolio.

The operational start-up of the Centralia, WA distribution center began in the fourth quarter of fiscal 2019 and is expected to be completed in the fourth quarter of fiscal 2020.

We ceased operations in our Tacoma, WA, Auburn, WA and Auburn, CA distribution centers and have transitioned to supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers.

We expect to incur incremental expenses related to the network realignment and are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.

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

Within the Pacific Northwest, we completed the consolidation of the volume of five distribution centers and their related supporting off-site storage facilities into two distribution centers during fiscal 2020.

We expect to achieve synergies and cost savings through eliminating inefficiencies, including incurring lower operating, shrink and off-site storage expenses.

We also expect that the optimization of the Pacific Northwest distribution network will help deliver meaningful synergies contemplated in the Supervalu acquisition.

We expanded the Ridgefield, WA distribution center to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate greater technology to deliver a better customer experience.

The Ridgefield distribution center will deploy a warehouse automation solution that supports our slow-moving SKU portfolio.

The operational start-up of the Centralia, WA distribution center began in the fourth quarter of fiscal 2019 and was completed in the fourth quarter of fiscal 2020.

We ceased operations in our Tacoma, WA, Auburn, WA, Auburn, CA and Milwaukie, OR (Portland) distribution centers and have transitioned to supplying customers served by these locations to our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers.

In order to maintain service levels of these higher volume pacific northwest distribution centers, we incurred incremental operating costs in the first quarter of fiscal 2021 that we believe temporarily reduced the realization of synergy benefits from this network consolidation.

To support our continued growth on the East coast, we entered into a new lease agreement that has not yet commenced for an approximately 1.3 million square foot facility that is currently under construction.

We expect to recognize a lease liability for this distribution center when we begin making our tenant improvements in fiscal 2021.

We expect to begin distribution out of this facility in the second half of calendar 2021.

To support our continued growth within southern California, we began operating a newly leased facility with approximately 1.2 million square feet upon completion of its construction in the fourth quarter of fiscal 2020.

This facility provides significant capacity to service our customers in this market and provides us the future flexibility to potentially monetize existing owned facilities in the southern California market.

On February 24, 2020, we executed a purchase option to acquire the real property of a distribution center agreeing to pay approximately $156.9 million for the facility, subject to finalization.

We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property from current rents, which we expect would occur on or before June 2022.

This facility provides significant capacity to service our customers in this market.

On February 24, 2020, we executed a purchase option to acquire the real property of this distribution center, agreeing to pay approximately $151.9 million for the facility, subject to finalization.

We expect to engage a real estate partner to monetize the real property of this location, including through a sale-leaseback transaction that would ultimately reduce rents paid for this property compared to current levels, which we expect would occur on or before June 2022.

We continue to evaluate our distribution center network to optimize its performance and expect to incur incremental expenses related to any future network realignment and are working to both minimize these costs and obtain new business to further improve the efficiency of our transforming distribution network.

Distribution Center Sales

In the fourth quarter of fiscal 2019, we entered into an agreement to sell our Tacoma, WA distribution center related to our Pacific Northwest consolidation strategy.

We closed on the sale in the fourth quarter of fiscal 2020 and received consideration of $42.3 million in the form of a $38.0 million note receivable and cash.

As of May 2, 2020, the facility is classified as held for sale within Prepaid expenses and other current assets of continuing operations on our Condensed Consolidated Balance Sheets .

As we consolidate our distribution networks, we may sell additional owned facilities or exit leased facilities.

In the third quarter of fiscal 2020, we sold a warehouse in Stockton, CA for $4.8 million.

Subsequent to the end of the first quarter of fiscal 2021, we received $35.1 million from the collection of a short-term note receivable, representing the remaining proceeds related to the fiscal 2020 sale of a distribution center.

As we consolidate our distribution network, we may sell additional owned facilities or exit leased facilities.

Operating Efficiency

As part of our “one company” approach, we are in the process of converting to a single national warehouse management and procurement system to integrate our existing facilities, including acquired Supervalu facilities, onto one nationalized platform across the organization.

We continue to be focused on the automation of our new or expanded distribution centers that are at different stages of construction and implementation.

We continue to focus on the automation of our new or expanded distribution centers that are at different stages of construction and implementation.

These steps and others are intended to promote operational efficiencies and improve operating expenses as a percentage of net sales.

Goodwill Impairment Review

During the first quarter of fiscal 2020, we changed our management structure and internal financial reporting to combine the Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit into one U.S.

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

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

Based on this analysis, we determined that the carrying value of our U.S.

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

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

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

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

Wholesale’s reporting unit goodwill.

Quantitatively, the goodwill impairment was driven by the incorporation of the negative value associated with the legacy Supervalu wholesale reporting unit that was combined into the legacy Company Wholesale goodwill reporting unit and a decrease in estimated long-range cash flows required to be prepared as part of the quantitative assessment.

The goodwill impairment review indicated that the estimated fair value of the Canada Wholesale reporting, which had goodwill of $9.9 million as of November 2, 2019, exceeded its carrying values by approximately 13% .

Other continuing operations reporting units, which had goodwill of $9.9 million as of November 2, 2019, were substantially in excess of their carrying value.

If circumstances indicate that the value of one of these other reporting units has decreased, we may be required to perform additional reviews of goodwill and incur additional impairment charges.

The first quarter of fiscal 2020 quantitative goodwill impairment review included a reconciliation of all of the reporting units’ fair value to our market capitalization and enterprise value.

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Divestiture of Retail Operations

We have announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition as soon as practical in an efficient and economic manner in order to focus on our core wholesale distribution business.

We plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures.

We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but we anticipate some reductions in supply volume will result from the divestiture of certain of these retail operations.

We have announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition in an efficient and economic manner in order to focus on our core wholesale distribution business.

During the fourth quarter of fiscal 2020, we determined we 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 referred to as the Retail segment.

The Retail segment excludes retail banners and stores previously sold or closed.

We reviewed our reportable segments and determined we were required to report Retail as a separate segment.

As a result, we revised our Condensed 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.

The revision of our Condensed Consolidated Statements of Operations to present Retail within continuing operations resulted in an increase in our consolidated net sales, gross profit and operating expenses, and an increase in consolidated gross profit as a percentage of net sales, which was partially offset by an increase in operating expenses as a percent of net sales.

In order to present Retail’s results of operations within continuing operations, Wholesale sales to Retail have been eliminated upon consolidation.

The Wholesale segment’s net sales to discontinued operations retail stores are eliminated within the Wholesale segment.

Our strategy remains unchanged and we expect to divest all of our Retail operation in the future.

As part of that process we plan to maximize value as part of the divestiture process, including limiting liabilities and stranded costs associated with these divestitures.

We expect to obtain ongoing supply relationships with the purchasers of some of these retail operations, but some reductions in supply volume may result from the divestiture of certain of these retail operations.

Actions associated with retail divestitures and adjustments to our core cost structure for our wholesale food distribution business are expected to result in headcount reductions and other costs and charges.

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At this time, however, we are unable to make an estimate with reasonable certainty of the amount or type of costs and charges expected to be incurred in connection with the foregoing actions.

Our discontinued operations as of the end of third quarter of fiscal 2020 include Cub Foods and Shoppers disposal groups, and our historical results of discontinued operations include Hornbacher’s and Shop ‘n Save, which were divested in the second and third quarters of fiscal 2019, respectively.

In addition, discontinued operations includes certain real estate related to historical retail operations.

Our discontinued operations as of the end of the first quarter of fiscal 2021 include five Shoppers stores, and for historical periods, results of discontinued operations include the Hornbacher’s and Shop ‘n Save and Shop ‘n Save East retail banners, which were divested in fiscal 2019, and Shoppers stores that were sold or closed in fiscal 2020.

In addition, cash flows from discontinued operations include real estate sales related to those historical retail operations.

These retail assets have been classified as held for sale as of the Supervalu acquisition date, and the results of operations, financial position and cash flows directly attributable to these operations are reported within discontinued operations in our Condensed Consolidated Financial Statements for all periods presented.

As of the acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to the acquisition date, we review the fair value less costs to sell of these disposal groups.

In the second quarter of fiscal 2020, we entered into agreements to sell 13 Shoppers stores and decided to close six locations, and in the third quarter of fiscal 2020 we closed on the sale of 12 of these Shoppers stores.

During fiscal 2020 year-to-date, in the aggregate between discontinued operations and continuing operations we incurred approximately $57.3 million of pre-tax aggregate costs and charges related to Shoppers, consisting of $33.3 million of lease asset impairment and property and equipment charges, including lease termination charges and charges related to impairment reviews, $14.2 million of operating losses and transaction costs during the period of wind-down, $8.7 million of severance costs and $1.1 million of losses on sale of assets.

We may incur additional related costs and charges in the fourth quarter of fiscal 2020.

In the second and third quarter of fiscal 2020, we reviewed the recoverability of the remaining assets held for sale and assessed the remaining composition of the Shoppers disposal group based on updated fair values.

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

Subsequent to the end of the third quarter of fiscal 2020, we determined it was no longer probable that a sale of Remaining Retail would occur within one year.

As a result, we determined we no longer met the criteria to classify Remaining Retail as discontinued operations.

In the fourth quarter of fiscal 2020, we expect to present Remaining Retail as held and used as part of continuing operations in our fiscal 2020 Consolidated Financial Statements based on this assessment.

This expected change in financial statement presentation will require us to restate the presentation and classification of Remaining Retail within our Consolidated Financial Statements for fiscal 2019, which will result in Remaining Retail’s results of operations, financial position, cash flows and related disclosures being within continuing operations.

In the fourth quarter of fiscal 2020, we expect to record an adjustment to the carrying value of certain long-lived assets, including property and equipment and intangible assets, to record the assets at the carrying amount at the acquisition date adjusted for any depreciation expense that would have been recognized had the assets been held and used as part of continuing operations since their acquisition date.

We estimate the adjustment to account for the incremental depreciation and amortization expense required to be recorded in the fourth quarter of fiscal 2020 will be approximately $48 million, which reflects an estimate of depreciation and amortization from the date of the Supervalu acquisition date through fiscal 2020 based on useful lives assigned to the underlying retail assets expected to be brought back into continuing operations.

As discussed in Note 3—Revenue Recognition , certain sales from the Wholesale segment to the retail discontinued operations are presented within Net sales.

In order to present Remaining Retail’s results of operations within continuing operations these Wholesale sales to retail discontinued operations will be eliminated upon consolidation, resulting in no consolidated effect on Net sales resulting from our Wholesale segment.

Remaining Retail’s net sales will be included in the Net sales line of the Consolidated Statement of Operations.

As discussed in Note 3—Revenue Recognition , we currently hold Shoppers stores for sale without an expectation of a supply agreement and therefore no Wholesale sales were recorded within continuing operations.

Within the restatement of our segment financial information, we expect to recognize Wholesale segment sales to the majority of the remainder of the Shoppers locations, which will be eliminated upon consolidation as described above.

Subsequent to the restatement of our Consolidated Financial Statements, we expect consolidated net sales, gross profit and operating expenses to increase compared to the current presentation, and expect our consolidated gross profit as a percentage of net sales to increase, which we expect will be partially offset by an increase in operating expenses as a percent of net sales.

We may incur additional costs and charges in the future related to the divesture of Remaining Retail if these locations are subsequently sold, indicators exist that the business may be impaired, or if we incur additional wind-down or employee-related costs or charges.

Supervalu Professional Services Agreements

As of the Supervalu acquisition date, retail assets and liabilities were recorded at their estimated fair value less costs to sell, and subsequent to that date, we reviewed the fair value, less cost to sell, of these disposal groups.

We may incur additional costs and charges in the future related to the divestiture of Retail if these locations are subsequently sold, indicators exist that the business may be impaired, or if we incur employee-related charges or wind-down costs.

Professional Services Agreements

In connection with the sale of Save-A-Lot on December 5, 2016, Supervalu entered into a services agreement (the “Services Agreement”) with Moran Foods, LLC, the entity that operates the Save-A-Lot business.

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The initial annual base charge under the Services Agreement is $30 million, subject to adjustments.

If services are no longer provided under the Services Agreement after the initial term, we would lose the revenue associated with this agreement, and if we are not able to eliminate fixed or variable costs associated with servicing this agreement concurrent with the decline in revenue, we would incur a decrease in operating profit.

During fiscal 2021, we expect to earn less than $20 million under this agreement.

We expect that services provided under the Services Agreement will wind down at or near the end of the initial term.

At that time, we would lose the revenue associated with this agreement, and if we are not able to eliminate fixed or variable costs associated with servicing this agreement concurrent with the decline in revenue, we would incur a decrease in operating profit.

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Impact of Inflation or Deflation

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

We experienced a mix of inflation and deflation across product categories during the third quarter of fiscal 2020.

In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation in the low single digits in the third quarter of fiscal 2020.

We experienced a mix of inflation and deflation across product categories during the first quarter of fiscal 2021.

In the aggregate across all of our legacy businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation of less than one percent in the first quarter of fiscal 2021.

Cost inflation and deflation estimates are based on individual like items sold during the periods being compared.

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Under the LIFO method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory.

Other Factors Affecting our Business

We are also impacted by macroeconomic and demographic trends, and changes in the food distribution market structure.

however, consumer spending in the food-away-from-home industry has increased steadily as a percentage of total food expenditures.

This trend paused during the 2008 recession, and then continued to increase.

In fiscal 2020, the COVID-19 impact has caused a significant increase in food-at-home expenditures as a percentage of total food expenditures.

We expect that food-at-home expenditures as a percentage of total food expenditures will remain higher than recent years during time periods that shelter-in-place orders exist until businesses are allowed to fully reopen and any related economic recession has ended.

We are also impacted by changes in food distribution trends to our wholesale customers, such as direct store deliveries and other methods of distribution.

Our wholesale customers manage their businesses independently and operate in a competitive environment.

We seek to obtain security interests and other credit support in connection with the financial accommodations we extend;

however, we may incur additional credit or inventory charges related to our customers, as we expect the competitive environment to continue.

The magnitude of these risks increases as the size of our wholesale customers increases.

Business Performance Assessment and Composition of Condensed Consolidated Statements of Operations

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The principal components of our cost of sales include the amounts paid to suppliers for product sold, plus the cost of transportation necessary to bring the product to, or move product between, our various distribution centers, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.

Cost of sales also includes amounts incurred by us at our manufacturing subsidiary, Woodstock Farms Manufacturing, for inbound transportation costs offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.

Cost of sales also includes amounts incurred by us at our manufacturing subsidiary, Woodstock Farms Manufacturing, for inbound transportation costs.

Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses.

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Restructuring, acquisition and integration expenses

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

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.

Interest expense, net

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

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

Net periodic benefit income, excluding service cost

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

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Adjusted EBITDA

Our Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”).

In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand the underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time.

In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time.

Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP.

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

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

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

Table of C ontents

Assessment of Our Business Results

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

13-Week Period Ended

We have revised the following table for the presentation of Retail within continuing operations discussed in Note 1—Significant Accounting Policies in Part II, Item 8 of the Annual Report on Form 10-K.

13-Week Period Ended

(in thousands)

April 27, 2019

(in thousands) October 31, 2020 November 2, 2019 Change

Net sales $ 6,672,607 $ 6,296,612 $ 375,995

Cost of sales 5,706,108 5,389,401 316,707

Gross profit 966,499 907,211 59,288

Operating expenses 900,962 883,688 17,274

Goodwill and asset impairment (adjustment) charges

Goodwill and asset impairment charges — 425,405 (425,405)

Restructuring, acquisition and integration related expenses 16,428 14,672 1,756

Gain on sale of assets (230) (90) (140)

Operating income (loss) 49,339 (416,464) 465,803

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Net periodic benefit income, excluding service cost

(17,033) (11,384) (5,649)

Interest expense, net 69,133 49,709 19,424

Other, net (798) (400) (398)

Total other expense, net 51,302 37,925 13,377

Income (loss) from continuing operations before income taxes

Loss from continuing operations before income taxes (1,963) (454,389) 452,426

Benefit for income taxes (991) (66,955) 65,964

Net income (loss) from continuing operations

Net loss from continuing operations (972) (387,434) 386,462

Income from discontinued operations, net of tax 1,296 4,026 (2,730)

Net income (loss) including noncontrolling interests 324 (383,408) 383,732

Less net (income) loss attributable to noncontrolling interests

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

Less net income attributable to noncontrolling interests (1,367) (519) (848)

Net loss attributable to United Natural Foods, Inc.

$ (1,043) $ (383,927) $ 382,884

Adjusted EBITDA

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

13-Week Period Ended

$ 158,957 $ 121,694 $ 37,263

Table of C ontents

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

13-Week Period Ended

(in thousands)

April 27, 2019

Net income (loss) from continuing operations

Adjustments to continuing operations net income (loss):

(in thousands) October 31, 2020 November 2, 2019

Net loss from continuing operations $ (972) $ (387,434)

Adjustments to continuing operations net loss:

Less net income attributable to noncontrolling interests (1,367) (519)

Total other expense, net 51,302 37,925

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Share-based compensation 14,149 3,925

Goodwill and asset impairment charges (1)

Restructuring, acquisition and integration related expenses (2)

Goodwill and asset impairment (adjustment) charges (3)

16,428 14,672

Gain on sale of assets (230) (90)

Note receivable charges (3)

Inventory fair value adjustment (5)

Legal reserve charge, net of settlement income (6)

Legal reserve charge (4)

Other retail expense (5)

Adjusted EBITDA of continuing operations 157,117 116,436

Adjusted EBITDA of discontinued operations (6)

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Adjustments to discontinued operations net income:

Less net (income) loss attributable to noncontrolling interests

Total other expense, net — (61)

Provision for income taxes 526 1,293

Other expense

Share-based compensation

Restructuring, store closure and other charges, net

Adjusted EBITDA of discontinued operations

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

Primarily reflects expenses resulting from the acquisition of Supervalu, including severance costs, store closure charges, and acquisition and integration expenses.

Fiscal 2020 year-to-date primarily reflects integration charges, closed property reserve charges and administrative and operational restructuring costs.

Fiscal 2019 year-to-date primarily reflects expenses resulting from the acquisition of Supervalu and acquisition and integration expenses, including employee-related costs.

Refer to Note 5—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Fiscal 2020 year-to-date reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S.

$ 1,840 $ 5,258

(1) Fiscal 2020 reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S.

Wholesale reporting unit.

In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge.

Fiscal 2019 year-to-date reflects a goodwill impairment charge attributable to the Supervalu acquisition.

Refer to Note 6—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

(2) Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition.

Fiscal 2020 primarily reflects closed property reserve charges and administrative and operational restructuring costs.

Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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

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

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

Income from discontinued operations, net of tax and Adjusted EBITDA of discontinued operations excludes rent expense of $8.9 million and $11.6 million in the third quarters of fiscal 2020 and 2019 , respectively, and $32.5 million and $24.3 million in fiscal 2020 and 2019 year-to-date , respectively, of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases.

Due to these GAAP requirements to show rent expense, along with other administrative expenses of discontinued operations within continuing operations, we believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

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

(4) Reflects a charge to settle a legal proceeding.

(5) Reflects expenses associated with event-specific damages to certain retail stores.

(6) We believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of total performance.

Table of C ontents

RESULTS OF OPERATIONS

Our analysis within the Results of Operations section below of Net sales, Gross profit, Operating expenses and Operating loss is presented on a consolidated basis, as our single reportable segment principally comprises the entire operations of our business.

The quantification of Supervalu’s impact on our results of operations below in our year-to-date analysis is presented to discuss the incremental impact of Supervalu, and provide analysis of our underlying business for year-over-year comparability purposes.

Our analysis of Net sales is presented on a customer channel basis inclusive of all segments.

References to legacy company results are presented to provide a comparative results analysis excluding the Supervalu acquired business impacts.

Our net sales by customer channel was as follows (in millions):

Net Sales for the 13-Week Period Ended

Net Sales for the 39-Week Period Ended

Net Sales for the 13-Week Period Ended Increase (Decrease)

Customer Channel (1)

April 27, 2019 (1)

May 2, 2020 (1)

% of Net Sales

April 27, 2019 (1)

% of Net Sales

Net Sales November 2,

Net Sales $ %

Chains $ 3,020 45 % $ 2,875 46 % $ 145 5 %

Independent retailers 1,672 25 % 1,557 25 % 115 7 %

Supernatural 1,214 18 % 1,111 18 % 103 9 %

Retail 595 9 % 515 8 % 80 16 %

Other 581 9 % 590 9 % (9) (2) %

Eliminations (409) (6) % (351) (6) % (58) 17 %

Total net sales $ 6,673 100 % $ 6,297 100 % $ 376 6 %

Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding adjustments to net sales by customer channel.

Third Quarter Variances

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

Net sales to our supermarkets channel increased by approximately $566 million , or 15.3% , for the third quarter of fiscal 2020 , compared to the third quarter of fiscal 2019 , and represented approximately 64% and 62% of ou r total net sales for the third quarter of fiscal 2020 and 2019 , respectively.

The increase in supermarkets net sales is primarily due to an increase in demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Whole Foods Market is our only supernatural customer, and net sales to Whole Foods Market for the third quarter of fiscal 2020 increased by approximately $177 million , or 16.1% , as compared to the third quarter of fiscal 2019 , and accounted for approximately 19% and 18% of our total net sales for the third quarter of fiscal 2020 and 2019 , respectively.

The increase in net sales to Whole Foods Market is pri marily due to increased sales to existing locations and the economic impacts of the COVID-19 pandemic.

(1) Refer to Note 3—Revenue Recognition in Part 1, Item 1 of this Quarterly Report on Form 10-Q for our channel definitions and for information regarding the recast of sales by customer channel to align with the current period presentation.

Our net sales for the first quarter of fiscal 2021 increased approximately 6.0% from the first quarter of fiscal 2020.

The increase in net sales was primarily driven by strong customer demand in response to the COVID-19 pandemic a s well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Chains net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Independent retailers net sales increased primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Supernatural net sales increased primarily due to increased sales related to the COVID-19 pandemic, growth in existing and new product categories, and increased sales to existing and new stores, partially offset by the impact of categories that have been adversely impacted by COVID, such as bulk and ingredients used for prepared foods .

Net sales within our supernatural channel do not include net sales to Amazon.com, Inc.

in either the current period or the prior period, as these net sales are reported in our other ch annel.

Net sales to our independents channel decreased by approximately $23 million , or 3.3% , for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 , and represented approximately 10% and 12% of our total net sales for the third quarter of fiscal 2020 and 2019 , respectively.

The decrease in independents net sales is primarily due to previously lost customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to the COVID-19 pandemic.

Net sales to our other channel decreased by approximately $15 million , or 3.3% , for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 , and represented approximately 7% and 8% of our total net sales for the third quarter of fiscal 2020 and 2019 , respectively.

The decrease in other net sales is primarily due to lower sales to foodservice customers and lower military sales from the resignation of certain business, partially offset by e-commerce sales growth.

Year-to-Date Variances

Our net sales for fiscal 2020 year-to-date increased approximately $3.84 billion , or 25.7% , to $18.82 billion from $14.98 billion for fiscal 2019 year-to-date.

Net sales for fiscal 2020 year-to-date included incremental Supervalu net sales from the first quarter of fiscal 2020 of approximately $3.08 billion .

Excluding the incremental first quarter of fiscal 2020 Supervalu net sales, net sales increased $768 million , or 5.1% , which was driven primarily by incremental sales resulting from the COVID-19 pandemic and continued growth in our supernatural channel.

Net sales to our supermarkets channel for fiscal 2020 year-to-date increased by approximately $3,356 million , or 39.2% , from fiscal 2019 year-to-date , and represented approximately 63% and 57% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively.

The increase in supermarkets net sales is primarily due to an increase of $2,813 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business and a net increase of $543 million , or 6.3% primarily driven by growth in sales to existing customers, including the demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Net sales to Whole Foods Market for fiscal 2020 year-to-date increased by approximately $371 million , or 11.5% , as compared to the prior fiscal year’s comparable period, and accounted for approximately 19% and 21% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively.

The increase in ne t sales to Whole Foods Market is primarily due to increased sales related to the COVID-19 pandemic, growth in new product categories, and increased sales to existing and new stores prior to the pandemic.

Net sales to our independents channel decreased by approximately $58 million , or 2.8% , during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date , and accounted for 11% and 14% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively.

The decrease in independents net sales includes an increase of $24 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, with the remaining decrease of $82 million , or 4.0% being primarily due to lost customers, and lower sales from existing customers and store closings, partially offset by strong sales growth in existing customer sales driven by the response to the COVID-19 pandemic .

Net sales to our other channel increased by approximately $176 million , or 15.3% , during fiscal 2020 year-to-date compared to fiscal 2019 year-to-date , and represented approximately 7% and 8% of our total net sales for fiscal 2020 and 2019 year-to-date , respectively.

The increase in other net sales is primarily due to an increase of $240 million from incremental first quarter of fiscal 2020 net sales attributable to the acquired Supervalu business, partially offset by a decrease of $64 million , or 5.6% , primarily due to lower sales to foodservice customers and lower military sales from the resignation of certain business, partially offset by e-commerce sales growth.

Retail’s net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic.

Retail identical store sales are defined as net product sales from stores operating since the beginning of the prior-year period, including store expansions and excluding fuel costs and announced planned store dispositions.

Identical store sales is a common metric used to understand the sales performance of retail stores as it removes the impact of new and closed stores.

The increase in Retail sales included the benefit of an approximately 200 percent increase in eCommerce sales at Cub Foods.

Other net sales decreased primarily due to a 41% (or $48 million) decline in sales to food service customers resulting from the lower purchases due to the COVID-19 pandemic, which were partially offset by higher e-commerce sales.

We also expect sales to our food service customers in the second quarter of fiscal 2021 to decrease as compared to fiscal 2020 as a result of the COVID-19 pandemic.

Table of C ontents

Cost of Sales and Gross Profit

Our gross profit increased $68.0 million , or 8.6% , to $856.5 million for the third quarter of fiscal 2020 , from $788.6 million for the third quarter of fiscal 2019 .

Our gross profit as a percentage of net sales decreased to 12.85% for the third quarter of fiscal 2020 compared to 13.22% for the third quarter of fiscal 2019 .

The decrease in gross margin rate was primarily driven by a mix shift toward lower margin conventional products and lower levels of vendor funding, partially offset by lower levels of inventory shrink.

Our gross profit increased $440.4 million , or 22.4% , to $2,403.0 million for fiscal 2020 year-to-date , from $1,962.7 million for fiscal 2019 year-to-date .

Our gross profit as a percentage of net sales decreased to 12.77% for fiscal 2020 year-to-date compared to 13.10% for fiscal 2019 year-to-date .

Our Gross profit dollar increase for fiscal 2020 year-to-date when compared to fiscal 2019 year-to-date is primarily due to an estimated incremental 12 weeks of gross profit from the acquired Supervalu business of approximately $347.9 million , net of its related LIFO inventory charge.

The remaining increase in Gross profit was $92.5 million , which included a fiscal 2019 year-to-date inventory charge related to a step-up of acquired Supervalu inventory of $10.5 million .

Gross profit as a percentage of net sales decreased primarily due to lower gross profit rates on conventional products and margin dilution from the faste r growth of the supernatural channel relative to the other customer channels, offset in part by lower inbound freight expense.

We recorded a LIFO charge of $19.3 million and $13.7 million for fiscal 2020 and 2019 year-to-date, respectively.

Our gross profit increased $59.3 million, or 6.5%, to $966.5 million for the first quarter of fiscal 2021, from $907.2 million for the first quarter of fiscal 2020.

Our gross profit as a percentage of net sales increased to 14.48% for the first quarter of fiscal 2021 compared to 14.41% for the first quarter of fiscal 2020.

The increase in gross profit dollar growth was primarily driven by higher Wholesale and Retail sales volume.

The 7 basis point increase in gross profit rate was driven by an increase from Retail, which contributed approximately 17 basis points to the growth in the consolidated gross margin rate as a result of lower promotional spending and the Retail segment representing a greater percentage of total net sales.

Wholesale and the remaining business reduced the growth in the consolidated gross margin rate by approximately 10 basis points driven by lower levels of supplier-related income.

Operating Expenses

Operating expenses increased $36.7 million , or 5.0% , to $774.4 million , or 11.61% of net sales, for the third quarter of fiscal 2020 compared to $737.7 million , or 12.37% of net sales, for the third quarter of fiscal 2019 .

Operating expenses for the third quarter of fiscal 2020 included $1.4 million of surplus property depreciation expense.

The decrease in Operating expenses as a percent of net sales was driven by leveraging fixed operating and administrative expenses and the benefit of synergy and integration efforts, partially offset by incremental costs related to COVID-19, including the impact of temporary pandemic-related incentives and additional costs for safety protocols and procedures at the Company’s distribution centers.

Total operating expenses also included share-based compensation expense of $12.8 million and $9.3 million for the third quarter of fiscal 2020 and 2019 , respectively.

Operating expenses increased $447.9 million , or 24.2% , to $2,300.6 million , or 12.22% of net sales, for fiscal 2020 year-to-date compared to $1,852.8 million , or 12.37% of net sales, for fiscal 2019 year-to-date .

The increase in Operating expenses in fiscal 2020 year-to-date primarily reflects the incremental contribution from the Supervalu business for an additional 12 weeks when compared to fiscal 2019 year-to-date.

Operating expenses for fiscal 2020 year-to-date included $26.8 million of customer bankruptcy bad debt expense.

In addition, Operating expenses in fiscal 2020 year-to-date included $12.5 million of notes receivable charges, $6.6 million of surplus property depreciation expense and a $1 million legal reserve charge.

The decrease in operating expenses, as a percent of net sales, was driven by fixed and variable expense leveraging and the mix impact from the acquired Supervalu business and lower employee costs, including the impact of cost synergies, partially offset by higher bad debt, occupancy and depreciation expenses.

Total operating expenses also included share-based compensation expense of $21.3 million and $27.8 million for fiscal 2020 and 2019 year-to-date , respectively.

Goodwill and Asset Impairment (Adjustment) Charges

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

Goodwill and asset impairment charges of $425.4 million were recorded for fiscal 2020 year-to-date , which reflects $421.5 million from an impairment charge on the remaining goodwill attributable to the U.S.

Wholesale goodwill reporting unit, $2.5 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1.4 million of property and equipment asset impairment charges.

Goodwill and asset impairment charges of $332.6 million were recorded for fiscal 2019 year-to-date , which reflects a portion of the goodwill recorded from the Supervalu acquisition.

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

Operating expenses increased $17.3 million, or 2.0%, to $901.0 million, or 13.50% of net sales, for the first quarter of fiscal 2021 compared to $883.7 million, or 14.03% of net sales, for the first quarter of fiscal 2020.

Operating expenses in the first quarter of fiscal 2020 included $18.0 million of charges and expenses, primarily related to customer notes receivable and surplus property depreciation.

The remaining decrease in operating expenses as a percent of net sales was driven by lower administrative costs and leveraging fixed operating expenses over higher net sales, which was partially offset by higher operating costs related to starting up three distribution centers.

Total operating expenses also included share-based compensation expense of $14.1 million and $3.9 million for the first quarter of fiscal 2021 and 2020, respectively.

Goodwill and Asset Impairment Charges

A goodwill impairment adjustment of $425.4 million was recorded in the first quarter of fiscal 2020, which was attributable to changes in the preliminary fair value of net assets, which affected the initial goodwill resulting from the Supervalu acquisition.

As discussed further in Note 5—Goodwill and Intangible Assets in Part I, Item 1 of this Quarterly Report, we recorded a goodwill impairment charge of $421.5 million in the first quarter of fiscal 2020.

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

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

Wholesale’s reporting unit goodwill.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $10.4 million for the third quarter of fiscal 2020 , which included $8.4 million of closed property reserve charges and costs primarily related to lease asset impairments, $1.5 million of restructuring costs and $0.6 million of integration costs.

Expenses incurred were $19.4 million for the third quarter of fiscal 2019 , which included $12.3 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, and $6.1 million of other acquisition and integration related costs and $1.1 million of closed property reserve charges related to the divestiture of retail banners.

Restructuring, acquisition and integration related expenses were $54.4 million for fiscal 2020 year-to-date and primarily included $25.3 million of integration costs including a multiemployer pension plan withdrawal obligation, $25.1 million of closed property reserve charges and costs primarily related to lease asset impairments on surplus properties and Shoppers store lease exits and $4.0 million of restructuring costs.

Expenses incurred in fiscal 2019 year-to-date were $134.6 million and primarily included $66.4 million of employee related costs due to change-in-control payments made to satisfy outstanding equity awards, severance costs, and benefits costs, $47.5 million of other acquisition and integration related costs, and $20.6 million closed property reserve charges related to the divestiture of retail banners.

We may incur additional integration and restructuring costs through the remainder of fiscal 2020 related to our operational and administrative restructuring to achieve cost synergies and supply chain efficiencies of continuing operations.

In addition, further restructuring costs may be incurred related to the divestiture of retail operations.

Restructuring, acquisition and integration related expenses were $16.4 million for the first quarter of fiscal 2021, which included $14.8 million of restructuring and integration costs primarily reflecting costs associated with advisory and transformational activities as we position our business for further value-creation post-acquisition and $1.7 million of closed property charges and costs.

Expenses incurred were $14.7 million for the first quarter of fiscal 2020, which included $9.3 million of integration related costs, including a charge for an off-site storage contract, $3.5 million of closed property reserve charges and costs, and $1.8 million of restructuring costs.

We expect to incur additional costs associated with advisory and integration activities, and distribution center integration costs throughout fiscal 2021 related to our operational restructuring to achieve cost synergies and supply chain efficiencies within continuing operations.

Operating Income (Loss)

Reflecting the factors described above, operating income increased $2.0 million to $71.7 million for the third quarter of fiscal 2020 , from $69.7 million for the third quarter of fiscal 2019 .

The operating income increase was primarily driven by an increase in gross profit and lower restructuring, acquisition and integration related expenses, partially offset by the goodwill impairment adjustment.

Reflecting the factors described above, operating loss increased $20.1 million , to an operating loss of $377.4 million for fiscal 2020 year-to-date , from $357.3 million for fiscal 2019 year-to-date .

The increase in operating loss was primarily driven by the increase in goodwill impairment charges and increases in operating expenses in excess of gross profit increases, partially offset by lower restructuring, acquisition and integration related expenses.

The operating loss for the third quarter and year-to-date of fiscal 2020 includes $9.1 million and $33.5 million , respectively, of operating lease rent expense and $0.9 million and $4.6 million , respectively, of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases.

In addition, continuing operations operating loss includes certain retail related overhead costs that are related to retail but are required to be presented within continuing operations.

Reflecting the factors described above, operating income increased $465.8 million to $49.3 million for the first quarter of fiscal 2021, from an operating loss of $416.5 million for the first quarter of fiscal 2020.

The operating income increase was primarily driven by the fiscal 2020 goodwill impairment charge and an increase in gross profit in excess of operating expenses discussed above.

Table of C ontents

Total Other Expense, Net

13-Week Period Ended

39-Week Period Ended

(in thousands)

April 27, 2019

(in thousands) October 31, 2020 November 2, 2019 Increase (Decrease)

Net periodic benefit income, excluding service cost $ (17,033) $ (11,384) $ (5,649)

Interest expense on long-term debt, net of capitalized interest

Interest expense on finance and direct financing lease obligations

37,196 43,539 (6,343)

Interest expense on finance lease obligations 4,868 2,243 2,625

Amortization of financing costs and discounts 3,999 3,943 56

Debt refinancing costs and unamortized financing charges

Loss on debt extinguishment 23,750 73 23,677

Interest income (680) (89) (591)

Interest expense, net 69,133 49,709 19,424

Other, net (798) (400) (398)

Total other expense, net $ 51,302 $ 37,925 $ 13,377

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

Net periodic benefit income for fiscal 2020 year-to-date includes a $10.3 million non-cash pension settlement charge from the lump sum pension settlement offering completed in the second quarter of fiscal 2020.

Fiscal 2019 year-to-date net periodic benefit income reflects a partial year due to the acquisition of Supervalu near the end of the first quarter of fiscal 2019.

The decrease in interest expense on long-term debt in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 was primarily due to lower average amounts of outstanding debt and lower average interest rates.

The increase in interest expense on long-term debt for fiscal 2020 year-to-date compared to fiscal 2019 year-to-date was primarily due to an increase in average outstanding debt driven by Supervalu acquisition financing executed near the end of the first quarter of fiscal 2019.

Interest on finance and direct financing leases primarily reflects lease obligations related to retail stores of discontinued operations acquired in the Supervalu acquisition, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases until settlement with the respective landlords.

Beginning in the third quarter of fiscal 2020, interest on financing leases includes interest related to a distribution center for which we executed a purchase option with a delayed purchase provision.

The increase in net periodic benefit income, excluding service costs reflects the recognition of lower interest costs due to a lower discount rate utilized in the measurement of pension liabilities.

The decrease in interest expense on long-term debt, net of capitalized interest was driven by lower amounts of outstanding debt and lower average interest rates.

The increase in loss on debt extinguishment costs primarily reflects the acceleration of unamortized debt issuance costs and original issue discounts related to mandatory and voluntary prepayments on the Term Loan Facility made in the first quarter of fiscal 2021.

Refer to Note 8—Long-Term Debt for further information.

The increase in interest expense on finance leases primarily reflects interest related to a distribution center for which we executed a purchase option with a delayed purchase provision.

Benefit for Income Taxes

The effective income tax rate for continuing operations was a benefit of 38.7% compared to a benefit of 32.4% on pre-tax income for the third quarter s of fiscal 2020 and 2019 , respectively.

The change in the effective income tax rate for the third quarter of fiscal 2020 was primarily driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above.

The tax provision included $26.9 million and $3.2 million of discrete tax benefit for the third quarter of fiscal 2020 and fiscal 2019 , respectively.

The discrete tax benefit for the third quarter of fiscal 2020 was primarily due to a tax benefit of approximately $28.4 million driven by a tax benefit recorded on net operating loss deferred tax assets in the third quarter of fiscal 2020 in connection with the CARES Act, discussed above.

The effective income tax rate for continuing operations was a benefit of 21.5% compared to a benefit of 22.8% on pre-tax losses for fiscal 2020 year-to-date and fiscal 2019 year-to-date, respectively.

The decrease in the effective income tax benefit rate was primarily driven by a tax benefit of approximately $8.3 million recorded in fiscal 2019 for the release of unrecognized tax positions that did not recur in fiscal 2020, as well as a goodwill impairment benefit of approximately $72.2 million recorded in fiscal 2019 compared to a goodwill impairment benefit of approximately $66.4 million recorded in fiscal 2020.

In addition, effective income tax rate for fiscal 2020 includes a benefit of approximately $28.4 million related to revaluation of net operating loss deferred tax assets in connection with the CARES Act.

The effective income tax rate for continuing operations was a benefit of 50.5% compared to a benefit of 14.7% on pre-tax income for the first quarters of fiscal 2021 and 2020, respectively.

The change in the effective income tax rate for the first quarter of fiscal 2021 was primarily driven by a discrete tax benefit in the first quarter of fiscal 2021 related to employee stock awards compared to a discrete tax expense for this item in the first quarter of fiscal 2020.

In addition, the first quarter of fiscal 2020 was impacted by a goodwill impairment charge.

Income from Discontinued Operations, Net of Tax

The results of operations for the third quarter of fiscal 2020 reflect net sales of $667.0 million for which we recognized $187.8 million of gross profit and Income from discontinued operations, net of tax of $37.2 million .

As noted above, pre-tax income for the third quarter of fiscal 2020 from discontinued operations excludes $9.1 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations.

In addition, store closure charges related to leases are recorded within continuing operations.

Discontinued operations included $8.1 million of restructuring expenses primarily related to store closures charges and expenses related to exited locations, and asset impairment charges related to store exits and impairment reviews discussed above.

Net sales and gross profit of discontinued operations increased $26.9 million and $10.9 million , respectively, for the third quarter of fiscal 2020 as compared to last year primarily due to an increase in identical store sales results driven by the impacts of the COVID-19 pandemic, which was partially offset by the lower store base operating in the third quarter of fiscal 2020 compared to last year.

The results of operations for fiscal 2020 year-to-date reflect net sales of $1,891.5 million for which we recognized $520.3 million of gross profit and Income from discontinued operations, net of tax of $64.3 million .

As noted above, pretax income for fiscal 2020 year-to-date excludes $33.5 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations.

In addition, store closure charges related to leases are recorded within continuing operations.

Discontinued operations included $40.3 million of primarily related to store closures charges and expenses, and asset impairment charges related to exited locations.

Net sales and gross profit of discontinued operations increased $477.8 million and $137.9 million , respectively, for the fiscal 2020 year-to-date as compared to last year primarily due the incremental twelve weeks of discontinued operations and an increase in identical store sales resulting driven by the impacts of the COVID-19 pandemic, which was partially offset by the lower store base operating during fiscal 2020 year-to-date compared to last year.

The results of operations for the first quarter of fiscal 2021 reflect net sales of $24.8 million for which we recognized $8.0 million of gross profit and Income from discontinued operations, net of tax of $1.3 million.

Net sales and gross profit of discontinued operations decreased $70.8 million and $22.5 million, respectively, for the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020 primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020, which was partially offset by an increase in identical store sales results driven by the impacts of the COVID-19 pandemic.

Refer to the section above Executive Overview—Divestiture of Retail Operations and to Note 16—Discontinued Operations in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional financial information regarding these discontinued operations.

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

Reflecting the factors described in more detail above, net income attributable to United Natural Foods, Inc.

was $88.1 million , or $1.60 per diluted common share, for the third quarter of fiscal 2020 , compared to net income of $57.1 million , or $1.12 per diluted common share, for the third quarter of fiscal 2019 .

Net Loss Attributable to United Natural Foods, Inc.

Reflecting the factors described in more detail above, we incurred a net loss attributable to United Natural Foods, Inc.

of $326.5 million , or $6.10 per diluted common share, for fiscal 2020 year-to-date , compared to net loss of 303.9 million , or $5.99 per diluted common share, for fiscal 2019 year-to-date , primarily due to goodwill impairment charges.

As described in more detail in Note 12—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in the second quarter of fiscal 2020, we granted restricted stock units and performance share units representing a right to receive an aggregate of 5.8 million shares of common stock under our 2020 Equity Incentive Plan.

As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2019 we issued approximately 2.0 million shares of common stock, of which 0.3 million shares were issued through the third quarter of fiscal 2019, to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year.

During the third quarter of fiscal 2020, the Company issued approximately 1.1 million shares of common stock at an average market price of $11.12 per share for $12.2 million of cash.

Proceeds from these issuances were used to fund settlement of replacement award obligations.

As of May 2, 2020, we have approximately 1.7 million additional shares authorized for issuance and registered with the SEC in order to satisfy replacement award and option issuance obligations.

of $1.0 million, or $0.02 per diluted common share, for the first quarter of fiscal 2021, compared to $383.9 million, or $7.21 per diluted common share, for the first quarter of fiscal 2020.

Table of C ontents

As described in more detail in Note 10—Share-Based Awards in Part I, Item I of this Quarterly Report on Form 10-Q, in the first quarter of fiscal 2021, we granted restricted stock units and performance share units representing a right to receive an aggregate of 2.6 million shares of common stock under our 2020 Equity Incentive Plan.

As described in more detail within Note 13—Share-Based Awards in Part II, Item 8 of the Annual Report on Form 10-K, in fiscal 2020 we issued approximately 1.3 million shares of common stock to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition, which has had a dilutive effect on our weighted average earnings per share as compared to last year.

Segment Results of Operations

In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 14—Business Segments within Part I, Item 1 of this Quarterly Report on Form 10-Q and the above table within the Executive Overview section.

The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated.

13-Week Period Ended

(in thousands) October 31, 2020 November 2, 2019 Increase (Decrease)

Wholesale $ 6,431,283 $ 6,067,307 $ 363,976

Retail 594,911 515,226 79,685

Other 55,612 65,079 (9,467)

Eliminations (409,199) (351,000) (58,199)

Total Net sales $ 6,672,607 $ 6,296,612 $ 375,995

Continuing operations Adjusted EBITDA:

Wholesale $ 122,961 $ 106,312 $ 16,649

Retail 24,282 10,562 13,720

Other 4,150 (1,597) 5,747

Eliminations 5,724 1,159 4,565

Total continuing operations Adjusted EBITDA $ 157,117 $ 116,436 $ 40,681

Wholesale net sales increased primarily due to growth in sales to existing customers in the Chains, Independent retailers and Supernatural channels.

Sales growth was primarily driven by strong customer demand in response to the COVID-19 pandemic as well as the benefits from cross selling, which was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail net sales increased primarily due to a 15.7% increase in identical store sales from higher average basket sizes related to the COVID-19 pandemic.

The increase in eliminations net sales was driven by higher Wholesale sales to Retail to support Retail’s continued sales growth.

Adjusted EBITDA

Wholesale’s Adjusted EBITDA increased 16% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020.

The increase was driven by leveraged sales growth, which was partially offset by higher operating costs related to starting up three distribution centers.

Gross profit dollar growth for the first quarter of fiscal 2021 was $28.3 million with a gross profit rate decrease of 26 basis points driven by lower supplier income, which outpaced operating expense increases, excluding depreciation and amortization and stock-based compensation, of $11.6 million.

Operating expense rate decreased 42 basis points primarily driven by leveraging fixed and variable costs, which was partially offset by higher operating costs related to starting up three distribution centers.

Wholesale depreciation expense was approximately flat to last year.

Table of C ontents

Retail’s Adjusted EBITDA increased 130% for the first quarter of fiscal 2021 from the first quarter of fiscal 2020.

The increase was driven by leveraged sales growth from increases in food-at-home purchases that drove sales at our stores.

Gross profit dollar growth for the first quarter of fiscal 2021 was $27.1 million with gross profit rate increasing 99 basis points from lower promotional activity, which outpaced operating expense growth of $12.5 million with an operating expense rate decrease of 117 basis points driven by fixed and variable cost leveraging.

Retail depreciation and amortization expense increased $5.9 million primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we are required to begin recording depreciation and amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

Scheduled debt maturities are expected to be $7.6 million for the remainder of fiscal 2020 and payments to reduce finance lease obligations are expected to be approximately $3.3 million for the remainder of fiscal 2020.

Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to, and will, be used to make additional Term Loan Facility payments.

• Total liquidity as of October 31, 2020 was $1.06 billion and consisted of the following:

◦ Unused credit under our ABL Credit Facility was $1,008.3 million, which decreased $226.5 million from $1,234.8 million as of August 1, 2020, primarily due to increased cash utilized to fund seasonal working capital increases and prepayments on the Term Loan Facility.

◦ Cash and cash equivalents was $49.0 million, which increased $2.1 million from $47.0 million as of August 1, 2020.

• Our total debt increased $135.8 million to $2,633.4 million as of October 31, 2020 from $2,497.6 million as of August 1, 2020, primarily related to additional borrowings under the ABL Credit Facility to fund seasonal inventory build in excess of accounts payable and increases in accounts receivable.

• In the first quarter of fiscal 2021, we issued $500.0 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”) and utilized the net proceeds and borrowings under the ABL Credit Facility to make a $500.0 million prepayment on our Term Loan Facility.

In addition, during the quarter, the Company made $108.0 million of additional repayments under the Term Loan Facility, including $72.0 million related to cash flow generated in fiscal 2020, as required under the Term Loan Agreement and a voluntary prepayment of $36.0 million with incremental borrowings under the ABL Credit Facility.

Other debt maturities are expected to be $9.6 million in fiscal 2021.

We are also obligated to make payments to reduce finance lease obligations.

Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to make additional Term Loan Facility payments or be reinvested in the business.

• Subsequent to the end of the first quarter of fiscal 2021, we made a voluntary prepayment of $150.0 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs.

This prepayment will count towards satisfying any requirement to make a mandatory prepayment with Excess Cash Flow (as defined in the Term Loan Agreement) generated during fiscal 2021, if any, which would be due in fiscal 2022.

In the second quarter of fiscal 2021, we expect to record an accelerated charge related to deferred financing fees and original issue discounts based on the proportionate amount of this prepayment to the Term Loan Facility balance.

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

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

• Working capital increased $231.4 million to $1,566.3 million as of October 31, 2020 from $1,334.8 million as of August 1, 2020, primarily due to seasonal inventory build in excess of accounts payable increases, an increase in accounts payable, a reduction of the current portion of long-term debt resulting from the Term Loan Facility Excess Cash Flow prepayment described above, and an increase in accounts receivable driven by credit extended to higher sales growth customers.

Sources and Uses of Cash

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Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings.

Table of C ontents

Primary uses of cash include debt service, capital expenditures, working capital maintenance and income tax payments.

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We currently do not pay a dividend on our common stock, and have no current plans to do so.

In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility and our ABL Credit Facility.

In addition, we are limited in the aggregate amount of dividends that we may pay under the terms of our Term Loan Facility, ABL Credit Facility, and Senior Notes.

Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities.

Long-Term Debt

During fiscal 2020 year-to-date, we repaid a net $264.0 million under the ABL Credit Facility and repaid $87.4 million of scheduled maturities under the Term Loan Facility.

During the first quarter of fiscal 2021, we borrowed a net $230.0 million under the ABL Credit Facility, repaid $608.0 million on the Term Loan Facility related to mandatory prepayments and voluntary prepayments, and issued $500.0 million of Senior Notes.

Refer to Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement does not include any financial maintenance covenants.

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

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

We have not been subject to the fixed charge coverage ratio covenant under the ABL Loan Agreement, including through the filing date of this Quarterly Report.

1 unchanged sentence

If we fail to comply with any of these covenants, we may be in default under the applicable loan agreement, and all amounts due thereunder may become immediately due and payable.

The Senior Notes contain covenants customary for debt securities of this type that limit the ability of the Company and its restricted subsidiaries to, among other things, incur debt, declare or pay dividends or make other distributions to stockholders of the Company, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis.

We were in compliance with all such covenants for all periods presented.

Derivatives and Hedging Activity

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Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures.

As of May 2, 2020 , we had an aggregate of $2.09 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of our floating LIBOR based debt at fixed rates ranging from 0.454% to 2.959% , with maturities between May 2020 and October 2025 .

The fair values of these interest rate derivatives represents a total net liability of $140.4 million and are subject to volatility based on changes in market interest rates.

As of October 31, 2020, we had an aggregate of $1.49 billion of notional debt hedged through pay fixed and receive floating interest rate swap contracts to effectively fix the LIBOR component of our floating LIBOR based debt at fixed rates ranging from 1.795% to 2.959%, with maturities between April 2022 and October 2025.

The fair value of these interest rate derivatives represents a total net liability of $111 million and are subject to volatility based on changes in market interest rates.

See Note 7—Derivatives in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

In the first quarter of fiscal 2021, we paid $11.3 million to terminate $954 million of notional value interest rate swaps, $504 million of which were effective interest swaps and $450 million of which were forward starting.

The termination payment reflects the amount of accumulated other comprehensive loss that will continue to be amortized into interest expense over the original interest rate swap contract terms as long as the hedged interest rate transactions are still probable of occurring.

From time to time, we enter into fixed price fuel supply agreements and foreign currency hedges.

As of May 2, 2020 , we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

As of October 31, 2020, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

Gains and losses and the outstanding net asset from these arrangements are insignificant.

Table of C ontents

Capital Expenditures

Our capital expenditures for fiscal 2020 year-to-date were $118.2 million , compared to $137.0 million for fiscal 2019 year-to-date, a decrease of $18.8 million .

Fiscal 2020 year-to-date includes capital expenditures for distribution center expansions of approximately $33 million (primarily the Ridgefield, WA expansion), new distribution centers of approximately $21 million , and information technology, equipment and other.

We estimate we will spend approximately $190 million for fiscal 2020.

Fiscal 2020 capital spending is expected to include projects that optimize and expand our distribution network and our technology platform.

Our capital expenditures for the first quarter of fiscal 2021 were $41.4 million, compared to $45.0 million for the first of fiscal 2020, a decrease of $3.6 million.

In the first quarter of fiscal 2021, our capital expenditures principally included information technology and equipment expenditures.

Fiscal 2021 capital spending is expected to be in the range of $250 million to $300 million and include projects that optimize and expand our distribution network and our technology platform.

Longer term, capital spending is expected to be at or below 1.0% of net sales.

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13-Week Period Ended

(in thousands)

April 27, 2019

Net cash provided by operating activities of continuing operations

(in thousands) October 31, 2020 November 2, 2019 Change

Net cash used in operating activities of continuing operations $ (55,182) $ (134,381) $ 79,199

Net cash used in investing activities of continuing operations (36,992) (44,745) 7,753

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

Net cash flows from discontinued operations

Net cash provided by financing activities of continuing operations 95,265 156,096 (60,831)

Net cash (used in) provided by discontinued operations (998) 20,376 (21,374)

Effect of exchange rate on cash 56 (10) 66

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents 2,149 (2,664) 4,813

Cash and cash equivalents, at beginning of period 47,070 45,267 1,803

Cash and cash equivalents at end of period $ 49,219 $ 42,603 $ 6,616

The increase in net cash provided by operating activities of continuing operations was primarily due to higher amounts of cash provided in fiscal 2020 year-to-date related to working capital benefits from the sell through of inventory and collection of receivables faster than payments were made on accounts payable related to inventory.

In fiscal 2019 year-to-date, we benefited from the reduction of the seasonally high levels of inventory and accounts receivable at the time of the Supervalu acquisition;

however, these cash inflows were offset in part by decreases from cash payments made in fiscal 2019 year-to-date for assumed liabilities and the payment of transaction costs from the Supervalu acquisition, including transaction-related expenses, accrued employee costs, and restructuring costs associated with reductions in force.

The decrease in net cash used in investing activities of continuing operations was primarily due to $2,282.3 million of cash paid to purchase Supervalu in fiscal 2019 year-to-date, partially offset by $149.7 million of less cash received from the sale of property and equipment, primarily due to cash received from the sale and leaseback of two distribution centers in fiscal 2019 year-to-date, one of which was a short-term lease related to the exit of that facility.

The decrease in net cash provided by financing activities of continuing operations was primarily due to fiscal 2019 year-to-date borrowings on long-term debt to finance the Supervalu acquisition, and a net decrease in cash provided by the revolving credit facility borrowings of $1,270.9 million , which was driven by borrowings to finance the Supervalu acquisition in fiscal 2019 year-to-date, offset in part by net payments made in fiscal 2020 year-to-date from operating activities cash flows in excess of investing activities.

These decreases in cash provided by financing activities, were offset in part by a decrease in payments of long-term debt and finance lease obligations of $625.0 million driven by the repayment of acquired senior notes in fiscal 2019 year-to-date and $62.6 million of payments for debt issuance costs in fiscal 2019 year-to-date.

Net cash flows from discontinued operations primarily include operating activity cash flow from operating income of the retail disposal groups.

The increase in net cash flows from discontinued operations is primarily due to cash flows generated from operations in fiscal 2020 year-to-date as a result of higher earnings, inventory sell through and an increase in accounts payable, which was partially offset by higher proceeds received in fiscal 2019 year-to-date related to the sale of retail locations, including Hornbacher’s, than proceeds received in fiscal 2020 year-to-date, including proceeds from the sale of a former dedicated retail distribution center and retail stores.

The decrease in net cash used in operating activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due lower cash utilized to build inventories, and higher earnings before taxes, depreciation and amortization, and impairments.

The decrease in net cash used in investing activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to lower cash payments for capital expenditures and higher cash proceeds for the sale of property and equipment.

The decrease in net cash provided by financing activities of continuing operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to higher payments of long-term debt attributable to the mandatory and voluntary prepayments on the Term Loan Facility, partially offset by new borrowings from the Senior Notes.

The decrease in cash flows from discontinued operations in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was primarily due to lower investing activities cash flow from the sale of property.

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200.0 million of our outstanding common stock.

The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200.0 million.

We did no t purchase any shares of our common stock in fiscal 2020 and 2019 year-to-date pursuant to the share repurchase program.

As of May 2, 2020 , we have $175.8 million remaining authorized under the share repurchase program.

We did not purchase any shares of our common stock in the first quarters of fiscal 2020 and 2021 pursuant to the share repurchase program.

As of October 31, 2020, we have $175.8 million remaining authorized under the share repurchase program.

We do not expect to purchase shares under the share repurchase program during fiscal 2021.

Additionally, our ABL Credit Facility, Term Loan Facility, and Senior Notes contain terms that limit our ability to repurchase of common stock above certain levels unless certain conditions and financial tests are met.

Table of C ontents

Pension and Other Postretirement Benefit Obligations

In fiscal 2020, $8.3 million of minimum pension contributions are required to be made under the Unified Grocers, Inc.

In fiscal 2021, no pension contributions are required to be made under either the SUPERVALU Inc.

Retirement Plan or the Unified Grocers, Inc.

Cash Balance Plan under Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

No minimum pension contributions are required to be made to the SUPERVALU Retirement Plan under ERISA in fiscal 2020.

We anticipate fiscal 2020 discretionary pension contributions and required minimum other postretirement benefit plan contributions to be approximately $0.0 million and $6.0 million , respectively.

We anticipate fiscal 2021 non-qualified pension contributions and other postretirement benefit plan contributions to be approximately $5.3 million.

We fund our defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by us, including our external actuarial consultant, and additional contributions made at our discretion.

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We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums, or in order to achieve exemption from participant notices of underfunding.

Lump Sum Pension Settlement

On August 1, 2019, the Company amended the SUPERVALU Retirement Plan to provide for a lump sum settlement window.

On August 2, 2019, the Company sent plan participants lump sum settlement election offerings that committed the plan to pay certain deferred vested pension plan participants and retirees, who make such an election, a lump sum payment in exchange for their rights to receive ongoing payments from the plan.

The lump sum payment amounts are equal to the present value of the participant’s pension benefits, and were made to certain former (i) retired associates and beneficiaries who are receiving their monthly pension benefit payment and (ii) terminated associates who are deferred vested in the plan, had not yet begun receiving monthly pension benefit payments and who are not eligible for any prior lump sum offerings under the plan.

Benefit obligations associated with the lump sum offering have been incorporated into the funded status utilizing the actuarially determined lump sum payments based on estimated offer acceptances.

The plan made aggregate lump sum settlement payments of $664.0 million to plan participants during the second quarter of fiscal 2020 .

The lump sum settlement payments resulted in a non-cash pension settlement charge of $10.3 million in the second quarter of fiscal 2020 from the acceleration of a portion of the accumulated unrecognized actuarial loss, which was based on the fair value of SUPERVALU Retirement Plan assets and remeasured liabilities.

As a result of the settlement payments, the SUPERVALU Retirement Plan obligations were remeasured using a discount rate of 3.1 percent and the MP-2019 mortality improvement scale.

This remeasurement resulted in a $1.5 million decrease to Accumulated other comprehensive loss.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

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Guarantees and Contingent Liabilities

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of May 2, 2020 .

We have outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of October 31, 2020.

We are contingently liable for leases that have been assigned to various parties in connection with facility closings and dispositions.

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However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code.

Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that would require us to record a withdrawal liability.

Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP.

We made contributions to these plans, and recognized continuing and discontinued operations expense, of $52 million in fiscal 2020.

In fiscal 2020, we expect to contribute approximately $37 million related to continuing operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions.

Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, it could trigger a partial or complete withdrawal that would require us to record a withdrawal liability.

In fiscal 2021, we expect to contribute approximately $45 million related to continuing and discontinued operations contributions to the multiemployer pension plans, subject to the outcome of collective bargaining and capital market conditions.

Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP.

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If these healthcare provisions cannot be renegotiated in a manner that reduces the prospective healthcare cost as we intend, our Operating expenses could increase in the future.

Refer to Note 14—Benefit Plans in Part II, Item 8 of the Annual Report on Form 10-K for additional information regarding the plans in which we participate.

Table of C ontents

Refer to Note 14—Benefit Plans in Part II, Item 8 of the Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the plans in which we participate.

Contractual Obligations

Except as otherwise disclosed in Note 9—Long-Term Debt and Note 11—Leases in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations since the end of fiscal 2019.

Except as otherwise disclosed in Note 8—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes in the Company’s contractual obligations since the end of fiscal 2020.

Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 1, 2020 for additional information regarding the Company’s contractual obligations.

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Generally, we do not experience any material seasonality.

However, our inventory levels and related demand for certain products of a seasonal nature may be influenced by holidays, changes in seasons or other annual events.

In addition, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages and general economic conditions.

However, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, demand for our products, supply shortages and general economic conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis