Item 1. Legal Proceedings

~~From time~~We are party to ~~time, we are involved in routine litigation or other~~various legal proceedings ~~that arise in~~arising from the ~~ordinary~~normal course of business as described in Note 16. “Commitments, Contingencies and Off-Balance Sheet Arrangements” in Part I, Item I of this Quarterly Report on Form 10-Q, none of which, in our ~~business. There are no pending~~opinion, is expected to have a material ~~legal proceedings to which we are a party~~adverse impact on our financial condition, results of operations or ~~to which our property is subject.~~cash flows.

Item 1A. Risk Factors

~~There have been no material changes~~Our business, financial condition and results of operations are subject to ~~our risk factors contained~~various risks and uncertainties, including those described below and elsewhere in ~~Part I, Item 1A, “Risk Factors,” of~~this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended July ~~29, 2017.~~28, 2018 (our “Annual Report”). This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. If any of the events described below occurs, our business, financial condition or results of operations could be materially adversely affected and our stock price could decline.

We provide these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Forward-Looking Statements.”

Strategic and Operational Risks

We depend heavily on our principal customers and our success is heavily dependent on our principal customers’ ability to grow their business.

Whole Foods Market accounted for a substantial percentage of our net sales in fiscal 2018. We serve as the primary distributor of natural, organic and specialty non-perishable products, and also distribute certain specialty protein, cheese, deli items and products from health, beauty and supplement categories to Whole Foods Market in all of its regions in the United States under the terms of our distribution agreement which expires on September 28, 2025. Our ability to maintain a close, mutually beneficial relationship with Whole Foods Market, which was acquired by Amazon.com, Inc. in August 2017, is an important element to our continued growth.

The loss or cancellation of business from Whole Foods Market, including from increased self distribution to its own facilities, closures of its stores, reductions in the amount of products that Whole Foods Market sells to its customers, or our failure to comply with the terms of our distribution agreement with Whole Foods Market could materially and adversely affect our business, financial condition or results of operations. Similarly, if Whole Foods Market is not able to grow its business, including as a result of a reduction in the level of discretionary spending by its customers or competition from other retailers or if Whole Foods Market diverts purchases from us beyond minimum amounts it is required to purchase under our distribution agreement, our business, financial condition or results of operations may be materially and adversely affected. Additionally, given the growth acceleration we experienced in fiscal 2018, if Whole Foods Market were to only purchase the minimum purchase amounts, it would negatively impact our financial results.

In addition to our dependence on Whole Foods Market, we are also dependent upon sales to our supermarket customers. To the extent that customers in this group make decisions to utilize alternative sources of products, whether through other distributors or through self distribution, our business, financial condition or results of operations may be materially and adversely affected.

Our business is a low margin business and our profit margins may decrease due to intense competition and consolidation in the grocery industry.

The grocery industry is characterized by relatively high volume of sales with relatively low profit margins, and as competition in certain areas intensifies and as the industry continues to consolidate, our results of operations may be negatively impacted through a loss of sales and reductions in gross margins. The grocery business is intensely competitive, and the recent and ongoing consolidation within the grocery industry is expected to result in increased competition, including from some competitors that have greater financial, marketing and other resources than we do. Consumers also have more choices that conventional grocery, including independent retailers we do not supply and e-commerce solutions, which reduces the demand for products supplied by

our wholesale customers. We cannot provide assurance that we will be able to compete effectively against current and future competitors.

Our ability to compete successfully will be largely dependent on our ability to provide quality products and services at competitive prices. Bidding for contracts or arrangements with customers, particularly within the supernatural and supermarkets channels, is highly competitive. Our competition comes from a variety of sources, including other distributors of natural products as well as specialty or independent grocery and mass market grocery distributors and retail customers that have their own distribution channels. Mass market grocery distributors in recent years have increased their emphasis on natural and organic products and are now competing more directly with our natural and organic product offerings, which are higher margin that conventional product offerings. The higher margin on natural and organic product offerings could be affected by changes in the public’s perception of the benefits of natural and organic products compared to similar conventional products.

In addition, many supermarket chains have increased self-distribution of particular items that we sell or have increased their purchases of particular items that we sell directly from suppliers. New competitors are also entering our markets as barriers to entry for new competitors are relatively low. For example, more natural and organic products are being sold in convenience stores and other mass market retailers and online through e-commerce than was the case a few years ago and many of these customers are being serviced by conventional distributors or are self-distributing. Some of the mass market grocery distributors with whom we compete may have substantially greater financial and other resources than we have and may be better established in their markets. We also face indirect competition as a result of the fact that our customers with physical locations face competition from online retailers and distributors that seek to sell certain of the type of products we sell to our customers directly to consumers. We cannot assure you that our current or potential competitors will not provide products or services comparable or superior to those provided by us or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and that competitors may rapidly acquire significant market share or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins, lost business and loss of market share, any of which could materially and adversely affect our business, financial condition or results of operations.

The continuing consolidation of retailers in the natural products industry and the growth of supernatural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts, and as we experience pricing pressures from suppliers and retailers. Sales to customers within our supernatural and supermarkets channels generate a lower gross margin than do sales to our independents channel customers. Many of these customers, including our largest customer, have agreements with us that include volume discounts. As the amounts these customers purchase from us increase, the price that they pay for the products they purchase is reduced, putting downward pressure on our gross margins on these sales. To compensate for these lower gross margins, we must increase the amount of products we sell or reduce the expenses we incur to service these customers. If we are unable to reduce our expenses as a percentage of net sales, including our expenses related to servicing this lower gross margin business, our business, financial condition or results of operations could be materially and adversely impacted.

We are transforming our business and have engaged, and may continue to engage in, acquisitions and divestitures and other strategic initiatives, and may encounter difficulties integrating acquired businesses or divesting businesses or assets and may not realize the anticipated benefits of our acquisitions and divestitures, including, in particular, our recent acquisition of Supervalu.

We have engaged in, and expect to continue to pursue, strategic transactions and initiatives as we transform our business. Acquisitions and divestitures present significant challenges and risks relating to the integration of acquired businesses and the separation of divested businesses.

On October 22, 2018, we acquired Supervalu, a complex business that was (and remains) in the process of integrating two recently acquired substantial businesses. On June 23, 2017, Supervalu acquired Unified, a retailer-owned cooperative focused on wholesale grocery and specialty distribution on the West Coast of the United States. On December 8, 2017, Supervalu acquired AG Florida, a retailer-owned cooperative that distributes full lines of grocery and general merchandise to independent retailers, located primarily in South Florida, the Caribbean, Central and South America and Asia. The processes of integrating Supervalu, Unified and AG Florida may be disruptive to our business operations and may distract our management team from their day-to-day responsibilities. There can also be no assurance that we will be able to successfully integrate Supervalu, Unified and AG Florida to achieve the operational efficiencies, including synergistic and other benefits of the acquisitions.

Our ability to achieve the expected benefits of these acquisitions, and in particular the Supervalu acquisition, will depend on, among other things, our ability to effectively execute on our business strategies, retain customers and suppliers on terms similar to those in place with the acquired businesses, achieve desired operating efficiencies and sales growth, optimize delivery routes, coordinate administrative and distribution functions, integrate management information systems, expand into new markets to include markets of the acquired business, retain and assimilate the acquired businesses’ employees, and maintain our financial

and internal controls and systems as we expand our operations. Achieving the anticipated benefits of acquisitions also depends on the adequacy of our implementation plans and the ability of management to oversee and operate effectively the combined operations.

To realize the anticipated benefits of the Supervalu acquisition, our business must be successfully combined with Supervalu. We could fail to realize the anticipated benefits for a variety of reasons, including failure to manage relationships with Supervalu’s customers and suppliers, revenue attrition in excess of anticipated levels, potential incompatibility of distribution and logistics operations and systems, failure to leverage the increased scale of the combined company quickly and effectively, difficulties integrating and harmonizing financial reporting systems, loss of key employees, failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company, and failure to execute efficient distribution of our spectrum of product offerings.

The integration of the businesses that we acquired, and in particular the Supervalu, might also cause us to incur unforeseen costs, which would lower our future earnings and would prevent us from realizing the expected benefits of these acquisitions. Any of the businesses we acquired may also have liabilities or adverse operating issues, including some that were not discovered before the acquisition, and our indemnity for such liabilities may also be limited or nonexistent. The integration process could divert the attention of management and temporarily redirect resources primarily focused on reducing product cost and operating expenses, resulting in lower gross profits in relation to sales. In addition, the process of combining our company with Supervalu could cause interruption or loss of momentum in the activities of the respective businesses, which could have a material adverse effect on the combined operations.

Additionally, our ability to make any future acquisitions may depend upon obtaining additional financing. We may not be able to obtain additional financing on acceptable terms or at all. To the extent that we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions. Failure to achieve the anticipated benefits of acquisitions could result in decreases in the amount of expected revenues and diversion of management’s time and energy. Therefore, future acquisitions, if any, could materially and adversely impact our business, financial condition and operating results including, ultimately, a reduction in our stock price, particularly in periods immediately following the consummation of those transactions while the operations of the acquired business are being integrated with our operations.

We have announced our intention to divest Supervalu’s retail grocery businesses in an efficient and economic manner. There can be no assurance that we will be able to (i) identify buyers for all or part of the retail business of Supervalu on favorable terms or at all, (ii) effectively retain employees and conduct business at the stores within the retail business while we seek to identify buyers for these operations or (iii) effectively minimize liabilities and stranded costs associated with the disposal of these operations, including surplus property and management of remaining obligations under real estate leases. If we are unable to divest Supervalu’s retail grocery business, or realize less net proceeds from the divesture than we anticipate, we may not be able to reduce our indebtedness as planned and will incur higher interests costs as a result. Our inability to complete or realize the projected benefits of planned and/or future divestitures could have a material adverse effect on our business, financial condition or results of operations.

We may have difficulty managing our growth.

The growth in the size of our business and operations has placed, and is expected to continue to place, a significant strain on our management. Our future growth may be limited by strong growth by certain of our largest customers or our inability to optimize our network of distribution centers to serve our customers, retain existing customers, successfully integrate acquired entities or significant new customers, implement information systems initiatives, or adequately manage our personnel.

We have substantially expanded our distribution center network through the acquisition of Supervalu. If we fail to optimize the volume of supply operations in our distribution center network or do not retain existing business, excess capacity may be created. Any excess capacity may create inefficiencies and adversely affect our business, financial condition or results of operations, including as a result of incurring operating costs for these facilities while the volume of products supplied from these facilities is insufficient to cover these costs.

We cannot assure you that we will be able to successfully optimize our distribution center network or open new distribution centers in new or existing markets if needed to accommodate or facilitate growth or that certain of our distribution centers will not have, or continue to have, operational challenges. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to maximize operational efficiencies across our distribution center network, to implement and improve on a timely basis operational, financial and management information systems, including our warehouse management systems, and to expand, train, motivate and manage our work force. We cannot assure you that our existing personnel, systems, procedures and controls will be adequate to support the future growth of our operations. Our inability to manage our growth effectively could have a

material adverse effect on our business, financial condition or results of operations, or other operational challenges are addressed in a timely manner.

Our future growth is limited in part by the size and location of our distribution centers. As we near maximum utilization of a given facility or maximize our processing capacity, operations may be constrained and inefficiencies have been and may be created, which could adversely affect our business, financial condition or results of operations unless the facility is expanded, volume is shifted to another facility, additional processing capacity is added.

Our inability to maintain or increase our operating margins could adversely affect our results of operations and the price of our stock.

As competition increases, the grocery industry consolidates and we attempt to affiliate larger wholesale customers, we expect to continue to face pressure on our operating margins. If we are not able to continue to capture scale efficiencies and enhance our merchandise offerings, if we are not able to achieve our targeted synergies for our acquisition of Supervalu, and Supervalu’s acquisitions of Unified and AG Florida, or if we are not able to reduce our costs as we divest certain of our retail operations, we may not be able to achieve our goals with respect to operating margins. In addition, if we do not refine and improve our systems continually or if we are unable to effectively improve our systems without disruption including any information technology migration to a cloud environment, we may not be able to reduce costs, increase sales and services, effectively manage inventory and procurement processes or effectively manage customer pricing plans. As a result, our operating margins may stagnate or decline, which could adversely affect the price of our stock.

Our wholesale distribution business could be adversely affected if we are not able to affiliate new customers, increase sales to existing customers or retain existing customers, or if our wholesale customers fail to perform.

The profitability of our wholesale segment is dependent upon sufficient volume to support our operating infrastructure, which is dependent on our ability to attract new customers, increase sales to existing customers and retain existing customers. The inability to attract new customers or the loss of existing customers to a competing wholesaler or due to retail closure, vertical integration by an existing customer converting to self-distribution, or industry consolidation may negatively impact our sales and operating margins.

Our success also relies in part on the financial success and cooperation of our wholesale customers. These wholesale customers manage their businesses independently and, therefore, are responsible for the day-to-day operation of their stores. They may not experience an acceptable level of sales or profitability, and our revenues and gross margins could be negatively affected as a result. We may also need to extend credit to our wholesale customers, including through loans, market support or guarantees, and while we seek to obtain security interests and other credit support in connection with the financial accommodations we extend, such collateral may not be sufficient to cover our exposure. Additionally, we sometimes enter into wholesale customer support arrangements to guaranty or subsidize real estate obligations, which make us contingently liable in the event our wholesale customers default. If sales trends or profitability worsen for wholesale customers, their financial results may deteriorate, which could result in, among other things, lost business for us, delayed or reduced payments to us or defaults on payments or other liabilities owed by wholesale customers to us, any of which could adversely impact our financial condition and results of operations, as well as our ability to grow our wholesale business. In this regard, our wholesale customers are affected by the same economic conditions, including food inflation and deflation, and competition that our retail segment faces. The magnitude of these risks increases as the size of our wholesale customers increases.

Many of our customers are not obligated to continue purchasing products from us and larger customers that do have multiyear contracts with us may terminate these contracts early in certain situations or choose not to renew or extend the contract at its expiration.

Many of our wholesale customers buy from us under purchase orders, and we generally do not have written agreements with or long-term commitments from these customers for the purchase of products. We cannot assure you that these customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our volumes or orders for products supplied by us for these customers with whom we do not have a long-term contract may have a material adverse effect on our business, financial condition or results of operations.

We may have contracts with certain of our customers (as is the case with many of our conventional supermarket customers and our supernatural chain customer) that obligate the customer to buy products from us for a particular period of time. Even in this case, the contracts may not require the customer to purchase a minimum amount of products from us or the contracts may afford the customer better pricing in the event that the volume of the customer’s purchases exceeds certain levels. If these customers were to terminate or fail to perform under these contracts prior to their scheduled termination, or if we or the customer elected not

to renew or extend the term of the contract at its expiration at historical purchase levels, it may have a material adverse effect on our business, financial condition or results of operations, including additional operational expenses to transition out of the business or to adjust our facilities and staffing costs to cover the reduction in net sales.

We have experienced losses due to the uncollectability of accounts receivable in the past and could experience increases in such losses in the future if our customers are unable to timely pay their debts to us.

Certain of our customers have from time to time experienced bankruptcy, insolvency and/or an inability to pay their debts to us as they come due. If our customers suffer significant financial difficulty, they may be unable to pay their debts to us timely or at all, which could have a material adverse effect on our business, financial condition or results of operations. It is possible that customers may reject their contractual obligations to us under bankruptcy laws or otherwise. Significant customer bankruptcies could further adversely affect our revenues and increase our operating expenses by requiring larger provisions for bad debt. In addition, even when our contracts with these customers are not rejected, if customers are unable to meet their obligations on a timely basis, it could adversely affect our ability to collect receivables. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation, each of which could have a material adverse effect on our business, financial condition or results of operations.

During periods of economic weakness, small to medium-sized businesses, like many of our independents channel customers, may be impacted more severely and more quickly than larger businesses. Similarly, these smaller businesses may be more likely to be more severely impacted by events outside of their control, like significant weather events. Consequently, the ability of such businesses to repay their obligations to us may deteriorate, and in some cases this deterioration may occur quickly, which could materially and adversely impact our business, financial condition or results of operations.

Our business strategy of increasing our sales of fresh, perishable items, which we accelerated with our acquisitions of Tony’s, Global Organic and Nor-Cal and which should be facilitated by the Supervalu acquisition, may not produce the results that we expect.

A key element of our current growth strategy is to increase the amount of fresh, perishable products that we distribute. We believe that the ability to distribute these products that are typically found in the perimeter of our customers’ stores, in addition to the products we have historically distributed, will differentiate us from our competitors and increase demand for our products. We accelerated this strategy with our acquisitions of Tony’s, Global Organic and Nor-Cal, and most importantly Supervalu. If we are unable to grow this portion of our business and manage that growth effectively, our business, financial condition and results of operations may be materially and adversely affected, or we may not be able to fully realize the benefits of the Supervalu acquisition.

Changes in relationships with our suppliers may adversely affect our profitability.

We cooperatively engage in a variety of promotional programs with our suppliers. We manage these programs to maintain or improve our margins and increase sales. A reduction or change in promotional spending by our suppliers (including as a result of increased demand for natural and organic products) could have a significant impact on our profitability. We depend heavily on our ability to purchase merchandise in sufficient quantities at competitive prices, and recently we have experienced a higher than anticipated level of vendor out-of-stocks. We have no assurances of continued supply, pricing, or access to new products and any supplier could at any time change the terms upon which it sells to us or discontinue selling to us.

We face risks related to labor relations, labor costs and the availability of qualified labor.

As of October 27, 2018, approximately 4,900 of our 19,900 employees (approximately 24.6%) were covered by collective bargaining agreements which expire between March 2019 and April 2023, including 37 collective bargaining agreements from the acquisition of Supervalu. If we are not able to renew these agreements or are required to make significant changes to these agreements, our relationship with these employees may become fractured, work stoppages could occur or we may incur additional expenses which could have a material adverse effect on our business, financial condition, or results of operations. We have in the past been the focus of union-organizing efforts, and we believe it is likely that we will be the focus of similar efforts in the future.

As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. New contracts with unions could have substantially less favorable terms than prior to the union-organizing efforts. In the event we are unable to negotiate contract renewals with our union associates, we could be subject to work stoppages. In that event, it would be necessary for us to hire replacement workers to continue to meet our obligations to our customers. The costs to hire replacement workers and employ effective security measures could negatively impact the profitability of any affected facility. Depending on the length of time that we are required to employ replacement

workers and security measures these costs could be significant and could have a material adverse effect on our business, financial condition or results of operations.

We are subject to a wide range of labor costs. Because our labor costs are, as a percentage of net sales, higher than in many other industries, we may be significantly harmed by labor cost increases. In addition, labor is a significant cost of many of our wholesale customers. Any increase in their labor costs, including any increases in costs as a result of increases in minimum wage requirements, could reduce the profitability of our customers and reduce demand for the products we supply.

Additionally, we risk a shortage of qualified labor. Recruiting and retention efforts, and actions to increase productivity, may not be successful, and we could encounter a shortage of qualified labor in the future. Such a shortage could potentially increase labor costs, reduce profitability or decrease our ability to effectively serve customers. We are undertaking efforts to automate certain functions of our business. If we are unable to realize our efforts to improve labor efficiency through automation, including as a result of delays in executing our business transformation and integration efforts, we may be more susceptible to labor shortages than our competitors.

Increases in healthcare, pension and other costs under the Company’s and multiemployer benefit plans could adversely affect our financial condition and results of operations.

We provide health, defined benefit pension, defined contribution and other postretirement benefits to many of our employees and the costs of such benefits continue to increase. The amount of any increase depends on a number of different factors, many of which are beyond our control. These factors include governmental regulations such as The Patient Protection and Affordable Care Act, which has resulted in changes to the U.S. healthcare system and imposes mandatory types of coverage, reporting and other requirements; return on assets held in plans; changes in actuarial valuations, estimates, assumptions or calculations used to determine our benefit obligations for certain benefit plans, which require the use of significant estimates, including the discount rate, expected long-term rate of return on plan assets, mortality rates and the rates of increase in compensation and healthcare costs; for multiemployer plans, the outcome of collective bargaining and actions taken by trustees who manage the plans; and potential changes to applicable legislation or regulation. If we are unable to control these benefits and costs, we may experience increased operating costs, which may adversely affect our financial condition and results of operations.

Additionally, Company-sponsored plans and multiemployer pension plans are underfunded with the projected benefit obligations exceeding the fair value of those plans’ assets. Withdrawal liabilities from multiemployer plans could be material, and potential exposure to withdrawal liabilities could cause us to forgo or negatively impact our ability to enter into other business opportunities. Some of these plans have required rehabilitation plans or funding improvement plans, and we can give no assurances of the extent to which a rehabilitation plan or a funding improvement plan will improve the funded status of the plan. We expect that increases of unfunded liabilities of these plans would result in increased future payments by us and the other participating employers over the next few years. A significant increase to funding requirements could adversely affect our financial condition, results of operations or cash flows. The financial condition of these pension plans may also negatively impact our debt ratings, which may increase the cost of borrowing or adversely affect our ability to access one or more financial markets.

Failure by us to develop and operate a reliable technology platform and the costs of maintaining secure and effective information technology systems could negatively impact our business and we may not realize the anticipated benefits of our recent investments in information technology.

Our ability to decrease costs and increase profits, as well as our ability to serve customers most effectively, depends on the reliability of our technology platform. We use software and other technology systems, among other things, to generate and select orders, to load and route trucks and to monitor and manage our business on a day-to-day basis. Failure to have adequate computer systems across the enterprise and any disruption to these computer systems could adversely impact our customer service, decrease the volume of our business and result in increased costs negatively affecting our business, financial condition or results of operations.

In our attempt to reduce operating expenses and increase operating efficiencies, we have invested in the development and implementation of new information technology. We are in the process of rolling out a national warehouse management and procurement system to convert our existing facilities into a single warehouse management and supply chain platform and have completed conversions at fifteen of our facilities. In light of the acquisition of Supervalu, we are reevaluating our warehouse management system strategy. However, we currently plan to remain focused on the automation of our new or expanded distribution centers that are at different stages of construction. We may not be able to implement these technological changes in the time frame that we have planned and delays in implementation (including delays resulting from the integration of Supervalu) could negatively impact our business, financial condition or results of operations. In addition, the costs to make these changes may exceed our estimates and will exceed the benefits during the early stages of implementation. Even if we are able to implement the changes in accordance with our current plans, and within our current cost estimates, we may not be able to achieve the expected efficiencies

and cost savings from this investment, which could have a material adverse effect on our business, financial condition or results of operations. Moreover, as we implement information technology enhancements, disruptions in our business may be created (including disruption with our customers) which may have a material adverse effect on our business, financial condition or results of operations.

Disruptions to our or third-party information technology systems, including cyber-attacks and security breaches, and the costs of maintaining secure and effective information technology systems could negatively affect our business and results of operations.

The efficient operation of our businesses is highly dependent on computer hardware and software systems, including customized information technology systems. Additionally, our businesses increasingly involve the receipt, storage and transmission of sensitive data, including personal information about our customers and employees and our proprietary business information, customers and vendors. We also share information with vendors. Information systems are vulnerable to not functioning as designed and to disruptions and security breaches by computer hackers and cyber terrorists.

Although we continue to take actions to strengthen the security of our information technology systems, these measures and technology may not adequately anticipate or prevent security breaches in the future or we may not be able to timely implement these measures and technology. Cyber-attacks are rapidly evolving and becoming increasingly sophisticated and difficult to detect. The failure to promptly detect, determine the extent of and appropriately respond to and contain a significant data security attack or breach of our systems or any third-party systems used by us could have a material adverse impact on our business, financial condition and results of operations. We could also lose credibility with our customers and suffer damage to our reputation and future sales, including through negative publicity and social media. In addition, the unavailability of the information systems or failure of these systems or software to perform as anticipated for any reason and any inability to respond to, or recover from, such an event, could disrupt our business, impact our customers and could result in decreased performance, increased overhead costs and increased risk for liability, causing our business and results of operations to suffer.

As a merchant that accepts debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”), issued by the PCI Council. Additionally, we are subject to PCI DSS as a service provider, which is a business entity that is not a payment brand directly involved in the processing, storage or transmission of cardholder data. PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute data encryption standards and payment network security operating guidelines. The cost of complying with stricter privacy and information security laws, standards and guidelines, including evolving PCI DSS standards, and developing, maintaining and upgrading technology systems to address future advances in technology, could be significant and we could experience problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems. Failure to comply with such laws, standards and guidelines, or payment card industry standards such as accepting Europay, MasterCard and Visa (EMV) transactions, could have a material adverse impact on our business, financial condition and results of operations.

We have significant service relationships with Albertson’s, NAI and Save-A-Lot, and the wind-down of our relationships with Albertson’s and NAI (and any future wind down of Save-A-Lot) could adversely impact our results of operations.

We have provided significant support services to NAI and Albertson’s since 2006 and to Save-A-Lot since we divested it in December 2016. Our services to NAI and Albertson’s ended in September 2018, subject to limited extensions of services at NAI’s and Albertson’s election. We will lose a significant amount of revenue and corresponding operating earnings as a result of this wind down. We have been executing on our plan to reduce costs, grow our sales and enhance our margins over the past several years, but we do not believe that we will be able to grow sales quickly enough, further eliminate costs or enhance margins to fully mitigate the lost revenue as the transition services agreement unwinds. Failure to execute on our services offering and growth strategy, including making the necessary capital investments for that growth while managing additional cost reductions, could further adversely impact our results of operations. In October 2018, we exited the distribution center that we share with NAI and Albertson’s in Lancaster, PA. Our results of operations could be adversely impacted if we are not able to transition to our new distribution center in Harrisburg, PA in the manner and timeline anticipated, which we have recently experienced.

Our large professional services agreements, including our agreement with Save-A-Lot, provide certain rights for the customers. The services agreement will typically include a fixed term but provide the customer certain termination rights, including in the event of our material breach, and may give the customer certain termination and monetary rights with respect to specified services or service categories in the event we do not perform to agreed-upon minimum levels of service. The services agreement will also generally require us to indemnify the customer against third-party claims arising out of the performance of the services under the agreement. Termination of services agreements, in whole or in part, and in particular the services agreement with Save-A-Lot and the wind-down of the services agreement with NAI and Albertson’s, could adversely affect our business or results of operations.

Changes in the military commissary system or decreases in governmental funding could negatively impact the sales and operating performance of our military business.

Our wholesale segment sells and distributes grocery products to military commissaries and exchanges in the United States. The commissary system has experienced material changes as the Defense Commissary Agency has looked to reduce the level of governmental funding required for the system, including to lower prices from suppliers and to offer its own private-label products. The military food distribution industry already has narrow operating margins making economies of scale critical for distributors. These changes could have an adverse impact on the sales and operating performance of our military business. Additionally, our military business faces competition from large national and regional food distributors, as well as smaller food distributors, and the military commissaries and exchanges face competition from low-cost retailers.

Our insurance and self-insurance programs may not be adequate to cover future claims.

We are primarily self-insured for workers’ compensation and general and automobile liability insurance. Additionally, we use a combination of insurance and self-insurance to provide for potential liabilities for director and officer liability, property risk, cyber and privacy risks and employee healthcare benefits. We believe that our insurance coverage, including our workers’ compensation and automobile insurance coverage, is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, should they occur, could have a material adverse effect on our business, financial condition or results of operations. In addition, the cost of workers’ compensation insurance and automobile insurance fluctuates based upon our historical trends, market conditions and availability.

We estimate the liabilities and required reserves associated with the risks we retain. Any such estimates and actuarial projection of losses is subject to a considerable degree of variability. Among the causes of this variability are changes in benefit levels, medical fee schedules, medical utilization guidelines, vocation rehabilitation and apportionment and unpredictable external factors affecting inflation rates, discount rates, rising healthcare costs, litigation trends, legal interpretations, benefit level changes and actual claim settlement patterns. If actual losses incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in our consolidated financial statements. If we suffer a substantial loss that is not covered by our self-insurance reserves, the loss and attendant expenses could harm our business, financial condition or results of operations. We have purchased stop loss coverage from third parties for certain employee healthcare plans, which limits our exposure above the amounts we have self-insured.

Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and results of operations.

We monitor the recoverability of our long-lived assets, such as buildings and equipment, and evaluate their carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We annually review goodwill to determine if impairment has occurred. Additionally, interim reviews are performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value and fair value of the long-lived assets or the carrying value and fair value of the reporting unit, in the period the determination is made. The testing of long-lived assets and goodwill for impairment requires us to make estimates that are subject to significant assumptions about our future revenue, profitability, cash flows, fair value of assets and liabilities, weighted average cost of capital, as well as other assumptions. Changes in these estimates, or changes in actual performance compared with these estimates, may affect the fair value of long-lived assets or reporting unit, which may result in an impairment charge.

We cannot accurately predict the amount or timing of any impairment of assets. Should the value of long-lived assets or goodwill become impaired, our financial condition and results of operations may be adversely affected.

Our debt agreements contain restrictive covenants that may limit our operating flexibility.

Our debt agreements, including our ABL Loan Agreement and our Term Loan Agreement, contain financial covenants and other restrictions that limit our operating flexibility, limit our flexibility in planning for or reacting to changes in our business. These restrictions may prevent us from taking actions that we believe would be in the best interest of our business if we were not subject to these limitations, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted.

In addition, our ABL Loan Agreement and Term Loan Agreement require that we comply with various financial tests and impose certain restrictions on us, including among other things, restrictions on our ability to incur additional indebtedness, create liens

on assets, make loans or investments or pay dividends. Failure to comply with these covenants could have a material adverse effect on our business, financial condition or results of operations.

The cost of the capital available to us and limitations on our ability to access additional capital may have a material adverse effect on our business, financial condition or results of operations.

Historically, acquisitions and capital expenditures have been a large component of our growth. We anticipate that acquisitions and capital expenditures will continue to be important to our growth in the future. As a result, increases in the cost of capital available to us, which could result from volatility in the credit markets, downgrades of our credit ratings, or the Company not being in compliance with restrictive covenants under our debt agreements, or our inability to access additional capital to finance acquisitions and capital expenditures through borrowed funds could restrict our ability to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations.

In addition, our profit margins depend on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital up-front to purchase products that we then sell over a multi-month time period. Therefore, increases in the cost of capital available to us or our inability to access additional capital through borrowed funds at economic terms could restrict our ability to engage in strategic investment buying initiatives, which could reduce our profit margins and have a material adverse effect on our business, financial condition or results of operations.

Economic Risks

Our high level of debt makes us more sensitive to the effects of economic downturns and could adversely affect our business.

In order to finance the acquisition of Supervalu, we incurred or assumed approximately $3.4 billion of additional indebtedness, including indebtedness incurred to refinance Supervalu’s then existing debt. This increase in our leverage, and any further increase, could have important potential consequences, including, but not limited to:

increasing our vulnerability to, and reducing our flexibility to plan for and respond to, general adverse economic and industry conditions and changes in our business and the competitive environment;

requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, share repurchases or other corporate purposes;

increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity and access to capital markets;

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest;

making it more difficult for us to repay, refinance or satisfy our obligations with respect to our debt;

limiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing;

placing us at a competitive disadvantage compared to competitors with less leverage or better access to capital resources; and

imposing restrictive covenants on our operations, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of the applicable debt, and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.

There is no assurance that we will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other needs. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business, financial condition or results of operations.

Our operations are sensitive to economic downturns.

The grocery industry is sensitive to national and regional economic conditions and the demand for the products that we distribute, particularly our specialty products, may be adversely affected from time to time by economic downturns that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, housing starts, interest rates, inflation rates, energy and fuel costs and tax rates could reduce consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of our higher margin natural and organic products

that consumers purchase where there are conventional lower margin alternatives given that many natural and organic products, and particularly natural and organic foods, often have higher retail prices than do their conventional counterparts.

Our business may be sensitive to inflationary and deflationary pressures.

Many of our sales are at prices that are based on our product cost plus a percentage markup. As a result, volatile food costs have a direct impact upon our profitability. Prolonged periods of product cost inflation and periods of rapidly increasing inflation may have a negative impact on our profit margins and results of operations to the extent that we are unable to pass on all or a portion of such product cost increases to our customers. In addition, product cost inflation may negatively impact the consumer discretionary spending trends and reduce the demand for higher-margin natural and organic products, which could adversely affect profitability. Conversely, because many of our sales are at prices that are based upon product cost plus a percentage markup, our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of net sales may remain relatively constant. To compensate for lower gross margins, we, in turn, must reduce expenses that we incur to service our customers. If we are unable to reduce our expenses as a percentage of net sales, our business, financial condition or results of operations could be materially and adversely impacted.

Changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations.

Changes in consumer eating habits away from natural, organic or specialty products could reduce demand for our higher margin natural and organic products. Consumer eating habits could be affected by a number of factors, including changes in attitudes regarding benefits of natural and organic products when compared to similar lower margin conventional products or new information regarding the health effects of consuming certain foods. Although there is a growing consumer preference for sustainable, organic and locally grown products, there can be no assurance that such trend will continue. Changing consumer eating habits also occur due to generational shifts. Millennials, the largest demographic group in the U.S. in terms of spend, seek new and different as well as more ethnic menu options and menu innovation, however there can be no assurance that such trend will continue. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs associated with the implementation of those changes. Additionally if we are not able to effectively respond to changes in consumer perceptions or adapt our product offerings to trends in eating habits, our business, financial condition or results of operations could suffer.

Increased fuel costs may adversely affect our results of operations.

Increased fuel costs may have a negative impact on our results of operations. The high cost of diesel fuel can increase the price we pay for products as well as the costs we incur to deliver products to our customers. These factors, in turn, may negatively impact our net sales, margins, operating expenses and operating results. To manage this risk, we have in the past periodically entered, and may in the future periodically enter, into commodity derivative contracts to hedge a portion of our projected diesel fuel requirements. We are currently not party to any commodity swap agreements and, as a result, our exposure to volatility in the price of diesel fuel has increased relative to our exposure to volatility in prior periods in which we had outstanding commodity derivative contracts. We do not enter into fuel hedge contracts for speculative purposes. We have in the past, and may in the future, periodically enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements at fixed prices. As of October 27, 2018, we had no forward diesel fuel commitments. We also maintain a fuel surcharge program which allows us to pass some of our higher fuel costs through to our customers. We cannot guarantee that we will continue to be able to pass a comparable proportion or any of our higher fuel costs to our customers in the future, which may adversely affect our business, financial condition or results of operations.

Disruption of our distribution network or to the operations of our customers could adversely affect our business.

Damage or disruption to our distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes, product recalls or safety concerns generally, crop conditions, availability of key commodities, regulatory actions, disruptions in technology, the financial and/or operational instability of key suppliers, performance by outsourced service providers, transportation interruptions, labor supply or stoppages or vendor defaults or disputes, or other reasons could impair our ability to distribute our products. To the extent that we are unable, or it is not financially feasible, to mitigate the likelihood or potential impact of such events, or to manage effectively such events if they occur, there could be an adverse effect on our business, financial condition or results of operations.

In addition, such disruptions may reduce the number of consumers who visit our customers’ facilities in any affected areas. Furthermore, such disruption may interrupt or impede access to our customers’ facilities, all of which could have a material adverse effect on our business, financial condition, or results of operations.

Conditions beyond our control can interrupt our supplies and alter our product costs.

The majority of our suppliers are based in the United States and Canada, but we also source products from suppliers throughout Europe, Asia, Central America, South America, Africa and Australia. For the most part, we do not have long-term contracts with our suppliers committing them to provide products to us. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not provide the products needed by us in the quantities and at the prices requested. We are also subject to delays caused by interruption in production and increases in product costs based on conditions outside of our control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop conditions, product recalls, water shortages, transportation interruptions, unavailability of fuel or increases in fuel costs, competitive demands, raw material shortages and natural disasters or other catastrophic events (including, but not limited to food-borne illnesses). As demand for natural and organic products has increased and the distribution channels into which these products are sold have expanded, we have continued to experience higher levels of manufacturer out-of-stocks. These shortages have caused us to incur higher operating expenses due to the cost of moving products around and between our distribution facilities in order to keep our service level high. We cannot be sure when this trend will end or whether it will recur during future years. As the consumer demand for natural and organic products has increased, certain retailers and other producers have entered the market and attempted to buy certain raw materials directly, limiting their availability to be used in certain supplier products. Further, increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products, including the specialty protein and cheese products sold by Tony’s. For example, until the last two years, weather patterns had resulted in lower than normal levels of precipitation in key agricultural states such as California, impacting the price of water and corresponding prices of food products grown in states facing drought conditions. The impact of sustained droughts is uncertain and could result in volatile input costs. Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged period. Conversely, in years where rainfall levels are abundant product costs, particularly in our perishable and produce businesses, may decline and the results of this product cost deflation could negatively impact our results of operations. Our inability to obtain adequate products as a result of any of the foregoing factors or otherwise could prevent us from fulfilling our obligations to customers, and customers may turn to other distributors. In that case, our business, financial condition or results of operations could be materially and adversely affected.

Legal and Regulatory Risks

We are subject to significant governmental regulation.

Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular:

the products that we distribute in the United States are subject to inspection by the United States Food and Drug Administration;

our warehouse and distribution centers are subject to inspection by the United States Department of Agriculture, the United States Department of Labor Occupational and Health Administration, and various state health and workplace safety authorities; and

the United States Department of Transportation and the United States Federal Highway Administration regulate our United States trucking operations.

In addition, the various federal, state and local laws, regulations and administrative practices to which we are subject require us to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs, tobacco and alcoholic beverages, among others. For example:

Environmental, Health and Safety: Our operations are subject to extensive and increasingly stringent laws and regulations pertaining to the protection of the environment, including those relating to the discharge of materials into the environment, the disposal of food by-products, the handling, treatment and disposal of wastes, maintenance of refrigeration systems and remediation of soil and groundwater contamination. Compliance with existing or changing environmental and safety requirements, including more stringent limitations imposed or expected to be imposed in recently renewed or soon-to-be renewed environmental permits, may require capital expenditures. Additionally, concern over climate change, including the impact of global warming, has led to significant United States and international legislative and regulatory efforts to limit greenhouse gas emissions. Increased regulation regarding greenhouse gas emissions, especially diesel engine emissions, could impose substantial costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updating or replacing our vehicles prematurely. Until the timing, scope and extent of such regulation becomes known, we cannot predict its effect on our results of

operations. It is reasonably possible, however, that it could impose material costs on us which we may be unable to pass on to our customers.

Food Safety: There is increasing governmental scrutiny, regulations and public awareness regarding food quality and food and drug safety. We may be adversely affected if consumers lose confidence in the safety and quality of our food and drug products. Any events that give rise to actual or potential food contamination, drug contamination or food-borne illness or injury, or events that give rise to claims that our products are not of the quality or composition claimed to be, may result in product liability claims from individuals, consumers and governmental agencies, penalties and enforcement actions from government agencies, a loss of consumer confidence, harm to our reputation and could cause production and delivery disruptions, which may adversely affect our financial condition and results of operations. It may be necessary for us to recall unsafe, contaminated or defective products or we may recall products that we determine do not satisfy our quality standards. Recall costs and product liability claims can be material. While we generally seek contractual indemnification and insurance coverage from our suppliers, we might not be able to recover these significant costs from our suppliers.

Marketing of Natural or Organic Foods: In addition, as a distributor and manufacturer of natural, organic, and specialty foods, we are subject to increasing governmental scrutiny of and public awareness regarding food safety and the sale, packaging and marketing of natural and organic products. Compliance with these laws may impose a significant burden on our operations.

Wage Rates and Paid Leave: Changes in federal or state minimum wage and overtime laws or employee paid leave laws could cause us to incur additional wage costs, which could adversely affect our operating margins.

Foreign Operations: Our supplier base includes domestic and foreign suppliers. In addition, we have customers located outside the United States and the acquisition of Supervalu, in particular its AG Florida business, expands our wholesale business to additional international customers. Accordingly, laws and regulations affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws and regulations could adversely impact our financial condition and results of operations. In addition, we are required to comply with laws and regulations governing export controls, and ethical, anti-bribery and similar business practices such as the Foreign Corrupt Practices Act. Our Canadian operations are similarly subject to extensive regulation, including the English and French dual labeling requirements applicable to products that we distribute in Canada. The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where we intend to do business could have a material adverse effect on our business, financial condition or results of operations.

Pharmacy: We are required to meet various security and operating standards and comply with the Controlled Substances Act and its accompanying regulations governing the sale, marketing, packaging, holding, record keeping and distribution of controlled substances. During the past several years, the United States healthcare industry has been subject to an increase in governmental regulation and audits at both the federal and state levels. For example, Supervalu received an administrative subpoena issued by the Drug Enforcement Administration requesting, among other things, information on the company’s pharmacy policies and procedures generally, as well as the production of documents that are required to be kept and maintained pursuant to the Controlled Substances Act and its implementing regulations. Additionally, the Patient Protection and Affordable Care Act made several significant changes to Medicaid rebates and to reimbursement. One of these changes was to revise the definition of the Average Manufacturer Price, a pricing element common to most payment formulas, and the reimbursement formula for multi-source (i.e., generic) drugs. This change will affect our reimbursement. In addition, the Patient Protection and Affordable Care Act made other changes that affect the coverage and plan designs that are or will be provided by many of our health plan clients, including the requirement for health insurers to meet a minimum medical loss ratio to avoid having to pay rebates to enrollees. These Patient Protection and Affordable Care Act changes may not affect our business directly, but they could indirectly impact our services and/or business practices.

The failure to comply with applicable regulatory requirements, or make capital expenditures required to maintain compliance with governmental laws and regulations, including those referred to above and in Item 1. Business-Government Regulation of our Annual Report, could result in, among other things, administrative, civil, or criminal penalties or fines; mandatory or voluntary product recalls; warning or other letters; cease and desist orders against operations that are not in compliance; closure of facilities or operations; the loss, revocation, or modification of any existing licenses, permits, registrations, or approvals; the failure to obtain additional licenses, permits, registrations, or approvals in new jurisdictions where we intend to do business; or the loss of our ability to participate in federal and state healthcare programs, any of which could have a material adverse effect on our business, financial condition, or results of operations. These laws and regulations may change in the future. We cannot predict the nature of future laws, regulations, interpretations or applications, nor can we determine the effect that additional governmental regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our future business. We may incur material costs in our efforts to comply with current or future laws and regulations or due to any required product recalls.

In addition, if we fail to comply with applicable laws and regulations or encounter disagreements with respect to our contracts subject to governmental regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, prohibitions on exporting, seizures, or debarments from contracting with the U.S. or Canadian governments. The cost of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business, financial condition or results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations.

Product liability claims could have an adverse effect on our business.

We face an inherent risk of exposure to product liability claims if the products we manufacture or sell cause injury or illness. In addition, meat, seafood, cheese, poultry and other products that we distribute could be subject to recall because they are, or are alleged to be, contaminated, spoiled or inappropriately labeled. Our meat and poultry products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E.coli. These pathogens are generally found in the environment, and as a result, there is a risk that they, as a result of food processing, could be present in the meat and poultry products we distribute. These pathogens can also be introduced as a result of improper handling at the consumer level. These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling before we receive the product or once the product has been shipped to our customers. We may be subject to liability, which could be substantial, because of actual or alleged contamination in products manufactured or sold by us, including products sold by companies before we acquired them. In addition, if we were to manufacture or distribute foods that are or are perceived to be contaminated, any resulting product recalls could have an adverse effect on our business, financial condition, or results of operations. We have, and the companies we have acquired have had, liability insurance with respect to product liability claims. This insurance may not continue to be available at a reasonable cost or at all, and may not be adequate to cover product liability claims against us or against companies we have acquired. We generally seek contractual indemnification from manufacturers, but any such indemnification is limited, as a practical matter, to the creditworthiness of the indemnifying party. If we or any of our acquired companies do not have adequate insurance or contractual indemnification available, product liability claims and costs associated with product recalls, including a loss of business, could have a material adverse effect on our business, financial condition or results of operations.

Adverse judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of our business could reduce our profits or limit our ability to operate our business.

In the normal course of our business, we are involved in various legal proceedings. The outcome of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or a settlement involving a payment of a material sum of money were to occur, it could materially and adversely affect our results of operations or ability to operate our business. Additionally, we could become the subject of future claims by third parties, including our employees, our investors, or regulators. Any significant adverse judgments or settlements would reduce our profits and could limit our ability to operate our business. Further, we may incur costs related to claims for which we have appropriate third-party indemnity, but such third parties fail to fulfill their contractual obligations.

We may be unable to adequately protect our intellectual property rights, which could harm our business.

We rely on a combination of trademark, service mark trade secret, copyright and domain name law and internal procedures and nondisclosure agreements to protect our intellectual property. We believe our trademarks, private-label products and domain names are valuable assets. However, our intellectual property rights may not be sufficient to distinguish our products and services from those of our competitors and to provide us with a competitive advantage. From time to time, third parties may use names, logos and slogans similar to ours, may apply to register trademarks or domain names similar to ours, and may infringe or otherwise violate our intellectual property rights. Our intellectual property rights may not be successfully asserted against such third parties or may be invalidated, circumvented or challenged. Asserting or defending our intellectual property rights could be time consuming and costly and could distract management’s attention and resources. If we are unable to prevent our competitors from using names, logos, slogans and domain names similar to ours, consumer confusion could result, the perception of our brands and products could be negatively affected, and our sales and profitability could suffer as a result. In addition, if our wholesale customers receive negative publicity or fail to maintain the quality of the goods and services used in connection with our trademarks, our rights to, and the value of, our trademarks could potentially be harmed. Failure to protect our proprietary information could also have an adverse effect on our business.

We may also be subject to claims that our activities or the products we sell infringe, misappropriate or otherwise violate the intellectual property rights of others. Any such claims can be time consuming and costly to defend and may distract management’s

attention and resources, even if the claims are without merit, and may prevent us from using our trademarks in certain geographies or in connection with certain products and services, any of which could adversely affect our business.

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

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

~~The following table presents purchases of our common stock and related information for each of the months in the fiscal quarter ended January 27, 2018:~~

(In thousands, except share and per share amounts) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
Period:
October 29, 2017 to December 2, 2017 402,587
$ 39.21
402,587
$ 177,763
December 3, 2017 to December 30, 2017 —
—
—
177,763
December 31, 2017 to January 27, 2018 —
—
—
177,763
Total 402,587
$ 39.21
402,587
$ 177,763
None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Index



Exhibit No.		Description
10.1**2.1		First Amendment to Agreement and Plan of Merger, dated as of October 10, 2018, by and among United Natural Foods, Inc., Jedi Merger Sub, Inc., SUPERVALU INC. and SUPERVALU Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on October 10, 2018).
3.1		Fourth Amended and Restated Bylaws of United Natural Foods, Inc., effective October 17, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 19, 2018).
10.1		First Amendment to Loan Agreement, dated October 19, 2018, by and among United Natural Foods, Inc., United Natural Foods West, Inc., UNFI Canada, Inc., the financial institutions that are parties thereto as lenders, Bank of America, N.A., Bank of America, N.A. (acting through its Canada branch) and the other parties thereto (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on October 25, 2018).
10.2		Term Loan Agreement, dated October 22, 2018, by and among UNFI and SUPERVALU INC., the financial institutions that are parties thereto as lenders, Goldman Sachs Bank USA, as administrative agent for the Lenders, and the other parties thereto (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on October 25, 2018).
10.3		Amended and Restated Employment Agreement, dated as of November 5, 2018, between the Company and Steven L. Spinner (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed on November 8, 2018).
10.4		Employment Agreement, dated as of November 5, 2018, between the Company and Sean F. Griffin (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K/A filed on November 8, 2018).
10.5		Form of Second Amended and Restated ~~2012 Equity Incentive Plan~~Severance Agreement (incorporated by reference to ~~Appendix A of~~Exhibit 10.3 to the Registrant’s ~~Supplement~~Current Report on Form 8-K/A filed on November 8, 2018).
10.6		Form of Second Amended and Restated Change in Control Agreement (incorporated by reference to ~~Proxy Statement on Schedule 14A for~~Exhibit 10.4 to the Registrant’s ~~Annual Meeting of Stockholders held~~Current Report on ~~December 13, 2017,~~Form 8-K/A filed on ~~December 5, 2017 (File No. 1-15723))~~November 8, 2018).
10.7		Form of Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K/A filed on November 8, 2018).
10.8		Form of Performance Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K/A filed on November 8, 2018).
10.9		Form of Amended and Restated Indemnification Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K/A filed on November 8, 2018).
18.1*		Preferability letter of KPMG LLP, independent registered public accounting firm.
31.1*		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from the United Natural Foods, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~January~~October 27, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

* Filed herewith.

** Denotes a management contract or compensatory plan or arrangement.

* * *

We would be pleased to furnish a copy of this Form 10-Q to any stockholder who requests it by writing to:

United Natural Foods, Inc.

Steve Bloomquist

Vice President, Investor Relations

~~313 Iron Horse Way~~

~~Providence, RI 02908~~952-828-4144

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	UNITED NATURAL FOODS, INC.

	/s/ Michael P. Zechmeister
	Michael P. Zechmeister
	Chief Financial Officer
	(Principal Financial ~~and Accounting~~ Officer)

Dated: ~~March 8,~~December 6, 2018

3170



Delaware		05-0376157
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)



313 Iron Horse Way, Providence, RI		02908
(Address of Principal Executive Offices)		(Zip Code)



Large accelerated filer X		Accelerated filer ___
Non-accelerated filer ~~_ (Do not check if a smaller reporting company)~~__		Smaller reporting company ___
Emerging growth company __
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. __


	January 27, 2018			July 29, 2017			October 27, 2018			July 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	25,401		$	15,414		$	53,910		$	23,315
Accounts receivable, less allowances of $19,784 and $13,939	629,362			525,636
Restricted cash							566,353			—
Accounts receivable, net							1,114,015			579,702
Inventories	1,140,928			1,031,690			2,405,017			1,135,775
Deferred income taxes	—			40,635
Prepaid expenses and other current assets	61,481			49,295			158,967			50,122
Current assets of discontinued operations							191,779			—
Total current assets	1,857,172			1,662,670			4,490,041			1,788,914
Property & equipment, net	578,053			602,090
Property and equipment, net							1,543,952			571,146
Goodwill	363,841			371,259			707,950			362,495
Intangible assets, less accumulated amortization of $59,712 and $49,926	200,831			208,289
Intangible assets, less accumulated amortization of $68,133 and $64,438							1,278,205			193,209
Other assets	49,783			42,255			145,138			48,708
Long-term assets of discontinued operations							422,327			—
Total assets	$	3,049,680		$	2,886,563		$	8,587,613		$	2,964,472

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	627,085		$	534,616		$	1,485,783		$	517,125
Accrued expenses and other current liabilities	159,301			157,243			308,110			103,526
Current portion of long-term debt	12,322			12,128
Accrued compensation and benefits							167,889			66,132
Current portion of long-term debt and capital lease obligations							730,401			12,441
Current liabilities of discontinued operations							140,610			—
Total current liabilities	798,708			703,987			2,832,793			699,224
Notes payable	287,039			223,612			1,315,453			210,000
Deferred income taxes	36,257			98,833			223,001			44,384
Other long-term liabilities	29,140			28,347			227,032			27,200
Long-term debt, excluding current portion	143,796			149,863
Long-term debt and capital lease obligations, excluding current portion							1,924,221			137,709
Pension and other postretirement benefit obligations							233,436			—
Long-term liabilities of discontinued operations							1,361			—
Total liabilities	1,294,940			1,204,642			6,757,297			1,118,517
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 5,000 shares; issued none	—			—			—			—
Common stock, par value $0.01 per share, authorized 100,000 shares; 50,972 shares issued and 50,408 shares outstanding at January 27, 2018, 50,622 shares issued and outstanding at July 29, 2017	510			506
Common stock, par value $0.01 per share, authorized 100,000 shares; 51,426 shares issued and 50,811 shares outstanding at October 27, 2018, 51,025 shares issued and 50,411 shares outstanding at July 28, 2018							514			510
Additional paid-in capital	471,118			460,011			489,103			483,623
Treasury stock at cost	(22,237		)	—			(24,231		)	(24,231		)
Accumulated other comprehensive loss	(10,204		)	(13,963		)	(14,655		)	(14,179		)
Retained earnings	1,315,553			1,235,367			1,381,215			1,400,232
Total United Natural Foods, Inc. stockholders’ equity							1,831,946			1,845,955
Noncontrolling interests							(1,630		)	—
Total stockholders’ equity	1,754,740			1,681,921			1,830,316			1,845,955
Total liabilities and stockholders’ equity	$	3,049,680		$	2,886,563		$	8,587,613		$	2,964,472



	13-Week Period Ended						26-Week Period Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017
Net sales	$	2,528,011		$	2,285,518		$	4,985,556		$	4,563,882
Cost of sales	2,156,489			1,940,573			4,246,818			3,869,921
Gross profit	371,522			344,945			738,738			693,961
Operating expenses	320,076			298,674			632,185			594,351
Restructuring and asset impairment expenses	11,242			—			11,242			—
Total operating expenses	331,318			298,674			643,427			594,351
Operating income	40,204			46,271			95,311			99,610
Other expense (income):
Interest expense	4,233			4,441			7,900			8,963
Interest income	(96		)	(97		)	(187		)	(196		)
Other expense (income), net	(418		)	(101		)	(1,281		)	282
Total other expense, net	3,719			4,243			6,432			9,049
Income before income taxes	36,485			42,028			88,879			90,561
Provision for income taxes (benefit)	(14,001		)	16,546			7,888			35,862
Net income	$	50,486		$	25,482		$	80,991		$	54,699
Basic per share data:
Net income	$	1.00		$	0.50		$	1.60		$	1.08
Weighted average basic shares of common stock outstanding	50,449			50,587			50,633			50,531
Diluted per share data:
Net income	$	0.99		$	0.50		$	1.59		$	1.08
Weighted average diluted shares of common stock outstanding	50,741			50,755			50,849			50,677



Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

	Condensed Consolidated Statements of Income (unaudited)	4

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

	Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity (unaudited)	6

	Condensed Consolidated Statements of Cash Flows (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1738

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2853

Item 4.	Controls and Procedures	2853

Part II.	Other Information

Item 1.	Legal Proceedings	2954

Item 1A.	Risk Factors	2954

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2967

Item 3.	Defaults Upon Senior Securities	2967

Item 4.	Mine Safety Disclosures	2967

Item 5.	Other Information	2967

Item 6.	Exhibits	3068

	Signatures	3170



	13-Week Period Ended
	October 27, 2018			October 28, 2017
Net sales	$	2,868,156		$	2,457,545
Cost of sales	2,455,825			2,090,329
Gross profit	412,331			367,216
Operating expenses	363,165			312,109
Restructuring, acquisition, and integration related expenses	68,004			—
Operating (loss) income	(18,838		)	55,107
Other expense (income):
Net periodic benefit income, excluding service cost	(844		)	—
Interest expense	7,671			3,667
Interest income	(146		)	(91		)
Other, net	97			(863		)
Total other expense, net	6,778			2,713
(Loss) income from continuing operations before income taxes	(25,616		)	52,394
(Benefit) provision for income taxes	(4,255		)	21,889
Net (loss) income from continuing operations	(21,361		)	30,505
Income from discontinued operations, net of tax	2,070			—
Net (loss) income including noncontrolling interests	(19,291		)	30,505
Less net loss (income) attributable to noncontrolling interests	(3		)	—
Net (loss) income attributable to United Natural Foods, Inc.	$	(19,294	)	$	30,505

Basic per share data:
Continuing operations	$	(0.42	)	$	0.60
Discontinued operations	$	0.04		$	—
Basic (loss) income per share	$	(0.38	)	$	0.60
Diluted per share data:
Continuing operations	$	(0.42	)	$	0.60
Discontinued operations	$	0.04		$	—
Diluted (loss) income per share	$	(0.38	)	$	0.60
Weighted average share outstanding:
Basic	50,583			50,817
Diluted	50,583			50,957



	Common Stock			Treasury Stock				Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount			Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Stockholders’ Equity
Balances at July 29, 2017	50,622	$	506	—	$	—		$	460,011		$	(13,963	)	$	1,235,367		$	1,681,921
Cumulative effect of change in accounting principle								1,314						(805		)	509
Stock option exercises and restricted stock vestings, net of tax	350	4						(4,160		)							(4,156		)
Share-based compensation								13,846									13,846
Repurchase of common stock				565	(22,237		)										(22,237		)
Other								107									107
Fair value of swap agreements, net of tax											2,920						2,920
Foreign currency translation											839						839
Net income														80,991			80,991
Balances at January 27, 2018	50,972	$	510	565	$	(22,237	)	$	471,118		$	(10,204	)	$	1,315,553		$	1,754,740



	13-Week Period Ended
(in thousands)	October 27, 2018			October 28, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income including noncontrolling interests	$	(19,291	)	$	30,505
Income from discontinued operations, net of tax	2,070			—
Net (loss) income from continuing operations	(21,361		)	30,505
Adjustments to reconcile net (loss) income from continuing operations to net cash (used in) provided by operating activities:
Depreciation and amortization	24,793			22,442
Share-based compensation	8,089			7,275
Loss on disposition of assets	6			103
Gain associated with disposal of investments	—			(699		)
Restructuring charges	412			—
Net pension and other postretirement benefit income	(844		)	—
Deferred income taxes	1,214			891
Provision for doubtful accounts	3,037			1,656
Loss on debt extinguishment	1,114			—
Non-cash interest expense	345			344
Changes in operating assets and liabilities, net of acquired businesses	(118,124		)	(102,674		)
Net cash used in operating activities of continuing operations	(101,319		)	(40,157		)
Net cash used in operating activities of discontinued operations	(5,701		)	—
Net cash used in operating activities	(107,020		)	(40,157		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(16,381		)	(5,257		)
Purchase of acquired businesses, net of cash acquired	(2,273,829		)	(11		)
Proceeds from dispositions of assets	149,529			34
Proceeds from disposal of investments	—			756
Long-term investment	(110		)	—
Net cash used in investing activities of continuing operations	(2,140,791		)	(4,478		)
Net cash used in investing activities of discontinued operations	(89		)	—
Net cash used in investing activities	(2,140,880		)	(4,478		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt	1,905,547			—
Proceeds from borrowings under revolving credit line	1,805,300			173,581
Repayments of borrowings under revolving credit line	(688,000		)	(109,229		)
Repayments of long-term debt	(110,000		)	(2,985		)
Repurchase of common stock	—			(6,449		)
Proceeds from exercise of stock options	118			151
Payment of employee restricted stock tax withholdings	(3,126		)	(4,389		)
Capitalized debt issuance costs	(60,309		)	—
Net cash provided by financing activities	2,849,530			50,680
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(49		)	(304		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	601,581			5,741
Cash and cash equivalents, at beginning of period	23,315			15,414
Cash and cash equivalents, including restricted cash at end of period	624,896			21,155
Less: cash and cash equivalents of discontinued operations	(4,633		)	—
Cash and cash equivalents, including restricted cash of continuing operations	$	620,263		$	21,155
Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,325		$	3,667
Cash paid for federal and state income taxes, net of refunds	$	462		$	2,559



	Net Sales for the 13-Week Period Ended
(in millions)	October 27, 2018
Customer Type	Wholesale		Other		Eliminations			Consolidated
Supernatural	$	1,027	$	—	$	—		$	1,027
Independents	667		—		—			667
Supermarkets	707		—		—			707
Supervalu	223		1		—			224
Other	233		48		(38		)	243
Total	$	2,857	$	49	$	(38	)	$	2,868



	Net Sales for the 13-Week Period Ended
(in millions)	October 28, 2017
Customer Type	Wholesale			Other		Eliminations			Consolidated
Supernatural	$	853		$	—	$	—		$	853
Independents	639			—		—			639
Supermarkets	704			—		—			704
Other	250			57		(45		)	262
Total	$	2,446	*	$	57	$	(45	)	$	2,458



(in thousands)	October 27, 2018			July 28, 2018
Customer accounts receivable	$	1,093,907		$	595,698
Customer notes receivable	18,336			—
Allowance for uncollectible receivables	(15,388		)	(15,996		)
Other receivables, net	17,160			—
Accounts receivable, net	$	1,114,015		$	579,702

Long-term notes receivable, included within Other assets	$	45,904		$	—



(in thousands)	As of October 22, 2018
Cash and cash equivalents	$	25,102
Accounts receivable	557,680
Inventories	1,162,360
Prepaid expenses and other current assets	66,440
Current assets of discontinued operations⁽¹⁾	196,615
Property, plant and equipment	1,148,001
Goodwill	347,485
Intangible assets	1,077,541
Other assets	109,445
Long-term assets of discontinued operations⁽¹⁾	404,301
Accounts payable	(967,429		)
Other current liabilities	(282,692		)
Current portion of long term debt and capital lease obligations	(579,677		)
Current liabilities of discontinued operations⁽¹⁾	(150,611		)
Long-term debt and capital lease obligations	(179,262		)
Pension and other postretirement benefit obligations	(234,324		)
Deferred income taxes	(177,231		)
Other long-term liabilities assumed	(200,913		)
Long-term liabilities of discontinued operations⁽¹⁾	(1,401		)
Noncontrolling interests	1,633
Total fair value of net assets acquired	2,323,063
Less: cash and cash equivalents acquired⁽²⁾	(30,596		)
Less: unpaid consideration⁽³⁾	(18,638		)
Total consideration for acquisition, less cash acquired and unpaid consideration	$	2,273,829


(1)	Refer to Note 17. “Discontinued Operations” for additional Condensed Consolidated Balance Sheet information regarding the carrying value of discontinued operations at the end of the first quarter of fiscal 2019, subsequent to the acquisition date.


(2)	Includes cash and cash equivalents acquired attributable to discontinued operations.



(in thousands)	Estimated Useful Life	As of October 22, 2018
Customer relationship assets⁽¹⁾	11–19 years	$	985,000
Favorable operating leases⁽¹⁾	3–25 years	24,455
Trade names⁽²⁾	2-9 years	98,000
Pharmacy prescription files⁽³⁾	5–7 years	59,700
Non-compete agreement⁽¹⁾	2 years	13,000
Unfavorable operating leases⁽¹⁾	2 years	(13,623		)
Total Supervalu finite-lived intangibles acquired		$	1,166,532



Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate	Floating Rate Reset Terms
June 9, 2019	$	50.0	0.8725	%	One-Month LIBOR	Monthly
June 24, 2019	$	50.0	0.7265	%	One-Month LIBOR	Monthly
April 29, 2021	$	25.0	1.0650	%	One-Month LIBOR	Monthly
April 29, 2021	$	25.0	0.9260	%	One-Month LIBOR	Monthly
August 3, 2022	$	117.5	1.7950	%	One-Month LIBOR	Monthly



Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate	Floating Rate Reset Terms
March 21, 2019⁽¹⁾	$	300.0	2.0075	%	One-Month LIBOR	Monthly
June 9, 2019⁽²⁾	$	50.0	0.8725	%	One-Month LIBOR	Monthly
June 28, 2019⁽²⁾	$	50.0	0.7265	%	One-Month LIBOR	Monthly
April 29, 2021⁽²⁾	$	25.0	1.0650	%	One-Month LIBOR	Monthly
April 29, 2021⁽²⁾	$	25.0	0.9260	%	One-Month LIBOR	Monthly
August 15, 2022⁽³⁾	$	66.0	1.7950	%	One-Month LIBOR	Monthly
August 15, 2022⁽³⁾	$	44.0	1.7950	%	One-Month LIBOR	Monthly
October 30, 2020⁽⁴⁾	$	100.0	2.8240	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁴⁾	$	100.0	2.8915	%	One-Month LIBOR	Monthly
October 31, 2023⁽⁴⁾	$	100.0	2.9210	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁴⁾	$	50.0	2.9550	%	One-Month LIBOR	Monthly


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


(2)	Includes continuing and discontinued operations intangible assets



	13-Week Period Ended
(in thousands, except per share data)	October 27, 2018⁽¹⁾			October 28, 2017⁽²⁾
Net sales	$	5,983,208		$	5,910,484
Net loss from continuing operations	$	(54,716	)	$	(53,367	)
Basic net loss from continuing operations per share	$	(1.08	)	$	(1.05	)
Diluted net loss from continuing operations per share	$	(1.08	)	$	(1.05	)


(1)	These pro forma results reflect an additional 12 weeks from Supervalu for the period ended, September 8, 2018.


(2)	These pro forma results reflect Supervalu’s and Associated Grocers of Florida, Inc.’s, which was acquired by Supervalu on December 8, 2017, 13-week periods ended September 16, 2017 and August 5, 2017, respectively.



	Restructuring Costs Recorded in Fiscal 2019		Acquired Restructuring Liability		Payments and Other Adjustments		Restructuring Cost Liability as of October 27, 2018
Severance and other employee separation and transition costs⁽¹⁾	$	34,966	$	6,193	$	—	$	41,159
Tax payments	1,028		—		—		1,028
Other	75		—		—		75
Total	$	36,069	$	6,193	$	—	$	42,262


(1)	Includes $33.8 million of charges related to change-in-control expense to satisfy outstanding equity awards and severance related costs.



	Restructuring Costs Recorded in Fiscal 2017		Payments and Other Adjustments			Restructuring Cost Liability as of January 27, 2018
Severance and other employee separation and transition costs	$	6,606	$	(5,428	)	$	1,178
Early lease termination and facility closing costs	258		(258		)	—
Total	$	6,864	$	(5,686	)	$	1,178


(1)	The computation of diluted earnings per share from discontinued operations is calculated using diluted weighted average shares outstanding which includes the net effect of dilutive stock awards, or approximately 598 thousand shares.



		Fair Value at October 27, 2018
(In thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	1,148	$	—
Interest rate swap not designated as a hedging instrument	Prepaid expenses and other current assets	$	—	$	570	$	—
Mutual funds	Prepaid expenses and other current assets	$	1,541	$	—	$	—
Interest rate swaps designated as hedging instruments	Other Assets	$	—	$	5,886	$	—
Mutual funds	Other Assets	$	1,856	$	—	$	—



		Fair Value at July 28, 2018
(in thousands)	Balance Sheet Location	Level 1		Level 2		Level 3
Assets:
Interest rate swaps designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	1,459	$	—
Interest rate swaps designated as hedging instruments	Other Assets	$	—	$	5,860	$	—



	Fair Value at January 27, 2018				Fair Value at July 29, 2017
(In thousands)	Level 1	Level 2		Level 3	Level 1	Level 2			Level 3
Assets:
Interest Rate Swap	—	$	6,394	—	—	$	2,491		—
Liabilities:
Interest Rate Swap	—	—		—	—	(308		)	—


	January 27, 2018				July 29, 2017				October 27, 2018				July 28, 2018
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Notes receivable									$	64,240	$	64,240	$	—	$	—
Liabilities:
Long-term debt, including current portion	$	156,118	$	162,406	$	161,991	$	169,058
Long-term debt and capital lease obligations, including current portion									$	2,654,622	$	2,674,688	$	150,150	$	155,317



	January 27, 2018		July 29, 2017
Accrued salaries and employee benefits	$	61,040	$	63,937
Workers' compensation and automobile liabilities	23,613		22,774
Interest rate swap liability	—		308
Other	74,648		70,224
Total accrued expenses and other current liabilities	$	159,301	$	157,243


(1)	For the first quarter of fiscal 2019, the Company recorded $21.8 million within Net sales in its wholesale reportable segment attributable to discontinued operations inter-company product purchases from its Retail operating segment, which it expects will continue subsequent to the sale of certain retail banners.



Assets securing the ABL Credit Facility (in thousands)⁽¹⁾:	October 27, 2018
Certain inventory assets included in Inventories and Current assets of discontinued operations	$	2,582,397
Certain receivables included in Receivables and Current assets of discontinued operations	$	1,052,313


(1)	The ABL Credit Facility is also secured by all of the Company’s pharmacy scripts, which are included in Long-term assets of discontinued operations in the Condensed Consolidated Balance Sheets as of October 27, 2018.



Unused available credit and fees under the ABL Credit Facility (in thousands, except percentages):	October 27, 2018
Outstanding letters of credit	$	78,926
Letter of credit fees	1.375		%
Unused available credit	$	682,362
Unused facility fees	0.375		%


(1)	Rent expense as presented here includes $0.9 million of operating lease rent expense in the first quarter of fiscal 2019 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.



	Lease Obligations
Fiscal Year	Operating Leases		Capital Leases
Remaining fiscal 2019	$	147,680	$	38,465
2020	170,557		43,122
2021	130,675		37,565
2022	112,039		36,530
2023	97,658		32,193
Thereafter	688,692		112,723
Total future minimum obligations	$	1,347,301	300,598
Less interest			(89,791		)
Present value of net future minimum obligations			210,807
Less current capital lease obligations			(28,068		)
Long-term capital lease obligations			$	182,739