United Natural Foods, Inc. and its subsidiaries (the “Company”, “we”, “us”, or “our”“UNFI”) is a leading distributor of natural, organic, specialty, and conventional grocery and non-food products, and provider of support services. On October 22, 2018, the Company acquired all of the outstanding equity securities of SUPERVALU INC. (“Supervalu”); refer to Note 4. “Acquisitions” for further information. The Company sells its products primarily throughout the United States and Canada.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts withinconsolidation, with the Condensed Consolidated Balance Sheets, including the reclassificationexception of Accrued compensation and benefitssales transactions from continuing to present separately from Accrued expenses and other current liabilities, has been reclassified to conform to the current period’s presentation. These reclassifications had no impact on reported net income, cash flows, or total assets and liabilities.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. In the Company’s opinion, these Condensed Consolidated Financial Statements include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. However, the results of operations for interim periods may not be indicative of the results that may be expected for a full year. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 28, 2018.August 3, 2019 (the “Annual Report”). Except as described for lease accounting below, there were no material changes in significant accounting policies from those described in the Company’s Annual Report on Form 10-KReport.

Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company’s banking arrangements allow it to fund outstanding checks when presented to the financial institution for the fiscal year ended July 28, 2018.

Inventories are valued at the lower of cost or market. For historical United Natural Foods, Inc. inventory, cost is determined usingSubstantially all of the first-in, first-out (“FIFO”) method. ForCompany’s inventories consist of finished goods and a substantial portion of legacy Supervalu inventory, cost was determined using the last in, last outits inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method withis computed at the rest primarily determined using FIFO.end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, acquirednet would have been higher by approximately $30.7 million and $24.1 million at November 2, 2019 and August 3, 2019, respectively.

At the inception or modification of contract, the Company determines whether a lease exists and classifies its leases as partan operating or finance lease at commencement. Subsequent to commencement, lease classification is only reassessed upon a change to the expected lease term or contract modification. Finance and operating lease assets represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease. These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the Supervalu acquisition were recorded at their fair market valueslease term. Incremental borrowing rates are estimated based on the Company’s borrowing rate as of the acquisition date. The Company is currently evaluating its combined inventory accounting policies and expectslease commencement date to finalize this evaluation duringdetermine the second quarterpresent value of fiscal 2019. The impact oflease payments, when lease contracts do not provide a readily determinable implicit rate. Incremental borrowing rates are determined by using LIFO for a portion ofthe yield curve based on the Company’s inventory as of andcredit rating adjusted for the first fiscal quarter didCompany’s specific debt profile and secured debt risk. The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms include option extension periods when it is reasonably certain that those options will be exercised. Leases with an initial expected term of 12 months or less are not have a material impact onrecorded in the results of operations or the ending inventoryconsolidated balance as ofsheets and for the 13-week period ended October 27, 2018.

The Company recognizes vendor funds for merchandising activities ascontractual obligations and receipts on a reduction of Cost of sales whengross basis, such that the related products are sold. Vendor funds that have been earned aslease obligation to the landlord is presented separately from the sublease created by the lease assignment to the assignee. As a result, of completing the required performance underCompany continues to recognize on its Condensed Consolidated Balance Sheets the terms of the underlying agreements but for which the product has not yet been sold are recognized as a reduction to the cost of inventory.operating lease assets and liabilities, and finance lease assets and obligations.

The Company reviewsrecords operating lease expense and income using the presentationstraight-line method within Operating expenses, and lease income on a straight-line method for leases with its customers within Net sales. Finance lease expense is recognized as amortization expense within Operating expenses, and interest expense within Interest expense, net. For leases with step rent provisions whereby the rental payments increase over the life of planned business dispositions in the Condensed Consolidated Financial Statementslease, and for leases where the Company receives rent-free periods, the Company recognizes expense and income based on a straight-line basis based on the available informationtotal minimum lease payments to be made or lease receipts expected to be received over the expected lease term. The Company is generally obligated for property tax, insurance and eventsmaintenance expenses related to leased properties, which often represent variable lease expenses.  For contractual obligations on properties where the Company remains the primary obligor upon assignment of the lease and does not obtain a release from landlords or retain the equity interests in the legal entities with the related rent contracts, the Company continues to recognize rent expense and rent income within Operating expenses.

Operating and finance lease assets are reviewed for impairment based on an ongoing review of circumstances that have occurred.indicate the assets may no longer be recoverable, such as closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations, and other factors. The review consistsCompany calculates operating and finance lease impairments using a discount rate to calculate the present value of evaluating whetherestimated subtenant rentals that could be reasonably obtained for the business meets the definition ofproperty. Lease impairment charges are recorded as a component for which the operationsof Restructuring, acquisition and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, the Company evaluates whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year.

The calculation of lease impairment charges requires significant judgments and estimates, including estimated subtenant rentals, discount rates and future cash flows based on the Company’s experience and knowledge of the market in which the property is located, previous efforts to dispose of similar assets and liabilitiesthe assessment of the business component plannedexisting market conditions. Impairment reserves are reflected as a reduction to be disposed of are presented as separate lines within the Condensed Consolidated Balance Sheets. SeeOperating lease assets. Refer to Note 17. “Discontinued Operations”11—Leases for additional information.

The following table detailstables detail the Company’s revenue recognition for the periods presented by type of customer channel for each of its segments. The Company does not record its revenues within its wholesale reportable segment for financial reporting purposes by product group, and it is therefore impracticable for it to report them accordingly.

The Company serves customers in the United States and Canada, as well as customers located in other countries. However, all of the Company’s revenue is earned in the U.S. and Canada, andas international distribution occurs through freight-forwarders. The Company does not have any performance obligations onrelated to international shipments subsequent to delivery to the domestic port.

Sales from the Company’s Wholesale segment to its retail discontinued operations are presented within Net Sales when the Company holds the business for sale with a supply agreement that it anticipates the sale of the retail banner to include upon its disposal. The Company does not typically incur costs that are requiredrecorded $244.6 million within Net sales from continuing operations attributable to be capitalizeddiscontinued operations inter-company product purchases in connectionthe first quarter of fiscal 2020, which the Company expects will continue subsequent to the sale of certain retail banners. These amounts were recorded at gross margin rates consistent with obtaining a contract with a customer. Expenses relatedsales to contract origination primarily relate to employee costsother similar wholesale customers of the acquired Supervalu business. No sales were recorded within continuing operations for purchases by retail banners that the Company would incur regardlessexpects to dispose of whetherwithout a supply agreement, which were eliminated upon consolidation within continuing operations and amounted to $113.0 million in the contract was obtained with the customer.first quarter of fiscal 2020.

Accounts and notes receivable are as follows:

On July 25, 2018, the Company entered into an agreement and plan of merger (the “Merger Agreement”) to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded food wholesalerconventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, 2018.2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock, par value $0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $32.50 per share, without interest. Total consideration related to this acquisition was approximately $2.3 billion, $1.3 billion of which was paid in cash to Supervalu shareholders and $1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s consolidated financial statementsConsolidated Financial Statements on a provisionalpreliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note 17. “Discontinued Operations”17—Discontinued Operations for more information.information on discontinued operations.

The following table summarizes the final consideration, paid, preliminary fair valuesvalue of the Supervalu assets acquired and liabilities assumed, and the resulting preliminary goodwill. Due to the recent closing of the transaction, as of October 27, 2018, the purchase price allocation was preliminary and will be finalized when valuations are complete and final assessments of the fair value of other acquired assets and assumed liabilities are completed. There can be no assurance that such finalizations will not result in material

Preliminary goodwillGoodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. The Company is currently evaluating the tax deductibility of the provisional goodwill amount, however it currently expects aA substantial portion of its goodwill to beis deductible for income tax purposes. Based on the preliminary valuation, goodwill resultingGoodwill from the acquisition was primarily attributed to the Company’s wholesale segment,Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which is presented in Goodwill in the table above. In addition, $45 million preliminaryfirst quarter of fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 6—Goodwill and Intangible Assets. NaN goodwill was attributed to the retailCompany’s Retail reporting unit within discontinued operations, whichoperations.

During the first quarter of fiscal 2020, the Company attributedfinalized its preliminary fair value estimates of its net assets, primarily by completing income tax returns and reviews of carrying values of other assets and liabilities. There were no material changes to assembled workforce.preliminary amounts previously reported.

The following table summarizes the identifiable intangible assets and liabilities recorded based on provisionalfinal valuations. The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated. The preliminary fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.

In addition toThe Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, of assets and assumption of liabilities above, the Company also began a restructuring plan which resultedare quantified in additional costs and expenses recorded in its Condensed Consolidated Statements of Income for the 13-week period ended October 27, 2018. Refer to Note 5. “Restructuring,5—Restructuring, Acquisition and Integration Related Expenses” and Note 11. “Share-Based Awards” for further information.Expenses.

The accompanying Condensed Consolidated Statements of IncomeOperations include the results of operations of Supervalu since thefrom October 22, 2018 acquisition date through October 27, 2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note 3. “Revenue Recognition” for continuing operations and in Note 17. “Discontinued Operations” for discontinued operations.17—Discontinued Operations.

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