ck0000320431-10k_20161001.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. There is no public market for the Company’s voting and non-voting common equity.

The number of shares outstanding of each of the registrant’s classes of common stock, as of November 26, 2016, was as follows:

The following information should be read in conjunction with the “Risk Factors” discussed in Item 1A of this Form 10-K for an understanding of the negative variables that can affect our business and results of operations.

Unified Grocers, Inc. (referred to in this Form 10-K, together with its consolidated subsidiaries, as "Unified," the "Company," "we," "us" or "our") is a California corporation organized in 1922 and incorporated in 1925. We are a retailer-owned, grocery wholesale cooperative serving supermarket, specialty, restaurant supply (through Cash & Carry Stores, LLC, a wholly-owned subsidiary of Smart & Final, Inc.) and convenience store operators located primarily in the western United States and the Pacific Rim. We sell a wide variety of products typically found in supermarkets, including dry grocery, frozen food, deli, ethnic, gourmet, specialty foods, natural and organic, general merchandise, health and beauty care, service deli, service bakery, meat, eggs, produce, bakery and dairy products. We also provide financing services to our customers, as well as various support services, including merchandising, retail pricing, advertising, promotional planning, retail technology, equipment purchasing and real estate services. The availability of specific products and services may vary by geographic region. We have three separate geographical and marketing regions: Southern California, Northern California and the Pacific Northwest.

Our customers are comprised of our owners (“Members”) and non-owners (“Non-Members”). Our focus is on our Members, but we also do business with Non-Member customers. Our Members operate grocery stores and supermarkets that range in size from single store operators to regional supermarket chains. Store sizes range from neighborhood stores of less than 10,000 square feet to large box format stores of over 80,000 square feet. Members are required to meet specific requirements, which include ownership of our capital shares and may include required cash deposits. Customers who purchase less than $1 million annually from us would not generally be considered for membership, while customers who purchase over $3 million annually from us are typically required to become Members. In addition, each Member must meet purchase requirements that may be modified from time to time at the discretion of our Board of Directors (the “Board”).

Earnings from patronage activities, excluding our finance and international subsidiaries, conducted with our Members (“Patronage Business”) are eligible for distribution in the form of patronage dividends. An entity that does not meet Member purchase requirements may conduct business with us as a Non-Member customer. We may also grant an entity that meets our Member purchase requirements the ability to conduct business with us as a Non-Member customer. We retain the earnings from our finance and international subsidiaries, earnings from patronage activities not distributed in patronage dividends, and earnings from business conducted with Non-Members (collectively, “Non-Patronage Business”). In fiscal years 2015 and prior, earnings from our former insurance subsidiaries (see below) were included in Non-Patronage Business. In fiscal years 2014 and prior, earnings from our Market Centre business (see below) were included in Non-Patronage Business.

In fiscal 2015 and 2014, our business previously included the held-for-sale discontinued operations of our former Insurance segment as follows:

We also have other support businesses, consisting primarily of our financing subsidiary that provides financing services to our Members.

The following table presents percentages of net sales by type of similar product:

Our Wholesale Distribution business provides products and services through the following divisions and subsidiaries:

Earnings from business conducted with Members in our Cooperative, Southern California Dairy (through June 2016), Pacific Northwest Dairy (through May 2016) and Market Centre divisions are eligible for distribution in the form of patronage dividends. After June 2016 and May 2016, respectively, we no longer pay patronage dividends on, and will retain the earnings from, business conducted with Members in the Southern California and Pacific Northwest Dairy Divisions. We retain the earnings from business conducted with Non-Members in our Cooperative, Southern California Dairy, Pacific Northwest Dairy and Market Centre divisions. We also retain the earnings from all business, with both Member and Non-Member customers, conducted by our subsidiaries, including Grocers Capital Company and Unified International, Inc.

Approximately 68% and 74%, respectively, of our net sales were conducted with Members on a patronage basis in fiscal 2016 and 2015. Earnings resulting from our patronage sales are eligible to be distributed in the form of patronage dividends based on qualified patronage purchases. Approximately 32% and 26%, respectively, of our net sales were conducted with Non-Members in fiscal 2016 and 2015. We retain earnings from all business activities transacted with Non-Members and Non-Patronage Business activities transacted with Members. Our Member and Non-Member customers are typically retail grocery store operators ranging in size from single store operators to regional supermarket chains.

During the period from fiscal 2013–2016, the characteristics of our membership base included the following with respect to Member store ownership in relation to the sales volume provided by such ownership: One to five store operators comprise approximately 88% of our Member count and 31% of our Member sales, while operators in excess of five stores comprise approximately 12% of our Member count and 69% of our Member sales.

We have experienced an overall decline in the number of Members every year since the end of fiscal 2008. Since then, the number of Members has declined from 520 to 345 at the end of fiscal 2016, an average decline of 5.0% per year in our membership base. Member gross billings for the comparable period experienced a reduction of approximately 2.6%. We believe this decline has been due to a number of factors, including smaller-volume retailers deciding to conduct business with us as Non-Members, Members discontinuing operations due to competition they face or challenging economic conditions, Members consolidating with other Members and Members choosing other wholesale distributors. This decline is also currently due to our not admitting new Members as a result of our having suspended issuance of Class A and Class B Shares because we had not been current in our periodic SEC filings. The decline predominately reflects the loss of Members who own one to five stores that comprise approximately 31% of our Member sales, while Members who continue purchasing from us typically own in excess of five stores and provide approximately 69% of our sales. Accordingly, the reduction in the number of Members that have declined since 2008 is not solely reflective of a continuing negative trend in sales, as Members with higher store ownership have demonstrated they can provide additional sales volume to offset the loss of smaller Members.

We support our Member and Non-Member customers with go-to-market strategies serving many types of retail formats across our various geographic regions, including traditional, price impact, ethnic, natural and organic, and gourmet and specialty stores.

Our largest customer, Cash & Carry Stores, LLC, a wholly-owned subsidiary of Smart & Final, Inc., a Non-Member customer, accounted for 17%,16% and 15% of our total net sales, and our ten largest customers (including Cash & Carry Stores, LLC), taken together, accounted for 50%, 53% and 49% of our total net sales, for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

Our ten customers with the largest accounts receivable balances accounted for approximately 41% and 43% of total accounts receivable at October 1, 2016 and October 3, 2015, respectively.

During the normal course of business, we may enter into supply agreements with customers. These agreements typically require that a customer purchase a specified amount of its merchandise requirements from us and obligate us to supply such merchandise pursuant to agreed-upon terms and conditions relating to matters such as pricing (i.e., mark-up) and delivery. We may also enter into supply agreements with customers under which we make a loan or provide upfront money or other benefits to the customer, including funding store acquisitions or renovations, or providing more favorable pricing based on the customer’s purchasing volume commitments. The supply agreements vary with respect to terms and duration, generally with terms between three and seven years, with expiration dates often staggered among customers to mitigate risk. Approximately 60% of our net sales in the Wholesale Distribution segment in fiscal 2016 were to customers pursuant to the terms of a supply agreement, an increasing trend compared to 59% in fiscal 2015 and 55% in fiscal 2014. This trend reflects a shift in sales mix toward sales to larger customers that tend to have reduced margins resulting from their higher purchase volume. We have supply agreements with eight of our top ten customers. We recently renewed supply agreements containing multi-year commitments with four of our top ten customers that had contracts expiring during the current fiscal year.

We supply approximately 105,000 national and regional brand items, which represented approximately 95% of our net sales in the Wholesale Distribution segment in fiscal 2016. National branded items range from small to large consumer goods companies such as Kraft Heinz Company, Nestle USA, Hain Celestial Group, Inc. and Tyson Foods, Inc. We believe that national and regional brands are attractive to chain accounts and other customers seeking consistent product availability throughout their retail operations. Our national brand strategy fosters close relationships with many national suppliers, which provide us with important sales and marketing support.

We sell an extensive line of food and non-food items under various corporate brands. Our three-tier corporate brand strategy emphasizes certain corporate national brand equivalents as alternatives to national brand items, value-oriented corporate brands as alternatives to lower cost regional labels, and an upscale natural/organic brand for more health-conscious consumers. These corporate brands enable us to offer our customers an exclusive line of product alternatives across a wide range of price points. Sales of our corporate brand products represented approximately 5% of net sales in the Wholesale Distribution segment in fiscal 2016; however, these products represent approximately 12% of our grocery, frozen food and delicatessen business.

We currently offer approximately 5,400 corporate brand products in the following categories: dry grocery, frozen, delicatessen, general merchandise, ice cream, fluid milk, dairy and bakery. These products are sold under the national brand equivalent corporate brands of Western Family, Springfield, Cottage Hearth and Natural Directions and the value-oriented corporate brands of Special Value and Golden Crème. In response to increased consumer demand for natural and organic products, we expect to grow corporate brand sales, in part, through our Natural Directions products. We operate a bakery manufacturing facility in Los Angeles, California where we produce bread and other bread products under the Springfield, Golden Crème and Cottage Hearth corporate brands. With the exception of the bakery, all of our corporate brand products are manufactured by third parties. In July 2016, we ceased operating our milk, water and juice processing plant in Los Angeles, California, but continue offering our products, including our private label brands, to our Members and customers through a vendor direct arrangement with Dean Foods Company. In February 2016, we joined Topco Associates, LLC (“Topco”) as a member. In June 2016, Western Family Foods Inc. (“Western Family”) reached an agreement with Topco authorizing Topco to source Western Family’s private label brands, including the Western Family and Natural Directions brands that are sold through us. Commencing in the fourth quarter of fiscal 2016, we began transitioning to Topco as our primary supplier for Springfield and Special Value products. In addition, Topco serves as our sole-source supplier for general merchandise and health and beauty care products under its TopCare label. Western Family is currently in the process of moving the private label management of our Western Family and Natural Directions products into Topco. In addition, our other corporate brand products are developed, trademarked, owned and managed by us primarily through Topco. With respect to such products, we represent the brands as the owner, which allows us to direct the marketing and promotional aspects of this business in addition to our ability to negotiate cost directly with our corporate brand manufacturers. Corporate brand items tend to have slightly higher margins for both the retailer and Unified due to this ability to negotiate cost with manufacturers and influence product marketing and promotion.

We make available to our customers additional products through vendor direct arrangements with certain preferred providers. For example, in June 2013 we entered into an agreement with Charlie’s Produce (“Charlie’s”) for Charlie’s to be our exclusive partner in all produce categories for serving our independent retail customers operating stores in the Pacific Northwest. We now have a similar arrangement with Charlie’s to supply produce to our customers in Southern California as well. In addition, in June 2016, Dean Foods Company began supplying our customers in Southern California with fluid milk and other products, including our private label brands. We also have similar arrangements for the supply of produce to our Northern California customers and the supply of branded and private label ice cream to our Southern California customers. Vendor direct arrangements allow us to further enhance the product offerings to our customers beyond what we carry in our warehouses while maintaining the benefits, such as consolidated billing, volume discounts and service and support, of purchasing from Unified.

As of October 1, 2016, we operated approximately 4.5 million square feet of warehouse and manufacturing space throughout our marketing regions.

In February 2015, we entered into an agreement with Raley’s Supermarkets (“Raley’s”) under which we subleased a Stockton, California facility for five years. We currently operate that facility to distribute general merchandise and health and beauty products to Raley’s under a five-year supply agreement. This facility also services our other customers, and has created the opportunity to consolidate and distribute all general merchandise and health and beauty products.

We believe that our corporate offices, warehouses and manufacturing properties are generally in good condition, well maintained and both suitable and adequate to carry on our business as presently conducted.

Our customers may choose either of two delivery options for the distribution of our products: have us deliver orders to their stores or warehouses or pick up their orders from our distribution centers. We operate a fleet of 294 tractors and 875 trailers that we use to distribute products to our customers. Approximately 45% of our sales are delivered to customers by our own fleet of tractors and trailers. This percentage has been on a relatively steady decline from 60% or more in 2008 and earlier years as customers have increasingly utilized their own fleets or third-party carriers. Continuation of this trend may have a negative impact on our fleet efficiencies and increase our delivery cost to our remaining customers. If we are unable to offset the increased delivery costs, this may result in lower profitability for the Company.

Audit Committee Investigation. In September 2014, the Audit Committee of the Company’s Board of Directors announced that it was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by our former insurance subsidiaries and related matters (the “Audit Committee Investigation”). On or about November 2015, the Audit Committee Investigation concluded. We incurred approximately $2.8 million and $5.5 million in expenses through the fiscal years ended October 1, 2016 and October 3, 2015, respectively, in connection with the Audit Committee Investigation. Approximately $0.1 million and $0.7 million of these expenses were included in our loss on sale of our discontinued operations as further discussed below. For additional information on the Audit Committee Investigation, see “Business –Audit Committee Investigation,” Note 2,

“Audit Committee Investigation,” of “Notes to Consolidated Financial Statements” in Part II, Item 8, “Financial Statements and Supplementary Data” and Part II, Item 9A, “Controls and Procedures.”

Haggen. In December 2014, Haggen, a Member, entered into an agreement to acquire 146 stores divested in the merger of Albertson’s LLC and Safeway, Inc. At that time, we entered into an agreement (the “Supply Agreement”) with Haggen to be its primary supplier in California, Arizona and Nevada (the “Pacific Southwest” stores) and a substantial supplier in Washington and Oregon. In addition, we agreed to provide Haggen with certain business services. As the new Haggen stores were converted, our weekly product shipments to Haggen reached approximately $11 million at their peak at the end of June 2015.

In September 2015, Haggen filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Prior to Haggen’s bankruptcy filing, we terminated our product supply agreement with Haggen and had already begun reducing our potential exposure including, but not limited to, arranging for payment in advance for product supplied to Haggen and reducing the amount of inventory we were carrying specifically for Haggen. In October 2015, we entered into a trade agreement (the "Trade Agreement") with Haggen under which we continued to supply product to Haggen as a critical vendor during Haggen's Chapter 11 case. Pursuant to the Trade Agreement, Haggen paid a substantial portion of our prepetition receivable in exchange for certain shipping terms from Unified. Haggen also agreed to stipulate to an allowed administrative expense priority claim under section 503(b)(9) of the Bankruptcy Code for the balance of our prepetition claim for goods shipped to Haggen. We also filed a proof of claim against Haggen for breach of contract damages related to the termination of the Supply Agreement and various ancillary agreements. Such claim would be treated as a general unsecured claim in the Haggen chapter 11 cases. The Bankruptcy Court has extended the debtors’ exclusive period to file a chapter 11 plan through February 1, 2017; and thus, Haggen has not yet filed a plan or determined the projected recoveries on general unsecured claims. Relatedly, on September 7, 2016, the Official Committee of Unsecured Creditors filed a complaint against Comvest Group Holdings, LLC, the private equity owner of Haggen, and certain of Haggen's non-debtor affiliates (the "Committee Litigation"). The Committee Litigation seeks to recover additional funds for Haggen's bankruptcy estate for the benefit of unsecured creditors, including the potential payment of Unified’s general unsecured claim.

Effective November 21, 2015, we ceased supplying product to Haggen’s Pacific Southwest stores. Accordingly, we do not expect the sales to Haggen to continue at the levels generated during the last half of fiscal 2015 or during the first quarter of fiscal 2016. Sales to Haggen’s Pacific Southwest stores were approximately $9.6 million for the first quarter of fiscal 2016. Pursuant to the Trade Agreement, we continued to supply Haggen’s Washington and Oregon stores with product during Haggen’s bankruptcy case. In June 2016, we entered into a one-year supply agreement with Safeway, Inc., a subsidiary of Albertson’s Companies, Inc., to continue supplying the former Haggen stores that were purchased by Safeway, Inc. in the Pacific Northwest. Sales to the former Haggen Pacific Northwest stores were approximately $124.3 million for the fifty-two weeks ended October 1, 2016.

Raley’s. In February 2015, we entered into an agreement with Raley’s under which we subleased its existing Stockton, California facility for five years. We currently operate that facility to distribute general merchandise and health and beauty products to Raley’s under a five-year supply agreement. This facility also services our other customers, and has created the opportunity for Unified to consolidate and distribute all general merchandise and health and beauty care products from a single location.

Sale of Insurance Segment. In July 2014, our management and Board made a strategic determination to focus the Company’s efforts on our core grocery business operations in order to better serve Unified’s Members and customers. In conjunction with this decision, our management and Board determined that our insurance operations represented a significant non-core portion of our business, and on October 7, 2015 (the “Closing Date”), we completed the sale, at a discount to Tangible Book Value (“TBV”) (as defined in the Stock Purchase Agreement discussed below), of all of the outstanding shares of our wholly owned subsidiary, Unified Grocers Insurance Services (“UGIS”), to AmTrust Financial Services, Inc. (“AmTrust”) pursuant to the terms of a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and between the Company and AmTrust dated as of April 16, 2015. As of the Closing Date, UGIS owned all of the outstanding shares of the capital stock of Springfield Insurance Company and Springfield Insurance Company Limited (Bermuda). We refer to UGIS, Springfield Insurance Company and Springfield Insurance Company Limited (Bermuda) collectively as the “Acquired Companies.”

price of $0.4 million between the estimated TBV as of the Closing Date and the actual TBV as of the Closing Date. For the year ending October 1, 2016, we had net earnings of $0.3 million attributable to our discontinued operations.

We incurred a net loss of $6.9 million in conjunction with the sale of the Acquired Companies at the Closing Date, including a net operating loss from discontinued operations of $3.7 million and a $1.3 million impairment on our investment in the Acquired Companies, in addition to $1.9 million of charges related to the sale, primarily comprised of costs incurred by us directly attributable to the Audit Committee Investigation and to the preparation and consummation of the sale of the Acquired Companies to AmTrust. Our historical financial statements have been revised to present the operating results of the Acquired Companies as discontinued operations. See Note 3, “Assets Held For Sale/Discontinued Operations” in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. Our estimated net loss on sale resulted in a reduction of approximately $16 per share to our exchange value. See Part II, Item 5, “Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities” and Part II, Item 6, “Selected Financial Data” for additional information on the calculation of the Exchange Value Per Share.

Market Centre. In fiscal 2015, our Market Centre subsidiary was dissolved as a legal entity and ceased operating as a wholly-owned subsidiary of the Company. Market Centre now conducts business as a separate division within our Wholesale Distribution segment. Additionally, beginning in fiscal 2015, earnings from sales of food products such as Hispanic, other ethnic, gourmet, natural, organic and other specialty foods sold to Members through our Market Centre division are included in patronage earnings and may be eligible for patronage distributions. Earnings from sales to Non-Member customers are retained by the Company.

Dairy Divisions. In July 2016, we ceased operating our Southern California Dairy Division manufacturing facility, but continue offering fluid milk and other products, including our private label brands, to our Members and customers through a vendor direct arrangement with Dean Foods Company. Coincident with this change, we no longer pay patronage dividends on products supplied by Dean Foods Company. In conjunction with the changes to the Southern California Dairy Division, the Pacific Northwest Dairy Division no longer pays patronage dividends on sales of dairy products after May 2016.

Addition of New Supplier for Private Label Products. As discussed in “Business – Products – Corporate Brands,” we currently sell products under national brand equivalent and value-oriented corporate brands. In February 2016, we joined Topco as a member. Topco is a privately held company that provides procurement, quality assurance, packaging and other services exclusively for its member-owners, which include supermarket retailers, food wholesalers and foodservice companies. In June 2016, Western Family reached an agreement with Topco authorizing Topco to source Western Family’s private label brands, including the Western Family and Natural Directions brands that are sold through us. Western Family announced that the transition of procurement and marketing to Topco will take several months, with all orders and invoices continuing through Western Family until that time. When the transition of the products is complete, Western Family’s headquarters in Oregon will close and Western Family will lay off the majority of its workforce.

Commencing in the fourth quarter of fiscal 2016, we began transitioning to Topco as our primary supplier for our Springfield national brand equivalent and our value-oriented Special Value products. In addition, Topco will serve as our sole-source supplier for general merchandise and health and beauty care products under its TopCare label.

Our formerly held-for-sale discontinued Insurance operations included two insurance subsidiaries that previously provided insurance and insurance-related products to both us and our Member and Non-Member customers in most of the states in which we formerly conducted our insurance business. Our formerly held-for-sale discontinued Insurance business also included an insurance agency subsidiary that placed business with insurance carriers, including our former insurance subsidiaries. In fiscal 2015, the insurance and insurance-related products provided by our former insurance subsidiaries included workers’ compensation and liability insurance policies.

The formerly held-for-sale discontinued Insurance segment represented approximately 13% of our consolidated total assets for each of fiscal 2015 and 2014. Net sales produced by our formerly held-for-sale discontinued Insurance segment equated to approximately 1% of our consolidated net sales for each of fiscal year 2015 and 2014.

Our other support businesses, consisting primarily of a financing entity, collectively accounted for less than 1% of our consolidated net sales and approximately 9%, 25% and 0%, respectively, of our consolidated operating income for fiscal 2016, 2015 and 2014. Our other support businesses represented approximately 3% of our consolidated total assets for each of fiscal year 2016, 2015 and 2014.

As of October 1, 2016, we employed approximately 2,400 employees, of whom approximately 56% are represented by labor unions under 19 collective bargaining agreements. The International Brotherhood of Teamsters represents a majority of employees covered by labor contracts. Collective bargaining agreements affecting our employees have various expiration dates ranging from 2016 through 2020. We believe our labor relations with the various local unions are good.

The grocery industry, including the wholesale food distribution business, is highly competitive and characterized by high volume and low profit margins. In recent years, the grocery industry has consisted primarily of large, vertically integrated chain stores and has seen mergers and acquisitions among competing organizations to achieve economies of scale. In addition, the industry has seen increasing numbers of alternative format stores and large chain stores from other industries devote considerable square footage to enter and compete in the grocery industry. Going forward, the industry will face further competition from online retailers that feature online ordering and direct delivery to consumers.

When independent retailers are acquired by large chains with self-distribution capacity, are driven from business by larger grocery chains, or become large enough to purchase directly from manufacturers or develop their own self-distribution capabilities, we may lose business. In addition, as a higher percentage of our sales go to larger customers, including through smaller independent retailers being acquired by larger independent retailers, our margins tend to be adversely affected as these larger customers typically receive discounts based upon the higher volume of their purchases.

We compete in the wholesale grocery industry with many regional and local grocery, general food, meat, produce, specialty, bakery and dairy wholesalers and distributors, as well as with national food wholesalers, namely C&S Wholesale Grocers, Inc., Supervalu, Inc., United Natural Foods, Inc. (UNFI) and KeHE Distributors, LLC. Many of our customers, including Members, buy from such competing wholesalers and distributors in addition to us, such that we are competing for business at the wholesale grocery level on a daily basis. This competition is intense with respect to, among other things, price, selection, availability and service.

Our customers include grocery retailers with a broad range of store sizes and types targeting a diverse range of consumers. Depending on the nature of their stores and consumer focus, our customers may compete directly with vertically integrated regional and national chains, such as Albertsons Companies, Inc. (including Safeway Inc., Vons and Pavilions), Kroger Co. (including Ralphs, Food 4 Less and QFC), Trader Joe’s Company and WinCo Foods, which operate traditional and specialty format full-service grocery stores. They may also compete with warehouse club stores and supercenters such as Costco Wholesale Corp., Sam’s Club and Wal-Mart Stores, Inc., hard discount stores such as ALDI, drug channel stores, alternative format stores such as Target Corp., and the various “dollar” stores, stores focused on upscale and natural and organic products such as Sprouts Farmers Markets, LLC and Whole Foods Market Inc., and various convenience stores. The marketplace in which our customers compete continues to evolve and present challenges. These challenges include such recent trends as the continued proliferation of discount stores, supercenters and warehouse club stores and the efforts of many of the non-traditional format stores to expand their offerings of product to cover a greater range of the products offered by the traditional format full-service grocery store.

The success of our customers in attracting consumers to shop at their stores, as opposed to any of their various competitors, has a direct and significant impact on our sales and earnings. For more information about the competitive environment we and our customers face, please refer to Part I, Item 1A, “Risk Factors.”

In helping our customers remain competitive, whether they operate a traditional full-service grocery store or a non-traditional format store targeting particular consumers, we emphasize providing a diverse line of high quality products, competitive pricing and timely and reliable deliveries. We also provide a wide range of other services, including merchandising, retail pricing support, advertising, financing and technology products and solutions, to further support our customers’ businesses. One of our technology solutions involves partnering with Members to access their front-end scan information. This data gives us the opportunity to work with our Members to analyze their retail sales trends and enhances our ability to supply them the products in demand by their customers.

We and others in the grocery industry are impacted by changes in the overall economic environment, including such factors as consumer confidence and the employment rate, shifts in consumer tastes and buying patterns, and changes in government spending that supports grocery purchases. The slow pace of the economic recovery has produced a gradual improvement in consumer confidence and unemployment, conditions which have caused consumers to be highly price

sensitive and seek lower-cost alternatives in their grocery purchases. These conditions have improved slowly in some of our operating markets; however, in other of our operating markets, these conditions have substantially improved and consumers, while continuing to seek value in their purchases, have increasingly opted for higher priced, higher quality products. The significant industry growth in sales of natural and organic products is an example of this trend. One trend that appears to be continuing in all market areas is the willingness of consumers to shop at multiple stores of various formats, for both greater selection and value, rather than obtaining all of their grocery needs from one full-service store. This trend has continued to benefit the various specialty, discount and other alternative format stores.

We are impacted by the level of inflation and deflation in a variety of areas, including, but not limited to, sales, cost of sales, employee wages and benefits, workers’ compensation insurance and energy and fuel costs. We typically experience significant volatility in the cost of certain commodities, the cost of ingredients for our manufactured breads and processed fluid milk, and the cost of packaged goods purchased from other manufacturers. Our operating programs are designed to give us the flexibility to pass these costs on to our customers; however, we may not always be able to pass such increases on to customers on a complete or timely basis. Any delay may result in our recovering less than all of a price increase. It is also difficult to predict the effect that possible future purchased or manufactured product cost decreases might have on our profitability. The effect of deflation in purchased or manufactured product costs would depend on the extent to which we had to lower selling prices of our products to respond to sales price competition in the market. For example, in the current fiscal year, the deflation we have experienced in meat product cost has negatively impacted our sales; however, our margins were not similarly impacted. Our earnings are impacted by inventory holding gains or losses, such that during inflationary periods we benefit from increased product pricing, while during periods of low inflation or deflation, these gains are reduced or eliminated. We are subject to changes in energy costs (excluding fuels) which we may not be able to pass along to customers. With respect to fuel costs, we assess a fuel surcharge on product shipments to address the potential volatility in fuel costs. The fuel surcharge is indexed to allow us to recover costs over a specified level. Our continual focus on cost control and operational efficiency improvements helps us mitigate other changes in operating costs.

Additionally, we are impacted by changes in prevailing interest rates or interest rates that have been negotiated in conjunction with our credit facilities. A lower interest rate (used, for example, to discount our pension and postretirement unfunded obligations) may increase certain expenses, particularly pension and postretirement benefit costs, while decreasing potential interest expense for our credit facilities. An increase in interest rates may have the opposite impact. Consequently, it is difficult for us to accurately predict the impact that inflation, deflation or changes in interest rates might have on our operations.

We invest in life insurance policies (reported at cash surrender value) and various publicly-traded mutual funds (reported at estimated fair value based on quoted market prices) to fund obligations pursuant to our Executive Salary Protection Plan III, Supplemental Executive Retirement Plan and deferred compensation plan (see Note 13 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional discussion). Life insurance and mutual fund assets with values tied to the equity markets are impacted by overall market conditions. In fiscal 2016, net earnings and net comprehensive earnings experienced an increase corresponding to the increase in the value of life insurance and mutual fund assets, respectively.

The products we sell to our customers and the raw materials we use in our manufacturing operations are purchased from a number of sources. No single source of supply exceeds 5% of our business. We believe that alternative suppliers are available for substantially all of our products and that the loss of any one supplier would not have a material adverse effect on our business. We also believe the products and raw materials are generally available in sufficient supply to adequately meet customer demand.

Our business is not subject to significant seasonal fluctuations in demand. We do not typically experience a material backlog in sales orders or the fulfillment of customer orders.

We own and operate various facilities for the manufacture, warehousing and distribution of products to our customers. Accordingly, we are subject to increasingly stringent federal, state and local laws, regulations and ordinances that (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (2) impose liability for the costs of cleaning up, and certain damages resulting from past spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities (including liabilities resulting from lawsuits brought by private litigants) relating to our facilities and the

land on which our facilities are situated, regardless of whether we lease or own the facilities or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. We believe we are in compliance with all such laws and regulations and have established reserves for known and anticipated costs of remediation.

We provide nearly all product categories typically found in supermarkets, including dry grocery, frozen food, deli, ethnic, gourmet, specialty food, natural and organic, general merchandise, health and beauty care, service deli, service bakery, meat, eggs, produce, bakery and dairy products. Through our strategically located warehouses in Northern and Southern California and the Pacific Northwest and our extensive fleet of tractors and trailers, we are able to sell and/or deliver product to supermarkets, specialty grocery stores, restaurant supply stores and convenience stores located in the Western United States and the Pacific Rim. As a full service provider, we offer retailers the ability to centralize their purchasing and simplify their logistics.

Full service wholesaler with specialty division offering access to a broad range of diverse products

In addition to all the product categories typically found in supermarkets, we offer retailers access to a complete line of food products such as Hispanic, other ethnic, gourmet, natural, organic and other specialty foods through our Market Centre division. We also sell products carried in the Cooperative Division to small Non-Member customers through our Market Centre division. We emphasize providing a diverse line of high quality products, and are constantly seeking to expand and adjust our product offerings to help our customers remain competitive and anticipate shifts in consumer demand.

Large and diverse customer base enables competitive pricing and range of offerings

Our large and diverse customer base gives us the buying power, and enables us to maintain a scale of operations, necessary to purchase a diverse range of products from vendors at favorable prices and, in turn, sell and/or deliver such products to customers at competitive prices. Our scale also allows us to offer our customers access to vendor support, including promotional offerings, new items and other information, to help them be competitive and anticipate consumer demands. Further, we participate in buying consortiums with other non-competing wholesalers to help ensure that our retailers are given the necessary vendor support to help them be competitive with larger national chains.

We provide financing services to our customers, as well as various support services, including merchandising, retail pricing, advertising, promotional planning, retail technology, equipment purchasing and real estate services, to help our retailers compete. We also gather and disseminate industry information to keep our customers updated on consumer trends, products, and significant changes in laws and regulations, assisting them to identify and focus on opportunities for success. Our various services help our customers concentrate on their core business and give them essential business tools to compete against larger national chains.

Our strategy is to provide our customers with the tools they need to be successful in serving consumers at the retail level. We are focused on continuing to provide a broad range of high quality products and services, at competitive prices, to enable our customers’ stores to attract and satisfy consumers. As consumer demands shift or technology creates new ways for retailers to reach consumers, we seek to be at the forefront of providing the new products and services our customers need to make the most of market opportunities. In addition, we seek to increase sales outside the traditional supermarket channel, expand our sales and service offerings into other geographic areas, including through partnerships with other regional wholesale distribution companies, and seize other business opportunities, such as logistics, warehousing and transportation services that leverage our assets.

Our strategic focus continues to emphasize providing our Members with the products, services and go-to-market support they need in order to be successful in our changing marketplace. For example, we have partnered with Members to access their front-end scan information. This data gives us the opportunity to work with our Members to analyze their retail sales trends and enhances our ability to supply them the products in demand by their customers. Our strategic focus in fiscal 2016 and beyond to grow the Company and increase profitability and capitalization will be concentrated on the following areas:

Our Members are both owners and customers of our company. A Member must (1) own 350 Class A Shares and a certain number of Class B Shares based upon the amount of such Member’s average weekly purchases of product from us, or as otherwise specified by the Board (see “—Capital Shares”); (2) be of approved financial standing; (3) be engaged in selling grocery and related products at retail or wholesale; (4) purchase products from us in amounts and in a manner that is established by the Board from time to time; (5) make application in such form as is prescribed by us; and (6) be accepted as a Member by Board action.

Our Members are typically required to satisfy a minimum purchase requirement of $1 million in annual purchases from us. This requirement may be modified from time to time by the Board, having been most recently changed in April 2008. Members at the time of this change, or who were shareholders or customers of Associated Grocers, Incorporated (“AG”) who became Members in connection with our purchase of certain assets and assumption of certain liabilities of AG and its subsidiaries, a retailer-owned grocery cooperative headquartered in Seattle, Washington (the “AG Acquisition”), remain subject to the earlier requirement of $5,000 per week in purchases from us.

A customer that does not meet the requirements to be a Member, or does not desire to become a Member, may conduct business with us as a Non-Member. However, any customer that purchases more than $3 million of product from us annually is typically required to be a Member.

Our Class A and Class B Shares are issued by us to our Members based on their acceptance into membership by the Board and in accordance with their membership agreements. Our Class A and Class B Shares are repurchased by us from our Members, a process we refer to as the exchange of shares, in each case from time to time at the discretion of the Board and in accordance with our share purchase requirements and at a price (the “Exchange Value Per Share”) based on a formula approved by the Board. The Exchange Value Per Share, as currently calculated, is equal to Book Value (as defined below) divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year, excluding shares tendered for redemption. “Book Value” is computed based on (1) the fiscal year end balance of Class A and Class B Shares, excluding the redemption value of unredeemed shares tendered for redemption, plus (2) retained earnings, excluding non-allocated retained earnings.

There is no established public trading market for our shares. The Exchange Value Per Share is not intended to and should not be viewed as the amount for which any of our shares of capital stock or, in the aggregate, the Company or our net assets could be sold. Moreover, if the Board decides in any year to retain a portion of our earnings from our Non-Patronage Business, and to not allocate those earnings to the Exchange Value Per Share, the redemption price of Class A and Class B Shares that are repurchased in the year of such retention and in future years will not benefit from such earnings. Likewise, if the Board decides in any year to reverse prior allocations of earnings from our Non-Patronage

Business and allocate such amounts to the Exchange Value Per Share, then the redemption price of Class A and Class B Shares that are repurchased in the year of such reversal and in future years will be increased. See Part II, Item 5, “MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES” and Part II, Item 6, “SELECTED FINANCIAL DATA” for additional information on the calculation of the Exchange Value Per Share. Our Class C and Class E Shares are exchanged with our directors and Members, respectively, at a fixed stated value. See “—Classes of Shares—Class C Shares” and “—Classes of Shares—Class E Shares.” The Board each year may increase or decrease the amount of non-allocated retained earnings that is excluded from the Exchange Value Per Share. Our non-allocated retained earnings were $6.9 million in each of fiscal 2016, 2015 and 2014.

Our Bylaws require that each Member own 350 Class A Shares. The Board may accept an affiliate of a Member without such affiliate holding any Class A Shares where the owners of the affiliate are the same, or sufficiently the same, as those of the Member, and the Member already holds the required number of Class A Shares. Holders of Class A Shares are entitled to one vote per share on all matters to be voted upon by the shareholders, and the holders of the Class A Shares are entitled to elect 80% of our authorized number of directors. If a person holding Class A Shares ceases to be a Member, the Class A Shares held by such outgoing Member are subject to redemption. See “—Redemption of Class A and Class B Shares and Repurchase of Class E Shares.”

Our Bylaws require that each Member own such amount of Class B Shares as may be established by the Board. The holders of Class B Shares have the right to elect 20% of our authorized number of directors. Except as provided above or by California law, the holders of Class B Shares do not have any other voting rights. Any Class B Shares held by an outgoing Member or which are held by a Member in an amount in excess of that required by the Board are subject to redemption. See “—Redemption of Class A and Class B Shares and Repurchase of Class E Shares.”

Our Board currently requires each Member to hold Class B Shares having an issuance value equal to approximately twice the Member’s average weekly purchases from the Cooperative Division, except that as to meat and produce purchases the requirement is approximately one times the Member’s average weekly purchases from the Cooperative Division (the “Class B Share Requirement”). Member purchases from our Market Centre division are not included in the determination of the Class B Share Requirement. If purchases are not made weekly, the average weekly purchases are based on the number of weeks in which purchases were actually made. For purposes of determining whether a Member holds Class B Shares having an issuance value satisfying the Class B Share Requirement, the issuance value of each Class B Share held by the Member is deemed to be the Exchange Value Per Share in effect at the close of the fiscal year end prior to the issuance of such Class B Share.

One of the ways in which Members may acquire Class B Shares is through our payment of Cooperative Division patronage dividends at the end of our fiscal year. If a Member, at the time a patronage dividend is declared, does not satisfy its Class B Share Requirement, we may issue Class B Shares to such Member as a portion of the Cooperative Division patronage dividends paid. As Class B Shares are issued as part of a Member’s patronage dividend distribution, the issuance value of such Class B Shares adds to the amount of Class B Shares held by such Member for purposes of satisfying the Class B Share Requirement.

The Class B Share Requirement is determined twice a year, at the end of our second and fourth fiscal quarters, based on a Member’s purchases from the Cooperative Division during the preceding four quarters. If at the end of our second fiscal quarter, after giving effect to the value of Class B Shares estimated to be issued as part of the next Cooperative Division patronage dividend, a Member does not hold Class B Shares with a combined issuance value equal to the required amount of Class B Shares, we will typically require the Member to make a subordinated deposit (a “Required Deposit”) which may, at our option, be paid over a 26-week period. If at the end of our fourth fiscal quarter, after accounting for the issuance of Class B Shares as part of the Cooperative Division patronage dividend distribution declared for such fiscal year after the first year as a Member, a Member does not hold Class B Shares with a combined issuance value equal to the required amount of Class B Shares, then additional Class B Shares must be purchased by the Member in an amount sufficient to satisfy the requirement. The additional Class B Shares may be paid for by our charging the Member’s deposit fund in an amount equal to the issuance value of the additional Class B Shares or by direct purchase by the Member, which may be paid over a 26-week period. The Board may increase or otherwise change the Class B Share Requirement at its discretion.

In September 1999, we completed a merger (the “Merger”) with United Grocers, Inc. (“United”), a grocery cooperative headquartered in Milwaukie, Oregon. In October 2007, we purchased certain assets and assumed certain liabilities of AG and its subsidiaries. Certain Members, including former shareholders of United and AG, also may satisfy their Class B Share Requirement with respect to stores owned at the time of admission as a Member solely from their patronage dividend distributions by electing to receive Class B Shares in lieu of 80% of the Cooperative Division qualified cash patronage dividends the Member otherwise would receive in the future until the Class B Share Requirement is satisfied. In order to make the election to satisfy their Class B Share Requirement solely from patronage dividend distributions, former shareholders of AG were required to enter into supply agreements with us. During the build-up of its Class B Share Requirement, such a Member is not required to provide a Required Deposit with respect to stores owned at the time of admission as a Member. Satisfaction of the Class B Share Requirement of such Members relating to new stores or growth in the sales of existing stores may not be satisfied solely from their patronage dividend distributions, but is subject to the same payment requirements that apply to other Members.

New Members typically must satisfy their Class B Share Requirement in one of two ways: (1) the purchase of Class B Shares at the time of their admission as a Member such that the required amount is held at that time; or (2) the acquisition of Class B Shares over a five-year period commencing at the start of our first fiscal year after the Member’s admission, at the rate of 20% of the required amount per fiscal year, such that by the start of our sixth full fiscal year after the Member’s admission, the required amount is held. If a new Member elects to satisfy the Class B Share Requirement through the acquisition of shares over a five-year period, it is typically required to make a Required Deposit with us for the full required amount during the five-year build-up of the Class B Share Requirement. The Required Deposit may generally be paid either in full upon acceptance as a Member or 75% upon acceptance and the balance paid over a 26-week period.

Required Deposits for new stores, replacement stores or growth in the sales of existing stores can be paid either in full or with a 50% down payment and the balance paid over a 26-week period.

We may make modifications to the requirements as to the timing of the purchase of Class B Shares and the timing and amount of the Required Deposit on a case-by-case basis, based on the particular circumstances of a Member.

A reduced investment option in lieu of the standard Class B Share Requirement (“SBI”) described above is available if certain qualifications are met. A Member may apply for a reduced Class B Share requirement (“RBI”), which requires the Member to pay for its purchases electronically on the statement due date and demonstrate credit worthiness. The purpose of the RBI is to encourage Member growth by offering a reduced requirement if the qualifications are met and to provide a cap on the investment requirement at certain volume levels. The RBI is based on a sliding scale such that additional purchase volume marginally reduces the requirement as a percentage of purchase volume. Members who do not apply for the RBI remain on the SBI. However, once a Member has elected the RBI option, it must notify us in writing if it wishes to change its election. Generally, changes can only be made at the time of the second quarter recalculation of the Class B Share Requirement in March.

Certain of our directors hold Class C Shares. Each of such directors purchased one Class C Share for its stated value. Class C Shares are non-voting director qualifying shares, with no rights as to dividends or other distributions, and share in liquidation at their stated value of $10 per share.

We issued Class E Shares as a portion of the Cooperative Division patronage dividends in fiscal years 2003 through 2009, and may issue them as a portion of the Cooperative Division patronage dividends in future periods, as determined annually at the discretion of the Board (see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Equity Enhancement”). The Class E Shares are subject to repurchase by the Company at $100 per share, do not have the potential to appreciate over time above $100 per share, do not accrue interest, and have no voting rights except as required by law. The Board does not intend to declare ordinary dividends on Class E Shares in the future. Class E Shares are transferable only with our consent, which will normally be withheld except in connection with the transfer of a Member's business to an existing or new Member for continuation of such business. Class E Shares become eligible for repurchase at the discretion of the Board ten years after their date of issuance, with the outstanding Class E Shares becoming eligible for repurchase between the end of fiscal 2013 and the end of fiscal 2018. Our redemption policy provides that Class E Shares will not be repurchased for at least ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company. See “—Redemption of Class A and Class B Shares and Repurchase of Class E Shares.”

Our Articles of Incorporation and Bylaws provide that the Board has the absolute discretion to repurchase, or not repurchase, any Class A, Class B or Class E Shares of any outgoing Member regardless of when the membership terminated, and any Class B Shares in excess of the Class B Share Requirement (“Excess Class B Shares”) held by a current Member, whether or not the shares have been tendered for repurchase and regardless of when the shares were tendered. The Board considers the redemption of eligible Class A Shares at each board meeting. All other shares eligible for redemption or repurchase are considered by the Board on an annual basis, usually in December. Class E Shares will only be repurchased upon approval of the Board, and the repurchase price for the Class E Shares is fixed at $100 per share.

Excess Class B Shares may be redeemed at the sole discretion of the Board. If the Member tendering the shares for repurchase is current on all obligations owing to us, and no grounds exist for termination of membership, such redemption may be effected by paying cash to the Member or crediting the redemption price to the Member’s account. The redemption price for such shares shall be the same as would be provided on a termination of membership as of the date the shares were tendered for redemption. If the Member tendering the shares for repurchase is not current on all obligations owing to us, and no grounds exist for termination of membership, we may redeem such Excess Class B Shares and apply the proceeds against all amounts owing to us. The right to deduct any amounts owing to us against the total redemption price for shares is solely at our option. Shareholders may not offset or recoup any obligations to us or otherwise refuse to pay any amounts owed to us.

Subject to the Board’s determination and approval, any redemption or repurchase of shares will be on the terms, and subject to the limitations and restrictions, if any, set forth in the following:

We are subject to the restrictions imposed by the California General Corporation Law (the “CGCL”). Section 501 of the CGCL prohibits any distribution that would be likely to result in a corporation being unable to meet its liabilities as they mature. In addition, Section 500 of the CGCL prohibits any distribution to shareholders for the purchase or redemption of shares unless the board has determined in good faith that either (a) the amount of retained earnings immediately prior thereto equals or exceeds the sum of (1) the amount of the proposed distribution plus (2) any preferential dividend arrears that must be paid in respect of any other class of shares prior to the proposed distribution, or (b) immediately after the proposed distribution, the value of the corporation’s assets would equal or exceed the sum of (1) its liabilities plus (2) the preferential rights of other classes of shares that would be required to be paid upon dissolution to holders of such shares prior to any distribution to the class of shares as to which the proposed distribution is being made. There can be no assurance in the future that we will be able to redeem all shares tendered to us given the restrictions of the CGCL.

Our Articles of Incorporation and Bylaws contain certain restrictions on the redemption of our shares. In addition, our Bylaws contain our redemption policy (see below). The Board has the right to amend the redemption policy in our Bylaws at any time, including, but not limited to, changing the order in which repurchases will be made or suspending or further limiting the number of shares repurchased, except as otherwise may be expressly provided in the Articles of Incorporation.

The Board has the discretion to modify our redemption policy from time to time. All redemptions occur solely at the discretion of the Board. Our redemption policy currently provides that (1) Class A and Class B Shares held by a shareholder that is no longer a qualified or active Member and (2) Excess Class B Shares, may be redeemed at the Exchange Value Per Share at the close of the last fiscal year end prior to (A) termination of Member status or (B) the date of redemption, as applicable.

Our redemption policy currently provides that the number of Class B Shares that we may redeem in any fiscal year is limited to no more than 5% of the sum of:

During fiscal 2017, it is unlikely that we will redeem any Class B Shares that had been tendered for redemption as of the close of fiscal 2016, leaving 101,824 Class B Shares, or 25% of our outstanding Class B Shares at the close of fiscal 2016 with an aggregate redemption value of $29.8 million, which have been tendered for redemption but not yet redeemed. This percentage has steadily increased in recent years, from 23%, 21% and 17% of our outstanding Class B Shares at the close of fiscal 2015, 2014 and 2013, respectively, as we (1) suspended redemptions of Class A Shares and Class B Shares because we had not been current in our periodic SEC filings, (2) had an increase in the number of shares our Members have sought to redeem and (3) redeemed less than the 5% limit in fiscal 2012 through fiscal 2016. Based on the current level of redemption as compared to the number of shares tendered for redemption, such shares may not be redeemed for years under our redemption policy, if at all. Members may have even less liquidity with respect to shares in Unified should the Board, in its discretion, cease or reduce redemptions of stock.

There is no assurance that our financial condition will enable us to redeem shares tendered for redemption. Even if redemption is permitted by legal requirements, it is likely under our redemption policy that a Member’s Class B Shares will not be fully, or even partially, redeemed in the year in which they are tendered for redemption. If we are not able to redeem all shares eligible for redemption in a given year, then the shares redeemed will be determined on a pro rata basis. See Part I, Item 1A, “Risk Factors – The requirement that Members invest in our shares and/or make Required Deposits, and the lack of liquidity with respect to such investments and Required Deposits, may make attracting new Members difficult and may cause existing Members to withdraw from membership,” Part II, Item 5, “Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities,” Part II, Item 8, “Financial Statements and Supplementary Data – Note 12” for recent redemption activity and the number of outstanding shares tendered for redemption but which have not yet been redeemed.

During fiscal 2016, we repurchased 91,013 Class E Shares at a price of $9.1 million that were eligible for repurchase in fiscal 2015 and 2016. In accordance with the Board’s continuing repurchase authorization, 20,970 Class E Shares with an aggregate repurchase price of $2.1 million remain eligible for repurchase. There is no assurance that our financial condition will enable us to, or our Board will determine to, repurchase Class E shares in the fiscal year they become eligible for repurchase.

The Board has the absolute discretion to redeem Excess Class B Shares or to redeem Class A and Class B Shares or repurchase Class E Shares of any outgoing Member regardless of when the membership terminated or the Class B Shares were tendered. The Board also has the right to elect to redeem Excess Class B Shares or repurchase Class E Shares even though such redemption or repurchase has not been requested and without regard to each year’s five percent limit or any other provision of the redemption policy.

For information concerning our purchases of capital shares during fiscal 2016 and 2015, see Part II, Item 5, “Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities.”

We are a party to credit agreements which provide that during any period where we are in breach of, or an event of default has occurred under, such credit agreements, we will be prohibited from redeeming or repurchasing Class A, Class B and Class E Shares. In addition, any redemptions/repurchases are subject to an excess availability test.

We distribute patronage dividends to our Members based upon our patronage earnings during a fiscal year. Non-Member customers are not entitled to receive patronage dividends. Historically, the Board has approved the payment of dividends and the form of such payment for our three patronage-earning divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division, although as discussed below we recently ceased paying patronage dividends in respect of our Southern California Dairy Division and our Pacific Northwest Dairy Division. We track the volume of qualifying patronage sales in each of these patronage-earning divisions on an individual Member basis to determine each such Member’s share of such patronage dividends. Patronage dividends for each patronage-earning division are paid solely to Members who purchase products from such division.

The following table summarizes the patronage dividends distributed by us during the past three fiscal years.

The Cooperative Division incurred losses during the 2016, 2015 and 2014 Periods. As a result, there were no Cooperative Division patronage earnings available for distribution. The loss in the Cooperative Division decreased in the fiscal year ended October 1, 2016 primarily due to the increase in margins in our perishable product lines and the decrease in operating expenses. Patronage dividends in our Dairy Divisions decreased in the fiscal year ended October 1, 2016 compared to the fiscal year ended October 3, 2015. As discussed above and in “Wholesale Distribution Business – Overview,” this decrease reflects that after June 2016 and May 2016, respectively, we no longer pay patronage dividends on, and retain the earnings from, sales of products from both the Southern California Dairy Division and Pacific Northwest Dairy Division.

See additional discussion in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Wholesale Distribution Segment.” Total patronage earnings are based on the combined results of the Cooperative Division, the Southern California Dairy Division and the Pacific Northwest Dairy Division. In the event of a loss in one division, the Board will make an equitable decision with respect to the treatment of the loss. During the 2016, 2015 and 2014 Periods, the Cooperative Division experienced losses that were recognized in net earnings, thereby reducing our Exchange Value Per Share.

Our Bylaws provide that patronage dividends may be distributed in cash or in any other form that constitutes a written notice of allocation under Section 1388 of the Internal Revenue Code. Section 1388 defines the term “written notice of allocation” to mean any capital share, revolving fund certificate, retain certificate, certificate of indebtedness, letter of advice, or other written notice, that discloses to the recipient the stated dollar amount allocated to the recipient by Unified and the portion thereof, if any, which constitutes a patronage dividend. Written notices of allocation may be in the form of qualified written notices of allocation or non-qualified written notices of allocation. To constitute a qualified written notice of allocation, a patronage dividend must be paid at least 20% in cash and the balance in a form which constitutes a written notice of allocation and which the recipient has agreed to take into income for tax purposes in the year of receipt. If at least 20% of the patronage dividend is not paid in cash, the entire amount of the distribution not paid in cash, whether in the form of share, subordinated patronage dividend certificates or other debt instrument, constitutes a non-qualified written notice of allocation.

Patronage dividends for the Cooperative Division are calculated annually and distributed to Members following each fiscal year in proportion to the qualified patronage sales during such fiscal year. Historically the Company has distributed patronage dividends in cash, Class B and Class E shares and patronage dividend certificates. For fiscal 2016, 2015 and 2014, there were no Cooperative Division patronage earnings available for distribution.

Patronage dividends for our dairy divisions are calculated quarterly and have been historically distributed to Members in cash on a quarterly basis in proportion to the qualified patronage sales during the quarter.

Customers may be required to maintain a cash deposit with us, which may include one or both of the following:

We do not pay interest on Required Deposits or Credit Deposits; however, interest is paid at the prime rate for cash deposits in excess of a Member’s Required Deposit (an “Excess Deposit”).

At any given time, our required cash deposits may be less than otherwise would be required (referred to as a "Deposit Fund Deficiency") as a result of Members having been approved to build deposits in their deposit fund over time or in cases where their Required Deposits are waived. Deposit Fund Deficiencies typically occur when Members do not maintain sufficient Required Deposits to meet the Class B Share Requirement. The Deposit Fund Deficiency was approximately $1.6 million, $1.6 million and $2.9 million at October 1, 2016, October 3, 2015 and September 27, 2014, respectively, consisting of approximately $1.4 million, $1.4 million and $2.7 million, respectively, due to Members that were approved to build deposit fund requirements over time and approximately $0.2 million, $0.2 million and $0.2 million, respectively, due to former United members that elected to assign at least 80% of the Cooperative Division qualified cash patronage dividends to fulfill deposit fund requirements.

Required Deposits of Members are contractually subordinated and subject to the prior payment in full of certain of our senior indebtedness. As a condition of becoming a Member, each Member is required to execute a subordination agreement providing for the subordination of the Member’s rights with respect to its Required Deposits and its rights in respect of Patronage Dividend Certificates. Generally, the subordination is such that no payment can be made by us with respect to the Required Deposits in the event of an uncured default by us with respect to our senior indebtedness, or in the event of our dissolution, liquidation or insolvency or other similar proceedings, until all of our senior indebtedness has been paid in full.

If membership status is terminated, upon request, we will return the amount in a Member’s deposit fund that is an Excess Deposit, less any amounts owed to us, provided that the Member is not in default on any other of its obligations to us. The return of a Member’s Required Deposit is governed by, and will be returned only to the extent permitted by, the subordination agreement executed by the Member. We do not permit a Member to offset any obligations owing to us against the Required Deposit.

We require our Members to pledge to us, as collateral, all Class A, Class B and Class E Shares, all other shares and securities issued from time to time to Members by us, all deposits and deposit accounts with us and all distributions thereon and products and proceeds thereof, to secure their obligations to us. Such security is also pledged to us to secure the prohibition against the transfer of their collateral and to secure our rights to repurchase any of our shares held by them. Upon termination of membership of a Member or any affiliate of a Member, or default by a Member or any affiliate of a Member of any agreement with us, we are under no obligation to return any collateral pledged to us, or any proceeds thereof, so long as there are any matured or unmatured, contingent or unliquidated amounts owed by the Member to, or obligations that remain to be performed by the Member for the benefit of, us. We do not permit a Member to offset or recoup any obligations owing to us or otherwise refuse to pay any amounts owed to us. However, we retain all rights of offset and recoupment and furthermore, pledge agreement provides that we have the right to offset and recoup any obligations owed by a Member to us.

As part of the credit evaluation process, individual shareholders of corporate Members, including those who became Members from AG, may be required to guarantee the obligations of the corporate Member, except that former shareholders of United who were, at the date of the United Merger, in compliance with their obligations to United are not required to provide individual guarantees in the absence of financing transactions.

We are a California corporation operating on a cooperative basis. We are subject to federal, state, franchise and other taxes applicable to corporations, such as sales, excise, real and personal property taxes. We file consolidated annual income tax returns with our subsidiaries.

As a corporation operating on a cooperative basis, we are subject to Subchapter T of the Internal Revenue Code and regulations promulgated thereunder. Under Subchapter T, we generally must distribute patronage dividends to our Members. In order to qualify as a patronage dividend, distributions are made on the basis of the relative value of the business done with or for Members, under a pre-existing obligation to make such payment, and with reference to the net earnings from business done with or for the cooperative’s Members. Patronage dividends are paid in cash or in any form that constitutes a written notice of allocation. A written notice of allocation is distributed to the Member and provides notice of the amount allocated to the Member by Unified and the portion thereof which constitutes a patronage dividend.

Under Subchapter T regulations, we may deduct for the fiscal year to which they relate the amount of patronage dividends paid in cash and qualified written notices of allocation or other property (except a nonqualified written notice of allocation) within 8-1/2 months after the end of the fiscal year to which the patronage dividends relate. A written notice of allocation will be qualified if we pay at least 20% of the patronage dividend in cash, and the Member consents to take the stated dollar amount of the written notice into income in the year in which it is received. Members sign a consent form at the time of membership to satisfy the consent requirement. Members are required to consent to include in their gross income, in the year received, all cash as well as the stated dollar amount of all qualified written notices of allocation, including the Exchange Value Per Share of the Class B Shares distributed to them as part of the qualified written notices of allocation. Class B Shares distributed as part of the qualified written notices of allocation may also be subject to state income taxes.

We are subject to federal income tax and various state taxes on the net earnings of the business with or for Members that are not distributed as qualified written notices of allocation and on the net earnings derived from Non-Patronage Business. In fiscal 2002, as part of our equity enhancement initiative, we issued nonqualified written notices of allocation in the form of Class B Shares and subordinated patronage dividend certificates. In fiscal 2003 through 2005, we issued nonqualified written notices of allocation in the form of Class B and Class E Shares. In fiscal 2006 through 2009, we issued qualified and nonqualified written notices of allocation in the form of Class B and Class E Shares, respectively. For fiscal 2010 through 2016, we distributed 100% of the patronage dividend in cash. The Member does not include a nonqualified written notice of allocation, whether in Class B Shares, Class E Shares or subordinated patronage dividend certificates, as taxable income in the year of receipt, and we are not entitled to an income tax deduction in the year of issuance. When the nonqualified written notice of allocation is redeemed for cash or property, the Member will have ordinary taxable income and we will have an income tax deduction to the extent that the stated dollar amount of such written notice of allocation exceeds its basis.

Members are urged to consult their tax advisors with respect to the applicability of U.S. federal income, state or local tax rules on the ownership and disposition of Class A, Class B and Class E Shares and the receipt of subordinated patronage dividend certificates with respect to their own tax status.

We make available, free of charge, through our website (http://www.unifiedgrocers.com) our Forms 10-K, 10-Q and 8-K, as well as our registration statements, proxy statements and all amendments to those reports, as soon as reasonably practicable after those reports are filed electronically with the Securities and Exchange Commission (the “SEC”). Due to the delay in the preparation of our audited financial statements as described below in Audit Committee Investigation, we did not file our Annual Report on Form 10-K for the year ended September 27, 2014, and we did not file any Quarterly Reports on Form 10-Q for the quarters ended December 27, 2014, March 28, 2015 and June 27, 2015. A copy of any of the reports filed with the SEC can be obtained from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. A copy may also be obtained by calling the SEC at 1-800-SEC-0330. All reports filed electronically with the SEC are available on the SEC’s website at http://www.sec.gov.

On December 19, 2014, the Company announced that the Audit Committee of Unified’s Board of Directors (“Audit Committee”) was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by the Company’s former insurance subsidiaries and related matters, including:

The Audit Committee Investigation scope included the consideration of relevant information obtained from interviews of employees and Company advisors and the review of electronic data and documents; and also included the significant assistance of outside actuarial advisors.

As a result of the Audit Committee Investigation, the Company did not file a separate Annual Report on Form 10-K for the fiscal year ended September 27, 2014, or Quarterly Reports on Form 10-Q for the interim fiscal periods ended December 27, 2014, March 28, 2015 and June 27, 2015. Information for all of these reports was included in the Company’s filing of Form 10-K for the fiscal year ended October 3, 2015 filed with the SEC on June 1, 2016.

See Note 2, “Audit Committee Investigation,” in Part II, Item 8, “Financial Statements and Supplementary Data,” for discussion of the impact of case reserving practices that led to errors in the historical financial statements, Note 20, “Related Party Transactions,” in Part II, Item 8, “Financial Statements and Supplementary Data,” for disclosure of the aforementioned related party transaction and Part II, Item 9A, “Controls and Procedures,” for conclusions as to the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting.

The risks and uncertainties described below are those that we believe are the material risks related to our business. If any of the following risks occur, our business, prospects, financial condition, operating results and cash flows could be adversely affected in amounts that could be material.

Risks Related to the Audit Committee Investigation, the State of the Company’s Internal Control Over Financial Reporting, Our Failure to Timely File Periodic Reports with the SEC and Related Matters

Expenses relating to or arising from the Audit Committee Investigation, including diversion of management’s time and attention, may adversely affect our business and results of operations. As discussed in ”Audit Committee Investigation,” above, in its Notification of Late Filing on Form 12b-25 dated December 19, 2014, with respect to the Company’s Annual Report on Form 10-K for the year ended September 27, 2014, the Company announced that the Audit Committee of the Company’s Board of Directors (“Audit Committee”) was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by the Company’s former insurance subsidiaries and related matters (“Audit Committee Investigation”). As a result of the Audit Committee Investigation, the filing of our Annual Reports on Form 10-K for fiscal year 2014 and 2015, as well as the Quarterly Reports on Form 10-Q for fiscal year 2015 and the first and second quarters of fiscal year 2016 were delayed until June 2016.

As a result of the Audit Committee Investigation, we have incurred significant expenses to date related to legal, accounting, and other professional services in connection with the investigation and related remediation efforts, and we may continue to incur significant additional expense with regard to our remediation efforts. In addition, senior management has committed, and continues to commit, substantial amounts of time and effort in connection with the remediation efforts and related matters. The significant amount of time and effort spent by our management team on these matters may divert their attention from the operation of our business. The expenses incurred, and expected to be incurred, on the remediation efforts and related matters, and the diversion of the attention of the management team could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our management has identified a material weakness in the Company’s internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements. We may not be able to fully address the material weakness in our internal controls or provide assurance that remediation efforts will prevent future material weaknesses. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and the Sarbanes-Oxley Act of 2002 and SEC rules require that our management report annually on the effectiveness of the Company’s internal control over financial reporting and our disclosure controls and procedures. Among other things, our management must conduct an assessment of the Company’s internal control over financial reporting to allow management to report on the effectiveness of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As disclosed in Part II, Item 9A, “Controls and Procedures,” our management has determined that we have a material weakness in the Company’s internal control over financial reporting as of October 1, 2016 related to controls over ensuring accurate and complete financial statement disclosures.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We are actively engaged in implementing a remediation plan designed to address such material weakness. However, future additional material weaknesses in the Company’s internal control over financial reporting may be identified in the future. Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our consolidated financial statements. The possibility of such future additional misstatements could cause us to delay filing our consolidated financial statements on a timely basis and result in noncompliance with covenants in our credit facilities, which could limit or suspend our access to working capital, which in turn could cause us to curtail or cease doing business altogether. Any such future misstatements in our publicly filed financial statements may impose upon us a requirement to restate such financial results. In addition, if we are unable to remediate successfully the material weakness in our internal controls or if we are unable to produce accurate and timely financial statements, our Members may lose confidence in our ability to effectively protect their investments in us, which in turn could lead Members to seek to withdraw such investments and to seek other sources to fulfill their supply needs. There is also the possibility that one or more Members or a regulatory agency could commence civil litigation against us as a result of any such future misstatement. Any such future misstatement or occurrence could result in increased audit, legal and any investigation-related fees, which could severely adversely affect our operations and financial results.

Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully implemented, the aggregate cost of implementation or whether the remediation plan will be adequate and effective. Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate or ineffective, there also will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected. Further and continued determinations that there are material weaknesses in the effectiveness of the Company’s internal control over financial reporting could also adversely affect our ability to attract new Members and their associated investments, as well as severely adversely affect our ability to retain existing financing or obtain, if at all, future financing on reasonable or acceptable terms. The failure to obtain acceptable or any financing could cause our existing Members to request the redemption of their shares which, depending upon the magnitude and extent of any such redemption, could have a material adverse effect on our business.

For more information relating to the Company’s internal control over financial reporting (and disclosure controls and procedures) and the remediation plan undertaken by us, see Part II, Item 9A, “Controls and Procedures.”

The markets in which we operate are highly competitive, characterized by high volume, low profit margins and industry consolidation, and many of our competitors have greater financial resources than us which could place us at a competitive disadvantage and adversely affect our financial performance. The grocery distribution business is generally characterized by a relatively high volume of sales with relatively low profit margins. Price competition among food wholesalers is intense. In addition, we compete with such food wholesalers with regard to quality, variety and

availability of products offered, strength of corporate brand labels offered, schedule and reliability of deliveries and the range and quality of services provided.

Some of our competitors, including C&S Wholesale Grocers, Inc., Supervalu, Inc. and United Natural Foods, Inc. (UNFI), are significantly larger and have greater financial resources than us. In addition, industry consolidation has in the past increased, and may continue in the future to increase, the number of large competitors that we face. These large national distributors have the resources to compete aggressively on price and may be able to offer customers a wider range of products and services and a wider area of distribution than we do. We also face intense competition from regional or specialized distributors and, from time to time, new entrants in various niche markets, with such competitors often able to compete very aggressively in such niches with unique or highly tailored products and services.

To compete effectively, we must keep our costs down to maintain margins while simultaneously increasing sales by offering the right products and services at competitive prices, with the expected quality, variety and availability, to appeal to consumers. If we are unable to compete effectively in our highly competitive industry, we may suffer reduced net sales and/or reduced margins and operating income, or suffer further losses, and our business, financial condition and results of operations could suffer.

We may experience reduced sales and earnings if Members or other customers lose market share to larger, often fully integrated traditional full-service grocery store chains or to warehouse club stores, supercenters and discount stores, many of which have greater financial resources than our Members or other customers. Our Members and other customers face intense competition from large, often fully integrated traditional full-service grocery store chains. Most of these store chains have greater resources than our Members or our other customers and benefit from local or national brand name recognition and efficiencies of scale from a fully integrated distribution network, standardization across stores, concentrated buying power and shared overhead costs. In addition, traditional format full-service grocery stores, which include most of our customers, have in recent years faced intense competition from, and lost market share to, non-traditional format stores, including warehouse club stores, supercenters, discount stores and specialty or niche stores focused on upscale and natural and organic products. Many of these non-traditional format stores are very large, with considerable resources, national brand names and economies of scale. This competition from non-traditional format stores has been particularly intense, and significant market share has been lost, with respect to categories of non-perishable products that we sell. Traditional format grocery stores, including our customers, have tended to move to expand their offerings and sales of perishable products, which generally have lower margins for us than non-perishable products. A continued decline in our sales of non-perishable products may adversely affect our operating profitability.

The market share of non-traditional format stores may grow in the future, potentially resulting in continued losses of sales volume and reduced earnings for our Members or our other customers and, in turn, for us. Continued losses of market share by our Members, whether to other traditional full-service grocery store chains or to non-traditional format stores, could reduce our net sales, margins and operating income, or cause us to incur further losses. As a result, our business, financial condition and results of operations could suffer.

We have an increasingly concentrated customer base, which has in the past reduced, and may continue in the future to reduce, our margins and expose us to an increase in risk concentration, including in the areas of credit risk and the sudden loss of significant customer business. Our operating results are highly dependent upon maintaining or growing our sales to our customers. Our largest customer, Cash & Carry Stores, LLC, a wholly-owned subsidiary of Smart & Final, Inc., a Non-Member customer, constituted approximately 17% of our total net sales for fiscal 2016. In recent years, we have seen our sales become increasingly concentrated with our large customers, with our top ten customers having increased from 42% of our total net sales in fiscal 2008 to 50% of our total net sales in fiscal 2016. A significant loss in membership or volume by one of our larger customers could have a sudden and material adverse effect on our operating results. For example, in the third quarter of fiscal 2011, we lost one of our top ten customers who represented $144.9 million in net sales for the fifty-two weeks immediately preceding the date they ceased purchasing from us. Between fiscal 2011 and fiscal 2012, this resulted in a loss of $87.2 million in annual net sales, or 2% of total net sales in fiscal 2012. We have also experienced an overall decline in the number of Members every year since the end of fiscal 2008. Since then, the number of Members has declined from 520 to 345 at the end of fiscal 2016, an average decline of 5.0% per year in our membership base. We believe this decline has been due to a number of factors, including smaller-volume retailers deciding to conduct business with us as Non-Members, Members discontinuing operations due to competition they face or challenging economic conditions, Members consolidating with other Members and Members choosing other wholesale distributors. This decline is also currently due to our not admitting new Members as a result of our having suspended issuance of Class A and Class B Shares because we had not been current in our periodic SEC filings.

Any such loss of a large customer, the loss of a number of smaller customers or the continued erosion of our membership base, could have a material and adverse effect on our net sales. In addition, to the extent we have suffered and may in the future suffer a decline in net sales, our margins and profitability have been and will be further negatively impacted to the extent we are unable to correspondingly reduce our fixed costs, such as warehouses, equipment and headcount. As it is difficult to quickly make significant reductions in fixed costs, if we were to suffer a significant and rapid decline in our net sales, such as from the loss of one or more significant customers, our margins and operating profitability may be adversely impacted, we may incur losses and our business, financial condition and results of operations could suffer.

We will continue to be subject to the risks associated with consolidation within the grocery industry. When independent retailers are acquired by large chains with self-distribution capacity, are driven from business by larger grocery chains, or become large enough to purchase directly from manufacturers or develop their own self-distribution capabilities, we will lose distribution volume. Members may also select other wholesale providers. Reduced volume is normally injurious to profitable operations since fixed costs must be spread over a lower sales volume if the volume cannot be replaced. In addition, as a higher percentage of our sales go to larger customers, our margins tend to be adversely affected as these larger customers typically receive discounts based upon the higher volume of their purchases, which may adversely impact our operating profitability.

We are also exposed to concentrations of credit risk related primarily to trade receivables, notes receivable and lease guarantees for certain Members. Additionally, we are exposed to risk to master landlords if subtenants default under their subleases with us. Our ten customers with the largest accounts receivable balances accounted for approximately 41% and 43% of total accounts receivable at October 1, 2016 and October 3, 2015, respectively. These concentrations of credit risk may be affected by changes in economic or other conditions affecting the western United States, particularly Arizona, California, Nevada, Oregon and Washington. We could suffer losses as a result of our concentrated credit risk in the event of a significant adverse change in economic or other conditions.

We may experience reduced sales if Members or other customers purchase directly from manufacturers or decide to self-distribute. Increased industry competitive pressure is causing some of our Members and other customers that can qualify to purchase directly from manufacturers to increase their level of direct purchases from manufacturers and expand their self-distribution activities. Our operating results could be adversely affected if a significant reduction in distribution volume occurred in the future as a result of such a shift to direct purchases and self-distribution by our customers.

The requirement that Members invest in our shares and/or make Required Deposits, and the lack of liquidity with respect to such investments and Required Deposits, may make attracting new Members difficult and may cause existing Members to withdraw from membership. Members are required to meet specific requirements, which include ownership of our capital shares and may include required cash deposits. These investments by Members are a principal source of our capital, and in fiscal 2016, approximately 68% of our net sales were to Members. We compete with other wholesale suppliers who are not structured as cooperatives and therefore have no investment requirements for customers. Our requirements to purchase shares or maintain cash deposits may become an obstacle to retaining existing business and attracting new business. For a discussion of required Member equity investments and deposits, see Part I, Item 1, “Business – Capital Shares” and Part I, Item 1, “Business – Customer Deposits.”

Our Bylaws give the Board complete discretion with respect to the redemption of shares held by terminated Members and excess shares held by Members. Our redemption policy currently provides that the number of Class B Shares that we may redeem in any fiscal year is limited to no more than 5% of the outstanding Class B Shares (after patronage dividends payable in Class B Shares). During fiscal 2017, it is unlikely that we will redeem any Class B Shares that had been tendered for redemption as of the close of fiscal 2016, leaving 101,824 Class B Shares, or 25% of our outstanding Class B Shares at the close of fiscal 2016 with an aggregate redemption value of $29.8 million, which have been tendered for redemption but not yet redeemed. This percentage has steadily increased in recent years, from 23%, 21% and 17% of our outstanding Class B Shares at the close of fiscal 2015, 2014 and 2013, respectively, as we (1) suspended redemptions of Class A Shares and Class B Shares because we had not been current in our periodic SEC filings, (2) had an increase in the number of shares our Members have sought to redeem and (3) redeemed less than the 5% limit in fiscal 2016, 2015, 2014 and 2013. The increase in the number of shares our Members have sought to redeem has been driven by our having an overall decline in the number of Members every year since the end of fiscal 2008. Since then, the number of Members has declined from 520 to 345 at the end of fiscal 2016, an average decline of 5.0% per year in our membership base. Our annual redemption rate has been less than the 5% limit in recent years due in significant part to our Board deciding to conserve capital during years of limited profit or a net loss. Based on our recent history of redemptions as compared to the number of shares tendered for redemption, Members seeking to redeem shares may be required to wait a number of years. Members may have even less liquidity with respect to shares in Unified should the Board, in its discretion, cease or reduce redemptions of stock. See Part II, Item 8, “Financial Statements and Supplementary Data – Note 12” for recent redemption activity and the number of outstanding shares tendered for redemption but which have not

yet been redeemed. Furthermore, required cash deposits are contractually subordinated and subject to the prior payment in full of our senior indebtedness. For a discussion of the limitations on the redemption of capital shares and the subordination of cash deposits, see Part I, Item 1, “Business – Capital Shares – Redemption of Class A and Class B Shares and Repurchase of Class E Shares,” Part I, Item 1, “Business – Customer Deposits” and Part I, Item 1, “Business – Pledge of Shares and Guarantees.” These limitations on our obligation to redeem capital shares or repay the cash deposits of Members may cause Members to withdraw from membership or potential Members to not become Members.

We are vulnerable to changes in general economic conditions. We are affected by certain economic factors that are beyond our control, including changes in the overall economic environment. In recent periods, we have experienced significant volatility in the cost of certain commodities, the cost of ingredients for our manufactured breads and processed fluid milk and the cost of packaged goods purchased from other manufacturers. An inflationary economic period could impact our operating expenses in a variety of areas, including, but not limited to, employee wages and benefits, workers’ compensation insurance and energy and fuel costs. A portion of the risk related to employee wages and benefits is mitigated by bargaining agreements that contractually determine the amount of inflationary increases. General economic conditions also impact our pension plan liabilities, as the assets funding or supporting these liabilities are invested in securities that are subject to interest rate and stock market fluctuations. Our debt is at floating interest rates and an inflationary economic cycle typically results in higher interest costs. We operate in a highly competitive marketplace and passing on such cost increases to customers could be difficult. It is also difficult to predict the effect that possible future purchased or manufactured product cost decreases might have on our profitability. A lack of inflation in the cost of food products may also adversely impact our margins when we are unable to take advantage of forward buying opportunities whereby we purchase product at a lower price and, by the time we sell the product, the market price and the price at which we are able to sell the product has risen to a higher price as a result of inflation. The effect of deflation in purchased or manufactured product costs would depend on the extent to which we had to lower selling prices of our products to respond to sales price competition in the market. Additionally, we are impacted by changes in prevailing interest rates or interest rates that have been negotiated in conjunction with our credit facilities. A lower interest rate (used, for example, to discount our pension and postretirement unfunded obligations) may increase certain expenses, particularly pension and postretirement benefit costs, while decreasing potential interest expense for our credit facilities. An increase in interest rates may have the opposite impact. Consequently, it is difficult for us to accurately predict the impact that inflation, deflation or changes in interest rates might have on our operations. To the extent we are unable to mitigate increasing costs, or retain the benefits from decreases in costs, patronage dividends may be reduced and/or the value of our Class A and Class B Shares may decrease.

Changes in the economic environment could adversely affect our customers’ ability to meet certain obligations to us or leave us exposed for obligations we have guaranteed. Loans to Members, trade receivables, Member compliance with subleases and lease guarantees could be at risk in a sustained economic downturn. We establish reserves for notes receivable, trade receivables and lease commitments for which the customer may be at risk for default. Under certain circumstances, we would be required to foreclose on assets provided as collateral or assume payments for leased locations for which we have guaranteed payment. Although we believe our reserves to be adequate, our operating results could be adversely affected in the event that actual losses exceed available reserves.

We may on occasion hold investments in the common and/or preferred stock of Members and suppliers. These investments are generally held at cost or the equity method and are periodically evaluated for impairment. As a result, changes in the economic environment that adversely affect the business of these Members and suppliers could result in the write-down of these investments. This risk is unique to a cooperative form of business in that investments are made to support Members’ businesses, and those economic conditions that adversely affect the Members can also reduce the value of our investment, and hence the value of our Class A and Class B Shares. We do not currently hold any equity investments in our Members.

Legal proceedings could lead to unexpected losses. From time to time during the normal course of carrying on our business, we may be a party to various legal proceedings through private actions, class actions, administrative proceedings, regulatory actions or other litigations or proceedings. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. In the event that management determines that the likelihood of an adverse judgment in a pending litigation is probable and that the exposure can be reasonably estimated, appropriate reserves are recorded at that time pursuant to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 450, “Contingencies.” The final outcome of any litigation could adversely affect operating results if the actual settlement amount exceeds established reserves and insurance coverage.

We are subject to existing and changing environmental, health, food safety and safety laws and regulations. We own and operate various facilities and equipment for the manufacture, warehousing and distribution of products to our customers. We are subject to increasingly stringent federal, state and local laws, regulations and ordinances that (1) govern activities or operations that may have adverse effects on the environment, health and safety (e.g., discharges to air and water and handling and disposal practices for solid and hazardous waste), and (2) impose liability for the costs of cleaning up, and certain damages resulting from, past or present spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities (including liabilities resulting from lawsuits brought by private litigants) relating to our facilities and the land on which our facilities are situated, regardless of whether we lease or own the facilities or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. In addition, we may be subject to pending federal and state legislation that if ultimately passed, may require us to incur costs to improve facilities and equipment to reduce emissions in order to comply with regulatory limits or to mitigate the financial consequences of a “cap and trade” regime. We are unable to predict the ultimate outcome of such legislation; however, should such legislation require us to incur significant expenditures, our business, results of operations and financial condition may be adversely affected.

We (and our customers) are subject to changes in laws and regulations. Our business is subject to various federal, state and local laws, regulations and administrative practices. We must comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling and safety, equal employment opportunity, and licensing for the sale of food and other products. Changes in federal, state or local minimum wage and overtime laws could cause the Company to incur additional wage costs, which could adversely affect the profitability of our business and that of our customers. The Patient Protection and Affordable Care Act (the “PPACA”) may impact our ability to operate profitably, as the full extent of the impact of the PPACA, if any, cannot be determined until all regulations are promulgated under the PPACA (or changed as a result of ongoing litigation) and additional interpretations of the PPACA become available. We cannot predict future laws, regulations, interpretations, administrative orders, or the effect they will have on our operations. Additional requirements or restrictions could be imposed on the products that we sell, or require that we discontinue or recall the sale of certain products, make substantial changes to our facilities or operations, or otherwise change the manner in which we operate our business. Any of these events could significantly increase the cost of doing business, which could adversely impact our operations and financial condition. The occurrence of any of these events could have a similar impact on the operations and financial condition of our customers, which could adversely impact our business, operations, and financial condition.

We may engage in merger and acquisition activity from time to time and may not achieve the contemplated benefits from such activity. Achieving the contemplated benefits from such activity may be subject to a number of significant challenges and uncertainties, including integration issues, coordination between geographically separate organizations, and competitive factors in the marketplace. We could also encounter unforeseen transaction and integration-related costs or other circumstances such as unforeseen liabilities or other issues. Any of these circumstances could result in increased costs, decreased revenue, decreased synergies and the diversion of management time and attention. If we are unable to achieve our objectives within the anticipated time frame, or at all, the expected benefits may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on our business, financial condition and results of operations, or cash flows.

We are exposed to potential product liability claims and potential negative publicity surrounding any assertion that our products caused illness or injury. The packaging, marketing and distribution of food products purchased from others or manufactured by us involves an inherent risk of product liability, product recall and adverse publicity. Such products may contain contaminants that may be inadvertently distributed or redistributed by us. These contaminants may result in illness, injury or death if such contaminants are not eliminated. Product liability claims in excess of insurance coverage, as well as the negative publicity surrounding any assertion that our products caused illness, injury or death could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

We will owe money to AmTrust if our insurance reserves for certain policies increase. Our former insurance subsidiaries were subject to the rules and regulations promulgated by various regulatory agencies, including, but not limited to, the California Department of Insurance and the Commonwealth of Bermuda. Historically, our established policy was to record insurance reserves based on estimates made by management and validated by third party actuaries to ensure such estimates were within acceptable ranges. Actuarial estimates were based on detailed analyses of health care cost trends, claims history, demographics, industry trends and federal and state law. As a result, the amount of reserve and related expense has been significantly affected by the outcome of these studies. In addition, our former Insurance segment has in the past experienced significant volatility in its reserves based on actuarial estimates, including volatility resulting from its relatively small size and concentration of business in the California workers’ compensation marketplace.

Significant and adverse changes in the experience of claims settlement and other underlying assumptions have negatively impacted our operating results. For example, in fiscal 2013, we increased reserves in our former Insurance segment by $9.1 million due to a combination of adverse development and case reserving practices and related accounting within the insurance subsidiaries that deviated from the established policy of setting case reserves at the best estimate of ultimate cost. Thereafter, in fiscal 2014, we further increased the workers’ compensation reserves in our former Insurance segment by an additional $10.0 million. See Note 2, “Audit Committee Investigation,” in Part II, Item 8, “Financial Statements and Supplementary Data,” for additional information.

Under the terms of the Stock Purchase Agreement with AmTrust, if during the five-year period following the Closing Date of the sale of the Insurance segment, the insurance reserves in respect of any accident arising prior to the closing and covered by an insurance policy written by an insurance subsidiary prior to January 1, 2015 increase as a result of adverse development, we must pay AmTrust for the amount of the increase, up to $1 million in the aggregate and offset up to $2 million from future Earn-Out Payments (as defined in the Stock Purchase Agreement) due to us under the Stock Purchase Agreement. See Item 1.01, “Entry into a Material Definitive Agreement,” including Exhibit 99.1, “Stock Purchase Agreement by and between Unified Grocers, Inc. and AmTrust Financial Services, Inc. dated as of April 16, 2015” thereto, of our Current Report on Form 8-K, filed on April 22, 2015, and Item 2.01, “Completion of Acquisition or Disposition of Assets,” including Exhibit 99.2, “Master Services Agreement by and between Unified Grocers, Inc. and AmTrust Financial Services, Inc. dated as of October 7, 2015” thereto, of our Current Report on Form 8-K, filed on October 14, 2015, for additional information.

We may not have adequate financial resources to fund our operations. We rely primarily upon cash flow from our operations and Member investments to fund our operating activities. In the event that these sources of cash are not sufficient to meet our requirements, additional sources of cash are expected to be obtained from our credit facilities to fund our daily operating activities. Our credit agreement, which matures on June 28, 2018, requires compliance with various covenants. See Note 7 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. While we are currently in compliance with all required covenants and expect to remain in compliance, this does not guarantee we will remain in compliance in future periods.

As of October 1, 2016, we believe we have sufficient cash flow from operations and availability under the credit agreement to meet our operating needs, capital spending requirements and required debt repayments through June 28, 2018. However, if access to operating cash or to the credit agreement becomes restricted, we may be compelled to seek alternate sources of cash. We cannot assure that alternate sources will provide cash on terms favorable to us or at all. Consequently, the inability to access alternate sources of cash on terms similar to our existing agreement could adversely affect our operations.

The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate. Our non-union employees participate in a Company sponsored defined benefit pension plan and Company sponsored postretirement benefit plans. Certain eligible union employees participate in a separate plan providing payouts for unused sick leave. Our officers also participate in a Company sponsored Executive Salary Protection Plan III (“ESPPIII”), which provides additional post-termination retirement income based on each participant’s salary and years of service as an officer of the Company. The postretirement plans provide medical benefits for retired non-union employees, life insurance benefits for retired non-union employees for which active non-union employees are no longer eligible and lump-sum payouts for unused sick days covering certain eligible union employees. Liabilities for the ESPPIII and postretirement plans are not funded. We account for these benefit plans in accordance with ASC Topic 715, “Compensation – Retirement Benefits” and ASC Topic 712, “Compensation – Nonretirement Postemployment Benefits,” which require us to make actuarial assumptions that are used to calculate the carrying value of the related assets, where applicable, and liabilities and the amount of expenses to be recorded in our consolidated financial statements. Assumptions include the expected return on plan assets, discount rates, health care cost trend rate, projected life expectancies of plan participants and anticipated salary increases. While we believe the underlying assumptions are appropriate, the carrying value of the related assets and liabilities and the amount of expenses recorded in the consolidated financial statements could differ if other assumptions are used. See Notes 13 and 14 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information.

The credit and liquidity crisis in the United States and throughout the global financial system in 2008-2009 triggered substantial volatility in the world financial markets and banking system. As a result, the investment portfolio of the Unified Cash Balance Plan incurred a significant decline in the fair value of plan assets during fiscal 2008. The value of the plan’s investment portfolio has experienced fluctuations over the years, including increases in fiscal years 2016 and 2014 and a decline in fiscal year 2015. For those years in which a decline in the value of the plan’s investment portfolio has occurred, management has determined these declines to be temporary in nature. The values of the plan’s individual investments

have and will fluctuate in response to changing market conditions, and the amount of gains or losses that will be recognized in subsequent periods, if any, cannot be determined.

Authoritative accounting guidance may necessitate companies who issue and redeem shares based on book value to redefine the method used to value their shares. Authoritative accounting guidance that requires adjustments to shareholders’ equity has the potential to impact companies whose equity securities are issued and redeemed at book value (“book value companies”) disproportionately more than companies whose share values are market-based (“publicly traded”). While valuations of publicly traded companies are often driven by their income statement and cash flows, the traded value of the shares of book value companies, however, may be immediately impacted by adjustments affecting shareholders’ equity upon implementation. Therefore, such guidance may necessitate companies who issue and redeem shares based on book value to redefine the method used to value their shares. As such, we modified our Exchange Value Per Share calculation to exclude accumulated other comprehensive earnings (loss) from Book Value (see Part II, Item 6,“Selected Financial Data” for additional information on the calculation of the Exchange Value Per Share), thereby excluding the potentially volatile impact that (1) ASC Topic 715-20, “Compensation – Retirement Benefits – Defined Benefit Plans – General” and (2) changes in unrealized gains and losses, net of taxes, on available for sale investments would have on shareholders’ equity and Exchange Value Per Share.

A system failure or breach of system or network security could delay or interrupt services to our customers or subject us to significant liability. We have implemented security measures such as firewalls, virus protection, intrusion detection and access controls to address the risk of computer viruses and unauthorized access. A business continuity plan has been developed focusing on the offsite restoration of computer hardware and software applications. We have also developed business resumption plans, which include procedures to ensure the continuation of business operations in response to the risk of damage from energy blackouts, natural disasters, terrorism, war and telecommunication failures, and we have implemented change management procedures and quality assurance controls designed to ensure that new or upgraded business management systems operate as intended. However, there can be no assurances that any of these efforts will be adequate to prevent a system failure, accident or security breach, any of which could result in a material disruption to our business. In addition, substantial costs may be incurred to remedy the damages caused by any such disruptions.

Our success depends on our retention of our executive officers and senior management, and our ability to hire and retain additional key personnel. Our success depends on the skills, experience and performance of our executive officers, senior management and other key personnel. The loss of service of one or more of our executive officers, senior management or other key employees could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows. Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and managerial personnel. Competition for these personnel is intense, and there can be no assurance that we can retain our key employees or that we can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.

We depend on third parties for the supply of products and raw materials and for marketing and promotional programs. We depend upon third parties for the supply of products, including corporate brand products, and raw materials. Any disruption in the services provided by any of these suppliers, or any failure by them to handle current or higher volumes of activity, could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.

We participate in various marketing and promotional programs to increase sales volume and reduce merchandise costs. Failure to continue these relationships on terms that are acceptable to us, or to obtain adequate marketing relationships, could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.

Increased electricity, diesel fuel and gasoline costs could reduce our operating profitability. Our operations require and are dependent upon the continued availability of substantial amounts of electricity, diesel fuel and gasoline to manufacture, store and transport products. Our trucking operations are extensive and diesel fuel storage capacity represents approximately two weeks average usage. The prices of electricity, diesel fuel and gasoline fluctuate significantly over time. Given the competitive nature of the grocery industry, we may not be able to pass on increased costs of production, storage and transportation to our customers. As a result, either a shortage or significant increase in the cost of electricity, diesel fuel or gasoline could disrupt distribution activities and negatively impact our business and results of operations.

A strike or work stoppage by employees could disrupt our business and/or we could face increased operating costs from higher wages or benefits we must pay our employees. Approximately 56% of our employees are covered by collective bargaining agreements, which have various expiration dates ranging from 2016 through 2020. If we are unable to negotiate acceptable contracts with labor unions representing our unionized employees, we may be subject to a

strike or work stoppage that disrupts our business and/or increased operating costs resulting from higher wages or benefits paid to union members or replacement workers. Any such outcome could have a material adverse effect on our operations and financial results.

If we fail to maintain an effective system of internal controls, we may not be able to detect fraud or report our financial results accurately, which could harm our business and subject us to regulatory scrutiny. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we perform an annual evaluation of our internal controls over financial reporting. See risk factor entitled “Our management has identified material weaknesses in the Company’s internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements. We may not be able to fully address the material weaknesses in our internal controls or provide assurance that remediation efforts will prevent future material weaknesses.” Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully implemented, the aggregate cost of implementation or whether the remediation plan will be adequate and effective. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

A loss of our cooperative tax status could increase tax liability. Subchapter T of the Internal Revenue Code sets forth rules for the tax treatment of cooperatives. As a cooperative, we are allowed to offset patronage earnings with patronage dividends that are paid in cash or through qualified written notices of allocation. However, we are taxed as a typical corporation on the remainder of our earnings from our Member business and on earnings from our Non-Member business. If we are not entitled to be taxed as a cooperative under Subchapter T, our revenues would be taxed when earned by us and the Members would be taxed when dividends are distributed. The Internal Revenue Service can challenge the tax status of cooperatives. The Internal Revenue Service has not challenged our tax status, and we would vigorously defend any such challenge. However, if we were not entitled to be taxed as a cooperative, taxation at both the Company and the Member level could have a material adverse impact on us and our Members.

Each method used to meet the Class B Share Requirement has its own tax consequences. Class B Shares required to be held by a new Member may be purchased directly at the time of admission as a Member or may be acquired over the five consecutive fiscal years commencing with the first year after admission as a Member at the rate of 20% per year. In addition, certain Members, including former shareholders of United Grocers, Inc. or Associated Grocers, Incorporated, may satisfy their Class B Share Requirement only with respect to stores owned at the time of admission as a Member solely from their patronage dividend distributions. Each of these purchase alternatives may have tax consequences which are different from those applicable to other purchase alternatives. Members and prospective Members are urged to consult their tax advisers with respect to the application of U.S. federal income, state or local tax rules to the purchase method selected.

Members’ Class A, Class B and Class E Shares are subject to risk of loss, and the Exchange Value Per Share is not intended to and should not be viewed as the amount for which such shares could be sold. Our Articles of Incorporation and Bylaws provide that the Board may redeem or repurchase such shares in its sole discretion at certain times. When such redemptions or repurchases occur, shares of Class A and Class B are purchased and sold at purchase prices equal to the Exchange Value Per Share at the close of the last fiscal year end prior to the date the shares are purchased or tendered for redemption; Class E Shares become eligible for repurchase at the discretion of the Board at a price of $100 per share ten years after their issuance date, with the outstanding Class E Shares becoming eligible for repurchase between the end of fiscal 2013 and the end of fiscal 2018.

There is no assurance that our financial condition will enable us to, or our Board will determine to, redeem or repurchase Class A, Class B or Class E Shares at such time they become eligible for redemption or repurchase, or ever. Our ability to redeem or repurchase shares is subject to the limitations and restrictions set forth in (1) the California General Corporation Law; (2) our Articles of Incorporation and Bylaws; (3) our redemption policy; and (4) any credit agreements to which we are a party. For more detail on those restrictions, see Part I, Item 1, “Business – Redemption of Class A and Class B Shares and Repurchase of Class E Shares.” During fiscal 2017, it is unlikely that we will redeem any Class B Shares that had been tendered for redemption as of the close of fiscal 2016, leaving 101,824 Class B Shares, or 25% of our outstanding Class B Shares at the close of fiscal 2016 with an aggregate redemption value of $29.8 million, which have been tendered for redemption but not yet redeemed. This percentage has steadily increased in recent years, from 23%, 21% and 17% of our outstanding Class B Shares at the close of fiscal 2015, 2014 and 2013, respectively, as we (1) suspended redemptions of Class A Shares and Class B Shares because we had not been current in our periodic SEC filings, (2) had an increase in the number of shares our Members have sought to redeem and (3) redeemed less than the 5% limit in fiscal 2012 through fiscal 2016. Based on the current level of redemption as compared to the number of shares tendered for redemption, such shares may not be redeemed for years under our redemption policy, if at all. Members may have even less liquidity with respect to shares in Unified should the Board, in its discretion, cease or reduce redemptions

of stock. While during fiscal 2016 we repurchased 91,013 Class E Shares at a price of $9.1 million that were eligible for repurchase in fiscal 2015 and 2016, there is no assurance that our financial condition will enable us to, or our Board will determine to, repurchase Class E shares in the fiscal year they become eligible for repurchase. Accordingly, Members may lose all or a portion of their investment in the Class A, Class B or Class E Shares.

If the Board decides in any year to retain a portion of our earnings from our Non-Patronage Business, and not to allocate those earnings to the Exchange Value Per Share, the redemption price of Class A and Class B Shares that are repurchased in the year of such retention and in future years will be reduced.

Finally, there is no established public trading market for our shares. The Exchange Value Per Share is not intended to and should not be viewed as the amount for which any of our shares of capital stock or, in the aggregate, the Company or our net assets could be sold. Accordingly, there can be no assurance that a holder of our Class A or Class B Shares will ever receive the Exchange Value Per Share or a holder of our Class E Shares $100 per such share.

Severe weather, natural disasters and adverse climate changes may adversely affect our financial condition and results of operations. Severe weather conditions, such as hurricanes or tornadoes, or natural disasters, such as earthquakes, fires or tsunamis in areas in which we have distribution facilities, in which customers’ stores are located or from which we obtain products may adversely affect our results of operations. Such conditions may cause physical damage to our properties, closure of one or more of our distribution facilities, closure of customers’ stores, lack of an adequate work force in a market, temporary disruption in the supply of products, disruption in the transport of goods, delays in the delivery of goods to our distribution centers or customer stores or a reduction in the availability of products we offer. In addition, adverse climate conditions and adverse weather patterns, such as droughts and floods, impact growing conditions and the quantity and quality of crops yielded by food producers and may adversely affect the availability or cost of certain products within the grocery supply chain. Our business resumption plans may not be effective in a timely manner and a significant disruption to our business could occur in the event of a natural disaster, terrorism or war. In addition, while we carry insurance to cover business interruption and damage to buildings and equipment, some of the insurance carries high deductibles. Any of these factors may disrupt our business and adversely affect our financial condition and results of operations.

Our corporate offices, warehouses and manufacturing facilities as of October 1, 2016 are as follows:

These properties are located in California, Oregon and Washington. We consider our corporate offices, warehouses and manufacturing properties to be generally in good condition, well maintained, suitable, and adequate to carry on our business as presently conducted. Certain of our real and personal property is pledged as collateral to secure our credit agreement with Wells Fargo Bank, National Association, and the other lenders who are party to the existing Amended and Restated Credit Agreement dated as of June 28, 2013, as amended on December 18, 2014 by a second amendment. See Note 7 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. As discussed in Part I, Item 1, “Business – Recent Developments,” in July 2016, we ceased operating our Southern California Dairy Division manufacturing facility and have reported it as Assets held for sale in our accompanying consolidated balance sheets at October 1, 2016.

We are a party to various litigation, claims and disputes, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, we believe the outcome of these matters will not have a material adverse effect on our financial condition or results of operations.

Please refer to the information under Part III, Item 10, “Directors and Executive Officers of the Registrant” for information regarding the executive officers of the Registrant.

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for our Class A, Class B, Class C or Class E Shares. As of December 9, 2016, our Class A Shares (122,500 shares outstanding) were held of record by 350 shareholders, Class B Shares (410,537 shares outstanding) were held of record by 516 shareholders, Class C Shares were held of record, one share each, by 15 directors of Unified, and our Class E Shares (114,209 shares outstanding) were held of record by 656 shareholders.

The Company has previously reported its purchases of its capital shares in periods up to and including the third quarter of fiscal 2016 in previously filed Forms 10-Q. The table below summarizes the Company’s purchases of its capital shares in each month of the fourth quarter of fiscal 2016 as follows:

The redemption or repurchase of Class A, Class B or Class E Shares is solely at the discretion of the Board. Our revolving credit agreement imposes financial conditions on us redeeming or repurchasing any of our Class A Shares, Class B Shares and Class E Shares, and prohibits distributions to shareholders and any redemption or repurchase of shares when an event of default (as defined in our credit agreement) has occurred and is continuing.

We distribute patronage dividends to our Members based upon our patronage earnings during a fiscal year. Non-Member customers are not entitled to receive patronage dividends. We generally do not pay cash dividends on our outstanding shares of capital stock, and we currently do not intend to pay cash dividends in the foreseeable future (other than as a portion of patronage dividends), as we intend to retain any earnings for use in our business other than those patronage earnings distributed in the form of patronage dividends. Other than Dairy Division patronage dividends, no cash dividends were paid during fiscal 2016, 2015 and 2014. Our revolving credit agreement imposes financial conditions on our paying cash dividends on Class E Shares (other cash dividends being generally prohibited). The payment of dividends is within the sole discretion of our Board of Directors, and will depend upon, among other things, financial condition, capital requirements, and general business conditions. See Part I, Item 1, “Business – Patronage Dividends” and Note 12, “Capital Shares” of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information.

The following graph sets forth the five-year cumulative total shareholder return on our shares as compared to the cumulative total shareholder return for the same period of our Peer Group and the S&P 500 Index. Our Peer Group consists of SpartanNash Company, United Natural Foods, Inc. (“UNFI”) and Supervalu, Inc. We added UNFI as a replacement for Nash Finch Company, which merged with Spartan Stores in November, 2013. The merged company, SpartanNash Company, remains in the Peer Group. These companies were selected on the basis that the companies, although unlike Unified in that they are not structured as cooperative organizations, have certain operational characteristics that are similar to Unified. For example, each of the companies is a full-line distributor of grocery products. While all shares of the companies included in the Peer Group are publicly traded, our shares are privately held. We exchange our Class A and Class B Shares with our Members at the Exchange Value Per Share (see Part I, Item 1, “Business – Capital Shares”). The Exchange Value Per Share, as currently calculated, is equal to Book Value (as defined below) divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year, excluding shares tendered for redemption. “Book Value” is computed based on (1) the fiscal year end balance of Class A and Class B Shares, excluding the redemption value of unredeemed shares tendered for redemption, plus (2) retained earnings excluding non-allocated retained earnings. The Exchange Value Per Share is not intended to and should not be viewed as the amount for which any of our shares of capital stock or, in the aggregate, the Company or our net assets could be sold.

The graphical presentation of the cumulative total return of the companies included in the Peer Group reflects the incremental change in book value of the shares of those companies. The book value of the members of the Peer Group have been computed based on total equity, less other accumulated comprehensive income, divided by the number of outstanding shares for the Peer Group fiscal years 2012 through 2016.

The comparison assumes $100 was invested on October 1, 2011 in the shares of the Company, the shares of the Peer Group and in the foregoing index through October 1, 2016. The historical cost performance on the following graph is not necessarily indicative of future cost performance.

This graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

The selected financial information below has been compiled from the audited consolidated financial statements of Unified for the fiscal years ended October 1, 2016, October 3, 2015, September 27, 2014, September 28, 2013 and September 29, 2012. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the notes thereto (see Part II, Item 8, “Financial Statements and Supplementary Data”) and the information contained in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical results are not necessarily indicative of future results.

There is no established public trading market for our shares. Exchange Value Per Share is not intended to and should not be viewed as the amount for which any of our shares of capital stock or, in the aggregate, the Company or our net assets could be sold or the dollar amount that would be required to replace them. Moreover, if the Board decides in any year to retain a portion of our earnings from our Non-Patronage Business, and to not allocate those earnings to the Exchange Value Per Share, the redemption price of Class A and Class B Shares that are repurchased in the year of such retention and in future years will not benefit from such earnings. Likewise, if the Board decides in any year to reverse prior allocations of earnings from our Non-Patronage Business and allocate such amounts to the Exchange Value Per Share, then the redemption price of Class A and Class B Shares that are repurchased in the year of such reversal and in future years will be increased. See Part II, Item 5, “Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities” for additional information on the calculation of the Exchange Value Per Share. Our Class C and Class E Shares are exchanged with our directors and Members, respectively, at a fixed stated value. See “—Classes of Shares—Class C Shares” and “—Classes of Shares—Class E Shares.”

The Board each year may increase or decrease the amount of non-allocated retained earnings that is excluded from the Exchange Value Per Share. The Board set aside non-allocated retained earnings for fiscal 2010, in the amount of $3.7 million, increased the amount to $6.9 million for fiscal 2011 and held the amount constant at $6.9 million for fiscal 2012, 2013, 2014, 2015 and 2016. As a result, the Exchange Value Per Share was approximately $14, $14, $15, $16 and $16 lower for fiscal 2012, 2013, 2014, 2015 and 2016, respectively, than it would have been had the non-allocated retained earnings been allocated to our share price.

Based on the foregoing information, gross billings decreased 6.8% for the year ended October 1, 2016 compared to the year ended October 3, 2015, while net sales decreased 6.6% for the same periods.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations concerning matters that (a) are not historical facts, (b) predict or forecast future events or results, or (c) embody assumptions that may prove to have been inaccurate. These forward-looking statements involve risks, uncertainties and assumptions. When we use words such as “believe,” “expect,” “anticipate” or similar expressions, we are making forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give readers any assurance that such expectations will prove correct. The actual results may differ materially from those anticipated in the forward-looking statements as a result of numerous factors, many of which are beyond our control. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors discussed in the sections entitled Item 1A, “Risk Factors” and “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements attributable to us are expressly qualified in their entirety by the factors that may cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date hereof. We undertake no duty or obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in Item 1A of this document as well as in other documents we file from time to time with the SEC for an understanding of the negative variables that can affect our business and results of operations.

As discussed in Note 2 to our audited consolidated financial statements, which accompany the financial statements in Item 8 of this report, as a result of the Audit Committee Investigation, management concluded that errors related to the accounting for insurance reserves existed in the historical financial statements. Management determined that the quantitative effect and qualitative nature of the errors did not require restatement and re-issuance of previously issued financial statements.

Unified, a California corporation organized in 1922 and incorporated in 1925, is a retailer-owned, grocery wholesale cooperative serving supermarket, specialty, restaurant supply and convenience store operators primarily located in the western United States and the Pacific Rim. Our customers include our Members and Non-Members and range in size from single store operators to regional supermarket chains.

We sell a wide variety of products typically found in supermarkets, as well as a variety of specialty products. We also provide support services to our customers, including financing, merchandising, retail pricing, advertising, promotional planning, retail technology, equipment purchasing and real estate services. Support services constitute less than 1% of total net sales. We report all product sales and support services (other than financing) under Wholesale Distribution. Finance activities are reported as All Other. The availability of specific products and services may vary by geographic region. We have three separate geographical and marketing regions: Southern California, Northern California and the Pacific Northwest.

Audit Committee Investigation. In September 2014, the Audit Committee of the Company’s Board of Directors announced that it was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by our former insurance subsidiaries and related matters (the “Audit Committee Investigation”). On or about November 2015, the Audit Committee Investigation concluded. We incurred approximately $2.8 million and $5.5 million in expenses through the fiscal years ended October 1, 2016 and October 3, 2015, respectively, in connection with the Audit Committee Investigation. Approximately $0.1 million and $0.7 million of these expenses through the fiscal years October 1, 2016 and October 3, 2015, respectively, were included in our loss on sale of our discontinued operations as further discussed below. For additional information on the Audit Committee Investigation, see Part I, Item 1, “Business –Audit Committee Investigation” and Note 2, “Audit Committee Investigation,” of “Notes to Consolidated Financial Statements” in Part II, Item 8 “Financial Statements and Supplementary Data” and Part II, Item 9A, “Controls and Procedures.”

Raley’s Supermarkets (“Raley’s”). In February 2015, we entered into an agreement with Raley’s under which we subleased its existing Stockton, California facility for five years. We currently operate that facility to distribute general merchandise and health and beauty products to Raley’s under a five-year supply agreement. This facility also services our other customers, and has created the opportunity for Unified to consolidate and distribute all general merchandise and health and beauty care products from a single location.

Sale of Insurance Segment. In July 2014, our management and Board made a strategic determination to focus the Company’s efforts on our core grocery business operations in order to better serve Unified’s Members and customers. In conjunction with this decision, our management and Board determined that our insurance operations represented a significant non-core portion of our business, and on October 7, 2015 (the “Closing Date”), we completed the sale, at a discount to Tangible Book Value (“TBV”) (as defined in the Stock Purchase Agreement discussed below), of all of the outstanding shares of our wholly owned subsidiary, Unified Grocers Insurance Services (“UGIS”), to AmTrust Financial Services, Inc. (“AmTrust”) pursuant to the terms of a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and between the Company and AmTrust dated as of April 16, 2015. At the Closing Date, UGIS owned all of the outstanding shares of the capital stock of Springfield Insurance Company and Springfield Insurance Company Limited (Bermuda). We refer to UGIS, Springfield Insurance Company and Springfield Insurance Company Limited (Bermuda) collectively as the “Acquired Companies.”

We received $26.2 million in cash proceeds for the Acquired Companies, representing an agreed-upon discount to the estimated TBV, which was calculated as defined in the Stock Purchase Agreement. We utilized the net proceeds of this transaction to repay certain indebtedness. In May 2016, AmTrust delivered to us a final closing statement, including its calculation of the TBV as of the Closing Date. The final purchase price was adjusted to reflect an increase in the purchase price of $0.4 million between the estimated TBV as of the Closing Date and the actual TBV as of the Closing Date. For the year ending October 1, 2016 we had net earnings of $0.3 million attributable to our discontinued operations.

We incurred a net loss of $6.9 million in conjunction with the sale of the Acquired Companies at the Closing Date, including a net operating loss from discontinued operations of $3.7 million and a $1.3 million impairment on our investment in the Acquired Companies, in addition to $1.9 million of charges related to the sale, primarily comprised of costs incurred by us directly attributable to the Audit Committee Investigation and to the preparation and consummation of the sale of the Acquired Companies to AmTrust. Our historical financial statements have been revised to present the operating results of the Acquired Companies as discontinued operations. See Note 3, “Assets Held For Sale/Discontinued Operations” in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. Our estimated net loss on sale resulted in a reduction of approximately $16 per share to our Exchange Value Per Share. See Part II, Item 5, “Market For Registrant’s

Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities” and Part II, Item 6, “Selected Financial Data” for additional information on the calculation of the Exchange Value Per Share.

Dairy Divisions. In July 2016, we ceased operating our Southern California Dairy Division manufacturing facility, but will continue offering fluid milk and other products, including our private label brands, to our Members and customers through a vendor direct arrangement with Dean Foods Company. Coincident with this change, we will no longer pay patronage dividends on products supplied by Dean Foods Company. In conjunction with the changes to the Southern California Dairy Division, the Pacific Northwest Dairy Division will no longer pay patronage dividends on sales of dairy products after May 2016.

Addition of New Supplier for Private Label Products. As discussed in “Business – Products – Corporate Brands,” we currently sell products under national brand equivalent and value-oriented corporate brands. In February 2016, we joined Topco as a member. Topco is a privately held company that provides procurement, quality assurance, packaging and other services exclusively for its member-owners, which include supermarket retailers, food wholesalers and foodservice companies. In June 2016, Western Family Foods Inc. (“Western Family”) reached an agreement with Topco authorizing Topco to source Western Family’s private label brands, including the Western Family and Natural Directions brands that are sold through us. Western Family announced that the transition of procurement and marketing to Topco will take several months, with all orders and invoices continuing through Western Family until that time. When the transition of the products is complete, Western Family’s headquarters in Oregon will close and Western Family will lay off the majority of its workforce. Commencing in the fourth quarter of fiscal 2016, we began transitioning to Topco as our primary supplier for our Springfield national brand equivalent and our value-oriented Special Value products. In addition, Topco will serve as our sole-source supplier for general merchandise and health and beauty care products under its TopCare label.

Impact of Economic and Competitive Environment. We were impacted by the weak economic environment that continues to persist in some of our operating markets during fiscal 2016, conditions which have caused consumers to be highly price sensitive and seek lower-cost alternatives in their grocery purchases. These conditions have improved slowly in some of our operating markets; however, in other of our operating markets, these conditions have substantially improved and consumers, while continuing to seek value in their purchases, have increasingly opted for higher priced, higher quality products. The significant industry growth in sales of natural and organic products is an example of this trend. One trend that appears to be continuing in all market areas is the willingness of consumers to shop at multiple stores of various formats, for greater selection and value, rather than obtaining all of their grocery needs from one full-service store. This trend has continued to benefit the various specialty, discount and other alternative format stores. We typically experience price volatility associated with the costs of certain commodities, ingredients used in our manufactured products, and packaged goods purchased from suppliers. It is difficult to predict the effect that possible future purchased or manufactured product cost decreases might have on our profitability. The effect of deflation in purchased or manufactured product costs would depend on the extent to which we had to lower selling prices of our products to respond to sales price competition in the market. For example, in the current fiscal year, the deflation we have experienced in meat product cost has negatively impacted our sales; however, our margins were not similarly impacted. See Part I, Item 1, “Business – Industry Overview and the Company’s Operating Environment – Economic Factors,” for additional discussion of how we are impacted by changes in overall economic conditions. We were also impacted by the continued highly competitive nature of the grocery industry, including the typically high volume and low profit margins and trends towards both vertical and horizontal integration, an increasing number of competitive format grocery stores that are adding square footage devoted to food and non-food products (including warehouse club stores, supercenters, discount stores and other alternate format stores) and mergers and acquisitions among competing organizations. See Part I, Item 1, “Business – Industry Overview and the Company’s Operating Environment – Competition,” for a discussion of the highly competitive nature of the grocery industry.

Overview. The following table sets forth our selected consolidated financial data expressed as a percentage of net sales for the periods indicated below and the percentage dollar increase (decrease) of such items from period to period:

Fiscal 2016 Compared to Fiscal 2015. The following summarizes our results of operations for fiscal year 2016:

Fiscal 2015 Compared to Fiscal 2014. The following summarizes our results of operations for fiscal year 2015:

Fiscal Year Ended October 1, 2016 (“2016 Period”) Compared to Fiscal Year Ended October 3, 2015 (“2015 Period”)

The following tables summarize the performance of each business segment for the 2016 and 2015 Periods.

Net sales. Consolidated net sales decreased $266.2 million, or 6.6%, to $3.761 billion in the 2016 Period compared to $4.028 billion for the 2015 Period. Factors impacting net sales are as follows:

Our customer base continues to be impacted by consumers who are highly price sensitive, seek lower-cost alternatives in their grocery purchases and have shown a willingness to shop at multiple stores for grocery products, including discounters and other non-traditional format stores. This trend continues to have an adverse impact on gross billings as well as pressuring profit margins. Sales decreased primarily due to the loss of business from Haggen’s Pacific Southwest stores (effective November 21, 2015). We were also impacted by lower meat sales prices due to declines in the related commodity cost that were passed along to our customers and by store closures of existing customers. These decreases were partially offset through the growth in sales to continuing customers, primarily due to the new agreement with Raley’s (see “Recent Developments – Raley’s”) and the addition of new customers.

Cost of sales. Consolidated cost of sales decreased $263.4 million to $3.481 billion for the 2016 Period compared to $3.744 billion for the 2015 Period and comprised 92.5% and 93.0% of consolidated net sales for the 2016 and 2015 Periods, respectively. Factors impacting cost of sales were as follows:

Distribution, selling and administrative expenses. Consolidated distribution, selling and administrative expenses decreased $9.9 million to $271.6 million for the 2016 Period compared to $281.5 million for the 2015 Period and comprised 7.2% and 7.0% of consolidated net sales for the 2016 and 2015 Periods, respectively. Factors impacting distribution, selling and administrative expenses were as follows:

Interest. Interest expense increased $0.2 million to $10.2 million in the 2016 Period compared to $10.0 million in the 2015 Period and comprised 0.3% and 0.2% of consolidated net sales for the 2016 and 2015 Periods, respectively. Factors contributing to the increase in interest expense are as follows:

Borrowings under Unified’s credit agreement are subject to market rate fluctuations. A 25 basis point change in the market rate of interest over the 2016 Period would have resulted in a $0.5 million increase or decrease in corresponding interest expense.

Loss on early extinguishment of debt. As discussed in “Credit Facilities” and “Outstanding Debt and Other Financing Arrangements,” for the year ended October 3, 2015, we incurred a Make-Whole Amount of $3.0 million in conjunction with the prepayment of $48.5 million of our senior secured notes pursuant to our Amended and Restated Note Purchase Agreement dated as of January 3, 2006, as amended, with the then-current noteholders and John Hancock Life Insurance Company (U.S.A.), acting in its capacity as collateral agent for the then-current noteholders. As a result of the prepayment of the senior secured notes, we recorded a loss on early debt extinguishment of $3.2 million during the first quarter of fiscal year 2015. This amount is comprised of the $3.0 million Make-Whole Amount plus the write-off of unamortized fees associated with the prepayment of the senior secured notes of $0.2 million.

Patronage dividends. Patronage dividends for the 2016 Period were $6.5 million, compared to $7.2 million in the 2015 Period, a decrease of 10.0%. Patronage dividends for the 2016 and 2015 Periods consisted of patronage earnings from the Southern California Dairy Division and the Pacific Northwest Dairy Division. For the 2016 and 2015 Periods, respectively, we had patronage earnings of $6.0 million and $6.4 million in the Southern California Dairy Division, $0.5 million and $0.8 million in the Pacific Northwest Dairy Division, and a $9.9 million loss for the 2016 Period compared to a $14.8 million loss for the 2015 Period in the Cooperative Division. The loss in the Cooperative Division decreased in the 2016 Period primarily due to the increase in margins in our perishable product lines and the decrease in operating expenses. Patronage dividends in our Dairy Divisions decreased in the 2016 Period compared to the 2015 Period. As discussed in “Recent Developments,” commencing in July 2016, we ceased operating our Southern California Dairy Division manufacturing facility but continue offering fluid milk and other products, including our private label brands, to our Members and customers through a vendor direct arrangement with Dean Foods Company. Coincident with this change, we no longer pay patronage dividends on sales of products from both the Southern California Dairy Division and Pacific Northwest Dairy Division.

Income taxes. Income taxes reflected a combined $0.2 million provision for the 2016 Period compared to a $4.0 million benefit for the 2015 Period. Our effective income tax rate was (3.2)% for the 2016 Period compared to 21.2% for the 2015 Period. The negative rate for the 2016 Period and the lower than statutory rate for the 2015 Period were due to the recording of valuation allowances which reduced the overall deferred tax assets. The Company recorded valuation allowances to reduce its deferred tax assets to a level that can be sustained by future carryback claims and tax planning.

Other Comprehensive (Loss) Earnings, Net of Income Taxes (“OCI”). Our OCI net loss was $31.4 million in the 2016 Period compared to a net loss of $38.2 million in the 2015 Period (see Note 19 to “Notes to Consolidated Financial Statements” in Part II, Item 8, “Financial Statements and Supplementary Data”). OCI is excluded from the calculation of Exchange Value Per Share (see Note 12 to “Notes to Consolidated Financial Statements” in Part II, Item 8, “Financial Statements and Supplementary Data”).

Fiscal Year Ended October 3, 2015 (“2015 Period”) Compared to Fiscal Year Ended September 27, 2014 (“2014 Period”)

The following tables summarize the performance of each business segment for the 2015 and 2014 Periods.

Net sales. Consolidated net sales increased $274.1 million, or 7.3%, to $4.028 billion in the 2015 Period compared to $3.754 billion for the 2014 Period. Factors impacting net sales are as follows:

We increased gross billings through the addition of new customers and higher sales to continuing customers (including the new Haggen store conversions and Raley’s business), due in part to commodity price inflation in perishables during the first half of our fiscal year, and the additional week of sales in the 2015 Period compared to the 2014 Period, which were partially offset by the loss of sales due to store closures of existing customers. Our customer base continues to be impacted by consumers who are highly price sensitive, seek lower-cost alternatives in their grocery purchases, and have shown a willingness to shop at multiple stores for grocery products, including discounters and other non-traditional format stores. This trend continues to have an adverse impact on gross billings as well as pressuring profit margins.

Cost of sales. Consolidated cost of sales increased $277.4 million to $3.744 billion for the 2015 Period compared to $3.467 billion for the 2014 Period and comprised 93.0% and 92.4% of consolidated net sales for the 2015 and 2014 Periods, respectively. Factors impacting cost of sales were as follows:

Distribution, selling and administrative expenses. Consolidated distribution, selling and administrative expenses increased $16.5 million to $281.5 million for the 2015 Period compared to $265.0 million for the 2014 Period and comprised 7.0% of consolidated net sales for each of the 2015 and 2014 Periods. Factors impacting distribution, selling and administrative expenses were as follows:

Interest. Interest expense decreased $1.2 million to $10.0 million in the 2015 Period compared to $11.2 million in the 2014 Period and comprised 0.2% and 0.3% of consolidated net sales for the 2015 and 2014 Periods, respectively. Factors contributing to the decrease in interest expense are as follows:

Borrowings under Unified’s credit agreement are subject to market rate fluctuations. A 25 basis point change in the market rate of interest over the 2015 Period would have resulted in a $0.7 million increase or decrease in corresponding interest expense.

Patronage dividends. Patronage dividends for the 2015 Period were $7.2 million, compared to $9.4 million in the 2014 Period, a decrease of 23.4%. Patronage dividends for the 2015 and 2014 Periods consisted of patronage earnings from the Southern California Dairy Division and the Pacific Northwest Dairy Division. For the 2015 and 2014 Periods, respectively, we had patronage earnings of $6.4 million and $8.5 million in the Southern California Dairy Division, $0.8 million and $0.9 million in the Pacific Northwest Dairy Division, and a $14.8 million loss for the 2015 Period compared to a $4.7 million loss for the 2014 Period in the Cooperative Division. The loss in the Cooperative Division increased in the 2015 Period due to reduced margins in both the perishable and non-perishable product lines as we continued to experience a shift in sales mix towards sales to large customers that tend to have reduced margins resulting from their higher purchase volume. In addition, we incurred higher operating expenses to accommodate the additional business from Haggen and Raley’s (including additional costs in our fourth quarter to adjust our facilities and personnel as Haggen began to exit the acquired stores), as well as additional expenses associated with the Audit Committee Investigation and non-recurring expenses in the 2015 Period related to early debt extinguishment.

Income taxes. Income taxes reflected a combined $4.0 million benefit for the 2015 Period compared to a $1.5 million provision for the 2014 Period. Our effective income tax rate was 21.2% for the 2015 Period compared to 139.2% for the 2014 Period. The lower than statutory rate for the 2015 Period was due to the recording of a valuation allowance which reduced the overall deferred tax assets and partially offset the tax benefit for the 2015 Period. The higher than statutory rate for the 2014 period was due to recording a valuation allowance to reduce state credits and the overall deferred tax assets which increased the provision for the 2014 Period. The Company recorded valuation allowances to reduce its deferred tax assets to a level that can be sustained by future carryback claims and tax planning.

Other Comprehensive (Loss) Earnings, Net of Income Taxes (“OCI”). Our OCI net loss was $38.2 million in the 2015 Period compared to a net loss of $21.8 million in the 2014 Period (see Note 19 to “Notes to Consolidated Financial Statements” in Part II, Item 8, “Financial Statements and Supplementary Data”). OCI is excluded from the calculation of Exchange Value Per Share (see Note 12 to “Notes to Consolidated Financial Statements” in Part II, Item 8, “Financial Statements and Supplementary Data”).

In July 2014, our management and Board made a strategic determination to focus the Company’s efforts on our core grocery business operations in order to better serve Unified’s Members and customers. In conjunction with this decision, our management and Board determined that our insurance operations represented a significant non-core portion of our business, and accordingly began discussions with a previously unsolicited potential buyer to sell our Insurance segment. Subsequently, we completed the sale of our insurance operations on October 7, 2015. See Note 3, “Assets Held For Sale/Discontinued Operations” in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information.

Fiscal Year Ended October 3, 2015 (“2015 Period”) Compared to Fiscal Year Ended September 27, 2014 (“2014 Period”)

Net sales. Net sales, consisting principally of premium revenues and investment income, decreased $5.0 million to $12.2 million in the 2015 Period compared to $17.2 million in the 2014 Period. The decrease is primarily due to a decrease in workers’ compensation premium revenue, resulting from a decline in workers’ compensation policies written partially offset by an increase in renewal premiums. The decrease in premium revenue was partially offset by an increase in investment income.

Cost of sales (including underwriting expenses). Cost of sales primarily consists of claims loss and loss adjustment expenses, underwriting expenses, commissions, premium taxes and regulatory fees. Cost of sales decreased $9.0 million to $9.1 million in the 2015 Period compared to $18.1 million in the 2014 Period. This reduction is primarily due to $8.3 million of loss reserve adjustments in the 2014 Period that did not recur in the 2015 Period. These adjustments occurred due to a combination of adverse development and case reserving practices and related accounting within the former insurance subsidiaries that deviated from the established policy of setting case reserves at the best estimate of ultimate cost. Historically, the cost of insurance and the adequacy of loss reserves have been impacted by actuarial estimates based on a detailed analysis of health care cost trends, claims history, demographics and industry trends. See Explanatory Note in Part I, Item 1, “Business” for further discussion regarding the setting of case reserves and management of claims by our former insurance subsidiaries and related matters pertaining to the Audit Committee Investigation. See Note 2, “Audit Committee Investigation,” in Item 8, “Financial Statements and Supplementary Data,” for discussion of the impact of case reserving practices that led to errors in the historical financial statements.

Distribution, selling and administrative expenses. Selling and administrative expenses for the Insurance segment decreased $0.2 million to $6.6 million for the 2015 Period compared to $6.8 million for the 2014 Period.

We finance our capital needs through a combination of internal and external sources. These sources include cash from operations, Member capital and other Member investments, bank borrowings, various types of long-term debt and lease financing.

The acquisition, holding and redemption of our shares and making of deposits, including Required Deposits, by our Members, and our policies with respect to such matters, can significantly affect our liquidity and capital resources. Our Bylaws, which may be changed by the Board at its discretion, currently require that each Member own 350 Class A Shares. In addition, we currently require each Member to own such amount of Class B Shares as may be established by the Board. This requirement to own Class B Shares is referred to as the “Class B Share Requirement.” Members who do not satisfy the Class B Share Requirement solely from their holdings of Class B Shares are generally required to make a subordinated deposit (a “Required Deposit”) with us. Member and Non-Member customers may be required to provide us a Credit Deposit in order to purchase products on credit terms established by us. “Credit Deposit” means any non-subordinated deposit that is required to be maintained by a Member or Non-Member customer in accordance with levels established by our credit office from time to time in excess of the amount of the Required Deposit set by the Board. We do not pay interest on Required Deposits or Credit Deposits; however, interest is paid at the prime rate for cash deposits in excess of a Member’s Required Deposit (an “Excess Deposit”). See Part I, Item 1, “Business – Capital Shares,” Part I, Item 1, “Business – Customer Deposits” and Part I, Item 1, “Business – Pledge of Shares and Guarantees” for additional information.

At October 1, 2016, we had $1.2 million of tendered Class A Shares and $29.8 million of tendered Class B Shares pending redemption, whose redemption is subject to approval by the Board, and in the case of Class B Shares, subject to the 5% limitation on redemptions contained in our redemption policy (see Part I, Item 1, “Business – Capital Shares – Redemption of Class A and Class B Shares and Repurchase of Class E Shares – Redemption Policy” for further information).

Our obligations to repay a Member’s Required Deposit on termination of Member status (once the Member’s obligations to us have been satisfied) is reported as a long-term liability within “Members’ and Non-Members’ deposits” on our consolidated balance sheets. Excess Deposits are payable on demand and are not subordinated to our other obligations and are reported as short-term liabilities within “Members’ deposits and declared patronage dividends” on our consolidated balance sheets. At October 1, 2016 and October 3, 2015, we had $8.8 million and $8.0 million, respectively, in “Members’ and Non-Members’ deposits” and $8.9 million and $10.2 million, respectively, in “Members’ deposits and declared patronage dividends” (of which $8.9 million and $8.3 million, respectively, represented Excess Deposits). See Part I, Item 1, “Business – Capital Shares,” Part I, Item 1, “Business – Patronage Dividends,” Part I, Item 1, “Business – Customer Deposits,” and Note 19 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

We believe that the combination of cash flows from operations, current cash balances, and available lines of credit, will be sufficient to service our debt, redeem or repurchase Members’ capital shares in accordance with our program as discussed in Part I, Item 1, “Business – Capital Shares – Redemption of Class A and Class B Shares and Repurchase of Class E Shares – Redemption Policy,” make income tax payments and meet our anticipated needs for working capital and capital expenditures through at least the next two fiscal years.

We generated positive cash flow from operating and investing activities during the 2016 Period. Cash flows from operating and investing activities were used to partially offset cash utilized for financing activities. We also reinvested proceeds from the sale of our discontinued operations to pay down debt and accounts payable.

Our discontinued operations provided cash of $0.3 million in the 2016 Period compared to cash utilized of $3.2 million in the 2015 Period. Cash provided in the 2016 Period resulted from the final sales price adjustment related to the sale of our former insurance subsidiaries, partially offset by expenses incurred relative to the sale of the former insurance subsidiaries. In the 2015 Period, discontinued operations utilized cash for expenses related to the sale of the former insurance subsidiaries and for the reduction of the Company’s investment in the former insurance subsidiaries.

As a result of these activities, net cash, consisting of cash and cash equivalents, increased by $0.3 million to $3.4 million as of October 1, 2016, compared to $3.1 million as of October 3, 2015.

The following table summarizes the impact of operating, investing and financing activities on our cash flows for the 2016 and 2015 Periods related to our continuing operations:

Net cash from operating, investing and financing activities decreased by $1.5 million to an increase of $0.3 million for the 2016 Period compared to an increase of $1.8 million for the 2015 Period. The increase in net cash for the 2016 Period consisted of improvements in cash provided from operating activities of $19.5 million and investing activities of $16.1 million, offset by increases in cash utilized by financing activities of $35.3 million. The primary factors contributing to the changes in cash flow are discussed below. Working capital was $135.7 million and $139.5 million at October 1, 2016 and October 3, 2015, respectively, and the current ratio was 1.4 at both October 1, 2016 and October 3, 2015.

Operating Activities: Net cash provided by operating activities increased by $21.6 million to $19.4 million provided in the 2016 Period compared to $2.2 million utilized in the 2015 Period. The increase in cash provided by operating activities compared to the 2015 Period was attributable primarily to (1) an increase in net cash flows related to decreased inventories of $50.3 million (we had increased inventory in the prior year due primarily to the Haggen Pacific Southwest business), (2) an increase between the periods in cash received from collection of accounts receivable of $23.1 million, (3) an increase in net earnings between the periods of $6.7 million, (4) an increase in deferred taxes of $3.8 million, (5) a decrease between the periods related to long-term liabilities of $6.0 million and (6) an increase between the periods related to prepaid expenses of $4.0 million. Additionally, we incurred a loss on the sale of our insurance subsidiaries in the 2015 Period compared to a gain during the 2016 Period, resulting in an increase of $3.5 million. The foregoing increases of $97.4 million in cash provided were partially offset by (1) a decrease in adjustments between the periods to reconcile net (loss) earnings to net cash provided by operating activities of $2.8 million related to depreciation, provision of allowance for doubtful accounts, impairment of fixed assets related to the closure of the Southern California Dairy manufacturing facility, loss on equity method investment and loss on sale of properties and equipment, (2) an increase between the periods in net cash flows used to pay accounts payable and accrued liabilities of $69.8 million, and (3) an adjustment in the 2015 Period to reconcile net (loss) earnings to net cash provided by operating activities of $3.2 million related to the loss on early extinguishment of debt.

Investing Activities: Net cash provided by investing activities increased by $40.2 million to $16.2 million provided for the 2016 Period compared to cash utilized of $24.0 million in the 2015 Period. The increase in cash provided by investing activities during the 2016 Period as compared to the 2015 Period was due mainly to (1) proceeds of $26.2 million received from the sale of our discontinued insurance operations, (2) a decrease in cash utilized to purchase other investments of $10.0 million in the 2015 Period related to one of our former insurance subsidiaries, (3) a reduction in capital expenditures

of $3.3 million and (4) an increase in notes receivable activities between the periods of $1.5 million, reflecting normal fluctuation in loan activity to Members for their inventory and equipment financing. The foregoing increases in cash provided of $41.0 million were partially offset by (1) a decrease in other assets of $0.6 million and (2) a decrease of $0.2 million in our investment in Western Family Holding Company due to a return of invested capital in the 2015 Period. Spending on investing activities is expected to be funded by existing cash balances, cash generated from operations or additional borrowings.

Financing Activities: Net cash utilized by financing activities was $35.3 million for the 2016 Period compared to $28.0 million provided in the 2015 Period. The net decrease of $63.3 million in cash provided by financing activities for the 2016 Period as compared to the 2015 Period was due to a decrease in cash provided of $63.6 million related to increased notes payable repayments, lower revolver and term loan borrowings, and lower borrowings under the “first-in last-out” tranche in our credit agreement. The decreased cash provided by borrowing activities was partially offset by lower payments of deferred financing fees and payments of debt extinguishment costs in the 2016 Period compared to the 2015 Period of $4.9 million. See “Outstanding Debt and Other Financing Arrangements” for further discussion regarding our credit facilities and financing arrangements. Additionally, net cash provided by Member investment and share activity decreased $4.6 million due to higher Class E Share redemption activity in the 2016 Period compared to reduced share activity in the 2015 Period. Financing to meet capital spending requirements is expected to be provided by our continuing operating cash flow or additional borrowings.

In fiscal 2003, we introduced a new class of capital share, denominated “Class E Shares,” as part of an equity enhancement initiative designed to build equity in the Company for future investment in the business and other infrastructure improvements. This initiative contemplated issuing Class E Shares as part of the patronage dividends issued in fiscal years 2003 through 2009 for the Cooperative Division. Class E Shares are available to be issued in future years at the discretion of the Board.

At the end of fiscal 2015, 2014 and 2013, Class E Shares issued as a portion of fiscal 2005, 2004 and 2003 patronage dividends became eligible for repurchase in fiscal 2016, 2015 and 2014, respectively. During fiscal 2016 and 2015, respectively, we repurchased 91,013 and 2,809 Class E Shares at a price of $9.1 million and $0.3 million. In accordance with the Board’s continuing repurchase authorization, 20,970 Class E Shares with an aggregate repurchase price of $2.1 million remain eligible for repurchase. See Note 12, “Capital Shares,” of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

We are party to an Amended and Restated Credit Agreement dated as of June 28, 2013, as amended by the First Amendment and Consent dated as of June 27, 2014 and as further amended by the Second Amendment, Consent and Lender Joinder dated as of December 18, 2014, the Consent dated as of June 26, 2015 and the Consent dated as of December 28, 2015 (as so amended, the “Credit Agreement”), among the Company, Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent (“Administrative Agent”), and the lenders party thereto. The Credit Agreement originally provided for a revolving credit facility with total commitments in the principal amount of $275 million and a term loan in the amount of $40.9 million. Certain capitalized terms used in this description of the Credit Agreement have the meanings given to them in the Credit Agreement.

On June 27, 2014, we entered into a First Amendment and Consent (the “First Amendment”) with Wells Fargo, as Administrative Agent, and the lenders party thereto, modifying the Credit Agreement. The First Amendment provided for a modification of the excess availability calculations under the Credit Agreement to accommodate normal seasonal working capital needs in the period from June 27, 2014 to January 15, 2015. The First Amendment did not change the $275 million maximum amount that could have been borrowed under the Credit Agreement, but did provide additional flexibility under certain provisions of the Credit Agreement and increased the aggregate amount of permitted credit facilities of our finance and former insurance subsidiaries from $25 million to $30 million. The Amendment, except as expressly stated, did not modify the Credit Agreement and other loan documents, which remained unmodified and in full force and effect.

On December 18, 2014, we entered into a Second Amendment, Consent and Lender Joinder (the “Second Amendment”) among the Company (excluding our wholly-owned finance subsidiary and our former insurance subsidiaries), Wells Fargo, as Administrative Agent, and the lenders party thereto. The Second Amendment amended the existing Credit Agreement.

Amendment from $275 million) (as such amount may be increased by any increases in the Revolving Loan Commitments and decreased by any reductions in the Revolving Loan Commitments, in each case pursuant to the Credit Agreement) (the “Maximum Revolver Amount”) and a term loan in the amount of $100 million (increased by the Second Amendment from $40.9 million) (the “Term Loan”). Borrowings under the Revolver may be made as revolving loans, swing line loans or letters of credit.

The aggregate Revolving Loan Commitments under the Credit Agreement may be increased from time to time, either through any of the existing lenders increasing its commitment or by means of the addition of new lenders, up to a maximum commitment of $450 million (increased by the Second Amendment from $400 million). While the consent of the lenders as a group is not required to any such increase, no lender is required to increase its own Revolving Loan Commitment.

The Second Amendment added a “first-in last-out” tranche (the “FILO Facility”) to the Revolver, with all other revolving loans constituting the “Tranche A Facility.” The maximum amount of the FILO Facility (the “FILO Maximum Revolver Amount”) is $21.4 million, reduced by $0.6 million per month from the first anniversary of the Second Amendment to the second anniversary of the Second Amendment, reduced by $1.2 million per month from the second anniversary of the Second Amendment to the third anniversary of the Second Amendment, and reduced to zero on the third anniversary of the Second Amendment. The maximum amount of the Tranche A Facility (the “Tranche A Maximum Revolver Amount”) is the Maximum Revolver Amount (as defined above) minus the FILO Maximum Revolver Amount.

The Credit Agreement matures June 28, 2018. The purpose of the Revolver is to finance working capital and other general corporate needs, which may include capital expenditures and Permitted Acquisitions (as defined in the Credit Agreement). The purpose of the Term Loan was for prepayment of the entire remaining balance of our senior secured notes pursuant to our Amended and Restated Note Purchase Agreement dated as of January 3, 2006, as amended (the “Senior Note Agreement”), with the then-current noteholders and John Hancock Life Insurance Company (U.S.A.) (“John Hancock”), acting in its capacity as collateral agent for the then-current noteholders (the “Hancock Debt”), and for payment of fees and expenses related to the repayment of the Hancock Debt, and (to the extent of any proceeds of the Term Loan remaining after payment of the Hancock Debt) for the same purposes as the Revolver. The Term Loan is subject to prepayment, if any appraisal of the Term Loan Real Estate shows the outstanding balance of the Term Loan exceeds 60% of the appraised value of the Term Loan Real Estate, in the amount of such excess. The Second Amendment added to the Term Loan Real Estate certain real property of the Company that had secured the Hancock Debt. The principal of the Term Loan is to be repaid monthly beginning January 31, 2015, in an amount per month of $0.8 million (changed by the Second Amendment from an amount per month of $0.4 million, payment of which was due beginning July 31, 2013).

Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries, excluding our finance and former insurance subsidiaries, and are secured by grants of security interests in our accounts receivable, inventory, deposit accounts and certain related collateral (subject to exceptions) and the guarantor subsidiaries, and in the Term Loan Real Estate. The obligations are also senior to the rights of our Members with respect to Partially Subordinated Patrons’ Deposit Accounts and patronage dividend certificates, if any.

Borrowings under the Revolver may be made as revolving loans, swing line loans or letters of credit. The Revolver provides for loans up to the sum of (i) the lesser of (A) the Tranche A Maximum Revolver Amount less the sum of any outstanding letter of credit usage plus swing line loans plus reserves as may be established by the Administrative Agent and (B) the amount equal to the Tranche A Borrowing Base at such date (based upon the most recent Borrowing Base Certificate delivered by us to the Administrative Agent) less the sum of any outstanding letter of credit usage plus any outstanding swing line loans (“Tranche A Availability”), and (ii) the lesser of (A) the FILO Maximum Revolver Amount and (B) the amount equal to the FILO Borrowing Base as of such date (based upon the most recent Borrowing Base Certificate delivered by us to the Administrative Agent) (“FILO Availability”). The Tranche A Borrowing Base is calculated as 85% of all Eligible Accounts (primarily accounts receivable) less any Dilution Reserve, plus the lesser of (a) 70% of Eligible Inventory or (b) 90% of the Net Recovery Percentage of Eligible Inventory, less reserves, if any, established by the Administrative Agent. The FILO Borrowing Base is calculated as 5% of all Eligible Accounts, plus the lesser of (a) 5% of Eligible Inventory or (b) 5% of the Net Recovery Percentage of Eligible Inventory. All Revolving Loans at any time outstanding are allocated first to the FILO Revolving Loan Commitments up to the amount of FILO Availability, and then to the Tranche A Revolving Loan Commitments.

Loans will bear interest margins of between 0.50% per annum and 1.00% per annum, dependent upon our Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. Tranche A Revolving Loans that are Eurodollar Rate Loans will bear interest margins of between 1.50% per annum and 2.00% per annum, based upon our Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. FILO Revolving Loans that are Base Rate Loans will bear interest margins of between 1.75% per annum and 2.25% per annum, dependent upon our Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. FILO Revolving Loans that are Eurodollar Rate Loans will bear interest margins of between 2.75% per annum and 3.25% per annum, based upon our Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. Amounts of the Term Loan that are Base Rate Loans will bear an interest margin of 1.00% per annum; amounts of the Term Loan that are Eurodollar Loans will bear an interest margin of 2.00% per annum. Swing line loans will bear interest at the Base Rate plus the interest margin for Tranche A Revolving Loans, or at such other rate as the Swing Line Lender offers in its discretion. Amounts available under Letters of Credit bear fees of 0.125% per annum plus the applicable Eurodollar Rate Margin for Tranche A Revolving Loans. If the Consolidated Fixed Charge Coverage Ratio for any period is less than 1.00 to 1.00, then the Base Rate Margin and the Eurodollar Rate Margin shall automatically increase by 0.50%. Undrawn portions of the commitments under the Credit Agreement bear commitment fees at a rate of either 0.25% per annum or 0.375% per annum, also dependent upon our Average Excess Availability. We may reduce the Revolving Loan Commitments at any time on five Business Days’ written notice, but not below the Total Utilization of Revolving Commitments, in a minimum amount of $2,500,000 and multiples of $100,000 in excess of that amount. We may reduce the FILO Revolving Loan Commitments at any time on five Business Days’ written notice in any amount that will not result in an Overadvance, in a minimum amount of $2,500,000 and multiples of $100,000 in excess of that amount.

We are subject to a financial covenant during the occurrence of a Financial Covenant Period. A Financial Covenant Period (a) commences when (i) an Event of Default occurs, (ii) Excess Availability is less than the greater of (A) $47.1 million (increased by the Second Amendment from $35 million) and (B) 12.7272% of the Maximum Revolver amount for a period of five consecutive Business Days or (iii) Excess Availability is less than the greater of (A) $40.4 million (increased by the Second Amendment from $30 million) and (B) 10.9090% of the Maximum Revolver Amount at any time and (b) continues until a period of 30 consecutive Business Days has elapsed during which at all times (i) no Event of Default exists and (ii) Excess Availability is equal to or greater than the greater of (A) $47.1 million (increased by the Second Amendment from $35 million) and (B) 12.7272% of the Maximum Revolver Amount. During a Financial Covenant Period, we are obligated to maintain a Consolidated Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, measured as of the end of the most recent Fiscal Month for which financial statements have been delivered prior to the date on which a Financial Covenant Period first begins and as of each Fiscal Month end while the Financial Covenant Period is in effect.

The Credit Agreement imposes financial conditions on us redeeming any of our Class A Shares and Class B Shares and repurchasing Class E Shares and paying cash dividends on Class E Shares (other cash dividends being generally prohibited), and prohibits distributions to shareholders and any repurchase of shares when an Event of Default has occurred and is continuing. The Credit Agreement also places certain restrictions on the payment of patronage dividends should an Event of Default occur. Events of Default include, but are not limited to, the failure to pay amounts due to lenders, violation of covenants, the making of false representations and warranties and specified insolvency-related events, subject to specified thresholds, cure periods and/or exceptions.

We are subject to negative covenants limiting permitted indebtedness, contingent obligations, liens, investments, acquisitions, restricted payments and certain other matters.

On December 28, 2015, we entered into a consent and waiver (the “Consent”) in which the Administrative Agent and the Lenders consented to the extension to June 30, 2016 (previously December 31, 2015 pursuant to the consent and waiver dated June 26, 2015) of the deadline for delivery of the annual financial statements required pursuant to the Credit Agreement and certain certificates and information required by the Credit Agreement to be delivered with financial statements required pursuant to the Credit Agreement. The annual financial statement and associated required certifications were delivered to the Administrative Agent and the Lenders on June 1, 2016.

Our outstanding revolver borrowings under the Credit Agreement decreased to $137.6 million (Eurodollar and Base Rate Loans at a blended average rate of 3.05% per annum) at October 1, 2016 from $161.8 million (Eurodollar and Base Rate Loans at a blended average rate of 1.99% per annum) at October 3, 2015, with access to approximately $126.8 million of additional capital available under the Credit Agreement to fund our continuing operations and capital spending requirements for the foreseeable future. Our outstanding term loan borrowings under the Credit Agreement were $82.5 million at October 1, 2015 (Eurodollar and Base Rate Loans at a blended average rate of 2.52% per annum) and $92.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 2.20% per annum). Our outstanding FILO borrowings under the Credit Agreement were $15.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 4.29% per annum) and $20.7 million at October 3, 2015 (Eurodollar and Base Rate Loans at a blended average rate of 3.20% per annum). As of October 1, 2016, we are in compliance with all applicable covenants of the Credit Agreement. While we are currently in compliance with all required covenants and expect to remain in compliance, this does not guarantee that we will remain in compliance in future periods.

Our wholly-owned finance subsidiary, GCC, is party to an Amended and Restated Loan and Security Agreement, dated as of September 26, 2014 as amended by Amendment Number One dated as of June 26, 2015 and further amended by Amendment Number Two dated as of September 23, 2016 (as so amended, the “GCC Loan Agreement”), by and among GCC, the lenders party thereto, and ZB, N.A., dba California Bank & Trust (“CBT”), as Arranger and Administrative Agent. The GCC Loan Agreement amended and restated the existing loan agreement dated as of September 24, 2010, as amended or otherwise modified from time to time prior to September 26, 2014. The GCC Loan Agreement provides for a revolving credit facility with total commitments in the principal amount of $25.0 million. Borrowings under the GCC Loan Agreement may not exceed the amount equal to the Borrowing Base at such date (based upon the most recent Borrowing Base Certificate delivered by GCC to the Administrative Agent). The Borrowing Base is calculated as 80% of GCC’s eligible notes receivable (certain notes receivable restricted to 50%), less any reserves as may be established by the Administrative Agent. The GCC Loan Agreement matures on December 31, 2016. Certain capitalized terms used in this description of the GCC Loan Agreement have the meanings given to them in the GCC Loan Agreement. Borrowings under the GCC Loan Agreement are utilized to fund loans to our customers and for GCC’s general corporate purposes, including customary financing and operating activities.

GCC entered into Amendment Number One to Amended and Restated Loan and Security Agreement (the “GCC Amendment No. 1”), dated as of June 26, 2015, by and among GCC, the lenders party thereto, and CBT, as Arranger and Administrative Agent. The GCC Amendment No. 1 amends the GCC Loan Agreement to modify certain provisions relating to borrowing procedures and number of loan requests, as well as to permit CBT to fund as sole lender certain short term advances thereunder. See Item 1.01. “Entry into a Material Definitive Agreement – Grocers Capital Company Amended and Restated Loan and Security Agreement” and Item 2.03. “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant” of our Current Report on Form 8-K, filed on July 2, 2015, for additional information.

GCC entered into Amendment Number Two to Amended and Restated Loan and Security Agreement (the “GCC Amendment No. 2”), dated as of September 23, 2016, by and among GCC, the lenders party thereto, and CBT, as Arranger and Administrative Agent. The GCC Amendment No. 2 amends the GCC Loan Agreement to modify the maturity date of the agreement from September 30, 2016 to December 31, 2016. See Item 1.01. “Entry into a Material Definitive Agreement – Grocers Capital Company Amended and Restated Loan and Security Agreement” and Item 2.03. “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant” of our Current Report on Form 8-K, filed on September 28, 2016, for additional information.

On December 28, 2015, GCC received consent from CBT for the GCC Loan Agreement to extend the due date of the covenant requirement to deliver our consolidated audited financial statements, which was previously December 31, 2015, to June 30, 2016. See Item 1.01. “Entry into a Material Definitive Agreement – Amendment of Amended and Restated Credit Agreement” and “ – Grocers Capital Company Amended and Restated Loan and Security Agreement” of the Company’s Current Report on Form 8-K, filed on December 29, 2015, for additional information. The consolidated audited financial statements and associated certifications of the Company were delivered to CBT on June 1, 2016.

The GCC Loan Agreement provides for revolving loans. At the election of GCC, revolving loans shall bear interest at the LIBOR Rate or the Base Rate, plus an interest rate margin. The interest rate margin for LIBOR Rate loans is 3.00% per annum. The interest rate margin for Base Rate loans is 0.75% per annum. Undrawn portions of the commitments under the GCC Loan Agreement bear commitment fees at the rate of 0.25% per annum. GCC had revolving loan borrowings of $15.0 million and zero, bearing an interest rate of 4.00% (3.25% prime plus 0.75% interest rate margin), outstanding at October 1, 2016 and October 3, 2015, respectively.

GCC must maintain a minimum of $0.3 million in average, monthly, combined balances at CBT. In addition, GCC shall maintain at least $0.3 million in a blocked and restricted account at CBT, as cash collateral subject to the terms of the Pledge Agreement. Upon GCC’s conversion to an independent billing system, to the satisfaction of CBT, as evidenced by a written confirmation from CBT to GCC, such Cash Collateral Account shall be closed and the funds therein returned to GCC, and GCC shall no longer be obligated to maintain such Cash Collateral Account, and the Pledge Agreement shall terminate.

GCC is subject to negative covenants limiting permitted indebtedness, liens, investments, acquisitions, restricted payments and certain other matters. As of October 1, 2016, we are not in violation of any applicable covenants of the GCC Loan Agreement. While we are currently not in violation of any required covenants and expect to remain in compliance, this does not guarantee that we will remain in compliance in future periods.

Effective June 1, 2013, we implemented the Unified Grocers, Inc. Long-Term Incentive Plan (“LTIP”) to align, motivate and reward executives for their contributions to our long-term financial success and growth. This long-term plan, in conjunction with the short-term focus of our annual bonus plan, is designed to link long-term value creation for our member shareholders with our short-term annual performance.

The LTIP is offered to a select group of our officers, Vice-President and higher (the “Participants”), and participation may be further constrained or increased at the discretion of our Compensation Committee. Participants are awarded with a certain number of Units (defined below) on an annual basis (the “Award”); however, an Award in one year does not ensure that a Participant will receive an Award in subsequent years. Each Award participates in a four-year cycle (“Performance Cycle”), which is based on consecutive fiscal years of Unified, and the amount paid to a Participant, if any, is determined at the end of the Award’s Performance Cycle and is payable prior to December 31^st of the year in which the Performance Cycle ends. In fiscal 2015, 2014 and 2013, LTIP Awards were offered to certain officers of the position of Vice-President or higher. A Participant’s Award vests over the Performance Cycle based on the Participant’s continuous employment with us during the Award’s Performance Cycle.

There are two types of units that are granted as part of an Award: Appreciation Units and Full-Value Units (collectively, “Units”). Effective for fiscal 2016, the LTIP was amended to expand the Awards that may be granted thereunder to include Full-Value Units. A “Full-Value Unit” entitles the award recipient the “maturity value” on the units at the end of the Performance Cycle assigned to the units. The “maturity value” for a Full-Value Unit is our Exchange Value Per Share for a share of the Class A or Class B stock of the Company as calculated from our financial statements (see Part I, Item 1. “Business – Capital Shares” for additional information), plus cumulative cooperative division patronage dividends (see Part I, Item 1, “Business – Patronage Dividends” for additional discussion), cash dividends and non-allocated retained earnings attributable to such share Exchange Value Per Share, as calculated from our financial statements for the fiscal year end that coincides with the end of the Performance Cycle. An “Appreciation Unit” refers to a notional unit that grants Participants the contractual right to receive the positive difference, if any, between the Maturity Value of the unit on its Maturity Date and the Base Value (capitalized terms defined below) assigned to the unit at the beginning of the Performance Cycle. The Base Value is equal to the Exchange Value Per Share for the fiscal year ending immediately prior to the Performance Cycle. The Maturity Value is equal to the Exchange Value Per Share plus Cumulative Co-op Patronage Dividends (defined below), plus Cumulative Cash Dividends (the total of cash dividends paid, excluding patronage dividends, as reported in our fiscal year-end financial statements), plus Cumulative Non-allocated Retained Earnings (defined below), as calculated from our financial statements for the Performance Cycle assigned to the Appreciation Unit. The difference is then multiplied by the number of vested Appreciation Units awarded for the Performance Cycle that remain outstanding on the Maturity Date. Cumulative Co-op Patronage Dividends are the sum of the Cooperative Division’s patronage earnings divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle. Cumulative Co-op Patronage Dividends do not include Dairy Division patronage dividend amounts. The Cumulative Non-allocated Retained Earnings amount is the sum of the total increase or decrease in non-allocated retained earnings for a fiscal year divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle.

For additional information on the LTIP, please refer to the LTIP documents incorporated by reference in our Current Report on Form 8-K, filed on May 14, 2013. For additional information on the amendment to the LTIP that became effective for fiscal 2016, please see Item 5.02, “Compensatory Arrangements of Certain Officers – 2016 Long-Term Incentive Awards” in our Current Report on Form 8-K, filed on December 30, 2015, and Exhibit 99.4 thereto, “Long-Term Incentive Plan, as amended and restated effective October 4, 2015, dated as of December 28, 2015.”

Based on our calculations relative to the 2016, 2015, 2014 and 2013 Performance Cycles, we determined there was no LTIP compensation expense related to the Appreciation units for the Performance Cycles to be recorded in fiscal 2016.

The Company recorded $0.2 million of LTIP compensation expense related to the Full-Value Units for the 2016 Performance Cycle. Based on our calculations relative to the 2015, 2014 and 2013 Performance Cycles, we determined there was no LTIP compensation expense for the Performance Cycles to be recorded in fiscal 2015.

Our liquidity and capital resources have been or may be impacted by the following benefit plans we sponsor:

Our net periodic benefit plan expense (credit) for our combined defined benefit pension plans (excluding multiemployer defined benefit pension plans) and postretirement benefit plans was approximately $(2.5) million for fiscal 2016 compared to $(7.7) million for fiscal 2015. This additional reduction in our combined defined benefit pension and postretirement benefit plan expense was primarily a result of benefit plan amendments implemented in fiscal 2014 and 2013 as further discussed below. During fiscal 2013, we froze the ESPPIII, a defined benefit pension plan for our executive officers, and replaced it with the SERP, a defined contribution retirement plan as described below, and the LTIP (described above). In fiscal 2016 and 2015, we accrued $1.6 million and $1.2 million, respectively, related to the SERP and $0.2 million and no LTIP compensation expense for the 2016 and 2015 Performance Cycles, respectively. During fiscal 2013, we also curtailed benefits and froze participation under the RMP and froze participation in the ORMP.

In fiscal 2014, in conjunction with the implementation of a paid time-off (“PTO”) program for non-union employees that increased our benefit expenses by $1.8 million, we terminated one of our postretirement benefit plans, a non-union sick leave plan, resulting in a $1.4 million reduction in the associated long-term liability and a $1.1 million pre-tax reduction in accumulated other comprehensive earnings, resulting in the recognition of a one-time pre-tax termination gain of $2.5 million, which was recorded in addition to the net periodic postretirement benefit cost in our accompanying consolidated statements of earnings (loss).

Assuming a long-term rate of return on plan assets of 7.50%, weighted average discount rates of 3.60% (benefit obligation) and 3.0% (interest cost) for the Unified Cash Balance Plan, weighted average discount rates of 2.49% (benefit obligation), 2.07% (interest cost) and 2.99% (service cost) for the ESPPIII, and certain other assumptions, we estimate that our combined pension expense (benefit) for the Unified Cash Balance Plan and ESPPIII for fiscal 2017 will be approximately $(0.9) million. Future pension expense (benefit) will be affected by future investment performance, discount rates and other variables such as mortality rates relating to plan participants. Decreasing only the discount rate assumptions by 0.5% would increase our projected fiscal 2017 pension benefit for the Unified Cash Balance Plan by approximately $0.1 million. Decreasing only the discount rate assumptions by 0.5% would decrease our projected fiscal 2017 pension expense for the ESPPIII by approximately $0.1 million. Lowering the expected long-term rate of return on our plan assets (for the Unified Cash Balance Plan) by 0.50% from 8.00% to 7.50% would have decreased our pension benefit for fiscal 2016 by approximately $0.9 million. Similarly, lowering the expected long-term rate of return on our plan assets (for the Unified Cash Balance Plan) by 0.50% (from 7.50% to 7.00%) would decrease our projected fiscal 2017 pension benefit by approximately $0.9 million.

Assuming weighted average discount rates for the various postretirement plans ranging from 3.15% to 3.67% (benefit obligation), 2.51% to 3.25% (interest cost) and 3.25% to 3.38% (service cost) and certain other assumptions, we estimate that postretirement benefit plan expense (benefit) for fiscal 2017 will be approximately $(0.1) million. Future postretirement benefit plan expense (benefit) will be affected by discount rates and other variables such as expected rate of compensation increases and projected health care trend rates.

The following sections describe in further detail the defined benefit pension plans, defined contribution retirement plan and postretirement benefit plans sponsored by us.

We sponsor a noncontributory defined benefit pension plan (the “Unified Cash Balance Plan”) covering substantially all our employees who are not subject to a collective bargaining agreement. Under the Unified Cash Balance Plan, participants are credited with an annual accrual based on their years of service with us. The Unified Cash Balance Plan receives an annual interest credit, currently tied to the 30-year Treasury rate that is in effect the previous November, but in no event shall the rate be less than 5%. On retirement, participants will receive a lifetime annuity based on the total hypothetical cash balance in their account. Benefits under the Unified Cash Balance Plan are provided through a trust. Our funding policy is to make contributions to the Unified Cash Balance Plan in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income tax purposes. Through December 31, 2014, all of our qualifying employees who are not subject to a collective bargaining agreement accrue benefits pursuant to the Unified Cash Balance Plan. Prior to September 27, 2014, the Board approved an amendment to the Unified Cash Balance Plan, effective as of December 31, 2014, closing entry into the plan. In addition, effective December 31, 2014, the plan was frozen such that current participants in the plan will no longer be credited with any future benefit accruals based on their years of service and pensionable compensation after that date.

the methodology employed to determine interest rates used to calculate required funding contributions. The funding relief applies to single-employer pension plans subject to the funding requirements of the Employee Retirement Income Security Act (“ERISA”) that base pension liability calculations on interest rates determined pursuant to the Pension Protection Act of 2006.

During August 2014, legislation to extend the pension funding relief included in MAP-21 was enacted as part of the Highway and Transportation Funding Act of 2014 (“HATFA”). Due to the plan’s funded status, quarterly contributions were not required in fiscal 2016 for the 2016 plan year, and there were no required contributions in fiscal 2016 for the 2015 plan year. During fiscal 2015, we had no additional required contributions for the 2014 plan year, and there were no contributions required for the 2015 plan year. Accordingly, the Company made no contributions to the Unified Cash Balance Plan during fiscal 2016 or fiscal 2015. Due to the plan’s funded status, quarterly contributions will not be required in fiscal 2017 for the 2017 plan year. At our discretion, we may contribute in excess of the minimum (zero) requirement. Additional contributions, if any, will be based, in part, on future actuarial funding calculations and the performance of plan investments. Contributions for the 2016 and 2017 plan years, if any, will be due by September 15, 2017 and September 15, 2018, respectively.

We contribute to a number of multiemployer defined benefit pension plans that provide retirement benefits for retired union employees under terms of our collective bargaining agreements (“Union Participants”). These multiemployer plans generally provide retirement benefits to Union Participants based on their service to contributing employers.

We made contributions of $15.2 million and $14.6 million for fiscal years 2016 and 2015, respectively, to collectively bargained, multiemployer defined benefit pension plans in accordance with the provisions of negotiated labor contracts.

We sponsor an Executive Salary Protection Plan III ("ESPPIII") for our executive officers that provides supplemental post-termination retirement income based on each participant's salary and years of service as an officer with us. As discussed below, this plan was amended in December 2012 to close the plan to new entrants as of September 30, 2012. We have informally funded our obligation to plan participants in a rabbi trust (not considered plan assets for valuation purposes) comprised primarily of life insurance policies tied to underlying investments in the equity market (reported at cash surrender value) and mutual fund assets consisting of various publicly-traded mutual funds (reported at estimated fair value based on quoted market prices). See Note 13 “Benefit Plans” of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional discussion.

In December 2012, we amended the ESPPIII for executive officers to close the eligibility provisions of the ESPPIII to new entrants as of September 30, 2012 (the “Freeze Date”); accordingly, no employee that is either hired or becomes an officer on or after the Freeze Date can become a participant or recommence participation in the ESPPIII. Additionally, benefit accruals under the ESPPIII were frozen for officers who have already attained a 65% gross benefit accrual as of September 30, 2012; accordingly, no such officers will accrue further gross benefits under the ESPPIII after the Freeze Date. For officers participating in the ESPPIII as of the Freeze Date who had less than a 65% gross benefit accrual, such officers will continue to accrue gross benefits under the ESPPIII until they reach a 65% gross benefit accrual. Lastly, a participant’s gross accrued benefit will not consider any compensation earned by the participant after the Freeze Date, which effectively freezes the final pay and final average pay formulas under the plan at the September 30, 2012 levels. See Item 5.02. “Compensatory Arrangements of Certain Officers” of our Current Report on Form 8-K, filed on January 7, 2013, for additional information.

We made benefit payments of $4.0 million to participants in the ESPPIII during fiscal 2016. At this time, we expect to make benefit payments of $3.9 million to participants in the ESPPIII in fiscal 2017.

Effective June 1, 2013, we implemented a supplemental retirement plan for a select group of management or highly compensated employees that are at the Vice President level and above of the Company under the Unified Grocers, Inc. Supplemental Executive Retirement Plan (the “SERP”). This plan was established to replace the ESPPIII, which has been frozen. The SERP provides participating officers with supplemental retirement income in addition to the benefits provided under the Unified Cash Balance Plan and our 401(k) plans.

The SERP is a non-qualified defined contribution plan under which benefits are derived based on a notional account balance to be funded by us for each participating officer. The account balance will be credited each year with a Company contribution based on the officer’s compensation, calculated as base salary plus bonus, earned during a fiscal year and the officer’s executive level at the end of the fiscal year. Plan participants may select from a variety of investment options

(referred to as “Measurement Funds” in the plan document) concerning how the contributions are hypothetically invested. Assets of the SERP (i.e., the participants’ account balances) will not be physically invested in the investments selected by the participants; rather, the Measurement Funds are utilized “for the purpose of debiting or crediting additional amounts” to each participant’s account. We informally fund our obligation to plan participants in a rabbi trust, comprised of mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. Mutual funds reported at their estimated fair value of $3.1 million and $2.0 million at October 1, 2016 and October 3, 2015, respectively, are included in other assets in our consolidated balance sheets.

Upon separation, plan participants will receive a benefit based upon the vested amount accrued in their account, which includes our contributions plus or minus the increase or decrease in the fair market value of the hypothetical investments (Measurement Funds) selected by the participant. Benefit expense for the SERP has been accrued under the assumption that all participants in the SERP will achieve full vesting (five years of service). As of October 1, 2016 and October 3, 2015, we accrued $1.6 million and $1.2 million, respectively, in SERP expense (recorded in long-term liabilities, other in our consolidated balance sheets). See Item 5.02. “Compensatory Arrangements of Certain Officers” of our Current Report on Form 8-K, filed on May 14, 2013, for additional discussion.

The Company has a Sheltered Savings Plan (“SSP”), which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its nonunion employees. Prior to December 31, 2014, the Company matched, after an employee’s one year of service, each dollar deferred up to 4% of each participant’s eligible compensation and, at its discretion, matched 40% of amounts deferred between 4% and 8% of each participant’s eligible compensation. In response to changes in the Company’s Unified Cash Balance Plan (discussed previously herein), the Company amended the SSP on December 31, 2014. Commencing January 1, 2015, the Company increased its matching portion from 40% to 50% of a participant’s contributions over 4% and up to 8% of each participant’s eligible compensation. In addition, for each of the respective SSP plan years beginning January 1, 2015, January 1, 2016 and January 1, 2017, the Company will make an additional contribution on behalf of eligible participants (those who were participants in the Unified Cash Balance Plan as of December 31, 2014) from 1% up to 5% of a participant’s annual eligible compensation. At the end of each plan year, the Company may also contribute an amount equal to 2% of the compensation of those participants employed at that date. Participants are immediately 100% vested in the Company’s contribution.

The Company contributed approximately $7.3 million, $5.1 million and $4.8 million related to its SSP in the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

The Company has a nonqualified Deferred Compensation Plan (“DCPII”), which allows eligible employees to defer and contribute to an account a percentage of compensation on a pre-tax basis, as defined in the plan, in excess of amounts contributed to the SSP pursuant to IRS limitations, the value of which is measured by the fair value of the underlying investments. The Company informally funds its deferred compensation liability with assets held in a rabbi trust consisting of life insurance policies reported at cash surrender value and mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. The assets held in the rabbi trust are not available for general corporate purposes. Participants can direct the investment of their deferred compensation plan accounts in several investment funds as permitted by the DCPII. Gains or losses on investments are fully allocable to the plan participants. The cash surrender value of life insurance policies and mutual funds reported at their estimated fair value are included in other assets in the Company’s consolidated balance sheets because they remain assets of the Company until paid out to the participants. The cash surrender value of the life insurance policies was $10.6 million and $12.3 million at October 1, 2016 and October 3, 2015, respectively. The estimated fair value of the mutual funds was $0.2 million and negligible at October 1, 2016 and October 3, 2015. The liability to participants ($11.6 million and $12.5 million at October 1, 2016 and October 3, 2015, respectively) is included in long-term liabilities, other in the Company’s consolidated balance sheets. The rabbi trust is subject to the Company’s creditors’ claims in the event of its insolvency.

The Company has an Employee Savings Plan, which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its union employees. The Company does not match any employee deferrals into the plan, and therefore, there is no related vesting schedule. No expense was incurred in the periods presented.

We sponsor a postretirement benefit plan that provides certain medical coverage to retired non-union employees who are eligible to participate in the Unified Grocers, Inc. Retiree Medical Plan (the “RMP”). The RMP is contributory for non-union employees retiring after January 1, 1990, with the retiree contributions adjusted annually. This plan is not funded.

In December 2012, we amended the RMP to modify the eligibility requirements for the RMP. Effective as of the end of the first quarter of fiscal 2013, only employees of Unified who had reached 49 years of age with at least 15 years of continuous service with us as of the end of the first quarter of fiscal 2013 remained eligible to participate in the RMP. To receive benefits under the RMP, those employees who remain eligible must remain in continuous service with us through their retirement following the attainment of at least 55 years of age. We also reduced the benefits for those who remained eligible. Previously this was a lifetime benefit for the employee and their spouse. This was changed to a 15-year benefit for the employee only.

Officers who are at least 55 years of age and have seven years of service with us as an officer are eligible to participate in the Officer Retiree Medical Plan (the “ORMP”), which includes our Executive Medical Reimbursement Plan (the “EMRP”), following termination of employment. Pursuant to the EMRP, retired officers will be eligible for payment by the insurance plan of the portion of eligible expenses not covered under our health insurance plan.

Benefits under the ORMP are the same as under the RMP offered to non-union employees but with no annual premium caps, plus dental and vision benefits, continuation of the EMRP during retirement and extension of benefits for eligible dependents following the officer’s death. During retirement, officers are required to pay 25% of the ORMP premium to maintain coverage. Effective December 31, 2012, the eligibility provisions of the ORMP were frozen effective September 30, 2012; accordingly, no employee that is either hired or becomes an officer on or after such date can become a participant or recommence participation in the ORMP. We also reduced the benefits for those who remained eligible. Previously this was a lifetime benefit for the employee and their spouse. This was changed to a 15-year benefit for the employee only.

We provide for the cost of life insurance on behalf of current and qualifying former officers of Unified through a split-dollar Executive Insurance Plan (the “EIP”) arrangement. As discussed below, this plan was amended in December 2012 to close the plan to new entrants as of September 30, 2012. Accordingly, no employee that is either hired or becomes an officer on or after such date can become a participant or recommence participation in the EIP. This plan is not funded.

In May 2013, the EIP was amended and restated effective as of June 1, 2013. For officers who were active on or after June 1, 2013, the EIP, as amended, provides a life insurance benefit of one and one-half times their annual salary (previously three times their annual salary) up to $1.2 million (reducing to 50% of the original amount at age 70) through group term life insurance. The group term life insurance coverage terminates upon retirement or termination. For active officers who were covered by the EIP at the time it was closed as of September 30, 2012, the EIP, as amended, also provides an additional fixed life insurance benefit amount, payable upon the participant’s death to their designated beneficiaries, based on such participant’s position with us as of June 1, 2013 as follows: $1,000,000 for the chief executive officer, $500,000 for executive vice president, $400,000 for senior vice presidents and $300,000 for vice presidents. Such fixed life insurance benefit amounts will not be adjusted for future promotions or increases in salary.

A certain group of retired non-union employees currently participate in a plan providing life insurance benefits for which active non-union employees are no longer eligible. This life insurance plan is noncontributory and is not funded.

Certain eligible union employees have a separate plan providing a lump-sum payout for unused days in the sick leave bank. The sick leave payout plan is noncontributory and is not funded.

Prior to September 21, 2014, certain eligible non-union employees participated in a separate plan providing a lump-sum payout for unused days in the sick leave bank. Effective in fiscal 2014, in conjunction with the implementation of a PTO program for non-union employees, this plan was terminated and we recognized a one-time pre-tax gain of $2.5 million.

As of the date of this report, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractual, narrow or limited purposes.

The items above have been excluded from the foregoing tables based on the following:

Obligations under our Unified Cash Balance Plan and ESPPIII are disclosed in Note 12 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” Asset retirement obligations are included in long-term liabilities, other in the accompanying consolidated balance sheets as of October 1, 2016 and October 3, 2015.

As discussed in “Credit Facilities” we are party to both the Credit Agreement and GCC Loan Agreement. Our outstanding revolver borrowings under the Credit Agreement decreased to $137.6 million (Eurodollar and Base Rate Loans at a blended average rate of 3.05% per annum) at October 1, 2016 from $161.8 million (Eurodollar and Base Rate Loans at a blended average rate of 1.99% per annum) at October 3, 2015. Our outstanding term loan borrowings under the Credit Agreement were $82.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 2.52% per annum) and $92.5 million (Eurodollar and Base Rate Loans at a blended average rate of 2.20% per annum) at October 3, 2015. Our outstanding FILO borrowings under the Credit Agreement were $15.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 4.29% per annum) and $20.7 million (Eurodollar and Base Rate Loans at a blended average rate of 3.20% per annum) at October 3, 2015. GCC had revolving loan borrowings of $15.0 million and zero, bearing an interest rate of 4.00% (3.25% prime plus 0.75% interest rate margin), outstanding at October 1, 2016 and October 3, 2015, respectively.

Prior to December 18, 2014, we were party to a Senior Note Agreement with the then-current Noteholders and John Hancock, acting in its capacity as collateral agent for the then-current noteholders, collectively referred to herein as the “Hancock Debt,” which originally consisted of three tranches of senior debt: $46.0 million, $40.0 million and $25.0 million with interest rates of 6.421%, 7.157% and 6.82%, respectively. On June 28, 2013, we entered into the seventh amendment (“Seventh Amendment”) to the Senior Note Agreement. Certain capitalized terms used in this description of the Seventh Amendment have the meanings given to them in the Seventh Amendment. The Seventh Amendment released the liens held by the Noteholders on certain of our real properties (the mechanized distribution center in Commerce, California and the dairy facility in Los Angeles, California), and provided for modifications to and deletions of certain financial covenants, including the deletion of a financial covenant that had been previously provided for relating to the maximum permitted Indebtedness to Consolidated EBITDAP Ratio. The released properties now are collateral security for the lenders party to the Credit Agreement. In exchange, we paid the Noteholders $50 million plus all accrued and unpaid interest on the prepayment and paid the applicable Make-Whole Amount of $9.4 million, as calculated per the Senior Note Agreement, as well as an amendment fee of 0.5% of the outstanding principal balance of the Hancock Debt after giving effect to the prepayment contemplated by the Seventh Amendment. The prepayment was applied first to the Tranche C Notes (paid in full) with the remainder applied to the Tranche B Notes. The Seventh Amendment increased the fixed interest rate, effective July 1, 2013, for the Tranche A Notes to 7.907% per annum until the January 1, 2016 maturity date. The fixed interest rate for the unpaid portion of the Tranche B Notes, effective July 1, 2013, increased to 7.171% per annum until the January 1, 2016 maturity date. At the January 1, 2016 maturity date, a balloon payment of $45.6 million was due.

On December 18, 2014, we prepaid in full the Hancock Debt. We prepaid principal and interest on the Hancock Debt in the amount of $48.5 million, and paid the applicable Make-Whole Amount of $3.0 million, as calculated per the Senior Note Agreement, in connection with the prepayment. See Item 1.01. “Entry into a Material Definitive Agreement – Amendment and Restatement of Credit Facility” of our Current Report on Form 8-K, filed on December 19, 2014, for additional information.

We had a total of zero and zero outstanding at October 1, 2016 and October 3, 2015, respectively, in Hancock Debt.

During fiscal 2016, we entered into two capital lease agreements for equipment purchases. These capital lease agreements bear an interest rate of 2.10% and mature in fiscal 2021. The outstanding loan balance under the two capital lease agreements totaled $1.2 million at October 1, 2016.

During fiscal 2015, we entered into three capital lease agreements for equipment purchases. Two of the capital lease agreements bear an interest rate of 2.09% and one capital lease agreement bears an interest rate of 2.26%. The three capital lease agreements mature in fiscal 2020. The outstanding loan balance under the three capital leases totaled $1.7 million and $2.1 million at October 1, 2016 and October 3, 2015, respectively.

During fiscal 2013, we entered into three secured credit facilities to finance our purchase of tractors. These agreements bear interest at a rate of 2.2% and mature in fiscal 2018. At October 1, 2016 and October 3, 2015, the outstanding loan balance under these three agreements totaled $0.8 million and $1.4 million, respectively.

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates, assumptions and judgments that affect the amount of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions to be reasonable; however, future results could differ from those estimates under different assumptions or conditions.

We believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results and requires management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and important accounting practices are described below.

Insurance Reserves. As disclosed in Note 3, “Assets Held for Sale/Discontinued Operations,” in Part II, Item 8, “Financial Statements and Supplementary Data,” our Insurance segment was sold in October 2015 and is no longer part of our continuing operations. The former insurance subsidiaries provided various types of insurance products to our Members and us, including workers’ compensation, general liability and auto. One of the former insurance subsidiaries, Springfield Insurance Company, is regulated by the California Department of Insurance and is subject to the rules and regulations promulgated by the California Department of Insurance. There are many factors that contribute to the variability in estimating insurance loss reserves and related costs. Changes in state regulations may have a direct impact on workers’ compensation cost and reserve requirements. The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, claims history, demographics and industry trends. As a result, the amount of the loss reserve and the related expense is significantly affected by these variables, as well as the periodic changes in state and federal law. We regularly assessed the sufficiency of our loss reserves, which represent potential future claims and settlements to policyholders. Insurance reserves are recorded based on estimates and assumptions made by management using data available at the valuation date and are validated by third party actuaries to ensure such estimates are within acceptable ranges. We maintain appropriate reserves to cover anticipated payments up to the excess coverage amount. For additional discussion related to our accounting for insurance reserves, See Note 2, “Audit Committee Investigation,” in Part II, Item 8, “Financial Statements and Supplementary Data,” for additional information. Insurance reserves maintained by our former insurance subsidiaries and our reserve for projected payouts totaled approximately $64.5 million as of October 3, 2015, net of anticipated reinsurance recoveries of $26.4 million, respectively. These reserves are included in liabilities held for sale – current in our consolidated balance sheets at October 3, 2015.

Revenue Recognition. We recognize revenue in accordance with U.S. GAAP and with SEC issued Staff Accounting Bulletin Topic 13, “Revenue Recognition,” which clarifies certain existing accounting principles for the timing of revenue recognition and classification of revenues in the financial statements. Revenue is recognized when persuasive evidence of

an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Revenue generated from our Wholesale Distribution segment is not recognized until title and risk of loss is transferred to the customer, which occur upon delivery of the products. Provisions for discounts, rebates to customers, and returns are provided for at the time the related sales are recorded, and are reflected as a reduction of sales. Service revenues are recognized when such services have been rendered. Taxes collected from our customers and remitted to governmental authorities are reported on a net basis.

We make available to our customers additional products through vendor direct arrangements with certain preferred providers. Revenues and costs from these vendors are recorded gross when we are the primary obligor in a transaction, are subject to inventory or credit risk, have latitude in establishing price and selecting suppliers, or have several, but not all, of these indicators. If we are not the primary obligor and amounts earned have little or no inventory or credit risk, revenue is recorded net when earned.

Allowance for Uncollectible Accounts and Notes Receivable. The preparation of our consolidated financial statements requires management to make estimates of the collectability of its accounts and notes receivable. Our trade and short-term notes receivable, net was approximately $183.5 million and $191.7 million (including approximately $6.0 million and $4.3 million of short-term notes receivable) at October 1, 2016 and October 3, 2015, respectively. Our long-term notes receivable, net was approximately $13.4 million and $17.5 million at October 1, 2016 and October 3, 2015, respectively. We regularly analyze our accounts and notes receivable for changes in the credit-worthiness of customers, economic trends and other variables that may affect the adequacy of recorded reserves for potential bad debt. In determining the appropriate level of reserves to establish, we utilize several techniques including specific account identification, percentage of aged receivables and historical collection and write-off trends. In addition, we consider in our reserve calculations collateral such as Member shareholdings, cash deposits and personal guarantees. A bankruptcy or financial loss associated with a major customer could have a material adverse effect on our sales and operating results. Our allowance for doubtful accounts for trade and short-term notes receivable was approximately $3.6 million and $4.2 million at October 1, 2016 and October 3, 2015, respectively, and zero for long-term notes receivable at both October 1, 2016 and October 3, 2015.

Goodwill and Intangible Assets. The Merger with United and the Acquisition of AG resulted in the recording of goodwill, representing the excess of the purchase price over the fair value of the net assets of the acquired businesses. The carrying value of the goodwill was $37.8 million at both October 1, 2016 and October 3, 2015. Although the sales volume and customer base of the combined entity remains strong, significant reductions in our distribution volume in the future could potentially impair the carrying amount of goodwill, necessitating a write-down of this asset.

We evaluate our goodwill for impairment pursuant to ASC Topic 350-20 “Intangibles – Goodwill and other – Goodwill” (“ASC Topic 350-20”) which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually, or more frequently if circumstances indicate potential impairment. For the annual goodwill impairment test, entities have the option of first performing a qualitative assessment to test goodwill for impairment on a reporting-unit-by-reporting-unit basis. If after performing the qualitative assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would perform the two-step goodwill impairment test described in ASC Topic 350-20. An entity that does not elect to use the qualitative analysis and proceeds directly to step one would not need to evaluate the qualitative factors as part of the annual impairment analysis. The two-step impairment test process consists of the following: (1) a reporting unit’s fair value is compared to its carrying value; if the fair value is less than its carrying value, impairment is indicated; and (2) if impairment is indicated in the first step, it is measured by comparing the implied fair value of goodwill to its carrying value at the reporting unit level. When performing a quantitative assessment, we estimate the fair value of our reporting units using a weighting of the income and market approaches. Under the income approach, we use a discounted cash flow methodology, which requires us to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, growth rates, and discount rates, among others. For the market approach, we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Future changes in the estimates and assumptions above could materially affect the results of our reviews for impairment of goodwill. We evaluate our goodwill for impairment at the end of the third quarter for each fiscal year. Accordingly, we tested our goodwill using a qualitative assessment and noted no impairment for the fiscal quarter ended July 1, 2016.

In addition to the annual goodwill impairment test required under ASC Topic 350-20, during fiscal 2016 and 2015, we assessed whether events or circumstances occurred that potentially indicate that the carrying amount of goodwill may not be recoverable. We concluded that there were no such events or changes in circumstances during fiscal 2016 and 2015. Consequently, no impairment charges were recorded in fiscal 2016 and 2015.

Intangible assets with indefinite lives are tested for impairment at least annually and between annual tests if events occur or circumstances change that would indicate that the value of the asset may be impaired. In accordance with ASU No. 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” ("ASU No. 2012-02"), we analyzed several qualitative factors to determine whether it was more likely than not that an indefinite-lived intangible asset was impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. Impairment would be measured as the difference between the fair value of the asset and its carrying value. We concluded that there were no material events or significant changes in circumstances that led to impairment during fiscal 2016 and 2015.

Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset's useful life based on updated projections. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow model. We concluded that there were no material events or significant changes in circumstances that led to impairment during fiscal 2016 and 2015.

Long-lived Asset Groups. In accordance with ASC Topic 360-10 “Property, Plant and Equipment – Overall” (“ASC Topic 360-10”) we assess the impairment of long-lived asset groups when events or changes in circumstances indicate that the carrying value may not be recoverable. An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability is measured by comparing the carrying amount of an asset group to expected future net cash flows generated by the asset group. If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized to the extent of the difference between fair value as determined by discounting cash flows at an appropriate discount rate and the carrying value. ASC Topic 360-10 requires companies to separately report discontinued operations, including components of an entity that either have been disposed of (by sale, abandonment or in a distribution to owners) or classified as held for sale. Asset groups to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Factors that we consider important which could individually or in combination trigger an impairment review include the following:

If we determine that the carrying value of long-lived asset groups may not be recoverable based upon the existence of one or more of the above indicators of impairment, we will measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the risks associated with the estimated cash flows of the asset groups.

On a quarterly basis, we assess whether events or changes in circumstances occur that potentially indicate the carrying value of long-lived asset groups may not be recoverable. In July 2016, we ceased operating our Southern California Dairy Division manufacturing facility (see Part I, Item 1, “Business – Recent Developments – Dairy Divisions” for additional discussion). Due to the closure of this facility, land, building and property improvements totaling $5.4 million have been reclassified to assets held for sale on our consolidated balance sheets at October 1, 2016. We evaluated these assets for impairment at October 1, 2016, and we concluded there was no impairment of these assets as the Company is actively marketing these assets and has received offers in excess of their carrying amount. In addition, this facility had equipment with a net book value of $2.2 million, and we sold $0.9 million of these assets subsequent to the closure of the facility. The remaining $1.3 million of equipment was deemed to be impaired and we accordingly wrote off the remaining equipment during the fourth quarter of fiscal 2016.

Other than the preceding, we concluded that there were no material events or significant changes in circumstances that led to impairment during fiscal 2016 and 2015.

Tax Valuation Allowances. We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ASC Topic 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the net deferred tax asset will not be realized. We had approximately $36.4 million and $40.4 million in net deferred tax assets at October 1, 2016 and October 3, 2015, respectively. We evaluated the available positive and negative evidence in assessing our ability to realize the benefits of the net deferred tax assets at October 1, 2016 and October 3, 2015. As of October 1, 2016 and October 3, 2015, respectively, we determined that a valuation allowance of $41.4 million and $29.3 million was required to reduce the net deferred tax assets to a sustainable level. The remaining net deferred tax assets should be realized through future operating results, tax planning and the reversal of temporary differences. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be a charge to income in the period such determination was made. Of the net deferred tax assets, $4.1 million and $9.2 million are classified as deferred income taxes in current assets and $32.3 million and $31.2 million are included in other assets in the accompanying consolidated balance sheets (see Part II, Item 8, “Financial Statements and Supplementary Data”) as of October 1, 2016 and October 3, 2015, respectively.

Pension and Postretirement Benefit Plans. Our non-union employees participate in Company sponsored defined benefit pension and postretirement benefit plans. Certain eligible union employees participate in a separate plan providing payouts for unused sick leave. Officers of the Company also participate in a Company sponsored ESPPIII, which provides supplemental post-termination retirement income based on each participant’s salary and years of service as an officer of the Company. We account for these benefit plans in accordance with ASC Topic 715, “Compensation – Retirement Benefits” and ASC Topic 712, “Compensation – Nonretirement Postemployment Benefits” and ASC Topic 715-20, “Compensation – Retirement Benefits – Defined Benefits Plans – General”, which require us to make actuarial assumptions that are used to calculate the carrying value of the related assets and liabilities and the amount of expenses to be recorded in our consolidated financial statements. Assumptions include the expected return on plan assets, discount rates, projected life expectancies of plan participants, anticipated salary increases and health care cost trends. The assumptions are regularly evaluated by management in consultation with outside actuaries. While we believe the underlying assumptions are appropriate, the carrying value of the related liabilities and the amount of expenses recorded in the consolidated financial statements could differ if other assumptions are used.

Pursuant to ASC Topic 715-20, “Compensation – Retirement Benefits – Defined Benefits Plans – General” (“ASC Topic 715-20”), we (1) recognize the funded status of pension and other postretirement benefit plans on our balance sheet and (2) measure plan assets and obligations at our year-end balance sheet date.

We contribute to collectively-bargained, multiemployer defined benefit pension plans in accordance with the provisions of negotiated labor contracts. The amount of our contribution is determined according to provisions of collective bargaining agreements.

Vendor Funds. We receive funds from many of the vendors whose products we buy for resale to our Members. These vendor funds are provided to increase the sell-through of the related products. We receive funds for a variety of merchandising activities: placement of vendors’ products in the Members’ advertising; placement of vendors’ products in prominent locations in the Members’ stores; introduction of new products into our distribution system and Members’ stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at Members’ stores.

Vendor funds are reflected as a reduction of inventory costs or as an offset to cost incurred on behalf of the vendor for which we are being reimbursed in accordance with ASC Topic 605, “Revenue Recognition,” Amounts due from vendors upon achievement of certain milestones, such as minimum purchase volumes, are accrued prior to the achievement of the milestone if we believe it is probable the milestone will be achieved, and the amounts to be received are reasonably estimable.

We adhere to ASC Topic 605, “Revenue Recognition,” which requires manufacturers’ sales incentives offered directly to consumers that do not meet certain criteria to be reflected as a reduction of revenue in the financial statements of a reseller. Accordingly, certain discounts and allowances negotiated by us on behalf of our Members are classified as a reduction in cost of sales with a corresponding reduction in net sales. Vendor funds that offset costs incurred on behalf of the vendor are classified as a reduction in distribution, selling and administrative expenses.

See Note 1 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding our adoption of new and recently issued authoritative accounting guidance.

The following discussion of the market risks we face contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements.

We are subject to interest rate changes on certain of our notes payable under our credit agreements that may affect the fair value of the notes payable, as well as cash flow and earnings. Based on the notes payable outstanding at October 1, 2016 and the current market conditions, a one percent change in the applicable interest rates would impact our annual cash flow and pretax earnings by approximately $2.5 million. See Note 18 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” for additional discussion regarding the fair value of notes payable.

We are exposed to credit risk on accounts receivable through the ordinary course of business and we perform ongoing credit evaluations. Concentration of credit risk with respect to accounts receivable is limited due to the nature of our customer base (i.e., primarily Members). We currently believe our allowance for doubtful accounts to be sufficient to cover customer credit risks.

Investments held by our Wholesale Distribution segment consist primarily of Western Family Holding Company (“Western Family”) common stock. Western Family is a private company located in Oregon from which we purchase food and general merchandise products. Investments held by our other support businesses consist primarily of an investment by our wholly-owned finance subsidiary in National Consumer Cooperative Bank (“NCB”). NCB operates as a cooperative and therefore its participants are required to own its Class B common stock.

Life insurance and mutual fund assets with values tied to the equity markets are impacted by overall market conditions. In fiscal 2016, net earnings and net comprehensive earnings experienced an increase corresponding to the increase in life insurance and mutual fund assets, respectively.

We have audited the accompanying consolidated balance sheet of Unified Grocers, Inc. and Subsidiaries (the “Company”) as of October 1, 2016, and October 3, 2015, and the related consolidated statements of earnings (loss), comprehensive earnings (loss), shareholders’ equity, and cash flows for each of the three years in the period ended October 1, 2016. In connection with our audits of the consolidated financial statements, we have also audited the consolidated financial statement schedule of valuation and qualifying accounts for each of the years in the three-year period ended October 1, 2016 at Part IV, Item 15(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unified Grocers, Inc. and Subsidiaries as of October 1, 2016 and October 3, 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 1, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	October 1, 2016			October 3, 2015
Assets
Current Assets:
Cash and cash equivalents	$	3,369		$	3,056
Accounts and current portion of notes receivable, net of allowances of $3,584 and $4,171 at October 1, 2016 and October 3, 2015, respectively		182,940			191,744
Inventories		251,502			279,576
Prepaid expenses and other current assets		9,343			10,814
Deferred income taxes		4,098			9,210
Assets held for sale – current		5,429			125,904
Total current assets		456,681			620,304
Properties and equipment, net		149,506			163,808
Investments		12,729			13,069
Notes receivable, less current portion and net of allowances of $0 and $54 at October 1, 2016 and October 3, 2015, respectively		13,397			17,523
Goodwill		37,846			37,846
Other assets, net		110,889			111,775
Total Assets	$	781,048		$	964,325
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	248,576		$281,478
Accrued liabilities		44,331			46,287
Current portion of notes payable		24,491			16,960
Members’ deposits and declared patronage dividends		8,880			10,175
Liabilities held for sale – current		—			99,682
Total current liabilities		326,278			454,582
Notes payable, less current portion		229,741			261,585
Long-term liabilities, other		185,202			161,180
Members’ and Non-Members’ deposits		8,775			7,995
Commitments and contingencies
Shareholders’ equity:
Class A Shares: 500,000 shares authorized, 122,500 shares outstanding at October 1, 2016 and October 3, 2015		23,088		23,088
Class B Shares: 2,000,000 shares authorized, 410,537 shares outstanding at October 1, 2016 and October 3, 2015		75,198			75,198
Class E Shares: 2,000,000 shares authorized, 114,691 and 205,714 shares outstanding at October 1, 2016 and October 3, 2015, respectively		11,469			20,570
Retained earnings – allocated		18,106			25,748
Retained earnings – non-allocated		6,864			6,864
Total retained earnings		24,970			32,612
Receivable from sale of Class A Shares to Members		(78	)		(255	)
Accumulated other comprehensive loss		(103,595	)		(72,230	)
Total shareholders’ equity		31,052			78,983
Total Liabilities and Shareholders’ Equity	$	781,048		$	964,325

(dollars in thousands)
																						Receivable			Accumulated
																						from sale			Other
For the fiscal years ended October 3, 2015,	Class A						Class B						Class E						Retained			of Class A			Comprehensive
September 27, 2014 and September 28, 2013	Shares			Amount			Shares			Amount			Shares			Amount			Earnings			shares			Earnings (Loss)			Total
Balance, September 28, 2013		137,550			25,672			431,037			78,554			251,403			25,140			63,773			(213	)		(12,280	)		180,646
Class A Shares issued		1,400			391																								391
Class A Shares redeemed		(9,800	)		(1,748	)														(1,017	)								(2,765	)
Class B Shares converted to Class A Shares		350			56			(350	)		(56	)																	—
Class B Shares issued								2,102			587																		587
Class B Shares redeemed								(19,267	)		(3,415	)								(2,146	)								(5,561	)
Class E Shares repurchased														(42,890	)		(4,289	)		—									(4,289	)
Net loss – allocated																				(5,406	)								(5,406	)
Increase in receivable due to subscription for Class A Shares by members																							(170	)					(170	)
Net unrealized loss on depreciation of investments (net of deferred tax asset of $189)																										(351	)		(351	)
Defined benefit pension plans and other postretirement benefit plans: Changes in unrecognized prior service costs (credits) arising during the period, and changes in unrecognized gains and losses arising during the period (net of deferred tax asset of $8,357)																										(15,242	)		(15,242	)
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans																										(6,176	)		(6,176	)
Balance, September 27, 2014		129,500		$	24,371			413,522		$	75,670			208,513		$	20,851		$	55,204		$	(383	)	$	(34,049	)	$	141,664
Class A Shares issued		—			—																								—
Class A Shares redeemed		(7,000	)		(1,283	)														(673	)								(1,956	)
Class B Shares converted to Class A Shares		—			—			—			—																		—
Class B Shares issued								—			—																		—
Class B Shares redeemed								(2,985	)		(472	)								(400	)								(872	)
Class E Shares repurchased														(2,809	)		(281	)		—									(281	)
Net loss – allocated																				(21,519	)								(21,519	)
Decrease in receivable due to payment for Class A Shares by members																							128						128
Net unrealized loss on depreciation of investments (net of deferred tax asset of $364)																										(683	)		(683	)
Defined benefit pension plans and other postretirement benefit plans: Changes in unrecognized prior service costs (credits) arising during the period, and changes in unrecognized gains and losses arising during the period (net of deferred tax asset of $13,157)																										(24,087	)		(24,087	)
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans																										(13,411	)		(13,411	)
Balance, October 3, 2015		122,500		$	23,088			410,537		$	75,198			205,704		$	20,570		$	32,612		$	(255	)	$	(72,230	)	$	78,983
Class A Shares issued		—			—																								—
Class A Shares redeemed		—			—															—									—
Class B Shares converted to Class A Shares		—			—			—			—																		—
Class B Shares issued								—			—																		—
Class B Shares redeemed								—			—									—									—
Class E Shares repurchased														(91,013	)		(9,101	)		—									(9,101	)
Net loss – allocated																				(7,642	)								(7,642	)
Decrease in receivable due to payment for Class A Shares by members																							177						177
Net unrealized gain on depreciation of investments (net of deferred tax liability of $351)																										643			643
Defined benefit pension plans and other postretirement benefit plans: Changes in unrecognized prior service costs (credits) arising during the period, and changes in unrecognized gains and losses arising during the period (net of deferred tax asset of $10,867)																										(21,141)			(21,141)
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans																										(10,867)			(10,867)
Balance, October 1, 2016		122,500		$	23,088			410,537		$	75,198			114,691		$	11,469		$	24,970		$	(78	)	$	(103,595)		$	31,052


	Fiscal Years Ended
	October 1, 2016 (52 weeks)			October 3, 2015 (53 weeks)			September 27, 2014 (52 weeks)
Cash flows from operating activities:
Net loss	$	(7,642	)	$	(21,519	)	$	(5,406	)
Less: Net loss from discontinued operations		—			(3,701	)		(4,981	)
Less: Gain (loss) on sale of discontinued operations		281			(3,173	)		—
Net loss from continuing operations		(7,923	)		(14,645	)		(425	)
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization		29,911			31,041			27,850
Provision for doubtful accounts		(1,841	)		1,942			207
Loss (gain) on sale of properties and equipment		135			(192	)		(104	)
Loss on sale of dairy equipment		1,367			—			—
Loss on early extinguishment of debt		—			3,200			—
Loss on equity method investment		400			—			—
Deferred income taxes		159			(3,719	)		6,413
Pension contributions		—			—			(8,378	)
(Increase) decrease in assets:
Accounts receivable		10,869			(12,204	)		(15,936	)
Inventories		28,074			(22,251	)		(6,082	)
Prepaid expenses and other current assets		1,471			(2,503	)		2,682
Increase (decrease) in liabilities:
Accounts payable		(33,503	)		35,760			25,363
Accrued liabilities		(2,502	)		(1,929	)		2,305
Long-term liabilities, other		(7,440	)		(13,483	)		(7,956	)
Net cash provided by continuing operating activities		19,177			1,017			25,939
Net cash provided (utilized) by sale of discontinued operations		281			(3,173	)		—
Net cash provided (utilized) by continuing operating activities		19,458			(2,156	)		25,939
Net cash provided by discontinued operating activities		—			5,820			7,924
Net cash provided by operating activities		19,458			3,664			33,863
Cash flows from investing activities:
Purchases of properties and equipment		(6,534	)		(9,221	)		(9,938	)
Purchases of securities and other investments		(60	)		(10,000	)		—
Proceeds from maturities or sales of securities and other investments		—			200			—
Proceeds from sale of discontinued operations		26,222			—			—
Origination of notes receivable		(3,853	)		(1,973	)		(1,138	)
Collection of notes receivable		7,755			4,424			5,100
Proceeds from sales of properties and equipment		852			192			112
Increase in other assets		(8,242	)		(7,663	)		(10,457	)
Net cash provided (utilized) by continuing investing activities		16,140			(24,041	)		(16,321	)
Net cash utilized by discontinued investing activities		—			(4,488	)		(8,238	)
Net cash provided (utilized) by investing activities		16,140			(28,529	)		(24,559	)
Cash flows from financing activities:
Net revolver (repayments) borrowings under secured credit agreements		(9,200	)		10,300			3,000
Borrowings of notes payable		644			86,262			—
Repayments of notes payable		(17,202	)		(58,678	)		(7,287	)
Payment of deferred financing fees		(88	)		(1,983	)		(341	)
Payment of debt extinguishment costs		—			(3,023	)		—
Decrease in Members’ deposits and declared patronage dividends		(1,295	)		(1,434	)		(83	)
Increase (decrease) in Members’ and Non-Members’ deposits		780			(417	)		2,623
Decrease (increase) in receivable from sale of Class A Shares to Members, net		177			128			(170	)
Repurchase of shares from Members		(9,101	)		(3,109	)		(8,694	)
Issuance of shares to Members		—			—			978
Net cash (utilized) provided by continuing financing activities		(35,285	)		28,046			(9,974	)
Net cash utilized by discontinued financing activities		—			—			—
Net cash (utilized) provided by financing activities		(35,285	)		28,046			(9,974	)
Net increase (decrease) in cash and cash equivalents from continuing operations		313			1,849			(356	)
Cash and cash equivalents at beginning of year		3,056			1,207			1,563
Cash and cash equivalents at end of year	$	3,369		$	3,056		$	1,207

Nature of Business. Unified Grocers, Inc. (“Unified” or the “Company”) is a retailer-owned, grocery wholesale cooperative serving supermarket, specialty and convenience store operators located primarily in the western United States and the Pacific Rim. The Company’s customers range in size from single store operators to regional supermarket chains. The Company sells a wide variety of products typically found in supermarkets. The Company’s customers include its owners (“Members”) and non-owners (“Non-Members”). The Company sells products through Unified or through its specialty food division (Market Centre) and international sales subsidiary (Unified International, Inc.). The Company reports all product sales in its Wholesale Distribution segment. The Company also provides support services to its customers through the Wholesale Distribution segment, including promotional planning, retail technology, equipment purchasing services and real estate services, and through separate subsidiaries, including insurance (until the sale of the Insurance segment on October 7, 2015) and financing. Insurance activities are reported in Unified’s discontinued operations, while finance activities are grouped within Unified’s All Other business activities. The availability of specific products and services may vary by geographic region. Members affiliated with directors of the Company purchase groceries and related products and services from the Company in the ordinary course of business pursuant to published terms or according to the provisions of individually negotiated supply agreements.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries required to be consolidated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as established by the Financial Accounting Standards Board (“FASB”). Intercompany accounts and transactions between the consolidated companies have been eliminated in consolidation.

Investments in companies in which Unified has significant influence, or ownership between 20% and 50% of the investee, are accounted for using the equity method. Under the equity method, the investment is originally recorded at cost and adjusted to recognize the Company’s share of net earnings or losses of the investee. The adjustment is limited to the extent of the Company’s investment in and advances to the investee and financial guarantees made on behalf of the investee.

Fiscal Year End. The Company’s fiscal year ends on the Saturday nearest September 30. Fiscal 2015 is comprised of 53 weeks, while 2016 and 2014 each were comprised of 52 weeks.

Use of Estimates. The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates. These estimates are based on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: the recoverability of accounts and notes receivable, investments, goodwill and other intangible assets, and deferred tax assets; the benefits related to uncertain tax positions; assumptions related to pension and other postretirement benefit expenses; and estimated losses related to insurance claims.

Cash Equivalents. The Company considers all highly liquid debt investments with maturities of three months or less when purchased to be cash equivalents.

The Company’s banking arrangements allow the Company to fund outstanding checks when presented for payment to the financial institutions utilized by the Company for disbursements. This cash management practice frequently results in total issued checks exceeding available cash balances at a single financial institution. The Company’s policy is to record its cash disbursement accounts with a cash book overdraft in accounts payable. At October 1, 2016 and October 3, 2015, the Company had book overdrafts of $73.8 million and $88.1 million, respectively, classified in accounts payable and included in cash provided by operating activities.

Inventories. Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventory is primarily comprised of products available for sale.

Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 40 years as follows: buildings (10 - 40 years), computer equipment and software (3 - 4 years), machinery and equipment (2 – 10 years) and furniture and fixtures (5 – 10 years). Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the shorter of the remaining lease term or their

estimated useful lives. Expenditures for replacements or major improvements are capitalized; expenditures for normal maintenance and repairs are charged to operations as incurred. Upon the sale or retirement of properties, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the results of operations.

Assets Held for Sale. Non-current assets and associated liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and the sale of the assets (or disposal group) is probable, and transfer of the assets (or disposal group) is expected to qualify for recognition as a completed sale within one year. Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell. Depreciation is not charged against property, plant and equipment classified as held for sale.

Investments. Investments in equity securities and other fixed maturity securities are classified as investments available for sale. Unrealized gains and losses, net of taxes, on available for sale investments are recorded as a separate component of accumulated other comprehensive earnings (loss) unless impairment is determined to be other-than-temporary.

Equity securities that do not have readily determinable fair values are accounted for using the cost or equity methods of accounting. The Company reviews the carrying value of its cost and equity method investments for impairment each reporting period unless (i) the investment’s fair value has not been estimated for any purpose, including estimates of fair value used to satisfy other financial reporting requirements, and (ii) there are no impairment indicators present for the investment during the period under review which would indicate there has been an event or change in circumstances that could have a negative effect on the investment’s fair value.

When an impairment test demonstrates that the fair value of an investment is less than its carrying value, the Company’s management will determine whether the impairment is either temporary or other-than-temporary. Examples of factors which may be indicative of an other-than-temporary impairment include (i) the length of time and extent to which market value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

If the decline in fair value is determined by management to be other-than-temporary, the carrying value of the investment is written down to its estimated fair value as of the balance sheet date of the reporting period in which the assessment is made. This fair value becomes the investment’s new carrying value, which is not changed for subsequent recoveries in fair value. Any recorded impairment write-down will be included in earnings as a realized loss in the period such write-down occurs.

Fair Value Measurements. The Company evaluates the fair value of its assets and liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) and ASC Topic 825, “Financial Instruments” (“ASC Topic 825”).

Management has evaluated its assets and liabilities valued at fair value as follows:

The Company records marketable securities at fair value in accordance with ASC Topic 320, “Investments – Debt and Equity Securities.” These assets are held by the Company’s Insurance segment. The Company’s Wholesale Distribution segment holds insurance contracts and mutual funds valued at fair value in support of certain employee benefits.

Goodwill and Intangible Assets. Goodwill, arising from business combinations, represents the excess of the purchase price over the estimated fair value of net assets acquired. In accordance with the provisions of ASC Topic 350-20 “Intangibles – Goodwill and other – Goodwill” (“ASC Topic 350-20”), goodwill and intangible assets deemed to have

indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets are amortized over their estimated useful lives. ASC Topic 350-20 requires that goodwill and certain intangible assets be assessed for impairment on an annual basis and between annual tests, when circumstances or events have occurred that may indicate a potential impairment, using fair value measurement techniques. For purposes of financial reporting and impairment testing in accordance with ASC Topic 350-20, the Company operates in two principal reporting segments, Wholesale Distribution and Insurance.

For the annual goodwill impairment test, entities have the option of first performing a qualitative assessment to test goodwill for impairment on a reporting-unit-by reporting-unit basis. If after performing the qualitative assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would perform the two-step goodwill impairment test described in ASC Topic 350. An entity that does not elect to use the qualitative analysis and proceeds directly to step one would not need to evaluate the qualitative factors as part of the annual impairment analysis.

The two-step impairment test process consists of the following: In the first step, the estimated fair value of each reporting unit is compared to the carrying value of the respective reporting unit. If the estimated fair value exceeds the carrying value, the goodwill is considered not to be impaired and no additional steps are necessary. If the carrying value exceeds the estimated fair value, the second step of the impairment test is performed to determine the amount of impairment loss. The second step involves comparing the carrying amount of the reporting unit’s goodwill with its implied fair value. If the carrying amount of goodwill exceeds the respective reporting unit’s implied fair value, an impairment loss would be recognized in an amount equal to the excess.

The Company evaluates goodwill (reported entirely within the Wholesale Distribution segment) for impairment at the end of the third quarter of each fiscal year. In addition to the annual goodwill impairment test required under ASC Topic 350-20, during fiscal 2016 and 2015, the Company assessed whether events or circumstances occurred that potentially indicate that the carrying amount of goodwill and intangible assets may not be recoverable. The Company concluded that there were no such events or changes in circumstances during fiscal 2016 and 2015. Consequently, no impairment charges were recorded in fiscal 2016 and 2015.

On September 30, 2007, the Company completed the purchase of certain assets and assumed certain liabilities and obligations related to the operation of Associated Grocers, Incorporated (“AG”) and its subsidiaries of Seattle, Washington (the “AG Acquisition”). The Company estimated costs incurred to exit facilities acquired as part of the AG Acquisition, and such costs were accrued as purchase accounting exit cost liabilities and included in goodwill as part of the AG Acquisition, which was accounted for under FASB Statement No. 141, “Business Combinations” (“FAS 141”). The guidance under FAS 141 remains applicable to the Company given that the AG Acquisition date occurred prior to the effective date of the adoption of FASB Statement No. 141(R), “Business Combinations (Revised 2007)” – (now codified in ASC 805), which was adopted by the Company in the first quarter of fiscal 2010. During fiscal 2013, the actual cost of the exit plan for one of the Seattle facilities was determined to be $1.2 million less than the amount originally accrued, and the reduction in the exit cost liability was recognized with a corresponding reduction in goodwill.

Intangible assets, excluding goodwill, are included in other assets in the consolidated balance sheets. Intangible assets, other than goodwill and trademarks, are recorded at cost, less accumulated amortization. Amortization of intangible assets with finite lives is provided over their estimated useful lives ranging from 3 to 144 months on a straight-line or accelerated basis. As of October 1, 2016 and October 3, 2015, balances of intangible assets with finite lives, net of accumulated amortization, goodwill and trademarks were as follows:

Amortization expense for other intangible assets was $8.5 million, $10.6 million and $7.6 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively. Amortization expense for other intangible assets is estimated to be $3.8 million in fiscal 2017, $2.2 million in fiscal 2018, $1.8 million in fiscal 2019, $1.2 million in fiscal 2020, $0.6 million in fiscal 2021 and $1.0 million thereafter.

Capitalized Software Costs. The Company capitalizes costs associated with the development of software for internal use pursuant to ASC Topic 350-40 “Intangibles – Goodwill and Other – Internal use software” and amortizes the costs over a 3 to 5-year period. These costs were $15.1 million and $12.4 million (net of accumulated amortization of $57.9 million and $56.8 million) at October 1, 2016 and October 3, 2015, respectively, and are included in other assets in the consolidated balance sheets. Costs incurred in planning, training and post-implementation activities are expensed as incurred.

Long-Lived Asset Groups. The Company reviews long-lived asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to expected future cash flows generated by the asset group. If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, the carrying amount is compared to fair value and an impairment charge is recognized to the extent of the difference. On a quarterly basis, the Company assesses whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived asset groups may not be recoverable. In July 2016, we ceased operating our Southern California Dairy Division manufacturing facility (see Part I, Item 1, “Business – Recent Developments – Dairy Divisions” for additional discussion). Due to the closure of this facility, land, building and leasehold improvements totaling $5.4 million have been reclassified to assets held for sale on our consolidated balance sheets at October 1, 2016. We evaluated these assets for impairment at October 1, 2016, and we concluded there was no impairment of these assets as we are actively marketing these assets and have received offers in excess of their carrying amount. In addition, this facility had equipment with a net book value of $2.2 million, and we sold $0.9 million of these assets subsequent to the closure of the facility. The remaining $1.3 million of equipment was deemed to be impaired and

we accordingly wrote off the remaining equipment during the fourth quarter of fiscal 2016. Other than the foregoing, the Company concluded that there were no material events or significant changes in circumstances that led to impairment during fiscal 2016 and 2015.

Lease and Loan Guarantees. The Company evaluates lease and loan guarantees pursuant to ASC Topic 460 “Guarantees” (“ASC Topic 460”). Guarantees meeting the characteristics described in the interpretation are initially recorded at fair value. The Company is contingently liable for certain leases guaranteed for certain Members (See Notes 9 and 20).

Income Taxes. Unified operates primarily as a grocery wholesaler serving independent supermarket operators. In addition, the Company has several wholly-owned subsidiaries providing support services to its customers. These services are provided on a non-patronage basis and any earnings from these activities are taxable. In addition, the Company conducts wholesale business with Non-Member customers on a non-patronage basis and such earnings are retained by the Company and are taxable. The earnings of the Company’s subsidiaries and the business conducted with Non-Member customers are collectively referred to as “Non-Patronage Business.” Otherwise, the Company principally operates as a non-exempt cooperative owned by the Members for income tax purposes. Earnings from business (other than Non-Patronage Business) conducted with its Members are distributed to its Members in the form of patronage dividends. This allows the Company to deduct, for federal and certain state income tax purposes, the patronage dividends paid to Members made in the form of qualified written notices of allocation based on their proportionate share of business done with the cooperative.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s ability to realize the deferred tax asset is assessed throughout the year and a valuation allowance is established accordingly.

Revenue Recognition. The Company recognizes revenue in accordance with U.S. GAAP and with Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin Topic 13, “Revenue Recognition,” which clarifies certain existing accounting principles for the timing of revenue recognition and classification of revenues in the financial statements. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Revenue generated from the Company’s Wholesale Distribution segment is not recognized until title and risk of loss is transferred to the customer, which occur upon delivery of the products. Provisions for discounts, rebates to customers, and returns are provided for at the time the related sales are recorded, and are reflected as a reduction of sales. Service revenues are recognized when such services have been rendered. Taxes collected from customers and remitted to governmental authorities are reported on a net basis.

We make available to our customers additional products through vendor direct arrangements with certain preferred providers. Revenues and costs from these vendors are recorded gross when the Company is the primary obligor in a transaction, is subject to inventory or credit risk, has latitude in establishing price and selecting suppliers, or has several, but not all of these indicators. If the Company is not the primary obligor and amounts earned have little or no inventory or credit risk, revenue is recorded net when earned.

The Company’s vendor direct arrangements (recorded net) totaled $100.8 million, $117.0 million and $112.4 million for the years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

Vendor Funds. The Company receives funds from many of the vendors whose products the Company buys for resale to its Members. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of vendors’ products in the Members’ advertising; placement of vendors’ products in prominent locations in the Members’ stores; introduction of new products into the Company's distribution system and Members’ stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at Members’ stores.

Consideration received from the Company’s vendors is reflected as a reduction of inventory costs or as an offset to service costs incurred on behalf of the vendor for which the Company is being reimbursed. Amounts recorded as a reduction of inventory costs at the time of purchase are recognized in cost of sales upon the sale of the product and amounts received as reimbursement of specific incremental costs to sell the vendor’s products by the Company on behalf of the vendor are recognized as a reduction in distribution, selling and administrative expenses. Amounts due from vendors upon achievement of certain milestones, such as minimum purchase volumes, are accrued prior to the

achievement of the milestone if the Company believes it is probable the milestone will be achieved, and the amounts to be received are reasonably estimable.

As the Company provides sales incentives to its customers, the Company adheres to ASC Topic 605, “Revenue Recognition,” which requires vendors’ (and resellers’) sales incentives, paid in the form of cash consideration to customers, to be reflected as a reduction of revenue in the financial statements of a reseller.

Shipping and Handling Costs. Costs for shipping and handling are included as a component of distribution, selling and administrative expenses. Shipping and handling costs were $232.7 million, $245.1 million and $224.9 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

Environmental Costs. The Company expenses, on a current basis, certain recurring costs incurred in complying with environmental regulations and remediating environmental pollution. The Company also reserves for certain non-recurring future costs required to remediate environmental pollution for which the Company may be liable whenever, by diligent legal and technical investigation, the scope or extent of pollution has been determined, the Company’s contribution to the pollution has been ascertained, remedial measures have been specifically identified as practical and viable, and the cost of remediation and the Company’s proportionate share can be reasonably estimated.

Comprehensive Earnings (Loss). Comprehensive earnings (loss) are net earnings, plus certain other items that are recorded by the Company directly to accumulated other comprehensive earnings (loss), bypassing net earnings. See Note 19 “Accumulated Other Comprehensive Earning (Loss)” for further information.

In November 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)” (“ASU No. 2016-18”). The amendments in ASU No. 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 does not provide a definition of restricted cash or restricted cash equivalents. ASU No. 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-18 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In August 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU No. 2016-16”). ASU No. 2016-16 requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-16 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU No. 2016-15”). ASU No. 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-15 commencing in the first quarter of fiscal 2019. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU No. 2016-13”). ASU No. 2016-13 requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by using a valuation account to deduct credit loss allowances from the amortized cost basis of the financial asset(s). In addition, credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. ASU No. 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of ASU No. 2016-13 is permitted. The Company will adopt ASU No. 2016-13 commencing in the first quarter of fiscal 2021. The Company is currently assessing the impact this standard may have on its financial statements and the related expansion of its footnote disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”). The principle objective of ASU No. 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and

lease liabilities on the balance sheet. ASU No. 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months. ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption of ASU No. 2016-02 is permitted. The Company will adopt ASU No. 2016-02 commencing in the first quarter of fiscal 2020. The Company is currently assessing the impact this standard may have on its financial statements and the related expansion of its footnote disclosures.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No. 2016-01”). The principle objective of ASU No. 2016-01 is to improve the reporting of financial instruments in order to provide users of financial statements with more decision-useful information. ASU No. 2016-01 requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The amendment also affects the presentation and disclosure requirements for financial instruments. ASU No. 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will adopt ASU No. 2016-01 commencing in the first quarter of fiscal 2019. The Company is currently assessing the impact this standard may have on its financial statements and the related expansion of its footnote disclosures.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on organizations’ balance sheets.

ASU No. 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent.

The amendments apply to all organizations that present a classified balance sheet. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company will adopt ASU No. 2015-17 commencing in the first quarter of fiscal 2018. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-12, Plan Accounting – Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965) – (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient” (“ASU No. 2015-12”). ASU No. 2015-12 covers three distinct items. Item I removes the requirement to disclose fully benefit-responsive investment contracts at their fair value with a reconciliation to their contract value. A fully benefit-responsive investment contract’s relevant measure is the contract amount as that is the amount a participant would receive upon disbursement. Item II eliminates the current requirement to disclose (1) individual investments that represent 5% or more of net assets available for benefits and (2) the net appreciation or depreciation for investments by general type for investments that are participant-directed or non-participant directed investments. Companies are still required to disclose the net appreciation or depreciation of investments in the aggregate for the period, but are no longer required to present the information disaggregated by general type. Item III amends each of the above topics to allow a practical expedient for measurement of plan assets on a month-end date that is nearest to the Company’s fiscal year-end. ASU No. 2015-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Retrospective application is required for items I and II; however, only prospective application is allowed for item III. Early adoption of ASU No. 2015-12 is permitted. The Company early adopted ASU No. 2015-12 beginning with the Company’s fiscal year-end 2015. ASU No. 2015-12 did not have an impact on the Company’s financial statements and had a minimal impact on the related footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330) – Simplifying the Measurement of Inventory” (“ASU No. 2015-11”). ASU No. 2015-11 requires entities to measure most inventory at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” ASU No. 2015-11 will not apply to inventories that are measured by using either the last-in, first-out (LIFO) method or the retail inventory method (RIM). No other changes were made to the current guidance on inventory measurement. ASU No. 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. The Company will adopt ASU No. 2015-11 commencing in the first quarter of fiscal 2018. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820) – Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU No. 2015-07”). ASU No. 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient and instead requires disclosure of sufficient information about these investments to permit reconciliation of the fair value of investments categorized within the fair value hierarchy to the investments presented in the consolidated balance sheet. ASU No. 2015-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Retrospective application is required. Early application of ASU No. 2015-07 is permitted. The Company anticipates that it will elect early adoption of ASU No. 2015-07 coincident with the Company’s fiscal year end 2016. Other than the reduction of certain disclosures for its defined benefit plan investments that use the net asset value per share practical expedient, the Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In April 2015, the FASB issued ASU No. 2015-04, “Compensation – Retirement Benefits (Topic 715) – Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets” (“ASU No. 2015-04”). ASU No. 2015-04 provides an entity whose fiscal year does not coincide with a calendar month-end to utilize a practical expedient for the measurement of the entity’s defined benefit plan assets. The practical expedient allows an entity to measure its plan assets as of the nearest calendar month-end that is closest to the entity’s fiscal year-end. The month-end selected must be consistently used amongst all plans if an entity has more than one plan and must be applied consistently from year to year. ASU No. 2015-04 also provides guidance for significant events that occur between the entity’s fiscal year-end and the month-end selected for measurement. If the event is an entity-initiated event that results in a plan remeasurement, then the plan assets must also be revalued (there is a practical expedient allowed similar to the overall practical expedient). If the event is out of the entity’s control (for example, changes in market prices or interest rates), the entity is not required to remeasure the assets. An entity must disclose the practical expedient election and the date used to measure the assets and obligations. ASU No. 2015-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company will adopt ASU No. 2015-04 commencing in the first quarter of fiscal 2017. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”). ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU No. 2015-03. Entities should apply the amendments in ASU No. 2015-03 on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance.

Since the issuance of ASU No. 2015-03, it has been unclear whether and, if so, how ASU No. 2015-03 applies to revolving debt arrangements. At the Emerging Issues Task Force’s June 18, 2015 meeting, the SEC staff clarified that ASU No. 2015-03 does not address debt issuance costs associated with such arrangements and announced that it would “not object to an entity deferring and presenting such costs as an asset and subsequently amortizing the costs ratably over the term of the revolving debt arrangement.” The Company anticipates that it will elect to apply the accounting policy outlined by the SEC staff as stated above. Under that policy, an entity presents remaining unamortized debt issuance costs associated with a revolving debt arrangement as an asset even if the entity currently has a recognized debt liability for amounts outstanding under the arrangement. Further, such costs are amortized over the life of the arrangement even if the entity repays previously drawn amounts.

For public entities, ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company will adopt ASU No. 2015-03 commencing in the first quarter of fiscal 2017. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU No. 2014-09”). The FASB indicated that ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and International Financial Reporting Standards that (1) removes inconsistencies and weaknesses in revenue requirements; (2) provides a more robust framework for addressing revenue issues; (3) improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provides more useful information to users of financial statements through improved disclosure requirements; and (5) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those

goods or services. The original effective date for ASU No. 2014-09 would have required the Company to adopt commencing in the first quarter of fiscal 2018. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 for an additional year and provided the option to elect early adoption of ASU No. 2014-09 on the original effective date. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU No. 2016-08”). ASU No. 2016-08 does not change the core principle of the guidance under ASU No. 2014-09; however, it does clarify the implementation guidance on principal versus agent considerations and includes indicators to assist in evaluating whether an entity controls the good or the service before it is transferred to the customer. In April 2016, the FASB issued ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing” (“ASU No. 2016-10”). ASU No. 2016-10 does not change the core principle of the guidance under ASU No. 2014-09; however, it does clarify the implementation guidance on identifying performance obligations and licensing while retaining the related principles for those areas. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. Accordingly, the Company will adopt ASU No. 2014-09 commencing in the first quarter of fiscal 2019. The Company is currently assessing the impact this standard may have on its consolidated financial statements and the related expansion of its footnote disclosures.

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU No. 2013-11”). ASU No. 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such asset is available. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company adopted ASU No. 2013-11 in fiscal 2015. The adoption of ASU No. 2013-11 did not have a material impact on the Company’s consolidated financial statements or the related footnote disclosures.

In its Notification of Late Filing on Form 12b-25 dated December 19, 2014, with respect to the Company’s Annual Report on Form 10-K for the year ended September 27, 2014, the Company announced that the Audit Committee of the Company’s Board of Directors (“Audit Committee”) was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by the Company’s former insurance subsidiaries and related matters (the “Audit Committee Investigation”).

In conjunction with the findings of the Audit Committee Investigation, and in consultation with outside actuarial professionals engaged by the Audit Committee and by the Company, management concluded that errors existed in the insurance reserves reported within the Company’s previously issued financial statements. Management determined that the quantitative effect and qualitative nature of the errors did not require restatement and re-issuance of previously issued financial statements. As noted in Note 3, “Assets Held for Sale/Discontinued Operations,” the Company’s Insurance segment was sold on October 7, 2015 and is no longer part of the Company’s continuing operations.

The Company determined, in conjunction with the findings of the Audit Committee Investigation that during fiscal year 2014 and the prior periods presented in its Annual Report on Form 10-K for the fiscal year ended October 3, 2015, the case reserving practices and related accounting within the former insurance subsidiaries deviated from the established policy of setting case reserves at the best estimate of ultimate cost. The lack of compliance with the former insurance subsidiaries’ policy and inconsistent practices over time introduced errors into the actuarial models which determined overall loss reserves, and thus management concluded that a portion of the increases of required reserves experienced in 2013 and 2014 should have been accounted for in prior periods.

Extensive actuarial analysis was performed in order to estimate the error component of the insurance reserves, and the resulting calculation of the cumulative pre-tax and after tax error. In order to correct the insurance reserves errors, the discontinued operations of Springfield Insurance Company (one of the Company’s former insurance subsidiaries) for the fiscal year ended September 27, 2014, included cumulative additional expense for insurance reserves applicable to prior fiscal periods on a pre-tax and after tax basis of approximately $2.0 million and $1.9 million, respectively. Had this expense been recorded in the proper periods, pre-tax and after tax earnings (loss) from discontinued operations for fiscal 2014 would have been $4.2 million and $2.1 million higher, respectively; pre-tax and after tax earnings (loss) for fiscal

2013 would have been $2.9 million and 1.9 million higher, respectively; and retained earnings as of September 30, 2012 would have been $6.0 million lower. Management determined that the quantitative effect and qualitative nature of the errors do not require restatement and re-issuance of previously issued financial statements.

In addition, the Audit Committee Investigation concluded that a related party transaction that occurred at our former insurance subsidiaries in fiscal year 2012 was not properly reviewed and approved, and was not properly disclosed. The transaction involved changes to the deductible structure and other characteristics of a portfolio of workers compensation policies held by the former insurance subsidiaries. The portfolio contains policies for employees of a customer affiliated with a Member- Director. See Note 20, “Related Party Transactions,” for further information on this transaction.

The Company incurred approximately $2.8 million and $5.5 million in expenses through the fiscal years ended October 1, 2016 and October 3, 2015, respectively, in connection with the Audit Committee Investigation. Approximately $0.1 million and $0.7 million of these expenses were included in the Company’s loss on sale of discontinued operations (see Note 3).

On October 7, 2015 (the “Closing Date”), the Company completed the sale of all of the outstanding shares of the Company’s wholly owned subsidiary, Unified Grocers Insurance Services (“UGIS”), to AmTrust Financial Services, Inc. (“AmTrust” or the “Buyer”) pursuant to the terms of a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and between the Company and AmTrust dated as of April 16, 2015. As of the Closing Date, UGIS owned all of the outstanding shares of the capital stock of Springfield Insurance Company (“SIC”) and Springfield Insurance Company Limited (Bermuda) (“SICL,” and collectively with UGIS and SIC, the “Acquired Companies”). For additional information, see Item 1.01. “Entry into a Material Definitive Agreement,” including Exhibit 99.1, “Stock Purchase Agreement by and between Unified Grocers, Inc. and AmTrust Financial Services, Inc. dated as of April 16, 2015” thereto, of the Company’s Current Report on Form 8-K, filed on April 22, 2015 and Item 2.01. “Completion of Acquisition of Disposition of Assets,” including Exhibit 99.2 “Master Services Agreement by and between Unified Grocers, Inc. and AmTrust Financial Services, Inc. dated as of October 7, 2015” thereto, of the Company’s Current Report on Form 8-K, filed on October 14, 2015. The Acquired Companies were previously reported by the Company as a segment identified as the Insurance Segment (“Insurance”).

The Company received $26.2 million in cash proceeds for the Acquired Companies, representing an agreed-upon discount to the Tangible Book Value (“TBV”), which was calculated as defined in the Stock Purchase Agreement. In May 2016, AmTrust delivered to the Company a final closing statement, including its calculation of the TBV as of the Closing Date. The final purchase price was adjusted to reflect an increase in the purchase price of $0.4 million between the estimated TBV as of the Closing Date and the actual TBV as of the Closing Date.

At the Closing Date, AmTrust and the Company also entered into a Master Services Agreement for a term of five (5) years, pursuant to which, among other things, each party agreed to provide the other with certain transition services relating to the business of the Acquired Companies. AmTrust has also agreed to pay the Company an annual payment following each of the first five years (ended December 31) of the term of the Master Services Agreement (each, an “Earn-Out Payment”). Each Earn-Out Payment will be equal to four and one-half percent (4.5%) of gross written premium in respect of each of these first five years. For purposes of such payments, gross written premium will be based on premiums written on or attributable to all insurance policies purchased during the applicable year by members or customers of the Company, issued by SIC or SICL or any other affiliate of AmTrust, to the extent that such policies were purchased from or through UGIS or by a different sales channel if there is a change in UGIS.

Based on agreed upon terms with AmTrust, the Company recorded a $1.3 million impairment on the Company’s investment in Acquired Companies. Additionally, the Company wrote-off $0.7 million in expenses related to the Audit Committee Investigation and incurred $1.2 million in selling costs related to the Acquired Companies. The Acquired Companies incurred an operating loss of $3.7 million for the fiscal year ended October 3, 2015.

For the year ending October 1, 2016, the Company had net earnings of $0.3 million attributable to its discontinued operations. As indicated above, in May 2016, the final purchase price was adjusted to reflect an increase in the purchase price of $0.4 million between the estimated TBV as of the Closing Date and the actual TBV as of the Closing Date. In addition, approximately $0.1 million of Audit Committee Investigation expenses (see Note 2) were included in the Company’s loss on sale of discontinued operations.

During fiscal 2016, AmTrust provided the Company with quarterly reports on the Earn-Out calculations. As described above, the Earn-Out is calculated as a percentage of the written policies related to the Company and customers of UGIS at the time of the sale. The policies written cover a one-year period from the date of the policy. The Company recorded the future Earn-Out on a straight line basis from the period for which the policies were written. In fiscal 2016, the Earn-Out recognized was a pro-rated amount of $0.6 million of the $0.8 million earned. The Company believes there is a potential for reserves to deteriorate, with our potential exposure limited as defined above by the terms of the Stock Purchase Agreement. AmTrust performs its actuarial studies once a year as of December 31. The first reserve measurement impacting the Company’s sale agreement with AmTrust will not take place until December 31, 2016. The Company’s maximum potential exposure at October 1, 2016 as a result of adverse development was determined to be $1.6 million ($1.0 million in potential purchase price adjustment that would be reflected in discontinued operations and $0.6 million related to the Earn-Out Payments that would be reflected in continuing operations). The Company believes reserves were adequate at the time of the sale and has not received sufficient information from AmTrust to determine the amount of adverse development that has occurred, if any. The Company has begun discussions with AmTrust regarding the management of claims and how to improve results. Accordingly, the Company has concluded that a loss reserves accrual representing a purchase price or Earn-Out adjustment would not be appropriate at this time, as such amount is not reasonably estimable.

The Company’s historical financials have been revised to present the operating results of the Acquired Companies as discontinued operations.

Summarized results of the discontinued operations are as follows for the years ended October 3, 2015 and September 27, 2014:

The operating results of the Acquired Companies were historically reported as the results of operations included in the Insurance segment.

Assets and liabilities identifiable within the Acquired Companies are reported as “Assets held for sale – current” and “Liabilities held for sale – current,” respectively, in the Company’s consolidated balance sheets. The major classes of assets and liabilities of the held-for-sale discontinued operations as of October 3, 2015 are as follows:

Statements of Cash Flows for the discontinued operations for the last two fiscal years:

In July 2016, the Company ceased operating its Southern California Dairy Division manufacturing facility (see Part I, Item 1, “Business – Recent Developments – Dairy Divisions” for additional discussion). Due to the closure of this facility, land, building and property improvements totaling $5.4 million have been reclassified to assets held for sale on the accompanying consolidated balance sheets at October 1, 2016. Management believes the carrying amount of such assets will be recovered principally through a sale transaction rather than continuing use and the sale of the assets (or disposal group) is probable, and transfer of the assets (or disposal group) is expected to qualify for recognition as a

completed sale within one year. The Company evaluated these assets for impairment at October 1, 2016 and concluded there was no impairment of these assets as the Company is actively marketing these assets and has received offers in excess of their carrying amount. In addition, this facility had equipment with a net book value of $2.2 million, and the Company sold $0.9 million of these assets subsequent to the closure of the facility. The remaining $1.3 million of equipment was deemed to be impaired and the Company accordingly wrote-off the remaining equipment during the fourth quarter of fiscal 2016.

Consolidated depreciation and amortization expense related to properties and equipment was $14.9 million, $14.0 million and $13.8 million for the years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

Amortization expense related to capital leases was $0.7 million and $0.1 million for the years ended October 1, 2016 and October 3, 2015, respectively. There was no amortization expense related to capital leases for the fiscal year ended September 27, 2014.

During the fiscal years ended October 1, 2016 and October 3, 2015, the Company did not hold any trading or held-to-maturity securities.

Net investment income, which is included in net sales, is summarized as follows:

Equity investments held by the Company that do not have readily determinable fair values are accounted for using the cost or equity methods of accounting. The Company evaluated its equity investments for impairment as of October 1, 2016 and October 3, 2015, and the Company did not consider any of these equity investments to be impaired.

The Company held investments in Western Family Holding Company (“Western Family”) common stock of $8.6 million and $9.0 million at October 1, 2016 and October 3, 2015, respectively. Western Family is a private company located in Oregon from which the Company purchases food and general merchandise products. The investment represents approximately a 17.2% ownership interest at October 1, 2016 and October 3, 2015, respectively. The Company’s ownership percentage in Western Family is based, in part, on the volume of purchases transacted with Western Family. The investment is accounted for using the equity method of accounting.

In June 2016, Western Family reached an agreement with Topco Associates, LLC (“Topco”) authorizing Topco to procure, manage and market Western Family’s private label brands, including the Western Family and Natural Directions national brand equivalent corporate brands that are sold through the Company. Western Family will continue to own its private label brands and Unified will continue its ownership in Western Family. Western Family announced that the transition of procurement and marketing to Topco will take several months, with all orders and invoices continuing through Western Family until that time. When the transition of the products is complete, Western Family’s headquarters in Oregon will close and Western Family will lay off the majority of its workforce. In conjunction with its agreement with Topco, Western Family provided its investors an estimate of the anticipated costs for the closure of its headquarters, and the Company has accordingly reduced its investment in Western Family by its proportionate share of such costs in the amount of $0.4 million.

As discussed in Part I, Item 1, “Business – Products – Corporate Brands,” the Company currently sells products under national brand equivalent and value-oriented corporate brands. During fiscal 2016, the Company joined Topco, a cooperative, concurrent with an investment of $60 thousand in Topco’s capital stock. Topco is a privately held company headquartered in Illinois that provides procurement, quality assurance, packaging and other services exclusively for its member-owners, which include supermarket retailers, food wholesalers and foodservice companies. Commencing in the fourth quarter of fiscal 2016, the Company began transitioning to Topco as its primary supplier for the Company’s Springfield national brand equivalent corporate brand and its value-oriented Special Value corporate brand products. In addition, Topco will serve as the Company’s sole-source supplier for general merchandise and health and beauty care products under its TopCare label. The investment is accounted for using the cost method of accounting.

The Company’s wholly-owned finance subsidiary, Grocers Capital Company (“GCC”), has an investment in National Consumer Cooperative Bank (“NCB”), which operates as a cooperative and therefore its participants are required to own its Class B common stock. The investment in the Class B common stock of NCB, accounted for using the cost method of accounting, aggregated $4.1 million at both October 1, 2016 and October 3, 2015. The Company recognized $11 thousand and $6 thousand of dividend income from NCB in fiscal years 2016 and 2015, respectively. The Company did not recognize dividend income from NCB in fiscal year 2014.

The Company’s notes payable and scheduled maturities are summarized as follows:

The Company is party to an Amended and Restated Credit Agreement dated as of June 28, 2013, as amended by the First Amendment and Consent dated as of June 27, 2014 and as further amended by the Second Amendment, Consent and Lender Joinder dated as of December 18, 2014, the Consent dated as of June 26, 2015 and the Consent dated as of December 28, 2015 (as so amended, the “Credit Agreement”), among the Company, Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent (“Administrative Agent”), and the lenders party thereto. The Credit Agreement originally provided for a revolving credit facility with total commitments in the principal amount of $275 million and a term loan in the amount of $40.9 million. Certain capitalized terms used in this description of the Credit Agreement have the meanings given to them in the Credit Agreement.

On June 27, 2014, the Company entered into a First Amendment and Consent (the “First Amendment”) with Wells Fargo, as Administrative Agent, and the lenders party thereto, modifying the Credit Agreement. The First Amendment provided for a modification of the excess availability calculations under the Credit Agreement to accommodate normal seasonal working capital needs in the period from June 27, 2014 to January 15, 2015. The First Amendment did not change the $275 million maximum amount that could have been borrowed under the Credit Agreement, but did provide additional flexibility under certain provisions of the Credit Agreement and increased the aggregate amount of permitted credit facilities of the Company’s finance and former insurance subsidiaries from $25 million to $30 million. The Amendment,

except as expressly stated, did not modify the Credit Agreement and other loan documents, which remained unmodified and in full force and effect.

On December 18, 2014, the Company entered into a Second Amendment, Consent and Lender Joinder (the “Second Amendment”) among the Company (excluding our wholly-owned finance subsidiary and our former insurance subsidiaries), Wells Fargo, as Administrative Agent, and the lenders party thereto. The Second Amendment amended the existing Credit Agreement.

The Credit Agreement, as amended by the Second Amendment, provides for a revolving credit facility (the “Revolver”) with total commitments (“Revolving Loan Commitments”) in the principal amount of $370 million (increased by the Second Amendment from $275 million) (as such amount may be increased by any increases in the Revolving Loan Commitments and decreased by any reductions in the Revolving Loan Commitments, in each case pursuant to the Credit Agreement) (the “Maximum Revolver Amount”) and a term loan in the amount of $100 million (increased by the Second Amendment from $40.9 million) (the “Term Loan”). Borrowings under the Revolver may be made as revolving loans, swing line loans or letters of credit.

The Credit Agreement matures June 28, 2018. The purpose of the Revolver is to finance working capital and other general corporate needs, which may include capital expenditures and Permitted Acquisitions (as defined in the Credit Agreement). The purpose of the Term Loan was for prepayment of the entire remaining balance of the Company’s senior secured notes pursuant to its Amended and Restated Note Purchase Agreement dated as of January 3, 2006, as amended (the “Senior Note Agreement”), with the then-current noteholders and John Hancock Life Insurance Company (U.S.A.) (“John Hancock”), acting in its capacity as collateral agent for the then-current noteholders (the “Hancock Debt”), and for payment of fees and expenses related to the repayment of the Hancock Debt, and (to the extent of any proceeds of the Term Loan remaining after payment of the Hancock Debt) for the same purposes as the Revolver. The Term Loan is subject to prepayment, if any appraisal of the Term Loan Real Estate shows the outstanding balance of the Term Loan exceeds 60% of the appraised value of the Term Loan Real Estate, in the amount of such excess. The Second Amendment added to the Term Loan Real Estate certain real property of the Company that had secured the Hancock Debt. The principal of the Term Loan is to be repaid monthly beginning January 31, 2015, in an amount per month of $0.8 million (changed by the Second Amendment from an amount per month of $0.4 million, payment of which was due beginning July 31, 2013).

The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries, excluding its finance and former insurance subsidiaries, and are secured by grants of security interests in the accounts receivable, inventory, deposit accounts and certain related collateral (subject to exceptions) of the Company and the guarantor subsidiaries, and in the Term Loan Real Estate. The obligations are also senior to the rights of the Company’s Members with respect to Partially Subordinated Patrons’ Deposit Accounts and patronage dividend certificates, if any.

70% of Eligible Inventory or (b) 90% of the Net Recovery Percentage of Eligible Inventory, less reserves, if any, established by the Administrative Agent. The FILO Borrowing Base is calculated as 5% of all Eligible Accounts, plus the lesser of (a) 5% of Eligible Inventory or (b) 5% of the Net Recovery Percentage of Eligible Inventory. All Revolving Loans at any time outstanding are allocated first to the FILO Revolving Loan Commitments up to the amount of FILO Availability, and then to the Tranche A Revolving Loan Commitments.

Borrowings under the Revolving Loan Commitment and Term Loan bear interest at an interest rate determined by reference either to the Base Rate or to the Eurodollar Rate with the rate election made by the Company at the time of the borrowing or at any time the Company elects to continue or convert a Loan or Loans, while swing loan borrowings bear interest at an interest rate determined by reference to the Base Rate. Tranche A Revolving Loans that are Base Rate Loans will bear interest margins of between 0.50% per annum and 1.00% per annum, dependent upon the Company’s Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. Tranche A Revolving Loans that are Eurodollar Rate Loans will bear interest margins of between 1.50% per annum and 2.00% per annum, based upon the Company’s Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. FILO Revolving Loans that are Base Rate Loans will bear interest margins of between 1.75% per annum and 2.25% per annum, dependent upon the Company’s Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. FILO Revolving Loans that are Eurodollar Rate Loans will bear interest margins of between 2.75% per annum and 3.25% per annum, based upon the Company’s Average Excess Availability for the most recently completed month for which a Borrowing Base Certificate has been delivered. Amounts of the Term Loan that are Base Rate Loans will bear an interest margin of 1.00% per annum; amounts of the Term Loan that are Eurodollar Loans will bear an interest margin of 2.00% per annum. Swing line loans will bear interest at the Base Rate plus the interest margin for Tranche A Revolving Loans, or at such other rate as the Swing Line Lender offers in its discretion. Amounts available under Letters of Credit bear fees of 0.125% per annum plus the applicable Eurodollar Rate Margin for Tranche A Revolving Loans. If the Consolidated Fixed Charge Coverage Ratio for any period is less than 1.00 to 1.00, then the Base Rate Margin and the Eurodollar Rate Margin shall automatically increase by 0.50%. Undrawn portions of the commitments under the Credit Agreement bear commitment fees at a rate of either 0.25% per annum or 0.375% per annum, also dependent upon the Company’s Average Excess Availability. The Company may reduce the Revolving Loan Commitments at any time on five Business Days’ written notice, but not below the Total Utilization of Revolving Commitments, in a minimum amount of $2,500,000 and multiples of $100,000 in excess of that amount. The Company may reduce the FILO Revolving Loan Commitments at any time on five Business Days’ written notice in any amount that will not result in an Overadvance, in a minimum amount of $2,500,000 and multiples of $100,000 in excess of that amount.

The Company is subject to a financial covenant during the occurrence of a Financial Covenant Period. A Financial Covenant Period (a) commences when (i) an Event of Default occurs, (ii) Excess Availability is less than the greater of (A) $47.1 million (increased by the Second Amendment from $35 million) and (B) 12.7272% of the Maximum Revolver amount for a period of five consecutive Business Days or (iii) Excess Availability is less than the greater of (A) $40.4 million (increased by the Second Amendment from $30 million) and (B) 10.9090% of the Maximum Revolver Amount at any time and (b) continues until a period of 30 consecutive Business Days has elapsed during which at all times (i) no Event of Default exists and (ii) Excess Availability is equal to or greater than the greater of (A) $47.1 million (increased by the Second Amendment from $35 million) and (B) 12.7272% of the Maximum Revolver Amount. During a Financial Covenant Period, the Company is obligated to maintain a Consolidated Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, measured as of the end of the most recent Fiscal Month for which financial statements have been delivered prior to the date on which a Financial Covenant Period first begins and as of each Fiscal Month end while the Financial Covenant Period is in effect.

The Credit Agreement imposes financial conditions on the Company redeeming any of its Class A Shares and Class B Shares and repurchasing Class E Shares and paying cash dividends on Class E Shares (other cash dividends being generally prohibited), and prohibits distributions to shareholders and any repurchase of shares when an Event of Default has occurred and is continuing. The Credit Agreement also places certain restrictions on the payment of patronage dividends should an Event of Default occur. Events of Default include, but are not limited to, the failure to pay amounts due to lenders, violation of covenants, the making of false representations and warranties and specified insolvency-related events, subject to specified thresholds, cure periods and/or exceptions.

The Company is subject to negative covenants limiting permitted indebtedness, contingent obligations, liens, investments, acquisitions, restricted payments and certain other matters.

The Credit Agreement is an amended and restated agreement of the previous credit agreement dated as of October 8, 2010, as amended, restated, supplemented or otherwise modified from time to time prior to June 28, 2013. Therefore, in accordance with ASC section 470-50-40 Debt – Modification and Extinguishments – Derecognition (“ASC 470”), the Company in fiscal 2013 accounted for the Credit Agreement as a modification of debt. Accordingly, unamortized deferred

financing fees pertaining to the previous credit agreement ($1.4 million) are being amortized through the maturity date of the Credit Agreement (June 28, 2018).

The Company’s outstanding revolver borrowings under the Credit Agreement decreased to $137.6 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 3.05% per annum) from $161.8 million at October 3, 2015 (Eurodollar and Base Rate Loans at a blended average rate of 1.99% per annum). The Company’s outstanding term loan borrowings under the Credit Agreement were $82.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 2.52% per annum) and $92.5 million at October 3, 2015 (Eurodollar and Base Rate Loans at a blended average rate of 2.20% per annum). The Company’s outstanding FILO borrowings under the Credit Agreement were $15.5 million at October 1, 2016 (Eurodollar and Base Rate Loans at a blended average rate of 4.29% per annum) and $20.7 million at October 3, 2015 (Eurodollar and Base Rate Loans at a blended average rate of 3.20% per annum). As of October 1, 2016, the Company was in compliance with all applicable financial covenants of the Credit Agreement.

On December 28, 2015, we entered into a consent and waiver (the “Consent”) in which the Administrative Agent and the Lenders consented to the extension to June 30, 2016 (previously December 31, 2015 pursuant to the consent and waiver dated June 26, 2015) of the deadline for delivery of the annual financial statements required pursuant to the Credit Agreement and certain certificates and information required by the Credit Agreement to be delivered with financial statements required pursuant to the Credit Agreement. The annual financial statements and associated required certifications were delivered to the Administrative Agent and the Lenders on June 1, 2016.

The Company’s wholly-owned finance subsidiary, GCC, is party to an Amended and Restated Loan and Security Agreement, dated as of September 26, 2014 as amended by Amendment Number One dated as of June 26, 2015 and further amended by Amendment Number Two dated as of September 23, 2016 (as so amended, the “GCC Loan Agreement”), by and among GCC, the lenders party thereto, and ZB, N.A., dba California Bank & Trust (“CBT”), as Arranger and Administrative Agent. The GCC Loan Agreement amended and restated the existing loan agreement dated as of September 24, 2010, as amended or otherwise modified from time to time prior to September 26, 2014. The GCC Loan Agreement provides for a revolving credit facility with total commitments in the principal amount of $25.0 million. Borrowings under the GCC Loan Agreement may not exceed the amount equal to the Borrowing Base at such date (based upon the most recent Borrowing Base Certificate delivered by GCC to the Administrative Agent). The Borrowing Base is calculated as 80% of GCC’s eligible notes receivable (certain notes receivable restricted to 50%), less any reserves as may be established by the Administrative Agent. The GCC Loan Agreement matures on December 31, 2016. Certain capitalized terms used in this description of the GCC Loan Agreement have the meanings given to them in the GCC Loan Agreement. Borrowings under the GCC Loan Agreement are utilized to fund loans to the Company’s customers and for GCC’s general corporate purposes, including customary financing and operating activities.

On December 28, 2015, GCC received consent from CBT for the GCC Loan Agreement to extend the due date of the covenant requirement to deliver the Company’s consolidated audited financial statements, which was previously December 31, 2015, to June 30, 2016. See Item 1.01. “Entry into a Material Definitive Agreement – Amendment of Amended and Restated Credit Agreement” and “ – Grocers Capital Company Amended and Restated Loan and Security Agreement” of the Company’s Current Report on Form 8-K, filed on December 29, 2015, for additional information. The

consolidated audited financial statements and associated certifications of the Company were delivered to CBT on June 1, 2016.

The GCC Loan Agreement provides for revolving loans. At the election of GCC, revolving loans shall bear interest at the LIBOR Rate or the Base Rate, plus an interest rate margin. The interest rate margin for LIBOR Rate loans is 3.00% per annum. The interest rate margin for Base Rate loans is 0.75% per annum. Undrawn portions of the commitments under the GCC Loan Agreement bear commitment fees at the rate of 0.25% per annum. GCC had revolving loan borrowings of $15.0 million and zero under the GCC Loan Agreement bearing an interest rate of 4.00% (3.25% prime plus 0.75% interest rate margin), outstanding at October 1, 2016 and October 3, 2015, respectively.

Prior to December 18, 2014, the Company was party to a Senior Note Agreement with the then-current noteholders and John Hancock, acting in its capacity as collateral agent for the then-current noteholders, collectively referred to herein as the “Hancock Debt,” which originally consisted of three tranches of senior debt: $46.0 million, $40.0 million and $25.0 million with interest rates of 6.421%, 7.157% and 6.82%, respectively. On June 28, 2013, the Company entered into the seventh amendment (“Seventh Amendment”) to the Senior Note Agreement. Certain capitalized terms used in this description of the Seventh Amendment have the meanings given to them in the Seventh Amendment. The Seventh Amendment released the liens held by the Noteholders on certain real properties (the mechanized distribution center in Commerce, California and the dairy facility in Los Angeles, California) of the Company, and provided for modifications to and deletions of certain financial covenants, including the deletion of a financial covenant that had been previously provided for relating to the maximum permitted Indebtedness to Consolidated EBITDAP Ratio. The released properties now are collateral security for the lenders party to the Credit Agreement. In exchange, the Company paid the Noteholders $50 million plus all accrued and unpaid interest on the prepayment and paid the applicable Make-Whole Amount of $9.4 million, as calculated per the Senior Note Agreement, as well as an amendment fee of 0.5% of the outstanding principal balance of the Hancock Debt after giving effect to the prepayment contemplated by the Seventh Amendment. The prepayment was applied first to the Tranche C Notes (paid in full) with the remainder applied to the Tranche B Notes. The Seventh Amendment increased the fixed interest rate, effective July 1, 2013, for the Tranche A Notes to 7.907% per annum until the January 1, 2016 maturity date. The fixed interest rate for the unpaid portion of the Tranche B Notes, effective July 1, 2013, increased to 7.171% per annum until the January 1, 2016 maturity date. At the January 1, 2016 maturity date, a balloon payment of $45.6 million was due.

On December 18, 2014, the Company prepaid in full the Hancock Debt. The Company prepaid principal and interest on the Hancock Debt in the amount of $48.5 million, and paid the applicable Make-Whole Amount of $3.0 million, as calculated per the Senior Note Agreement, in connection with the prepayment. See Item 1.01. “Entry into a Material Definitive Agreement – Amendment and Restatement of Credit Facility” of the Company’s Current Report on Form 8-K, filed on December 19, 2014, for additional information.

During fiscal 2013, the Company entered into three secured credit facilities to finance our purchase of tractors. These agreements bear interest at a rate of 2.2% and mature in fiscal 2018. At October 1, 2016 and October 3, 2015, the outstanding loan balance under these three agreements totaled $0.8 million and $1.4 million, respectively.

The Company had zero and $1.5 million in standby letters of credit outstanding at October 1, 2016 and October 3, 2015, respectively, to secure various bank, insurance and vendor obligations.

The Company has entered into operating leases and non-cancelable capital leases for warehouse, transportation and data processing equipment.

The Company has also entered into operating leases for approximately 20 retail supermarkets. The majority of these locations are subleased to various Members of the Company. The operating leases and subleases are non-cancelable, renewable in certain instances, include purchase options that are not bargain purchase options, and require payment of real estate taxes, insurance and maintenance.

Rent expense for operating leases was $20.0 million, $18.1 million and $18.3 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively. Sublease rental income was $4.5 million, $3.9 million and $4.1 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

Minimum rentals on equipment under capital leases and properties leased by the Company, including properties subleased to third parties, as of October 1, 2016, are summarized as follows:

Future minimum sublease rental income on operating leases as of October 1, 2016 is summarized as follows:

At October 1, 2016, the Company was not contingently liable with respect to any lease guarantees as indicated in the table below.

In consideration of lease guarantees and subleases, the Company typically receives a monthly fee equal to 5% of the monthly rent under the lease guarantees and subleases. Obligations of Members to the Company, including lease guarantees, are generally supported by the Company’s right of offset, upon default, against the Members’ cash deposits and shareholdings, as well as in certain instances, personal guarantees and reimbursement and indemnification agreements.

The significant components of income tax (benefit) expense are summarized as follows:

The effects of temporary differences and other items that give rise to deferred tax assets and liabilities are presented below:

The Company had net deferred tax assets of $36.4 million and $40.4 million, of which $4.1 million and $9.2 million are classified as deferred income taxes in current assets and $32.3 million and $31.2 million are included in other assets in the consolidated balance sheets as of October 1, 2016 and October 3, 2015, respectively.

A valuation allowance is required to be provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The Company’s net deferred tax assets of approximately $36.4 million and $40.4 million were reduced by tax valuation allowances of $41.4 million and $29.3 million at October 1, 2016 and October 3, 2015, respectively. Management evaluated the available positive and negative evidence in determining the realizability of the net deferred tax assets at October 1, 2016 and October 3, 2015 and concluded it is more likely than not that the remaining deferred tax assets after applying the valuation allowances should be realized through future operating results, the reversal of taxable temporary differences, and tax planning strategies.

ASC 220, “Comprehensive Income,” requires an entity to disclose the amount of income tax expense or benefit allocated to each component of other comprehensive income (“OCI”) where these components are displayed. ASC 740, “Income Taxes,” prescribes an accounting model known as “intraperiod tax allocation” for allocating an entity’s annual income tax provision among continuing operations and other components, including OCI and discontinued operations. Pursuant to this guidance, the difference between total income tax expense or benefit from all components and the income tax expense or benefit from continuing operations is the incremental effect of items other than income from continuing operations. When a change in valuation allowance is directly attributable to an item of income or loss other than continuing operations, the tax consequence may be allocated to that other category of income or loss. Accordingly, $10.9 million and $13.4 million of valuation allowance have been recorded in OCI as of the fiscal years ended October 1, 2016 and October 3, 2015, respectively. Additionally, zero and $2.2 million of valuation allowance have been recorded to discontinued operations as of the fiscal years ended October 1, 2016 and October 3, 2015.

The Company had tax-effected federal net operating loss carryforwards of approximately $11.2 million and $15.9 million and state net operating loss carryforwards of approximately $1.7 million and $1.9 million as of the fiscal years ended

October 1, 2016 and October 3, 2015, respectively. A portion of the federal net operating loss is being carried forward under Internal Revenue Code Section 382 and expires in fiscal 2019 for federal income taxes. The remaining federal net operating loss carryforwards begin to expire in fiscal 2033. The state net operating loss carryforwards begin to expire in fiscal 2017.

The (benefit) provision for income taxes at the Company’s effective tax rate differed from the provision for income taxes at the federal statutory rate (34% in 2016, 2015 and 2014) as follows:

At October 1, 2016, management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its recognized tax positions. The Company continues to recognize interest and penalties accrued related to unrecognized tax benefits and penalties within its provision for income taxes. The Company had no material interest and penalties accrued at October 1, 2016.

As of October 1, 2016, the Company is subject to income tax examinations for its U.S. federal income taxes for fiscal years 2013 and thereafter and for state and local income taxes for fiscal years 2012 and thereafter. The Company is currently not under audit for any of its income tax jurisdictions.

Unified distributes patronage dividends to its Members based upon its patronage earnings during a fiscal year. Non-Member customers are not entitled to receive patronage dividends. The Board approves the payment of patronage dividends and the form of such payment for the Company’s three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division.

The following table summarizes the patronage dividends distributed by Unified during the past three fiscal years.

For fiscal 2016, 2015 and 2014, there were no Cooperative Division patronage earnings available for distribution.

The financial statements reflect patronage dividends earned by Members as of the fiscal year ended October 1, 2016.

Patronage dividends produced by the dairy divisions were paid quarterly and were paid in cash.

Members of Unified are both owners and customers of the Company. A Member must (1) own 350 Class A Shares and a number of Class B Shares based upon the amount of such Member’s average weekly purchases of product from the Company, or as otherwise specified by the Board; (2) be of approved financial standing; (3) be engaged in selling grocery and related products at retail or wholesale; (4) purchase products from the Company in amounts and in a manner that is established by the Board; (5) make application in such form as is prescribed by the Company; and (6) be accepted as a Member by Board action.

Members of Unified are typically required to satisfy a minimum purchase requirement of $1 million in annual purchases from the Company. This requirement may be modified from time to time by the Board, having been most recently changed in April 2008 at the time of the AG Acquisition. Members at the time of this change, or who were shareholders or customers of AG who became Members in connection with the AG Acquisition, remain subject to the earlier requirement of $5,000 per week in purchases from the Company.

A customer that does not meet the requirements to be a Member, or does not desire to become a Member, may conduct business with the Company as a Non-Member. However, any customer that purchases more than $3 million of product from the Company annually is typically required to be a Member.

The Class A and Class B Shares are issued by Unified to its Members, and repurchased by the Company from its Members, a process referred to as the exchange of shares, in each case from time to time at the discretion of the Board and in accordance with the Company’s share purchase requirements and at a price (the “Exchange Value Per Share”) based on a formula approved by the Board. The Exchange Value Per Share, as currently calculated, is equal to Book Value (as defined below) divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year, excluding shares tendered for redemption. “Book Value” is computed based on (1) the fiscal year end balance of Class A and Class B Shares, excluding the redemption value of unredeemed shares tendered for redemption, plus (2) retained earnings, excluding non-allocated retained earnings. The Exchange Value Per Share, as currently calculated, is equal to Book Value (as defined below) divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year, excluding shares tendered for redemption. “Book Value” is computed based on (1) the fiscal year end balance of Class A and Class B Shares, excluding the redemption value of unredeemed shares tendered for redemption, plus (2) retained earnings, excluding non-allocated retained earnings.

There is no established public trading market for the Company’s shares. The Exchange Value Per Share is not intended to and should not be viewed as the amount for which any of our shares of capital stock or, in the aggregate, the Company or its net assets could be sold or the dollar amount that would be required to replace them.

The Non-Allocated Earnings Program authorizes the Board, in its sole discretion, to retain a portion of the Company's annual earnings from its Non-Patronage Business and not allocate those earnings to the Exchange Value Per Share. The Company retained zero of fiscal 2016, fiscal 2015 and fiscal 2014 non-patronage earnings under the Non-Allocated Earnings Program. The amount retained is not included in computing the issuance and redemption prices of the Class A or Class B Shares. In addition, the Non-Allocated Earnings Program grants the Board the authority to reallocate the non-allocated earnings back to the Exchange Value Per Share. The Non-Allocated Earnings Program authorizes the Board to establish a category of non-allocated equity, but does not restrict the uses of that non-allocated equity. The Board intends to use the non-allocated equity authorized by the Non-Allocated Earnings Program for the same general purposes as the Board uses the Company's retained earnings, including support of the growth of its business, other than the payment of the redemption price of Class A and Class B Shares.

The Class C and Class E Shares are exchanged with the Company’s directors and Members, respectively, at a fixed stated value.

The Company’s Bylaws require that each Member own 350 Class A Shares, though in certain instances the Board may accept for membership an affiliate of a Member without such affiliate holding any Class A Shares where the owners of such affiliate are the same, or sufficiently the same, as those of the Member, and the Member already holds the required number of Class A Shares. Holders of Class A Shares are entitled to one vote per share on all matters to be voted upon by the shareholders, and the holders of the Class A Shares are entitled to elect 80% of the Company’s authorized number of directors. If a person holding Class A Shares ceases to be a Member, the Class A Shares held by such outgoing Member are subject to redemption. See “—Redemption of Class A and Class B Shares and Repurchase of Class E Shares.”

Such persons or entities who from time to time may be accepted as new Members of Unified will be required to purchase or subscribe for the purchase of the number of Class A Shares in the manner set forth in the preceding paragraph. The price for these shares is the Exchange Value Per Share of the Company’s outstanding shares at the close of the fiscal year end prior to purchase. At October 1, 2016 and October 3, 2015, the Exchange Value Per Share was $200.27 and $218.27, respectively.

The Company’s Bylaws require that each Member own such amount of Class B Shares as may be established by the Board. The holders of Class B Shares have the right to elect 20% of the Company’s authorized number of directors. Except as provided above or by California law, the holders of Class B Shares do not have any other voting rights. Any Class B Shares held by an outgoing Member or which are held by a Member in an amount in excess of that required by the Board are subject to redemption. See “—Redemption of Class A and Class B Shares and Repurchase of Class E Shares.”

The Company’s Board currently requires each Member to hold Class B Shares having an issuance value equal to approximately twice the Member’s average weekly purchases from the Cooperative Division, except that as to meat and produce purchases the requirement is approximately one times the Member’s average weekly purchases from the Cooperative Division (the “Class B Share Requirement”). If purchases are not made weekly, the average weekly purchases are based on the number of weeks in which purchases were actually made. For purposes of determining whether a Member holds Class B Shares having an issuance value satisfying the Class B Share Requirement, the issuance value of each Class B Share held by the Member is deemed to be the Exchange Value Per Share in effect at the close of the fiscal year end prior to the issuance of such Class B Share.

One of the ways in which Members may acquire Class B Shares is through the Company’s payment of Cooperative Division patronage dividends at the end of the Company’s fiscal year. If a Member, at the time a patronage dividend is declared, has not satisfied its Class B Share Requirement, the Company may issue Class B Shares to such Member as a portion of the Cooperative Division patronage dividends paid. As Class B Shares are issued as part of a Member’s patronage dividend distribution, the issuance value of such Class B Shares adds to the amount of Class B Shares held by such Member for purposes of satisfying the Class B Share Requirement.

The Class B Share Requirement is determined twice a year, at the end of the Company’s second and fourth fiscal quarters, based on a Member’s purchases from the Cooperative Division during the preceding four quarters. If at the end of the Company’s second fiscal quarter, after giving effect to the value of Class B Shares estimated to be issued as part of the next Cooperative Division patronage dividend, a Member does not hold Class B Shares with a combined issuance

value equal to the required amount of Class B Shares, the Company will typically require the Member to make a subordinated deposit (a “Required Deposit”) which may, at the Company’s option, be paid over a 26-week period. If at the end of the Company’s fourth fiscal quarter, after accounting for the issuance of Class B Shares as part of the Cooperative Division patronage dividend distribution declared for such fiscal year after the first year as a Member, a Member does not hold Class B Shares with a combined issuance value equal to the required amount of Class B Shares, then additional Class B Shares must be purchased by the Member in an amount sufficient to satisfy the requirement. The additional Class B Shares may be paid for by the Company charging the Member’s deposit fund in an amount equal to the issuance value of the additional Class B Shares or by direct purchase by the Member, which may be paid over a 26-week period. The Board may increase or otherwise change the Class B Share Requirement at its discretion.

In September 1999, the Company completed a merger (the “United Merger”) with United Grocers, Inc. (“United”), a grocery cooperative headquartered in Milwaukie, Oregon. In October 2007, the Company purchased certain assets and assumed certain liabilities of AG and its subsidiaries. Certain Members, including former shareholders of United and AG, also may satisfy their Class B Share Requirement with respect to stores owned at the time of admission as a Member solely from their patronage dividend distributions by electing to receive Class B Shares in lieu of 80% of the Cooperative Division qualified cash patronage dividends the Member otherwise would receive in the future until the Class B Share Requirement is satisfied. In order to make the election to satisfy their Class B Share Requirement solely from patronage dividend distributions, former shareholders of AG were required to enter into supply agreements with us. During the build-up of its Class B Share Requirement, such a Member is not required to provide a Required Deposit with respect to stores owned at the time of admission as a Member. Satisfaction of the Class B Share Requirement of such Members relating to new stores or growth in the sales of existing stores may not be satisfied solely from their patronage dividend distributions, but is subject to the same payment requirements that apply to other Members.

New Members typically must satisfy their Class B Share Requirement in one of two ways: (1) the purchase of Class B Shares at the time of their admission as a Member such that the required amount is held at that time; or (2) the acquisition of Class B Shares over a five-year period commencing at the start of the Company’s first fiscal year after the Member’s admission, at the rate of 20% of the required amount per fiscal year, such that by the start of the Company’s sixth full fiscal year after the Member’s admission, the required amount is held. If a new Member elects to satisfy the Class B Share Requirement through the acquisition of shares over a five-year period, it is typically required to make a Required Deposit with the Company for the full required amount during the five-year build-up of the Class B Share Requirement. The Required Deposit may generally be paid either in full upon acceptance as a Member or 75% upon acceptance and the balance paid over a 26-week period.

Required Deposits for new stores, replacement stores or growth in the sales of existing stores can be paid either in full or with a 50% down payment and the balance paid over a 26-week period.

The Company may make modifications to the requirements as to the timing of the purchase of Class B Shares and the timing and amount of the Required Deposit on a case-by-case basis, based on the particular circumstances of a Member.

A reduced investment option in lieu of the standard Class B Share Requirement (“SBI”) described above is available if certain qualifications are met. A Member may apply for a reduced Class B Share requirement (“RBI”), which requires the Member to pay for its purchases electronically on the statement due date and demonstrate credit-worthiness. The purpose of the RBI is to encourage Member growth by offering a reduced requirement if the qualifications are met and to provide a cap on the investment requirement at certain volume levels. The RBI is based on a sliding scale such that additional purchase volume marginally reduces the requirement as a percentage of purchase volume. Members who do not apply for the RBI remain on the SBI. However, once a Member has elected the RBI option, it must notify the Company in writing if it wishes to change its election. Generally, changes can only be made at the time of the second quarter recalculation of the Class B Share Requirement in March.

Certain of the Company’s directors hold Class C Shares. Each of such directors purchased one Class C Share for its stated value. Class C Shares are non-voting director qualifying shares, with no rights as to dividends or other distributions, and share in liquidation at their stated value of $10 per share. There are 24 authorized Class C Shares, of which 15 were outstanding as of October 1, 2016 and October 3, 2015.

Class E Shares were issued as a portion of the Cooperative Division patronage dividends in fiscal years 2003 through 2009, and may be issued as a portion of the Cooperative Division patronage dividends in future periods, as determined annually at the discretion of the Board. The Class E Shares are subject to repurchase by the Company at $100 per share,

do not have the potential to appreciate over time above $100 per share, do not accrue interest, and have no voting rights except as required by law. The Board does not intend to declare ordinary dividends on Class E Shares in the future. Class E Shares are transferable only with the consent of the Company, which will normally be withheld except in connection with the transfer of a Member's business to an existing or new Member for continuation of such business. Class E Shares become eligible for repurchase at the discretion of the Board ten years after their date of issuance. Pursuant to the Company’s redemption policy, Class E Shares will not be repurchased for ten years from their date of issuance unless approved by the Board or upon sale or liquidation of the Company, with the outstanding Class E Shares becoming eligible for repurchase between the end of fiscal 2013 and the end of fiscal 2018. Thereafter, shares may be repurchased by the Company subject to the limitations of California General Corporation Law, credit agreements, the Articles of Incorporation and Bylaws, redemption policy and approval by the Board.

Unified’s Articles of Incorporation and Bylaws provide that the Board has the absolute discretion to repurchase, or not repurchase, any Class A, Class B or Class E Shares of any outgoing Member regardless of when the membership terminated, and any Class B Shares in excess of the Class B Share Requirement (“Excess Class B Shares”) held by a current Member, whether or not the shares have been tendered for repurchase and regardless of when the shares were tendered. The Board considers the redemption of eligible Class A Shares at each board meeting. All other shares eligible for redemption are considered by the Board on an annual basis, usually in December. Class E Shares will only be repurchased upon approval of the Board, and the repurchase price for the Class E Shares is fixed at $100 per share.

Excess Class B Shares may be redeemed at the sole discretion of the Board. If the Member tendering the shares for repurchase is current on all obligations owing to the Company, and no grounds exist for termination of membership, such redemption may be affected by paying cash to the Member or crediting the redemption price to the Member’s account. The redemption price for such shares shall be the same as provided on the termination of membership. If the Member tendering the shares for repurchase is not current on all obligations owing to the Company, and no grounds exist for termination of membership, the Company may redeem such Excess Class B Shares and apply the proceeds against all amounts owing to the Company. The right to deduct any amounts owing to the Company against the total redemption price for shares is solely at the Company’s option. Shareholders may not offset or recoup any obligations to the Company or otherwise refuse to pay any amounts owed to the Company.

The Company’s redemption policy currently provides that the number of Class B Shares that Unified may redeem in any fiscal year is limited to no more than 5% of the sum of:

Unified’s Board has the absolute discretion to redeem Excess Class B Shares or to redeem Class A and Class B or repurchase Class E Shares of any outgoing Member regardless of when the membership terminated or the Class B Shares were tendered. The Board also has the right to elect to redeem Excess Class B or repurchase Class E Shares even though such redemption or repurchase has not been requested and without regard to each year’s five percent limit or any other provision of the redemption policy.

Subject to the Board’s determination and approval, any redemption or repurchase of shares will be on the terms and, subject to the limitations and restrictions, if any, set forth in the California General Corporation Law, the Company’s Articles of Incorporation and Bylaws, credit agreements to which the Company is a party, and the Company’s redemption policy, which is subject to change at the sole discretion of the Board.

The following tables summarize the Class A and Class B Shares tendered for redemption, shares converted, shares redeemed, and the remaining number of shares and their aggregated redemption value pending redemption at the fiscal year end of each of the following periods:

At the end of fiscal years 2015, 2014 and 2013, Class E Shares issued as a portion of fiscal years 2005, 2004 and 2003 patronage dividends became eligible for repurchase in fiscal years 2016, 2015 and 2014, respectively. During fiscal 2016 and 2015, respectively, the Company repurchased 91,013 and 2,809 Class E Shares at a price of $9.1 million and $0.3 million.

The Company sponsors a cash balance plan (“Unified Cash Balance Plan”). The Unified Cash Balance Plan is a noncontributory defined benefit pension plan covering substantially all employees of the Company who are not subject to a collective bargaining agreement. Under the Unified Cash Balance Plan, participants are credited with an annual accrual based on years of service with the Company. The Unified Cash Balance Plan balance receives an annual interest credit, currently tied to the 30-year Treasury rate that is in effect the previous November, but in no event shall the rate be less than 5%. On retirement, participants will receive a lifetime annuity based on the total hypothetical cash balance in their account. Benefits under the Unified Cash Balance Plan are provided through a trust. Prior to the end of fiscal 2014, the Company amended the Unified Cash Balance Plan to close the plan to new entrants effective December 31, 2014. In addition, the plan was frozen at December 31, 2014 such that current participants will no longer accrue salary-based service credits based on years of service with the Company and pensionable compensation after that date. The annual interest credit as described above will continue for participants active in the plan as of December 31, 2014. Selected groups of vested terminated participants were each given one-time opportunities to elect a lump sum distribution of their benefits or immediate receipt of an annuity as of December 2015 and December 2014. As a result, benefit payments of $8.7 million and $7.9 million, respectively, were distributed from the plan’s assets to those participants who elected such option prior to the end of each of the Company’s first quarters ended January 2, 2016 and December 27, 2014.

The Company also sponsors an Executive Salary Protection Plan III ("ESPPIII") that provides supplemental post-termination retirement income based on each participant's salary and years of service as an officer of the Company. Depending on when the officer became a participant in the ESPPIII, final salary is defined as the highest compensation of the last three years preceding employment separation or the average of the highest five years of compensation out of the last ten years preceding employment separation. The Company has informally funded its obligation to plan participants in a rabbi trust (not considered plan assets for valuation purposes), comprised primarily of life insurance policies reported at cash surrender value and mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. In accordance with ASC Topic 710, “Compensation – General”, the assets and liabilities of a rabbi trust must be accounted for as if they are assets and liabilities of the Company. The assets held in the rabbi trust are not available for general corporate purposes. In addition, all earnings and expenses of the rabbi trust are reported in the Company’s consolidated statement of earnings. The cash surrender value of such life insurance policies aggregated $22.4 million and $20.8 million at October 1, 2016 and October 3, 2015, respectively, and are included in other assets in the Company’s consolidated balance sheets. Mutual funds reported at their estimated fair value of $7.3 million and $10.5 million at October 1, 2016 and October 3, 2015, respectively, are included in other assets in the Company’s consolidated balance sheets. The related accrued benefit cost (representing the Company’s benefit obligation to participants) of $40.2 million and $40.7 million at October 1, 2016 and October 3, 2015, respectively, is recorded in long-term liabilities, other in the Company’s consolidated balance sheets. The rabbi trust is subject to the Company’s creditors’ claims in the event of its insolvency. The ESPPIII accrued benefit cost is included in the pension tables below. However, the trust assets are excluded from ESPPIII plan assets as they do not qualify as plan assets under ASC Topic 715, “Compensation – Retirement Benefits”.

Pension (benefit) expense for the Unified Cash Balance Plan and ESPPIII totaled $(1.9) million, $(0.8) million and $5.9 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

The components of net periodic cost for the Unified Cash Balance Plan and ESPPIII consist of the following (measured at September 30, 2015, 2014 and 2013 for fiscal 2015, 2014 and 2013, respectively):

The Company’s fiscal 2016 pension benefit includes an approximate $2.1 million charge for the Unified Cash Balance Plan and ESPPIII plan combined as a result of amortizing net prior service credits of $7 thousand and an actuarial loss of $2.1 million from accumulated other comprehensive income into pension expense over the 2016 fiscal year.

The Company’s projected fiscal 2017 pension benefit includes an approximate $3.3 million charge for the Unified Cash Balance Plan and ESPPIII plan combined which are expected to be recognized as a result of amortizing projected net prior service credits of zero and a projected actuarial loss of $3.3 million from accumulated other comprehensive income into pension expense over the 2017 fiscal year.

The combined projected plan benefit obligation for the Unified Cash Balance Plan and ESPPIII is $324.8 million and $305.6 million at the end of the year for fiscal 2016 and 2015, respectively.

The following table sets forth the change in benefit obligation for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2016 and 2015 for fiscal 2016 and 2015, respectively):

The following table sets forth the change in plan assets for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2016 and 2015 for fiscal 2016 and 2015, respectively):

The accrued pension and other benefit costs recognized for the Unified Cash Balance Plan and ESPPIII in the consolidated balance sheets are computed as follows:

The following table sets forth the amounts recognized in the consolidated balance sheets for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2016 and 2015 for fiscal 2016 and 2015, respectively):

Total net accrued benefit costs of $133.7 million and $110.6 million at October 1, 2016 and October 3, 2015, respectively, are included in the consolidated balance sheets as follows: $129.8 million and $107.0 million are included in long-term liabilities, other and $3.9 million and $3.6 million are included in accrued liabilities at October 1, 2016 and October 3, 2015, respectively.

The following table reconciles the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the Unified Cash Balance Plan:

(dollars in thousands)
Unified Cash Balance Plan																	Accumulated Other Comprehensive Income Components
October 1, 2016	Annual Cost (benefit)			Fiscal 2009 ASC 715-20 Measurement Date Adjustments to Retained Earnings		Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Plan Amendment (Unrecognized Prior Service Cost)		Deferred Actuarial (Gains) /Losses
Beginning balance				$	673	$	194,946		$	(264,890	)	$	81,205		$	—	$	81,205
Service cost	$	—			—		—			—			—			—		—
Interest cost		9,265			—		—			(9,265	)		—			—		—
Actual return loss/(gain)		(15,622	)		—		15,622			—			—			—		—
Basic annual cost		(6,357	)		—		—			—			—			—		—
Contributions		—			—		—			—			—			—		—
Benefits paid		—			—		(19,406	)		19,406			—			—		—
Deferrals
Unexpected return adjustment		1,049			—		—			—			(1,049	)		—		(1,049	)
Unrecognized actuarial loss/(gain)		—			—		—			(29,886	)		29,886			—		29,886
Plan Amendments - curtailment		—			—		—			—			—			—		—
Amortization
Prior service cost		—			—		—			—			—			—		—
Unrecognized actuarial loss/(gain)		1,945			—		—			—			(1,945	)		—		(1,945	)
Curtailment loss		—			—		—			—			—					—
Ending balance	$	(3,363	)	$	673	$	191,162		$	(284,635	)	$	108,097		$	—	$	108,097

The following table reconciles the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the ESPPIII:

(dollars in thousands)
ESPPIII Plan																					Accumulated Other Comprehensive Income Components
October 1, 2016		Annual Cost			Fiscal 2009 ASC 715-20 Measurement Date Adjustments to Retained Earnings				Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Prior Service (Credit) /Cost			Deferred Actuarial (Gains) /Losses
Beginning balance						$		958	$	—		$	(40,698	)	$	5,232		$	(6	)	$	5,238
Service cost	$	378					—			—			(378	)		—			—			—
Interest cost			998					—		—			(998	)		—			—			—
Basic annual cost			1,376					—		—			—			—			—			—
Contributions			—					—		3,957			—			—			—			—
Benefits paid			—					—		(3,957	)		3,957			—			—			—
Deferrals
Plan amendments			—					—		—			—			—						—
Unrecognized actuarial loss/(gain)			—					—		—			(2,066	)		2,066			—			2,066
Amortization
Prior service (credit)/cost			(6	)				—		—			—			6			6			—
Unrecognized actuarial loss/(gain)			118					—		—			—			(118	)		—			(118	)
Ending balance	$	1,488			$			958	$	—		$	(40,183	)	$	7,186		$	—		$	7,186

The weighted-average assumptions used in computing the preceding information for the Unified Cash Balance Plan and the ESPPIII as of September 30, 2016, 2015 and 2014 (the annual plan measurement dates) were as follows:

The Company’s fiscal 2016 and fiscal 2015 pension expense was calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on plan assets of 8.00% and 8.00%, respectively. In developing the long-term rate of return assumption, the Company evaluated historical asset class returns based on broad equity and bond indices. The expected long-term rate of return on plan assets for fiscal 2016 assumes an asset allocation of approximately 60% equity, 25% fixed income financial instruments, 12.5% alternative investments, and 2.5% real asset investments (see description under “Plan Assets” below). The Company regularly reviews with its third party advisors the asset allocation and periodically rebalances the investment mix to achieve certain investment goals when considered appropriate (see further discussion and related table under “Plan Assets” below). Actuarial assumptions, including the expected rate of return, are reviewed at least annually, and are adjusted as necessary. Lowering the expected long-term rate of return on the Company’s plan assets (for the Unified Cash Balance Plan in fiscal 2016 and fiscal 2015) by 0.50% (from 8.00% to 7.50% for fiscal 2016 and from 8.00% to 7.50% for fiscal 2015) would have increased its pension expense for fiscal 2016 and fiscal 2015 by approximately $0.9 million and $1.0 million, respectively.

For the Company’s 2016 and 2015 fiscal year end actuarial valuations, the Company elected an alternative approach for using discount rates to measure the components of net periodic benefit cost for the Unified Cash Balance Plan and ESPPIII pursuant to ASC 715, “Compensation – Retirement Benefits”. Specifically, the alternative approach focuses on measuring the service cost and interest cost components of net periodic benefit cost by using individual spot rates derived from an acceptable high quality corporate bond yield curve, matched with separate cash flows for each future year. The Company elected to use such an approach instead of the single weighted-average discount rate approach that was employed in prior years’ actuarial valuations. The change in approach does not alter the measurement of the related benefit obligations as of the reporting date. In fiscal 2015, the Company elected to treat this change in approach as a change in accounting estimate. Measuring service cost and interest cost by applying individual spot rates to each year’s cash flows produces a more precise measure of each plan’s service cost and interest cost. This approach uses discount rates that are more granular than the weighted average discount rate previously used to develop discount rates. For the Company’s 2016 fiscal year end actuarial valuation, the discount rates derived utilizing this approach were as follows: (1) For the Unified Cash Balance Plan, the equivalent weighted average discount rate used to measure the pension benefit obligation and interest cost components was 3.60% and 3.00%, respectively; and (2) For the ESPPIII, the equivalent weighted average discount rate used to measure the pension benefit obligation, interest cost and service cost components was 2.49%, 2.07% and 2.99%, respectively. For the Company’s 2015 fiscal year end actuarial valuation, the discount rates derived utilizing this approach were as follows: (1) For the Unified Cash Balance Plan, the equivalent weighted average discount rate used to measure the pension benefit obligation and interest cost components was 4.45% and 3.64%, respectively; and (2) For the ESPPIII, the equivalent weighted average discount rate used to measure the pension benefit obligation, interest cost and service cost components was 3.25%, 2.57% and 3.47%, respectively.

In October 2014, the Society of Actuaries’ Retirement Plans Experience Committee released two mortality reports after a comprehensive review of recent mortality experience of uninsured private retirement plans in the United States. As a result, the mortality assumption that was utilized for determining the Company’s fiscal 2015 pension obligation and projected fiscal 2016 net periodic benefit cost for the Unified Cash Balance Plan and the ESPPIII was changed. The Company changed from the prescribed IRC §430(h)(3)(A) mortality table for pension funding to separate rates for non-annuitants, based on RP-2014 “Employees” table adjusted to remove post-2007 improvement projections, and annuitants, based on RP-2014 “Healthy Annuitants” table adjusted to remove post-2007 improvement projections, both with the following mortality improvement scale: MP-2014 scale, modified to use a 10-year convergence period to a long-term

improvement rate of 1.0% by 2017. The Company utilized the same mortality assumption for its 2016 fiscal year end actuarial valuation as was used for its 2015 fiscal year end actuarial valuation in determining the Company’s fiscal 2016 pension obligation and projected fiscal 2017 net periodic benefit cost for the Unified Cash Balance Plan and the ESPPIII.

The Company’s Unified Cash Balance Plan weighted-average asset allocation at October 1, 2016 and October 3, 2015, by asset category is as follows:

The assets of the Unified Cash Balance Plan are invested to provide safety through diversification in a portfolio of common stocks, bonds, cash equivalents and other investments that may reflect varying rates of return. The overall return objective for the portfolio is a reasonable rate consistent with the risk levels established by the Company’s Benefits Committee. The investments are to be diversified within asset classes (e.g., equities should be diversified by economic sector, industry, quality and size).

The long-term target asset allocation for the investment portfolio at October 1, 2016 is divided into five asset classes as follows:

The equity segment is further diversified by exposure to domestic and international, small and large capitalization, and growth and value stocks. The fixed income segment is subject to quality and duration targets, and is invested in core fixed income and high yield sectors. The purpose of using alternative investments is to reduce the volatility of the overall portfolio and to provide an alternative source of return from that of the domestic capital markets. Alternative investment strategies are defined as investment programs that offer the portfolios access to strategies that have low relative correlation to the domestic equity and fixed income markets. They may include alternative asset classes such as real estate, venture or private capital as well as a variety of investment strategies using marketable securities that seek to generate absolute positive returns regardless of the direction of the capital markets. The purpose of the real asset segment is to provide a level of protection against inflation as well as capitalize on rising commodity prices. Real assets represent investments in items that have intrinsic value because they are consumable or used in production, such as commodities, real estate, infrastructure, precious metals and global natural resources. The percentage of total assets allocated to cash equivalents should be sufficient to assure liquidity to meet disbursements and general operational expenses. Cash equivalents may also be used as an alternative to other investments when the investment manager believes that other asset classes carry higher than normal risk.

The value of each plan’s investments has a direct impact on its funded status. The actual impact, if any, and future required contributions cannot be determined at this time.

The Unified Cash Balance Plan’s investments are recorded at fair value in accordance with ASC Topic 820. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” and Note 16, “Fair Value of Financial Instruments” for further discussion of ASC Topic 820.

The Company, as the Unified Cash Balance Plan sponsor, determines the classification of financial asset groups within the fair value hierarchy based on the lowest level of input that is significant into each group’s asset valuation.

Equities (comprised of common and preferred stocks and mutual funds) are valued at their fair value and are determined by the quoted market price on the last business day of the fiscal year.

Cash equivalents are valued at cost, which approximates fair value. Cash equivalents include cash in bank and short-term investment funds. Interest income on short-term investment funds is recorded on an accrual basis as earned.

The Unified Cash Balance Plan’s alternative investments, which include limited partnership funds and closely held investments, are valued at their net asset value (“NAV”). The NAV is based on the Unified Cash Balance Plan’s pro-rata share of the investment’s net asset value as reported by the investee. The investee’s strategies include maximization of returns for investors through investment in public and non-public securities with a goal of identifying mis-priced and value-priced securities.

The Unified Cash Balance Plan currently holds 8 limited partnership fund investments with funding commitments extending through 2019. The funds were started in various years from 2008 to 2014. The Unified Cash Balance Plan’s remaining unfunded commitments to limited partnership fund investments as of October 1, 2016 was $3.7 million out of total original commitments of $24.0 million. While shares in the limited partnership fund investments are not redeemable, the Company expects to recover the Unified Cash Balance Plan’s investments in the limited partnership funds through investee distributions as the investee liquidates the underlying assets. The limited partnership fund investments have maturity dates through 2024.

The Unified Cash Balance Plan may redeem shares in its other closely held investments by submitting a request, generally 30 to 90 days prior to a period-end. There are no unfunded commitments for the other closely held investments, which are also measured using NAV. Investments measured utilizing a NAV are not included as assets measured at fair value and are excluded from the tables below.

The following table represents the Unified Cash Balance Plan’s financial instruments recorded at fair value and the hierarchy of those assets as of October 1, 2016:

The following table represents the Unified Cash Balance Plan’s financial instruments recorded at fair value and the hierarchy of those assets as of October 3, 2015:

Contributions to the Unified Cash Balance Plan are made in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income tax purposes.

During July 2012, legislation to provide pension funding relief was enacted as part of the 2012 student loan and transportation legislation titled “Moving Ahead for Progress in the 21st Century” (“MAP-21”). Funding relief was achieved through changes in the methodology employed to determine interest rates used to calculate required funding contributions. The funding relief applied to single-employer pension plans subject to the funding requirements of the Employee Retirement Income Security Act (“ERISA”) that base pension liability calculations on interest rates determined pursuant to the Pension Protection Act of 2006.

During August 2014, legislation to extend the pension funding relief included in MAP-21 was enacted as part of the Highway and Transportation Funding Act of 2014 (“HATFA”). Due to the plan’s funded status, quarterly contributions were not required in fiscal 2016 for the 2016 plan year and there were no required contributions in fiscal 2016 for the 2015 plan year. Accordingly, the Company made no contributions to the Unified Cash Balance Plan during fiscal 2016. During fiscal 2015, we had no additional required contributions for the 2014 plan year, and there were no contributions required for the 2015 plan year. Accordingly, the Company made no contributions to the Unified Cash Balance Plan during fiscal 2015. Due to the plan’s funded status, quarterly contributions will be not required in fiscal 2017 for the 2017 plan year. At its discretion, the Company may contribute in excess of the minimum (zero) requirement. Additional contributions, if any, will be based, in part, on future actuarial funding calculations and the performance of plan investments. Contributions for the 2016 and 2017 plan years, if any, will be due by September 15, 2017 and September 15, 2018, respectively.

The Company made benefit payments of $4.0 million to participants in the ESPPIII during fiscal 2016. The Company expects to make benefit payments of $3.9 million to participants in the ESPPIII in fiscal 2017.

The Company also contributes to a number of multiemployer defined benefit pension plans that provide defined benefit payments for retired employees under terms of the Company’s collective bargaining agreements (“Union Participants”). These multiemployer plans generally provide retirement benefits to Union Participants based on their service to contributing employers. The plans’ benefits are paid from assets held in trusts for this purpose and are administered by trustees that are appointed by participating employers and union parties.

The risks of participating in these multiemployer plans are different from the risks associated with single-employer plans in the following respects:

The Company made contributions of $15.2 million, $14.6 million and $14.1 million for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively, to its participating multiemployer plans. The following table provides information regarding the Company’s participation in these multiemployer plans. The table provides the following information:

Effective June 1, 2013, the Company implemented a supplemental retirement plan for a select group of management or highly compensated employees that are at the Vice President level and above of the Company under the Unified Grocers, Inc. Supplemental Executive Retirement Plan (the “SERP”). This plan was established to replace the ESPPIII, which has been frozen. The SERP provides participating officers with supplemental retirement income in addition to the benefits provided under the Company’s Cash Balance and 401(k) plans.

The SERP is a non-qualified defined contribution type plan under which benefits are derived based on a notional account balance to be funded by the Company for each participating officer. The account balance will be credited each year with a Company contribution based on the officer’s compensation, calculated as base salary plus bonus, earned during a fiscal year and the officer’s executive level at the end of the fiscal year. Plan participants may select from a variety of investment options (referred to as “Measurement Funds” in the plan document) concerning how the contributions are hypothetically invested. Assets of the SERP (i.e., the participants’ account balances) will not be physically invested in the investments selected by the participants; rather, the Measurement Funds are utilized “for the purpose of debiting or crediting additional amounts” to each participant’s account. The Company informally funds its obligation to plan participants in a rabbi trust, comprised of mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. Mutual funds reported at their estimated fair value of $3.1 million and $2.0 million at October 1, 2016 and October 3, 2015, respectively, are included in other assets in the Company’s consolidated balance sheets.

Upon termination of employment or death, the participant’s vested account balance will be payable over a period of from 5 to 15 years, or immediately following a change in control, as elected by the participant upon entry into the SERP. Vesting is based on years of service as an officer at the rate of 20% per year. After 5 years of service as an officer or following a change in control, the account will be 100% vested. An account may be forfeited in the event a participant is terminated for cause or engages in activity in competition with the Company. For those participants active in the ESPPIII at September 29, 2012 who were selected to participate in the SERP, they will receive one year of vesting credit for each year of service credited in the ESPPIII plus an additional eight months for the period from September 30, 2012 to June 1, 2013.

The SERP is accounted for pursuant to FASB ASC section 715-70, Compensation – Retirement Benefits – Defined Contribution Plans (“ASC 715-70”). SERP participants are credited with a contribution to an account and will receive, upon separation, a benefit based upon the vested amount accrued in their account, which includes the Company’s contributions plus or minus the increase or decrease in the fair market value of the hypothetical investments (Measurement Funds) selected by the participant. ASC 715-70 requires companies to record, on a periodic basis, that portion of a company’s

contribution earned during the period by the participants (the “Expense”). The Company is accruing the Expense under the assumption that all participants in the SERP will achieve full vesting (five years of service). As of October 1, 2016 and October 3, 2015, the Company accrued $1.6 million and $1.2 million, respectively, in related benefit cost recorded in long-term liabilities, other in the Company’s consolidated balance sheets.

The Company contributed approximately $7.3 million, $5.1 million and $4.8 million related to its SSP in the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

The Company has a nonqualified Deferred Compensation Plan (“DCPII”), which allows eligible employees to defer and contribute to an account a percentage of compensation on a pre-tax basis, as defined in the plan, in excess of amounts contributed to the SSP pursuant to IRS limitations, the value of which is measured by the fair value of the underlying investments. The Company informally funds its deferred compensation liability with assets held in a rabbi trust consisting of life insurance policies reported at cash surrender value and mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. The assets held in the rabbi trust are not available for general corporate purposes. Participants can direct the investment of their deferred compensation plan accounts in several investment funds as permitted by the DCPII. Gains or losses on investments are fully allocable to the plan participants. The cash surrender value of life insurance policies and mutual funds reported at their estimated fair value are included in other assets in the Company’s consolidated balance sheets because they remain assets of the Company until paid out to the participants. The cash surrender value of the life insurance policies was $10.6 million and $12.3 million at October 1, 2016 and October 3, 2015, respectively. The estimated fair value of the mutual funds was $0.2 million and negligible at October 1, 2016 and October 3, 2015, respectively. The liability to participants ($11.6 million and $12.5 million at October 1, 2016 and October 3, 2015, respectively) is included in long-term liabilities, other in the Company’s consolidated balance sheets. The rabbi trust is subject to the Company’s creditors’ claims in the event of its insolvency.

Effective June 1, 2013, the Company implemented the Unified Grocers, Inc. Long-Term Incentive Plan (“LTIP”) to align, motivate and reward executives for their contributions to the long-term financial success and growth of the Company. This long-term plan, in conjunction with the short-term focus of the Company’s annual bonus plan, is designed to link long-term value creation for the Company’s member shareholders with the short-term annual performance by the Company. The LTIP also serves as an additional component to a competitive total compensation package designed to attract and retain talented executives.

The LTIP is offered to a select group of officers of the Company, Vice-President and higher (the “Participants”), and participation may be further constrained or increased at the discretion of the Company’s Compensation Committee.

Participants are awarded with a certain number of Units (defined below) on an annual basis (the “Award”); however, an Award in one year does not ensure that a Participant will receive an Award in subsequent years. Each Award participates in a four-year cycle (“Performance Cycle”), which is based on consecutive fiscal years of the Company, and the amount paid to a Participant, if any, is determined at the end of the Award’s Performance Cycle and is payable prior to December 31st of the year in which the Performance Cycle ends (“Maturity Date”). The Maturity Date is the date on which a Participant’s vested Unit is deemed to mature, which is the earlier of (a) the last day of the Performance Cycle or (b) a change in control of the Company. In fiscal 2016, 2015, 2014 and 2013, LTIP Awards were offered to certain officers of the position of Vice-President or higher. The Participant’s Award is vested based on the Participant’s continuous employment with the Company during the Award’s Performance Cycle.

There are two types of units that are granted as part of an Award: Appreciation Units and Full-Value Units (collectively, “Units”). Effective for fiscal 2016, the LTIP was amended to expand the Awards that may be granted thereunder to include Full-Value Units. A “Full-Value Unit” entitles the award recipient to the “maturity value” on the Units at the end of the Performance Cycle assigned to the Units. The “maturity value” for a Full-Value Unit is the Company’s Exchange Value Per Share for a share of the Class A or Class B stock of the Company as calculated from the Company’s financial statements (see Part I, Item 1. “Business – Capital Shares” for additional information), plus cumulative cooperative division patronage dividends, cash dividends and non-allocated retained earnings attributable to such share Exchange Value Per Share, as calculated from the Company’s financial statements for the fiscal year end that coincides with the end of the Performance Cycle. An “Appreciation Unit” refers to a notional unit that grants Participants the contractual right to receive the positive difference, if any, between the Maturity Value of the Unit on its Maturity Date and the Base Value (capitalized terms defined below) assigned to the Unit at the beginning of the Performance Cycle. The Base Value is equal to the Exchange Value Per Share for the fiscal year ending immediately prior to the Performance Cycle. The Maturity Value is equal to the Exchange Value Per Share plus Cumulative Co-op Patronage Dividends (defined below), plus Cumulative Cash Dividends (the total of cash dividends paid, excluding patronage dividends, as reported in the Company’s fiscal year-end financial statements), plus Cumulative Non-allocated Retained Earnings (defined below), as calculated from the Company’s financial statements for the Performance Cycle assigned to the Appreciation Unit. The difference is then multiplied by the number of vested Appreciation Units awarded for the Performance Cycle that remain outstanding on the Maturity Date. Cumulative Co-op Patronage Dividends are the sum of the Cooperative Division’s patronage earnings divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle. Cumulative Co-op Patronage Dividends do not include Dairy Division patronage dividend amounts. The Cumulative Non-allocated Retained Earnings amount is the sum of the total increase or decrease in non-allocated retained earnings for a fiscal year divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle.

The Company determines the number of Units to be awarded by first starting with a targeted compensation gap that the awards are designed to fill for each officer. The targeted compensation gap is the value the Units (cumulative Full-Value and Appreciation Units) are targeted to have when they are paid out to the officer at the end of the Performance Cycle. To calculate the number of Full-Value and Appreciation Units to be awarded at the start of the Performance Cycle such that those Full-Value and Appreciation Units achieve the targeted compensation gap, the Compensation Committee uses an assumed potential compound annual growth rate (“CAGR”) of the Appreciation Units over the Performance Cycle plus the Full-Value Units. If the actual CAGR of the Appreciation Units over the Performance Cycle ends up being higher than the assumed potential CAGR used by the Compensation Committee in making the award, which may happen if, for example, the Company’s Exchange Value Per Share, dividends and non-allocated retained earnings exceed expectation, then the actual value of the Appreciation Units at the end of the Performance Cycle may exceed the targeted compensation gap. If, on the other hand, the actual CAGR of the Appreciation Units over the Performance Cycle ends up being lower than the assumed potential CAGR used by the Compensation Committee in making the award, which may happen if, for example, the Company’s Exchange Value Per Share, dividends and non-allocated retained earnings fall short of expectation, then the actual value of the Appreciation Units at the end of the Performance Cycle may not meet the targeted compensation gap.

For the 2013 – 2015 Performance Cycles, all Units awarded were Appreciation Units. For the 2016 Performance Cycle, an officer’s LTIP award is comprised of Full-Value Units, equaling 25% of the targeted compensation gap, and Appreciation Units, equaling 75% of the targeted compensation gap. For the 2017 Performance Cycle, an officer’s LTIP award is comprised of Full-Value Units, equaling 25% or the targeted compensation gap, and Appreciation Units, equaling 75% of the targeted compensation gap. Based on the Company’s calculations relative to the 2013, 2014 and 2015 Performance Cycles, the Company determined there was no LTIP compensation expense for the Performance Cycles to be recorded in fiscal 2016. For the 2016 Performance Cycle, the Company recorded $0.2 million of expense related to the Full-Value Units and zero related to the Appreciation Units. Based on the Company’s calculations relative to the 2013, 2014 and 2015 Performance Cycles, the Company determined there was no LTIP compensation expense for the Performance Cycles to be recorded in fiscal 2015.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in fiscal years:

The Company sponsors a postretirement benefit plan that provides certain medical coverage to retired non-union employees who are eligible to participate in the Unified Grocers, Inc. Retiree Medical Plan (the “RMP”). The RMP is contributory for non-union employees retiring after January 1, 1990, with the retiree contributions adjusted annually. This plan is not funded.

In December 2012, the Company amended the RMP to modify the eligibility requirements for the RMP. Effective as of the end of the first quarter of fiscal 2013, only employees of Unified who have reached 49 years of age with at least 15 years of continuous service with the Company as of the end of the first quarter of fiscal 2013 will remain eligible to participate in the RMP. To receive benefits under the RMP, those employees who remain eligible must remain in continuous service with the Company through their retirement following the attainment of at least 55 years of age. We also reduced the benefits for those who remained eligible. Previously this was a lifetime benefit for the employee and their spouse. This was changed to a 15-year benefit for the employee only.

Officers who are at least 55 years of age and have seven years of service with the Company as an officer are eligible to participate in the Officer Retiree Medical Plan (the “ORMP”), which includes the Company’s Executive Medical Reimbursement Plan (the “EMRP”), following termination of employment. Pursuant to the EMRP, officers will be eligible for payment by the insurance plan of the portion of eligible expenses not covered under the Company’s health insurance plan.

Benefits under the ORMP are the same as under the RMP offered to non-union employees but with no annual premium caps, plus dental and vision benefits, continuation of the EMRP during retirement and extension of benefits for eligible dependents following the officer’s death. Active officers will continue to be obligated to pay the regular premium for the Company health insurance plan they have selected. During retirement, officers are required to pay 25% of the ORMP premium to maintain coverage. Effective December 31, 2012, the eligibility provisions of the ORMP were frozen effective September 30, 2012; accordingly, no employee that is either hired or becomes an officer on or after such date can become a participant or recommence participation in the ORMP. We also reduced the benefits for those who remained eligible. Previously this was a lifetime benefit for the employee and their spouse. This was changed to a 15-year benefit for the employee only.

The Company provides for the cost of life insurance on behalf of current and qualifying former officers of Unified through a split-dollar Executive Insurance Plan (the “EIP”) arrangement. As discussed below, this plan was amended in December 2012 to close the plan to new entrants as of September 30, 2012. Accordingly, no employee that is either hired or becomes an officer on or after such date can become a participant or recommence participation in the EIP. This plan is not funded.

In May 2013, the EIP was amended and restated effective as of June 1, 2013. The EIP previously provided a life insurance benefit under the current whole life insurance policy for covered, active officers of three times their annual

salary. For officers who were active on or after June 1, 2013, the EIP, as amended, provides a life insurance benefit of one and one-half times their annual salary up to $1.2 million (reducing to 50% of the original amount at age 70) through group term life insurance. The group term life insurance coverage terminates upon retirement or termination. For active officers who were covered by the EIP at the time it was closed as of September 30, 2012, the EIP, as amended, also provides an additional fixed life insurance benefit amount, payable upon the participant’s death to their designated beneficiaries, based on such participant’s position with the Company as of June 1, 2013 as follows: $1,000,000 for the chief executive officer, $500,000 for executive vice president, $400,000 for senior vice presidents and $300,000 for vice presidents. Such fixed life insurance benefit amounts will not be adjusted for future promotions or increases in salary. Eligible participants who were covered by the whole life insurance policy and retired prior to June 1, 2013 are unaffected by the amendment and are covered under the prior formula of one and one-half times their annual salary in their final year of employment.

Certain eligible union employees have a separate plan providing a lump-sum payout for unused days in the sick leave bank. The sick leave payout plan is noncontributory and is not funded.

Effective September 2014, in conjunction with the implementation of a paid time-off (“PTO”) program for non-union employees that increased our benefit expenses by $1.8 million, we terminated our non-union sick leave plan, resulting in a $1.4 million reduction in the associated long-term liability and a $1.1 million pre-tax reduction in accumulated other comprehensive earnings, resulting in the recognition of a one-time pre-tax termination gain of $2.5 million, which is recorded in addition to the net periodic postretirement benefit cost in our accompanying consolidated statements of earnings (loss).

In December 2012, the Company amended several of its employee benefit plans. The Company amended the EIP and the ORMP to close the plans to new entrants as of September 30, 2012. Accordingly, no employee that is either hired or becomes an officer on or after such date can become a participant or recommence participation in either plan. The Company also amended the ESPPIII for executive officers to close the eligibility provisions of the ESPPIII to new entrants as of September 30, 2012 (the “Freeze Date”); accordingly, no employee that is either hired or becomes an officer on or after the Freeze Date can become a participant or recommence participation in the ESPPIII. Additionally, benefit accruals under the ESPPIII were frozen for officers who have already attained a 65% gross benefit accrual (generally attained after fifteen (15) or more years of service under the ESPPIII) as of September 30, 2012; accordingly, no such officers will accrue further gross benefits under the ESPPIII after the Freeze Date. For officers participating in the ESPPIII as of the Freeze Date who had less than a 65% gross benefit accrual, such officers will continue to accrue gross benefits under the ESPPIII until they reach a 65% gross benefit accrual. Lastly, in connection with freezing the benefit accrual under the ESPPIII, a participant’s gross accrued benefit will not consider any compensation earned by the participant after the Freeze Date, which effectively freezes the final pay and final average pay formulas under the plan at the September 30, 2012 levels.

In December 2012, the Company also amended the RMP to modify the eligibility requirements for the RMP. Effective as of the end of the first quarter of fiscal 2013, only employees of the Company who have reached 49 years of age with at least 15 years of continuous service with Unified as of the end of the first quarter of fiscal 2013 will remain eligible to participate in the RMP. To receive benefits under the RMP, those employees who remain eligible must remain in continuous service with Unified through their retirement following the attainment of at least 55 years of age. We also reduced the benefits for those who remained eligible. Previously this was a lifetime benefit for the employee and their spouse. This was changed to a 15-year benefit for the employee only.

The components of net periodic benefit cost consist of the following (for all postretirement benefit plans described above, not including the ESPPIII, which is disclosed in Note 13, “Benefit Plans”):

Total accrued benefit costs of $34.5 million and $34.2 million at October 1, 2016 and October 3, 2015, respectively, are included in the consolidated balance sheets as follows: $31.5 million and $31.2 million are included in long-term liabilities, other and $3.0 million and $3.0 million are included in accrued liabilities at October 1, 2016 and October 3, 2015, respectively.

(dollars in thousands)
Postretirement Benefit Plans																		Accumulated Other Comprehensive Income Components
October 1, 2016	Annual Cost			Retained Earnings		Plan Assets			Benefit Obligation			Accumulated Other Comprehensive (Income)/Loss			Deferred Prior Service (Credit)/ Cost			Deferred Actuarial (Gains)/ Losses
Beginning balance		—		$	3,260	$	—		$	(34,162	)	$	(6,072	)	$	(3,667	)	$	(2,405	)
Service cost	$	31			—		—			(31)			—			—			—
Interest cost		1,072			—		—			(1,072	)		—			—			—
Basic annual cost		1,103					—			—			—			—			—
Contributions		—			—		1,893			—			—			—			—
Benefits paid		—			—		(1,893	)		1,893			—			—			—
Deferrals
Plan amendments		—			—		—			—			—			—			—
Unrecognized actuarial (gain)/loss		—			—		—			(1,123	)		1,123			—			1,123
Amortization
Prior service credit		(1,249	)		—		—			—			1,249			1,249			—
Recognized actuarial loss/(gain)		(474	)		—		—			—			474			—			474
Ending balance	$	(620	)	$	3,260	$	—		$	(34,495	)	$	(3,226	)	$	(2,418	)	$	(808	)

The Company’s fiscal 2016 postretirement expense includes an approximate $1.7 million credit for its postretirement benefit plans as a result of amortizing prior service credits of $1.2 million and actuarial gains of $0.5 million from accumulated other comprehensive income into postretirement expense over the 2016 fiscal year.

The Company’s projected fiscal 2017 postretirement expense includes an approximate $1.0 million credit for its postretirement benefit plans which is expected to be recognized as a result of amortizing projected prior service credits of $0.6 million and a projected actuarial gain of $0.4 million from accumulated other comprehensive income into postretirement expense over the 2017 fiscal year.

Benefit payments, including those amounts to be paid out of corporate assets and reflecting future expected service as appropriate, are expected to be paid in fiscal years:

The weighted-average assumptions as of September 30, 2016, 2015 and 2014 are as follows:

For the Life Plan and Sick Leave Union Plan, the single weighted average rate used to determine the benefit obligation, interest cost and service cost was 4.00% and 3.25% at the September 30, 2015 and September 30, 2016 measurement dates, respectively.

The discount rate used to determine the benefit obligation for the Officer Retiree Medical Plan changed from 3.75% at the September 30, 2014 measurement date to the September 2015 and September 2016 yield curves at the September 30, 2015 and September 30, 2016 measurement dates, respectively. The single weighted average rate used in determining the benefit obligation was 3.93% and 3.19% at the September 30, 2015 and September 30, 2016 measurement dates, respectively. Similarly, the single weighted average rates used to determine the fiscal 2016 interest cost and service cost were 3.08% and 3.88%, respectively (based on changing to the September 2015 yield curve at the September 30, 2015 measurement date). The single weighted average rate used to determine the fiscal 2017 interest cost was 2.56% (based on the September 2016 yield curve at the September 30, 2016 measurement date). Service cost is not applicable for the Officer Retiree Medical Plan in fiscal 2017. The comparable rate for each of these costs was 3.75% for fiscal 2014.

The discount rate used to determine the benefit obligation for the split-dollar Executive Insurance Plan changed from 3.75% at the September 30, 2014 measurement date to the September 2015 and September 2016 yield curves at the September 30, 2015 and September 30, 2016 measurement dates, respectively. The single weighted average rate used in determining the benefit obligation was 4.54% and 3.67% at the September 30, 2015 and September 30, 2016 measurement dates, respectively. Similarly, the single weighted average rate used to determine the fiscal 2016 interest cost was 3.91% (based on changing to the September 2015 yield curve at the September 30, 2015 measurement date). The single weighted average rate used to determine the fiscal 2017 interest cost was 3.20% (based on the September 2016 yield curve at the September 30, 2016 measurement date). The comparable rate for this cost was 3.75% for fiscal 2014.

For measurement purposes, the following table sets forth the assumed health care trend rates:

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates for the RMP and ORMP would have the following effects as of October 1, 2016:

The Company’s union employees participate in a multiemployer plan that provides health care benefits for retired union employees. Amounts contributed to the multiemployer plan for these union employees totaled $0.3 million in fiscal 2016, $0.3 million in fiscal 2015 and $5.0 million in fiscal 2014. Information from the plans’ administrators is not available to permit the Company to determine its proportionate share of termination liability, if any.

During fiscal year 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) (collectively, the “Acts”) was passed and signed into law. The Acts contain provisions that could impact the Company's retiree medical benefits in future periods, including the related accounting for such benefits, such as the 40% excise tax beginning in 2020 that will be imposed on the value of health insurance benefits exceeding a certain threshold. However, the full extent of the impact of the Acts, if any, cannot be determined until all regulations are promulgated under the Acts (or changed as a result of ongoing litigation) and additional interpretations of the Acts become available. Elements of the Acts, the impact of which are currently not determinable, include the elimination of lifetime limits on retiree medical coverage and reduction of the existing insurance coverage gap for prescription drug benefits that are actuarially equivalent to benefits available to retirees under the Medicare Prescription Drug Improvement and Modernization Act of 2003. On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the Acts; however, provisions in the Acts requiring each state to expand its Medicaid program or lose all federal Medicaid funds were struck down. The U.S. Supreme Court did not invalidate the Acts’ expansion of Medicaid for states that voluntarily participate; it only held that a state’s entire Medicaid funding cannot be withheld due to its failure to participate in the expansion. The Company will continue to assess the accounting implications of the Acts as related regulations and interpretations of the Acts become available. In addition, the Company may consider plan amendments in future periods that may have accounting implications.

The Company is party to various litigation, claims and disputes, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company believes the outcome of these matters will not result in a material effect on its financial condition or results of operations.

Management identifies segments based on the information monitored by the Company’s chief operating decision maker to manage the business and, accordingly, has the following two reportable segments:

Non-perishable products consist primarily of dry grocery, frozen food, deli, ethnic, gourmet, specialty foods, natural and organic, general merchandise and health and beauty care products. They also include (1) retail support services and (2) products and shipping services provided to Non-Member customers through Unified International, Inc. Perishable products consist primarily of service deli, service bakery, meat, eggs, produce, bakery, and dairy products. Net sales within the Wholesale Distribution segment include $2.5 billion, $2.6 billion and $2.4 billion, or 67%, 65% and 65% of total Wholesale Distribution segment net sales for fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively, attributable to sales of non-perishable products, and $1.2 billion, $1.4 billion and $1.3 billion, or 33%, 35% and 35% of total Wholesale Distribution segment net sales for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively, attributable to sales of perishable products. Wholesale Distribution segment net sales also include revenues attributable to the Company’s retail support services, which comprise less than 1% of total Wholesale Distribution segment net sales, for each of the foregoing respective periods.

Transactions involving vendor direct arrangements are comprised principally of sales of produce in the Pacific Northwest and Northern California and sales of branded ice cream in Southern California. “Gross billings,” a financial metric that adds back gross billings through vendor direct arrangements to net sales and is used by management to assess our operating performance, was $3.861 billion, $4.144 billion and $3.865 billion for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

The All Other category includes the results of operations for the Company’s other support businesses, including its wholly-owned finance subsidiary, whose services are provided to a common customer base, none of which individually meets the quantitative thresholds of a reportable segment. As of October 1, 2016, the All Other category collectively accounts for less than 1% of the Company’s total net sales and 3% of total assets.

(dollars in thousands)
				Fiscal Years Ended
	October 1, 2016				October 3, 2015			September 27, 2014
Net sales
Wholesale distribution: Gross billings	$	3,861,072			$	4,143,540		$	3,865,071
Less: Gross billings through vendor direct arrangements		(100,803	)			(117,021	)		(112,406	)
Wholesale distribution: Net sales		3,760,269				4,026,519			3,752,665
All other		1,561				1,544			1,119
Intersegment eliminations		(366	)			(443	)		(224	)
Total net sales	$	3,761,464			$	4,027,620		$	3,753,560
Operating income (loss)
Wholesale distribution	$	8,177			$	1,355		$	21,665
All other		811				461			10
Total operating income		8,988				1,816			21,675
Interest expense		(10,177	)			(9,978	)		(11,197	)
Loss on early extinguishment of debt		—				(3,200	)		—
Patronage dividends		(6,500	)			(7,234	)		(9,395	)
Income taxes		(234	)			3,951			(1,508	)
Net loss from continuing operations	$	(7,923	)		$	(14,645	)	$	(425	)
Loss from discontinued operations, net		—				(3,701	)		(4,981	)
Gain (loss) on sale of discontinued operations		281				(3,173	)		—
Net loss	$	(7,642	)		$	(21,519	)	$	(5,406	)
Depreciation and amortization
Wholesale distribution	$	29,830			$	30,955		$	27,847
All other		81				86			3
Total depreciation and amortization	$	29,911			$	31,041		$	27,850
Capital expenditures
Wholesale distribution	$	6,534			$	9,221		$	9,938
All other		—				—			—
Total capital expenditures	$	6,534			$	9,221		$	9,938
Identifiable assets at respective year end date
Wholesale distribution	$	750,726			$	812,341		$	781,438
Assets held for sale		5,429				125,904			123,729
All other		24,893				26,080			23,050
Total identifiable assets at respective fiscal year end date	$	781,048			$	964,325		$	928,217

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade receivables, notes receivable, and lease guarantees for certain Members. These concentrations of credit risk may be affected by changes in economic or other conditions affecting the western United States, particularly Arizona, California, Nevada, Oregon and Washington. However, management believes that receivables are well diversified, and the allowances for doubtful accounts are sufficient to absorb estimated losses. However, if the actual uncollected amounts of accounts and notes receivable significantly exceed the estimated allowances, the Company’s operating results would be significantly adversely affected. Obligations of Members to the Company, including lease guarantees, are generally supported by the Company’s right of offset, upon default, against the Members’ cash deposits and shareholdings, as well as personal guarantees and reimbursement and indemnification agreements.

The Company’s largest customer, Cash & Carry Stores, LLC, a wholly-owned subsidiary of Smart & Final, Inc., accounted for 17%, 16% and 15% of total net sales for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively. The Company’s ten largest customers (including Cash & Carry Stores, LLC) combined accounted for 50%, 53% and 49% of total net sales for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014, respectively.

The Company’s ten customers with the largest accounts receivable balances accounted for approximately 41% and 43% of total accounts receivable at October 1, 2016 and October 3, 2015, respectively.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value (these values represent an approximation of possible value and may never actually be realized):

Cash and cash equivalents. The carrying amount approximates fair value due to the short maturity of these instruments.

Accounts receivable and notes receivable. The carrying amount of accounts receivable approximates its fair value due to its short-term maturity. Other than discussed below, the carrying amount of notes receivable approximates its fair value based principally on the underlying interest rates and terms, maturities, collateral and credit status of the receivables and after consideration of recorded allowances.

As of September 28, 2013, there were indicators of impairment related to certain receivables. During the Company’s third quarter of fiscal 2014, the Company restructured these receivables as part of a troubled debt restructuring and recorded an immaterial impairment. The fair values of assets received, net of liabilities assumed, as part of the restructuring of these receivables were derived from models utilizing unobservable inputs that fall within Level 3 of the fair value hierarchy.

Investments. Generally, the fair values for investments are readily determinable based on actively traded securities in the marketplace. Investments that are not actively traded are valued based upon inputs including quoted prices for identical or similar assets. Equity securities that do not have readily determinable fair values are accounted for using the cost or equity methods of accounting. The Company regularly evaluates securities carried at cost to determine whether there has been any diminution in value that is deemed to be other than temporary and adjusts the value accordingly.

The following table represents the Company’s financial instruments recorded at fair value and the hierarchy of those assets as of October 1, 2016:

The following table represents the Company’s financial instruments recorded at fair value and the hierarchy of those assets as of October 3, 2015:

Mutual funds are valued by the Company based on information received from a third party. These assets are valued based on quoted prices in active markets (Level 1 inputs). At October 1, 2016 and October 3, 2015, respectively, $10.6 million and $12.5 million of mutual funds are included in other assets in the Company’s consolidated balance sheets. For assets traded in active markets, the assets are valued at quoted bond market prices (Level 1 inputs). For assets traded in inactive markets, the service’s pricing methodology uses observable inputs (such as bid/ask quotes) for identical or similar assets. Assets considered to be similar will have similar characteristics, such as: duration, volatility, prepayment speed, interest rates, yield curves, and/or risk profile and other market corroborated inputs (Level 2 inputs). The Company determines the classification of financial asset groups within the fair value hierarchy based on the lowest level of input into each group’s asset valuation.

The Company did not have any significant transfers into and out of Levels 1 and 2 during fiscal 2016 and 2015.

Notes payable. The fair values of borrowings under the Company’s revolving credit facilities are estimated to approximate their carrying amounts due to the short maturities of those obligations. The fair values for other notes payable are based primarily on rates currently available to the Company for debt with similar terms and remaining maturities.

The fair value of notes payable was $253.6 million and $278.8 million compared to their carrying value of $254.2 million and $278.5 million at October 1, 2016 and October 3, 2015, respectively. These values were based on estimates of market conditions, estimates using present value and risks existing at that time (Level 2 inputs).

The balance and components of the change in accumulated other comprehensive earnings (loss), net of taxes, are as follows:

The reclassifications out of accumulated other comprehensive earnings (loss) were as follows:

The following table indicates the benefit plans that comprise the adjustment to accumulated other comprehensive earnings (loss) as of October 1, 2016 for the impact of ASC Topic 715-20 “Compensation – Retirement Benefits – Defined Benefits Plans – General” (“ASC Topic 715-20”):

The following table indicates the benefit plans that comprise the adjustment to accumulated other comprehensive earnings (loss) as of October 3, 2015 for the impact of ASC Topic 715-20 “Compensation – Retirement Benefits – Defined Benefits Plans – General” (“ASC Topic 715-20”):

The following table indicates the benefit plans that comprise the adjustment to accumulated other comprehensive earnings (loss) as of September 27, 2014 for the impact of ASC Topic 715-20 “Compensation – Retirement Benefits – Defined Benefits Plans – General” (“ASC Topic 715-20”):

Members affiliated with directors of the Company make purchases of merchandise from the Company and also may receive benefits and services that are of the type generally offered by the Company to similarly situated eligible Members.

Since the programs listed below are only available to Members of the Company, it is not possible to assess whether transactions with Members of the Company, including entities affiliated with directors of the Company, are less favorable to the Company than similar transactions with unrelated third parties. However, management believes such transactions are on terms that are generally consistent with terms available to other Members similarly situated.

A brief description of related party transactions with Members affiliated with directors of the Company and transactions with executive officers follows.

Unified provides loan financing to its Members. The Company had the following loans outstanding at October 1, 2016 to a Member affiliated with a director of the Company:

The Company provides lease guarantees and subleases to its Members. The Company has executed lease guarantees or subleases to Members affiliated with directors of the Company at October 1, 2016 as follows:

During the course of its business, the Company enters into individually negotiated supply agreements with its Members. These agreements typically require the Member to purchase certain agreed amounts of its merchandise requirements from the Company and obligate the Company to supply such merchandise under agreed terms and conditions relating to such matters as pricing and delivery. The Company has executed supply agreements with Members affiliated with directors of the Company at October 1, 2016 as follows:

Workers’ Compensation Loss Portfolio Purchased from a Customer Affiliated with a Member-Director

As discussed in Note 2, a related party transaction in fiscal 2012 with K.V. Mart Co., a customer affiliated with Darioush Khaledi, a Unified Member-Director and Chairman of the Board and Chief Executive Officer of K.V. Mart Co., was not presented for review and approval to the Unified Board of Directors, and was not disclosed. The transaction involved changes to the deductible structure and other characteristics of a portfolio of workers compensation policies held by the Company’s former Insurance segment. This high-deductible loss portfolio contained policies for employees of K.V. Mart Co. and was assumed by the Company in conjunction with a payment of $3.6 million by K.V. Mart Co. In fiscal 2013, the Company experienced an increase in its cost of sales due, in part, to increased reserve requirements of $2.0 million associated with this portfolio. The portfolio was included in the assets and liabilities of UGIS that were sold to AmTrust as part of the Stock Purchase Agreement between AmTrust and the Company that was completed during the Company’s first quarter of fiscal 2016.

Subsequent events have been evaluated by the Company through the date financial statements were issued.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Disclosure controls and procedures. Disclosure controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.

At the end of the period covered by this report, our management, with the participation of our CEO and CFO, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).

As discussed in Part I, Item 1, “Business – Audit Committee Investigation” with respect to the Company’s Annual Report on Form 10-K for the year ended September 27, 2014, the Company announced that the Audit Committee was conducting, with the assistance of independent legal counsel, an investigation of issues relating to the setting of case reserves and management of claims by the Company’s former insurance subsidiaries and related matters (the “Audit Committee Investigation”).

See Note 2, “Audit Committee Investigation,” in Part II, Item 8, “Financial Statements and Supplementary Data,” for further information on the quantitative effect of these errors, as well as Item 6, “Selected Financial Data,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As disclosed in Note 3, “Assets Held for Sale/Discontinued Operations,” in Part II, Item 8, “Financial Statements and Supplementary Data,” the Company’s Insurance segment was sold in October 2015 and is no longer part of the Company’s continuing operations.

As discussed in Part I, Item 1, “Business – Audit Committee Investigation,” in connection with the Audit Committee Investigation, management had evaluated the design and effectiveness of our disclosure controls and procedures and the effectiveness of the Company’s internal control over financial reporting as of October 3, 2015. As described below, management had identified as of October 3, 2015 material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures.

As discussed in Part I, Item 1, “Business – Recent Developments,” on October 7, 2015, the Company sold its insurance subsidiaries. In addition, the Company established or enhanced the following processes, all of which were utilized during the preparation of this Annual Report on Form 10-K for the year ended October 1, 2016:

The Company has determined that this control was effective as of October 1, 2016.

As a result of these material weaknesses, we had concluded that our disclosure controls and procedures were not effective as of October 3, 2015.

Management’s annual report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO and implemented by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

Under the supervision and with the participation from management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In connection with the preparation and filing of this Form 10-K, and in conjunction with the findings of the Audit Committee Investigation described above, the Company’s management has evaluated the effectiveness of our internal control over financial reporting as of October 1, 2016 and concluded that, because of the material weakness described below, our internal control over financial reporting was not effective as of October 1, 2016.

Notwithstanding such material weakness, which is described below, our management has concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

As a result, management has determined that the Company’s disclosure controls and procedures and internal control over financial reporting were not effective as of October 1, 2016.

Our management has worked, and continues to work, to strengthen our disclosure controls and procedures and internal control over financial reporting in connection with the material weakness related to controls over ensuring accurate and complete financial statement disclosures described above. We intend to continue taking measures, including engaging outside professionals, as may be necessary and advisable to assist us as we continue to address and rectify such material weakness.

We are committed to maintaining an effective control environment and making changes necessary to enhance effectiveness. This commitment has been, and will continue to be, communicated to and reinforced throughout our organization. We have implemented a plan for remediation of the ineffective internal control over financial reporting described above. In addition, we have implemented the specific remediation initiatives regarding disclosure controls and procedures described below, and the testing of the related internal controls is ongoing.

The Company has implemented a disclosure controls and procedures remediation plan that included:

The Company believes that the implementation of the disclosure controls and remediation plan noted above will allow for maintenance of an effective internal control environment and internal controls over financial reporting. The Company continues to evaluate the effectiveness of the above controls and expects that the operational effectiveness of them will be validated in fiscal 2017.

Information regarding the directors of Unified is incorporated from the information under the captions “Election of Directors,” “Board Meetings and Committees,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Financial Ethics” in the Company’s proxy statement for its 2017 annual meeting of shareholders to be filed within 120 after the end of the most recent fiscal year.

We have adopted a Code of Financial Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and all employees of the Company performing similar functions. The Code of Financial Ethics has been posted to our Internet website at http://www.unifiedgrocers.com/EN/AboutUs/Documents. The Company intends to satisfy disclosure requirements regarding amendments to, or waivers from, any provisions of its Code of Financial Ethics on its website.

The following table sets forth certain information about our executive officers as of the filing date:

Section 16(a) Beneficial Ownership Reporting Compliance. Under the securities laws of the United States, our directors, executive officers and any persons holding more than 10 percent of our common stock (collectively “reporting persons”)

are required to report their ownership of common stock and any changes in that ownership, to the SEC within two business days of a reportable event. Mr. McCormack, a Shareholder-Related Director of the Company, did not timely file Forms 4 related to transactions by an affiliated Member in our Class A, Class B and Class E Shares in 2015. Additionally, the following Shareholder-Related Directors did not timely file Forms 4 required in connection with the Company’s repurchase of Class E Shares owned by their affiliated Members in 2016: Mr. Amen, Mr. Berberian, Mr. Khaledi, Mr. Kidd, Mr. McCormack, Ms. Song, Mr. Tucker, and Mr. Wright.

Incorporated by reference from the information under the captions “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation, “ “Report of Compensation Committee on Executive Compensation,” “Executive Officer Compensation” and “Director Compensation” in our proxy statement for the 2017 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from the information under the caption “Security Ownership of Directors and Officers” in our proxy statement for the 2017 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Entities with which our directors are affiliated, as Members of Unified, purchase groceries and related products and services from us in the ordinary course of business pursuant to published terms or according to the provisions of individually negotiated supply agreements. As Members, firms with which directors are affiliated may receive various benefits including patronage dividends, allowances and retail support services. We make a variety of benefits available to Members on a negotiated basis. We have provided to our Members loan financing in the form of direct loans and loan guarantees; provided lease guarantees and subleases; as well as invested directly in Members who are sometimes affiliated with our directors. In addition, we may also enter into other agreements with Members which are affiliated with our directors, as well as agreements with our executive officers. See Note 20 of Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” which is incorporated herein by this reference, for a description of related party transactions. Additional information is incorporated by reference from the information under the captions “Compensation Committee Interlocks and Insider Participation,” “Transactions with Management and Other Persons,” “Audit Committee” and “Independence” in our proxy statement for the 2017 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Incorporated by reference from the information under the caption “Independent Registered Public Accounting Firm” in our proxy statement for the 2017 annual meeting of shareholders to be filed within 120 days after the end of the most recent fiscal year.

Our consolidated financial statements, the notes thereto, and the related report thereon of the independent registered public accounting firm are filed under Part II, Item 8 of this report. The financial statement schedule is filed herein and the related report thereon of the independent registered public accounting firm is filed under Part II, Item 8 of this report.

All other financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the instructions to Part II, Item 8 or are inapplicable and therefore have been omitted.

Schedule II—Valuation and Qualifying Accounts for the fiscal years ended October 1, 2016, October 3, 2015 and September 27, 2014.

Pursuant to the requirements of Section 13 or 15(d) 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.

KNOW ALL PERSONS BY THESE PRESENTS, that each director whose signature appears below hereby constitutes and appoints each of Robert M. Ling, Jr., President and Chief Executive Officer and Christine Neal, Executive Vice President, Chief Financial Officer and Treasurer, his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign and execute on behalf of the undersigned any and all amendments to this report, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

For the Fiscal Years Ended October 1, 2016, October 3, 2015 and September 27, 2014

I.R.S. Employer Identification No.: 95-0615250
5200 Sheila Street, Commerce, CA	90040
(Address of principal executive offices)	(Zip Code)


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐
		(Do not check if a smaller reporting company)


Class A: 122,500 shares	Class B:410,537 shares	Class C: 15 shares	Class E:114,209 shares

	Approximate Square Footage
Description	Owned	Leased
Corporate offices(1)	56,924		287,279
Dry warehouses	2,139,176		980,989
Refrigerated warehouses	746,389		284,067
Manufacturing facilities	77,874		—
Assets held for sale	83,990		—

Period	Total Number of Shares Purchased		Average Price Paid Per Share
July 3, 2016 – July 30, 2016 (Class E Shares)		2,672		$100.00
July 31, 2016 – August 27, 2016 (Class E Shares)		287		$100.00
August 28, 2016 – October 1, 2016 (Class E Shares)		1,554		$100.00
Total		4,513		$100.00

Title of each class
Class A Shares
Class B Shares
Class E Shares

Item		Page
Part I

1.	Business	1
1A.	Risk Factors	20
1B.	Unresolved Staff Comments	29
2.	Properties	30
3.	Legal Proceedings	30
4.	Mine Safety Disclosures	30
	Additional Item. Executive Officers of the Registrant	30

Part II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
6.	Selected Financial Data	33
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
7A.	Quantitative and Qualitative Disclosures About Market Risk	65
8.	Financial Statements and Supplementary Data	66
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	125
9A.	Controls and Procedures	125
9B.	Other Information	127

Part III

10.	Directors, Executive Officers and Corporate Governance	128
11.	Executive Compensation	129
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	129
13.	Certain Relationships and Related Transactions, and Director Independence	129
14.	Principal Accountant Fees and Services	129

Part IV

15.	Exhibits and Financial Statement Schedules	129

Signatures		136

	Percent of Consolidated Net Sales
	Fiscal Years Ended
	October 1, 2016			October 3, 2015			September 27, 2014
Wholesale Distribution:
Non-perishable products(1)		67	%		65	%		65	%
Perishable products(2)	33		%		35	%		35	%
Total Wholesale Distribution net sales	100		%		100	%		100	%
Other(3)		—	%		—	%		—	%
Total consolidated net sales		100	%		100	%		100	%

(dollars in thousands)
Division	2016		2015		2014
Cooperative Division	$	—	$	—	$	—
Southern California Dairy Division		6,039		6,450		8,530
Pacific Northwest Dairy Division		461		784		865
Total	$	6,500	$	7,234	$	9,395

	(dollars in thousands, except Exchange Value Per Share)
Fiscal Year Ended † (a)		October 1, 2016 (52 Weeks)			October 3, 2015 (53 Weeks)			September 27, 2014 (52 Weeks)(d)(e)			September 28, 2013 (52 Weeks)(d)			September 29, 2012 (52 Weeks)(d)
Net sales(c)			$3,761,464		$	4,027,620		$	3,753,560		$	3,672,459		$	3,742,245
Operating income			8,988			1,816			21,675			12,206			21,654
(Loss) earnings before patronage dividends and income taxes			(1,189	)		(11,362	)		10,478			(10,370	)		9,109
Patronage dividends			6,500			7,234			9,395			9,609			10,787
Net loss from continuing operations			(7,923	)		(14,645	)		(425	)		(12,484	)		(285	)
Net earnings (loss) from discontinued operations			281			(6,874	)		(4,981	)		(5,160	)		2,238
Net (loss) earnings			(7,642	)		(21,519	)		(5,406	)		(17,644	)		1,953
Total assets			781,048			964,325			928,217			916,606			923,208
Long-term notes payable			229,741			261,585			231,029			231,531			196,484
Exchange Value Per Share(b)			200.27			218.27			267.69			279.50			316.11

Fiscal Year Ended	October 1, 2016		October 3, 2015		September 27, 2014(d)		September 28, 2013(d)		September 29, 2012(d)
Net sales		$3,761,464	$	4,027,620	$	3,753,560	$	3,672,459	$	3,742,245
Add: Gross billings through vendor direct arrangements		100,803		117,021		112,406		51,142		35,075
Gross billings		$3,862,267	$	4,144,641	$	3,865,966	$	3,723,601	$	3,777,320

										Percentage Dollar Increase (Decrease)
Fiscal Year Ended	October 1, 2016			October 3, 2015			September 27, 2014			FY’15 to FY’16			FY’14 to FY’15
Net sales		100.0	%		100.0	%		100.0	%		(6.6	)%		7.3	%
Cost of sales		92.5			93.0			92.4			(7.0	)		8.0
Distribution, selling and administrative expenses		7.2			7.0			7.0			(3.5	)		6.2
Operating income		0.3			0.0			0.6			394.9			(91.6	)
Interest expense		(0.3	)		(0.2	)		(0.3	)		2.0			(10.9	)
Loss on early extinguishment of debt		—			(0.1	)		—			*		*
Patronage dividends		(0.2	)		(0.2	)		(0.3	)		(10.1	)		(23.0	)
Income taxes		—			0.1			—			(105.9	)		(362.0	)
Net loss on discontinued operations		—			(0.2	)		(0.1	)		(104.1	)		38.0
Net (loss) earnings		(0.2	)%		(0.6	)%		(0.1	)%		(64.5	)%		298.1	%

(dollars in millions)
Key Gross Billings Changes	Increase (Decrease)
Decrease in Haggen Pacific Southwest business	$	(173.3	)
Increase in gross billings to continuing customers		51.7
New customers		29.4
Lost customers		(13.2	)
Store closures of existing customers		(13.1	)
Decrease in meat pricing due to decline in commodity cost		(88.1	)
Decrease in gross billings due to 53^rd week in fiscal 2015		(75.9	)
Change in gross billings	$	(282.5	)

(dollars in thousands)
Summary of Net Increase in Total Cash and Cash Equivalents	2016			2015			Difference
Cash provided (utilized) by operating activities	$	19,458		$	(2,156	)	$	21,614
Cash provided (utilized) by investing activities		16,140			(24,041	)		40,181
Cash (utilized) provided by financing activities		(35,285	)		28,046			(63,331	)
Total increase (decrease) in cash and cash equivalents	$	313		$	1,849		$	(1,536	)

(dollars in thousands)
			Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Revolver borrowings	$	152,600	$	—	$	152,600	$	—	$	—
Term loan borrowings		82,500		10,000		72,500		—		—
FILO loan borrowings		15,485		13,100		2,385		—		—
Operating lease obligations		76,174		22,681		31,537		15,297		6,659
Capital lease obligations		2,891		699		1,445		747		—
Other debt agreements		756		692		64		—		—
Projected interest on contractual obligations⁽¹⁾		12,343		7,407		4,927		9		—
Total contractual obligations	$	342,749	$	54,579	$	265,458	$	16,053	$	6,659

(dollars in thousands)
	Payments due by period
Other Commercial Commitments	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Lease guarantees	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		—		—		—		—
Loan commitments		525		525		—		—		—
Total commercial commitments	$	525	$	525	$	—	$	—	$	—

(dollars in thousands)
		October 1, 2015	October 3, 2015
Secured revolver borrowings under credit agreements	$	152,600	$	161,800
Secured term loan borrowings under credit agreement		82,500		92,500
Secured FILO borrowings under credit agreement		15,485		20,714
Senior secured notes		—		—
Obligations under capital leases		2,891		2,097
Other debt agreements		756		1,434
Total notes payable		254,232		278,545
Less portion due within one year		24,491		16,960
	$	229,741	$	261,585

(dollars in thousands)
October 1, 2016	Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Intangible assets subject to amortization:
Customer contracts	3-78 months	$	21,354	$	14,226	$	7,128
Customer relationships	132 months		7,180		4,937		2,243
Label redesign costs	40-48 months		1,835		600		1,235
Goodwill and Intangible assets not subject to amortization:
Goodwill						$	37,846
Trademarks							3,010

(dollars in thousands)
October 3, 2015	Remaining Amortization Period	Historical Cost		Accumulated Amortization		Net
Intangible assets subject to amortization:
Customer contracts	3-91 months	$	28,236	$	19,731	$	8,505
Customer relationships	144 months		7,180		4,526		2,654
Label redesign costs	52-60 months		1,836		235		1,601
Goodwill and Intangible assets not subject to amortization:
Goodwill						$	37,846
Trademarks							3,010

(dollars in thousands)	October 3, 2015
Cash	$	8,429
Accounts receivable, net of allowance for bad debt		2,715
Prepaid expenses		676
Property, plant & equipment, net		1,351
Investments		85,052
Other assets		27,681
Assets held for sale - current	$	125,904

Accounts payable	$	592
Accrued liabilities		97,619
Other reserves		1,471
Liabilities held for sale - current	$	99,682

	October 3, 2015 (53 weeks)			September 27, 2014 (52 weeks)
Cash flows from discontinued operating activities:
Net loss	$	(3,701	)	$	(4,981	)
Adjustments to reconcile net loss to net cash provided by discontinued operating activities:
Depreciation and amortization		289			263
(Increase) decrease in assets:
Accounts receivable		7,452			266
Prepaid expenses and other current assets		(81	)		(73	)
Increase (decrease) in liabilities:
Accounts payable		(133	)		148
Accrued liabilities		(1,319	)		(340	)
Long-term liabilities, other		3,313			12,641
Net cash provided by discontinued operating activities		5,820			7,924
Cash flows from investing activities:
Purchases of securities and other investments		(34,507	)		(61,292	)
Proceeds from maturities or sales of securities and other investments		37,032			63,420
(Increase) decrease in other assets		(7,013	)		(10,366	)
Net cash utilized by discontinued investing activities		(4,488	)		(8,238	)
Cash flows from financing activities:

Net cash provided by discontinued financing activities		—			—
Net increase (decrease) in cash and cash equivalents from discontinued operations		1,332			(314	)
Cash and cash equivalents at beginning of year		7,097			7,411
Cash and cash equivalents at end of year	$	8,429		$	7,097

(dollars in thousands)
October 1, 2016	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
Common stock, at cost				$	12,729
Total investments				$	12,729

(dollars in thousands)
Fiscal year
2017	$	24,491
2018		90,665
2019		138,330
2020		708
2021		38
Thereafter		—
	$	254,232

(dollars in thousands)
Fiscal year		Capital Leases			Operating Leases
2017	$	755			$	22,681
2018			755			18,261
2019			755			13,276
2020			718			9,323
2021			38			5,974
Thereafter			—			6,659
Total minimum lease payments			3,021		$	76,174
Less: amount representing interest			(130	)
Present value of net minimum lease payments			2,891
Less: current installments of obligations under capital leases			(699	)
Obligations of capital leases excluding current installments	$	2,192

(dollars in thousands)
Remaining Lease Term	Guaranteed Leases
Less than 1 year	$	—
1-3 years		—
4-5 years		—
More than 5 years		—
Total lease guarantees	$	—

(dollars in thousands)
Class A Shares	Tendered		Converted(a)	Redeemed		Remaining		Redemption Value at Fiscal year end
Fiscal 2013							700	$	221
Fiscal 2014		10,500			9,800		1,400	$	391
Fiscal 2015		7,350			7,000		1,750	$	489
Fiscal 2016		3,500			0		5,250	$	1,250

(dollars in thousands)
	Fiscal Years Ended
ESPPIII	October 1, 2016			October 3, 2015			September 27, 2014
Service cost	$	378		$	987		$	1,241
Interest cost		998			1,409			1,457
Amortization of prior service cost (credit)		(6	)		(27	)		(27	)
Recognized actuarial loss		118			434			1,349
Net periodic cost	$	1,488		$	2,803		$	4,020

Asset Classes	Maximum %			Minimum %			Target %
Equities		80	%		40	%		60	%
Fixed Income		40	%		20	%		25	%
Alternative Investments		20	%		0	%		12.5	%
Real Assets		10	%		0	%		2.5	%
Cash Equivalents		30	%		0	%		0	%

(dollars in thousands)
	Level 1		Level 2		Level 3		Total

Mutual Funds	$	95,660	$	—	$	—	$	95,660
Common & Preferred Stock		57,233		—		—		57,233
Cash Equivalents		3,466		—		—		3,466
Total	$	156,359	$	—	$	—	$	156,359

(dollars in thousands)
		Plan	PPA Zone Status		RP Status	Range of Agreement	Contributions (d)
Pension Fund	EIN	Month/Day End Date	2016	2015	Pending/ Implemented	Expiration Dates	2016		2015		2014
Western Conference of Teamsters Pension Trust	916145047 -001	12/31	Green	Green	No	4/23/16 – 9/19/20 (c)	$	13,795	$	13,286	$	12,760
Bakery & Confectionery Union and Industry International Pension Fund(b)	526118572 -001	12/31	Red	Red	Implemented	2/18/17	1,043			1,024		1,029
Washington Meat Industry Pension Trust(b)	916134141 -001	9/30	Red	Red	Implemented	9/30/17	69			71		71
Other plans(a)							270			243		232
Total							$	15,177	$	14,624	$	14,092

(dollars in thousands)
	Unified Cash Balance Plan		ESPPIII
2017	$	19,552	$	3,910
2018		11,777		4,326
2019		12,123		4,728
2020		12,508		5,148
2021		12,928		5,148
Thereafter		71,048		15,711
Total	$	139,936	$	38,971

	Postretirement Benefit Plans
	2016		2015			2014
Benefit obligations:
Discount rate for benefit obligation(a)	3.15	%		3.91	%		3.75	%
Discount rate for interest cost(a)	2.51	%		3.01	%		3.75	%
Discount rate for service cost(a)	3.38	%		4.25	%		3.75	%
Rate of compensation increase(b)	3.00	%		3.00	%		3.00	%
Net periodic benefit cost:
Discount rate for net periodic benefit cost(a)	N/A			3.75	%		4.25	%
Discount rate for interest cost(a)	3.01	%		N/A			N/A
Discount rate for service cost(a)	4.25	%		N/A			N/A
Rate of compensation increase(b)	3.00	%		3.00	%		3.00	%

	October 1, 2016		October 3, 2015
Pre-age 65 health care cost trend rate assumed for 2016 and 2015(a)	7.50	%		8.00	%
Pre-age 65 rate to which the cost trend rate is assumed to decline (the ultimate trend rate)(b)	5.00	%		5.00	%
Pre-age 65 year that the rate reaches the ultimate trend rate	2021			2021
Post-age 65 health care cost trend rate assumed for 2016 and 2015(a)	5.25	%		5.50	%
Post-age 65 rate to which the cost trend rate is assumed to decline (the ultimate trend rate)(c)	4.75	%		4.75	%
Post-age 65 year that the rate reaches the ultimate trend rate	2020			2020

(dollars in thousands)
	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	51	$	(45	)
Effect on accumulated postretirement benefit obligation	$	1,252	$	(1,111	)

(dollars in thousands)
	Unrealized Net Holding Gain (Loss) on Investments			Defined Benefit Pension Plans and Other Postretirement Benefit Plans Items			Total
Balance, September 28, 2013		501			(12,781	)		(12,280	)
Other comprehensive earnings (loss) before reclassifications		593			(10,199	)		(9,606	)
Reclassification adjustment for gains included in net earnings		(944	)		(5,043	)		(5,987	)
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans		—			(6,176	)		(6,176	)
Net current period other comprehensive earnings (loss)		(351	)		(21,418	)		(21,769	)
Balance, September 27, 2014		150			(34,199	)		(34,049	)
Other comprehensive earnings (loss) before reclassifications		(698	)		(19,676	)		(20,374	)
Reclassification adjustment for losses (gains) included in net earnings		15			(4,411	)		(4,396	)
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans		—			(13,411	)		(13,411	)
Net current period other comprehensive earnings (loss)		(683	)		(37,498	)		(38,181	)
Balance, October 3, 2015		(533	)		(71,697	)		(72,230	)
Other comprehensive earnings (loss) before reclassifications		710			(21,330	)		(20,620)
Reclassification adjustment for (gains) losses included in net earnings		(67	)		189			122
Deferred tax asset valuation allowance allocated to defined benefit pension plans and other postretirement benefit plans		—			(10,867	)		(10,867	)
Net current period other comprehensive earnings (loss)		643			(32,008	)		(31,365	)
Balance, October 1, 2016	$	110		$	(103,705	)	$	(103,595	)

(dollars in thousands)
					Amount Reclassified from Accumulated Other Comprehensive Earnings (Loss)						Affected Line Item in the Consolidated Statements of Earnings (Loss)
					Fiscal Year Ended
	October 1, 2016				October 3, 2015			September 27, 2014
Unrealized net holding gain on investments:
Realized gains – Insurance segment	$	—			$	—		$	1,049		Net sales
Realized (losses) gains – Wholesale Distribution segment		104				(21	)		390		Distribution, selling and administrative expenses
		104				(21	)		1,439		Earnings (loss) before income taxes
		(37	)			6			(495	)	Income taxes
		67			$	(15	)	$	944		Net earnings (loss)
Defined benefit pension plans and other postretirement benefit plans items:
Amortization of unrecognized prior service credits		1,255				8,352			8,577		(a)
Amortization of actuarial losses		(1,547	)			(1,532	)		(3,253	)	(a)
Gain on termination of non-union sick leave plan		—				—			2,472
Gain on curtailment of retiree medical plan		—				—			—		(a)
		(292	)			6,820			7,796		Earnings (loss) before income taxes
		103				(2,409	)		(2,753	)	Income taxes
	$	(189	)	$	4,411			$	5,043		Net earnings (loss)
Total reclassifications for the period	$	(122	)	$	4,396			$	5,987		Net earnings (loss)