What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-09-27 compared with 2021-09-28 · 239 added, 387 removed, 319 unchanged (66% of the section changed)

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Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions or state other “forward-looking” information.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false.

Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect.

These statements are based on our management’s beliefs and assumptions, which are based on currently available information.

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Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to:

• our dependence on principal customers;

• the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures;

• the impact and duration of the COVID-19 pandemic;

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

• labor and other workforce shortages and challenges;

• our dependence on principal customers;

• our ability to realize anticipated benefits of our strategic initiatives, including any acquisitions;

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

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

• the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures;

• our ability to realize anticipated benefits of our acquisitions and strategic initiatives, including, our acquisition of Supervalu;

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

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

• our ability to continue to grow sales, including of our higher margin natural and organic foods and non-food products, and to manage that growth;

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

• increased competition in our industry, including as a results of continuing consolidation of retailers and the growth of chains;

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

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

• increased competition in our industry, including as a result of continuing consolidation of retailers and the growth of chains, direct distribution by large retailers and the growth of online distributors;

• the potential for disruptions in our supply chain or our distribution capabilities from circumstances beyond our control, including due to lack of long-term contracts, severe weather, labor shortage or work stoppages or otherwise;

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

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

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

• the potential for additional asset impairment charges;

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

• our ability to maintain food quality and safety;

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

You should carefully review the risks described under Part I.

Risk Factors, as well as any other cautionary language in this Annual Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

You should carefully review the risks described under “Risk Factors” included in Part I, Item 1A, as well as any other cautionary language in this Annual Report, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows.

EXECUTIVE OVERVIEW

Business Overview

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

We offer nearly 300,000 products consisting of national, regional and private label brands grouped into six product categories:

UNFI is a leading distributor of grocery and non-food products, and support services provider to retailers in the United States and Canada.

We believe we are uniquely positioned to provide the broadest array of products and services to customers throughout North America.

Our diversified customer base includes over 30,000 customer locations ranging from some of the largest grocers in the country to smaller independents as well.

We offer approximately 260,000 products consisting of national, regional and private label brands grouped into six product categories:

grocery and general merchandise;

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nutritional supplements and sports nutrition;

bulk and food service products;

bulk and foodservice products;

and personal care items.

We believe we are North America’s premier wholesaler with 56 distribution centers and warehouses representing approximately 30 million square feet of warehouse space.

We are a coast-to-coast distributor with customers in all fifty states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers.

We are a coast-to-coast distributor with customers in all 50 states as well as all ten provinces in Canada, making us a desirable partner for retailers and consumer product manufacturers.

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

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

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

Our business is classified into two reportable segments:

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

Over the past two years, we have substantially completed the integration of Supervalu and have turned our focus to transforming the business for further future growth.

Our operating performance in fiscal 2021 benefited from the shift in food-at-home consumption resulting from the continued impacts of the COVID-19 global pandemic, and we expect to continue to benefit from ongoing changes in consumer purchasing behavior.

Late in fiscal 2021, we introduced our Fuel the Future strategy with the mission of making our customers stronger, our supply chain better and our food solutions more inspired.

Fuel the Future is composed of six strategic pillars, which are detailed in Part I.

Collectively, the tactics and plans behind each pillar are meant to capitalize on our unique position in the food distribution industry, including the number and location of distribution centers we operate, the array of services and the data driven insights that we are able to customize for each of our customers, our innovation platforms and the growth potential we see in each, our commitment to our people and the planet, the positioning of our retail operations, and our focus on delivering returns for our shareholders.

We also introduced our ValuePath initiative early in fiscal 2021, pursuant to which we plan to improve operating performance through various initiatives planned to be implemented through the end of fiscal 2023.

We plan to re-invest a portion of these operating savings in the business to drive market share gains, accelerate innovation, invest in automation and maintain competitive wage scales for our frontline workers.

We will continue to use free cash flow to reduce outstanding debt and are committed to improving our financial leverage.

Growth Drivers

A key component of our historical growth has been to acquire distribution companies differentiated by product offerings, service offerings and market area.

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

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

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

We recently introduced our Fuel the Future strategy, which we believe will further accelerate our growth through increasing sales of products and services, providing tailored, data-driven solutions to help our existing customers run their business more efficiently and contributing to new customer acquisitions.

We believe the key drivers for growth through new customers will come from the benefits of our significant scale, product and service offerings, and nationwide footprint, which we believe were demonstrated by the following larger customer developments in fiscal 2021.

• We’ve recently begun delivering product to Key Food Stores co-operative, Inc.

(“Key Food”), a Co-Operative of over 300 grocery stores, after being selected as Key Food’s primary wholesaler.

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

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

On March 3, 2021, we entered into an amendment to our distribution agreement dated October 30, 2015.

The amendment extended the term of the distribution agreement from September 28, 2025 to September 27, 2027.

We are committed to executing our Fuel the Future strategy with the mission of building a food ecosystem that is better for all by delivering great food, more choices and fresh thinking for our customers and suppliers.

Our Fuel the Future strategy consists of six pillars and is underpinned by four focus areas, which are detailed in Business in Part I.

Item 1 of this Annual Report.

Collectively, the actions and plans behind each focus area are meant to capitalize on our unique position in the food distribution industry, including the number and location of distribution centers we operate, the array of services and the data driven insights that we are able to customize for each of our customers, our innovation platforms and the growth potential we see in each, our commitment to our people and the planet and the positioning of our retail operations.

We expect to continue to use available capital to re-invest in our business to support our Fuel the Future initiatives and to reduce outstanding debt and are committed to improving our financial leverage.

As our financial leverage has declined over time, it also offers us increased flexibility to invest in growing our business and selectively return cash to shareholders as appropriate.

We believe our Fuel the Future strategy will further accelerate our growth through increasing sales of products and services, providing tailored, data-driven solutions to help our customers run their businesses more efficiently and contributing to customer acquisitions.

We believe the key drivers for new customer growth will be the benefits of our significant scale, product and service offerings and nationwide footprint.

Trends and Other Factors Affecting our Business

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

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

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

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

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

In fiscal 2020 and continuing into fiscal 2021, the COVID-19 pandemic, which we refer to as the pandemic, led to a significant increase in food-at-home expenditures as a percentage of total food expenditures.

We experienced increases in Net sales and Gross profit due to higher Wholesale customer purchases.

Retail experienced similar trend increases in Net sales and Gross profit from sales to end consumers.

We expect that food-at-home expenditures as a percentage of total food expenditures will remain elevated in the near term compared to pre-pandemic levels.

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

The pandemic also drove significant growth in eCommerce utilization by grocery consumers, and we expect that trend to continue.

We expect to benefit from this trend through the growth of our traditional eCommerce customers, our Community Marketplace, an online marketplace connecting suppliers and retailers, and EasyOptions, which directly services non-traditional customers, such as bakeries or yoga studios, and through customers adopting our turnkey eCommerce platform.

We expect to continue to benefit from elevated sales as compared to historical periods prior to the pandemic while food-at-home expenditures as a percentage of total food expenditures remains higher than recent historical periods prior to the pandemic.

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

The ultimate impact on our results is uncertain and dependent upon future developments, including the severity and duration of the pandemic, including any resurgence of infection rates and new variants with higher transmissibility, any economic downturn, actions taken by governmental authorities and other third parties in response to the pandemic such as social distancing orders or companies’ remote work policies, the impact on capital and financial markets, food-at-home purchasing levels and other consumer trends, each of which is uncertain and rapidly changing.

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

We believe food-at-home expenditures as a percentage of total food expenditures are subject to these trends, including changes in consumer behaviors in response to social and economic trends, such as levels of disposable income and the health of the economy in which our customers and our stores operate.

economy has experienced economic volatility in recent years due to uncertain economic conditions, which have had and we expect may continue to have an impact on consumer confidence in the future.

Consumer spending may be impacted by levels of discretionary income and consumers trading down to a less expensive mix of products for grocery items.

In addition, inflation has increased and continues to be unpredictable.

For example, we experienced volatility in our energy operating costs and commodity input costs of our manufacturers impacted prices of products we procured.

We believe our product mix ranging from high-quality natural and organic products to national and local conventional brands, including cost conscious private label brands, positions us to serve a broad cross section of North American retailers and end customers, and lessens any impact of shifts in consumer and industry trends in grocery product mix.

We continued to experience a tight labor market for our warehouse and driver associates in fiscal 2022, which has caused additional reliance on third-party resources, incremental hiring and increases in wages, all of which led to higher labor expenses.

We believe this operating environment has been impacted by labor force availability, in part as a result of the COVID-19 pandemic, which we refer to as the pandemic.

We continue to take actions to maintain existing employment levels, fill open roles and prepare for future employment needs.

Uncertainty remains regarding the longer-term impact of the pandemic on our business, as global economies, markets and supply chains respond to the ongoing effects.

We continue to monitor guidelines released by the Centers for Disease Control and Prevention and the World Health Organization and, when appropriate, implement mitigation measures to protect our associates, including safety protocols and strongly encouraging vaccinations/boosters.

Our results could be impacted by, among other factors, any resurgence of infection rates and new variants of COVID-19 with higher transmissibility, the availability and efficacy of vaccines and treatments, actions taken by governmental authorities and other third parties in response to the pandemic such as health and safety orders and mandates, companies’ remote work policies, any economic downturn, the impact on capital and financial markets, food-at-home purchasing levels and other consumer trends, each of which is uncertain.

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

Considerable uncertainty remains regarding the future impact of the pandemic on our business.

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

The impact of the pandemic, also drove growth in eCommerce utilization by grocery consumers.

We have benefited from this trend through the growth of our traditional eCommerce customers, our online marketplace connecting suppliers and retailers, and our EasyOptions website, which directly services non-traditional customers.

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

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

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

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

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

We recently began experiencing a tighter operating labor market for our warehouse and driver associates, which has caused additional reliance and higher costs from third-party resources, and incremental hiring and wage costs.

We believe this operating environment has been impacted by labor force availability and the pandemic.

We are working to implement actions to fill open roles and maintain existing and future employment levels.

Distribution Center Network

Network Optimization and Construction

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

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

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

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

We are now supplying customers served by former Pacific Northwest locations from our Centralia, WA, Ridgefield, WA and Gilroy, CA distribution centers.

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

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

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

On February 24, 2020, we executed a purchase option with a delayed purchase provision to acquire the real property of this distribution center for approximately $152 million.

We entered into an agreement to monetize the real property of this location through a sale-leaseback transaction, which is contingent upon the acquisition of the facility that we expect will occur on or before June 2022.

In fiscal 2022, we started operating our Allentown, PA distribution center with a capacity of 1.3 million square feet that will be utilized to service Key Food and other customers in that facility’s geographical area.

We expect to incur initial start-up costs and operating losses in fiscal 2022 as the volume in this facility ramps up to match it’s expected full operating capacity.

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

Network Technology Efficiency

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

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

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

Wholesale Distribution Center Network

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

In fiscal 2022, our Allentown, Pennsylvania distribution center began operations, with a capacity of 1.3 million square feet to service customers in the surrounding geographic area.

We incurred start-up costs and operating losses, as the volume in this facility ramped up to its operating capacity.

Retail Operations

We currently operate 73 continuing operations Retail grocery stores, including 54 Cub Foods corporate stores and 19 Shoppers Food Warehouse stores.

In addition, we supply another 27 Cub Foods stores operated by our Wholesale customers through franchise and LLC arrangements.

We operate 81 pharmacies primarily within the stores we operate and the stores of our franchisees.

In addition, we supply another 26 Cub Foods stores operated by our Wholesale customers through franchise and equity ownership arrangements.

We operate 81 pharmacies primarily within our stores we operate and the stores of our franchisees.

In addition, we operate 23 “Cub Wine and Spirit” and “Cub Liquor” stores.

We had previously announced our intention to thoughtfully and economically divest our retail businesses acquired as part of the Supervalu acquisition to focus on our core Wholesale distribution business.

At this time, we do not have any current plans to divest our Retail business.

We continue to strive to maximize the operating value of Retail.

As part of that strategy, our new strategic focus is to invest in our stores and optimize our operations to be customer centric.

We continue to remodel and upgrade our stores, while investing in eCommerce growth in the form of click-and-collect, delivery, and technology investments, such as mobile customer applications.

Part of our optimization efforts included updating our benefit plan offerings to a defined contribution plan as a replacement for a multiemployer pension plans to which we contribute pursuant to three Cub Foods collective bargaining agreements.

In fiscal 2021, we withdrew from participating in three Retail multiemployer pension plans, resulting in a $63 million withdrawal charge, which is recorded within Operating expenses within our Consolidated Statements of Operations, Other long-term liabilities on the Consolidated Balance Sheets and within changes in operating assets and liabilities within Accrued expenses and other liabilities in the Consolidated Statements of Cash Flows.

As part of our optimization efforts, we are continuing to evaluate various options to address our off-balance sheet liability under certain of our Retail multiemployer pension plans, which actions may result in significant costs or charges.

The extent of these costs and charges will be determined based on outcomes achieved under the process undertaken to minimize or eliminate the liability for the respective multiemployer pension plan.

As we continue to work to find solutions to under-funded multiemployer pension plans, it is possible we could incur withdrawal liabilities for certain additional multiemployer pension plan obligations in the future as we actively bargain collective agreements with a number of our unions in due course.

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

A withdrawal from a multiemployer pension plan may result in an obligation to make material payments over an extended period of time or one-time lump sum payments on a net present value basis.

In the fourth quarter of fiscal 2021, we determined we no longer met the held for sale criterion for a probable sale to be completed within 12 months for two of the four Shoppers retail stores that were previously included within discontinued operations due to the criterion being met as of the Supervalu acquisition date.

We revised our Consolidated Financial Statements to reclassify these stores from discontinued operations to continuing operations.

This change in financial statement presentation resulted in the inclusion of these stores’ results of operations, financial position, cash flows and related disclosures within continuing operations for all periods presented in the Consolidated Financial Statements and presented below.

In addition, in order to present these stores’ results of operations within continuing operations, Wholesale sales to these additional Retail stores have been eliminated upon consolidation.

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

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

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

Services Agreement

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

Pursuant to the Services Agreement, we provide certain technical, human resources, finance and other operational services to Save-A-Lot for a term of five years, on the terms and subject to the conditions set forth therein.

During fiscal 2021, we earned $17 million under the Services Agreement, which was recorded within Net sales.

We expect that services provided under the Services Agreement will wind down at or near the end of the initial term in December 2021.

At that time, we will lose the revenue associated with this agreement, and any fixed or variable costs associated with servicing this agreement not eliminated concurrently with the decline in revenue, would result in decreased operating profit.

Impact of Inflation or Deflation

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

We experienced a mix of inflation and deflation across product categories during fiscal 2021 and 2020.

In the aggregate across our businesses and taking into account the mix of products, management estimates our businesses experienced cost inflation of approximately one percent in fiscal 2021.

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

Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit.

Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales.

We’re committed to investing in our Retail segment in areas such as customer-facing merchandising initiatives, physical facilities, technology, and operational tools.

Cub Foods and Shoppers Food Warehouse also invested in improving the customer and associate experience through express remodels focused on customer facing elements;

14 projects were completed in fiscal 2022 with a majority finishing in the fourth quarter of fiscal 2022.

Impact of Inflation

We experienced a mix of inflation across product categories during fiscal 2022.

In the aggregate across our businesses, including the mix of products, management estimates our businesses experienced product cost inflation of approximately six percent in fiscal 2022.

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

Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation on Net sales and Gross profit.

Absent any changes in units sold or the mix of units sold, inflation generally has the effect of increasing sales.

Under the last-in, first out (“LIFO”) method of inventory accounting, product cost increases are recognized within Cost of sales based on expected year-end inventory quantities and costs, which has the effect of decreasing Gross profit and the carrying value of inventory during periods of inflation.

Our pricing to our customers is determined at the time of sale primarily based on the then prevailing vendor listed base cost, and includes discounts we offer to our customers.

Generally, in an inflationary environment as a wholesaler, rising vendor costs result in higher Net sales driven by higher vendor prices when other variables such as quantities sold and vendor promotions are constant.

In addition, as discussed above, we have experienced higher costs of services from labor, transportation and other services expenses.

Composition of Consolidated Statements of Operations and Business Performance Assessment

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Operating expenses

Operating expenses include salaries and wages, employee benefits, warehousing and delivery, selling, occupancy, insurance, administrative, share-based compensation, depreciation, and amortization expense.

These expenses include the departmental expenses of warehousing, delivery, purchasing, receiving, selecting and outbound transportation expenses.

Restructuring, acquisition and integration expenses

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

Integration expenses include certain professional consulting expenses related to business transformation and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Operating expenses include distribution expenses of warehousing, delivery, purchasing, receiving, selecting, and outbound transportation expenses, and selling and administrative expenses.

These expenses include salaries and wages, employee benefits, occupancy, insurance, depreciation and amortization expense, and share-based compensation expense.

Restructuring, acquisition and integration related expenses

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

Integration related expenses include certain professional consulting expenses related to business transformation and incremental expenses related to combining facilities required to optimize our distribution network as a result of acquisitions.

Net periodic benefit income, excluding service cost

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

Interest expense, net

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

Net periodic benefit income, excluding service cost

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

Adjusted EBITDA

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

Adjusted EBITDA excludes certain items because they are non-cash items or are items that do not reflect management’s assessment of ongoing business performance.

Adjusted EBITDA excludes certain items because they are non-cash items or items that do not reflect management’s assessment of ongoing business performance.

We believe Adjusted EBITDA is useful to investors and financial institutions because it provides additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of its importance as a measure of underlying operating performance, as the primary compensation performance measure under certain compensation programs and plans.

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

We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net income (loss) from continuing operations, less net income attributable to noncontrolling interests, plus non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, certain other non-cash charges or other items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

The changes to the definition of Adjusted EBITDA from prior periods reflect changes to line item references in our Consolidated Financial Statements, which do not impact the calculation of Adjusted EBITDA.

We define Adjusted EBITDA as a consolidated measure inclusive of continuing and discontinued operations results, which we reconcile by adding Net income (loss) from continuing operations, less Net income attributable to noncontrolling interests, plus Non-operating income and expenses, including Net periodic benefit income, excluding service cost, Interest expense, net and Other, net, plus Provision (benefit) for income taxes and Depreciation and amortization all calculated in accordance with GAAP, plus adjustments for Share-based compensation, non-cash LIFO charge or benefit, Restructuring, acquisition and integration related expenses, Goodwill impairment charges, (Gain) loss on sale of assets, certain legal charges and gains, certain other non-cash charges or other items, as determined by management, plus Adjusted EBITDA of discontinued operations calculated in a manner consistent with the results of continuing operations, outlined above.

During fiscal 2022, we revised our definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge or benefit.

We believe that this change provides a better indicator of our underlying operating performance and permits better comparability between periods.

Refer to footnote four in the table below and Note 16—Business Segments in Part II, Item 8 of this Annual Report for additional information regarding the impact of the change in definition of Adjusted EBITDA.

Assessment of Our Business Results

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

We have revised the following table for the prior period presentation of two discontinued operations stores moved to continuing operations as discussed in Note 1—Significant Accounting Policies within Part II, Item 8 of this Annual Report.

We have revised the following tables for the change in segment profit measurement for Adjusted EBITDA as discussed in Note 16—Business Segments within Part II, Item 8 of this Annual Report.

Increase (Decrease)

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Goodwill impairment charges (3)

LIFO charge (4)

Restructuring, acquisition and integration related expenses (5)

(Gain) loss on sale of assets (6)

Multiemployer pension plan withdrawal charges (6)

Multiemployer pension plan withdrawal (benefit) charges (7)

Notes receivable charges (8)

Inventory fair value adjustment (8)

Legal reserve charge, net of settlement income (9)

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Adjusted EBITDA of discontinued operations (11)

$ 4 $ 10 $ 22

(1) Fiscal 2021 includes a postretirement settlement gain of $17 million associated with the termination of remaining corporate plans.

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

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

Refer to Note 6—Goodwill and Intangible Assets, Net in Part II, Item 8 of this Annual Report for additional information.

(4) Fiscal 2021 primarily reflects costs associated with advisory and transformational activities as we position our business for further value-creation post Supervalu acquisition, as well as costs associated with distribution center consolidations.

(4) During fiscal 2022, we revised our definition of Adjusted EBITDA to exclude the impact of the non-cash LIFO charge.

The following illustrates the impact of the revised definition on previously reported periods to show the effect of this change:

(in millions) 2021

Adjusted EBITDA of continuing operations (previously reported definition) $ 742 $ 663

LIFO charge 24 18

Adjusted EBITDA of continuing operations (current definition) 766 681

Adjusted EBITDA of discontinued operations 4 10

Adjusted EBITDA (current definition) $ 770 $ 691

(5) Fiscal 2022 and fiscal 2021 primarily reflects costs associated with advisory and transformational activities to position our business for further value-creation.

In addition, fiscal 2021 includes costs associated with distribution center consolidations.

Fiscal 2020 primarily reflects Shoppers asset impairment charges, closed property and distribution center impairment charges and costs, and administrative fees associated with integration activities.

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

Refer to Note 4—Restructuring, Acquisition and Integration Related Expenses in Part II, Item 8 of this Annual Report for additional information.

(6) Fiscal 2022 primarily reflects the gain on sale of our Riverside, California distribution center in the third quarter of fiscal 2022.

Fiscal 2020 primarily reflects a $50 million accumulated depreciation and amortization charge related to the requirement to move Retail from discontinued operations to continuing operations, partially offset by $32 million of gains on the sale of distribution centers and other assets.

(7) Fiscal 2022 reflects an adjustment to multiemployer withdrawal charge estimates.

Fiscal 2021 includes charges related to withdrawal liabilities from three Retail multiemployer pension plans.

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

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

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

(9) Reflects a charge to settle a legal proceeding and income received to settle a separate legal proceeding.

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

Fiscal 2021 also reflects income related to a severance benefit amount.

Fiscal 2021 also reflects income related to a severance benefit.

The following includes a comparison of our consolidated results of operations, our segment results and financial position for fiscal years 2022 and 2021.

For a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2021 and 2020, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, filed with the Securities and Exchange Commission on September 28, 2021.

RESULTS OF OPERATIONS

Fiscal year ended July 31, 2021 (fiscal 2021) compared to fiscal year ended August 1, 2020 (fiscal 2020)

Fiscal year ended July 30, 2022 (fiscal 2022) compared to fiscal year ended July 31, 2021 (fiscal 2021)

Our Net sales by customer channel was as follows (in millions except percentages):

8 unchanged sentences

Total net sales $ 28,928 $ 26,950 $ 1,978 7.3 %

(1) Refer to Note 3—Revenue Recognition in Part II, Item 8 of this Annual Report for our channel definitions and for information regarding the recast of sales by customer channel to align with the current period presentation.

(1) Refer to Note 3—Revenue Recognition in Part II, Item 8 of this Annual Report for our channel definitions and additional information.

Our Net sales for fiscal 2022 increased 7.3% from fiscal 2021.

The increase in net sales for fiscal 2021 was primarily driven by strong customer demand in response to the pandemic as well as the benefits from cross selling, which was partially offset by lower sales from certain customers and business lost prior to the pandemic.

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

Independent retailers net sales decreased primarily due to lower existing store sales driven by a decline in demand for center store and natural products compared to last year's elevated demand due to a strong initial response to the pandemic, and lower sales from certain customers and stores lost prior to the pandemic.

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

Retail’s net sales increased primarily due to a 2.9% increase in identical store sales from higher average basket sizes related to the pandemic.

The increase in Retail sales included the benefit of a 52.3% increase in eCommerce sales at Cub Foods.

Other net sales decreased primarily due to a 20% (or $71 million) decline in sales to food service customers resulting from the lower purchases due to the pandemic and a decrease in military sales, for which we have intentionally resigned certain business, which were partially offset by an increase of $161 million in sales to eCommerce customers.

Eliminations net sales increased primarily due to increased Wholesale sales to Retail.

The increase in Net sales for fiscal 2022 was primarily driven by inflation and new business from both existing and new customers, including the benefit of cross-selling, partially offset by supply chain challenges and reduced unit sales growth.

Chains Net sales increased primarily due to growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by supply chain challenges and reduced unit sales growth.

Independent retailers Net sales increased primarily due to sales under a supply agreement with a new customer for East Coast locations commencing in the first quarter of fiscal 2022 and growth in sales to existing customers, including an increase from higher product costs, which drove higher wholesale selling prices to our customers, partially offset by supply chain challenges and reduced unit sales growth.

Supernatural Net sales increased primarily due to growth in existing store sales, including the supply of new product categories previously impacted by the pandemic and new fresh categories, such as bulk and ingredients used for prepared foods, inflation, and increased sales to new stores.

Retail’s Net sales increased primarily due to a 0.9% increase in identical store sales from higher average basket sizes, including an increase from higher product costs.

Other Net sales increased primarily due to a $93 million increase in sales to eCommerce customers.

Eliminations Net sales primarily relate to Wholesale’s sales to Retail.

Cost of Sales and Gross Profit

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Our Gross profit as a percentage of Net sales decreased slightly to 14.5% in fiscal 2022 compared to 14.6% in fiscal 2021.

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

The slight decrease in gross profit rate included lower Wholesale margin including the mix effect from larger customers, partially offset by an increase due to mix from the Retail segment representing a greater percentage of total net sales and lower levels of promotional activity.

The LIFO charge was $158 million and $24 million in fiscal 2022 and fiscal 2021, respectively.

Excluding the non-cash LIFO charge, Gross profit rate was 15.0% of Net sales and 14.7% of Net sales for fiscal 2022 and fiscal 2021, respectively.

The increase in the Gross profit rate, excluding the LIFO charge, was driven by improvements in the Wholesale segment margin rate, including the impact of inflation and the Company’s efficiency initiatives, partially offset by approximately 60 basis points from changes in certain larger customer mix.

Operating Expenses

Operating expenses increased $232 million, or 6.5%, to $3,825 million, or 13.2% of Net sales, in fiscal 2022 compared to $3,593 million, or 13.3% of Net sales, in fiscal 2021.

Operating expense in fiscal 2021 included a $63 million Retail multiemployer pension plan withdrawal charge discussed further above.

Operating expenses in fiscal 2020 included $27 million of bad debt expense associated with customer bankruptcies and $20 million of charges and expenses, primarily related to customer notes receivable, surplus property depreciation and a legal reserve charge.

The remaining 10 basis point decrease in operating expenses as a percent of net sales was driven by prior-year pandemic costs, including temporary higher pandemic compensation costs for our front line workers, estimated to be approximately $57 million or 21 basis points, which was partially offset by higher operating costs related to starting up three distribution centers in the Pacific Northwest and our Allentown distribution center during fiscal 2021.

Operating expenses also included share-based compensation expense of $49 million and $34 million for fiscal 2021 and 2020, respectively.

Goodwill Impairment Charges

During fiscal 2020 we recorded $425 million of goodwill and asset impairment charges, which reflected $422 million from an impairment charge on the remaining goodwill attributable to the U.S.

Wholesale reporting unit, $2 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1 million of other asset impairment charges.

Refer to Note 6—Goodwill and Intangible Assets, Net in Part II, Item 8 of this Annual Report for additional information.

Operating expenses in fiscal 2022 included an $8 million Retail multiemployer pension plan withdrawal benefit, compared to a $63 million Retail multiemployer pension plan withdrawal charge in fiscal 2021 discussed below.

Excluding the multiemployer pension plan withdrawal impacts in both periods, Operating expenses were 13.3% and 13.1% in fiscal 2022 and 2021, respectively.

The remaining 20 basis point increase in Operating expenses as a percent of Net sales was primarily driven by continued investments in servicing our customers, which led to approximately 50 basis points of higher transportation expenses and distribution labor costs in fiscal 2022, higher occupancy costs, and the temporary, voluntary closure of a distribution center in the first quarter of fiscal 2022.

These increases were partially offset by leveraging fixed expenses and the non-recurrence of distribution center start-up and consolidation costs incurred in the Pacific Northwest last year.

In fiscal 2021, our Retail optimization efforts included updating our benefit plan offerings to a defined contribution plan as a replacement for three multiemployer pension plans to which we contributed pursuant to Cub Foods collective bargaining agreements.

In fiscal 2021, we withdrew from participating in these Retail multiemployer pension plans, resulting in a $63 million withdrawal charge.

This estimated withdrawal liability was adjusted to $55 million in fiscal 2022, resulting in the benefit discussed above.

It is possible we could incur withdrawal liabilities for certain additional multiemployer pension plan obligations in the future as we negotiate new collective bargaining agreements with a number of our unions in normal course.

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $56 million for fiscal 2021, which included $50 million of integration costs primarily associated with advisory and transformational activities as we position our business for further value creation following the Supervalu acquisition and $6 million of closed property charges.

Expenses for fiscal 2020 were $87 million, which primarily included $42 million of integration related costs, $40 million of closed property reserve charges related to the divestiture of retail banners and $5 million of primarily employee related separation costs.

(Gain) Loss on Sale of Assets

Gain on sale of assets was $4 million in fiscal 2021, which increased $22 million from a loss on sale of assets of $18 million in fiscal 2020.

Loss on sale of assets in fiscal 2020 included an accumulated depreciation and amortization charge of $50 million related to the requirement to move Retail from discontinued operations to continuing operations, which was partially offset by $32 million of gains on the sale of distribution centers and other assets.

Operating Income (Loss)

Reflecting the factors described above, operating income increased $487 million to $294 million for fiscal 2021, from an operating loss of $193 million for fiscal 2020.

The increase in operating income was primarily driven by the fiscal 2020 goodwill impairment charge, an increase in Gross profit and lower Restructuring, acquisition and integration related expenses discussed above, which was partially offset by an increase in Operating expenses.

Restructuring, acquisition and integration related expenses were $21 million for fiscal 2022, which primarily included integration costs associated with transformational and advisory activities to position our business for further value creation.

Expenses for fiscal 2021 were $56 million, which included $50 million of integration costs primarily associated with advisory and transformational activities to position our business for further value creation following the Supervalu acquisition and $6 million of closed property charges.

Gain on Sale of Assets

Gain on sale of assets was $87 million in fiscal 2022, which increased $83 million from $4 million in fiscal 2021.

During fiscal 2022, we acquired the real property of our Riverside, California distribution center for approximately $153 million.

Immediately following this acquisition, we monetized this property through a sale-leaseback transaction, pursuant to which we received $225 million in aggregate proceeds for the sale of the property, which represented the fair value of the property.

Under the terms of the sale-leaseback agreement, we entered into a lease for the distribution center for a term of 15 years.

We recorded a pre-tax Gain on sale of approximately $87 million in fiscal 2022 as a result of the transactions, which primarily reflects the pre-tax net proceeds.

Operating Income

Reflecting the factors described above, Operating income increased $129 million to $423 million in fiscal 2022, from $294 million in fiscal 2021.

The increase in Operating income was primarily driven by an increase in Gross profit, Gain on sale of assets and lower Restructuring, acquisition and integration related expenses, partially offset by an increase in Operating expenses.

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost increased $46 million to $85 million for fiscal 2021, from $39 million in fiscal 2020.

The increase in Net periodic benefit income, excluding service cost was primarily driven by lower interest costs from a lower discount rate utilized in the measurement of pension liabilities, a $17 million settlement gain for the purchase of an irrevocable annuity to settle participant’s post-employment obligations in fiscal 2021, and a lump sum defined benefit pension plan settlement charge of $11 million in fiscal 2020.

Net periodic benefit income, excluding service cost decreased $45 million to $40 million in fiscal 2022, from $85 million in fiscal 2021.

The decrease in Net periodic benefit income, excluding service cost was primarily driven by $22 million of lower income from expected returns on plan assets from a higher target investment allocation to fixed income assets in 2022 and a $17 million settlement gain for the purchase of an irrevocable annuity to settle participants’ post-employment obligations in fiscal 2021.

Interest Expense, Net

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Interest expense, net $ 155 $ 204 $ (49)

The decrease in interest expense on long-term debt for fiscal 2021 compared to fiscal 2020 was primarily driven by lower amounts of outstanding debt.

The increase in interest expense on finance leases in fiscal 2021 primarily reflects interest on a distribution center for which we executed a purchase option with a delayed purchase provision.

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

The decrease in interest expense on long-term debt, net of capitalized interest, for fiscal 2022 compared to fiscal 2021 was primarily driven by lower outstanding debt balances and lower net interest expense related to our portfolio of interest rate swaps.

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

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for further information.

Provision (Benefit) for Income Taxes

The effective income tax rate for continuing operations was an expense of 18.6% compared to a benefit of 26.6% on pre-tax losses for fiscal 2021 and 2020, respectively.

The fiscal 2020 effective tax rate was primarily driven by the impact of non-deductible goodwill impairment charges recorded in fiscal 2020, partially offset by the net operating loss (“NOL”) carryback provisions of the CARES Act.

Provision for Income Taxes

The effective income tax rate for continuing operations was an expense of 18.1% compared to an expense of 18.6% in fiscal 2022 and 2021, respectively.

For fiscal 2022, the effective tax rate was reduced by the impact of discrete tax benefits related to employee stock awards and the release of unrecognized tax positions, partially offset by non-deductible executive compensation.

For fiscal 2021, the effective tax rate was reduced by solar and employment tax credits, including the tax credit impact of a fiscal 2021 investment in an equity method partnership, the recognition of previously unrecognized tax benefits, excess tax deductions attributable to share-based compensation and inventory deductions, as well as the impact of favorable return-to-provision adjustments.

Income (Loss) from Discontinued Operations, Net of Tax

Income from Discontinued Operations, Net of Tax

The results of discontinued operations for fiscal 2021 reflect Net sales of $42 million for which we recognized $14 million of Gross profit and $9 million of Income from discontinued operations, net of tax.

Net sales, gross profit and operating expenses of discontinued operations decreased $142 million, $39 million and $34 million, respectively, for the fiscal 2021 as compared to fiscal 2020 primarily due to a lower operating store base due to closures and sales that occurred in fiscal 2020.

Discontinued operations for fiscal 2020 included $33 million of charges and costs primarily related to store closures charges and expenses, and asset impairment charges related to exited locations.

Refer to Note 18—Discontinued Operations in Part II, Item 8 of this Annual Report for additional information regarding these discontinued operations.

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

Discontinued operations results of operations in fiscal 2022 were insignificant.

Refer to Note 18—Discontinued Operations in Part II, Item 8 of this Annual Report for additional information.

Net Income Attributable to United Natural Foods, Inc.

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

was $149 million, or $2.48 per diluted common share, for fiscal 2021, compared to a net loss of $274 million, or $5.10 per diluted common share, for fiscal 2020.

Fiscal year ended August 1, 2020 (fiscal 2020) compared to fiscal year ended August 3, 2019 (fiscal 2019)

Within our results of operations we have estimated the impact of the additional week in fiscal 2019 and the acquisition of Supervalu, where applicable and estimable, to provide comparable financial results on a year-over-year basis.

The impact of the 53rd week in fiscal 2019 discussed below represents an estimate of the contribution from the additional week in fiscal 2019 and is calculated by taking one-fifth of the respective metrics for the last five-week period, within the 14-week fourth quarter of fiscal 2019.

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

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

The requirement to move two of the four remaining Shoppers stores from discontinued operations to continuing operations in fiscal 2021 required the revision of historical financial information to conform with current period presentation.

As a result, the following results comparison has been updated.

Our net sales by customer channel were as follows (in millions except percentages):

Increase (Decrease)

Customer Channel (1)

Chains $ 12,010 $ 9,769 $ 2,241 22.9 %

Independent retailers 6,699 5,536 1,163 21.0 %

Supernatural 4,720 4,394 326 7.4 %

Retail 2,375 1,687 688 40.8 %

Other 2,324 2,087 237 11.4 %

Eliminations (1,569) (1,132) (437) 38.6 %

Total net sales $ 26,559 $ 22,341 $ 4,218 18.9 %

(1) Refer to Note 3—Revenue Recognition in Part II, Item 8 of this Annual Report for our channel definitions and additional information.

Our net sales for fiscal 2020 increased approximately 19% from fiscal 2019.

The increase in net sales for fiscal 2020 was driven by incremental Supervalu net sales from the first quarter of fiscal 2020, as Supervalu was only included in our results for approximately one week in the first quarter of fiscal 2019, of approximately $3,345 million and was partially offset by $475 million from an incremental 53rd week in fiscal 2019.

The remaining underlying net sales increased $1,348 million or 6.2%.

Chains net sales increased primarily due to $1,892 million of an incremental 12 weeks of net sales from the acquired Supervalu business, which was partially offset by the estimated impact from the 53rd week in fiscal 2019 of $213 million.

The remaining increase of $562 million was primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers’ response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and business prior to the pandemic.

Independent retailers net sales increased primarily due to $971 million of an incremental 12 weeks of net sales from the acquired Supervalu business, which was partially offset by the estimated impact from the 53rd week in fiscal 2019, of $120 million.

The remaining increase of $312 million was primarily due to growth in sales to existing customers, including demand for center store and natural products driven by customers response to the COVID-19 pandemic, partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Supernatural net sales increased primarily due to increased sales related to the COVID-19 pandemic, growth in existing and new product categories, and increased sales to existing and new stores prior to the pandemic, partially offset by the impact of categories that have been adversely impacted by COVID such as bulk and ingredients used for prepared foods and the estimated impact from the 53rd week in fiscal 2019 of $84 million.

Retail’s net sales increased primarily due to $495 million of an incremental 12 weeks of net sales from the acquired Supervalu business, which was partially offset by the estimated impact from the 53rd week in fiscal 2019 of $40 million.

The remaining increase of $233 million was driven by increased identical store sales related to the COVID-19 pandemic.

Other net sales increased primarily due to $267 million of an incremental 12 weeks of net sales from the acquired Supervalu business, which was partially offset by the estimated impact from the 53rd week in fiscal 2019 of $42 million.

The remaining increase of $12 million is primarily due to an increase in eCommerce and other, partially offset by a 23% (or $104 million) decline in sales to foodservice customers, whose purchases slowed due to the COVID-19 pandemic based on their locations being temporarily closed.

Eliminations of net sales increased primarily due to $280 million of an incremental 12 weeks of net sales from the acquired Supervalu business and increased Wholesale sales to Retail, which was partially offset by the estimated impact from the 53rd week in fiscal 2019 of $24 million.

Cost of Sales and Gross Profit

Our gross profit increased $669 million, or 20.8%, to $3,889 million in fiscal 2020, from $3,220 million in fiscal 2019.

Our gross profit as a percentage of net sales increased to 14.64% in fiscal 2020 compared to 14.41% in fiscal 2019.

Our gross profit for fiscal 2020 included an incremental 12 weeks of gross profit from the acquired Supervalu business estimated as approximately $480 million and fiscal 2019 included an estimated increase in gross profit from the 53rd week of $69 million.

The remaining increase in gross profit of $258 million was primarily driven by higher Wholesale and Retail sales volume.

The 23 basis point increase in gross profit rate was driven by a 92 basis point increase in Retail gross profit as a percent of its net sales, which was driven by lower promotional activity and contributed to a segment business mix impact that increased overall gross profit rate.

This increase was partially offset by a 12 basis point decrease in Wholesale gross profit as a percent of its net sales, and included a decrease due to lower gross profit rates on conventional products.

Operating Expenses

Operating expenses increased $576 million, or 19.4%, to $3,552 million, or 13.37% of net sales, in fiscal 2020 compared to $2,976 million, or 13.32% of net sales, in fiscal 2019.

The increase in operating expenses as a percentage of net sales was driven by 25 basis points of higher incentive compensation, including temporary COVID-19 compensation expense and 13 basis points of higher bad debt expense primarily from customer bankruptcies prior to the pandemic, which were partially offset by 31 basis points of lower other employee costs driven by lower salaries and benefits expenses.

Operating expenses decreased by $65 million from the impact of the additional 53rd week in fiscal 2019.

Goodwill Impairment Charges

During fiscal 2020 we recorded $425 million of goodwill and asset impairment charges, which reflects $422 million from an impairment charge on the remaining goodwill attributable to the U.S.

Wholesale reporting unit, $2 million related to purchase accounting adjustments to finalize the opening balance sheet goodwill and $1 million of other asset impairment charges.

During fiscal 2019 we recorded a $293 million goodwill impairment charge, which reflects the preliminary goodwill impairment based on the preliminary fair value of net assets assigned, which was finalized in the first quarter of fiscal 2020.

The goodwill impairment charge recorded in fiscal 2019 was subject to further change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed from the Supervalu acquisition.

The estimates and assumptions were subject to change during the measurement period (up to one year from the acquisition date).

Restructuring, Acquisition and Integration Related Expenses

Restructuring, acquisition and integration related expenses were $87 million for fiscal 2020 and primarily included $42 million of integration related costs, $40 million of closed property reserve charges related to the divestiture of retail banners and $5 million of primarily employee related separation costs.

Expenses incurred in fiscal 2019 primarily related to $74 million of employee related costs and charges due to severance, settlement of outstanding equity awards and benefits costs, $51 million of other acquisition and integration related costs and $23 million of closed property reserve charges primarily related to the divestiture of retail banners.

Loss (Gain) on Sale of Assets

Loss on sale of assets increased $19 million to $18 million in fiscal 2020 from a gain on sale of assets of $1 million in fiscal 2019.

Loss on sale of assets in fiscal 2020 included an accumulated depreciation and amortization charge of $50 million related to the requirement to move Retail from discontinued operations to continuing operations, which was partially offset by gains on sales of distribution centers and a retail accounting services business.

Operating Loss

Reflecting the factors described above, operating loss decreased $3 million to an operating loss of $193 million for fiscal 2020, from an operating loss of $196 million for fiscal 2019.

The decrease in operating loss was driven by gross profit increases in excess of operating expense increases, lower restructuring, acquisition and integration related expenses, partially offset by a higher goodwill impairment charge and a higher loss on sale of assets.

The fiscal 2020 and fiscal 2019 operating loss includes $6 million and $10 million, respectively, of operating lease rent expense and $2 million and $4 million, respectively, of depreciation and amortization expenses related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations, as we expect to remain primarily obligated under these leases.

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

Net Periodic Benefit Income, Excluding Service Cost

Net periodic benefit income, excluding service cost increased $4 million to $39 million for fiscal 2020, from $35 million in fiscal 2019.

Net periodic benefit income for fiscal 2020 includes $11 million of non-cash pension settlement charges primarily from the lump sum pension settlement offering completed in fiscal 2020.

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

Interest Expense, Net

(in millions) 2020

Increase (Decrease)

Interest expense on long-term debt, net of capitalized interest $ 166 $ 147 $ 19

Interest expense on finance and direct financing lease obligations 12 16 (4)

Amortization of financing costs and discounts 15 13 2

Loss on debt extinguishment — 5 (5)

Interest income (1) — (1)

Interest expense, net $ 192 $ 181 $ 11

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

Interest on finance and direct financing leases decreased primarily due to the adoption of the new lease accounting standard, ASC 842, in fiscal 2020.

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

Benefit for Income Taxes

The effective income tax rate for continuing operations was a benefit of 26.6% and 17.3% on pre-tax losses for fiscal 2020 and 2019, respectively.

The increase in the benefit rate for fiscal 2020 was primarily driven by the NOL carryback provisions of the CARES Act.

(Loss) Income from Discontinued Operations, Net of Tax

The results of operations for fiscal 2020 reflect net sales of $184 million for which we recognized $53 million of gross profit and a loss from discontinued operations, net of tax of $18 million.

As noted above, pre-tax loss from discontinued operations excludes $6 million of operating lease rent expense related to stores within discontinued operations, but for which GAAP requires the expense to be included within continuing operations.

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

Discontinued operations included $33 million of restructuring expenses primarily related to Shoppers store closures expenses related to employee costs and wind-down expenses, and asset impairment charges.

In addition, gross profit of discontinued operations included inventory charges from store closures.

As of the end of fiscal 2020, discontinued operations consisted of only five Shoppers stores.

Net sales, gross profit and operating expenses of discontinued operations decreased $223 million, $64 million and $55 million, respectively, for the fiscal 2020 as compared to fiscal 2019 primarily due to closed and sold Shoppers stores, results from the Hornbacher’s retail banner, which was sold in December 2019, and the closed Shop ‘n Save East stores, which were partially offset by the partial year in 2019 due to the timing of the Supervalu acquisition.

Net Loss Attributable to United Natural Foods, Inc.

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

of $274 million, or $5.10 per diluted common share, for fiscal 2020, compared to net income of $285 million, or $5.56 per diluted common share, for fiscal 2019.

As described in more detail within Note 12—Share-Based Awards in Part II, Item 8 of this Annual Report, in fiscal 2020 and 2019 we issued approximately 1.3 million and 2.0 million shares of common stock, respectively, to fund the settlement of time-vesting replacement award obligations from the Supervalu acquisition.

was $248 million, or $4.07 per diluted common share, in fiscal 2022, compared to $149 million, or $2.48 per diluted common share, in fiscal 2021.

Segment Results of Operations

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Wholesale (1)

Retail 96 88 35 8 53

$ 696 $ 677 $ 610 $ 19 $ 67

Other 44 (10) (16) 54 6

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Total continuing operations Adjusted EBITDA $ 829 $ 766 $ 681 $ 63 $ 85

Wholesale’s net sales increased in fiscal 2021 as compared to fiscal 2020 primarily due to growth in the Supernatural and Chains channels, which was partially offset primarily by lower sales from the Independent retailers channel.

Refer to the Net Sales discussion above for additional information.

Retail’s net sales increased for fiscal 2021 as compared to fiscal 2020 primarily due to a 2.9% increase in identical store sales from higher average basket sizes related to the pandemic.

Wholesale’s net sales increased in fiscal 2020 as compared to fiscal 2019 driven by an incremental 12 weeks of net sales from the acquired Supervalu business of approximately $3,123 million and was partially offset by $455 million from an incremental 53rd week in fiscal 2019, with the remaining increase primarily due to growth in sales to existing customers in the Chains, Supernatural and Independent retailers channels.

Sales growth was primarily driven by demand for center store and natural products from customers response to the COVID-19 pandemic, and was partially offset by lower sales from previously lost customers and stores prior to the pandemic.

Retail’s net sales increased for fiscal 2020 as compared to fiscal 2019 primarily due to $495 million of an incremental 12 weeks of net sales from the acquired Supervalu business, which was partially offset by the estimated impact from the 53rd week in fiscal 2019 of $40 million.

The remaining increase was driven by increased identical store sales related to the COVID-19 pandemic.

All Retail net sales related to the acquired Supervalu business.

The increase in net sales eliminations in fiscal 2021 and 2020 was primarily due to an increase in Wholesale sales to our Retail banners, which are eliminated upon consolidation.

(1) Adjusted EBITDA amounts as previously reported by segment have been recast to conform with the revised segment profit measure of Adjusted EBITDA, which excludes the non-cash LIFO charge.

The effect of the revision increased Adjusted EBITDA for Wholesale and Retail by $23 million and $2 million in fiscal 2021, respectively, decreased Adjusted EBITDA of Other by $1 million in fiscal 2021, and increased Adjusted EBITDA of Wholesale and Retail in fiscal 2020 by $17 million and $1 million, respectively.

Wholesale’s Net sales increased in fiscal 2022 as compared to fiscal 2021 primarily due to growth in sales to existing customers, including an increase from higher product costs, in Independent retailers, Supernatural and Chains, as discussed in Results of Operations- Fiscal year ended July 30, 2022 (fiscal 2022) compared to fiscal year ended July 31, 2021 (fiscal 2021) - Net Sales above.

Retail’s Net sales increased for fiscal 2022 as compared to fiscal 2021 primarily due to a 0.9% increase in identical store sales from higher average basket sizes, including an increase from higher product costs.

Adjusted EBITDA

Wholesale’s Adjusted EBITDA increased 3% in fiscal 2022 as compared to fiscal 2021.

Wholesale’s gross profit dollar growth for fiscal 2021 was $26 million and gross profit rate decreased 7 basis points driven by the mix effect from larger customers.

Wholesale’s operating expense decreased $36 million, which excludes depreciation and amortization, stock-based compensation and other adjustments outlined in Note 16—Business Segments, driven by prior-year pandemic costs, including temporary higher pandemic compensation costs for our front line workers, which was partially offset by higher operating costs related to starting up three distribution centers in the Pacific Northwest and our Allentown distribution center during fiscal 2021.

Wholesale’s depreciation expense decreased $15 million compared to fiscal 2020.

Retail’s Adjusted EBITDA increased 9% in fiscal 2021 as compared to fiscal 2020.

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

Retail’s gross profit dollar growth for fiscal 2021 was $28 million and its gross profit rate increased 41 basis points from lower promotional activity.

Retail’s operating expense, which excludes depreciation and amortization, stock-based compensation and other adjustments as outlined in Note 16—Business Segments, increased $19 million primarily due to higher employee related costs to support higher sales.

Retail’s depreciation and amortization expense increased $25 million compared to fiscal 2020 primarily related to assets previously classified as held for sale that were moved to continuing operations in the fourth quarter of fiscal 2020 for which we were required to begin recording depreciation and amortization expense.

Other Adjusted EBITDA improved 44% in fiscal 2021 primarily due to lower incentive compensation costs.

Wholesale’s Adjusted EBITDA increased 28% in fiscal 2020 as compared to fiscal 2019.

The increase was driven by leveraged sales growth, particularly in the second half of fiscal 2020 from increases in food-at-home purchases that drove sales to our customers, an incremental 12 weeks of Adjusted EBITDA from the acquired Supervalu business.

Gross profit dollar growth for fiscal 2020 was $469 million with a gross profit rate decrease of approximately 8 basis points, which outpaced operating expense increases, which excludes depreciation and amortization, stock-based compensation and other adjustments outlined in Note 16—Business Segments, of $342 million.

Operating expense rate decrease of approximately 29 basis points primarily driven by lower trucking expense, partially offset by higher temporary incentive pay and operating costs related to the COVID-19 pandemic and higher bad debt expense prior to the COVID-19 pandemic.

Wholesale depreciation expense increased $39 million to $267 million due to an incremental 12 weeks of depreciation and amortization expense from the Supervalu acquisition.

Retail’s Adjusted EBITDA increased 151% in fiscal 2020 as compared to fiscal 2019.

The increase was driven by higher sales volume from the impacts of the COVID-19 pandemic and the incremental 12 weeks of Adjusted EBITDA from the acquired Supervalu business, fixed and variable cost leveraging and lower promotional activity.

Gross profit dollar growth for fiscal 2020 was $200 million with gross profit rate increase of approximately 90 basis points from lower promotional activity.

Operating expense growth, which excludes depreciation and amortization, stock-based compensation and other adjustments outlined in Note 16—Business Segments, of $142 million with an operating expense rate decrease of 93 basis points driven by variable cost leveraging partially offset by higher temporary incentive pay and operating costs related to the COVID-19 pandemic.

Retail depreciation and amortization expense for fiscal 2020 and 2019 relate to finance lease amortization expense associated with leases previously amortizing in continuing operations as they were not previously classified as held for sale.

Other Adjusted EBITDA decreased 138% in fiscal 2020 primarily due to higher incentive compensation costs.

The increase was driven by gross profit expansion, excluding the LIFO charge, in excess of higher operating costs.

Wholesale’s Gross profit increase excluding the LIFO charge for fiscal 2022 was $386 million and gross profit rate increased approximately 51 basis points driven by margin rate expansion from the benefits of inflation and the Company’s ValuePath initiative, which was partially offset by changes in customer mix.

Wholesale’s Operating expense increased $366 million, which excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 16—Business Segments.

Wholesale’s operating expense rate increased 62 basis points primarily driven by continued investments in servicing our customers, which led to approximately 50 basis points of higher transportation expenses and distribution labor costs in fiscal 2022, higher occupancy costs, and the temporary, voluntary closure of a distribution center in the first quarter of fiscal 2022.

These increases were partially offset by leveraging fixed expenses and distribution center start-up and consolidation costs incurred in the Pacific Northwest last year.

Wholesale’s depreciation expense increased $2 million compared to fiscal 2021.

Retail’s Adjusted EBITDA was unchanged in fiscal 2022 as compared to fiscal 2021.

Retail’s Gross profit dollar growth excluding the LIFO charge in fiscal 2022 was $12 million and its gross profit rate increased 20 basis points from lower promotional activity.

This increase was primarily offset by higher employee and occupancy costs.

Retail’s Adjusted EBITDA excludes depreciation and amortization, share-based compensation, LIFO charge and other adjustments as outlined in Note 16—Business Segments in Part II, Item 8 of this Annual Report.

Retail’s depreciation and amortization expense was unchanged compared to fiscal 2021.

Other Adjusted EBITDA improved 540% in fiscal 2022 primarily due to lower corporate overhead costs, including pandemic related costs and administrative costs.

LIQUIDITY AND CAPITAL RESOURCES

• Total liquidity as of July 31, 2021 was $1.32 billion and consisted of the following:

◦ Unused credit under our revolving line of credit was $1,280 million as of July 31, 2021, which increased $45 million from $1,235 million as of August 1, 2020, primarily due to net payments made on the ABL Credit Facility as cash flow generated from the business was utilized to reduce outstanding debt.

This net reduction of the outstanding balance under the ABL Credit Facility in fiscal 2021 was net of incremental borrowings under the facility used to fund certain mandatory and voluntary prepayments on the Term Loan Facility (as discussed below).

◦ Cash and cash equivalents was $41 million as of July 31, 2021, which decreased $6 million from $47 million as of August 1, 2020.

• Our total debt decreased $310 million to $2,188 million as of July 31, 2021 from $2,498 million as of August 1, 2020, primarily driven by net positive cash flows from operating activities and asset dispositions, partially offset by payments for capital expenditures during fiscal 2021.

• In fiscal 2021, we amended our Term Loan Agreement to, among other things, reduce the applicable margin for LIBOR and base rate loans under the Term Loan Facility by 75 basis points.

• In fiscal 2021, we made voluntary prepayments of $186 million on the Term Loan Facility funded with incremental borrowings under the ABL Credit Facility that will reduce our interest costs.

• In fiscal 2021, we issued $500 million of unsecured 6.750% Senior Notes due October 15, 2028 (the “Senior Notes”) and utilized the net proceeds and borrowings under the ABL Credit Facility to make a $500 million prepayment on our Term Loan Facility.

In addition, during fiscal 2021, we made $85 million of additional repayments under the Term Loan Facility, including a mandatory repayment of $72 million related to Excess Cash Flow (as defined in the Term Loan Agreement) generated in fiscal 2020, as required under the Term Loan Agreement and prepayments of $13 million with asset sale proceeds.

• Total liquidity as of July 30, 2022 was $1,671 million and consisted of the following:

◦ Unused credit under our $2,600 million secured asset-based revolving credit facility (the “ABL Credit Facility”, described below) was $1,627 million as of July 30, 2022, which increased $347 million from $1,280 million as of July 31, 2021, primarily due to entering into a new, larger ABL Facility in the fourth quarter of fiscal 2022 as described below, partially offset by cash utilized to fund a voluntary prepayment on the Term Loan Facility (described below).

◦ Cash and cash equivalents was $44 million as of July 30, 2022, which increased $3 million from $41 million as of July 31, 2021.

• Our total debt decreased $65 million to $2,123 million as of July 30, 2022 from $2,188 million as of July 31, 2021, primarily driven by debt repayments from net cash flow contributions from operating activities and net proceeds from asset sales, partially offset by payments for capital expenditures during fiscal 2022.

• In the second quarter of fiscal 2022, we made a voluntary prepayment of $150 million on the term loan agreement (the “Term Loan Agreement”) related to our $1,950 million term loan facility (the “Term Loan Facility”) funded with incremental borrowings under the ABL Credit Facility that reduced our interest costs.

Also in the second quarter of fiscal 2022, prior to transitioning to Secured Overnight Financing Rates (“SOFR”), we amended our Term Loan Agreement to reduce the applicable margin for London Interbank Offered Rate (“LIBOR”) and base rate loans under the Term Loan Facility by 25 basis points.

• In the third quarter of fiscal 2022, we acquired the real property of our Riverside, California distribution center for approximately $153 million, which reduced our Current portion of long-term debt and finance lease liabilities by $96 million with the remainder primarily reducing our Accrued expenses and other current liabilities.

Immediately following this acquisition, we monetized this property through a sale-leaseback transaction, pursuant to which we received $225 million in aggregate proceeds for the sale of the property.

In March 2022, we made a $44 million voluntary prepayment on the Term Loan Facility from the after-tax net proceeds from the transactions.

• In the fourth quarter of fiscal 2022, we entered into a new loan agreement (the “ABL Loan Agreement”), which provides for a $2,600 million ABL Credit Facility with an extended maturity to fiscal 2027, and we used borrowings thereunder to repay all amounts outstanding under and terminate the then outstanding ABL credit facility.

Our total available liquidity increased by $500 million in connection with this refinancing, which reflects our borrowing base levels at closing.

The ABL Loan Agreement utilizes Term SOFR and Prime rates as the benchmark interest rates.

Borrowings under the ABL Loan Agreement bear interest at rates that, at the applicable borrowers’ option, can be either:

(i) a base rate plus a 0.00% - 0.25% margin or (ii) a Term SOFR rate plus a 1.00% - 1.25% margin.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report.

Also in the fourth quarter of fiscal 2022, we amended the Term Loan Agreement to change the Term Loan Facility reference rate from LIBOR to Term SOFR.

• In fiscal 2023, scheduled debt maturities are expected to be $14 million.

We are also obligated to make payments to reduce finance lease obligations, including a payment to acquire the Riverside, CA distribution center in fiscal 2022, which we expect to fund with the proceeds of a concurrent sale-leaseback transaction in fiscal 2022.

Based on our Consolidated First Lien Net Leverage Ratio (as defined in the Term Loan Agreement) at the end of fiscal 2022, no prepayment from Excess Cash Flow in fiscal 2022 is required to be made in fiscal 2023.

• Working capital decreased $272 million to $1,063 million as of July 31, 2021 from $1,335 million as of August 1, 2020, primarily due to the contractual requirement to acquire the Riverside, CA distribution center discussed above reflected in the current portion of finance lease liabilities and accrued expenses, and the collection of tax refunds related to prior year tax returns, partially offset by a reduction of the current portion of long-term debt resulting from the Term Loan Facility Excess Cash Flow prepayment described above.

• Working capital increased $317 million to $1,380 million as of July 30, 2022 from $1,063 million as of July 31, 2021, primarily due to the increase in inventory and accounts receivable levels related to new customers and sales growth of existing customers combined with the decrease in the current portion of finance lease liabilities and accrued expenses related to the contractual requirement to acquire the Riverside, California distribution center discussed above, which were partially offset by an increase in accounts payable related to inventories.

Sources and Uses of Cash

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds and proceeds from the sale of surplus and/or non-core assets.

We expect to continue to replenish operating assets and pay down debt obligations with internally generated funds.

A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on our operating cash flow, which may limit our ability to pay down our outstanding indebtedness as planned.

Our credit facilities are secured by a substantial portion of our total assets.

We expect to be able to fund debt maturities through fiscal 2022 with internally generated fund, proceeds from asset sales or borrowings under the ABL Credit Facility.

We expect to be able to fund debt maturities and finance lease liabilities through fiscal 2023 with internally generated funds and borrowings under the ABL Credit Facility.

Our primary sources of liquidity are from internally generated funds and from borrowing capacity under the ABL Credit Facility.

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Inventories are managed primarily through demand forecasting and replenishing depleted inventories.

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

We currently do not pay a dividend on our common stock.

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

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Long-Term Debt

During fiscal 2021, we repaid a net $56 million under the ABL Credit Facility, repaid $771 million on the Term Loan Facility related to mandatory and voluntary prepayments, and issued $500 million of Senior Notes.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements and additional information.

Our Term Loan Agreement and Senior Notes do not include any financial maintenance covenants.

Our ABL Loan Agreement subjects us to a fixed charge coverage ratio (as defined in the ABL Loan Agreement) of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability (as defined in the ABL Loan Agreement) is ever less than the greater of (i) $235 million and (ii) 10% of the aggregate borrowing base.

During fiscal 2022, we made voluntary prepayments of $202 million on the Term Loan Facility and borrowed a net $139 million under the ABL Credit Facility.

We entered into a second amendment to the Term Loan Agreement to, among other things, reduce the applicable reference rate margin by 0.25%, and a third amendment to the Term Loan Agreement to amend the reference rate thereunder from LIBOR to Term SOFR.

Refer to Note 9—Long-Term Debt in Part II, Item 8 of this Annual Report for a detailed discussion of the provisions of our credit facilities and certain long-term debt agreements.

Our Term Loan Agreement and the indenture governing our unsecured 6.75% Senior Notes due October 15, 2028 (the “Senior Notes”) do not include any financial maintenance covenants.

Our ABL Loan Agreement subjects us to a fixed charge coverage ratio of at least 1.0 to 1.0 calculated at the end of each of our fiscal quarters on a rolling four quarter basis, if the adjusted aggregate availability is ever less than the greater of (i) $210 million and (ii) 10% of the aggregate borrowing base.

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

The Term Loan Agreement, ABL Loan Agreement and Senior Notes contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis.

The Term Loan Agreement, Senior Notes and ABL Loan Agreement contain certain operational and informational covenants customary for debt securities of these types that limit our and our restricted subsidiaries’ ability to, among other things, incur debt, declare or pay dividends or make other distributions to our stockholders, transfer or sell assets, create liens on our assets, engage in transactions with affiliates, and merge, consolidate or sell all or substantially all of our and our subsidiaries’ assets on a consolidated basis.

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

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

The following chart outlines our scheduled debt maturities by fiscal year, which excludes debt prepayments that may be required from proceeds from sales of mortgaged properties beyond fiscal 2022 (as defined in the Term Loan Agreement).

Based on our Consolidated First Lien Net Leverage Ratio at the end of fiscal 2021, no prepayment from Excess Cash Flow in fiscal 2021 is required to be made in fiscal 2022.

The following chart outlines our scheduled debt maturities by fiscal year, which excludes debt prepayments that may be required from Excess Cash Flow (as defined in the Term Loan Agreement) generated or sales of mortgaged properties in fiscal 2023 or beyond.

Derivatives and Hedging Activity

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

As of July 31, 2021, we had an aggregate of $1,233 million of floating rate notional debt subject to active interest rate swap contracts, which effectively hedge the LIBOR component of our interest rate payments through pay fixed and receive floating interest rate swap agreements.

As discussed above, in the fourth quarter of fiscal 2022, we (i) entered into the ABL Loan Agreement, (ii) amended the Term Loan Agreement to change the Term Loan Facility reference rate from LIBOR to Term SOFR and (iii) amended our outstanding interest rate swap contracts to replace One-Month LIBOR with One-Month Term SOFR.

We did not record any gains or losses upon the conversion of the reference rates in these interest rate swap contracts, and we believe these amendments will not have a material impact on our Consolidated Financial Statements.

The cumulative effect of these changes includes the replacement of LIBOR with Term SOFR as the benchmark interest rate for all remaining credit facilities.

As such, we adopted ASU 2020-04, as discussed in Note 2—Recently Adopted and Issued Accounting Pronouncements in Part II, Item 8 of this Annual Report, which will allow us to continue to apply hedge accounting to our outstanding interest rate swap contracts and terminated or novated interest rate swap contracts for which the hedged interest rate transactions are still probable of occurring.

As of July 30, 2022, we had an aggregate of $1,229 million of floating rate notional debt subject to active interest rate swap contracts, which effectively hedge the SOFR component of our interest rate payments through pay fixed and receive floating interest rate swap agreements.

These fixed rates range from 1.795% to 2.875%, with maturities between August 2022 and October 2025.

The fair value of these interest rate derivatives represents a total net liability of $75 million and are subject to volatility based on changes in market interest rates.

The fair value of these interest rate derivatives represents a total net asset of $2 million and are subject to volatility based on changes in market interest rates.

In fiscal 2021, we paid $17 million to terminate or novate $1,204 million of interest rate swap contracts over our floating rate notional debt.

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

See Note 8—Derivatives in Part II, Item 8 and —Interest Rate Risk within Item 7A of this Annual Report for additional information.

See Note 8—Derivatives in Part II, Item 8 and —Interest Rate Risk in Part II, Item 7A of this Annual Report for additional information.

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

As of July 31, 2021, we had fixed price fuel contracts outstanding and foreign currency forward agreements outstanding.

As of July 30, 2022, we had fixed price fuel contracts and foreign currency forward agreements outstanding.

Gains and losses and the outstanding assets and liabilities from these arrangements are insignificant.

Payments for Capital Expenditures

Our capital expenditures increased $137 million in fiscal 2021 to $310 million compared to $173 million for fiscal 2020, primarily due to the new Allentown, PA distribution center investment in fiscal 2021 compared to the Riverside, CA distribution center investments in fiscal 2020, as well as higher distribution center improvements, including automation, and higher information technology investments.

Fiscal 2022 capital spending is expected to be approximately $300 million and include projects that optimize and expand our distribution network, technology platform investments and the remaining investments in the Allentown, PA distribution center.

In addition to this fiscal 2022 capital spending, we expect to spend another $152 million to acquire the real property of the Riverside, CA distribution center, which we expect to fund with the proceeds of a concurrent sale-leaseback transaction.

Our capital expenditures decreased $59 million in fiscal 2022 to $251 million compared to $310 million for fiscal 2021.

Our capital spending for fiscal 2022 and 2021 principally included information technology and supply chain expenditures, including investment in the new Allentown, Pennsylvania distribution center.

Fiscal 2023 capital spending is expected to be approximately $350 million and include projects that automate, optimize and expand our distribution network, and finance our technology platform investments.

We expect to finance fiscal 2023 capital expenditures requirements with cash generated from operations and borrowings under our ABL Credit Facility.

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

Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility.

Future investments may be financed through long-term debt or borrowings under our ABL Credit Facility and cash from operations.

The following chart outlines our capital expenditures by type over the last three fiscal years.

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Net cash used in investing activities of continuing operations (49) (239) (28) 190 (211)

Net cash (used in) provided by financing activities (384) (453) 1,996 69 (2,449)

Net cash used in financing activities (279) (384) (453) 105 69

Net cash flows from discontinued operations — 2 27 (2) (25)

Effect of exchange rate on cash — 1 (1) (1) 2

Net (decrease) increase in cash and cash equivalents (6) 2 22 (8) (20)

Net increase (decrease) in cash and cash equivalents 3 (6) 2 9 (8)

Cash and cash equivalents, at beginning of period 41 47 45 (6) 2

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Fiscal 2022 compared to Fiscal 2021

The increase in net cash provided by operating activities of continuing operations was primarily due to lower levels of cash invested in net working capital provided primarily due to the higher use of cash in fiscal 2020 due to credit extended on continued sales growth and build inventories in excess of accounts payable increases.

In addition, we had higher cash flow from pre-tax earnings excluding non-cash impairments, restructuring charges, net periodic benefit income, multiemployer pension plan charges and other expenses, and incurred lower cash interest expense.

The increase in net cash used in investing activities of continuing operations was primarily due to higher payments for capital expenditures discussed below and lower proceeds from asset sales, including from distribution center sales related to optimizing our distribution network, primarily those in the Pacific region.

The decrease in Net cash provided by operating activities of continuing operations was primarily due to higher levels of cash invested in net working capital due to higher costs of inventory on hand in excess of Accounts payable increases, and credit extended on continued sales growth, partially offset by higher amounts of cash provided from higher earnings in fiscal 2022.

Our Accounts payable related to merchandise inventory provide cash flow leverage against the majority, but not all, of our inventory on hand.

The decrease in Net cash used in investing activities of continuing operations was primarily due to proceeds received from the sale of the Riverside, California distribution center in fiscal 2022 discussed above and a reduction in payments for capital expenditures.

The decrease in Net cash used in financing activities of continuing operations was primarily due to less cash available from operating activities, net of cash used in investing activities, to reduce our outstanding debt.

The decrease in cash flows from discontinued operations was primarily due to higher cash provided by investing activities from the sale of property in fiscal 2020 that did not recur in 2021.

Fiscal 2020 compared to Fiscal 2019

The increase in net cash provided by operating activities of continuing operations was primarily due to higher amounts of cash provided in fiscal 2020 related to higher earnings before the goodwill impairment charges and depreciation and amortization expense, cash received from income taxes in fiscal 2020 compared to cash paid for income taxes in fiscal 2019, and lower payments for assumed liabilities and transaction costs, which were partially offset by uses of cash to build inventory.

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

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

The decrease in net cash used in investing activities of continuing operations was primarily due to $2,292 million of cash paid to purchase Supervalu in fiscal 2019 and $55 million of lower cash payments for capital expenditures, partially offset by $32 million of less cash received from the sale of property and equipment, primarily due to lower cash received from the sale of distribution centers.

In fiscal 2019, we received cash from the sale and leaseback of two distribution centers, one of which was a shorter-term lease related to the exit of that facility.

In fiscal 2020, we received cash proceeds from the sale of five distribution centers, one of which contained a shorter-term leaseback related to the exit of that facility.

The decrease in net cash provided by financing activities of continuing operations was primarily due to fiscal 2019 borrowings on long-term debt to finance the Supervalu acquisition, and a net decrease in cash provided by the revolving credit facility borrowings of $1,193 million, which was driven by borrowings to finance the Supervalu acquisition in fiscal 2019, offset in part by net payments made in fiscal 2020 from operating activities cash flows in excess of investing activities.

These decreases in cash provided by financing activities, were offset in part by a decrease in payments of long-term debt and finance lease obligations of $658 million driven by the repayment of acquired senior notes in fiscal 2019 and $63 million of payments for debt issuance costs in fiscal 2019.

Net cash flows from discontinued operations primarily include investing activity cash flows from asset sales and operating activity cash flows from operating income of the retail disposal groups.

The decrease in net cash flows from discontinued operations is primarily due to higher proceeds received in fiscal 2019 related to the sale of retail locations, including Hornbacher’s, than proceeds received in fiscal 2020, including proceeds from the sale of a former dedicated retail distribution center and retail stores.

Other Obligations and Commitments

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Refer to Note 9—Long-Term Debt, Note 11—Leases, Note 13—Benefit Plans, Note 1—Significant Accounting Policies and Note 17—Commitments, Contingencies and Off-Balance Sheet Arrangements to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information on the nature and timing of obligations for debt, leases, benefit plans, self-insurance and purchase obligations, respectively.

The future amount and timing of interest expense payments are expected to vary with the amount and then prevailing contractual interest rates over our debt as discussed in —Interest Rate Risk within Item 7A of this Annual Report.

The future amount and timing of interest expense payments are expected to vary with the amount and then prevailing contractual interest rates over our debt as discussed in Interest Rate Risk in Part II, Item 7A of this Annual Report

Pension and Other Postretirement Benefit Obligations

We contributed $1 million and $2 million to our defined benefit pension and other postretirement benefit plans, respectively, in fiscal 2022.

In fiscal 2022, no minimum pension contributions are required to be made under the Unified Grocers, Inc.

Cash Balance Plan or the SUPERVALU INC.

As described in further detail in Note 13—Benefit Plans in Part II, Item 8 of this Annual Report, in fiscal 2022, we merged the Unified Grocers, Inc.

Cash Balance Plan into the SUPERVALU INC.

Retirement Plan.

In fiscal 2023, no minimum pension contributions are required to be made under the SUPERVALU INC.

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

An insignificant amount of contributions are expected to be made to defined benefit pension plans and postretirement benefit plans in fiscal 2023.

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

We fund our defined benefit pension plans based on the minimum contribution required under ERISA, the Pension Protection Act of 2006 and other applicable laws and additional contributions made at our discretion.

We may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable.

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Plan trustees typically are responsible for determining the level of benefits to be provided to participants as well as the investment of the assets and plan administration.

Trustees are appointed in equal number by employers and unions that are parties to the collective bargaining agreement.

Trustees are appointed in equal number by employers and unions that are parties to the relevant collective bargaining agreement.

Based on the assessment of the most recent information available from the multiemployer plans, we believe that most of the plans to which we contribute are underfunded.

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

We made contributions to these plans, and recognized continuing and discontinued operations expense, of $48 million, $52 million and $41 million in fiscal 2021, 2020 and 2019, respectively.

We made contributions to these plans, and recognized expense of $45 million, $48 million and $52 million in fiscal 2022, 2021 and 2020, respectively.

In fiscal 2023, we expect to contribute approximately $51 million to multiemployer plans related to continuing operations, subject to the outcome of collective bargaining and capital market conditions.

We expect required cash payments to fund multiemployer pension plans from which we have withdrawn from to be immaterial in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities.

We expect required cash payments to fund multiemployer pension plans from which we have withdrawn to be insignificant in any one fiscal year, which would exclude any payments that may be agreed to on a lump sum basis to satisfy existing withdrawal liabilities.

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

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

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for further information regarding the plans in which we participate.

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for additional information regarding the plans in which we participate.

Share Repurchases

On October 6, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $200 million of our outstanding common stock.

The repurchase program is scheduled to expire upon our repurchase of shares of our common stock having an aggregate purchase price of $200 million.

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

As of July 31, 2021, we have $176 million remaining authorized under the share repurchase program.

We do not expect to purchase shares under the share repurchase program during fiscal 2022.

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

In September 2022, our Board of Directors authorized a new repurchase program for up to $200 million of our Common stock over a term of four years (the “2022 Repurchase Program”).

Upon approval of the 2022 Repurchase Program, our Board terminated the repurchase program authorized in October 2017, which provided for the purchase of up to $200 million of our outstanding Common stock (the "2017 Repurchase Program").

We did not repurchase any shares of our Common stock in fiscal 2022, 2021 or 2020 pursuant to the 2017 Repurchase Program.

As of July 30, 2022, we had $176 million remaining authorized under the 2017 Repurchase Program.

We will manage the pacing of any repurchases in response to market conditions and other relevant factors, including any limitations on our ability to conduct repurchases under the terms of our ABL Credit Facility, Term Loan Facility and Senior Notes.

We may implement all or part of the repurchase program pursuant to a plan or plans meeting the conditions of Rule 10b5-1 under the Exchange Act.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Inventories are valued at the lower of cost or market.

Substantially all of our inventory consists of finished goods.

Substantially all of our inventories consist of finished goods.

Inventories are recorded net of vendor allowances and cash discounts.

We evaluate inventory shortages (shrink) throughout each fiscal year based on actual physical counts in our facilities.

The majority of our inventory is costed under the LIFO method, which allows for matching of costs and revenues, as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold.

If the first-in, first-out method had been used, Inventories, net, would have been higher by approximately $67 million and $43 million for fiscal 2021 and 2020, respectively.

As of July 31, 2021, approximately $1.8 billion or 76 percent of inventory was valued under the LIFO method, before the application of a LIFO reserve, and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the first-in, first-out method and primarily included meat, dairy and deli products.

The majority of our inventory is valued under the LIFO method, which allows for matching of costs and revenues, as the current acquisition cost to is used to value cost of goods sold as inventory is sold in an inflationary environment.

If the first-in, first-out (“FIFO”) method had been used, Inventories, net, would have been higher by approximately $225 million and $67 million at July 30, 2022 and July 31, 2021, respectively.

As of July 30, 2022, approximately $1.9 billion or 74% of inventory was valued under the LIFO method, before the application of any LIFO reserve, and primarily included grocery, frozen food and general merchandise products, with the remaining inventory valued under the first-in, first-out method and primarily included meat, dairy and deli products.

When holding inventory levels and mix constant, as of July 30, 2022, we estimate a 50 basis point increase in the inflation rate on our ending LIFO-based inventory would result in an $8 million increase in the LIFO charge on an annualized basis.

We receive funds from many of the vendors whose products we buy for resale.

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display of the vendors’ products in prominent locations in our stores;

supporting the introduction of new products into our stores and distribution centers;

support for the introduction of new products into our stores and distribution centers;

exclusivity rights in certain categories;

and to compensate for temporary price reductions offered to customers on products held for sale.

and compensation for temporary price reductions offered on products held for sale.

We also receive vendor funds for buying activities such as volume commitment rebates, credits for purchasing products in advance of their need and cash discounts for the early payment of merchandise purchases.

The majority of the vendor fund contracts have terms of less than a year, although some of the contracts have terms of longer than one year.

We recognize vendor funds for merchandising activities as a reduction of Cost of sales when the related products are sold, unless it has been determined that a discrete identifiable benefit has been provided to the vendor, in which case the related amounts are recognized within Net sales and represent less than one half of one percent of total Net sales.

The majority of our vendor fund contracts have terms of less than a year, although some of the contracts have terms of longer than one year.

Vendor funds that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the product has not yet been sold are recognized as reductions to the value of on-hand inventory.

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Pension benefits associated with these plans are generally based on each participant’s years of service, compensation, and age at retirement or termination.

Our defined benefit pension plans and certain supplemental executive retirement plans were closed to new participants and service crediting.

Our defined benefit pension plans and certain supplemental executive retirement plans are closed to new participants and service crediting.

While we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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Our expected long-term rate of return on plan assets assumption is determined based on the portfolio’s actual and target composition, current market conditions, forward-looking return and risk assumptions by asset class, and historical long-term investment performance.

The assumed long-term rate of return on pension assets ranged from 5.00 percent to 5.50 percent for fiscal 2021.

The assumed long-term rate of return on pension assets ranged from 4.25% to 4.50% for fiscal 2022.

The 10-year rolling average annualized return for the SUPERVALU INC.

Retirement Plan is approximately 8.07 percent based on returns from 2012 to 2021.

Retirement Plan is approximately 8.0% based on returns from 2013 to 2022.

In accordance with GAAP, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, affect expense and obligations in future periods.

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We recognize the amortization of net actuarial loss on the SUPERVALU INC.

Retirement Plan and the Unified Grocers, Inc.

Cash Balance Plan over the remaining life expectancy of inactive participants based on our determination that almost all of the defined benefit pension plan participants are inactive and the plan is frozen to new participants.

For the purposes of inactive participants, we utilized an over approximately 90 percent threshold established under our policy.

Retirement Plan over the remaining life expectancy of inactive participants based on our determination that almost all of the defined benefit pension plan participants are inactive and the plan is frozen to new participants.

For the purposes of inactive participants, we utilized a 90% threshold established under our policy.

Multiemployer pension plans

We contribute to various multi-employer pension plans based on obligations arising from collective bargaining agreements.

These multi-employer pension plans provide retirement benefits to participants based on their service to contributing employers.

We contribute to various multiemployer pension plans based on obligations arising from collective bargaining agreements.

These multiemployer pension plans provide retirement benefits to participants based on their service to contributing employers.

The benefits are paid from assets held in trust for that purpose.

Trustees are typically responsible for determining the level of benefits to be provided to participants as well as such matters as the investment of the assets and the administration of the plans.

We continue to evaluate and address our potential exposure to under-funded multi-employer pension plans as it relates to our associates who are or were beneficiaries of these plans.

In the future, we may consider opportunities to limit the Company’s exposure to under-funded multi-employer pension obligations by moving our active associates in such plans to defined contribution plans, and withdrawing from the pension plan or continuing to participate in the plans for prior obligations.

We continue to evaluate and address our potential exposure to underfunded multiemployer pension plans as it relates to our associates who are or were beneficiaries of these plans.

In the future, we may consider opportunities to limit the Company’s exposure to underfunded multiemployer pension obligations by moving our active associates in such plans to defined contribution plans, and withdrawing from the pension plan or continuing to participate in the plans for prior obligations.

In fiscal 2021, we incurred a $63 million charge for obligations related to withdrawal liabilities for three Retail multiemployer pension plans where our active associates moved to defined contribution plans for future benefits.

We continue to evaluate our exposure to under-funded multiemployer pension plans.

Although these liabilities are not a direct obligation or an on-balance sheet liability of ours, addressing these uncertainties requires judgment in the timing of expense recognition when we determine our commitment is probable and estimable.

Refer to Note 13—Benefit Plans of this Annual Report for more information relating to our participation in these multiemployer pension plans and to the actuarial assumptions used in determining pension and other postretirement liabilities and expenses.

As we continue to work to find solutions to underfunded multiemployer pension plans, it is possible we could incur withdrawal liabilities for certain additional multiemployer pension plan obligations in the future as we actively negotiate new collective bargaining agreements with a number of our unions in due course.

We continue to evaluate our exposure to underfunded multiemployer pension plans.

Although these liabilities are not a direct obligation or liability of ours, addressing these uncertainties requires judgment in the timing of expense recognition when we determine our commitment is probable and estimable.

Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for more information relating to our participation in these multiemployer pension plans and to the actuarial assumptions used in determining pension and other postretirement liabilities and expenses.

Self-insurance liabilities

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If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in our Consolidated Financial Statements.

Accruals for workers’ compensation, general and automobile liabilities totaled $103 million and $101 million as of July 31, 2021 and August 1, 2020, respectively.

Accruals for workers’ compensation, general and automobile liabilities totaled $98 million and $103 million as of July 30, 2022 and July 31, 2021, respectively.

Recoverability of long-lived assets

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When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the loss to be recorded.

Estimates of future cash flows and expected sales prices are judgements based on the Company’s experience and knowledge of operations.

Estimates of future cash flows and expected sales prices are judgments based on the Company’s experience and knowledge of operations.

These estimates project cash flows several years into the future and include assumptions on variables such as changes in supply contracts, macroeconomic impacts and market competition.

We did not identify any impairments in fiscal 2021 as part of our quarterly procedures or annual impairment assessment.

We did not identify any material impairments in fiscal 2022 as part of our quarterly procedures or annual impairment assessment.

The Company accounts for income taxes under the asset and liability method.

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however, actual results could differ, and we may be exposed to losses or gains.

Our effective tax rate in a given financial statement period could be affected based on favorable or

unfavorable tax settlements.

Our effective tax rate in a given financial statement period could be affected based on favorable or unfavorable tax settlements.

Unfavorable tax settlements will generally require the use of cash and may result in an increase to our effective tax rate in the period of resolution.

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Recently Issued Financial Accounting Standards

For a discussion of recently issued financial accounting standards, refer to Note 2—Recently Adopted and Issued Accounting Pronouncements in Part II, Item 8 of this Annual Report for further detail.

For a discussion of recently issued financial accounting standards, refer to Note 2—Recently Adopted and Issued Accounting Pronouncements in Part II, Item 8 of this Annual Report.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis