UNITED NATURAL FOODS INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, “Risk Factors” included in Part I, Item IA, “Forward-looking Statements” and other risks described elsewhere in this Annual Report. FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act, that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will,” and “would,” or similar words. 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. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. These assumptions could prove inaccurate. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. 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 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 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, 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; • 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; 27 Table of Contents • 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; • union-organizing activities that could cause labor relations difficulties and increased costs; • the potential for additional asset impairment charges; • our ability to maintain food quality and safety; • volatility in fuel costs; • volatility in foreign exchange rates; and • our ability to identify and successfully complete asset or business acquisitions. 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 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; produce; perishables and frozen foods; nutritional supplements and sports nutrition; 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 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 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: Wholesale and Retail; and also includes a manufacturing division and a branded product line division. 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, 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. 28 Table of Contents The U.S. 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. 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. 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 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’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. 29 Table of Contents 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 Net sales Our Net sales consist primarily of product sales of natural, organic, specialty, produce and conventional grocery and non-food products, and support services revenue from retailers, adjusted for customer volume discounts, vendor incentives when applicable, returns and allowances, and professional services revenue. Net sales also include amounts charged by us to customers for shipping and handling and fuel surcharges. Cost of sales and Gross profit The principal components of our Cost of sales include the amounts paid to suppliers for product sold, plus transportation costs necessary to bring the product to, or move product between, our distribution centers and retail stores, partially offset by consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products. Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses. Operating expenses 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. 30 Table of Contents Adjusted EBITDA Our Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). In addition to the GAAP results, we consider certain non-GAAP financial measures to assess the performance of our business and understand underlying operating performance and core business trends, which we use to facilitate operating performance comparisons of our business on a consistent basis over time. Adjusted EBITDA is provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to, any financial measure of performance prepared and presented in accordance with GAAP. 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. We believe Adjusted EBITDA is reflective of factors that affect our underlying operating performance and facilitate operating performance comparisons of our business on a consistent basis over time. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. Adjusted EBITDA should be reviewed in conjunction with our results reported in accordance with GAAP in this Annual Report. 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, 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. 31 Table of Contents 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 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) (in millions) 2022 (52 weeks) 2021 (52 weeks) 2020 (52 weeks) 2022 2021 Net sales $ 28,928 $ 26,950 $ 26,559 $ 1,978 $ 391 Cost of sales 24,746 23,011 22,670 1,735 341 Gross profit 4,182 3,939 3,889 243 50 Operating expenses 3,825 3,593 3,552 232 41 Goodwill impairment charges — — 425 — (425) Restructuring, acquisition and integration related expenses 21 56 87 (35) (31) (Gain) loss on sale of assets (87) (4) 18 (83) (22) Operating income (loss) 423 294 (193) 129 487 Net periodic benefit income, excluding service cost (40) (85) (39) 45 (46) Interest expense, net 155 204 192 (49) 12 Other, net (2) (8) (4) 6 (4) Income (loss) from continuing operations before income taxes 310 183 (342) 127 525 Provision (benefit) for income taxes 56 34 (91) 22 125 Net income (loss) from continuing operations 254 149 (251) 105 400 Income (loss) from discontinued operations, net of tax — 6 (18) (6) 24 Net income (loss) including noncontrolling interests 254 155 (269) 99 424 Less net income attributable to noncontrolling interests (6) (6) (5) — (1) Net income (loss) attributable to United Natural Foods, Inc. $ 248 $ 149 $ (274) $ 99 $ 423 Adjusted EBITDA $ 829 $ 770 $ 691 $ 59 $ 79 32 Table of Contents The following table reconciles Adjusted EBITDA to Net income (loss) from continuing operations and to Income (loss) from discontinued operations, net of tax. (in millions) 2022 (52 weeks) 2021 (52 weeks) 2020 (52 weeks) Net income (loss) from continuing operations $ 254 $ 149 $ (251) Adjustments to continuing operations net income (loss): Less net income attributable to noncontrolling interests (6) (6) (5) Net periodic benefit income, excluding service cost (1) (40) (85) (39) Interest expense, net 155 204 192 Other, net (2) (8) (4) Provision (benefit) for income taxes (2) 56 34 (91) Depreciation and amortization 285 285 282 Share-based compensation 43 49 34 Goodwill impairment charges (3) — — 425 LIFO charge (4) 158 24 18 Restructuring, acquisition and integration related expenses (5) 21 56 87 (Gain) loss on sale of assets (6) (87) (4) 18 Multiemployer pension plan withdrawal (benefit) charges (7) (8) 63 — Notes receivable charges (8) — — 13 Legal reserve charge, net of settlement income (9) — — 1 Other retail expense (10) — 5 1 Adjusted EBITDA of continuing operations 829 766 681 Adjusted EBITDA of discontinued operations (11) — 4 10 Adjusted EBITDA $ 829 $ 770 $ 691 Income (loss) from discontinued operations, net of tax (11) $ — $ 6 $ (18) Adjustments to discontinued operations net income (loss): Benefit for income taxes — (1) (5) Restructuring, store closure and other charges, net (12) — (1) 33 Adjusted EBITDA of discontinued operations (11) $ — $ 4 $ 10 (1) Fiscal 2021 includes a postretirement settlement gain of $17 million associated with the termination of remaining corporate plans. Fiscal 2020 includes a lump sum defined benefit pension plan settlement expense of $11 million associated with the acceleration of a portion of the accumulated unrecognized actuarial loss as a result of the lump sum settlement payments. (2) Fiscal 2020 includes the tax benefit from the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which includes the impact of tax loss carrybacks to 35% tax years allowed under the CARES Act. (3) Fiscal 2020 primarily reflects a goodwill impairment charge attributable to a reorganization of our reporting units and a sustained decrease in market capitalization and enterprise value of the Company, resulting in a decline in the estimated fair value of the U.S. Wholesale reporting unit. In addition, this charge includes a goodwill finalization charge attributable to the Supervalu acquisition and an asset impairment charge. Refer to Note 6—Goodwill and Intangible Assets, Net in Part II, Item 8 of this Annual Report for additional information. (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 (52 weeks) 2020 (52 weeks) 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 33 Table of Contents (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. 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. (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. (10) Reflects expenses associated with event-specific damages to certain retail stores. (11) We believe the inclusion of discontinued operations results within Adjusted EBITDA provides investors a meaningful measure of performance. (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. 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 30, 2022 (fiscal 2022) compared to fiscal year ended July 31, 2021 (fiscal 2021) Net Sales Our Net sales by customer channel was as follows (in millions except percentages): 2022 (52 weeks) 2021 (52 weeks) Increase (Decrease) Customer Channel (1) $ % Chains $ 12,562 $ 12,104 $ 458 3.8 % Independent retailers 7,360 6,638 722 10.9 % Supernatural 5,719 5,050 669 13.2 % Retail 2,468 2,442 26 1.1 % Other 2,402 2,300 102 4.4 % Eliminations (1,583) (1,584) 1 (0.1) % 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 additional information. Our Net sales for fiscal 2022 increased 7.3% from fiscal 2021. 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. 34 Table of Contents 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 Our Gross profit increased $243 million, or 6.2%, to $4,182 million in fiscal 2022, from $3,939 million in fiscal 2021. 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 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 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 $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. 35 Table of Contents 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 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 (in millions) 2022 (52 weeks) 2021 (52 weeks) Increase (Decrease) Interest expense on long-term debt, net of capitalized interest $ 126 $ 143 $ (17) Interest expense on finance lease obligations 11 19 (8) Amortization of financing costs and discounts 12 13 (1) Loss on debt extinguishment 7 30 (23) Interest income (1) (1) — Interest expense, net $ 155 $ 204 $ (49) 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 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 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. 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 $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. 36 Table of Contents Segment Results of Operations In evaluating financial performance in each business segment, management primarily uses Net sales and Adjusted EBITDA of its business segments as discussed and reconciled within Note 16—Business Segments within Part II, Item 8 of this Annual Report and the above table within the Executive Overview section. The following tables set forth Net sales and Adjusted EBITDA by segment for the periods indicated. Increase (Decrease) (in millions) 2022 (52 weeks) 2021 (52 weeks) 2020 (52 weeks) 2022 2021 Net sales: Wholesale $ 27,824 $ 25,873 $ 25,525 $ 1,951 $ 348 Retail 2,468 2,442 2,375 26 67 Other 219 219 228 — (9) Eliminations (1,583) (1,584) (1,569) 1 (15) Total Net sales $ 28,928 $ 26,950 $ 26,559 $ 1,978 $ 391 Continuing operations Adjusted EBITDA: Wholesale (1) $ 696 $ 677 $ 610 $ 19 $ 67 Retail (1) 98 98 89 — 9 Other 44 (10) (16) 54 6 Eliminations (9) 1 (2) (10) 3 Total continuing operations Adjusted EBITDA $ 829 $ 766 $ 681 $ 63 $ 85 (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. Net Sales 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. 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. 37 Table of Contents 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 Highlights • 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. 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 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. 38 Table of Contents Sources and Uses of Cash 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 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. We believe our short-term and long-term financing abilities are adequate as a supplement to internally generated cash flows to satisfy debt obligations and fund capital expenditures as opportunities arise. Our continued access to short-term and long-term financing through credit markets depends on numerous factors, including the condition of the credit markets and our results of operations, cash flows, financial position and credit ratings. Primary uses of cash include debt service, capital expenditures, working capital maintenance and income tax payments. We typically finance working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories. 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. Subject to certain limitations contained in our debt agreements and as market conditions warrant, we may from time to time refinance indebtedness that we have incurred, including through the incurrence or repayment of loans under existing or new credit facilities or the issuance or repayment of debt securities. Proceeds from the sale of any properties mortgaged and encumbered under our Term Loan Facility are required to be used to make additional Term Loan Facility payments or to be reinvested in the business. Long-Term Debt 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, 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 Excess Cash Flow (as defined in the Term Loan Agreement) generated or sales of mortgaged properties in fiscal 2023 or beyond. 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. 39 Table of Contents Derivatives and Hedging Activity We enter into interest rate swap contracts from time to time to mitigate our exposure to changes in market interest rates as part of our strategy to manage our debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. 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 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 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 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. 40 Table of Contents Payments for Capital Expenditures 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. 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. Cash Flow Information The following summarizes our Consolidated Statements of Cash Flows: Increase (Decrease) (in millions) 2022 (52 weeks) 2021 (52 weeks) 2020 (52 weeks) 2022 2021 Net cash provided by operating activities of continuing operations $ 331 $ 614 $ 457 $ (283) $ 157 Net cash used in investing activities of continuing operations (49) (239) (28) 190 (211) 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 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 Cash and cash equivalents at end of period, including discontinued operations $ 44 $ 41 $ 47 $ 3 $ (6) 41 Table of Contents Fiscal 2022 compared to Fiscal 2021 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. Other Obligations and Commitments Our principal contractual obligations and commitments consist of obligations under our long-term debt, interest on long-term debt, operating and finance leases, purchase obligations, self-insurance liabilities and multiemployer plan withdrawals. 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 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. 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 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. We assess the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding. Off-Balance Sheet Multiemployer Pension Arrangements We contribute to various multiemployer pension plans under collective bargaining agreements, primarily defined benefit pension plans. These multiemployer plans generally provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. 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 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. We are only one of a number of employers contributing to these plans and the underfunding is not a direct obligation or liability to us. 42 Table of Contents Our contributions can fluctuate from year to year due to store closures, employer participation within the respective plans and reductions in headcount. Our contributions to these plans could increase in the near term. However, the amount of any increase or decrease in contributions will depend on a variety of factors, including the results of our collective bargaining efforts, investment returns on the assets held in the plans, actions taken by the trustees who manage the plans and requirements under the Pension Protection Act of 2006, the Multiemployer Pension Reform Act and Section 412(e) of the Internal Revenue Code. Furthermore, if we were to significantly reduce contributions, exit certain markets or otherwise cease making contributions to these plans, we could trigger a partial or complete withdrawal that could require us to record a withdrawal liability obligation and make withdrawal liability payments to the fund. Expense is recognized in connection with these plans as contributions are funded, in accordance with GAAP. 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 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. Any triggered withdrawal obligation could result in a material charge and payment obligations that would be required to be made over an extended period of time. We also make contributions to multiemployer health and welfare plans in amounts set forth in the related collective bargaining agreements. A small minority of collective bargaining agreements contain reserve requirements that may trigger unanticipated contributions resulting in increased healthcare expenses. 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 additional information regarding the plans in which we participate. Share Repurchases 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 The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Management believes the following critical accounting policies reflect our more subjective or complex judgments and estimates used in the preparation of our Consolidated Financial Statements. 43 Table of Contents Inventories Inventories are valued at the lower of cost or market. 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 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. Vendor funds We receive funds from many of the vendors whose products we buy for resale. These vendor funds are generally provided to increase the purchasing and sell-through of the related products. We receive vendor funds for a variety of merchandising activities: placement of the vendors’ products in our advertising; display of the vendors’ products in prominent locations in our stores; support for the introduction of new products into our stores and distribution centers; exclusivity rights in certain categories; 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 our 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 0.5% of total Net sales. 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. The amount and timing of recognition of vendor funds as well as the amount of vendor funds to be recognized as a reduction to ending inventory requires management judgment and estimates. Management determines these amounts based on estimates of current year purchase volume using forecast and historical data, and a review of average inventory turnover data. These judgments and estimates impact our reported Gross profit, Operating income and inventory amounts. The historical estimates have been reliable in the past, and we believe our methodology will continue to be reliable in the future. Based on previous experience, we do not expect significant changes in the level of vendor support. However, if such changes were to occur, Cost of sales and Net sales could change, depending on the specific vendors involved. If vendor advertising allowances were substantially reduced or eliminated, we would consider changing the volume, type and frequency of the advertising, which could increase or decrease our advertising exp ense. Benefit plans We sponsor pension and other postretirement plans in various forms covering substantially all employees who meet eligibility requirements. 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 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. The determination of our obligation and related expense for Company-sponsored pension and other postretirement benefits is dependent, in part, on management’s selection of certain actuarial assumptions used in calculating these amounts. These assumptions include, among other things, the discount rate and the expected long-term rate of return on plan assets. We measure our defined benefit pension and other postretirement plan obligations as of the nearest calendar month end. Refer to Note 13—Benefit Plans in Part II, Item 8 of this Annual Report for information related to the actuarial assumptions used in determining pension and postretirement healthcare liabilities and expenses. 44 Table of Contents Discount rates We review and select the discount rate to be used in connection with our pension and other postretirement obligations annually. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. We utilize the “full yield curve” approach for determining the interest and service cost components of net periodic benefit cost for defined benefit pension and other postretirement benefit plans. Under this method, the discount rate assumption used in the interest and service cost components of net periodic benefit cost is built through applying the specific spot rates along the yield curve used in the determination of the benefit obligation described above, to the relevant projected future cash flows of our pension and other postretirement benefit plans. We believe the “full yield curve” approach reflects a greater correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of interest and service costs. Each 25-basis point reduction in the discount rate would increase our projected pension benefit obligation by $44 million, as of July 30, 2022, and for fiscal 2022 would increase Net periodic benefit income by approximately $4 million. Expected rate of return on plan assets 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 4.25% to 4.50% for fiscal 2022. The 10-year rolling average annualized return for the SUPERVALU INC. 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. Each 25-basis point reduction in expected return on plan assets would decrease Net periodic benefit income for fiscal 2022 by approximately $5 million. Amortizing gains and losses We recognize the amortization of net actuarial loss on the SUPERVALU INC. 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 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 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. 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. 45 Table of Contents Self-insurance liabilities We are primarily self-insured for workers’ compensation, general and automobile liability insurance. It is our policy to record the self-insured portions of our workers’ compensation, general and automobile liabilities based upon actuarial methods of estimating the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning these liabilities is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. 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 $98 million and $103 million as of July 30, 2022 and July 31, 2021, respectively. Recoverability of long-lived assets We review long-lived assets, including definite-lived intangible assets at least annually, and on an interim basis if events occur or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We evaluate these assets at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Cash flows expected to be generated by the related assets are estimated over the assets’ useful lives based on updated projections. 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 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 material impairments in fiscal 2022 as part of our quarterly procedures or annual impairment assessment. Income taxes The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized within the provision for income tax in the period that includes the enactment date. The calculation of the Company’s tax liabilities includes addressing uncertainties in the application of complex tax regulations and is based on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Addressing these uncertainties requires judgment and estimates; 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. 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. Favorable tax settlements may be recognized as a reduction to our effective tax rate in the period of resolution. The Company regularly reviews its deferred tax assets for recoverability to evaluate whether it is more likely than not that they will be realized. In making this evaluation, the Company considers the statutory recovery periods for the assets, along with available sources of future taxable income, including reversals of existing and future taxable temporary differences, tax planning strategies, history of taxable income and projections of future income. The Company gives more significance to objectively verifiable evidence, such as the existence of deferred tax liabilities that are forecast to generate taxable income within the relevant carryover periods and a history of earnings. A valuation allowance is provided when the Company concludes, based on all available evidence, that it is more likely than not that the deferred tax assets will not be realized during the applicable recovery period. 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. 46 Table of Contents