UNITED NATURAL FOODS: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

0
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 or false. 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:

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

                                       27
--------------------------------------------------------------------------------
  Table of Contents
•labor and other workforce shortages and challenges;
•our dependence on principal customers;
•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 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;
•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;
•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;
•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 Part I. Item 1A. 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.

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: grocery and
general merchandise; produce; perishables and frozen foods; nutritional
supplements and sports nutrition; bulk and food service products; and personal
care items. We believe we are North America's premier wholesaler with
57 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 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. Our business
is classified into two reportable segments: Wholesale and Retail; 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. Item 1. Business.

                                       28
--------------------------------------------------------------------------------
  Table of Contents
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 we 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.

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.

                                       29
--------------------------------------------------------------------------------
  Table of Contents
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. 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 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 additional expenses related to any future network realignments and strive to both minimize these costs and secure new business to further improve the network. efficiency of our distribution network undergoing transformation.

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.
                                       30

————————————————– ——————————-

Contents

Retail operations

We currently operate 74 continuing operations Retail grocery stores, including
53 Cub Foods corporate stores and 21 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 operate 22 "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.

                                       31
--------------------------------------------------------------------------------
  Table of Contents
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. 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.

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 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.

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

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 are items that do not reflect management's assessment of
ongoing business performance.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
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 the use of Adjusted EBITDA as a financial measure, including, but not limited to, the fact that it does not reflect the cost of cash outlays for capital assets or certain other contractual commitments, finance lease obligations and debt service charges, income taxes and any impact of 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.

                                       33
--------------------------------------------------------------------------------
  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 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.
                                                                                                              Increase (Decrease)
                                               2021                 2020                 2019
(in millions)                               (52 weeks)           (52 weeks)           (53 weeks)             2021              2020
Net sales                                 $    26,950          $    26,559          $    22,341          $     391          $ 4,218
Cost of sales                                  23,011               22,670               19,121                341            3,549
Gross profit                                    3,939                3,889                3,220                 50              669
Operating expenses                              3,593                3,552                2,976                 41              576
Goodwill impairment charges                         -                  425                  293               (425)             132
Restructuring, acquisition and
integration related expenses                       56                   87                  148                (31)             (61)
(Gain) loss on sale of assets                      (4)                  18                   (1)               (22)              19
Operating income (loss)                           294                 (193)                (196)               487                3
Net periodic benefit income, excluding
service cost                                      (85)                 (39)                 (35)               (46)              (4)
Interest expense, net                             204                  192                  181                 12               11
Other, net                                         (8)                  (4)                  (1)                (4)              (3)
Income (loss) from continuing operations
before income taxes                               183                 (342)                (341)               525               (1)
Provision (benefit) for income taxes               34                  (91)                 (59)               125              (32)
Net income (loss) from continuing
operations                                        149                 (251)                (282)               400               31
Income (loss) from discontinued
operations, net of tax                              6                  (18)                  (3)                24              (15)
Net income (loss) including
noncontrolling interests                          155                 (269)                (285)               424               16
Less net income attributable to
noncontrolling interests                           (6)                  (5)                   -                 (1)              (5)
Net income (loss) attributable to United
Natural Foods, Inc.                       $       149          $      (274)         $      (285)         $     423          $    11

Adjusted EBITDA                           $       746          $       673          $       563          $      73          $   110





                                       34
--------------------------------------------------------------------------------
  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.
                                                                 2021                 2020                 2019
(in millions)                                                 (52 weeks)           (52 weeks)           (53 weeks)
Net income (loss) from continuing operations                 $      149     

(251) $ $ (282)
Adjustments to net income from continuing operations (net loss): less net income attributable to non-controlling interests

             (6)                  (5)                   -
Net periodic benefit income, excluding service cost(1)              (85)                 (39)                 (35)
Interest expense, net                                               204                  192                  181
Other, net                                                           (8)                  (4)                  (1)
Provision (benefit) for income taxes(2)                              34                  (91)                 (59)
Depreciation and amortization                                       285                  282                  248
Share-based compensation                                             49                   34                   40
Goodwill impairment charges(3)                                        -                  425                  293

Costs related to restructuring, acquisitions and integrations (4)

                                                          56                   87                  148
(Gain) loss on sale of assets(5)                                     (4)                  18                   (1)
Multiemployer pension plan withdrawal charges(6)                     63                    -                    -
Notes receivable charges(7)                                           -                   13                    -
Inventory fair value adjustment(8)                                    -                    -                   10
Legal reserve charge, net of settlement income(9)                     -                    1                   (1)
Other retail expense(10)                                              5                    1                    -
Adjusted EBITDA of continuing operations                            742                  663                  541
Adjusted EBITDA of discontinued operations(11)                        4                   10                   22
Adjusted EBITDA                                              $      746     

$ 673 $ 563

Profit (loss) from discontinued operations, net of tax (11) $ 6

      $       (18)         $        (3)
Adjustments to discontinued operations net income (loss):

Benefit for income taxes                                             (1)                  (5)                  (3)

Restructuring, store closure and other charges, net(12)              (1)                  33                   28
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. 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. 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. 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.
(5)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.
(6)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.
(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.
                                       35
--------------------------------------------------------------------------------
  Table of Contents
(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
amount.

RESULTS OF OPERATIONS

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

Net sales

Our net sales by customer channel was as follows (in millions except
percentages):
                                                             2021                     2020(1)                         Increase (Decrease)
Customer Channel(1)                                       (52 weeks)                 (52 weeks)          $           %
Chains                                                  $    12,104                $    12,010                 $        94                 0.8  %
Independent retailers                                         6,638                      6,699                         (61)               (0.9) %
Supernatural                                                  5,050                      4,720                         330                 7.0  %
Retail                                                        2,442                      2,375                          67                 2.8  %
Other                                                         2,300                      2,324                         (24)               (1.0) %
Eliminations                                                 (1,584)                    (1,569)                        (15)                1.0  %
Total net sales                                         $    26,950                $    26,559                 $       391                 1.5  %


(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.

Our net sales for fiscal 2021 increased 1.5% from fiscal 2020. 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.

Chain net sales increased primarily due to growth in sales to existing customers, including demand for downtown stores and natural products driven by consumer response to the pandemic, partially offset by lower sales from some customers and business losses before 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.

Net sales of disposals increased primarily as a result of increased wholesale retail sales.

                                       36
--------------------------------------------------------------------------------
  Table of Contents
Cost of Sales and Gross Profit

Our gross profit increased $50 million, or 1.3%, to $3,939 million in fiscal
2021, from $3,889 million in fiscal 2020. Our gross profit as a percentage of
net sales decreased slightly to 14.62% in fiscal 2021 compared to 14.64% in
fiscal 2020. 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.

Operating Expenses

Operating expenses increased $41 million, or 1.2%, to $3,593 million, or 13.33%
of net sales, in fiscal 2021 compared to $3,552 million, or 13.37% of net sales,
in fiscal 2020. 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.

Restructuring, acquisition and integration 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.

Net income from periodic services, excluding service charges

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.

                                       37
--------------------------------------------------------------------------------
  Table of Contents
Interest Expense, Net
                                                               2021                2020               Increase
(in millions)                                               (52 weeks)          (52 weeks)           (Decrease)
Interest expense on long-term debt, net of
capitalized interest                                       $      143          $      166          $        (23)
Interest expense on finance lease obligations                      19                  12                     7
Amortization of financing costs and discounts                      13                  15                    (2)
Loss on debt extinguishment                                        30                   -                    30
Interest income                                                    (1)                 (1)                    -
Interest expense, net                                      $      204          $      192          $         12


The decrease in interest expense on long-term debt for fiscal 2021 compared to fiscal 2020 is mainly due to the decrease in outstanding debt.

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

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. 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. 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

The results of discontinued operations for fiscal 2021 reflect net sales of $42
million for which we recognized $14 million of gross profit and $6 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, section 8 of this annual report for more information on these discontinued operations.

Net income (loss) 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.

                                       38
--------------------------------------------------------------------------------
  Table of Contents
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 during fiscal 2021 necessitated the revision of historical financial information to conform to the current period presentation. Accordingly, the following comparison of results has been updated.

Net sales

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

                              2020(1)                2019(1)                     Increase (Decrease)
Customer Channel(1)         (52 weeks)             (53 weeks)       $              %
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, Point 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.

                                       39
--------------------------------------------------------------------------------
  Table of Contents
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.

Net sales eliminations increased mainly due to $ 280 million an additional 12 weeks of net sales from the acquired Supervalu business and an increase in wholesale retail sales, which was partially offset by the estimated impact of the 53rd week of 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 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.
                                       40

————————————————– ——————————-

Contents

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 income from periodic services, excluding service charges

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
                                                               2020                2019                Increase
(in millions)                                               (52 weeks)          (53 weeks)            (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.

Advantage 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.

                                       41
--------------------------------------------------------------------------------
  Table of Contents
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.

Segment operating results

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)
                                               2021                 2020                 2019
(in millions)                               (52 weeks)           (52 weeks)           (53 weeks)             2021              2020
Net sales:
Wholesale                                 $    25,873          $    25,525          $    21,551          $     348          $  3,974
Retail                                          2,442                2,375                1,687                 67               688
Other                                             219                  228                  235                 (9)               (7)
Eliminations                                   (1,584)              (1,569)              (1,132)               (15)             (437)
Total Net sales                           $    26,950          $    26,559          $    22,341          $     391          $  4,218
Continuing operations Adjusted
EBITDA:
Wholesale                                 $       654          $       593          $       465          $      61          $    128
Retail                                             96                   88                   35                  8                53
Other                                              (9)                 (16)                  42                  7               (58)
Eliminations                                        1                   (2)                  (1)                 3                (1)
Total continuing operations
Adjusted EBITDA                           $       742          $       663          $       541          $      79          $    122



Net Sales

Wholesale net sales increased in FY2021 compared to FY2020, mainly due to the growth of the Supernatural and Chains channels, which was partially offset mainly by the decline in sales of the independent retailers. See the discussion on net sales above for more information.

Retail net sales increased for fiscal 2021 compared to fiscal 2020, mainly due to a 2.9% increase in identical store sales compared to the higher average basket size linked 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.

                                       42
--------------------------------------------------------------------------------
  Table of Contents
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.

Adjusted EBITDA

Wholesale's Adjusted EBITDA increased 10% in fiscal 2021 as compared to fiscal
2020. 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.

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.

                                       43
--------------------------------------------------------------------------------
  Table of Contents
LIQUIDITY AND CAPITAL RESOURCES

Strong points

•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.
•In fiscal 2022, 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 2021, no
prepayment from Excess Cash Flow in fiscal 2021 is required to be made in fiscal
2022.
•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.

Sources and uses of species

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. 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.

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.

                                       44
--------------------------------------------------------------------------------
  Table of Contents
We currently do not pay a dividend on our common stock, and have no current
plans to do so. 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 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. 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. 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.

                    [[Image Removed: unfi-20210731_g3.jpg]]
                                       45
--------------------------------------------------------------------------------
  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 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. These fixed rates range from
1.795% to 2.959%, 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.
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.

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. 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. We expect to finance fiscal 2022
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.

                                       46

————————————————– ——————————-

Table of Contents The following table shows our capital expenditures by type over the past three years.

                    [[Image Removed: unfi-20210731_g4.jpg]]

Cash flow information

The following summarizes our consolidated statements of cash flows:

                                                                                                                Increase (Decrease)
                                                  2021                2020                 2019
(in millions)                                  (52 weeks)          (52 weeks)           (53 weeks)             2021               2020
Net cash provided by operating activities of
continuing operations                         $      614          $      

457 $ 293 $ 157 $ 164
Net cash used in investing activities of continuing operations

                               (239)                (28)              (2,341)               (211)           2,313
Net cash (used in) provided by financing
activities                                          (384)               (453)               1,996                  69           (2,449)
Net cash flows from discontinued operations            2                  27                   74                 (25)             (47)
Effect of exchange rate on cash                        1                  (1)                   -                   2               (1)
Net (decrease) increase in cash and cash
equivalents                                           (6)                  2                   22                  (8)             (20)
Cash and cash equivalents, at beginning of
period                                                47                  45                   23                   2               22
Cash and cash equivalents at end of period,
including discontinued operations             $       41          $       

47 $ 45 $ (6) $ 2

Fiscal year 2021 compared to fiscal year 2020

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 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.

                                       47
--------------------------------------------------------------------------------
  Table of Contents
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 year 2020 compared to fiscal year 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

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 within Item 7A
of this Annual Report.
                                       48

————————————————– ——————————-

Contents

Pension obligations and other post-retirement benefits

We contributed $2 million and $9 million to our defined benefit pension and
other postretirement benefit plans, respectively, in fiscal 2021. In fiscal
2022, no minimum pension contributions are required to be made under the Unified
Grocers, Inc. Cash Balance Plan or 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 2022. 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 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 multi-company pension plans

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 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.

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 continuing and discontinued operations expense, of $48 million, $52
million and $41 million in fiscal 2021, 2020 and 2019, respectively. In fiscal
2022, we expect to contribute approximately $46 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. 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.

Please refer to Note 13 – Benefit Plans in Part II, Item 8 of this Annual Report for more information on the plans in which we participate.

                                       49
--------------------------------------------------------------------------------
  Table of Contents
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.

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.

Inventories

Inventories are valued at the lower of cost or market. Substantially all of our
inventory consists 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.

Supplier 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;
supporting 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. 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. 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 expense.

                                       50
--------------------------------------------------------------------------------
  Table of Contents
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 were 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.

Discount percentages

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 $62 million, as of July 31, 2021, 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 5.00 percent to 5.50 percent for fiscal
2021. 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. 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.

Amortization of gains and losses

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.

Multiemployer pension plans

We contribute to various multi-employer pension plans based on collective agreement obligations. These multi-employer pension plans provide retirement benefits to members based on their service with contributing employers. Benefits are paid from assets held in trust for this purpose. Trustees are generally responsible for determining the level of benefits to be provided to members as well as matters such as the investment of assets and administration of plans.

                                       51

————————————————– ——————————-

Contents

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. 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 under-funded
multiemployer pension plans, it is possible we could incur withdrawal
liabilities for certain additional multiemployer pension plan obligations. 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.

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 – Employee benefit plans of this annual report for more information on our participation in these multi-employer pension plans and on the actuarial assumptions used to determine pension commitments and expenses and other additional expenses. of retirement.

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 $103 million
and $101 million as of July 31, 2021 and August 1, 2020, respectively.

The 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 judgements 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 impairment in fiscal 2021 as part of our quarterly procedures or our annual assessment of impairment.

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
                                       52

————————————————– ——————————-

  Table of Contents
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 for further detail.

© Edgar online, source Previews


Source link

Share.

About Author

Comments are closed.