US Foods Holding Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts presented in millions, unless otherwise noted) The following discussion and analysis should be read together with the accompanying unaudited consolidated financial statements and the notes thereto included in this Quarterly Report and the audited consolidated financial statements and the notes thereto in the 2020 Annual Report. The following discussion and analysis contain certain financial measures that are not required by, or presented in accordance with GAAP. We believe these non-GAAP measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed under “Non-GAAP Reconciliations” below. Results of operations for the 13 weeks ended April 3, 2021 are compared to the 13 weeks ended March 28, 2020 unless specifically noted otherwise. Overview At US Foods, our promise is to help customers Make It by providing the innovative products and easy-to-use technology solutions they need to operate their businesses profitably. This promise is supported by our GREAT FOOD. MADE EASY.™ strategy. We operate as one business with standardized business processes, shared systems infrastructure, and an organizational model that optimizes national scale with local execution, allowing us to manage the business as a single operating segment. We have centralized activities where scale matters and our local field structure focuses on customer facing activities. We supply approximately 300,000 customer locations nationwide. These customer locations include independently owned single and multi-unit restaurants, regional restaurant chains, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations. We provide more than 400,000 fresh, frozen, and dry food stock-keeping units, or SKUs, as well as non-food items, sourced from approximately 6,000 suppliers. Approximately 3,500 sales associates manage customer relationships at local, regional, and national levels. Our sales associates are supported by sophisticated marketing and category management capabilities, as well as a sales support team that includes world-class chefs and restaurant operations consultants, new business development managers and others that help us provide more comprehensive service to our customers. Our extensive network of approximately 70 distribution facilities and fleet of approximately 6,500 trucks, along with 80 cash and carry locations, allow us to operate efficiently and provide high levels of customer service. This operating model allows us to leverage our nationwide scale and footprint while executing locally. COVID-19 Update In March 2020, the World Health Organization characterized COVID-19 as a pandemic amidst a rising number of confirmed cases and thousands of deaths worldwide. Since March 2020, in order to reduce the spread of COVID-19 and its variants, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions on businesses, schools and other public gathering spaces including restaurants and recreational, sporting and other similar venues. Since December 2020, three vaccines for COVID-19 have been authorized by the FDA for emergency use and beginning in April 2021, all individuals 16 years old and older in the United States are eligible to receive a vaccine. New cases of COVID-19 and its variants continue to be reported and it remains uncertain when restrictions will be fully lifted and enhanced safety measures, including physical distancing and face mask protocols, will no longer be needed. As a result, it remains uncertain when and to what extent the COVID-19 pandemic will fully abate. Impact of COVID-19 on Our Business The COVID-19 pandemic has and continues to adversely impact many of our customers, especially our restaurant, hospitality and education customers. As a result, we experienced decreased demand for our products, resulting in lower Net sales and total case volumes beginning in mid-March 2020. We saw improvement in Net sales and total case volumes during the first quarter of 2021 as compared to the fourth quarter of 2020, with additional loosening of indoor dining restrictions. However, overall demand remained lower than pre-COVID-19 levels. Total case volume decreased 0.9% for the 13 weeks ended April 3, 2021, compared to the 13 weeks ended March 28, 2020. While economic and operating conditions for our business have improved in the first quarter of 2021 as compared to the fourth quarter of 2020, we do not expect to see pre-COVID-19 levels of operations until all government restrictions are lifted and consumers are once again willing and able to resume consumption of food away from home, travel and attend sporting and other events on a regular basis. We and the industry may face challenges as the industry recovers, such as changes in our customer mix, availability of product supply, increased product and logistics costs and access to labor supply. Operating Metrics Case growth —Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time. Customers periodically are reclassified, based on changes in size or other characteristics, and when those changes occur, the respective customer’s historical volume follows its new classification. 18 Organic growth —Organic growth includes growth from operating business that has been reflected in our results of operations for at least 12 months. Highlights Financial Highlights —Total case volume for the 13 weeks ended April 3, 2021 decreased 0.9%, which was driven by the negative impact of COVID-19, particularly on hospitality and education customers. Net sales decreased $44 million, or 0.7%, for the 13 weeks ended April 3, 2021. The negative impact of COVID-19 on case volumes was partially offset by an increase in independent restaurant case volume of 8.1%, primarily driven by contributions from the Smart Foodservice acquisition. Smart Foodservice contributed Net sales of $261 million for the 13 weeks ended April 3, 2021. Net sales for Smart Foodservice were also impacted by the COVID-19 pandemic, albeit to a different degree. Gross profit decreased $63 million, or 5.9%, to $1,003 million for the 13 weeks ended April 3, 2021, primarily as a result of the negative impact of COVID-19 on Net sales and customer mix, higher logistics costs and unfavorable year-over-year LIFO adjustments, which were partially offset by contributions from the Smart Foodservice acquisition. As a percentage of net sales, gross profit was 15.9% for the 13 weeks ended April 3, 2021, compared to 16.8% for the prior year period. Total operating expenses decreased $217 million, or 18.2%, to $975 million for the 13 weeks ended April 3, 2021. The decrease was primarily due to a $185 million lower provision for doubtful accounts based on better than anticipated collection of our pre-COVID-19 accounts receivable, the negative impact of COVID-19 on case volume and the benefit of cost actions related to COVID-19. These decreases were partially offset by the inclusion of operating expenses from the Smart Foodservice acquisition. Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Foodservice. Total consideration paid at the closing of the acquisition was $972 million (net of cash acquired). The acquisition of Smart Foodservice expanded the Company’s cash and carry business in the West and Northwest parts of the U.S. The assets, liabilities and results of operations of Smart Foodservice have been included in our consolidated financial statements since the date the acquisition was completed. 19 Results of Operations The following table presents selected historical results of operations for the periods indicated: 13 Weeks Ended April 3, 2021 March 28, 2020 Consolidated Statements of Operations Data: Net sales $ 6,295 $ 6,339 Cost of goods sold 5,292 5,273 Gross profit 1,003 1,066 Operating expenses: Distribution, selling and administrative costs 972 1,192 Restructuring costs and asset impairment charges 3 — Total operating expenses 975 1,192 Operating income (loss) 28 (126) Other income—net (7) (6) Interest expense—net 54 52 Loss on extinguishment of debt 23 — Loss before income taxes (42) (172) Income tax benefit (18) (40) Net loss (24) (132) Series A convertible preferred stock dividends (see Note 14) 15 — Net loss available to common shareholders $ (39) $ (132) Percentage of Net Sales: Gross profit 15.9 % 16.8 % Operating expenses 15.5 % 18.8 % Operating income (loss) 0.4 % (2.0) % Net loss (0.4) % (2.1) % Adjusted EBITDA (1) 2.7 % 2.8 % Other Data: Cash flows—operating activities $ 176 $ (62) Cash flows—investing activities (46) (74) Cash flows—financing activities (47) 1,123 Capital expenditures 46 79 EBITDA (1) 113 (19) Adjusted EBITDA (1) 172 177 Adjusted net income (1) 27 32 Free cash flow (2) 130 (141) (1) EBITDA is defined as net (loss) income, plus interest expense—net, income tax (benefit) provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for: (1) restructuring costs and asset impairment charges; (2) share-based compensation expense; (3) the non-cash impact of LIFO reserve adjustments; (4) loss on extinguishment of debt; (5) business transformation costs; and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness. Adjusted net income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted net income as presented in this Quarterly Report are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net (loss) income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below. (2) Free cash flow is defined as cash flows provided by operating activities less cash capital expenditures. Free cash flow as presented in this Quarterly Report is a supplemental measure of our liquidity that is not required by, or presented in accordance with, GAAP. It is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below. 20 Non-GAAP Reconciliations We provide EBITDA, Adjusted EBITDA, Adjusted net income and Free cash flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity. These non-GAAP financial measures, as defined above, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance. We believe that Adjusted net income is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense and income taxes on a consistent basis from period to period. We believe that Adjusted net income may be used by investors, analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends impact our operating performance. Management uses these non-GAAP financial measures (1) to evaluate our historical and prospective financial performance as well as our performance relative to our competitors as they assist in highlighting trends, (2) to set internal sales targets and spending budgets, (3) to measure operational profitability and the accuracy of forecasting, (4) to assess financial discipline over operational expenditures, and (5) as an important factor in determining variable compensation for management and employees. EBITDA and Adjusted EBITDA are also used in connection with certain covenants and activity restrictions under the agreements governing our indebtedness. We also believe these and similar non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry. EBITDA, Adjusted EBITDA and Adjusted net income are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. We use Free cash flow as a supplemental measure to GAAP financial measures regarding the liquidity of our operations. We measure Free cash flow as cash flows provided by operating activities less cash capital expenditures. We believe that Free cash flow is a useful financial metric to assess our ability to pursue business opportunities and investments. Free cash flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP. We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted net income, and Free cash flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income or Free cash flow in the same manner. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. 21 The following table reconciles EBITDA, Adjusted EBITDA, Adjusted net income and Free cash flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated: 13 Weeks Ended April 3, 2021 March 28, 2020 Net loss available to common shareholders $ (39) $ (132) Series A convertible preferred stock dividends (see Note 14) 15 — Net loss (24) (132) Interest expense—net 54 52 Income tax benefit (18) (40) Depreciation expense 82 82 Amortization expense 19 19 EBITDA 113 (19) Adjustments: Restructuring costs and asset impairment charges (1) 3 — Share-based compensation expense (2) 10 7 LIFO reserve change (3) 21 (13) Loss on extinguishment of debt (4) 23 — Business transformation costs (5) 9 6 COVID-19 bad debt (benefit) expense (6) (15) 170 Business acquisition and integration related costs and other (7) 8 26 Adjusted EBITDA 172 177 Depreciation expense (82) (82) Interest expense—net (54) (52) Income tax provision, as adjusted (8) (9) (11) Adjusted net income (9) $ 27 $ 32 Cash flow Cash flows from operating activities $ 176 $ (62) Capital expenditures (46) (79) Free cash flow $ 130 $ (141) (1) Consists primarily of severance and related costs, organizational realignment costs and asset impairment charges. (2) Share-based compensation expense for expected vesting of stock awards and employee stock purchase plan. (3) Represents the non-cash impact of LIFO reserve adjustments. (4) Includes early redemption premium and the write-off of certain pre-existing debt issuance costs. See Note 10, Debt, in our consolidated financial statements. (5) Consists primarily of costs related to significant process and systems redesign across multiple functions. (6) Includes the changes in the reserve for doubtful accounts expense reflecting the collection risk associated with our customer base as a result of the COVID-19 pandemic. (7) Includes: (i) aggregate acquisition and integration related costs of $6 million and $25 million for the 13 weeks ended April 3, 2021 and March 28, 2020, respectively; and (ii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness. (8) Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted net income and the removal of applicable discrete tax items. Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, and excess tax benefits associated with share-based compensation. The tax effect of pre-tax items excluded from Adjusted net income is computed using a statutory tax rate after taking into account the impact of permanent differences and valuation allowances. (9) Effective as of the first quarter 2021, we have presented Adjusted net income. Previously, we presented Adjusted net income available to common shareholders. 22 A reconciliation between the GAAP income tax benefit and the income tax provision, as adjusted, is as follows: 13 Weeks Ended April 3, 2021 March 28, 2020 GAAP income tax benefit $ (18) $ (40) Tax impact of pre-tax income adjustments 21 54 Discrete tax items 6 (3) Income tax provision, as adjusted $ 9 $ 11 Comparison of Results 13 Weeks Ended April 3, 2021 and March 28, 2020 Highlights • Total case volume decreased 0.9%, reflecting the negative impact of COVID-19 on case volumes, particularly for hospitality and education customers. These decreases were partially offset by an increase in independent restaurant case volume of 8.1%, primarily driven by contributions from Smart Foodservice in 2021. • Net sales decreased $44 million, or 0.7%, to $6,295 million in 2021. • Operating income increased $154 million, or 122.2%, to $28 million in 2021. • Net loss improved $108 million, or 81.8%, to $24 million in 2021. • Adjusted EBITDA decreased $5 million, or 2.8%, to $172 million in 2021. As a percentage of net sales, Adjusted EBITDA was 2.7% in 2021, compared to 2.8% in 2020. Net Sales Total case volume decreased 0.9% in 2021. The negative impact of COVID-19 on case volumes was partially offset by an increase in independent restaurant case volume of 8.1%, primarily driven by contributions from the Smart Foodservice acquisition. Organic case volume decreased 6.4%; organic independent restaurant case volume increased 0.2%. Net sales decreased $44 million, or 0.7%, to $6,295 million in 2021, comprised of a $54 million, or 0.9%, decrease in case volume and a $10 million, or 0.2%, increase in the overall Net sales rate per case. The increase in Net sales rate per case primarily reflects a year-over-year inflation increase of 2.7% in multiple product categories including beef, poultry and disposables, partially offset by changes in our product mix. The year-over-year increase in inflation benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost. Organic sales of private brands represented approximately 33% and 36% of Net sales in 2021 and 2020, respectively. Smart Foodservice contributed aggregate Net sales of $261 million in 2021. Gross Profit Gross profit decreased $63 million, or 5.9%, to $1,003 million in 2021, primarily as a result of the negative impact of COVID-19 on total case volume and customer mix, unfavorable year-over-year LIFO adjustments, and higher logistics costs, which were partially offset by contributions from the Smart Foodservice acquisition. Our LIFO method of inventory costing resulted in an expense of $21 million in 2021 compared to a benefit of $13 million in 2020. Gross profit as a percentage of net sales was 15.9% in 2021, compared to 16.8% in 2020, due to the aforementioned factors. Operating Expenses Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment charges, decreased $217 million or 18.2%, to $975 million in 2021. Operating expenses as a percentage of net sales were 15.5% in 2021, compared to 18.8% in 2020. The decrease in operating expenses is primarily due to a $185 million lower provision for doubtful accounts based on better than anticipated collection of our pre-COVID-19 accounts receivable during the 13 weeks, and the negative impact of COVID-19 on total case volume and the related impact of cost actions put in place. These decreases were partially offset by operating expenses for the Smart Foodservice acquisition of $43 million. Operating Income (Loss) Our operating income was $28 million in 2021, compared to an operating loss of $126 million in 2020. The increase in operating income was due to the factors discussed in the relevant sections above. 23 Other Income—Net Other income—net includes components of net periodic pension benefit credits, exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other income—net of $7 million and $6 million in 2021 and 2020, respectively. The increase in other income—net in 2021 is primarily due to the improved funded status of our defined benefit pension plan. Interest Expense—Net Interest expense—net increased $2 million to $54 million in 2021, primarily due to an increase in our indebtedness to finance the Smart Foodservice acquisition and to strengthen our liquidity position at the onset of the COVID-19 pandemic, which were partially offset by a decrease in interest rates in 2021 compared to 2020. Loss on Extinguishment of Debt As discussed in Note 10, Debt, in our consolidated financial statements, we incurred a $23 million loss on extinguishment of debt related to the repayment of our Unsecured Senior Notes due 2024 and 2020 Incremental Term Loan Facility related to the issuance of our Senior Unsecured Notes due 2029. Income Taxes For the 13 weeks ended April 3, 2021, our effective income tax rate of 43% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $6 million, primarily related to excess tax benefits associated with share-based compensation. For the 13 weeks ended March 28, 2020, our effective income tax rate of 23% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax expense of $3 million primarily related to an increase in the state valuation allowance. Net Loss Our net loss was $24 million in 2021, compared to a net loss of $132 million in 2020. The improvement in net income was due to the relevant factors discussed above. Liquidity and Capital Resources Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements. We believe that the combination of cash on hand and generated from operations, together with borrowing capacity under the agreements governing our indebtedness and other financing arrangements, will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs, and capital expenditure requirements through the end of fiscal year 2022. As of April 3, 2021, the Company had approximately $2.6 billion in cash and available liquidity. Indebtedness The aggregate carrying value of our indebtedness was $5,738 million, net of $52 million of unamortized deferred financing costs, as of April 3, 2021. We had no outstanding borrowings and had issued letters of credit totaling $279 million under the ABL Facility as of April 3, 2021. There was remaining capacity of $1,711 million under the ABL Facility as of April 3, 2021. On February 4, 2021, we issued $900 million aggregate principal amount of 4.75% Unsecured Senior Notes due 2029, the proceeds of which were used, together with cash on hand, to (i) redeem all of the then outstanding Unsecured Senior Notes due 2024, (ii) repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility and (iii) pay related fees and expenses. As of April 3, 2021, the Unsecured Senior Notes due 2029 had a carrying value of $891 million, net of $9 million of unamortized deferred financing costs. The Initial Term Loan Facility had a carrying value of $2,093 million, net of $2 million of unamortized deferred financing costs, as of April 3, 2021. The 2019 Incremental Term Loan Facility had a carrying value of $1,449 million, net of $29 million of unamortized deferred financing costs, as of April 3, 2021. The Secured Notes had a carrying value of $988 million, net of $12 million of unamortized deferred financing costs, as of April 3, 2021. We also had $309 million of obligations under financing leases for transportation equipment and building leases as of April 3, 2021. The ABL Facility will mature in 2024. The Initial Term Loan Facility and the 2019 Incremental Term Loan Facility will mature in 2023 and 2026, respectively. The Secured Notes will mature in 2025. The Unsecured Senior Notes due 2029 will mature in 2029. As economic conditions permit, we will consider opportunities to repurchase, refinance or otherwise reduce our debt obligations on 24 favorable terms. Any potential debt reduction or refinancing could require significant use of our other available liquidity and capital resources. The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on our assets, pay dividends, or engage in mergers or consolidations. USF had approximately $1.3 billion of restricted payment capacity under these covenants and approximately $2.7 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of April 3, 2021. Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to provide us with funding. We are not aware of any facts that indicate our lenders will not be able to comply with the contractual terms of their agreements with us. We continue to monitor the credit markets generally and the strength of our lender counterparties. From time to time, we repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage. These actions may include open market repurchases, negotiated repurchases, and other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, our debt trading levels, our cash position, and other considerations. See Note 10, Debt, in our consolidated financial statements, for a further description of our indebtedness. Cash Flows The following table presents condensed highlights from our Consolidated Statements of Cash Flows for the periods presented: 13 Weeks Ended April 3, 2021 March 28, 2020 Net loss $ (24) $ (132) Changes in operating assets and liabilities 79 (204) Other adjustments 121 274 Net cash provided by (used in) operating activities 176 (62) Net cash used in investing activities (46) (74) Net cash (used in) provided by financing activities (47) 1,123 Net increase in cash, cash equivalents and restricted cash 83 987 Cash, cash equivalents and restricted cash—beginning of period 829 98 Cash, cash equivalents and restricted cash—end of period $ 912 $ 1,085 Operating Activities Cash flows provided by operating activities was $176 million for the 13 weeks ended April 3, 2021, compared to cash flows used in operating activities of $62 million for the 13 weeks ended March 28, 2020. The year-over-year increase was primarily attributable to the improvement in operating results and the associated impact on the Company's working capital requirements. Investing Activities Cash flows used in investing activities in the 13 weeks ended April 3, 2021 and March 28, 2020 included cash expenditures of $46 million and $79 million, respectively, on investments in information technology, new construction and/or expansion of distribution facilities, and property and equipment for fleet replacement. We expect total cash capital expenditures in fiscal year 2021 to be between $290 million and $305 million, exclusive of approximately $35 million to $45 million of capital expenditures under our fleet financing leases. We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing. Financing Activities Cash flows provided by financing activities for the 13 weeks ended April 3, 2021 included aggregate borrowings of $900 million under the Unsecured Senior Notes due 2029. Cash flows used by financing activities in the 13 weeks ended April 3, 2021 included $32 million of scheduled payments under our Term Loan Facilities and financing leases. We used the proceeds from the issuance of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding Unsecured Senior Notes due 2024 and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility. We incurred approximately $18 million of lender fees and third-party costs in connection with our financing actions, consisting of a $9 million early redemption 25 premium related to the Unsecured Senior Notes due 2024 and $9 million of costs associated with the issuance of the Unsecured Senior Notes due 2029, which were capitalized as deferred financing costs. Financing activities for the 13 weeks ended April 3, 2021 also included $5 million of proceeds received from stock purchases under our employee stock purchase plan and $4 million of proceeds from the exercise of employee stock options, which were offset by $12 million of employee tax withholdings paid in connection with the vesting of stock awards. Cash flows provided by financing activities for the 13 weeks ended March 28, 2020 included aggregate borrowings of $1,150 million under the ABL Facility and ABS Facility and $32 million of scheduled payments under our Term Loan Facilities and financing leases. We borrowed an aggregate of $1 billion under the ABL Facility and ABS Facility in March 2020 for the purposes of increasing cash on hand and to preserve financial flexibility in light of the current economic and business uncertainty resulting from the onset of the COVID-19 pandemic. Financing activities for the 13 weeks ended March 28, 2020 also included $6 million of proceeds from stock purchases under our employee stock purchase plan and $1 million of proceeds received from the exercise of employee stock options, which were partially offset by $2 million of employee tax withholdings paid in connection with the vesting of stock awards. Retirement Plans See Note 12, Retirement Plans, in our consolidated financial statements for a description of our retirement plans. Off-Balance Sheet Arrangements We had entered into $279 million of letters of credit, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs, under the ABL Facility as of April 3, 2021. Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources. Contractual Obligations See the Contractual Obligations section in Part II, Item 7—“Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2020 Annual Report for our contractual cash obligations as of January 2, 2021. There have been no material changes to our specified contractual obligations through April 3, 2021, except as disclosed in Note 10, Debt, in our consolidated financial statements. Critical Accounting Policies and Estimates We have prepared the financial information in this Quarterly Report in accordance with GAAP. Preparing the Company's consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2020 Annual Report includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the 13 weeks ended April 3, 2021. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 2, Recent Accounting Pronouncements, in our consolidated financial statements.