What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 169 added, 92 removed, 197 unchanged (57% of the section changed)

5 unchanged sentences

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.

Results of operations for the 13 weeks and 26 weeks ended July 3, 2021 are compared to the 13 weeks and 26 weeks ended June 27, 2020 unless specifically noted otherwise.

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.

12 unchanged sentences

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.

Starting in 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 May 2021, all individuals 12 years old and older in the United States became eligible to receive a vaccine.

During the 13 weeks ended July 3, 2021, the CDC and most states have significantly relaxed restrictions and safety measures, such as capacity limits, physical distancing and face mask protocols, as a result of significant progress made in vaccinating the U.S.

public and the resulting decline in COVID-19 cases.

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.

The COVID-19 pandemic has adversely impacted 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.

We saw improvement in Net sales and total case volumes during the second quarter of 2021 as compared to the first quarter of 2021, with additional loosening of indoor dining restrictions and other safety measures.

Overall demand has started to return to pre-COVID-19 levels;

however, case volumes remained lower than pre-COVID-19 levels.

Total case volume increased 53.5% and 22.1% for the 13 weeks and 26 weeks ended July 3, 2021, compared to the prior year.

Economic and operating conditions for our business have improved in the first and second quarters of 2021 as compared to the fourth quarter of 2020.

Most of the restrictions have been lifted and consumers are returning to consuming food away from home, traveling for personal and business purposes and attending sporting and other events regularly.

However, we and the industry may continue to face challenges as the recovery continues, such as the availability of product supply, increased product and logistics costs, access to labor supply, and changes in our customer mix.

Operating Metrics

2 unchanged sentences

Organic growth —Organic growth includes growth from operating business that has been reflected in our results of operations for at least 12 months.

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.

Financial Highlights —Total case volume for the 13 weeks and 26 weeks ended July 3, 2021 increased 53.5% and 22.1%, respectively, and independent restaurant case volume increased 79.1% and 38.5%, respectively for those same periods.

Net sales increased $3,103 million, or 68.0%, and $3,059 million, or 28.1% for the 13 weeks and 26 weeks ended July 3, 2021, primarily due to volume improvements commensurate with easing of restrictions on our customers.

The increase in Net sales during the 26 weeks ended July 3, 2021 was also due to the contributions from the Smart Foodservice acquisition, which was acquired on April 24, 2020.

Smart Foodservice contributed Net sales of $584 million and $208 million for the 26 weeks ended July 3, 2021 and June 27, 2020, respectively.

Gross profit increased $498 million, or 74.2%, to $1,169 million for the 13 weeks ended July 3, 2021, and increased $435 million, or 25.0%, to $2,172 million for the 26 weeks ended July 3, 2021, primarily as a result of the increase in Net sales.

The increase in gross profit during the 26 weeks ended July 3, 2021 was also due to the contributions from the Smart Foodservice acquisition.

These increases in gross profit were partially offset by unfavorable year-over-year LIFO adjustments.

As a percentage of net sales, gross profit was 15.3% for the 13 weeks ended July 3, 2021, compared to 14.7% for the prior year period and was 15.6% for the 26 weeks ended July 3, 2021, compared to 15.9% for the prior year period.

Total operating expenses increased $315 million, or 43.2%, to $1,045 million for the 13 weeks ended July 3, 2021, and increased $98 million, or 5.1%, to $2,020 million for the 26 weeks ended July 3, 2021.

The increase was primarily due to higher supply chain labor costs and increased distribution costs, including increased fuel costs and increased repair and maintenance costs related to increased sales volume due to the recovery.

The increase in total operating expenses during the 26 weeks ended July 3, 2021 was also due to the inclusion of operating expenses from the Smart Foodservice acquisition.

As a percentage of net sales, operating expenses were 13.6% for the 13 weeks ended July 3, 2021, compared to 16.0% for the prior year period and was 14.5% for the 26 weeks ended July 3, 2021, compared to 17.6% for the prior year period.

Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Foodservice.

4 unchanged sentences

The following table presents selected historical results of operations for the periods indicated:

13 Weeks Ended

April 3, 2021 March 28, 2020

13 Weeks Ended 26 Weeks Ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Consolidated Statements of Operations Data:

4 unchanged sentences

Distribution, selling and administrative costs

1,044 714 2,016 1,906

Restructuring costs and asset impairment charges

4 unchanged sentences

Loss on extinguishment of debt — — 23 —

Loss before income taxes (42) (172)

Income tax benefit (18) (40)

Net loss (24) (132)

Income (loss) before income taxes 76 (118) 34 (290)

Income tax provision (benefit) 21 (26) 3 (66)

Net income (loss) 55 (92) 31 (224)

Series A convertible preferred stock dividends (see Note 14) (9) (5) (24) (5)

Net loss available to common shareholders $ (39) $ (132)

Net income (loss) available to common shareholders $ 46 $ (97) $ 7 $ (229)

Percentage of Net Sales:

4 unchanged sentences

1.6 % (1.3) % 1.1 % (1.7) %

Net income (loss)

0.7 % (2.0) % 0.2 % (2.1) %

Adjusted EBITDA (1)

4.3 % 1.9 % 3.6 % 2.4 %

Cash flows—operating activities

$ 74 $ 832 $ 250 $ 770

Cash flows—investing activities

(55) (1,022) (101) (1,096)

Cash flows—financing activities

(232) 781 (279) 1,904

Capital expenditures

61 52 107 131

224 51 337 32

Adjusted EBITDA (1)

332 88 504 265

Adjusted net income (1)

146 (49) 173 (17)

Free cash flow (2)

13 780 143 639

(1) EBITDA is defined as net (loss) income, plus interest expense—net, income tax (benefit) provision, and depreciation and amortization.

32 unchanged sentences

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)

13 Weeks Ended 26 Weeks Ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Net income (loss) available to common shareholders $ 46 $ (97) $ 7 $ (229)

Series A convertible preferred stock dividends (see Note 14) (9) (5) (24) (5)

Net loss (24) (132)

Net income (loss) 55 (92) 31 (224)

Interest expense—net 54 63 108 115

Income tax benefit (18) (40)

Income tax provision (benefit) 21 (26) 3 (66)

Depreciation expense 81 87 163 169

7 unchanged sentences

COVID-19 bad debt (benefit) expense (6)

— (75) (15) 95

COVID-19 product donations and inventory adjustments (7)

COVID-19 other related expenses (8)

Business acquisition and integration related costs and other (9)

(9) 12 (1) 38

Adjusted EBITDA 332 88 504 265

Depreciation expense

(81) (87) (163) (169)

Interest expense—net

(54) (63) (108) (115)

Income tax provision, as adjusted (10)

Adjusted net income (9)

(51) 13 (60) 2

Adjusted net income (loss) (11)

$ 146 $ (49) $ 173 $ (17)

Cash flows from operating activities

$ 74 $ 832 $ 250 $ 770

Capital expenditures

(61) (52) (107) (131)

Free cash flow

7 unchanged sentences

(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 COVID-19 related expenses related to inventory adjustments and product donations.

(8) Includes COVID-19 related costs that we are permitted to addback under certain agreements governing our indebtedness.

(9) 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.

(i) aggregate acquisition and integration related costs of $6 million and $14 million for the 13 weeks ended July 3, 2021 and June 27, 2020, respectively, and $12 million and $39 million for the 26 weeks ended July 3, 2021 and June 27, 2020, respectively;

(ii) favorable legal settlement recovery of $13 million for the 13 and 26 weeks ended July 3, 2021;

and (iii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(10) 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.

4 unchanged sentences

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)

13 Weeks Ended 26 Weeks Ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

GAAP income tax provision (benefit) $ 21 $ (26) $ 3 $ (66)

Tax impact of pre-tax income adjustments 30 15 51 69

2 unchanged sentences

Comparison of Results

13 Weeks Ended April 3, 2021 and March 28, 2020

• 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.

13 Weeks Ended July 3, 2021 and June 27, 2020

• Total case volume increased 53.5% and independent restaurant case volume increased 79.1%, primarily driven by eased restrictions on our customers in 2021.

• Net sales increased $3,103 million, or 68.0%, to $7,663 million in 2021.

• Operating income increased $183 million, or 310.2%, to $124 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.

• Net income improved $147 million, or 159.8%, to $55 million in 2021.

• Adjusted EBITDA increased $244 million, or 277.3%, to $332 million in 2021.

As a percentage of Net sales, Adjusted EBITDA was 4.3% in 2021, compared to 1.9% in 2020.

Total case volume decreased 0.9% in 2021.

Organic case volume decreased 6.4%;

Total case volume increased 53.5% in 2021.

The increase was primarily driven by increased leisure and business travel and increased restaurant traffic due to eased restrictions on our customers, resulting in independent restaurant case volume growth of 79.1%.

Organic case volume increased 50.3%;

organic independent restaurant case volume increased 74.4%.

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.

Net sales increased $3,103 million, or 68.0%, to $7,663 million in 2021, comprised of a $2,441 million, or 53.5%, increase in case volume and a $662 million, or 14.5%, increase in the overall Net sales rate per case.

The increase in Net sales rate per case reflects a year-over-year inflation increase of 8.2% in multiple product categories including poultry, disposables and pork, as well as favorable 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 34% and 35% of Net sales in 2021 and 2020, respectively.

Smart Foodservice contributed aggregate Net sales of $261 million in 2021.

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 increased $498 million, or 74.2%, to $1,169 million in 2021, primarily as a result of the increase in Net sales, partially offset by unfavorable year-over-year LIFO adjustments.

Our LIFO method of inventory costing resulted in an expense of $97 million in 2021 compared to expense of $19 million in 2020 due to inflation in multiple product categories including grocery, beef and poultry.

Gross profit as a percentage of net sales was 15.3% in 2021, compared to 14.7% 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, comprised of distribution, selling and administrative and restructuring costs and asset impairment charges, increased $315 million, or 43.2%, to $1,045 million in 2021.

Operating expenses as a percentage of net sales were 13.6% in 2021, compared to 16.0% 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.

The increase in operating expenses was primarily due to higher supply chain labor costs reflecting increased sales volume compared to the prior year period when actions were taken to reduce such costs in response to COVID-19;

a $75 million higher provision for doubtful accounts due to a $75 million reduction in the provision for doubtful accounts during the 13 weeks ended June 27, 2020 based on better than anticipated collection of our pre-COVID accounts receivable, with no similar reduction during the 13 weeks ended July 3, 2021;

and $34 million higher distribution costs, primarily due to increased fuel costs and increased repair and maintenance costs due to increased fleet usage and resumption of repair and maintenance activities.

These increases in operating expenses were partially offset by cost savings initiated in 2020 and a favorable legal settlement recovery of $13 million.

Operating Income (Loss)

6 unchanged sentences

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.

Interest expense—net decreased $9 million to $54 million in 2021, primarily due to the reduction in outstanding debt in 2021 as compared to 2020 and a decrease in interest rates in 2021 compared to 2020.

For the 13 weeks ended July 3, 2021, our effective income tax rate of 28% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes.

For the 13 weeks ended June 27, 2020, our effective income tax rate of 22% 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 $2 million primarily related to an increase in an unrecognized tax benefit.

Net Income (Loss)

Our net income was $55 million in 2021, compared to a net loss of $92 million in 2020.

The improvement in net income was due to the relevant factors discussed above.

26 Weeks Ended July 3, 2021 and June 27, 2020

• Total case volume increased 22.1% and independent restaurant case volume increased 38.5%, primarily driven by eased restrictions on our customers and contributions from Smart Foodservice in 2021.

• Net sales increased $3,059 million, or 28.1%, to $13,958 million in 2021.

• Operating income was $152 million in 2021, compared to operating loss of $185 million in 2020.

• Net income was $31 million in 2021, compared to net loss of $224 million in 2020.

• Adjusted EBITDA increased $239 million, or 90.2%, to $504 million in 2021.

As a percentage of Net sales, Adjusted EBITDA was 3.6% in 2021, compared to 2.4% in 2020.

Total case volume increased 22.1% in 2021.

Organic case volume increased 17.5% and organic independent restaurant case volume increased 32.0%.

Net sales increased $3,059 million, or 28.1%, to $13,958 million in 2021, comprised of a $2,408 million, or 22.1%, increase in case volume and a $651 million, or 6.0%, 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 5.6% in multiple product categories including poultry, disposables and pork, as well as favorable 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 35% of Net sales in 2021 and 2020, respectively.

The increase in Net sales was also due to contributions from the Smart Foodservice acquisition.

Smart Foodservice contributed net sales of $584 million in 2021, as compared to $208 million in 2020.

Gross profit increased $435 million, or 25.0%, to $2,172 million in 2021, primarily as a result of the increase in Net sales.

The increase in gross profit was also due to contributions from the Smart Foodservice acquisition.

These increases in gross profit were partially offset by unfavorable year-over-year LIFO adjustments.

Our LIFO method of inventory costing resulted in an expense of $118 million in 2021 compared to expense of $6 million in 2020 due to inflation in multiple product categories including grocery, beef and poultry.

Gross profit as a percentage of net sales was 15.6% in 2021, compared to 15.9% in 2020.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment costs, increased $98 million or 5.1%, to $2,020 million in 2021.

Operating expenses as a percentage of net sales were 14.5% in 2021, compared to 17.6% in 2020.

The increase in operating expenses is primarily due to higher supply chain labor costs reflecting increased sales volume compared to the prior year period when actions were taken to reduce such costs in response to COVID-19, and $32 million higher distribution costs, primarily due to increased fuel costs and increased repair and maintenance costs due to increased fleet usage and resumption of repair and maintenance activities.

The increase in operating expenses was also due to the inclusion of operating expenses for the Smart Foodservice acquisition of $84 million in 2021, as compared to $27 million in 2020.

These increases in operating expenses were partially offset by a $110 million lower provision for doubtful accounts based on better than anticipated collection of our pre-COVID-19 accounts receivable during the 26 weeks ended July 3, 2021, cost savings initiated in 2020 and a favorable legal settlement recovery of $13 million.

Operating Income (Loss)

Our operating income was $152 million in 2021, compared to operating loss of $185 million in 2020.

The increase in operating income was due to the factors discussed in the relevant sections above.

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 $13 million and $10 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 decreased $7 million to $108 million in 2021, primarily due to the decrease in outstanding debt in 2021 compared to 2020 and 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.

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.

As discussed in Note 10, Debt, in our consolidated financial statements, we incurred a $23 million loss on extinguishment of debt during the 26 weeks ended July 3, 2021 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.

For the 26 weeks ended July 3, 2021, our effective income tax rate of 9 % 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.

Our net loss was $24 million in 2021, compared to a net loss of $132 million in 2020.

For the 26 weeks ended June 27, 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 $ 2 million primarily related to an increase in an unrecognized tax benefit and a tax expense of $ 2 million primarily related to a tax benefit shortfall associated with share-based compensation.

Net Income (Loss)

Our net income was $31 million in 2021, compared to net loss of $224 million in 2020.

The improvement in net income was due to the relevant factors discussed above.

3 unchanged sentences

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.

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.

As of July 3, 2021, the Company had approximately $2.4 billion in cash and available liquidity.

The aggregate carrying value of our indebtedness was $5,515 million, net of $49 million of unamortized deferred financing costs, as of July 3, 2021.

We had no outstanding borrowings and had issued letters of credit totaling $253 million under the ABL Facility as of July 3, 2021.

There was remaining capacity of $1,737 million under the ABL Facility as of July 3, 2021.

The Initial Term Loan Facility had a carrying value of $1,888 million, net of $2 million of unamortized deferred financing costs, as of July 3, 2021.

During the 13 weeks ended July 3, 2021, the Company made voluntary prepayments of the Initial Term Loan Facility totaling $200 million.

The 2019 Incremental Term Loan Facility had a carrying value of $1,447 million, net of $27 million of unamortized deferred financing costs, as of July 3, 2021.

The Secured Notes had a carrying value of $989 million, net of $11 million of unamortized deferred financing costs, as of July 3, 2021.

We also had $292 million of obligations under financing leases for transportation equipment and building leases as of July 3, 2021.

As of July 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 ABL Facility will mature in 2024.

2 unchanged sentences

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

favorable terms.

As economic conditions permit, we will consider opportunities to repurchase, refinance or otherwise reduce our debt obligations on favorable terms.

Any potential debt reduction or refinancing could require significant use of our other available liquidity and capital resources.

1 unchanged sentence

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.

USF had approximately $1.3 billion of restricted payment capacity under these covenants and approximately $2.8 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 July 3, 2021.

Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to provide us with funding.

1 unchanged sentence

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.

From time to time, we may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage, including the voluntary prepayments under the Initial Term Loan Facility noted above.

These actions may include open market repurchases, negotiated repurchases, and other retirements of outstanding debt.

3 unchanged sentences

26 Weeks Ended

April 3, 2021 March 28, 2020

Net loss $ (24) $ (132)

July 3, 2021 June 27, 2020

Net income (loss) $ 31 $ (224)

Changes in operating assets and liabilities (22) 696

Other adjustments 241 298

Net cash provided by (used in) operating activities 176 (62)

Net cash provided by operating activities 250 770

Net cash used in investing activities (101) (1,096)

Net cash (used in) provided by financing activities (279) 1,904

Net increase in cash, cash equivalents and restricted cash 83 987

Net (decrease) increase in cash, cash equivalents and restricted cash (130) 1,578

Cash, cash equivalents and restricted cash—beginning of period

1 unchanged sentence

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.

Cash flows provided by operating activities was $250 million for the 26 weeks ended July 3, 2021, compared to cash flows provided by operating activities of $770 million for the 26 weeks ended June 27, 2020.

The year-over-year decrease was primarily attributable to the Company's working capital requirements as a result of the improvement in operating results and recovery of sales volumes.

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.

Cash flows used in investing activities in the 26 weeks ended July 3, 2021 and June 27, 2020 included cash expenditures of $107 million and $131 million, respectively, on investments in information technology, new construction and/or expansion of distribution facilities, and property and equipment for fleet replacement.

Cash flows used in investing activities for the 26 weeks ended June 27, 2020 also included the $973 million cash purchase price for the acquisition of Smart Foodservice.

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.

1 unchanged sentence

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.

Cash flows used by financing activities in the 26 weeks ended July 3, 2021 included $67 million of scheduled payments under our Term Loan Facilities and financing leases and $200 million of voluntary prepayments of the Initial Term Loan Facility.

We incurred approximately $18 million of lender fees and third-party costs in connection with our issuance of the Unsecured Notes due 2029, consisting of a $9 million early redemption 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.

Cash flows used by financing activities in the 26 weeks ended July 3, 2021 also included a $9 million dividend on our Series A convertible preferred stock.

Cash flows provided by financing activities for the 26 weeks ended July 3, 2021 included aggregate borrowings of $900 million under the Unsecured Senior Notes due 2029.

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

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.

Cash flows provided by financing activities for the 26 weeks ended July 3, 2021 also included $10 million of proceeds received from stock purchases under our employee stock purchase plan and $12 million of proceeds from the exercise of employee stock options, which were offset by $13 million of employee tax withholdings paid in connection with the vesting of stock awards.

Cash flows provided by financing activities for the 26 weeks ended June 27, 2020 included aggregate borrowings of $700 million under the 2020 Incremental Term Loan Facility, the proceeds of which were used to finance, in part, the Smart Foodservice acquisition;

$1.0 billion of gross proceeds from the issuance of the Secured Notes;

and $500 million of proceeds, net of $9 million of related fees, from the issuance and sale of 500,000 shares of our Series A convertible preferred stock.

Cash flows provided by financing activities for the 26 weeks ended June 27, 2020 also included aggregate borrowings of $210 million under the ABL Facility and former accounts receivable financing facility (the "ABS Facility").

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.

Financing activities for the 26 weeks ended June 27, 2020 also included $11 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 $5 million of employee tax withholdings paid in connection with the vesting of stock awards.

Cash flows used by financing activities for the 26 weeks ended June 27, 2020 included $71 million of scheduled payments under our Term Loan Facilities and financing leases.

We used part of the proceeds from the issuance of the Secured Notes to repay $400 million in principal amount of the 2020 Incremental Term Loan Facility, and we used $542 million of cash on hand to repay all of our outstanding borrowings under the ABS facility, which was subsequently terminated.

We incurred approximately $33 million of lender fees and third-party costs in connection with the aforementioned financing transactions.

Retirement Plans

1 unchanged sentence

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.

We had entered into $253 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 July 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.

1 unchanged sentence

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.

There have been no material changes to our specified contractual obligations through July 3, 2021, except as disclosed in Note 10, Debt, in our consolidated financial statements.

Critical Accounting Policies and Estimates

4 unchanged sentences

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.

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 26 weeks ended July 3, 2021.

Recent Accounting Pronouncements

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis