What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-09 · 103 added, 95 removed, 271 unchanged (42% of the section changed)

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Information regarding reconciliations of and the rationale for these measures is discussed under “Non-GAAP Reconciliations” below.

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.

Results of operations for the 13 weeks and 39 weeks ended October 2, 2021 are compared to the 13 weeks and 39 weeks ended September 26, 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.

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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.

Although vaccines have now been authorized and approved for use by the United States Food and Drug Administration for the vast majority of the United States population, including, most recently, for children aged five to eleven years, the restrictions and recommended safety measures related to COVID-19, such as capacity limits, physical distancing and face mask protocols still remain in effect in many parts of the country and continue to evolve.

As such, the timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the rate of vaccine adoption, the extent of COVID-19 variants (and the continued effectiveness of the vaccines against those variants) and the duration and implications of continued restrictions and safety measures.

Recently-enacted federal and state executive orders have required certain employers, including us, currently or in the near term, to implement a vaccine mandate for employees and require periodic testing for employees who are not vaccinated.

Additionally, on November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) issued its related regulations for covered employers, including us, which set a January 4, 2022 deadline for compliance.

Such vaccine mandates could result in nationwide workforce, supply chain and production disruptions that could impact our business and delay, slow or reverse the economic recovery from the COVID-19 pandemic.

Impact of COVID-19 on Our Business

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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 second quarter of 2021 as compared to the first quarter of 2021, with additional loosening of indoor dining restrictions and other safety measures.

We saw improvement in Net sales and total case volumes during the second and third quarters 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.

Total case volume increased 18.5% and 20.8% for the 13 weeks and 39 weeks ended October 2, 2021, compared to the prior year.

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

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

However, we and the industry may continue to face pandemic-related challenges as the recovery continues, such as constrains on the availability of product supply, increased product

and logistics costs, labor shortages, and shifts in the buying patterns of our customers.

Therefore, we are unable to predict the duration and extent to which the pandemic will continue to impact our results of operations.

We are currently evaluating the impacts of the November 4, 2021 OSHA vaccine regulations related to the federal vaccine mandate and, therefore, we are unable to predict the impact vaccine mandates may have on our operations and our ability to access qualified labor or the impact such mandates may have on the workforces of our suppliers and customers.

Operating Metrics

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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 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.

Financial Highlights —Total case volume for the 13 weeks and 39 weeks ended October 2, 2021 increased 18.5% and 20.8%, respectively, and independent restaurant case volume increased 25.1% and 33.5%, respectively for those same periods.

Net sales increased $2,042 million, or 34.9%, and $5,101 million, or 30.5% for the 13 weeks and 39 weeks ended October 2, 2021, primarily due to volume improvements commensurate with easing of COVID-19 related restrictions on our customers.

The increase in Net sales during the 39 weeks ended October 2, 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 $895 million and $484 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively.

Gross profit increased $267 million, or 27.4%, to $1,241 million for the 13 weeks ended October 2, 2021, and increased $702 million, or 25.9%, to $3,413 million for the 39 weeks ended October 2, 2021, primarily as a result of the increase in Net sales.

The increase in gross profit during the 39 weeks ended October 2, 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.

As a percentage of net sales, gross profit was 15.7% for the 13 weeks ended October 2, 2021, compared to 16.7% for the prior year period and was 15.6% for the 39 weeks ended October 2, 2021, compared to 16.2% for the prior year period.

Total operating expenses increased $210 million, or 23.4%, to $1,106 million for the 13 weeks ended October 2, 2021, and increased $308 million, or 10.9%, to $3,126 million for the 39 weeks ended October 2, 2021.

The increase was primarily due to higher supply chain labor costs and increased non-labor distribution costs related to increased sales volume due to the COVID-19 recovery.

The increase in total operating expenses during the 39 weeks ended October 2, 2021 was also due to the inclusion of operating expenses from the Smart Foodservice acquisition.

As a percentage of net sales, operating expenses were 14.0% for the 13 weeks ended October 2, 2021, compared to 15.3% for the prior year period and was 14.3% for the 39 weeks ended October 2, 2021, compared to 16.8% for the prior year period.

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

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13 Weeks Ended 39 Weeks Ended

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

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Consolidated Statements of Operations Data:

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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.

EBITDA, Adjusted EBITDA, and Adjusted net income as presented 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.

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(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.

Free cash flow as presented 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.

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13 Weeks Ended 39 Weeks Ended

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

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Net income (loss) available to common shareholders $ 55 $ (2) $ 62 $ (231)

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COVID-19 other related expenses (8)

Business acquisition and integration related costs and other (9)

(9) 12 (1) 38

Business acquisition and integration related costs and

Adjusted EBITDA 291 209 795 474

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(43) (16) (103) (14)

Adjusted net income (loss) (11)

Adjusted net income (11)

$ 119 $ 42 $ 292 $ 25

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(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.

See Note 10, Debt, for additional information.

(5) Consists primarily of costs related to significant process and systems redesign across multiple functions.

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(9) Includes:

(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;

(i) aggregate acquisition and integration related costs of $4 million and $5 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $16 million and $43 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively;

(ii) favorable legal settlement recovery of $13 million for the 39 weeks ended October 2, 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.

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(11) Effective as of the first quarter 2021, we have presented Adjusted net income.

Previously, we presented Adjusted net income available to common shareholders.

Previously, we presented Adjusted net income (loss) available to common shareholders.

A reconciliation between the GAAP income tax benefit and the income tax provision, as adjusted, is as follows:

13 Weeks Ended 39 Weeks Ended

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

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

GAAP income tax provision (benefit) $ 27 $ 13 $ 30 $ (53)

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Comparison of Results

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.

13 Weeks Ended October 2, 2021 and September 26, 2020

• Total case volume increased 18.5% and independent restaurant case volume increased 25.1%

• Net sales increased $2,042 million, or 34.9%, to $7,890 million in 2021.

• Operating income increased $57 million, or 73.1%, to $135 million in 2021.

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

• Net income improved $56 million to $64 million in 2021.

• Adjusted EBITDA increased $82 million, or 39.2%, to $291 million in 2021.

As a percentage of Net sales, Adjusted EBITDA was 3.7% in 2021, compared to 3.6% in 2020.

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%.

Total case volume increased 18.5% and independent restaurant case volume growth of 25.1%.

The increase, all organic, was primarily driven by increased leisure and business travel and increased restaurant traffic due to eased COVID-19 related restrictions on our customers.

Net sales increased $2,042 million, or 34.9%, to $7,890 million in 2021, comprised of a $1,082 million, or 18.5%, increase in case volume and a $960 million, or 16.4%, 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 increase in Net sales rate per case reflects a year-over-year average inflation increase of 11.5% in multiple product categories includ ing beef, poultry, 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.

Organic sales of private brands represented approximately 34% of Net sales in both 2021 and 2020.

Gross profit increased $267 million, or 27.4%, to $1,241 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.

Our LIFO method of inventory costing resulted in an expense of $32 million in 2021 compared to expense of $3 million in 2020 due to inflation in multiple product categories including disposables, grocery, and seafood .

Gross profit as a percentage of net sales was 15.7% in 2021, compared to 16.7% in 2020, due to the aforementioned factors.

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Operating expenses as a percentage of net sales were 14.0% in 2021, compared to 15.3% in 2020.

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.

The increase in operating expenses was primarily due to higher supply chain labor costs and non-labor distribution costs attributable to increased sales volume as compared to the prior year period.

The prior year period reflected cost-reduction actions taken in response to COVID-19 and a reduction in our allowance for doubtful accounts.

The Company also recognized $7 million of asset impairment charges in 2021 related to a rebranding initiative following the integration of a trade name acquired as part of the 2019 Food Group acquisition.

During 2020, the Company also recognized $9 million of asset impairment charges related to COVID-19’s adverse impacts on the fair value of certain trade names acquired as part of the 2019 Food Group acquisition.

These increases in operating expenses in 2021 were partially offset by cost savings initiated in 2020.

Operating Income (Loss)

Our operating income was $124 million in 2021, compared to an operating loss of $59 million in 2020.

Our operating income was $135 million in 2021, compared to an operating income of $78 million in 2020.

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

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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 $6 million and $4 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.

We recognized other income—net of $6 million in both 2021 and 2020.

Interest Expense—Net

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.

Interest expense—net decreased $13 million to $50 million in 2021, primarily due to a decrease in interest rates and outstanding debt in 2021 compared to 2020.

For the 13 weeks ended October 2, 2021, our effective income tax rate of 30% 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.

The discrete tax items were not material individually or in the aggregate;

however, when compared to the pre-tax income of $91 million for the period on a percentage basis, these tax items had a significant impact on the effective tax rate.

For the 13 weeks ended September 26, 2020, our effective income tax rate of 58% 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.

Because pre-tax income for the 13 weeks ended September 26, 2020 was $21 million, all tax adjustments had a significant impact on a percentage basis on the effective income tax rate.

The discrete tax items were not material individually or in the aggregate;

however, when compared to the pre-tax income of $21 million for the period on a percentage basis, these tax items had a significant impact on the effective tax rate.

Net Income (Loss)

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

Our net income was $64 million in 2021, compared to net income of $8 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.

39 Weeks Ended October 2, 2021 and September 26, 2020

• Total case volume increased 20.8% and independent restaurant case volume increased 33.5%

• Net sales increased $5,101 million, or 30.5%, to $21,848 million in 2021.

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As a percentage of Net sales, Adjusted EBITDA was 3.6% in 2021, compared to 2.8% in 2020.

Total case volume increased 22.1% in 2021.

Total case volume increased 20.8% in 2021 and independent restaurant case volume growth of 33.5%.

Organic case volume increased 17.8% and organic independent restaurant case volume increased 29.4%.

The increase was primarily driven by increased leisure and business travel and increased restaurant traffic due to eased COVID-19 related restrictions on our customers.

Net sales increased $5,101 million, or 30.5%, to $21,848 million in 2021, comprised of a $3,490 million, or 20.8%, increase in case volume and a $1,611 million, or 9.7%, 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 increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 7.5% in multiple product categories including poultry, beef and disposables, 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.

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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.

Our LIFO method of inventory costing resulted in an expense of $150 million in 2021 compared to expense of $9 million in 2020 due to inflation in multiple product categories including beef, poultry, and grocery.

Gross profit as a percentage of net sales was 15.6% in 2021, compared to 16.2% in 2020.

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Operating expenses as a percentage of net sales were 14.3% in 2021, compared to 16.8% 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 primarily due to higher supply chain labor costs and non-labor distribution costs attributable to increased sales volume as compared to the prior year period.

The prior year period reflected cost-reduction actions taken in response to COVID-19.

The Company also recognized $ 7 million of asset impairment charges related to a rebranding initiative following the integration of a trade name acquired as part of the 2019 Food Group acquisition.

The increase in operating expenses was also due to the inclusion of operating expenses for the Smart Foodservice acquisition of $119 million in 2021, as compared to $69 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.

These increases in operating expenses were partially offset by a $98 million lower provision for doubtful accounts during the 39 weeks ended October 2, 2021, cost savings initiated in 2020 and a favorable legal settlement recovery of $13 million during the 39 weeks ended October 2, 2021.

Operating Income (Loss)

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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.

Interest expense—net decreased $20 million to $158 million in 2021, primarily due to a decrease in interest rates and outstanding debt 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 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.

As discussed in Note 10, Debt, in our consolidated financial statements, we incurred a $23 million loss on extinguishment of debt during the 39 weeks ended October 2, 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 39 weeks ended October 2, 2021, our effective income tax rate of 24 % 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 $ 5 million, primarily related to excess tax benefits associated with share-based compensation.

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.

For the 39 weeks ended September 26, 2020, our effective income tax rate of 20 % 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.

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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 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.

As of October 2, 2021, the Company had approximately $2.5 billion in cash and available liquidity.

The aggregate carrying value of our indebtedness was $5,396 million, net of $48 million of unamortized deferred financing costs, as of October 2, 2021.

We had no outstanding borrowings and had issued letters of credit totaling $253 million under the ABL Facility as of October 2, 2021.

There was remaining capacity of $1,737 million under the ABL Facility as of October 2, 2021.

The Initial Term Loan Facility had a carrying value of $1,783 million, net of $2 million of unamortized deferred financing costs, as of October 2, 2021.

During the 39 weeks ended October 2, 2021, the Company made voluntary prepayments of the Initial Term Loan Facility totaling $300 million.

The 2019 Incremental Term Loan Facility had a carrying value of $1,444 million, net of $26 million of unamortized deferred financing costs, as of October 2, 2021.

The Secured Notes had a carrying value of $989 million, net of $11 million of unamortized deferred financing costs, as of October 2, 2021.

We also had $281 million of obligations under financing leases for transportation equipment and building leases as of October 2, 2021.

As of October 2, 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.

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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 $2.8 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.

USF had approximately $1.4 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 October 2, 2021.

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

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39 Weeks Ended

July 3, 2021 June 27, 2020

October 2, 2021 September 26, 2020

Net income (loss) $ 95 $ (216)

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Operating Activities

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.

Cash flows provided by operating activities was $520 million for the 39 weeks ended October 2, 2021, compared to cash flows provided by operating activities of $533 million for the 39 weeks ended September 26, 2020.

The Company’s working capital requirements increased in 2021 in line with the improvement in operating results and recovery of sales volumes.

Investing Activities

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.

Cash flows used in investing activities in the 39 weeks ended October 2, 2021 and September 26, 2020 included cash expenditures of $173 million and $154 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 39 weeks ended September 26, 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 $300 million and $315 million, exclusive of approximately $55 million to $65 million of capital expenditures under our fleet financing leases.

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Financing Activities

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.

Cash flows used by financing activities in the 39 weeks ended October 2, 2021 included $96 million of scheduled payments under our Term Loan Facilities and financing leases and $300 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.

Cash flows used by financing activities in the 39 weeks ended October 2, 2021 also included $18 million of dividends on our Series A convertible preferred stock.

Cash flows provided by financing activities for the 39 weeks ended October 2, 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.

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;

Cash flows provided by financing activities for the 39 weeks ended October 2, 2021 also included $16 million of proceeds received from stock purchases under our employee stock purchase plan and $13 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 39 weeks ended September 26, 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 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 borrowed an aggregate of $1 billion under the ABL Facility and our former accounts receivable financing facility (the “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 39 weeks ended September 26, 2020 also included $15 million of proceeds from stock purchases under our employee stock purchase plan and $2 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.

C ash flows used by financing activities for the 39 weeks ended September 26, 2020 included $105 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.

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

Retirement Plans

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Off-Balance Sheet Arrangements

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.

We had $253 million of letters of credit outstanding, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs, under the ABL Facility as of October 2, 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.

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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 July 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 October 2, 2021, except as disclosed in Note 10, Debt, in our consolidated financial statements.

Critical Accounting Policies and Estimates

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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 26 weeks ended July 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 39 weeks ended October 2, 2021.

Recent Accounting Pronouncements

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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