What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 145 added, 90 removed, 174 unchanged (57% 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 ended April 2, 2022 are compared to the 13 weeks ended April 3, 2021 unless specifically noted otherwise.

Results of operations for the 13 weeks and 26 weeks ended July 2, 2022 are compared to the 13 weeks and 26 weeks ended July 3, 2021, unless specifically noted otherwise.

At US Foods, we strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers.

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This operating model allows us to leverage our nationwide scale and footprint while executing locally.

COVID-19 Update

Our operations, our industry and the U.S.

economy continue to be disrupted by the COVID-19 pandemic and related inflation, supply chain disruptions and labor shortages.

We continue to actively monitor the impacts of the COVID-19 pandemic on all aspects of our business including related actions taken by government authorities.

Although Net sales and total case volumes increased during the first quarter of 2022 as compared to the first quarter of 2021, increased infection rates and related temporary restrictions in some parts of the country resulting from the omicron variant negatively impacted Net sales for the first quarter of 2022.

Uncertainty around the pandemic persists including the risk of future variants and, as a result, we and the industry may continue to face pandemic-related challenges, as the recovery continues, such as constraints on the availability of product supply, increased product and logistics costs, labor shortages, inflation and shifts in the buying patterns of our customers.

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

economy continue to be impacted by higher than normal inflation, supply chain disruptions, labor shortages, and the COVID-19 pandemic.

These factors also influence the buying patterns of our customers and potentially impact consumer confidence and spending.

We continue to actively monitor these risks to our business.

Net sales increased, primarily due to continued inflation, while total case volumes were essentially flat during the 13 weeks ended July 2, 2022 and were up approximately 1.7% for the 26 weeks ended July 2, 2022 as compared to the prior year periods.

We are unable to predict the extent these factors will continue to impact our results of operations.

Operating Metrics

Case growth —Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time.

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.

Financial Highlights —For the 13 weeks ended April 2, 2022, compared to the same quarter a year ago, total case volume increased 4.1%, and independent restaurant case volume increased 9.2%, while net sales increased $1,503 million, or 23.9%, driven by higher total case volume and food cost inflation of approximately 17%.

After lower Net sales in January, due to reduced demand caused by the Omicron variant, Net sales grew through the end of the quarter.

Gross profit increased $192 million, or 19.1%, to $1,195 million for the 13 weeks ended April 2, 2022, primarily as a result of an increase in total case volume, optimized pricing and increased freight income from improved inbound logistics, and food cost inflation in multiple product categories.

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

As a percentage of net sales, gross profit was 15.3% for the 13 weeks ended April 2, 2022, compared to 15.9% for the prior year period.

Total operating expenses increased $186 million, or 19.1%, to $1,161 million for the 13 weeks ended April 2, 2022.

The increase was primarily due to greater volume and higher distribution costs, in part due to higher temporary labor costs and higher than normal wage inflation in 2021.

These increases were partially offset by cost savings initiatives outlined in our long-range plan including:

(1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the beginning of the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.

As a percentage of net sales, operating expenses were 14.9% for the 13 weeks ended April 2, 2022, compared to 15.5% for the prior year period.

For the 13 weeks and 26 weeks ended July 2, 2022, compared to the same period a year ago, total case volume decreased 0.4% and increased 1.7% respectively, and independent restaurant case volume increased 0.3% and 4.3%, respectively.

Net sales increased $1,164 million, or 15.2%, and $2,667 million, or 19.1% for the 13 weeks and 26 weeks ended July 2, 2022, driven by food cost inflation of approximately 15.0% and 16.1% for the 13 weeks and 26 weeks ended July 2, 2022, respectively.

Gross profit increased $214 million, or 18.3%, to $1,383 million for the 13 weeks ended July 2, 2022, and increased $406 million or 18.7% to $2,578 million for the 26 weeks ended July 2, 2022 primarily as a result of optimized pricing, increased freight income from improved inbound logistics, cost of goods sold optimization, and food cost inflation in multiple product categories.

Gross profit was negatively impacted in all periods presented by LIFO expense which was $65 million and $137 million for the 13 weeks and 26 weeks ended July 2, 2022, respectively, and $97 million and $118 million for the 13 weeks and 26 weeks ended July 3, 2021, respectively.

As a percentage of Net sales, gross profit was 15.7% for the 13 weeks ended July 2, 2022, compared to 15.3% for the prior year period and was 15.5% for the 26 weeks ended July 2, 2022, compared to 15.6% for the prior year period.

Total operating expenses increased $188 million, or 18.0%, to $1,233 million for the 13 weeks ended July 2, 2022, and increased $374 million, or 18.5%, to $2,394 million for the 26 weeks ended July 2, 2022.

The increase was primarily due to higher distribution costs, largely due to higher labor costs as a result of increased turnover and higher than normal wage inflation.

These increases were partially

offset by cost savings initiatives outlined in our long-range plan including:

(1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.

As a percentage of Net sales, operating expenses were 14.0% for the 13 weeks ended July 2, 2022, compared to 13.6% for the prior year period and was 14.4% for the 26 weeks ended July 2, 2022, compared to 14.5% for the prior year period.

Results of Operations

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

13 Weeks Ended

April 2, 2022 April 3, 2021

13 Weeks Ended 26 Weeks Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Consolidated Statements of Operations Data:

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Distribution, selling and administrative costs

1,233 1,044 2,394 2,016

Restructuring costs and asset impairment charges

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Loss on extinguishment of debt — — — 23

Loss before income taxes (15) (42)

Income tax benefit (8) (18)

Net loss (7) (24)

Income before income taxes 95 76 80 34

Income tax provision 25 21 17 3

Net income 70 55 63 31

Series A Preferred Stock Dividends (see Note 13) (9) (9) (18) (24)

Net loss available to common shareholders $ (16) $ (39)

Net income available to common shareholders $ 61 $ 46 $ 45 $ 7

Percentage of Net Sales:

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1.7 % 1.6 % 1.1 % 1.1 %

0.8 % 0.7 % 0.4 % 0.2 %

Adjusted EBITDA (1)

4.2 % 4.3 % 3.7 % 3.6 %

Cash flows—operating activities

$ 101 $ 74 $ 259 $ 250

Cash flows—investing activities

(70) (55) (140) (101)

Cash flows—financing activities

(24) (232) (70) (279)

Capital expenditures

71 61 143 107

247 224 376 337

Adjusted EBITDA (1)

368 332 609 504

Adjusted net income (1)

169 146 249 173

Free cash flow (2)

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

30 13 116 143

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

Adjusted EBITDA is defined as EBITDA adjusted for:

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and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness.

Adjusted net income is defined as net (loss) 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.

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 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.

They 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.

For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

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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.

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.

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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 (loss) income or any other performance measures derived in accordance with GAAP.

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.

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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 2, 2022 April 3, 2021

Net loss available to common shareholders $ (16) $ (39)

13 Weeks Ended 26 Weeks Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Net income available to common shareholders $ 61 $ 46 $ 45 $ 7

Series A Preferred Stock Dividends (see Note 13) (9) (9) (18) (24)

Net loss (7) (24)

Net income 70 55 63 31

Interest expense—net 60 54 115 108

Income tax benefit (8) (18)

Income tax provision 25 21 17 3

Depreciation expense 81 81 159 163

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LIFO reserve adjustment (3)

65 97 137 118

Loss on extinguishment of debt (4)

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COVID-19 bad debt benefit (6)

Business acquisition and integration related costs and

COVID-19 other related expenses (7)

Business acquisition and integration related costs and other (8)

30 (9) 44 (1)

Adjusted EBITDA 368 332 609 504

Depreciation expense

(81) (81) (159) (163)

Interest expense—net

(60) (54) (115) (108)

Income tax provision, as adjusted (9)

(58) (51) (86) (60)

Adjusted net income $ 169 $ 146 $ 249 $ 173

Cash flows from operating activities

$ 101 $ 74 $ 259 $ 250

Capital expenditures

(71) (61) (143) (107)

Free cash flow

(1) Consists primarily of severance and related costs, organizational realignment costs and asset impairment charges.

$ 30 $ 13 $ 116 $ 143

(1) Consists primarily of non-CEO 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.

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(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 costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(8) Includes:

(i) aggregate acquisition and integration related costs of $6 million for both the 13 weeks ended April 2, 2022 and April 3, 2021;

(ii) contested proxy and related legal and consulting costs of $7 million for the 13 weeks ended April 2, 2022;

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.

(i) aggregate acquisition and integration related costs of $6 million for both the 13 weeks ended July 2, 2022 and July 3, 2021, and $12 million for both the 26 weeks ended July 2, 2022 and July 3, 2021;

(ii) contested proxy and related legal and consulting costs of $14 million for the 13 weeks ended July 2, 2022, and $21 million for the 26 weeks ended July 2, 2022;

(iii) CEO severance of $5 million for the 13 and 26 weeks ended July 2, 2022;

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

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

(9) 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.

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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.

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

13 Weeks Ended

April 2, 2022 April 3, 2021

GAAP income tax benefit $ (8) $ (18)

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

13 Weeks Ended 26 Weeks Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

GAAP income tax provision $ 25 $ 21 $ 17 $ 3

Tax impact of pre-tax income adjustments 32 30 64 51

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Comparison of Results

13 Weeks Ended April 2, 2022 and April 3, 2021

• Total case volume increased 4.1% and independent restaurant case volume increased 9.2%.

13 Weeks Ended July 2, 2022 and July 3, 2021

• Net income improved $15 million to $70 million in 2022.

• Adjusted EBITDA increased $36 million, or 10.8%, to $368 million in 2022.

As a percentage of Net sales, Adjusted EBITDA was 4.2% in 2022, compared to 4.3% in 2021.

• Net sales increased $1,164 million, or 15.2%, to $8,827 million in 2022.

• Total case volume decreased 0.4% and independent restaurant case volume increased 0.3%.

• Operating income increased $26 million, or 21.0%, to $150 million in 2022.

• Net loss improved $17 million to $7 million in 2022.

Net sales increased $1,164 million, or 15.2%, to $8,827 million in 2022 driven by food cost inflation of 15.0%.

Total case volume decreased 0.4%, and independent restaurant case volume grew 0.3%.

Year-over-year total case growth for the second quarter was also negatively impacted roughly 375 basis points by the mid-2021 exit of the lower margin grocery retail business we temporarily added during the pandemic and the strategic exit of a small number of lower margin chain restaurant and education customers.

The year-over-year increase in inflation, which was seen in multiple product categories including poultry, dairy, and grocery, benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost.

Sales of private brands represented approximately 34% of Net sales in both 2022 and 2021.

Gross profit increased $214 million, or 18.3%, to $1,383 million in 2022 primarily as a result of optimized pricing, increased freight income from improved inbound logistics, cost of goods sold optimization, and food cost inflation in multiple product categories, partially offset by an unfavorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in an expense of $65 million in 2022 compared to expense of $97 million in 2021 due to inflation in multiple product categories including poultry, dairy, and grocery .

Gross profit as a percentage of Net sales was 15.7% in 2022, compared to 15.3% in 2021, due to the aforementioned factors.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment charges, increased $188 million, or 18.0%, to $1,233 million in 2022.

Operating expenses as a percentage of Net sales were 14.0% in 2022, compared to 13.6% in 2021.

The increase in operating expenses was primarily due to higher distribution costs, largely due to higher labor costs as a result of increased turnover and higher than normal wage inflation, as well as a contested proxy and related legal and consulting costs and CEO severance costs.

The increase was partially offset by cost savings initiatives outlined in our long-range plan including:

(1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.

Operating Income

Our operating income was $150 million in 2022, compared to operating income of $124 million in 2021.

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 $5 million and $6 million in 2022 and 2021, respectively.

Interest Expense—Net

Interest expense—net increased $6 million to $60 million in 2022 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2022 compared to 2021.

For the 13 weeks ended July 2, 2022, our effective income tax rate of 26% 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 $1 million primarily related to excess tax benefits associated with share-based compensation.

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.

Our net income was $70 million in 2022, compared to net income of $55 million in 2021.

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

26 Weeks Ended July 2, 2022 and July 3, 2021

• Net income was $63 million in 2022, compared to net income of $31 million in 2021.

• Adjusted EBITDA increased $105 million, or 20.8%, to $609 million in 2022.

As a percentage of Net sales, Adjusted EBITDA was 3.7% in 2022, compared to 3.6% in 2021.

Total case volume increased 4.1% and independent restaurant case volume growth of 9.2%.

• Net sales increased $2,667 million, or 19.1%, to $16,625 million in 2022.

• Total case volume increased 1.7% and independent restaurant case volume increased 4.3%

• Operating income was $184 million in 2022, compared to operating income of $152 million in 2021.

Net sales increased $2,667 million, or 19.1%, to $16,625 million in 2022, comprised of a $239 million, or 1.7%, increase in case volume and a $2,428 million, or 17.4%, increase in the overall Net sales rate per case.

The increase in Net sales rate per case reflects a year-over-year average inflation increase of 17.3% in multiple product categories includin g 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 33% of Net sales in 2022 and 2021, respectively.

Gross profit increased $192 million, or 19.1%, to $1,195 million in 2022, primarily as a result of an increase in total case volume, optimized pricing and increased freight income from improved inbound logistics, and food cost inflation in multiple product categories, partially offset by an unfavorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in an expense of $72 million in 2022 compared to expense of $21 million in 2021 due to inflation in multiple product categories including dairy, poultry and grocery.

Gross profit as a percentage of net sales was 15.3% in 2022, compared to 15.9% in 2021, due to the aforementioned factors.

The increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 16.1%.

The year-over-year increase in inflation, which was seen in multiple product categories including diary, poultry, and grocery benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost.

Total case volume increased 1.7% in 2022 with independent restaurant case volume growth of 4.3%.

The increase in case volume was primarily driven by increased leisure and business travel and increased restaurant traffic.

Year-over-year total case growth for the first six months of 2022 was also negatively impacted roughly 425 basis points by the mid-2021 exit of the lower margin grocery retail business we temporarily added during the pandemic and the strategic exit of a small number of lower margin chain restaurant and education customers.

Sales of private brands represented approximately 34% and 33% of Net sales in 2022 and 2021, respectively.

Gross profit increased $406 million, or 18.7%, to $2,578 million in 2022 primarily as a result of an increase in total case volume, optimized pricing and increased freight income from improved inbound logistics, and food cost inflation in multiple product categories.

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 $137 million in 2022 compared to expense of $118 million in 2021 due to inflation in multiple product categories including diary, poultry, and grocery.

Gross profit as a percentage of Net sales was 15.5% in 2022, compared to 15.6% in 2021.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment charges, increased $186 million, or 19.1%, to $1,161 million in 2022.

Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment costs, increased $374 million or 18.5%, to $2,394 million in 2022.

Operating expenses as a percentage of Net sales were 14.4% in 2022, compared to 14.5% in 2021.

The increase in operating expenses was primarily due to greater volume and higher distribution costs, in part due to higher temporary labor costs and higher than normal wage inflation in 2021.

The increase in operating expenses was primarily due to greater volume and higher distribution costs, largely due to

higher labor costs as a result of increased turnover and higher than normal wage inflation, as well as contested proxy and related legal and consulting costs and CEO severance.

The increase was partially offset by cost savings initiatives outlined in our long-range plan including:

(1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.

Operating Income

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Interest expense—net increased $7 million to $115 million in 2022 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2022 compared to 2021.

For the 13 weeks ended April 2, 2022, our effective income tax rate of 51% 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 $4 million, primarily related to excess tax benefits associated with share-based compensation.

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.

For the 26 weeks ended July 2, 2022, our effective income tax rate of 21 % is equivalent to 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.

Our net loss was $7 million in 2022, compared to a net loss of $24 million in 2021.

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

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.

Our net income was $63 million in 2022, compared to net income of $31 million in 2021.

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

Liquidity and Capital Resources

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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.

As of April 2, 2022, the Company had approximately $1.9 billion in cash and available liquidity.

The aggregate outstanding balance of our indebtedness was $4,993 million, net of $51 million of unamortized deferred financing costs, as of April 2, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $263 million under the ABL Facility as of April 2, 2022.

There was remaining capacity of $1,727 million under the ABL Facility as of April 2, 2022.

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,439 million, net of $23 million of unamortized deferred financing costs, as of April 2, 2022.

The 2021 Incremental Term Loan Facility had an outstanding balance of $891 million, net of $6 million of unamortized deferred financing costs, as of April 2, 2022.

The Senior Secured Notes due 2025 an outstanding balance of $991 million, net of $9 million of unamortized deferred financing costs, as of April 2, 2022.

As of April 2, 2022, the Unsecured Senior Notes due 2029 had an outstanding balance of $892 million, net of $8 million of unamortized deferred financing costs.

As of April 2, 2022, the Unsecured Senior Notes due 2030 had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs.

We also had $277 million of obligations under financing leases for transportation equipment and building leases as of April 2, 2022.

As of July 2, 2022, the Company had approximately $1.9 billion in cash and available liquidity.

The aggregate outstanding balance of our indebtedness was $5,020 million, net of $49 million of unamortized deferred financing costs, as of July 2, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $248 million under the ABL Facility as of July 2, 2022.

There was remaining capacity of $1,742 million under the ABL Facility as of July 2, 2022.

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,437 million, net of $22 million of unamortized deferred financing costs, as of July 2, 2022.

The 2021 Incremental Term Loan Facility had an outstanding balance of $889 million, net of $6 million of unamortized deferred financing costs, as of July 2, 2022.

The Secured Senior Notes due 2025 had an outstanding balance of $992 million, net of $8 million of unamortized deferred financing costs, as of July 2, 2022.

As of July 2, 2022, the Unsecured Senior Notes due 2029 had an outstanding balance of $892 million, net of $8 million of unamortized deferred financing costs.

As of July 2, 2022, the Unsecured Senior Notes due 2030 had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs.

We also had $307 million of obligations under financing leases for transportation equipment and building leases as of July 2, 2022.

The ABL Facility will mature in 2024.

The 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility will mature in 2026 and 2028, respectively.

The Senior Secured Notes due 2025 will mature in 2025.

The Secured Senior Notes due 2025 will mature in 2025.

The Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2030 will mature in 2029 and 2030, respectively.

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.

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 $1.4 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 April 2, 2022.

USF had approximately $1.5 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 2, 2022.

We believe that the combination of cash 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 for the next 12 months.

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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.

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

See Note 9, Debt, in our consolidated financial statements, for a further description of our indebtedness.

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26 Weeks Ended

April 2, 2022 April 3, 2021

Net loss $ (7) $ (24)

July 2, 2022 July 3, 2021

Changes in operating assets and liabilities (17) (22)

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Net cash used in financing activities

Net increase in cash, cash equivalents and restricted cash 42 83

Net increase (decrease) in cash, and cash equivalents and restricted cash 49 (130)

Cash, cash equivalents and restricted cash—beginning of period 148 829

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Operating Activities

Cash flows provided by operating activities was $158 million for the 13 weeks ended April 2, 2022, decreased by $18 million as compared to cash flows provided by operating activities of $176 million for the 13 weeks ended April 3, 2021, primarily driven by working capital needs.

Cash flows provided by operating activities was $259 million for the 26 weeks ended July 2, 2022, representing an increase of $9 million as compared to cash flows provided by operating activities of $250 million for the 26 weeks ended July 3, 2021 driven by higher net income, partially offset by lower depreciation and amortization for the 26 weeks ended July 2, 2022.

Investing Activities

Cash flows used in investing activities in the 13 weeks ended April 2, 2022 and April 3, 2021 included cash expenditures of $72 million and $46 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 2, 2022 and July 3, 2021 included cash expenditures of $143 million and $107 million, respectively, on investments in information technology, new construction and expansion of certain existing distribution facilities, and property and equipment for fleet replacement.

We expect total cash capital expenditures in fisc al year 2022 to be between $280 million and $300 million, exclusive of approximately $110 million of capital expenditures under our fleet financing leases.

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Financing Activities

Cash flows used by financing activities in the 13 weeks ended April 2, 2022 included $28 million of scheduled payments under our Term Loan Facilities and financing leases, $9 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility.

Financing activities in the 13 weeks ended April 2, 2022 also included $5 million of proceeds received from stock purchases under our employee stock purchase plan and $2 million of proceeds from the exercise of employee stock options, which were offset by $16 million of employee tax withholdings paid in connection with the vesting of stock awards.

C ash flows used by financing activities for the 13 weeks ended April 3, 2021 included $32 million of scheduled payments under our Term Loan Facilities and financing leases.

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 26 weeks ended July 2, 2022 included $55 million of scheduled payments under our Term Loan Facilities and financing leases, $18 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility.

Financing activities in the 26 weeks ended July 2, 2022 also included $12 million of proceeds received from stock purchases under our employee stock purchase plan and $7 million of proceeds from the exercise of employee stock options, which were offset by $16 million of employee tax withholdings paid in connection with the vesting of stock awards.

C ash flows used 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 5.875% unsecured senior notes due 2024 and repay all of the then outstanding borrowings under the incremental senior secured term loan facility borrowed in April 2020.

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.

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.

Other Obligations and Commitments

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Off-Balance Sheet Arrangements

We had $263 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 April 2, 2022.

We had $248 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 July 2, 2022.

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 condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

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Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2021 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 2, 2022.

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 2, 2022.

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