What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 70 added, 73 removed, 246 unchanged (37% 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 2, 2022 are compared to the 13 weeks and 26 weeks ended July 3, 2021, unless specifically noted otherwise.

Results of operations for the 13 weeks and 39 weeks ended October 1, 2022 are compared to the 13 weeks and 39 weeks ended October 2, 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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We supply approximately 250,000 customer locations nationwide.

These customer locations include independently owned single and multi-unit restaurants, regional restaurant chains, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations.

These customer locations include independent restaurants, chain restaurants, healthcare, hospitality, education and other customers.

We provide more than 400,000 fresh, frozen, and dry food stock-keeping units, or SKUs, as well as non-food items, sourced from approximately 6,000 suppliers.

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Our sales associates are supported by sophisticated marketing and category management capabilities, as well as a sales support team that includes world-class chefs and restaurant operations consultants, new business development managers and others that help us provide more comprehensive service to our customers.

Our extensive network of 70 distribution facilities and fleet of approximately 6,500 trucks, along with 82 cash and carry locations, allow us to operate efficiently and provide high levels of customer service.

Our extensive network of 70 distribution facilities and fleet of approximately 6,500 trucks, along with more than 80 cash and carry locations, allow us to operate efficiently and provide high levels of customer service.

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

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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.

Net sales increased, primarily due to continued inflation, and total case volumes increased 0.7% and 1.3% for the 13 weeks and 39 weeks ended October 1, 2022 compared to the prior year.

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

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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.

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.

For the 13 weeks and 39 weeks ended October 1, 2022, compared to the same period a year ago, total case volume increased 0.7% and increased 1.3% respectively, and independent restaurant case volume increased 2.9% and 3.8%, respectively.

Net sales increased $1,027 million, or 13.0%, and $3,694 million, or 16.9% for the 13 weeks and 39 weeks ended October 1, 2022, driven primarily by food cost inflation of approximately 12.0% and 14.6% for the 13 weeks and 39 weeks ended October 1, 2022, respectively.

Gross profit increased $219 million, or 17.6%, to $1,460 million for the 13 weeks ended October 1, 2022, and increased $625 million or 18.3% to $4,038 million for the 39 weeks ended October 1, 2022 primarily as a result of food cost inflation in multiple product categories, optimized pricing, increased freight income from improved inbound logistics, and cost of goods sold optimization.

Gross profit was negatively impacted in all periods presented by LIFO expense which was $6 million and $143 million for the 13 weeks and 39 weeks ended October 1, 2022, respectively, and $32 million and $150 million for the 13 weeks and 39 weeks ended October 2, 2021, respectively.

As a percentage of Net sales, gross profit was 16.4% for the 13 weeks ended October 1, 2022, compared to 15.7% for the prior year period and was 15.8% for the 39 weeks ended October 1, 2022, compared to 15.6% for the prior year period.

Total operating expenses increased $140 million, or 12.7%, to $1,246 million for the 13 weeks ended October 1, 2022, and increased $514 million, or 16.4%, to $3,640 million for the 39 weeks ended October 1, 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.

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

(1) further routing improvements, (2) completion of new warehouse selection technology implementation, and (3) the rollout of new warehouse process enhancements.

As a percentage of Net sales, operating expenses were 14.0% for the 13 weeks ended October 1, 2022, compared to 14.0% for the prior year period and was 14.3% for both the 39 weeks ended October 1, 2022 and the prior year period.

Results of Operations

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13 Weeks Ended 39 Weeks Ended

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

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Consolidated Statements of Operations Data:

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(2) share-based compensation expense;

(3) the non-cash impact of LIFO reserve adjustments;

(3) the impact of LIFO reserve adjustments;

(4) loss on extinguishment of debt;

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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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13 Weeks Ended 39 Weeks Ended

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

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net income available to common shareholders $ 100 $ 55 $ 145 $ 62

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LIFO reserve adjustment (3)

65 97 137 118

Loss on extinguishment of debt (4)

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Business acquisition and integration related costs and other (8)

30 (9) 44 (1)

Adjusted EBITDA 351 291 960 795

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(2) Share-based compensation expense for expected vesting of stock awards and employee stock purchase plan.

(3) Represents the non-cash impact of LIFO reserve adjustments.

(3) Represents the impact of LIFO reserve adjustments.

(4) Includes early redemption premium and the write-off of certain pre-existing debt issuance costs.

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(8) Includes:

(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;

(i) aggregate acquisition and integration related costs of $6 million and $4 million for the 13 weeks ended October 1, 2022 and October 2, 2021, respectively, and $18 million and $16 million for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively;

(ii) contested proxy and related legal and consulting costs of $21 million for the 39 weeks ended October 1, 2022;

(iii) CEO severance of $5 million for the 39 weeks ended October 1, 2022;

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

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13 Weeks Ended 39 Weeks Ended

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

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

GAAP income tax provision $ 45 $ 27 $ 62 $ 30

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Comparison of Results

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

13 Weeks Ended October 1, 2022 and October 2, 2021

• Net income improved $45 million to $109 million in 2022.

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• Net sales increased $1,027 million, or 13.0%, to $8,917 million in 2022.

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

• Total case volume increased 0.7% and independent restaurant case volume increased 2.9%.

• Operating income increased $79 million, or 58.5%, to $214 million in 2022.

Net sales increased $1,027 million, or 13.0%, to $8,917 million in 2022 driven by food cost inflation of 12.0%.

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.

Total case volume increased 0.7%, and independent restaurant case volume grew 2.9%.

Year-over-year total case growth for the third quarter was negatively impacted roughly 2.0% 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 grocery, disposables, and pork, 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 increased $219 million, or 17.6%, to $1,460 million in 2022 primarily as a result of food cost inflation in multiple product categories, optimized pricing, increased freight income from improved inbound logistics, cost of goods sold optimization, and a favorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in an expense of $6 million in 2022 compared to expense of $32 million in 2021 due to inflation in multiple product categories including grocery, disposables and pork.

Gross profit as a percentage of Net sales was 16.4% in 2022, compared to 15.7% in 2021, due to the aforementioned factors.

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

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

(1) further routing improvements, (2) completion of new warehouse selection technology implementation, and (3) the rollout of new warehouse process enhancements.

Operating Income

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Interest expense—net increased $15 million to $65 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.

For the 13 weeks ended October 1, 2022, our effective income tax rate of 29% 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 a tax benefit shortfall associated with share-based compensation.

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.

Our net income was $109 million in 2022, compared to net income of $64 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

39 Weeks Ended October 1, 2022 and October 2, 2021

• Net income was $172 million in 2022, compared to net income of $95 million in 2021.

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• Operating income was $398 million in 2022, compared to operating income of $287 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.

Net sales increased $3,694 million, or 16.9%, to $25,542 million in 2022, comprised of a $3,400 million, or 15.6%, increase in the overall Net sales rate per case and a $294 million, or 1.3%, increase in case volume.

The increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 14.6%.

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.

The year-over-year increase in inflation, which was seen in multiple product categories including grocery, disposables, and dairy 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 1.3% in 2022 with independent restaurant case volume growth of 3.8%.

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.

Year-over-year total case growth for the first nine months of 2022 was negatively impacted roughly 3.5% 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% of Net sales in both 2022 and 2021.

Gross profit increased $625 million, or 18.3%, to $4,038 million in 2022 primarily as a result of food cost inflation in multiple product categories, an increase in total case volume, optimized pricing and increased freight income from improved inbound logistics, and a favorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in an expense of $143 million in 2022 compared to expense of $150 million in 2021 due to inflation in multiple product categories including grocery, disposables, and dairy.

Gross profit as a percentage of Net sales was 15.8% in 2022, compared to 15.6% in 2021.

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Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment costs, increased $514 million or 16.4%, to $3,640 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, 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.

Operating expenses as a percentage of Net sales were 14.3% in both 2022 and 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) further routing improvements, (2) completion of new warehouse selection technology implementation, and (3) the rollout of new warehouse process enhancements.

Operating Income

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Interest expense—net increased $22 million to $180 million in 2022 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2022 compared to 2021.

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.

For the 39 weeks ended October 1, 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 $ 3 million primarily related to excess tax benefits associated with share-based compensation.

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.

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.

Our net income was $172 million in 2022, compared to net income of $95 million in 2021.

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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 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.

As of October 1, 2022, the Company had approximately $2.1 billion in cash and available liquidity.

The aggregate outstanding balance of our indebtedness was $4,937 million, net of $46 million of unamortized deferred financing costs, as of October 1, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $247 million under the ABL Facility as of October 1, 2022.

There was remaining capacity of $1,743 million under the ABL Facility as of October 1, 2022.

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,434 million, net of $21 million of unamortized deferred financing costs, as of October 1, 2022.

The 2021 Incremental Term Loan Facility had an outstanding balance of $788 million, net of $5 million of unamortized deferred financing costs, as of October 1, 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 October 1, 2022.

As of October 1, 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 October 1, 2022, the Unsecured Senior Notes due 2030 had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs.

We also had $327 million of obligations under financing leases for transportation equipment and building leases as of October 1, 2022.

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 $1.5 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.

USF had approximately $1.6 billion of restricted payment capacity under these covenants and approximately $2.9 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 1, 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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39 Weeks Ended

July 2, 2022 July 3, 2021

October 1, 2022 October 2, 2021

Changes in operating assets and liabilities 124 62

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Operating Activities

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.

Cash flows provided by operating activities was $613 million for the 39 weeks ended October 1, 2022, representing an increase of $93 million as compared to cash flows provided by operating activities of $520 million for the 39 weeks ended October 2, 2021 driven by higher net income and changes in operating assets and liabilities, partially offset by lower depreciation and amortization for the 39 weeks ended October 1, 2022.

Investing Activities

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.

Cash flows used in investing activities in the 39 weeks ended October 1, 2022 and October 2, 2021 included cash expenditures of $201 million and $173 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 $270 million and $280 million, exclusive of approximately $125 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 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.

Cash flows used by financing activities in the 39 weeks ended October 1, 2022 included $80 million of scheduled payments under our Term Loan Facilities and financing leases, $100 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $27 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility.

Financing activities in the 39 weeks ended October 1, 2022 also included $17 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 $16 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 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 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.

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.

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.

Other Obligations and Commitments

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Off-Balance Sheet Arrangements

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.

We had $247 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 1, 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 26 weeks ended July 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 39 weeks ended October 1, 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