What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-17 · 91 added, 123 removed, 263 unchanged (45% of the section changed)

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Our operations, our industry and the U.S.

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

The timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the rate of vaccination, the emergence and severity of COVID-19 variants, the continued effectiveness of the vaccines against those variants, the frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures.

Impact of COVID-19 on Our Business

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.

We saw improvement in Net sales and total case volumes during fiscal year 2021 coinciding with declining infection rates and loosening of indoor dining restrictions and other safety measures.

Overall demand started to return to pre-COVID-19 levels at times during 2021;

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

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

However, uncertainty around the pandemic persists and, as a result, we and the industry may continue to face pandemic-related challenges, such as the recent Omicron variant and related case increases, 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 duration and extent to which the pandemic will continue to impact our results of operations.

We are optimistic about the long-term prospects for our business.

US Foods operates in a large and essential industry with a highly diversified set of end consumers.

As one of the largest companies in our industry, we believe we are well positioned for long-term success as the fragmented nature of our industry and the current environment create new opportunities for companies with the size and resources of US Foods.

We believe we are differentiated from many of our competitors on a number of fronts including our national footprint, multi-channel platform, strong technology capabilities and value-added service offerings, all of which allowed us to continue to serve our customers during the challenges created by the COVID-19 pandemic.

Our product development efforts continue to deliver product innovations that resonate with our customers.

economy continue to be impacted by higher than normal inflation, supply chain disruptions, and labor shortages.

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

During fiscal year 2022, these factors improved significantly from fiscal year 2021 due to the declining effects of the COVID-19 pandemic.

We continue to actively monitor these risks to our business.

Net sales increased, primarily due to continued inflation, and total case volumes increased 1.7% compared to the prior year driven by a 4.3% increase in independent restaurant case volume, a 31.0% increase in hospitality volume and a 2.9% increase in healthcare volume.

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

Operating Metrics

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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.

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

Fiscal Year 2022 Highlights

Financial Highlights —Total case volume increased 1.7% and independent restaurant case volume increased 4.3% in fiscal year 2022.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% and independent restaurant case volume increased 30.2% in fiscal year 2021.

Net sales increased $6,602 million, or 28.8%, in fiscal year 2021 primarily due to volume improvements commensurate with easing of COVID-19 restrictions on our customers, year-over-year inflation in multiple product categories, and the acquisition of Smart Foodservice.

The increase in Net sales due to the contributions from the Smart Foodservice acquisition, which was acquired on April 24, 2020, contributed Net sales of $1,183 million and $759 million for fiscal years 2021 and 2020, respectively.

Gross profit increased $936 million, or 25.2%, to $4,655 million in fiscal year 2021, primarily as a result of the increase in Net sales, pricing optimization, inflation in multiple categories, and the acquisition of Smart Foodservice.

These increases in gross profit were

partially offset by unfavorable year-over-year last-in first-out (“LIFO”) adjustments.

Net sales increased $4,570 million, or 15.5%, in fiscal year 2022 primarily due to year-over-year inflation in multiple product categories.

Gross profit increased $837 million, or 18.0%, to $5,492 million in fiscal year 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 last-in first-out (“LIFO”) adjustment.

As a percentage of Net sales, gross profit was 16.1% in fiscal year 2022, compared to 15.8% in fiscal year 2021.

Total operating expenses increased $667 million, or 15.8%, to $4,898 million in fiscal year 2022.

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 recovery.

The increase in total operating expenses was also due to the inclusion of operating expenses from the Smart Foodservice acquisition.

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

Total consideration paid at the closing of the acquisition was $972 million (net of cash acquired).

The acquisition of Smart Foodservice expanded the Company’s cash and carry business in the West and Northwest parts of the U.S.

The assets, liabilities and results of operations of Smart Foodservice have been included in our consolidated financial statements since the date the acquisition was completed.

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

Results of Operations

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Operating income (loss) 594 424 (77)

Other (income) expense—net (26) (21) 4

Other income—net (22) (26) (21)

Interest expense—net 255 213 238

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Capital expenditures

805 366 1,057

Adjusted EBITDA (1)

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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;

(5) pension settlements;

(5) business transformation costs;

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

Adjusted EBITDA margin is Adjusted EBITDA divided by total Net sales.

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.

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Non-GAAP Reconciliations

We provide EBITDA, Adjusted EBITDA, Adjusted net income and Free cash flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity.

We provide EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Free cash flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity.

These non-GAAP financial measures, as defined above, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP.

We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance.

We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance.

We believe that Adjusted net income is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense and income taxes on a consistent basis from period to period.

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

EBITDA, Adjusted EBITDA, Adjusted EBITDA margin 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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Free cash flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted net income, and Free cash flow may not be the same as similar measures used by other companies.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, and Free cash flow may not be the same as similar measures used by other companies.

Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income or Free cash flow in the same manner.

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Loss on extinguishment of debt (4)

Pension settlements (5)

Business transformation costs (5)

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$ 500 $ 145 $ 224

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

(1) Consists primarily of the write-off of old leases ROU asset and lease liability of $9 million associated with entering into new lease agreements for four distribution facilities in fiscal year 2022, non-CEO severance and related costs, organizational realignment costs and other asset impairment charges.

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

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

(3) Represents the impact of LIFO reserve adjustments.

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

See Note 11, Debt, in our consolidated financial statements for additional information.

(5) Consists of settlement costs resulting from payments to settle benefit obligations with participants in our defined benefit pension plan.

See Note 18, Retirement Plans, in our consolidated financial statements for a further description of the pension settlement costs for fiscal year 2019.

(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 $22 million, $45 million and $52 million for fiscal years 2021, 2020 and 2019, respectively;

(ii) favorable legal settlement recoveries of $29 million for fiscal year 2021;

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

(i) aggregate acquisition and integration related costs of $22 million for both fiscal years 2022 and 2021, and $45 million for fiscal year 2020;

(ii) contested proxy and related legal and consulting costs of $21 million for fiscal year 2022;

(iii) CEO severance of $5 million for fiscal year 2022;

(iv) favorable legal settlement recoveries of $29 million for fiscal year 2021;

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

(10) Represents our income tax provision (benefit) 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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Comparison of Results

Fiscal Years Ended January 1, 2022 and January 2, 2021

• Total case volume increased 16.9% and independent restaurant case volume increased 28.0% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% and independent restaurant case volume increased 30.2% in fiscal year 2021.

• Net sales increased $6,602 million, or 28.8% compared to $29,487 million in fiscal year 2021.

• Operating income was $424 million in fiscal year 2021, compared to an operating loss of $77 million in fiscal year 2020.

As a percentage of net sales, operating income was 1.4% in fiscal year 2021, and operating loss was 0.3% in fiscal year 2020.

• Net income was $164 million in fiscal year 2021, compared to a net loss of $226 million in fiscal year 2020.

Fiscal Years Ended December 31, 2022 and January 1, 2022

• Net income was $265 million in fiscal year 2022, compared to net income of $164 million in fiscal year 2021.

• Adjusted EBITDA increased $253 million, or 23.9%, to $1,310 million in fiscal year 2022.

As a percentage of net sales, Adjusted EBITDA was 3.8% in fiscal year 2022, as compared to 3.6% in fiscal year 2021.

Total case volume increased 16.9% and independent restaurant case volume growth of 28.0% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% in fiscal year 2021.

Organic case volume increased 14.8% and organic independent restaurant case volume increased 25.1% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, organic case volume increased 16.6% and organic independent restaurant case volume increased 27.1% in fiscal year 2021.

The organic case volume increases were primarily driven by increased leisure and business travel and increased restaurant traffic due to eased Covid-19 related restrictions on our customers.

Overall case volume increases were also due to the impact of the Smart Foodservice acquisition.

• Net sales increased $4,570 million, or 15.5% to $34,057 million in fiscal year 2022.

• Total case volume increased 1.7% and independent restaurant case volume increased 4.3% in fiscal year 2022.

• Operating income was $594 million in fiscal year 2022, compared to operating income of $424 million in fiscal year 2021.

As a percentage of net sales, operating income was 1.7% in fiscal year 2022, as compared to 1.4% in fiscal year 2021.

Total case volume increased 1.7% and independent restaurant case volume increased 4.3% in fiscal year 2022.

Year-over-year total case growth was negatively impacted roughly 2.8% 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.

Net sales increased $4,570 million, or 15.5%, to $34,057 million in fiscal year 2022, comprised of a $488 million, or 1.7%, increase in total case volume and a $4,082 million, or 13.8%, increase in the overall Net sales rate per case.

The increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 8.9% in multiple product categories including poultry, beef, 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 13.0% in multiple product categories including grocery, dairy 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.

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

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

Smart Foodservice contributed Net sales of $1,183 million in 2021 compared to $759 million in 2020.

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

Our LIFO method of inventory costing resulted in expense of $165 million in fiscal year 2021, compared to expense of $25 million in fiscal year 2020.

Gross profit as a percentage of net sales was 15.8% in fiscal year 2021, compared to 16.3% in fiscal year 2020, primarily driven by our increase in LIFO expense in fiscal year 2021 as compared to fiscal year 2020.

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

Our LIFO method of inventory costing resulted in expense of $147 million in fiscal year 2022, compared to expense of $165 million in fiscal year 2021 due to inflation in multiple product categories including grocery, dairy and disposables.

Gross profit as a percentage of net sales was 16.1% in fiscal year 2022, compared to 15.8% in fiscal year 2021, primarily driven by increased case volume, and a decrease in LIFO expense in fiscal year 2022 as compared to fiscal year 2021.

Operating Expenses

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Operating expenses as a percentage of net sales were 14.4% in fiscal year 2022, compared to 14.3% in fiscal year 2021.

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

These increases in operating expenses were partially offset by an $87 million lower provision for doubtful accounts during fiscal year 2021, cost savings initiated in 2020 and favorable legal settlement recoveries of $29 million in fiscal year 2021.

Operating Income (Loss)

Our operating income was $424 million in fiscal year 2021, compared to an operating loss of $77 million in fiscal year 2020.

Operating income as a percentage of Net sales was 1.4% in fiscal year 2021, while operating loss as a percentage of Net sales was 0.3% in fiscal year 2020.

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

Our operating income was $594 million in fiscal year 2022, compared to operating income of $424 million in fiscal year 2021.

Operating income as a percentage of Net sales was 1.7% in fiscal year 2022, compared to 1.4% in fiscal year 2021.

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

Other (Income) Expense—Net

Other (income) expense—net includes components of net periodic benefit costs (credits), exclusive of the service cost component associated with our defined benefit and other postretirement plans.

We recognized other income—net of $26 million and $21 million fiscal years 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 compared to fiscal year 2020.

Other Income—Net

Other income—net includes components of net periodic benefit costs (credits), exclusive of the service cost component associated with our defined benefit and other postretirement plans.

We recognized other income—net of $22 million and $26 million in fiscal years 2022 and 2021, respectively.

The decrease in other income—net in 2022 is primarily due to a decrease in the expected return on assets compared to fiscal year 2021.

Interest Expense—Net

Interest expense—net decreased $25 million in fiscal year 2021, primarily due to a decrease in outstanding debt and reduced interest rates in fiscal year 2021 compared to fiscal year 2020.

Interest expense—net increased $42 million in fiscal year 2022, primarily due to an increase in interest rates, partially offset by lower outstanding debt in fiscal year 2022 compared to fiscal year 2021.

Our effective income tax rate for fiscal year 2022 of 27% varied 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 an aggregate tax benefit of $10 million consisting of a tax benefit of $2 million related to a decrease in an unrecognized tax benefit and a tax benefit of $8 million, primarily related to excess tax benefits associated with share-based compensation.

These discrete tax items included an aggregate tax benefit of $5 million consisting primarily of a tax benefit of $1 million related to a decrease in an unrecognized tax benefit and a tax benefit of $4 million, related to excess tax benefits associated with share-based compensation.

Our effective income tax rate for fiscal year 2021 of 23% varied 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 $1 million, primarily related to a tax benefit shortfall associated with share-based compensation.

Net Income (Loss)

Our net income was $164 million in fiscal year 2021, compared to a net loss of $226 million in fiscal year 2020.

Our net income was $265 million in fiscal year 2022, compared to $164 million in fiscal year 2021.

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

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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 January 1, 2022, the Company had approximately $1.9 billion in cash and available liquidity.

The aggregate carrying value of our indebtedness was $5,011 million, net of $56 million of unamortized deferred financing costs, as of January 1, 2022.

On February 4, 2021, we issued $900 million aggregate principal amount of 4.75% Senior Notes due 2029 (the “Unsecured Senior Notes due 2029”), the proceeds of which were used, together with cash on hand, to (i) redeem all of the Company's then outstanding 5.875% Unsecured Senior Notes due 2024 (the “Unsecured Senior Notes due 2024”), (ii) repay all of the then outstanding borrowings under the incremental senior secured term loan maturing on April 24, 2025 (the “2020 Incremental Term Loan”) and (iii) pay related fees and expenses.

The Unsecured Senior Notes due 2029 had an outstanding balance of $892 million, net of $8 million of unamortized deferred financing costs, as of January 1, 2022.

On November 22, 2021, we (i) issued $500 million aggregate principal amount of 4.625% Senior Notes due 2030 (the “Unsecured Senior Notes due 2030”) and (ii) entered into a new incremental senior secured term “B” loan facility in an aggregate principal amount

of $900 million (the “2021 Incremental Term Loan Facility”) pursuant to a Ninth Amendment to the Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”).

The net proceeds from the Unsecured Senior Notes due 2030, together with the borrowings under the 2021 Incremental Term Loan Facility and approximately $400 million of cash on hand were used to repay the senior secured term loan maturing on June 27, 2023 (the “Initial Term Loan Facility”) and to pay related fees and expenses.

The Unsecured Senior Notes due 2030 had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs, as of January 1, 2022.

The 2021 Incremental Term Loan Facility had a carrying value of $893 million, net of $7 million of unamortized deferred financing costs, as of January 1, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $268 million under the ABL Facility as of January 1, 2022.

There was remaining capacity of $1,722 million under the ABL Facility based on our borrowing base as of January 1, 2022.

The incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) had a carrying value of $1,442 million, net of $25 million of unamortized deferred financing costs, as of January 1, 2022.

The Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Notes”) had a carrying value of $989 million, net of $11 million of unamortized deferred financing costs, as of January 1, 2022.

We also had $292 million of obligations under financing leases for transportation equipment and building leases as of January 1, 2022.

As of December 31, 2022, the Company had approximately $2.0 billion in cash and available liquidity.

The aggregate carrying value of our indebtedness was $4,854 million, net of $43 million of unamortized deferred financing costs, as of December 31, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $462 million under the ABL Facility as of December 31, 2022.

There was remaining capacity of $1,838 million under the ABL Facility based on our borrowing base as of December 31, 2022.

The Company’s 4.75% Senior Notes due 2029 (the “Unsecured Senior Notes due 2029”), had an outstanding balance of $893 million, net of $7 million of unamortized deferred financing costs, as of December 31, 2022.

The Company’s 4.625% Senior Notes due 2030 (the “Unsecured Senior Notes due 2030”) had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of December 31, 2022.

The incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) had a carrying value of $1,232 million, net of $19 million of unamortized deferred financing costs, as of December 31, 2022.

The incremental senior secured term loan borrowed in November 2021 (the “2021 Incremental Term Loan Facility”) had a carrying value of $786 million, net of $6 million of unamortized deferred financing costs, as of December 31, 2022.

The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”) provides USF with the 2019 Incremental Term Loan Facility and 2021 Incremental Term Loan Facility.

The Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”) had a carrying value of $993 million, net of $7 million of unamortized deferred financing costs, as of December 31, 2022.

We also had $446 million of obligations under financing leases for transportation equipment and building leases as of December 31, 2022.

The ABL Facility will mature in 2027 .

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

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.

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.

For additional information, see Item 1A of Part I, “Risk Factors-Risks Relating to Our Indebtedness.” 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 January 1, 2022.

For additional information, see Item 1A of Part I, “Risk Factors-Risks Relating to Our Indebtedness.” 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 December 31, 2022.

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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We continue to monitor the credit markets generally and the strength of our lender counterparties.

From time to time, we repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage.

From time to time, we may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage.

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

The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, our debt trading levels, our cash position, and other considerations.

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

See Note 11, Debt, in our consolidated financial statements for a further description of our indebtedness.

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(in millions)

Net income (loss) $ 164 $ (226)

Net income $ 265 $ 164

Changes in operating assets and liabilities

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Net cash used in investing activities (255) (262)

Net cash provided by financing activities (837) 1,427

Net (decrease) increase in cash, cash equivalents and restricted cash (680) 730

Net cash used by financing activities (447) (837)

Net increase (decrease) in cash, cash equivalents and restricted cash 63 (680)

Cash, cash equivalents and restricted cash—beginning of year 148 828

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Operating Activities

Cash flows provided by operating activities increased $6 million to $419 million in fiscal year 2021.

The Company’s working capital requirements increased in fiscal year 2021 in line with the recovery of sales volumes.

Net cash provided by operating activities in fiscal year 2020 benefited from a reduction in working capital needs, primarily related to reduced sales volumes caused by the COVID-19 pandemic.

Cash flows provided by operating activities increased $346 million to $765 million in fiscal year 2022 driven by higher net income and changes in operating assets and liabilities.

Net cash provided by operating activities in fiscal year 2021 was $419 million as the Company’s working capital requirements increased in line with the recovery of sales volumes.

Investing Activities

Cash flows used in investing activities in fiscal years 2021 and 2020 included cash expenditures of $274 million and $189 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 fiscal year 2020 also included the $972 million cash purchase price for the acquisition of Smart Foodservice.

Cash flows used in investing activities in fiscal years 2022 and 2021 included cash expenditures of $265 million and $274 million, respectively, and related to investments in information technology, new construction and expansion of distribution facilities and property and equipment for fleet replacement.

We expect total cash capital expenditures in fiscal year 2023 to be between $290 million and $310 million, exclusive of approximately $120 million of capital expenditures under our fleet financing leases.

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Financing Activities

Cash flows used by financing activities in fiscal year 2021 included $122 million of scheduled payments under our term loans pursuant to our Term Loan Credit Agreement (the “Term Loan Facilities”) and financing leases and $2,085 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 fiscal year 2022 included $108 million of scheduled payments under our Term Loan Facilities and financing leases, $100 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $200 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $37 million of dividends on our Series A Preferred Stock, no net payments under the ABL Facility and $14 million of share repurchases.

We incurred approximately $4 million of lender fees and third-party costs in connection with the ABL Facility refinancing transaction.

Financing activities in fiscal year 2022 also included $22 million of proceeds received from stock purchases under our employee stock purchase plan and $15 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.

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 5.875% Unsecured Senior Notes due 2024 (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.

We incurred $12 million of cost associated with the issuance of the Unsecured Senior Notes due 2030 and the 2021 Incremental Term Loan Facility, which were capitalized as deferred financing costs.

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Cash flows provided by financing activities in fiscal year 2021 included aggregate borrowings of $900 million under the Unsecured Senior Notes due 2029, $900 million under the 2021 Incremental Term Loan Facility and $500 million under the Unsecured Senior Notes due 2030.

We used the proceeds from the issuance of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding Unsecured Senior Notes due 2024 and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility.

We used proceeds from the issuance of the 2021 Incremental Term Loan Facility and Unsecured Senior Notes due 2030, along with cash on hand to repay all of the then outstanding borrowings under the Initial Term Loan Facility.

Cash flows provided by financing activities in fiscal year 2021 also included $20 million of proceeds received from stock purchases under our employee stock purchase plan and $15 million of proceeds from the exercise of employee stock options, which were offset by $14 million of employee tax withholdings paid in connection with the vesting of stock awards.

Cash flows provided by financing activities in fiscal year 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 Preferred Stock.

Cash flows used by financing activities in fiscal year 2020 included $158 million of scheduled payments under our Term Loan Facilities and financing leases.

We borrowed an aggregate of $1.0 billion under the ABL Facility and the 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.

We used part of the proceeds from the issuance of the Secured Notes to repay $400 million of borrowings under 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 we then subsequently terminated.

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

Cash flows from financing activities in fiscal year 2020 also included $18 million of proceeds received from stock purchases under our employee stock purchase plan and $3 million of proceeds 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.

Other Obligations and Commitments

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• Pension plans and other postretirement benefit contributions – We sponsor a defined benefit plan that pays benefits to eligible employees at retirement.

In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents.

In addition, we provide certain postretirement health and welfare benefits to eligible retirees and

their dependents.

See Note 18, Retirement Plans, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

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Off-Balance Sheet Arrangements

We had entered into $268 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 January 1, 2022.

We had entered into $ 462 million of letters of credit, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases, under the ABL Facility as of December 31, 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.

Critical Accounting Policies and Estimates

Except as otherwise set forth, we have prepared the financial information in this Annual Report in accordance with GAAP.

Except as otherwise set forth herein, we have prepared the financial information in this Annual Report in accordance with GAAP.

Preparing these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods.

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Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with each acquisition.

Other intangible assets include customer relationships, amortizable trade names, non-

compete agreements, the brand names comprising our portfolio of private brands, and trademarks.

Other intangible assets include customer relationships, amortizable trade names, non-compete agreements, the brand names comprising our portfolio of private brands, and trademarks.

We assess goodwill and other intangible assets with indefinite lives for impairment each year, or more frequently if events or changes in circumstances indicate an asset may be impaired.

For goodwill and indefinite-lived intangible assets, our policy is to assess for impairment as of the beginning of each fiscal third quarter.

For goodwill and indefinite-lived intangible assets, our policy is to assess for impairment as of the beginning of

each fiscal third quarter.

For other intangible assets with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

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If the carrying value of the asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

During fiscal year 2021, the Company implemented rebranding initiatives related to the integration of a trade name acquired as part of the 2019 Food Group acquisition.

Based on our fiscal year 2022 annual impairment analysis for indefinite-lived intangible assets, we concluded that the fair value of our trademark indefinite-lived intangible asset and brand name indefinite-lived intangible asset exceeded their respective carrying values by substantial margins.

These margins would not be materially impacted by a 5% increase in the discount rate.

The recoverability of our indefinite-lived intangible assets could be impacted if estimated future cash flows are not achieved.

During fiscal year 2021, the Company implemented rebranding initiatives related to the integration of a trade name acquired as part of an earlier acquisition.

As a result of the rebranding initiatives, the Company recognized an impairment charge of $ 7 million, which was included in restructuring costs and asset impairment charges in the Company’s Consolidated Statements of Comprehensive Income.

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.

Due to the many variables inherent in estimating fair value and the relative size of the goodwill and indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the Company’s impairment analysis in future periods.

Due to the many variables inherent in estimating fair value and the relative size of the indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the Company’s impairment analysis in future periods.

Vendor Consideration

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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-K

Item 7. Management’s Discussion and Analysis