What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 123 added, 66 removed, 188 unchanged (50% 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 1, 2023 are compared to the 13 weeks ended April 2, 2022, unless specifically noted otherwise.

Results of operations for the 13 weeks and 26 weeks ended July 1, 2023 are compared to the 13 weeks and 26 weeks ended July 2, 2022, 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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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.

For the 13 weeks ended April 1, 2023, net sales increased, with a total case volume increase of 5.7% compared to the prior year driven by an 8.1% increase in independent restaurant case volume, an 18.8% increase in hospitality volume and a 5.9% increase in healthcare volume and continued inflation.

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

We are unable to predict the extent these factors will continue to impact our results of operations, however we continue to actively monitor these risks to our business.

For the 13 weeks ended July 1, 2023, net sales increased, with a total case volume increase of 2.7% compared to the prior year driven by a 4.8% increase in independent restaurant case volume, a 6.9% increase in hospitality volume and a 6.6% increase in healthcare volume, partially offset by a 4.5% decrease in chain volume.

For the 26 weeks ended July 1, 2023, net sales increased, with a total case volume increase of 4.0% compared to the prior year driven by a 6.2% increase in independent restaurant case volume, a 12.1% increase in hospitality volume and a 6.3% increase in healthcare volume, partially offset by a 2.9% decrease in chain volume.

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.

For the 13 weeks ended April 1, 2023, compared to the same period a year ago, total case volume increased 5.7% and independent restaurant case volume increased 8.1%.

Net sales increased $744 million, or 9.5% for the 13 weeks ended April 1, 2023, driven primarily by case growth and by food cost inflation of 3.7% for the 13 weeks ended April 1, 2023.

Gross profit increased $230 million, or 19.2%, to $1,425 million for the 13 weeks ended April 1, 2023 due to case growth and as a result of food cost inflation in multiple product categories, cost of goods sold optimization, increased freight income from improved inbound logistics, optimized pricing and food cost inflation in multiple product categories.

Gross profit was negatively impacted in both periods by LIFO expense which was $20 million for the 13 weeks ended April 1, 2023 and $72 million for the 13 weeks ended April 2, 2022.

As a percentage of net sales, gross profit was 16.7% for the 13 weeks ended April 1, 2023, compared to 15.3% for the prior year period.

Total operating expenses increased $77 million, or 6.6%, to $1,238 million for the 13 weeks ended April 1, 2023.

Operating expenses increased primarily due to greater volume and higher distribution costs, reflecting higher labor costs as a result of higher than normal wage inflation.

These increases were partially offset by cost savings initiatives outlined in the long-range plan including routing improvements and focused efforts positively impacting labor turnover and productivity.

As a percentage of net sales, operating expenses were 14.5% for the 13 weeks ended April 1, 2023, compared to 14.9% for the prior year period.

For the 13 weeks and 26 weeks ended July 1, 2023, compared to the same period a year ago, total case volume increased 2.7% and 4.0%, respectively, and independent restaurant case volume increased 4.8% and 6.2%, respectively.

Net sales increased $186 million, or 2.1%, and $930 million, or 5.6% for the 13 weeks and 26 weeks ended July 1, 2023, driven primarily by case volume growth and by food cost deflation of 0.3% and inflation of 1.6% for the 13 weeks and 26 weeks ended July 1, 2023, respectively.

Independent restaurant case growth was negatively impacted by 0.7% and 0.9% for the 13 weeks and 26 weeks ended July 1, 2023, respectively, from slower growth in CHEF'STORE due to some system conversion challenges, which are largely resolved.

Broadline independent restaurant case growth was 5.5% and 7.1% for the 13 and 26 weeks ended July 1, 2023.

Gross profit increased $208 million, or 15.0%, to $1,591 million for the 13 weeks ended July 1, 2023 and increa sed $438 million, or 17.0%, to $3,016 million for the 26 weeks ended July 1, 2023 due to an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics, and optimized pricing.

Gross profit was also positively impacted by a LIFO benefit of $15 million for the 13 weeks ended July 1, 2023.

Gross profit was negatively impacted by LIFO expense which was $5 million for the 26 weeks ended July 1, 2023 and $65 million and $137 million for the 13 weeks and 26 weeks ended July 2, 2022.

As a percentage of net sales, gross profit was 17.7% for the 13 weeks ended July 1, 2023, compared to 15.7% for the prior year period and was 17.2% for the 26 weeks ended July 1, 2023, compared to 15.5% for the prior year period.

Total operating expenses increased $36 million, or 2.9%, to $1,269 million for the 13 weeks ended July 1, 2023 and increased $113 million, or 4.7%, to $2,507 million for the 26 weeks ended July 1, 2023.

Operating expenses increased primarily due to increased total case volume, higher seller compensation costs and higher incentive compensation costs versus prior year.

These increases were partially offset by lower distribution cost per case from lower fuel costs and cost savings initiatives including routing improvements and focused efforts positively impacting labor turnover and productivity.

As a percentage of net sales, operating expenses were 14.1% for the 13 weeks ended July 1, 2023, compared to 14.0% for the prior year period and were 14.3% for the 26 weeks ended July 1, 2023, compared to 14.4% 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 1, 2023 April 2, 2022

13 Weeks Ended 26 Weeks Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Consolidated Statements of Operations Data:

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Distribution, selling and administrative costs

1,269 1,233 2,507 2,394

Total operating expenses 1,269 1,233 2,507 2,394

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Interest expense—net 82 60 163 115

Income (loss) before income taxes 107 (15)

Income before income taxes 242 95 349 80

Income tax provision 60 25 85 17

Net income (loss) 82 (7)

Net income 182 70 264 63

Series A Preferred Stock Dividends (see Note 12) — (9) (7) (18)

Net income (loss) available to common shareholders $ 75 $ (16)

Net income available to common shareholders $ 182 $ 61 $ 257 $ 45

Percentage of Net Sales:

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Operating income

Net income (loss)

3.6 % 1.7 % 2.9 % 1.1 %

2.0 % 0.8 % 1.5 % 0.4 %

Adjusted EBITDA (1)

4.8 % 4.2 % 4.4 % 3.7 %

Cash flows—operating activities

$ 374 $ 101 $ 653 $ 259

Cash flows—investing activities

(46) (70) (106) (140)

Cash flows—financing activities

(241) (24) (379) (70)

Capital expenditures

47 71 108 143

419 247 705 376

Adjusted EBITDA (1)

432 368 769 609

Adjusted net income (1)

199 169 324 249

Free cash flow (2)

327 30 545 116

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

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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 1, 2023 April 2, 2022

Net income (loss) available to common shareholders $ 75 $ (16)

13 Weeks Ended 26 Weeks Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net income available to common shareholders $ 182 $ 61 $ 257 $ 45

Series A Preferred Stock Dividends (see Note 12) — (9) (7) (18)

Net income (loss) 82 (7)

Net income 182 70 264 63

Interest expense—net 82 60 163 115

Income tax provision (benefit) 25 (8)

Income tax provision 60 25 85 17

Depreciation expense 84 81 171 159

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LIFO reserve adjustment (2)

(15) 65 5 137

Business transformation costs (3)

Business acquisition and integration related costs and other (4)

COVID-19 other related expenses (5)

Adjusted EBITDA 432 368 769 609

Depreciation expense

(84) (81) (171) (159)

Interest expense—net

(82) (60) (163) (115)

Income tax provision, as adjusted (6)

(67) (58) (111) (86)

Adjusted net income $ 199 $ 169 $ 324 $ 249

Cash flows from operating activities

$ 374 $ 101 $ 653 $ 259

Capital expenditures

(47) (71) (108) (143)

Free cash flow

$ 327 $ 30 $ 545 $ 116

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

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These costs generally relate to third party consulting and non-capitalizable construction or technology.

For the 13 weeks ended April 1, 2023, business transformation costs related to projects associated with several supply chain strategy initiatives.

For the 13 weeks ended April 2, 2022, business transformation costs consist of new facility openings, supply chain strategy improvements, and information technology infrastructure initiatives.

For the 13 weeks and 26 weeks ended July 1, 2023, business transformation costs related to projects associated with information technology infrastructure initiatives.

For the 13 weeks and 26 weeks ended July 2, 2022, business transformation costs consist of new facility openings, supply chain strategy improvements, and information technology infrastructure initiatives.

(4) Includes:

(i) aggregate acquisition and integration related costs of $4 million and $6 million for the 13 weeks ended April 1, 2023 and April 2, 2022, respectively;

(ii) CEO sign on bonus of $3 million for the 13 weeks ended April 1, 2023 (iii) contested proxy and related legal and consulting costs of $7 million for the 13 weeks ended April 1, 2023;

and (iv) 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 $11 million and $6 million for the 13 weeks ended July 1, 2023 and July 2, 2022, respectively, and $21 million and $12 million for the 26 weeks ended July 1, 2023 and July 2, 2022, respectively ;

(ii) CEO sign on bonus of $3 million for the 26 weeks ended July 1, 2023 (iii) 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, respectively;

and (iv) CEO severance for $5 million for the 13 and 26 weeks ended July 2, 2022 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.

(5) Includes COVID-19 related costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

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

13 Weeks Ended

April 1, 2023 April 2, 2022

13 Weeks Ended 26 Weeks Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

GAAP income tax provision $ 60 $ 25 $ 85 $ 17

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Comparison of Results

13 Weeks Ended April 1, 2023 and April 2, 2022

13 Weeks Ended July 1, 2023 and July 2, 2022

• Net income increased $112 million to $182 million in 2023.

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• Operating income increased $172 million, to $322 million in 2023.

Net sales increased $186 million, or 2.1%, to $9,013 million in 2023 driven by case volume growth, partially offset by food cost deflation of 0.3%.

Total case volume increased 2.7% driven by a 4.8% increase in restaurant case volume, a 6.9% increase in hospitality volume and a 6.6% increase in healthcare volume, offset by a 4.5% decrease in chain volume.

Independent restaurant case growth was negatively impacted 0.7% from slower growth in CHEF'STORE due to some system conversion challenges, which are largely resolved.

Broadline independent case growth was 5.5%.

Sales of private brands represented approximately 34% of net sales in both 2023 and 2022.

Gross profit increased $208 million, or 15.0%, to $1,591 million in 2023 primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics, optimized pricing and a favorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in a benefit of $15 million in 2023 compared to expense of $65 million in 2022, related to a reduction in inventory values in multiple product categories.

Gross profit as a percentage of net sales was 17.7% in 2023, compared to 15.7% in 2022, due to the aforementioned factors.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs, increased $36 million, or 2.9%, to $1,269 million in 2023.

Operating expenses as a percentage of net sales were 14.1% in 2023, compared to 14.0% in 2022.

Operating expenses increased primarily due to increased total case volume, higher seller compensation costs and higher incentive compensation costs versus prior year.

Operating Income

Our operating income was $322 million in 2023, compared to operating income of $150 million in 2022.

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 $2 million and $5 million in 2023 and 2022, respectively.

The decrease in other income-net is due to an increase in the pension benefit interest cost and a decrease in the expected return on pension assets compared to 2022.

Interest Expense—Net

Interest expense—net increased $22 million to $82 million in 2023 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2023 compared to 2022.

For the 13 weeks ended July 1, 2023, the Company’s effective income tax rate of 25% 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 $2 million, primarily related to excess tax benefits associated with share-based compensation and a tax benefit of $3 million, primarily related to adjustments to prior year tax provision estimates.

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.

Our net income was $182 million in 2023, compared to a net income of $70 million in 2022.

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

26 Weeks Ended July 1, 2023 and July 2, 2022

• Net income increased $201 million to $264 million in 2023.

• Adjusted EBITDA increased $160 million or 26.3%, to $769 million in 2023.

As a percentage of net sales, Adjusted EBITDA was 4.4% in 2023, compared to 3.7% in 2022.

• Net sales increased $930 million, or 5.6%, to $17,555 million in 2023.

• Total case volume increased 4.0% and independent restaurant case volume increased 6.2%.

• Operating income increased $325 million, to $509 million in 2023.

Net sales increased $930 million, or 5.6%, to $17,555 million in 2023 driven by case growth and food cost inflation of 1.6%.

Total case volume increased 5.7%, and independent restaurant case volume grew 8.1%.

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

Total case volume increased 4.0% driven by a 6.2% increase in independent restaurant case volume, a 12.1% increase in hospitality volume and a 6.3% increase in healthcare volume, partially offset by a 2.9% decrease in chain volume.

Independent restaurant case growth was negatively impacted 0.9% from slower growth in CHEF'STORE due to some system conversion challenges, which are largely resolved.

Broadline independent restaurant case growth was 7.1%.

Sales of private brands represented approximately 34% of net sales in both 2023 and 2022.

Gross profit increased $230 million, or 19.2%, to $1,425 million in 2023 primarily as a result of case growth and 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.

Gross profit increased $438 million, or 17.0%, to $3,016 million in 2023 primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics, optimized pricing and a favorable year-over-year LIFO adjustment.

Our LIFO method of inventory costing resulted in an expense of $5 million in 2023, compared to expense of $137 million in 2022.

2023 LIFO expense is driven by inflation in multiple product categories including grocery and dairy.

2023 LIFO expense is driven by a reduction in inventory values in multiple categories.

Gross profit as a percentage of net sales was 17.2% in 2023, compared to 15.5% in 2022, due to the aforementioned factors.

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Operating expenses as a percentage of net sales were 14.3% in 2023, compared to 14.4% in 2022.

Operating expenses increased primarily due to greater volume and higher distribution costs, reflecting higher labor costs as a result of higher than normal wage inflation.

Operating expenses increased primarily due to increased total case volume, higher seller compensation costs and higher incentive compensation costs versus prior year.

Operating Income

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Interest expense—net increased $48 million to $163 million in 2023 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2023 compared to 2022.

For the 13 weeks ended April 1, 2023, our effective income tax rate of 23% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

These discrete tax items included a tax benefit of $4 million primarily related to excess tax benefits associated with share-based compensation.

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.

For the 26 weeks ended July 1, 2023, 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 $6 million primarily related to excess tax benefits associated with share-based compensation and a tax benefit of $3 million, primarily related to adjustments to prior year tax provision estimates.

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

Net Income (Loss)

Our net income was $82 million in 2023, compared to a net loss of $7 million in 2022.

Our net income was $264 million in 2023, compared to a net income of $63 million in 2022.

The improvement 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 April 1, 2023, the Company had approximately $2.1 billion in cash and available liquidity.

The aggregate outstanding balance of our indebtedness was $4,810 million, net of $37 million of unamortized deferred financing costs, as of April 1, 2023.

We had no outstanding borrowings and had issued letters of credit totaling $458 million under the ABL Facility as of April 1, 2023.

There was remaining capacity of $1,842 million under the ABL Facility as of April 1, 2023.

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,232 million, net of $16 million of unamortized deferred financing costs, as of April 1, 2023.

The 2021 Incremental Term Loan Facility had an outstanding balance of $719 million, net of $4 million of unamortized deferred financing costs, as of April 1, 2023.

The Secured Senior Notes due 2025 had an outstanding balance of $994 million, net of $6 million of unamortized deferred financing costs, as of April 1, 2023.

The Unsecured Senior Notes due 2029 had an outstanding balance of $893 million, net of $7 million of unamortized deferred financing costs, as of April 1, 2023.

The Unsecured Senior Notes due 2030 had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of April 1, 2023.

We also had $468 million of obligations under financing leases for transportation equipment and building leases as of April 1, 2023.

As of July 1, 2023, the Company had approximately $2.2 billion in cash and available liquidity.

The aggregate outstanding balance of our indebtedness was $4,751 million, net of $34 million of unamortized deferred financing costs, as of July 1, 2023.

We had no outstanding borrowings and had issued letters of credit totaling $471 million under the ABL Facility as of July 1, 2023.

There was remaining capacity of $1,829 million under the ABL Facility as of July 1, 2023.

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,170 million, net of $14 million of unamortized deferred financing costs, as of July 1, 2023.

The 2021 Incremental Term Loan Facility had an outstanding balance of $717 million, net of $4 million of unamortized deferred financing costs, as of July 1, 2023.

The Secured Senior Notes due 2025 had an outstanding balance of $995 million, net of $5 million of unamortized deferred financing costs, as of July 1, 2023.

The Unsecured Senior Notes due 2029 had an outstanding balance of $893 million, net of $7 million of unamortized deferred financing costs, as of July 1, 2023.

The Unsecured Senior Notes due 2030 had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of July 1, 2023.

We also had $472 million of obligations under financing leases for transportation equipment and building leases as of July 1, 2023.

The ABL Facility will mature in 2027.

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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 $1.7 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 1, 2023.

USF had approximately $1.8 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 1, 2023.

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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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.

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.

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26 Weeks Ended

April 1, 2023 April 2, 2022

Net income (loss)

July 1, 2023 July 2, 2022

Changes in operating assets and liabilities 143 (17)

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Operating Activities

Cash flows provided by operating activities was $279 million for the 13 weeks ended April 1, 2023, representing an increase of $121 million as compared to cash flows provided by operating activities of $158 million for the 13 weeks ended April 2, 2022 driven by higher net income (loss) and depreciation, partially offset by lower changes in operating assets and liabilities for the 13 weeks ended April 1, 2023.

Cash flows provided by operating activities was $653 million for the 26 weeks ended July 1, 2023, representing an increase of $394 million as compared to cash flows provided by operating activities of $259 million for the 26 weeks ended July 2, 2022 driven by higher net income and positive increases in operating assets and liabilities for the 26 weeks ended July 1, 2023.

Investing Activities

Cash flows used in investing activities in the 13 weeks ended April 1, 2023 and April 2, 2022 included cash expenditures of $61 million and $72 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 26 weeks ended July 1, 2023 and July 2, 2022 included cash expenditures of $108 million and $143 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 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 the 13 weeks ended April 1, 2023 included $33 million of scheduled payments under our Term Loan Facilities and financing leases, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $7 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 1, 2023 also included $34 million common stock repurchased under the Share Repurchase Program, $5 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 $11 million of employee tax withholdings paid in connection with the vesting of stock awards.

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.

Cash flows used by financing activities in the 26 weeks ended July 1, 2023 included $66 million of scheduled payments under our Term Loan Facilities and financing leases, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $60 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $3 million associated with interest rate cap purchases, $7 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 1, 2023 also included $200 million common stock repurchased under the Share Repurchase Program, $2 million of excise tax associated with common stock repurchases, $13 million of proceeds received from stock purchases under our employee stock purchase plan and $22 million of proceeds from the exercise of employee stock options, which were offset by $11 million of employee tax withholdings paid in connection with the vesting of stock awards.

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.

Other Obligations and Commitments

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Off-Balance Sheet Arrangements

We had $458 million of letters of credit outstanding primarily securing USF’s obligations with respect to its insurance program and certain real estate leases, under the ABL Facility as of April 1, 2023.

We had $471 million of letters of credit outstanding primarily securing USF’s obligations with respect to its insurance program and certain real estate leases, under the ABL Facility as of July 1, 2023.

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 2022 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 1, 2023.

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 1, 2023.

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