US Foods Holding Corp. 10-Q

Item 1. Financial Statements US FOODS HOLDING CORP. CONSOLIDATED BALANCE SHEETS (In millions, except par value) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 346 $ 211 Accounts receivable, less allowances of $ 19 and $ 30 1,926 1,705 Vendor receivables, less allowances of $ 7 and $ 8 206 143 Inventories—net 1,582 1,616 Prepaid expenses 138 124 Assets held for sale — 2 Other current assets 11 19 Total current assets 4,209 3,820 Property and equipment—net 2,187 2,171 Goodwill 5,685 5,625 Other intangibles—net 808 785 Other assets 382 372 Total assets $ 13,272 $ 12,773 LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY Current liabilities: Cash overdraft liability $ 214 $ 175 Accounts payable 2,249 1,855 Accrued expenses and other current liabilities 677 650 Current portion of long-term debt 112 116 Total current liabilities 3,252 2,796 Long-term debt 4,574 4,738 Deferred tax liabilities 304 298 Other long-term liabilities 450 446 Total liabilities 8,580 8,278 Commitments and contingencies (Note 18) Mezzanine equity: Series A convertible preferred stock, $ 0.01 par value— 25 shares authorized; 0 and 0.5 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively — 534 Shareholders’ equity: Common stock, $ 0.01 par value— 600 shares authorized; 252.5 issued and 246.3 outstanding as of September 30, 2023, and 225.2 issued and 224.8 outstanding as of December 31, 2022 3 2 Additional paid-in capital 3,642 3,036 Retained earnings 1,362 1,010 Accumulated other comprehensive loss ( 70 ) ( 73 ) Treasury Stock, 6.2 and 0.4 shares, respectively ( 245 ) ( 14 ) Total shareholders’ equity 4,692 3,961 Total liabilities, mezzanine equity and shareholders’ equity $ 13,272 $ 12,773 See Notes to Consolidated Financial Statements (Unaudited). 1 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions, except per share data) 13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales $ 9,106 $ 8,917 $ 26,661 $ 25,542 Cost of goods sold 7,564 7,457 22,103 21,504 Gross profit 1,542 1,460 4,558 4,038 Operating expenses: Distribution, selling and administrative costs 1,312 1,246 3,819 3,640 Total operating expenses 1,312 1,246 3,819 3,640 Operating income 230 214 739 398 Other income—net ( 1 ) ( 5 ) ( 4 ) ( 16 ) Interest expense—net 81 65 244 180 Loss on extinguishment of debt 21 — 21 — Income before income taxes 129 154 478 234 Income tax provision 34 45 119 62 Net income 95 109 359 172 Other comprehensive income —net of tax: Changes in retirement benefit obligations 1 — 1 — Unrecognized gain on interest rate caps — — 1 — Comprehensive income $ 96 $ 109 $ 361 $ 172 Net income $ 95 $ 109 $ 359 $ 172 Series A convertible preferred stock dividends — ( 9 ) ( 7 ) ( 27 ) Net income available to common shareholders $ 95 $ 100 $ 352 $ 145 Net income per share Basic (Note 13) $ 0.38 $ 0.44 $ 1.49 $ 0.65 Diluted (Note 13) $ 0.38 $ 0.43 $ 1.43 $ 0.64 Weighted-average common shares outstanding Basic (Note 13) 247 225 237 224 Diluted (Note 13) 249 251 251 226 See Notes to Consolidated Financial Statements (Unaudited). 2 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Shares Amount BALANCE—December 31, 2022 225.2 $ 2 $ 3,036 $ 1,010 0.4 $ ( 14 ) $ ( 73 ) $ 3,961 Share-based compensation expense — — 14 — — — — 14 Proceeds from employee stock purchase plan 0.2 — 5 — — — — 5 Vested restricted stock units, net 0.6 — — — — — — — Exercise of stock options 0.3 — 7 — — — — 7 Tax withholding payments for net share-settled equity awards — — ( 11 ) — — — — ( 11 ) Series A convertible preferred stock conversion to common stock 7.6 — 161 — — — — 161 Series A convertible preferred stock dividends — — — ( 7 ) — — — ( 7 ) Changes in retirement benefit obligations, net of income tax — — — — — — 1 1 Common stock repurchased — — — — 0.9 ( 34 ) — ( 34 ) Net Income — — — 82 — — — 82 BALANCE—April 1, 2023 233.9 $ 2 $ 3,212 $ 1,085 1.3 $ ( 48 ) $ ( 72 ) $ 4,179 Share-based compensation expense — — 14 — — — — 14 Proceeds from employee share purchase plan 0.2 — 8 — — — — 8 Exercise of stock options 0.7 — 15 — — — — 15 Vested restricted stock units—net 0.1 — — — — — — — Series A convertible preferred stock conversion to common stock 17.4 1 372 — — — — 373 Unrecognized gain on interest rate caps, net of income tax — — — — — — 1 1 Common stock repurchased — — — — 4.2 ( 166 ) — ( 166 ) Excise tax on common stock repurchases — — — — — ( 2 ) — ( 2 ) Net income — — — 182 — — — 182 BALANCE—July 1, 2023 252.3 $ 3 $ 3,621 $ 1,267 5.5 $ ( 216 ) $ ( 71 ) $ 4,604 Share-based compensation expense — — 15 — — — — 15 Proceeds from employee stock purchase plan 0.2 — 6 — — — — 6 Changes in retirement benefit obligations, net of income tax — — — — — — 1 1 Unrecognized gain on interest rate caps, net of income tax — — — — — — — — Common stock repurchased — — — — 0.7 ( 29 ) — ( 29 ) Net Income — — — 95 — — — 95 BALANCE—September 30, 2023 252.5 $ 3 $ 3,642 $ 1,362 6.2 $ ( 245 ) $ ( 70 ) $ 4,692 See Notes to Consolidated Financial Statements (Unaudited). 3 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Shares Amount BALANCE—January 1, 2022 223.0 $ 2 $ 2,970 $ 782 — $ — $ ( 19 ) $ 3,735 Share-based compensation expense — — 12 — — — — 12 Proceeds from employee stock purchase plan 0.2 — 5 — — — — 5 Vested restricted stock units, net 0.7 — — — — — — — Restricted Shares, net ( 0.2 ) — — — — — — — Exercise of stock options 0.1 — 2 — — — — 2 Tax withholding payments for net share-settled equity awards — — ( 16 ) — — — — ( 16 ) Series A convertible preferred stock dividends — — — ( 9 ) — — — ( 9 ) Net Loss — — — ( 7 ) — — — ( 7 ) BALANCE—April 2, 2022 223.8 $ 2 $ 2,973 $ 766 — $ — $ ( 19 ) $ 3,722 Share-based compensation expense — — 9 — — — — 9 Proceeds from employee stock purchase plan 0.2 — 7 — — — — 7 Exercise of stock options 0.3 — 5 — — — — 5 Series A convertible preferred stock dividends — — — ( 9 ) — — — ( 9 ) Net Income — — — 70 — — — 70 BALANCE—July 2, 2022 224.3 $ 2 $ 2,994 $ 827 — $ — $ ( 19 ) $ 3,804 Share-based compensation expense — — 13 — — — — 13 Proceeds from employee stock purchase plan — — 5 — — — — 5 Exercise of stock options 0.5 — 5 — — — — 5 Series A convertible preferred stock dividends — — — ( 9 ) — — — ( 9 ) Net income — — — 109 — — — 109 BALANCE—October 1, 2022 224.8 $ 2 $ 3,017 $ 927 $ — $ — $ ( 19 ) $ 3,927 See Notes to Consolidated Financial Statements (Unaudited). 4 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) 39 Weeks Ended September 30, 2023 October 1, 2022 Cash flows from operating activities: Net income $ 359 $ 172 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 290 273 Gain on disposal of property and equipment—net ( 5 ) ( 2 ) Loss on extinguishment of debt 21 — Amortization of deferred financing costs 14 10 Deferred tax provision 5 ( 1 ) Share-based compensation expense 43 34 Provision for doubtful accounts 20 3 Changes in operating assets and liabilities: Increase in receivables ( 291 ) ( 435 ) Decrease (increase) in inventories—net 45 ( 74 ) (Increase) decrease in prepaid expenses and other assets ( 14 ) 2 Increase in accounts payable and cash overdraft liability 434 574 Increase in accrued expenses and other liabilities 14 57 Net cash provided by operating activities 935 613 Cash flows from investing activities: Proceeds from sales of property and equipment 8 4 Purchases of property and equipment ( 167 ) ( 201 ) Acquisition of broadline operations ( 142 ) — Net cash used in investing activities ( 301 ) ( 197 ) Cash flows from financing activities: Principal payments on debt and financing leases ( 535 ) ( 1,215 ) Repurchase of Senior Note Debt ( 1,000 ) — Issuance of new Senior Note Debt 1,000 — Principal payments on debt repricing ( 43 ) — Proceeds from debt repricing 43 — Proceeds from debt borrowings 255 1,031 Dividends paid on Series A convertible preferred stock ( 7 ) ( 27 ) Repurchase of common stock ( 229 ) — Debt financing costs and fees ( 10 ) — Proceeds from employee stock purchase plan 19 17 Proceeds from exercise of stock options 23 12 Purchase of interest rate caps ( 3 ) — Tax withholding payments for net share-settled equity awards ( 12 ) ( 16 ) Net cash used in financing activities ( 499 ) ( 198 ) Net increase in cash, and cash equivalents and restricted cash 135 218 Cash, cash equivalents and restricted cash—beginning of period 211 148 Cash, cash equivalents and restricted cash—end of period $ 346 $ 366 Supplemental disclosures of cash flow information: Conversion of Series A Convertible Preferred Stock $ 534 $ — Interest paid—net of amounts capitalized 239 162 Income taxes paid—net 126 45 Property and equipment purchases included in accounts payable 25 25 Leased assets obtained in exchange for financing lease liabilities 108 98 Leased assets obtained in exchange for operating lease liabilities 27 35 Cashless exercise of stock options 1 1 See Notes to Consolidated Financial Statements (Unaudited). 5 US FOODS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in tables in millions, except per share data, unless otherwise noted) 1. OVERVIEW AND BASIS OF PRESENTATION US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods Holding Corp. conducts all of its operations through its wholly owned subsidiary US Foods, Inc. (“USF”) and its subsidiaries. All of the Company’s indebtedness, as further described in Note 10, Debt, is a direct obligation of USF and its subsidiaries. Business Description —The Company, through USF, operates in one business segment in which it markets, sells and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States (“U.S.”). These customers include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities and retail locations. Basis of Presentation —The Company operates on a 52- or 53-week fiscal year, with all periods ending on a Saturday. When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth quarter. Fiscal years 2023 and 2022 are both 52-week fiscal years. The consolidated financial statements included in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures included in this Quarterly Report are adequate to make the information presented not misleading. These interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the 2022 Annual Report. The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results that might be achieved for any other interim period or the full fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements In December 2022, the FASB issued ASU 2022-06 “Reference Rate Reform” (“Topic 848”) “Deferral of the Sunset Date of Topic 848”, which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. Topic 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The standard was effective upon issuance and the Company may apply the optional expedients and elections in Topic 848 prospectively through December 31, 2024. For the Company, the provisions of this ASU were effective upon issuance and did not have a material impact on the Company’s consolidated financial statements. 3. REVENUE RECOGNITION The Company recognizes revenue when the performance obligation is satisfied, which occurs when a customer obtains control of the promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services. The Company generates substantially all of its revenue from the distribution and sale of food and food-related products and recognizes revenue when title and risk of loss passes to the customer and the customer accepts the goods, which occurs at delivery. Customer sales incentives, such as volume-based rebates or discounts, are treated as a reduction of revenue at the time the revenue is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales. Shipping and handling costs are treated as fulfillment costs and included in distribution, selling and administrative costs. The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of September 30, 2023 or December 31, 2022. Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.9 billion and $ 1.7 billion as of September 30, 2023 and December 31, 2022, respectively. 6 The Company has certain customer contracts under which incentives are paid upfront to its customers. These payments have become industry practice and are not related to financing any customer’s business, nor are these payments associated with any distinct good or service to be received from any customer. These incentive payments are capitalized in prepaid expenses and other assets and amortized as a reduction of revenue over the life of the contract or as goods or services are transferred to the customer. The Company’s contract assets for these upfront payments were $ 31 million and $ 29 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively, and $ 35 million and $ 31 million included in other assets in the Company’s Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively. The following table presents the disaggregation of revenue for each of the Company’s principal product categories: 13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Meats and seafood $ 3,074 $ 3,207 $ 8,924 $ 9,443 Dry grocery products 1,634 1,529 4,796 4,347 Refrigerated and frozen grocery products 1,543 1,386 4,505 3,880 Dairy 927 959 2,802 2,658 Equipment, disposables and supplies 903 916 2,704 2,622 Beverage products 516 441 1,479 1,248 Produce 509 479 1,451 1,344 Total net sales $ 9,106 $ 8,917 $ 26,661 $ 25,542 4. BUSINESS ACQUISITIONS During the fiscal quarter ended September 30, 2023, the Company acquired Renzi Foodservice, a broadline distributor in New York, for a purchase price of $ 142 million. The acquisition, which was funded with cash from operations, allows US Foods to further expand its reach into central upstate New York. The Renzi Foodservice acquisition, reflected in the Company’s consolidated financial statements commencing from the date of acquisition on July 7, 2023, did not materially affect the Company’s results of operations or financial position. The Company recorded goodwill of $ 60 million and intangible assets of $ 57 million for this acquisition. The intangible assets included $ 54 million related to customer relationships and $ 3 million related to noncompete agreements, which will be amortized on a straight-line basis over an estimated useful life of 15 and 5 years, respectively. The goodwill recognized from the Renzi Foodservice acquisition is deductible for tax purposes. Renzi Foodservice is integrated into the Company’s foodservice distribution network. 5. INVENTORIES The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods. Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. The Company records inventories at the lower of cost or market primarily using the last-in, first-out (“LIFO”) method. For our LIFO based inventories, the base year values of beginning and ending inventories are determined using the inventory price index computation method. This “links” current costs to original costs in the base year when the Company adopted LIFO. LIFO reserves in the Company’s Consolidated Balance Sheets were $ 530 million and $ 489 million as of September 30, 2023 and December 31, 2022, respectively. As a result of changes in LIFO reserves, cost of goods sold increased $ 37 million and $ 6 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and increased $ 42 million and $ 143 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. 6. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. The Company maintains an 7 allowance for doubtful accounts, which is based upon historical experience, future expected losses, as well as specific customer collection issues that have been identified. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due over specified periods. Activity in the allowance for doubtful accounts for the 13 weeks ended September 30, 2023 includes $ 4 million charged to costs and expenses, as well as $ 17 million of customer accounts written off - net of recoveries. For the 13 weeks ended September 30, 2023, the customer accounts written off - net of recoveries is primarily due to a one-time write-off for one large national customer whose outstanding amount due had previously been reserved. Activity for the 13 weeks ended October 1, 2022 was de minimis. A summary of the activity in the allowance for doubtful accounts for the 39 weeks ended September 30, 2023 and October 1, 2022 was as follows: September 30, 2023 October 1, 2022 Balance as of beginning of year $ 30 $ 33 Charged to costs and expenses, net 20 3 Customer accounts written off—net of recoveries ( 31 ) ( 4 ) Balance as of end of period $ 19 $ 32 This table excludes the vendor receivable related allowance for doubtful accounts of $ 7 million as of September 30, 2023, $ 8 million as of December 31, 2022, $ 10 million as of October 1, 2022 and $ 7 million as of January 1, 2022, respectively. 7. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years. Property and equipment under financing leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the related leases or the estimated useful lives of the assets, if reasonably assured the Company will purchase the assets at the end of the lease terms. As of September 30, 2023 and December 31, 2022, property and equipment-net included accumulated depreciation of $ 3,200 million and $ 2,981 million, respectively. Depreciation expense was $ 85 million and $ 81 million for the 13 weeks ended September 30, 2023 and October 1, 2022 and $ 256 million and $ 240 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. 8. GOODWILL AND OTHER INTANGIBLES Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired. Other intangible assets include customer relationships, noncompete agreements, amortizable trade names, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks. Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below. Customer relationships, noncompete agreements and amortizable trade names are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships, noncompete agreements and amortizable trade names are amortized over their estimated useful lives (which range from approximately 3 to 15 years). Amortization expense was $ 12 million and $ 11 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 34 million and $ 33 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. 8 Goodwill and other intangibles—net consisted of the following: September 30, 2023 December 31, 2022 Goodwill $ 5,685 $ 5,625 Other intangibles—net Customer relationships—amortizable: Gross carrying amount $ 708 $ 655 Accumulated amortization ( 176 ) ( 144 ) Net carrying value 532 511 Trade names—amortizable: Gross carrying amount 4 4 Accumulated amortization ( 2 ) ( 1 ) Net carrying value 2 3 Noncompete agreements—amortizable: Gross carrying amount 3 — Accumulated amortization — — Net carrying value 3 — Brand names and trademarks—not amortizing 271 271 Total other intangibles—net $ 808 $ 785 The increases in goodwill and the gross carrying amounts of customer relationships and noncompete agreements are attributable to the Renzi Foodservice acquisition, see Note 4, Business Acquisitions. The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible asset may not be recoverable. The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually, or more frequently if events occur that indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, the Company’s policy is to assess for impairment as of the beginning of each fiscal third quarter. No impairments were recognized for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. 9. FAIR VALUE MEASUREMENTS Certain assets and liabilities are carried at fair value under GAAP, under which fair value is a market-based measurement, not an entity-specific measurement. The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: • Level 1—observable inputs, such as quoted prices in active markets • Level 2—observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active or inactive markets that are observable either directly or indirectly, or other inputs that are observable or can be corroborated by observable market data • Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized as of the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented below. 9 The Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows: September 30, 2023 Level 1 Level 2 Level 3 Total Assets Money market funds $ 260 $ — $ — $ 260 Interest Rate Caps $ — $ 3 $ — $ 3 December 31, 2022 Level 1 Level 2 Level 3 Total Assets Money market funds $ 139 $ — $ — $ 139 There were no significant assets or liabilities on the Company’s Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above, except as further disclosed in Note 8, Goodwill and Other Intangibles. Recurring Fair Value Measurements Money Market Funds Money market funds include highly liquid investments with an original maturity of three or fewer months. These funds are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy. Derivative Financial Instruments The Company has in the past, and may in the future, use interest rate hedges, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate de bt. In April 2023, the Company entered into two two-year rate cap agreements, which will mature on April 30, 2025, with a total notional amount of $ 450 million, which will effectively cap the interest rate on approximately 24 % of the current principal amount of the Term Loan Facilities. The Company’s maximum exposure to the variable component of the interest rate on the Term Loan Facilities will be 5 % on the notional amount covered by the interest rate cap. The Company had no outstanding interest rate hedge agreements as of December 31, 2022. The Company records its interest rate caps in the Consolidated Balance Sheet at fair value, based on projections of cash flows and future interest rates. The determination of fair value includes the consideration of any credit valuation adjustments necessary, giving consideration to the creditworthiness of the respective counterparties or the Company, as appropriate. The following table presents the balance sheet location and fair value of the interest rate caps at September 30, 2023: Balance at September 30, 2023 Balance Sheet Location Fair Value Derivatives designed as hedging instruments Interest Rate Caps Other current assets $ 2 Interest Rate Caps Other noncurrent assets $ 1 The effective portion of gains and losses on the interest rate caps are initially recorded in other comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affects income. There was no ineffectiveness attributable to the Company’s interest rate caps during the 13 weeks and 39 weeks ended September 30, 2023. The following 10 table presents the effect of the Company’s interest rate caps in the Consolidated Statement of Comprehensive Income for the 13 weeks and 39 weeks ended September 30, 2023: Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in Other Comprehensive Loss, net of tax Location of Amounts Reclassified from Accumulated Other Comprehensive Loss Amount of Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax For the 13 weeks ended September 30, 2023 Interest Rate Caps $ — Interest expense ─ net $ — For the 39 weeks ended September 30, 2023 Interest Rate Caps $ 1 Interest expense ─ net $ — During the next twelve months, the Company estimates that an immaterial amount will be reclassified from accumulated other comprehensive loss to income. Other Fair Value Measurements The carrying value of cash, accounts receivable, vendor receivables, cash overdraft liability and accounts payable approximate their fair values due to their short-term maturities. The fair value of the Company’s total debt approximated $ 4.5 billion and $ 4.6 billion as of September 30, 2023 and December 31, 2022, respectively, as compared to its carrying value of $ 4.7 billion and $ 4.8 billion as of September 30, 2023 and December 31, 2022 respectively. The fair value of the Company’s 6.25 % senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”) was $ 1.0 billion as of December 31, 2022. The fair value of the Company’s 6.875 % senior unsecured notes due September 15, 2028 (the “Unsecured Senior Notes due 2028”) was $ 0.5 billion as of September 30, 2023. The fair value of the Company’s 4.75 % unsecured senior notes due February 15, 2029 (the “Unsecured Senior Notes due 2029”) was $ 0.8 billion as of both September 30, 2023 and December 31, 2022. The fair value of the Company’s 4.625 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.4 billion as of both September 30, 2023 and December 31, 2022. The fair value of the Company’s 7.250 % senior unsecured notes due January 15, 2032 (the “Unsecured Senior Notes due 2032”) was $ 0.5 billion as of September 30, 2023. Fair value of the Unsecured Senior Notes dues 2028, the Unsecured Senior Notes due 2029, the Unsecured Senior Notes due 2030 and the Unsecured Senior Notes due 2032 is based upon their closing market prices on the respective dates. The fair value of the Unsecured Senior Notes due 2028, the Unsecured Senior Notes due 2029, the Unsecured Senior Notes due 2030 and the Unsecured Senior Notes due 2032 is classified under Level 2 of the fair value hierarchy. The fair value of the balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates that are currently available to the Company for debt with similar terms, and estimates of the Company’s overall credit risk. 11 10. DEBT Total debt consisted of the following: Debt Description Maturity Interest Rate as of September 30, 2023 Carrying Value as of September 30, 2023 Carrying Value as of December 31, 2022 ABL Facility December 7, 2027 8.50 % $ — $ — 2019 Incremental Term Loan Facility (net of $ 12 and $ 19 of unamortized deferred financing costs, respectively) September 13, 2026 7.43 % 1,108 1,232 2021 Incremental Term Loan Facility (net of $ 3 and $ 6 of unamortized deferred financing costs, respectively) November 22, 2028 7.93 % 718 786 Secured Senior Notes due 2025 (net of $ 0 and $ 7 of unamortized deferred financing costs, respectively) (1) April 15, 2025 6.25 % — 993 Unsecured Senior Notes due 2028 (net of $ 5 unamortized deferred financing costs) (1) September 15, 2028 6.88 % 495 — Unsecured Senior Notes due 2029 (net of $ 6 and $ 7 of unamortized deferred financing costs, respectively) February 15, 2029 4.75 % 894 893 Unsecured Senior Notes due 2030 (net of $ 4 and $ 4 of unamortized deferred financing costs, respectively) June 1, 2030 4.625 % 496 496 Unsecured Senior Notes due 2032 (net of $ 5 of unamortized deferred financing costs) (1) January 15, 2032 7.25 % 495 — Obligations under financing leases 2023–2031 1.26 %- 8.31 % 472 446 Other debt January 1, 2031 5.75 % 8 8 Total debt 4,686 4,854 Current portion of long-term debt ( 112 ) ( 116 ) Long-term debt $ 4,574 $ 4,738 (1) The Secured Senior Notes due 2025 were paid in full on September 25, 2023, with the proceeds from the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, as well as cash on hand, as further discussed below. As of September 30, 2023, after considering interest rate caps that fixed the variable component of the interest rate on a total notional amount of $ 450 million of the current principal amount of the Term Loan Facilities described below, approximately 30 % of the Company’s total debt bore interest at a floating rate. ABL Facility USF’s asset based senior secured revolving credit facility (the “ABL Facility”) provides USF with loan commitments having a maximum aggregate principal amount of $ 2,300 million. The ABL Facility is scheduled to mature on December 7, 2027. Borrowings under the ABL Facility bear interest, at USF’s periodic election, at a rate equal to the sum of an alternative base rate (“ABR”), as described in the ABL Facility, plus a margin ranging from 0.00 % to 0.50 % based on USF’s excess availability under the ABL Facility, or the sum of the Term Secured Overnight Financing Rate (“Term SOFR”) plus a margin ranging from 1.00 % to 1.50 %, based on USF’s excess availability under the ABL Facility, and a credit spread adjustment of 0.10 %. The margin under the ABL Facility as of September 30, 2023 was 0.00 % for ABR loans and 1.00 % for Term SOFR loans. USF had no outstanding borrowings, and had outstanding letters of credit totaling $ 487 million, under the ABL Facility as of September 30, 2023. The outstanding letters of credit primarily relate to securing USF’s obligations with respect to its insurance program and certain real estate leases. There was available capacity of $ 1,813 million under the ABL Facility as of September 30, 2023. Term Loan Facilities Under its term loan credit agreement, USF has entered into an incremental senior secured term loan facility borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) and an incremental senior secured term loan facility borrowed in November 2021 (the “2021 Incremental Term Loan Facility”). On June 1, 2023, USF entered into an amendment to its term loan credit agreement to replace the LIBOR-based interest rate option included in the term loan credit agreement with an 12 interest rate option based upon Term SOFR. The Company’s maximum exposure to the variable component of the interest rate on the Term Loan Facilities will be 5 % on the notional amount covered by the interest rate caps described above. 2019 Incremental Term Loan Facility The 2019 Incremental Term Loan Facility had an outstanding balance of $ 1,108 million, net of $ 12 million of unamortized deferred financing costs as of September 30, 2023. During the 13 weeks and 39 weeks ended September 30, 2023 the Company voluntarily prepaid $ 60 million and $ 120 million, respectively, of the 2019 Incremental Term Loan Facility. Borrowings under the 2019 Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of (i) Term SOFR plus (ii) a credit spread adjustment of (a) 0.11448 % for a one-month term, (b) 0.26161 % for a three-month term, or (c) 0.42826 % for a six month term, (with the sum of Term SOFR and the foregoing credit spread adjustment subject to a Term SOFR “floor” of 0.00 %) plus (iii) a margin of 2.00 %, or the sum of (i) an ABR, as described in the 2019 Incremental Term Loan Facility plus a margin of 1.00 %. The 2019 Incremental Term Loan Facility will mature on September 13, 2026. 2021 Incremental Term Loan Facility The 2021 Incremental Term Loan Facility had an outstanding balance of $ 718 million, net of $ 3 million of unamortized deferred financing costs as of September 30, 2023. During the 39 weeks ended September 30, 2023 the Company voluntarily prepaid $ 65 million of the 2021 Incremental Term Loan Facility. Borrowings under the 2021 Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of (i) Term SOFR plus (ii) a credit spread adjustment of (a) 0.11448 % for a one-month term, (b) 0.26161 % for a three-month term, or (c) 0.42826 % for a six month term, (with the sum of Term SOFR and the foregoing credit spread adjustment subject to a Term SOFR “floor” of 0.00 %) plus (iii) a margin of 2.50 %, or the sum of (i) an ABR, as described in the 2021 Incremental Term Loan Facility, plus a margin of 1.50 %. The 2021 Incremental Term Loan Facility will mature on November 22, 2028. On August 22, 2023, the 2021 Incremental Term Loan Facility was further amended to lower the interest rate margins under the term loan facility to 2.50 % for Term SOFR borrowings and 1.50 % for ABR borrowings. The Company applied modification accounting to the majority of the continuing lenders as the terms were not substantially different from the terms that applied to those lenders prior to the amendment. For the remaining lenders, the Company applied debt extinguishment accounting. The Company recorded $ 1 million of third-party costs and a write-off of $ 1 million of unamortized deferred financing costs, related to the August 22, 2023 amendment in interest expense. Unamortized deferred financing costs of $ 3 million at September 30, 2023 were carried forward and will be amortized through November 22, 2028, the maturity date of the term loan facility. Secured Senior Notes due 2025 On September 25, 2023, the Company redeemed all of the then outstanding Secured Senior Notes due 2025, using proceeds from the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, along with cash on hand, as discussed below. As a result of the early redemption of the Secured Senior Notes due 2025, the Company incurred a $ 16 million prepayment premium, as well as wrote-off deferred financing fees of $ 5 million. The total loss on extinguishment of debt of $ 21 million is presented separately in the Company’s Consolidated Statements of Comprehensive Income. Unsecured Senior Notes due 2028 On September 25, 2023, USF completed a private offering of $ 500 million aggregate principal amount of Unsecured Senior Notes due 2028. USF used the proceeds of the Unsecured Senior Notes due 2028, together with the proceeds of the Unsecured Senior Notes due 2032 and cash on hand, to redeem all of the then outstanding Secured Senior Notes due 2025, and to pay related fees and expenses. Lender fees and third-party costs of $ 5 million in connection with the issuance of the Unsecured Senior Notes due 2028 were capitalized as deferred financing costs. The Unsecured Senior Notes due 2028 had an outstanding balance of $ 495 million, net of the $ 5 million of unamortized deferred financing costs, as of September 30, 2023. The Unsecured Senior Notes due 2028 bear interest at a rate of 6.875 % per annum and will mature on September 15, 2028. On or after September 15, 2025, the Unsecured Senior Notes due 2028 are redeemable, at USF’s option, in whole or in part at a price of 103.438 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. On or after September 15, 2026 and September 15, 2027, the optional redemption price for the Unsecured Senior Notes due 2028 declines to 101.719 % and 100.00 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. Unsecured Senior Notes due 2029 The Unsecured Senior Notes due 2029 had an outstanding balance of $ 894 million, net of $ 6 million of unamortized deferred financing costs, as of September 30, 2023. The Unsecured Senior Notes due 2029 bear interest at a rate of 4.75 % per annum and will mature on February 15, 2029. 13 Unsecured 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 September 30, 2023. The Unsecured Senior Notes due 2030 bear interest at a rate of 4.625 % per annum and will mature on June 1, 2030. Unsecured Senior Notes due 2032 On September 25, 2023, USF completed a private offering of $ 500 million aggregate principal amount of Unsecured Senior Notes due 2032. USF used the proceeds of the Unsecured Senior Notes due 2032, together with the proceeds of the Unsecured Senior Notes due 2028 and cash on hand, to redeem all of the then outstanding Secured Senior Notes due 2025, and to pay related fees and expenses. Lender fees and third-party costs of $ 5 million in connection with the issuance of the Unsecured Senior Notes due 2032 were capitalized as deferred financing costs. The Unsecured Senior Notes due 2032 had an outstanding balance of $ 495 million, net of the $ 5 million of unamortized deferred financing costs, as of September 30, 2023. The Unsecured Senior Notes due 2032 bear interest at a rate of 7.250 % per annum and will mature on January 15, 2032. On or after September 15, 2026, the Unsecured Senior Notes due 2032 are redeemable, at USF’s option, in whole or in part at a price of 103.625 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. On or after September 15, 2027 and September 15, 2028, the optional redemption price for the Unsecured Senior Notes due 2032 declines to 101.813 % and 100.00 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. Debt Covenants 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 assets, pay dividends, or engage in mergers or consolidations. USF had approximately $ 1.9 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 September 30, 2023. 11. RESTRUCTURING LIABILITIES From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness. In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs. During the 13 weeks and 39 weeks ended September 30, 2023, the Company incurred net restructuring costs of $ 3 million primarily related to initiatives to improve operational effectiveness. During both the 13 weeks and 39 weeks ended October 1, 2022, the net restructuring costs were de minimis. Net restructuring liabilities were $ 3 million as of September 30, 2023 and December 31, 2022. 12. RETIREMENT PLANS The Company sponsors a defined benefit pension plan and a 401(k) savings plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents. The components of net periodic pension benefit credits for Company sponsored defined benefit plans were as follows: 13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Components of net periodic pension benefit credits Service cost $ — $ 1 $ 1 $ 2 Interest cost 10 7 29 22 Expected return on plan assets ( 12 ) ( 12 ) ( 36 ) ( 38 ) Amortization of net loss 1 — 3 — Net periodic pension benefit credits $ ( 1 ) $ ( 4 ) $ ( 3 ) $ ( 14 ) Other postretirement benefit costs were de minimis for both the 13 weeks and 39 weeks ended September 30, 2023 and October 1, 2022. The service cost component of net periodic benefit credits is included in distribution, selling and administrative costs, while the other components of net periodic benefit credits are included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. 14 The Company does not expect to make significant contributions to its defined benefit pension plan in fiscal year 2023. Certain employees are eligible to participate in the Company’s 401(k) plan. The Company made employer matching contributions to the 401(k) plan of $ 16 million and $ 14 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 48 million and $ 44 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreements that cover certain of its union-represented employees. The Company’s contributions to these plans were $ 14 million and $ 12 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 42 million and $ 36 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively. 13. STOCKHOLDERS’ EQUITY Earnings Per Share The Company computes EPS in accordance with Accounting Standards Codification (“ASC”) 260, Earnings per Share . Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of share-based awards—stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals. The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock (the “Series A Preferred Stock”), if dilutive in the period. For the 13 weeks ended September 30, 2023 and October 1, 2022, share-based awards representing less than 1 million and 3 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For the 39 weeks ended September 30, 2023 and October 1, 2022, share-based awards representing less than 1 million and 3 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. Additionally, for the 13 weeks and 39 weeks ended October 1, 2022, Series A Preferred Stock representing 25 million of underlying common shares were not included in the computation because the effect would have been anti-dilutive. The Series A Preferred Stock shares were dilutive for the 39 weeks ended September 30, 2023. The following table sets forth the computation of basic and diluted EPS: 13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Numerator: Net income $ 95 $ 109 $ 359 $ 172 Less: Series A Preferred Stock Dividends — ( 9 ) ( 7 ) ( 27 ) Net income available to common shareholders $ 95 $ 100 $ 352 $ 145 Denominator: Weighted-average common shares outstanding—basic 247 225 237 224 Effect of dilutive share-based awards 2 1 3 2 Effect of dilutive underlying shares of the Series A Preferred Stock (1) — 25 11 — Weighted-average common shares outstanding—diluted 249 251 251 226 Net income per share Basic $ 0.38 $ 0.44 $ 1.49 $ 0.65 Diluted $ 0.38 $ 0.43 $ 1.43 $ 0.64 (1) Under the if-converted method, outstanding shares of the Series A Preferred Stock are converted to common shares for inclusion in the calculation of the weighted-average common shares outstanding—diluted. Once converted, there would be no preferred stock outstanding and therefore no Series A Preferred Stock dividend. As of September 30, 2023, the 11 million shares represent the weighted average impact of these shares during the 39 weeks ended September 30, 2023. See Note 14, Convertible Preferred Stock, for details on the Series A Preferred Stock. Share Repurchase Program 15 On November 2, 2022, our Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $ 500 million of its outstanding common stock. During the 13 weeks ended September 30, 2023 the Company repurchased 726,690 shares at an aggregate purchase price of approximately $ 29 million under the program. During the 39 weeks ended September 30, 2023, the Company repurchased 5,824,151 shares at an aggregate purchase price of approximately $ 229 million under the program. Additionally, during the 39 weeks ended September 30, 2023, the Company recorded $ 2 million of excise tax associated with common stock repurchases. At September 30, 2023, there was approximately $ 257 million in remaining funds authorized under this program. The size and timing of any repurchases will depend on a number of factors, including share price, general business and market conditions and other factors. Under the share repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases, privately negotiated transactions, accelerated share repurchases and Rule 10b5-1 trading plans. The share repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. The repurchase authorization does not have an expiration date. 14. CONVERTIBLE PREFERRED STOCK On May 6, 2020, pursuant to the terms of an Investment Agreement with KKR Fresh Aggregator L.P., a Delaware limited partnership, which agreement was joined on February 25, 2021 by permitted transferee KKR Fresh Holdings L.P., a Delaware limited partnership (“KKR”), the Company issued and sold 500,000 shares of the Company’s Series A Preferred Stock, par value $ 0.01 per share, to KKR Fresh Aggregator L.P. for an aggregate purchase price of $ 500 million, or $ 1,000 per share (the “Issuance”). The Company used the net proceeds from the Issuance for working capital and general corporate purposes. As of December 31, 2022, the Company had outstanding a total of 532,281 shares of Series A Preferred Stock. The Series A Preferred Stock had a carrying value of $ 534 million as of December 31, 2022. On March 10, 2023, KKR converted 161,237 shares of Series A Preferred Stock into 7,600,037 shares of the Company’s common stock. Pursuant to the terms of conversion of the Series A Preferred Stock set forth in the Certificate of Designations for the Series A Preferred Stock, each such share is convertible at the option of the holder at any time into a number of shares of Common Stock equal to (A) the sum of the liquidation preference for such share ($1,000) and the accrued and unpaid dividends with regard to such share divided by (B) the applicable conversion price ($ 21.50 , subject to certain adjustments). The issuance of the 7,600,037 shares of Common Stock was exempt from registration under Section 3(a)(9) under the Securities Act of 1933, as amended, as the Series A Preferred Stock was exchanged for Common Stock by an existing security holder and no commission or other remuneration was paid. On March 31, 2023, the Company paid cash dividends of $ 7 million on the remaining outstanding shares of the Series A Preferred Stock. On May 26, 2023 KKR converted the remaining 371,044 shares of Series A Preferred Stock and completed a secondary offering of 17,425,053 shares of the Company’s common stock. Upon completion of this transaction, KKR has relinquished their seat on the Company’s Board of Directors and is no longer considered a related party. See Note 16, Related Party Transactions, for information regarding KKR’s holdings. In connection with the May 26, 2023 conversion, the Company repurchased $ 150 million of common stock. See Note 13, Stockholder’s Equity, for information on the Company’s share repurchase program. 16 15. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents changes in accumulated other comprehensive loss by component for the periods presented: 13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Accumulated other comprehensive loss components Retirement benefit obligations: Balance as of beginning of period (1) $ ( 72 ) $ ( 19 ) $ ( 73 ) $ ( 19 ) Reclassification adjustments: Amortization of net loss (2) (3) 1 — 2 — Current period comprehensive income, net of tax 1 — 2 — Balance as of end of period (1) $ ( 71 ) $ ( 19 ) $ ( 71 ) $ ( 19 ) Interest rate Caps: Balance at beginning of period (1) $ 1 $ — $ — $ — Change in fair value of interest rate caps — — 1 — Balance at end of period (1) $ 1 $ — $ 1 $ — Accumulated other comprehensive loss at end of period (1) $ ( 70 ) $ ( 19 ) $ ( 70 ) $ ( 19 ) (1) Amounts are presented net of tax. (2) Included in the computation of net periodic benefit costs. See Note 12, Retirement Plans, for additional information. (3) Included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. 16. RELATED PARTY TRANSACTIONS As of December 31, 2022, FMR LLC held approximately 11 % of the Company’s outstanding common stock based solely on information provided in its most recent amendment to its Schedule 13G filed with the SEC. As of September 30, 2023 and December 31, 2022, as reported by the administrative agent of the 2019 and 2021 Incremental Term Loan Facilities, investment funds managed by an affiliate of FMR LLC held approximately $ 2 million in aggregate principal amount of the 2021 Incremental Term Loan Facility. As December 31, 2022, FMR LLC held approximately $ 17 million in aggregate principal amount of the 2019 Incremental Term Loan Facility. Certain FMR LLC affiliates also provide administrative and trustee services for the Company’s 401(k) Plan and provide administrative services for other Company sponsored employee benefit plans. Fees earned by FMR LLC affiliates are not material to the Company’s consolidated financial statements. As of May 26, 2023, KKR converted all outstanding Series A Preferred Stock holdings, relinquished their seat on the Company’s Board of Directors and is no longer considered a related party. See Note 14, Convertible Preferred Stock, for details on the Series A Preferred Stock. 17. INCOME TAXES The determination of the Company’s overall effective income tax rate requires the use of estimates. The effective income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction. The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 39 weeks ended September 30, 2023 and October 1, 2022, and then recognized the impact of discrete tax items for purposes of determining its year-to-date tax provision. For the 13 weeks ended September 30, 2023, the Company’s effective income tax rate of 27 % 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. For the 13 weeks ended October 1, 2022, the Company’s 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 share-based compensation. For the 39 weeks ended September 30, 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 17 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 $ 4 million, primarily related to adjustments to prior year tax provision estimates. For the 39 weeks ended October 1, 2022, the Company’s 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. 18. COMMITMENTS AND CONTINGENCIES Purchase Commitments —The Company enters into purchase orders with vendors and other parties in the ordinary course of business and has a limited number of purchase contracts with certain vendors that require it to buy a predetermined volume of products. The Company had $ 896 million of purchase orders and purchase contract commitments as of September 30, 2023 to be purchased in the remainder of fiscal year 2023 and $ 30 million of information technology commitments through September 2025 that are not recorded in the Company’s Consolidated Balance Sheets. To minimize fuel price risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements. The Company had diesel fuel forward purchase commitments totaling $ 11 million through December 2023, as of September 30, 2023. Additionally, the Company had electricity forward purchase commitments totaling $ 7 million through July 2025, as of September 30, 2023. The Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts under contract meet the physical delivery criteria in the normal purchase exception. Legal Proceedings —The Company is subject to a number of legal proceedings arising in the normal course of business. These legal proceedings, whether pending, threatened or unasserted, if decided adversely to or settled by the Company, may result in liabilities material to its financial position, results of operations, or cash flows. The Company has recognized provisions with respect to the proceedings, where appropriate, in its Consolidated Balance Sheets. It is possible that the Company could settle one or more of these proceedings or could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated. However, the Company, at present, believes that the ultimate outcome of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 19. BUSINESS INFORMATION The Company’s consolidated results represent the results of its one business segment based on how the Company’s chief operating decision maker, our Chief Executive Officer, views the business for purposes of evaluating performance and making operating decisions. The Company markets, sells and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the U.S. The Company uses a centralized management structure, and its strategies and initiatives are implemented and executed consistently across the organization to maximize value to the organization as a whole. The Company uses shared resources for sales, procurement, and general and administrative activities across each of its distribution facilities and operations. The Company’s distribution facilities form a single network to reach its customers; it is common for a single customer to make purchases from several different distribution facilities. Capital projects, whether for cost savings or generating incremental revenue, are evaluated based on estimated economic returns to the organization as a whole. 18