US Foods Holding Corp. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Audited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 37 Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022 39 Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022 40 Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022 41 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2023, December 31, 2022, and January 1, 2022 42 Notes to Consolidated Financial Statements 43 36 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of US Foods Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of US Foods Holding Corp. and subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows, for each of the three fiscal years in the period ended December 30, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Vendor Consideration - Refer to Note 2 to the financial statements. Critical Audit Matter Description The Company receives rebates and incentives from certain suppliers, primarily through purchase-based programs. Consideration earned under these incentives is estimated during the year based on purchasing activity, as obligations under the program are fulfilled primarily as products are purchased. Consideration is typically received in the form of invoice deductions to be applied against the amounts owed to the Company’s vendors, or less often in the form of cash payments. The purchase-based incentives are recorded as a reduction to inventory as they are earned based on inventory purchases. As the related inventory is sold, the amounts are recorded as a reduction to cost of goods sold. Vendor receivables represent the uncollected balance of vendor consideration. Although many of these incentives are under long-term agreements others are negotiated on an annual basis or shorter. We identified vendor consideration as a critical audit matter due to the extent of audit effort required to evaluate whether vendor consideration is recorded in accordance with the terms of the vendor agreements. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the evaluation of the vendor agreements included the following, among others: 37 • We tested the design and operating effectiveness of controls over the calculation of the amount recorded and the accuracy of the agreement information input in the system utilized to calculate the amount of vendor consideration recorded. • We selected a sample of vendor consideration recorded and (1) confirmed the amount recorded directly with the vendors or (2) recalculated vendor consideration amounts recorded by the Company using the terms of the executed vendor agreement. • We selected a sample of inventory on hand and evaluated whether the related vendor consideration was properly recognized in the promotional allowance invoice register during the period ended December 30, 2023. • We selected a sample of deductions made on payments to vendors after period end and evaluated whether the vendor consideration was properly recorded at December 30, 2023. • We tested the amount of vendor consideration recorded as a reduction to inventory by developing an independent expectation for the amount based on historical ratios experienced by the Company and comparing our expectation to the amount recorded in the current year. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 15, 2024 We have served as the Company’s auditor since 2006. 38 US FOODS HOLDING CORP. CONSOLIDATED BALANCE SHEETS (In millions, except par value) December 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 269 $ 211 Accounts receivable, less allowances of $ 18 and $ 30 1,854 1,705 Vendor receivables, less allowances of $ 5 and $ 8 156 143 Inventories—net 1,600 1,616 Prepaid expenses 138 124 Assets held for sale — 2 Other current assets 14 19 Total current assets 4,031 3,820 Property and equipment—net 2,280 2,171 Goodwill 5,697 5,625 Other intangibles—net 803 785 Other assets 376 372 Total assets $ 13,187 $ 12,773 LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY Current liabilities: Cash overdraft liability $ 220 $ 175 Accounts payable 2,051 1,855 Accrued expenses and other current liabilities 731 650 Current portion of long-term debt 110 116 Total current liabilities 3,112 2,796 Long-term debt 4,564 4,738 Deferred tax liabilities 293 298 Other long-term liabilities 469 446 Total liabilities 8,438 8,278 Commitments and contingencies (Note 22) Mezzanine equity: Series A convertible preferred stock, $ 0.01 par value— 25 shares authorized; 0 and 0.5 issued and outstanding as of December 30, 2023 and December 31, 2022, respectively — 534 Shareholders’ equity: Common stock, $ 0.01 par value— 600 shares authorized; 253 and 225 issued and outstanding as of December 30, 2023 and December 31, 2022, respectively 3 2 Additional paid-in capital 3,663 3,036 Retained earnings 1,509 1,010 Accumulated other comprehensive loss ( 115 ) ( 73 ) Treasury Stock, 7.8 and 0.5 shares, respectively ( 311 ) ( 14 ) Total shareholders’ equity 4,749 3,961 Total liabilities, mezzanine equity and shareholders’ equity $ 13,187 $ 12,773 See Notes to Consolidated Financial Statements. 39 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except per share data) Fiscal Years Ended December 30, 2023 December 31, 2022 January 1, 2022 Net sales $ 35,597 $ 34,057 $ 29,487 Cost of goods sold 29,449 28,565 24,832 Gross profit 6,148 5,492 4,655 Operating expenses: Distribution, selling and administrative costs 5,117 4,886 4,220 Restructuring costs and asset impairment charges 14 12 11 Total operating expenses 5,131 4,898 4,231 Operating income 1,017 594 424 Other income—net ( 6 ) ( 22 ) ( 26 ) Interest expense—net 324 255 213 Loss on extinguishment of debt 21 — 23 Income before income taxes 678 361 214 Income tax provision 172 96 50 Net income 506 265 164 Other comprehensive income—net of tax: Changes in retirement benefit obligations ( 43 ) ( 54 ) 10 Interest rate hedge activity 1 — 5 Comprehensive income $ 464 $ 211 $ 179 Net income $ 506 $ 265 $ 164 Series A convertible preferred stock dividends ( 7 ) ( 37 ) ( 43 ) Net income available to common shareholders $ 499 $ 228 $ 121 Net income per share: Basic $ 2.09 $ 1.02 $ 0.55 Diluted $ 2.02 $ 1.01 $ 0.54 Weighted-average common shares outstanding Basic 239 224 222 Diluted 250 226 225 See Notes to Consolidated Financial Statements. 40 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions) Number of Common Shares Common Shares at Par Value Additional Paid-In Capital Retained Earnings Number of Treasury Shares Treasury Stock Accumulated Other Comprehensive Loss Total Shareholders’ Equity BALANCE-January 2, 2021 221.0 $ 2 $ 2,901 $ 661 — $ — $ ( 34 ) $ 3,530 Share-based compensation expense — — 48 — — — — 48 Proceeds from employee stock purchase plan 0.7 — 20 — — — — 20 Vested restricted stock units, net 0.7 — — — — — — — Exercise of stock options 0.6 — 15 — — — — 15 Tax withholding payments for net share-settled equity awards — — ( 14 ) — — — — ( 14 ) Series A convertible preferred stock dividends — — — ( 43 ) — — — ( 43 ) Changes in retirement benefit obligations, net of income tax — — — — — — 10 10 Interest rate hedge activity, net of income tax — — — — — — 5 5 Net income — — — 164 — — — 164 BALANCE-January 1, 2022 223.0 $ 2 $ 2,970 $ 782 — $ — $ ( 19 ) $ 3,735 Share-based compensation expense — — 45 — — — — 45 Proceeds from employee stock purchase plan 0.8 — 22 — — — — 22 Vested restricted stock units, net 0.8 — — — — — — — Exercise of stock options 0.6 — 15 — — — — 15 Tax withholding payments for net share-settled equity awards — — ( 16 ) — — — — ( 16 ) Series A convertible preferred stock dividends — — — ( 37 ) — — — ( 37 ) Changes in retirement benefit obligations, net of income tax — — — — — — ( 54 ) ( 54 ) Common stock repurchased — — — — 0.4 ( 14 ) — ( 14 ) Net income — — — 265 — — — 265 BALANCE-December 31, 2022 225.2 $ 2 $ 3,036 $ 1,010 0.4 $ ( 14 ) $ ( 73 ) $ 3,961 Share-based compensation expense — — 56 — — — — 56 Proceeds from employee stock purchase plan 0.7 — 24 — — — — 24 Vested restricted stock units, net 0.8 — — — — — — — Exercise of stock options 1.2 — 25 — — — — 25 Tax withholding payments for net share-settled equity awards — — ( 12 ) — — — — ( 12 ) Series A convertible preferred stock conversion to common stock 25.0 1 534 — — — — 535 Series A convertible preferred stock dividends — — — ( 7 ) — — — ( 7 ) Changes in retirement benefit obligations, net of income tax — — — — — — ( 43 ) ( 43 ) Interest rate hedge activity, net of income tax — — — — — — 1 1 Common stock repurchased — — — — 7.4 ( 294 ) — ( 294 ) Excise tax on common stock repurchases — — — — — ( 3 ) — ( 3 ) Net income — — — 506 — — — 506 BALANCE-December 30, 2023 252.9 $ 3 $ 3,663 $ 1,509 7.8 $ ( 311 ) $ ( 115 ) $ 4,749 See Notes to Consolidated Financial Statements. 41 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Fiscal Years Ended December 30, 2023 December 31, 2022 January 1, 2022 Cash flows from operating activities: Net income $ 506 $ 265 $ 164 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 395 372 378 Gain on disposal of property and equipment, net ( 6 ) ( 5 ) ( 1 ) Tangible asset impairment charges 1 10 1 Intangible asset impairment charges — — 7 Loss on extinguishment of debt 21 — 23 Amortization of deferred financing costs 17 12 15 Deferred tax provision 9 17 38 Share-based compensation expense 56 45 48 Provision (benefit) for doubtful accounts 24 6 ( 24 ) Changes in operating assets and liabilities, net of business acquisitions: Increase in receivables ( 157 ) ( 240 ) ( 386 ) Decrease (increase) in inventories 61 70 ( 413 ) (Increase) decrease in prepaid expenses and other assets ( 67 ) ( 24 ) 4 Increase in accounts payable and cash overdraft liability 200 193 471 Increase in accrued expenses and other liabilities 80 44 94 Net cash provided by operating activities 1,140 765 419 Cash flows from investing activities: Acquisition of businesses - net of cash received ( 196 ) — — Proceeds from sales of divested assets — — 5 Proceeds from sales of property and equipment 10 10 7 Purchases of property and equipment ( 309 ) ( 265 ) ( 274 ) Net cash used in investing activities ( 495 ) ( 255 ) ( 262 ) Cash flows from financing activities: 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 456 1,207 2,305 Principal payments on debt and financing leases ( 766 ) ( 1,620 ) ( 3,105 ) Dividends paid on Series A convertible preferred stock ( 7 ) ( 37 ) ( 28 ) Debt financing costs and fees ( 11 ) ( 4 ) ( 30 ) Repurchase of common stock ( 294 ) ( 14 ) — Proceeds from employee stock purchase plan 24 22 20 Proceeds from exercise of stock options 26 15 15 Purchase of interest rate caps ( 3 ) — — Tax withholding payments for net share-settled equity awards ( 12 ) ( 16 ) ( 14 ) Net cash used in financing activities ( 587 ) ( 447 ) ( 837 ) Net (decrease) increase in cash, cash equivalents and restricted cash 58 63 ( 680 ) Cash, cash equivalents and restricted cash—beginning of year 211 148 828 Cash, cash equivalents and restricted cash—end of year $ 269 $ 211 $ 148 Supplemental disclosures of cash flow information: Conversion of Series A Convertible Preferred Stock $ 534 $ — $ — Interest paid—net of amounts capitalized 294 243 185 Income taxes paid (received)—net 161 68 1 Property and equipment purchases included in accounts payable 39 36 40 Property and equipment transferred to assets held for sale — — 11 Leased assets obtained in exchange for financing lease liabilities 125 207 56 Leased assets obtained in exchange for operating lease liabilities 67 41 32 Cashless exercise of stock options 2 1 1 Paid-in-kind Series A convertible preferred stock dividends — — 15 See Notes to Consolidated Financial Statements. 42 US FOODS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in tables in millions, except share and 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 11, 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 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. The fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, referred to herein as fiscal years 2023, 2022 and 2021, respectively, were 52-week fiscal years. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation —The Company’s consolidated financial statements include the accounts of US Foods and its wholly owned subsidiary, USF, and its subsidiaries. Intercompany transactions have been eliminated in consolidation. Use of Estimates —The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents —The Company considers all highly liquid investments purchased with an original maturity of three or fewer months to be cash equivalents. Accounts Receivable —Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the Company’s accompanying Consolidated Balance Sheets. 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 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. Vendor Consideration and Receivables —The Company participates in various rebate and promotional incentives with its suppliers, primarily through purchase-based programs. Consideration earned is estimated during the year as the Company’s obligations under the programs are fulfilled, which is primarily when products are purchased. Changes in the estimated amount of incentives earned are recognized in the period of change. Vendor consideration is typically deducted from invoices or collected in cash within 30 days of being earned. Vendor receivables represent the uncollected balance of vendor consideration. Since collections occur primarily from deducting the consideration from the amounts due to the vendor, the Company does not experience significant collectability issues. The Company evaluates the collectability of its vendor receivables based on specific vendor information and vendor collection history. 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. 43 The Company records inventories at the lower of cost or market primarily using the last-in, first-out (“LIFO”) method. For 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. As of December 30, 2023 and December 31, 2022, LIFO reserves in the Company’s Consolidated Balance Sheets were $ 488 million and $ 489 million, respectively. As a result of changes in LIFO reserves, cost of goods sold decreased $ 1 million in 2023, and increased $ 147 million and $ 165 million in fiscal years 2022 and 2021, respectively. 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 term of the related lease or the estimated useful lives of the assets. Routine maintenance and repairs are charged to expense as incurred. Applicable interest charges incurred during the construction of new facilities or development of software for internal use are capitalized as one of the elements of cost and are amortized over the useful life of the respective assets. Property and equipment held and used by the Company are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. For purposes of evaluating the recoverability of property and equipment, the Company compares the carrying value of the asset or asset group to the estimated, undiscounted future cash flows expected to be generated by the long-lived asset or asset group. If the future cash flows do not exceed the carrying value, the carrying value is compared to the fair value of such asset. If the carrying value exceeds the fair value, an impairment charge is recorded for the excess. The Company also assesses the recoverability of its vacant land and closed facilities actively marketed for sale. If an asset’s carrying value exceeds its fair value, less an estimated cost to sell, an impairment charge is recorded for the excess. Assets held for sale are not depreciated. Impairments resulting from restructuring activities are recorded as a component of restructuring costs and asset impairment charges in the Company’s Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company’s Consolidated Balance Sheets. Goodwill and Other Intangible Assets —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. 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. For intangible assets with definite lives, the Company assesses impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable. The reporting unit used in assessing goodwill impairment is the Company’s one business segment as described in Note 24, and all goodwill is assigned to the consolidated Company. Impairments are recorded as a component of restructuring costs and asset impairment charges in the Company’s Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company’s Consolidated Balance Sheets. Self-Insurance Programs —The Company estimates its liabilities for claims covering general, fleet, and workers’ compensation. Amounts in excess of certain levels, which range from $ 1 million to $ 15 million per occurrence, are insured as a risk reduction strategy to mitigate catastrophic losses. The workers’ compensation liability is discounted, as the amount and timing of cash payments is reliably determinable given the nature of benefits and the level of historic claim volume to support the actuarial assumptions and judgments used to derive the expected loss payment pattern. The amount accrued is discounted using an interest rate that approximates the U.S. Treasury rate consistent with the duration of the liability. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates. We are primarily self-insured for group medical claims not covered under multiemployer health plans covering certain of our union-represented employees. The Company accrues its self-insured medical liability, including an estimate for incurred but not reported claims, based on known claims and past claims history. These accruals are included in accrued expenses and other current liabilities and other long-term liabilities in the Company’s Consolidated Balance Sheets. Share-Based Compensation —The Company measures compensation expense for share-based awards at fair value as of the date of grant, and recognizes compensation expense over the service period for awards, and as applicable based upon predetermined financial performance conditions for performance share-based awards. Forfeitures are recognized as incurred. Fair value of each option is estimated as of the date of grant using a Black-Scholes option-pricing model. The fair value of time-based and other performance based awards is the closing price per share for the Company’s common stock as reported on 44 the New York Stock Exchange. The fair value of the market performance based awards is estimated using a Monte-Carlo simulation. Shares issued as a result of stock options exercises will be funded with the issuance of new shares. Compensation expense related to our employee stock purchase plan, which allows eligible employees to purchase our common stock at a discount of 15 % represents the difference between the fair market value as of acquisition date and the employee purchase price. Treasury Stock — The company records treasury stock purchases at cost plus excise tax. Business Acquisitions —The Company accounts for business acquisitions under the acquisition method. Assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The operating results of the acquired companies are included in the Company’s consolidated financial statements from the date of acquisition. Cost of Goods Sold —Cost of goods sold includes amounts paid to vendors for products sold, net of vendor consideration, including in-bound freight necessary to bring the products to the Company’s distribution facilities. Depreciation related to processing facilities and equipment is presented in cost of goods sold. Because the majority of the inventories are finished goods, depreciation related to warehouse facilities and equipment is presented in distribution, selling and administrative costs. See “Inventories” above for discussion of the LIFO impact on cost of goods sold. Shipping and Handling Costs —Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are presented in distribution, selling and administrative costs. Shipping and handling costs were $ 2.4 billion, $ 2.3 billion and $ 2.0 billion in fiscal years 2023, 2022 and 2021, respectively. Income Taxes —The Company accounts for income taxes under the asset and liability method. This requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date. Net deferred tax assets are recorded to the extent the Company believes these assets will more likely than not be realized. An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Uncertain tax positions are recorded at the largest amount that is more likely than not to be sustained. The Company adjusts the amounts recorded for uncertain tax positions when its judgment changes, as a result of evaluating new information not previously available. These differences are reflected as increases or decreases to income tax expense or benefit in the period in which they are determined. Derivative Financial Instruments —The Company has utilized derivative financial instruments to assist in managing its exposure to variable interest rates on certain borrowings. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. In April 2023, the Company entered into two , two-year interest rate cap agreements. Interest rate caps, designated as cash flow hedges, are recorded in the Company’s Consolidated Balance Sheets at fair value. The effective portion of gains and losses on the interest rate caps are initially recorded in other comprehensive loss and reclassified to interest expenses during the period in which the hedged transaction affects income. In the normal course of business, the Company enters into forward purchase agreements to procure fuel, electricity and product commodities related to its business. These agreements often meet the definition of a derivative. However, the Company does not measure its forward purchase commitments at fair value as the amounts under contract meet the physical delivery criteria in the normal purchase exception. Concentration Risks —Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. The Company’s cash equivalents are invested primarily in money market funds at major financial institutions. The account balances at these institutions may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there may be a concentration of risk related to amounts invested in excess of FDIC insurance coverage. Credit risk related to accounts receivable is dispersed across a significantly large number of customers located throughout the U.S. The Company attempts to reduce credit risk through initial and ongoing credit evaluations of its customers’ financial condition. There were no receivables from any one customer representing more than 5% of our consolidated gross accounts receivable as of December 30, 2023. 3. RECENT ACCOUNTING PRONOUNCEMENTS Recently Issued and Recently Adopted Accounting Pronouncements In December 2023, the FASB issued ASU No 2023-09 Income Taxes (“Topic 740”) “Improvements to Income Tax Disclosures Topic 740” , which enhances the transparency of income tax disclosures primarily related to rate reconciliation and income taxes paid information. This guidance is effective for fiscal years beginning after December 15, 2024. This guidance is effective on a prospective basis, though retrospective application is permitted. The Company plans to adopt the provisions of ASU No. 45 2023-09 at the beginning of the first quarter of fiscal year 2025 and does not expect the provisions of the new standard to materially affect our financial position, results of operation or cash flows. In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, convertible debt will be accounted for as a single liability measured at its amortized cost. Additionally, the new guidance requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. This guidance is effective for fiscal years beginning after December 15, 2021. The Company adopted the provisions of ASU No. 2020-06 at the beginning of the first quarter of fiscal year 2022, with no impact on the Company’s financial position, results of operations, cash flows or diluted earnings per share reporting. In October 2021, the FASB issued ASU No. 2021-08 Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which amends Accounting Standards Codification (“ASC”) 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) . The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and is to be applied prospectively to business combinations occurring on or after adoption of the new guidance. The Company adopted the provisions of ASU No. 2021-08 at the beginning of the first quarter of fiscal year 2022, with no impact on the Company’s financial position, results of operations or cash flows. In December 2022, the FASB issued ASU No. 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 . 4. 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 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 December 30, 2023 or December 31, 2022. Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.9 billion and $ 1.7 billion as of December 30, 2023 and December 31, 2022, respectively. 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 costs 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 $ 35 million and $ 29 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022, respectively, and $ 39 million and $ 31 million included in other assets in the Company’s Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022, respectively. 46 The following table presents the disaggregation of revenue for each of the Company’s principal product categories: 2023 2022 2021 Meats and seafood $ 11,953 $ 12,375 $ 11,245 Dry grocery products 6,407 5,758 4,979 Refrigerated and frozen grocery products 6,053 5,253 4,453 Dairy 3,727 3,564 2,801 Equipment, disposables and supplies 3,571 3,536 3,090 Produce 1,915 1,840 1,454 Beverage products 1,971 1,731 1,465 Total Net sales $ 35,597 $ 34,057 $ 29,487 5. BUSINESS ACQUISITIONS Saladino’s Acquisition —On December 1, 2023, the Company acquired Saladino’s, a broadline distributor in California for a purchase price of $ 56 million. The acquisition, which was funded with cash from operations, allows US Foods to further expand its reach into California and distribution channels to the southwest United States. The Saladino’s acquisition, reflected in the Company’s consolidated financial statements commencing from the date of acquisition, did not materially affect the Company’s results of operations or financial position. The Company recorded goodwill of $ 14 million and intangible assets of $ 7 million for this acquisition related to customer relationships, which will be amortized on a straight-line basis over an estimated useful life of 15 years. The goodwill recognized from the Saladino’s acquisition is deductible for tax purposes. Saladino’s is integrated into the Company’s foodservice distribution network. Renzi Foodservice Acquisition —On July 7, 2023, the Company acquired Renzi Foodservice , a broadline distributor in New York, for a purchase price of $ 142 million (less the amount of the post-closing working capital adjustment, which was $ 2 million) for a net purchase price of $ 140 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, did not materially affect the Company’s results of operations or financial position. The Company recorded goodwill of $ 58 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. Acquisition and integration costs, which included Saladino’s and Renzi Foodservice as well as previous acquisitions, included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 6 million, $ 16 million and $ 15 million during fiscal years 2023, 2022 and 2021, respectively. 6. ALLOWANCE FOR DOUBTFUL ACCOUNTS A summary of the activity in the allowance for doubtful accounts for the last three fiscal years is as follows: 2023 2022 2021 Balance as of beginning of year $ 30 $ 33 $ 67 Charged (benefit) to costs and expenses, net 24 6 ( 24 ) Customer accounts written off—net of recoveries ( 36 ) ( 9 ) ( 10 ) Balance as of end of year $ 18 $ 30 $ 33 For the year ended December 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. This table excludes the vendor receivable related allowance for doubtful accounts of $ 5 million and $ 8 million as of December 30, 2023 and December 31, 2022, respectively. 7. ASSETS HELD FOR SALE The Company classifies its vacant land and closed facilities as assets held for sale at the time management commits to a plan to sell the asset, the asset is actively marketed and available for immediate sale, and the sale is expected to be completed within one year. Due to market conditions, certain assets may be classified as assets held for sale for more than one year as the Company continues to actively market the assets. 47 During fiscal year 2023, one facility previously held for sale was sold for aggregate cash proceeds of $ 2 million which approximated the carrying value. During fiscal year 2022, no excess facilities or vacant land previously held for future use were transferred to assets held for sale. The Company sold vacant land for cash proceeds of $ 5 million, resulting in a gain on sale of $ 2 million, which was included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income. The Company also sold one excess facility for aggregate cash proceeds of $ 1 million which approximated the carrying value. The changes in assets held for sale for fiscal years 2023 and 2022 were as follows: 2023 2022 Balance as of beginning of year $ 2 $ 8 Assets sold ( 2 ) ( 6 ) Balance as of end of the year $ — $ 2 8. PROPERTY AND EQUIPMENT Property and equipment as of December 30, 2023 and December 31, 2022 consisted of the following: December 30, 2023 December 31, 2022 Range of Useful Lives Land $ 401 $ 397 Buildings and building improvements 1,772 1,713 5 – 40 years Transportation equipment 1,461 1,340 5 – 10 years Warehouse equipment 597 569 5 – 12 years Office equipment, furniture and software 1,169 1,056 3 – 7 years Construction in process 99 77 5,499 5,152 Less accumulated depreciation and amortization ( 3,219 ) ( 2,981 ) Property and equipment—net $ 2,280 $ 2,171 Transportation equipment included $ 594 million and $ 575 million of financing lease assets as of December 30, 2023 and December 31, 2022, respectively. Office equipment, furniture and software included $ 5 million of financing lease assets as of both December 30, 2023 and December 31, 2022. Buildings and building improvements included $ 148 million and $ 78 million of financing lease assets as of December 30, 2023 and December 31, 2022, respectively. Accumulated amortization of financing lease assets was $ 297 million and $ 263 million as of December 30, 2023 and December 31, 2022, respectively. Interest capitalized was not material in both fiscal years 2023 and 2022. Depreciation and amortization expense of property and equipment, including amortization of financing lease assets, was $ 349 million, $ 327 million and $ 323 million for fiscal years 2023, 2022 and 2021, respectively. 9. 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, 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. Amortizable customer relationships, trade names and noncompete agreements are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships and amortizable trade names are amortized over the estimated useful lives (which range from approximately 3 to 15 years). Amortization expense was $ 46 million, $ 45 million and $ 55 million for fiscal years 2023, 2022 and 2021, respectively. The weighted-average remaining useful life of all definite lived intangibles was approximately twelve years as of December 30, 2023. Amortization of these definite lived intangible assets is estimated to be $ 49 million for each of fiscal years 2024, 2025, 2026, 2026 and 2027, and $ 288 million in the aggregate thereafter. 48 Goodwill and other intangibles—net consisted of the following: December 30, 2023 December 31, 2022 Goodwill $ 5,697 $ 5,625 Other intangibles—net Customer relationships—amortizable: Gross carrying amount $ 715 $ 655 Accumulated amortization ( 189 ) ( 144 ) Net carrying value 526 511 Trade names—amortizable: Gross carrying amount 4 4 Accumulated amortization ( 2 ) ( 1 ) Net carrying value 2 3 Noncompete agreements—amortizable: Gross carrying amount 4 — Accumulated amortization — — Net carrying value 4 — Brand names and trademarks—not amortizing 271 271 Total other intangibles—net $ 803 $ 785 The increases in goodwill and the gross carrying amounts of customer relationships and noncompete agreements are attributable to the Renzi Foodservice and the Saladino’s acquisitions. See Note 5, 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. The Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of the first day of the third quarter of fiscal year 2023, with no impairments noted. For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 24, Business Information. The Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. In performing the qualitative assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affect the fair value of its goodwill. These factors include external factors such as market conditions, macroeconomic, and industry, as well as entity-specific factors, such as actual and planned financial performance. Based upon the Company’s qualitative fiscal 2023 annual goodwill impairment analysis, the Company concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment. The Company’s fair value estimates of the brand names and trademarks indefinite-lived intangible assets are based on a relief from royalty method. The fair value of these intangible assets is determined for comparison to the corresponding carrying value. If the carrying value of these assets exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Key assumptions used in the relief from royalty method included the long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate. These assumptions require significant judgment by management, and are therefore considered Level 3 inputs in the fair value hierarchy. Based upon the Company’s fiscal year 2023 annual impairment analysis, the Company concluded the fair value of its brand names and trademarks exceeded its carrying value. During fiscal year 2021, the Company implemented rebranding initiatives related to the integration of a trade name acquired as part of an earlier acquisition. As a result of the rebranding initiatives, the Company recognized an impairment charge of $ 7 million, which was included in restructuring costs and asset impairment charges in the Company’s Consolidated Statements of Comprehensive Income. The remaining carrying value of the acquired trade name of $ 3 million was reclassified to trade names—amortizable and will be amortized with an estimated remaining useful life of 10 years. No other impairments were noted as part of the annual impairment assessment for fiscal year 2021. Due to the many variables inherent in estimating fair value and the relative size of the recorded indefinite-lived intangible assets, differences in assumptions may have a material effect on the results of the Company’s impairment analysis in future periods. 49 10. 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. The Company’s assets and liabilities measured at fair value on a recurring basis as of December 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows: December 30, 2023 Level 1 Level 2 Level 3 Total Assets Money market funds $ 208 $ — $ — $ 208 Interest Rate Caps $ — $ 1 $ — $ 1 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, except as further disclosed in Note 9, 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 swaps and interest rate caps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate debt. 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 December 30, 2023: 50 Balance at December 30, 2023 Balance Sheet Location Fair Value Derivatives designed as hedging instruments Interest Rate Caps Other current assets $ 1 Interest Rate Caps Other noncurrent assets $ — 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 hedges during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively. The following table presents the effect of the Company’s interest rate caps in its Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022: Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in Accumulated 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 fiscal year ended December 30, 2023 Interest rate caps $ 1 Interest expense—net $ — For the fiscal year ended December 31, 2022 Interest rate swaps $ — Interest expense—net $ — For the fiscal year ended January 1, 2022 Interest rate swaps $ — Interest expense—net $ 5 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 $ 4.7 billion, compared to its carrying value of $ 4.7 billion as of December 30, 2023. The fair value of the Company’s total debt approximated $ 4.6 billion compared to its carrying value of $ 4.8 billion as of December 31, 2022. 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 Secured Senior Notes due 2025 were redeemed in the third quarter of 2023. The fair value of the Company’s 6.88 % senior unsecured notes due September 15, 2028 (the “Unsecured Senior Notes due 2028”) was $ 0.5 billion as of December 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 $ 0.9 billion and $ 0.8 billion as of December 30, 2023 and December 31, 2022, respectively. The fair value of the Company’s 4.630 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.5 billion and $ 0.4 billion as of December 30, 2023 and December 31, 2022, respectively. The fair value of the Company’s 7.25 % senior unsecured notes due January 15, 2032 (the “Unsecured Senior Notes due 2032”) was $ 0.5 billion as of December 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. 51 11. DEBT Total debt consisted of the following: Debt Description Maturity Interest Rate as of December 30, 2023 Carrying Value as of December 30, 2023 Carrying Value as of December 31, 2022 ABL Facility December 7, 2027 8.50 % $ — $ — 2019 Incremental Term Loan Facility (net of $ 11 and $ 19 of unamortized deferred financing costs, respectively) September 13, 2026 7.47 % 1,105 1,232 2021 Incremental Term Loan Facility (net of $ 3 and $ 6 of unamortized deferred financing costs, respectively) November 22, 2028 7.97 % 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 4.63 % 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 2023–2037 1.26 % - 8.31 % 463 446 Other debt January 1, 2031 5.75 % 8 8 Total debt 4,674 4,854 Current portion of long-term debt ( 110 ) ( 116 ) Long-term debt $ 4,564 $ 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 December 30, 2023, after considering interest rate caps that fixed the variable component of the interest rate on the total notional amount of $ 450 million of the current principal of the Term Loan Facilities described below, approximately 30 % of the Company’s total debt bore interest at a floating rate. Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of December 30, 2023, were as follows: 2024 $ 106 2025 100 2026 1,176 2027 73 2028 1,273 Thereafter 1,980 $ 4,708 ABL Facility On December 7, 2022, USF entered into an amendment to its asset based senior secured revolving credit facility (the “ABL Facility”). Pursuant to this amendment, the total aggregate amount of commitments under the ABL facility was increased from $ 1,990 million to $ 2,300 million. The amendment also replaced the London Interbank Offered Rate (“LIBOR”) interest rate benchmark with a forward-looking term rate based on the Term Secured Overnight Financing Rate (“Term SOFR”) as administered by the Federal Reserve Bank of New York, as determined in accordance with the ABL Facility. Extensions of credit under the ABL Facility are subject to availability under a borrowing base comprised of various percentages of the value of eligible accounts receivable, inventory, transportation equipment and certain unrestricted cash and cash equivalents, which, along with other assets, also serve as collateral for borrowings under the ABL Facility. The ABL Facility is scheduled to mature on December 7, 2027, subject to a springing maturity date in the event that more than $ 300 million of aggregate principal amount of earlier maturing indebtedness under USF’s Term Loan Credit Agreement or any of USF’s Unsecured Senior Notes due 2029 or Unsecured Senior Notes due 2030 (the “Senior Notes”) (described below) remains outstanding on a date that is sixty 52 (60) days prior to such earlier maturity date for such indebtedness under the Term Loan Credit Agreement or any of such Senior Notes. 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 under 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 a 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 December 30, 2023, was 0.00 % for ABR loans and 1.00 % for SOFR loans. The ABL Facility also carries letter of credit financing fees equal to 0.125 % per annum in respect of each letter of credit outstanding, letter of credit participation fees equal to a percentage per annum equal to the applicable Term SOFR margin minus the letter of credit facing fees in respect of each letter of credit outstanding and a commitment fee of 0.25 % per annum on the average unused amount of the commitments under the ABL Facility. The weighted-average interest rate on outstanding borrowings for the ABL Facility was 8.27 % and 2.87 % for fiscal years 2023 and 2022, respectively. The Company incurred $ 4 million of third party costs in connection with the ABL Facility amendment which were capitalized as deferred financing costs recorded in other assets in the Company’s Consolidated Balance Sheet. These deferred financing costs, along with $ 3 million of unamortized deferred financing costs related to the former asset based senior secured revolving credit facility, will be amortized through December 7, 2027, the ABL Facility maturity date. USF had no outstanding borrowings, and had outstanding letters of credit totaling $ 567 million, under the ABL Facility as of December 30, 2023. The outstanding letters of credit are entered into in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases. There was available capacity of $ 1,733 million under the ABL Facility as of December 30, 2023. Term Loan Facilities The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”), provides USF with an incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”), an incremental senior secured term loan borrowed in November 2021 (the “2021 Incremental Term Loan Facility”) and the right to request additional incremental senior secured term loan commitments. 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 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 $ 1,105 million, net of $ 11 million of unamortized deferred financing costs, as of December 30, 2023. During fiscal year 2023 the Company voluntarily prepaid $ 120 million 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 is scheduled to mature on September 13, 2026. Borrowings under the 2019 Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of SOFR-based borrowings. The 2019 Incremental Term Loan Facility may require mandatory repayments if certain assets are sold. 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 December 30, 2023. During fiscal year 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 2019 Incremental Term Loan Facility plus a margin of 1.50 %. 53 On August 22, 2023, the 2021 Incremental Term Loan Facility was 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 December 30, 2023 were carried forward and will be amortized through the maturity date of the term loan facility. The 2021 Incremental Term Loan Facility is scheduled to mature on November 22, 2028. Borrowings under the 2021 Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of SOFR-based borrowings The 2021 Incremental Term Loan Facility may require mandatory repayments if certain assets are sold. 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 December 30, 2023. The Unsecured Senior Notes due 2028 bear interest at a rate of 6.88 % 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 December 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. On or after February 15, 2024, the Unsecured Senior Notes due 2029 are redeemable, at USF’s option, in whole or in part at a price of 102.375 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. On or after February 15, 2025 and February 15, 2026, the optional redemption price for the Unsecured Senior Notes due 2029 declines to 101.188 % and 100.000 %, 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 2030 The Unsecured Senior Notes due 2030 had an outstanding balance of $ 496 million, net of $ 4 million of unamortized deferred financing costs, as of December 30, 2023. The Unsecured Senior Notes due 2030 bear interest at a rate of 4.630 % per annum and will mature on June 1, 2030. On or after June 1, 2025, the Unsecured Senior Notes due 2030 are redeemable, at USF’s option, in whole or in part at a price of 102.313 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. On or after June 1, 2026 and June 1, 2027, the optional redemption price for the Unsecured Senior Notes due 2030 declines to 101.156 % and 100.000 %, 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 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 54 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 December 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. Financing Leases Obligations under financing leases of $ 463 million as of December 30, 2023 consist primarily of amounts due for transportation equipment and building leases. Security Interests Substantially all of the Company’s assets are pledged under the various agreements governing our indebtedness. The ABL Facility is secured by certain designated receivables, as well as inventory and certain owned transportation equipment and certain unrestricted cash and cash equivalents. Additionally, the lenders under the ABL Facility have a second priority interest in all of the capital stock of USF and its subsidiaries and substantially all other non-real estate assets of USF and its subsidiaries. USF’s obligations under the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility are secured by all the capital stock of USF and its subsidiaries and substantially all the non-real estate assets of USF. Additionally, the lenders under the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility have a second priority interest in the inventory and certain transportation equipment pledged under the ABL Facility. 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 $ 2.0 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 December 30, 2023. The agreements governing our indebtedness also contain customary events of default. Those include, without limitation, the failure to pay interest or principal when it is due under the agreements, cross default provisions, the failure of representations and warranties contained in the agreements to be true when made, and certain insolvency events. If an event of default occurs and remains uncured, the principal amounts outstanding, together with all accrued unpaid interest and other amounts owed, may be declared immediately due and payable. Were such an event to occur, the Company would be forced to seek new financing that may not be on as favorable terms as its existing debt. The Company’s ability to refinance its indebtedness on favorable terms, or at all, is directly affected by the then prevailing economic and financial conditions. In addition, the Company’s ability to incur secured indebtedness (which may enable it to achieve more favorable terms than the incurrence of unsecured indebtedness) depends in part on the value of its assets. This, in turn, is dependent on the strength of its cash flows, results of operations, economic and market conditions, and other factors. 2021 Refinancing Activities In February 2021, USF completed a private offering of the Unsecured Senior Notes due 2029 and used the proceeds, together with cash on hand, to redeem all of the Company’s then outstanding 5.875 % Unsecured Senior Notes due 2024 (the “Unsecured Senior Notes due 2024”), and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility. In connection with the repayment of the Unsecured Senior Notes due 2024 and the 2020 Incremental Term Loan Facility, the Company applied debt extinguishment accounting and recorded $ 23 million in the Company’s Consolidated Statements of Comprehensive Income, consisting of a $ 14 million write-off of pre-existing unamortized deferred financing costs related to the redeemed facilities and a $ 9 million early redemption premium related to the Unsecured Senior Notes due 2024. In November 2021, USF entered into the 2021 Incremental Term Loan Facility and completed a private offering of Unsecured Senior Notes due 2030 and used the proceeds and cash on hand, to repay all of the then outstanding borrowings under the Initial Term Loan Facility. In connection with the repayment of the Initial Term Loan Facility, the Company applied debt extinguishment accounting and recorded $ 2 million in the Company’s Consolidated Statements of Comprehensive Income, primarily consisting of a write-off of pre-existing unamortized deferred financing costs related to the Initial Term Loan Facility. 55 12. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES Accrued expenses and other long-term liabilities consisted of the following: December 30, 2023 December 31, 2022 Accrued expenses and other current liabilities: Salary, wages and bonus expenses $ 213 $ 205 Operating expenses 94 93 Workers’ compensation, general and fleet liability 52 41 Group medical liability 27 33 Customer rebates and other selling expenses 134 125 Property and sales tax payable 64 49 Operating lease liability 43 36 Restructuring liabilities 7 3 Interest payable 40 33 Other 57 32 Total accrued expenses and other current liabilities $ 731 $ 650 Other long-term liabilities: Workers’ compensation, general and fleet liability $ 152 $ 145 Operating lease liability 265 246 Accrued pension and other postretirement benefit obligations 5 5 Uncertain tax positions 32 32 Other 15 18 Total Other long-term liabilities $ 469 $ 446 Self-Insured Liabilities — The Company is self-insured for general liability, fleet liability and workers’ compensation claims. Claims in excess of certain levels are insured by external parties. The workers’ compensation liability, included in the table above under “Workers’ compensation, general liability and fleet liability,” is recorded at present value. This table summarizes self-insurance liability activity for the last three fiscal years: 2023 2022 2021 Balance as of beginning of the year $ 186 $ 192 $ 175 Charged to costs and expenses 123 107 95 Reinsurance recoverable 13 2 7 Payments ( 118 ) ( 115 ) ( 85 ) Balance as of end of the year $ 204 $ 186 $ 192 Discount rate 4.80 % 4.25 % 0.49 % Estimated future payments for self-insured liabilities are as follows: 2024 $ 58 2025 45 2026 26 2027 18 2028 14 Thereafter 89 Total self-insured liability 250 Less amount representing interest ( 46 ) Present value of self-insured liability $ 204 56 13. RESTRUCTURING LIABILITIES The following table summarizes the changes in the restructuring liabilities for the last three fiscal years: Severance and Related Costs Facility Closing Costs Total Balance as of January 2, 2021 $ 1 $ 1 $ 2 Current period costs (benefits) 5 ( 1 ) 4 Payments, net ( 3 ) — ( 3 ) Balance as of January 1, 2022 3 — 3 Current period costs 3 — 3 Payments, net ( 3 ) — ( 3 ) Balance as of December 31, 2022 3 — 3 Current period costs 11 3 14 Payments, net ( 7 ) ( 3 ) ( 10 ) Balance as of December 30, 2023 $ 7 $ — $ 7 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. 2023 Activities During fiscal year 2023, the Company incurred restructuring costs of $ 14 million for severance and related costs associated with work force reductions and office closures. 2022 Activities During fiscal year 2022, the Company incurred restructuring costs of $ 3 million for severance and related costs associated with support office work force reductions. 2021 Activities During fiscal year 2021, the Company incurred net restructuring costs of $ 4 million for severance and related costs associated with the closure of an excess facility and initiatives to improve operational effectiveness. See Note 9, Goodwill and Other Intangibles, for discussion related to asset impairment charges incurred during fiscal years 2022 and 2021. 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 15, Related Party 57 Transactions. In connection with the May 26, 2023 conversion, the Company repurchased $ 150 million of common stock. See Note 16, Share-Based Compensation, Common Stock Issuances and Common Stock, for information on the Company’s Share Repurchase Program. In accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the “Certificate of Designations”) previously issued to KKR Fresh Aggregator L.P. (“KKR”), the Company paid dividends on the shares of the Series A Preferred Stock in the form of (a) 9,154 shares of Series A Preferred Stock on March 31, 2021, plus a de minimis amount of cash in lieu of fractional shares, (b) cash in the amount of $ 28 million in the aggregate during subsequent quarters during fiscal year 2021, (c) cash in the amount of $ 37 million during fiscal year 2022 and (d) cash in the amount of $ 7 million during fiscal year 2023. The following table summarizes the activity for the outstanding Series A Preferred Stock and associated carrying value for fiscal years 2023, 2022 and 2021: Series A Preferred Stock Shares Carrying Value Balance, January 2, 2021 523,127 $ 519 Shares issued as paid in kind dividend - Series A Preferred Stock 9,154 15 Balance, January 1, 2022 532,281 534 Shares issued as paid in kind dividend - Series A Preferred Stock — — Balance, December 31, 2022 532,281 534 Shares converted to common stock, Q1 2023 ( 161,237 ) ( 162 ) Shares converted to common stock, Q2 2023 ( 371,044 ) ( 372 ) Balance December 30, 2023 — $ — 15. RELATED PARTY TRANSACTIONS As of December 30, 2023, 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. 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. KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received an aggregate of $ 2 million for debt advisory services rendered in connection with the Company’s 2021 debt refinancing activities. As reported by the administrative agent of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility (the “Term Loan Agent”), investment funds managed by an affiliate of KKR held approximately $ 15 million in aggregate principal amount of the 2019 Incremental Term Loan Facility as of December 31, 2022. 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. 16. SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK Our long-term incentive plans provide for the grant of various forms of share-based awards to our directors, officers and other eligible employees. Total compensation expense related to share-based arrangements was $ 56 million, $ 45 million and $ 48 million for fiscal years 2023, 2022 and 2021, respectively, and is reflected in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income. The total income tax benefit associated with share-based compensation recorded in the Company’s Consolidated Statements of Comprehensive Income was $ 12 million, $ 9 million and $ 10 million for fiscal years 2023, 2022 and 2021, respectively. 58 In addition, the Company sponsors an employee stock purchase plan to provide eligible employees with the opportunity to acquire shares of our common stock at a discount of 15 % of the fair market value of the common stock on the date of purchase, and as such, the plan is considered compensatory for federal income tax purposes. The Company recorded $ 4 million of share-based compensation expense for fiscal years 2023, 2022 and 2021, respectively, associated with the employee stock purchase plan. Stock Options —Certain directors, executive officers and other eligible employees have been granted time-based stock options (the “Time-Based Options”) and performance-based options (the “Performance Options” and, together with the Time-Based Options, the “Options”) to purchase shares of our common stock. The Time-Based Options generally vest and become exercisable ratably over a three-year period from the date of the grant. Share-based compensation expense related to the Time-Based Options was $ 3 million, $ 6 million and $ 12 million for fiscal years 2023, 2022 and 2021, respectively. The Performance Options generally vest and become exercisable ratably over a period o f three years , from the date of the grant, provided that the Company achieves a predetermined financial performance condition established by the Compensation and Human Capital Committee of our Board of Directors for the respective award tranche. Based on the Company’s performance relative to the award agreements, no share-based compensation expense was recorded in fiscal year 2023, 2022 and 2021 related to the Performance Options. The Options are nonqualified, with exercise prices equal to the estimated fair value of a share of common stock as of the date of the grant. Exercise prices range from $ 12.56 to $ 38.17 per share and generally have a 10-year life. The fair value of each Option is estimated as of the date of grant using a Black-Scholes option-pricing model. The weighted-average assumptions for Options granted in fiscal year 2021 are included in the following table. No options were granted in fiscal year 2022 and 2023. 2021 Expected volatility 53.0 % Expected dividends — Risk-free interest rate 1.1 % Expected term (in years) 6.1 Expected volatility is calculated leveraging the historical volatility of public companies similar to US Foods. The assumed dividend yield is zero because the Company has not historically paid dividends. The risk-free interest rate is the implied zero-coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term, as of the grant date. Due to a lack of relevant historical data, the simplified approach was used to determine the expected term of the options. The summary of Options outstanding and changes during fiscal year 2023 are presented below: Time Options Performance Options Total Options Weighted- Average Fair Value Weighted- Average Exercise Price Weighted- Average Remaining Contractual Years Outstanding as of December 31, 2022 3,650,606 186,321 3,836,927 $ 9.05 $ 24.32 Granted — — — $ — $ — Exercised ( 1,168,490 ) ( 77,769 ) ( 1,246,259 ) $ 7.82 $ 22.14 Forfeited ( 49,335 ) ( 2,547 ) ( 51,882 ) $ 15.50 $ 31.62 Outstanding as of December 30, 2023 2,432,781 106,005 2,538,786 $ 9.52 $ 25.24 5.2 Vested and exercisable as of December 30, 2023 2,238,231 106,005 2,344,236 $ 8.77 $ 24.28 5.1 The weighted-average grant date fair value of Options granted for fiscal year 2021 was $ 18.59 . During fiscal years 2023, 2022 and 2021, Options were exercised with total intrinsic values of $ 22 million, $ 13 million and $ 14 million, respectively, representing the excess of fair value over the exercise price. There was $ 1 million of total unrecognized compensation costs related to unvested Options expected to vest as of December 30, 2023, which is expected to be recognized over a weighted-average period of one year . 59 Restricted Stock Awards —Certain executive officers have been granted restricted stock awards (“RSAs”), some of which vest ratably over a three-year period from the date of grant (the “Time-Based RSA”) and others of which vest to the extent certain performance conditions are met (the “Performance RSAs”). The Company recorded no share-based compensation expense for the Time-Based RSAs in fiscal year 2023, de minimis expense for 2022, and $ 1 million for 2021. The Performance RSAs were granted assuming the maximum level of performance and vest on the third anniversary of the grant date if specific performance conditions over a three-year performance period are achieved. The number of shares eligible to vest on the vesting date range from zero to 200 % of the target award amount, based on the achievement of the performance conditions. The fair value of the Performance RSAs is measured using the fair market value of our common stock on the date of grant and recognized over the three-year vesting period for the portion of the award that is expected to vest. Compensation expense for the Performance RSAs is remeasured as of the end of each reporting period, based on management’s evaluation of whether, and to what extent, it is probable that performance conditions will be met. The Company recorded no share-based compensation expense for the Performance-Based RSAs in fiscal year 2023, de minimis expense for 2022, and $ 1 million for 2021. There were no RSAs granted in fiscal years 2023, 2022 and 2021. There was no unrecognized compensation expense related to the RSAs as of December 30, 2023. Restricted Stock Units —Certain directors, executive officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”), performance-based restricted stock units (the “Performance RSUs”) and market performance-based restricted stock units (the “Market Performance RSUs” and collectively with the Time-Based RSUs and Performance RSUs, the “RSUs”). The Time-Based RSUs generally vest ratably over three years , starting on the anniversary date of the grant. For fiscal years 2023, 2022 and 2021, the Company recognized $ 35 million, $ 29 million and $ 26 million, respectively, in share-based compensation expense related to the Time-Based RSUs. The Performance RSUs generally vest over a three-year period, as and to the extent predetermined performance conditions are met. The fair value of each share underlying the Performance RSUs is measured at the fair market value of our common stock on the date of grant and recognized over the vesting period for the portion of the award that is expected to vest. Compensation expense for the Performance RSUs is remeasured as of the end of each reporting period, based on management’s evaluation of whether it is probable that the performance conditions will be met. The Company recognized $ 11 million, $ 4 million and $ 1 million of share-based compensation expense in fiscal years 2023, 2022 and 2021, respectively, for the Performance RSUs. During fiscal year 2021, the Company granted Market Performance RSUs to certain executive officers and other eligible employees. These Market Performance RSUs awards vest at the end of a four-year performance period contingent on our achievement of certain total shareholder return performance (“TSR”) targets during the performance period. The grant date fair value of the Market Performance RSUs was estimated using a Monte-Carlo simulation. The Company recognized $ 2 million, $ 1 million and $ 3 million of share-based compensation expense in fiscal years 2023, 2022 and 2021, respectively, for the Market Performance RSUs. A summary of RSUs outstanding and changes during fiscal year 2023 is presented below. Time-Based RSUs Performance RSUs Market Performance RSUs Total RSUs Weighted- Average Fair Value Unvested as of December 31, 2022 2,172,937 391,776 209,327 2,774,040 $ 31.62 Granted 1,441,470 604,074 168,162 2,213,706 $ 35.71 Vested ( 1,088,926 ) — — ( 1,088,926 ) $ 24.78 Forfeited ( 337,853 ) ( 143,475 ) ( 57,089 ) ( 538,417 ) $ 36.07 Unvested as of December 30, 2023 2,187,628 852,375 320,400 3,360,403 $ 35.82 The weighted-average grant date fair values for the RSUs granted in fiscal years 2023, 2022 and 2021 was $ 35.71 , $ 35.81 and $ 37.74 , respectively. As of December 30, 2023, there was $ 70 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of two years. Share Repurchase Program —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. For the year ended 60 December 30, 2023, the Company repurchased 7,396,224 shares at an aggregate purchase price of approximately $ 294 million under the program. Additionally, during the year ended December 30, 2023, the Company recorded $ 3 million of excise tax associated with common stock repurchases. At December 30, 2023, there was approximately $ 192 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. 17. LEASES The Company leases certain distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use (“ROU”) asset in the Company’s Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term as of commencement date. For the Company’s leases that do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the information available as of commencement date in determining the present value of future payments. The lease terms may include options to extend, terminate or buy out the lease. When it is reasonably certain that the Company will exercise these options, the associated payments are included in ROU assets and the estimated lease liabilities. Leases with an initial term of 12 months or less are not recorded in the Company’s Consolidated Balance Sheets. The Company recognizes lease expense for leases on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. For office and warehouse equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. As of December 30, 2023, lease agreements included residual value guarantees of up to $ 238 million that could potentially come due in future periods. For leases which we believe amounts will be owed under these guarantees we have included the probable residual value guarantee within the lease payments to measure the right-of-use assets and lease liabilities. During 2022, the Company entered into new lease agreements for four distribution facilities that were previously classified as operating leases. As a result of terminating the original leases, the Company recognized a charge of $ 9 million, which was recorded in distribution, selling and administrative costs. These new leases are classified as financing leases, were measured using our incremental borrowing rate and are included in our right of use assets and lease liabilities in the Consolidated Balance Sheets. Rental payments are calculated at the applicable reference rate plus a margin. The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheets: Leases Consolidated Balance Sheet Location December 30, 2023 December 31, 2022 Assets Operating Other assets $ 290 $ 265 Financing Property and equipment-net (1) 450 395 Total leased assets $ 740 $ 660 Liabilities Current: Operating Accrued expenses and other current liabilities $ 43 $ 36 Financing Current portion of long-term debt 95 92 Noncurrent: Operating Other long-term liabilities 265 246 Financing Long-term debt 367 354 Total lease liabilities $ 770 $ 728 (1) Financing lease assets are recorded net of accumulated amortization of $ 297 million and $ 263 million as of December 30, 2023 and December 31, 2022, respectively. 61 The following table presents the location of lease costs in fiscal years 2023, 2022 and 2021 in the Company’s Consolidated Statements of Comprehensive Income: Lease Cost Statements of Comprehensive Income Location 2023 2022 2021 Operating lease cost Distribution, selling and administrative costs $ 59 $ 69 $ 58 Financing lease cost: Amortization of leased assets Distribution, selling and administrative costs 86 70 73 Interest on lease liabilities Interest expense-net 22 11 10 Short-term lease cost Distribution, selling and administrative costs 2 2 1 Variable lease cost Distribution, selling and administrative costs 12 10 11 Net lease cost $ 181 $ 162 $ 153 Future lease payments under lease agreements as of December 30, 2023 were as follows: Maturity of Lease Liabilities Operating Leases Financing Lease Obligation Total 2024 $ 62 $ 113 $ 175 2025 63 104 167 2026 57 94 151 2027 50 81 131 2028 39 56 95 After 2028 130 81 211 Total lease payments 401 529 930 Less amount representing interest ( 93 ) ( 67 ) ( 160 ) Present value of lease liabilities $ 308 $ 462 $ 770 Other information related to lease agreements for fiscal years 2023, 2022 and 2021 was as follows: Cash Paid For Amounts Included In Measurement of Liabilities 2023 2022 2021 Operating cash flows from operating leases $ 62 $ 56 $ 55 Operating cash flows from financing leases 21 11 10 Financing cash flows from financing leases 111 73 87 Lease Term and Discount Rate December 30, 2023 December 31, 2022 January 1, 2022 Weighted-average remaining lease term (years): Operating leases 7.57 8.32 8.30 Financing leases 7.03 6.36 5.74 Weighted-average discount rate: Operating leases 6.5 % 6.5 % 6.1 % Financing leases 4.2 % 4.1 % 3.2 % 18. RETIREMENT PLANS The Company sponsors a defined benefit pension plan and 401(k) plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents. Company Sponsored Defined Benefit Plans — The Company sponsors the US Foods Consolidated Defined Benefit Retirement Plan (the “Retirement Plan”), a qualified defined benefit retirement plan, that pays benefits to eligible employees at the time of retirement, using actuarial formulas based upon a participant’s years of credited service and compensation. Only certain union associates are eligible to participate and continue to accrue benefits under the plan per the collective bargaining 62 agreements. The plan is closed and frozen to all other employees. The Company also maintains postretirement health and welfare plans for certain employees. Amounts related to the Retirement Plan and other postretirement plans recognized in the Company’s consolidated financial statements are determined on an actuarial basis. In the quarter ending July 1, 2023, the Company issued a notice of intent to terminate the majority of the Retirement Plan. This was previously approved by the Company’s Board of Directors. Effective December 30, 2023, the Retirement Plan was split into the Retirement Plan that is continuing, the “Ongoing Plan”, and the portion of the Retirement Plan that is terminating, the “Terminating Plan.” The Company has commenced the plan termination process for the Terminating Plan and expects all benefits to be settled during 2024, either through a lump-sum payment to participants or the purchase of an annuity offering on behalf of the participants.. As the amount of the settlement depends on a number of factors determined as of the Terminating Plan liquidation date, including the annuity pricing, interest rate environment and asset experience, we are currently unable to determine the ultimate cost of the settlement of the Terminating Plan at this time. No cash contributions were required in the current fiscal year to support the Terminating Plan transaction. As a result of the planned termination, the net funded status of the Terminating Plan is recorded within accrued expenses and other current liabilities in the Consolidated Balance Sheet as of December 20, 2023. The components of net periodic pension benefit costs (credits) for the Retirement Plan the last three fiscal years were as follows: 2023 2022 2021 Components of net periodic pension benefit (credits) costs: Service cost $ 2 $ 3 $ 3 Interest cost 38 30 29 Expected return on plan assets ( 47 ) ( 52 ) ( 54 ) Amortization of net loss 3 — — Net periodic pension benefit (credits) costs $ ( 4 ) $ ( 19 ) $ ( 22 ) Other postretirement benefit costs were de minimis for fiscal years 2023, 2022 and 2021. The service cost component of net periodic benefit (credits) costs is included in distribution, selling and administrative costs, while the other components of net periodic benefit (credits) costs are included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. The Company did not make a significant contribution to the Retirement Plan in fiscal years 2023, 2022 and 2021. There have been no non-cash settlement costs incurred in fiscal years 2023, 2022, and 2021. Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for pension benefits for the last three fiscal years were as follows: 2023 2022 2021 Changes recognized in accumulated other comprehensive loss: Actuarial (loss) gain $ ( 58 ) $ ( 73 ) $ 14 Amortization of net loss 3 — — Net amount recognized $ ( 55 ) $ ( 73 ) $ 14 Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for other postretirement benefits for the last three fiscal years were de minimis. 63 The funded status of the Retirement Plan for the last three fiscal years was as follows: Pension Benefits 2023 2022 2021 Change in benefit obligation: Benefit obligation as of beginning of year $ 720 $ 1,016 $ 1,061 Service cost 2 3 3 Interest cost 38 30 29 Actuarial (gain) loss 58 ( 274 ) ( 30 ) Benefit disbursements ( 41 ) ( 55 ) ( 47 ) Projected benefit obligation as of end of year 777 720 1,016 Change in plan assets: Fair value of plan assets as of beginning of year 753 1,103 1,112 (Loss) return on plan assets 48 ( 295 ) 38 Benefit disbursements ( 41 ) ( 55 ) ( 47 ) Fair value of plan assets as of end of year 760 753 1,103 Net funded status $ ( 17 ) $ 33 $ 87 The net funded status of the Retirement Plan for fiscal year 2023 decreased from a net asset of $ 33 million to a net liability of $ 17 million, as a result of market conditions, adjustments related to the Terminating Plan and actuarial losses. The net funded status of the Retirement Plan for fiscal year 2022 decreased from a net asset of $ 87 million to a net asset of $ 33 million, primarily due to negative investment returns on assets, offset by an increase in the discount rate. The fiscal year 2023 pension benefits actuarial loss of $ 58 million was primarily due to a decrease in the discount rate and terminating plan adjustments. The fiscal year 2022 pension benefits actuarial gain of $ 274 million was primarily due to an increase in the discount rate. The fiscal year 2021 pension benefits actuarial gain of $ 30 million was primarily due to an increase in the discount rate. The funded status of the Other Post Retirement Plans for the last three fiscal years was as follows: Other Postretirement Plans 2023 2022 2021 Change in benefit obligation: Benefit obligation as of beginning of year $ 5 $ 6 $ 6 Benefit disbursements ( 1 ) ( 1 ) ( 1 ) Other 1 — 1 Benefit obligation as of end of year 5 5 6 Change in plan assets: Fair value of plan assets as of beginning of year — — — Employer contribution 1 1 1 Benefit disbursements ( 1 ) ( 1 ) ( 1 ) Fair value of plan assets as of end of year — — — Net funded status $ ( 5 ) $ ( 5 ) $ ( 6 ) Service cost, interest cost and actuarial (gain) loss for other postretirement benefits were de minimis for fiscal years 2023, 2022 and 2021. 64 The amounts recognized on the Company’s Consolidated Balance Sheets related to the company-sponsored defined benefit plans and other postretirement benefit plans consisted of the following: Pension Benefits 2023 2022 2021 Amounts recognized in the consolidated balance sheets consist of the following: Prepaid benefit obligation—noncurrent $ — $ 34 $ 89 Accrued benefit obligation—current ( 16 ) — — Accrued benefit obligation—noncurrent ( 1 ) ( 1 ) ( 1 ) Net amount recognized in the consolidated balance sheets $ ( 17 ) $ 33 $ 88 Amounts recognized in accumulated other comprehensive loss consist of the following: Net loss $ 213 $ 159 $ 85 Net loss recognized in accumulated other comprehensive loss $ 213 $ 159 $ 85 Additional information: Accumulated benefit obligation $ 775 $ 717 $ 1,012 Other Postretirement Plans 2023 2022 2021 Amounts recognized in the consolidated balance sheets consist of the following: Accrued benefit obligation—current $ ( 1 ) $ ( 1 ) $ ( 1 ) Accrued benefit obligation—noncurrent ( 4 ) ( 4 ) ( 5 ) Net amount recognized in the consolidated balance sheets $ ( 5 ) $ ( 5 ) $ ( 6 ) Amounts recognized in accumulated other comprehensive loss consist of the following: Gain, net of prior service cost $ 1 $ 1 $ 1 Net gain recognized in accumulated other comprehensive loss $ 1 $ 1 $ 1 Additional information: Accumulated postretirement benefit obligation $ 5 $ 5 $ 6 Weighted average assumptions used to determine benefit obligations as of period-end and net pension costs for the last three fiscal years were as follows: Pension Benefits 2023 2022 2021 Benefit obligation: Discount rate 5.15 % 5.50 % 3.00 % Annual compensation increase 2.96 % 2.96 % 2.96 % Net cost: Discount rate 5.50 % 3.00 % 2.80 % Expected return on plan assets 6.50 % 4.75 % 5.00 % Annual compensation increase 2.96 % 2.96 % 2.96 % Other Postretirement Plans 2023 2022 2021 Benefit obligation—discount rate 5.20 % 5.50 % 3.00 % Net cost—discount rate 5.50 % 3.00 % 2.80 % 65 The measurement date for the defined benefit and other postretirement benefit plans was December 31 for fiscal years 2023, 2022 and 2021. The Company applies the practical expedient under ASU No. 2015-4 to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. The mortality assumptions used to determine the pension benefit obligation as of December 31, 2023 and December 31, 2022 are based on the Pri-2012 base mortality table with the MP-2020 mortality improvement scale published by the Society of Actuaries. A health care cost trend rate is used in the calculations of postretirement medical benefit plan obligations. The assumed healthcare trend rates for the last three fiscal years were as follows: 2023 2022 2021 Immediate rate 6.30 % 6.50 % 5.50 % Ultimate trend rate 4.50 % 4.50 % 4.50 % Year the rate reaches the ultimate trend rate 2037 2037 2037 Retirees covered under these plans are responsible for the cost of coverage in excess of the subsidy, including all future cost increases. In determining the discount rate, the Company determines the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments, for which the timing and amount of cash outflows approximates the estimated pension plan payouts. The discount rate assumption is reviewed annually and revised as appropriate. The expected long-term rate of return on plan assets is derived from a mathematical asset model. This model incorporates assumptions on the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on long-term bonds and the historical returns of the major stock markets. The rate of return assumption is reviewed annually and revised as deemed appropriate. The US Foods, Inc. Retirement Investment Committee (the “Committee”) has authority and responsibility to oversee the investment and management of the trust (“the Trust”) which holds the assets of the Retirement Plan and has adopted an Investment Policy to provide a framework for the management of the Trust’s assets, including the objectives and long-term strategy with respect to the investment program of the Trust. Pursuant to the Investment Policy, the primary goal of investing Trust assets is to ensure that pension liabilities are met over time, and that Trust assets are invested in a manner that maximizes the probability of meeting pension liabilities. The secondary goal of investing Trust assets is to maximize long-term investment return consistent with a reasonable level of risk. Through consultation with its investment consultant, the Committee has developed long-term asset allocation guidelines intended to achieve investment objectives relative to projected liabilities. Based on those projections, the Committee has approved a dynamic asset allocation strategy that increases the liability-hedging assets of the Trust and decreases the return-seeking assets of the Trust as the funded ratio of the Retirement Plan improves. Based upon the funded ratio of the Retirement Plan, an asset allocation of 15 % equity securities (U.S. large cap equities, U.S. small and mid-cap equities and non-U.S. equities) and 85 % fixed income securities (U.S. Treasuries, STRIPs, and investment grade corporate bonds) was targeted during the Company’s fiscal year 2023. The actual mix of assets in the Trust as of December 30, 2023 consisted of 16 % equity securities and 84 % fixed income securities. 66 The following table sets forth the fair value of our defined benefit plans’ assets by asset fair value hierarchy level: Asset Fair Value as of December 30, 2023 Level 1 Level 2 Level 3 Total Equities: Domestic $ 18 $ — $ — $ 18 International 1 — — 1 Mutual fund: International equities 11 — — 11 Long-term debt securities: Corporate debt securities: Domestic — 116 — 116 International — 16 — 16 U.S. government securities — 2 — 2 Other 3 3 $ 30 $ 137 $ — 167 Common collective trust funds: Cash equivalents 286 Domestic equities 72 International equities 20 Treasury STRIPS 67 U.S. government securities 148 Total investments measured at net asset value as a practical expedient 593 Total defined benefit plans’ assets $ 760 Asset Fair Value as of December 31, 2022 Level 1 Level 2 Level 3 Total Equities: Domestic $ 32 $ — $ — $ 32 International 2 — — 2 Mutual fund: International equities 22 — — 22 Long-term debt securities: Corporate debt securities: Domestic — 216 — 216 International — 27 — 27 U.S. government securities 7 — 7 Other — 3 — 3 $ 56 $ 253 $ — 309 Common collective trust funds: Cash equivalents 24 Domestic equities 147 International equities 41 Treasury STRIPS 164 U.S. government securities 68 Total investments measured at net asset value as a practical expedient 444 Total defined benefit plans’ assets $ 753 67 A description of the valuation methodologies used for assets measured at fair value is as follows: • Cash and cash equivalents are valued at original cost, plus accrued interest. • Equities are valued at the closing price reported on the active market on which individual securities are traded. • Mutual funds are valued at the closing price reported on the active market on which individual funds are traded. • Long-term debt securities are valued at the estimated price a dealer will pay for the individual securities. • Common collective trust funds are measured at the net asset value as of the December 31, 2023 and 2022 measurement dates. This class represents investments in common collective trust funds that invest in: ◦ Equity securities, which may include common stocks, options and futures in actively managed funds; and ◦ Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) representing zero coupon Treasury securities with long-term maturities. ◦ U.S. government securities representing government bonds with long-term maturities. Estimated future benefit payments, under Company sponsored plans as of December 30, 2023, were as follows: Pension Benefits Other Postretirement Plans 2024 $ 775 $ 1 2025 2 1 2026 2 1 2027 2 1 2028 2 1 Subsequent five years 7 2 The Company expects to make contributions to the Retirement Plans in fiscal year 2024 in connection with the terminating plan. Other Company Sponsored Benefit Plans —Certain employees are eligible to participate in the Company’s 401(k) savings plan. The Company made employer matching contributions to the 401(k) plan of $ 65 million, $ 57 million and $ 52 million for fiscal years 2023, 2022 and 2021, respectively. Multiemployer Pension Plans —The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreement (“CBAs”) that cover certain of its union-represented employees. These plans are jointly administered by trustees for participating employers and the applicable unions. The risks of participating in multiemployer pension plans differ from traditional single-employer defined benefit plans as follows: • Assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to the employees of other participating employers. • If a participating employer stops contributing to a multiemployer pension plan, the unfunded obligations of the plan may be borne by the remaining participating employers. • If the Company elects to stop participation in a multiemployer pension plan, or if the number of the Company’s employees participating in a plan is reduced to a certain degree over certain periods of time, the Company may be required to pay a withdrawal liability based upon the underfunded status of the plan. The Company’s participation in multiemployer pension plans for the fiscal year ended December 30, 2023 is outlined in the tables below. The Company considers significant plans to be those plans to which the Company contributed more than 5 % of total contributions to the plan in a given plan year, or for which the Company believes its estimated withdrawal liability, should it decide to voluntarily withdraw from the plan, may be material to the Company. For each plan that is considered individually significant to the Company, the following information is provided: • The EIN/Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number assigned to a plan by the Internal Revenue Service. • The most recent Pension Protection Act (“PPA”) zone status available for fiscal years 2023 and 2022 is for the plan years beginning in 2022 and 2021, respectively. The zone status is based on information provided to participating employers by each plan and is certified by the plan’s actuary. A plan in the red zone has been determined to be in critical status, or 68 critical and declining status, based on criteria established under the Internal Revenue Code (the “Code”), and is generally less than 65% funded. Plans are generally considered “critical and declining” if they are projected to become insolvent within 20 years. A plan in the yellow zone has been determined to be in endangered status, based on criteria established under the Code, and is generally less than 80% but more than 65% funded. A plan in the green zone has been determined to be neither in critical status nor in endangered status, and is generally at least 80% funded. • The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. In addition to regular plan contributions, participating employers may be subject to a surcharge if the plan is in the red zone. • The Surcharge Imposed column indicates whether a surcharge has been imposed on participating employers contributing to the plan. • The Expiration Dates column indicates the expiration dates of the CBAs to which the plans are subject. Pension Fund EIN/ Plan Number PPA Zone Status FIP/RP Status Pending/ Implemented Surcharge Imposed Expiration Dates 2023 2022 Minneapolis Food Distributing Industry Pension Plan 41-6047047/001 Green Green N/A No 04/05/2025 Teamster Pension Trust Fund of Philadelphia and Vicinity 23-1511735/001 Green Green N/A No 02/13/2026 Local 703 I.B. of T. Grocery and Food Employees’ Pension Plan 36-6491473/001 Green Green N/A No 06/30/2026 United Teamsters Trust Fund A 13-5660513/001 Yellow Yellow Implemented No 05/01/2027 Warehouse Employees Local 169 and Employers Joint Pension Fund 23-6230368/001 Red Red Implemented No 02/13/2026 UFCW National Pension Fund 51-6055922 / 001 Green Green N/A No 06/27/2026 The following table provides information about the Company’s contributions to its multiemployer pension plans. For plans that are not individually significant to the Company, the total amount of the Company’s contributions is aggregated. Contributions (1)(2) Contributions That Exceed 5% of Total Plan Contributions (3) 2023 2022 2021 2022 2021 Pension Fund Minneapolis Food Distributing Industry Pension Plan $ 6 $ 6 $ 5 Yes Yes Teamster Pension Trust Fund of Philadelphia and Vicinity 5 5 4 No No Local 703 I.B. of T. Grocery and Food Employees’ Pension Plan 3 3 4 Yes Yes United Teamsters Trust Fund A 2 1 1 Yes Yes Warehouse Employees Local 169 and Employers Joint Pension Fund 1 1 1 Yes Yes UFCW National Pension Fund — — 1 No No Other funds 38 31 27 — — $ 55 $ 47 $ 43 (1) Contributions made to these plans during the Company’s fiscal year, which may not coincide with the plans’ respective fiscal years. (2) Contributions do not include payments related to multiemployer pension plan withdrawals/settlements. (3) Indicates whether the Company was listed in the respective multiemployer pension plan Form 5500 for the applicable plan year as having made more than 5 % of total contributions to the plan. 69 If the Company elects to voluntarily withdraw from a multiemployer pension plan, it may be responsible for its proportionate share of the respective plan’s unfunded vested liability. Based on the latest information available from plan administrators, the Company estimates its aggregate withdrawal liability from the multiemployer pension plans in which it participates to be approximately $ 130 million as of December 30, 2023. Actual withdrawal liabilities incurred by the Company, if it were to withdraw from one or more plans, could be materially different from the estimates noted here, based on better or more timely information from plan administrators or other changes affecting the respective plans’ funded status. 19. EARNINGS PER SHARE The Company computes EPS in accordance with 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 Preferred Stock, if dilutive in the period. For fiscal years 2023, 2022 and 2021, share-based awards representing less than 1 million, 2 million and 2 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For fiscal year 2023, Series A Preferred Stock representing 9 million of underlying common shares were included in the computation because the effect is dilutive. For fiscal years 2022 and 2021, Series A Preferred Stock representing 25 million and 25 million of underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. The following table sets forth the computation of basic and diluted EPS: 2023 2022 2021 Numerator: Net income $ 506 $ 265 $ 164 Less: Series A Preferred Stock dividends (1) ( 7 ) ( 37 ) ( 43 ) Net income available to common shareholders $ 499 $ 228 $ 121 Denominator: Weighted-average common shares outstanding 239 224 222 Effect of dilutive share-based awards 2 2 3 Effect of dilutive underlying shares of the Series A Preferred Stock (2) 9 — — Weighted-average dilutive shares outstanding 250 226 225 Net income per share: Basic $ 2.09 $ 1.02 $ 0.55 Diluted $ 2.02 $ 1.01 $ 0.54 (1) As discussed in Note 14 Convertible Preferred Stock, Series A Preferred Stock dividends for the first quarter of 2021 were paid-in-kind in the form of shares of Series A Preferred Stock. Series A Preferred Stock dividends for the remaining quarters of fiscal year 2021, and all dividends paid in 2022 and 2023 were paid in cash. (2) Under the if-converted method, outstanding shares of the Series A Preferred Stock are converted to common shares for inclusion in the calculation of 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 December 30, 2023, the 9 million shares represent the weighted average impact on these shares during the fiscal year 2023. See Note 14 Convertible Preferred Stock, for details on Series A Preferred Stock. 70 20. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents changes in accumulated other comprehensive loss, by component, for the last three fiscal years: 2023 2022 2021 Accumulated other comprehensive loss components Retirement benefit obligations: Balance as of beginning of year (1) $ ( 73 ) $ ( 19 ) $ ( 29 ) Other comprehensive (loss) income before reclassifications ( 55 ) ( 73 ) 14 Reclassification adjustments: Amortization of net loss (2) (3) ( 3 ) — — Total before income tax ( 58 ) ( 73 ) 14 Income tax (benefit) provision ( 15 ) ( 19 ) 4 Current year comprehensive (loss) income, net of tax ( 43 ) ( 54 ) 10 Balance as of end of year (1) $ ( 116 ) $ ( 73 ) $ ( 19 ) Interest rate caps: Balance as of beginning of year (1) $ — $ — $ ( 5 ) Change in fair value of interest rate caps 1 — 1 Amounts reclassified to interest expense — — 5 Total before income tax 1 — 6 Income tax provision — — 1 Current year comprehensive income, net of tax 1 — 5 Balance as of end of year (1) $ 1 $ — $ — Accumulated other comprehensive loss as of end of year (1) $ ( 115 ) $ ( 73 ) $ ( 19 ) (1) Amounts are presented net of tax. (2) Included in the computation of net periodic benefit costs. See Note 18, Retirement Plans, for additional information. (3) Included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. 21. INCOME TAXES The income tax provision for the fiscal years 2023, 2022 and 2021 consisted of the following: 2023 2022 2021 Current: Federal $ 140 $ 69 $ 11 State 23 10 1 Current income tax provision 163 79 12 Deferred: Federal ( 4 ) 3 31 State 13 14 7 Deferred income tax provision 9 17 38 Total income tax provision $ 172 $ 96 $ 50 The Company’s effective income tax rates for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 were 25 %, 27 % and 23 %, respectively. 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. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective income tax rate in the future. 71 The reconciliation of the provision for income taxes at the U.S. federal statutory income tax rate of 21 % to the Company’s income tax provision for the fiscal years 2023, 2022 and 2021 is shown below: 2023 2022 2021 Federal income taxes computed at statutory rate $ 142 $ 76 $ 45 State income taxes, net of federal income tax benefit 35 21 10 Share-based compensation ( 5 ) ( 3 ) ( 5 ) Non-deductible expenses 10 7 5 Change in the valuation allowance for deferred tax assets ( 6 ) ( 12 ) ( 7 ) Net operating loss expirations 1 9 5 Tax credits ( 2 ) ( 1 ) ( 1 ) Change in unrecognized tax benefits ( 3 ) ( 1 ) ( 2 ) Total income tax provision $ 172 $ 96 $ 50 Temporary differences and carryforwards that created significant deferred tax assets and liabilities were as follows: December 30, 2023 December 31, 2022 Deferred tax assets: Operating lease liabilities $ 77 $ 70 Workers’ compensation, general and fleet liabilities 47 43 Financing lease and other long term liabilities 109 80 Net operating loss carryforwards 37 48 Other deferred tax assets 108 114 Total gross deferred tax assets 378 355 Less valuation allowance ( 10 ) ( 16 ) Total net deferred tax assets 368 339 Deferred tax liabilities: Property and equipment ( 220 ) ( 166 ) Operating lease assets ( 73 ) ( 66 ) Inventories ( 16 ) ( 40 ) Intangibles ( 296 ) ( 304 ) Financing lease and other long term liabilities ( 46 ) ( 45 ) Other deferred tax liabilities ( 10 ) ( 16 ) Total deferred tax liabilities ( 661 ) ( 637 ) Net deferred tax liability $ ( 293 ) $ ( 298 ) The net deferred tax liabilities presented in the Company’s Consolidated Balance Sheets were as follows: December 30, 2023 December 31, 2022 Noncurrent deferred tax assets $ — $ — Noncurrent deferred tax liability ( 293 ) ( 298 ) Net deferred tax liability $ ( 293 ) $ ( 298 ) 72 The Company had tax affected state net operating loss carryforwards of $ 37 million as of December 30, 2023. The Company’s net operating loss carryforwards expire as follows: State 2024-2028 $ 12 2029-2033 7 2034-2038 5 2039-2043 11 Indefinite 2 $ 37 The Company also has state credit carryforwards of $ 14 million. The U.S. federal and state net operating loss carryforwards in the income tax returns filed included unrecognized tax benefits taken in prior years. The net operating losses for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740, Income Taxes, are presented net of these unrecognized tax benefits. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s domestic net operating losses and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. The Company maintained a valuation allowance on certain state net operating loss and tax credit carryforwards expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or the utilization of which is subject to limitation. A summary of the activity in the valuation allowance for the fiscal years 2023, 2022 and 2021 is as follows: 2023 2022 2021 Balance as of beginning of year $ 16 $ 28 35 Benefit recognized ( 6 ) ( 12 ) ( 7 ) Balance as of end of year $ 10 $ 16 $ 28 The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations in U.S. federal and state jurisdictions. The Company (1) records unrecognized tax benefits as liabilities in accordance with ASC 740, Income Taxes and (2) adjusts these liabilities when the Company’s judgment changes because of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of liabilities for unrecognized tax benefits. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. The Company recognizes an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Reconciliation of the beginning and ending amount of unrecognized tax benefits as of fiscal years 2023, 2022 and 2021 was as follows: Balance at January 2, 2021 39 Gross increases due to positions taken in prior years 5 Gross decreases due to positions taken in prior years ( 2 ) Decreases due to lapses of statute of limitations ( 5 ) Decreases due to settlements with taxing authorities ( 5 ) Balance at January 1, 2022 32 Decreases due to lapses of statute of limitations ( 2 ) Balance at January 1, 2023 30 Decreases due to lapses of statute of limitations $ ( 4 ) Balance at December 30, 2023 $ 26 The Company estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by up to $ 15 million in the next 12 months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. 73 Included in the balance of unrecognized tax benefits as of the end of fiscal years 2023, 2022 and 2021 was $ 24 million, $ 27 million and $ 28 million, respectively, of tax benefits that, if recognized, would affect the effective income tax rate. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had accrued interest and penalties of approximately $ 9 million and $ 8 million as of December 30, 2023 and December 31, 2022, respectively. The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. Our 2007 through 2018 and 2020 through 2022 U.S. federal income tax years, and various state income tax years from 2000 through 2022, remain subject to income tax examinations by the relevant taxing authorities. Prior to 2007, the Company was owned by Royal Ahold N.V. (“Ahold”). Ahold indemnified the Company for 2007 pre-closing consolidated U.S. federal and certain combined state income taxes, and the Company is responsible for all other taxes, interest and penalties. 22. 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 $ 1,110 million of purchase orders and purchase contract commitments as of December 30, 2023 to be purchased beginning in fiscal year 2024 and continuing through fiscal year 2028 and $ 101 million of information technology commitments through May 2028 that are not recorded in the Company’s Consolidated Balance Sheets. The Company has entered into various minimum volume purchase agreements at various pricing terms. Minimum amounts committed to as of December 30, 2023 totaled approximately $ 2.75 billion. Minimum amounts committed to by year are as follows: Amount (In millions) 2024 $ 875 2025 925 2026 950 2027 — 2028 — 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 $ 33 million through December 2024, as of December 30, 2023. Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through July 2025, as of December 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. 23. US FOODS HOLDING CORP. CONDENSED FINANCIAL INFORMATION These condensed parent company financial statements should be read in conjunction with the Company’s consolidated financial statements. Under terms of the agreements governing its indebtedness, the net assets of USF are restricted from being transferred to US Foods in the form of loans, advances or dividends with the exception of income tax payments, share-based compensation settlements and minor administrative costs. USF had $ 2.0 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 December 30, 2023. See Note 16, Share-Based Compensation, Common Stock Issuances and Common Stock, for a discussion of the Company’s equity-related transactions. In the condensed parent company financial statements below, the investment in the operating subsidiary, USF, is accounted for using the equity method. 74 Condensed Parent Company Balance Sheets (In millions, except par value) December 30, 2023 December 31, 2022 ASSETS Investment in subsidiary 4,748 $ 4,492 Other assets 2 4 Total assets $ 4,750 $ 4,496 LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY Accrued expenses and other current liabilities $ 3 $ — Deferred tax liabilities 1 1 Total liabilities 4 1 Commitments and Contingencies (Note 22) Mezzanine equity: Series A convertible preferred stock, $0.01 par value—25 shares authorized; 0 and 0.5 issued and outstanding as of December 30, 2023 and December 31, 2022 — 534 Shareholders’ Equity Common stock, $0.01 par value—600 shares authorized; 253 and 225 issued and outstanding as of December 30, 2023 and December 31, 2022 3 2 Additional paid-in capital 3,663 3,036 Retained earnings 1,509 1,010 Accumulated other comprehensive loss ( 115 ) ( 73 ) Treasury Stock, 7.8 and .5 shares, respectively ( 314 ) ( 14 ) Total shareholders’ equity 4,746 3,961 Total liabilities, mezzanine equity and shareholders’ equity $ 4,750 $ 4,496 Condensed Parent Company Statements of Comprehensive Income Fiscal Years Ended December 30, 2023 December 31, 2022 January 1, 2022 Income before income taxes $ — $ — $ — Income tax benefit — — ( 4 ) Income before equity in net earnings of subsidiary — — 4 Equity in net earnings of subsidiary 506 265 160 Net income 506 265 164 Other comprehensive income—net of tax: Changes in retirement benefit obligations ( 43 ) ( 54 ) 10 Unrecognized (loss) gain on interest rate hedges 1 — 5 Comprehensive income $ 464 $ 211 $ 179 Net income $ 506 $ 265 $ 164 Series A convertible preferred stock dividends ( 7 ) ( 37 ) ( 43 ) Net income available to common shareholders $ 499 $ 228 $ 121 75 Condensed Parent Company Statements of Cash Flows Fiscal Years Ended December 30, 2023 December 31, 2022 January 1, 2022 Cash flows from operating activities: Net income $ 506 $ 265 $ 164 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net earnings of subsidiary ( 506 ) ( 265 ) ( 160 ) Changes in operating assets and liabilities: decrease in other assets — — ( 4 ) Net cash used in operating activities — — — Cash flows from investing activities: Investment in subsidiary 301 51 28 Net cash provided by investing activities 301 51 28 Cash flows from financing activities: Dividends paid on Series A convertible preferred stock ( 7 ) ( 37 ) ( 28 ) Repurchase of common stock ( 294 ) ( 14 ) — Net cash used in financing activities ( 301 ) ( 51 ) ( 28 ) Net increase in cash, cash equivalents and restricted cash — — — Cash, cash equivalents and restricted cash—beginning of year — — — Cash, cash equivalents and restricted cash—end of year $ — $ — $ — 24. 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, the 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. No single customer accounted for more than 2 % of the Company’s consolidated net sales in fiscal year 2023, 3 % of the Company’s consolidated net sales in fiscal year 2022 and 2 % of the Company’s consolidated net sales in fiscal year 2021. However, customers who are members of one group purchasing organization accounted, in the aggregate, for approximately 14 % of the Company’s consolidated net sales in fiscal year 2023, 12 % of the Company’s consolidated net sales in fiscal year 2022 and 11 % of the Company’s consolidated net sales for fiscal year 2021. 76 25. SUBSEQUENT EVENTS Share Repurchase Program —For the fiscal month ending February 3, 2024, the Company repurchased 283,988 shares at an aggregate purchase price of approximately $ 13 million under the program. At February 1, 2024, there was approximately $ 179 million in remaining funds authorized under this program. 77 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.