US Foods Holding Corp. 10-Q

Item 1. Financial Statements US FOODS HOLDING CORP. CONSOLIDATED BALANCE SHEETS (In millions, except par value) March 30, 2024 December 30, 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 267 $ 269 Accounts receivable, less allowances of $ 20 and $ 18 1,966 1,854 Vendor receivables, less allowances of $ 6 and $ 5 210 156 Inventories—net 1,620 1,600 Prepaid expenses 152 138 Other current assets 19 14 Total current assets 4,234 4,031 Property and equipment—net 2,303 2,280 Goodwill 5,697 5,697 Other intangibles—net 796 803 Other assets 360 376 Total assets $ 13,390 $ 13,187 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Cash overdraft liability $ 198 $ 220 Accounts payable 2,273 2,051 Accrued expenses and other current liabilities 651 731 Current portion of long-term debt 116 110 Total current liabilities 3,238 3,112 Long-term debt 4,585 4,564 Deferred tax liabilities 300 293 Other long-term liabilities 442 469 Total liabilities 8,565 8,438 Commitments and contingencies (Note 16) Shareholders’ equity: Common stock, $ 0.01 par value— 600 shares authorized; 253.9 issued and 245.8 outstanding as of March 30, 2024, and 252.9 issued and 245.1 outstanding as of December 30, 2023 3 3 Additional paid-in capital 3,668 3,663 Retained earnings 1,591 1,509 Accumulated other comprehensive loss ( 113 ) ( 115 ) Treasury Stock, 8.1 and 7.8 shares, respectively ( 324 ) ( 311 ) Total shareholders’ equity 4,825 4,749 Total liabilities and shareholders’ equity $ 13,390 $ 13,187 See Notes to Consolidated Financial Statements (Unaudited). 1 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions, except per share data) 13 Weeks Ended March 30, 2024 April 1, 2023 Net sales $ 8,949 $ 8,542 Cost of goods sold 7,454 7,117 Gross profit 1,495 1,425 Operating expenses: Distribution, selling and administrative costs 1,317 1,238 Restructuring costs and asset impairment charges 13 — Total operating expenses 1,330 1,238 Operating income 165 187 Other income—net ( 1 ) ( 1 ) Interest expense—net 79 81 Income before income taxes 87 107 Income tax provision 5 25 Net income 82 82 Other comprehensive income —net of tax: Changes in retirement benefit obligations 2 1 Comprehensive income $ 84 $ 83 Net income $ 82 $ 82 Series A convertible preferred stock dividends — ( 7 ) Net income available to common shareholders $ 82 $ 75 Net income per share Basic (Note 12) $ 0.33 $ 0.33 Diluted (Note 12) $ 0.33 $ 0.32 Weighted-average common shares outstanding Basic (Note 12) 245 226 Diluted (Note 12) 248 252 See Notes to Consolidated Financial Statements (Unaudited). 2 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Shares Amount BALANCE—December 30, 2023 252.9 $ 3 $ 3,663 $ 1,509 7.8 $ ( 311 ) $ ( 115 ) $ 4,749 Share-based compensation expense — — 15 — — — — 15 Proceeds from employee stock purchase plan 0.1 — 5 — — — — 5 Vested restricted stock units, net 0.7 — — — — — — — Exercise of stock options 0.2 — 5 — — — — 5 Tax withholding payments for net share-settled equity awards — — ( 20 ) — — — — ( 20 ) Changes in retirement benefit obligations, net of income tax — — — — — — 2 2 Common stock repurchased — — — — 0.3 ( 13 ) — ( 13 ) Net Income — — — 82 — — — 82 BALANCE—March 30, 2024 253.9 $ 3 $ 3,668 $ 1,591 8.1 $ ( 324 ) $ ( 113 ) $ 4,825 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Shares Amount BALANCE—December 31, 2022 225.2 $ 2 $ 3,036 $ 1,010 0.4 $ ( 14 ) $ ( 73 ) $ 3,961 Share-based compensation expense — — 14 — — — — 14 Proceeds from employee stock purchase plan 0.2 — 5 — — — — 5 Vested restricted stock units, net 0.6 — — — — — — — Exercise of stock options 0.3 — 7 — — — — 7 Tax withholding payments for net share-settled equity awards — — ( 11 ) — — — — ( 11 ) Series A convertible preferred stock conversion to common stock 7.6 — 161 — — — — 161 Series A convertible preferred stock dividends — — — ( 7 ) — — — ( 7 ) Changes in retirement benefit obligations, net of income tax — — — — — — 1 1 Common stock repurchased — — — — 0.9 ( 34 ) — ( 34 ) Net Income — — — 82 — — — 82 BALANCE—April 1, 2023 233.9 $ 2 $ 3,212 $ 1,085 1.3 $ ( 48 ) $ ( 72 ) $ 4,179 See Notes to Consolidated Financial Statements (Unaudited). 3 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) 13 Weeks Ended March 30, 2024 April 1, 2023 Cash flows from operating activities: Net income $ 82 $ 82 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 105 98 Gain on disposal of property and equipment—net — ( 1 ) Amortization of deferred financing costs 3 7 Deferred tax provision 5 5 Share-based compensation expense 15 14 Provision for doubtful accounts 7 10 Changes in operating assets and liabilities: Increase in receivables ( 173 ) ( 197 ) Increase in inventories—net ( 20 ) ( 9 ) (Increase) decrease in prepaid expenses and other assets ( 1 ) 2 Increase in accounts payable and cash overdraft liability 221 321 Decrease in accrued expenses and other liabilities ( 105 ) ( 53 ) Net cash provided by operating activities 139 279 Cash flows from investing activities: Proceeds from sales of property and equipment 1 1 Purchases of property and equipment ( 87 ) ( 61 ) Net cash used in investing activities ( 86 ) ( 60 ) Cash flows from financing activities: Principal payments on debt and financing leases ( 457 ) ( 111 ) Principal payments on debt repricing ( 14 ) — Proceeds from debt repricing 14 — Proceeds from debt borrowings 426 13 Dividends paid on Series A convertible preferred stock — ( 7 ) Repurchase of common stock ( 13 ) ( 34 ) Debt financing costs and fees ( 1 ) — Proceeds from employee stock purchase plan 5 5 Proceeds from exercise of stock options 5 7 Tax withholding payments for net share-settled equity awards ( 20 ) ( 11 ) Net cash used in financing activities ( 55 ) ( 138 ) Net (decrease) increase in cash, and cash equivalents and restricted cash ( 2 ) 81 Cash, cash equivalents and restricted cash—beginning of period 269 211 Cash, cash equivalents and restricted cash—end of period $ 267 $ 292 Supplemental disclosures of cash flow information: Conversion of Series A Convertible Preferred Stock $ — $ 162 Interest paid—net of amounts capitalized 93 61 Income taxes paid—net 5 3 Property and equipment purchases included in accounts payable 20 17 Leased assets obtained in exchange for financing lease liabilities 56 47 Leased assets obtained in exchange for operating lease liabilities 7 9 Cashless exercise of stock options 4 1 See Notes to Consolidated Financial Statements (Unaudited). 4 US FOODS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in tables in millions, except per share data, unless otherwise noted) 1. OVERVIEW AND BASIS OF PRESENTATION US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods Holding Corp. conducts all of its operations through its wholly owned subsidiary US Foods, Inc. (“USF”) and its subsidiaries. All of the Company’s indebtedness, as further described in Note 9, Debt, is a direct obligation of USF and its subsidiaries. Business Description —The Company, through USF, operates in one business segment in which it markets, sells and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States (“U.S.”). These customers include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities and retail locations. Basis of Presentation —The Company operates on a 52- or 53-week fiscal year, with all periods ending on a Saturday. When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth quarter. Fiscal years 2024 and 2023 are both 52-week fiscal years. The consolidated financial statements included in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures included in this Quarterly Report are adequate to make the information presented not misleading. These interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (the “2023 Annual Report”). The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results that might be achieved for any other interim period or the full fiscal year . 2. RECENT ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07 Segment Reporting (“Topic 280”) “Improvements to Reportable Segment Disclosures Topic 280,” which enhances the transparency of segment disclosures primarily related to conclusions on consolidated net income as a measure of segment profit or loss that is most consistent with U.S. GAAP. This guidance also applies to single reportable segment entities. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This guidance is effective on a retrospective basis unless it is impracticable to do so and early adoption is permitted. The Company plans to adopt the provisions of ASU No. 2023-07 at the beginning of the fourth quarter of fiscal year 2024 and does not expect the provisions of the new standard to materially affect our financial position, results of operation or cash flows. 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. 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 March 2024, the SEC adopted amendments to its rules under the Securities Act and Exchanges Act The Enhancement and Standardization of Climate-Related Disclosures for Investors (“SEC Climate Rule”), which enhances the transparency of climate-related disclosures primarily related to climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, business strategy, results of operations, or financial condition. The SEC has been the subject of various lawsuits since adopting these amendments, and has voluntarily stayed these standards pending further developments on the legal front. Under the currently issued SEC Climate Rule, these amendments would be effective for large accelerated filers for fiscal year 2025. The Company is continuing to monitor developments associated with these standards and has begun to assess the impacts they may have on the Company’s financial position, results of operation and cash flows. 5 3. REVENUE RECOGNITION The Company recognizes revenue when the performance obligation is satisfied, which occurs when a customer obtains control of the promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services. The Company generates substantially all of its revenue from the distribution and sale of food and food-related products and recognizes revenue when title and risk of loss passes to the customer and the customer accepts the goods, which occurs at delivery. Customer sales incentives, such as volume-based rebates or discounts, are treated as a reduction of revenue at the time the revenue is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales. Shipping and handling costs are treated as fulfillment costs and included in distribution, selling and administrative costs. The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of March 30, 2024 or December 30, 2023. Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 2.0 billion and $ 1.9 billion as of March 30, 2024 and December 30, 2023, 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 payments associated with any distinct good or service to be received from any customer. These incentive payments are capitalized in prepaid expenses and other assets and amortized as a reduction of revenue over the life of the contract or as goods or services are transferred to the customer. The Company’s contract assets for these upfront payments were $ 40 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of March 30, 2024 and December 30, 2023, respectively, and $ 43 million and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of March 30, 2024 and December 30, 2023, respectively. The following table presents the disaggregation of revenue for each of the Company’s principal product categories: 13 Weeks Ended March 30, 2024 April 1, 2023 Meats and seafood $ 2,976 $ 2,826 Dry grocery products 1,614 1,551 Refrigerated and frozen grocery products 1,551 1,445 Dairy 927 935 Equipment, disposables and supplies 864 880 Beverage products 509 461 Produce 508 444 Total net sales $ 8,949 $ 8,542 4. INVENTORIES The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods. Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment and are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. The Company records inventories at the lower of cost or market primarily using the last-in, first-out (“LIFO”) method. For our LIFO based inventories, the base year values of beginning and ending inventories are determined using the inventory price index computation method. This “links” current costs to original costs in the base year when the Company adopted LIFO. LIFO reserves in the Company’s Consolidated Balance Sheets were $ 533 million and $ 488 million as of March 30, 2024 and December 30, 2023, respectively. As a result of changes in LIFO reserves, cost of goods sold increased $ 45 million and $ 20 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. 5. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. The Company maintains an 6 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. A summary of the activity in the allowance for doubtful accounts for the 13 weeks ended March 30, 2024 and April 1, 2023 was as follows: March 30, 2024 April 1, 2023 Balance as of beginning of year $ 18 $ 30 Charged to costs and expenses, net 7 10 Customer accounts written off—net of recoveries ( 5 ) ( 8 ) Balance as of end of period $ 20 $ 32 This table excludes the vendor receivable related allowance for doubtful accounts of $ 6 million as of March 30, 2024, $ 5 million as of December 30, 2023, $ 8 million as of April 1, 2023 and $ 8 million as of December 31, 2022, respectively. 6. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years. Property and equipment under financing leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the related leases or the estimated useful lives of the assets, if reasonably assured the Company will purchase the assets at the end of the lease terms. As of March 30, 2024 and December 30, 2023, property and equipment-net included accumulated depreciation of $ 3,224 million and $ 3,219 million, respectively. Depreciation expense was $ 93 million and $ 87 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. 7. GOODWILL AND OTHER INTANGIBLES Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired. Other intangible assets include customer relationships, noncompete agreements, amortizable trade names, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks. Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below. Customer relationships, noncompete agreements and amortizable trade names are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships, noncompete agreements and amortizable trade names are amortized over their estimated useful lives (which range from approximately 3 to 15 years). Amortization expense was $ 12 million and $ 11 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. 7 Goodwill and other intangibles—net consisted of the following: March 30, 2024 December 30, 2023 Goodwill $ 5,697 $ 5,697 Other intangibles—net Customer relationships—amortizable: Gross carrying amount $ 720 $ 715 Accumulated amortization ( 201 ) ( 189 ) Net carrying value 519 526 Trade names—amortizable: Gross carrying amount 4 4 Accumulated amortization ( 2 ) ( 2 ) Net carrying value 2 2 Noncompete agreements—amortizable: Gross carrying amount 4 4 Accumulated amortization — — Net carrying value 4 4 Brand names and trademarks—not amortizing 271 271 Total other intangibles—net $ 796 $ 803 The increase in the gross carrying amount of customer relationships is attributable to acquisition purchase price adjustments. The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible asset may not be recoverable. The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually, or more frequently if events occur that indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, the Company’s policy is to assess for impairment as of the beginning of each fiscal third quarter. No impairments were recognized for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. 8. 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. 8 The Company’s assets and liabilities measured at fair value on a recurring basis as of March 30, 2024 and December 30, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows: March 30, 2024 Level 1 Level 2 Level 3 Total Assets Money market funds $ 109 $ — $ — $ 109 Interest rate caps — 1 — 1 December 30, 2023 Level 1 Level 2 Level 3 Total Assets Money market funds $ 208 $ — $ — $ 208 Interest rate caps — 1 — 1 There were no significant assets or liabilities on the Company’s Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above, except as further disclosed in Note 7, Goodwill and Other Intangibles. Recurring Fair Value Measurements Money Market Funds Money market funds include highly liquid investments with an original maturity of three or fewer months. These funds are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy. Derivative Financial Instruments The Company has in the past, and may in the future, use interest rate hedges, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate de bt. In April 2023, the Company entered into two , two-year rate cap agreements, which will mature on April 30, 2025, with a total notional amount of $ 450 million, which 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 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 March 30, 2024: Balance at March 30, 2024 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 caps during the 13 weeks ended March 30, 2024. The following table presents the 9 effect of the Company’s interest rate caps in the Consolidated Statement of Comprehensive Income for the 13 weeks ended March 30, 2024: Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in Other Comprehensive Loss, net of tax Location of Amounts Reclassified from Accumulated Other Comprehensive Loss Amount of Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax For the 13 weeks ended March 30, 2024 Interest Rate Caps $ — Interest expense ─ net $ — During the next twelve months, the Company estimates $ 1 million will be reclassified from accumulated other comprehensive loss to income. Other Fair Value Measurements The carrying value of cash, accounts receivable, vendor receivables, cash overdraft liability and accounts payable approximate their fair values due to their short-term maturities. The fair value of the Company’s total debt approximated $ 4.7 billion and $ 4.7 billion as of March 30, 2024 and December 30, 2023, respectively, as compared to its carrying value of $ 4.8 billion and $ 4.6 billion as of March 30, 2024 and December 30, 2023 respectively. 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 both March 30, 2024 and 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 $ 0.8 billion and $ 0.9 billion as of March 30, 2024 and December 30, 2023. The fair value of the Company’s 4.63 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.5 billion as of both March 30, 2024 and December 30, 2023. 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 both March 30, 2024 and December 30, 2023. 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 based upon their quoted 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. 10 9. DEBT Total debt consisted of the following: Debt Description Maturity Interest Rate as of March 30, 2024 Carrying Value as of March 30, 2024 Carrying Value as of December 30, 2023 ABL Facility December 7, 2027 8.50 % $ — $ — 2019 Incremental Term Loan Facility (net of $ 10 and $ 11 of unamortized deferred financing costs, respectively) September 13, 2026 7.44 % 1,102 1,105 2021 Incremental Term Loan Facility (net of $ 3 and $ 3 of unamortized deferred financing costs, respectively) November 22, 2028 7.33 % 719 718 Unsecured Senior Notes due 2028 (net of $ 4 and $ 5 of unamortized deferred financing costs, respectively) September 15, 2028 6.88 % 496 495 Unsecured Senior Notes due 2029 (net of $ 6 and $ 6 of unamortized deferred financing costs, respectively) February 15, 2029 4.75 % 894 894 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 and $ 5 of unamortized deferred financing costs, respectively) January 15, 2032 7.25 % 495 495 Obligations under financing leases 2024–2037 1.26 %- 8.31 % 491 463 Other debt January 1, 2031 5.75 % 8 8 Total debt 4,701 4,674 Current portion of long-term debt ( 116 ) ( 110 ) Long-term debt $ 4,585 $ 4,564 As of March 30, 2024, after considering interest rate caps that fixed the variable component of the interest rate on a total notional amount of $ 450 million of the current principal amount of the Term Loan Facilities described below, approximately 30 % of the Company’s total debt bore interest at a floating rate. ABL Facility The Company’s asset based senior secured revolving credit facility (the “ABL Facility”) provides the Company with loan commitments having a maximum aggregate principal amount of $ 2,300 million. The ABL Facility is scheduled to mature on December 7, 2027. Borrowings under the ABL Facility bear interest, at the Company’s periodic election, at a rate equal to the sum of an alternative base rate (“ABR”), as described in the ABL Facility, plus a margin ranging from 0.00 % to 0.50 % based on USF’s excess availability under the ABL Facility, or the sum of the Term Secured Overnight Financing Rate (“Term SOFR”) plus a margin ranging from 1.00 % to 1.50 %, based on USF’s excess availability under the ABL Facility, and a credit spread adjustment of 0.10 %. The margin under the ABL Facility as of March 30, 2024 was 0.00 % for ABR loans and 1.00 % for Term SOFR loans. The Company had no outstanding borrowings, and had outstanding letters of credit totaling $ 542 million, under the ABL Facility as of March 30, 2024. The outstanding letters of credit primarily relate to securing USF’s obligations with respect to its insurance program and certain real estate leases. There was available capacity of $ 1,758 million under the ABL Facility as of March 30, 2024. Term Loan Facilities Under its term loan credit agreement, the Company has entered into an incremental senior secured term loan facility borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) and an incremental senior secured term loan facility borrowed in November 2021 (the “2021 Incremental Term Loan Facility”). On June 1, 2023, the Company 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. USF’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. 11 2019 Incremental Term Loan Facility The 2019 Incremental Term Loan Facility had an outstanding balance of $ 1,102 million, net of $ 10 million of unamortized deferred financing costs as of March 30, 2024. Borrowings under the 2019 Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of (i) Term SOFR plus (ii) a credit spread adjustment of (a) 0.11448 % for a one-month term, (b) 0.26161 % for a three-month term, or (c) 0.42826 % for a six month term, (with the sum of Term SOFR and the foregoing credit spread adjustment subject to a Term SOFR “floor” of 0.00 %) plus (iii) a margin of 2.00 %, or the sum of (i) an ABR, as described in the 2019 Incremental Term Loan Facility plus a margin of 1.00 %. The 2019 Incremental Term Loan Facility will mature on September 13, 2026. 2021 Incremental Term Loan Facility The 2021 Incremental Term Loan Facility had an outstanding balance of $ 719 million, net of $ 3 million of unamortized deferred financing costs as of March 30, 2024. 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 (with the Term SOFR subject to a “floor” of 0.00 %) plus (ii) a margin of 2.00 % or the sum of (i) an ABR, as described in the 2021 Incremental Term Loan Facility, plus a margin of 1.00 %. The 2021 Incremental Term Loan Facility will mature on November 22, 2028. On August 22, 2023, the 2021 Incremental Term Loan Facility was amended to reduce 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 November 22, 2028, the maturity date of the term loan facility. On February 27, 2024, the 2021 Incremental Term Loan Facility was further amended to reduce the interest rate margins under the term loan facility to 2.00 % for Term SOFR borrowings and 1.00 % for ABR borrowings and eliminate the credit spread adjustment. 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 related to the February 27, 2024 amendment in interest expense. Unamortized deferred financing costs of $ 3 million at March 30, 2024 were carried forward and will be amortized through November 22, 2028, the maturity date of the term loan facility. Unsecured Senior Notes due 2028 The Unsecured Senior Notes due 2028 had an outstanding balance of $ 496 million, net of the $ 4 million of unamortized deferred financing costs, as of March 30, 2024. The Unsecured Senior Notes due 2028 bear interest at a rate of 6.88 % per annum and will mature on September 15, 2028. 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 March 30, 2024. The Unsecured Senior Notes due 2029 bear interest at a rate of 4.75 % per annum and will mature on February 15, 2029. 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 March 30, 2024. The Unsecured Senior Notes due 2030 bear interest at a rate of 4.63 % per annum and will mature on June 1, 2030. Unsecured Senior Notes due 2032 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 March 30, 2024. The Unsecured Senior Notes due 2032 bear interest at a rate of 7.25 % per annum and will mature on January 15, 2032. 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. The Company 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 March 30, 2024. 12 10. RESTRUCTURING LIABILITIES From time to time, the Company may implement initiatives, close or consolidate facilities in an effort to reduce costs and improve operating effectiveness. In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs. During the 13 weeks ended March 30, 2024, the Company incurred net restructuring costs of $ 13 million primarily related to initiatives to improve operational effectiveness and workforce reductions. During the 13 weeks ended April 1, 2023, the net restructuring costs were de minimis. Net restructuring liabilities were $ 15 million and $ 7 million as of March 30, 2024 and December 30, 2023, respectively. The following table summarizes the changes in the restructuring liabilities for the 13 weeks ended March 30, 2024: Severance and Related Costs Facility Closing Costs Total Balance as of December 30, 2023 $ 7 $ — $ 7 Current period costs 13 — 13 Payments, net ( 5 ) — ( 5 ) Balance at March 30, 2024 $ 15 $ — $ 15 11. RETIREMENT PLANS The Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a 401(k) savings plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents. 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. The Company does not expect to make significant contributions to the Retirement Plan in fiscal year 2024 for the cost of settlement of the Terminating Plan. The components of net periodic pension benefit credits for Company sponsored defined benefit plans were as follows: 13 Weeks Ended March 30, 2024 April 1, 2023 Components of net periodic pension benefit credits Service cost $ — $ — Interest cost 5 10 Expected return on plan assets ( 5 ) ( 12 ) Amortization of net loss 2 1 Net periodic pension benefit credits $ 2 $ ( 1 ) Other postretirement benefit costs were de minimis for both the 13 weeks ended March 30, 2024 and April 1, 2023. The service cost component of net periodic benefit credits is included in distribution, selling and administrative costs, while the other components of net periodic benefit credits are included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. The Company does not expect to make significant contributions to its defined benefit pension plan in fiscal year 2024. Certain employees are eligible to participate in the Company’s 401(k) plan. The Company made employer matching contributions to the 401(k) plan of $ 21 million and $ 17 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreements that cover certain of its union-represented employees. The Company’s contributions to these plans were $ 15 million and $ 13 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively. 13 12. STOCKHOLDERS’ EQUITY Earnings Per Share The Company computes EPS in accordance with Accounting Standards Codification (“ASC”) 260, Earnings per Share . Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applied the treasury method to calculate the dilution impact of share-based awards—stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals. The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock (the “Series A Preferred Stock”), if dilutive in the period. For both, the 13 weeks ended March 30, 2024 and April 1, 2023, share-based awards representing 1 million underlying common shares, were not included in the computation because the effect would have been anti-dilutive. The Series A Preferred Stock shares were dilutive for the 13 weeks ended April 1, 2023. For the 13 weeks ended March 30, 2024, there are no Series A Preferred Stock outstanding. The following table sets forth the computation of basic and diluted EPS: 13 Weeks Ended March 30, 2024 April 1, 2023 Numerator: Net income $ 82 $ 82 Less: Series A Preferred Stock Dividends — ( 7 ) Net income available to common shareholders $ 82 $ 75 Denominator: Weighted-average common shares outstanding—basic 245 226 Effect of dilutive share-based awards 3 3 Effect of dilutive underlying shares of the Series A Preferred Stock (1) — 23 Weighted-average common shares outstanding—diluted 248 252 Net income per share Basic $ 0.33 $ 0.33 Diluted $ 0.33 $ 0.32 (1) Under the if-converted method, outstanding shares of the Series A Preferred Stock were treated as if converted to common shares for inclusion in the calculation of the weighted-average common shares outstanding—diluted. Under this approach, if converted, there would be no preferred stock outstanding and therefore no Series A Preferred Stock dividend. As of March 30, 2024, there are no Series A Preferred Stock outstanding. 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. During the 13 weeks ended March 30, 2024, the Company repurchased 283,988 shares at an aggregate purchase price of approximately $ 13 million under the program. At March 30, 2024, there was approximately $ 179 million in remaining funds authorized under this program. Additionally, during the 13 weeks ended March 30, 2024, the Company recorded de minimis excise tax associated with common stock repurchases. The size and timing of any repurchases will depend on a number of factors, including share price, general business and market conditions and other factors. Under the share repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases, privately negotiated transactions, accelerated share repurchases and Rule 10b5-1 trading plans. The share repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. The repurchase authorization does not have an expiration date. 14 13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents changes in accumulated other comprehensive loss by component for the periods presented: 13 Weeks Ended March 30, 2024 April 1, 2023 Accumulated other comprehensive loss components Retirement benefit obligations: Balance as of beginning of period (1) $ ( 116 ) $ ( 73 ) Reclassification adjustments: Amortization of net loss (2) (3) 2 1 Current period comprehensive income, net of tax 2 1 Balance as of end of period (1) $ ( 114 ) $ ( 72 ) Interest rate Caps: Balance at beginning of period (1) $ 1 $ — Change in fair value of interest rate caps — — Balance at end of period (1) $ 1 $ — Accumulated other comprehensive loss at end of period (1) $ ( 113 ) $ ( 72 ) (1) Amounts are presented net of tax. (2) Included in the computation of net periodic benefit costs. See Note 11, Retirement Plans, for additional information. (3) Included in other income—net in the Company’s Consolidated Statements of Comprehensive Income. 14. RELATED PARTY TRANSACTIONS As of both March 30, 2024 and 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. 15. INCOME TAXES The determination of the Company’s overall effective income tax rate requires the use of estimates. The effective income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction. The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 13 weeks ended March 30, 2024 and April 1, 2023, and then recognized the impact of discrete tax items for purposes of determining its year-to-date tax provision. For the 13 weeks ended March 30, 2024, the Company’s effective income tax rate of 6 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $ 15 million related to a decrease in an unrecognized tax benefit as a result of the expiration of the statute of limitations in several jurisdictions, a tax benefit of $ 6 million, primarily related to excess tax benefits associated with share-based compensation and a tax expense of $ 3 million, primarily related to adjustments to prior year provision estimates. For the 13 weeks ended April 1, 2023, the Company’s effective income tax rate of 23 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $ 4 million, primarily related to excess tax benefits associated with share-based compensation. 16. 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 $ 1,285 million of purchase orders and purchase contract commitments as of March 30, 2024 to be 15 purchased in the remainder of fiscal year 2024 and continuing through fiscal year 2028 and $ 134 million of information technology commitments through 2027 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 March 30, 2024 totaled approximately $ 1.80 billion. Minimum amounts committed to by year are as follows: Amount (In millions) 2024 $ 693 2025 946 2026 158 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 $ 24 million through December 2024 as of March 30, 2024. Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through July 2025, as of March 30, 2024. 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. 17. BUSINESS INFORMATION The Company’s consolidated results represent the results of its one business segment based on how the Company’s chief operating decision maker, our Chief Executive Officer, views the business for purposes of evaluating performance and making operating decisions. The Company markets, sells and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the U.S. The Company uses a centralized management structure, and its strategies and initiatives are implemented and executed consistently across the organization to maximize value to the organization as a whole. The Company uses shared resources for sales, procurement, and general and administrative activities across each of its distribution facilities and operations. The Company’s distribution facilities form a single network to reach its customers; it is common for a single customer to make purchases from several different distribution facilities. Capital projects, whether for cost savings or generating incremental revenue, are evaluated based on estimated economic returns to the organization as a whole. 18. SUBSEQUENT EVENTS IWC Food Service Acquisition - On April 5, 2024, the Company completed the acquisition of IWC Food Service for approximately $ 220 million. The acquisition will allow US Foods to further expand its reach into Tennessee and distribution channels to the southeast United States. The acquisition was a stock acquisition funded with cash on hand. The Company is in the process of measuring the acquired assets and assumed liabilities as of the acquisition date. 16