US Foods Holding Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts in tables presented in millions, unless otherwise noted) The following discussion and analysis should be read together with the accompanying unaudited consolidated financial statements and the notes thereto included in this Quarterly Report and the audited consolidated financial statements and the notes thereto in the 2023 Annual Report. The following discussion and analysis contain certain financial measures that are not required by or presented in accordance with GAAP. We believe these non-GAAP measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed under “Non-GAAP Reconciliations” below. Results of operations for the 13 weeks and 39 weeks ended September 28, 2024 are compared to the 13 weeks and 39 weeks ended September 30, 2023, unless specifically noted otherwise. Overview At US Foods, we strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers. This mission is supported by our brand promise of WE HELP YOU MAKE IT.™ , which is centered on bringing four key elements to the forefront for our customers; more quality products, including our large portfolio of exclusive brands, more tools, centering on our MOXē business platform, more support from our sellers and our team of experts and lastly, more deliveries, enabled by our traditional broadline services and Pronto ™ program. We operate as one business with standardized business processes, shared systems infrastructure, and an organizational model that optimizes national scale with local execution, allowing us to manage our business as a single operating segment. We have centralized activities where scale matters and our local field structure focuses on customer-facing activities. We supply approximately 250,000 customer locations nationwide. These customer locations include independent restaurants, chain restaurants, healthcare, hospitality, education and other customers. We provide fresh, frozen, and dry food products, as well as non-food items, sourced from thousands of suppliers. Approximately 4,000 sales associates manage customer relationships at local, regional, and national levels. Our sales associates are supported by sophisticated marketing and category management capabilities, as well as a sales support team that includes world-class chefs and restaurant operations consultants, new business development managers and others that help us provide more comprehensive service to our customers. Our extensive network of over 70 distribution facilities and fleet of over 6,500 trucks, along with over 90 cash and carry locations, allow us to operate efficiently and provide high levels of customer service. This operating model allows us to leverage our nationwide scale and footprint while executing locally. On June 5, 2024, the Company announced it intends to explore the potential sale of its CHEF’STORE wholesale restaurant supply business and, if a sale is completed, then entirely focus on delivered broadline operations. As of September 28, 2024, the Company is in the process of exploring this sale. For the 13 weeks ended September 28, 2024, net sales increased 6.8% driven by a total case volume increase of 3.8% compared to the prior year which was driven by a 4.1% increase in independent restaurant case volume, a 5.7% increase in healthcare volume, a 3.0% increase in hospitality volume and a 2.4% increase in chain volume. Total organic case volume increase d 1.1% for the 13 weeks ended September 28, 2024, which includes 2.4% organic independent restaurant case volume growth. For the 39 weeks ended September 28, 2024 , net sales increased 6.5% driven by a total case volume increase of 4.4% compared to the prior year which was driven by a 4.8% increase in independent restaurant case volume, a 6.1% increase in healthcare volume, a 2.0% increase in hospitality volume and a 3.5% increase in chain volume. Total organic case volume increased 1.5% for the 39 weeks ended September 28, 2024, which includes 2.8% organic independent restaurant case volume growth. Operating Metrics Case growth —Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time. Customers periodically are reclassified, based on changes in size or other characteristics, and when those changes occur, the respective customer’s historical volume is included within the new classification. Organic growth —Organic growth includes growth from operating businesses that have been reflected in our results of operations for at least 12 months. 19 Highlights For the 13 weeks and 39 weeks ended September 28, 2024, compared to the same period a year ago, total case volume increased 3.8% and 4.4% , respectively, and independent restaurant case volume increased 4.1% and 4.8% , respectively. For the 13 weeks and 39 weeks ended September 28, 2024 , compared to the same period a year ago, total organic case volume increase d 1.1% and 1.5%, respectively, and organic independent restaurant case volume increased 2.4% and 2.8%, respectively. Net sales increased $622 million, o r 6.8%, and $1,725 million, or 6.5% for the 13 weeks and 39 weeks ended September 28, 2024 , respectively, driven primarily by organic case volume growth, the impact of acquisitions and food cost inflation of 3.2% and 2.5% for the 13 weeks and 39 weeks ended September 28, 2024, respectively. Gross profit increased $125 million, or 8.1%, to $1,667 million for the 13 weeks ended September 28, 2024, and increased $310 million, or 6.8%, to $4,868 million for the 39 weeks ended September 28, 2024. For the 13 weeks ended September 28, 2024, the increase was primarily a result of an increase in total case volume, improved cost of goods sold, pricing optimization and a favorable year-over-year LIFO adjustment. For the 39 weeks ended September 28, 2024, the increase was primarily a result of an increase in organic case volume, improved cost of goods sold, the impact of acquisition and pricing optimization, partially offset by an unfavorable year-over-year LIFO adjustment. Gross profit was negatively impacted by LIFO expense of $23 million and $68 million for the 13 weeks and 39 weeks ended September 28, 2024, respectively. Gross profit was negatively impacted by a LIFO expense of $37 million and $42 million for the 13 weeks and 39 weeks ended September 30, 2023, respectively. As a percentage of net sales, gross profit was 17.1% for the 13 weeks ended September 28, 2024, compared to 16.9% for the prior year period and was 17.1% for both the 39 weeks ended September 28, 2024 and September 30, 2023. Total operating expenses increased $76 million, or 5.8%, to $1,388 million for the 13 weeks ended September 28, 2024, and increased $252 million, or 6.6%, to $4,071 million for the 39 weeks ended September 28, 2024. For the 13 weeks ended September 28, 2024, the increase was primarily a result of an increase in total case volume and higher distribution costs, reflecting increased labor costs, partially offset by continued distribution productivity improvement as well as actions to streamline administrative processes and costs. For the 39 weeks ended September 28, 2024, the increase was primarily a result of an increase in organic case volume, higher distribution costs, reflecting increased labor costs, the impact of acquisitions and incremental costs to serve our customers during January labor disruptions, partially offset by continued productivity improvement. As a percentage of net sales, operating expenses were 14.3% for the 13 weeks ended September 28, 2024, compared to 14.4% for the prior year period and was 14.3% for both the 39 weeks ended September 28, 2024 and September 30, 2023. 20 Results of Operations The following table presents selected historical results of operations for the periods indicated: 13 Weeks Ended 39 Weeks Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Consolidated Statements of Operations: Net sales $ 9,728 $ 9,106 $ 28,386 $ 26,661 Cost of goods sold 8,061 7,564 23,518 22,103 Gross profit 1,667 1,542 4,868 4,558 Operating expenses: Distribution, selling and administrative costs 1,379 1,312 4,050 3,819 Restructuring activity and asset impairment charges 9 — 21 — Total operating expenses 1,388 1,312 4,071 3,819 Operating income 279 230 797 739 Other expense (income)—net 3 (1) 5 (4) Interest expense—net 75 81 235 244 Loss on extinguishment of debt — 21 — 21 Income before income taxes 201 129 557 478 Income tax provision 53 34 129 119 Net income 148 95 428 359 Series A convertible preferred stock dividends — — — (7) Net income available to common shareholders $ 148 $ 95 $ 428 $ 352 Percentage of Net Sales: Gross profit 17.1 % 16.9 % 17.1 % 17.1 % Operating expenses 14.3 % 14.4 % 14.3 % 14.3 % Operating income 2.9 % 2.5 % 2.8 % 2.8 % Net income 1.5 % 1.0 % 1.5 % 1.3 % Adjusted EBITDA (1) 4.7 % 4.4 % 4.6 % 4.4 % Other Data: Cash flows—operating activities $ 270 $ 282 $ 891 $ 935 Cash flows—investing activities (79) (195) (447) (301) Cash flows—financing activities (515) (120) (632) (499) Capital expenditures 80 59 236 167 EBITDA (1) 390 307 1,119 1,012 Adjusted EBITDA (1) 455 402 1,300 1,171 Adjusted EBITDA Margin (1) 4.7 % 4.4 % 4.6 % 4.4 % Adjusted Net Income (1) 208 174 573 498 Free Cash Flow (2) 191 229 658 776 (1) EBITDA is defined as net income, plus interest expense—net, income tax provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for: (1) restructuring activity and asset impairment charges; (2) share-based compensation expense; (3) the impact of LIFO reserve adjustments; (4) loss on extinguishment of debt; (5) business transformation costs; and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness. Adjusted EBITDA Margin is Adjusted EBITDA divided by total net sales. Adjusted Net Income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted Net Income as presented are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below. (2) Free Cash Flow is defined as cash flows provided by operating activities and proceeds from sales of property and equipment less cash capital expenditures. Free Cash Flow as presented is a supplemental measure of our liquidity that is not required by, or presented in accordance with, GAAP. It is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below. 21 Non-GAAP Reconciliations We provide EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Free Cash Flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity. These non-GAAP financial measures, as defined above, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance. We believe that Adjusted Net Income is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense and income taxes on a consistent basis from period to period. We believe that Adjusted Net Income may be used by investors, analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends impact our operating performance. Management uses these non-GAAP financial measures (1) to evaluate our historical and prospective financial performance as well as our performance relative to our competitors as they assist in highlighting trends, (2) to set internal sales targets and spending budgets, (3) to measure operational profitability and the accuracy of forecasting, (4) to assess financial discipline over operational expenditures, and (5) as an important factor in determining variable compensation for management and employees. EBITDA and Adjusted EBITDA are also used in connection with certain covenants and activity restrictions under the agreements governing our indebtedness. We also believe these and similar non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. We use Free Cash Flow as a supplemental measure to GAAP financial measures regarding the liquidity of our operations. We measure Free Cash Flow as cash flows provided by operating activities and proceeds from sales of property and equipment less cash capital expenditures. We believe that Free Cash Flow is a useful financial metric to assess our ability to pursue business opportunities and investments. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP. We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Free Cash Flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income or Free Cash Flow in the same manner. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. 22 The following table reconciles EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Free Cash Flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated: 13 Weeks Ended 39 Weeks Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net income available to common shareholders and net income margin $ 148 1.5% $ 95 1.0% $ 428 1.5% $ 352 1.3 % Series A Preferred Stock Dividends — — — (7) Net income and net income margin 148 1.5% 95 1.0% 428 1.5% 359 1.3% Interest expense—net 75 81 235 244 Income tax provision 53 34 129 119 Depreciation expense 99 85 288 256 Amortization expense 15 12 39 34 EBITDA and EBITDA margin 390 4.0% 307 3.4% 1,119 3.9% 1,012 3.8 % Adjustments: Restructuring activity and asset impairment charges (1) 10 2 22 2 Share-based compensation expense (2) 16 15 46 43 LIFO reserve adjustment (3) 23 37 68 42 Loss on extinguishment of debt (4) — 21 — 21 Business transformation costs (5) 10 9 28 16 Business acquisition and integration related costs and other (6) 6 11 17 35 Adjusted EBITDA and Adjusted EBITDA margin 455 4.7% 402 4.4% 1,300 4.6 % 1,171 4.4 % Depreciation expense (99) (85) (288) (256) Interest expense—net (75) (81) (235) (244) Income tax provision, as adjusted (7) (73) (62) (204) (173) Adjusted Net Income $ 208 $ 174 $ 573 $ 498 Cash flow Cash flows from operating activities $ 270 $ 282 $ 891 $ 935 Proceeds from sales of property and equipment 1 6 3 8 Capital expenditures (80) (59) (236) (167) Free Cash Flow $ 191 $ 229 $ 658 $ 776 (1) Consists primarily of severance and related costs, organizational realignment costs and asset impairment charges. (2) Share-based compensation expense for expected vesting of stock awards and employee stock purchase plan. (3) Represents the impact of LIFO reserve adjustments. (4) Includes early redemption premium and the write-off of certain pre-existing debt issuance cost s. Se e Note 10, Debt, in ou r consolidated financial statements for additional information. (5) Transformational costs represent non-recurring expenses prior to formal launch of strategic projects with anticipated long-term benefits to the Company. These costs generally relate to third party consulting and non-capitalizable technology. For the 13 weeks and 39 weeks ended September 28, 2024, business transformation costs related to projects associated with information technology infrastructure initiatives and workforce efficiencies. For the 13 weeks and 39 weeks ended September 30, 2023, business transformation costs related to projects associated with information technology infrastructure initiatives. (6) Includes: (i) aggregate acquisition related costs of $6 million and $10 million for the 13 weeks ended September 28, 2024 and September 30, 2023, respectively, and $17 million and $31 million for the 39 weeks ended September 28, 2024 and September 30, 2023, respectively; (ii) CEO sign on bonus of $3 million for the 39 weeks ended September 30, 2023 and (iii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness. (7) Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, and excess tax benefits associated with share-based compensation. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using a statutory tax rate after taking into account the impact of permanent differences and valuation allowances. 23 A reconciliation between the GAAP income tax provision and the income tax provision, as adjusted, is as follows: 13 Weeks Ended 39 Weeks Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 GAAP income tax provision $ 53 $ 34 $ 129 $ 119 Tax impact of pre-tax income adjustments 18 27 51 47 Discrete tax items 2 1 24 7 Income tax provision, as adjusted $ 73 $ 62 $ 204 $ 173 Comparison of Results 13 Weeks Ended September 28, 2024 and September 30, 2023 Highlights • Net sales increased $622 million, or 6.8%, to $9,728 million in 2024. • Total case volume increased 3.8% and independent restaurant case volume increased 4.1%. • Total organic case volum e increased 1.1% and organic independent restaurant case volume increased 2.4%. • Operating income increased $49 million, to $279 million in 2024. • Net income increased $53 million to $148 million in 2024. • Adjusted EBITDA increased $53 million, or 13.2%, to $455 million in 2024. As a percentage of net sales, Adjusted EBITDA was 4.7% in 2024, compared to 4.4% in 2023. Net Sales Net sales increased $622 million or 6.8%, to $9,728 million in 2024, driven by organic case volume growth, the impact of acquisitions and food cost inflation of 3.2%. Total case volume increased 3.8% driven by a 4.1% increase in independent restaurant case volume, a 5.7% increase in healthcare volume, a 3.0% increase in hospitality volume and a 2.4% increase in chain volume. Total organic case volume increased 1.1% and organic independent restaurant case volume increased 2.4% . Organic broadline sales of private brands represented approximately 35% of net sales in both 2024 and 2023. Gross Profit Gros s profit increased $125 million, or 8.1%, to $1,667 million in 2024, primarily as a result of an increase in total case volume, improved cost of goods sold, pricing optimization and a favorable year-over-year LIFO adjustment. Our LIFO method of inventory costing resulted in an expense of $23 million in 2024 compared to an expense of $37 million i n 2023 , driven by inflation in poultry, cheese, and seafood. Gross profit as a percentage of net sales was 17.1% in 2024, due to the aforemention ed factors. Gross profit as a percentage of net sales was 16.9% in 2023. Operating Expenses Operating expenses, comprised of distribution, selling and administrative costs, increased $76 million, or 5.8%, to $1,388 million in 2024 . Operating expenses increased primarily as a result of an increase in total case volume and higher distribution costs, reflecting increased labor costs, partially offset by continued distribution productivity improvement as well as actions to streamline administrative processes and costs. Operating expenses as a percentage of net sales were 14.3% in 2024, compared to 14.4% in 2023. Operating Income Our operating income was $279 million in 2024, compared to operating income of $230 million in 2023. The increase in operating income was due to the factors discussed in the relevant sections above. Other Expense (Income)—Net Other expense (income)—net includes components of net periodic pension benefit credits, exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other expense—net of $3 million in 2024 and other income—net of $1 million in 2023. The decrease in other income-net is due to an increase in the pension benefit interest cost and a decrease in the expected return on pension assets compared to 2023. 24 Interest Expense—Net Interest expense—net decreased $6 million to $75 million in 2024 primarily due to lower outstanding debt in 2024 compared to 2023. Income Taxes For the 13 weeks ended September 28, 2024, the Company’s effective income tax rate of 26% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $1 million related to a decrease in an unrecognized tax benefit as a result of the expiration of the statute of limitations in several jurisdictions and a tax benefit of $1 million, primarily related to excess tax benefits associated with share-based compensation. For the 13 weeks ended September 30, 2023, the Company’s effective income tax rate of 27% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items were not material individually or in the aggregate. Net Income Our net income was $148 million in 2024, compared to a net income of $95 million in 2023. The improvement in net income was due to the relevant factors discussed above. 39 Weeks Ended September 28, 2024 and September 30, 2023 Highlights • Net sales increased $1,725 million, or 6.5%, to $28,386 million in 2024. • Total case volume increased 4.4% and independent restaurant case volume increased 4.8%. • Operating income increased $58 million, to $797 million in 2024. • Net income increased $69 million to $428 million in 2024. • Adjusted EBITDA increased $129 million or 11.0%, to $1,300 million in 2024. As a percentage of net sales, Adjusted EBITDA was 4.6% in 2024, compared to 4.4% in 2023. Net Sales Net sales increased $1,725 million, or 6.5%, to $28,386 million in 2024 driven by organic case volume growth, the impact of acquisitions and food cost inflation of 2.5%. Total case volume increased 4.4% driven by a 4.8% increase in independent restaurant case volume, a 6.1% increase in healthcare volume, a 2.0% increase in hospitality volume and a 3.5% increase in chain volume. Organic broadline sales of private brands represented approximately 34% of net sales in both 2024 and 2023, respectively. Gross Profit Gross profit increased $310 million, or 6.8%, to $4,868 million in 2024 primarily as a result of an increase in organic case volume, improved cost of goods sold, the impact of acquisitions and pricing optimization, partially offset by an unfavorable year-over-year LIFO adjustment. Our LIFO method of inventory costing resulted in an expense of $68 million in 2024, compared to expense of $42 million in 2023. LIFO expense in both periods is driven by a reduction in inventory values in multiple categories. Gross profit as a percentage of net sales was 17.1% in 2024 due to the aforementioned factors. Gross profit as a percentage of net sales was also 17.1% in 2023. Operating Expenses Operating expenses, comprised of distribution, selling and administrative costs, increased $252 million, or 6.6%, to $4,071 million in 2024. Operating expenses increased primarily due to an increase in organic case volume, higher distribution costs, reflecting increased labor costs, the impact of acquisitions and incremental costs to serve our customers during January labor disruptions, partially offset by continued productivity improvement. Operating expenses as a percentage of net sales were 14.3% in both 2024 and 2023. Operating Income Our operating income was $797 million in 2024, compared to operating income of $739 million in 2023. The increase in operating income was due to the factors discussed in the relevant sections above. 25 Other Expense (Income)—Net Other expense (income)—net includes components of net periodic pension benefit credits, exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other expense—net of $5 million in 2024 and other income —net of $4 million in 2023. The decrease in other income-net is due to an increase in the pension benefit interest cost and a decrease in the expected return on pension assets compared to 2023. Interest Expense—Net Interest expense—net decreased $9 million to $235 million in 2024 primarily due to lower outstanding debt in 2024 compared to 2023. Income Taxes For the 39 weeks ended September 28, 2024, 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 $17 million, primarily 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 $8 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 tax provision estimates. For the 39 weeks ended September 30, 2023, the Company’s effective income tax rate of 25% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $6 million, primarily related to excess tax benefits associated with share-based compensation and a tax benefit of $4 million, primarily related to adjustments to prior year tax provision estimates. Net Income Our net income was $428 million in 2024, compared to a net income of $359 million in 2023. The improvement in net income was due to the relevant factors discussed above. Liquidity and Capital Resources Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements. As of September 28, 2024, the Company had approximately $1.7 billion in cash and available liquidity. Indebtedness The aggregate outstanding balance of our indebtedness was $4,789 million, net of $26 million of unamortized deferred financing costs, as of September 28, 2024. We had outstanding borrowings totaling $75 million and had issued letters of credit totaling $578 million under the ABL Facility as of September 28, 2024. There was remaining capacity of $1,647 million under the ABL Facility as of September 28, 2024. The 2019 Incremental Term Loan Facility had an outstanding balance of $1,101 million, net of $8 million of unamortized deferred financing costs, as of September 28, 2024. The 2021 Incremental Term Loan Facility had an outstanding balance of $719 million, net of $2 million of unamortized deferred financing costs, as of September 28, 2024. The Senior Notes due 2028 had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of September 28, 2024. The Senior Notes due 2029 had an outstanding balance of $895 million, net of $5 million of unamortized deferred financing costs, as of September 28, 2024. The Senior Notes due 2030 had an outstanding balance of $497 million, net of $3 million of unamortized deferred financing costs, as of September 28, 2024. The Senior Notes due 2032 had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of September 28, 2024. We also had $502 million of obligations under financing leases for transportation equipment and building leases as of September 28, 2024. 26 The ABL Facility will mature in 2027. The 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility will mature in 2026 and 2028, respectively. The Senior Notes due 2028, the Senior Notes due 2029, the Senior Notes due 2030 and the Senior Notes due 2032 will mature in 2028, 2029, 2030 and 2032, respectively. The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on our assets, pay dividends, or engage in mergers or consolidations. The Company had approximately $2.3 billion of restricted payment capacity under these covenants and approximately $2.3 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of September 28, 2024. We believe that the combination of cash generated from operations, together with borrowing capacity under the agreements governing our indebtedness and other financing arrangements, will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs, and capital expenditure requirements for the next 12 months. Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to provide us with funding. We are not aware of any facts that indicate our lenders will not be able to comply with the contractual terms of their agreements with us. We continue to monitor the credit markets generally and the strength of our lender counterparties. From time to time, we may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage. These actions may include open market repurchases, negotiated repurchases, and other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, our debt trading levels, our cash position, and other considerations. Any potential debt reduction or other debt retirement could require significant use of our other available liquidity and capital resources. See Note 10, Debt, in our consolidated financial statements, for a further description of our indebtedness. Cash Flows The following table presents condensed highlights from our Consolidated Statements of Cash Flows for the periods presented: 39 Weeks Ended September 28, 2024 September 30, 2023 Net income $ 428 $ 359 Changes in operating assets and liabilities 95 188 Other adjustments 368 388 Net cash provided by operating activities 891 935 Net cash used in investing activities (447) (301) Net cash used in financing activities (632) (499) Net increase in cash, cash equivalents and restricted cash (188) 135 Cash, cash equivalents and restricted cash−beginning of period 269 211 Cash, cash equivalents and restricted cash−end of period $ 81 $ 346 Operating Activities Cash flows provided by operating activities was $891 million for the 39 weeks ended September 28, 2024, representing a decrease of $44 million as compared to cash flows provided by operating activities of $935 million for the 39 weeks ended September 30, 2023, due to less working capital benefit for the 39 weeks ended September 28, 2024 compared to the 39 weeks ended September 30, 2023. Investing Activities During the 39 weeks ended September 28, 2024, the Company completed the asset acquisition of IWC Food Service. Total consideration consisted of cash of approximately $220 million (less the amount of cash received, which was $6 million) for a net purchase price of $214 million. In addition, c ash flows used in investing activities in the 39 weeks ended September 28, 2024 and September 30, 2023 included cash expenditures of $236 million and $167 million, respectively, related to investments in information technology, property and equipment and maintenance of distribution facilities. We expect total cash capital expenditures in fisc al year 2024 to be between $325 million and $350 million. We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing. 27 Financing Activities Cash flows used in financing activities in the 39 weeks ended September 28, 2024 included $91 million of scheduled payments under our Term Loan Facilities and financing leases, $75 million in net proceeds under the ABL Facility, $14 million for repricing of the 2021 Term Loan Facility and $1 million of financing fees related to the 2021 Term Loan Facility repricing. Financing activities in the 39 weeks ended September 28, 2024 also included $628 million common stock repurchased under the Amended Share Repurchase Program, $19 million of proceeds received from stock purchases under our employee stock purchase plan, $14 million of proceeds from the exercise of employee stock options, which were offset by $20 million of employee tax withholdings paid in connection with the vesting of stock awards. Cash flows used by financing activities in the 39 weeks ended September 30, 2023 included $95 million of scheduled payments under our Term Loan Facilities and financing leases, $1 billion for refinancing of the Senior Notes due 2025, $10 million of financing fees related to the refinancing, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $120 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $3 million associated with interest rate cap purchases, $7 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility. Financing activities in the 39 weeks ended September 30, 2023 also included $229 million common stock repurchased under the Amended Share Repurchase Program, $19 million of proceeds received from stock purchases under our employee stock purchase plan and $23 million of proceeds from the exercise of employee stock options, which were offset by $12 million of employee tax withholdings paid in connection with the vesting of stock awards. Other Obligations and Commitments There have been no material changes in the Company’s cash obligations and commitments since the end of fiscal year 2023. Refer to Item 7 of our 2023 Annual Report for additional information regarding the Company’s cash obligations and commitments as of the end of fiscal year 2023. Retirement Plans See Note 12, Retirement Plans, in our consolidated financial statements for a description of our retirement plans. Off-Balance Sheet Arrangements We had $578 million of letters of credit outstanding primarily securing the Company’s obligations with respect to its insurance program and certain real estate leases, under the ABL Facility as of September 28, 2024. Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Policies and Estimates We have prepared the financial information in this Quarterly Report in accordance with GAAP. Preparing the Company’s consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2023 Annual Report includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the 39 weeks ended September 28, 2024. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 2, Recent Accounting Pronouncements, in our consolidated financial statements.