# US Foods Holding Corp. (USFD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from US Foods Holding Corp.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1665918/000166591824000014/usfd-20231230.htm
Accession: 0001665918-24-000014
Filing date: 2024-02-15
Report date: 2023-12-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/USFD/
All MD&A years: /company/USFD/mda/
Previous year: /company/USFD/mda/fy2022/ (FY 2022)
Next year: /company/USFD/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand the Company, our financial condition and results of operations and our present business environment. It should be read together with our consolidated financial statements and related notes contained elsewhere in this Annual Report. The following discussion and analysis contain certain financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the U.S. (“GAAP”). We believe these non-GAAP financial measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed in “Non-GAAP Reconciliations” below.

The following includes a comparison of our consolidated results of operations for fiscal years 2023 and 2022. For a comparison of our consolidated results of operations for fiscal years 2022 and 2021, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 16, 2023.

Overview

We strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers. This mission is supported by our strategy of GREAT FOOD. MADE EASY.™, which is centered on providing customers with the innovative products, business support and technology solutions they need to operate their businesses profitably. Net sales increased 4.5%, driven by case volume growth. Total case volumes increased 4.4% compared to the prior year driven by a 6.9% increase in independent restaurant case volume, a 7.2% increase in healthcare volume and a 8.9% increase in hospitality volume, offset by a 2.1% decrease in chain volume. Total organic case volume increased 3.9% which includes 6.4% 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. Independent restaurant case volumes exclude the impacts of CHEF’STORE, which is recorded as other case volume.

Organic growth—Organic growth includes growth from operating businesses that have been reflected in our results of operations for at least 12 months.

Fiscal Year 2023 Highlights

Financial Highlights—Total case volume increased 4.4% and independent restaurant case volume increased 6.9% in fiscal year 2023. Total organic case volume increased 3.9% in fiscal year 2023. Net sales increased $1,540 million, or 4.5%, in fiscal year 2023 primarily due to case volume growth.

Gross profit increased $656 million, or 11.9%, to $6,148 million in fiscal year 2023, primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics and optimized pricing. As a percentage of net sales, gross profit was 17.3% in fiscal year 2023, compared to 16.1% in fiscal year 2022.

Total operating expenses increased $233 million, or 4.8%, to $5,131 million in fiscal year 2023. The increase was primarily due to increased total case volume and higher seller compensation costs, partially offset by lower distribution cost per case from cost savings initiatives including routing improvements and focused efforts positively impacting labor turnover and productivity as well as lower fuel costs.

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Results of Operations

The following table presents selected consolidated results of operations of our business for fiscal years 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","2021"],["","(in millions)"],["Consolidated Statements of Operations:"],["Net sales","$","35,597","","","$","34,057","","","$","29,487"],["Cost of goods sold","29,449","","","28,565","","","24,832"],["Gross profit","6,148","","","5,492","","","4,655"],["Operating expenses:"],["Distribution, selling and administrative costs","5,117","","","4,886","","","4,220"],["Restructuring costs and asset impairment charges","14","","","12","","","11"],["Total operating expenses","5,131","","","4,898","","","4,231"],["Operating income","1,017","","","594","","","424"],["Other income\u2014net","(6)","","","(22)","","","(26)"],["Interest expense\u2014net","324","","","255","","","213"],["Loss on extinguishment of debt","21","","","\u2014","","","23"],["Income before income taxes","678","","","361","","","214"],["Income tax provision","172","","","96","","","50"],["Net income","506","","","265","","","164"],["Series A Preferred Stock dividends","(7)","","","(37)","","","(43)"],["Net income available to common shareholders","$","499","","","$","228","","","$","121"],["Net income per share:"],["Basic","$","2.09","","","$","1.02","","","$","0.55"],["Diluted","$","2.02","","","$","1.01","","","$","0.54"],["Weighted-average number of shares used in per share amounts:"],["Basic","239","","","224","","","222"],["Diluted","250","","","226","","","225"],["Percentage of Net Sales:"],["Gross profit","17.3","%","","16.1","%","","15.8","%"],["Operating expenses","14.4","%","","14.4","%","","14.3","%"],["Operating income","2.9","%","","1.7","%","","1.4","%"],["Net income","1.4","%","","0.8","%","","0.6","%"],["Adjusted EBITDA(1)","4.4","%","","3.8","%","","3.6","%"],["Other Data:"],["Cash flows\u2014operating activities","$","1,140","","","$","765","","","$","419"],["Cash flows\u2014investing activities","(495)","","","(255)","","","(262)"],["Cash flows\u2014financing activities","(587)","","","(447)","","","(837)"],["Capital expenditures","309","","","265","","","274"],["EBITDA(1)","1,397","","","988","","","805"],["Adjusted EBITDA(1)","1,559","","","1,310","","","1,057"],["Adjusted Net Income (1)","658","","","538","","","388"],["Free Cash Flow(2)","831","","","500","","","145"]]
[[/GREPCENT_TABLE]]

(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 costs 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 in this Annual Report 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.

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(2)    Free Cash Flow is defined as cash flows provided by operating activities less cash capital expenditures. Free Cash Flow as presented in this Annual Report 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.

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 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 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.

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The following table reconciles EBITDA, Adjusted EBITDA, Adjusted Net Income and Free Cash Flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","2021"],["","(in millions)"],["Net income available to common shareholders","$","499","","","$","228","","","$","121"],["Series A Preferred Stock dividends (see Note 14)","(7)","","","(37)","","","(43)"],["Net income","506","","","265","","","164"],["Interest expense\u2014net","324","","","255","","","213"],["Income tax provision","172","","","96","","","50"],["Depreciation expense","349","","","327","","","323"],["Amortization expense","46","","","45","","","55"],["EBITDA","1,397","","","988","","","805"],["Adjustments:"],["Restructuring costs and asset impairment charges(1)","14","","","12","","","11"],["Share-based compensation expense(2)","56","","","45","","","48"],["LIFO reserve adjustment(3)","(1)","","","147","","","165"],["Loss on extinguishment of debt(4)","21","","","\u2014","","","23"],["Business transformation costs(5)","28","","","52","","","22"],["COVID-19 bad debt benefit(6)","\u2014","","","\u2014","","","(15)"],["COVID-19 other related expenses(7)","\u2014","","","\u2014","","","3"],["Business acquisition and integration related costs and other(8)","44","","","66","","","(5)"],["Adjusted EBITDA","1,559","","","1,310","","","1,057"],["Depreciation expense","(349)","","","(327)","","","(323)"],["Interest expense\u2014net","(324)","","","(255)","","","(213)"],["Income tax provision, as adjusted(9)","(228)","","","(190)","","","(133)"],["Adjusted Net Income","$","658","","","$","538","","","$","388"],["Cash flow"],["Cash flows from operating activities","$","1,140","","","$","765","","","$","419"],["Capital expenditures","(309)","","","(265)","","","(274)"],["Free Cash Flow","$","831","","","$","500","","","$","145"]]
[[/GREPCENT_TABLE]]

(1)    Consists primarily of non-CEO severance and related costs associated with organizational realignment and other 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 costs. See Note 11, Debt, in our 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 construction or technology. For fiscal year 2023, business transformation costs related to projects associated with information technology infrastructure initiatives. For fiscal year 2022, business transformation costs consist of new facility openings, supply chain strategy improvements, and information technology infrastructure initiatives.

(6)    Includes the changes in the reserve for doubtful accounts expense reflecting the collection risk associated with our customer base as a result of the COVID-19 pandemic.

(7) Includes COVID-19 related costs that we are permitted to add back under certain agreements governing our indebtedness.

(8)    Includes: (i) aggregate acquisition and integration related costs of $41 million for fiscal year 2023 and $22 million for both fiscal years 2022 and 2021 (ii) contested proxy and related legal and consulting costs of $21 million for fiscal year 2022; (iii) CEO severance of $5 million for fiscal year 2022; (iv) favorable legal settlement recoveries of $29 million for fiscal year 2021; and (v) other gains, losses or costs that we are permitted to add back for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(9)    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.

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

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022","","2021"],["","(in millions)"],["GAAP income tax provision","$","172","","","$","96","","","$","50"],["Tax impact of pre-tax income adjustments","48","","","89","","","74"],["Discrete tax items","8","","","5","","","9"],["Income tax provision, as adjusted","$","228","","","$","190","","","$","133"]]
[[/GREPCENT_TABLE]]

Comparison of Results

Fiscal Years Ended December 30, 2023 and December 31, 2022

Highlights

•Net income was $506 million in fiscal year 2023, compared to net income of $265 million in fiscal year 2022.

•Adjusted EBITDA increased $249 million, or 19.0%, to $1,559 million in fiscal year 2023. As a percentage of net sales, Adjusted EBITDA was 4.4% in fiscal year 2023, as compared to 3.8% in fiscal year 2022.

•Net sales increased $1,540 million, or 4.5% to $35,597 million in fiscal year 2023.

•Total case volume increased 4.4% and independent restaurant case volume increased 6.9% in fiscal year 2023.

•Total organic case volume increased 3.9% and organic independent restaurant case volume increased 6.4%.

•Operating income was $1,017 million in fiscal year 2023, compared to operating income of $594 million in fiscal year 2022. As a percentage of net sales, operating income was 2.9% in fiscal year 2023, as compared to 1.7% in fiscal year 2022.

Net Sales

Total case volume increased 4.4% driven by a 6.9% increase in independent restaurant case volume, a 7.2% increase in healthcare volume and a 8.9% increase in hospitality volume, offset by a 2.1% decrease in national chain volume. Total organic case volume increased 3.9% and organic independent restaurant case volume increased 6.4%.

Net sales increased $1,540 million, or 4.5%, to $35,597 million in fiscal year 2023, comprised of a $1,330 million, or 4.4%, increase in total case volume. Sales of private brands represented approximately 34% of net sales in both 2023 and 2022.

Gross Profit

Gross profit increased $656 million, or 11.9%, to $6,148 million in fiscal year 2023, primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics and optimized pricing. Our LIFO method of inventory costing resulted in a gain of $1 million in fiscal year 2023, compared to an expense of $147 million in fiscal year 2022. Gross profit as a percentage of net sales was 17.3% in fiscal year 2023, compared to 16.1% in fiscal year 2022, primarily driven by increased case volume and a decrease in LIFO expense in fiscal year 2023 as compared to fiscal year 2022.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs and restructuring costs and asset impairment charges, increased $233 million, or 4.8%, to $5,131 million in fiscal year 2023. Operating expenses as a percentage of net sales were 14.4% in fiscal year 2023, compared to 14.4% in fiscal year 2022. The increase in operating expenses was primarily due to increased total case volume and higher seller compensation costs, partially offset by lower distribution cost per case from cost savings initiatives including routing improvements and focused efforts positively impacting labor turnover and productivity as well as lower fuel costs.

Operating Income

Our operating income was $1,017 million in fiscal year 2023, compared to operating income of $594 million in fiscal year 2022. Operating income as a percentage of net sales was 2.9% in fiscal year 2023, compared to 1.7% in fiscal year 2022. The increase in operating income was due to the factors discussed in the relevant sections above.

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Other Income—Net

Other income—net includes components of net periodic benefit costs (credits), exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other income—net of $6 million and $22 million in fiscal years 2023 and 2022, respectively. The decrease in other income—net in 2023 is primarily due to a decrease in the expected return on assets and the value of pension assets compared to fiscal year 2022.

Interest Expense—Net

Interest expense—net increased $69 million in fiscal year 2023, primarily due to an increase in interest rates, partially offset by lower outstanding debt in fiscal year 2023 compared to fiscal year 2022.

Loss on Extinguishment of Debt

We recognized a loss on extinguishment of debt of $21 million in fiscal year 2023 due to the early redemption of the Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”). There was no gain or loss on extinguishment of debt in fiscal year 2022.

Income Taxes

Our effective income tax rate for fiscal year 2023 of 25% varied 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 an aggregate tax benefit of $11 million consisting of a tax benefit of $5 million related to excess tax benefits associated with share-based compensation, a tax benefit of $3 million related to a decrease in an unrecognized tax benefit, and a tax benefit of $3 million, primarily related to adjustments to prior year tax provision estimates.

Our effective income tax rate for fiscal year 2022 of 27% varied 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 an aggregate tax benefit of $5 million consisting primarily of a tax benefit of $1 million related to a decrease in an unrecognized tax benefit and a tax benefit of $4 million, related to excess tax benefits associated with share-based compensation.

Net Income

Our net income was $506 million in fiscal year 2023, compared to $265 million in fiscal year 2022. The increase 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 December 30, 2023, the Company had approximately $2.0 billion in cash and available liquidity.

Indebtedness

The aggregate carrying value of our indebtedness was $4,674 million, net of $34 million of unamortized deferred financing costs, as of December 30, 2023.

We had no outstanding borrowings and had issued letters of credit totaling $567 million under the ABL Facility as of December 30, 2023. There was remaining capacity of $1,733 million under the ABL Facility based on our borrowing base as of December 30, 2023.

The Company’s 6.875% Senior Notes due 2028 ( the “Unsecured Senior Notes due 2028”) had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs, as of December 30, 2023.

The Company’s 4.75% 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 Company’s 4.630% 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 Company’s 7.250% Senior Notes due 2032 ( the “Unsecured Senior Notes due 2032”) had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs, as of December 30, 2023.

The incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) had a carrying value of $1,105 million, net of $11 million of unamortized deferred financing costs, as of December 30, 2023.

The incremental senior secured term loan borrowed in November 2021 (the “2021 Incremental Term Loan Facility”) had a carrying value of $718 million, net of $3 million of unamortized deferred financing costs, as of December 30, 2023.

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The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”) provides USF with the 2019 Incremental Term Loan Facility and 2021 Incremental Term Loan Facility.

We also had $463 million of obligations under financing leases for transportation equipment and building leases as of December 30, 2023.

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. As economic conditions permit, we will consider opportunities to repurchase, refinance or otherwise reduce our debt obligations on favorable terms. Any potential debt reduction or refinancing could require significant use of our available liquidity and capital resources.

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 as well as beyond 12 months.

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. For additional information, see Item 1A of Part I, “Risk Factors-Risks Relating to Our Indebtedness.” 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.

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 11, 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 fiscal years 2023 and 2022:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2023","","2022"],["","(in millions)"],["Net income","$","506","","","$","265"],["Changes in operating assets and liabilities","117","","","43"],["Other adjustments","517","","","457"],["Net cash provided by operating activities","1,140","","","765"],["Net cash used in investing activities","(495)","","","(255)"],["Net cash used by financing activities","(587)","","","(447)"],["Net increase in cash, cash equivalents and restricted cash","58","","","63"],["Cash, cash equivalents and restricted cash\u2014beginning of year","211","","","148"],["Cash, cash equivalents and restricted cash\u2014end of year","$","269","","","$","211"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash flows provided by operating activities increased $375 million to $1,140 million in fiscal year 2023 driven by higher net income and changes in operating assets and liabilities. Net cash provided by operating activities in fiscal year 2022 benefited from a reduction in working capital needs.

Investing Activities

Cash flows used in investing activities in fiscal years 2023 and 2022 included cash expenditures of $309 million and $265 million, respectively, and related to investments in information technology, new construction and expansion of distribution facilities and property and equipment for fleet replacement. Cash flows used in investing activities in fiscal year 2023 also included $140 million cash purchase price for the acquisition of Renzi Food Service and $56 million cash purchase price for the acquisition of Saladino’s.

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We expect total cash capital expenditures in fiscal year 2024 to be between $325 million and $375 million. We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing.

Financing Activities

Cash flows used in financing activities in fiscal year 2023 included $125 million of scheduled payments under our Term Loan Facilities and financing leases, $1 billion for refinancing of the Secured 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 and $7 million of dividends on our Series A Preferred Stock. Financing activities in fiscal year 2023 also included $294 million of common stock repurchased under the Share Repurchase Program, $24 million of proceeds received from stock purchases under our employee stock purchase plan and $26 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.

We incurred approximately $26 million of lender fees and third-party costs in connection with our issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, consisting of a $16 million prepayment premium related to the Secured Senior Notes due 2025 and $10 million of costs associated with the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, which were capitalized as deferred financing costs. We incurred approximately $1 million total of lender fees and third-party costs in connection with the repricing of the 2021 Incremental Term Loan Facility, which were capitalized as deferred financing costs.

Cash flows used in financing activities in fiscal year 2022 included $108 million of schedule payments under our Term Loan Facilities and financing leases, $100 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $200 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $37 million of dividends on our Series A Preferred Stock and $14 million of share repurchases. We incurred approximately $4 million of lender fees and third-party costs in connection with the ABL Facility refinancing transaction. Financing activities in fiscal year 2022 also included $22 million of proceeds received from stock purchases under our employee stock purchase plan and $15 million of proceeds from the exercise of employee stock options, which were offset by $16 million of employee tax withholdings paid in connection with the vesting of stock awards.

Other Obligations and Commitments

The Company’s cash requirements within the next twelve months include the current portion of long-term debt, accounts payable and accrued liabilities, other current liabilities, and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily generated through a combination of cash from operations and access to capital from financial markets. Our long-term cash requirements under our various contractual obligations and commitments include:

•Debt, including financing lease obligations – See Note 11, Debt, in our consolidated financial statements for further detail of our debt and the timing of expected future principal payments.

•Operating and finance lease obligations – See Note 17, Leases, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

•Pension plans and other postretirement benefit contributions – We sponsor a defined benefit plan that pays benefits to eligible employees at retirement. In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents. See Note 18, Retirement Plans, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

•Self-insured liabilities – We are self-insured for general liability, fleet liability and workers’ compensation claims. Claims in excess of certain levels are insured by external parties. See Note 12, Accrued Expenses and Other Long-Term Liabilities, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

•Purchase and Other Obligations – 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. Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2028. See Note 22, Commitments and Contingencies, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

We believe the following sources will be sufficient to meet our anticipated cash requirements for at least the next twelve months, while maintaining sufficient liquidity for normal operating purposes:

•Our cash flow from operations;

•The availability of additional capital under our existing ABL Facility; and

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•Our availability to access capital from financial markets.

Retirement Plans

We sponsor a defined benefit plan that pays benefits to eligible participants at retirement. Only certain union associates are eligible to participate and continue to accrue benefits under the plan per the collective bargaining agreements. The plan is closed and frozen to all other employees. In addition, we provide 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 US Foods Consolidated Defined Benefit Retirement Plan. See Note 18, Retirement Plans, in our consolidated financial statements for further detail on the plan termination. We did not make significant contributions to the Company-sponsored defined benefit and other postretirement plans in fiscal years 2023 and 2022. In connection with the plan termination, we expect to make a contribution in 2024.

Certain employees are eligible to participate in our 401(k) savings plan. We made employer matching contributions to the 401(k) plan of $65 million and $57 million in fiscal years 2023 and 2022, respectively.

We also are required to contribute to various multiemployer pension plans under the terms of certain of our CBAs. Our contributions to these plans were $55 million and $47 million in fiscal years 2023 and 2022, respectively.

Off-Balance Sheet Arrangements

We had entered into $567 million of letters of credit, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases, under the ABL Facility as of December 30, 2023.

Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Except as otherwise set forth herein, we have prepared the financial information in this Annual Report in accordance with GAAP. Preparing these 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 as of 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. Our most critical accounting policies and estimates pertain to the valuation of goodwill and other intangible assets, vendor consideration and income taxes.

Valuation of Goodwill and Other Intangible Assets

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with each acquisition. Other intangible assets include customer relationships, amortizable trade names, noncompete agreements, the brand names comprising our portfolio of private brands, and trademarks. We assess goodwill and other intangible assets with indefinite lives for impairment each year, or more frequently if events or changes in circumstances indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, our policy is to assess for impairment as of the beginning of each fiscal third quarter. For other intangible assets with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 24, Business Information, in our consolidated financial statements. Our fiscal year 2023 assessment for impairment of goodwill was performed using a qualitative approach to determine, as of the date of the assessment, whether it was more likely than not that the fair value of goodwill was less than its carrying value. In performing the qualitative assessment, we identified and considered the significance of relevant key factors, events, and circumstances that affect the fair value of goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. Based on our qualitative fiscal year 2023 annual impairment analysis for goodwill, we concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value.

Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a relief from royalty method, including key assumptions such as the long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate. The fair value of each intangible asset is determined for comparison to the corresponding carrying value. If the carrying value of the asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

Based on our fiscal year 2023 annual impairment analysis for indefinite-lived intangible assets, we concluded that the fair value of our trademark indefinite-lived intangible asset and brand name indefinite-lived intangible asset exceeded their respective carrying values

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by substantial margins. These margins would not be materially impacted by a 5% increase in the discount rate. The recoverability of our indefinite-lived intangible assets could be impacted if estimated future cash flows are not achieved.

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.

Due to the many variables inherent in estimating fair value and the relative size of the indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the Company’s impairment analysis in future periods.

Vendor Consideration

We participate in various rebate and promotional incentives with our suppliers, primarily through purchase-based programs. The amount and timing of recognition of consideration under these incentives requires management judgment and estimates. Consideration under these incentives is estimated during the year based on historical and forecasted purchasing activity, as our obligations under the programs are fulfilled primarily when products are purchased. Consideration is typically received in the form of invoice deductions, or less often in the form of cash payments. Changes in the estimated amount of incentives earned are treated as changes in estimates and are recognized in the period of change. Historically, adjustments to our estimates for vendor consideration or related allowances have not been significant, and we do not expect adjustments to our estimates for vendor consideration or related allowances to be significant in the next 12 months.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements 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 in the period that includes the enactment date. We record net deferred tax assets to the extent we believe 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. We adjust the amounts recorded for uncertain tax positions when our judgment changes as a result of the evaluation of new information not previously available. These differences are reflected as increases or decreases to income tax expense in the period in which they are determined. 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. Our uncertain tax positions contain uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which an uncertain tax position has been established, or pay amounts in excess of recorded positions, our effective income tax rate could be materially affected. An unfavorable tax settlement would generally require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 3, Recent Accounting Pronouncements, in our consolidated financial statements.