US FOODS HOLDING CORP. 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 2021 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 26 weeks endedJuly 2, 2022 are compared to the 13 weeks and 26 weeks endedJuly 3, 2021 , unless specifically noted otherwise.
Overview
AtUS Foods , 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. 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 independently owned single and multi-unit restaurants, regional restaurant chains, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations. We provide more than 400,000 fresh, frozen, and dry food stock-keeping units, or SKUs, as well as non-food items, sourced from approximately 6,000 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 70 distribution facilities and fleet of approximately 6,500 trucks, along with 82 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. Our operations, our industry and theU.S. economy continue to be impacted by higher than normal inflation, supply chain disruptions, labor shortages, and the COVID-19 pandemic. These factors also influence the buying patterns of our customers and potentially impact consumer confidence and spending. We continue to actively monitor these risks to our business. Net sales increased, primarily due to continued inflation, while total case volumes were essentially flat during the 13 weeks endedJuly 2, 2022 and were up approximately 1.7% for the 26 weeks endedJuly 2, 2022 as compared to the prior year periods. We are unable to predict the extent these factors will continue to impact our results of operations.
Operating Metrics
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 follows its new classification.
Highlights
For the 13 weeks and 26 weeks endedJuly 2, 2022 , compared to the same period a year ago, total case volume decreased 0.4% and increased 1.7% respectively, and independent restaurant case volume increased 0.3% and 4.3%, respectively. Net sales increased$1,164 million , or 15.2%, and$2,667 million , or 19.1% for the 13 weeks and 26 weeks endedJuly 2, 2022 , driven by food cost inflation of approximately 15.0% and 16.1% for the 13 weeks and 26 weeks endedJuly 2, 2022 , respectively. Gross profit increased$214 million , or 18.3%, to$1,383 million for the 13 weeks endedJuly 2, 2022 , and increased$406 million or 18.7% to$2,578 million for the 26 weeks endedJuly 2, 2022 primarily as a result of optimized pricing, increased freight income from improved inbound logistics, cost of goods sold optimization, and food cost inflation in multiple product categories. Gross profit was negatively impacted in all periods presented by LIFO expense which was$65 million and$137 million for the 13 weeks and 26 weeks endedJuly 2, 2022 , respectively, and$97 million and$118 million for the 13 weeks and 26 weeks endedJuly 3, 2021 , respectively. As a percentage of Net sales, gross profit was 15.7% for the 13 weeks endedJuly 2, 2022 , compared to 15.3% for the prior year period and was 15.5% for the 26 weeks endedJuly 2, 2022 , compared to 15.6% for the prior year period. Total operating expenses increased$188 million , or 18.0%, to$1,233 million for the 13 weeks endedJuly 2, 2022 , and increased$374 million , or 18.5%, to$2,394 million for the 26 weeks endedJuly 2, 2022 . The increase was primarily due to higher distribution costs, largely due to higher labor costs as a result of increased turnover and higher than normal wage inflation. These increases were partially 15 -------------------------------------------------------------------------------- offset by cost savings initiatives outlined in our long-range plan including: (1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021. As a percentage of Net sales, operating expenses were 14.0% for the 13 weeks endedJuly 2, 2022 , compared to 13.6% for the prior year period and was 14.4% for the 26 weeks endedJuly 2, 2022 , compared to 14.5% for the prior year period.
Results of Operations
The following table presents selected historical results of operations for the
periods indicated:
13 Weeks Ended 26 Weeks Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Consolidated Statements of Operations Data:
Net sales $ 8,827 $ 7,663 $ 16,625 $ 13,958
Cost of goods sold 7,444 6,494 14,047 11,786
Gross profit 1,383 1,169 2,578 2,172
Operating expenses:
Distribution, selling and administrative costs 1,233 1,044 2,394 2,016
Restructuring costs and asset impairment
charges - 1 - 4
Total operating expenses 1,233 1,045 2,394 2,020
Operating income 150 124 184 152
Other income-net (5) (6) (11) (13)
Interest expense-net 60 54 115 108
Loss on extinguishment of debt - - - 23
Income before income taxes 95 76 80 34
Income tax provision 25 21 17 3
Net income 70 55 63 31
Series A Preferred Stock Dividends (see Note
13) (9) (9) (18) (24)
Net income available to common shareholders
46 $ 45 $ 7 Percentage ofNet Sales : Gross profit 15.7 % 15.3 % 15.5 % 15.6 % Operating expenses 14.0 % 13.6 % 14.4 % 14.5 % Operating income 1.7 % 1.6 % 1.1 % 1.1 % Net income 0.8 % 0.7 % 0.4 % 0.2 % Adjusted EBITDA(1) 4.2 % 4.3 % 3.7 % 3.6 % Other Data: Cash flows-operating activities$ 101 $ 74 $ 259 $ 250 Cash flows-investing activities (70) (55) (140) (101) Cash flows-financing activities (24) (232) (70) (279) Capital expenditures 71 61 143 107 EBITDA(1) 247 224 376 337 Adjusted EBITDA(1) 368 332 609 504 Adjusted net income(1) 169 146 249 173 Free cash flow(2) 30 13 116 143 (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 non-cash 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 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 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 16 --------------------------------------------------------------------------------
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.
17
--------------------------------------------------------------------------------Non-GAAP Reconciliations We provide EBITDA, Adjusted EBITDA, 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 and Adjusted EBITDA 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 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 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.
18
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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:
13 Weeks Ended 26 Weeks Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net income available to common shareholders $ 61 $ 46 $ 45 $ 7
Series A Preferred Stock Dividends (see Note
13) (9) (9) (18) (24)
Net income 70 55 63 31
Interest expense-net 60 54 115 108
Income tax provision 25 21 17 3
Depreciation expense 81 81 159 163
Amortization expense 11 13 22 32
EBITDA 247 224 376 337
Adjustments:
Restructuring costs and asset impairment
charges(1) - 1 - 4
Share-based compensation expense(2) 9 13 21 23
LIFO reserve adjustment(3) 65 97 137 118
Loss on extinguishment of debt(4) - - - 23
Business transformation costs(5) 15 5 29 14
COVID-19 bad debt benefit(6) - - - (15)
COVID-19 other related expenses(7) 2 1 2 1
Business acquisition and integration related
costs and other(8) 30 (9) 44 (1)
Adjusted EBITDA 368 332 609 504
Depreciation expense (81) (81) (159) (163)
Interest expense-net (60) (54) (115) (108)
Income tax provision, as adjusted(9) (58) (51) (86) (60)
Adjusted net income $ 169 $ 146 $ 249 $ 173
Cash flow
Cash flows from operating activities $ 101 $ 74 $ 259 $ 250
Capital expenditures (71) (61) (143) (107)
Free cash flow $ 30 $ 13 $ 116 $ 143
(1) Consists primarily of non-CEO 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 non-cash impact of LIFO reserve adjustments.
(4) Includes early redemption premium and the write-off of certain pre-existing
debt issuance costs.
(5) Consists primarily of costs related to significant process and systems
redesign across multiple functions.
(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 addback for
purposes of calculating Adjusted EBITDA under certain agreements governing our
indebtedness.
(8) Includes: (i) aggregate acquisition and integration related costs of $6
million for both the 13 weeks ended July 2, 2022 and July 3, 2021 , and $12
million for both the 26 weeks ended July 2, 2022 and July 3, 2021 ; (ii)
contested proxy and related legal and consulting costs of $14 million for the 13
weeks ended July 2, 2022 , and $21 million for the 26 weeks ended July 2, 2022 ;
(iii) CEO severance of $5 million for the 13 and 26 weeks ended July 2, 2022 ;
(iv) a favorable legal settlement recovery of $13 million for the 13 and 26
weeks ended July 3, 2021 ; and (v) other gains, losses or costs that we are
permitted to addback 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.
19
--------------------------------------------------------------------------------A reconciliation between the GAAP income tax provision and the income tax provision, as adjusted, is as follows:
13 Weeks Ended 26 Weeks Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
GAAP income tax provision $ 25 $ 21 $ 17 $ 3
Tax impact of pre-tax income adjustments 32 30 64 51
Discrete tax items 1 - 5 6
Income tax provision, as adjusted $ 58 $ 51 $ 86 $ 60
Comparison of Results
13 Weeks Ended
Highlights
•Net income improved
•Adjusted EBITDA increased$36 million , or 10.8%, to$368 million in 2022. As a percentage of Net sales, Adjusted EBITDA was 4.2% in 2022, compared to 4.3% in 2021.
•Net sales increased
•Total case volume decreased 0.4% and independent restaurant case volume increased 0.3%.
•Operating income increased
Net sales increased$1,164 million , or 15.2%, to$8,827 million in 2022 driven by food cost inflation of 15.0%. Total case volume decreased 0.4%, and independent restaurant case volume grew 0.3%. Year-over-year total case growth for the second quarter was also negatively impacted roughly 375 basis points by the mid-2021 exit of the lower margin grocery retail business we temporarily added during the pandemic and the strategic exit of a small number of lower margin chain restaurant and education customers. The year-over-year increase in inflation, which was seen in multiple product categories including poultry, dairy, and grocery, benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost. Sales of private brands represented approximately 34% of Net sales in both 2022 and 2021.
Gross Profit
Gross profit increased$214 million , or 18.3%, to$1,383 million in 2022 primarily as a result of optimized pricing, increased freight income from improved inbound logistics, cost of goods sold optimization, and food cost inflation in multiple product categories, partially offset by an unfavorable year-over-year LIFO adjustment. Our LIFO method of inventory costing resulted in an expense of$65 million in 2022 compared to expense of$97 million in 2021 due to inflation in multiple product categories including poultry, dairy, and grocery. Gross profit as a percentage of Net sales was 15.7% in 2022, compared to 15.3% in 2021, due to the aforementioned factors.
Operating Expenses
Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment charges, increased$188 million , or 18.0%, to$1,233 million in 2022. Operating expenses as a percentage of Net sales were 14.0% in 2022, compared to 13.6% in 2021. The increase in operating expenses was primarily due to higher distribution costs, largely due to higher labor costs as a result of increased turnover and higher than normal wage inflation, as well as a contested proxy and related legal and consulting costs and CEO severance costs. The increase was partially offset by cost savings initiatives outlined in our long-range plan including: (1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.
Operating Income
Our operating income was$150 million in 2022, compared to operating income of$124 million in 2021. The increase in operating income was due to the factors discussed in the relevant sections above. 20 --------------------------------------------------------------------------------
Other Income-Net Other 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 income-net of$5 million and$6 million in 2022 and 2021, respectively.
Interest Expense-Net
Interest expense-net increased$6 million to$60 million in 2022 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2022 compared to 2021. Income Taxes For the 13 weeks endedJuly 2, 2022 , our 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 primarily related to excess tax benefits associated with share-based compensation. For the 13 weeks endedJuly 3, 2021 , our effective income tax rate of 28% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes.
Net Income
Our net income was$70 million in 2022, compared to net income of$55 million in 2021. The improvement in net income was due to the relevant factors discussed above.
26 Weeks Ended
Highlights
•Net income was
•Adjusted EBITDA increased$105 million , or 20.8%, to$609 million in 2022. As a percentage of Net sales, Adjusted EBITDA was 3.7% in 2022, compared to 3.6% in 2021.
•Net sales increased
•Total case volume increased 1.7% and independent restaurant case volume increased 4.3%
•Operating income was
Net Sales Net sales increased$2,667 million , or 19.1%, to$16,625 million in 2022, comprised of a$239 million , or 1.7%, increase in case volume and a$2,428 million , or 17.4%, increase in the overall Net sales rate per case. The increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 16.1%. The year-over-year increase in inflation, which was seen in multiple product categories including diary, poultry, and grocery benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost. Total case volume increased 1.7% in 2022 with independent restaurant case volume growth of 4.3%. The increase in case volume was primarily driven by increased leisure and business travel and increased restaurant traffic. Year-over-year total case growth for the first six months of 2022 was also negatively impacted roughly 425 basis points by the mid-2021 exit of the lower margin grocery retail business we temporarily added during the pandemic and the strategic exit of a small number of lower margin chain restaurant and education customers. Sales of private brands represented approximately 34% and 33% of Net sales in 2022 and 2021, respectively. Gross Profit Gross profit increased$406 million , or 18.7%, to$2,578 million in 2022 primarily as a result of an increase in total case volume, optimized pricing and increased freight income from improved inbound logistics, and food cost inflation in multiple product categories. These increases in gross profit were partially offset by unfavorable year-over-year LIFO adjustments. Our LIFO method of inventory costing resulted in an expense of$137 million in 2022 compared to expense of$118 million in 2021 due to inflation in multiple product categories including diary, poultry, and grocery. Gross profit as a percentage of Net sales was 15.5% in 2022, compared to 15.6% in 2021.
Operating Expenses
Operating expenses, comprised of distribution, selling and administrative and restructuring costs and asset impairment costs, increased$374 million or 18.5%, to$2,394 million in 2022. Operating expenses as a percentage of Net sales were 14.4% in 2022, compared to 14.5% in 2021. The increase in operating expenses was primarily due to greater volume and higher distribution costs, largely due to 21 -------------------------------------------------------------------------------- higher labor costs as a result of increased turnover and higher than normal wage inflation, as well as contested proxy and related legal and consulting costs and CEO severance. The increase was partially offset by cost savings initiatives outlined in our long-range plan including: (1) routing improvements that expanded from a pilot to enterprise-wide implementation, (2) continued deployment of new warehouse selection technology that is expected to be completed in the fiscal third quarter of 2022, and (3) the rollout of new warehouse process enhancements tested in 2021.
Operating Income
Our operating income was$184 million in 2022, compared to operating income of$152 million in 2021. The increase in operating income was due to the factors discussed in the relevant sections above.
Other Income-Net
Other 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 income-net of$11 million and$13 million in 2022 and 2021, respectively.
Interest Expense-Net
Interest expense-net increased$7 million to$115 million in 2022 primarily due to an increase in interest rates, partially offset by lower outstanding debt in 2022 compared to 2021. Income Taxes For the 26 weeks endedJuly 2, 2022 , our effective income tax rate of 21% is equivalent to 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$5 million primarily related to excess tax benefits associated with share-based compensation. For the 26 weeks endedJuly 3, 2021 , our effective income tax rate of 9% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes.
Net Income
Our net income was$63 million in 2022, compared to net income of$31 million in 2021. 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 ofJuly 2, 2022 , the Company had approximately$1.9 billion in cash and available liquidity.
Indebtedness
The aggregate outstanding balance of our indebtedness was
We had no outstanding borrowings and had issued letters of credit totaling
The 2019 Incremental Term Loan Facility had an outstanding balance of$1,437 million , net of$22 million of unamortized deferred financing costs, as ofJuly 2, 2022 .
The 2021 Incremental Term Loan Facility had an outstanding balance of
The Secured Senior Notes due 2025 had an outstanding balance of
As of
As of
We also had
22
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The ABL Facility will mature in 2024. The 2019 Incremental Term Loan Facility
and the 2021 Incremental Term Loan Facility will mature in 2026 and 2028,
respectively. The Secured Senior Notes due 2025 will mature in 2025. The
Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2030 will
mature in 2029 and 2030, 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. USF had approximately
$1.5 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 July 2, 2022 .
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 9, 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:
26 Weeks Ended
July 2, 2022 July 3, 2021
Net income $ 63 $ 31
Changes in operating assets and liabilities (17) (22)
Other adjustments 213 241
Net cash provided by operating activities 259 250
Net cash used in investing activities (140) (101)
Net cash used in financing activities (70) (279)
Net increase (decrease) in cash, and cash equivalents and restricted cash
49 (130)
Cash, cash equivalents and restricted cash-beginning of period 148 829
Cash, cash equivalents and restricted cash-end of period
$ 699
Operating Activities
Cash flows provided by operating activities was $259 million for the 26 weeks
ended July 2, 2022 , representing an increase of $9 million as compared to cash
flows provided by operating activities of $250 million for the 26 weeks ended
July 3, 2021 driven by higher net income, partially offset by lower depreciation
and amortization for the 26 weeks ended July 2, 2022 .
Investing Activities
Cash flows used in investing activities in the 26 weeks endedJuly 2, 2022 andJuly 3, 2021 included cash expenditures of$143 million and$107 million , respectively, on investments in information technology, new construction and expansion of certain existing distribution facilities, and property and equipment for fleet replacement. We expect total cash capital expenditures in fiscal year 2022 to be between$280 million and$300 million , exclusive of approximately$110 million of capital expenditures under our fleet financing leases. We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing. 23 --------------------------------------------------------------------------------
Financing Activities Cash flows used by financing activities in the 26 weeks endedJuly 2, 2022 included$55 million of scheduled payments under our Term Loan Facilities and financing leases,$18 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility. Financing activities in the 26 weeks endedJuly 2, 2022 also included$12 million of proceeds received from stock purchases under our employee stock purchase plan and$7 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. Cash flows used by financing activities for the 26 weeks endedJuly 3, 2021 included aggregate borrowings of$900 million under the Unsecured Senior Notes due 2029. We used the proceeds from the issuance of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding 5.875% unsecured senior notes due 2024 and repay all of the then outstanding borrowings under the incremental senior secured term loan facility borrowed inApril 2020 . Financing activities for the 26 weeks endedJuly 3, 2021 also included$10 million of proceeds received from stock purchases under our employee stock purchase plan and$12 million of proceeds from the exercise of employee stock options, which were offset by$13 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 2021. Refer to Item 7 of our 2021 Annual Report for additional information regarding the Company's cash obligations and commitments as of the end of fiscal year 2021.
Retirement Plans
See Note 11, Retirement Plans, in our consolidated financial statements for a description of our retirement plans.
Off-Balance Sheet Arrangements
We had
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 2021 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 26 weeks endedJuly 2, 2022 .
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2, Recent Accounting Pronouncements, in our consolidated financial statements.
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