What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 365 added, 169 removed, 397 unchanged (57% of the section changed)

3 unchanged sentences

(In millions, except par value)

March 28, 2020

June 27, 2020

December 28, 2019

11 unchanged sentences

Deferred tax assets

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

Current liabilities:

9 unchanged sentences

Commitments and contingencies (Note 22)

Mezzanine equity:

Series A convertible preferred stock, $0.01 par value—25 shares authorized;

0.5 and 0.0 issued and outstanding as of June 27, 2020 and

December 28, 2019

Shareholders’ equity:

1 unchanged sentence

220 issued and outstanding as of

March 28, 2020 and December 28, 2019

June 27, 2020 and December 28, 2019

Additional paid-in capital

2 unchanged sentences

Total shareholders’ equity

Total liabilities and shareholders' equity

Total liabilities, mezzanine equity and shareholders' equity

See Notes to Consolidated Financial Statements (Unaudited).

3 unchanged sentences

13 Weeks Ended

March 28, 2020

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Cost of goods sold

1 unchanged sentence

Distribution, selling and administrative costs

Restructuring costs

Total operating expenses

9 unchanged sentences

Comprehensive (loss) income

Net (loss) income

Series A convertible preferred stock dividends

Net (loss) income available to common shareholders

Net (loss) income per share:

12 unchanged sentences

Unrecognized loss on interest rate swaps, net of income tax

Adoption of ASU 2016-13 (Note 7)

Adoption of ASU 2016-13 (Note 2 and 7)

BALANCE—March 28, 2020

Share-based compensation expense

Proceeds from employee stock purchase plan

Tax withholding payments for net share-settled equity awards

Series A convertible preferred stock dividends

Changes in retirement benefit obligations, net of income tax

BALANCE—June 27, 2020

Accumulated Other Comprehensive Loss

8 unchanged sentences

BALANCE—March 30, 2019

Share-based compensation expense

Proceeds from employee stock purchase plan

Exercise of stock options

Tax withholding payments for net share-settled equity awards

Changes in retirement benefit obligations, net of income tax

Unrecognized loss on interest rate swaps, net of income tax

BALANCE—June 29, 2019

See Notes to Consolidated Financial Statements (Unaudited).

3 unchanged sentences

26 Weeks Ended

March 28, 2020

March 30, 2019

June 27, 2020

June 29, 2019

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Loss on disposal of property and equipment—net

Loss (gain) on disposal of property and equipment—net

Amortization of deferred financing costs

5 unchanged sentences

Decrease in inventories—net

Increase in prepaid expenses and other assets

(Decrease) increase in accounts payable and cash overdraft liability

(Increase) decrease in prepaid expenses and other assets

Increase in accounts payable and cash overdraft liability

Decrease in accrued expenses and other liabilities

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from sales of divested assets

Acquisition of businesses—net of cash

Proceeds from sales of assets

Proceeds from sales of property and equipment

Purchases of property and equipment

3 unchanged sentences

Principal payments on debt and financing leases

Net proceeds from issuance of Series A convertible preferred stock

Debt financing costs and fees

Proceeds from employee stock purchase plan

36 unchanged sentences

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020-04- Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

This guidance is currently effective prospectively for all entities through December 31, 2022 when the reference rate replacement activity is expected to have completed.

The Company adopted the provisions of this standard on a prospective basis at the beginning of the second quarter of fiscal year 2020 with no impact to the Company’s financial position or results of operations.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

11 unchanged sentences

The Company adopted the provisions of this standard on a modified retrospective basis at the beginning of fiscal year 2020, which resulted in the recording of a cumulative-effect adjustment to retained earnings of $ 1 million .

The adoption of the provision of the new standard did not materially affect the Company's financial position or results of operations.

The adoption of the provision of the new standard did not materially affect the Company's

financial position or results of operations.

See Note 7, Allowance For Doubtful Accounts, for further discussion over the Company's allowance for doubtful accounts.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No.

2020-04— Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, This guidance is currently

effective prospectively for all entities through December 31, 2022 when the reference rate replacement activity is expected to have completed.

The Company is currently evaluating the impacts of the provisions of the new standard on our financial position, results of operations, and cash flows.

In December 2019, the FASB issued ASU No.

11 unchanged sentences

Shipping and handling costs are treated as fulfillment costs and included in distribution, selling and administrative costs.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of March 28, 2020 and December 28, 2019 .

Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.1 billion and $ 1.5 billion as of March 28, 2020 and December 28, 2019 , respectively.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of June 27, 2020 and December 28, 2019 .

Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.1 billion and $ 1.5 billion as of June 27, 2020 and December 28, 2019 , respectively.

The Company has certain customer contracts under which incentives are paid upfront to its customers.

1 unchanged sentence

These incentive payments are capitalized in prepaid expenses and other assets and amortized as a reduction of revenue over the life of the contract or as goods or services are transferred to the customer.

The Company’s contract assets for these upfront payments were $ 33 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019 , respectively, and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of both March 28, 2020 and December 28, 2019 .

The Company’s contract assets for these upfront payments were $ 29 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of June 27, 2020 and December 28, 2019 , respectively, and $ 34 million and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of June 27, 2020 and December 28, 2019 , respectively.

The following table presents the disaggregation of revenue for each of the Company’s principal product categories:

13 Weeks Ended

March 28, 2020

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Meats and seafood

4 unchanged sentences

BUSINESS ACQUISITIONS

Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Stores Holding Corp., a Delaware corporation (“Smart Foodservice”), from funds managed by affiliates of Apollo Global Management, Inc.

Total consideration paid at the closing of the acquisition (net of cash acquired) was $ 973 million , and is subject to certain customary post-closing adjustments.

Smart Foodservice operates 70 small-format cash and carry stores across California, Idaho, Nevada, Montana, Oregon, Washington and Utah that serve small and mid-sized restaurants and other food business customers.

The acquisition of Smart Foodservice expands the Company’s cash and carry business into the West and Northwest parts of the U.S.

USF financed the acquisition with a new $ 700 million incremental senior secured term loan facility under its existing term loan credit agreement, as further described in Note 13, Debt, and with cash on hand.

The assets, liabilities and results of operations of Smart Foodservice have been included in the Company’s consolidated financial statements since the date the acquisition was completed.

The following table summarizes the preliminary purchase price allocation recognized for the Smart Foodservice acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.

The preliminary purchase price allocation is subject to further adjustment as additional information becomes available and final valuations are completed.

There can be no assurances that these final valuations and additional analyses and studies will not result in significant changes to the preliminary estimates of fair value set forth below.

Preliminary Purchase Price Allocation

Accounts receivable

Other current assets

Property and equipment

Other intangibles (2)

Accounts payable

Accrued expenses and other current liabilities

Deferred income taxes

Other long-term liabilities, including financing leases

Cash paid for acquisition

Goodwill recognized is primarily attributable to expected synergies from the combined company, as well as intangible assets that do not qualify for separate recognition.

The acquired goodwill is not deductible for U.S.

federal income tax purposes.

Other intangibles consist of a trade name of $ 14 million with an estimated useful life of 1.5 years .

Net sales and net income for Smart Foodservice, which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed, were $ 208 million and $ 11 million , respectively, during both the 13 weeks and 26 weeks ended June 27, 2020 .

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 10 million and $ 20 million for the 13 weeks and 26 weeks ended June 27, 2020 , respectively.

Food Group Acquisition —On September 13, 2019, USF completed the $ 1.8 billion acquisition of five foodservice companies (the “Food Group”) from Services Group of America, Inc.:

1 unchanged sentence

and GAMPAC Express, Inc.

USF financed the acquisition with borrowings under a new $ 1.5 billion incremental senior secured term loan facility, as further described in Note 13, Debt, and with borrowings under its revolving credit facilities.

USF financed the acquisition with a new $ 1.5 billion incremental senior secured term loan facility under its existing term loan credit agreement, as further described in Note 13, Debt, and with borrowings under its revolving credit facilities.

The assets, liabilities and results of operations of the Food Group have been included in the Company’s consolidated financial statements since the date the acquisition was completed.

As a condition to receiving regulatory clearance for the acquisition from the Federal Trade Commission, USF divested three Food Group distribution facilities (the "Divested Assets").

The following table summarizes the preliminary purchase price allocation recognized for the acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.

The following table summarizes the preliminary Food Group purchase price allocation recognized for the acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.

Adjustments to the preliminary purchase price allocation in the second quarter of fiscal year 2020, including working capital adjustments to acquired and divested assets and liabilities and adjustments to asset valuations, were immaterial to the Company's consolidated financial statements.

The preliminary purchase price allocation is subject to further adjustment as additional information becomes available and final valuations are completed.

15 unchanged sentences

Other intangibles consist of customer relationships of $ 656 million with estimated useful lives of 15 years and indefinite-lived brand names and trademarks of $ 39 million .

Food Group acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 15 million and $ 11 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for the 13 weeks ended March 30, 2019.

The unaudited pro forma financial information includes the historical results of operations of the Company and the Food Group, giving effect to the acquisition and related financing as if they had occurred as of December 31, 2017, which was the first day of the Company’s fiscal year 2018.

Food Group acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 4 million and $ 8 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively, and $ 19 million and $ 18 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

Pro Forma Financial Information — The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for the 13 weeks and 26 weeks ended June 27, 2020 and June 29, 2019 .

The unaudited pro forma financial information presents the combined results of operations as if the acquisitions and related financings of Smart Foodservice and the Food Group had occurred as of December 30, 2018 and December 31, 2017, respectively, which dates represent the first day of the Company’s fiscal year prior to their respective acquisition dates.

13 Weeks Ended

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Pro forma net sales

Pro forma net income

Pro forma net income per share:

The unaudited pro forma financial information presented above excludes the results of operations related to the Divested Assets, as the results of operations related to the Divested Assets were reflected as discontinued operations.

Unaudited pro forma net sales, net income and net income per share related to the Divested Assets for the 13 weeks ended March 30, 2019 were as follows:

Pro forma net (loss) income available to common shareholders

Pro forma net (loss) income per share:

The unaudited pro forma financial information presented above excludes the results of operations related to the Food Group Divested Assets, as the results of operations related to the Divested Assets were reflected as discontinued operations.

Unaudited pro forma net sales, net income and net income per share related to the Divested Assets for the 13 weeks and 26 weeks ended June 29, 2019 were as follows:

13 Weeks Ended

March 30, 2019

26 Weeks Ended

June 29, 2019

Pro forma net sales

2 unchanged sentences

The unaudited pro forma financial information above includes adjustments for:

(1) incremental depreciation expense related to fair value increases of certain acquired property and equipment, (2) amortization expense related to the fair value of intangible assets acquired, (3) interest expense related to the borrowings under the new incremental senior secured term loan facility and revolving credit facilities used to finance the acquisition, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations.

No effect has been given to potential synergies, operating efficiencies or costs arising from the integration of the Food Group with our previously existing operations.

Accordingly, the unaudited pro forma financial information is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the date indicated.

Further, the pro forma financial information does not purport to project the Company’s future consolidated results of operations following the acquisition.

Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Foodservice, as further defined and discussed in Note 20, Subsequent Events.

(1) incremental depreciation expense related to fair value increases of certain acquired property and equipment, (2) amortization expense related to the fair value of intangible assets acquired, (3) interest expense related to the incremental senior secured term loan facilities and revolving credit facilities used to finance the acquisitions, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations.

No effect has been given to potential synergies, operating efficiencies or costs arising from the integration of Smart Foodservice and the Food Group with our previously existing operations or the standalone cost estimates and estimated costs that were incurred by their former respective parent companies.

Further, the pro forma financial information does not purport to project the Company’s future consolidated results of operations following the acquisitions.

RESTRICTED CASH

Restricted cash primarily consists of cash on deposit with financial institutions as collateral for certain letters of credit.

Cash, cash equivalents and restricted cash as presented in the Company's Consolidated Statements of Cash Flows as of March 28, 2020 and December 28, 2019 consisted of the following:

March 28, 2020

Cash, cash equivalents and restricted cash as presented in the Company's Consolidated Statements of Cash Flows as of June 27, 2020 and December 28, 2019 consisted of the following:

June 27, 2020

December 28, 2019

3 unchanged sentences

The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods.

Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors.

Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors.

The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions.

The Company records inventories at the lower of cost or market using the last-in, first-out (“LIFO”) method.

The base year values of beginning and ending inventories are determined using the inventory price index computation method.

The Company records inventories at the lower of cost or market primarily using the last-in, first-out (“LIFO”) method, except for Smart Foodservice, which uses the retail method of inventory accounting.

For our LIFO based inventories, the base year values of beginning and ending inventories are determined using the inventory price index computation method.

This "links" current costs to original costs in the base year when the Company adopted LIFO.

LIFO reserves in the Company’s Consolidated Balance Sheets were $ 139 million and $ 152 million as of March 28, 2020 and December 28, 2019 , respectively.

As a result of changes in LIFO reserves, cost of goods sold decreased $ 13 million and $ 2 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

LIFO reserves in the Company’s Consolidated Balance Sheets were $ 158 million and $ 152 million as of June 27, 2020 and December 28, 2019 , respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 19 million and $ 14 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively, and increased $ 6 million and $ 12 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

Additionally, during the 13 weeks ended June 27, 2020 , due to the impact that the COVID-19 pandemic (as further described in Note 7) had on our business, the Company incurred charges of $ 40 million related to inventory adjustments and product donations recorded in cost of goods sold.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

1 unchanged sentence

Collections and payments from customers are continuously monitored.

The Company evaluates the collectability of its accounts receivable and determines

the appropriate allowance for doubtful accounts based on a combination of factors.

The Company maintains an allowance for doubtful accounts, which is based upon historical experience as well as specific customer collection issues that have been identified.

The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors.

The Company maintains an allowance for doubtful accounts, which is based upon historical experience, future expected losses, as well as specific customer collection issues that have been identified.

The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due primarily over specified periods.

2 unchanged sentences

As of December 28, 2019, the outbreak of COVID-19 had not had a significant impact on our business.

However, more recently, our business has been significantly impacted.

In recent weeks, many countries, including the United States, have taken steps to restrict travel, temporarily close businesses, schools and other public gathering spaces and almost all states in the United States have issued orders and directives requiring everyone to stay in their homes.

It remains unclear how long such measures will remain in place and when the COVID-19 pandemic will abate.

However, since mid-March 2020, our business has been significantly impacted.

Beginning in mid-March 2020, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions in businesses, schools and other public gathering spaces.

Restrictions on public gatherings and attendance at retail or other establishments, including indoor restaurants, and recreational, sporting and other similar venues, continue to evolve and are expected to continue to remain in effect in some capacity for the near-term.

It remains unclear when and to what extent the COVID-19 pandemic will fully abate.

Since mid-March 2020, the operations of our restaurant, hospitality and education customers (and our operations that are dependent upon these customers) have been significantly disrupted by the spread of COVID-19 and the corresponding sudden and significant decline in consumer demand for food prepared away from home.

Due to the impact that the COVID-19 pandemic is having our customers, particularly our restaurant and hospitality customers, we increased our allowance for doubtful accounts to reflect the increased collection risk associated with our customer base.

A summary of the activity in the allowance for doubtful accounts for the 13 weeks ended March 28, 2020 was as follows:

Due to the impact that the COVID-19 pandemic had on our customers, particularly our restaurant and hospitality customers, we significantly increased our allowance for doubtful accounts by $ 170 million during the 13 weeks ended March 28, 2020, of which, $ 75 million was reversed during the 13 weeks ended June 27, 2020 based on better than anticipated collection of our accounts receivable.

A summary of the activity in the allowance for doubtful accounts for the 26 weeks ended June 27, 2020 was as follows:

Balance as of December 28, 2019

2 unchanged sentences

Customer accounts written off—net of recoveries

Balance as of March 28, 2020

This table excludes the vendor receivable related allowance for doubtful accounts of $ 5 million and $ 4 million as of March 28, 2020 and December 28, 2019 , respectively.

ACCOUNTS RECEIVABLE FINANCING PROGRAM

Pursuant to an accounts receivable financing facility (the “ABS Facility”), USF sells, on a revolving basis, eligible receivables to a wholly owned, special purpose, bankruptcy remote subsidiary (the “Receivables Company”).

The Receivables Company, in turn, grants a continuing security interest in those eligible receivables to the administrative agent, for the benefit of the lenders under the ABS Facility.

The Company consolidates the Receivables Company and, consequently, the transfer of the eligible receivables is a transaction internal to the Company and the eligible receivables have not been derecognized from the Company’s Consolidated Balance Sheets.

Included in the Company’s accounts receivable balance as of March 28, 2020 and December 28, 2019 was approximately $ 0.9 billion and $ 1.0 billion , respectively, of eligible receivables held by the Receivables Company as collateral in support of amounts borrowed under the ABS Facility.

See Note 13, Debt, for a further description of the ABS Facility.

On May 1, 2020, we repaid all outstanding borrowings under the ABS Facility in full and terminated the ABS Facility, as further discussed in Note 20, Subsequent Events.

Balance as of June 27, 2020

This table excludes the vendor receivable related allowance for doubtful accounts of $ 7 million and $ 4 million as of June 27, 2020 and December 28, 2019 , respectively.

FORMER ACCOUNTS RECEIVABLE FINANCING PROGRAM

Pursuant to a since-terminated accounts receivable financing facility (the “ABS Facility”), USF sold, on a revolving basis, eligible receivables to a wholly owned, special purpose, bankruptcy remote subsidiary (the “Receivables Company”).

While the ABS Facility was in effect, the Company consolidated the Receivables Company and, consequently, the transfer of the eligible receivables was a transaction internal to the Company, and the eligible receivables held by the Receivables Company were previously not derecognized from the Company’s Consolidated Balance Sheet.

Included in the Company’s accounts receivable balance as of December 28, 2019 was approximately $ 1.0 billion of eligible receivables held by the Receivables Company as collateral in support of amounts borrowed under the ABS Facility.

On May 1, 2020, USF repaid all outstanding borrowings under the ABS Facility in full and terminated the ABS Facility, as further discussed in Note 13, Debt, and as a result, the Company's eligible receivables are no longer transferred to or held by the Receivables Company.

ASSETS HELD FOR SALE

1 unchanged sentence

Due to market conditions, certain facilities may be classified as assets held for sale for more than one year while the Company continues to actively market the facilities.

The change in assets held for sale for the 13 weeks ended March 28, 2020 was as follows:

The change in assets held for sale for the 26 weeks ended June 27, 2020 was as follows:

Balance as of December 28, 2019

Balance as of March 28, 2020

Land held for future use was transferred to assets held for sale during the 13 weeks ended March 28, 2020 .

Balance as of June 27, 2020

Land previously held for future use and an excess warehouse facility were transferred to assets held for sale during the 26 weeks ended June 27, 2020 .

The Company sold the land on June 30, 2020 and received cash proceeds from the sale of $ 32 million , resulting in a gain on sale of $ 17 million .

PROPERTY AND EQUIPMENT

2 unchanged sentences

Property and equipment under financing leases and leasehold improvements are amortized on a straight-line basis over the remaining terms of the related leases or the estimated useful lives of the assets, if reasonably assured the Company will purchase the assets at the end of the lease terms.

As of March 28, 2020 and December 28, 2019 , property and equipment-net included accumulated depreciation of $ 2,368 million and $ 2,298 million , respectively.

Depreciation expense was $ 82 million and $ 71 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

As of June 27, 2020 and December 28, 2019 , property and equipment-net included accumulated depreciation of $ 2,431 million and $ 2,298 million , respectively.

Depreciation expense was $ 87 million and $ 81 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively and $ 169 million and $ 153 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

GOODWILL AND OTHER INTANGIBLES

Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired.

Other intangible assets include customer relationships, noncompete agreements, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks.

Other intangible assets include customer relationships, an amortizable trade name, noncompete agreements, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks.

Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below.

Customer relationships and noncompete agreements are intangible assets with definite lives and are carried at the acquired fair value, less accumulated amortization.

Customer relationships and noncompete agreements are amortized over the estimated useful lives (which are 2 to 15 years ).

Amortization expense was $ 19 million and $ 10 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

Customer relationships, the amortizable trade name and noncompete agreements are intangible assets with definite lives and are carried at the acquired fair value, less accumulated amortization.

Customer relationships, the amortizable trade name and noncompete agreements are amortized over the estimated useful lives (which are 1.5 to 15 years ).

Amortization expense was $ 19 million and $ 10 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively and $ 38 million and $ 20 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

Goodwill and other intangibles—net consisted of the following:

March 28, 2020

June 27, 2020

December 28, 2019

4 unchanged sentences

Net carrying value

Trade name—amortizable:

Gross carrying amount

Accumulated amortization

Net carrying value

Noncompete agreements—amortizable:

4 unchanged sentences

Total other intangibles—net

The increase in goodwill and the amortizable trade name as of June 27, 2020 is attributable to the Smart Foodservice acquisition, as described in Note 4, Business Acquisitions.

The net decrease in the gross carrying amount of customer relationships as of June 27, 2020 is attributable to the write-off of fully amortized intangible assets related to certain 2016 business acquisitions.

The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually, or more frequently if events occur that indicate an asset may be impaired.

For goodwill and indefinite-lived intangible assets, the Company’s policy is to assess for impairment as of the beginning of each fiscal third quarter.

For intangible assets with definite lives, the Company

assesses impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

For intangible assets with definite lives, the Company assesses for impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

The Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of June 30, 2019, the first day of the third quarter of fiscal year 2019, with no impairments noted.

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There were no transfers between fair value levels in any of the periods presented below.

The Company’s assets and liabilities measured at fair value on a recurring basis as of March 28, 2020 and December 28, 2019 , aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

March 28, 2020

The Company’s assets and liabilities measured at fair value on a recurring basis as of June 27, 2020 and December 28, 2019 , aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

June 27, 2020

Money market funds

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The determination of fair value includes the consideration of any credit valuation adjustments necessary, giving consideration to the creditworthiness of the respective counterparties and the Company.

The following table presents the balance sheet location and fair value of the interest rate swaps as of March 28, 2020 and December 28, 2019 :

The following table presents the balance sheet location and fair value of the interest rate swaps as of June 27, 2020 and December 28, 2019 :

Balance Sheet Location

March 28, 2020

June 27, 2020

December 28, 2019

7 unchanged sentences

Gains and losses on the interest rate swaps are initially recorded in accumulated o ther comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affects income.

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income f or the 13 weeks ended March 28, 2020 and March 30, 2019 :

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income f or the 26 weeks ended June 27, 2020 and June 29, 2019 :

Derivatives in Cash Flow Hedging Relationships

1 unchanged sentence

Location of Amounts Reclassified from Accumulated Other Comprehensive Loss

Amount of Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax

For the 13 weeks ended March 28, 2020

Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax

For the 13 weeks ended June 27, 2020

Interest rate swaps

Interest expense—net

For the 13 weeks ended March 30, 2019

For the 13 weeks ended June 29, 2019

Interest rate swaps

Interest expense—net

For the 26 weeks ended June 27, 2020

Interest rate swaps

Interest expense—net

For the 26 weeks ended June 29, 2019

Interest rate swaps

Interest expense—net

During the next twelve months, the Company estimates that $ 8 million will be reclassified from accumulated other comprehensive loss to income.

1 unchanged sentence

The carrying value of cash, accounts receivable, cash overdraft liability, accounts payable and accrued expenses approximate their fair values due to their short-term maturities.

The fair value of the Company’s total debt approximated $ 5.4 billion , compared to its carrying value of $ 5.9 billion as of March 28, 2020 .

The fair value of the Company’s total debt approximated $ 6.0 billion , compared to its carrying value of $ 6.2 billion as of June 27, 2020 .

The fair value of the Company’s total debt approximated its carrying value of $ 4.7 billion as of December 28, 2019 .

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”), was $ 549 million and $ 619 million as of March 28, 2020 and December 28, 2019 , respectively, based upon the closing market prices of the Unsecured Senior Notes on both dates, and is classified under Level 2 of the fair value hierarchy.

The fair value of the Company’s 6.25 % newly issued senior secured notes due April 15, 2025 (the “Secured Notes”) was $ 1.0 billion as of June 27, 2020 .

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”), was $ 589 million and $ 619 million as of June 27, 2020 and December 28, 2019 , respectively.

Fair value of both the Secured Notes and the Unsecured Senior Notes is based upon the closing market prices on the respective dates, and is classified under Level 2 of the fair value hierarchy.

The fair value of the balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates that are currently available to the Company for debt with similar terms, and estimates of the Company’s overall credit risk.

1 unchanged sentence

Debt Description

Interest Rate as of March 28, 2020

March 28, 2020

Interest Rate as of June 27, 2020

June 27, 2020

December 28, 2019

September 21, 2022

ABS Facility (1)

Initial Term Loan Facility (net of $3 and $4

6 unchanged sentences

September 13, 2026

2020 Incremental Term Loan Facility (net of $12

of unamortized deferred financing costs)

April 24, 2025

Senior Secured Notes (net of $14 of unamortized

deferred financing costs)

April 15, 2025

Unsecured Senior Notes (net of $4 of unamortized

6 unchanged sentences

Long-term debt

The current portion of long-term debt as of March 28, 2020 and December 28, 2019 for the Initial Term Loan Facility and the Incremental Term Loan Facility includes five principal payments due to the Company's 53-week fiscal year 2020.

As of March 28, 2020 , after considering interest rate swaps that fixed the interest rate on $ 733 million of principal of the Initial Term Loan Facility described below, approximately 71 % of the Company’s total debt bears interest at a floating rate.

ABL Facility —USF's asset based senior secured revolving credit facility (the “ABL Facility”) provides USF with loan commitments having a maximum aggregate principal amount of $ 1.6 billion .

The ABS Facility was paid in full on May 1, 2020 and subsequently terminated as further discussed below.

The current portion of long-term debt as of June 27, 2020 and December 28, 2019 for the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility includes five principal payments due to the Company's 53-week fiscal year 2020.

As of June 27, 2020 , after considering interest rate swaps that fixed the interest rate on $ 733 million of principal of the Initial Term Loan Facility described below, approximately 58 % of the Company’s total debt bears interest at a floating rate.

On May 4, 2020, USF entered into an amendment to its asset based senior secured revolving credit facility (the “ABL Facility”).

Pursuant to this amendment, the total aggregate amount of commitments under the ABL Facility was increased from $ 1,600 million to $ 1,990 million .

Extensions of credit under the ABL Facility are subject to availability under a borrowing base comprised of various percentages of the value of eligible accounts receivable, eligible inventory, eligible transportation equipment and certain unrestricted cash and cash equivalents, which, along with other assets, also serve as collateral for borrowings under the ABL Facility.

The ABL Facility is scheduled to mature on May 31, 2024, subject to a springing maturity date in the event that more than $ 300 million of aggregate principal amount of indebtedness under either USF’s senior secured term loan facility or Unsecured Senior Notes remains outstanding on a date that is sixty (60) days prior to the maturity date for such senior secured term loan facility or Unsecured Senior Notes, respectively.

As discussed below, on May 1, 2020 USF terminated the ABS Facility and transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility.

This transition increases the size of the borrowing base under the ABL Facility.

The ABL Facility is scheduled to mature on May 31, 2024, subject to a springing maturity date in the event that more than $ 300 million of aggregate principal amount of earlier maturing indebtedness under either USF’s senior secured term loan facility or Unsecured Senior Notes remains outstanding on a date that is sixty (60) days prior to the maturity date for such senior secured term loan facility or Unsecured Senior Notes, respectively.

Borrowings under the ABL Facility bear interest, at USF's periodic election, at a rate equal to the sum of an alternative base rate (“ABR”), as described under the ABL Facility, plus a margin ranging from 0.00 % to 0.50 % , or the sum of LIBOR plus a margin ranging from 1.00 % to 1.50 % , in each case based on USF’s excess availability under the ABL Facility.

The margin under the ABL Facility as of March 28, 2020 was 0.00 % for ABR loans and 1.00 % for LIBOR loans.

The margin under the ABL Facility as of June 27, 2020 was 0.25 % for ABR loans and 1.25 % for LIBOR loans.

The ABL Facility also carries a commitment fee of 0.25 % per annum on the average unused amount of the commitments under the ABL Facility.

USF had $ 700 million of outstanding borrowings, and had issued letters of credit totaling $ 285 million , under the ABL Facility as of March 28, 2020 , Outstanding letters of credit included:

(1) $ 249 million issued in favor of certain commercial insurers to secure USF’s obligations with respect to its self-insurance program, (2) $ 35 million issued to secure USF’s obligations with respect to certain real estate leases, and (3) $ 1 million issued for other obligations.

There was available capacity of $ 478 million under the ABL Facility as of March 28, 2020 .

On May 4, 2020, USF amended the ABL Facility, as further discussed in Note 20, Subsequent Events.

ABS Facility —The maximum borrowing capacity under the ABS Facility is $ 800 million .

USF had $ 640 million of outstanding borrowings under the ABS Facility as of March 28, 2020 .

The Company, at its option, can request additional borrowings up to the maximum commitment, provided sufficient eligible receivables are available as collateral.

The ABS Facility is scheduled to mature on September 21, 2022.

The ABS Facility is subject to customary early termination events, including the inability to satisfy certain criteria related to, among other things, days sales outstanding, dilution, delinquency and uncollectible receivables.

In the event the ABS Facility is terminated prior to the scheduled maturity, cash receipts in respect of the subject receivables will, upon receipt thereof, be required to be applied to repay the principal portion of outstanding borrowings and other amounts due thereunder.

There was available capacity under the ABS Facility of $ 23 million as of March 28, 2020 .

Borrowings under the ABS Facility bear interest at LIBOR plus a margin of 0.95 % , and the ABS Facility carries an unused commitment fee of 0.35 % or 0.45 % based on

USF's utilization of the ABS Facility.

On May 1, 2020, we repaid all outstanding borrowings under the ABS Facility in full and terminated the ABS Facility, as further discussed in Note 20, Subsequent Events.

USF incurred $ 3 million of third-party costs in connection with the ABL Facility amendment which were capitalized as deferred financing costs.

These deferred financing costs, along with $ 5 million of unamortized deferred financing costs related to the former asset based senior secured revolving credit facility, will be amortized through May 31, 2024, the ABL Facility maturity date.

USF had $ 400 million of outstanding borrowings, and had issued letters of credit totaling $ 252 million , under the ABL Facility as of June 27, 2020 , Outstanding letters of credit included:

(1) $ 217 million issued in favor of certain commercial insurers to secure USF’s obligations with respect to its self-insurance program, (2) $ 34 million issued to secure USF’s obligations with respect to

certain real estate leases, and (3) $ 1 million issued for other obligations.

There was available capacity of $ 1,275 million under the ABL Facility as of June 27, 2020 .

On May 1, 2020, USF repaid in full all $ 542 million principal amount of borrowings then outstanding under the ABS Facility using cash on hand and subsequently terminated the ABS Facility.

The accounts receivable that secured the ABS Facility were transitioned to the collateral pool that secures the ABL Facility.

The Company recorded a debt extinguishment loss of $ 1.3 million in interest expense, consisting of a write-off of unamortized debt costs associated with the ABS Facility of $ 1.1 million , as well as $ 0.2 million of third-party costs associated with the termination of the ABS Facility.

Term Loan Facilities

Under its term loan credit agreement, USF has entered into an initial senior secured term “B” loan facility in an aggregate principal amount of $ 2.2 billion (the “Initial Term Loan Facility”) and an incremental senior secured term “B” loan facility in an aggregate principal amount of $ 1.5 billion (the “Incremental Term Loan Facility”).

Borrowings under the Incremental Term Loan Facility were used to pay a portion of the purchase price for the acquisition of the Food Group and related fees and expenses (see Note 4).

The Initial Term Loan Facility had a carrying value of $ 2.1 billion , net of $ 3 million of unamortized deferred financing costs as of March 28, 2020 .

The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of March 28, 2020 .

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate hedging agreements was 3.45 % as of March 28, 2020 .

The Incremental Term Loan Facility, entered into to finance a portion of the Food Group acquisition, as discussed in Note 4, Business Acquisitions, had a carrying value of $ 1,462 million , net of $ 34 million of unamortized deferred financing costs as of March 28, 2020 .

Under its term loan credit agreement, USF has entered into an initial senior secured term “B” loan facility in an aggregate principal amount of $ 2.2 billion (the “Initial Term Loan Facility”), an incremental senior secured term “B” loan facility in an aggregate principal amount of $ 1.5 billion (the “2019 Incremental Term Loan Facility”), and an incremental senior secured term loan facility in an aggregate principal amount of $ 700 million (the "2020 Incremental Term Loan Facility").

Borrowings under the 2019 Incremental Term Loan Facility were used to pay a portion of the purchase price for the acquisition of the Food Group and related fees and expenses, and borrowings under the 2020 Incremental Term Loan Facility were used to pay a portion of the purchase price for the acquisition of Smart Foodservice and related fees and expenses (see Note 4).

The Initial Term Loan Facility had a carrying value of $ 2.1 billion , net of $ 3 million of unamortized deferred financing costs as of June 27, 2020 .

The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of June 27, 2020 .

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate hedging agreements was 3.45 % as of June 27, 2020 .

The Initial Term Loan Facility is scheduled to mature on June 27, 2023.

The 2019 Incremental Term Loan Facility entered into to finance a portion of the Food Group acquisition, had a carrying value of $ 1,460 million , net of $ 33 million of unamortized deferred financing costs as of June 27, 2020 .

Borrowings under the Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of LIBOR plus a margin of 2.00 % , or the sum of an alternative base rate, determined in accordance with the term loan credit agreement, plus a margin of 1.00 % .

The 2019 Incremental Term Loan Facility is scheduled to mature on September 13, 2026.

USF’s obligations under the Initial Term Loan Facility and the Incremental Term Loan Facility are guaranteed by certain of USF’s subsidiaries, and those obligations and guarantees are secured by all of the capital stock of USF and its subsidiaries and substantially all of the non-real estate assets of USF and certain of its subsidiaries not pledged as collateral under the ABS Facility.

In April 2020, USF entered into a new senior secured term loan facility as well as certain other debt financing transactions, as further discussed in Note 20, Subsequent Events.

On April 24, 2020, USF entered into the “2020 Incremental Term Loan Facility” and used the proceeds to fund, in part, the Smart Foodservice acquisition.

On April 28, 2020, USF repaid $ 400 million of the principal amount of the 2020 Incremental Term Loan Facility with a portion of the proceeds from the senior secured notes offering further discussed below.

In connection with the 2020 Incremental Term Loan Facility repayment, the Company applied debt extinguishment accounting and recorded a debt extinguishment loss of $ 2 million in interest expense, consisting of a write-off of debt issuance costs associated with the $ 400 million in principal amount of the 2020 Incremental Term Loan Facility that was repaid.

Lender fees and third-party costs incurred of $ 15 million associated with the remaining $ 300 million in principal amount of the 2020 Incremental Term Loan Facility were capitalized as deferred financing costs and will be amortized through April 24, 2025, which is the 2020 Incremental Term Loan Facility maturity date.

Borrowings under the 2020 Incremental Term Loan Facility will bear interest at a rate per annum equal to, at USF’s option, either LIBOR plus a margin of 3.25 % (subject to a LIBOR “floor” of 1.00 % ), or an alternative base rate plus a margin of 2.25 % .

The interest rate margins on the 2020 Incremental Term Loan Facility will increase by 0.50 % on each of April 28, 2021, April 28, 2022, April 28, 2023 and April 28, 2024, respectively.

USF’s obligations under the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility are guaranteed by certain of USF’s subsidiaries, and those obligations and guarantees are secured by substantially all of the non-real estate assets of USF and the subsidiary guarantors.

Senior Secured Notes

On April 28, 2020, USF completed a private offering of $ 1.0 billion aggregate principal amount of its 6.25 % Secured Notes due April 15, 2025.

USF used the net proceeds of the Secured Notes to repay $ 400 million in principal amount of the 2020 Incremental Term Loan Facility and the balance of the net proceeds has been and will be used for general corporate purposes.

The Secured Notes had a carrying value of $ 986 million , net of $ 14 million of unamortized deferred financing costs, as of June 27, 2020 .

The Secured Notes mature April 15, 2025.

On or after April 15, 2022, the Secured Notes are redeemable, at USF’s option, in whole or in part at a price of 103.13 % of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date.

On or after April 15, 2023 and April 15, 2024, the optional redemption price for the Secured Notes declines to 101.56 % and 100.00 % , respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

Debt Covenants

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These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends, or engage in mergers or consolidations.

USF had $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.3 billion of its net assets were restricted considering the net deferred tax assets and intercompany balances that eliminate in consolidation as of March 28, 2020 .

USF had $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.7 billion of its net assets were restricted considering the net deferred tax assets and intercompany balances that eliminate in consolidation as of June 27, 2020 .

RESTRUCTURING LIABILITIES

From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness.

In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs.

In order to reduce its operating expenses in line with the decrease in sales volume caused by the COVID-19 pandemic, the Company reduced its sales force and incurred a net charge of $ 16 million for severance and related costs during the 13 weeks ended June 27, 2020 .

The following table summarizes the changes in the restructuring liabilities for the 26 weeks ended June 27, 2020 :

Restructuring Liabilities

Balance at December 28, 2019

Current period charges

Payments and usage—net of accretion

Balance at June 27, 2020

The Company leases certain distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment.

The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use (“ROU”) asset in the Company’s Consolidated Balance Sheets.

ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term as of commencement date.

For the Company’s leases that do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the information available as of commencement date in determining the present value of future payments.

The lease terms may include options to extend, terminate or buy out the lease.

When it is reasonably certain that the Company will exercise these options, they are included in ROU assets and the estimated lease liabilities.

Leases with an initial term of 12 months or less are not recorded in the Company's Consolidated Balance Sheets.

The Company recognizes lease expense for leases on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are accounted for separately.

For office and warehouse equipment leases, the Company accounts for the lease and non-lease components as a single lease component.

Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred.

The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheet as of June 27, 2020 and December 28, 2019 :

Consolidated Balance Sheet Location

June 27, 2020

December 28, 2019

Property and equipment-net (1)

Total leased assets

Accrued expenses and other current liabilities

Current portion of long-term debt

Other long-term liabilities

Long-term debt

Total lease liabilities

Financing lease assets are recorded net of accumulated amortization of $ 243 million and $ 269 million as of June 27, 2020 and December 28, 2019 , respectively.

T he following table presents the location of lease costs in the Company's Consolidated Statements of Comprehensive Income:

13 Weeks Ended

26 Weeks Ended

Statement of Comprehensive Income Location

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Operating lease cost

Distribution, selling and administrative costs

Financing lease cost:

Amortization of leased assets

Distribution, selling and administrative costs

Interest on lease liabilities

Interest expense-net

Variable lease cost

Distribution, selling and administrative costs

Net lease cost

Future lease payments under lease agreements as of June 27, 2020 were as follows:

Maturity of Lease Liabilities

Financing Leases

Remainder of 2020

Total lease payments

Less amount representing interest

Present value of lease liabilities

Future minimum lease payments in effect as of December 28, 2019 under noncancelable lease arrangements were as follows:

Future Minimum Lease Payments

Financing Leases

Total lease payments

Less amount representing interest

Present value of minimum lease payments

Other information related to lease agreements for the 26 weeks ended June 27, 2020 and June 29, 2019 was as follows:

26 Weeks Ended

Cash Paid For Amounts Included In Measurement of Liabilities

June 27, 2020

June 29, 2019

Operating cash flows from operating leases

Operating cash flows from financing leases

Financing cash flows from financing leases

Lease Term and Discount Rate

June 27, 2020

June 29, 2019

Weighted-average remaining lease term (years):

Operating leases

Financing leases

Weighted-average discount rate:

Operating leases

Financing leases

RETIREMENT PLANS

The Company sponsors a defined benefit pension plan and a 401(k) plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents.

In connection with the Smart Foodservice acquisition, the Company assumed a defined benefit pension plan with net liabilities of approximately $ 20 million .

The components of net periodic pension benefit costs (credits) for Company sponsored defined benefit plans were as follows:

13 Weeks Ended

March 28, 2020

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Components of net periodic pension benefit costs (credits)

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Net periodic pension benefit credits

Other postretirement benefit costs were de minimis for both the 13 weeks ended March 28, 2020 and March 30, 2019 .

Other postretirement benefit costs were de minimis for both the 13 weeks and 26 weeks ended June 27, 2020 and June 29, 2019 .

The service cost component of net periodic benefit credits is included in distribution, selling and administrative costs, while the other components of net periodic benefit credits are included in other income—net, respectively, in the Company's Consolidated Statements of Comprehensive Income.

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Certain employees are eligible to participate in the Company's 401(k) plan.

The Company made employer matching contributions to the 401(k) plan of $ 14 million and $ 13 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

The Company made employer matching contributions to the 401(k) plan of $ 9 million and $ 12 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively, and $ 23 million and $ 25 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreements that cover certain of its union-represented employees.

The Company’s contributions to these plans were $ 12 million and $ 9 million for the 13 weeks ended March 28, 2020 and March 30, 2019 , respectively.

The Company’s contributions to these plans were $ 10 million and $ 9 million for the 13 weeks ended June 27, 2020 and June 29, 2019 , respectively, and $ 22 million and $ 18 million for the 26 weeks ended June 27, 2020 and June 29, 2019 , respectively.

EARNINGS PER SHARE

The Company computes EPS in accordance with ASC 260, Earnings per Share .

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding.

Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding.

Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities.

Stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals are considered potentially dilutive securities.

For the 13 week periods ending March 28, 2020 and March 30,2019, share-based awards representing 10 million and 3 million underlying common shares, respectively, were not included in the computation because the effect would be anti-dilutive.

The Company applies the treasury method to calculate the dilution impact of share-based awards—stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals.

The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock.

For the 13 weeks ended June 27, 2020 and June 29, 2019 , share-based awards representing 9 million and 1 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For the 26 weeks ended June 27, 2020 and June 29, 2019 , share-based awards representing 9 million and 2 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For the 13 weeks and 26 weeks ended June 27, 2020 , convertible preferred stock representing 14 million and 7 million of underlying common shares, respectively, was not included in the computation because the effect would have been anti-dilutive.

The following table sets forth the computation of basic and diluted EPS:

13 Weeks Ended

March 28, 2020

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Net (loss) income

Series A convertible preferred stock dividends (1)

Net (loss) income available to common shareholders

Weighted-average common shares outstanding

Dilutive effect of share-based awards

Effect of dilutive securities

Effect of dilutive underlying shares of the

Series A convertible preferred stock

Weighted-average dilutive shares outstanding

Net (loss) income per share:

Preferred stock dividends were declared on June 19, 2020 and were paid in kind on June 30, 2020.

CONVERTIBLE PREFERRED STOCK

On May 6, 2020 (the “Issuance Date”), pursuant to the terms of an Investment Agreement (the "Investment Agreement") with KKR Fresh Aggregator L.P., a Delaware limited partnership (“KKR”), the Company issued and sold 500,000 shares of the Company’s Series A Convertible Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”) to KKR for an aggregate purchase price of $ 500 million , or $ 1,000 per share (the “Issuance”).

The Company used the net proceeds from the Issuance for working capital and general corporate purposes.

On June 30, 2020, the Company paid a dividend (the “Dividend”) on the shares of the Series A Preferred Stock in the form of 5,288 shares of Series A Preferred Stock plus a de minimis amount in cash in lieu of fractional shares in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the "Certificate of Designations").

The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, par value $ 0.01 per share (the “Common Stock”), with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

The Series A Preferred Stock has a liquidation preference of $ 1,000 per share.

Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7.0 % per annum.

If the Company does not declare and pay a dividend on the Series A Preferred Stock, the dividend rate will increase by 3.0 % to 10.0 % per annum until all accrued but unpaid dividends have been paid in full.

Dividends are payable in kind through the issuance of additional shares of Series A Preferred Stock for the first four dividend payments following the Issuance Date, and thereafter, in cash or in kind, or a combination of both, at the option of the Company.

The Series A Preferred Stock is convertible at the option of the holders thereof at any time into shares of Common Stock at an initial conversion price of $ 21.50 per share and an initial conversion rate of 46.5116 shares of Common Stock per share of Series A Preferred Stock, subject to certain anti-dilution adjustments set forth in the Certificate of Designations.

At any time after the third anniversary of the Issuance Date, if the volume weighted average price of the Common Stock exceeds $ 43.00 per share, as may be adjusted pursuant to the Certificate of Designations, for at least 20 trading days in any period of 30 consecutive trading days, at the election of the Company, all of the Series A Preferred Stock will be convertible into the relevant number of shares of Common Stock.

At any time following the fifth anniversary of the Issuance Date, the Company may redeem some or all of the Series A Preferred Stock for a per share amount in cash equal to:

(i) the sum of (x) 100 % of the liquidation preference thereof, plus (y) all accrued and unpaid dividends, multiplied by (ii) (A) 105 % if the redemption occurs at any time after the fifth anniversary of the Issuance Date and prior to the sixth anniversary of the Issuance Date, (B) 103 % if the redemption occurs at any time after the sixth anniversary of the Issuance Date and prior to the seventh anniversary of the Issuance Date, and (C) 100 % if the redemption occurs at any time after the seventh anniversary of the Issuance Date.

Upon certain change of control events involving the Company, the holders of the Series A Preferred Stock must either (i) convert their shares of Series A Preferred Stock into Common Stock at the then-current conversion price or (ii) cause the Company to redeem their shares of Series A Preferred Stock for an amount in cash equal to 100 % of the liquidation preference thereof plus all accrued but unpaid dividends.

If any such change of control event occurs on or before the fifth anniversary of the Issuance Date, the Company will also be required to pay the holders of the Series A Preferred Stock a “make-whole” premium of 5 % .

Holders of the Series A Preferred Stock are entitled to vote with the holders of the Common Stock on an as-converted basis.

Holders of the Series A Preferred Stock are also entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series A Preferred Stock, authorization or issuances by the Company of securities that are senior to, or equal in priority with, the Series A Preferred Stock, increases or decreases in the number of authorized shares of Series A Preferred Stock, and issuances of shares of Series A Preferred Stock after the Issuance Date, other than shares issued as in-kind dividends with respect to shares of the Series A Preferred Stock issued after the Issuance Date.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

1 unchanged sentence

13 Weeks Ended

March 28, 2020

March 30, 2019

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Accumulated other comprehensive loss components

20 unchanged sentences

Included in other income—net in the Company's Consolidated Statements of Comprehensive Income.

RELATED PARTY TRANSACTIONS

As described in Note 18, Convertible Preferred Stock, on May 6, 2020 the Company issued and sold 500,000 shares of the Company’s Series A Preferred Stock to KKR for an aggregate purchase price of $ 500 million , or $ 1,000 per share.

Assuming conversion of all Series A Preferred Stock, KKR would have held approximately 9.5 % of the Company’s outstanding common stock as of June 27, 2020 .

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received aggregate fees of $ 6 million for services rendered in connection with the 2020 Incremental Term Loan Facility, the Secured Notes and the ABL Facility amendment financings during the 26 weeks ended June 27, 2020 .

KKR Capital Markets also received $ 1 million for services rendered in connection with the May 2019 refinancing of the ABL Facility during the 26 weeks ended June 29, 2019 .

As reported by the Company’s administrative agent, investment funds managed by an affiliate of KKR held approximately $ 103 million in principal amount of the Company's term loan facilities as of June 27, 2020 .

Based solely on information provided in its most recent public filings, FMR LLC and its affiliates held approximately 11 % of the Company’s outstanding common stock as of June 27, 2020 .

As reported by the Company’s administrative agent, investment funds managed by an affiliate of FMR LLC held approximately $ 61 million in principal amount of the Company's term loan facilities as of June 27, 2020 .

Certain FMR LLC affiliates provide recordkeeping services for the Company’s 401(k) plan and provide

administrative services for other Company sponsored employee benefit plans.

Fees earned by FMR LLC affiliates are not material to the Company’s consolidated financial statements.

The determination of the Company’s overall effective income tax rate requires the use of estimates.

1 unchanged sentence

federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction.

The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 13 weeks ended March 28, 2020 and March 30, 2019 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended March 28, 2020 , 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 tax expense of $ 3 million primarily related to an increase in the state valuation allowance.

For the 13 weeks ended March 30, 2019 , the Company's effective income tax rate of 22 % 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.

The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 26 weeks ended June 27, 2020 and June 29, 2019 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended June 27, 2020 , the Company's effective income tax rate of 22 % 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 expense of $ 2 million primarily related to an increase in an unrecognized tax benefit.

For the 13 weeks ended June 29, 2019 , 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 $ 2 million , primarily related to excess tax benefits associated with share-based compensation.

For the 26 weeks ended June 27, 2020 , 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 expense of $ 2 million primarily related to an increase in an unrecognized tax benefit and a tax expense of $ 2 million , primarily related to a tax benefit shortfall associated with share-based compensation.

For the 26 weeks ended June 29, 2019 , the Company's effective income tax rate of 24 % 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 $ 2 million , primarily related to the reduction of an unrecognized tax benefit following a lapse of the statute of limitations and a tax benefit of $ 3 million , primarily related to excess tax benefits associated with share-based compensation.

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Purchase Commitments —The Company enters into purchase orders with vendors and other parties in the ordinary course of business and has a limited number of purchase contracts with certain vendors that require it to buy a predetermined volume of products.

The Company had $ 279 million of purchase orders and purchase contract commitments to be purchased in the remainder of fiscal year 2020 as of March 28, 2020 and $ 60 million of information technology commitments through December 2024 that are not recorded in the Company's Consolidated Balance Sheets.

To minimize fuel cost risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements.

The Company had diesel fuel forward purchase commitments totaling $ 106 million through September 2021 , as of March 28, 2020 .

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through September 2023 , as of March 28, 2020 .

The Company had $ 1,551 million of purchase orders and purchase contract commitments to be purchased in the remainder of fiscal year 2020 as of June 27, 2020 and $ 63 million of information technology commitments through December 2024 that are not recorded in the Company's Consolidated Balance Sheets.

To minimize fuel price risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements.

The Company had diesel fuel forward purchase commitments totaling $ 88 million through September 2021 , as of June 27, 2020 .

Additionally, the Company had electricity forward purchase commitments totaling $ 6 million through November 2023 , as of June 27, 2020 .

The Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts under contract meet the physical delivery criteria in the normal purchase exception.

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Capital projects, whether for cost savings or generating incremental revenue, are evaluated based on estimated economic returns to the organization as a whole.

SUBSEQUENT EVENTS

for $ 970 million in cash, on a cash-free, debt-free basis, subject to customary post-closing adjustments.

Smart Foodservice operates 70 small-format cash and carry stores across California, Washington, Oregon, Idaho, Nevada, Utah and Montana that serve small and mid-sized restaurants and other food business customers.

The acquisition of Smart Foodservice expands the Company’s cash and carry business in the West and Northwest parts of the U.S.

USF financed the acquisition with borrowings under a $ 700 million senior secured term loan facility, as further discussed below, and with cash on hand.

The assets, liabilities and results of operations of Smart Foodservice will be included in the Company’s consolidated financial statements beginning on the date the acquisition was completed.

The Company is in the process of gathering the relevant information needed to complete the preliminary estimates of the fair value of assets acquired and liabilities assumed.

As a result, the preliminary purchase price allocation for the acquisition has not been completed.

The preliminary purchase price allocation and the related unaudited pro forma information will be included in the Company's Quarterly Report for the fiscal second quarter of 2020.

Senior Secured Term Loan Facility —On April 24, 2020, USF entered into a new $ 700 million senior secured term loan facility (the “2020 Term Loan Facility”) and used the proceeds to fund, in part, the Smart Foodservice acquisition.

On April 28, 2020, USF repaid $ 400 million of the term loan principal with proceeds from the senior secured notes offering further discussed below.

The 2020 Term Loan Facility will mature on April 24, 2025.

Borrowings under the 2020 Term Loan Facility will bear interest at a rate per annum equal to, at USF’s option, either LIBOR plus a margin of 3.25 % (subject to a LIBOR “floor” of 1.00 % ), or an alternative base rate plus a margin of 2.25 % .

The interest rate margins on the 2020 Term Loan Facility will increase by 0.50 % on April 28, 2021, April 28, 2022, April 28, 2023 and April 28, 2024, respectively.

Senior Secured Notes Offering —On April 28, 2020, USF completed a private offering of $ 1.0 billion aggregate principal amount of its 6.25 % senior secured notes due 2025 (the “Secured Notes”).

The initial offering price to investors was 100% of the principal amount thereof.

USF used the net proceeds of the Secured Notes to repay $ 400 million of the 2020 Term Loan Facility borrowed to fund the Smart Foodservice acquisition and the balance of the net proceeds will be used for general corporate purposes.

Convertible Preferred Equity Financing —On April 21, 2020, the Company entered into an Investment Agreement with KKR Fresh Aggregator L.P., a Delaware limited partnership (“KKR”), relating to the issuance and sale to KKR of 500,000 shares of the Company’s Series A Convertible Preferred Stock, par value $ 0.01 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $ 500 million , or $ 1,000 per share.

The Series A Preferred Stock will have a liquidation preference of $ 1,000 per share.

Holders of the Series A Preferred Stock will be entitled to a cumulative dividend at the rate of 7.0 % per annum, payable quarterly in arrears, as set forth in the Certificate of Designations designating the Series A Preferred Stock.

Dividends will be payable in kind through the issuance and sale of additional shares of Series A Preferred Stock for the first four dividend payments following the Series A Preferred Stock Issuance, and thereafter, in cash or in kind, or a combination of both, at the option of the Company.

The closing of the issuance and sale of the Series A Preferred Stock is conditioned upon certain customary closing conditions and is expected to occur in May 2020.

ABS Facility —On May 1, 2020, USF repaid in full all $ 542 million principal amount of borrowings then outstanding under the ABS Facility using cash on hand and subsequently terminated the ABS Facility.

ABL Facility — On May 4, 2020, USF entered into an amendment to the credit agreement governing the ABL Facility.

Pursuant to this amendment, the total aggregate amount of commitments under the ABL Facility was increased from $ 1,600 million to $ 1,990 million .

Following the termination of the ABS Facility, USF transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility.

We expect this transition to increase the size of our borrowing base under the ABL Facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements