What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-02 compared with 2020-08-04 · 340 added, 239 removed, 523 unchanged (53% of the section changed)

3 unchanged sentences

(In millions, except par value)

June 27, 2020

December 28, 2019

September 26, 2020 December 28, 2019

Current assets:

8 unchanged sentences

Property and equipment—net 2,055 2,075

Goodwill 5,644 4,728

Other intangibles—net 913 967

Deferred tax assets

Other assets 379 256

$ 12,796 $ 11,288

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

12 unchanged sentences

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

0.5 and 0.0 issued and outstanding as of September 26, 2020 and

December 28, 2019 496 —

1 unchanged sentence

Common stock, $0.01 par value—600 shares authorized;

220 issued and outstanding as of

June 27, 2020 and December 28, 2019

221 and 220 issued and outstanding as of

September 26, 2020 and December 28, 2019, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

( 57 ) ( 54 )

Total shareholders’ equity

Total liabilities, mezzanine equity and shareholders' equity

$ 12,796 $ 11,288

See Notes to Consolidated Financial Statements (Unaudited).

2 unchanged sentences

(In millions, except per share data)

13 Weeks Ended

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Net sales $ 5,848 $ 6,531 $ 16,747 $ 19,005

Cost of goods sold 4,874 5,375 14,036 15,655

974 1,156 2,711 3,350

Operating expenses:

Distribution, selling and administrative costs

Restructuring costs

873 968 2,779 2,837

Restructuring and asset impairment charges

Total operating expenses

Operating (loss) income

Other income—net

896 968 2,818 2,837

Operating income (loss) 78 188 ( 107 ) 513

Other (income) expense—net ( 6 ) 1 ( 16 ) ( 3 )

Interest expense—net 63 43 178 127

(Loss) income before income taxes

Income tax (benefit) provision

Net (loss) income

Other comprehensive (loss) income—net of tax:

Income (loss) before income taxes 21 144 ( 269 ) 389

Income tax provision (benefit) 13 39 ( 53 ) 97

Income (loss) from continuing operations 8 105 ( 216 ) 292

Income from discontinued operations—net of tax:

Net income (loss)

8 106 ( 216 ) 293

Other comprehensive income (loss)—net of tax:

Changes in retirement benefit obligations

Unrecognized loss on interest rate swaps

Comprehensive (loss) income

Net (loss) income

Unrecognized gain (loss) on interest rate swaps

2 ( 1 ) ( 4 ) ( 15 )

Comprehensive income (loss)

$ 10 $ 108 $ ( 219 ) $ 283

Net income (loss) $ 8 $ 106 $ ( 216 ) $ 293

Series A Convertible Preferred Stock Dividends 10 — 15 —

Net (loss) income available to common shareholders $ ( 2 ) $ 106 $ ( 231 ) $ 293

Net (loss) income per share—basic

Continuing operations

$ ( 0.01 ) $ 0.48 $ ( 1.05 ) $ 1.33

Discontinued operations

— 0.01 — 0.01

Net (loss) income per share $ ( 0.01 ) $ 0.49 $ ( 1.05 ) $ 1.34

Net (loss) income per share—diluted:

Continuing operations

$ ( 0.01 ) $ 0.47 $ ( 1.05 ) $ 1.33

Discontinued operations

— 0.01 — 0.01

Net (loss) income per share $ ( 0.01 ) $ 0.48 $ ( 1.05 ) $ 1.34

Weighted-average common shares outstanding

220 218 220 218

220 220 220 219

See Notes to Consolidated Financial Statements (Unaudited).

2 unchanged sentences

(In millions)

Accumulated Other Comprehensive Loss

Common Stock Additional

Capital Retained

Earnings Accumulated Other Comprehensive Loss Total

Shareholders'

Shares Amount

BALANCE—December 28, 2019 220 $ 2 $ 2,845 $ 916 $ ( 54 ) $ 3,709

5 unchanged sentences

Adoption of ASU 2016-13 (Note 2 and 7) — — — ( 1 ) — ( 1 )

Net loss — — — ( 132 ) — ( 132 )

BALANCE—March 28, 2020 220 2 2,857 783 ( 60 ) 3,582

4 unchanged sentences

Changes in retirement benefit obligations, net of income tax — — — — 1 1

Net loss — — — ( 92 ) — ( 92 )

BALANCE—June 27, 2020 221 2 2,871 686 ( 59 ) 3,500

Accumulated Other Comprehensive Loss

Share-based compensation expense — — 10 — — 10

Proceeds from employee stock purchase plan — — 4 — — 4

Exercise of stock options — — 1 — — 1

Series A Convertible Preferred Stock Dividends — — — ( 10 ) — ( 10 )

Unrecognized gain on interest rate swaps, net of income tax — — — — 2 2

Net income — — — 8 — 8

BALANCE—September 26, 2020 221 $ 2 $ 2,886 $ 684 $ ( 57 ) $ 3,515

US FOODS HOLDING CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions)

Common Stock Additional

Capital Retained

Earnings Accumulated Other Comprehensive Loss Total

Shareholders'

Shares Amount

BALANCE—December 29, 2018 217 $ 2 $ 2,780 $ 531 $ ( 84 ) $ 3,229

5 unchanged sentences

Unrecognized loss on interest rate swaps, net of income tax — — — — ( 6 ) ( 6 )

Net income — — — 71 — 71

BALANCE—March 30, 2019 218 2 2,795 602 ( 89 ) 3,310

5 unchanged sentences

Unrecognized loss on interest rate swaps, net of income tax — — — — ( 8 ) ( 8 )

Net income — — — 116 — 116

BALANCE—June 29, 2019 219 2 2,811 718 ( 96 ) 3,435

Share-based compensation expense — — 7 — — 7

Proceeds from employee stock purchase plan — — 5 — — 5

Exercise of stock options — — 2 — — 2

Changes in retirement benefit obligations, net of income tax — — — — 3 3

Unrecognized loss on interest rate swaps, net of income tax — — — — ( 1 ) ( 1 )

Net income — — — 106 — 106

BALANCE—September 28, 2019 219 $ 2 $ 2,825 $ 824 $ ( 94 ) $ 3,557

See Notes to Consolidated Financial Statements (Unaudited).

3 unchanged sentences

39 Weeks Ended

June 27, 2020

June 29, 2019

September 26, 2020 September 28, 2019

Cash flows from operating activities:

Net (loss) income

$ ( 216 ) $ 293

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Income from discontinued operations, net of tax — ( 1 )

Depreciation and amortization

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

Gain on disposal of property and equipment—net

Asset impairment charges 9 —

Amortization of deferred financing costs

Deferred tax benefit

Deferred tax (benefit) provision

Share-based compensation expense

2 unchanged sentences

Decrease (increase) in receivables

Decrease in inventories—net

(Increase) decrease in prepaid expenses and other assets

Decrease (increase) in inventories—net

Decrease in prepaid expenses and other assets

Increase in accounts payable and cash overdraft liability

Decrease in accrued expenses and other liabilities

Net cash provided by operating activities of continuing operations 533 558

Net cash provided by operating activities of discontinued operations — 1

Net cash provided by operating activities

1 unchanged sentence

Acquisition of businesses—net of cash

( 973 ) ( 1,829 )

Proceeds from sales of assets

1 unchanged sentence

Purchases of property and equipment

( 154 ) ( 157 )

Net cash used in investing activities

( 1,087 ) ( 1,977 )

Cash flows from financing activities:

1 unchanged sentence

Principal payments on debt and financing leases

( 2,640 ) ( 3,654 )

Net proceeds from issuance of Series A Convertible Preferred Stock

Debt financing costs and fees

( 33 ) ( 42 )

Proceeds from employee stock purchase plan

1 unchanged sentence

Tax withholding payments for net share-settled equity awards

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash 921 ( 7 )

8 unchanged sentences

Cashless exercise of stock options

Paid-in-kind Series A Convertible Preferred Stock Dividends 5 —

See Notes to Consolidated Financial Statements (Unaudited).

27 unchanged sentences

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 December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company adopted the relevant provisions of this standard on a prospective basis at the beginning of the third quarter of fiscal year 2020.

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

In August 2018, the FASB issued ASU No.

12 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 December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company does not expect the adoption of the provisions of the new standard to materially affect its financial position or results of operations.

In August 2020, the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature.

As a result, convertible debt will be accounted for as a single liability measured at its amortized cost.

Additionally, the new guidance requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

This guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

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

REVENUE RECOGNITION

5 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 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 did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of September 26, 2020 and December 28, 2019.

Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.2 billion and $ 1.5 billion as of September 26, 2020 and December 28, 2019, respectively.

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

These payments have become industry practice and are not related to financing any customer’s business, nor are they associated with any distinct good or service to be received from any customer.

These payments have become industry practice and are not related to financing any customer’s business, nor are these costs associated with any distinct good or service to be received from any customer.

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

The Company’s contract assets for these upfront payments were $ 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 Company’s contract assets for these upfront payments were $ 26 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019, respectively, and $ 29 million and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of September 26, 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

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Meats and seafood $ 2,069 $ 2,352 $ 5,989 $ 6,849

1 unchanged sentence

Refrigerated and frozen grocery products 891 1,054 2,626 3,076

Dairy 636 689 1,738 1,955

Equipment, disposables and supplies 638 628 1,768 1,822

Beverage products 309 352 876 1,029

Produce 313 356 884 1,020

Net sales $ 5,848 $ 6,531 $ 16,747 $ 19,005

BUSINESS ACQUISITIONS

2 unchanged sentences

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.

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 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.

3 unchanged sentences

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.

Adjustments to the preliminary purchase price allocation recorded in the 13 weeks ended September 26, 2020 were immaterial to the Company's consolidated financial statements.

Preliminary Purchase Price Allocation

Accounts receivable $ 5

Inventories 43

Other current assets 20

1 unchanged sentence

Other intangibles (2)

Other assets 129

Accounts payable ( 39 )

3 unchanged sentences

Cash paid for acquisition $ 973

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

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

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.

(2) Other intangibles consist of a trade name of $ 14 million with an estimated useful life of approximately 1 year.

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 $ 276 million and $ 8 million, respectively, for the 13 weeks ended September 26, 2020, and $ 484 million and $ 19 million, respectively, for the 39 weeks ended September 26, 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 less than $ 1 million for the 13 weeks ended September 26, 2020 and $ 20 million for the 39 weeks ended September 26, 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.:

3 unchanged sentences

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 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.

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

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") during the fourth quarter of 2019.

The following table summarizes the final purchase price allocation for the acquisition of Food Group as of September 13, 2019.

Adjustments to the preliminary purchase price allocation were immaterial to the Company's consolidated financial statements.

Purchase Price Allocation

Accounts receivable $ 145

Inventories 165

Assets of discontinued operations 130

2 unchanged sentences

Other intangibles (2)

Other assets 47

Accounts payable ( 200 )

3 unchanged sentences

Cash paid for acquisition $ 1,832

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

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

The acquired goodwill is deductible for U.S.

1 unchanged sentence

(2) 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 $ 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 .

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 $ 17 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively, and $ 23 million and $ 35 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

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

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Pro forma net sales $ 5,848 $ 7,498 $ 17,120 $ 21,934

1 unchanged sentence

Pro forma net (loss) income per share:

Basic $ ( 0.01 ) $ 0.59 $ ( 0.92 ) $ 1.48

Diluted $ ( 0.01 ) $ 0.59 $ ( 0.92 ) $ 1.47

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

26 Weeks Ended

June 29, 2019

Unaudited pro forma net sales, net income and net income per share related to the Divested Assets for the 13 weeks and 39 weeks ended September 28, 2019 were as follows:

13 Weeks Ended 39 Weeks Ended

September 28, 2019 September 28, 2019

Pro forma net sales $ 114 $ 372

1 unchanged sentence

Pro forma net income per share:

Basic $ 0.02 $ 0.03

Diluted $ 0.01 $ 0.03

The unaudited pro forma financial information above includes adjustments for:

5 unchanged sentences

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 June 27, 2020 and December 28, 2019 consisted of the following:

June 27, 2020

December 28, 2019

Cash, cash equivalents and restricted cash as presented in the Company's Consolidated Statements of Cash Flows as of September 26, 2020 and December 28, 2019 consisted of the following:

September 26, 2020 December 28, 2019

Cash and cash equivalents $ 1,019 $ 90

7 unchanged sentences

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 $ 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.

LIFO reserves in the Company’s Consolidated Balance Sheets were $ 161 million and $ 152 million as of September 26, 2020 and December 28, 2019, respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 3 million and $ 1 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively, and increased $ 9 million and $ 13 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

Additionally, during the 39 weeks ended September 26, 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

6 unchanged sentences

In March 2020, the World Health Organization characterized a novel strain of coronavirus (“COVID-19”) as a pandemic amidst a rising number of confirmed cases and thousands of deaths worldwide.

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

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

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.

Restrictions on public gatherings and attendance at retail or other establishments, including 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 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:

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 and $ 30 million was reversed during the 13 weeks ended June 27, 2020 and September 26, 2020, respectively, based on better than anticipated collection of our pre-COVID-19 accounts receivable.

A summary of the activity in the allowance for doubtful accounts for the 39 weeks ended September 26, 2020 was as follows:

Balance as of December 28, 2019 $ 30

2 unchanged sentences

Customer accounts written off—net of recoveries ( 23 )

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.

Balance as of September 26, 2020 $ 88

This table excludes the vendor receivable related allowance for doubtful accounts of $ 7 million and $ 4 million as of September 26, 2020 and December 28, 2019, respectively.

FORMER ACCOUNTS RECEIVABLE FINANCING PROGRAM

4 unchanged sentences

ASSETS HELD FOR SALE

The Company classifies its vacant land and closed facilities as assets held for sale at the time management commits to a plan to sell the facility, the facility is actively marketed and available for immediate sale, and the sale is expected to be completed within one year.

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 26 weeks ended June 27, 2020 was as follows:

The Company classifies its vacant land and closed facilities as assets held for sale at the time management commits to a plan to sell the asset, the asset is actively marketed and available for immediate sale, and the sale is expected to be completed within one year.

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

The change in assets held for sale for the 39 weeks ended September 26, 2020 was as follows:

Balance as of December 28, 2019 $ 1

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 .

Transfers in 24

Assets sold ( 15 )

Balance as of September 26, 2020 $ 10

Land previously held for future use and two excess warehouse facilities were transferred to assets held for sale during the 39 weeks ended September 26, 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, which was included in distribution, selling and administrative costs in the Company's Consolidated Statement of Comprehensive Income.

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 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.

As of September 26, 2020 and December 28, 2019, property and equipment-net included accumulated depreciation of $ 2,505 million and $ 2,298 million, respectively.

Depreciation expense was $ 88 million and $ 75 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively and $ 257 million and $ 228 million for the 39 weeks ended September 26, 2020 and September 28, 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, an amortizable trade name, noncompete agreements, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks.

Other intangible assets include customer relationships, amortizable trade names, 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, 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.

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

Customer relationships, amortizable trade names and noncompete agreements are amortized over the estimated useful lives (which range from approximately 1 to 15 years).

Amortization expense was $ 21 million and $ 12 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively and $ 59 million and $ 32 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

Goodwill and other intangibles—net consisted of the following:

June 27, 2020

December 28, 2019

September 26, 2020 December 28, 2019

Goodwill $ 5,644 $ 4,728

Other intangibles—net

2 unchanged sentences

Accumulated amortization

( 114 ) ( 115 )

Net carrying value

Trade name—amortizable:

Trade names—amortizable:

Gross carrying amount

7 unchanged sentences

Total other intangibles—net $ 913 $ 967

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

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

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

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.

The Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of June 28, 2020, the first day of the third quarter of fiscal year 2020.

Due to the adverse impacts of the COVID-19 pandemic on forecasted earnings and the discount rate utilized in our valuation models, the Company recognized an impairment charge of $ 9.4 million related to two trade names acquired as part of the Food Group acquisition, which was included in restructuring and asset impairment charges in the Company's Consolidated Statement of Comprehensive Income.

The Company determined the fair value of indefinite-lived intangible assets using the relief-from-royalty method, which requires assumptions such as long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate.

These assumptions require significant judgment by management, and are therefore considered Level 3 inputs in the fair value hierarchy.

No other impairments were noted as part of the annual impairment assessment.

The increase in goodwill and the amortizable trade name as of September 26, 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 September 26, 2020 is attributable to the write-off of fully amortized intangible assets related to certain 2016 business acquisitions.

FAIR VALUE MEASUREMENTS

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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 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

The Company’s assets and liabilities measured at fair value on a recurring basis as of September 26, 2020 and December 28, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

September 26, 2020

Level 1 Level 2 Level 3 Total

Money market funds

$ 857 $ — $ — $ 857

Interest rate swaps

$ — $ 7 $ — $ 7

December 28, 2019

Level 1 Level 2 Level 3 Total

Interest rate swaps

$ — $ 1 $ — $ 1

There were no significant assets or liabilities in the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above.

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Money market funds include highly liquid investments with an original maturity of three or fewer months.

They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.

These funds are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.

Derivative Financial Instruments

The Company uses interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate Initial Term Loan Facility (as defined in Note 13, Debt).

USF has entered into four-year interest rate swap agreements expiring July 31, 2021, which collectively have a notional value of $ 733 million , reducing to $ 550 million on July 31, 2020.

USF has entered into four-year interest rate swap agreements expiring July 31, 2021, which collectively have a notional value of $ 550 million, which was reduced from $ 733 million on July 31, 2020.

The Company pays an aggregate effective rate of 3.45 % on the notional amount of the Initial Term Loan Facility covered by the interest rate swap agreements, comprised of a rate of 1.70 % plus a spread of 1.75 % (see Note 13, Debt).

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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 June 27, 2020 and December 28, 2019 :

Balance Sheet Location

June 27, 2020

December 28, 2019

The following table presents the balance sheet location and fair value of the interest rate swaps as of September 26, 2020 and December 28, 2019:

Balance Sheet Location September 26, 2020 December 28, 2019

Derivatives designated as hedging instruments

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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 26 weeks ended June 27, 2020 and June 29, 2019 :

Derivatives in Cash Flow Hedging Relationships

Amount of Loss Recognized in Accumulated Other Comprehensive Loss, net of tax

Location of Amounts Reclassified from Accumulated Other Comprehensive Loss

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

For the 13 weeks ended June 27, 2020

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 and 39 weeks ended September 26, 2020 and September 28, 2019:

Derivatives in Cash Flow Hedging Relationships Amount of Loss Recognized in Accumulated Other Comprehensive Loss, net of tax Location of Amounts Reclassified from Accumulated Other Comprehensive Loss Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax

For the 13 weeks ended September 26, 2020

Interest rate swaps

$ — Interest expense—net $ 2

For the 13 weeks ended June 29, 2019

For the 13 weeks ended September 28, 2019

Interest rate swaps

$ — Interest expense—net $ ( 1 )

For the 26 weeks ended June 27, 2020

For the 39 weeks ended September 26, 2020

Interest rate swaps

$ ( 8 ) Interest expense—net $ 4

For the 26 weeks ended June 29, 2019

For the 39 weeks ended September 28, 2019

Interest rate swaps

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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 $ 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 $ 5.7 billion, compared to its carrying value of $ 5.8 billion as of September 26, 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 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.

The fair value of the Company’s 6.25 % senior secured notes due April 15, 2025 (the “Secured Notes”) was $ 1.0 billion as of September 26, 2020.

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”), was $ 601 million and $ 619 million as of September 26, 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.

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Total debt consisted of the following:

Debt Description

Interest Rate as of June 27, 2020

June 27, 2020

December 28, 2019

Debt Description Maturity Interest Rate as of September 26, 2020 September 26, 2020 December 28, 2019

ABL Facility May 31, 2024 — % $ — $ —

ABS Facility (1)

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and $35 of unamortized deferred financing

costs, respectively)

September 13, 2026

costs, respectively) September 13, 2026 3.07 % 1,458 1,465

2020 Incremental Term Loan Facility (net of $12

of unamortized deferred financing costs)

April 24, 2025

of unamortized deferred financing costs) April 24, 2025 4.25 % 287 —

Senior Secured Notes (net of $14 of unamortized

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Obligations under financing leases 2020–2030 1.63% - 6.17% 343 352

1.63% - 6.17%

3.12% - 4.99%

Other debt 2021–2031 5.75% - 9.00% 8 8

Total debt 5,787 4,736

Current portion of long-term debt (2)

( 149 ) ( 142 )

Long-term debt $ 5,638 $ 4,594

(1) 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.

(2) The current portion of long-term debt as of September 26, 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 September 26, 2020, after considering interest rate swaps that fixed the interest rate on $ 550 million of principal of the Initial Term Loan Facility described below, approximately 57 % 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”).

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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 June 27, 2020 was 0.25 % for ABR loans and 1.25 % for LIBOR loans.

The margin under the ABL Facility as of September 26, 2020 was 0.00 % for ABR loans and 1.00 % 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.

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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 .

USF had no outstanding borrowings, and had issued letters of credit totaling $ 274 million, under the ABL Facility as of September 26, 2020.

The outstanding letters of credit primarily relate to securing USF's obligations with respect to its self-

insurance program and certain real estate leases.

There was available capacity of $ 1,716 million under the ABL Facility as of September 26, 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.

The Company recorded a debt extinguishment loss of $ 1 million in interest expense, primarily consisting of a write-off of unamortized debt costs associated with the ABS Facility and its termination.

Term Loan Facilities

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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 had a carrying value of $ 2.1 billion, net of $ 3 million of unamortized deferred financing costs as of September 26, 2020.

The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of September 26, 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 September 26, 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 .

The 2019 Incremental Term Loan Facility entered into to finance a portion of the Food Group acquisition, had a carrying value of $ 1,458 million, net of $ 31 million of unamortized deferred financing costs as of September 26, 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 %.

10 unchanged sentences

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 had a carrying value of $ 986 million, net of $ 14 million of unamortized deferred financing costs, as of September 26, 2020.

The Secured Notes mature April 15, 2025.

4 unchanged sentences

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 $ 2.7 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

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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

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 work force and closed two excess facilities and incurred a net charge of $ 14 million and $ 30 million for severance and related costs during the 13 weeks and 39 weeks ended September 26, 2020, respectively.

See Note 11, Goodwill and Other Intangibles, for discussion related to asset impairment charges.

The following table summarizes the changes in the restructuring liabilities for the 39 weeks ended September 26, 2020:

Severance and Related Costs Facility Closing Costs Total

Balance at December 28, 2019 $ 1 $ — $ 1

Current period charges 28 2 30

Payments and usage—net of accretion

Balance at June 27, 2020

Payments, net ( 25 ) ( 1 ) ( 26 )

Balance as of September 26, 2020 $ 4 $ 1 $ 5

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

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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.

When it is reasonably certain that the Company will exercise these options, the associated payments 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.

3 unchanged sentences

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

The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019:

Leases Consolidated Balance Sheet Location September 26, 2020 December 28, 2019

Other assets $ 271 $ 145

Property and equipment-net (1)

5 unchanged sentences

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.

(1) Financing lease assets are recorded net of accumulated amortization of $ 243 million and $ 269 million as of September 26, 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

13 Weeks Ended 26 Weeks Ended

Lease Cost Statement of Comprehensive Income Location September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Operating lease cost Distribution, selling and administrative costs $ 10 $ 7 $ 36 $ 21

Financing lease cost:

3 unchanged sentences

Interest expense-net 3 3 9 9

Variable lease cost

Distribution, selling and administrative costs

Variable lease cost Distribution, selling and administrative costs 4 2 10 5

Net lease cost $ 36 $ 33 $ 115 $ 95

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

Maturity of Lease Liabilities

Financing Leases

Future lease payments under lease agreements as of September 26, 2020 were as follows:

Maturity of Lease Liabilities Operating

Leases Financing Leases Total

Remainder of 2020 $ 11 $ 32 $ 43

2021 62 93 155

2022 56 70 126

2023 54 67 121

2024 35 50 85

2025 34 31 65

After 2025 164 25 189

Total lease payments 416 368 784

2 unchanged sentences

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

Future Minimum Lease Payments

Financing Leases

Future Minimum Lease Payments Operating

Leases Financing Leases Total

2020 $ 48 $ 106 $ 154

2021 38 84 122

2022 33 62 95

2023 30 58 88

2024 12 41 53

After 2024 42 29 71

Total lease payments 203 380 583

1 unchanged sentence

Present value of minimum lease payments $ 171 $ 352 $ 523

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

Other information related to lease agreements for the 39 weeks ended September 26, 2020 and September 28, 2019 was as follows:

39 Weeks Ended

Cash Paid For Amounts Included In Measurement of Liabilities

June 27, 2020

June 29, 2019

Cash Paid For Amounts Included In Measurement of Liabilities September 26, 2020 September 28, 2019

Operating cash flows from operating leases $ 37 $ 24

1 unchanged sentence

Financing cash flows from financing leases 72 49

Lease Term and Discount Rate

June 27, 2020

June 29, 2019

Lease Term and Discount Rate September 26, 2020 September 28, 2019

Weighted-average remaining lease term (years):

8 unchanged sentences

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

13 Weeks Ended

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Components of net periodic pension benefit costs (credits)

$ 1 $ 1 $ 2 $ 2

Interest cost

Expected return on plan assets

( 14 ) ( 13 ) ( 40 ) ( 37 )

Amortization of net loss

Net periodic pension benefit credits

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.

Settlements — 3 — 3

Net periodic pension benefit costs (credits) $ ( 5 ) $ 2 $ ( 14 ) $ ( 1 )

Other postretirement benefit costs were de minimis for both the 13 weeks and 39 weeks ended September 26, 2020 and September 28, 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 (expense)—net, respectively, in the Company's Consolidated Statements of Comprehensive Income.

In the third quarter of 2019, the Company amended its defined benefit plan to offer certain terminated plan participants with vested benefits the opportunity to elect to receive an immediate lump sum payment.

The Company incurred non-cash settlement charges of $ 3 million during the third quarter of 2019 related to ordinary course lump sum payment elections as provided under the continuing plan.

The voluntary lump sum payment, along with a spin-off of certain participants into a new plan which was subsequently terminated, was completed in the fourth quarter of fiscal year 2019.

The 2019 non-cash settlement charges were included in other expense (income)—net in the Company's Consolidated Statements of Comprehensive Income.

No non-cash settlement charges were incurred in fiscal year 2020.

The Company does not expect to make significant contributions to its defined benefit pension plan in fiscal year 2020.

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 $ 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 made employer matching contributions to the 401(k) plan of $ 11 million and $ 13 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively, and $ 34 million and $ 38 million for the 39 weeks ended September 26, 2020 and September 28, 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 $ 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.

The Company’s contributions to these plans were $ 11 million and $ 10 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively, and $ 33 million and $ 28 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

EARNINGS PER SHARE

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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.

For the 13 weeks ended September 26, 2020 and September 28, 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 39 weeks ended September 26, 2020 and September 28, 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 39 weeks ended September 26, 2020, convertible preferred stock representing 23 million and 12 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

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Net (loss) income

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Income (loss) from continuing operations $ 8 $ 105 $ ( 216 ) $ 292

Income from discontinued operations — 1 — 1

Net income (loss)

8 106 ( 216 ) 293

Series A Convertible Preferred Stock dividends (1)

Net (loss) income available to common shareholders

$ ( 2 ) $ 106 $ ( 231 ) $ 293

Weighted-average common shares outstanding

220 218 220 218

Effect of dilutive securities

2 unchanged sentences

Weighted-average dilutive shares outstanding

220 220 220 219

Basic earnings per share:

Continuing operations

$ ( 0.01 ) $ 0.48 $ ( 1.05 ) $ 1.33

Discontinued operations 0.00 0.01 0.00 0.01

Net (loss) income per share $ ( 0.01 ) $ 0.49 $ ( 1.05 ) $ 1.34

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

Diluted earnings per share:

Continuing operations $ ( 0.01 ) $ 0.47 $ ( 1.05 ) $ 1.33

Discontinued operations 0.00 0.01 0.00 0.01

Net (loss) income per share

$ ( 0.01 ) $ 0.48 $ ( 1.05 ) $ 1.34

(1) Preferred stock dividends for the second quarter of 2020 were declared on June 19, 2020 and were paid in kind on June 30, 2020.

Preferred stock dividends for the third quarter of 2020 were declared on September 21, 2020 and were paid in kind on September 30, 2020.

CONVERTIBLE PREFERRED STOCK

1 unchanged sentence

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").

On June 30, 2020 and September 30, 2020, the Company paid a dividend (the “Dividend”) on the shares of the Series A Preferred Stock in the form of 5,288 and 8,842 shares of Series A Preferred Stock, respectively, 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.

4 unchanged sentences

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.

At any time after May 6, 2023 (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 after May 6, 2025 (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:

the Issuance Date and prior to the sixth anniversary of the Issuance Date, (B) 103 % if the redemption occurs at any time after May 6, 2026 (the sixth anniversary of the Issuance Date) and prior to May 6, 2027 (the seventh anniversary of the Issuance Date), and (C) 100 % if the redemption occurs at any time after May 6, 2027 (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 % .

If any such change of control event occurs on or before May 6, 2025 (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.

A summary of the activity for the outstanding Series A Preferred Stock and associated carrying value for the 39 weeks ended September 26, 2020 was as follows:

Series A Preferred Stock

Shares Amount

Balance, December 28, 2019 — $ —

Shares issued for cash - Series A Preferred Stock, net of issuance costs 500,000 491

Balance, June 27, 2020 500,000 491

Shares issued as paid in kind dividend - Series A Preferred Stock 5,288 5

Balance September 26, 2020 505,288 $ 496

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in accumulated other comprehensive loss by component for the periods presented:

13 Weeks Ended

26 Weeks Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

13 Weeks Ended 39 Weeks Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Accumulated other comprehensive loss components

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Balance as of beginning of period (1)

$ ( 51 ) $ ( 95 ) $ ( 52 ) $ ( 97 )

Reclassification adjustments:

Amortization of net loss (2) (3)

Settlements (2)(3)

Total before income tax

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Balance as of end of period (1)

$ ( 51 ) $ ( 92 ) $ ( 51 ) $ ( 92 )

Interest rate swaps:

Balance as of beginning of period (1)

$ ( 8 ) $ ( 1 ) $ ( 2 ) $ 13

Change in fair value of interest rate swaps

— ( 1 ) ( 10 ) ( 15 )

Amounts reclassified to interest expense—net

2 ( 1 ) 4 ( 5 )

Total before income tax

2 ( 2 ) ( 6 ) ( 20 )

Income tax benefit

Current period comprehensive (loss) income, net of tax

— ( 1 ) ( 2 ) ( 5 )

Current period comprehensive income (loss), net of tax

2 ( 1 ) ( 4 ) ( 15 )

Balance as of end of period (1)

$ ( 6 ) $ ( 2 ) $ ( 6 ) $ ( 2 )

Accumulated other comprehensive loss as of end of period (1)

$ ( 57 ) $ ( 94 ) $ ( 57 ) $ ( 94 )

(1) Amounts are presented net of tax.

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See Note 16, Retirement Plans, for additional information.

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

(3) Included in other income (expense)—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.

Assuming conversion of all Series A Preferred Stock, KKR would have held approximately 9.6 % of the Company’s outstanding common stock as of September 26, 2020.

KKR Capital Markets also received $ 5 million for services rendered in connection with the May 2019 refinancing of the ABL Facility and the 2019 Incremental Term Loan Facility during the 39 weeks ended September 28, 2019.

As reported by the Company’s administrative agent, investment funds managed by an affiliate of KKR held approximately $ 64 million in principal amount of the Company's term loan facilities as of September 26, 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 September 26, 2020.

As reported by the Company’s administrative agent, investment funds managed by an affiliate of FMR LLC held approximately $ 60 million in principal amount of the Company's term loan facilities as of September 26, 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.

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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 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.

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 39 weeks ended September 26, 2020 and September 28, 2019 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended September 26, 2020, the Company's effective income tax rate of 58 % 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.

Because pre-tax income for the 13 weeks ended September 26, 2020 was $ 21 million, all tax adjustments had a significant impact on a percentage basis on the effective income tax rate.

The discrete tax items were not material individually or in the aggregate;

however, when compared to the pre-tax income of $ 21 million for the period on a percentage basis, these tax items had a significant impact on the effective tax rate.

For the 13 weeks ended September 28, 2019, the Company's effective income tax rate of 27 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

These discrete tax items included a tax expense of $ 2 million, primarily related to a change in valuation allowance.

For the 39 weeks ended September 26, 2020, the Company's effective income tax rate of 20 % 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.

For the 39 weeks ended September 28, 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 $ 3 million, primarily related to excess tax benefits associated with share-based compensation.

COMMITMENTS AND CONTINGENCIES

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

The Company had $ 1,551 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.

The Company had $ 1,119 million of purchase orders and purchase contract commitments to be purchased through the first quarter of fiscal year 2021 as of September 26, 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 had diesel fuel forward purchase commitments totaling $ 71 million through December 2021, as of September 26, 2020.

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through November 2023, as of September 26, 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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The Company has recognized provisions with respect to the proceedings, where appropriate, in its Consolidated Balance Sheets.

It is possible that the Company could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated.

However, the Company believes that the ultimate resolution of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

It is possible that the Company could settle one or more of these proceedings or could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated.

However, the Company, at present, believes that the ultimate outcome of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

BUSINESS INFORMATION

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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