What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-16 compared with 2020-02-13 · 706 added, 451 removed, 864 unchanged (57% of the section changed)

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Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018

Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended

December 28, 2019, December 29, 2018 and December 30, 2017

January 2, 2021, December 28, 2019 and Decemb er 2 9, 201 8

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended

December 28, 2019, December 29, 2018 and December 30, 2017

Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2019, December 29, 2018 and December 30, 2017

January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of US Foods Holding Corp.

and subsidiaries (the "Company") as of December 28, 2019 and December 29, 2018, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows, for each of the three fiscal years in the period ended December 28, 2019, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

and subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows, for each of the three fiscal years in the period ended January 2, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

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As the related inventory is sold, the amounts are recorded as a reduction to cost of sales.

Total vendor receivables were $143 million at December 28, 2019.

Total vendor receivables were $121 million at January 2, 2021.

Although many of these incentives are under long-term agreements others are negotiated on an annual basis or shorter.

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Our audit procedures related to the evaluation of the vendor agreements included the following, among others:

We tested the effectiveness of certain controls over vendor consideration including management’s controls over the calculation of the amount recorded and the accuracy of the contract information input in the system utilized to calculate the amounts.

• We tested the effectiveness of controls over vendor consideration including management’s controls over the calculation of the amount recorded and the accuracy of the contract information input in the system utilized to calculate the amounts.

• We selected a sample of vendor consideration recorded and (1) confirmed the amount recorded directly with the vendors and (2) for certain products we recalculated vendor consideration amounts recorded by the Company using the terms of the executed vendor agreement.

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(In millions, except par value)

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Current assets:

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Property and equipment—net 2,021 2,075

Goodwill 5,637 4,728

Other intangibles—net 892 967

Deferred tax assets 1 —

LIABILITIES AND EQUITY

Other assets 407 256

$ 12,423 $ 11,288

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

Current liabilities:

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Commitments and contingencies (Note 24)

Mezzanine equity:

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

0.5 and 0.0 issued and outstanding as of January 2, 2021 and

December 28, 2019 519 —

Shareholders’ equity:

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221 and 220 issued and outstanding as of

December 28, 2019 and December 29, 2018, respectively

January 2, 2021 and December 28, 2019, respectively

Additional paid-in capital

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Accumulated other comprehensive loss

( 34 ) ( 54 )

Total shareholders’ equity

Total liabilities and shareholders' equity

Total liabilities, mezzanine equity and shareholders' equity

$ 12,423 $ 11,288

See Notes to Consolidated Financial Statements.

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Fiscal Years Ended

December 28, 2019

December 29, 2018

December 30, 2017

January 2, 2021 December 28, 2019 December 29, 2018

Net sales $ 22,885 $ 25,939 $ 24,175

Cost of goods sold 19,166 21,352 19,869

3,719 4,587 4,306

Operating expenses:

Distribution, selling and administrative costs

Restructuring costs (benefit)

3,757 3,888 3,647

Restructuring costs and asset impairment charges

Total operating expenses

Operating income

Other expense (income)—net

3,796 3,888 3,648

Operating (loss) income ( 77 ) 699 658

Other (income) expense—net ( 21 ) 4 ( 13 )

Interest expense—net 238 184 175

Income before income taxes

Income tax provision (benefit)

Other comprehensive income—net of tax:

(Loss) income before income taxes ( 294 ) 511 496

Income tax (benefit) provision ( 68 ) 126 89

Net (loss) income

( 226 ) 385 407

Other comprehensive (loss) income—net of tax:

Changes in retirement benefit obligations

Unrecognized (loss) gain on interest rate swaps

Comprehensive income

Net income per share:

( 3 ) ( 15 ) 5

Comprehensive (loss) income

$ ( 206 ) $ 415 $ 418

Net (loss) income $ ( 226 ) $ 385 $ 407

Series A convertible preferred stock dividends 28 — —

Net (loss) income available to common shareholders $ ( 254 ) $ 385 $ 407

Net (loss) income per share:

$ ( 1.15 ) $ 1.77 $ 1.88

$ ( 1.15 ) $ 1.75 $ 1.87

Weighted-average common shares outstanding

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(In millions)

Retained Earnings

Accumulated Other

Comprehensive Loss

Comprehensive Loss Total

Shareholders'

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Share-based compensation expense

— — 28 — — 28

Proceeds from employee stock purchase plan

1 — 19 — — 19

Exercise of stock options

Net share-settled stock options

1 — 19 — — 19

Tax withholding payments for net share-settled equity awards

Common stock repurchased

— — ( 6 ) — — ( 6 )

Changes in retirement benefit obligations, net of income tax

Unrecognized gain on interest rate swaps, net of income tax

— — — 407 — 407

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

Share-based compensation expense

— — 32 — — 32

Proceeds from employee stock purchase plan

1 — 19 — — 19

Exercise of stock options

2 — 19 — — 19

Tax withholding payments for net share-settled equity awards

— — ( 5 ) — — ( 5 )

Changes in retirement benefit obligations, net of income tax

Unrecognized gain on interest rate swaps, net of income tax

— — — — 45 45

Unrecognized loss on interest rate swaps, net of income tax

— — — — ( 15 ) ( 15 )

— — — 385 — 385

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

Share-based compensation expense

— — 40 — — 40

Proceeds from employee stock purchase plan

1 — 18 — — 18

Exercise of stock options

Tax withholding payments for net share-settled equity awards

— — ( 5 ) — — ( 5 )

Series A convertible preferred stock dividends — — — ( 28 ) — ( 28 )

Changes in retirement benefit obligations, net of income tax

— — — — 23 23

Unrecognized loss on interest rate swaps, net of income tax

BALANCE-December 28, 2019

— — — — ( 3 ) ( 3 )

Adoption of ASU 2016-13 (Note 3 and Note 7) — — — ( 1 ) — ( 1 )

— — — ( 226 ) — ( 226 )

BALANCE-January 2, 2021 221 $ 2 $ 2,901 $ 661 $ ( 34 ) $ 3,530

See Notes to Consolidated Financial Statements.

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Fiscal Years Ended

December 28, 2019

December 29, 2018

December 30, 2017

January 2, 2021 December 28, 2019 December 29, 2018

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income

$ ( 226 ) $ 385 $ 407

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

Depreciation and amortization

Gain on disposal of property and equipment, net

( 17 ) ( 1 ) ( 1 )

Tangible asset impairment charges 3 1 1

Intangible asset impairment charges 9 — —

Amortization of deferred financing costs

Deferred tax provision (benefit)

Deferred tax (benefit) provision

Share-based compensation expense

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Changes in operating assets and liabilities, net of business acquisitions:

Increase in receivables

Decrease (increase) in receivables

334 ( 19 ) ( 71 )

Decrease (increase) in inventories

Decrease (increase) in prepaid expenses and other assets

201 16 ( 72 )

(Increase) decrease in prepaid expenses and other assets

( 30 ) 9 ( 45 )

(Decrease) increase in accounts payable and cash overdraft liability

(Decrease) increase in accrued expenses and other liabilities

( 339 ) ( 56 ) 79

Decrease in accrued expenses and other liabilities

( 12 ) ( 4 ) ( 126 )

Net cash provided by operating activities

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Acquisition of businesses—net of cash

( 972 ) ( 1,832 ) —

Proceeds from sales of divested assets

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Purchases of property and equipment

Proceeds from redemption of industrial revenue bonds

( 189 ) ( 258 ) ( 235 )

Net cash used in investing activities

( 1,110 ) ( 1,987 ) ( 232 )

Cash flows from financing activities:

Proceeds from debt borrowings

3,645 6,198 4,178

Principal payments on debt and financing leases

Repayment of industrial revenue bonds

( 2,692 ) ( 4,967 ) ( 4,595 )

Net proceeds from issuance of Series A convertible preferred stock

Payment for debt financing costs and fees

( 33 ) ( 44 ) ( 1 )

Contingent consideration paid for business acquisitions

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Tax withholding payments for net share-settled equity awards

Common stock repurchased

Common stock and share-based awards settled

( 5 ) ( 5 ) ( 6 )

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash

1,427 1,220 ( 391 )

Net increase (decrease) in cash, cash equivalents and restricted cash 730 ( 7 ) ( 14 )

Cash, cash equivalents and restricted cash—beginning of year 98 105 119

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Interest paid—net of amounts capitalized

Income taxes paid—net

$ 216 $ 173 $ 160

Income taxes (received) paid—net

Property and equipment purchases included in accounts payable

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Cashless exercise of stock options

Contingent consideration payable for acquisition of businesses

Paid-in-kind Series A convertible preferred stock dividends

See Notes to Consolidated Financial Statements.

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When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth quarter.

The fiscal years ended December 28, 2019 , December 29, 2018 , and December 30, 2017 , also referred to herein as fiscal years 2019 , 2018 , and 2017 , respectively, were 52-week fiscal years.

Fiscal year 2020 will be a 53-week fiscal year.

The fiscal year ended January 2, 2021, also referred to herein as fiscal year 2020, was a 53-week fiscal year.

The fiscal years ended December 28, 2019, and December 29, 2018, also referred to herein as fiscal years 2019 and 2018, respectively, were 52-week fiscal years.

Prior year amounts may have been adjusted to conform with the current year presentation.

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Receivables are presented net of the allowance for doubtful accounts in the Company's accompanying Consolidated Balance Sheets.

The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information.

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.

When the Company determines that a loss is probable, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount we reasonably expect to collect.

In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables.

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 over specified periods.

Additionally, during fiscal year 2020, the Company recorded an additional allowance for doubtful accounts due to the impact of the COVID-19 pandemic on our business.

Vendor Consideration and Receivables —The Company participates in various rebate and promotional incentives with its suppliers, primarily through purchase-based programs.

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Inventories —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 charges 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, as further described in Note 5, Business Acquisitions, 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.

As of December 28, 2019 and December 29, 2018 , LIFO reserves in the Company’s Consolidated Balance Sheets were $ 152 million and $ 130 million , respectively.

As a result of changes

in LIFO reserves, cost of goods sold increased $ 22 million in fiscal year 2019 , was de minimis in fiscal year 2018, and increased $ 14 million in fiscal year 2017 .

As of January 2, 2021 and December 28, 2019, LIFO reserves in the Company’s Consolidated Balance Sheets were $ 177 million and $ 152 million, respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 25 million in fiscal year 2020, increased $ 22 million in fiscal year 2019, and was de minimis in fiscal year 2018.

Additionally, during fiscal year 2020, due to the impact of the COVID-19 pandemic on our business, the Company recognized additional charges in cost of goods sold related to inventory adjustments and product donations.

Property and Equipment —Property and equipment are stated at cost.

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If the carrying value exceeds the fair value, an impairment charge is recorded for the excess.

The Company also assesses the recoverability of its closed facilities actively marketed for sale.

If a facility’s carrying value exceeds its fair value, less an estimated cost to sell, an impairment charge is recorded for the excess.

The Company also assesses the recoverability of its vacant land and closed facilities actively marketed for sale.

If an asset’s carrying value exceeds its fair value, less an estimated cost to sell, an impairment charge is recorded for the excess.

Assets held for sale are not depreciated.

Impairments are recorded as a component of restructuring costs (benefit) in the Company's Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company's Consolidated Balance Sheets.

Impairments resulting from restructuring activities are recorded as a component of restructuring costs and asset impairment charges in the Company's Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company's Consolidated Balance Sheets.

Goodwill and Other Intangible Assets —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, 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.

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All goodwill is assigned to the consolidated Company as the reporting unit.

Impairments are recorded as a component of restructuring costs and asset impairment charges in the Company’s Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company’s Consolidated Balance Sheets.

Self-Insurance Programs —The Company estimates its liabilities for claims covering general, fleet, and workers’ compensation.

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Forfeitures are recognized as incurred.

Fair value is the closing price per share for the Company’s common stock as reported on the New York Stock Exchange.

Fair value is the closing price per share for the Company’s common stock as reported on the New York

Stock Exchange.

Prior to the Company's 2016 initial public offering, the grant date fair value of stock-based awards was measured as of the end of each fiscal quarter using the combination of a market and income approach.

The computed value was applied to all stock and stock award activity in the subsequent fiscal quarter.

The fair value was applied to all stock and stock award activity in the subsequent fiscal quarter.

Shares issued as a result of stock options exercises will be funded with the issuance of new shares.

Compensation expense related to our employee stock purchase plan, which allows eligible employees to purchase our common stock at a discount of up to 15 % represents the difference between the fair market value as of acquisition date and the employee purchase price.

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Cost of Goods Sold —Cost of goods sold includes amounts paid to vendors for products sold, net of vendor consideration, including in-bound freight necessary to bring the products to the Company’s distribution facilities.

Depreciation related to processing facilities

and equipment is presented in cost of goods sold.

Depreciation related to processing facilities and equipment is presented in cost of goods sold.

Because the majority of the inventories are finished goods, depreciation related to warehouse facilities and equipment is presented in distribution, selling and administrative costs.

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The Company adjusts the amounts recorded for uncertain tax positions when its judgment changes, as a result of evaluating new information not previously available.

These differences are reflected as increases or decreases to income tax expense in the period in which they are determined.

These differences are reflected as increases or decreases to income tax expense (benefit) in the period in which they are determined.

Derivative Financial Instruments —The Company utilizes derivative financial instruments to assist in managing its exposure to variable interest rates on certain borrowings.

The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest rate swaps, designated as cash flow hedges, are recorded in the Company’s Consolidated Balance Sheet at fair value.

Interest rate swaps, designated as cash flow hedges, are recorded in the Company’s Consolidated Balance Sheets at fair value.

In the normal course of business, the Company enters into forward purchase agreements to procure fuel, electricity and product commodities related to its business.

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The Company’s cash equivalents are invested primarily in money market funds at major financial institutions.

Credit risk related to accounts receivable is dispersed across a larger number of customers located throughout the U.S.

The account balances at these institutions may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage, and as a result, there may be a concentration of risk related to amounts invested in excess of FDIC insurance coverage.

Credit risk related to accounts receivable is dispersed across a significantly large number of customers located throughout the U.S.

The Company attempts to reduce credit risk through initial and ongoing credit evaluations of its customers’ financial condition.

There were no receivables from any one customer representing more than 5% of our consolidated gross accounts receivable as of December 28, 2019 .

There were no receivables from any one customer representing more than 5% of our consolidated gross accounts receivable as of January 2, 2021.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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

2018-02, Income Statement, Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income .

This new guidance permits an entity to reclassify the income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings.

The Company adopted this guidance as of the beginning of fiscal year 2019 and elected not to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) , which supersedes Accounting Standards Codification (“ASC”) 840 , Leases, and has issued subsequent amendments to Topic 842.

The Company adopted Topic 842 on December 30, 2018, the effective and initial application date, using the modified retrospective approach.

The Company elected from the package of practical expedients permitted under the transition guidance within Topic 842, which, among other things, allowed the Company to carry forward the historical lease classification.

Adoption of Topic 842 resulted in the recording of net lease assets and lease liabilities of approximately $ 100 million , as of December 30, 2018.

The initial adoption of Topic 842 did not materially impact the Company’s Consolidated Statement of Comprehensive Income and Consolidated Statement of Cash Flows.

The Company has revised its relevant policies and procedures, as applicable, to meet the new accounting, reporting and disclosure requirements of Topic 842.

See Note 17, Leases.

Recently Issued Accounting Pronouncements

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.

ASU 2020-04 was further amended in January 2021 by ASU 2021-01,

Reference Rate Reform (Topic 848):

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 ASU No.

2020-04 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.

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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.

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.

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.

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Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

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

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Measurement of Credit Losses on Financial Instruments , which requires entities to use a forward-looking, expected loss model to estimate credit losses.

It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances.

It also requires entities to consider additional disclosures related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances.

ASU 2016-13 was further amended in November 2018 by ASU 2018-19, Codification Improvements to Topic 236, Financial Instrument-Credit Losses .

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

ASU 2016-13 will be initially applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

The Company has substantially completed its analysis of the effects of adopting the provisions of this standard on its consolidated financial statements and does not expect the adoption of the provisions of the new standard to materially affect its financial position or results of operations.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

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.

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

Recently Issued Accounting Pronouncements

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

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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 December 28, 2019 .

Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.5 billion and $ 1.3 billion as of December 28, 2019 and December 29, 2018 , respectively.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of January 2, 2021.

Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.1 billion and $ 1.5 billion as of January 2, 2021 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 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 $ 35 million and $ 37 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018 , respectively, and $ 39 million and $ 28 million included in other assets in the Company’s Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018 , respectively.

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

The Company’s contract assets for these upfront payments were $ 30 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019, respectively, and $ 27 million and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019, respectively.

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

2020 2019 2018

Meats and seafood $ 8,131 $ 9,313 $ 8,635

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Refrigerated and frozen grocery products 3,583 4,253 3,898

Dairy 2,394 2,685 2,520

Equipment, disposables and supplies 2,455 2,483 2,298

Beverage products 1,186 1,403 1,315

Produce 1,205 1,375 1,270

Total Net sales $ 22,885 $ 25,939 $ 24,175

BUSINESS ACQUISITIONS

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

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 $ 972 million.

At the time of the acquisition, Smart Foodservice operated 70 small-format cash and carry stores across California, Idaho, Montana, Nevada, Oregon, Utah, and Washington 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 Smart Foodservice 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.

Adjustments to the preliminary purchase price allocation recorded in fiscal year 2020 were immaterial to the Company's consolidated financial statements.

Preliminary Purchase Price Allocation

Accounts receivable $ 5

Inventories 43

Other current assets 23

Property and equipment 84

Other intangibles (2)

Other assets 130

Accounts payable ( 38 )

Accrued expenses and other current liabilities ( 31 )

Deferred income taxes ( 5 )

Other long-term liabilities, including financing leases ( 160 )

Cash paid for acquisition $ 972

(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.

(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 $ 759 million and $ 28 million, respectively, during fiscal year 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 $ 21 million during fiscal year 2020.

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.:

Food Services of America, Inc., Systems Services of America, Inc., Amerifresh, Inc., Ameristar Meats, Inc.

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The acquisition of the Food Group expands the Company’s network in the West and Northwest parts of the U.S.

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, 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 total amount of proceeds received from the October 11, 2019 sale of the Divested Assets at closing was $ 94 million , which, together with approximately $ 20 million in holdback funds and working capital adjustments, approximates the fair value of the Divested Assets.

The total amount of proceeds received from the October 11, 2019 sales of the Divested Assets at closing was $ 94 million, which, together with approximately $ 20 million in holdback funds and working capital adjustments, approximated the fair value of the Divested Assets.

The assets and liabilities of the Divested Assets were included in assets of discontinued operations and liabilities of discontinued operations, respectively, in the Company's Consolidated Balance Sheets until their disposition.

The operating results of the Divested Assets from the date the acquisition was completed through the date of sale were de minimis.

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.

Adjustments to the preliminary purchase price allocation in the fourth quarter of fiscal year 2019, 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

The operating results of the Divested Assets from the date the acquisition was completed through the date of sale were not significant.

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

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Other intangibles (2)

Other assets 47

Accounts payable ( 200 )

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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.

(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.

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(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.

Net sales and net loss for the Food Group (exclusive of the Divested Assets, as the sales and net income of the Divested Assets were reflected in discontinued operations and were de minimis for fiscal year 2019 ), which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed were $ 843 million and $ 21 million , respectively, during fiscal year 2019.

Acquisition-related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 52 million and $ 29 million for fiscal years 2019 and 2018 , respectively.

The following table presents the Company’s unaudited pro forma consolidated net sales, net income and net income per share for fiscal years 2019 and 2018.

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 $ 24 million, $ 52 million and $ 29 million for fiscal years 2020, 2019 and 2018, 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 fiscal years 2020, 2019 and 2018.

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.

(Unaudited) 2019

(Unaudited) 2018 (Unaudited)

Pro forma net sales $ 23,258 $ 29,141 $ 26,985

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Pro forma net income per share:

Basic $ ( 1.02 ) $ 1.92 $ 1.84

Diluted $ ( 1.02 ) $ 1.91 $ 1.82

The unaudited pro forma financial information for all periods 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 fiscal years 2019 and 2018 are as follows:

Unaudited pro forma net sales, net income and net income per share related to the Divested Assets for fiscal years 2019 and 2018:

(Unaudited) 2018 (Unaudited)

Pro forma net sales $ 392 $ 516

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Pro forma income per share:

Basic $ 0.03 $ 0.06

Diluted $ 0.02 $ 0.06

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 in our previously existing operations.

(1) incremental depreciation expense related to fair value increases of certain acquired property and equipment, (2) amortization expense related to the fair value of amortizable 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 incurred by their former respective parent companies.

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.

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 December 28, 2019 and December 29, 2018 consisted of the following:

December 28, 2019

December 29, 2018

Cash, cash equivalents and restricted cash as presented in the Company's Consolidated Statements of Cash Flows as of January 2, 2021 and December 28, 2019 consisted of the following:

January 2, 2021 December 28, 2019

Cash and cash equivalents $ 828 $ 90

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ALLOWANCE FOR DOUBTFUL ACCOUNTS

Since mid-March 2020, our business has been significantly impacted by the COVID-19 pandemic.

In 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 restaurants and recreational, sporting and other similar venues, continue to evolve and are expected to continue to remain in effect in some capacity until the COVID-19 pandemic has abated.

These government mandates have forced many of our customers to seek government support in order to continue operating, to drastically curtail their dining options, to temporarily suspend operations or to cease operations entirely.

In December 2020, two vaccines for COVID-19 were approved by the United States Food and Drug Administration and, as of the date hereof, a limited number of doses have been made available in the United States to certain frontline workers and at-risk individuals.

However, it remains unclear when either of these vaccines or others will be widely available to the general American public.

As a result, it remains unclear when and to what extent the COVID-19 pandemic will fully abate.

Due to the impact that the COVID-19 pandemic had on our customers, particularly our restaurant and hospitality customers, and to reflect the increased collection risk associated with our customers, we significantly increased our allowance for doubtful accounts during fiscal year 2020.

A summary of the activity in the allowance for doubtful accounts for the last three fiscal years is as follows:

2020 2019 2018

Balance as of beginning of year $ 30 $ 29 $ 26

Charged to costs and expenses

Adoption of ASU 2016-13 (see Note 3) 1 — —

Customer accounts written off—net of recoveries

( 27 ) ( 20 ) ( 14 )

Balance as of end of year $ 67 $ 30 $ 29

This table excludes the vendor receivable related allowance for doubtful accounts of $ 4 million as of December 28, 2019 and $ 3 million as of both December 29, 2018 and December 30, 2017 .

ACCOUNTS RECEIVABLE FINANCING PROGRAM

Under its 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 all of its rights, title and interest in the eligible receivables to the administrative agent, for the benefit of the lenders.

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 December 28, 2019 and December 29, 2018 was approximately $ 1.0 billion of eligible receivables held as collateral in support of the ABS Facility.

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

This table excludes the vendor receivable related allowance for doubtful accounts of $ 5 million, $ 4 million, and $ 3 million as of January 2, 2021, December 28, 2019 and December 29, 2018, 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 Sheets.

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

The Company classifies its 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 as the Company continues to actively market the facilities at reasonable prices.

During fiscal year 2019 , two closed distribution facilities and an excess parcel of land were sold for aggregate proceeds of $ 6 million , which approximated their aggregate carrying values.

During fiscal year 2018 , the Company closed a distribution facility and transferred its business activities to another of the Company's distribution facilities.

Additionally, an excess portion of a parcel of land, purchased earlier in fiscal year 2018 , was transferred to assets held for sale, along with an operating facility that was closed due to the consolidation of operations into a recently acquired facility.

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 as the Company continues to actively market the assets.

During fiscal year 2020, vacant land previously held for future use and two excess facilities were transferred to assets held for sale.

The Company sold the vacant land for cash proceeds 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.

The Company also sold the two excess facilities for aggregate cash proceeds of $ 10 million, which approximated their aggregate carrying values.

During fiscal year 2019, we sold two closed distribution facilities and an excess parcel of land for aggregate cash proceeds of $ 6 million, which approximated their aggregate carrying values.

The changes in assets held for sale for fiscal years 2020 and 2019 were as follows:

Balance as of beginning of year $ 1 $ 7

Tangible asset impairment charges

Transfers in 24 —

Assets sold ( 24 ) ( 6 )

Balance as of end of the year $ 1 $ 1

PROPERTY AND EQUIPMENT

Property and equipment as of December 28, 2019 and December 29, 2018 consisted of the following:

December 28, 2019

December 29, 2018

Buildings and building improvements

Transportation equipment

Warehouse equipment

Office equipment, furniture and software

Property and equipment as of January 2, 2021 and December 28, 2019 consisted of the following:

January 2, 2021 December 28, 2019 Range of

Land $ 365 $ 378

Buildings and building improvements 1,471 1,411 10–40 years

Transportation equipment 1,181 1,137 5–10 years

Warehouse equipment 501 481 5–12 years

Office equipment, furniture and software 961 867 3–7 years

Construction in process 108 99

1 unchanged sentence

Property and equipment—net $ 2,021 $ 2,075

Transportation equipment included $ 572 million and $ 544 million of financing lease assets as of December 28, 2019 and December 29, 2018 , respectively.

Buildings and building improvements included $ 30 million and $ 36 million of financing lease assets as of December 28, 2019 and December 29, 2018 , respectively.

Accumulated amortization of financing lease assets was $ 269 million and $ 247 million as of December 28, 2019 and December 29, 2018 , respectively.

Interest capitalized was $ 2 million for fiscal years 2019 and 2018 .

Transportation equipment included $ 530 million and $ 572 million of financing lease assets as of January 2, 2021 and December 28, 2019, respectively.

Buildings and building improvements included $ 30 million of financing lease assets as of both January 2, 2021 and December 28, 2019.

Accumulated amortization of financing lease assets was $ 244 million and $ 269 million as of January 2, 2021 and December 28, 2019, respectively.

Interest capitalized was not material in both fiscal years 2020 and 2019.

Depreciation and amortization expense of property and equipment, including amortization of financing lease assets, was $ 343 million, $ 311 million and $ 300 million for fiscal years 2020, 2019 and 2018, respectively.

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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, 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 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 ).

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 $ 79 million, $ 51 million and $ 40 million for fiscal years 2020, 2019 and 2018, respectively.

The weighted-average remaining useful life of all customer relationship intangibles was approximately 8 years as of December 28, 2019 .

Amortization of these customer relationship assets is estimated to be $ 68 million for fiscal year 2020 , $ 51 million fiscal year 2021 , $ 44 million for each of fiscal years 2022 , 2023 and 2024, and $ 423 million in the aggregate thereafter.

Goodwill and other intangibles consisted of the following:

December 28, 2019

December 29, 2018

The weighted-average remaining useful life of all definite lived intangibles was approximately twelve years as of January 2, 2021.

Amortization of these definite lived intangible assets is estimated to be $ 55 million for fiscal year 2021, $ 44 million for each of fiscal years 2022, 2023, 2024 and 2025, and $ 380 million in the aggregate thereafter.

Goodwill and other intangibles—net consisted of the following:

January 2, 2021 December 28, 2019

Goodwill $ 5,637 $ 4,728

Other intangibles—net

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Accumulated amortization

( 119 ) ( 115 )

Net carrying value

Trade names—amortizable:

Gross carrying amount

Accumulated amortization

Net carrying value

Noncompete agreements—amortizable:

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Total other intangibles—net

The increase in goodwill and other intangible assets as of December 28, 2019 is attributable to the Food Group acquisition, as described in Note 5, Business Acquisitions.

The increase in goodwill and the amortizable trade name as of January 2, 2021 is primarily attributable to the Smart Foodservice acquisition, as described in Note 5, Business Acquisitions.

The net decrease in the gross carrying amount of customer relationships as of January 2, 2021 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 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.

For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 26, Business Information.

The Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value.

In performing the qualitative assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affect the fair value of its goodwill.

These factors include external factors such as market conditions, macroeconomic, and industry, as well as entity-specific factors, such as actual and planned financial performance.

Based upon the Company’s qualitative fiscal year 2019 annual goodwill impairment analysis, the Company concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment.

Our assessment for impairment of goodwill utilized a discounted cash flow analysis to determine the fair value of the reporting unit for comparison to the corresponding carrying value.

Based upon the Company’s fiscal year 2020 annual goodwill impairment analysis, the Company concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment.

The Company’s fair value estimates of the brand names and trademarks indefinite-lived intangible assets are based on a relief from royalty method.

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If the carrying value of these assets exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

Based upon the Company’s fiscal year 2019 annual impairment analysis, the Company concluded the fair value of its brand names and trademarks exceeded its carrying value.

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 impairment charges of $ 9 million related to two trade names acquired as part of the Food Group acquisition, which was included in restructuring costs and asset impairment charges in the Company's Consolidated Statement of Comprehensive Income.

Key assumptions used in the relief from royalty method included the 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.

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

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The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability.

As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

As a basis for considering market participant assumptions in fair value measurements,

fair value accounting standards establish a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

• Level 1—observable inputs, such as quoted prices in active markets

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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 December 28, 2019 and December 29, 2018 , aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

December 28, 2019

The Company’s assets and liabilities measured at fair value on a recurring basis as of January 2, 2021 and December 28, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

January 2, 2021

Level 1 Level 2 Level 3 Total

Money market funds

$ 696 $ — $ — $ 696

Interest rate swaps

$ — $ 5 $ — $ 5

December 28, 2019

Money market funds

Level 1 Level 2 Level 3 Total

Interest rate swaps

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

$ — $ 1 $ — $ 1

There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis, except as further disclosed in Note 11, Goodwill and Other Intangibles.

Recurring Fair Value Measurements

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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

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The $ 1 million gain from the termination of the interest rate swap agreement was reflected in accumulated other comprehensive loss and will be amortized to interest expense through July 31, 2021, the remaining term of the original interest rate swap agreement.

After giving effect to the termination of the interest rate swap agreement, the remaining interest rate swap agreements collectively have a notional value of $ 733 million , reducing to $ 550 million on July 31, 2020.

After giving effect to the termination of the interest rate swap agreement, the remaining interest rate swap agreements 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).

1 unchanged sentence

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 t he balance sheet location and fair value of the interest rate swaps as of December 28, 2019 and December 29, 2018 :

Balance Sheet Location

December 28, 2019

December 29, 2018

The following table presents t he balance sheet location and fair value of the interest rate swaps as of January 2, 2021 and December 28, 2019 :

Balance Sheet Location January 2, 2021 December 28, 2019

Derivatives designated as hedging instruments

Interest rate swaps

Other current assets

Interest rate swaps

Other noncurrent assets

Accrued expenses and

other current liabilities $ 5 $ —

Interest rate swaps

Other long-term liabilities — 1

Total liabilities $ 5 $ 1

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 for the fiscal years ended December 28, 2019 , December 29, 2018 , and December 30, 2017:

Derivatives in Cash Flow Hedging Relationships

Amount of (Loss) Gain Recognized in Accumulated

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2021, December 28, 2019 , and December 29, 2018:

Derivatives in Cash Flow Hedging Relationships Amount of (Loss) Gain Recognized in Accumulated

Other Comprehensive Loss, net of tax

Location of Amounts Reclassified from Accumulated Other Comprehensive Loss

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

For the fiscal year ended December 28, 2019

Location of Amounts Reclassified from Accumulated Other Comprehensive Loss Amount of (Gain) Loss Reclassified from Accumulated Other Comprehensive Loss to Income,

For the fiscal year ended January 2, 2021

Interest rate swaps

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$ 7 Interest expense—net $ ( 2 )

During the next twelve months, the Company estimates that a de minimis amount will be reclassified from accumulated other comprehensive loss to income.

During the next twelve months, the Company estimates that $ 5 million will be reclassified from accumulated other comprehensive loss to income.

Other Fair Value Measurements

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 its carrying value of $ 4.7 billion and $ 3.5 billion as of December 28, 2019 and December 29, 2018 , respectively.

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Senior Notes”) was $ 0.6 billion as of both December 28, 2019 and December 29, 2018 , based upon the closing market prices of the Senior Notes on both dates, and is classified under Level 2 of the fair value hierarchy.

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

The fair value of the Company’s total debt approximated $ 5.8 billion, compared to its carrying value of $ 5.7 billion as of January 2, 2021.

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 % senior secured notes due April 15, 2025 (the “Secured Notes”) was $ 1.1 billion as of January 2, 2021.

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”) was $ 0.6 billion as of both January 2, 2021 and December 28, 2019, based upon the closing market prices of both the Secured Notes and the Unsecured Senior Notes on both dates.

The fair value of the Secured Notes and the Unsecured Senior Notes 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.

Total debt consisted of the following:

Debt Description

Interest Rate as of December 28, 2019

December 28, 2019

December 29, 2018

September 21, 2022

Initial Term Loan Facility (net of $4 and $6

of unamortized deferred financing costs,

respectively)

Debt Description Maturity Interest Rate as of January 2, 2021 Carrying Value as of January 2, 2021 Carrying Value as of December 28, 2019

ABL Facility May 31, 2024 — $ — $ —

ABS Facility (1)

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

deferred financing costs, respectively)

June 27, 2023 1.90 % 2,098 2,125

2019 Incremental Term Loan Facility (net of $30 and $35

of unamortized deferred financing costs, respectively) September 13, 2026 2.15 % 1,451 1,465

2020 Incremental Term Loan Facility (net of $11 of

unamortized deferred financing costs)

September 13, 2026

Senior Notes (net of $4 and $5

of unamortized deferred financing costs,

respectively)

unamortized deferred financing costs) April 24, 2025 4.25 % 284 —

Senior Secured Notes (net of $13 of unamortized

deferred financing costs)

April 15, 2025 6.25 % 987 —

Unsecured Senior Notes due 2024 (net of $3 and $4 of

unamortized deferred financing costs, respectively)

June 15, 2024 5.88 % 597 596

Obligations under financing leases 2021–2030 1.63% - 6.17% 323 352

2.00% - 6.17%

5.75% - 9.00%

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

Total debt 5,748 4,736

Current portion of long-term debt

( 131 ) ( 142 )

Long-term debt $ 5,617 $ 4,594

Consists of outstanding borrowings under our former asset based senior secured revolving credit facility, which was refinanced with a new facility in May 2019 (as described below).

Consists of outstanding borrowings under the ABS Facility prior to a September 2019 amendment to, among other things, lower the interest rate margin on borrowings under the facility (as described below).

Consists of outstanding borrowings under the Initial Term Loan Facility prior to a November 2019 amendment to, among other things, lower the interest rate margins on borrowings under the facility (as described below).

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

As of December 28, 2019 , after considering interest rate swaps that fixed the interest rate on $ 733 million of principal of the Initial Term Loan Facility described below, approximately 65 % of the Company’s total debt was at a floating rate.

Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of December 28, 2019 , were as follows:

ABL Facility— On May 31, 2019, USF completed a refinancing of its asset based senior secured revolving credit facility with a new asset based senior secured revolving credit facility (the “ABL Facility”).

The ABL Facility provides USF with loan commitments having a maximum aggregate principal amount of $ 1.6 billion .

The ABL Facility includes subfacilities for the issuance of up to $ 800 million of letters of credit and up to $ 170 million of swing line loans.

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

Borrowings under the ABL Facility bear interest at a rate equal to, at USF's option, either the sum of an alternative base rate, as described under the ABL Facility, plus a margin ranging from 0.00 % to 0.50 % , or the sum of a London Interbank Offered Rate (“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 December 28, 2019 was 0.00 % for alternative base rate 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.

The weighted-average interest rate on outstanding borrowings for the ABL Facility and our former asset based senior secured revolving credit facility was 2.63 % and 5.12 % for fiscal years 2019 and 2018 , respectively.

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 with a maturity date on or prior to the ABL Facility’s maturity date under the Initial Term Loan Facility and Incremental Term Loan Facility or the Senior Notes remains outstanding on a date that is 60 days prior to the maturity date for the Initial Term Loan Facility, the Incremental Term Loan Facility or the Senior Notes, respectively.

The Company incurred $ 4 million of lender fees and third party costs in connection with the refinancing of the asset based senior secured revolving credit facility on May 31, 2019, which were capitalized as deferred financing costs.

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

As of January 2, 2021, 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.

Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of January 2, 2021, were as follows:

Thereafter 1,441

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, inventory, transportation equipment and certain unrestricted cash and cash equivalents, which, along with other assets, also serve as collateral for borrowings under the ABL Facility.

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 increased 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 USF’s Initial Term Loan Facility or 2019 Incremental Term Loan Facility (each, as further described below) on a date that is sixty (60) days prior to the maturity date for borrowings under the Initial Term Loan Facility or the 2019 Incremental Term Loan Facility, as applicable.

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 a 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 January 2, 2021 was 0.00 % for ABR loans and 1.00 % for LIBOR loans.

The ABL Facility also carries letter of credit financing fees equal to 0.125 % per annum in respect of each letter of credit outstanding, letter of credit participation fees equal to a percentage per annum equal to the applicable LIBOR margin minus the letter of credit facing fees in respect of each letter of credit outstanding and a commitment fee of 0.25 % per annum on the average unused amount of the commitments under the ABL Facility.

The weighted-average interest rate on outstanding borrowings for the ABL Facility and

our former asset based senior secured revolving credit facility was 1.95 % and 2.63 % for fiscal years 2020 and 2019, respectively.

The Company 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 no outstanding borrowings, and had issued letters of credit totaling $ 314 million , under the ABL Facility as of December 28, 2019 .

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) $ 64 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 $ 1,227 million under the ABL Facility as of December 28, 2019 .

ABS Facility— On September 20, 2019, the ABS Facility was amended to, among other things, lower the interest rate margin on borrowings under the facility.

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

USF had $ 190 million of outstanding borrowings under the ABS Facility as of December 28, 2019 .

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

There was available capacity of $ 552 million under the ABS Facility as of December 28, 2019 .

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.

The weighted-average interest rate on outstanding borrowings for the ABS Facility was 3.23 % and 3.00 % for fiscal years 2019 and 2018 , respectively.

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

The Company incurred $ 1 million of lender fees and third party costs in connection with the amendment of the ABS Facility on September 20, 2019, which were capitalized as deferred financing costs and will be amortized through September 21, 2022, the ABS Facility maturity date.

USF had no outstanding borrowings, and had issued letters of credit totaling $ 281 million, under the ABL Facility as of January 2, 2021.

The outstanding letters of credit primarily relate to securing USF's obligations with respect to its insurance program and certain real estate leases.

There was available capacity of $ 1,584 million under the ABL Facility as of January 2, 2021.

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 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

The Term Loan Credit Agreement, dated as of May 11, 2011 (as amended, the “Term Loan Credit Agreement’), provides USF with a senior secured term loan (the "Initial Term Loan Facility"), an incremental senior secured term loan issued in September 2019 (the “Incremental Term Loan Facility”) and the right to request incremental senior secured term loan commitments.

The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”), provides USF with a senior secured term loan (the “Initial Term Loan Facility”), an incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”), an incremental senior secured term loan borrowed in April 2020 (the “2020 Incremental Term Loan Facility”) and the right to request additional incremental senior secured term loan commitments.

Initial Term Loan Facility

On November 26, 2019, the Initial Term Loan Facility was amended to, among other things, lower the interest rate margins on outstanding borrowings under the facility.

The Initial Term Loan Facility had an outstanding balance of $ 2.1 billion as of December 28, 2019 .

Borrowings under the Initial Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either (1) LIBOR plus a margin of 1.75 % or (2) an alternative base rate plus a margin of 0.75 % .

The table above reflects the December 28, 2019 interest rate on the unhedged portion of the Initial Term Loan Facility.

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate swap agreements was 3.45 % as of December 28, 2019 .

The Initial Term Loan Facility had an outstanding balance of $ 2.1 billion, net of $ 3 million of unamortized deferred financing costs, as of January 2, 2021.

Borrowings under the Initial Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either (1) LIBOR plus a margin of 1.75 % or (2) an ABR plus a margin of 0.75 %.

The table above reflects the January 2, 2021 interest rate on the unhedged portion of the Initial Term Loan Facility.

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate swap agreements was 3.45 % as of January 2, 2021.

The Initial Term Loan Facility was amended on November 26, 2019 to lower the interest rate margins on outstanding borrowings, among other things.

In connection with the November 2019 amendment of the Initial Term Loan Facility, the Company applied modification accounting to the majority of the continuing lenders as the terms of the facility were not substantially different from the terms that applied to those lenders prior to the amendment.

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The Company recorded a debt extinguishment loss of $ 2 million in interest expense, consisting primarily of a write-off of unamortized deferred financing costs related to the amendment.

Unamortized deferred financing costs of $ 4 million were carried forward and will be amortized through June 27, 2023, the maturity date of the Initial Term Loan Facility.

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

Borrowings under the Initial Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings and a 1.00 % premium in the case of any “repricing transaction” that occurs prior to May 26, 2020.

Borrowings under the Initial Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings.

The Initial Term Loan Facility may require mandatory repayments if certain assets are sold.

2019 Incremental Term Loan Facility

On September 13, 2019, USF entered into a new incremental term loan in an aggregate principal amount of $ 1.5 billion under the Term Loan Credit Agreement (the “Incremental Term Loan Facility”) to finance a portion of the purchase price for its acquisition of the Food Group.

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, as described under the Incremental Term Loan Facility, plus a margin of 1.00 % .

The 2019 Incremental Term Loan Facility entered into to finance a portion of the Food Group acquisition, had an outstanding balance of $ 1,451 million, net of $ 30 million of unamortized deferred financing costs, as of January 2, 2021.

Borrowings under the 2019 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 ABR, as described under the 2019 Incremental Term Loan Facility, plus a margin of 1.00 % (subject to a LIBOR “floor” of 0.00 %).

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

Similar to the Initial Term Loan, borrowings under the Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings and a 1.00 % premium in the case of any “repricing transaction” that occurs prior to March 13, 2020.

Similar to the borrowings under the Initial Term Loan Facility, borrowings under the 2019 Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings.

The 2019 Incremental Term Loan Facility may require mandatory repayments if certain assets are sold.

Senior Notes— The Senior Notes due 2024, had a carrying value of $ 596 million , net of $ 4 million of unamortized deferred financing costs, as of December 28, 2019 .

The Senior Notes bear interest at 5.875 % .

As of June 15, 2019, this debt is redeemable, at USF’s option, in whole or in part at a price of 102.938 % of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date.

On June 15, 2020 and June 15, 2021, the optional redemption price for the debt declines to 101.469 % and 100.0 % , respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

Financing Leases— Obligations under financing leases of $ 352 million as of December 28, 2019 consist primarily of amounts due for transportation equipment and building leases.

2020 Incremental Term Loan Facility

On April 24, 2020, USF entered into a new incremental term loan in an aggregate principal amount of $ 700 million under the Term Loan Credit Agreement (the “2020 Incremental Term Loan Facility”) to finance a portion of the purchase price for its acquisition of Smart Foodservice.

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 of $ 13 million associated with the remaining $ 300 million in principal amount of the 2020 Incremental Term Loan Facility were capitalized as deferred financing costs.

The 2020 Incremental Term Loan Facility had an outstanding balance of $ 284 million, net of $ 11 million of unamortized deferred financing costs, as of January 2, 2021.

On February 4, 2021, we repaid all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility, as further discussed in Note 27, Subsequent Events.

Prior to the repayment, borrowings under the 2020 Incremental Term Loan Facility bore 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 ABR plus a margin of 2.25 %.

Senior Secured Notes

On April 28, 2020, USF completed a private offering of $ 1.0 billion aggregate principal amount of Secured Notes.

USF used the net proceeds of the Secured Notes to repay $ 400 million of borrowings under 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 $ 987 million, net of $ 13 million of unamortized deferred financing costs, as of January 2, 2021.

The Secured Notes bear interest at a rate of 6.25 % per annum and will mature on 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 103.125 % 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 101.563 % and 100.000 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

Unsecured Senior Notes due 2024

The Unsecured Senior Notes due 2024, had a carrying value of $ 597 million, net of $ 3 million of unamortized deferred financing costs, as of January 2, 2021.

As of June 15, 2020, this debt was redeemable, at USF’s option, in whole or in part at a price of 101.469 % of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date.

On February 4, 2021, we redeemed all of the then outstanding Unsecured Senior Notes due 2024, as further discussed in Note 27, Subsequent Events.

Prior to the redemption, the Unsecured Senior Notes bore interest at a rate of 5.875 % per annum.

Financing Leases— Obligations under financing leases of $ 323 million as of January 2, 2021 consist primarily of amounts due for transportation equipment and building leases.

Security Interests

Substantially all of the Company’s assets are pledged under the various agreements governing our indebtedness.

Debt under the ABS Facility is secured by certain designated receivables and, in certain circumstances, by restricted cash.

The ABL Facility is secured by certain designated receivables not pledged under the ABS Facility, as well as inventory and certain owned transportation equipment and certain unrestricted cash and cash equivalents.

Additionally, the lenders under the ABL Facility have a second priority interest in all of the capital stock of USF and its subsidiaries and substantially all other non-real estate assets of USF and its subsidiaries not pledged under the ABS Facility.

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

Additionally, the lenders under the Initial Term Loan Facility and the Incremental Term Loan Facility have a second priority interest in the inventory and certain transportation equipment pledged under the ABL Facility.

The ABL Facility is secured by certain designated receivables, as well as inventory and certain owned transportation equipment and certain unrestricted cash and cash equivalents.

USF’s obligations under the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility are secured by all the capital stock of USF and its subsidiaries and substantially all the non-real estate assets of USF.

Additionally, the lenders under the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility have a second priority interest in the inventory and certain transportation equipment pledged under the ABL Facility.

USF’s interest rate swap obligations are secured by the collateral securing the ABL Facility.

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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 approximately $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.4 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of December 28, 2019 .

USF had approximately $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of January 2, 2021.

The agreements governing our indebtedness also contain customary events of default.

Those include, without limitation, the failure to pay interest or principal when it is due under the agreements, cross default provisions, the failure of representations and warranties contained in the agreements to be true when made, and certain insolvency events.

If an event of default occurs and remains uncured,

the principal amounts outstanding, together with all accrued unpaid interest and other amounts owed, may be declared immediately due and payable.

If an event of default occurs and remains uncured, the principal amounts outstanding, together with all accrued unpaid interest and other amounts owed, may be declared immediately due and payable.

Were such an event to occur, the Company would be forced to seek new financing that may not be on as favorable terms as its existing debt.

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Accrued expenses and other long-term liabilities consisted of the following:

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Accrued expenses and other current liabilities:

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This table summarizes self-insurance liability activity for the last three fiscal years:

2020 2019 2018

Balance as of beginning of the year $ 165 $ 159 $ 170

Charged to costs and expenses 83 80 56

Acquisition 3 17 —

Reinsurance recoverable 2 — 7

Payments ( 78 ) ( 91 ) ( 74 )

Balance as of end of the year $ 175 $ 165 $ 159

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Estimated future payments for self-insured liabilities are as follows:

Thereafter 59

Total self-insured liability 176

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Present value of self-insured liability $ 175

RESTRUCTURING LIABILITIES

The following table summarizes the changes in the restructuring liabilities for the last three fiscal years:

Severance and Related Costs Facility Closing Costs Total

Balance at December 30, 2017 $ 4 $ 1 $ 5

Current period costs 1 — 1

Payments, net ( 4 ) — ( 4 )

Balance as of December 29, 2018 1 1 2

Current period costs — — —

Payments, net — ( 1 ) ( 1 )

Balance at December 28, 2019 1 $ — $ 1

Current period costs 27 3 30

Payments, net ( 27 ) ( 2 ) ( 29 )

Balance as of January 2, 2021 $ 1 $ 1 $ 2

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.

2020 Activities

During fiscal year 2020, in order to adjust its cost structure in line with the decrease in Net sales caused by the impact of the COVID-19 pandemic on the operations of our restaurant, hospitality and education customers, the Company reduced its work force, and separately closed two facilities, incurring net restructuring costs of $ 30 million.

See Note 11, Goodwill and Other Intangibles, for discussion related to asset impairment charges incurred during fiscal year 2020.

2019 and 2018 Activities

During fiscal years 2019 and 2018, the Company incurred de minimis restructuring costs.

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, September 30, 2020, and December 31, 2020, the Company paid a dividend (the “Dividend”) on the shares of the Series A Preferred Stock in the form of 5,288 ;

8,842 and 8,997 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.

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 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:

(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 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 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.

The following table summarizes the activity for the outstanding Series A Preferred Stock and associated carrying value for fiscal year 2020:

Series A Preferred Stock

Shares Carrying Value

Balance, December 28, 2019 — $ —

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

Shares issued as paid in kind dividend - Series A Preferred Stock 23,127 28

Balance, January 2, 2021 523,127 $ 519

RELATED PARTY TRANSACTIONS

During fiscal year 2017, the Company completed four secondary offerings of its common stock held primarily by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC (“CD&R”) and Kohlberg Kravis Roberts & Co., L.P.

(“KKR” and, together with CD&R, the “Former Sponsors”).

Following the completion of the final offering in December 2017, the Former Sponsors no longer held any shares of the Company’s common stock.

The Company did not receive any proceeds from the offerings.

The December 2017 offering also included the Company’s repurchase of 10,000,000 shares of common stock from the underwriter at $ 28.00 per share, which was the price the underwriter purchased the shares from the Former Sponsors in the offering.

The $ 280 million paid for the share repurchase reduced additional paid-in capital $ 96 million , with the remaining $ 184 million recognized in retained earnings as a constructive dividend.

The closing of the Company’s share repurchase occurred substantially concurrently with the closing of the offering, and the repurchased shares were retired.

In accordance with terms of the prior registration rights agreement with the Former Sponsors, the Company incurred approximately $ 4 million of expenses in connection with the offerings in fiscal year 2017.

There were no related party transactions in fiscal years 2019 and 2018.

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received $ 6 million for debt advisory services rendered in connection with the financing of the Smart Foodservice acquisition during fiscal year 2020.

As reported by the administrative agent of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility (the “Term Loan Agent”), investment funds managed by an affiliate of KKR held approximately $ 65 million in aggregate principal amount of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility as of January 2, 2021.

SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK

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Total compensation expense related to share-based arrangements was $ 40 million, $ 32 million and $ 28 million for fiscal years 2020, 2019 and 2018, respectively, and is reflected in distribution, selling and administrative costs in the Company's Consolidated Statements of Comprehensive Income.

The total income tax benefit associated with share-based compensation recorded in the Company's Consolidated Statement of Comprehensive Income was $ 8 million , $ 6 million and $ 7 million for fiscal years 2019 , 2018 and 2017 , respectively.

The total income tax benefit associated with share-based compensation recorded in the Company's Consolidated Statements of Comprehensive Income was $ 8 million, $ 8 million and $ 6 million for fiscal years 2020, 2019 and 2018, respectively.

In addition, the Company sponsors an employee stock purchase plan to provide eligible employees with the opportunity to acquire shares of our common stock at a discount of 15 % of the fair market value of the common stock on the date of purchase, and as such, the plan is considered compensatory for federal income tax purposes.

The Company recorded $ 3 million, $ 4 million and $ 3 million of share-based compensation expense for fiscal years 2020, 2019 and 2018, respectively, associated with the employee stock purchase plan.

Stock Options —Certain directors, officers and other eligible employees have been granted time-based stock options (the “Time-Based Options”) and performance-based options (the “Performance Options” and, together with the Time-Based Options, the “Options”) to purchase shares of our common stock.

The Time-Based Options generally vest and become exercisable ratably over periods of three to four years, from the date of the grant.

Stock Options —Certain directors, executive officers and other eligible employees have been granted time-based stock options (the “Time-Based Options”) and performance-based options (the “Performance Options” and, together with the Time-Based Options, the “Options”) to purchase shares of our common stock.

The Time-Based Options generally vest and become exercisable ratably over a period of three to four years, from the date of the grant.

Share-based compensation expense related to the Time-Based Options was $ 10 million, $ 8 million and $ 7 million for fiscal years 2020, 2019 and 2018, respectively.

The Performance Options generally vest and become exercisable ratably over four years, from the date of the grant, provided that the Company achieves a predetermined financial performance goal established by the Compensation Committee of our Board of Directors (the “Committee”) for the respective award tranche.

The Company recorded share-based compensation expense of $ 1 million and $ 3 million for fiscal years 2018 and 2017 , respectively, related to the expected vesting of the Performance Options.

No share-based compensation expense attributable to Performance Options was recorded for fiscal year 2019 as the final tranche of those awards was not expected to vest since the performance goal was not met.

The Performance Options generally vest and become exercisable ratably over a period of four years, from the date of the grant, provided that the Company achieves a predetermined financial performance condition established by the Compensation Committee of our Board of Directors for the respective award tranche.

The Company recorded share-based compensation expense of $ 1 million for fiscal year 2018 related to the expected vesting of the Performance Options.

No share-based compensation expense attributable to Performance Options was recorded in fiscal years 2019 and 2020 as a result of the performance conditions for fiscal years 2018 and 2019, respectively, not expected to be met and the Performance Options related to these performance periods were subsequently forfeited.

The Options are nonqualified, with exercise prices equal to the estimated fair value of a share of common stock as of the date of the grant.

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The weighted-average assumptions for Options granted in fiscal years 2020, 2019 and 2018 are included in the following table:

2020 2019 2018

Expected volatility 29.3 % 23.7 % 35.7 %

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The summary of Options outstanding and changes during fiscal year 2020 are presented below:

Average Fair Value

Average Exercise Price

Options Performance

Options Total

Options Weighted-

Average Fair Value Weighted-

Average Exercise Price Weighted-

Average Remaining Contractual Years

Outstanding as of December 28, 2019 2,770,850 751,452 3,522,302 $ 10.03 $ 26.62

Performance adjustment (1)

Outstanding as of December 28, 2019

Vested and exercisable as of December 28, 2019

Represents an adjustment to the 2018 tranche of the 2016 Performance Option awards based on actual performance during the 2018 annual performance period.

The actual performance for the 2018 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of fiscal year 2019.

2,620,253 — 2,620,253 $ 3.91 $ 13.29

( 122,081 ) ( 70,797 ) ( 192,878 ) $ 6.87 $ 16.19

( 142,114 ) ( 13,067 ) ( 155,181 ) $ 7.91 $ 24.01

Performance-based Forfeitures (1)

— ( 308,759 ) ( 308,759 ) $ 17.65 $ 19.47

Outstanding as of January 2, 2021 5,126,908 358,829 5,485,737 $ 6.85 $ 21.10 7.7

Vested and exercisable as of January 2, 2021 1,826,067 358,829 2,184,896 $ 9.09 $ 25.83 5.8

(1) Represents the forfeiture of unvested Performance Options due to performance conditions not being met based on performance in fiscal years 2018 and 2019.

The weighted-average grant date fair value of Options granted for fiscal years 2020, 2019 and 2018 was $ 3.91 , $ 10.63 and $ 14.55 , respectively.

During fiscal years 2019 , 2018 and 2017 , Options were exercised with total intrinsic values of $ 21 million , $ 28 million and $ 86 million , respectively, representing the excess of fair value over exercise price.

There was $ 11 million of total unrecognized compensation costs related to unvested Options expected to vest as of December 28, 2019 , which is expected to be recognized over a weighted-average period of two years.

Restricted Stock Awards —Certain officers have been granted restricted stock awards (“RSAs”), some of which vest ratably over a three-year period from the date of grant (the “Time-Based RSA”) and others which vest to the extent certain performance conditions are met (the “Performance RSAs”).

The Company recorded share-based compensation expense for the Time-Based RSAs of $ 1 million for fiscal year 2019.

No Time-Based RSAs had been issued for periods prior to fiscal year 2019.

The Performance RSAs were granted assuming the maximum level of performance and vest on the third anniversary of the grant date if specific performance goals over a three-year performance period are achieved.

The number of shares eligible to vest on the vesting date range from zero to 200 % of the target award amount, based on the achievement of the performance goals.

During fiscal years 2020, 2019 and 2018, Options were exercised with total intrinsic values of $ 3 million, $ 21 million and $ 28 million, respectively, representing the excess of fair value over the exercise price.

There was $ 10 million of total unrecognized compensation costs related to unvested Options expected to vest as of January 2, 2021, which is expected to be recognized over a weighted-average period of two years.

Restricted Stock Awards —Certain executive officers have been granted restricted stock awards (“RSAs”), some of which vest ratably over a three-year period from the date of grant (the “Time-Based RSA”) and others of which vest to the extent certain performance conditions are met (the “Performance RSAs”).

The Company recorded share-based compensation expense for the Time-Based RSAs of $ 1 million for both fiscal years 2020 and 2019.

The Performance RSAs were granted assuming the maximum level of performance and vest on the third anniversary of the grant date if specific performance conditions over a three-year performance period are achieved.

The number of shares eligible to vest on the vesting date range from zero to 200 % of the target award amount, based on the achievement of the performance conditions.

The fair value of the Performance RSAs is measured using the fair market value of our common stock on the date of grant and recognized over the three-year vesting period for the portion of the award that is expected to vest.

Compensation expense for the Performance RSAs is remeasured as of the end of each reporting period, based on management’s evaluation of whether it is probable that performance conditions will be met.

Compensation expense for the Performance RSAs is remeasured as of the end of each reporting period, based on management’s evaluation of whether, and to what extent, it is probable that performance conditions will be met.

Share-based compensation expense for the Performance RSAs was $ 2 million, $ 3 million and $ 2 million for fiscal years 2020, 2019 and 2018, respectively.

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Unvested as of December 28, 2019 116,713 682,249 798,962 $ 33.13

Unvested as of December 28, 2019

Granted — — — $ —

Vested ( 38,902 ) ( 98,415 ) ( 137,317 ) $ 31.57

Performance adjustment (1)

— ( 120,960 ) ( 120,960 ) $ 30.39

Unvested as of January 2, 2021 77,811 462,874 540,685 $ 34.14

(1) Represents an adjustment to the 2017 Performance RSAs based on the actual performance during the three-year performance period.

The weighted-average grant date fair value for the RSAs granted in fiscal years 2019 and 2018 was $ 34.56 and $ 33.56 , respectively.

There was $ 7 million of unrecognized compensation expense related to the RSAs as of December 28, 2019 , that is expected to be recognized over a weighted average period of two years.

Restricted Stock Units —Certain directors, officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”) and performance-based restricted stock units (the “Performance RSUs” and, collectively with the Time-Based RSUs, the “RSUs”).

The Time-Based RSUs generally vest ratably over three to four years, starting on the anniversary date of the grant.

There were no RSAs granted in fiscal year 2020.

There was $ 3 million of unrecognized compensation expense related to the RSAs as of January 2, 2021, that is expected to be recognized over a weighted average period of one year.

Restricted Stock Units —Certain directors, executive officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”) and performance-based restricted stock units (the “Performance RSUs” and, collectively with the Time-Based RSUs, the “RSUs”).

The Time-Based RSUs generally vest ratably over three to four years,

starting on the anniversary date of the grant.

For fiscal years 2020, 2019 and 2018, the Company recognized $ 23 million, $ 14 million and $ 12 million, respectively, in share-based compensation expense related to the Time-Based RSUs.

The Performance RSUs generally vest over a three or four year period, as and to the extent predetermined performance goals are met.

The Performance RSUs generally vest over a three or four year period, as and to the extent predetermined performance conditions are met.

The fair value of each share underlying the Performance RSUs is measured at the fair market value of our common stock on the date of grant and recognized over the vesting period for the portion of the award that is expected to vest.

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A summary of RSUs outstanding and changes during fiscal year 2020 is presented below.

RSUs Performance

RSUs Weighted-

Unvested as of December 28, 2019 927,174 432,001 1,359,175 $ 33.24

2,361,332 — 2,361,332 $ 13.83

( 471,808 ) ( 83,235 ) ( 555,043 ) $ 31.85

( 124,248 ) ( 24,922 ) ( 149,170 ) $ 24.25

Performance adjustment (1)

Unvested as of December 28, 2019

Represents an adjustment to the 2018 tranche of the 2016 Performance Option awards based on actual performance during the 2018 annual performance period.

The actual performance for the 2018 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of fiscal year 2019.

— ( 114,107 ) ( 114,107 ) $ 33.61

Unvested as of January 2, 2021 2,692,450 209,737 2,902,187 $ 18.16

(1) Represents an adjustment to the Performance RSUs based on actual performance during the respective three- or four-year performance period.

The weighted-average grant date fair values for the RSUs granted in fiscal years 2020, 2019, and 2018 was $ 13.83 , $ 35.09 and $ 33.48 , respectively.

As of December 28, 2019 , there was $ 25 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of two years.

As of January 2, 2021, there was $ 30 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of two years.

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.

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

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.

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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 December 28, 2019 :

Consolidated Balance Sheet Location

December 28, 2019

The Company adopted ASU No.

2016-02, Leases (Topic 842) , on December 30, 2018, using the modified retrospective approach.

The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheets:

Leases Consolidated Balance Sheet Location January 2, 2021 December 28, 2019

Other assets $ 284 $ 145

Property and equipment-net (1)

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Total lease liabilities

Financing lease assets are recorded net of accumulated amortization of $ 269 million as of December 28, 2019 .

The following table presents the location of lease costs in fiscal year 2019 in the Company's Consolidated Statement of Comprehensive Income:

Statement of Comprehensive Income Location

Operating lease cost

Distribution, selling and administrative costs

(1) Financing lease assets are recorded net of accumulated amortization of $ 244 million and $ 269 million as of January 2, 2021 and December 28, 2019.

The following table presents the location of lease costs in fiscal years 2020 and 2019 in the Company's Consolidated Statements of Comprehensive Income:

Lease Cost Statement of Comprehensive Income Location 2020 2019

Operating lease cost Distribution, selling and administrative costs $ 52 $ 29

Financing lease cost:

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Interest expense-net 12 12

Variable lease cost

Distribution, selling and administrative costs

Variable lease cost Distribution, selling and administrative costs 13 6

Net lease cost $ 156 $ 123

Future lease payments under lease agreements as of December 28, 2019 were as follows:

Operating Leases

Financing Lease

Future lease payments under lease agreements as of January 2, 2021 were as follows:

Maturity of Lease Liabilities Operating Leases Financing Lease

Obligation Total

2021 $ 57 $ 94 $ 151

2022 60 73 133

2023 58 68 126

2024 39 51 90

2025 38 32 70

After 2025 175 28 203

Total lease payments 427 346 773

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Present value of lease liabilities $ 307 $ 323 $ 630

Future minimum lease payments in effect as of December 29, 2018 under noncancelable lease arrangements, as determined prior to the adoption of Topic 842, were as follows:

Future Minimum Lease Payments

Financing Leases

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

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

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

Other information related to lease agreements for fiscal year 2019 was as follows:

Other information related to lease agreements for fiscal years 2020 and 2019 was as follows:

Cash Paid For Amounts Included In Measurement of Liabilities 2020 2019

2 unchanged sentences

Financing cash flows from financing leases 102 90

Lease Term and Discount Rate

December 28, 2019

Lease Term and Discount Rate January 2, 2021 December 28, 2019

Weighted-average remaining lease term (years):

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Company Sponsored Defined Benefit Plans —The Company sponsors the US Foods Consolidated Defined Benefit Retirement Plan, a qualified defined benefit retirement plan (the “Retirement Plan”), that pays benefits to certain employees at the time of retirement, using actuarial formulas based upon a participant’s years of credited service and compensation.

During fiscal year 2020, in connection with the Smart Foodservice acquisition, the Company assumed a defined benefit pension plan with net liabilities of approximately $ 19 million.

This defined benefit pension plan was merged into the US Foods Consolidated Defined Benefit Retirement Plan as of December 31, 2020.

The Company also maintains postretirement health and welfare plans for certain employees.

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The components of net periodic pension benefit costs (credits) for the Retirement Plan the last three fiscal years were as follows:

Components of net periodic pension benefit costs (credits):

2020 2019 2018

Components of net periodic pension benefit (credits) costs:

Interest cost

Expected return on plan assets

( 55 ) ( 49 ) ( 52 )

Amortization of net loss

Net periodic pension benefit costs (credits)

Net periodic pension benefit (credits) costs $ ( 19 ) $ 6 $ ( 11 )

Other postretirement benefit costs were de minimis for fiscal years 2020, 2019 and 2018.

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

The Company did not make a significant contribution to the Retirement Plan in fiscal year 2019.

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

The Company did not make a significant contribution to the Retirement Plan in fiscal years 2020 and 2019.

The Company contributed approximately $ 71 million to the Retirement Plan during fiscal year 2018, of which $ 35 million represented an additional, voluntary contribution.

As a result of the incremental voluntary contribution, the Company remeasured its defined benefit pension liability as of May 31, 2018, resulting in a reduction in the benefit obligation of $ 33 million , with a corresponding benefit to accumulated other comprehensive loss.

The remeasurement had an immaterial impact on the annual net periodic benefit costs (credits) for fiscal year 2018.

In the fourth quarter of fiscal year 2019, the Company completed a voluntary lump sum settlement offer to certain terminated plan participants who held vested accrued benefits under a certain threshold amount.

In addition, in the fourth quarter of fiscal year 2019, the Company completed a spin-off of liabilities associated with certain active participants with small accrued benefits and retirees into a separate plan and immediately terminated that plan.

During fiscal year 2019, the Company completed a voluntary lump sum settlement offer to certain terminated plan participants who held vested accrued benefits under a certain threshold amount.

In addition, during fiscal year 2019, the Company completed a spin-off of liabilities associated with certain active participants with small accrued benefits and retirees into a separate plan and immediately terminated that plan.

As a result of the termination of the spin-off of the plan, those participants were able to elect to receive immediate lump sum payouts, with any remaining liabilities transferred to an insurance company through the purchase of an annuity contract.

Pension obligation settlement payments of $ 66 million related to these transactions, consisting of lump sum payments and the annuity contract premium, were paid from plan assets.

The Company incurred non-cash settlement charges of $ 12 million in fiscal year 2019 , including approximately $ 9 million in the fourth quarter when the settlement payments were paid.

The other $ 3 million of settlement charges incurred during fiscal year 2019 relate to ordinary course lump sum payment elections as provided under the continuing plan.

The Company also incurred non-cash settlement charges of $ 18 million in fiscal year 2017 from a voluntary lump sum settlement offer to certain terminated plan participants.

No non-cash settlement charges were incurred in fiscal year 2018 .

Settlement charges are included in other expense (income)—net in the Company's Consolidated Statements of Comprehensive Income.

The Company incurred non-cash settlement costs of $ 12 million in fiscal year 2019.

The fiscal year 2019 settlement costs were included in other (income) expense—net in the Company's Consolidated Statements of Comprehensive Income.

No non-cash settlement costs were incurred in fiscal years 2020 and 2018.

Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for pension benefits for the last three fiscal years were as follows:

2020 2019 2018

Changes recognized in accumulated other comprehensive loss:

Actuarial gain

$ 29 $ 44 $ 6

Amortization of net loss

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Pension Benefits

2020 2019 2018

Change in benefit obligation:

Benefit obligation as of beginning of year

$ 903 $ 871 $ 976

Interest cost

Actuarial loss (gain)

98 100 ( 97 )

Benefit disbursements

( 45 ) ( 23 ) ( 46 )

Smart Foodservice assumed benefit obligations 70 — —

Benefit obligation as of end of year

1,061 903 871

Change in plan assets:

1 unchanged sentence

Return on plan assets

183 193 ( 40 )

Employer contribution

Benefit disbursements

( 45 ) ( 23 ) ( 46 )

Smart Foodservice acquired plan assets 51 — —

Fair value of plan assets as of end of year

1,112 923 836

Net funded status $ 51 $ 20 $ ( 35 )

The net funded status of the Retirement Plan for fiscal year 2020 improved from a net asset of $ 20 million to a net asset of $ 51 million, primarily due to asset returns, partially offset by a decrease in the discount rate and the merger of the Smart Foodservice

pension plan.

The net funded status of the Retirement Plan for fiscal year 2019 improved from a net liability of $ 35 million to a net asset of $ 20 million, primarily due to asset returns and lump sum payments made that released more benefit obligation than assets paid, partially offset by a decrease in the discount rate.

The net funded status of the Retirement Plan for fiscal year 2018 improved from a net liability of $125 million to a net liability of $ 35 million due to an increase in the discount rate, which reduced the value of the benefit obligations, and a $ 71 million contribution by the Company to the Retirement Plan, partially offset by negative asset returns.

The fiscal year 2020 pension benefits actuarial loss of $ 98 million was primarily due to a decrease in the discount rate.

The fiscal year 2018 pension benefits actuarial gain of $ 97 million was primarily due to an increase in the discount rate.

The fiscal year 2019 pension benefits actuarial loss of $ 100 million was primarily due to a decrease in the discount rate.

The fiscal year 2018 pension benefits actuarial gain of $ 97 million was primarily due to an increase in the discount rate.

Other Postretirement Plans

2020 2019 2018

Change in benefit obligation:

1 unchanged sentence

Benefit disbursements

( 1 ) ( 1 ) ( 1 )

Benefit obligation as of end of year

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Benefit disbursements

( 1 ) ( 1 ) ( 1 )

Fair value of plan assets as of end of year

1 unchanged sentence

Service cost, interest cost and actuarial (gain) loss for other postretirement benefits were de minimis for fiscal years 2020, 2019 and 2018.

The amounts recognized on the Company's Consolidated Balance Sheets related to the company-sponsored defined benefit plans and other postretirement benefit plans consisted of the following:

Pension Benefits

2020 2019 2018

Amounts recognized in the consolidated

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Prepaid benefit obligation—noncurrent

$ 53 $ 22 $ —

Accrued benefit obligation—current

Accrued benefit obligation—noncurrent

( 2 ) ( 2 ) ( 35 )

Net amount recognized in the consolidated

balance sheets

$ 51 $ 20 $ ( 35 )

Amounts recognized in accumulated other

comprehensive loss consist of the following:

$ 98 $ 129 $ 190

Net loss recognized in accumulated other

comprehensive loss

$ 98 $ 129 $ 190

Additional information:

Accumulated benefit obligation

$ 1,057 $ 899 $ 869

Other Postretirement Plans

2020 2019 2018

Amounts recognized in the consolidated

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Accrued benefit obligation—current

$ — $ ( 1 ) $ ( 1 )

Accrued benefit obligation—noncurrent

( 6 ) ( 5 ) ( 5 )

Net amount recognized in the consolidated

balance sheets

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

Amounts recognized in accumulated other

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comprehensive loss

Pension Benefits

Amounts expected to be amortized from

accumulated other comprehensive loss in the

next fiscal year:

Amounts expected to be amortized from accumulated other comprehensive loss in the next fiscal year for other postretirement benefits are expected to be de minimis.

Additional information:

Accumulated postretirement benefit obligation

Weighted average assumptions used to determine benefit obligations as of period-end and net pension costs for the last three fiscal years were as follows:

Pension Benefits

2020 2019 2018

Benefit obligation:

Discount rate

2.80 % 3.50 % 4.35 %

Annual compensation increase

2.96 % 3.60 % 3.60 %

Discount rate

3.50 % 4.35 % 3.70 %

Expected return on plan assets

6.00 % 6.00 % 6.00 %

Annual compensation increase

3.60 % 3.60 % 3.60 %

Other Postretirement Plans

2020 2019 2018

Benefit obligation—discount rate 2.80 % 3.50 % 4.35 %

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The assumed healthcare trend rates for the last three fiscal years were as follows:

2020 2019 2018

Immediate rate 5.60 % 5.90 % 6.30 %

1 unchanged sentence

Year the rate reaches the ultimate trend rate 2037 2037 2037

A hypothetical 1% change in the rate would result in a change to the postretirement medical plan obligation of less than $ 1 million .

Retirees covered under these plans are responsible for the cost of coverage in excess of the subsidy, including all future cost increases.

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The rate of return assumption is reviewed annually and revised as deemed appropriate.

The investment objective for the Retirement Plan is to provide a common investment platform.

Investment consultants, overseen by the US Foods, Inc.

Benefits Administration Committee (the "Committee), are expected to adopt and maintain an asset allocation strategy for the plan's assets designed to address the Retirement Plan's liability structure.

The Committee has developed an asset allocation policy and rebalancing policy.

The Committee reviews the major asset classes, through consultation with its investment consultants, periodically to determine if the plan's assets are performing as expected.

The Company’s fiscal year 2019 strategy targeted a mix of 35 % equity securities and 65 % long-term debt securities and cash equivalents.

The actual mix of investments as of December 28, 2019 was 34 % equity securities and 66 % long-term debt securities and cash equivalents.

The Committee plans to manage the actual mix of investments to achieve its target mix.

The US Foods, Inc.

Retirement Investment Committee (the “Committee”) has authority and responsibility to oversee the investment and management of the trust (“the Trust”) which holds the assets of the Retirement Plan and has adopted an Investment Policy to provide a framework for the management of the Trust’s assets, including the objectives and long-term strategy with respect to the investment program of the Trust.

Pursuant to the Investment Policy, the primary goal of investing Trust assets is to ensure that pension liabilities are met over time, and that Trust assets are invested in a manner that maximizes the probability of meeting pension liabilities.

The second goal of investing Trust assets is to maximize long-term investment return consistent with a reasonable level of risk.

Through consultation with its investment consultant, the Committee has developed long-term asset allocation guidelines intended to achieve investment objectives relative to projected liabilities.

Based on those projections, the Committee has approved a dynamic asset allocation strategy that increases the liability-hedging assets of the Trust and decreases the return-seeking assets of the Trust as the funded ratio of the Retirement Plan improves.

Based upon the funded ratio of the Retirement Plan, an asset allocation of 35 % equity securities (U.S.

large cap equities, U.S.

small and mid-cap equities and non-U.S.

equities) and 65 % fixed income securities (U.S.

Treasuries, STRIPs, and investment grade corporate bonds) was targeted during the Company’s fiscal year 2020.

The actual mix of assets in the Trust as of January 2, 2021 consisted of 35 % equity securities and 65 % fixed income securities.

The following table sets forth the fair value of our defined benefit plans’ assets by asset fair value hierarchy level:

Asset Fair Value as of December 28, 2019

Asset Fair Value as of January 2, 2021

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 7 $ — $ — $ 7

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government securities

$ 94 $ 384 $ — 478

Common collective trust funds:

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Asset Fair Value as of December 28, 2019

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 3 $ — $ — $ 3

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government securities

$ 77 $ 294 $ — 371

Common collective trust funds:

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◦ Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) representing zero coupon Treasury securities with long-term maturities.

Estimated future benefit payments, under Company sponsored plans as of December 28, 2019 , were as follows:

Estimated future benefit payments, under Company sponsored plans as of January 2, 2021, were as follows:

Pension Benefits

Other Postretirement Plans

2021 $ 50 $ —

Subsequent five years 247 2

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• If the Company elects to stop participation in a multiemployer pension plan, or if the number of the Company’s employees participating in a plan is reduced to a certain degree over certain periods of time, the Company may be required to pay a withdrawal liability based upon the underfunded status of the plan.

The Company’s participation in multiemployer pension plans for the fiscal year ended December 28, 2019 is outlined in the tables below.

The Company’s participation in multiemployer pension plans for the fiscal year ended January 2, 2021 is outlined in the tables below.

The Company considers significant plans to be those plans to which the Company contributed more than 5 % of total contributions to the plan in a given plan year, or for which the Company believes its estimated withdrawal liability, should it decide to voluntarily withdraw from the plan, may be material to the Company.

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Plans are generally considered “critical and declining” if they are projected to become insolvent within 20 years.

A plan in the yellow zone has been determined to be in endangered status, based on criteria established under the Code, and

is generally less than 80% but more than 65% funded.

A plan in the yellow zone has been determined to be in endangered status, based on criteria established under the Code, and is generally less than 80% but more than 65% funded.

A plan in the green zone has been determined to be neither in critical status nor in endangered status, and is generally at least 80% funded.

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• The Expiration Dates column indicates the expiration dates of the CBAs to which the plans are subject.

Pension Fund EIN/

FIP/RP Status

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Industry Pension Plan

41-6047047/001

41-6047047/001 Green Green N/A No 04/01/21

Teamster Pension Trust Fund of

Philadelphia and Vicinity

23-1511735/001

23-1511735/001 Yellow Yellow Implemented No 2/13/22

Local 703 I.B.

Food Employees’ Pension Plan

36-6491473/001

United Teamsters Trust Fund A

13-5660513/001

36-6491473/001 Green Green N/A No 6/30/21

United Teamsters Trust Fund A 13-5660513/001 Yellow Yellow Implemented No 5/30/22

Warehouse Employees Local

169 and Employers Joint

Pension Fund (1)

23-6230368/001

Local 169 filed a Notice of Critical and Declining Status in 2017.

23-6230368/001 Red Red Implemented No 2/13/22

The following table provides information about the Company’s contributions to its multiemployer pension plans.

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Total Plan Contributions (3)

Minneapolis Food Distributing Industry Pension Plan

Teamster Pension Trust Fund of Philadelphia and Vicinity

2020 2019 2018 2019 2018

Minneapolis Food Distributing Industry Pension Plan $ 5 $ 5 $ 5 Yes Yes

Teamster Pension Trust Fund of Philadelphia and Vicinity 4 4 4 No No

Local 703 I.B.

Grocery and Food Employees’

United Teamsters Trust Fund A

Pension Plan 2 2 2 Yes Yes

United Teamsters Trust Fund A 1 2 2 Yes Yes

Warehouse Employees Local 169 and Employers

Joint Pension Fund

Joint Pension Fund 1 1 1 Yes Yes

Other funds 31 24 21 — —

$ 44 $ 38 $ 35

(1) Contributions made to these plans during the Company’s fiscal year, which may not coincide with the plans’ respective fiscal years.

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If the Company elects to voluntarily withdraw from a multiemployer pension plan, it may be responsible for its proportionate share of the respective plan’s unfunded vested liability.

Based on the latest information available from plan administrators, the Company estimates its aggregate withdrawal liability from the multiemployer pension plans in which it participates to be approximately $ 120 million as of December 28, 2019 .

Actual withdrawal liabilities incurred by the Company, if it were to withdraw from one or

more plans, could be materially different from the estimates noted here, based on better or more timely information from plan administrators or other changes affecting the respective plans' funded status.

Actual withdrawal liabilities incurred by the Company, if it were to withdraw from one or more plans, could be materially different from the estimates noted here, based on better or more timely information from plan administrators or other changes affecting the respective plans' funded status.

EARNINGS PER SHARE

The Company computes earnings per share (“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.

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 fiscal years 2020, 2019 and 2018, share-based awards representi ng 9 million, 2 million and 2 million u nderlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For fiscal year 2020, convertible preferred stock representing 15 million of underlying common shares were 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:

2020 2019 2018

Net (loss) income

$ ( 226 ) $ 385 $ 407

Series A convertible preferred stock dividends 28 — —

Net (loss) income available to common shareholders $ ( 254 ) $ 385 $ 407

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 income per share:

Net (loss) income per share:

$ ( 1.15 ) $ 1.77 $ 1.88

$ ( 1.15 ) $ 1.75 $ 1.87

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in accumulated other comprehensive loss, by component, for the last three fiscal years:

2020 2019 2018

Accumulated other comprehensive loss components

1 unchanged sentence

Balance as of beginning of year (1)

Other comprehensive (loss) income before reclassifications

$ ( 52 ) $ ( 97 ) $ ( 103 )

Other comprehensive income before reclassifications 29 44 6

Reclassification adjustments:

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Income tax provision

Current year comprehensive income (loss), net of tax

Current year comprehensive income, net of tax 23 45 6

Balance as of end of year (1)

$ ( 29 ) $ ( 52 ) $ ( 97 )

Interest rate swaps:

Balance as of beginning of year (1)

$ ( 2 ) $ 13 $ 8

Change in fair value of interest rate swaps ( 11 ) ( 14 ) 10

2 unchanged sentences

Income tax (benefit) provision ( 2 ) ( 5 ) 2

Current year comprehensive income, net of tax

Current year comprehensive (loss) income, net of tax ( 3 ) ( 15 ) 5

Balance as of end of year (1)

$ ( 5 ) $ ( 2 ) $ 13

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

$ ( 34 ) $ ( 54 ) $ ( 84 )

(1) Amounts are presented net of tax.

1 unchanged sentence

See Note 20, Retirement Plans, for additional information.

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

The income tax provision (benefit) for the fiscal years 2019 , 2018 and 2017 consisted of the following:

Current income tax provision

Deferred income tax provision (benefit)

Total income tax provision (benefit)

The Company’s effective income tax rates for the fiscal years ended December 28, 2019 , December 29, 2018 and December 30, 2017 were 25.0 % , 18.0 % and ( 10.0 )% , respectively.

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

The income tax (benefit) provision for the fiscal years 2020, 2019 and 2018 consisted of the following:

2020 2019 2018

$ ( 20 ) $ 102 $ 32

Current income tax (benefit) provision

( 17 ) 119 44

( 39 ) ( 6 ) 31

Deferred income tax (benefit) provision

Total income tax (benefit) provision $ ( 68 ) $ 126 $ 89

The Company’s effective income tax rates for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 were 23.0 %, 25.0 % and 18.0 %, respectively.

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

2 unchanged sentences

Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective income tax rate in the future.

The reconciliation of the provision (benefit) for income taxes from continuing operations at the U.S.

federal statutory income tax rate ( 21 % in both 2019 and 2018, and 35 % in 2017) to the Company’s income tax provision (benefit) for the fiscal years 2019 , 2018 and 2017 is shown below:

The reconciliation of the provision (benefit) for income taxes at the U.S.

federal statutory income tax rate of 21 % to the Company’s income tax provision (benefit) for the fiscal years 2020, 2019 and 2018 is shown below:

2020 2019 2018

Federal income taxes computed at statutory rate $ ( 62 ) $ 107 $ 104

1 unchanged sentence

Stock-based compensation

1 ( 4 ) ( 6 )

Non-deductible expenses

1 unchanged sentence

Net operating loss expirations

( 3 ) ( 10 ) ( 6 )

Change in unrecognized tax benefits

( 3 ) ( 1 ) ( 21 )

Change in U.S.

federal statutory tax rate

Total income tax provision (benefit)

Total income tax (benefit) provision $ ( 68 ) $ 126 $ 89

Temporary differences and carryforwards that created significant deferred tax assets and liabilities were as follows:

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Deferred tax assets:

9 unchanged sentences

Property and equipment

( 201 ) ( 221 )

Operating lease assets

( 70 ) ( 37 )

( 21 ) ( 35 )

( 274 ) ( 259 )

Other deferred tax liabilities

( 21 ) ( 11 )

Total deferred tax liabilities

( 587 ) ( 563 )

Net deferred tax liability $ ( 269 ) $ ( 308 )

The net deferred tax liabilities presented in the Company's Consolidated Balance Sheets were as follows:

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Noncurrent deferred tax assets $ 1 $ —

1 unchanged sentence

Net deferred tax liability $ ( 269 ) $ ( 308 )

T he Company had tax affected state net operating loss carryforwards of $ 64 million as of December 28, 2019 , which will expire at various dates from 2020 to 2039 .

The Company had tax affected state net operating loss carryforwards of $ 64 million as of January 2, 2021.

The Company’s net operating loss carryforwards expire as follows:

2021-2025 $ 33

The Company also has state credit carryforwards of $ 21 million.

5 unchanged sentences

A summary of the activity in the valuation allowance for the fiscal years 2020, 2019 and 2018 is as follows:

2020 2019 2018

Balance as of beginning of year $ 36 $ 30 29

Expense recognized

(Benefit) expense recognized

Balance as of end of year $ 35 $ 36 $ 30

9 unchanged sentences

Gross decreases due to positions taken in prior years

Gross decreases due to positions taken in current year

Decreases due to changes in tax rates

Balance as of December 30, 2017

Gross increases due to positions taken in prior years

Gross decreases due to positions taken in prior years

Decreases due to lapses of statute of limitations

3 unchanged sentences

Balance as of December 28, 2019 39

Gross increases due to positions taken in prior years

Decreases due to lapses of statute of limitations

Decreases due to changes in tax rates

Positions assumed in business acquisition

Balance as of January 2, 2021 $ 39

The Company does not expect the liability for unrecognized tax benefits to change significantly in the next 12 months.

1 unchanged sentence

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

The Company had accrued interest and penalties of approximately $ 5 million as of both December 28, 2019 and December 29, 2018 .

The Company had accrued interest and penalties of approximately $ 7 million and $ 5 million as of January 2, 2021 and December 28, 2019, respectively.

The Company files U.S.

7 unchanged sentences

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 $ 916 million of purchase orders and purchase contract commitments as of December 28, 2019 to be purchased in fiscal year 2020 and $ 75 million of information technology commitments through May 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 $ 96 million through April 2021, as of December 28, 2019 .

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through December 2021, as of December 28, 2019 .

The Company had $ 1,530 million of purchase orders and purchase contract commitments as of January 2, 2021 to be purchased in fiscal year 2021 and $ 79 million of information technology commitments through August 2025 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 $ 53 million through December 2021, as of January 2, 2021.

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through

November 2023, as of January 2, 2021.

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.

2 unchanged sentences

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.

US FOODS HOLDING CORP.

2 unchanged sentences

Under terms of the agreements governing its indebtedness, the net assets of USF are restricted from being transferred to US Foods in the form of loans, advances or dividends with the exception of income tax payments, share-based compensation settlements and minor administrative costs.

USF had $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.4 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation, as of December 28, 2019 .

USF had $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation, as of January 2, 2021.

See Note 18, Share-Based Compensation, Common Stock Issuances and Common Stock, for a discussion of the Company’s equity-related transactions.

2 unchanged sentences

(In millions, except par value)

December 28, 2019

December 29, 2018

January 2, 2021 December 28, 2019

Investment in subsidiary

LIABILITIES AND SHAREHOLDERS' EQUITY

$ 4,050 $ 3,715

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

Deferred tax liabilities

2 unchanged sentences

Commitments and Contingencies (Note 24)

Mezzanine equity:

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

0.5 and 0.0 issued and outstanding as of January 2, 2021 and

December 28, 2019 519 —

Shareholders’ Equity

1 unchanged sentence

221 and 220 issued and outstanding as of

December 28, 2019 and December 29, 2018, respectively

January 2, 2021 and December 28, 2019, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

( 34 ) ( 54 )

Total shareholders’ equity

Total liabilities and equity

Total liabilities, mezzanine equity and shareholders’ equity

$ 4,050 $ 3,715

Condensed Parent Company Statements of Comprehensive Income

Fiscal Years Ended

December 28, 2019

December 29, 2018

December 30, 2017

January 2, 2021 December 28, 2019 December 29, 2018

Loss before income taxes $ — $ — $ —

2 unchanged sentences

Equity in net earnings of subsidiary ( 231 ) 385 376

Net (loss) income

( 226 ) 385 407

Other comprehensive income—net of tax:

Changes in retirement benefit obligations

Unrecognized gain on interest rate swaps

Comprehensive income

Unrecognized (loss) gain on interest rate swaps

( 3 ) ( 15 ) 5

Comprehensive (loss) income

$ ( 206 ) $ 415 $ 418

Net (loss) income $ ( 226 ) $ 385 $ 407

Series A convertible preferred stock dividends 28 — —

Net (loss) income available to common shareholders $ ( 254 ) $ 385 $ 407

Condensed Parent Company Statements of Cash Flows

Fiscal Years Ended

December 28, 2019

December 29, 2018

December 30, 2017

January 2, 2021 December 28, 2019 December 29, 2018

Cash flows from operating activities:

Net (loss) income

$ ( 226 ) $ 385 $ 407

Adjustments to reconcile net income to net cash

1 unchanged sentence

Equity in net earnings of subsidiary

231 ( 385 ) ( 376 )

Deferred income tax benefit

Changes in operating assets and liabilities:

Decrease in other assets

(Decrease) increase in accrued expenses and other liabilities

Decrease in accrued expenses and other liabilities

( 5 ) — ( 8 )

Net cash used in operating activities

Cash flows from investing activities:

Cash distribution from subsidiary

Net cash provided by investing activities

Investment in subsidiary

Net cash used in investing activities

Cash flows from financing activities:

Common stock repurchased

Net cash used in financing activities

Net proceeds from issuance of Series A convertible preferred stock 491 — —

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash — — —

1 unchanged sentence

Cash, cash equivalents and restricted cash—end of year $ — $ — $ —

QUARTERLY FINANCIAL INFORMATION (Unaudited)

Financial information for each quarter in the fiscal years ended December 28, 2019 and December 29, 2018 , is set forth below:

Fiscal Year Ended December 28, 2019

Cost of goods sold

Operating expenses

Other (income) expense—net

Interest expense—net

Income before income taxes

Income tax provision

Income from continuing operations

Income (loss) from discontinued operations—net of tax

Net income per share—basic:

Continuing operations

Discontinued operations

Net income per share

Net income per share—diluted:

Continuing operations

Discontinued operations

Net income per share

Fiscal Year Ended December 29, 2018

Cost of goods sold

Operating expenses

Other income—net

Interest expense—net

Income before income taxes

Income tax (benefit) provision

Income from continuing operations

Income from discontinued operations—net of tax

Net income per share—basic:

Continuing operations

Discontinued operations

Net income per share

Net income per share—diluted:

Continuing operations

Discontinued operations

Net income per share

The quarterly net income per share information is computed separately for each period.

Therefore, the sum of such quarterly per share amounts may differ from the total year.

BUSINESS INFORMATION

2 unchanged sentences

The Company uses a centralized management structure, and its strategies and initiatives are implemented and executed consistently across the organization to maximize value to the organization as a whole.

The Company uses shared resources for sales, procurement, and general and administrative activities across each of its distribution facilities and operations.

The Company uses shared resources for

sales, procurement, and general and administrative activities across each of its distribution facilities and operations.

The Company’s distribution facilities form a single network to reach its customers;

3 unchanged sentences

However, customers who are members of one group purchasing organization accounted, in the aggregate, for approximately 13 % of the Company's consolidated net sales in fiscal years 2020, 2019, and 2018.

SUBSEQUENT EVENTS

Unsecured Notes Offering —On February 4, 2021, USF completed a private offering of $ 900 million aggregate principal amount of Unsecured Senior Notes due 2029.

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

The Unsecured Notes due 2029 bear interest at a rate of 4.75 % per annum and will mature on February 15, 2029.

On or after February 15, 2024, the Unsecured Notes due 2029 are redeemable, at USF’s option, in whole or in part at a price of 102.375 % of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date.

On or after February 15, 2025 and February 15, 2026, the optional redemption price for the Unsecured Notes due 2029 declines to 101.188 % and 100.000 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

USF used the proceeds of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding Unsecured Senior Notes due 2024 and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility and to pay related fees and expenses.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data