What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-02 · 196 added, 490 removed, 373 unchanged (65% of the section changed)

3 unchanged sentences

(In millions, except par value)

September 26, 2020 December 28, 2019

April 3, 2021 January 2, 2021

Current assets:

10 unchanged sentences

Other intangibles—net 874 892

Deferred tax assets 21 1

Other assets 409 407

14 unchanged sentences

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

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

December 28, 2019 496 —

0.5 issued and outstanding as of April 3, 2021 and

January 2, 2021 534 519

Shareholders’ equity:

1 unchanged sentence

222 and 221 issued and outstanding as of

September 26, 2020 and December 28, 2019, respectively

April 3, 2021 and January 2, 2021, respectively

Additional paid-in capital

9 unchanged sentences

(In millions, except per share data)

13 Weeks Ended 39 Weeks Ended

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

13 Weeks Ended

April 3, 2021 March 28, 2020

Net sales $ 6,295 $ 6,339

Cost of goods sold 5,292 5,273

974 1,156 2,711 3,350

Operating expenses:

Distribution, selling and administrative costs

873 968 2,779 2,837

Restructuring and asset impairment charges

Restructuring costs and asset impairment charges

Total operating expenses

896 968 2,818 2,837

Operating income (loss) 28 ( 126 )

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

Other income—net ( 7 ) ( 6 )

Interest expense—net 54 52

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

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

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

Income from discontinued operations—net of tax:

Net income (loss)

Loss on extinguishment of debt 23 —

Loss before income taxes ( 42 ) ( 172 )

Income tax benefit ( 18 ) ( 40 )

( 24 ) ( 132 )

Other comprehensive income (loss)—net of tax:

Other comprehensive loss—net of tax:

Changes in retirement benefit obligations

Unrecognized gain (loss) on interest rate swaps

2 ( 1 ) ( 4 ) ( 15 )

Comprehensive income (loss)

Comprehensive loss

$ ( 22 ) $ ( 138 )

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

Net loss $ ( 24 ) $ ( 132 )

Series A convertible preferred stock dividends 15 —

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

Net (loss) income per share—basic

Continuing operations

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

Discontinued operations

— 0.01 — 0.01

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

Net (loss) income per share—diluted:

Continuing operations

Net loss available to common shareholders $ ( 39 ) $ ( 132 )

Net loss per share

$ ( 0.18 ) $ ( 0.60 )

Discontinued operations

$ ( 0.18 ) $ ( 0.60 )

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

Weighted-average common shares outstanding

220 218 220 218

220 220 220 219

See Notes to Consolidated Financial Statements (Unaudited).

7 unchanged sentences

Shares Amount

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

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

Share-based compensation expense — — 10 — — 10

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

Vested restricted stock units, net 1 — — — — —

Exercise of stock options — — 4 — — 4

Tax withholding payments for net share-settled equity awards — — ( 12 ) — — ( 12 )

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

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

Net loss — — — ( 132 ) — ( 132 )

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

Share-based compensation expense — — 12 — — 12

Proceeds from employee stock purchase plan 1 — 5 — — 5

Tax withholding payments for net share-settled equity awards — — ( 3 ) — — ( 3 )

Series A convertible preferred stock dividends — — — ( 15 ) — ( 15 )

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

Net loss — — — ( 92 ) — ( 92 )

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

Share-based compensation expense — — 10 — — 10

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

Exercise of stock options — — 1 — — 1

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

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

Net income — — — 8 — 8

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

US FOODS HOLDING CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(In millions)

Net loss — — — ( 24 ) — ( 24 )

BALANCE—April 3, 2021 222 $ 2 $ 2,908 $ 622 $ ( 32 ) $ 3,500

Common Stock Additional

8 unchanged sentences

Tax withholding payments for net share-settled equity awards — — ( 2 ) — — ( 2 )

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

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

Net income — — — 71 — 71

Adoption of ASU 2016-13 — — — ( 1 ) — ( 1 )

Net loss — — — ( 132 ) — ( 132 )

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

Share-based compensation expense — — 9 — — 9

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

Exercise of stock options 1 — 5 — — 5

Tax withholding payments for net share-settled equity awards — — ( 3 ) — — ( 3 )

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

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

Net income — — — 116 — 116

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

Share-based compensation expense — — 7 — — 7

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

Exercise of stock options — — 2 — — 2

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

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

Net income — — — 106 — 106

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

See Notes to Consolidated Financial Statements (Unaudited).

3 unchanged sentences

13 Weeks Ended

September 26, 2020 September 28, 2019

April 3, 2021 March 28, 2020

Cash flows from operating activities:

Net (loss) income

$ ( 24 ) $ ( 132 )

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

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

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

Depreciation and amortization

Gain on disposal of property and equipment—net

Asset impairment charges 9 —

Loss on disposal of property and equipment—net

Loss on extinguishment of debt 23 —

Amortization of deferred financing costs

Deferred tax (benefit) provision

Deferred tax benefit

Share-based compensation expense

Provision for doubtful accounts

(Benefit) provision for doubtful accounts

Changes in operating assets and liabilities:

Decrease (increase) in receivables

Decrease (increase) in inventories—net

Decrease in prepaid expenses and other assets

Increase in accounts payable and cash overdraft liability

Decrease in accrued expenses and other liabilities

Net cash provided by operating activities of continuing operations 533 558

Net cash provided by operating activities of discontinued operations — 1

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of businesses—net of cash

(Increase) decrease in receivables

(Increase) decrease in inventories—net

Increase in prepaid expenses and other assets

( 25 ) ( 26 )

Increase (decrease) in accounts payable and cash overdraft liability

Increase (decrease) in accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Proceeds from sales of assets

Proceeds from sales of property and equipment

Purchases of property and equipment

6 unchanged sentences

( 926 ) ( 827 )

Net proceeds from issuance of Series A Convertible Preferred Stock

Debt financing costs and fees

( 33 ) ( 42 )

Proceeds from employee stock purchase plan

1 unchanged sentence

Tax withholding payments for net share-settled equity awards

Net cash provided by financing activities

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

Net cash (used in) provided by financing activities

Net increase in cash, cash equivalents and restricted cash 83 987

Cash, cash equivalents and restricted cash—beginning of period 829 98

4 unchanged sentences

Property and equipment purchases included in accounts payable

Property and equipment transferred to assets held for sale 9 14

Leased assets obtained in exchange for financing lease liabilities

Leased assets obtained in exchange for operating lease liabilities

Cashless exercise of stock options

Paid-in-kind Series A convertible preferred stock dividends 15 —

19 unchanged sentences

These interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the 2020 Annual Report.

The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

The results of operations for interim periods are not necessarily indicative of the results that might be achieved for the full fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted 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.

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

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

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

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

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

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

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

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

In August 2018, the FASB issued ASU No.

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

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement.

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.

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

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

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

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 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.

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.

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

10 unchanged sentences

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

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

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

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of April 3, 2021 and January 2, 2021.

Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $ 1.4 billion and $ 1.1 billion as of April 3, 2021 and January 2, 2021, 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 these costs associated with any distinct good or service to be received from any customer.

These payments have become industry practice and are not related to financing any customer’s business, nor are these payments 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 $ 26 million and $ 35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019, respectively, and $ 29 million and $ 39 million included in other assets in the Company’s Consolidated Balance Sheets as of September 26, 2020 and December 28, 2019, respectively.

The Company’s contract assets for these upfront payments were $ 30 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of both April 3, 2021 and January 2, 2021, and $ 29 million and $ 27 million included in other assets in the Company’s Consolidated Balance Sheets as of April 3, 2021 and January 2, 2021, respectively.

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

13 Weeks Ended 39 Weeks Ended

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

13 Weeks Ended

April 3, 2021 March 28, 2020

Meats and seafood $ 2,262 $ 2,226

8 unchanged sentences

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

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

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

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

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

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 serving small and mid-sized restaurants and other food business customers.

The acquisition of Smart Foodservice expanded 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 10, 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 the 13 weeks ended September 26, 2020 were immaterial to the Company's consolidated financial statements.

Preliminary Purchase Price Allocation

The following table summarizes the final purchase price allocation recognized for the Smart Foodservice acquisition as of April 24, 2020.

The decrease in goodwill during the 13 weeks ended April 3, 2021 was due to the finalization of deferred income taxes associated with the acquisition.

Purchase Price Allocation

Accounts receivable $ 5

13 unchanged sentences

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

Net sales and net income for Smart Foodservice, which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed, were $ 276 million and $ 8 million, respectively, for the 13 weeks ended September 26, 2020, and $ 484 million and $ 19 million, respectively, for the 39 weeks ended September 26, 2020.

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were less than $ 1 million for the 13 weeks ended September 26, 2020 and $ 20 million for the 39 weeks ended September 26, 2020, respectively.

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

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

and GAMPAC Express, Inc.

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

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

As a condition to receiving regulatory clearance for the acquisition from the Federal Trade Commission, USF divested three Food Group distribution facilities (the "Divested Assets") during the fourth quarter of 2019.

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

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

Purchase Price Allocation

Accounts receivable $ 145

Inventories 165

Assets of discontinued operations 130

Other current assets 7

Property and equipment 210

Other intangibles (2)

Other assets 47

Accounts payable ( 200 )

Accrued expenses and other current liabilities ( 69 )

Liabilities of discontinued operations ( 19 )

Other long-term liabilities, including financing leases ( 43 )

Cash paid for acquisition $ 1,832

(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.

federal income tax purposes.

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

Food Group acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 4 million and $ 17 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively, and $ 23 million and $ 35 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

Pro Forma Financial Information — The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for the 13 weeks and 39 weeks ended September 26, 2020 and September 28, 2019.

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

13 Weeks Ended 39 Weeks Ended

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

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

Pro forma net (loss) income available to common shareholders $ ( 2 ) $ 130 $ ( 202 ) $ 323

Pro forma net (loss) income per share:

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

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

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

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

13 Weeks Ended 39 Weeks Ended

September 28, 2019 September 28, 2019

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 4 million and $ 10 million for the 13 weeks ended April 3, 2021 and March 28, 2020, respectively.

The unaudited pro forma financial information presents the combined results of operations as if the acquisition and related financing of Smart Foodservice had occurred as of December 30, 2018, which date represents the first day of the Company’s fiscal year prior to the Smart Foodservice acquisition date.

13 Weeks Ended

April 3, 2021 March 28, 2020

Pro forma net sales $ 6,295 $ 6,625

Pro forma net income $ 3 $ 6

Pro forma net income per share:

Pro forma net loss available to common shareholders $ ( 39 ) $ ( 106 )

Pro forma net loss per share:

Basic $ ( 0.18 ) $ ( 0.48 )

1 unchanged sentence

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 incremental senior secured term loan facilities and revolving credit facilities used to finance the acquisitions, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations.

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

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 dates indicated.

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 September 26, 2020 and December 28, 2019 consisted of the following:

September 26, 2020 December 28, 2019

Cash and cash equivalents $ 1,019 $ 90

Restricted cash—included in other assets — 8

Total cash, cash equivalents and restricted cash $ 1,019 $ 98

(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 facility 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 Smart Foodservice with our previously existing operations or the standalone cost estimates and estimated costs that were incurred by the former parent company.

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

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

1 unchanged sentence

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 primarily using the last-in, first-out (“LIFO”) method, except for Smart Foodservice, which uses the retail method of inventory accounting.

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 4, 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.

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

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

Additionally, during the 39 weeks ended September 26, 2020, due to the impact that the COVID-19 pandemic (as further described in Note 7) had on our business, the Company incurred charges of $ 40 million related to inventory adjustments and product donations recorded in cost of goods sold.

LIFO reserves in the Company’s Consolidated Balance Sheets were $ 198 million and $ 177 million as of April 3, 2021 and January 2, 2021, respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 21 million for the 13 weeks ended April 3, 2021, and decreased $ 13 million for the 13 weeks ended March 28, 2020.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

3 unchanged sentences

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

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

Recent Events

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

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

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

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

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

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

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

Due to the impact that the COVID-19 pandemic had on our customers, particularly our restaurant and hospitality customers, we significantly increased our allowance for doubtful accounts by $ 170 million during the 13 weeks ended March 28, 2020, of which, $ 75 million and $ 30 million was reversed during the 13 weeks ended June 27, 2020 and September 26, 2020, respectively, based on better than anticipated collection of our pre-COVID-19 accounts receivable.

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

Balance as of December 28, 2019 $ 30

Charged to costs and expenses 80

Adoption of ASU 2016-13 1

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.

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

In March 2020, in order to reduce the spread of COVID-19 and its variants, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions on businesses, schools and other public gathering spaces, including restaurants and recreational, sporting and other similar venues.

Since December 2020, three vaccines for COVID-19 have been authorized by the United States Food and Drug Administration ("FDA") for emergency use and beginning in April 2021, all individuals 16 years old and older in the United States are eligible to receive a vaccine.

New cases of COVID-19 and its variants continue to be reported and it remains uncertain when restrictions will be fully lifted and enhanced safety measures, including physical distancing and face mask protocols, will no longer be needed.

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

Due to the impact that the COVID-19 pandemic was expected to have 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 the 13 weeks ended March 28, 2020.

In each subsequent quarter of fiscal year 2020 and during the 13 weeks ended April 3, 2021, due to more favorable than anticipated collections on our pre-COVID-19 accounts receivable, we reduced our allowance for doubtful accounts.

The remaining pre-COVID-19 accounts receivable are fully reserved as of April 3, 2021.

A summary of the activity in the allowance for doubtful accounts for the 13 weeks ended April 3, 2021 was as follows:

Balance as of January 2, 2021 $ 67

Reversed from costs and expenses ( 12 )

Customer accounts written off—net of recoveries ( 4 )

Balance as of September 26, 2020 $ 88

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

FORMER ACCOUNTS RECEIVABLE FINANCING PROGRAM

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

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

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

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

ASSETS HELD FOR SALE

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

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

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

Balance as of December 28, 2019 $ 1

Transfers in 24

Assets sold ( 15 )

Balance as of September 26, 2020 $ 10

Land previously held for future use and two excess warehouse facilities were transferred to assets held for sale during the 39 weeks ended September 26, 2020.

The Company sold the land on June 30, 2020 and received cash proceeds from the sale of $ 32 million, resulting in a gain on sale of $ 17 million, which was included in distribution, selling and administrative costs in the Company's Consolidated Statement of Comprehensive Income.

Balance as of April 3, 2021 $ 51

This table excludes the vendor receivable related allowance for doubtful accounts of $ 7 million and $ 5 million as of April 3, 2021 and January 2, 2021, respectively.

PROPERTY AND EQUIPMENT

1 unchanged sentence

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years.

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

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

Depreciation expense was $ 88 million and $ 75 million for the 13 weeks ended September 26, 2020 and September 28, 2019, respectively and $ 257 million and $ 228 million for the 39 weeks ended September 26, 2020 and September 28, 2019, respectively.

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

As of April 3, 2021 and January 2, 2021, property and equipment-net included accumulated depreciation of $ 2,649 million and $ 2,566 million, respectively.

Depreciation expense was $ 82 million for both the 13 weeks ended April 3, 2021 and March 28, 2020.

GOODWILL AND OTHER INTANGIBLES

4 unchanged sentences

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

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

Amortization expense was $ 19 million for both the 13 weeks ended April 3, 2021 and March 28, 2020.

Goodwill and other intangibles—net consisted of the following:

September 26, 2020 December 28, 2019

April 3, 2021 January 2, 2021

Goodwill $ 5,625 $ 5,637

15 unchanged sentences

Total other intangibles—net $ 874 $ 892

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 net decrease in the gross carrying amount of customer relationships as of April 3, 2021 is attributable to the write-off of fully amortized intangible assets related to certain 2017 business acquisitions.

The net decrease in the gross carrying amount of amortizable trade names is attributable to the write-off of the fully amortized trade name related to the Smart Foodservice acquisition, when Smart Foodservice® warehouse stores were rebranded to CHEF'STORE® in March 2021.

The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible 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.

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

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

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

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

In the third quarter of fiscal year 2020, the Company performed a quantitative assessment in testing goodwill and indefinite-lived intangible assets for impairment, which resulted in the carrying value of two trade names acquired as part of the Food Group acquisition exceeding their fair value by $ 9 million, and impairment charges of this amount were recognized.

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

The increase in goodwill and the amortizable trade name as of September 26, 2020 is attributable to the Smart Foodservice acquisition, as described in Note 4, Business Acquisitions.

The net decrease in the gross carrying amount of customer relationships as of September 26, 2020 is attributable to the write-off of fully amortized intangible assets related to certain 2016 business acquisitions.

FAIR VALUE MEASUREMENTS

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• Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs.

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized as of the end of the reporting period in which the transfer occurs.

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 September 26, 2020 and December 28, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

September 26, 2020

The Company’s assets and liabilities measured at fair value on a recurring basis as of April 3, 2021 and January 2, 2021, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

April 3, 2021

Level 1 Level 2 Level 3 Total

3 unchanged sentences

$ — $ 3 $ — $ 3

December 28, 2019

January 2, 2021

Level 1 Level 2 Level 3 Total

Money market funds

$ 696 $ — $ — $ 696

Interest rate swaps

$ — $ 5 $ — $ 5

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

There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above, except as further disclosed in Note 8, Goodwill and Other Intangibles.

Recurring Fair Value Measurements

8 unchanged sentences

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

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

Balance Sheet Location September 26, 2020 December 28, 2019

The following table presents the balance sheet location and fair value of the interest rate swaps as of April 3, 2021 and January 2, 2021:

Balance Sheet Location April 3, 2021 January 2, 2021

Derivatives designated as hedging instruments

2 unchanged sentences

other current liabilities $ 3 $ 5

Interest rate swaps

Other long-term liabilities — 1

Total liabilities $ 3 $ 5

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

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income f or the 13 weeks and 39 weeks ended September 26, 2020 and September 28, 2019:

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

For the 13 weeks ended September 26, 2020

Interest rate swaps

$ — Interest expense—net $ 2

For the 13 weeks ended September 28, 2019

Interest rate swaps

$ — Interest expense—net $ ( 1 )

For the 39 weeks ended September 26, 2020

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income f or the 13 weeks ended April 3, 2021 and March 28, 2020:

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

For the 13 weeks ended April 3, 2021

Interest rate swaps

$ — Interest expense—net $ 2

For the 39 weeks ended September 28, 2019

For the 13 weeks ended March 28, 2020

Interest rate swaps

2 unchanged sentences

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 $ 5.7 billion, compared to its carrying value of $ 5.8 billion as of September 26, 2020.

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

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

The fair value of the Company’s 5.875 % unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”), was $ 601 million and $ 619 million as of September 26, 2020 and December 28, 2019, respectively.

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

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 both April 3, 2021 and January 2, 2021.

The fair value of the Company's 4.75 % unsecured senior notes due February 15, 2029 (the "Unsecured Senior Notes due 2029") was $ 0.9 billion as of April 3, 2021.

As discussed in Note 10, Debt, the proceeds from the Unsecured Senior Notes due 2029 were used to redeem the Company's 5.875 % unsecured senior notes due 2024 (the "Unsecured Senior Notes due 2024") and other debt.

The fair value of the Unsecured Senior Notes due 2024 was $ 0.6 billion as of January 2, 2021.

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 both April 3, 2021 and January 2, 2021.

Fair value of the Secured Notes, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 is based upon the closing market prices of the Secured Notes, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 on the respective dates.

The fair value of the Secured Notes, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 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 Maturity Interest Rate as of September 26, 2020 September 26, 2020 December 28, 2019

Debt Description Maturity Interest Rate as of April 3, 2021 Carrying Value as of April 3, 2021 Carrying Value as of January 2, 2021

ABL Facility May 31, 2024 — % $ — $ —

ABS Facility (1)

Initial Term Loan Facility (net of $2 and $3

6 unchanged sentences

2020 Incremental Term Loan Facility (net of $11

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

Senior Secured Notes (net of $14 of unamortized

deferred financing costs)

of unamortized deferred financing costs) (1)

April 24, 2025 — % — 284

Unsecured Senior Notes (net of $4 of unamortized

deferred financing costs)

Senior Secured Notes (net of $12 and $13 of

unamortized deferred financing costs)

April 15, 2025 6.25 % 988 987

Unsecured Senior Notes due 2024 (net of $3 of

unamortized deferred financing costs) (1)

June 15, 2024 — % — 597

Unsecured Senior Notes due 2029 (net of $9 of

unamortized deferred financing costs)

February 15, 2029 4.75 % 891 —

Obligations under financing leases 2021–2031 1.63% - 6.10% 309 323

4 unchanged sentences

Long-term debt $ 5,616 $ 5,617

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

(2) The current portion of long-term debt as of September 26, 2020 and December 28, 2019 for the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility includes five principal payments due to the Company's 53-week fiscal year 2020.

As of September 26, 2020, after considering interest rate swaps that fixed the interest rate on $ 550 million of principal of the Initial Term Loan Facility described below, approximately 57 % of the Company’s total debt bears interest at a floating rate.

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

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

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

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

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

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

(1) The 2020 Incremental Term Loan Facility and Unsecured Senior Notes due 2024 were paid in full on February 4, 2021 with the issuance of the Unsecured Senior Notes due 2029 and subsequently terminated as further discussed below.

The related unamortized deferred financing costs were written off in connection with the terminations.

As of April 3, 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 52 % of the Company’s total debt bears interest at a floating rate.

USF's asset based senior secured revolving credit facility (the “ABL Facility”) provides USF with loan commitments having a maximum aggregate principal amount of $ 1,990 million.

The ABL Facility is scheduled to mature on May 31, 2024.

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

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

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

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

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

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

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

insurance program and certain real estate leases.

There was available capacity of $ 1,716 million under the ABL Facility as of September 26, 2020.

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

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

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

The margin under the ABL Facility as of April 3, 2021 was 0.00 % for ABR loans and 1.00 % for LIBOR loans.

USF had no outstanding borrowings, and had issued letters of credit totaling $ 279 million, under the ABL Facility as of April 3, 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 $ 1,711 million under the ABL Facility as of April 3, 2021.

Term Loan Facilities

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

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

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

The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of September 26, 2020.

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate hedging agreements was 3.45 % as of September 26, 2020.

Under its term loan credit agreement, USF has entered into an initial senior secured term loan facility (the "Initial Term Loan Facility") and an incremental senior secured term loan facility (the "2019 Incremental Term Loan Facility").

The Initial Term Loan Facility had a carrying value of $ 2.1 billion, net of $ 2 million of unamortized deferred financing costs as of April 3, 2021.

The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of April 3, 2021.

The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate hedging agreements was 3.45 % as of April 3, 2021.

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

The 2019 Incremental Term Loan Facility entered into to finance a portion of the Food Group acquisition, had a carrying value of $ 1,458 million, net of $ 31 million of unamortized deferred financing costs as of September 26, 2020.

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

The 2019 Incremental Term Loan Facility had a carrying value of $ 1,449 million, net of $ 29 million of unamortized deferred financing costs as of April 3, 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, determined in accordance with the term loan credit agreement, plus a margin of 1.00 %.

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

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

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

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

Lender fees and third-party costs incurred of $ 13 million associated with the remaining $ 300 million in principal amount of the 2020 Incremental Term Loan Facility were capitalized as deferred financing costs and will be amortized through April 24, 2025, which is the 2020 Incremental Term Loan Facility maturity date.

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

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

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

Senior Secured Notes

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

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

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

The Secured Notes mature April 15, 2025.

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

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

Secured Notes

The Secured Notes had a carrying value of $ 988 million, net of $ 12 million of unamortized deferred financing costs, as of April 3, 2021.

The Secured Notes are scheduled to mature on April 15, 2025.

Unsecured Senior Notes due 2029

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

USF used the proceeds of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the Company's then outstanding Unsecured Senior Notes due 2024, repay all of the then outstanding borrowings under the incremental senior secured term loan facility borrowed in April 2020 (the "2020 Incremental Term Loan Facility") and to pay related fees and expenses.

In connection with the repayment of the Unsecured Senior Notes due 2024 and 2020 Incremental Term Loan Facility, the Company applied debt extinguishment accounting and recorded $ 23 million in loss on extinguishment of debt in the Company's Consolidated Statements of Comprehensive Income, consisting of a $ 14 million write-off of pre-existing unamortized deferred financing costs related to the redeemed facilities and a $ 9 million early redemption premium related to the Unsecured Senior Notes due 2024.

Lender fees and third-party costs of $ 9 million associated with the issuance of the Unsecured Senior Notes due 2029 were capitalized as deferred financing costs.

The Unsecured Senior Notes due 2029 had an outstanding balance of $ 891 million, net of $ 9 million of unamortized deferred financing costs, as of April 3, 2021.

The Unsecured Senior 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 Senior 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 Senior 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.

Debt Covenants

1 unchanged sentence

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

USF had $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.7 billion of its net assets were restricted considering the net deferred tax assets and intercompany balances that eliminate in consolidation as of September 26, 2020.

USF had approximately $ 1.3 billion of restricted payment capacity under these covenants, and approximately $ 2.7 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 April 3, 2021.

RESTRUCTURING LIABILITIES

1 unchanged sentence

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

In order to reduce its operating expenses in line with the decrease in sales volume caused by the COVID-19 pandemic, the Company reduced its work force and closed two excess facilities and incurred a net charge of $ 14 million and $ 30 million for severance and related costs during the 13 weeks and 39 weeks ended September 26, 2020, respectively.

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

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

Severance and Related Costs Facility Closing Costs Total

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

Current period charges 28 2 30

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

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

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

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

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

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

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

When it is reasonably certain that the Company will exercise these options, 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 leases on a straight-line basis over the lease term.

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

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

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

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

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

Other assets $ 271 $ 145

Property and equipment-net (1)

Total leased assets

Accrued expenses and other current liabilities $ 47 $ 40

Current portion of long-term debt 93 95

Other long-term liabilities 250 131

Long-term debt 250 257

Total lease liabilities

(1) Financing lease assets are recorded net of accumulated amortization of $ 243 million and $ 269 million as of September 26, 2020 and December 28, 2019, respectively.

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

13 Weeks Ended 26 Weeks Ended

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

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

Financing lease cost:

Amortization of leased assets

Distribution, selling and administrative costs 19 21 60 60

Interest on lease liabilities

Interest expense-net 3 3 9 9

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

Net lease cost $ 36 $ 33 $ 115 $ 95

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

Maturity of Lease Liabilities Operating

Leases Financing Leases Total

Remainder of 2020 $ 11 $ 32 $ 43

2021 62 93 155

2022 56 70 126

2023 54 67 121

2024 35 50 85

2025 34 31 65

After 2025 164 25 189

Total lease payments 416 368 784

Less amount representing interest ( 119 ) ( 25 ) ( 144 )

Present value of lease liabilities $ 297 $ 343 $ 640

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

Less amount representing interest ( 32 ) ( 28 ) ( 60 )

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

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

39 Weeks Ended

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

Operating cash flows from operating leases $ 37 $ 24

Operating cash flows from financing leases 9 9

Financing cash flows from financing leases 72 49

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

Weighted-average remaining lease term (years):

Operating leases

Financing leases

Weighted-average discount rate:

Operating leases

Financing leases

During the 13 weeks ended April 3, 2021, $ 3 million of net restructuring costs were recognized primarily related to initiatives to improve operational effectiveness.

Net restructuring costs were de minimis during the 13 weeks ended March 28, 2020.

Net restructuring liabilities were $ 4 million and $ 2 million as of April 3, 2021 and January 2, 2021, respectively.

RETIREMENT PLANS

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

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

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

13 Weeks Ended 39 Weeks Ended

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

Components of net periodic pension benefit costs (credits)

$ 1 $ 1 $ 2 $ 2

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

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

13 Weeks Ended

April 3, 2021 March 28, 2020

Components of net periodic pension benefit credits

Interest cost

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( 14 ) ( 13 )

Amortization of net loss

Settlements — 3 — 3

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

Other postretirement benefit costs were de minimis for both the 13 weeks and 39 weeks ended September 26, 2020 and September 28, 2019.

Net periodic pension benefit credits $ ( 6 ) $ ( 5 )

Other postretirement benefit costs were de minimis for both the 13 weeks ended April 3, 2021 and March 28, 2020.

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

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

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

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

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

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

The Company does not expect to make significant contributions to its defined benefit pension plan in fiscal year 2021.

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

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

The Company made employer matching contributions to the 401(k) plan of $ 13 million and $ 14 million for the 13 weeks ended April 3, 2021 and March 28, 2020, respectively.

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

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

The Company’s contributions to these plans were $ 10 million and $ 12 million for the 13 weeks ended April 3, 2021 and March 28, 2020, respectively.

EARNINGS PER SHARE

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

For the 13 weeks ended September 26, 2020 and September 28, 2019, share-based awards representing 9 million and 1 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For the 39 weeks ended September 26, 2020 and September 28, 2019, share-based awards representing 9 million and 2 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For the 13 weeks and 39 weeks ended September 26, 2020, convertible preferred stock representing 23 million and 12 million of underlying common shares, respectively, was not included in the computation because the effect would have been anti-dilutive.

For the 13 weeks ended April 3, 2021 and March 28, 2020, share-based awards representing 9 million and 10 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For the 13 weeks ended April 3, 2021, convertible preferred stock representing 24 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:

13 Weeks Ended 39 Weeks Ended

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

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

Income from discontinued operations — 1 — 1

Net income (loss)

13 Weeks Ended

April 3, 2021 March 28, 2020

$ ( 24 ) $ ( 132 )

Series A convertible preferred stock dividends (1)

Net (loss) income available to common shareholders

Net loss available to common shareholders

$ ( 39 ) $ ( 132 )

Weighted-average common shares outstanding

220 218 220 218

Effect of dilutive securities

Effect of dilutive underlying shares of the

Series A Convertible Preferred Stock

Effect of dilutive underlying shares of the Series A convertible preferred stock

Weighted-average dilutive shares outstanding

220 220 220 219

Basic earnings per share:

Continuing operations

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

Discontinued operations 0.00 0.01 0.00 0.01

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

Diluted earnings per share:

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

Discontinued operations 0.00 0.01 0.00 0.01

Net (loss) income per share

Net loss per share

Basic $ ( 0.18 ) $ ( 0.60 )

$ ( 0.18 ) $ ( 0.60 )

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

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

(1) Preferred stock dividends for the first quarter of 2021 were declared on March 23, 2021 and were paid in kind on March 31, 2021.

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”).

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, which agreement was joined on February 25, 2021 by permitted transferee KKR Fresh Holdings 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 to KKR Fresh Aggregator L.P.

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 and September 30, 2020, the Company paid a dividend (the “Dividend”) on the shares of the Series A Preferred Stock in the form of 5,288 and 8,842 shares of Series A Preferred Stock, respectively, plus a de minimis amount in cash in lieu of fractional shares in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the "Certificate of Designations").

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

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.

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

Series A Preferred Stock

Shares Amount

Balance, December 28, 2019 — $ —

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

Balance, June 27, 2020 500,000 491

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

Balance September 26, 2020 505,288 $ 496

As of January 2, 2021, the Company had issued a total of 523,127 shares of Series A convertible preferred stock.

On March 31, 2021, the Company paid a dividend on the shares of the Series A convertible preferred stock in the form of 9,154 shares of Series A convertible preferred stock, plus a de minimis amount in cash in lieu of fractional shares in accordance with the terms of the Certificate of Designations for the Series A convertible preferred stock.

The following table summarizes the activity for the outstanding Series A convertible preferred stock and associated carrying value for the 13 weeks ended April 3, 2021 was as follows:

Series A Convertible Preferred Stock

Shares Carrying Value

Balance, January 2, 2021 523,127 $ 519

Shares issued as paid in kind dividend 9,154 15

Balance April 3, 2021 532,281 $ 534

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

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

13 Weeks Ended 39 Weeks Ended

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

13 Weeks Ended

April 3, 2021 March 28, 2020

Accumulated other comprehensive loss components

4 unchanged sentences

Amortization of net loss (2) (3)

Settlements (2)(3)

Total before income tax

7 unchanged sentences

Change in fair value of interest rate swaps

— ( 1 ) ( 10 ) ( 15 )

Amounts reclassified to interest expense—net

2 ( 1 ) 4 ( 5 )

Total before income tax

2 ( 2 ) ( 6 ) ( 20 )

Income tax benefit

— ( 1 ) ( 2 ) ( 5 )

Current period comprehensive income (loss), net of tax

2 ( 1 ) ( 4 ) ( 15 )

Balance as of end of period (1)

7 unchanged sentences

RELATED PARTY TRANSACTIONS

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

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

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received aggregate fees of $ 6 million for services rendered in connection with the 2020 Incremental Term Loan Facility, the Secured Notes and the ABL Facility amendment financings during the 39 weeks ended September 26, 2020.

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

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

Based solely on information provided in its most recent public filings, FMR LLC and its affiliates held approximately 11 % of the Company’s outstanding common stock as of September 26, 2020.

As reported by the Company’s administrative agent, investment funds managed by an affiliate of FMR LLC held approximately $ 60 million in principal amount of the Company's term loan facilities as of September 26, 2020.

Certain FMR LLC affiliates provide recordkeeping services for the Company’s 401(k) plan and provide administrative services for other Company sponsored employee benefit plans.

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

KKR Capital Markets LLC, an affiliate of KKR, received $ 1 million for debt advisory services rendered in connection with the Unsecured Senior Notes due 2029 financing during the 13 weeks ended April 3, 2021.

As of April 3, 2021, investment funds managed by an affiliate of KKR held approximately $ 60 million in aggregate principal amount of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility, as reported by the administrative agent.

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

1 unchanged sentence

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

The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 39 weeks ended September 26, 2020 and September 28, 2019 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended September 26, 2020, the Company's effective income tax rate of 58 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

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

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

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

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

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

For the 39 weeks ended September 26, 2020, the Company's effective income tax rate of 20 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

These discrete tax items included a tax expense of $ 2 million primarily related to an increase in an unrecognized tax benefit and a tax expense of $ 2 million, primarily related to a tax benefit shortfall associated with share-based compensation.

For the 39 weeks ended September 28, 2019, the Company's effective income tax rate of 25 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 13 weeks ended April 3, 2021 and March 28, 2020 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended April 3, 2021, the Company's effective income tax rate of 43 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

These discrete tax items included a tax benefit of $ 6 million, primarily related to excess tax benefits associated with share-based compensation.

For the 13 weeks ended March 28, 2020, the Company's effective income tax rate of 23 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items.

These discrete tax items included a tax expense of $ 3 million, primarily related to an increase in the state valuation allowance.

COMMITMENTS AND CONTINGENCIES

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

The Company had $ 1,119 million of purchase orders and purchase contract commitments to be purchased through the first quarter of fiscal year 2021 as of September 26, 2020 and $ 63 million of information technology commitments through December 2024 that are not recorded in the Company's Consolidated Balance Sheets.

The Company had $ 1,523 million of purchase orders and purchase contract commitments as of April 3, 2021 to be purchased in the remainder of fiscal year 2021 and $ 67 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 $ 71 million through December 2021, as of September 26, 2020.

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through November 2023, as of September 26, 2020.

The Company had diesel fuel forward purchase commitments totaling $ 38 million through December 2021, as of April 3, 2021.

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through June 2024, as of April 3, 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.

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

What changed 10-Q

Item 1. Financial Statements