US Foods Holding Corp. 10-Q

Item 1. Financial Statements US FOODS HOLDING CORP. CONSOLIDATED BALANCE SHEETS (In millions, except par value) October 2, 2021 January 2, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 772 $ 828 Accounts receivable, less allowances of $39 and $67 1,549 1,084 Vendor receivables, less allowances of $6 and $5 204 121 Inventories—net 1,565 1,273 Prepaid expenses 115 132 Assets held for sale 12 1 Other current assets 18 26 Total current assets 4,235 3,465 Property and equipment—net 1,988 2,021 Goodwill 5,625 5,637 Other intangibles—net 841 892 Deferred tax assets 12 1 Other assets 416 407 Total assets $ 13,117 $ 12,423 LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft liability $ 182 $ 136 Accounts payable 1,963 1,218 Accrued expenses and other current liabilities 592 497 Current portion of long-term debt 115 131 Total current liabilities 2,852 1,982 Long-term debt 5,281 5,617 Deferred tax liabilities 288 270 Other long-term liabilities 514 505 Total liabilities 8,935 8,374 Commitments and contingencies (Note 18) Mezzanine equity: Series A convertible preferred stock, $0.01 par value—25 shares authorized; 0.5 issued and outstanding as of October 2, 2021 and January 2, 2021 534 519 Shareholders’ equity: Common stock, $0.01 par value—600 shares authorized; 223 and 221 issued and outstanding as of October 2, 2021 and January 2, 2021, respectively 2 2 Additional paid-in capital 2,952 2,901 Retained earnings 723 661 Accumulated other comprehensive loss ( 29 ) ( 34 ) Total shareholders’ equity 3,648 3,530 Total liabilities, mezzanine equity and shareholders' equity $ 13,117 $ 12,423 See Notes to Consolidated Financial Statements (Unaudited). 1 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In millions, except per share data) 13 Weeks Ended 39 Weeks Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Net sales $ 7,890 $ 5,848 $ 21,848 $ 16,747 Cost of goods sold 6,649 4,874 18,435 14,036 Gross profit 1,241 974 3,413 2,711 Operating expenses: Distribution, selling and administrative costs 1,099 873 3,115 2,779 Restructuring costs and asset impairment charges 7 23 11 39 Total operating expenses 1,106 896 3,126 2,818 Operating income (loss) 135 78 287 ( 107 ) Other income—net ( 6 ) ( 6 ) ( 19 ) ( 16 ) Interest expense—net 50 63 158 178 Loss on extinguishment of debt — — 23 — Income (loss) before income taxes 91 21 125 ( 269 ) Income tax provision (benefit) 27 13 30 ( 53 ) Net income (loss) 64 8 95 ( 216 ) Other comprehensive income (loss)—net of tax: Changes in retirement benefit obligations — — — 1 Unrecognized gain (loss) on interest rate swaps 1 2 5 ( 4 ) Comprehensive income (loss) $ 65 $ 10 $ 100 $ ( 219 ) Net income (loss) $ 64 $ 8 $ 95 $ ( 216 ) Series A convertible preferred stock dividends ( 9 ) ( 10 ) ( 33 ) ( 15 ) Net income (loss) available to common shareholders $ 55 $ ( 2 ) $ 62 $ ( 231 ) Net income (loss) per share Basic (Note 13) $ 0.25 $ ( 0.01 ) $ 0.28 $ ( 1.05 ) Diluted (Note 13) $ 0.24 $ ( 0.01 ) $ 0.28 $ ( 1.05 ) Weighted-average common shares outstanding Basic (Note 13) 222 220 222 220 Diluted (Note 13) 225 220 225 220 See Notes to Consolidated Financial Statements (Unaudited). 2 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Shares Amount 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 ) Series A convertible preferred stock dividends — — — ( 15 ) — ( 15 ) Unrecognized gain on interest rate swaps, net of income tax — — — — 2 2 Net loss — — — ( 24 ) — ( 24 ) BALANCE—April 3, 2021 222 2 2,908 622 ( 32 ) 3,500 Share-based compensation expense — — 13 — — 13 Proceeds from employee stock purchase plan — — 5 — — 5 Exercise of stock options — — 8 — — 8 Tax withholding payments for net share-settled equity awards — — ( 1 ) — — ( 1 ) Series A convertible preferred stock dividends — — — ( 9 ) — ( 9 ) Unrecognized gain on interest rate swaps, net of income tax — — — — 2 2 Net income — — — 55 — 55 BALANCE—July 3, 2021 222 2 2,933 668 ( 30 ) 3,573 Share-based compensation expense — — 13 — — 13 Proceeds from employee stock purchase plan 1 — 6 — — 6 Exercise of stock options — — 1 — — 1 Series A convertible preferred stock dividends — — — ( 9 ) — ( 9 ) Unrecognized gain on interest rate swaps, net of income tax — — — — 1 1 Net income — — — 64 — 64 BALANCE—October 2, 2021 223 $ 2 $ 2,952 $ 723 $ ( 29 ) $ 3,648 3 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In millions) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity Shares Amount BALANCE—December 28, 2019 220 $ 2 $ 2,845 $ 916 $ ( 54 ) $ 3,709 Share-based compensation expense — — 7 — — 7 Proceeds from employee stock purchase plan — — 6 — — 6 Exercise of stock options — — 1 — — 1 Tax withholding payments for net share-settled equity awards — — ( 2 ) — — ( 2 ) Unrecognized loss on interest rate swaps, net of income tax — — — — ( 6 ) ( 6 ) 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 — — 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 — — — ( 5 ) — ( 5 ) 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 See Notes to Consolidated Financial Statements (Unaudited). 4 US FOODS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) 39 Weeks Ended October 2, 2021 September 26, 2020 Cash flows from operating activities: Net income (loss) $ 95 $ ( 216 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 286 316 Gain on disposal of property and equipment—net — ( 15 ) Intangible asset impairment charges 7 9 Loss on extinguishment of debt 23 — Amortization of deferred financing costs 10 12 Deferred tax provision (benefit) 19 ( 65 ) Share-based compensation expense 36 29 (Benefit) provision for doubtful accounts ( 18 ) 80 Changes in operating assets and liabilities: (Increase) decrease in receivables ( 530 ) 182 (Increase) decrease in inventories—net ( 292 ) 161 Decrease in prepaid expenses and other assets 9 30 Increase in accounts payable and cash overdraft liability 780 19 Increase (decrease) in accrued expenses and other liabilities 95 ( 9 ) Net cash provided by operating activities 520 533 Cash flows from investing activities: Acquisition of businesses—net of cash — ( 973 ) Proceeds from sales of divested assets 5 7 Proceeds from sales of property and equipment 2 33 Purchases of property and equipment ( 173 ) ( 154 ) Net cash used in investing activities ( 166 ) ( 1,087 ) Cash flows from financing activities: Proceeds from debt borrowings 900 3,645 Principal payments on debt and financing leases ( 1,291 ) ( 2,640 ) Net proceeds from issuance of Series A convertible preferred stock — 491 Dividends paid on Series A convertible preferred stock ( 18 ) — Debt financing costs and fees ( 18 ) ( 33 ) Proceeds from employee stock purchase plan 16 15 Proceeds from exercise of stock options 13 2 Tax withholding payments for net share-settled equity awards ( 13 ) ( 5 ) Net cash (used in) provided by financing activities ( 411 ) 1,475 Net (decrease) increase in cash, cash equivalents and restricted cash ( 57 ) 921 Cash, cash equivalents and restricted cash—beginning of period 829 98 Cash, cash equivalents and restricted cash—end of period $ 772 $ 1,019 Supplemental disclosures of cash flow information: Interest paid—net of amounts capitalized $ 134 $ 122 Income taxes paid—net — 3 Property and equipment purchases included in accounts payable 32 11 Property and equipment transferred to assets held for sale 11 24 Leased assets obtained in exchange for financing lease liabilities 24 63 Leased assets obtained in exchange for operating lease liabilities 24 21 Cashless exercise of stock options 1 — Paid-in-kind Series A convertible preferred stock dividends 15 5 See Notes to Consolidated Financial Statements (Unaudited). 5 US FOODS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Amounts in tables in millions, except per share data, unless otherwise noted) 1. OVERVIEW AND BASIS OF PRESENTATION US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods Holding Corp. conducts all of its operations through its wholly owned subsidiary US Foods, Inc. (“USF”) and its subsidiaries. All of the Company’s indebtedness, as further described in Note 10, Debt, is a direct obligation of USF and its subsidiaries. Business Description —The Company, through USF, operates in one business segment in which it markets and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States (“U.S.”). These customers include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities and retail locations. Basis of Presentation —The Company operates on a 52- or 53-week fiscal year, with all periods ending on a Saturday. When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth quarter. Fiscal year 2021 is a 52-week fiscal year. Fiscal year 2020 was a 53-week fiscal year. The consolidated financial statements included in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures included in this Quarterly Report are adequate to make the information presented not misleading. 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) 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 any other interim period or the full fiscal year. 2. RECENT ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements 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. As a result, convertible debt will be accounted for as a single liability measured at its amortized cost. Additionally, the new guidance requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. This guidance is effective for fiscal years beginning after December 15, 2021.The Company plans to adopt the provisions of ASU No. 2020-06 at the beginning of the first quarter of fiscal year 2022 and does not expect the provisions of the new standard to materially affect our financial position, results of operation or cash flows. 3. REVENUE RECOGNITION The Company recognizes revenue when the performance obligation is satisfied, which occurs when a customer obtains control of the promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services. The Company generates substantially all of its revenue from the distribution and sale of food and food-related products and recognizes revenue when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Customer sales incentives, such as volume-based rebates or discounts, are treated as a reduction of revenue at the time the revenue is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales. 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 October 2, 2021 or January 2, 2021. Customer receivables, which are included in accounts receivable, 6 less allowances in the Company’s Consolidated Balance Sheets, were $ 1.5 billion and $ 1.1 billion as of October 2, 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 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 $ 30 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of October 2, 2021 and January 2, 2021, respectively, and $ 27 million included in other assets in the Company’s Consolidated Balance Sheets as of both October 2, 2021 and January 2, 2021. The following table presents the disaggregation of revenue for each of the Company’s principal product categories: 13 Weeks Ended 39 Weeks Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Meats and seafood $ 3,067 $ 2,069 $ 8,280 $ 5,989 Dry grocery products 1,319 992 3,684 2,866 Refrigerated and frozen grocery products 1,168 891 3,303 2,626 Dairy 739 636 2,098 1,738 Equipment, disposables and supplies 815 638 2,305 1,768 Beverage products 391 309 1,104 876 Produce 391 313 1,074 884 Total Net sales $ 7,890 $ 5,848 $ 21,848 $ 16,747 4. BUSINESS ACQUISITIONS Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Stores Holding Corp., a Delaware corporation (“Smart Foodservice”), from funds managed by affiliates of Apollo Global Management, Inc. Total consideration paid at the closing of the acquisition (net of cash acquired) was $ 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. 7 The following table summarizes the final purchase price allocation recognized for the Smart Foodservice acquisition as of April 24, 2020. The decrease in goodwill from January 2, 2021 to October 2, 2021 was due to the finalization of deferred income taxes associated with the acquisition in the first quarter of 2021. Purchase Price Allocation Accounts receivable $ 5 Inventories 43 Other current assets 24 Property and equipment 84 Goodwill (1) 895 Other intangibles (2) 14 Other assets 145 Accounts payable ( 38 ) Accrued expenses and other current liabilities ( 32 ) Deferred income taxes ( 8 ) Other long-term liabilities, including financing leases ( 160 ) Cash paid for acquisition $ 972 (1) Goodwill recognized is primarily attributable to intangible assets that do not qualify for separate recognition, as well as expected synergies from the combined company. The acquired goodwill is not deductible for U.S. federal income tax purposes. (2) Other intangibles consist of a trade name of $ 14 million with an estimated useful life of approximately 1 year. Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 2 million and less than $ 1 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $ 11 million and $ 20 million for the 39 weeks ended October 2, 2021 and September 26, 2020, 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 October 2, 2021 and September 26, 2020. 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 39 Weeks Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Pro forma net sales $ 7,890 $ 5,848 $ 21,848 $ 17,120 Pro forma net income (loss) available to common shareholders $ 55 $ ( 2 ) $ 62 $ ( 202 ) Pro forma net income (loss) per share: Basic $ 0.25 $ ( 0.01 ) $ 0.28 $ ( 0.92 ) Diluted $ 0.24 $ ( 0.01 ) $ 0.28 $ ( 0.92 ) 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 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. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the date indicated. Further, the pro forma financial information does not purport to project the Company’s future consolidated results of operations following the acquisition. 8 5. INVENTORIES The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods. Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions. The Company records inventories at the lower of cost or market 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 $ 327 million and $ 177 million as of October 2, 2021 and January 2, 2021, respectively. As a result of changes in LIFO reserves, cost of goods sold increased $ 32 million and $ 3 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and increased $ 150 million and $ 9 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively. 6. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. The Company maintains an allowance for doubtful accounts, which is based upon historical experience, future expected losses, as well as specific customer collection issues that have been identified. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due over specified periods. Since mid-March 2020, our business has been significantly impacted by the COVID-19 pandemic. Starting 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. 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 while leaving the remaining pre-COVID-19 accounts receivable fully reserved. A summary of the activity in the allowance for doubtful accounts for the 39 weeks ended October 2, 2021 was as follows: Balance as of January 2, 2021 $ 67 Reversed from costs and expenses ( 18 ) Customer accounts written off—net of recoveries ( 10 ) Balance as of October 2, 2021 $ 39 This table excludes the vendor receivable related allowance for doubtful accounts of $ 6 million and $ 5 million as of October 2, 2021 and January 2, 2021, respectively. 7. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. 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 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 October 2, 2021 and January 2, 2021, property and equipment-net included accumulated depreciation of $ 2,784 million and $ 2,566 million, respectively. Depreciation expense was $ 79 million and $ 88 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $ 242 million and $ 257 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively. 9 8. GOODWILL AND OTHER INTANGIBLES Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired. Other intangible assets include customer relationships, amortizable trade names, noncompete agreements, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks. Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below. Customer relationships, amortizable trade names and noncompete agreements are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships, amortizable trade names and noncompete agreements are amortized over their estimated useful lives (which range from approximately 3 to 15 years). Amortization expense was $ 12 million and $ 21 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $ 44 million and $ 59 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively. Goodwill and other intangibles—net consisted of the following: October 2, 2021 January 2, 2021 Goodwill $ 5,625 $ 5,637 Other intangibles—net Customer relationships—amortizable: Gross carrying amount $ 655 $ 725 Accumulated amortization ( 90 ) ( 119 ) Net carrying value 565 606 Trade names—amortizable: Gross carrying amount 4 15 Accumulated amortization — ( 11 ) Net carrying value 4 4 Noncompete agreements—amortizable: Gross carrying amount 3 3 Accumulated amortization ( 2 ) ( 2 ) Net carrying value 1 1 Brand names and trademarks—not amortizing 271 281 Total other intangibles—net $ 841 $ 892 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 for impairment as of July 4, 2021, the first day of the third quarter of fiscal year 2021. During the third quarter of fiscal year 2021, the Company implemented rebranding initiatives related to the integration of a trade name acquired as part of the 2019 Food Group acquisition. As a result of the rebranding initiatives, the Company recognized an impairment charge of $ 7 million, which was included in restructuring and asset impairment charges in the Company's Consolidated Statement of Comprehensive Income. The remaining carrying value of the acquired trade name of $ 3 million as of October 2, 2021, was reclassified to trade names—amortizable and will be amortized with an estimated remaining useful life of 10 years. No other impairments were noted as part of the annual impairment assessment. The decrease in goodwill as of October 2, 2021 is attributable to the finalization of the purchase price allocation recognized for the Smart Foodservice acquisition, as described in Note 4, Business Acquisitions. The net decrease in the gross carrying amount of customer relationships as of October 2, 2021 is attributable to the write-off of fully amortized intangible assets related to certain 2016 and 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, partially offset by the aforementioned reclassification of the remaining carrying value of the trade name acquired with the Food Group acquisition. The net decrease in the gross carrying amount of brand names and trademarks—not amortizing is primarily due to the aforementioned impairment 10 of the trade name acquired with the Food Group acquisition with the remaining balance being reclassified to trade names—amortizable. 9. FAIR VALUE MEASUREMENTS Certain assets and liabilities are carried at fair value under GAAP, under which fair value is a market-based measurement, not an entity-specific measurement. The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: • Level 1—observable inputs, such as quoted prices in active markets • Level 2—observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active or inactive markets that are observable either directly or indirectly, or other inputs that are observable or can be corroborated by observable market data • 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 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 October 2, 2021 and January 2, 2021, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows: October 2, 2021 Level 1 Level 2 Level 3 Total Assets Money market funds $ 626 $ — $ — $ 626 January 2, 2021 Level 1 Level 2 Level 3 Total Assets Money market funds $ 696 $ — $ — $ 696 Liabilities Interest rate swaps $ — $ 5 $ — $ 5 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 Money Market Funds Money market funds include highly liquid investments with an original maturity of three or fewer months. These funds are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy. Derivative Financial Instruments The Company may use interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate debt. As of January 2, 2021, the fair value of the Company’s interest rate swaps liability from certain previously entered into four-year interest rate swap agreements, which collectively had a notional value of $ 550 million, was $ 5 million, as reflected in its Consolidated Balance Sheet in accrued expenses and other current liabilities. The Company recorded these interest rate swaps at fair value based on projections of cash flows and future interest rates. The determination of fair value included the consideration of any credit valuation adjustments necessary, to reflect the creditworthiness of the respective counterparties and the Company. 11 These interest rate swap agreements expired on July 31, 2021. Through the term of the swap agreements, the Company paid an aggregate effective rate of 3.45 % on the notional amount of the Initial Term Loan Facility covered by the interest rate swap agreements, comprised of a rate of 1.70 % plus a spread of 1.75 % (see Note 10, Debt). Gains and losses on the interest rate swaps were initially recorded in accumulated o ther comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affected 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 October 2, 2021 and September 26, 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 October 2, 2021 Interest rate swaps $ — Interest expense—net $ 1 For the 13 weeks ended September 26, 2020 Interest rate swaps $ — Interest expense—net $ 2 For the 39 weeks ended October 2, 2021 Interest rate swaps $ — Interest expense—net $ 5 For the 39 weeks ended September 26, 2020 Interest rate swaps $ ( 8 ) Interest expense—net $ 4 Other Fair Value Measurements 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 its carrying value of $ 5.4 billion as of October 2, 2021. The fair value of the Company’s total debt approximated $ 5.8 billion, compared to its carrying value of $ 5.7 billion as of January 2, 2021. The fair value of the Company's 4.75 % unsecured senior notes due February 15, 2029 (the “Unsecured Senior Notes due 2029”) was $ 0.9 billion as of October 2, 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 outstanding Company 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 October 2, 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 their closing market prices 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. 12 10. DEBT Total debt consisted of the following: Debt Description Maturity Interest Rate as of October 2, 2021 Carrying Value as of October 2, 2021 Carrying Value as of January 2, 2021 ABL Facility May 31, 2024 — % $ — $ — Initial Term Loan Facility (net of $2 and $3 of unamortized deferred financing costs, respectively) June 27, 2023 1.83 % 1,783 2,098 2019 Incremental Term Loan Facility (net of $26 and $30 of unamortized deferred financing costs, respectively) September 13, 2026 2.08 % 1,444 1,451 2020 Incremental Term Loan Facility (net of $11 of unamortized deferred financing costs) (1) April 24, 2025 — % — 284 Secured Notes (net of $11 and $13 of unamortized deferred financing costs) April 15, 2025 6.25 % 989 987 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 2021–2039 1.63% - 6.1% 281 323 Other debt 2021–2031 5.75% - 9.00% 8 8 Total debt 5,396 5,748 Current portion of long-term debt ( 115 ) ( 131 ) Long-term debt $ 5,281 $ 5,617 (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 October 2, 2021, approximately 60 % of the Company’s total debt bears interest at a floating rate. ABL Facility USF's asset based senior secured revolving credit facility (the “ABL Facility”) provides USF with loan commitments having a maximum aggregate principal amount of $ 1,990 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 October 2, 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 $ 253 million, under the ABL Facility as of October 2, 2021. The outstanding letters of credit primarily relate to securing USF’s obligations with respect to its insurance program and certain real estate leases. There was available capacity of $ 1,737 million under the ABL Facility as of October 2, 2021. Term Loan Facilities 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 $ 1,783 million, net of $ 2 million of unamortized deferred financing costs as of October 2, 2021. During the 39 weeks ended October 2, 2021, the Company made voluntary prepayments of the Initial Term Loan Facility totaling $ 300 million. The table above reflects the interest rate on the Initial Term Loan Facility as of October 2, 2021. The Initial Term Loan Facility is scheduled to mature on June 27, 2023. The 2019 Incremental Term Loan Facility had a carrying value of $ 1,444 million, net of $ 26 million of unamortized deferred financing costs as of October 2, 2021. Borrowings under the 2019 Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of LIBOR plus a margin of 2.00 %, or the sum of an ABR, 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. 13 Secured Notes The Secured Notes had a carrying value of $ 989 million, net of $ 11 million of unamortized deferred financing costs, as of October 2, 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 October 2, 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 The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends, or engage in mergers or consolidations. USF had approximately $ 1.4 billion of restricted payment capacity under these covenants, and approximately $ 2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of October 2, 2021. 11. RESTRUCTURING LIABILITIES From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness. In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs. During the 39 weeks ended October 2, 2021, the Company incurred net restructuring costs of $ 3 million for severance and related costs associated with the announced closure of an excess facility and initiatives to improve operational effectiveness. During the 13 weeks ended October 2, 2021, net restructuring costs were de minimis. During the 13 weeks and 39 weeks ended September 26, 2020, in order to reduce operating expenses in line with the decrease in sales volume caused by the COVID-19 pandemic, the Company reduced its work force and incurred net restructuring costs of $ 14 million and $ 30 million for severance and related costs. Net restructuring liabilities were $ 3 million and $ 2 million as of October 2, 2021 and January 2, 2021, respectively. 14 12. 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. 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 39 Weeks Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Components of net periodic pension benefit credits Service cost $ — $ 1 $ 2 $ 2 Interest cost 8 8 22 23 Expected return on plan assets ( 14 ) ( 14 ) ( 41 ) ( 40 ) Amortization of net loss — — — 1 Net periodic pension benefit credits $ ( 6 ) $ ( 5 ) $ ( 17 ) $ ( 14 ) Other postretirement benefit costs were de minimis for both the 13 weeks and 39 weeks ended October 2, 2021 and September 26, 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—net, respectively, in the Company's Consolidated Statements of Comprehensive Income. 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 $ 13 million and $ 11 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $ 39 million and $ 34 million for the 39 weeks ended October 2, 2021 and September 26, 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 for each of the 13 weeks ended October 2, 2021 and September 26, 2020, and $ 33 million for each of the 39 weeks ended October 2, 2021 and September 26, 2020. 13. EARNINGS PER SHARE The Company computes EPS in accordance with ASC 260, Earnings per Share . Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of share-based awards—stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals. The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock, if dilutive in the period. For the 13 weeks and 39 weeks ended October 2, 2021 and September 26, 2020, share-based awards representing 2 million and 9 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For the 13 weeks ended October 2, 2021 and September 26, 2020, convertible preferred stock representing 25 million and 23 million of underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For the 39 weeks ended October 2, 2021 and September 26, 2020, convertible preferred stock representing 25 million and 12 million of underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. 15 The following table sets forth the computation of basic and diluted EPS: 13 Weeks Ended 39 Weeks Ended October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Numerator: Net income (loss) $ 64 $ 8 $ 95 $ ( 216 ) Less: Series A convertible preferred stock dividends (1) ( 9 ) ( 10 ) ( 33 ) ( 15 ) Net income (loss) available to common shareholders $ 55 $ ( 2 ) $ 62 $ ( 231 ) Denominator: Weighted-average common shares outstanding—basic 222 220 222 220 Effect of dilutive share-based awards 3 — 3 — Effect of dilutive underlying shares of the Series A convertible preferred stock (2) — — — — Weighted-average common shares outstanding—diluted 225 220 225 220 Net income (loss) per share Basic $ 0.25 $ ( 0.01 ) $ 0.28 $ ( 1.05 ) Diluted $ 0.24 $ ( 0.01 ) $ 0.28 $ ( 1.05 ) (1) Preferred stock dividends for the first quarter of 2021 were paid in kind on March 31, 2021. Preferred stock dividends for the second and third quarters of 2021 were paid in cash on June 30, 2021 and September 28, 2021, respectively. Preferred stock dividends for the second and third quarters of 2020 were paid in kind on June 30, 2020 and September 30, 2020, respectively. (2) The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock, if dilutive in the period. Under the if-converted method, the Series A convertible preferred stock are converted to common shares for inclusion in the calculation of the weighted-average common shares outstanding—diluted. Once converted, there would be no preferred stock outstanding and therefore no preferred stock dividend. 14. 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, 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. 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. On June 30, 2021 and September 28, 2021, the Company paid cash dividends of $ 9 million each on the shares of 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 39 weeks ended October 2, 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 October 2, 2021 532,281 $ 534 16 15. 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 October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Accumulated other comprehensive loss components Retirement benefit obligations: Balance as of beginning of period (1) $ ( 29 ) $ ( 51 ) $ ( 29 ) $ ( 52 ) Reclassification adjustments: Amortization of net loss (2) (3) — — — 1 Total before income tax — — — 1 Income tax provision — — — — Current period comprehensive income, net of tax — — — 1 Balance as of end of period (1) $ ( 29 ) $ ( 51 ) $ ( 29 ) $ ( 51 ) Interest rate swaps: Balance as of beginning of period (1) $ ( 1 ) $ ( 8 ) $ ( 5 ) $ ( 2 ) Change in fair value of interest rate swaps 1 — 1 ( 10 ) Amounts reclassified to interest expense—net 1 2 5 4 Total before income tax 2 2 6 ( 6 ) Income tax provision (benefit) 1 — 1 ( 2 ) Current period comprehensive income (loss), net of tax 1 2 5 ( 4 ) Balance as of end of period (1) $ — $ ( 6 ) $ — $ ( 6 ) Accumulated other comprehensive loss as of end of period (1) $ ( 29 ) $ ( 57 ) $ ( 29 ) $ ( 57 ) (1) Amounts are presented net of tax. (2) Included in the computation of net periodic benefit costs. See Note 12, Retirement Plans, for additional information. (3) Included in other income—net in the Company's Consolidated Statements of Comprehensive Income. 16. RELATED PARTY TRANSACTIONS As of October 2, 2021, investment funds managed by an affiliate of KKR held approximately $ 54 million in aggregate principal amount of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility, as reported by the administrative agent. During the 39 weeks ended October 2, 2021, 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 39 weeks ended September 26, 2020, KKR Capital Markets LLC received aggregate fees of $ 6 million for debt advisory services rendered in connection with the 2020 Incremental Term Loan Facility, the Secured Notes and the ABL Facility amendment financings. 17. INCOME TAXES The determination of the Company’s overall effective income tax rate requires the use of estimates. The effective income tax rate reflects the income earned and taxed in U.S. 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 October 2, 2021 and September 26, 2020, and then recognized the impact of discrete tax items for purposes of determining its year-to-date tax provision. For the 13 weeks ended October 2, 2021, the Company's effective income tax rate of 30 % 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 discrete tax items were not material individually or in the aggregate; however, when compared to the pre-tax income of $91 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 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 17 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 39 weeks ended October 2, 2021, the Company's effective income tax rate of 24 % differed from the 21 % federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items include a tax benefit of $ 5 million, primarily related to excess tax benefits associated with share-based compensation. 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. 18. 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 $ 1,337 million of purchase orders and purchase contract commitments as of October 2, 2021 to be purchased in the remainder of fiscal year 2021 and $ 46 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 $ 31 million through December 2022, as of October 2, 2021. Additionally, the Company had electricity forward purchase commitments totaling $ 4 million through June 2024, as of October 2, 2021. The Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts under contract meet the physical delivery criteria in the normal purchase exception. Legal Proceedings —The Company is subject to a number of legal proceedings arising in the normal course of business. These legal proceedings, whether pending, threatened or unasserted, if decided adversely to or settled by the Company, may result in liabilities material to its financial position, results of operations, or cash flows. The Company has recognized provisions with respect to the proceedings, where appropriate, in its Consolidated Balance Sheets. It is possible that the Company could settle one or more of these proceedings or could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated. However, the Company, at present, believes that the ultimate outcome of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 19. BUSINESS INFORMATION The Company’s consolidated results represent the results of its one business segment based on how the Company’s chief operating decision maker, the Chief Executive Officer, views the business for purposes of evaluating performance and making operating decisions. The Company markets and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the U.S. The Company uses a centralized management structure, and its strategies and initiatives are implemented and executed consistently across the organization to maximize value to the organization as a whole. The Company uses shared resources for sales, procurement, and general and administrative activities across each of its distribution facilities and operations. The Company’s distribution facilities form a single network to reach its customers; it is common for a single customer to make purchases from several different distribution facilities. Capital projects, whether for cost savings or generating incremental revenue, are evaluated based on estimated economic returns to the organization as a whole. 18