What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-16 · 170 added, 230 removed, 216 unchanged (65% of the section changed)

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It should be read together with our consolidated financial statements and related notes contained elsewhere in this Annual Report.

The following discussion and analysis contain certain financial measures that are not required by, or presented in accordance with, GAAP.

The following discussion and analysis contain certain financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the U.S.

We believe these non-GAAP financial measures provide meaningful supplemental information about our operating performance and liquidity.

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The following includes a comparison of our consolidated results of operations for fiscal years 2021 and 2020.

For a comparison of our consolidated results of operations for fiscal years 2019 and 2018, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, filed with the SEC on February 13, 2020.

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.

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

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

Restrictions on public gatherings and attendance at retail or other establishments, including restaurants and recreational, sporting and other similar venues, continue to evolve and are expected to continue to remain in effect in some capacity until the COVID-19 pandemic has fully abated.

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

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

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

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

For a comparison of our consolidated results of operations for fiscal years 2020 and 2019, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on February 16, 2021.

Our operations, our industry and the U.S.

economy continue to be disrupted by the COVID-19 pandemic and related supply chain disruptions and labor shortages.

The timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the rate of vaccination, the emergence and severity of COVID-19 variants, the continued effectiveness of the vaccines against those variants, the frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures.

Impact of COVID-19 on Our Business

The COVID-19 pandemic has and continues to adversely impact our sales and liquidity position due to the slowdown in total case volume (and, in particular, restaurant, hospitality and education case volume).

In mid-March 2020, the operations of our restaurant, hospitality and education customers were suddenly and significantly disrupted by the spread of COVID-19 and the corresponding decline in consumer demand for food prepared away from home.

Since that time, many of our customers were required by governmental authorities to temporarily close locations or only offer limited dining options such as carryout and delivery in an effort to reduce the spread of COVID-19, while others temporarily closed locations voluntarily or ceased operations entirely due to decreased consumer demand.

Many of these government mandates started to loosen in the summer of 2020 to varying degrees and our case volume decline improved accordingly.

Restrictions remain in place in many parts of the United States and, in some jurisdictions, governmental authorities have reinstituted heightened restrictions in response to recent increases in COVID-19 cases.

As a result of the COVID-19 pandemic and measures implemented to mitigate its spread, we have experienced decreased demand for our products, resulting in lower than anticipated Net sales and total case volumes beginning in mid-March 2020 through the second quarter of 2020.

We saw some improvement in Net sales and total case volumes during the third quarter of 2020, as a result of loosened restrictions and shifts to outdoor dining;

however, demand remained lower than 2019 levels for the corresponding periods.

In the fourth quarter of 2020, increases in COVID-19 cases and the implementation of heightened restrictions on in-person dining in many markets, as well as other factors, resulted in a slowdown in the total case volume recovery trend that we saw in the third quarter of 2020.

Total case volume decreased 11.0% for the 53 weeks ended January 2, 2021 compared to the 52 weeks ended December 28, 2019.

Recent Activity and Sector Perspectives

We continue to actively monitor the impacts of the COVID-19 pandemic on all aspects of our business including related actions taken by government authorities.

We saw improvement in Net sales and total case volumes during fiscal year 2021 coinciding with declining infection rates and loosening of indoor dining restrictions and other safety measures.

Overall demand started to return to pre-COVID-19 levels at times during 2021;

however, full year case volumes remained lower than pre-COVID-19 levels.

Economic and operating conditions for our business have improved in each quarter of 2021 as compared to the fourth quarter of 2020.

However, uncertainty around the pandemic persists and, as a result, we and the industry may continue to face pandemic-related challenges, such as the recent Omicron variant and related case increases, as the recovery continues, such as constraints on the availability of product supply, increased product and logistics costs, labor shortages, inflation and shifts in the buying patterns of our customers.

Therefore, we are unable to predict the duration and extent to which the pandemic will continue to impact our results of operations.

We are optimistic about the long-term prospects for our business.

US Foods operates in a large and essential industry with a highly diversified set of end consumers.

While some of our core customer groups (such as restaurants, hospitality and education) have been more significantly affected by the impacts of the COVID-19 pandemic, other customer groups (such as healthcare, government, retail and cash and carry) have been less significantly affected.

Although the timetable for returning to normalcy is unknown, we believe that our case volumes will increase over time as vaccine distribution increases and the effects of the COVID-19 pandemic dissipate, consumer demand for food prepared away from home increases, educational institutions resume in-person learning, and the hospitality industry recovers.

As one of the largest companies in our industry, we believe we are well positioned for long-term success as the fragmented nature of our industry and the current environment create new opportunities for companies with the size and resources of US Foods.

We believe we are differentiated from many of our competitors on a number of fronts including our national footprint, diversified multi-channel

platform, strong technology capabilities and value-added service offerings, all of which have allowed us to continue to serve our customers during these unprecedented conditions.

During these difficult times, we are proactively supporting our customers by helping our restaurant and hospitality customers adapt to social distancing restrictions with tools and resources to build and manage carryout and delivery capabilities.

In light of the COVID-19 pandemic, we have developed additional innovative services, such as customer education webinars on the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), assistance with recovery plans for location re-openings, and the creation of unique pantry kits to allow restaurants to continue servicing consumers.

Our product development efforts remain in full force and we continue to deliver product innovations that resonate with our customers.

In response to the COVID-19 pandemic and ensuing decrease in total case volume, we have evolved our business focus and cost structure.

We have taken a number of steps to secure new customer relationships and expand our market share, reduce fixed and variable operating costs on a temporary and permanent basis, and strengthen our liquidity position.

We also have the ability to take further cost reduction actions on a temporary basis depending upon the duration of the COVID-19 pandemic and its impact on our business, results of operations and financial condition.

Even so, there is no certainty that such measures, or any additional actions that we may take in the future, will be successful in mitigating the impact of the pandemic on our business, results of operations or financial condition.

On March 27, 2020, President Trump signed into law the CARES Act.

The CARES Act, among other things, includes provisions relating to deferment of employer-side social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, technical corrections to tax depreciation methods for qualified improvement property and federally backed loans to qualifying small-businesses.

US Foods has benefited from certain provisions under the CARES Act and many of our customers are benefiting from the federally backed small business loan program.

In addition, on December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the “December 2020 Relief Bill”).

The December 2020 Relief Bill, among other things, expands the federally backed small business loan program that was introduced as part of the CARES Act, which we expect will further benefit many of our customers.

It is currently unclear if or how US Foods may indirectly benefit from the December 2020 Relief Bill, but we continue to examine the impact of the December 2020 Relief Bill on our business, results of operations and financial condition.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent to which our business, results of operations or financial condition will ultimately be impacted.

In particular, we cannot predict the extent to which the COVID-19 pandemic will affect our business, results of operation or financial condition in the long term because the duration and severity of the pandemic and its negative impact on the economy (including our customers) is unclear.

The impact of the COVID-19 pandemic on us will also be dependent on:

the resiliency of the restaurant and hospitality industry and consumer spending more broadly;

actions taken by national, state and local governments to contain the disease or treat its impact, including travel restrictions and bans, social distancing requirements, required closures of non-essential businesses and aid and economic stimulus efforts;

widespread vaccination of the American public resulting in increased willingness by consumers to consume food away from home, travel and attend sporting and other events;

and any prolonged economic recession resulting from the pandemic.

Certain of our customers, particularly independent restaurants, have temporarily and, in some cases, permanently shut down their operations due to the adverse business consequences of the COVID-19 pandemic.

In addition, although during the course of the pandemic many of our restaurant customers have pivoted their offerings to focus on carryout and delivery, in many markets the combination of colder weather during the winter season and restrictions on in-person dining will likely pose additional challenges to our restaurant customers in those markets.

If our customers continue to face business challenges, more of them may permanently shut down, which would impact the demand for our services and have a material adverse effect on our business and results of operations.

While economic and operating conditions for our business improved in the third quarter compared to the second quarter, we do not expect to see pre-COVID-19 levels of operation until all government restrictions are lifted and consumers are once again willing and able to resume consumption of food away from home, travel and attend sporting and other events on a regular basis.

This recovery may not occur until well after the pandemic abates and the broader economy begins to improve.

We believe we are differentiated from many of our competitors on a number of fronts including our national footprint, multi-channel platform, strong technology capabilities and value-added service offerings, all of which allowed us to continue to serve our customers during the challenges created by the COVID-19 pandemic.

Our product development efforts continue to deliver product innovations that resonate with our customers.

Operating Metrics

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Fiscal Year 2021 Highlights

Financial Highlights —Total case volume decreased 11.0% in fiscal year 2020, and independent restaurant case volume decreased 11.2% in fiscal year 2020.

Excluding the impact of the extra week in fiscal year 2020, total case volume decreased 12.5% in fiscal year 2020, and independent restaurant case volume decreased 12.7% in fiscal year 2020.

Net sales decreased $3,054 million, or 11.8%, in fiscal year 2020 primarily due to the negative impact of COVID-19 on total case volumes, which was partially offset by contributions from the Food Group (which is included in our results for the full fiscal year 2020, and for fiscal year 2019, but only

from and after September 13, 2019) and Smart Foodservice (which is included in our results for fiscal year 2020, but only from and after April 24, 2020, and is not included in our results for fiscal year 2019).

The Food Group and Smart Foodservice contributed aggregate Net sales of $3,112 million for fiscal year 2020.

Net sales for the Food Group and Smart Foodservice were also impacted by the COVID-19 pandemic, albeit to different degrees.

Gross profit decreased $868 million, or 18.9%, to $3,719 million in fiscal year 2020, primarily as a result of the negative impact of COVID-19 on Net sales, higher logistics costs, and COVID-19 related product donations and inventory adjustments, partially offset by contributions from the Food Group and Smart Foodservice.

Financial Highlights —Total case volume increased 16.9% and independent restaurant case volume increased 28.0% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% and independent restaurant case volume increased 30.2% in fiscal year 2021.

Net sales increased $6,602 million, or 28.8%, in fiscal year 2021 primarily due to volume improvements commensurate with easing of COVID-19 restrictions on our customers, year-over-year inflation in multiple product categories, and the acquisition of Smart Foodservice.

The increase in Net sales due to the contributions from the Smart Foodservice acquisition, which was acquired on April 24, 2020, contributed Net sales of $1,183 million and $759 million for fiscal years 2021 and 2020, respectively.

Gross profit increased $936 million, or 25.2%, to $4,655 million in fiscal year 2021, primarily as a result of the increase in Net sales, pricing optimization, inflation in multiple categories, and the acquisition of Smart Foodservice.

These increases in gross profit were

partially offset by unfavorable year-over-year last-in first-out (“LIFO”) adjustments.

As a percentage of Net sales, gross profit was 15.8% in fiscal year 2021, compared to 16.3% in fiscal year 2020.

Total operating expenses decreased $92 million, or 2.4%, to $3,796 million in fiscal year 2020.

The decrease was primarily due to the negative impact of COVID-19 on total case volume, the related impact of cost actions taken during fiscal year 2020, and a $17 million gain on the sale of excess land.

These decreases were partially offset by a higher provision for doubtful accounts of $47 million due to the impact of COVID-19, operating expenses from the Food Group and Smart Foodservice, $30 million of restructuring costs associated with work force reductions, and $9 million of asset impairment charges on certain trade names acquired as part of the Food Group acquisition.

Total operating expenses increased $435 million, or 11.5%, to $4,231 million in fiscal year 2021.

The increase was primarily due to higher supply chain labor costs and increased non-labor distribution costs related to increased sales volume due to the recovery.

The increase in total operating expenses was also due to the inclusion of operating expenses from the Smart Foodservice acquisition.

Smart Foodservice Acquisition —On April 24, 2020, USF completed the acquisition of Smart Foodservice.

Total consideration paid at the closing of the acquisition was $972 million (net of cash acquired).

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

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

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

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Total operating expenses 4,231 3,796 3,888

Operating (loss) income (77) 699 658

Operating income (loss) 424 (77) 699

Other (income) expense—net (26) (21) 4

Interest expense—net 213 238 184

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

Income tax (benefit) provision (68) 126 89

Net (loss) income (226) 385 407

Series A convertible preferred stock dividends 28 — —

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

Net (loss) income per share:

Loss on extinguishment of debt

Income (loss) before income taxes 214 (294) 511

Income tax provision (benefit) 50 (68) 126

Net income (loss) 164 (226) 385

Series A Preferred Stock dividends (43) (28) —

Net income (loss) available to common shareholders $ 121 $ (254) $ 385

Net income (loss) per share:

$ 0.55 $ (1.15) $ 1.77

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14.3 % 16.6 % 15.0 %

Operating (loss) income

Operating income (loss)

1.4 % (0.3) % 2.7 %

Net (loss) income

Net income (loss)

0.6 % (1.0) % 1.5 %

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1,057 648 1,194

Adjusted net income available to common shareholders (1)

Adjusted net income (1)

Free cash flow (2)

(1) EBITDA is defined as net (loss) income, plus interest expense—net, income tax (benefit) provision, and depreciation and amortization.

(1) EBITDA is defined as net income (loss), plus interest expense—net, income tax provision (benefit), and depreciation and amortization.

Adjusted EBITDA is defined as EBITDA adjusted for (1) restructuring costs and asset impairment charges;

(2) share-based compensation expense;

(3) the non-cash impact of last-in first-out (“LIFO”) reserve adjustments;

(3) the non-cash impact of LIFO reserve adjustments;

(4) loss on extinguishment of debt;

(5) pension settlements;

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and (7) other gains, losses, or costs as specified in the agreements governing our indebtedness.

Adjusted net income available to common shareholders is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items and Series A convertible preferred stock dividends.

EBITDA, Adjusted EBITDA, and Adjusted net income available to common shareholders as presented in this Annual Report are supplemental measures of our performance that are not required by, or presented in accordance with, accounting principles generally accepted in the U.S.

Adjusted net income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items.

EBITDA, Adjusted EBITDA, and Adjusted net income as presented in this Annual Report are supplemental measures of our performance that are not required by, or presented in accordance with GAAP.

They are not measurements of our performance under GAAP and should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP.

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Free cash flow as presented in this Annual Report is a supplemental measure of our liquidity that is not required by, or presented in accordance with, GAAP.

It is not a measure of our liquidity

under GAAP and should not be considered as an alternative to cash flows provided by operating activities, or any other liquidity measures derived in accordance with GAAP.

It is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities, or any other liquidity measures derived in accordance with GAAP.

For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

Non-GAAP Reconciliations

We provide EBITDA, Adjusted EBITDA, Adjusted net income available to common shareholders and Free cash flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity.

We provide EBITDA, Adjusted EBITDA, Adjusted net income and Free cash flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity.

These non-GAAP financial measures, as defined above, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP.

We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance.

We believe that Adjusted net income available to common shareholders is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense, income taxes and Series A convertible preferred stock dividends on a consistent basis from period to period.

We believe that Adjusted net income available to common shareholders may be used by investors, analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends impact our operating performance.

We believe that Adjusted net income is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense and income taxes on a consistent basis from period to period.

We believe that Adjusted net income may be used by investors, analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends impact our operating performance.

Management uses these non-GAAP financial measures (1) to evaluate our historical and prospective financial performance as well as our performance relative to our competitors as they assist in highlighting trends, (2) to set internal sales targets and spending budgets, (3) to measure operational profitability and the accuracy of forecasting, (4) to assess financial discipline over operational expenditures, and (5) as an important factor in determining variable compensation for management and employees.

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We also believe these and similar non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.

EBITDA, Adjusted EBITDA and Adjusted net income available to common shareholders are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP.

EBITDA, Adjusted EBITDA and Adjusted net income are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP.

We use Free cash flow as a supplemental measure to GAAP financial measures regarding the liquidity of our operations.

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Free cash flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted net income available to common shareholders, and Free cash flow may not be the same as similar measures used by other companies.

Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income available to common shareholders or Free cash flow in the same manner.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted net income, and Free cash flow may not be the same as similar measures used by other companies.

Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income or Free cash flow in the same manner.

We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

The following table reconciles EBITDA, Adjusted EBITDA, Adjusted net income available to common shareholders and Free cash flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated:

The following table reconciles EBITDA, Adjusted EBITDA, Adjusted net income and Free cash flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated:

2021 2020 2019

(in millions)

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

Series A convertible preferred stock dividends (see Note 16) 28 — —

Net (loss) income (226) 385 407

Net income (loss) available to common shareholders $ 121 $ (254) $ 385

Series A Preferred Stock dividends (see Note 14) (43) (28) —

Net income (loss) 164 (226) 385

Interest expense—net 213 238 184

Income tax (benefit) provision (68) 126 89

Income tax provision (benefit) 50 (68) 126

Depreciation expense 323 343 311

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LIFO reserve adjustment (3)

Loss on extinguishment of debt (4)

Pension settlements (5)

Business transformation costs (6)

COVID-19 bad debt expense (6)

COVID-19 bad debt (benefit) expense (7)

COVID-19 product donations and inventory adjustments (8)

COVID-19 other related expenses (9)

Business acquisition and integrated related costs and other (9)

Business acquisition and integration related costs and other (10)

Adjusted EBITDA 1,057 648 1,194

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(133) (19) (176)

Series A convertible preferred stock dividends

Adjusted net income available to common shareholders

Adjusted net income (12)

$ 388 $ 48 $ 523

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(3) Represents the non-cash impact of LIFO reserve adjustments.

(4) Includes early redemption premium and the write-off of certain pre-existing debt issuance costs.

See Note 11, Debt, in our consolidated financial statements for additional information.

(5) Consists of settlement costs resulting from payments to settle benefit obligations with participants in our defined benefit pension plan.

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(6) Consists primarily of costs related to significant process and systems redesign across multiple functions.

(6) Includes the increase in reserve for doubtful accounts expense reflecting the collection risk associated with our customer base as a result of the COVID-19 pandemic.

For the 53 weeks ended January 2, 2021 we had a total of $67 million of reserve for doubtful accounts expense.

Management estimates that approximately $47 million of this reserve for doubtful accounts expense was attributable to the negative impact the COVID-19 pandemic had on many of our customers’operations during the 53 weeks ended January 2, 2021.

This amount was derived by subtracting what management believes to be a reasonable estimate of what reserve for doubtful accounts expense would have been for the 53 week period ended January 2, 2021 had there been no COVID-19 outbreak from actual reserve for doubtful accounts expense for the relevant period.

(7) Includes the changes in the reserve for doubtful accounts expense reflecting the collection risk associated with our customer base as a result of the COVID-19 pandemic.

(8) Includes COVID-19 related expenses related to inventory adjustments and product donations.

(8) Includes COVID-19 related costs that we are permitted to addback under certain agreements governing our indebtedness.

(9) Includes COVID-19 related costs that we are permitted to add back under certain agreements governing our indebtedness.

(10) Includes:

(i) Food Group acquisition and integration related costs of $24 million, $52 million and $29 million for fiscal years 2020, 2019 and 2018, respectively;

(ii) Smart Foodservice acquisition and integration related costs of $21 million for fiscal year 2020;

and (iii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(10) Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted net income available to common shareholders and the removal of applicable discrete tax items.

Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, excess tax benefits associated with share-based compensation, and the tax benefits recognized in continuing operations due to the existence of a gain in other comprehensive income and loss in continuing operations.

The tax effect of pre-tax items excluded from Adjusted net income available to common shareholders is computed using a statutory tax rate after taking into account the impact of permanent differences and valuation allowances.

A reconciliation between the GAAP income tax (benefit) provision and the income tax provision, as adjusted, is as follows:

(i) aggregate acquisition and integration related costs of $22 million, $45 million and $52 million for fiscal years 2021, 2020 and 2019, respectively;

(ii) favorable legal settlement recoveries of $29 million for fiscal year 2021;

and (iii) other gains, losses or costs that we are permitted to add back for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(11) Represents our income tax provision (benefit) adjusted for the tax effect of pre-tax items excluded from Adjusted net income and the removal of applicable discrete tax items.

Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, and excess tax benefits associated with share-based compensation.

The tax effect of pre-tax items excluded from Adjusted net income is computed using a statutory tax rate after taking into account the impact of permanent differences and valuation allowances.

(12) Effective as of the first quarter 2021, we have presented Adjusted net income.

Previously, we presented Adjusted net income (loss) available to common shareholders.

A reconciliation between the GAAP income tax provision (benefit) and the income tax provision, as adjusted, is as follows:

2021 2020 2019

(in millions)

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

GAAP income tax provision (benefit) $ 50 $ (68) $ 126

Tax impact of pre-tax income adjustments

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Comparison of Results

Fiscal Years Ended January 2, 2021 and December 28, 2019

• Total case volume decreased 11.0% in fiscal year 2020, and independent restaurant case volume decreased 11.2% in fiscal year 2020.

Excluding the impact of the extra week in fiscal year 2020, total case volume decreased 12.5% in fiscal year 2020, and independent restaurant case volume decreased 12.7% in fiscal year 2020.

• Net sales decreased $3,054 million, or 11.8% to $22,885 million in fiscal year 2020.

• Operating loss was $77 million in fiscal year 2020, compared to operating income of $699 million in fiscal year 2019.

As a percentage of net sales, operating loss was 0.3% in fiscal year 2020, and operating income was 2.7% in fiscal year 2019.

• Net loss was $226 million in fiscal year 2020, compared to net income of $385 million in fiscal year 2019.

• Adjusted EBITDA decreased $546 million, or 45.7%, to $648 million in fiscal year 2020.

Fiscal Years Ended January 1, 2022 and January 2, 2021

• Total case volume increased 16.9% and independent restaurant case volume increased 28.0% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% and independent restaurant case volume increased 30.2% in fiscal year 2021.

• Net sales increased $6,602 million, or 28.8% compared to $29,487 million in fiscal year 2021.

• Operating income was $424 million in fiscal year 2021, compared to an operating loss of $77 million in fiscal year 2020.

As a percentage of net sales, operating income was 1.4% in fiscal year 2021, and operating loss was 0.3% in fiscal year 2020.

• Net income was $164 million in fiscal year 2021, compared to a net loss of $226 million in fiscal year 2020.

• Adjusted EBITDA increased $409 million, or 63.1%, to $1,057 million in fiscal year 2021.

As a percentage of net sales, Adjusted EBITDA was 3.6% in fiscal year 2021, as compared to 2.8% in fiscal year 2020.

Total case volume decreased 11.0% in fiscal year 2020.

Excluding the impact of the extra week in fiscal year 2020, total case volume decreased 12.5% in fiscal year 2020.

The decrease was due to the negative impact of COVID-19 on total case volume which was partially offset by contributions from the Food Group and Smart Foodservice.

Organic case volume decreased 21.3% in fiscal year 2020, and organic independent restaurant case volume decreased 20.8% in fiscal year 2020.

Excluding the impact of the extra week in fiscal year 2020, organic case volume decreased 22.6% in fiscal year 2020, and organic independent restaurant case volume decreased 22.2% in fiscal year 2020.

Net sales decreased $3,054 million, or 11.8%, to $22,885 million in fiscal year 2020, comprised of a $2,866 million, or 11.0%, decrease in total case volume and a $188 million, or 0.8%, decrease in the overall Net sales rate per case.

The decrease in the Net sales rate per case primarily reflects changes in our product mix, partially offset by an year-over-year inflation increase of 1.9% in multiple product categories including beef, cheese and disposables.

Total case volume increased 16.9% and independent restaurant case volume growth of 28.0% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, total case volume increased 18.8% in fiscal year 2021.

Organic case volume increased 14.8% and organic independent restaurant case volume increased 25.1% in fiscal year 2021.

Excluding the impact of the extra week in fiscal year 2020, organic case volume increased 16.6% and organic independent restaurant case volume increased 27.1% in fiscal year 2021.

The organic case volume increases were primarily driven by increased leisure and business travel and increased restaurant traffic due to eased Covid-19 related restrictions on our customers.

Overall case volume increases were also due to the impact of the Smart Foodservice acquisition.

Net sales increased $6,602 million, or 28.8%, to $29,487 million in fiscal year 2021, comprised of a $3,876 million, or 16.9%, increase in total case volume and a $2,726 million, or 11.9%, increase in the overall Net sales rate per case.

The increase in Net sales rate per case primarily reflects a year-over-year average inflation increase of 8.9% in multiple product categories including poultry, beef, disposables and pork, as well as favorable changes in our product mix.

The year-over-year increase in inflation benefited Net sales since a significant portion of our Net sales is based on a pre-established markup over product cost.

Sales of our private brands represented approximately 34% and 35% of Net sales in fiscal years 2020 and 2019, respectively.

The Food Group and Smart Foodservice contributed aggregate Net sales of $3,112 million for fiscal year 2020.

Gross profit decreased $868 million, or 18.9%, to $3,719 million in fiscal year 2020, primarily as a result of the negative impact of COVID-19 on total case volume, higher logistics costs, $50 million of COVID-19 related product donations and inventory adjustments, and unfavorable year-over-year LIFO adjustments, which were partially offset by contributions from the Food Group and Smart Foodservice.

Organic sales of private brands represented approximately 34% of Net sales in both 2021 and 2020.

The increase in Net sales was also due to contributions from the Smart Foodservice acquisition.

Smart Foodservice contributed Net sales of $1,183 million in 2021 compared to $759 million in 2020.

These increases in gross profit were partially offset by unfavorable year-over-year LIFO adjustments primarily due to inflation.

Our LIFO method of inventory costing resulted in expense of $165 million in fiscal year 2021, compared to expense of $25 million in fiscal year 2020.

Gross profit as a percentage of net sales was 16.3% in fiscal year 2020, compared to 17.7% in fiscal year 2019.

Gross profit as a percentage of net sales was 15.8% in fiscal year 2021, compared to 16.3% in fiscal year 2020, primarily driven by our increase in LIFO expense in fiscal year 2021 as compared to fiscal year 2020.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs and restructuring costs and asset impairment charges, decreased $92 million, or 2.4%, to $3,796 million in fiscal year 2020.

Operating expenses, comprised of distribution, selling and administrative costs and restructuring costs and asset impairment charges, increased $435 million, or 11.5%, to $4,231 million in fiscal year 2021.

Operating expenses as a percentage of net sales were 14.3% in fiscal year 2021, compared to 16.6% in fiscal year 2020.

The decrease in operating expenses is primarily due to the negative impact of COVID-19 on total case volume, the related impact of cost actions put into place, and a $17 million gain on the sale of excess land.

These decreases were partially offset by operating expenses for the Food Group and Smart Foodservice of $514 million, a $47 million increase in the provision for doubtful accounts reflecting the collection risk associated with our customer base as a result of COVID-19, $30 million of restructuring costs associated with work force reductions, and $9 million of asset impairment charges.

The $9 million of asset impairment charges relate to the decline in fair value of certain trade names acquired as part of the Food Group acquisition primarily due to the adverse impact of COVID-19 on forecasted earnings and the discount rate utilized in our valuation models.

Operating (Loss) Income

Our operating loss was $77 million in fiscal year 2020, compared to operating income of $699 million in fiscal year 2019.

Operating loss as a percentage of Net sales was 0.3% in fiscal year 2020, while operating income as a percentage of Net sales was 2.7% in fiscal year 2019.

The decrease in operating income was due to the factors discussed in the relevant sections above.

The increase in operating expenses is primarily due to higher supply chain labor costs and non-labor distribution costs, attributable to increased sales volume and wage inflation as compared to the prior year period.

These increases in operating expenses were partially offset by an $87 million lower provision for doubtful accounts during fiscal year 2021, cost savings initiated in 2020 and favorable legal settlement recoveries of $29 million in fiscal year 2021.

Operating Income (Loss)

Our operating income was $424 million in fiscal year 2021, compared to an operating loss of $77 million in fiscal year 2020.

Operating income as a percentage of Net sales was 1.4% in fiscal year 2021, while operating loss as a percentage of Net sales was 0.3% in fiscal year 2020.

The increase in operating income was due to the factors discussed in the relevant sections above.

Other (Income) Expense—Net

Other (income) expense—net includes components of net periodic benefit costs (credits), exclusive of the service cost component associated with our defined benefit and other postretirement plans.

We recognized other income—net of $21 million in fiscal year 2020, primarily due to the improved funded status of our defined benefit pension plan as of December 28, 2019.

We recognized other expense—net of $4 million in fiscal year 2019, including $12 million of non-cash settlement costs resulting from payments to settle benefit obligations with participants in our defined benefit pension plan.

We recognized other income—net of $26 million and $21 million fiscal years 2021 and 2020, respectively.

The increase in other income—net in 2021 is primarily due to the improved funded status of our defined benefit pension plan compared to fiscal year 2020.

Interest Expense—Net

Interest expense—net increased $54 million in fiscal year 2020, primarily due to an increase in our indebtedness to finance the Food Group and Smart Foodservice acquisitions and to strengthen our liquidity position at the onset of the COVID-19 pandemic, which were partially offset by a decrease in benchmark interest rates in fiscal year 2020 as compared to fiscal year 2019.

Interest expense—net decreased $25 million in fiscal year 2021, primarily due to a decrease in outstanding debt and reduced interest rates in fiscal year 2021 compared to fiscal year 2020.

Our effective income tax rate for fiscal year 2021 of 23% varied 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 $1 million, primarily related to a tax benefit shortfall associated with share-based compensation.

These discrete tax items included an aggregate tax benefit of $10 million consisting of a tax benefit of $2 million related to a decrease in an unrecognized tax benefit and a tax benefit of $8 million, primarily related to excess tax benefits associated with share-based compensation.

Our effective income tax rate for fiscal year 2020 of 23% varied 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 $4 million primarily related to excess tax benefits associated with share-based compensation.

Net (Loss) Income

Our net loss was $226 million in fiscal year 2020, compared to net income of $385 million in fiscal year 2019.

The decrease in net income was due to the relevant factors discussed above.

Net Income (Loss)

Our net income was $164 million in fiscal year 2021, compared to a net loss of $226 million in fiscal year 2020.

The increase in net income was due to the relevant factors discussed above.

Liquidity and Capital Resources

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Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements.

In response to the impact of the COVID-19 pandemic, in fiscal year 2020 and early 2021, we took actions aimed at strengthening our liquidity by increasing cash on hand and preserving financial flexibility in light of the economic and business uncertainty resulting from the pandemic.

In particular:

• in March 2020, we borrowed an aggregate of $300 million under the former accounts receivable financing facility (the “ABS Facility”) and $700 million under the ABL Facility;

• on April 24, 2020, we borrowed an aggregate principal amount of $700 million under the 2020 Incremental Term Loan Facility, the proceeds of which were used to finance, in part, the Smart Foodservice acquisition;

• on April 28, 2020, we issued $1.0 billion aggregate principal amount of 6.25% Senior Secured Notes due 2025 (the “Secured Notes”), the proceeds of which were used to repay $400 million in principal amount of the 2020 Incremental Term Loan Facility and the balance of the net proceeds were used for general corporate purposes;

• on May 1, 2020, we used $542 million of cash on hand to repay all of our outstanding borrowings under the ABS Facility in full and terminated the ABS Facility;

in connection with the repayment and termination of the ABS Facility, we transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility;

• on May 4, 2020, we entered into an amendment to the credit agreement governing the ABL Facility pursuant to which certain of our lenders agreed to increase their aggregate commitments by $390 million to a total commitment of $1,990 million;

• on May 6, 2020, we completed the issuance and sale of 500,000 shares of our Series A Preferred Stock to KKR for an aggregate price of $500 million, the proceeds of which were used for working capital and general corporate purposes;

• on February 4, 2021, we issued $900 million aggregate principal amount of 4.75% Senior Notes due 2029 (the “Unsecured Notes due 2029”), the proceeds of which were used, together with cash on hand, to (i) redeem all of the then outstanding Unsecured Notes due 2024, (ii) repay all of the then outstanding borrowings under the 2020 Incremental Term Facility and (iii) pay related fees and expenses.

After giving effect to the transactions described above, we believe that we will have sufficient liquidity to fund our operations and meet ordinary course obligations through 2022 even if total case volumes remain unchanged from current levels.

We cannot, however, assure you that this will be the case.

We may pursue additional capital raise transactions at some point in the future if we determine that it would be advisable to further strengthen our liquidity position.

We make no assurance, however, that we will be able to raise any additional capital in the future on satisfactory terms or at all.

Our continued access to sources of liquidity depends on multiple factors, including economic conditions, the condition of financial markets, the availability of sufficient amounts of financing, our operating performance and our credit ratings.

Two rating agencies downgraded our credit ratings in May and September 2020, respectively.

Our access to additional capital and the cost of any future financing transactions could be negatively impacted by these downgrades or any future downgrade or if financing sources were to ascribe higher credit risk to us or our industry.

In addition, the COVID-19 pandemic has previously adversely affected, and in the future may again adversely affect, the availability of liquidity generally in the capital markets.

If in the future the COVID-19 pandemic has an adverse effect on the availability of liquidity generally in the capital markets that could significantly impact our future cost of borrowing and the availability of additional capital to us.

As of January 1, 2022, the Company had approximately $1.9 billion in cash and available liquidity.

The aggregate carrying value of our indebtedness was $5,011 million, net of $56 million of unamortized deferred financing costs, as of January 1, 2022.

As discussed above, on May 1, 2020 we terminated the ABS Facility and transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility and, on May 4, 2020, we entered into an amendment to our ABL Facility which increased the aggregate commitments by $390 million to a total commitment of $1,990 million.

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

On February 4, 2021, we issued $900 million aggregate principal amount of 4.75% Senior Notes due 2029 (the “Unsecured Senior Notes due 2029”), the proceeds of which were used, together with cash on hand, to (i) redeem all of the Company's then outstanding 5.875% Unsecured Senior Notes due 2024 (the “Unsecured Senior Notes due 2024”), (ii) repay all of the then outstanding borrowings under the incremental senior secured term loan maturing on April 24, 2025 (the “2020 Incremental Term Loan”) and (iii) pay related fees and expenses.

The Unsecured Senior Notes due 2029 had an outstanding balance of $892 million, net of $8 million of unamortized deferred financing costs, as of January 1, 2022.

On November 22, 2021, we (i) issued $500 million aggregate principal amount of 4.625% Senior Notes due 2030 (the “Unsecured Senior Notes due 2030”) and (ii) entered into a new incremental senior secured term “B” loan facility in an aggregate principal amount

of $900 million (the “2021 Incremental Term Loan Facility”) pursuant to a Ninth Amendment to the Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”).

The net proceeds from the Unsecured Senior Notes due 2030, together with the borrowings under the 2021 Incremental Term Loan Facility and approximately $400 million of cash on hand were used to repay the senior secured term loan maturing on June 27, 2023 (the “Initial Term Loan Facility”) and to pay related fees and expenses.

The Unsecured Senior Notes due 2030 had an outstanding balance of $495 million, net of $5 million of unamortized deferred financing costs, as of January 1, 2022.

The 2021 Incremental Term Loan Facility had a carrying value of $893 million, net of $7 million of unamortized deferred financing costs, as of January 1, 2022.

We had no outstanding borrowings and had issued letters of credit totaling $268 million under the ABL Facility as of January 1, 2022.

There was remaining capacity of $1,722 million under the ABL Facility based on our borrowing base as of January 1, 2022.

The Initial Term Loan Facility had a carrying value of $2,098 million, net of $3 million of unamortized deferred financing costs, as of January 2, 2021.

The 2019 Incremental Term Loan Facility had a carrying value of $1,451 million, net of $30 million of unamortized deferred financing costs, as of January 2, 2021.

The 2020 Incremental Term Loan Facility had a carrying value of $284 million, net of $11 million of unamortized deferred financing costs, as of January 2, 2021.

The Secured Notes had a carrying value of $987 million, net of $13 million of unamortized deferred financing costs, as of January 2, 2021.

USF’s 5.875% Senior Notes due 2024 (the “Unsecured Senior Notes due 2024”) had a carrying value of $597 million, net of $3 million of unamortized deferred financing costs, as of January 2, 2021.

The incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”) had a carrying value of $1,442 million, net of $25 million of unamortized deferred financing costs, as of January 1, 2022.

The Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Notes”) had a carrying value of $989 million, net of $11 million of unamortized deferred financing costs, as of January 1, 2022.

We also had $292 million of obligations under financing leases for transportation equipment and building leases as of January 1, 2022.

The ABL Facility will mature in 2024 .

The Initial Term Loan Facility and the 2019 Incremental Term Loan Facility will mature in 2023 and 2026, respectively.

The Secured Notes will mature in 2025.

We used the proceeds from the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding Unsecured Senior Notes due 2024 and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility, as further discussed in Note 27, Subsequent Events.

The 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility will mature in 2026 and 2028, respectively.

As economic conditions permit, we will consider opportunities to repurchase, refinance or otherwise reduce our debt obligations on favorable terms.

Any potential debt reduction or refinancing could require significant use of our other available liquidity and capital resources.

Any potential debt reduction or refinancing could require significant use of our available liquidity and capital resources.

We believe that the combination of cash generated from operations, together with borrowing capacity under the agreements governing our indebtedness and other financing arrangements, will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs, and capital expenditure requirements for the next 12 months.

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(in millions)

Net (loss) income $ (226) $ 385

Net income (loss) $ 164 $ (226)

Changes in operating assets and liabilities

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Net cash provided by financing activities (837) 1,427

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

Net (decrease) increase in cash, cash equivalents and restricted cash (680) 730

Cash, cash equivalents and restricted cash—beginning of year 828 98

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Operating Activities

Cash flows provided by operating activities decreased $347 million to $413 million in fiscal year 2020.

The year-over-year decrease was primarily attributable to the decline in operating results driven by the impact of COVID-19 on our results, and the associated impact on the Company’s working capital requirements resulting from lower total case volume and lower inventories.

Cash flows provided by operating activities increased $6 million to $419 million in fiscal year 2021.

The Company’s working capital requirements increased in fiscal year 2021 in line with the recovery of sales volumes.

Net cash provided by operating activities in fiscal year 2020 benefited from a reduction in working capital needs, primarily related to reduced sales volumes caused by the COVID-19 pandemic.

Investing Activities

Cash flows used in investing activities in fiscal year 2020 included the $972 million cash purchase price for the acquisition of Smart Foodservice and cash expenditures of $189 million for fleet replacement and investments in information technology, as well as new construction and/or expansion of distribution facilities.

Cash flows used in investing activities in fiscal year 2019 included the $1.8 billion cash purchase price for the acquisition of the Food Group and cash expenditures of $258 million for fleet replacement and investments in information technology, as well as new construction and expansion of distribution facilities.

During fiscal year 2019, we sold three Food Group distribution facilities for aggregate proceeds of $94 million and sold certain excess properties for aggregate proceeds of $6 million during fiscal year 2019.

We expect total cash capital expenditures in fiscal year 2021 to be between $290 million and $305 million, exclusive of approximately $35 million to $45 million of capital expenditures under our fleet financing leases.

Cash flows used in investing activities in fiscal years 2021 and 2020 included cash expenditures of $274 million and $189 million, respectively, on investments in information technology, new construction and/or expansion of distribution facilities, and property and equipment for fleet replacement.

Cash flows used in investing activities in fiscal year 2020 also included the $972 million cash purchase price for the acquisition of Smart Foodservice.

We expect total cash capital expenditures in fiscal year 2022 to be between $280 million and $300 million, exclusive of approximately $110 million of capital expenditures under our fleet financing leases.

We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing.

Financing Activities

Cash flows used by financing activities in fiscal year 2021 included $122 million of scheduled payments under our term loans pursuant to our Term Loan Credit Agreement (the “Term Loan Facilities”) and financing leases and $2,085 million of voluntary prepayments of the Initial Term Loan Facility.

We incurred approximately $18 million of lender fees and third-party costs in connection with our issuance of the Unsecured Notes due 2029, consisting of a $9 million early redemption premium related to the Unsecured Senior Notes due 2024 and $9 million of costs associated with the issuance of the Unsecured Senior Notes due 2029, which were capitalized as deferred financing costs.

We incurred $12 million of cost associated with the issuance of the Unsecured Senior Notes due 2030 and the 2021 Incremental Term Loan Facility, which were capitalized as deferred financing costs.

Cash flows used by financing activities in fiscal year 2021 also included $28 million of Series A Preferred Stock dividends.

Cash flows provided by financing activities in fiscal year 2021 included aggregate borrowings of $900 million under the Unsecured Senior Notes due 2029, $900 million under the 2021 Incremental Term Loan Facility and $500 million under the Unsecured Senior Notes due 2030.

We used the proceeds from the issuance of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the then outstanding Unsecured Senior Notes due 2024 and repay all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility.

We used proceeds from the issuance of the 2021 Incremental Term Loan Facility and Unsecured Senior Notes due 2030, along with cash on hand to repay all of the then outstanding borrowings under the Initial Term Loan Facility.

Cash flows provided by financing activities in fiscal year 2021 also included $20 million of proceeds received from stock purchases under our employee stock purchase plan and $15 million of proceeds from the exercise of employee stock options, which were offset by $14 million of employee tax withholdings paid in connection with the vesting of stock awards.

Cash flows provided by financing activities in fiscal year 2020 included aggregate borrowings of $700 million under the 2020 Incremental Term Loan Facility, the proceeds of which were used to finance, in part, the Smart Foodservice acquisition;

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Cash flows used by financing activities in fiscal year 2020 included $158 million of scheduled payments under our Term Loan Facilities and financing leases.

We borrowed an aggregate of $1.0

billion under the ABL Facility and ABS Facility in March 2020 for the purposes of increasing cash on hand and to preserve financial flexibility in light of the current economic and business uncertainty resulting from the onset of the COVID-19 pandemic.

With the improvement in total case volume as well as cash generated in the second half of fiscal 2020, we were able to repay the entire outstanding balance of the ABL Facility by January 2, 2021.

We borrowed an aggregate of $1.0 billion under the ABL Facility and the former accounts receivable financing facility (the “ABS Facility”) in March 2020 for the purposes of increasing cash on hand and to preserve financial flexibility in light of the current economic and business uncertainty resulting from the onset of the COVID-19 pandemic.

We used part of the proceeds from the issuance of the Secured Notes to repay $400 million of borrowings under the 2020 Incremental Term Loan Facility, and we used $542 million of cash on hand to repay all of our outstanding borrowings under the ABS Facility, which we then subsequently terminated.

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Cash flows from financing activities in fiscal year 2020 also included $18 million of proceeds received from stock purchases under our employee stock purchase plan and $3 million of proceeds from the exercise of employee stock options, which were partially offset by $5 million of employee tax withholdings paid in connection with the vesting of stock awards.

Cash flows provided by financing activities in fiscal year 2019 included aggregate borrowings of $1.5 billion under the 2019 Incremental Term Loan Facility and approximately $330 million in borrowings under the ABL Facility and ABS Facility, which were used to finance the acquisition of the Food Group.

Cash flows used in financing activities in fiscal year 2019 included net payments of $166 million under the ABL Facility and ABS Facility and $116 million of scheduled payments under our Term Loan Facilities and financing leases.

We incurred approximately $44 million of lender fees and third-party costs in connection with the 2019 Incremental Term Loan Facility and the ABL Facility refinancing transaction.

Financing activities in fiscal year 2019 also included $19 million of proceeds received from stock purchases under our employee stock purchase plan and $19 million of proceeds from the exercise of employee stock options, which were partially offset by $5 million of employee tax withholdings paid in connection with the vesting of stock awards.

Other Obligations and Commitments

The Company’s cash requirements within the next twelve months include the current portion of long-term debt, accounts payable and accrued liabilities, other current liabilities, and purchase commitments and other obligations.

We expect the cash required to meet these obligations to be primarily generated through a combination of cash from operations and access to capital from financial markets.

Our long-term cash requirements under our various contractual obligations and commitments include:

• Debt, including financing lease obligations – See Note 11, Debt, in our consolidated financial statements for further detail of our debt and the timing of expected future principal payments.

• Operating and finance lease obligations – See Note 17, Leases, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

• Pension plans and other postretirement benefit contributions – We sponsor a defined benefit plan that pays benefits to eligible employees at retirement.

In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents.

See Note 18, Retirement Plans, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

• Self-insured liabilities – We are self-insured for general liability, fleet liability and workers’ compensation claims.

Claims in excess of certain levels are insured by external parties.

See Note 12, Accrued Expenses and Other Long-Term Liabilities, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

• Purchase and Other Obligations – 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.

Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2025.

See Note 22, Commitments and Contingencies, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

We believe the following sources will be sufficient to meet our anticipated cash requirements for at least the next twelve months, while maintaining sufficient liquidity for normal operating purposes:

• Our cash flow from operations;

• The availability of additional capital under our existing ABL Facility;

• Our availability to access capital from financial markets.

Retirement Plans

We sponsor a defined benefit plan that pays benefits to eligible employees at retirement.

We sponsor a defined benefit plan that pays benefits to eligible participants at retirement.

Only certain union associates are eligible to participate and continue to accrue benefits under the plan per the collective bargaining agreements.

The plan is closed and frozen to all other employees.

In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents.

We did not make significant contributions to the Company-sponsored defined benefit and other postretirement plans in fiscal years 2021 and 2020, and we do not expect to make significant contributions in fiscal year 2022.

As described in Note 20, Retirement Plans, in our consolidated financial statements, in the fourth quarter of fiscal year 2019, we completed a voluntary lump sum settlement offer to certain terminated defined benefit plan participants.

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

Those participants were able to elect to receive immediate lump sum payouts, with any remaining liabilities transferred to an insurance company through the purchase of an annuity contract.

Pension obligation settlement payments of $66 million related to these transactions, consisting of lump sum payments and purchased annuities, were paid from plan assets.

Certain employees are eligible to participate in our 401(k) savings plan.

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Our contributions to these plans were $43 million and $44 million in fiscal years 2021 and 2020, respectively.

Contractual Obligations

The following table includes information about our significant contractual obligations as of January 2, 2021 that affect our liquidity and capital needs.

The table includes information about payments due under specified contractual obligations and the maturity profile of our consolidated debt, operating leases and other long-term liabilities.

Payments Due by Period

Less Than More Than

Total 1 Year 1-3 Years 3-5 Years 5 Years

Recorded Contractual Obligations:

Debt, including financing lease obligations

$ 5,808 $ 131 $ 2,267 $ 1,969 $ 1,441

Operating lease obligations

427 57 118 77 175

Self-insured liabilities (1)

176 43 51 23 59

Pension plans and other postretirement benefits contributions (2)

Unrecorded Contractual Obligations:

Interest payments on debt (3)

828 211 384 206 27

Multiemployer contractual minimum pension contributions (4)

Purchase obligations (5)

1,667 1,643 24 — —

Total contractual cash obligations $ 8,925 $ 2,090 $ 2,854 $ 2,277 $ 1,704

(1) Represents the estimated undiscounted payments on our self-insurance programs for general, fleet and workers compensation liabilities.

Actual payments may differ from these estimates.

(2) Represents estimated contributions for Company-sponsored defined benefit plan and benefit payments under other Company-sponsored postretirement benefit plans.

Estimated contributions beyond fiscal year 2021 are not available for the Company ’ s defined benefit plan.

(3) Represents future interest payments on fixed rate debt, financing leases and $3.3 billion of variable rate debt at interest rates as of January 2, 2021.

The amounts shown in the table include interest payments under interest rate swap agreements.

(4) Represents minimum contributions to the Central States Teamsters Southeast and Southwest Area Pension Fund through fiscal year 2023.

(5) Represents purchase obligations for purchases of product in the normal course of business, for which all significant terms have been confirmed, information technology commitments and forward fuel and electricity purchase obligations.

The balance does not include fiscal year 2021 capital expenditures expected to be between $290 million to $305 million, exclusive of approximately $35 million to $45 million of capital expenditures under our fleet financing leases.

See “Investing Activities” above.

Other long-term liabilities as of January 2, 2021, as disclosed in Note 14, Accrued Expenses and Other Long-Term Liabilities, in our consolidated financial statements, consist primarily of an uncertain tax position liability of $33 million, inclusive of interest and penalties, for which the timing of payment is uncertain.

Off-Balance Sheet Arrangements

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Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with each acquisition.

Other intangible assets include customer relationships, amortizable trade names, non-compete agreements, the brand names comprising our portfolio of private brands, and trademarks.

Other intangible assets include customer relationships, amortizable trade names, non-

compete agreements, the brand names comprising our portfolio of private brands, and trademarks.

We assess goodwill and other intangible assets with indefinite lives for impairment each year, or more frequently if events or changes in circumstances indicate an asset may be impaired.

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For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 24, Business Information, in our consolidated financial statements.

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

Based on our fiscal year 2020 annual impairment analysis for goodwill, we concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value.

Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a relief from royalty method.

Our fiscal year 2021 assessment for impairment of goodwill was performed using a qualitative approach to determine, as of the date of the assessment, whether it was more likely than not that the fair value of goodwill was less than its carrying value.

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

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

Based on our qualitative fiscal year 2021 annual impairment analysis for goodwill, we concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value.

Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a relief from royalty method, including key assumptions such as the long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate.

The fair value of each intangible asset is determined for comparison to the corresponding carrying value.

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

Due to the adverse impacts of the COVID-19 pandemic on forecasted earnings and the discount rate utilized in our valuation models, in fiscal year 2020, the Company recognized impairment charges of $ 9 million related to two trade names acquired as part of the Food Group acquisition, which was included in restructuring costs and asset impairment charges in the Company’s Consolidated Statement of Comprehensive Income.

Key assumptions used in the relief from royalty method included the long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate.

No other impairments were noted as part of our fiscal year 2020 annual impairment assessment.

During 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 costs and asset impairment charges in the Company's Consolidated Statements of Comprehensive Income.

During 2020, the Company also recognized $9 million of asset impairment charges related to COVID-19’s adverse impacts on the fair value of certain trade names acquired as part of the 2019 Food Group acquisition.

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

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

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

The Company estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by up to $ 17 million in the next 12 months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions.

Our uncertain tax positions contain uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions.

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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-K

Item 7. Management’s Discussion and Analysis