What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-17 compared with 2021-02-16 · 357 added, 388 removed, 1182 unchanged (39% of the section changed)

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Report of Independent Registered Public Accounting Firm

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

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended

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

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended

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

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

Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended January 1, 2022, January 2, 2021, and December 28, 2019

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 1, 2021, January 2, 2021, and December 28, 2019

Notes to Consolidated Financial Statements

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

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

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

and subsidiaries (the “Company”) as of January 1, 2022 and January 2, 2021, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows, for each of the three fiscal years in the period ended January 1, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 19 to the financial statements, effective December 30, 2018, the Company adopted FASB ASC Topic 842, Leases , using the modified retrospective approach.

Basis for Opinion

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The purchase-based incentives are recorded as a reduction to inventory as they are earned based on inventory purchases.

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

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

Total vendor receivables were $ 145 million at January 1, 2022.

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

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

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

• We tested the amount of the vendor consideration recorded by developing an independent expectation for the amount based on historical ratios experienced by the Company and comparing our expectation to the amount recorded by management in the current year.

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

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

• We selected a sample of inventory on hand and evaluated whether the related vendor consideration was properly recognized at and during the period ended January 1, 2022.

/s/ DELOITTE & TOUCHE LLP

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(In millions, except par value)

January 2, 2021 December 28, 2019

January 1, 2022 January 2, 2021

Current assets:

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

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

December 28, 2019 519 —

0.5 issued and outstanding as of January 1, 2022 and January 2, 2021 534 519

Shareholders’ equity:

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223 and 221 issued and outstanding as of

January 2, 2021 and December 28, 2019, respectively

January 1, 2022 and January 2, 2021, respectively

Additional paid-in capital

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Fiscal Years Ended

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

January 1, 2022 January 2, 2021 December 28, 2019

Net sales $ 29,487 $ 22,885 $ 25,939

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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

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

Other comprehensive (loss) income—net of tax:

Other comprehensive income (loss)—net of tax:

Changes in retirement benefit obligations

Unrecognized (loss) gain on interest rate swaps

Recognition of interest rate swaps

5 ( 3 ) ( 15 )

Comprehensive (loss) income

Comprehensive income (loss)

$ 179 $ ( 206 ) $ 415

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

Net income (loss) $ 164 $ ( 226 ) $ 385

Series A convertible preferred stock dividends ( 43 ) ( 28 ) —

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

Net (loss) income per share:

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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Changes in retirement benefit obligations, net of income tax

Unrecognized gain on interest rate swaps, net of income tax

— — — — 45 45

Recognition of interest rate swaps, net of income tax

— — — — ( 15 ) ( 15 )

— — — 385 — 385

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

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Exercise of stock options

2 — 19 — — 19

Tax withholding payments for net share-settled equity awards

— — ( 5 ) — — ( 5 )

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

Changes in retirement benefit obligations, net of income tax

— — — — 23 23

Unrecognized loss on interest rate swaps, net of income tax

Recognition of interest rate swaps, net of income tax

— — — — ( 3 ) ( 3 )

Adoption of ASU 2016-13 (Note 6) — — — ( 1 ) — ( 1 )

— — — ( 226 ) — ( 226 )

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

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

Share-based compensation expense

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1 — 20 — — 20

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

Exercise of stock options

— — 15 — — 15

Tax withholding payments for net share-settled equity awards

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— — — — 10 10

Unrecognized loss on interest rate swaps, net of income tax

— — — — ( 3 ) ( 3 )

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

Recognition of interest rate swaps, net of income tax

— — — 164 — 164

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Fiscal Years Ended

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

January 1, 2022 January 2, 2021 December 28, 2019

Cash flows from operating activities:

Net (loss) income

Net income (loss)

$ 164 $ ( 226 ) $ 385

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

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

Depreciation and amortization

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Intangible asset impairment charges 7 9 —

Loss on extinguishment of debt

Amortization of deferred financing costs

Deferred tax (benefit) provision

Deferred tax provision (benefit)

Share-based compensation expense

Provision for doubtful accounts

(Benefit) provision for doubtful accounts

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

Decrease (increase) in receivables

334 ( 19 ) ( 71 )

Decrease (increase) in inventories

(Increase) decrease in receivables

( 386 ) 334 ( 19 )

(Increase) decrease in prepaid expenses and other assets

(Increase) decrease in inventories

( 413 ) 201 16

(Decrease) increase in accounts payable and cash overdraft liability

Decrease (increase) in prepaid expenses and other assets

Increase (decrease) in accounts payable and cash overdraft liability

471 ( 339 ) ( 56 )

Decrease in accrued expenses and other liabilities

Increase (decrease) in accrued expenses and other liabilities

94 ( 12 ) ( 4 )

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Net proceeds from issuance of Series A convertible preferred stock

Payment for debt financing costs and fees

Dividends paid on Series A convertible preferred stock ( 28 ) — —

Debt financing costs and fees

( 30 ) ( 33 ) ( 44 )

Contingent consideration paid for business acquisitions

Proceeds from employee stock purchase plan

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( 14 ) ( 5 ) ( 5 )

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

( 837 ) 1,427 1,220

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

Net (decrease) increase in cash, cash equivalents and restricted cash ( 680 ) 730 ( 7 )

Cash, cash equivalents and restricted cash—beginning of year 828 98 105

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$ 185 $ 216 $ 173

Income taxes (received) paid—net

Income taxes paid (received)—net

Property and equipment purchases included in accounts payable

Property and equipment transferred to assets held for sale 11 24 —

Leased assets obtained in exchange for financing lease liabilities

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

The fiscal years ended January 1, 2022 and December 28, 2019, also referred to herein as fiscal years 2021 and 2019, respectively, were 52-week fiscal years.

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

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

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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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 5, Business Acquisitions, which uses the retail method of inventory accounting.

For our LIFO based inventories, the base year values of beginning and ending inventories are determined using the inventory price index computation method.

This “links” current costs to original costs in the base year when the Company adopted LIFO.

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

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

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

As of January 1, 2022 and January 2, 2021, LIFO reserves in the Company’s Consolidated Balance Sheets were $ 342 million and $ 177 million, respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 165 million, $ 25 million and $ 22 million in fiscal years 2021, 2020 and 2019, respectively.

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

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

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

The reporting unit used in assessing impairment is the Company’s one business segment as described in Note 24, and all goodwill is assigned to the consolidated Company.

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

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These accruals are included in accrued expenses and other current liabilities and other long-term liabilities in the Company's Consolidated Balance Sheets.

Share-Based Compensation —The Company measures compensation expense for stock-based awards at fair value as of the date of grant, and recognizes compensation expense over the service period for awards expected to vest.

Share-Based Compensation —The Company measures compensation expense for share-based awards at fair value as of the date of grant, and recognizes compensation expense over the service period for awards expected to vest, and as applicable based upon predetermined financial performance conditions for performance share-based awards.

Forfeitures are recognized as incurred.

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

Stock Exchange.

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

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

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

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

The fair value was applied to all stock

and stock award activity in the subsequent fiscal quarter.

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

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

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

Business Acquisitions —The Company accounts for business acquisitions under the acquisition method.

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

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

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

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

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

The Company is not currently party to any interest rate swap agreements.

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

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RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

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

Reference Rate Reform (Topic 848):

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

The Company adopted the provisions of ASU No.

2020-04 on a prospective basis at the beginning of the second quarter of fiscal year 2020 with no impact to the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

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

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

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

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

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

In August 2018, the FASB issued ASU No.

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

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

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

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

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

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

In June 2016, the FASB issued ASU No.

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

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

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

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

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

The Company adopted the provisions of this standard on a modified retrospective basis at the beginning of fiscal year 2020, which resulted in the recording of a cumulative-effect adjustment to retained earnings of $ 1 million.

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

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

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

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

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

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

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

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.

In October 2021, the FASB issued ASU No.

2021-08 Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which amends Accounting Standards Codification (“ASC”) 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) .

The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and is to be applied prospectively to business combinations occurring on or after adoption of the new guidance.

The Company plans to adopt the provisions of ASU No.

2021-08 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.

REVENUE RECOGNITION

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

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

Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.1 billion and $ 1.5 billion as of January 2, 2021 and December 28, 2019, respectively.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of January 1, 2022 or January 2, 2021.

Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.5 billion and $ 1.1 billion as of January 1, 2022 and January 2, 2021, respectively.

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

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

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

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

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 $ 27 million and $ 30 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021, respectively, and $ 26 million and $ 27 million included in other assets in the Company’s Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021, respectively.

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

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

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

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

The 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 the new $ 700 million 2020 Incremental Term Loan Facility under the Term Loan Credit Agreement, as further described in Note 11, Debt, and with cash on hand.

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

The following table summarizes the preliminary purchase price allocation recognized for the Smart Foodservice acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.

The preliminary purchase price allocation is subject to further adjustment as additional information becomes available and final valuations are completed.

There can be no assurances that these final valuations and additional analyses and studies will not result in significant changes to the preliminary estimates of fair value set forth below.

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

Preliminary Purchase Price Allocation

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 January 1, 2022 was due to the finalization of deferred income taxes associated with the acquisition in the first quarter of fiscal year 2021 .

Purchase Price Allocation

Accounts receivable $ 5

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

Net sales and net income for Smart Foodservice, which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed, were $ 759 million and $ 28 million, respectively, during fiscal year 2020.

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 21 million during fiscal year 2020.

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

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and GAMPAC Express, Inc.

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

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

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

USF financed the acquisition with the new $ 1.5 billion 2019 Incremental Term Loan Facility, as further described in Note 11, Debt, and with borrowings under its revolving credit facilities.

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

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

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

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

Purchase Price Allocation

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(Unaudited) 2019

(Unaudited) 2018 (Unaudited)

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

Pro forma net income $ ( 225 ) $ 420 $ 397

Pro forma net (loss) income available to common shareholders $ ( 225 ) $ 420

Pro forma net income per share:

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Diluted $ ( 1.02 ) $ 1.91

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

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

(Unaudited) 2018 (Unaudited)

The unaudited pro forma financial information for fiscal year 2019 presented above excludes the results of operations related to the Divested Assets, as the results of operations related to the Divested Assets were reflected as discontinued operations.

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

Pro forma net sales $ 392

Pro forma net income $ 5 $ 13

Pro forma net income available to common shareholders $ 5

Pro forma income per share:

Basic $ 0.03 $ 0.06

Diluted $ 0.02

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

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

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

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

RESTRICTED CASH

Restricted cash primarily consists of cash on deposit with financial institutions as collateral for certain letters of credit.

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

January 2, 2021 December 28, 2019

Cash and cash equivalents $ 828 $ 90

Restricted cash—included in other assets — 8

Total cash, cash equivalents and restricted cash $ 828 $ 98

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

In March 2020, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions in

businesses, schools and other public gathering spaces.

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

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

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

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

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

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

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.

Since that initial charge in 2020, due to more favorable than anticipated collections on our pre-COVID-19 accounts receivable, we reduced our allowance for doubtful accounts.

All pre-COVID-19 accounts receivable have been collected or written off by the end of fiscal year 2021.

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

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

Charged to costs and expenses

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

(Benefit) Charged to costs and expenses, net

Adoption of ASU 2016-13 — 1 —

Customer accounts written off—net of recoveries

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Balance as of end of year $ 33 $ 67 $ 30

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

FORMER ACCOUNTS RECEIVABLE FINANCING PROGRAM

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

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

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

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

This table excludes the vendor receivable related allowance for doubtful accounts of $ 7 million, $ 5 million, and $ 4 million as of January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

At the beginning of fiscal year 2020, the Company adopted the provisions of ASU 2016-13 Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which resulted in the recording of a cumulative-effect adjustment to retained earnings of $ 1 million.

ASSETS HELD FOR SALE

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

During fiscal year 2021, two excess facilities and vacant land previously held for future use were transferred to assets held for sale.

The Company sold one facility for cash proceeds of $ 4 million, which approximated the carrying value.

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

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

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

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

The changes in assets held for sale for fiscal years 2021 and 2020 were as follows:

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PROPERTY AND EQUIPMENT

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

January 2, 2021 December 28, 2019 Range of

Property and equipment as of January 1, 2022 and January 2, 2021 consisted of the following:

January 1, 2022 January 2, 2021 Range of

Land $ 379 $ 365

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Property and equipment—net $ 2,033 $ 2,021

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

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

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

Transportation equipment included $ 537 million and $ 530 million of financing lease assets as of January 1, 2022 and January 2, 2021, respectively.

Buildings and building improvements included $ 15 million and $ 30 million of financing lease assets as of January 1, 2022 and January 2, 2021.

Accumulated amortization of financing lease assets was $ 261 million and $ 244 million as of January 1, 2022 and January 2, 2021, respectively.

Interest capitalized was not material in both fiscal years 2021 and 2020.

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Amortization expense was $ 55 million, $ 79 million and $ 51 million for fiscal years 2021, 2020 and 2019, respectively.

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

The weighted-average remaining useful life of all definite lived intangibles was approximately ten years as of January 1, 2022.

Amortization of these definite lived intangible assets is estimated to be $ 45 million for fiscal year 2022, $ 44 million for each of fiscal years 2023, 2024, 2025 and 2026, and $ 338 million in the aggregate thereafter.

Goodwill and other intangibles—net consisted of the following:

January 2, 2021 December 28, 2019

January 1, 2022 January 2, 2021

Goodwill $ 5,625 $ 5,637

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Total other intangibles—net

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

The net decrease in the gross carrying amount of customer relationships as of January 2, 2021 is attributable to the write-off of fully amortized intangible assets related to certain 2016 business acquisitions.

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

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

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

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

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

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.

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

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

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

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

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

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

Based upon the Company’s qualitative fiscal 2021 annual goodwill impairment analysis, the Company concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment.

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

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

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

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

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

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

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.

The remaining carrying value of the acquired trade name of $ 3 million was reclassified to trade names—amortizable and will be amortized with an estimated remaining useful life of 10 years.

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

No other impairments were noted as part of the annual impairment assessment for fiscal year 2021.

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

The decrease in goodwill as of January 1, 2022 is attributable to the finalization of the purchase price allocation recognized for the Smart Foodservice acquisition, as described in Note 5, Business Acquisitions.

The net decrease in the gross carrying amount

of customer relationships as of January 1, 2022 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 of the trade name acquired with the Food Group acquisition with the remaining balance being reclassified to trade names—amortizable.

FAIR VALUE MEASUREMENTS

The Company follows the accounting standards for fair value, under which fair value is a market-based measurement, not an entity-specific measurement.

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:

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

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

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There were no transfers between fair value levels in any of the periods presented below.

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

The Company’s assets and liabilities measured at fair value on a recurring basis as of January 1, 2022 and January 2, 2021, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

January 1, 2022

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$ 99 $ — $ — $ 99

Interest rate swaps

$ — $ 5 $ — $ 5

December 28, 2019

January 2, 2021

Level 1 Level 2 Level 3 Total

Money market funds

$ 696 $ — $ — $ 696

Interest rate swaps

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Derivative Financial Instruments

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

On August 1, 2017, USF entered into four -year interest rate swap agreements with a notional amount of $ 1.1 billion, reducing to $ 825 million in the fourth year.

These swaps effectively converted approximately half of the principal amount of the Initial Term Loan Facility from a variable to a fixed rate loan.

On May 31, 2019, an interest rate swap agreement with a notional amount of $ 367 million was terminated, and the Company received cash proceeds of $ 1 million, the fair value of the interest rate swap on the termination date.

The proceeds were recorded as cash provided by operating activities in the Company's Consolidated Statement of Cash Flows.

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

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

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

The Company records its interest rate swaps in its Consolidated Balance Sheets at fair value, based on projections of cash flows and future interest rates.

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

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

Balance Sheet Location January 2, 2021 December 28, 2019

Derivatives designated as hedging instruments

Interest rate swaps

Accrued expenses and

other current liabilities $ 5 $ —

Interest rate swaps

Other long-term liabilities — 1

Total liabilities $ 5 $ 1

The Company has in the past, and may in the future, 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 1, 2022, the Company had no outstanding interest rate swap agreements.

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.

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 11, Debt).

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

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

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income for the fiscal years ended January 1, 2022, January 2, 2021 , and December 28, 2019:

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

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$ — Interest expense—net $ 5

For the fiscal year ended December 28, 2019

For the fiscal year ended January 2, 2021

Interest rate swaps

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$ ( 10 ) Interest expense—net $ ( 5 )

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

Other Fair Value Measurements

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The fair value of the Company’s total debt approximated $ 5.1 billion, compared to its carrying value of $ 5.0 billion as of January 1, 2022.

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

The fair value of the Company's 6.25 % senior secured notes due April 15, 2025 (the “Secured Notes”) was $ 1.1 billion as of January 2, 2021.

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

The fair value of the Secured Notes and the Unsecured Senior Notes is classified under Level 2 of the fair value hierarchy.

The fair value of the 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 4.625 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.5 billion as of January 1, 2022.

As discussed in Note 11, Debt, the proceeds from the Unsecured Senior Notes due 2030, along with proceeds from issuance of the 2021 Incremental Term Loan Facility (as further described in Note 11, Debt) and cash on hand were used to repay all of the then outstanding borrowings under the Initial Term Loan Facility (as further described in Note 11, Debt).

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 January 1, 2022.

As discussed in Note 11, 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 $ 1.0 billion and $ 1.1 billion as of January 1, 2022 and January 2, 2021, respectively.

The Fair value of the Secured Notes, the Unsecured Senior Notes due 2030, 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 2030, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 is classified under Level 2 of the fair value hierarchy.

The fair value of the balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates that are currently available to the Company for debt with similar terms, and estimates of the Company’s overall credit risk.

Total debt consisted of the following:

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

Debt Description Maturity Interest Rate as of January 1, 2022 Carrying Value as of January 1, 2022 Carrying Value as of January 2, 2021

ABL Facility May 31, 2024 — % $ — $ —

ABS Facility (1)

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

deferred financing costs, respectively)

Initial Term Loan Facility (net of $3 of

unamortized deferred financing costs) (1)

June 27, 2023 — % — 2,098

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

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

2020 Incremental Term Loan Facility (net of $11 of

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

Senior Secured Notes (net of $13 of unamortized

deferred financing costs)

2019 Incremental Term Loan Facility (net of $25

and $30 of unamortized deferred financing

costs, respectively) September 13, 2026 2.10 % 1,442 1,451

2020 Incremental Term Loan Facility (net of $11

of unamortized deferred financing costs) (2)

April 24, 2025 — % — 284

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

unamortized deferred financing costs, respectively)

2021 Incremental Term Loan Facility (net of $7

of unamortized deferred financing costs) November 22, 2028 2.85 % 893 —

Senior Secured Notes (net of $11 and $13 of

unamortized deferred financing costs,

respectively)

April 15, 2025 6.25 % 989 987

Unsecured Senior Notes due 2024 (net of $3 of

unamortized deferred financing costs) (2)

June 15, 2024 — % — 597

Unsecured Senior Notes due 2029 (net of $8 of

unamortized deferred financing costs) (2)

February 15, 2029 4.75 % 892 —

Unsecured Senior Notes due 2030 (net of $5 of

unamortized deferred financing costs) (1)

June 1, 2030 4.625 % 495 —

Obligations under financing leases 2022–2039 1.25% - 8.63% 292 323

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

Other debt January 1, 2031 5.75% 8 8

Total debt 5,011 5,748

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Long-term debt $ 4,916 $ 5,617

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

As of January 2, 2021, after considering interest rate swaps that fixed the interest rate on $ 550 million of principal of the Initial Term Loan Facility described below, approximately 57 % of the Company’s total debt bears interest at a floating rate.

(1) The Initial Term Loan Facility was paid in full on November 22, 2021, with the proceeds from the issuance of the Unsecured Notes due 2030 and borrowings under the 2021 Incremental Term Loan Facility, as well as cash on hand, as further discussed below.

(2) 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 termination.

As of January 1, 2022, approximately 47 % of the Company’s total debt bears interest at a floating rate.

Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of January 1, 2022, were as follows:

Thereafter 2,295

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

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

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.

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

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

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

The ABL Facility is scheduled to mature on May 31, 2024, subject to a springing maturity date in the event that more than $ 300 million of aggregate principal amount of earlier maturing indebtedness under USF’s Initial Term Loan Facility or 2019 Incremental Term Loan Facility (each, as further described below) on a date that is sixty (60) days prior to the maturity date for borrowings under the Initial Term Loan Facility or the 2019 Incremental Term Loan Facility, as applicable.

Loan Credit Agreement (described below) remains outstanding on a date that is sixty (60) days prior to the maturity date for such indebtedness under the Term Loan Credit Agreement.

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

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

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

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

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

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

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

The weighted-average interest rate on outstanding borrowings for the ABL Facility was 3.25 % and 1.95 % for fiscal years 2021 and 2020, respectively.

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

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 $ 1,722 million under the ABL Facility as of January 1, 2022.

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

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

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

Term Loan Facilities

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

The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”), provides USF with an incremental senior secured term loan borrowed in September 2019 (the “2019 Incremental Term Loan Facility”), an incremental senior secured term loan borrowed in November 2021 (the “2021 Incremental Term Loan Facility”) and the right to request additional incremental senior secured term loan commitments.

Additionally, the Term Loan Credit Agreement provided USF with a senior secured term loan borrowed in June 2016 (the “Initial Term Loan Facility”) and an incremental senior secured term loan borrowed in April 2020 (the “2020 Incremental Term Loan Facility”), each of which were repaid in 2021, as discussed below.

Initial Term Loan Facility

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

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

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

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

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

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

For the remaining lenders, the Company applied debt extinguishment accounting.

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

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

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

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

On November 22, 2021, we repaid all of the then outstanding borrowings under the Initial Term Loan Facility, using proceeds from the issuance of the Unsecured Senior Notes due 2030 and the 2021 Incremental Term Loan Facility, along with cash on hand, as discussed below.

2019 Incremental Term Loan Facility

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

The 2019 Incremental Term Loan Facility had an outstanding balance of $ 1,442 million, net of $ 25 million of unamortized deferred financing costs, as of January 1, 2022.

Borrowings under the 2019 Incremental Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either the sum of LIBOR plus a margin of 2.00 %, or the sum of an ABR, as described under the 2019 Incremental Term Loan Facility, plus a margin of 1.00 % (subject to a LIBOR “floor” of 0.00 %).

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

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

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

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

2020 Incremental Term Loan Facility

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

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

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

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

On February 4, 2021, we repaid all of the then outstanding borrowings under the 2020 Incremental Term Loan Facility using proceeds from the issuance of the Unsecured Senior Notes due 2029 as discussed below.

2021 Incremental Term Loan Facility

On November 22, 2021, USF entered into a new incremental term loan under the Term Loan Credit Agreement, the 2021 Incremental Term Loan Facility, in an aggregate principal amount of $ 900 million.

USF used the proceeds of the borrowings under the 2021 Incremental Term Loan Facility, together with the proceeds of the Unsecured Senior Notes due 2030 and cash on hand, to repay all of the then outstanding borrowings under the Initial Term Loan Facility, and to pay related fees and expenses.

The 2021 Incremental Term Loan Facility had an outstanding balance of $ 893 million, net of $ 7 million of unamortized deferred financing costs, as of January 1, 2022.

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

Prior to the repayment, borrowings under the 2020 Incremental Term Loan Facility bore interest at a rate per annum equal to, at USF’s option, either LIBOR plus a margin of 3.25 % (subject to a LIBOR “floor” of 1.00 %), or an ABR plus a margin of 2.25 %.

Senior Secured Notes

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

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

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

Borrowings under the 2021 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 2.75 %, or the sum of an ABR, as described under the 2021 Incremental Term Loan Facility, plus a margin of 1.75 % (subject to a LIBOR “floor” of 0.00 %).

The 2021 Incremental Term Loan Facility is scheduled to mature on November 22, 2028.

Borrowings under the 2021 Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings and a 1.00 % premium in the case of any “repricing transaction” within six months of November 22, 2021.

The 2021 Incremental Term Loan Facility may require mandatory repayments if certain assets are sold.

Senior Secured Notes due 2025

As of January 1, 2022, the Secured Notes had a carrying value of $ 989 million, net of $ 11 million of unamortized deferred financing costs.

The Secured Notes bear interest at a rate of 6.25 % per annum and will mature on April 15, 2025.

On or after April 15, 2022, the Secured Notes are redeemable, at USF’s option, in whole or in part at a price of 103.125 % of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date.

On or after April 15, 2023 and April 15, 2024, the optional redemption price for the Secured Notes declines to 101.563 % and 100.000 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

Unsecured Senior Notes due 2024

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

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

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

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

As of June 15, 2020, the Unsecured Senior Notes due 2024 became redeemable, at USF’s option, in whole or in part at a price of 101.469 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date.

On February 4, 2021, we redeemed all of the then outstanding Unsecured Senior Notes due 2024, including the early redemption premium, using proceeds from the issuance of the Unsecured Senior Notes due 2029 as discussed below.

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 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 the 2020 Incremental Term Loan Facility, the Company applied debt extinguishment accounting and recorded $ 23 million 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 $ 892 million, net of $ 8 million of unamortized deferred financing costs, as of January 1, 2022.

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, but not including, the applicable 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, but not including, the applicable redemption date.

Unsecured Senior Notes due 2030

On November 22, 2021, USF completed a private offering of $ 500 million aggregate principal amount of Unsecured Senior Notes due 2030.

USF used the proceeds of the Unsecured Senior Notes due 2030, together with borrowings under the 2021 Incremental Term Loan Facility and cash on hand, to repay all of the then outstanding borrowings under the Initial Term Loan Facility, and to pay related fees and expenses.

In connection with the repayment of the Initial Term Loan Facility, the Company applied debt extinguishment accounting and recorded $ 2 million in the Company’s Consolidated Statements of Comprehensive Income, primarily consisting of a write-off of pre-existing unamortized deferred financing costs related to the Initial Term Loan Facility.

Lender fees and third-party costs of $ 12 million with the issuance of 2021 Incremental Term Loan Facility and the Unsecured Senior Notes due 2030 were capitalized as deferred financing costs.

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 Unsecured Senior Notes due 2030 bear interest at a rate of 4.625 % per annum and will mature on June 1, 2030.

On or after June 1, 2025, the Unsecured Senior Notes due 2030 are redeemable, at USF’s option, in whole or in part at a price of 102.313 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

On or after June 1, 2026 and June 1, 2027, the optional redemption price for the Unsecured Senior Notes due 2030 declines to 101.156 % and 100.000 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

Financing Leases— Obligations under financing leases of $ 292 million as of January 1, 2022 consist primarily of amounts due for transportation equipment and building leases.

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Additionally, the lenders under the ABL Facility have a second priority interest in all of the capital stock of USF and its subsidiaries and substantially all other non-real estate assets of USF and its subsidiaries.

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

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

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

Pursuant to the terms of the interest rate swap agreements between the interest rate swap counterparty and USF, the interest rate swap counterparty has agreed that its right to receive payment from the sale of the collateral is subordinate to the rights of the lenders under the ABL Facility.

USF’s obligations under the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility are secured by all the capital stock of USF and its subsidiaries and substantially all the non-real estate assets of USF.

Additionally, the lenders under the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility have a second priority interest in the inventory and certain transportation equipment pledged under the ABL Facility.

Debt Covenants

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

January 2, 2021 December 28, 2019

January 1, 2022 January 2, 2021

Accrued expenses and other current liabilities:

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Customer rebates and other selling expenses

Property and sales tax

Property and sales tax payable

Operating lease liability

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Severance and Related Costs Facility Closing Costs Total

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

Current period costs 1 — 1

Payments, net ( 4 ) — ( 4 )

Balance as of December 29, 2018 $ 1 $ 1 $ 2

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Balance as of January 2, 2021 1 1 2

Current period costs (benefits) 5 ( 1 ) 4

Payments, net ( 3 ) — ( 3 )

Balance as of January 1, 2022 $ 3 $ — $ 3

From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness.

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2021 Activities

During fiscal year 2021, the Company incurred net restructuring costs of $ 4 million for severance and related costs associated with the closure of an excess facility and initiatives to improve operational effectiveness.

2020 Activities

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

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

2019 and 2018 Activities

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

2019 Activities

During fiscal year 2019, the Company incurred de minimis restructuring costs.

See Note 9, Goodwill and Other Intangibles, for discussion related to asset impairment charges incurred during fiscal years 2021 and 2020.

CONVERTIBLE PREFERRED STOCK

On May 6, 2020 (the “Issuance Date”), pursuant to the terms of an Investment Agreement (the “Investment Agreement”) with KKR Fresh Aggregator L.P., a Delaware limited partnership (“KKR”), the Company issued and sold 500,000 shares of the Company’s Series A convertible preferred stock, par value $ 0.01 per share (the “Series A Preferred Stock”) to KKR for an aggregate purchase price of $ 500 million, or $ 1,000 per share (the “Issuance”).

On May 6, 2020 (the “Issuance Date”), pursuant to the terms of an Investment Agreement (the “Investment Agreement”) with KKR Fresh Aggregator L.P., a Delaware limited partnership, which agreement was joined on February 25, 2021 by permitted transferee KKR Fresh Holdings L.P., a Delaware limited partnership (“KKR”), the Company issued and sold 500,000 shares of the Company’s Series A convertible preferred stock, par value $0.01 per share (the “Series A Preferred Stock”) to KKR Fresh Aggregator L.P.

for an aggregate purchase price of $ 500 million, or $ 1,000 per share (the “Issuance”).

The Company used the net proceeds from the Issuance for working capital and general corporate purposes.

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

8,842 and 8,997 shares of Series A Preferred Stock, respectively, plus a de minimis amount in cash in lieu of fractional shares in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the “Certificate of Designations”).

In accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the “Certificate of Designations”), the Company paid dividends on the shares of the Series A Preferred Stock in the form of (a) 5,288 ;

8,997 and 9,154 shares of Series A Preferred Stock on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021, respectively, plus a de minimis amount in cash in lieu of fractional shares and (b) cash in the amount of $ 28 million in the aggregate during subsequent quarters in fiscal year 2021.

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

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Holders of the Series A Preferred Stock are also entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series A Preferred Stock, authorization or issuances by the Company of securities that are senior to, or equal in priority with, the Series A Preferred Stock, increases or decreases in the number of authorized shares of Series A Preferred Stock, and issuances of shares of Series A Preferred Stock after the Issuance Date, other than shares issued as in-kind dividends with respect to shares of the Series A Preferred Stock issued after the Issuance Date.

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

The following table summarizes the activity for the outstanding Series A Preferred Stock and associated carrying value for fiscal years 2021 and 2020:

Series A Preferred Stock

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Balance, January 2, 2021 523,127 $ 519

Shares issued as paid in kind dividend - Series A Preferred Stock 9,154 15

Balance, January 1, 2022 532,281 $ 534

RELATED PARTY TRANSACTIONS

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

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

FMR LLC, is a holder of approximately 10 % of the Company’s outstanding common stock.

As of January 1, 2022, investment funds managed by an affiliate of FMR LLC held approximately $ 24 million in aggregate principal amount of the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility.

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

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

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received an aggregate of $2 million for debt advisory services rendered in connection with the Unsecured Senior Notes due 2029, the 2021 Incremental Term Loan Facility, and the Unsecured Senior Notes due 2030 financings during fiscal year 2021 and $ 6 million for debt advisory services rendered in connection with the financing of the Smart Foodservice acquisition during fiscal year 2020.

As reported by the administrative agent of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility (the “Term Loan Agent”), investment funds managed by an affiliate of KKR held approximately $ 17 million in aggregate principal amount of the 2019 Incremental Term Loan Facility as of January 1, 2022 and approximately $ 65 million in aggregate principal amount of the Initial Term Loan Facility and the 2019 Incremental Term Loan Facility as of January 2, 2021.

SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK

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Share-based compensation expense related to the Time-Based Options was $ 12 million, $ 10 million and $ 8 million for fiscal years 2021, 2020 and 2019, respectively.

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

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

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

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

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

There was no share-based compensation expense recorded in fiscal year 2021 related to the Performance Options.

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

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Average Remaining Contractual Years

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

2,620,253 — 2,620,253 $ 3.91 $ 13.29

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

966,251 — 966,251 $ 18.59 $ 36.85

( 709,819 ) ( 91,843 ) ( 801,662 ) $ 6.65 $ 19.97

Performance-based Forfeitures (1)

( 199,168 ) ( 3,343 ) ( 202,511 ) $ 6.77 $ 19.03

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Vested and exercisable as of January 1, 2022 2,426,951 263,643 2,690,594 $ 8.50 $ 25.05 5.9

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

The weighted-average grant date fair value of Options granted for fiscal years 2021, 2020 and 2019 was $ 18.59 , $ 3.91 and $ 10.63 , respectively.

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

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

The Company recorded share-based compensation expense for the Time-Based RSAs of $ 1 million in each of fiscal years 2021, 2020, and 2019.

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

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Performance RSAs

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

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

Granted — — — $ —

Vested ( 38,902 ) ( 32,356 ) ( 71,258 ) $ 34.11

Forfeited ( 3,216 ) ( 19,292 ) ( 22,508 ) $ —

Performance adjustment (1)

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(1) Represents an adjustment to the 2018 Performance RSAs based on the actual performance during the three-year performance period.

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

There were no RSAs granted in fiscal year 2020.

The weighted-average grant date fair value for the RSAs granted in fiscal year 2019 was $ 34.56 .

There were no RSAs granted in fiscal years 2020 and 2021.

There was $ 1 million of unrecognized compensation expense related to the RSAs as of January 1, 2022, that is expected to be recognized over a weighted average period of one year.

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

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

starting on the anniversary date of the grant.

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

and Performance RSUs, the “RSUs”).

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

For fiscal years 2021, 2020 and 2019, the Company recognized $ 26 million, $ 23 million and $ 14 million, respectively, in share-based compensation expense related to the Time-Based RSUs.

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

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

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

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The Company recognized $ 1 million, $ 1 million and $ 2 million of share-based compensation expense in fiscal years 2021, 2020 and 2019, respectively, for the Performance RSUs.

During fiscal year 2021, the Company granted Market Performance RSUs to certain executive officers and other eligible employees.

These Market Performance RSUs awards vest at the end of a four-year performance period contingent on our achievement of certain total shareholder return performance (“TSR”) targets during the performance period.

The grant date fair value of the Market Performance RSUs was estimated using a Monte-Carlo simulation.

The Company recognized $ 3 million of share-based compensation expense in fiscal years 2021 for the Market Performance RSUs.

There were no Market Performance RSUs outstanding prior to fiscal year 2021 and therefore no share-based compensation expense was recorded in 2020 and 2019 related to the Market Performance RSUs.

A summary of RSUs outstanding and changes during fiscal year 2021 is presented below.

RSUs Performance

RSUs Market Performance RSUs Total

RSUs Weighted-

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

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

857,273 — 357,755 1,215,028 $ 37.74

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Unvested as of January 1, 2022 2,305,296 106,063 350,143 2,761,502 $ 25.60

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

(1) Represents an adjustment to the 2018 Performance RSUs based on actual performance during the respective three-year performance period.

The weighted-average grant date fair values for the RSUs granted in fiscal years 2021, 2020, and 2019 was $ 37.74 , $ 13.83 and $ 35.09 , respectively.

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

The Company adopted ASU No.

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

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

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

Leases Consolidated Balance Sheet Location January 1, 2022 January 2, 2021

Other assets $ 275 $ 284

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Total lease liabilities

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

(1) Financing lease assets are recorded net of accumulated amortization of $ 261 million and $ 244 million as of January 1, 2022 and January 2, 2021.

The following table presents the location of lease costs in fiscal years 2021, 2020 and 2019 in the Company's Consolidated Statements of Comprehensive Income:

Lease Cost Statement of Comprehensive Income Location 2020 2019

Lease Cost Statements of Comprehensive Income Location 2021 2020 2019

Operating lease cost Distribution, selling and administrative costs $ 58 $ 52 $ 29

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Interest expense-net 10 12 12

Short-term lease cost Distribution, selling and administrative costs 1 — —

Variable lease cost Distribution, selling and administrative costs 11 13 6

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Present value of lease liabilities $ 280 $ 292 $ 572

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

Future Minimum Lease Payments Operating

Leases Financing Leases Total

2020 $ 48 $ 106 $ 154

2021 38 84 122

2022 33 62 95

2023 30 58 88

2024 12 41 53

After 2024 42 29 71

Total lease payments 203 380 583

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

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

Other information related to lease agreements for fiscal years 2021, 2020 and 2019 was as follows:

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Financing cash flows from financing leases 87 102 90

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

Lease Term and Discount Rate January 1, 2022 January 2, 2021 December 28, 2019

Weighted-average remaining lease term (years):

Operating leases

8.30 8.42 6.14

Financing leases

5.74 5.31 4.85

Weighted-average discount rate:

Operating leases

6.1 % 6.6 % 4.4 %

Financing leases

3.2 % 3.2 % 3.5 %

RETIREMENT PLANS

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

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

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

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.

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

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

This defined benefit pension plan was merged into the Retirement Plan as of December 31, 2020.

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

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Other postretirement benefit costs were de minimis for fiscal years 2021, 2020 and 2019.

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

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

The Company did not make a significant contribution to the Retirement Plan in fiscal years 2021, 2020 and 2019.

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

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

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

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

Pension obligation settlement payments of $ 66 million related to these

transactions, consisting of lump sum payments and the annuity contract premium, were paid from plan assets.

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

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Interest cost

Actuarial loss (gain)

Actuarial (gain) loss

( 30 ) 98 100

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Fair value of plan assets as of beginning of year

Return on plan assets

1,112 923 836

Return on plan assets

Employer contribution

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Net funded status $ 87 $ 51 $ 20

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

pension plan.

The net funded status of the Retirement Plan for fiscal year 2021 improved from a net asset of $ 51 million to a net asset of $ 87 million, primarily due to asset returns, and an increase in the discount rate.

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

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

The fiscal year 2021 pension benefits actuarial gain of $ 30 million was primarily due to an increase in the discount rate.

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

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

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data