What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-17 · 326 added, 305 removed, 1173 unchanged (35% of the section changed)

3 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 31, 2022, January 1, 2022, and January 2, 2021

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended December 31, 2022, January 1, 2022, and January 2, 2021

Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2022, January 1, 2022, and January 2, 2021

Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2023, December 31, 2022, and January 1, 2022

Notes to Consolidated Financial Statements

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

and subsidiaries (the “Company”) as of December 31, 2022 and January 1, 2022, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows, for each of the three fiscal years in the period ended December 31, 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 December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows, for each of the three fiscal years in the period ended December 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2023, 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 15, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Vendor Consideration and Receivables - Refer to Note 2 to the financial statements.

Vendor Consideration - Refer to Note 2 to the financial statements.

Critical Audit Matter Description

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

Total vendor receivables were $ 143 million at December 31, 2022.

Vendor receivables represent the uncollected balance of vendor consideration.

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

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• 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 December 31, 2022.

• We selected a sample of inventory on hand and evaluated whether the related vendor consideration was properly recognized in the promotional allowance invoice register during the period ended December 30, 2023.

• We selected a sample of deductions made on payments to vendors after period end and evaluated whether the vendor consideration was properly recorded at December 30, 2023.

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

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(In millions, except par value)

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Current assets:

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Other intangibles—net 803 785

Deferred tax assets — 8

Other assets 376 372

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

0.5 issued and outstanding as of December 31, 2022 and January 1, 2022 534 534

0 and 0.5 issued and outstanding as of December 30, 2023 and December 31, 2022, respectively

Shareholders’ equity:

1 unchanged sentence

253 and 225 issued and outstanding as of

December 31, 2022 and January 1, 2022, respectively

December 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

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Treasury Stock, 7.8 and 0.5 shares, respectively

( 311 ) ( 14 )

Total shareholders’ equity

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Fiscal Years Ended

December 31, 2022 January 1, 2022 January 2, 2021

December 30, 2023 December 31, 2022 January 1, 2022

Net sales $ 35,597 $ 34,057 $ 29,487

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5,131 4,898 4,231

Operating income (loss) 594 424 ( 77 )

Operating income 1,017 594 424

Other income—net ( 6 ) ( 22 ) ( 26 )

1 unchanged sentence

Loss on extinguishment of debt

Income (loss) before income taxes 361 214 ( 294 )

Income tax provision (benefit) 96 50 ( 68 )

Net income (loss)

265 164 ( 226 )

Other comprehensive income (loss)—net of tax:

Income before income taxes 678 361 214

Income tax provision 172 96 50

Other comprehensive income—net of tax:

Changes in retirement benefit obligations

Recognition of interest rate swaps

Comprehensive income (loss)

( 43 ) ( 54 ) 10

Net income (loss) $ 265 $ 164 $ ( 226 )

Interest rate hedge activity

Comprehensive income

$ 464 $ 211 $ 179

Net income $ 506 $ 265 $ 164

Series A convertible preferred stock dividends ( 7 ) ( 37 ) ( 43 )

Net income (loss) available to common shareholders $ 228 $ 121 $ ( 254 )

Net income (loss) per share:

Net income available to common shareholders $ 499 $ 228 $ 121

Net income per share:

$ 2.09 $ 1.02 $ 0.55

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Retained Earnings

Treasury Stock Accumulated Other

Number of Treasury Shares Treasury Stock Accumulated Other

Comprehensive Loss Total

Shareholders’

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

BALANCE-January 2, 2021 221.0 $ 2 $ 2,901 $ 661 — $ — $ ( 34 ) $ 3,530

Share-based compensation expense

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0.7 — 20 — — — — 20

Vested restricted stock units, net 0.7 — — — — — — —

Exercise of stock options

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— — — — — — 10 10

Recognition of interest rate swaps, net of income tax

Interest rate hedge activity, net of income tax

— — — — — — 5 5

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

— — — 164 — — — 164

12 unchanged sentences

— — — — — — ( 54 ) ( 54 )

Recognition of interest rate swaps, net of income tax

Common stock repurchased

— — — — 0.4 ( 14 ) — ( 14 )

— — — 265 — — — 265

BALANCE-January 1, 2022 223 $ 2 $ 2,970 $ 782 $ — $ ( 19 ) $ 3,735

BALANCE-December 31, 2022 225.2 $ 2 $ 3,036 $ 1,010 0.4 $ ( 14 ) $ ( 73 ) $ 3,961

Share-based compensation expense

7 unchanged sentences

— — ( 12 ) — — — — ( 12 )

Series A convertible preferred stock conversion to common stock 25.0 1 534 — — — — 535

Series A convertible preferred stock dividends — — — ( 7 ) — — — ( 7 )

1 unchanged sentence

— — — — — — ( 43 ) ( 43 )

Stock repurchased

Interest rate hedge activity, net of income tax — — — — — — 1 1

Common stock repurchased

— — — — 7.4 ( 294 ) — ( 294 )

Excise tax on common stock repurchases — — — — — ( 3 ) — ( 3 )

— — — 506 — — — 506

5 unchanged sentences

Fiscal Years Ended

December 31, 2022 January 1, 2022 January 2, 2021

December 30, 2023 December 31, 2022 January 1, 2022

Cash flows from operating activities:

Net income (loss)

$ 506 $ 265 $ 164

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

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

Depreciation and amortization

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Amortization of deferred financing costs

Deferred tax provision (benefit)

Deferred tax provision

Share-based compensation expense

1 unchanged sentence

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

(Increase) decrease in receivables

Increase in receivables

( 157 ) ( 240 ) ( 386 )

3 unchanged sentences

( 67 ) ( 24 ) 4

Increase (decrease) in accounts payable and cash overdraft liability

193 471 ( 339 )

Increase (decrease) in accrued expenses and other liabilities

Increase in accounts payable and cash overdraft liability

Increase in accrued expenses and other liabilities

Net cash provided by operating activities

1,140 765 419

Cash flows from investing activities:

Acquisition of businesses—net of cash

Acquisition of businesses - net of cash received

Proceeds from sales of divested assets

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Cash flows from financing activities:

Repurchase of Senior Note Debt ( 1,000 ) — —

Issuance of new Senior Note Debt 1,000 — —

Principal payments on debt repricing ( 43 ) — —

Proceeds from debt repricing 43 — —

Proceeds from debt borrowings

2 unchanged sentences

( 766 ) ( 1,620 ) ( 3,105 )

Net proceeds from issuance of Series A convertible preferred stock

Dividends paid on Series A convertible preferred stock ( 7 ) ( 37 ) ( 28 )

4 unchanged sentences

Proceeds from exercise of stock options

Purchase of interest rate caps ( 3 ) — —

Tax withholding payments for net share-settled equity awards

( 12 ) ( 16 ) ( 14 )

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 587 ) ( 447 ) ( 837 )

3 unchanged sentences

Supplemental disclosures of cash flow information:

Conversion of Series A Convertible Preferred Stock $ 534 $ — $ —

Interest paid—net of amounts capitalized

$ 243 $ 185 $ 216

Income taxes paid (received)—net

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

The fiscal years ended December 31, 2022 and January 1, 2022, referred to herein as fiscal years 2022 and 2021, respectively, were 52-week fiscal years.

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

The fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, referred to herein as fiscal years 2023, 2022 and 2021, respectively, were 52-week fiscal years.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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

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

The Company records inventories at the lower of cost or market primarily using the last-in, first-out (“LIFO”) method.

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

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

As of December 31, 2022 and January 1, 2022, LIFO reserves in the Company’s Consolidated Balance Sheets were $ 489 million and $ 342 million, respectively.

As a result of changes in LIFO reserves, cost of goods sold increased $ 147 million, $ 165 million and $ 25 million in fiscal years 2022, 2021 and 2020, respectively.

As of December 30, 2023 and December 31, 2022, LIFO reserves in the Company’s Consolidated Balance Sheets were $ 488 million and $ 489 million, respectively.

As a result of changes in LIFO reserves, cost of goods sold decreased $ 1 million in 2023, and increased $ 147 million and $ 165 million in fiscal years 2022 and 2021, respectively.

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

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Goodwill and Other Intangible Assets —Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible and other intangible net assets acquired.

Other intangible assets include customer relationships, amortizable trade names, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks.

Other intangible assets include customer relationships, noncompete agreements, amortizable trade names, the brand names comprising the Company’s portfolio of exclusive brands, and trademarks.

Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below.

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Forfeitures are recognized as incurred.

Fair value of each Option is estimated as of the date of grant using a Black-Scholes option-pricing model, the fair value of all other awards 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.

Fair value of each option is estimated as of the date of grant using a Black-Scholes option-pricing model.

The fair value of time-based and other performance based awards is the closing price per share for the Company’s common stock as reported on

the New York Stock Exchange.

The fair value of the market performance based awards is estimated using a Monte-Carlo simulation.

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 15 % represents the difference between the fair market value as of acquisition date and the employee purchase price.

Treasury Stock — The company records treasury stock purchases at cost.

Treasury Stock — The company records treasury stock purchases at cost plus excise tax.

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

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

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

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

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.

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

In April 2023, the Company entered into two , two-year interest rate cap agreements.

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

The effective portion of gains and losses on the interest rate caps are initially recorded in other comprehensive loss and reclassified to interest expenses during the period in which the hedged transaction affects income.

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

Recently Issued and Recently Adopted Accounting Pronouncements

In December 2023, the FASB issued ASU No 2023-09 Income Taxes (“Topic 740”) “Improvements to Income Tax Disclosures Topic 740” , which enhances the transparency of income tax disclosures primarily related to rate reconciliation and income taxes paid information.

This guidance is effective for fiscal years beginning after December 15, 2024.

This guidance is effective on a prospective basis, though retrospective application is permitted.

The Company plans to adopt the provisions of ASU No.

2023-09 at the beginning of the first quarter of fiscal year 2025 and does not expect the provisions of the new standard to materially affect our financial position, results of operation or cash flows.

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

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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.

This guidance is effective for fiscal years beginning after December 15, 2021.

The Company adopted the provisions of ASU No.

2020-06 at the beginning of the first quarter of fiscal year 2022, with no impact on our financial position, results of operations, cash flows or diluted earnings per share reporting.

2020-06 at the beginning of the first quarter of fiscal year 2022, with no impact on the Company’s financial position, results of operations, cash flows or diluted earnings per share reporting.

In October 2021, the FASB issued ASU No.

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The Company adopted the provisions of ASU No.

2021-08 at the beginning of the first quarter of fiscal year 2022, with no impact on our financial position, results of operations or cash flows.

2021-08 at the beginning of the first quarter of fiscal year 2022, with no impact on the Company’s financial position, results of operations or cash flows.

In December 2022, the FASB issued ASU No.

2022-06 Reference Rate Reform (“Topic 848”) “Deferral of the Sunset Date of Topic 848” , which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

Topic 848 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.

The standard was effective upon issuance and the Company may apply the optional expedients and elections in Topic 848 prospectively through December 31, 2024.

For the Company, the provisions of this ASU were effective upon issuance and did not have a material impact on the Company’s consolidated financial statements .

REVENUE RECOGNITION

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

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of December 31, 2022 or January 1, 2022.

Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.7 billion and $ 1.5 billion as of December 31, 2022 and January 1, 2022, respectively.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of December 30, 2023 or December 31, 2022.

Customer receivables, which are included in accounts receivable, less allowances for doubtful accounts in the Company’s Consolidated Balance Sheets, were $ 1.9 billion and $ 1.7 billion as of December 30, 2023 and December 31, 2022, respectively.

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

1 unchanged sentence

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 $ 29 million and $ 27 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022, respectively, and $ 31 million and $ 26 million included in other assets in the Company’s Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022, respectively.

The Company’s contract assets for these upfront payments were $ 35 million and $ 29 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022, respectively, and $ 39 million and $ 31 million included in other assets in the Company’s Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022, respectively.

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

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BUSINESS ACQUISITIONS

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

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

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

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

USF financed the Smart Foodservice acquisition with a $ 700 million incremental senior secured term loan borrowed in April 2020 (the “2020 Incremental Term Loan Facility”), 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 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

Inventories 43

Other current assets 24

Property and equipment 84

Other intangibles (2)

Other assets 145

Accounts payable ( 38 )

Accrued expenses and other current liabilities ( 32 )

Deferred income taxes ( 8 )

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

Cash paid for acquisition $ 972

(1) Goodwill recognized is primarily attributable to intangible assets that do not qualify for separate recognition, as well as expected synergies from the combined company.

The acquired goodwill is not deductible for U.S.

federal income tax purposes.

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

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 16 million, $ 15 million, and $ 21 million during fiscal years 2022, 2021, and 2020, respectively.

Pro Forma Financial Information — The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for fiscal year 2020.

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

Pro forma net sales $ 23,258

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

Pro forma net loss per share:

Basic $ ( 1.02 )

Diluted $ ( 1.02 )

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 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 with our previously existing operations or the standalone cost estimates and estimated costs incurred by their former respective parent companies.

Accordingly, the unaudited pro forma financial information is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the date indicated.

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

Saladino’s Acquisition —On December 1, 2023, the Company acquired Saladino’s, a broadline distributor in California for a purchase price of $ 56 million.

The acquisition, which was funded with cash from operations, allows US Foods to further expand its reach into California and distribution channels to the southwest United States.

The Saladino’s acquisition, reflected in the Company’s consolidated financial statements commencing from the date of acquisition, did not materially affect the Company’s results of operations or financial position.

The Company recorded goodwill of $ 14 million and intangible assets of $ 7 million for this acquisition related to customer relationships, which will be amortized on a straight-line basis over an estimated useful life of 15 years.

The goodwill recognized from the Saladino’s acquisition is deductible for tax purposes.

Saladino’s is integrated into the Company’s foodservice distribution network.

Renzi Foodservice Acquisition —On July 7, 2023, the Company acquired Renzi Foodservice , a broadline distributor in New York, for a purchase price of $ 142 million (less the amount of the post-closing working capital adjustment, which was $ 2 million) for a net purchase price of $ 140 million.

The acquisition, which was funded with cash from operations, allows US Foods to further expand its reach into central upstate New York.

The Renzi Foodservice acquisition, reflected in the Company’s consolidated financial statements commencing from the date of acquisition, did not materially affect the Company’s results of operations or financial position.

The Company recorded goodwill of $ 58 million and intangible assets of $ 57 million for this acquisition.

The intangible assets included $ 54 million related to customer relationships and $ 3 million related to noncompete agreements, which will be amortized on a straight-line basis over an estimated useful life of 15 and 5 years, respectively.

The goodwill recognized from the Renzi Foodservice acquisition is deductible for tax purposes.

Renzi Foodservice is integrated into the Company’s foodservice distribution network.

Acquisition and integration costs, which included Saladino’s and Renzi Foodservice as well as previous acquisitions, included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $ 6 million, $ 16 million and $ 15 million during fiscal years 2023, 2022 and 2021, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

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 in 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 2022.

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

2 unchanged sentences

Charged (benefit) to costs and expenses, net

Adoption of ASU 2016-13 — — 1

Customer accounts written off—net of recoveries

1 unchanged sentence

Balance as of end of year $ 18 $ 30 $ 33

This table excludes the vendor receivable related allowance for doubtful accounts of $ 8 million, $ 7 million, and $ 5 million as of December 31, 2022, January 1, 2022, and January 2, 2021, 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.

For the year ended December 30, 2023, the customer accounts written off - net of recoveries is primarily due to a one-time write-off for one large national customer whose outstanding amount due had previously been reserved.

This table excludes the vendor receivable related allowance for doubtful accounts of $ 5 million and $ 8 million as of December 30, 2023 and December 31, 2022, respectively.

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 2023, one facility previously held for sale was sold for aggregate cash proceeds of $ 2 million which approximated the carrying value.

During fiscal year 2022, no excess facilities or vacant land previously held for future use were transferred to assets held for sale.

1 unchanged sentence

The Company also sold one excess facility for aggregate cash proceeds of $ 1 million which approximated the carrying value.

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.

The changes in assets held for sale for fiscal years 2023 and 2022 were as follows:

Balance as of beginning of year $ 2 $ 8

Transfers in — 11

Assets sold ( 2 ) ( 6 )

1 unchanged sentence

PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2022 and January 1, 2022 consisted of the following:

December 31, 2022 January 1, 2022 Range of

Property and equipment as of December 30, 2023 and December 31, 2022 consisted of the following:

December 30, 2023 December 31, 2022 Range of

Land $ 401 $ 397

6 unchanged sentences

Property and equipment—net $ 2,280 $ 2,171

Transportation equipment included $ 575 million and $ 537 million of financing lease assets as of December 31, 2022 and January 1, 2022, respectively.

Office equipment, furniture and software included $5 million of financing lease assets as of December 31, 2022.

Buildings and building improvements included $ 78 million and $ 15 million of financing lease assets as of December 31, 2022 and January 1, 2022.

Accumulated amortization of financing lease assets was $ 263 million and $ 261 million as of December 31, 2022 and January 1, 2022, respectively.

Transportation equipment included $ 594 million and $ 575 million of financing lease assets as of December 30, 2023 and December 31, 2022, respectively.

Office equipment, furniture and software included $ 5 million of financing lease assets as of both December 30, 2023 and December 31, 2022.

Buildings and building improvements included $ 148 million and $ 78 million of financing lease assets as of December 30, 2023 and December 31, 2022, respectively.

Accumulated amortization of financing lease assets was $ 297 million and $ 263 million as of December 30, 2023 and December 31, 2022, respectively.

Interest capitalized was not material in both fiscal years 2023 and 2022.

4 unchanged sentences

Brand names and trademarks are indefinite-lived intangible assets and, accordingly, are not subject to amortization, but are subject to impairment assessments as described below.

Customer relationships and amortizable trade names are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization.

Amortizable customer relationships, trade names and noncompete agreements are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization.

Customer relationships and amortizable trade names are amortized over the estimated useful lives (which range from approximately 3 to 15 years).

Amortization expense was $ 46 million, $ 45 million and $ 55 million for fiscal years 2023, 2022 and 2021, respectively.

The weighted-average remaining useful life of all definite lived intangibles was approximately nine years as of December 31, 2022.

The weighted-average remaining useful life of all definite lived intangibles was approximately twelve years as of December 30, 2023.

Amortization of these definite lived intangible assets is estimated to be $ 49 million for each of fiscal years 2024, 2025, 2026, 2026 and 2027, and $ 288 million in the aggregate thereafter.

Goodwill and other intangibles—net consisted of the following:

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Goodwill $ 5,697 $ 5,625

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Net carrying value

Noncompete agreements—amortizable:

Gross carrying amount

Accumulated amortization

Net carrying value

Brand names and trademarks—not amortizing

Total other intangibles—net

The increases in goodwill and the gross carrying amounts of customer relationships and noncompete agreements are attributable to the Renzi Foodservice and the Saladino’s acquisitions.

See Note 5, Business Acquisitions.

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.

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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 an earlier acquisition.

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

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

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and January 1, 2022, 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 December 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

December 30, 2023

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$ 208 $ — $ — $ 208

January 1, 2022

Interest Rate Caps $ — $ 1 $ — $ 1

December 31, 2022

Level 1 Level 2 Level 3 Total

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Derivative Financial Instruments

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 December 31, 2022, the Company had no outstanding interest rate swap agreements.

On July 31, 2021, a four-year interest rate swap with a notional value of $ 550 million expired.

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

The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2022, January 1, 2022 , and January 2, 2021:

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

The Company has in the past, and may in the future, use interest rate swaps and interest rate caps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate debt.

In April 2023, the Company entered into two , two-year rate cap agreements, which will mature on April 30, 2025, with a total notional amount of $ 450 million, which will effectively cap the interest rate on approximately 24 % of the current principal amount of the Term Loan Facilities.

The Company’s maximum exposure to the variable component of the interest rate on the Term Loan Facilities will be 5 % on the notional amount covered by the interest rate cap.

The Company had no outstanding interest rate hedge agreements as of December 31, 2022.

The Company records its interest rate caps in the Consolidated Balance Sheet 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 or the Company, as appropriate.

The following table presents the balance sheet location and fair value of the interest rate caps at December 30, 2023:

Balance at December 30, 2023 Balance Sheet Location Fair Value

Derivatives designed as hedging instruments

Interest Rate Caps Other current assets $ 1

Interest Rate Caps Other noncurrent assets $ —

The effective portion of gains and losses on the interest rate caps are initially recorded in other comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affects income.

There was no ineffectiveness attributable to the Company’s interest rate hedges during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

The following table presents the effect of the Company’s interest rate caps in its Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022:

Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in Accumulated

Other Comprehensive Loss, net of tax

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

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

For the fiscal year ended December 30, 2023

Interest rate swaps

Interest rate caps

$ 1 Interest expense—net $ —

For the fiscal year ended January 1, 2022

For the fiscal year ended December 31, 2022

Interest rate swaps

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The fair value of the Company’s total debt approximated $ 4.7 billion, compared to its carrying value of $ 4.7 billion as of December 30, 2023.

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 4.625 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.4 billion and $ 0.5 billion as of December 31, 2022 and January 1, 2022, respectively.

The fair value of the Company’s 4.75 % unsecured senior notes due February 15, 2029 (the “Unsecured Senior Notes due 2029”) was $ 0.8 billion and $ 0.9 billion as of December 31, 2022 and January 1, 2022, respectively.

The fair value of the Company’s 6.25 % senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”) was $ 1.0 billion as of both December 31, 2022 and January 1, 2022.

The Fair value of the Unsecured Senior Notes due 2030, the Unsecured Senior Notes due 2029, and the Secured Senior Notes due 2025 is based upon their closing market prices on the respective dates.

The fair value of the Unsecured Senior Notes due 2030, the

Unsecured Senior Notes due 2029, and the Secured Senior Notes due 2025 is classified under Level 2 of the fair value hierarchy.

The fair value of the Company’s total debt approximated $ 4.6 billion compared to its carrying value of $ 4.8 billion as of December 31, 2022.

The fair value of the Company’s 6.25 % senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”) was $ 1.0 billion as of December 31, 2022.

The Secured Senior Notes due 2025 were redeemed in the third quarter of 2023.

The fair value of the Company’s 6.88 % senior unsecured notes due September 15, 2028 (the “Unsecured Senior Notes due 2028”) was $ 0.5 billion as of December 30, 2023.

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 and $ 0.8 billion as of December 30, 2023 and December 31, 2022, respectively.

The fair value of the Company’s 4.630 % unsecured senior notes due June 1, 2030 (the “Unsecured Senior Notes due 2030”) was $ 0.5 billion and $ 0.4 billion as of December 30, 2023 and December 31, 2022, respectively.

The fair value of the Company’s 7.25 % senior unsecured notes due January 15, 2032 (the “Unsecured Senior Notes due 2032”) was $ 0.5 billion as of December 30, 2023.

Fair value of the Unsecured Senior Notes dues 2028, the Unsecured Senior Notes due 2029, the Unsecured Senior Notes due 2030 and the Unsecured Senior Notes due 2032 is based upon their closing market prices on the respective dates.

The fair value of the Unsecured Senior Notes due 2028, the Unsecured Senior Notes due 2029, the Unsecured Senior Notes due 2030 and the Unsecured Senior Notes due 2032 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 December 31, 2022 Carrying Value as of December 31, 2022 Carrying Value as of January 1, 2022

Debt Description Maturity Interest Rate as of December 30, 2023 Carrying Value as of December 30, 2023 Carrying Value as of December 31, 2022

ABL Facility December 7, 2027 8.50 % $ — $ —

2019 Incremental Term Loan Facility (net of $ 11 and $ 19 of unamortized deferred financing

costs, respectively) September 13, 2026 6.38 % 1,232 1,442

2021 Incremental Term Loan Facility (net of $6 and $7 of unamortized deferred financing costs, respectively) November 22, 2028 7.13 % 786 893

costs, respectively)

September 13, 2026 7.47 % 1,105 1,232

2021 Incremental Term Loan Facility (net of $ 3 and $ 6 of unamortized deferred financing costs, respectively)

November 22, 2028 7.97 % 718 786

Secured Senior Notes due 2025 (net of $ 0 and $ 7 of unamortized deferred financing costs,

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April 15, 2025 6.25 % — 993

Unsecured Senior Notes due 2028 (net of $ 5 unamortized deferred financing costs) (1)

September 15, 2028 6.88 % 495 —

Unsecured Senior Notes due 2029 (net of $ 6 and $ 7 of unamortized deferred financing costs, respectively)

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June 1, 2030 4.63 % 496 496

Unsecured Senior Notes due 2032 (net of $ 5 of unamortized deferred financing costs) (1)

January 15, 2032 7.25 % 495 —

Obligations under financing leases 2023–2037 1.26 % - 8.31 %

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Long-term debt $ 4,564 $ 4,738

As of December 31, 2022, approximately 42 % of the Company’s total debt bears interest at a floating rate.

(1) The Secured Senior Notes due 2025 were paid in full on September 25, 2023, with the proceeds from the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, as well as cash on hand, as further discussed below

As of December 30, 2023, after considering interest rate caps that fixed the variable component of the interest rate on the total notional amount of $ 450 million of the current principal of the Term Loan Facilities described below, approximately 30 % of the Company’s total debt bore interest at a floating rate.

Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of December 30, 2023, were as follows:

2 unchanged sentences

Pursuant to this amendment, the total aggregate amount of commitments under the ABL facility was increased from $ 1,990 million to $ 2,300 million.

The amendment also replaced the London Interbank Offered Rate (“LIBOR”) interest rate benchmark with a forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York, as determined in accordance with the ABL Facility.

The amendment also replaced the London Interbank Offered Rate (“LIBOR”) interest rate benchmark with a forward-looking term rate based on the Term Secured Overnight Financing Rate (“Term SOFR”) as administered by the Federal Reserve Bank of New York, as determined in accordance with the ABL Facility.

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.

The ABL Facility is now scheduled to mature on December 7, 2027, 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 Term Loan Credit Agreement or any of USF’s Secured Senior Notes due 2025, Unsecured Senior Notes due 2029 or Unsecured Senior Notes due 2030 (the “Senior Notes”) (described below) remains

outstanding on a date that is sixty (60) days prior to such earlier maturity date for such indebtedness under the Term Loan Credit Agreement or any of such Senior Notes.

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 SOFR plus a margin ranging from 1.00 % to 1.50 % and a credit spread adjustment of 0.10%, in each case based on USF’s excess availability under the ABL Facility.

The ABL Facility is scheduled to mature on December 7, 2027, 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 Term Loan Credit Agreement or any of USF’s Unsecured Senior Notes due 2029 or Unsecured Senior Notes due 2030 (the “Senior Notes”) (described below) remains outstanding on a date that is sixty

(60) days prior to such earlier maturity date for such indebtedness under the Term Loan Credit Agreement or any of such Senior Notes.

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 %, based on USF’s excess availability under the ABL Facility, or the sum of a Term SOFR plus a margin ranging from 1.00 % to 1.50 %, based on USF’s excess availability under the ABL Facility, and a credit spread adjustment of 0.10 %.

The margin under the ABL Facility as of December 30, 2023, was 0.00 % for ABR loans and 1.00 % for SOFR loans.

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

The 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 Term SOFR 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 was 8.27 % and 2.87 % for fiscal years 2023 and 2022, respectively.

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USF had no outstanding borrowings, and had outstanding letters of credit totaling $ 567 million, under the ABL Facility as of December 30, 2023.

The outstanding letters of credit are entered into in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases, under the ABL Facility as of December 31, 2022.

The outstanding letters of credit are entered into in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases.

There was available capacity of $ 1,733 million under the ABL Facility as of December 30, 2023.

1 unchanged sentence

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.

On June 1, 2023, USF entered into an amendment to its term loan credit agreement to replace the LIBOR-based interest rate option included in the term loan credit agreement with an interest rate option based upon Term SOFR.

The Company’s maximum exposure to the variable component of the interest rate on the Term Loan Facilities will be 5 % on the notional amount covered by the interest rate caps described above.

2019 Incremental Term Loan Facility

The 2019 Incremental Term Loan Facility had an outstanding balance of $ 1,105 million, net of $ 11 million of unamortized deferred financing costs, as of December 30, 2023.

During fiscal year 2022 we voluntarily prepaid $ 200 million of the 2019 Incremental Term Loan Facility.

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 %).

During fiscal year 2023 the Company voluntarily prepaid $ 120 million of the 2019 Incremental Term Loan Facility.

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 (i) Term SOFR plus (ii) a credit spread adjustment of (a) 0.11448 % for a one-month term, (b) 0.26161 % for a three-month term, or (c) 0.42826 % for a six month term, (with the sum of Term SOFR and the foregoing credit spread adjustment subject to a Term SOFR “floor” of 0.00 %) plus (iii) a margin of 2.00 %, or the sum of (i) an ABR, as described in the 2019 Incremental Term Loan Facility plus a margin of 1.00 %.

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

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 SOFR-based borrowings.

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

1 unchanged sentence

The 2021 Incremental Term Loan Facility had an outstanding balance of $ 718 million, net of $ 3 million of unamortized deferred financing costs, as of December 30, 2023.

During fiscal year 2022 we voluntarily prepaid $ 100 million of the 2021 Incremental Term Loan Facility.

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 %).

During fiscal year 2023 the Company voluntarily prepaid $ 65 million of the 2021 Incremental Term Loan Facility.

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 (i) Term SOFR plus (ii) a credit spread adjustment of (a) 0.11448 % for a one-month term, (b) 0.26161 % for a three-month term, or (c) 0.42826 % for a six month term, (with the sum of Term SOFR and the foregoing credit spread adjustment subject to a Term SOFR “floor” of 0.00 %) plus (iii) a margin of 2.50 %, or the sum of (i) an ABR, as described in the 2019 Incremental Term Loan Facility plus a margin of 1.50 %.

On August 22, 2023, the 2021 Incremental Term Loan Facility was amended to lower the interest rate margins under the term loan facility to 2.50 % for Term SOFR borrowings and 1.50 % for ABR borrowings.

The Company applied modification accounting to the majority of the continuing lenders as the terms 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 $ 1 million of third-party costs and a write-off of $ 1 million of unamortized deferred financing costs, related to the August 22, 2023 amendment in interest expense.

Unamortized deferred financing costs of $ 3 million at December 30, 2023 were carried forward and will be amortized through the maturity date of the term loan facility.

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

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

Secured Senior Notes due 2025

As of December 31, 2022, the Secured Senior Notes due 2025 had a carrying value of $ 993 million, net of $ 7 million of unamortized deferred financing costs.

The Secured Senior Notes due 2025 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 Senior Notes due 2025 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, but not including, the applicable redemption date.

On or after April 15, 2023 and April 15, 2024, the optional redemption price for the Secured Senior Notes due 2025 declines to 101.563 % and 100.000 %, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

On September 25, 2023, the Company redeemed all of the then outstanding Secured Senior Notes due 2025, using proceeds from the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, along with cash on hand, as discussed below.

As a result of the early redemption of the Secured Senior Notes due 2025, the Company incurred a $ 16 million prepayment premium, as well as wrote-off deferred financing fees of $ 5 million.

The total loss on extinguishment of debt of $ 21 million is presented separately in the Company’s Consolidated Statements of Comprehensive Income.

Unsecured Senior Notes due 2028

On September 25, 2023, USF completed a private offering of $ 500 million aggregate principal amount of Unsecured Senior Notes due 2028.

USF used the proceeds of the Unsecured Senior Notes due 2028, together with the proceeds of the Unsecured Senior Notes due 2032 and cash on hand, to redeem all of the then outstanding Secured Senior Notes due 2025, and to pay related fees and expenses.

Lender fees and third-party costs of $ 5 million in connection with the issuance of the Unsecured Senior Notes due 2028 were capitalized as deferred financing costs.

The Unsecured Senior Notes due 2028 had an outstanding balance of $ 495 million, net of the $ 5 million of unamortized deferred financing costs, as of December 30, 2023.

The Unsecured Senior Notes due 2028 bear interest at a rate of 6.88 % per annum and will mature on September 15, 2028.

On or after September 15, 2025, the Unsecured Senior Notes due 2028 are redeemable, at USF’s option, in whole or in part at a price of 103.438 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

On or after September 15, 2026 and September 15, 2027, the optional redemption price for the Unsecured Senior Notes due 2028 declines to 101.719 % and 100.00 %, 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 2029

The Unsecured Senior Notes due 2029 had an outstanding balance of $ 894 million, net of $ 6 million of unamortized deferred financing costs, as of December 30, 2023.

7 unchanged sentences

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 $ 446 million as of December 31, 2022 consist primarily of amounts due for transportation equipment and building leases.

Unsecured Senior Notes due 2032

On September 25, 2023, USF completed a private offering of $ 500 million aggregate principal amount of Unsecured Senior Notes due 2032.

USF used the proceeds of the Unsecured Senior Notes due 2032, together with the proceeds of the Unsecured Senior Notes due 2028 and cash on hand, to redeem all of the then outstanding Secured Senior Notes due 2025, and to pay

related fees and expenses.

Lender fees and third-party costs of $ 5 million in connection with the issuance of the Unsecured Senior Notes due 2032 were capitalized as deferred financing costs.

The Unsecured Senior Notes due 2032 had an outstanding balance of $ 495 million, net of the $ 5 million of unamortized deferred financing costs, as of December 30, 2023.

The Unsecured Senior Notes due 2032 bear interest at a rate of 7.250 % per annum and will mature on January 15, 2032.

On or after September 15, 2026, the Unsecured Senior Notes due 2032 are redeemable, at USF’s option, in whole or in part at a price of 103.625 % of the remaining principal, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

On or after September 15, 2027 and September 15, 2028, the optional redemption price for the Unsecured Senior Notes due 2032 declines to 101.813 % and 100.00 %, 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 $ 463 million as of December 30, 2023 consist primarily of amounts due for transportation equipment and building leases.

Security Interests

22 unchanged sentences

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

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Accrued expenses and other current liabilities:

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Operating lease liability

Restructuring liabilities 7 3

Interest payable

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Charged to costs and expenses 123 107 95

Acquisition — — 3

Reinsurance recoverable 13 2 7

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Severance and Related Costs Facility Closing Costs Total

Balance as of December 28, 2019 $ 1 $ — $ 1

Current period costs 27 3 30

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

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

1 unchanged sentence

Payments, net

( 3 ) — ( 3 )

Balance as of January 1, 2022 3 — 3

1 unchanged sentence

Payments, net

( 3 ) — ( 3 )

Balance as of December 31, 2022 3 — 3

Current period costs

Payments, net

( 7 ) ( 3 ) ( 10 )

Balance as of December 30, 2023 $ 7 $ — $ 7

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

1 unchanged sentence

2023 Activities

During fiscal year 2023, the Company incurred restructuring costs of $ 14 million for severance and related costs associated with work force reductions and office closures.

2022 Activities

During fiscal year 2022, the Company incurred restructuring costs of $ 3 million for severance and related costs associated with support office work force reductions.

1 unchanged sentence

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 9, Goodwill and Other Intangibles, for discussion related to asset impairment charges incurred during fiscal years 2022 and 2021.

CONVERTIBLE PREFERRED STOCK

On May 6, 2020 (the “Issuance Date”), pursuant to the terms of an Investment Agreement (the “Investment Agreement”) with KKR Fresh Aggregator L.P., a Delaware limited partnership, 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.

On May 6, 2020, pursuant to the terms of an 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 Preferred Stock, par value $ 0.01 per share, to KKR Fresh Aggregator L.P.

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

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

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 (c) cash in the amount of $ 37 million during fiscal year 2022.

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

The Series A Preferred Stock has a liquidation preference of $ 1,000 per share.

Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7.0 % per annum.

If the Company does not declare and pay a dividend on the Series A Preferred Stock, the dividend rate will increase by 3.0 % to 10.0 % per annum until all accrued but unpaid dividends have been paid in full.

Dividends are payable in kind through the issuance of additional shares of Series A Preferred Stock for the first four dividend payments following the Issuance Date, and thereafter, in cash or in kind, or a combination of both, at the option of the Company.

The Series A Preferred Stock is convertible at the option of the holders thereof at any time into shares of Common Stock at an initial conversion price of $ 21.50 per share and an initial conversion rate of 46.5116 shares of Common Stock per share of Series A Preferred Stock, subject to certain anti-dilution adjustments set forth in the Certificate of Designations.

At any time after May 6, 2023 (the third anniversary of the Issuance Date), if the volume weighted average price of the Common Stock exceeds $ 43.00 per share, as may be adjusted pursuant to the Certificate of Designations, for at least 20 trading days in any period of 30 consecutive trading days, at the election of the Company, all of the Series A Preferred Stock will be convertible into the relevant number of shares of Common Stock.

At any time after May 6, 2025 (the fifth anniversary of the Issuance Date), the Company may redeem some or all of the Series A Preferred Stock for a per share amount in cash equal to:

(i) the sum of (x) 100 % of the liquidation preference thereof, plus (y) all accrued and unpaid dividends, multiplied by (ii) (A) 105 % if the redemption occurs at any time after the fifth anniversary of the Issuance Date and prior to the sixth anniversary of the Issuance Date, (B) 103 % if the redemption occurs at any time after May 6, 2026 (the sixth anniversary of the Issuance Date) and prior to May 6, 2027 (the seventh anniversary of the Issuance Date), and (C) 100 % if the redemption occurs at any time after May 6, 2027 (the seventh anniversary of the Issuance Date).

Upon certain change of control events involving the Company, the holders of the Series A Preferred Stock must either (i) convert their shares of Series A Preferred Stock into Common Stock at the then-current conversion price or (ii) cause the Company to redeem their shares of Series A Preferred Stock for an amount in cash equal to 100 % of the liquidation preference thereof plus all accrued but unpaid dividends.

If any such change of control event occurs on or before May 6, 2025 (the fifth anniversary of the Issuance Date), the Company will also be required to pay the holders of the Series A Preferred Stock a “make-whole” premium of 5 %.

Holders of the Series A Preferred Stock are entitled to vote with the holders of the Common Stock on an as-converted basis.

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

As of December 31, 2022, the Company had outstanding a total of 532,281 shares of Series A Preferred Stock.

The Series A Preferred Stock had a carrying value of $ 534 million as of December 31, 2022.

On March 10, 2023, KKR converted 161,237 shares of Series A Preferred Stock into 7,600,037 shares of the Company’s common stock.

Pursuant to the terms of conversion of the Series A Preferred Stock set forth in the Certificate of Designations for the Series A Preferred Stock, each such share is convertible at the option of the holder at any time into a number of shares of Common Stock equal to (A) the sum of the liquidation preference for such share ($ 1,000 ) and the accrued and unpaid dividends with regard to such share divided by (B) the applicable conversion price ($ 21.50 , subject to certain adjustments).

The issuance of the 7,600,037 shares of Common Stock was exempt from registration under Section 3(a)(9) under the Securities Act of 1933, as amended, as the Series A Preferred Stock was exchanged for Common Stock by an existing security holder and no commission or other remuneration was paid.

On March 31, 2023, the Company paid cash dividends of $ 7 million on the remaining outstanding shares of the Series A Preferred Stock.

On May 26, 2023 KKR converted the remaining 371,044 shares of Series A Preferred Stock and completed a secondary offering of 17,425,053 shares of the Company’s common stock.

Upon completion of this transaction, KKR has relinquished their seat on the Company’s Board of Directors and is no longer considered a related party.

See Note 15, Related Party

Transactions.

In connection with the May 26, 2023 conversion, the Company repurchased $ 150 million of common stock.

See Note 16, Share-Based Compensation, Common Stock Issuances and Common Stock, for information on the Company’s Share Repurchase Program.

In accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the “Certificate of Designations”) previously issued to KKR Fresh Aggregator L.P.

(“KKR”), the Company paid dividends on the shares of the Series A Preferred Stock in the form of (a) 9,154 shares of Series A Preferred Stock on March 31, 2021, plus a de minimis amount of cash in lieu of fractional shares, (b) cash in the amount of $ 28 million in the aggregate during subsequent quarters during fiscal year 2021, (c) cash in the amount of $ 37 million during fiscal year 2022 and (d) cash in the amount of $ 7 million during fiscal year 2023.

The following table summarizes the activity for the outstanding Series A Preferred Stock and associated carrying value for fiscal years 2023, 2022 and 2021:

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Shares Carrying Value

Balance, December 28, 2019 — $ —

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

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

Balance, January 2, 2021 523,127 $ 519

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Balance, December 31, 2022 532,281 534

Shares converted to common stock, Q1 2023

( 161,237 ) ( 162 )

Shares converted to common stock, Q2 2023

( 371,044 ) ( 372 )

Balance December 30, 2023 — $ —

RELATED PARTY TRANSACTIONS

As of December 31, 2022 FMR LLC, is a holder of approximately 11 % of the Company’s outstanding common stock based on information provided in its most recent amendment to its Schedule 13G filed with the SEC.

As of December 31, 2022 investment funds managed by an affiliate of FMR LLC held approximately $ 19 million in aggregate principal amount of the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility.

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.

As of December 30, 2023, as reported by the administrative agent of the 2019 and 2021 Incremental Term Loan Facilities, investment funds managed by an affiliate of FMR LLC held approximately $ 2 million in aggregate principal amount of 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 Company’s 2021 debt refinancing activities 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 $ 15 million and $ 17 million in aggregate principal amount of the 2019 Incremental Term Loan Facility as of December 31, 2022 and January 1, 2022, respectively.

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 $ 15 million in aggregate principal amount of the 2019 Incremental Term Loan Facility as of December 31, 2022.

As of May 26, 2023, KKR converted all outstanding Series A Preferred Stock holdings, relinquished their seat on the Company’s Board of Directors and is no longer considered a related party.

See Note 14, Convertible Preferred Stock, for details on the Series A Preferred Stock.

SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK

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

The Company recorded $ 4 million, $ 4 million and $ 3 million of share-based compensation expense for fiscal years 2022, 2021 and 2020, respectively, associated with the employee stock purchase plan.

The Company recorded $ 4 million of share-based compensation expense for fiscal years 2023, 2022 and 2021, respectively, associated with the employee stock purchase plan.

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

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

There was no share-based compensation expense recorded in fiscal year 2022, 2021 and 2020 related to the Performance Options.

Based on the Company’s performance relative to the award agreements, no share-based compensation expense was recorded in fiscal year 2023, 2022 and 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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The fair value of each Option is estimated as of the date of grant using a Black-Scholes option-pricing model.

The weighted-average assumptions for Options granted in fiscal years 2021 and 2020 are included in the following table.

No options were granted in fiscal year 2022.

The weighted-average assumptions for Options granted in fiscal year 2021 are included in the following table.

No options were granted in fiscal year 2022 and 2023.

Expected volatility 53.0 %

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Average Remaining Contractual Years

Outstanding as of January 1, 2022 5,184,172 263,643 5,447,815 $ 8.96 $ 24.14

Outstanding as of December 31, 2022 3,650,606 186,321 3,836,927 $ 9.05 $ 24.32

— — — $ — $ —

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Vested and exercisable as of December 30, 2023 2,238,231 106,005 2,344,236 $ 8.77 $ 24.28 5.1

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

The weighted-average grant date fair value of Options granted for fiscal year 2021 was $ 18.59 .

During fiscal years 2023, 2022 and 2021, Options were exercised with total intrinsic values of $ 22 million, $ 13 million and $ 14 million, respectively, representing the excess of fair value over the exercise price.

There was $ 5 million of total unrecognized compensation costs related to unvested Options expected to vest as of December 31, 2022, which is expected to be recognized over a weighted-average period of 1 year.

There was $ 1 million of total unrecognized compensation costs related to unvested Options expected to vest as of December 30, 2023, which is expected to be recognized over a weighted-average period of one year .

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 de minimis share-based compensation expense for the Time-Based RSAs in fiscal year 2022, and $ 1 million in both fiscal years 2021 and 2020.

The Company recorded no share-based compensation expense for the Time-Based RSAs in fiscal year 2023, de minimis expense for 2022, and $ 1 million for 2021.

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

Share-based compensation expense for the Performance RSAs was de minimis for fiscal year 2022, and $ 1 million and $ 2 million for fiscal years 2021 and 2020, respectively.

The summary of unvested RSAs and changes during fiscal year 2022 is presented below:

Time-Based RSAs

Performance RSAs

Unvested as of January 1, 2022 35,693 214,134 249,827 $ 34.56

Granted — — — $ —

Vested ( 35,693 ) ( 109,651 ) ( 145,344 ) $ 34.56

Forfeited — — — $ —

Performance adjustment (1)

— ( 104,483 ) ( 104,483 ) $ 34.56

Unvested as of December 31, 2022 — — — $ —

(1) Represents an adjustment to the 2019 Performance RSAs based on the actual performance during the three-year performance period.

The Company recorded no share-based compensation expense for the Performance-Based RSAs in fiscal year 2023, de minimis expense for 2022, and $ 1 million for 2021.

There were no RSAs granted in fiscal years 2023, 2022 and 2021.

There was no unrecognized compensation expense related to the RSAs as of December 30, 2023.

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.

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

The Company recognized $ 1 million and $ 3 million of share-based compensation expense in fiscal years 2022 and 2021, respectively, 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 related to the Market Performance RSUs.

The Company recognized $ 2 million, $ 1 million and $ 3 million of share-based compensation expense in fiscal years 2023, 2022 and 2021, respectively, for the Market Performance RSUs.

A summary of RSUs outstanding and changes during fiscal year 2023 is presented below.

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RSUs Weighted-

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

1,373,553 516,484 — 1,890,037 $ 35.81

Unvested as of December 31, 2022 2,172,937 391,776 209,327 2,774,040 $ 31.62

1,441,470 604,074 168,162 2,213,706 $ 35.71

( 1,088,926 ) — — ( 1,088,926 ) $ 24.78

Performance adjustment (1)

( 337,853 ) ( 143,475 ) ( 57,089 ) ( 538,417 ) $ 36.07

Unvested as of December 30, 2023 2,187,628 852,375 320,400 3,360,403 $ 35.82

(1) Represents an adjustment to the 2019 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 2023, 2022 and 2021 was $ 35.71 , $ 35.81 and $ 37.74 , respectively.

As of December 31, 2022, there was $ 52 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of 2 years.

As of December 30, 2023, there was $ 70 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of two years.

Share Repurchase Program —On November 2, 2022, our Board of Directors approved a Share Repurchase Program under which the Company is authorized to repurchase up to $ 500 million of its outstanding common stock.

For the year ended December 31, 2022, the Company repurchased 396,069 shares at an aggregate purchase price of approximately $ 14 million under the program.

For the year ended

December 30, 2023, the Company repurchased 7,396,224 shares at an aggregate purchase price of approximately $ 294 million under the program.

Additionally, during the year ended December 30, 2023, the Company recorded $ 3 million of excise tax associated with common stock repurchases.

At December 30, 2023, there was approximately $ 192 million in remaining funds authorized under this program.

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As of December 30, 2023, lease agreements included residual value guarantees of up to $ 238 million that could potentially come due in future periods.

For leases which we believe it probable amounts will be owed under these guarantees we have included the residual value guarantee within the lease payments to measure the right-of-use assets and lease liabilities.

For leases which we believe amounts will be owed under these guarantees we have included the probable residual value guarantee within the lease payments to measure the right-of-use assets and lease liabilities.

During 2022, the Company entered into new lease agreements for four distribution facilities that were previously classified as operating leases.

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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 December 31, 2022 January 1, 2022

Leases Consolidated Balance Sheet Location December 30, 2023 December 31, 2022

Other assets $ 290 $ 265

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Total lease liabilities

(1) Financing lease assets are recorded net of accumulated amortization of $ 263 million and $ 261 million as of December 31, 2022 and January 1, 2022.

(1) Financing lease assets are recorded net of accumulated amortization of $ 297 million and $ 263 million as of December 30, 2023 and December 31, 2022, respectively.

The following table presents the location of lease costs in fiscal years 2023, 2022 and 2021 in the Company’s Consolidated Statements of Comprehensive Income:

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Financing cash flows from financing leases 111 73 87

Lease Term and Discount Rate December 31, 2022 January 1, 2022 January 2, 2021

Lease Term and Discount Rate December 30, 2023 December 31, 2022 January 1, 2022

Weighted-average remaining lease term (years):

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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 Retirement Plan as of December 31, 2020.

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

Amounts related to the Retirement Plan and other postretirement plans recognized in the Company’s consolidated financial statements are determined on an actuarial basis.

In the quarter ending July 1, 2023, the Company issued a notice of intent to terminate the majority of the Retirement Plan.

This was previously approved by the Company’s Board of Directors.

Effective December 30, 2023, the Retirement Plan was split into the Retirement Plan that is continuing, the “Ongoing Plan”, and the portion of the Retirement Plan that is terminating, the “Terminating Plan.” The Company has commenced the plan termination process for the Terminating Plan and expects all benefits to be settled during 2024, either through a lump-sum payment to participants or the purchase of an annuity offering on behalf of the participants..

As the amount of the settlement depends on a number of factors determined as of the Terminating Plan liquidation date, including the annuity pricing, interest rate environment and asset experience, we are currently unable to determine the ultimate cost of the settlement of the Terminating Plan at this time.

No cash contributions were required in the current fiscal year to support the Terminating Plan transaction.

As a result of the planned termination, the net funded status of the Terminating Plan is recorded within accrued expenses and other current liabilities in the Consolidated Balance Sheet as of December 20, 2023.

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

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( 41 ) ( 55 ) ( 47 )

Smart Foodservice assumed benefit obligations — — 70

Projected benefit obligation as of end of year

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( 41 ) ( 55 ) ( 47 )

Smart Foodservice acquired plan assets — — 51

Fair value of plan assets as of end of year

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Net funded status $ ( 17 ) $ 33 $ 87

The net funded status of the Retirement Plan for fiscal year 2023 decreased from a net asset of $ 33 million to a net liability of $ 17 million, as a result of market conditions, adjustments related to the Terminating Plan and actuarial losses.

The net funded status of the Retirement Plan for fiscal year 2022 decreased from a net asset of $ 87 million to a net asset of $ 33 million, primarily due to negative investment returns on assets, offset by an increase in the discount rate.

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 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 into the Retirement Plan.

The fiscal year 2023 pension benefits actuarial loss of $ 58 million was primarily due to a decrease in the discount rate and terminating plan adjustments.

The fiscal year 2022 pension benefits actuarial gain of $ 274 million was primarily due to an increase in the discount rate.

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 funded status of the Other Post Retirement Plans for the last three fiscal years was as follows:

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$ — $ 34 $ 89

Accrued benefit obligation—current

Accrued benefit obligation—noncurrent

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The measurement date for the defined benefit and other postretirement benefit plans was December 31 for fiscal years 2023, 2022 and 2021.

For 2022, 2021 and 2020, the Company applies the practical expedient under ASU No.

The Company applies the practical expedient under ASU No.

2015-4 to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end.

The mortality assumptions used to determine the pension benefit obligation as of December 31, 2022 are based on the Pri-2012 base mortality table with the MP-2020 mortality improvement scale published by the Society of Actuaries.

The mortality assumptions used to determine the pension benefit obligation as of December 31, 2023 and December 31, 2022 are based on the Pri-2012 base mortality table with the MP-2020 mortality improvement scale published by the Society of Actuaries.

A health care cost trend rate is used in the calculations of postretirement medical benefit plan obligations.

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Total defined benefit plans’ assets

Asset Fair Value as of January 1, 2022

Asset Fair Value as of December 31, 2022

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 2 $ — $ — $ 2

$ 32 $ — $ — $ 32

International

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government securities

Other — 3 — 3

$ 56 $ 253 $ — 309

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Subsequent five years 7 2

The Company does not expect to make a significant contribution to the Retirement Plans in fiscal year 2023.

The Company expects to make contributions to the Retirement Plans in fiscal year 2024 in connection with the terminating plan.

Other Company Sponsored Benefit Plans —Certain employees are eligible to participate in the Company’s 401(k) savings plan.

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Philadelphia and Vicinity

23-1511735/001 Green Yellow Implemented No 02/13/2026

23-1511735/001 Green Green N/A No 02/13/2026

Local 703 I.B.

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The Company computes EPS in accordance with ASC 260, Earnings per Share .

Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding.

Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding.

Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities.

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The Company applies the if-converted method to calculate the dilution impact of the Series A Preferred Stock, if dilutive in the period.

For fiscal years 2022, 2021 and 2020, share-based awards representing 2 million, 2 million and 9 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For fiscal years 2022, 2021, and 2020, Series A Preferred Stock representing 25 million, 25 million and 15 million of underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For fiscal years 2023, 2022 and 2021, share-based awards representing less than 1 million, 2 million and 2 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

For fiscal year 2023, Series A Preferred Stock representing 9 million of underlying common shares were included in the computation because the effect is dilutive.

For fiscal years 2022 and 2021, Series A Preferred Stock representing 25 million and 25 million of underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive.

The following table sets forth the computation of basic and diluted EPS:

2023 2022 2021

Net income (loss)

$ 506 $ 265 $ 164

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( 7 ) ( 37 ) ( 43 )

Net income (loss) available to common shareholders

Net income available to common shareholders

$ 499 $ 228 $ 121

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Weighted-average dilutive shares outstanding

Net income (loss) per share:

Net income per share:

$ 2.09 $ 1.02 $ 0.55

$ 2.02 $ 1.01 $ 0.54

(1) As discussed in Note 14 Convertible Preferred Stock, Series A Preferred Stock dividends for fiscal year 2020 and the first quarter of 2021 were paid-in-kind in the form of shares of Series A Preferred Stock.

Series A Preferred Stock dividends for the remaining quarters of fiscal year 2021 and 2022 were paid in cash.

(2) The Company applies the if-converted method to calculate the dilution impact of the Series A Preferred Stock, if dilutive in the period.

Under the if-converted method, the Series A Preferred Stock are converted to common shares for inclusion in the calculation of the weighted-average common shares outstanding—diluted.

Once converted, there would be no Series A Preferred Stock outstanding and therefore no Series A convertible preferred stock dividend.

(1) As discussed in Note 14 Convertible Preferred Stock, Series A Preferred Stock dividends for the first quarter of 2021 were paid-in-kind in the form of shares of Series A Preferred Stock.

Series A Preferred Stock dividends for the remaining quarters of fiscal year 2021, and all dividends paid in 2022 and 2023 were paid in cash.

(2) Under the if-converted method, outstanding shares of the Series A Preferred Stock are converted to common shares for inclusion in the calculation of weighted-average common shares outstanding-diluted.

Once converted, there would be no preferred stock outstanding and therefore, no Series A Preferred Stock dividend As of December 30, 2023, the 9 million shares represent the weighted average impact on these shares during the fiscal year 2023.

See Note 14 Convertible Preferred Stock, for details on Series A Preferred Stock.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

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Amortization of net loss (2) (3)

Settlements (2) (3)

Total before income tax ( 58 ) ( 73 ) 14

Income tax provision

Current year comprehensive income, net of tax ( 54 ) 10 23

Income tax (benefit) provision

( 15 ) ( 19 ) 4

Current year comprehensive (loss) income, net of tax ( 43 ) ( 54 ) 10

Balance as of end of year (1)

$ ( 116 ) $ ( 73 ) $ ( 19 )

Interest rate swaps:

Interest rate caps:

Balance as of beginning of year (1)

$ — $ — $ ( 5 )

Change in fair value of interest rate swaps — 1 ( 11 )

Change in fair value of interest rate caps 1 — 1

Amounts reclassified to interest expense — — 5

Total before income tax 1 — 6

Income tax provision (benefit) — 1 ( 2 )

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

Income tax provision — — 1

Current year comprehensive income, net of tax

Balance as of end of year (1)

$ — $ — $ ( 5 )

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

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

The income tax provision (benefit) for the fiscal years 2022, 2021 and 2020 consisted of the following:

The income tax provision for the fiscal years 2023, 2022 and 2021 consisted of the following:

2023 2022 2021

$ 140 $ 69 $ 11

Current income tax provision (benefit)

Deferred income tax provision (benefit)

Total income tax provision (benefit) $ 96 $ 50 $ ( 68 )

The Company’s effective income tax rates for the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021 were 27 %, 23 % and 23 %, respectively.

Current income tax provision

Deferred income tax provision

Total income tax provision

$ 172 $ 96 $ 50

The Company’s effective income tax rates for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 were 25 %, 27 % and 23 %, respectively.

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

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

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

federal statutory income tax rate of 21 % to the Company’s income tax provision (benefit) for the fiscal years 2022, 2021, and 2020 is shown below:

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

federal statutory income tax rate of 21 % to the Company’s income tax provision for the fiscal years 2023, 2022 and 2021 is shown below:

2023 2022 2021

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( 3 ) ( 1 ) ( 2 )

Total income tax provision (benefit) $ 96 $ 50 $ ( 68 )

Total income tax provision

$ 172 $ 96 $ 50

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

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Deferred tax assets:

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

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Noncurrent deferred tax assets $ — $ —

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Balance as of beginning of year $ 16 $ 28 35

(Benefit) expense recognized

Benefit recognized

( 6 ) ( 12 ) ( 7 )

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Reconciliation of the beginning and ending amount of unrecognized tax benefits as of fiscal years 2023, 2022 and 2021 was as follows:

Balance at December 28, 2019 $ 39

Gross increases due to positions taken in prior years 3

Decreases due to lapses of statute of limitations ( 1 )

Decreases due to changes in tax rates ( 5 )

Positions assumed in business acquisition 3

Balance at January 2, 2021 39

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Decreases due to lapses of statute of limitations ( 2 )

Balance at January 1, 2023 30

Decreases due to lapses of statute of limitations $ ( 4 )

Balance at December 30, 2023 $ 26

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

The Company had accrued interest and penalties of approximately $ 8 million and $ 7 million as of December 31, 2022 and January 1, 2022, respectively.

The Company had accrued interest and penalties of approximately $ 9 million and $ 8 million as of December 30, 2023 and December 31, 2022, respectively.

The Company files U.S.

federal and state income tax returns in jurisdictions with varying statutes of limitations.

Our 2007 through 2021 U.S.

Our 2007 through 2018 and 2020 through 2022 U.S.

federal income tax years, and various state income tax years from 2000 through 2022, remain subject to income tax examinations by the relevant taxing authorities.

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

The Company had $ 1,077 million of purchase orders and purchase contract commitments as of December 31, 2022 to be purchased in fiscal year 2023 and $ 38 million of information technology commitments through September 2025 that are not recorded in the Company’s Consolidated Balance Sheets.

The Company had $ 1,110 million of purchase orders and purchase contract commitments as of December 30, 2023 to be purchased beginning in fiscal year 2024 and continuing through fiscal year 2028 and $ 101 million of information technology commitments through May 2028 that are not recorded in the Company’s Consolidated Balance Sheets.

The Company has entered into various minimum volume purchase agreements at various pricing terms.

Minimum amounts committed to as of December 30, 2023 totaled approximately $ 2.75 billion.

Minimum amounts committed to by year are as follows:

(In millions)

To minimize fuel price risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements.

The Company had diesel fuel forward purchase commitments totaling $ 33 million through December 2024, as of December 30, 2023.

Additionally, the Company had electricity forward purchase commitments totaling $ 8 million through June 2024, as of December 31, 2022.

Additionally, the Company had electricity forward purchase commitments totaling $ 5 million through July 2025, as of December 30, 2023.

The Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts under contract meet the physical delivery criteria in the normal purchase exception.

13 unchanged sentences

(In millions, except par value)

December 31, 2022 January 1, 2022

December 30, 2023 December 31, 2022

Investment in subsidiary

3 unchanged sentences

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

Accrued expenses and other current liabilities $ 3 $ —

Deferred tax liabilities

3 unchanged sentences

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

0.5 issued and outstanding as of December 31, 2022 and January 1, 2022 534 534

0 and 0.5 issued and outstanding as of December 30, 2023 and December 31, 2022 — 534

Shareholders’ Equity

Common stock, $0.01 par value—600 shares authorized;

225 and 223 issued and outstanding as of December 31, 2022 and January 1, 2022

253 and 225 issued and outstanding as of December 30, 2023 and December 31, 2022

Additional paid-in capital

8 unchanged sentences

Fiscal Years Ended

December 31, 2022 January 1, 2022 January 2, 2021

December 30, 2023 December 31, 2022 January 1, 2022

Income before income taxes $ — $ — $ —

2 unchanged sentences

Equity in net earnings of subsidiary 506 265 160

Net income (loss)

265 164 ( 226 )

Other comprehensive income—net of tax:

Changes in retirement benefit obligations

Unrecognized gain (loss) on interest rate swaps

Comprehensive income (loss)

( 43 ) ( 54 ) 10

Net income (loss) $ 265 $ 164 $ ( 226 )

Unrecognized (loss) gain on interest rate hedges

Comprehensive income

$ 464 $ 211 $ 179

Net income $ 506 $ 265 $ 164

Series A convertible preferred stock dividends ( 7 ) ( 37 ) ( 43 )

Net income (loss) available to common shareholders $ 228 $ 121 $ ( 254 )

Net income available to common shareholders $ 499 $ 228 $ 121

Condensed Parent Company Statements of Cash Flows

Fiscal Years Ended

December 31, 2022 January 1, 2022 January 2, 2021

December 30, 2023 December 31, 2022 January 1, 2022

Cash flows from operating activities:

Net income (loss)

$ 506 $ 265 $ 164

4 unchanged sentences

Changes in operating assets and liabilities:

Increase in other assets

Decrease in accrued expenses and other liabilities — — ( 5 )

decrease in other assets

Net cash used in operating activities

1 unchanged sentence

Investment in subsidiary

51 28 ( 491 )

Net cash provided by (used in) investing activities

51 28 ( 491 )

Net cash provided by investing activities

Cash flows from financing activities:

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

Dividends paid on Series A convertible preferred stock

1 unchanged sentence

Repurchase of common stock ( 294 ) ( 14 ) —

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 301 ) ( 51 ) ( 28 )

10 unchanged sentences

Capital projects, whether for cost savings or generating incremental revenue, are evaluated based on estimated economic returns to the organization as a whole.

No single customer accounted for more than 3 % of the Company’s consolidated net sales in fiscal year 2022, 2 % of the Company’s consolidated net sales for fiscal years 2021, and 3 % of the Company’s consolidated net sales in fiscal year 2020.

However, customers who are members of one group purchasing organization accounted, in the aggregate, for approximately 12 % of the Company’s consolidated net sales in fiscal year 2022, 11 % of the Company’s consolidated net sales for fiscal year 2021 and 13 % of the Company’s consolidated net sales for fiscal years 2020.

No single customer accounted for more than 2 % of the Company’s consolidated net sales in fiscal year 2023, 3 % of the Company’s consolidated net sales in fiscal year 2022 and 2 % of the Company’s consolidated net sales in fiscal year 2021.

However, customers who are members of one group purchasing organization accounted, in the aggregate, for approximately 14 % of the Company’s consolidated net sales in fiscal year 2023, 12 % of the Company’s consolidated net sales in fiscal year 2022 and 11 % of the Company’s consolidated net sales for fiscal year 2021.

SUBSEQUENT EVENTS

Share Repurchase Program - For the month ended January 31, 2023, the Company repurchased 460,060 shares at an aggregate purchase price of approximately $17 million under the program.

At January 31, 2023, there was approximately $469 million in remaining funds authorized under this program.

Share Repurchase Program —For the fiscal month ending February 3, 2024, the Company repurchased 283,988 shares at an aggregate purchase price of approximately $ 13 million under the program.

At February 1, 2024, there was approximately $ 179 million in remaining funds authorized under this program.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data