Business Acquisitions Business Acquisitions

9 Months Ended

Sep. 28, 2019

BUSINESS ACQUISITIONS

On September 13, 2019, USF completed the $1.8 billion all cash acquisition of five foodservice companies (the “Food Group”) from Services Group of America, Inc.: Food Services of America, Inc., Systems Services of America, Inc., Amerifresh, Inc., Ameristar Meats, Inc. and GAMPAC Express, Inc. The acquisition of the Food Group expands the Company’s network in the West and Northwest parts of the United States.

USF financed the acquisition with borrowings under a new $1.5 billion incremental senior secured term loan facility, as further described in Note 12, Debt, and with borrowings under its revolving credit facilities. The assets, liabilities and results of operations of the Food Group have been included in the Company’s consolidated financial statements since the date the acquisition was completed.

As a condition to receiving regulatory clearance for the acquisition from the Federal Trade Commission, USF divested three Food Group distribution facilities (the "Divested Assets"). The total amount of proceeds received from the October 11, 2019 sale of the Divested Assets at closing was $94 million, which, together with approximately $21 million in holdback funds and expected working capital adjustments, approximates the fair value of the Divested Assets. The assets and liabilities of the Divested Assets are included in assets of discontinued operations and liabilities of discontinued operations, respectively, in the Company's Consolidated Balance Sheets. The operating results of the Divested Assets from the date the acquisition was completed through September 28, 2019 are included in income from discontinued operations—net of tax in the Company's Consolidated Statements of Comprehensive Income.

The following table summarizes the preliminary purchase price allocation recognized for the acquisition based on preliminary estimates of the fair value of the assets acquired and the liabilities assumed. The allocation is dependent upon certain valuation and other analyses and studies that have not yet been completed. Accordingly, the preliminary purchase price allocation is subject to further adjustment as additional information becomes available and final valuations are completed. There can be no assurances that these final valuations and additional analyses and studies will not result in significant changes to the preliminary estimates of fair value set forth below.



	Preliminary Purchase Price Allocation
Accounts receivable	$	145
Inventories	166
Assets of discontinued operations	142
Other current assets	7
Property and equipment	200
Goodwill⁽¹⁾	761
Other intangibles⁽²⁾	691
Other assets	47
Accounts payable	(200		)
Accrued expenses and other current liabilities	(61		)
Liabilities of discontinued operations	(27		)
Other long-term liabilities, including financing leases	(42		)
Cash paid for acquisition	$	1,829


(1)	Goodwill recognized is primarily attributable to expected synergies from the combined company, as well as intangible assets that do not qualify for separate recognition. The acquired goodwill is deductible for U.S. federal income tax purposes.


(2)	Other intangible assets consist of customer relationships of $652 million with estimated useful lives of 15 years and indefinite-lived brand names and trademarks of $39 million.

Net sales and net income for the Food Group (exclusive of the Divested Assets, as the sales and net income of the Divested Assets are reflected in discontinued operations, which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed), were $132 million and $1 million, during the 13 weeks and 39 weeks ended September 28, 2019, respectively. Acquisition related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $17 million and $10 million for the 13 weeks ended September 28, 2019 and September 29, 2018, respectively, and $35 million and $10 million for the 39 weeks ended September 28, 2019 and September 29, 2018, respectively.

The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for the 13 weeks and 39 weeks ended September 28, 2019 and September 29, 2018, respectively. The unaudited pro forma financial information includes the historical results of operations of the Company and the Food Group, giving effect to the acquisition and related financing as if they had occurred as of December 31, 2017, which was the first day of the Company’s fiscal year 2018.



	13 Weeks Ended				39 Weeks Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Pro forma net sales	$	7,195	$	6,907	$	21,086	$	20,265
Pro forma net income	$	123	$	120	$	305	$	294
Pro forma earnings per share:
Basic	$	0.56	$	0.55	$	1.40	$	1.36
Diluted	$	0.56	$	0.55	$	1.39	$	1.35

The unaudited pro forma financial information for all periods presented above excludes the results of operations related to the Divested Assets, as the results of operations related to the Divested Assets are reflected as discontinued operations. Unaudited net sales, net income and EPS related to the Divested Assets for the 13 weeks and 39 weeks ended September 28, 2019 and September 29, 2018, respectively, are as follows:



	13 Weeks Ended				39 Weeks Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Pro forma net sales	$	114	$	136	$	372	$	390
Pro forma net income	$	3	$	4	$	6	$	8
Pro forma earnings per share:
Basic	$	0.02	$	0.02	$	0.03	$	0.04
Diluted	$	0.01	$	0.02	$	0.03	$	0.04

The unaudited pro forma financial information above includes adjustments for: (1) incremental depreciation expense related to fair value increases of certain acquired property and equipment, (2) amortization expense related to the fair value of intangible assets acquired, (3) interest expense related to the borrowings under the new incremental senior secured term loan facility and revolving credit facilities used to finance the acquisition, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations. No effect has been given to potential synergies, operating efficiencies or costs arising from the integration of the Food Group with our previously existing operations. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the date indicated. Further, the pro forma financial information does not purport to project the Company’s future consolidated results of operations following the acquisition.