Business Acquisitions

12 Months Ended

Jan. 02, 2021

Business Combination Disclosure [Text Block]

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

USF financed the Smart Foodservice acquisition with a new $700 million incremental senior secured term loan facility under its existing term loan credit agreement, as further described in Note 13, Debt, and with cash on hand. The assets, liabilities and results of operations of Smart Foodservice have been included in the Company’s consolidated financial statements since the date the acquisition was completed.

The following table summarizes the preliminary purchase price allocation recognized for the Smart Foodservice acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The preliminary purchase price allocation is subject to further adjustment as additional information becomes available and final valuations are completed. There can be no assurances that these final valuations and additional analyses and studies will not result in significant changes to the preliminary estimates of fair value set forth below. Adjustments to the preliminary purchase price allocation recorded in fiscal year 2020 were immaterial to the Company's consolidated financial statements.


	Preliminary Purchase Price Allocation
Accounts receivable	$	5
Inventories	43
Other current assets	23
Property and equipment	84
Goodwill(1)	907
Other intangibles(2)	14
Other assets	130
Accounts payable	(38)
Accrued expenses and other current liabilities	(31)
Deferred income taxes	(5)
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.

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

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

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

USF financed the acquisition with a new $1.5 billion incremental senior secured term loan facility, as further described in Note 13, Debt, and with borrowings under its revolving credit facilities. The 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 sales of the Divested Assets at closing was $94 million, which, together with approximately $20 million in holdback funds and working capital adjustments, approximated the fair value of the Divested Assets. The assets and liabilities of the Divested Assets were included in assets of discontinued operations and liabilities of discontinued operations, respectively, in the Company's Consolidated Balance Sheets until their disposition. The operating results of the Divested Assets from the date the acquisition was completed through the date of sale were not significant.

The following table summarizes the final purchase price allocation for the acquisition of Food Group as of September 13, 2019. Adjustments to the preliminary purchase price allocation were immaterial to the Company's consolidated financial statements.


	Purchase Price Allocation
Accounts receivable	$	145
Inventories	165
Assets of discontinued operations	130
Other current assets	7
Property and equipment	210
Goodwill(1)	764
Other intangibles(2)	695
Other assets	47
Accounts payable	(200)
Accrued expenses and other current liabilities	(69)
Liabilities of discontinued operations	(19)
Other long-term liabilities, including financing leases	(43)
Cash paid for acquisition	$	1,832

(2) Other intangibles consist of customer relationships of $656 million with estimated useful lives of 15 years and indefinite-lived brand names and trademarks of $39 million.

Food Group acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $24 million, $52 million and $29 million for fiscal years 2020, 2019 and 2018, 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 years 2020, 2019 and 2018. The unaudited pro forma financial information presents the combined results of operations as if the acquisitions and related financings of Smart Foodservice and the Food Group had occurred as of December 30, 2018 and December 31, 2017, respectively, which dates represent the first day of the Company’s fiscal year prior to their respective acquisition dates.


	2020 (Unaudited)		2019 (Unaudited)		2018 (Unaudited)
Pro forma net sales	$	23,258	$	29,141	$	26,985
Pro forma net income	$	(225)	$	420	$	397
Pro forma net income per share:
Basic	$	(1.02)	$	1.92	$	1.84
Diluted	$	(1.02)	$	1.91	$	1.82

The unaudited pro forma financial information for all periods presented above excludes the results of operations related to the Divested Assets, as the results of operations related to the Divested Assets were reflected as discontinued operations. Unaudited pro forma net sales, net income and net income per share related to the Divested Assets for fiscal years 2019 and 2018:


	2019 (Unaudited)		2018 (Unaudited)
Pro forma net sales	$	392	$	516
Pro forma net income	$	5	$	13
Pro forma income per share:
Basic	$	0.03	$	0.06
Diluted	$	0.02	$	0.06

The unaudited pro forma financial information above includes adjustments for: (1) incremental depreciation expense related to fair value increases of certain acquired property and equipment, (2) amortization expense related to the fair value of amortizable intangible assets acquired, (3) interest expense related to the incremental senior secured term loan facilities and revolving credit facilities used to finance the acquisitions, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations. No effect has been given to potential synergies, operating efficiencies or costs arising from the integration of Smart Foodservice and the Food Group with our previously existing operations or the standalone cost estimates and estimated costs incurred by their former respective parent companies. 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.