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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-37786
usfd-20211002_g1.jpg
US FOODS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware26-0347906
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
9399 W. Higgins Road, Suite 100
Rosemont, IL 60018
(847720-8000
(Address, including Zip Code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareUSFDNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No
222,790,642 shares of the registrant's common stock were outstanding as of November 3, 2021.







Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) which are not historical in nature are “forward-looking statements” within the meaning of the federal securities laws. These statements often include words such as “believe,” “expect,” “project,” “anticipate,” “intend,” “plan,” “outlook,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecast,” “mission,” “strive,” “more,” “goal,” or similar expressions (although not all forward-looking statements may contain such words) and are based upon various assumptions and our experience in the industry, as well as historical trends, current conditions, and expected future developments. However, you should understand that these statements are not guarantees of performance or results, and there are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those expressed in the forward-looking statements, including, among others:
•    economic factors affecting consumer confidence and discretionary spending and reducing the consumption of food prepared away from home;
•    the extent and duration of the negative impact of the coronavirus (“COVID-19”) pandemic on us;
•    cost inflation/deflation and commodity volatility;
•    competition;
•    reliance on third-party suppliers and interruption of product supply or increases in product costs;
•    changes in our relationships with customers and group purchasing organizations;
•    our ability to increase or maintain the highest margin portions of our business;
•    achievement of expected benefits from cost savings initiatives;
•    increases in fuel costs;
•    changes in consumer eating habits;
•    cost and pricing structures;
•    impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;
•    environmental, health and safety and other governmental regulation, including actions taken by national, state and local governments to contain the COVID-19 pandemic, such as travel restrictions or bans, social distancing requirements, and required closures of non-essential businesses;
•    product recalls and product liability claims;
•    our reputation in the industry;
•    indebtedness and restrictions under agreements governing our indebtedness;
•    interest rate increases;
•    changes in the method of determining London Interbank Offered Rate (“LIBOR”) or the replacement of LIBOR with an alternative reference rate;
•    labor relations and increased labor costs and continued access to qualified and diverse labor;
•    risks associated with intellectual property, including potential infringement;
•    disruption of existing technologies and implementation of new technologies;
•    cybersecurity incidents and other technology disruptions;
•    effective integration of acquired businesses;
•    changes in tax laws and regulations and resolution of tax disputes;
•    adverse judgments or settlements resulting from litigation;
•    extreme weather conditions, natural disasters and other catastrophic events, including pandemics and the rapid spread of contagious illnesses;
•    costs and risks associated with current and changing government laws and regulations, and potential changes as a result of initiatives by the Biden administration; and
•    management of retirement benefits and pension obligations.
For a detailed discussion of these and other risks, uncertainties and factors, see Part I, Item 1A— “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (the “2020 Annual Report”).
In light of these risks, uncertainties and other important factors, the forward-looking statements in this Quarterly Report might not prove to be accurate, and you should not place undue reliance on them. All forward-looking statements attributable to us, or others acting on our behalf, are expressly qualified in their entirety by the cautionary statements above. All of these statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise, except as required by law.
Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should be viewed only as historical data.







TABLE OF CONTENTS
Page
No.
Part I. Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.










PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
US FOODS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
October 2, 2021January 2, 2021
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$772 $828 
Accounts receivable, less allowances of $39 and $67
1,549 1,084 
Vendor receivables, less allowances of $6 and $5
204 121 
Inventories—net
1,565 1,273 
Prepaid expenses
115 132 
Assets held for sale
12 1 
Other current assets
18 26 
Total current assets
4,235 3,465 
Property and equipment—net1,988 2,021 
Goodwill5,625 5,637 
Other intangibles—net841 892 
Deferred tax assets12 1 
Other assets416 407 
Total assets
$13,117 $12,423 
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft liability
$182 $136 
Accounts payable
1,963 1,218 
Accrued expenses and other current liabilities
592 497 
Current portion of long-term debt
115 131 
Total current liabilities
2,852 1,982 
Long-term debt5,281 5,617 
Deferred tax liabilities288 270 
Other long-term liabilities514 505 
Total liabilities
8,935 8,374 
Commitments and contingencies (Note 18)
Mezzanine equity:
Series A convertible preferred stock, $0.01 par value—25 shares authorized;
   0.5 issued and outstanding as of October 2, 2021 and
   January 2, 2021
534 519 
Shareholders’ equity:
Common stock, $0.01 par value—600 shares authorized;
223 and 221 issued and outstanding as of
October 2, 2021 and January 2, 2021, respectively
2 2 
Additional paid-in capital
2,952 2,901 
Retained earnings
723 661 
Accumulated other comprehensive loss
(29)(34)
Total shareholders’ equity
3,648 3,530 
Total liabilities, mezzanine equity and shareholders' equity
$13,117 $12,423 

See Notes to Consolidated Financial Statements (Unaudited).
1







US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per share data)
13 Weeks Ended39 Weeks Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net sales$7,890 $5,848 $21,848 $16,747 
Cost of goods sold6,649 4,874 18,435 14,036 
Gross profit
1,241 974 3,413 2,711 
Operating expenses:
Distribution, selling and administrative costs
1,099 873 3,115 2,779 
Restructuring costs and asset impairment charges
7 23 11 39 
Total operating expenses
1,106 896 3,126 2,818 
Operating income (loss)135 78 287 (107)
Other income—net(6)(6)(19)(16)
Interest expense—net50 63 158 178 
Loss on extinguishment of debt  23  
Income (loss) before income taxes91 21 125 (269)
Income tax provision (benefit)27 13 30 (53)
Net income (loss)
64 8 95 (216)
Other comprehensive income (loss)—net of tax:
Changes in retirement benefit obligations
   1 
Unrecognized gain (loss) on interest rate swaps
1 2 5 (4)
Comprehensive income (loss)
$65 $10 $100 $(219)
Net income (loss)$64 $8 $95 $(216)
Series A convertible preferred stock dividends(9)(10)(33)(15)
Net income (loss) available to common shareholders$55 $(2)$62 $(231)
Net income (loss) per share
Basic (Note 13)
$0.25 $(0.01)$0.28 $(1.05)
Diluted (Note 13)
$0.24 $(0.01)$0.28 $(1.05)
Weighted-average common shares outstanding
Basic (Note 13)
222 220 222 220 
Diluted (Note 13)
225 220 225 220 

See Notes to Consolidated Financial Statements (Unaudited).
2







US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(In millions)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Shareholders'
Equity
SharesAmount
BALANCE—January 2, 2021221 $2 $2,901 $661 $(34)$3,530 
Share-based compensation expense— — 10 — — 10 
Proceeds from employee stock purchase plan— — 5 — — 5 
Vested restricted stock units, net1 — — — —  
Exercise of stock options — 4 — — 4 
Tax withholding payments for net share-settled equity awards— — (12)— — (12)
Series A convertible preferred stock dividends— — — (15)— (15)
Unrecognized gain on interest rate swaps, net of income tax— — — — 2 2 
Net loss— — — (24)— (24)
BALANCE—April 3, 2021222 2 2,908 622 (32)3,500 
Share-based compensation expense— — 13 — — 13 
Proceeds from employee stock purchase plan— — 5 — — 5 
Exercise of stock options— — 8 — — 8 
Tax withholding payments for net share-settled equity awards— — (1)— — (1)
Series A convertible preferred stock dividends— — — (9)— (9)
Unrecognized gain on interest rate swaps, net of income tax— — — — 2 2 
Net income— — — 55 — 55 
BALANCE—July 3, 2021222 2 2,933 668 (30)3,573 
Share-based compensation expense— — 13 — — 13 
Proceeds from employee stock purchase plan— 6 — — 6 
Exercise of stock options— — 1 — — 1 
Series A convertible preferred stock dividends— — — (9)— (9)
Unrecognized gain on interest rate swaps, net of income tax— — — — 1 1 
Net income— — — 64 — 64 
BALANCE—October 2, 2021223 $2 $2,952 $723 $(29)$3,648 

































3








US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(In millions)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Shareholders'
Equity
SharesAmount
BALANCE—December 28, 2019220 $2 $2,845 $916 $(54)$3,709 
Share-based compensation expense— — 7 — — 7 
Proceeds from employee stock purchase plan— — 6 — — 6 
Exercise of stock options — 1 — — 1 
Tax withholding payments for net share-settled equity awards— — (2)— — (2)
Unrecognized loss on interest rate swaps, net of income tax— — — — (6)(6)
Adoption of ASU 2016-13— — — (1)— (1)
Net loss— — — (132)— (132)
BALANCE—March 28, 2020220 2 2,857 783 (60)3,582 
Share-based compensation expense— — 12 — — 12 
Proceeds from employee stock purchase plan1 — 5 — — 5 
Tax withholding payments for net share-settled equity awards— — (3)— — (3)
Series A convertible preferred stock dividends— — — (5)— (5)
Changes in retirement benefit obligations, net of income tax— — — — 1 1 
Net loss— — — (92)— (92)
BALANCE—June 27, 2020221 2 2,871 686 (59)3,500 
Share-based compensation expense— — 10 — — 10 
Proceeds from employee stock purchase plan — 4 — — 4 
Exercise of stock options — 1 — — 1 
Series A convertible preferred stock dividends— — — (10)— (10)
Unrecognized gain on interest rate swaps, net of income tax— — — — 2 2 
Net income— — — 8 — 8 
BALANCE—September 26, 2020221 $2 $2,886 $684 $(57)$3,515 
See Notes to Consolidated Financial Statements (Unaudited).
4







US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
39 Weeks Ended
October 2, 2021September 26, 2020
Cash flows from operating activities:
Net income (loss)
$95 $(216)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
286 316 
Gain on disposal of property and equipment—net
 (15)
Intangible asset impairment charges
7 9 
Loss on extinguishment of debt23  
Amortization of deferred financing costs
10 12 
Deferred tax provision (benefit)
19 (65)
Share-based compensation expense
36 29 
(Benefit) provision for doubtful accounts
(18)80 
Changes in operating assets and liabilities:
(Increase) decrease in receivables
(530)182 
(Increase) decrease in inventories—net
(292)161 
Decrease in prepaid expenses and other assets
9 30 
Increase in accounts payable and cash overdraft liability
780 19 
Increase (decrease) in accrued expenses and other liabilities
95 (9)
Net cash provided by operating activities
520 533 
Cash flows from investing activities:
Acquisition of businesses—net of cash (973)
Proceeds from sales of divested assets
5 7 
Proceeds from sales of property and equipment2 33 
Purchases of property and equipment
(173)(154)
Net cash used in investing activities
(166)(1,087)
Cash flows from financing activities:
Proceeds from debt borrowings
900 3,645 
Principal payments on debt and financing leases
(1,291)(2,640)
Net proceeds from issuance of Series A convertible preferred stock 491 
Dividends paid on Series A convertible preferred stock(18) 
Debt financing costs and fees
(18)(33)
Proceeds from employee stock purchase plan
16 15 
Proceeds from exercise of stock options
13 2 
Tax withholding payments for net share-settled equity awards
(13)(5)
Net cash (used in) provided by financing activities
(411)1,475 
Net (decrease) increase in cash, cash equivalents and restricted cash(57)921 
Cash, cash equivalents and restricted cash—beginning of period829 98 
Cash, cash equivalents and restricted cash—end of period$772 $1,019 
Supplemental disclosures of cash flow information:
Interest paid—net of amounts capitalized
$134 $122 
Income taxes paid—net
 3 
Property and equipment purchases included in accounts payable
32 11 
Property and equipment transferred to assets held for sale11 24 
Leased assets obtained in exchange for financing lease liabilities
24 63 
Leased assets obtained in exchange for operating lease liabilities
24 21 
Cashless exercise of stock options
1  
Paid-in-kind Series A convertible preferred stock dividends15 5 
See Notes to Consolidated Financial Statements (Unaudited).
5







US FOODS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Amounts in tables in millions, except per share data, unless otherwise noted)
1.     OVERVIEW AND BASIS OF PRESENTATION
US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in these consolidated financial statements and notes as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods Holding Corp. conducts all of its operations through its wholly owned subsidiary US Foods, Inc. (“USF”) and its subsidiaries. All of the Company’s indebtedness, as further described in Note 10, Debt, is a direct obligation of USF and its subsidiaries.
Business Description—The Company, through USF, operates in one business segment in which it markets and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States (“U.S.”). These customers include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities and retail locations.
Basis of Presentation—The Company operates on a 52- or 53-week fiscal year, with all periods ending on a Saturday. When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth quarter. Fiscal year 2021 is a 52-week fiscal year. Fiscal year 2020 was a 53-week fiscal year.
The consolidated financial statements included in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures included in this Quarterly Report are adequate to make the information presented not misleading. These interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the 2020 Annual Report.
The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results that might be achieved for any other interim period or the full fiscal year.
2.    RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, convertible debt will be accounted for as a single liability measured at its amortized cost. 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.The Company plans to adopt the provisions of ASU No. 2020-06 at the beginning of the first quarter of fiscal year 2022 and does not expect the provisions of the new standard to materially affect our financial position, results of operation or cash flows.
3.    REVENUE RECOGNITION
The Company recognizes revenue when the performance obligation is satisfied, which occurs when a customer obtains control of the promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services. The Company generates substantially all of its revenue from the distribution and sale of food and food-related products and recognizes revenue when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Customer sales incentives, such as volume-based rebates or discounts, are treated as a reduction of revenue at the time the revenue is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales. 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 October 2, 2021 or January 2, 2021. Customer receivables, which are included in accounts receivable,
6







less allowances in the Company’s Consolidated Balance Sheets, were $1.5 billion and $1.1 billion as of October 2, 2021 and January 2, 2021, respectively.
The Company has certain customer contracts under which incentives are paid upfront to its customers. These payments have become industry practice and are not related to financing any customer’s business, nor are these payments associated with any distinct good or service to be received from any customer. These incentive payments are capitalized in prepaid expenses and other assets and amortized as a reduction of revenue over the life of the contract or as goods or services are transferred to the customer. The Company’s contract assets for these upfront payments were $26 million and $30 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of October 2, 2021 and January 2, 2021, respectively, and $27 million included in other assets in the Company’s Consolidated Balance Sheets as of both October 2, 2021 and January 2, 2021.
The following table presents the disaggregation of revenue for each of the Company’s principal product categories:
13 Weeks Ended39 Weeks Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Meats and seafood$3,067 $2,069 $8,280 $5,989 
Dry grocery products1,319 992 3,684 2,866 
Refrigerated and frozen grocery products1,168 891 3,303 2,626 
Dairy739 636 2,098 1,738 
Equipment, disposables and supplies815 638 2,305 1,768 
Beverage products391 309 1,104 876 
Produce391 313 1,074 884 
Total Net sales$7,890 $5,848 $21,848 $16,747 

4.    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 serving 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 new $700 million incremental senior secured term loan facility under its existing term loan credit agreement, as further described in Note 10, 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.
7







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 October 2, 2021 was due to the finalization of deferred income taxes associated with the acquisition in the first quarter of 2021.
Purchase Price Allocation
Accounts receivable$5 
Inventories43 
Other current assets24 
Property and equipment84 
Goodwill(1)
895 
Other intangibles(2)
14 
Other assets145 
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 $2 million and less than $1 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $11 million and $20 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively.
Pro Forma Financial InformationThe 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 October 2, 2021 and September 26, 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 prior to the Smart Foodservice acquisition date.
13 Weeks Ended39 Weeks Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Pro forma net sales$7,890 $5,848 $21,848 $17,120 
Pro forma net income (loss) available to common shareholders$55 $(2)$62 $(202)
Pro forma net income (loss) per share:
Basic$0.25 $(0.01)$0.28 $(0.92)
Diluted$0.24 $(0.01)$0.28 $(0.92)
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 facility 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 Smart Foodservice with our previously existing operations or the standalone cost estimates and estimated costs that were incurred by the former parent company. 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.
8







5.    INVENTORIES
The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods. Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors. 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 4, Business Acquisitions, which uses the retail method of inventory accounting. For our LIFO based inventories, the base year values of beginning and ending inventories are determined using the inventory price index computation method. This “links” current costs to original costs in the base year when the Company adopted LIFO. LIFO reserves in the Company’s Consolidated Balance Sheets were $327 million and $177 million as of October 2, 2021 and January 2, 2021, respectively. As a result of changes in LIFO reserves, cost of goods sold increased $32 million and $3 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and increased $150 million and $9 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively.
6.    ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. The Company maintains an allowance for doubtful accounts, which is based upon historical experience, future expected losses, as well as specific customer collection issues that have been identified. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due over specified periods.
Since mid-March 2020, our business has been significantly impacted by the COVID-19 pandemic. Starting in March 2020, in order to reduce the spread of COVID-19 and its variants, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions on businesses, schools and other public gathering spaces, including restaurants and recreational, sporting and other similar venues. Due to the impact that the COVID-19 pandemic was expected to have on our customers, particularly our restaurant and hospitality customers, and to reflect the increased collection risk associated with our customers, we significantly increased our allowance for doubtful accounts during the 13 weeks ended March 28, 2020. In each subsequent quarter of fiscal year 2020 and during the 13 weeks ended April 3, 2021, due to more favorable than anticipated collections on our pre-COVID-19 accounts receivable, we reduced our allowance for doubtful accounts while leaving the remaining pre-COVID-19 accounts receivable fully reserved.
A summary of the activity in the allowance for doubtful accounts for the 39 weeks ended October 2, 2021 was as follows:
Balance as of January 2, 2021$67 
Reversed from costs and expenses(18)
Customer accounts written off—net of recoveries(10)
Balance as of October 2, 2021$39 
This table excludes the vendor receivable related allowance for doubtful accounts of $6 million and $5 million as of October 2, 2021 and January 2, 2021, respectively.
7.    PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years. Property and equipment under financing leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the related leases or the estimated useful lives of the assets, if reasonably assured the Company will purchase the assets at the end of the lease terms. As of October 2, 2021 and January 2, 2021, property and equipment-net included accumulated depreciation of $2,784 million and $2,566 million, respectively. Depreciation expense was $79 million and $88 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $242 million and $257 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively.
9







8.    GOODWILL AND OTHER INTANGIBLES
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, noncompete agreements, 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.
Customer relationships, amortizable trade names and noncompete agreements are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships, amortizable trade names and noncompete agreements are amortized over their estimated useful lives (which range from approximately 3 to 15 years). Amortization expense was $12 million and $21 million for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively, and $44 million and $59 million for the 39 weeks ended October 2, 2021 and September 26, 2020, respectively.
Goodwill and other intangibles—net consisted of the following:
October 2, 2021January 2, 2021
Goodwill$5,625 $5,637 
Other intangibles—net
Customer relationships—amortizable:
Gross carrying amount
$655 $725 
Accumulated amortization
(90)(119)
Net carrying value
565 606 
Trade names—amortizable:
Gross carrying amount
4 15 
Accumulated amortization
 (11)
Net carrying value
4 4 
Noncompete agreements—amortizable:
Gross carrying amount
3 3 
Accumulated amortization
(2)(2)
Net carrying value
1 1 
Brand names and trademarks—not amortizing
271 281 
Total other intangibles—net$841 $892 
The Company assesses for impairment of intangible assets with definite lives only if events occur that indicate that the carrying amount of an intangible asset may not be recoverable. The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually, or more frequently if events occur that indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, the Company’s policy is to assess for impairment as of the beginning of each fiscal third quarter. The Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets for impairment as of July 4, 2021, the first day of the third quarter of fiscal year 2021. During the third quarter of fiscal year 2021, the Company implemented rebranding initiatives related to the integration of a trade name acquired as part of the 2019 Food Group acquisition. As a result of the rebranding initiatives, the Company recognized an impairment charge of $7 million, which was included in restructuring and asset impairment charges in the Company's Consolidated Statement of Comprehensive Income. The remaining carrying value of the acquired trade name of $3 million as of October 2, 2021, was reclassified to trade names—amortizable and will be amortized with an estimated remaining useful life of 10 years. No other impairments were noted as part of the annual impairment assessment.

The decrease in goodwill as of October 2, 2021 is attributable to the finalization of the purchase price allocation recognized for the Smart Foodservice acquisition, as described in Note 4, Business Acquisitions. The net decrease in the gross carrying amount of customer relationships as of October 2, 2021 is attributable to the write-off of fully amortized intangible assets related to certain 2016 and 2017 business acquisitions. The net decrease in the gross carrying amount of amortizable trade names is attributable to the write-off of the fully amortized trade name related to the Smart Foodservice acquisition, when Smart Foodservice® warehouse stores were rebranded to CHEF'STORE® in March 2021, partially offset by the aforementioned reclassification of the remaining carrying value of the trade name acquired with the Food Group acquisition. The net decrease in the gross carrying amount of brand names and trademarks—not amortizing is primarily due to the aforementioned impairment
10







of the trade name acquired with the Food Group acquisition with the remaining balance being reclassified to trade names—amortizable.
9.    FAIR VALUE MEASUREMENTS
Certain assets and liabilities are carried at fair value under GAAP, under which fair value is a market-based measurement, not an entity-specific measurement. The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1—observable inputs, such as quoted prices in active markets
Level 2—observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active or inactive markets that are observable either directly or indirectly, or other inputs that are observable or can be corroborated by observable market data
Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions
Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized as of the end of the reporting period in which the transfer occurs. 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 October 2, 2021 and January 2, 2021, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:
October 2, 2021
Level 1Level 2Level 3Total
Assets
Money market funds
$626 $ $ $626 
January 2, 2021
Level 1Level 2Level 3Total
Assets
Money market funds
$696 $ $ $696 
Liabilities
Interest rate swaps
$ $5 $ $5 
There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above, except as further disclosed in Note 8, Goodwill and Other Intangibles.
Recurring Fair Value Measurements
Money Market Funds
Money market funds include highly liquid investments with an original maturity of three or fewer months. These funds are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.
Derivative Financial Instruments
The Company may use interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate debt.
As of January 2, 2021, the fair value of the Company’s interest rate swaps liability from certain previously entered into four-year interest rate swap agreements, which collectively had a notional value of $550 million, was $5 million, as reflected in its Consolidated Balance Sheet in accrued expenses and other current liabilities. The Company recorded these interest rate swaps at fair value based on projections of cash flows and future interest rates. The determination of fair value included the consideration of any credit valuation adjustments necessary, to reflect the creditworthiness of the respective counterparties and the Company.
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These interest rate swap agreements expired on July 31, 2021. Through the term of the swap agreements, the Company paid an aggregate effective rate of 3.45% on the notional amount of the Initial Term Loan Facility covered by the interest rate swap agreements, comprised of a rate of 1.70% plus a spread of 1.75% (see Note 10, Debt).
Gains and losses on the interest rate swaps were initially recorded in accumulated other comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affected income. The following table presents the effect of the Company’s interest rate swaps in its Consolidated Statements of Comprehensive Income for the 13 weeks and 39 weeks ended October 2, 2021 and September 26, 2020:
Derivatives in Cash Flow Hedging RelationshipsAmount of Loss Recognized in Accumulated Other Comprehensive Loss, net of taxLocation of Amounts Reclassified from Accumulated Other Comprehensive Loss
Amount of Loss Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax
For the 13 weeks ended October 2, 2021
Interest rate swaps
$ Interest expense—net$1 
For the 13 weeks ended September 26, 2020
Interest rate swaps
$ Interest expense—net$2 
For the 39 weeks ended October 2, 2021
Interest rate swaps
$ Interest expense—net$5 
For the 39 weeks ended September 26, 2020
Interest rate swaps
$(8)Interest expense—net$4 
Other Fair Value Measurements
The carrying value of cash, accounts receivable, vendor receivables, cash overdraft liability and accounts payable approximate their fair values due to their short-term maturities.
The fair value of the Company’s total debt approximated its carrying value of $5.4 billion as of October 2, 2021. The fair value of the Company’s total debt approximated $5.8 billion, compared to its carrying value of $5.7 billion as of January 2, 2021.
The fair value of the Company's 4.75% unsecured senior notes due February 15, 2029 (the “Unsecured Senior Notes due 2029”) was $0.9 billion as of October 2, 2021. As discussed in Note 10, Debt, the proceeds from the Unsecured Senior Notes due 2029 were used to redeem the Company's 5.875% unsecured senior notes due 2024 (the “Unsecured Senior Notes due 2024”) and other outstanding Company debt. The fair value of the Unsecured Senior Notes due 2024 was $0.6 billion as of January 2, 2021. The fair value of the Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Notes”) was $1.1 billion as of both October 2, 2021 and January 2, 2021. Fair value of the Secured Notes, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 is based upon their closing market prices on the respective dates. The fair value of the Secured Notes, the Unsecured Senior Notes due 2029 and the Unsecured Senior Notes due 2024 is classified under Level 2 of the fair value hierarchy. The fair value of the balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates that are currently available to the Company for debt with similar terms, and estimates of the Company’s overall credit risk.
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10.    DEBT
Total debt consisted of the following:
Debt DescriptionMaturityInterest Rate as of October 2, 2021Carrying Value as of October 2, 2021Carrying Value as of January 2, 2021
ABL FacilityMay 31, 2024%$ $ 
Initial Term Loan Facility (net of $2 and $3
of unamortized deferred financing costs,
respectively)
June 27, 20231.83%1,783 2,098 
2019 Incremental Term Loan Facility (net of $26
      and $30 of unamortized deferred financing
      costs, respectively)
September 13, 20262.08%1,444 1,451 
2020 Incremental Term Loan Facility (net of $11
      of unamortized deferred financing costs)(1)
April 24, 2025% 284 
Secured Notes (net of $11 and $13 of
      unamortized deferred financing costs)
April 15, 20256.25%989 987 
Unsecured Senior Notes due 2024 (net of $3 of
      unamortized deferred financing costs)(1)
June 15, 2024% 597 
Unsecured Senior Notes due 2029 (net of $9 of
      unamortized deferred financing costs)
February 15, 20294.75%891  
Obligations under financing leases2021–20391.63% - 6.1%281 323 
Other debt2021–20315.75% - 9.00%8 8 
Total debt5,396 5,748 
Current portion of long-term debt
(115)(131)
Long-term debt$5,281 $5,617 
(1)    The 2020 Incremental Term Loan Facility and Unsecured Senior Notes due 2024 were paid in full on February 4, 2021 with the issuance of the Unsecured Senior Notes due 2029 and subsequently terminated as further discussed below. The related unamortized deferred financing costs were written off in connection with the terminations.
As of October 2, 2021, approximately 60% of the Company’s total debt bears interest at a floating rate.
ABL Facility
USF's asset based senior secured revolving credit facility (the “ABL Facility”) provides USF with loan commitments having a maximum aggregate principal amount of $1,990 million. The ABL Facility is scheduled to mature on May 31, 2024.
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 LIBOR plus a margin ranging from 1.00% to 1.50%, in each case based on USF’s excess availability under the ABL Facility. The margin under the ABL Facility as of October 2, 2021 was 0.00% for ABR loans and 1.00% for LIBOR loans.
USF had no outstanding borrowings, and had issued letters of credit totaling $253 million, under the ABL Facility as of October 2, 2021. The outstanding letters of credit primarily relate to securing USF’s obligations with respect to its insurance program and certain real estate leases. There was available capacity of $1,737 million under the ABL Facility as of October 2, 2021.
Term Loan Facilities
Under its term loan credit agreement, USF has entered into an initial senior secured term loan facility (the “Initial Term Loan Facility”) and an incremental senior secured term loan facility (the “2019 Incremental Term Loan Facility”). The Initial Term Loan Facility had a carrying value of $1,783 million, net of $2 million of unamortized deferred financing costs as of October 2, 2021. During the 39 weeks ended October 2, 2021, the Company made voluntary prepayments of the Initial Term Loan Facility totaling $300 million. The table above reflects the interest rate on the Initial Term Loan Facility as of October 2, 2021. The Initial Term Loan Facility is scheduled to mature on June 27, 2023.
The 2019 Incremental Term Loan Facility had a carrying value of $1,444 million, net of $26 million of unamortized deferred financing costs as of October 2, 2021. 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, determined in accordance with the term loan credit agreement, plus a margin of 1.00%. The 2019 Incremental Term Loan Facility is scheduled to mature on September 13, 2026.
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Secured Notes
The Secured Notes had a carrying value of $989 million, net of $11 million of unamortized deferred financing costs, as of October 2, 2021. The Secured Notes are scheduled to mature on April 15, 2025.
Unsecured Senior Notes due 2029
On February 4, 2021, USF completed a private offering of $900 million aggregate principal amount of Unsecured Senior Notes due 2029. USF used the proceeds of the Unsecured Senior Notes due 2029, together with cash on hand, to redeem all of the Company's then outstanding Unsecured Senior Notes due 2024, repay all of the then outstanding borrowings under the incremental senior secured term loan facility borrowed in April 2020 (the “2020 Incremental Term Loan Facility”) and to pay related fees and expenses. In connection with the repayment of the Unsecured Senior Notes due 2024 and 2020 Incremental Term Loan Facility, the Company applied debt extinguishment accounting and recorded $23 million in loss on extinguishment of debt in the Company's Consolidated Statements of Comprehensive Income, consisting of a $14 million write-off of pre-existing unamortized deferred financing costs related to the redeemed facilities and a $9 million early redemption premium related to the Unsecured Senior Notes due 2024. Lender fees and third-party costs of $9 million associated with the issuance of the Unsecured Senior Notes due 2029 were capitalized as deferred financing costs. The Unsecured Senior Notes due 2029 had an outstanding balance of $891 million, net of $9 million of unamortized deferred financing costs, as of October 2, 2021. The Unsecured Senior Notes due 2029 bear interest at a rate of 4.75% per annum and will mature on February 15, 2029. On or after February 15, 2024, the Unsecured Senior Notes due 2029 are redeemable, at USF's option, in whole or in part at a price of 102.375% of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date. On or after February 15, 2025 and February 15, 2026, the optional redemption price for the Unsecured Senior Notes due 2029 declines to 101.188% and 100.000%, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.
Debt Covenants
The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends, or engage in mergers or consolidations. USF had approximately $1.4 billion of restricted payment capacity under these covenants, and approximately $2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of October 2, 2021.
11.    RESTRUCTURING LIABILITIES
From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness. In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs.
During the 39 weeks ended October 2, 2021, the Company incurred net restructuring costs of $3 million for severance and related costs associated with the announced closure of an excess facility and initiatives to improve operational effectiveness. During the 13 weeks ended October 2, 2021, net restructuring costs were de minimis. During the 13 weeks and 39 weeks ended September 26, 2020, in order to reduce operating expenses in line with the decrease in sales volume caused by the COVID-19 pandemic, the Company reduced its work force and incurred net restructuring costs of $14 million and $30 million for severance and related costs. Net restructuring liabilities were $3 million and $2 million as of October 2, 2021 and January 2, 2021, respectively.

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12.    RETIREMENT PLANS
The Company sponsors a defined benefit pension plan and a 401(k) plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents. 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 plan was merged into the US Foods Consolidated Defined Benefit Retirement Plan as of December 31, 2020.
The components of net periodic pension benefit credits for Company sponsored defined benefit plans were as follows:
13 Weeks Ended39 Weeks Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Components of net periodic pension benefit credits
Service cost
$ $1 $2 $2 
Interest cost
8 8 22 23 
Expected return on plan assets
(14)(14)(41)(40)
Amortization of net loss   1 
Net periodic pension benefit credits$(6)$