NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in millions, except share and 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 13, 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 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. The fiscal years ended December 28, 2019, December 29, 2018, and December 30, 2017, also referred to herein as fiscal years 2019, 2018, and 2017, respectively, were 52-week fiscal years. Fiscal year 2020 will be a 53-week fiscal year. Prior year amounts may have been adjusted to conform with the current year presentation.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Principles of Consolidation —The Company's consolidated financial statements include the accounts of US Foods and its wholly owned subsidiary, USF, and its subsidiaries. Intercompany transactions have been eliminated in consolidation.
Use of Estimates—The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original maturity of three or fewer months to be cash equivalents.
Accounts Receivable —Accounts receivable represent amounts due from customers in the ordinary course of business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the allowance for doubtful accounts in the Company's accompanying Consolidated Balance Sheets. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. When the Company determines that a loss is probable, a specific allowance for doubtful accounts is recorded, reducing the receivable to the net amount we reasonably expect to collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs and the aging of receivables. 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.
Vendor Consideration and Receivables—The Company participates in various rebate and promotional incentives with its suppliers, primarily through purchase-based programs. Consideration earned is estimated during the year as the Company’s obligations under the programs are fulfilled, which is primarily when products are purchased. Changes in the estimated amount of incentives earned are recognized in the period of change.
Vendor consideration is typically deducted from invoices or collected in cash within 30 days of being earned. Vendor receivables represent the uncollected balance of the vendor consideration. Since collections occur primarily from deducting the consideration from the amounts due to the vendor, the Company does not experience significant collectability issues. The Company evaluates the collectability of its vendor receivables based on specific vendor information and vendor collection history.
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 charges to deliver it to the Company’s distribution 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 using the last-in, first-out (“LIFO”) method. 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 28, 2019 and December 29, 2018, LIFO reserves in the Company’s Consolidated Balance Sheets were $152 million and $130 million, respectively. As a result of changes
in LIFO reserves, cost of goods sold increased $22 million in fiscal year 2019, was de minimis in fiscal year 2018, and increased $14 million in fiscal year 2017.
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 term of the related lease or the estimated useful lives of the assets.
Routine maintenance and repairs are charged to expense as incurred. Applicable interest charges incurred during the construction of new facilities or development of software for internal use are capitalized as one of the elements of cost and are amortized over the useful life of the respective assets.
Property and equipment held and used by the Company are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. For purposes of evaluating the recoverability of property and equipment, the Company compares the carrying value of the asset or asset group to the estimated, undiscounted future cash flows expected to be generated by the long-lived asset or asset group. If the future cash flows do not exceed the carrying value, the carrying value is compared to the fair value of such asset. If the carrying value exceeds the fair value, an impairment charge is recorded for the excess.
The Company also assesses the recoverability of its closed facilities actively marketed for sale. If a facility’s carrying value exceeds its fair value, less an estimated cost to sell, an impairment charge is recorded for the excess. Assets held for sale are not depreciated.
Impairments are recorded as a component of restructuring costs (benefit) in the Company's Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company's Consolidated Balance Sheets.
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, 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.
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. For intangible assets with definite lives, the Company assesses impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable. All goodwill is assigned to the consolidated Company as the reporting unit.
Self-Insurance Programs—The Company estimates its liabilities for claims covering general, fleet, and workers’ compensation. Amounts in excess of certain levels, which range from $1 million to $10 million per occurrence, are insured as a risk reduction strategy, to mitigate catastrophic losses. The workers’ compensation liability is discounted, as the amount and timing of cash payments is reliably determinable given the nature of benefits and the level of historic claim volume to support the actuarial assumptions and judgments used to derive the expected loss payment pattern. The amount accrued is discounted using an interest rate that approximates the U.S. Treasury rate consistent with the duration of the liability. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates.
We are primarily self-insured for group medical claims not covered under multiemployer health plans covering certain of our union-represented employees. The Company accrues its self-insured medical liability, including an estimate for incurred but not reported claims, based on known claims and past claims history. These accruals are included in accrued expenses and other current liabilities and other long-term liabilities in the Company's Consolidated Balance Sheets.
Share-Based Compensation—The Company measures compensation expense for stock-based awards at fair value as of the date of grant, and recognizes compensation expense over the service period for awards expected to vest. Forfeitures are recognized as incurred. Fair value is the closing price per share for the Company’s common stock as reported on the New York Stock Exchange. Prior to the Company's 2016 initial public offering, the grant date fair value of stock-based awards was measured as of the end of each fiscal quarter using the combination of a market and income approach. The computed value was applied to all stock and stock award activity in the subsequent fiscal quarter.
Compensation expense related to our employee stock purchase plan, which allows eligible employees to purchase our common stock at a discount of up to 15% represents the difference between the fair market value as of acquisition date and the employee purchase price.
Business Acquisitions—The Company accounts for business acquisitions under the acquisition method. Assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The operating results of the acquired companies are included in the Company’s consolidated financial statements from the date of acquisition.
Cost of Goods Sold—Cost of goods sold includes amounts paid to vendors for products sold, net of vendor consideration, including in-bound freight necessary to bring the products to the Company’s distribution facilities. Depreciation related to processing facilities
and equipment is presented in cost of goods sold. Because the majority of the inventories are finished goods, depreciation related to warehouse facilities and equipment is presented in distribution, selling and administrative costs. See “Inventories” above for discussion of the LIFO impact on cost of goods sold.
Shipping and Handling Costs—Shipping and handling costs, which include costs related to the selection of products and their delivery to customers, are presented in distribution, selling and administrative costs. Shipping and handling costs were $1.8 billion, $1.7 billion, and $1.6 billion in fiscal years 2019, 2018 and 2017, respectively.
Income Taxes—The Company accounts for income taxes under the asset and liability method. This requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date. Net deferred tax assets are recorded to the extent the Company believes these assets will more likely than not be realized.
An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Uncertain tax positions are recorded at the largest amount that is more likely than not to be sustained. 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 in the period in which they are determined.
Derivative Financial Instruments— The Company utilizes derivative financial instruments to assist in managing its exposure to variable interest rates on certain borrowings. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. Interest rate swaps, designated as cash flow hedges, are recorded in the Company’s Consolidated Balance Sheet at fair value.
In the normal course of business, the Company enters into forward purchase agreements to procure fuel, electricity and product commodities related to its business. These agreements often meet the definition of a derivative. However, the Company does not measure its forward purchase commitments at fair value as the amounts under contract meet the physical delivery criteria in the normal purchase exception.
Concentration Risks—Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. The Company’s cash equivalents are invested primarily in money market funds at major financial institutions. Credit risk related to accounts receivable is dispersed across a larger number of customers located throughout the U.S. The Company attempts to reduce credit risk through initial and ongoing credit evaluations of its customers’ financial condition. There were no receivables from any one customer representing more than 5% of our consolidated gross accounts receivable as of December 28, 2019.
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3.
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RECENT ACCOUNTING PRONOUNCEMENTS
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Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement, Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. This new guidance permits an entity to reclassify the income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. The Company adopted this guidance as of the beginning of fiscal year 2019 and elected not to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes Accounting Standards Codification (“ASC”) 840, Leases, and has issued subsequent amendments to Topic 842. The Company adopted Topic 842 on December 30, 2018, the effective and initial application date, using the modified retrospective approach. The Company elected from the package of practical expedients permitted under the transition guidance within Topic 842, which, among other things, allowed the Company to carry forward the historical lease classification. Adoption of Topic 842 resulted in the recording of net lease assets and lease liabilities of approximately $100 million, as of December 30, 2018. The initial adoption of Topic 842 did not materially impact the Company’s Consolidated Statement of Comprehensive Income and Consolidated Statement of Cash Flows. The Company has revised its relevant policies and procedures, as applicable, to meet the new accounting, reporting and disclosure requirements of Topic 842. See Note 17, Leases.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of the provisions of the new standard to materially affect its financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement. Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively. The Company adopted the provisions of this standard on a prospective basis at the beginning of fiscal year 2020. The Company's adoption of the provisions of the new standard did not materially affect its financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. ASU 2016-13 was further amended in November 2018 by ASU 2018-19, Codification Improvements to Topic 236, Financial Instrument-Credit Losses. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. ASU 2016-13 will be initially applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company has substantially completed its analysis of the effects of adopting the provisions of this standard on its consolidated financial statements and does not expect the adoption of the provisions of the new standard to materially affect its financial position or results of operations.
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 December 28, 2019. Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $1.5 billion and $1.3 billion as of December 28, 2019 and December 29, 2018, 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 they 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 $35 million and $37 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018, respectively, and $39 million and $28 million included in other assets in the Company’s Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018, respectively.
The following table presents the disaggregation of revenue for each of the Company’s principal product categories:
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2019
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2018
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|
2017
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Meats and seafood
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$
|
9,313
|
|
|
$
|
8,635
|
|
|
$
|
8,692
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|
Dry grocery products
|
4,427
|
|
|
4,239
|
|
|
4,266
|
|
Refrigerated and frozen grocery products
|
4,253
|
|
|
3,898
|
|
|
3,799
|
|
Dairy
|
2,685
|
|
|
2,520
|
|
|
2,533
|
|
Equipment, disposables and supplies
|
2,483
|
|
|
2,298
|
|
|
2,243
|
|
Beverage products
|
1,403
|
|
|
1,315
|
|
|
1,306
|
|
Produce
|
1,375
|
|
|
1,270
|
|
|
1,308
|
|
|
$
|
25,939
|
|
|
$
|
24,175
|
|
|
$
|
24,147
|
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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 U.S.
USF financed the acquisition with borrowings under 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 sale of the Divested Assets at closing was $94 million, which, together with approximately $20 million in holdback funds and working capital adjustments, approximates 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 de minimis.
The following table summarizes the preliminary purchase price allocation recognized for the acquisition based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. Adjustments to the preliminary purchase price allocation in the fourth quarter of fiscal year 2019, including working capital adjustments to acquired and divested assets and liabilities and adjustments to asset valuations, were immaterial to the Company's consolidated financial statements.
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.
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Preliminary Purchase Price Allocation
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Accounts receivable
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|
$
|
145
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|
Inventories
|
|
165
|
|
Assets of discontinued operations
|
|
133
|
|
Other current assets
|
|
7
|
|
Property and equipment
|
|
209
|
|
Goodwill(1)
|
|
761
|
|
Other intangibles(2)
|
|
695
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|
Other assets
|
|
47
|
|
Accounts payable
|
|
(200
|
)
|
Accrued expenses and other current liabilities
|
|
(69
|
)
|
Liabilities of discontinued operations
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|
(19
|
)
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Other long-term liabilities, including financing leases
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|
(42
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)
|
Cash paid for acquisition
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|
$
|
1,832
|
|
|
|
(1)
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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.
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(2)
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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.
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Net sales and net loss for the Food Group (exclusive of the Divested Assets, as the sales and net income of the Divested Assets were reflected in discontinued operations and were de minimis for fiscal year 2019), which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed were $843 million and $21 million, respectively, during fiscal year 2019. Acquisition-related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $52 million and $29 million for fiscal years 2019 and 2018, respectively.
The following table presents the Company’s unaudited pro forma consolidated net sales, net income and net income per share for fiscal years 2019 and 2018. 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.
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|
|
|
|
|
|
|
|
|
|
|
2019
(Unaudited)
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|
2018
(Unaudited)
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Pro forma net sales
|
|
$
|
28,020
|
|
|
$
|
26,985
|
|
Pro forma net income
|
|
$
|
398
|
|
|
$
|
397
|
|
Pro forma net income per share:
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|
|
|
|
Basic
|
|
$
|
1.82
|
|
|
$
|
1.84
|
|
Diluted
|
|
$
|
1.81
|
|
|
$
|
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 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
2019
(Unaudited)
|
|
2018
(Unaudited)
|
Pro forma net sales
|
|
$
|
392
|
|
|
$
|
516
|
|
Pro forma net income
|
|
$
|
5
|
|
|
$
|
13
|
|
Pro forma income per share:
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|
|
|
|
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 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 in 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.
Restricted cash primarily consists of cash on deposit with financial institutions as collateral for certain letters of credit. Cash, cash equivalents and restricted cash as presented in the Company's Consolidated Statements of Cash Flows as of December 28, 2019 and December 29, 2018 consisted of the following:
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|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
Cash and cash equivalents
|
$
|
90
|
|
|
$
|
104
|
|
Restricted cash—included in other assets
|
8
|
|
|
1
|
|
Total cash, cash equivalents and restricted cash
|
$
|
98
|
|
|
$
|
105
|
|
|
|
7.
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ALLOWANCE FOR DOUBTFUL ACCOUNTS
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A summary of the activity in the allowance for doubtful accounts for the last three fiscal years is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance as of beginning of year
|
$
|
29
|
|
|
$
|
26
|
|
|
$
|
25
|
|
Charged to costs and expenses
|
21
|
|
|
17
|
|
|
18
|
|
Customer accounts written off—net of recoveries
|
(20
|
)
|
|
(14
|
)
|
|
(17
|
)
|
Balance as of end of year
|
$
|
30
|
|
|
$
|
29
|
|
|
$
|
26
|
|
This table excludes the vendor receivable related allowance for doubtful accounts of $4 million as of December 28, 2019 and $3 million as of both December 29, 2018 and December 30, 2017.
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|
8.
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ACCOUNTS RECEIVABLE FINANCING PROGRAM
|
Under its accounts receivable financing facility (the “ABS Facility”), USF sells, on a revolving basis, eligible receivables to a wholly owned, special purpose, bankruptcy remote subsidiary (the “Receivables Company”). The Receivables Company, in turn, grants a continuing security interest in all of its rights, title and interest in the eligible receivables to the administrative agent, for the benefit of the lenders. The Company consolidates the Receivables Company and, consequently, the transfer of the eligible receivables is a transaction internal to the Company and the eligible receivables have not been derecognized from the Company’s Consolidated Balance Sheets. Included in the Company’s accounts receivable balance as of December 28, 2019 and December 29, 2018 was approximately $1.0 billion of eligible receivables held as collateral in support of the ABS Facility. See Note 13, Debt, for a further description of the ABS Facility.
The Company classifies its closed facilities as assets held for sale at the time management commits to a plan to sell the facility, the facility is actively marketed and available for immediate sale, and the sale is expected to be completed within one year. Due to market conditions, certain facilities may be classified as assets held for sale for more than one year as the Company continues to actively market the facilities at reasonable prices.
During fiscal year 2019, two closed distribution facilities and an excess parcel of land were sold for aggregate proceeds of $6 million, which approximated their aggregate carrying values. During fiscal year 2018, the Company closed a distribution facility and transferred its business activities to another of the Company's distribution facilities. Additionally, an excess portion of a parcel of land, purchased earlier in fiscal year 2018, was transferred to assets held for sale, along with an operating facility that was closed due to the consolidation of operations into a recently acquired facility.
The changes in assets held for sale for fiscal years 2019 and 2018 were as follows:
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|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Balance as of beginning of year
|
$
|
7
|
|
|
$
|
5
|
|
Transfers in
|
—
|
|
|
3
|
|
Assets sold
|
(6
|
)
|
|
—
|
|
Tangible asset impairment charges
|
—
|
|
|
(1
|
)
|
Balance as of end of the year
|
$
|
1
|
|
|
$
|
7
|
|
|
|
10.
|
PROPERTY AND EQUIPMENT
|
Property and equipment as of December 28, 2019 and December 29, 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
|
Range of
Useful Lives
|
Land
|
$
|
378
|
|
|
$
|
323
|
|
|
|
Buildings and building improvements
|
1,411
|
|
|
1,252
|
|
|
10–40 years
|
Transportation equipment
|
1,137
|
|
|
1,031
|
|
|
5–10 years
|
Warehouse equipment
|
481
|
|
|
418
|
|
|
5–12 years
|
Office equipment, furniture and software
|
867
|
|
|
858
|
|
|
3–7 years
|
Construction in process
|
99
|
|
|
77
|
|
|
|
|
4,373
|
|
|
3,959
|
|
|
|
Less accumulated depreciation and amortization
|
(2,298
|
)
|
|
(2,117
|
)
|
|
|
Property and equipment—net
|
$
|
2,075
|
|
|
$
|
1,842
|
|
|
|
Transportation equipment included $572 million and $544 million of financing lease assets as of December 28, 2019 and December 29, 2018, respectively. Buildings and building improvements included $30 million and $36 million of financing lease assets as of December 28, 2019 and December 29, 2018, respectively. Accumulated amortization of financing lease assets was $269 million and $247 million as of December 28, 2019 and December 29, 2018, respectively. Interest capitalized was $2 million for fiscal years 2019 and 2018.
Depreciation and amortization expense of property and equipment, including amortization of financing lease assets, was $311 million, $300 million and $283 million for fiscal years 2019, 2018 and 2017, respectively.
|
|
11.
|
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, 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 and noncompete agreements are intangible assets with definite lives, and are carried at the acquired fair value less accumulated amortization. Customer relationships and noncompete agreements are amortized over the estimated useful lives (which are 2 to 15 years). Amortization expense was $51 million, $40 million and $95 million for fiscal years 2019, 2018 and 2017, respectively. The weighted-average remaining useful life of all customer relationship intangibles was approximately 8 years as of December 28, 2019. Amortization of these customer relationship assets is estimated to be $68 million for fiscal year 2020, $51 million fiscal year 2021, $44 million for each of fiscal years 2022, 2023 and 2024, and $423 million in the aggregate thereafter.
Goodwill and other intangibles consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
Goodwill
|
$
|
4,728
|
|
|
$
|
3,967
|
|
Other intangibles—net
|
|
|
|
Customer relationships—amortizable:
|
|
|
|
Gross carrying amount
|
$
|
789
|
|
|
$
|
154
|
|
Accumulated amortization
|
(115
|
)
|
|
(85
|
)
|
Net carrying value
|
674
|
|
|
69
|
|
Noncompete agreements—amortizable:
|
|
|
|
Gross carrying amount
|
3
|
|
|
3
|
|
Accumulated amortization
|
(2
|
)
|
|
(1
|
)
|
Net carrying value
|
1
|
|
|
2
|
|
Brand names and trademarks—not amortizing
|
292
|
|
|
253
|
|
Total other intangibles—net
|
$
|
967
|
|
|
$
|
324
|
|
The increase in goodwill and other intangible assets as of December 28, 2019 is attributable to the Food Group acquisition, as described in Note 5, Business Acquisitions.
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. For intangible assets with definite lives, the Company assesses impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable. The Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of June 30, 2019, the first day of the third quarter of fiscal year 2019, with no impairments noted.
For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 25, Business Information. The Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. In performing the qualitative assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affect the fair value of its goodwill. These factors include external factors such as market conditions, macroeconomic, and industry, as well as entity-specific factors, such as actual and planned financial performance. Based upon the Company’s qualitative fiscal year 2019 annual goodwill impairment analysis, the Company concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment.
The Company’s fair value estimates of the brand names and trademarks indefinite-lived intangible assets are based on a relief-from-royalty method. The fair value of these intangible assets is determined for comparison to the corresponding carrying value. If the carrying value of these assets exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Based upon the Company’s fiscal year 2019 annual impairment analysis, the Company concluded the fair value of its brand names and trademarks exceeded its carrying value.
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.
|
|
12.
|
FAIR VALUE MEASUREMENTS
|
The Company follows the accounting standards for fair value, under which fair value is a market-based measurement, not an entity-specific measurement. 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 December 28, 2019 and December 29, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
December 29, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest rate swaps
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
|
$
|
1
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
20
|
|
There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis.
Recurring Fair Value Measurements
Money Market Funds
Money market funds include highly liquid investments with an original maturity of three or fewer months. They 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 uses interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate movements in connection with its variable-rate Initial Term Loan Facility (as defined in Note 13, Debt).
On August 1, 2017, USF entered into four-year interest rate swap agreements with a notional amount of $1.1 billion, reducing to $825 million in the fourth year. These swaps effectively converted approximately half of the principal amount of the Initial Term Loan Facility from a variable to a fixed rate loan.
On May 31, 2019, an interest rate swap agreement with a notional amount of $367 million was terminated, and the Company received cash proceeds of $1 million, the fair value of the interest rate swap on the termination date. The proceeds were recorded as cash provided by operating activities in the Company's Consolidated Statement of Cash Flows. The $1 million gain from the termination of the interest rate swap agreement was reflected in accumulated other comprehensive loss and will be amortized to interest expense through July 31, 2021, the remaining term of the original interest rate swap agreement.
After giving effect to the termination of the interest rate swap agreement, the remaining interest rate swap agreements collectively have a notional value of $733 million, reducing to $550 million on July 31, 2020. The Company pays an aggregate effective rate of 3.45% on the notional amount of the Initial Term Loan Facility covered by the interest rate swap agreements, comprised of a rate of 1.70% plus a spread of 1.75% (See Note 13, Debt).
The Company records its interest rate swaps in its Consolidated Balance Sheets at fair value, based on projections of cash flows and future interest rates. The determination of fair value includes the consideration of any credit valuation adjustments necessary, giving consideration to the creditworthiness of the respective counterparties and the Company. The following table presents the balance sheet location and fair value of the interest rate swaps as of December 28, 2019 and December 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Balance Sheet Location
|
|
December 28, 2019
|
|
December 29, 2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
Interest rate swaps
|
Other current assets
|
|
$
|
—
|
|
|
$
|
8
|
|
Interest rate swaps
|
Other noncurrent assets
|
|
—
|
|
|
11
|
|
|
Total
|
|
—
|
|
|
19
|
|
Interest rate swaps
|
Other long-term liabilities
|
|
1
|
|
|
—
|
|
|
Net position
|
|
$
|
(1
|
)
|
|
$
|
19
|
|
Gains and losses on the interest rate swaps are initially recorded in accumulated other 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 28, 2019, December 29, 2018, and December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of (Loss) 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,
net of tax
|
For the fiscal year ended December 28, 2019
|
|
|
|
|
|
Interest rate swaps
|
$
|
(10
|
)
|
|
Interest expense—net
|
|
$
|
(5
|
)
|
For the fiscal year ended December 29, 2018
|
|
|
|
|
|
Interest rate swaps
|
$
|
7
|
|
|
Interest expense—net
|
|
$
|
(2
|
)
|
For the fiscal year ended December 30, 2017
|
|
|
|
|
|
Interest rate swaps
|
$
|
6
|
|
|
Interest expense—net
|
|
$
|
2
|
|
During the next twelve months, the Company estimates that a de minimis amount will be reclassified from accumulated other comprehensive loss to income.
Other Fair Value Measurements
The carrying value of cash, accounts receivable, cash overdraft liability, accounts payable and accrued expenses approximate their fair values due to their short-term maturities.
The fair value of the Company’s total debt approximated its carrying value of $4.7 billion and $3.5 billion as of December 28, 2019 and December 29, 2018, respectively. The fair value of the Company’s 5.875% unsecured Senior Notes due June 15, 2024 (the “Senior Notes”) was $0.6 billion as of both December 28, 2019 and December 29, 2018, based upon the closing market prices of the Senior Notes on both dates, and 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 28, 2019
|
|
December 28, 2019
|
|
December 29, 2018
|
|
ABL Facility
|
|
May 31, 2024
|
|
4.75%
|
|
$
|
—
|
|
|
$
|
81
|
|
(1)
|
ABS Facility
|
|
September 21, 2022
|
|
2.75%
|
|
190
|
|
|
275
|
|
(2)
|
Initial Term Loan Facility (net of $4 and $6
of unamortized deferred financing costs,
respectively)
|
|
June 27, 2023
|
|
3.44%
|
|
2,125
|
|
|
2,145
|
|
(3)
|
Incremental Term Loan Facility (net of $35 of
unamortized deferred financing costs)
|
|
September 13, 2026
|
|
3.69%
|
|
1,465
|
|
|
—
|
|
|
Senior Notes (net of $4 and $5
of unamortized deferred financing costs,
respectively)
|
|
June 15, 2024
|
|
5.88%
|
|
596
|
|
|
595
|
|
|
Obligations under financing leases
|
|
2020–2026
|
|
2.00% - 6.17%
|
|
352
|
|
|
352
|
|
|
Other debt
|
|
2021–2031
|
|
5.75% - 9.00%
|
|
8
|
|
|
9
|
|
|
Total debt
|
|
|
|
|
|
4,736
|
|
|
3,457
|
|
|
Current portion of long-term debt(4)
|
|
|
|
|
|
(142
|
)
|
|
(106
|
)
|
|
Long-term debt
|
|
|
|
|
|
$
|
4,594
|
|
|
$
|
3,351
|
|
|
|
|
(1)
|
Consists of outstanding borrowings under our former asset based senior secured revolving credit facility, which was refinanced with a new facility in May 2019 (as described below).
|
|
|
(2)
|
Consists of outstanding borrowings under the ABS Facility prior to a September 2019 amendment to, among other things, lower the interest rate margin on borrowings under the facility (as described below).
|
|
|
(3)
|
Consists of outstanding borrowings under the Initial Term Loan Facility prior to a November 2019 amendment to, among other things, lower the interest rate margins on borrowings under the facility (as described below).
|
|
|
(4)
|
The current portion of long-term debt as of December 28, 2019 for the Initial Term Loan Facility and the Incremental Term Loan Facility includes five quarterly principal payments due to the Company's 53-week fiscal year 2020.
|
As of December 28, 2019, after considering interest rate swaps that fixed the interest rate on $733 million of principal of the Initial Term Loan Facility described below, approximately 65% of the Company’s total debt was at a floating rate.
Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of December 28, 2019, were as follows:
|
|
|
|
|
|
2020
|
|
$
|
142
|
|
2021
|
|
114
|
|
2022
|
|
284
|
|
2023
|
|
2,128
|
|
2024
|
|
655
|
|
Thereafter
|
|
1,456
|
|
|
|
$
|
4,779
|
|
ABL Facility—On May 31, 2019, USF completed a refinancing of its asset based senior secured revolving credit facility with a new asset based senior secured revolving credit facility (the “ABL Facility”). The ABL Facility provides USF with loan commitments having a maximum aggregate principal amount of $1.6 billion. The ABL Facility includes subfacilities for the issuance of up to $800 million of letters of credit and up to $170 million of swing line loans. Extensions of credit under the ABL Facility are subject to availability under a borrowing base comprised of various specified percentages of the value of eligible accounts receivable, eligible inventory, eligible transportation equipment and certain unrestricted cash and cash equivalents, which also serve as collateral for borrowings under the ABL Facility.
Borrowings under the ABL Facility bear interest at a rate equal to, at USF's option, either the sum of an alternative base rate, as described under the ABL Facility, plus a margin ranging from 0.00% to 0.50%, or the sum of a London Interbank Offered Rate (“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 December 28, 2019 was 0.00% for alternative base rate loans and 1.00% for LIBOR loans. The ABL Facility also carries a commitment fee of 0.25% per annum on the average unused amount of the commitments under the ABL Facility. The weighted-average interest rate on outstanding borrowings for the ABL Facility and our former asset based senior secured revolving credit facility was 2.63% and 5.12% for fiscal years 2019 and 2018, respectively.
The ABL Facility is scheduled to mature on May 31, 2024, subject to a springing maturity date in the event that more than $300 million of aggregate principal amount of indebtedness with a maturity date on or prior to the ABL Facility’s maturity date under the Initial Term Loan Facility and Incremental Term Loan Facility or the Senior Notes remains outstanding on a date that is 60 days prior to the maturity date for the Initial Term Loan Facility, the Incremental Term Loan Facility or the Senior Notes, respectively.
The Company incurred $4 million of lender fees and third party costs in connection with the refinancing of the asset based senior secured revolving credit facility on May 31, 2019, which were capitalized as deferred financing costs. These deferred financing costs, along with $1 million of unamortized deferred financing costs related to the former asset based senior secured revolving credit facility, will be amortized through May 31, 2024, the ABL Facility maturity date.
USF had no outstanding borrowings, and had issued letters of credit totaling $314 million, under the ABL Facility as of December 28, 2019. Outstanding letters of credit included: (1) $249 million issued in favor of certain commercial insurers to secure USF’s obligations with respect to its self-insurance program, (2) $64 million issued to secure USF’s obligations with respect to certain real estate leases, and (3) $1 million issued for other obligations. There was available capacity of $1,227 million under the ABL Facility as of December 28, 2019.
ABS Facility—On September 20, 2019, the ABS Facility was amended to, among other things, lower the interest rate margin on borrowings under the facility. The maximum borrowing capacity under the ABS Facility is $800 million. USF had $190 million of outstanding borrowings under the ABS Facility as of December 28, 2019. The Company, at its option, can request additional borrowings up to the maximum commitment, provided sufficient eligible receivables are available as collateral. There was available capacity of $552 million under the ABS Facility as of December 28, 2019.
Borrowings under the ABS Facility bear interest at LIBOR plus a margin of 0.95%, and the ABS Facility carries an unused commitment fee of 0.35% or 0.45% based on USF's utilization of the ABS Facility. The weighted-average interest rate on outstanding borrowings for the ABS Facility was 3.23% and 3.00% for fiscal years 2019 and 2018, respectively. The ABS Facility is scheduled to mature on September 21, 2022. The Company incurred $1 million of lender fees and third party costs in connection with the amendment of the ABS Facility on September 20, 2019, which were capitalized as deferred financing costs and will be amortized through September 21, 2022, the ABS Facility maturity date.
Term Loan Facilities
The Term Loan Credit Agreement, dated as of May 11, 2011 (as amended, the “Term Loan Credit Agreement’), provides USF with a senior secured term loan (the "Initial Term Loan Facility"), an incremental senior secured term loan issued in September 2019 (the “Incremental Term Loan Facility”) and the right to request incremental senior secured term loan commitments.
Initial Term Loan Facility
On November 26, 2019, the Initial Term Loan Facility was amended to, among other things, lower the interest rate margins on outstanding borrowings under the facility. The Initial Term Loan Facility had an outstanding balance of $2.1 billion as of December 28, 2019.
Borrowings under the Initial Term Loan Facility bear interest at a rate per annum equal to, at USF’s option, either (1) LIBOR plus a margin of 1.75% or (2) an alternative base rate plus a margin of 0.75%. The table above reflects the December 28, 2019 interest rate on the unhedged portion of the Initial Term Loan Facility. The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate swap agreements was 3.45% as of December 28, 2019.
In connection with the November 2019 amendment of the Initial Term Loan Facility, the Company applied modification accounting to the majority of the continuing lenders as the terms of the facility were not substantially different from the terms that applied to those lenders prior to the amendment. For the remaining lenders, the Company applied debt extinguishment accounting. The Company recorded a debt extinguishment loss of $2 million in interest expense, consisting primarily of a write-off of unamortized deferred financing costs related to the amendment. Unamortized deferred financing costs of $4 million were carried forward and will be amortized through June 27, 2023, the maturity date of the Initial Term Loan Facility.
The Initial Term Loan Facility is scheduled to mature on June 27, 2023. Borrowings under the Initial Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings and a 1.00% premium in the case of any “repricing transaction” that occurs prior to May 26, 2020. The Initial Term Loan Facility may require mandatory repayments if certain assets are sold.
Incremental Term Loan Facility
On September 13, 2019, USF entered into a new incremental term loan in an aggregate principal amount of $1.5 billion under the Term Loan Credit Agreement (the “Incremental Term Loan Facility”) to finance a portion of the purchase price for its acquisition of the Food Group.
Borrowings under the 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 alternative base rate, as described under the Incremental Term Loan Facility, plus a margin of 1.00%.
The Incremental Term Loan Facility is scheduled to mature on September 13, 2026. Similar to the Initial Term Loan, borrowings under the Incremental Term Loan Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of LIBOR-based borrowings and a 1.00% premium in the case of any “repricing transaction” that occurs prior to March 13, 2020. The Incremental Term Loan Facility may require mandatory repayments if certain assets are sold.
Senior Notes—The Senior Notes due 2024, had a carrying value of $596 million, net of $4 million of unamortized deferred financing costs, as of December 28, 2019. The Senior Notes bear interest at 5.875%. As of June 15, 2019, this debt is redeemable, at USF’s option, in whole or in part at a price of 102.938% of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date. On June 15, 2020 and June 15, 2021, the optional redemption price for the debt declines to 101.469% and 100.0%, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.
Financing Leases—Obligations under financing leases of $352 million as of December 28, 2019 consist primarily of amounts due for transportation equipment and building leases.
Security Interests
Substantially all of the Company’s assets are pledged under the various agreements governing our indebtedness. Debt under the ABS Facility is secured by certain designated receivables and, in certain circumstances, by restricted cash. The ABL Facility is secured by certain designated receivables not pledged under the ABS Facility, as well as inventory and certain owned transportation equipment and certain unrestricted cash and cash equivalents. Additionally, the lenders under the ABL Facility have a second priority interest in all of the capital stock of USF and its subsidiaries and substantially all other non-real estate assets of USF and its subsidiaries not pledged under the ABS Facility. USF’s obligations under the Initial Term Loan Facility and the Incremental Term Loan Facility are secured by all the capital stock of USF and its subsidiaries and substantially all the non-real estate assets of USF and certain of its subsidiaries not pledged under the ABS Facility. Additionally, the lenders under the Initial Term Loan Facility and the Incremental Term Loan Facility have a second priority interest in the inventory and certain transportation equipment pledged under the ABL Facility. USF’s interest rate swap obligations are secured by the collateral securing the ABL Facility. Pursuant to the terms of the interest rate swap agreements between the interest rate swap counterparty and USF, the interest rate swap counterparty has agreed that its right to receive payment from the sale of the collateral is subordinate to the rights of the lenders under the ABL Facility.
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 $1.3 billion of restricted payment capacity under these covenants, and approximately $2.4 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 December 28, 2019.
The agreements governing our indebtedness also contain customary events of default. Those include, without limitation, the failure to pay interest or principal when it is due under the agreements, cross default provisions, the failure of representations and warranties contained in the agreements to be true when made, and certain insolvency events. If an event of default occurs and remains uncured,
the principal amounts outstanding, together with all accrued unpaid interest and other amounts owed, may be declared immediately due and payable. Were such an event to occur, the Company would be forced to seek new financing that may not be on as favorable terms as its existing debt. The Company’s ability to refinance its indebtedness on favorable terms, or at all, is directly affected by the then prevailing economic and financial conditions. In addition, the Company’s ability to incur secured indebtedness (which may enable it to achieve more favorable terms than the incurrence of unsecured indebtedness) depends in part on the value of its assets. This, in turn, is dependent on the strength of its cash flows, results of operations, economic and market conditions, and other factors.
|
|
14.
|
ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
|
Accrued expenses and other long-term liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
Accrued expenses and other current liabilities:
|
|
|
|
Salary, wages and bonus expenses
|
$
|
172
|
|
|
$
|
132
|
|
Operating expenses
|
75
|
|
|
69
|
|
Workers’ compensation, general and fleet liability
|
44
|
|
|
39
|
|
Group medical liability
|
25
|
|
|
28
|
|
Customer rebates and other selling expenses
|
105
|
|
|
96
|
|
Property and sales tax
|
37
|
|
|
30
|
|
Operating lease liability
|
40
|
|
|
6
|
|
Interest payable
|
14
|
|
|
13
|
|
Other
|
26
|
|
|
41
|
|
Total accrued expenses and other current liabilities
|
$
|
538
|
|
|
$
|
454
|
|
Other long-term liabilities:
|
|
|
|
Workers’ compensation, general and fleet liability
|
$
|
121
|
|
|
$
|
120
|
|
Operating lease liability
|
131
|
|
|
21
|
|
Accrued pension and other postretirement benefit obligations
|
7
|
|
|
40
|
|
Uncertain tax positions
|
33
|
|
|
31
|
|
Other
|
23
|
|
|
20
|
|
Total Other long-term liabilities
|
$
|
315
|
|
|
$
|
232
|
|
Self-Insured Liabilities —The Company is self-insured for general liability, fleet liability and workers’ compensation claims. Claims in excess of certain levels are insured by external parties. The workers’ compensation liability, included in the table above under “Workers’ compensation, general liability and fleet liability,” is recorded at present value. This table summarizes self-insurance liability activity for the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance as of beginning of the year
|
$
|
159
|
|
|
$
|
170
|
|
|
$
|
164
|
|
Charged to costs and expenses
|
80
|
|
|
56
|
|
|
64
|
|
Acquisition
|
17
|
|
|
—
|
|
|
—
|
|
Reinsurance recoverable
|
—
|
|
|
7
|
|
|
8
|
|
Payments
|
(91
|
)
|
|
(74
|
)
|
|
(66
|
)
|
Balance as of end of the year
|
$
|
165
|
|
|
$
|
159
|
|
|
$
|
170
|
|
Discount rate
|
1.58
|
%
|
|
2.50
|
%
|
|
1.98
|
%
|
Estimated future payments for self-insured liabilities are as follows:
|
|
|
|
|
2020
|
$
|
44
|
|
2021
|
28
|
|
2022
|
19
|
|
2023
|
13
|
|
2024
|
10
|
|
Thereafter
|
58
|
|
Total self-insured liability
|
172
|
|
Less amount representing interest
|
(7
|
)
|
Present value of self-insured liability
|
$
|
165
|
|
|
|
15.
|
RELATED PARTY TRANSACTIONS
|
During fiscal year 2017, the Company completed four secondary offerings of its common stock held primarily by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC (“CD&R”) and Kohlberg Kravis Roberts & Co., L.P. (“KKR” and, together with CD&R, the “Former Sponsors”). Following the completion of the final offering in December 2017, the Former Sponsors no longer held any shares of the Company’s common stock. The Company did not receive any proceeds from the offerings. The December 2017 offering also included the Company’s repurchase of 10,000,000 shares of common stock from the underwriter at $28.00 per share, which was the price the underwriter purchased the shares from the Former Sponsors in the offering. The $280 million paid for the share repurchase reduced additional paid-in capital $96 million, with the remaining $184 million recognized in retained earnings as a constructive dividend.
The closing of the Company’s share repurchase occurred substantially concurrently with the closing of the offering, and the repurchased shares were retired. In accordance with terms of the prior registration rights agreement with the Former Sponsors, the Company incurred approximately $4 million of expenses in connection with the offerings in fiscal year 2017.
There were no related party transactions in fiscal years 2019 and 2018.
|
|
16.
|
SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK
|
Our long-term incentive plans provide for the grant of various forms of share-based awards to our directors, officers and other eligible employees.
Total compensation expense related to share-based arrangements was $32 million, $28 million and $21 million for fiscal years 2019, 2018 and 2017, respectively, and is reflected in distribution, selling and administrative costs in the Company's Consolidated Statements of Comprehensive Income. The total income tax benefit associated with share-based compensation recorded in the Company's Consolidated Statement of Comprehensive Income was $8 million, $6 million and $7 million for fiscal years 2019, 2018 and 2017, respectively.
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, $3 million and $3 million of share-based compensation expense for fiscal years 2019, 2018 and 2017, respectively, associated with the employee stock purchase plan.
Stock Options—Certain directors, 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.
The Time-Based Options generally vest and become exercisable ratably over periods of three to four years, from the date of the grant. Share-based compensation expense related to the Time-Based Options was $8 million, $7 million and $4 million for fiscal years 2019, 2018 and 2017, respectively.
The Performance Options generally vest and become exercisable ratably over four years, from the date of the grant, provided that the Company achieves a predetermined financial performance goal established by the Compensation Committee of our Board of Directors (the “Committee”) for the respective award tranche.
The Company recorded share-based compensation expense of $1 million and $3 million for fiscal years 2018 and 2017, respectively, related to the expected vesting of the Performance Options. No share-based compensation expense attributable to Performance Options was recorded for fiscal year 2019 as the final tranche of those awards was not expected to vest since the performance goal was not met.
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. Exercise prices range from $8.51 to $38.12 per share and generally have a 10-year life. 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 2019, 2018 and 2017 are included in the following table:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Expected volatility
|
23.7
|
%
|
|
35.7
|
%
|
|
31.8
|
%
|
Expected dividends
|
—
|
|
|
—
|
|
|
—
|
|
Risk-free interest rate
|
2.3
|
%
|
|
2.6
|
%
|
|
1.9
|
%
|
Expected term (in years)
|
5.6
|
|
|
5.4
|
|
|
5.8
|
|
Expected volatility is calculated leveraging the historical volatility of public companies similar to US Foods. The assumed dividend yield is zero because the Company has not historically paid dividends. The risk-free interest rate is the implied zero-coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term, as of the grant date. Due to a lack of relevant historical data, the simplified approach was used to determine the expected term of the options.
The summary of Options outstanding and changes during fiscal year 2019 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
Options
|
|
Performance
Options
|
|
Total
Options
|
|
Weighted-
Average Fair Value
|
|
Weighted-
Average Exercise Price
|
|
Weighted-
Average Remaining Contractual Years
|
Outstanding as of December 29, 2018
|
2,713,564
|
|
|
1,222,832
|
|
|
3,936,396
|
|
|
$
|
9.45
|
|
|
$
|
22.44
|
|
|
|
Granted
|
922,893
|
|
|
195,692
|
|
|
1,118,585
|
|
|
$
|
10.63
|
|
|
$
|
32.60
|
|
|
|
Exercised
|
(688,964
|
)
|
|
(443,875
|
)
|
|
(1,132,839
|
)
|
|
$
|
7.58
|
|
|
$
|
18.11
|
|
|
|
Forfeited
|
(176,643
|
)
|
|
(30,268
|
)
|
|
(206,911
|
)
|
|
$
|
10.78
|
|
|
$
|
29.22
|
|
|
|
Performance adjustment(1)
|
—
|
|
|
(192,929
|
)
|
|
(192,929
|
)
|
|
$
|
15.31
|
|
|
$
|
23.19
|
|
|
|
Outstanding as of December 28, 2019
|
2,770,850
|
|
|
751,452
|
|
|
3,522,302
|
|
|
$
|
10.03
|
|
|
$
|
26.62
|
|
|
7.2
|
Vested and exercisable as of December 28, 2019
|
1,132,637
|
|
|
438,297
|
|
|
1,570,934
|
|
|
$
|
8.43
|
|
|
$
|
21.89
|
|
|
6.0
|
|
|
(1)
|
Represents an adjustment to the 2018 tranche of the 2016 Performance Option awards based on actual performance during the 2018 annual performance period. The actual performance for the 2018 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of fiscal year 2019.
|
The weighted-average grant date fair value of Options granted for fiscal years 2019, 2018 and 2017 was $10.63, $14.55 and $11.08, respectively.
During fiscal years 2019, 2018 and 2017, Options were exercised with total intrinsic values of $21 million, $28 million and $86 million, respectively, representing the excess of fair value over exercise price.
There was $11 million of total unrecognized compensation costs related to unvested Options expected to vest as of December 28, 2019, which is expected to be recognized over a weighted-average period of two years.
Restricted Stock Awards—Certain 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 which vest to the extent certain performance conditions are met (the “Performance RSAs”).
The Company recorded share-based compensation expense for the Time-Based RSAs of $1 million for fiscal year 2019. No Time-Based RSAs had been issued for periods prior to fiscal year 2019.
The Performance RSAs were granted assuming the maximum level of performance and vest on the third anniversary of the grant date if specific performance goals over a three-year performance period are achieved. The number of shares eligible to vest on the vesting date range from zero to 200% of the target award amount, based on the achievement of the performance goals. The fair value of the Performance RSAs is measured using the fair market value of our common stock on the date of grant and recognized over the three-year vesting period for the portion of the award that is expected to vest. Compensation expense for the Performance RSAs is remeasured as of the end of each reporting period, based on management’s evaluation of whether it is probable that performance conditions will be met.
Share-based compensation expense for the Performance RSAs was $3 million, $2 million and $1 million for fiscal years 2019, 2018 and 2017, respectively.
The summary of unvested RSAs and changes during fiscal year 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based RSAs
|
|
Performance RSAs
|
|
Total RSAs
|
|
Weighted-
Average
Fair
Value
|
Unvested as of December 29, 2018
|
—
|
|
|
448,823
|
|
|
448,823
|
|
|
$
|
32.01
|
|
Granted
|
116,713
|
|
|
233,426
|
|
|
350,139
|
|
|
$
|
34.56
|
|
Unvested as of December 28, 2019
|
116,713
|
|
|
682,249
|
|
|
798,962
|
|
|
$
|
33.13
|
|
The weighted-average grant date fair value for the RSAs granted in fiscal years 2019, 2018 and 2017 was $34.56, $33.56 and $30.39, respectively. There was $7 million of unrecognized compensation expense related to the RSAs as of December 28, 2019, that is expected to be recognized over a weighted average period of two years.
Restricted Stock Units—Certain directors, officers and other eligible employees have been granted time-based restricted stock units (the “Time-Based RSUs”) and performance-based restricted stock units (the “Performance RSUs” and, collectively with the Time-Based RSUs, the “RSUs”). The Time-Based RSUs generally vest ratably over three to four years, starting on the anniversary date of the grant. For fiscal years 2019, 2018 and 2017, the Company recognized $14 million, $12 million and $6 million, respectively, in share-based compensation expense related to the Time-Based RSUs.
The Performance RSUs generally vest over a three or four year period, as and to the extent predetermined performance goals are met.
The fair value of each share underlying the Performance RSUs is measured at the fair market value of our common stock on the date of grant and recognized over the vesting period for the portion of the award that is expected to vest. Compensation expense for the Performance RSUs is remeasured as of the end of each reporting period, based on management’s evaluation of whether it is probable that the performance conditions will be met.
The Company recognized $2 million, $3 million and $3 million of share-based compensation expense in fiscal years 2019, 2018 and 2017, respectively, for the Performance RSUs.
A summary of RSUs outstanding and changes during fiscal year 2019 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
RSUs
|
|
Performance
RSUs
|
|
Total
RSUs
|
|
Weighted-
Average
Fair
Value
|
Unvested as of December 29, 2018
|
1,036,841
|
|
|
356,716
|
|
|
1,393,557
|
|
|
$
|
30.71
|
|
Granted
|
481,599
|
|
|
186,825
|
|
|
668,424
|
|
|
$
|
35.09
|
|
Vested
|
(440,604
|
)
|
|
—
|
|
|
(440,604
|
)
|
|
$
|
28.39
|
|
Forfeited
|
(150,662
|
)
|
|
(65,142
|
)
|
|
(215,804
|
)
|
|
$
|
32.65
|
|
Performance adjustment (1)
|
—
|
|
|
(46,398
|
)
|
|
(46,398
|
)
|
|
$
|
32.85
|
|
Unvested as of December 28, 2019
|
927,174
|
|
|
432,001
|
|
|
1,359,175
|
|
|
$
|
33.24
|
|
|
|
(1)
|
Represents an adjustment to the 2018 tranche of the 2016 Performance Option awards based on actual performance during the 2018 annual performance period. The actual performance for the 2018 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of fiscal year 2019.
|
The weighted-average grant date fair values for the RSUs granted in fiscal years 2019, 2018, and 2017 was $35.09, $33.48 and $29.77, respectively.
As of December 28, 2019, there was $25 million of unrecognized compensation cost related to the RSUs that is expected to be recognized over a weighted-average period of two years.
The Company leases certain distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use (“ROU”) asset in the Company’s Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term as of commencement date. For the Company’s leases that do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the information available as of commencement date in determining the present value of future payments. The lease terms may include options to extend, terminate or buy out the lease. When it is reasonably certain that the Company will exercise these options, they are included
in ROU assets and the estimated lease liabilities. Leases with an initial term of 12 months or less are not recorded in the Company's Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. For office and warehouse equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred.
The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheet as of December 28, 2019:
|
|
|
|
|
|
|
|
Leases
|
|
Consolidated Balance Sheet Location
|
|
December 28, 2019
|
Assets
|
|
|
|
|
Operating
|
|
Other assets
|
|
$
|
145
|
|
Financing
|
|
Property and equipment-net(1)
|
|
333
|
|
Total leased assets
|
|
|
|
$
|
478
|
|
Liabilities
|
|
|
|
|
Current:
|
|
|
|
|
Operating
|
|
Accrued expenses and other current liabilities
|
|
$
|
40
|
|
Financing
|
|
Current portion of long-term debt
|
|
95
|
|
Noncurrent:
|
|
|
|
|
Operating
|
|
Other long-term liabilities
|
|
131
|
|
Financing
|
|
Long-term debt
|
|
257
|
|
Total lease liabilities
|
|
|
|
$
|
523
|
|
|
|
(1)
|
Financing lease assets are recorded net of accumulated amortization of $269 million as of December 28, 2019.
|
The following table presents the location of lease costs in fiscal year 2019 in the Company's Consolidated Statement of Comprehensive Income:
|
|
|
|
|
|
|
|
Lease Cost
|
|
Statement of Comprehensive Income Location
|
|
2019
|
Operating lease cost
|
|
Distribution, selling and administrative costs
|
|
$
|
29
|
|
Financing lease cost:
|
|
|
|
|
Amortization of leased assets
|
|
Distribution, selling and administrative costs
|
|
76
|
|
Interest on lease liabilities
|
|
Interest expense-net
|
|
12
|
|
Variable lease cost
|
|
Distribution, selling and administrative costs
|
|
6
|
|
Net lease cost
|
|
|
|
$
|
123
|
|
Future lease payments under lease agreements as of December 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Financing Lease
Obligation
|
|
Total
|
2020
|
$
|
48
|
|
|
$
|
106
|
|
|
$
|
154
|
|
2021
|
38
|
|
|
84
|
|
|
122
|
|
2022
|
33
|
|
|
62
|
|
|
95
|
|
2023
|
30
|
|
|
58
|
|
|
88
|
|
2024
|
12
|
|
|
41
|
|
|
53
|
|
After 2024
|
42
|
|
|
29
|
|
|
71
|
|
Total lease payments
|
203
|
|
|
380
|
|
|
583
|
|
Less amount representing interest
|
(32
|
)
|
|
(28
|
)
|
|
(60
|
)
|
Present value of lease liabilities
|
$
|
171
|
|
|
$
|
352
|
|
|
$
|
523
|
|
Future minimum lease payments in effect as of December 29, 2018 under noncancelable lease arrangements, as determined prior to the adoption of Topic 842, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Minimum Lease Payments
|
|
Operating
Leases
|
|
Financing Leases
|
|
Total
|
2019
|
|
$
|
34
|
|
|
$
|
95
|
|
|
$
|
129
|
|
2020
|
|
34
|
|
|
84
|
|
|
118
|
|
2021
|
|
30
|
|
|
71
|
|
|
101
|
|
2022
|
|
27
|
|
|
54
|
|
|
81
|
|
2023
|
|
23
|
|
|
43
|
|
|
66
|
|
After 2023
|
|
7
|
|
|
38
|
|
|
45
|
|
Total lease payments
|
|
155
|
|
|
385
|
|
|
540
|
|
Less amount representing interest
|
|
(4
|
)
|
|
(33
|
)
|
|
(37
|
)
|
Present value of minimum lease payments
|
|
$
|
151
|
|
|
$
|
352
|
|
|
$
|
503
|
|
Other information related to lease agreements for fiscal year 2019 was as follows:
|
|
|
|
|
|
Cash Paid For Amounts Included In Measurement of Liabilities
|
|
2019
|
Operating cash flows from operating leases
|
|
$
|
37
|
|
Operating cash flows from financing leases
|
|
12
|
|
Financing cash flows from financing leases
|
|
90
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
December 28, 2019
|
Weighted-average remaining lease term (years):
|
|
|
Operating leases
|
|
6.14
|
|
Financing leases
|
|
4.85
|
|
Weighted-average discount rate:
|
|
|
Operating leases
|
|
4.4
|
%
|
Financing leases
|
|
3.5
|
%
|
The Company sponsors a defined benefit pension plan and 401(k) plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents.
Company Sponsored Defined Benefit Plans —The Company sponsors the US Foods Consolidated Defined Benefit Retirement Plan, a qualified defined benefit retirement plan (the "Retirement Plan"), that pays benefits to certain employees at the time of retirement, using actuarial formulas based upon a participant’s years of credited service and compensation. 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.
The components of net periodic pension benefit costs (credits) for the Retirement Plan the last three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Components of net periodic pension benefit costs (credits):
|
|
|
|
|
|
Service cost
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
37
|
|
|
36
|
|
|
40
|
|
Expected return on plan assets
|
(49
|
)
|
|
(52
|
)
|
|
(48
|
)
|
Amortization of net loss
|
4
|
|
|
3
|
|
|
4
|
|
Settlements
|
12
|
|
|
—
|
|
|
18
|
|
Net periodic pension benefit costs (credits)
|
$
|
6
|
|
|
$
|
(11
|
)
|
|
$
|
16
|
|
Other postretirement benefit costs were de minimis for fiscal years 2019, 2018 and 2017.
The service cost component of net periodic benefit costs (credits) is included in distribution, selling and administrative costs, while the other components of net periodic benefit costs (credits) are included in other expense (income)—net in the Company's Consolidated Statements of Comprehensive Income.
The Company did not make a significant contribution to the Retirement Plan in fiscal year 2019. The Company contributed approximately $71 million to the Retirement Plan during fiscal year 2018, of which $35 million represented an additional, voluntary contribution. As a result of the incremental voluntary contribution, the Company remeasured its defined benefit pension liability as of May 31, 2018, resulting in a reduction in the benefit obligation of $33 million, with a corresponding benefit to accumulated other comprehensive loss. The remeasurement had an immaterial impact on the annual net periodic benefit costs (credits) for fiscal year 2018.
In the fourth quarter of fiscal year 2019, the Company completed a voluntary lump sum settlement offer to certain terminated plan participants who held vested accrued benefits under a certain threshold amount. In addition, in the fourth quarter of fiscal year 2019, the Company completed a spin-off of liabilities associated with certain active participants with small accrued benefits and retirees into a separate plan and immediately terminated that plan. As a result of the termination of the spin-off of the plan, those participants were able to elect to receive immediate lump sum payouts, with any remaining liabilities transferred to an insurance company through the purchase of an annuity contract. Pension obligation settlement payments of $66 million related to these transactions, consisting of lump sum payments and the annuity contract premium, were paid from plan assets. The Company incurred non-cash settlement charges of $12 million in fiscal year 2019, including approximately $9 million in the fourth quarter when the settlement payments were paid. The other $3 million of settlement charges incurred during fiscal year 2019 relate to ordinary course lump sum payment elections as provided under the continuing plan. The Company also incurred non-cash settlement charges of $18 million in fiscal year 2017 from a voluntary lump sum settlement offer to certain terminated plan participants. No non-cash settlement charges were incurred in fiscal year 2018. Settlement charges are included in other expense (income)—net in the Company's Consolidated Statements of Comprehensive Income.
Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for pension benefits for the last three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Changes recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
Actuarial gain
|
$
|
44
|
|
|
$
|
6
|
|
|
$
|
—
|
|
Amortization of net loss
|
4
|
|
|
3
|
|
|
4
|
|
Settlements
|
12
|
|
|
—
|
|
|
18
|
|
Net amount recognized
|
$
|
60
|
|
|
$
|
9
|
|
|
$
|
22
|
|
Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for other postretirement benefits for the last three fiscal years were de minimis.
The funded status of the Retirement Plan for the last three fiscal years was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2019
|
|
2018
|
|
2017
|
Change in benefit obligation:
|
|
|
|
|
|
Benefit obligation as of beginning of year
|
$
|
871
|
|
|
$
|
976
|
|
|
$
|
966
|
|
Service cost
|
2
|
|
|
2
|
|
|
2
|
|
Interest cost
|
37
|
|
|
36
|
|
|
40
|
|
Actuarial loss (gain)
|
100
|
|
|
(97
|
)
|
|
76
|
|
Settlements
|
(84
|
)
|
|
—
|
|
|
(87
|
)
|
Benefit disbursements
|
(23
|
)
|
|
(46
|
)
|
|
(21
|
)
|
Benefit obligation as of end of year
|
903
|
|
|
871
|
|
|
976
|
|
Change in plan assets:
|
|
|
|
|
|
Fair value of plan assets as of beginning of year
|
836
|
|
|
851
|
|
|
799
|
|
Return on plan assets
|
193
|
|
|
(40
|
)
|
|
124
|
|
Employer contribution
|
1
|
|
|
71
|
|
|
36
|
|
Settlements
|
(84
|
)
|
|
—
|
|
|
(87
|
)
|
Benefit disbursements
|
(23
|
)
|
|
(46
|
)
|
|
(21
|
)
|
Fair value of plan assets as of end of year
|
923
|
|
|
836
|
|
|
851
|
|
Net funded status
|
$
|
20
|
|
|
$
|
(35
|
)
|
|
$
|
(125
|
)
|
The fiscal year 2019 pension benefits actuarial loss of $100 million was primarily due to a decrease in the discount rate. The fiscal year 2018 pension benefits actuarial gain of $97 million was primarily due to an increase in the discount rate. The fiscal year 2017 pension benefits actuarial loss of $76 million was primarily due to a decrease in the discount rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans
|
|
2019
|
|
2018
|
|
2017
|
Change in benefit obligation:
|
|
|
|
|
|
Benefit obligation as of beginning of year
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Benefit disbursements
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Other
|
1
|
|
|
—
|
|
|
1
|
|
Benefit obligation as of end of year
|
6
|
|
|
6
|
|
|
7
|
|
Change in plan assets:
|
|
|
|
|
|
Fair value of plan assets as of beginning of year
|
—
|
|
|
—
|
|
|
—
|
|
Employer contribution
|
1
|
|
|
1
|
|
|
1
|
|
Benefit disbursements
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Fair value of plan assets as of end of year
|
—
|
|
|
—
|
|
|
—
|
|
Net funded status
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
Service cost, interest cost and actuarial (gain) loss for other postretirement benefits were de minimis for fiscal years 2019, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2019
|
|
2018
|
|
2017
|
Amounts recognized in the consolidated
balance sheets consist of the following:
|
|
|
|
|
|
Prepaid benefit obligation—noncurrent
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit obligation—current
|
—
|
|
|
—
|
|
|
(1
|
)
|
Accrued benefit obligation—noncurrent
|
(2
|
)
|
|
(35
|
)
|
|
(124
|
)
|
Net amount recognized in the consolidated
balance sheets
|
$
|
20
|
|
|
$
|
(35
|
)
|
|
$
|
(125
|
)
|
Amounts recognized in accumulated other
comprehensive loss consist of the following:
|
|
|
|
|
|
Net loss
|
$
|
129
|
|
|
$
|
190
|
|
|
$
|
199
|
|
Net loss recognized in accumulated other
comprehensive loss
|
$
|
129
|
|
|
$
|
190
|
|
|
$
|
199
|
|
Additional information:
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
899
|
|
|
$
|
869
|
|
|
$
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans
|
|
2019
|
|
2018
|
|
2017
|
Amounts recognized in the consolidated
balance sheets consist of the following:
|
|
|
|
|
|
Accrued benefit obligation—current
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Accrued benefit obligation—noncurrent
|
(5
|
)
|
|
(5
|
)
|
|
(6
|
)
|
Net amount recognized in the consolidated
balance sheets
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
Amounts recognized in accumulated other
comprehensive loss consist of the following:
|
|
|
|
|
|
Gain, net of prior service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Net gain recognized in accumulated other
comprehensive loss
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
Pension Benefits
|
Amounts expected to be amortized from
accumulated other comprehensive loss in the
next fiscal year:
|
|
Net loss
|
$
|
1
|
|
Amounts expected to be amortized from accumulated other comprehensive loss in the next fiscal year for other postretirement benefits are expected to be de minimis.
Weighted average assumptions used to determine benefit obligations as of period-end and net pension costs for the last three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2019
|
|
2018
|
|
2017
|
Benefit obligation:
|
|
|
|
|
|
Discount rate
|
3.50
|
%
|
|
4.35
|
%
|
|
3.70
|
%
|
Annual compensation increase
|
3.60
|
%
|
|
3.60
|
%
|
|
3.60
|
%
|
Net cost:
|
|
|
|
|
|
Discount rate
|
4.35
|
%
|
|
3.70
|
%
|
|
4.25
|
%
|
Expected return on plan assets
|
6.00
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
Annual compensation increase
|
3.60
|
%
|
|
3.60
|
%
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans
|
|
2019
|
|
2018
|
|
2017
|
Benefit obligation—discount rate
|
3.50
|
%
|
|
4.35
|
%
|
|
3.70
|
%
|
Net cost—discount rate
|
4.35
|
%
|
|
3.70
|
%
|
|
4.25
|
%
|
The measurement date for the defined benefit and other postretirement benefit plans was December 31 for fiscal years 2019, 2018 and 2017. 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, 2019 are based on the Pri-2012 base mortality table with the MP-2019 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. The assumed healthcare trend rates for the last three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Immediate rate
|
5.90
|
%
|
|
6.30
|
%
|
|
6.70
|
%
|
Ultimate trend rate
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year the rate reaches the ultimate trend rate
|
2037
|
|
|
2037
|
|
|
2037
|
|
A hypothetical 1% change in the rate would result in a change to the postretirement medical plan obligation of less than $1 million. Retirees covered under these plans are responsible for the cost of coverage in excess of the subsidy, including all future cost increases.
In determining the discount rate, the Company determines the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments, for which the timing and amount of cash outflows approximates the estimated pension plan payouts. The discount rate assumption is reviewed annually and revised as appropriate.
The expected long-term rate of return on plan assets is derived from a mathematical asset model. This model incorporates assumptions on the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on long-term bonds and the historical returns of the major stock markets. The rate of return assumption is reviewed annually and revised as deemed appropriate.
The investment objective for the Retirement Plan is to provide a common investment platform. Investment consultants, overseen by the US Foods, Inc. Benefits Administration Committee (the "Committee), are expected to adopt and maintain an asset allocation strategy for the plan's assets designed to address the Retirement Plan's liability structure. The Committee has developed an asset allocation policy and rebalancing policy. The Committee reviews the major asset classes, through consultation with its investment consultants, periodically to determine if the plan's assets are performing as expected. The Company’s fiscal year 2019 strategy targeted a mix of 35% equity securities and 65% long-term debt securities and cash equivalents. The actual mix of investments as of December 28, 2019 was 34% equity securities and 66% long-term debt securities and cash equivalents. The Committee plans to manage the actual mix of investments to achieve its target mix.
The following table sets forth the fair value of our defined benefit plans’ assets by asset fair value hierarchy level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Fair Value as of December 28, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Equities:
|
|
|
|
|
|
|
|
Domestic
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
International
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Mutual fund:
|
|
|
|
|
|
|
|
International equities
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Long-term debt securities:
|
|
|
|
|
|
|
|
Corporate debt securities:
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
|
248
|
|
|
—
|
|
|
248
|
|
International
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
U.S. government securities
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Other
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
$
|
77
|
|
|
$
|
294
|
|
|
$
|
—
|
|
|
371
|
|
Common collective trust funds:
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
16
|
|
Domestic equities
|
|
|
|
|
|
|
193
|
|
International equities
|
|
|
|
|
|
|
50
|
|
Treasury STRIPS
|
|
|
|
|
|
|
293
|
|
Total investments measured at net asset value
as a practical expedient
|
|
|
|
|
|
|
552
|
|
Total defined benefit plans’ assets
|
|
|
|
|
|
|
$
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Fair Value as of December 29, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Equities:
|
|
|
|
|
|
|
|
Domestic
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
International
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Mutual fund:
|
|
|
|
|
|
|
|
International equities
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Long-term debt securities:
|
|
|
|
|
|
|
|
Corporate debt securities:
|
|
|
|
|
|
|
|
Domestic
|
—
|
|
|
236
|
|
|
—
|
|
|
236
|
|
International
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
U.S. government securities
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Other
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
$
|
61
|
|
|
$
|
279
|
|
|
$
|
—
|
|
|
340
|
|
Common collective trust funds:
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
9
|
|
Domestic equities
|
|
|
|
|
|
|
156
|
|
International equities
|
|
|
|
|
|
|
40
|
|
Treasury STRIPS
|
|
|
|
|
|
|
291
|
|
Total investments measured at net asset value
as a practical expedient
|
|
|
|
|
|
|
496
|
|
Total defined benefit plans’ assets
|
|
|
|
|
|
|
$
|
836
|
|
A description of the valuation methodologies used for assets measured at fair value is as follows:
|
|
•
|
Cash and cash equivalents are valued at original cost plus accrued interest.
|
|
|
•
|
Equities are valued at the closing price reported on the active market on which individual securities are traded.
|
|
|
•
|
Mutual funds are valued at the closing price reported on the active market on which individual funds are traded.
|
|
|
•
|
Long-term debt securities are valued at the estimated price a dealer will pay for the individual securities.
|
|
|
•
|
Common collective trust funds are measured at the net asset value as of the December 31, 2019 and 2018 measurement dates. This class represents investments in common collective trust funds that invest in:
|
|
|
◦
|
Equity securities, which may include common stocks, options and futures in actively managed funds; and
|
|
|
◦
|
Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) representing zero coupon Treasury securities with long-term maturities.
|
Estimated future benefit payments, under Company sponsored plans as of December 28, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Plans
|
2020
|
$
|
52
|
|
|
$
|
1
|
|
2021
|
50
|
|
|
1
|
|
2022
|
48
|
|
|
1
|
|
2023
|
45
|
|
|
1
|
|
2024
|
43
|
|
|
1
|
|
Subsequent five years
|
220
|
|
|
2
|
|
The Company does not expect to make a significant contribution to the Retirement Plans in fiscal year 2020.
Other Company Sponsored Benefit Plans—Certain employees are eligible to participate in the Company's 401(k) savings plan. The Company made employer matching contributions to the 401(k) plan of $51 million, $47 million and $46 million for fiscal years 2019, 2018 and 2017, respectively.
Multiemployer Pension Plans—The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreement ("CBAs") that cover certain of its union-represented employees. These plans are jointly administered by trustees for participating employers and the applicable unions.
The risks of participating in multiemployer pension plans differ from traditional single-employer defined benefit plans as follows:
|
|
•
|
Assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to the employees of other participating employers.
|
|
|
•
|
If a participating employer stops contributing to a multiemployer pension plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
|
•
|
If the Company elects to stop participation in a multiemployer pension plan, or if the number of the Company’s employees participating in a plan is reduced to a certain degree over certain periods of time, the Company may be required to pay a withdrawal liability based upon the underfunded status of the plan.
|
The Company’s participation in multiemployer pension plans for the fiscal year ended December 28, 2019 is outlined in the tables below. The Company considers significant plans to be those plans to which the Company contributed more than 5% of total contributions to the plan in a given plan year, or for which the Company believes its estimated withdrawal liability, should it decide to voluntarily withdraw from the plan, may be material to the Company. For each plan that is considered individually significant to the Company, the following information is provided:
|
|
•
|
The EIN/Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number assigned to a plan by the Internal Revenue Service.
|
|
|
•
|
The most recent Pension Protection Act (“PPA”) zone status available for fiscal years 2019 and 2018 is for the plan years beginning in 2018 and 2017, respectively. The zone status is based on information provided to participating employers by each plan and is certified by the plan’s actuary. A plan in the red zone has been determined to be in critical status, or critical and declining status, based on criteria established under the Internal Revenue Code (the “Code”), and is generally less than 65% funded. Plans are generally considered “critical and declining” if they are projected to become insolvent within 20 years. A plan in the yellow zone has been determined to be in endangered status, based on criteria established under the Code, and
|
is generally less than 80% but more than 65% funded. A plan in the green zone has been determined to be neither in critical status nor in endangered status, and is generally at least 80% funded.
|
|
•
|
The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. In addition to regular plan contributions, participating employers may be subject to a surcharge if the plan is in the red zone.
|
|
|
•
|
The Surcharge Imposed column indicates whether a surcharge has been imposed on participating employers contributing to the plan.
|
|
|
•
|
The Expiration Dates column indicates the expiration dates of the CBAs to which the plans are subject.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/
Plan Number
|
|
PPA
Zone Status
|
|
FIP/RP Status
Pending/
Implemented
|
|
Surcharge
Imposed
|
|
Expiration Dates
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Minneapolis Food Distributing
Industry Pension Plan
|
|
41-6047047/001
|
|
Green
|
|
Green
|
|
N/A
|
|
No
|
|
04/01/21
|
Teamster Pension Trust Fund of
Philadelphia and Vicinity
|
|
23-1511735/001
|
|
Yellow
|
|
Yellow
|
|
Implemented
|
|
No
|
|
2/13/22
|
Local 703 I.B. of T. Grocery and
Food Employees’ Pension Plan
|
|
36-6491473/001
|
|
Green
|
|
Green
|
|
N/A
|
|
No
|
|
6/30/21
|
United Teamsters Trust Fund A
|
|
13-5660513/001
|
|
Yellow
|
|
Yellow
|
|
Implemented
|
|
No
|
|
5/30/22
|
Warehouse Employees Local
169 and Employers Joint
Pension Fund(1)
|
|
23-6230368/001
|
|
Red
|
|
Red
|
|
Implemented
|
|
No
|
|
2/13/22
|
|
|
(1)
|
Local 169 filed a Notice of Critical and Declining Status in 2017.
|
The following table provides information about the Company’s contributions to its multiemployer pension plans. For plans that are not individually significant to the Company, the total amount of the Company's contributions is aggregated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions(1)(2)
|
|
Contributions That
Exceed 5% of
Total Plan Contributions(3)
|
|
2019
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Pension Fund
|
|
|
|
|
|
|
|
|
|
Minneapolis Food Distributing Industry Pension Plan
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
Yes
|
|
|
Yes
|
|
Teamster Pension Trust Fund of Philadelphia and Vicinity
|
4
|
|
|
4
|
|
|
4
|
|
|
No
|
|
|
No
|
|
Local 703 I.B. of T. Grocery and Food Employees’
Pension Plan
|
2
|
|
|
2
|
|
|
1
|
|
|
Yes
|
|
|
Yes
|
|
United Teamsters Trust Fund A
|
2
|
|
|
2
|
|
|
2
|
|
|
Yes
|
|
|
Yes
|
|
Warehouse Employees Local 169 and Employers
Joint Pension Fund
|
1
|
|
|
1
|
|
|
1
|
|
|
Yes
|
|
|
Yes
|
|
Other funds
|
24
|
|
|
21
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
$
|
38
|
|
|
$
|
35
|
|
|
$
|
34
|
|
|
|
|
|
|
|
(1)
|
Contributions made to these plans during the Company’s fiscal year, which may not coincide with the plans’ respective fiscal years.
|
|
|
(2)
|
Contributions do not include payments related to multiemployer pension plan withdrawals/settlements.
|
|
|
(3)
|
Indicates whether the Company was listed in the respective multiemployer pension plan Form 5500 for the applicable plan year as having made more than 5% of total contributions to the plan.
|
If the Company elects to voluntarily withdraw from a multiemployer pension plan, it may be responsible for its proportionate share of the respective plan’s unfunded vested liability. Based on the latest information available from plan administrators, the Company estimates its aggregate withdrawal liability from the multiemployer pension plans in which it participates to be approximately $120 million as of December 28, 2019. Actual withdrawal liabilities incurred by the Company, if it were to withdraw from one or
more plans, could be materially different from the estimates noted here, based on better or more timely information from plan administrators or other changes affecting the respective plans' funded status.
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share. Basic EPS is computed by dividing net income available to common stockholders 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. Stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals are considered potentially dilutive securities.
The following table sets forth the computation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
385
|
|
|
$
|
407
|
|
|
$
|
444
|
|
Denominator:
|
|
|
|
|
|
Weighted-average common shares outstanding
|
218
|
|
|
216
|
|
|
223
|
|
Dilutive effect of share-based awards
|
2
|
|
|
2
|
|
|
3
|
|
Weighted-average dilutive shares outstanding
|
220
|
|
|
218
|
|
|
226
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
$
|
1.77
|
|
|
$
|
1.88
|
|
|
$
|
2.00
|
|
Diluted
|
$
|
1.75
|
|
|
$
|
1.87
|
|
|
$
|
1.97
|
|
|
|
20.
|
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS
|
The following table presents changes in accumulated other comprehensive loss, by component, for the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Accumulated other comprehensive loss components
|
|
|
|
|
|
Retirement benefit obligations:
|
|
|
|
|
|
Balance as of beginning of year (1)
|
$
|
(97
|
)
|
|
$
|
(103
|
)
|
|
$
|
(119
|
)
|
Other comprehensive (loss) income before reclassifications
|
44
|
|
|
6
|
|
|
1
|
|
Reclassification adjustments:
|
|
|
|
|
|
Amortization of net loss (2) (3)
|
4
|
|
|
3
|
|
|
4
|
|
Settlements (2) (3)
|
12
|
|
|
—
|
|
|
18
|
|
Total before income tax
|
60
|
|
|
9
|
|
|
22
|
|
Income tax provision
|
15
|
|
|
3
|
|
|
6
|
|
Current year comprehensive income (loss), net of tax
|
45
|
|
|
6
|
|
|
16
|
|
Balance as of end of year (1)
|
$
|
(52
|
)
|
|
$
|
(97
|
)
|
|
$
|
(103
|
)
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
Balance as of beginning of year (1)
|
$
|
13
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Change in fair value of interest rate swaps
|
(14
|
)
|
|
10
|
|
|
11
|
|
Amounts reclassified to interest expense
|
(6
|
)
|
|
(3
|
)
|
|
2
|
|
Total before income tax
|
(20
|
)
|
|
7
|
|
|
13
|
|
Income tax (benefit) provision
|
(5
|
)
|
|
2
|
|
|
5
|
|
Current year comprehensive income, net of tax
|
(15
|
)
|
|
5
|
|
|
8
|
|
Balance as of end of year (1)
|
$
|
(2
|
)
|
|
$
|
13
|
|
|
$
|
8
|
|
Accumulated other comprehensive loss as of end of year(1)
|
$
|
(54
|
)
|
|
$
|
(84
|
)
|
|
$
|
(95
|
)
|
|
|
(1)
|
Amounts are presented net of tax.
|
|
|
(2)
|
Included in the computation of net periodic benefit costs. See Note 18, Retirement Plans, for additional information.
|
|
|
(3)
|
Included in other expense (income)—net in the Company's Consolidated Statements of Comprehensive Income.
|
The income tax provision (benefit) for the fiscal years 2019, 2018 and 2017 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
102
|
|
|
$
|
32
|
|
|
$
|
74
|
|
State
|
17
|
|
|
12
|
|
|
9
|
|
Current income tax provision
|
119
|
|
|
44
|
|
|
83
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(6
|
)
|
|
31
|
|
|
(133
|
)
|
State
|
13
|
|
|
14
|
|
|
10
|
|
Deferred income tax provision (benefit)
|
7
|
|
|
45
|
|
|
(123
|
)
|
Total income tax provision (benefit)
|
$
|
126
|
|
|
$
|
89
|
|
|
$
|
(40
|
)
|
The Company’s effective income tax rates for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017 were 25.0%, 18.0% and (10.0)%, respectively. The determination of the Company’s overall effective income tax rate requires the use of estimates. The effective income tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative income in each jurisdiction. 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 from continuing operations at the U.S. federal statutory income tax rate (21% in both 2019 and 2018, and 35% in 2017) to the Company’s income tax provision (benefit) for the fiscal years 2019, 2018 and 2017 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Federal income taxes computed at statutory rate
|
$
|
107
|
|
|
$
|
104
|
|
|
$
|
141
|
|
State income taxes, net of federal income tax benefit
|
24
|
|
|
20
|
|
|
16
|
|
Stock-based compensation
|
(4
|
)
|
|
(6
|
)
|
|
(26
|
)
|
Non-deductible expenses
|
4
|
|
|
3
|
|
|
5
|
|
Change in the valuation allowance for deferred tax assets
|
6
|
|
|
1
|
|
|
(1
|
)
|
Net operating loss expirations
|
—
|
|
|
3
|
|
|
1
|
|
Tax credits
|
(10
|
)
|
|
(6
|
)
|
|
(3
|
)
|
Change in unrecognized tax benefits
|
(1
|
)
|
|
(21
|
)
|
|
(1
|
)
|
Change in U.S. federal statutory tax rate
|
—
|
|
|
(8
|
)
|
|
(173
|
)
|
Other
|
—
|
|
|
(1
|
)
|
|
1
|
|
Total income tax provision (benefit)
|
$
|
126
|
|
|
$
|
89
|
|
|
$
|
(40
|
)
|
Temporary differences and carryforwards that created significant deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
Deferred tax assets:
|
|
|
|
Operating lease liabilities
|
$
|
38
|
|
|
$
|
—
|
|
Workers’ compensation, general and fleet liabilities
|
36
|
|
|
40
|
|
Financing lease and other long term liabilities
|
90
|
|
|
—
|
|
Net operating loss carryforwards
|
64
|
|
|
73
|
|
Other deferred tax assets
|
63
|
|
|
48
|
|
Total gross deferred tax assets
|
291
|
|
|
161
|
|
Less valuation allowance
|
(36
|
)
|
|
(30
|
)
|
Total net deferred tax assets
|
255
|
|
|
131
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment
|
(221
|
)
|
|
(121
|
)
|
Operating lease assets
|
(37
|
)
|
|
—
|
|
Inventories
|
(35
|
)
|
|
(39
|
)
|
Intangibles
|
(259
|
)
|
|
(262
|
)
|
Other deferred tax liabilities
|
(11
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(563
|
)
|
|
(422
|
)
|
Net deferred tax liability
|
$
|
(308
|
)
|
|
$
|
(291
|
)
|
The net deferred tax liabilities presented in the Company's Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
Noncurrent deferred tax assets
|
$
|
—
|
|
|
$
|
7
|
|
Noncurrent deferred tax liability
|
(308
|
)
|
|
(298
|
)
|
Net deferred tax liability
|
$
|
(308
|
)
|
|
$
|
(291
|
)
|
The Company had tax affected state net operating loss carryforwards of $64 million as of December 28, 2019, which will expire at various dates from 2020 to 2039. The Company’s net operating loss carryforwards expire as follows:
|
|
|
|
|
|
State
|
2020-2024
|
$
|
32
|
|
2025-2029
|
20
|
|
2030-2034
|
8
|
|
2035-2039
|
4
|
|
|
$
|
64
|
|
The Company also has state credit carryforwards of $20 million.
The U.S. federal and state net operating loss carryforwards in the income tax returns filed included unrecognized tax benefits taken in prior years. The net operating losses for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740, Income Taxes, are presented net of these unrecognized tax benefits.
Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s domestic net operating losses and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.
The Company maintained a valuation allowance on certain state net operating loss and tax credit carryforwards expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or the utilization of which is subject to limitation.
A summary of the activity in the valuation allowance for the fiscal years 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance as of beginning of year
|
$
|
30
|
|
|
$
|
29
|
|
|
24
|
|
Expense recognized
|
6
|
|
|
1
|
|
|
5
|
|
Balance as of end of year
|
$
|
36
|
|
|
$
|
30
|
|
|
$
|
29
|
|
The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations in U.S. federal and state jurisdictions. The Company (1) records unrecognized tax benefits as liabilities in accordance with ASC 740, Income Taxes and (2) adjusts these liabilities when the Company’s judgment changes because of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of liabilities for unrecognized tax benefits. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. The Company recognizes an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits.
Reconciliation of the beginning and ending amount of unrecognized tax benefits as of fiscal years 2019, 2018, and 2017 was as follows:
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
49
|
|
Gross increases due to positions taken in prior years
|
72
|
|
Gross decreases due to positions taken in prior years
|
(4
|
)
|
Gross decreases due to positions taken in current year
|
(5
|
)
|
Decreases due to changes in tax rates
|
(4
|
)
|
Balance as of December 30, 2017
|
108
|
|
Gross increases due to positions taken in prior years
|
2
|
|
Gross decreases due to positions taken in prior years
|
(64
|
)
|
Decreases due to lapses of statute of limitations
|
(1
|
)
|
Decreases due to changes in tax rates
|
(5
|
)
|
Balance as of December 29, 2018
|
40
|
|
Decreases due to lapses of statute of limitations
|
(1
|
)
|
Balance as of December 28, 2019
|
$
|
39
|
|
The Company does not expect the liability for unrecognized tax benefits to change significantly in the next 12 months.
Included in the balance of unrecognized tax benefits as of the end of fiscal years 2019, 2018 and 2017 was $35 million, $36 million and $60 million, respectively, of tax benefits that, if recognized, would affect the effective income tax rate. 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 $5 million as of both December 28, 2019 and December 29, 2018.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. Our 2007 through 2018 U.S. federal income tax years, and various state income tax years from 2000 through 2018, remain subject to income tax examinations by the relevant taxing authorities. Prior to 2007, the Company was owned by Royal Ahold N.V. (“Ahold”). Ahold indemnified the Company for 2007 pre-closing consolidated U.S. federal and certain combined state income taxes, and the Company is responsible for all other taxes, interest and penalties.
|
|
22.
|
COMMITMENTS AND CONTINGENCIES
|
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 $916 million of purchase orders and purchase contract commitments as of December 28, 2019 to be purchased in fiscal year 2020 and $75 million of information technology commitments through May 2024 that are not recorded in the Company's Consolidated Balance Sheets.
To minimize fuel cost 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 $96 million through April 2021, as of December 28, 2019. Additionally, the Company had electricity forward purchase commitments totaling $5 million through December 2021, as of December 28, 2019. 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.
Legal Proceedings—The Company is subject to a number of legal proceedings arising in the normal course of business. These legal proceedings, whether pending, threatened or unasserted, if decided adversely to or settled by the Company, may result in liabilities material to its financial position, results of operations, or cash flows. The Company has recognized provisions with respect to the proceedings, where appropriate, in its Consolidated Balance Sheets. It is possible that the Company could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated. However, the Company believes that the ultimate resolution of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
|
|
23.
|
US FOODS HOLDING CORP. CONDENSED FINANCIAL INFORMATION
|
These condensed parent company financial statements should be read in conjunction with the Company's consolidated financial statements. Under terms of the agreements governing its indebtedness, the net assets of USF are restricted from being transferred to US Foods in the form of loans, advances or dividends with the exception of income tax payments, share-based compensation settlements and minor administrative costs. USF had $1.3 billion of restricted payment capacity under these covenants, and approximately $2.4 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 December 28, 2019. See Note 16, Share-Based Compensation, Common Stock Issuances and Common Stock, for a discussion of the Company’s equity-related transactions. In the condensed parent company financial statements below, the investment in the operating subsidiary, USF, is accounted for using the equity method.
Condensed Parent Company Balance Sheets
(In millions, except par value)
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
December 29, 2018
|
ASSETS
|
|
|
|
Investment in subsidiary
|
$
|
3,715
|
|
|
$
|
3,235
|
|
Total assets
|
$
|
3,715
|
|
|
$
|
3,235
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Deferred tax liabilities
|
$
|
1
|
|
|
$
|
1
|
|
Other liabilities
|
5
|
|
|
5
|
|
Total liabilities
|
6
|
|
|
6
|
|
Commitments and Contingencies (Note 22)
|
|
|
|
Shareholders’ Equity
|
|
|
|
Common stock, $0.01 par value—600 shares authorized;
220 and 217 issued and outstanding as of
December 28, 2019 and December 29, 2018, respectively
|
2
|
|
|
2
|
|
Additional paid-in capital
|
2,845
|
|
|
2,780
|
|
Retained earnings
|
916
|
|
|
531
|
|
Accumulated other comprehensive loss
|
(54
|
)
|
|
(84
|
)
|
Total shareholders’ equity
|
3,709
|
|
|
3,229
|
|
Total liabilities and equity
|
$
|
3,715
|
|
|
$
|
3,235
|
|
Condensed Parent Company Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
December 28, 2019
|
|
December 29, 2018
|
|
December 30, 2017
|
Loss before income taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Income tax benefit
|
—
|
|
|
(31
|
)
|
|
(5
|
)
|
Income before equity in net earnings of subsidiary
|
—
|
|
|
31
|
|
|
5
|
|
Equity in net earnings of subsidiary
|
385
|
|
|
376
|
|
|
439
|
|
Net income
|
385
|
|
|
407
|
|
|
444
|
|
Other comprehensive income—net of tax:
|
|
|
|
|
|
Changes in retirement benefit obligations
|
45
|
|
|
6
|
|
|
16
|
|
Unrecognized gain on interest rate swaps
|
(15
|
)
|
|
5
|
|
|
8
|
|
Comprehensive income
|
$
|
415
|
|
|
$
|
418
|
|
|
$
|
468
|
|
Condensed Parent Company Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
December 28, 2019
|
|
December 29, 2018
|
|
December 30, 2017
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
385
|
|
|
$
|
407
|
|
|
$
|
444
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Equity in net earnings of subsidiary
|
(385
|
)
|
|
(376
|
)
|
|
(439
|
)
|
Deferred income tax benefit
|
—
|
|
|
(23
|
)
|
|
(77
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Decrease in other assets
|
—
|
|
|
—
|
|
|
1
|
|
(Decrease) increase in accrued expenses and other liabilities
|
—
|
|
|
(8
|
)
|
|
71
|
|
Net cash used in operating activities
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Cash distribution from subsidiary
|
—
|
|
|
—
|
|
|
280
|
|
Net cash provided by investing activities
|
—
|
|
|
—
|
|
|
280
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Common stock repurchased
|
—
|
|
|
—
|
|
|
(280
|
)
|
Net cash used in financing activities
|
—
|
|
|
—
|
|
|
(280
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
—
|
|
|
—
|
|
|
—
|
|
Cash, cash equivalents and restricted cash—beginning of year
|
—
|
|
|
—
|
|
|
—
|
|
Cash, cash equivalents and restricted cash—end of year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
24.
|
QUARTERLY FINANCIAL INFORMATION (Unaudited)
|
Financial information for each quarter in the fiscal years ended December 28, 2019 and December 29, 2018, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal Year
|
Fiscal Year Ended December 28, 2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
6,031
|
|
|
$
|
6,443
|
|
|
$
|
6,531
|
|
|
$
|
6,934
|
|
|
$
|
25,939
|
|
Cost of goods sold
|
4,979
|
|
|
5,301
|
|
|
5,375
|
|
|
5,697
|
|
|
21,352
|
|
Gross profit
|
1,052
|
|
|
1,142
|
|
|
1,156
|
|
|
1,237
|
|
|
4,587
|
|
Operating expenses
|
921
|
|
|
948
|
|
|
968
|
|
|
1,051
|
|
|
3,888
|
|
Other (income) expense—net
|
(2
|
)
|
|
(2
|
)
|
|
1
|
|
|
7
|
|
|
4
|
|
Interest expense—net
|
42
|
|
|
42
|
|
|
43
|
|
|
57
|
|
|
184
|
|
Income before income taxes
|
91
|
|
|
154
|
|
|
144
|
|
|
122
|
|
|
511
|
|
Income tax provision
|
20
|
|
|
38
|
|
|
39
|
|
|
29
|
|
|
126
|
|
Income from continuing operations
|
71
|
|
|
116
|
|
|
105
|
|
|
93
|
|
|
385
|
|
Income (loss) from discontinued operations—net of tax
|
—
|
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
Net income
|
$
|
71
|
|
|
$
|
116
|
|
|
$
|
106
|
|
|
$
|
92
|
|
|
$
|
385
|
|
Net income per share—basic:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.33
|
|
|
$
|
0.53
|
|
|
$
|
0.48
|
|
|
$
|
0.43
|
|
|
$
|
1.77
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
0.01
|
|
|
(0.01
|
)
|
|
—
|
|
Net income per share
|
$
|
0.33
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
$
|
0.42
|
|
|
$
|
1.77
|
|
Net income per share—diluted:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.32
|
|
|
$
|
0.53
|
|
|
$
|
0.47
|
|
|
$
|
0.43
|
|
|
$
|
1.75
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
0.01
|
|
|
(0.01
|
)
|
|
—
|
|
Net income per share
|
$
|
0.32
|
|
|
$
|
0.53
|
|
|
$
|
0.48
|
|
|
$
|
0.42
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 29, 2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
5,823
|
|
|
$
|
6,158
|
|
|
6,153
|
|
|
$
|
6,041
|
|
|
$
|
24,175
|
|
Cost of goods sold
|
4,831
|
|
|
5,044
|
|
|
5,045
|
|
|
4,949
|
|
|
19,869
|
|
Gross profit
|
992
|
|
|
1,114
|
|
|
1,108
|
|
|
1,092
|
|
|
4,306
|
|
Operating expenses
|
889
|
|
|
908
|
|
|
929
|
|
|
922
|
|
|
3,648
|
|
Other income—net
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(4
|
)
|
|
(13
|
)
|
Interest expense—net
|
43
|
|
|
48
|
|
|
42
|
|
|
42
|
|
|
175
|
|
Income before income taxes
|
63
|
|
|
161
|
|
|
140
|
|
|
132
|
|
|
496
|
|
Income tax (benefit) provision
|
(4
|
)
|
|
35
|
|
|
26
|
|
|
32
|
|
|
89
|
|
Income from continuing operations
|
67
|
|
|
126
|
|
|
114
|
|
|
100
|
|
|
407
|
|
Income from discontinued operations—net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income
|
$
|
67
|
|
|
$
|
126
|
|
|
$
|
114
|
|
|
$
|
100
|
|
|
$
|
407
|
|
Net income per share—basic:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.31
|
|
|
$
|
0.58
|
|
|
$
|
0.53
|
|
|
$
|
0.46
|
|
|
$
|
1.88
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income per share
|
$
|
0.31
|
|
|
$
|
0.58
|
|
|
$
|
0.53
|
|
|
$
|
0.46
|
|
|
$
|
1.88
|
|
Net income per share—diluted:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.31
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
|
$
|
0.46
|
|
|
$
|
1.87
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income per share
|
$
|
0.31
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
|
$
|
0.46
|
|
|
$
|
1.87
|
|
|
|
(1)
|
The quarterly net income per share information is computed separately for each period. Therefore, the sum of such quarterly per share amounts may differ from the total year.
|
The Company’s consolidated results represent the results of its one business segment based on how the Company’s chief operating decision maker, the Chief Executive Officer, views the business for purposes of evaluating performance and making operating decisions.
The Company markets and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the U.S. The Company uses a centralized management structure, and its strategies and initiatives are implemented and executed consistently across the organization to maximize value to the organization as a whole. The Company uses shared resources for sales, procurement, and general and administrative activities across each of its distribution facilities and operations. The Company’s distribution facilities form a single network to reach its customers; it is common for a single customer to make purchases from several different distribution facilities. 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 for fiscal years 2019, 2018 and 2017. However, customers who are members of one group purchasing organization accounted, in the aggregate, for approximately 13% of the Company's consolidated net sales in fiscal years 2019, 2018, and 2017.