☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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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. Fiscal year 2020 is a 53-week fiscal year. Fiscal year 2019 was a 52-week fiscal year.

The consolidated financial statements included in this Quarterly Report have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures included in this Quarterly Report are adequate to make the information presented not misleading. These interim consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the 2019 Annual Report.

The consolidated interim financial statements reflect all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results that might be achieved for the full fiscal year.

2.	RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04-Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is currently effective prospectively for all entities through December 31, 2022 when the reference rate replacement activity is expected to have completed. The Company adopted the provisions of this standard on a prospective basis at the beginning of the second quarter of fiscal year 2020 with no impact to the Company’s 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. 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 entities to consider additional disclosures 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. The Company adopted the provisions of this standard on a modified retrospective basis at the beginning of fiscal year 2020, which resulted in the recording of a cumulative-effect adjustment to retained earnings of $1 million. The adoption of the provision of the new standard did not materially affect the Company's

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financial position or results of operations. See Note 7, Allowance For Doubtful Accounts, for further discussion over the Company's allowance for doubtful accounts.     

Recently Issued Accounting Pronouncements

3.	REVENUE RECOGNITION

The Company recognizes revenue when the performance obligation is satisfied, which occurs when a customer obtains control of the promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services. The Company generates substantially all of its revenue from the distribution and sale of food and food-related products and recognizes revenue when title and risk of loss passes and the customer accepts the goods, which occurs at delivery. Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of revenue at the time the revenue is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales. Shipping and handling costs are treated as fulfillment costs and included in distribution, selling and administrative costs.

The Company did not have any material outstanding performance obligations, contract liabilities or capitalized contract acquisition costs as of June 27, 2020 and December 28, 2019. Customer receivables, which are included in accounts receivable, less allowances in the Company’s Consolidated Balance Sheets, were $1.1 billion and $1.5 billion as of June 27, 2020 and December 28, 2019, 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 $29 million and $35 million included in prepaid expenses in the Company’s Consolidated Balance Sheets as of June 27, 2020 and December 28, 2019, respectively, and $34 million and $39 million included in other assets in the Company’s Consolidated Balance Sheets as of June 27, 2020 and December 28, 2019, respectively.

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

	13 Weeks Ended								26 Weeks Ended
	June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Meats and seafood	$	1,694			$	2,340			$	3,920			$	4,497
Dry grocery products	782				1,094				1,874				2,154
Refrigerated and frozen grocery products	688				1,034				1,735				2,022
Dairy	454				661				1,102				1,266
Equipment, disposables and supplies	501				618				1,130				1,194
Beverage products	223				348				567				677
Produce	218				348				571				664
Net sales	$	4,560			$	6,443			$	10,899			$	12,474

4.	BUSINESS ACQUISITIONS

Smart Foodservice Acquisition—On April 24, 2020, USF completed the acquisition of Smart Stores Holding Corp., a Delaware corporation (“Smart Foodservice”), from funds managed by affiliates of Apollo Global Management, Inc. Total consideration paid at the closing of the acquisition (net of cash acquired) was $973 million, and is subject to certain customary post-closing adjustments. Smart Foodservice operates 70 small-format cash and carry stores across California, Idaho, Nevada, Montana, Oregon, Washington and Utah that serve small and mid-sized restaurants and other food business customers. The acquisition of Smart Foodservice expands the Company’s cash and carry business into the West and Northwest parts of the U.S.

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

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

		Preliminary Purchase Price Allocation
Accounts receivable		$	5
Inventories		43
Other current assets		20
Property and equipment		80
Goodwill(1)		898
Other intangibles(2)		14
Other assets		145
Accounts payable		(39		)
Accrued expenses and other current liabilities		(32		)
Deferred income taxes		(12		)
Other long-term liabilities, including financing leases		(149		)
Cash paid for acquisition		$	973

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

(2)	Other intangibles consist of a trade name of $14 million with an estimated useful life of 1.5 years.

Net sales and net income for Smart Foodservice, which have been included in the Company’s Consolidated Statements of Comprehensive Income since the date the acquisition was completed, were $208 million and $11 million, respectively, during both the 13 weeks and 26 weeks ended June 27, 2020.

Smart Foodservice acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $10 million and $20 million for the 13 weeks and 26 weeks ended June 27, 2020, respectively.

Food Group Acquisition—On September 13, 2019, USF completed the $1.8 billion acquisition of five foodservice companies (the “Food Group”) from Services Group of America, Inc.: Food Services of America, Inc., Systems Services of America, Inc., Amerifresh, Inc., Ameristar Meats, Inc. and GAMPAC Express, Inc.

USF financed the acquisition with a new $1.5 billion incremental senior secured term loan facility under its existing term loan credit agreement, 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").

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The following table summarizes the preliminary Food Group 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 second quarter of fiscal year 2020, 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.

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

    

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

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

Food Group acquisition and integration related costs included in distribution, selling and administrative costs in the Company’s Consolidated Statements of Comprehensive Income were $4 million and $8 million for the 13 weeks ended June 27, 2020 and June 29, 2019, respectively, and $19 million and $18 million for the 26 weeks ended June 27, 2020 and June 29, 2019, respectively.

Pro Forma Financial Information—The following table presents the Company’s unaudited pro forma consolidated net sales, net income and earnings per share (“EPS”) for the 13 weeks and 26 weeks ended June 27, 2020 and June 29, 2019. The unaudited pro forma financial information presents the combined results of operations as if the acquisitions and related financings of Smart Foodservice and the Food Group had occurred as of December 30, 2018 and December 31, 2017, respectively, which dates represent the first day of the Company’s fiscal year prior to their respective acquisition dates.

	13 Weeks Ended								26 Weeks Ended
	June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Pro forma net sales	$	4,647			$	7,484			$	11,272			$	14,436
Pro forma net (loss) income available to common shareholders	$	(95	)		$	132			$	(202	)		$	193
Pro forma net (loss) income per share:
Basic	$	(0.43	)		$	0.61			$	(0.92	)		$	0.89
Diluted	$	(0.43	)		$	0.60			$	(0.92	)		$	0.88

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The unaudited pro forma financial information presented above excludes the results of operations related to the Food Group 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 the 13 weeks and 26 weeks ended June 29, 2019 were as follows:

	13 Weeks Ended				26 Weeks Ended
	June 29, 2019				June 29, 2019
Pro forma net sales	$	135			$	258
Pro forma net income	$	3			$	4
Pro forma net income per share:
Basic	$	0.02			$	0.02
Diluted	$	0.01			$	0.01

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 incremental senior secured term loan facilities and revolving credit facilities used to finance the acquisitions, (4) the elimination of acquisition-related costs that were included in the Company’s historical results, and (5) adjustments to the income tax provision based on pro forma results of operations. No effect has been given to potential synergies, operating efficiencies or costs arising from the integration of Smart Foodservice and the Food Group with our previously existing operations or the standalone cost estimates and estimated costs that were incurred by their former respective parent companies. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the pro forma financial information does not purport to project the Company’s future consolidated results of operations following the acquisitions.

5.	RESTRICTED CASH

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 June 27, 2020 and December 28, 2019 consisted of the following:

	June 27, 2020				December 28, 2019
Cash and cash equivalents	$	1,668			$	90
Restricted cash—included in other assets	8				8
Total cash, cash equivalents and restricted cash	$	1,676			$	98

6.	INVENTORIES

The Company’s inventories, consisting mainly of food and other food-related products, are primarily considered finished goods. Inventory costs include the purchase price of the product, freight costs to deliver it to the Company’s distribution and retail facilities, and depreciation and labor related to processing facilities and equipment, and are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of such goods based upon inventory category, inventory age, specifically identified items, and overall economic conditions.

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7.	ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors. The Company maintains an allowance for doubtful accounts, which is based upon historical experience, future expected losses, as well as specific customer collection issues that have been identified. The Company uses specific criteria to determine uncollectible receivables to be written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due primarily over specified periods.

Recent Events

In March 2020, the World Health Organization characterized a novel strain of coronavirus (“COVID-19”) as a pandemic amidst a rising number of confirmed cases and thousands of deaths worldwide. As of December 28, 2019, the outbreak of COVID-19 had not had a significant impact on our business. However, since mid-March 2020, our business has been significantly impacted. Beginning in mid-March 2020, many countries, including the United States, took steps to restrict travel, temporarily close or enforce capacity restrictions in businesses, schools and other public gathering spaces. Restrictions on public gatherings and attendance at retail or other establishments, including indoor restaurants, and recreational, sporting and other similar venues, continue to evolve and are expected to continue to remain in effect in some capacity for the near-term. It remains unclear when and to what extent the COVID-19 pandemic will fully abate. Since mid-March 2020, the operations of our restaurant, hospitality and education customers (and our operations that are dependent upon these customers) have been significantly disrupted by the spread of COVID-19 and the corresponding sudden and significant decline in consumer demand for food prepared away from home. Due to the impact that the COVID-19 pandemic had on our customers, particularly our restaurant and hospitality customers, we significantly increased our allowance for doubtful accounts by $170 million during the 13 weeks ended March 28, 2020, of which, $75 million was reversed during the 13 weeks ended June 27, 2020 based on better than anticipated collection of our accounts receivable.

A summary of the activity in the allowance for doubtful accounts for the 26 weeks ended June 27, 2020 was as follows:

Balance as of December 28, 2019		$	30
Charged to costs and expenses		106
Adoption of ASU 2016-13		1
Customer accounts written off—net of recoveries		(17		)
Balance as of June 27, 2020		$	120

This table excludes the vendor receivable related allowance for doubtful accounts of $7 million and $4 million as of June 27, 2020 and December 28, 2019, respectively.

8.	FORMER ACCOUNTS RECEIVABLE FINANCING PROGRAM

Pursuant to a since-terminated accounts receivable financing facility (the “ABS Facility”), USF sold, on a revolving basis, eligible receivables to a wholly owned, special purpose, bankruptcy remote subsidiary (the “Receivables Company”). While the ABS Facility was in effect, the Company consolidated the Receivables Company and, consequently, the transfer of the eligible receivables was a transaction internal to the Company, and the eligible receivables held by the Receivables Company were previously not derecognized from the Company’s Consolidated Balance Sheet. Included in the Company’s accounts receivable balance as of December 28, 2019 was approximately $1.0 billion of eligible receivables held by the Receivables Company as collateral in support of amounts borrowed under the ABS Facility. On May 1, 2020, USF repaid all outstanding borrowings under the ABS Facility in full and terminated the ABS Facility, as further discussed in Note 13, Debt, and as a result, the Company's eligible receivables are no longer transferred to or held by the Receivables Company.

9.	ASSETS HELD FOR SALE

The Company classifies its vacant land and 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 while the Company continues to actively market the facilities.

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The change in assets held for sale for the 26 weeks ended June 27, 2020 was as follows:

Balance as of December 28, 2019		$	1
Transfers in		19
Balance as of June 27, 2020		$	20

Land previously held for future use and an excess warehouse facility were transferred to assets held for sale during the 26 weeks ended June 27, 2020. The Company sold the land on June 30, 2020 and received cash proceeds from the sale of $32 million, resulting in a gain on sale of $17 million.

10.	PROPERTY AND EQUIPMENT

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, an amortizable trade name, 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, the amortizable trade name and noncompete agreements are intangible assets with definite lives and are carried at the acquired fair value, less accumulated amortization. Customer relationships, the amortizable trade name and noncompete agreements are amortized over the estimated useful lives (which are 1.5 to 15 years). Amortization expense was $19 million and $10 million for the 13 weeks ended June 27, 2020 and June 29, 2019, respectively and $38 million and $20 million for the 26 weeks ended June 27, 2020 and June 29, 2019, respectively.

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Goodwill and other intangibles—net consisted of the following:  

	June 27, 2020				December 28, 2019
Goodwill	$	5,629			$	4,728
Other intangibles—net
Customer relationships—amortizable:
Gross carrying amount	$	740			$	789
Accumulated amortization	(102		)		(115		)
Net carrying value	638				674
Trade name—amortizable:
Gross carrying amount	$	14			—
Accumulated amortization	(2		)		—
Net carrying value	12				—
Noncompete agreements—amortizable:
Gross carrying amount	3				3
Accumulated amortization	(2		)		(2		)
Net carrying value	1				1
Brand names and trademarks—not amortizing	292				292
Total other intangibles—net	$	943			$	967

The increase in goodwill and the amortizable trade name as of June 27, 2020 is attributable to the Smart Foodservice acquisition, as described in Note 4, Business Acquisitions. The net decrease in the gross carrying amount of customer relationships as of June 27, 2020 is attributable to the write-off of fully amortized intangible assets related to certain 2016 business acquisitions.

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 at 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.

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The Company’s assets and liabilities measured at fair value on a recurring basis as of June 27, 2020 and December 28, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows:

	June 27, 2020
	Level 1				Level 2				Level 3				Total
Assets
Money market funds	$	1,509			$	—			$	—			$	1,509
Liabilities
Interest rate swaps	$	—			$	9			$	—			$	9
	December 28, 2019
	Level 1				Level 2				Level 3				Total
Liabilities
Interest rate swaps	$	—			$	1			$	—			$	1

There were no significant assets or liabilities in the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis for the periods presented above.

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).

USF has entered into four-year interest rate swap agreements expiring July 31, 2021, which 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).

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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 June 27, 2020 and December 28, 2019:

			Fair Value
	Balance Sheet Location		June 27, 2020				December 28, 2019
Derivatives designated as hedging instruments
Interest rate swaps	Accrued expenses and    other current liabilities		$	8			$	—
Interest rate swaps	Other long-term liabilities		1				1
	Total liabilities		$	9			$	1

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 26 weeks ended June 27, 2020 and June 29, 2019:

Derivatives in Cash Flow Hedging Relationships		Amount of Loss Recognized in Accumulated Other Comprehensive Loss, net of tax				Location of Amounts Reclassified from Accumulated Other Comprehensive Loss		Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax
For the 13 weeks ended June 27, 2020
Interest rate swaps		$	(2	)		Interest expense—net		$	2
For the 13 weeks ended June 29, 2019
Interest rate swaps		$	(7	)		Interest expense—net		$	(1	)
For the 26 weeks ended June 27, 2020
Interest rate swaps		$	(8	)		Interest expense—net		$	2
For the 26 weeks ended June 29, 2019
Interest rate swaps		$	(11	)		Interest expense—net		$	(3	)

During the next twelve months, the Company estimates that $8 million 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 $6.0 billion, compared to its carrying value of $6.2 billion as of June 27, 2020. The fair value of the Company’s total debt approximated its carrying value of $4.7 billion as of December 28, 2019.

The fair value of the Company’s 6.25% newly issued senior secured notes due April 15, 2025 (the “Secured Notes”) was $1.0 billion as of June 27, 2020. The fair value of the Company’s 5.875% unsecured Senior Notes due June 15, 2024 (the “Unsecured Senior Notes”), was $589 million and $619 million as of June 27, 2020 and December 28, 2019, respectively. Fair value of both the Secured Notes and the Unsecured Senior Notes is based upon the closing market prices on the respective 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.

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13.	DEBT

Total debt consisted of the following:

Debt Description		Maturity		Interest Rate as of June 27, 2020		June 27, 2020				December 28, 2019
ABL Facility		May 31, 2024		1.43%		$	400			$	—
ABS Facility(1)		—		—		—				190
Initial Term Loan Facility (net of $3 and $4 of unamortized deferred financing costs, respectively)		June 27, 2023		1.92%		2,114				2,125
2019 Incremental Term Loan Facility (net of $33 and $35 of unamortized deferred financing costs, respectively)		September 13, 2026		3.07%		1,460				1,465
2020 Incremental Term Loan Facility (net of $12       of unamortized deferred financing costs)		April 24, 2025		4.25%		288				—
Senior Secured Notes (net of $14 of unamortized       deferred financing costs)		April 15, 2025		6.25%		986				—
Unsecured Senior Notes (net of $4 of unamortized deferred financing costs)		June 15, 2024		5.875%		596				596
Obligations under financing leases		2020–2030		1.63% - 6.17%		362				352
Other debt		2021–2031		3.12% - 4.99%		8				8
Total debt						6,214				4,736
Current portion of long-term debt(2)						(149		)		(142		)
Long-term debt						$	6,065			$	4,594

  

(1)	The ABS Facility was paid in full on May 1, 2020 and subsequently terminated as further discussed below.

(2)	The current portion of long-term debt as of June 27, 2020 and December 28, 2019 for the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility includes five principal payments due to the Company's 53-week fiscal year 2020.

As of June 27, 2020, after considering interest rate swaps that fixed the interest rate on $733 million of principal of the Initial Term Loan Facility described below, approximately 58% of the Company’s total debt bears interest at a floating rate.

ABL Facility

On May 4, 2020, USF entered into an amendment to its asset based senior secured revolving credit facility (the “ABL Facility”). Pursuant to this amendment, the total aggregate amount of commitments under the ABL Facility was increased from $1,600 million to $1,990 million. Extensions of credit under the ABL Facility are subject to availability under a borrowing base comprised of various percentages of the value of eligible accounts receivable, eligible inventory, eligible transportation equipment and certain unrestricted cash and cash equivalents, which, along with other assets, also serve as collateral for borrowings under the ABL Facility. As discussed below, on May 1, 2020 USF terminated the ABS Facility and transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility. This transition increases the size of the borrowing base under the ABL Facility. 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 earlier maturing indebtedness under either USF’s senior secured term loan facility or Unsecured Senior Notes remains outstanding on a date that is sixty (60) days prior to the maturity date for such senior secured term loan facility or Unsecured Senior Notes, respectively.

Borrowings under the ABL Facility bear interest, at USF's periodic election, at a rate equal to the sum of an alternative base rate (“ABR”), as described under the ABL Facility, plus a margin ranging from 0.00% to 0.50%, or the sum of LIBOR plus a margin ranging from 1.00% to 1.50%, in each case based on USF’s excess availability under the ABL Facility. The margin under the ABL Facility as of June 27, 2020 was 0.25% for ABR loans and 1.25% 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.

USF incurred $3 million of third-party costs in connection with the ABL Facility amendment which were capitalized as deferred financing costs. These deferred financing costs, along with $5 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 $400 million of outstanding borrowings, and had issued letters of credit totaling $252 million, under the ABL Facility as of June 27, 2020, Outstanding letters of credit included: (1) $217 million issued in favor of certain commercial insurers to secure USF’s obligations with respect to its self-insurance program, (2) $34 million issued to secure USF’s obligations with respect to

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certain real estate leases, and (3) $1 million issued for other obligations. There was available capacity of $1,275 million under the ABL Facility as of June 27, 2020.

ABS Facility

On May 1, 2020, USF repaid in full all $542 million principal amount of borrowings then outstanding under the ABS Facility using cash on hand and subsequently terminated the ABS Facility. The accounts receivable that secured the ABS Facility were transitioned to the collateral pool that secures the ABL Facility. The Company recorded a debt extinguishment loss of $1.3 million in interest expense, consisting of a write-off of unamortized debt costs associated with the ABS Facility of $1.1 million, as well as $0.2 million of third-party costs associated with the termination of the ABS Facility.

Term Loan Facilities

Under its term loan credit agreement, USF has entered into an initial senior secured term “B” loan facility in an aggregate principal amount of $2.2 billion (the “Initial Term Loan Facility”), an incremental senior secured term “B” loan facility in an aggregate principal amount of $1.5 billion (the “2019 Incremental Term Loan Facility”), and an incremental senior secured term loan facility in an aggregate principal amount of $700 million (the "2020 Incremental Term Loan Facility"). Borrowings under the 2019 Incremental Term Loan Facility were used to pay a portion of the purchase price for the acquisition of the Food Group and related fees and expenses, and borrowings under the 2020 Incremental Term Loan Facility were used to pay a portion of the purchase price for the acquisition of Smart Foodservice and related fees and expenses (see Note 4).

The Initial Term Loan Facility had a carrying value of $2.1 billion, net of $3 million of unamortized deferred financing costs as of June 27, 2020. The table above reflects the interest rate on the unhedged portion of the Initial Term Loan Facility as of June 27, 2020. The effective interest rate of the portion of the Initial Term Loan Facility subject to interest rate hedging agreements was 3.45% as of June 27, 2020. The Initial Term Loan Facility is scheduled to mature on June 27, 2023.

The 2019 Incremental Term Loan Facility entered into to finance a portion of the Food Group acquisition, had a carrying value of $1,460 million, net of $33 million of unamortized deferred financing costs as of June 27, 2020. 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, determined in accordance with the term loan credit agreement, plus a margin of 1.00%. The 2019 Incremental Term Loan Facility is scheduled to mature on September 13, 2026.

On April 24, 2020, USF entered into the “2020 Incremental Term Loan Facility” and used the proceeds to fund, in part, the Smart Foodservice acquisition. On April 28, 2020, USF repaid $400 million of the principal amount of the 2020 Incremental Term Loan Facility with a portion of the proceeds from the senior secured notes offering further discussed below. In connection with the 2020 Incremental Term Loan Facility repayment, the Company applied debt extinguishment accounting and recorded a debt extinguishment loss of $2 million in interest expense, consisting of a write-off of debt issuance costs associated with the $400 million in principal amount of the 2020 Incremental Term Loan Facility that was repaid. Lender fees and third-party costs incurred of $15 million associated with the remaining $300 million in principal amount of the 2020 Incremental Term Loan Facility were capitalized as deferred financing costs and will be amortized through April 24, 2025, which is the 2020 Incremental Term Loan Facility maturity date.

Borrowings under the 2020 Incremental Term Loan Facility will bear interest at a rate per annum equal to, at USF’s option, either LIBOR plus a margin of 3.25% (subject to a LIBOR “floor” of 1.00%), or an alternative base rate plus a margin of 2.25%. The interest rate margins on the 2020 Incremental Term Loan Facility will increase by 0.50% on each of April 28, 2021, April 28, 2022, April 28, 2023 and April 28, 2024, respectively.

USF’s obligations under the Initial Term Loan Facility, the 2019 Incremental Term Loan Facility and the 2020 Incremental Term Loan Facility are guaranteed by certain of USF’s subsidiaries, and those obligations and guarantees are secured by substantially all of the non-real estate assets of USF and the subsidiary guarantors.

Senior Secured Notes

On April 28, 2020, USF completed a private offering of $1.0 billion aggregate principal amount of its 6.25% Secured Notes due April 15, 2025. USF used the net proceeds of the Secured Notes to repay $400 million in principal amount of the 2020 Incremental Term Loan Facility and the balance of the net proceeds has been and will be used for general corporate purposes. The Secured Notes had a carrying value of $986 million, net of $14 million of unamortized deferred financing costs, as of June 27, 2020. The Secured Notes mature April 15, 2025. On or after April 15, 2022, the Secured Notes are redeemable, at USF’s option, in whole or in part at a price of 103.13% of the remaining principal, plus accrued and unpaid interest, if any, to the redemption date. On or after April 15, 2023 and April 15, 2024, the optional redemption price for the Secured Notes declines to 101.56% and 100.00%, respectively, of the remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date.

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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 $1.3 billion of restricted payment capacity under these covenants, and approximately $2.7 billion of its net assets were restricted considering the net deferred tax assets and intercompany balances that eliminate in consolidation as of June 27, 2020.

14.	RESTRUCTURING LIABILITIES

From time to time, the Company may implement initiatives or close or consolidate facilities in an effort to reduce costs and improve operating effectiveness. In connection with these activities, the Company may incur various costs including severance and other employee-related separation costs.

In order to reduce its operating expenses in line with the decrease in sales volume caused by the COVID-19 pandemic, the Company reduced its sales force and incurred a net charge of $16 million for severance and related costs during the 13 weeks ended June 27, 2020.

The following table summarizes the changes in the restructuring liabilities for the 26 weeks ended June 27, 2020:

	Restructuring Liabilities
Balance at December 28, 2019	$	1
Current period charges	16
Payments and usage—net of accretion	(13		)
Balance at June 27, 2020	$	4

15.	LEASES

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 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.

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The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheet as of June 27, 2020 and December 28, 2019:

Leases		Consolidated Balance Sheet Location		June 27, 2020				December 28, 2019
Assets
Operating		Other assets		$	288			$	145
Financing		Property and equipment-net(1)		345				333
Total leased assets				$	633			$	478
Liabilities
Current:
Operating		Accrued expenses and other current liabilities		$	47			$	40
Financing		Current portion of long-term debt		94				95
Noncurrent:
Operating		Other long-term liabilities		252				131
Financing		Long-term debt		268				257
Total lease liabilities				$	661			$	523

(1)	Financing lease assets are recorded net of accumulated amortization of $243 million and $269 million as of June 27, 2020 and December 28, 2019, respectively.

The following table presents the location of lease costs in the Company's Consolidated Statements of Comprehensive Income:

				13 Weeks Ended								26 Weeks Ended
Lease Cost		Statement of Comprehensive Income Location		June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Operating lease cost		Distribution, selling and administrative costs		$	17			$	7			$	26			$	14
Financing lease cost:
Amortization of leased assets		Distribution, selling and administrative costs		20				22				41				39
Interest on lease liabilities		Interest expense-net		3				3				6				6
Variable lease cost		Distribution, selling and administrative costs		3				2				6				3
Net lease cost				$	43			$	34			$	79			$	62

Future lease payments under lease agreements as of June 27, 2020 were as follows:

Maturity of Lease Liabilities		Operating Leases				Financing Leases				Total
Remainder of 2020		$	28			$	57			$	85
2021		60				93				153
2022		56				69				125
2023		51				67				118
2024		33				49				82
2025		32				30				62
After 2025		166				24				190
Total lease payments		426				389				815
Less amount representing interest		(127		)		(27		)		(154		)
Present value of lease liabilities		$	299			$	362			$	661

Future minimum lease payments in effect as of December 28, 2019 under noncancelable lease arrangements were as follows:

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Future Minimum Lease Payments		Operating Leases				Financing Leases				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 minimum lease payments		$	171			$	352			$	523

Other information related to lease agreements for the 26 weeks ended June 27, 2020 and June 29, 2019 was as follows:

		26 Weeks Ended
Cash Paid For Amounts Included In Measurement of Liabilities		June 27, 2020				June 29, 2019
Operating cash flows from operating leases		$	21			$	6
Operating cash flows from financing leases		6				3
Financing cash flows from financing leases		50				21

Lease Term and Discount Rate		June 27, 2020			June 29, 2019
Weighted-average remaining lease term (years):
Operating leases		8.05			5.87
Financing leases		4.25			5.61
Weighted-average discount rate:
Operating leases		6.1	%		4.6	%
Financing leases		3.2	%		3.6	%

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16.	RETIREMENT PLANS

The Company sponsors a defined benefit pension plan and a 401(k) plan for eligible employees, and provides certain postretirement health and welfare benefits to eligible retirees and their dependents. In connection with the Smart Foodservice acquisition, the Company assumed a defined benefit pension plan with net liabilities of approximately $20 million.

The components of net periodic pension benefit costs (credits) for Company sponsored defined benefit plans were as follows:

	13 Weeks Ended								26 Weeks Ended
	June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Components of net periodic pension benefit costs (credits)
Service cost	$	—			$	—			$	1			$	1
Interest cost	8				9				15				18
Expected return on plan assets	(13		)		(12		)		(26		)		(24		)
Amortization of net loss	1				1				1				2
Net periodic pension benefit credits	(4		)		(2		)		$	(9	)		$	(3	)

Other postretirement benefit costs were de minimis for both the 13 weeks and 26 weeks ended June 27, 2020 and June 29, 2019.

The service cost component of net periodic benefit credits is included in distribution, selling and administrative costs, while the other components of net periodic benefit credits are included in other income—net, respectively, in the Company's Consolidated Statements of Comprehensive Income.

The Company does not expect to make significant contributions to its defined benefit pension plan in fiscal year 2020.

Certain employees are eligible to participate in the Company's 401(k) plan. The Company made employer matching contributions to the 401(k) plan of $9 million and $12 million for the 13 weeks ended June 27, 2020 and June 29, 2019, respectively, and $23 million and $25 million for the 26 weeks ended June 27, 2020 and June 29, 2019, respectively.

The Company is also required to contribute to various multiemployer pension plans under the terms of collective bargaining agreements that cover certain of its union-represented employees. The Company’s contributions to these plans were $10 million and $9 million for the 13 weeks ended June 27, 2020 and June 29, 2019, respectively, and $22 million and $18 million for the 26 weeks ended June 27, 2020 and June 29, 2019, respectively.

17.	EARNINGS PER SHARE

The Company computes EPS in accordance with ASC 260, Earnings per Share. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding.

Diluted EPS is computed using the weighted average number of shares of common stock, plus the effect of potentially dilutive securities. The Company applies the treasury method to calculate the dilution impact of share-based awards—stock options, non-vested restricted shares with forfeitable dividend rights, restricted stock units, and employee stock purchase plan deferrals. The Company applies the if-converted method to calculate the dilution impact of the Series A convertible preferred stock. For the 13 weeks ended June 27, 2020 and June 29, 2019, share-based awards representing 9 million and 1 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For the 26 weeks ended June 27, 2020 and June 29, 2019, share-based awards representing 9 million and 2 million underlying common shares, respectively, were not included in the computation because the effect would have been anti-dilutive. For the 13 weeks and 26 weeks ended June 27, 2020, convertible preferred stock representing 14 million and 7 million of underlying common shares, respectively, was not included in the computation because the effect would have been anti-dilutive.

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

	13 Weeks Ended								26 Weeks Ended
	June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Numerator:
Net (loss) income	$	(92	)		$	116			$	(224	)		$	187
Series A convertible preferred stock dividends (1)	5				—				5				—
Net (loss) income available to common shareholders	$	(97	)		$	116			$	(229	)		$	187
Denominator:
Weighted-average common shares outstanding	220				218				219				218
Effect of dilutive securities	—				1				—				1
Effect of dilutive underlying shares of the    Series A convertible preferred stock	—				—				—				—
Weighted-average dilutive shares outstanding	$	220			$	219			$	219			$	219
Net (loss) income per share:
Basic	$	(0.44	)		$	0.53			$	(1.05	)		$	0.86
Diluted	$	(0.44	)		$	0.53			$	(1.05	)		$	0.85

(1)	Preferred stock dividends were declared on June 19, 2020 and were paid in kind on June 30, 2020.

18.	CONVERTIBLE PREFERRED STOCK

On May 6, 2020 (the “Issuance Date”), pursuant to the terms of an Investment Agreement (the "Investment Agreement") with KKR Fresh Aggregator L.P., a Delaware limited partnership (“KKR”), the Company issued and sold 500,000 shares of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) to KKR for an aggregate purchase price of $500 million, or $1,000 per share (the “Issuance”). The Company used the net proceeds from the Issuance for working capital and general corporate purposes. On June 30, 2020, the Company paid a dividend (the “Dividend”) on the shares of the Series A Preferred Stock in the form of 5,288 shares of Series A Preferred Stock plus a de minimis amount in cash in lieu of fractional shares in accordance with the terms of the Certificate of Designations for the Series A Preferred Stock (the "Certificate of Designations").

The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series A Preferred Stock has a liquidation preference of $1,000 per share. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7.0% per annum. If the Company does not declare and pay a dividend on the Series A Preferred Stock, the dividend rate will increase by 3.0% to 10.0% per annum until all accrued but unpaid dividends have been paid in full. Dividends are payable in kind through the issuance of additional shares of Series A Preferred Stock for the first four dividend payments following the Issuance Date, and thereafter, in cash or in kind, or a combination of both, at the option of the Company.

The Series A Preferred Stock is convertible at the option of the holders thereof at any time into shares of Common Stock at an initial conversion price of $21.50 per share and an initial conversion rate of 46.5116 shares of Common Stock per share of Series A Preferred Stock, subject to certain anti-dilution adjustments set forth in the Certificate of Designations. At any time after the third anniversary of the Issuance Date, if the volume weighted average price of the Common Stock exceeds $43.00 per share, as may be adjusted pursuant to the Certificate of Designations, for at least 20 trading days in any period of 30 consecutive trading days, at the election of the Company, all of the Series A Preferred Stock will be convertible into the relevant number of shares of Common Stock.

At any time following the fifth anniversary of the Issuance Date, the Company may redeem some or all of the Series A Preferred Stock for a per share amount in cash equal to: (i) the sum of (x) 100% of the liquidation preference thereof, plus (y) all accrued and unpaid dividends, multiplied by (ii) (A) 105% if the redemption occurs at any time after the fifth anniversary of the Issuance Date and prior to the sixth anniversary of the Issuance Date, (B) 103% if the redemption occurs at any time after the sixth anniversary of the Issuance Date and prior to the seventh anniversary of the Issuance Date, and (C) 100% if the redemption occurs at any time after the seventh anniversary of the Issuance Date.

Upon certain change of control events involving the Company, the holders of the Series A Preferred Stock must either (i) convert their shares of Series A Preferred Stock into Common Stock at the then-current conversion price or (ii) cause the Company to redeem their shares of Series A Preferred Stock for an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends. If any such change of control event occurs on or before the fifth anniversary of the Issuance Date, the Company will also be required to pay the holders of the Series A Preferred Stock a “make-whole” premium of 5%.

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

19.	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in accumulated other comprehensive loss by component for the periods presented:

	13 Weeks Ended								26 Weeks Ended
	June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Accumulated other comprehensive loss components
Retirement benefit obligations:
Balance as of beginning of period (1)	$	(52	)		$	(96	)		$	(52	)		$	(97	)
Reclassification adjustments:
Amortization of net loss(2) (3)	1				1				1				2
Total before income tax	1				1				1				2
Income tax provision	—				—				—				—
Current period comprehensive income, net of tax	1				1				1				2
Balance as of end of period(1)	$	(51	)		$	(95	)		$	(51	)		$	(95	)
Interest rate swaps:
Balance as of beginning of period (1)	$	(8	)		$	7			$	(2	)		$	13
Change in fair value of interest rate swaps	(2		)		(8		)		(10		)		(14		)
Amounts reclassified to interest expense—net	2				(2		)		2				(4		)
Total before income tax	—				(10		)		(8		)		(18		)
Income tax benefit	—				(2		)		(2		)		(4		)
Current period comprehensive (loss) income, net of tax	—				(8		)		(6		)		(14		)
Balance as of end of period(1)	$	(8	)		$	(1	)		$	(8	)		$	(1	)
Accumulated other comprehensive loss as of end of period(1)	$	(59	)		$	(96	)		$	(59	)		$	(96	)

(1)	Amounts are presented net of tax.

(2)	Included in the computation of net periodic benefit costs. See Note 16, Retirement Plans, for additional information.

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

20.	RELATED PARTY TRANSACTIONS

As described in Note 18, Convertible Preferred Stock, on May 6, 2020 the Company issued and sold 500,000 shares of the Company’s Series A Preferred Stock to KKR for an aggregate purchase price of $500 million, or $1,000 per share. Assuming conversion of all Series A Preferred Stock, KKR would have held approximately 9.5% of the Company’s outstanding common stock as of June 27, 2020.

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received aggregate fees of $6 million for services rendered in connection with the 2020 Incremental Term Loan Facility, the Secured Notes and the ABL Facility amendment financings during the 26 weeks ended June 27, 2020. KKR Capital Markets also received $1 million for services rendered in connection with the May 2019 refinancing of the ABL Facility during the 26 weeks ended June 29, 2019. As reported by the Company’s administrative agent, investment funds managed by an affiliate of KKR held approximately $103 million in principal amount of the Company's term loan facilities as of June 27, 2020.

Based solely on information provided in its most recent public filings, FMR LLC and its affiliates held approximately 11% of the Company’s outstanding common stock as of June 27, 2020. As reported by the Company’s administrative agent, investment funds managed by an affiliate of FMR LLC held approximately $61 million in principal amount of the Company's term loan facilities as of June 27, 2020. Certain FMR LLC affiliates provide recordkeeping services for the Company’s 401(k) plan and provide

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administrative services for other Company sponsored employee benefit plans. Fees earned by FMR LLC affiliates are not material to the Company’s consolidated financial statements.

21.	INCOME TAXES

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.

The Company estimated its annual effective income tax rate for the full fiscal year and applied the annual effective income tax rate to the results of the 26 weeks ended June 27, 2020 and June 29, 2019 for purposes of determining its year-to-date tax provision.

For the 13 weeks ended June 27, 2020, the Company's effective income tax rate of 22% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax expense of $2 million primarily related to an increase in an unrecognized tax benefit. For the 13 weeks ended June 29, 2019, the Company's effective income tax rate of 25% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $2 million, primarily related to excess tax benefits associated with share-based compensation.

Purchase Commitments—The Company enters into purchase orders with vendors and other parties in the ordinary course of business and has a limited number of purchase contracts with certain vendors that require it to buy a predetermined volume of products. The Company had $1,551 million of purchase orders and purchase contract commitments to be purchased in the remainder of fiscal year 2020 as of June 27, 2020 and $63 million of information technology commitments through December 2024 that are not recorded in the Company's Consolidated Balance Sheets.

To minimize fuel price risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements. The Company had diesel fuel forward purchase commitments totaling $88 million through September 2021, as of June 27, 2020. Additionally, the Company had electricity forward purchase commitments totaling $6 million through November 2023, as of June 27, 2020. 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.	BUSINESS INFORMATION

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.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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•	actively managing our variable costs (which represent a large majority of our operating expenses), through a combination of temporary furloughs, reductions in compensation and reduction in the size of our sales force to better align our cost structure with current case volumes;

•	improving working capital by temporarily extending terms with vendors while focusing on receivables collection; and

•	managing capital expenditures effectively, including pausing construction on new facilities and significantly limiting non-essential maintenance and information technology projects.

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(1)

EBITDA is defined as net (loss) income, plus interest expense—net, income tax provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for: (1) restructuring costs; (2) share-based compensation expense; (3) the non-cash impact of LIFO reserve adjustments; (4) business transformation costs; and (5) other gains, losses, or charges as specified in the agreements governing our indebtedness. Adjusted net income available to common shareholders is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items and Series A convertible preferred stock dividends. Effective as of the fiscal third quarter 2019, we revised the definition of Adjusted net income available to common shareholders to also exclude the effect of intangible asset amortization expense. Prior year amounts have been revised to conform with the current year presentation. EBITDA, Adjusted EBITDA, and Adjusted net income available to common shareholders as presented in this Quarterly Report are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net (loss) income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

(2)

Free cash flow is defined as cash flows provided by operating activities less capital expenditures. Free cash flow as presented in this Quarterly Report is a supplemental measure of our liquidity that is not required by, or presented in accordance with, GAAP. It is not a measurement of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

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(1)	Consists primarily of severance and related costs and organizational realignment costs.

(2)	Share-based compensation expense for stock and option awards and discounts provided under employee stock purchase plan.

(3)	Represents the non-cash impact of LIFO reserve adjustments.

(4)	Consists primarily of costs related to significant process and systems redesign across multiple functions.

(5)	Includes COVID-19 related gains, losses or costs as specified under the agreements governing our indebtedness.

(6)

Includes: (i) Smart Foodservice acquisition and integration related costs of $10 million and $20 million for the 13 weeks and 26 weeks ended June 27, 2020, respectively; (ii) Food Group acquisition and integration related costs of $4 million and $19 million for the 13 weeks and 26 weeks ended June 27, 2020, respectively, and $8 million and $18 million for the 13 weeks and 26 weeks ended June 29, 2019, respectively; and (iii) gains, losses or costs as specified under the agreements governing our indebtedness.

(7)	Effective as of the fiscal third quarter 2019, we revised the definition of Adjusted net income available to common shareholders to also exclude the effect of intangible asset amortization expense. Prior year amounts have been revised to conform with the current year presentation.

(8)

Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted net income available to common shareholders and the removal of applicable discrete tax items. Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, and excess tax benefits associated with share-based compensation. The tax effect of pre-tax items excluded from Adjusted net income is computed using a corporate income tax rate after considering the impact of permanent differences and valuation allowances.

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(1)	Effective as of the fiscal third quarter 2019, we revised the definition of Adjusted net income available to common shareholders to exclude the effect of intangible asset amortization expense. Prior year amounts have been revised to conform with the current year presentation

•	Total case volume decreased 28.0% and independent restaurant case volume decreased 32.1%, reflecting the negative impact of COVID-19 on case volumes, partially offset by contributions from the Food Group and Smart Foodservice in 2020.

•	Net sales decreased $1,883 million, or 29.2%, to $4,560 million in 2020.

•	Operating loss was $59 million in 2020, compared to operating income of $194 million in 2019.

•	Net loss was $92 million in 2020, compared to net income of $116 million in 2019.

•	Adjusted EBITDA decreased $232 million, or 72.5%, to $88 million in 2020. As a percentage of net sales, Adjusted EBITDA was 1.9% in 2020, compared to 5.0% in 2019.

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•	Total case volume decreased 12.6% and independent restaurant case volume decreased 16.6%, reflecting the negative impact of COVID-19 on case volumes, partially offset by contributions from Smart Foodservice and the Food Group in 2020.

•	Net sales decreased $1,575 million, or 12.6%, to $10,899 million in 2020.

•	Operating loss was $185 million in 2020, compared to operating income of $325 million in 2019.

•	Net loss was $224 million in 2020, compared to net income of $187 million in 2019.

•	Adjusted EBITDA decreased $287 million, or 52.0%, to $265 million in 2020. As a percentage of net sales, Adjusted EBITDA was 2.4% in 2020, compared to 4.4% in 2019.

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•	on April 24, 2020, we borrowed an aggregate principal amount of $700 million under the 2020 Incremental Term Loan Facility, the proceeds of which were used to finance, in part, the Smart Foodservice acquisition;

•	on April 28, 2020, we issued an aggregate principal amount of $1.0 billion of 6.25% Secured Notes due 2025, the proceeds of which were used to repay $400 million in principal amount of the 2020 Incremental Term Loan Facility and the balance of the net proceeds has been and will be used for general corporate purposes;

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•	on May 1, 2020, we used $542 million of cash on hand to repay all of our outstanding borrowings under the ABS Facility in full and terminated the ABS Facility; in connection with the repayment and termination of the ABS Facility, we transitioned the accounts receivable that secured the ABS Facility to the collateral pool that secures the ABL Facility;

•	on May 4, 2020, we entered into an amendment to the credit agreement governing the ABL Facility pursuant to which certain of our lenders agreed to increase their aggregate commitments by $390 million to a total commitment of $1,990 million; and

•	on May 6, 2020, we completed the issuance and sale of 500,000 shares of our Series A Preferred Stock to KKR for an aggregate price of $500 million, the proceeds of which were used for working capital and general corporate purposes.

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(1)	Represents the estimated undiscounted payments on our self-insurance programs for general, fleet and workers compensation liabilities. Actual payments may differ from these estimates.

(2)	Represents estimated contributions and benefit payments for Company sponsored pension and other postretirement benefit plans. Estimates beyond fiscal year 2020 are not available for the Company's defined benefit pension plan.

(3)	Represents future interest payments on fixed rate debt, financing leases and $3.6 billion of variable rate debt at interest rates as of June 27, 2020. The amounts shown in the table include interest payments under interest rate swap agreements.

(4)	Represents minimum contributions to the Central States Teamsters Southeast and Southwest Area Pension Fund through 2023.

(5)	Represents purchase obligations for purchases of product in the normal course of business, for which all significant terms have been confirmed, information technology commitments and forward fuel and electricity purchase obligations. The balance does not include fiscal year 2020 capital additions.

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Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Item 4.	Controls and Procedures

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Item 1.	Legal Proceedings

Item 1A.	Risk Factors

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Item 3.	Defaults Upon Senior Securities

Item 4.	Mine Safety Disclosures

Item 5.	Other Information

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Item 6.	Exhibits

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