ANNUAL REPORT 2017
US Foods® is one of America’s great food
companies and a leading foodservice distributor,
teaming up with approximately 250,000
restaurants and foodservice operators to
help their businesses succeed. With 25,000
dedicated employees and more than 60 locations
nationwide, US Foods provides its customers
with a broad and innovative food offering and a
comprehensive suite of e-commerce, technology
and business solutions.
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Our Promise to CustomersWE HELP YOU MAKE IT.™Our StrategyGREAT FOOD. MADE EASY.™ TO OU R STOCKHOLDE RS
2017 was a terrific year for US Foods®. Through the execution of our GREAT FOOD. MADE EASY.™
strategy, we delivered strong financial performance and positioned ourselves for long-term success.
Fiscal 2017 Highlights
In fiscal 2017, we delivered on our
financial commitments to increase case
volume, expand gross profit dollars and
grow adjusted EBITDA. Our financial
highlights* included:
• Grew total case volume by almost 3%
and delivered full-year net sales of
$24 billion
• Increased independent restaurant case
volume by 5%, including organic case
growth nearly twice the estimated
market rate
• Expanded our operating leverage
by growing gross profit dollars at a
significantly faster rate than operating
expenses
• Increased net income to $444 million
and grew adjusted EBITDA by nearly 9%
to $1.1 billion
• Further strengthened our capital structure
by reducing our net debt leverage from
3.8x to 3.4x and repurchasing 10 million
shares in connection with the final
secondary offering by our former private
equity sponsors
2017 was also a year in which we gave
back to our communities. We launched
our US Foods® Scholars program, which
is focused on helping underserved young
people prepare for culinary careers. We also
donated nearly 12 million meals to support
hunger relief efforts, including a $2 million
product donation to Feeding America to
help with hurricane relief efforts.
Great Food. Made Easy.
The foundation of our success continues
to be our Great Food. Made Easy.
strategy. It’s a strategy aimed at helping
our customers “Make It” by providing
them with the innovative products and
technology solutions they need to attract
more customers and operate their own
businesses more profitably.
Our commitment to GREAT FOOD
is anchored by Scoop™, a program
that introduces innovative, on-trend
products multiple times a year to help
our customers deliver a more consistent
offering and keep their menus fresh. In
2018, we’ll be adding to our product
offering by introducing more sustainable
products under our Serve Good™
program. We are also committed to
growing the penetration of our private
brand products, which at the end of fiscal
2017 comprised 34% of total sales, a 100
basis point increase from fiscal 2016.
The MADE EASY portion of our strategy
is driven by our industry-leading
e-commerce and mobile technology
platforms, designed to help restaurant
operators easily plan, manage and order
inventory. We intend to continue to build
out our portfolio of value-added services
with tools to help customers attract more
diners, plan more profitable menus and
optimize their back-of-house operations.
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*These financial highlights include non-GAAP measures. A reconciliation of these non-GAAP measures can be found on page 28 of our Annual Report on Form 10-K. TO OU R STOCKHOLDE RS
In 2018, we’ll focus on executing our strategy
to reach more customers and create deeper
relationships with existing ones. We believe
that we can continue to grow at twice the pace
of the market with independent restaurants, a
group of customers that continues to benefit
from broader macroeconomic and demographic
factors, while also growing with other attractive
customer types that our strategy resonates
with, such as healthcare, hospitality and
emerging concepts.
Delivered with Excellence
As we continue to raise the bar on our
performance, we believe one of our biggest
opportunities lies in driving operational
excellence across our organization, particularly
in supply chain and shared services.
To achieve this, we’ve launched a company-
wide program called The US Foods® Way,
which will help us increase consistency
and efficiency across our critical business
processes. This work has already started to
come to life in areas like our supply chain,
where we’re implementing new routines across
our distribution center network and working to
embed continuous improvement principles into
our day-to-day operations.
We believe this focus on operational excellence,
combined with the continued execution of our
strategy, will create significant value for our
customers and stockholders well into the future.
I’d like to close with a heartfelt thank you to the
more than 25,000 US Foods employees whose
passion for helping our customers “Make It” is
what makes our success possible. Each day, I
am humbled by their drive and commitment to
be second to none.
On behalf of everyone at US Foods, thank you
for your support.
Pietro Satriano
Chairman and Chief Executive Officer
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BY TH E N U M B E RS
Independent Restaurant
% Volume Growth
Net Income
$ in millions
Adjusted EBITDA
$ in millions
%
4
.
6
%
2
.
5
%
0
.
4
4
4
4
$
0
1
2
$
8
6
1
$
8
5
0
,
1
$
2
7
9
$
5
7
8
$
2015
2016
2017
2015
2016
2017
2015
2016
2017
Note: The 2015 and 2016 Independent Restaurant volume growth listed above has been adjusted for the impact of the extra week in 2015.
US Foods
S&P 500
S&P Food and Staples Retailing
Stock Performance*
$134
$128
$120
*$100 invested on 5/26/16 in stock or 4/30/16 in index, including reinvestment of dividends.
US FOODS® CUSTOMER
BREWERY BHAVANA – RALEIGH, N.C.
Forbes 10 Coolest Places to Eat in 2018
Bon Appétit America’s Best New Restaurants 2017
US Foods Annual Report - 8.25x10.75 - 022718-mockup_V2.indd 5
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OUR STRAT EGY
GREAT FOOD. MADE EASY.™
Our strategy is centered on providing customers with innovative
products and easy access to the business solutions they need to
succeed. This focus is supported by our commitment to operational
excellence and The US Foods® Way, which represents how we
aspire to live, work and lead.
INNOVATIVE
PRODUCTS
GREAT
BRANDS
BEST
IN FRESH
LOCAL &
SUSTAINABLE
GREAT FOOD.
LEADING
TECHNOLOGY
MULTICHANNEL
MULTICHANNEL
EXPERIENCE
EXPERIENCE
VALUE-ADDED
VALUE-ADDED
SERVICES
SERVICES
TEAM-BASED
TEAM-BASED
SELLING
SELLING
MADE EASY.
PERFECT
ORDERS
RIGHT PRODUCT
RIGHT PRICE
DELIVERED
WITH EXCELLENCE.
WORKPLACE
SAFETY
OPTIMIZED COST
TO SERVE
FOOD
SAFETY
HOW WE LIVE, WORK AND LEAD.
THE
US FOODS WAY.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:2)(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 30, 2017
OR
(cid:3)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 001-37786
US FOODS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
24-0347906
(I.R.S. Employer
Identification Number)
9399 W. Higgins Road, Suite 500
Rosemont, IL 60018
(847) 720-8000
(Address, including Zip Code, and telephone number, including area code, of registrant’s principal executive offices)
Title of Each Class
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:2)
Non-accelerated filer (cid:3) (Do not check if a smaller reporting company)
(cid:4)
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)(cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No (cid:2)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:3)
(cid:3)
(cid:3)(cid:4)
At June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of common
stock held by non-affiliates was $3,885,925,322 (based on the closing sale price of common stock on such date on the New York Stock
Exchange). 215,146,497 shares of the registrant’s common stock were outstanding as February 15, 2018
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Schedule 14A,
relating to the Registrant’s Annual Meeting of Stockholders, to be held on May 4, 2018 are incorporated by reference in response to Items 10, 11,
12, 13 and 14 of Part III of this Annual Report on Form 10-K. The definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the Registrant’s fiscal year ended December 30, 2017.
US Foods Holding Corp.
Annual Report on Form 10-K
TABLE OF CONTENTS
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page No.
2
10
21
21
23
23
24
26
30
44
46
93
93
96
97
97
97
97
97
98
103
104
Basis of Presentation
We operate on a 52-53 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 30,
2017, December 31, 2016, January 2, 2016, December 27, 2014 and December 28, 2013 are also referred to herein
as fiscal years 2017, 2016, 2015, 2014 and 2013, respectively. The Company’s fiscal years 2017, 2016, 2014 and
2013 were 52-week fiscal years. The Company’s fiscal year 2015 was a 53-week fiscal year.
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the federal securities laws. Forward-
looking statements include information concerning our liquidity and our possible or assumed future results of
operations, including descriptions of our business strategies. These statements often include words such as
“believe,” “expect,” “project,” “anticipate,” “intend,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,”
“should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal,” or similar expressions. The statements are based
on assumptions that we have made, based on our experience in the industry as well as our perceptions of historical
trends, current conditions, expected future developments, and other factors we think are appropriate. We believe
these judgments are reasonable. However, you should understand that these statements are not guarantees of
performance or results. Our actual results could differ materially from those expressed in the forward-looking
statements.
There are a number of risks, uncertainties, and other important factors, many of which are beyond our control,
that could cause our actual results to differ materially from the forward-looking statements contained in this Annual
Report. Such risks, uncertainties, and other important factors include, among others, the risks, uncertainties, and
factors set forth in Part I, Item 1A—“Risk Factors” and Part II, Item 7—“Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Annual Report.
In light of these risks, uncertainties and assumptions, the forward-looking statements in this report might not
prove to be accurate, and you should not place undue reliance on them. All forward-looking statements attributable
to us, or people acting on our behalf, are expressly qualified in their entirety by the cautionary statements above. All
of these statements speak only as of the date made, and we undertake no obligation to publicly update or revise any
forward-looking statements, whether because of new information, future events or otherwise.
Comparisons of results between current and prior periods are not intended to express any future trends, or
indications of future performance, unless expressed as such, and should only be viewed as historical data.
1
Item 1:
BUSINESS
US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to herein as
“we,” “our,” “us,” “the Company,” or “US Foods”. US Foods conducts all of its operations through its wholly
owned subsidiary US Foods, Inc. (“USF”).
Our Company
We are among America’s great food companies and one of only two foodservice distributors with a national
footprint in the United States. Built through organic growth and acquisitions, we trace our roots back over 150 years
to a number of heritage companies with rich legacies in food innovation and customer service. These include
Monarch Foods (established in 1853), Sexton (1883), PYA (1903), Rykoff (1911) and Kraft Foodservice (1976). US
Foodservice was organized as a corporation in Delaware in 1989. In November 2011, we rebranded from “US
Foodservice” to “US Foods.”
The U.S. foodservice distribution industry is large, fragmented and growing, with total industry sales of
approximately $290 billion in 2017 according to Technomic (January 2018), a third-party source for food and
foodservice industry data, intelligence and commentary. With net sales of $24 billion in the fiscal year ended
December 30, 2017, we are the second largest foodservice distributor in the United States by annual sales, with a
2017 market share of approximately 8%.
Our mission is to be First In Food. We strive to inspire and empower chefs and foodservice operators to bring
great food experiences to consumers. This mission is supported by our strategy of Great Food. Made Easy. which
centers on providing our customers a broad and innovative offering of high-quality products, as well as a
comprehensive suite of industry-leading e-commerce, technology, and business solutions. We operate as one
business with standardized business processes, shared systems infrastructure, and an organizational model that
optimizes national scale with local execution, allowing us to manage the business as a single operating segment. We
have centralized activities where scale matters and our local field structure focuses on customer facing activities. As
we say on our trucks, we are Keeping Kitchens Cooking across America.
We supply approximately 250,000 customer locations nationwide. These customer locations include
independently owned single and multi-unit restaurants, regional restaurant concepts, national restaurant chains,
hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and
universities, and retail locations. We provide approximately 350,000 fresh, frozen, and dry food stock-keeping units,
or SKUs, as well as non-food items, sourced from approximately 5,000 suppliers. Approximately 4,000 sales
associates manage customer relationships at local, regional, and national levels. They are supported by sophisticated
marketing and category management capabilities, as well as a sales support team that includes world-class chefs and
restaurant operations consultants. Our extensive network of over 60 distribution facilities and fleet of approximately
6,000 trucks allow us to operate efficiently and provide high levels of customer service. This operating model allows
us to leverage our nationwide scale and footprint while executing locally.
Our Business Strategy
While we serve all customer types, our strategy focuses on independent restaurants, small and regional chains,
and healthcare and hospitality customers. Among other factors, their expected growth, mix of product and category
purchases, and adoption of value-added solutions make them attractive to us.
We offer innovative products and services that help chefs and operators succeed. Our e-commerce tools and
mobile solutions make it easier for customers to do business with us. We execute on these elements of our strategy
while delivering on the fundamental requirements that are important to all of our customers.
Growth from acquisitions remains an important part of our strategy. In fiscal year 2017, we completed five
acquisitions, including three broadline foodservice distributors and two specialty distributors. We believe there
remain attractive acquisition opportunities for us that will allow us to grow with our target customer types and
generate an attractive return on investment from the synergies we capture from integration.
2
Our Industry
The U.S. foodservice distribution industry has a large number of companies competing in the space,
including local, regional, and national distributors. Foodservice distributors typically fall into three categories,
representing differences in customer focus, product offering, and supply chain:
(cid:2)
(cid:2)
(cid:2)
Broadline distributors who offer a “broad line” of products and services
System distributors who carry products specified for large chains
Specialized distributors focused on specific product categories or customer types (e.g., meat or produce)
A number of adjacent competitors also serve the U.S. foodservice distribution industry, including cash-and-
carry retailers, commercial wholesale outlets and warehouse clubs, commercial website outlets, and grocery stores.
There is a high degree of customer overlap, particularly across the broadline, specialized and cash-and-carry
categories, as many customers purchase from multiple distributors. Most buying decisions are based on the type of
product offered, quality and price, and a distributor’s ability to completely and accurately fill orders and provide
timely deliveries. Since switching costs are low, customers can make supplier and distribution channel changes
quickly. Existing foodservice competitors can extend their shipping distances and add truck routes and warehouses
relatively quickly to serve new markets or customers. Given our mix of products and services, we consider ourselves
a broadline distributor.
The U.S. foodservice distribution industry is comprised of different customer types of varying sizes, growth
profiles, and product and service requirements.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Independent restaurants/small chains and regional chains. Independent restaurants, and small and
regional chains typically differentiate themselves in the market based on the dining experience they
provide to consumers and the quality and diversity of their menu. They value business solutions that
help them attract diners, improve the effectiveness of their menu offering, and drive efficiency in their
operations.
Healthcare customers. Healthcare customers generally fall into either acute care (e.g., hospital systems)
or senior living (e.g., nursing homes and long-term care facilities). Healthcare customers have complex
foodservice needs given their scale, need for menu diversity, and logistics considerations. Food is also
not as central to their overall business as it is for a restaurant, but it is a key contributor to patient
satisfaction. As a result, some healthcare providers utilize third-party contract management companies
to operate their foodservice facilities. Many use group purchasing organizations, or GPOs, as
intermediaries in order to gain procurement scale. In our experience, healthcare customers purchasing
directly, through GPOs, or through contract foodservice operators value strong relationships with their
foodservice partners, particularly those that bring national scale, a broad product offering, and strong
transactional and logistics capabilities.
Hospitality customers. Hospitality customers are diverse group, ranging from large hotel chains and
conference centers to local banquet halls, country clubs, casinos, and entertainment and sports
complexes. Food is a key contributor to guest satisfaction for these customers, and they value solutions
related to menu planning and efficiency improvements in their kitchens and restaurants. With complex
foodservice needs, hospitality customers value streamlined purchasing processes and expect high
service levels in fulfilling their orders.
National restaurant chains. National chains tend to in-source most activities except distribution, where
they often rely on system distributors primarily for freight and logistics.
In fiscal year 2017, no single customer represented more than 3% of our total customer sales. Sales to our top
50 customers/GPOs represented approximately 43% of our net sales in fiscal year 2017. We have relationships with
GPOs that act as agents for their members in negotiating pricing, delivery and other terms. Some customers who are
members of GPOs purchase their products directly from us under the terms negotiated by their GPOs. In fiscal year
3
2017, this accounted for about 25% of our total customer purchases. GPOs primarily focus on healthcare,
hospitality, education, government/military and restaurant chains.
We believe that a broad array of value-added solutions offered by foodservice distributors makes customers
more effective and efficient and can help foodservice distributors profitably grow their businesses. These services
require distributors to invest in their capabilities, resulting in a higher cost-to-serve. When customers benefit from
product and service solutions, they purchase a more attractive and profitable mix of items and tend to have stronger
commercial relationships and loyalty.
We believe that the customer types that we target, which include independent restaurants, small and regional
chains, and healthcare and hospitality customers, have greater growth prospects and/or benefit from the types of
value-added solutions we offer to a greater extent than other customer types.
There are several important dynamics affecting the industry.
(cid:2)
(cid:2)
(cid:2)
Evolving consumer tastes and preferences. Consumers demand healthy and authentic food alternatives
with fewer artificial ingredients, and they value locally harvested and sustainably manufactured
products. In addition, many ethnic food offerings are becoming more mainstream as consumers show a
greater willingness to try new flavors and cuisines. Changes in consumer preferences create
opportunities for new and innovative products and for unique food-away-from-home destinations. This,
in turn, is expected to create growth, margin expansion, and better customer retention opportunities for
those distributors with the flexibility to balance national scale and local preferences. We believe
foodservice distributors will likely need broader product assortments, extended supplier networks,
effective supply chain management capabilities, and strong food safety programs to meet these needs.
Generational shifts with millennials and baby boomers. Given their purchasing power, millennials and
baby boomers will continue to significantly influence food consumption and the food-away-from-home
market. According to a U.S. Census Bureau survey, there were 83 million individuals born between
1982 and 2000 in the United States. That makes these millennials the largest demographic cohort. They
are key to driving growth in the broader U.S. food industry as their disposable income increases. Baby
boomers continue to shape the industry as they remain in the workplace longer, which is expected to
prolong their contribution to food-away-from-home expenditures.
Growing importance of e-commerce. We see significant future growth in e-commerce and in the
adoption of mobile technology solutions by foodservice operators. E-commerce solutions increase
customer retention. They also deepen the relationship between foodservice distributors and customers,
creating new insights and services that can make both more efficient. We think deeper, technology-
enabled relationships with customers will accelerate the adoption of new products and increase
customer loyalty. As a result, distributors that have invested in creating these capabilities have a
competitive edge. We believe this trend will accelerate, as millennials become key influencers and
decision-makers within the industry, particularly at the customer level. We believe foodservice
distributors will need to strengthen technology, data analytics, and related capabilities to address these
changes.
We believe that we have the scale, foresight and agility required to proactively address these trends and, in
turn, benefit from higher growth, greater customer retention and improved profitability.
Products, Brands, and Other Intellectual Property
We have a broad assortment of product categories and brands to meet customers’ needs. In many categories,
we offer products under a spectrum of private brands, based on price and quality.
4
The table below presents the sales mix for our principal product categories for the fiscal years ended
December 30, 2017, December 31, 2016 and January 2, 2016.
Meats and seafood
Dry grocery products
Refrigerated and frozen grocery products
Dairy
Equipment, disposables and supplies
Beverage products
Produce
2017
Fiscal Years
2016
2015
36 %
18 %
16 %
10 %
9 %
6 %
5 %
100 %
36 %
18 %
16 %
10 %
9 %
6 %
5 %
100 %
36 %
18 %
15 %
11 %
9 %
6 %
5 %
100 %
We have registered the trademarks US Foods®, Food Fanatics® and Chef’Store® in connection with our
overall US Foods brand strategy and with our retail outlets. We have also registered or applied for trademark
protection in the United States in connection with the following brands in our brand portfolio:
Our Best-Quality Brands – Distinction and Superior Taste
(cid:2) Chef’s Line®
(cid:2) Metro Deli®
(cid:2) Rykoff Sexton®
(cid:2) Stock Yards®
Brands You Can Trust for Quality, Performance and Value
(cid:2) Cattleman’s Selection®
(cid:2) Cross Valley Farms®
(cid:2) Devonshire®
(cid:2)
del Pasado™
(cid:2) Glenview Farms®
(cid:2) Harbor Banks®
(cid:2) Hilltop Hearth®
(cid:2) Molly’s Kitchen®
(cid:2) Monarch®
(cid:2) Harvest Value®
(cid:2) Monogram®
(cid:2) Monogram® Clean Force®
(cid:2) Optimax®
(cid:2) Pacific Jade®
(cid:2) Patuxent Farms®
(cid:2) Rituals®
(cid:2) Roseli®
(cid:2) Superior®
(cid:2) Thirster®
(cid:2) Valu+Plus®
Other than these trademarks, we do not believe that trademarks, patents, or copyrights are material to our
business.
Suppliers
We purchase from approximately 5,000 individual suppliers, none of which accounted for more than 5% of
our aggregate purchases in fiscal year 2017. Our suppliers generally are large corporations selling national brand
name and private brand products. Additionally, regional suppliers support targeted geographic initiatives and private
label programs requiring regional distribution. We generally negotiate supplier agreements on a centralized basis.
Seasonality
Our business does not fluctuate significantly from quarter to quarter, and as a result, is not considered
seasonal.
Working Capital
Our operations and strategic objectives require continuing capital investment, and our resources include cash
provided by operations, as well as access to capital from bank borrowings, various types of debt and other financing
arrangements. See discussion in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” regarding our liquidity and capital resources.
5
Government Regulation
As a marketer and distributor of food products in the United States, US Foods must comply with various laws
and regulations from federal, state and local regulatory agencies. A summary of certain laws and regulations is
described below.
Food Holding and Processing
We are subject to the Federal Food, Drug and Cosmetic Act; the Bioterrorism Act; and regulations created by
the U.S. Food and Drug Administration (“FDA”). The FDA regulates manufacturing and holding requirements for
foods, specifies the standards of identity for certain foods and prescribes the format and content of certain
information that must appear on food product labels.
The published applicable rules under the Food Safety Modernization Act (“FSMA”) significantly expanded
our food safety requirements. Among other things, we are required to maintain comprehensive, prevention-based
controls across the food supply chain that are both verified and validated, including new standards for maintaining
the safety of food during transportation. FSMA further regulates food products imported into the United States and
provides the FDA with mandatory recall authority.
For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products
Inspection Act, the Perishable Agricultural Commodities Act, the Country of Origin Labeling Act, and regulations
from the U.S. Department of Agriculture (“USDA”). The USDA imposes standards for food safety, product quality
and sanitation, including the inspection and labeling of meat and poultry products, and the grading and commercial
acceptance of produce shipments from our vendors.
Our Company and products are also subject to state and local regulation. This includes measures such as the
licensing of our facilities, enforcement of standards for our products and facilities by state and local health agencies,
and regulation of our trade practices in connection with selling products.
Our distribution facilities must be registered with the FDA biennially and are subject to periodic government
agency inspections. Our facilities are generally inspected at least annually by federal and/or state authorities. We
have a small number of processing facilities for some meat, poultry, seafood and produce products. These units are
appropriately registered and inspected by the USDA (meat and poultry) and the FDA (produce and seafood),
respectively. We also must establish communication programs to transmit information about the hazards of certain
chemicals present in some of the products we distribute.
Our customers include several departments of the federal government, including the Department of Defense
and Department of Veterans Affairs facilities, as well as certain state and local entities. These customer relationships
subject us to additional regulations applicable to government contractors.
Trade
For the purchase of products harvested or manufactured outside of the United States, and for the shipment of
products to customers located outside of the United States, we are subject to customs laws regarding the import and
export of shipments. Our activities, including working with customs brokers and freight forwarders, are subject to
regulation by U.S. Customs and Border Protection, part of the Department of Homeland Security.
Anticorruption
Because we are organized under the laws of a state in the U.S. and our principal place of business is in the
U.S., we are considered a “domestic concern” under the Foreign Corrupt Practices Act (“FCPA“) and are covered by
the anti-bribery provisions of the FCPA. The anti-bribery provisions of the FCPA prohibit any domestic concern and
any officer, director, employee, or agent, acting on behalf of the domestic concern from paying or authorizing
payment of anything of value to (i) influence any act or decision by a foreign official; (ii) induce a foreign official to
do or omit to do any act in violation of his/her lawful duty; (iii) secure any improper advantage; or (iv) induce a
6
foreign official to use his/her influence to assist the payor in obtaining or retaining business, or directing business to
another person.
Ground Transportation
The U.S. Department of Transportation and its agencies, the Surface Transportation Board, the Federal
Highway Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety
Administration, regulate our trucking operations through the regulation of operations, safety, insurance and
hazardous materials. We must comply with the safety and fitness regulations promulgated by the Federal Motor
Carrier Safety Administration, including those relating to drug and alcohol testing and hours of service. Matters such
as weight and dimension of equipment also fall under federal and state regulations.
Environmental
Our operations are also subject to a broad range of federal, state, and local environmental laws and
regulations, as well as zoning and building regulations. Environmental laws and regulations cover a variety of
procedures, including appropriately managing wastewater and stormwater; complying with clean air laws, including
those governing vehicle emissions; properly handling and disposing of solid and hazardous wastes; protecting
against and appropriately investigating and remediating spills and releases; and monitoring and maintaining
underground and aboveground storage tanks for diesel fuel and other petroleum products.
Employment
The U.S. Department of Labor and its agencies, the Employee Benefits Security Administration, the
Occupational Safety and Health Administration, and the Office of Federal Contract Compliance Programs regulate
our employment practices and standards for workers. We are also subject to laws that prohibit discrimination in
employment based on non-merit categories, including Title VII of the Civil Rights Act and the Americans with
Disabilities Act, and other laws relating to accessibility and the removal of barriers. Our workers’ compensation
self-insurance is subject to regulation by the jurisdictions in which we operate.
Our facilities are subject to inspections under the Occupational Safety and Health Act with respect to our
compliance with certain manufacturing, health and safety standards to protect our employees from accidents. US
Foods is also subject to the National Labor Relations Act, which governs the process for collective bargaining
between employers and employees and protects the rights of both employers and employees in the workplace.
Employees
As of December 30, 2017, we had 25,355 employees, of which 25,053 were full-time employees.
Approximately 4,600 employees were members of local unions associated with the International Brotherhood of
Teamsters and other labor organizations. Approximately one-third of our facilities have employees represented by
unions with collective bargaining agreements (“CBAs”).
During fiscal year 2017, eight CBAs covering approximately 800 employees were renegotiated. During fiscal
2018, 14 CBAs covering approximately 1,100 employees will be subject to renegotiation. While we have
experienced work stoppages in the past, we generally believe we have good relations with both union and non-union
employees, and we believe we are a well-regarded employer in the communities in which we operate.
7
Executive Officers
Name
Pietro Satriano
Dirk J. Locascio
Kristin M. Coleman
Ty Gent
Steven Guberman
Andrew Iacobucci
Jay A. Kvasnicka
David Rickard
Keith D. Rohland
David Works
Chairman and Chief Executive Officer
Chief Financial Officer
Age Position
55
46
49 Executive Vice President, General Counsel and Chief Compliance Officer
58 Chief Supply Chain Officer
53
51 Chief Merchandising Officer
50
47 Executive Vice President, Strategy and Revenue Management
50 Chief Information Officer
50 Chief Human Resources Officer
Executive Vice President, Locally-Managed Business and Field Operations
Executive Vice President, Nationally Managed Business
Mr. Satriano has served as Chief Executive Officer and director of US Foods since July 2015. In December
2017, Mr. Satriano was elected Chairman of the Board. From February 2011 until July 2015, Mr. Satriano served as
our Chief Merchandising Officer. Prior to joining US Foods, Mr. Satriano was President of LoyaltyOne Co., a
Canadian provider of loyalty marketing and programs, from 2009 to 2011. From 2002 to 2008, he served in a
number of leadership positions at Loblaw Companies Limited, including Executive Vice President, Loblaw Brands,
and Executive Vice President, Food Segment. Mr. Satriano began his career in strategy consulting, first in Toronto,
Canada with The Boston Consulting Group, and then in Milan, Italy with the Monitor Company.
Mr. Locascio has served as Chief Financial Officer since February 2017. Mr. Locascio served the Company as
Senior Vice President, Financial Accounting and Analysis from November 2016 to February 2017, Senior Vice
President, Operations Finance and Financial Planning from May 2015 to November 2016, and as Senior Vice
President, Financial Planning and Analysis from May 2013 to May 2015. Mr. Locascio joined US Foods in June
2009 as Senior Vice President, Corporate Controller. Prior to joining US Foods, Mr. Locascio held senior finance
roles with United Airlines, a global airline, and public accounting firm Arthur Andersen LLP.
Ms. Coleman has served as Executive Vice President, General Counsel and Chief Compliance Officer since
February 2017. Ms. Coleman joined US Foods from Sears Holdings Corporation, a retailer, where she served as
Senior Vice President, General Counsel and Corporate Secretary after joining in July 2014. Prior to joining Sears,
she served as the Vice President, General Counsel and Corporate Secretary for Brunswick Corporation, a
manufacturing company, from May 2009 to July 2014.
Mr. Gent has served as Chief Supply Chain Officer since April 2017. Prior to joining US Foods, Mr. Gent
served for over 30 years in a variety of leadership roles with PepsiCo, Inc. From April 2012 to April 2017, he served
as Senior Vice President, Supply Chain for PepsiCo Americas Foods—South America, Caribbean and Central
America. Mr. Gent also served as Senior Vice President of Logistics for PepsiCo North America, where he led the
warehouse delivery network for Quaker, Gatorade and Tropicana as well as the PepsiCo’s Transportation network
for North America.
Mr. Guberman has served as Executive Vice President, Nationally Managed Business, since August 2016 and
served as Chief Merchandising Officer from July 2015 to January 2017. Mr. Guberman served the Company as
Senior Vice President, Merchandising and Marketing Operations from January 2012 to July 2015 and as Division
President from August 2004 through December 2012. Mr. Guberman joined US Foods as part of the Alliant
Foodservice acquisition.
Mr. Iacobucci has served as Chief Merchandising Officer since January 2017. Prior to joining US Foods, Mr.
Iacobucci served as Executive Vice President, Merchandising for Ahold USA, Inc., a food retailer, from April 2016
to January 2017. Prior to joining Ahold, he served from February 2012 to November 2015 in several senior roles at
Loblaw Companies Limited, a Canadian food retailer, including President, Discount Division.
8
Mr. Kvasnicka has served as Executive Vice President, Locally-Managed Business and Field Operations since
August 2015 and Executive Vice President, Field Operations since September 2016. Mr. Kvasnicka has served the
Company as Region President from April 2013 to July 2015, and Division President from October 2011 to March
2013. Mr. Kvasnicka served as Vice President of Sales for the Stock Yards division, President of the Stock Yards
division and in various other roles between 2005 and 2011. He was Vice President of Sales for the Minneapolis
Division from 2003 to 2005. Mr. Kvasnicka joined US Foods as a part of the Alliant Foodservice acquisition.
Mr. Rickard has served as Executive Vice President, Strategy and Revenue Management since November 2015.
Prior to joining US Foods, Mr. Rickard served from March 2014 to November 2015 as Vice President at Uline
Corporation, a distributor of shipping, industrial, and packing materials, and was responsible for identifying, leading
and implementing improvement initiatives across all aspects of the organization. From September 1997 to March
2014, Mr. Rickard was a Partner and Managing Director at the Boston Consulting Group.
Mr. Rohland has served as Chief Information Officer since April 2011. Prior to joining US Foods, Mr. Rohland
served in several leadership positions at Citigroup, Inc. from March 2007 until April 2011, including Managing
Director of Risk and Program Management. Prior to joining Citigroup, Mr. Rohland was Chief Information Officer
for Volvo Car Corporation of Sweden from November 2005 to March 2007 and held a number of leadership
positions at Ford Motor Company from November 2003 to November 2005.
Mr. Works has served as Chief Human Resources Officer since February 2018. Mr. Works joined US Foods
from Hackensack Meridian Health, an integrated health care network, where he served as Chief Human Resources
Officer after joining in July 2017. Prior to joining Hackensack, he served as President - Enterprise of Windstream
Holdings, Inc., a voice and data communications provider, from December 2014 to August 2016, Executive Vice
President and Chief Human Resources Officer at Windstream from February 2012 to December 2014, and Senior
Vice President and President, Talent and Human Capital Services at Sears Holding Corporation, a retailer, from
September 2009 to January 2012.
Available Information
We file annual, quarterly and special reports and other information with the Securities and Exchange
Commission (“SEC”). Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov.
Those filings are also available to the public on, or accessible through, our website for free via the “Investors”
section at https://ir.usfoods.com/investors. The information contained on or accessible through our corporate website
or any other website that we may maintain is not incorporated by reference herein and is not part of this Annual
Report on Form 10-K (“Annual Report”).
9
Item 1A. Risk Factors
We are subject to many risks and uncertainties including, without limitation, with respect to our results of
operations and cash flows. Some of these risks and uncertainties may cause our financial performance, business or
operations to vary, or they may materially or adversely affect our financial performance. These are discussed below.
The risks and uncertainties described in this Annual Report are not the only ones we face. Others—which are not
currently known to us, or that we believe are immaterial—also may adversely affect our financial performance,
business or operations.
Risks Relating to Our Business and Industry
Our business is a low-margin business, and our profitability is directly affected by cost deflation or inflation,
commodity volatility and other factors.
The U.S. foodservice distribution industry is characterized by relatively high inventory turnover with
relatively low profit margins. Volatile commodity costs have a direct impact on our industry. We make a significant
portion of our sales at prices that are based on the cost of products we sell, plus a percentage margin. As a result, our
profit levels may be negatively affected during periods of product cost deflation, even though our gross profit
percentage may remain relatively constant. Prolonged periods of product cost inflation also may reduce our profit
margins and earnings, if product cost increases cannot be passed on to customers because they resist paying higher
prices. In addition, periods of rapid inflation may have a negative effect on our business. There may be a lag
between the time of the price increase and the time at which we are able to pass it along to customers, as well as the
impact it may have on discretionary spending by consumers.
Competition in our industry is intense, and we may not be able to compete successfully.
The U.S. foodservice distribution industry is highly competitive. Our largest competitor has greater financial
and other resources than we do. Furthermore, there are a large number of local and regional distributors. These
companies often align themselves with other smaller distributors through purchasing cooperatives and marketing
groups. The goal is to enhance their geographic reach, private label offerings, overall purchasing power, cost
efficiencies, and ability to meet customer distribution requirements. These distributors also rely on local presence as
a source of competitive advantage, and they may have lower costs and other competitive advantages due to
geographic proximity. Additionally, adjacent competition, such as cash-and-carry operations, commercial wholesale
outlets, club stores and grocery stores, continue to serve the commercial foodservice market. We also experience
competition from online direct food wholesalers, such as Amazon.com. We generally do not have exclusive service
agreements with our customers, and they may switch to other suppliers that offer lower prices, differentiated
products, or customer service that is perceived to be superior. The cost of switching suppliers is very low, as are the
barriers to entry into the U.S. foodservice distribution industry. We believe most purchasing decisions in the U.S.
foodservice distribution industry are based on the quality and price of the product, plus a distributor’s ability to
completely and accurately fill orders and provide timely deliveries.
Increased competition has caused the U.S. foodservice distribution industry to change, as distributors seek to
lower costs, further increasing pressure on the industry’s profit margins. Heightened competition among our
suppliers, significant pricing initiatives or discount programs established by competitors, new entrants, and trends
toward vertical integration could create additional competitive pressures that reduce margins and adversely affect
our business, financial condition, and results of operations.
We rely on third-party suppliers, and our business may be affected by interruption of supplies or increases in
product costs.
We obtain substantially all of our foodservice and related products from third-party suppliers. We typically do
not have long-term contracts with suppliers. Although our purchasing volume can provide leverage when dealing
with suppliers, they may not provide the foodservice products and supplies we need in the quantities and at the
prices requested. We do not control the actual production of most of the products we sell. This means we are also
subject to delays caused by interruption in production and increases in product costs based on conditions outside our
control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of
10
suppliers; severe weather; crop conditions; product recalls; transportation interruptions; unavailability of fuel or
increases in fuel costs; competitive demands; and natural disasters or other catastrophic events (including, but not
limited to, the outbreak of food-borne illnesses in the United States). Our inability to obtain adequate supplies of
foodservice and related products because of any of these or other factors could mean that we could not fulfill our
obligations to our customers and, as a result, our customers may turn to other distributors.
A change in our relationships with GPOs could negatively affect our relationships with customers, which could
reduce our profitability.
No single customer represented more than 3% of our total net sales in fiscal year 2017. However, some of our
customers purchase their products under arrangements with GPOs. GPOs act as agents on behalf of their members
by negotiating pricing, delivery, and other terms with us. Our customers who are members of GPOs purchase
products directly from us on the terms negotiated by their GPO. GPOs use the combined purchasing power of their
members to lower the prices paid by their members, and we have experienced some pricing pressure from customers
who associate with GPOs. Approximately 25% of our net sales in fiscal year 2017 were made by customers under
terms negotiated by GPOs. To the extent our customers, for example, independent restaurants who do not typically
negotiate directly with GPOs, are able to independently negotiate competitive pricing or become members of GPOs,
we may be forced to lower our prices so they will remain customers, which would negatively affect operating
margins. In addition, if we are unable to maintain our relationships with GPOs, or if GPOs are able to negotiate
more favorable terms for their members with our competitors, we could lose some or all of that business. This could
adversely affect our future operating profits.
Our relationships with our customers, including key long-term customers and GPOs, may be materially
diminished or terminated.
Most of our customers buy from us pursuant to individual purchase orders, and we often do not enter into
long-term agreements with these customers. Because such customers are not obligated to continue purchasing
products from us, we cannot be assured that the volume and/or number of our customers’ purchase orders will
remain constant or increase or that we will be able to maintain our existing customer base. Significant decreases in
the volume and/or number of our customers’ purchase orders or our inability to retain or grow our current customer
base may have a material adverse effect on our business, financial condition, or results of operations.
We have long-standing relationships with a number of our customers and GPOs, many of whom could
unilaterally terminate their relationship with us or materially reduce the amount of business they conduct with us at
any time. Market competition, customer requirements, customer financial condition and customer consolidation
through mergers or acquisitions also could adversely affect our ability to continue or expand these relationships.
There is no guarantee that we will be able to retain or renew existing agreements, maintain relationships with any of
our customers or GPOs on acceptable terms or at all or collect amounts owed to us from insolvent customers. Our
customer and GPO agreements are generally terminable upon advance written notice (typically ranging from 30
days to six months) by either us or the customer or GPO, which provides our customers or GPOs with the
opportunity to renegotiate their contracts with us or to award more business to our competitors. The loss of one or
more of our major customers or GPOs could adversely affect our business, financial condition, and results of
operations.
If we fail to increase or maintain our sales to independent restaurant customers, our profitability may suffer.
Our most profitable customers are independent restaurants. We tend to work closely with these customers,
providing them access to our customer value added tools and as a result are able to earn a higher operating margin
on sales to them. Our ability to continue to gain market share of independent restaurant customers is critical to
achieving increased operating profits. Changes in the buying practices of independent restaurant customers,
including their ability to require us to sell to them at discounted rates, or decreases in our sales to this type of
customer could have a material negative impact on our profitability.
11
We may fail to effectively integrate the businesses we acquire.
Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired
businesses successfully or realize anticipated economic, operational, and other benefits and synergies in a timely
manner, our profitability may decrease. Integrating acquired businesses may be more difficult in a region or market
in which we have limited expertise. A significant expansion of our business and operations, in terms of geography or
magnitude, could strain our administrative and/or operational resources. Significant acquisitions may also require
incurring additional debt. This could increase our interest expense and make it difficult for us to get favorable
financing for other acquisitions or capital investments in the future.
We may be unable to achieve some or all of the benefits that we expect from our cost savings initiatives.
We may not be able to realize some or all of our expected cost savings in the future. A variety of factors could
cause us not to realize some of the expected cost savings. These include, among others, delays in the anticipated
timing of activities related to our cost savings initiatives, lack of sustainability in cost savings over time, and
unexpected costs associated with operating our business. All of these factors could negatively affect our results of
operations and financial condition, including by failing to offset any decreases in our profitability.
Significant increases in fuel costs could hurt our business.
The high cost of fuel can negatively affect consumer confidence and discretionary spending. This may reduce
the frequency and amount spent by consumers for food prepared away from home. The high cost of fuel can also
increase the price we pay for products, as well as the costs we incur to deliver products to our customers. These
factors, in turn, negatively affect our sales, margins, operating expenses, and operating results. Additionally, from
time to time, we enter into forward purchase commitments for some of our fuel requirements at prices equal to the
then-current market price. If fuel prices decrease significantly, these forward purchases may prove ineffective and
result in us paying higher than market costs for part of our fuel.
An economic downturn, or other factors affecting consumer confidence, could reduce the amount of food
prepared and consumed away from home, which could harm our business.
The U.S. foodservice market is sensitive to national and regional economic conditions. In the past, an uneven
level of general U.S. economic activity, uncertainty in the financial markets, and slow job growth has affected
consumer confidence and discretionary spending. A renewed decline in economic activity, other factors affecting
consumer confidence, and the frequency and amount spent by consumers for food prepared away from home may
reduce our sales and operating results in the future. There can be no assurance that one or more of these factors will
not reduce future operating results.
We may be subject to or affected by liability claims related to products we distribute.
As any seller of food, we may be exposed to liability claims in the event that the products we sell cause injury
or illness. We believe we have sufficient primary or excess umbrella liability insurance to cover product liability
claims. However, our current insurance may not continue to be available at a reasonable cost or, if available, may
not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage
from parties supplying products to us. However, this indemnification or insurance coverage is limited, as a practical
matter, by the creditworthiness of the indemnifying party and the insured limits of our suppliers’ insurance
coverage. If we and our suppliers do not have adequate insurance or contractual indemnification available, the
liability related to defective products could adversely affect our results of operations.
Any negative media exposure or other event that harms our reputation could hurt our business.
Maintaining a good reputation is critical to our business, particularly in selling our private label products. Any
event that damages our reputation, justified or not, could quickly affect our revenues and profits. This includes
adverse publicity about the quality, safety or integrity of our products. Reports, whether or not they are true, of food-
borne illnesses (such as e. coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella)
and injuries caused by food tampering could severely injure our reputation. If patrons of our national chain and
12
regional restaurant customers become ill from food-borne illnesses, the customers could be forced to temporarily
close restaurant locations and our sales would correspondingly decrease. In addition, instances of food-borne
illnesses or food tampering or other health concerns, even those unrelated to our products, can result in negative
publicity about the U.S. foodservice distribution industry and dramatically reduce our sales.
We face risks related to labor relations and the availability of qualified labor.
As of December 30, 2017, we had 25,355 employees, of which approximately 4,600 were members of local
unions associated with the International Brotherhood of Teamsters and other labor organizations. Our failure to
effectively renegotiate any CBAs could result in work stoppages. We may, from time to time, be subject to increased
efforts to subject us to multi-location labor disputes, as individual labor agreements expire or labor disputes arise.
This would place us at greater risk of being unable to continue to operate one or more facilities, delaying deliveries,
possibly causing customers to seek alternative suppliers, or otherwise being materially adversely affected by labor
disputes. From time to time, when there are labor related issues at a facility represented by a local union, sympathy
strikes occur at other facilities that are represented by other local unions. While we believe we have generally
satisfactory relationships with our employees, including the unions that represent some of our employees, a work
stoppage due to our failure to renegotiate union contracts or for other reasons could have a significant negative
effect on us.
Further, potential changes in labor legislation and case law could result in currently non-union portions of our
workforce, such as our warehouse and delivery personnel, being subjected to greater organized labor influence.
Should additional portions of our workforce be subject to CBAs, this could result in increased costs of doing
business as we may be subject to mandatory, binding arbitration or labor scheduling, costs and standards, which may
reduce our operating flexibility.
We are subject to a wide range of labor costs. Because our labor costs are, as a percentage of net sales, higher
than many other industries, even if we are able to renegotiate CBAs and avoid work stoppages, we may be
significantly harmed by labor cost increases. In addition, labor is a significant cost of many of our customers in the
U.S. food-away-from-home industry. Any increase in their labor costs, including any increases in costs as a result of
increases in minimum wage requirements, could reduce the profitability of our customers and reduce demand for our
products.
Additionally, we risk a shortage of qualified labor. Recruiting and retention efforts, and actions to increase
productivity, may not be successful, and we could encounter a shortage of qualified labor in the future. Such a
shortage could potentially increase labor costs, reduce profitability and/or decrease our ability to effectively serve
customers.
If our competitors implement a lower cost structure, they may be able to offer reduced prices to customers. We
may be unable to adjust our cost structure to compete profitably.
Over the last several decades, the food retail industry has undergone a significant change. Companies such as
Wal-Mart and Costco have developed a lower cost structure, so they can provide their customers with an everyday
low-cost product offering. In addition, commercial wholesale outlets, such as Restaurant Depot, offer an additional
low-cost option in the markets they serve. As a large-scale U.S. foodservice distributor, we have similar strategies to
remain competitive in the marketplace by reducing our cost structure. However, to the extent more of our
competitors adopt an everyday low price strategy, we would potentially be pressured to offer lower prices to our
customers. That would require us to achieve additional cost savings to offset these reductions. We may be unable to
change our cost structure and pricing practices rapidly enough to successfully compete in that environment.
Our business is subject to significant environmental, health and safety regulation. Failure to comply with such
regulations could adversely affect our operating costs.
Our operations face a broad range of federal, state and local laws and regulations relating to the protection of
the environment or health and safety. These laws govern numerous issues, including discharges to air, soil and
water; the handling and disposal of hazardous substances; the investigation and remediation of contamination
resulting from the release of petroleum products and other hazardous substances; employee health and safety; and
fleet safety. In the course of our operations, we operate and maintain vehicle fleets, use and dispose of hazardous
13
substances, and store fuel in on-site aboveground and underground storage tanks. At several current and former
facilities, we are investigating and remediating known or suspected contamination from historical releases of fuel
and other hazardous substances. Although the known or suspected contamination at these facilities is not currently
the subject of any administrative or judicial proceeding, we cannot provide assurance that we will not be the subject
of administrative or judicial proceedings in the future for contamination related to releases of fuel or other hazardous
substances. Further, we cannot be sure that compliance with, or liability under, existing or future environmental,
health and safety laws, such as those related to remediation obligations, will not adversely affect our future operating
results.
Some jurisdictions in which we operate have laws that affect the composition and operation of truck fleets,
such as limits on diesel emissions and engine idling. A number of our facilities have ammonia or freon-based
refrigeration systems, which could cause injury or environmental damage if accidentally released. In addition, many
of our distribution centers have propane and battery powered forklifts. Proposed or recently enacted legal
requirements, such as those requiring the phase-out of certain ozone-depleting substances, and proposals for the
regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our
transportation or other operating costs.
If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could
become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could
significantly and adversely affect our business.
We are subject to governmental regulation at the federal, state, and local levels in many areas of our business,
including food holding and processing, trade, anticorruption, transportation, employment, and other areas of safety
and compliance. Failing to comply with applicable regulatory requirements could result in a number of adverse
situations. These could include administrative, civil, or criminal penalties or fines; mandatory or voluntary product
recalls; warning letters; cease and desist orders against operations that are not in compliance; closing facilities or
operations; the loss, revocation, or modification of any existing licenses, permits, registrations, or approvals; and the
failure to get additional licenses, permits, registrations, or approvals in new jurisdictions where we intend to do
business. Any of these could have a material adverse effect on our business, financial condition, or results of
operations. These laws and regulations may change in the future, and we may incur material costs to comply with
them, or to comply with any required product recalls as a result of such changes. A more detailed discussion of some
of the laws and regulations that we are subject to can be found in “Business—Government Regulation.”
Additionally, due to contracts we have with governmental entities, state governmental agencies have, from
time to time, conducted audits of our pricing practices as part of investigations of providers of services under
governmental contracts, or otherwise. We also receive requests for information from governmental agencies in
connection with these audits.
If we fail to comply with applicable laws and regulations or encounter disagreements with respect to our
contracts subject to governmental regulation, including those referred to above, we may be subject to investigations,
criminal sanctions or civil remedies, including fines, injunctions, prohibitions, seizures or debarments from
contracting with the government. The cost of compliance or the consequences of non-compliance, including
debarments, could have a material adverse effect on our business and results of operations. In addition,
governmental entities may make changes in the regulatory frameworks within which we operate that may require us
to incur substantial increases in costs in order to comply with such laws and regulations.
We rely heavily on technology, and any disruption in existing technology or delay in implementing new
technology could adversely affect our business.
Our ability to control costs and maximize profits, as well as to serve customers most effectively, depends on
the reliability of our information technology systems and related data entry processes in our transaction intensive
business. We rely on software and other information technology to manage significant aspects of our business, such
as purchases, order processing, warehouse/inventory management, truck loading and logistics and optimization of
storage space. Any disruption to this information technology could negatively affect our customer service, decrease
the volume of our business, and result in increased costs. We have invested and continue to invest in technology
14
security initiatives, business continuity, and disaster recovery plans. However, these measures cannot fully insulate
us from technology disruption that could impair operations and profits.
Information technology evolves rapidly. To compete effectively, we are required to integrate new
technologies in a timely and cost-effective manner. If competitors implement new technologies before we do,
allowing them to provide lower priced or enhanced services of superior quality compared to those we provide, our
operations and profits could be affected.
A cybersecurity incident and other technology disruptions could negatively affect our business and our
relationships with customers.
We rely upon information technology networks and systems to process, transmit and store electronic
information, to process online credit card payments, and to manage or support virtually all of our business processes
and activities. We also use mobile devices, social networking and other online activities to connect with our
employees, suppliers, business partners and our customers. These uses give rise to cybersecurity risks, including
security breach, espionage, system disruption, theft, online platform hijacking that could redirect online credit card
payments to another credit card processing website, and inadvertent or unauthorized release of information. Our
business involves the storage and transmission of numerous classes of sensitive and/or confidential information and
intellectual property, including customers’ and suppliers’ personal information, private information about
employees, and financial and strategic information about us and our business partners. Further, we are also
expanding and improving our information technologies, resulting in a larger technological presence and
corresponding increase in exposure to cybersecurity risk. Additionally, while we have implemented measures to
prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be
entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential
information or intellectual property, or interference with our information technology systems or the technology
systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage,
violation of privacy laws, loss of customers, potential liability, and competitive disadvantage.
Our retirement benefits could give rise to significant expenses and liabilities in the future.
We sponsor defined benefit pension and other postretirement plans. Pension and postretirement obligations
give rise to costs that are dependent on various assumptions including those discussed in Note 17, Retirement Plans,
to our consolidated financial statements. In addition to the plans we sponsor, we also participate in various
“multiemployer” pension plans administered by labor unions representing some of our employees. We make
periodic contributions to these plans to allow them to meet their pension benefit obligations to their participants. In
the event that we withdraw from participating in one of these plans, then-applicable law could require us to make
additional withdrawal liability payments to the plan, and we would have to reflect such liabilities on our balance
sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan’s funding of
vested benefits.
In the ordinary course of our renegotiation of CBAs with labor unions that maintain these plans, we could
decide to discontinue participation in a plan. In that event, we could face a withdrawal liability. We could also be
treated as withdrawing from participation in one of these plans, if the number of our employees participating in these
plans is reduced to a certain degree over certain periods of time. Such reductions in the number of employees
participating in these plans could occur as a result of changes in our business operations, such as facility closures or
consolidations. Some multiemployer plans, including ones in which we participate, are reported to have significant
underfunded liabilities. Such underfunding could increase the size of our potential withdrawal liability. For a
detailed description of our retirement plans, see Note 17, Retirement Plans, to our consolidated financial statements.
Extreme weather conditions and natural disasters may interrupt our business, or our customers’ businesses,
which could have a material adverse effect on our business, financial condition, or results of operations.
Some of our facilities and our customers’ facilities are located in areas that may be subject to extreme, and
occasionally prolonged, weather conditions, including, but not limited to, hurricanes, tornadoes, blizzards, and
extreme cold. Extreme weather conditions may interrupt our operations or reduce the number of consumers who
visit our customers’ facilities in such areas. Furthermore, such extreme weather conditions may interrupt or impede
15
access to our customers’ facilities, all of which could have a material adverse effect on our business, financial
condition, or results of operations.
Adverse judgments or settlements resulting from legal proceedings in which we are or may be involved in the
normal course of our business could reduce our profits or limit our ability to operate our business.
In the normal course of our business, we are involved in various legal proceedings. The outcome of these
proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or a settlement
involving a payment of a material sum of money were to occur, it could materially and adversely affect our results
of operations or ability to operate our business. Additionally, we could become the subject of future claims by third
parties, including our employees, suppliers, customers, our investors, or regulators. Any significant adverse
judgments or settlements would reduce our profits and could limit our ability to operate our business.
Changes in consumer eating habits could materially and adversely affect our business, financial condition, or
results of operations.
Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion
sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products.
Consumer eating habits could be affected by a number of factors, including changes in attitudes regarding diet and
health or new information regarding the health effects of consuming certain foods. There is a growing consumer
preference for sustainable, organic and locally grown products. Changing consumer eating habits also occur due to
generational shifts. Millennials, the largest demographic group in the U.S. in terms of spend, seek new and different
as well as more ethnic menu options and menu innovation. Millennials also value diversity. If consumer eating
habits change significantly, we may be required to modify or discontinue sales of certain items in our product
portfolio, and we may experience higher costs associated with the implementation of those changes. Changing
consumer eating habits may reduce the frequency with which consumers purchase meals outside of the home.
Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations
that impact the ingredients and nutritional content of our food products, or laws and regulations requiring us to
disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others
regarding the ingredients and nutritional content of our food products, may be costly and time-consuming. If we are
not able to effectively respond to changes in consumer health perceptions or resulting new laws or regulations or to
adapt our menu offerings to trends in eating habits, our business and results of operations could suffer.
We rely on trademarks, trade secrets, and other forms of intellectual property protections; however, these
protections may not be adequate.
We rely on a combination of trademark, trade secret and other intellectual property laws in the United States.
We have applied in the United States and in certain other countries for registration of a limited number of
trademarks, some of which have been registered or issued. We cannot guarantee that our applications will be
approved by the applicable governmental authorities, or that third parties will not seek to oppose or otherwise
challenge our registrations or applications. We also rely on unregistered proprietary rights, including common law
trademark protection. However, third parties may use trademarks identical or confusingly similar to ours, or
independently develop trade secrets or know-how similar or equivalent to ours. If our proprietary information is
divulged to third parties, including our competitors, or our intellectual property rights are otherwise misappropriated
or infringed, our competitive position could be harmed.
Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected
costs or potentially prevent us from selling our products.
We cannot be certain that our products do not and will not infringe intellectual property rights of others. We
may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged
infringement of intellectual property rights of third parties by us or our customers in connection with their use of our
products. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our
management and personnel. Moreover, should we be found liable for infringement, we may be required to enter into
licensing agreements (if available on acceptable terms or at all) or to pay damages and to cease making or selling
16
certain products. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing
or selling our products.
Risks Related to Our Indebtedness
We have substantial debt, which could adversely affect our financial health and our ability to raise additional
capital or obtain financing in the future, react to changes in our business, and make payments on our debt.
As of December 30, 2017, we had $3,757 million of indebtedness, net of $16 million of unamortized deferred
financing costs.
Our substantial debt could have important consequences to us, including the following:
(cid:2)
our ability to obtain additional financing or use our cash flows for working capital, capital expenditures,
acquisitions, debt service requirements or general corporate purposes, and our ability to satisfy our
obligations with respect to our indebtedness may be impaired in the future;
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
a substantial portion of our cash flows from operations must be dedicated to the payment of principal
and interest on our indebtedness, thereby reducing the funds available to us for other purposes;
we are exposed to the risk of increased interest rates because approximately 46% of the principal
amount of our borrowings are at variable rates of interest as of December 30, 2017;
it may be difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and
acceleration of such indebtedness;
we may be more vulnerable to general adverse economic and industry conditions;
we may be at a competitive disadvantage compared to our competitors with less debt or comparable
debt at more favorable interest rates and they, as a result, may be better positioned to withstand
economic downturns;
our ability to refinance indebtedness may be limited or the associated costs of refinancing may increase;
and
our flexibility to adjust to changing market conditions and ability to withstand competitive pressures
could be limited, or we may be prevented from carrying out capital spending that is necessary or
important to our growth strategy and efforts to improve operating margins of our business.
Despite our substantial indebtedness levels, we may be able to incur substantially more debt, including secured
debt. This could further exacerbate the risks associated with our substantial indebtedness.
We may be able to incur substantial additional indebtedness in the future. Although the agreements governing
our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a
number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness
that could be incurred in compliance with these restrictions could be substantial.
The agreements governing our indebtedness contain restrictions and limitations that could significantly impact
our ability to operate our business.
Our credit facilities and indenture contain covenants that, among other things, restrict our ability to do the
following:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
dispose of assets;
incur additional indebtedness (including guarantees of additional indebtedness);
pay dividends and make certain payments;
create liens on assets;
make investments (including joint ventures);
17
(cid:2)
(cid:2)
(cid:2)
(cid:2)
engage in mergers, consolidations or sales of all or substantially all of our assets;
engage in certain transactions with affiliates;
change the business conducted by us; and
amend specific debt agreements.
In addition, if borrowing availability under the Amended and Restated ABL Credit Agreement, dated October
20, 2015, as amended, USF’s asset backed senior secured revolving loan facility (the “ABL Facility”), plus the
amount of unrestricted cash and cash equivalents held by us, falls below a specified threshold of $118 million on
any three consecutive business days, the borrowers under such facility, which are our subsidiaries, are required to
comply with a minimum fixed charge coverage ratio of 1.0:1.0. In addition, if our borrowing availability under the
ABL Facility falls below $130 million on any two consecutive business days or, solely with respect to the ABL
Facility, certain cash management covenants or borrowing base delivery requirements are breached, or a payment
default or bankruptcy event occurs, additional reporting responsibilities are triggered under the ABL Facility and
USF’s accounts receivable financing facility dated as of August 27, 2012, as amended (the “2012 ABS Facility”).
Our ability to comply with these provisions in future periods will depend on our ongoing financial and
operating performance, as discussed under “Risks Related to Our Business and Industry,” above. Our ability to
comply with these provisions in future periods will also depend substantially on the pricing of our products, our
success at implementing cost reduction initiatives and our ability to successfully implement our overall business
strategy.
The restrictions under the terms of our credit facilities and indenture may prevent us from taking actions that
we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our
business strategy or effectively compete with companies that are not similarly restricted. We may also incur future
debt obligations that might subject us to additional restrictive covenants that could affect our financial and
operational flexibility. We cannot assure you that we will be granted waivers or amendments to these agreements if
for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms
acceptable to us, or at all.
Our ability to comply with the covenants and restrictions contained in our credit facilities and indenture may
be affected by economic, financial and industry conditions beyond our control. The breach of any of these covenants
or restrictions could result in a default under our credit facilities and indenture that would permit the applicable
lenders or note holders, as the case may be, to declare all amounts outstanding thereunder to be due and payable,
together with accrued and unpaid interest. If we are unable to repay debt, lenders having secured obligations could
proceed against the collateral securing the debt. In any such case, we may be unable to borrow under and may not be
able to repay the amounts due under our credit facilities. This could have serious consequences to our financial
condition and results of operations and could cause us to become bankrupt or insolvent.
Our ability to generate the significant amount of cash needed to pay interest and principal on our debt facilities
and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many
factors beyond our control.
Our ability to make scheduled payments on, or to refinance our obligations under our debt facilities, depends
on our financial and operating performance. This, in turn, will be subject to prevailing economic and competitive
conditions and to the financial and business factors, many of which may be beyond our control, as described under
“Risks Related to our Business and Industry,” above.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced
to reduce or delay capital expenditures, sell assets, raise additional equity capital or restructure our debt. However,
there is no assurance that such alternative measures may be successful and, as a result, we may not be able to meet
our scheduled debt service obligations. In the absence of such operating results and resources, we could face
substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt
service and other obligations. Our credit facilities and indenture restrict our ability to dispose of assets and use the
proceeds from any such dispositions. As a result, we cannot assure you we will be able to consummate those sales,
18
or, if we do, what the timing of the sales will be or whether the proceeds that we realize will be adequate to meet the
debt service obligations when due.
The 2012 ABS and the ABL Facilities mature in 2020. The amended and restated senior secured term loan,
(the “Amended and Restated 2016 Term Loan”) will mature in 2023. The 5.875% unsecured senior notes (the “2016
Senior Notes”) will mature in 2024. We cannot assure you that we will be able to refinance any of our indebtedness
or obtain additional financing, particularly due to our substantial level of indebtedness and the debt incurrence
restrictions imposed by the agreements governing our debt, as well as prevailing market conditions.
An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.
After considering interest rate swaps that fixed the interest rate on $1.1 billion of principal of our Amended
and Restated 2016 Term Loan, approximately 46% of the principal amount of our debt bears interest at variable
rates as of December 30, 2017. As a result, an increase in interest rates would increase the cost of servicing our debt
and could materially reduce our profitability and cash flows. The impact of such an increase would be more
significant for us than it would be for some other companies because of our substantial indebtedness.
Risks Related to Ownership of Our Common Stock
Our stock price may change significantly, and you may not be able to resell your shares of our common stock at
or above the price you paid or at all, and you could lose all or part of your investment as a result.
The stock market routinely experiences periods of large or extreme volatility. In some instances, this volatility
is unrelated or disproportionate to the operating performance of particular companies.
The trading price of our common stock may be adversely affected due to a number of factors such as those
listed in “Risks Related to Our Business and Industry” and the following, most of which we cannot control:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our or our industry’s future financial performance, including financial
estimates and investment recommendations by securities analysts and investors, and the publication of
research reports regarding the same;
declines in the market prices of stocks, trading volumes and company valuations generally, particularly
those of foodservice distribution companies;
strategic actions by us or our competitors;
changes in preferences of our customers; and purchasing habits of consumers;
announcements by us or our competitors of significant contracts, new products, acquisitions, joint
marketing relationships, joint ventures, other strategic relationships, or capital commitments;
changes in general economic or market conditions or trends in our industry or markets;
changes in business or regulatory conditions;
future sales of our common stock or other securities;
investor perceptions or the investment opportunity associated with our common stock relative to other
investment alternatives;
a default on our indebtedness or a downgrade in our or our competitors’ credit ratings;
the public’s response to press releases or other public announcements by us or third parties, including
our filings with the SEC;
changes in senior management or key personnel;
announcements relating to litigation;
19
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this
guidance;
the sustainability of an active trading market for our stock;
changes in accounting principles;
occurrences of extreme or inclement weather; and
other events or factors, including those resulting from natural disasters, war, or acts of terrorism, or
responses to these events.
In the past, following periods of market volatility, stockholders have instituted securities class action
litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the
attention of executive management from our business regardless of the outcome of such litigation.
Because we have no current plans to pay cash dividends on our common stock, you may not receive any return
on investment unless you sell your common stock for a price greater than that which you paid for it.
We have no current plans to pay any cash dividends for the foreseeable future. The declaration, amount, and
payment of any future dividends on shares of common stock will be at the sole discretion of our Board of Directors.
Our Board of Directors may take into account general and economic conditions, our financial condition, and results
of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax,
and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by our subsidiaries
to us, and such other factors as our Board of Directors may deem relevant. In addition, our ability to pay dividends is
limited by covenants of our existing debt agreements and may be limited by covenants of any future indebtedness
we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock
unless you sell our common stock for a price greater than that which you paid for it.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws
may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover
attempt, or other change of control transaction that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares held by our stockholders.
These provisions provide for, among other things:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
a classified Board of Directors, dividing our Board of Directors into three classes, with each class
serving for staggered three-year terms, which prevents stockholders from electing an entirely new
Board of Directors at a single annual meeting;
the issuance of one or more series of preferred stock that could be used by our Board of Directors to
thwart a takeover attempt;
an advance notice requirement for nominations of directors by stockholders and for proposing matters
that can be acted upon by stockholders at our stockholder meetings;
a prohibition on stockholders calling special meetings of stockholders;
subject to any rights of holders of preferred stock, a limitation on stockholders’ ability to remove
directors;
subject to any rights of holders of preferred stock, the filling of vacancies on the Board of Directors,
including newly-created directorships, only by a majority vote of directors then in office, even if less
than a quorum, or by a sole remaining director;
a prohibition on stockholder action by written consent, thereby requiring all actions to be taken at a
meeting of the stockholders; and
subject to the approval of our stockholders of a restatement of our amended and restated certificate of
incorporation to eliminate supermajority voting, the approval of at least 75% of our outstanding shares
of common stock to amend certain provisions of the amended and restated certificate of incorporation
and the amended and restated bylaws.
20
These anti-takeover provisions could make it more difficult for a third-party to acquire us, even if the third-
party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited
in their ability to obtain a premium for their shares. Even in the absence of a takeover attempt, the existence of these
provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as
discouraging takeover attempts in the future. Our amended and restated certificate of incorporation and certain
provisions of our amended and restated bylaws may also make it difficult for stockholders to replace or remove our
management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult
or prevent a change in our control, which may not be in the best interests of our stockholders.
Our amended and restated certificate of incorporation includes provisions limiting the personal liability of our
directors for breaches of fiduciary duty under the DGCL.
Our amended and restated certificate of incorporation contains provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director’s personal liability to the fullest extent permitted by
the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
any breach of the director’s duty of loyalty;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of
the law;
Section 174 of the DGCL (unlawful dividends); or
any transaction from which the director derives an improper personal benefit.
The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an
action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which
indemnification is not available under the DGCL. These provisions, however, should not limit or eliminate our
rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director’s fiduciary duty. These provisions will not alter a director’s liability under federal securities
laws. The inclusion of this provision in our amended and restated certificate of incorporation may discourage or
deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties,
even though such an action, if successful, might otherwise have benefited us and our stockholders.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
As of January 31, 2018, we maintained 81 primary operating facilities, including 65 distribution centers and
other supporting facilities. About 76% were owned and 24% were leased. Our real estate includes general corporate
facilities in Rosemont, Illinois and Tempe, Arizona, both of which are leased. Our properties also include a number
of local sales offices, truck “drop-sites”, and vacant land not included in the count above. In addition, there is a
minimal amount of surplus owned or leased property not included in the count above. Leases on these facilities
expire at various dates from 2018 to 2028, although certain of these leases include options for renewal.
21
The following table lists our operating facilities, by state, and their aggregate square footage. The table reflects
our material operating facilities, including distribution centers that may contain multiple locations or buildings and
other supporting facilities. It does not include retail sales locations, Chef’Stores, or US Foods Culinary Equipment &
Supply outlet locations. It also does not include closed locations, vacant properties or ancillary use owned and leased
properties, such as temporary storage, remote sales offices or parking lots. In addition, the table shows the square
footage of our leased Rosemont headquarters and Tempe shared services center locations:
Number of
Facilities
Square
Feet
438,804
2
317,071
2
1
135,009
5 1,314,847
314,883
1
1
239,899
5 1,194,226
691,017
2
528,295
3
233,784
1
185,510
2
350,859
1
69,304
1
276,003
1
414,963
3
287,356
1
602,947
3
246,430
2
840,519
4
533,237
1
3 1,073,375
133,486
1
388,683
3
954,736
3
221,314
2
501,894
3
1
308,307
6 1,179,319
64,410
1
2 1,134,399
47,400
1
602,270
2
963,732
4
267,180
1
629,318
2
216,500
1
220,537
1
354,127
2
81 18,475,950
Owned 14,023,379
Leased 4,452,571
329,564
133,225
76 %
24 %
Location
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Louisiana
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Total
Headquarters: Rosemont, Illinois
Shared Services Center: Tempe, Arizona
22
Item 3.
Legal Proceedings
From time to time, we may be party to litigation that arises in the ordinary course of our business.
Management does not believe there is any pending litigation that, separately or in the aggregate, would have a
material adverse effect on our results of operations, financial condition, or cash flows.
On November 9, 2017, we were notified by the U.S. Environment Protection Agency (the “EPA”) that
potential violations of the Section 112(r)(7) Risk Management Program regulation found at 40 CFR Part 68 were
allegedly committed at our Fairburn, GA facility. On December 6, 2017, we notified the EPA of our intent to settle
the alleged potential violations and pay a final penalty of $107,961. As of December 30, 2017, the parties had not
negotiated and executed a Consent Agreement and Final Order.
Item 4.
Mine Safety Disclosures
None.
23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock began trading publicly on the NYSE under the symbol “USFD” as of May 26, 2016. Prior
to that time, there was no public market for our common stock. As of February 15, 2018, there were 23,855 holders
of record of our common stock. This stockholder figure does not include a substantially greater number of holders
whose shares are held of record by banks, brokers and other financial institutions. The following table sets forth the
high and low intra-day sale prices per share for our common stock as reported on the NYSE for the period
indicated:
Fiscal Year Ended December 31, 2016:
Second Quarter ended July 2, 2016
(from May 26, 2016)
Third Quarter ended October 1, 2016
Fourth Quarter ended December 31, 2016
Fiscal Year Ended December 30, 2017:
First Quarter ended April 1, 2017
Second Quarter ended July 1, 2017
Third Quarter ended September 30, 2017
Fourth Quarter ended December 30, 2017
Stock Price
High
Low
$
$
$
$
$
$
$
25.64 $
25.83 $
27.79 $
28.14 $
30.73 $
28.79 $
32.10 $
22.51
22.90
22.19
25.50
25.93
26.37
25.43
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value)
of Shares that May
Yet Be Purchased
Under the Plans
or Programs
—
—
10,000,000 (1) $
10,000,000 $
—
—
28.00
28.00
—
—
—
—
—
—
—
—
Period
10/1 - 11/4
11/5 - 12/2
12/3 - 12/30
Total
(1) In conjunction with a secondary offering of our common stock held 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 “Sponsors”), on December 4, 2017, we repurchased 10,000,000 shares of our common stock from the
underwriter at $28.00 per share, which was the underwriter’s purchase price. The closing of the share repurchase
occurred substantially concurrently with the closing of the offering, and the shares we repurchased were retired. The
Company did not sell any stock in the offering and did not receive any proceeds from the offering.
Unregistered Sales of Equity Securities
None.
Dividends
We have no current plans to pay future dividends on our common stock, and we have never paid any
dividends on our common stock other than a one-time special cash distribution of $666 million made in January
2016 to our stockholders, of which $657 million was paid to the Sponsors.
24
The declaration, amount, and payment of any future dividends on shares of common stock will be at the sole
discretion of our Board of Directors. Our Board of Directors may take into account the factors discussed under “Our
stock price may change significantly, and you may not be able to resell your shares of our common stock at or above
the price you paid or at all, and you could lose all or part of your investment as a result,” above. Because we are a
holding company and have no direct operations, we will only be able to pay dividends from funds we receive from
our subsidiaries. In addition, our ability to pay dividends is limited by covenants in our existing subsidiary debt
agreements and may be further limited by the agreements governing other indebtedness we or our subsidiaries incur
in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources, Indebtedness.”
25
Item 6.
Selected Financial Data
The selected historical consolidated statements of operations data for fiscal years 2017, 2016, and 2015, and
the related selected balance sheet data as of fiscal years ending in 2017 and 2016, have been derived from our
consolidated financial statements and related notes contained elsewhere in this Annual Report. The selected
historical consolidated statement of operations data for fiscal years 2014 and 2013 and the selected balance sheet
data as of fiscal years ended 2015, 2014, and 2013, have been derived from our consolidated financial statements not
included in this Annual Report.
The following selected consolidated financial data should be read together with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements
and related notes included in Item 8 of this Annual Report.
The following tables set forth our selected financial data for the periods and as of the dates indicated:
Consolidated Statements of Operations Data:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
$ 24,147 $ 22,919 $ 23,127 $ 23,020 $ 22,297
19,930 18,866 19,114 19,222 18,474
3,823
4,053
3,798
4,013
4,218
2017
Fiscal Year
2015
(In millions, except for per share data)*
2016
2014
2013
Distribution, selling and administrative costs
Restructuring (benefit) charges and tangible asset impairments
Total operating expenses
Operating income
Acquisition termination fees—net
Interest expense—net
Loss on extinguishment of debt
Income (loss) before income taxes
Income tax (benefit) provision
Net income (loss)
Net income (loss) per share:
Basic
Diluted(a)
Weighted-average number of shares used in
per share amounts:
Basic
Diluted(a)
Other Data:
Cash flows—operating activities
Cash flows—investing activities
Cash flows—financing activities
Capital expenditures
EBITDA(b)
Adjusted EBITDA(b)
Adjusted net income(b)
Free cash flow(b)
Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt
Total shareholders’ equity
3,644
(1 )
3,644
574
—
170
—
404
(40 )
444 $
3,586
53
3,639
414
—
229
54
131
(79 )
210 $
3,650
173
3,823
190
288
285
—
193
25
168 $
3,546
—
3,546
252
—
289
—
(37 )
36
(73 ) $
3,494
8
3,502
321
—
306
42
(27 )
30
(57 )
2.00 $
1.97 $
1.05 $
1.03 $
0.99 $
0.98 $
(0.43 ) $
(0.43 ) $
(0.34 )
(0.34 )
222.4
225.7
200.1
204.0
169.6
171.1
169.5
169.5
169.6
169.6
748 $
(356 )
(405 )
221
952
1,058
312
527
556 $
(762 )
(180 )
164
782
972
321
392
555 $
(271 )
(110 )
187
876
875
154
368
402 $
(118 )
(120 )
147
664
866
126
255
322
(187 )
(197 )
191
667
845
111
131
$
$
$
$
2017
2016
As of Fiscal Year
2015
2014
2013
$
119 $
9,037
3,757
2,751
131 $
8,944
3,782
2,538
518 $
9,239
4,745
1,873
344 $
9,023
4,714
1,622
180
9,138
4,722
1,844
26
(*) Amounts may not add due to rounding.
(a) When there is a loss for the applicable period, weighted average fully diluted shares outstanding was not used in the
(b)
computation as the effect would be antidilutive.
EBITDA, Adjusted EBITDA, and Adjusted net income are financial measures that are not in accordance with accounting
principles generally accepted in the United States of America. (“GAAP”). These non-GAAP measures are used by
management to measure operating performance. EBITDA is defined as net income (loss), plus interest expense—net,
income tax (benefit) provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for
1) Sponsor fees; 2) restructuring (benefit) charges and tangible asset impairments; 3) share-based compensation expense;
4) the non-cash impact of LIFO reserve adjustments; 5) loss on extinguishment of debt; 6) pension settlements; 7) business
transformation costs; 8) Acquisition-related costs; 9) Acquisition termination fees—net; and 10) other gains, losses, or
charges as specified in our debt agreements. Adjusted net income is defined as net income (loss) excluding the items used
to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items.
EBITDA, Adjusted EBITDA, and Adjusted net income as presented in this Annual 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 income (loss) or any other performance
measures derived in accordance with GAAP.
Free cash flow is defined as cash flows provided by operating activities less capital expenditures. Free cash flow is used by
management as a supplemental measure of our liquidity. For additional information see “Non-GAAP Reconciliations”
below.
Non-GAAP Reconciliations
We provide EBITDA, Adjusted EBITDA, and Adjusted net income as supplemental measures to GAAP
regarding our operational performance. These non-GAAP financial measures exclude the impact of certain items
and, therefore, have not been calculated in accordance with GAAP.
We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our
operating performance because they exclude amounts that we do not consider part of our core operating results when
assessing our performance. Items excluded from Adjusted EBITDA include restructuring (benefit) charges and
tangible asset impairments, loss on extinguishment of debt, Sponsor fees, share-based compensation expense, the
non-cash impact of LIFO reserve adjustments, pension settlements, business transformation costs (costs associated
with the redesign of systems and processes), Acquisition related costs, Acquisition termination fees—net, and other
items as specified in our debt agreements.
We believe that Adjusted net income is a useful measure of operating performance for both management and
investors because it excludes items that are not reflective of our core operating performance and provides an
additional view of our operating performance including depreciation, amortization, interest expense, and income
taxes on a consistent basis from period to period. Adjusted net income is net income (loss) excluding such items as
restructuring (benefit) charges and tangible asset impairments, loss on extinguishment of debt, Sponsor fees, share-
based compensation expense, the non-cash impact of LIFO reserve adjustments, pension settlements, business
transformation costs (costs associated with redesign of systems and process), and other items, and adjusted for the
tax effect of the exclusions and discrete tax items. We believe that Adjusted net income is used by investors,
analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to
how factors and trends impact our operating performance.
Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial
performance as well as our performance relative to our competitors as they assist in highlighting trends, (b) to set
internal sales targets and spending budgets, (c) to measure operational profitability and the accuracy of forecasting,
(d) to assess financial discipline over operational expenditures, and (e) as an important factor in determining variable
compensation for management and employees. EBITDA and Adjusted EBITDA are also used in connection with
certain covenants and restricted activities under our debt agreements. We also believe these non-GAAP financial
measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in
our industry.
We use free cash flow to review the liquidity of our operations. We measure free cash flow as cash flows
provided by operating activities less capital expenditures. We believe that free cash flow is a useful financial metric
27
to assess our ability to pursue business opportunities and investments. Free cash flow is not a measure of our
liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities.
We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted
EBITDA, Adjusted net income, and free cash flow may not be the same as similar measures used by other
companies. Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income or free cash
flow in the same manner. We compensate for these limitations by using these non-GAAP financial measures as
supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures
to their most comparable GAAP financial measures.
The following table reconciles EBITDA, Adjusted EBITDA, Adjusted net income and free cash flow to the
most directly comparable GAAP financial performance and liquidity measures for the periods indicated:
Net income (loss)
Interest expense—net
Income tax (benefit) provision
Depreciation and amortization expense
EBITDA
Adjustments:
Sponsor fees(1)
Restructuring (benefit) charges and tangible asset impairments(2)
Share-based compensation expense(3)
Net LIFO reserve change(4)
Loss on extinguishment of debt(5)
Pension settlements(6)
Business transformation costs(7)
Acquisition termination fees—net(8)
Acquisition related costs(9)
Other(10)
Adjusted EBITDA
Depreciation and amortization expense
Interest expense—net
Income tax provision, as adjusted(11)
Adjusted net income
Free cash flow
Cash flows from operating activities
Capital expenditures
Free cash flow
$
$
$
$
2017
2016
Fiscal Year
2015
(In millions)*
2014
2013
444 $
170
(40 )
378
952
—
(1 )
21
14
—
18
40
—
—
14
1,058
(378 )
(170 )
(198 )
312 $
210 $
229
(79 )
421
782
36
53
18
(18 )
54
—
37
—
1
10
972
(421 )
(229 )
(1 )
321 $
168 $
285
25
399
876
10
173
16
(74 )
—
—
46
(288 )
85
31
875
(399 )
(285 )
(37 )
154 $
(73 ) $
289
36
412
664
10
—
12
60
—
2
54
—
38
26
866
(412 )
(289 )
(39 )
126 $
748 $
(221 )
527 $
556 $
(164 )
392 $
555 $
(187 )
368 $
402 $
(147 )
255 $
(57 )
306
30
388
667
10
8
8
12
42
2
61
—
4
31
845
(388 )
(306 )
(40 )
111
322
(191 )
131
(*) Amounts may not add due to rounding.
(1) Consists of fees paid to the Sponsors for consulting and management advisory services. On June 1, 2016, the consulting
agreements with each of the Sponsors were terminated for an aggregate termination fee of $31 million.
(2) Consists primarily of facility related closing costs, including severance and related costs, tangible asset impairment
charges and gains on sale, organizational realignment costs and estimated multiemployer pension withdrawal liabilities
and settlements.
Share-based compensation expense for vesting of stock awards and share purchase plan.
(3)
(4) Represents the non-cash impact of net LIFO reserve adjustments.
(5)
Includes fees paid to debt holders, third-party costs, the write off of certain pre-existing unamortized deferred financing
costs related to the 2016 and 2013 debt refinancing transactions; early redemption premium and the write-off of
unamortized issue premium related to the June 2016 debt refinancing; and the loss related to the September 2016
defeasance of our commercial mortgage backed securities (the “CMBS Fixed Facility”). See Note 11, Debt to our
consolidated financial statements for a further description of the 2016 debt transactions.
(6) Consists of settlement charges resulting from lump-sum payments to retirees and former employees participating in
several Company sponsored pension plans. See Note 17, Retirement Plans to our consolidated financial statements for a
further description of the 2017 pension settlement charges.
(7) Consists primarily of costs related to significant process and systems redesign across multiple functions.
28
(8) Consists of net fees received in connection with the termination of the agreement and plan of merger dated December 8,
2013 (the “Acquisition Agreement”) with Sysco Corporation, through which Sysco would have acquired US Foods (the
“Acquisition”). See Note 1, Overview and Basis of Presentation to our consolidated financial statements.
(9) Consists of costs related to the Acquisition, including certain employee retention costs.
(10) Other includes gains, losses or charges as specified under our debt agreements.
(11) Represents our income tax (benefit) provision adjusted for the tax effect of pre-tax items excluded from Adjusted net
income 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, excess tax benefits
associated with share-based compensation, and the tax benefits recognized in continuing operations due to the existence of
a gain in other comprehensive income and loss in continuing operations. The tax effect of pre-tax items excluded from
Adjusted net income is computed using a statutory tax rate after taking into account the impact of permanent differences
and valuation allowances. We released the valuation allowance against federal and certain state net deferred tax assets in
fiscal year 2016. We were required to reflect the portion of the valuation allowance release related to 2016 ordinary
income in the estimated annual effective tax rate and the portion of the valuation allowance release related to future years’
income discretely in fiscal year 2016. We maintained a valuation allowance against federal and state net deferred tax
assets in fiscal years 2013 through 2015. The result was an immaterial tax effect related to pre-tax items excluded from
Adjusted net income in the fiscal years 2013 through 2016.
A reconciliation between the GAAP income tax (provision) benefit and the income tax provision, as adjusted, is as
follows:
GAAP Income tax benefit (provision)
Tax impact of pre-tax income adjustments
Discrete tax items
Income tax provision, as adjusted
(*) Amounts may not add due to rounding.
2017
2016
Fiscal Year
2015
(In millions)*
2014
2013
$
$
40 $
(39 )
(199 )
(198 ) $
79 $
—
(80 )
(1 ) $
(25 ) $
—
(12 )
(37 ) $
(36 ) $
—
(3 )
(39 ) $
(30 )
—
(10 )
(40 )
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read
together with “Selected Financial Data,” in Part II, Item 6 of our consolidated financial statements and related notes
contained elsewhere in this Annual Report. In addition to historical consolidated financial information contained
herein, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve
numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” in Part I, Item
1A of this Annual Report. Actual results may differ materially from those contained in any forward-looking
statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere
in this Annual Report, particularly in “Risk Factors.”
The following discussion of our results includes certain financial measures not required by, or presented in
accordance with, GAAP. We believe these non-GAAP financial measures provide meaningful supplemental
information about our operating performance, because they exclude amounts that our management and board of
directors do not consider part of core operating results when assessing our performance and underlying trends. More
information on the rationale for these measures is discussed in “Non-GAAP Reconciliations” in “Item 6. Selected
Financial Data” of this Annual Report.
Operating Metrics
Case growth − Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time.
Customers periodically are reclassified, based on changes in size or other characteristics, and when those changes
occur, the respective customer’s historical volume follows their new classification.
Organic growth − Organic growth includes growth from operating business that has been reflected in our
results of operations for at least 12 months.
Industry Trends
During 2017, the U.S. foodservice distribution industry grew at 1.4%, according to Technomic (January
2018). Within the industry, there have been mixed results as different customer types have varying sizes and growth
profiles, as well as differing product and service requirements. Independent restaurants, a customer type of strategic
focus, grew during the year, while national chains, on a same-store chain basis, experienced declines. We believe
we have capitalized on innovative product offerings and our e-commerce and technology solutions to grow our mix
with independent restaurants, and have made gains in this area of our strategy. Consistent with the market trends,
we experienced organic declines with national chain customers; however, much of our declines resulted from
strategically planned exits from certain national chain business.
Highlights and Initiatives
Our case volume in 2017 increased 2.9%. We experienced organic independent restaurant case growth and
growth with other target customer types, as well as growth due to acquisitions. Net sales increased $1,228 million,
or 5.4%, year over year. In addition to case growth, net sales was favorably impacted by year over year inflation, as
a significant portion of our business is based on markups over cost.
Gross profit increased $165 million or 4.1% to $4,218 million in 2017. As a percentage of net sales gross
profit was 17.5% down 0.2% from 17.7% in the prior year period. Margin rate declines in the organic business,
including higher inbound freight costs, and the adverse impacts of the year over year LIFO reserve changes, was
partially offset by the favorable rate impact from acquisitions.
Total operating expenses increased $5 million or 0.1% to $3,644 million in 2017, and included increased
wages from higher volume and wage inflation, partially offset by lower restructuring costs, the absence of Sponsor
fees incurred in 2016 and lower amortization in 2017.
In December 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”), making
significant changes to the U.S. tax code, including a reduction in the corporate tax rate. The application of the Tax
30
Act resulted in a discrete tax benefit of $173 million, which was recognized in fiscal year 2017 earnings. The tax
benefit resulted from lowering our deferred tax liabilities to reflect the revised tax rate.
The reduction of the U.S. federal corporate tax rate under the Tax Act is expected to reduce the effective tax
rate for the year ended December 29, 2018 by an estimated 13%, as compared to what the effective tax rate would
have been in the absence of tax reform, after taking into account the impact of the federal deduction of state income
taxes.
In 2016, we launched an initiative to centralize certain field procurement and replenishment activities. We
expect the procurement actions to be completed in 2018, with realization of benefits in product costs and logistics
savings resulting from more effective management of procurement and replenishment activities. However, the
expected savings may be offset by increases in inbound freight resulting from capacity and rate challenges being
experienced in the U.S.
Outlook
With favorable trends in consumer confidence and the unemployment rate, we expect positive industry
growth in 2018. General economic trends and conditions, including demographic changes, inflation, deflation,
consumer confidence, and disposable income, coupled with changing tastes and preferences, influence the amount
that consumers spend on food-away-from-home, which can affect our customers and, in turn, our sales. On
balance, we believe that these general trends will support positive real growth in food-away-from-home
consumption and the growth of foodservice industry sales, particularly in our target customer types. We expect
competitive pressures to remain high and a moderation of year over year inflation in 2018. Given that a large
portion of our business is based on markups over cost, sudden inflation or prolonged deflation can negatively
impact our sales and gross profit. We expect sales to our independent restaurant customers, which generally have
higher margins, to continue to be an increasing proportion of our sales mix. Favorable customer mix, additional
volume from acquisitions, as well as other sourcing initiatives, will also continue to contribute to our ability to
expand our margins. Additionally, we believe our investments in a common technology platform, efficient
transactional and operational model, e-commerce and analytic tools that support our team-based selling approach,
coupled with product innovation, have enabled us to leverage our costs, maintain our sales, and differentiate
ourselves from our competitors.
Our strategy includes continued focus on executing our growth strategies, adding value for and differentiating
ourselves with our customers, and driving continued operational improvement in the business.
31
Results of Operations
The following table presents selected consolidated results of operations of our business for the last three fiscal
years:
Consolidated Statements of Operations:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Distribution, selling and administrative costs
Restructuring (benefit) charges and tangible asset impairments
Total operating expenses
Operating income
Acquisition termination fees - net
Interest expense - net
Loss on extinguishment of debt
Income before income taxes
Income tax (benefit) provision
Net income
Percentage of Net Sales:
Gross profit
Distribution, selling and administrative costs
Operating expense
Operating income
Net income
Adjusted EBITDA
(1)
Other Data:
Cash flows—operating activities
Cash flows—investing activities
Cash flows—financing activities
Capital Expenditures
(1)
EBITDA
Adjusted EBITDA
(1)
Adjusted net income
Free cash flow
(1)
(1)
2017
Fiscal Year
2016
(In millions)*
2015
$
24,147 $
19,930
4,218
22,919 $
18,866
4,053
23,127
19,114
4,013
3,644
(1 )
3,644
574
—
170
—
404
(40 )
444 $
17.5 %
15.1 %
15.1 %
2.4 %
1.8 %
4.4 %
748 $
(356 )
(405 )
221
952
1,058
312
527
3,586
53
3,639
414
—
229
54
131
(79 )
210 $
17.7 %
15.6 %
15.9 %
1.8 %
0.9 %
4.2 %
556 $
(762 )
(180 )
164
782
972
321
392
3,650
173
3,823
190
288
285
—
193
25
168
17.4 %
15.8 %
16.5 %
0.8 %
0.7 %
3.8 %
555
(271 )
(110 )
187
876
875
154
368
$
$
(*) Amounts may not add due to rounding.
(1)
EBITDA, Adjusted EBITDA, and Adjusted net income are non-GAAP measures used by management to measure
operating performance. EBITDA is defined as net income (loss), plus interest expense—net, income tax (benefit)
provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for 1) Sponsor fees;
2) restructuring (benefit) charges and tangible asset impairments; 3) share-based compensation expense; 4) the non-cash
impact of LIFO reserve adjustments; 5) loss on extinguishment of debt; 6) pension settlements; 7) business transformation
costs; 8) Acquisition-related costs; 9) Acquisition termination fees—net; and 10) other gains, losses, or charges as
specified in USF’s debt agreements. Adjusted net income is defined as net income (loss) excluding the items used to
calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items.
EBITDA, Adjusted EBITDA, and Adjusted net income as presented in this Annual 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 income (loss) or any other performance
measures derived in accordance with GAAP.
32
Free cash flow is defined as cash flows provided by operating activities less capital expenditures. Free cash flow is used by
management as a supplemental measure of our liquidity. We believe that free cash flow is a useful financial metric to
assess our ability to pursue business opportunities and investments. Free cash flow is not a measure of our liquidity under
GAAP and should not be considered as an alternative to cash flows provided by operating activities.
See additional information for the use of these measures and “Non-GAAP Reconciliations” in “Item 6.
Selected Financial Data”.
Fiscal Years Ended December 30, 2017 and December 31, 2016
Highlights
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Case volume increased 2.9%. Independent restaurant case volume increased 5.2%.
Net sales increased $1,228 million, or 5.4%, to $24,147 million.
Operating income increased $160 million, or 38.6%, to $574 million. As a percentage of net sales,
operating income increased to 2.4% in 2017, compared to 1.8% in 2016.
Net income increased $234 million to $444 million in 2017, compared to $210 million in 2016.
Adjusted EBITDA increased $86 million, or 8.8%, to $1,058 million. As a percentage of net sales,
Adjusted EBITDA increased to 4.4% in 2017, compared to 4.2% in 2016.
Net Sales
Total case growth in 2017 was 2.9%. The increase reflected growth with independent restaurants, healthcare,
and hospitality, partially offset by declines in education. Organic case volume increased 1.7% and reflected similar
customer growth trends and some planned exits from national chains.
Net sales increased $1,228 million, or 5.4%, to $24,147 million in 2017, comprised of a 2.9%, or $675
million, increase in case volume, and a 2.5%, or $553 million, increase in the overall net sales rate per case.
Acquisitions increased net sales by approximately $387 million, or 1.6%. Sales of private brands represented
approximately 34% and 33% of total net sales in 2017 and 2016, respectively.
The overall net sales rate per case increase of 2.5%, compared to 2016, is mostly comprised of inflation, as a
significant portion of our business is based on markups over cost. We experienced year over year inflation in the
grocery, poultry, seafood, pork, and fresh produce product categories, partially offset by deflation in beef.
Gross Profit
Gross profit increased $165 million, or 4.1%, to $4,218 million in 2017 due to higher volume and margin
expansion initiatives. As a percentage of net sales, gross profit decreased 0.2% from 17.7% in 2016 to 17.5% in
2017. Gross profit from acquisitions was offset by lower organic margins, including higher inbound freight costs,
and the adverse impact of year over year LIFO adjustments. Our LIFO method of inventory costing resulted in $14
million of expense in 2017 compared to a benefit of $18 million in 2016 driven by product inflation in 2017
compared to deflation in 2016. Inventory product categories that experienced cost inflation in 2017 included dairy,
cheese, poultry, and grocery.
Distribution, Selling and Administrative Costs
Distribution, selling and administrative costs increased $58 million, or 1.6%, to $3,644 million in 2017. The
increase includes $90 million from salaries and wages primarily driven by wage inflation and volume and $11
million due to the absence of a net insurance benefit in the prior year related to a facility tornado loss. The
additional volume contributed to $11 million of additional repairs and maintenance inclusive of our vehicle fleet and
additional insurance costs on the fleet portfolio. We also experienced $7 million of higher bad debt provisions, $5
million of additional IT costs, and approximately $11 million of other net costs that were not individually
33
significant. These increases were partially offset by the absence of $36 million of costs incurred under a consulting
and management agreement with the Sponsors in 2016, including a $31 million contract termination fee incurred
concurrently with our initial public offering (“IPO”), and $46 million of lower depreciation and amortization in 2017
primarily driven by the completed amortization of the customer relationship intangible asset initially recognized in
2007, upon acquisition of the Company by the Sponsors.
As a percentage of net sales, distribution, selling and administrative costs decreased 0.5% to 15.1% in 2017
compared to 15.6% in 2016. This decrease was primarily attributable to the absence of the Sponsor termination fee
and lower amortization discussed above. We also experienced improvement in the rate of distribution, selling and
administrative costs as a percent of net sales due to net sales inflation experienced during 2017.
Restructuring (Benefit) Charges and Tangible Asset Impairments
Restructuring charges decreased $54 million, or 101.9%, to a benefit of $1 million in 2017. During 2017, net
costs of $2 million were recognized related to initiatives launched in 2016 to centralize certain field procurement
and replenishment activities, and reduce corporate and administrative costs. These costs were offset by a $3 million
gain on the sale of the Baltimore, Maryland distribution facility that closed in 2016.
During 2016, we incurred a net charge of $53 million associated with our plan to streamline our field
operations model, the closure of the Baltimore distribution facility, and certain other corporate and administrative
cost reduction initiatives. Included in the charge was a benefit of $4 million related to a favorable settlement of
substantially all of our multiemployer pension withdrawal liabilities, related to previously closed facilities, including
Baltimore. Finally, we also incurred $3 million related to a lease termination settlement, which is included in the $53
million net charge.
Operating Expenses
Operating expenses, comprised of distribution, selling and administrative costs and restructuring (benefit)
charges and tangible asset impairments, increased $5 million, or 0.1% to $3,644 million in 2017. Operating expenses
as a percentage of net sales were 15.1% in 2017, down from 15.9% in 2016. The change was primarily due to the
factors discussed in the relevant sections above.
Operating Income
Operating income increased $160 million, or 38.6% to $574 million in 2017. Operating income as a percent of
net sales was 2.4% in 2017, up from 1.8% in 2016. The change was primarily due to the factors discussed in the
relevant sections above.
Interest Expense—Net
Interest expense—net decreased $59 million, primarily due to the reduction of substantial debt with the
proceeds from our 2016 IPO, and the defeasance and refinancing of certain other debt during 2016. See Note 11,
Debt, to our consolidated financial statements.
Loss on Extinguishment of Debt
As discussed in Note 11, Debt, to our consolidated financial statements, we incurred a $54 million loss on
extinguishment of debt in 2016 related to the June 2016 debt redemption and refinancing, and the CMBS Fixed
Facility defeasance.
Income Taxes
On December 22, 2017 the U.S. government enacted the Tax Act. The Tax Act makes broad and complex
changes to the U.S. tax code, including, but not limited to (1) a reduction of the U.S. federal corporate tax rate; and
(2) bonus depreciation that permits full expensing of qualified property. The Tax Act reduces the corporate tax rate
34
to 21%, effective January 1, 2018. Consequently, we have reduced our deferred tax liabilities by $173 million and
recognized a deferred income tax benefit of $173 million for the year ended December 30, 2017.
We released the previously recorded valuation allowance against our federal net deferred tax assets and certain
of our state net deferred tax assets in 2016, as we determined it was more likely than not the deferred tax assets
would be realized. We 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. The decision to release the valuation allowance was made
after management considered all available evidence, both positive and negative, including but not limited to,
historical operating results, cumulative income in recent years, forecasted earnings, and a reduction of uncertainty
regarding forecasted earnings, as a result of developments in certain customer and strategic initiatives during 2016.
The effective tax rate for 2017 of (10)% varied from the 35% federal statutory rate, primarily from a tax benefit
of $173 million related to the aforementioned reduction in the U.S. federal corporate tax rate, and a benefit of $26
million related to excess tax benefits associated with share-based compensation, partially offset by state income taxes.
The effective tax rate for 2016 of (60)% varied from the 35% federal statutory rate, primarily as a result of a change
in the valuation allowance. During 2016, the valuation allowance decreased $128 million, primarily as a result of the
year-to-date pre-tax income and the partial release of the valuation allowance. See Note 20, Income Taxes, to our
consolidated financial statements for a reconciliation of our effective tax rates to the statutory rate.
Net Income
Our net income was $444 million in 2017, compared to $210 million in 2016. The improvement in net
income was primarily due to the relevant factors discussed above.
Fiscal Years Ended December 31, 2016 and January 2, 2016
Fiscal year 2016 included 52 weeks while fiscal year 2015 included 53 weeks. The 53rd week is referred to herein as the
“extra week”. Comparisons herein are provided excluding the extra week to provide comparable 52-week results on a year over
year basis.
Net Sales
Total case growth in 2016 was 1.4%. Excluding the extra week, total case growth was 2.9%. These increases
reflected growth with independent restaurants, education and hospitality customers, partially offset by planned exits
from national chains. Organic case volume declined 0.2%. Organic case volume, excluding the extra week,
increased 1.3% as case growth from independent restaurants, education, and hospitality customers was partially
offset by planned national chain exits. Independent restaurant case growth was 4.7%, with organic independent
restaurant case growth contributing 2.7%. Excluding the extra week, independent restaurant case growth was
approximately 6.4% over the prior year, with organic growth of approximately 4.5%.
Net sales decreased $208 million, or 0.9% to $22,919 million in 2016. Excluding the extra week, net sales
increased $141 million, which was comprised of a 2.9%, or $673 million, increase in case volume, and a 2.3%, or
$531 million, reduction in the overall rate per case. Acquisitions increased net sales by approximately $290 million,
or 1.3%. Sales of private brands represented approximately 33% and 32% of organic sales in 2016 and 2015,
respectively.
The overall rate per case decline of 2.3%, compared to 2015 reflected a continuation of the deflationary
environment and product mix changes. Approximately 1.6% of the decline is attributed to deflation in several
commodity categories, particularly in beef and dairy, with mix shifts driving the remainder. Changes in product
costs impact net sales since a significant portion of our business is based on markups over cost. Product mix changes
include impacts from our acquisition of Fresh Unlimited, Inc., d/b/a Freshway Foods (“Freshway”). Freshway is a
produce distributor with annual sales of approximately $130 million. Produce, as a category, has lower selling prices
per case than our average, which brings down our average selling price per case. Mix changes also include the
35
transition away from certain national chain customers whose purchases were concentrated in certain protein
categories.
Gross Profit
Gross profit increased $40 million, or 1.0%, to $4,053 million in 2016. The impact of the extra week on gross
profit in 2015 was estimated to be approximately $60 million. As a percentage of net sales, gross profit increased
0.3% to 17.7% in 2016 from 17.4% in 2015. Higher case volumes, combined with margin improvement and
merchandising initiatives, reduced our product costs, and increased gross profit as a percent of net sales by 0.6%.
These increases to gross profit as a percent of net sales were partially offset by the adverse impact of our LIFO
reserve changes. Our LIFO method of inventory costing decreased gross profit by $56 million or 0.2% as a percent
of net sales. Deflationary trends resulted in a LIFO benefit of $18 million in 2016, compared to a benefit of $74
million in 2015.
Distribution, Selling and Administrative Costs
Distribution, selling and administrative costs decreased $64 million, or 1.8%, to $3,586 million in 2016. The
impact of the extra week on distribution, selling and administrative costs is estimated to be approximately $50
million. As a percentage of net sales, distribution, selling and administrative costs decreased 0.2%, to 15.6% in 2016
from 15.8% in 2015. The decrease of $64 million included $37 million of lower wages and other benefits, which
primarily resulted from the non-recurrence of certain 2015 retention payments related to the Acquisition, that were
partially offset in 2016 by increased headcount from acquisitions and other employee related costs. The decrease
also included lower distribution expenses of $26 million, driven primarily by fuel savings, a $24 million decrease
from the non-recurrence of consulting fees related to the Acquisition, a $15 million net benefit related to an
improvement in litigation settlements and $14 million of favorable experience in self-insurance expenses. These
improvements were partially offset by the $31 million termination fee paid to the Sponsors in 2016, and a $22
million increase in depreciation and amortization expense, primarily related to fleet assets and additional intangible
asset amortization from acquisitions.
Restructuring (Benefit) Charges and Tangible Asset Impairments
Restructuring (benefit) charges and tangible asset impairments decreased $120 million, or 69.4%, to $53
million in 2016. During 2016, we incurred a net charge of $53 million associated with our plan to streamline our
field operations model, the closure of the Baltimore, Maryland distribution facility, and certain other corporate and
administrative cost reduction initiatives. Included in the charge was a benefit of $4 million related to a favorable
settlement, during the fourth quarter of 2016, of substantially all of our multiemployer pension withdrawal
liabilities, related to previously closed facilities, including Baltimore. Finally, we also incurred $3 million related to
a lease termination settlement, which is included in the $53 million net charge.
During 2015, we recognized $85 million of costs related to the field reorganization and the Baltimore
distribution facility closure. The field reorganization costs of approximately $30 million, were primarily comprised
of employee separation costs. The Baltimore closure costs of approximately $55 million were comprised of $50
million for estimated multiemployer pension withdrawal liabilities and $5 million related to other employee
separation and related costs. The estimated multiemployer pension cost was based on the latest available information
received from the respective plans’ administrator and represented an estimate for a calendar year 2015 withdrawal.
During 2015, we also reached a settlement with the Central States Teamsters Union Pension Plan (“Central
States”). The settlement relieved our participation in the “legacy” pool and settled the related legacy multiemployer
pension withdrawal liability, and commenced us as a new employer in the “hybrid” pool of the Central States
Teamsters Southeast and Southwest Area Pension Fund (“Central States Plan”). The payment also included the
settlement of certain other Central States multiemployer pension withdrawal liabilities relating to facilities closed
prior to 2015, and a related labor dispute. The settlement resulted in a restructuring charge of $88 million
representing the excess of the $97 million cash payment over the aforementioned prior liabilities related to these
previously closed facilities.
36
Operating Expenses
Operating expenses, comprised of distribution, selling, and administrative costs and restructuring (benefit)
charges and tangible asset impairments, decreased $184 million, or 4.8% to $3,639 million. Excluding the extra
week, operating expenses decreased $136 million, or 3.6%. Operating expenses as a percent of net sales were 15.9%
for 2016, down from 16.5% in 2015. The change was due to the factors discussed in the relevant sections above.
Operating Income
Operating income increased $224 million, or 117.9%, to $414 million in 2016. Operating income as a
percentage of net sales increased 100% to 1.8% for 2016, up from 0.8% in 2015. The change was primarily due to
the factors discussed in the relevant sections above.
Acquisition Termination Fees—Net
Included in 2015 was net Acquisition termination fee income of $288 million, comprised of $300 million paid
to us in connection with the termination of the Acquisition Agreement, offset in part by a $12.5 million termination
fee paid by us in connection with the termination of the related asset purchase agreement. See Note 1, Overview and
Basis of Presentation to our consolidated financial statements.
Interest Expense—Net
Interest expense—net, of $229 million was $56 million lower in 2016, primarily due to the redemption and
refinancing of debt in June of 2016 and the defeasance of the CMBS Fixed Facility in September of 2016. The $56
million decrease also included favorability of $5 million from additional interest expense in the prior year due to the
extra week. See Note 11, Debt, to our consolidated financial statements.
Loss on Extinguishment of Debt
As discussed in Note 11, Debt, to our consolidated financial statements, we incurred a $54 million loss on
extinguishment of debt in 2016. Approximately $42 million of the loss related to the June 2016 debt redemption and
refinancing. The remaining $12 million resulted from the defeasance of the CMBS Fixed Facility.
Income Taxes
The determination of our overall effective tax rate requires the use of estimates. The effective tax rate reflects
the income earned and taxed in various United States federal and state jurisdictions based on enacted tax law,
permanent differences between book and tax items, tax credits and our change in relative income in each
jurisdiction.
We released the valuation allowance against our federal net deferred tax assets and certain of our state net
deferred tax assets in 2016, as we determined it was more likely than not the deferred tax assets would be
realized. We 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. The decision to release the valuation allowance was made after
management considered all available evidence, both positive and negative, including but not limited to, historical
operating results, cumulative income in recent years, forecasted earnings, and a reduction of uncertainty regarding
forecasted earnings as a result of developments in certain customer and strategic initiatives during 2016.
The effective tax rate for 2016 and 2015 of (60)% and 13%, respectively, varied from the 35% federal
statutory rate, primarily as a result of a change in the valuation allowance. During 2016 and 2015, the valuation
allowance decreased $128 million and $48 million, respectively. The decrease in the valuation allowance for 2016
was primarily the result of the year to date pre-tax income and the partial release of the valuation allowance. The
decrease in the valuation allowance for 2015 was primarily the result of the year to date ordinary income, partially
offset by an increase in the valuation allowance due to an increase in deferred tax liabilities related to indefinite-
lived intangibles. The year to date ordinary income for 2015 was impacted by the $288 million net termination fee
37
received pursuant to the terminated Acquisition Agreement. See Note 20, Income Taxes, to our consolidated
financial statements for a reconciliation of our effective tax rates to the statutory rate.
Net Income
Our net income was $210 million in 2016, compared to $168 million in 2015. The increase in net income was
primarily due to the relevant factors discussed above.
Liquidity and Capital Resources
Our operations and strategic objectives require continuing capital investment. Our resources include cash
provided by operations, as well as access to capital from bank borrowings, various types of debt, and other financing
arrangements. Terms used but not defined in this discussion are defined in the detailed description of our
indebtedness in Note 11, Debt, to our consolidated financial statements.
Indebtedness
Our significant debt facilities have scheduled debt maturities primarily during the next seven years, and a
substantial portion of our liquidity needs arise from debt service requirements, the ongoing costs of operations,
working capital, and capital expenditures. As of December 30, 2017, the aggregate carrying value of our
indebtedness was $3,757 million, net of $16 million of unamortized deferred financing costs.
Our primary financing sources for working capital and capital expenditures are cash from operations, the
ABL Facility, and the 2012 ABS Facility. As of December 30, 2017, we had aggregate commitments for additional
borrowings under the ABL Facility and the 2012 ABS Facility of $1,028 million, of which $922 million was
available based on our borrowing base, all of which is secured.
The ABL Facility provides for loans of up to $1,300 million, with its capacity limited by borrowing base
calculations. As of December 30, 2017, we had outstanding borrowings of $80 million and had issued letters of
credit totaling $412 million under the ABL Facility. There was available capacity on the ABL Facility of $807
million at December 30, 2017, based on the borrowing base calculation.
The maximum capacity under the 2012 ABS Facility is $800 million, with its capacity limited by borrowing
base calculations. Borrowings under the 2012 ABS Facility were $580 million at December 30, 2017. At our option,
we can request additional 2012 ABS Facility borrowings up to the maximum commitment, provided sufficient
eligible receivables are available as collateral. There was available capacity on the 2012 ABS Facility of $115
million at December 30, 2017, based on the borrowing base calculation.
The Amended and Restated 2016 Term Loan had a carrying value of $2,157 million as of December 30,
2017, net of $10 million of unamortized deferred financing costs. The Amended and Restated 2016 Term Loan was
amended on February 17, 2017 and November 30, 2017, in each case and among other things, to reduce the interest
rate spread on outstanding borrowings. During 2017, we also entered into four-year interest rate swaps with a
notional amount of $1.1 billion, reducing to $825 million in the fourth year, effectively converting approximately
half of the principal amount of the Amended and Restated 2016 Term Loan from a variable to a fixed rate loan. On
November 30, 2017, the interest rate swaps were amended in conjunction with the amendment to the portion of the
principal amount of the Amended and Restated 2016 Term Loan subject to hedging arrangements. We now
effectively pay an aggregate rate of 4.21% on the notional amount covered by the interest rate swaps, comprised of
1.71% plus a spread of 2.50%. For the remaining portion of the principal amount of the Amended and Restated 2016
Term Loan, the interest rate is ABR plus 1.50% or LIBOR plus 2.50%, with a LIBOR floor of 0.00%. The interest
rate spread on both ABR and LIBOR borrowings can be further reduced 25 basis points to either ABR plus 1.25% or
LIBOR plus 2.25%, if USF’s consolidated secured leverage ratio (as defined in the Amended and Restated 2016
Term Loan) is equal to or less than 1.75:1.00 at the end of the most recent fiscal quarter. At December 30, 2017,
USF’s consolidated secured leverage ratio exceeded 1.75:1.00.
As of December 30, 2017, our 2016 Senior Notes had a carrying value of $594 million, net of $6 million of
unamortized deferred financing costs. The 2016 Senior Notes bear interest at 5.875% and mature on June 15,
38
2024. On or after June 15, 2019, the 2016 Senior Notes are redeemable, at our option, in whole or in part at a price
of 102.938% of their remaining principal, plus accrued and unpaid interest, if any, to the redemption date. On or
after June 15, 2020 and June 15, 2021, the optional redemption price for the 2016 Senior Notes declines to
101.469% and 100.0%, respectively, of their remaining principal amount, plus accrued and unpaid interest, if any, to
the redemption date. Prior to June 15, 2019, up to 40% of the 2016 Senior Notes may be redeemed with the
aggregate proceeds from equity offerings, as defined in the 2016 Senior Notes indenture, at a redemption premium
of 105.875%. As of December 30, 2017, we also had $337 million of obligations under capital leases for
transportation equipment and building leases. Other debt of $10 million at December 30, 2017 consists primarily of
various state industrial revenue bonds.
The 2012 ABS and the ABL Facilities mature in 2020. The Amended and Restated 2016 Term Loan and the
2016 Senior Notes mature in 2023 and 2024 with scheduled principal payments of $2.1 billion and $600 million,
respectively. As economic conditions permit, we will consider further opportunities to repurchase, refinance or
otherwise reduce our debt obligations on favorable terms. Any further potential debt reduction or refinancing could
require significant use of our liquidity and capital resources.
We believe that the combination of cash generated from operations, together with availability under our debt
agreements and other financing arrangements, will be adequate to permit us to meet our debt service obligations,
ongoing costs of operations, working capital needs, and capital expenditure requirements for the next 12 months.
Our future financial and operating performance, ability to service or refinance our debt, and ability to comply
with covenants and restrictions contained in our debt agreements will be subject to: (1) future economic conditions,
(2) the financial health of our customers and suppliers, and (3) financial, business, and other factors, many of which
are beyond our control.
Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to
provide us with funding. We are not aware of any facts that indicate our lenders will not be able to comply with the
contractual terms of their agreements with us. We continue to monitor the credit markets generally and the strength
of our lender counterparties.
From time to time, we repurchase or otherwise retire our debt and take other steps to reduce our debt or
otherwise improve our leverage. These actions may include open market repurchases, negotiated repurchases, and
other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will
depend on market conditions, our debt trading levels, our cash position, and other considerations.
Our credit facilities, loan agreements, and indentures contain customary covenants. These include, among
other things, covenants that restrict USF’s ability to incur certain additional indebtedness, create or permit liens on
assets, pay dividends, or engage in mergers or consolidations. As of December 30, 2017, USF had $751 million of
restricted payment capacity under these covenants, and approximately $2,001 million of its net assets were restricted
after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation.
Certain debt agreements 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, and certain insolvency events. If a default
event occurs and continues, the principal amounts outstanding, together with all unpaid interest and other amounts
owed, may be declared immediately due and payable by the lenders. Were such an event to occur, we would be
forced to seek new financing that may not be on as favorable terms as our current facilities. Our ability to refinance
our indebtedness on favorable terms, or at all, is directly affected by the current economic and financial conditions.
In addition, our ability to incur secured indebtedness (which may enable us to achieve more favorable terms than the
incurrence of unsecured indebtedness) depends in part on the value of our assets. This, in turn, relies on the strength
of our cash flows, results of operations, economic and market conditions and other factors. As of December 30,
2017, we were in compliance with all of our debt covenants.
39
Cash Flows
For the last three fiscal years, the following table presents condensed highlights from our Consolidated
Statements of Cash Flows:
Net income
Changes in operating assets and liabilities, net of
business acquisitions
Other adjustments
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
(*) Amounts may not add due to rounding.
Fiscal Year
(In millions)*
2016
2015
2017
$
444 $
210 $
168
7
297
748
(356 )
(405 )
(12 )
131
119 $
(78 )
423
556
(762 )
(180 )
(387 )
518
131 $
(74 )
462
555
(271 )
(110 )
174
344
518
$
Operating Activities
Cash flows provided by operating activities increased $192 million to $748 in 2017. The year over year
increase is primarily driven by an improvement in operating income, and lower interest costs due to the 2016 debt
redemption, defeasance, and refinancings.
Cash flows provided by operating activities were $556 million and $555 million in 2016 and 2015,
respectively. The 2015 cash flows provided by operating activities included a $288 million net cash inflow related to
the termination of the Acquisition. Excluding the net termination fee received, cash flows provided by operating
activities in 2015 were $267 million. The $289 million increase in the year over year cash flows provided by
operating activities, excluding the termination fee, is primarily driven by year over year gross profit improvements
and reductions in operating expenses.
Investing Activities
Cash flows used in investing activities includes our strategy to selectively pursue acquisitions to accelerate our
growth. During 2017, business acquisitions included three broadline distributors and two specialty distributors. Total
consideration consisted of cash of approximately $182 million. The $221 million of cash spending on property and
equipment was up from the prior year primarily due to investments in information technology, investments in
distribution facilities, including warehouse equipment, and the timing of payments for certain fleet assets acquired at
the end of 2016. Cash flows used in investing activities in 2017 were partially offset by $26 million from property
and equipment sales, which was primarily our Baltimore distribution facility, and $22 million in proceeds from the
redemption of a self-funded industrial revenue bond. See “Financing Activities” below, for discussion of the
offsetting cash outflow.
During 2016, business acquisitions included two broadline distributors and two specialty distributors. Total
consideration consisted of cash of approximately $123 million plus $8 million for the estimated fair value of
contingent consideration. We also purchased a noncontrolling interest of approximately $8 million in a technology
company that provides point-of-sale business intelligence to restaurants, which serves to support our sales
initiatives. Approximately $164 million of purchases were made for property and equipment. Cash spending on
property and equipment was down from the prior year primarily due to two 2015 distribution facility
construction/expansion projects. Proceeds from sales of property and equipment included $12 million from sales of
closed facilities. Cash flows used in investing activities in 2016 also included the purchase of $485 million of U.S.
government securities that were subsequently used to defease our $472 million principal CMBS Fixed Facility.
Cash flows used in investing activities in 2015 included purchases of property and equipment of $187 million,
Proceeds from sales of property and equipment of $5 million, and insurance proceeds of $3 million related to
40
property damaged by a tornado. Cash flows used in investing activities during 2015 also included the acquisition of
a broadline distributor for $69 million in cash. We also purchased $22 million of self-funded industrial revenue
bonds. See “Financing Activities” below, for discussion of the offsetting cash inflow.
Capital expenditures in 2017, 2016, and 2015 included fleet replacement and investments in information
technology to improve our business, as well as new construction and/or expansion of distribution facilities.
Additionally, we entered into $91 million, $80 million, and $110 million of capital lease obligations for fleet
replacement in 2017, 2016, and 2015, respectively.
We expect total capital additions in 2018 to be between $330 million and $340 million, inclusive of
approximately $80 million in fleet capital leases. We expect to fund our capital expenditures with available cash or
cash generated from operations.
Financing Activities
Cash flows used in financing activities of $405 million in 2017 included $15 million of net payments on our
revolving credit facilities, repayment of a $22 million self-funded industrial revenue bond, see “Investing Activities”
above, for discussion of the offsetting cash inflow, and $85 million of scheduled payments on non-revolving debt
and capital leases. Financing activities in 2017 also included $18 million and $16 million of proceeds from the
exercise of employee stock options and share purchases under our employee stock purchase plan, respectively. This
cash inflow was partially offset by the remittance of $28 million of employee tax withholdings for vesting and net
share-settled equity awards.
During 2017, we closed on four secondary offerings of our common stock held primarily by the Sponsors. We
did not receive any proceeds from the offerings. The December 4, 2017 offering also included our repurchase of
10,000,000 shares of our common stock for $280 million, utilizing borrowings from our revolving credit facilities.
The shares repurchased were retired.
Cash flows used in financing activities of $180 million in 2016 included net proceeds from our IPO of $1,114
million, and net proceeds from debt issuances and refinancings. We used the proceeds from these transactions to
redeem the $1,348 million in principal of the Old Senior Notes, plus an early redemption premium of $29 million,
and to purchase the U.S. government securities that were subsequently used to defease USF’s CMBS Fixed Facility.
In addition to the early redemption premium, we incurred approximately $26 million of other debt financing costs
and fees in connection with the debt refinancings and defeasance. Prior to the IPO, we paid a $666 million one-time
special cash distribution to our shareholders, of which $657 million was paid to the Sponsors. We funded the
distribution through a $75 million borrowing under the 2012 ABS Facility, a $239 million borrowing under the ABL
Facility, and $352 million in available cash.
Cash flows used in financing activities of $110 million in 2015 included $109 million of payments on debt
and capital leases, including $50 million of net payments on our 2012 ABS Facility and $2 million of Old Senior
Notes repurchased from certain entities associated with KKR. Additionally, we repurchased $20 million of our
redeemable common stock from terminated employees. The shares were acquired pursuant to the management
stockholder’s agreement associated with our stock incentive plan.
In January 2015, we entered into a self-funded industrial revenue bond agreement that provided certain tax
incentives related to the construction of a new distribution facility. We borrowed $22 million of self-funded
industrial revenue bonds in 2015. See “Investing Activities” above, for discussion of the offsetting cash outflow.
Retirement Plans
We have a qualified retirement plan and a nonqualified retirement plan (“Retirement Plans”) that pay benefits
to certain employees at retirement, generally using formulas based on a participant’s years of service and
compensation. In addition, we maintain several postretirement health and welfare plans that provide benefits for
eligible retirees and their dependents. We contributed $36 million to the Retirement Plans in 2017 and 2016, and
$49 million in 2015, including the post-retirement health and welfare plans.
41
Certain employees are eligible to participate in USF’s defined contribution 401(k) plan. This plan provides
that, under certain circumstances, we may match participant contributions of up to 100% of the first 3% of a
participant’s compensation and 50% of the next 2% of a participant’s compensation, for a maximum matching
contribution of 4%. We made contributions to this plan of $46 million, $44 million and $32 million in 2017, 2016
and 2015, respectively.
We also contribute to various multiemployer benefit plans under certain CBAs. Our contributions to these
plans were $34 million, $33 million and $34 million in 2017, 2016 and 2015, respectively.
Contractual Obligations
The following table includes information about our significant contractual obligations as of December 30,
2017 that affect our liquidity and capital needs. The table includes information about payments due under specified
contractual obligations and includes the maturity profile of our consolidated debt, operating leases and other long-
term liabilities.
Payments Due by Period (In millions)
Total
Less Than
1 Year
1-3 Years 3-5 Years
More Than
5 Years
Recorded Contractual Obligations:
Long-term debt, including capital lease
obligations
Unfunded lease obligation(1)
Self-insured liabilities(2)
Pension plans and other postretirement benefits
contributions(3)
Unrecorded Contractual Obligations:
Interest payments on debt(4)
Operating leases
Multiemployer contractual minimum pension
contributions(5)
Purchase obligations(6)
Total contractual cash obligations
$
$
3,773 $
22
179
109 $
3
49
832 $
7
44
129 $
8
25
2,703
4
61
43
36
2
2
696
162
156
32
290
60
178
46
3
72
24
22
779
5,676 $
4
778
1,167 $
7
1
1,243 $
7
—
395 $
4
—
2,871
(1) Represents installment payments on a distribution facility lease obligation through 2023.
(2) Represents the estimated undiscounted payments on our self-insurance programs for general, fleet and
workers compensation liabilities. Actual payments may differ from these estimates.
(3) Represents estimated contributions and benefit payments for Company sponsored pension and other
postretirement benefit plans. The balance includes $36 million that we expect to contribute to the Company’s
defined benefit plan, for which estimates beyond 2018 are not available.
(4) Represents future interest payments on fixed rate debt, capital leases, an unfunded lease obligation, and $1.7
billion of variable rate debt at interest rates as of December 30, 2017. The amounts shown in the table include
interest payments under interest rate swap agreements.
(5) Represents minimum contributions to the Central States Plan through 2023.
(6) Represents purchase obligations for purchases of product in the normal course of business, for which all
significant terms have been confirmed, and forward fuel and electricity purchase obligations.
Other long-term liabilities at December 30, 2017 as disclosed in Note 12, Accrued Expenses and Other Long-
Term Liabilities, to our consolidated financial statements, consist primarily of an uncertain tax position liability of
$81 million, inclusive of interest and penalties, for which the timing of payment is uncertain, and a $9 million non-
cash purchase accounting adjustment for off-market operating leases, each of which has been excluded from the
table above.
42
Off-Balance Sheet Arrangements
As of December 30, 2017, we entered into $81 million in letters of credit to secure our obligations with
respect to certain facility leases. Additionally, we entered into $328 million in letters of credit in favor of certain
commercial insurers securing our obligations with respect to our self-insurance programs, and $3 million in letters of
credit for other obligations.
Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably
likely to have a material effect on our consolidated financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
We have prepared the financial information in this Annual Report in accordance with GAAP. Preparing these
consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on
historical experience and other factors we believe are reasonable under the circumstances. These assumptions form
the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. Our most critical accounting policies and estimates pertain to the valuation of goodwill and other
intangible assets, vendor consideration, self-insurance programs and income taxes.
Valuation of Goodwill and Other Intangible Assets
Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the
tangible net assets recorded in connection with acquisitions. Other intangible assets include customer relationships,
non-compete agreements, the brand names comprising our portfolio of private brands, and trademarks. We assess
goodwill and other intangible assets with indefinite lives for impairment each year or more frequently, if events or
changes in circumstances indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, our
policy is to assess for impairment at the beginning of each fiscal third quarter. For other intangible assets with
definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset may
not be recoverable. All goodwill is assigned to our consolidated Company as the reporting unit.
For goodwill, the reporting unit used in assessing impairment is our one business segment as described in
Note 24, Business Information, to our consolidated financial statements. Our assessment for impairment of Goodwill
utilized a combination of discounted cash flow analysis, comparative market multiples, and comparative market
transaction multiples, which were weighted 40%, 40% and 20%, respectively, to determine the fair value of the
reporting unit for comparison to the corresponding carrying value. Since the Company has been a registrant for over
one year, the Company modified the weighting from the prior year (50%, 35% and 15%, respectively) to give more
weight to the current actual market capitalization and that of its peers. If the carrying value of the reporting unit
exceeds its fair value, the Company must then perform a comparison of the implied fair value of goodwill with its
carrying value. If the carrying value of the goodwill exceeds its implied fair value, an impairment loss is recognized
in an amount equal to the excess.
Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a
relief from royalty method. Similar to goodwill, the fair value of the intangible asset is determined for comparison to
the corresponding carrying value. If the carrying value of the asset exceeds its fair value, an impairment loss is
recognized in an amount equal to the excess.
Based on our fiscal year 2017 annual impairment analysis for goodwill, the fair value of our reporting unit
exceeded its carrying value by a substantial margin. Similarly, the fair value of our trademark indefinite-lived
intangible assets exceeded the carrying value by a substantial margin. The fair value of our brand name indefinite-
lived intangible assets exceeded the carrying value by less than 20%. However, a 50 basis point increase in the
discount rate would still result in a fair value of the brand name intangibles that is in excess of its carrying value.
The recoverability of our brand name indefinite-lived intangible assets could be impacted if estimated future cash
flows are not achieved. Due to the many variables inherent in estimating fair value and the relative size of the
43
indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the
Company’s impairment analysis.
Vendor Consideration
We participate in various rebate and promotional incentives with our suppliers, primarily through purchase-
based programs. Consideration under these incentives is estimated during the year based on purchasing activity, as
our obligations under the programs are fulfilled primarily when products are purchased. Consideration is typically
received in the form of invoice deductions, or less often in the form of cash payments. Changes in the estimated
amount of incentives earned are treated as changes in estimates and are recognized in the period of change.
Historically, adjustments to our estimates for vendor consideration or related allowances have not been significant.
Self-Insurance Programs
We estimate liabilities for claims covering general, fleet, and workers’ compensation and group medical
insurance programs. The amounts in excess of certain levels, which range from $1 million to $10 million per
occurrence, are insured as a risk reduction strategy to minimize catastrophic losses. General and fleet liability losses
in excess of our retentions are covered up to approximately $155 million, in the aggregate. We are self-insured for
group medical claims not covered under collective bargaining agreements. Liabilities associated with these risks
include an estimate for claims that are incurred but not reported, and consider historical claims experience, severity
factors, medical cost trends, and other actuarial assumptions. Differences in the actual future claims experience and
severity of claims and significant changes in health care cost trends could cause actual claims to differ from our
estimates.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the
consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the
differences between the consolidated financial statements 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 in the period that includes the enactment date. We record
net deferred tax assets to the extent we believe 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. We adjust the
amounts recorded for uncertain tax positions when our judgment changes as a result of the evaluation of 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. At this time, we believe it is reasonably possible that the liability for
unrecognized tax benefits will decrease by approximately $64 million in the next 12 months as a result of the
completion of tax audits, the expiration of the statute of limitations, or the receipt of affirmative written consent of
the IRS to change a method of accounting.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Note 3, Recent Accounting Pronouncements,
to our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain risks arising from both our business operations and overall economic conditions. We
principally manage our exposures to a wide variety of business and operational risks through managing our core business
activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the
amount, sources, and duration of our debt funding. During 2017, we entered into derivative financial instruments to assist
in managing our exposure to variable interest rate terms on certain borrowings. We do not enter into derivatives or
other financial instruments for trading or speculative purposes.
44
Interest Rate Risk
Market risk is the possibility of loss from adverse changes in market rates and prices, such as interest rates and
commodity prices. As of December 30, 2017, after considering interest rate swaps that fixed the interest rate on $1.1
billion of principal of our variable rate Amended and Restated 2016 Term Loan, approximately 46% of the principal
amount of our debt bears interest at floating rates, based on LIBOR or ABR, as defined in our credit agreements. A
1% change in LIBOR and ABR would cause the interest expense on our floating rate debt to change by
approximately $17 million per year (see Note 11, Debt, to our consolidated financial statements).
Commodity Price Risk
We are also exposed to risk due to fluctuations in the price and availability of diesel fuel. Increases in the cost
of diesel fuel can negatively affect consumer spending, raise the price we pay for products, and increase the costs we
incur to deliver products to our customers. To minimize fuel cost risk, we enter into forward purchase commitments
for a portion of our projected diesel fuel requirements. As of December 30, 2017, we had diesel fuel forward
purchase commitments totaling $33 million through June 2018. These locked in approximately 57% of our projected
diesel fuel purchase needs for the contracted periods. Our remaining fuel purchase needs will occur at market rates.
Using published market price projections for diesel and estimated fuel consumption needs, a 10% unfavorable
change in diesel prices from the projected market prices could result in approximately $3 million in additional fuel
cost on such uncommitted volumes.
45
Item 8.
Financial Statements And Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 30, 2017 and December 31, 2016
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended
December 30, 2017, December 31, 2016 and January 2, 2016
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended
December 30, 2017, December 31, 2016 and January 2, 2016
Consolidated Statements of Cash Flows for the Fiscal Years Ended,
December 30, 2017, December 31, 2016 and January 2, 2016
Notes to Consolidated Financial Statements
Page No.
47
48
49
50
51
52
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of US Foods Holding Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of US Foods Holding Corp. and subsidiaries (the
"Company") as of December 30, 2017 and December 31, 2016, the related consolidated statements of
comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended
December 30, 2017 and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 30,
2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three fiscal years in
the period ended December 30, 2017, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2017, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 27, 2018, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 2018
We have served as the Company's auditor since 2006.
47
December 30,
2017
December 31,
2016
$
$
$
118,849 $
1,301,631
97,198
1,207,830
80,255
5,178
8,440
2,819,381
1,801,215
3,966,565
363,618
21,505
64,874
9,037,158 $
153,565 $
1,289,349
450,742
109,226
2,002,882
3,648,055
263,322
371,536
6,285,795
131,090
1,226,032
105,542
1,223,037
72,650
21,039
9,781
2,789,171
1,767,611
3,908,484
386,881
34,405
57,898
8,944,450
142,712
1,294,796
455,815
75,962
1,969,285
3,705,751
380,835
350,929
6,406,800
2,150
2,721,454
123,514
(95,755 )
2,751,363
9,037,158 $
2,209
2,791,264
(136,460 )
(119,363 )
2,537,650
8,944,450
$
US FOODS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, less allowances of $25,971 and $25,388
Vendor receivables, less allowances of $2,934 and $1,819
Inventories—net
Prepaid expenses
Assets held for sale
Other current assets
Total current assets
PROPERTY AND EQUIPMENT—Net
GOODWILL
OTHER INTANGIBLES—Net
DEFERRED TAX ASSETS
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank checks outstanding
Accounts payable
Accrued expenses and other current liabilities
Current portion of long-term debt
Total current liabilities
LONG-TERM DEBT
DEFERRED TAX LIABILITIES
OTHER LONG-TERM LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 21)
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value—600,000 shares authorized;
214,963 and 220,929 issued and outstanding as of
December 30, 2017 and December 31, 2016, respectively
Additional paid-in capital
Accumulated earnings (deficit)
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND EQUITY
See Notes to Consolidated Financial Statements.
48
US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share and per share data)
December 30,
2017
Fiscal Years Ended
December 31,
2016
$ 24,147,161 $ 22,918,808 $ 23,127,532
19,929,618 18,865,536 19,114,293
4,013,239
January 2,
2016
4,217,543
4,053,272
3,644,290
(571 )
3,643,719
573,824
—
169,582
—
404,242
(40,052 )
444,294
3,585,986
53,465
3,639,451
413,821
—
229,080
53,632
131,109
(78,685 )
209,794
3,650,704
172,707
3,823,411
189,828
287,500
285,175
—
192,153
24,635
167,518
16,171
7,437
467,902 $
(44,985 )
—
164,809 $
83,663
—
251,181
2.00 $
1.97 $
1.05 $
1.03 $
0.99
0.98
$
$
$
222,383,038 200,129,868 169,560,616
225,663,785 204,024,726 171,060,720
NET SALES
COST OF GOODS SOLD
Gross profit
OPERATING EXPENSES:
Distribution, selling and administrative costs
Restructuring (benefit) charges and tangible asset impairments
Total operating expenses
OPERATING INCOME
ACQUISITION TERMINATION FEES—Net
INTEREST EXPENSE—Net
LOSS ON EXTINGUISHMENT OF DEBT
Income before income taxes
INCOME TAX (BENEFIT) PROVISION
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)—Net of tax:
Changes in retirement benefit obligations, net
Unrecognized gain on interest rate swaps, net
COMPREHENSIVE INCOME
NET INCOME PER SHARE
Basic
Diluted
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic
Diluted
See Notes to Consolidated Financial Statements.
49
US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Accumulated Other
BALANCE—December 27, 2014
Settlements/reclassifications of
Redeemable common stock
Share-based compensation
expense
Changes in retirement benefit
obligations, net of income tax
Net income
BALANCE—January 2, 2016
Settlements/reclassifications of
Redeemable common stock
Share-based compensation
expense
Net proceeds from initial public
offering
Cash distribution to shareholders
($3.94 per share - Note 14)
Proceeds from employee share
purchase plan
Share-based awards vested/exercised
Common stock and share-based
awards settled
Changes in retirement benefit
obligations, net of income tax
Net income
BALANCE—December 31, 2016
Share-based compensation
expense
Proceeds from employee share
purchase plan
Exercise of stock options
Net share-settled stock options
Vested restricted stock units-net
Performance restricted shares-net
Tax withholding payments for
net share-settled equity awards
Common stock repurchased
Changes in retirement benefit
obligations, net of income tax
Unrecognized gain on
interest rate swaps,
net of income tax
Net income
BALANCE—December 30, 2017
Number of
Common
Shares
166,667 $
Common
Shares at
Par Value
Additional
Paid-In
Capital
1,667 $ 2,292,178 $
Accumulated
Earnings
(Deficit)
Comprehensive Income (Loss)
Retirement
Benefit
Obligations
Interest
Rate
Swaps Total
Total
Shareholders'
Equity
1,622,032
(513,772 ) $ (158,041 ) $ — $ (158,041 ) $
—
—
(8,091 )
—
—
8,055
—
—
166,667 $
—
—
—
—
1,667 $ 2,292,142 $
—
—
—
167,518
(346,254 ) $
— —
—
(8,091 )
— —
—
8,055
83,663
83,663
—
(74,378 ) $ — $ (74,378 ) $
83,663
167,518
1,873,177
2,522
25
43,086
—
—
14,856
51,111
511 1,113,288
—
— (666,332 )
174
459
2
4
3,352
(4 )
(4 )
—
(9,124 )
—
—
220,929 $
—
—
—
—
2,209 $ 2,791,264 $
—
—
—
—
—
—
—
— —
—
43,111
— —
—
14,856
— —
—
1,113,799
— —
—
(666,332 )
— —
— —
—
—
3,354
—
— —
—
(9,124 )
—
(44,985 )
(44,985 )
—
209,794
(136,460 ) $ (119,363 ) $ — $ (119,363 ) $
(44,985 )
209,794
2,537,650
— —
—
19,908
—
—
19,908
645
1,676
1,192
280
241
7
17
12
3
2
15,803
18,369
(12 )
(3 )
(2 )
—
—
—
—
—
—
— —
— —
— —
— —
— —
—
(10,000 )
—
(100 )
(28,293 )
(95,580 )
—
(184,320 )
— —
— —
—
—
—
—
—
—
—
15,810
18,386
—
—
—
(28,293 )
(280,000 )
—
—
—
—
16,171 — 16,171
16,171
—
—
214,963 $
—
—
—
—
2,150 $ 2,721,454 $
7,437
—
444,294
—
123,514 $ (103,192 ) $ 7,437 $ (95,755 ) $
— 7,437
— —
7,437
444,294
2,751,363
See Notes to Consolidated Financial Statements.
50
US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Gain on disposal of property and equipment, net
Tangible asset impairment charges
Loss on extinguishment of debt
Amortization of deferred financing costs
Amortization of Senior Notes original issue premium
Insurance proceeds related to operating activities
Insurance benefit in net income
Deferred tax (benefit) provision
Share-based compensation expense
Provision for doubtful accounts
Changes in operating assets and liabilities, net of business acquisitions:
(Increase) decrease in receivables
Decrease (increase) in inventories
(Increase) decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable and bank checks outstanding
Increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses—net of cash
Proceeds from sales of property and equipment
Purchases of property and equipment
Investment in Avero, LLC
Investment in marketable securities
Insurance proceeds related to investing activities
Proceeds from redemption of industrial revenue bonds
Purchase of industrial revenue bonds
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt borrowings
Proceeds from debt refinancing
Principal payments on debt and capital leases
Repayment of industrial revenue bonds
Redemption of Old Senior Notes
Payment for debt financing costs and fees
Net proceeds from initial public offering
Cash distribution to shareholders
Contingent consideration paid for business acquisitions
Proceeds from employee share purchase plan
Proceeds from exercise of stock options
Tax withholding payments for net share-settled equity awards
Proceeds from common stock sales
Common stock repurchased
Common stock and share-based awards settled
Net cash used in financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of year
CASH AND CASH EQUIVALENTS—End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized)
Income taxes paid—net
NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases included in accounts payable
Capital lease additions
Cashless exercise of equity awards
Contingent consideration payable for acquisition of businesses
Marketable securities transferred in connection with the legal
defeasance of the CMBS Fixed Loan Facility
CMBS Fixed Loan Facility defeasance
Restricted cash transferred to cash and cash equivalents
See Notes to Consolidated Financial Statements.
51
December 30,
2017
Fiscal Years Ended
December 31,
2016
January 2,
2016
$
444,294 $
209,794 $
167,518
377,877
(3,684 )
1,807
—
5,725
—
—
—
(122,928 )
20,532
17,999
(67,001 )
40,403
(23,882 )
16,570
40,735
748,447
(182,210 )
25,521
(221,281 )
—
—
—
22,139
—
(355,831 )
421,371
(6,265 )
125
53,632
7,252
(1,664 )
10,499
(10,499 )
(80,434 )
18,355
11,112
21,555
(100,579 )
6,199
131,044
(135,855 )
555,642
(122,294 )
16,827
(164,395 )
(7,658 )
(484,624 )
—
—
—
(762,144 )
2,549,982
—
(2,650,157 )
(22,139 )
—
(1,477 )
—
—
(6,375 )
15,810
18,386
(28,293 )
—
(280,000 )
(594 )
(404,857 )
(12,241 )
131,090
118,849 $
2,706,535
2,213,803
(4,140,760 )
—
(1,376,927 )
(25,941 )
1,113,799
(666,332 )
—
3,354
—
—
2,850
—
(10,591 )
(180,210 )
(386,712 )
517,802
131,090 $
399,247
(2,010 )
6,293
—
13,261
(3,330 )
23,243
(20,083 )
17,606
15,832
12,103
9,600
(55,047 )
(20,716 )
(71,448 )
63,699
555,768
(69,481 )
5,048
(187,409 )
—
—
2,771
—
(22,139 )
(271,210 )
22,139
—
(109,489 )
—
—
(3,573 )
—
—
—
—
—
—
500
—
(19,992 )
(110,415 )
174,143
343,659
517,802
158,310 $
11,127
222,742 $
4,571
345,732
7,861
30,664
91,149
30,136
4,200
—
—
—
50,349
80,118
—
8,375
484,624
471,615
6,147
26,885
110,097
—
—
—
—
—
$
$
US FOODS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
OVERVIEW AND BASIS OF PRESENTATION
US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to herein as
“we,” “our,” “us,” “the Company,” or “US Foods.” US Foods conducts all of its operations through its wholly
owned subsidiary US Foods, Inc. and its subsidiaries (“USF”). All of the Company’s indebtedness, as further
described in Note 11, Debt, is an obligation of USF. US Foods was previously controlled by investment funds
associated with or designated by Clayton, Dubilier & Rice, LLC (“CD&R”) and Kohlberg Kravis Roberts &
Co., L.P. (“KKR”), as discussed in Note 14, Related Party Transactions. KKR and CD&R are collectively
referred to herein as the “Sponsors”.
Business Description—The Company, through USF, operates in one business segment in which it markets
and primarily distributes fresh, frozen and dry food and non-food products to foodservice customers
throughout the United States. 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 52-53 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 30, 2017, December 31, 2016, and January 2, 2016 are also referred
to herein as fiscal years 2017, 2016, and 2015, respectively. The Company’s fiscal years 2017 and 2016 were
52-week fiscal years. The Company’s fiscal year 2015 was a 53-week fiscal year.
Initial Public Offering—On June 1, 2016, the Company closed its initial public offering (“IPO”) selling
51,111,111 shares of common stock for a cash offering price of $23.00 per share ($21.9075 per share net of
underwriter discounts and commissions and before offering expenses). The net proceeds of the IPO were used
to redeem $1,090 million principal of the Company’s 8.5% Senior Notes due June 30, 2019 (the “Old Senior
Notes”), and pay the related $23 million early redemption premium.
Terminated Acquisition by Sysco—On December 8, 2013, US Foods entered into an agreement and plan of
merger (the “Acquisition Agreement”) with Sysco Corporation (“Sysco”) and certain of its subsidiaries, for
Sysco to acquire US Foods (the “Acquisition”) on the terms and subject to the conditions set forth in the
Acquisition Agreement. On February 2, 2015, the parties entered into an asset purchase agreement (the “Asset
Purchase Agreement”) with Performance Food Group, Inc. (“PFG”), through which PFG agreed to
purchase eleven USF distribution centers and related assets and liabilities, in connection with and subject to
the closing of the Acquisition. In February 2015, following completion of its regulatory review of the
proposed Acquisition, the US Federal Trade Commission filed a motion with the U.S. District Court of
Columbia (“Court”) seeking a preliminary injunction to block the proposed Acquisition, which the Court
granted on June 23, 2015.
On June 26, 2015, the parties terminated the Acquisition Agreement, and the Asset Purchase Agreement
automatically terminated. Sysco paid the Company a termination fee of $300 million in connection with the
termination of the Acquisition Agreement. USF paid a termination fee of $12.5 million to PFG pursuant to the
terms of the Asset Purchase Agreement.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation —Consolidated financial statements include the accounts of US Foods and its
wholly owned subsidiary, USF. Intercompany transactions have been eliminated in consolidation.
Use of Estimates—Consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (“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 at 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. The most critical estimates used in the
52
preparation of the Company’s consolidated financial statements pertain to the valuation of goodwill and other
intangible assets, vendor consideration, self-insurance programs, and income taxes.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with a
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 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 foodservice-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 warehouses, 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. At December 30, 2017 and December 31, 2016, the LIFO balance sheet reserves were $130 million
and $116 million, respectively. As a result of net changes in LIFO reserves, cost of goods sold increased $14
million in fiscal year 2017, and decreased $18 million and $74 million in fiscal years 2016, and 2015,
respectively.
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 three to 40 years. Property and equipment under capital 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
53
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 and tangible asset impairments in the Consolidated
Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Consolidated
Balance Sheets.
Goodwill and Other Intangible Assets—Goodwill and other intangible assets include the cost of the
acquired business in excess of the fair value of the net tangible assets acquired. Other intangible assets include
customer relationships, noncompete agreements, the brand names comprising our portfolio of exclusive
brands, and trademarks. As required, we assess goodwill and 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, our policy is to assess for impairment at the beginning of each fiscal
third quarter. For other intangible assets with definite lives, we assess for 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 $1-10 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. However, the inherent uncertainty of future loss
projections could cause actual claims to differ from our estimates.
We are self-insured for group medical claims not covered under collective bargaining agreements. 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
long-term liabilities in the Consolidated Balance Sheets.
Share-Based Compensation—Certain directors, officers and employees participate in the 2016 US Foods
Holding Corp. Omnibus Incentive Plan (the “2016 Plan”) which provides a means through which the
Company may grant equity and equity incentive awards of US Foods common stock. Certain officers and
employees also hold outstanding equity awards granted pursuant to the 2007 Stock Incentive Plan for Key
Employees of USF Holding Corp. and its Affiliates, as amended (“2007 Plan”) which terminated according to
its terms on December 21, 2017. The termination of the 2007 Plan has no effect on any outstanding awards,
however, no shares of US Foods common stock are available for future issuance under the 2007 Plan.
Additionally, most of the Company’s employees are eligible to participate in the US Foods Holding Corp.
Amended and Restated Employee Stock Purchase Plan (the “Stock Purchase Plan”), which allows for the
purchase of US Foods common stock at a discount of up to 15% of the fair market value of a share at periodic
acquisition dates. Shares issued to satisfy employee share-based award programs come from shares reserved
for issuance under the respective award programs. US Foods contributes shares to USF for employee
purchases, and upon exercise of options or grants of restricted stock and restricted stock units. The Company
does not maintain treasury shares, as shares repurchased by the Company are retired upon reacquisition.
The Company measures compensation expense for stock-based awards at fair value at 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 NYSE. Prior to the IPO, the grant date fair value was measured at 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 quarter.
Compensation expense for the Stock Purchase Plan represents the difference between the fair market value at
acquisition date and the employee purchase price.
Redeemable Common Stock—Redeemable common stock is a security with redemption features that are
outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not
54
mandatorily redeemable. Prior to the IPO, common stock owned by management and key employees,
including vested restricted shares and vested restricted stock units, was subject to certain redemption features
and, accordingly was classified as Redeemable common stock. In connection with the IPO, the management
stockholder’s agreement was amended, and common stock no longer has a redemption feature that is outside
the Company’s control that could require the Company to redeem these shares. Accordingly, the amounts
previously reflected in redeemable common stock, were reclassified to shareholders’ equity during the second
quarter of 2016.
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.
Revenue Recognition—The Company recognizes revenue from the sale of product when title and risk of loss
passes and the customer accepts the goods, which generally occurs at delivery. The Company grants certain
customers sales incentives—such as rebates or discounts—and treats these as a reduction of sales at the time
the sale is recognized. Sales taxes invoiced to customers and remitted to governmental authorities are
excluded from net sales.
Cost of Goods Sold —Cost of goods sold includes amounts paid to vendors for products sold—net of vendor
consideration and the cost of transportation 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 section 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 $1.6 billion in 2017 and 2016, and $1.5 billion in 2015.
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 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 under GAAP
guidance.
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
55
across a larger number of customers located throughout the United States. 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
at December 30, 2017 and December 31, 2016.
3.
RECENT 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 ASU permits an entity to
reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (the “Tax Act”) on items within
accumulated other comprehensive income to retained earnings. The FASB refers to these amounts as
“stranded tax effects.” The amendments in this ASU also require certain disclosures about stranded tax effects.
This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years, with early adoption permitted. The amendments in this ASU should be applied either in the
period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S.
federal corporate income tax rate in the Tax Act is recognized. The Company is currently reviewing the
provisions of the new standard.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815):Targeted
Improvements to Accounting for Hedging Activities, to better align a company’s risk management activities
and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve
the disclosures of hedging arrangements. This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company
adopted the guidance in this ASU at the beginning of fiscal year 2018, with no impact to its financial position
or results of operations. The Company’s only hedging activities are its interest rate swaps designated as cash
flow hedges, which are highly effective.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting. This ASU provides guidance on determining which changes to the terms and
conditions of share-based payment awards require an entity to apply modification accounting. This ASU
should be applied prospectively to an award modified on or after the adoption date. This guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The
Company adopted this guidance at the beginning of fiscal year 2018, with no effect to its financial position or
results of operations, as the Company has not modified, and does not expect to modify any share-based
payment awards.
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This
ASU requires an employer to report the service cost component of net periodic pension cost and net periodic
postretirement benefit cost in the same line item or items as other compensation costs arising from services
rendered by the pertinent employees during the period. It also requires the other components of net periodic
pension cost and net periodic postretirement benefit cost to be presented in the income statement separately
from the service cost component and outside income from operations. Additionally, only the service cost
component is eligible for capitalization, when applicable. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017. The amendments in this update
require retrospective presentation in the income statement. The Company does not expect the provisions of the
new standard to materially affect its financial position or results of operations, as the reclassification of other
components of net periodic pension cost and net periodic postretirement benefit cost to non-operating expense
is not expected to have a significant effect on operating income.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test. The amendment also eliminates the requirement for any
reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that
qualitative test, to perform Step 2 of the goodwill impairment test. An entity has the option to perform the
qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This
guidance is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after
56
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. The new standard is not expected to materially affect the Company’s
financial position or results of operations, as the fair value of the Company’s reporting unit exceeded its
carrying value by a substantial margin, based on the fiscal year 2017 annual impairment analysis.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash, which clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning and ending cash balances on the statement of cash flows. This guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.
This ASU should be applied using a retrospective transition method to each period presented. This standard
does not have a material impact on the Company’s financial statements as restricted cash is not material.
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.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019, with early adoption permitted. The Company does not expect the provisions of the new
standard to materially affect its financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes Accounting
Standards Codification (“ASC”) 840, Leases. This ASU does not significantly impact lessor accounting. The
ASU requires lessees to record a right-of-use asset and a lease liability for almost all leases. Lessees are
permitted to make an accounting policy election to not recognize the asset and liability for leases with a term
of 12 months or less. In addition, the ASU expands the disclosure requirements of lease arrangements.
Adoption of this guidance will use a modified retrospective transition approach, which includes a number of
practical expedients. This guidance is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018, with early adoption permitted. Upon adoption, US Foods expects an
increase to assets and liabilities on its balance sheet. The Company has begun gathering lease data, reviewing
its lease portfolio, and completing the overall adoption impacts assessment.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which has been
introduced into the FASB’s ASC as Topic 606. Topic 606, as amended, replaces Topic 605, the previous
revenue recognition guidance. The new standard’s core principle is for companies to recognize revenue to
depict the transfer of goods or services to customers in amounts that reflect the consideration (that is,
payment) to which the Company expects to be entitled in exchange for those goods or services. The new
standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were
not previously addressed comprehensively (for example, service revenue and contract modifications) and
improve guidance for multiple-element arrangements. The Company adopted this standard at the beginning of
fiscal year 2018, with no significant impact, using the modified retrospective method.
The Company has revised its relevant policies and procedures, as applicable, to meet the new accounting,
reporting and disclosure requirements of Topic 606 and has updated internal controls accordingly.
4.
BUSINESS ACQUISITIONS
Business acquisitions during fiscal year 2017 included (1) certain assets of The Thompson Co., L.L.C.,
Braunger Foods, LLC, and Variety Foods, L.L.C., broadline distributors all owned and operated by TOBA
Inc., acquired in July; (2) the stock of Riverside Food Distributors, LLC, d/b/a F. Christiana and Co., a
broadline distributor, acquired in June; (3) the stock of FirstClass Foods-Trojan, Inc., d/b/a FirstClass Foods, a
meat processor, acquired in April; (4) certain assets of SRA Foods. Inc., a meat processor and distributor,
acquired in March; and (5) certain assets of All American Foods, a broadline distributor, acquired in February.
Total consideration consisted of cash of approximately $182 million. In fiscal year 2017, the Company also
paid a minor purchase price adjustment related to a 2016 business acquisition.
Business acquisitions during fiscal year 2016 included (1) the stock of Bay-N-Gulf, Inc., d/b/a Save On
Seafood, a seafood processor and distributor, acquired in October; (2) certain assets of Jeraci Food
Distributors, Inc., an Italian specialty distributor, acquired in October; (3) the stock of Fresh Unlimited, Inc.,
57
d/b/a Freshway Foods, a produce processor, repacker, and distributor, acquired in June; and (4) certain assets
of Cara Donna Provisions Co., Inc. and Cara Donna Properties LLC, a broadline distributor, acquired in
March. Total consideration consisted of cash of approximately $123 million.
Business acquisitions periodically provide for contingent consideration, including earnout agreements in the
event certain operating results are achieved, which are generally over periods of up to two years from the
respective dates of such acquisitions. During fiscal year 2017, the Company paid approximately $8 million of
earnout contingent consideration related to 2016 business acquisitions, of which $6 million was included as
part of the fair value of the acquisition date assets and liabilities, and is reflected in the Company’s
Consolidated Statement of Cash Flows in Cash flows from financing activities. As of December 30, 2017,
aggregate contingent consideration outstanding for business acquisitions was approximately $6 million,
including approximately $1 million for the estimated fair value of earnout liabilities.
The business acquisitions, reflected in the Company’s consolidated financial statements commencing from the
date of acquisition, did not materially affect the Company’s results of operations or financial position and,
therefore, pro forma financial information has not been provided. Acquisitions are integrated into the
Company’s foodservice distribution network and funded primarily with cash from operations.
The following table summarizes the purchase price allocations for the 2017 and 2016 business acquisitions as
follows (in thousands):
Accounts receivable
Inventories
Other current assets
Property and equipment
Goodwill
Other intangible assets
Accounts payable
Accrued expenses and other current liabilities
Deferred income taxes
Long-term debt
Cash paid for acquisitions
$
2016
2017
22,871
17,108 $
9,493
25,232
732
677
24,119
29,492
32,570
58,528
64,130
72,050
(16,216 )
(7,986 )
(12,173 )
(5,837 )
—
(7,277 )
(2,514 )
—
$ 181,987 $ 123,012
5.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the activity in the allowance for doubtful accounts for the last three fiscal years is as follows (in
thousands):
Balance at beginning of year
Charged to costs and expenses
Customer accounts written off—net of recoveries
Balance at end of year
2017
2015
2016
$ 25,388 $ 22,623 $ 24,989
12,103
(14,469 )
$ 25,971 $ 25,388 $ 22,623
17,999
(17,416 )
11,112
(8,347 )
This table excludes the vendor receivable related allowance for doubtful accounts of $3 million at
December 30, 2017, and $2 million at December 31, 2016 and January 2, 2016.
6.
ACCOUNTS RECEIVABLE FINANCING PROGRAM
Under its accounts receivable financing facility dated as of August 27, 2012, as amended (the “2012 ABS
Facility”), USF sells, on a revolving basis, its 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 as defined by the 2012 ABS Facility. The Company consolidates the
58
Receivables Company and, consequently, the transfer of the receivables is a transaction internal to the
Company and the receivables have not been derecognized from the Company’s Consolidated Balance Sheets.
On a daily basis, cash from accounts receivable collections is remitted to the Company as additional eligible
receivables are sold to the Receivables Company. If, on a weekly settlement basis, there are not sufficient
eligible receivables available as collateral, the Company is required to either provide cash collateral or, in lieu
of providing cash collateral, it can pay down its borrowings on the 2012 ABS Facility to cover the shortfall.
Due to sufficient eligible receivables available as collateral, no cash collateral was held at December 30, 2017
or December 31, 2016. Included in the Company’s accounts receivable balance as of December 30, 2017 and
December 31, 2016 was $964 million and $923 million, respectively, of receivables held as collateral in
support of the 2012 ABS Facility. See Note 11, Debt for a further description of the 2012 ABS Facility.
7.
ASSETS HELD FOR SALE
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.
The changes in assets held for sale for fiscal years 2017 and 2016 were as follows (in thousands):
Balance at beginning of year
Transfers in
Assets sold
Tangible asset impairment charges
Balance at end of the year
2017
21,039 $
4,099
(19,463 )
(497 )
5,178 $
2016
5,459
23,201
(7,496 )
(125 )
21,039
$
$
During fiscal year 2017, the Baltimore, Maryland distribution facility and another facility were sold for
aggregate proceeds of $22 million, resulting in a $3 million gain. Additionally, an excess portion of a parcel of
land, purchased earlier in the year, 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 Baltimore distribution facility and the facility acquired as part of the Cara Donna acquisition were closed
and transferred to assets held for sale in fiscal year 2016. The Cara Donna facility was subsequently sold in
the same year, along with the Fairmont, Minnesota and Lakeland, Florida facilities, for aggregate proceeds of
$12 million, resulting in a $4 million gain.
8.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
December 30,
2017
December 31,
2016
Range of
Useful Lives
Land
Buildings and building improvements
Transportation equipment
Warehouse equipment
Office equipment, furniture and software
Construction in process
$
Less accumulated depreciation and amortization
Property and equipment—net
$
312,909 $
1,189,634
949,236
384,361
803,389
87,478
3,727,007
(1,925,792 )
1,801,215 $
303,208
1,144,041 10–40 years
5–10 years
5–12 years
3–7 years
835,089
343,315
772,334
94,075
3,492,062
(1,724,451 )
1,767,611
Transportation equipment included $444 million and $354 million of capital lease assets at December 30,
2017 and December 31, 2016, respectively. Buildings and building improvements included $97 million of
capital lease assets at December 30, 2017 and December 31, 2016. Accumulated amortization of capital lease
59
assets was $181 million and $119 million at December 30, 2017 and December 31, 2016, respectively. Interest
capitalized was $2 million and $1 million in fiscal years 2017 and 2016, respectively.
Depreciation and amortization expense of property and equipment, including amortization of capital lease
assets, was $283 million, $266 million and $253 million for the fiscal years 2017, 2016 and 2015,
respectively.
9. GOODWILL AND OTHER INTANGIBLES
Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible net assets
acquired. Other intangible assets include customer relationships, noncompete agreements, and the brand
names and trademarks 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.
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 (two to four years). Amortization expense was $95 million,
$155 million and $146 million for fiscal years 2017, 2016 and 2015, respectively. The weighted-average
remaining useful life of all customer relationship intangibles was approximately 3 years at December 30,
2017. Amortization of these customer relationship assets is estimated to be $39 million in fiscal years 2018
and 2019, $24 million 2020, and $6 million in fiscal year 2021.
Goodwill and Other intangibles consisted of the following (in thousands):
Goodwill
Other intangibles—net
Customer relationships—amortizable:
Gross carrying amount
Accumulated amortization
Net carrying value
Noncompete agreements—amortizable:
Gross carrying amount
Accumulated amortization
Net carrying value
Brand names and trademarks—not amortizing
Total other intangibles—net
December 30,
2017
3,966,565 $
December 31,
2016
3,908,484
$
$
154,230 $
(46,203 )
108,027
1,393,799
(1,260,011 )
133,788
3,950
(1,159 )
2,791
252,800
363,618 $
800
(507 )
293
252,800
386,881
$
The 2017 increases in goodwill and noncompete agreements are attributable to the 2017 business acquisitions,
see Note 4, Business Acquisitions. The net decrease in the gross carrying amount of customer relationships is
attributable to the write off of the fully amortized intangible asset initially recognized in 2007 upon acquisition
of the Company by the Sponsors, partially offset by the 2017 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 at 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 July 2, 2017, the first
day of the third quarter of 2017, with no impairments noted.
For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as
described in Note 24, Business Information. The Company’s assessment for impairment of goodwill utilized a
combination of discounted cash flow analysis, comparative market multiples, and comparative market
transaction multiples, which were weighted 40%, 40% and 20%, respectively, to determine the fair value of
the reporting unit for comparison to the corresponding carrying value. Since the Company has been a
60
registrant for over one year, the Company modified the weighting from the prior year (50%, 35% and 15%,
respectively) to give more weight to the current actual market capitalization and that of its peers. If the
carrying value of the reporting unit exceeds its fair value, the Company must then perform a comparison of the
implied fair value of goodwill with its carrying value. If the carrying value of the goodwill exceeds its implied
fair value, an impairment loss is recognized in an amount equal to the excess. Based upon the Company’s
fiscal year 2017 annual goodwill impairment analysis, the Company concluded the fair value of its reporting
unit exceeded its carrying value.
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 2017 annual
impairment analysis, the Company concluded the fair value of the Company’s 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.
10. FAIR VALUE MEASUREMENTS
The Company follows the accounting standards for fair value, where 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:
(cid:2)
(cid:2)
(cid:2)
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 in 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 and nonrecurring basis as of
December 30, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which
those measurements fall, are as follows (in thousands):
Assets
Money market funds
Interest rate swaps
Liabilities
December 30, 2017
Level 1 Level 2 Level 3 Total
$ 1,100 $ — $ — $ 1,100
— 12,717 — 12,717
$ 1,100 $ 12,717 $ — $ 13,817
Contingent consideration payable for business acquisitions
$ — $ — $ 1,000 $ 1,000
Assets
Money market funds
Liabilities
December 31, 2016
Level 1 Level 2 Level 3 Total
$ 31,600 $ — $ — $ 31,600
Contingent consideration payable for business acquisitions
$ — $ — $ 9,775 $ 9,775
61
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 a 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.
Interest Rate Swaps
The Company uses interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate
movements on its variable-rate Amended and Restated 2016 Term Loan (as defined in Note 11, 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, effectively converting approximately half of the principal
amount of the Amended and Restated 2016 Term Loan from a variable to a fixed rate loan. On November 30,
2017, the interest rate swaps were amended in conjunction with an amendment to the Amended and Restated
2016 Term Loan, see Note 11, Debt. The Company now effectively pays an aggregate rate of 4.21% on the
notional amount covered by the interest rate swaps, comprised of 1.71% plus a spread of 2.50%.
The Company records its interest rate swaps in the Consolidated Balance Sheet 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 or the Company, as appropriate. The following table presents the balance sheet location and fair
value of the interest rate swaps at December 30, 2017 (in thousands):
December 30, 2017
Balance Sheet Location
Fair Value
Asset Derivatives
Derivatives designated as hedging instruments
Interest rate swaps
Interest rate swaps
Other current assets
Other noncurrent assets
Total
$
$
$
430
12,287
12,717
The effective portion of 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. There was no ineffectiveness attributable to the Company’s interest rate swaps during 2017.
As a result of the November 30, 2017 amendment to the Amended and Restated 2016 Term Loan, the interest
rate swaps were also amended, resulting in a de-minimis mark-to-market gain. The following table presents
the effect of the Company’s interest rate swaps in the Consolidated Statement of Comprehensive Income for
the fiscal year ended December 30, 2017 (in thousands):
Derivatives in Cash Flow Hedging Relationships
For the year ended December 30, 2017
Interest rate swaps
Amount of Gain
Recognized in
Accumulated Other
Comprehensive Loss,
net of tax
Location of Amounts
Reclassified from
Accumulated Other
Comprehensive Loss
Amount of Loss
Reclassified from
Accumulated
Other
Comprehensive
Loss to Income,
net of tax
$
6,252 Interest expense─net $
1,185
62
During the next 12 months, the Company estimates that $0.4 million will be reclassified from accumulated
other comprehensive loss to interest expense.
Credit Risk-Related Contingent Features−The interest swap agreements contain a provision whereby the
Company could be declared in default on its hedging obligations if more than $75 million of the Company’s
other indebtedness is accelerated. As of December 30, 2017, none of our indebtedness was accelerated.
We review counterparty credit risk and currently are not aware of any facts that indicate our counterparties
will not be able to comply with the contractual terms of their agreements.
Contingent Consideration Payable for Business Acquisitions
As discussed in Note 4, Business Acquisitions, contingent consideration may be paid under an earnout
agreement for a 2016 business acquisition, primarily in the event certain operating results are achieved, over a
two-year period from the respective date of such acquisition. The amounts included in the above table,
classified under Level 3 within the fair value hierarchy, represent the estimated fair value of the earnout
liability for the respective periods. We estimate the fair value of earnout liabilities based on financial
projections of the acquired companies and estimated probability of achievement. Changes in fair value
resulting from changes in the estimated amount of contingent consideration are included in distribution,
selling and administrative costs in the Consolidated Statements of Comprehensive Income.
Other Fair Value Measurements
The carrying value of cash, restricted cash, accounts receivable, bank checks outstanding, 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 $3.8 billion as of December 30,
2017 and December 31, 2016. The December 30, 2017 and December 31, 2016 fair value of the Company’s
5.875% unsecured Senior Notes due June 15, 2024 (the “2016 Senior Notes”), estimated at $0.6 billion, at the
end of each period, was classified under Level 2 of the fair value hierarchy, with fair value based upon the
closing market price at the end of the reporting period. 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.
11. DEBT
Total debt consisted of the following (in thousands):
Debt Description
ABL Facility
2012 ABS Facility
Amended and Restated 2016 Term Loan (net of $9,963
and $13,318 of unamortized deferred financing costs)
2016 Senior Notes (net of $6,229 and $7,185 of
unamortized deferred financing costs)
Obligations under capital leases
Other debt
Total debt
Current portion of long-term debt
Long-term debt
Interest Rate at
Maturity
October 20, 2020
September 21, 2020
December 30,
2017
December 30,
2017
December 31,
2016
4.69 % $
2.49
80,000 $
580,000
30,000
645,000
June 27, 2023
4.07
2,157,037
2,175,682
June 15, 2024
2018–2025
2018–2031
5.88
2.36 - 6.18
5.75 - 9.00
593,771
336,603
9,870
3,757,281
(109,226 )
592,815
305,544
32,672
3,781,713
(75,962 )
$ 3,648,055 $ 3,705,751
At December 30, 2017, after considering interest rate swaps that fixed the interest rate on $1.1 billion of
principal of the Amended and Restated 2016 Term Loan, approximately 54% of the principal amount of the
Company’s total debt was at a fixed rate and approximately 46% was at a floating rate.
63
Principal payments to be made on outstanding debt as of December 30, 2017, were as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
$
$
109,226
89,201
743,061
71,841
56,960
2,703,184
3,773,473
Following is a description of each of the Company’s debt instruments outstanding as of December 30, 2017:
Revolving Credit Agreement—The Amended and Restated ABL Credit Agreement, dated October 20,
2015, as amended, is USF’s asset backed senior secured revolving loan facility (the “ABL Facility”) and
provides for loans under its two tranches: ABL Tranche A-1 and ABL Tranche A, with its capacity
limited by a borrowing base. The maximum borrowing available is $1,300 million, with ABL Tranche
A-1 at $100 million, and ABL Tranche A at $1,200 million.
As of December 30, 2017, USF had $80 million of outstanding borrowings, and had issued letters of
credit totaling $412 million under the ABL Facility. Outstanding letters of credit included: (1) $81
million issued to secure USF’s obligations with respect to certain facility leases, (2) $328 million issued
in favor of certain commercial insurers securing USF’s obligations with respect to its self-insurance
program, and (3) $3 million in letters of credit for other obligations. There was available capacity on the
ABL Facility of $807 million at December 30, 2017. As of December 30, 2017, on Tranche A-1
borrowings, USF can periodically elect to pay interest at an alternative base rate (“ABR”), as defined in
the ABL Facility, plus 1.50% or the London Inter Bank Offered Rate (“LIBOR”) plus 2.50%. On
Tranche A borrowings, USF can periodically elect to pay interest at ABR plus 0.25% or LIBOR plus
1.25%. For both tranches, the interest rate spreads are the lowest provided for in the agreement, based
upon USF’s consolidated secured leverage ratio (as defined in the agreement). The ABL Facility also
carries letter of credit fees of 1.25% and an unused commitment fee of 0.25%. The weighted-average
interest rate on outstanding borrowings for the ABL Facility was 4.29% and 2.65% for fiscal year 2017
and 2016, respectively.
Accounts Receivable Financing Program—Under the 2012 ABS Facility, USF sells, on a revolving
basis, its eligible receivables to the Receivables Company. See Note 6, Accounts Receivable Financing
Program.
On September 20, 2017, the 2012 ABS Facility was amended to extend the maturity date from
September 30, 2018 to September 21, 2020. There were no other significant changes to the 2012 ABS
Facility. The Company incurred $1 million of lender fees and third-party costs related to the
amendment, which were capitalized as deferred financing costs and will be amortized to the September
2020 maturity date.
The maximum capacity under the 2012 ABS Facility is $800 million. Borrowings under the 2012 ABS
Facility were $580 million at December 30, 2017. 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 on the 2012 ABS Facility of $115 million at December 30, 2017
based on eligible receivables as collateral. The 2012 ABS Facility bears interest at LIBOR plus 1.00%,
and carries an unused commitment fee of 0.35%. The weighted-average interest rate on outstanding
borrowings for the 2012 ABS Facility was 2.18% and 1.69% for fiscal year 2017 and 2016,
respectively.
Amended and Restated 2016 Term Loan Agreement—The Amended and Restated 2016 Term Loan
Credit Agreement, dated June 27, 2016, as amended (the “Amended and Restated 2016 Term Loan”),
consists of a senior secured term loan with a carrying value of $2,157 million at December 30, 2017, net
of $10 million of unamortized deferred financing costs. Principal repayments of $5.5 million are
payable quarterly with the balance due at maturity. The debt may require mandatory repayments if
certain assets are sold, as defined in the agreement.
64
The Amended and Restated 2016 Term Loan was amended on February 17, 2017 (the “February 2017
Amendment”) and November 30, 2017 (the “November 2017 Amendment”), in each case and among
other things, to reduce the interest rate spread on outstanding borrowings. The February 2017
Amendment reduced the interest rate spread on outstanding borrowings by 25 basis points to a fixed rate
of ABR plus 1.75% or LIBOR plus 2.75%, with a LIBOR floor of 0.75%, based on USF’s periodic
election. The November 2017 Amendment further reduced the interest rate spread on outstanding
borrowings an additional 25 basis points to either ABR plus 1.50% or LIBOR plus 2.50%, based on
USF’s periodic election, and reduced the LIBOR floor from 0.75% to zero. The interest rate spread on
both ABR and LIBOR borrowings can be further reduced 25 basis points to either ABR plus 1.25% or
LIBOR plus 2.25%, if USF’s consolidated secured leverage ratio (as defined in the Amended and
Restated 2016 Term Loan) is equal to or less than 1.75:1.00 at the end of the most recent fiscal quarter.
At December 30, 2017, USF’s consolidated secured leverage ratio exceeded 1.75:1.00.
The Company determined that the terms of both the February 2017 Amendment and the November
2017 Amendment were not substantially different from the previous terms of the Amended and Restated
2016 Term Loan, for substantially all continuing lenders and, accordingly, debt modification accounting
was applied. We applied debt extinguishment accounting to the lenders that either exited the term loan
facility, or had terms that were substantially different from their original loan agreements.
The Company recorded an aggregate of $0.5 million of third-party costs, and write-offs of $1.4 million
of unamortized deferred financing costs, related to the February 2017 Amendment and the November
2017 Amendment, in interest expense. Unamortized deferred financing costs of $10 million at
November 30, 2017 were carried forward and will be amortized through June 27, 2023, the maturity
date of the Amended and Restated 2016 Term Loan.
As described in Note 10, Fair Value Measurements, USF entered into four-year interest rate swaps with
a notional amount of $1.1 billion, reducing to $825 million in the fourth year, effectively converting
approximately half of the principal amount of the Amended and Restated 2016 Term Loan from a
variable to a fixed rate loan. On November 30, 2017, the interest rate swaps were amended in
conjunction with the November 2017 Amendment, reducing the rate on the portion of the principal
amount of the Amended and Restated 2016 Term Loan subject to hedging agreements to 4.21%.
2016 Senior Notes—The 2016 Senior Notes due 2024, with a carrying value of $594 million at
December 30, 2017, net of $6 million of unamortized deferred financing costs, bear interest at 5.875%.
On or after 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. Prior to June 15, 2019, up to 40% of the debt may be redeemed with the aggregate
proceeds from equity offerings, as defined in the June 27, 2016 Indenture, as supplemented, at a
redemption premium of 105.875%.
Other Debt–Obligations under capital leases of $337 million at December 30, 2017, consist of amounts
due for transportation equipment and building leases. Other debt of $10 million at December 30, 2017
consists primarily of various state industrial revenue bonds.
2016 Debt Transactions and Loss on Extinguishment
IPO Proceeds
As discussed in Note 1, Overview and Basis of Presentation, in June 2016, US Foods completed its IPO. Net
proceeds of $1,114 million were used to redeem $1,090 million in principal of USF’s Old Senior Notes and
pay the related $23 million early redemption premium. The balance of the Old Senior Notes was redeemed
with proceeds from the June 2016 refinancings further discussed below.
June 2016 Refinancings
In June 2016, USF entered into a series of transactions to refinance the $2,042 million principal of its term
loan, redeem the remaining $258 million principal of its Old Senior Notes and pay the related $6 million early
65
redemption premium. The aggregate principal amount outstanding of the Amended and Restated 2016 Term
Loan was increased to $2,200 million. Additionally, USF issued $600 million in principal amount of 2016
Senior Notes.
The debt redemption and refinancing transactions completed in June 2016 resulted in a loss on extinguishment
of debt of $42 million, consisting of a $29 million early redemption premium related to the Old Senior Notes,
$7 million of lender and third-party fees, and a $6 million write-off of certain pre-existing unamortized
deferred financing costs and premiums related to the refinanced and redeemed facilities.
CMBS Fixed Facility Defeasance
On September 23, 2016, USF, through a wholly owned subsidiary, legally defeased the commercial mortgage
backed securities facility (the “CMBS Fixed Facility”), scheduled to mature on August 1, 2017. The CMBS
Fixed Facility had an outstanding balance of $471 million net of unamortized deferred financing costs of $1
million. The cash outlay for the defeasance of $485 million represented the purchase price of U.S. government
securities that would generate sufficient cash flow to fund interest payments from the effective date of the
defeasance through, and including the repayment of, the $472 million principal for the CMBS Fixed Facility
on February 1, 2017, the earliest date the loan could be prepaid. The defeasance resulted in a loss on
extinguishment of debt of approximately $12 million, consisting of the difference between the purchase price
of the U.S. government securities, not attributable to accrued interest through the effective date of the
defeasance, and the outstanding principal of the CMBS Fixed Facility, and other costs of $1 million,
consisting of unamortized deferred financing costs and other third-party costs.
Security Interests
Substantially all of the Company’s assets are pledged under the various debt agreements. Debt under the 2012
ABS Facility is secured by certain designated receivables and, in certain circumstances, by restricted cash.
The ABL Facility is secured by certain other designated receivables not pledged under the 2012 ABS Facility,
as well as inventory and tractors and trailers owned by the Company. Additionally, the lenders under the ABL
Facility have a second priority interest in the assets pledged under the Amended and Restated 2016 Term
Loan. USF’s obligations under the Amended and Restated 2016 Term Loan are secured by all of the capital
stock of USF and its direct and indirect wholly owned domestic subsidiaries, as defined in the agreements, and
substantially all non-real estate assets of USF and its subsidiaries not pledged under the 2012 ABS Facility or
the ABL Facility. Additionally, the lenders under the Amended and Restated 2016 Term Loan have a second
priority interest in the inventory and tractors and trailers 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 agreement between each of the interest rate swap counterparties and USF, each of the interest rate
swap counterparties 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. USF is not required to provide additional collateral to its
hedge counterparties.
Restrictive Covenants
The credit facilities, loan agreements and indentures contain customary covenants. These include, among
other things, covenants that restrict USF’s ability to incur certain additional indebtedness, create or permit
liens on assets, pay dividends, or engage in mergers or consolidations. As of December 30, 2017, USF had
$751 million of restricted payment capacity under these covenants, and approximately $2,001 million of its
net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances
that eliminate in consolidation.
Certain debt agreements 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 a default event occurs and continues, the principal amounts outstanding, together with all accrued
unpaid interest and other amounts owed, may be declared immediately due and payable by the lenders. 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 current facilities. The Company’s ability to refinance its indebtedness on favorable terms, or at all,
is directly affected by the current economic and financial conditions. In addition, the Company’s ability to
66
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, relies on the strength of its
cash flows, results of operations, economic and market conditions, and other factors.
12. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other long-term liabilities consisted of the following (in thousands). Prior year amounts
may be reclassified to conform with the 2017 presentation, based on changes in significance.
Accrued expenses and other current liabilities:
Salary, wages and bonus expenses
Operating expenses
Workers’ compensation, general and fleet liability
Group medical liability
Customer rebates and other selling expenses
Restructuring
Property and sales tax
Interest payable
Other
Total accrued expenses and other current liabilities
Other long-term liabilities:
Workers’ compensation, general and fleet liability
Accrued pension and other postretirement benefit obligations
Unfunded lease obligation
Uncertain tax positions
Restructuring
Other
Total Other long-term liabilities
December 30,
2017
December 31,
2016
$
$
$
$
161,106 $
67,764
49,081
28,974
85,210
4,586
28,478
5,578
19,965
450,742 $
121,270 $
130,511
24,138
81,237
749
13,631
371,536 $
156,999
71,140
46,482
27,480
80,223
22,623
25,032
3,469
22,367
455,815
117,890
172,895
26,757
11,115
838
21,434
350,929
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. 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 (in
thousands):
Balance at beginning of the year
Charged to costs and expenses
Reinsurance recoverable
Payments
Balance at end of the year
Discount rate
2015
2017
2016
$ 164,372 $ 172,243 $ 160,904
77,242
—
(65,903 )
$ 170,351 $ 164,372 $ 172,243
59,366
—
(67,237 )
64,236
8,068
(66,325 )
1.98 %
1.47 %
0.82 %
Estimated future payments for self-insured liabilities are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total self-insured liability payments
Less amount representing interest
Present value of self-insured liability payments
$
$
$
49,651
25,285
18,573
14,140
10,249
61,010
178,908
(8,557 )
170,351
67
13. RESTRUCTURING LIABILITIES
The following table summarizes the changes in the restructuring liabilities for the last three fiscal years (in
thousands):
Severance Facility
and Related Closing
Costs
Costs
Total
Balance at December 27, 2014
Current period charges
Change in estimate
Payments and usage—net of accretion
Balance at January 2, 2016
Current period charges
Change in estimate
Payments and usage—net of accretion
Balance at December 31, 2016
Current period charges
Change in estimate
Payments and usage—net of accretion
Balance at December 30, 2017
$ 56,450 $
175,749
(4,196 )
(109,369 )
118,634
71,514
(21,004 )
(146,548 )
22,596
6,968
(5,007 )
(19,722 )
4,835 $
$
2,563
267
431 $ 56,881
36 175,785
(4,196 )
—
(257 ) (109,626 )
210 118,844
74,077
(20,737 )
(2,175 ) (148,723 )
23,461
6,968
(5,263 )
(19,831 )
5,335
865
—
(256 )
(109 )
500 $
The Company periodically closes or consolidates distribution facilities and implements initiatives in its
ongoing efforts to reduce costs and improve operating effectiveness. In connection with these activities, the
Company incurs various costs including multiemployer pension withdrawal liabilities and settlements,
severance and other employee separation costs that are included in the above table.
2017 Activities
During fiscal year 2017, the Company incurred a net charge of $2 million, primarily for severance and related
costs associated with its efforts to streamline its corporate back office organization and centralize
replenishment activities.
2016 Activities
During fiscal year 2016, the Company incurred a net charge of $50 million for severance and related costs
associated with its efforts to streamline its field operations model, streamline its corporate back office
organization, centralize replenishment activities and complete the closure of the Baltimore, Maryland
distribution facility. The Company also incurred $3 million in facility closing costs related to a lease
termination settlement.
2015 Activities
During fiscal year 2015, the Company incurred a net charge of $172 million primarily for severance and
related costs related to the field reorganization and closure of the Baltimore, Maryland facility, both
announced in 2015, and settlement of the Central States Teamsters Union Pension Plan (“Central States”).
The field reorganization included $30 million of severance and related costs. The Baltimore, Maryland
distribution facility closure resulted in $55 million of severance and related costs, including $50 million of
estimated multiemployer pension withdrawal liabilities, which were settled in fiscal year 2016.
In December 2015, the Company reached a settlement with Central States that relieved the Company’s
participation in the “legacy” pool and settled the related legacy multiemployer pension withdrawal liability,
and commenced the Company as a new employer in the “hybrid” pool of the Central States Teamsters
Southeast and Southwest Area Pension Fund. The payment also included the settlement of certain other
68
Central States multiemployer pension withdrawal liabilities relating to facilities closed prior to 2015, and a
related labor dispute. The settlement resulted in a restructuring charge of $88 million.
14. RELATED PARTY TRANSACTIONS
FMR LLC, is a holder of approximately 13% of the Company’s outstanding common stock. As of December
30, 2017, investment funds managed by an affiliate of FMR LLC held approximately 1% of the Company’s
outstanding debt. Certain FMR LLC affiliates also provide administrative and trustee services for the
Company’s 401(k) Plan and provide 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.
On December 4, September 18, May 17, and January 31, of fiscal year 2017, the Company closed secondary
offerings of its common stock held primarily by the Sponsors. A total of 167,355,545 shares were sold, in the
aggregate, however, the Company did not receive any proceeds from the offerings. The December 4, 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 underwriter’s purchase price. 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 Company’s share repurchase closed concurrently with the offering, and the shares were retired. The
Sponsors share position is now liquidated. In accordance with terms of the prior registration rights agreement
with the Sponsors, the Company incurred approximately $5 million of expenses in connection with the
offerings, approximately $1 million of which was incurred in 2016. Underwriting discounts and commissions
were paid by the selling shareholders.
KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received a de minimis fee for
services rendered in connection with the February 2017 amendment of the Amended and Restated 2016 Term
Loan. There were no lender fees associated with the November 2017 amendment. Additionally, KKR Capital
Markets received underwriter discounts and commissions of $5 million in connection with the Company’s
IPO, and $1 million for services rendered in connection with the June 2016 debt refinancing transactions.
The Company was previously a party to consulting agreements with each of the Sponsors pursuant to which
each Sponsor provided the Company with ongoing consulting and management advisory services and received
fees and reimbursement of related out of pocket expenses. On June 1, 2016, the agreements with each of the
Sponsors were terminated. For fiscal year 2016, the Company recorded $36 million in fees and expenses,
including an aggregate termination fee of $31 million. In fiscal year 2015, the Company recorded $10 million
in fees. All fees paid to the Sponsors, including the termination fees, are reported in distribution, selling and
administrative costs in the Consolidated Statements of Comprehensive Income.
On January 8, 2016, the Company paid a $666 million, or $3.94 per share, one-time special cash distribution
to its shareholders of record as of January 4, 2016, of which $657 million was paid to the Sponsors. The
distribution was funded with cash on hand and approximately $314 million of additional borrowings under the
Company’s credit facilities. The Company has no current plans to pay future dividends, and has never paid
dividends on its common stock, other than the January 2016 one-time cash distribution. Any decision to
declare and pay dividends in the future will be made at the sole discretion of our Board of Directors, and could
be limited by debt covenants that restrict USF’s ability to make cash distributions to US Foods.
15. SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK
The Compensation Committee of the Board of Directors is authorized to select the officers, employees and
directors eligible to participate in the 2016 Plan. The Compensation Committee may determine the specific
number of shares to be offered, or options, restricted stock units, stock appreciation rights or shares of
restricted stock to be granted to an employee or director.
In June 2016, the 2016 Plan was adopted by the Board of Directors and approved by the Company’s
shareholders. The 2016 Plan provides for the grant of up to 9 million shares of common stock or stock-based
69
awards. The 2007 Plan terminated according to its terms on December 21, 2017. The termination of the 2007
Plan has no effect on any outstanding awards.
Total compensation expense related to share-based payment arrangements was $21 million, $18 million and
$16 million for fiscal years 2017, 2016 and 2015, respectively and is reflected in distribution, selling and
administrative costs. No share-based compensation cost was capitalized as part of the cost of an asset during
those years. The total income tax benefit recorded in the Consolidated Statement of Comprehensive Income
was $7 million in fiscal year 2017, and $6 million in fiscal years 2016 and 2015.
Common Stock Issuances—Certain employees have purchased stock, pursuant to a management
stockholder’s agreement associated with the 2007 Plan. These shares are subject to the terms and conditions
(including certain restrictions) of each management stockholder’s agreement, other documents signed at the
time of purchase, as well as transfer limitations under the applicable law.
In August 2016, the Company’s Board of Directors approved the Stock Purchase Plan. The purpose of the
Stock Purchase Plan is to provide eligible employees with the opportunity to acquire common shares of the
Company. An eligible employee is a person that: 1) is employed by the Company, and 2) has provided
continuous service, works a minimum of 20 hours per week, and works a minimum of five months throughout
the year. A person will not be eligible for the grant of any purchase rights if, immediately after the grant of
such purchase right, the person owns stock possessing five percent or more of the total combined voting
power or value of all classes of shares of the Company or any subsidiary.
Participation in the Stock Purchase Plan occurs via payroll deferrals with share purchases occurring quarterly.
Shares are purchased based on the closing price of the stock at the end of the designated purchase period. The
Stock Purchase Plan provides participants with a discount of up to 15% of the fair market value of the
common stock, so the plan is considered compensatory. The Company recorded $3 million and $0.8 million
of stock-based compensation expense in 2017 and 2016, respectively, associated with the Stock Purchase
Plan.
Stock Options—The Company granted to certain employees time-based options (“Time Options”) and
performance-based options (“Performance Options”), collectively the (“Options”) to purchase common
shares. These Options are subject to the restrictions set forth in the stock option agreements. Shares purchased
pursuant to option exercises are governed by the restrictions in the relevant Incentive Plan and management
stockholder’s agreements. The Options also contain certain anti-dilution provisions.
The Time Options vest and become exercisable ratably over periods of three to five years. This happens either
on the anniversary date of the grant or the last day of each fiscal year, beginning with the fiscal year issued.
Compensation expense related to Time Options was $4 million in fiscal years 2017 and 2016, and $3 million
in fiscal year 2015.
The Performance Options also vest and become exercisable ratably over four to five years, either on the
anniversary date of the grant or the last day of each fiscal year, beginning with the fiscal year issued, provided
that the Company achieves an annual operating performance target, as defined in the applicable stock option
agreements. Awards granted prior to 2016 established annual and cumulative targets for each year at the
beginning of each respective fiscal year. In this case, the grant date under GAAP was not determined until the
performance target for the related options was known. The pre-2016 award also provided for “catch-up
vesting” of the Performance Options, if an annual operating performance target was not achieved, but a
cumulative operating performance target was achieved.
The Company achieved its annual performance targets in fiscal years 2017, 2016 and 2015 and recorded
compensation expense of $3 million, $4 million and $5 million, respectively. The 2015 compensation expense
of $5 million, included a $2 million catch-up adjustment for awards prior to 2015.
The Options are nonqualified, with exercise prices equal to the estimated fair value of a share of common
stock at the date of the grant. Exercise prices range from $8.51 to $30.39 per share and generally have a 10-
year life. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option-
pricing model.
70
The weighted-average assumptions for options granted in fiscal years 2017, 2016 and 2015 are included in the
following table.
Expected volatility
Expected dividends
Risk-free interest rate
Expected term (in years)
2017
2016
2015
31.8 %
—
1.9 %
5.8
28.8 %
—
1.5 %
5.9
36.6 %
—
1.6 %
4.8
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. However, as
further discussed in Note 14, Related Party Transactions, the Company did pay a special cash distribution in
January 2016, which was considered one-time in nature. 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 2017 are presented below.
Weighted-
Time
Performance
Options
Total
Outstanding at December 31, 2016
Options
4,973,717 3,688,192 8,661,909 $
429,532 1,286,713 $
(2,418,764 ) (2,359,435 ) (4,778,199 ) $
(555,454 ) $
Outstanding at December 30, 2017
3,009,552 1,605,417 4,614,969 $
Vested and exercisable at December 30, 2017 1,230,897 1,242,245 2,473,142 $
Granted
Exercised
Forfeited
(402,582 )
(152,872 )
857,181
Options
Weighted- Weighted- Average
Average
Average
Exercise
Remaining
Contractual
Years
Fair
Value
Price
5.65 $
11.08 $
5.12 $
7.54 $
7.47 $
6.10 $
12.91
26.72
10.15
19.94
18.79
14.31
7.2
5.8
The weighted-average grant date fair value of options granted in fiscal years 2017, 2016 and 2015 was $11.08,
$6.28 and $6.91, respectively.
During fiscal year 2017, Options were exercised with a total intrinsic value of $86 million, representing the
excess of fair value over exercise price. During fiscal year 2016, Options were exercised by terminated
employees for a cash outflow of $4 million, representing the excess of fair value over exercise price. During
fiscal year 2015, Options were exercised by terminated employees for a cash outflow of $6 million,
representing the excess of fair value over exercise price.
As of December 30, 2017, there was $13 million of total unrecognized compensation costs related to
nonvested Options expected to vest under the Stock Option Agreements. That cost is expected to be
recognized over a weighted-average period of two years.
Restricted Shares—Certain employees received restricted shares (the “Restricted Shares”) in fiscal years
2017 and 2016 granted under the 2016 Plan. Prior to 2017, restricted shares contained time-based vesting
(“Time Shares”) and contained non-forfeitable dividend rights. In 2017, performance-based shares
(“Performance Shares”) were granted that contained forfeitable dividend rights.
Performance Shares are granted at the maximum award amount, and cliff vest at the end of a three-year
performance period if specific performance goals, established for each calendar year during the performance
period, are achieved. The number of shares eligible to vest at the end of the vesting period may range
from zero to 200% of the target award amount, based on the achievement of the performance goals. The fair
value of Performance Shares is measured using the market price 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 Performance Shares is remeasured at each reporting period, based on management’s evaluation of
whether it is probable that performance conditions will be met.
71
The Time Shares granted in 2016 were special awards that permitted immediate vesting. Accordingly, there
were no unvested Time Shares at the end of 2016. No Restricted Shares were awarded in fiscal year 2015.
The summary of nonvested Performance Shares outstanding and changes during fiscal year 2017 is presented
below:
Nonvested at December 31, 2016
Granted
Vested
Forfeited
Nonvested at December 30, 2017
Weighted-
Average
Fair
Value
Performance
Shares
— $ —
257,766 $ 30.39
— $ —
(16,453 ) $ 30.39
241,313 $ 30.39
The weighted-average grant date fair value for Performance Shares granted in 2017 and 2016 was $30.39 and
$14.58, respectively. Compensation expense for Restricted Shares was $1 million, $2 million and $1 million
in fiscal years 2017, 2016 and 2015, respectively. At December 30, 2017, there was $3 million of
unrecognized compensation cost related to the Performance Shares that is expected to be recognized over a
weighted average period of 2 years.
Restricted Stock Units—Certain employees have received time-based restricted stock units (“Time RSUs”)
and performance-based restricted stock units (“Performance RSUs”), and collectively the (“RSUs”) granted
pursuant to the 2007 Plan and, after the IPO, pursuant to the 2016 Plan. The RSUs also contain certain anti-
dilution provisions. Time RSUs generally vest ratably over three to four years, starting on the anniversary date
of grant. In fiscal years 2017, 2016 and 2015, the Company recognized $6 million, $4 million and $3 million,
respectively in compensation expense related to Time RSUs.
Prior to 2017, the Performance RSUs were based on the achievement of an annual operating performance
target. In periods prior to 2016, those targets also provided for “catch-up” vesting, if an annual performance
target was not achieved. In 2017, the Company introduced a new Performance RSU that is based on certain
year-over-year growth goals and return on invested capital. The Company also awarded Performance RSUs
that were based on the achievement of the annual operating plan.
Performance RSUs that were based on the annual operating plan vest ratably over four years, either on the
anniversary date of the grant, or the last day of each fiscal year (beginning with the fiscal year issued),
provided that the Company achieves an annual operating performance target as defined in the applicable
restricted stock unit agreements (“RSU Agreements”).
The 2017 Performance RSUs, that were not based on the annual operating plan, were granted with cliff
vesting, with share issuance at the end of a three-year performance period, contingent upon the achievement of
specific performance goals established for each calendar year during the performance period. The number of
shares that may be earned at the end of the vesting periods may range from zero to 200% of the target award
amount based on the achievement of the performance goals.
The fair value of all Performance RSUs is measured at the market price 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
Performance RSUs is remeasured at each reporting period, based on management’s evaluation of whether it is
probable that performance conditions will be met.
The Company recognized $3 million of compensation expense in 2017 for Performance RSUs, based on the
achievement of the annual operating performance in 2017 and the portion of the Performance RSUs, that are
not based on the annual operating plan, that are expected to vest. The Company achieved the annual operating
performance targets in fiscal years 2016 and 2015 and recorded compensation charges of $4 million in each of
those years. The fiscal year 2015 charge consisted of $3 million relating to fiscal year 2015, and $1 million
related to Performance RSUs granted in fiscal year 2013 which met cumulative performance targets in fiscal
year 2015.
72
The summary of nonvested RSUs outstanding and changes during fiscal year 2017 is presented below.
Nonvested at December 31, 2016
Granted
Vested
Forfeited
Nonvested at December 30, 2017
Weighted-
Average
Fair
Value
Total
RSUs
Performance
RSUs
Time
RSUs
637,336 242,273 879,609 $ 17.68
607,432 296,456 903,888 $ 29.77
(213,879 ) (213,695 ) (427,574 ) $ 16.64
(121,597 )
(48,481 ) (170,078 ) $ 20.76
909,292 276,553 1,185,845 $ 26.79
The weighted-average grant date fair values for RSUs granted in fiscal years 2017, 2016, and 2015 was
$29.77, $18.75, and $17.87, respectively.
At December 30, 2017, there was $24 million of unrecognized compensation cost related to RSUs that is
expected to be recognized over a weighted-average period of 2 years.
Equity Appreciation Rights—The Company has an Equity Appreciation Rights (“EAR”) Plan for certain
employees. Each EAR represents one phantom share of US Foods common stock. The EARs also contain
certain anti-dilution provisions. The EARs become vested and payable at the time of a qualified public
offering of equity shares, at the time of involuntary termination, or a change in control, as defined in the
agreement. EARs are forfeited upon voluntary termination of the participant’s employment. The EARs are
settled in cash upon vesting and, accordingly, are considered liability instruments. No EARs were granted
during fiscal years 2017, 2016 and 2015. During 2017, the Company recorded a compensation charge of
$1 million for EARs exercised by involuntarily terminated employees.
As the EARs are liability instruments, the fair value of the vested awards is re-measured each reporting period
until the award is settled. Since vesting of all outstanding EARs is contingent upon performance conditions, as
defined in the EAR plan, which are not considered probable, no compensation costs have been recorded to
date for the outstanding EARs, and as such, no liability has been recognized. As of December 30, 2017, there
were a total of 378,658 EARs outstanding with a weighted average exercise price of $9.80 per share.
16. LEASES
The Company leases various warehouse and office facilities and certain equipment under operating and capital
lease agreements that expire at various dates, and in some instances contain renewal provisions. The Company
expenses operating lease costs, including any scheduled rent increases, rent holidays or landlord concessions,
on a straight-line basis over the lease term. The Company also has an unfunded lease obligation on a
distribution facility through 2023.
Future minimum lease payments under the above mentioned noncancelable lease agreements, together with
contractual sublease income, as of December 30, 2017, are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments (receipts)
Less amount representing interest
Present value of minimum lease payments
Unfunded Lease Capital
Obligation
Leases
$
Operating Sublease
Leases
Income
Net
(461 ) $ 133,755
4,269 $ 97,324 $ 32,623 $
(479 ) 109,803
4,663 74,438 31,181
(133 ) 99,816
4,809 65,936 29,204
(22 ) 82,521
4,809 53,310 24,424
— 62,781
4,809 36,687 21,285
4,809 39,311 24,017
— 68,137
28,168 367,006 $ 162,734 $ (1,095 ) $ 556,813
(5,830 ) (30,403 )
22,338 $ 336,603
$
73
Total operating lease expense, included in distribution, selling and administrative costs in the Company’s
Consolidated Statements of Comprehensive Income was $44 million, $43 million and $44 million in fiscal
years 2017, 2016 and 2015, respectively.
17. RETIREMENT PLANS
The Company has defined benefit and defined contribution retirement plans for its employees, and provides
certain health care benefits to eligible retirees and their dependents. Also, the Company contributes to various
multiemployer plans under certain of its collective bargaining agreements.
Company Sponsored Defined Benefit Plans —The Company maintains a qualified retirement plan and a
nonqualified retirement plan (“Retirement Plans”) that pay benefits to certain employees at retirement, using
formulas based on a participant’s years of service and compensation. The Company also maintains
postretirement health and welfare plans for certain employees. Amounts related to defined benefit plans and
other postretirement plans recognized in the consolidated financial statements are determined on an actuarial
basis.
The components of net periodic pension and other postretirement benefit costs for the last three fiscal years
were as follows (in thousands):
Components of net periodic pension costs:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Settlements
Curtailment
Special termination benefit
Net periodic pension costs
2017
Pension Benefits
2016
2015
$
2,356 $
39,474
(47,828 )
138
3,848
17,785
138
—
$ 15,911 $
3,849 $ 32,582
39,628
40,459
(54,881 )
(48,296 )
195
157
10,394
8,255
3,358
4,487
—
—
422
—
8,911 $ 31,698
Other Postretirement Plans
2016
2015
2017
Components of net periodic other postretirement
benefit costs:
Service cost
Interest cost
Amortization of prior service cost (credit)
Amortization of net (gain) loss
$
Net periodic other postretirement benefit costs
$
35 $
283
6
(148 )
176 $
37 $
296
6
(71 )
268 $
37
264
(62 )
14
253
In the fourth quarter of 2017, lump sum payments were finalized for a voluntary lump sum offer made in
September, to certain former employees participating in the Company sponsored defined benefit plan. The
Company incurred non-cash settlement charges of $18 million, $4 million and $3 million in fiscal years 2017,
2016 and 2015, respectively, resulting from lump sum payments. All lump sum payments were paid from
pension plan assets.
Effective September 30, 2015, non-union participants’ benefits of a USF sponsored defined benefit pension
plan were frozen, resulting in a reduction in the benefit obligation included in other long-term liabilities of
approximately $91 million, including a $73 million curtailment, with a corresponding decrease to accumulated
other comprehensive loss. At the remeasurement date, the plan’s net loss included in accumulated other
comprehensive loss exceeded the reduction in the plan’s benefit obligation and, accordingly, no net
curtailment gain or loss was recognized in the Consolidated Statements of Comprehensive Income. As a result
74
of the plan freeze, actuarial gains and losses are amortized over the average remaining life expectancy of
inactive participants rather than the average remaining service lives of active participants.
In the second quarter of 2016, the Company recorded a $22 million increase to its pension obligation, with a
corresponding increase to accumulated other comprehensive loss, to correct a computational error related to
the September 30, 2015 USF pension plan freeze discussed above. The Company determined the error did not
materially impact the financial statements for any of the periods reported. The fiscal year 2016 decrease in net
periodic pension costs is primarily attributable to the September 30, 2015 USF pension plan freeze.
Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for pension
and other postretirement benefits for the last three fiscal years were as follows (in thousands):
2017
Pension Benefits
2016
2015
Changes recognized in accumulated other
comprehensive loss:
Actuarial gain (loss)
Curtailment
Prior year correction
Amortization of prior service cost
Amortization of net loss
Settlements
Net amount recognized
$
523 $ (64,296 ) $
—
138
(21,917 )
—
157
138
8,255
3,848
4,487
17,785
(3,171 )
73,191
—
195
10,394
3,358
$ 22,432 $ (73,314 ) $ 83,967
Changes recognized in accumulated other
comprehensive loss:
Actuarial gain (loss)
Prior service cost
Amortization of prior service cost (credit)
Amortization of net (gain) loss
Net amount recognized
Other Postretirement Plans
2015
2017
2016
$
$
181 $
—
6
(148 )
39 $
(174 ) $
—
6
(71 )
(239 ) $
1,035
(1,291 )
(62 )
14
(304 )
75
The funded status of the defined benefit plans for the last three fiscal years was as follows (in thousands):
2017
Pension Benefits
2016
2015
Change in benefit obligation:
Benefit obligation at beginning of period
Service cost
Interest cost
Actuarial loss (gain)
Curtailment
Prior year correction
Settlements
Special termination benefit
Benefit disbursements
Benefit obligation at end of period
$ 966,234 $ 862,886 $ 970,469
32,582
39,628
(73,282 )
(73,191 )
—
(15,287 )
422
(18,455 )
976,295 966,234 862,886
2,356
39,474
76,111
—
—
(87,225 )
—
(20,655 )
3,849
40,459
73,855
—
21,917
(16,002 )
—
(20,730 )
Change in plan assets:
Fair value of plan assets at beginning of period
Return on plan assets
Employer contribution
Settlements
Benefit disbursements
Fair value of plan assets at end of period
Net funded status
799,166 742,341 749,166
(21,572 )
124,462
48,489
35,535
(15,287 )
(87,225 )
(18,455 )
(20,655 )
851,283 799,166 742,341
$ (125,012 ) $ (167,068 ) $ (120,545 )
57,855
35,702
(16,002 )
(20,730 )
Other Postretirement Plans
2016
2015
2017
Change in benefit obligation:
Benefit obligation at beginning of period
Service cost
Interest cost
Employee contributions
Actuarial (gain) loss
Plan amendment
Benefit disbursements
Benefit obligation at end of period
Change in plan assets:
Fair value of plan assets at beginning of period
Employer contribution
Employee contributions
Benefit disbursements
Fair value of plan assets at end of period
Net funded status
$
6,952 $
35
283
195
(181 )
—
(661 )
6,623
6,974 $
37
296
204
174
—
(733 )
6,952
—
466
195
(661 )
—
(6,623 ) $
—
529
204
(733 )
—
(6,952 ) $
$
6,789
37
264
209
(1,035 )
1,291
(581 )
6,974
—
372
209
(581 )
—
(6,974 )
The fiscal year 2017 and 2016 actuarial losses of $76 million and $74 million, respectively, were primarily
due to a decrease in discount rates. The 2015 actuarial gain of $73 million was primarily due to an increase in
discount rates.
76
Amounts recognized in the consolidated
balance sheets consist of the following:
Accrued benefit obligation—current
Accrued benefit obligation—noncurrent
Net amount recognized in the consolidated
balance sheets
Amounts recognized in accumulated other
comprehensive loss consist of the following:
Prior service cost
Net loss
Net loss recognized in accumulated other
comprehensive loss
Additional information:
2017
Pension Benefits
2016
2015
(598 ) $
$
(546 )
(124,414 ) (166,519 ) (119,999 )
(549 ) $
$ (125,012 ) $ (167,068 ) $ (120,545 )
$
438
198,990 221,146 147,675
281 $
5 $
$ 198,995 $ 221,427 $ 148,113
Accumulated benefit obligation
$ 973,946 $ 963,008 $ 854,858
Other Postretirement Plans
2016
2015
2017
Amounts recognized in the consolidated
balance sheets consist of the following:
Accrued benefit obligation—current
Accrued benefit obligation—noncurrent
Net amount recognized in the consolidated
balance sheets
Amounts recognized in accumulated other
comprehensive loss consist of the following:
Gain, net of prior service cost
Net gain recognized in accumulated other
comprehensive loss
$
(527 ) $
(6,096 )
(576 ) $
(6,376 )
(525 )
(6,449 )
$
(6,623 ) $
(6,952 ) $
(6,974 )
$
$
864 $
825 $
1,064
864 $
825 $
1,064
Pension
Benefits
Other
Postretirement
Plans
Amounts expected to be amortized from
accumulated other comprehensive loss in the
next fiscal year:
Net loss (gain)
Prior service cost
Net expected to be amortized
$
$
3,383 $
5
3,388 $
(156 )
6
(150 )
Weighted average assumptions used to determine benefit obligations at period-end and net pension costs for
the last three fiscal years were as follows:
Benefit obligation:
Discount rate
Annual compensation increase
Net cost:
Discount rate
Expected return on plan assets
Annual compensation increase
2017
Pension Benefits
2016
2015
3.70 %
3.60 %
4.25 %
3.60 %
4.25 %
6.00 %
3.60 %
4.64 %
6.50 %
3.60 %
4.64 %
3.60 %
4.25 %
7.00 %
3.60 %
77
Other Postretirement Plans
2016
2015
2017
Benefit obligation—discount rate
Net cost—discount rate
3.70 %
4.25 %
4.25 %
4.40 %
4.40 %
4.05 %
The measurement date for the pension and other postretirement benefit plans was December 31 for 2017,
2016, and 2015. The Company applies the practical expedient under ASU No. 2015-04, to measure defined
benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end.
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:
Immediate rate
Ultimate trend rate
Year the rate reaches the ultimate trend rate
2017
2016
2015
6.70 %
4.50 %
2037
7.40 %
4.50 %
2037
7.40 %
4.50 %
2038
A 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 our Company sponsored plans is to provide a common investment platform.
Investment managers, overseen by the USF Retirement Administration Committee, are expected to adopt and
maintain an asset allocation strategy for the plans’ assets designed to address the Retirement Plans’ liability
structure. The Company has developed an asset allocation policy and rebalancing policy. We review the major
asset classes, through consultation with investment consultants, at least quarterly to determine if the plan
assets are performing as expected. The Company’s 2017 strategy targeted a mix of 50% equity securities and
50% long-term debt securities and cash equivalents. The actual mix of investments at December 31, 2017, was
49% equity securities and 51% long-term debt securities and cash equivalents. The Company plans to manage
the actual mix of investments to achieve its target mix.
78
The following table (in thousands) sets forth the fair value of our defined benefit plans’ assets by asset fair
value hierarchy level.
Asset Fair Value as of December 30, 2017
Cash and cash equivalents
Equities:
Domestic
International
Mutual funds:
Domestic equities
International equities
Long-term debt securities:
Corporate debt securities:
Domestic
International
U.S. government securities
Government agencies securities
Other
Common collective trust funds:
Cash equivalents
Domestic equities
International equities
Total investments measured at net asset value
as a practical expedient
Total defined benefit plans’ assets
Cash and cash equivalents
Equities:
Domestic
International
Mutual funds:
Domestic equities
International equities
Long-term debt securities:
Corporate debt securities:
Domestic
International
U.S. government securities
Government agencies securities
Other
Common collective trust funds:
Cash equivalents
Domestic equities
International equities
Total investments measured at net asset value
as a practical expedient
Total defined benefit plans’ assets
Level 1
$
7,898 $
Level 2
Level 3
Total
— $
— $
7,898
33,967
1,099
37,163
32,033
—
—
—
—
—
—
33,967
1,099
—
—
37,163
32,033
— 223,604
—
26,360
— 154,906
7,517
—
4,437
—
$ 112,160 $ 416,824 $
— 223,604
—
26,360
— 154,906
7,517
—
4,437
—
— 528,984
10,282
249,366
62,651
322,299
$ 851,283
Asset Fair Value as of December 31, 2016
Level 1
$ 10,073 $
Level 2
Level 3
Total
— $
— $ 10,073
30,759
829
37,711
28,975
—
—
—
—
—
—
30,759
829
—
—
37,711
28,975
— 196,743
—
20,120
— 154,007
7,548
—
2,545
—
$ 108,347 $ 380,963 $
— 196,743
—
20,120
— 154,007
—
7,548
2,545
—
— 489,310
6,447
244,152
59,257
309,856
$ 799,166
79
A description of the valuation methodologies used for assets measured at fair value is as follows:
(cid:2)
(cid:2)
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.
(cid:2) Mutual funds are valued at the closing price reported on the active market on which individual funds are
traded.
(cid:2)
(cid:2)
Common collective trust funds are valued at the net asset value of the shares held at the December 31,
2017 and 2016 measurement dates. This class represents investments in actively managed, common
collective trust funds that invest primarily in equity securities, which may include common stocks,
options and futures. Investments are valued at the net asset value per share, multiplied by the number of
shares held as of the measurement date.
Long-term debt securities are valued at the estimated price a dealer will pay for the individual securities.
Estimated future benefit payments, under Company sponsored plans as of December 30, 2017, were as
follows (in thousands):
2018
2019
2020
2021
2022
Subsequent five years
Pension
Benefits
Other
Postretirement
Plans
$
53,888 $
46,852
46,232
45,402
45,136
224,429
536
527
539
514
495
2,368
The Company expects to contribute $36 million to the Retirement Plans in fiscal year 2018.
Other Company Sponsored Benefit Plans —Substantially all employees are eligible to participate in a
Company sponsored defined contribution 401(k) Plan, which provides for Company matching on the
participant’s contributions of up to 100% of the first 3% of participant’s compensation, and 50% of the next
2% of a participant’s compensation, for a maximum Company matching contribution of 4%. Through the
third quarter of 2015, Company matching contributions were 50% of the first 6% of a participant’s
compensation. The Company’s contributions to this plan were $46 million, $44 million and $32 million in
fiscal years 2017, 2016 and 2015, respectively. The Company, at its discretion, may make additional
contributions to the 401(k) Plan. The Company made no discretionary contributions under the 401(k) plan in
fiscal years 2017, 2016 and 2015.
Multiemployer Pension Plans —The Company contributes to numerous multiemployer pension plans under
the terms of collective bargaining agreements that cover certain of its union-represented employees. The
Company does not administer these multiemployer pension plans.
The risks of participating in multiemployer pension plans differ from traditional single-employer defined
benefit plans as follows:
(cid:2)
Assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to
the employees of other participating employers.
(cid:2)
(cid:2)
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.
80
The Company’s participation in multiemployer pension plans for the year ended December 30, 2017, 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.
(cid:2)
The EIN/Plan Number column provides the Employee Identification Number (“EIN”) and the three-
digit plan number (“PN”) assigned to a plan by the Internal Revenue Service.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
The most recent Pension Protection Act (“PPA”) zone status available for 2017 and 2016 is for the plan
years beginning in 2017 and 2016, 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 collective-bargaining agreements to
which the plans are subject.
Pension Fund
Western Conference of Teamsters
Pension Trust Fund
Minneapolis Food Distributing
Industry Pension Plan
Teamster Pension Trust Fund of
Philadelphia and Vicinity
Local 703 I.B. of T. Grocery and
Food Employees’ Pension Plan
United Teamsters Trust Fund A
Warehouse Employees Local
169 and Employers Joint
Pension Fund(2)
Local 705 I.B. of T. Pension
Trust Fund
EIN/
Plan Number
PPA
Zone Status
2017
2016
FIP/RP Status
Pending/
Implemented
Surcharge
Imposed Expiration Dates
91-6145047/001 Green Green
N/A
No
3/31/18 to
3/31/20
41-6047047/001 Green Green Implemented No
4/1/21
23-1511735/001 Yellow Yellow Implemented No
2/10/18(1)
36-6491473/001 Green Green
No
13-5660513/001 Yellow Yellow Implemented No
N/A
6/30/18
5/30/19
23-6230368/001 Red
Red
Implemented No
2/10/18(1)
36-6492502/001 Yellow Red
Implemented No
12/29/18
(1)
(2)
The collective bargaining agreement for this pension fund is operating under an extension through March 2018.
Local 169 filed a Notice of Critical and Declining Status in 2017.
81
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 USF contributions is
aggregated. Prior year contribution amounts have been reclassified to other funds (below) for plans no longer
considered significant in 2017.
USF Contribution(1)(2)
(in thousands)
2016
2015
2017
USF Contributions
Exceed 5% of
Total Plan
Contributions(3)
2016
2015
Pension Fund
Western Conference of Teamsters Pension Trust Fund
Minneapolis Food Distributing Industry Pension Plan
Teamster Pension Trust Fund of Philadelphia and Vicinity
Local 703 I.B. of T. Grocery and Food Employees’ Pension Plan
United Teamsters Trust Fund A
Warehouse Employees Local 169 and Employers Joint Pension Fund
Local 705 I.B. of T. Pension Trust Fund
Other Funds
No No
$ 10,780 $ 10,104 $ 10,227
Yes Yes
5,399 5,162 5,200
No No
3,917 3,442 3,461
Yes Yes
1,482 1,258 1,366
Yes Yes
1,741 1,668 1,554
Yes Yes
897
3,122 2,923 2,729
No No
6,853 7,179 8,196 — —
846
900
$ 34,140 $ 32,636 $ 33,630
(1) Contributions made to these plans during the Company’s fiscal year, which may not coincide with the plans’ fiscal years.
(2) Contributions do not include payments related to multiemployer pension withdrawals/settlements.
(3)
Indicates whether the Company was listed in the respective multiemployer 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 multiemployer pension plans, it would 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 30,
2017. 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 plan’s funded status.
18. EARNINGS PER SHARE
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share, which
requires that non-vested restricted shares containing non-forfeitable dividend rights should be treated as
participating securities pursuant to the two-class method. Under the two-class method, net income is reduced
by the amount of dividends declared in the period for common stock and participating securities. The
remaining undistributed earnings are then allocated to common stock and participating securities as if all of
the net income for the period had been distributed. The amounts of distributed and undistributed earnings
allocated to participating securities for the fiscal years 2016 and 2015 were insignificant and did not materially
impact the calculation of basic or diluted EPS. The remaining non-vested restricted shares that contained non-
forfeitable dividend rights vested on December 31, 2016. As such, the Company has not computed EPS using
the two-class method during fiscal year 2017.
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, non-
vested restricted stock units, and employee stock purchase plan deferrals are considered potentially dilutive
securities.
82
The following table sets forth the computation of basic and diluted earnings per share:
Numerator (in thousands):
Net income
Denominator:
Weighted-average common shares
outstanding
Dilutive effect of Share-based awards
Weighted-average dilutive shares
outstanding
Basic earnings per share
Diluted earnings per share
2017
2016
2015
$
444,294 $
209,794 $
167,518
222,383,038 200,129,868 169,560,616
1,500,104
3,280,747
3,894,858
225,663,785 204,024,726 171,060,720
0.99
$
0.98
$
2.00 $
1.97 $
1.05 $
1.03 $
19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents changes in accumulated other comprehensive loss, by component, for the last
three fiscal years, (in thousands):
2017
2016
2015
Accumulated other comprehensive loss components
Retirement benefit obligations:
Balance at beginning of period (1)
Other comprehensive income (loss) before reclassifications
Current year prior service cost
Amortization of prior service cost(2) (3)
Amortization of net loss(2) (3)
Settlements(2) (3)
Curtailment(4)
Prior year correction(4)
Total before income tax
Income tax provision (benefit)(5)
Current period comprehensive income (loss), net of tax
Balance at end of period (1)
704 (64,470 )
—
163
—
144
3,700
17,785
138
$ (119,363 ) $ (74,378 ) $ (158,041 )
(2,136 )
(1,291 )
133
8,184 10,408
3,358
4,487
— 73,191
— (21,917 )
—
22,471 (73,553 ) 83,663
—
16,171 (44,985 ) 83,663
$ (103,192 ) $ (119,363 ) $ (74,378 )
6,300 (28,568 )
Interest rate swaps:
Balance at beginning of period (1)
Change in fair value of interest rate swaps
Amounts reclassified to interest expense
Total before income tax
Income tax provision
Current period comprehensive income, net of tax
Balance at end of period (1)
Accumulated other comprehensive loss at end of period(1)
$
— $
10,236
1,939
12,175
4,738
7,437
7,437 $
$
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
$ (95,755 ) $ (119,363 ) $ (74,378 )
(1) Amounts are presented net of tax.
(2)
(3)
Included in the computation of net periodic benefit costs. See Note 17, Retirement Plans for additional information.
Included in distribution, selling and administrative expenses in the Consolidated Statements of Comprehensive
Income.
The fiscal year 2015 curtailment is due to freeze of non-union participants’ benefits of a USF sponsored defined
benefit pension plan. In fiscal year 2016, the curtailment was corrected for a computational error. See Note 17,
Retirement Plans.
(4)
(5) No impact in fiscal year 2015 due to the Company’s full valuation allowance on its net deferred income tax assets.
See Note 20, Income Taxes.
83
20.
INCOME TAXES
The income tax (benefit) provision for the last three fiscal years consisted of the following (in thousands):
Current:
Federal
State
Current income tax provision
Deferred:
Federal
State
Deferred income tax (benefit) provision
Total income tax (benefit) provision
2017
2016
2015
$ 73,792 $
9,084
82,876
1,110 $
639
1,749
5,307
1,722
7,029
15,117
(133,182 )
2,489
10,254
(122,928 )
17,606
$ (40,052 ) $ (78,685 ) $ 24,635
(15,095 )
(65,339 )
(80,434 )
The Company’s effective income tax rates for the fiscal years ended December 30, 2017, December 31, 2016
and January 2, 2016 were (10)%, (60)% and 13%, respectively. The determination of the Company’s overall
effective tax rate requires the use of estimates. The effective 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 contribution to income for each jurisdiction.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s
effective tax rate in the future.
On December 22, 2017 the U.S. government enacted comprehensive tax legislation referred to herein as the
Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to (1)
a reduction of the U.S. federal corporate tax rate and (2) bonus depreciation that permits full expensing of
qualified property.
The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for
the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one
year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income
Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax
Act for which the accounting under ASC 740, Income Taxes is complete. To the extent that a company’s
accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a
provisional estimate to be included in the financial statements, it should continue to apply ASC 740, Income
Taxes on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the
Tax Act.
The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018 and provided for bonus
depreciation that allows for full expensing of qualified assets placed into service after September 27, 2017.
Our accounting for the reduction of the corporate tax rate and bonus depreciation that allows for full
expensing of qualified property is incomplete, However, the Company was able to determine a reasonable
estimate of the impact of the corporate tax rate reduction and bonus depreciation that will allow for full
expensing of qualified property. Consequently, we have recorded a provisional decrease to our deferred tax
liabilities of $173 million with a corresponding adjustment to deferred income tax benefit of $173 million for
the year ended December 30, 2017 related to the reduction of the corporate tax rate. Additionally, we have
recorded a provisional increase in our net deferred tax liabilities of $4 million with a corresponding
adjustment of $4 million to other long-term liabilities for the year ended December 30, 2017 related to bonus
depreciation that allowed for full expensing of qualified property. The income tax effects for these positions
require further analysis to prepare the accounting related to the income tax effects of the Tax Act in reasonable
detail. The accounting for these items is expected to be complete when the 2017 U.S. federal income tax
return is filed in 2018.
84
The reconciliation of the (benefit) provision for income taxes from continuing operations at the U.S. federal
statutory income tax rate of 35% to the Company’s income taxes for the last three fiscal years is shown below
(in thousands).
Federal income taxes computed at statutory rate
State income taxes, net of federal income tax benefit
Stock-based compensation
Non-deductible expenses
Change in the valuation allowance for deferred tax assets
Net operating loss expirations
Tax credits
Change in unrecognized tax benefits
Change in U.S. federal statutory tax rate
Other
Total income tax (benefit) provision
2017
2015
2016
$ 141,485 $ 45,888 $ 67,254
1,886
2,776
16,023
438
(2,873 )
(26,150 )
5,349
2,911
4,700
(806 ) (127,518 ) (47,531 )
1,860
1,563
927
(3,217 )
(3,675 )
—
(1,946 )
647
(1,147 )
—
(173,057 )
—
(1,127 )
239
999
$ (40,052 ) $ (78,685 ) $ 24,635
Temporary differences and carryforwards that created significant deferred tax assets and liabilities were as
follows (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
Accrued employee benefits
Restructuring reserves
Workers’ compensation, general and fleet liabilities
Deferred income
Deferred financing costs
Postretirement benefit obligations
Net operating loss carryforwards
Other accrued expenses
Total gross deferred tax assets
Less valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Property and equipment
Inventories
Intangibles
Total deferred tax liabilities
Net deferred tax liability
December 30,
2017
December 31,
2016
$
7,416 $
6,472
4,646
42,958
162
1,744
23,350
86,246
9,819
182,813
(28,962 )
153,851
10,552
35,020
14,885
61,118
470
5,379
51,618
162,511
30,429
371,982
(24,274 )
347,708
(92,092 )
(29,802 )
(273,774 )
(395,668 )
(241,817 ) $
(216,556 )
(41,765 )
(435,817 )
(694,138 )
(346,430 )
$
The net deferred tax liabilities presented in the Consolidated Balance Sheets were as follows (in thousands).
Noncurrent deferred tax assets
Noncurrent deferred tax liability
Net deferred tax liability
December 30,
2017
December 31,
2016
$
$
21,505 $
(263,322 )
(241,817 ) $
34,405
(380,835 )
(346,430 )
85
As of December 30, 2017, the Company had tax affected state net operating loss carryforwards of $86 million,
which will expire at various dates from 2018 to 2037. The Company’s net operating loss carryforwards expire
as follows (in millions):
2018-2022
2023-2027
2028-2032
2033-2037
$
$
State
25
42
14
5
86
The Company also has state credit carryforwards of $12 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.
We released the previously recorded valuation allowance against our U.S. federal net deferred tax assets and
certain of our state net deferred tax assets in fiscal year 2016 as we determined it was more likely than not that
the deferred tax assets would be realized. We 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. The decision to release
the valuation allowance was made after management considered all available evidence, both positive and
negative, including but not limited to, historical operating results, cumulative income in recent years,
forecasted earnings, and a reduction of uncertainty regarding forecasted earnings as a result of developments
in certain customer and strategic initiatives during 2016.
A summary of the activity in the valuation allowance for the last three fiscal years is as follows (in thousands):
Balance at beginning of period
Expense (benefit) recognized
Other comprehensive income
Other
Balance at end of period
2015
2017
2016
$ 24,274 $ 151,792 $ 232,163
(47,531 )
(32,484 )
(356 )
$ 28,962 $ 24,274 $ 151,792
4,688 (127,518 )
—
—
—
—
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.
86
Reconciliation of the beginning and ending amount of unrecognized tax benefits as of fiscal years 2017, 2016,
and 2015 was as follows (in thousands):
Balance at December 27, 2014
Gross decreases due to positions taken in prior years
Gross increases due to positions taken in current year
Decreases due to lapses of statute of limitations
Increases due to changes in tax rates
Positions assumed in business acquisition
Balance at January 2, 2016
Gross increases due to positions taken in prior years
Gross increases due to positions taken in current year
Decreases due to lapses of statute of limitations
Increases due to changes in tax rates
Balance at December 31, 2016
Gross increases due to positions taken in prior years
Gross decreases due to positions taken in prior years
Gross decreases due to positions taken in current year
Decreases due to lapses of statute of limitations
Decreases due to changes in tax rates
Balance at December 30, 2017
$ 46,584
(4,856 )
—
(15 )
92
3,279
45,084
4,743
—
(767 )
180
49,240
71,801
(3,602 )
(5,098 )
(319 )
(3,837 )
$ 108,185
The Company believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by
approximately $64 million in the next 12 months as a result of the completion of tax audits, the expiration of
the statute of limitations, or the receipt of affirmative written consent of the IRS to change a method of
accounting.
Included in the balance of unrecognized tax benefits at the end of fiscal years 2017, 2016 and 2015 was $60
million, $43 million and $40 million, respectively, of tax benefits that, if recognized, would affect the
effective tax rate. The Company recognizes interest related to unrecognized tax benefits in interest expense
and penalties in operating expenses. As of December 30, 2017, the Company had accrued interest and
penalties of approximately $5 million, and $4 million as of December 31, 2016 and January 2, 2016.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of
limitations. Our 2007 through 2016 U.S. federal tax years, and various state tax years from 2000 through
2016, 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 has 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, and interest and penalties.
21. 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. As of December 30, 2017, the Company had $741 million of
purchase orders and purchase contract commitments to be purchased in fiscal year 2018, that are not recorded
in the Consolidated Balance Sheets.
To minimize fuel cost risk, the Company enters into forward purchase commitments for a portion of its
projected diesel fuel requirements. At December 30, 2017, the Company had diesel fuel forward purchase
commitments totaling $33 million through June 2018. The Company also enters into forward purchase
agreements for electricity. As of December 30, 2017 the Company had electricity forward purchase
commitments totaling $5 million through July 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 under GAAP guidance.
87
Legal Proceedings—The Company and its subsidiaries are parties to a number of legal proceedings arising
from 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 recognized provisions with respect to the proceedings,
where appropriate, in the 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. It is the Company’s
policy to expense attorney fees as incurred.
Insurance Recoveries—Tornado Loss—On April 28, 2014, a tornado damaged a distribution facility and its
contents, including building improvements, equipment and inventory. Business from the damaged facility was
temporarily transferred to other Company distribution facilities until July 2015, when a new state-of-the-art
distribution facility became operational. The Company had insurance coverage on the distribution facility and
its contents, as well as business interruption insurance. In fiscal year 2015, the Company received proceeds of
$26 million of which $6 million was recognized as a receivable in 2014. The remaining $20 million of
proceeds received and recognized in fiscal year 2015 represented the recovery of current and prior year
operating costs, for a net $11 million recognized as a benefit in 2015. The Company received the final
insurance settlement and recognized a net benefit of $10 million in 2016.
The Company classified $3 million related to the damaged distribution facility as cash flows provided by
investing activities in fiscal year 2015, in its Consolidated Statement of Cash Flows. Insurance proceeds of
$10 million and $23 million related to damaged inventory and business interruption costs are classified as cash
flows provided by operating activities in fiscal years 2016 and 2015, respectively, in the Consolidated
Statements of Cash Flows.
22. US FOODS HOLDING CORP. CONDENSED FINANCIAL INFORMATION
These condensed parent company financial statements should be read in conjunction with the consolidated
financial statements. Under terms of its debt agreements, the net assets of USF, our wholly owned subsidiary,
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. As
of December 30, 2017, USF had $751 million of restricted payment capacity under these covenants, and
approximately $2,001 million of its net assets were restricted after taking into consideration the net deferred
tax assets and intercompany balances that eliminate in consolidation. See Note 15, 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
subsidiary, USF, is accounted for using the equity method.
88
Condensed Parent Company Balance Sheets
(In thousands)
ASSETS
Cash and cash equivalents
Other assets
Investment in subsidiary
TOTAL ASSETS
LIABILITIES AND EQUITY
Intercompany payable
Deferred tax liabilities
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 21)
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value—600,000 shares
authorized; 214,963 and 220,929 issued and outstanding
as of December 30, 2017 and December 31, 2016
Additional paid-in capital
Accumulated earnings (deficit)
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND EQUITY
December 30,
2017
December 31,
2016
$
138
138 $
837
—
2,846,716 2,638,105
$ 2,846,854 $ 2,639,080
$
348 $
25,032 $
70,111
95,491
348
101,082
—
101,430
2,150
2,209
2,721,454 2,791,264
(136,460 )
(119,363 )
2,751,363 2,537,650
$ 2,846,854 $ 2,639,080
123,514
(95,755 )
Condensed Parent Company Statements of Comprehensive Income
(In thousands)
OPERATING EXPENSES
OPERATING LOSS
ACQUSITION TERMINATION FEE
INTEREST INCOME
(Loss) income before income taxes
INCOME TAX (BENEFIT) PROVISION
Income (loss) before equity in net earnings (loss) of subsidiary
EQUITY IN NET EARNINGS (LOSS) OF SUBSIDIARY
NET INCOME
OTHER COMPREHENSIVE (LOSS) INCOME—Net of tax:
December 30,
2017
Fiscal Years Ended
December 31,
2016
January 2,
2016
$
— $
—
—
—
—
(5,103 )
5,103
439,191
444,294
4,746 $
(4,746 )
—
103
(4,643 )
104,565
(109,208 )
319,002
209,794
—
—
300,000
241
300,241
34,340
265,901
(98,383 )
167,518
Changes in retirement benefit obligations, net
Unrecognized gain on interest rate swaps, net
COMPREHENSIVE INCOME
16,171
7,437
467,902 $
(44,985 )
—
83,663
—
164,809 $ 251,181
$
89
Condensed Parent Company Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
December 30,
2017
Fiscal Years Ended
December 31,
2016
January 2,
2016
$
444,294 $
209,794 $
167,518
Equity in net (earnings) loss of subsidiary
Deferred income tax (benefit) provision
Changes in operating assets and liabilities:
Decrease (increase) in other assets
(Decrease) increase in intercompany payable
Increase (decrease) in accrued expenses and other liabilities
Net cash (used in) provided by operating activities
(439,191 )
(77,082 )
(319,002 )
106,482
98,383
27,084
837
—
71,142
—
(837 )
(6,845 )
(63 )
(10,471 )
—
7,193
63
300,241
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary
Cash distribution from subsidiary
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering
Cash distribution to shareholders
Proceeds from common stock sales
Common stock repurchased
Common stock and share-based awards settled
Net cash (used in) provided by financing activities
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of year
CASH AND CASH EQUIVALENTS—End of year
—
280,000
280,000
(1,113,919 )
374,332
(739,587 )
—
—
—
(280,000 )
—
(280,000 )
1,113,799
(666,332 )
2,850
—
(362 )
449,955
—
—
—
—
—
—
—
—
—
—
138
138 $
(300,103 )
300,241
138 $
300,241
—
300,241
$
90
23. QUARTERLY FINANCIAL INFORMATION (Unaudited)
Financial information for each quarter in the fiscal years ended December 30, 2017 and December 31, 2016, is
set forth below (in thousands, except per share data):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal Year
(In thousands)
Fiscal year ended December 30, 2017
Net sales
Cost of goods sold
Gross profit
Operating expenses
Interest expense—net
Income before income taxes
Income tax provision (benefit)
Net income
Net income per share:
Basic
Diluted
Fiscal year ended December 31, 2016
Net sales
Cost of goods sold
Gross profit
Operating expenses
Interest expense—net
Loss on extinguishment of debt
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per share:
$ 5,788,425 $ 6,158,654 $ 6,204,194 $ 5,995,888 $ 24,147,161
4,797,117 5,104,605 5,105,632 4,922,264 19,929,618
991,308 1,054,049 1,098,562 1,073,624 4,217,543
914,784 928,475 908,532 891,928 3,643,719
169,582
404,242
(40,052 )
444,294
41,003
43,482
43,211
84,571 146,819 138,214
51,268 (118,255 )
19,113
95,551 $ 256,469 $
65,458 $
41,886
34,638
7,822
26,816 $
$
$
$
0.12 $
0.12 $
0.29 $
0.29 $
0.43 $
0.42 $
1.16 $
1.15 $
2.00
1.97
$ 5,593,149 $ 5,806,758 $ 5,840,963 $ 5,677,938 $ 22,918,808
4,633,381 4,772,721 4,808,426 4,651,008 18,865,536
959,768 1,034,037 1,032,537 1,026,930 4,053,272
875,091 935,600 917,446 911,314 3,639,451
229,080
53,632
131,109
(78,685 )
209,794
48,956
11,483
54,652
(78,359 )
(13,392 ) $ 133,011 $
39,320
—
76,296
(568 )
76,864 $
70,559
—
14,118
807
13,311 $
70,245
42,149
(13,957 )
(565 )
$
Basic
Diluted
$
$
0.08 $
0.08 $
(0.07 ) $
(0.07 ) $
0.60 $
0.59 $
0.35 $
0.34 $
1.05
1.03
24. BUSINESS INFORMATION
The Company’s consolidated results represents 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, primarily, distributes fresh, frozen and dry food and non-food products to
foodservice customers throughout the United States. 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 centers and operations. The Company’s
distribution centers form a single network to reach its customers; it is common for a single customer to make
purchases from several different distribution centers. Capital projects, whether for cost savings or generating
incremental revenue, are evaluated based on estimated economic returns to the organization as a whole.
91
The following table presents the sales mix for the Company’s principal product categories for the last three
fiscal years (in thousands):
Meats and seafood
Dry grocery products
Refrigerated and frozen grocery products
Dairy
Equipment, disposables and supplies
Beverage products
Produce
2015
2017
2016
$ 8,692,213 $ 8,120,738 $ 8,391,997
4,266,200 4,127,013 4,123,584
3,798,737 3,653,037 3,582,517
2,533,207 2,380,112 2,457,516
2,243,243 2,165,744 2,171,006
1,306,347 1,267,723 1,279,201
1,307,214 1,204,441 1,121,711
$ 24,147,161 $ 22,918,808 $ 23,127,532
No single customer accounted for more than 3% of the Company’s consolidated net sales for fiscal years
2017, 2016 and 2015. However, customers purchasing through one group purchasing organization accounted
for approximately 13% of consolidated net sales in fiscal year 2017, and 12% of consolidated net sales in
fiscal years 2016 and 2015.
92
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 30, 2017, the end of the period covered by this report, an evaluation was carried out under
the supervision and with the participation of US Foods Holding Corp.'s management, including our Chief Executive
Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and
that information required to be disclosed is accumulated and communicated to the Company’s management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Report of Management on Internal Control over Financial Reporting dated February 27, 2018
Management of US Foods Holding Corp. and subsidiaries (the "Company") is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial
statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing
practices, and actions taken to correct deficiencies as identified. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of
December 30, 2017. Management based this assessment on criteria for effective internal control over financial
reporting described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management's assessment included an evaluation of the design of the
Company's internal control over financial reporting and testing of the operational effectiveness of its internal control
over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the
Company's Board of Directors.
Based on this assessment, management determined that, as of December 30, 2017, the Company maintained
effective internal control over financial reporting. Deloitte & Touche LLP, an independent registered public
accounting firm, who audited and reported on the consolidated financial statements of the Company included in this
report, has issued an attestation report on the effectiveness of our internal control over financial reporting as of
December 30, 2017.
93
Changes In Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during the fourth fiscal quarter of
2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
94
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of US Foods Holding Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of US Foods Holding Corp. and subsidiaries (the
“Company”) as of December 30, 2017, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December
30, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 30, 2017, of the
Company and our report dated February 27, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Report of Management on Internal Control over Financial Reporting dated February 27, 2018. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 2018
95
Item 9B. Other Information
None.
96
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Security Beneficial Ownership
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
Equity Compensation Plan Information
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be included in our definitive proxy statement for the 2018 Annual
Meeting of Stockholders and is incorporated herein by reference.
97
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements:
Part IV
The following financial statements of US Foods Holding Corp. and subsidiaries are included in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 30, 2017 and December 31, 2016
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 30, 2017,
December 31, 2016 and January 2, 2016
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended December 30, 2017,
December 31, 2016 and January 2, 2016
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2017, December 31, 2016
and January 2, 2016
2. Financial Statement Schedules
47
48
49
50
51
Schedules have been omitted because they are inapplicable, not required, or the information is included
elsewhere in the financial statements or notes thereto.
3. Exhibits
The following exhibits are filed as part of this Annual Report or are incorporated by reference.
Exhibit No.
3.1
3.2
4.1
4.2
4.3
10.1
10.2
Description
Amended and Restated Certificate of Incorporation of the Registrant, incorporated herein by reference
to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC
on June 1, 2016.
Second Amended and Restated Bylaws of the Registrant, incorporated herein by reference to Exhibit
3.1 to the Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on
November 7, 2017.
Indenture, dated as of June 27, 2016, among US Foods, Inc., the Subsidiary Guarantors from time to
time parties thereto and Wilmington Trust, National Association, incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on
June 28, 2016.
First Supplemental Indenture, dated as of June 27, 2016, among US Foods, Inc., the Subsidiary
Guarantors under the Indenture and Wilmington Trust, National Association, incorporated herein by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-37786) filed
with the SEC on June 28, 2016.
Form of 5.875% Senior Note due 2024, incorporated herein by reference to Exhibit 4.3 to the
Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on June 28, 2016
(included in Exhibit 4.1 thereto).
Amended and Restated Stockholders Agreement, incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on June 1, 2016.
Form of Indemnification Agreement between the Registrant and its directors, incorporated herein by
reference to Exhibit 10.4 to Amendment No. 5 to the Company’s Registration Statement on Form S-1
(File No. 333-209442) filed with the SEC on May 20, 2016.
98
Exhibit No.
10.3
10.4
10.5
10.6
10.7§
10.8§
10.9§
10.10§
10.11§
10.12§
10.13§
10.14.6
Description
Amended and Restated Indemnification Agreement, dated as of November 23, 2009, by and among
USF Holding Corp., US Foods, Inc. (f/k/a U.S. Foodservice, Inc.), KKR 2006 Fund, L.P., KKR PEI
Investments, L.P., KKR Partners III L.P., OPERF Co-Investment LLC, and Kohlberg Kravis
Roberts & Co. L.P., incorporated herein by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 (File No. 333-185732) of US Foods, Inc. filed December 28, 2012.
Amended and Restated Indemnification Agreement, dated as of November 23, 2009, by and among
USF Holding Corp., US Foods, Inc. (f/k/a U.S. Foodservice, Inc.), Clayton, Dubilier & Rice Fund VII,
L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., CD&R Parallel Fund VII, L.P., CDR
USF Co-Investor No. 2, L.P., Clayton, Dubilier & Rice, Inc., Clayton, Dubilier & Rice, LLC and
Clayton, Dubilier & Rice Holdings, L.P., incorporated herein by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc. filed December 28,
2012.
Indemnification Priority and Information Sharing Agreement, dated as of April 15, 2010, among the
funds managed by Clayton, Dubilier & Rice, LLC, set forth on Annex 1, Clayton, Dubilier & Rice
Holdings, L.P., Clayton, Dubilier & Rice, Inc. and US Foods, Inc. (f/k/a U.S. Foodservice, Inc.),
incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 (File
No. 333-185732) of US Foods, Inc. filed December 28, 2012.
Indemnification Priority and Information Sharing Agreement, dated as of April 15, 2010, among the
funds managed by Kohlberg Kravis Roberts & Co. L.P. and US Foods, Inc. (f/k/a U.S. Foodservice
Inc.), incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 (File
No. 333-185732) of US Foods, Inc. filed December 28, 2012.
Form of Sale Participation Agreement, incorporated herein by reference to Exhibit 10.9 to the
Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc. filed December 28,
2012.
Form of Subscription Agreement, incorporated herein by reference to Exhibit 10.10 to the Registration
Statement on Form S-4 (File No. 333-185732) of US Foods, Inc. filed December 28, 2012.
2007 Stock Incentive Plan of US Foods, Inc. (f/k/a U.S. Foodservice, Inc.), incorporated herein by
reference to Exhibit 10.12 to the Registration Statement on Form S-4 (File No. 333-185732) of US
Foods, Inc. filed December 28, 2012.
Form of Stock Option Agreement, incorporated herein by reference to Exhibit 10.13 to Amendment
No. 2 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc. filed
March 15, 2013.
Form of 2012 Restricted Stock Unit Agreement, incorporated herein by reference to Exhibit 10.14 to
Amendment No. 2 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc.
filed March 15, 2013.
Form of Restricted Stock Award Agreement, incorporated herein by reference to Exhibit 10.15 to
Amendment No. 2 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc.
filed March 15, 2013.
2013 Annual Incentive Plan of US Foods, Inc., incorporated herein by reference to Exhibit 10.16 to
Amendment No. 2 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc.
filed March 15, 2013.
Amendment No. 5 to the ABL Credit Agreement (Amended and Restated Senior ABL Facility), dated
as of October 20, 2015, among US Foods, Inc. as the Parent Borrower, the several Lenders from time
to time party thereto, CitiBank, N.A. as successor Administrative Agent and an Issuing Lender, and
Citicorp North America, Inc., as resigning Administrative Agent and Collateral Agent, incorporated
herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 333-185732) of US
Foods, Inc. filed October 26, 2015.
99
Exhibit No.
10.14.7
10.15.1
10.15.2
10.15.3
10.15.4
10.15.5
10.15.6
10.16
10.17§
10.18§
10.19§
10.20§
Description
Amendment No. 6 to the Amended and Restated Senior ABL Facility, dated as of August 3, 2017,
among US Foods, Inc. as the Parent Borrower, the several Lenders from time to time party thereto,
Citicorp North America, Inc. as ABL Collateral Agent, Citibank, N.A. as Administrative Agent and an
Issuing Lender, and the other Issuing Lenders party thereto, incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37786) filed with the
SEC on November 7, 2017.
ABL Guarantee and Collateral Agreement, dated as of July 3, 2007, made by US Foods, Inc. (f/k/a
U.S. Foodservice, Inc.), as the Parent Borrower and the several Subsidiary Borrowers signatory
thereto, in favor of Citicorp North America, Inc., as Administrative Agent and as ABL Collateral
Agent, incorporated herein by reference to Exhibit 10.27 to the Registration Statement on Form S-4
(File No. 333-185732) of US Foods, Inc. filed December 28, 2012.
Credit Agreement (2011 Term Facility), dated May 11, 2011, among US Foods, Inc. (f/k/a/ U.S.
Foodservice, Inc.), as the Borrower, the several Lenders from time to time party thereto, and Citicorp
North America, Inc., as Administrative Agent and Collateral Agent, incorporated herein by reference
to Exhibit 10.28 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc.
filed December 28, 2012.
First Amendment, dated as of June 7, 2013, to the 2011 Term Facility, among US Foods, Inc., as the
Borrower, the other Loan Parties thereto, Citicorp North America, Inc., as administrative agent and
collateral agent and the Lenders and other financial institutions party thereto, incorporated by reference
to Exhibit 10.28.2 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-
189142) of US Foods, Inc. filed July 12, 2013.
Second Amendment to the Credit Agreement, dated as of June 27, 2016, among US Foods, Inc., as the
Borrower, Citicorp North America, Inc. and the Lenders and other financial institutions party thereto,
incorporated by reference to Exhibit 4.4 of the Current Report on Form 8-K (File No. 001-37786) filed
with the SEC on June 28, 2016.
Third Amendment to the Credit Agreement, dated as of February 17, 2017, among US Foods, Inc.,
Citicorp North America, Inc. and the Lenders and other financial institutions party thereto,
incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-
37786) filed with the SEC on February 17, 2017.
Fourth Amendment to the Credit Agreement, dated as of November 30, 2017, among US Foods, Inc.,
Citicorp North America, Inc. and Citibank, N.A., incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on December 6,
2017.
Guarantee and Collateral Agreement, dated as of May 11, 2011, among U.S. Foods, Inc. (f/k/a/ U.S.
Foodservice, Inc.), as Borrower and certain of its Subsidiaries in favor of Citicorp North America, Inc.,
as Administrative Agent and as Term Collateral Agent, incorporated herein by reference to Exhibit
10.29 to the Registration Statement on Form S-4 (File No. 333-185732) of US Foods, Inc. filed
December 28, 2012.
2007 Stock Incentive Plan for Key Employees of USF Holdings Corp. as amended, incorporated
herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 333-185732) of US
Foods, Inc. filed May 31, 2013.
Form of Stock Option Agreement, incorporated herein by reference to Exhibit 10.4 to the Current
Report on Form 8-K (File No. 333-185732) of US Foods, Inc. filed May 31, 2013.
Form of Restricted Stock Unit Agreement, incorporated herein by reference to Exhibit 10.5 to the
Current Report on Form 8-K (File No. 333-185732) of US Foods, Inc. filed May 31, 2013.
Form of Restricted Stock Award Agreement, incorporated herein by reference to Exhibit 10.6 to the
Current Report on Form 8-K (File No. 333-185732) of US Foods, Inc. filed May 31, 2013.
100
Exhibit No.
10.21§
10.22§
10.23§
10.24§
10.25§
10.26§
10.27§
10.28
10.29
10.30§
10.31§
10.33§
10.34§
10.35§
Description
Offer letter, dated August 15, 2013, by and between Fareed A. Khan and US Foods, Inc., incorporated
herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 333-185732) of
US Foods, Inc. filed November 7, 2013.
Severance Agreement, dated September 26, 2013 by and between US Foods, Inc. and Fareed A. Khan,
incorporated herein by reference to Exhibit 10.38 to the Annual Report on Form 10-K (File No. 333-
185732) of US Foods, Inc. filed March 20, 2014.
Retention Award Agreement, dated February 24, 2014 by and between US Foods, Inc. and Fareed
Khan, incorporated herein by reference to Exhibit 10.43 to the Quarterly Report on Form 10-Q (File
No. 333-185732) of US Foods, Inc. filed May 12, 2014.
Retention Award Agreement, dated February 24, 2014 by and between US Foods, Inc. and Pietro
Satriano, incorporated herein by reference to Exhibit 10.47 to the Quarterly Report on Form 10-Q (File
No. 333-185732) of US Foods, Inc. filed May 12, 2014.
Form of 2015 Retention Award Agreement, dated March 19, 2015 by and between US Foods, Inc. and
each of Fareed Khan, Pietro Satriano and Keith Rohland, incorporated herein by reference to Exhibit
10.52 to the Quarterly Report on Form 10-Q (File No. 333-185732) of US Foods, Inc. filed May 11,
2015.
Offer Letter, dated July 13, 2015, by and between Pietro Satriano and US Foods, Inc., incorporated
herein by reference to Exhibit 10.56 to the Quarterly Report on Form 10-Q (File No. 333-185732) of
US Foods, Inc. filed August 11, 2015.
2016 US Foods Holding Corp. Omnibus Incentive Plan, including forms of award agreements,
incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (File
No. 001-37786) filed with the SEC on June 1, 2016.
Termination Agreement, dated as of June 1, 2016, among US Foods Holding Corp., US Foods, Inc.
and the CD&R entities signatory thereto, incorporated herein by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on June 1, 2016.
Termination Agreement, dated as of June 1, 2016, among US Foods Holding Corp., US Foods, Inc.
and the KKR entities signatory thereto, incorporated herein by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K (File No. 001-37786) filed with the SEC on June 1, 2016.
US Foods Holding Corp. Amended and Restated Employee Stock Purchase Plan, incorporated herein
by reference to Exhibit 10.54 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37786)
filed with the SEC on November 8, 2016.
Omnibus Amendment to Outstanding Stock Option Agreements, incorporated herein by reference to
Exhibit 10.55 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37786) filed with the
SEC on November 8, 2016.
Offer Letter, dated January 26, 2017, by and between US Foods, Inc. and Dirk J. Locascio,
incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K (File No.
001-37786) filed with the SEC on February 28, 2017.
Form of Performance Restricted Stock Award Agreement, incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q (File No. 001-37786) filed with the SEC on August 9,
2017.
Form of Amended and Restated Severance Agreement, dated January 3, 2018 by and between US
Foods, Inc. and each of [Pietro Satriano, Dirk J. Locascio, Kristin M. Coleman, Ty Gent, Steven
Guberman, Andrew Iacobucci, Jay A. Kvasnicka, David Rickard and Keith D. Rohland], incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-
37786) filed with the SEC on January 8, 2018.
21.1*
23.1*
Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
101
Exhibit No.
Description
31.1*
31.2*
32.1†
32.2†
Section 302 Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Section 302 Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101*
Interactive Data file.
*
†
§
Filed herewith.
Furnished with this Report.
Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to
Item 15(b) of Form 10-K.
102
Item 16. Form 10-K Summary
None.
103
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
US FOODS HOLDING CORP.
(Registrant)
By:
Name:
/s/ PIETRO SATRIANO
Pietro Satriano
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: February 27, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
Chairman and Chief Executive Officer and Director February 27, 2018
/s/ PIETRO SATRIANO
Pietro Satriano
/s/ DIRK J. LOCASCIO
Dirk J. Locascio
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
s/ COURT D. CARRUTHERS
Court D. Carruthers
/s/ ROBERT DUTKOWSKY
Robert Dutkowsky
/s/ JOHN A. LEDERER
John A. Lederer
Director
Director
Director
/s/ CARL ANDREW PFORZHEIMER
Carl Andrew Pforzheimer
Director
/s/ DAVID M. TEHLE
David M. Tehle
/s/ ANN E. ZIEGLER
Ann E. Ziegler
Director
Director
104
INNOVATIVE
PRODUCTS
GREAT
BRANDS
BEST
IN FRESH
LOCAL &
SUSTAINABLE
GREAT FOOD.
LEADING
TECHNOLOGY
MULTICHANNEL
EXPERIENCE
VALUE-ADDED
SERVICES
TEAM-BASED
SELLING
MADE EASY.
PERFECT
ORDERS
RIGHT PRODUCT
RIGHT PRICE
DELIVERED
WITH EXCELLENCE.
WORKPLACE
SAFETY
OPTIMIZED COST
TO SERVE
FOOD
SAFETY
HOW WE LIVE, WORK AND LEAD.
THE
US FOODS WAY.
STOCKH OLDE R I N FOR MAT ION
Company Headquarters
US Foods Holding Corp.
9399 West Higgins Road, Suite 500
Rosemont, Illinois 60018
Annual Meeting
The 2018 Annual Meeting of Stockholders will be held at
Riverway Auditorium
6133 North River Road
Rosemont, IL 60018
The meeting will begin at
9:00 a.m. CDT on May 4, 2018.
Auditors
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, Illinois 60606
Common Stock Listing
The company’s common stock is listed on the New York Stock Exchange under the
trading symbol USFD.
Transfer Agent and Registrar
Instructions and inquiries regarding transfers, certificates,
changes of title or address, consolidation of accounts and
elimination of multiple mailings should be directed to:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
Investor Inquiries
(847) 720-2815
ir@usfoods.com
US Foods’ Annual Report to Stockholders, Form 10-K, Form 10-Q, proxy statement and
other filings with the Securities and Exchange Commission, as well as news releases,
can be accessed free of charge on the company’s website at https://ir.usfoods.com,
or by visiting the EDGAR company search tool on the SEC website at www.sec.gov.
Requests for other company-related information should be made to the Corporate
Secretary at the company’s headquarters.
EXECUTIVE LEADE RSH I P TEAM
Pietro Satriano
Chairman and Chief Executive Officer
Andrew Iacobucci
Chief Merchandising Officer
Dirk Locascio
Chief Financial Officer
Kristin Coleman
Executive Vice President,
General Counsel
and Chief Compliance Officer
Ty Gent
Chief Supply Chain Officer
Steve Guberman
Executive Vice President,
Nationally Managed Business
Jay Kvasnicka
Executive Vice President,
Locally Managed Sales
and Field Operations
David Rickard
Executive Vice President,
Strategy and Revenue Management
Keith Rohland
Chief Information Officer
David Works
Executive Vice President
and Chief Human Resources Officer
BOAR D OF DI RECTORS
Pietro Satriano
Chairman and Chief Executive Officer
US Foods Holding Corp.
Robert M. Dutkowsky
Lead Independent Director
Chairman and Chief Executive Officer
Tech Data Corporation
Court D. Carruthers
President and Chief Executive Officer
TricorBraun, Inc.
Sunil Gupta
Edward W. Carter Professor of Business Administration
Harvard Business School
John A. Lederer
Executive Chairman
Staples, Inc.
Carl Andrew “Andy” Pforzheimer
Co-founder
Barcelona Restaurants
David M. Tehle
Former Executive Vice President and Chief Financial Officer
Dollar General Corporation
Ann E. Ziegler
Former Senior Vice President and Chief Financial Officer
CDW Corporation
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3/6/18 6:51 AM
9399 West Higgins Road, Suite 500
Rosemont, Illinois 60018
usfoods.com