US Foods Holding Corp 10-Q for FY2020 Q1

US Foods Holding Corp. (USFD)

10-Q 2020-05-05 For: 2020-03-28

Added on April 11, 2026

About this 10-Q

US Foods Holding Corp filed this 10-Q on May 5, 2020, covering the quarter ended March 28, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 28, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.34B; up 5.1% from $6.03B a year earlier
Net loss: $132M; compared with net income of $71M a year earlier
Diluted EPS: -$0.60; compared with $0.32 a year earlier

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Delaware					26-0347906
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification Number)



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	USFD	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



	TABLE OF CONTENTS
		Page No.
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019	1
	Consolidated Statements of Comprehensive Income for the 13 weeks ended March 28, 2020 and March 30, 2019	2
	Consolidated Statements of Shareholders' Equity for the 13 weeks ended March 28, 2020 and March 30, 2019	3
	Consolidated Statements of Cash Flows for the 13 weeks ended March 28, 2020 and March 30, 2019	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

Part II. Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31

Signatures		32



US FOODS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)

	March 28, 2020			December 28, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,077		$	90
Accounts receivable, less allowances of $198 and $30	1,124			1,455
Vendor receivables, less allowances of $5 and $4	136			143
Inventories—net	1,426			1,432
Prepaid expenses	121			109
Assets held for sale	15			1
Other current assets	24			32
Total current assets	3,923			3,262
Property and equipment—net	2,105			2,075
Goodwill	4,728			4,728
Other intangibles—net	948			967
Deferred tax assets	7			—
Other assets	273			256
Total assets	$	11,984		$	11,288
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft liability	$	159		$	222
Accounts payable	1,299			1,460
Accrued expenses and other current liabilities	423			538
Current portion of long-term debt	146			142
Total current liabilities	2,027			2,362
Long-term debt	5,769			4,594
Deferred tax liabilities	296			308
Other long-term liabilities	310			315
Total liabilities	8,402			7,579
Commitments and contingencies (Note 18)
Shareholders’ equity:
Common stock, $0.01 par value—600 shares authorized; 220 issued and outstanding as of March 28, 2020 and December 28, 2019	2			2
Additional paid-in capital	2,857			2,845
Retained earnings	783			916
Accumulated other comprehensive loss	(60		)	(54		)
Total shareholders’ equity	3,582			3,709
Total liabilities and shareholders' equity	$	11,984		$	11,288


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


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



US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per share data)

	13 Weeks Ended
	March 28, 2020			March 30, 2019
Net sales	$	6,339		$	6,031
Cost of goods sold	5,273			4,979
Gross profit	1,066			1,052
Operating expenses:
Distribution, selling and administrative costs	1,192			921
Total operating expenses	1,192			921
Operating (loss) income	(126		)	131
Other income—net	(6		)	(2		)
Interest expense—net	52			42
(Loss) income before income taxes	(172		)	91
Income tax (benefit) provision	(40		)	20
Net (loss) income	(132		)	71
Other comprehensive (loss) income—net of tax:
Changes in retirement benefit obligations	—			1
Unrecognized loss on interest rate swaps	(6		)	(6		)
Comprehensive (loss) income	$	(138	)	$	66
Net (loss) income per share:
Basic	$	(0.60	)	$	0.33
Dilutive	$	(0.60	)	$	0.32
Weighted-average common shares outstanding
Basic	219			217
Diluted	219			219



US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(In millions)

	Number of Common Shares	Common Shares at Par Value		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
BALANCE—December 28, 2019	220	$	2	$	2,845		$	916		$	(54	)	$	3,709
Share-based compensation expense	—	—		7			—			—			7
Proceeds from employee stock purchase plan	—	—		6			—			—			6
Exercise of stock options	—	—		1			—			—			1
Tax withholding payments for net share-settled equity awards	—	—		(2		)	—			—			(2		)
Unrecognized loss on interest rate swaps, net of income tax	—	—		—			—			(6		)	(6		)
Adoption of ASU 2016-13 (Note 7)	—	—		—			(1		)	—			(1		)
Net loss	—	—		—			(132		)	—			(132		)
BALANCE—March 28, 2020	220	$	2	$	2,857		$	783		$	(60	)	$	3,582



US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
	13 Weeks Ended
	March 28, 2020			March 30, 2019
Cash flows from operating activities:
Net (loss) income	$	(132	)	$	71
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	101			81
Loss on disposal of property and equipment—net	1			—
Amortization of deferred financing costs	2			1
Deferred tax benefit	(17		)	(3		)
Share-based compensation expense	7			6
Provision for doubtful accounts	180			6
Changes in operating assets and liabilities:
Decrease (increase) in receivables	157			(131		)
Decrease in inventories—net	6			7
Increase in prepaid expenses and other assets	(26		)	(8		)
(Decrease) increase in accounts payable and cash overdraft liability	(215		)	183
Decrease in accrued expenses and other liabilities	(126		)	(59		)
Net cash (used in) provided by operating activities	(62		)	154
Cash flows from investing activities:
Proceeds from sales of divested assets	5			—
Purchases of property and equipment	(79		)	(61		)
Net cash used in investing activities	(74		)	(61		)
Cash flows from financing activities:
Proceeds from debt borrowings	1,945			1,004
Principal payments on debt and financing leases	(827		)	(1,119		)
Proceeds from employee stock purchase plan	6			5
Proceeds from exercise of stock options	1			6
Tax withholding payments for net share-settled equity awards	(2		)	(2		)
Net cash provided by (used in) financing activities	1,123			(106		)
Net increase (decrease) in cash, cash equivalents and restricted cash	987			(13		)
Cash, cash equivalents and restricted cash—beginning of period	98			105
Cash, cash equivalents and restricted cash—end of period	$	1,085		$	92
Supplemental disclosures of cash flow information:
Interest paid—net of amounts capitalized	$	41		$	36
Income taxes paid—net	2			1
Property and equipment purchases included in accounts payable	38			17
Leased assets obtained in exchange for financing lease liabilities	59			38
Leased assets obtained in exchange for operating lease liabilities	2			2
Cashless exercise of stock options	—			1



	Preliminary Purchase Price Allocation
Accounts receivable	$	145
Inventories	165
Assets of discontinued operations	133
Other current assets	7
Property and equipment	209
Goodwill⁽¹⁾	761
Other intangibles⁽²⁾	695
Other assets	47
Accounts payable	(200		)
Accrued expenses and other current liabilities	(69		)
Liabilities of discontinued operations	(19		)
Other long-term liabilities, including financing leases	(42		)
Cash paid for acquisition	$	1,832


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


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



	13 Weeks Ended
	March 30, 2019
Pro forma net sales	$	6,702
Pro forma net income	$	63
Pro forma net income per share:
Basic	$	0.29
Diluted	$	0.28



Balance as of December 28, 2019	$	30
Charged to costs and expenses	180
Adoption of ASU 2016-13	1
Customer accounts written off—net of recoveries	(13		)
Balance as of March 28, 2020	$	198


1.	OVERVIEW AND BASIS OF PRESENTATION


2.	RECENT ACCOUNTING PRONOUNCEMENTS


3.	REVENUE RECOGNITION



	13 Weeks Ended
	March 28, 2020		March 30, 2019
Meats and seafood	$	2,226	$	2,157
Dry grocery products	1,092		1,060
Refrigerated and frozen grocery products	1,047		988
Dairy	648		605
Equipment, disposables and supplies	629		576
Beverage products	344		329
Produce	353		316
Net sales	$	6,339	$	6,031



Balance as of December 28, 2019	$	1
Transfers in	14
Balance as of March 28, 2020	$	15


•	Level 1—observable inputs, such as quoted prices in active markets


•	Level 2—observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active or inactive markets that are observable either directly or indirectly, or other inputs that are observable or can be corroborated by observable market data


•	Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions



	March 28, 2020
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	1,029	$	—	$	—	$	1,029
Liabilities
Interest rate swaps	$	—	$	10	$	—	$	10
	December 28, 2019
	Level 1		Level 2		Level 3		Total
Liabilities
Interest rate swaps	$	—	$	1	$	—	$	1



		Fair Value
	Balance Sheet Location	March 28, 2020		December 28, 2019
Derivatives designated as hedging instruments
Interest rate swaps	Accrued expenses and other current liabilities	$	7	$	—
Interest rate swaps	Other long-term liabilities	3		1
	Total liabilities	$	10	$	1



Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in Accumulated Other Comprehensive Loss, net of tax			Location of Amounts Reclassified from Accumulated Other Comprehensive Loss	Amount of Gain Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax
For the 13 weeks ended March 28, 2020
Interest rate swaps	$	(6	)	Interest expense—net	$	—
For the 13 weeks ended March 30, 2019
Interest rate swaps	$	(4	)	Interest expense—net	$	(2	)



Debt Description	Maturity	Interest Rate as of March 28, 2020	March 28, 2020			December 28, 2019
ABL Facility	May 31, 2024	2.02%	$	700		$	—
ABS Facility	September 21, 2022	1.94%	640			190
Initial Term Loan Facility (net of $3 and $4 of unamortized deferred financing costs, respectively)	June 27, 2023	3.35%	2,120			2,125
Incremental Term Loan Facility (net of $34 and $35 of unamortized deferred financing costs, respectively)	September 13, 2026	3.60%	1,462			1,465
Unsecured Senior Notes (net of $4 of unamortized deferred financing costs)	June 15, 2024	5.875%	596			596
Obligations under financing leases	2020–2026	1.63% - 6.17%	389			352
Other debt	2021–2031	5.75% - 9.00%	8			8
Total debt			5,915			4,736
Current portion of long-term debt⁽¹⁾			(146		)	(142		)
Long-term debt			$	5,769		$	4,594


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


(2)	Included in the computation of net periodic benefit costs. See Note 14, Retirement Plans, for additional information.


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


•	adding over 30 national and local retailers to our platform, which we believe will create short-term opportunities for our grocery market;


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


•	contracting out some of our distribution employees to customers, such as grocery retailers, experiencing increased demand during the COVID-19 pandemic;


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


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


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


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


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


(4)	Includes the increase in bad debt expense reflecting the collection risk associated with our customer base as a result of COVID-19.