Business context and reporting period
US Foods Holding Corp. is a U.S. broadline foodservice distributor serving restaurants, healthcare, hospitality, education, government, retail and other customers. It operates as one business segment. This Form 10-K covers the 53-week fiscal year ended January 2, 2021; the comparable fiscal 2019 year had 52 weeks, so reported comparisons include an extra week in 2020.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $22.885 billion | $25.939 billion |
| Gross profit / margin | $3.719 billion / 16.3% | $4.587 billion / 17.7% |
| Operating income (loss) / margin | $(77) million / (0.3)% | $699 million / 2.7% |
| Net income (loss) | $(226) million | $385 million |
| Net income (loss) available to common shareholders | $(254) million | $385 million |
| Adjusted EBITDA (non-GAAP) | $648 million | $1.194 billion |
| Cash from operating activities | $413 million | $760 million |
| Capital expenditures / free cash flow (non-GAAP) | $189 million / $224 million | $258 million / $502 million |
Total case volume fell 11.0% (12.5% excluding the extra week); organic case volume fell 21.3%. Independent restaurant case volume declined 11.2% (12.7% excluding the extra week). The Food Group and Smart Foodservice contributed $3.112 billion of FY2020 sales. Adjusted EBITDA and free cash flow are company-defined non-GAAP measures and should be considered alongside GAAP results.
Liquidity, debt and capital structure
At January 2, 2021, cash and cash equivalents were $828 million; current assets were $3.465 billion and current liabilities were $1.982 billion. Debt carrying value was $5.748 billion, net of unamortized financing costs, plus $323 million of financing-lease obligations. About 57% of principal debt bore floating rates after interest-rate swaps; management estimated a 1 percentage-point rate change would alter annual interest expense by approximately $33 million.
The amended ABL revolving facility had $1.990 billion of commitments, no borrowings outstanding, $281 million of letters of credit and $1.584 billion of available capacity at year-end. Management said liquidity should fund operations and ordinary-course obligations through 2022 even if case volumes remained at then-current levels, while cautioning that this was not assured. On February 4, 2021, after year-end, the company issued $900 million of 4.75% senior notes due 2029 and used proceeds and cash to redeem the 2024 notes and repay remaining 2020 incremental term-loan borrowings.
Material changes, outlook and risks
- COVID-19 impact: Restrictions and lower away-from-home dining demand sharply reduced restaurant, hospitality and education volumes. Recovery improved in the third quarter but slowed in the fourth quarter amid renewed restrictions. Management could not predict the timing of recovery and did not expect pre-pandemic operations until restrictions eased and consumers resumed dining, travel and events.
- Profitability and costs: Gross profit declined 18.9%, reflecting lower sales, higher logistics costs, $50 million of pandemic-related product donations and inventory adjustments, and unfavorable LIFO effects. Operating expenses fell 2.4%, but rose to 16.6% of sales from 15.0%; drivers included pandemic-related doubtful-account provisions, acquisition costs, workforce restructuring and impairment charges.
- Acquisitions and financing: Smart Foodservice was acquired in April 2020 for $972 million, expanding cash-and-carry operations. The company identified integration and synergy realization as priorities and said deleveraging was a priority. It issued $500 million of Series A convertible preferred stock to KKR; the stock carries a cumulative 7% annual dividend, initially payable in kind.
- Capital spending: FY2021 cash capital expenditures were expected to be $290–$305 million, plus approximately $35–$45 million under fleet financing leases. The filing provides no specific earnings or sales guidance.
- Key risks and contingencies: The filing highlights prolonged pandemic disruption, customer credit and collections, low industry margins, competition, supplier availability and costs, fuel and interest-rate exposure, substantial leverage and debt covenants, acquisition integration, labor relations, food safety, cybersecurity and potential asset impairment. Estimated multiemployer pension withdrawal liability was approximately $157 million. Management did not expect pending legal proceedings, individually or in aggregate, to materially adversely affect the company, but noted outcomes and possible additional expenditures are uncertain.
- Unusual items and controls: The company recorded $9 million of impairment charges on Food Group trade names and $30 million of restructuring costs. Auditors issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded Smart Foodservice, acquired during the year. Vendor consideration and receivables were identified as a critical audit matter.
Important facts for investors to verify
- Whether case volumes and customer collections recovered after year-end, particularly among independent restaurants, hospitality and education customers.
- Whether the stated liquidity runway and available ABL borrowing capacity remain adequate as receivables and borrowing-base eligibility change.
- Debt balances, refinancing effects, floating-rate exposure and compliance with debt covenants; assess the preferred stock’s dividend and potential dilution terms.
- Whether acquisition integration, expected synergies and cost reductions are being achieved without further impairment or restructuring charges.
- Whether the FY2021 capital-spending outlook, customer credit reserves, vendor-rebate estimates and pension exposures remain consistent with subsequent disclosures.