What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-22 · 97 added, 122 removed, 234 unchanged (48% of the section changed)

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Overview and Recent Developments

We are a premier distributor of specialty foods in the leading culinary markets in the United States.

We are a premier distributor of specialty foods in the leading culinary markets in the United States and the Middle East.

We offer more than 55,000 SKUs, ranging from high-quality specialty foods and ingredients to basic ingredients and staples, produce and center-of-the-plate proteins.

We serve more than 35,000 core customer locations, primarily located in our nineteen geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments.

We serve more than 40,000 core customer locations, primarily located in our twenty-three geographic markets across the United States, Middle East and Canada, and the majority of our customers are independent restaurants and fine dining establishments.

Our Allen Brothers subsidiary sells certain of our center-of-the-plate products directly to consumers.

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Effect of the COVID-19 Pandemic on our Business and Operations

The COVID-19 pandemic (“Pandemic”) has had and continues to have an adverse impact on numerous aspects of our business and those of our customers including, but not limited to, demand for our products, cost inflation and labor shortages.

The Pandemic had and could again have an adverse impact on numerous aspects of our business and those of our customers including, but not limited to, demand for our products, cost inflation and labor shortages.

Despite these challenges, we continued to provide our core customers with high touch service, executed on our cost control measures and returned to profitability during the second quarter of fiscal 2021.

Furthermore, as of December 24, 2021, we had $157.8 million of working capital, including $115.2 million of cash and cash equivalents, on our balance sheet and $109.5 million of availability on our asset-based loan facility.

Our liquidity position, puts us in a strategic position to invest in growth and take advantage of business development opportunities as we continue to recover from the Pandemic.

The extent to which the Pandemic will impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among others.

Recent Significant Acquisitions

On January 27, 2020, we entered into an asset purchase agreement to acquire substantially all of the assets, including certain real-estate assets, of Sid Wainer & Son (“Sid Wainer”), a specialty food and produce distributor in New England.

The cash purchase price was approximately $44.1 million, inclusive of a $2.4 million working capital true-up.

We are required to pay additional contingent consideration, if earned, of up to $4.0 million over a two-year period upon successful attainment of certain gross profit targets.

On February 3, 2020, we entered into an asset purchase agreement to acquire substantially all of the assets of Cambridge Packing Co, Inc.

(“Cambridge”), a specialty center-of-the-plate producer and distributor in New England.

The cash purchase price was approximately $16.4 million, inclusive of a $0.6 million working capital true-up.

We are required to pay additional

contingent consideration, if earned, of up to $3.0 million over a two-year period upon successful attainment of certain gross profit targets.

On February 25, 2019, pursuant to an asset purchase agreement, we acquired substantially all of the assets of Bassian Farms, Inc.

and related entities (“Bassian”), a specialty center-of-the-plate distributor based in northern California.

The aggregate purchase price for the transaction was approximately $31.8 million, consisting of $28.0 million in cash paid at closing and the issuance of a $4.0 million unsecured convertible note, partially offset by the settlement of a net working capital true-up.

We are also required to pay additional contingent consideration, if earned, which could total $9.0 million over a four-year period.

The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets.

Recent Major Acquisitions

On December 28, 2021, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of CGC Holdings, Inc.

(“Capital Seaboard”), a specialty seafood and produce distributor in Maryland.

The purchase price was approximately $31,036, consisting of $28,000 paid in cash at closing, common stock warrants valued at $1,701, and $1,335 paid upon settlement of a net working capital true-up.

On November 1, 2022, pursuant to a share sale and purchase agreement, the Company acquired substantially all of the shares of Chef Middle East LLC (“CME”), a specialty food distributor with operations in the United Arab Emirates, Qatar and Oman.

The purchase price was approximately $108,749, paid in cash at closing.

The Company is in the process of finalizing a valuation of tangible and intangible assets of CME as of the acquisition date.

The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10,000 over a two-year period upon successful attainment of certain gross profit targets.

Transition of Trademarks

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Key Factors Affecting Our Performance

Due to our focus on menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores, our results of operations are materially impacted by the success of the food-away-from-home industry in the United States and Canada, which is materially impacted by general economic conditions, weather, discretionary spending levels and consumer confidence.

Due to our focus on menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores, our results of operations are materially impacted by the success of the food-away-from-home industry in the United States, Middle East and Canada, which is materially impacted by general economic conditions, weather, discretionary spending levels and consumer confidence.

When economic conditions deteriorate, our customers’ businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money.

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• Other operating expenses:

Other operating expenses includes expenses primarily related to changes in the fair value of the Company’s earn-out liabilities, gains and losses on asset disposals, asset impairments and certain third-party deal costs incurred in connection with business acquisitions or financing arrangements.

Other operating expenses includes expenses primarily related to changes in the fair value of the Company’s contingent earn-out liabilities, gains and losses on asset disposals, asset impairments and certain third-party deal costs incurred in connection with business acquisitions or financing arrangements.

• Interest expense:

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Interest and other expense, net 43,849 17,587 20,946

(Loss) income before income taxes (6,776) (123,606) 32,403

Provision for income tax (benefit) expense (1,853) (40,703) 8,210

Net (loss) income $ (4,923) $ (82,903) $ 24,193

Income (loss) before income taxes 41,889 (6,776) (123,606)

Provision for income tax expense (benefit) 14,139 (1,853) (40,703)

Net income (loss) $ 27,750 $ (4,923) $ (82,903)

Fiscal Year Ended December 30, 2022 Compared to Fiscal Year Ended December 24, 2021

The fiscal year ended December 30, 2022 consisted of 53 weeks as compared to the fiscal year ended December 24, 2021, which consisted of 52 weeks.

2022 2021 $ Change % Change

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The remaining growth of $306.1 million, or 17.5%, resulted from acquisitions.

The incremental 53rd week of the fiscal year ended December 30, 2022 contributed approximately 2.0% to the annual sales growth.

Organic case count increased approximately 27.6% in our specialty category.

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Gross profit margin increased approximately 130 basis points.

Gross profit margins increased 379 basis points in the Company’s specialty category and decreased 350 basis points in the Company’s center-of-the-plate category compared to the prior year period.

Our prior year gross profit results include a charge of approximately $14.6 million related to estimated inventory losses from obsolescence due to the Pandemic’s impact on our customers’ purchasing behavior.

Gross profit margins decreased 50 basis points in the Company’s specialty category and increased 181 basis points in the Company’s center-of-the-plate category compared to the prior year period.

Higher inflation compressed margin rates in the specialty categories, while margin rates in the center-of-the-plate category were benefited from the reopening of favorable margin markets in fiscal 2022.

Selling, General and Administrative Expenses

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Percentage of net sales 19.8 % 21.7 %

The increase in selling, general and administrative expense relates primarily to increased sales volumes and acquisitions.

Our prior year results include an estimated non-cash charge of approximately $15.8 million to bad debt expense incurred during the first quarter of fiscal 2020 at the onset of the Pandemic.

Our ratio of selling, general and administrative expenses to net sales was lower as a result of sales growth.

The increase in selling, general and administrative expenses was primarily due to higher costs associated with compensation and benefits, facilities costs, and fuel costs to support sales growth.

Our ratio of selling, general and administrative expenses to net sales decreased predominately due to sales growth which contributing to improved fixed cost leverage.

Other Operating Expenses, Net

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Other operating expenses 14,679 422 14,257 3,378.4 %

The decrease in net other operating expenses relates primarily to a $24.2 million impairment charge for Del Monte and Bassian trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our west coast region during the fourth quarter of fiscal 2020 and non-cash credits of $1.3 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2021 period compared to non-cash credits of $11.5 million in the prior year period.

The increase in net other operating expenses relates primarily to non-cash charges of $8.5 million for changes in the fair value of our contingent earn-out liabilities in fiscal 2022 compared to non-cash credits of $1.3 million in the prior year period and a year over year increase of $5.7 million primarily related to third-party deal costs incurred in connection with business acquisitions and financing arrangements.

The prior year period also includes a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.

Interest Expense

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Interest expense 43,849 17,587 $ 26,262 149.3 %

Interest expense decreased primarily due to $1.2 million in one-time third-party costs incurred during the second quarter of 2020 in connection with the extension of a majority of our senior secured term loans and lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.

Provision for Income Tax Benefit

Interest expense increased primarily due to the $14.3 million loss on debt extinguishment from the refinancing of our senior convertible debt and term loan and certain third-party transaction fees of $4.5 million.

Additionally, we had higher amounts of debt outstanding and increases in the variable portion of interest rates charged on our outstanding debt during fiscal 2022.

Provision for Income Tax Expense (Benefit)

2022 2021 $ Change % Change

Provision for income tax benefit (1,853) (40,703) $ 38,850 (95.4) %

Provision for income tax expense (benefit) 14,139 (1,853) $ 15,992 (863.0) %

Effective tax rate 33.8 % 27.3 %

The higher effective tax rate in the prior period is primarily related to the carryback of a portion of our fiscal 2020 net taxable loss which allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.

The effective tax rate in the current period increased primarily due to the $14.1 million loss on debt extinguishment from the refinancing of our senior convertible debt, which was not tax deductible.

Fiscal Year Ended December 24, 2021 Compared to Fiscal Year Ended December 25, 2020

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Net sales $ 1,745,757 $ 1,111,631 $ 634,126 57.0 %

Sales growth from acquisitions contributed $136.5 million, or 8.6%, to sales growth.

Organic sales declined $616.7 million, or 38.8%, versus the prior year primarily due to impacts of the Pandemic.

Organic case count declined approximately 43.5% in our specialty category.

In addition, specialty unique customers and placements declined 30.4% and 43.6%, respectively, compared to the prior year.

Pounds sold in our center-of-the-plate category decreased 38.0% compared to the prior year.

Estimated deflation was 0.3% in our specialty category and inflation of 3.5% in our center-of-the-plate category compared to fiscal 2019.

Organic growth contributed $574.2 million, or 51.6%, to sales growth in the year primarily driven by our recovery from the Pandemic.

The remaining growth of $59.9 million, or 5.4%, resulted from acquisitions.

Organic case count increased approximately 33.8% in our specialty category.

In addition, specialty unique customers and placements increased 26.1% and 31.6%, respectively, compared to the prior year.

Pounds sold in our center-of-the-plate category increased 28.2% compared to the prior year.

Estimated inflation was 9.6% in our specialty category and 18.1% in our center-of-the-plate category compared to fiscal 2020.

2021 2020 $ Change % Change

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Gross profit margin 22.4 % 22.3 %

Gross profit decreased primarily due to decreased sales volumes.

Gross profit margin decreased approximately 196 basis points.

Gross profit margins decreased 441 basis points in the Company’s specialty category and increased 117 basis points in the Company’s center-of-the-plate category compared to the prior year period.

Our gross profit results include a charge of approximately $14.6 million related to estimated inventory losses from obsolescence due to the Pandemic’s impact on our customers’ purchasing behavior.

Gross profit increased primarily due to increased sales volumes.

Gross profit margin increased approximately 4 basis points.

Gross profit margins increased 379 basis points in the Company’s specialty category and decreased 350 basis points in the Company’s center-of-the-plate category compared to the prior year period.

Selling, General and Administrative Expenses

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Percentage of net sales 21.7 % 30.3 %

The increase in selling, general and administrative expense relates primarily to our recent acquisitions and an estimated non-cash charge of approximately $15.8 million to bad debt expense incurred during the first quarter of fiscal 2020 at the onset of the Pandemic, partially offset by cost measures implemented during the year in response to the Pandemic’s adverse impact on demand for our products.

Our ratio of selling, general and administrative expenses to net sales was higher as a result of the Pandemic’s adverse impacts on our sales growth and a 161 basis point increase in non-cash charges related to bad debt expense.

The increase in selling, general and administrative expense relates primarily to increased sales volumes and acquisitions.

Our prior year results include an estimated non-cash charge of approximately $15.8 million to bad debt expense incurred during the first quarter of fiscal 2020 at the onset of the Pandemic.

Our ratio of selling, general and administrative expenses to net sales was lower as a result of sales growth.

Other Operating Expenses, Net

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Other operating expenses 422 14,417 (13,995) (97.1) %

The increase in other operating expenses relates primarily to a $24.2 million impairment charge on Del Monte and Bassian trademarks and non-cash credits of $11.5 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash charges of $5.9 million in the prior year period.

Interest Expense

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Interest expense 17,587 20,946 $ (3,359) (16.0) %

Interest and other expense increased primarily due to $1.2 million in one-time third-party costs incurred during the second quarter of 2020 in connection with the extension of a majority of our senior secured term loans and the full year impact of interest charged on our Convertible Senior Notes issued on November 22, 2019.

Provision for Income Tax (Benefit) Expense

Provision for Income Tax Benefit

2021 2020 $ Change % Change

Provision for income tax (benefit) expense (40,703) 8,210 $ (48,913) (595.8) %

Provision for income tax benefit (1,853) (40,703) $ 38,850 (95.4) %

Effective tax rate 27.3 % 32.9 %

The higher effective tax rate is primarily related to our net taxable loss for fiscal 2020 which allows us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.

The higher effective tax rate in fiscal 2020 is primarily related to our net taxable loss for fiscal 2020 which allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.

Liquidity and Capital Resources

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Total convertible debt $ 333,184 $ 204,000 $ 154,000

Borrowings outstanding on asset-based loan facility $ 20,000 $ 40,000 $ —

Borrowings outstanding on asset-based loan facility and revolving credit facilities $ 42,217 $ 20,000 $ 40,000

Finance leases and other financing obligations $ 11,331 $ 11,602 $ 15,798

As of December 30, 2022, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $674.7 million.

We had outstanding letters of credit of approximately $25.8 million and $20.5 million at December 30, 2022 and December 24, 2021, respectively.

Substantially all of our assets are pledged as collateral to secure our borrowings under our credit facilities.

See Note 9 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments.

On March 1, 2021, the we issued $50.0 million aggregate principal amount of 1.875% Convertible Senior Notes at a premium which were offered as an additional issuance of our $150.0 million Convertible Senior Notes due 2024 issued on November 22, 2019.

Recent Significant Financing Transactions

On December 13, 2022, we issued $287.5 million aggregate principal amount of 2.375% Convertible Senior Notes (the “2028 Convertible Notes”).

Concurrently with the issuance of the 2028 Convertible Notes, we exchanged or repurchased approximately $158.3 million principal amount of 1.875% Convertible Senior Notes ( the“2024 Convertible Notes”) for an aggregate consideration consisting of approximately $159.7 million in cash, which includes accrued interest on the 2024 Convertible Notes, and approximately 324,066 shares of the Company’s common stock.

We incurred transaction costs of approximately $7.0 million which were capitalized as deferred financing fees to be amortized over the term of the 2028 Senior Notes.

On August 23, 2022, we refinanced our senior secured term loans in an aggregate principal amount of $300.0 million maturing in August 2029, comprising of a refinancing of the then existing term loans balance of $167.4 million and an incremental borrowing of $132.6 million.

We deferred lender and third-party fees of $10.9 million as debt issuance costs to be amortized over the term of the term loan.

Arrangement and third-party transaction costs of $4.5 million were expensed as incurred.

On March 11, 2022, we entered into a third amendment to our asset-based loan facility which increased the aggregate commitments from $150.0 million to $200.0 million.

On March 1, 2021, we issued $50.0 million aggregate principal amount of our 2024 Convertible Senior Notes at a premium which were offered as an additional issuance of our $150.0 million Convertible Senior Notes due 2024 issued on November 22, 2019.

Net proceeds were used to repay all outstanding borrowings under the our 2022 tranche of senior secured term loans of $31.2 million and repay a portion of borrowings outstanding under our asset-based loan facility.

We incurred transaction costs of approximately $1.4 million which were capitalized as deferred financing fees to be amortized over the term of the underlying debt.

On June 8, 2020, we amended our senior secured credit agreement which converted $238.1 million of the term loans then outstanding into a new tranche of term loans (the “2025 Tranche”), which, among other things, extended the maturity date by three years and increased the fixed-rate portion of interest charged by 200 basis points.

The Company made a prepayment of $35.7 million on the 2025 Tranche immediately after it was established.

See Note 9 “Debt Obligations” to our consolidated financial statements for a full description.

On March 18, 2020, we drew $100.0 million on our asset-based loan facility to increase our cash on hand during the early stages of the Pandemic’s impact to our business and have subsequently repaid $80.0 million of the draw.

On November 22, 2019, we issued $150.0 million aggregate principal amount of 1.875% Convertible Senior Notes (the “Senior Notes”).

Approximately $43.2 million of the net proceeds were used to repay all borrowings then outstanding under our ABL and the remainder was used for working capital, general corporate purposes and acquisitions.

A portion of the interest rate charged on our Term Loan is currently based on LIBOR and, at our option, a component of the interest charged on the borrowings outstanding on our ABL, if any, may bear interest rates based on LIBOR.

LIBOR has been the subject of reform and was expected to phase out by the end of fiscal 2021, however, on November 30, 2020, the ICE Benchmark Administration Limited (“ICE”) announced plans to delay the phase out of LIBOR to June 30, 2023.

The consequences of the discontinuation of LIBOR cannot be entirely predicted but could impact the interest expense we incur on these debt instruments.

We will negotiate alternatives to LIBOR with our lenders before LIBOR ceases to be a widely available reference rate.

Equity Offering

On May 14 and June 2, 2020, we completed public offerings for a total of 6,634,615 shares of our common stock which resulted in net proceeds of approximately $85.9 million.

See Note 10 “Stockholders’ Equity” to our consolidated financial statements for a full description.

The following table presents selected financial information on liquidity (in thousands):

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We believe our capital expenditures, excluding cash paid for acquisitions, for fiscal 2023 will be approximately $50.0 million to $60.0 million.

Our long-term cash requirements include:

• Debt obligations:

See Note 9 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments and the timing of expected future payments.

See Note 11 “Leases” to our consolidated financial statements for details on our various lease arrangements and the timing of expected future payments.

• Self-insurance liabilities :

We are self-insured for medical, auto and workers’ compensation claims.

Claims in excess of certain levels are insured by external parties.

See Note 16 “Commitments and Contingencies” to our consolidated financial statements for further detail.

• Contingent earn-out liabilities:

Certain acquisitions involve contingent consideration, typically payable if certain financial performance targets are obtained.

See Note 4 “Fair Value Measurements” to our consolidated financial statements for details on our contingent earn-out liabilities outstanding as of December 30, 2022.

Fiscal Year Ended

December 30, 2022 December 24, 2021 December 25, 2020

Net (loss) income $ (4,923) $ (82,903) $ 24,193

Net income (loss) $ 27,750 $ (4,923) $ (82,903)

Non-cash charges $ 93,325 $ 47,372 $ 62,509

Changes in working capital $ (97,941) $ (62,348) $ 63,275

Cash (used in) provided by operating activities $ (19,899) $ 42,881 $ 45,007

Cash provided by (used in) operating activities $ 23,134 $ (19,899) $ 42,881

Cash used in investing activities $ (232,023) $ (48,991) $ (67,968)

Cash (used in) provided by financing activities $ (9,222) $ 78,056 $ 96,947

Cash provided by (used in) financing activities $ 253,215 $ (9,222) $ 78,056

Fiscal Year 2022 Cash Flows

Net cash provided by operations was $23.1 million for the fiscal year ended December 30, 2022 compared to net cash used in operating activities of $19.9 million for the fiscal year ended December 24, 2021.

The increase in cash provided by operating activities was primarily due to the increased net income, net of non-cash charges, in the current year of $121.1 million compared to $42.4 million in the prior year period.

This improvement in cash-based profitability is primarily due to a 49.7% increase in sales compared to the prior year period.

The sales growth also resulted in higher working capital (increased accounts receivable and inventory partially offset by higher accounts payable).

The working capital growth of $35.6 million versus the prior year period partially offset the favorable impact of increased cash-based profitability.

The Company’s increased working capital investment in the current year is the result of rapid sales growth driven by our recovery from the pandemic.

We expect working capital growth to moderate in the future as sales growth normalizes.

Net cash used in investing activities was $232.0 million in fiscal 2022 driven by $186.2 million in cash to fund acquisitions and $45.8 million in capital expenditures which includes the purchase of our distribution facility in Columbus, Ohio.

Net cash provided by financing activities was $253.2 million for fiscal 2022 driven primarily by $587.5 million of proceeds from debt issuances and $20.2 million of incremental borrowings under our asset-based loan facility and other revolving credit facilities, partially offset by payments made on debt obligations of $331.1 million and $19.0 million of deferred financing costs.

Fiscal Year 2021 Cash Flows

Net cash used in operations was $19.9 million for fiscal 2021 consisting of a $4.9 million net loss and and investments in working capital of $62.3 million, partially offset by $47.4 million of non-cash charges.

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Net cash used in financing activities was $9.2 million for fiscal 2021 driven by $37.6 million of payments made on senior term loans and finance lease obligations and a $20.0 million payment on our asset-based loan facility, partially offset by $51.8 million of proceeds from the issuance of additional convertible senior notes.

Fiscal Year 2020 Cash Flows

Net cash provided by operations was $42.9 million for fiscal 2020 consisting of a $82.9 million net loss, offset by $62.5 million of non-cash charges and an increase in working capital of $63.3 million.

Non-cash charges increased predominately due to the $24.2 million write down of Del Monte and Bassian trademarks.

The increase in working capital of $63.3 million is primarily driven by negotiating favorable credit terms with our customers and suppliers and maintaining lower inventory balances as a result of reduced demand due to the Pandemic.

Net cash used in investing activities was $68.0 million in fiscal 2020 driven by $7.0 million in capital expenditures which included implementations of our Enterprise Resource Planning (“ERP”) system.

We used $60.9 million in cash to fund acquisitions, the most significant of which were Sid Wainer and Cambridge.

Net cash provided by financing activities was $78.1 million for fiscal 2020 driven by $85.9 million net proceeds from our common stock offering and $40.0 million of net draws on our asset-based loan facility, partially offset by payments of debt and finance lease obligations of $40.4 million.

Excluding our Allen Brothers direct-to-consumer business, we generally do not experience any material seasonality.

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Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.

The Pandemic has had a material impact on our business and operations and those of our customers.

Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state

and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services.

Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers.

The impact of inflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.

Commitments and Significant Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments at December 24, 2021:

Payments Due by Period (1, 2)

Total Less than One Year 1-3

Years Thereafter

(In thousands)

Indebtedness $ 403,991 $ 5,662 $ 234,790 $ 163,539 $ —

Finance lease obligations $ 12,748 $ 3,834 $ 5,553 $ 3,192 $ 169

Pension exit liabilities $ 1,861 $ 170 $ 375 $ 428 $ 888

Long-term operating leases $ 216,423 $ 24,726 $ 38,167 $ 27,644 $ 125,886

Total $ 635,023 $ 34,392 $ 278,885 $ 194,803 $ 126,943

(1) Interest on our various outstanding debt instruments is included in the above table, except for our Term Loans and ABL, which have floating interest rates.

At December 24, 2021, we had borrowings of $168.7 million under our Term Loans and $20.0 million under our ABL.

See Note 9 “Debt Obligations” to our consolidated financial statements for further information on our debt instruments.

(2) The table above excludes $6.9 million of total contingent earn-out liabilities related to certain acquisitions as of December 24, 2021 and approximately $10.0 million of lease payments related leases for distribution facilities that do not commence until fiscal 2022.

We had outstanding letters of credit of approximately $20.5 million and $20.1 million at December 24, 2021 and December 25, 2020, respectively.

Substantially all of our assets are pledged as collateral to secure our borrowings under our credit facilities.

The Pandemic had a material impact on our business and operations and those of our customers.

Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

Off-Balance Sheet Arrangements

As of December 24, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies

As of December 30, 2022, we did not have any off-balance sheet arrangements.

Critical Accounting Estimates

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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Allowance for Doubtful Accounts

We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt

levels when evaluating the adequacy of our allowance for doubtful accounts.

We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts.

In instances where a reserve has been recorded for a particular customer, future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released.

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We actively manage our inventory levels as we seek to minimize the risk of loss and have consistently achieved a relatively high level of inventory turnover.

As a result of the impacts of the Pandemic on our customer demand we incurred additional inventory valuation charges of $14.6 million in fiscal 2020.

Business Combinations

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We determine the fair value of intangible assets using an income approach and, when appropriate, we engage a third party valuation firm.

Generally, we utilize the multi-period excess earnings method to determine the fair value of customer relationships and the relief from royalty method to determine the fair value of tradenames.

Generally, we utilize the multi-period excess earnings method to determine the fair value of customer relationships and the relief from royalty method to determine

the fair value of tradenames.

These valuation methods contain significant assumptions and estimates including forecasts of expected future cash flows and discount rates.

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When analyzing whether to aggregate components into single reporting units, management considers whether each component has similar economic characteristics.

We have evaluated the economic characteristics of our different geographic markets, including our recently acquired businesses, along with the similarity of the operations and margins, nature of the products, type of customer and methods of distribution of products and the regulatory environment in which we operate and concluded that the business consists of three operating segments:

East Coast, Midwest and West Coast and these operating segments represent our reporting units.

As of December 30, 2022 we maintain four reporting units.

In testing goodwill for impairment, we may elect to perform a qualitative assessment to evaluate whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount.

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When a quantitative analysis is required, we estimate the fair value of our reporting units using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections.

Assumptions include estimates of future revenue based upon budget projections and growth rates which include estimates for the duration of the Pandemic’s impact on the Company’s customers.

Assumptions include estimates of future revenue based upon budget projections and growth rates.

We develop estimates of future levels of gross and operating profits and projected capital expenditures.

This methodology includes the use of estimated discount rates

based upon industry and competitor analysis as well as other factors.

This methodology includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors.

A goodwill impairment loss, if any, would be recognized for the amount by which a reporting unit’s carrying value exceeds its fair value.

For the fiscal year ended December 24, 2021, the Company assessed the recoverability of goodwill using a qualitative analysis and determined that it is more likely than not that the fair value of its reporting units exceeded their respective carry values.

Due to the Pandemic’s adverse impact on our business in fiscal 2020, we performed an interim quantitative goodwill impairment test as of March 27, 2020 and concluded that goodwill was not impaired.

We performed our annual goodwill impairment test during the fourth quarter of fiscal 2020 using a quantitative analysis, the results of which indicated that goodwill was not impaired.

For the fiscal year ended December 30, 2022 and December 24, 2021, the Company assessed the recoverability of goodwill using a qualitative analysis and determined that it is more likely than not that the fair value of its reporting units exceeded their respective carry values.

Total goodwill as of December 30, 2022 and December 24, 2021 was $287.1 million and $221.8 million, respectively.

4 unchanged sentences

As a result, we recognized a $0.6 million impairment charge, $0.4 million net of tax, to fully write-down the net book value of our Cambridge trademark

During the fourth quarter of fiscal 2020, we committed to a plan to shift our brand strategy to leverage our Allen Brothers brand in our west coast region and determined our Del Monte, Ports Seafood and Bassian Farms trademarks did no fit our long-term strategic objectives.

This brand transition began in the second quarter of fiscal 2021.

The Company assessed these trademarks for impairment and used the relief of royalty method to determine fair value.

Significant assumptions used include future sales forecasts, royalty rates and discount rates.

As a result, we recorded a $24.2 million impairment charge, $17.5 million net of tax, to write-down the value of our Del Monte and Bassian Farms trademarks.

There have been no other events or changes in circumstances during fiscal 2022 or 2021 indicating that the carrying value of our finite-lived intangible assets are not recoverable.

14 unchanged sentences

Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S.

federal and state jurisdictions.

Jurisdictional tax law changes, increases or decreases in permanent

differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

federal state, and Middle East jurisdictions.

Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

We estimate our ability to recover deferred tax assets within the jurisdiction from which they arise.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis