What changed in this filing

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Item 1A. Risk Factors

2023-02-17 compared with 2022-02-17 · 143 added, 130 removed, 230 unchanged (54% of the section changed)

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Risks Relating to Our Business and Industry

An economic downturn, public health crisis, such as the COVID-19 pandemic, and/or other factors affecting consumer spending and confidence, may reduce the amount of food prepared away from home, which may adversely affect our business, financial condition and results of operations.

An economic downturn, public health crisis, and/or other factors affecting consumer spending and confidence, may reduce the amount of food prepared away from home, which may adversely affect our business, financial condition and results of operations.

foodservice distribution industry is sensitive to national, regional and local economic conditions.

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economic activity, uncertainty in the financial markets, inflation, and supply chain disruptions could have a negative impact on consumer confidence and discretionary spending.

A decline in economic activity or the frequency and amount spent by consumers for food prepared away from home, as well as other macroenvironmental factors that could decrease general consumer confidence (including volatile financial markets or an uncertain political environment), may negatively impact our business, financial condition and results of operations.

The global COVID-19 pandemic and its significant effect on the economy have impacted and is expected to continue to impact many of our customers, consumers and suppliers.

Widespread adoption of social distancing, masking and testing measures and public concerns about the risks associated with COVID-19 infection have resulted in substantial disruption to many of our customers’ operations (including the limitation of dining options and the temporary (and, in some cases, permanent) closure of many restaurant, hospitality and education customers’ locations) which resulted in a significant reduction in the demand for our products and services.

Sustained disruption in our customers’ operations and reduced consumer spending on food prepared away from home as a result of the COVID-19 pandemic has had, and may continue to have, a significant negative effect on our customers’ financial condition and, as a result, has adversely impacted, and may continue to adversely impact, our business, financial condition and results of operations.

We do not expect a full recovery for our business and the U.S.

foodservice industry until consumers are once again willing and able to resume consumption of food away from home, travel and attend sporting, entertainment and other events on a regular basis.

We may continue to face challenges as the recovery continues, such as constraints on the availability of product supply, increased product and logistics costs, labor shortages, and shifts in the buying patterns of our customers.

General economic conditions, such as inflation, supply chain disruptions, labor shortages and uncertainty regarding when the COVID-19 pandemic will abate, have had, and are expected to continue to have, a negative impact on consumer confidence and discretionary spending which will likely slow the recovery of the U.S.

foodservice industry.

Multiple factors could negatively impact the timing and extent of the industry’s recovery from the COVID-19 pandemic including the rate of vaccine adoption, the prevalence and impact of COVID-19 variants (and the continued effectiveness of the vaccines against those variants) and the duration and implications of continued restrictions and safety measures.

If the restaurant and/or hospitality industry is fundamentally changed by the COVID-19 pandemic in ways that are detrimental to us, our business may continue to be adversely affected even as the broader economy continues to recover.

To the extent the COVID-19 pandemic adversely affects the business and financial results of our Company and our customers, it may also have the effect of amplifying many of the other risks described in this “Risk Factors” section.

The COVID-19 pandemic could have a significant negative impact on our liquidity position.

Sustained disruption in our customers’ operations as a result of the COVID-19 pandemic has had a significant negative effect on our customers’ financial condition and could result in deterioration in the collectability of our existing accounts receivable and a decrease in the generation of new accounts receivable, which could adversely affect our cash flows and results of operations and require an increased level of working capital.

In addition, our ability to borrow under our asset based senior secured revolving credit facility (the “ABL Facility”) is subject to a borrowing base limitation that is based on certain criteria, including the amount and collectability of new accounts receivable.

Thus, a decline in the amount and collectability of our accounts receivable not only adversely affects our cash flows and results of operations, but also reduces our access to additional liquidity due its negative impact on the borrowing base of the ABL Facility.

Furthermore, the negative impact that the COVID-19 pandemic may have on our Adjusted EBITDA could constrain our future ability to incur additional indebtedness under the incurrence “baskets” of our debt agreements that are based on a leverage ratio or coverage ratio calculation.

In addition, the COVID-19 pandemic has previously adversely affected, and in the future may again adversely affect, the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the impact of the COVID-19 pandemic lasts.

We believe that the combination of cash on hand and cash generated from operations, together with borrowing capacity under the agreements governing our indebtedness 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.

We cannot, however, assure you that this will be the case.

Any future significant reduction to our liquidity position caused by the COVID-19 pandemic could impair our ability to service our outstanding indebtedness and pay our other payables as they become due.

A decline in economic activity or the frequency and amount spent by consumers for food prepared away from home, as well as other macroenvironmental factors that could decrease general consumer confidence (including deteriorating economic conditions, heightened volatility in the financial markets, inflationary pressure, an uncertain political environment and supply chain disruptions, such as those the global economy is currently facing), may negatively impact our business, financial condition and results of operations.

The extent of any such effects on our business, financial condition and results of operations depends in part on the magnitude and duration of such conditions, which cannot be predicted at this time.

Our business is a low-margin business, and our profitability is directly affected by cost deflation or inflation, commodity volatility and other factors.

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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.

During 2022, we experienced significantly elevated commodity and supply chain costs including the cost of labor, sourced goods, energy, fuel, packaging materials and other inputs necessary for the distribution and production of our products, and elevated levels of inflation may continue in 2023.

Prolonged periods of product cost inflation, or periods of rapid inflation, also may negatively impact our business as a result of decreased discretionary consumer spending.

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Regional and local companies may align themselves with other smaller distributors through purchasing cooperatives and marketing groups, with the goal of enhancing their geographic reach, private label offerings, overall purchasing power, cost efficiencies, and ability to meet customer distribution requirements.

Such changes may occur particularly during periods of economic uncertainty or significant inflation.

These distributors may also rely on local presence as a source of competitive advantage, and they may have a lower cost to serve and other competitive advantages due to geographic proximity.

Additionally, adjacent competition, such as other cash-and-carry operations, commercial wholesale outlets, warehouse clubs and grocery stores, continue to serve the commercial foodservice market.

We also experience competition from online direct food wholesalers and retailers.

We also experience competition from online direct food wholesalers and other retailers.

We generally do not have exclusive distribution agreements with our customers, and they may switch to other distributors that offer lower prices or differentiated products or customer service.

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foodservice distribution industry are based on the type, quality and price of the product and a distributor’s ability to completely and accurately fill orders and provide timely deliveries.

Disruptions caused by the COVID-19 pandemic and related labor shortages that impact our ability to completely and accurately fill orders and provide timely deliveries of quality products at competitive prices have had, and may continue to have, a negative impact on our business, financial condition and results of operations.

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.

The continuing impact of the COVID-19 pandemic may further increase those competitive pressures including as a result of constraints on product availability from our suppliers, disruptions to timely and cost effective shipments from our suppliers due to labor shortages, supply chain disruptions, increased freight demand and/or tightened truckload capacity, new pricing initiatives and discount programs established by competitors, consolidation and vertical integration, and increased customer cost consciousness.

Any or all of these competitive pressures may continue to affect us during the recovery of the U.S.

foodservice distribution industry from the impact of the COVID-19 pandemic.

To the extent we are not able to compete successfully, our business, financial condition, and results of operations may be adversely affected.

Disruptions caused by macroeconomic conditions, inflationary pressure, supply chain disruptions, geopolitical events and labor shortages that impact our ability to completely and accurately fill orders and provide timely deliveries of quality products at competitive prices may have a negative impact on 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.

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Although our purchasing volume can provide an advantage when dealing with suppliers, suppliers may not provide the foodservice products and supplies we need in the quantities and at the time and prices requested.

Our suppliers may also be affected by higher costs to source or produce and transport products, as well as by other related expenses that they pass through to their customers,

which could result in higher costs for the products they supply to us.

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 actions and conditions outside our control including the continuing challenges experienced during the COVID-19 pandemic.

This means we are also subject to delays caused by interruption in production and increases in product costs based on actions and conditions outside our control.

These actions and conditions include changes in supplier pricing practices (including promotional allowances);

labor shortages, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers;

labor shortages, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers or carriers;

government shutdowns;

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impact of climate change;

and natural disasters, pandemics, such as COVID-19, terrorist attacks or other catastrophic events.

and natural disasters, pandemics, terrorist attacks, international hostilities, civil insurrection or social unrest;

or any other catastrophic events.

Moreover, commodity prices continue to be volatile and generally increased due to supply chain disruptions and labor and transportation shortages.

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.

Furthermore, any changes to the pricing practices of our suppliers, including the reduction or elimination of promotional allowances, could result in a material adverse effect on our business, financial condition and results of operations.

Our relationships with our customers and GPOs may be materially diminished, terminated or otherwise changed, which may adversely affect our business, financial condition and results of operations.

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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.

For example, in fiscal year 2021, customers in the hospitality industry who were members of GPOs with which we have contracted significantly reduced their purchases as a result of the COVID-19 pandemic, and we do not expect them to significantly increase their purchases until the hospitality industry recovers from the current environment.

Our customer and GPO agreements are generally terminable upon advance written notice (typically ranging from 30 days to 6 months) by either us or the customer or GPO, which provides our customers and GPOs with the opportunity to renegotiate their contracts with us or to award more business to our competitors.

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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 or a decrease in the sales of our private label products could have a material negative impact on our profitability.

The COVID-19 pandemic has resulted in a substantial disruption in many of our independent restaurant customers’ operations (including, reduced seating capacity, inability to seat customers indoors, labor shortages, wage inflation, reduced hours of operations, and temporary restaurant closures) and, in some cases, permanent closures of restaurants.

Loss of business as a result of the COVID-19 pandemic and its negative economic impact has changed the buying practices of our independent restaurant customers and may also result in additional permanent closures of restaurants, which could have a negative impact on our business, financial condition and results of operations.

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 or a decrease in the sales of our private label products in general could have a material negative impact on our profitability.

A pandemic or recession could result in a substantial disruption in many of our independent restaurant customers’ operations and, in some cases, permanent closures of restaurants.

Loss of business as a result of a pandemic or recession and its negative economic impact could change the buying practices of our independent restaurant customers and may also result in additional permanent closures of restaurants, which could have a negative impact on our business, financial condition and results of operations.

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.

A variety of factors, including the COVID-19 pandemic, could cause us not to realize expected cost savings, including, 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.

We may not be able to realize some or all of our expected cost savings from our various cost savings initiatives.

A variety of factors could cause us not to realize expected cost savings, including, 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 business, financial condition and results of operations.

Fuel costs fluctuate, which may adversely affect our business, financial condition and results of operations.

Fuel costs related to outbound deliveries approximated $195 million during fiscal year 2022.

Higher costs of fuel may negatively affect consumer confidence and discretionary spending.

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In addition, higher costs of fuel may increase the price we pay for products and the costs we incur to deliver products to our customers.

We require significant quantities of fuel for our vehicle fleet, and

the price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil and gas, regional production patterns, weather conditions and environmental concerns.

We require significant quantities of fuel for our vehicle fleet, and the price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil and gas, regional production patterns, weather conditions and environmental concerns.

Although, 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, these forward purchases may prove ineffective in protecting us from changes in fuel prices or even result in us paying higher than market costs for part of our fuel.

There is no guarantee that we will be able to pass along increased fuel costs to customers in the future.

These factors may, in turn, adversely affect our sales, margins, operating expenses, and operating results.

In addition, the use of such derivative instruments may expose us to the risk that our counterparties fail to perform their obligations, which could result in financial losses.

Furthermore, there is no guarantee that we will be able to pass along increased fuel costs to customers in the future.

Each of these factors may, in turn, adversely affect our sales, margins, operating expenses, and operating results.

Changes in consumer eating habits may reduce demand for our products.

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There is a growing consumer preference for sustainable, organic and locally grown products.

Changing consumer eating habits also occur due to generational shifts.

Changes to consumer eating habits also occur due to generational shifts.

Millennials, the largest demographic group in the U.S.

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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 make additional disclosure regarding the nutritional content of our food products.

Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations that impact the sourcing, ingredients and nutritional content of our food products, or laws and regulations requiring us to make additional disclosures regarding the ingredients and nutritional content of our food products.

Compliance with these and other laws and regulations may be costly and time-consuming.

If we are not able to effectively adapt our menu offerings to trends in eating habits or respond to changes in consumer health perceptions or resulting new laws and regulations, our business, financial condition and results of operations could be adversely affected.

In addition, actions taken by national, state and local governments to contain the COVID-19 pandemic, such as travel restrictions or bans, social distancing requirements, restaurant seating capacity limitations, and required closures of non-essential businesses caused a significant decline in consumers’ consumption of food away from home.

Even when the aforementioned restrictions were eased, public perceptions of the risks associated with COVID-19 and its variants caused and could continue to cause some consumers to continue to avoid or limit gatherings in restaurants and other public places and reduce or eliminate business or personal travel, each of which could continue to impact our restaurant and hospitality customers and reduce demand for our products.

As a result, we do not expect a full recovery for our business and the U.S.

foodservice industry until consumers are once again willing and able to resume consumption of food away from home, travel and attend sporting, entertainment and other events on a regular basis.

If we are not able to effectively adapt our product portfolio to trends in eating habits or respond to changes in consumer health perceptions or resulting new laws and regulations, our business, financial condition and results of operations could be adversely affected.

If our competitors implement a lower cost structure and offer lower prices to our customers, we may be unable to adjust our cost structure to compete profitably and retain those customers.

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If we are unable to change our cost structure and pricing practices rapidly enough to successfully compete in that environment, our business, financial condition and results of operations may be adversely affected.

Climate change, or the legal, regulatory or market measures being implemented to address climate change, may have an adverse impact on our business.

The effects of climate change may create financial and operational risks to our business, both directly and indirectly.

There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (GHG) emissions, energy usage and sustainability efforts.

Increased compliance costs and expenses due to the impacts of climate change on our business, as well as additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other GHG emissions on the environment, may cause disruptions in, or an increase in the costs associated with, the running of our business, particularly with regard to our distribution and supply chain operations.

Moreover, compliance with any such legal or regulatory

requirements may require that we implement changes to our business operations and strategy, which would require us to devote substantial time and attention to these matters and cause us to incur additional costs.

The effects of climate change, and legal or regulatory initiatives to address climate change, could have a long-term adverse impact on our business and results of operations.

In addition, from time to time we establish and publicly announce goals and commitments related to corporate social responsibility matters, including those related to reducing our impact on the environment.

For example, in 2022, we established goals for the reduction of GHG emissions, which include a target of reducing our absolute Scope 1 and 2 GHG emissions by 32.5% by 2032 from a 2019 base year.

Our ability to meet this and other related goals depends in part on significant technological advancements with respect to the development and availability of reliable, affordable and sustainable alternative solutions, including electric and other alternative fuel vehicles as well as alternative energy sources, which may not be developed or be available to us in the timeframe needed to achieve these goals.

In addition, we may determine that it is in our best interests to prioritize other business, social, governance or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors, business strategy or other factors.

If we do not meet our publicly stated goals, then we may experience a negative reaction from the media, stockholders, activists and other interested stakeholders, and any perception that we have failed to act responsibly regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation.

While we remain committed to being responsive to climate change and reducing our carbon footprint, there can be no assurance that our goals and strategic plans to achieve those goals will be successful, that the costs related to climate transition will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our business, financial condition and results of operations.

Impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets could adversely affect the Company’s financial condition and results of operations.

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We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined, which would negatively affect our results of operations.

For example, the Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of July 4, 2021, the first day of the third quarter of fiscal year 2021.

As a result of rebranding initiatives related to the integration of a trade name acquired as part of the 2019 Food Group acquisition, we recognized an impairment charge of $7 million.

Impairment analysis requires significant judgment by management and is sensitive to changes in key assumptions used, such as future cash flows, discount rates and growth rates as well as current market conditions in both the United States and globally, all of which are being unfavorably impacted by the ongoing COVID-19 pandemic.

To the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from

management’s expectations, it may be necessary to record additional future impairment charges, which could be material.

For more information on the goodwill assessment and related impairment charge, see the section captioned “Valuation of Goodwill and Other Intangible Assets” in Item 7.

For example, the Company completed its most recent annual impairment assessment for goodwill and indefinite-lived intangible assets as of the first day of the third quarter of fiscal year 2022 with no impairments noted.

To the extent that business conditions deteriorate further, or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional future impairment charges, which could be material.

For more information on the goodwill assessment, see the section captioned “Valuation of Goodwill and Other Intangible Assets” in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 9, Goodwill and Other Intangibles, in our consolidated financial statements.

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Our business is subject to significant governmental regulation, and failure to comply with applicable governmental regulations may lead to lawsuits, investigations and other liabilities and restrictions on our operations.

In the course of our operations, we process, handle, store and transport a wide variety of food and non-food products, operate and maintain vehicle fleets, operate forklifts, store fuel in on-site aboveground and underground storage tanks, and use and dispose of hazardous substances including in connection with our use of our ammonia or freon-based refrigeration systems, propane, and battery-powered forklifts.

Our operations are subject to a broad range of laws and regulations including regulations governing the processing, packaging, storage, distribution, marketing, advertising, labeling, quality and safety of our food products, as well as rights of our employees and the protection of the environment.

Changes in legal or regulatory requirements (such as new food safety requirements, revised regulatory requirements for the processing and packaging of food products and requirements to phase-out of certain ozone-depleting substances or otherwise regulating greenhouse gas emissions), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations including costs to upgrade or replace products or equipment that could adversely affect our business, financial condition and results of operations.

In the course of our operations, we process, handle, store and transport a wide variety of food and non-food products, operate and maintain vehicle fleets, operate forklifts and other equipment, store fuel in on-site aboveground and underground storage tanks, and sell, use and dispose of hazardous substances including in connection with our use of our ammonia or freon-based refrigeration systems, propane, and battery-powered forklifts.

Our operations are subject to a broad range of laws and regulations including regulations governing the processing, packaging, storage, distribution, marketing, advertising, labeling, transportation, export, quality and safety of our food and non-food products, as well as rights of our employees and the protection of the environment.

Changes in legal or regulatory requirements (such as new product safety requirements, revised regulatory requirements for the sourcing, processing and packaging of products, and requirements to restrict or phase-out certain chemicals and ozone-depleting substances or otherwise regulating greenhouse gas emissions), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations including costs to upgrade, phase out, modify or replace products or equipment that could adversely affect our business, financial condition and results of operations.

Our product suppliers are also subject to various laws and regulations and their alleged noncompliance with applicable laws and regulations could create potential liability or other adverse impacts for our business.

We generally seek contractual representations and warranties from suppliers that they comply with all applicable laws and regulations and we maintain supplier policies requiring their ongoing compliance with applicable laws and regulations as well.

We are subject to governmental regulation regarding our relationship with our employees including minimum wage, overtime, wage payment, wage and hour, employment discrimination, harassment and immigration.

Due to contracts we have with federal and state governmental entities as customers, we are subject to audits of, or requests for information regarding, our employment practices and business operations.

Due to contracts we have with federal and state governmental entities as customers, we are subject to various disclosure obligations related to our employment practices and business operations, including the recent implementation of requirements to disclose information related to our greenhouse gas emissions, all of which are subject to audit.

In addition, in response to the COVID-19 pandemic, the CDC, OSHA and various other federal, state, and local authorities have issued guidance, new interpretations of existing requirements, and implemented new requirements for employers that affect the operation of our facilities and the management of our workforce.

The various federal, state and local requirements and guidance continue to evolve, but we are continually monitoring for updates and responding to updated requirements and guidance applicable to our business as we become aware of them.

At several current and former facilities, we are investigating and remediating known or suspected contamination from historical releases of fuel and other hazardous substances that is not currently the subject of any administrative or judicial proceeding, but we may be subject to administrative or judicial proceedings in the future for contamination related to releases of fuel or other hazardous substances.

The various federal, state and local requirements and guidance impacting our business continue to evolve, but we are continually monitoring for updates and responding to updated requirements and guidance applicable to our business as we become aware of them.

At various facilities, we are investigating and remediating known or suspected contamination from historical releases of fuel and other hazardous substances that is not currently the subject of any administrative or judicial proceeding, but we may be subject to administrative or judicial proceedings in the future for contamination related to releases of fuel or other hazardous substances.

Failing to comply with applicable legal and regulatory requirements, or encountering disagreements with respect to our contracts subject to governmental regulation, could result in a number of adverse situations.

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If the products we distribute are alleged to cause injury, illness or other damage or to fail to comply with applicable governmental regulations, we may need to recall products.

As a distributor and manufacturer of food and non-food products, we may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute or manufacture are alleged to cause injury, illness or other damage, to have been mislabeled, misbranded or adulterated or to otherwise violate applicable governmental regulations.

As a distributor and manufacturer of food and non-food products, we may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute or manufacture are alleged to cause injury, illness or other damage, to be mislabeled, misbranded, or adulterated, or to otherwise violate applicable governmental regulations.

We may recall products based on alleged occurrences of food-borne illnesses (such as E.

coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis, salmonella or swine flu) and food tampering.

coli, listeriosis, hepatitis A, trichinosis, salmonella, etc.), contamination, adulteration, mislabeling, misbranding, or food tampering.

We may also choose to voluntarily recall or withdraw products that we determine do not satisfy our quality standards, whether for taste, appearance or otherwise, in order to protect our brand and reputation.

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We also generally seek contractual indemnification and insurance coverage from parties supplying products to us.

If our current insurance does not continue to be available at a reasonable cost or is inadequate to cover all of our liabilities, or if our indemnification or insurance

coverage is limited, as a practical matter, by the creditworthiness of the indemnifying party or the insured limits of our suppliers’ insurance coverage, the liability related to allegedly defective products that we distribute or manufacture could adversely affect our business, financial condition and results of operations.

Negative publicity may adversely impact our reputation and business.

Maintaining a good reputation and the safety and integrity of the products we distribute is critical to our business, particularly in selling our private label products.

Product recalls, occurrences of food-borne illness or food tampering may cause negative publicity about the quality, safety, sustainability or integrity of our products, whether or not such events are related to our products.

If our current insurance does not continue to be available at a reasonable cost or is inadequate to cover all of our liabilities, or if our indemnification or insurance coverage is limited, as a practical matter, by the creditworthiness of the indemnifying party or the insured limits of our suppliers’ insurance coverage, the liability related to allegedly defective products that we distribute or manufacture could adversely affect our business, financial condition and results of operations.

Negative publicity from product recalls, instances of food-borne illness, or alleged food tampering may adversely impact our reputation and business.

Ensuring the safety and integrity of the products we distribute is critical to our business, particularly in selling our private label products, and to maintaining our good reputation.

Events like product recalls, occurrences of food-borne illness, or alleged food tampering may cause negative publicity about the quality, safety, sustainability or integrity of our products, whether or not such events are related to our products.

Any event that damages our reputation or calls into question the safety or integrity of our products, whether justified or not, could quickly and negatively affect our business, financial condition and results of operations.

Risks Relating to Human Capital Management

We face risks related to labor relations, increased labor costs and the availability of qualified labor.

We employed approximately 29,000 associates as of December 31, 2022, of which approximately 6,100 were members of local unions associated with the International Brotherhood of Teamsters and other labor organizations.

Any failure to effectively negotiate CBAs could result in work stoppages.

From time to time, we may face 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, possibly delaying deliveries, or not allowing customers to purchase our products, causing customers to seek alternative distributors or retail locations, or otherwise being materially adversely affected by labor disputes.

When there are labor related issues at a facility represented by a local union, sympathy strikes may occur at other facilities that are represented by other local unions.

While we generally believe we have good relations with our associates, including the unions that represent some of our associates, a work stoppage due to a failure to renegotiate union contracts or for other reasons could have a material adverse effect on our business, financial condition and results of operations.

Further, potential changes in labor legislation and case law could result in current non-union portions of our workforce, including warehouse and delivery personnel, being subjected to greater organized labor influence.

If additional portions of our workforce became subject to CBAs, this could result in increased costs of doing business as we would become 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 industry’s labor costs are, as a percentage of net sales, higher than many other industries’ labor costs, even if we are able to successfully renegotiate CBAs and avoid work stoppages, we may be significantly impacted by labor cost increases, which could adversely affect our results of operations.

Furthermore, our recruiting and retention efforts and efforts to increase productivity may not be successful and we could encounter a shortage of qualified labor in future periods.

Any such shortage would decrease our ability to serve our customers effectively and would also likely lead to higher wages for employees and a corresponding reduction in our profitability.

The current competitive labor market has impacted our ability to hire and retain qualified labor, particularly warehouse workers and drivers, in certain geographies, resulting in increases to temporary contract labor costs and associated travel expenses for fiscal 2022.

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 wage inflation, increases in minimum wage requirements or labor shortages resulting in increased overtime, could reduce the profitability of our customers and reduce their demand for our products.

We may be unable to attract or retain a qualified and diverse workforce.

Although we have not experienced any material labor shortage to date, during 2022, we observed overall tightening and increased competitiveness in the labor market.

A labor shortage or increased employee turnover, caused by general macroeconomic factors, could potentially increase labor costs, reduce our profitability and/or decrease our ability to effectively serve customers.

If a material number of our employees are unable to work or terminate their employment, or become ill at one point in time, our business operations may be adversely affected.

The success of our business depends on our ability to attract, train, develop and retain a highly skilled and diverse workforce.

We rely heavily on our front-line associates, particularly warehouse workers and drivers, and any significant shortage of qualified labor amongst our front-line associates could significantly affect our business.

Recruiting and retention efforts (particularly with respect to driver and warehouse personnel) and actions to increase productivity may not be successful, and we could encounter a shortage of qualified employee talent in the future.

Shortages of, and increased competition for, qualified employees may result in increased labor costs and could decrease our ability to serve our customers effectively.

Additionally, if our employees are unable to work for any reason, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with any future pandemics, we could face additional shortages of qualified labor and higher labor costs.

Any prolonged labor shortage or period of high employee turnover could have a negative impact on our productivity and have an adverse effect on our business operations and financial condition.

Furthermore, as a government contractor, we are subject to oversight by the Department of Labor’s Office of Federal Contract Compliance Programs, which reviews our employment practices including affirmative action and non-discrimination based on race, sex and disability, among other characteristics.

If an audit or investigation reveals a failure to comply with regulations, we could become subject to civil or criminal penalties and/or administrative sanctions, including government pre-approval of our government contracting activities, termination of government contracts, and suspension or debarment from doing further business with the U.S.

government and could also be subject to claims for breach of contract by our customers.

Any of these actions could increase our expenses, reduce our revenue and damage our reputation as a reliable government supplier.

Risks Relating to Our Indebtedness

Our level of indebtedness may adversely affect our financial condition and our ability to raise additional capital or obtain financing in the future, react to changes in our business, and make required payments on our debt.

We had $5.0 billion of indebtedness outstanding, as of January 1, 2022.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt facilities depends on our ongoing financial and operating performance, among other things, and may be affected by economic, financial and industry conditions beyond our control, including as discussed under the caption “Risks Related to Our Business and Industry” above.

We had $4.9 billion of indebtedness outstanding, as of December 31, 2022.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt facilities depend on our ongoing financial and operating performance, among other things, and may be affected by economic, financial and industry conditions beyond our

control, including as discussed under the caption “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.

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• a substantial portion of our cash flows from operations may be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available for other purposes, including working capital, capital expenditures, acquisitions and general corporate purposes;

• we are exposed to the risk of increased interest rates because approximately 47% of the net principal amount of our indebtedness accrued interest at variable rates of interest as of January 1, 2022;

• we are exposed to the risk of increased interest rates because approximately 42% of the net principal amount of our indebtedness accrued interest at variable rates of interest as of December 31, 2022;

• it may be difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

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engage in certain business combination transactions;

engage in certain transactions with

engage in certain transactions with affiliates;

change the business we conduct;

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This could have serious consequences to our business, financial condition and results of operations and could cause us to become bankrupt or insolvent.

Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect the cost of servicing our debt.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced that it intends to phase out the use of LIBOR by the end of 2021.

On March 5, 2021, the Intercontinental Exchange Benchmark Administration (“IBA”), the administrator of LIBOR, announced that it will cease publication of U.S.

dollar LIBOR tenors as of June 30, 2023, for the most common tenors (overnight and one, three, six and twelve months) and it will cease publication of U.S.

The replacement of LIBOR with an alternative reference rate, may adversely affect the cost of servicing our debt.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced that its intention to phase out the use of LIBOR by the end of 2021.

On March 5, 2021, the Intercontinental Exchange

Benchmark Administration (“IBA”), the administrator of LIBOR, announced that it will cease publication of U.S.

dollar LIBOR tenors as of June 30, 2023, for the most common tenors (overnight and one, three, six and twelve months) and it has already ceased publication of U.S.

dollar LIBOR tenors for less common tenors (one week and two months) as well as all tenors of non-U.S.

dollar LIBOR as of December 31, 2021.

Amounts drawn under each of our ABL Facility and incremental senior secured term loan facilities may bear interest at rates based upon, among other things, U.S.

Currently, amounts drawn under our senior secured term loan facility may bear interest at rates based upon, among other things, U.S.

dollar LIBOR.

As such, we will need to renegotiate certain standards in, or terms of the agreements governing this indebtedness to replace U.S.

dollar LIBOR with a new standard, or we may be required to borrow this indebtedness based upon alternate interest rate conventions as set forth in those agreements, which could increase the cost of servicing this debt and have an adverse effect on our business, financial condition and results of operations.

Risks Relating to Human Capital Management

We face risks related to labor relations and increases in labor costs.

We employed approximately 28,000 associates as of January 1, 2022, of which approximately 5,900 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.

From time to time, we may face 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, possibly delaying deliveries, causing customers to seek alternative distributors, or otherwise being materially adversely affected by labor disputes.

When there are labor related issues at a facility represented by a local union, sympathy strikes may occur at other facilities that are represented by other local unions.

We are subject to a wide range of labor costs.

Labor shortages, low levels of unemployment or decreasing workforce availability in the United States, and resulting wage inflation and/or increased overtime, could adversely affect our results of operations.

In addition, labor is a significant cost of many of our customers in the U.S.

food away from home industry.

We may be unable to attract or retain a qualified and diverse workforce.

Although we have not experienced any material labor shortage to date, we have recently observed tightening and increased competitiveness in the labor market.

A labor shortage or increased employee turnover, caused by the COVID-19 pandemic or other general macroeconomic factors, could potentially increase labor costs, reduce our profitability and/or decrease our ability to effectively serve customers.

If a material number of our employees are unable to work or terminate their employment, or become ill as a result of the COVID-19 pandemic, our business operations may be adversely affected.

The success of our business depends on our ability to attract, train, develop and retain a highly skilled and diverse workforce.

Shortages of, and increased competition for, qualified employees may result in increased labor costs.

Additionally, productivity may be negatively impacted by labor shortages or high employee turnover.

Any prolonged labor shortage or period of high employee turnover could adversely affect our business operations.

government and could also be subject to claims for breach of contract by our customers.

Any of these actions could increase our expenses, reduce our revenue and damage our reputation as a reliable government supplier.

Risks Relating to Intellectual Property, Technology and Information Security

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.

We consider our intellectual property rights, particularly our trademarks, to be a valuable aspect of our business.

We protect our intellectual property rights through a combination of trademark, copyright and trade secret protection.

Our failure to obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results.

Competing intellectual property claims that impact our brands may arise unexpectedly.

Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations.

We also may be subject to significant damages or injunctions against development, launch and sale of certain products.

Any of these occurrences may harm our business, financial condition and results of operations.

As such, we will need to renegotiate certain terms of the agreement governing this indebtedness to replace U.S.

dollar LIBOR with a new standard, or we may be required to borrow this indebtedness based upon alternate interest rate conventions as set forth in that agreement, which could increase the cost of servicing this debt and have an adverse effect on our business, financial condition and results of operations.

As a replacement rate, many lenders are instead using the Secured Overnight Financing Rate (“SOFR”) and our ABL Facility was recently amended to replace U.S.

dollar LIBOR with SOFR as a reference rate.

SOFR is a relatively new reference rate and has a very limited history.

The future performance of SOFR cannot be predicted based on its limited historical performance.

Since the initial publication of SOFR in April 2018, changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates, such as U.S.

dollar LIBOR.

Additionally, any successor rate to SOFR under the ABL Facility may not have the same characteristics as SOFR or LIBOR.

As a result, the consequences of the phase-out of LIBOR cannot be entirely predicted at this time.

Risks Relating to Technology, Information Security and Intellectual Property

We rely heavily on technology, and we may experience a disruption in existing technology or delay in effectively implementing new technology.

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.

Our ability to serve customers most effectively, as well as to control costs and maximize profits, 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 purchasing, order processing, warehouse/inventory management, truck loading and logistics and optimization of storage space.

We also rely on access to those systems online including through mobile devices to connect with our employees, customers, suppliers and other business partners.

The importance of such networks and systems has increased due to many of our employees, and the employees of our customers, suppliers and business partners, working remotely as a result of the COVID-19 pandemic.

The importance of such networks and systems has increased due to many of our employees, and the employees of our customers, suppliers and business partners, working remotely.

Any disruption to this information technology could negatively affect our customer service, decrease the volume of our business, impair operations and profits and result in increased costs.

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We rely upon information technology networks and systems, some of which are outsourced to and managed by third parties, to process, transmit and store electronic information, to manage our data, communications and business processes, including our marketing, sales, manufacturing, procurement, logistics, customer service, accounting and administrative functions.

Our reliance on such networks and systems has increased due to many of our employees, and the employees of our customers, suppliers and business partners, working remotely as a result of the COVID-19 pandemic.

Our reliance on such networks and systems has increased due to many of our employees, and the employees of our customers, suppliers and business partners, working remotely.

The use of these networks and systems gives rise to cybersecurity risks, and the risk of other security breaches (including access to or acquisition of supplier, customer, employee or other confidential information).

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Cyberattacks have been occurring globally at a more frequent rate and are rapidly and continually evolving, making them more difficult to detect and protect against.

While cyber-attackers have threatened and attempt to breach our security and access the information stored in our information systems, no incident has been material or had a material impact on our business or financial condition.

Additionally, continued geopolitical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of cyberattacks.

While cyberattackers have threatened and attempt to breach our security and access

the information stored in our information systems, no incident has been material or had a material impact on our business or financial condition.

There is a risk that we may incur significant costs in protecting against or remediating cyberattacks or other cyber incidents.

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In addition, in the event our suppliers or customers experience a breach or system failure, cyberattack or other security breach, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business, financial condition and results of operations.

Our intellectual property rights are valuable, and any failure to protect them could reduce the value of our products and brands.

We consider our intellectual property rights, particularly our trademarks, to be a valuable aspect of our business.

We protect our intellectual property rights through a combination of trademark, copyright and trade secret protection.

Competing intellectual property claims that impact our brands may arise unexpectedly.

Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of key personnel from our business operations.

We also may be subject to significant damages or injunctions against development, launch and sale of certain products.

Any of these occurrences may harm our business, financial condition and results of operations.

Risks Relating to Acquisitions

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Historically, a portion of our growth has come through acquisitions.

In September 2019, we completed the acquisition of the Food Group, which significantly expanded the Company’s network in the West and Northwest parts of the U.S.

In April 2020, we completed the acquisition of Smart Foodservice, which significantly expanded the Company’s cash and carry business in the West and Northwest parts of the U.S.

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Actions of activist stockholders could adversely impact our business and cause us to incur significant expenses.

We may be subject to actions or proposals from activist stockholders or others that may not be aligned with our long-term strategy or the interests of our other stockholders.

On February 15, 2022, Sachem Head Capital Management (“Sachem Head”) issued a press release disclosing its intent to nominate seven directors for election to the Company’s ten-member Board of Directors at the Company’s 2022 annual meeting of stockholders.

The Company’s response to suggested actions, proposals, director nominations and/or contests for the election of directors from Sachem Head or other activist stockholders could disrupt our business and operations, divert the attention of our Board of Directors, management and employees and be costly and time‐consuming.

Potential actions by Sachem Head or other activist stockholders may interfere with our ability to execute our strategic plans;

We have been, and may in the future be, subject to actions or proposals initiated by activist stockholders or others, and some such actions or proposals may not be aligned with our long-term strategy or the interests of our other stockholders.

In 2022, we engaged in extensive dialogue with Sachem Head Capital Management (“Sachem Head”) resulting in our entry into a cooperation agreement with Sachem Head in which we agreed on certain matters relating to our Board of Directors and our chief executive officer.

These discussions resulted in the expenditure of significant time and energy by management and our Board of Directors and required dedication by the Company of significant resources.

The Company’s response to suggested actions, proposals, director nominations and/or contests for the election of directors from activist stockholders could disrupt our business and operations, divert the attention of

our Board of Directors, management and employees and be costly and time consuming.

Potential actions by activist stockholders may interfere with our ability to execute our strategic plans;

create perceived uncertainties as to the future direction of our business or strategy;

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If the ultimate determination of these examinations is that taxes are owed by us for an amount in excess of amounts previously accrued, our business, financial condition and results of operations could be adversely affected.

The Company’s Amended and Restated Certificate of Incorporation includes a forum selection clause.

The Company’s Amended and Restated Certificate of Incorporation and Bylaws includes a forum selection clause.

The Company’s Amended and Restated Certificate of Incorporation requires that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee, agent or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company or director, officer, employee, agent or stockholder of the Company arising pursuant to any provision of the Delaware General Corporate Law, the Company’s Amended and Restated Certificate of Incorporation or the Bylaws of the Company, or (iv) any action asserting a claim against the Company or director, officer, employee, agent or stockholder of the Company governed by the internal affairs doctrine, in each case subject to the court having jurisdiction over indispensable parties named as defendants.

Moreover, under the Company’s Bylaws, unless we consent in writing to the selection of an alternative forum, the federal courts of the United States of America, to the fullest extent permitted by law, shall be the sole and exclusive forum for the resolution of any action asserting a cause of action arising under the Securities Act.

Any person or entity purchasing or otherwise acquiring any interest in our capital stock is deemed to have received notice of and consented to provisions of the forum selection clause.

The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees.

If a court were to find the choice of forum provision contained in the Company’s Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions.

If a court were to find the choice of forum provision contained in the Company’s Amended and Restated Certificate of Incorporation or Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions.

The nature of our operations may expose our associates and other individuals to health and safety risks, and as a result we may incur property, casualty or other losses not covered by our insurance policies and damage to our reputation.

The nature of our operations can expose our associates and other individuals, including the motoring public, to health and safety risks that may lead to severe injuries or even loss of life.

Such risks could expose us to the potential for litigation from third parties, and also could harm our reputation which may result in a reduction in customer demand.

Although we maintain insurance that we believe to be sufficient to cover estimated health and safety risks, including claims related to incidents within our operations, vehicle and driver related claims and other types of claims in various jurisdictions, there can be no assurance that such insurance will provide adequate coverage against all potential claims.

If we do not have adequate insurance coverage available, such claims could have a material adverse effect on our business, financial condition and 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 limit our ability to operate our business and adversely affect our financial condition and results of operations.

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Furthermore, extreme weather conditions may disrupt critical infrastructure in the United States and interrupt or impede access to our customers’ facilities, reduce the number of consumers who visit our customers’ facilities, interrupt our suppliers’ production or shipments or increase our suppliers’ product costs, all of which could have an adverse effect on our business, financial condition and results of operations.

In addition, our business could be affected by large-scale terrorist acts or the outbreak or escalation of armed hostilities (especially those directed against or otherwise involving the U.S.), the outbreak of food-borne illnesses, the widespread outbreak of infectious diseases, such as the COVID-19 pandemic, or the occurrence of other catastrophic events.

Any of these events could impair our ability to manage our business and/or cause disruption of economic activity, which could have an adverse effect on our business, financial condition and results of operations.

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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 1A. Risk Factors