US Foods Holding Corp. (USFD) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand the Company, our financial condition and results of operations and our present business environment. It should be read together with our consolidated financial statements and related notes contained elsewhere in this Annual Report. The following discussion and analysis contain certain financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the U.S. (“GAAP”). We believe these non-GAAP financial measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed in “Non-GAAP Reconciliations” below.

The following includes a comparison of our consolidated results of operations for fiscal years 2024 and 2023. For a comparison of our consolidated results of operations for fiscal years 2023 and 2022, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 15, 2024.

Overview

At US Foods, we strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers. This mission is supported by our strategy of WE HELP YOU MAKE IT™, which is centered on bringing four key elements to the forefront for our customers; (1) more quality products, including our large portfolio of exclusive brands, (2) more tools, centering on our MOXē business platform, (3) more support from our sellers and our team of experts and lastly, (4) more deliveries, enabled by our traditional broadline services and Pronto™ program. We operate as one business with standardized business processes, shared systems infrastructure, and an organizational model that optimizes national scale with local execution, allowing us to manage our business as a single operating segment. We have centralized activities where scale matters and our local field structure focuses on customer-facing activities. Net sales increased 6.4%, driven by case volume growth. Total case volumes increased 4.2% compared to the prior year driven by a 4.4% increase in independent restaurant case volume, a 5.7% increase in healthcare volume, a 2.1% increase in hospitality volume and a 3.2% increase in chain volume. Total organic case volume increased 1.4% which includes 2.6% organic independent restaurant case volume growth.

On June 5, 2024, the Company announced it intends to explore the potential sale of its assets and liabilities related to CHEF’STORE wholesale restaurant supply business and, if a sale is completed, then entirely focus on delivered broadline operations. As of December 28, 2024, the Company is in the process of exploring this sale which has not met held for sale criteria in the current year.

Operating Metrics

Case growth—Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time. Customers periodically are reclassified, based on changes in size or other characteristics, and when those changes occur, the respective customer’s historical volume is included within the new classification.

Organic growth—Organic growth includes growth from operating businesses that have been reflected in our results of operations for at least 12 months.

Fiscal Year 2024 Highlights

Financial Highlights—Total case volume increased 4.2% and independent restaurant case volume increased 4.4% in fiscal year 2024. Total organic case volume increased 1.4% in fiscal year 2024, and organic independent restaurant case volume increased 2.6%. Net sales increased $2,280 million, or 6.4%, in fiscal year 2024 driven primarily by case volume growth and food cost inflation of 2.6%.

Gross profit increased $386 million, or 6.3%, to $6,534 million in fiscal year 2024, primarily a result of an increase in total case volume, improved cost of goods sold and pricing optimization, partially offset by an unfavorable year-over-year LIFO adjustment. As a percentage of net sales, gross profit was 17.3% in fiscal year 2024 and 17.3% in fiscal year 2023.

Total operating expenses increased $304 million, or 5.9%, to $5,435 million in fiscal year 2024. The increase was primarily a result of an increase in total case volume, higher distribution costs, reflecting increased labor costs, partially offset by continued distribution productivity improvement as well as actions to streamline administrative processes and costs. As a percentage of net sales, operating expenses were 14.3% in fiscal year 2024, compared to 14.4% in fiscal year 2023.

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Results of Operations

The following table presents selected consolidated results of operations of our business for fiscal years 2024, 2023 and 2022:

(1)    EBITDA is defined as net income, plus interest expense—net, income tax provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for (1) restructuring costs and asset impairment charges; (2) share-based compensation expense; (3) the impact of LIFO reserve adjustments; (4) loss on extinguishment of debt; (5) business transformation costs; and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness. Adjusted EBITDA margin is Adjusted EBITDA divided by total net sales. Adjusted Net Income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted Net Income as presented in this Annual Report are supplemental measures of our performance that are not required by, or presented in accordance with GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

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(2)    Free Cash Flow is defined as cash flows provided by operating activities and proceeds from sales of property and equipment less cash capital expenditures. Free Cash Flow as presented in this Annual Report is a supplemental measure of our liquidity that is not required by, or presented in accordance with, GAAP. It is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities, or any other liquidity measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

Non-GAAP Reconciliations

We provide EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Free Cash Flow as supplemental measures to GAAP financial measures regarding our operating performance and liquidity. These non-GAAP financial measures, as defined above, exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP.

We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance.

We believe that Adjusted Net Income is a useful measure of operating performance for both management and investors because it excludes items that are not reflective of our core operating performance and provides an additional view of our operating performance including depreciation, interest expense and income taxes on a consistent basis from period to period. We believe that Adjusted Net Income may be used by investors, analysts and other interested parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends impact our operating performance.

Management uses these non-GAAP financial measures (1) to evaluate our historical and prospective financial performance as well as our performance relative to our competitors as they assist in highlighting trends, (2) to set internal sales targets and spending budgets, (3) to measure operational profitability and the accuracy of forecasting, (4) to assess financial discipline over operational expenditures, and (5) as an important factor in determining variable compensation for management and employees. EBITDA and Adjusted EBITDA are also used in connection with certain covenants and activity restrictions under the agreements governing our indebtedness. We also believe these and similar non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP.

We use Free Cash Flow as a supplemental measure to GAAP financial measures regarding the liquidity of our operations. We measure Free Cash Flow as cash flows provided by operating activities and proceeds from sales of property and equipment less cash capital expenditures. We believe that Free Cash Flow is a useful financial metric to assess our ability to pursue business opportunities and investments. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided by operating activities or any other liquidity measures derived in accordance with GAAP.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Free Cash Flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted Net Income or Free Cash Flow in the same manner. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

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The following table reconciles EBITDA, Adjusted EBITDA, Adjusted Net Income and Free Cash Flow to the most directly comparable GAAP financial performance and liquidity measures for the periods indicated:

(1)    Consists primarily of severance and related costs, organizational realignment and asset impairment charges.

(2)    Share-based compensation expense for expected vesting of stock awards and employee stock purchase plan.

(3)    Represents the impact of LIFO reserve adjustments.

(4)    Includes early redemption premium and the write-off of certain pre-existing debt issuance costs. See Note 10, Debt, in our consolidated financial statements for additional information.

(5)    Recognition of net actuarial loss for pension settlement represents non-recurring expense for the termination of certain defined benefit plans.

(6)    Transformational costs represent non-recurring expenses prior to formal launch of strategic projects with anticipated long-term benefits to the Company. These costs generally relate to third party consulting and non-capitalizable technology. For fiscal year 2024, business transformation costs related to projects associated with information technology infrastructure initiatives and related workforce efficiencies. For fiscal year 2023, business transformation costs related to projects associated with information technology infrastructure initiatives.

(7)    Includes: (i) aggregate acquisition, integration related costs and planned divestiture costs of $22 million for fiscal year 2024, $41 million for fiscal year 2023 and $22 million for fiscal year 2022 (ii) CEO sign on bonus of $3 million for fiscal year 2023 (iii) contested proxy and related legal and consulting costs of $21 million for fiscal year 2022; (iv) CEO severance of $5 million for fiscal year 2022; and (v) other gains, losses or costs that we are permitted to add back for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

(8)    Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. Applicable discrete tax items include changes in tax laws or rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, and excess tax benefits associated with share-based compensation. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using a statutory tax rate after taking into account the impact of permanent differences and valuation allowances.

A reconciliation between the GAAP income tax provision and the income tax provision, as adjusted, is as follows:

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Comparison of Results

Fiscal Years Ended December 28, 2024 and December 30, 2023

Highlights

•Net sales increased $2,280 million, or 6.4% to $37,877 million in fiscal year 2024.

•Total case volume increased 4.2% and independent restaurant case volume increased 4.4% in fiscal year 2024.

•Total organic case volume increased 1.4% and organic independent restaurant case volume increased 2.6%.

•Operating income increased $82 million to $1,099 million in fiscal year 2024.

•Net income available to common shareholders decreased $5 million to $494 million in fiscal year 2024.

•Adjusted EBITDA increased $182 million, or 11.7%, to $1,741 million in fiscal year 2024. As a percentage of net sales, Adjusted EBITDA was 4.6% in fiscal year 2024, as compared to 4.4% in fiscal year 2023.

Net Sales

Net sales increased $2,280 million, or 6.4%, to $37,877 million in fiscal year 2024 driven by case volume growth and food cost inflation of 2.6%. Total case volume increased 4.2% driven by a 4.4% increase in independent restaurant case volume, a 5.7% increase in healthcare volume, a 2.1% increase in hospitality volume and a 3.2% increase in chain volume. Organic broadline sales of private brands represented approximately 34% of net sales in both 2024 and 2023.

Gross Profit

Gross profit increased $386 million, or 6.3%, to $6,534 million in fiscal year 2024, primarily as a result of an increase in total case volume, improved cost of goods sold and pricing optimization, partially offset by an unfavorable year-over-year LIFO adjustment. Our LIFO method of inventory costing resulted in an expense of $61 million in fiscal year 2024, compared to a gain of $1 million in fiscal year 2023. Gross profit as a percentage of net sales was 17.3% in fiscal years 2024 and 2023.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs and restructuring activity and asset impairment charges, increased $304 million, or 5.9%, to $5,435 million in fiscal year 2024. Operating expenses increased primarily as a result of an increase in total case volume, higher distribution costs, reflecting increased labor costs, partially offset by continued distribution productivity improvement as well as actions to streamline administrative processes and costs. Operating expenses as a percentage of net sales were 14.3% in fiscal year 2024, compared to 14.4% in fiscal year 2023.

Operating Income

Our operating income was $1,099 million in fiscal year 2024, compared to operating income of $1,017 million in fiscal year 2023. Operating income as a percentage of net sales was 2.9% in fiscal year 2024 and 2.9% in fiscal year 2023. The increase in operating income was due to the factors discussed in the relevant sections above.

Other Expense (Income)—Net

Other expense (income)—net includes components of net periodic benefit costs (credits), exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other expense—net of $6 million in 2024 and other income—net of $6 million in 2023, respectively. Other expense—net is due to a increase in the pension benefit interest cost and a decrease in the expected return on assets compared to fiscal year 2023.

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Interest Expense—Net

Interest expense—net decreased $9 million in fiscal year 2024, primarily due to lower outstanding debt in 2024 compared to 2023.

Loss on Extinguishment of Debt

We recognized a loss on extinguishment of debt of $10 million in fiscal year 2024 due to the amendment of the Company’s Incremental Term Loan Facility due September 13, 2026 (the “2024 Incremental Term Loan Facility”) and repricing of the Company’s Incremental Term Loan Facility due November 22, 2028 (the “2021 Incremental Term Loan Facility”).

We recognized a loss on extinguishment of debt of $21 million in fiscal year 2023 due to the repayment of the Company’s 6.25% senior secured notes due April 15, 2025 (the “Secured Senior Notes due 2025”).

Recognition of Net Actuarial Loss for Pension Settlement

We recognized a net actuarial loss for pension settlement of $124 million in fiscal 2024 due to a termination of certain defined benefit plans. We did not recognize any net actuarial loss for pension settlement in fiscal year 2023.

Income Taxes

Our effective income tax rate for fiscal year 2024 of 23% varied from the 21% federal corporate income tax rate, primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included an aggregate tax benefit of $24 million consisting of a tax benefit of $17 million primarily related to a decrease in an unrecognized tax benefit as a result of the expiration of the statute of limitations in several jurisdictions, a tax benefit of $9 million primarily related to excess tax benefits associated with share-based compensation, and a tax expense of $2 million, primarily related to adjustments to prior year tax provision estimates.

Our effective income tax rate for fiscal year 2023 of 25% varied from the 21% federal corporate income tax rate, primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included an aggregate tax benefit of $11 million consisting of a tax benefit of $5 million related to excess tax benefits associated with share-based compensation, a tax benefit of $3 million related to a decrease in an unrecognized tax benefit, and a tax benefit of $3 million, primarily related to adjustments to prior year tax provision estimates.

Net Income

Our net income available to common shareholders was $494 million in fiscal year 2024, compared to a net income available to common shareholders of $499 million in fiscal year 2023. The decrease in net income available to common shareholders was due to the relevant factors discussed above.

Liquidity and Capital Resources

Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements. As of December 28, 2024, the Company had approximately $1.5 billion in cash and available liquidity.

Indebtedness

The aggregate carrying value of our indebtedness was $4,928 million, net of $28 million of unamortized deferred financing costs, as of December 28, 2024.

We had $223 million outstanding borrowings and had issued letters of credit totaling $592 million under the ABL Facility as of December 28, 2024. There was remaining capacity of $1,485 million under the ABL Facility based on our borrowing base as of December 28, 2024.

The Company’s 6.875% Senior Notes due 2028 (the “Unsecured Senior Notes due 2028”) had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of December 28, 2024.

The Company’s 4.750% Senior Notes due 2029 (the “Unsecured Senior Notes due 2029”), had an outstanding balance of $895 million, net of $5 million of unamortized deferred financing costs, as of December 28, 2024.

The Company’s 4.630% Senior Notes due 2030 (the “Unsecured Senior Notes due 2030”) had an outstanding balance of $497 million, net of $3 million of unamortized deferred financing costs, as of December 28, 2024.

The Company’s 7.250% Senior Notes due 2032 (the “Unsecured Senior Notes due 2032”) had an outstanding balance of $496 million, net of $4 million of unamortized deferred financing costs, as of December 28, 2024.

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The Company’s 5.75% Senior Notes due 2033 (the “Unsecured Senior Notes due 2033”) had an outstanding balance of $496 million net of $4 million of unamortized deferred financing costs, as of December 28, 2024.

The 2021 Incremental Term Loan Facility had a carrying value of $610 million, with no unamortized deferred financing costs, as of December 28, 2024.

The 2024 Incremental Term Loan Facility borrowed in October 2024 had a carrying value of $717 million, net of $8 million of unamortized deferred financing costs, as of December 28, 2024.

The Amended and Restated Term Loan Credit Agreement, dated as of June 27, 2016 (as amended, the “Term Loan Credit Agreement”) provides USF with the 2021 Incremental Term Loan Facility and the 2024 Incremental Term Loan Facility.

We also had $490 million of obligations under financing leases for transportation equipment and building leases as of December 28, 2024.

The ABL Facility will mature in 2027. The 2021 Incremental Term Loan Facility and the 2024 Incremental Term Loan Facility will mature in 2028 and 2031, respectively. As economic conditions permit, we will consider opportunities to repurchase, refinance or otherwise reduce our debt obligations on favorable terms. Any potential debt reduction or refinancing could require significant use of our available liquidity and capital resources.

We believe that the combination of 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 as well as beyond 12 months.

The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on our assets, pay dividends, or engage in mergers or consolidations. For additional information, see Item 1A of Part I, “Risk Factors-Risks Relating to Our Indebtedness.” The Company had approximately $2.4 billion of restricted payment capacity under these covenants and approximately $2.1 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of December 28, 2024.

Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to provide us with funding. We are not aware of any facts that indicate our lenders will not be able to comply with the contractual terms of their agreements with us. We continue to monitor the credit markets generally and the strength of our lender counterparties.

From time to time, we may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our leverage. These actions may include open market repurchases, negotiated repurchases, and other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, our debt trading levels, our cash position, and other considerations. Any potential debt reduction or other debt retirement could require significant use of our other available liquidity and capital resources.

See Note 10, Debt, in our consolidated financial statements for a further description of our indebtedness.

Cash Flows

The following table presents condensed highlights from our Consolidated Statements of Cash Flows for fiscal years 2024 and 2023:

Operating Activities

Cash flows provided by operating activities increased $34 million to $1,174 million in fiscal year 2024 driven by changes in operating assets and liabilities. Net cash provided by operating activities in fiscal year 2023 benefited from higher net income and changes in operating assets and liabilities.

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Investing Activities

Cash flows used in investing activities in fiscal years 2024 and 2023 included cash expenditures of $341 million and $309 million, respectively, and related to investments in information technology, new construction and expansion of distribution facilities and property and equipment for fleet replacement. Cash flows used in investing activities in fiscal year 2024 also included $214 million cash purchase price for the acquisition of IWC Food Service. Cash flows used in investing activities in fiscal year 2023 also included $140 million cash purchase price for the acquisition of Renzi Food Service and $56 million cash purchase price for the acquisition of Saladino’s.

We expect total cash capital expenditures in fiscal year 2025 to be between $375 million and $425 million. We expect to fund our capital expenditures with available cash or cash generated from operations and through fleet financing.

Financing Activities

Cash flows used in financing activities in fiscal year 2024 included $112 million of scheduled payments under our Term Loan Facilities and financing leases, $1,217 million for repayment of the 2019 Incremental Term Loan Facility and paydown of the 2021 Incremental Term Loan Facility, $14 million in principal payments for the repricing of the 2021 Incremental Term Loan Facility and $13 million of financing fees related to the repayment of the 2019 Incremental Term Loan Facility and the 2021 Incremental Term Loan Facility repricing, $223 million in net proceeds under the ABL Facility, $725 million from the 2024 Incremental Term Loan Facility issuance and $500 million from the 2033 Unsecured Senior Note issuance. Financing activities in fiscal year 2024 also included $948 million of common stock repurchased, exclusive of approximately $10 million of fees, commissions and the related 1% of excise tax under the Amended Share Repurchase Program, $28 million of proceeds received from stock purchases under our employee stock purchase plan and $15 million of proceeds from the exercise of employee stock options, which were offset by $21 million of employee tax withholdings paid in connection with the vesting of stock awards.

We incurred approximately $5 million of lender fees and third-party costs in connection with our issuance of the 2033 Unsecured Senior Notes, which were capitalized as deferred financing costs. We incurred approximately $8 million total of lender fees and third-party costs in connection with the repayment of the 2019 Incremental Term Loan Facility, consisting of a $2 million original issue discount fee related to the 2019 Incremental Term Loan Facility and $6 million of costs associated related to the issuance of the 2024 Incremental Term Loan Facility of which $5 million was capitalized as deferred financing costs. We incurred approximately $1 million total of lender fees and third-party costs in connection with the repricing of the 2021 Incremental Term Loan Facility, which were capitalized as deferred financing costs.

Cash flows used in financing activities in fiscal year 2023 included $125 million of scheduled payments under our Term Loan Facilities and financing leases, $1 billion for refinancing of the Secured Senior Notes due 2025, $10 million of financing fees related to the refinancing, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $120 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $3 million associated with interest rate cap purchases and $7 million of dividends on our Series A Preferred Stock. Financing activities in fiscal year 2023 also included $294 million of common stock repurchased under the Original Share Repurchase Program, $24 million of proceeds received from stock purchases under our employee stock purchase plan and $26 million of proceeds from the exercise of employee stock options, which were offset by $12 million of employee tax withholdings paid in connection with the vesting of stock awards.

We incurred approximately $26 million of lender fees and third-party costs in connection with our issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, consisting of a $16 million prepayment premium related to the Secured Senior Notes due 2025 and $10 million of costs associated with the issuance of the Unsecured Senior Notes due 2028 and the Unsecured Senior Notes due 2032, which were capitalized as deferred financing costs. We incurred approximately $1 million total of lender fees and third-party costs in connection with the repricing of the 2021 Incremental Term Loan Facility, which were capitalized as deferred financing costs.

Other Obligations and Commitments

The Company’s cash requirements within the next twelve months include the current portion of long-term debt, accounts payable and accrued liabilities, other current liabilities, and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily generated through a combination of cash from operations and access to capital from financial markets. Our long-term cash requirements under our various contractual obligations and commitments include:

•Debt, including financing lease obligations – See Note 10, Debt, in our consolidated financial statements for further detail of our debt and the timing of expected future principal payments.

•Operating and finance lease obligations – See Note 16, Leases, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

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•Pension plans and other postretirement benefit contributions – We sponsor a defined benefit plan that pays benefits to eligible employees at retirement. On October 31, 2024, the Company terminated and settled the majority of the defined benefit plan. In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents. See Note 17, Retirement Plans, in our consolidated financial statements for further detail of our obligations and the timing of expected future payments.

•Self-insured liabilities – We are self-insured for general liability, fleet liability and workers’ compensation claims. Claims in excess of certain levels are insured by external parties. See Note 11, Accrued Expenses and Other Long-Term Liabilities, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

•Purchase and Other Obligations – The Company enters into purchase orders with vendors and other parties in the ordinary course of business and has a limited number of purchase contracts with certain vendors that require it to buy a predetermined volume of products. Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2029. See Note 21, Commitments and Contingencies, in our consolidated financial statements for further detail of our obligations and the expected timing of expected future payments.

We believe the following sources will be sufficient to meet our anticipated cash requirements for at least the next twelve months, while maintaining sufficient liquidity for normal operating purposes:

•Our cash flow from operations;

•The availability of additional capital under our existing ABL Facility; and

•Our availability to access capital from financial markets.

Retirement Plans

We sponsor a defined benefit plan that pays benefits to eligible participants at retirement. Only certain union associates are eligible to participate and continue to accrue benefits under the plan per the collective bargaining agreements. The plan is closed and frozen to all other employees. In addition, we provide certain postretirement health and welfare benefits to eligible retirees and their dependents. On October 31, 2024, the Company terminated and settled the majority of the defined benefit plan. See Note 17, Retirement Plans, in our consolidated financial statements for further detail on the plan termination. We did not make significant contributions to the Company-sponsored defined benefit and other postretirement plans in fiscal years 2024 and 2023. We do not expect to make any contributions in 2025.

Certain employees are eligible to participate in our 401(k) savings plan. We made employer matching contributions to the 401(k) plan of $82 million and $65 million in fiscal years 2024 and 2023, respectively.

We also are required to contribute to various multiemployer pension plans under the terms of certain of our CBAs. Our contributions to these plans were $57 million and $55 million in fiscal years 2024 and 2023, respectively.

Off-Balance Sheet Arrangements

We had entered into $592 million of letters of credit, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs and certain real estate leases, under the ABL Facility as of December 28, 2024. In the quarter ending December 28, 2024, we entered into approximately $58 million of surety bonds, primarily in favor of certain commercial insurers to secure obligations with respect to our insurance programs. In certain cases, surety bonds may be used as an alternative to letters of credit.

Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Except as otherwise set forth herein, we have prepared the financial information in this Annual Report in accordance with GAAP. Preparing these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our most critical accounting policies and estimates pertain to the valuation of goodwill and other intangible assets, vendor consideration and income taxes.

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Valuation of Goodwill and Other Intangible Assets

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with each acquisition. Other intangible assets include customer relationships, amortizable trade names, noncompete agreements, the brand names comprising our portfolio of private brands, and trademarks. We assess goodwill and other intangible assets with indefinite lives for impairment each year, or more frequently if events or changes in circumstances indicate an asset may be impaired. For goodwill and indefinite-lived intangible assets, our policy is to assess for impairment as of the beginning of each fiscal third quarter. For other intangible assets with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset may not be recoverable.

For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described in Note 23, Business Information, in our consolidated financial statements. Our fiscal year 2024 assessment for impairment of goodwill was performed using a qualitative approach to determine, as of the date of the assessment, whether it was more likely than not that the fair value of goodwill was less than its carrying value. In performing the qualitative assessment, we identified and considered the significance of relevant key factors, events, and circumstances that affect the fair value of goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. Based on our qualitative fiscal year 2024 annual impairment analysis for goodwill, we concluded that it is more likely than not that the fair value of goodwill exceeded its carrying value.

Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a relief from royalty method, including key assumptions such as the long-term growth rates of future revenues, the royalty rate for such revenue, and a discount rate. The fair value of each intangible asset is determined for comparison to the corresponding carrying value. If the carrying value of the asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

Based on our fiscal year 2024 annual impairment analysis for indefinite-lived intangible assets, we concluded that the fair value of our trademark indefinite-lived intangible asset and brand name indefinite-lived intangible asset exceeded their respective carrying values by substantial margins. These margins would not be materially impacted by a 5% increase in the discount rate. The recoverability of our indefinite-lived intangible assets could be impacted if estimated future cash flows are not achieved.

Due to the many variables inherent in estimating fair value and the relative size of the indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the Company’s impairment analysis in future periods.

Vendor Consideration

We participate in various rebate and promotional incentives with our suppliers, primarily through purchase-based programs. The amount and timing of recognition of consideration under these incentives requires management judgment and estimates. Consideration under these incentives is estimated during the year based on historical and forecasted purchasing activity, as our obligations under the programs are fulfilled primarily when products are purchased. Consideration is typically received in the form of invoice deductions, or less often in the form of cash payments. Changes in the estimated amount of incentives earned are treated as changes in estimates and are recognized in the period of change. Historically, adjustments to our estimates for vendor consideration or related allowances have not been significant, and we do not expect adjustments to our estimates for vendor consideration or related allowances to be significant in the next 12 months.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized.

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An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Uncertain tax positions are recorded at the largest amount that is more likely than not to be sustained. We adjust the amounts recorded for uncertain tax positions when our judgment changes as a result of the evaluation of new information not previously available. These differences are reflected as increases or decreases to income tax expense in the period in which they are determined. The Company estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by up to $1 million in the next 12 months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. Our uncertain tax positions contain uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which an uncertain tax position has been established, or pay amounts in excess of recorded positions, our effective income tax rate could be materially affected. An unfavorable tax settlement would generally require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 3, Recent Accounting Pronouncements, in our consolidated financial statements.