UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-Q
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 20172023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto ___________
Commission File Number001-37578
Performance Food Group Company
(Exact name of registrant as specified in its charter)
Delaware | 43-1983182 | |
(State or other jurisdiction of incorporation or organization) | (IRS employer identification number) | |
12500 West Creek Parkway Richmond, Virginia23238 | (804) 484-7700 | |
(Address of principal executive offices) | ( | |
Securities registered pursuant to Section 12(b) of the Act: |
(804)484-7700
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | PFGC | New York Stock Exchange |
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | |||
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
104,000,540155,585,868 shares of common stock were outstanding as of February 1, 2018.January 31, 2024.
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form10-Q (this “Form10-Q”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position, and our business outlook, business trends and other information may beare forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates, and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure youthere can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. Risk Factors in the Company’sour Annual Report on Form10-K for the fiscal year ended July 1, 2017 and Quarterly Report on Form10-Q for the fiscal quarter ended September 30, 2017,2023 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the SEC,Securities and Exchange Commission (the “SEC”), and are accessible on the SEC’s website atwww.sec.gov, and also include the following:
3
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. We cannot assure you (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Unless this Form10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” or “PFG” as used in this Form10-Q refer to Performance Food Group Company and its consolidated subsidiaries.
4
Part I – FINANCIAL INFORMATION
Item 1.Financial Statements
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share data) | As of December 30, 2017 | As of July 1, 2017 |
| As of |
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| As of |
| ||||||||
ASSETS |
|
|
|
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|
| ||||||||||
Current assets: |
|
|
|
|
|
| ||||||||||
Cash | $ | 10.1 | $ | 8.1 |
| $ | 16.4 |
|
| $ | 12.7 |
| ||||
Accounts receivable, less allowances of $22.0 and $17.0 | 1,034.9 | 1,028.5 | ||||||||||||||
Accounts receivable, less allowances of $62.7 and $56.3 |
|
| 2,298.9 |
|
|
| 2,399.3 |
| ||||||||
Inventories, net | 1,043.4 | 1,013.3 |
|
| 3,342.1 |
|
|
| 3,390.0 |
| ||||||
Income taxes receivable |
|
| 62.4 |
|
|
| 41.7 |
| ||||||||
Prepaid expenses and other current assets | 51.6 | 35.0 |
|
| 236.5 |
|
|
| 227.8 |
| ||||||
|
| |||||||||||||||
Total current assets | 2,140.0 | 2,084.9 |
|
| 5,956.3 |
|
|
| 6,071.5 |
| ||||||
Goodwill | 740.1 | 718.6 |
|
| 2,418.3 |
|
|
| 2,301.0 |
| ||||||
Other intangible assets, net | 206.8 | 201.1 |
|
| 1,072.5 |
|
|
| 1,028.4 |
| ||||||
Property, plant and equipment, net | 734.9 | 740.7 |
|
| 2,465.8 |
|
|
| 2,264.0 |
| ||||||
Restricted cash | 12.9 | 12.9 | ||||||||||||||
Operating lease right-of-use assets |
|
| 841.0 |
|
|
| 703.6 |
| ||||||||
Other assets | 47.9 | 45.9 |
|
| 158.6 |
|
|
| 130.5 |
| ||||||
|
| |||||||||||||||
Total assets | $ | 3,882.6 | $ | 3,804.1 |
| $ | 12,912.5 |
|
| $ | 12,499.0 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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|
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Outstanding checks in excess of deposits | $ | 181.4 | $ | 218.2 | ||||||||||||
Trade accounts payable | 886.9 | 907.1 | ||||||||||||||
Accrued expenses | 204.8 | 246.0 | ||||||||||||||
Long-term debt—current installments | — | 5.8 | ||||||||||||||
Capital lease obligations—current installments | 7.0 | 5.9 | ||||||||||||||
Derivative liabilities | — | 0.3 | ||||||||||||||
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| |||||||||||||||
Trade accounts payable and outstanding checks in excess of deposits |
|
| 2,423.5 |
|
|
| 2,453.5 |
| ||||||||
Accrued expenses and other current liabilities |
|
| 837.0 |
|
|
| 891.5 |
| ||||||||
Finance lease obligations—current installments |
|
| 118.8 |
|
|
| 102.6 |
| ||||||||
Operating lease obligations—current installments |
|
| 108.4 |
|
|
| 105.5 |
| ||||||||
Total current liabilities | 1,280.1 | 1,383.3 |
|
| 3,487.7 |
|
|
| 3,553.1 |
| ||||||
Long-term debt | 1,358.7 | 1,241.9 |
|
| 3,502.0 |
|
|
| 3,460.1 |
| ||||||
Deferred income tax liability, net | 66.0 | 103.0 |
|
| 474.7 |
|
|
| 446.2 |
| ||||||
Capital lease obligations, excluding current installments | 47.4 | 44.0 | ||||||||||||||
Finance lease obligations, excluding current installments |
|
| 536.1 |
|
|
| 447.3 |
| ||||||||
Operating lease obligations, excluding current installments |
|
| 773.1 |
|
|
| 628.9 |
| ||||||||
Other long-term liabilities | 114.9 | 106.4 |
|
| 277.2 |
|
|
| 217.9 |
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| |||||||||||||||
Total liabilities | 2,867.1 | 2,878.6 |
|
| 9,050.8 |
|
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| 8,753.5 |
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Commitments and contingencies (Note 9) | ||||||||||||||||
Commitments and contingencies (Note 10) |
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Shareholders’ equity: |
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Common Stock | ||||||||||||||||
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 102.3 million shares issued and outstanding as of December 30, 2017; 1.0 billion shares authorized, 100.8 million shares issued and outstanding as of July 1, 2017 | 1.0 | 1.0 | ||||||||||||||
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 153.9 million shares issued and outstanding as of December 30, 2023; |
|
| 1.5 |
|
|
| 1.5 |
| ||||||||
Additionalpaid-in capital | 842.9 | 855.5 |
|
| 2,786.5 |
|
|
| 2,863.0 |
| ||||||
Accumulated other comprehensive income, net of tax expense of $2.2 and $1.5 | 4.4 | 2.4 | ||||||||||||||
Accumulated other comprehensive income, net of tax expense of $2.7 and $4.9 |
|
| 7.7 |
|
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| 14.0 |
| ||||||||
Retained earnings | 167.2 | 66.6 |
|
| 1,066.0 |
|
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| 867.0 |
| ||||||
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| |||||||||||||||
Total shareholders’ equity | 1,015.5 | 925.5 |
|
| 3,861.7 |
|
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| 3,745.5 |
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| |||||||||||||||
Total liabilities and shareholders’ equity | $ | 3,882.6 | $ | 3,804.1 |
| $ | 12,912.5 |
|
| $ | 12,499.0 |
| ||||
|
|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
5
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data) | Three months ended December 30, 2017 | Three months ended December 31, 2016 | Six months ended December 30, 2017 | Six months ended December 31, 2016 | ||||||||||||
Net sales | $ | 4,311.1 | $ | 4,051.8 | $ | 8,676.0 | $ | 8,097.9 | ||||||||
Cost of goods sold | 3,743.5 | 3,534.6 | 7,553.7 | 7,069.4 | ||||||||||||
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|
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| |||||||||
Gross profit | 567.6 | 517.2 | 1,122.3 | 1,028.5 | ||||||||||||
Operating expenses | 518.5 | 465.9 | 1,022.7 | 945.6 | ||||||||||||
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| |||||||||
Operating profit | 49.1 | 51.3 | 99.6 | 82.9 | ||||||||||||
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| |||||||||
Other expense, net: | ||||||||||||||||
Interest expense | 15.1 | 13.6 | 29.7 | 26.5 | ||||||||||||
Other, net | (0.1 | ) | (0.5 | ) | (0.4 | ) | (1.3 | ) | ||||||||
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| |||||||||
Other expense, net | 15.0 | 13.1 | 29.3 | 25.2 | ||||||||||||
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|
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|
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| |||||||||
Income before taxes | 34.1 | 38.2 | 70.3 | 57.7 | ||||||||||||
Income tax (benefit) expense | (43.9 | ) | 15.3 | (30.3 | ) | 22.6 | ||||||||||
|
|
|
|
|
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| |||||||||
Net income | $ | 78.0 | $ | 22.9 | $ | 100.6 | $ | 35.1 | ||||||||
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|
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| |||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 101.4 | 100.1 | 101.2 | 100.0 | ||||||||||||
Diluted | 104.5 | 102.7 | 104.5 | 102.5 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.23 | $ | 0.99 | $ | 0.35 | ||||||||
Diluted | $ | 0.75 | $ | 0.22 | $ | 0.96 | $ | 0.34 |
(In millions, except per share data) |
| Three Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||
Net sales |
| $ | 14,295.7 |
|
| $ | 13,898.9 |
|
| $ | 29,234.3 |
|
| $ | 28,618.2 |
|
Cost of goods sold |
|
| 12,697.6 |
|
|
| 12,399.3 |
|
|
| 25,973.3 |
|
|
| 25,543.5 |
|
Gross profit |
|
| 1,598.1 |
|
|
| 1,499.6 |
|
|
| 3,261.0 |
|
|
| 3,074.7 |
|
Operating expenses |
|
| 1,424.2 |
|
|
| 1,355.6 |
|
|
| 2,870.9 |
|
|
| 2,739.5 |
|
Operating profit |
|
| 173.9 |
|
|
| 144.0 |
|
|
| 390.1 |
|
|
| 335.2 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| 61.4 |
|
|
| 55.7 |
|
|
| 117.5 |
|
|
| 106.1 |
|
Other, net |
|
| 0.8 |
|
|
| (7.9 | ) |
|
| (2.4 | ) |
|
| 3.0 |
|
Other expense, net |
|
| 62.2 |
|
|
| 47.8 |
|
|
| 115.1 |
|
|
| 109.1 |
|
Income before taxes |
|
| 111.7 |
|
|
| 96.2 |
|
|
| 275.0 |
|
|
| 226.1 |
|
Income tax expense |
|
| 33.4 |
|
|
| 25.1 |
|
|
| 76.0 |
|
|
| 59.3 |
|
Net income |
| $ | 78.3 |
|
| $ | 71.1 |
|
| $ | 199.0 |
|
| $ | 166.8 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 154.2 |
|
|
| 154.1 |
|
|
| 154.5 |
|
|
| 153.9 |
|
Diluted |
|
| 155.7 |
|
|
| 156.1 |
|
|
| 156.2 |
|
|
| 155.9 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
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| ||||
Basic |
| $ | 0.51 |
|
| $ | 0.46 |
|
| $ | 1.29 |
|
| $ | 1.08 |
|
Diluted |
| $ | 0.50 |
|
| $ | 0.46 |
|
| $ | 1.27 |
|
| $ | 1.07 |
|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
6
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
($ in millions) | Three months ended December 30, 2017 | Three months ended December 31, 2016 | Six months ended December 30, 2017 | Six months ended December 31, 2016 | Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
| ||||||||||||||||
Net income | $ | 78.0 | $ | 22.9 | $ | 100.6 | $ | 35.1 | $ | 78.3 |
| $ | 71.1 |
| $ | 199.0 |
| $ | 166.8 |
| ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||
Other comprehensive (loss) income, net of tax: |
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Interest rate swaps: |
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Change in fair value, net of tax | 1.8 | 5.0 | 1.8 | 6.0 |
| (2.8 | ) |
| 1.1 |
| (0.6 | ) |
| 8.2 |
| |||||||||||||
Reclassification adjustment, net of tax | 0.2 | 0.7 | 0.2 | 1.5 |
| (3.1 | ) |
| (2.0 | ) |
| (6.0 | ) |
| (2.8 | ) | ||||||||||||
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Other comprehensive income | 2.0 | 5.7 | 2.0 | 7.5 | ||||||||||||||||||||||||
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Foreign currency translation adjustment, net of tax |
| 1.0 |
|
| 0.9 |
|
| 0.3 |
|
| (1.5 | ) | ||||||||||||||||
Other comprehensive (loss) income |
| (4.9 | ) |
| - |
|
| (6.3 | ) |
| 3.9 |
| ||||||||||||||||
Total comprehensive income | $ | 80.0 | $ | 28.6 | $ | 102.6 | $ | 42.6 | $ | 73.4 |
| $ | 71.1 |
| $ | 192.7 |
| $ | 170.7 |
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|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
7
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
|
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| Additional |
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| Accumulated |
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| Total |
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Common Stock | Additional Paid-in | Accumulated Other Comprehensive | (Accumulated Deficit) Retained | Total Shareholders’ |
| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Retained |
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| Shareholders’ |
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(In millions) | Shares | Amount | Capital | Income (Loss) | Earnings | Equity |
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Earnings |
|
| Equity |
| ||||||||||||||||||||||||
Balance as of July 2, 2016 | 99.9 | $ | 1.0 | $ | 836.8 | $ | (5.8 | ) | $ | (29.2 | ) | $ | 802.8 | |||||||||||||||||||||||||||||||||||
Issuance of common stock under stock-based compensation plans | 0.2 | — | (0.3 | ) | — | — | (0.3 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of October 1, 2022 |
|
| 154.0 |
|
| $ | 1.5 |
|
| $ | 2,818.4 |
|
| $ | 15.3 |
|
| $ | 565.5 |
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| $ | 3,400.7 |
| ||||||||||||||||||||||||
Net income | — | — | — | — | 35.1 | 35.1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71.1 |
|
|
| 71.1 |
| ||||||||||||||||||
Interest rate swaps | — | — | — | 7.5 | — | 7.5 |
|
| — |
|
|
| — |
|
|
| — |
|
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| (0.9 | ) |
|
| — |
|
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| (0.9 | ) | ||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
|
| 0.9 |
| ||||||||||||||||||||||||
Issuance of common stock under stock-based compensation plans |
|
| 0.1 |
|
|
| — |
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| 0.3 |
|
|
| — |
|
|
| — |
|
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| 0.3 |
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Issuance of common stock under employee stock purchase plan |
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| 0.2 |
|
|
| — |
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| 14.3 |
|
|
| — |
|
|
| — |
|
|
| 14.3 |
| ||||||||||||||||||||||||
Stock-based compensation expense | — | — | 8.1 | — | — | 8.1 |
|
| — |
|
|
| — |
|
|
| 10.1 |
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| — |
|
|
| — |
|
|
| 10.1 |
| ||||||||||||||||||
Change in accounting principle (1) | — | — | 0.9 | — | (0.5 | ) | 0.4 | |||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2022 |
|
| 154.3 |
|
| $ | 1.5 |
|
| $ | 2,843.1 |
|
| $ | 15.3 |
|
| $ | 636.6 |
|
| $ | 3,496.5 |
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Balance as of December 31, 2016 | 100.1 | $ | 1.0 | $ | 845.5 | $ | 1.7 | $ | 5.4 | $ | 853.6 | |||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Balance as of July 1, 2017 | 100.8 | $ | 1.0 | $ | 855.5 | $ | 2.4 | $ | 66.6 | $ | 925.5 | |||||||||||||||||||||||||||||||||||||
Issuance of common stock under stock-based compensation plans | 1.5 | — | (27.1 | ) | — | — | (27.1 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2023 |
|
| 154.7 |
|
| $ | 1.5 |
|
| $ | 2,826.5 |
|
| $ | 12.6 |
|
| $ | 987.7 |
|
| $ | 3,828.3 |
| ||||||||||||||||||||||||
Net income | — | — | — | — | 100.6 | 100.6 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 78.3 |
|
|
| 78.3 |
| ||||||||||||||||||
Interest rate swaps | — | — | — | 2.0 | — | 2.0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5.9 | ) |
|
| — |
|
|
| (5.9 | ) | ||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| — |
|
|
| 1.0 |
| ||||||||||||||||||||||||
Issuance of common stock under stock-based compensation plans |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
| ||||||||||||||||||||||||
Common stock repurchased |
|
| (0.8 | ) |
|
| — |
|
|
| (50.0 | ) |
|
| — |
|
|
| — |
|
|
| (50.0 | ) | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | 14.5 | — | — | 14.5 |
|
| — |
|
|
| — |
|
|
| 9.9 |
|
|
| — |
|
|
| — |
|
|
| 9.9 |
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 30, 2017 | 102.3 | $ | 1.0 | $ | 842.9 | $ | 4.4 | $ | 167.2 | $ | 1,015.5 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 30, 2023 |
|
| 153.9 |
|
| $ | 1.5 |
|
| $ | 2,786.5 |
|
| $ | 7.7 |
|
| $ | 1,066.0 |
|
| $ | 3,861.7 |
|
|
|
|
|
| Additional |
|
| Accumulated |
|
|
|
|
| Total |
| |||||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Retained |
|
| Shareholders’ |
| |||||||||
(In millions) |
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Earnings |
|
| Equity |
| ||||||
Balance as of July 2, 2022 |
|
| 153.6 |
|
| $ | 1.5 |
|
| $ | 2,816.8 |
|
| $ | 11.4 |
|
| $ | 469.8 |
|
| $ | 3,299.5 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 166.8 |
|
|
| 166.8 |
|
Interest rate swaps |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5.4 |
|
|
| — |
|
|
| 5.4 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.5 | ) |
|
| — |
|
|
| (1.5 | ) |
Issuance of common stock under stock-based compensation plans |
|
| 0.5 |
|
|
| — |
|
|
| (8.7 | ) |
|
| — |
|
|
| — |
|
|
| (8.7 | ) |
Issuance of common stock under employee stock purchase plan |
|
| 0.2 |
|
|
| — |
|
|
| 14.3 |
|
|
| — |
|
|
| — |
|
|
| 14.3 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 20.7 |
|
|
| — |
|
|
| — |
|
|
| 20.7 |
|
Balance as of December 31, 2022 |
|
| 154.3 |
|
| $ | 1.5 |
|
| $ | 2,843.1 |
|
| $ | 15.3 |
|
| $ | 636.6 |
|
| $ | 3,496.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of July 1, 2023 |
|
| 154.5 |
|
|
| 1.5 |
|
|
| 2,863.0 |
|
|
| 14.0 |
|
|
| 867.0 |
|
|
| 3,745.5 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 199.0 |
|
|
| 199.0 |
|
Interest rate swaps |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6.6 | ) |
|
| — |
|
|
| (6.6 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
|
Issuance of common stock under stock-based compensation plans |
|
| 0.7 |
|
|
| — |
|
|
| (17.8 | ) |
|
| — |
|
|
| — |
|
|
| (17.8 | ) |
Common stock repurchased |
|
| (1.3 | ) |
|
| — |
|
|
| (78.1 | ) |
|
| — |
|
|
| — |
|
|
| (78.1 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 19.4 |
|
|
| — |
|
|
| — |
|
|
| 19.4 |
|
Balance as of December 30, 2023 |
|
| 153.9 |
|
| $ | 1.5 |
|
| $ | 2,786.5 |
|
| $ | 7.7 |
|
| $ | 1,066.0 |
|
| $ | 3,861.7 |
|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
8
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions) | Six months ended December 30, 2017 | Six months ended December 31, 2016 (1) |
| Six Months Ended |
|
| Six Months Ended |
| ||||||||
Cash flows from operating activities: |
|
|
|
|
|
| ||||||||||
Net income | $ | 100.6 | $ | 35.1 |
| $ | 199.0 |
|
| $ | 166.8 |
| ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||||||
Adjustments to reconcile net income to net cash provided |
|
|
|
|
| |||||||||||
Depreciation | 49.1 | 43.3 |
|
| 170.1 |
|
|
| 153.5 |
| ||||||
Amortization of intangible assets | 14.6 | 16.6 |
|
| 102.5 |
|
|
| 90.9 |
| ||||||
Amortization of deferred financing costs and other | 2.4 | 2.2 | ||||||||||||||
Amortization of deferred financing costs |
|
| 5.3 |
|
|
| 5.2 |
| ||||||||
Provision for losses on accounts receivables | 7.5 | 6.8 |
|
| 11.6 |
|
|
| 7.2 |
| ||||||
Expense related to modification of debt | — | 0.1 | ||||||||||||||
Stock-based compensation expense | 14.5 | 8.1 | ||||||||||||||
Deferred income tax benefit | (37.8 | ) | (4.0 | ) | ||||||||||||
Change in LIFO reserve |
|
| 41.0 |
|
|
| 51.8 |
| ||||||||
Stock compensation expense |
|
| 21.7 |
|
|
| 22.9 |
| ||||||||
Deferred income tax (benefit) expense |
|
| (14.5 | ) |
|
| 1.5 |
| ||||||||
Change in fair value of derivative assets and liabilities | (0.2 | ) | (1.8 | ) |
|
| (3.7 | ) |
|
| 15.9 |
| ||||
Other | 7.3 | 1.1 | ||||||||||||||
Other non-cash activities |
|
| (3.0 | ) |
|
| 5.1 |
| ||||||||
Changes in operating assets and liabilities, net |
|
|
|
|
| |||||||||||
Accounts receivable | (1.2 | ) | (15.1 | ) |
|
| 107.2 |
|
|
| 147.9 |
| ||||
Inventories | (14.3 | ) | (54.4 | ) |
|
| 32.7 |
|
|
| 90.1 |
| ||||
Income taxes receivable |
|
| (20.7 | ) |
|
| (51.6 | ) | ||||||||
Prepaid expenses and other assets | (15.0 | ) | 12.5 |
|
| (40.9 | ) |
|
| 9.3 |
| |||||
Trade accounts payable | (29.4 | ) | (68.2 | ) | ||||||||||||
Outstanding checks in excess of deposits | (36.8 | ) | 29.7 | |||||||||||||
Trade accounts payable and outstanding checks in excess of deposits |
|
| (46.9 | ) |
|
| (202.6 | ) | ||||||||
Accrued expenses and other liabilities | (28.7 | ) | (37.5 | ) |
|
| (7.4 | ) |
|
| (89.4 | ) | ||||
|
| |||||||||||||||
Net cash provided by (used in) operating activities | 32.6 | (25.5 | ) | |||||||||||||
|
| |||||||||||||||
Net cash provided by operating activities |
|
| 554.0 |
|
|
| 424.5 |
| ||||||||
Cash flows from investing activities: |
|
|
|
|
| |||||||||||
Purchases of property, plant and equipment | (38.5 | ) | (79.9 | ) |
|
| (147.1 | ) |
|
| (98.1 | ) | ||||
Net cash paid for acquisitions | (63.2 | ) | (82.1 | ) |
|
| (308.1 | ) |
|
| (65.8 | ) | ||||
Proceeds from sale of property, plant and equipment | 0.3 | 0.2 | ||||||||||||||
|
| |||||||||||||||
Proceeds from sale of property, plant and equipment and other |
|
| 18.8 |
|
|
| 3.6 |
| ||||||||
Net cash used in investing activities | (101.4 | ) | (161.8 | ) |
|
| (436.4 | ) |
|
| (160.3 | ) | ||||
|
| |||||||||||||||
Cash flows from financing activities: |
|
|
|
|
| |||||||||||
Net borrowings under ABL Facility | 116.4 | 192.8 | ||||||||||||||
Payment of Promissory Note | (6.0 | ) | — | |||||||||||||
Net borrowings (payments) under ABL Facility |
|
| 39.0 |
|
|
| (232.1 | ) | ||||||||
Payments under finance lease obligations |
|
| (56.5 | ) |
|
| (42.8 | ) | ||||||||
Proceeds from employee stock purchase plan |
|
| — |
|
|
| 14.3 |
| ||||||||
Proceeds from exercise of stock options |
|
| 1.1 |
|
|
| 0.4 |
| ||||||||
Cash paid for shares withheld to cover taxes | (27.8 | ) | (1.1 | ) |
|
| (18.9 | ) |
|
| (9.1 | ) | ||||
Cash paid for acquisitions | (7.4 | ) | (0.8 | ) | ||||||||||||
Repurchases of common stock |
|
| (78.1 | ) |
|
| — |
| ||||||||
Other financing activities | (4.4 | ) | (2.8 | ) |
|
| (0.3 | ) |
|
| (0.3 | ) | ||||
|
| |||||||||||||||
Net cash provided by financing activities | 70.8 | 188.1 | ||||||||||||||
|
| |||||||||||||||
Net increase in cash and restricted cash | 2.0 | 0.8 | ||||||||||||||
Net cash used in financing activities |
|
| (113.7 | ) |
|
| (269.6 | ) | ||||||||
Net increase (decrease) in cash and restricted cash |
|
| 3.9 |
|
|
| (5.4 | ) | ||||||||
Cash and restricted cash, beginning of period | 21.0 | 23.8 |
|
| 20.0 |
|
|
| 18.7 |
| ||||||
|
| |||||||||||||||
Cash and restricted cash, end of period | $ | 23.0 | $ | 24.6 |
| $ | 23.9 |
|
| $ | 13.3 |
| ||||
|
|
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
(In millions) | As of December 30, 2017 | As of July 1, 2017 |
| As of December 30, 2023 |
|
| As of July 1, 2023 |
| ||||||||
Cash | $ | 10.1 | $ | 8.1 |
| $ | 16.4 |
|
| $ | 12.7 |
| ||||
Restricted cash(2) | 12.9 | 12.9 | ||||||||||||||
|
| |||||||||||||||
Restricted cash(1) |
|
| 7.5 |
|
|
| 7.3 |
| ||||||||
Total cash and restricted cash | $ | 23.0 | $ | 21.0 |
| $ | 23.9 |
|
| $ | 20.0 |
| ||||
|
|
Supplemental disclosures ofnon-cash transactions are as follows:
(In millions) | Six months ended December 30, 2017 | Six months ended December 31, 2016 | ||||||
Purchases of property, plant and equipment, financed | $ | 3.2 | $ | — | ||||
Debt assumed through new capital lease obligations | 7.7 | 19.6 | ||||||
Disposal of property, plant and equipment under sale-leaseback transaction | — | 3.2 |
Supplemental disclosures of cash flow information are as follows:
(In millions) | Six months ended December 30, 2017 | Six months ended December 31, 2016 |
| Six Months Ended |
|
| Six Months Ended |
| ||||||||
Cash paid during the year for: |
|
|
|
|
|
| ||||||||||
Interest | $ | 28.1 | $ | 23.2 |
| $ | 122.3 |
|
| $ | 105.0 |
| ||||
Income taxes, net of refunds | 25.1 | 10.2 | ||||||||||||||
Income tax payments net of refunds |
|
| 109.0 |
|
|
| 105.1 |
|
See accompanying notes, to consolidated financial statements, which are an integral part of these unaudited consolidated financial statements.
9
PERFORMANCE FOOD GROUP COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Business Activities
Business Overview
Performance Food Group Company, through its subsidiaries, markets and distributes primarily national and company-branded food and food-related products to customer locations across the United States.North America. The Company serves both of the major customer types in the restaurant industry: (i) independent or “Street” customers, and (ii) multi-unit, or “Chain” customers, which include regional and nationalsome of the most recognizable family and casual dining restaurant chains, fast casual chains, and quick-service restaurants. The Company also servesas well as schools, healthcare facilities, business and industry locations, healthcare facilities, and retail establishments. The Company also specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, health and beauty care products and other institutional customers.items to vending distributors, big box retailers, theaters, convenience stores, drug stores, grocery stores, travel providers, and hospitality providers.
Secondary Offerings
In September 2017,Share Repurchase Program
On November 2017 and December 2017 Wellspring Capital Management (“Wellspring”) sold an aggregate16, 2022, the Board of 16,272,914 sharesDirectors of the Company authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. During the three months ended December 30, 2023, the Company repurchased and subsequently retired 0.8 million shares of common stock, in transactions registered underfor a total of $50.0 million or an average cost of $58.01 per share. During the Securities Act. Thesix months ended December 30, 2023, the Company did not receive any proceeds from these sales. As a result of these sales, Wellspring no longer beneficially owns anyrepurchased and subsequently retired 1.3 million shares of the Company’s common stock.stock, for a total of $78.1 million or an average cost of $58.83 per share. As of December 30, 2023, approximately $210.6 million remained available for additional share repurchases.
2. Summary of Significant Accounting Policies and Estimates
Basis of Presentation
The consolidated financial statements have been prepared by the Company, without audit, with the exception of the July 1, 20172023 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form10-K for the fiscal year ended July 1, 2017 (the “Form10-K”). 10-K. The financial statements include consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows. Certain prior period amounts have been reclassified to conform to current period presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income, shareholders’ equity, and cash flows for all periods presented have been made.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP)(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates used by management are related to the accounting for the allowance for doubtful accounts, reserve for inventories, impairment testing of goodwill and other intangible assets, acquisition accounting, reserves for claims and recoveries under insurance programs, vendor rebates and other promotional incentives, bonus accruals, depreciation, amortization, determination of useful lives of tangible and intangible assets, leases, and income taxes. Actual results could differ from these estimates.
The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto included in theForm 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with GAAP have been condensed or omitted herein pursuant to applicable rules and regulations for interim financial statements.
3. Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In July 2015,September 2022, the Financial Accounting Standards Board (FASB)(“FASB”) issued Accounting Standards Update (ASU)2015-11,Updated (“ASU”) 2022-04, Liabilities— Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The update enhances the transparency of supplier finance programs by requiring the disclosure of the effect of those programs on an entity’s
Inventory (Topic 330): Simplifying10
working capital, liquidity, and cash flows. The guidance requires disclosure of the Measurementkey terms of Inventory. This ASU requires an entity to measure most inventory atsupplier finance programs as well as the lowerobligation amount outstanding as of cost and net realizable value. When evidence exists that the net realizable valueend of inventorythe period, a description of where the obligation is lower than its cost, the difference shall be recognized as a loss in earningspresented in the balance sheet and a rollforward of the obligations balance during the period, including the amount of obligations confirmed and the amount of obligations paid. The amendments in this update are to be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which is applied prospectively. The Company determined that adoption of this update at the beginning of fiscal 2024 has not had a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The update improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The guidance requires that an acquiring entity in a business combination recognize and measure contract assets and contract liabilities acquired in accordance with Topic 606 as if it occurs.had originated the contract. The amendments in this update were adopted at the beginning of fiscal 2024 and will be applied prospectively to applicable business combinations. Historically, the contract assets and liabilities included in the Company’s business combinations have been limited to prepaid customer incentives that are immaterial in comparison to total assets acquired. The Company determined that adoption of this update has not had a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. It further requires disclosure of the amount and description of its composition for other segment items, and interim disclosures of both a reportable segment’s profit or loss and assets. The guidance requires disclosure of the title and position of the chief operating decision maker and how reported measures of segment profit or loss are used to assess performance and allocate resources. This pronouncement is effective for public companies prospectively forannual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU as of the beginning of fiscal 2018 and concluded that it does not have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period using the retrospective transition method. The Company elected to early adopt ASU2016-15 as of the beginning of fiscal 2018. Based on our review of the ASU, the Company concluded that it has historically classified the specified cash receipts and cash payments in accordance with the clarified guidance. This ASU did not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years,2024, with early adoption permitted. The ASU requires a retrospective transition method for each period presented. The Company elected to early adopt ASU2016-18 as of the beginning of fiscal 2018. The statements of cash flows for the six months ended December 30, 2017 and December 31, 2016 include restricted cash with cash when reconciling thebeginning-of-period andend-of-period total amounts.
In January 2017, the FASB issued ASU2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test, which is performed by estimating the fair value of individual assets and liabilities of the reporting unit to calculate the implied fair value of goodwill. Instead, an entity will record a goodwill impairment charge based on the excess of a reporting unit’s carrying value over its estimated fair value, not to exceed the carrying amount of goodwill. This ASU is effective for annual and interim goodwill impairment testsamendments in fiscal years beginning after December 15, 2019 andthis update should be applied prospectively. Early adoption is permitted. The Company electedretrospectively to early adoptASU 2017-04 as of the beginning of fiscal 2018. Upon adoption of the ASU, the Company concluded that it did not have a material impact on its consolidated financial statements. The Company will apply ASU2017-04 on a prospective basis when analyzing goodwill impairment.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU2014-09,Revenue from Contracts with Customers (Topic 606) and has issued subsequent amendments to this guidance. This Update is a comprehensive new revenue recognition model that requires a company to recognize revenue that represents the transfer of promised goods or services to a customereach period presented in an amount that reflects the consideration it expects to receive in exchange for those goods or services.
Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Companies may either use a full retrospective or modified retrospective approach for adoption of Topic 606. The Company will adopt the guidance in fiscal 2019 and currently plans to implement the new standard using the modified retrospective approach. However, our method is subject to change as we finalize our adoption approach for the new standard. The Company has conducted a preliminary assessment and anticipates that the timing of recognition of revenue to be substantially unchanged under the new standard. The amended guidance also requires additional quantitative and qualitative disclosures, which the Company believes will be significant to the consolidated financial statements. The Company is in the process of designing and implementing relevant controls related to adoption of the new standard.
In February 2016, the FASB issued ASU2016-02,Leases (Topic 842). The ASU is a comprehensive new lease accounting model that requires companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. For public entities, the ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt the guidance in fiscal 2020. Companies are required to recognize and measure leases at the beginning of the earliest period presented in its financial statements using a modified retrospective approach. The Company is in the process of evaluatingassessing the impact of this ASU on its future financial statements and believes adoption of this standard will have a significant impact on our consolidated financial statements. Information about our undiscounted future lease payments and the timing of those payments is in Note 12. Leases in our Form10-K.
In June 2016,December 2023, the FASB issued ASU2016-13,Financial Instruments—Credit Losses (Topic 326) 2023-09, Income Taxes(Topic 740): MeasurementImprovements to Income Tax Disclosures. The update expands public entities’ income tax disclosure requirements primarily by requiring disaggregation of Credit Losses on Financial Instruments. The pronouncement changesspecific categories and reconciling items that meet a quantitative threshold within the impairment model for most financial assets, and will require the userate reconciliation, as well as disaggregation of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.income taxes paid by jurisdiction. This pronouncement is effective for fiscal years, and for interimannual periods within those fiscal years, beginning after December 15, 2019. Early2024, with early adoption is permitted. Companies are required to apply the standard usingThe amendments in this update should be applied on a modifiedprospective basis, with retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date.application permitted. The Company is in the process of evaluating the impact of this ASU on our future consolidated financial statements.
In January 2017, the FASB issued ASU2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business.This ASU clarifies the definition of a business in order to assist companies in the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance also removes the existing evaluation of a market participant’s ability to replace missing elements and narrows the definition of output to achieve consistency with other topics. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied on a prospective basis. Early adoption is permitted. Adoption of this ASU is not expected to have a material impact on the Company’s financial statements at the date of adoption.
In August 2017, the FASB issued ASU2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU expands hedge accounting for both financial and nonfinancial risk components to better align hedge accounting with a company’s risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is in the process of evaluatingassessing the impact of this ASU on its future financial statements and believes adoption of this standard will not have a material impact on its consolidated financial statements.
4. Revenue Recognition
The Company markets and distributes primarily national and Company-branded food and food-related products to customer locations across North America. The Foodservice segment primarily services restaurants and supplies a “broad line” of products to its customers, including the Company’s Performance Brands and custom-cut meats and seafood, as well as products that are specific to each customer’s menu requirements. Vistar specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. The Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America. The Company disaggregates revenue by customer type and product offerings and determined that disaggregating revenue at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 13. Segment Information for external revenue by reportable segment.
The Company has customer contracts in which incentives are paid upfront to certain customers. These payments have become industry practice and are not related to financing the customer’s business, nor are they associated with any distinct good or service to be received from the customer. These incentive payments are capitalized and amortized over the life of the contract or the expected life of the customer relationship on a straight-line basis. The Company’s contract asset for these incentives totaled $31.6 million and $32.5 million as of December 30, 2023 and July 1, 2023, respectively.
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5. Business Combinations
During the first six months of fiscal 2018,2024, the Company paid cash of $64.9$308.1 million for an acquisitiontwo acquisitions. These acquisitions are reported in the Vistar and duringCorporate and All Other segments. During the first six months of fiscal 2017,2023, the Company paid cash of $82.8$65.8 million for four acquisitions.one acquisition which is reported in the Corporate and All Other segment. These acquisitions did not materially affect the Company’sCompany's results of operations.
Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The following table summarizes the preliminary purchase price allocation for each major class of assets acquired and liabilities assumed for the two acquisitions in the first six months of fiscal 2018 acquisition.2024:
(In millions) |
| Fiscal 2024 |
| |
Net working capital |
| $ | 23.6 |
|
Goodwill |
|
| 116.5 |
|
Intangible assets with definite lives: |
|
|
| |
Customer relationships |
|
| 120.2 |
|
Trade names and trademarks |
|
| 21.4 |
|
Technology |
|
| 0.5 |
|
Non-Compete |
|
| 7.8 |
|
Property, plant and equipment |
|
| 72.6 |
|
ROU Assets |
|
| 9.0 |
|
Other assets |
|
| 0.9 |
|
Deferred tax liabilities |
|
| (45.5 | ) |
Operating lease obligations |
|
| (9.0 | ) |
Finance lease obligations |
|
| (9.9 | ) |
Total purchase price |
| $ | 308.1 |
|
(In millions) | Fiscal 2018 | |||
Net working capital | $ | 21.4 | ||
Goodwill | 21.1 | |||
Other intangible assets | 20.6 | |||
Property, plant and equipment | 1.8 | |||
|
| |||
Total purchase price | $ | 64.9 | ||
|
|
Intangible assets consist primarily of customer relationships, trade names, non-compete agreements, and technology with useful lives of two to seven years, and a total weighted-average useful life of 4.6 years. The goodwill is a result of expected synergies from combined operationsexcess of the acquisition and the Company. The following table presents the changes in the carrying amount of goodwill:
(In millions) | Performance Foodservice | PFG Customized | Vistar | Corporate and Other | Total | |||||||||||||||
Balance as of July 1, 2017 | $ | 428.2 | $ | 166.5 | $ | 64.9 | $ | 59.0 | $ | 718.6 | ||||||||||
Acquisitions - current year | — | — | 21.1 | — | 21.1 | |||||||||||||||
Adjustments related to prior year acquisitions | 0.1 | — | — | 0.3 | 0.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of December 30, 2017 | $ | 428.3 | $ | 166.5 | $ | 86.0 | $ | 59.3 | $ | 740.1 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The adjustments related to prior year acquisitions are the result of net working capital adjustments.
Subsequent to December 30, 2017, the Company paid $6.6 million for an acquisition. The Company is in the process of determining theestimated fair valuesvalue of the assets acquired and the liabilities assumed.assumed over consideration paid was recorded as $116.5 million of goodwill.
6. Debt
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.
Debt consisted of the following:
|
|
|
|
|
|
| ||
(In millions) |
| As of December 30, 2023 |
|
| As of July 1, 2023 |
| ||
Credit Agreement |
| $ | 1,193.0 |
|
| $ | 1,154.0 |
|
6.875% Notes due 2025, effective interest rate 7.211% |
|
| 275.0 |
|
|
| 275.0 |
|
5.500% Notes due 2027, effective interest rate 5.930% |
|
| 1,060.0 |
|
|
| 1,060.0 |
|
4.250% Notes due 2029, effective interest rate 4.439% |
|
| 1,000.0 |
|
| 1,000.0 |
| |
Less: Original issue discount and deferred financing costs |
|
| (26.0 | ) |
| (28.9 | ) | |
Long-term debt |
|
| 3,502.0 |
|
| 3,460.1 |
| |
Less: current installments |
|
| - |
|
| - |
| |
Total debt, excluding current installments |
| $ | 3,502.0 |
|
| $ | 3,460.1 |
|
Credit Agreement
(In millions) | As of December 30, 2017 | As of July 1, 2017 | ||||||
ABL | $ | 1,016.3 | $ | 899.9 | ||||
5.500% Notes due 2024 | 350.0 | 350.0 | ||||||
Promissory Note | — | 6.0 | ||||||
Less: Original issue discount and deferred financing costs | (7.6 | ) | (8.2 | ) | ||||
|
|
|
| |||||
Long-term debt | 1,358.7 | 1,247.7 | ||||||
Capital and finance lease obligations | 54.4 | 49.9 | ||||||
|
|
|
| |||||
Total debt | 1,413.1 | 1,297.6 | ||||||
Less: current installments | (7.0 | ) | (11.7 | ) | ||||
|
|
|
| |||||
Total debt, excluding current installments | $ | 1,406.1 | $ | 1,285.9 | ||||
|
|
|
|
ABL Facility
PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, is a party to the Second Amended and Restated Credit Agreement dated February 1, 2016, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated August 3, 2017 (the “ABL Facility”). The ABL Facility has an aggregate principal amount of $1.95 billion and matures February 2021. The ABL Facility is secured by the majority of the tangible assets of PFGC and its subsidiaries. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, are parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “ABL Facility”), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto. The ABL Facility has an aggregate principal amount available of $4.0 billion and matures September 17, 2026.
Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiariessubsidiary and other excluded subsidiaries).Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including
12
trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.
Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at (a) the Base Rate (defined as the greatergreatest of (i) a floor rate of 0.00%, (ii) the Federal Funds Ratefederal funds rate in effect on such date plus 0.5%0.5%, (ii)(iii) the Prime Rateprime rate on such day, or (iii)(iv) one month LIBORTerm SOFR plus 1.0%1.0%) plus a spread or (b) LIBORAdjusted Term SOFR plus a spread. The ABL Facility also provides for an unused commitment fee ranging from 0.25% to 0.375%.at a rate of 0.250% per annum.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company's ABL Facility:
(Dollars in millions) |
| As of December 30, 2023 |
|
| As of July 1, 2023 |
| ||
Aggregate borrowings |
| $ | 1,193.0 |
|
| $ | 1,154.0 |
|
Letters of credit |
|
| 171.5 |
|
|
| 172.2 |
|
Excess availability, net of lenders’ reserves of $100.7 and $99.7 |
|
| 2,635.5 |
|
|
| 2,673.8 |
|
Average interest rate, excluding impact of interest rate swaps |
|
| 6.60 | % |
|
| 6.35 | % |
7. Leases
(Dollars in millions) | As of December 30, 2017 | As of July 1, 2017 | ||||||
Aggregate borrowings | $ | 1,016.3 | $ | 899.9 | ||||
Letters of credit | 123.6 | 105.5 | ||||||
Excess availability, net of lenders’ reserves of $12.2 and $11.2 | 577.8 | 594.6 | ||||||
Average interest rate | 2.98 | % | 2.59 | % |
Senior Notes
On May 17, 2016, Performance Food Group, Inc. issuedThe Company determines if an arrangement is a lease at inception and sold $350.0 million aggregate principal amountrecognizes a financing or operating lease liability and right-of-use asset in the Company’s consolidated balance sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on present value of its 5.500% Senior Notes due 2024 (the “Notes”), pursuant tolease payments over the lease term at commencement date. When the Company’s leases do not provide an indenture dated as of May 17, 2016. The Notes are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes are not guaranteed by Performance Food Group Company.
The ABL Facility andimplicit rate, the indenture governingCompany uses the Notes contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries are restricted from distribution to Performance Food Group Company, except for approximately $302.0 million of restricted payment capacity available under such debt agreements, as of December 30, 2017. Such minimum estimated restricted payment capacity is calculatedincremental borrowing rate based on the most restrictiveinformation available at commencement date to determine the present value of ourlease payments. This rate was determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt agreementsprofile and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under othersecured debt instruments to which the Company is subject may be materially higher than the foregoing estimate.
Unsecured Subordinated Promissory Note
In connectionrisk. Leases with an acquisition, Performance Food Group, Inc. issued a $6.0 million interest only, unsecured subordinated promissory note on December 21, 2012. The $6.0 million promissory note was paid off in December 2017.
Risk Management Objectiveinitial term of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt12 months or payment of future known and uncertain cash amounts, the value of whichless are determined by interest rates and diesel fuel costs. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and payments related to the Company’s borrowings and diesel fuel purchases.
The effective portion of changes in the fair value of derivatives that are both designated and qualify as cash flow hedges isnot recorded in other comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction occurs. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. Since the Company has a substantial portion of its debt in variable-rate instruments, it accomplishes this objective with interest rate swaps. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. All of the Company’s interest rate swaps are designated and qualify as cash flow hedges.
As of December 30, 2017, Performance Food Group, Inc. had eight interest rate swaps with a combined $650 million notional amount. The following table summarizes the outstanding Swap Agreements as of December 30, 2017 (in millions):
Effective Date | Maturity Date | Notional Amount | Fixed Rate Swapped | |||||||||
August 9, 2013 | August 9, 2018 | $ | 200.0 | 1.51 | % | |||||||
June 30, 2017 | June 30, 2019 | 50.0 | 1.13 | % | ||||||||
June 30, 2017 | June 30, 2020 | 50.0 | 1.23 | % | ||||||||
June 30, 2017 | June 30, 2020 | 50.0 | 1.25 | % | ||||||||
June 30, 2017 | June 30, 2020 | 50.0 | 1.26 | % | ||||||||
August 9, 2018 | August 9, 2021 | 75.0 | 1.21 | % | ||||||||
August 9, 2018 | August 9, 2021 | 75.0 | 1.20 | % | ||||||||
June 30, 2020 | December 31, 2021 | 100.0 | 2.16 | % |
Hedges of Forecasted Diesel Fuel Purchases
From time to time, Performance Food Group, Inc. enters into costless collar arrangements to manage its exposure to variability in cash flows expected to be paid for its forecasted purchases of diesel fuel. As of December 30, 2017, Performance Food Group, Inc. was a party to two such arrangements, with an aggregate 4.5 million gallon original notional amount. The 4.5 million gallon forecasted purchases of diesel fuel are expected to be made between January 1, 2018 and June 30, 2018.
The fuel collar instruments do not qualify for hedge accounting. Accordingly, the derivative instruments are recorded as an asset or liability on the balance sheet at fair value and any changes in fair value are recorded in the period of change as unrealized gains or losses on fuel hedging instruments and included in Other, net in the accompanying consolidated statements of operations.
The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The fair value of long-term debt, which haslease expenses for these short-term leases are recognized on a carrying value of $1,358.7 million and $1,247.7 million, is $1,378.1 million and $1,258.3 million at December 30, 2017 and July 1, 2017, respectively, and is determined by reviewing current market pricing related to comparable debt issued atstraight-line basis over the time of the balance sheet date, and is considered a Level 2 measurement.
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal and state jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.
On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” (the “Act”) was signed into law. The Act makes broad and complex changes to the U.S. Internal Revenue Code including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21%; creating a new limitation on deductible interest expense; repealing the domestic production activity deduction, providing for bonus depreciation that will allow for full expensing of certain qualified property; and limiting other deductions.
The Company’s net deferred tax liability of $103.0 million as of July 1, 2017 was determined using the federal corporate tax rate of 35% prior to the passage of the Act. The Act reduces the federal corporate tax rate to 21%, effective January 1, 2018. Consequently, we have recorded a $10.2 million decrease in deferred tax assets and a $47.6 million decrease in deferred tax liabilities with a corresponding net benefit to deferred income tax expense of $37.4 million for the three and six months ended December 30, 2017.
The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under FASB ASC 740 – Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act.lease term. The Company has not identified any itemsseveral lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for whichseparately. The difference between the income tax effects of the Act have not been substantially completed.operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent, favorable leases, and prepaid rent.
The Company’s effective tax rate was-128.3% for the three months ended December 30, 2017 and 40.1% for the three months ended December 31, 2016. The Company’s effective tax rate was-43.1% for the six months ended December 30, 2017 and 39.2% for the six months ended December 31, 2016. As a result in the reduction in the federal corporate income tax rate to 21% from 35% under the Act, the Company has a blended statutory rate of 28% for the three and six months ended December 30, 2017. For the three and six months ended December 30, 2016, the statutory rate was 35%. Additionally, during the three months ended December 30, 2017, performance vesting criteria for certain stock-based compensation awards was met resulting in a significant permanent tax deduction difference. The impact to the provision for stock-based compensation and the impact of the reduction in tax rate under the Act are summarized as follows:
(Dollars in millions) | Three Months Ended December 30, 2017 | Six Months Ended December 30, 2017 | ||||||||||||||
Income Tax Expense | Effective Tax Rate | Income Tax Expense | Effective Tax Rate | |||||||||||||
Income tax benefit, reported | $ | (43.9 | ) | -128.3 | % | $ | (30.3 | ) | -43.1 | % | ||||||
Revaluation of net deferred income tax liability | 37.4 | 109.6 | % | 37.4 | 53.3 | % | ||||||||||
Stock-based compensation – performance vesting | 15.4 | 45.2 | % | 15.4 | 21.9 | % | ||||||||||
Impact of rate reduction on first quarter fiscal 2018 income | 2.5 | 7.4 | % | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income tax expense, excluding benefits | $ | 11.4 | 33.9 | % | $ | 22.5 | 32.1 | % |
As of December 30, 2017 and July 1, 2017, the Company had net deferred tax assets of $28.4 million and $43.1 million, respectively, and deferred tax liabilities of $94.4 million and $146.1 million, respectively. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized.
The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC740-10-25,Income Taxes – General - Recognition. As of December 30, 2017 and July 1, 2017, the Company had approximately $1.4 million and $1.3 million of unrecognized tax benefits, respectively. It is reasonably possible that a decrease of approximately $0.1 million in the balance of unrecognized tax benefits may occur within the next twelve months because of statute of limitations expirations, that, if recognized, would affect the effective tax rate.
Purchase Obligations
The Company had outstanding contracts and purchase orders for capital projects and services totaling $10.1 million at December 30, 2017. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of December 30, 2017. Subsequent to December 30, 2017, the Company entered into an additional contract totaling $8.8 million.
Guarantees
Subsidiaries of the Company have entered into numerous operating and finance leases including leases of buildings,for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of 1 year to 25 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Certain full-service fleet lease agreements include variable lease payments associated with usage, which are recorded and paid as incurred. When calculating lease liabilities, lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between 7%6% and 20%20% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 45 to 810 years and expirationare set to expire at various dates ranging from 20182024 to 2025.2032. As of December 30, 2017,2023, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately $28.4$12.0 million, which would be mitigated by the fair value of the leased assets at lease expiration.
13
The assessment as to whether it is probable that subsidiariesfollowing table presents the location of the Company will be required to make payments underright-of-use assets and lease liabilities in the terms of the guarantees is based upon their actual and expected loss experience. Consistent with the requirements of FASB ASC460-10-50,Guarantees-Overall-Disclosure, the Company has recorded $0.2 million of the potential future guarantee payments on itsCompany's consolidated balance sheet as of December 30, 2017.2023 and July 1, 2023 (in millions), as well as the weighted-average lease term and discount rate for the Company's leases:
Leases |
| Consolidated Balance Sheet Location |
| As of |
|
| As of |
| ||
Assets: |
|
|
|
|
|
|
|
| ||
Operating |
| Operating lease right-of-use assets |
| $ | 841.0 |
|
| $ | 703.6 |
|
Finance |
| Property, plant and equipment, net |
|
| 672.6 |
|
|
| 566.2 |
|
Total lease assets |
|
|
| $ | 1,513.6 |
|
| $ | 1,269.8 |
|
Liabilities: |
|
|
|
|
|
|
|
| ||
Current |
|
|
|
|
|
|
|
| ||
Operating |
| Operating lease obligations—current installments |
| $ | 108.4 |
|
| $ | 105.5 |
|
Finance |
| Finance lease obligations—current installments |
|
| 118.8 |
|
|
| 102.6 |
|
Non-current |
|
|
|
|
|
|
|
| ||
Operating |
| Operating lease obligations, excluding current installments |
|
| 773.1 |
|
|
| 628.9 |
|
Finance |
| Finance lease obligations, excluding current installments |
|
| 536.1 |
|
|
| 447.3 |
|
Total lease liabilities |
|
|
| $ | 1,536.4 |
|
| $ | 1,284.3 |
|
|
|
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
|
|
|
|
|
|
|
| ||
Operating leases |
|
|
| 10.0 years |
|
| 8.7 years |
| ||
Finance leases |
|
|
| 5.8 years |
|
| 5.7 years |
| ||
Weighted average discount rate |
|
|
|
|
|
|
|
| ||
Operating leases |
|
|
|
| 5.2 | % |
|
| 4.7 | % |
Finance leases |
|
|
|
| 4.7 | % |
|
| 4.2 | % |
The following table presents the location of lease costs in the Company’s consolidated statement of operations for the periods reported (in millions):
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
Lease Cost |
| Statement of Operations Location |
| December 30, 2023 |
|
| December 31, 2022 |
|
| December 30, 2023 |
|
| December 31, 2022 |
| ||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of finance lease assets |
| Operating expenses |
| $ | 27.8 |
|
| $ | 21.2 |
|
| $ | 53.8 |
|
| $ | 41.6 |
|
Interest on lease liabilities |
| Interest expense |
|
| 7.6 |
|
|
| 4.5 |
|
|
| 14.5 |
|
|
| 8.7 |
|
Total finance lease cost |
|
|
| $ | 35.4 |
|
| $ | 25.7 |
|
| $ | 68.3 |
|
| $ | 50.3 |
|
Operating lease cost |
| Operating expenses |
|
| 41.8 |
|
|
| 37.2 |
|
|
| 80.3 |
|
|
| 73.9 |
|
Short-term lease cost |
| Operating expenses |
|
| 16.5 |
|
|
| 16.7 |
|
|
| 32.8 |
|
|
| 34.7 |
|
Total lease cost |
|
|
| $ | 93.7 |
|
| $ | 79.6 |
|
| $ | 181.4 |
|
| $ | 158.9 |
|
The following table presents the supplemental cash flow information related to leases for the periods reported (in millions):
|
| Six Months Ended |
| |||||
(In millions) |
| December 30, 2023 |
|
| December 31, 2022 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
| |||
Operating cash flows from operating leases |
| $ | 71.9 |
|
| $ | 68.8 |
|
Operating cash flows from finance leases |
|
| 14.5 |
|
|
| 8.7 |
|
Financing cash flows from finance leases |
|
| 56.5 |
|
|
| 42.8 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
| ||
Operating leases |
|
| 190.2 |
|
|
| 108.1 |
|
Finance leases |
|
| 151.6 |
|
|
| 63.2 |
|
14
The following table presents the future minimum lease payments under non-cancelable leases as of December 30, 2023 (in millions):
Fiscal Year |
| Operating Leases |
|
| Finance Leases |
| ||
2024 |
| $ | 76.2 |
|
| $ | 74.2 |
|
2025 |
|
| 146.9 |
|
|
| 144.4 |
|
2026 |
|
| 126.4 |
|
|
| 139.4 |
|
2027 |
|
| 114.9 |
|
|
| 123.3 |
|
2028 |
|
| 104.4 |
|
|
| 97.4 |
|
Thereafter |
|
| 635.3 |
|
|
| 178.0 |
|
Total future minimum lease payments |
| $ | 1,204.1 |
|
| $ | 756.7 |
|
Less: Interest |
|
| 322.6 |
|
|
| 101.8 |
|
Present value of future minimum lease payments |
| $ | 881.5 |
|
| $ | 654.9 |
|
As of December 30, 2023, the Company had additional operating and finance leases that had not yet commenced which total $882.1 million in future minimum lease payments. These leases relate primarily to build-to-suit warehouse leases which will replace existing distribution centers and will commence upon building completion with terms of 15 to 25 years. In addition, these leases include vehicle leases expected to commence in fiscal 2024 with lease terms of 2 to 10 years.
8. Fair Value of Financial Instruments
The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The fair value of long-term debt, which has a carrying value of $3,502.0 million and $3,460.1 million, is $3,417.5 million and $3,338.2 million at December 30, 2023 and July 1, 2023, respectively, and is determined by reviewing current market pricing related to comparable debt issued at the time of the balance sheet date, and is considered a Level 2 measurement.
9. Income Taxes
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.
The Company’s effective tax rate was 29.9% for the three months ended December 30, 2023 and 26.1% for the three months ended December 31, 2022. The Company's effective tax rate was 27.6% for the six months ended December 30, 2023 and 26.2% for the six months ended December 31, 2022. The effective tax rate varies from the 21% statutory rate primarily due to state taxes, federal credits, and other permanent items. The excess tax benefit of exercised and vested stock awards is treated as a discrete item. The effective tax rate for periods ended December 30, 2023 differed from the prior year periods primarily due to an increase in non-deductible expenses and state and foreign taxes as a percentage of income, partially offset by an increase in deductible discrete items related to stock-based compensation.
As of December 30, 2023 and July 1, 2023, the Company had net deferred tax assets of $192.8 million and $178.5 million, respectively, and deferred tax liabilities of $667.5 million and $624.7 million, respectively. As of December 30, 2023 and July 1, 2023, the Company had established a valuation allowance of $2.2 million and $2.1 million, respectively, net of federal benefit, against deferred tax assets related to certain net operating losses and certain other losses which are not likely to be realized due to limitations on utilization. The change in the deferred tax balances and the valuation allowance relates primarily to deferred taxes established in purchase accounting. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized.
15
10. Commitments and Contingencies
Purchase Obligations
The Company had outstanding contracts and purchase orders of $320.4 million related to capital projects and services including purchases of compressed natural gas for its trucking fleet at December 30, 2023. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of December 30, 2023.
Guarantees
The Company from time to time enters into certain types of contracts that contingently require it to indemnify various parties against claims from third parties. These contracts primarily relate to: (i)certain real estate leases under which subsidiaries of the Company may be required to indemnify property owners for environmental and other liabilities and other claims arising from their use of the applicable premises; (ii)certain agreements with the Company’s officers, directors, and employees under which the Companymay be required to indemnify such persons for liabilities arising out of their employment relationship; and (iii)customer agreements under which the Company may be required to indemnify customers for certain claims brought against them with respect to the supplied products.
Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been required to make payments under these obligations and, therefore, no liabilities have been recorded for these obligations in the Company’s consolidated balance sheets.
Litigation
The Company is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss arising from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When losses are probable and reasonably estimable, they have been accrued. Based on estimates of the range of potential losses associated with these matters, management does not believe that the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the Company. However, the final results of legal proceedings cannot be predicted with certainty and, if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s consolidated financial position or results of operations could be materially adversely affected in future periods.
U.S. Equal Employment Opportunity Commission LawsuitJUUL Labs, Inc. Marketing Sales Practices, and Products Liability Litigation. In October 2019, a Multidistrict Litigation action (“MDL”) was initiated in order to centralize litigation against JUUL Labs, Inc. (“JUUL”) and other parties in connection with JUUL’s e-cigarettes and related devices and components in the United States District Court for the Northern District of California. On March 11, 2020, counsel for plaintiffs and the Plaintiffs’ Steering Committee filed a Master Complaint in the MDL ("Master Complaint") naming, among several other entities and individuals including JUUL, Altria Group, Inc., Philip Morris USA, Inc., Altria Client Services LLC, Altria Group Distribution Company, Altria Enterprises LLC, certain members of management and/or individual investors in JUUL, various e-liquid manufacturers, and various retailers, including the Company’s subsidiaries Eby-Brown Company LLC (“Eby-Brown”) and Core-Mark Holding Company, Inc. (“Core-Mark”), as defendants. The Master Complaint also named additional distributors of JUUL products (collectively with Eby-Brown and Core-Mark, the “Distributor Defendants”). In March 2009,The Master Complaint contains various state law claims and alleges that the Baltimore Equal Employment Opportunity Commission,Distributor Defendants: (i) failed to disclose JUUL’s nicotine contents or the “EEOC,” Field Office served usrisks associated; (ii) pushed a product designed for a youth market; (iii) engaged with company-wide (excluding, however, our VistarJUUL in planning and Roma Foodservice operations) subpoenas relatingmarketing its product in a manner designed to alleged violationsmaximize the flow of JUUL products; (iv) met with JUUL management in San Francisco, California to further these business dealings; and (v) received incentives and business development funds for marketing and efficient sales. Individual plaintiffs may also file separate and abbreviated Short Form Complaints that incorporate the Equal Pay Actallegations in the Master Complaint. JUUL and Title VII of the Civil Rights Act (“Title VII”), seeking certain information from January 1, 2004Eby-Brown are parties to a specified dateDomestic Wholesale Distribution Agreement dated March 10, 2020 (the "Distribution Agreement"), and JUUL has agreed to defend and indemnify Eby-Brown under the terms of that agreement and is paying Eby-Brown’s outside counsel fees directly. In addition, Core-Mark and JUUL have entered into a Defense and Indemnity Agreement dated March 8, 2021 (the "Defense Agreement") pursuant to which JUUL has agreed to defend and indemnify Core-Mark, and JUUL is paying Core-Mark’s outside counsel fees directly.
On December 6, 2022, JUUL announced that it had reached settlements with the plaintiffs in the MDL and related cases that had been consolidated in the U.S. District Court for Northern District of California (the “MDL Settlement”). On January 18, 2023, the parties who were set to participate in the first fiscal quarterround of 2009. In August 2009,bellwether trials in the EEOC moved to enforceMDL submitted a joint status filing with the subpoenas in federal court in Maryland, and we opposed the motion. In February 2010,which they notified the court ruled thatof, among other things, the subpoena related tosettlement JUUL reached with the Equal Pay Act investigation was enforceable company-wide but on a narrower scopeplaintiffs. Per the settlement agreement, the MDL Settlement encompasses the various personal injury, consumer class action, government entity, and Native American tribe claims made against JUUL and includes, among others, all of data than the original subpoena sought (the court ruled that the subpoena wasDistributor Defendants (including Core-Mark and Eby-Brown) as released parties. The release applicable to the transportation, logistics,Distributor Defendants, as well as certain other defendants, took effect when JUUL
16
made the first settlement payment on October 27, 2023. The MDL Settlement Master has informed the parties that there are ten plaintiffs who named both Core-Mark and warehouse functionsEby-Brown as defendants who have opted out of our broadlinethe MDL Settlement. Those opt-out plaintiff cases are now in the early stages of discovery and no trial dates have been set. If any of the opt-out plaintiffs continue to litigate their claims apart from the MDL Settlement, the duty of JUUL to defend and indemnify Eby-Brown and Core-Mark remains, and the Company will vigorously defend itself.
On September 10, 2021, Michael Lumpkins filed a parallel lawsuit in Illinois state court against several entities, including JUUL, e-liquid manufacturers, various retailers, and various distributors, including Eby-Brown and Core-Mark, alleging similar claims to the claims at issue in the MDL (the “Illinois Litigation”). Because there is no federal jurisdiction for this case, it will proceed in Illinois state court. Plaintiff alleges as damages that his use of JUUL products caused a brain injury that was later exacerbated by medical negligence. The court has not yet entered a case management schedule. Eby-Brown and Core-Mark have filed a substantive motion to dismiss. The defense and indemnity of Eby-Brown and Core-Mark for the Illinois Litigation is covered by the Distribution Agreement and the Defense Agreement, respectively. If the Illinois Litigation is not resolved pursuant to the MDL Settlement or otherwise, the Company will continue to vigorously defend itself.
On June 23, 2022, the U.S. Food and Drug Administration (“FDA”) announced it had issued marketing denial orders (“MDOs”) to JUUL for all of its products currently marketed and sold in the U.S. According to the FDA, the MDOs banned the distribution centers only and not to our PFG Customized distribution centers). We cooperatedsale of all JUUL products domestically. That same day, JUUL filed a petition for review of the MDOs with the EEOC onUnited States Court of Appeals for the productionD.C. Circuit. On June 24, 2022, the court of information. In September 2011,appeals stayed the EEOC notified usMDOs and issued a briefing schedule in the case. Thereafter, JUUL informed the FDA that the EEOC was terminating the investigation into alleged violationsper applicable regulations it would submit a request for supervisory review of the Equal Pay Act. In determinations issued in September 2012 by the EEOC with respectMDOs to the chargesFDA. In response, the FDA notified JUUL that upon further review of the briefing JUUL made to the court of appeals, the FDA determined there are scientific issues unique to JUUL’s Pre-Market Tobacco Application (“PMTA”) that warrant additional review. Accordingly, the FDA entered an administrative stay of the MDOs. If the FDA ultimately decides to maintain or re-issue the MDOs, the administrative stay will remain in place for an additional thirty days to provide JUUL the opportunity to seek further judicial relief. JUUL and the FDA filed a joint motion with the court of appeals to hold the petition for review in abeyance on July 6, 2022, which the EEOC had based its company-wide investigation, the EEOC concluded that we engaged in a patterncourt of denying hiring and promotion to a class of female applicants and employees into certain positions within the transportation, logistics, and warehouse functions within our broadline division in violation of Title VII. In June 2013, the EEOC filed suit in federal court in Baltimore against us. The litigation concerns two issues: (1) whether we unlawfully engaged in an ongoing pattern and practice of failing to hire female applicants into operations positions; and (2) whether we unlawfully failed to promote one of the three individuals who filed charges with the EEOC because of her gender. The EEOC seeks the following relief in the lawsuit: (1) to permanently enjoin us from denying employment to female applicants because of their sex and denying promotions to female employees because of their sex; (2) a court order mandating that we institute and carry out policies, procedures, practices and programs which provide equal employment opportunities for females; (3) back pay with prejudgment interest and compensatory damages for a former female employee and an alleged class of aggrieved female applicants; (4) punitive damages; and (5) costs. The court bifurcated the litigation into two phases. In the first phase, the jury will decide whether we engaged in a gender-based pattern and practice of discrimination and the individual claims of one former employee. If the EEOC prevailsappeals granted on all counts in the first phase, no monetary relief would be awarded, except possibly for the single individual’s claims, which would be immaterial. The remaining individual claims would then be tried in the second phase. July 7, 2022.
At this stage in the proceedings,time, the Company cannot estimate eitheris unable to predict whether the number of individual trials that could occur inFDA will approve JUUL’s PMTA or re-issue the second phase ofMDOs, nor is the litigation or the value of those claims. For these reasons, we are unableCompany able to estimate any potential loss or range of loss in the event of an adverse finding against JUUL in the first and second phasesany case that falls outside of the litigation. The parties are engaged in discovery. We intend to vigorously defend ourselves.MDL Settlement.
Wilder, et al. v. Roma Food Enterprises, Inc., et al. The court granted final approval of the settlement stipulation on November 6, 2017. The Company funded the $1.9 million settlement on January 10, 2018, thereby ending the litigation.
Tax Liabilities
The Company is subject to customary audits by authorities in the jurisdictions where it conducts business in the United States and foreign countries, which may result in assessments of additional taxes.
11. Related-Party Transactions
Transaction and Advisory Fee Agreement
The Company was a party to an advisory fee agreement pursuant to which affiliates of The Blackstone Group L.P. and Wellspring provided management certain strategic and structuring advice and certain monitoring, advising, and consulting services to the Company. The advisory fee agreement provided for the payment by the Company of an annual advisory fee and the reimbursement of out of pocket expenses. In fiscal 2018 the Company will pay a total of $3.0 million related to this agreement, of which $1.5 million was paid in the second quarter of fiscal 2018 and during the six months ended December 30, 2017 and $1.5 million will be paid in the third quarter of fiscal 2018. The payments made under this agreement totaled $5.5 million during the six months ended December 31, 2016.
Under its terms, this agreement terminated on October 6, 2017.
Other
The Company participates in, and has an equity method investment in, a purchasing alliance that was formed to obtain better pricing, to expand product options, to reduce internal costs, and to achieve greater inventory turnover. The Company’s investment in the purchasing alliance was $4.7$11.7 million as of December 30, 20172023 and $4.6$9.9 million as of July 1, 2017. During2023. For the three-month periods ended December 30, 20172023 and December 31, 2016,2022, the Company recorded purchases of $177.5$521.1 million and $176.6$467.1 million, respectively, through the purchasing alliance. DuringFor thesix-month periods ended December 30, 20172023 and December 31, 2016,2022, the Company recorded purchases of $390.4$1,070.6 million and $387.0$965.6 million, respectively, through the purchasing alliance.
17
12. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted EPSearnings per common share is calculated using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. The Company’s potential common shares include outstanding stock-based compensation awards and expected issuable shares under the employee stock purchase plan. In computing diluted EPS,earnings per common share, the average closing stock price for the period is used in determining the number of shares assumed to be purchased with the assumed proceeds from the exercise of stock options under the treasury stock method. PotentialNo potential common shares of 0.7 million and 0.7 millionwere considered antidilutive for the three and six months ended December 30, 2017, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive. Potential common shares of 1.2 million2023 and 1.0 million for the three and six months ended December 31, 2016, respectively, were not included in computing diluted earnings per share because the effect would have been antidilutive.2022.
A reconciliation of the numerators and denominators for the basic and diluted EPSearnings per common share computations is as follows:
(In millions, except per share amounts) | Three months ended December 30, 2017 | Three months ended December 31, 2016 | Six months ended December 30, 2017 | Six months ended December 31, 2016 |
| Three Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income | $ | 78.0 | $ | 22.9 | $ | 100.6 | $ | 35.1 |
| $ | 78.3 |
|
| $ | 71.1 |
|
| $ | 199.0 |
|
| $ | 166.8 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Weighted-average common shares outstanding | 101.4 | 100.1 | 101.2 | 100.0 |
|
| 154.2 |
|
|
| 154.1 |
|
|
| 154.5 |
|
|
| 153.9 |
| ||||||||||||
Dilutive effect of share-based awards | 3.1 | 2.6 | 3.3 | 2.5 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Dilutive effect of potential common shares |
|
| 1.5 |
|
|
| 2.0 |
|
|
| 1.7 |
|
|
| 2.0 |
| ||||||||||||||||
Weighted-average dilutive shares outstanding | 104.5 | 102.7 | 104.5 | 102.5 |
|
| 155.7 |
|
|
| 156.1 |
|
|
| 156.2 |
|
|
| 155.9 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.77 | $ | 0.23 | $ | 0.99 | $ | 0.35 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.75 | $ | 0.22 | $ | 0.96 | $ | 0.34 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Basic earnings per common share |
| $ | 0.51 |
|
| $ | 0.46 |
|
| $ | 1.29 |
|
| $ | 1.08 |
| ||||||||||||||||
Diluted earnings per common share |
| $ | 0.50 |
|
| $ | 0.46 |
|
| $ | 1.27 |
|
| $ | 1.07 |
|
The13. Segment Information
Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments, as defined by ASC 280Segment Reporting, related to disclosures about segmentssegments: Foodservice, Vistar, and Convenience.
The Foodservice segment distributes a broad line of an enterprise. The Performance Foodservice (“PFS”) segment marketsnational brands, customer brands, and distributesour proprietary-branded food and food-related products, or “Performance Brands.” Foodservice sells to independent restaurants, chainand multi-unit “Chain” restaurants and other institutional “food-away-from-home” locations. The PFG Customized segment principally servesinstitutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining channel but also serves fine dining, and fast casual restaurant chains. TheOur Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snack, beverage,snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other productsitems to customers in the vending, office coffee services, theater, retail, and other channels. Intersegment sales represent sales between the segments, which are eliminated in consolidation. Management evaluates the performance of each operating segment based on various operating and financial metrics, including total sales and EBITDA. For PFG Customized, EBITDA includes certain allocated corporate charges that are included in operating expenses. The allocated corporate charges are determined based on a percentage of total sales. This percentage is reviewed on a periodic basis to ensure that the segment is allocated a reasonable rate of corporate expenses based on their use of corporate services.convenience stores across North America.
Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of the Company’s internal logistics unit responsible for managing and allocating inbound logistics revenue and expense, as well as the operations ofexpense. Corporate & All Other may also include capital expenditures for certain recent acquisitions.
In the first quarter of fiscal 2018, the Company reorganized its information technology department, and expenses associated with business application teamsprojects that are now included intransferred to the segments results. The once placed in service.
Intersegment sales represent sales between the segments, which are eliminated in consolidation.
(In millions) |
| Foodservice |
|
| Vistar |
|
| Convenience |
|
| Corporate |
|
| Eliminations |
|
| Consolidated |
| ||||||
For the three months ended December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net external sales |
| $ | 7,073.6 |
|
| $ | 1,201.0 |
|
| $ | 5,941.4 |
|
| $ | 79.7 |
|
| $ | — |
|
| $ | 14,295.7 |
|
Inter-segment sales |
|
| 5.7 |
|
|
| 0.9 |
|
|
| — |
|
|
| 148.0 |
|
|
| (154.6 | ) |
|
| — |
|
Total sales |
|
| 7,079.3 |
|
|
| 1,201.9 |
|
|
| 5,941.4 |
|
|
| 227.7 |
|
|
| (154.6 | ) |
|
| 14,295.7 |
|
Depreciation and amortization |
|
| 72.7 |
|
|
| 12.8 |
|
|
| 37.2 |
|
|
| 20.6 |
|
|
| — |
|
|
| 143.3 |
|
Capital expenditures |
|
| 61.6 |
|
|
| 15.2 |
|
|
| 7.9 |
|
|
| 9.2 |
|
|
| — |
|
|
| 93.9 |
|
For the three months ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net external sales |
| $ | 6,892.1 |
|
| $ | 1,118.3 |
|
| $ | 5,864.1 |
|
| $ | 24.4 |
|
| $ | — |
|
| $ | 13,898.9 |
|
Inter-segment sales |
|
| 4.5 |
|
|
| 0.6 |
|
|
| — |
|
|
| 129.6 |
|
|
| (134.7 | ) |
|
| — |
|
Total sales |
|
| 6,896.6 |
|
|
| 1,118.9 |
|
|
| 5,864.1 |
|
|
| 154.0 |
|
|
| (134.7 | ) |
|
| 13,898.9 |
|
Depreciation and amortization |
|
| 71.8 |
|
|
| 10.6 |
|
|
| 36.5 |
|
|
| 6.3 |
|
|
| — |
|
|
| 125.2 |
|
Capital expenditures |
|
| 48.3 |
|
|
| 1.6 |
|
|
| 5.9 |
|
|
| 2.2 |
|
|
| — |
|
|
| 58.0 |
|
18
(In millions) |
| Foodservice |
|
| Vistar |
|
| Convenience |
|
| Corporate |
|
| Eliminations |
|
| Consolidated |
| ||||||
For the Six Months Ended December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net external sales |
| $ | 14,345.3 |
|
| $ | 2,450.6 |
|
| $ | 12,278.4 |
|
| $ | 160.0 |
|
| $ | — |
|
| $ | 29,234.3 |
|
Inter-segment sales |
|
| 11.0 |
|
|
| 1.7 |
|
|
| — |
|
|
| 308.1 |
|
|
| (320.8 | ) |
|
| — |
|
Total sales |
|
| 14,356.3 |
|
|
| 2,452.3 |
|
|
| 12,278.4 |
|
|
| 468.1 |
|
|
| (320.8 | ) |
|
| 29,234.3 |
|
Depreciation and amortization |
|
| 143.3 |
|
|
| 23.2 |
|
|
| 74.9 |
|
|
| 31.2 |
|
|
| — |
|
|
| 272.6 |
|
Capital expenditures |
|
| 92.6 |
|
|
| 18.6 |
|
|
| 11.9 |
|
|
| 24.0 |
|
|
| — |
|
|
| 147.1 |
|
For the Six Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net external sales |
| $ | 14,216.1 |
|
| $ | 2,207.6 |
|
| $ | 12,151.0 |
|
| $ | 43.5 |
|
| $ | — |
|
| $ | 28,618.2 |
|
Inter-segment sales |
|
| 10.5 |
|
|
| 1.4 |
|
|
| — |
|
|
| 262.8 |
|
|
| (274.7 | ) |
|
| — |
|
Total sales |
|
| 14,226.6 |
|
|
| 2,209.0 |
|
|
| 12,151.0 |
|
|
| 306.3 |
|
|
| (274.7 | ) |
|
| 28,618.2 |
|
Depreciation and amortization |
|
| 137.8 |
|
|
| 21.3 |
|
|
| 73.3 |
|
|
| 12.0 |
|
|
| — |
|
|
| 244.4 |
|
Capital expenditures |
|
| 76.6 |
|
|
| 4.5 |
|
|
| 13.5 |
|
|
| 3.5 |
|
|
| — |
|
|
| 98.1 |
|
Adjusted EBITDA for PFS, Vistareach reportable segment and Corporate & All Other for the threeis presented below along with a reconciliation to consolidated income before taxes.
|
| Three Months Ended |
|
| Six Months Ended | ||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| ||||
Foodservice Adjusted EBITDA |
| $ | 224.1 |
|
| $ | 214.2 |
|
| $ | 470.1 |
|
| $ | 450.3 |
|
|
Vistar Adjusted EBITDA |
|
| 93.6 |
|
|
| 92.2 |
|
|
| 182.2 |
|
|
| 166.6 |
|
|
Convenience Adjusted EBITDA |
|
| 83.5 |
|
|
| 69.3 |
|
|
| 178.2 |
|
|
| 174.9 |
|
|
Corporate & All Other Adjusted EBITDA |
|
| (55.8 | ) |
|
| (66.9 | ) |
|
| (101.3 | ) |
|
| (128.3 | ) |
|
Depreciation and amortization |
|
| (143.3 | ) |
|
| (125.2 | ) |
|
| (272.6 | ) |
|
| (244.4 | ) |
|
Interest expense |
|
| (61.4 | ) |
|
| (55.7 | ) |
|
| (117.5 | ) |
|
| (106.1 | ) |
|
Change in LIFO reserve |
|
| (21.8 | ) |
|
| (25.0 | ) |
|
| (41.0 | ) |
|
| (51.8 | ) |
|
Stock-based compensation expense |
|
| (11.0 | ) |
|
| (11.4 | ) |
|
| (21.7 | ) |
|
| (22.9 | ) |
|
(Loss) gain on fuel derivatives |
|
| (1.8 | ) |
|
| 7.3 |
|
|
| 1.7 |
|
|
| (2.5 | ) |
|
Acquisition, integration & reorganization expenses |
|
| (3.9 | ) |
|
| (2.8 | ) |
|
| (13.7 | ) |
|
| (5.8 | ) |
|
Other adjustments (1) |
|
| 9.5 |
|
|
| 0.2 |
|
|
| 10.6 |
|
|
| (3.9 | ) |
|
Income before taxes |
| $ | 111.7 |
|
| $ | 96.2 |
|
| $ | 275.0 |
|
| $ | 226.1 |
|
|
(In millions) For the three months ended December 30, 2017 Net external sales Inter-segment sales Total sales EBITDA Depreciation and amortization Capital expenditures For the three months ended December 31, 2016 Net external sales Inter-segment sales Total sales EBITDA Depreciation and amortization Capital expenditures (In millions) For the six months ended December 30, 2017 Net external sales Inter-segment sales Total sales EBITDA Depreciation and amortization Capital expenditures For the six months ended December 31, 2016 Net external sales Inter-segment sales Total sales EBITDA Depreciation and amortization Capital expenditures PFS PFG
Customized Vistar Corporate
& All Other Eliminations Consolidated $ 2,532.8 $ 888.1 $ 838.3 $ 51.9 $ — $ 4,311.1 2.5 0.1 0.6 58.7 (61.9 ) — 2,535.3 888.2 838.9 110.6 (61.9 ) 4,311.1 83.0 5.9 34.0 (41.4 ) — 81.5 14.6 3.7 6.9 7.1 — 32.3 9.3 4.1 5.3 3.3 — 22.0 $ 2,356.8 $ 933.4 $ 737.4 $ 24.2 $ — $ 4,051.8 1.4 0.1 0.5 53.7 (55.7 ) — 2,358.2 933.5 737.9 77.9 (55.7 ) 4,051.8 75.5 6.7 33.0 (33.0 ) — 82.2 14.0 3.6 6.6 6.2 — 30.4 34.1 2.7 0.8 7.5 — 45.1 PFS PFG
Customized Vistar Corporate
& All Other Eliminations Consolidated $ 5,157.3 $ 1,784.1 $ 1,634.5 $ 100.1 $ — $ 8,676.0 5.1 0.2 1.2 118.6 (125.1 ) — 5,162.4 1,784.3 1,635.7 218.7 (125.1 ) 8,676.0 161.8 11.1 59.8 (69.0 ) — 163.7 28.4 7.3 13.2 14.8 — 63.7 20.5 6.3 5.6 6.1 — 38.5 $ 4,791.5 $ 1,800.1 $ 1,478.2 $ 28.1 $ — $ 8,097.9 3.1 0.7 1.2 108.7 (113.7 ) — 4,794.6 1,800.8 1,479.4 136.8 (113.7 ) 8,097.9 148.1 10.6 54.8 (69.4 ) — 144.1 27.1 8.8 11.8 12.2 — 59.9 53.8 4.9 2.2 19.0 — 79.9
Total assets by reportable segment, excluding intercompany receivables between segments, are as follows:
(In millions) |
| As of |
|
| As of |
| ||
Foodservice |
| $ | 6,582.5 |
|
| $ | 6,511.6 |
|
Vistar |
|
| 1,434.9 |
|
|
| 1,292.7 |
|
Convenience |
|
| 4,085.7 |
|
|
| 4,226.2 |
|
Corporate & All Other |
|
| 809.4 |
|
|
| 468.5 |
|
Total assets |
| $ | 12,912.5 |
|
| $ | 12,499.0 |
|
19
(In millions) | As of December 30, 2017 | As of July 1, 2017 | ||||||
PFS | $ | 2,162.3 | $ | 2,161.2 | ||||
PFG Customized | 645.9 | 667.1 | ||||||
Vistar | 754.0 | 654.5 | ||||||
Corporate & All Other | 320.4 | 321.3 | ||||||
|
|
|
| |||||
Total assets | $ | 3,882.6 | $ | 3,804.1 | ||||
|
|
|
|
Performance Food Group Company provides compensation benefits to employees andnon-employee directors under several share based payment arrangements. The Performance Food Group Company 2007 Management Option Plan (the”2007 Option Plan”) allowed for the granting of awards to employees, officers, directors, consultants, and advisors of the Company or its affiliates. The terms and conditions of awards granted under the 2007 Option Plan were determined by the Board of Directors.
The Tranche II and Tranche III options and restricted stock granted under the 2007 Option Plan are subject to both time and performance vesting, including performance criteria based on the internal rate of return and sponsor cash inflows as outlined in the 2007 Option Plan.
During the second quarter of fiscal 2018, Wellspring sold all of their remaining interest in shares of the Company’s common stock. On December 7, 2017, the Company determined that the performance criteria for the Tranche II and III awards had been met and 2.1 million shares of restricted stock and 1.4 million options vested. In the second quarter of fiscal 2018, the Company recognized approximately $6.3 million of accelerated compensation expense in connection with the vesting of the Tranche II and III awards. Based on the performance achieved, total compensation expense for the Tranche II and III awards was $24.9 million. The excess tax benefit recognized in the consolidated statements of operations for the three and six months ended December 30, 2017 was $15.4 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form10-Q(the “Form 10-Q”) 10-Q and the audited consolidated financial statements and the notes thereto included in the Company’s annual report onForm 10-K for the fiscal year ended July 1, 2017 (the “Form10-K”).10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Item 1A. Risk Factors” section of the Form10-K, and as such risk factors may be updated from time to time in our periodic filings with the “Part II. Item 1A. Risk Factors” section of our quarterly report on Form10-Q for the fiscal quarter ended September 30, 2017.SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this quarterly report on Form10-Q.
Our Company
We market and distribute approximately 150,000 food and food-related products to customers across the United StatesNorth America from approximately 76 distribution facilitiesour over 150 locations to over 150,000300,000 customer locations in the “food-away-from-home” industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally-brandednationally branded products, and products bearing our customers’ brands. Our product assortment ranges from“center-of-the-plate” “center-of-the-plate” items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, and beverages. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers.customers, as well as cigarettes and other tobacco products. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.
We haveBased on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Performance Foodservice, PFG Customized,Vistar, and Vistar.Convenience. Our Performance Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” Performance Foodservice sells to independent or “Street,” and multi-unit or “Chain,”“Chain” restaurants and other institutions such as schools, healthcare facilities, and business and industry locations.locations, and retail establishments. Our PFG Customized segment has provided longstanding service toChain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains and recently expanded service into fast casual restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to the vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products and other items to convenience stores across North America. We believe that there are substantial synergies across our segments. Cross-segment synergies include procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources.
Recent Trends and Initiatives
Our case volume has grown in each quarter over the comparable prior fiscal year quarter, starting in the second quarter of fiscal 2010 and continuing through the most recent quarter. We believe that we gained industry share during the second quarter of fiscal 2018 given that we have grown our sales more rapidly than the industry growth rate forecasted by Technomic, a research and consulting firm serving the food and food related industry. Our Net income increased 240.6% from the second quarter of fiscal 2017 to the second quarter of fiscal 2018 and increased 186.6% from the first six months of fiscal 2017 to the first six months of fiscal 2018. Adjusted EBITDA increased 12.2% from the second quarter of fiscal 2017 to the second quarter of fiscal 2018 and increased 15.4% from the first six months of fiscal 2017 to the first six months of fiscal 2018, driven primarily by case growth and improved profit per case. Case volume grew 4.2% in the second quarter of fiscal 2018 and 3.9% in the first six months of fiscal 2018 compared to the prior year periods. Gross margin dollars rose 9.7% and 9.1% in the second quarter of fiscal 2018 and the first six months of fiscal 2018, respectively, versus the prior year periods primarily as a result of shifting our channel mix toward higher gross margin customers and shifting our product mix toward sales of Performance Brands. Our operating expenses, compared to the second quarter and first six months of fiscal 2017, increased 11.3% and 8.2%, respectively, as a result of increases in variable operational and selling expenses associated with the increase in case volume, as well as due to severalone-time expenses including accelerated stock-based compensation expense.
Key Factors Affecting Our Business
Our business, our industry and the U.S. economy are influenced by a number of general macroeconomic factors, including, but not limited to, changes in the rate of inflation and fuel prices, interest rates, supply chain disruptions, labor shortages, and the effects of health epidemics and pandemics. We continue to actively monitor the impacts of the evolving macroeconomic and geopolitical landscape on all aspects of our business. The Company and our industry may face challenges related to product and fleet supply, increased product and logistics costs, access to labor supply, and lower disposable incomes due to inflationary pressures and macroeconomic conditions. The extent to which these challenges will affect our future financial position, liquidity, and results of operations remains uncertain.
We believe that our long-term performance is principally affected by the following key factors:
20
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management are discussed below. The percentages on the results presented below are calculated based on rounded numbers.
Net Sales
Net sales is equal to gross sales, plus excise taxes, minus sales returns; sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration), inbound freight, and inbound freight.remittances of excise tax. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
EBITDA and Adjusted EBITDA
Management measures operating performance based on our EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. EBITDA is not defined under U.S. GAAP and is not a measure of operating income, operating performance, or liquidity presented in accordance with U.S. GAAP and is subject to important limitations. Our definition of EBITDA may not be the same as similarly titled measures used by other companies.
We believe that the presentation of EBITDA enhances an investor’s understanding of our performance. We use this measure to evaluate the performance of our segments and for business planning purposes. We present EBITDA in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede U.S. GAAP measures.
In addition, our management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items that we do not consider part of our core operating results. Such adjustments include certain unusual,non-cash,non-recurring, cost reduction, and other adjustment items permitted in calculating covenant compliance under our credit agreementABL Facility and indentureindentures (other than certain pro forma adjustments permitted under our credit agreementABL Facility and indentureindentures governing the Notes due 2025, Notes due 2027, and Notes due 2029 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our credit agreementABL Facility and indenture,indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the credit agreementABL Facility and indenture)indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.
Adjusted EBITDA is not defined under U.S.GAAP, is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, including our lenders under the ABL Facility (as defined below under “-Liquidity and Capital Resources”) and holders of our Notes (as defined below under “-Liquiditydue 2025, Notes due 2027, and Capital Resources”),Notes due 2029 in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets based on
Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans.
EBITDA and Adjusted EBITDA havehas important limitations as an analytical toolstool, and you should not consider themit in isolation or as substitutesa substitute for analysis of our results as reported under U.S. GAAP. For example, EBITDA and Adjusted EBITDA:
21
In calculating Adjusted EBITDA, we add back certainnon-cash,non-recurring, and other items as permitted or required by our credit agreementABL Facility and indenture.indentures. Adjusted EBITDA among other things:
We have included the calculationscalculation of EBITDA and Adjusted EBITDA for the periods presented.
Results of Operations EBITDA, and Adjusted EBITDA
The following table sets forth a summary of our results of operations EBITDA, and Adjusted EBITDA for the periods indicated (in millions, except per share data):
|
| Three Months Ended |
| |||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| ||||
Net sales |
| $ | 14,295.7 |
|
| $ | 13,898.9 |
|
| $ | 396.8 |
|
|
| 2.9 |
|
Cost of goods sold |
|
| 12,697.6 |
|
|
| 12,399.3 |
|
|
| 298.3 |
|
|
| 2.4 |
|
Gross profit |
|
| 1,598.1 |
|
|
| 1,499.6 |
|
|
| 98.5 |
|
|
| 6.6 |
|
Operating expenses |
|
| 1,424.2 |
|
|
| 1,355.6 |
|
|
| 68.6 |
|
|
| 5.1 |
|
Operating profit |
|
| 173.9 |
|
|
| 144.0 |
|
|
| 29.9 |
|
|
| 20.8 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| 61.4 |
|
|
| 55.7 |
|
|
| 5.7 |
|
|
| 10.2 |
|
Other, net |
|
| 0.8 |
|
|
| (7.9 | ) |
|
| 8.7 |
|
|
| 110.1 |
|
Other expense, net |
|
| 62.2 |
|
|
| 47.8 |
|
|
| 14.4 |
|
|
| 30.1 |
|
Income before income taxes |
|
| 111.7 |
|
|
| 96.2 |
|
|
| 15.5 |
|
|
| 16.1 |
|
Income tax expense |
|
| 33.4 |
|
|
| 25.1 |
|
|
| 8.3 |
|
|
| 33.1 |
|
Net income (GAAP) |
| $ | 78.3 |
|
| $ | 71.1 |
|
| $ | 7.2 |
|
|
| 10.1 |
|
Adjusted EBITDA (Non-GAAP) |
| $ | 345.4 |
|
| $ | 308.8 |
|
| $ | 36.6 |
|
|
| 11.9 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 154.2 |
|
|
| 154.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Diluted |
|
| 155.7 |
|
|
| 156.1 |
|
|
| (0.4 | ) |
|
| (0.3 | ) |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.51 |
|
| $ | 0.46 |
|
| $ | 0.05 |
|
|
| 10.9 |
|
Diluted |
| $ | 0.50 |
|
| $ | 0.46 |
|
| $ | 0.04 |
|
|
| 8.7 |
|
Three Months Ended | ||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | % | |||||||||||||
Net sales | $ | 4,311.1 | $ | 4,051.8 | $ | 259.3 | 6.4 | |||||||||
Cost of goods sold | 3,743.5 | 3,534.6 | 208.9 | 5.9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 567.6 | 517.2 | 50.4 | 9.7 | ||||||||||||
Operating expenses | 518.5 | 465.9 | 52.6 | 11.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating profit | 49.1 | 51.3 | (2.2 | ) | (4.3 | ) | ||||||||||
Other expense | ||||||||||||||||
Interest expense | 15.1 | 13.6 | 1.5 | 11.0 | ||||||||||||
Other, net | (0.1 | ) | (0.5 | ) | 0.4 | 80.0 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other expense, net | 15.0 | 13.1 | 1.9 | 14.5 | ||||||||||||
Income before income taxes | 34.1 | 38.2 | (4.1 | ) | (10.7 | ) | ||||||||||
Income tax expense | (43.9 | ) | 15.3 | (59.2 | ) | NM | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 78.0 | $ | 22.9 | $ | 55.1 | 240.6 | |||||||||
|
|
|
|
|
|
|
| |||||||||
EBITDA | $ | 81.5 | $ | 82.2 | $ | (0.7 | ) | (0.9 | ) | |||||||
Adjusted EBITDA | $ | 105.0 | $ | 93.6 | $ | 11.4 | 12.2 | |||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 101.4 | 100.1 | 1.3 | 1.3 | ||||||||||||
Diluted | 104.5 | 102.7 | 1.8 | 1.8 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.23 | $ | 0.54 | 234.8 | |||||||||
Diluted | $ | 0.75 | $ | 0.22 | $ | 0.53 | 240.9 | |||||||||
Six Months Ended | ||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | �� | % | ||||||||||||
Net sales | $ | 8,676.0 | $ | 8,097.9 | $ | 578.1 | 7.1 | |||||||||
Cost of goods sold | 7,553.7 | 7,069.4 | 484.3 | 6.9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 1,122.3 | 1,028.5 | 93.8 | 9.1 | ||||||||||||
Operating expenses | 1,022.7 | 945.6 | 77.1 | 8.2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating profit | 99.6 | 82.9 | 16.7 | 20.1 | ||||||||||||
Other expense | ||||||||||||||||
Interest expense | 29.7 | 26.5 | 3.2 | 12.1 | ||||||||||||
Other, net | (0.4 | ) | (1.3 | ) | 0.9 | 69.2 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other expense, net | 29.3 | 25.2 | 4.1 | 16.3 | ||||||||||||
Income before income taxes | 70.3 | 57.7 | 12.6 | 21.8 | ||||||||||||
Income tax expense | (30.3 | ) | 22.6 | (52.9 | ) | NM | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 100.6 | $ | 35.1 | $ | 65.5 | 186.6 | |||||||||
|
|
|
|
|
|
|
| |||||||||
EBITDA | $ | 163.7 | $ | 144.1 | $ | 19.6 | 13.6 | |||||||||
Adjusted EBITDA | $ | 195.7 | $ | 169.6 | $ | 26.1 | 15.4 | |||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 101.2 | 100.0 | 1.2 | 1.2 | ||||||||||||
Diluted | 104.5 | 102.5 | 2.0 | 2.0 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.99 | $ | 0.35 | $ | 0.64 | 182.9 | |||||||||
Diluted | $ | 0.96 | $ | 0.34 | $ | 0.62 | 182.4 |
22
|
| For the Six Months Ended |
| |||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| ||||
Net sales |
| $ | 29,234.3 |
|
| $ | 28,618.2 |
|
| $ | 616.1 |
|
|
| 2.2 |
|
Cost of goods sold |
|
| 25,973.3 |
|
|
| 25,543.5 |
|
|
| 429.8 |
|
|
| 1.7 |
|
Gross profit |
|
| 3,261.0 |
|
|
| 3,074.7 |
|
|
| 186.3 |
|
|
| 6.1 |
|
Operating expenses |
|
| 2,870.9 |
|
|
| 2,739.5 |
|
|
| 131.4 |
|
|
| 4.8 |
|
Operating profit |
|
| 390.1 |
|
|
| 335.2 |
|
|
| 54.9 |
|
|
| 16.4 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| 117.5 |
|
|
| 106.1 |
|
|
| 11.4 |
|
|
| 10.7 |
|
Other, net |
|
| (2.4 | ) |
|
| 3.0 |
|
|
| (5.4 | ) |
|
| (180.0 | ) |
Other expense, net |
|
| 115.1 |
|
|
| 109.1 |
|
|
| 6.0 |
|
|
| 5.5 |
|
Income before income taxes |
|
| 275.0 |
|
|
| 226.1 |
|
|
| 48.9 |
|
|
| 21.6 |
|
Income tax expense |
|
| 76.0 |
|
|
| 59.3 |
|
|
| 16.7 |
|
|
| 28.2 |
|
Net income (GAAP) |
| $ | 199.0 |
|
| $ | 166.8 |
|
| $ | 32.2 |
|
|
| 19.3 |
|
Adjusted EBITDA (Non-GAAP) |
| $ | 729.2 |
|
| $ | 663.5 |
|
| $ | 65.7 |
|
|
| 9.9 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 154.5 |
|
|
| 153.9 |
|
|
| 0.6 |
|
|
| 0.4 |
|
Diluted |
|
| 156.2 |
|
|
| 155.9 |
|
|
| 0.3 |
|
|
| 0.2 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 1.29 |
|
| $ | 1.08 |
|
| $ | 0.21 |
|
|
| 19.4 |
|
Diluted |
| $ | 1.27 |
|
| $ | 1.07 |
|
| $ | 0.20 |
|
|
| 18.7 |
|
23
We believe that the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net income. The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented:
Three Months Ended | Six Months Ended | |||||||||||||||
December 30, 2017 | December 31, 2016 | December 30, 2017 | December 31, 2016 | |||||||||||||
(dollars in millions) | (dollars in millions) | |||||||||||||||
Net income | $ | 78.0 | $ | 22.9 | $ | 100.6 | $ | 35.1 | ||||||||
Interest expense | 15.1 | 13.6 | 29.7 | 26.5 | ||||||||||||
Income tax (benefit) expense | (43.9 | ) | 15.3 | (30.3 | ) | 22.6 | ||||||||||
Depreciation | 24.3 | 22.5 | 49.1 | 43.3 | ||||||||||||
Amortization of intangible assets | 8.0 | 7.9 | 14.6 | 16.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
EBITDA | 81.5 | 82.2 | 163.7 | 144.1 | ||||||||||||
Non-cash items(1) | 11.8 | 3.8 | 16.1 | 8.5 | ||||||||||||
Acquisition, integration and reorganization charges(2) | 1.7 | 3.8 | 4.1 | 6.2 | ||||||||||||
Productivity initiatives(3) | 8.5 | 2.7 | 9.8 | 6.8 | ||||||||||||
Other adjustment items(4) | 1.5 | 1.1 | 2.0 | 4.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted EBITDA | $ | 105.0 | $ | 93.6 | $ | 195.7 | $ | 169.6 | ||||||||
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| December 30, 2023 |
|
| December 31, 2022 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Net income (GAAP) |
| $ | 78.3 |
|
| $ | 71.1 |
|
| $ | 199.0 |
|
| $ | 166.8 |
|
Interest expense |
|
| 61.4 |
|
|
| 55.7 |
|
|
| 117.5 |
|
|
| 106.1 |
|
Income tax expense |
|
| 33.4 |
|
|
| 25.1 |
|
|
| 76.0 |
|
|
| 59.3 |
|
Depreciation |
|
| 86.3 |
|
|
| 77.4 |
|
|
| 170.1 |
|
|
| 153.5 |
|
Amortization of intangible assets |
|
| 57.0 |
|
|
| 47.8 |
|
|
| 102.5 |
|
|
| 90.9 |
|
Change in LIFO reserve (1) |
|
| 21.8 |
|
|
| 25.0 |
|
|
| 41.0 |
|
|
| 51.8 |
|
Stock-based compensation expense |
|
| 11.0 |
|
|
| 11.4 |
|
|
| 21.7 |
|
|
| 22.9 |
|
Loss (gain) on fuel derivatives |
|
| 1.8 |
|
|
| (7.3 | ) |
|
| (1.7 | ) |
|
| 2.5 |
|
Acquisition, integration & reorganization expenses (2) |
|
| 3.9 |
|
|
| 2.8 |
|
|
| 13.7 |
|
|
| 5.8 |
|
Other adjustments (3) |
|
| (9.5 | ) |
|
| (0.2 | ) |
|
| (10.6 | ) |
|
| 3.9 |
|
Adjusted EBITDA (Non-GAAP) |
| $ | 345.4 |
|
| $ | 308.8 |
|
| $ | 729.2 |
|
| $ | 663.5 |
|
Consolidated Results of Operations
Three and six months ended December 30, 20172023 compared to the three and six months ended December 31, 20162022
Net Sales
Net sales growth is a function of acquisitions, case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold.
Net sales increased $259.3$396.8 million, or 6.4%2.9%, forfrom the second quarter of fiscal 2018 compared2023 to the second quarter of fiscal 2017 and2024 due to an increase in cases sold. Net sales increased $578.1$616.1 million, or 7.1%2.2%, for the first six months of fiscal 20182024 compared to the first six months of fiscal 2017.2023. The increase in net sales was primarily attributable to sales growthan increase in Vistar, particularlycases sold, partially offset by a decrease in selling price per case as a result of 1.4% year-to-date deflation in our Foodservice segment as compared to the theater, hospitality, retail, and vending channels, case growth in Performance Foodservice, particularly in the independent channel, and recent acquisitions. Net sales growth was driven bysame prior fiscal year period. Total organic case volume growth of 4.2%increased 2.1% and 3.9%2.4%, in the second quarter and first six months of fiscal 2017,2024, respectively, as well ascompared to the same periods of fiscal 2023. Total organic case volume benefited from an increase of 8.7% and 8.1% in selling price per case in bothorganic independent cases sold during the second quarter and first six months of fiscal 2018 compared2024, respectively, growth in Performance Brands cases, growth in cases sold to the prior year periods.Foodservice's Chain business, and broad-based growth across Vistar's channels.
Gross Profit
Gross profit increased $50.4$98.5 million, or 9.7%6.6%, for the second quarter of fiscal 20182024 compared to the second quarter of fiscal 20172023. The increase in gross profit for the second quarter of fiscal 2024 was primarily driven by growth in cases sold and a favorable shift in the mix of cases sold, including growth in the independent channel and Performance Brands. Gross profit increased $93.8$186.3 million, or 9.1%6.1%, for the first six months of fiscal 20182024 compared to the first six months of fiscal 2017.2023. The increase in gross profit for the first six months of fiscal 2024 was primarily the resultdriven by cost of goods sold optimization through procurement efficiencies, as well as growth in cases. Within Performance Foodservice, casecases sold, including growth toin the independent customers positively affected gross profit per case.channel. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers. Also, in the second quarter and first six months of fiscal 2018, Performance Foodservice grew our Performance Brand sales, which have higher gross profit per case compared to the other brands we sell. See “—Segment Results—Performance Foodservice” below for additional discussion.
24
Operating Expenses
Operating expenses increased $52.6$68.6 million, or 11.3%5.1%, for the second quarter of fiscal 20182024 compared to the second quarter of fiscal 2017 and increased $77.1 million, or 8.2%, for the first six months of fiscal 2018 compared to the first six months of fiscal 2017.2023. The increase in operating expenses was primarily driven by thea $42.6 million increase in case volumepersonnel expense primarily related to wages, commissions, and the resulting impact on variable operationalbenefits, a $23.4 million increase in insurance expense primarily related to vehicle liability and selling expenses, as well as cost of living and other increases inworkers’ compensation, and benefits. Operating expenses also increaseda $11.4 million increase in repairs and maintenance expense primarily related to transportation equipment, partially offset by a $11.0 million decrease in fuel expense primarily due to lower fuel prices in the second quarter of fiscal 2018 due2024 as compared to a $7.2the prior year period.
Operating expenses increased $131.4 million, increase in stock-based compensation as a result of the accelerated vesting of performance-based awards under the 2007 Option Plan andnon-recurring development costs related to certain productivity initiatives the Company no longer plans to pursue. Foror 4.8%, for the first six months of fiscal 2018,2024 compared to the first six months of fiscal 2023. The increase in operating expenses also increased asfor the first six months of fiscal 2024 was primarily driven by a result$74.9 million increase in personnel expenses primarily related to wages, commissions, and benefits, a $31.4 million increase in insurance expense primarily related to vehicle liability and workers’ compensation, and a $26.3 million increase in repairs and maintenance expense primarily related to transportation equipment for the first six months of fiscal 2024 compared to the prior year period. These increases in stock-based compensation expense of $6.4 million and fuel expense of $5.6 million,were partially offset by a $28.0 million decrease in fuel expense primarily due to lower fuel prices for the first six months of $2.0 million in professional, legal and consulting fees.fiscal 2024 compared to the prior year period.
Depreciation and amortization of intangible assets increased from $30.4$125.2 million in the second quarter of fiscal 20172023 to $32.3$143.3 million in the second quarter of fiscal 2018.2024. Depreciation and amortization of intangible assets increased from $59.9$244.4 million in the first six months of fiscal 2023 to $272.6 million in the first six months of fiscal 2024. Depreciation and amortization of intangible assets increased as a result of recent acquisitions, accelerated amortization of certain customer relationships and trade names, and an increase in transportation equipment under finance leases.
Net Income
Net income increased $7.2 million, or 10.1%, for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 driven by the increase in operating profit, partially offset by increases in income tax expense, other expense, and interest expense. Net income increased $32.2 million, or 19.3%, for the first six months of fiscal 20172024 compared to $63.7 millionthe first six months of fiscal 2023 due to the increase in operating profit and an increase in other income, partially offset by increases in income tax expense and interest expense. The increase in other income for the first six months of fiscal 2018. Depreciation of fixed assets increased as a result of larger capital outlays2024 primarily relates to support our growth, as well as recent acquisitions. This increase was partially offset by decreases in amortization of intangible assets, since certain intangibles are now fully amortized compared to the prior year.
Net Income
Net income increased $55.1 million, or 240.6%,realized and unrealized gains for the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017 as a result of the $59.2 million decrease in income tax expense, partially offset by the $2.2 million decrease in operating profit, a $1.5 million increasefuel hedging instruments. The increases in interest expense and a $0.4 million decrease in other income.
The decrease in operating profit was a result of the increase in operating expenses discussed above. The increase in interest expense waswere primarily the result of higher average borrowings and an increase in the average interest rate during the second quarter and first six months of fiscal 20182024 compared to the second quarter of fiscal 2017. prior year periods.
The $0.4 million decrease in other income related primarily to derivative activity.
The decrease inCompany reported income tax expense was primarily a result of the impact of the Tax Cuts$33.4 million and Jobs Act (the “Act”) and the excess tax benefit associated with the vesting of stock-based compensation awards. Our effective tax rate in$76.0 million for the second quarter and first six months of fiscal 2018 was-128.3%2024, respectively, compared to 40.1% in the second quarter of fiscal 2017.
The Act was signed into law on December 22, 2017. Among its numerous changes to the U.S. Internal Revenue Code, the Act reduces the U.S. federal corporate rate from 35% to 21%, which will result in a blended U.S. Federal statutory rate of approximately 28% for the Company. As a result of the Act, the Company revalued its net deferred tax liability, resulting in a decrease to the net deferred tax liability of $37.4 million with a corresponding net benefit to income tax expense of $37.4$25.1 million and $59.3 million for the three and six months ended December 30, 2017. The Company estimates that its effective tax rate for fiscal 2018 will be approximately 33%.
Additionally, in the second quarter of fiscal 2018, performance vesting criteria for certain stock-based compensation awards was met resulting in an excess tax benefit of $15.4 million for the three and six months ended December 30, 2017.
Net income increased $65.5 million, or 186.6%, for the first six months of fiscal 2018 compared to2023, respectively. Our effective tax rates for the second quarter and first six months of fiscal 2017 as a result of2024 were 29.9% and 27.6%, respectively, compared to 26.1% and 26.2%, for the $52.9 million decrease in income tax expensesecond quarter and the $16.7 million increase in operating profit partially offset by a $3.2 million increase in interest expense and a $0.9 decrease in other income.
The increase in operating profit was a result of the increase in gross profit discussed above. The increase in interest expense was primarily the result of higher average borrowings and an increase in the average interest rate during the first six months of fiscal 2018 compared to the first six months of fiscal 2017.2023, respectively. The $0.9 million decrease in other income related primarily to derivative activity.
The decrease in income tax expense was primarily a result of the impact of the Act and the excess tax benefit associated with the vesting of stock-based compensation awards. Our effective tax rate for the periods ended December 30, 2023 differed from the prior year periods primarily due to an increase in the first six monthsnon-deductible expenses and state and foreign taxes as a percentage of fiscal 2018 was-43.1% comparedincome, partially offset by an increase in deductible discrete items related to 39.2% in the first six months of fiscal 2017.
Segment Results
We haveThe Company has three reportable segments as described above—Performancesegments: Foodservice, PFG Customized,Vistar, and Vistar.Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and Adjusted EBITDA. For PFG Customized,Adjusted EBITDA includesis defined as net income before interest expense, interest income, income taxes, depreciation, amortization and excludes certain allocated corporate expenses that are included in operating expenses. The allocated corporate expenses are determined based on a percentage of total sales. This percentage is reviewed on a periodic basis to ensureitems that the allocation reflects a reasonable rateCompany does not consider part of corporateits segments' core operating results, including but not limited to stock-based compensation expense, changes in the LIFO reserve, acquisition, integration and reorganization expenses, based on their useand gains and losses related to fuel derivatives. See Note 13. Segment Information within Part I, Item 1. Financial Statements of corporate services.the consolidated financial statements in this Form 10-Q.
Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense, as well as the operations of recent acquisitions.expense.
In the first quarter of fiscal 2018, the Company reorganized its information technology department, and expenses associated with business application teams are now included in the segments results. The EBITDA for Performance Foodservice, Vistar and Corporate & All Other for the three and six months ended December 31, 2016 has been adjusted to reflect this change.
The following tables set forth net sales and Adjusted EBITDA by segment for the periods indicated (dollars in millions):
25
Net Sales
Three Months Ended |
| Three Months Ended |
| |||||||||||||||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | % |
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| |||||||||||||||||
Performance Foodservice | $ | 2,535.3 | $ | 2,358.2 | $ | 177.1 | 7.5 | |||||||||||||||||||||||||
PFG Customized | 888.2 | 933.5 | (45.3 | ) | (4.9 | ) | ||||||||||||||||||||||||||
Foodservice |
| $ | 7,079.3 |
|
| $ | 6,896.6 |
|
| $ | 182.7 |
|
|
| 2.6 |
| ||||||||||||||||
Vistar | 838.9 | 737.9 | 101.0 | 13.7 |
|
| 1,201.9 |
|
|
| 1,118.9 |
|
|
| 83.0 |
|
|
| 7.4 |
| ||||||||||||
Convenience |
|
| 5,941.4 |
|
|
| 5,864.1 |
|
|
| 77.3 |
|
|
| 1.3 |
| ||||||||||||||||
Corporate & All Other | 110.6 | 77.9 | 32.7 | 42.0 |
|
| 227.7 |
|
|
| 154.0 |
|
|
| 73.7 |
|
|
| 47.9 |
| ||||||||||||
Intersegment Eliminations | (61.9 | ) | (55.7 | ) | (6.2 | ) | (11.1 | ) |
|
| (154.6 | ) |
|
| (134.7 | ) |
|
| (19.9 | ) |
|
| (14.8 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total net sales | $ | 4,311.1 | $ | 4,051.8 | $ | 259.3 | 6.4 |
| $ | 14,295.7 |
|
| $ | 13,898.9 |
|
| $ | 396.8 |
|
|
| 2.9 |
| |||||||||
|
|
|
| |||||||||||||||||||||||||||||
Six Months Ended | ||||||||||||||||||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | % | |||||||||||||||||||||||||||||
Performance Foodservice | $ | 5,162.4 | $ | 4,794.6 | $ | 367.8 | 7.7 | |||||||||||||||||||||||||
PFG Customized | 1,784.3 | 1,800.8 | (16.5 | ) | (0.9 | ) | ||||||||||||||||||||||||||
Vistar | 1,635.7 | 1,479.4 | 156.3 | 10.6 | ||||||||||||||||||||||||||||
Corporate & All Other | 218.7 | 136.8 | 81.9 | 59.9 | ||||||||||||||||||||||||||||
Intersegment Eliminations | (125.1 | ) | (113.7 | ) | (11.4 | ) | (10.0 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total net sales | $ | 8,676.0 | $ | 8,097.9 | $ | 578.1 | 7.1 | |||||||||||||||||||||||||
|
|
|
|
EBITDA
|
| Six Months Ended |
| |||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| ||||
Foodservice |
| $ | 14,356.3 |
|
| $ | 14,226.6 |
|
| $ | 129.7 |
|
|
| 0.9 |
|
Vistar |
|
| 2,452.3 |
|
|
| 2,209.0 |
|
|
| 243.3 |
|
|
| 11.0 |
|
Convenience |
|
| 12,278.4 |
|
|
| 12,151.0 |
|
|
| 127.4 |
|
|
| 1.0 |
|
Corporate & All Other |
|
| 468.1 |
|
|
| 306.3 |
|
|
| 161.8 |
|
|
| 52.8 |
|
Intersegment Eliminations |
|
| (320.8 | ) |
|
| (274.7 | ) |
|
| (46.1 | ) |
|
| (16.8 | ) |
Total net sales |
| $ | 29,234.3 |
|
| $ | 28,618.2 |
|
| $ | 616.1 |
|
|
| 2.2 |
|
Three Months Ended | ||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | % | |||||||||||||
Performance Foodservice | $ | 83.0 | $ | 75.5 | $ | 7.5 | 9.9 | |||||||||
PFG Customized | 5.9 | 6.7 | (0.8 | ) | (11.9 | ) | ||||||||||
Vistar | 34.0 | 33.0 | 1.0 | 3.0 | ||||||||||||
Corporate & All Other | (41.4 | ) | (33.0 | ) | (8.4 | ) | (25.5 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total EBITDA | $ | 81.5 | $ | 82.2 | $ | (0.7 | ) | (0.9 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
Six Months Ended | ||||||||||||||||
December 30, 2017 | December 31, 2016 | Change | % | |||||||||||||
Performance Foodservice | $ | 161.8 | $ | 148.1 | $ | 13.7 | 9.3 | |||||||||
PFG Customized | 11.1 | 10.6 | 0.5 | 4.7 | ||||||||||||
Vistar | 59.8 | 54.8 | 5.0 | 9.1 | ||||||||||||
Corporate & All Other | (69.0 | ) | (69.4 | ) | 0.4 | 0.6 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total EBITDA | $ | 163.7 | $ | 144.1 | $ | 19.6 | 13.6 | |||||||||
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| |||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| ||||
Foodservice |
| $ | 224.1 |
|
| $ | 214.2 |
|
| $ | 9.9 |
|
|
| 4.6 |
|
Vistar |
|
| 93.6 |
|
|
| 92.2 |
|
|
| 1.4 |
|
|
| 1.5 |
|
Convenience |
|
| 83.5 |
|
|
| 69.3 |
|
|
| 14.2 |
|
|
| 20.5 |
|
Corporate & All Other |
|
| (55.8 | ) |
|
| (66.9 | ) |
|
| 11.1 |
|
|
| 16.6 |
|
Total Adjusted EBITDA |
| $ | 345.4 |
|
| $ | 308.8 |
|
| $ | 36.6 |
|
|
| 11.9 |
|
|
| Six Months Ended |
| |||||||||||||
|
| December 30, 2023 |
|
| December 31, 2022 |
|
| Change |
|
| % |
| ||||
Foodservice |
| $ | 470.1 |
|
| $ | 450.3 |
|
| $ | 19.8 |
|
|
| 4.4 |
|
Vistar |
|
| 182.2 |
|
|
| 166.6 |
|
|
| 15.6 |
|
|
| 9.4 |
|
Convenience |
|
| 178.2 |
|
|
| 174.9 |
|
|
| 3.3 |
|
|
| 1.9 |
|
Corporate & All Other |
|
| (101.3 | ) |
|
| (128.3 | ) |
|
| 27.0 |
|
|
| 21.0 |
|
Total Adjusted EBITDA |
| $ | 729.2 |
|
| $ | 663.5 |
|
| $ | 65.7 |
|
|
| 9.9 |
|
Segment Results—Performance Foodservice
Three and six months ended December 30, 20172023, compared to the three and six months ended December 31, 20162022
Net Sales
Net sales for Performance Foodservice increased $177.1$182.7 million, or 7.5%2.6%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024 and increased $367.8$129.7 million, or 7.7%0.9%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018.2024. These increases in net sales were attributable todriven by case volume growth in cases sold. Case growth was drivenour independent and Chain business, partially offset by securing new independent customers and further penetrating existing customers.a decrease in selling price per case. Securing new and expandedexpanding business with independent customers resulted in organic independent salescase growth of approximately 10.4%8.7% in the second quarter of fiscal 2024 and approximately 8.1% in the first six months of fiscal 20182024, compared to the prior year periods. For the quarter, independent sales as a percentage of total segmentFoodservice sales were 44.5%39.1%. Overall product cost deflation was 0.4% for the second quarter of fiscal 2024 and 1.4% for the first six months of fiscal 2024.
Adjusted EBITDA
Adjusted EBITDA for Performance Foodservice increased $7.5$9.9 million, or 9.9%4.6%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024 and increased $13.7$19.8 million, or 9.3%4.4%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018.2024. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization.expenses. Gross profit contributing to Foodservice's Adjusted EBITDA increased by 7.6%$48.0 million, or 5.2%, in the second quarter of fiscal 20182024 and 7.0%increased $106.2 million, or 5.6% in the first six months of fiscal 2018,2024, compared to the prior year periods, as a result of an increase in cases sold, as well as an increase in the gross profit per case.periods. The increase in gross profit per case was
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driven by growth in cases sold and a favorable shift in the mix of cases sold, toward independent customers andincluding more Performance Brands as well as by an increase in procurement gains. Independent business has higher gross margins than Chain customers within this segment.products sold to our independent customers.
Operating expenses excluding depreciation and amortization for Performance Foodserviceimpacting Foodservice's Adjusted EBITDA increased by $19.4$38.2 million, or 7.0%5.3%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024. Operating expenses increased primarily as a result of a $23.2 million increase in personnel expenses primarily related to wages, commissions, and benefits due to an increase in full-time employees, a $12.9 million increase in insurance expense primarily related to vehicle liability and workers' compensation, and a $2.9 million increase in building rent expense primarily the result of incremental short term duplicative lease expenses associated with expansion projects, compared to the prior year period.
Operating expenses impacting Foodservice's Adjusted EBITDA increased by $36.4$86.6 million, or 6.5%6.0%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018.2024. Operating expenses increased primarily as a result of a $57.1 million increase in personnel expenses primarily related to wages, commissions, and benefits due to an increase in case volumefull-time employees, a $15.7 million increase in insurance expense primarily related to vehicle liability and the resulting impact on variable operational and selling expenses, as well as cost of living and other increases inworkers' compensation, and benefits. Operating expenses also increasedan increase of $7.1 million of repairs and maintenance expense primarily related to transportation equipment as a result of increases in fuel expense of $2.1 million and $3.4 million for the second quarter and first six months of fiscal 2018, respectively. Additionally, insurance expense increased $0.9 million and $2.5 million in the second quarter of fiscal 2018 and the first six months of fiscal 2018, respectively, asCompany is waiting on replacement fleet, compared to the prior year periods.period.
Depreciation and amortization of intangible assets recorded in this segment increased from $14.0$71.8 million in the second quarter of fiscal 20172023 to $14.6$72.7 million in the second quarter of fiscal 20182024 and increased from $27.1$137.8 million in the first six months of fiscal 20172023 to $28.4$143.3 million in the first six months of fiscal 2018. These increases were the2024 as a result of recent warehouse expansion and computer software projects being placed into service, partially offset by a decreasean increase in amortization of intangible assets since certain intangibles are now fully amortized.transportation equipment under finance leases.
Segment Results—PFG CustomizedVistar
Three and six months ended December 30, 20172023, compared to the three and six months ended December 31, 20162022
Net Sales
Net sales for PFG Customized decreased $45.3Vistar increased $83.0 million, or 4.9%7.4%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024 and decreased $16.5increased $243.3 million, or 0.9%11.0%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018. Excluding the impact2024. These increases in net sales were driven primarily by an increase in selling price per case as a result of the Georgia facility that was closedinflation, a recent acquisition, and case volume growth in the fourth quarter of fiscal 2017, net sales would have increased $14.0 millionvending, office supply, office coffee service, and travel channels in the second quarter of fiscal 2018 and would have increased $102.6 million in the first six months of fiscal 20182024 compared to the prior year periods. These increases were the result of a favorable shift in customer mix.
Adjusted EBITDA
Adjusted EBITDA for PFG Customized decreased $0.8Vistar increased $1.4 million, or 11.9%1.5%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 2018. This decrease was primarily attributable to an increase in operating expenses, excluding depreciation2024 and amortization, partially offset by an increase in gross profit. Gross profit for PFG Customized increased primarily as a result of a favorable shift in customer mix. EBITDA for this segment increased $0.5$15.6 million, or 4.7%9.4%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018 as a2024. These increases were the result of a favorable shift in customer mix and an increase in case volume.
Operating expenses, excluding depreciation and amortization, decreasedgross profit, partially offset by $0.2an increase in operating expenses. Gross profit contributing to Vistar's Adjusted EBITDA increased $18.5 million, or 0.3%9.0%, infor the second quarter of fiscal 20182024 and decreased $1.2increased $38.5 million, or 1.2%9.7%, infor the first six months of fiscal 2018,2024 compared to the prior year periods. Theseperiods driven by a recent acquisition, pricing improvement from procurement efficiencies, and growth in cases sold, partially offset by expected decreases in operatinginventory holding gains.
Operating expenses wereimpacting Vistar's Adjusted EBITDA increased $16.9 million, or 14.7%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $22.7 million, or 9.9%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. Operating expenses increased primarily as a result of a recent acquisition and increases of $2.0 million and $3.4 million in building rent expense as a result of lease renewals and expansion, for the closed Georgia facility, partially offset by increases in personnel expensessecond quarter and fuel expense.first six months of fiscal 2024, respectively, compared to the prior year periods.
Depreciation and amortization of intangible assets recorded in this segment increased from $3.6$10.6 million in the second quarter of fiscal 20172023 to $3.7$12.8 million in the second quarter of fiscal 20182024 and decreasedincreased from $8.8$21.3 million in the first six months of fiscal 20172023 to $7.3$23.2 million in the first six months of fiscal 2018. The $1.5 million decrease in the first six months of fiscal 2018 is primarily2024 due to a result of the absence of accelerated amortization of customer relationship intangible assets that was recorded in fiscal 2017.recent acquisition.
Segment Results—VistarConvenience
Three and six months ended December 30, 20172023, compared to the three and six months ended December 31, 20162022
Net Sales
Net sales for VistarConvenience increased $101.0$77.3 million, or 13.7%1.3%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024 and increased $156.3$127.4 million, or 10.6%1.0%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018. These2024. The
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increase in net sales for the second quarter and first six months of fiscal 2024 for Convenience was driven primarily by an increase in selling price per case as a result of cigarette manufacturers’ price increases were drivenand continued inflation for food and foodservice related products, partially offset by casea decline in cigarette carton sales growth in the segment’s theater, hospitality, retail, and vending channels.food and foodservice related cases sold.
Adjusted EBITDA
Adjusted EBITDA for VistarConvenience increased $1.0$14.2 million, or 3.0%20.5%, from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024. This increase was a result of an increase in gross profit and a decrease in operating expenses. Gross profit contributing to Convenience's Adjusted EBITDA increased $5.0$8.2 million, or 9.1%2.2%, for the second quarter of fiscal 2024 compared to the prior year period driven by pricing improvement from procurement efficiencies. Operating expenses impacting Convenience's Adjusted EBITDA decreased $5.9 million, or 1.9%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024. Operating expenses decreased primarily as a result of an $8.3 million decrease in personnel expenses from reduced contract labor and overtime, partially offset by a $4.4 million increase in insurance expenses primarily related to workers compensation and vehicle liability compared to the prior year period.
Adjusted EBITDA for Convenience increased $3.3 million, or 1.9%, from the first six months of fiscal 20172023 to the first six months of fiscal 2018.2024. This increase was a result of a decrease in operating expenses, partially offset by a decrease in gross profit. Gross profit dollar growth of $19.4contributing to Convenience's Adjusted EBITDA decreased $14.2 million, or 19.3%, for the second quarter of fiscal 2018 and $32.6 million, or 16.8%1.8%, for the first six months of fiscal 20182024 compared to the prior year periods, was drivenperiod primarily due to expected decreases in inventory holding gains, partially offset by an increase inpricing improvement from procurement efficiencies. Operating expenses impacting Convenience's Adjusted EBITDA decreased $17.5 million, or 2.8%, from the numberfirst six months of cases sold, as wellfiscal 2023 to the first six months of fiscal 2024. Operating expenses decreased primarily as a favorable changeresult of a $15.0 million decrease in sales mix.
Operatingpersonnel expenses excluding depreciationfrom reduced contract labor and amortization, increased $19.1million, or 28.6%, for the second quarter of fiscal 2018 and $28.3 million, or 20.5%,overtime for the first six months of fiscal 20182024 as compared to the prior year periods. Operating expenses increased primarily as a result of an increase in case volume and the resulting impact on variable operational and selling expenses, as well as cost of living and other increases in compensation and benefits. Operating expenses also increased a result of recent acquisitions and due to an increase in fuel expense.period.
Depreciation and amortization of intangible assets recorded in this segment increased from $6.6$36.5 million in the second quarter of fiscal 20172023 to $6.9$37.2 million in the second quarter of fiscal 20182024 and increased from $11.8$73.3 million in the first six months of fiscal 20172023 to $13.2$74.9 million in the first six months of fiscal 2018. Amortization of intangible assets increased as a result of prior year acquisitions. Depreciation of fixed assets increased as a result of an increase in transportation equipment obtained under capital leases.2024.
Segment Results—Corporate & All Other
Three and six months ended December 30, 20172023, compared to the three and six months ended December 31, 20162022
Net Sales
Net sales for Corporate & All Other increased $32.7$73.7 million from the second quarter of fiscal 20172023 to the second quarter of fiscal 20182024 and increased $81.9$161.8 million from the first six months of fiscal 20172023 to the first six months of fiscal 2018. The increase was2024. These increases were primarily attributable to recent acquisitions within a non-reportable segment and an increase in logistics services provided to our other segments.
Adjusted EBITDA
Adjusted EBITDA for Corporate & All Other was a negative $41.4$55.8 million for the second quarter of fiscal 20182024 compared to a negative $33.0$66.9 million for the second quarter of fiscal 2017. The decrease in EBITDA in the second quarter of fiscal 2018 was driven by a $7.2 million increase in stock-based compensation as a result of the accelerated vesting of performance-based awards under the 2007 Option Plan. EBITDA in the second quarter of fiscal 2018 also includednon-recurring development costs related to certain productivity initiatives the Company no longer plans to pursue.
EBITDA for Corporate & All Other2023 and was a negative $69.0$101.3 million for the first six months of fiscal 20182024 compared to a negative $69.4$128.3 million for the first six months of fiscal 2017. The increase2023. Corporate & All Other’s Adjusted EBITDA benefited in EBITDA was primarily driven by contributionsthe second quarter and first six months of fiscal 2024 from recent acquisitions and decreases in professional, legal and consulting fees of $2.5$11.1 million and insurance expense$21.6 million in Adjusted EBITDA, respectively, from the operations of $2.3 million, partially offset by an increaseacquisitions made in stock-based compensation expensethe second quarter of $6.4 million.
Depreciation and amortization of intangible assets recorded in this segment increased from $6.2$6.3 million in the second quarter of fiscal 20172023 to $7.1$20.6 million in the second quarter of fiscal 20182024 and increased from $12.2$12.0 million infor the first six months of fiscal 20172023 to $14.8$31.2 million infor the first six months of fiscal 2018. The increase was primarily a result2024 due to recent acquisitions and accelerated amortization of recent acquisitions.certain customer relationships and trade names.
Liquidity and Capital Resources
We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating and capitalfinance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility.facility or other debt instruments. Our working capital and borrowing levels are subject to seasonal fluctuations, typically with the lowest borrowing levels in the third and fourth fiscal quarters and the highest borrowing levels occurring in the first and second fiscal quarters. We believe that our cash flows from operations and available borrowing capacity will be sufficient both to meet our anticipated cash requirements over at least the next twelve months and to maintain sufficient liquidity for normal operating purposes.
At December 30, 2017, our cash balance totaled $23.0 million, including restricted cash of $12.9 million, as compared to a cash balance totaling $21.0 million, including restricted cash of $12.9 million, at July 1, 2017. This increase in cash during the first six months of fiscal 2018 was attributable to net cash provided by financing activities of $70.8 million and net cash provided by operating activities of $32.6 million, partially offset by net cash used in investing activities of $101.4 million. We borrow under our ABL Facilitycredit facility or pay it down regularly based on our cash flows from operating and investing activities. Our practice is to minimize interest expense while maintaining reasonable liquidity.
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As market conditions warrant, we and our stockholders may from time to time depending upon market conditions, seek to repurchase our securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under our ABL Facility.credit facility. In addition, depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness, make investments or acquisitions or for other purposes. Any new debt may be secured debt.
Operating ActivitiesWe are exposed to interest rate risk related to changes in interest rates for borrowings under our ABL Facility. To add stability to interest expense and manage our exposure to interest rate movements, we enter into interest rate swap agreements. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments. As of December 30, 2023, $350.0 million of the outstanding ABL Facility balance is currently hedged under interest rate swaps which results in 80% of our total debt outstanding, including finance lease obligations, being fixed-rate debt.
On November 16, 2022, the Board of Directors authorized a new share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The new share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During the six months ended December 30, 2023, the Company repurchased 1.3 million shares of the Company's common stock for a total of $78.1 million. As of December 30, 2023, $210.6 million remained available for share repurchases.
Our contractual cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. For information regarding the Company’s expected cash requirements related to long-term debt and operating and finance leases, see Note 6. Debt and Note 7. Leases, respectively, of the consolidated financial statements in this Form 10-Q. As of December 30, 2023, the Company had total purchase obligations of $320.4 million, which includes agreements for purchases related to capital projects and services in the normal course of business, for which all significant terms have been confirmed, as well as a minimum amount due for various Company meetings and conferences. Purchase obligations also include amounts committed to various capital projects in process or scheduled to be completed in the coming fiscal years. As of December 30, 2023, the Company had commitments of $228.8 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under the ABL Facility to fulfill these commitments. Amounts due under these agreements were not included in the Company’s consolidated balance sheet as of December 30, 2023.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
We believe that our cash flows from operations and available borrowing capacity will be sufficient both to meet our anticipated cash requirements over at least the next 12 months and to maintain sufficient liquidity for normal operating purposes and to fund capital expenditures.
As of December 30, 2023, our cash balance totaled $23.9 million, including restricted cash of $7.5 million, as compared to a cash balance totaling $20.0 million, including restricted cash of $7.3 million, as of July 1, 2023.
Six months ended December 30, 20172023, compared to Sixthe six months ended December 31, 20162022
Operating Activities
During the first six months of fiscal 2018,2024 and fiscal 2023, our operating activities provided cash flow of $32.6$554.0 million while during the first six months of fiscal 2017 our operating activities used cash flow of $25.5 million.and $424.5 million, respectively. The increase in cash flowsflow provided by operating activities in the first six months of fiscal 20182024 compared to the first six months of fiscal 20172023 was largely driven by improvements in working capital and higher operating income and improved working capital management.income.
Investing Activities
Cash used in investing activities totaled $101.4$436.4 million in the first six months of fiscal 20182024 compared to $161.8$160.3 million in the first six months of fiscal 2017.2023. These investments consisted primarily of paymentscash paid for business acquisitions of $63.2$308.1 million in the first six months of fiscal 2024 compared to $65.8 million in the first six months of fiscal 2023, along with capital purchases of property, plant, and equipment of $147.1 million and $98.1 million for the first six months of fiscal 2018 and $82.1 million for the first six months of fiscal 2017 and capital purchases of property, plant, and equipment of $38.5 million and $79.9 million for the first six months of fiscal 20182024 and the first six months of fiscal 2017,2023, respectively. For the first six months of fiscal 2018,2024, purchases of property, plant, and equipment primarily consisted of information technology and equipment, as well as the outlays for warehouse expansionsimprovements and improvements.expansion, warehouse equipment, transportation equipment, and information technology. The following table presents the capital purchases of property, plant, and equipment by segment:segment.
(Dollars in millions) | Six Months Ended | |||||||
December 30, 2017 | December 31, 2016 | |||||||
Performance Foodservice | $ | 20.5 | $ | 53.8 | ||||
PFG Customized | 6.3 | 4.9 | ||||||
Vistar | 5.6 | 2.2 | ||||||
Corporate & All Other | 6.1 | 19.0 | ||||||
|
|
|
| |||||
Total capital purchases of property, plant and equipment | $ | 38.5 | $ | 79.9 | ||||
|
|
|
|
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As of December 30, 2017, the Company had commitments of $7.0 million for capital projects related to warehouse expansion and improvements. The Company anticipates using borrowings from the ABL Facility to fulfill these commitments.
|
| Six Months Ended |
| |||||
(Dollars in millions) |
| December 30, 2023 |
|
| December 31, 2022 |
| ||
Foodservice |
| $ | 92.6 |
|
| $ | 76.6 |
|
Vistar |
|
| 18.6 |
|
|
| 4.5 |
|
Convenience |
|
| 11.9 |
|
|
| 13.5 |
|
Corporate & All Other |
|
| 24.0 |
|
|
| 3.5 |
|
Total capital purchases of property, plant and equipment |
| $ | 147.1 |
|
| $ | 98.1 |
|
Financing Activities
During the first six months of fiscal 2018,2024, our financing activities providedused cash flow of $70.8$113.7 million, which consisted primarily of $116.4$78.1 million in net borrowingspayments to repurchase common stock and payments under our ABL facility, which was partially offset by cash paid for shares withheld to cover taxes of $27.8 million and other financing activities.finance lease obligations.
During the first six months of fiscal 2017,2023, our financing activities providedused cash flow of $188.1$269.6 million, which consisted primarily of $192.8$232.1 million in net borrowingspayments under our ABL facility, which was partially offset by cash paid for shares withheld to cover taxes of $1.1 million and other financing activities.Facility.
The following describes our financing arrangements as of December 30, 2017:2023:
ABL FacilityCredit Agreement: PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, is a party to the ABL Facility. On August 3, 2017, PFGC and Performance Food Group, Inc., each a wholly-owned subsidiary of the Company, entered into the First Amendment to the ABL Facility (the “Amendment”). The Amendment amended the ABL Facility by, among other things, (i) increasing the aggregate principal amount under the ABL Facility from $1.6 billion to $1.95 billion by increasing Tranche A Commitments by $325,000,000 and the TrancheA-1 Commitments by $25,000,000 and (ii) maintaining the level of additional commitments permitted, excluding the additional commitments effected pursuant to the Amendment, at $800,000,000 under uncommitted incremental facilities.
The ABL Facility is secured by the majority of the tangible assets of PFGC and its subsidiaries. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, are parties to the ABL Facility. The ABL Facility has an aggregate principal amount of $4.0 billion under the revolving loan facility and is scheduled to mature on September 17, 2026.
Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.
Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at (a) the Base Rate (defined as the greatergreatest of (i) a floor rate of 0.00%, (ii) the Federal Funds Ratefederal funds rate in effect on such date plus 0.5%, (ii)(iii) the Prime Rateprime rate on such day, or (iii)(iv) one month LIBORTerm SOFR (as defined in the ABL Facility) plus 1.0%) plus a spread or (b) LIBORAdjusted Term SOFR (as defined in the ABL Facility) plus a spread. The ABL Facility also provides for an unused commitment fee ranging from 0.25% to 0.375%.at a rate of 0.250% per annum.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company's ABL Facility:
(Dollars in millions) | As of December 30, 2017 | As of July 1, 2017 |
| As of December 30, 2023 |
|
| As of July 1, 2023 |
| ||||||||
Aggregate borrowings | $ | 1,016.3 | $ | 899.9 |
| $ | 1,193.0 |
|
| $ | 1,154.0 |
| ||||
Letters of credit | 123.6 | 105.5 |
|
| 171.5 |
|
|
| 172.2 |
| ||||||
Excess availability, net of lenders’ reserves of $12.2 and $11.2 | 577.8 | 594.6 | ||||||||||||||
Average interest rate | 2.98 | % | 2.59 | % | ||||||||||||
Excess availability, net of lenders’ reserves of $100.7 and $99.7 |
|
| 2,635.5 |
|
|
| 2,673.8 |
| ||||||||
Average interest rate, excluding impact of interest rate swaps |
|
| 6.60 | % |
|
| 6.35 | % |
The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $160.0$320.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on PFGC’s and certain of its subsidiary's ability to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under such agreement may be accelerated and the rights and remedies of the lenders under such agreement available under the ABL Facility may be exercised, including rights with respect to the collateral securing the obligations under such agreement.
Senior Notes:Notes due 2025: On May 17, 2016,April 24, 2020, Performance Food Group, Inc. issued and sold $350.0$275.0 million aggregate principal amount of its 5.500%6.875% Senior Notes due 20242025 (the “Notes”"Notes due 2025"), pursuant to an indenture dated as of May 17, 2016.. The Notes due 2025 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2025 are not guaranteed by Performance Food Group Company.
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The proceeds from the Notes due 2025 were used to pay in full the remaining outstanding aggregate principal amount of loans under a Credit Agreement providing for a term loan facilityworking capital and to terminate the facility; to temporarily repay a portion of the outstanding borrowings under the ABL Facility;general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes.Notes due 2025.
The Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025 mature on JuneMay 1, 20242025 and bear interest at a rate of 5.500%6.875% per year, payable semi-annually in arrears.
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2025 will have the right to require Performance Food Group, Inc. to make an offer to repurchase each holder’s Notes due 2025 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or a part of the Notes at any time prior to June 1, 2019due 2025 at a redemption price equal to 101.719% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100% of the principal amount of the Notes being redeemed, plus a make-whole premium and accrued and unpaid interest if any,on May 1, 2024.
The indenture governing the Notes due 2025 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to butincur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2025 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2025 to become or be declared due and payable.
Senior Notes due 2027:On September 27, 2019, PFG Escrow Corporation (which merged with and into Performance Food Group, Inc.) issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 ("the "Notes due 2027"). The Notes due 2027 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2027 are not including,guaranteed by Performance Food Group Company.
The proceeds from the redemption date. In addition, beginningNotes due 2027 along with an offering of shares of the Company’s common stock and borrowings under a prior credit agreement, were used to fund the cash consideration for the acquisition of Reinhart Foodservice, L.L.C and to pay related fees and expenses.
The Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027 mature on June 1, 2019,October 15, 2027 and bear interest at a rate of 5.500% per year, payable semi-annually in arrears.
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2027 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2027 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at a redemption price equal to 102.750%101.375% of the principal amount redeemed.redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.325% and 100.000%100% of the principal amount redeemed, on June 1, 2020 and June 1, 2021, respectively. In addition, at any time prior to June 1, 2019, Performance Food Group, Inc. may redeem up to 40% of the Notes from the proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest.interest on October 15, 2024.
The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable.
Senior Notes due 2029: On July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 4.250% Senior Notes due 2029 (the “Notes due 2029”). The Notes due 2029 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2029 are not guaranteed by Performance Food Group Company.
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The proceeds from the Notes due 2029 were used to pay down the outstanding balance of the ABL Facility, to redeem the 5.500% Senior Notes due 2024, and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2029.
The Notes due 2029 were issued at 100.0% of their par value. The Notes due 2029 mature on August 1, 2029 and bear interest at a rate of 4.250% per year, payable semi-annually in arrears.
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2029 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at any time prior to August 1, 2024, at a redemption price equal to 100% of the principal amount of the Notes due 2029 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning on August 1, 2024, Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at a redemption price equal to 102.125% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.163% and 100% of the principal amount redeemed, plus accrued and unpaid interest on August 1, 2025, and August 1, 2026, respectively. In addition, at any time prior to August 1, 2024, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2029 from the proceeds of certain equity offerings at a redemption price equal to 104.250% of the principal amount thereof, plus accrued and unpaid interest.
The indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary restrictive covenants underevents of default, the occurrence of which allcould result in the principal of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $302.0 million of restricted payment capacity available under such debt agreements, as of December 30, 2017. Such minimum estimated restricted payment capacity is calculated basedaccrued interest on the most restrictive of our debt agreementsNotes due 2029 to become or be declared due and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.payable.
As of December 30, 2017, we were2023, the Company was in compliance with all of the covenants under the ABL Facility and Notes.the indentures governing the Notes due 2025, the Notes due 2027 and the Notes due 2029.
Unsecured Subordinated Promissory Note. In connection with an acquisition, Performance Food Group, Inc. issued a $6.0 million interest only, unsecured subordinated promissory note on December 21, 2012, bearing an interest rate of 3.5%. The $6.0 million promissory note was paid off in December 2017.
Contractual Obligations
Refer to the “Contractual Cash Obligations” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form10-K for the fiscal year ended July 1, 2017 for details on our contractual obligations and commitments to make specified contractual future cash payments as of July 1, 2017. Other than in connection with the Amendment described above, there have been no material changes to our specified contractual obligations through December 30, 2017.
Off-Balance Sheet Arrangements
We do not have anyoff-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between segments.
Total assets for Performance Foodservice increased $150.5$288.5 million from $2,011.8$6,294.0 million as of December 31, 20162022 to $2,162.3$6,582.5 million as of December 30, 2017.2023. During this time period, this segment increased its accounts receivable, inventory, property, plant and equipment, operating lease right-of-use assets, and accounts receivable, partially offset by a decrease in intangible assets and goodwill, of which $96.8 million was a result of acquisitions.inventory. Total assets for Performance Foodservice increased $1.1$70.9 million from $2,161.2$6,511.6 million as of July 1, 20172023 to $2,162.3$6,582.5 million as of December 30, 2017.2023. During this time period, this segment increased its inventoryoperating lease right-of-use assets and property, plant and equipment, which waspartially offset by a decrease in inventory, intangible assets, and accounts receivable.
Total assets for Vistar increased $218.9 million from $1,216.0 million as of December 31, 2022 to $1,434.9 million as of December 30, 2023. During this time period, this segment increased its operating lease right-of-use assets, intangible assets, goodwill, accounts receivable, property, plant and equipment, and inventory primarily as a result of a recent acquisition. Total assets for Vistar increased $142.2 million from $1,292.7 million as of July 1, 2023 to $1,434.9 million as of December 30, 2023. During this time period, this segment increased its operating lease right-of-use assets, intangible assets, goodwill, and property, plant and equipment primarily as a result of a recent acquisition, partially offset by a decrease in accounts receivable and intangible assets.inventory.
Total assets for PFG CustomizedConvenience decreased $19.7$50.2 million from $665.6$4,135.9 million atas of December 31, 20162022 to $645.9$4,085.7 million atas of December 30, 2017.2023. During this time period, the segment decreased its intangible assets and operating lease right-of-use assets, partially offset by an increase in accounts receivable. Total assets for PFG CustomizedConvenience decreased $21.2$140.5 million from $667.1$4,226.2 million as of July 1, 20172023 to $645.9$4,085.7 million as of SeptemberDecember 30, 2017.2023. During thesethis time periods, thisperiod, the segment decreased its accounts receivable, intangible assets, inventory, prepaid expenses and intangibleother current assets, and operating lease right-of-use assets.
Total assets for VistarCorporate & All Other increased $82.6$265.7 million from $671.4$543.7 million as of December 31, 20162022 to $754.0$809.4 million as of December 30, 2017.2023. Total assets for VistarCorporate & All Other increased $99.5$340.9 million from $654.5$468.5 million as of July 1, 20172023 to $754.0$809.4 million as of December 30, 2017.2023. During theseboth time periods, this segmentCorporate & All Other primarily increased its accounts receivable, inventory, goodwill and intangible assets primarily due to acquisitions.recent acquisitions within a non-reportable operating segment.
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, leases, and goodwill and other intangible assets, and stock-based compensation, which are described in the Company’s Form10-K for the fiscal year ended July 1, 2017. 10-K. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates described in the Form10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk and fuel price risk. There have been no material changes to our market risks since July 1, 2017.2023. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative7A. Quantitative and Qualitative Disclosures aboutAbout Market Risks” Risks in our Annual Report onthe Form10-K for the fiscal year ended July 1, 2017. 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule13a-15(e) and Rule15d-15(e) under the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. In accordance with Rule13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form10-Q, were effective to accomplish their objectives at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rule13a-15(f) under the Exchange Act), that occurred during the fiscal quarter ended December 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.Legal Proceedings
We are subject to various allegations, claims, and legal actions arising in the ordinary course of business.
While it is impossible to determine with certainty the ultimate outcome of any of these proceedings, lawsuits, and claims, management believes that adequate provisions have been made or insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a material adverse effect on our financial position. During the three months ended December 30, 2017, there have been no material changesRefer to legal proceedings from those discussed in the Company’s Form10-KNote 10. Commitments and Contingencies within Part I, Item 1. Financial Statementsfor the fiscal year ended July 1, 2017, except as it relates to the matter discussed below.
Wilder, et al. v. Roma Food Enterprises, Inc., et al. The court granted final approvaldisclosure of the settlement stipulation on November 6, 2017. We funded the $1.9 million settlement on January 10, 2018, thereby ending theongoing litigation.
Item 1A.Risk Factors
There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Company’s Form10-K for the fiscal year ended July 1, 2017 and Form10-Q for the fiscal quarter ended September 30, 2017, which are accessible on the SEC’s website atwww.sec.gov. 10-K.
Item 2:Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information relating to our purchases of the Company’s common stock during the second quarter of fiscal 2018.2024.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
October 1, 2017 – October 28, 2017 | — | — | — | — | ||||||||||||
October 29, 2017 – November 25, 2017 | — | — | — | — | ||||||||||||
November 26, 2017 – December 30, 2017 | 829,386 | $ | 30.85 | — | — | |||||||||||
Total | 829,386 | $ | 30.85 | — | — |
Period |
| Total Number |
|
| Average Price |
|
| Total Number of |
|
| Maximum Dollar Value |
| ||||
October 1, 2023—October 28, 2023 |
|
| 500,391 |
|
| $ | 55.69 |
|
|
| 500,255 |
|
| $ | 232.7 |
|
October 29, 2023—November 25, 2023 |
|
| 282,615 |
|
| $ | 60.26 |
|
|
| 282,139 |
|
| $ | 215.7 |
|
November 26, 2023—December 30, 2023 |
|
| 79,509 |
|
| $ | 64.91 |
|
|
| 79,204 |
|
| $ | 210.6 |
|
Total |
|
| 862,515 |
|
| $ | 58.04 |
|
|
| 861,598 |
|
|
|
|
None
Item 3:Defaults Upon Senior Securities
None
Item 4:Mine Safety Disclosures
Not applicable
None
Item 5:Other Information
During the three months ended December 30, 2023, no director or officer of the Company adopted or terminated a ‘Rule 10b5-1 trading arrangement’ or ‘non-Rule 10b5-1 trading arrangement,’ as each term is defined in Item 408(a) of Regulation S-K.
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Item 6:Exhibits
Exhibit | Description | ||
31.1* | |||
| |||
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
31.2* | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1* | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2* | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.INS | Inline XBRL Instance Document | ||
101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document | ||
104 | Cover Page Interactive Data File (formatted as inline XBRL | ||
* Filed herewith.
+ Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PERFORMANCE FOOD GROUP COMPANY (Registrant) | |||||||||
Dated: February 7, | 2024 | By: | /s/ | ||||||
Name: | H. Patrick Hatcher | ||||||||
Title: | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Signatory) |
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