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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/05/21 Performance Food Group Co. 10-Q 3/27/21 65:7.5M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 906K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 21K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
12: R1 Document and Entity Information HTML 72K
13: R2 Consolidated Balance Sheets HTML 115K
14: R3 Consolidated Balance Sheets (Parenthetical) HTML 32K
15: R4 Consolidated Statements of Operations HTML 83K
16: R5 Consolidated Statements of Comprehensive Income HTML 43K
17: R6 Consolidated Statements of Shareholders' Equity HTML 81K
18: R7 Consolidated Statements of Cash Flows HTML 122K
19: R8 Reconciliation of Cash and Restricted Cash HTML 28K
20: R9 Summary of Business Activities HTML 23K
21: R10 Summary of Significant Accounting Policies and HTML 29K
Estimates
22: R11 Recently Issued Accounting Pronouncements HTML 33K
23: R12 Revenue Recognition HTML 27K
24: R13 Business Combinations HTML 31K
25: R14 Debt HTML 76K
26: R15 Leases HTML 147K
27: R16 Fair Value of Financial Instruments HTML 24K
28: R17 Income Taxes HTML 27K
29: R18 Commitments and Contingencies HTML 33K
30: R19 Related-Party Transactions HTML 24K
31: R20 Earnings Per Common Share HTML 83K
32: R21 Segment Information HTML 292K
33: R22 Summary of Significant Accounting Policies and HTML 47K
Estimates (Policies)
34: R23 Business Combinations (Tables) HTML 27K
35: R24 Debt (Tables) HTML 75K
36: R25 Leases (Tables) HTML 146K
37: R26 Earnings Per Common Share (Tables) HTML 80K
38: R27 Segment Information (Tables) HTML 293K
39: R28 Recently Issued Accounting Pronouncements - HTML 40K
Additional Information (Detail)
40: R29 Revenue Recognition - Additional Information HTML 21K
(Details)
41: R30 Business Combinations - Additional Information HTML 45K
(Detail)
42: R31 Business Combinations - Summary of Unaudited HTML 23K
Pro-Forma Consolidated Financial Information
(Detail)
43: R32 Debt - Schedule of Debt (Detail) HTML 40K
44: R33 Debt - Schedule of Debt (Parenthetical) (Detail) HTML 29K
45: R34 Debt - Additional Information (Detail) HTML 45K
46: R35 Debt - Summary of Outstanding Borrowings, HTML 29K
Availability, and Average Interest Rate under ABL
Facility (Detail)
47: R36 Debt - Summary of Outstanding Borrowings, HTML 22K
Availability, and Average Interest Rate under ABL
Facility (Parenthetical) (Detail)
48: R37 Leases - Additional Information (Detail) HTML 63K
49: R38 Leases - Summary of Location of Lease Costs in HTML 33K
Consolidated Statement of Operations (Detail)
50: R39 Leases - Summary of Supplemental Cash Flow HTML 33K
Information related to Leases (Detail)
51: R40 Leases - Summary of Future Minimum Lease Payments HTML 58K
Under Non-Cancelable Leases (Detail)
52: R41 Fair Value of Financial Instruments - Additional HTML 29K
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53: R42 Income Taxes - Additional Information (Detail) HTML 36K
54: R43 Commitments and Contingencies - Additional HTML 20K
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55: R44 Related-Party Transactions - Additional HTML 26K
Information (Detail)
56: R45 Earnings Per Common Share - Additional Information HTML 21K
(Detail)
57: R46 Earnings Per Common Share - Schedule of HTML 50K
Reconciliation of Numerators and Denominators for
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Computations (Detail)
58: R47 Segment Information - Additional Information HTML 21K
(Detail)
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Reporting Information, by Segment (Detail)
60: R49 Segment Information - Schedule of EBDITA and HTML 40K
Reconciliation to Consolidated Income Before Taxes
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form i 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i March 27, 2021
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i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number i 001-37578
i Performance Food Group Company
(Exact name of registrant as specified in its charter)
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i Delaware |
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i 43-1983182 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS employer identification number) |
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i 12500 West Creek Parkway i Richmond, i Virginia i 23238 |
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( i 804) i 484-7700 |
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(Address of principal executive offices) |
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(Registrant’s Telephone Number, Including Area Code) |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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i Common Stock, $0.01 par value |
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i PFGC |
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i New York Stock Exchange |
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. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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i Large Accelerated Filer |
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Accelerated Filer |
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☐ |
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Non-accelerated Filer |
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☐ |
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Smaller Reporting Company |
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i ☐ |
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Emerging Growth Company |
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i ☐ |
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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 Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
i 133,800,643 shares of common stock were outstanding as of April 28, 2021.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-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 Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position, our business outlook, business trends and other information are 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, there 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 Form 10-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’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), including under Part II, Item 1A, Risk Factors of this Form 10-Q, and are accessible on the SEC’s website at www.sec.gov, and also include the following:
• the material adverse impact the novel coronavirus (“COVID-19”) pandemic has had and is expected to continue to have on the global markets, the restaurant industry, and our business specifically;
• competition in our industry is intense, and we may not be able to compete successfully;
• we operate in a low margin industry, which could increase the volatility of our results of operations;
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we may not realize anticipated benefits from our operating cost reduction and productivity improvement efforts; |
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our profitability is directly affected by cost inflation and deflation and other factors; |
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we do not have long-term contracts with certain of our customers; |
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group purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations; |
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changes in eating habits of consumers; |
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• |
extreme weather conditions; |
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• |
our reliance on third-party suppliers; |
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• |
labor relations and cost risks and availability of qualified labor; |
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volatility of fuel and other transportation costs; |
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• |
inability to adjust cost structure where one or more of our competitors successfully implement lower costs; |
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we may be unable to increase our sales in the highest margin portion of our business; |
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• |
changes in pricing practices of our suppliers; |
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our growth strategy may not achieve the anticipated results; |
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• |
risks relating to acquisitions, including the risk that we are not able to realize benefits of acquisitions or successfully integrate the businesses we acquire; |
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• |
environmental, health, and safety costs; |
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the risk that we fail to comply with requirements imposed by applicable law or government regulations; |
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a portion of our sales volume is dependent upon the distribution of cigarettes and other tobacco products, sales of which are generally declining; |
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• |
if products we distribute are alleged to cause injury or illness or fail to comply with governmental regulations, we may need to recall our products and may experience product liability claims; |
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• |
our reliance on technology and risks associated with disruption or delay in implementation of new technology; |
3
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costs and risks associated with a potential cybersecurity incident or other technology disruption; |
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• |
product liability claims relating to the products we distribute and other litigation; |
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adverse judgements or settlements; |
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• |
negative media exposure and other events that damage our reputation; |
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• |
decrease in earnings from amortization charges associated with acquisitions; |
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• |
impact of uncollectibility of accounts receivable; |
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• |
difficult economic conditions affecting consumer confidence; |
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risks relating to federal, state, and local tax rules; |
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the cost and adequacy of insurance coverage; |
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risks relating to our outstanding indebtedness; |
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our ability to raise additional capital; |
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our ability to maintain an effective system of disclosure controls and internal control over financial reporting; and |
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the possibility that the expected synergies and value creation from the acquisition of Reinhart Foodservice L.L.C. (“Reinhart”) will not be realized or will not be realized within the expected time period. |
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 Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” or “PFG” as used in this Form 10-Q refer to Performance Food Group Company and its consolidated subsidiaries.
4
Part I – FINANCIAL INFORMATION
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In millions, except per share data) |
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As of |
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As of |
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ASSETS |
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Current assets: |
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Cash |
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$ |
i 101.5 |
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$ |
i 420.7 |
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Accounts receivable, less allowances of $ i 67.2 and $ i 86.7 |
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i 1,391.1 |
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i 1,258.6 |
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Inventories, net |
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i 1,541.8 |
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i 1,549.4 |
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Income taxes receivable |
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i 41.7 |
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i 156.5 |
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Prepaid expenses and other current assets |
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i 103.0 |
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i 68.7 |
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Total current assets |
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i 3,179.1 |
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i 3,453.9 |
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Goodwill |
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i 1,354.5 |
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i 1,353.0 |
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Other intangible assets, net |
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i 833.6 |
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i 918.6 |
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Property, plant and equipment, net |
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i 1,553.6 |
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i 1,479.0 |
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Operating lease right-of-use assets |
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i 451.1 |
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i 441.2 |
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Restricted cash |
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i 11.1 |
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i 11.1 |
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Other assets |
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i 66.8 |
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i 62.9 |
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Total assets |
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$ |
i 7,449.8 |
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$ |
i 7,719.7 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Outstanding checks in excess of deposits |
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$ |
i 110.1 |
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$ |
i 110.4 |
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Trade accounts payable |
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i 1,513.1 |
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i 1,608.0 |
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Accrued expenses and other current liabilities |
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i 565.5 |
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i 678.0 |
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Long-term debt - current installments |
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- |
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i 107.6 |
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Finance lease obligations—current installments |
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i 45.3 |
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i 30.3 |
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Operating lease obligations—current installments |
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i 78.0 |
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i 84.4 |
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Total current liabilities |
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i 2,312.0 |
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i 2,618.7 |
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Long-term debt |
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i 2,149.1 |
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i 2,249.3 |
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Deferred income tax liability, net |
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i 120.6 |
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i 115.6 |
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Finance lease obligations, excluding current installments |
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i 246.3 |
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i 185.7 |
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Operating lease obligations, excluding current installments |
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i 386.8 |
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i 362.4 |
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Other long-term liabilities |
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i 177.3 |
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i 177.4 |
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Total liabilities |
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i 5,392.1 |
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i 5,709.1 |
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Commitments and contingencies (Note 10) |
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Shareholders’ equity: |
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Common Stock: $ i i 0.01 / par value per share, i 1.0 billion shares authorized, i i 132.3 / million shares issued and outstanding as of March 27, 2021; i 1.0 billion shares authorized, i i 131.3 / million shares issued and outstanding as of June 27, 2020 |
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i 1.3 |
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i 1.3 |
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Additional paid-in capital |
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i 1,736.7 |
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i 1,703.0 |
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Accumulated other comprehensive loss, net of tax benefit of $ i 2.2 and $ i 3.6 |
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( i 6.2 |
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( i 10.3 |
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Retained earnings |
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i 325.9 |
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i 316.6 |
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Total shareholders’ equity |
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i 2,057.7 |
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i 2,010.6 |
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Total liabilities and shareholders’ equity |
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$ |
i 7,449.8 |
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$ |
i 7,719.7 |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
5
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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(In millions, except per share data) |
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Three Months Ended March 27, 2021 |
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Three Months Ended March 28, 2020 |
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Nine Months Ended |
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Nine Months Ended |
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Net sales |
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$ |
i 7,202.5 |
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$ |
i 7,000.7 |
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$ |
i 21,094.5 |
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$ |
i 19,312.3 |
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Cost of goods sold |
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i 6,369.8 |
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i 6,193.2 |
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i 18,635.2 |
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i 17,082.2 |
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Gross profit |
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i 832.7 |
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i 807.5 |
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i 2,459.3 |
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i 2,230.1 |
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Operating expenses |
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i 809.3 |
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i 824.9 |
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i 2,339.2 |
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i 2,103.5 |
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Operating profit (loss) |
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i 23.4 |
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( i 17.4 |
) |
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i 120.1 |
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i 126.6 |
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Other expense, net: |
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Interest expense |
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i 37.1 |
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i 35.2 |
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i 114.0 |
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i 78.9 |
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Other, net |
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( i 1.6 |
) |
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i 7.9 |
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( i 4.7 |
) |
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i 7.7 |
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Other expense, net |
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i 35.5 |
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i 43.1 |
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i 109.3 |
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i 86.6 |
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(Loss) income before taxes |
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( i 12.1 |
) |
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( i 60.5 |
) |
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i 10.8 |
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i 40.0 |
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Income tax (benefit) expense |
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( i 4.5 |
) |
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( i 20.3 |
) |
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|
i 1.5 |
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|
i 2.9 |
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Net (loss) income |
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$ |
( i 7.6 |
) |
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$ |
( i 40.2 |
) |
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$ |
i 9.3 |
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$ |
i 37.1 |
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Weighted-average common shares outstanding: |
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Basic |
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|
i 132.3 |
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i 115.9 |
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i 132.0 |
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|
i 108.1 |
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Diluted |
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|
i 132.3 |
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|
i 115.9 |
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i 133.2 |
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i 109.5 |
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(Loss) earnings per common share: |
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Basic |
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$ |
( i 0.06 |
) |
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$ |
( i 0.35 |
) |
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$ |
i 0.07 |
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$ |
i 0.34 |
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Diluted |
|
$ |
( i 0.06 |
) |
|
$ |
( i 0.35 |
) |
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$ |
i 0.07 |
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$ |
i 0.34 |
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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)
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($ in millions) |
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Three Months Ended |
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Three Months Ended |
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Nine Months Ended |
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Nine Months Ended |
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Net (loss) income |
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$ |
( i 7.6 |
) |
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$ |
( i 40.2 |
) |
|
$ |
i 9.3 |
|
|
$ |
i 37.1 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value, net of tax |
|
|
i 2.2 |
|
|
|
( i 6.7 |
) |
|
|
i 2.1 |
|
|
|
( i 6.7 |
) |
|
Reclassification adjustment, net of tax |
|
|
i 0.6 |
|
|
|
( i 0.4 |
) |
|
|
i 2.0 |
|
|
|
( i 1.2 |
) |
|
Other comprehensive income (loss) |
|
|
i 2.8 |
|
|
|
( i 7.1 |
) |
|
|
i 4.1 |
|
|
|
( i 7.9 |
) |
|
Total comprehensive (loss) income |
|
$ |
( i 4.8 |
) |
|
$ |
( i 47.3 |
) |
|
$ |
i 13.4 |
|
|
$ |
i 29.2 |
|
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)
|
|
|
|
|
|
Additional |
|
|
Accumulated Other |
|
|
|
|
|
|
Total |
|
||||||||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Shareholders’ |
|
|||||||||
|
(In millions) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
|
Balance as of December 28, 2019 |
|
|
i 104.4 |
|
|
$ |
i 1.0 |
|
|
$ |
i 870.5 |
|
|
$ |
( i 1.0 |
) |
|
$ |
i 508.0 |
|
|
$ |
i 1,378.5 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 40.2 |
) |
|
|
( i 40.2 |
) |
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 7.1 |
) |
|
|
— |
|
|
|
( i 7.1 |
) |
|
Issuance of common stock under stock-based compensation plans |
|
|
i 0.1 |
|
|
|
— |
|
|
|
i 1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.8 |
|
|
Issuance of common stock in secondary offering, net of underwriter discount and offering costs |
|
|
i 11.6 |
|
|
|
i 0.1 |
|
|
|
i 490.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 490.6 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 4.6 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4.6 |
|
|
Common stock repurchased |
|
|
( i 0.3 |
) |
|
|
— |
|
|
|
( i 5.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 5.0 |
) |
|
Balance as of March 28, 2020 |
|
|
i 115.8 |
|
|
$ |
i 1.1 |
|
|
$ |
i 1,362.4 |
|
|
$ |
( i 8.1 |
) |
|
$ |
i 467.8 |
|
|
$ |
i 1,823.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 26, 2020 |
|
|
i 132.0 |
|
|
$ |
i 1.3 |
|
|
$ |
i 1,721.1 |
|
|
$ |
( i 9.0 |
) |
|
$ |
i 333.5 |
|
|
$ |
i 2,046.9 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 7.6 |
) |
|
|
( i 7.6 |
) |
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.8 |
|
|
|
— |
|
|
|
i 2.8 |
|
|
Issuance of common stock under stock-based compensation plans |
|
|
i 0.2 |
|
|
|
— |
|
|
|
i 1.0 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.0 |
|
|
Issuance of common stock under employee stock purchase plan |
|
|
i 0.1 |
|
|
|
— |
|
|
|
i 8.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8.5 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 6.1 |
|
|
|
— |
|
|
|
— |
|
|
|
i 6.1 |
|
|
Balance as of March 27, 2021 |
|
|
i 132.3 |
|
|
$ |
i 1.3 |
|
|
$ |
i 1,736.7 |
|
|
$ |
( i 6.2 |
) |
|
$ |
i 325.9 |
|
|
$ |
i 2,057.7 |
|
|
|
|
|
|
|
Additional |
|
|
Accumulated Other |
|
|
|
|
|
|
Total |
|
||||||||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Shareholders’ |
|
|||||||||
|
(In millions) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
|
Balance as of June 29, 2019 |
|
|
i 103.8 |
|
|
$ |
i 1.0 |
|
|
$ |
i 866.7 |
|
|
$ |
( i 0.2 |
) |
|
$ |
i 430.7 |
|
|
$ |
i 1,298.2 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 37.1 |
|
|
|
i 37.1 |
|
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 7.9 |
) |
|
|
— |
|
|
|
( i 7.9 |
) |
|
Issuance of common stock under stock-based compensation plans |
|
|
i 0.7 |
|
|
|
— |
|
|
|
( i 3.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 3.2 |
) |
|
Issuance of common stock in secondary offering, net of underwriter discount and offering costs |
|
|
i 11.6 |
|
|
|
i 0.1 |
|
|
|
i 490.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 490.6 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 13.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 13.4 |
|
|
Common stock repurchased |
|
|
( i 0.3 |
) |
|
|
— |
|
|
|
( i 5.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 5.0 |
) |
|
Balance as of March 28, 2020 |
|
|
i 115.8 |
|
|
|
i 1.1 |
|
|
|
i 1,362.4 |
|
|
|
( i 8.1 |
) |
|
|
i 467.8 |
|
|
|
i 1,823.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 27, 2020 |
|
|
i 131.3 |
|
|
|
i 1.3 |
|
|
|
i 1,703.0 |
|
|
|
( i 10.3 |
) |
|
|
i 316.6 |
|
|
|
i 2,010.6 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 9.3 |
|
|
|
i 9.3 |
|
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 4.1 |
|
|
|
— |
|
|
|
i 4.1 |
|
|
Issuance of common stock under stock-based compensation plans |
|
|
i 0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of common stock under employee stock purchase plan |
|
|
i 0.4 |
|
|
|
— |
|
|
|
i 16.3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 16.3 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 17.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 17.4 |
|
|
Balance as of March 27, 2021 |
|
|
i 132.3 |
|
|
|
i 1.3 |
|
|
|
i 1,736.7 |
|
|
|
( i 6.2 |
) |
|
|
i 325.9 |
|
|
|
i 2,057.7 |
|
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) |
|
Nine Months Ended March 27, 2021 |
|
|
Nine Months Ended March 28, 2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 9.3 |
|
|
$ |
i 37.1 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
i 158.4 |
|
|
|
i 118.3 |
|
|
Amortization of intangible assets |
|
|
i 88.7 |
|
|
|
i 67.5 |
|
|
Amortization of deferred financing costs |
|
|
i 10.5 |
|
|
|
i 3.6 |
|
|
Provision for losses on accounts receivables |
|
|
( i 7.9 |
) |
|
|
i 30.3 |
|
|
Stock compensation expense |
|
|
i 19.3 |
|
|
|
i 14.0 |
|
|
Deferred income tax expense (benefit) |
|
|
i 3.6 |
|
|
|
( i 4.8 |
) |
|
Other non-cash activities |
|
|
i 2.6 |
|
|
|
i 28.4 |
|
|
Changes in operating assets and liabilities, net |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 123.5 |
) |
|
|
i 192.9 |
|
|
Inventories |
|
|
i 11.1 |
|
|
|
( i 160.7 |
) |
|
Income taxes receivable |
|
|
i 114.8 |
|
|
|
( i 18.5 |
) |
|
Prepaid expenses and other assets |
|
|
( i 31.9 |
) |
|
|
( i 8.7 |
) |
|
Trade accounts payable |
|
|
( i 95.3 |
) |
|
|
i 7.7 |
|
|
Outstanding checks in excess of deposits |
|
|
( i 0.3 |
) |
|
|
( i 305.0 |
) |
|
Accrued expenses and other liabilities |
|
|
i 13.7 |
|
|
|
i 15.5 |
|
|
Net cash provided by operating activities |
|
|
i 173.1 |
|
|
|
i 17.6 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( i 118.9 |
) |
|
|
( i 101.1 |
) |
|
Net cash paid for acquisitions |
|
|
( i 18.1 |
) |
|
|
( i 1,989.0 |
) |
|
Proceeds from sale of property, plant and equipment |
|
|
i 6.6 |
|
|
|
i 0.8 |
|
|
Net cash used in investing activities |
|
|
( i 130.4 |
) |
|
|
( i 2,089.3 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net (payments) borrowings under ABL Facility |
|
|
( i 103.8 |
) |
|
|
i 950.4 |
|
|
Borrowing of Notes due 2027 |
|
|
— |
|
|
|
i 1,060.0 |
|
|
Payment of Additional Junior Term Loan |
|
|
( i 110.0 |
) |
|
|
— |
|
|
Cash paid for debt issuance, extinguishment and modifications |
|
|
( i 0.1 |
) |
|
|
( i 37.5 |
) |
|
Net proceeds from issuance of common stock |
|
|
— |
|
|
|
i 490.6 |
|
|
Payments under finance lease obligations |
|
|
( i 27.3 |
) |
|
|
( i 16.9 |
) |
|
Payments on financed property, plant and equipment |
|
|
( i 0.6 |
) |
|
|
( i 1.7 |
) |
|
Cash paid for acquisitions |
|
|
( i 136.4 |
) |
|
|
( i 7.2 |
) |
|
Proceeds from employee stock purchase plan |
|
|
i 16.3 |
|
|
|
— |
|
|
Proceeds from exercise of stock options |
|
|
i 4.2 |
|
|
|
i 4.7 |
|
|
Cash paid for shares withheld to cover taxes |
|
|
( i 4.2 |
) |
|
|
( i 7.9 |
) |
|
Repurchases of common stock |
|
|
— |
|
|
|
( i 5.0 |
) |
|
Net cash (used in) provided by financing activities |
|
|
( i 361.9 |
) |
|
|
i 2,429.5 |
|
|
Net (decrease) increase in cash and restricted cash |
|
|
( i 319.2 |
) |
|
|
i 357.8 |
|
|
Cash and restricted cash, beginning of period |
|
|
i 431.8 |
|
|
|
i 25.4 |
|
|
Cash and restricted cash, end of period |
|
$ |
i 112.6 |
|
|
$ |
i 383.2 |
|
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 March 27, 2021 |
|
|
As of June 27, 2020 |
|
||
|
Cash |
|
$ |
i 101.5 |
|
|
$ |
i 420.7 |
|
|
Restricted cash(1) |
|
|
i 11.1 |
|
|
|
i 11.1 |
|
|
Total cash and restricted cash |
|
$ |
i 112.6 |
|
|
$ |
i 431.8 |
|
|
|
(1) |
Restricted cash represents the amounts required by insurers to collateralize a part of the deductibles for the Company’s workers’ compensation and liability claims. |
9
Supplemental disclosures of non-cash transactions are as follows:
|
(In millions) |
|
Nine Months Ended March 27, 2021 |
|
|
Nine Months Ended March 28, 2020 |
|
||
|
Debt assumed through finance lease obligations |
|
$ |
i 102.9 |
|
|
$ |
i 79.9 |
|
|
Purchases of property, plant and equipment, financed |
|
|
i 0.3 |
|
|
|
i 1.6 |
|
Supplemental disclosures of cash flow information are as follows:
|
(In millions) |
|
Nine Months Ended March 27, 2021 |
|
|
Nine Months Ended March 28, 2020 |
|
||
|
Cash paid (received) during the year for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
i 81.2 |
|
|
$ |
i 47.5 |
|
|
Income tax (refunds) payments, net |
|
|
( i 117.8 |
) |
|
|
i 28.5 |
|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
10
PERFORMANCE FOOD GROUP COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
|
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. The Company serves both of the major customer types in the restaurant industry: (i) independent customers, and (ii) multi-unit, or “Chain” customers, which include some of the most recognizable family and casual dining restaurant chains, as well as schools, business and industry locations, healthcare facilities, and retail establishments. The Company also specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, and other items nationally to vending distributors, big box retailers, theaters, convenience stores, travel providers, and hospitality providers.
The Company’s fiscal year ends on the Saturday nearest to June 30th. This will result in a 53-week year for fiscal 2021 compared to a 52-week year for fiscal 2020. References to “fiscal 2021” are to the 53-week period ended July 3, 2021 and references to “fiscal 2020” are to the 52-week period ended June 27, 2020.
i
|
2. |
Summary of Significant Accounting Policies and Estimates |
i
Basis of Presentation
The consolidated financial statements have been prepared by the Company, without audit, with the exception of the June 27, 2020 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the Form 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. 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”) 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 the Form 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
i
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of COVID-19. The unprecedented impact of COVID-19 has grown throughout the world, including in the United States, and governmental authorities and businesses have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, quarantines, shelter in place orders, shutdowns, and social distancing requirements. These measures have adversely affected and may further adversely affect the Company’s operations and the operations of its customers and suppliers. In markets where governments have imposed restrictions on travel outside of the home, or where customers are practicing social distancing, many of our customers, including restaurants, schools, hotels, movie theaters, and business and industry locations, have reduced or discontinued operations, which has adversely affected demand for our products and services.
Even as governmental restrictions are eased and economies gradually, partially, or fully reopen in certain states and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior and spending in the channels we serve. The extent to which these changes will affect our future financial position, liquidity, and results of operations remains uncertain.
/11
i
Accounts Receivable
Accounts receivable are comprised of trade receivables from customers in the ordinary course of business, are recorded at the invoiced amount, and primarily do not bear interest. Accounts receivable also includes other receivables primarily related to various rebate and promotional incentives with the Company’s suppliers. Receivables are recorded net of the allowance for credit losses on the accompanying consolidated balance sheets. The Company evaluates the collectability of its accounts receivable based on a combination of factors. The Company regularly analyzes its significant customer accounts, and when it becomes aware of a specific customer’s inability to meet its financial obligations to the Company, such as bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company records a specific reserve for bad debt to reduce the related receivable to the amount it reasonably believes is collectible. The Company also records reserves for bad debt for other customers based on a variety of factors, including the length of time the receivables are past due, macroeconomic considerations, and historical experience. If circumstances related to specific customers change, the Company’s estimates of the recoverability of receivables could be further adjusted. Refer to Note 3. Recently Issued Accounting Pronouncements for further discussion of the Company’s adoption of Accounting Standards Update (“ASU”) 2016-13.
i
|
3. |
Recently Issued Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and has issued subsequent amendments to this guidance. The pronouncement changes the impairment model for most financial assets and will require the use 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. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard at the beginning of fiscal 2021. Companies are required to apply the standard using a modified retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date. The Company determined this update did not have a material impact on the Company’s consolidated financial statements upon adoption. Refer to Note 2. Summary of Significant Accounting Policies and Estimates for further discussion of the Company’s reserve for credit losses related to its accounts receivable.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this ASU on a prospective basis at the beginning of fiscal 2021. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update simplifies the accounting for income taxes by removing certain exceptions for intra-period tax allocations, recognition of deferred tax liabilities after a foreign subsidiary transitions to or from equity method accounting, and methodology of calculating income taxes in an interim period with year-to-date losses. Additionally, the guidance provides additional clarification on other areas, including step-up of the tax basis of goodwill recorded as part of an acquisition and the treatment of franchise taxes that are partially based on income. This pronouncement is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company plans to adopt this new ASU in fiscal 2022. Companies are required to apply the standard on a prospective basis, except for certain sections of the guidance which shall be applied on a retrospective or modified retrospective basis. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements but does not expect this update to have a material impact on the Company's consolidated financial statements.
/i i
|
4. |
Revenue Recognition |
The Company markets and distributes primarily national and company-branded food and food-related products to customer locations across the United States. The Foodservice segment 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 distributes candy, snacks, beverages, cigarettes, other tobacco products, and other products to various customer
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channels. The Company disaggregates revenue by 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 $ i 19.8 million and $ i 15.3 million as of March 27, 2021 and June 27, 2020, respectively.
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|
5. |
Business Combinations |
During the first nine months of fiscal 2021, the Company paid cash of $ i 18.1 million for i two acquisitions and during the first nine months of fiscal 2020, the Company paid $ i 2.0 billion for i one acquisition. The current year acquisitions did not materially affect the Company’s results of operations.
The acquisition of Eby-Brown Company LLC (“Eby-Brown”) in fiscal 2019 included contingent consideration, including earnout payments in the event certain operating results are achieved during a defined post-closing period. As of June 27, 2020, the Company had accrued $ i 191.2 million related to this contingent consideration. In the first quarter of fiscal 2021, the Company paid the first earnout payment of $ i 185.6 million, which included $ i 68.3 million as a financing activity cash outflow and $ i 117.3 million as an operating activity cash outflow in the consolidated statement of cash flows for the nine months ended March 27, 2021. As of March 27, 2021, the Company has accrued $ i 6.4 million related to additional earnout payments. Earnout liabilities are measured using unobservable inputs that are considered a Level 3 measurement.
In fiscal 2020, the Company acquired Reinhart and the assets acquired and liabilities assumed were recognized at their respective fair values as of the acquisition date. In the first quarter of fiscal 2021, the Company paid a total of $ i 67.3 million related to the final net working capital acquired, which is reflected as a financing activity cash outflow in the consolidated statement of cash flows for the nine months ended March 27, 2021.
The net sales and net loss related to Reinhart recorded in the consolidated statements of operations since the date of acquisition through March 28, 2020 were $ i 1,355.1 million and $ i 29.1 million, respectively.
iThe following table summarizes the unaudited pro-forma consolidated financial information of the Company as if the acquisition had occurred on July 1, 2018:
|
|
Nine Months Ended |
|
|
|
(in millions) |
|
||
|
Net Sales |
$ |
i 22,443.7 |
|
|
Net Income |
|
i 26.3 |
|
The recurring pro-forma adjustments include estimates of interest expense for the Notes due 2027 and estimates of depreciation and amortization associated with fair value adjustments for property, plant and equipment and intangible assets acquired.
These unaudited pro-forma results do not necessarily represent financial results that would have been achieved had the acquisition actually occurred on June 28, 2019 or future consolidated results of operations of the Company.
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6. |
Debt |
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.
iDebt consisted of the following:
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|
|
|
|
|
|
|
|
|
|
(In millions) |
|
As of March 27, 2021 |
|
|
As of June 27, 2020 |
|
||
|
ABL Facility |
|
$ |
i 496.2 |
|
|
$ |
i 710.0 |
|
|
i 5.500% Notes due i 2024 |
|
|
i 350.0 |
|
|
|
i 350.0 |
|
|
i 6.875% Notes due i 2025 |
|
|
i 275.0 |
|
|
|
i 275.0 |
|
|
i 5.500% Notes due i 2027 |
|
|
i 1,060.0 |
|
|
|
i 1,060.0 |
|
|
Less: Original issue discount and deferred financing costs |
|
|
( i 32.1 |
) |
|
|
( i 38.1 |
) |
|
Long-term debt |
|
|
i 2,149.1 |
|
|
|
i 2,356.9 |
|
|
Less: current installments |
|
|
- |
|
|
|
( i 107.6 |
) |
|
Total debt, excluding current installments |
|
$ |
i 2,149.1 |
|
|
$ |
i 2,249.3 |
|
13
ABL Facility
PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, is a party to the Fourth Amended and Restated Credit Agreement dated December 31, 2019 (as amended by the First Amendment to Fourth Amended and Restated Credit Agreement dated as of April 29, 2020 and the Second Amendment to Fourth Amended and Restated Credit Agreement dated as of May 15, 2020, the “ABL Facility”). The ABL Facility has an aggregate principal amount of $ i 3.0 billion and matures i December 30, 2024. The incremental $ i 110 million, 364-day maturity loan that was junior to the other obligations owed under the ABL Facility (“Additional Junior Term Loan”) was paid off early and in full on February 5, 2021. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, 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 i (a) the Base Rate (defined as the greater of (i) the Federal Funds Rate in effect on such date plus i 0.5%, (ii) the Prime Rate on such day, or (iii) one month LIBOR plus i 1.0%) plus a spread or (b) LIBOR plus a spread. / The ABL Facility also provides for an unused commitment fee rate of i 0.25% per annum. Borrowings under the Additional Junior Term Loan, which was paid off early and in full on February 5, 2021, bore interest at LIBOR plus i 5.0% per annum with respect to any loan which was a LIBOR loan and Prime plus i 4.0% per annum with respect to any loan which was a base rate loan.
i The following table summarizes outstanding borrowings, availability, and the average interest rate under the ABL Facility:
|
(Dollars in millions) |
|
As of March 27, 2021 |
|
|
As of June 27, 2020 |
|
|||
|
Aggregate borrowings |
|
$ |
i 496.2 |
|
|
$ |
i 710.0 |
|
|
|
Letters of credit under ABL Facility |
|
|
i 161.8 |
|
|
|
i 139.6 |
|
|
|
Excess availability, net of lenders’ reserves of $ i 56.0 and $ i 64.9 |
|
|
i 2,003.1 |
|
|
|
i 1,712.2 |
|
|
|
Average interest rate |
|
|
i 1.56 |
% |
|
|
i 2.85 |
% |
|
i
7.Leases
The Company determines if an arrangement is a lease at inception and recognizes 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 lease payments over the lease term at commencement date. Since the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. This rate was determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expenses for these short-term leases are recognized on a straight-line basis over the lease term. The Company has several lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for separately. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent, favorable leases, and prepaid rent.
Subsidiaries of the Company have entered into numerous operating and finance leases for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of i i 1 / year to i i 20 / years, some of which include i i options to extend the leases for up to i i 10 / years / / , and some of which include i i 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 i 6% and i 16% of the value of the leased assets at inception of the lease. These leases have original terms ranging from i 5 to i 7 years and are set to expire at various dates through i 2027. As of March 27, 2021, the undiscounted maximum amount of potential future payments for lease
/14
residual value guarantees totaled approximately $ i 20.6 million, which would be mitigated by the fair value of the leased assets at lease expiration.
iThe following table presents the location of lease costs in the Company consolidated statement of operations for the three and nine months ended March 27, 2021 and March 28, 2020 (in millions):
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Three Months Ended |
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|
Nine Months Ended |
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||||||||||
|
Lease Cost |
|
Statement of Operations Location |
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Finance lease cost: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of finance lease assets |
|
Operating expenses |
|
$ |
i 10.0 |
|
|
$ |
i 6.7 |
|
|
$ |
i 25.8 |
|
|
$ |
i 17.2 |
|
|
Interest on lease liabilities |
|
Interest expense |
|
|
i 3.3 |
|
|
|
i 2.7 |
|
|
|
i 9.3 |
|
|
|
i 7.6 |
|
|
Total finance lease cost |
|
|
|
$ |
i 13.3 |
|
|
$ |
i 9.4 |
|
|
$ |
i 35.1 |
|
|
$ |
i 24.8 |
|
|
Operating lease cost |
|
Operating expenses |
|
|
i 25.8 |
|
|
|
i 28.9 |
|
|
|
i 81.1 |
|
|
|
i 83.7 |
|
|
Short-term lease cost |
|
Operating expenses |
|
|
i 5.9 |
|
|
|
i 6.6 |
|
|
|
i 14.9 |
|
|
|
i 18.1 |
|
|
Total lease cost |
|
|
|
$ |
i 45.0 |
|
|
$ |
i 44.9 |
|
|
$ |
i 131.1 |
|
|
$ |
i 126.6 |
|
Supplemental cash flow information related to leases for the periods reported is as follows (in millions):
|
(In millions) |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
i 75.6 |
|
|
$ |
i 81.1 |
|
|
Operating cash flows from finance leases |
|
|
i 9.3 |
|
|
|
i 7.6 |
|
|
Financing cash flows from finance leases |
|
|
i 27.3 |
|
|
|
i 16.9 |
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
i 81.9 |
|
|
|
i 49.6 |
|
|
Finance leases |
|
|
i 102.9 |
|
|
|
i 26.8 |
|
/ i
Future minimum lease payments under non-cancelable leases as of March 27, 2021 are as follows (in millions):
|
Fiscal Year |
|
Operating Leases |
|
|
Finance Leases |
|
||
|
Remainder of 2021 |
|
$ |
i 25.7 |
|
|
$ |
i 13.9 |
|
|
2022 |
|
|
i 94.3 |
|
|
|
i 57.6 |
|
|
2023 |
|
|
i 80.3 |
|
|
|
i 54.0 |
|
|
2024 |
|
|
i 61.8 |
|
|
|
i 53.1 |
|
|
2025 |
|
|
i 47.6 |
|
|
|
i 48.9 |
|
|
Thereafter |
|
|
i 262.9 |
|
|
|
i 111.0 |
|
|
Total future minimum lease payments |
|
$ |
i 572.6 |
|
|
$ |
i 338.5 |
|
|
Less: Interest |
|
|
i 107.8 |
|
|
|
i 46.9 |
|
|
Present value of future minimum lease payments |
|
$ |
i 464.8 |
|
|
$ |
i 291.6 |
|
/
As of March 27, 2021, the Company has additional operating leases that have not yet commenced which total $ i 14.8 million in future minimum lease payments. i These leases relate primarily to warehouse leases and are expected to commence in the fourth quarter of fiscal 2021 and first quarter of fiscal 2022 with lease terms of i 5 to i 15 years. /
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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 $ i 2,149.1 million and $ i 2,356.9 million, is $ i 2,248.4 million and $ i 2,402.0 million at March 27, 2021 and June 27, 2020, 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.
/
15
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|
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 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.
The Company’s effective tax rate was i 37.1% for the three months ended March 27, 2021 and i 33.6% for the three months ended March 28, 2020. The Company’s effective tax rate was i 14.2% for the nine months ended March 27, 2021 and i 7.3% for the nine months ended March 28, 2020. The effective tax rate varies from the i 21% statutory rate primarily due to state taxes, federal credits and other permanent items compared to book income. The effective tax rates for periods ended March 27, 2021 differed from the prior year periods due to the increase of state taxes and non-deductible expenses as a percentage of book income. Book income for the nine months ended March 27, 2021 was significantly lower than the nine months ended March 28, 2020. The excess tax benefit of exercised and vested stock awards is treated as a discrete item.
As of March 27, 2021 and June 27, 2020, the Company had net deferred tax assets of $ i 182.8 million and $ i 186.2 million, respectively, and deferred tax liabilities of $ i 303.4 million and $ i 301.8 million, respectively. As of June 27, 2020, the Company had established a valuation allowance of $ i 0.7 million, net of federal benefit, against deferred tax assets related to certain net operating losses which are not likely to be realized due to limitations on utilization. There was no change in the valuation allowance as of March 27, 2021. 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 ASC 740-10-25, Income Taxes – General – Recognition. As of March 27, 2021 and June 27, 2020, the Company had approximately $ i 0.3 million and $ i 0.5 million of unrecognized tax benefits, respectively. It is reasonably possible that a decrease of approximately $ i 0.1 million in the balance of unrecognized tax benefits may occur within the next twelve months primarily due to statute of limitations expirations, that, if recognized, would affect the effective tax rate.
/
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|
10. |
Commitments and Contingencies |
Purchase Obligations
The Company had outstanding contracts and purchase orders for capital projects and services totaling $ i 63.1 million at March 27, 2021. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of March 27, 2021.
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 Company may 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.
/16
JUUL 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 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 subsidiary Eby-Brown, as a defendant. The Master Complaint also named additional distributors of JUUL products (collectively with Eby-Brown the “Distributor Defendants”). The Master Complaint contains various state law claims and alleges that the Distributor Defendants: (1) failed to disclose JUUL’s nicotine contents or the risks associated; (2) pushed a product designed for a youth market; (3) engaged with JUUL in planning and marketing its product in a manner designed to maximize the flow of JUUL products; (4) met with JUUL management in San Francisco, California to further these business dealings; and (5) received incentives and business development funds for marketing and efficient sales. Individual plaintiffs may also file separate and abbreviated Short Form Complaints (“SFC”) that incorporate the allegations in the Master Complaint. JUUL and Eby-Brown are parties to a Domestic Wholesale Distribution Agreement dated March 10, 2020, 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.
On May 29, 2020, JUUL filed a motion to dismiss on the basis that the alleged state law claims are preempted by federal law and a motion to stay/dismiss the litigation based on the Food and Drug Administration’s (“FDA”) primary jurisdiction to regulate e-cigarette and related vaping products and pending FDA review of JUUL’s Pre-Market Tobacco Application (“PMTA”). On June 29, 2020, Eby-Brown, along with the other Distributor Defendants, filed similar motions incorporating JUUL’s arguments. The court denied these motions on October 23, 2020.
The court has also entered an order governing the selection of bellwether plaintiffs and setting key discovery and other deadlines in the litigation. Bellwether trials are test cases generally intended to try a contested issue common to several plaintiffs in mass tort litigation. The results of these proceedings are used to shape the litigation process for the remaining cases and to aid the parties in assessing potential settlement values of the remaining claims. Here, the court authorized a pool of twenty-four bellwether plaintiffs, with plaintiffs selecting six cases, the combined defendants selecting six cases, and the court selecting twelve cases at random. The court and the parties have completed the bellwether selection process, and the first of four bellwether trials has been set for February 22, 2022 with the remaining three trials set for the second and third calendar quarters of 2022. Eby-Brown has been dismissed from each of the bellwether cases and will not be a party or participant to those trials. Eby-Brown, the other distributors, and the retailers do, however, remain named defendants in various SFCs filed by plaintiffs in various jurisdictions. The litigation of those claims is not scheduled to occur until after the bellwether trials conclude.
On September 3, 2020, the Cherokee Nation filed a parallel lawsuit in Oklahoma state court against several entities including JUUL, e-liquid manufacturers, various retailers, and various distributors, including the Company’s subsidiary, Eby-Brown, alleging similar claims to the claims at issue in the MDL (the “Oklahoma Litigation”). The defendants in the Oklahoma Litigation attempted to transfer the case into the MDL, but a federal court in Oklahoma remanded the case to Oklahoma state court before the Judicial Panel on Multidistrict Litigation effectuated the transfer of the MDL, which means the Oklahoma Litigation is no longer eligible for transfer to the MDL. The indemnity JUUL has provided to Eby-Brown also applies to the Oklahoma Litigation. On March 29, 2021, the Cherokee Nation dismissed Eby-Brown from the Oklahoma Litigation.
At this time, the Company is unable to predict whether FDA will approve JUUL’s PMTA, nor is the Company able to estimate any potential loss or range of loss in the event of an adverse finding against it in the MDL or any subsequent litigation which may occur related to the individual SFCs. The Company will continue to vigorously defend itself.
Tax Liabilities
The Company is subject to customary audits by authorities in the jurisdictions where it conducts business in the United States, which may result in assessments of additional taxes.
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|
11. |
Related-Party Transactions |
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 $ i 5.0 million as of March 27, 2021 and $ i 3.5 million as of June 27, 2020. For the three-month periods ended March 27, 2021 and March 28, 2020, the Company recorded purchases of $ i 296.5 million and $ i 234.8 million, respectively, through the purchasing alliance. During the nine-month periods ended March 27, 2021 and March 28, 2020, the Company recorded purchases of $ i 804.6 million and $ i 733.2 million, respectively, through the purchasing alliance.
/
17
i
|
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 earnings 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 earnings per 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 under the treasury stock method. For the three months ended March 27, 2021 and March 28, 2020, diluted loss per common share is the same as basic loss per common share because the inclusion of potential common shares is antidilutive. Potential common shares of i 0.2 million and i 0.1 million for the nine months ended March 27, 2021 and March 28, 2020, respectively, were not included in computing diluted earnings per common share because the effect would have been antidilutive.
iA reconciliation of the numerators and denominators for the basic and diluted earnings per common share computations is as follows:
|
(In millions, except per share amounts) |
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended March 28, 2020 |
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Numerator: |
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|
|
Net (loss) income |
|
$ |
( i 7.6 |
) |
|
$ |
( i 40.2 |
) |
|
$ |
i 9.3 |
|
|
$ |
i 37.1 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
i 132.3 |
|
|
|
i 115.9 |
|
|
|
i 132.0 |
|
|
|
i 108.1 |
|
|
Dilutive effect of potential common shares |
|
|
- |
|
|
|
- |
|
|
|
i 1.2 |
|
|
|
i 1.4 |
|
|
Weighted-average dilutive shares outstanding |
|
|
i 132.3 |
|
|
|
i 115.9 |
|
|
|
i 133.2 |
|
|
|
i 109.5 |
|
|
Basic (loss) earnings per common share |
|
$ |
( i 0.06 |
) |
|
$ |
( i 0.35 |
) |
|
$ |
i 0.07 |
|
|
$ |
i 0.34 |
|
|
Diluted (loss) earnings per common share |
|
$ |
( i 0.06 |
) |
|
$ |
( i 0.35 |
) |
|
$ |
i 0.07 |
|
|
$ |
i 0.34 |
|
i
13.Segment Information
The Company has i two reportable segments: Foodservice and Vistar. The Foodservice segment markets and distributes food and food-related products to independent restaurants, Chain restaurants, and other institutional “food-away-from-home” locations. Foodservice offers a “broad line” of products, including custom-cut meat and seafood, as well as products that are specific to our customer’s menu requirements. The Vistar segment distributes candy, snacks, beverages, cigarettes, other tobacco products, and other products to customers in the vending, office coffee services, theater, retail, hospitality, convenience store, 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.
iCorporate & 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. Corporate & All Other may also include capital expenditures for certain information technology projects that are transferred to the segments once placed in service.
|
(In millions) |
|
Foodservice |
|
|
Vistar |
|
|
Corporate & All Other |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
|
For the three months ended March 27, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net external sales |
|
$ |
i 5,184.2 |
|
|
$ |
i 2,011.9 |
|
|
$ |
i 6.4 |
|
|
$ |
— |
|
|
$ |
i 7,202.5 |
|
|
Inter-segment sales |
|
|
i 2.3 |
|
|
|
i 0.4 |
|
|
|
i 90.5 |
|
|
|
( i 93.2 |
) |
|
|
— |
|
|
Total sales |
|
|
i 5,186.5 |
|
|
|
i 2,012.3 |
|
|
|
i 96.9 |
|
|
|
( i 93.2 |
) |
|
|
i 7,202.5 |
|
|
Depreciation and amortization |
|
|
i 57.9 |
|
|
|
i 16.6 |
|
|
|
i 6.3 |
|
|
|
— |
|
|
|
i 80.8 |
|
|
Capital expenditures |
|
|
i 29.9 |
|
|
|
i 9.4 |
|
|
|
( i 3.4 |
) |
|
|
— |
|
|
|
i 35.9 |
|
|
For the three months ended March 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net external sales |
|
$ |
i 4,946.6 |
|
|
$ |
i 2,048.5 |
|
|
$ |
i 5.6 |
|
|
$ |
— |
|
|
$ |
i 7,000.7 |
|
|
Inter-segment sales |
|
|
i 3.3 |
|
|
|
i 0.7 |
|
|
|
i 101.5 |
|
|
|
( i 105.5 |
) |
|
|
— |
|
|
Total sales |
|
|
i 4,949.9 |
|
|
|
i 2,049.2 |
|
|
|
i 107.1 |
|
|
|
( i 105.5 |
) |
|
|
i 7,000.7 |
|
|
Depreciation and amortization |
|
|
i 79.9 |
|
|
|
i 13.1 |
|
|
|
i 6.3 |
|
|
|
— |
|
|
|
i 99.3 |
|
|
Capital expenditures |
|
|
i 21.5 |
|
|
|
i 23.2 |
|
|
|
i 7.4 |
|
|
|
— |
|
|
|
i 52.1 |
|
/ /
18
|
(In millions) |
|
Foodservice |
|
|
Vistar |
|
|
Corporate & All Other |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
|
For the nine months ended March 27, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net external sales |
|
$ |
i 15,104.6 |
|
|
$ |
i 5,971.8 |
|
|
$ |
i 18.1 |
|
|
$ |
— |
|
|
$ |
i 21,094.5 |
|
|
Inter-segment sales |
|
|
i 5.7 |
|
|
|
i 1.6 |
|
|
|
i 275.1 |
|
|
|
( i 282.4 |
) |
|
|
— |
|
|
Total sales |
|
|
i 15,110.3 |
|
|
|
i 5,973.4 |
|
|
|
i 293.2 |
|
|
|
( i 282.4 |
) |
|
|
i 21,094.5 |
|
|
Depreciation and amortization |
|
|
i 182.4 |
|
|
|
i 42.6 |
|
|
|
i 22.1 |
|
|
|
— |
|
|
|
i 247.1 |
|
|
Capital expenditures |
|
|
i 49.9 |
|
|
|
i 64.2 |
|
|
|
i 4.8 |
|
|
|
— |
|
|
|
i 118.9 |
|
|
For the nine months ended March 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net external sales |
|
$ |
i 12,717.5 |
|
|
$ |
i 6,577.6 |
|
|
$ |
i 17.2 |
|
|
$ |
— |
|
|
$ |
i 19,312.3 |
|
|
Inter-segment sales |
|
|
i 10.7 |
|
|
|
i 1.9 |
|
|
|
i 248.5 |
|
|
|
( i 261.1 |
) |
|
|
— |
|
|
Total sales |
|
|
i 12,728.2 |
|
|
|
i 6,579.5 |
|
|
|
i 265.7 |
|
|
|
( i 261.1 |
) |
|
|
i 19,312.3 |
|
|
Depreciation and amortization |
|
|
i 130.3 |
|
|
|
i 36.2 |
|
|
|
i 19.3 |
|
|
|
— |
|
|
|
i 185.8 |
|
|
Capital expenditures |
|
|
i 37.8 |
|
|
|
i 44.7 |
|
|
|
i 18.6 |
|
|
|
— |
|
|
|
i 101.1 |
|
i
EBITDA for each reportable segment and Corporate & All Other is presented below along with a reconciliation to consolidated income before taxes.
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Foodservice EBITDA |
|
$ |
i 138.3 |
|
|
$ |
i 91.7 |
|
|
$ |
i 449.8 |
|
|
$ |
i 309.3 |
|
|
Vistar EBITDA |
|
|
i 16.8 |
|
|
|
i 40.7 |
|
|
|
i 67.2 |
|
|
|
i 148.8 |
|
|
Corporate & All Other EBITDA |
|
|
( i 49.3 |
) |
|
|
( i 58.4 |
) |
|
|
( i 145.1 |
) |
|
|
( i 153.4 |
) |
|
Depreciation and amortization |
|
|
( i 80.8 |
) |
|
|
( i 99.3 |
) |
|
|
( i 247.1 |
) |
|
|
( i 185.8 |
) |
|
Interest expense |
|
|
( i 37.1 |
) |
|
|
( i 35.2 |
) |
|
|
( i 114.0 |
) |
|
|
( i 78.9 |
) |
|
(Loss) income before taxes |
|
$ |
( i 12.1 |
) |
|
$ |
( i 60.5 |
) |
|
$ |
i 10.8 |
|
|
$ |
i 40.0 |
|
Total assets by reportable segment, excluding intercompany receivables between segments, are as follows:
|
(In millions) |
|
As of |
|
|
As of |
|
||
|
Foodservice |
|
$ |
i 5,488.7 |
|
|
$ |
i 5,529.1 |
|
|
Vistar |
|
|
i 1,589.3 |
|
|
|
i 1,385.4 |
|
|
Corporate & All Other |
|
|
i 371.8 |
|
|
|
i 805.2 |
|
|
Total assets |
|
$ |
i 7,449.8 |
|
|
$ |
i 7,719.7 |
|
19
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 Form 10-Q and the audited consolidated financial statements and the notes thereto included in the Form 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 Form 10-K. 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 Form 10-Q.
We market and distribute over 200,000 food and food-related products to customers across the United States from over 100 distribution facilities to over 200,000 customer locations in the “food-away-from-home” industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally-branded products, and products bearing our customers’ brands. Our product assortment ranges from “center-of-the-plate” items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes, and other tobacco products. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers. 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.
The Company has two reportable segments: Foodservice and Vistar. Our Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” Foodservice sells to independent and multi-unit “Chain” restaurants and other institutions 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 restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, and other items nationally to vending, office coffee service, theater, retail, hospitality, convenience, and other channels. 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.
Key Factors Affecting Our Business
We believe that our short-term performance has been, and is expected to continue to be, adversely affected by the COVID-19 pandemic.
In response to the rapid spread of COVID-19 across the country, federal, state, and local governments have implemented measures to reduce the spread of COVID-19, including travel bans and restrictions, quarantines, shelter in place orders, shutdowns, and social distancing requirements. These measures have adversely affected workforces, suppliers, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets.
As an essential element of the country’s food supply chain, the Company has continued to operate all of it distribution centers. Despite the Company’s continued operations, mandatory and voluntary containment measures in response to COVID-19 have had a significant impact on the food-away-from-home industry. Many restaurants have closed, are restricting the number of patrons they will serve at one time, or are only providing carry-out or delivery options. These restrictions have also impacted businesses throughout the economy, including theaters, retail operations, schools, and other businesses to whom we provide products and services, which collectively have adversely affected our results of operations.
During the first nine months of fiscal 2021, we continued to experience the adverse impact of COVID-19 on our operations, including significant decreases in sales. Despite these difficulties, we have taken steps to ensure a strong financial position, including steps to maintain financial liquidity, forging new customer relationships, supporting restaurant customers with the transition to higher volumes of take-out and delivery, and other means.
Even as governmental restrictions are eased and economies gradually, partially, or fully reopen in certain states and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior and spending in the channels we serve. The extent to which these changes will affect our future financial position, liquidity, and results of operations remains uncertain.
20
Despite the near-term impact of the COVID-19 pandemic, we believe that our long-term performance is principally affected by the following key factors:
|
|
• |
Changing demographic and macroeconomic trends. Until recently due to the COVID-19 pandemic the share of consumer spending captured by the food-away-from-home industry has increased steadily for several decades. The share increases in periods of increasing employment, rising disposable income, increases in the number of restaurants, and favorable demographic trends, such as smaller household sizes, an increasing number of dual income households, and an aging population base that spends more per capita at foodservice establishments. The foodservice distribution industry is also sensitive to national and regional economic conditions, such as changes in consumer spending, changes in consumer confidence, and changes in the prices of certain goods. |
|
|
• |
Food distribution market structure. The food distribution market consists of a wide spectrum of companies ranging from businesses selling a single category of product (e.g., produce) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories. We believe our scale enables us to invest in our Performance Brands, to benefit from economies of scale in purchasing and procurement, and to drive supply chain efficiencies that enhance our customers’ satisfaction and profitability. We believe that the relative growth of larger foodservice distributors will continue to outpace that of smaller, independent players in our industry. |
|
|
• |
Our ability to successfully execute our segment strategies and implement our initiatives. Our performance will continue to depend on our ability to successfully execute our segment strategies and to implement our current and future initiatives. The key strategies include focusing on independent sales and Performance Brands, pursuing new customers for both of our reportable segments, expansion of geographies, utilizing our infrastructure to gain further operating and purchasing efficiencies, and making strategic acquisitions. |
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) and inbound freight. 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 accounting principles generally accepted in the United States of America (“GAAP”) and is not a measure of operating income, operating performance, or liquidity presented in accordance with 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 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 ABL Facility and indentures (other than certain pro forma adjustments permitted under our ABL Facility and indentures governing the Notes due 2024, Notes due 2025 and Notes due 2027 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our ABL Facility and indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and
21
making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the ABL Facility and 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 GAAP and is subject to important limitations. 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 and holders of our Notes due 2024, Notes due 2025 and Notes due 2027, 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 have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
|
|
• |
exclude certain tax payments that may represent a reduction in cash available to us; |
|
|
• |
do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future; |
|
|
• |
do not reflect changes in, or cash requirements for, our working capital needs; and |
|
|
• |
do not reflect the significant interest expense, or the cash requirements, necessary to service our debt. |
In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:
|
|
• |
does not include non-cash stock-based employee compensation expense and other non-cash charges; and |
|
|
• |
does not include acquisition, restructuring, and other costs incurred to realize future cost savings and enhance our operations. |
We have included the calculations 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 |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Net sales |
|
$ |
7,202.5 |
|
|
$ |
7,000.7 |
|
|
$ |
201.8 |
|
|
|
2.9 |
|
|
Cost of goods sold |
|
|
6,369.8 |
|
|
|
6,193.2 |
|
|
|
176.6 |
|
|
|
2.9 |
|
|
Gross profit |
|
|
832.7 |
|
|
|
807.5 |
|
|
|
25.2 |
|
|
|
3.1 |
|
|
Operating expenses |
|
|
809.3 |
|
|
|
824.9 |
|
|
|
(15.6 |
) |
|
|
(1.9 |
) |
|
Operating profit (loss) |
|
|
23.4 |
|
|
|
(17.4 |
) |
|
|
40.8 |
|
|
|
(234.5 |
) |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
37.1 |
|
|
|
35.2 |
|
|
|
1.9 |
|
|
|
5.4 |
|
|
Other, net |
|
|
(1.6 |
) |
|
|
7.9 |
|
|
|
(9.5 |
) |
|
NM |
|
|
|
Other expense, net |
|
|
35.5 |
|
|
|
43.1 |
|
|
|
(7.6 |
) |
|
|
(17.6 |
) |
|
Loss before income taxes |
|
|
(12.1 |
) |
|
|
(60.5 |
) |
|
|
48.4 |
|
|
|
(80.0 |
) |
|
Income tax benefit |
|
|
(4.5 |
) |
|
|
(20.3 |
) |
|
|
15.8 |
|
|
|
(77.8 |
) |
|
Net loss |
|
$ |
(7.6 |
) |
|
$ |
(40.2 |
) |
|
$ |
32.6 |
|
|
|
(81.1 |
) |
|
EBITDA |
|
$ |
105.8 |
|
|
$ |
74.0 |
|
|
$ |
31.8 |
|
|
|
43.0 |
|
|
Adjusted EBITDA |
|
$ |
121.2 |
|
|
$ |
131.1 |
|
|
$ |
(9.9 |
) |
|
|
(7.6 |
) |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
132.3 |
|
|
|
115.9 |
|
|
|
16.4 |
|
|
|
14.2 |
|
|
Diluted |
|
|
132.3 |
|
|
|
115.9 |
|
|
|
16.4 |
|
|
|
14.2 |
|
|
Loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.29 |
|
|
|
(82.9 |
) |
|
Diluted |
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.29 |
|
|
|
(82.9 |
) |
22
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Net sales |
|
$ |
21,094.5 |
|
|
$ |
19,312.3 |
|
|
$ |
1,782.2 |
|
|
|
9.2 |
|
|
Cost of goods sold |
|
|
18,635.2 |
|
|
|
17,082.2 |
|
|
|
1,553.0 |
|
|
|
9.1 |
|
|
Gross profit |
|
|
2,459.3 |
|
|
|
2,230.1 |
|
|
|
229.2 |
|
|
|
10.3 |
|
|
Operating expenses |
|
|
2,339.2 |
|
|
|
2,103.5 |
|
|
|
235.7 |
|
|
|
11.2 |
|
|
Operating profit |
|
|
120.1 |
|
|
|
126.6 |
|
|
|
(6.5 |
) |
|
|
(5.1 |
) |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
114.0 |
|
|
|
78.9 |
|
|
|
35.1 |
|
|
|
44.5 |
|
|
Other, net |
|
|
(4.7 |
) |
|
|
7.7 |
|
|
|
(12.4 |
) |
|
NM |
|
|
|
Other expense, net |
|
|
109.3 |
|
|
|
86.6 |
|
|
|
22.7 |
|
|
|
26.2 |
|
|
Income before income taxes |
|
|
10.8 |
|
|
|
40.0 |
|
|
|
(29.2 |
) |
|
|
(73.0 |
) |
|
Income tax expense |
|
|
1.5 |
|
|
|
2.9 |
|
|
|
(1.4 |
) |
|
|
(48.3 |
) |
|
Net income |
|
$ |
9.3 |
|
|
$ |
37.1 |
|
|
$ |
(27.8 |
) |
|
|
(74.9 |
) |
|
EBITDA |
|
$ |
371.9 |
|
|
$ |
304.7 |
|
|
$ |
67.2 |
|
|
|
22.1 |
|
|
Adjusted EBITDA |
|
$ |
414.4 |
|
|
$ |
401.7 |
|
|
$ |
12.7 |
|
|
|
3.2 |
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
132.0 |
|
|
|
108.1 |
|
|
|
23.9 |
|
|
|
22.1 |
|
|
Diluted |
|
|
133.2 |
|
|
|
109.5 |
|
|
|
23.7 |
|
|
|
21.6 |
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.07 |
|
|
$ |
0.34 |
|
|
$ |
(0.27 |
) |
|
|
(79.4 |
) |
|
Diluted |
|
$ |
0.07 |
|
|
$ |
0.34 |
|
|
$ |
(0.27 |
) |
|
|
(79.4 |
) |
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
(In millions) |
|
|
(In millions) |
|
||||||||||
|
Net (loss) income |
|
$ |
(7.6 |
) |
|
$ |
(40.2 |
) |
|
$ |
9.3 |
|
|
$ |
37.1 |
|
|
Interest expense |
|
|
37.1 |
|
|
|
35.2 |
|
|
|
114.0 |
|
|
|
78.9 |
|
|
Income tax (benefit) expense |
|
|
(4.5 |
) |
|
|
(20.3 |
) |
|
|
1.5 |
|
|
|
2.9 |
|
|
Depreciation |
|
|
50.7 |
|
|
|
49.3 |
|
|
|
158.4 |
|
|
|
118.3 |
|
|
Amortization of intangible assets |
|
|
30.1 |
|
|
|
50.0 |
|
|
|
88.7 |
|
|
|
67.5 |
|
|
EBITDA |
|
|
105.8 |
|
|
|
74.0 |
|
|
|
371.9 |
|
|
|
304.7 |
|
|
Non-cash items (1) |
|
|
13.0 |
|
|
|
6.1 |
|
|
|
31.1 |
|
|
|
18.8 |
|
|
Acquisition, integration and reorganization (2) |
|
|
3.6 |
|
|
|
36.9 |
|
|
|
13.0 |
|
|
|
60.7 |
|
|
Productivity initiatives and other adjustment items (3) |
|
|
(1.2 |
) |
|
|
14.1 |
|
|
|
(1.6 |
) |
|
|
17.5 |
|
|
Adjusted EBITDA |
|
$ |
121.2 |
|
|
$ |
131.1 |
|
|
$ |
414.4 |
|
|
$ |
401.7 |
|
|
(1) |
Includes adjustments for non-cash charges arising from stock-based compensation and gain/loss on disposal of assets. Stock-based compensation expense was $7.0 million and $5.2 million for the third quarters of fiscal 2021 and fiscal 2020, respectively, and $19.3 million and $14.0 million for the first nine months of fiscal 2021 and fiscal 2020, respectively. In addition, this includes a decrease in the last-in-first-out (“LIFO”) reserve of $2.3 million for Foodservice and an increase of $3.7 million for Vistar for the third quarter of fiscal 2021 compared to a decrease of $1.1 million for Foodservice and an increase $0.5 million for Vistar for the third quarter of fiscal 2020. The LIFO reserve increased $5.1 million for Foodservice and $4.2 million for Vistar for the first nine months of fiscal 2021 compared to increases of $0.9 million for Foodservice and $2.2 million for Vistar for the first nine months fiscal 2020. |
|
(2) |
Includes professional fees and other costs related to acquisitions, costs of integrating certain of our facilities, and facility closing costs. |
|
(3) |
Consists primarily of amounts related to fuel collar derivatives, certain financing transactions, lease amendments, legal settlements and franchise tax expense, and other adjustments permitted by our ABL Facility and indentures. Fiscal 2020 also includes $5.8 million of development costs related to certain productivity initiatives the Company no longer pursued as a result of the Reinhart acquisition. |
23
Consolidated Results of Operations
Three and nine months ended March 27, 2021 compared to the three and nine months ended March 28, 2020
Net Sales
Net sales growth is a function of 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 $201.8 million, or 2.9%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and increased $1,782.2 million, or 9.2%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. The increase in net sales for the third quarter of fiscal 2021 was driven by an increase in selling price per case as a result of inflation and mix. The increase in net sales for the first nine months of fiscal 2021 was primarily attributable to the acquisition of Reinhart, which contributed $4,195.2 million of net sales during the first nine months of fiscal 2021, compared to $1,355.1 million for the first nine months of fiscal 2020.
Case volume decreased 4.2% in the third quarter of fiscal 2021 and increased 3.9% in the first nine months of fiscal 2021, compared to the same periods of fiscal 2020. Excluding the impact of the Reinhart acquisition, case volume declined 13.4% in the first nine months of fiscal 2021 compared to the same period of fiscal 2020 due primarily to the effects of COVID-19.
Gross Profit
Gross profit increased $25.2 million, or 3.1%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 as a result of an increase in the gross profit per case driven by case growth in Foodservice, particularly in the independent channel. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers. Gross profit increased $229.2 million, or 10.3%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 driven by the acquisition of Reinhart, which contributed an increase in gross profit of $399.3 million for the first nine months of fiscal 2021, compared to the prior year period.
Gross profit was negatively impacted by a decline in organic case volume driven by the effects of COVID-19 described above. Additionally, for the third quarter and first nine months of fiscal 2021, the Company recorded a total of $8.9 million and $27.8 million of inventory write-offs, respectively, compared to $14.4 million and $25.7 million for the third quarter and first nine months of fiscal 2020, respectively. The year-to-date increase was primarily a result of the current economic environment due to COVID-19, with the third quarter of fiscal 2021 decrease resulting from recent improvements in economic conditions. Gross profit as a percentage of net sales was 11.6% for the third quarter of fiscal 2021 compared to 11.5% for the third quarter of fiscal 2020, and 11.7% for the first nine months of fiscal 2021 compared to 11.5% for the first nine months of fiscal 2020.
Operating Expenses
Operating expenses decreased $15.6 million, or 1.9%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and increased $235.7 million, or 11.2%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. The increase in operating expenses for the first nine months of fiscal 2021 was primarily driven by the acquisition of Reinhart. Reinhart contributed an additional $292.6 million of operating expenses, excluding depreciation and amortization, for the first nine months of fiscal 2021. For both the third quarter and first nine months of fiscal 2021, excluding the impact of the additional Reinhart operating expenses, the Company decreased its operating expenses related to personnel expenses, fuel expense, insurance expense, travel expenses, professional fees, and contingent consideration accretion expense compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, the Company recorded benefits of $6.0 million and $9.4 million, respectively, related to reserves for expected credit losses as compared to bad debt expense of $21.3 million and $29.8 million for the third quarter and first nine months of fiscal 2020, respectively. These decreases in operating expenses were partially offset by increases in annual bonus expense. In the third quarter and first nine months of fiscal 2021, the Company recorded expense of $29.6 million and $78.0 million, respectively, related to annual bonus expense as compared to a benefit of $32.4 million and expense of $6.1 million for the third quarter and first nine months of fiscal 2020, respectively.
Depreciation and amortization of intangible assets decreased from $99.3 million in the third quarter of fiscal 2020 to $80.8 million in the third quarter of fiscal 2021. The decrease was primarily driven by accelerated amortization of customer relationships and trade names related to Reinhart recorded in the prior year. Depreciation and amortization of intangible assets increased from $185.8 million for the first nine months of fiscal 2020 to $247.1 million in the first nine months of fiscal 2021 as a result of the Reinhart acquisition.
Net (Loss) Income
Net loss decreased $32.6 million, or 81.1%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. The decrease in net loss was primarily attributable to the $40.8 million increase in operating profit discussed above.
Net income decreased $27.8 million, or 74.9%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. The decrease in net income was primarily attributable to the impact of COVID-19 on our operations, the increase in
24
operating expenses discussed above, and an increase in interest expense. The increase in interest expense was primarily the result of an increase in average borrowings outstanding during fiscal 2021 compared to the prior year period.
The Company reported an income tax benefit of $4.5 million and income tax expense of $1.5 million for the third quarter and first nine months of fiscal 2021, respectively, compared to an income tax benefit of $20.3 million and income tax expense of $2.9 million for the third quarter and first nine months of fiscal 2020, respectively. Our effective tax rates for the third quarter and first nine months of fiscal 2021 were 37.1% and 14.2%, respectively, compared to 33.6% and 7.3% for the three and nine months ended March 28, 2020, respectively. The effective tax rates for the third quarter and first nine months of fiscal 2021 increased from the prior year periods primarily due to the increase of state taxes and non-deductible expenses as a percentage of book income. Book income for the nine months ended March 27, 2021 was significantly lower than the book income for the nine months ended March 28, 2020.
Segment Results
We have two reportable segments as described above – Foodservice and Vistar. Management evaluates the performance of these segments based various operating and financial metrics, including their respective sales growth and EBITDA.
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.
The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
Net Sales
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Foodservice |
|
$ |
5,186.5 |
|
|
$ |
4,949.9 |
|
|
$ |
236.6 |
|
|
|
4.8 |
|
|
Vistar |
|
|
2,012.3 |
|
|
|
2,049.2 |
|
|
|
(36.9 |
) |
|
|
(1.8 |
) |
|
Corporate & All Other |
|
|
96.9 |
|
|
|
107.1 |
|
|
|
(10.2 |
) |
|
|
(9.5 |
) |
|
Intersegment Eliminations |
|
|
(93.2 |
) |
|
|
(105.5 |
) |
|
|
12.3 |
|
|
|
11.7 |
|
|
Total net sales |
|
$ |
7,202.5 |
|
|
$ |
7,000.7 |
|
|
$ |
201.8 |
|
|
|
2.9 |
|
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Foodservice |
|
$ |
15,110.3 |
|
|
$ |
12,728.2 |
|
|
$ |
2,382.1 |
|
|
|
18.7 |
|
|
Vistar |
|
|
5,973.4 |
|
|
|
6,579.5 |
|
|
|
(606.1 |
) |
|
|
(9.2 |
) |
|
Corporate & All Other |
|
|
293.2 |
|
|
|
265.7 |
|
|
|
27.5 |
|
|
|
10.4 |
|
|
Intersegment Eliminations |
|
|
(282.4 |
) |
|
|
(261.1 |
) |
|
|
(21.3 |
) |
|
|
(8.2 |
) |
|
Total net sales |
|
$ |
21,094.5 |
|
|
$ |
19,312.3 |
|
|
$ |
1,782.2 |
|
|
|
9.2 |
|
EBITDA
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Foodservice |
|
$ |
138.3 |
|
|
$ |
91.7 |
|
|
$ |
46.6 |
|
|
|
50.8 |
|
|
Vistar |
|
|
16.8 |
|
|
|
40.7 |
|
|
|
(23.9 |
) |
|
|
(58.7 |
) |
|
Corporate & All Other |
|
|
(49.3 |
) |
|
|
(58.4 |
) |
|
|
9.1 |
|
|
|
15.6 |
|
|
Total EBITDA |
|
$ |
105.8 |
|
|
$ |
74.0 |
|
|
$ |
31.8 |
|
|
|
43.0 |
|
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
|
|
|
|
Change |
|
|
% |
|
||||||
|
Foodservice |
|
$ |
449.8 |
|
|
$ |
309.3 |
|
|
$ |
140.5 |
|
|
|
45.4 |
|
|
Vistar |
|
|
67.2 |
|
|
|
148.8 |
|
|
|
(81.6 |
) |
|
|
(54.8 |
) |
|
Corporate & All Other |
|
|
(145.1 |
) |
|
|
(153.4 |
) |
|
|
8.3 |
|
|
|
5.4 |
|
|
Total EBITDA |
|
$ |
371.9 |
|
|
$ |
304.7 |
|
|
$ |
67.2 |
|
|
|
22.1 |
|
Segment Results—Foodservice
25
Three and nine months ended March 27, 2021 compared to the three and nine months ended March 28, 2020
Net Sales
Net sales for Foodservice increased $236.6 million, or 4.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased $2,382.1 million, or 18.7%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. The increase in net sales for the third quarter of fiscal 2021 was driven by growth in cases sold as certain states began to ease COVID-19 restrictions, as well as an increase in selling price per case as a result of inflation. Securing new and expanded business with independent customers resulted in independent case growth of approximately 6.3% in the third quarter of fiscal 2021 compared to the prior year period. For the quarter, independent sales as a percentage of total Foodservice segment sales were 33.9%.
The increase in net sales for the first nine months of fiscal 2021 was driven by the Reinhart acquisition, as well as an increase in selling price per case as a result of inflation. Reinhart contributed $4,195.2 million of net sales during the first nine months of fiscal 2021, compared to $1,355.1 million for the first nine months of fiscal 2020. The Reinhart acquisition also expanded business with independent customers, resulting in independent case growth of approximately 19.4% for the first nine months of fiscal 2021, compared to the prior year period. Excluding the impact of Reinhart, independent cases declined 1.5% in the first nine months of fiscal 2021, compared to the prior year period. The year-to-date decline in independent cases was driven by the impact of COVID-19 on the restaurant industry.
EBITDA
EBITDA for Foodservice increased $46.6 million, or 50.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased $140.5 million, or 45.4%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased 8.0% in the third quarter of fiscal 2021, compared to the prior year period, as a result of an increase in the gross profit per case, as well as an increase in cases sold. Gross profit increased 22.4% in the first nine months of fiscal 2021, compared to the prior year period, driven by the Reinhart acquisition, which contributed an increase in gross profit of $399.3 million for the first nine months of fiscal 2021, as well as an increase in gross profit per case, compared to the prior year period. The increases in gross profit per case were driven by a favorable shift in the mix of cases sold, including more Performance Brands products sold to our independent customers. Cases sold to independent businesses result in higher gross margins within this segment.
Operating expenses excluding depreciation and amortization for Foodservice increased by $2.7 million, or 0.5%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased by $219.9 million, or 16.9%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Operating expenses increased for the first nine months of fiscal 2021 primarily as a result of the acquisition of Reinhart, which contributed an additional $280.1 million of operating expenses for the first nine months of fiscal 2021. Excluding the impact of the additional Reinhart operating expenses, operating expense increased as a result of increases in bonus expense for the third quarter and first nine months of fiscal 2021, partially offset by reduced personnel expenses as compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, Foodservice recorded expenses of $15.2 million and $39.5 million, respectively, related to annual bonus expense as compared to a benefit of $19.3 million for the third quarter and no annual bonus expense for the first nine months of fiscal 2020. Operating expenses also experienced decreases in fuel expenses of $2.0 million and $15.0 million and decreases in insurance expense of $5.0 million and $12.9 million during the third quarter and first nine months of fiscal 2021, respectively, compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, Foodservice recorded benefits of $5.5 million and $13.5 million, respectively, related to reserves for expected credit losses as compared to bad debt expense of $15.9 million and $22.0 million for the third quarter and first nine months of fiscal 2020.
Depreciation and amortization of intangible assets recorded in this segment decreased from $79.9 million in the third quarter of fiscal 2020 to $57.9 million in the third quarter of fiscal 2021 as a result of accelerated amortization of customer relationships and trade names related to Reinhart recorded in the prior fiscal year. Depreciation and amortization of intangible assets recorded in this segment increased from $130.3 million in the first nine months of fiscal 2020 to $182.4 million in the first nine months of fiscal 2021 as a result of the acquisition of Reinhart. Total depreciation and amortization related to the acquisition of Reinhart increased $51.9 million for the nine months ended March 27, 2021, compared to prior year period.
Segment Results—Vistar
Three and nine months ended March 27, 2021 compared to the three and nine months ended March 28, 2020
Net Sales
Net sales for Vistar declined $36.9 million, or 1.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and declined $606.1 million, or 9.2%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Net sales for the third quarter and first nine months of fiscal 2021 includes $276.9 million and $863.6 million, respectively, related to tobacco excise taxes, as compared to $256.9 million and $815.9 million for the prior year periods. The decrease in net sales was driven primarily by the continued economic effects of the COVID-19 pandemic. Due to the various initiatives to slow the spread of COVID-19, there have been significant declines in the theater, vending, office coffee service, office supply, hospitality, and travel channels for the first nine months of fiscal 2021, which are likely to continue as long as social distancing guidelines remain in place. The declines in the theater, travel, hospitality, office coffee service, office supply, and vending channels are expected to gradually improve, as certain states have begun to ease restrictions allowing many locations to resume operations in the fourth quarter of fiscal 2021.
26
EBITDA
EBITDA for Vistar declined $23.9 million, or 58.7%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and declined $81.6 million, or 54.8%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Gross profit declined $25.5 million, or 13.9%, for the third quarter fiscal 2021 and $132.3 million, or 21.9%, for the first nine months of fiscal 2021 compared to the respective prior year periods, driven by the effects of COVID-19 described above. Additionally, for the third quarter of fiscal 2021, Vistar recorded $1.7 million of inventory write-offs, a decrease of $1.8 million compared to the prior year period. For the first nine months of fiscal 2021, Vistar recorded $7.7 million of inventory write-offs, an increase of $3.2 million compared to the prior year period. The year-to-date increase was primarily a result of the current economic environment due to COVID-19, with the third quarter of fiscal 2021 decrease resulting from recent improvements in economic conditions. Gross profit as a percentage of net sales declined from 9.0% for the third quarter of fiscal 2020 to 7.8% for the third quarter of fiscal 2021 and from 9.2% for the first nine months of fiscal 2020 to 7.9% the first nine months of fiscal 2021 as a result of the continued growth in the convenience store channel, which has lower margins.
The Company continues to have a risk for unreserved inventory related to our major theater customers within the Vistar segment. However, these customers continue to operate under contracts that include provisions whereby the customer reimburses the Company for inventory losses. Additionally, many theaters plan to resume operations in the fourth quarter of fiscal 2021, which would further reduce this risk.
Operating expenses, excluding depreciation and amortization, decreased $1.4 million, or 1.0%, for the third quarter of fiscal 2021 and $50.4 million, or 11.1%, for the first nine months of fiscal 2021 compared to the prior year periods. Operating expenses decreased primarily as a result of decreased sales volume described above, decreases in personnel and fuel expenses, and a reduction in contingent consideration accretion expenses of $2.0 million and $10.0 million for the third quarter and first nine months of fiscal 2021, respectively, as compared to prior year periods. Additionally, for the third quarter and first nine months of fiscal 2021, Vistar recorded a benefit of $0.5 million and expense of $4.1 million, respectively, related to reserves for expected credit losses for customer receivables. These reserves represent declines in bad debt expense of $5.9 million and $3.7 million compared to the third quarter and the first nine months of fiscal 2020, respectively. These declines were partially offset by increases in annual bonus expense for the third quarter and first nine months of fiscal 2021, as compared to prior year periods. In the third quarter and first nine months of fiscal 2021, Vistar recorded expenses of $6.7 million and $17.7 million, respectively, related to annual bonus expense as compared to a benefit of $6.7 million and expense of $3.8 million for the third quarter and first nine months of fiscal 2020, respectively.
Depreciation and amortization of intangible assets recorded in this segment increased from $13.1 million in the third quarter of fiscal 2020 to $16.6 million in the third quarter of fiscal 2021 and increased from $36.2 million in the first nine months of fiscal 2020 to $42.6 million in the first nine months of fiscal 2021.
Segment Results—Corporate & All Other
Three and nine months ended March 27, 2021 compared to the three and nine months ended March 28, 2020
Net Sales
Net sales for Corporate & All Other decreased $10.2 million from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 due to a decrease in logistic services to our other segments resulting from decreased case volume. Net sales for Corporate & All Other increased $27.5 million from the first nine months of fiscal 2020 to the first nine months of fiscal 2021 as a result of an increase in logistics services provided to our other segments for increased case volume due to the acquisition of Reinhart.
EBITDA
EBITDA for Corporate & All Other was a negative $49.3 million for the third quarter of fiscal 2021 compared to a negative $58.4 million for the third quarter of fiscal 2020 and was a negative $145.1 million for the first nine months of fiscal 2021 compared to a negative $153.4 million for the first nine months of fiscal 2020. The improvements in EBITDA were primarily driven by declines in professional fees of $17.9 million for the third quarter of fiscal 2021 and $24.6 million for the first nine months of fiscal 2021 compared to the respective prior year periods, as well as declines in travel expenses. These declines were partially offset by the increases in annual bonus expense. Annual bonus expense of $7.7 million and $20.8 million was recorded in the third quarter and first nine months of fiscal 2021, respectively, as compared to a benefit of $6.4 million and expense of $2.3 million for the third quarter and first nine months of fiscal 2020, respectively.
Operating expenses also increased as a result of increases in insurance expense for the third quarter and first nine months of fiscal 2021. Additionally, the increase in operating expenses for the first nine months of fiscal 2021 was driven by the additional corporate expenses associated with the acquisition of Reinhart, as compared to the prior year periods.
27
Depreciation and amortization of intangible assets recorded in this segment remained flat at $6.3 million for both the third quarter of fiscal 2021 and the third quarter of fiscal 2020 and increased from $19.3 million in the first nine months of fiscal 2020 to $22.1 million in the first nine months of fiscal 2021 as a result of information technology acquired in the Reinhart transaction.
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 finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility. 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 borrow under our credit 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.
As market conditions warrant, we may from time to time 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 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. For example, in response to the impact of COVID-19 in fiscal 2020, the Company strengthened its liquidity by borrowing $400.0 million on the revolving line of credit under our ABL Facility, entering into the First Amendment to the ABL Facility to provide the $110.0 million Additional Junior Term Loan, which was paid off early and in full on February 5, 2021, issuing and selling shares of common stock for net proceeds of $337.5 million, and issuing and selling $275.0 million aggregate principal of the Notes due 2025 (all defined below in “—Financing Activities”).
COVID-19
In markets where governments have imposed restrictions on travel outside of the home, or where customers are practicing social distancing, many of our customers, including restaurants, schools, hotels, movie theaters, and business and industry locations, have reduced or discontinued operations, which has adversely affected demand for our products and services. Even as governmental restrictions are eased and economies gradually, partially, or fully reopen in certain states and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior and spending in the channels we serve. The extent to which these changes will affect our future financial position, liquidity, and results of operations remains uncertain.
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.
As of March 27, 2021, our cash balance totaled $112.6 million, including restricted cash of $11.1 million, as compared to a cash balance totaling $431.8 million, including restricted cash of $11.1 million, as of June 27, 2020. The $319.2 million decrease in cash is primarily due to the early pay off, in full, of the $110.0 million Additional Junior Term Loan and payments under our ABL Facility.
Nine months ended March 27, 2021 compared to the nine months ended March 28, 2020
Operating Activities
During the first nine months of fiscal 2021 and fiscal 2020, our operating activities provided cash flow of $173.1 million and $17.6 million, respectively. The increase in cash flow provided by operating activities in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was largely driven by improvements in working capital and income tax refunds of $117.8 million received during the first nine months of fiscal 2021, partially offset by the payment of $117.3 million of contingent consideration related to the acquisition of Eby-Brown.
Investing Activities
Cash used in investing activities totaled $130.4 million in the first nine months of fiscal 2021 compared to $2,089.3 million in the first nine months of fiscal 2020. These investments consisted primarily of payments for business acquisitions of $18.1 million and $1,989.0 million for the first nine months of fiscal 2021 and the first nine months of fiscal 2020, respectively, along with capital purchases of property, plant, and equipment of $118.9 million and $101.1 million for the first nine months of fiscal 2021 and the first nine months of fiscal 2020, respectively. For the first nine months of fiscal 2021, purchases of property, plant, and equipment primarily consisted of outlays for information technology, warehouse equipment, warehouse expansions and improvements, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment:
28
|
|
|
Nine Months Ended |
|
|||||
|
(Dollars in millions) |
|
|
|
|
||||
|
Foodservice |
|
$ |
49.9 |
|
|
$ |
37.8 |
|
|
Vistar |
|
|
64.2 |
|
|
|
44.7 |
|
|
Corporate & All Other |
|
|
4.8 |
|
|
|
18.6 |
|
|
Total capital purchases of property, plant and equipment |
|
$ |
118.9 |
|
|
$ |
101.1 |
|
As of March 27, 2021, the Company had commitments of $38.0 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings from the ABL Facility to fulfill these commitments.
Financing Activities
During the first nine months of fiscal 2021, our financing activities used cash flow of $361.9 million, which consisted primarily of $103.8 million in net payments under our ABL Facility, $136.4 million in payments related to recent acquisitions, $110.0 million in repayment of the Additional Junior Term Loan, and $27.3 million in payments of finance lease obligations.
During the first nine months of fiscal 2020, our financing activities provided cash flow of $2,429.5 million, which consisted primarily of $1,060.0 million in cash received from the issuance and sale of the Notes due 2027, $950.4 million in net borrowings under our ABL facility, and $490.6 million in net proceeds from the issuance of common stock. These sources of cash were partially offset by $37.5 million paid for debt issuance costs associated with the Notes due 2027 and borrowings under the ABL Facility and $16.9 million in payments of finance lease obligations.
The following describes our financing arrangements as of March 27, 2021:
ABL Facility: PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, is a party to the Fourth Amended and Restated Credit Agreement dated December 30, 2019 ( as amended by the First Amendment to Fourth Amended and Restated Credit Agreement dated as of April 29, 2020 and the Second Amendment to Fourth Amended and Restated Credit Agreement dated as of May 15, 2020, the “ABL Facility”). The ABL Facility has an aggregate principal amount of $3.0 billion, which matures on December 30, 2024. The incremental $110 million, 364-day maturity loan that is junior to the other obligations owed under the ABL Facility (“Additional Junior Term Loan”) was paid off early and in full on February 5, 2021. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, 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 greater of (i) the Federal Funds Rate in effect on such date plus 0.5%, (ii) the Prime Rate on such day, or (iii) one month LIBOR plus 1.0%) plus a spread or (b) LIBOR plus a spread. The ABL Facility also provides for an unused commitment fee rate of 0.25% per annum. Borrowings under the Additional Junior Term Loan, which was paid off early and in full on February 5, 2021, bore interest at LIBOR plus 5.0% per annum with respect to any loan which was a LIBOR loan and Prime plus 4.0% per annum with respect to any loan which was a base rate loan.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the ABL Facility:
|
(Dollars in millions) |
|
As of March 27, 2021 |
|
|
As of June 27, 2020 |
|
||
|
Aggregate borrowings |
|
$ |
496.2 |
|
|
$ |
710.0 |
|
|
Letters of credit under ABL Facility |
|
|
161.8 |
|
|
|
139.6 |
|
|
Excess availability, net of lenders’ reserves of $56.0 and $64.9 |
|
|
2,003.1 |
|
|
|
1,712.2 |
|
|
Average interest rate |
|
|
1.56 |
% |
|
|
2.85 |
% |
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) $200.0 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 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
29
be accelerated and the rights and remedies of the lenders under the ABL Facility may be exercised, including rights with respect to the collateral securing the obligations under such agreement.
Senior Notes due 2024: On May 17, 2016, Performance Food Group, Inc. issued and sold $350.0 million aggregate principal amount of its 5.500% Notes due 2024, pursuant to an indenture dated as of May 17, 2016. The Notes due 2024 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 2024 are not guaranteed by Performance Food Group Company.
The proceeds from the Notes due 2024 were used to pay in full the remaining outstanding aggregate principal amount of the loans under the Company’s term loan facility and to terminate the facility; to temporarily repay a portion of the outstanding borrowings under the ABL Facility; and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2024.
The Notes due 2024 were issued at 100.0% of their par value. The Notes due 2024 mature on June 1, 2024 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 2024 will have the right to require Performance Food Group, Inc. to make an offer to repurchase each holder’s Notes due 2024 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. currently may redeem all or part of the Notes due 2024 at a redemption price equal to 101.325% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100.000% of the principal amount redeemed on June 1, 2021.
The indenture governing the Notes due 2024 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 2024 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2024 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 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 guaranteed by Performance Food Group Company.
The proceeds from the Notes due 2027, along with an offering of shares of the Company’s common stock and borrowings under the ABL Facility, were used to fund the cash consideration for the Reinhart acquisition 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 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 any time prior to October 15, 2022 at a redemption price equal to 100% of the principal amount of the Notes due 2027 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 October 15, 2022, Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at a redemption price equal to 102.750% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.375% and 100% of the principal amount redeemed on October 15, 2023 and October 15, 2024, respectively. In addition, at any time prior to October 15, 2022, Performance Food Group Inc. may redeem up to 40% of the Notes due 2027 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.
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
30
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 2025: On April 24, 2020, Performance Food Group, Inc. issued and sold $275.0 million aggregate principal amount of the Notes due 2025, pursuant to an indenture dated as of April 24, 2020. 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.
The proceeds from the Notes due 2025 were used for working capital and general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2025.
The Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025 mature on May 1, 2025 and bear interest at a rate of 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 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 due 2025 at any time prior to May 1, 2022 at a redemption price equal to 100% of the principal amount of the Notes due 2025 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 May 1, 2022, Performance Food Group, Inc. may redeem all or a part of the Notes due 2025 at a redemption price equal to 103.438% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.719% and 100% of the principal amount redeemed on May 1, 2023 and May 1, 2024, respectively. In addition, at any time prior to May 1, 2022, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2025 from the proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest.
The indenture governing the Notes due 2025 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 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.
As of March 27, 2021, the Company was in compliance with all of the covenants under the ABL Facility and the indentures governing the Notes due 2024, the Notes due 2025 and the Notes due 2027.
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 Form 10-K for details on our contractual obligations and commitments to make specified contractual future cash payments as of June 27, 2020.
Off-Balance Sheet Arrangements
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.
Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between segments.
Total assets for Foodservice decreased $245.5 million from $5,734.2 million as of March 28, 2020 to $5,488.7 million as of March 27, 2021. During this time period, this segment decreased its inventory, intangible assets, operating lease right-of-use assets, and property, plant and equipment, partially offset by an increase in accounts receivable. Total assets for Foodservice decreased $40.4 million from $5,529.1 million as of June 27, 2020 to $5,488.7 million as of March 27, 2021. During this time period, the segment
31
decreased its inventory, intangible assets, and operating lease right-of-use assets, partially offset by an increase in accounts receivable and property, plant and equipment.
Total assets for Vistar increased $65.3 million from $1,524.0 million as of March 28, 2020 to $1,589.3 million as of March 27, 2021. During this time period, this segment increased its property, plant and equipment and operating lease right-of-use assets, partially offset by decreases in inventory, accounts receivable, and intangible assets. Total assets for Vistar increased $203.9 million from $1,385.4 million as of June 27, 2020 to $1,589.3 million as of March 27, 2021. During this time period, the segment increased its property, plant and equipment, operating lease right-of-use assets, inventory, and accounts receivable.
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, and acquisitions, goodwill and other intangible assets, which are described in the Form 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 Form 10-K.
Our market risks consist of interest rate risk and fuel price risk. There have been no material changes to our market risks since June 27, 2020, except at noted below. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in the Form 10-K.
During the third quarter of fiscal 2021, the Company paid down its ABL Facility balance to $496.2 million as of March 27, 2021. Assuming the ABL balance remains consistent over the next twelve months, the Company expects substantially all its variable-rate debt will be fixed through interest rate swap agreements. A hypothetical 100 bps increase in LIBOR on our variable-rate debt would be immaterial to the Company’s annual cash interest expense.
Evaluation of Disclosure Controls and Procedures
Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-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 Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Form 10-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 Form 10-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 Rule 13a-15(f) under the Exchange Act), that occurred during the fiscal quarter ended March 27, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
PART II – OTHER INFORMATION
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. Refer to Note 10. Commitments and Contingencies within Part I, Item 1. Financial Statements for disclosure of ongoing litigation.
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 Form 10-K, which is accessible on the SEC’s website at www.sec.gov.
The following table provides information relating to our purchases of the Company’s common stock during the third quarter of fiscal 2021.
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan(1) |
|
|
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan (in millions)(1) |
|
||||
|
|
|
— |
|
|
$ |
- |
|
|
|
— |
|
|
$ |
235.7 |
|
|
|
|
|
— |
|
|
$ |
- |
|
|
|
— |
|
|
$ |
235.7 |
|
|
|
|
|
— |
|
|
$ |
- |
|
|
|
— |
|
|
$ |
235.7 |
|
|
|
Total |
|
|
— |
|
|
$ |
- |
|
|
|
— |
|
|
|
|
|
|
|
(1) |
On November 13, 2018, the Board of Directors authorized a share repurchase program for up to $250 million of the Company’s outstanding common stock. The share repurchase program does not have an expiration date and may be amended, suspended, discontinued at any time. Repurchases under this program depend upon market place conditions and other factors, including compliance with the covenants under the ABL Facility and the indentures governing the Notes due 2024, Notes due 2025, and Notes due 2027. The share repurchase program remains subject to the discretion of the Board of Directors. On March 23, 2020, the Company discontinued further purchases under the plan and, therefore, no shares were repurchased subsequent to this date. As of March 27, 2021, approximately $235.7 million remained available for additional share repurchases. |
None
Not applicable
None
33
|
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 Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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.
34
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: May 5, 2021 |
|
|
|
By: |
|
/s/ James D. Hope |
|
|
|
|
|
Name: |
|
|
|
|
|
|
|
Title: |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Signatory) |
35
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 10/15/27 | ||||
| 5/1/25 | ||||
| 12/30/24 | ||||
| 10/15/24 | ||||
| 6/1/24 | ||||
| 5/1/24 | ||||
| 10/15/23 | ||||
| 5/1/23 | ||||
| 10/15/22 | ||||
| 5/1/22 | ||||
| 2/22/22 | ||||
| 7/3/21 | 10-K | |||
| 6/1/21 | ||||
| Filed on: | 5/5/21 | 8-K | ||
| 4/28/21 | ||||
| 3/29/21 | ||||
| For Period end: | 3/27/21 | |||
| 2/21/21 | ||||
| 2/20/21 | ||||
| 2/5/21 | ||||
| 1/24/21 | ||||
| 1/23/21 | ||||
| 12/27/20 | ||||
| 12/26/20 | 10-Q | |||
| 12/15/20 | ||||
| 10/23/20 | ||||
| 9/3/20 | ||||
| 6/29/20 | ||||
| 6/27/20 | 10-K | |||
| 5/29/20 | ||||
| 5/15/20 | ||||
| 4/29/20 | 8-K | |||
| 4/24/20 | 8-K | |||
| 3/28/20 | 10-Q | |||
| 3/23/20 | ||||
| 3/11/20 | ||||
| 3/10/20 | ||||
| 12/31/19 | 8-K | |||
| 12/30/19 | 8-K | |||
| 12/28/19 | 10-Q | |||
| 12/15/19 | ||||
| 9/27/19 | 8-K | |||
| 6/29/19 | 10-K | |||
| 6/28/19 | ||||
| 11/13/18 | 4, 4/A, 8-K, DEF 14A, PRE 14A | |||
| 7/1/18 | ||||
| 5/17/16 | 8-K, S-1/A | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 7/14/21 Core-Mark Holding Co., LLC DEFM14A 1:2.1M Donnelley … Solutions/FA 7/14/21 Performance Food Group Co. 424B3 1:2.1M Donnelley … Solutions/FA 7/12/21 Performance Food Group Co. S-4/A 6:2.2M Donnelley … Solutions/FA 6/28/21 Performance Food Group Co. S-4 6/25/21 6:2.1M Donnelley … Solutions/FA |