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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 2024
☐ 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 001-37578
Performance Food Group Company
(Exact name of registrant as specified in its charter)
Delaware |
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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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12500 West Creek Parkway Richmond, Virginia 23238 |
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(804) 484-7700 |
(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 |
Common Stock, $0.01 par value |
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PFGC |
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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. 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). 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.
Large Accelerated Filer |
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☒ |
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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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☐ |
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Emerging Growth Company |
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☐ |
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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 ☐ No ☒
156,216,487 shares of common stock were outstanding as of January 29, 2025.
TABLE OF CONTENTS
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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, and integration of our acquisition of Cheney Bros., Inc. (the “Cheney Brothers Acquisition”), 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 our Annual Report on Form 10-K for the fiscal year ended June 29, 2024 (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”), and are accessible on the SEC’s website at www.sec.gov, and also include the following:
3
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. We cannot assure you (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Unless this 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
Item 1. Financial Statements
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(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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$ |
10.7 |
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$ |
20.0 |
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Accounts receivable, less allowances of $68.2 and $55.2 |
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2,587.5 |
|
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2,478.9 |
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Inventories, net |
|
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3,928.0 |
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3,314.7 |
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Income taxes receivable |
|
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104.4 |
|
|
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71.6 |
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Prepaid expenses and other current assets |
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255.1 |
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268.1 |
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Total current assets |
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6,885.7 |
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6,153.3 |
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Goodwill |
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3,407.5 |
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2,418.3 |
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Other intangible assets, net |
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1,823.5 |
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971.1 |
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Property, plant and equipment, net |
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3,861.3 |
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2,788.5 |
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Operating lease right-of-use assets |
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943.8 |
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875.5 |
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Other assets |
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175.2 |
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|
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186.2 |
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Total assets |
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$ |
17,097.0 |
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$ |
13,392.9 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable and outstanding checks in excess of deposits |
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2,916.1 |
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2,594.4 |
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Accrued expenses and other current liabilities |
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910.8 |
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908.3 |
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Finance lease obligations—current installments |
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195.1 |
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147.2 |
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Operating lease obligations—current installments |
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105.4 |
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108.2 |
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Total current liabilities |
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4,127.4 |
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3,758.1 |
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Long-term debt |
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5,691.2 |
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3,198.5 |
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Deferred income tax liability, net |
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841.9 |
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497.9 |
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Finance lease obligations, excluding current installments |
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966.3 |
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703.2 |
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Operating lease obligations, excluding current installments |
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902.9 |
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819.3 |
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Other long-term liabilities |
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310.1 |
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289.0 |
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Total liabilities |
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12,839.8 |
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9,266.0 |
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Commitments and contingencies (Note 10) |
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Shareholders’ equity: |
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Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 154.6 million shares issued and outstanding as of December 28, 2024; |
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1.5 |
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1.5 |
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Additional paid-in capital |
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2,806.2 |
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2,818.5 |
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Accumulated other comprehensive (loss) income, net of tax benefit (expense) of $1.1 and ($1.5) |
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(3.8 |
) |
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4.0 |
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Retained earnings |
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1,453.3 |
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1,302.9 |
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Total shareholders’ equity |
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4,257.2 |
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4,126.9 |
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Total liabilities and shareholders’ equity |
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$ |
17,097.0 |
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$ |
13,392.9 |
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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)
(In millions, except per share data) |
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Three Months Ended |
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Three Months Ended |
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Six Months Ended |
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Six Months Ended |
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Net sales |
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$ |
15,638.2 |
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$ |
14,295.7 |
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$ |
31,053.7 |
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$ |
29,234.3 |
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Cost of goods sold |
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13,810.4 |
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12,697.6 |
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27,461.7 |
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25,973.3 |
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Gross profit |
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1,827.8 |
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1,598.1 |
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3,592.0 |
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3,261.0 |
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Operating expenses |
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1,669.0 |
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1,424.2 |
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3,217.9 |
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2,870.9 |
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Operating profit |
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158.8 |
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173.9 |
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374.1 |
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390.1 |
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Other expense, net: |
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Interest expense |
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100.2 |
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61.4 |
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167.0 |
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117.5 |
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Other, net |
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1.9 |
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0.8 |
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3.5 |
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(2.4 |
) |
Other expense, net |
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102.1 |
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62.2 |
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170.5 |
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115.1 |
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Income before taxes |
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56.7 |
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111.7 |
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203.6 |
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275.0 |
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Income tax expense |
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14.3 |
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33.4 |
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53.2 |
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76.0 |
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Net income |
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$ |
42.4 |
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$ |
78.3 |
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$ |
150.4 |
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$ |
199.0 |
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Weighted-average common shares outstanding: |
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Basic |
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154.6 |
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154.2 |
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154.6 |
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154.5 |
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Diluted |
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156.3 |
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155.7 |
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156.3 |
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156.2 |
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Earnings per common share: |
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Basic |
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$ |
0.27 |
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$ |
0.51 |
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$ |
0.97 |
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$ |
1.29 |
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Diluted |
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$ |
0.27 |
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$ |
0.50 |
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$ |
0.96 |
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$ |
1.27 |
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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)
($ in millions) |
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Three Months Ended |
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Three Months Ended |
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Six Months Ended |
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Six Months Ended |
|
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Net income |
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$ |
42.4 |
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$ |
78.3 |
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$ |
150.4 |
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$ |
199.0 |
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Other comprehensive loss, net of tax: |
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Interest rate swaps: |
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Change in fair value, net of tax |
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3.1 |
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(2.8 |
) |
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0.2 |
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(0.6 |
) |
Reclassification adjustment, net of tax |
|
|
(2.3 |
) |
|
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(3.1 |
) |
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(5.3 |
) |
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(6.0 |
) |
Foreign currency translation adjustment, net of tax |
|
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(3.2 |
) |
|
|
1.0 |
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|
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(2.7 |
) |
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0.3 |
|
Other comprehensive loss |
|
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(2.4 |
) |
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(4.9 |
) |
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(7.8 |
) |
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(6.3 |
) |
Total comprehensive income |
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$ |
40.0 |
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$ |
73.4 |
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$ |
142.6 |
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$ |
192.7 |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
7
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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Additional |
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Accumulated |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shareholders’ |
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(In millions) |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
|
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Balance as of September 30, 2023 |
|
|
154.7 |
|
|
$ |
1.5 |
|
|
$ |
2,826.5 |
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$ |
12.6 |
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$ |
987.7 |
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$ |
3,828.3 |
|
Net income |
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|
— |
|
|
|
— |
|
|
|
— |
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|
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— |
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|
78.3 |
|
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|
78.3 |
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Interest rate swaps |
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— |
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— |
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— |
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(5.9 |
) |
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— |
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(5.9 |
) |
Foreign currency translation adjustment |
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|
— |
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|
— |
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— |
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1.0 |
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— |
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|
1.0 |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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0.1 |
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|
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— |
|
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|
— |
|
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|
0.1 |
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Common stock repurchased |
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(0.8 |
) |
|
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— |
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(50.0 |
) |
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— |
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|
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— |
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(50.0 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
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|
|
9.9 |
|
|
|
— |
|
|
|
— |
|
|
|
9.9 |
|
Balance as of December 30, 2023 |
|
|
153.9 |
|
|
$ |
1.5 |
|
|
$ |
2,786.5 |
|
|
$ |
7.7 |
|
|
$ |
1,066.0 |
|
|
$ |
3,861.7 |
|
|
|
|
|
|
|
|
|
|
|
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|
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||||||
Balance as of September 28, 2024 |
|
|
154.5 |
|
|
$ |
1.5 |
|
|
$ |
2,797.2 |
|
|
$ |
(1.4 |
) |
|
$ |
1,410.9 |
|
|
$ |
4,208.2 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
42.4 |
|
|
|
42.4 |
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.8 |
|
|
|
— |
|
|
|
0.8 |
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.2 |
) |
|
|
— |
|
|
|
(3.2 |
) |
Issuance of common stock under stock-based compensation plans |
|
|
0.1 |
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
— |
|
|
|
2.7 |
|
Common stock repurchased |
|
|
— |
|
|
|
— |
|
|
|
(4.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4.1 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
10.4 |
|
|
|
— |
|
|
|
— |
|
|
|
10.4 |
|
Balance as of December 28, 2024 |
|
|
154.6 |
|
|
$ |
1.5 |
|
|
$ |
2,806.2 |
|
|
$ |
(3.8 |
) |
|
$ |
1,453.3 |
|
|
$ |
4,257.2 |
|
|
|
|
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
Total |
|
|||||||||
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Shareholders’ |
|
|||||||||
(In millions) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance as of July 1, 2023 |
|
|
154.5 |
|
|
$ |
1.5 |
|
|
$ |
2,863.0 |
|
|
$ |
14.0 |
|
|
$ |
867.0 |
|
|
$ |
3,745.5 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
199.0 |
|
|
|
199.0 |
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.6 |
) |
|
|
— |
|
|
|
(6.6 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.3 |
|
Issuance of common stock under stock-based compensation plans |
|
|
0.7 |
|
|
|
— |
|
|
|
(17.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17.8 |
) |
Common stock repurchased |
|
|
(1.3 |
) |
|
|
— |
|
|
|
(78.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(78.1 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
19.4 |
|
|
|
— |
|
|
|
— |
|
|
|
19.4 |
|
Balance as of December 30, 2023 |
|
|
153.9 |
|
|
$ |
1.5 |
|
|
$ |
2,786.5 |
|
|
$ |
7.7 |
|
|
$ |
1,066.0 |
|
|
$ |
3,861.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of June 29, 2024 |
|
|
154.2 |
|
|
|
1.5 |
|
|
|
2,818.5 |
|
|
|
4.0 |
|
|
|
1,302.9 |
|
|
|
4,126.9 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
150.4 |
|
|
|
150.4 |
|
Interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.1 |
) |
|
|
— |
|
|
|
(5.1 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.7 |
) |
|
|
— |
|
|
|
(2.7 |
) |
Issuance of common stock under stock-based compensation plans |
|
|
0.6 |
|
|
|
— |
|
|
|
(14.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14.0 |
) |
Issuance of common stock under employee stock purchase plan |
|
|
0.2 |
|
|
|
— |
|
|
|
15.0 |
|
|
|
— |
|
|
|
— |
|
|
|
15.0 |
|
Common stock repurchased |
|
|
(0.4 |
) |
|
|
— |
|
|
|
(33.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33.6 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
20.3 |
|
|
|
— |
|
|
|
— |
|
|
|
20.3 |
|
Balance as of December 28, 2024 |
|
|
154.6 |
|
|
$ |
1.5 |
|
|
$ |
2,806.2 |
|
|
$ |
(3.8 |
) |
|
$ |
1,453.3 |
|
|
$ |
4,257.2 |
|
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
8
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions) |
|
Six Months Ended |
|
|
Six Months Ended |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
150.4 |
|
|
$ |
199.0 |
|
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
||
Depreciation |
|
|
211.5 |
|
|
|
170.1 |
|
Amortization of intangible assets |
|
|
123.9 |
|
|
|
102.5 |
|
Amortization of deferred financing costs |
|
|
6.0 |
|
|
|
5.3 |
|
Provision for losses on accounts receivables |
|
|
11.9 |
|
|
|
11.6 |
|
Change in LIFO reserve |
|
|
30.5 |
|
|
|
41.0 |
|
Stock compensation expense |
|
|
23.0 |
|
|
|
21.7 |
|
Deferred income tax benefit |
|
|
(16.8 |
) |
|
|
(14.5 |
) |
Change in fair value of derivative assets and liabilities |
|
|
0.2 |
|
|
|
(3.7 |
) |
Other non-cash activities |
|
|
1.4 |
|
|
|
(3.0 |
) |
Changes in operating assets and liabilities, net |
|
|
|
|
|
|
||
Accounts receivable |
|
|
96.4 |
|
|
|
107.2 |
|
Inventories |
|
|
(325.7 |
) |
|
|
32.7 |
|
Income taxes receivable |
|
|
(25.7 |
) |
|
|
(20.7 |
) |
Prepaid expenses and other assets |
|
|
48.5 |
|
|
|
(40.9 |
) |
Trade accounts payable and outstanding checks in excess of deposits |
|
|
145.7 |
|
|
|
(46.9 |
) |
Accrued expenses and other liabilities |
|
|
(102.2 |
) |
|
|
(7.4 |
) |
Net cash provided by operating activities |
|
|
379.0 |
|
|
|
554.0 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
(203.9 |
) |
|
|
(147.1 |
) |
Net cash paid for acquisitions |
|
|
(2,535.5 |
) |
|
|
(308.1 |
) |
Proceeds from sale of property, plant and equipment and other |
|
|
2.7 |
|
|
|
18.8 |
|
Net cash used in investing activities |
|
|
(2,736.7 |
) |
|
|
(436.4 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net borrowings under ABL Facility |
|
|
1,499.9 |
|
|
|
39.0 |
|
Borrowing of Notes due 2032 |
|
|
1,000.0 |
|
|
|
— |
|
Cash paid for debt issuance, extinguishment and modifications |
|
|
(33.8 |
) |
|
|
— |
|
Payments under finance lease obligations |
|
|
(84.8 |
) |
|
|
(56.5 |
) |
Proceeds from employee stock purchase plan |
|
|
15.0 |
|
|
|
— |
|
Proceeds from exercise of stock options |
|
|
3.2 |
|
|
|
1.1 |
|
Cash paid for shares withheld to cover taxes |
|
|
(17.2 |
) |
|
|
(18.9 |
) |
Repurchases of common stock |
|
|
(33.6 |
) |
|
|
(78.1 |
) |
Other financing activities |
|
|
— |
|
|
|
(0.3 |
) |
Net cash provided by (used in) financing activities |
|
|
2,348.7 |
|
|
|
(113.7 |
) |
Net (decrease) increase in cash and restricted cash |
|
|
(9.0 |
) |
|
|
3.9 |
|
Cash and restricted cash, beginning of period |
|
|
27.7 |
|
|
|
20.0 |
|
Cash and restricted cash, end of period |
|
$ |
18.7 |
|
|
$ |
23.9 |
|
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
(In millions) |
|
As of December 28, 2024 |
|
|
As of June 29, 2024 |
|
||
Cash |
|
$ |
10.7 |
|
|
$ |
20.0 |
|
Restricted cash(1) |
|
|
8.0 |
|
|
|
7.7 |
|
Total cash and restricted cash |
|
$ |
18.7 |
|
|
$ |
27.7 |
|
9
Supplemental disclosures of cash flow information are as follows:
(In millions) |
|
Six Months Ended |
|
|
Six Months Ended |
|
||
Cash paid during the year for: |
|
|
|
|
|
|
||
Interest |
|
$ |
146.3 |
|
|
$ |
122.3 |
|
Income tax payments net of refunds |
|
|
84.1 |
|
|
|
109.0 |
|
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)
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 North America. 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, health and beauty care products and other items to vending distributors, big box retailers, theaters, convenience stores, drug stores, grocery stores, travel providers, and hospitality providers.
Share Repurchase Program
In November 2022, the Board of Directors of the Company authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The current share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. As of December 28, 2024, there remains approximately $177.0 million available for additional share repurchases.
During the three months ended December 28, 2024, the Company repurchased and subsequently retired less than 0.1 million shares of common stock, for a total of $4.0 million or an average cost of $79.05 per share. During the six months ended December 28, 2024, the Company repurchased and subsequently retired 0.4 million shares of common stock, for a total of $33.6 million or an average cost of $75.19 per share. During the three months ended December 30, 2023, the Company repurchased and subsequently retired 0.8 million shares of common stock, for a total of $50.0 million or an average cost of $58.01 per share. During the six months ended December 30, 2023, the Company repurchased and subsequently retired 1.3 million shares of common stock, for a total of $78.1 million or an average cost of $58.83 per share.
2. Summary of Significant Accounting Policies and Estimates
Basis of Presentation
The consolidated financial statements have been prepared by the Company, without audit, with the exception of the June 29, 2024 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. Certain prior period amounts have been reclassified to conform to current period presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income, shareholders’ equity, and cash flows for all periods presented have been made.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 herein pursuant to applicable rules and regulations for interim financial statements.
11
3. Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. It further requires disclosure of the amount and description of its composition for other segment items, and interim disclosures of both a reportable segment’s profit or loss and assets. The guidance requires disclosure of the title and position of the chief operating decision maker and how reported measures of segment profit or loss are used to assess performance and allocate resources. This pronouncement is effective for annual periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024, with early adoption permitted. The amendments in this update will be adopted for the fiscal year ending June 28, 2025 (“fiscal 2025”), with annual reporting requirements effective for our fiscal 2025 Annual Report on Form 10-K and interim reporting requirements effective for our Quarterly Reports on Forms 10-Q within the fiscal year ending June 27, 2026 (“fiscal 2026”). The amendments in this update should be applied retrospectively to each period presented in the consolidated financial statements. The provisions of the new standard will not impact the Company’s results of operations, financial position, or cash flows but will require the Company to expand its current segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update expands public entities’ income tax disclosure requirements primarily by requiring disaggregation of specific categories and reconciling items that meet a quantitative threshold within the rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This pronouncement is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company will adopt the new standard in fiscal 2026. The amendments in this update should be applied on a prospective basis, with retrospective application permitted. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement--Reporting Comprehensive Income--Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The update improves the disclosures about a public entity’s expenses and addresses requests from investors for more detailed information about the types of expenses in commonly presented expense captions. In January 2025, the FASB released ASU 2025-01 to clarify ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The amendments in this update will be adopted for the fiscal year ending July 1, 2028 (“fiscal 2028”), with annual reporting requirements effective for our fiscal 2028 Annual Report on Form 10-K and interim reporting requirements effective for our Quarterly Reports on Forms 10-Q within the fiscal year ending June 30, 2029. The amendments in this update should be applied prospectively, however, retrospective application is permitted. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements.
4. Revenue Recognition
The Company markets and distributes primarily national and Company-branded food and food-related products to customer locations across North America. The Foodservice segment primarily services restaurants and supplies a “broad line” of products to its customers, including the Company’s Performance Brands and custom-cut meats and seafood, as well as products that are specific to each customer’s menu requirements. Vistar specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. The Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America. The Company disaggregates revenue by customer type and product offerings and determined that disaggregating revenue at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 13. Segment Information for external revenue by reportable segment.
The Company has customer contracts in which incentives are paid upfront to certain customers. These payments have become industry practice and are not related to financing the customer’s business, nor are they associated with any distinct good or service to be received from the customer. These incentive payments are capitalized and amortized over the life of the contract or the expected life of the customer relationship on a straight-line basis. The Company’s contract asset for these incentives totaled $54.4 million and $55.4 million as of December 28, 2024 and June 29, 2024, respectively.
12
5. Business Combinations
During the first six months of fiscal 2025, the Company paid cash of $2.5 billion, net of cash received, for two acquisitions reported in the Foodservice segment. During the first six months of fiscal 2024, the Company paid cash of $308.1 million, net of cash received, for two acquisitions. These acquisitions are reported in the Vistar and Corporate and All Other segments.
Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The following table summarizes the preliminary purchase price allocation for each major class of assets acquired and liabilities assumed for the two acquisitions in the first six months of fiscal 2025:
(In millions) |
|
Cheney Brothers |
|
|
Other |
|
|
Fiscal 2025 |
|
|||
Net working capital |
|
$ |
247.2 |
|
|
$ |
37.4 |
|
|
$ |
284.6 |
|
Goodwill |
|
|
691.9 |
|
|
|
302.3 |
|
|
|
994.2 |
|
Intangible assets with definite lives: |
|
|
|
|
|
|
|
|
- |
|
||
Customer relationships |
|
|
485.0 |
|
|
|
230.0 |
|
|
|
715.0 |
|
Trade names |
|
|
165.0 |
|
|
|
75.0 |
|
|
|
240.0 |
|
Property, plant and equipment |
|
|
725.0 |
|
|
|
57.3 |
|
|
|
782.3 |
|
Operating lease right-of-use assets |
|
|
6.3 |
|
|
|
- |
|
|
|
6.3 |
|
Other assets |
|
|
10.5 |
|
|
|
0.2 |
|
|
|
10.7 |
|
Deferred tax liabilities |
|
|
(240.8 |
) |
|
|
(127.6 |
) |
|
|
(368.4 |
) |
Finance lease obligations |
|
|
(95.7 |
) |
|
|
(0.3 |
) |
|
|
(96.0 |
) |
Operating lease obligations |
|
|
(6.3 |
) |
|
|
- |
|
|
|
(6.3 |
) |
Other long-term liabilities |
|
|
(26.9 |
) |
|
|
- |
|
|
|
(26.9 |
) |
Total purchase price |
|
$ |
1,961.2 |
|
|
$ |
574.3 |
|
|
$ |
2,535.5 |
|
Intangible assets consist primarily of customer relationships and trade names with useful lives of ten to twelve years, and a total weighted-average useful life of 11.7 years. The excess of the estimated fair value of the assets acquired and the liabilities assumed over consideration paid was recorded as $994.2 million of goodwill.
The “Other” acquisition in fiscal 2025 and the fiscal 2024 acquisitions did not materially affect the Company’s results of operations.
Cheney Brothers Acquisition
On October 8, 2024, PFG acquired Cheney Bros., Inc. (“Cheney Brothers”) for $2.0 billion, consisting of $1,961.2 million of cash consideration paid at the time of the closing of the transaction, net of cash received, and $32.4 million of deferred consideration payable to the seller over the next five years. The cash consideration portion of the purchase price was financed with borrowings under the Company’s asset-based revolving credit facility.
The net sales and net loss related to Cheney Brothers recorded in the Company’s Consolidated Statements of Operations since the acquisition date of October 8, 2024 are $825.0 million and $28.4 million, respectively. The net loss related to Cheney Brothers was driven by depreciation and amortization of purchase accounting adjustments.
The following table summarizes the unaudited pro-forma consolidated financial information of the Company as if the acquisition had occurred on July 2, 2023:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in millions) |
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||||
Net sales |
|
$ |
15,716.4 |
|
|
$ |
15,102.2 |
|
|
$ |
31,945.5 |
|
|
$ |
30,782.2 |
|
Net income |
|
|
74.1 |
|
|
|
59.7 |
|
|
|
169.0 |
|
|
|
91.1 |
|
These pro-forma results include nonrecurring pro-forma adjustments related to acquisition costs incurred, including the amortization of the step up in fair value of inventory acquired as products were sold. The pro-forma net income for the six months ended December 30, 2023 includes $69.1 million, after-tax, of acquisition costs assuming the acquisition had occurred on July 2, 2023. The recurring pro-forma adjustments include estimates of interest expense for the debt issued to finance the acquisition and estimates of depreciation and amortization associated with fair value adjustments for property, plant and equipment and intangible assets acquired.
13
6. Debt
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.
Debt consisted of the following:
|
|
|
|
|
|
|
||
(In millions) |
|
As of December 28, 2024 |
|
|
As of June 29, 2024 |
|
||
Credit Agreement |
|
$ |
2,660.7 |
|
|
$ |
1,160.8 |
|
5.500% Notes due 2027, effective interest rate 5.930% |
|
|
1,060.0 |
|
|
|
1,060.0 |
|
4.250% Notes due 2029, effective interest rate 4.439% |
|
|
1,000.0 |
|
|
|
1,000.0 |
|
6.125% Notes due 2032, effective interest rate 6.287% |
|
|
1,000.0 |
|
|
|
- |
|
Less: Original issue discount and deferred financing costs |
|
|
(29.5 |
) |
|
|
(22.3 |
) |
Long-term debt |
|
|
5,691.2 |
|
|
|
3,198.5 |
|
Less: current installments |
|
|
- |
|
|
|
- |
|
Total debt, excluding current installments |
|
$ |
5,691.2 |
|
|
$ |
3,198.5 |
|
Credit Agreement
PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, were parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement had an aggregate principal amount available of $4.0 billion and was scheduled to mature on September 17, 2026.
On September 9, 2024, PFGC and Performance Food Group, Inc. entered into the Sixth Amended and Restated Credit Agreement (the “ABL Facility”), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the Prior Credit Agreement. The ABL Facility, among other things, (i) increases the total revolving commitments from $4.0 billion under the Prior Credit Agreement to $5.0 billion under the ABL Facility and (ii) extends the stated maturity date from September 17, 2026, under the Prior Credit Agreement to September 9, 2029, under the ABL Facility. The ABL Facility also provides for up to $1.0 billion of uncommitted incremental facilities. The terms of any such incremental facility shall be agreed between Performance Food Group, Inc. and the lenders providing the new commitments, subject to certain limitations set forth in the ABL Facility.
Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary 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 property, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real property 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 greatest of (i) a floor rate of 0.00%, (ii) the federal funds rate in effect on such date plus 0.5%, (iii) the prime rate on such day, or (iv) one month Term SOFR plus 1.0%) plus a spread or (b) Term SOFR plus a spread. The ABL Facility also provides for an unused commitment fee at a rate of 0.250% per annum based on average excess availability.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company’s credit agreement:
(Dollars in millions) |
|
As of December 28, 2024 |
|
|
As of June 29, 2024 |
|
||
Aggregate borrowings |
|
$ |
2,660.7 |
|
|
$ |
1,160.8 |
|
Letters of credit |
|
|
167.1 |
|
|
|
160.4 |
|
Excess availability, net of lenders’ reserves of $97.3 and $96.3 |
|
|
2,172.2 |
|
|
|
2,678.8 |
|
Average interest rate, excluding impact of interest rate swaps |
|
|
6.05 |
% |
|
|
6.79 |
% |
14
The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if Alternate Availability (as defined in the ABL Facility) falls below the greater of (i) $375.0 million and (ii) 10% of the lessor of the borrowing base and the sum of (a) the aggregate commitments plus (b) any outstanding term loans for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties' and their subsidiaries’ abilities to incur additional indebtedness, pay dividends, create liens, make investments, make prepayments, redemptions, or defeasances prior to the maturity of certain restricted debt 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 the ABL Facility may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations under such agreement.
Senior Notes due 2032
On September 12, 2024, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 6.125% Senior Notes due 2032 (the “Notes due 2032”). The Notes due 2032 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 2032 are not guaranteed by the Company.
The Company intended to use the proceeds from the Notes due 2032, together with borrowings under the ABL Facility, to finance the cash consideration in connection with the acquisition of Cheney Brothers and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2032. However, since there was no requirement to hold the funds in escrow until the Cheney Brothers Acquisition closed, the net proceeds for the Notes due 2032 were initially used to pay down a portion of the outstanding balance of the ABL Facility. The Company subsequently funded the cash consideration for the Cheney Brothers Acquisition with borrowings under the ABL Facility.
The Notes due 2032 were issued at 100.0% of their par value. The Notes due 2032 mature on September 15, 2032, and bear interest at a rate of 6.125% 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 2032 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2032 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 2032 at any time prior to September 15, 2027, at a redemption price equal to 100% of the principal amount of the Notes due 2032 being redeemed plus a make-whole premium and accrued and unpaid interest. In addition, beginning on September 15, 2027, Performance Food Group, Inc. may redeem all or a part of the Notes due 2032 at a redemption price equal to 103.063% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.531% and 100% of the principal amount redeemed on September 15, 2028, and September 15, 2029, respectively. In addition, at any time prior to September 15, 2027, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2032 from the proceeds of certain equity offerings at a redemption price equal to 106.125% of the principal amount thereof, plus accrued and unpaid interest.
The indenture governing the Notes due 2032 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 2032 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2032 to become or be declared due and payable.
The ABL Facility and the indentures governing the Company’s outstanding notes contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $1,428.4 million of restricted payment capacity available under such debt agreements, as of December 28, 2024. Such minimum estimated restricted payment capacity is calculated based on the most restrictive of our debt agreements and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.
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. When 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.
15
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 1 year to 25 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Certain full-service fleet lease agreements include variable lease payments associated with usage, which are recorded and paid as incurred. When calculating lease liabilities, lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between 6% and 20% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 5 to 10 years and are set to expire at various dates ranging from 2025 to 2032. As of December 28, 2024, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately $8.6 million, which would be mitigated by the fair value of the leased assets at lease expiration.
The following table presents the location of the right-of-use assets and lease liabilities in the Company’s consolidated balance sheet as of December 28, 2024 and June 29, 2024 (in millions), as well as the weighted-average lease term and discount rate for the Company’s leases:
Leases |
|
Consolidated Balance Sheet Location |
|
As of |
|
|
As of |
|
||
Assets: |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease right-of-use assets |
|
$ |
943.8 |
|
|
$ |
875.5 |
|
Finance |
|
Property, plant and equipment, net |
|
|
1,178.9 |
|
|
|
868.8 |
|
Total lease assets |
|
|
|
$ |
2,122.7 |
|
|
$ |
1,744.3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease obligations—current installments |
|
$ |
105.4 |
|
|
$ |
108.2 |
|
Finance |
|
Finance lease obligations—current installments |
|
|
195.1 |
|
|
|
147.2 |
|
Non-current |
|
|
|
|
|
|
|
|
||
Operating |
|
Operating lease obligations, excluding current installments |
|
|
902.9 |
|
|
|
819.3 |
|
Finance |
|
Finance lease obligations, excluding current installments |
|
|
966.3 |
|
|
|
703.2 |
|
Total lease liabilities |
|
|
|
$ |
2,169.7 |
|
|
$ |
1,777.9 |
|
|
|
|
|
|
|
|
|
|
||
Weighted average remaining lease term |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
10.8 years |
|
|
10.7 years |
|
||
Finance leases |
|
|
|
6.4 years |
|
|
6.0 years |
|
||
Weighted average discount rate |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
5.5 |
% |
|
|
5.4 |
% |
Finance leases |
|
|
|
|
5.4 |
% |
|
|
5.1 |
% |
16
The following table presents the location of lease costs in the Company’s consolidated statement of operations for the periods reported (in millions):
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Lease Cost |
|
Statement of Operations Location |
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of finance lease assets |
|
Operating expenses |
|
$ |
45.5 |
|
|
$ |
27.8 |
|
|
$ |
82.6 |
|
|
$ |
53.8 |
|
Interest on lease liabilities |
|
Interest expense |
|
|
14.8 |
|
|
|
7.6 |
|
|
|
26.7 |
|
|
|
14.5 |
|
Total finance lease cost |
|
|
|
$ |
60.3 |
|
|
$ |
35.4 |
|
|
$ |
109.3 |
|
|
$ |
68.3 |
|
Operating lease cost |
|
Operating expenses |
|
|
43.7 |
|
|
|
41.8 |
|
|
|
85.8 |
|
|
|
80.3 |
|
Short-term lease cost |
|
Operating expenses |
|
|
13.1 |
|
|
|
16.5 |
|
|
|
25.9 |
|
|
|
32.8 |
|
Total lease cost |
|
|
|
$ |
117.1 |
|
|
$ |
93.7 |
|
|
$ |
221.0 |
|
|
$ |
181.4 |
|
The following table presents the supplemental cash flow information related to leases for the periods reported (in millions):
|
|
Six Months Ended |
|
|||||
(In millions) |
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
77.7 |
|
|
$ |
71.9 |
|
Operating cash flows from finance leases |
|
|
26.7 |
|
|
|
14.5 |
|
Financing cash flows from finance leases |
|
|
84.8 |
|
|
|
56.5 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
||
Operating leases |
|
|
129.7 |
|
|
|
190.2 |
|
Finance leases |
|
|
299.8 |
|
|
|
151.6 |
|
The following table presents the future minimum lease payments under non-cancelable leases as of December 28, 2024 (in millions):
Fiscal Year |
|
Operating Leases |
|
|
Finance Leases |
|
||
2025 |
|
$ |
80.7 |
|
|
$ |
127.4 |
|
2026 |
|
|
152.6 |
|
|
|
248.9 |
|
2027 |
|
|
145.2 |
|
|
|
232.0 |
|
2028 |
|
|
133.7 |
|
|
|
202.9 |
|
2029 |
|
|
118.1 |
|
|
|
178.4 |
|
Thereafter |
|
|
771.5 |
|
|
|
401.4 |
|
Total future minimum lease payments |
|
$ |
1,401.8 |
|
|
$ |
1,391.0 |
|
Less: Interest |
|
|
393.5 |
|
|
|
229.6 |
|
Present value of future minimum lease payments |
|
$ |
1,008.3 |
|
|
$ |
1,161.4 |
|
As of December 28, 2024, the Company had additional operating and finance leases that had not yet commenced, which total $803.7 million in future minimum lease payments. These leases relate primarily to build-to-suit warehouse leases that will replace existing distribution centers and will commence upon building completion with terms of 25 years. In addition, these leases include vehicle leases expected to commence in fiscal 2025 with lease terms of 5 to 10 years.
8. Fair Value of Financial Instruments
The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The fair value of long-term debt, which has a carrying value of $5,691.2 million and $3,198.5 million, is $5,638.7 million and $3,104.5 million at December 28, 2024 and June 29, 2024, respectively, and is determined by reviewing current market pricing related to comparable debt issued at the time of the balance sheet date, and is considered a Level 2 measurement.
9. Income Taxes
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various federal, state, and foreign jurisdictions.
17
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 25.2% for the three months ended December 28, 2024 and 29.9% for the three months ended December 30, 2023. The Company’s effective tax rate was 26.1% for the six months ended December 28, 2024 and 27.6% for the six months ended December 30, 2023. The effective tax rate varies from the 21% statutory rate primarily due to state taxes, federal credits, and other permanent items. The excess tax benefit of exercised and vested stock awards is treated as a discrete item. The effective tax rate for the three and six months ended December 28, 2024 differed from the prior year periods primarily due to an increase in deductible discrete items related to stock-based compensation, a decrease in state and foreign taxes, and an increase in federal credits, partially offset by an increase in non-deductible expenses.
As of December 28, 2024 and June 29, 2024, the Company had net deferred tax assets of $214.0 million and $196.1 million, respectively, and deferred tax liabilities of $1,055.9 million and $694.0 million, respectively. As of December 28, 2024 and June 29, 2024, the Company had established a valuation allowance of $1.7 million, net of federal benefit, against deferred tax assets related to certain net operating losses and certain other losses which are not likely to be realized due to limitations on utilization. The change in the deferred tax balances relates primarily to deferred taxes established in purchase accounting. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized.
On October 8, 2021, the Organization for Economic Co-operation and Development (“OECD”) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“Framework”), which provides for a two-pillar solution to address tax challenges arising from the digitalization of the economy (“Pillar Two”). Pillar Two includes an agreement on international tax reform, including rules to ensure that large corporations pay a minimum rate of corporate income tax. To mitigate the administrative burden in complying with the new rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor” (“Safe Harbor”). This transitional Safe Harbor applies for fiscal years beginning on or before December 31, 2026, but not including a fiscal year that ends after June 30, 2028. Under the Safe Harbor, the top-up tax for such jurisdiction is deemed to be zero, provided that at least one of the Safe Harbor tests is met for the jurisdiction. The Company is not subject to Pillar Two minimum tax in the first twenty-six weeks of fiscal 2025 under the Safe Harbor rules. Pillar Two minimum tax will be treated as a period cost in future periods when it is applicable. We are continuing to evaluate the potential impact to the second half of fiscal 2025 and future periods of the Framework pending legislative adoption by individual countries.
10. Commitments and Contingencies
Purchase Obligations
The Company had outstanding contracts and purchase orders of $269.8 million related to capital projects and services including purchases of compressed natural gas for its trucking fleet at December 28, 2024. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of December 28, 2024.
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.
18
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 (“Master Complaint”) naming, among several other entities and individuals including JUUL, Altria Group, Inc., Philip Morris USA, Inc., Altria Client Services LLC, Altria Group Distribution Company, Altria Enterprises LLC, certain members of management and/or individual investors in JUUL, various e-liquid manufacturers, and various retailers, including the Company’s subsidiaries Eby-Brown Company LLC (“Eby-Brown”) and Core-Mark Holding Company, Inc. (“Core-Mark”), as defendants. The Master Complaint also named additional distributors of JUUL products (collectively with Eby-Brown and Core-Mark, the “Distributor Defendants”). The Master Complaint contains various state law claims and alleges that the Distributor Defendants: (i) failed to disclose JUUL’s nicotine contents or the risks associated; (ii) pushed a product designed for a youth market; (iii) engaged with JUUL in planning and marketing its product in a manner designed to maximize the flow of JUUL products; (iv) met with JUUL management in San Francisco, California to further these business dealings; and (v) received incentives and business development funds for marketing and efficient sales. JUUL and Eby-Brown are parties to a Domestic Wholesale Distribution Agreement dated March 10, 2020 (the “Distribution Agreement”), and JUUL has agreed to defend and indemnify Eby-Brown under the terms of that agreement and is paying Eby-Brown’s outside counsel fees directly. In addition, Core-Mark and JUUL have entered into a Defense and Indemnity Agreement dated March 8, 2021 (the “Defense Agreement”) pursuant to which JUUL has agreed to defend and indemnify Core-Mark, and JUUL is paying Core-Mark’s outside counsel fees directly.
On December 6, 2022, JUUL announced that it had reached settlements with the plaintiffs in the MDL and related cases that had been consolidated in the U.S. District Court for Northern District of California (the “MDL Settlement”). Per the settlement agreement, the MDL Settlement encompasses the various personal injury, consumer class action, government entity, and Native American tribe claims made against JUUL and includes, among others, all of the Distributor Defendants (including Core-Mark and Eby-Brown) as released parties. The release applicable to the Distributor Defendants, as well as certain other defendants, took effect when JUUL made the first settlement payment on October 27, 2023. The MDL Settlement Master informed the parties that there are ten plaintiffs who opted out of the MDL Settlement; however, those opt-out plaintiffs have amended their individual complaints and have removed Eby-Brown and Core-Mark as defendants in their individual cases.
On September 10, 2021, Michael Lumpkins filed a parallel lawsuit in Illinois state court against several entities, including JUUL, e-liquid manufacturers, various retailers, and various distributors, including Eby-Brown and Core-Mark, alleging similar claims to the claims at issue in the MDL (the “Illinois Litigation”). Because there is no federal jurisdiction for this case, it will proceed in Illinois state court. Plaintiff alleges as damages that his use of JUUL products caused a brain injury that was later exacerbated by medical negligence. The court denied Eby-Brown and Core-Mark’s motion to dismiss, and the case has moved into the discovery phase. The trial date has been set for August 1, 2025. The defense and indemnity of Eby-Brown and Core-Mark for the Illinois Litigation is covered by the Distribution Agreement and the Defense Agreement, respectively. The Company will continue to vigorously defend itself.
On June 23, 2022, the U.S. Food and Drug Administration (“FDA”) announced it had issued marketing denial orders (“MDOs”) to JUUL for all of its products currently marketed and sold in the U.S. According to the FDA, the MDOs banned the distribution and sale of all JUUL products domestically. That same day, JUUL filed a petition for review of the MDOs with the United States Court of Appeals for the D.C. Circuit. On June 24, 2022, the court of appeals stayed the MDOs and issued a briefing schedule in the case. Thereafter, JUUL informed the FDA that per applicable regulations it would submit a request for supervisory review of the MDOs to the FDA. In response, the FDA notified JUUL that upon further review of the briefing JUUL made to the court of appeals, the FDA determined there are scientific issues unique to JUUL’s Pre-Market Tobacco Application (“PMTA”) that warrant additional review. Accordingly, the FDA entered an administrative stay of the MDOs. If the FDA ultimately decides to maintain or re-issue the MDOs, the administrative stay will remain in place for an additional thirty days to provide JUUL the opportunity to seek further judicial relief. JUUL and the FDA filed a joint motion with the court of appeals to hold the petition for review in abeyance on July 6, 2022, which the court of appeals granted on July 7, 2022.
At this time, the Company is unable to predict whether the FDA will approve JUUL’s PMTA or re-issue the MDOs, nor is the Company able to estimate any potential loss or range of loss in the event of an adverse finding against JUUL in any case that falls outside of the MDL Settlement.
Tax Liabilities
The Company is subject to customary audits by authorities in the jurisdictions where it conducts business in the United States and foreign countries, which may result in assessments of additional taxes. These additional taxes are accrued when probable and reasonably estimable.
19
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 $13.9 million as of December 28, 2024 and $11.8 million as of June 29, 2024. For the three-month periods ended December 28, 2024 and December 30, 2023, the Company recorded purchases of $586.3 million and $521.1 million, respectively, through the purchasing alliance. For the six-month periods ended December 28, 2024 and December 30, 2023, the Company recorded purchases of $1,187.4 million and $1,070.6 million, respectively, through the purchasing alliance.
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 common share, the average closing stock price for the period is used in determining the number of shares assumed to be purchased with the assumed proceeds under the treasury stock method. No potential common shares were considered antidilutive for the three and six months ended December 28, 2024 and December 30, 2023.
A 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 |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
42.4 |
|
|
$ |
78.3 |
|
|
$ |
150.4 |
|
|
$ |
199.0 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding |
|
|
154.6 |
|
|
|
154.2 |
|
|
|
154.6 |
|
|
|
154.5 |
|
Dilutive effect of potential common shares |
|
|
1.7 |
|
|
|
1.5 |
|
|
|
1.7 |
|
|
|
1.7 |
|
Weighted-average dilutive common shares outstanding |
|
|
156.3 |
|
|
|
155.7 |
|
|
|
156.3 |
|
|
|
156.2 |
|
Basic earnings per common share |
|
$ |
0.27 |
|
|
$ |
0.51 |
|
|
$ |
0.97 |
|
|
$ |
1.29 |
|
Diluted earnings per common share |
|
$ |
0.27 |
|
|
$ |
0.50 |
|
|
$ |
0.96 |
|
|
$ |
1.27 |
|
13. Segment Information
Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience.
The 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, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America.
Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of the Company’s internal logistics unit responsible for managing and allocating inbound logistics revenue and expense. Corporate & All Other may also include capital expenditures for certain information technology projects that are transferred to the segments once placed in service.
Intersegment sales represent sales between the segments, which are eliminated in consolidation.
20
Management evaluates the performance of each operating segment based on various operating and financial metrics, including total sales and Segment Adjusted EBITDA, which is the Company’s GAAP measure of segment profit. Segment Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, and amortization and excludes certain items that the Company does not consider part of its segments’ core operating results, including stock-based compensation expense, changes in the last-in-first-out (“LIFO”) reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives.
(In millions) |
|
Foodservice |
|
|
Vistar |
|
|
Convenience |
|
|
Corporate |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
For the three months ended December 28, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net external sales |
|
$ |
8,361.6 |
|
|
$ |
1,233.7 |
|
|
$ |
5,967.5 |
|
|
$ |
75.4 |
|
|
$ |
— |
|
|
$ |
15,638.2 |
|
Inter-segment sales |
|
|
6.7 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
164.8 |
|
|
|
(172.4 |
) |
|
|
— |
|
Total sales |
|
|
8,368.3 |
|
|
|
1,234.6 |
|
|
|
5,967.5 |
|
|
|
240.2 |
|
|
|
(172.4 |
) |
|
|
15,638.2 |
|
Depreciation and amortization |
|
|
115.6 |
|
|
|
13.3 |
|
|
|
39.0 |
|
|
|
14.6 |
|
|
|
— |
|
|
|
182.5 |
|
Capital expenditures |
|
|
89.2 |
|
|
|
5.2 |
|
|
|
5.2 |
|
|
|
7.8 |
|
|
|
— |
|
|
|
107.4 |
|
For the three months ended December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net external sales |
|
$ |
7,073.6 |
|
|
$ |
1,201.0 |
|
|
$ |
5,941.4 |
|
|
$ |
79.7 |
|
|
$ |
— |
|
|
$ |
14,295.7 |
|
Inter-segment sales |
|
|
5.7 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
148.0 |
|
|
|
(154.6 |
) |
|
|
— |
|
Total sales |
|
|
7,079.3 |
|
|
|
1,201.9 |
|
|
|
5,941.4 |
|
|
|
227.7 |
|
|
|
(154.6 |
) |
|
|
14,295.7 |
|
Depreciation and amortization |
|
|
72.7 |
|
|
|
12.8 |
|
|
|
37.2 |
|
|
|
20.6 |
|
|
|
— |
|
|
|
143.3 |
|
Capital expenditures |
|
|
61.6 |
|
|
|
15.2 |
|
|
|
7.9 |
|
|
|
9.2 |
|
|
|
— |
|
|
|
93.9 |
|
(In millions) |
|
Foodservice |
|
|
Vistar |
|
|
Convenience |
|
|
Corporate |
|
|
Eliminations |
|
|
Consolidated |
|
||||||
For the Six Months Ended December 28, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net external sales |
|
$ |
16,046.6 |
|
|
$ |
2,518.4 |
|
|
$ |
12,330.9 |
|
|
$ |
157.8 |
|
|
$ |
— |
|
|
$ |
31,053.7 |
|
Inter-segment sales |
|
|
13.8 |
|
|
|
1.9 |
|
|
|
0.3 |
|
|
|
338.5 |
|
|
|
(354.5 |
) |
|
|
— |
|
Total sales |
|
|
16,060.4 |
|
|
|
2,520.3 |
|
|
|
12,331.2 |
|
|
|
496.3 |
|
|
|
(354.5 |
) |
|
|
31,053.7 |
|
Depreciation and amortization |
|
|
200.6 |
|
|
|
27.7 |
|
|
|
77.6 |
|
|
|
29.5 |
|
|
|
— |
|
|
|
335.4 |
|
Capital expenditures |
|
|
166.5 |
|
|
|
11.2 |
|
|
|
15.6 |
|
|
|
10.6 |
|
|
|
— |
|
|
|
203.9 |
|
For the Six Months Ended December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net external sales |
|
$ |
14,345.3 |
|
|
$ |
2,450.6 |
|
|
$ |
12,278.4 |
|
|
$ |
160.0 |
|
|
$ |
— |
|
|
$ |
29,234.3 |
|
Inter-segment sales |
|
|
11.0 |
|
|
|
1.7 |
|
|
|
— |
|
|
|
308.1 |
|
|
|
(320.8 |
) |
|
|
— |
|
Total sales |
|
|
14,356.3 |
|
|
|
2,452.3 |
|
|
|
12,278.4 |
|
|
|
468.1 |
|
|
|
(320.8 |
) |
|
|
29,234.3 |
|
Depreciation and amortization |
|
|
143.3 |
|
|
|
23.2 |
|
|
|
74.9 |
|
|
|
31.2 |
|
|
|
— |
|
|
|
272.6 |
|
Capital expenditures |
|
|
92.6 |
|
|
|
18.6 |
|
|
|
11.9 |
|
|
|
24.0 |
|
|
|
— |
|
|
|
147.1 |
|
Segment Adjusted EBITDA for each reportable segment and Corporate & All Other is presented below along with a reconciliation to consolidated income before taxes.
|
|
Three Months Ended |
|
|
Six Months Ended |
||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
||||
Foodservice Adjusted EBITDA |
|
$ |
289.9 |
|
|
$ |
224.1 |
|
|
$ |
569.9 |
|
|
$ |
470.1 |
|
|
Vistar Adjusted EBITDA |
|
|
93.9 |
|
|
|
93.6 |
|
|
|
177.1 |
|
|
|
182.2 |
|
|
Convenience Adjusted EBITDA |
|
|
107.3 |
|
|
|
83.5 |
|
|
|
212.6 |
|
|
|
178.2 |
|
|
Corporate & All Other Adjusted EBITDA |
|
|
(68.1 |
) |
|
|
(55.8 |
) |
|
|
(124.7 |
) |
|
|
(101.3 |
) |
|
Depreciation and amortization |
|
|
(182.5 |
) |
|
|
(143.3 |
) |
|
|
(335.4 |
) |
|
|
(272.6 |
) |
|
Interest expense |
|
|
(100.2 |
) |
|
|
(61.4 |
) |
|
|
(167.0 |
) |
|
|
(117.5 |
) |
|
Change in LIFO reserve |
|
|
(17.8 |
) |
|
|
(21.8 |
) |
|
|
(30.5 |
) |
|
|
(41.0 |
) |
|
Stock-based compensation expense |
|
|
(11.7 |
) |
|
|
(11.0 |
) |
|
|
(23.0 |
) |
|
|
(21.7 |
) |
|
Gain (loss) on fuel derivatives |
|
|
0.8 |
|
|
|
(1.8 |
) |
|
|
(0.6 |
) |
|
|
1.7 |
|
|
Acquisition, integration & reorganization expenses |
|
|
(51.3 |
) |
|
|
(3.9 |
) |
|
|
(70.4 |
) |
|
|
(13.7 |
) |
|
Other adjustments (1) |
|
|
(3.6 |
) |
|
|
9.5 |
|
|
|
(4.4 |
) |
|
|
10.6 |
|
|
Income before taxes |
|
$ |
56.7 |
|
|
$ |
111.7 |
|
|
$ |
203.6 |
|
|
$ |
275.0 |
|
|
21
Total assets by reportable segment, excluding intercompany receivables between segments, are as follows:
(In millions) |
|
As of |
|
|
As of |
|
||
Foodservice |
|
$ |
10,543.7 |
|
|
$ |
6,996.8 |
|
Vistar |
|
|
1,566.5 |
|
|
|
1,519.1 |
|
Convenience |
|
|
4,182.2 |
|
|
|
4,080.9 |
|
Corporate & All Other |
|
|
804.6 |
|
|
|
796.1 |
|
Total assets |
|
$ |
17,097.0 |
|
|
$ |
13,392.9 |
|
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated financial statements and notes thereto included elsewhere in this quarterly report on 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 Quarterly Report on Form 10-Q.
Our Company
We market and distribute food and food-related products to customers across North America from our over 150 locations to over 300,000 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, and beverages. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers, as well as cigarettes and other tobacco products. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.
Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. 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, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America. We believe that there are substantial synergies across our segments. Cross-segment synergies include procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources.
On October 8, 2024, the Company acquired Cheney Bros., Inc. (“Cheney Brothers”), expanding its Foodservice operations in the Southeastern portion of the United States. Refer to Note 5. Business Combinations of the consolidated financial statements in the Form 10-Q for additional details regarding the acquisition of Cheney Brothers.
Key Factors Affecting Our Business
We believe that our long-term performance is principally affected by the following key factors:
23
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 and product inflation that is reflected in the pricing of our products and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration), inbound freight, and remittances of excise tax. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
Adjusted EBITDA
Management measures operating performance based on our 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 2027, Notes due 2029, and Notes due 2032 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 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, is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, including our lenders under the ABL Facility and holders of our Notes due 2027, Notes due 2029, and Notes due 2032, in their evaluation of the operating performance of companies in industries similar to ours.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
24
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:
We have included the calculation of Adjusted EBITDA for the periods presented.
Results of Operations and Adjusted EBITDA
The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated (in millions, except per share data):
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Net sales |
|
$ |
15,638.2 |
|
|
$ |
14,295.7 |
|
|
$ |
1,342.5 |
|
|
|
9.4 |
|
Cost of goods sold |
|
|
13,810.4 |
|
|
|
12,697.6 |
|
|
|
1,112.8 |
|
|
|
8.8 |
|
Gross profit |
|
|
1,827.8 |
|
|
|
1,598.1 |
|
|
|
229.7 |
|
|
|
14.4 |
|
Operating expenses |
|
|
1,669.0 |
|
|
|
1,424.2 |
|
|
|
244.8 |
|
|
|
17.2 |
|
Operating profit |
|
|
158.8 |
|
|
|
173.9 |
|
|
|
(15.1 |
) |
|
|
(8.7 |
) |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
100.2 |
|
|
|
61.4 |
|
|
|
38.8 |
|
|
|
63.2 |
|
Other, net |
|
|
1.9 |
|
|
|
0.8 |
|
|
|
1.1 |
|
|
|
137.5 |
|
Other expense, net |
|
|
102.1 |
|
|
|
62.2 |
|
|
|
39.9 |
|
|
|
64.1 |
|
Income before income taxes |
|
|
56.7 |
|
|
|
111.7 |
|
|
|
(55.0 |
) |
|
|
(49.2 |
) |
Income tax expense |
|
|
14.3 |
|
|
|
33.4 |
|
|
|
(19.1 |
) |
|
|
(57.2 |
) |
Net income (GAAP) |
|
$ |
42.4 |
|
|
$ |
78.3 |
|
|
$ |
(35.9 |
) |
|
|
(45.8 |
) |
Adjusted EBITDA (Non-GAAP) |
|
$ |
423.0 |
|
|
$ |
345.4 |
|
|
$ |
77.6 |
|
|
|
22.5 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
154.6 |
|
|
|
154.2 |
|
|
|
0.4 |
|
|
|
0.3 |
|
Diluted |
|
|
156.3 |
|
|
|
155.7 |
|
|
|
0.6 |
|
|
|
0.4 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.27 |
|
|
$ |
0.51 |
|
|
$ |
(0.24 |
) |
|
|
(47.1 |
) |
Diluted |
|
$ |
0.27 |
|
|
$ |
0.50 |
|
|
$ |
(0.23 |
) |
|
|
(46.0 |
) |
|
|
For the Six Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Net sales |
|
$ |
31,053.7 |
|
|
$ |
29,234.3 |
|
|
$ |
1,819.4 |
|
|
|
6.2 |
|
Cost of goods sold |
|
|
27,461.7 |
|
|
|
25,973.3 |
|
|
|
1,488.4 |
|
|
|
5.7 |
|
Gross profit |
|
|
3,592.0 |
|
|
|
3,261.0 |
|
|
|
331.0 |
|
|
|
10.2 |
|
Operating expenses |
|
|
3,217.9 |
|
|
|
2,870.9 |
|
|
|
347.0 |
|
|
|
12.1 |
|
Operating profit |
|
|
374.1 |
|
|
|
390.1 |
|
|
|
(16.0 |
) |
|
|
(4.1 |
) |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
167.0 |
|
|
|
117.5 |
|
|
|
49.5 |
|
|
|
42.1 |
|
Other, net |
|
|
3.5 |
|
|
|
(2.4 |
) |
|
|
5.9 |
|
|
|
245.8 |
|
Other expense, net |
|
|
170.5 |
|
|
|
115.1 |
|
|
|
55.4 |
|
|
|
48.1 |
|
Income before income taxes |
|
|
203.6 |
|
|
|
275.0 |
|
|
|
(71.4 |
) |
|
|
(26.0 |
) |
Income tax expense |
|
|
53.2 |
|
|
|
76.0 |
|
|
|
(22.8 |
) |
|
|
(30.0 |
) |
Net income (GAAP) |
|
$ |
150.4 |
|
|
$ |
199.0 |
|
|
$ |
(48.6 |
) |
|
|
(24.4 |
) |
Adjusted EBITDA (Non-GAAP) |
|
$ |
834.9 |
|
|
$ |
729.2 |
|
|
$ |
105.7 |
|
|
|
14.5 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
154.6 |
|
|
|
154.5 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Diluted |
|
|
156.3 |
|
|
|
156.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.97 |
|
|
$ |
1.29 |
|
|
$ |
(0.32 |
) |
|
|
(24.8 |
) |
Diluted |
|
$ |
0.96 |
|
|
$ |
1.27 |
|
|
$ |
(0.31 |
) |
|
|
(24.4 |
) |
25
We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income. The following table reconciles Adjusted EBITDA to net income for the periods presented:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||||
|
|
(In millions) |
|
|
(In millions) |
|
||||||||||
Net income (GAAP) |
|
$ |
42.4 |
|
|
$ |
78.3 |
|
|
$ |
150.4 |
|
|
$ |
199.0 |
|
Interest expense |
|
|
100.2 |
|
|
|
61.4 |
|
|
|
167.0 |
|
|
|
117.5 |
|
Income tax expense |
|
|
14.3 |
|
|
|
33.4 |
|
|
|
53.2 |
|
|
|
76.0 |
|
Depreciation |
|
|
114.1 |
|
|
|
86.3 |
|
|
|
211.5 |
|
|
|
170.1 |
|
Amortization of intangible assets |
|
|
68.4 |
|
|
|
57.0 |
|
|
|
123.9 |
|
|
|
102.5 |
|
Change in LIFO reserve (1) |
|
|
17.8 |
|
|
|
21.8 |
|
|
|
30.5 |
|
|
|
41.0 |
|
Stock-based compensation expense |
|
|
11.7 |
|
|
|
11.0 |
|
|
|
23.0 |
|
|
|
21.7 |
|
(Gain) loss on fuel derivatives |
|
|
(0.8 |
) |
|
|
1.8 |
|
|
|
0.6 |
|
|
|
(1.7 |
) |
Acquisition, integration & reorganization expenses (2) |
|
|
51.3 |
|
|
|
3.9 |
|
|
|
70.4 |
|
|
|
13.7 |
|
Other adjustments (3) |
|
|
3.6 |
|
|
|
(9.5 |
) |
|
|
4.4 |
|
|
|
(10.6 |
) |
Adjusted EBITDA (Non-GAAP) |
|
$ |
423.0 |
|
|
$ |
345.4 |
|
|
$ |
834.9 |
|
|
$ |
729.2 |
|
Consolidated Results of Operations
Three and six months ended December 28, 2024 compared to the three and six months ended December 30, 2023
Net Sales
Net sales growth is a function of acquisitions, case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased $1,342.5 million, or 9.4%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, and net sales increased $1,819.4 million, or 6.2%, for the first six months of fiscal 2025 compared to the first six months of fiscal 2024.
The increase in net sales was driven by recent acquisitions, including the Cheney Brothers acquisition, an increase in cases sold including a favorable shift in mix of cases sold, and an increase in selling price per case as a result of inflation. Total case volume increased 9.8% and 6.1% during the second quarter and first six months of fiscal 2025, respectively, compared to the same periods of fiscal 2024. Total organic case volume increased 2.1% in the second quarter of fiscal 2025 and increased 1.6% in the first six months of fiscal 2025, compared to the same periods of fiscal 2024. Total organic case volume benefited from an increase of 5.0% and 4.6% in organic independent cases sold during the second quarter and first six months of fiscal 2025, respectively, including growth in Performance Brands cases, and growth in cases sold to Foodservice’s Chain business. The overall rate of product cost inflation was approximately 4.6% and 4.8% for the second quarter and first six months of fiscal 2025, respectively.
Gross Profit
Gross profit increased $229.7 million, or 14.4%, for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 and increased $331.0 million, or 10.2%, for the first six months of fiscal 2025 compared to the first six months of fiscal 2024. The increases in gross profit for the second quarter and the first six months of fiscal 2025 were primarily driven by recent acquisitions, including the Cheney Brothers acquisition, cost of goods sold optimization through procurement efficiencies, as well as a favorable shift in the mix of cases sold, including growth 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.
26
Operating Expenses
Operating expenses increased $244.8 million, or 17.2%, for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. The increase in operating expenses was primarily driven by recent acquisitions, including the Cheney Brothers acquisition, a $48.2 million increase in personnel expense primarily related to wages, commissions, and benefits, and a $7.8 million increase in professional fees primarily related to recent acquisitions, partially offset by a $12.6 million decrease in fuel expense primarily due to lower fuel prices in the second quarter of fiscal 2025 as compared to the prior year period.
Operating expenses increased $347.0 million, or 12.1%, for the first six months of fiscal 2025 compared to the first six months of fiscal 2024. The increase in operating expenses for the first six months of fiscal 2025 was primarily driven by recent acquisitions, including the Cheney Brothers acquisition, a $90.1 million increase in personnel expenses primarily related to wages, commissions, and benefits, a $12.7 million increase in professional fees related to recent acquisitions, a $11.0 million increase in insurance expense primarily related to workers’ compensation, and a $6.3 million increase in repairs and maintenance expense primarily related to transportation equipment for the first six months of fiscal 2025 compared to the prior year period. These increases were partially offset by a $21.7 million decrease in fuel expense primarily due to lower fuel prices for the first six months of fiscal 2025 compared to the prior year period.
Depreciation and amortization of intangible assets increased from $143.3 million in the second quarter of fiscal 2024 to $182.5 million in the second quarter of fiscal 2025. Depreciation and amortization of intangible assets increased from $272.6 million in the first six months of fiscal 2024 to $335.4 million in the first six months of fiscal 2025. Depreciation and amortization of intangible assets increased as a result of recent acquisitions, an increase in transportation equipment under finance leases, and accelerated amortization of certain customer relationships and trade names.
Net Income
Net income decreased $35.9 million, or 45.8%, for the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024 driven by an increase in interest expense and decrease in operating profit, partially offset by a decrease in income tax expense. Net income decreased $48.6 million, or 24.4%, for the first six months of fiscal 2025 compared to the first six months of fiscal 2024 due to an increase in interest expense and decrease in operating profit, partially offset by a decrease in income tax expense. The increase in interest expense was primarily the result of an increase in the average borrowings, including finance lease obligations, during the second quarter and first six months of fiscal 2025 compared to the prior year periods.
The Company reported income tax expense of $14.3 million and $53.2 million for the second quarter and first six months of fiscal 2025, respectively, compared to income tax expense of $33.4 million and $76.0 million for the second quarter and first six months of fiscal 2024, respectively. Our effective tax rates for the second quarter and first six months of fiscal 2025 were 25.2% and 26.1%, respectively, compared to 29.9% and 27.6% for the second quarter and first six months of fiscal 2024, respectively. The effective tax rates for the periods ended December 28, 2024, differed from the prior year periods primarily due to an increase in deductible discrete items related to stock-based compensation, a decrease in state and foreign taxes, and an increase in federal credits, partially offset by an increase in non-deductible expenses.
Segment Results
The Company has three reportable segments: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and Segment Adjusted EBITDA, which is the Company’s GAAP measure of segment profit. Segment Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, and amortization and excludes certain items that the Company does not consider part of its segments’ core operating results, including stock-based compensation expense, changes in the LIFO reserve, acquisition, integration, and reorganization expenses, and gains and losses related to fuel derivatives. Refer to Note 13. Segment Information of the consolidated financial statements in the Form 10-Q for additional information.
Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This also includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.
27
The following tables set forth net sales and Segment Adjusted EBITDA by segment for the periods indicated (dollars in millions):
Net Sales
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Foodservice |
|
$ |
8,368.3 |
|
|
$ |
7,079.3 |
|
|
$ |
1,289.0 |
|
|
|
18.2 |
|
Vistar |
|
|
1,234.6 |
|
|
|
1,201.9 |
|
|
|
32.7 |
|
|
|
2.7 |
|
Convenience |
|
|
5,967.5 |
|
|
|
5,941.4 |
|
|
|
26.1 |
|
|
|
0.4 |
|
Corporate & All Other |
|
|
240.2 |
|
|
|
227.7 |
|
|
|
12.5 |
|
|
|
5.5 |
|
Intersegment Eliminations |
|
|
(172.4 |
) |
|
|
(154.6 |
) |
|
|
(17.8 |
) |
|
|
(11.5 |
) |
Total net sales |
|
$ |
15,638.2 |
|
|
$ |
14,295.7 |
|
|
$ |
1,342.5 |
|
|
|
9.4 |
|
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Foodservice |
|
$ |
16,060.4 |
|
|
$ |
14,356.3 |
|
|
$ |
1,704.1 |
|
|
|
11.9 |
|
Vistar |
|
|
2,520.3 |
|
|
|
2,452.3 |
|
|
|
68.0 |
|
|
|
2.8 |
|
Convenience |
|
|
12,331.2 |
|
|
|
12,278.4 |
|
|
|
52.8 |
|
|
|
0.4 |
|
Corporate & All Other |
|
|
496.3 |
|
|
|
468.1 |
|
|
|
28.2 |
|
|
|
6.0 |
|
Intersegment Eliminations |
|
|
(354.5 |
) |
|
|
(320.8 |
) |
|
|
(33.7 |
) |
|
|
(10.5 |
) |
Total net sales |
|
$ |
31,053.7 |
|
|
$ |
29,234.3 |
|
|
$ |
1,819.4 |
|
|
|
6.2 |
|
Segment Adjusted EBITDA
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Foodservice |
|
$ |
289.9 |
|
|
$ |
224.1 |
|
|
$ |
65.8 |
|
|
|
29.4 |
|
Vistar |
|
|
93.9 |
|
|
|
93.6 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Convenience |
|
|
107.3 |
|
|
|
83.5 |
|
|
|
23.8 |
|
|
|
28.5 |
|
Corporate & All Other |
|
|
(68.1 |
) |
|
|
(55.8 |
) |
|
|
(12.3 |
) |
|
|
(22.0 |
) |
Total Adjusted EBITDA |
|
$ |
423.0 |
|
|
$ |
345.4 |
|
|
$ |
77.6 |
|
|
|
22.5 |
|
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 28, 2024 |
|
|
December 30, 2023 |
|
|
Change |
|
|
% |
|
||||
Foodservice |
|
$ |
569.9 |
|
|
$ |
470.1 |
|
|
$ |
99.8 |
|
|
|
21.2 |
|
Vistar |
|
|
177.1 |
|
|
|
182.2 |
|
|
|
(5.1 |
) |
|
|
(2.8 |
) |
Convenience |
|
|
212.6 |
|
|
|
178.2 |
|
|
|
34.4 |
|
|
|
19.3 |
|
Corporate & All Other |
|
|
(124.7 |
) |
|
|
(101.3 |
) |
|
|
(23.4 |
) |
|
|
(23.1 |
) |
Total Adjusted EBITDA |
|
$ |
834.9 |
|
|
$ |
729.2 |
|
|
$ |
105.7 |
|
|
|
14.5 |
|
Segment Results—Foodservice
Three and six months ended December 28, 2024, compared to the three and six months ended December 30, 2023
Net Sales
Net sales for Foodservice increased $1,289.0 million, or 18.2%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025 and increased $1,704.1 million, or 11.9%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. These increases in net sales were driven by recent acquisitions, an increase in selling price per case as a result of inflation, and case volume growth, including growth in our independent and Chain business. The acquisition of Cheney Brothers contributed $825.0 million to net sales in the second quarter and first six months of fiscal 2025. Total case growth for Foodservice was 15.0% in the second quarter of fiscal 2025 and 8.9% in the first six months of fiscal 2025, compared to the prior year periods. Securing new and expanding business with independent customers resulted in total independent case growth of 19.8% and 13.5% for the second quarter and first six months of fiscal 2025, respectively, compared to the prior year periods. Organic independent case growth was 5.0% and 4.6% in the second quarter and first six months of fiscal 2025, respectively, compared to the prior year periods. For the second quarter and first six months of fiscal 2025, independent sales as a percentage of total Foodservice sales were 40.1% and 40.9%, respectively.
28
Segment Adjusted EBITDA
Adjusted EBITDA for Foodservice increased $65.8 million, or 29.4%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025. Adjusted EBITDA for Foodservice increased $99.8 million, or 21.2%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Foodservice’s Adjusted EBITDA increased $223.0 million, or 22.8%, in the second quarter of fiscal 2025 and increased $288.7 million, or 14.4%, in the first six months of fiscal 2025, compared to the prior year periods. The increase in gross profit was driven by recent acquisitions, a favorable shift in the mix of cases sold, and growth in cases sold, including more Performance Brands products sold to our independent customers. Cheney Brothers contributed $145.4 million to Foodservice’s gross profit impacting Adjusted EBITDA in the second quarter and first six months of fiscal 2025.
Operating expenses impacting Foodservice’s Adjusted EBITDA increased $157.0 million, or 20.8%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025. Operating expenses increased primarily as a result of recent acquisitions, including the Cheney Brothers acquisition, and a $38.0 million increase in personnel expenses primarily related to salaries and wages, commissions, and benefits, partially offset by a $7.7 million decrease in fuel expense primarily due to lower fuel prices, compared to the prior year period. Operating expenses impacting Foodservice’s Adjusted EBITDA were $110.2 million for Cheney Brothers.
Operating expenses impacting Foodservice’s Adjusted EBITDA increased $188.8 million, or 12.3%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. Operating expenses increased primarily as a result of recent acquisitions, including the Cheney Brothers acquisition, a $60.9 million increase in personnel expenses primarily related to salaries and wages, commissions, and benefits, and a $5.4 million increase in insurance expense primarily related to workers’ compensation, partially offset by a $15.9 million decrease in fuel expense primarily due to lower fuel prices, compared to the prior year period.
Depreciation and amortization of intangible assets recorded in this segment increased from $72.7 million in the second quarter of fiscal 2024 to $115.6 million in the second quarter of fiscal 2025 and increased from $143.3 million in the first six months of fiscal 2024 to $200.6 million in the first six months of fiscal 2025 as a result of recent acquisitions and an increase in transportation equipment under finance leases. Total depreciation and amortization related to Cheney Brothers was $26.5 million in the second quarter and first six months of fiscal 2025.
Segment Results—Vistar
Three and six months ended December 28, 2024, compared to the three and six months ended December 30, 2023
Net Sales
Net sales for Vistar increased $32.7 million, or 2.7%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025 and increased $68.0 million, or 2.8%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. The increase in net sales for the second quarter of fiscal 2025 was primarily driven by case volume growth in the vending, office coffee service, theater, and corrections channels, as well as an increase in selling price per case due to a change in sales mix. The increase in net sales for the first six months of fiscal 2025 was driven primarily by an acquisition in the second quarter of fiscal 2024. Total organic case volume growth for Vistar for the first six months of fiscal 2025 was flat, as growth in the vending, office coffee service, and corrections channels was offset by declines in theater and retail cases sold compared to the prior year period.
Segment Adjusted EBITDA
Adjusted EBITDA for Vistar increased $0.3 million, or 0.3%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Vistar’s Adjusted EBITDA increased $2.7 million, or 1.2%, for the second quarter of fiscal 2025 primarily driven by inventory holding gains. Adjusted EBITDA for Vistar decreased $5.1 million, or 2.8%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. This decrease was the result of an increase in operating expenses, partially offset by an increase in gross profit. Gross profit contributing to Vistar’s Adjusted EBITDA increased $21.7 million, or 5.0%, for the first six months of fiscal 2025 compared to the prior year period primarily driven by an acquisition in the second quarter of fiscal 2024.
Operating expenses impacting Vistar’s Adjusted EBITDA increased $2.7 million, or 2.0%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025 primarily due to an increase in personnel expenses. Operating expenses impacting Vistar’s Adjusted EBITDA increased $27.0 million, or 10.7%, from the first six months of fiscal 2024 to the first six months of fiscal 2025 primarily driven by $18.1 million in costs related to an acquisition in the second quarter of fiscal 2024, $4.5 million in variable operational expenses as a result of a shift in channel mix, and a $2.4 million increase in occupancy costs associated with building expansions compared to the prior year period.
Depreciation and amortization of intangible assets recorded in this segment increased from $12.8 million in the second quarter of fiscal 2024 to $13.3 million in the second quarter of fiscal 2025 and increased from $23.2 million in the first six months of fiscal 2024 to $27.7 million in the first six months of fiscal 2025 due primarily to an acquisition in the second quarter of fiscal 2024.
29
Segment Results—Convenience
Three and six months ended December 28, 2024, compared to the three and six months ended December 30, 2023
Net Sales
Net sales for Convenience increased $26.1 million, or 0.4%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025 and increased $52.8 million, or 0.4%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. These increases in net sales for the second quarter and the first six months of fiscal 2025 were driven primarily by an increase in selling price per case as a result of continued inflation and growth in cases sold for food and foodservice related products, partially offset by a decline in cigarette carton sales.
Segment Adjusted EBITDA
Adjusted EBITDA for Convenience increased $23.8 million, or 28.5%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Convenience’s Adjusted EBITDA increased $32.1 million, or 8.3%, for the second quarter of fiscal 2025 compared to the prior year period primarily due to an increase in pricing improvement from procurement efficiencies, inventory holding gains, and a favorable shift in mix of cases sold. Operating expenses impacting Convenience’s Adjusted EBITDA increased $8.1 million, or 2.7%, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025. Operating expenses increased primarily as a result of an $8.3 million increase in personnel expenses, partially offset by a $3.0 million decrease in fuel expense primarily due to lower fuel prices compared to the prior year period.
Adjusted EBITDA for Convenience increased $34.4 million, or 19.3%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Convenience’s Adjusted EBITDA increased $45.8 million, or 5.8%, for the first six months of fiscal 2025 compared to the prior year period primarily due to an increase in inventory holding gains, pricing improvement from procurement efficiencies, and a favorable shift in mix of cases sold. Operating expenses impacting Convenience’s Adjusted EBITDA increased $11.1 million, or 1.8%, from the first six months of fiscal 2024 to the first six months of fiscal 2025. Operating expenses increased primarily as a result of a $10.1 million increase in personnel expenses and a $5.2 million increase in insurance expense, partially offset by a $4.8 million decrease in fuel expense driven by lower fuel prices compared to the prior year period.
Depreciation and amortization of intangible assets recorded in this segment increased from $37.2 million in the second quarter of fiscal 2024 to $39.0 million in the second quarter of fiscal 2025 and increased from $74.9 million in the first six months of fiscal 2024 to $77.6 million in the first six months of fiscal 2025.
Segment Results—Corporate & All Other
Three and six months ended December 28, 2024, compared to the three and six months ended December 30, 2023
Net Sales
Net sales for Corporate & All Other increased $12.5 million from the second quarter of fiscal 2024 to the second quarter of fiscal 2025 and increased $28.2 million from the first six months of fiscal 2024 to the first six months of fiscal 2025. The increase was primarily attributable to an increase in products and services sold to our other segments.
Segment Adjusted EBITDA
Adjusted EBITDA for Corporate & All Other was a negative $68.1 million for the second quarter of fiscal 2025 compared to a negative $55.8 million for the second quarter of fiscal 2024 and was a negative $124.7 million for the first six months of fiscal 2025 compared to a negative $101.3 million for the first six months of fiscal 2024. The decline in Adjusted EBITDA was primarily driven by increases in corporate personnel expenses of $8.3 million and $13.2 million and increases in information technology maintenance expense primarily related to cloud-based services of $1.3 million and $3.9 million for the second quarter and first six months of fiscal 2025, respectively.
Depreciation and amortization of intangible assets recorded in this segment decreased from $20.6 million in the second quarter of fiscal 2024 to $14.6 million in the second quarter of fiscal 2025 and decreased from $31.2 million for the first six months of fiscal 2024 to $29.5 million for the first six months of fiscal 2025 due to prior period accelerated amortization of certain customer relationships and trade names.
Liquidity and Capital Resources
We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility or net proceeds from the issuances of senior notes. Our working capital and borrowing levels are subject to seasonal fluctuations and the timing of procurement and acquisition activities. We borrow under our credit facility or pay it down regularly based on our cash flows from operating and investing activities.
30
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.
We are exposed to interest rate risk related to changes in interest rates for borrowings under our ABL Facility. To add stability to interest expense and manage our exposure to interest rate movements, we enter into interest rate swap agreements. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments. As of December 28, 2024, $150.0 million of the outstanding ABL Facility balance is currently hedged under interest rate swaps which results in 63% of our total debt outstanding, including finance lease obligations, being fixed-rate debt.
In November 2022, the Board of Directors authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The current share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During the six months ended December 28, 2024, the Company repurchased and subsequently retired 0.4 million shares of the Company’s common stock for a total of $33.6 million or an average cost of $75.19 per share. During the six months ended December 30, 2023, the Company repurchased and subsequently retired 1.3 million shares of the Company’s common stock for a total of $78.1 million or an average cost of $58.83 per share. As of December 28, 2024, approximately $177.0 million remained available for share repurchases.
Our contractual cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. Refer to Note 6. Debt and Note 7. Leases of the consolidated financial statements in the Form 10-Q for information regarding the Company’s expected cash requirements related to long-term debt and operating and finance leases, respectively. As of December 28, 2024, the Company had total purchase obligations of $269.8 million, which includes agreements for purchases related to capital projects and services in the normal course of business, for which all significant terms have been confirmed, as well as a minimum amount due for various Company meetings and conferences. Purchase obligations also include amounts committed to various capital projects in process or scheduled to be completed in the coming fiscal years. As of December 28, 2024, the Company had commitments of $176.1 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under the ABL Facility to fulfill these commitments. Amounts due under these agreements were not included in the Company’s consolidated balance sheet as of December 28, 2024.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
We believe that our cash flows from operations and available borrowing capacity will be sufficient both to meet our anticipated cash requirements over at least the next 12 months and to maintain sufficient liquidity for normal operating purposes and to fund capital expenditures.
As of December 28, 2024, our cash balance totaled $18.7 million, including restricted cash of $8.0 million, as compared to a cash balance totaling $27.7 million, including restricted cash of $7.7 million, as of June 29, 2024.
Six months ended December 28, 2024, compared to the six months ended December 30, 2023
Operating Activities
During the first six months of fiscal 2025 and fiscal 2024, our operating activities provided cash flow of $379.0 million and $554.0 million, respectively. The decrease in cash flow provided by operating activities in the first six months of fiscal 2025 compared to the first six months of fiscal 2024 was largely driven by advanced purchases of cigarette and candy inventory to take advantage of preferred pricing.
Investing Activities
Cash used in investing activities totaled $2,736.7 million in the first six months of fiscal 2025 compared to $436.4 million in the first six months of fiscal 2024. These investments consisted of cash paid for acquisitions of $2,535.5 million in the first six months of fiscal 2025 compared to $308.1 million in the first six months of fiscal 2024, along with capital purchases of property, plant, and equipment of $203.9 million and $147.1 million for the first six months of fiscal 2025 and the first six months of fiscal 2024, respectively.
31
For the first six months of both fiscal 2025 and fiscal 2024, purchases of property, plant, and equipment primarily consisted of outlays for warehouse improvements and expansion, warehouse equipment, transportation equipment, and information technology. The following table presents the capital purchases of property, plant, and equipment by segment:
|
|
Six Months Ended |
|
|||||
(Dollars in millions) |
|
December 28, 2024 |
|
|
December 30, 2023 |
|
||
Foodservice |
|
$ |
166.5 |
|
|
$ |
92.6 |
|
Vistar |
|
|
11.2 |
|
|
|
18.6 |
|
Convenience |
|
|
15.6 |
|
|
|
11.9 |
|
Corporate & All Other |
|
|
10.6 |
|
|
|
24.0 |
|
Total capital purchases of property, plant and equipment |
|
$ |
203.9 |
|
|
$ |
147.1 |
|
Financing Activities
During the first six months of fiscal 2025, our financing activities provided cash flow of $2,348.7 million, which consisted primarily of $1,499.9 million in net borrowings under our ABL Facility and $1.0 billion in cash received from the issuance and sale of the Notes due 2032, partially offset by $84.8 million in payments under finance lease obligations.
During the first six months of fiscal 2024, our financing activities used cash flow of $113.7 million, which consisted primarily of $78.1 million in payments to repurchase common stock and $56.5 million in payments under finance lease obligations.
The following describes our financing arrangements as of December 28, 2024:
Credit Agreement: PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, were parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement had an aggregate principal amount available of $4.0 billion and was scheduled to mature on September 17, 2026.
On September 9, 2024, PFGC and Performance Food Group, Inc. entered into the Sixth Amended and Restated Credit Agreement (the “ABL Facility”), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the Prior Credit Agreement. The ABL Facility, among other things, (i) increases the total revolving commitments from $4.0 billion under the Prior Credit Agreement to $5.0 billion under the ABL Facility and (ii) extends the stated maturity date from September 17, 2026, under the Prior Credit Agreement to September 9, 2029, under the ABL Facility. The ABL Facility also provides for up to $1.0 billion of uncommitted incremental facilities. The terms of any such incremental facility shall be agreed between Performance Food Group, Inc. and the lenders providing the new commitments, subject to certain limitations set forth in the ABL Facility.
Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary 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 property, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real property 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 greatest of (i) a floor rate of 0.00%, (ii) the federal funds rate in effect on such date plus 0.5%, (iii) the prime rate on such day, or (iv) one month Term SOFR plus 1.0%) plus a spread or (b) Term SOFR plus a spread. The ABL Facility also provides for an unused commitment fee at a rate of 0.250% per annum based on average excess availability.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company’s credit agreement:
(Dollars in millions) |
|
As of December 28, 2024 |
|
|
As of June 29, 2024 |
|
||
Aggregate borrowings |
|
$ |
2,660.7 |
|
|
$ |
1,160.8 |
|
Letters of credit |
|
|
167.1 |
|
|
|
160.4 |
|
Excess availability, net of lenders’ reserves of $97.3 and $96.3 |
|
|
2,172.2 |
|
|
|
2,678.8 |
|
Average interest rate, excluding impact of interest rate swaps |
|
|
6.05 |
% |
|
|
6.79 |
% |
32
The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if Alternate Availability (as defined in the ABL Facility) falls below the greater of (i) $375.0 million and (ii) 10% of the lesser of the borrowing base and the sum of (a) the aggregate commitments plus (b) any outstanding term loans for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties' and their subsidiaries’ abilities to incur additional indebtedness, pay dividends, create liens, make investments, make prepayments, redemptions, or defeasances prior to the maturity of the certain restricted debt, 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 the ABL Facility may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations under such agreement.
Senior Notes due 2027: On September 27, 2019, PFG Escrow Corporation (which merged with and into Performance Food Group, Inc.) issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 (the "Notes due 2027”). The Notes due 2027 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2027 are not guaranteed by the Company.
The proceeds from the Notes due 2027 along with an offering of shares of the Company’s common stock and borrowings under a prior credit agreement, were used to fund the cash consideration for the acquisition of Reinhart Foodservice, L.L.C and to pay related fees and expenses.
The Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027 mature on 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 part of the Notes due 2027 at a redemption price equal to 100.0% of the principal amount redeemed, plus accrued and unpaid interest.
The indenture governing the Notes due 2027 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 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable.
Senior Notes due 2029: On July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 4.250% Senior Notes due 2029 (the “Notes due 2029”). The Notes due 2029 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2029 are not guaranteed by the Company.
The proceeds from the Notes due 2029 were used to pay down the outstanding balance of the ABL Facility, to redeem the 5.500% Senior Notes due 2024, and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2029.
The Notes due 2029 were issued at 100.0% of their par value. The Notes due 2029 mature on August 1, 2029 and bear interest at a rate of 4.250% per year, payable semi-annually in arrears.
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2029 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at a redemption price equal to 102.125% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.163% and 100% of the principal amount redeemed on August 1, 2025, and August 1, 2026, respectively.
The indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets.
33
These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2029 to become or be declared due and payable.
Senior Notes due 2032: On September 12, 2024, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its Notes due 2032. The Notes due 2032 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 2032 are not guaranteed by the Company.
The Company intended to use the proceeds from the Notes due 2032, together with borrowings under the ABL Facility, to finance the cash consideration in connection with the acquisition of Cheney Brothers and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2032. However, since there was no requirement to hold the funds in escrow until the Cheney Brothers acquisition closed, the net proceeds from the Notes due 2032 were used to pay down a portion of the outstanding balance of the ABL Facility. The Company subsequently funded the cash consideration for the Cheney Brothers acquisition with borrowings under the ABL Facility.
The Notes due 2032 were issued at 100.0% of their par value. The Notes due 2032 mature on September 15, 2032, and bear interest at a rate of 6.125% 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 2032 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2032 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 2032 at any time prior to September 15, 2027, at a redemption price equal to 100% of the principal amount of the Notes due 2032 being redeemed plus a make-whole premium and accrued and unpaid interest. In addition, beginning on September 15, 2027, Performance Food Group, Inc. may redeem all or a part of the Notes due 2032 at a redemption price equal to 103.063% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.531% and 100% of the principal amount redeemed on September 15, 2028, and September 15, 2029, respectively. In addition, at any time prior to September 15, 2027, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2032 from the proceeds of certain equity offerings at a redemption price equal to 106.125% of the principal amount thereof, plus accrued and unpaid interest.
The indenture governing the Notes due 2032 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 2032 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2032 to become or be declared due and payable.
The ABL Facility and the indentures governing the Notes due 2027, the Notes due 2029, and the Notes due 2032 contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $1,428.4 million of restricted payment capacity available under such debt agreements, as of December 28, 2024. Such minimum estimated restricted payment capacity is calculated based on the most restrictive of our debt agreements and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.
As of December 28, 2024, the Company was in compliance with all of the covenants under the ABL Facility and the indentures governing the Notes due 2027, the Notes due 2029, and the Notes due 2032.
Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between segments.
Total assets for Foodservice increased $3,961.2 million from $6,582.5 million as of December 30, 2023 to $10,543.7 million as of December 28, 2024. Total assets for Foodservice increased $3,546.9 million from $6,996.8 million as of June 29, 2024 to $10,543.7 million as of December 28, 2024. During both time periods, Foodservice increased its assets primarily due to recent acquisitions within the segment.
Total assets for Vistar increased $131.6 million from $1,434.9 million as of December 30, 2023 to $1,566.5 million as of December 28, 2024. During this time period, this segment increased its inventory due to advanced purchases of certain products to take advantage of preferred pricing, increased its property, plant and equipment due to additional transportation equipment under finance leases, and increased its operating lease right-of-use assets due to warehouse expansion, partially offset by a decrease in intangible assets due to normal amortization.
34
Total assets for Vistar increased $47.4 million from $1,519.1 million as of June 29, 2024 to $1,566.5 million as of December 28, 2024. During this time period, this segment increased its inventory due to advanced purchases of certain products to take advantage of preferred pricing and increased its operating lease right-of-use assets due to warehouse expansion, partially offset by a decrease in accounts receivable.
Total assets for Convenience increased $96.5 million from $4,085.7 million as of December 30, 2023 to $4,182.2 million as of December 28, 2024. During this time period, the segment increased its inventory due to advanced purchases of tobacco products to take advantage of preferred pricing, increased its property, plant and equipment due to additional transportation equipment under finance leases, and increased its operating lease right-of-use assets due to a new warehouse facility, partially offset by a decrease in intangible assets due to normal amortization and a decrease in accounts receivable. Total assets for Convenience increased $101.3 million from $4,080.9 million as of June 29, 2024 to $4,182.2 million as of December 28, 2024. During this time period, the segment increased its inventory due to advanced purchases of tobacco products to take advantage of preferred pricing and increased its operating lease right-of-use assets due to a new warehouse facility, partially offset by a decrease in accounts receivable due to seasonal fluctuations in sales, a decrease in prepaid expenses related to cigarette inventory, and a decrease in intangible assets due to normal amortization.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, leases, and goodwill and other intangible assets, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk and fuel price risk. There have been no material changes to our market risks since June 29, 2024. However, due to the Cheney Brothers acquisition, our variable-rate debt has increased.
Assuming an average daily balance on our ABL Facility of approximately $2.7 billion, approximately $150.0 million of our outstanding long-term debt is fixed through interest rate swap agreements over the next twelve months and approximately $2.5 billion represents variable-rate debt. A hypothetical 100 bps increase in SOFR on our variable-rate debt would lead to an increase of approximately $25.1 million in annual interest expense.
For further discussion on our exposure to market risk, see Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the Form 10-K.
Item 4. Controls and Procedures
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.
35
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 December 28, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As permitted by applicable SEC guidance, the scope of our evaluation regarding changes in our internal control over financial reporting during the fiscal quarter ended December 28, 2024 excluded internal control over financial reporting for Cheney Brothers, which was acquired on October 8, 2024.
36
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various allegations, claims, and legal actions arising in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of any of these proceedings, lawsuits, and claims, management believes that adequate provisions have been made or insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a material adverse effect on our financial position. Refer to Note 10. Commitments and Contingencies of the consolidated financial statements in the Form 10-Q for disclosure of ongoing litigation.
Item 1A. Risk Factors
There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information relating to our purchases of the Company’s common stock during the second quarter of fiscal 2025.
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Dollar Value |
|
||||
September 29, 2024—October 26, 2024 |
|
|
41,998 |
|
|
$ |
78.64 |
|
|
|
41,790 |
|
|
$ |
177.8 |
|
October 27, 2024—November 23, 2024 |
|
|
9,980 |
|
|
$ |
81.25 |
|
|
|
9,352 |
|
|
$ |
177.0 |
|
November 24, 2024—December 28, 2024 |
|
|
329 |
|
|
$ |
88.44 |
|
|
|
— |
|
|
$ |
177.0 |
|
Total |
|
|
52,307 |
|
|
$ |
79.20 |
|
|
|
51,142 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended December 28, 2024, no director or officer of the Company adopted or terminated a ‘Rule 10b5-1 trading arrangement’ or ‘non-Rule 10b5-1 trading arrangement,’ as each term is defined in Item 408(a) of Regulation S-K.
37
Item 6. Exhibits
Exhibit |
|
Description |
|
|
|
|
|
|
10.1+ |
|
|
|
|
|
|
|
10.2+* |
|
Form of Time-Based Restricted Stock Agreement under the 2024 Omnibus Incentive Plan. |
|
|
|
|
|
10.3+* |
|
Form of Performance-Based Restricted Stock Agreement under the 2024 Omnibus Incentive Plan. |
|
|
|
|
|
10.4+ |
|
|
|
|
|
|
|
31.1* |
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2* |
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1* |
|
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.2* |
|
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith.
+ Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE FOOD GROUP COMPANY (Registrant) |
||
|
|
|
|
|||
Dated: February 5, 2025 |
|
|
|
By: |
|
/s/ H. Patrick Hatcher |
|
|
|
|
Name: |
|
H. Patrick Hatcher |
|
|
|
|
Title: |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Signatory) |
39
Exhibit 10.2
RESTRICTED STOCK GRANT NOTICE
UNDER THE
PERFORMANCE FOOD GROUP COMPANY
2024 OMNIBUS INCENTIVE PLAN
(Time-Based Vesting Award)
Performance Food Group Company (the “Company”), pursuant to its 2024 Omnibus Incentive Plan, as it may be amended from time to time (the “Plan”), hereby grants to the Participant set forth below the number of shares of Restricted Stock set forth below. The shares of Restricted Stock are subject to all of the terms and conditions as set forth herein, in the Restricted Stock Agreement (attached hereto), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Participant: [Insert Participant Name]
Vesting Commencement Date: [•], 20[•]
Number of Shares of
Restricted Stock: [Insert No. of Shares of Restricted Stock Granted]
Vesting Schedule: [Insert Vesting Schedule]
* * *
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK GRANT NOTICE, THE RESTRICTED STOCK AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF SHARES OF RESTRICTED STOCK HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK GRANT NOTICE, THE RESTRICTED STOCK AGREEMENT AND THE PLAN.
PERFORMANCE FOOD GROUP COMPANY PARTICIPANT
________________________________ ________________________________
By:
Title:
RESTRICTED STOCK AGREEMENT
UNDER THE
PERFORMANCE FOOD GROUP COMPANY
2024 OMNIBUS INCENTIVE PLAN
Pursuant to the Restricted Stock Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Restricted Stock Agreement (this “Restricted Stock Agreement”) and the Performance Food Group Company 2024 Omnibus Incentive Plan, as it may be amended from time to time (the “Plan”), Performance Food Group Company (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.
1. Grant of Shares of Restricted Stock. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the number of shares of Restricted Stock provided in the Grant Notice. The Company may make one or more additional grants of shares of Restricted Stock to the Participant under this Restricted Stock Agreement by providing the Participant with a new Grant Notice, which may also include any terms and conditions differing from this Restricted Stock Agreement to the extent provided therein. The Company reserves all rights with respect to the granting of additional shares of Restricted Stock hereunder and makes no implied promise to grant additional shares of Restricted Stock.
2. Vesting. Subject to the conditions contained herein and in the Plan, the shares of Restricted Stock shall vest and the restrictions on such shares of Restricted Stock shall lapse as provided in the Grant Notice. With respect to any share of Restricted Stock, the period of time that such share of Restricted Stock remains subject to vesting shall be its Restricted Period.
3. Issuance of Shares of Restricted Stock. The provisions of Section 9(d)(i) of the Plan are incorporated herein by reference and made a part hereof.
4. Treatment of Shares of Restricted Stock Upon Termination. The provisions of Sections 9(b) and 9(c)(ii) of the Plan are incorporated herein by reference and made a part hereof.
5. Company; Participant; Good Reason.
(a) The term “Company” as used in this Restricted Stock Agreement with reference to employment shall include the Company and its subsidiaries.
(b) Whenever the word “Participant” is used in any provision of this Restricted Stock Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the shares of Restricted Stock may be transferred by will or by the laws of descent and distribution, the word “Participant” shall be deemed to include such person or persons.
(c) The term “Good Reason” as used in the Grant Notice or in this Restricted Stock Agreement shall, in the case of any Participant who is party to an agreement between the Participant and the Company that contains a definition of “Good Reason,” mean and refer to the definition set forth in such agreement, and in the case of any other Participant, “Good Reason” shall mean: (A) a material diminution in Participant’s base salary or annual bonus opportunity; (B) any material diminution in Participant’s authority, duties or responsibilities; or (C) the relocation of Participant’s principal work location by more than fifty (50) miles; provided that none of these events shall constitute Good Reason unless the Company fails to cure such event within thirty (30) days after receipt from Participant of written notice of the event which constitutes Good Reason; provided, further, that “Good Reason” shall cease to exist for an event on the sixtieth (60th) day following the later of its occurrence or Participant’s knowledge thereof, unless Participant has given the Company written notice thereof prior to such date.
Notwithstanding anything herein to the contrary, for purposes of the last proviso of the immediately foregoing sentence, a series of related events shall be deemed to have occurred on the date upon which the last event in such series of related events has occurred.
6. Non-Transferability. The shares of Restricted Stock are not transferable by the Participant except to Permitted Transferees in accordance with Section 14(b) of the Plan. Except as otherwise provided herein, no assignment or transfer of the shares of Restricted Stock, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the shares of Restricted Stock shall terminate and become of no further effect.
7. Rights as Stockholder; Legend; Dividends. The provisions of Sections 9(b) and 9(e) of the Plan are incorporated herein by reference and made a part hereof; provided that any cash or in-kind dividends paid with respect to the shares of Restricted Stock which have not, prior to the record date of the dividend, become vested shall be withheld by the Company without interest and shall be paid to the Participant only when, and if, such shares of Restricted Stock shall become vested pursuant to the Grant Notice and Section 2 of this Restricted Stock Agreement.
8. Tax Withholding. The provisions of Section 14(d)(i) of the Plan are incorporated herein by reference and made a part hereof. The Participant shall satisfy such Participant’s withholding liability, if any, referred to in Section 14(d)(i) of the Plan by having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a Fair Market Value, on the date that the shares of Common Stock are issued or delivered, equal to such withholding liability; provided that the number of such shares may not have a Fair Market Value greater than the minimum required statutory withholding liability unless determined by the Committee not to result in adverse accounting consequences.
9. Notice. Every notice or other communication relating to this Restricted Stock Agreement between the Company and the Participant shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or communications by the Participant to the Company shall be mailed or delivered to the Company at its principal executive office, to the attention of the Company General Counsel, and all notices or communications by the Company to the Participant may be given to the Participant personally or may be mailed to the Participant at the Participant’s last known address, as reflected in the Company’s records. Notwithstanding the above, all notices and communications between the Participant and any third-party plan administrator shall be mailed, delivered, transmitted or sent in accordance with the procedures established by such third-party plan administrator and communicated to the Participant from time to time.
10. No Right to Continued Service. This Restricted Stock Agreement does not confer upon the Participant any right to continue as an employee or service provider to the Company.
11. Binding Effect. This Restricted Stock Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
12. Waiver and Amendments. Except as otherwise set forth in Section 13 of the Plan, any waiver, alteration, amendment or modification of any of the terms of this Restricted Stock Agreement shall be valid only if made in writing and signed by the parties hereto; provided, however, that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Committee. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.
13. Clawback/Repayment/Detrimental Activity/Right to Offset. The shares of Restricted Stock granted under this Restricted Stock Agreement are subject to reduction, cancellation, forfeiture, recoupment and/or offset in accordance with the provisions of Sections 14(v), 14(w) and 14(x) of the Plan.
14. Governing Law. This Restricted Stock Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof. Notwithstanding anything contained in this Restricted Stock Agreement, the Grant Notice or the Plan to the contrary, if any suit or claim is instituted by the Participant or the Company relating to this Restricted Stock Agreement, the Grant Notice or the Plan, the Participant hereby submits to the exclusive jurisdiction of and venue in the courts of Delaware.
15. Plan. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Restricted Stock Agreement, the Plan shall govern and control.
Exhibit 10.3
RESTRICTED STOCK GRANT NOTICE
UNDER THE
PERFORMANCE FOOD GROUP COMPANY
2024 OMNIBUS INCENTIVE PLAN
(Performance-Based Vesting Award)
Performance Food Group Company (the “Company”), pursuant to its 2024 Omnibus Incentive Plan, as it may be amended from time to time (the “Plan”), hereby grants to the Participant set forth below the “Target Number of Shares of Restricted Stock” set forth below. The shares of Restricted Stock are subject to all of the terms and conditions as set forth herein, in the Restricted Stock Agreement (attached hereto), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Participant: [Insert Participant Name]
Grant Date: [Insert Grant Date]
Performance Period: [Insert Performance Period]
Target Number of Shares of
Restricted Stock: [Insert Target No. of Shares of Restricted Stock Granted]
Maximum Number of Shares of
Restricted Stock: [Insert Maximum No. of Shares of Restricted Stock at Maximum Level of Performance]
Vesting Schedule: The shares of Restricted Stock shall vest at such times and in such amounts as set forth in Exhibit A of the Restricted Stock Agreement.
* * *
Exhibit 10.3
THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK GRANT NOTICE, THE RESTRICTED STOCK AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF SHARES OF RESTRICTED STOCK HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK GRANT NOTICE, THE RESTRICTED STOCK AGREEMENT AND THE PLAN.
PERFORMANCE FOOD GROUP COMPANY PARTICIPANT
________________________________ ________________________________By:
Title:
Exhibit 10.3
RESTRICTED STOCK AGREEMENT
UNDER THE
PERFORMANCE FOOD GROUP COMPANY
2024 OMNIBUS INCENTIVE PLAN
Pursuant to the Restricted Stock Grant Notice (the “Grant Notice”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Restricted Stock Agreement (this “Restricted Stock Agreement”) and the Performance Food Group Company 2024 Omnibus Incentive Plan, as it may be amended from time to time (the “Plan”), Performance Food Group Company (the “Company”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.
1. Grant of Shares of Restricted Stock. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant a number of shares equal to the “Target Number of Shares of Restricted Stock” provided in the Grant Notice. The Company may make one or more additional grants of shares of Restricted Stock to the Participant under this Restricted Stock Agreement by providing the Participant with a new Grant Notice, which may also include any terms and conditions differing from this Restricted Stock Agreement to the extent provided therein. The Company reserves all rights with respect to the granting of additional shares of Restricted Stock hereunder and makes no implied promise to grant additional shares of Restricted Stock.
2. Vesting. Subject to the conditions contained herein and in the Plan, the shares of Restricted Stock shall vest and the restrictions on such shares of Restricted Stock shall lapse as provided in Exhibit A, attached hereto. With respect to any share of Restricted Stock, the period of time that such share of Restricted Stock remains subject to vesting shall be its Restricted Period.
3. Issuance of Shares of Restricted Stock. The provisions of Section 9(d)(i) of the Plan are incorporated herein by reference and made a part hereof.
4. Treatment of Shares of Restricted Stock Upon Termination. Except as set forth in Exhibit A, attached hereto, the provisions of Sections 9(b) and 9(c)(ii) of the Plan are incorporated herein by reference and made a part hereof.
5. Company; Participant; Good Reason.
(a) The term “Company” as used in this Restricted Stock Agreement with reference to employment shall include the Company and its subsidiaries.
(b) Whenever the word “Participant” is used in any provision of this Restricted Stock Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the shares of Restricted Stock may be transferred by will or by the laws of descent and distribution, the word “Participant” shall be deemed to include such person or persons.
(c) The term “Good Reason” as used in the Grant Notice or in this Restricted Stock Agreement shall, in the case of any Participant who is party to an agreement between the Participant and the Company that contains a definition of “Good Reason,” mean and refer to the definition set forth in such agreement, and in the case of any other Participant, “Good Reason” shall mean: (A) a material diminution in Participant’s base salary or annual bonus opportunity; (B) any material diminution in Participant’s authority, duties or responsibilities; or (C) the relocation of Participant’s principal work location by more than fifty (50) miles; provided that none of these events shall constitute Good Reason unless the Company fails to cure such event within thirty (30) days after receipt from Participant of written notice of the event which constitutes Good Reason; provided, further, that “Good Reason” shall cease to exist for an event on the sixtieth (60th) day following the later of its occurrence or Participant’s knowledge thereof, unless Participant has given the Company written notice thereof prior to such date.
Exhibit 10.3
Notwithstanding anything herein to the contrary, for purposes of the last proviso of the immediately foregoing sentence, a series of related events shall be deemed to have occurred on the date upon which the last event in such series of related events has occurred.
6. Non-Transferability. The shares of Restricted Stock are not transferable by the Participant except to Permitted Transferees in accordance with Section 14(b) of the Plan. Except as otherwise provided herein, no assignment or transfer of the shares of Restricted Stock, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the shares of Restricted Stock shall terminate and become of no further effect.
7. Rights as Stockholder; Legend; Dividends. The provisions of Sections 9(b) and 9(e) of the Plan are incorporated herein by reference and made a part hereof; provided that any cash or in-kind dividends paid with respect to the shares of Restricted Stock which have not, prior to the record date of the dividend, become vested shall be withheld by the Company without interest and shall be paid to the Participant only when, and if, such shares of Restricted Stock shall become vested pursuant to Section 2 of this Restricted Stock Agreement.
8. Tax Withholding. The provisions of Section 14(d)(i) of the Plan are incorporated herein by reference and made a part hereof. The Participant shall satisfy such Participant’s withholding liability, if any, referred to in Section 14(d)(i) of the Plan by having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a Fair Market Value, on the date that the shares of Common Stock are issued or delivered, equal to such withholding liability; provided that the number of such shares may not have a Fair Market Value greater than the minimum required statutory withholding liability unless determined by the Committee not to result in adverse accounting consequences.
9. Notice. Every notice or other communication relating to this Restricted Stock Agreement between the Company and the Participant shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or communications by the Participant to the Company shall be mailed or delivered to the Company at its principal executive office, to the attention of the Company General Counsel, and all notices or communications by the Company to the Participant may be given to the Participant personally or may be mailed to the Participant at the Participant’s last known address, as reflected in the Company’s records. Notwithstanding the above, all notices and communications between the Participant and any third-party plan administrator shall be mailed, delivered, transmitted or sent in accordance with the procedures established by such third-party plan administrator and communicated to the Participant from time to time.
10. No Right to Continued Service. This Restricted Stock Agreement does not confer upon the Participant any right to continue as an employee or service provider to the Company.
11. Binding Effect. This Restricted Stock Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
Exhibit 10.3
12. Waiver and Amendments. Except as otherwise set forth in Section 13 of the Plan, any waiver, alteration, amendment or modification of any of the terms of this Restricted Stock Agreement shall be valid only if made in writing and signed by the parties hereto; provided, however, that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Committee. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.
13. Clawback/Repayment/Detrimental Activity/Right to Offset. The shares of Restricted Stock granted under this Restricted Stock Agreement are subject to reduction, cancellation, forfeiture, recoupment and/or offset in accordance with the provisions of Sections 14(v), 14(w) and 14(x) of the Plan.
14. Governing Law. This Restricted Stock Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof. Notwithstanding anything contained in this Restricted Stock Agreement, the Grant Notice or the Plan to the contrary, if any suit or claim is instituted by the Participant or the Company relating to this Restricted Stock Agreement, the Grant Notice or the Plan, the Participant hereby submits to the exclusive jurisdiction of and venue in the courts of Delaware.
15. Plan. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Restricted Stock Agreement, the Plan shall govern and control.
Exhibit 10.3
Exhibit A
1. Normal Vesting of Restricted Stock.
(a) The Total Earned Amount of the shares of Restricted Stock, if any, for the Performance Period shall be based on [Performance Criteria], as set forth in Sections 2 and 3 of this Exhibit A.
(b) Subject to Section 2 of this Exhibit A, provided the Participant has not undergone a Termination on or prior to the last day of the Performance Period, a number of shares of Restricted Stock equal to the Total Earned Amount (as calculated below) shall vest and the restrictions on such shares of Restricted Stock shall lapse on the date on which the Committee certifies the achievement of the applicable performance targets set forth herein, which shall occur no later than sixty (60) days following the end of the Performance Period (the “Regular Vesting Date”). Any remaining shares of Restricted Stock that do not vest in accordance with the preceding sentence shall immediately be forfeited to the Company by the Participant for no consideration therefor on the Regular Vesting Date.
(c) Notwithstanding anything in Section 9(c)(ii) of the Plan to the contrary, the following provisions shall apply in the event that the Participant undergoes a Termination as a result of such Participant’s death, Disability or Retirement.
(i) If a Participant undergoes a Termination as a result of such Participant’s death prior to the Regular Vesting Date, then on the date of Termination, such Participant shall vest in the number of shares of Restricted Stock equal to the Target Number of Shares of Restricted Stock, and any remaining shares of unvested Restricted Stock that do not vest in accordance with the foregoing shall immediately be forfeited to the Company by the Participant for no consideration therefor on the date of Termination.
(ii) If a Participant undergoes a Termination as a result of such Participant’s Disability prior to the Regular Vesting Date, then on the Regular Vesting Date, such Participant shall vest in a number of shares of Restricted Stock equal to the Total Earned Amount, calculated as of the Regular Vesting Date, and any remaining shares of unvested Restricted Stock that do not vest in accordance with the foregoing shall immediately be forfeited to the Company by the Participant for no consideration therefor on the Regular Vesting Date.
(iii) If a Participant undergoes a Termination as a result of such Participant’s Retirement prior to the Regular Vesting Date, then on the Regular Vesting Date, such Participant shall vest in a number of shares of Restricted Stock equal to (x) a fraction, the numerator of which equals the number of elapsed days from the first day of the Performance Period through the date of such Participant’s Termination, and the denominator of which equals [•], multiplied by (y) the Total Earned Amount, calculated as of the Regular Vesting Date, provided that in no event may such Participant vest in a number of shares of Restricted Stock greater than the Total Earned Amount, and any remaining shares of unvested Restricted Stock that do not vest in accordance with the foregoing shall immediately be forfeited to the Company by the Participant for no consideration therefor on the Regular Vesting Date.
2. Calculating [Performance Criteria]. The Committee shall determine [Performance Criteria] in its sole discretion and no shares of Restricted Stock shall vest, and the restrictions on such shares of Restricted Stock shall not lapse, until the Committee certifies such [Performance Criteria] performance, pursuant to Section 1(b) of this Exhibit A. [Performance Criteria] shall be calculated [Describe Calculation of Performance Criteria].
Exhibit 10.3
3. Calculating Total Earned Amount. The resulting value of the shares of Restricted Stock that shall vest upon the expiration of the Performance Period, subject to the Committee’s certification of the Company’s achievement as set forth in Sections 1(b) and 2 of this Exhibit A based on actual performance of the Company during each [Performance Period], as calculated [Describe Calculation] shall be hereinafter referred to as the “Total Earned Amount.”
The total number of shares of Restricted Stock that shall vest upon the expiration of the Performance Period based on the achievement of [Performance Criteria] performance levels during the [Performance Period], subject to the Committee’s certification of the Company’s achievement of [Performance Criteria] as set forth in Section 2 of this Exhibit A, shall equal the product of (i) the Target Number of Shares of Restricted Stock multiplied by (ii) the Applicable Percentage, as determined in the below table:
Performance Level During Each [Performance Period] |
[Performance Criteria] |
Applicable Percentage |
Threshold |
[•]th percentile |
[•]% |
Target |
[•]th percentile |
[•]% |
Maximum |
[•]th percentile |
[•]% |
4. Treatment of Shares of Restricted Stock Upon a Change in Control.
(a) Notwithstanding Section 1 of this Exhibit A, in the event of a Change in Control, the shares of Restricted Stock shall be converted, as determined by the Committee in its sole discretion, as follows (such converted shares, the “Converted Restricted Stock”):
(i) In the event of a Change in Control prior to the date that is eighteen (18) months following the first day of the Performance Period, the number of shares of Converted Restricted Stock shall equal the Target Number of Shares of Restricted Stock as set forth in the Grant Notice, which shall vest in full on [•], 20[•]; provided that the Participant has not undergone a Termination on or before such date.
(ii) In the event of a Change in Control on or after the date that is eighteen (18) months following the first day of the Performance Period, and the performance from the first day of the Performance Period through the consummation of the Change in Control is measurable, in the sole discretion of the Committee, the number of shares of Converted Restricted Stock shall equal the Total Earned Amount determined on the date of such Change in Control, with the applicable performance targets being measured as if the last day of the Performance Period was the date of the Change in Control; provided, however, that if the performance from the first day of the Performance Period through the consummation of the Change in Control is unable to be measured for any reason, in the sole discretion of the Committee, then the number of shares of Converted Restricted Stock shall equal the Target Number of Shares of Restricted Stock as set forth in the Grant Notice. The Converted Restricted Stock, as determined by this Section 4(a)(ii) shall vest in full on [•], 20[•]; provided that the Participant has not undergone a Termination on or before such date.
Exhibit 10.3
(b) In the event of a Change in Control prior to the Regular Vesting Date, the Participant shall fully vest in such Participant’s Converted Restricted Stock if either: (i) the shares of Restricted Stock are (x) continued, converted, assumed, or replaced by the Company, a member of the Company Group or a successor entity thereto and (y) on or within eighteen (18) months following such Change in Control such Participant undergoes a Termination by the Service Recipient without Cause or by the Participant for Good Reason or (ii) the shares of Restricted Stock are not continued, converted, assumed, or replaced by the Company, a member of the Company Group or a successor entity thereto.
5. Definitions.
“Applicable Percentage” shall mean the “Applicable Percentage” specified with respect to the performance levels for the Performance Metric, or to the extent that the Company’s performance falls between two levels set forth on the table above, linear interpolation shall apply. In the event that the Company’s performance does not meet the “Threshold” requirements for a Performance Metric in the table above, no award shall be earned with respect to such Performance Metric. In the event that the Company’s performance exceeds the “Maximum” for a Performance Metric, such Performance Metric shall be capped at the “Maximum” amount.
“Retirement” shall mean the voluntary Termination of a Participant other than for Cause on or after (i) attaining age 65 or (ii) the date that the sum of (x) the Participant’s age and (y) the number of Participant’s years of continuous service with the Company Group is at least 72, provided that the Participant has reached a minimum age of 55.
Exhibit 31.1
CERTIFICATION
I, George L. Holm, certify that:
|
Date: February 5, 2025 |
|
/s/ George L. Holm |
George L. Holm |
Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, H. Patrick Hatcher, certify that:
|
Date: February 5, 2025 |
|
/s/ H. Patrick Hatcher |
H. Patrick Hatcher |
Executive Vice President and Chief Financial Officer |
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Performance Food Group Company (the “Company”) on Form 10-Q for the fiscal quarter ended December 28, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George L. Holm, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
Date: February 5, 2025 |
|
/s/ George L. Holm |
George L. Holm |
Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Performance Food Group Company (the “Company”) on Form 10-Q for the fiscal quarter ended December 28, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. Patrick Hatcher, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
Date: February 5, 2025 |
|
/s/ H. Patrick Hatcher |
H. Patrick Hatcher |
Executive Vice President and Chief Financial Officer |
(Principal Financial Officer) |