PERFORMANCE FOOD GROUP COMPANY
The following discussion and analysis of our financial condition and results of
operations should be read together with the audited Consolidated Financial
Statements and the Notes thereto included in Item 8. Financial Statements and
Supplementary Data of this 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 those described in Item 1A. Actual results may differ
materially from those contained in any forward-looking statements. You should
carefully read "Special Note Regarding Forward-Looking Statements" in this Form
10-K.
Our Company
We market and distribute over 250,000 food and food-related products to
customers across the United States from approximately 142 distribution
facilities 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, beverages, cigarettes, and other tobacco products. We also sell
disposables, cleaning and kitchen supplies, and related products used by our
customers. In addition to the products we offer to our customers, we provide
value-added services by allowing our customers to benefit from our industry
knowledge, scale, and expertise in the areas of product selection and
procurement, menu development, and operational strategy.
In the second quarter of fiscal 2022, the Company changed its operating segments
to reflect the manner in which the business is managed. Based on the Company's
organization structure and how the Company's management reviews operating
results and makes decisions about resource allocation, the Company now 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 channel distributes candy, snacks, beverages,
cigarettes, other tobacco products, food and foodservice products and other
items to convenience stores across the United States and Canada . 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.
The Company's fiscal year ends on the Saturday nearest to June 30th . This
resulted in a 52-week year for fiscal 2022, a 53-week year for fiscal 2021 and a
52-week year for fiscal 2020. References to "fiscal 2022" are to the 52-week
period ended July 2, 2022 , references to "fiscal 2021" are to the 53-week period
ended July 3, 2021 , and references to "fiscal 2020" are to the 52-week period
ended June 27, 2020 .
Key Factors Affecting Our Business
Our business, our industry and the U.S. economy are influenced by a number of
general macroeconomic factors, including, but not limited to, the recent rise in
the rate of inflation and fuel prices, interest rates, and the ongoing COVID-19
pandemic and related supply chain disruptions and labor shortages. We continue
to actively monitor the impacts of the evolving macroeconomic and geopolitical
landscape on all aspects of our business. During fiscal 2022, economic and
operating conditions for our business improved significantly due to the
declining adverse effects of the ongoing COVID-19 pandemic. However, the Company
and our industry may continue to face challenges as the recovery continues, such
as availability of product supply, increased product and logistics costs, access
to labor supply, lower disposable incomes due to inflationary pressures and
macroeconomic conditions, and the emergence of COVID-19 variants. The extent to
which these challenges will affect our future financial position, liquidity, and
results of operations remains uncertain.
We believe that our long-term performance is principally affected by the following key factors:
•
Changing demographic and macroeconomic trends. Until recently, due to the
COVID-19 pandemic, the share of consumer spending captured by the
food-away-from-home industry has increased steadily for several decades. The
share increases in periods of increasing employment, rising disposable income,
increases in the number of restaurants, and favorable demographic trends, such
as smaller household sizes, an increasing number of dual income households, and
an aging population base that spends more per capita at foodservice
establishments. The foodservice distribution industry is
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also sensitive to national and regional economic conditions, such as changes in
consumer spending, changes in consumer confidence, and changes in the prices of
certain goods.
•
Food distribution market structure. The food distribution market consists of a wide spectrum of companies ranging from businesses selling a single category of product (e.g., produce) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories. We believe our scale enables us to invest in our Performance Brands, to benefit from economies of scale in purchasing and procurement, and to drive supply chain efficiencies that enhance our customers' satisfaction and profitability. We believe that the relative growth of larger foodservice distributors will continue to outpace that of smaller, independent players in our industry.
•
Our ability to successfully execute our segment strategies and implement our
initiatives. Our performance will continue to depend on our ability to
successfully execute our segment strategies and to implement our current and
future initiatives. The key strategies include focusing on independent sales and
Performance Brands, pursuing new customers for both of our reportable segments,
expansion of geographies, utilizing our infrastructure to gain further operating
and purchasing efficiencies, and making strategic acquisitions.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key measures used by our management are
discussed below. The percentages on the results presented below are calculated
based on rounded numbers.
Net Sales
Net sales is equal to gross sales, plus excise taxes, minus sales returns; minus
sales incentives that we offer to our customers, such as rebates and discounts
that are offsets to gross sales; and certain other adjustments. Our net sales
are driven by changes in case volumes, product inflation that is reflected in
the pricing of our products, and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
EBITDA and Adjusted EBITDA
Management measures operating performance based on our EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. EBITDA is not defined under accounting principles generally accepted inthe United States of America ("GAAP") and is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP and is subject to important limitations. Our definition of EBITDA may not be the same as similarly titled measures used by other companies. We believe that the presentation of EBITDA enhances an investor's understanding of our performance. We use this measure to evaluate the performance of our segments and for business planning purposes. We present EBITDA in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this Form 10-K, and such information is not meant to replace or supersede GAAP measures. In addition, our management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items that we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items permitted in calculating covenant compliance under our ABL Facility and indentures (other than certain pro forma adjustments permitted under our ABL Facility and indentures governing the Notes due 2025, Notes due 2027, and Notes due 2029 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our 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 our ABL Facility and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies. Adjusted EBITDA is not defined under GAAP and is subject to important limitations. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, 24 -------------------------------------------------------------------------------- including our lenders under the ABL Facility and holders of our Notes due 2025, Notes due 2027, and Notes due 2029, in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management's performance for purposes of determining their compensation under our incentive plans. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
•
exclude certain tax payments that may represent a reduction in cash available to us;
•
do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
•
do not reflect changes in, or cash requirements for, our working capital needs; and
•
do not reflect the significant interest expense, or the cash requirements, necessary to service our debt.
In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:
•
does not include non-cash stock-based employee compensation expense and certain other non-cash charges; and
•
does not include acquisition, restructuring, and other costs incurred to realize future cost savings and enhance our operations.
We have included below reconciliations of EBITDA and Adjusted EBITDA to the most
directly comparable measure calculated in accordance with GAAP for the periods
presented.
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Results of Operations, EBITDA, and Adjusted EBITDA
The following table sets forth a summary of our results of operations, EBITDA,
and Adjusted EBITDA for the periods indicated (dollars in millions, except per
share data):
Fiscal Year Ended Fiscal 2022 Fiscal 2021
July 2, 2022 July 3, 2021 June 27, 2020 Change % Change %
Net sales $ 50,894.1 $ 30,398.9 $ 25,086.3 $ 20,495.2 67.4 5,312.6 21.2
Cost of goods sold 45,637.7 26,873.7 22,217.1 18,764.0 69.8 4,656.6 21.0
Gross profit 5,256.4 3,525.2 2,869.2 1,731.2 49.1 656.0 22.9
Operating expenses 4,929.0 3,324.5 2,968.2 1,604.5 48.3 356.3 12.0
Operating profit (loss) 327.4 200.7 (99.0 ) 126.7 63.1 299.7 302.7 Other expense, net Interest expense 182.9 152.4 116.9 30.5 20.0 35.5 30.4 Other, net (22.6 ) (6.4 ) 6.3 (16.2 ) (253.1 ) (12.7 ) (201.6 ) Other expense, net 160.3 146.0 123.2 14.3 9.8 22.8 18.5 Income (loss) before income taxes 167.1 54.7 (222.2 ) 112.4 205.5 276.9 124.6 Income tax expense (benefit) 54.6 14.0 (108.1 ) 40.6 290.0 122.1 113.0 Net income (loss)$ 112.5 $ 40.7$ (114.1 ) $ 71.8 176.4 154.8 135.7 EBITDA$ 812.8 $ 546.0 $ 171.0$ 266.8 48.9 375.0 219.3 Adjusted EBITDA$ 1,019.8 $ 625.3 $ 405.5$ 394.5 63.1 219.8 54.2 Weighted-average common shares outstanding: Basic 149.8 132.1 113.0 17.7 13.4 19.1 16.9 Diluted 151.3 133.4 113.0 17.9 13.4 20.4 18.1 Earnings (loss) per common share: Basic $ 0.75 $ 0.31 $ (1.01 )$ 0.44 141.9$ 1.32 130.7 Diluted $ 0.74 $ 0.30 $ (1.01 )$ 0.44 146.7$ 1.31 129.7 We believe that the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net income. The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented: Fiscal year ended July 2, 2022 July 3, 2021 June 27, 2020 (In millions) Net income (loss)$ 112.5 $ 40.7 $ (114.1 ) Interest expense 182.9 152.4 116.9 Income tax expense (benefit) 54.6 14.0 (108.1 ) Depreciation 279.7 213.9 178.5 Amortization of intangible assets 183.1 125.0 97.8 EBITDA 812.8 546.0 171.0 Non-cash items (1) 170.5 64.9 24.8 Acquisition, integration and reorganization (2) 49.9 16.2 182.8 Productivity initiatives and other adjustment items (3) (13.4 ) (1.8 ) 26.9 Adjusted EBITDA$ 1,019.8 $ 625.3 $ 405.5 (1) Includes adjustments for non-cash charges arising from stock-based compensation and gain/loss on disposal of assets. Stock-based compensation cost was$44.0 million ,$25.4 million and$17.9 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. In addition, this includes increases in the last-in-first-out ("LIFO") reserve of$31.9 million for Foodservice and$91.0 million for Convenience for fiscal 2022 compared to increases of$11.8 million for Foodservice and$24.6 million for Convenience for fiscal 2021 and an increase of$0.8 million for Foodservice and$3.1 million for Convenience for fiscal 2020.
(2)
Includes professional fees and other costs related to completed and abandoned acquisitions, costs of integrating certain of our facilities, and facility closing costs.
(3)
Consists primarily of amounts related to fuel collar derivatives, certain financing transactions, lease amendments, legal settlements, franchise tax expense, insurance proceeds, and other adjustments permitted by our ABL Facility.
26
--------------------------------------------------------------------------------Consolidated Results of Operations
Fiscal year ended
Net sales growth is primarily 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$20.5 billion , or 67.4%, in fiscal 2022 compared to fiscal 2021. The increase in net sales was primarily attributable to the acquisition of Core-Mark onSeptember 1, 2021 , which contributed$14.5 billion of net sales in fiscal 2022. The increase in net sales was also driven by growth in cases sold, an increase in selling price per case as a result of inflation, partially offset by the 53rd week in fiscal year 2021. Overall product cost inflation was approximately 11.9% for fiscal 2022. Net sales for the extra week in fiscal 2021 were approximately$664.6 million . Case volume increased 28.8% in fiscal 2022 compared to fiscal 2021. Organic case volume increased 7.9% in fiscal 2022 compared to fiscal 2021. Excluding the impact of the 53rd week in fiscal 2021, organic case volume increased 10.3% in fiscal 2022 compared to the prior year.
Gross Profit
Gross profit increased$1.7 billion , or 49.1%, in fiscal 2022 compared to fiscal 2021. The increase in gross profit was primarily driven by the acquisition of Core-Mark, partially offset by a$122.9 million increase in the LIFO reserve and the 53rd week in fiscal 2021. The acquisition of Core-Mark contributed gross profit of$846.5 million since the acquisition date. Also, gross profit increased due to case growth in Foodservice and an increase in the gross profit per case driven by 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. The gross profit for the extra week in fiscal 2021 was approximately$76.1 million .
Operating Expenses
Operating expenses increased$1.6 billion , or 48.3%, for fiscal 2022 compared to fiscal 2021. The increase in operating expenses was primarily driven by the acquisition of Core-Mark, partially offset by the 53rd week in fiscal 2021. Core-Mark contributed an additional$761.8 million operating expenses, excluding depreciation and amortization, since the acquisition date. Operating expenses also increased as a result of an increase in case volume and the resulting impact on variable operational and selling expenses, as well as an increase in personnel expenses. In fiscal 2022, the Company experienced a$81.2 million increase in temporary contract labor costs, including travel expenses associated with contract workers, compared to the prior year period, as a result of the labor market's impact on the Company's ability to hire and retain qualified labor. In the fourth quarter of fiscal 2022, the Company's use of temporary contract labor normalized to a level consistent with historical usage. Operating expenses also experienced an increase in fuel expense of$90.9 million due to higher fuel prices in fiscal 2022 compared to prior year. Additionally, the Company had increases in workers' compensation and automobile insurance expense of$20.6 million , an increase in professional fees of$23.2 million due to recent acquisitions, and an increase in stock-based compensation expense of$18.6 million . The Company estimates operating expenses for the 53rd week in fiscal 2021 was approximately$70.4 million . Depreciation and amortization of intangible assets increased from$338.9 million in fiscal 2021 to$462.8 million in fiscal 2022, an increase of 36.6%. Depreciation of fixed assets and amortization of intangible assets increased as a result of the Core-Mark acquisition and another recent acquisition, partially offset by the 53rd week in fiscal 2021. Total depreciation and amortization related to the acquisition of Core-Mark was$109.7 million . Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$6.6 million . Net Income Net income was$112.5 million for fiscal 2022 compared to$40.7 million for fiscal 2021. This increase in net income was attributable to the$126.7 million increase in operating profit and an increase in other income, partially offset by increases in interest expense and income tax expense. The increase in other income primarily relates to realized and unrealized gains on fuel hedging instruments. The increase in interest expense was primarily the result of an increase in average borrowings outstanding, partially offset by a decrease in the average interest rate during fiscal 2022 compared to fiscal 2021. The Company reported income tax expense of$54.6 million for fiscal 2022 compared to$14.0 million for fiscal 2021. Our effective tax rate in fiscal 2022 was 32.7% compared to 25.6% in fiscal 2021. The effective tax rate for fiscal 2022 differed from the prior year due to the increase of non-deductible expenses as a percentage of book income. including$4.2 million of tax related to non-deductible transaction costs incurred for acquisitions, and the decrease in deductible stock-based compensation as a percentage of book income. The effective tax rate for fiscal 2021 was impacted by a benefit from a federal net operating loss carryback to tax years with a statutory rate higher than the current statutory tax rate. 27 --------------------------------------------------------------------------------
Fiscal year ended
Net sales growth is primarily a function of case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased$5,312.6 million , or 21.2%, in fiscal 2021 compared to fiscal 2020. The increase in net sales was primarily attributable to the acquisition ofReinhart Foodservice, L.L.C. ("Reinhart") onDecember 31, 2019 , along with the 53rd week in fiscal year 2021. Net sales for the extra week in fiscal 2021 were approximately$664.6 million . The acquisition of Reinhart contributed$6,049.3 million of net sales in fiscal 2021, compared to$2,525.0 million in fiscal 2020. Case volume increased 15.4% in fiscal 2021 compared to fiscal 2020. Excluding the impact of the 53rd week in fiscal 2021, case volume increased 13.0% compared to the prior year. Excluding the impact of the Reinhart acquisition for the first half of fiscal 2021, organic case volume increased 2.7% in fiscal 2021 compared to fiscal 2020. Gross Profit Gross profit increased$656.0 million , or 22.9%, for fiscal 2021 compared to fiscal 2020. The increase in gross profit was primarily driven by the acquisition of Reinhart and the 53rd week in fiscal 2021. The acquisition of Reinhart contributed an increase in gross profit of$501.4 million for fiscal 2021, compared to the prior year. Also, gross profit increased due to an increase in the gross profit per case driven by case growth in Foodservice, particularly in the independent channel. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers. The Company estimates the increase in gross profit for the extra week in fiscal 2021 was approximately$76.1 million . Additionally, for fiscal 2021, the Company recorded a total of$36.9 million of inventory write-offs primarily as a result of the impact of COVID-19 on our operations, compared to$54.5 million for fiscal 2020. This decrease was primarily a result of the recent improvements in economic conditions. Gross profit as a percentage of net sales was 11.6% for fiscal 2021 compared to 11.4% for fiscal 2020. Operating Expenses Operating expenses increased$356.3 million , or 12.0%, for fiscal 2021 compared to fiscal 2020. The increase in operating expenses was primarily driven by the acquisition of Reinhart and the 53rd week in fiscal 2021. Reinhart contributed an additional$315.6 million of operating expenses, excluding depreciation and amortization, for fiscal 2021 as compared to fiscal 2020. The Company estimates operating expenses for the 53rd week in fiscal 2021 was approximately$70.4 million . Excluding the impact of Reinhart and the 53rd week in fiscal 2021, operating expenses decreased as a result of a decrease in contingent consideration accretion expense of$109.7 million , professional fees of$28.4 million , and insurance expense of$6.2 million . Additionally, in fiscal 2021, the Company recorded a benefit of$24.9 million related to reserves related to expected credit losses for customer receivables, as compared to bad debt expense of$78.0 million in the prior year. These decreases were partially offset by a$78.6 million increase in bonus expense for fiscal 2021, along with increases in other personnel expenses and the increase in case volume and the resulting impact on variable operational and selling expenses in fiscal 2021 compared to the prior year period.
Depreciation and amortization of intangible assets increased from
Net Income (Loss)
Net income was$40.7 million for fiscal 2021, as compared to a net loss of$114.1 million for fiscal 2020. This increase in net income was attributable to the$299.7 million increase in operating profit, partially offset by increases in interest expense and income tax expense. The increase in interest expense was primarily the result of an increase in average borrowings outstanding along with a higher average interest rate during fiscal 2021 compared to fiscal 2020. The Company reported income tax expense of$14.0 million for fiscal 2021 compared to an income tax benefit of$108.1 million for fiscal 2020. Our effective tax rate in fiscal 2021 was 25.6% compared to 48.6% in fiscal 2020. The effective tax rate for fiscal 2021 decreased from the prior year period primarily due to state taxes, stock compensation, and discrete items as a percentage of book income, which is significantly higher than the book income for fiscal 2020. The effective tax rate for fiscal 2020 was impacted by the$46.3 million benefit from a federal net operating loss carryback to tax years with a statutory tax rate higher than the current statutory tax rate. 28 --------------------------------------------------------------------------------
Segment Results
As previously disclosed, in the second quarter of fiscal 2022, the Company changed its operating segments to reflect the manner in which the business is managed. Based on the Company's organization structure and how the Company's management reviews operating results and makes decisions about resource allocation, the Company's three reportable segments are: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and EBITDA. Corporate & All Other is comprised of unallocated corporate overhead and certain operating segments that are not considered separate reportable segments based on their size, including the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.
The presentation and amounts for the fiscal years ended
The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
Fiscal Year Ended Fiscal 2022 Fiscal 2021
July 2, 2022 July 3, 2021 June 27, 2020 Change % Change %
Foodservice $ 26,579.2 $ 21,890.0 $ 16,740.5 $ 4,689.2 21.4 $ 5,149.5 30.8
Vistar 3,681.8 2,539.6 3,166.0 1,142.2 45.0 (626.4 ) (19.8 )
Convenience 20,603.3 5,946.8 5,173.4 14,656.5 246.5 773.4 14.9
Corporate & All
Other 526.5 428.6 345.8 97.9 22.8 82.8 23.9
Intersegment
Eliminations (496.7 ) (406.1 ) (339.4 ) (90.6 ) (22.3 ) (66.7 ) (19.7 )
Total net sales $ 50,894.1 $ 30,398.9 $ 25,086.3 $ 20,495.2 67.4 $ 5,312.6 21.2
EBITDA
Fiscal Year Ended Fiscal 2022 Fiscal 2021
July 2, 2022 July 3, 2021 June 27, 2020 Change % Change %
Foodservice $ 741.8 $ 658.9 $ 336.3 $ 82.9 12.6 $ 322.6 95.9
Vistar 192.0 81.6 119.9 110.4 135.3 (38.3 ) (31.9 )
Convenience 151.4 12.1 (81.4 ) 139.3 1,151.2 93.5 114.9Corporate & All Other (272.4 ) (206.6 ) (203.8 ) (65.8 ) (31.8 ) (2.8 ) (1.4 ) Total EBITDA$ 812.8 $ 546.0 $ 171.0$ 266.8 48.9$ 375.0 219.3 Segment Results-Foodservice
Fiscal year ended
Net sales for Foodservice increased$4.7 billion , or 21.4%, from fiscal 2021 to fiscal 2022. This increase in net sales was driven by growth in cases sold due to the declining effects of the COVID-19 pandemic on the restaurant industry, an increase in selling price per case as a result of inflation, and a recent acquisition, partially offset by the 53rd week in fiscal 2021. Net sales for the 53rd week in fiscal 2021 were approximately$484.3 million . Overall product cost inflation was approximately 16.5% for fiscal 2022 compared to the prior year, which was driven primarily by price increases for disposable items and center-of-the plate items such as meat, poultry, and seafood. Securing new and expanding business with independent customers resulted in organic independent case growth of 11.8% in fiscal 2022 compared to the prior year. Excluding the impact of the 53rd week, organic independent case growth was 14.4% compared to the prior year. For fiscal 2022, independent sales as a percentage of total segment sales were 38.2%.
EBITDA
EBITDA for Foodservice increased$82.9 million , or 12.6%, from fiscal 2021 to fiscal 2022. This increase was the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased$587.0 million , or 20.7%, in fiscal 2022 compared to the prior fiscal year, driven by an increase in the gross profit per case, 29 -------------------------------------------------------------------------------- as well as an increase in cases sold, partially offset by gross profit of approximately$62.1 million for the 53rd week in fiscal 2021 and a$31.9 million increase to the LIFO reserve. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold, including more Performance Brands products sold to independent customers. Cases sold to independent business result in higher gross margins within this segment. Operating expenses excluding depreciation and amortization for Foodservice increased by$504.3 million , or 23.1%, from fiscal 2021 to fiscal 2022. Operating expenses increased primarily as a result of an increase in case volume and the resulting impact on variable operational and selling expenses, as well as increases in personnel expense. The increases in personnel expense includes$73.9 million increase in temporary contract labor costs, including travel expense associated with the contract workers, for fiscal 2022 compared to the prior year period as a result of the current labor market's impact on the Company's ability to hire and retain qualified labor. Operating expenses also experienced increases in fuel expenses of$59.9 million primarily as a result of an increase in fuel prices compared to the prior year period. These increases were partially offset by the extra week in fiscal 2021. The Company estimates that operating expenses excluding depreciation and amortization for Foodservice were approximately$47.1 million in the 53rd week of fiscal 2021. Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from$248.3 million in fiscal 2021 to$260.0 million in fiscal 2022. Depreciation of fixed assets and amortization of intangible assets increased in fiscal 2022 as a result of a recent acquisition, partially offset by the extra week in fiscal 2021. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$4.7 million for Foodservice.
Fiscal year ended
Net sales for Foodservice increased$5.1 billion , or 30.8%, from fiscal 2020 to fiscal 2021. The increase in net sales was driven by the Reinhart acquisition and an increase in selling price per case as a result of inflation, as well as the 53rd week in fiscal 2021. Net sales for the extra week in fiscal 2021 were approximately$484.3 million . Reinhart contributed$6.0 billion of net sales during fiscal 2021 compared to$2.5 billion in fiscal 2020. The Reinhart acquisition also expanded business with independent customers, resulting in independent case growth of approximately 31.6% in fiscal 2021 compared to the prior year. Excluding the impact of Reinhart, independent cases grew 12.6% in fiscal 2021 compared to the prior year, as a result of securing new and expanding business with independent customers. For fiscal 2021, independent sales as a percentage of total segment sales were 35.5%.
EBITDA
EBITDA for Foodservice increased$322.6 million , or 95.9%, from fiscal 2020 to fiscal 2021. This increase was the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased 33.6% in fiscal 2021 compared to the prior fiscal year, driven by the Reinhart acquisition, which contributed an increase in gross profit of$501.4 million for fiscal 2021. An increase in cases sold and an increase in gross profit per case also contributed to the increase in gross profit. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold, including more Performance Brands products sold to independent customers. Cases sold to independent business result in higher gross margins within this segment. Additionally, for fiscal 2021, Foodservice recorded$29.8 million of inventory write-offs primarily driven by the economic impacts of COVID-19, which was a decrease of$9.1 million compared to the prior year. Gross profit for the 53rd week in fiscal 2021 was approximately$62.1 million . Operating expenses excluding depreciation and amortization for Foodservice increased by$391.0 , or 21.8%, from fiscal 2020 to fiscal 2021. Operating expenses increased primarily as a result of the acquisition of Reinhart which contributed an additional$313.1 million of operating expenses for fiscal 2021. Excluding the impact of the additional Reinhart operating expenses, operating expense increased as a result of an increase in case volume and the resulting impact on variable operational and selling expenses, along with an increase in bonus expense of$40.6 million and an increase in other personnel expenses as compared to the prior year. These increases were partially offset by decreases in insurance expense of$14.4 million , fuel expense of$2.9 million , and the expense related to reserves for expected credit losses. In fiscal 2021, Foodservice recorded a benefit of$22.8 million related to reserves for expected credit losses as compared to bad debt expense of$63.1 million during fiscal 2020. The Company estimates that operating expenses excluding depreciation and amortization for Foodservice were approximately$47.1 million in the 53rd week of fiscal 2021.. Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from$197.7 million in fiscal 2020 to$248.3 million in fiscal 2021. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$4.7 million for Foodservice. Depreciation of fixed assets and amortization of intangible assets increased as a result of the acquisition of Reinhart. Total additional incremental depreciation and amortization related to the acquisition of Reinhart was$48.9 million for fiscal 2021 as compared to the prior year. 30 --------------------------------------------------------------------------------
Segment Results-Vistar
Fiscal year ended
Net sales for Vistar increased$1.1 billion , or 45.0%, from fiscal 2021 to fiscal 2022. The increases in net sales were driven primarily by the declining effects of the COVID-19 pandemic, partially offset by the 53rd week in fiscal 2021. Net sales for the 53rd week in fiscal 2021 were approximately$57.2 million . All channels, including those significantly impacted by the COVID-19 pandemic, such as vending, theater, value stores, office coffee service, hospitality, and travel, experienced case volume growth in fiscal 2022 compared to the prior year period. EBITDA EBITDA for Vistar increased$110.4 million , or 135.3%, from fiscal 2021 to fiscal 2022. The increase was the result of an increase in gross profit, partially offset by increases in operating expenses excluding depreciation and amortization. Gross profit increased$200.7 million , or 48.4%, in fiscal 2022 compared to fiscal 2021, driven by a favorable shift in the channel mix primarily related to the recovery in the theater channel, and an increase in procurement gains. These increases were partially offset by gross profit of approximately$9.4 million in the 53rd week in fiscal 2021. Gross profit as a percentage of net sales increased from 16.3% for fiscal 2021 to 16.7% for fiscal 2022. Operating expenses excluding depreciation and amortization increased$90.3 million , or 27.1%, for fiscal 2022 compared to the prior year. Operating expenses increased primarily as a result of increased sales volume described above, and the resulting impact on variable operational and selling expenses. Operating expenses increased primarily as a result of increased sales volume described above, and the resulting impact on variable operational and selling expenses. Operating expenses also increased as a result of an increase in personnel expense and an increase in fuel expense due to higher fuel prices. These increases were partially offset by the extra week in fiscal 2021. The Company estimates that operating expenses excluding depreciation and amortization for Vistar were approximately$6.6 million in the 53rd week of fiscal 2021. Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from$47.9 million in fiscal 2021 to$52.6 million in fiscal 2022. The increase was the result of recent capital outlays to support the segment's growth, partially offset by the extra week in fiscal 2021. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$1.0 million for Vistar.
Fiscal year ended
Net sales for Vistar decreased$626.4 million , or 19.8%, from fiscal 2020 to fiscal 2021. Due to the restrictions implemented by governments to slow the spread of COVID-19, there were significant declines in case volume in the theater, office coffee service, office supply, hospitality, and travel channels for fiscal 2021, however, these declines gradually improved, as certain states eased restrictions allowing many of our customers in these channels to resume operations during the fourth quarter of fiscal 2021. The decline in net sales was partially offset by approximately$57.2 million in net sales for the 53rd week in fiscal 2021. EBITDA EBITDA for Vistar decreased$38.3 million , or 31.9%, from fiscal 2020 to fiscal 2021. This decrease was primarily the result of a decrease in gross profit, partially offset by a decrease in operating expenses excluding depreciation and amortization. The gross profit decrease of$64.2 million for fiscal 2021 compared to fiscal 2020, was driven by the impact of COVID-19 on the channels we serve, partially offset by gross profit of approximately$9.4 million in the 53rd week in fiscal 2021. Additionally, for fiscal 2021, Vistar recorded$4.3 million of inventory write-offs primarily as result of the impact of COVID-19 on the channels we serve, which was a decrease of$9.3 million compared to the prior year. Gross profit as a percentage of net sales increased from 15.1% for fiscal 2020 to 16.3% for fiscal 2021. Operating expenses excluding depreciation and amortization decreased$25.9 million , or 7.2%, for fiscal 2021 compared to the prior year. Operating expenses decreased primarily as a result of decreased sales volume described above. Additionally, in fiscal 2021, Vistar recorded a benefit of$2.0 million related to reserves for expected credit losses for customer receivables as compared to bad debt expense of$14.4 million for the prior year. These decreases were partially offset by an increase in bonus expense of$15.9 million for fiscal 2021 compared to the prior year. The Company estimates that operating expenses excluding depreciation and amortization for Vistar were approximately$6.6 million in the 53rd week of fiscal 2021. 31 -------------------------------------------------------------------------------- Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from$40.3 million in fiscal 2020 to$47.9 million in fiscal 2021. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$1.0 million for Vistar. Depreciation of fixed assets and amortization of intangible assets increased as a result of the accelerated amortization of certain trade names and capital outlays to support the segment's growth. Segment Results-Convenience
Fiscal year ended
Net sales for Convenience increased$14.7 billion , or 246.5%, from$5.9 billion for fiscal 2021 to$20.6 billion for fiscal 2022. Net sales related to cigarettes for fiscal 2022 was$13.2 billion , which includes$3.7 billion of excise taxes, compared to net sales of cigarettes of$4.2 billion , which includes$1.2 billion of excise taxes, for fiscal 2021. The increase in net sales for Convenience was driven primarily by the Core-Mark acquisition. The Core-Mark acquisition contributed$14.5 billion of net sales since the acquisition date, which includes$2.6 billion related to tobacco excise taxes. The increase in net sales was also driven by organic growth in cases sold, partially offset by the 53rd week in fiscal 2021. Net sales for the 53rd week in fiscal 2021 were approximately$122.7 million .
EBITDA
EBITDA for Convenience increased$139.3 million , or 1,151.2%, from fiscal 2021 to fiscal 2022. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization driven by the acquisition of Core-Mark. Gross profit increased$932.8 million , or 380.2%, for fiscal 2022 compared to the prior year period. Core-Mark contributed gross profit of$846.5 million since the acquisition date. Gross profit also increased as a result of case growth, a favorable shift in product mix, and procurement gains, partially offset by a$91.0 million increase in the LIFO reserve and gross profit of approximately$4.2 million for the 53rd week in fiscal 2021. Gross profit as a percentage of net sales increased from 4.1% for fiscal 2021 to 5.7% for fiscal 2022 as a result of the Core-Mark acquisition. Operating expenses, excluding depreciation and amortization, increased$794.9 million , or 341.0%, for fiscal 2022 compared to the prior year period. Operating expenses increased primarily as a result of the acquisition of Core-Mark, which contributed an additional$735.8 million of operating expenses since the acquisition date. Operating expenses also experienced increases in personnel expense, fuel expense and reserves related to expected credit losses in fiscal 2022 as compared to the prior year. These increases were partially offset by operating expense of approximately$5.1 million for the 53rd week in fiscal 2021. Depreciation and amortization of intangible assets recorded in this segment increased from$12.6 million in fiscal 2021 to$125.7 million in fiscal 2022. Depreciation of fixed assets and amortization of intangible assets increased as a result of the Core-Mark acquisition. Total depreciation and amortization related to the acquisition of Core-Mark was$109.7 million since the acquisition date. The remaining increase was the result of recent capital outlays for transportation and warehouse equipment and information technology, partially offset by approximately$0.4 million of depreciation and amortization for the 53rd week in fiscal 2021.
Fiscal year ended
Net sales for Convenience increased$773.4 million , or 14.9%, from fiscal 2020 to fiscal 2021. Net sales for fiscal 2021 included$1.2 billion related to tobacco excise taxes, as compared to$1.1 billion for fiscal 2020. The increase in net sales was driven by growth in cases sold and the extra week in fiscal 2021. Net sales for the 53rd week in fiscal 2021 were approximately$122.7 million .
EBITDA
EBITDA for Convenience increased$93.5 million , or 114.9%, from fiscal 2020 to fiscal 2021. The increase was a result of a decrease in operating expenses excluding depreciation and amortization and an increase in gross profit. Gross profit increased$2.1 million for fiscal 2021 compared to fiscal 2020 as a result of case growth, a favorable shift in product mix, and the extra week in fiscal 2021. The Company estimates that gross profit for Convenience was approximately$4.2 million for the 53rd week in fiscal 2021. These increases were almost completely offset by a$24.6 million increase to the LIFO reserve. Operating expenses, excluding depreciation and amortization, decreased$91.7 million , or 28.2%, for fiscal 2021 primarily as a result of a$108.6 million reduction in contingent consideration accretion expense for fiscal 2021 as compared to prior year period. This decrease in operating expense was partially offset by an increase of variable operational and selling expense compared to fiscal 32 --------------------------------------------------------------------------------
2020 as a result of the increased case volume described above and approximately
Depreciation and amortization of intangible assets recorded in this segment
increased from
Segment Results-Corporate & All Other
Fiscal year ended
Net sales for Corporate & All Other increased$97.9 million from fiscal 2021 to fiscal 2022. The increase was primarily attributable to an increase in logistics services provided to our other segments for increased case volume, partially offset by approximately$9.2 million of net sales for the 53rd week in fiscal 2021. EBITDA EBITDA for Corporate & All Other was a negative$272.4 million for fiscal 2022 compared to a negative$206.6 million for fiscal 2021. This decline in EBITDA was primarily driven by increases in personnel expenses, an increase in stock-based compensation expense of$18.6 million , and an increase of$22.6 million in professional and legal fees related primarily to acquisitions in fiscal 2022. These operating expense increases were partially offset by the extra week in fiscal 2021. The Company estimates that operating expenses excluding depreciation and amortization were approximately$5.0 million in the 53rd week of fiscal 2021. Depreciation of fixed assets and amortization of intangible assets recorded in this segment decreased from$30.1 million in fiscal 2021 to$24.5 million in fiscal 2022 as a result of accelerated depreciation for abandoned information technology projects in the prior year and the extra week in fiscal 2021. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$0.5 million for Corporate & All Other.
Fiscal year ended
Net sales for Corporate & All Other increased$82.8 million from fiscal 2020 to fiscal 2021. The increase was primarily attributable to an increase in logistics services provided to our other segments for increased case volume due to the acquisition of Reinhart, sales contributions from other recent immaterial acquisitions, and approximately$9.2 million of net sales for the 53rd week in fiscal 2021. EBITDA EBITDA for Corporate & All Other was a negative$206.6 million for fiscal 2021 compared to a negative$203.8 million for fiscal 2020. This decline in EBITDA was primarily driven by the additional corporate operating expenses, excluding depreciation and amortization, of$2.5 million associated with the acquisition of Reinhart, as well as the additional week in fiscal 2021. Additionally, operating expenses increased as a result of an increase in annual bonus expense of$17.3 million and an increase in insurance expense of$8.1 million fiscal 2021 as compared to the prior year. These increases were partially offset by a decline of$29.0 million in fiscal 2021 for professional and legal fees related primarily to acquisitions in fiscal 2020. The Company estimates that operating expenses excluding depreciation and amortization were approximately$5.0 million in the 53rd week of fiscal 2021. Depreciation of fixed assets and amortization of intangible assets recorded in this segment was$30.1 million in fiscal 2021 compared to$28.6 million for fiscal 2020. Total depreciation and amortization related to the 53rd week in fiscal 2021 was approximately$0.5 million for Corporate & All Other. Liquidity and Capital Resources We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility (currently our ABL Facility), operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility. Our working capital and borrowing levels are subject to seasonal fluctuations, typically with the lowest borrowing levels in the third and fourth fiscal quarters and the highest borrowing levels occurring in the first and second fiscal quarters. We borrow under our credit facility or pay it down regularly based on our cash flows from operating and investing activities. Our practice is to minimize interest expense while maintaining reasonable liquidity. 33 -------------------------------------------------------------------------------- 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. Our cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. For information regarding the Company's expected cash requirements related to long-term debt and operating and finance leases, see Note 8. Debt and Note 12. Leases, respectively, within the Notes to Consolidated Financial Statements included in Item 8. As ofJuly 2, 2022 , the Company had total purchase obligations of$163.9 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 ofJuly 2, 2022 , the Company had commitments of$101.8 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under the ABL Facility to fulfill these commitments. Amounts due under these agreements were not included in the Company's consolidated balance sheet as ofJuly 2, 2022 . 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 to meet our anticipated cash requirements over the next 12 months and beyond, to maintain sufficient liquidity for normal operating purposes, and to fund capital expenditures.
At
Operating Activities
Fiscal year ended
During fiscal 2022 and fiscal 2021, our operating activities provided cash flow of$276.5 million and$64.6 million , respectively. The increase in cash flows provided by operating activities in fiscal 2022 compared to fiscal 2021 was largely driven by higher operating income and the prior year payment of$117.3 million of contingent consideration related to the acquisition ofEby-Brown , partially offset by net income tax refunds of$117.4 million in fiscal 2021 and investments in working capital in fiscal 2022. Toward the end of fiscal 2022, the Company made advanced purchases of$220.3 million of tobacco related inventory to take advantage of preferred pricing and as a result of one of the Company's cigarette suppliers shutting down for a system conversion.
Fiscal year ended
During fiscal 2021 and fiscal 2020, our operating activities provided cash flow of$64.6 million and$623.6 million , respectively. The decrease in cash flows provided by operating activities in fiscal 2021 compared to fiscal 2020 was largely driven by larger investments in net working capital and the payment of$117.3 million of contingent consideration related to the acquisition ofEby-Brown , partially offset by net income tax refunds of$117.4 million received during fiscal 2021. Investing Activities Cash used in investing activities totaled$1,861.5 million in fiscal 2022 compared to$199.8 million in fiscal 2021 and$2,146.0 million in fiscal 2020. These investments consisted primarily of net cash paid for recent acquisitions of$1,650.5 million ,$18.1 million , and$1,989.0 million for fiscal year 2022, 2021 and 2020, respectively, along with capital purchases of property, plant, and equipment of$215.5 million ,$188.8 million , and$158.0 million for fiscal years 2022, 2021, and 2020, respectively. In fiscal 2022, purchases of property, plant, and equipment primarily consisted of outlays for information technology, warehouse equipment, warehouse expansions and improvements, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment. Capital expenditures for fiscal year endedJuly 3, 2021 and fiscal year endedJune 27, 2020 have been restated to reflect the segment changes discussed above. 34 --------------------------------------------------------------------------------
Fiscal Year Ended
(Dollars in millions) July 2, 2022 July 3, 2021 June 27, 2020
Foodservice $ 148.2 $ 99.9 $ 57.8
Vistar 19.1 48.0 46.7
Convenience 31.9 26.5 25.3
Corporate & All Other 16.3 14.4 28.2
Total capital purchases of property, plant
and equipment $ 215.5 $ 188.8 $ 158.0
Financing Activities
During fiscal 2022, our financing activities provided cash flow of $1,581.5
million , which consisted primarily of $1.0 billion in cash received from the
issuance and sale of the Notes due 2029 and $1,019.7 million in net borrowings
under our Prior Credit Agreement (as defined below) and ABL Facility, partially
offset by $350.0 million in cash used for the repayment of the Notes due 2024.
During fiscal 2021,our financing activities used cash flow of $274.4 million ,
which consisted primarily of $16.2 million in net payments under our Prior
Credit Agreement, $136.4 million in payments related to recent acquisitions,
$110.0 million repayment of a 364-day maturity loan that was junior to the other
obligations owed under the Prior Credit Agreement ("Additional Junior Term
Loan"), and $37.9 million in payments of finance lease obligations.
During fiscal 2020, net cash provided by financing activities was $1,928.8
million , which consisted primarily of $1,060.0 million in cash received from the
issuance and sale of the Notes due 2027, $275.0 million in cash received from
the issuance and sale of the Notes due 2025, $828.1 million in net proceeds from
the issuance of common stock, and $110.0 million in borrowings under the
Additional Junior Term Loan, partially offset by $259.0 million in net payments
under our Prior Credit Agreement.
The following describes our financing arrangements as of
Credit Agreement:PFGC, Inc. , a wholly-owned subsidiary of the Company ("PFGC"), was a party to the Fourth Amended and Restated Credit Agreement datedDecember 30, 2019 (as previously amended, the "Prior Credit Agreement"). The Prior Credit Agreement had an aggregate principal amount of$3.0 billion under the revolving loan facility and was scheduled to mature onDecember 30, 2024 . The$110.0 million Additional Junior Term Loan was paid of early and in full in fiscal 2021. OnSeptember 17, 2021 ,PFGC andPerformance Food Group , Inc. entered into the Fifth Amended and Restated Credit Agreement (the "ABL Facility") withWells Fargo Bank, National Association , as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amended the Prior Credit Agreement. The ABL Facility, among other things, (i) increased the aggregate principal amount available under the revolving loan facility from$3.0 billion to$4.0 billion , (ii) extended the stated maturity date fromDecember 30, 2024 toSeptember 17, 2026 , and (iii) included an alternative reference rate, which provides mechanisms for the use of the Secured Overnight Financing Rate as a replacement rate upon a LIBOR cessation event. PerformanceFood Group, Inc. , a wholly-owned subsidiary of PFGC, is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than 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 properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders. Borrowings under the ABL Facility bear interest, atPerformance Food Group, Inc.'s option, at (a) the Base Rate (defined as the greater of (i) the Federal Funds Rate in effect on such date plus 0.5%, (ii) the Prime Rate on such day, or (iii) one month LIBOR plus 1.0%) plus a spread, or (b) LIBOR plus a spread. The ABL Facility also provides for an unused commitment fee rate of 0.25% per annum. 35 -------------------------------------------------------------------------------- The following table summarizes outstanding borrowings, availability, and the average interest rate under the credit facility in place as of the applicable date: (Dollars in millions) As of July 2, 2022 As of July 3, 2021 Aggregate borrowings $ 1,608.4 $ 586.3 Letters of credit 190.5 161.7 Excess availability, net of lenders' reserves 2,201.1 2,252.0 of$104.4 and$55.1 Average interest rate 2.89 % 2.32 % The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i)$320.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties' and their subsidiaries abilities to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under 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 2025: OnApril 24, 2020 ,Performance Food Group, Inc. issued and sold$275.0 million aggregate principal amount of its 6.875% Senior Notes due 2025 (the "Notes due 2025"). The Notes due 2025 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2025 are not guaranteed by the Company. The proceeds from the Notes due 2025 were used for working capital and general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2025. The Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025 mature onMay 1, 2025 , and bear interest at a rate of 6.875% per year, payable semi-annually in arrears. Upon the occurrence of a change of control triggering event or upon the sale of certain assets in whichPerformance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2025 will have the right to requirePerformance Food Group, Inc. to repurchase each holder's Notes due 2025 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. PerformanceFood Group, Inc. may redeem all or a part of the Notes due 2025 at any time prior toMay 1, 2023 at a redemption price equal to 103.438% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.719% and 100% of the principal amount redeemed onMay 1, 2023 , andMay 1, 2024 , respectively. The indenture governing the Notes due 2025 contains covenants limiting, among other things, PFGC's and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2025 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2025 to become or be declared due and payable. 36 -------------------------------------------------------------------------------- Senior Notes due 2027: OnSeptember 27, 2019 ,PFG Escrow Corporation (the "Escrow Issuer"), a wholly-owned subsidiary of PFGC, 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 the Prior Credit Agreement, were used to fund the cash consideration for the Reinhart acquisition and to pay related fees and expenses.
The Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027
mature on
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in whichPerformance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2027 will have the right to requirePerformance 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. PerformanceFood Group, Inc. may redeem all or a part of the Notes due 2027 at any time prior toOctober 15, 2022 , at a redemption price equal to 100% of the principal amount of the Notes due 2027 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning onOctober 15, 2022 ,Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at a redemption price equal to 102.750% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.375% and 100% of the principal amount redeemed onOctober 15, 2023 , andOctober 15, 2024 , respectively. In addition, at any time prior toOctober 15, 2022 ,Performance Food Group, Inc. may redeem up to 40% of the Notes due 2027 from the proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest. The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC'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: OnJuly 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 Prior Credit Agreement, to redeem the$350.0 million aggregate principal amount of the 5.500% Senior Notes due 2024 ("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 onAugust 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 whichPerformance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to requirePerformance 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. PerformanceFood Group, Inc. may redeem all or a part of the Notes due 2029 at any time prior toAugust 1, 2024 , at a redemption price equal to 100% of the principal amount of the Notes due 2029 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning onAugust 1, 2024 ,Performance Food Group, Inc. may redeem all or a 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 onAugust 1, 2025 , andAugust 1, 2026 , respectively. In addition, at any time prior toAugust 1, 2024 ,Performance Food Group, Inc. may redeem up to 40% of the Notes due 2029 from the proceeds of certain equity offerings at a redemption price equal to 104.250% of the principal amount thereof, plus accrued and unpaid interest. The indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC's and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other 37 -------------------------------------------------------------------------------- distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary 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. The ABL Facility and the indentures governing the Notes due 2025, the Notes due 2027, and the Notes due 2029 contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution toPerformance Food Group Company , except for approximately$1,632.5 million of restricted payment capacity available under such debt agreements, as ofJuly 2, 2022 . 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
Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between
segments and amounts as of July 3, 2021 have been restated to reflect the
changes to our reportable segments that occurred in the second quarter of fiscal
2022.
Total assets for Foodservice increased $663.6 million from $5,791.7 million as
of July 3, 2021 to $6,455.3 million as of July 2, 2022 . During this period, this
segment increased its inventory, property, plant, and equipment, accounts
receivable, and goodwill primarily due to a recent acquisition, partially offset
by a decrease in intangible assets.
Total assets for Vistar increased
Total assets for Convenience increased$3,729.7 million from$681.9 million as ofJuly 3, 2021 to$4,411.6 million as ofJuly 2, 2022 . During this period, this segment increased its inventory, goodwill, accounts receivable, intangible assets, property, plant and equipment, and operating lease right-of-use assets as a result of the Core-Mark acquisition. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, and goodwill and other intangible assets. Accounts Receivable Accounts receivable are primarily comprised of trade receivables from customers in the ordinary course of business, are recorded at the invoiced amount, and primarily do not bear interest. Receivables are recorded net of the allowance for doubtful accounts on the accompanying consolidated balance sheets. We evaluate the collectability of our accounts receivable based on a combination of factors. We regularly analyze our significant customer accounts, and when we become aware of a specific customer's inability to meet its financial obligations to us, such as a bankruptcy filing or a deterioration in the customer's operating results or financial position, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for other customers based on a variety of factors, including the length of time the receivables are past due, macroeconomic considerations, and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.
Inventory Valuation
Our inventories consist primarily of food and non-food products. The Company
values inventories at the lower of cost or market using the first-in, first-out
("FIFO") method and last-in, first-out ("LIFO") using the link chain technique
of the dollar value method.
38
--------------------------------------------------------------------------------
FIFO was used for approximately 57% of total inventories at July 2, 2022 . We
adjust our inventory balances for slow-moving, excess, and obsolete inventories.
These adjustments are based upon inventory category, inventory age, specifically
identified items, and overall economic conditions.
Insurance Programs
We maintain high-deductible insurance programs covering portions of general and vehicle liability and workers' compensation. The amounts in excess of the deductibles are insured by third-party insurance carriers, subject to certain limitations and exclusions. We also maintain self-funded group medical insurance. We accrue our estimated liability for these deductibles, including an estimate for incurred but not reported claims, based on known claims and past claims history. The estimated short-term portion of these accruals is included in Accrued expenses on our consolidated balance sheets, while the estimated long-term portion of the accruals is included in Other long-term liabilities. The provisions for insurance claims include estimates of the frequency and timing of claims occurrence, as well as the ultimate amounts to be paid. These insurance programs are managed by a third party, and the deductibles for general and vehicle liability and workers compensation are primarily collateralized by letters of credit and restricted cash.
Income Taxes
We followFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-10, Income Taxes-Overall, which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Future tax benefits, including net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closing of statutes of limitations. Such adjustments are reflected in the tax provision as appropriate. Income tax calculations are based on the tax laws enacted as of the date of the financial statements.
Vendor Rebates and Other Promotional Incentives
We participate in various rebate and promotional incentives with our suppliers, either unilaterally or in combination with purchasing cooperatives and other procurement partners, that consist primarily of volume and growth rebates, annual and multi-year incentives, and promotional programs. Consideration received under these incentives is generally recorded as a reduction of cost of goods sold. However, in certain limited circumstances the consideration is recorded as a reduction of costs incurred by us. Consideration received may be in the form of cash and/or invoice deductions. Changes in the estimated amount of incentives to be received are treated as changes in estimates and are recognized in the period of change. Consideration received for volume and growth rebates, annual incentives, and multi-year incentives are recorded as a reduction of cost of goods sold. We systematically and rationally allocate the consideration for these incentives to each of the underlying transactions that results in progress by the Company toward earning the incentives. If the incentives are not probable and reasonably estimable, we record the incentives as the underlying objectives or milestones are achieved. We record annual and multi-year incentives when earned, generally over the agreement period. We use current and historical purchasing data, forecasted purchasing volumes, and other factors in estimating whether the underlying objectives or milestones will be achieved. Consideration received to promote and sell the supplier's products is typically a reimbursement of marketing costs incurred by the Company and is recorded as a reduction of our operating expenses. If the amount of consideration received from the suppliers exceeds our marketing costs, any excess is recorded as a reduction of cost of goods sold.
Acquisitions,
We account for acquired businesses using the acquisition method of accounting. Our financial statements reflect the operations of an acquired business starting from the completion of the acquisition.Goodwill and other intangible assets represent the excess of cost of an acquired entity over the amounts specifically assigned to those tangible net assets acquired in a business combination. Other identifiable intangible assets typically include customer relationships, trade names, technology, non-compete agreements, and favorable lease assets.Goodwill and intangibles with indefinite lives are not amortized. Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally range from two to eleven years. Annually, or when certain triggering events occur, the Company assesses the useful lives of its intangibles with definite lives. Certain assumptions, estimates, and judgments are used in determining the fair value of net assets acquired, including goodwill and other intangible assets, as well as determining the allocation of goodwill to the reporting units. Accordingly, we may obtain the assistance of third-party valuation specialists for significant tangible and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of 39 -------------------------------------------------------------------------------- future cash flows (including expected growth rates and profitability), economic barriers to entry, a brand's relative market position, and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. We are required to test goodwill and other intangible assets with indefinite lives for impairment annually or more often if circumstances indicate. Indicators of goodwill impairment include, but are not limited to, significant declines in the markets and industries that buy our products, changes in the estimated future cash flows of its reporting units, changes in capital markets, and changes in its market capitalization. We apply the guidance in FASB Accounting Standards Update ("ASU") 2011-08 "Intangibles-Goodwill and Other-Testing Goodwill for Impairment," which provides entities with an option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing step zero for our goodwill impairment test, we are required to make assumptions and judgments, including but not limited to the following: the evaluation of macroeconomic conditions as related to our business, industry and market trends, and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. If impairment indicators are present after performing step zero, we would perform a quantitative impairment analysis to estimate the fair value of goodwill. During fiscal 2022 and fiscal 2021, we performed the step zero analysis for our goodwill impairment test. As a result of our step zero analysis, no further quantitative impairment test was deemed necessary for fiscal 2022 and fiscal 2021. There were no impairments of goodwill or intangible assets with indefinite lives for fiscal 2022 and fiscal 2021.
Recently Issued Accounting Pronouncements
Refer to Note 3. Recently Issued Accounting Pronouncements within the Notes to Consolidated Financial Statements included in Item 8 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the Company's consolidated financial statements.
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