PERFORMANCE FOOD GROUP COMPANY
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 Form 10-Q.
Our Company
We market and distribute over 200,000 food and food-related products to
customers across the United States from over 100 distribution facilities to over
200,000 customer locations in the "food-away-from-home" industry. We offer our
customers a broad assortment of products including our proprietary-branded
products, nationally-branded products, and products bearing our customers'
brands. Our product assortment ranges from "center-of-the-plate" items (such as
beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks,
beverages, cigarettes, and other tobacco products. We also sell disposables,
cleaning and kitchen supplies, and related products used by our customers. In
addition to the products we offer to our customers, we provide value-added
services by allowing our customers to benefit from our industry knowledge,
scale, and expertise in the areas of product selection and procurement, menu
development, and operational strategy.
The Company has two reportable segments: Foodservice and Vistar. Our Foodservice
segment distributes a broad line of national brands, customer brands, and our
proprietary-branded food and food-related products, or "Performance Brands."
Foodservice sells to independent and multi-unit "Chain" restaurants and other
institutions such as schools, healthcare facilities, business and industry
locations, and retail establishments. Our Chain customers are multi-unit
restaurants with five or more locations and include some of the most
recognizable family and casual dining restaurant chains. Our Vistar segment
specializes in distributing candy, snacks, beverages, cigarettes, other tobacco
products and other items nationally to vending, office coffee service, theater,
retail, hospitality, convenience, and other channels. We believe that there are
substantial synergies across our segments. Cross-segment synergies include
procurement, operational best practices such as the use of new productivity
technologies, and supply chain and network optimization, as well as shared
corporate functions such as accounting, treasury, tax, legal, information
systems, and human resources.
Key Factors Affecting Our BusinessWe believe that our short-term performance has been, and is expected to continue to be, adversely affected by the COVID-19 pandemic.
In response to the rapid spread of COVID-19 across the country, federal, state,
and local governments have implemented measures to reduce the spread of
COVID-19, including travel bans and restrictions, quarantines, shelter in place
orders, shutdowns and social distancing requirements. These measures have
adversely affected workforces, suppliers, customers, consumer sentiment,
economies, and financial markets, and, along with decreased consumer spending,
have led to an economic downturn in many of our markets.
As an essential element of the country's food supply chain, the Company has
continued to operate all of it distribution centers. Despite the Company's
continued operations, mandatory and voluntary containment measures in response
to COVID-19 have had a significant impact on the food-away-from-home industry.
Many restaurants have closed, are restricting the number of patrons they will
serve at one time or are only providing carry-out or delivery options. These
restrictions have also impacted businesses throughout the economy, including
theaters, retail operations, schools and other businesses to whom we provide
products and services, which collectively have adversely affected our results of
operations.
During our first quarter of fiscal 2021, we continued to experience the adverse
impact of COVID-19 on our operations, including significant decreases in sales.
Despite these difficulties, we have taken steps to ensure a strong financial
position, including steps to maintain financial liquidity, forging new
partnerships with grocery locations, supporting restaurant customers with the
transition to higher volumes of take-out and delivery, and other means.
Although we believe we have taken prudent measures to maintain our financial
liquidity and support our business, the impacts of COVID-19 have had, and are
expected to continue to have, an adverse impact on numerous aspects of our
business, financial condition and results of operations including, but not
limited to, our growth, product costs, liquidity, supply chain, labor,
logistics, and customer demand for our products. Additionally, the impacts of
COVID-19 have had, and are expected to continue to have, an adverse effect
generally on consumer spending, industry demand, and the global economy and
financial markets generally. Furthermore, we cannot predict the duration of the
COVID-19 pandemic or future governmental regulations or legislation that may be
passed as a result of ongoing or future COVID-19 outbreaks. The continued impact
of COVID-19 and the enactment of additional governmental regulations and
restrictions may further adversely impact the global economy, the restaurant
industry, and our business specifically, despite prior or future actions taken
by the Company.
20
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Despite the near-term impact of the COVID-19 pandemic, we believe that our long-term performance is principally affected by the following key factors:
• Changing demographic and macroeconomic trends. The share of consumer
spending captured by the food-away-from-home industry has increased
steadily for several decades. The share increases in periods of increasing
employment, rising disposable income, increases in the number of
restaurants, and favorable demographic trends, such as smaller household
sizes, an increasing number of dual income households, and an aging
population base that spends more per capita at foodservice establishments.
The foodservice distribution industry is also sensitive to national and
regional economic conditions, such as changes in consumer spending,
changes in consumer confidence, and changes in the prices of certain
goods.
• Food distribution market structure. The food distribution market consists
of a wide spectrum of companies ranging from businesses selling a single
category of product (e.g., produce) to large national and regional
broadline distributors with many distribution centers and thousands of
products across all categories. We believe our scale enables us to invest
in our Performance Brands, to benefit from economies of scale in
purchasing and procurement, and to drive supply chain efficiencies thatenhance our customers' satisfaction and profitability. We believe that the
relative growth of larger foodservice distributors will continue to
outpace that of smaller, independent players in our industry.
• Our ability to successfully execute our segment strategies and implement
our initiatives. Our performance will continue to depend on our ability
to successfully execute our segment strategies and to implement our
current and future initiatives. The key strategies include focusing on
independent sales and Performance Brands, pursuing new customers for both
of our reportable segments, expansion of geographies, utilizing our
infrastructure to gain further operating and purchasing efficiencies, and
making strategic acquisitions.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key measures used by our management are
discussed below. The percentages on the results presented below are calculated
based on rounded numbers.
Net Sales
Net sales is equal to gross sales, plus excise taxes, minus sales returns; sales
incentives that we offer to our customers, such as rebates and discounts that
are offsets to gross sales; and certain other adjustments. Our net sales are
driven by changes in case volumes, product inflation that is reflected in the
pricing of our products, and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
EBITDA and Adjusted EBITDA
Management measures operating performance based on our EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. EBITDA is not defined under accounting principles generally accepted 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 report, and such information is not meant to replace or supersede GAAP measures. In addition, our management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items that we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items permitted in calculating covenant compliance under our ABL Facility and indentures (other than certain pro forma adjustments permitted under our ABL Facility and indentures governing the Notes due 2024, Notes due 2025 and Notes due 2027 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our ABL Facility and indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making 21 -------------------------------------------------------------------------------- restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the ABL Facility and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies. Adjusted EBITDA is not defined under GAAP and is subject to important limitations. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, including our lenders under the ABL Facility and holders of our Notes due 2024, Notes due 2025 and Notes due 2027, in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management's performance for purposes of determining their compensation under our incentive plans. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
• exclude certain tax payments that may represent a reduction in cash
available to us;
• do not reflect any cash capital expenditure requirements for the assets
being depreciated and amortized that may have to be replaced in the
future;
• do not reflect changes in, or cash requirements for, our working capital
needs; and
• do not reflect the significant interest expense, or the cash requirements,
necessary to service our debt.
In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:
• does not include non-cash stock-based employee compensation expense and
other non-cash charges; and
• does not include acquisition, restructuring, and other costs incurred to
realize future cost savings and enhance our operations.
We have included the calculations of EBITDA and Adjusted EBITDA for the periods presented.
Results of Operations, EBITDA, and Adjusted EBITDA
The following table sets forth a summary of our results of operations, EBITDA,
and Adjusted EBITDA for the periods indicated (in millions, except per share
data):
Three Months Ended
September 26, September 28,
2020 2019 Change %
Net sales $ 7,046.8 $ 6,243.0 $ 803.8 12.9
Cost of goods sold 6,231.3 5,531.6 699.7 12.6
Gross profit 815.5 711.4 104.1 14.6
Operating expenses 779.7 647.9 131.8 20.3
Operating profit 35.8 63.5 (27.7 ) (43.6 )
Other expense, net
Interest expense 38.8 17.3 21.5 124.3
Other, net (1.0 ) - (1.0 ) NM
Other expense, net 37.8 17.3 20.5 118.5
(Loss) income before income taxes (2.0 ) 46.2 (48.2 ) (104.3 )
Income tax (benefit) expense (1.3 ) 10.1 (11.4 ) (112.9 )
Net (loss) income $ (0.7 ) $ 36.1 $ (36.8 ) (101.9 )
EBITDA $ 118.9 $ 106.2 $ 12.7 12.0
Adjusted EBITDA $ 135.2 $ 127.7 $ 7.5 5.9
Weighted-average common shares
outstanding:
Basic 131.7 104.0 27.7 26.6
Diluted 131.7 105.6 26.1 24.7
(Loss) earnings per common share:
Basic $ (0.01 ) $ 0.35 $ (0.36 ) (102.9 )
Diluted $ (0.01 ) $ 0.34 $ (0.35 ) (102.9 )
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We believe that the most directly comparable GAAP measure to EBITDA and Adjusted
EBITDA is net income. The following table reconciles EBITDA and Adjusted EBITDA
to net income for the periods presented:
Three months ended
September 28,
September 26, 2020 2019
(In millions)
Net (loss) income $ (0.7 ) $ 36.1
Interest expense 38.8 17.3
Income tax (benefit) expense (1.3 ) 10.1
Depreciation 52.8 33.9
Amortization of intangible assets 29.3 8.8
EBITDA 118.9 106.2
Non-cash items (1) 11.0 7.0
Acquisition, integration and reorganization (2) 4.5 11.6
Productivity initiatives and other adjustment items (3) 0.8 2.9
Adjusted EBITDA $ 135.2 $ 127.7 (1) Includes adjustments for non-cash charges arising from stock-based
compensation and gain/loss on disposal of assets. Stock-based compensation
expense was
million in the first quarter of fiscal 2020. In addition, this includes
increases in the last-in-first-out ("LIFO") reserve of
Foodservice and
compared to increases of
the first quarter of fiscal 2020.
(2) Includes professional fees and other costs related to acquisitions, costs of
integrating certain of our facilities, and facility closing costs.
(3) Consists primarily of professional fees and related expenses associated with
productivity initiatives, amounts related to fuel collar derivatives, certain
financing transactions, lease amendments, legal settlements and franchise tax
expense, and other adjustments permitted by our ABL Facility.
Consolidated Results of Operations
Three months ended
Net sales growth is a function of case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased$803.8 million , or 12.9%, in the first three months of fiscal 2021 compared to the first three months of fiscal 2020. The increase in net sales was primarily attributable to the acquisition of Reinhart, which contributed$1,457.5 million of net sales during the first three months of fiscal 2021. Case volume increased 8.9% in the first three months of fiscal 2021 compared to the first three months of fiscal 2020. Excluding the impact of the Reinhart acquisition, case volume declined 17.5% in the first three months of fiscal 2021 compared to the first three months of fiscal 2020 due primarily to the effects of COVID-19.
Gross Profit
Gross profit increased$104.1 million , or 14.6%, for the first three months of fiscal 2021 compared to the first three months of fiscal 2020. The acquisition of Reinhart contributed an increase in gross profit of$197.9 million for the first three months of fiscal 2021 as compared to the prior year period. Gross profit was negatively impacted by a decline in organic case volume and increases in inventory write-offs. For the first three months of fiscal 2021 the Company recorded a total of$11.9 million of inventory write-offs primarily as a result of the impact of COVID-19 on our operations, which is a$5.7 million increase from the first three months of fiscal 2020. Gross profit as a percentage of net sales was 11.6% for the first three months of fiscal 2021 compared to 11.4% for the first three months of fiscal 2020.
Operating Expenses
Operating expenses increased$131.8 million , or 20.3%, for the first three months of fiscal 2021 compared to the first three months of fiscal 2020. The increase in operating expenses was primarily driven by the acquisition of Reinhart. Reinhart contributed$155.5 million of operating expenses, excluding depreciation and amortization, for the first three months of fiscal 2021. In the first quarter of fiscal 2021, the Company recorded a benefit of$2.7 million related to reserves for expected credit losses as compared to bad debt expense of$3.6 million for the first quarter of 2020. Additionally, operating expenses decreased as a result of decreases in personnel expenses, fuel expense, travel expenses, professional fees, and contingent consideration accretion expense compared to the prior year period. 23 -------------------------------------------------------------------------------- Depreciation and amortization of intangible assets increased from$42.7 million in the first three months of fiscal 2020 to$82.1 million in the first three months of fiscal 2021. Depreciation of fixed assets increased as a result the Reinhart acquisition. Net Income The net loss of$0.7 million for the first three months of fiscal 2021 compared to net income of$36.1 million for the first three months of fiscal 2020 was due to the impact of COVID-19 on our operations, the increase in operating expenses discussed above, and an increase in interest expense. The increase in interest expense was primarily the result of an increase in average borrowings outstanding during the first quarter of fiscal 2021 compared to the prior year period. The Company reported an income tax benefit of$1.3 million for the first three months of fiscal 2021 compared to income tax expense of$10.1 million the first three months of fiscal 2020. Our effective tax rate for the three months endedSeptember 26, 2020 was 64.7% compared to 21.9% for the three months endedSeptember 28, 2019 . The effective tax rate for the first three months of fiscal 2021 increased from the prior year period primarily due to the increase of non-deductible expenses and discrete items as a percentage of book income, which was significantly lower than the book income for the prior year period.
Segment Results
We have two reportable segments as described above - Foodservice and Vistar. Management evaluates the performance of these segments based various operating and financial metrics, including their respective sales growth and EBITDA. Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.
The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
Net Sales Three Months Ended September 26, 2020 September 28, 2019 Change % Foodservice $ 5,036.4 $ 3,930.9$ 1,105.5 28.1 Vistar 2,006.3 2,311.1 (304.8 ) (13.2 ) Corporate & All Other 100.9 80.0 20.9 26.1 Intersegment Eliminations (96.8 ) (79.0 ) (17.8 ) (22.5 ) Total net sales $ 7,046.8 $ 6,243.0$ 803.8 12.9 EBITDA Three Months Ended September 26, 2020 September 28, 2019 Change % Foodservice $ 156.2 $ 104.0$ 52.2 50.2 Vistar 11.7 51.5 (39.8 ) (77.3 ) Corporate & All Other (49.0 ) (49.3 ) 0.3 0.6 Total EBITDA $ 118.9 $ 106.2$ 12.7 12.0 Segment Results-Foodservice
Three months ended
Net sales for Foodservice increased$1,105.5 million , or 28.1%, from the first three months of fiscal 2020 to the first three months of fiscal 2021. This increase in net sales was driven by the Reinhart acquisition, as well as an increase in selling price per case as a result of inflation. Reinhart contributed$1,457.5 million of net sales during the first three months of fiscal 2021. The Reinhart acquisition also expanded business with independent customers, resulting in independent case growth of approximately 28.0% in the first three months of fiscal 2021 compared to the prior year period. Excluding the impact of Reinhart, independent cases declined 6.3% in the first three months of fiscal 2021 compared to the first three months of fiscal 2020. The decline in independent cases in the first three months of fiscal 2021 was driven by the impact of COVID-19 on the restaurant industry. For the quarter, independent sales as a percentage of total Foodservice segment sales were 35.5%. 24 --------------------------------------------------------------------------------
EBITDA
EBITDA for Foodservice increased$52.2 million , or 50.2%, from the first three months of fiscal 2020 to the first three months of 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 33.1% in the first three months of fiscal 2021, compared to the prior year period, driven by the Reinhart acquisition which contributed an increase in gross profit of$197.9 million for the first three months of fiscal 2021. The increase was partially offset by the decline in case volume and net sales discussed above. For the first three months of fiscal 2021, Foodservice recorded$8.1 million of inventory write-offs primarily due to the impact of COVID-19, which is an increase of$2.8 million over the prior year period. Operating expenses excluding depreciation and amortization for Foodservice increased by$113.0 million , or 28.6%, from the first three months of fiscal 2020 to the first three months of fiscal 2021. Operating expenses increased primarily as a result of the acquisition of Reinhart which contributed$148.1 million of operating expenses for the first three months of fiscal 2021. In the first quarter of fiscal 2021, Foodservice recorded a benefit of$6.2 million related to reserves for expected credit losses compared to bad debt expense of$2.8 million for the first quarter of fiscal 2020. Operating expenses also decreased due to decreases in personnel and fuel expenses as compared to the prior year period. Depreciation and amortization of intangible assets recorded in this segment increased from$24.6 million in the first three months of fiscal 2020 to$61.8 million in the first three months of fiscal 2021. Depreciation of fixed assets and amortization of intangible assets increased as a result of the acquisition of Reinhart. Total depreciation and amortization related to the acquisition of Reinhart was$35.7 million for the first three months of fiscal 2021. Segment Results-Vistar
Three months ended
Net sales for Vistar declined$304.8 million , or 13.2%, from the first three months of fiscal 2020 to the first three months of fiscal 2021. Net sales for the first three months of fiscal 2021 includes$305.3 million related to tobacco excise taxes, as compared to$291.7 million for the prior year period. The decrease in net sales was driven primarily by the continued economic effects of the COVID-19 pandemic. Due to the various initiatives to slow the spread of COVID-19, there have been significant declines in the theater, office coffee service, office supply, hospitality, and travel channels for the first three months of fiscal 2021, which are likely to remain as long as social distancing guidelines remain in place. The declines in the theater channel are expected to remain significant, as many theaters have temporarily suspended operations due to the lack of releases of new films.
EBITDA
EBITDA for Vistar declined$39.8 million , or 77.3%, from the first three months of fiscal 2020 to the first three months of fiscal 2021. Gross profit declined$61.5 million , or 29.6%, for the first three months of fiscal 2021 compared to the first three months of fiscal 2020, driven by the effects of COVID-19 described above. Additionally, for the first three months of fiscal 2021, Vistar recorded$3.8 million of inventory write-offs primarily as a result of the current economic environment due to COVID-19, which is an increase of$2.8 million compared to the prior year period. Gross profit as a percentage of net sales declined from 9.0% for the first quarter of fiscal 2020 to 7.3% for the first quarter of fiscal 2021 as a result of growth in the convenience store channel, which has lower margins. The Company continues to have a risk for unreserved inventory related to our major theater customers within the Vistar segment. However, these customers' contracts include provisions whereby the customer reimburses the Company for any inventory losses. Operating expenses, excluding depreciation and amortization, decreased$21.3 million , or 13.7%, for the first three months of fiscal 2021 compared to the prior year period. Operating expenses decreased primarily as a result of decreased sales volume described above, decreases in personnel and fuel expense, and a reduction in contingent consideration accretion expense of$3.2 million as compared to the first three months of fiscal 2020. In the first quarter of fiscal 2021, Vistar recorded a total of$3.5 million of bad debt expense related to expected credit losses for customer receivables primarily due to the impact of COVID-19, which represents an increase of$2.7 million compared to the first quarter of fiscal 2020.
Depreciation and amortization of intangible assets recorded in this segment
increased from
25
--------------------------------------------------------------------------------Segment Results-Corporate & All Other
Three months ended
Net sales for Corporate & All Other increased$20.9 million from the first three months of fiscal 2020 to the first three months of fiscal 2021. The increase was primarily attributable to an increase in logistics services provided to our other segments.
EBITDA
EBITDA for Corporate & All Other was a negative$49.0 million for the first three months of fiscal 2021 compared to a negative$49.3 million for the first three months of fiscal 2020. The increase in EBITDA was primarily driven by a decline in professional fees and outside services of$6.1 million and a decline in travel expenses, partially offset by the additional corporate operating expenses associated with the acquisition of Reinhart.
Depreciation and amortization of intangible assets recorded in this segment
increased from
Liquidity and Capital Resources
We have historically financed our operations and growth primarily with cash
flows from operations, borrowings under our credit facility, operating and
finance leases, and normal trade credit terms. We have typically funded our
acquisitions with additional borrowings under our credit facility. Our working
capital and borrowing levels are subject to seasonal fluctuations, typically
with the lowest borrowing levels in the third and fourth fiscal quarters and the
highest borrowing levels occurring in the first and second fiscal quarters. We
borrow under our credit facility or pay it down regularly based on our cash
flows from operating and investing activities. Our practice is to minimize
interest expense while maintaining reasonable liquidity.
As market conditions warrant, we may from time to time seek to repurchase our
securities or loans in privately negotiated or open market transactions, by
tender offer or otherwise. Any such repurchases may be funded by incurring new
debt, including additional borrowings under our credit facility. In addition,
depending on conditions in the credit and capital markets and other factors, we
will, from time to time, consider other financing transactions, the proceeds of
which could be used to refinance our indebtedness, make investments or
acquisitions or for other purposes. Any new debt may be secured debt. For
example, in response to the impact of COVID-19 in fiscal 2020, the Company
strengthened its liquidity by borrowing $400.0 million on the revolving line of
credit under our ABL Facility, entering into the First Amendment to the ABL
Facility to provide the $110.0 million Additional Junior Term Loan, issuing and
selling shares of common stock for net proceeds of $337.5 million , and issuing
and selling $275.0 million aggregate principal of the Notes due 2025 (all
defined below in "-Financing Activities").
COVID-19
The unprecedented impact of COVID-19 has grown throughout the world, including
in the United States , and governmental authorities and businesses have
implemented numerous measures attempting to contain and mitigate the effects of
the virus, including social distancing requirements. These measures have
adversely affected and may further adversely affect the Company's operations and
the operations of its customers and suppliers. In markets where governments have
imposed restrictions on travel outside of the home, or where customers are
practicing social distancing, many of our customers, including restaurants,
schools, hotels, movie theaters, and business and industry locations, have
reduced or discontinued operations, which has and is expected to continue to
adversely affect demand in the foodservice industry, including demand for our
products and services.
We believe that our cash flows from operations and available borrowing capacity
will be sufficient both to meet our anticipated cash requirements over at least
the next 12 months and to maintain sufficient liquidity for normal operating
purposes.
As of September 26, 2020 , our cash balance totaled $428.3 million , including
restricted cash of $11.1 million , as compared to a cash balance totaling $431.8
million , including restricted cash of $11.1 million , at June 27, 2020 .
Three months ended
Operating Activities
During the first three months of fiscal 2021 and first three months of fiscal 2020, our operating activities used cash flow of$132.0 million and provided cash flow of$84.2 million , respectively. The decrease in cash flows provided by operating activities in the first three months of fiscal 2021 compared to the first three months of fiscal 2020 was largely driven by the payment of$117.3 million of contingent consideration related to the acquisition ofEby-Brown Company LLC and investments in working capital. 26 --------------------------------------------------------------------------------
Investing Activities
Cash used in investing activities totaled$34.7 million in the first three months of fiscal 2021 compared to$22.5 million in the first three months of fiscal 2020. These investments consisted primarily of capital purchases of property, plant, and equipment of$40.8 million and$22.8 million for the first three months of fiscal 2021 and the first three months of fiscal 2020, respectively. For the first three months of fiscal 2021, purchases of property, plant, and equipment primarily consisted of outlays for information technology, warehouse equipment, warehouse expansions and improvements, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment: Three months ended (Dollars in millions) September 26, 2020 September 28, 2019 Foodservice $ 7.1 $ 8.2 Vistar 29.9 8.7 Corporate & All Other 3.8 5.9 Total capital purchases of property, plant and equipment $ 40.8 $ 22.8
As of
Financing Activities
During the first three months of fiscal 2021, our financing activities provided cash flow of$163.2 million , which consisted primarily of$301.0 million in net borrowings under our ABL facility, partially offset by$135.6 million in payments related to recent acquisitions. During the first three months of fiscal 2020, our financing activities provided cash flow of$1,000.3 million , which consisted primarily of$1,060.0 million in cash received from the issuance and sale of the Notes due 2027, partially offset by$49.0 million in net payments under our ABL facility.
The following describes our financing arrangements as of
ABL Facility:PFGC, Inc. ("PFGC"), a wholly-owned subsidiary of the Company, is a party to the Fourth Amended and Restated Credit Agreement datedDecember 30, 2019 ( as amended by the First Amendment to Fourth Amended and Restated Credit Agreement dated as ofApril 29, 2020 and the Second Amendment to Fourth Amended and Restated Credit Agreement dated as ofMay 15, 2020 , the "ABL Facility"). The ABL Facility has an aggregate principal amount of$3.11 billion matures onDecember 30, 2024 , of which$110.0 million is a 364-day maturity loan that is junior to the other obligations owed under the ABL Facility ("Additional Junior Term Loan"). The Second Amendment to the ABL Facility entered into onMay 15, 2020 temporarily expands the definition of accounts receivable and is effective only until delivery of the first Borrowing Base Certificate afterNovember 30, 2020 . 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 captive insurance subsidiaries and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders. Borrowings under the ABL Facility bear interest, 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. Borrowings under the Additional Junior Term Loan bear interest at LIBOR plus 5.0% per annum with respect to any loan which is a LIBOR loan and Prime plus 4.0% per annum with respect to any loan which is a base rate loan.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the ABL Facility:
(Dollars in millions) As of September
26, 2020 As of June 27, 2020
Aggregate borrowings $ 1,011.0 $ 710.0
Letters of credit under ABL Facility 166.0 139.6
Excess availability, net of lenders' reserves 1,536.6 1,712.2
of $63.5 and $64.9
Average interest rate 2.32 % 2.85 %
27
-------------------------------------------------------------------------------- The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i)$200.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on PFGC's ability to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under such agreement may be accelerated and the rights and remedies of the lenders under the ABL Facility may be exercised, including rights with respect to the collateral securing the obligations under such agreement. Senior Notes due 2024: OnMay 17, 2016 ,Performance Food Group, Inc. issued and sold$350.0 million aggregate principal amount of its 5.500% Notes due 2024, pursuant to an indenture dated as ofMay 17, 2016 . The Notes due 2024 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2024 are not guaranteed byPerformance Food Group Company . The proceeds from the Notes due 2024 were used to pay in full the remaining outstanding aggregate principal amount of the loans under the Company's term loan facility and to terminate the facility; to temporarily repay a portion of the outstanding borrowings under the ABL Facility; and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2024. The Notes due 2024 were issued at 100.0% of their par value. The Notes due 2024 mature onJune 1, 2024 and bear interest at a rate of 5.500% per year, payable semi-annually in arrears. Upon the occurrence of a change of control triggering event or upon the sale of certain assets in whichPerformance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2024 will have the right to requirePerformance Food Group, Inc. to make an offer to repurchase each holder's Notes due 2024 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. PerformanceFood Group, Inc. currently may redeem all or part of the Notes due 2024 at a redemption price equal to 101.325% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100.000% of the principal amount redeemed onJune 1, 2021 . The indenture governing the Notes due 2024 contains covenants limiting, among other things, PFGC and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2024 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2024 to become or be declared due and payable. Senior Notes due 2027: OnSeptember 27, 2019 ,PFG Escrow Corporation (which merged with and intoPerformance Food Group, Inc. ) issued and sold$1,060.0 million aggregate principal amount of the Noted 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 byPerformance Food Group Company . The proceeds from the Notes due 2027, along with an offering of shares of the Company's common stock and borrowings under the ABL Facility, were used to fund the cash consideration for the Reinhart acquisition and to pay related fees and expenses.
The Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027
mature on
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 28 --------------------------------------------------------------------------------
proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest.
The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable. Senior Notes due 2025: OnApril 24, 2020 ,Performance Food Group, Inc. issued and sold$275.0 million aggregate principal amount of the Notes due 2025, pursuant to an indenture dated as ofApril 24, 2020 . The Notes due 2025 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2025 are not guaranteed byPerformance Food Group Company . The proceeds from the Notes due 2025 were used for working capital and general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2025. The Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025 mature 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, 2022 at a redemption price equal to 100% of the principal amount of the Notes due 2025 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning onMay 1, 2022 ,Performance Food Group, Inc. may redeem all or a part of the Notes due 2025 at a redemption price equal to 103.438% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.719% and 100% of the principal amount redeemed onMay 1, 2023 andMay 1, 2024 , respectively. In addition, at any time prior toMay 1, 2022 ,Performance Food Group, Inc. may redeem up to 40% of the Notes due 2025 from the proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest. The indenture governing the Notes due 2025 contains covenants limiting, among other things, PFGC's and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2025 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2025 to become or be declared due and payable. Letters of Credit Facility: OnAugust 9, 2018 ,Performance Food Group, Inc. and PFGC entered into a Continuing Agreement for Letters of Credit (the "Letters of Credit Facility"). The Letters of Credit Facility is an uncommitted facility that provides for the issuance of letters of credit in an aggregate amount not to exceed$40.0 million . Each letter of credit shall have a term not to exceed one year; however, a letter of credit may renew automatically in accordance with its terms. A fee equal to 2.5% per annum on the average daily amount available to be drawn on each day under each outstanding letter of credit is payable quarterly. As ofSeptember 26, 2020 , the Company has$28.3 million letters of credit outstanding under the Letters of Credit Facility.
As of
Contractual Obligations
Refer to the "Contractual Cash Obligations" section of the Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Form 10-K for details on our contractual obligations and commitments to make
specified contractual future cash payments as of June 27, 2020 .
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
Total Assets by SegmentTotal assets by segment discussed below exclude intercompany receivables between segments.
Total assets for Foodservice increased$2,154.3 million from$3,334.8 million as ofSeptember 28, 2019 to$5,489.1 million as ofSeptember 26, 2020 . During this time period, this segment increased its accounts property, plant and equipment, operating lease right-of-use assets, prepaid and other current assets, accounts receivable, inventory, goodwill, and intangible assets primarily due to the acquisition of Reinhart. Total assets for Foodservice decreased$40.0 million from$5,529.1 million as ofJune 27, 2020 to$5,489.1 million as ofSeptember 26, 2020 . During this time period, the segment decreased its inventory and intangible assets, partially offset by increases in accounts receivable and property, plant and equipment. Total assets for Vistar decreased$110.0 million from$1,542.8 million as ofSeptember 28, 2019 to$1,432.8 million as ofSeptember 26, 2020 . During this time period, this segment decreased its accounts receivable, inventory, and intangibles, partially offset by an increase in its property, plant and equipment and operating lease right-of-use assets. Total assets for Vistar increased$47.4 million from$1,385.4 million as ofJune 27, 2020 to$1,432.8 million as ofSeptember 26, 2020 . During this time period, the segment increased its property, plant and equipment, inventory, operating lease right-of-use assets, and accounts receivable. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, 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.
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