The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and the notes thereto included in the Form 10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the "Item 1A. Risk Factors" section of the Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read "Special Note Regarding Forward-Looking Statements" in this Form 10-Q. Our Company We market and distribute over 200,000 food and food-related products to customers acrossthe United States from over 100 distribution facilities to over 200,000 customer locations in the "food-away-from-home" industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally-branded products, and products bearing our customers' brands. Our product assortment ranges from "center-of-the-plate" items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes, and other tobacco products. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy. The Company has two reportable segments: Foodservice and Vistar. Our Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or "Performance Brands." Foodservice sells to independent and multi-unit "Chain" restaurants and other institutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, and other items nationally to vending, office coffee service, theater, retail, hospitality, convenience, and other channels. We believe that there are substantial synergies across our segments. Cross-segment synergies include procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources. Key Factors Affecting Our Business
We believe that our short-term performance has been, and is expected to continue to be, adversely affected by the COVID-19 pandemic.
In response to the rapid spread of COVID-19 across the country, federal, state, and local governments have implemented measures to reduce the spread of COVID-19, including travel bans and restrictions, quarantines, shelter in place orders, shutdowns, and social distancing requirements. These measures have adversely affected workforces, suppliers, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. As an essential element of the country's food supply chain, the Company has continued to operate all of it distribution centers. Despite the Company's continued operations, mandatory and voluntary containment measures in response to COVID-19 have had a significant impact on the food-away-from-home industry. Many restaurants have closed, are restricting the number of patrons they will serve at one time, or are only providing carry-out or delivery options. These restrictions have also impacted businesses throughout the economy, including theaters, retail operations, schools, and other businesses to whom we provide products and services, which collectively have adversely affected our results of operations. During the first nine months of fiscal 2021, we continued to experience the adverse impact of COVID-19 on our operations, including significant decreases in sales. Despite these difficulties, we have taken steps to ensure a strong financial position, including steps to maintain financial liquidity, forging new customer relationships, supporting restaurant customers with the transition to higher volumes of take-out and delivery, and other means. Even as governmental restrictions are eased and economies gradually, partially, or fully reopen in certain states and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior and spending in the channels we serve. The extent to which these changes will affect our future financial position, liquidity, and results of operations remains uncertain. 20 --------------------------------------------------------------------------------
Despite the near-term impact of the COVID-19 pandemic, we believe that our long-term performance is principally affected by the following key factors:
• Changing demographic and macroeconomic trends. Until recently due to the
COVID-19 pandemic the share of consumer spending captured by the
food-away-from-home industry has increased steadily for several decades.
The share increases in periods of increasing employment, rising disposable
income, increases in the number of restaurants, and favorable demographic
trends, such as smaller household sizes, an increasing number of dual income households, and an aging population base that spends more per capita at foodservice establishments. The foodservice distribution
industry is also sensitive to national and regional economic conditions,
such as changes in consumer spending, changes in consumer confidence, and
changes in the prices of certain goods.
• Food distribution market structure. The food distribution market consists
of a wide spectrum of companies ranging from businesses selling a single category of product (e.g., produce) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories. We believe our scale enables us to invest in our Performance Brands, to benefit from economies of scale in purchasing and procurement, and to drive supply chain efficiencies that
enhance our customers' satisfaction and profitability. We believe that the
relative growth of larger foodservice distributors will continue to outpace that of smaller, independent players in our industry.
• Our ability to successfully execute our segment strategies and implement
our initiatives. Our performance will continue to depend on our ability
to successfully execute our segment strategies and to implement our
current and future initiatives. The key strategies include focusing on
independent sales and Performance Brands, pursuing new customers for both
of our reportable segments, expansion of geographies, utilizing our
infrastructure to gain further operating and purchasing efficiencies, and
making strategic acquisitions. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management are discussed below. The percentages on the results presented below are calculated based on rounded numbers.Net Sales Net sales is equal to gross sales, plus excise taxes, minus sales returns; sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products, and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
EBITDA and Adjusted EBITDA
Management measures operating performance based on our EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. EBITDA is not defined under accounting principles generally accepted 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 21 --------------------------------------------------------------------------------
making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the ABL Facility and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.
Adjusted EBITDA is not defined under GAAP and is subject to important limitations. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, including our lenders under the ABL Facility and holders of our Notes due 2024, Notes due 2025 and Notes due 2027, in their evaluation of the operating performance of companies in industries similar to ours. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management's performance for purposes of determining their compensation under our incentive plans. EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
• exclude certain tax payments that may represent a reduction in cash
available to us;
• do not reflect any cash capital expenditure requirements for the assets
being depreciated and amortized that may have to be replaced in the future;
• do not reflect changes in, or cash requirements for, our working capital
needs; and
• do not reflect the significant interest expense, or the cash requirements,
necessary to service our debt.
In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:
• does not include non-cash stock-based employee compensation expense and
other non-cash charges; and
• does not include acquisition, restructuring, and other costs incurred to
realize future cost savings and enhance our operations.
We have included the calculations of EBITDA and Adjusted EBITDA for the periods presented.
Results of Operations, EBITDA, and Adjusted EBITDA The following table sets forth a summary of our results of operations, EBITDA, and Adjusted EBITDA for the periods indicated (in millions, except per share data): Three Months Ended March 27, 2021 March 28, 2020 Change % Net sales$ 7,202.5 $ 7,000.7 $ 201.8 2.9 Cost of goods sold 6,369.8 6,193.2 176.6 2.9 Gross profit 832.7 807.5 25.2 3.1 Operating expenses 809.3 824.9 (15.6 ) (1.9 ) Operating profit (loss) 23.4 (17.4 ) 40.8 (234.5 ) Other expense, net Interest expense 37.1 35.2 1.9 5.4 Other, net (1.6 ) 7.9 (9.5 ) NM Other expense, net 35.5 43.1 (7.6 ) (17.6 ) Loss before income taxes (12.1 ) (60.5 ) 48.4 (80.0 ) Income tax benefit (4.5 ) (20.3 ) 15.8 (77.8 ) Net loss $ (7.6 ) $ (40.2 )$ 32.6 (81.1 ) EBITDA $ 105.8 $ 74.0$ 31.8 43.0 Adjusted EBITDA $ 121.2 $ 131.1$ (9.9 ) (7.6 ) Weighted-average common shares outstanding: Basic 132.3 115.9 16.4 14.2 Diluted 132.3 115.9 16.4 14.2 Loss per common share: Basic $ (0.06 ) $ (0.35 )$ 0.29 (82.9 ) Diluted $ (0.06 ) $ (0.35 )$ 0.29 (82.9 ) 22
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Nine Months Ended March 27, 2021 March 28, 2020 Change % Net sales$ 21,094.5 $ 19,312.3 $ 1,782.2 9.2 Cost of goods sold 18,635.2 17,082.2 1,553.0 9.1 Gross profit 2,459.3 2,230.1 229.2 10.3 Operating expenses 2,339.2 2,103.5 235.7 11.2 Operating profit 120.1 126.6 (6.5 ) (5.1 ) Other expense, net Interest expense 114.0 78.9 35.1 44.5 Other, net (4.7 ) 7.7 (12.4 ) NM Other expense, net 109.3 86.6 22.7 26.2 Income before income taxes 10.8 40.0 (29.2 ) (73.0 ) Income tax expense 1.5 2.9 (1.4 ) (48.3 ) Net income $ 9.3 $ 37.1$ (27.8 ) (74.9 ) EBITDA $ 371.9 $ 304.7$ 67.2 22.1 Adjusted EBITDA $ 414.4 $ 401.7$ 12.7 3.2 Weighted-average common shares outstanding: Basic 132.0 108.1 23.9 22.1 Diluted 133.2 109.5 23.7 21.6 Earnings per common share: Basic $ 0.07 $ 0.34$ (0.27 ) (79.4 ) Diluted $ 0.07 $ 0.34$ (0.27 ) (79.4 ) We believe that the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net income. The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented: Three Months Ended Nine Months Ended March 27, 2021 March 28, 2020 March 27, 2021 March 28, 2020 (In millions) (In millions) Net (loss) income $ (7.6 ) $ (40.2 ) $ 9.3 $ 37.1 Interest expense 37.1 35.2 114.0 78.9 Income tax (benefit) expense (4.5 ) (20.3 ) 1.5 2.9 Depreciation 50.7 49.3 158.4 118.3 Amortization of intangible assets 30.1 50.0 88.7 67.5 EBITDA 105.8 74.0 371.9 304.7 Non-cash items (1) 13.0 6.1 31.1 18.8 Acquisition, integration and reorganization (2) 3.6 36.9 13.0 60.7 Productivity initiatives and other adjustment items (3) (1.2 ) 14.1 (1.6 ) 17.5 Adjusted EBITDA $ 121.2 $ 131.1 $ 414.4 $ 401.7
(1) Includes adjustments for non-cash charges arising from stock-based
compensation and gain/loss on disposal of assets. Stock-based compensation
expense was
2021 and fiscal 2020, respectively, and
the first nine months of fiscal 2021 and fiscal 2020, respectively. In
addition, this includes a decrease in the last-in-first-out ("LIFO") reserve
of
for the third quarter of fiscal 2021 compared to a decrease of
for Foodservice and an increase
of fiscal 2020. The LIFO reserve increased
increases of
first nine months fiscal 2020.
(2) Includes professional fees and other costs related to acquisitions, costs of
integrating certain of our facilities, and facility closing costs.
(3) Consists primarily of amounts related to fuel collar derivatives, certain
financing transactions, lease amendments, legal settlements and franchise tax
expense, and other adjustments permitted by our ABL Facility and indentures.
Fiscal 2020 also includes
certain productivity initiatives the Company no longer pursued as a result of the Reinhart acquisition. 23
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Consolidated Results of Operations
Three and nine months ended
Net Sales Net sales growth is a function of case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased$201.8 million , or 2.9%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and increased$1,782.2 million , or 9.2%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. The increase in net sales for the third quarter of fiscal 2021 was driven by an increase in selling price per case as a result of inflation and mix. The increase in net sales for the first nine months of fiscal 2021 was primarily attributable to the acquisition of Reinhart, which contributed$4,195.2 million of net sales during the first nine months of fiscal 2021, compared to$1,355.1 million for the first nine months of fiscal 2020. Case volume decreased 4.2% in the third quarter of fiscal 2021 and increased 3.9% in the first nine months of fiscal 2021, compared to the same periods of fiscal 2020. Excluding the impact of the Reinhart acquisition, case volume declined 13.4% in the first nine months of fiscal 2021 compared to the same period of fiscal 2020 due primarily to the effects of COVID-19.
Gross Profit
Gross profit increased$25.2 million , or 3.1%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 as a result of an increase in the gross profit per case driven by case growth in Foodservice, particularly in the independent channel. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers. Gross profit increased$229.2 million , or 10.3%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 driven by the acquisition of Reinhart, which contributed an increase in gross profit of$399.3 million for the first nine months of fiscal 2021, compared to the prior year period. Gross profit was negatively impacted by a decline in organic case volume driven by the effects of COVID-19 described above. Additionally, for the third quarter and first nine months of fiscal 2021, the Company recorded a total of$8.9 million and$27.8 million of inventory write-offs, respectively, compared to$14.4 million and$25.7 million for the third quarter and first nine months of fiscal 2020, respectively. The year-to-date increase was primarily a result of the current economic environment due to COVID-19, with the third quarter of fiscal 2021 decrease resulting from recent improvements in economic conditions. Gross profit as a percentage of net sales was 11.6% for the third quarter of fiscal 2021 compared to 11.5% for the third quarter of fiscal 2020, and 11.7% for the first nine months of fiscal 2021 compared to 11.5% for the first nine months of fiscal 2020. Operating Expenses Operating expenses decreased$15.6 million , or 1.9%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and increased$235.7 million , or 11.2%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. The increase in operating expenses for the first nine months of fiscal 2021 was primarily driven by the acquisition of Reinhart. Reinhart contributed an additional$292.6 million of operating expenses, excluding depreciation and amortization, for the first nine months of fiscal 2021. For both the third quarter and first nine months of fiscal 2021, excluding the impact of the additional Reinhart operating expenses, the Company decreased its operating expenses related to personnel expenses, fuel expense, insurance expense, travel expenses, professional fees, and contingent consideration accretion expense compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, the Company recorded benefits of$6.0 million and$9.4 million , respectively, related to reserves for expected credit losses as compared to bad debt expense of$21.3 million and$29.8 million for the third quarter and first nine months of fiscal 2020, respectively. These decreases in operating expenses were partially offset by increases in annual bonus expense. In the third quarter and first nine months of fiscal 2021, the Company recorded expense of$29.6 million and$78.0 million , respectively, related to annual bonus expense as compared to a benefit of$32.4 million and expense of$6.1 million for the third quarter and first nine months of fiscal 2020, respectively. Depreciation and amortization of intangible assets decreased from$99.3 million in the third quarter of fiscal 2020 to$80.8 million in the third quarter of fiscal 2021. The decrease was primarily driven by accelerated amortization of customer relationships and trade names related to Reinhart recorded in the prior year. Depreciation and amortization of intangible assets increased from$185.8 million for the first nine months of fiscal 2020 to$247.1 million in the first nine months of fiscal 2021 as a result of the Reinhart acquisition.
Net (Loss) Income
Net loss decreased
Net income decreased
24 -------------------------------------------------------------------------------- operating expenses discussed above, and an increase in interest expense. The increase in interest expense was primarily the result of an increase in average borrowings outstanding during fiscal 2021 compared to the prior year period. The Company reported an income tax benefit of$4.5 million and income tax expense of$1.5 million for the third quarter and first nine months of fiscal 2021, respectively, compared to an income tax benefit of$20.3 million and income tax expense of$2.9 million for the third quarter and first nine months of fiscal 2020, respectively. Our effective tax rates for the third quarter and first nine months of fiscal 2021 were 37.1% and 14.2%, respectively, compared to 33.6% and 7.3% for the three and nine months endedMarch 28, 2020 , respectively. The effective tax rates for the third quarter and first nine months of fiscal 2021 increased from the prior year periods primarily due to the increase of state taxes and non-deductible expenses as a percentage of book income. Book income for the nine months endedMarch 27, 2021 was significantly lower than the book income for the nine months endedMarch 28, 2020 .
Segment Results
We have two reportable segments as described above - Foodservice and Vistar. Management evaluates the performance of these segments based various operating and financial metrics, including their respective sales growth and EBITDA. Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.
The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
Net Sales Three Months Ended March 27, 2021 March 28, 2020 Change % Foodservice$ 5,186.5 $ 4,949.9 $ 236.6 4.8 Vistar 2,012.3 2,049.2 (36.9 ) (1.8 ) Corporate & All Other 96.9 107.1 (10.2 ) (9.5 ) Intersegment Eliminations (93.2 ) (105.5 ) 12.3 11.7 Total net sales$ 7,202.5 $ 7,000.7 $ 201.8 2.9 Nine Months Ended March 27, 2021 March 28, 2020 Change % Foodservice$ 15,110.3 $ 12,728.2 $ 2,382.1 18.7 Vistar 5,973.4 6,579.5 (606.1 ) (9.2 ) Corporate & All Other 293.2 265.7 27.5 10.4 Intersegment Eliminations (282.4 ) (261.1 ) (21.3 ) (8.2 ) Total net sales$ 21,094.5 $ 19,312.3 $ 1,782.2 9.2 EBITDA Three Months Ended March 27, 2021 March 28, 2020 Change % Foodservice $ 138.3 $ 91.7$ 46.6 50.8 Vistar 16.8 40.7 (23.9 ) (58.7 ) Corporate & All Other (49.3 ) (58.4 ) 9.1 15.6 Total EBITDA $ 105.8 $ 74.0$ 31.8 43.0 Nine Months Ended March 27, 2021 March 28, 2020 Change % Foodservice $ 449.8 $ 309.3$ 140.5 45.4 Vistar 67.2 148.8 (81.6 ) (54.8 ) Corporate & All Other (145.1 ) (153.4 ) 8.3 5.4 Total EBITDA $ 371.9 $ 304.7$ 67.2 22.1 Segment Results-Foodservice 25
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Three and nine months ended
Net Sales Net sales for Foodservice increased$236.6 million , or 4.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased$2,382.1 million , or 18.7%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. The increase in net sales for the third quarter of fiscal 2021 was driven by growth in cases sold as certain states began to ease COVID-19 restrictions, as well as an increase in selling price per case as a result of inflation. Securing new and expanded business with independent customers resulted in independent case growth of approximately 6.3% in the third quarter of fiscal 2021 compared to the prior year period. For the quarter, independent sales as a percentage of total Foodservice segment sales were 33.9%. The increase in net sales for the first nine months of fiscal 2021 was driven by the Reinhart acquisition, as well as an increase in selling price per case as a result of inflation. Reinhart contributed$4,195.2 million of net sales during the first nine months of fiscal 2021, compared to$1,355.1 million for the first nine months of fiscal 2020. The Reinhart acquisition also expanded business with independent customers, resulting in independent case growth of approximately 19.4% for the first nine months of fiscal 2021, compared to the prior year period. Excluding the impact of Reinhart, independent cases declined 1.5% in the first nine months of fiscal 2021, compared to the prior year period. The year-to-date decline in independent cases was driven by the impact of COVID-19 on the restaurant industry. EBITDA EBITDA for Foodservice increased$46.6 million , or 50.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased$140.5 million , or 45.4%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased 8.0% in the third quarter of fiscal 2021, compared to the prior year period, as a result of an increase in the gross profit per case, as well as an increase in cases sold. Gross profit increased 22.4% in the first nine months of fiscal 2021, compared to the prior year period, driven by the Reinhart acquisition, which contributed an increase in gross profit of$399.3 million for the first nine months of fiscal 2021, as well as an increase in gross profit per case, compared to the prior year period. The increases in gross profit per case were driven by a favorable shift in the mix of cases sold, including more Performance Brands products sold to our independent customers. Cases sold to independent businesses result in higher gross margins within this segment. Operating expenses excluding depreciation and amortization for Foodservice increased by$2.7 million , or 0.5%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and increased by$219.9 million , or 16.9%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Operating expenses increased for the first nine months of fiscal 2021 primarily as a result of the acquisition of Reinhart, which contributed an additional$280.1 million of operating expenses for the first nine months of fiscal 2021. Excluding the impact of the additional Reinhart operating expenses, operating expense increased as a result of increases in bonus expense for the third quarter and first nine months of fiscal 2021, partially offset by reduced personnel expenses as compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, Foodservice recorded expenses of$15.2 million and$39.5 million , respectively, related to annual bonus expense as compared to a benefit of$19.3 million for the third quarter and no annual bonus expense for the first nine months of fiscal 2020. Operating expenses also experienced decreases in fuel expenses of$2.0 million and$15.0 million and decreases in insurance expense of$5.0 million and$12.9 million during the third quarter and first nine months of fiscal 2021, respectively, compared to the prior year periods. In the third quarter and first nine months of fiscal 2021, Foodservice recorded benefits of$5.5 million and$13.5 million , respectively, related to reserves for expected credit losses as compared to bad debt expense of$15.9 million and$22.0 million for the third quarter and first nine months of fiscal 2020. Depreciation and amortization of intangible assets recorded in this segment decreased from$79.9 million in the third quarter of fiscal 2020 to$57.9 million in the third quarter of fiscal 2021 as a result of accelerated amortization of customer relationships and trade names related to Reinhart recorded in the prior fiscal year. Depreciation and amortization of intangible assets recorded in this segment increased from$130.3 million in the first nine months of fiscal 2020 to$182.4 million in the first nine months of fiscal 2021 as a result of the acquisition of Reinhart. Total depreciation and amortization related to the acquisition of Reinhart increased$51.9 million for the nine months endedMarch 27, 2021 , compared to prior year period.
Segment Results-Vistar
Three and nine months ended
Net Sales Net sales for Vistar declined$36.9 million , or 1.8%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and declined$606.1 million , or 9.2%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Net sales for the third quarter and first nine months of fiscal 2021 includes$276.9 million and$863.6 million , respectively, related to tobacco excise taxes, as compared to$256.9 million and$815.9 million for the prior year periods. The decrease in net sales was driven primarily by the continued economic effects of the COVID-19 pandemic. Due to the various initiatives to slow the spread of COVID-19, there have been significant declines in the theater, vending, office coffee service, office supply, hospitality, and travel channels for the first nine months of fiscal 2021, which are likely to continue as long as social distancing guidelines remain in place. The declines in the theater, travel, hospitality, office coffee service, office supply, and vending channels are expected to gradually improve, as certain states have begun to ease restrictions allowing many locations to resume operations in the fourth quarter of fiscal 2021. 26
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EBITDA EBITDA for Vistar declined$23.9 million , or 58.7%, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 and declined$81.6 million , or 54.8%, from the first nine months of fiscal 2020 to the first nine months of fiscal 2021. Gross profit declined$25.5 million , or 13.9%, for the third quarter fiscal 2021 and$132.3 million , or 21.9%, for the first nine months of fiscal 2021 compared to the respective prior year periods, driven by the effects of COVID-19 described above. Additionally, for the third quarter of fiscal 2021, Vistar recorded$1.7 million of inventory write-offs, a decrease of$1.8 million compared to the prior year period. For the first nine months of fiscal 2021, Vistar recorded$7.7 million of inventory write-offs, an increase of$3.2 million compared to the prior year period. The year-to-date increase was primarily a result of the current economic environment due to COVID-19, with the third quarter of fiscal 2021 decrease resulting from recent improvements in economic conditions. Gross profit as a percentage of net sales declined from 9.0% for the third quarter of fiscal 2020 to 7.8% for the third quarter of fiscal 2021 and from 9.2% for the first nine months of fiscal 2020 to 7.9% the first nine months of fiscal 2021 as a result of the continued growth in the convenience store channel, which has lower margins. The Company continues to have a risk for unreserved inventory related to our major theater customers within the Vistar segment. However, these customers continue to operate under contracts that include provisions whereby the customer reimburses the Company for inventory losses. Additionally, many theaters plan to resume operations in the fourth quarter of fiscal 2021, which would further reduce this risk. Operating expenses, excluding depreciation and amortization, decreased$1.4 million , or 1.0%, for the third quarter of fiscal 2021 and$50.4 million , or 11.1%, for the first nine months of fiscal 2021 compared to the prior year periods. Operating expenses decreased primarily as a result of decreased sales volume described above, decreases in personnel and fuel expenses, and a reduction in contingent consideration accretion expenses of$2.0 million and$10.0 million for the third quarter and first nine months of fiscal 2021, respectively, as compared to prior year periods. Additionally, for the third quarter and first nine months of fiscal 2021, Vistar recorded a benefit of$0.5 million and expense of$4.1 million , respectively, related to reserves for expected credit losses for customer receivables. These reserves represent declines in bad debt expense of$5.9 million and$3.7 million compared to the third quarter and the first nine months of fiscal 2020, respectively. These declines were partially offset by increases in annual bonus expense for the third quarter and first nine months of fiscal 2021, as compared to prior year periods. In the third quarter and first nine months of fiscal 2021, Vistar recorded expenses of$6.7 million and$17.7 million , respectively, related to annual bonus expense as compared to a benefit of$6.7 million and expense of$3.8 million for the third quarter and first nine months of fiscal 2020, respectively. Depreciation and amortization of intangible assets recorded in this segment increased from$13.1 million in the third quarter of fiscal 2020 to$16.6 million in the third quarter of fiscal 2021 and increased from$36.2 million in the first nine months of fiscal 2020 to$42.6 million in the first nine months of fiscal 2021.
Segment Results-Corporate & All Other
Three and nine months ended
Net sales for Corporate & All Other decreased$10.2 million from the third quarter of fiscal 2020 to the third quarter of fiscal 2021 due to a decrease in logistic services to our other segments resulting from decreased case volume. Net sales for Corporate & All Other increased$27.5 million from the first nine months of fiscal 2020 to the first nine months of fiscal 2021 as a result of an increase in logistics services provided to our other segments for increased case volume due to the acquisition of Reinhart.
EBITDA
EBITDA for Corporate & All Other was a negative$49.3 million for the third quarter of fiscal 2021 compared to a negative$58.4 million for the third quarter of fiscal 2020 and was a negative$145.1 million for the first nine months of fiscal 2021 compared to a negative$153.4 million for the first nine months of fiscal 2020. The improvements in EBITDA were primarily driven by declines in professional fees of$17.9 million for the third quarter of fiscal 2021 and$24.6 million for the first nine months of fiscal 2021 compared to the respective prior year periods, as well as declines in travel expenses. These declines were partially offset by the increases in annual bonus expense. Annual bonus expense of$7.7 million and$20.8 million was recorded in the third quarter and first nine months of fiscal 2021, respectively, as compared to a benefit of$6.4 million and expense of$2.3 million for the third quarter and first nine months of fiscal 2020, respectively. Operating expenses also increased as a result of increases in insurance expense for the third quarter and first nine months of fiscal 2021. Additionally, the increase in operating expenses for the first nine months of fiscal 2021 was driven by the additional corporate expenses associated with the acquisition of Reinhart, as compared to the prior year periods. 27 -------------------------------------------------------------------------------- Depreciation and amortization of intangible assets recorded in this segment remained flat at$6.3 million for both the third quarter of fiscal 2021 and the third quarter of fiscal 2020 and increased from$19.3 million in the first nine months of fiscal 2020 to$22.1 million in the first nine months of fiscal 2021 as a result of information technology acquired in the Reinhart transaction. Liquidity and Capital Resources We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility. Our working capital and borrowing levels are subject to seasonal fluctuations, typically with the lowest borrowing levels in the third and fourth fiscal quarters and the highest borrowing levels occurring in the first and second fiscal quarters. We borrow under our credit facility or pay it down regularly based on our cash flows from operating and investing activities. Our practice is to minimize interest expense while maintaining reasonable liquidity. As market conditions warrant, we may from time to time seek to repurchase our securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under our credit facility. In addition, depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness, make investments or acquisitions or for other purposes. Any new debt may be secured debt. For example, in response to the impact of COVID-19 in fiscal 2020, the Company strengthened its liquidity by borrowing$400.0 million on the revolving line of credit under our ABL Facility, entering into the First Amendment to the ABL Facility to provide the$110.0 million Additional Junior Term Loan, which was paid off early and in full onFebruary 5, 2021 , issuing and selling shares of common stock for net proceeds of$337.5 million , and issuing and selling$275.0 million aggregate principal of the Notes due 2025 (all defined below in "-Financing Activities"). COVID-19 In markets where governments have imposed restrictions on travel outside of the home, or where customers are practicing social distancing, many of our customers, including restaurants, schools, hotels, movie theaters, and business and industry locations, have reduced or discontinued operations, which has adversely affected demand for our products and services. Even as governmental restrictions are eased and economies gradually, partially, or fully reopen in certain states and markets, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior and spending in the channels we serve. The extent to which these changes will affect our future financial position, liquidity, and results of operations remains uncertain. We believe that our cash flows from operations and available borrowing capacity will be sufficient both to meet our anticipated cash requirements over at least the next 12 months and to maintain sufficient liquidity for normal operating purposes. As ofMarch 27, 2021 , our cash balance totaled$112.6 million , including restricted cash of$11.1 million , as compared to a cash balance totaling$431.8 million , including restricted cash of$11.1 million , as ofJune 27, 2020 . The$319.2 million decrease in cash is primarily due to the early pay off, in full, of the$110.0 million Additional Junior Term Loan and payments under our ABL Facility.
Nine months ended
Operating Activities During the first nine months of fiscal 2021 and fiscal 2020, our operating activities provided cash flow of$173.1 million and$17.6 million , respectively. The increase in cash flow provided by operating activities in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was largely driven by improvements in working capital and income tax refunds of$117.8 million received during the first nine months of fiscal 2021, partially offset by the payment of$117.3 million of contingent consideration related to the acquisition ofEby-Brown . Investing Activities Cash used in investing activities totaled$130.4 million in the first nine months of fiscal 2021 compared to$2,089.3 million in the first nine months of fiscal 2020. These investments consisted primarily of payments for business acquisitions of$18.1 million and$1,989.0 million for the first nine months of fiscal 2021 and the first nine months of fiscal 2020, respectively, along with capital purchases of property, plant, and equipment of$118.9 million and$101.1 million for the first nine months of fiscal 2021 and the first nine months of fiscal 2020, respectively. For the first nine months of fiscal 2021, purchases of property, plant, and equipment primarily consisted of outlays for information technology, warehouse equipment, warehouse expansions and improvements, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment: 28 --------------------------------------------------------------------------------
Nine Months Ended (Dollars in millions) March 27, 2021 March 28, 2020 Foodservice $ 49.9 $ 37.8 Vistar 64.2 44.7 Corporate & All Other 4.8 18.6
Total capital purchases of property, plant and equipment $ 118.9
$ 101.1
As of
Financing Activities
During the first nine months of fiscal 2021, our financing activities used cash flow of$361.9 million , which consisted primarily of$103.8 million in net payments under our ABL Facility,$136.4 million in payments related to recent acquisitions,$110.0 million in repayment of the Additional Junior Term Loan, and$27.3 million in payments of finance lease obligations. During the first nine months of fiscal 2020, our financing activities provided cash flow of$2,429.5 million , which consisted primarily of$1,060.0 million in cash received from the issuance and sale of the Notes due 2027,$950.4 million in net borrowings under our ABL facility, and$490.6 million in net proceeds from the issuance of common stock. These sources of cash were partially offset by$37.5 million paid for debt issuance costs associated with the Notes due 2027 and borrowings under the ABL Facility and$16.9 million in payments of finance lease obligations.
The following describes our financing arrangements as of
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$3.0 billion , which matures onDecember 30, 2024 . The incremental$110 million , 364-day maturity loan that is junior to the other obligations owed under the ABL Facility ("Additional Junior Term Loan") was paid off early and in full onFebruary 5, 2021 .Performance Food Group, Inc. , a wholly-owned subsidiary of PFGC, is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders. Borrowings under the ABL Facility bear interest, 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, which was paid off early and in full onFebruary 5, 2021 , bore interest at LIBOR plus 5.0% per annum with respect to any loan which was a LIBOR loan and Prime plus 4.0% per annum with respect to any loan which was a base rate loan.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the ABL Facility:
(Dollars in millions) As of March 27, 2021 As of June 27, 2020 Aggregate borrowings $ 496.2 $ 710.0 Letters of credit under ABL Facility 161.8 139.6 Excess availability, net of lenders' reserves 2,003.1 1,712.2 of$56.0 and$64.9 Average interest rate 1.56 % 2.85 % The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i)$200.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on PFGC's ability to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under such agreement may 29 -------------------------------------------------------------------------------- be accelerated and the rights and remedies of the lenders under the ABL Facility may be exercised, including rights with respect to the collateral securing the obligations under such agreement. Senior Notes due 2024: 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 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 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 proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest. The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC and its restricted subsidiaries' ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC's restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted 30 -------------------------------------------------------------------------------- subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable. Senior Notes due 2025: 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.
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 ofJune 27, 2020 . Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between segments.
Total assets for Foodservice decreased$245.5 million from$5,734.2 million as ofMarch 28, 2020 to$5,488.7 million as ofMarch 27, 2021 . During this time period, this segment decreased its inventory, intangible assets, operating lease right-of-use assets, and property, plant and equipment, partially offset by an increase in accounts receivable. Total assets for Foodservice decreased$40.4 million from$5,529.1 million as ofJune 27, 2020 to$5,488.7 million as ofMarch 27, 2021 . During this time period, the segment 31 -------------------------------------------------------------------------------- decreased its inventory, intangible assets, and operating lease right-of-use assets, partially offset by an increase in accounts receivable and property, plant and equipment. Total assets for Vistar increased$65.3 million from$1,524.0 million as ofMarch 28, 2020 to$1,589.3 million as ofMarch 27, 2021 . During this time period, this segment increased its property, plant and equipment and operating lease right-of-use assets, partially offset by decreases in inventory, accounts receivable, and intangible assets. Total assets for Vistar increased$203.9 million from$1,385.4 million as ofJune 27, 2020 to$1,589.3 million as ofMarch 27, 2021 . During this time period, the segment increased its property, plant and equipment, operating lease right-of-use assets, inventory, and accounts receivable. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, and acquisitions, goodwill and other intangible assets, which are described in the Form 10-K. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates described in the Form 10-K.
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