UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For the quarterly period ended
For the transition period from to ___________
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS employer identification number) |
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(Address of principal executive offices) |
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(Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position, our business outlook, business trends and other information, and integration of our acquisition of Cheney Bros., Inc. (the "Cheney Brothers Acquisition"), are forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 29, 2024 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), and are accessible on the SEC’s website at www.sec.gov, and also include the following:
3
We caution you that the risks, uncertainties, and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. We cannot assure you (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” or “PFG” as used in this Form 10-Q refer to Performance Food Group Company and its consolidated subsidiaries.
4
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share data) |
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As of |
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As of |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, less allowances of $ |
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Inventories, net |
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Income taxes receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Goodwill |
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Other intangible assets, net |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable and outstanding checks in excess of deposits |
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Accrued expenses and other current liabilities |
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Finance lease obligations—current installments |
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Operating lease obligations—current installments |
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Total current liabilities |
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Long-term debt |
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Deferred income tax liability, net |
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Finance lease obligations, excluding current installments |
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Operating lease obligations, excluding current installments |
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Other long-term liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Common Stock: $ |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) income, net of tax benefit (expense) of $ |
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Retained earnings |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
5
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data) |
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Three Months Ended |
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Three Months Ended |
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Net sales |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Operating profit |
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Other expense, net: |
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Interest expense |
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Other, net |
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Other expense, net |
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Income before taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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Earnings per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
6
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
($ in millions) |
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Three Months Ended |
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Three Months Ended |
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Net income |
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$ |
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$ |
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Other comprehensive loss, net of tax: |
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Interest rate swaps: |
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Change in fair value, net of tax |
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Reclassification adjustment, net of tax |
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Foreign currency translation adjustment, net of tax |
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Other comprehensive loss |
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Total comprehensive income |
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$ |
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$ |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
7
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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Additional |
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Accumulated |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shareholders’ |
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(In millions) |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Equity |
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Balance as of July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Interest rate swaps |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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( |
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— |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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( |
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— |
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— |
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( |
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Common stock repurchased |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Balance as of September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance as of June 29, 2024 |
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Net income |
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— |
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— |
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— |
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— |
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Interest rate swaps |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Issuance of common stock under stock-based compensation plans |
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— |
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( |
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— |
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— |
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( |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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— |
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Common stock repurchased |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Balance as of September 28, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
8
PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions) |
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Three Months Ended |
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Three Months Ended |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided |
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Depreciation |
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Amortization of intangible assets |
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Amortization of deferred financing costs |
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Provision for losses on accounts receivables |
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Change in LIFO reserve |
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Stock compensation expense |
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Deferred income tax benefit |
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( |
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Change in fair value of derivative assets and liabilities |
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( |
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Other non-cash activities |
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Changes in operating assets and liabilities, net |
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Accounts receivable |
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Inventories |
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( |
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( |
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Income taxes receivable |
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Prepaid expenses and other assets |
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( |
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Trade accounts payable and outstanding checks in excess of deposits |
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Accrued expenses and other liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Net cash paid for acquisitions |
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( |
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( |
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Proceeds from sale of property, plant and equipment and other |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Net (payments) borrowings under ABL Facility |
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( |
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Borrowing of Notes due 2032 |
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Cash paid for debt issuance, extinguishment and modifications |
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( |
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Payments under finance lease obligations |
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( |
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( |
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Proceeds from employee stock purchase plan |
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Proceeds from exercise of stock options |
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Cash paid for shares withheld to cover taxes |
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( |
) |
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( |
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Repurchases of common stock |
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( |
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( |
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Net cash provided by financing activities |
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Net increase (decrease) in cash and restricted cash |
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Cash and restricted cash, beginning of period |
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Cash and restricted cash, end of period |
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$ |
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$ |
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The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
(In millions) |
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As of September 28, 2024 |
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As of June 29, 2024 |
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Cash |
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$ |
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$ |
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Restricted cash(1) |
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Total cash and restricted cash |
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$ |
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$ |
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9
Supplemental disclosures of cash flow information are as follows:
(In millions) |
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Three Months Ended |
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Three Months Ended |
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Cash paid during the year for: |
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Interest |
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$ |
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$ |
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Income tax payments net of refunds |
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See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
10
PERFORMANCE FOOD GROUP COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Business Overview
Performance Food Group Company, through its subsidiaries, markets and distributes primarily national and Company-branded food and food-related products to customer locations across North America. The Company serves both of the major customer types in the restaurant industry: (i) independent customers, and (ii) multi-unit, or “Chain” customers, which include some of the most recognizable family and casual dining restaurant chains, as well as schools, business and industry locations, healthcare facilities, and retail establishments. The Company also specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, health and beauty care products and other items to vending distributors, big box retailers, theaters, convenience stores, drug stores, grocery stores, travel providers, and hospitality providers.
Share Repurchase Program
Basis of Presentation
The consolidated financial statements have been prepared by the Company, without audit, with the exception of the June 29, 2024 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the Form 10-K. The financial statements include consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows. Certain prior period amounts have been reclassified to conform to current period presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income, shareholders’ equity, and cash flows for all periods presented have been made.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates used by management are related to the accounting for the allowance for doubtful accounts, reserve for inventories, impairment testing of goodwill and other intangible assets, acquisition accounting, reserves for claims and recoveries under insurance programs, vendor rebates and other promotional incentives, bonus accruals, depreciation, amortization, determination of useful lives of tangible and intangible assets, leases, and income taxes. Actual results could differ from these estimates.
The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Form 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with GAAP have been condensed or omitted herein pursuant to applicable rules and regulations for interim financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update expands public entities’ segment
11
disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. It further requires disclosure of the amount and description of its composition for other segment items, and interim disclosures of both a reportable segment’s profit or loss and assets. The guidance requires disclosure of the title and position of the chief operating decision maker and how reported measures of segment profit or loss are used to assess performance and allocate resources. This pronouncement is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this update will be adopted for the fiscal year ending June 28, 2025 ("fiscal 2025"), with annual reporting requirements effective for our fiscal 2025 Annual Report on Form 10-K and interim reporting requirements effective for our Quarterly Reports on Forms 10-Q within the fiscal year ending June 27, 2026 ("fiscal 2026"). The amendments in this update should be applied retrospectively to each period presented in the consolidated financial statements. The provisions of the new standard will not impact the Company's results of operations, financial position, or cash flows but will require the Company to expand its current segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update expands public entities’ income tax disclosure requirements primarily by requiring disaggregation of specific categories and reconciling items that meet a quantitative threshold within the rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This pronouncement is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company will adopt the new standard in fiscal 2026. The amendments in this update should be applied on a prospective basis, with retrospective application permitted. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements.
The Company markets and distributes primarily national and Company-branded food and food-related products to customer locations across North America. The Foodservice segment primarily services restaurants and supplies a “broad line” of products to its customers, including the Company’s Performance Brands and custom-cut meats and seafood, as well as products that are specific to each customer’s menu requirements. Vistar specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. The Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America. The Company disaggregates revenue by customer type and product offerings and determined that disaggregating revenue at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 13. Segment Information for external revenue by reportable segment.
The Company has customer contracts in which incentives are paid upfront to certain customers. These payments have become industry practice and are not related to financing the customer’s business, nor are they associated with any distinct good or service to be received from the customer. These incentive payments are capitalized and amortized over the life of the contract or the expected life of the customer relationship on a straight-line basis. The Company’s contract asset for these incentives totaled $
During the first quarter of fiscal 2025, the Company paid cash of $
Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date.
(In millions) |
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Fiscal 2025 |
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Net working capital |
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$ |
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Goodwill |
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Intangible assets with definite lives: |
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Customer relationships |
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Trade names |
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Property, plant and equipment |
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Other assets |
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Deferred tax liabilities |
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( |
) |
Finance lease obligations |
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( |
) |
Total purchase price |
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$ |
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Intangible assets consist primarily of customer relationships and trade names, both with useful lives of
Subsequent to September 28, 2024, the Company acquired Cheney Bros., Inc. ("Cheney Brothers") in a transaction valued at $
Assets acquired and liabilities assumed will be recognized at their respective fair values as of the acquisition date. The Company is in the process of determining the fair values of the assets acquired and liabilities assumed, which will require the use of judgment. Due to the limited time since the October 8, 2024 acquisition date, the preliminary acquisition valuation is incomplete at this time and the Company is unable to provide amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including information required for valuation of intangible assets and goodwill.
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.
Debt consisted of the following:
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(In millions) |
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As of September 28, 2024 |
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As of June 29, 2024 |
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Credit Agreement |
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$ |
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$ |
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Less: Original issue discount and deferred financing costs |
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( |
) |
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( |
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Long-term debt |
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Less: current installments |
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Total debt, excluding current installments |
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$ |
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$ |
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Credit Agreement
PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, were parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement had an aggregate principal amount available of $
On September 9, 2024, PFGC and Performance Food Group, Inc. entered into the Sixth Amended and Restated Credit Agreement (the "ABL Facility"), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the Prior Credit Agreement. The ABL Facility, among other things, (i) increases the total revolving commitments from $
Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real property, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real property and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.
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Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at
The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company's credit agreement:
(Dollars in millions) |
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As of September 28, 2024 |
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As of June 29, 2024 |
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Aggregate borrowings |
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$ |
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$ |
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Letters of credit |
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Excess availability, net of lenders’ reserves of $ |
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Average interest rate, excluding impact of interest rate swaps |
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% |
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% |
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Senior Notes due 2032
On September 12, 2024, Performance Food Group, Inc. issued and sold $
The Company intended to use the proceeds from the Notes due 2032, together with borrowings under the ABL Facility, to finance the cash consideration in connection with the acquisition of Cheney Brothers and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2032. However, since there was no requirement to hold the funds in escrow until the Cheney Brothers Acquisition closed, the net proceeds for the Notes due 2032 were used to pay down a portion of the outstanding balance of the ABL Facility. The Company subsequently funded the cash consideration for the Cheney Brothers Acquisition with borrowings under the ABL Facility.
The Notes due 2032 were issued at
The indenture governing the Notes due 2032 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications.
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The Notes due 2032 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2032 to become or be declared due and payable.
The ABL Facility and the indentures governing the Company's outstanding notes contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $1,872.2 million of restricted payment capacity available under such debt agreements, as of September 28, 2024. Such minimum estimated restricted payment capacity is calculated based on the most restrictive of our debt agreements and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.
The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use asset in the Company’s consolidated balance sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on the present value of lease payments over the lease term at commencement date. When the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. This rate is determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expenses for these short-term leases are recognized on a straight-line basis over the lease term. The Company has several lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for separately. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent, favorable leases, and prepaid rent.
Subsidiaries of the Company have entered into numerous operating and finance leases for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of
Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between
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The following table presents the location of the right-of-use assets and lease liabilities in the Company's consolidated balance sheet as of September 28, 2024 and June 29, 2024 (in millions), as well as the weighted-average lease term and discount rate for the Company's leases:
Leases |
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Consolidated Balance Sheet Location |
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As of |
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As of |
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Assets: |
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Operating |
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Operating lease right-of-use assets |
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$ |
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$ |
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Finance |
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Total lease assets |
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$ |
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$ |
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Liabilities: |
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Current |
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Operating |
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Operating lease obligations—current installments |
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$ |
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$ |
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Finance |
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Finance lease obligations—current installments |
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Non-current |
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Operating |
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Operating lease obligations, excluding current installments |
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Finance |
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Finance lease obligations, excluding current installments |
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Total lease liabilities |
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$ |
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$ |
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Weighted average remaining lease term |
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Operating leases |
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Finance leases |
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Weighted average discount rate |
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Operating leases |
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% |
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% |
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Finance leases |
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% |
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% |
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The following table presents the location of lease costs in the Company’s consolidated statement of operations for the periods reported (in millions):
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Three Months Ended |
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Lease Cost |
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Statement of Operations Location |
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September 28, 2024 |
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September 30, 2023 |
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Finance lease cost: |
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Amortization of finance lease assets |
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Operating expenses |
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$ |
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$ |
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Interest on lease liabilities |
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Interest expense |
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Total finance lease cost |
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$ |
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$ |
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Operating lease cost |
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Operating expenses |
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Short-term lease cost |
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Operating expenses |
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Total lease cost |
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$ |
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$ |
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The following table presents the supplemental cash flow information related to leases for the periods reported (in millions):
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Three Months Ended |
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(In millions) |
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September 28, 2024 |
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September 30, 2023 |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases |
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$ |
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$ |
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Operating cash flows from finance leases |
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Financing cash flows from finance leases |
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Right-of-use assets obtained in exchange for lease obligations: |
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Operating leases |
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Finance leases |
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16
The following table presents the future minimum lease payments under non-cancelable leases as of September 28, 2024 (in millions):
Fiscal Year |
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Operating Leases |
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Finance Leases |
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2025 |
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$ |
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$ |
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2026 |
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2027 |
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2028 |
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2029 |
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Thereafter |
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Total future minimum lease payments |
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$ |
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$ |
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Less: Interest |
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Present value of future minimum lease payments |
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$ |
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$ |
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As of September 28, 2024, the Company had additional operating and finance leases that had not yet commenced and total $
Subsequent to September 28, 2024, the Company acquired the right-of-use assets and associated finance lease obligations related to a significant portion of Cheney Brothers' fleet. The Company is in the process of determining the present value of the future lease payments.
The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The fair value of long-term debt, which has a carrying value of $
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.
The Company’s effective tax rate was
As of September 28, 2024 and June 29, 2024, the Company had net deferred tax assets of $
On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting ("Framework"), which provides for a two-pillar solution to address tax challenges arising from the digitalization of the economy. To mitigate the administrative burden in complying with the new rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor” ("Safe Harbor"). This transitional Safe Harbor applies for fiscal years beginning on or before December 31, 2026, but not including a fiscal
17
year that ends after June 30, 2028. Under the Safe Harbor, the top-up tax for such jurisdiction is deemed to be zero, provided that at least one of the Safe Harbor tests is met for the jurisdiction. The Company is not subject to Pillar Two minimum tax in the first quarter of fiscal 2025 under the Safe Harbor rules. Pillar Two minimum tax will be treated as a period cost in future periods when it is applicable. We are continuing to evaluate the potential impact on future periods of the Framework pending legislative adoption by individual countries.
Purchase Obligations
The Company had outstanding contracts and purchase orders of $
Guarantees
The Company from time to time enters into certain types of contracts that contingently require it to indemnify various parties against claims from third parties. These contracts primarily relate to: (i) certain real estate leases under which subsidiaries of the Company may be required to indemnify property owners for environmental and other liabilities and other claims arising from their use of the applicable premises; (ii) certain agreements with the Company’s officers, directors, and employees under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship; and (iii) customer agreements under which the Company may be required to indemnify customers for certain claims brought against them with respect to the supplied products. Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been required to make payments under these obligations and, therefore, no liabilities have been recorded for these obligations in the Company’s consolidated balance sheets.
Litigation
The Company is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss arising from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When losses are probable and reasonably estimable, they have been accrued. Based on estimates of the range of potential losses associated with these matters, management does not believe that the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the Company. However, the final results of legal proceedings cannot be predicted with certainty and, if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s consolidated financial position or results of operations could be materially adversely affected in future periods.
JUUL Labs, Inc. Marketing Sales Practices, and Products Liability Litigation. In October 2019, a Multidistrict Litigation action (“MDL”) was initiated in order to centralize litigation against JUUL Labs, Inc. (“JUUL”) and other parties in connection with JUUL’s e-cigarettes and related devices and components in the United States District Court for the Northern District of California. On March 11, 2020, counsel for plaintiffs and the Plaintiffs’ Steering Committee filed a Master Complaint in the MDL ("Master Complaint") naming, among several other entities and individuals including JUUL, Altria Group, Inc., Philip Morris USA, Inc., Altria Client Services LLC, Altria Group Distribution Company, Altria Enterprises LLC, certain members of management and/or individual investors in JUUL, various e-liquid manufacturers, and various retailers, including the Company’s subsidiaries Eby-Brown Company LLC (“Eby-Brown”) and Core-Mark Holding Company, Inc. (“Core-Mark”), as defendants. The Master Complaint also named additional distributors of JUUL products (collectively with Eby-Brown and Core-Mark, the “Distributor Defendants”). The Master Complaint contains various state law claims and alleges that the Distributor Defendants: (i) failed to disclose JUUL’s nicotine contents or the risks associated; (ii) pushed a product designed for a youth market; (iii) engaged with JUUL in planning and marketing its product in a manner designed to maximize the flow of JUUL products; (iv) met with JUUL management in San Francisco, California to further these business dealings; and (v) received incentives and business development funds for marketing and efficient sales. JUUL and Eby-Brown are parties to a Domestic Wholesale Distribution Agreement dated March 10, 2020 (the "Distribution Agreement"), and JUUL has agreed to defend and indemnify Eby-Brown under the terms of that agreement and is paying Eby-Brown’s outside counsel fees directly. In addition, Core-Mark and JUUL have entered into a Defense and Indemnity Agreement dated March 8, 2021 (the "Defense Agreement") pursuant to which JUUL has agreed to defend and indemnify Core-Mark, and JUUL is paying Core-Mark’s outside counsel fees directly.
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On December 6, 2022, JUUL announced that it had reached settlements with the plaintiffs in the MDL and related cases that had been consolidated in the U.S. District Court for Northern District of California (the “MDL Settlement”). Per the settlement agreement, the MDL Settlement encompasses the various personal injury, consumer class action, government entity, and Native American tribe claims made against JUUL and includes, among others, all of the Distributor Defendants (including Core-Mark and Eby-Brown) as released parties. The release applicable to the Distributor Defendants, as well as certain other defendants, took effect when JUUL made the first settlement payment on October 27, 2023. The MDL Settlement Master informed the parties that there are ten plaintiffs who opted out of the MDL Settlement; however, those opt-out plaintiffs have amended their individual complaints and have removed Eby-Brown and Core-Mark as defendants in their individual cases.
On September 10, 2021, Michael Lumpkins filed a parallel lawsuit in Illinois state court against several entities, including JUUL, e-liquid manufacturers, various retailers, and various distributors, including Eby-Brown and Core-Mark, alleging similar claims to the claims at issue in the MDL (the “Illinois Litigation”). Because there is no federal jurisdiction for this case, it will proceed in Illinois state court. Plaintiff alleges as damages that his use of JUUL products caused a brain injury that was later exacerbated by medical negligence. The court denied Eby-Brown and Core-Mark’s motion to dismiss, and the case has moved into the discovery phase. The trial date has been set for August 1, 2025. The defense and indemnity of Eby-Brown and Core-Mark for the Illinois Litigation is covered by the Distribution Agreement and the Defense Agreement, respectively. The Company will continue to vigorously defend itself.
On June 23, 2022, the U.S. Food and Drug Administration (“FDA”) announced it had issued marketing denial orders (“MDOs”) to JUUL for all of its products currently marketed and sold in the U.S. According to the FDA, the MDOs banned the distribution and sale of all JUUL products domestically. That same day, JUUL filed a petition for review of the MDOs with the United States Court of Appeals for the D.C. Circuit. On June 24, 2022, the court of appeals stayed the MDOs and issued a briefing schedule in the case. Thereafter, JUUL informed the FDA that per applicable regulations it would submit a request for supervisory review of the MDOs to the FDA. In response, the FDA notified JUUL that upon further review of the briefing JUUL made to the court of appeals, the FDA determined there are scientific issues unique to JUUL’s Pre-Market Tobacco Application (“PMTA”) that warrant additional review. Accordingly, the FDA entered an administrative stay of the MDOs. If the FDA ultimately decides to maintain or re-issue the MDOs, the administrative stay will remain in place for an additional thirty days to provide JUUL the opportunity to seek further judicial relief. JUUL and the FDA filed a joint motion with the court of appeals to hold the petition for review in abeyance on July 6, 2022, which the court of appeals granted on July 7, 2022.
At this time, the Company is unable to predict whether the FDA will approve JUUL’s PMTA or re-issue the MDOs, nor is the Company able to estimate any potential loss or range of loss in the event of an adverse finding against JUUL in any case that falls outside of the MDL Settlement.
Tax Liabilities
The Company is subject to customary audits by authorities in the jurisdictions where it conducts business in the United States and foreign countries, which may result in assessments of additional taxes.
The Company participates in, and has an equity method investment in, a purchasing alliance that was formed to obtain better pricing, to expand product options, to reduce internal costs, and to achieve greater inventory turnover. The Company’s investment in the purchasing alliance was $
Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is calculated using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. The Company’s potential common shares include outstanding stock-based compensation awards and expected issuable shares under the employee stock purchase plan. In computing diluted earnings per common share, the average closing stock price for the period is used in determining the number of shares assumed to be purchased with the assumed proceeds under the treasury stock method. Potential common shares of
19
A reconciliation of the numerators and denominators for the basic and diluted earnings per common share computations is as follows:
(In millions, except per share amounts) |
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Three Months Ended |
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Three Months Ended |
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Numerator: |
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Net income |
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$ |
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$ |
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Denominator: |
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Weighted-average common shares outstanding |
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Dilutive effect of potential common shares |
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Weighted-average dilutive common shares outstanding |
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Basic earnings per common share |
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$ |
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$ |
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Diluted earnings per common share |
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$ |
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$ |
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13. Segment Information
Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has
The Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” Foodservice sells to independent and multi-unit “Chain” restaurants and other institutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America.
Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of the Company’s internal logistics unit responsible for managing and allocating inbound logistics revenue and expense. Corporate & All Other may also include capital expenditures for certain information technology projects that are transferred to the segments once placed in service.
Intersegment sales represent sales between the segments, which are eliminated in consolidation.
Management evaluates the performance of each operating segment based on various operating and financial metrics, including total sales and Segment Adjusted EBITDA, which is the Company’s GAAP measure of segment profit. Segment Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, and amortization and excludes certain items that the Company does not consider part of its segments' core operating results, including stock-based compensation expense, changes in the last-in-first-out ("LIFO") reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives.
(In millions) |
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Foodservice |
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Vistar |
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Convenience |
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Corporate |
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Eliminations |
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Consolidated |
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