Performance Food pany(PFGC) - 2019 Q4 - Annual Report

Part I Business PFG is a major U.S. food and food-related product distributor operating through Foodservice and Vistar segments - PFG markets and distributes over 160,000 food and food-related products to more than 170,000 customer locations across the U.S. from 83 distribution centers[16] - The company operates through two reportable segments as of fiscal 2019: Foodservice and Vistar[17] - On June 30, 2019, PFG entered into an agreement to acquire Reinhart Foodservice, L.L.C. for $2.0 billion, a transaction expected to be financed through a mix of debt and equity[18] - The Foodservice segment serves over 100,000 customer locations, including independent restaurants and multi-unit chains like Cracker Barrel, Red Lobster, and TGI Friday's[56][59] - The Vistar segment is a leading national distributor to vending, office coffee service, theater, and retail channels, serving over 70,000 customer locations[61] Risk Factors The company faces significant risks from intense competition, low margins, cost inflation, acquisition integration, and substantial indebtedness - The foodservice distribution industry is highly competitive with two larger national distributors (Sysco and US Foods) and numerous regional and local players, which may result in price reductions and loss of market share[69] - The business operates in a low-margin industry, making profitability sensitive to cost inflation/deflation, changes in consumer eating habits, and fluctuations in fuel costs[70][71][75] - The pending $2.0 billion acquisition of Reinhart Foodservice faces risks including failure to obtain regulatory approval, difficulties in integration, and the possibility that expected synergies may not be realized[92][116][123] - As of June 29, 2019, the company had $1,350.1 million of indebtedness, which could require a substantial portion of cash flow for debt service, increasing vulnerability to economic downturns and limiting strategic flexibility[127] - Following the acquisition of Eby-Brown, a significant portion of sales will depend on cigarettes and tobacco products, a market that is in gradual decline due to health concerns, regulation, and taxes[98] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[136] Properties PFG operates 83 distribution centers across the U.S., 35 owned and 48 leased, strategically located for customer service Distribution Center Count by Segment (as of June 29, 2019) | Segment | Owned Facilities | Leased Facilities | Total Facilities | | :--- | :--- | :--- | :--- | | Total | 35 | 48 | 83 | | Foodservice | - | - | 48 | | Vistar | - | - | 35 | - The Foodservice segment operates 48 distribution centers, averaging 200,000 square feet per facility. The Vistar segment operates 35 distribution centers, averaging 150,000 square feet per facility[137] Legal Proceedings The company is involved in various legal proceedings, most notably an EEOC lawsuit alleging gender discrimination in hiring and promotion - In June 2013, the EEOC filed a lawsuit against the company alleging a pattern of gender discrimination in hiring and promotion for operational positions within its broadline division[141] - The litigation is bifurcated into two phases. The company cannot estimate the potential loss or range of loss from this lawsuit[141] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[143] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PFG common stock trades on NYSE, with no current dividend plans due to debt covenants, and a $250 million share repurchase program - The company's common stock is listed on the New York Stock Exchange under the symbol "PFGC"[145] - The company has no current plans to pay dividends on its common stock, and its ability to do so is limited by covenants in its debt agreements[146] - A share repurchase program for up to $250 million was authorized in November 2018. As of June 29, 2019, $240.7 million remained available for repurchases[150] Selected Financial Data This section summarizes five years of key financial data, showing consistent net sales growth and fluctuating net income Selected Financial Data (in millions, except per share data) | Fiscal Year Ended | Net Sales | Gross Profit | Operating Profit | Net Income | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | :--- | | June 29, 2019 | $19,743.5 | $2,513.0 | $283.3 | $166.8 | $1.59 | | June 30, 2018 | $17,619.9 | $2,292.8 | $253.5 | $198.7 | $1.90 | | July 1, 2017 | $16,761.8 | $2,124.8 | $211.0 | $96.3 | $0.93 | | July 2, 2016 | $16,104.8 | $2,010.0 | $202.2 | $68.3 | $0.70 | | June 27, 2015 | $15,270.0 | $1,848.3 | $160.1 | $56.5 | $0.64 | - Total debt stood at $1,350.1 million at the end of fiscal 2019, up from $1,184.2 million in fiscal 2018[155] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2019 net sales grew due to volume and acquisition, but net income decreased from higher tax expense, while liquidity remained strong Consolidated Results of Operations (Fiscal 2019 vs. 2018) | Metric | Fiscal 2019 | Fiscal 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $19,743.5 M | $17,619.9 M | +12.1% | | Gross Profit | $2,513.0 M | $2,292.8 M | +9.6% | | Operating Profit | $283.3 M | $253.5 M | +11.8% | | Net Income | $166.8 M | $198.7 M | -16.1% | | Adjusted EBITDA | $475.5 M | $426.7 M | +11.4% | - The decrease in net income for fiscal 2019 was primarily due to a $56.6 million increase in income tax expense, as fiscal 2018 benefited from the Tax Cuts and Jobs Act[184][186] - The acquisition of Eby-Brown in Q4 fiscal 2019 contributed $949.7 million to net sales[180] Segment Results In FY2019, Foodservice net sales and EBITDA grew, while Vistar saw substantial growth driven by the Eby-Brown acquisition Net Sales by Segment (Fiscal 2019 vs. 2018, in millions) | Segment | FY 2019 Net Sales | FY 2018 Net Sales | Change (%) | | :--- | :--- | :--- | :--- | | Foodservice | $15,095.1 | $14,273.1 | +5.8% | | Vistar | $4,641.8 | $3,341.0 | +38.9% | EBITDA by Segment (Fiscal 2019 vs. 2018, in millions) | Segment | FY 2019 EBITDA | FY 2018 EBITDA | Change (%) | | :--- | :--- | :--- | :--- | | Foodservice | $428.0 | $411.4 | +4.0% | | Vistar | $165.6 | $133.1 | +24.4% | | Corporate & All Other | ($154.9) | ($160.4) | +3.4% | - Foodservice segment growth was driven by a 4.9% increase in case volume to independent customers, who represent a higher-margin channel[200] - Vistar's substantial sales growth was primarily due to the acquisition of Eby-Brown, which contributed $949.7 million in net sales in Q4 2019[208] Liquidity and Capital Resources Liquidity stems from operations and credit facility, with FY2019 cash from operations at $317.4 million and a $2.4 billion ABL facility Cash Flow Summary (Fiscal 2019, in millions) | Cash Flow Category | Amount | | :--- | :--- | | Net Cash from Operating Activities | $317.4 | | Net Cash used in Investing Activities | ($349.4) | | Net Cash from Financing Activities | $39.6 | - Investing activities included $211.6 million for business acquisitions and $139.1 million for capital expenditures on property, plant, and equipment[234] - In May 2019, the company entered into the Third Amended and Restated Credit Agreement, increasing its ABL facility from $1.95 billion to $2.4 billion and extending the maturity to May 2024[231][240] - As of June 29, 2019, the company had $1,182.7 million of excess availability under its Amended Credit Agreement[244] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in areas like doubtful accounts, inventory, self-insurance, income taxes, vendor rebates, and goodwill - Key critical accounting policies include allowance for doubtful accounts, inventory valuation, insurance programs, income taxes, vendor rebates, and goodwill/intangible assets[263] - The company uses a qualitative assessment ("step zero") for its annual goodwill impairment test and determined no further quantitative analysis was necessary in fiscal 2019 or 2018[273][274] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk with swaps and fuel price risk with surcharges and collars, mitigating market fluctuations - The company's primary market risks are interest rate risk on its variable-rate debt and fuel price risk for its delivery fleet[277][282] - As of June 29, 2019, the company had eight interest rate swaps with a combined notional amount of $550.0 million to hedge interest rate risk[278][406] - Fuel price risk is mitigated through customer surcharges and the use of costless collars, which covered approximately 18% of expected fuel consumption for the next 12 months[283] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including balance sheets, income statements, and cash flow statements Key Balance Sheet Items (in millions) | Account | As of June 29, 2019 | As of June 30, 2018 | | :--- | :--- | :--- | | Total Current Assets | $2,670.6 | $2,203.5 | | Total Assets | $4,653.5 | $4,000.9 | | Total Current Liabilities | $1,699.3 | $1,470.0 | | Total Liabilities | $3,355.3 | $2,865.6 | | Total Shareholders' Equity | $1,298.2 | $1,135.3 | Key Statement of Operations Items (in millions) | Account | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Net Sales | $19,743.5 | $17,619.9 | $16,761.8 | | Gross Profit | $2,513.0 | $2,292.8 | $2,124.8 | | Operating Profit | $283.3 | $253.5 | $211.0 | | Net Income | $166.8 | $198.7 | $96.3 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[481] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 29, 2019 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (June 29, 2019)[482] - Management concluded that the company maintained effective internal control over financial reporting as of June 29, 2019, based on the COSO framework[485] Other Information The company reports no other information for this item - None[487] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for Items 10-14, covering governance, compensation, and related matters, is incorporated by reference from the proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's definitive proxy statement to be filed within 120 days of the fiscal year-end[490][491][492][493][494] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements - This section contains the index of all financial statements, schedules, and exhibits filed with the Form 10-K[498] Form 10-K Summary The company reports no information for the Form 10-K Summary - None[497]