Performance Food Group Co (PFGC) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the audited Consolidated Financial Statements and the Notes thereto included in Item 8. Financial Statements and Supplementary Data of this Form 10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve numerous risks and uncertainties, including those described in Item 1A. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Form 10-K.
The following includes a comparison of our consolidated results of operations, our segment results and financial position for fiscal years 2024 and 2023. For a comparison of our consolidated results of operations, segment results and financial position for fiscal years 2023 and 2022, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended July 1, 2023, filed with the SEC on August 16, 2023.
Our Company
We market and distribute over 250,000 food and food-related products to customers across the United States from approximately 144 distribution facilities to over 300,000 customer locations in the “food-away-from-home” industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally branded products, and products bearing our customers’ brands. Our product assortment ranges from “center-of-the-plate” items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes, and other tobacco products. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.
Based on the Company’s organization structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. Our Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” Foodservice sells to independent and multi-unit “Chain” restaurants and other institutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products and other items to convenience stores across North America. We believe that there are substantial synergies across our segments. Cross-segment opportunities include business development, procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources.
The Company’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year for fiscal 2024, 2023, and 2022. References to “fiscal 2024” are to the 52-week period ended June 29, 2024, references to “fiscal 2023” are to the 52-week period ended July 1, 2023, and references to “fiscal 2022” are to the 52-week period ended July 2, 2022.
Key Factors Affecting Our Business
We believe that our performance is principally affected by the following key factors:
•
Changing demographic and macroeconomic trends. Excluding the peak years of 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 and is adversely impacted when these factors move in the opposite direction. The foodservice distribution industry is also sensitive to national and regional economic conditions, such as changes in consumer spending, changes in consumer confidence, changes in the rate of inflation and fuel prices, supply chain disruptions, and labor shortages.
27
•
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 our three reportable segments, expansion of geographies, utilizing our infrastructure to gain further operating and purchasing efficiencies, and making strategic acquisitions.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management are discussed below. The percentages on the results presented below are calculated based on rounded numbers.
Net Sales
Net sales is equal to gross sales, plus excise taxes, minus sales returns; minus sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products, and mix of products sold.
Gross Profit
Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.
Adjusted EBITDA
Management measures operating performance based on our 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 credit agreement and indentures (other than certain pro forma adjustments permitted under our credit agreement and indentures governing the Notes due 2027 and Notes due 2029 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our credit agreement and indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in our credit agreement and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.
Adjusted EBITDA is not a measure of operating income, operating performance, or liquidity presented in accordance with, or required by, GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. 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. 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 our credit agreement and holders of our Notes due 2027 and Notes due 2029 in their evaluation of the operating performance of companies in industries similar to ours.
Adjusted EBITDA has important limitations as analytical tools and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
•
excludes certain tax payments that may represent a reduction in cash available to us;
•
does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
•
does not reflect changes in, or cash requirements for, our working capital needs; and
28
•
does 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 credit agreement and indentures. Adjusted EBITDA among other things:
•
does not include non-cash stock-based employee compensation expense and certain other non-cash charges; and
•
does not include acquisition, restructuring, and other costs incurred to realize future cost savings and enhance our operations.
We have included below reconciliations of Adjusted EBITDA to the most directly comparable measure calculated in accordance with GAAP for the periods presented.
Results of Operations and Adjusted EBITDA
The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated (dollars and shares in millions, except per share data):
| Fiscal Year Ended | Fiscal 2024 | Fiscal 2023 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 29, 2024 | July 1, 2023 | July 2, 2022 | Change | % | Change | % | |||||||||||||||||||||
| Net sales | $ | 58,281.2 | $ | 57,254.7 | $ | 50,894.1 | $ | 1,026.5 | 1.8 | 6,360.6 | 12.5 | ||||||||||||||||
| Cost of goods sold | 51,704.1 | 50,999.8 | 45,637.7 | 704.3 | 1.4 | 5,362.1 | 11.7 | ||||||||||||||||||||
| Gross profit | 6,577.1 | 6,254.9 | 5,256.4 | 322.2 | 5.2 | 998.5 | 19.0 | ||||||||||||||||||||
| Operating expenses | 5,750.7 | 5,489.1 | 4,929.0 | 261.6 | 4.8 | 560.1 | 11.4 | ||||||||||||||||||||
| Operating profit | 826.4 | 765.8 | 327.4 | 60.6 | 7.9 | 438.4 | 133.9 | ||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||||||
| Interest expense | 232.2 | 218.0 | 182.9 | 14.2 | 6.5 | 35.1 | 19.2 | ||||||||||||||||||||
| Other, net | (2.6 | ) | 3.8 | (22.6 | ) | (6.4 | ) | (168.4 | ) | 26.4 | 116.8 | ||||||||||||||||
| Other expense, net | 229.6 | 221.8 | 160.3 | 7.8 | 3.5 | 61.5 | 38.4 | ||||||||||||||||||||
| Income before income taxes | 596.8 | 544.0 | 167.1 | 52.8 | 9.7 | 376.9 | 225.6 | ||||||||||||||||||||
| Income tax expense | 160.9 | 146.8 | 54.6 | 14.1 | 9.6 | 92.2 | 168.9 | ||||||||||||||||||||
| Net income | $ | 435.9 | $ | 397.2 | $ | 112.5 | $ | 38.7 | 9.7 | 284.7 | 253.1 | ||||||||||||||||
| Adjusted EBITDA | $ | 1,506.1 | $ | 1,363.4 | $ | 1,019.8 | $ | 142.7 | 10.5 | 343.6 | 33.7 | ||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||||||
| Basic | 154.4 | 154.2 | 149.8 | 0.2 | 0.1 | 4.4 | 2.9 | ||||||||||||||||||||
| Diluted | 156.0 | 156.1 | 151.3 | (0.1 | ) | (0.1 | ) | 4.8 | 3.2 | ||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||||||
| Basic | $ | 2.82 | $ | 2.58 | $ | 0.75 | $ | 0.24 | 9.3 | $ | 1.83 | 244.0 | |||||||||||||||
| Diluted | $ | 2.79 | $ | 2.54 | $ | 0.74 | $ | 0.25 | 9.8 | $ | 1.80 | 243.2 |
We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income. The following table reconciles Adjusted EBITDA to net income for the periods presented:
| Fiscal year ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 29, 2024 | July 1, 2023 | July 2, 2022 | ||||||||||
| (In millions) | ||||||||||||
| Net income (GAAP) | $ | 435.9 | $ | 397.2 | $ | 112.5 | ||||||
| Interest expense | 232.2 | 218.0 | 182.9 | |||||||||
| Income tax expense | 160.9 | 146.8 | 54.6 | |||||||||
| Depreciation | 355.2 | 315.7 | 279.7 | |||||||||
| Amortization of intangible assets | 201.5 | 181.0 | 183.1 | |||||||||
| Change in LIFO reserve (1) | 62.3 | 39.2 | 122.9 | |||||||||
| Stock-based compensation expense | 41.9 | 43.3 | 44.0 | |||||||||
| (Gain) loss on fuel derivatives | (1.8 | ) | 5.7 | (20.7 | ) | |||||||
| Acquisition, integration & reorganization expenses (2) | 23.7 | 10.6 | 49.9 | |||||||||
| Other adjustments (3) | (5.7 | ) | 5.9 | 10.9 | ||||||||
| Adjusted EBITDA (Non-GAAP) | $ | 1,506.1 | $ | 1,363.4 | $ | 1,019.8 |
29
(1)
Includes increases in the last-in-first-out (“LIFO”) reserve of $3.8 million for Foodservice and $58.5 million for Convenience for fiscal 2024 compared to a decrease of $19.2 million for Foodservice and an increase $58.4 million for Convenience for fiscal 2023 and increases of $31.9 million for Foodservice and $91.0 million for Convenience for fiscal 2022.
(2)
Includes professional fees and other costs related to in-progress, completed, and abandoned acquisitions, costs of integrating certain of our facilities, and facility closing costs.
(3)
Includes an $8.1 million gain on the sale of a Foodservice warehouse facility for fiscal year 2024, asset impairments, gains and losses on disposal of other fixed assets, amounts related to favorable and unfavorable leases, foreign currency transaction gains and losses, franchise tax expense, and other adjustments permitted by our credit agreement.
Consolidated Results of Operations
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Net Sales
Net sales growth is primarily a function of acquisitions, case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold.
Net sales increased $1.0 billion, or 1.8%, in fiscal 2024 compared to fiscal 2023. The increase in net sales was primarily attributable to case volume growth in our independent Foodservice business, an increase in selling price per case as a result of inflation, and recent acquisitions, partially offset by case declines in our Convenience business. The overall rate of product cost inflation was approximately 3.7% for fiscal 2024. Total case volume increased 1.6% in fiscal 2024 compared to fiscal 2023. Total organic case volume (defined as total case volume excluding case volume from recent acquisitions) increased 1.2% in fiscal 2024 compared to the prior fiscal year. Total organic case volume benefited from an increase of 6.0% in organic independent cases sold, growth in Performance Brands cases, and growth in cases sold to Foodservice's Chain business.
Gross Profit
Gross profit increased $322.2 million, or 5.2%, in fiscal 2024 compared to fiscal 2023. The increase in gross profit was primarily driven by cost of goods sold optimization through procurement efficiencies, as well as growth in cases sold, including growth in the independent channel and Performance Brands, and recent acquisitions. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers.
Operating Expenses
Operating expenses increased $261.6 million, or 4.8%, for fiscal 2024 compared to fiscal 2023. The increase in operating expenses was primarily driven by increases in personnel expense, insurance expense, and repairs and maintenance expense. Operating expenses include a $141.2 million increase in personnel expenses primarily related to wages, benefits, and commissions, a $42.9 million increase in insurance expense primarily related to workers’ compensation and vehicle liability, and a $26.0 million increase in repairs and maintenance expense primarily related to transportation equipment and information technology maintenance. These increases were partially offset by a $34.5 million decrease in fuel expenses primarily due to lower fuel prices for fiscal 2024 compared to the prior fiscal year.
Depreciation and amortization of intangible assets increased from $496.7 million in fiscal 2023 to $556.7 million in fiscal 2024, an increase of 12.1%. Depreciation of fixed assets and amortization of intangible assets increased a result of recent acquisitions, an increase in transportation equipment under finance leases, and accelerated amortization of certain customer relationships and trade names.
Net Income
Net income increased $38.7 million, or 9.7% for fiscal 2024 compared to fiscal 2023 due to the $60.6 million increase in operating profit and an increase in other income, partially offset by increases in income tax expense and interest expense. The increase in other income primarily relates to realized and unrealized gains on fuel hedging instruments. The increase in interest expense was primarily the result of an increase in the average interest rate in fiscal 2024 compared to the prior fiscal year.
The Company reported income tax expense of $160.9 million for fiscal 2024 compared to $146.8 million for fiscal 2023. The effective tax rate for fiscal 2024 remained consistent with the prior fiscal year at 27.0%, although the components of the rate changed from the prior year period due to an increase in income tax credits and a benefit from stock-based compensation, offset by an increase in foreign and state income tax expense and non-deductible expenses as a percentage of book income.
30
Segment Results
The Company has three reportable segments: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth 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 LIFO reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives. See Note 19. Segment Information of the consolidated financial statements in this Form 10-K.
Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This also 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 Adjusted EBITDA by segment for the periods indicated (dollars in millions):
Net Sales
| Fiscal year ended | Fiscal 2024 | Fiscal 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 29, 2024 | July 1, 2023 | July 2, 2022 | Change | % | Change | % | ||||||||
| Foodservice | $29,024.6 | $28,490.6 | $26,579.2 | $534.0 | 1.9 | $1,911.4 | 7.2 | |||||||
| Vistar | 4,789.8 | 4,549.3 | 3,681.8 | 240.5 | 5.3 | 867.5 | 23.6 | |||||||
| Convenience | 24,177.0 | 24,119.6 | 20,603.3 | 57.4 | 0.2 | 3,516.3 | 17.1 | |||||||
| Corporate & All Other | 946.1 | 700.4 | 526.5 | 245.7 | 35.1 | 173.9 | 33.0 | |||||||
| Intersegment Eliminations | (656.3) | (605.2) | (496.7) | (51.1) | (8.4) | (108.5) | (21.8) | |||||||
| Total net sales | $58,281.2 | $57,254.7 | $50,894.1 | $1,026.5 | 1.8 | $6,360.6 | 12.5 |
Segment Adjusted EBITDA
| Fiscal year ended | Fiscal 2024 | Fiscal 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 29, 2024 | July 1, 2023 | July 2, 2022 | Change | % | Change | % | ||||||||
| Foodservice | $1,001.2 | $943.6 | $786.5 | $57.6 | 6.1 | $157.1 | 20.0 | |||||||
| Vistar | 340.6 | 325.3 | 193.0 | 15.3 | 4.7 | 132.3 | 68.5 | |||||||
| Convenience | 363.6 | 328.8 | 257.1 | 34.8 | 10.6 | 71.7 | 27.9 | |||||||
| Corporate & All Other | (199.3) | (234.3) | (216.8) | 35.0 | 14.9 | (17.5) | (8.1) | |||||||
| Total Adjusted EBITDA | $1,506.1 | $1,363.4 | $1,019.8 | $142.7 | 10.5 | $343.6 | 33.7 |
Segment Results—Foodservice
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Net Sales
Net sales for Foodservice increased $534.0 million, or 1.9%, from fiscal 2023 to fiscal 2024. This increase in net sales was driven by case volume growth, including growth in our independent and Chain business. Securing new and expanding business with independent customers resulted in organic independent case growth of 6.0% in fiscal 2024 compared to the prior fiscal year. For fiscal 2024, independent sales as a percentage of total segment sales were 39.5%. The overall rate of product cost inflation was approximately 0.2% for fiscal 2024.
Segment Adjusted EBITDA
Adjusted EBITDA for Foodservice increased $57.6 million, or 6.1%, from fiscal 2023 to fiscal 2024. This increase was the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Foodservice’s Adjusted EBITDA increased $206.0 million, or 5.3% in fiscal 2024 compared to the prior fiscal year. The increase in gross profit was driven by a favorable shift in the mix of cases sold and growth in cases sold, including more Performance Brands products sold to independent customers.
31
Operating expenses impacting Foodservice’s Adjusted EBITDA increased by $148.8 million, or 5.1%, from fiscal 2023 to fiscal 2024. Operating expenses increased as a result of a $108.8 million increase in personnel expenses primarily related to wages, benefits, and commissions due to an increase in full-time employees, an increase of $25.1 million in insurance expense primarily related to vehicle liability and workers' compensation, a $6.5 million increase in repairs and maintenance expense primarily related to transportation equipment, partially offset by a $10.3 million decrease in fuel expense primarily due to lower fuel prices, compared to the prior fiscal year.
Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from $279.8 million in fiscal 2023 to $293.6 million in fiscal 2024. Depreciation of fixed assets and amortization of intangible assets increased in fiscal 2024 as a result of an increase in transportation equipment under finance leases, partially offset by certain customer relationships that were fully amortized in the prior fiscal year.
Segment Results—Vistar
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Net Sales
Net sales for Vistar increased $240.5 million, or 5.3%, from fiscal 2023 to fiscal 2024. The increase in net sales was primarily driven by an increase in selling price per case as a result of inflation and an acquisition in the second quarter of fiscal 2024. The overall rate of product cost inflation was 5.8% for fiscal 2024. Total organic case volume growth for Vistar was flat for fiscal 2024, as growth in the vending, office coffee service, office supply, travel, and hospitality channels was offset by declines in theater cases sold.
Segment Adjusted EBITDA
Adjusted EBITDA for Vistar increased $15.3 million, or 4.7%, from fiscal 2023 to fiscal 2024. The increase was the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Vistar's Adjusted EBITDA increased $60.9 million, or 7.7%, in fiscal 2024 compared to fiscal 2023, driven by a recent acquisition and pricing improvement from procurement efficiencies, partially offset by expected decreases in inventory holding gains.
Operating expenses impacting Vistar’s Adjusted EBITDA increased $44.6 million, or 9.6%, for fiscal 2024 compared to the prior fiscal year. Operating expenses increased primarily as a result of a recent acquisition and an increase of $5.9 million in building rent expense as a result of lease renewals and expansion compared to the prior fiscal year.
Depreciation of fixed assets and amortization of intangible assets recorded in this segment increased from $42.1 million in fiscal 2023 to $49.9 million in fiscal 2024 due primarily to a recent acquisition.
Segment Results—Convenience
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Net Sales
Net sales for Convenience increased $57.4 million, or 0.2% from fiscal 2023 to fiscal 2024. The increase in net sales for Convenience was driven primarily by an increase in selling price per case as a result of cigarette manufacturers’ price increases and continued inflation for food and foodservice related products, partially offset by a decline in cigarette carton sales and food and foodservice related cases sold.
Segment Adjusted EBITDA
Adjusted EBITDA for Convenience increased $34.8 million, or 10.6%, from fiscal 2023 to fiscal 2024. This increase was a result of a decrease in operating expenses. Gross profit contributing to Convenience’s Adjusted EBITDA decreased $1.0 million, or 0.1%, for fiscal 2024 compared to the prior fiscal year primarily due to expected decreases in inventory holding gains, partially offset by pricing improvement from procurement efficiencies.
Operating expenses impacting Convenience’s Adjusted EBITDA, decreased $35.2 million, or 2.8%, for fiscal 2024 compared to the prior fiscal year. Operating expenses decreased primarily as a result of a $25.8 million decrease in personnel expenses from reduced contract labor and overtime and a $10.9 million decrease in fuel expense, partially offset by an increase of a $7.9 million of insurance expense primarily related to workers' compensation and vehicle liability compared to the prior fiscal year.
Depreciation and amortization of intangible assets recorded in this segment increased from $148.0 million in fiscal 2023 to $153.5 million in fiscal 2024 as a result of an increase in transportation equipment under finance leases.
32
Segment Results—Corporate & All Other
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Net Sales
Net sales for Corporate & All Other increased $245.7 million from fiscal 2023 to fiscal 2024. The increase was primarily attributable to acquisitions within a non-reportable segment and an increase in services provided to our other segments.
Segment Adjusted EBITDA
Adjusted EBITDA for Corporate & All Other was a negative $199.3 million for fiscal 2024 compared to a negative $234.3 million for fiscal 2023. Corporate & All Other’s Adjusted EBITDA benefited from an increase of $34.7 million in Adjusted EBITDA from the operations of acquisitions made in the second quarter of fiscal 2023 and in the first quarter of fiscal 2024.
Depreciation and amortization of intangible assets recorded in this segment increased from $26.8 million in fiscal 2023 to $59.7 million in fiscal 2024 due to acquisitions and amortization of certain customer relationships and trade names.
Liquidity and Capital Resources
We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facilities, operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facilities or with the net proceeds from the issuances of senior notes. Our borrowing levels are subject to seasonal fluctuations, as well as procurement and acquisition activities. We borrow under our credit facilities or pay them 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 facilities. 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.
We are exposed to interest rate risk related to changes in interest rates for borrowings under our ABL Facility. To add stability to interest expense and manage our exposure to interest rate movements, we enter into interest rate swap agreements. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments. As of June 29, 2024, $350.0 million of the outstanding ABL Facility balance is currently hedged under interest rate swaps which results in 80% of our total debt outstanding, including finance lease obligations, being fixed-rate debt.
In November 2022, the Board of Directors authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During fiscal 2024, the Company repurchased and subsequently retired 1.3 million shares of common stock, for a total of $78.1 million or an average cost of $58.83 per share. During fiscal 2023, the Company repurchased and subsequently retired 0.2 million shares of common stock, for a total of $11.2 million or an average cost of $56.06 per share. As of June 29, 2024, $210.6 million remained available for share repurchases.
Our cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. For information regarding the Company’s expected cash requirements related to long-term debt and operating and finance leases, see Note 8. Debt and Note 12. Leases, respectively, within the Notes to Consolidated Financial Statements included in Item 8. As of June 29, 2024, the Company had total purchase obligations of $229.9 million, which includes agreements for purchases related to capital projects and services in the normal course of business, for which all significant terms have been confirmed, as well as a minimum amount due for various Company meetings and conferences. Purchase obligations also include amounts committed to various capital projects in process or scheduled to be completed in the coming fiscal years. Included in the total purchase obligations above are commitments of $146.8 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under our credit agreement to fulfill these commitments. Amounts due under these agreements were not included in the Company’s consolidated balance sheet as of June 29, 2024.
33
On August 13, 2024, we entered into a definitive Stock Purchase Agreement to acquire Cheney Brothers in a transaction valued at $2.1 billion. The closing of the contemplated transaction is subject to customary conditions, including the receipt of required regulatory approvals. The $2.1 billion purchase price is expected to be financed with borrowing under the ABL Facility (as defined below under "- Financing Activities") and the net proceeds from the issuance of new senior unsecured notes. In connection with the Cheney Brothers Transaction, the Company is seeking an amendment to the ABL Facility that would, among other things, provide an additional $1.0 billion of revolving loan commitments, for a total aggregate principal amount available of up to $5.0 billion and extend the maturity date until 2029 (the "ABL Amendment"). It is anticipated that the ABL Amendment will be consummated in the first quarter of fiscal 2025.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
We believe that our cash flows from operations and available borrowing capacity will be sufficient to meet our anticipated cash requirements over the next 12 months and beyond, to maintain sufficient liquidity for normal operating purposes, and to fund capital expenditures.
At June 29, 2024, our cash balance totaled $27.7 million, including restricted cash of $7.7 million, as compared to a cash balance totaling $20.0 million, including restricted cash of $7.3 million, at July 1, 2023.
Operating Activities
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
During fiscal 2024 and fiscal 2023, our operating activities provided cash flow of $1,163.0 million and $832.1 million, respectively. The increase in cash flows provided by operating activities in fiscal 2024 compared to fiscal 2023 was largely driven by improvements in working capital and higher operating income.
Investing Activities
Fiscal year ended June 29, 2024 compared to fiscal year ended July 1, 2023
Cash used in investing activities totaled $682.7 million in fiscal 2024 compared to $294.6 million in fiscal 2023. These investments consisted primarily of capital purchases of property, plant, and equipment of $395.6 million and $269.7 million for fiscal years 2024 and 2023, respectively, along with net cash paid for recent acquisitions of $307.7 million and $63.8 million for fiscal years 2024 and 2023, respectively. In fiscal 2024, purchases of property, plant, and equipment primarily consisted of outlays for warehouse improvements and expansion, warehouse equipment, transportation equipment, and information technology. The following table presents the capital purchases of property, plant, and equipment by segment.
| Fiscal year ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in millions) | June 29, 2024 | July 1, 2023 | July 2, 2022 | |||
| Foodservice | $259.7 | $191.4 | $148.2 | |||
| Vistar | 53.8 | 18.0 | 19.1 | |||
| Convenience | 43.7 | 46.3 | 31.9 | |||
| Corporate & All Other | 38.4 | 14.0 | 16.3 | |||
| Total capital purchases of property, plant and equipment | $395.6 | $269.7 | $215.5 |
Financing Activities
During fiscal 2024, our financing activities used cash flow of $472.6 million, which consisted primarily of $275.0 million in cash used for the repayment of the Notes due 2025, $122.2 million in payments under finance lease obligations, and $78.1 million in repurchases of common stock.
During fiscal 2023, our financing activities used cash flow of $536.2 million, which consisted primarily of $454.4 million in net payments under our ABL Facility.
34
The following describes our financing arrangements as of June 29, 2024:
Credit Agreement: PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, are 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 “ABL Facility”), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto. The ABL Facility has an aggregate principal amount available of $4.0 billion and matures September 17, 2026.
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.
Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at (a) the Base Rate (defined as the greatest of (i) a floor rate of 0.00%, (ii) the federal funds rate in effect on such date plus 0.5%, (iii) the prime rate on such day, or (iv) one month Term SOFR plus 1.0%) plus a spread or (b) Adjusted Term SOFR plus a spread. The ABL Facility also provides for an unused commitment fee at a rate of 0.250% per annum.
The following table summarizes outstanding borrowings, availability, and the average interest rate under the ABL Facility:
| (Dollars in millions) | As of June 29, 2024 | As of July 1, 2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Aggregate borrowings | $ | 1,160.8 | $ | 1,154.0 | ||||
| Letters of credit | 160.4 | 172.2 | ||||||
| Excess availability, net of lenders’ reserves of $96.3 and $99.7 | 2,678.8 | 2,673.8 | ||||||
| Average interest rate, excluding impact of interest rate swaps | 6.79 | % | 6.35 | % |
The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $320.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties' and their subsidiaries' abilities to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under the ABL Facility may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations under such agreement.
Senior Notes due 2025: On April 24, 2020, Performance Food Group, Inc. issued and sold $275.0 million aggregate principal amount of its 6.875% Senior Notes due 2025 (the “Notes due 2025”). On April 19, 2024, Performance Food Group, Inc. elected to exercise its right to redeem all of its outstanding Notes due 2025. Performance Food Group, Inc. redeemed the Notes due 2025 on May 1, 2024 (the “Redemption Date”) at a redemption price equal to 100% of the aggregate principal amount of the Notes due 2025, plus accrued and unpaid interest thereon to, but not including, the Redemption Date, in accordance with the terms and conditions set forth in the indenture governing the Notes due 2025.
Senior Notes due 2027: On September 27, 2019, PFG Escrow Corporation (which subsequently merged with and into Performance Food Group, Inc.), issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 (the “Notes due 2027”). The Notes due 2027 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2027 are not guaranteed by the Company.
The proceeds from the Notes due 2027 along with an offering of shares of the Company’s common stock and borrowings under a prior credit agreement, were used to fund the cash consideration for the acquisition of Reinhart Foodservice, L.L.C. 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 October 15, 2027 and bear interest at a rate of 5.500% per year, payable semi-annually in arrears.
35
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2027 will have the right to require Performance 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. Performance Food Group, Inc. may redeem all or part of the Notes due 2027 at a redemption price equal to 101.375% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100% of the principal amount redeemed, plus accrued and unpaid interest, on October 15, 2024.
The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable.
Senior Notes due 2029: On July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its Notes due 2029. The Notes due 2029 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2029 are not guaranteed by the Company.
The proceeds from the Notes due 2029 were used to pay down the outstanding balance of a prior credit agreement, to redeem the 5.500% Senior Notes due 2024, and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2029.
The Notes due 2029 were issued at 100.0% of their par value. The Notes due 2029 mature on August 1, 2029 and bear interest at a rate of 4.250% per year, payable semi-annually in arrears.
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2029 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Beginning on August 1, 2024, Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at a redemption price equal to 102.125% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.163% and 100% of the principal amount redeemed on August 1, 2025, and August 1, 2026, respectively.
The indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2029 to become or be declared due and payable.
The ABL Facility and the indentures governing the Notes due 2027 and the Notes due 2029 contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries are restricted from distribution to Performance Food Group Company, except for approximately $2,268.7 million of restricted payment capacity available under such debt agreements, as of June 29, 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 materially exceed the foregoing estimate.
As of June 29, 2024, the Company was in compliance with all of the covenants under the ABL Facility and the indentures governing the Notes due 2027 and the Notes due 2029.
Total Assets by Segment
Total assets by segment discussed below exclude intercompany receivables between segments.
36
Total assets for Foodservice increased $485.2 million from $6,511.6 million as of July 1, 2023 to $6,996.8 million as of June 29, 2024. During this period, this segment increased its property, plant, and equipment, operating lease right-of-use assets, and accounts receivable, partially offset by a decrease in intangible assets.
Total assets for Vistar increased $226.4 million from $1,292.7 million as of July 1, 2023 to $1,519.1 million as of June 29, 2024. During this period, Vistar increased its property, plant, and equipment, operating lease right-of-use assets, intangible assets and goodwill.
Total assets for Convenience decreased $145.3 million from $4,226.2 million as of July 1, 2023 to $4,080.9 million as of June 29, 2024. During this period, this segment decreased its inventory and intangible assets.
Total assets for Corporate & All Other increased $327.6 million from $468.5 million as of July 1, 2023 to $796.1 million as of June 29, 2024. During this period, Corporate & All Other increased its goodwill, property, plant, and equipment, and intangible assets due to recent acquisitions within a non-reportable operating segment.
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.
Accounts Receivable
Accounts receivable are comprised of trade receivables from customers in the ordinary course of business, are recorded at the invoiced amount, adjusted for any discounts granted to customers, and primarily do not bear interest. Accounts receivable also includes other receivables primarily related to various rebate and promotional incentives with our suppliers. Receivables are recorded net of the allowance for credit losses on the accompanying consolidated balance sheets. We evaluate the collectability of our accounts receivable based on a combination of factors. We regularly analyze our significant customer accounts, and when we become aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy filings or deterioration in the customer’s operating results or financial position, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for other customers based on a variety of factors, including the length of time the receivables are past due, macroeconomic considerations, and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted.
Inventory Valuation
Our inventories consist primarily of food and non-food products. The Company values inventories at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method and last-in, first-out ("LIFO") using the link chain technique of the dollar value method. FIFO was used for approximately 65% of total inventories at June 29, 2024. We adjust our inventory balances for slow-moving, excess, and obsolete inventories. These adjustments are based upon inventory category, inventory age, specifically identified items, and overall economic conditions.
Insurance Programs
We maintain high-deductible insurance programs covering portions of general and vehicle liability and workers’ compensation. The amounts in excess of the deductibles are fully insured by third-party insurance carriers, subject to certain limitations and exclusions. We also maintain self-funded group medical insurance. We accrue our estimated liability for these deductibles, including an estimate, calculated with the assistance of third party actuaries, for incurred but not reported claims, based on known claims and past claims history. The estimated short-term portion of these accruals is included in Accrued expenses on our consolidated balance sheets, while the estimated long-term portion of the accruals is included in Other long-term liabilities. The provisions for insurance claims include estimates of the frequency and timing of claims occurrence, as well as the ultimate amounts to be paid. These insurance programs are managed by a third party, and the deductibles for general and vehicle liability and workers compensation are primarily collateralized by letters of credit and restricted cash.
37
Income Taxes
We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Income Taxes—Overall, which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company takes current and future expirations into consideration when evaluating the need for valuation allowances against deferred tax assets. A valuation allowance is provided when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Future tax benefits, including net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not. Investment tax credits are recognized as a reduction of income tax expense. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closings of statutes of limitations. Such adjustments are reflected in the tax provision as appropriate. Income tax calculations are based on the tax laws enacted as of the date of the financial statements.
Vendor Rebates and Other Promotional Incentives
We participate in various rebate and promotional incentives with our suppliers, either unilaterally or in combination with purchasing cooperatives and other procurement partners, that consist primarily of volume and growth rebates, annual and multi-year incentives, and promotional programs. Consideration received under these incentives is generally recorded as a reduction of cost of goods sold. However, as described below, in certain limited circumstances the consideration is recorded as a reduction of operating expenses incurred by us. Consideration received may be in the form of cash and/or invoice deductions. Changes in the estimated amount of incentives to be received are treated as changes in estimates and are recognized in the period of change.
Consideration received for incentives that contain volume and growth rebates, annual incentives, and multi-year incentives are recorded as a reduction of cost of goods sold. We systematically and rationally allocate the consideration for these incentives to each of the underlying transactions that results in progress by the Company toward earning the incentives. If the incentives are not probable and reasonably estimable, we record the incentives as the underlying objectives or milestones are achieved. We record annual and multi-year incentives when earned, generally over the agreement period. We use current and historical purchasing data, forecasted purchasing volumes, and other factors in estimating whether the underlying objectives or milestones will be achieved. Consideration received to promote and sell the supplier’s products is typically a reimbursement of marketing costs incurred by the Company and is recorded as a reduction of our operating expenses. If the amount of consideration received from the suppliers exceeds our marketing costs, any excess is recorded as a reduction of cost of goods sold.
Acquisitions, Goodwill, and Other Intangible Assets
We account for acquired businesses using the acquisition method of accounting. Our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. Goodwill and other intangible assets represent the excess of cost of an acquired entity over the amounts specifically assigned to those tangible net assets acquired in a business combination. Other identifiable intangible assets typically include customer relationships, trade names, technology, non-compete agreements, and favorable lease assets. Goodwill and intangibles with indefinite lives are not amortized. Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally range from two to twelve years. Annually, or when certain triggering events occur, the Company assesses the useful lives of its intangibles with definite lives. Certain assumptions, estimates, and judgments are used in determining the fair value of net assets acquired, including goodwill and other intangible assets, as well as determining the allocation of goodwill to the reporting units. Accordingly, we may obtain the assistance of third-party valuation specialists for the valuation of significant tangible and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but that are inherently uncertain. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), economic barriers to entry, a brand’s relative market position, and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, that could affect the accuracy or validity of the estimates and assumptions.
We are required to test goodwill and other intangible assets with indefinite lives for impairment annually or more often if circumstances indicate. Indicators of goodwill impairment include, but are not limited to, significant declines in the markets, industries, and customers that buy our products, changes in the estimated future cash flows of its reporting units, changes in capital markets, and changes in its market capitalization.
We apply the guidance in FASB Accounting Standards Update (“ASU”) 2011-08 “Intangibles—Goodwill and Other—Testing Goodwill for Impairment,” which provides entities with an option to perform a qualitative assessment (commonly referred to as “step zero”) to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing step zero for our
38
goodwill impairment test, we are required to make assumptions and judgments, including but not limited to: the evaluation of macroeconomic conditions as related to our business, industry and market trends, and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. If impairment indicators are present after performing step zero, we would perform a quantitative impairment analysis to estimate the fair value of goodwill.
During fiscal 2024, fiscal 2023, and fiscal 2022, we performed the step zero analysis for our goodwill impairment test and no further quantitative impairment test was deemed necessary for our reporting units within our reportable segments. Based on our assessment, there were no impairments recorded in fiscal 2024 or fiscal 2022. There was an immaterial impairment of goodwill related to reporting units within the Corporate & All Other segment for fiscal 2023.
Recently Issued Accounting Pronouncements
Refer to Note 3. Recently Issued Accounting Pronouncements within the Notes to Consolidated Financial Statements included in Item 8 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the Company’s consolidated financial statements.