Performance Food Group Co 8-K/A, filed Dec 18, 2024
Performance Food Group Co (PFGC)
About this 8-K/A
Performance Food Group Co filed this 8-K/A on December 18, 2024, reporting on events of October 8, 2024.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
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. ☐
EXPLANATORY NOTE
On October 8, 2024, Performance Food Group Company (the “Company”), completed its previously announced acquisition of Cheney Bros., Inc., a Florida corporation (“Cheney Brothers”), pursuant to the Stock Purchase Agreement, dated as of August 13, 2024 (the “Purchase Agreement”), by and among the Company, Performance Food Group, Inc., a Colorado corporation and wholly owned subsidiary of the Company (“Buyer”), Cheney Bros., Inc. Shares Trust, a Florida irrevocable trust (“Cheney Bros., Inc. Shares Trust”), Joseph N. Cheney Trust, a Florida irrevocable trust (“Joseph N. Cheney Trust”) (Cheney Bros., Inc. Shares Trust, prior to its termination, and Joseph N. Cheney Trust, at any point thereafter, “Seller 1”), June Claire Cheney Russell Trust, a Florida irrevocable trust (“Seller 2”), CD&R Chip Holdings, L.P., a Cayman Islands exempt limited partnership (“CD&R” and, together with Seller 1 and Seller 2, “Sellers”), Cheney Brothers and Michael Sullivan as Sellers’ Representative.
Pursuant to the terms of the Purchase Agreement, Buyer purchased all of the outstanding capital stock of Cheney Brothers from Sellers for $2.095 billion in cash, subject to customary adjustments for Cheney Brothers’ combined debt, cash, transaction expenses and net working capital (the “Cheney Brothers Acquisition”).
On October 8, 2024, the Company filed its Current Report on Form 8-K (the “Initial 8-K”) to report the completion of the Cheney Brothers Acquisition on October 8, 2024. Under Item 9.01 of the Initial 8-K, the Company stated that (a) the financial statements of the business acquired required by Item 9.01(a) would be filed by amendment to the Initial 8-K no later than 71 calendar days after the date on which the Initial 8-K was required to be filed, and (b) the pro forma financial information required by Item 9.01(b) would be filed by amendment to the Initial 8-K no later than 71 calendar days after the date on which the Initial 8-K was required to be filed. Accordingly, this Current Report on Form 8-K/A amends Item 9.01 of the Initial 8-K to present certain financial statements and certain pro forma financial information. Except for this Explanatory Note, the filing of the financial statements and the pro forma financial information required by Item 9.01, and the consent of Cheney Brothers’ independent auditors, EisnerAmper LLP, filed herewith as Exhibit 23.1, there are no changes to the Initial 8-K.
The unaudited pro forma condensed combined financial information included in this Current Report on Form 8-K/A is presented for illustrative purposes only, contains a variety of adjustments, assumptions and estimates, and is not necessarily indicative of what the combined Company’s actual financial position or results of operations would have been had the Cheney Brothers Acquisition been completed on the date indicated. The combined Company’s actual results and financial position may differ materially and adversely from the unaudited pro forma condensed combined financial information included in this Current Report on Form 8-K/A. Important factors that may affect actual results include, but are not limited to, risks and uncertainties relating the Company’s or Cheney Brothers’ business, as applicable (including each company’s ability to achieve strategic goals, objectives, and targets over applicable periods), industry performance, and general business and economic conditions.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited consolidated financial statements of Cheney Brothers and its subsidiaries as of and for the year ended May 31, 2024 are attached hereto as Exhibit 99.1 and are incorporated by reference in this Item 9.01(a). The unaudited condensed consolidated financial statements of Cheney Brothers and its subsidiaries as of and for the three months ended August 31, 2024 are attached hereto as Exhibit 99.2 and are incorporated by reference in this Item 9.01(a).
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined balance sheet of the Company as of September 28, 2024, and the unaudited pro forma condensed combined statements of operations of the Company for the three months ended September 28, 2024 and the fiscal year ended June 29, 2024, including the related notes thereto, giving effect to the Cheney Brothers Acquisition are filed herewith as Exhibit 99.3. The unaudited pro forma financial information gives effect to the Cheney Brothers Acquisition on the basis of, and subject to, the assumptions set forth in accordance with Article 11 of Regulation S-X.
(d) Exhibits.
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Exhibit |
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Description |
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23.1 |
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Consent of EisnerAmper LLP, independent auditors of Cheney Bros., Inc. |
99.1 |
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99.2 |
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99.3 |
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104 |
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Cover page Interactive Data File (embedded within Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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PERFORMANCE FOOD GROUP COMPANY |
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Date: December 18, 2024 |
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By: |
/s/ A. Brent King |
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A. Brent King |
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Executive Vice President, General Counsel and Secretary |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this Form 8-K/A of Performance Food Group Company to be filed on or about December 18, 2024 and to the incorporation by reference in the Registration Statements on Form S3 (No. 333-268500) and Form S8 (Nos. 333-236279, 333-236280, 333-236281, 333-259238 and 333-283384) of Performance Food Group Company of our report dated August 28, 2024, relating to the consolidated financial statements of Cheney Brothers, Inc. and Subsidiaries.
/s/ EisnerAmper LLP
EISNERAMPER LLP
West Palm Beach, Florida
December 18, 2024
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Exhibit 99.1
Audited Consolidated Financial Statements
Cheney Brothers, Inc. and Subsidiaries
May 31, 2024 and 2023
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EisnerAmper LLP
505 South Flagler Drive
Suite 900 West Palm Beach, FL 33401
T 561.832.9292
F 561.832.9455
www.eisneramper.com
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of Cheney Brothers, Inc. and Subsidiaries
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Cheney Brothers, Inc. and Subsidiaries (the “Company”), which comprise the consolidated balance sheets as of May 31, 2024 and 2023, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of Cheney Brothers, Inc. and Subsidiaries as of May 31, 2024 and 2023, and the consolidated results of their operations and their cash flows for each of the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (“GAAS”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
“EisnerAmper” is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC and its subsidiary entities provide professional services. EisnerAmper LLP and Eisner Advisory Group LLC are independently owned firms that practice in an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. EisnerAmper LLP is a licensed CPA firm that provides attest services, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services. Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
EISNERAMPER LLP
West Palm Beach, Florida August 28, 2024
EisnerAmper LLP
www.eisneramper.com
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2024 |
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2023 |
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ASSETS |
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Cash |
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$ |
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333 |
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$ |
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216 |
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Accounts receivable, net of allowance for credit losses of |
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156,355 |
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150,688 |
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Other receivables, net of allowance for credit losses of |
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19,990 |
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21,940 |
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Inventories, net |
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257,174 |
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221,132 |
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Prepaid expenses |
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10,000 |
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6,647 |
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TOTAL CURRENT ASSETS |
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443,852 |
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400,623 |
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PROPERTY AND EQUIPMENT, net of accumulated depreciation |
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of $208,918 in 2024 and $167,062 in 2023 |
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486,469 |
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398,913 |
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OTHER NONCURRENT ASSETS |
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Goodwill |
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8,011 |
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8,011 |
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Other intangibles, net of accumulated amortization of |
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$10,047in2024and$10,161in2023 |
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4,973 |
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6,269 |
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Interest rate swap agreements |
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17,200 |
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13,050 |
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Operating lease right-of-use assets, net |
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4,431 |
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5,589 |
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Other |
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8,325 |
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5,004 |
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42,940 |
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37,923 |
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$ |
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973,261 |
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$ |
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837,459 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Outstanding checks in excess of deposits |
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$ |
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11,369 |
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$ |
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16,964 |
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Current portion of long-term debt |
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39,847 |
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36,360 |
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Accounts payable |
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141,149 |
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148,595 |
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Current portion of operating lease liabilities |
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1,400 |
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1,955 |
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Accrued wages |
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16,235 |
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22,048 |
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Accrued expenses |
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39,903 |
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40,859 |
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Income taxes payable |
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1 |
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818 |
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TOTAL CURRENT LIABILITIES |
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249,904 |
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267,599 |
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DEFERRED INCOME TAXES |
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27,532 |
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23,394 |
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DEFERRED INCOME |
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583 |
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683 |
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LONG-TERM OPERATING LEASE LIABILITIES |
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3,031 |
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3,634 |
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LONG-TERM DEBT, net of current portion and unamortized loan costs |
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316,373 |
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243,765 |
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TOTAL LIABILITIES |
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597,423 |
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539,075 |
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COMMITMENTS AND CONTINGENCIES (Note J) |
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STOCKHOLDERS' EQUITY |
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Preferred Stock; 15,000 shares authorized; none issued |
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- |
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- |
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Series A Convertible Preferred Stock; $0.01 par; 10,000 shares authorized; |
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5,274 shares issued and outstanding |
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142,286 |
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142,286 |
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Common stock; $1 par; 50,000 shares authorized; |
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9,796 shares issued and outstanding |
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10 |
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10 |
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Additional paid-in capital |
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258 |
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258 |
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Retained earnings |
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220,484 |
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146,088 |
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Accumulated other comprehensive income |
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12,800 |
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9,742 |
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375,838 |
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298,384 |
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$ |
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973,261 |
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$ |
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837,459 |
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2024 |
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2023 |
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NET SALES |
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$ |
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3,277,439 |
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$ |
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3,103,524 |
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COST OF SALES |
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2,669,628 |
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2,543,519 |
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GROSS PROFIT |
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607,811 |
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560,005 |
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OPERATING EXPENSES |
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Selling |
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128,460 |
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118,022 |
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Delivery and warehouse |
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240,981 |
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216,432 |
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Office and general |
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130,896 |
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122,911 |
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TOTAL OPERATING EXPENSES |
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500,337 |
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457,365 |
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INCOME FROM OPERATIONS |
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107,474 |
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102,640 |
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OTHER INCOME (EXPENSE) |
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Interest expense, net of interest income of $1,523 in 2024 |
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and $656 in 2023 |
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(11,291 |
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(11,063 |
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Other income |
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3,427 |
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3,001 |
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OTHER INCOME (EXPENSE), NET |
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(7,864 |
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(8,062 |
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INCOME BEFORE INCOME TAX EXPENSE |
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99,610 |
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94,578 |
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INCOME TAX EXPENSE, net |
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25,214 |
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23,430 |
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NET INCOME |
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$ |
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74,396 |
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$ |
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71,148 |
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2024 |
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2023 |
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NET INCOME |
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$ |
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74,396 |
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$ |
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71,148 |
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Other comprehensive income |
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Unrealized gain on interest rate swap agreements, |
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net of tax of $1,092 in 2024 and $2,320 in 2023 |
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3,058 |
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6,870 |
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TOTAL COMPREHENSIVE INCOME |
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$ |
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77,454 |
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$ |
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78,018 |
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Accumulated |
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Series A Convertible |
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Common |
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Additional |
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Other |
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Preferred Stock |
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Stock |
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Paid-In |
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Retained |
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Comprehensive |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income |
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Total |
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Balance at May 31, 2022 |
5,274 |
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142,286 |
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9,796 |
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10 |
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258 |
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82,440 |
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2,872 |
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227,866 |
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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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71,148 |
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- |
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71,148 |
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Unrealized gain on interest |
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rate swap agreements, net of tax |
- |
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- |
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- |
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- |
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- |
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- |
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6,870 |
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6,870 |
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Dividends |
- |
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- |
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- |
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- |
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- |
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(7,500) |
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- |
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(7,500) |
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Balance at May 31, 2023 |
5,274 |
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142,286 |
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9,796 |
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10 |
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258 |
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146,088 |
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9,742 |
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298,384 |
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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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74,396 |
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- |
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74,396 |
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|
|
|
|
|
Unrealized gain on interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate swap agreements, net of tax |
- |
|
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
3,058 |
|
|
3,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2024 |
5,274 |
|
$ |
142,286 |
|
9,796 |
|
$ |
10 |
|
$ |
258 |
|
$ |
220,484 |
|
$ |
12,800 |
|
$ |
375,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
2023 |
||
OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income |
|
$ |
74,396 |
|
$ |
71,148 |
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
provided by operating activities |
|
|
|
|
|
|
Depreciation and amortization |
|
|
54,313 |
|
|
48,724 |
Non-cash lease expense |
|
|
1,158 |
|
|
2,428 |
Loss on sale of property and equipment |
|
|
62 |
|
|
120 |
Provision for credit losses |
|
|
4,059 |
|
|
2,702 |
Deferred income tax provision |
|
|
3,046 |
|
|
4,837 |
Change in operating assets and liabilities: |
|
|
|
|
|
|
Increase in accounts receivable |
|
|
(8,138) |
|
|
(3,730) |
Decrease (increase) in other receivables |
|
|
362 |
|
|
(5,390) |
(Increase) decrease in inventories |
|
|
(36,044) |
|
|
8,613 |
Increase in prepaid expenses |
|
|
(3,353) |
|
|
(1,488) |
(Increase) decrease in other noncurrent assets |
|
|
(3,321) |
|
|
5,352 |
(Decrease) increase in accounts payable |
|
|
(7,446) |
|
|
6,205 |
Decrease in accrued wages |
|
|
(5,813) |
|
|
(2,384) |
(Decrease) increase in accrued expenses |
|
|
(956) |
|
|
12,715 |
Decrease in operating lease liabilities |
|
|
(1,158) |
|
|
(2,428) |
(Decrease) increase in income taxes payable |
|
|
(817) |
|
|
10 |
Decrease in deferred income |
|
|
(100) |
|
|
(100) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
70,250 |
|
|
147,334 |
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
85 |
|
|
203 |
Capital expenditures |
|
|
(72,707) |
|
|
(104,925) |
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(72,622) |
|
|
(104,722) |
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
Borrowings (repayment) on line of credit, net |
|
|
27,489 |
|
|
(46,380) |
Decrease in outstanding checks in excess of deposits |
|
|
(5,595) |
|
|
(9,909) |
Borrowings on long-term debt |
|
|
27,027 |
|
|
62,999 |
Payment of loan costs |
|
|
(53) |
|
|
(524) |
Repayments on long-term debt |
|
|
(46,379) |
|
|
(41,200) |
Payment of cash dividends |
|
|
- |
|
|
(7,500) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
2,489 |
|
|
(42,514) |
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
117 |
|
|
98 |
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR |
|
|
216 |
|
|
118 |
|
|
|
|
|
|
|
CASH, END OF YEAR |
|
$ |
333 |
|
$ |
216 |
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
11,365 |
|
$ |
11,033 |
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
|
$ |
17,217 |
|
$ |
21,199 |
|
|
|
|
|
|
|
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements include the accounts of Cheney Brothers, Inc. and its wholly-owned subsidiaries (the “Company”), Cheney OFS, Inc. (“OFS”), a Florida corporation, Coast to Coast Importing, LLC (“Coast to Coast”), a Florida limited liability company, GWB, LLC (“GWB”), a Florida limited liability company, Belgium Butter, Nut & Candy, LLC (“Belgium”), a Florida limited liability company, Blue Reef Fish Company, LLC (“Blue Fish”), a Florida limited liability company, Meat and Seafood Solutions, LLC (“Meat & Seafood”), a North Carolina limited liability company, Cheney Properties, LLC (“Properties”), a Florida limited liability company, Coast to Coast Cold Storage, LLC (“Cold Storage”), a Florida limited liability company, CDL Right Now!, LLC (“CDL”), a Florida limited liability company, and Coast to Coast Express Aviation, LLC (“Aviation”), a Florida limited liability company. Intercompany transactions and balances have been eliminated in consolidation.
Business: The Company is a marketer and distributor of food and food service products. The Company is incorporated in the State of Florida and has been operating primarily in Florida, North and South Carolina, and to a lesser degree other states in the southeast and internationally since 1928. The Company primarily provides its products to restaurants, hotels and other institutions.
Cash: Balances in the Company’s bank accounts at May 31, 2024 and 2023, are fully insured by the FDIC.
Accounts Receivable: Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. The past-due status of trade receivables is based on contractual terms with each customer. Effective January 1, 2023, the Company adopted FASB's ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) -Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended. The allowance for expected credit losses represents the Company's best estimate based on consideration of the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. The allowance for expected credit losses is primarily based on two primary factors: i) the aging of the different categories of trade receivables, and ii) a specific reserve for accounts identified as uncollectible. The adoption and application of the standard had no material effect on the financial statements.
The Company utilized an allowance for uncollectible accounts methodology prior to the adoption of ASU 2016-13. The allowance for uncollectible accounts had been determined primarily through specific identification and evaluation of significant past-due amounts, supplemented by an estimate applied to the remaining balance of past-due accounts, which was based on historical experience. Based on management's assessment, the Company provides for estimated allowance amounts through a charge to earnings.
Other Current Receivables: The Company’s other current receivables reported on the consolidated balance sheets includes accounts receivable for income tax refunds in the amounts of $1,331 and $5,997 for 2024 and 2023, respectively.
6
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories: Inventories consist of food and related products held for resale and are valued at the lower of cost (average cost) and net realizable value.
The Company adjusts inventory balances as needed for slow-moving and obsolete inventory. Inventory reserves are estimated based on multiple considerations, including, but not limited to, a product’s age, seasonal demand, market trends, and business strategies.
Property and Equipment: Property and equipment are carried at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. The useful lives are generally 40 years for buildings and improvements and range from 5 to 20 years for furniture and equipment, computer and warehouse management systems, and transportation equipment. Maintenance and repairs and minor replacements are charged to earnings when incurred.
Impairment of long-lived assets: The Company assesses the impairment of its long-lived assets, including property and equipment, used in operations whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Long-lived assets are considered to be impaired when the sum of the expected undiscounted future operating cash flows is less than the carrying value of the related assets. If impairment is identified, the Company will reduce the carrying value of the assets to the fair value. No impairments were recorded during 2024 and 2023.
Goodwill and Other Intangible Assets: Goodwill with an indefinite useful life is not amortized. Intangible assets with finite useful lives, principally customer lists, are amortized generally on a straight line basis over the periods benefited, currently 15 years. The Company did not make any payments during the years ending May 31, 2024 and 2023 for intangibles. Amortization expense was $1,296 and $1,395 during the years ended May 31, 2024 and 2023, respectively. Amortization expense is expected to approximate
$1,200 for each of the next five years. Goodwill, customer lists and other intangible assets are reviewed for possible impairment at least annually when financial statements are prepared or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amounts of goodwill or other intangible assets is greater than its fair value or circumstances indicate that carrying amounts may not be recoverable. If the carrying value of goodwill or indefinite-lived intangible assets (“the intangibles”) exceeds its fair value, an impairment loss is recognized. The intangibles are assessed for impairment using a qualitative or quantitative approach. Where the Company uses a qualitative analysis, it considers factors that include historical financial performance, macroeconomic and industry conditions, and legal and regulatory environment. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed. The quantitative assessment requires an analysis of several estimates including future cash flows or income consistent with management’s strategic application of assumptions underlying a discount rate (weighted average cost of capital) based on market data available at the time to determine fair value of the intangibles. There was no impairment recorded in fiscal years 2024 and 2023.
7
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Noncurrent Assets: Other noncurrent assets consist of various security and customer deposits, cash value of officers’ life insurance of $463 and $478 in 2024 and 2023, respectively, and an investment of
$2,180 in 2024 and 2023 in a joint venture that owns property located in Riviera Beach, Florida. The joint venture is accounted for at cost as the equity method impact is not material.
Deferred Income: The Company received cash in connection with entering into a distribution agreement for certain products. This amount is being amortized over the term of the agreement of 10 years on a straight-line basis.
Loan Costs: During 2024 and 2023, the Company incurred loan costs totaling $53 and $524, respectively, in connection with the Company’s line of credit and long-term debt. These costs are presented as a direct deduction from the carrying amount of the debt and are being amortized over the lives of the respective loans on a basis that approximates the effective interest rate method. Amortization in the amount of $634 and $501 was recorded in 2024 and 2023, respectively, as a component of interest expense in the accompanying consolidated statements of income. Future annual amortization for each of the next five years will be approximately $500 per year.
Revenue Recognition: The Company generates revenue primarily from the distribution and sale of food and related products to its customers. Substantially all revenue is recognized at the point in time in which the product is delivered to the customer. The Company grants certain customers sales incentives, such as rebates or discounts, which are accounted for as variable consideration. The variable consideration is based on amounts known at the time the performance obligation is satisfied and, therefore, requires judgment. The Company includes discounts taken by customers for trade discounts, billbacks, rebates, and price reductions as reductions reflected in net sales.
The Company recognizes revenues in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 which occurs when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment. While certain additional services may be identified within a contract, those services are individually immaterial in the context of the contract with the customer, and, therefore, not assessed as performance obligations.
Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities. Shipping and handling costs include costs associated with the selection of products and delivery to customers and are included within delivery and warehouse expenses in the accompanying consolidated statements of income.
8
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (continued): After completion of the Company’s performance obligations, the Company has an unconditional right to consideration as outlined in its contracts with customers. Customer receivables will generally be collected in less than 40 days in accordance with the underlying payment terms.
The Company has certain customer contracts in which upfront monies are paid to its customers. These payments are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized and amortized over the life of the contract or the expected life of the relationship with the customer on a straight-line basis. As of May 31, 2024 and 2023, these contract assets were not significant.
Contract assets represent the Company’s right to consideration based on satisfied performance obligations from contracts with customers. Contract assets consist of accounts receivable which were
$163,255, $158,088, and $155,060 as of May 31, 2024, 2023, and 2022, respectively. Contract liabilities represent payments received from customers prior to the satisfaction of the corresponding performance obligations. Contract liabilities are recognized as revenue once the corresponding performance obligations are satisfied based on the contract with the customer. Contract liabilities, which are included in deferred income on the consolidated balance sheets, were $583, $683, and $783 at May 31, 2024, 2023, and 2022, respectively.
The incremental cost of obtaining a contract with a customer is recorded as deferred costs if the Company expects to recover such costs that the Company would not have incurred if the contract had not been obtained. If the costs would have been incurred regardless of whether the contract was obtained, they are expensed as incurred unless such costs are explicitly chargeable to the customer, whether or not the contract is obtained. The Company did not incur any significant amount of such costs and no amounts have been deferred during the years ended May 31, 2024 and 2023.
The Company recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, the Company recognizes the vendor consideration as a reduction of cost of sales when the product has sold. As of May 31, 2024 and 2023, the rebate amounts receivable aggregate
$19,593 and $15,084, respectively, and are included in other receivables in the accompanying Balance Sheets.
Leases: The Company leases trucks, office space, office equipment, and warehouse equipment. It is determined at inception if the arrangement is a lease. Operating leases are included in operating lease right-of-use “ROU” assets, current operating lease liabilities, and long-term operating lease liabilities on the accompanying consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of long-term debt, and long-term debt on the accompanying consolidated balance sheets.
9
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases (continued): ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, such as office and warehouse space, lease and non-lease components are accounted for as a single lease component. For arrangements accounted for as a single lease component, there may be variability in future lease payments as the amount of the non-lease components is typically revised from one period to the next. These variable lease payments, which are primarily comprised of common area maintenance, utilities, and property taxes, are recognized in operating expenses in the period in which the obligation for those payments was incurred.
In evaluating contracts to determine if they qualify as a lease, the Company considers factors such as if it has obtained substantially all the rights to the underlying asset through exclusivity, if it can direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights. This evaluation may require significant judgment.
In allocating consideration in the contract to the separate lease components and the non-lease components, the Company uses the standalone prices of the lease and non-lease components. Observable standalone prices are used, if available. If the standalone price for a component has a high level of variability or uncertainty, this allocation may require significant judgment.
In determining the discount rate used to measure the right-of-use asset and lease liability, the Company uses rates implicit in the lease, or if not readily available, its incremental borrowing rate. The Company’s incremental borrowing rate is the rate implicit in its line of credit.
Purchase and Promotional Discounts: Purchase discounts are recorded as a reduction to cost of sales as they are taken. Promotional discounts are recorded as a reduction to cost of sales when earned.
Advertising Costs: Advertising costs, which are included in selling expense on the accompanying consolidated statements of income, are expensed as incurred and totaled approximately $3,559 and $4,627 during the years ended May 31, 2024 and 2023, respectively.
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: The Company accounts for income taxes in accordance with the provisions of FASB ASC 740, Income Taxes. FASB ASC 740 requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s consolidated financial statements. Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
The Company evaluates its uncertain tax positions in accordance with FASB ASC 740, Income Taxes. Management does not believe that the Company has any significant uncertain tax positions that would be material to the consolidated financial statements. There were no significant interest and penalties recognized in the consolidated statements of income for 2024 and 2023 which would be charged to income tax expense or in the consolidated balance sheets at May 31, 2024 and 2023. The Company files its income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s
U.S. income tax returns are generally no longer subject to examination for years through May 31, 2020.
Letters of Credit: The Company is a party to standby letters of credit aggregating $50. These letters of credit include financial guarantees and are not recorded in the accompanying consolidated balance sheets since they have not been drawn upon.
Financial guarantees are conditional commitments issued by the Company to guarantee the payment of certain liabilities of the Company. The letters of credit are issued primarily to act as security for payment of insurance and utility bills. The Company’s exposure for these guarantees is equal to the letter of credit amounts.
Recent Accounting Pronouncements: The following update to accounting standards has been issued by the FASB and may affect the Company in future years:
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments (Topic 326) – Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The Company adopted the ASU beginning June 1, 2023. It was determined that assets held by the Company subject to the guidance were trade accounts receivable, vendor rebate receivable, and notes receivable. The impact of the analysis of these assets was not considered material to the financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 840) - Improvements to Income Tax Disclosures, which provides guidance regarding disclosures for income tax, specifically effective tax rates and income taxes paid. This ASU will be effective for fiscal years beginning after December 15, 2025. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
1
NOTE A – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations: The Company does not have a concentration of customers or vendors representing greater than 10% of sales or purchases which creates a risk where their loss would have a material impact on the Company’s financial position or results of operations.
Comprehensive Income: Comprehensive income is the total of (1) net income plus (2) all other changes in financial position arising from non-Company sources, which are referred to as items of other comprehensive income (“OCI”). Changes in components of accumulated other comprehensive income consisted of unrealized gains and losses on interest rate swap agreements and is presented in the consolidated statements of comprehensive income and stockholders’ equity. The Company releases any tax effects remaining in accumulated other comprehensive income as an individual swap agreement is sold, liquidated or extinguished.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events: The Company has evaluated subsequent events through August 28, 2024, which is the date that the consolidated financial statements were available to be issued.
On August 13, 2024, the owners of the Company entered into a Purchase Agreement under which Performance Food Group will acquire 100% of the outstanding shares of the Company. The agreement is subject to regulatory approvals and is expected to close in fiscal 2025.
NOTE B – ALLOWANCE FOR CREDIT LOSSES
A summary of the activity in the allowance for credit losses on trade receivables is as follows:
2024 |
2023 |
|
Balance at beginning of year |
$ 7,400 |
$ 5,400 |
Charged to costs and expenses, net of recoveries |
2,471 |
2,702 |
Customer accounts written off |
(2,971) |
(702) |
Balance at end of year |
$ 6,900 |
$ 7,400 |
The Company also keeps an allowance for credit losses on other receivables in the amount of $1,588 and
$0 in 2024 and 2023, respectively.
2
NOTE C – PROPERTY AND EQUIPMENT, NET
Major classes of property and equipment, net as of May 31, 2024, and 2023, are as follows:
|
|
|
|
2024 |
2023 |
Land |
$ 17,543 |
$ 16,828 |
Buildings and improvements |
312,878 |
270,407 |
Furniture and equipment |
87,468 |
73,981 |
Computer and warehouse management systems |
72,135 |
59,603 |
Transportation equipment |
3,300 |
3,104 |
Right-of-use assets, financing |
202,063 |
142,052 |
|
695,387 |
565,975 |
Less accumulated depreciation |
(208,918) |
(167,062) |
|
$ 486,469 |
$ 398,913 |
Depreciation expense for the years ended May 31, 2024 and 2023 was $52,382 and $46,828, respectively. This includes amortization expense of $28,036 and $26,072 for finance right-of-use assets in 2024 and 2023.
NOTE D – LINE OF CREDIT
The Company has a line of credit with a bank secured by the trade accounts receivable and inventory of the Company. The line of credit provides for a maximum borrowing of $300 million based on availability at 62% of eligible Company inventory up to a maximum of $150 million and 85% of eligible accounts receivable. Interest on the line of credit is payable monthly at the average monthly SOFR (Secured Overnight Financing Rate) rate plus 1.35% to 1.95% depending upon the Company’s excess availability. In connection with an amendment to the line of credit, the Company entered into an interest rate swap agreement with the lender which provides that the Company will pay a fixed rate of 1.965% on $45 million of the outstanding line of credit balance through January 13, 2027. The excess availability at May 31, 2024 was $266.4 million. The interest rate was 1.965% at May 31, 2024 and 2023.
The entire outstanding principal balance on May 31, 2024, of approximately $29 million, is due January 13, 2027. The balances are reported net of unamortized loan costs of $910 in 2024 and $1,236 in 2023. The available balance of the line of credit fluctuates during the year as the balance of the Company’s accounts receivable and inventory increases during seasonal peaks of the Company’s market area.
The Company’s outstanding checks in excess of deposits amounting to $11,369 and $16,964 at May 31, 2024 and 2023, respectively, represent the Company’s outstanding checks at a given point in time that are funded by the line of credit on a daily basis.
The loan includes certain financial covenants imposed by the bank.
3
NOTE E – INTEREST RATE SWAP AGREEMENTS
Simultaneously with its line of credit and mortgage loan agreements, the Company entered into Receive- variable/Pay Fixed interest rate swap agreements with various banks as a hedge against future interest rate increases on loans with a notional amount of approximately $154,000. Under the terms of the swaps, the notional amount was equivalent to the outstanding principal balance on the loans and the Company received interest at a variable rate equivalent to the bank's floating market rates. The swap agreements fix the interest rate through maturity of the swap agreements which match the loan maturing dates. The swaps decreased the Company’s exposure to variable interest rates by fixing the interest rate on the various loans.
The swap agreements are reported as an asset at May 31, 2024 and 2023 on the consolidated balance sheets at their fair value of $17,200 and $13,050, respectively, and the unrealized gain, net of income taxes, related to the change in the fair value of the interest rate swap agreements of $3,058 and $6,870, respectively, is reported as other comprehensive income. The fair value of the interest rate swap agreements was provided by the banks originating the loans which were the counterparty to the agreements, based on their proprietary pricing models.
NOTE F – LONG-TERM DEBT |
|
|||
Long-term debt consists of the following as of May 31, 2024, and 2023: |
||||
|
2024 |
2023 |
||
Mortgage loans, collateralized by substantially all property and equipment of the Company, with effective interest rates of 3.54% to 5.62% per annum at May 31, 2024, due in monthly payments of principal and interest, maturing at various dates through August 1, 2041. The Company has entered into interest rate swap agreements to hedge variable interest rates on certain of these loans that were converted from fixed rate interest only construction loans to fully amortizing floating rate mortgage loans upon completion of construction. Effective interest rates at May 31, 2023 ranged from 3.54% to 6.01% per annum. Mortgage loan balances are net of unamortized loan costs of $1,267 in 2024 and $1,516 in 2023. |
$ 169,490 |
$ 155,402 |
||
Equipment loans, collateralized by certain warehouse equipment and computer hardware and software, with effective interest rates of 2.90% to 4.81% per annum at May 31, 2024, due in monthly payments of principal and interest, maturing at various dates through June 17, 2030. Effective interest rates at May 31, 2023 ranged from 2.90% to 7.88% per annum. Equipment loan balances are net of unamortized loan costs of $0 in 2024 and $3 in 2023. |
$ |
13,809 |
$ |
18,877 |
Unsecured loans with effective interest rates of 5.07% to 5.10% per
4
annum at May 31, 2024, due in monthly payments of principal and interest, maturing at various dates through July 15, 2028. Effective interest rates at May 31, 2023 ranged from 5.31% to 7.27% per annum. Unsecured loan balances are net of unamortized loan costs of $0 in 2024 and $2 in 2023. |
7,031 |
|
7,469 |
Total principal, net of unamortized loan costs |
190,330 |
|
181,748 |
Less current portion |
10,047 |
|
11,651 |
Noncurrent portion of long-term debt |
180,283 |
|
170,097 |
Line of credit, net of unamortized loan costs (Note D) |
27,815 |
|
- |
Long-term debt, net of current portion and unamortized loan costs |
$ 208,098 |
|
$ 170,097 |
Lease liabilities for finance ROU assets are not included in the table above and are addressed in Note L.
Interest expense on long-term liabilities, excluding liabilities for finance ROU assets (see Note L), was $8,688 and
$8,528 in 2024 and 2023, respectively.
Principal payments on long-term debt, excluding the line of credit, liability for finance right-of-use assets, and unamortized loan costs, are due as follows:
Year Ending May 31, |
Mortgage Loans |
Equipment Loans |
Unsecured Loans |
Amount |
2025 |
$ 7,986 |
$ 1,583 |
$ 2,794 |
$ 12,363 |
2026 |
8,236 |
1,526 |
2,239 |
12,001 |
2027 |
8,396 |
1,271 |
1,128 |
10,795 |
2028 |
9,206 |
1,143 |
870 |
11,219 |
2029 |
8,742 |
1,143 |
- |
9,885 |
Thereafter |
128,191 |
7,143 |
- |
135,334 |
Total |
170,757 |
13,809 |
7,031 |
191,597 |
Unamortized loan costs |
(1,267) |
- |
- |
(1,267) |
|
$ 169,490 |
$ 13,809 |
$ 7,031 |
$ 90,330 |
NOTE G – FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Company follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:
5
NOTE G – FAIR VALUE MEASUREMENTS AND DISCLOSURE(continued)
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3: Inputs are unobservable for the assets or liabilities.
The fair value measurement of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following methods and assumptions were used by the Company in estimating the fair values of assets that are measured at fair value on a recurring basis. There were no changes in the methodologies used at May 31, 2024 and 2023.
Interest Rate Swap Agreements: Valued by the counterparty based on one or more proprietary models using inputs that are derived principally from or corroborated by observable market data.
The following tables set forth by level within the fair value hierarchy, the Company’s assets measured at fair value on a recurring basis at May 31, 2024 and 2023.
|
2024 |
|||
|
Level 1 |
Level 2 |
Level 3 |
Total |
Assets |
|
|
|
|
Interest rate swap agreements |
$ - |
$ 17,200 |
$ - |
$ 17,200 |
|
2023 |
|||
|
Level 1 |
Level 2 |
Level 3 |
Total |
Assets |
|
|
|
|
Interest rate swap agreements |
$ - |
$ 13,050 |
$ - |
$ 13,050 |
The valuation methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in different fair value measurements at the reporting date.
NOTE H – INCOME TAX EXPENSE
The components of the Company’s income tax expense for the years ended May 31, 2024 and 2023 are as follows:
6
NOTE H – INCOME TAX EXPENSE (continued)
|
2024 |
2023 |
Current |
|
|
Federal |
$ 16,998 |
$ 14,755 |
State |
5,170 |
3,838 |
|
22,168 |
18,593 |
Deferred |
|
|
Federal |
3,039 |
4,774 |
State |
7 |
63 |
|
3,046 |
4,837 |
|
$ 25,214 |
$ 23,430 |
The difference between the provision for income taxes and the amount of income tax expense that would result from applying domestic federal statutory tax rate to pretax income is principally attributable to the following:
|
2024 |
2023 |
Federal statutory rate of 21% |
$ 20,918 |
$ 19,861 |
Effect of state income taxes |
4,367 |
3,934 |
Fuel Credit |
(327) |
(365) |
Other |
256 |
- |
Income tax expense |
$ 25,214 |
$ 23,430 |
The income tax provision includes deferred income taxes and credits relating to the timing differences that result from reporting certain items for income tax purposes in different years than for financial statement purposes.
The components of deferred income tax liabilities (assets) at May 31, 2024 and 2023, are as follows:
2024 2023
Liabilities
Depreciation and amortization |
$ 26,933 |
$ 23,754 |
Interest rate swap agreements |
4,400 |
3,308 |
Other |
206 |
- |
Assets Capitalization of certain inventory costs (2,274) (1,809) |
||
Bad debt provision |
(1,733) |
(1,859) |
Net deferred income tax liability |
$ 27,532 |
$ 23,394 |
No valuation allowance has been established for the above amounts, as management believes the amounts will be fully realized.
7
NOTE I – STOCKHOLDERS’ EQUITY
Effective July 23, 2020, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock to 50,000 shares and preferred shares to 25,000 (10,000 of which were designated Series A Preferred Stock; $.01 par value). In connection therewith, the Company sold 5,274 shares of the Series A Preferred Stock for $150,000 (less offering costs of $7,714) resulting in net proceeds to the Company of $142,286. The Series A Preferred Stock is convertible into common stock at any time at the option of Series A Preferred Stock stockholders at a ratio that as of closing represents 35% of the fully diluted equity of the Company (after giving effect to the conversion). The Series A Preferred Stock carries a dividend rate of 10% per annum payable quarterly in kind or in cash at the Company’s option. The dividend rate is reduced to 0% if the Company meets certain EBITDA thresholds. The Company met the stated threshold in November 2022 and, as such, the dividend was reduced to 0% beginning December 1, 2022. The dividend rate is increased by 3% if the Company breaches certain fundamental covenants. The Series A Preferred Stock participates pro-rata with the common stock on dividends and distributions on an as converted basis and votes with common stock pro rata on an as converted basis up to 49.9%; as converted shares above that level are treated as non-voting.
The Series A Preferred Stock has a liquidation preference equal to the greater of 1) the amount that a holder of Series A Preferred Stock would have received had the holder, as of the commencement of a liquidation event, converted the share of Series A Preferred Stock into common stock pursuant to the conversion rights using the applicable conversion price at the time of the liquidation event, or 2) cash or cash and/or freely tradeable marketable securities in connection with an exit transaction (as defined in the Shareholders Agreement) with a value equal to the stated value of such share of Series A Preferred Stock at the time of the liquidation event.
In connection with, and prior to, the sale of the Company as disclosed in Note A “Subsequent Events”, the Preferred shares will be converted into common stock representing 35% of the outstanding shares of the Company.
NOTE J – COMMITMENTS AND CONTINGENCIES
Litigation: The Company is periodically involved in litigation either as a plaintiff or as a defendant. Management believes that there are presently no matters that would have a material effect on the Company’s financial position or results of operations.
Construction Commitment: The Company entered into construction contracts to build a distribution facility in Florence, South Carolina and two production facilities in St Cloud, Florida and Pompano Beach, Florida. The contracts are for approximately $97,000 for the distribution facility and approximately $44,000 combined for the production facilities. Projects are expected to be completed in the next two years. At May 31, 2024, approximately $18,000 and $12,000 have been expended in connection with the distribution facility and production facilities, respectively. These amounts are included in Buildings and improvements in Note C – Property and Equipment, Net.
Equipment Commitment: See Note L – Leases for information on additional lease commitments entered into by the Company.
8
NOTE K – 401(K) PLAN
The Company has a 401(k) Plan in which all full time employees, 21 years of age and older, may elect to participate. Under the Plan, the Company matches 50% of employee contributions up to 6% of eligible compensation. Company contributions for the years ended May 31, 2024 and 2023 were $3,101 and
$2,889, respectively.
NOTE L – LEASES
The Company has operating and finance leases for trucks, office space and certain office and warehouse equipment. Leases have remaining lease terms of up to 24 years. As of May 31, 2024 and 2023, assets recorded under finance leases were $202,063 and $142,052, respectively, and accumulated depreciation associated with finance leases was $65,062 and $44,341, respectively.
The following table presents the location of the finance right-of-use assets and lease liabilities in the Company’s consolidated balance sheets.
|
Consolidated Balance Sheet Location |
2024 |
2023 |
|
Finance right-of-use assets |
Property and equipment, net |
$ 137,001 |
$ 97,711 |
|
Current finance lease liabilities |
Current portion of long-term debt |
29,800 |
24,709 |
|
Long-term finance lease liabilities |
Long-term debt, net of current portion |
108,275 |
73,668 |
|
The components of lease expense were as follows: |
2024 2023 |
|||
Operating lease cost Finance lease cost Amortization of right of use assets |
$ 2,069 $ 2,819 $ 28,036 $ 26,072 |
|||
Interest on lease liabilities |
2,603 2,536 |
|||
Total finance lease cost |
$ 30,639 $ 28,608 |
|||
Other information related to leases was as follows:
Weighted Average Remaining Lease Term
2024 2023
Operating leases |
10.88 yrs |
9.87 yrs |
Finance leases |
5.81 yrs |
5.27 yrs |
Weighted Average Remaining Discount Rate
2024 2023
Operating leases |
2.55% |
2.65% |
Finance leases |
2.19% |
2.46% |
Supplemental Cash Flow Information:
9
NOTE L – LEASES (continued)
Cash paid for amounts included in the measurement of lease liabilities:
2024 2023
Operating cash flows from operating leases |
$ 2,069 |
$ 2,819 |
Finance cash flows from finance leases |
27,681 |
25,434 |
Right-of-use assets obtained in exchange for lease obligations:
2024 2023
Operating leases |
$ 911 |
$ 1,656 |
Finance leases |
67,951 |
25,289 |
Future minimum lease payments under non-cancellable leases as of May 31, 2024 were as follows:
Year Ending May 31, |
Operating Leases |
Finance Leases |
Total |
2025 |
$ 1,637 |
$ 32,423 |
$ 34,060 |
2026 |
842 |
28,013 |
28,855 |
2027 |
698 |
25,740 |
26,438 |
2028 |
365 |
20,954 |
21,319 |
2029 |
122 |
16,908 |
17,030 |
Thereafter |
2,032 |
27,817 |
29,849 |
Total future minimum lease payments |
5,696 |
151,855 |
157,551 |
Less imputed interest |
(1,265) |
(13,780) |
(15,045) |
Total |
$ 4,431 $ 138,075 $ 142,506 |
||
As of May 31, 2024, we have entered into agreements to acquire new leased equipment which will result in additional estimated finance lease payments of $10,092 annually over the life of the leases, between 5 years and 8 years. These leases will commence between fiscal year 2025 and fiscal year 2027.
NOTE M – REVENUE
Disaggregation of sales: The below table represents a disaggregation of revenue for the Company’s principal product categories.
NOTE M – REVENUE (continued) |
|
|
Principal product categories |
2024 |
2023 |
Frozen fruits, vegetables, desserts, etc. |
$ 770,754 |
$ 734,317 |
Dry goods |
583,260 |
540,896 |
Refrigerated goods |
450,049 |
448,346 |
Fresh and frozen meat |
421,528 |
366,202 |
Paper and disposables |
283,371 |
302,513 |
Fresh and frozen seafood |
228,875 |
231,066 |
Fresh poultry |
169,515 |
142,747 |
Fresh produce |
157,946 |
146,596 |
Beverage |
150,815 |
133,426 |
Other |
61,326 |
57,415 |
Total sales |
$ 3,277,439 |
$ 3,103,524 |
Exhibit 99.2
Unaudited Condensed Consolidated Financial Statements
Cheney Brothers, Inc. and Subsidiaries
As of and For the Three Months Ended August 31, 2024
Cheney Brothers, Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEET
As of August 31, 2024
($ Amounts in Thousands)
|
|
08/31/24 |
|
ASSETS |
|
|
|
Cash |
|
$ |
289 |
Accounts receivable, net of allowance for credit losses of $6,200 |
|
|
158,724 |
Other receivables, net of allowance for credit losses of $1,074 |
|
|
18,725 |
Inventories, net |
|
|
246,230 |
Prepaid expenses |
|
|
13,276 |
TOTAL CURRENT ASSETS |
|
|
437,244 |
|
|
|
|
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $218,563 |
|
|
494,846 |
|
|
|
|
OTHER NONCURRENT ASSETS |
|
|
|
Goodwill |
|
|
8,011 |
Other intangibles, net of accumulated amortization of $10,298 |
|
|
4,723 |
Interest rate swap agreements |
|
|
15,300 |
Operating lease right-of-use assets, net |
|
|
3,945 |
Other |
|
|
9,083 |
|
|
|
41,062 |
|
|
|
|
|
|
$ |
973,152 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
CURRENT LIABILITIES |
|
|
|
Outstanding checks in excess of deposits |
|
$ |
30,397 |
Current portion of long-term debt |
|
|
40,319 |
Accounts payable |
|
|
128,315 |
Current portion of operating lease liabilities |
|
|
1,110 |
Accrued wages |
|
|
21,621 |
Accrued expenses |
|
|
32,524 |
Income taxes payable |
|
|
3,546 |
TOTAL CURRENT LIABILITIES |
|
|
257,832 |
|
|
|
|
DEFERRED INCOME TAXES |
|
|
27,032 |
DEFERRED INCOME |
|
|
558 |
LONG-TERM OPERATING LEASE LIABILITIES |
|
|
2,835 |
LONG-TERM DEBT, net of current portion and unamortized loan costs |
|
|
299,213 |
TOTAL LIABILITIES |
|
|
587,470 |
COMMITMENTS AND CONTINGENCIES (Note 10) |
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
Preferred Stock; 15,000 shares authorized; none issued |
|
|
- |
Series A Convertible Preferred Stock; $0.01 par; 10,000 shares authorized; |
|
|
|
5,274 shares issued and outstanding |
|
|
142,286 |
Common stock; $1 par; 50,000 shares authorized; |
|
|
|
9,796 shares issued and outstanding |
|
|
10 |
Additional paid-in capital |
|
|
258 |
Retained earnings |
|
|
231,728 |
Accumulated other comprehensive income |
|
|
11,400 |
|
|
|
385,682 |
|
|
|
|
|
|
$ |
973,152 |
|
|
|
|
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|||
1
Cheney Brothers, Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF INCOME
For the three months ended August 31, 2024
($ Amounts in Thousands)
|
|
08/31/24 |
|
|
|
|
|
NET SALES |
|
$ |
818,457 |
|
|
|
|
COST OF SALES |
|
|
673,486 |
|
|
|
|
GROSS PROFIT |
|
|
144,971 |
|
|
|
|
OPERATING EXPENSES |
|
|
|
Selling |
|
|
31,765 |
Delivery and warehouse |
|
|
63,849 |
Office and general |
|
|
31,246 |
TOTAL OPERATING EXPENSES |
|
|
126,860 |
|
|
|
|
INCOME FROM OPERATIONS |
|
|
18,111 |
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
Interest expense, net of interest income of $13 |
|
|
(3,221) |
Other income |
|
|
254 |
OTHER INCOME (EXPENSE), NET |
|
|
(2,967) |
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
|
15,144 |
|
|
|
|
INCOME TAX EXPENSE, net |
|
|
(3,900) |
|
|
|
|
NET INCOME |
|
$ |
11,244 |
|
|
|
|
See notes to condensed consolidated financial statements
2
Cheney Brothers, Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
For the three months ended August 31, 2024
($ Amounts in Thousands)
|
|
08/31/24 |
|
|
|
|
|
NET INCOME |
|
$ |
11,244 |
|
|
|
|
Other comprehensive income |
|
|
|
Unrealized loss on interest rate swap agreements, |
|
|
|
net of tax of $500 |
|
|
(1,400) |
|
|
|
|
TOTAL COMPREHENSIVE INCOME |
|
$ |
9,844 |
|
|
|
|
See notes to condensed consolidated financial statements
3
Cheney Brothers, Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS’ EQUITY
For the three months ended August 31, 2024
($ Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
||
|
Series A Convertible |
|
Common |
|
Additional |
|
|
|
Other |
|
|
|
|||||||||
|
Preferred Stock |
|
Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
|||||||||||
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2024 |
5,274 |
|
$ |
142,286 |
|
9,796 |
|
$ |
10 |
|
$ |
258 |
|
$ |
220,484 |
|
$ |
12,800 |
|
$ |
375,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
- |
|
|
- |
|
- |
|
|
- |
|
|
- |
|
|
11,244 |
|
|
- |
|
|
11,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate swap agreements, net of tax |
- |
|
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(1,400) |
|
|
(1,400) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2024 |
5,274 |
|
$ |
142,286 |
|
9,796 |
|
$ |
10 |
|
$ |
258 |
|
$ |
231,728 |
|
$ |
11,400 |
|
$ |
385,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
4
Cheney Brothers, Inc. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF CASH FLOWS
August 31, 2024
($ Amounts in Thousands)
|
|
08/31/24 |
|
OPERATING ACTIVITIES |
|
|
|
Net income |
|
$ |
11,244 |
Adjustments to reconcile net income to net cash |
|
|
|
provided by operating activities |
|
|
|
Depreciation and amortization |
|
|
14,837 |
Non-cash lease expense |
|
|
486 |
Loss on sale of property and equipment |
|
|
41 |
Provision for credit losses |
|
|
(728) |
Deferred income tax provision |
|
|
0 |
Change in operating assets and liabilities: |
|
|
|
Increase in accounts receivable |
|
|
(2,155) |
Decrease in other receivables |
|
|
1,779 |
Decrease in inventories |
|
|
10,945 |
Increase in prepaid expenses |
|
|
(3,276) |
(Increase) in other noncurrent assets |
|
|
(758) |
(Decrease) in accounts payable |
|
|
(12,834) |
Increase in accrued wages |
|
|
5,386 |
(Decrease) in accrued expenses |
|
|
(7,379) |
Decrease in operating lease liabilities |
|
|
(486) |
Increase in income taxes payable |
|
|
3,545 |
Decrease in deferred income |
|
|
(25) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
20,622 |
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
Capital expenditures |
|
|
(10,871) |
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(10,871) |
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
Borrowings (repayment) on line of credit, net |
|
|
(20,325) |
Increase in outstanding checks in excess of deposits |
|
|
19,028 |
Borrowings on long-term debt |
|
|
1,805 |
Repayments on long-term debt |
|
|
(10,303) |
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(9,795) |
|
|
|
|
NET DECREASE IN CASH |
|
|
(44) |
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
|
333 |
|
|
|
|
CASH, END OF PERIOD |
|
$ |
289 |
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
Cash paid during the period for interest |
|
$ |
3,144 |
|
|
|
|
Cash paid during the period for income taxes |
|
$ |
0 |
|
|
|
|
See notes to condensed consolidated financial statements
5
Cheney Brothers, Inc. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
August 31, 2024
($ Amounts in Thousands)
NOTE 1 – SUMMARY OF BUSINESS ACTIVITIES
Business: Cheney Brothers, Inc (the “Company”) is a marketer and distributor of food and food service products. The Company is incorporated in the State of Florida and has been operating primarily in Florida, North and South Carolina, and to a lesser degree other states in the southeast and internationally since 1928. The Company primarily provides its products to restaurants, hotels and other institutions.
Acquisition of the Company: On August 13, 2024, the owners of the Company entered into a Purchase Agreement under which Performance Food Group will acquire 100% of the outstanding shares of the Company. The agreement received all necessary regulatory approval and was subsequently closed on October 8, 2024.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements include the accounts of Cheney Brothers, Inc. and its wholly-owned subsidiaries, Cheney OFS, Inc. (“OFS”), a Florida corporation, Coast to Coast Importing, LLC (“Coast to Coast”), a Florida limited liability company, GWB, LLC (“GWB”), a Florida limited liability company, Belgium Butter, Nut & Candy, LLC (“Belgium”), a Florida limited liability company, Blue Reef Fish Company, LLC (“Blue Fish”), a Florida limited liability company, Meat and Seafood Solutions, LLC (“Meat & Seafood”), a North Carolina limited liability company, Cheney Properties, LLC (“Properties”), a Florida limited liability company, Coast to Coast Cold Storage, LLC (“Cold Storage”), a Florida limited liability company, CDL Right Now!, LLC (“CDL”), a Florida limited liability company, and Coast to Coast Express Aviation, LLC (“Aviation”), a Florida limited liability company. Intercompany transactions and balances have been eliminated in consolidation.
The consolidated financial statements have been prepared by the Company, without audit. The financial statements include a consolidated balance sheet, a consolidated statement of income, a consolidated statement of comprehensive income, a consolidated statement of stockholders’ equity, and a consolidated statement of cash flows. 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, stockholders’ equity, and cash flows for all periods presented have been made.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those 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 for the fiscal year ended May 31, 2024. Certain footnote disclosures included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted herein pursuant to applicable rules and regulations for interim financial statements.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements Not Yet Adopted: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 840) - Improvements to Income Tax Disclosures, which provides guidance regarding disclosures for income tax, specifically effective tax rates and income taxes paid. This ASU will be effective for fiscal years beginning after December 15, 2025. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
6
NOTE 4 – ALLOWANCE FOR CREDIT LOSSES
A summary of the activity in the allowance for credit losses on trade receivables is as follows:
|
Aug. 31, 2024
|
Balance at beginning of year Charged to costs and expenses, net of recoveries Customer accounts written off
Balance at end of period |
$ 6,900 214 (914)
$ 6,200 |
The Company also keeps an allowance for credit losses on other receivables in the amount of $1,074.
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Major classes of property and equipment, net as of August 31, 2024 are as follows:
|
Aug. 31, 2024
|
Land Buildings and improvements Furniture and equipment Computer and warehouse management systems Transportation equipment Right-of-use assets, financing
Less accumulated depreciation |
$ 17,543 319,785 88,404 75,161 3,300 209,216 713,409 (218,563)
$ 494,846 |
Depreciation expense for the quarter ended August 31, 2024 was $14,461. This includes amortization expense of $7,958 for finance right-of-use assets.
NOTE 6 – LINE OF CREDIT
The Company has a line of credit with a bank secured by the trade accounts receivable and inventory of the Company. The line of credit provides for a maximum borrowing of $300 million based on availability at 62% of eligible Company inventory up to a maximum of $150 million and 85% of eligible accounts receivable. Interest on the line of credit is payable monthly at the average monthly SOFR (Secured Overnight Financing Rate) rate plus 1.35% to 1.95% depending upon the Company’s excess availability. In connection with an amendment to the line of credit, the Company entered into an interest rate swap agreement with the lender which provides that the Company will pay a fixed rate of 1.965% on $45 million of the outstanding line of credit balance through January 13, 2027. The excess availability at August 31, 2024 was $271.7 million. The interest rate was 1.965% at August 31, 2024.
The entire outstanding principal balance on August 31, 2024, of approximately $8 million, is due January 13, 2027. The balances are reported net of unamortized loan costs of $821. The available balance of the line of credit fluctuates during the year as the balance of the Company’s accounts receivable and inventory increases during seasonal peaks of the Company’s market area.
The Company’s outstanding checks in excess of deposits amounting to $30,397 at August 31, 2024 represent the Company’s outstanding checks at a given point in time that are funded by the line of credit on a daily basis.
The loan includes certain financial covenants imposed by the bank.
7
NOTE 7 – INTEREST RATE SWAP AGREEMENTS
Simultaneously with its line of credit and mortgage loan agreements, the Company entered into Receive-variable/Pay Fixed interest rate swap agreements with various banks as a hedge against future interest rate
increases on loans with a notional amount of approximately $154,000. Under the terms of the swaps, the notional amount was equivalent to the outstanding principal balance on the loans and the Company received interest at a variable rate equivalent to the bank's floating market rates. The swap agreements fix the interest rate through maturity of the swap agreements which match the loan maturing dates. The swaps decreased the Company’s exposure to variable interest rates by fixing the interest rate on the various loans.
The swap agreements are reported as an asset at August 31, 2024 on the consolidated balance sheets at their fair value of $15,300, and the unrealized loss, net of income taxes, related to the change in fair value of the interest rate swap agreements of $1,400 is reported as other comprehensive income. The fair value of the interest rate swap agreements was provided by the banks originating the loans which were the counterparty to the agreements, based on their proprietary pricing models using inputs that are derived principally from or corroborated by observable market data. The Company's interest rate swap agreements are measured at fair value on a recurring basis and represent Level 2 on the fair value hierarchy.
NOTE 8 – LONG-TERM DEBT
Long-term debt consists of the following as of August 31, 2024:
|
Aug. 31, 2024 |
Mortgage loans, collateralized by substantially all property and equipment of the Company. |
$ 169,918 |
Equipment loans, collateralized by certain warehouse equipment and computer hardware and software.
Unsecured loans |
13,421
6,385
|
Total principal, net of unamortized loan costs Less current portion Noncurrent portion of long-term debt
Line of credit, net of unamortized loan costs (Note 6)
Long-term debt, net of current portion and unamortized loan costs |
189,724 10,219 179,505 7,578
$ 187,083 |
Lease liabilities for finance ROU assets are not included in the table above and are addressed in Note 11.
Interest expense on long-term liabilities, excluding liabilities for finance ROU assets (see Note 11), was $2,449.
NOTE 9 – INCOME TAX EXPENSE
The Company’s effective tax rate was 26% for the three months ended August 31, 2024. The difference between the provision for income taxes and the amount of income tax expense that would result from applying domestic federal statutory tax rate to pretax income is principally attributable to the following:
|
Aug. 31, 2024 |
Federal statutory rate of 21% Effect of state income taxes Other
Income tax expense |
$ 3,180 664 56
$ 3,900 |
8
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Litigation: The Company is periodically involved in litigation either as a plaintiff or as a defendant. Management believes that there are presently no matters that would have a material effect on the Company’s financial position or results of operations.
Construction Commitment: The Company entered into construction contracts to build a distribution facility in Florence, South Carolina and two production facilities in St Cloud, Florida and Pompano Beach, Florida. The contracts are for approximately $97,000 for the distribution facility and approximately $44,000 combined for the production facilities. Projects are expected to be completed in the next two years. At August 31, 2024, approximately $18,000 and $12,000 have been expended in connection with the distribution facility and production facilities, respectively. These amounts are included in Buildings and improvements in Note 5 – Property and Equipment, Net.
Equipment Commitment: See Note 11 – Leases for information on additional lease commitments entered into by the Company.
NOTE 11 – LEASES
Leases: The Company leases trucks, office space, office equipment, and warehouse equipment. It is determined at inception if the arrangement is a lease. Operating leases are included in operating lease right-of-use “ROU” assets, current operating lease liabilities, and long-term operating lease liabilities on the accompanying condensed consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of long-term debt, and long-term debt on the accompanying condensed consolidated balance sheets.
The Company has leases with remaining lease terms of up to 23 years. As of August 31, 2024, assets recorded under finance leases were $209,216 and accumulated depreciation associated with finance leases was $68,205.
The following table presents the location of the finance right-of-use assets and lease liabilities in the Company’s consolidated balance sheets.
|
Condensed Consolidated Balance Sheet Location |
Aug. 31, 2024 |
Finance right-of-use assets |
Property and equipment, net |
$ 141,011 |
Current finance lease liabilities |
Current portion of long-term debt |
30,100 |
Long-term finance lease liabilities |
Long-term debt, net of current portion |
112,130 |
The components of lease expense were as follows:
|
Aug. 31, 2024 |
Operating lease cost |
$ 486 |
Finance lease cost |
|
Amortization of right-of-use assets |
$ 7,958 |
Interest on lease liabilities |
772 |
Total finance lease cost |
$ 8,730 |
Other information related to leases was as follows:
Weighted Average Remaining Lease Term
|
Aug. 31, 2024 |
Operating leases |
11.69 yrs |
Finance leases |
5.80 yrs |
Weighted Average Remaining Discount Rate
|
Aug. 31, 2024 |
Operating leases |
2.57% |
Finance leases |
2.16% |
9
Supplemental Cash Flow Information:
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
Aug. 31, 2024 |
Operating cash flows from operating leases |
$ 486 |
Finance cash flows from finance leases |
7,855 |
Right-of-use assets obtained in exchange for lease obligations: |
|
|
Aug. 31, 2024 |
Operating leases |
$ 0 |
Finance leases |
12,146 |
Future minimum lease payments under non-cancellable leases as of August 31, 2024 were as follows:
Quarter Ending August 31, |
Operating Leases |
Finance Leases |
Total |
2025 |
$ 1,096 |
$ 24,949 |
$ 26,045 |
2026 |
842 |
29,612 |
30,454 |
2027 |
698 |
27,113 |
27,811 |
2028 |
364 |
22,417 |
22,781 |
2029 |
122 |
18,659 |
18,781 |
Thereafter |
2,031 |
32,243 |
34,274 |
Total future minimum lease payments |
5,153 |
154,993 |
160,146 |
|
|
|
|
Less imputed interest |
(1,208) |
(12,763) |
(13,972) |
Total |
$ 3,945 |
$ 142,230 |
$ 146,174 |
As of August 31, 2024, we have entered into agreements to acquire new leased equipment which will result in additional estimated finance lease payments of $12,660 annually over the life of the leases, between 5 years and 8 years. These leases will commence between fiscal year 2025 and fiscal year 2027.
NOTE 12 – REVENUE
Revenue Recognition: The Company has certain customer contracts in which upfront monies are paid to its customers. These payments are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized and amortized over the life of the contract or the expected life of the relationship with the customer on a straight-line basis. As of August 31, 2024, these contract assets were not significant.
Contract assets represent the Company’s right to consideration based on satisfied performance obligations from contracts with customers. Contract assets consist of accounts receivable which were $164,924 as of August 31, 2024. Contract liabilities represent payments received from customers prior to the satisfaction of the corresponding performance obligations. Contract liabilities are recognized as revenue once the corresponding performance obligations are satisfied based on the contract with the customer. Contract liabilities, which are included in deferred income on the consolidated balance sheet, were $558, at August 31, 2024.
The incremental cost of obtaining a contract with a customer is recorded as deferred costs if the Company expects to recover such costs that the Company would not have incurred if the contract had not been obtained. If the costs would have been incurred regardless of whether the contract was obtained, they are expensed as incurred unless such costs are explicitly chargeable to the customer, whether or not the contract is obtained. The Company did not incur any significant amount of such costs and no amounts have been deferred during the three months ended August 31, 2024.
The Company recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold. In
10
many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, the Company recognizes the vendor consideration as a reduction of cost
of sales when the product has sold. As of August 31, 2024, the rebate amounts receivable aggregate $17,246 and are included in other receivables in the accompanying Condensed Consolidated Balance Sheets.
Disaggregation of sales: The below table represents a disaggregation of revenue for the Company’s principal product categories.
Principal product categories |
Aug. 31, 2024 |
Frozen fruits, vegetables, desserts, etc. |
$ 185,525 |
Dry goods |
139,341 |
Refrigerated goods |
112,774 |
Fresh and frozen meat |
109,336 |
Paper and disposables |
67,729 |
Fresh and frozen seafood |
56,556 |
Fresh poultry |
51,204 |
Fresh produce |
39,164 |
Beverage |
37,870 |
Other |
18,958 |
|
|
Total sales |
$ 818,457 |
11
The unaudited pro forma combined statement of operations for the fiscal year ended June 29, 2024 and the three months ended September 28, 2024, combines the historical consolidated statements of operations of Performance Food Group Company ("PFG") and Cheney Brothers, Inc. and Subsidiaries ("Cheney Bros."), giving effect to the transaction and the financing of the transaction as if they each had occurred on July 2, 2023. The unaudited pro forma combined balance sheet as of September 28, 2024, combines the historical consolidated balance sheets of PFG and Cheney Bros, giving effect to the transaction and the financing of the transaction, as if they each had occurred on September 28, 2024.
The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial statements in accordance with Article 11 of Regulations S-X as amended by the final rule, Release 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”. The unaudited pro forma combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements. In addition, the unaudited pro forma combined financial information was derived from and should be read in conjunction with the following historical consolidated financial statements and accompanying notes:
PFG and Cheney Bros. have different fiscal year-ends. However, the fiscal year-ends differ by less than one quarter and, therefore, the pro forma financial information has been prepared by combining each entity’s historical financial information without any recasting of periods.
The unaudited pro forma combined financial information has been prepared by PFG using the acquisition method of accounting in accordance with GAAP. PFG has commenced the necessary valuation and other studies required to complete the acquisition accounting. However, the valuation and other studies have not yet progressed to a stage where there is sufficient information for a definitive measurement. PFG will finalize the acquisition accounting as soon as practicable within the required measurement period in accordance with ASC 805, but in no event later than one year following completion of the transaction.
The assets and liabilities of Cheney Bros. have been measured based on various preliminary estimates using assumptions that PFG believes are reasonable based on information that is currently available. PFG has not yet determined fair value adjustments for Cheney Bros.’ property, plant and equipment and right-of-use assets, which could vary by a significant amount due to appraised values and potential changes in lease term, discount rate, and lease payments when determining the lease assets and liabilities. Additionally, since PFG has not yet determined the tax effects of differences between the financial statements and tax bases of assets and liabilities, no pro forma adjustments were made to the deferred tax assets and liabilities. Differences between preliminary estimates and the final acquisition accounting may occur, and those differences could have a material impact on the accompanying unaudited pro forma combined financial statements and the combined company’s future results of operations and financial position. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements prepared in accordance with the rules and regulations of the SEC.
The unaudited pro forma adjustments are based upon available information and certain assumptions that PFG management believes are reasonable. The unaudited pro forma combined financial information has been presented for informational purposes only and is based on assumptions and estimates considered appropriate by PFG management; however, it is not necessarily indicative of PFG’s financial position or results of operations that would have been achieved had the pro forma events taken place on the dates indicated, or of the future consolidated results of operations or of the financial position of the combined company.
PFG management expects that the strategic and financial benefits of the proposed transactions will result in certain cost savings opportunities. Given the preliminary nature of those cost savings, they have not been reflected in the accompanying unaudited pro forma combined statements of operations for either period.
Unaudited Pro Forma Combined Statement of Operations
for the three months ended September 28, 2024
(In millions, except per share data) |
|
PFG |
|
|
Cheney Bros. |
|
|
Pro Forma Adjustments |
|
|
Pro Forma As Adjusted Combined |
|
||||
Net sales |
|
$ |
15,415.5 |
|
|
$ |
818.5 |
|
|
$ |
- |
|
|
$ |
16,234.0 |
|
Cost of goods sold |
|
|
13,651.3 |
|
|
|
673.5 |
|
|
|
- |
|
|
|
14,324.8 |
|
Gross profit |
|
|
1,764.2 |
|
|
|
145.0 |
|
|
|
- |
|
|
|
1,909.2 |
|
Operating expenses |
|
|
1,548.9 |
|
|
|
126.9 |
|
|
|
(0.3 |
) |
(a) |
$ |
1,698.6 |
|
|
|
|
|
|
|
|
|
|
20.6 |
|
(b) |
|
|
|||
|
|
|
|
|
|
|
|
|
2.5 |
|
(d) |
|
|
|||
Operating profit |
|
|
215.3 |
|
|
|
18.1 |
|
|
|
(22.8 |
) |
|
|
210.6 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
66.8 |
|
|
|
3.2 |
|
|
|
(3.2 |
) |
(e) |
|
95.6 |
|
|
|
|
|
|
|
|
|
|
28.8 |
|
(f) |
|
|
|||
Other, net |
|
|
1.6 |
|
|
|
(0.2 |
) |
|
|
|
|
|
1.4 |
|
|
Other expense, net |
|
|
68.4 |
|
|
|
3.0 |
|
|
|
25.6 |
|
|
|
97.0 |
|
Income before taxes |
|
|
146.9 |
|
|
|
15.1 |
|
|
|
(48.4 |
) |
|
|
113.6 |
|
Income tax expense |
|
|
38.9 |
|
|
|
3.9 |
|
|
|
(12.6 |
) |
(g) |
|
30.2 |
|
Net income |
|
$ |
108.0 |
|
|
$ |
11.2 |
|
|
|
(35.8 |
) |
|
$ |
83.4 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
154.6 |
|
|
|
- |
|
|
|
- |
|
|
|
154.6 |
|
Diluted |
|
|
156.2 |
|
|
|
- |
|
|
|
- |
|
|
|
156.2 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.70 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.54 |
|
Diluted |
|
$ |
0.69 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.53 |
|
See the accompanying notes to the unaudited pro forma combined financial statements, which are an integral part of this statement. The pro forma adjustments are explained in Note 4. Income Statement Pro Forma Adjustments.
Unaudited Pro Forma Combined Statement of Operations
for the fiscal year ended June 29, 2024
(In millions, except per share data) |
|
PFG |
|
|
Cheney Bros. |
|
|
Pro Forma Adjustments |
|
|
Pro Forma As Adjusted Combined |
|
||||
Net sales |
|
$ |
58,281.2 |
|
|
$ |
3,277.4 |
|
|
$ |
- |
|
|
$ |
61,558.6 |
|
Cost of goods sold |
|
|
51,704.1 |
|
|
|
2,669.6 |
|
|
|
- |
|
|
|
54,373.7 |
|
Gross profit |
|
|
6,577.1 |
|
|
|
607.8 |
|
|
|
- |
|
|
|
7,184.9 |
|
Operating expenses |
|
|
5,750.7 |
|
|
|
500.3 |
|
|
|
(1.3 |
) |
(a) |
$ |
6,365.7 |
|
|
|
|
|
|
|
|
|
|
82.5 |
|
(b) |
|
|
|||
|
|
|
|
|
|
|
|
|
13.5 |
|
(c) |
|
|
|||
|
|
|
|
|
|
|
|
|
20.0 |
|
(d) |
|
|
|||
Operating profit |
|
|
826.4 |
|
|
|
107.5 |
|
|
|
(114.7 |
) |
|
|
819.2 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
232.2 |
|
|
|
11.3 |
|
|
|
(11.3 |
) |
(e) |
|
359.0 |
|
|
|
|
|
|
|
|
|
|
126.8 |
|
(f) |
|
|
|||
Other, net |
|
|
(2.6 |
) |
|
|
(3.4 |
) |
|
|
- |
|
|
|
(6.0 |
) |
Other expense, net |
|
|
229.6 |
|
|
|
7.9 |
|
|
|
115.5 |
|
|
|
353.0 |
|
Income before taxes |
|
|
596.8 |
|
|
|
99.6 |
|
|
|
(230.2 |
) |
|
|
466.2 |
|
Income tax expense |
|
|
160.9 |
|
|
|
25.2 |
|
|
|
(59.8 |
) |
(g) |
|
126.3 |
|
Net income |
|
$ |
435.9 |
|
|
$ |
74.4 |
|
|
|
(170.4 |
) |
|
$ |
339.9 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
154.4 |
|
|
|
- |
|
|
|
- |
|
|
|
154.4 |
|
Diluted |
|
|
156.0 |
|
|
|
- |
|
|
|
- |
|
|
|
156.0 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
2.82 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2.20 |
|
Diluted |
|
$ |
2.79 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2.18 |
|
See the accompanying notes to the unaudited pro forma combined financial statements, which are an integral part of this statement. The pro forma adjustments are explained in Note 4. Income Statement Pro Forma Adjustments.
Unaudited Pro Forma Combined Balance Sheet
as of September 28, 2024
(In millions) |
|
PFG |
|
Cheney Bros. |
|
Pro Forma Adjustments |
|
Pro Forma As Adjusted Combined |
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$42.5 |
|
$0.3 |
|
|
|
$42.8 |
Accounts receivable |
|
2,497.0 |
|
176.3 |
|
|
|
2,673.3 |
Inventories, net |
|
3,677.8 |
|
246.2 |
|
32.8 |
(a) |
3,956.8 |
Income tax receivable |
|
27.8 |
|
1.1 |
|
|
|
28.9 |
Prepaid expenses and other current assets |
|
224.6 |
|
13.3 |
|
|
|
237.9 |
Total current assets |
|
6,469.7 |
|
437.2 |
|
32.8 |
|
6,939.7 |
Goodwill |
|
2,701.5 |
|
8.0 |
|
(8.0) |
(b) |
3,347.1 |
|
|
|
|
|
|
645.6 |
(c) |
|
Other intangible assets, net |
|
1,241.0 |
|
4.7 |
|
(4.7) |
(b) |
1,995.3 |
|
|
|
|
|
|
754.3 |
(d) |
|
Property, plant and equipment, net |
|
2,968.3 |
|
494.9 |
|
|
|
3,463.2 |
Operating lease right-of-use assets |
|
862.2 |
|
4.0 |
|
|
|
866.2 |
Other assets |
|
153.8 |
|
24.4 |
|
(15.3) |
(e) |
162.9 |
Total assets |
|
$14,396.5 |
|
$973.2 |
|
1,404.7 |
|
$16,774.4 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable and outstanding checks in excess of deposits |
|
$2,774.2 |
|
$158.7 |
|
|
|
$2,932.9 |
Accrued expenses and other current liabilities |
|
770.4 |
|
57.7 |
|
6.0 |
(f) |
831.6 |
|
|
|
|
|
|
(2.5) |
(g) |
|
Finance lease obligations—current installments |
|
161.4 |
|
30.1 |
|
|
|
191.5 |
Operating lease obligations—current installments |
|
107.7 |
|
1.1 |
|
|
|
108.8 |
Long-term debt - current installments |
|
- |
|
10.2 |
|
(10.2) |
(e) |
- |
Total current liabilities |
|
3,813.7 |
|
257.8 |
|
(6.7) |
|
4,064.8 |
Long-term debt |
|
3,926.0 |
|
187.1 |
|
(187.1) |
(e) |
5,905.2 |
|
|
|
|
|
|
1,979.2 |
(h) |
|
Deferred income tax liability, net |
|
592.3 |
|
27.0 |
|
(3.9) |
(e) |
615.4 |
Finance lease obligations, excluding current installments |
|
776.0 |
|
112.1 |
|
|
|
888.1 |
Operating lease obligations, excluding current installments |
|
808.7 |
|
2.9 |
|
|
|
811.6 |
Other long-term liabilities |
|
271.6 |
|
0.6 |
|
22.4 |
(f) |
294.6 |
Total liabilities |
|
10,188.3 |
|
587.5 |
|
1,803.9 |
|
12,579.7 |
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common Stock |
|
1.5 |
|
- |
|
- |
|
1.5 |
Series A Convertible Preferred Stock |
|
|
|
142.3 |
|
(142.3) |
(i) |
- |
Additional paid-in capital |
|
2,797.2 |
|
0.3 |
|
(0.3) |
(i) |
2,797.2 |
Accumulated other comprehensive income |
|
(1.4) |
|
11.4 |
|
(11.4) |
(i) |
(1.4) |
Retained earnings |
|
1,410.9 |
|
231.7 |
|
(231.7) |
(i) |
1,397.4 |
|
|
|
|
|
|
(13.5) |
(g) |
|
Total shareholders’ equity |
|
4,208.2 |
|
385.7 |
|
(399.2) |
|
4,194.7 |
Total liabilities and shareholders’ equity |
|
$14,396.5 |
|
$973.2 |
|
1,404.7 |
|
$16,774.4 |
See the accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of this statement. The pro forma adjustments are explained in Note 5. Balance Sheet Pro Forma Adjustments.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited pro forma combined balance sheet has been derived from the following:
The pro forma adjustments have been prepared as if the transaction occurred on September 28, 2024 in the case of the unaudited pro forma combined balance sheet and on July 2, 2023 in the case of the unaudited pro forma combined statements of operations for the three months ended September 28, 2024 and fiscal year ended June 29, 2024. The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial statements in accordance with Article 11 of Regulations S-X as amended by the final rule, Release 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”. The Cheney Bros. adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effect of the transaction will differ from the pro forma adjustments. However, PFG management believes that the assumptions used provide a reasonable basis for presenting the significant effect of the transaction, and that the pro forma adjustments in the unaudited pro forma combined financial statements give appropriate effect to the assumptions. The effects on the unaudited pro forma combined financial statements of the transaction described above are more fully described in Note 4 and Note 5.
Note 2. Summary of Significant Accounting Policies
Note 3. Purchase Price and Preliminary Purchase Price Allocation
On October 8, 2024, PFG acquired Cheney Bros. for $2.0 billion, consisting of $1,963.2 million of cash consideration paid at the time of the closing of the transaction and $28.4 million of deferred consideration. The deferred consideration is reported at fair value, which is the present value of the guaranteed cash payments to the seller on a quarterly basis over the next five years. The cash consideration portion of the purchase price was financed with borrowings under PFG’s asset-based revolving credit facility (“ABL Facility”).
Under the acquisition method of accounting, the identifiable assets acquired, and liabilities assumed of Cheney Bros. are recorded at fair value on the acquisition date and added to those of PFG. The pro forma adjustments included herein are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition. The final determination of the purchase price allocation is dependent upon certain valuation and other studies as of the acquisition date that have not yet been completed. Accordingly, the pro forma purchase price allocation is preliminary and is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurance that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.
The following table provides a summary of the preliminary allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed of Cheney Bros., based on Cheney Bros.’ consolidated balance sheet as of August 31, 2024, with all excess value over consideration paid recorded as goodwill.
(In millions) |
|
|
|
|
Total current assets |
|
$ |
470.0 |
|
Property, plant and equipment |
|
|
494.9 |
|
Intangible assets |
|
|
754.3 |
|
Goodwill |
|
|
645.6 |
|
Operating lease right-of-use assets |
|
|
4.0 |
|
Other assets |
|
|
9.1 |
|
Total assets |
|
|
2,377.9 |
|
Total current liabilities |
|
|
247.6 |
|
Finance lease obligations, excluding current installments |
|
|
112.1 |
|
Operating lease obligations, excluding current installments |
|
|
2.9 |
|
Other long-term liabilities |
|
|
23.7 |
|
Total liabilities |
|
|
386.3 |
|
Total estimated purchase price |
|
$ |
1,991.6 |
|
(a) Reflects the removal of Cheney Bros. amortization of intangible assets.
(b) Reflects an estimate of the amortization of intangible assets acquired. Amortization is expected to be recognized on a straight-line basis over a weighted average useful life of approximately 9.1 years.
(c) Transactions costs of $16.0 million incurred by PFG and associated tax benefit of $4.2 million are included in the unaudited proforma combined statement of operations results for the fiscal year ended June 29, 2024.
(d) Reflects the compensation expense for retention bonuses payable to certain Cheney Bros. employees upon the one year and two year anniversaries of the closing of the transaction.
(e) Reflects the removal of Cheney Bros. previously recorded interest expense and amortization of deferred financing costs related to debt PFG did not assume in the transaction.
(f) Reflects adjustments to interest expense related to pro forma long-term debt. As discussed in note (h) within Note 5. Balance Sheet Pro Forma Adjustments, PFG issued the Notes due 2023 (as defined below) and used the net proceeds to pay down a portion of the outstanding balance under the ABL Facility. Additionally, PFG funded the cash consideration for the Cheney Bros. acquisition and the acquisition-related transaction costs with borrowings under the ABL Facility. The pro forma adjustment reflects the additional interest expense for the Notes due 2032 and borrowings under the ABL Facility, net of the interest benefit for the pay down of the ABL Facility with the net proceeds from the Notes due 2032. For purposes of this calculation, PFG applied the stated 6.125% rate for the Notes due 2032 and a current ABL Facility interest rate at the time the pro forma financial information was prepared. Interest expense may be higher or lower if PFG’s actual variable interest rate or credit ratings change. A change in assumed interest rates of 12.5 basis points for new variable rate debt would change the pro forma annual interest expense by $2.5 million and the pro forma three-month period interest expense by $0.6 million. This pro forma adjustment also reflects the amortization of deferred financing costs related to the debt incurred.
(g) Reflects income taxes on pro forma adjustments based on an estimated statutory tax rate of 26.0%.
(a) Reflects the fair value adjustment of inventory.
(b) Reflects the removal of Cheney Bros. previously recorded goodwill and intangible assets.
(c) Reflects the excess of PFG's consideration paid over the amount of identifiable assets and liabilities assumed in the transaction as shown in Note 3 above.
(d) Reflects an estimate of the fair values of intangible assets identified as follows:
(In millions) |
|
|
|
Useful Lives |
|
Intangible assets with definite lives |
|
|
|
|
|
Customer relationships |
$ |
|
589.7 |
|
10 years |
Trade names and trademarks |
|
|
164.6 |
|
7 years |
Total intangible assets with definite lives |
$ |
|
754.3 |
|
|
(e) Reflects the removal of Cheney Bros. previously recorded interest rate swap derivatives, as well as the related deferred tax liability, and debt PFG did not assume in the transaction.
(f) Reflects the fair value of the deferred consideration payable to the seller on a quarterly basis over the next five years.
(g) PFG incurred $16.0 million of audit, legal and advisory transaction fees which are considered non-recurring costs. As of September 28, 2024, PFG had accrued $2.5 million related to advisory fees and the remaining $13.5 million is reflected as a pro forma adjustment to retained earnings.
(h) PFG intended to use the net proceeds from the issuance of new senior unsecured notes, together with borrowings under the ABL Facility, to finance the cash consideration in connection with the acquisition and to pay the fees, expenses and other transaction costs incurred in connection with the issuance of the new senior unsecured notes. In September 2024, PFG issued and sold $1.0 billion aggregate principal amount of its 6.125% Senior Notes due 2023 (the “Notes due 2032”). The PFG balance sheet as of September 28, 2024 reflects the issuance of the $1.0 billion Notes due 2032, net of debt issuance costs of $10.2 million. Since there was no requirement to hold the funds in escrow until the Cheney Bros. acquisition closed, the net proceeds of $991.8 million for the Notes due 2032 were used to pay down a portion of the outstanding balance of the ABL Facility.
PFG’s ABL Facility amended and restated its prior credit agreement. The ABL Facility increased the total revolving commitments from $4.0 billion under the prior credit agreement to $5.0 billion under the ABL Facility and extended the maturity date from September 17, 2026 under the prior credit agreement to September 9, 2029 under the ABL Facility. The PFG balance sheet as of September 28, 2024 reflects $21.6 million of deferred financing costs in connection with the amended ABL Facility within other intangible assets, net. PFG funded the $1,963.2 million of cash consideration for the Cheney Bros. acquisition and PFG’s $16.0 million of audit, legal and advisory transaction fees related to the acquisition with borrowings under the ABL Facility.
(i) Reflects the removal of Cheney Bros. previously recorded preferred stock, additional paid-in capital, accumulated other comprehensive income, and retained earnings.