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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ___________

Commission File Number 001-37578

 

img132829144_0.jpg 

Performance Food Group Company

(Exact name of registrant as specified in its charter)

 

 

Delaware

43-1983182

(State or other jurisdiction of

incorporation or organization)

(IRS employer

identification number)

 

 

12500 West Creek Parkway

Richmond, Virginia 23238

(804) 484-7700

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

PFGC

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-accelerated Filer

Smaller Reporting Company

 

 

 

 

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

155,585,868 shares of common stock were outstanding as of January 31, 2024.

 

 


 

TABLE OF CONTENTS

Page

 

 

Special Note Regarding Forward-Looking Statements

3

 

 

PART I - FINANCIAL INFORMATION

5

 

 

Item 1.

Financial Statements

5

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

 

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

PART II - OTHER INFORMATION

34

 

 

Item 1.

Legal Proceedings

34

 

 

 

 

Item 1A.

Risk Factors

34

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

 

Item 5.

Other Information

34

 

 

 

 

Item 6.

Exhibits

35

 

 

 

 

SIGNATURE

36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position, our business outlook, business trends and other information are forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates, projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended July 1, 2023 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), and are accessible on the SEC’s website at www.sec.gov, and also include the following:

economic factors, including inflation or other adverse changes such as a downturn in economic conditions or a public health crisis, negatively affecting consumer confidence and discretionary spending;
our reliance on third-party suppliers;
labor relations and cost risks and availability of qualified labor;
costs and risks associated with a potential cybersecurity incident or other technology disruption;
our reliance on technology and risks associated with disruption or delay in implementation of new technology;
competition in our industry is intense, and we may not be able to compete successfully;
we operate in a low margin industry, which could increase the volatility of our results of operations;
we may not realize anticipated benefits from our operating cost reduction and productivity improvement efforts;
our profitability is directly affected by cost inflation and deflation and other factors;
we do not have long-term contracts with certain customers;
group purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations;
changes in eating habits of consumers;
extreme weather conditions, including hurricane, earthquake and natural disaster damage;
volatility of fuel and other transportation costs;
our inability to adjust cost structure where one or more of our competitors successfully implement lower costs;
our inability to increase our sales in the highest margin portion of our business;
changes in pricing practices of our suppliers;
our growth strategy may not achieve the anticipated results;
risks relating to acquisitions, including the risk that we are not able to realize benefits of acquisitions or successfully integrate the businesses we acquire;
environmental, health, and safety costs, including compliance with current and future environmental laws and regulations relating to carbon emissions and climate change and related legal or market measures;
our inability to comply with requirements imposed by applicable law or government regulations, including increased regulation of electronic cigarette and other alternative nicotine products;

3


 

a portion of our sales volume is dependent upon the distribution of cigarettes and other tobacco products, sales of which are generally declining;
the potential impact of product recalls and product liability claims relating to the products we distribute and other litigation;
adverse judgments or settlements or unexpected outcomes in legal proceedings;
negative media exposure and other events that damage our reputation;
decrease in earnings from amortization charges associated with acquisitions;
impact of uncollectibility of accounts receivable;
increase in excise taxes or reduction in credit terms by taxing jurisdictions;
the cost and adequacy of insurance coverage and increases in the number or severity of insurance and claims expenses;
risks relating to our substantial outstanding indebtedness, including the impact of interest rate increases on our variable rate debt; and
our ability to raise additional capital on commercially reasonable terms or at all.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. We cannot assure you (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” or “PFG” as used in this Form 10-Q refer to Performance Food Group Company and its consolidated subsidiaries.

4


 

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except per share data)

 

As of
December 30, 2023

 

 

As of
July 1, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

16.4

 

 

$

12.7

 

Accounts receivable, less allowances of $62.7 and $56.3

 

 

2,298.9

 

 

 

2,399.3

 

Inventories, net

 

 

3,342.1

 

 

 

3,390.0

 

Income taxes receivable

 

 

62.4

 

 

 

41.7

 

Prepaid expenses and other current assets

 

 

236.5

 

 

 

227.8

 

Total current assets

 

 

5,956.3

 

 

 

6,071.5

 

Goodwill

 

 

2,418.3

 

 

 

2,301.0

 

Other intangible assets, net

 

 

1,072.5

 

 

 

1,028.4

 

Property, plant and equipment, net

 

 

2,465.8

 

 

 

2,264.0

 

Operating lease right-of-use assets

 

 

841.0

 

 

 

703.6

 

Other assets

 

 

158.6

 

 

 

130.5

 

Total assets

 

$

12,912.5

 

 

$

12,499.0

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable and outstanding checks in excess of deposits

 

 

2,423.5

 

 

 

2,453.5

 

Accrued expenses and other current liabilities

 

 

837.0

 

 

 

891.5

 

Finance lease obligations—current installments

 

 

118.8

 

 

 

102.6

 

Operating lease obligations—current installments

 

 

108.4

 

 

 

105.5

 

Total current liabilities

 

 

3,487.7

 

 

 

3,553.1

 

Long-term debt

 

 

3,502.0

 

 

 

3,460.1

 

Deferred income tax liability, net

 

 

474.7

 

 

 

446.2

 

Finance lease obligations, excluding current installments

 

 

536.1

 

 

 

447.3

 

Operating lease obligations, excluding current installments

 

 

773.1

 

 

 

628.9

 

Other long-term liabilities

 

 

277.2

 

 

 

217.9

 

Total liabilities

 

 

9,050.8

 

 

 

8,753.5

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 153.9 million shares issued and outstanding as of December 30, 2023;
154.5 million shares issued and outstanding as of July 1, 2023

 

 

1.5

 

 

 

1.5

 

Additional paid-in capital

 

 

2,786.5

 

 

 

2,863.0

 

Accumulated other comprehensive income, net of tax expense of $2.7 and $4.9

 

 

7.7

 

 

 

14.0

 

Retained earnings

 

 

1,066.0

 

 

 

867.0

 

Total shareholders’ equity

 

 

3,861.7

 

 

 

3,745.5

 

Total liabilities and shareholders’ equity

 

$

12,912.5

 

 

$

12,499.0

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

 

5


 

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(In millions, except per share data)

 

Three Months Ended
December 30, 2023

 

 

Three Months Ended
December 31, 2022

 

 

Six Months Ended
December 30, 2023

 

 

Six Months Ended
December 31, 2022

 

Net sales

 

$

14,295.7

 

 

$

13,898.9

 

 

$

29,234.3

 

 

$

28,618.2

 

Cost of goods sold

 

 

12,697.6

 

 

 

12,399.3

 

 

 

25,973.3

 

 

 

25,543.5

 

Gross profit

 

 

1,598.1

 

 

 

1,499.6

 

 

 

3,261.0

 

 

 

3,074.7

 

Operating expenses

 

 

1,424.2

 

 

 

1,355.6

 

 

 

2,870.9

 

 

 

2,739.5

 

Operating profit

 

 

173.9

 

 

 

144.0

 

 

 

390.1

 

 

 

335.2

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

61.4

 

 

 

55.7

 

 

 

117.5

 

 

 

106.1

 

Other, net

 

 

0.8

 

 

 

(7.9

)

 

 

(2.4

)

 

 

3.0

 

Other expense, net

 

 

62.2

 

 

 

47.8

 

 

 

115.1

 

 

 

109.1

 

Income before taxes

 

 

111.7

 

 

 

96.2

 

 

 

275.0

 

 

 

226.1

 

Income tax expense

 

 

33.4

 

 

 

25.1

 

 

 

76.0

 

 

 

59.3

 

Net income

 

$

78.3

 

 

$

71.1

 

 

$

199.0

 

 

$

166.8

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

154.2

 

 

 

154.1

 

 

 

154.5

 

 

 

153.9

 

Diluted

 

 

155.7

 

 

 

156.1

 

 

 

156.2

 

 

 

155.9

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.51

 

 

$

0.46

 

 

$

1.29

 

 

$

1.08

 

Diluted

 

$

0.50

 

 

$

0.46

 

 

$

1.27

 

 

$

1.07

 

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

 

6


 

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

($ in millions)

Three Months Ended
December 30, 2023

 

Three Months Ended
December 31, 2022

 

Six Months Ended
December 30, 2023

 

Six Months Ended
December 31, 2022

 

Net income

$

78.3

 

$

71.1

 

$

199.0

 

$

166.8

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

Interest rate swaps:

 

 

 

 

 

 

 

 

Change in fair value, net of tax

 

(2.8

)

 

1.1

 

 

(0.6

)

 

8.2

 

Reclassification adjustment, net of tax

 

(3.1

)

 

(2.0

)

 

(6.0

)

 

(2.8

)

Foreign currency translation adjustment, net of tax

 

1.0

 

 

0.9

 

 

0.3

 

 

(1.5

)

Other comprehensive (loss) income

 

(4.9

)

 

-

 

 

(6.3

)

 

3.9

 

Total comprehensive income

$

73.4

 

$

71.1

 

$

192.7

 

$

170.7

 

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

 

7


 

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Shareholders’

 

(In millions)

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance as of October 1, 2022

 

 

154.0

 

 

$

1.5

 

 

$

2,818.4

 

 

$

15.3

 

 

$

565.5

 

 

$

3,400.7

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71.1

 

 

 

71.1

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

(0.9

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

0.9

 

 

 

 

 

 

0.9

 

Issuance of common stock under stock-based compensation plans

 

 

0.1

 

 

 

 

 

 

0.3

 

 

 

 

 

 

 

 

 

0.3

 

Issuance of common stock under employee stock purchase plan

 

 

0.2

 

 

 

 

 

 

14.3

 

 

 

 

 

 

 

 

 

14.3

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10.1

 

 

 

 

 

 

 

 

 

10.1

 

Balance as of December 31, 2022

 

 

154.3

 

 

$

1.5

 

 

$

2,843.1

 

 

$

15.3

 

 

$

636.6

 

 

$

3,496.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2023

 

 

154.7

 

 

$

1.5

 

 

$

2,826.5

 

 

$

12.6

 

 

$

987.7

 

 

$

3,828.3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78.3

 

 

 

78.3

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

(5.9

)

 

 

 

 

 

(5.9

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

1.0

 

 

 

 

 

 

1.0

 

Issuance of common stock under stock-based compensation plans

 

 

 

 

 

 

 

 

0.1

 

 

 

 

 

 

 

 

 

0.1

 

Common stock repurchased

 

 

(0.8

)

 

 

 

 

 

(50.0

)

 

 

 

 

 

 

 

 

(50.0

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

9.9

 

 

 

 

 

 

 

 

 

9.9

 

Balance as of December 30, 2023

 

 

153.9

 

 

$

1.5

 

 

$

2,786.5

 

 

$

7.7

 

 

$

1,066.0

 

 

$

3,861.7

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Shareholders’

 

(In millions)

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance as of July 2, 2022

 

 

153.6

 

 

$

1.5

 

 

$

2,816.8

 

 

$

11.4

 

 

$

469.8

 

 

$

3,299.5

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

166.8

 

 

 

166.8

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

5.4

 

 

 

 

 

 

5.4

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

 

 

(1.5

)

Issuance of common stock under stock-based compensation plans

 

 

0.5

 

 

 

 

 

 

(8.7

)

 

 

 

 

 

 

 

 

(8.7

)

Issuance of common stock under employee stock purchase plan

 

 

0.2

 

 

 

 

 

 

14.3

 

 

 

 

 

 

 

 

 

14.3

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

20.7

 

 

 

 

 

 

 

 

 

20.7

 

Balance as of December 31, 2022

 

 

154.3

 

 

$

1.5

 

 

$

2,843.1

 

 

$

15.3

 

 

$

636.6

 

 

$

3,496.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of July 1, 2023

 

 

154.5

 

 

 

1.5

 

 

 

2,863.0

 

 

 

14.0

 

 

 

867.0

 

 

 

3,745.5

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199.0

 

 

 

199.0

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

(6.6

)

 

 

 

 

 

(6.6

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

 

 

 

 

0.3

 

Issuance of common stock under stock-based compensation plans

 

 

0.7

 

 

 

 

 

 

(17.8

)

 

 

 

 

 

 

 

 

(17.8

)

Common stock repurchased

 

 

(1.3

)

 

 

 

 

 

(78.1

)

 

 

 

 

 

 

 

 

(78.1

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

19.4

 

 

 

 

 

 

 

 

 

19.4

 

Balance as of December 30, 2023

 

 

153.9

 

 

$

1.5

 

 

$

2,786.5

 

 

$

7.7

 

 

$

1,066.0

 

 

$

3,861.7

 

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

 

8


 

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)

 

Six Months Ended
December 30, 2023

 

 

Six Months Ended
December 31, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

199.0

 

 

$

166.8

 

Adjustments to reconcile net income to net cash provided
   by operating activities

 

 

 

 

 

 

Depreciation

 

 

170.1

 

 

 

153.5

 

Amortization of intangible assets

 

 

102.5

 

 

 

90.9

 

Amortization of deferred financing costs

 

 

5.3

 

 

 

5.2

 

Provision for losses on accounts receivables

 

 

11.6

 

 

 

7.2

 

Change in LIFO reserve

 

 

41.0

 

 

 

51.8

 

Stock compensation expense

 

 

21.7

 

 

 

22.9

 

Deferred income tax (benefit) expense

 

 

(14.5

)

 

 

1.5

 

Change in fair value of derivative assets and liabilities

 

 

(3.7

)

 

 

15.9

 

Other non-cash activities

 

 

(3.0

)

 

 

5.1

 

Changes in operating assets and liabilities, net

 

 

 

 

 

 

Accounts receivable

 

 

107.2

 

 

 

147.9

 

Inventories

 

 

32.7

 

 

 

90.1

 

Income taxes receivable

 

 

(20.7

)

 

 

(51.6

)

Prepaid expenses and other assets

 

 

(40.9

)

 

 

9.3

 

Trade accounts payable and outstanding checks in excess of deposits

 

 

(46.9

)

 

 

(202.6

)

Accrued expenses and other liabilities

 

 

(7.4

)

 

 

(89.4

)

Net cash provided by operating activities

 

 

554.0

 

 

 

424.5

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(147.1

)

 

 

(98.1

)

Net cash paid for acquisitions

 

 

(308.1

)

 

 

(65.8

)

Proceeds from sale of property, plant and equipment and other

 

 

18.8

 

 

 

3.6

 

Net cash used in investing activities

 

 

(436.4

)

 

 

(160.3

)

Cash flows from financing activities:

 

 

 

 

 

 

Net borrowings (payments) under ABL Facility

 

 

39.0

 

 

 

(232.1

)

Payments under finance lease obligations

 

 

(56.5

)

 

 

(42.8

)

Proceeds from employee stock purchase plan

 

 

 

 

 

14.3

 

Proceeds from exercise of stock options

 

 

1.1

 

 

 

0.4

 

Cash paid for shares withheld to cover taxes

 

 

(18.9

)

 

 

(9.1

)

Repurchases of common stock

 

 

(78.1

)

 

 

 

Other financing activities

 

 

(0.3

)

 

 

(0.3

)

Net cash used in financing activities

 

 

(113.7

)

 

 

(269.6

)

Net increase (decrease) in cash and restricted cash

 

 

3.9

 

 

 

(5.4

)

Cash and restricted cash, beginning of period

 

 

20.0

 

 

 

18.7

 

Cash and restricted cash, end of period

 

$

23.9

 

 

$

13.3

 

 

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:

 

(In millions)

 

As of December 30, 2023

 

 

As of July 1, 2023

 

Cash

 

$

16.4

 

 

$

12.7

 

Restricted cash(1)

 

 

7.5

 

 

 

7.3

 

Total cash and restricted cash

 

$

23.9

 

 

$

20.0

 

 

(1)
Restricted cash is reported within Other assets and represents the amounts required by insurers to collateralize a part of the deductibles for the Company’s workers’ compensation and liability claims.

Supplemental disclosures of cash flow information are as follows:

(In millions)

 

Six Months Ended
December 30, 2023

 

 

Six Months Ended
December 31, 2022

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

122.3

 

 

$

105.0

 

Income tax payments net of refunds

 

 

109.0

 

 

 

105.1

 

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

9


 

PERFORMANCE FOOD GROUP COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Summary of Business Activities

Business Overview

Performance Food Group Company, through its subsidiaries, markets and distributes primarily national and company-branded food and food-related products to customer locations across North America. The Company serves both of the major customer types in the restaurant industry: (i) independent customers, and (ii) multi-unit, or “Chain” customers, which include some of the most recognizable family and casual dining restaurant chains, as well as schools, business and industry locations, healthcare facilities, and retail establishments. The Company also specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products, health and beauty care products and other items to vending distributors, big box retailers, theaters, convenience stores, drug stores, grocery stores, travel providers, and hospitality providers.

 

Share Repurchase Program

On November 16, 2022, the Board of Directors of the Company authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. During the three months ended December 30, 2023, the Company repurchased and subsequently retired 0.8 million shares of common stock, for a total of $50.0 million or an average cost of $58.01 per share. During the six months ended December 30, 2023, the Company repurchased and subsequently retired 1.3 million shares of common stock, for a total of $78.1 million or an average cost of $58.83 per share. As of December 30, 2023, approximately $210.6 million remained available for additional share repurchases.

2. Summary of Significant Accounting Policies and Estimates

 

Basis of Presentation

The consolidated financial statements have been prepared by the Company, without audit, with the exception of the July 1, 2023 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the Form 10-K. The financial statements include consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash flows. Certain prior period amounts have been reclassified to conform to current period presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income, shareholders’ equity, and cash flows for all periods presented have been made.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates used by management are related to the accounting for the allowance for doubtful accounts, reserve for inventories, impairment testing of goodwill and other intangible assets, acquisition accounting, reserves for claims and recoveries under insurance programs, vendor rebates and other promotional incentives, bonus accruals, depreciation, amortization, determination of useful lives of tangible and intangible assets, leases, and income taxes. Actual results could differ from these estimates.

The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Form 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with GAAP have been condensed or omitted herein pursuant to applicable rules and regulations for interim financial statements.

3. Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2022-04, Liabilities— Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The update enhances the transparency of supplier finance programs by requiring the disclosure of the effect of those programs on an entity’s

10


 

working capital, liquidity, and cash flows. The guidance requires disclosure of the key terms of supplier finance programs as well as the obligation amount outstanding as of the end of the period, a description of where the obligation is presented in the balance sheet and a rollforward of the obligations balance during the period, including the amount of obligations confirmed and the amount of obligations paid. The amendments in this update are to be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which is applied prospectively. The Company determined that adoption of this update at the beginning of fiscal 2024 has not had a material impact on the Company's consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The update improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The guidance requires that an acquiring entity in a business combination recognize and measure contract assets and contract liabilities acquired in accordance with Topic 606 as if it had originated the contract. The amendments in this update were adopted at the beginning of fiscal 2024 and will be applied prospectively to applicable business combinations. Historically, the contract assets and liabilities included in the Company’s business combinations have been limited to prepaid customer incentives that are immaterial in comparison to total assets acquired. The Company determined that adoption of this update has not had a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. It further requires disclosure of the amount and description of its composition for other segment items, and interim disclosures of both a reportable segment’s profit or loss and assets. The guidance requires disclosure of the title and position of the chief operating decision maker and how reported measures of segment profit or loss are used to assess performance and allocate resources. This pronouncement is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this update should be applied retrospectively to each period presented in the consolidated financial statements. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update expands public entities’ income tax disclosure requirements primarily by requiring disaggregation of specific categories and reconciling items that meet a quantitative threshold within the rate reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This pronouncement is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments in this update should be applied on a prospective basis, with retrospective application permitted. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements.

 

4. Revenue Recognition

 

The Company markets and distributes primarily national and Company-branded food and food-related products to customer locations across North America. The Foodservice segment primarily services restaurants and supplies a “broad line” of products to its customers, including the Company’s Performance Brands and custom-cut meats and seafood, as well as products that are specific to each customer’s menu requirements. Vistar specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. The Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products, and other items to convenience stores across North America. The Company disaggregates revenue by customer type and product offerings and determined that disaggregating revenue at the segment level achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 13. Segment Information for external revenue by reportable segment.

The Company has customer contracts in which incentives are paid upfront to certain customers. These payments have become industry practice and are not related to financing the customer’s business, nor are they associated with any distinct good or service to be received from the customer. These incentive payments are capitalized and amortized over the life of the contract or the expected life of the customer relationship on a straight-line basis. The Company’s contract asset for these incentives totaled $31.6 million and $32.5 million as of December 30, 2023 and July 1, 2023, respectively.

 

 

11


 

5. Business Combinations

During the first six months of fiscal 2024, the Company paid cash of $308.1 million for two acquisitions. These acquisitions are reported in the Vistar and Corporate and All Other segments. During the first six months of fiscal 2023, the Company paid cash of $65.8 million for one acquisition which is reported in the Corporate and All Other segment. These acquisitions did not materially affect the Company's results of operations.

Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The following table summarizes the preliminary purchase price allocation for each major class of assets acquired and liabilities assumed for the two acquisitions in the first six months of fiscal 2024:

(In millions)

 

Fiscal 2024

 

Net working capital

 

$

23.6

 

Goodwill

 

 

116.5

 

Intangible assets with definite lives:

 

 

 

Customer relationships

 

 

120.2

 

Trade names and trademarks

 

 

21.4

 

Technology

 

 

0.5

 

Non-Compete

 

 

7.8

 

Property, plant and equipment

 

 

72.6

 

ROU Assets

 

 

9.0

 

Other assets

 

 

0.9

 

Deferred tax liabilities

 

 

(45.5

)

Operating lease obligations

 

 

(9.0

)

Finance lease obligations

 

 

(9.9

)

Total purchase price

 

$

308.1

 

 

Intangible assets consist primarily of customer relationships, trade names, non-compete agreements, and technology with useful lives of two to seven years, and a total weighted-average useful life of 4.6 years. The excess of the estimated fair value of the assets acquired and the liabilities assumed over consideration paid was recorded as $116.5 million of goodwill.

 

6. Debt

The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.

Debt consisted of the following:

 

 

 

 

 

 

 

(In millions)

 

As of December 30, 2023

 

 

As of July 1, 2023

 

Credit Agreement

 

$

1,193.0

 

 

$

1,154.0

 

6.875% Notes due 2025, effective interest rate 7.211%

 

 

275.0

 

 

 

275.0

 

5.500% Notes due 2027, effective interest rate 5.930%

 

 

1,060.0

 

 

 

1,060.0

 

4.250% Notes due 2029, effective interest rate 4.439%

 

 

1,000.0

 

 

1,000.0

 

Less: Original issue discount and deferred financing costs

 

 

(26.0

)

 

(28.9

)

Long-term debt

 

 

3,502.0

 

 

3,460.1

 

Less: current installments

 

 

-

 

 

-

 

Total debt, excluding current installments

 

$

3,502.0

 

 

$

3,460.1

 

Credit Agreement

PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, are parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “ABL Facility”), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto. The ABL Facility has an aggregate principal amount available of $4.0 billion and matures September 17, 2026.

Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including

12


 

trade accounts receivable, inventory, owned real properties, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real properties and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.

 

Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at (a) the Base Rate (defined as the greatest of (i) a floor rate of 0.00%, (ii) the federal funds rate in effect on such date plus 0.5%, (iii) the prime rate on such day, or (iv) one month Term SOFR plus 1.0%) plus a spread or (b) Adjusted Term SOFR plus a spread. The ABL Facility also provides for an unused commitment fee at a rate of 0.250% per annum.

The following table summarizes outstanding borrowings, availability, and the average interest rate under the Company's ABL Facility:

(Dollars in millions)

 

As of December 30, 2023

 

 

As of July 1, 2023

 

Aggregate borrowings

 

$

1,193.0

 

 

$

1,154.0

 

Letters of credit

 

 

171.5

 

 

 

172.2

 

Excess availability, net of lenders’ reserves of $100.7 and $99.7

 

 

2,635.5

 

 

 

2,673.8

 

Average interest rate, excluding impact of interest rate swaps

 

 

6.60

%

 

 

6.35

%

 

7. Leases

The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use asset in the Company’s consolidated balance sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on present value of lease payments over the lease term at commencement date. When the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. This rate was determined by using the yield curve based on the Company’s credit rating adjusted for the Company’s specific debt profile and secured debt risk. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expenses for these short-term leases are recognized on a straight-line basis over the lease term. The Company has several lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for separately. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent, favorable leases, and prepaid rent.

Subsidiaries of the Company have entered into numerous operating and finance leases for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of 1 year to 25 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Certain full-service fleet lease agreements include variable lease payments associated with usage, which are recorded and paid as incurred. When calculating lease liabilities, lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between 6% and 20% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 5 to 10 years and are set to expire at various dates ranging from 2024 to 2032. As of December 30, 2023, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately $12.0 million, which would be mitigated by the fair value of the leased assets at lease expiration.

 

13


 

The following table presents the location of the right-of-use assets and lease liabilities in the Company's consolidated balance sheet as of December 30, 2023 and July 1, 2023 (in millions), as well as the weighted-average lease term and discount rate for the Company's leases:

Leases

 

Consolidated Balance Sheet Location

 

As of
December 30, 2023

 

 

As of
July 1, 2023

 

Assets:

 

 

 

 

 

 

 

 

Operating

 

Operating lease right-of-use assets

 

$

841.0

 

 

$

703.6

 

Finance

 

Property, plant and equipment, net

 

 

672.6

 

 

 

566.2

 

Total lease assets

 

 

 

$

1,513.6

 

 

$

1,269.8

 

Liabilities:

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Operating

 

Operating lease obligations—current installments

 

$

108.4

 

 

$

105.5

 

Finance

 

Finance lease obligations—current installments

 

 

118.8

 

 

 

102.6

 

Non-current

 

 

 

 

 

 

 

 

Operating

 

Operating lease obligations, excluding current installments

 

 

773.1

 

 

 

628.9

 

Finance

 

Finance lease obligations, excluding current installments

 

 

536.1

 

 

 

447.3

 

Total lease liabilities

 

 

 

$

1,536.4

 

 

$

1,284.3