SEC Form 10-Q filed by Performance Food Group Company

 

 

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 September 28, 2024

☐ 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

 

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 ☒

155,805,078 shares of common stock were outstanding as of October 30, 2024.

 

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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	22
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	36
SIGNATURE			37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 29, 2024 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), and are accessible on the SEC’s website at www.sec.gov, and also include the following:

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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.

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Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except per share data)		As of September 28, 2024				As of June 29, 2024
ASSETS
Current assets:
Cash		$	42.5			$	20.0
Accounts receivable, less allowances of $59.6 and $55.2			2,497.0				2,478.9
Inventories, net			3,677.8				3,314.7
Income taxes receivable			27.8				71.6
Prepaid expenses and other current assets			224.6				268.1
Total current assets			6,469.7				6,153.3
Goodwill			2,701.5				2,418.3
Other intangible assets, net			1,241.0				971.1
Property, plant and equipment, net			2,968.3				2,788.5
Operating lease right-of-use assets			862.2				875.5
Other assets			153.8				186.2
Total assets		$	14,396.5			$	13,392.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable and outstanding checks in excess of deposits			2,774.2				2,594.4
Accrued expenses and other current liabilities			770.4				908.3
Finance lease obligations—current installments			161.4				147.2
Operating lease obligations—current installments			107.7				108.2
Total current liabilities			3,813.7				3,758.1
Long-term debt			3,926.0				3,198.5
Deferred income tax liability, net			592.3				497.9
Finance lease obligations, excluding current installments			776.0				703.2
Operating lease obligations, excluding current installments			808.7				819.3
Other long-term liabilities			271.6				289.0
Total liabilities			10,188.3				9,266.0
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 154.5 million shares issued and outstanding as of September 28, 2024; 154.2 million shares issued and outstanding as of June 29, 2024			1.5				1.5
Additional paid-in capital			2,797.2				2,818.5
Accumulated other comprehensive (loss) income, net of tax benefit (expense) of $0.3 and ($1.5)			(1.4	)			4.0
Retained earnings			1,410.9				1,302.9
Total shareholders’ equity			4,208.2				4,126.9
Total liabilities and shareholders’ equity		$	14,396.5			$	13,392.9

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

 

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PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per share data)		Three Months Ended September 28, 2024				Three Months Ended September 30, 2023
Net sales		$	15,415.5			$	14,938.6
Cost of goods sold			13,651.3				13,275.7
Gross profit			1,764.2				1,662.9
Operating expenses			1,548.9				1,446.7
Operating profit			215.3				216.2
Other expense, net:
Interest expense			66.8				56.1
Other, net			1.6				(3.2	)
Other expense, net			68.4				52.9
Income before taxes			146.9				163.3
Income tax expense			38.9				42.6
Net income		$	108.0			$	120.7
Weighted-average common shares outstanding:
Basic			154.6				154.8
Diluted			156.2				156.6
Earnings per common share:
Basic		$	0.70			$	0.78
Diluted		$	0.69			$	0.77

 

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

 

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PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

($ in millions)		Three Months Ended September 28, 2024				Three Months Ended September 30, 2023
Net income		$	108.0			$	120.7
Other comprehensive loss, net of tax:
Interest rate swaps:
Change in fair value, net of tax			(2.9	)			2.2
Reclassification adjustment, net of tax			(3.0	)			(2.9	)
Foreign currency translation adjustment, net of tax			0.5				(0.7	)
Other comprehensive loss			(5.4	)			(1.4	)
Total comprehensive income		$	102.6			$	119.3

 

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

 

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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 (Loss)				Earnings				Equity
Balance as of July 1, 2023			154.5			$	1.5			$	2,863.0			$	14.0			$	867.0			$	3,745.5
Net income			—				—				—				—				120.7				120.7
Interest rate swaps			—				—				—				(0.7	)			—				(0.7	)
Foreign currency translation adjustment			—				—				—				(0.7	)			—				(0.7	)
Issuance of common stock under stock-based compensation plans			0.7				—				(17.9	)			—				—				(17.9	)
Common stock repurchased			(0.5	)			—				(28.1	)			—				—				(28.1	)
Stock-based compensation expense			—				—				9.5				—				—				9.5
Balance as of September 30, 2023			154.7			$	1.5			$	2,826.5			$	12.6			$	987.7			$	3,828.3
Balance as of June 29, 2024			154.2				1.5				2,818.5				4.0				1,302.9				4,126.9
Net income			—				—				—				—				108.0				108.0
Interest rate swaps			—				—				—				(5.9	)			—				(5.9	)
Foreign currency translation adjustment			—				—				—				0.5				—				0.5
Issuance of common stock under stock-based compensation plans			0.5				—				(16.7	)			—				—				(16.7	)
Issuance of common stock under employee stock purchase plan			0.2				—				15.0				—				—				15.0
Common stock repurchased			(0.4	)			—				(29.5	)			—				—				(29.5	)
Stock-based compensation expense			—				—				9.9				—				—				9.9
Balance as of September 28, 2024			154.5			$	1.5			$	2,797.2			$	(1.4	)		$	1,410.9			$	4,208.2

 

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

 

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PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)		Three Months Ended September 28, 2024				Three Months Ended September 30, 2023
Cash flows from operating activities:
Net income		$	108.0			$	120.7
Adjustments to reconcile net income to net cash provided    by operating activities
Depreciation			97.4				83.8
Amortization of intangible assets			55.5				45.5
Amortization of deferred financing costs			2.7				2.5
Provision for losses on accounts receivables			6.4				9.4
Change in LIFO reserve			12.7				19.2
Stock compensation expense			11.3				10.7
Deferred income tax benefit			(15.2	)			(13.7	)
Change in fair value of derivative assets and liabilities			1.5				(5.1	)
Other non-cash activities			0.5				0.2
Changes in operating assets and liabilities, net
Accounts receivable			10.0				3.4
Inventories			(342.9	)			(130.6	)
Income taxes receivable			43.8				36.1
Prepaid expenses and other assets			74.1				(19.5	)
Trade accounts payable and outstanding checks in excess of deposits			162.1				56.2
Accrued expenses and other liabilities			(174.4	)			(131.7	)
Net cash provided by operating activities			53.5				87.1
Cash flows from investing activities:
Purchases of property, plant and equipment			(96.5	)			(53.2	)
Net cash paid for acquisitions			(574.3	)			(214.6	)
Proceeds from sale of property, plant and equipment and other			1.0				0.9
Net cash used in investing activities			(669.8	)			(266.9	)
Cash flows from financing activities:
Net (payments) borrowings under ABL Facility			(263.7	)			249.0
Borrowing of Notes due 2032			1,000.0				—
Cash paid for debt issuance, extinguishment and modifications			(28.5	)			—
Payments under finance lease obligations			(38.0	)			(28.0	)
Proceeds from employee stock purchase plan			15.0				—
Proceeds from exercise of stock options			0.5				0.9
Cash paid for shares withheld to cover taxes			(17.2	)			(18.8	)
Repurchases of common stock			(29.2	)			(28.1	)
Net cash provided by financing activities			638.9				175.0
Net increase (decrease) in cash and restricted cash			22.6				(4.8	)
Cash and restricted cash, beginning of period			27.7				20.0
Cash and restricted cash, end of period		$	50.3			$	15.2

 

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 September 28, 2024				As of June 29, 2024
Cash		$	42.5			$	20.0
Restricted cash(1)			7.8				7.7
Total cash and restricted cash		$	50.3			$	27.7

 

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Supplemental disclosures of cash flow information are as follows:

(In millions)		Three Months Ended September 28, 2024				Three Months Ended September 30, 2023
Cash paid during the year for:
Interest		$	63.5			$	51.1
Income tax payments net of refunds			1.0				16.6

 

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

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PERFORMANCE FOOD GROUP COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In November 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 September 28, 2024, the Company repurchased and subsequently retired 0.4 million shares of common stock, for a total of $29.5 million or an average cost of $74.69 per share. During the three months ended September 30, 2023, the Company repurchased and subsequently retired 0.5 million shares of common stock, for a total of $28.1 million or an average cost of $60.35 per share. As of September 28, 2024, $181.1 million remained available for additional share repurchases.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q and the audited consolidated financial statements and the notes thereto included in the Form 10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Item 1A. Risk Factors” section of the Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this quarterly report on Form 10-Q.

Our Company

We market and distribute food and food-related products to customers across North America from our over 150 locations to over 300,000 customer locations in the “food-away-from-home” industry. We offer our customers a broad assortment of products including our proprietary-branded products, nationally branded products, and products bearing our customers’ brands. Our product assortment ranges from “center-of-the-plate” items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, and beverages. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers, as well as cigarettes and other tobacco products. In addition to the products we offer to our customers, we provide value-added services by allowing our customers to benefit from our industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.

Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. Our Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” Foodservice sells to independent and multi-unit “Chain” restaurants and other institutions such as schools, healthcare facilities, business and industry locations, and retail establishments. Our Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products and other items to convenience stores across North America. We believe that there are substantial synergies across our segments. Cross-segment synergies include procurement, operational best practices such as the use of new productivity technologies, and supply chain and network optimization, as well as shared corporate functions such as accounting, treasury, tax, legal, information systems, and human resources.

On October 8, 2024, the Company acquired Cheney Bros., Inc. ("Cheney Brothers") in a transaction valued at $2.1 billion. The $2.1 billion purchase price was financed with borrowings under the ABL Facility. Cheney Brothers will be reported in the Foodservice segment.

Key Factors Affecting Our Business

We believe that our long-term performance is principally affected by the following key factors:

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How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management are discussed below. The percentages on the results presented below are calculated based on rounded numbers.

Net Sales

Net sales is equal to gross sales, plus excise taxes, minus sales returns; sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net sales are driven by changes in case volumes and product inflation that is reflected in the pricing of our products and mix of products sold.

Gross Profit

Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration), inbound freight, and remittances of excise tax. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.

Adjusted EBITDA

Management measures operating performance based on our Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items that we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction, and other adjustment items permitted in calculating covenant compliance under our ABL Facility and indentures (other than certain pro forma adjustments permitted under our ABL Facility and indentures governing the Notes due 2027, Notes due 2029, and Notes due 2032 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our ABL Facility and indentures, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the ABL Facility and indentures). Our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.

Adjusted EBITDA is not defined under GAAP, is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. In addition, targets based on Adjusted EBITDA are among the measures we use to evaluate our management’s performance for purposes of determining their compensation under our incentive plans. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties, including our lenders under the ABL Facility and holders of our Notes due 2027, Notes due 2029, and Notes due 2032 in their evaluation of the operating performance of companies in industries similar to ours.

Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

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In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:

We have included the calculation of Adjusted EBITDA for the periods presented.

Results of Operations and Adjusted EBITDA

The following table sets forth a summary of our results of operations and Adjusted EBITDA for the periods indicated (in millions, except per share data):

		Three Months Ended
		September 28, 2024				September 30, 2023				Change				%
Net sales		$	15,415.5			$	14,938.6			$	476.9				3.2
Cost of goods sold			13,651.3				13,275.7				375.6				2.8
Gross profit			1,764.2				1,662.9				101.3				6.1
Operating expenses			1,548.9				1,446.7				102.2				7.1
Operating profit			215.3				216.2				(0.9	)			(0.4	)
Other expense, net
Interest expense			66.8				56.1				10.7				19.1
Other, net			1.6				(3.2	)			4.8				150.0
Other expense, net			68.4				52.9				15.5				29.3
Income before income taxes			146.9				163.3				(16.4	)			(10.0	)
Income tax expense			38.9				42.6				(3.7	)			(8.7	)
Net income (GAAP)		$	108.0			$	120.7			$	(12.7	)			(10.5	)
Adjusted EBITDA (Non-GAAP)		$	411.9			$	383.8			$	28.1				7.3
Weighted-average common shares outstanding:
Basic			154.6				154.8				(0.2	)			(0.1	)
Diluted			156.2				156.6				(0.4	)			(0.3	)
Earnings per common share:
Basic		$	0.70			$	0.78			$	(0.08	)			(10.3	)
Diluted		$	0.69			$	0.77			$	(0.08	)			(10.4	)

 

 

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We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income. The following table reconciles Adjusted EBITDA to net income for the periods presented:

		Three Months Ended
		September 28, 2024				September 30, 2023
		(In millions)
Net income (GAAP)		$	108.0			$	120.7
Interest expense			66.8				56.1
Income tax expense			38.9				42.6
Depreciation			97.4				83.8
Amortization of intangible assets			55.5				45.5
Change in LIFO reserve (1)			12.7				19.2
Stock-based compensation expense			11.3				10.7
Loss (gain) on fuel derivatives			1.4				(3.5	)
Acquisition, integration & reorganization expenses (2)			19.1				9.8
Other adjustments (3)			0.8				(1.1	)
Adjusted EBITDA (Non-GAAP)		$	411.9			$	383.8

Consolidated Results of Operations

Three months ended September 28, 2024 compared to the three months ended September 30, 2023

Net Sales

Net sales growth is a function of acquisitions, case growth, pricing (which is primarily based on product inflation/deflation), and a changing mix of customers, channels, and product categories sold. Net sales increased $476.9 million, or 3.2%, for the first three months of fiscal 2025 compared to the first three months of fiscal 2024.

The increase in net sales was driven by recent acquisitions, an increase in cases sold including a favorable shift in mix of cases sold, and an increase in selling price per case as a result of inflation. Total case volume increased 2.6% in the first three months of fiscal 2025 compared to the same period of fiscal 2024. Total organic case volume growth of 1.2% benefited from a 4.3% increase in organic independent cases, including growth in Performance Brands cases, and growth in cases sold to Foodservice's Chain business. The overall rate of product cost inflation was approximately 5.0% for the first three months of fiscal 2025.

Gross Profit

Gross profit increased $101.3 million, or 6.1%, for the first three months of fiscal 2025 compared to the first three months of fiscal 2024. The increase in gross profit was primarily driven by recent acquisitions, cost of goods sold optimization through procurement efficiencies, a favorable shift in the mix of cases sold, and growth in cases sold, including growth in the independent channel. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers.

Operating Expenses

Operating expenses increased $102.2 million, or 7.1%, for the first three months of fiscal 2025 compared to the first three months of fiscal 2024. The increase in operating expenses for the first three months of fiscal 2025 was primarily driven by recent acquisitions, a $41.9 million increase in personnel expenses primarily related to wages, commissions, and benefits, and an $12.2 million increase in insurance expense primarily related to workers’ compensation and vehicle liability, partially offset by a $9.0 million decrease in fuel expense primarily due to lower fuel prices in the first three months of fiscal 2025 as compared to the prior year period.

Depreciation and amortization of intangible assets increased from $129.3 million for the first three months of fiscal 2024 to $152.9 million in the first three months of fiscal 2025. Depreciation of fixed assets and amortization of intangible assets increased as a result of recent acquisitions, an increase in transportation equipment under finance leases, and accelerated amortization of certain customer relationships and trade names.

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Net Income

Net income decreased $12.7 million, or 10.5% for the first three months of fiscal 2025 compared to the first three months of fiscal 2024. The decrease in net income was primarily attributable to the increase in operating expenses, interest expense, and other expense, partially offset by the increase in gross profit and decrease in income tax expense. The increase in interest expense was primarily the result of an increase in the average borrowings, including finance lease obligations, during the first three months fiscal 2025 compared to the prior year period.

The Company reported income tax expense of $38.9 million for the first three months of fiscal 2025 compared to income tax expense of $42.6 million for the first three months of fiscal 2024. Our effective tax rate for the first three months of fiscal 2025 was 26.5% compared to 26.1% for the first three months of fiscal 2024. The effective tax rate for the period ended September 28, 2024, differed from the prior year period primarily due to an increase in foreign taxes and a decrease in deductible discrete items related to stock-based compensation, partially offset by a decrease in state taxes and an increase in federal credits.

Segment Results

The Company has three reportable segments: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and Segment Adjusted EBITDA, which is the Company’s GAAP measure of segment profit. Segment Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, and amortization and excludes certain items that the Company does not consider part of its segments’ core operating results, including stock-based compensation expense, changes in the LIFO reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives. See Note 13. Segment Information of the consolidated financial statements within Part I, Item 1. Financial Statements in this Form 10-Q.

Corporate & All Other is comprised of unallocated corporate overhead and certain operations that are not considered separate reportable segments based on their size. This also includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.

The following tables set forth net sales and Segment Adjusted EBITDA by segment for the periods indicated (dollars in millions):

Net Sales

 

		Three Months Ended
		September 28, 2024				September 30, 2023				Change				%
Foodservice		$	7,692.1			$	7,277.0			$	415.1				5.7
Vistar			1,285.7				1,250.4				35.3				2.8
Convenience			6,363.7				6,337.0				26.7				0.4
Corporate & All Other			256.1				240.4				15.7				6.5
Intersegment Eliminations			(182.1	)			(166.2	)			(15.9	)			(9.6	)
Total net sales		$	15,415.5			$	14,938.6			$	476.9				3.2

 

Segment Adjusted EBITDA

 

		Three Months Ended
		September 28, 2024				September 30, 2023				Change				%
Foodservice		$	280.0			$	246.0			$	34.0				13.8
Vistar			83.2				88.6				(5.4	)			(6.1	)
Convenience			105.3				94.7				10.6				11.2
Corporate & All Other			(56.6	)			(45.5	)			(11.1	)			(24.4	)
Total Adjusted EBITDA		$	411.9			$	383.8			$	28.1				7.3

 

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Segment Results—Foodservice

Three months ended September 28, 2024, compared to the three months ended September 30, 2023

Net Sales

Net sales for Foodservice increased $415.1 million, or 5.7%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. This increase in net sales was driven by a recent acquisition, an increase in selling price per case as a result of inflation, and case volume growth, including growth in our independent and Chain business. Total case growth for Foodservice was 2.9% and organic case growth was 1.6% for the first three months of fiscal 2025, compared to the prior year period. Securing new and expanding business with independent customers resulted in total independent case growth of 7.8% and organic independent case growth of 4.3% in the first three months of fiscal 2025, compared to the prior year period. For the quarter, independent sales as a percentage of total Foodservice segment sales were 41.7%.

Segment Adjusted EBITDA

Adjusted EBITDA for Foodservice increased $34.0 million, or 13.8%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. This increase was the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Foodservice’s Adjusted EBITDA increased $65.7 million, or 6.4%, in the first three months of fiscal 2025, compared to the prior year period. The increase in gross profit was driven by a recent acquisition, a favorable shift in the mix of cases sold, and growth in cases sold, including more Performance Brands products sold to independent customers.

Operating expenses impacting Foodservice's Adjusted EBITDA increased $31.8 million, or 4.1%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. Operating expenses increased as a result of a recent acquisition, a $23.0 million increase in personnel expenses primarily related to wages, commissions, and benefits, and a $6.7 million increase in insurance expense primarily related to workers' compensation and vehicle liability, partially offset by an $8.2 million decrease in fuel expense primarily due to lower fuel prices, compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $70.6 million in the first three months of fiscal 2024 to $85.0 million in the first three months of fiscal 2025 as a result of an increase in transportation equipment under finance leases and a recent acquisition.

Segment Results—Vistar

Three months ended September 28, 2024, compared to the three months ended September 30, 2023

Net Sales

Net sales for Vistar increased $35.3 million, or 2.8%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. The increase in net sales was driven primarily by an acquisition in the second quarter of fiscal 2024. Total organic case volume growth for Vistar was flat, as growth in the vending, office coffee service, and corrections channels was offset by declines in theater and retail cases sold, in the first three months of fiscal 2025 compared to the prior year period.

Segment Adjusted EBITDA

Adjusted EBITDA for Vistar decreased $5.4 million, or 6.1%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. The decrease was the result of an increase in operating expenses, partially offset by an increase in gross profit. Gross profit increased $19.0 million, or 9.1%, for the first three months of fiscal 2025 compared to the prior year period primarily driven by an acquisition in the second quarter of fiscal 2024.

Operating expenses impacting Vistar's Adjusted EBITDA increased $24.3 million, or 20.2%, for the first three months of fiscal 2025 compared to the prior year period. Operating expenses increased $18.1 million due to an acquisition in the second quarter of fiscal 2024, $3.0 million due to variable operational expenses as a result of a shift in channel mix, and $2.1 million due to an increase in occupancy costs associated with building expansions compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $10.4 million in the first three months of fiscal 2024 to $14.4 million in the first three months of fiscal 2025 due primarily to an acquisition in the second quarter of fiscal 2024.

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Segment Results—Convenience

Three months ended September 28, 2024, compared to the three months ended September 30, 2023

Net Sales

Net sales for Convenience increased $26.7 million, or 0.4%, from the first three months of fiscal 2024 to the first three months of fiscal 2025 driven primarily by an increase in selling price per case as a result of continued inflation for food and foodservice related products and cigarette manufacturers’ price increases, as well as an increase in food and foodservice related cases sold, partially offset by a decline in cigarette carton sales.

Segment Adjusted EBITDA

Adjusted EBITDA for Convenience increased $10.6 million, or 11.2%, from the first three months of fiscal 2024 to the first three months of fiscal 2025. This increase was a result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Convenience's Adjusted EBITDA increased $13.7 million, or 3.3%, for the first three months of fiscal 2025 compared to the prior year period primarily due to a favorable shift in mix of cases sold and growth in cases sold.

Operating expenses impacting Convenience's Adjusted EBITDA increased $3.0 million, or 1.0%, for the first three months of fiscal 2025 compared to the prior year period. Operating expenses increased primarily as a result of a $4.0 million increase in insurance expense primarily related to worker's compensation, partially offset by a $1.8 million decrease in fuel expense primarily due to lower fuel prices compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $37.7 million in the first three months of fiscal 2024 to $38.6 million in the first three months of fiscal 2025.

Segment Results—Corporate & All Other

Three months ended September 28, 2024, compared to the three months ended September 30, 2023

Net Sales

Net sales for Corporate & All Other increased $15.7 million from the first three months of fiscal 2024 to the first three months of fiscal 2025. The increase was primarily attributable to an increase in products and services sold to our other segments.

Segment Adjusted EBITDA

Adjusted EBITDA for Corporate & All Other was a negative $56.6 million for the first three months of fiscal 2025 compared to a negative $45.5 million for the first three months of fiscal 2024. The decline in Adjusted EBITDA was primarily driven by a $5.4 million increase in corporate personnel expense and a $2.7 million increase in information technology maintenance expense primarily related to cloud-based services.

Depreciation and amortization of intangible assets recorded in this segment increased from $10.6 million in the first three months of fiscal 2024 to $14.9 million in the first three months of fiscal 2025 due to accelerated amortization of certain customer relationships and trade names.

Liquidity and Capital Resources

We have historically financed our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating and finance leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility or net proceeds from the issuances of senior notes. Our working capital and borrowing levels are subject to seasonal fluctuations and timing of procurement and acquisition activities. We borrow under our credit facility or pay it down regularly based on our cash flows from operating and investing activities. Our practice is to minimize interest expense while maintaining reasonable liquidity.

As market conditions warrant, we may from time to time seek to repurchase our securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under our credit facility. In addition, depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness, make investments or acquisitions or for other purposes. Any new debt may be secured debt.

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We are exposed to interest rate risk related to changes in interest rates for borrowings under our ABL Facility. To add stability to interest expense and manage our exposure to interest rate movements, we enter into interest rate swap agreements. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments. As of September 28, 2024, $350.0 million of the outstanding ABL Facility balance is currently hedged under interest rate swaps which results in 89% of our total debt outstanding, including finance lease obligations, being fixed-rate debt.

In November 2022, the Board of Directors authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The new share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During the first quarter of fiscal 2025, the Company repurchased 0.4 million shares of the Company's common stock, for a total of $29.5 million or an average cost of $74.69 per share. During the three months ended September 30, 2023, the Company repurchased and subsequently retired 0.5 million shares of the Company's common stock, for a total of $28.1 million or an average cost of $60.35 per share. As of September 28, 2024, $181.1 million remained available for share repurchases.

Our contractual cash requirements over the next 12 months and beyond relate to our long-term debt and associated interest payments, operating and finance leases, and purchase obligations. For information regarding the Company’s expected cash requirements related to long-term debt and operating and finance leases, see Note 6. Debt and Note 7. Leases, respectively, of the consolidated financial statements in this Form 10-Q. As of September 28, 2024, the Company had total purchase obligations of $199.7 million, which includes agreements for purchases related to capital projects and services in the normal course of business, for which all significant terms have been confirmed, as well as a minimum amount due for various Company meetings and conferences. Purchase obligations also include amounts committed to various capital projects in process or scheduled to be completed in the coming fiscal years. As of September 28, 2024, the Company had commitments of $114.8 million for capital projects related to warehouse expansion and improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings under the ABL Facility to fulfill these commitments. Amounts due under these agreements were not included in the Company’s consolidated balance sheet as of September 28, 2024.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We believe that our cash flows from operations and available borrowing capacity will be sufficient both to meet our anticipated cash requirements over at least the next 12 months and to maintain sufficient liquidity for normal operating purposes and to fund capital expenditures.

As of September 28, 2024, our cash balance totaled $50.3 million, including restricted cash of $7.8 million, as compared to a cash balance totaling $27.7 million, including restricted cash of $7.7 million, as of June 29, 2024.

Three months ended September 28, 2024 compared to the three months ended September 30, 2023

Operating Activities

During the first three months of fiscal 2025 and fiscal 2024, our operating activities provided cash flow of $53.5 million and $87.1 million, respectively. The decrease in cash flow provided by operating activities in the first three months of fiscal 2025 compared to the first three months of fiscal 2024 was largely driven by advanced purchases of cigarette and candy inventory to take advantage of preferred pricing.

Investing Activities

Cash used in investing activities totaled $669.8 million in the first three months of fiscal 2025 compared to $266.9 million in the first three months of fiscal 2024. These investments consisted of cash paid of $574.3 million for an acquisition in the first three months of fiscal 2025 compared to $214.6 million for an acquisition in the first three months of fiscal 2024, along with capital purchases of property, plant, and equipment of $96.5 million and $53.2 million for the first three months of fiscal 2025 and the first three months of fiscal 2024, respectively. For the first three months of fiscal 2025, purchases of property, plant, and equipment primarily consisted of outlays for warehouse expansion and improvements, warehouse equipment, information technology, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment.

 

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		Three Months Ended
(Dollars in millions)		September 28, 2024				September 30, 2023
Foodservice		$	77.3			$	31.0
Vistar			6.0				3.4
Convenience			10.4				4.0
Corporate & All Other			2.8				14.8
Total capital purchases of property, plant and equipment		$	96.5			$	53.2

Financing Activities

During the first three months of fiscal 2025, our financing activities provided cash flow of $638.9 million, which consisted primarily of $1.0 billion in cash received from the issuance and sale of the Notes due 2032, partially offset by $263.7 million in net payments under our ABL Facility.

During the first three months of fiscal 2024, our financing activities provided cash flow of $175.0 million, which consisted primarily of $249.0 million in net borrowings under our ABL Facility.

The following describes our financing arrangements as of September 28, 2024:

Credit Agreement: PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, were parties to the Fifth Amended and Restated Credit Agreement dated September 17, 2021, as amended by the First Amendment to the Fifth Amended and Restated Credit Agreement, dated April 17, 2023 (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement had an aggregate principal amount available of $4.0 billion and was scheduled to mature on September 17, 2026.

On September 9, 2024, PFGC and Performance Food Group, Inc. entered into the Sixth Amended and Restated Credit Agreement (the "ABL Facility"), with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the Prior Credit Agreement. The ABL Facility, among other things, (i) increases the total revolving commitments from $4.0 billion under the Prior Credit Agreement to $5.0 billion under the ABL Facility and (ii) extends the stated maturity date from September 17, 2026, under the Prior Credit Agreement to September 9, 2029, under the ABL Facility. The ABL Facility also provides for up to $1.0 billion of uncommitted incremental facilities. The terms of any such incremental facility shall be agreed between Performance Food Group, Inc. and the lenders providing the new commitments, subject to certain limitations set forth in the ABL Facility.

Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than the captive insurance subsidiary and other excluded subsidiaries). Availability for loans and letters of credit under the ABL Facility is governed by a borrowing base, determined by the application of specified advance rates against eligible assets, including trade accounts receivable, inventory, owned real property, and owned transportation equipment. The borrowing base is reduced quarterly by a cumulative fraction of the real property and transportation equipment values. Advances on accounts receivable and inventory are subject to change based on periodic commercial finance examinations and appraisals, and the real property and transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.

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

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

 

(Dollars in millions)		As of September 28, 2024				As of June 29, 2024
Aggregate borrowings		$	897.1			$	1,160.8
Letters of credit			172.4				160.4
Excess availability, net of lenders’ reserves of $96.0 and $96.3			3,930.5				2,678.8
Average interest rate, excluding impact of interest rate swaps			6.77	%			6.79	%

 

The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if Alternate Availability (as defined in the ABL Facility) falls below the greater of (i) $375.0 million and (ii) 10% of the lessor of the

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borrowing base and the sum of (a) the aggregate commitments plus (b) any outstanding term loans for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on the loan parties' and their subsidiaries' abilities to incur additional indebtedness, pay dividends, create liens, make investments, make prepayments, redemptions, or defeasances prior to the maturity of certain restricted debt and dispose of assets. The ABL Facility provides for customary events of default, including payment defaults and cross-defaults on other material indebtedness. If an event of default occurs and is continuing, amounts due under the ABL Facility may be accelerated and the rights and remedies of the lenders may be exercised, including rights with respect to the collateral securing the obligations under such agreement.

Senior Notes due 2027: On September 27, 2019, PFG Escrow Corporation (which merged with and into Performance Food Group, Inc.) issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 ("the "Notes due 2027"). The Notes due 2027 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2027 are not guaranteed by the Company.

The proceeds from the Notes due 2027 along with an offering of shares of the Company’s common stock and borrowings under a prior credit agreement, were used to fund the cash consideration for the acquisition of Reinhart Foodservice, L.L.C and to pay related fees and expenses.

The Notes due 2027 were issued at 100.0% of their par value. The Notes due 2027 mature on October 15, 2027 and bear interest at a rate of 5.500% per year, payable semi-annually in arrears.

Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2027 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2027 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Beginning on October 15, 2024, Performance Food Group, Inc. may redeem all or part of the Notes due 2027 at a redemption price equal to 100.0% of the principal amount redeemed, plus accrued and unpaid interest.

The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2027 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2027 to become or be declared due and payable.

Senior Notes due 2029: On July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 4.250% Senior Notes due 2029 (the “Notes due 2029”). The Notes due 2029 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2029 are not guaranteed by the Company.

The proceeds from the Notes due 2029 were used to pay down the outstanding balance of the ABL Facility, to redeem the 5.500% Senior Notes due 2024, and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2029.

The Notes due 2029 were issued at 100.0% of their par value. The Notes due 2029 mature on August 1, 2029 and bear interest at a rate of 4.250% per year, payable semi-annually in arrears.

Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2029 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2029 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or part of the Notes due 2029 at a redemption price equal to 102.125% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.163% and 100% of the principal amount redeemed on August 1, 2025, and August 1, 2026, respectively.

The indenture governing the Notes due 2029 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with

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affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2029 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2029 to become or be declared due and payable.

Senior Notes due 2032: On September 12, 2024, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its Notes due 2032. The Notes due 2032 are jointly and severally guaranteed on a senior unsecured basis by PFGC and all domestic direct and indirect wholly-owned subsidiaries of PFGC (other than captive insurance subsidiaries and other excluded subsidiaries). The Notes due 2032 are not guaranteed by the Company.

The Company intended to use the proceeds from the Notes due 2032, together with borrowings under the ABL Facility, to finance the cash consideration in connection with the acquisition of Cheney Brothers and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2032. However, since there was no requirement to hold the funds in escrow until the Cheney Brothers acquisition closed, the net proceeds from the Notes due 2032 were used to pay down a portion of the outstanding balance of the ABL Facility. The Company subsequently funded the cash consideration for the Cheney Brothers acquisition with borrowings under the ABL Facility.

The Notes due 2032 were issued at 100.0% of their par value. The Notes due 2032 mature on September 15, 2032, and bear interest at a rate of 6.125% per year, payable semi-annually in arrears.

Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which Performance Food Group, Inc. does not apply the proceeds as required, the holders of the Notes due 2032 will have the right to require Performance Food Group, Inc. to repurchase each holder’s Notes due 2032 at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest. Performance Food Group, Inc. may redeem all or a part of the Notes due 2032 at any time prior to September 15, 2027, at a redemption price equal to 100% of the principal amount of the Notes due 2032 being redeemed plus a make-whole premium and accrued and unpaid interest. In addition, beginning on September 15, 2027, Performance Food Group, Inc. may redeem all or a part of the Notes due 2032 at a redemption price equal to 103.063% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.531% and 100% of the principal amount redeemed on September 15, 2028, and September 15, 2029, respectively. In addition, at any time prior to September 15, 2027, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2032 from the proceeds of certain equity offerings at a redemption price equal to 106.125% of the principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes due 2032 contains covenants limiting, among other things, PFGC’s and its restricted subsidiaries’ ability to incur or guarantee additional debt or issue disqualified stock or preferred stock; pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; create certain restrictions on the ability of PFGC’s restricted subsidiaries to make dividends or other payments to PFGC; designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell certain assets. These covenants are subject to a number of important exceptions and qualifications. The Notes due 2032 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2032 to become or be declared due and payable.

The ABL Facility and the indentures governing the Notes due 2027, the Notes due 2029, and the Notes due 2032 contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries were restricted from distribution to Performance Food Group Company, except for approximately $1,872.2 million of restricted payment capacity available under such debt agreements, as of September 28, 2024. Such minimum estimated restricted payment capacity is calculated based on the most restrictive of our debt agreements and may fluctuate from period to period, which fluctuations may be material. Our restricted payment capacity under other debt instruments to which the Company is subject may be materially higher than the foregoing estimate.

As of September 28, 2024, the Company was in compliance with all of the covenants under the ABL Facility and the indentures governing the Notes due 2027, the Notes due 2029 and the Notes due 2032.

Total Assets by Segment

Total assets for Foodservice increased $1,251.7 million from $6,633.1 million as of September 30, 2023 to $7,884.8 million as of September 28, 2024. Total assets for Foodservice increased $888.0 million from $6,996.8 million as of June 29, 2024 to $7,884.8 million as of September 28, 2024. During both time periods, this segment increased its goodwill, intangible assets, property, plant and equipment, accounts receivable, and inventory primarily due to an acquisition. Property, plant and equipment also increased due to additions of transportation equipment under finance leases and warehouse expansion and improvement projects.

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Total assets for Vistar increased $208.8 million from $1,331.5 million as of September 30, 2023 to $1,540.3 million as of September 28, 2024. During this time period, this segment increased its property, plant and equipment, goodwill, intangible assets, operating lease right-of-use assets, and inventory due to a fiscal 2024 acquisition. Total assets for Vistar increased $21.2 million from $1,519.1 million as of June 29, 2024 to $1,540.3 million as of September 28, 2024. During this time period, this segment increased its inventory and property, plant and equipment.

Total assets for Convenience increased $39.8 million from $4,225.3 million as of September 30, 2023 to $4,265.1 million as of September 28, 2024. During this time period, the segment increased its inventory and property, plant and equipment, partially offset by a decrease in intangible assets and prepaid expenses and other current assets. Total assets for Convenience increased $184.2 million from $4,080.9 million as of June 29, 2024 to $4,265.1 million as of September 28, 2024. During this time period, the segment increased its inventory, partially offset by a decrease in prepaid expenses and other current assets and accounts receivable.

Total assets for Corporate & All Other decreased $7.0 million from $713.3 million as of September 30, 2023 to $706.3 million as of September 28, 2024. During this time period, Corporate & All Other decreased its intangible assets and inventory, partially offset by an increase in prepaid expenses and other current assets. Total assets for Corporate & All Other decreased $89.8 million from $796.1 million as of June 29, 2024 to $706.3 million as of September 28, 2024. During this time period, Corporate & All Other decreased its prepaid expenses and other current assets and other assets.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are most important to portraying our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, inventory valuation, insurance programs, income taxes, vendor rebates and promotional incentives, leases, and goodwill and other intangible assets, which are described in the Form 10-K. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates described in the Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks consist of interest rate risk and fuel price risk. There have been no material changes to our market risks since June 29, 2024. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in the Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Form 10-Q, were effective to accomplish their objectives at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Exchange Act), that occurred during the fiscal quarter ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various allegations, claims, and legal actions arising in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of any of these proceedings, lawsuits, and claims, management believes that adequate provisions have been made or insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a material adverse effect on our financial position. Refer to Note 10. Commitments and Contingencies of the consolidated financial statements within Part I, Item 1. Financial Statements for disclosure of ongoing litigation.

Item 1A. Risk Factors

There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Form 10-K.

 

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to our purchases of the Company’s common stock during the first quarter of fiscal 2025.

Period		Total Number of Shares Purchased(1)				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plan(2)				Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan (in millions)(2)
June 30, 2024—July 27, 2024			—			$	-				—			$	210.6
July 28, 2024—August 24, 2024			361,562			$	73.57				182,935			$	197.1
August 25, 2024—September 28, 2024			267,297			$	75.32				212,582			$	181.1
Total			628,859			$	74.31				395,517

 

 

Item 3: Defaults Upon Senior Securities

None

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information

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Item 6: Exhibits

 

Exhibit No.		Description
2.1^		Stock Purchase Agreement, dated as of August 13, 2024, by and among Performance Food Group, Inc., Performance Food Group Company, Cheney Bros., Inc. Shares Trust, Joseph N. Cheney Trust, June Claire Cheney Russell Trust, CD&R Chip Holdings, L.P., Cheney Bros., Inc. and Michael Sullivan (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-37578) filed with the Securities and Exchange Commission on August 14, 2024).
4.1		Indenture, dated as of September 12, 2024, among Performance Food Group, Inc., PFGC, Inc., the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, transfer agent, registrar and paying agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-37578) filed with the Securities and Exchange Commission on September 12, 2024).
4.2		Form of 6.125% Senior Notes due 2032 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-37578) filed with the Securities and Exchange Commission on September 12, 2024).
10.1^		Sixth Amended and Restated Credit Agreement, dated as of September 9, 2024, among PFGC, Inc., Performance Food Group, Inc., Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37578) filed with the Securities and Exchange Commission on September 12, 2024).
10.2+*		Amendment No. 2 to Performance Food Group Company Deferred Compensation Plan
31.1*		CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

* Filed herewith.

+ Identifies exhibits that consist of a management contract or compensatory plan or arrangement.

^ Schedules (and similar attachments) to the Purchase Agreement and Credit Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities and Exchange Commission upon request.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURE

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.

				PERFORMANCE FOOD GROUP COMPANY (Registrant)
Dated: November 6, 2024				By:		/s/ H. Patrick Hatcher
				Name:		H. Patrick Hatcher
				Title:		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Authorized Signatory)

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