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 28, 2019

☐ 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  ☒

117,181,486 shares of common stock were outstanding as of January 29, 2020.

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	32
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 and our business outlook, business trends and other information may be 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 the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019 (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:

• 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 of our 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;

• our reliance on third-party suppliers;

• labor relations and cost risks and availability of qualified labor;

• volatility of fuel and other transportation costs;

• inability to adjust cost structure where one or more of our competitors successfully implement lower costs;

• we may be unable 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;

• the risk that we fail to comply with requirements imposed by applicable law or government regulations;

• our reliance on technology and risks associated with disruption or delay in implementation of new technology;

• costs and risks associated with a potential cybersecurity incident or other technology disruption;

• product liability claims relating to the products we distribute and other litigation;

• adverse judgements or settlements;

• negative media exposure and other events that damage our reputation;

• anticipated multiemployer pension related liabilities and contributions to our multiemployer pension plan;

• decrease in earnings from amortization charges associated with acquisitions;

3

• impact of uncollectibility of accounts receivable;  

• difficult economic conditions affecting consumer confidence;

• departure of key members of senior management;

• risks relating to federal, state, and local tax rules;

• the cost and adequacy of insurance coverage;

• risks relating to our outstanding indebtedness; and

• our ability to maintain an effective system of disclosure controls and internal control over financial reporting.

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 28, 2019			As of June 29, 2019
ASSETS
Current assets:
Cash	$	12.7		$	14.7
Accounts receivable, less allowances of $29.7 and $22.0		1,230.1			1,227.3
Inventories, net		1,349.4			1,356.9
Restricted cash		1,078.2			-
Prepaid expenses and other current assets		62.2			71.7
Total current assets		3,732.6			2,670.6
Goodwill		765.8			765.8
Other intangible assets, net		170.3			194.3
Property, plant and equipment, net		983.5			950.5
Operating lease right-of-use assets		391.3			-
Restricted cash		11.0			10.7
Other assets		56.6			61.6
Total assets	$	6,111.1		$	4,653.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Outstanding checks in excess of deposits	$	265.2		$	206.9
Trade accounts payable		1,041.5			1,130.8
Accrued expenses and other current liabilities		413.4			343.3
Finance lease obligations—current installments		24.6			18.3
Operating lease obligations—current installments		78.4			-
Total current liabilities		1,823.1			1,699.3
Long-term debt		2,188.4			1,202.9
Deferred income tax liability, net		102.0			108.0
Finance lease obligations, excluding current installments		164.5			128.9
Operating lease obligations, excluding current installments		314.6			-
Other long-term liabilities		140.0			216.2
Total liabilities		4,732.6			3,355.3
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 104.4 million shares issued and outstanding as of December 28, 2019; 1.0 billion shares authorized, 103.8 million shares issued and outstanding as of June 29, 2019		1.0			1.0
Additional paid-in capital		870.5			866.7
Accumulated other comprehensive loss, net of tax benefit of $0.4 and $0.1		(1.0	)		(0.2	)
Retained earnings		508.0			430.7
Total shareholders’ equity		1,378.5			1,298.2
Total liabilities and shareholders’ equity	$	6,111.1		$	4,653.5

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 28, 2019			Three Months Ended December 29, 2018		Six Months Ended December 28, 2019			Six Months Ended December 29, 2018
Net sales	$	6,068.6		$	4,615.7	$	12,311.6		$	9,155.4
Cost of goods sold		5,357.4			4,001.1		10,889.0			7,947.2
Gross profit		711.2			614.6		1,422.6			1,208.2
Operating expenses		630.7			541.6		1,278.6			1,084.6
Operating profit		80.5			73.0		144.0			123.6
Other expense, net:
Interest expense		26.4			16.0		43.7			31.6
Other, net		(0.2	)		0.7		(0.2	)		0.5
Other expense, net		26.2			16.7		43.5			32.1
Income before taxes		54.3			56.3		100.5			91.5
Income tax expense		13.1			13.2		23.2			20.2
Net income	$	41.2		$	43.1	$	77.3		$	71.3
Weighted-average common shares outstanding:
Basic		104.3			103.9		104.2			103.7
Diluted		106.4			104.9		106.2			105.0
Earnings per common share:
Basic	$	0.39		$	0.41	$	0.74		$	0.69
Diluted	$	0.39		$	0.41	$	0.73		$	0.68

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 28, 2019			Three months ended December 29, 2018			Six Months Ended December 28, 2019			Six Months Ended December 29, 2018
Net income	$	41.2		$	43.1		$	77.3		$	71.3
Other comprehensive income (loss), net of tax:
Interest rate swaps:
Change in fair value, net of tax		0.5			(3.0	)		-			(2.2	)
Reclassification adjustment, net of tax		(0.2	)		(0.8	)		(0.8	)		(1.3	)
Other comprehensive income (loss)		0.3			(3.8	)		(0.8	)		(3.5	)
Total comprehensive income	$	41.5		$	39.3		$	76.5		$	67.8

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 (Loss)			Earnings		Equity
Balance as of September 29, 2018		103.6		$	1.0	$	862.7		$	9.5		$	292.1	$	1,165.3
Issuance of common stock under    stock-based compensation plans		0.4			—		1.5			—			—		1.5
Net income		—			—		—			—			43.1		43.1
Interest rate swaps		—			—		—			(3.8	)		—		(3.8	)
Stock-based compensation expense		—			—		4.2			—			—		4.2
Common stock repurchased		(0.2	)		—		(5.2	)		—			—		(5.2	)
Balance as of December 29, 2018		103.8		$	1.0	$	863.2		$	5.7		$	335.2	$	1,205.1
Balance as of September 28, 2019		104.2		$	1.0	$	866.6		$	(1.3	)	$	466.8	$	1,333.1
Issuance of common stock under    stock-based compensation plans		0.2			—		(0.5	)		—			—		(0.5	)
Net income		—			—		—			—			41.2		41.2
Interest rate swaps		—			—		—			0.3			—		0.3
Stock-based compensation expense		—			—		4.4			—			—		4.4
Balance as of December 28, 2019		104.4		$	1.0	$	870.5		$	(1.0	)	$	508.0	$	1,378.5

						Additional			Accumulated Other						Total
	Common Stock					Paid-in			Comprehensive			Retained			Shareholders’
(In millions)	Shares			Amount		Capital			Income (Loss)			Earnings			Equity
Balance as of June 30, 2018		103.2		$	1.0	$	861.2		$	8.3		$	264.8		$	1,135.3
Issuance of common stock under    stock-based compensation plans		0.8			—		(0.8	)		—			—			(0.8	)
Net income		—			—		—			—			71.3			71.3
Interest rate swaps		—			—		—			(3.5	)		—			(3.5	)
Stock-based compensation expense		—			—		8.0			—			—			8.0
Common stock repurchased		(0.2	)		—		(5.2	)		—			—			(5.2	)
Change in accounting principle(1)		—			—		—			0.9			(0.9	)		—
Balance as of December 29, 2018		103.8		$	1.0	$	863.2		$	5.7		$	335.2		$	1,205.1
Balance as of June 29, 2019		103.8		$	1.0	$	866.7		$	(0.2	)	$	430.7		$	1,298.2
Issuance of common stock under    stock-based compensation plans		0.6			—		(5.0	)		—			—			(5.0	)
Net income		—			—		—			—			77.3			77.3
Interest rate swaps		—			—		—			(0.8	)		—			(0.8	)
Stock-based compensation expense		—			—		8.8			—			—			8.8
Balance as of December 28, 2019		104.4		$	1.0	$	870.5		$	(1.0	)	$	508.0		$	1,378.5

(1) As of the beginning of fiscal 2019, the Company elected to early adopt the provisions of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

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 28, 2019			Six Months Ended December 29, 2018
Cash flows from operating activities:
Net income	$	77.3		$	71.3
Adjustments to reconcile net income to net cash provided    by operating activities
Depreciation		69.0			54.4
Amortization of intangible assets		17.5			18.2
Amortization of deferred financing costs		1.6			1.7
Provision for losses on accounts receivables		8.9			8.3
Stock compensation expense		8.8			8.0
Deferred income tax benefit		(5.6	)		(4.7	)
Other non-cash activities		9.3			0.6
Changes in operating assets and liabilities, net
Accounts receivable		(11.7	)		(24.3	)
Inventories		7.5			(73.8	)
Prepaid expenses and other assets		9.6			32.2
Trade accounts payable		(89.2	)		(37.4	)
Outstanding checks in excess of deposits		58.3			20.7
Accrued expenses and other liabilities		(3.5	)		(5.2	)
Net cash provided by operating activities		157.8			70.0
Cash flows from investing activities:
Purchases of property, plant and equipment		(49.0	)		(60.1	)
Net cash paid for acquisitions		—			(57.0	)
Proceeds from sale of property, plant and equipment		0.5			0.7
Net cash used in investing activities		(48.5	)		(116.4	)
Cash flows from financing activities:
Net (payments) borrowings under ABL Facility		(72.6	)		65.4
Payments on financed property, plant and equipment		(1.4	)		(4.6	)
Borrowing on Notes due 2027		1,060.0			—
Cash paid for acquisitions		(1.0	)		(3.1	)
Payments under finance lease obligations