Performance Food Group Co 10-Q for FY2020 Q2

About this 10-Q

Headline figures

Performance Food Group Co (PFGC)

10-Q 2020-02-05 For: 2019-12-28

Added on April 09, 2026

Performance Food Group Co filed this 10-Q on February 5, 2020, covering the quarter ended December 28, 2019 (FY2020 Q2).

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

Quarter ended December 28, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.07B; up 31.5% from $4.62B a year earlier
Net income: $41.2M; down 4.4% from net income of $43.1M a year earlier
Diluted EPS: $0.39; down 4.9% from $0.41 a year earlier

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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

		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

(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

(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

($ 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

						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

($ 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		(10.6	)		(5.6	)
Proceeds from exercise of stock options		2.6			5.3
Cash paid for shares withheld to cover taxes		(7.6	)		(6.1	)
Repurchases of common stock		—			(4.6	)
Cash paid for debt issuance, extinguishment and modifications		(2.2	)		—
Net cash provided by financing activities		967.2			46.7
Net increase in cash and restricted cash		1,076.5			0.3
Cash and restricted cash, beginning of period		25.4			17.8
Cash and restricted cash, end of period	$	1,101.9		$	18.1

(In millions)	As of December 28, 2019		As of June 29, 2019
Cash	$	12.7	$	14.7
Restricted cash⁽¹⁾		1,089.2		10.7
Total cash and restricted cash	$	1,101.9	$	25.4


(Dollars in millions)	As of December 28, 2019			As of June 29, 2019
Aggregate borrowings	$	786.4		$	859.0
Letters of credit under credit agreements		95.0			89.9
Excess availability, net of lenders’ reserves of $40.3 and $38.6		1,295.2			1,182.7
Average interest rate		3.22	%		4.01	%

Leases	Consolidated Balance Sheet Location	As of December 28, 2019
Assets:
Operating	Operating lease right-of-use assets	$	391.3
Finance	Property, plant and equipment, net		179.3
Total lease assets		$	570.6
Liabilities:
Current
Operating	Operating lease obligations—current installments	$	78.4
Finance	Finance lease obligations—current installments		24.6
Non-current
Operating	Operating lease obligations, excluding current installments		314.6
Finance	Finance lease obligations, excluding current installments		164.5
Total lease liabilities		$	582.1

Weighted average remaining lease term
Operating leases		7.6 years
Finance leases		7.1 years
Weighted average discount rate
Operating leases			5.4	%
Finance leases			5.6	%

Lease Cost	Statement of Operations Location	Three months ended December 28, 2019		Six months ended December 28, 2019
Finance lease cost:
Amortization of finance lease assets	Operating expenses	$	5.8	$	10.5
Interest on lease liabilities	Interest expense		2.7		4.9
Total finance lease cost		$	8.5	$	15.4
Operating lease cost	Operating expenses		26.7		54.8
Short-term lease cost	Operating expenses		5.6		11.5
Total lease cost		$	40.8	$	81.7

(In millions)	Six months ended December 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	53.3
Operating cash flows from finance leases		4.9
Financing cash flows from finance leases		10.6
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		11.1
Finance leases		52.5

Fiscal Year	Operating Leases		Finance Leases
Remaining 2020	$	50.2	$	17.4
2021		90.6		34.5
2022		74.6		34.0
2023		59.5		32.9
2024		42.4		32.0
Thereafter		176.0		84.0
Total future minimum lease payments	$	493.3	$	234.8
Less: Interest		100.3		45.7
Present value of future minimum lease payments	$	393.0	$	189.1

(In millions, except per share amounts)	Three months ended December 28, 2019		Three months ended December 29, 2018		Six months ended December 28, 2019		Six months ended December 29, 2018
Numerator:
Net Income	$	41.2	$	43.1	$	77.3	$	71.3
Denominator:
Weighted-average common shares outstanding		104.3		103.9		104.2		103.7
Dilutive effect of potential common shares		2.1		1.0		2.0		1.3
Weighted-average dilutive shares outstanding		106.4		104.9		106.2		105.0
Basic earnings per common share	$	0.39	$	0.41	$	0.74	$	0.69
Diluted earnings per common share	$	0.39	$	0.41	$	0.73	$	0.68

(In millions)	Foodservice		Vistar		Corporate & All Other		Eliminations			Consolidated
For the three months ended December 28, 2019
Net external sales	$	3,843.9	$	2,218.6	$	6.1	$	—		$	6,068.6
Inter-segment sales		3.5		0.6		72.5		(76.6	)		—
Total sales		3,847.4		2,219.2		78.6		(76.6	)		6,068.6
Depreciation and amortization		25.8		11.5		6.5		—			43.8
Capital expenditures		8.1		12.8		5.3		—			26.2
For the three months ended December 29, 2018
Net external sales	$	3,669.3	$	941.3	$	5.1	$	—		$	4,615.7
Inter-segment sales		2.6		0.6		64.2		(67.4	)		—
Total sales		3,671.9		941.9		69.3		(67.4	)		4,615.7
Depreciation and amortization		21.7		9.3		6.1		—			37.1
Capital expenditures		25.9		4.0		5.2		—			35.1

	Three Months Ended						Six Months Ended
	December 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
Foodservice EBITDA	$	113.6		$	104.3		$	217.6		$	196.3
Vistar EBITDA		56.6			45.4			108.1			77.0
Corporate & All Other EBITDA		(45.7	)		(40.3	)		(95.0	)		(77.6	)
Depreciation and amortization		(43.8	)		(37.1	)		(86.5	)		(72.6	)
Interest expense		(26.4	)		(16.0	)		(43.7	)		(31.6	)
Income before taxes	$	54.3		$	56.3		$	100.5		$	91.5

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)
September 29, 2019—October 26, 2019		33,288	$	46.01		—		240.7
October 27, 2019—November 23, 2019		1,401		43.51		—		240.7
November 24, 2019—December 28, 2019		3,265		46.72		—		240.7
Total		37,954	$	45.98		—

Exhibit No.		Description


3.1		Amended and Restated Certificate of Incorporation of Performance Food Group Company (incorporate by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-37578) filed with the Securities and Exchange Commission on November 13, 2019).

4.1		First Supplemental Indenture, dated December 30, 2019, by and among PFG Escrow Corporation, PFGC, Inc., each of the subsidiaries of PFGC, Inc. signatory thereto, and U.S. Bank National Association, as trustee (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 December 30, 2019).

10.1		Form of Restricted Stock Unit Agreement (Non-Employee Director) under the 2015 Omnibus Incentive Plan, as amended.

10.2		Form of Deferred Stock Unit Agreement (Non-Employee Director) under the 2015 Omnibus Incentive Plan, as amended.

10.3		Form of Fourth Amended and Restated Credit Agreement, dated December 30, 2019, among PFGC, Inc., Performance Food Group, Inc., Wells Fargo, National Association, as Administrative Agent and Collateral Agent, the other borrowers from time to time party thereto, and the other lenders 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 December 31, 2019).

10.4		Amendment No. 1 to the 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (File No. 001-37578) filed with the Securities and Exchange Commission on November 19, 2019).

10.5		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)