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10-Q 1 pfgc-20230930.htm 10-Q 10-Q

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 30, 2023

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

For the transition period from to ___________

Commission File Number 001-37578

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.

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 ☒

155,600,943 shares of common stock were outstanding as of November 1, 2023.

TABLE OF CONTENTS


		Page

Special Note Regarding Forward-Looking Statements		3

PART I - FINANCIAL INFORMATION		5

Item 1.	Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	31

PART II - OTHER INFORMATION		32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

SIGNATURE		34

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

•

economic factors, including inflation or other adverse changes such as a downturn in economic conditions or a public health crisis, negatively affecting consumer confidence and discretionary spending;

•

our reliance on third-party suppliers;

•

labor relations and cost risks and availability of qualified labor;

•

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

•

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

•

competition in our industry is intense, and we may not be able to compete successfully;

•

we operate in a low margin industry, which could increase the volatility of our results of operations;

•

we may not realize anticipated benefits from our operating cost reduction and productivity improvement efforts;

•

our profitability is directly affected by cost inflation and deflation and other factors;

•

we do not have long-term contracts with certain customers;

•

group purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations;

•

changes in eating habits of consumers;

•

extreme weather conditions, including hurricane, earthquake and natural disaster damage;

•

volatility of fuel and other transportation costs;

•

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

•

our inability to increase our sales in the highest margin portion of our business;

•

changes in pricing practices of our suppliers;

•

our growth strategy may not achieve the anticipated results;

•

risks relating to acquisitions, including the risk that we are not able to realize benefits of acquisitions or successfully integrate the businesses we acquire;

•

environmental, health, and safety costs, including compliance with current and future environmental laws and regulations relating to carbon emissions and climate change and related legal or market measures;

•

our inability to comply with requirements imposed by applicable law or government regulations, including increased regulation of electronic cigarette and other alternative nicotine products;

•

a portion of our sales volume is dependent upon the distribution of cigarettes and other tobacco products, sales of which are generally declining;

•

the potential impact of product recalls and product liability claims relating to the products we distribute and other litigation;

•

adverse judgments or settlements or unexpected outcomes in legal proceedings;

•

negative media exposure and other events that damage our reputation;

•

decrease in earnings from amortization charges associated with acquisitions;

•

impact of uncollectibility of accounts receivable;

•

increase in excise taxes or reduction in credit terms by taxing jurisdictions;

•

the cost and adequacy of insurance coverage and increases in the number or severity of insurance and claims expenses;

•

risks relating to our substantial outstanding indebtedness, including the impact of interest rate increases on our variable rate debt; and

•

our ability to raise additional capital on commercially reasonable terms or at all.

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

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

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 30, 2023		As of July 1, 2023
ASSETS
Current assets:
Cash	$	7.8	$	12.7
Accounts receivable, less allowances of $64.8 and $56.3		2,395.2		2,399.3
Inventories, net		3,519.7		3,390.0
Income taxes receivable		5.6		41.7
Prepaid expenses and other current assets		243.8		227.8
Total current assets		6,172.1		6,071.5
Goodwill		2,365.2		2,301.0
Other intangible assets, net		1,088.8		1,028.4
Property, plant and equipment, net		2,366.7		2,264.0
Operating lease right-of-use assets		767.7		703.6
Other assets		142.7		130.5
Total assets	$	12,903.2	$	12,499.0
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable and outstanding checks in excess of deposits		2,519.7		2,453.5
Accrued expenses and other current liabilities		744.9		891.5
Finance lease obligations—current installments		109.3		102.6
Operating lease obligations—current installments		105.5		105.5
Total current liabilities		3,479.4		3,553.1
Long-term debt		3,710.5		3,460.1
Deferred income tax liability, net		461.5		446.2
Finance lease obligations, excluding current installments		488.0		447.3
Operating lease obligations, excluding current installments		696.3		628.9
Other long-term liabilities		239.2		217.9
Total liabilities		9,074.9		8,753.5
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 154.7 million shares issued and outstanding as of September 30, 2023; 154.5 million shares issued and outstanding as of July 1, 2023		1.5		1.5
Additional paid-in capital		2,826.5		2,863.0
Accumulated other comprehensive income, net of tax expense of $4.5 and $4.9		12.6		14.0
Retained earnings		987.7		867.0
Total shareholders’ equity		3,828.3		3,745.5
Total liabilities and shareholders’ equity	$	12,903.2	$	12,499.0

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

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(In millions, except per share data)	Three Months Ended September 30, 2023			Three Months Ended October 1, 2022
Net sales	$	14,938.6		$	14,719.3
Cost of goods sold		13,275.7			13,144.2
Gross profit		1,662.9			1,575.1
Operating expenses		1,446.7			1,383.9
Operating profit		216.2			191.2
Other expense, net:
Interest expense		56.1			50.4
Other, net		(3.2	)		10.9
Other expense, net		52.9			61.3
Income before taxes		163.3			129.9
Income tax expense		42.6			34.2
Net income	$	120.7		$	95.7
Weighted-average common shares outstanding:
Basic		154.8			153.8
Diluted		156.6			155.6
Earnings per common share:
Basic	$	0.78		$	0.62
Diluted	$	0.77		$	0.62

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

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


($ in millions)	Three Months Ended September 30, 2023			Three Months Ended October 1, 2022
Net income	$	120.7		$	95.7
Other comprehensive (loss) income, net of tax:
Interest rate swaps:
Change in fair value, net of tax		2.2			7.1
Reclassification adjustment, net of tax		(2.9	)		(0.8	)
Foreign currency translation adjustment, net of tax		(0.7	)		(2.4	)
Other comprehensive (loss) income		(1.4	)		3.9
Total comprehensive income	$	119.3		$	99.6

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

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


						Additional			Accumulated Other					Total
	Common Stock					Paid-in			Comprehensive			Retained		Shareholders’
(In millions)	Shares			Amount		Capital			Income			Earnings		Equity
Balance as of July 2, 2022		153.6		$	1.5	$	2,816.8		$	11.4		$	469.8	$	3,299.5
Net income		—			—		—			—			95.7		95.7
Interest rate swaps		—			—		—			6.3			—		6.3
Foreign currency translation adjustment		—			—		—			(2.4	)		—		(2.4	)
Issuance of common stock under stock-based compensation plans		0.4			—		(9.0	)		—			—		(9.0	)
Stock-based compensation expense		—			—		10.6			—			—		10.6
Balance as of October 1, 2022		154.0		$	1.5	$	2,818.4		$	15.3		$	565.5	$	3,400.7

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

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

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


($ in millions)	Three Months Ended September 30, 2023			Three Months Ended October 1, 2022
Cash flows from operating activities:
Net income	$	120.7		$	95.7
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		83.8			76.1
Amortization of intangible assets		45.5			43.1
Amortization of deferred financing costs		2.5			2.6
Provision for losses on accounts receivables		9.4			2.7
Change in LIFO reserve		19.2			26.8
Stock compensation expense		10.7			11.5
Deferred income tax benefit		(13.7	)		(14.6	)
Change in fair value of derivative assets and liabilities		(5.1	)		17.2
Other non-cash activities		0.2			0.8
Changes in operating assets and liabilities, net
Accounts receivable		3.4			6.7
Inventories		(130.6	)		66.8
Income taxes receivable		36.1			22.5
Prepaid expenses and other assets		(19.5	)		18.5
Trade accounts payable and outstanding checks in excess of deposits		56.2			69.1
Accrued expenses and other liabilities		(131.7	)		(129.6	)
Net cash provided by operating activities		87.1			315.9
Cash flows from investing activities:
Purchases of property, plant and equipment		(53.2	)		(40.1	)
Net cash paid for acquisitions		(214.6	)		—
Proceeds from sale of property, plant and equipment and other		0.9			0.4
Net cash used in investing activities		(266.9	)		(39.7	)
Cash flows from financing activities:
Net borrowings (payments) under ABL Facility		249.0			(246.2	)
Payments under finance lease obligations		(28.0	)		(22.0	)
Proceeds from exercise of stock options		0.9			0.1
Cash paid for shares withheld to cover taxes		(18.8	)		(9.1	)
Repurchases of common stock		(28.1	)		—
Net cash provided by (used in) financing activities		175.0			(277.2	)
Net decrease in cash and restricted cash		(4.8	)		(1.0	)
Cash and restricted cash, beginning of period		20.0			18.7
Cash and restricted cash, end of period	$	15.2		$	17.7

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 30, 2023		As of July 1, 2023
Cash	$	7.8	$	12.7
Restricted cash(1)		7.4		7.3
Total cash and restricted cash	$	15.2	$	20.0

(1)

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

Supplemental disclosures of cash flow information are as follows:


(In millions)	Three Months Ended September 30, 2023		Three Months Ended October 1, 2022
Cash paid during the year for:
Interest	$	51.1	$	41.6
Income tax payments net of refunds		16.6		21.7

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

PERFORMANCE FOOD GROUP COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Summary of Business Activities

Business Overview

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

Share Repurchase Program

On November 16, 2022, the Board of Directors of the Company authorized a share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. During the three months ended 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 $60.37 per share. As of September 30, 2023, approximately $260.7 million remained available for additional share repurchases. During fiscal October 2023, the Company repurchased 0.5 million shares of common stock for a total of $27.9 million or an average cost of $55.69 per share.

Summary of Significant Accounting Policies and Estimates

Basis of Presentation

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

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

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

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

Revenue Recognition

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

The Company has customer contracts in which incentives are paid upfront to certain customers. These payments have become industry practice and are not related to financing the customer’s business, nor are they associated with any distinct good or service to be received from the customer. These incentive payments are capitalized and amortized over the life of the contract or the expected life of the customer relationship on a straight-line basis. The Company’s contract asset for these incentives totaled $31.1 million and $32.5 million as of September 30, 2023 and July 1, 2023, respectively.

Business Combinations

During the first quarter of fiscal 2024, the Company paid cash of $214.6 million for an acquisition. The acquisition is reported in the Corporate and All Other segment. This acquisition did not materially affect the Company's results of operations.

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


(In millions)	Fiscal 2024
Net working capital	$	14.7
Goodwill		64.2
Intangible assets with definite lives:
Customer relationships		92.5
Trade names and trademarks		14.0
Technology		0.5
Property, plant and equipment		60.2
Other assets		1.4
Deferred tax liabilities		(29.8	)
Finance lease obligations		(3.1	)
Total purchase price	$	214.6

Intangible assets consist primarily of customer relationships, trade names, and technology with useful lives of 10.0 years, 5.0 years, and 5.0 years, respectively, and a total weighted-average useful life of 9.3 years. The excess of the estimated fair value of the assets acquired and the liabilities assumed over consideration paid was recorded as $64.2 million of goodwill.

Subsequent to September 30, 2023, the Company paid $96.7 million for an acquisition. The Company is in the process of determining the fair values of the assets acquired and liabilities assumed.

Debt

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

Debt consisted of the following:



(In millions)	As of September 30, 2023			As of July 1, 2023
Credit Agreement	$	1,403.0		$	1,154.0
6.875% Notes due 2025, effective interest rate 7.211%		275.0			275.0
5.500% Notes due 2027, effective interest rate 5.930%		1,060.0			1,060.0
4.250% Notes due 2029, effective interest rate 4.439%		1,000.0			1,000.0
Less: Original issue discount and deferred financing costs		(27.5	)		(28.9	)
Long-term debt		3,710.5			3,460.1
Less: current installments		-			-
Total debt, excluding current installments	$	3,710.5		$	3,460.1

Credit Agreement

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

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

transportation equipment values included in the borrowing base are subject to change based on periodic appraisals. Audits and appraisals are conducted at the direction of the administrative agent for the benefit and on behalf of all lenders.

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

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


(Dollars in millions)	As of September 30, 2023			As of July 1, 2023
Aggregate borrowings	$	1,403.0		$	1,154.0
Letters of credit		171.6			172.2
Excess availability, net of lenders’ reserves of $91.0 and $99.7		2,425.4			2,673.8
Average interest rate, excluding impact of interest rate swaps		6.94	%		6.35	%

Leases

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

Subsidiaries of the Company have entered into numerous operating and finance leases for various warehouses, office facilities, equipment, tractors, and trailers. Our leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Certain full-service fleet lease agreements include variable lease payments associated with usage, which are recorded and paid as incurred. When calculating lease liabilities, lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Certain of the leases for tractors, trailers, and other vehicles and equipment provide for residual value guarantees to the lessors. Circumstances that would require the subsidiary to perform under the guarantees include either (1) default on the leases with the leased assets being sold for less than the specified residual values in the lease agreements, or (2) decisions not to purchase the assets at the end of the lease terms combined with the sale of the assets, with sales proceeds less than the residual value of the leased assets specified in the lease agreements. Residual value guarantees under these operating lease agreements typically range between 6% and 20% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 5 to 10 years and are set to expire at various dates ranging from 2023 to 2032. As of September 30, 2023, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately $13.3 million, which would be mitigated by the fair value of the leased assets at lease expiration.

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


Leases	Consolidated Balance Sheet Location	As of September 30, 2023			As of July 1, 2023
Assets:
Operating	Operating lease right-of-use assets	$	767.7		$	703.6
Finance	Property, plant and equipment, net		614.9			566.2
Total lease assets		$	1,382.6		$	1,269.8
Liabilities:
Current
Operating	Operating lease obligations—current installments	$	105.5		$	105.5
Finance	Finance lease obligations—current installments		109.3			102.6
Non-current
Operating	Operating lease obligations, excluding current installments		696.3			628.9
Finance	Finance lease obligations, excluding current installments		488.0			447.3
Total lease liabilities		$	1,399.1		$	1,284.3

Weighted average remaining lease term
Operating leases		9.9 years			8.7 years
Finance leases		5.8 years			5.7 years
Weighted average discount rate
Operating leases			4.9	%		4.7	%
Finance leases			4.4	%		4.2	%

The following table presents the location of lease costs in the Company’s consolidated statement of operations for the periods reported (in millions):


		Three Months Ended
Lease Cost	Statement of Operations Location	September 30, 2023	October 1, 2022

Performance Food Group Co [PFGC] Filings
10-Q	[2023-11-08]
10-K	[2023-08-16]
10-Q	[2023-05-11]
10-Q	[2023-02-08]
10-Q	[2022-11-09]
10-K	[2022-08-19]
10-Q	[2022-05-11]
10-Q	[2022-02-09]
10-Q	[2021-11-10]
10-K	[2021-08-24]
10-Q	[2021-05-05]
10-Q	[2021-02-03]
10-Q	[2020-11-04]
10-K	[2020-08-18]
10-Q	[2020-05-05]
10-Q	[2020-02-05]
10-Q	[2019-11-06]
10-K	[2019-08-16]
10-Q	[2019-05-08]
10-Q	[2019-02-06]
10-Q	[2018-11-07]
10-K	[2018-08-16]
10-Q	[2018-05-09]
10-Q	[2018-02-07]
10-Q	[2017-11-08]
10-K	[2017-08-25]
10-Q	[2017-05-10]
10-Q	[2017-02-08]
10-Q	[2016-11-08]
10-K	[2016-08-30]
S-1	[2016-05-09]
10-Q	[2016-05-04]
10-Q	[2016-02-03]
10-Q	[2015-11-04]
S-1	[2014-09-09]