
Delaware		43-1983182
(State or other jurisdiction of incorporation or organization)		(IRS employer identification number)

12500 West Creek Parkway Richmond, Virginia 23238		~~23238~~ (804) 484-7700
(Address of principal executive offices)		(~~Zip~~Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

~~(804)484-7700~~

~~(Registrant’s Telephone Number, Including Area Code)~~

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒

~~104,000,540~~117,181,486 shares of common stock were outstanding as of ~~February 1, 2018.~~January 29, 2020.

TABLE OF CONTENTS

							Page
					~~Page~~
Special Note Regarding Forward-Looking Statements				3

PART I - FINANCIAL INFORMATION				5

~~Item 1.~~			~~Financial Statements~~			5

Item 1.	Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
		22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk			33
		32
~~Item 4.~~	~~Controls and Procedures~~			33

Item 4.	Controls and Procedures	33

PART II - OTHER INFORMATION				34

~~Item 1.~~			~~Legal Proceedings~~			34

Item ~~1A.~~1.	~~Risk Factors~~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~~Item 4.	Mine Safety Disclosures	36 34

Item 5.	Other Information	34

Item 6.	Exhibits	35

SIGNATURE		36

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form10-Q (this “Form10-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 Form10-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, ~~we cannot assure you~~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 Form10-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 Form10-K for the fiscal year ended ~~July 1, 2017 and Quarterly Report on Form10-Q~~ ~~for the fiscal quarter ended September 30, 2017,~~June 29, 2019 (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the ~~SEC,~~Securities and Exchange Commission (the “SEC”), and are accessible on the SEC’s website atwww.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;

•

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

•

~~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;~~

~~risks relating to any future acquisitions;~~

~~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;~~

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

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

~~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 Form10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” or “PFG” as used in this Form10-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 December 30, 2017		As of July 1, 2017		As of December 28, 2019			As of June 29, 2019
*ASSETS*
Current assets:
Cash	$	10.1	$	8.1	$	12.7		$	14.7
Accounts receivable, less allowances of $22.0 and $17.0		1,034.9		1,028.5
Accounts receivable, less allowances of $29.7 and $22.0						1,230.1			1,227.3
Inventories, net		1,043.4		1,013.3		1,349.4			1,356.9
Restricted cash						1,078.2			-
Prepaid expenses and other current assets		51.6		35.0		62.2			71.7

Total current assets		2,140.0		2,084.9		3,732.6			2,670.6
Goodwill		740.1		718.6		765.8			765.8
Other intangible assets, net		206.8		201.1		170.3			194.3
Property, plant and equipment, net		734.9		740.7		983.5			950.5
Operating lease right-of-use assets						391.3			-
Restricted cash		12.9		12.9		11.0			10.7
Other assets		47.9		45.9		56.6			61.6

Total assets	$	3,882.6	$	3,804.1	$	6,111.1		$	4,653.5

*LIABILITIES AND SHAREHOLDERS’ EQUITY*
Current liabilities:
Outstanding checks in excess of deposits	$	181.4	$	218.2	$	265.2		$	206.9
Trade accounts payable		886.9		907.1		1,041.5			1,130.8
Accrued expenses		204.8		246.0
Long-term debt—current installments		—		5.8
Capital lease obligations—current installments		7.0		5.9
Derivative liabilities		—		0.3

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		1,280.1		1,383.3		1,823.1			1,699.3
Long-term debt		1,358.7		1,241.9		2,188.4			1,202.9
Deferred income tax liability, net		66.0		103.0		102.0			108.0
Capital lease obligations, excluding current installments		47.4		44.0
Finance lease obligations, excluding current installments						164.5			128.9
Operating lease obligations, excluding current installments						314.6			-
Other long-term liabilities		114.9		106.4		140.0			216.2

Total liabilities		2,867.1		2,878.6		4,732.6			3,355.3

Commitments and contingencies (Note 9)
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common Stock
Common Stock: $0.01 par value per share, 1.0 billion shares authorized, 102.3 million shares issued and outstanding as of December 30, 2017; 1.0 billion shares authorized, 100.8 million shares issued and outstanding as of July 1, 2017		1.0		1.0
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
Additionalpaid-in capital		842.9		855.5		870.5			866.7
Accumulated other comprehensive income, net of tax expense of $2.2 and $1.5		4.4		2.4
Accumulated other comprehensive loss, net of tax benefit of $0.4 and $0.1						(1.0	)		(0.2	)
Retained earnings		167.2		66.6		508.0			430.7

Total shareholders’ equity		1,015.5		925.5		1,378.5			1,298.2

Total liabilities and shareholders’ equity	$	3,882.6	$	3,804.1	$	6,111.1		$	4,653.5

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
December 30, 2017 Three months
ended
December 31, 2016 Six months
ended
December 30, 2017 Six months
ended
December 31, 2016
Net sales
   $ 4,311.1 $ 4,051.8 $ 8,676.0 $ 8,097.9
Cost of goods sold
   3,743.5 3,534.6 7,553.7 7,069.4


Gross profit
   567.6 517.2 1,122.3 1,028.5
Operating expenses
   518.5 465.9 1,022.7 945.6


Operating profit
   49.1 51.3 99.6 82.9


Other expense, net:

Interest expense
   15.1 13.6 29.7 26.5
Other, net
   (0.1 ) (0.5 ) (0.4 ) (1.3 )


Other expense, net
   15.0 13.1 29.3 25.2


Income before taxes
   34.1 38.2 70.3 57.7
Income tax (benefit) expense
   (43.9 ) 15.3 (30.3 ) 22.6


Net income
   $ 78.0 $ 22.9 $ 100.6 $ 35.1


Weighted-average common shares outstanding:

Basic
   101.4 100.1 101.2 100.0
Diluted
   104.5 102.7 104.5 102.5
Earnings per common share:

Basic
   $ 0.77 $ 0.23 $ 0.99 $ 0.35
Diluted
   $ 0.75 $ 0.22 $ 0.96 $ 0.34

(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.

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


($ in millions)	Three months ended December 30, 2017		Three months ended December 31, 2016		Six months ended December 30, 2017		Six months ended December 31, 2016		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	$	78.0	$	22.9	$	100.6	$	35.1	$	41.2		$	43.1		$	77.3		$	71.3
Other comprehensive income, net of tax:
Other comprehensive income (loss), net of tax:
Interest rate swaps:
Change in fair value, net of tax		1.8		5.0		1.8		6.0		0.5			(3.0	)		-			(2.2	)
Reclassification adjustment, net of tax		0.2		0.7		0.2		1.5		(0.2	)		(0.8	)		(0.8	)		(1.3	)

Other comprehensive income		2.0		5.7		2.0		7.5

Other comprehensive income (loss)										0.3			(3.8	)		(0.8	)		(3.5	)
Total comprehensive income	$	80.0	$	28.6	$	102.6	$	42.6	$	41.5		$	39.3		$	76.5		$	67.8

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 (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

   Common Stock    Additional
Paid-in Accumulated
Other
Comprehensive (Accumulated
Deficit)
Retained Total
Shareholders’
(In millions)
   Shares    Amount    Capital Income (Loss) Earnings Equity
Balance as of July 2, 2016
   99.9    $ 1.0    $ 836.8 $ (5.8 ) $ (29.2 ) $ 802.8
Issuance of common stock under stock-based compensation plans
   0.2    —      (0.3 ) —   —   (0.3 )
Net income
   —      —      —   —   35.1 35.1
Interest rate swaps
   —      —      —   7.5 —   7.5
Stock-based compensation expense
   —      —      8.1 —   —   8.1
Change in accounting principle (1)
   —      —      0.9 —   (0.5 ) 0.4






Balance as of December 31, 2016
   100.1    $ 1.0    $ 845.5 $ 1.7 $ 5.4 $ 853.6






Balance as of July 1, 2017
   100.8    $ 1.0    $ 855.5 $ 2.4 $ 66.6 $ 925.5
Issuance of common stock under stock-based compensation plans
   1.5    —      (27.1 ) —   —   (27.1 )
Net income
   —      —      —   —   100.6 100.6
Interest rate swaps
   —      —      —   2.0 —   2.0
Stock-based compensation expense
   —      —      14.5 —   —   14.5






Balance as of December 30, 2017
   102.3    $ 1.0    $ 842.9 $ 4.4 $ 167.2 $ 1,015.5

						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 ~~2017,~~2019, the Company elected to early adopt the provisions of ASU~~2016-09,~~~~Compensation – Stock Compensation~~ 2017-12, Derivatives and Hedging (Topic ~~718)~~815): Targeted Improvements to ~~Employee Share-Based Payment~~ Accounting~~. The Company has made a policy election to account~~ for ~~forfeitures as they occur and recorded a cumulative-effect adjustment to Accumulated Deficit as of the date of adoption.~~Hedging Activities.

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)
   Six months
ended December 30,
2017 Six months
ended
December 31,
2016 ⁽¹⁾
Cash flows from operating activities:

Net income
   $ 100.6 $ 35.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities

Depreciation
   49.1 43.3
Amortization of intangible assets
   14.6 16.6
Amortization of deferred financing costs and other
   2.4 2.2
Provision for losses on accounts receivables
   7.5 6.8
Expense related to modification of debt
   —   0.1
Stock-based compensation expense
   14.5 8.1
Deferred income tax benefit
   (37.8 ) (4.0 )
Change in fair value of derivative assets and liabilities
   (0.2 ) (1.8 )
Other
   7.3 1.1
Changes in operating assets and liabilities, net

Accounts receivable
   (1.2 ) (15.1 )
Inventories
   (14.3 ) (54.4 )
Prepaid expenses and other assets
   (15.0 ) 12.5
Trade accounts payable
   (29.4 ) (68.2 )
Outstanding checks in excess of deposits
   (36.8 ) 29.7
Accrued expenses and other liabilities
   (28.7 ) (37.5 )


Net cash provided by (used in) operating activities
   32.6 (25.5 )


Cash flows from investing activities:

Purchases of property, plant and equipment
   (38.5 ) (79.9 )
Net cash paid for acquisitions
   (63.2 ) (82.1 )
Proceeds from sale of property, plant and equipment
   0.3 0.2


Net cash used in investing activities
   (101.4 ) (161.8 )


Cash flows from financing activities:

Net borrowings under ABL Facility
   116.4 192.8
Payment of Promissory Note
   (6.0 ) —
Cash paid for shares withheld to cover taxes
   (27.8 ) (1.1 )
Cash paid for acquisitions
   (7.4 ) (0.8 )
Other financing activities
   (4.4 ) (2.8 )


Net cash provided by financing activities
   70.8 188.1


Net increase in cash and restricted cash
   2.0 0.8
Cash and restricted cash, beginning of period
   21.0 23.8


Cash and restricted cash, end of period
   $ 23.0 $ 24.6

~~(1)~~

~~The consolidated statement of cash flows for the six months ended December 31, 2016 has been adjusted to reflect the adoption of ASU2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash~~. The consolidated statements of cash flows explain the change during the periods in the total of cash and restricted cash. Therefore, restricted cash activity is included with cash when reconciling the~~beginning-of-period~~ ~~andend-of-period~~ ~~total amounts shown on the statement of cash flows. Refer to Note 3 for further discussion.~~

($ 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

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


(In millions)	As of December 30, 2017		As of July 1, 2017		As of December 28, 2019		As of June 29, 2019
Cash	$	10.1	$	8.1	$	12.7	$	14.7
Restricted cash⁽²⁾		12.9		12.9

Restricted cash⁽¹⁾						1,089.2		10.7
Total cash and restricted cash	$	23.0	$	21.0	$	1,101.9	$	25.4

~~(2)~~

(1)

Restricted cash is included in current restricted cash and long-term restricted cash on the consolidated balance sheet. The current restricted cash includes the proceeds from the issuance of senior notes that are held in escrow as of December 28, 2019 and were used to fund the acquisition of Reinhart Foodservice, L.L.C (“Reinhart”) that closed on December 30, 2019, as well as funds that will be used for the interest payments on those senior notes. The long-term restricted cash represents the amounts required by insurers to collateralize a part of the deductibles for the Company’s workers’ compensation and liability claims.

Supplemental disclosures ofnon-cash transactions are as follows:

(In millions)	Six Months Ended December 28, 2019		Six Months Ended December 29, 2018
Debt assumed through finance lease obligations	$	52.5	$	54.1
Purchases of property, plant and equipment, financed		1.3		2.6
Share repurchase payable		-		0.6

(In millions)
   Six months
ended
December 30, 2017    Six months
ended
December 31, 2016
Purchases of property, plant and equipment, financed
   $ 3.2    $ —
Debt assumed through new capital lease obligations
   7.7    19.6
Disposal of property, plant and equipment under sale-leaseback transaction
   —      3.2

Supplemental disclosures of cash flow information are as follows:


(In millions)	Six months ended December 30, 2017		Six months ended December 31, 2016		Six Months Ended December 28, 2019		Six Months Ended December 29, 2018
Cash paid during the year for:
Interest	$	28.1	$	23.2	$	33.4	$	32.0
Income taxes, net of refunds		25.1		10.2
Income taxes paid (refunds), net						27.8		(0.1	)

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

PERFORMANCE FOOD GROUP COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Summary of Business Activities

Business Overview

Performance Food Group Company, through its subsidiaries, markets and distributes primarily national and company-branded food and food-related products to customer locations across the United States. The Company serves both of the major customer types in the restaurant industry: (i) independent ~~or “Street”~~ customers, and (ii) multi-unit, or “Chain” customers, which include ~~regional and national~~some of the most recognizable family and casual dining restaurant chains, ~~fast casual chains, and quick-service restaurants. The Company also serves~~as well as schools, ~~healthcare facilities,~~ business and industry locations, healthcare facilities, and business and industry locations. The Company also specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products and other ~~institutional customers.~~items nationally to vending distributors, big box retailers, theaters, convenience stores, and hospitality providers.

~~Secondary Offerings~~Share Repurchase Program

~~In September 2017,~~On November ~~2017~~13, 2018, the Board of Directors of the Company (the “Board of Directors”) authorized a share repurchase program for up to $250 million of the Company’s outstanding common stock. The share repurchase program does not have an expiration date and may be amended, suspended, or discontinued at any time. The share repurchase program remains subject to the discretion of the Board of Directors. NaN shares have been repurchased during fiscal year 2020. During the three months ended December ~~2017 Wellspring Capital Management (“Wellspring”) sold~~29, 2018, the Company repurchased and subsequently retired 0.2 million shares of common stock for a total of $5.2 million. As of December 28, 2019, approximately $240.7 million remained available for additional share repurchases.

Equity Forward

On November 20, 2019, Performance Food Group Company entered into an underwriting agreement related to the issuance and sale of an aggregate of ~~16,272,914~~10,120,000 shares of its common stock, and up to 1,518,000 additional shares at the underwriters’ option, in each case on a forward sale basis. On November 22, 2019, the full option to purchase the 1,518,000 shares of additional common stock shares on a forward basis was exercised by the underwriters, and, on November 25, 2019, the Company closed the offering. The forward sale transaction is classified as an equity transaction, because it is indexed to the Company’s common stock and physical settlement is within the Company’s control. As of December 28, 2019, no amounts have been recorded in ~~transactions registered under~~ the ~~Securities Act.~~consolidated financial statements with respect to the equity offering. On December 30, 2019, the Company physically settled the forward sale agreement at the forward sale price of $42.70 per share, net of the underwriting discount. The aggregate offering price of the amount of newly issued common stock was $514.9 million. In connection with the offering, the Company paid the underwriters a discount of $1.55 per share, for a total underwriting discount of $18.0 million. In addition, the Company incurred direct offering expenses of $5.9 million. The Company ~~did not receive any~~used the $491.0 million net proceeds that it received from ~~these sales. As a result of these sales, Wellspring no longer beneficially owns any shares of~~ the ~~Company’s~~ common ~~stock.~~stock offering to finance the cash consideration payable in connection with the Reinhart acquisition.

2.	Basis of Presentation

The consolidated financial statements have been prepared by the Company, without audit, with the exception of the ~~July 1, 2017~~June 29, 2019 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the ~~Company’s Annual Report on~~ Form~~10-K~~ ~~for the fiscal year ended July 1, 2017 (the “Form10-K”).~~ 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. 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)~~(“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 theForm 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

3.	Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

~~Recently~~

~~Adopted Accounting Pronouncements~~

In ~~July 2015,~~February 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued Accounting Standards Update ~~(ASU)2015-11,~~

~~Inventory~~(“ASU”) 2016-02, Leases (Topic ~~330): Simplifying the Measurement of Inventory~~. This ASU requires an entity to measure most inventory at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. The ASU is effective for public companies prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU as of the beginning of fiscal 2018 and concluded that it does not have a material impact on its consolidated financial statements.

~~In August 2016, the FASB issued ASU2016-15,~~~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is

effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period using the retrospective transition method. The Company elected to early adopt ASU~~2016-15~~ as of the beginning of fiscal 2018. Based on our review of the ASU, the Company concluded that it has historically classified the specified cash receipts and cash payments in accordance with the clarified guidance. This ASU did not have a material impact on the Company’s consolidated financial statements.

~~In November 2016, the FASB issued ASU2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash~~. This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the~~beginning-of-period~~ ~~andend-of-period~~ total amounts shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The ASU requires a retrospective transition method for each period presented. The Company elected to early adopt ASU~~2016-18~~ ~~as of the beginning of fiscal 2018. The statements of cash flows for the six months ended December 30, 2017 and December 31, 2016 include restricted cash with cash when reconciling thebeginning-of-period~~ ~~andend-of-period~~ ~~total amounts.~~

~~In January 2017, the FASB issued ASU2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. This ASU eliminates Step 2 of the goodwill impairment test, which is performed by estimating the fair value of individual assets and liabilities of the reporting unit to calculate the implied fair value of goodwill. Instead, an entity will record a goodwill impairment charge based on the excess of a reporting unit’s carrying value over its estimated fair value, not to exceed the carrying amount of goodwill. This ASU is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. The Company elected to early adopt~~ASU 2017-04~~ ~~as of the beginning of fiscal 2018. Upon adoption of the ASU, the Company concluded that it did not have a material impact on its consolidated financial statements. The Company will apply ASU2017-04~~ ~~on a prospective basis when analyzing goodwill impairment.~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In May 2014, the FASB issued ASU2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~842) and has issued subsequent amendments to this guidance. This Update is a comprehensive new revenue recognition model that requires a company to recognize revenue that represents the transfer of promised goods or services to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services.

Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Companies may either use a full retrospective or modified retrospective approach for adoption of Topic 606. The Company will adopt the guidance in fiscal 2019 and currently plans to implement the new standard using the modified retrospective approach. However, our method is subject to change as we finalize our adoption approach for the new standard. The Company has conducted a preliminary assessment and anticipates that the timing of recognition of revenue to be substantially unchanged under the new standard. The amended guidance also requires additional quantitative and qualitative disclosures, which the Company believes will be significant to the consolidated financial statements. The Company is in the process of designing and implementing relevant controls related to adoption of the new standard.

~~In February 2016, the FASB issued ASU2016-02,~~~~Leases (Topic 842)~~. The ASU is a comprehensive new lease accounting model that requires companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ~~For public entities, the ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.~~ The Company ~~will adopt~~adopted this new standard as of June 30, 2019, the ~~guidance in fiscal 2020. Companies are required to recognize~~effective and ~~measure leases at~~initial application date, using the ~~beginning of the earliest period presented in its financial statements using a~~ modified retrospective approach. Comparative periods presented in the consolidated financial statements prior to June 30, 2019 continue to be presented under Accounting Standards Codification (“ASC”) 840. The Company iselected the package of practical expedients, which allowed the Company not to reassess whether arrangements contain leases, the classification of leases, and the capitalization of initial direct costs. The Company also made a policy election to exclude leases with an initial term of 12 months or less from the consolidated balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company’s June 30, 2019 adoption of the new standard resulted in the ~~process~~recognition of ~~evaluating~~operating lease liabilities totaling $423.8 million, based upon the ~~impact~~present value of ~~this ASU on its future financial statements~~the remaining minimum rental payments using discount rates as of the adoption date, with $82.1 million within Operating lease liabilities - current and ~~believes adoption~~$341.7 million within Operating lease liabilities, excluding current installments. In addition, we recorded corresponding Operating lease right-of-use assets totaling $423.0 million based upon the operating lease liabilities adjusted for deferred rent of ~~this~~$11.0 million, favorable lease intangible assets of $5.3 million and prepaid rent and other adjustments of $4.9 million. The new standard ~~will~~did not have a ~~significant~~material impact on ~~our~~the consolidated ~~financial statements. Information about our undiscounted future lease payments~~statements of operations and the ~~timing~~consolidated statement of ~~those payments is in~~cash flows. See Note ~~12.~~7. Leases ~~in our Form10-K.~~for further discussion of the Company’s leasing arrangements and required ASC 842 disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments and has issued subsequent amendments to this guidance. The pronouncement changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. ~~Early adoption is permitted.~~The Company plans to adopt the new standard in fiscal 2021. Companies are required to apply the standard using a modified retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date. The Company is in the process of evaluating the impact of this ASU on ~~our~~its future consolidated financial ~~statements.~~

~~In January 2017, the FASB issued ASU2017-01,~~~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~.This ASU clarifies the definition of a business in order to assist companies in the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance also removes the existing evaluation of a market participant’s ability to replace missing elements and narrows the definition of output to achieve consistency with other topics. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied on a prospective basis. Early adoption is permitted. Adoption ofstatements but does not expect this ~~ASU is not expected~~update to have a material impact on the Company’s consolidated financial ~~statements at~~statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt this new ASU in fiscal 2021. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

~~In August 2017, the FASB issued ASU2017-12,~~~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ This ASU expands hedge accounting for both financial and nonfinancial risk components to better align hedge accounting with a company’s risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is in the process of ~~evaluating~~assessing the impact of this ASU on its future consolidated financial statements ~~and believes adoption of~~but does not expect this ~~standard will not~~update to have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update simplifies the accounting for income taxes by removing certain exceptions for intra-period tax allocations, recognition of deferred tax liabilities after a foreign subsidiary transitions to or from equity method accounting, and methodology of calculating income taxes in an interim period with year-to-date losses. Additionally, the guidance provides additional clarification on other areas, including step-up of the tax basis of goodwill recorded as part of an acquisition and the treatment of franchise taxes that are partially based on income. This pronouncement is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company plans to adopt this new ASU in fiscal 2022. Companies are required to apply the standard on a prospective basis, except for certain sections of the guidance which shall be applied on a retrospective or modified retrospective basis. The Company is in the process of assessing the impact of this ASU on its future consolidated financial statements but does not expect this update to have a material impact on the Company's consolidated financial statements.

4.	Revenue Recognition

The Company markets and distributes primarily national and company-branded food and food-related products to customer locations across the United States. The Foodservice segment 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 distributes candy, snacks, beverages, cigarettes, other tobacco products and other products to various customer channels. The Company disaggregates revenue by 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 to net sales 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 $12.3 million and $10.6 million as of December 28, 2019 and June 29, 2019, respectively.

5.	Business Combinations

During the first six months of fiscal ~~2018,~~2019, the Company paid cash of ~~$64.9~~$57.0 million for ~~an acquisition and during the first six months of fiscal 2017, the Company paid cash of $82.8 million for four~~3 acquisitions. These acquisitions did not materially affect the Company’s results of operations.

The ~~following table summarizes~~acquisition of Eby-Brown Company LLC (“Eby-Brown”) in the ~~preliminary~~fourth quarter of fiscal 2019 included contingent consideration, including earnout payments in the event certain operating results are achieved during a defined post-closing period. Total contingent consideration outstanding was $88.9 million as of December 28, 2019 and $82.6 million as of June 29, 2019. Earnout liabilities are measured using unobservable inputs that are considered a Level 3 measurement.

Subsequent to December 28, 2019, the Company acquired Reinhart from Reyes Holdings, L.LC. in a transaction valued at $2.0 billion, or approximately $1.7 billion net of an estimated tax benefit to PFG of approximately $265 million. The $2.0 billion purchase price ~~allocation for each major class~~was financed with $466.5 million of ~~assets~~borrowings under the Amended Credit Agreement (as defined below), net proceeds of $1,033.7 million from new senior unsecured Notes due 2027 (as defined below), and net proceeds of $491.0 million from an offering of shares of the Company’s common stock. The Reinhart acquisition expands the Company’s broadline presence by enhancing its distribution footprint in key geographies, and the Company believes it will help achieve its long-term growth goals. The Reinhart acquisition will be reported in the Foodservice segment.

Assets acquired and liabilities assumed ~~for the fiscal 2018 acquisition.~~

(In millions)
   Fiscal 2018
Net working capital
   $ 21.4
Goodwill
   21.1
Other intangible assets
   20.6
Property, plant and equipment
   1.8


Total purchase price
   $ 64.9

~~The goodwill is a result of expected synergies from combined operations~~will be recognized at their respective fair values as of the acquisition ~~and the Company. The following table presents the changes in the carrying amount of goodwill:~~

(In millions)
   Performance
Foodservice    PFG
Customized    Vistar    Corporate
and Other    Total
Balance as of July 1, 2017
   $ 428.2    $ 166.5    $ 64.9    $ 59.0    $ 718.6
Acquisitions - current year
   —      —      21.1    —      21.1
Adjustments related to prior year acquisitions
   0.1    —      —      0.3    0.4










Balance as of December 30, 2017
   $ 428.3    $ 166.5    $ 86.0    $ 59.3    $ 740.1

~~The adjustments related to prior year acquisitions are the result of net working capital adjustments.~~

~~Subsequent to December 30, 2017, the Company paid $6.6 million for an acquisition.~~date. The Company is in the process of determining the fair values of the assets acquired and liabilities ~~assumed.~~

assumed, which will require the use of judgment. Due to the limited time since the December 30, 2019 acquisition date, the preliminary acquisition valuation is incomplete at this time and the Company is unable to provide amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including information required for valuation of intangible assets and goodwill.

Debt

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

Debt consisted of the following:


(In millions)	As of December 28, 2019			As of June 29, 2019
ABL Facility	$	786.4		$	859.0
5.500% Notes due 2024		350.0			350.0
5.500% Notes due 2027		1,060.0			-
Less: Original issue discount and deferred financing costs		(8.0	)		(6.1	)
Long-term debt		2,188.4			1,202.9
Less: current installments		-			-
Total debt, excluding current installments	$	2,188.4		$	1,202.9

(In millions)
   As of
December 30, 2017    As of
July 1, 2017
ABL
   $ 1,016.3    $ 899.9
5.500% Notes due 2024
   350.0    350.0
Promissory Note
   —      6.0
Less: Original issue discount and deferred financing costs
   (7.6 )    (8.2 )




Long-term debt
   1,358.7    1,247.7
Capital and finance lease obligations
   54.4    49.9




Total debt
   1,413.1    1,297.6
Less: current installments
   (7.0 )    (11.7 )




Total debt, excluding current installments
   $ 1,406.1    $ 1,285.9

~~ABL Facility~~Credit Agreement

As of December 28, 2019, PFGC, Inc. (“PFGC”), a wholly-owned subsidiary of the Company, is a party to the ~~Second~~Third Amended and Restated Credit Agreement dated ~~February 1, 2016, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated August 3, 2017~~May 17, 2019 (the “ABL Facility”). The ABL Facility has an aggregate principal amount of ~~$1.95~~$2.4 billion and matures ~~February 2021. The ABL Facility is secured by the majority of the tangible assets of PFGC and its subsidiaries.~~on May 17, 2024. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, 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 captive insurance subsidiaries and other excluded subsidiaries).

Borrowings under the ABL Facility bear interest, at Performance Food Group, Inc.’s option, at (a) the Base Rate (defined as the greater of (i) the Federal Funds Rate in effect on such date plus 0.5%, (ii) the Prime Rate on such day, or (iii) one month LIBOR plus 1.0%) plus a spread or (b) LIBOR plus a spread. The ABL Facility also provides for an unused commitment fee ~~ranging from~~of 0.25% ~~to 0.375%.~~per annum.

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


(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	%

On December 30, 2019, PFGC and Performance Food Group, Inc. entered into the Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the ABL Facility. The Amended Credit Agreement, among other things, (i) increases the aggregate principal amount available to $3.0 billion and (ii) extends the stated maturity date to December 30, 2024. Like the ABL Facility, the Amended Credit Agreement provides for up to $800 million of uncommitted incremental facilities. Additionally, certain covenants were amended to require the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $200.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days.

(Dollars in millions)
   As of
December 30, 2017 As of
July 1, 2017
Aggregate borrowings
   $ 1,016.3 $ 899.9
Letters of credit
   123.6 105.5
Excess availability, net of lenders’ reserves of $12.2 and $11.2
   577.8 594.6
Average interest rate
   2.98 % 2.59 %

Senior Notes due 2027

On September 27, 2019, PFG Escrow Corporation (the “Escrow Issuer”), a wholly-owned subsidiary of PFGC, issued and sold $1,060.0 million aggregate principal amount of its 5.500% Senior Notes due 2027 (the “Notes due 2027”).

Upon issuance of the Notes due 2027, the gross proceeds of the offering, along with certain additional funds were deposited into a segregated escrow account. Following the completion of the Reinhart acquisition on December 30, 2019 the funds were released from escrow and were used, together with the net proceeds from an offering of shares of the Company’s common stock and borrowings under the Amended Credit Agreement, to fund the cash consideration for the transaction and to pay related fees and expenses. The Escrow Issuer merged with and into Performance Food Group, Inc., with Performance Food Group, Inc. as the surviving entity, and by entry into a supplemental indenture along with PFGC, Performance Food Group, Inc. assumed all of the Escrow Issuer’s obligations as the issuer under the indenture for the Notes due 2027. Additionally, PFGC and each of the subsidiaries of PFGC identified as a guaranteeing subsidiary became a guarantor of the Notes due 2027.

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. Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at any time prior to October 15, 2022 at a redemption price equal to 100% of the principal amount of the Notes due 2027 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning on October 15, 2022, Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at a redemption price equal to 102.750% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.375% and 100% of the principal amount redeemed on October 15, 2023 and October 15, 2024, respectively. In addition, at any time prior to October 15, 2022, Performance Food Group, Inc. may redeem up to 40% of the Notes due 2027 from the proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes due 2027 contains covenants limiting, among other things, PFGC 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 2024

On May 17, 2016, Performance Food Group, Inc. issued and sold $350.0 million aggregate principal amount of its 5.500% Senior Notes due 2024 (the ~~“Notes”~~“Notes due 2024”)~~, pursuant to an indenture dated as of May 17, 2016.~~. The Notes due 2024 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 2024 are not guaranteed by Performance Food Group Company.

Letters of Credit Facility

The ABL Facility and the indenture governing the Notes contain customary restrictive covenants under which all of the net assets of PFGC and its subsidiaries are restricted from distribution to Performance Food Group Company, except for approximately $302.0 million of restricted payment capacity available under such debt agreements, as of December 30, 2017. 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.

~~Unsecured Subordinated Promissory Note~~

~~In connection with an acquisition,~~On August 9, 2018, Performance Food Group, Inc. ~~issued~~and PFGC entered into a ~~$6.0 million interest only, unsecured subordinated promissory note~~Continuing Agreement for Letters of Credit (the “Letters of Credit Facility”). The Letters of Credit Facility is an uncommitted facility that provides for the issuance of letters of credit in an aggregate amount not to exceed $40.0 million. Each letter of credit shall have a term not to exceed one year; however, a letter of credit may renew automatically in accordance with its terms. A fee equal to 2.5% per annum on the average daily amount available to be drawn on each day under each outstanding letter of credit is payable quarterly. As of December ~~21, 2012. The $6.0 million promissory note was paid off in December 2017.~~

6.	~~Derivatives and Hedging Activities~~

~~Risk Management Objective of Using Derivatives~~

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and diesel fuel costs. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and payments related to the Company’s borrowings and diesel fuel purchases.

The effective portion of changes in the fair value of derivatives that are both designated and qualify as cash flow hedges is recorded in other comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction occurs. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

~~Hedges of Interest Rate Risk~~

~~The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. Since~~28, 2019, the Company has $28.3 million letters of credit outstanding under the Letters of Credit Facility.

7.Leases

The Company determines if an arrangement is a ~~substantial portion~~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 its debt in variable-rate instruments, it accomplishes this objective with interest rate swaps. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-ratelease payments over the ~~life of the agreements without exchange of the underlying notional amount. All of~~lease term at commencement date. Since the Company’s ~~interest~~leases do not provide an implicit rate, ~~swaps are designated~~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 ~~qualify as cash flow hedges.~~

As of December 30, 2017, Performance Food Group, Inc. had eight interest rate swaps with a combined $650 million notional amount. The following table summarizes the outstanding Swap Agreements as of December 30, 2017 (in millions):

Effective Date
   Maturity Date    Notional Amount    Fixed Rate Swapped
August 9, 2013
   August 9, 2018    $ 200.0    1.51 %
June 30, 2017
   June 30, 2019    50.0    1.13 %
June 30, 2017
   June 30, 2020    50.0    1.23 %
June 30, 2017
   June 30, 2020    50.0    1.25 %
June 30, 2017
   June 30, 2020    50.0    1.26 %
August 9, 2018
   August 9, 2021    75.0    1.21 %
August 9, 2018
   August 9, 2021    75.0    1.20 %
June 30, 2020
   December 31, 2021    100.0    2.16 %

~~Hedges of Forecasted Diesel Fuel Purchases~~

From time to time, Performance Food Group, Inc. enters into costless collar arrangements to manage its exposure to variability in cash flows expected to be paid for its forecasted purchases of diesel fuel. As of December 30, 2017, Performance Food Group, Inc. was a party to two such arrangements,secured debt risk. Leases with an ~~aggregate 4.5 million gallon original notional amount. The 4.5 million gallon forecasted purchases~~initial term of ~~diesel fuel~~12 months or less are ~~expected to be made between January 1, 2018 and June 30, 2018.~~

~~The fuel collar instruments do~~ not ~~qualify for hedge accounting. Accordingly, the derivative instruments are~~ recorded as an asset or liability on the balance sheet at fair value and any changes in fair value are recorded in the period of change as unrealized gains or losses on fuel hedging instruments and included in Other, net in the accompanying consolidated statements of operations.

7. ~~Fair Value of Financial Instruments~~

The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The ~~fair value of long-term debt, which has~~lease expenses for these short-term leases are recognized on a carrying value of $1,358.7 million and $1,247.7 million, is $1,378.1 million and $1,258.3 million at December 30, 2017 and July 1, 2017, respectively, and is determined by reviewing current market pricing related to comparable debt issued atstraight-line basis over the ~~time of the balance sheet date, and is considered a Level 2 measurement.~~

8.	~~Income Taxes~~

The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal and state jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.

On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” (the “Act”) was signed into law. The Act makes broad and complex changes to the U.S. Internal Revenue Code including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21%; creating a new limitation on deductible interest expense; repealing the domestic production activity deduction, providing for bonus depreciation that will allow for full expensing of certain qualified property; and limiting other deductions.

The Company’s net deferred tax liability of $103.0 million as of July 1, 2017 was determined using the federal corporate tax rate of 35% prior to the passage of the Act. The Act reduces the federal corporate tax rate to 21%, effective January 1, 2018. Consequently, we have recorded a $10.2 million decrease in deferred tax assets and a $47.6 million decrease in deferred tax liabilities with a corresponding net benefit to deferred income tax expense of $37.4 million for the three and six months ended December 30, 2017.

The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under FASB ASC 740 – Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act.lease term. The Company has ~~not identified any items~~several lease agreements that contain lease and non-lease components, such as maintenance, taxes, and insurance, which are accounted for ~~which~~separately. The difference between the ~~income tax effects of the Act have not been substantially completed.~~

~~The Company’s effective tax rate was-128.3%~~operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for ~~the three months ended December 30, 2017~~deferred rent, favorable leases, and ~~40.1% for the three months ended December 31, 2016. The Company’s effective tax rate was-43.1%~~ for the six months ended December 30, 2017 and 39.2% for the six months ended December 31, 2016. As a result in the reduction in the federal corporate income tax rate to 21% from 35% under the Act, the Company has a blended statutory rate of 28% for the three and six months ended December 30, 2017. For the three and six months ended December 30, 2016, the statutory rate was 35%. Additionally, during the three months ended December 30, 2017, performance vesting criteria for certain stock-based compensation awards was met resulting in a significant permanent tax deduction difference. The impact to the provision for stock-based compensation and the impact of the reduction in tax rate under the Act are summarized as follows:

(Dollars in millions)
Three Months Ended December 30, 2017 Six Months Ended December 30, 2017
Income Tax
Expense Effective Tax
Rate Income Tax
Expense Effective Tax
Rate
Income tax benefit, reported
$ (43.9 ) -128.3 % $ (30.3 ) -43.1 %
Revaluation of net deferred income tax liability
37.4 109.6 % 37.4 53.3 %
Stock-based compensation – performance vesting
15.4 45.2 % 15.4 21.9 %
Impact of rate reduction on first quarter fiscal 2018 income
2.5 7.4 % — —

Income tax expense, excluding benefits
$ 11.4 33.9 % $ 22.5 32.1 %

As of December 30, 2017 and July 1, 2017, the Company had net deferred tax assets of $28.4 million and $43.1 million, respectively, and deferred tax liabilities of $94.4 million and $146.1 million, respectively. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized.

~~The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC740-10-25,~~~~Income Taxes – General - Recognition~~. As of December 30, 2017 and July 1, 2017, the Company had approximately $1.4 million and $1.3 million of unrecognized tax benefits, respectively. It is reasonably possible that a decrease of approximately $0.1 million in the balance of unrecognized tax benefits may occur within the next twelve months because of statute of limitations expirations, that, if recognized, would affect the effective tax rate.

9.	~~Commitments and Contingencies~~

~~Purchase Obligations~~

The Company had outstanding contracts and purchase orders for capital projects and services totaling $10.1 million at December 30, 2017. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of December 30, 2017. Subsequent to December 30, 2017, the Company entered into an additional contract totaling $8.8 million.

~~Guarantees~~prepaid rent.

Subsidiaries of the Company have entered into numerous operating and finance leases ~~including leases of buildings,~~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 7% and ~~20%~~11% of the value of the leased assets at inception of the lease. These leases have original terms ranging from 45 to 8 years and expiration dates ranging from ~~2018~~2020 to 2025. As of December ~~30, 2017,~~28, 2019, the undiscounted maximum amount of potential future payments for lease residual value guarantees totaled approximately ~~$28.4~~$23.2 million, which would be mitigated by the fair value of the leased assets at lease expiration.

The ~~assessment as to whether it is probable that subsidiaries~~following table presents the location of the ~~Company will be required to make payments under~~right-of-use assets and lease liabilities in the ~~terms of the guarantees is based upon their actual and expected loss experience. Consistent with the requirements of FASB ASC460-10-50,~~~~Guarantees-Overall-Disclosure,~~ ~~the Company has recorded $0.2 million of the potential future guarantee payments on its~~Company’s consolidated balance sheet as of December ~~30, 2017.~~28, 2019 (in millions), as well as the weighted-average lease term and discount rate for the Company’s leases:

Leases	Consolidated Balance Sheet Location	As of December 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	%

The following table presents the location of lease costs in the Company consolidated statement of operations for the three and six months ended December 28, 2019 (in millions):

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

Supplemental cash flow information related to leases for the period reported is as follows (in millions):

(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

Future minimum lease payments under non-cancelable leases as of December 28, 2019 are as follows (in millions):

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

Future minimum lease payments in effect as of June 29, 2019 under non-cancelable leases, as determined prior to the adoption of ASC 842, were as follows (in millions):

Fiscal Year	Operating Leases		Finance Leases
2020	$	104.7	$	26.7
2021		89.6		26.3
2022		73.8		25.8
2023		58.2		24.7
2024		40.8		23.9
Thereafter		163.8		58.4
Total future minimum lease payments	$	530.9	$	185.8
Less: Interest				38.6
Present value of future minimum lease payments			$	147.2

As of December 28, 2019, the Company has additional operating and finance leases that have not yet commenced which total $46.9 million in future minimum lease payments and $1.2 million of residual value guarantees. These leases primarily relate to warehouse leases and will commence in fiscal 2020 with lease terms of 3 to 15 years.

8.	Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, outstanding checks in excess of deposits, trade accounts payable, and accrued expenses approximate their fair values because of the relatively short maturities of those instruments. The derivative assets and liabilities are recorded at fair value on the balance sheet. The fair value of long-term debt, which has a carrying value of $2,188.4 million and $1,202.9 million, is $2,280.0 million and $1,216.3 million at December 28, 2019 and June 29, 2019, respectively, and is determined by reviewing current market pricing related to comparable debt issued at the time of the balance sheet date, and is considered a Level 2 measurement.

9.	Income Taxes

The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal and state jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, tax credits, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.

The Company’s effective tax rate was 24.2% for the three months ended December 28, 2019 and 23.4% for the three months ended December 29, 2018. The Company’s effective tax rate was 23.1% for the six months ended December 28, 2019 and 22.1% for the six months ended December 29, 2018. The effective tax rate varied from the 21% statutory rate primarily due to state taxes, federal credits and other permanent items. The excess tax benefit of exercised and vested stock awards is treated as a discrete item.

As of December 28, 2019 and June 29, 2019, the Company had net deferred tax assets of $29.1 million and $29.1 million, respectively, and deferred tax liabilities of $131.1 million and $137.1 million, respectively. As of June 29, 2019, the Company had established a valuation allowance of $0.5 million, net of federal benefit, against deferred tax assets related to certain net operating losses which are not likely to be realized due to limitations on utilization. There was 0 change in the valuation allowance as of December 28, 2019. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized.

The Company records a liability for Uncertain Tax Positions in accordance with FASB ASC 740-10-25, Income Taxes – General – Recognition. As of December 28, 2019 and June 29, 2019, the Company had approximately $1.8 million and $1.9 million of unrecognized tax benefits, respectively. It is reasonably possible that a decrease of approximately $0.6 million in the balance of unrecognized tax benefits may occur within the next twelve months primarily due to statute of limitations expirations, that, if recognized, would affect the effective tax rate.

10.	Commitments and Contingencies

Purchase Obligations

The Company had outstanding contracts and purchase orders for capital projects and services totaling $37.4 million at December 28, 2019. Amounts due under these contracts were not included on the Company’s consolidated balance sheet as of December 28, 2019.

Guarantees

The Company from time to time enters into certain types of contracts that contingently require it to indemnify various parties against claims from third parties. These contracts primarily relate to: (i) certain real estate leases under which subsidiaries of the Company may be required to indemnify property owners for environmental and other liabilities and other claims arising from their use of the applicable premises; (ii) certain agreements with the Company’s officers, directors, and employees under which the Companymay be required to indemnify such persons for liabilities arising out of their employment relationship; and (iii) customer agreements under which the Company may be required to indemnify customers for certain claims brought against them with respect to the supplied products.

Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been required to make payments under these obligations and, therefore, no liabilities have been recorded for these obligations in the Company’s consolidated balance sheets.

Reinhart Transaction Commitments

As of December 28, 2019, the Company had several outstanding commitments due upon the closing of the acquisition of Reinhart. These commitments, totaling $63.8 million, included $26.0 million of fees related to the Notes due 2027, $4.9 million of fees related to expected additional borrowings under the Amended Credit Agreement, $23.9 million of underwriting and issuance costs for the offering of shares of the Company’s stock, and $9.0 million related to advisory fees for the acquisition. Upon the closing of the Reinhart acquisition on December 30, 2019, these commitments were paid.

Litigation

The Company is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss arising from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When losses are probable and reasonably estimable, they have been accrued. Based on estimates of the range of potential losses associated with these matters, management does not believe that the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the Company. However, the final results of legal proceedings cannot be predicted with certainty and, if the Company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the Company’s current estimates of the range of potential losses, the Company’s consolidated financial position or results of operations could be materially adversely affected in future periods.

U.S. Equal Employment Opportunity Commission Lawsuit. In March 2009, the Baltimore Equal Employment Opportunity Commission ~~or the “EEOC,”~~(“EEOC”) Field Office served usthe Company with company-wide (excluding, however, our Vistar and Roma Foodservice operations) subpoenas relating to alleged violations of the Equal Pay Act and Title VII of the Civil Rights Act (“Title VII”), seeking certain information from January 1, 2004 to a specified date in the first fiscal quarter of 2009. In August 2009, the EEOC moved to enforce the subpoenas in federal court in Maryland, and wethe Company opposed the motion. In February 2010, the court ruled that the subpoena related to the Equal Pay Act investigation was enforceable company-wide but on a narrower scope of data than the original subpoena sought (the court ruled that the subpoena was applicable to the transportation, logistics, and warehouse functions of ~~our~~the Company’s broadline distribution centers only and not to ~~our~~the Company’s PFG Customized distribution centers). WeThe Company cooperated with the EEOC on the production of information. In September 2011, the EEOC notified usthe Company that the EEOC was terminating the investigation into alleged violations of the Equal Pay Act. In determinations issued in September 2012 by the EEOC with respect to the charges on which the EEOC had based its company-wide investigation, the EEOC concluded that wethe Company engaged in a pattern of denying hiring and promotion to a class of female applicants and employees into certain positions within the transportation, logistics, and warehouse functions within ~~our~~the Company’s broadline division in violation of Title VII. In June 2013, the EEOC filed suit in federal court in Baltimore against ~~us.~~the Company. The litigation concerns two issues: (1) whether wethe Company unlawfully engaged in

an ongoing pattern and practice of failing to hire female applicants into operations positions; and (2) whether wethe Company unlawfully failed to promote one of the three individuals who filed charges with the EEOC because of her gender. The EEOC seeks the following relief in the lawsuit: (1) to permanently enjoin usthe Company from denying employment to female applicants because of their sex and denying promotions to female employees because of their sex; (2) a court order mandating that wethe Company institute and carry out policies, procedures, practices and programs which provide equal employment opportunities for females; (3) back pay with prejudgment interest and compensatory damages for a former female employee and an alleged class of aggrieved female applicants; (4) punitive damages; and (5) costs. The court bifurcated the litigation into two phases. In the first phase, the jury will decide whether wethe Company engaged in a gender-based pattern and practice of discrimination and the individual claims of one former employee. If the EEOC prevails on all counts in the first phase, no monetary relief would be awarded, except possibly for the single individual’s claims, which would be immaterial. The remaining individual claims would then be tried in the second phase. At this stage in the proceedings, the Company cannot estimate either the number of individual trials that could occur in the second phase of the litigation or the value of those claims. For these reasons, ~~we are~~the Company is unable to estimate any potential loss or range of loss in the event of an adverse finding in the first and second phases of the litigation.

In May 2018, the EEOC filed motions for sanctions against the Company alleging that we failed to preserve certain paper employment applications and e-mails during 2004 – 2009. In the sanctions motions, the EEOC sought a range of remedies, including but not limited to, a default judgment against the Company, or alternatively, an order barring the Company from filing for summary judgment on the EEOC’s pattern and practice claims. The court denied the EEOC’s motions in June 2019, but reserved ruling on whether the unavailability of certain documents will prejudice the EEOC’s ability to present expert testimony at the trial.

The parties have filed cross motions for summary judgment, the briefing period has concluded, and the motions are ~~engaged in discovery. We intend~~now before the court. There is no specific deadline for the court to issue its ruling on the motions. The Company will continue to vigorously defend ~~ourselves.~~

~~Wilder, et al. v. Roma Food Enterprises, Inc., et al.~~ ~~The court granted final approval of the settlement stipulation on November 6, 2017. The Company funded the $1.9 million settlement on January 10, 2018, thereby ending the litigation.~~itself.

Tax Liabilities

The Company is subject to customary audits by authorities in the jurisdictions where it conducts business in the United States, which may result in assessments of additional taxes.

~~10.~~

11.

Related-Party Transactions

~~Transaction and Advisory Fee Agreement~~

The Company was a party to an advisory fee agreement pursuant to which affiliates of The Blackstone Group L.P. and Wellspring provided management certain strategic and structuring advice and certain monitoring, advising, and consulting services to the Company. The advisory fee agreement provided for the payment by the Company of an annual advisory fee and the reimbursement of out of pocket expenses. In fiscal 2018 the Company will pay a total of $3.0 million related to this agreement, of which $1.5 million was paid in the second quarter of fiscal 2018 and during the six months ended December 30, 2017 and $1.5 million will be paid in the third quarter of fiscal 2018. The payments made under this agreement totaled $5.5 million during the six months ended December 31, 2016.

~~Under its terms, this agreement terminated on October 6, 2017.~~

~~Other~~

The Company participates in and has an equity method investment in a purchasing alliance that was formed to obtain better pricing, to expand product options, to reduce internal costs, and to achieve greater inventory turnover. The Company’s investment in the purchasing alliance was ~~$4.7~~$5.1 million as of December ~~30, 2017~~28, 2019 and $4.6 million as of ~~July 1, 2017. During~~June 29, 2019. For the three-month periods ended December ~~30, 2017~~28, 2019 and December ~~31, 2016,~~29, 2018, the Company recorded purchases of ~~$177.5~~$244.2 million and ~~$176.6~~$206.2 million, respectively, through the purchasing alliance. During thesix-month periods ended December ~~30, 2017~~28, 2019 and December ~~31, 2016,~~29, 2018, the Company recorded purchases of ~~$390.4~~$498.4 million and ~~$387.0~~$433.1 million, respectively, through the purchasing alliance.

~~11.~~

12.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted ~~EPS~~earnings per common share is calculated using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. In computing diluted ~~EPS,~~earnings per common share, the average closing stock price for the period is used in determining the number of shares assumed to be purchased with the assumed proceeds ~~from the exercise of stock options~~ under the treasury stock method. The dilutive effect of potential common shares includes the impact of the equity forward the Company entered into in the second quarter of fiscal 2020 since the average closing price of the Company’s common stock for the period was higher than the applicable forward sale price. Potential common shares of ~~0.7~~0.1 million and ~~0.7~~0.1 million for the three and six months ended December ~~30, 2017,~~28, 2019, respectively, and 0.5 million and 0.6 million for the three and six months ended December 29, 2018, respectively, were not included in computing diluted earnings per ~~share because the effect would have been antidilutive. Potential~~ common ~~shares of 1.2 million and 1.0 million for the three and six months ended December 31, 2016, respectively, were not included in computing diluted earnings per~~ share because the effect would have been antidilutive.

A reconciliation of the numerators and denominators for the basic and diluted ~~EPS~~earnings per common share computations is as follows:


(In millions, except per share amounts)	Three months ended December 30, 2017		Three months ended December 31, 2016		Six months ended December 30, 2017		Six months ended December 31, 2016		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	$	78.0	$	22.9	$	100.6	$	35.1

Net Income									$	41.2	$	43.1	$	77.3	$	71.3
Denominator:
Weighted-average common shares outstanding		101.4		100.1		101.2		100.0		104.3		103.9		104.2		103.7
Dilutive effect of share-based awards		3.1		2.6		3.3		2.5

Dilutive effect of potential common shares										2.1		1.0		2.0		1.3
Weighted-average dilutive shares outstanding		104.5		102.7		104.5		102.5		106.4		104.9		106.2		105.0

Basic earnings per share	$	0.77	$	0.23	$	0.99	$	0.35

Diluted earnings per share	$	0.75	$	0.22	$	0.96	$	0.34

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

~~12.~~

~~Segment Information~~

13.Segment Information

The Company has ~~three~~2 reportable ~~segments, as defined by ASC 280~~~~Segment Reporting~~~~, related to disclosures about segments of an enterprise.~~segments: Foodservice and Vistar. The ~~Performance~~ Foodservice ~~(“PFS”)~~ segment markets and distributes food and food-related products to independent restaurants, chain restaurants, and other institutional “food-away-from-home” locations. ~~The PFG Customized segment principally serves the family~~Foodservice offers a “broad line” of products, including custom-cut meat and ~~casual dining channel but also serves fine dining, and fast casual restaurant chains.~~seafood, as well as products that are specific to our customer’s menu requirements. The Vistar segment distributes candy, ~~snack, beverage,~~snacks, beverages, cigarettes, other tobacco products, and other products to customers in the vending, office coffee services, theater, retail, convenience store and other channels. Intersegment sales represent sales between the segments, which are eliminated in consolidation. Management evaluates the performance of each operating segment based on various operating and financial metrics, including total sales and EBITDA. For PFG Customized, EBITDA includes certain allocated corporate charges that are included in operating expenses. The allocated corporate charges are determined based on a percentage of total sales. This percentage is reviewed on a periodic basis to ensure that the segment is allocated a reasonable rate of corporate expenses based on their use of corporate services.

Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of the Company’s internal logistics unit responsible for managing and allocating inbound logistics revenue and ~~expense, as well as the operations of certain recent acquisitions.~~expense.

(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

(In millions)	Foodservice		Vistar		Corporate & All Other		Eliminations			Consolidated
For the six months ended December 28, 2019
Net external sales	$	7,770.9	$	4,529.1	$	11.6	$	—		$	12,311.6
Inter-segment sales		7.4		1.2		147.0		(155.6	)		—
Total sales		7,778.3		4,530.3		158.6		(155.6	)		12,311.6
Depreciation and amortization		50.4		23.1		13.0		—			86.5
Capital expenditures		16.3		21.5		11.2		—			49.0
For the six months ended December 29, 2018
Net external sales	$	7,312.6	$	1,833.1	$	9.7	$	—		$	9,155.4
Inter-segment sales		5.3		1.4		129.4		(136.1	)		—
Total sales		7,317.9		1,834.5		139.1		(136.1	)		9,155.4
Depreciation and amortization		42.6		18.2		11.8		—			72.6
Capital expenditures		42.7		6.7		10.7		—			60.1

In the first quarter of fiscal 2018, the Company reorganized its information technology department, and expenses associated with business application teams are now included in the segments results. The EBITDA for ~~PFS, Vistar~~each reportable segment and Corporate & All Other ~~for the three and six months ended December 31, 2016 has been adjusted~~is presented below along with a reconciliation to ~~reflect this change.~~consolidated income before taxes.

(In millions)
   PFS    PFG
Customized    Vistar    Corporate
& All Other Eliminations Consolidated
For the three months ended December 30, 2017

Net external sales
   $ 2,532.8    $ 888.1    $ 838.3    $ 51.9 $ —   $ 4,311.1
Inter-segment sales
   2.5    0.1    0.6    58.7 (61.9 ) —








Total sales
   2,535.3    888.2    838.9    110.6 (61.9 ) 4,311.1
EBITDA
   83.0    5.9    34.0    (41.4 ) —   81.5
Depreciation and amortization
   14.6    3.7    6.9    7.1 —   32.3
Capital expenditures
   9.3    4.1    5.3    3.3 —   22.0
For the three months ended December 31, 2016

Net external sales
   $ 2,356.8    $ 933.4    $ 737.4    $ 24.2 $ —   $ 4,051.8
Inter-segment sales
   1.4    0.1    0.5    53.7 (55.7 ) —








Total sales
   2,358.2    933.5    737.9    77.9 (55.7 ) 4,051.8
EBITDA
   75.5    6.7    33.0    (33.0 ) —   82.2
Depreciation and amortization
   14.0    3.6    6.6    6.2 —   30.4
Capital expenditures
   34.1    2.7    0.8    7.5 —   45.1
(In millions)
   PFS    PFG
Customized    Vistar    Corporate
& All Other Eliminations Consolidated
For the six months ended December 30, 2017

Net external sales
   $ 5,157.3    $ 1,784.1    $ 1,634.5    $ 100.1 $ —   $ 8,676.0
Inter-segment sales
   5.1    0.2    1.2    118.6 (125.1 ) —








Total sales
   5,162.4    1,784.3    1,635.7    218.7 (125.1 ) 8,676.0
EBITDA
   161.8    11.1    59.8    (69.0 ) —   163.7
Depreciation and amortization
   28.4    7.3    13.2    14.8 —   63.7
Capital expenditures
   20.5    6.3    5.6    6.1 —   38.5
For the six months ended December 31, 2016

Net external sales
   $ 4,791.5    $ 1,800.1    $ 1,478.2    $ 28.1 $ —   $ 8,097.9
Inter-segment sales
   3.1    0.7    1.2    108.7 (113.7 ) —








Total sales
   4,794.6    1,800.8    1,479.4    136.8 (113.7 ) 8,097.9
EBITDA
   148.1    10.6    54.8    (69.4 ) —   144.1
Depreciation and amortization
   27.1    8.8    11.8    12.2 —   59.9
Capital expenditures
   53.8    4.9    2.2    19.0 —   79.9

	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

Total assets by reportable segment, excluding intercompany receivables between segments, are as follows:

(In millions)
   As of
December 30, 2017    As of
July 1, 2017
PFS
   $ 2,162.3    $ 2,161.2
PFG Customized
   645.9    667.1
Vistar
   754.0    654.5
Corporate & All Other
   320.4    321.3




Total assets
   $ 3,882.6    $ 3,804.1

~~13.~~ ~~Stock-based Compensation~~

~~Performance Food Group Company provides compensation benefits to employees andnon-employee~~ directors under several share based payment arrangements. The Performance Food Group Company 2007 Management Option Plan (the”2007 Option Plan”) allowed for the granting of awards to employees, officers, directors, consultants, and advisors of the Company or its affiliates. The terms and conditions of awards granted under the 2007 Option Plan were determined by the Board of Directors.

The Tranche II and Tranche III options and restricted stock granted under the 2007 Option Plan are subject to both time and performance vesting, including performance criteria based on the internal rate of return and sponsor cash inflows as outlined in the 2007 Option Plan.

During the second quarter of fiscal 2018, Wellspring sold all of their remaining interest in shares of the Company’s common stock. On December 7, 2017, the Company determined that the performance criteria for the Tranche II and III awards had been met and 2.1 million shares of restricted stock and 1.4 million options vested. In the second quarter of fiscal 2018, the Company recognized approximately $6.3 million of accelerated compensation expense in connection with the vesting of the Tranche II and III awards. Based on the performance achieved, total compensation expense for the Tranche II and III awards was $24.9 million. The excess tax benefit recognized in the consolidated statements of operations for the three and six months ended December 30, 2017 was $15.4 million.

(In millions)	As of December 28, 2019		As of June 29, 2019
Foodservice	$	3,299.1	$	3,152.3
Vistar		1,502.0		1,271.0
Corporate & All Other		1,310.0		230.2
Total assets	$	6,111.1	$	4,653.5

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(the “Form 10-Q”)~~ 10-Q and the audited consolidated financial statements and the notes thereto included in the ~~Company’s annual report on~~Form ~~10-K~~ ~~for the fiscal year ended July 1, 2017 (the “Form10-K”).~~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~~ ~~and in the “Part II. Item 1A. Risk Factors” section of our quarterly report on Form10-Q~~ ~~for the fiscal quarter ended September 30, 2017.~~ 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 Form10-Q.

Our Company

WeFollowing the completion of the Reinhart acquisition, we market and distribute ~~approximately 150,000~~over 200,000 food and ~~food-related~~related products to customers across the United States from ~~approximately 76~~over 100 distribution facilities to over ~~150,000~~200,000 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”~~ “center-of-the-plate” items (such as beef, pork, poultry, and seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes, and ~~beverages.~~other tobacco products. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers. 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.

~~We have three~~The Company has two reportable segments: ~~Performance~~ Foodservice ~~PFG Customized,~~ and Vistar. Our ~~Performance~~ Foodservice segment distributes a broad line of national brands, customer brands, and our proprietary-branded food and food-related products, or “Performance Brands.” ~~Performance~~ Foodservice sells to independent ~~or “Street,”~~ and multi-unit ~~or “Chain,”~~“Chain” restaurants and other institutions such as schools, healthcare facilities, and business and industry locations. Our ~~PFG Customized segment has provided longstanding service to~~Chain customers are multi-unit restaurants with five or more locations and include some of the most recognizable family and casual dining ~~restaurant chains and recently expanded service into fast casual~~ restaurant chains. Our Vistar segment specializes in distributing candy, snacks, beverages, cigarettes, other tobacco products and other items nationally to ~~the~~ vending distributors, office coffee service ~~theater, retail, hospitality,~~distributors, big box retailers, theaters, convenience stores, and other channels. 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.

Recent Trends and Initiatives

Our case volume has grown in each quarter over the comparable prior fiscal year quarter, starting in the second quarter of fiscal 2010 and continuing through the most recent quarter. We believe that we gained industry share during the second quarter of fiscal 2018 given that we have grown our sales more rapidly than the industry growth rate forecasted by Technomic, a research and consulting firm serving the food and food related industry. Our ~~Net~~net income ~~increased 240.6%~~decreased 4.4% from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018 and~~2020 as a result of an increase in interest expense due to the additional debt issued to help finance the Reinhart acquisition. Net income increased ~~186.6% from~~8.4% for the first six months of fiscal ~~2017~~2020 compared to the first six months of fiscal ~~2018.~~2019. Adjusted EBITDA increased ~~12.2%~~22.2% from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018~~2020 and increased ~~15.4% from~~27.4% for the first six months of fiscal ~~2017~~2020 compared to the first six months of fiscal ~~2018,~~2019, driven primarily by case growth and improved profit per case. Case volume grew ~~4.2%~~6.7% in the second quarter of fiscal ~~2018~~2020 and ~~3.9%~~8.7% in the first six months of fiscal ~~2018~~2020 compared to ~~the~~ prior year periods. Gross ~~margin~~profit dollars rose ~~9.7%~~15.7% and ~~9.1%~~17.7% in the second quarter of fiscal ~~2018~~2020 and the first six months of fiscal ~~2018,~~2020, respectively, versus the prior year periods, which was faster than case growth, primarily as a result of shifting our channel mix toward higher gross margin customers and shifting our product mix toward sales of Performance Brands. Our operating expenses in the second quarter and first six months of fiscal 2020 compared to the second quarter and first six months of fiscal ~~2017, increased 11.3%~~2019 rose 16.5% and ~~8.2%~~17.9%, respectively, as a result of increases in variable operational and selling expenses associated with the increase in case volume and as ~~well as due to severalone-time~~ ~~expenses including accelerated stock-based compensation expense.~~a result of recent acquisitions.

Key Factors Affecting Our Business

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

•

Changing demographic and macroeconomic trends.The share of consumer spending captured by thefood-away-from-home industry increased steadily for several decades and paused during the recession that began in 2008. Following the recession, the share has again increased as a result of increasing employment, rising disposable income, increases in the number of restaurants, and favorable demographic trends, such as smaller household sizes, an increasing number of dual income households, and an aging population base that spends more per capita at foodservice establishments. The foodservice distribution industry is also sensitive to national and regional economic conditions, such as changes in consumer spending, changes in consumer confidence, and changes in the prices of certain goods.

•

Food distribution market structure.~~We are the third largest foodservice distributer by revenue in the United States behind Sysco and US Foods, which are both national broadline distributors.~~ The ~~balance of the~~food distribution market consists of a wide spectrum of companies ranging from businesses selling a single category of product (e.g., produce) to large national and regional broadline distributors with many distribution centers and thousands of products across all categories. We believe our scale enables us to invest in our Performance Brands, to benefit from economies of scale in purchasing and procurement, and to drive supply chain efficiencies that enhance our customers’ satisfaction and profitability. We believe that the relative growth of larger foodservice distributors will continue to outpace that of smaller, independent players in our industry.

•

Our ability to successfully execute our segment strategies and implement our initiatives.Our performance will continue to depend on our ability to successfully execute our segment strategies and to implement our current and future initiatives. The key strategies include focusing on independent sales and Performance Brands, pursuing new customers for ~~all three~~both of our reportable segments, expansion of geographies, utilizing our infrastructure to gain further operating and purchasing efficiencies, and making strategic acquisitions.

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, 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) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.

EBITDA and Adjusted EBITDA

Management measures operating performance based on our EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. EBITDA is not defined under ~~U.S.~~ GAAP and is not a measure of operating income, operating performance, or liquidity presented in accordance with ~~U.S.~~ GAAP and is subject to important limitations. Our definition of EBITDA may not be the same as similarly titled measures used by other companies.

We believe that the presentation of EBITDA enhances an investor’s understanding of our performance. We use this measure to evaluate the performance of our segments and for business planning purposes. We present EBITDA in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede ~~U.S.~~ GAAP measures.

In addition, our management uses 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 credit agreement and ~~indenture~~indentures (other than certain pro forma adjustments permitted under our credit agreement and ~~indenture~~indentures governing the Notes due 2024 and Notes due 2027 relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under our credit agreement and ~~indenture,~~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 credit agreement and ~~indenture)~~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 ~~U.S.~~ GAAP and is subject to important limitations. 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 (as defined below under “-Liquidity and Capital Resources”)~~credit agreement and holders of our Notes ~~(as defined below under “-Liquidity~~due 2024 and ~~Capital Resources”),~~Notes due 2027, in their evaluation of the operating performance of companies in industries similar to ours. 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.

EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under ~~U.S.~~ GAAP. For example, EBITDA and Adjusted EBITDA:

•

exclude certain tax payments that may represent a reduction in cash available to us;

•

do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•

do not reflect changes in, or cash requirements for, our working capital needs; and

•

do not reflect the significant interest expense, or the cash requirements, necessary to service our debt.

In calculating Adjusted EBITDA, we add back certainnon-cash,non-recurring, and other adjustment items as permitted or required by our credit agreement and ~~indenture.~~indentures. Adjusted EBITDA among other things:

~~does not include~~

•

does not include non-cash stock-based employee compensation expense and other non-cash ~~stock-based employee compensation expense and certain othernon-cash~~ charges; and

~~does not include cash andnon-cash~~ ~~restructuring, severance, and relocation costs incurred to realize future cost savings and enhance our operations; and~~

~~does not reflect advisory fees paid.~~

•

does not include acquisition, restructuring, and other costs incurred to realize future cost savings and enhance our operations.

We have included the calculations of EBITDA and Adjusted EBITDA for the periods presented.

Results of Operations, EBITDA, and Adjusted EBITDA

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


	Three Months Ended												Three Months Ended
	December 30, 2017			December 31, 2016			Change			%			December 28, 2019			December 29, 2018		Change			%
Net sales	$	4,311.1		$	4,051.8		$	259.3			6.4		$	6,068.6		$	4,615.7	$	1,452.9			31.5
Cost of goods sold		3,743.5			3,534.6			208.9			5.9			5,357.4			4,001.1		1,356.3			33.9

Gross profit		567.6			517.2			50.4			9.7			711.2			614.6		96.6			15.7
Operating expenses		518.5			465.9			52.6			11.3			630.7			541.6		89.1			16.5

Operating profit		49.1			51.3			(2.2	)		(4.3	)		80.5			73.0		7.5			10.3
Other expense
Other expense, net
Interest expense		15.1			13.6			1.5			11.0			26.4			16.0		10.4			65.0
Other, net		(0.1	)		(0.5	)		0.4			80.0			(0.2	)		0.7		(0.9	)	NM

Other expense, net		15.0			13.1			1.9			14.5			26.2			16.7		9.5			56.9
Income before income taxes		34.1			38.2			(4.1	)		(10.7	)		54.3			56.3		(2.0	)		(3.6	)
Income tax expense		(43.9	)		15.3			(59.2	)		NM			13.1			13.2		(0.1	)		(0.8	)

Net income	$	78.0		$	22.9		$	55.1			240.6		$	41.2		$	43.1	$	(1.9	)		(4.4	)

EBITDA	$	81.5		$	82.2		$	(0.7	)		(0.9	)	$	124.5		$	109.4	$	15.1			13.8
Adjusted EBITDA	$	105.0		$	93.6		$	11.4			12.2		$	142.9		$	116.9	$	26.0			22.2
Weighted-average common shares outstanding:
Basic		101.4			100.1			1.3			1.3			104.3			103.9		0.4			0.4
Diluted		104.5			102.7			1.8			1.8			106.4			104.9		1.5			1.4
Earnings per common share:
Basic	$	0.77		$	0.23		$	0.54			234.8		$	0.39		$	0.41	$	(0.02	)		(4.9	)
Diluted	$	0.75		$	0.22		$	0.53			240.9		$	0.39		$	0.41	$	(0.02	)		(4.9	)

	Six Months Ended
	December 30, 2017			December 31, 2016			Change		��	%
Net sales	$	8,676.0		$	8,097.9		$	578.1			7.1
Cost of goods sold		7,553.7			7,069.4			484.3			6.9

Gross profit		1,122.3			1,028.5			93.8			9.1
Operating expenses		1,022.7			945.6			77.1			8.2

Operating profit		99.6			82.9			16.7			20.1
Other expense
Interest expense		29.7			26.5			3.2			12.1
Other, net		(0.4	)		(1.3	)		0.9			69.2

Other expense, net		29.3			25.2			4.1			16.3
Income before income taxes		70.3			57.7			12.6			21.8
Income tax expense		(30.3	)		22.6			(52.9	)		NM

Net income	$	100.6		$	35.1		$	65.5			186.6

EBITDA	$	163.7		$	144.1		$	19.6			13.6
Adjusted EBITDA	$	195.7		$	169.6		$	26.1			15.4
Weighted-average common shares outstanding:
Basic		101.2			100.0			1.2			1.2
Diluted		104.5			102.5			2.0			2.0
Earnings per common share:
Basic	$	0.99		$	0.35		$	0.64			182.9
Diluted	$	0.96		$	0.34		$	0.62			182.4

	Six Months Ended
	December 28, 2019			December 29, 2018		Change			%
Net sales	$	12,311.6		$	9,155.4	$	3,156.2			34.5
Cost of goods sold		10,889.0			7,947.2		2,941.8			37.0
Gross profit		1,422.6			1,208.2		214.4			17.7
Operating expenses		1,278.6			1,084.6		194.0			17.9
Operating profit		144.0			123.6		20.4			16.5
Other expense, net
Interest expense		43.7			31.6		12.1			38.3
Other, net		(0.2	)		0.5		(0.7	)	NM
Other expense, net		43.5			32.1		11.4			35.5
Income before income taxes		100.5			91.5		9.0			9.8
Income tax expense		23.2			20.2		3.0			14.9
Net income	$	77.3		$	71.3	$	6.0			8.4
EBITDA	$	230.7		$	195.7	$	35.0			17.9
Adjusted EBITDA	$	270.6		$	212.4	$	58.2			27.4
Weighted-average common shares outstanding:
Basic		104.2			103.7		0.5			0.5
Diluted		106.2			105.0		1.2			1.1
Earnings per common share:
Basic	$	0.74		$	0.69	$	0.05			7.2
Diluted	$	0.73		$	0.68	$	0.05			7.4

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


	Three Months Ended					Six Months Ended					Three Months Ended				Six Months Ended
	December 30, 2017			December 31, 2016		December 30, 2017			December 31, 2016		December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
	(dollars in millions)					(dollars in millions)					(In millions)				(In millions)
Net income	$	78.0		$	22.9	$	100.6		$	35.1	$	41.2	$	43.1	$	77.3	$	71.3
Interest expense		15.1			13.6		29.7			26.5		26.4		16.0		43.7		31.6
Income tax (benefit) expense		(43.9	)		15.3		(30.3	)		22.6
Income tax expense												13.1		13.2		23.2		20.2
Depreciation		24.3			22.5		49.1			43.3		35.1		27.5		69.0		54.4
Amortization of intangible assets		8.0			7.9		14.6			16.6		8.7		9.6		17.5		18.2

EBITDA		81.5			82.2		163.7			144.1		124.5		109.4		230.7		195.7
Non-cash items(1)		11.8			3.8		16.1			8.5
Acquisition, integration and reorganization charges(2)		1.7			3.8		4.1			6.2
Productivity initiatives(3)		8.5			2.7		9.8			6.8
Other adjustment items(4)		1.5			1.1		2.0			4.0

Non-cash items (1)												5.7		4.7		12.7		9.6
Acquisition, integration and reorganization (2)												12.2		1.3		23.8		4.0
Other adjustment items (3)												0.5		1.5		3.4		3.1
Adjusted EBITDA	$	105.0		$	93.6	$	195.7		$	169.6	$	142.9	$	116.9	$	270.6	$	212.4

(1)

Includes adjustments fornon-cash charges arising from stock-based compensation ~~interest rate swap hedge ineffectiveness,~~ and gain/loss on disposal of assets. Stock-based compensation ~~cost~~expense was ~~$11.1~~$4.4 million and ~~$3.9~~$4.2 million infor the second quarter of fiscal ~~2018~~2020 and fiscal ~~2017,~~2019, respectively, and ~~$14.5~~$8.8 million and ~~$8.1 million~~$8.0 in the first six months of fiscal ~~2018~~2020 and fiscal ~~2017,~~2019, respectively. In addition, this includes ~~an increase~~increases in the ~~LIFO~~last-in-first-out (“LIFO”) reserve of ~~$0.4~~$1.1 million and ~~$0.6~~$0.7 million for the second quarter of fiscal ~~2018~~2020 and fiscal ~~2017,~~2019, respectively, and ~~an increase~~increases in the LIFO reserve of ~~$1.2~~$3.7 million ~~in both~~and $1.6 million for the first six months of fiscal ~~2018~~2020 and fiscal ~~2017.~~2019, respectively.

(2)	Includes professional fees and other costs related to ~~completed and abandoned~~ acquisitions, costs of integrating certain of our facilities, and facility closing ~~costs, and advisory fees.~~costs.

(3)	Consists primarily ~~of professional fees and related expenses associated with productivity initiatives.~~

~~(4)~~

~~Consists~~ of amounts related to fuel collar derivatives, certain financing transactions, lease amendments, legal settlements and franchise tax expense, and other adjustments permitted by our credit ~~agreements.~~agreement.

Consolidated Results of Operations

Three and six months ended December ~~30, 2017~~28, 2019 compared to the three and six months ended December ~~31, 2016~~29, 2018

Net Sales

Net sales growth is a function of 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 ~~$259.3~~$1,452.9 million, or ~~6.4%~~31.5%, for the second quarter of fiscal ~~2018~~2020 compared to the second quarter of fiscal ~~2017~~2019 and increased ~~$578.1~~$3,156.2 million, or ~~7.1%~~34.5%, for the first six months of fiscal ~~2018~~ 2020

compared to the first six months of fiscal ~~2017.~~2019. The increase in net sales was primarily attributable to recent acquisitions, sales growth in Vistar, particularly in the ~~theater, hospitality, retail,~~corrections, vending, and ~~vending~~office coffee service channels, and case growth in ~~Performance~~ Foodservice, particularly in the independent ~~channel,~~channel. The acquisition of Eby-Brown in the fourth quarter of 2019 contributed $1,260.8 million and ~~recent acquisitions. Net~~$2,634.8 million of net sales ~~growth was driven by case volume growth of 4.2% and 3.9%~~ in the second quarter and first six months of fiscal ~~2017,~~2020, respectively, ~~as well as an increase~~including $267.3 million and $559.0 million related to excise taxes for the respective periods. Case volume increased 6.7% and 8.7% in ~~selling price per case in both~~ the second quarter and first six months of fiscal ~~2018~~2020, respectively, compared to the prior year periods.

Gross Profit

Gross profit increased ~~$50.4~~$96.6 million, or ~~9.7%~~15.7%, for the second quarter of fiscal ~~2018~~2020 compared to the second quarter of fiscal ~~2017~~2019 and increased ~~$93.8~~$214.4 million, or ~~9.1%~~17.7%, for the first six months of fiscal ~~2018~~2020 compared to the first six months of fiscal ~~2017. The increase in gross profit was primarily the result of growth in cases.~~2019. Within ~~Performance~~ Foodservice, case growth to independent customers positively affected gross profit per case. Independent customers typically receive more services from us, cost more to serve, and pay a higher gross profit per case than other customers. Also, in the second quarter and first six months of fiscal ~~2018, Performance~~2020, Foodservice grew our Performance Brand sales, which have higher gross profit per case compared to the other brands we sell. See “—Segment Results—~~Performance~~ Foodservice” below for additional discussion.

Gross profit as a percentage of net sales was 11.7% for the second quarter of fiscal 2020 compared to 13.3% for the second quarter of fiscal 2019, and 11.6% for the first six months of fiscal 2020 compared to 13.2% for the first six months of fiscal 2019; the decrease reflecting Eby-Brown’s lower margins primarily due to tobacco sales.

Operating Expenses

Operating expenses increased ~~$52.6~~$89.1 million, or ~~11.3%~~16.5%, for the second quarter of fiscal ~~2018~~2020 compared to the second quarter of fiscal ~~2017~~2019 and increased ~~$77.1~~$194.0 million, or ~~8.2%~~17.9%, for the first six months of fiscal ~~2018~~2020 compared to the first six months of fiscal ~~2017.~~2019. The increase in operating expenses for both the second quarter and first six months of fiscal 2020 was primarily driven by recent acquisitions and the increase in case volume and the resulting impact on variable operational and selling ~~expenses, as well as cost of living and other increases in compensation and benefits.~~expenses. Operating expenses also increased inby $6.5 million for the second quarter ~~of fiscal 2018 due to a $7.2~~and $12.9 million ~~increase in stock-based compensation as a result of the accelerated vesting of performance-based awards under the 2007 Option Plan andnon-recurring~~ ~~development costs related to certain productivity initiatives the Company no longer plans to pursue. For~~for the first six months of fiscal ~~2018, operating expenses also increased~~2020 as a result of ~~increases in stock-based compensation expense of $6.4 million and fuel expense of $5.6 million, partially offset by a decrease of $2.0 million in~~ professional ~~legal and consulting fees.~~fees related to acquisitions.

Depreciation and amortization of intangible assets increased from ~~$30.4~~$37.1 million in the second quarter of fiscal ~~2017~~2019 to ~~$32.3~~$43.8 million in the second quarter of fiscal ~~2018.~~2020. Depreciation and amortization of intangible assets increased from ~~$59.9~~$72.6 million for the first six months of fiscal ~~2017~~2019 to ~~$63.7~~$86.5 million ~~for~~in the first six months of fiscal ~~2018.~~2020. Depreciation of fixed assets increased as a result of ~~larger~~ capital outlays to support our growth, as well as recent acquisitions. This increase was partially offset by decreases in amortization of intangible assets, since certain intangibles are now fully amortized compared to the prior year.growth.

Net Income

Net income ~~increased $55.1~~decreased $1.9 million, or ~~240.6%~~4.4%, for the second quarter of fiscal ~~2018~~2020 compared to the second quarter of fiscal ~~2017 as a result of the $59.2 million~~2019. The decrease in net income ~~tax expense, partially offset by the $2.2 million decrease in operating profit,~~was primarily attributable to a ~~$1.5~~$10.4 million increase in interest expense, ~~and~~partially offset by a ~~$0.4~~$7.5 million ~~decrease in other income.~~

~~The decrease in operating profit was a result of the~~ increase in operating expenses discussed above. The increase in interest expense was primarily the result of higher average borrowings and an increase in the average interest rate during the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017. The $0.4 million decrease in other income related primarily to derivative activity.

The decrease in income tax expense was primarily a result of the impact of the Tax Cuts and Jobs Act (the “Act”) and the excess tax benefit associated with the vesting of stock-based compensation awards. Our effective tax rate in the second quarter of fiscal 2018 was~~-128.3%~~ ~~compared to 40.1% in the second quarter of fiscal 2017.~~

The Act was signed into law on December 22, 2017. Among its numerous changes to the U.S. Internal Revenue Code, the Act reduces the U.S. federal corporate rate from 35% to 21%, which will result in a blended U.S. Federal statutory rate of approximately 28% for the Company. As a result of the Act, the Company revalued its net deferred tax liability, resulting in a decrease to the net deferred tax liability of $37.4 million with a corresponding net benefit to income tax expense of $37.4 million for the three and six months ended December 30, 2017. The Company estimates that its effective tax rate for fiscal 2018 will be approximately 33%.

Additionally, in the second quarter of fiscal 2018, performance vesting criteria for certain stock-based compensation awards was met resulting in an excess tax benefit of $15.4 million for the three and six months ended December 30, 2017.

profit. Net income increased ~~$65.5~~$6.0 million, or ~~186.6%~~8.4%, for the first six months of fiscal ~~2018~~2020 compared to the first six months of fiscal ~~2017 as~~2019. The increase in net income was primarily attributable to a ~~result of the $52.9 million decrease in income tax expense and the $16.7~~$20.4 million increase in operating profit, partially offset by a ~~$3.2~~$12.1 million increase in interest expense and a ~~$0.9 decrease~~$3.0 million increase in ~~other income.~~income tax expense.

The increase in operating profit was a result of the increase in gross profit discussed ~~above.~~above, partially offset by the increase in operating expenses. The increase in interest expense was primarily the result of ~~higher average borrowings and~~ an increase in ~~the average interest rate~~borrowings during ~~the first six months of~~ fiscal ~~2018~~2020 compared to ~~the first six months of~~ fiscal ~~2017. The $0.9 million decrease in other income related primarily to derivative activity.~~2019.

The ~~decrease~~increase in income tax expense was primarily a result of the ~~impact of the Act and the excess tax benefit associated with the vesting of stock-based compensation awards.~~increase in income before taxes. Our effective tax rate infor the three months ended December 28, 2019 was 24.2% compared to 23.4% for the three months ended December 29, 2018and 23.1% for the first six months of fiscal ~~2018 was-43.1%~~2020 compared to ~~39.2% in~~22.1% for the first six months of fiscal ~~2017.~~

2019. The increase in the tax rate was due to an increase in non-deductible expenses and state income taxes, partially offset by a decrease in excess tax benefits related to stock-based compensation as a percentage of income before taxes.

Segment Results

We have ~~three~~two reportable segments as described ~~above—Performance~~above – Foodservice ~~PFG Customized,~~ and Vistar. Management evaluates the performance of these segments based onvarious operating and financial metrics, including their respective sales growth and EBITDA. For PFG Customized, EBITDA includes certain allocated corporate expenses that are included in operating expenses. The allocated corporate expenses are determined based on a percentage of total sales. This percentage is reviewed on a periodic basis to ensure that the allocation reflects a reasonable rate of corporate expenses based on their use of corporate services.

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

In the first quarter of fiscal 2018, the Company reorganized its information technology department, and expenses associated with business application teams are now included in the segments results. The EBITDA for Performance Foodservice, Vistar and Corporate & All Other for the three and six months ended December 31, 2016 has been adjusted to reflect this change.

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

Net Sales

													Three Months Ended
	Three Months Ended												December 28, 2019			December 29, 2018			Change			%
	December 30, 2017			December 31, 2016			Change			%
Performance Foodservice	$	2,535.3		$	2,358.2		$	177.1			7.5
PFG Customized		888.2			933.5			(45.3	)		(4.9	)
Foodservice													$	3,847.4		$	3,671.9		$	175.5			4.8
Vistar		838.9			737.9			101.0			13.7			2,219.2			941.9			1,277.3			135.6
Corporate & All Other		110.6			77.9			32.7			42.0			78.6			69.3			9.3			13.4
Intersegment Eliminations		(61.9	)		(55.7	)		(6.2	)		(11.1	)		(76.6	)		(67.4	)		(9.2	)		(13.6	)

Total net sales	$	4,311.1		$	4,051.8		$	259.3			6.4		$	6,068.6		$	4,615.7		$	1,452.9			31.5


	Six Months Ended
	December 30, 2017			December 31, 2016			Change			%
Performance Foodservice	$	5,162.4		$	4,794.6		$	367.8			7.7
PFG Customized		1,784.3			1,800.8			(16.5	)		(0.9	)
Vistar		1,635.7			1,479.4			156.3			10.6
Corporate & All Other		218.7			136.8			81.9			59.9
Intersegment Eliminations		(125.1	)		(113.7	)		(11.4	)		(10.0	)

Total net sales	$	8,676.0		$	8,097.9		$	578.1			7.1

Six Months Ended

December 28, 2019

December 29, 2018

Change

%

Foodservice

$
7,778.3

$
7,317.9

$
460.4

6.3

Vistar

4,530.3

1,834.5

2,695.8

147.0

Corporate & All Other

158.6

139.1

19.5

14.0

Intersegment Eliminations

(155.6
)

(136.1
)

(19.5
)

(14.3
)
Total net sales

$
12,311.6

$
9,155.4

$
3,156.2

34.5

EBITDA

													Three Months Ended
	Three Months Ended												December 28, 2019			December 29, 2018			Change			%
	December 30, 2017			December 31, 2016			Change			%
Performance Foodservice	$	83.0		$	75.5		$	7.5			9.9
PFG Customized		5.9			6.7			(0.8	)		(11.9	)
Foodservice													$	113.6		$	104.3		$	9.3			8.9
Vistar		34.0			33.0			1.0			3.0			56.6			45.4			11.2			24.7
Corporate & All Other		(41.4	)		(33.0	)		(8.4	)		(25.5	)		(45.7	)		(40.3	)		(5.4	)		(13.4	)

Total EBITDA	$	81.5		$	82.2		$	(0.7	)		(0.9	)	$	124.5		$	109.4		$	15.1			13.8


	Six Months Ended
	December 30, 2017			December 31, 2016			Change			%
Performance Foodservice	$	161.8		$	148.1		$	13.7			9.3
PFG Customized		11.1			10.6			0.5			4.7
Vistar		59.8			54.8			5.0			9.1
Corporate & All Other		(69.0	)		(69.4	)		0.4			0.6

Total EBITDA	$	163.7		$	144.1		$	19.6			13.6

	Six Months Ended
	December 28, 2019			December 29, 2018			Change			%
Foodservice	$	217.6		$	196.3		$	21.3			10.9
Vistar		108.1			77.0			31.1			40.4
Corporate & All Other		(95.0	)		(77.6	)		(17.4	)		(22.4	)
Total EBITDA	$	230.7		$	195.7		$	35.0			17.9

Segment Results—~~Performance~~ Foodservice

Three and six months ended December ~~30, 2017~~28, 2019 compared to the three and six months ended December ~~31, 2016~~29, 2018

Net Sales

Net sales for ~~Performance~~ Foodservice increased ~~$177.1~~$175.5 million, or ~~7.5%~~4.8%, from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018~~2020 and increased ~~$367.8~~$460.4 million, or ~~7.7%~~6.3%, from the first six months of fiscal ~~2017~~2019 to the first six months of fiscal ~~2018.~~2020. These increases in net sales were attributable to growth in cases ~~sold. Case growth was driven by securing new independent customers and further penetrating existing customers.~~sold, as well as an increase in selling price per case as a result of inflation. Securing new and expanded business with independent customers resulted in independent ~~sales~~case growth of approximately ~~10.4%~~4.9% in the second quarter and 5.2% in the first six months of fiscal ~~2018~~2020 compared to the prior year periods. For the quarter, independent sales as a percentage of total segment sales were ~~44.5%~~33.7%.

EBITDA

EBITDA for ~~Performance~~ Foodservice increased ~~$7.5~~$9.3 million, or ~~9.9%~~8.9%, from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018~~2020 and increased ~~$13.7~~$21.3 million, or ~~9.3%~~10.9%, from the first six months of fiscal ~~2017~~2019 to the first six months of fiscal ~~2018.~~2020. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased ~~by 7.6%~~5.6% in the second quarter of fiscal ~~2018~~2020 and ~~7.0%~~6.4% in the first six months of fiscal ~~2018,~~2020, compared tothe prior year periods, as a result of an increase in ~~cases sold,~~the gross profit per case, as well as an increase in ~~the gross profit per case.~~cases sold. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold, ~~toward~~including more Performance Brands products sold to our independent customers, ~~and Performance Brands,~~ as well as by an increase in procurement gains. Independent business has higher gross margins than Chain customers within this segment.

Operating expenses excluding depreciation and amortization for ~~Performance~~ Foodservice increased by ~~$19.4~~$16.7 million, or ~~7.0%~~4.6%, from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018~~2020 and increased by ~~$36.4~~$38.4 million, or ~~6.5%~~5.2%, from the first six months of fiscal ~~2017~~2019 to the first six months of fiscal ~~2018.~~2020. Operating expenses increased as a result of an increase in case volume and the resulting impact on variable operational and selling expenses, as well as ~~cost of living and other increases~~an increase in compensation and benefits. Operating expenses also increased as a result of increases in fuel expense of $2.1 million and $3.4 million for the second quarter and first six months of fiscal 2018, respectively. Additionally, insurance expense increased $0.9 million and $2.5 million in the second quarter of fiscal 2018 and the first six months of fiscal 2018, respectively, as compared to the prior year periods.personnel expenses.

Depreciation and amortization of intangible assets recorded in this segment increased from ~~$14.0~~$21.7 million in the second quarter of fiscal ~~2017~~2019 to ~~$14.6~~$25.8 million in the second quarter of fiscal ~~2018~~2020 and increased from ~~$27.1~~$42.6 million in the first six months of fiscal ~~2017~~2019 to ~~$28.4~~$50.4 million in the first six months of fiscal ~~2018. These increases were~~2020. This increase was the result of ~~recent warehouse expansion~~capital outlays for transportation equipment and ~~computer software projects being placed into service, partially offset by a decrease in amortization of intangible assets since certain intangibles are now fully amortized.~~information technology.

Segment Results—~~PFG Customized~~Vistar

Three and six months ended December ~~30, 2017~~28, 2019 compared to the three and six months ended December ~~31, 2016~~29, 2018

Net Sales

Net sales for ~~PFG Customized decreased $45.3~~Vistar increased $1,277.3 million, or ~~4.9%~~135.6%, from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018~~2020 and ~~decreased $16.5~~increased $2,695.8 million, or ~~0.9%~~147.0%, from the first six months of fiscal ~~2017~~2019 to the first six months of fiscal ~~2018. Excluding~~2020. This increase was driven by recent acquisitions, as well as by sales growth in the ~~impact~~segment’s corrections, vending, and office coffee service channels. The acquisition of ~~the Georgia facility that was closed~~Eby-Brown in the fourth quarter of ~~fiscal 2017,~~2019 contributed $1,260.8 million and $2,634.8 million of net sales ~~would have increased $14.0 million~~ in the second quarter ~~of fiscal 2018~~ and ~~would have increased $102.6 million in the~~ first six months of fiscal ~~2018 compared~~2020, respectively, including $267.3 million and $559.0 million related to excise taxes for the ~~prior year~~respective periods. ~~These increases were the result of a favorable shift in customer mix.~~

EBITDA

EBITDA for ~~PFG Customized decreased $0.8~~Vistar increased $11.2 million, or ~~11.9%~~24.7%, from the second quarter of fiscal ~~2017~~2019 to the second quarter of fiscal ~~2018. This decrease was primarily attributable to an increase in operating expenses, excluding depreciation~~2020 and ~~amortization, partially offset by an increase in gross profit. Gross profit for PFG Customized~~ increased ~~primarily as a result of a favorable shift in customer mix. EBITDA for this segment increased $0.5~~$31.1 million, or ~~4.7%~~40.4%, from the first six months of fiscal ~~2017~~2019 to the first six months of fiscal ~~2018 as a result of a favorable shift in customer mix and an increase in case volume.~~

Operating expenses, excluding depreciation and amortization, decreased by $0.2 million, or 0.3%, in the second quarter of fiscal 2018 and decreased $1.2 million, or 1.2%, in the first six months of fiscal 2018, compared to the prior year periods. These decreases in operating expenses were primarily a result of the closed Georgia facility, partially offset by increases in personnel expenses and fuel expense.

Depreciation and amortization of intangible assets recorded in this segment increased from $3.6 million in the second quarter of fiscal 2017 to $3.7 million in the second quarter of fiscal 2018 and decreased from $8.8 million in the first six months of fiscal 2017 to $7.3 million in the first six months of fiscal 2018. The $1.5 million decrease in the first six months of fiscal 2018 is primarily a result of the absence of accelerated amortization of customer relationship intangible assets that was recorded in fiscal 2017.

~~Segment Results—Vistar~~

~~Three and six months ended December 30, 2017 compared to three and six months ended December 31, 2016~~

~~Net Sales~~

Net sales for Vistar increased $101.0 million, or 13.7%, from the second quarter of fiscal 2017 to the second quarter of fiscal 2018 and increased $156.3 million, or 10.6%, from the first six months of fiscal 2017 to the first six months of fiscal 2018. These increases were driven by case sales growth in the segment’s theater, hospitality, retail, and vending channels.

~~EBITDA~~

EBITDA for Vistar increased $1.0 million, or 3.0%, from the second quarter of fiscal 2017 to the second quarter of fiscal 2018 and increased $5.0 million, or 9.1%, from the first six months of fiscal 2017 to the first six months of fiscal 2018.2020. Gross profit dollar growth of ~~$19.4~~$70.1 million, or ~~19.3%~~49.0%, for the second quarter of fiscal ~~2018~~2020 and ~~$32.6~~$153.4 million, or ~~16.8%~~57.4%, for the first six months of fiscal ~~2018~~2020 compared to the respective prior year periods, was driven by recent acquisitions. On occasion, the Company may now earn a higher gross profit on cigarette inventory and excise tax stamp quantities when manufacturers increase their prices or when jurisdictions increase their excise tax rates. During the first six months of fiscal 2020 the Company recognized $5.6 million of gross profit related to increases in excise tax rates. Additionally, there was an increase in ~~the number of cases sold,~~procurement gains, as well as a favorable ~~change~~shift in channel mix that impacted this segment. Gross profit as a percentage of net sales ~~mix.~~declined from 15.2% for the second quarter of fiscal 2019 to 9.6% for the second quarter of fiscal 2020 and from 14.6% for the first six months of fiscal 2019 to 9.3% the first six months of fiscal 2020 as a result of Eby-Brown’s lower margins.

Operating ~~expenses,~~expense dollar growth, excluding depreciation and amortization, increased ~~$19.1million,~~$58.9 million, or ~~28.6%~~60.2%, for the second quarter of fiscal ~~2018~~2020 and ~~$28.3~~$122.3 million, or ~~20.5%~~64.2%, for the first six months of fiscal ~~2018~~2020 compared to the prior year periods. Operating expenses increased primarily as a result of ~~an increase in case volume and~~ the ~~resulting impact on variable operational and selling expenses, as well as cost~~acquisition of ~~living and other increases in compensation and benefits. Operating expenses also increased a result of recent acquisitions and due to an increase in fuel expense.~~Eby-Brown.

Depreciation and amortization of intangible assets recorded in this segment increased from ~~$6.6~~$9.3 million in the second quarter of fiscal ~~2017~~2019 to ~~$6.9~~$11.5 million in the second quarter of fiscal 2020 and increased from $18.2 million in the first six months of fiscal 2019 to $23.1 million in the first six months of fiscal 2020. Depreciation of fixed assets and amortization of intangible assets increased as a result of recent acquisitions.

Segment Results—Corporate & All Other

Three and six months ended December 28, 2019 compared to the three and six months ended December 29, 2018

Net Sales

Net sales for Corporate & All Other increased $9.3 million from the second quarter of fiscal 2019 to the second quarter of fiscal 2020 and increased $19.5 million from the first six months of fiscal 2019 to the first six months of fiscal 2020. The increase was primarily attributable to an increase in logistics services provided to our other segments.

EBITDA

EBITDA for Corporate & All Other was a negative $45.7 million for the second quarter of fiscal 2020 compared to a negative $40.3 million for the second quarter of fiscal 2019 and was a negative $95.0 million for the first six months of fiscal 2020 compared to a negative $77.6 million for the first six months of fiscal 2019. These declines in EBITDA were primarily driven by an increase in professional and legal fees of $5.8 million and $12.1 million in the second quarter of fiscal 2020 and the first six months of fiscal 2020, respectively, compared to prior year periods.

Depreciation and amortization of intangible assets recorded in this segment increased from $6.1 million in the second quarter of fiscal 2019 to $6.5 million in the second quarter of fiscal 2020 and increased from $11.8 million in the first six months of fiscal ~~2017~~2019 to ~~$13.2~~$13.0 million in the first six months of fiscal ~~2018. Amortization of intangible assets increased~~2020 as a result of ~~prior year acquisitions. Depreciation of fixed assets increased as a result of an increase in transportation equipment obtained under~~recent capital ~~leases.~~

~~Segment Results—Corporate & All Other~~

~~Three and six months ended December 30, 2017 compared to three and six months ended December 31, 2016~~

~~Net Sales~~

~~Net sales~~outlays for Corporate & All Other increased $32.7 million from the second quarter of fiscal 2017 to the second quarter of fiscal 2018 and increased $81.9 million from the first six months of fiscal 2017 to the first six months of fiscal 2018. The increase was primarily attributable to recent acquisitions and an increase in logistics services provided to our other segments.

~~EBITDA~~

EBITDA for Corporate & All Other was a negative $41.4 million for the second quarter of fiscal 2018 compared to a negative $33.0 million for the second quarter of fiscal 2017. The decrease in EBITDA in the second quarter of fiscal 2018 was driven by a $7.2 million increase in stock-based compensation as a result of the accelerated vesting of performance-based awards under the 2007 Option Plan. EBITDA in the second quarter of fiscal 2018 also included~~non-recurring~~ ~~development costs related to certain productivity initiatives the Company no longer plans to pursue.~~

EBITDA for Corporate & All Other was a negative $69.0 million for the first six months of fiscal 2018 compared to a negative $69.4 million for the first six months of fiscal 2017. The increase in EBITDA was primarily driven by contributions from recent acquisitions and decreases in professional, legal and consulting fees of $2.5 million and insurance expense of $2.3 million, partially offset by an increase in stock-based compensation expense of $6.4 million.

Depreciation and amortization of intangible assets recorded in this segment increased from $6.2 million in the second quarter of fiscal 2017 to $7.1 million in the second quarter of fiscal 2018 and increased from $12.2 million in the first six months of fiscal 2017 to $14.8 million in the first six months of fiscal 2018. The increase was primarily a result of recent acquisitions.information technology.

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 capital leases, and normal trade credit terms. We have typically funded our acquisitions with additional borrowings under our credit facility. Our working capital and borrowing levels are subject to seasonal fluctuations, typically with the lowest borrowing levels in the third and fourth fiscal quarters and the highest borrowing levels occurring in the first and second fiscal quarters. 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 ~~twelve~~12 months and to maintain sufficient liquidity for normal operating purposes.

At December 30, 2017, our cash balance totaled $23.0 million, including restricted cash of $12.9 million, as compared to a cash balance totaling $21.0 million, including restricted cash of $12.9 million, at July 1, 2017. This increase in cash during the first six months of fiscal 2018 was attributable to net cash provided by financing activities of $70.8 million and net cash provided by operating activities of $32.6 million, partially offset by net cash used in investing activities of $101.4 million. We borrow under our ~~ABL Facility~~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 ~~and our stockholders~~ may from time to time ~~depending upon market conditions,~~ 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 ~~ABL Facility.~~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.

At December 28, 2019, our cash balance totaled $1,101.9 million, including restricted cash of $1,089.2 million, as compared to a cash balance totaling $25.4 million, including restricted cash of $10.7 million, at June 29, 2019. This increase in cash during the first six months of fiscal 2020 was attributable to net cash provided by operating activities of $157.8 million and net cash provided by financing activities of $967.2 million, partially offset by net cash used in investing activities of $48.5 million.

On September 27, 2019, the Escrow Issuer (which merged with and into Performance Food Group, Inc. upon the completion of the Reinhart acquisition) issued and sold $1,060.0 million aggregate principal amount of its Notes due 2027. As of December 28, 2019, the gross proceeds from the issuance of the Notes due 2027 were held in escrow and are classified as restricted cash on the Company’s consolidated balance sheet.

On December 30, 2019, PFGC and Performance Food Group, Inc. entered into the Amended Credit Agreement and borrowed $466.5 million to help finance the Reinhart acquisition. See “Financing Activities” below for a full description of the amended terms related to the Amended Credit Agreement.

On December 30, 2019, the Company physically settled the equity forward at the forward sale price of $42.70 per share, net of the underwriting discount. The Company used the $491.0 million net proceeds from the offering of shares of the Company’s common stock to finance part of the cash consideration payable in connection with the acquisition of Reinhart.

Following the completion of the Reinhart acquisition on December 30, 2019, the funds related to the Notes due 2027 were released from escrow and were used, together with the net proceeds from the offering of shares of the Company’s common stock and borrowings under the Amended Credit Agreement, to fund the cash consideration for the Reinhart acquisition and to pay related fees and expenses.

Operating Activities

Six months ended December ~~30, 2017~~28, 2019 compared to ~~Six~~the six months ended December ~~31, 2016~~29, 2018

During the first six months of fiscal ~~2018,~~2020 and fiscal 2019, our operating activities provided cash flow of ~~$32.6~~$157.8 million ~~while during the first six months of fiscal 2017 our operating activities used cash flow of $25.5 million.~~and $70.0 million, respectively. The increase in cash flows provided by operating activities in the first six months of fiscal ~~2018~~2020 compared to the first six months of fiscal ~~2017~~2019 was largely driven by higher operating income and ~~improved~~improvements in working ~~capital management.~~capital.

Investing Activities

Cash used in investing activities totaled ~~$101.4~~$48.5 million in the first six months of fiscal ~~2018~~2020 compared to ~~$161.8~~$116.4 million in the first six months of fiscal ~~2017.~~2019. These investments consisted primarily of payments for business acquisitions of ~~$63.2~~$57.0 million for the first six months of fiscal ~~2018 and $82.1 million~~2019 with no corresponding amount for the first six months of fiscal ~~2017~~2020, and capital purchases of property, plant, and equipment of ~~$38.5~~$49.0 million and ~~$79.9~~$60.1 million for the first six months of fiscal ~~2018~~2020 and the first six months of fiscal ~~2017,~~2019, respectively. For the first six months of fiscal ~~2018,~~2020, purchases of property, plant, and equipment primarily consisted of outlays for information technology, ~~and~~warehouse equipment, ~~as well as the outlays for~~ warehouse expansions and ~~improvements.~~improvements, and transportation equipment. The following table presents the capital purchases of property, plant, and equipment by segment:

					Six Months Ended
(Dollars in millions)	Six Months Ended				December 28, 2019		December 29, 2018
(Dollars in millions)	December 30, 2017		December 31, 2016
Performance Foodservice	$	20.5	$	53.8
PFG Customized		6.3		4.9
Foodservice					$	16.3	$	42.7
Vistar		5.6		2.2		21.5		6.7
Corporate & All Other		6.1		19.0		11.2		10.7

Total capital purchases of property, plant and equipment	$	38.5	$	79.9	$	49.0	$	60.1

As of December ~~30, 2017,~~28, 2019, the Company had commitments of ~~$7.0~~$20.6 million for capital projects related to warehouse expansion and ~~improvements.~~improvements and warehouse equipment. The Company anticipates using cash flows from operations or borrowings from the ~~ABL Facility~~Amended Credit Agreement to fulfill these commitments.

Financing Activities

During the first six months of fiscal ~~2018,~~2020, our financing activities provided cash flow of ~~$70.8~~$967.2 million, which consisted primarily of ~~$116.4~~$1,060.0 million in cash received from the issuance and sale of the Notes due 2027, partially offset by $72.6 million in net ~~borrowings~~payments under our ABL ~~facility, which was partially offset by cash paid for shares withheld to cover taxes of $27.8 million and other financing activities.~~Facility.

During the first six months of fiscal ~~2017,~~2019, our financing activities provided cash flow of ~~$188.1~~$46.7 million, which consisted primarily of ~~$192.8~~$65.4 million in net borrowings under our ABL ~~facility, which was partially offset by cash paid for shares withheld to cover taxes of $1.1 million and other financing activities.~~Facility.

The following describes our financing arrangements as of December ~~30, 2017:~~28, 2019:

ABL Facility: As of December 28, 2019, PFGC, ~~Inc. (“PFGC”),~~ a wholly-owned subsidiary of the Company, is a party to the ABL ~~Facility. On August 3, 2017, PFGC and Performance Food Group, Inc., each a wholly-owned subsidiary of the Company, entered into the First Amendment to the ABL~~ Facility, ~~(the “Amendment”). The Amendment amended the ABL Facility by, among other things, (i) increasing the~~which has an aggregate principal amount ~~under the ABL Facility from $1.6~~of $2.4 billion ~~to $1.95 billion by increasing Tranche A Commitments by $325,000,000~~ and ~~the TrancheA-1~~ Commitments by $25,000,000 and (ii) maintaining the level of additional commitments permitted, excluding the additional commitments effected pursuant to the Amendment, at $800,000,000 under uncommitted incremental facilities.

~~The ABL Facility is secured by the majority of the tangible assets of PFGC and its subsidiaries.~~matures on May 17, 2024. Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, 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 captive insurance subsidiaries 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.

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


(Dollars in millions)	As of December 30, 2017			As of July 1, 2017			As of December 28, 2019			As of June 29, 2019
Aggregate borrowings	$	1,016.3		$	899.9		$	786.4		$	859.0
Letters of credit		123.6			105.5
Excess availability, net of lenders’ reserves of $12.2 and $11.2		577.8			594.6
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		2.98	%		2.59	%		3.22	%		4.01	%

The ABL Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) ~~$160.0~~$180.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days. The ABL Facility also contains customary restrictive covenants that include, but are not limited to, restrictions on PFGC’s ability to incur additional indebtedness, pay dividends, create liens, make investments or specified payments, 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 such agreement may be accelerated and the rights and remedies of the lenders under ~~such agreement available under~~ the ABL Facility may be exercised, including rights with respect to the collateral securing the obligations under such agreement.

Amended Credit Agreement: On December 30, 2019, PFGC and Performance Food Group, Inc. entered into the Amended Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent and Collateral Agent, and the other lenders party thereto, which amends and restates the ABL Facility. The Amended Credit Agreement, among other things, (i) increases the aggregate principal amount available to $3.0 billion and (ii) extends the stated maturity date to December 30, 2024. Like the ABL Facility, the

Amended Credit Agreement provides for up to $800 million of uncommitted incremental facilities. Additionally, certain covenants were amended to require the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $200.0 million and (ii) 10% of the lesser of the borrowing base and the revolving credit facility amount for five consecutive business days.

Senior ~~Notes:~~Notes due 2024: On May 17, 2016, Performance Food Group, Inc. issued and sold $350.0 million aggregate principal amount of its ~~5.500% Senior~~ Notes due 2024, ~~(the “Notes”),~~ pursuant to an indenture dated as of May 17, 2016. The Notes due 2024 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 2024 are not guaranteed by Performance Food Group Company.

The proceeds from the Notes due 2024 were used to pay in full the remaining outstanding aggregate principal amount of the loans under ~~a Credit Agreement providing for a~~the Company’s term loan facility and to terminate the facility; to temporarily repay a portion of the outstanding borrowings under the ABL Facility; and to pay the fees, expenses, and other transaction costs incurred in connection with the ~~Notes.~~Notes due 2024.

The Notes due 2024 were issued at 100.0% of their par value. The Notes due 2024 mature on June 1, 2024 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 2024 will have the right to require Performance Food Group, Inc. to make an offer to repurchase each holder’s Notes due 2024 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. currently may redeem all or a part of the Notes at any time prior to June 1, 2019 at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning on June 1, 2019, Performance Food Group, Inc. may redeem all or a part of the Notesdue 2024 at a redemption price equal to 102.750% of the principal amount ~~redeemed.~~redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.325% and 100.000% of the principal amount redeemed on June 1, 2020 and June 1, 2021, respectively. In addition, at any time prior to June 1, 2019, Performance Food Group, Inc. may redeem up to 40% of the Notes from the proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes due 2024 contains covenants limiting, among other things, PFGC 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 2024 also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes due 2024 to become or be declared due and payable.

~~The ABL Facility~~Senior Notes due 2027:On September 27, 2019, Escrow Issuer (to be merged with and into Performance Food Group, Inc.) issued and sold $1,060.0 million aggregate principal amount of Notes due 2027. On December 30, 2019, the proceeds from the Notes due 2027 were used to finance part of the Reinhart acquisition and other transaction costs incurred with the Notes due 2027.

Following the completion of the Reinhart acquisition, Performance Food Group, Inc. assumed the obligation of the Escrow Issuer and 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 Performance Food Group Company.

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. Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at any time prior to October 15, 2022 at a redemption price equal to 100% of the principal amount of the Notes due 2027 being redeemed plus a make-whole premium and accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, beginning on October 15, 2022, Performance Food Group, Inc. may redeem all or a part of the Notes due 2027 at a redemption price equal to 102.750% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 101.375% and 100% of the principal amount redeemed on October 15, 2023 and October 15, 2024, respectively. In addition, at any time prior to October 15, 2022, Performance Food Group Inc. may redeem up to 40% of the Notes due 2027 from the proceeds of certain equity offerings at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes ~~contain customary restrictive~~due 2027 contains covenants ~~under which all of the net assets of~~limiting, among other things, PFGC 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 ~~were~~to make dividends or other payments to PFGC; designate restricted ~~from distribution~~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.

Letters of Credit Facility: On August 9, 2018, Performance Food Group, ~~Company, except~~Inc. and PFGC entered into the Letters of Credit Facility. The Letters of Credit Facility is an uncommitted facility that provides for ~~approximately $302.0 million~~the issuance of ~~restricted payment capacity~~letters of credit in an aggregate amount not to exceed $40.0 million. Each letter of credit shall have a term not to exceed one year; however, a letter of credit may renew automatically in accordance with its terms. A fee equal to 2.5% per annum on the average daily amount available to be drawn on each day under ~~such debt agreements, as~~each outstanding letter of credit is payable quarterly. As of December 30, 2017. 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 which28, 2019, the Company ~~is subject may be materially higher than~~has $28.3 million letters of credit outstanding under the ~~foregoing estimate.~~Letters of Credit Facility.

As of December ~~30, 2017,~~28, 2019, we were in compliance with all of the covenants under the ABL Facility and ~~Notes.~~

~~Unsecured Subordinated Promissory Note.~~ In connection with an acquisition, Performance Food Group, Inc. issued a $6.0 million interest only, unsecured subordinated promissory note on December 21, 2012, bearing an interest rate of 3.5%. The $6.0 million promissory note was paid off in December 2017.the indentures governing the Notes due 2024 and Notes due 2027.

Contractual Obligations

Refer to the “Contractual Cash Obligations” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~Company’s Annual Report on~~ Form10-K ~~for the fiscal year ended July 1, 2017~~ for details on our contractual obligations and commitments to make specified contractual future cash payments as of ~~July 1, 2017. Other than in connection with the Amendment described above, there have been no material changes to our specified contractual obligations through December 30, 2017.~~June 29, 2019.

Off-Balance Sheet Arrangements

We do not have anyoff-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.

Total Assets by Segment

Total assets by segment discussed below exclude intercompany receivables between segments.

Total assets for ~~Performance~~ Foodservice increased ~~$150.5~~$242.4 million from ~~$2,011.8~~$3,056.7 million as of December ~~31, 2016~~29, 2018 to ~~$2,162.3~~$3,299.1 million as of December 28, 2019. During this time period, this segment increased its property, plant and equipment, inventory and accounts receivable, which was partially offset by a decrease in intangible assets. Total assets for Foodservice increased $146.8 million from $3,152.3 million as of June 29, 2019 to $3,299.1 million as of December 28, 2019. For both periods, Foodservice’s assets also increased as a result of the Company’s June 30, ~~2017.~~2019 adoption of ASC 842 and the recognition of operating lease right-of-use assets of $153.4 million.

Total assets for Vistar increased $620.4 million from $881.6 million as of December 29, 2018 to $1,502.0 million as of December 28, 2019. During this time period, this segment increased its accounts receivable, inventory, property, plant and equipment, ~~intangible assets~~ and goodwill, ~~of which $96.8 million was a result of~~primarily due to acquisitions. Total assets for Performance Foodservice increased $1.1 million from $2,161.2 million as of July 1, 2017 to $2,162.3 million as of December 30, 2017. During this time period, this segment increased its inventory and property, plant, and equipment, which was partially offset by a decrease in accounts receivable and intangible assets.

Total assets for PFG Customized decreased $19.7 million from $665.6 million at December 31, 2016 to $645.9 million at December 30, 2017. Total assets for PFG Customized decreased $21.2 million from $667.1 million as of July 1, 2017 to $645.9 million as of September 30, 2017. During these time periods, this segment decreased its accounts receivable, inventory and intangible assets.

Total assets for Vistar increased ~~$82.6~~$231.0 million from ~~$671.4~~$1,271.0 million as of June 29, 2019 to $1,502.0 million as of December ~~31, 2016 to $754.0 million~~28, 2019. For both periods, Vistar’s assets also increased as a result of ~~December~~the Company’s June 30, ~~2017. Total~~2019 adoption of ASC 842 and the recognition of operating lease right-of-use assets ~~for Vistar increased $99.5 million from $654.5 million as~~ of July 1, 2017 to $754.0 million as of December 30, 2017. During these time periods, this segment increased its accounts receivable, inventory, goodwill and intangible assets, primarily due to acquisitions.$227.3 million.

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, and goodwill and other intangible assets, ~~and stock-based compensation,~~ which are described in the ~~Company’s~~ Form~~10-K~~ ~~for the fiscal year ended July 1, 2017.~~ 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 Form10-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 ~~July 1, 2017.~~June 29, 2019. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in ~~our Annual Report on~~the Form~~10-K~~ ~~for the fiscal year ended July 1, 2017.~~ 10-K.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Regulations under the ~~Securities~~ Exchange Act ~~of 1934, as amended (the “Exchange Act”),~~ require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule13a-15(e) and Rule15d-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 Rule13a-15(b) of the Exchange Act, as of the end of the period covered by this ~~Quarterly Report on~~ Form10-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 ~~Quarterly Report on~~ Form10-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 Rule13a-15(f) under the Exchange Act), that occurred during the fiscal quarter ended December ~~30, 2017~~28, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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. During the three months ended December ~~30, 2017,~~28, 2019, there have been no material changes to legal proceedings from those discussed in the ~~Company’s~~ Form~~10-K~~ ~~for the fiscal year ended July 1, 2017, except as it relates to the matter discussed below.~~

~~Wilder, et al. v. Roma Food Enterprises, Inc., et al.~~ ~~The court granted final approval of the settlement stipulation on November 6, 2017. We funded the $1.9 million settlement on January 10, 2018, thereby ending the litigation.~~ 10-K.

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 ~~Company’s~~ Form10-K, ~~for the fiscal year ended July 1, 2017 and Form10-Q~~ ~~for the fiscal quarter ended September 30, 2017,~~ which ~~are~~is accessible on the SEC’s website atwww.sec.gov.

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 second quarter of fiscal ~~2018.~~2020.

Period
   Total Number
of Shares
Purchased (1)    Average Price
Paid per
Share    Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs    Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
October 1, 2017 – October 28, 2017
   —      —      —      —
October 29, 2017 – November 25, 2017
   —      —      —      —
November 26, 2017 – December 30, 2017
   829,386    $ 30.85    —      —
Total
   829,386    $ 30.85    —      —

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		—

~~(1)~~

(1)

During the second quarter of fiscal ~~2018,~~2020, the Company ~~purchased 829,386 shares of the Company’s common stock in transactions unrelated to a publicly announced plan or program. These transactions consisted of acquisitions of~~repurchased 37,954 shares of the Company’s common stock via share withholding for option cost and payroll tax obligations due from employees in connection with the delivery of shares of the Company’s common stock under our incentive plans.

(2)

On November 13, 2018, the Board of Directors authorized a share repurchase program for up to $250 million of the Company’s outstanding common stock. The share repurchase program does not have an expiration date and may be amended, suspended, discontinued at any time. Repurchases under this program depend upon market place conditions and other factors, including compliance with the covenants under the Amended Credit Agreement and the indentures governing the Notes due 2024 and Notes due 2027. The share repurchase program remains subject to the discretion of the Board of Directors. During the three months ended December 28, 2019, the Company did not repurchase any shares pursuant to the share repurchase program. As of December 28, 2019, approximately $240.7 million remained available for additional share repurchases.

Item 3:

Defaults Upon Senior Securities

None

Item 4:

Mine Safety Disclosures

Not applicable

Item 5:

Other Information

None

Item 6:

Exhibits

Exhibit No.
~~Exhibit~~ ~~No.~~		Description

~~10.1~~
3.1		~~Letter Agreement, dated December 14, 2017, between~~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 ~~Thomas G. Ondrof.~~Exchange Commission on November 13, 2019).

~~10.2~~ 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 ~~Deferred~~Restricted Stock Unit Agreement~~(Non-Employee~~ (Non-Employee Director) under the 2015 Omnibus Incentive ~~Plan.~~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)

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.

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.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

☐ ~~(Do not check if a smaller reporting company)~~

Smaller Reporting Company

Emerging Growth Company