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Dynamic quotes 
OFFON

PERFORMANCE FOOD GROUP COMPANY

(CORE)
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PERFORMANCE FOOD GROUP CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/10/2021 | 05:17pm EST
The following discussion and analysis of our financial condition and results of
operations should be read together with the unaudited consolidated financial
statements and notes thereto included elsewhere in this quarterly report on Form
10-Q and the audited consolidated financial statements and the notes thereto
included in the Form 10-K. In addition to historical consolidated financial
information, this discussion contains forward-looking statements that reflect
our plans, estimates, and beliefs and involve numerous risks and uncertainties,
including but not limited to those described in the "Item 1A. Risk Factors"
section of the Form 10-K. Actual results may differ materially from those
contained in any forward-looking statements. You should carefully read "Special
Note Regarding Forward-Looking Statements" in this Form 10-Q.

                                  Our Company

We market and distribute over 250,000 food and food-related products to
customers across the United States and Canada from approximately 139
distribution facilities to over 275,000 customer locations in the
"food-away-from-home" industry. We offer our customers a broad assortment of
products including our proprietary-branded products, nationally branded
products, and products bearing our customers' brands. Our product assortment
ranges from "center-of-the-plate" items (such as beef, pork, poultry, and
seafood), frozen foods, and groceries to candy, snacks, beverages, cigarettes,
and 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.

The Company has two reportable segments: Foodservice and Vistar. Our Foodservice
segment distributes a broad line of national brands, customer brands, and our
proprietary-branded food and food-related products, or "Performance Brands."
Foodservice sells to independent and multi-unit "Chain" restaurants and other
institutions such as schools, healthcare facilities, business and industry
locations, and retail establishments. Our Chain customers are multi-unit
restaurants with five or more locations and include some of the most
recognizable family and casual dining restaurant chains. Our Vistar segment
specializes in distributing candy, snacks, beverages, cigarettes, other tobacco
products, and other items nationally to vending, office coffee service, theater,
retail, hospitality, convenience, 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.

On September 1, 2021Performance Food Group Company completed the acquisition of
Core-Mark. As a result, the Company expanded its convenience business within the
Vistar segment, which now includes operations in Canada. Refer to Note 5.
Business Combinations for additional details regarding the acquisition of
Core-Mark.

                       Key Factors Affecting Our Business

We believe that our short-term performance has been, and is expected to continue to be, adversely affected by the COVID-19 pandemic.




In response to the rapid spread of COVID-19 across the country, federal, state,
and local governments implemented measures to reduce the spread of COVID-19,
including travel bans and restrictions, quarantines, shelter in place orders,
shutdowns and social distancing requirements. These measures adversely affected
workforces, suppliers, customers, consumer sentiment, economies, and financial
markets, and, along with decreased consumer spending, led to an economic
downturn in many of our markets.

As an essential element of the country's food supply chain, the Company has
continued to operate all of it distribution centers. Despite the Company's
continued operations, mandatory and voluntary containment measures in response
to COVID-19 had a significant impact on the food-away-from-home industry. Many
restaurants have closed, are restricting the number of patrons they will serve
at one time, or are only providing carry-out or delivery options. These
restrictions also impacted businesses throughout the economy, including
theaters, retail operations, schools, and other businesses to whom we provide
products and services, which collectively have adversely affected our results of
operations.

During our first quarter of fiscal 2022, economic and operating conditions for
our business improved significantly. As governmental restrictions are eased,
consumers are returning to consuming food away from home, traveling, and
attending events at entertainment venues. However, the Company and industry may
continue to face challenges as the recovery continues, such as availability of
product supply, increased product and logistics costs, and access to labor
supply. The extent to which these challenges will affect our future financial
position, liquidity, and results of operations remains uncertain.

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Despite the near-term impact of the COVID-19 pandemic, we believe that our long-term performance is principally affected by the following key factors:

• Changing demographic and macroeconomic trends. Until recently, due to the

COVID-19 pandemic, the share of consumer spending captured by the

food-away-from-home industry has increased steadily for several decades.

The share increases in periods 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. 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 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),
inbound freight, and remittances of excise tax. Cost of goods sold generally
changes as we incur higher or lower costs from our suppliers and as our customer
and product mix changes.

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 accounting principles generally
accepted in the United States of America ("GAAP") and is not a measure of
operating income, operating performance, or liquidity presented in accordance
with 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 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 ABL Facility and
indentures (other than certain pro forma adjustments permitted under our ABL
Facility and indentures governing the Notes due 2025, Notes due 2027, and Notes
due 2029 relating to the Adjusted EBITDA contribution of acquired entities or
businesses prior to the acquisition date). Under our ABL Facility and
indentures, our ability to engage in certain activities such as incurring
certain additional indebtedness, making certain investments, and making

                                       23

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restricted payments is tied to ratios based on Adjusted EBITDA (as defined in
the ABL Facility and indentures). Our definition of Adjusted EBITDA may not be
the same as similarly titled measures used by other companies.

Adjusted EBITDA is not defined under GAAP 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 and
holders of our Notes due 2025, Notes due 2027, and Notes due 2029 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 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 certain non-cash, non-recurring, and other items as permitted or required by our ABL Facility and indentures. Adjusted EBITDA among other things:

• does not include non-cash stock-based employee compensation expense and

other non-cash charges; and

• 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
                                                              September 26,
                                         October 2, 2021           2020           Change          %
Net sales                               $        10,386.3$      7,046.8$ 3,339.5        47.4
Cost of goods sold                                9,244.0            6,231.3       3,012.7        48.3
Gross profit                                      1,142.3              815.5         326.8        40.1
Operating expenses                                1,094.1              779.7         314.4        40.3
Operating profit                                     48.2               35.8          12.4        34.6
Other expense, net
Interest expense                                     44.0               38.8           5.2        13.4
Other, net                                           (1.3 )             (1.0 )        (0.3 )      30.0
Other expense, net                                   42.7               37.8           4.9        13.0
Income (loss) before income taxes                     5.5               (2.0 )         7.5       375.0
Income tax expense (benefit)                          0.8               (1.3 )         2.1       161.5
Net income (loss)                       $             4.7     $         (0.7 )   $     5.4       771.4
EBITDA                                  $           148.2     $        118.9$    29.3        24.6
Adjusted EBITDA                         $           183.7     $        135.2$    48.5        35.9
Weighted-average common shares
outstanding:
Basic                                               139.7              131.7           8.0         6.1
Diluted                                             141.2              131.7           9.5         7.2
Earnings (loss) per common share:
Basic                                   $            0.03     $        (0.01 )$    0.04       400.0
Diluted                                 $            0.03     $        (0.01 )$    0.04       400.0




                                       24
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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
                                                           October 2, 2021       September 26, 2020
                                                                        (In millions)
Net income (loss)                                         $             4.7      $              (0.7 )
Interest expense (1)                                                   44.0                     38.8
Income tax expense (benefit)                                            0.8                     (1.3 )
Depreciation                                                           57.0                     52.8
Amortization of intangible assets                                      41.7                     29.3
EBITDA                                                                148.2                    118.9
Non-cash items (2)                                                     (0.3 )                   11.0
Acquisition, integration and reorganization (3)                        32.8                      4.5
Productivity initiatives and other adjustment items (4)                 3.0                      0.8
Adjusted EBITDA                                           $           183.7      $             135.2



(1) Includes a $3.2 million loss on extinguishment of debt for the first quarter

of fiscal 2022 related to the early redemption of the Notes due 2024.

(2) Includes adjustments for non-cash charges arising from stock-based

compensation and gain/loss on disposal of assets. Stock-based compensation

    expense was $10.0 million for the first quarter of fiscal 2022 and $4.7
    million in the first quarter of fiscal 2021. In addition, this includes an
    increase in the last-in-first-out ("LIFO") reserve of $5.7 million for

Foodservice and a decrease of $17.0 million for Vistar for the first quarter

of fiscal 2022 compared to increases of $5.1 million for Foodservice and $3.6

for Vistar for the first quarter of fiscal 2021.

(3) Includes professional fees and other costs related to completed and abandoned

acquisitions, costs of integrating certain of our facilities, and facility

closing costs.

(4) Consists primarily of amounts related to fuel collar derivatives, certain

financing transactions, lease amendments, legal settlements, franchise tax

expense, insurance proceeds, and other adjustments permitted by our ABL

Facility.

Consolidated Results of Operations

Three months ended October 2, 2021 compared to the three months ended September 26, 2020


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 $3,339.5 million, or 47.4%, from
$7,046.8 million, including $305.3 million of excise taxes in the first three
months of fiscal 2021 to $10,386.3 million, including $586.0 million of excise
taxes for the first three months of fiscal 2022. Net sales for the first three
months of fiscal 2022 includes $2,081.5 million of sales of cigarettes as
compared to $1,056.4 million for the prior year period.

The increase in net sales was primarily attributable to the acquisition of
Core-Mark on September 1, 2021, which contributed $1,572.3 million of net sales
since the acquisition date. The increase in net sales was also driven by growth
in cases sold due to the declining effects of COVID-19 on the restaurant
industry, and an increase in selling price per case as a result of inflation.
Overall food cost inflation was approximately 11.1% for first three months of
fiscal 2022. Total case volume increased approximately 27% in the first three
months of fiscal 2022 compared to the first three months of fiscal 2021.
Excluding Core-Mark, organic case volume increased 17.8% in the first three
months of fiscal 2022 compared to the first three months of fiscal 2021.

Gross Profit


Gross profit increased $326.8 million, or 40.1%, for the first three months of
fiscal 2022 compared to the first three months of fiscal 2021. The increase in
gross profit was primarily driven by the acquisition of Core-Mark. The Core-Mark
acquisition contributed gross profit of $89.1 million since the acquisition
date, which included $8.8 million of amortization of the step up in fair value
of inventory acquired. Also, gross profit increased due to case growth in
Foodservice and an increase in the gross profit per case driven by growth in the
independent channel. Independent customers typically receive more services from
us, cost more to serve, and pay a higher gross profit per case than other
customers.

Operating Expenses


Operating expenses increased $314.4 million, or 40.3%, for the first three
months of fiscal 2022 compared to the first three months of fiscal 2021. The
increase in operating expenses was primarily driven by the acquisition of
Core-Mark. Core-Mark contributed $78.4 million of operating expenses, excluding
depreciation and amortization, since the acquisition date. Operating expenses
also increased as a result of an increase in case volume and the resulting
impact on variable operational and selling expenses, as well as an increase in

                                       25

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personnel expenses. In the first three months of fiscal 2022, there was a $52.3
million increase in temporary contract labor costs, including travel expenses
associated with the contract workers, compared to the prior year period as a
result of the current labor market's impact on the Company's ability to hire and
retain qualified labor. Additionally, operating expenses increased as a result
of an increase in professional fees of $20.7 million related to the Core-Mark
acquisition and fuel expense of $15.2 million due to higher fuel prices for the
first three months of fiscal 2022 compared to the prior year period.

Depreciation and amortization of intangible assets increased from $82.1 million
in the first three months of fiscal 2021 to $98.7 million in the first three
months of fiscal 2022. Depreciation of fixed assets and amortization of
intangible assets increased as a result of the Core-Mark acquisition, partially
offset by accelerated amortization of certain customer relationships and
abandoned information technology projects in the prior year.

Net Income


The Company reported net income of $4.7 million for the first three months of
fiscal 2022 compared to a net loss of $0.7 million for the first three months of
fiscal 2021. This increase in net income was attributable to the $12.4 million
increase in operating profit, partially offset by increases in interest expense
and income tax expense. The increase in interest expense was primarily the
result of an increase in average borrowings outstanding during the first quarter
of fiscal 2022 related to financing the acquisition of Core-Mark compared to the
prior year period.


The Company reported income tax expense of $0.8 million for the first three months of fiscal 2022 compared to an income tax benefit of $1.3 million the first three months of fiscal 2021. The Company's effective tax rate for the three months ended October 2, 2021 was 14.7% compared to 64.7% for the three months ended September 26, 2020. The effective tax rate for the first three months of fiscal 2022 decreased from the prior year period primarily due to state taxes, stock compensation, and discrete items as a percentage of book income, which was higher than the book income for the prior year period.



Segment Results



We have two reportable segments as described above - Foodservice and Vistar.
Management evaluates the performance of these segments based various operating
and financial metrics, including their respective sales growth and EBITDA.

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.

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

Net Sales



                                                          Three Months Ended
                                October 2, 2021       September 26, 2020        Change            %
Foodservice                    $         6,362.0     $            5,036.4     $   1,325.6           26.3
Vistar                                   4,021.5                  2,006.3         2,015.2          100.4
Corporate & All Other                      116.8                    100.9            15.9           15.8
Intersegment Eliminations                 (114.0 )                  (96.8 )         (17.2 )        (17.8 )
Total net sales                $        10,386.3     $            7,046.8     $   3,339.5           47.4




EBITDA



                                               Three Months Ended
                         October 2, 2021      September 26, 2020      Change         %
Foodservice             $           159.9     $             156.2     $   3.7         2.4
Vistar                               68.4                    11.7        56.7       484.6
Corporate & All Other               (80.1 )                 (49.0 )     (31.1 )     (63.5 )
Total EBITDA            $           148.2     $             118.9     $  29.3        24.6




Segment Results-Foodservice

Three months ended October 2, 2021 compared to the three months ended September 26, 2020


Net Sales

                                       26

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Net sales for Foodservice increased $1,325.6 million, or 26.3%, from the first
three months of fiscal 2021 to the first three months of fiscal 2022. This
increase in net sales was driven by growth in cases sold due to the declining
effects of COVID-19 on the restaurant industry, and an increase in selling price
per case as a result of inflation. Overall food cost inflation was approximately
14.3% for first three months of fiscal 2022, which was driven primarily by price
increases for disposable items and center-of-the plate items such as meat,
poultry, and seafood. Securing new and expanding business with independent
customers resulted in independent case growth of approximately 21.2% in the
first three months of fiscal 2022 compared to the prior year period. For the
quarter, independent sales as a percentage of total Foodservice segment sales
were 39.2%.

EBITDA

EBITDA for Foodservice increased $3.7 million, or 2.4%, from the first three
months of fiscal 2021 to the first three months of fiscal 2022. This increase
was the result of an increase in gross profit, partially offset by an increase
in operating expenses excluding depreciation and amortization. Gross profit
increased 22.7% in the first three months of fiscal 2022, compared to the prior
year period, driven by an increase in the gross profit per case, as well as an
increase in cases sold. The increase in gross profit per case was driven by a
favorable shift in the mix of cases sold to independent customers, including
more Performance Brands products sold to our independent customers. Cases sold
to independent businesses result in higher gross margins within this segment.

Operating expenses excluding depreciation and amortization for Foodservice
increased by $146.7 million, or 28.9%, from the first three months of fiscal
2021 to the first three months of fiscal 2022. 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 an increase in personnel
expenses. The increase in personnel expenses includes a $47.5 million increase
in temporary contract labor costs, including travel expenses associated with the
contract workers, compared to the prior year period as a result of the current
labor market's impact on the Company's ability to hire and retain qualified
labor. Operating expenses also increased due to a $10.0 million increase in fuel
expense due to higher fuel prices for the first three months of fiscal 2022 as
compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $61.8 million in the first three months of fiscal 2021 to $64.3 million in the first three months of fiscal 2022. This increase was the result of the accelerated amortization of certain customer relationships.

Segment Results-Vistar

Three months ended October 2, 2021 compared to the three months ended September 26, 2020


Net Sales

Net sales for Vistar increased $2,015.2 million, or 100.4%, from $2,006.3
million, which includes $305.3 million of excise taxes, for the first three
months of fiscal 2021 to $4,021.5 million, which includes $586.0 million excise
taxes, for the first three months of fiscal 2022. Net sales for the first three
months of fiscal 2022 includes $2,081.5 million of sales of cigarettes as
compared to $1,056.4 million for the prior year period. The increase in net
sales was driven primarily by the Core-Mark acquisition as well as the improving
economic conditions following the COVID-19 pandemic. The Core-Mark acquisition
contributed $1,572.3 million of net sales since the acquisition date, which
includes $283.1 million related to tobacco excise taxes. Case volume in the
channels significantly impacted by the COVID-19 pandemic is gradually improving.
The vending, theater, office coffee service, hospitality, and travel channels
all experienced case volume growth in the first three months of fiscal 2022
compared to the prior year period.

EBITDA


EBITDA for Vistar increased $56.7 million, or 484.6%, from the first three
months of fiscal 2021 to the first three months of fiscal 2022. This increase
was the result of an increase in gross profit, partially offset by an increase
in operating expenses excluding depreciation and amortization. Gross profit
increased $175.6 million, or 120.3%, for the first three months of fiscal 2022
compared to the first three months of fiscal 2021. Core-Mark contributed gross
profit of $89.1 million since the acquisition date, which included $8.8 million
of amortization of the step up in fair value of inventory acquired.
Additionally, there was an increase in procurement gains, as well as a favorable
shift in the channel mix that impacted this segment. Gross profit as a
percentage of net sales increased from 7.3% for the first quarter of fiscal 2021
to 8.0% for the first quarter of fiscal 2022 as a result of the favorable shift
in channel mix.

Operating expenses excluding depreciation and amortization for Vistar increased
$118.5 million, or 88.1%, for the first three months of fiscal 2022 compared to
the prior year period. Operating expenses increased primarily as a result of the
acquisition of Core-Mark, which contributed an additional $77.3 million of
operating expenses since the acquisition date. Operating expenses also increased
as a result of the increase in case volume described above and the resulting
impact on variable operational and selling expenses, along with increases in
personnel expense and fuel expense, due to higher fuel prices for the first
three months of fiscal 2022 as compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $11.7 million in the first three months of fiscal 2021 to $28.8 million in the first three months of fiscal 2022. Depreciation of fixed assets and amortization of intangible assets

                                       27

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increased as a result of the Core-Mark acquisition. Total depreciation and
amortization related to the acquisition of Core-Mark was $11.3 million since the
acquisition date. The remaining increase was the result of the accelerated
amortization of certain trade names and recent capital outlays for
transportation and warehouse equipment, warehouse expansion, and information
technology.

Segment Results-Corporate & All Other

Three months ended October 2, 2021 compared to the three months ended September 26, 2020


Net Sales

Net sales for Corporate & All Other increased $15.9 million from the first three
months of fiscal 2021 to the first three months of fiscal 2022. The increase was
primarily attributable to an increase in logistics services provided to our
other segments for increased case volume.

EBITDA


EBITDA for Corporate & All Other was a negative $80.1 million for the first
three months of fiscal 2022 compared to a negative $49.0 million for the first
three months of fiscal 2021. The decline in EBITDA was primarily driven by an
increase in professional fees of $21.3 million related to recent acquisitions,
an increase in stock-based compensation expense of $5.3 million, and the
additional corporate operating expenses, excluding depreciation and
amortization, of $1.1 million associated with the acquisition of Core-Mark.

Depreciation and amortization of intangible assets recorded in this segment decreased from $8.6 million in the first three months of fiscal 2021 to $5.6 million in the first three months of fiscal 2022 as a result of accelerated depreciation for abandoned information technology projects in the prior year.

                        Liquidity and Capital Resources

We have historically financed our operations and growth primarily with cash
flows from operations, borrowings under our credit facility, operating and
finance leases, and normal trade credit terms. We have typically funded our
acquisitions with additional borrowings under our credit facility. 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
borrow under our credit facility or pay it down regularly based on our cash
flows from operating and investing activities. Our practice is to minimize
interest expense while maintaining reasonable liquidity.

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

Our cash requirements over the next 12 months and beyond relate to our long-term
debt and associated interest payments, operating and finance leases, and
purchase obligations. For information regarding the Company's expected cash
requirements related to long-term debt and operating and finance leases, see
Note 6. Debt and Note 7. Leases, respectively, of the consolidated financial
statements. As of October 2, 2021, the Company had total purchase obligations of
$121.1 million, which includes agreements for purchases related to capital
projects and services in the normal course of business, for which all
significant terms have been confirmed, as well as a minimum amount due for
various Company meetings and conferences. Purchase obligations also include
amounts committed to various capital projects in process or scheduled to be
completed in the coming fiscal years. As of October 2, 2021, the Company had
commitments of $83.1 million for capital projects related to warehouse expansion
and improvements and warehouse equipment. The Company anticipates using cash
flows from operations or borrowings under the ABL Facility to fulfill these
commitments. Amounts due under these agreements were not included in the
Company's consolidated balance sheet as of October 2, 2021.

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

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

As of October 2, 2021, our cash balance totaled $42.2 million, including restricted cash of $7.1 million, as compared to a cash balance totaling $22.2 million, including restricted cash of $11.1 million, at July 3, 2021.

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Three months ended October 2, 2021 compared to the three months ended September 26, 2020


Operating Activities

During the first three months of fiscal 2022 and first three months of fiscal
2021, our operating activities provided cash flow of $31.8 million and used cash
flow of $132.0 million, respectively. The increase in cash flows provided by
operating activities in the first three months of fiscal 2022 compared to the
first three months of fiscal 2021 was largely driven by the prior year payment
of $117.3 million of contingent consideration related to the acquisition of
Eby-Brown Company LLC and improvements in working capital.

Investing Activities


Cash used in investing activities totaled $1,406.6 million in the first three
months of fiscal 2022 compared to $34.7 million in the first three months of
fiscal 2021. These investments consisted primarily of cash paid for the
acquisition of Core-Mark of $1,382.6 million for the first three months of
fiscal 2022 with no acquisitions in the prior year period, and capital purchases
of property, plant, and equipment of $24.4 million and $40.8 million for the
first three months of fiscal 2022 and the first three months of fiscal 2021,
respectively. For the first three months of fiscal 2022, purchases of property,
plant, and equipment primarily consisted of outlays for information technology,
warehouse equipment, warehouse expansions and improvements, and transportation
equipment. The following table presents the capital purchases of property,
plant, and equipment by segment:



                                                                         Quarter Ended
(Dollars in millions)                                       October 2, 2021       September 26, 2020
Foodservice                                                $            16.3     $                7.1
Vistar                                                                   5.9                     29.9
Corporate & All Other                                                    2.2                      3.8
Total capital purchases of property, plant and equipment   $            24.4     $               40.8


Financing Activities

During the first three months of fiscal 2022, our financing activities provided
cash flow of $1,394.8 million, which consisted primarily of $1.0 billion in cash
received from the issuance and sale of the Notes due 2029 and $786.9 million in
net borrowings under our Prior Credit Agreement and ABL Facility, partially
offset by $350.0 million in cash used for the repayment of the Notes due 2024.

During the first three months of fiscal 2021, our financing activities provided
cash flow of $163.2 million, which consisted primarily of $301.0 million in net
borrowings under our Prior Credit Agreement, partially offset by $135.6 million
in payments related to acquisitions.

The following describes our financing arrangements as of October 2, 2021:


Credit Facility: PFGC, Inc. ("PFGC"), a wholly-owned subsidiary of the Company,
was a party to the Fourth Amended and Restated Credit Agreement dated December
30, 2019 (as amended by the First Amendment to Fourth Amended and Restated
Credit Agreement dated as of April 29, 2020, and the Second Amendment to Fourth
Amended and Restated Credit Agreement dated as of May 15, 2020, the "Prior
Credit Agreement"). The Prior Credit Agreement had an aggregate principal amount
of $3.0 billion under the revolving loan facility and was scheduled to mature on
December 20, 2024.

On September 17, 2021, PFGC and Performance Food Group, Inc. entered into the
Fifth Amended and Restated Credit Agreement (the "ABL Facility") with Wells
Fargo Bank, National Association, as Administrative Agent and Collateral Agent,
and the other lenders party thereto, which amends the Prior Credit Agreement.
The ABL Facility, among other things, (i) increases the aggregate principal
amount available under the revolving loan facility from $3.0 billion under the
Prior Credit Agreement to $4.0 billion under the ABL Facility, (ii) extends the
stated maturity date from December 30, 2024 under the Prior Credit Agreement to
September 17, 2026 under the ABL Facility, and (iii) includes an alternative
reference rate, which provides mechanisms for the use of the Secured Overnight
Financing Rate as a replacement rate upon a LIBOR cessation event.

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.

                                       29
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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 rate of 0.25% per annum.

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



(Dollars in millions)                            As of October 2, 2021       As of July 3, 2021
Aggregate borrowings                            $               1,373.2     $              586.3
Letters of credit under ABL Facility                              200.8                    161.7
Excess availability, net of lenders' reserves                   2,426.0                  2,252.0
of $107.5 and $55.1
Average interest rate                                              1.59 %                   2.32 %




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) $320.0 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 and certain of its subsidiary'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 the ABL Facility may be exercised, including rights with
respect to the collateral securing the obligations under such agreement.

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

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

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


Upon the occurrence of a change of control triggering event or upon the sale of
certain assets in which Performance Food Group, Inc. does not apply the proceeds
as required, the holders of the Notes due 2027 will have the right to require
Performance Food Group, Inc. to repurchase each holder's Notes due 2027 at a
price equal to 101% (in the case of a change of control triggering event) or
100% (in the case of an asset sale) of their principal amount, plus accrued and
unpaid interest. 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 2025: On April 24, 2020, Performance Food Group, Inc. issued
and sold $275.0 million aggregate principal amount of the Notes due 2025,
pursuant to an indenture dated as of April 24, 2020. The Notes due 2025 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
2025 are not guaranteed by Performance Food Group Company.

                                       30

--------------------------------------------------------------------------------


The proceeds from the Notes due 2025 were used for working capital and general
corporate purposes and to pay the fees, expenses, and other transaction costs
incurred in connection with the Notes due 2025.

The Notes due 2025 were issued at 100.0% of their par value. The Notes due 2025
mature on May 1, 2025 and bear interest at a rate of 6.875% 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 2025 will have the right to require
Performance Food Group, Inc. to repurchase each holder's Notes due 2025 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 2025 at any time prior to May 1, 2022 at a redemption price equal to
100% of the principal amount of the Notes due 2025 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 May 1, 2022,
Performance Food Group, Inc. may redeem all or a part of the Notes due 2025 at a
redemption price equal to 103.438% of the principal amount redeemed, plus
accrued and unpaid interest. The redemption price decreases to 101.719% and 100%
of the principal amount redeemed on May 1, 2023 and May 1, 2024,
respectively. In addition, at any time prior to May 1, 2022, Performance Food
Group, Inc. may redeem up to 40% of the Notes due 2025 from the proceeds of
certain equity offerings at a redemption price equal to 106.875% of the
principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes due 2025 contains covenants limiting, among
other things, PFGC's and its restricted subsidiaries' ability to incur or
guarantee additional debt or issue disqualified stock or preferred stock; pay
dividends and make other distributions on, or redeem or repurchase, capital
stock; make certain investments; incur certain liens; enter into transactions
with affiliates; consolidate, merge, sell or otherwise dispose of all or
substantially all of its assets; create certain restrictions on the ability of
PFGC's restricted subsidiaries to make dividends or other payments to PFGC;
designate restricted subsidiaries as unrestricted subsidiaries; and transfer or
sell certain assets. These covenants are subject to a number of important
exceptions and qualifications. The Notes due 2025 also contain customary events
of default, the occurrence of which could result in the principal of and accrued
interest on the Notes due 2025 to become or be declared due and payable.

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

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

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

Upon the occurrence of a change of control triggering event or upon the sale of
certain assets in which Performance Food Group, Inc. does not apply the proceeds
as required, the holders of the Notes due 2029 will have the right to require
Performance Food Group, Inc. to repurchase each holder's Notes due 2029 at a
price equal to 101% (in the case of a change of control triggering event) or
100% (in the case of an asset sale) of their principal amount, plus accrued and
unpaid interest. Performance Food Group, Inc. may redeem all or a part of the
Notes due 2029 at any time prior to August 1, 2024 at a redemption price equal
to 100% of the principal amount of the Notes due 2029 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 August 1, 2024,
Performance Food Group, Inc. may redeem all or a part of the Notes due 2029 at a
redemption price equal to 102.125% of the principal amount redeemed, plus
accrued and unpaid interest. The redemption price decreases to 101.163% and 100%
of the principal amount redeemed on August 1, 2025 and August 1, 2026,
respectively. In addition, at any time prior to August 1, 2024, Performance Food
Group, Inc. may redeem up to 40% of the Notes due 2029 from the proceeds of
certain equity offerings at a redemption price equal to 104.250% of the
principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes due 2029 contains covenants limiting, among
other things, PFGC's and its restricted subsidiaries' ability to incur or
guarantee additional debt or issue disqualified stock or preferred stock; pay
dividends and make other distributions on, or redeem or repurchase, capital
stock; make certain investments; incur certain liens; enter into transactions
with affiliates; consolidate, merge, sell or otherwise dispose of all or
substantially all of its assets; create certain restrictions on the ability of
PFGC's restricted subsidiaries to make dividends or other payments to PFGC;
designate restricted subsidiaries as unrestricted subsidiaries; and transfer or
sell certain assets. These covenants are subject to a number of important
exceptions and qualifications. The Notes due 2029 also contain customary events
of default, the occurrence of which could result in the principal of and accrued
interest on the Notes due 2029 to become or be declared due and payable.

As of October 2, 2021, the Company was in compliance with all of the covenants under the ABL Facility and the indentures governing the Notes due 2025, the Notes due 2027, and the Notes due 2029.

                                       31

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                            Total Assets by Segment

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


Total assets for Foodservice increased $334.8 million from $5,489.1 million as
of September 26, 2020 to $5,823.9 million as of October 2, 2021. During this
time period, this segment increased its inventory, accounts receivable,
property, and plant and equipment, partially offset by decreases in intangible
assets and operating lease right-of-use assets. Total assets for Foodservice
increased $32.2 million from $5,791.7 million as of July 3, 2021 to
$5,823.9 million as of October 2, 2021. During this time period, the segment
increased its inventory, property, plant and equipment, and operating lease
right-of-use assets, partially offset by decreases in intangible assets and
accounts receivable.

Total assets for Vistar increased $4,031.1 million from $1,432.8 million as of
September 26, 2020 to $5,463.9 million as of October 2, 2021. Total assets for
Vistar increased $3,704.8 million from $1,759.1 million as of July 3, 2021 to
$5,463.9 million as of October 2, 2021. During both time periods, the segment
increased its inventory, goodwill, accounts receivables, intangibles, operating
lease right-of-use assets, prepaid and other current assets, and other assets
primarily due to the acquisition of Core-Mark.

                   Critical Accounting Policies and Estimates

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

© Edgar Online, source Glimpses

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