Performance Food Group Co: Form 10-Q for the period ended Dec 30, 2023

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, as such risk factors may be updated from time to time in our periodic filings with the SEC. 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 quarterly report on Form 10-Q.

Our Company

We market and distribute food and food-related products to customers across North America from our over 150 locations to over 300,000 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, and beverages. We also sell disposables, cleaning and kitchen supplies, and related products used by our customers, as well as cigarettes and other tobacco products. 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.

Based on the Company’s organizational structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company has three reportable segments: Foodservice, Vistar, and Convenience. 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, and other items nationally to vending, office coffee service, theater, retail, hospitality, and other channels. Our Convenience segment distributes candy, snacks, beverages, cigarettes, other tobacco products, food and foodservice related products and other items to convenience stores across North America. 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.

Key Factors Affecting Our Business

Our business, our industry and the U.S. economy are influenced by a number of general macroeconomic factors, including, but not limited to, changes in the rate of inflation and fuel prices, interest rates, supply chain disruptions, labor shortages, and the effects of health epidemics and pandemics. We continue to actively monitor the impacts of the evolving macroeconomic and geopolitical landscape on all aspects of our business. The Company and our industry may face challenges related to product and fleet supply, increased product and logistics costs, access to labor supply, and lower disposable incomes due to inflationary pressures and macroeconomic conditions. The extent to which these challenges will affect our future financial position, liquidity, and results of operations remains uncertain.

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

• Changing demographic and macroeconomic trends. Excluding the peak years of 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 and is adversely impacted when these factors move in the opposite direction. 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 our three 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.

Adjusted EBITDA

Management measures operating performance based on our 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 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, is not a measure of operating income, operating performance, or liquidity presented in accordance with GAAP, and is subject to important limitations. We use this measure to evaluate the performance of our business on a consistent basis over time and for business planning purposes. 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. 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.

Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

• excludes certain tax payments that may represent a reduction in cash available to us;
• does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
• does not reflect changes in, or cash requirements for, our working capital needs; and
• does 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, changes in the LIFO reserve, 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 calculation of Adjusted EBITDA for the periods presented.

Results of Operations and Adjusted EBITDA

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

22

23

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

(In millions)

(In millions)

(1) Includes a decrease in the LIFO reserve of $1.1 million for Foodservice and an increase of $22.9 million for Convenience for the second quarter of fiscal 2024 compared to an increase of $2.0 million for Foodservice and an increase of $23.0 million for Convenience for the second quarter of fiscal 2023. The LIFO reserve increased $0.6 million for Foodservice and $40.4 million for Convenience for the first six months of fiscal 2024 compared to a decrease of $2.0 million for Foodservice and an increase of $53.8 million for Convenience for the first six months of fiscal 2023.

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

(3) Includes $8.1 million gain on the sale of a Foodservice warehouse facility for the three and six months ended December 30, 2023, as well as asset impairments, insurance proceeds due to hurricane and other weather related events, amounts related to favorable and unfavorable leases, foreign currency transaction gains and losses, franchise tax expense, and other adjustments permitted by our ABL Facility.

Consolidated Results of Operations

Three and six months ended December 30, 2023 compared to the three and six months ended December 31, 2022

Net Sales

Net sales growth is a function of acquisitions, 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 $396.8 million, or 2.9%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 due to an increase in cases sold. Net sales increased $616.1 million, or 2.2%, for the first six months of fiscal 2024 compared to the first six months of fiscal 2023. The increase in net sales was primarily attributable to an increase in cases sold, partially offset by a decrease in selling price per case as a result of 1.4% year-to-date deflation in our Foodservice segment as compared to the same prior fiscal year period. Total organic case volume increased 2.1% and 2.4%, in the second quarter and first six months of fiscal 2024, respectively, compared to the same periods of fiscal 2023. Total organic case volume benefited from an increase of 8.7% and 8.1% in organic independent cases sold during the second quarter and first six months of fiscal 2024, respectively, growth in Performance Brands cases, growth in cases sold to Foodservice's Chain business, and broad-based growth across Vistar's channels.

Gross Profit

Gross profit increased $98.5 million, or 6.6%, for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023. The increase in gross profit for the second quarter of fiscal 2024 was primarily driven by growth in cases sold and a favorable shift in the mix of cases sold, including growth in the independent channel and Performance Brands. Gross profit increased $186.3 million, or 6.1%, for the first six months of fiscal 2024 compared to the first six months of fiscal 2023. The increase in gross profit for the first six months of fiscal 2024 was primarily driven by cost of goods sold optimization through procurement efficiencies, as well as growth in cases sold, including 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 $68.6 million, or 5.1%, for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023. The increase in operating expenses was primarily driven by a $42.6 million increase in personnel expense primarily related to wages, commissions, and benefits, a $23.4 million increase in insurance expense primarily related to vehicle liability and workers’ compensation, and a $11.4 million increase in repairs and maintenance expense primarily related to transportation equipment, partially offset by a $11.0 million decrease in fuel expense primarily due to lower fuel prices in the second quarter of fiscal 2024 as compared to the prior year period.

Operating expenses increased $131.4 million, or 4.8%, for the first six months of fiscal 2024 compared to the first six months of fiscal 2023. The increase in operating expenses for the first six months of fiscal 2024 was primarily driven by a $74.9 million increase in personnel expenses primarily related to wages, commissions, and benefits, a $31.4 million increase in insurance expense primarily related to vehicle liability and workers’ compensation, and a $26.3 million increase in repairs and maintenance expense primarily related to transportation equipment for the first six months of fiscal 2024 compared to the prior year period. These increases were partially offset by a $28.0 million decrease in fuel expense primarily due to lower fuel prices for the first six months of fiscal 2024 compared to the prior year period.

Depreciation and amortization of intangible assets increased from $125.2 million in the second quarter of fiscal 2023 to $143.3 million in the second quarter of fiscal 2024. Depreciation and amortization of intangible assets increased from $244.4 million in the first six months of fiscal 2023 to $272.6 million in the first six months of fiscal 2024. Depreciation and amortization of intangible assets increased as a result of recent acquisitions, accelerated amortization of certain customer relationships and trade names, and an increase in transportation equipment under finance leases.

Net Income

Net income increased $7.2 million, or 10.1%, for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 driven by the increase in operating profit, partially offset by increases in income tax expense, other expense, and interest expense. Net income increased $32.2 million, or 19.3%, for the first six months of fiscal 2024 compared to the first six months of fiscal 2023 due to the increase in operating profit and an increase in other income, partially offset by increases in income tax expense and interest expense. The increase in other income for the first six months of fiscal 2024 primarily relates to realized and unrealized gains for fuel hedging instruments. The increases in interest expense were primarily the result of an increase in the average interest rate during the second quarter and first six months of fiscal 2024 compared to the prior year periods.

The Company reported income tax expense of $33.4 million and $76.0 million for the second quarter and first six months of fiscal 2024, respectively, compared to income tax expense of $25.1 million and $59.3 million for the second quarter and first six months of fiscal 2023, respectively. Our effective tax rates for the second quarter and first six months of fiscal 2024 were 29.9% and 27.6%, respectively, compared to 26.1% and 26.2%, for the second quarter and first six months of fiscal 2023, respectively. The effective tax rate for the periods ended December 30, 2023 differed from the prior year periods primarily due to an increase in non-deductible expenses and state and foreign taxes as a percentage of income, partially offset by an increase in deductible discrete items related to stock-based compensation.

Segment Results

The Company has three reportable segments: Foodservice, Vistar, and Convenience. Management evaluates the performance of these segments based on various operating and financial metrics, including their respective sales growth and Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, depreciation, amortization and excludes certain items that the Company does not consider part of its segments' core operating results, including but not limited to stock-based compensation expense, changes in the LIFO reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives. See Note 13. Segment Information within Part I, Item 1*. Financial Statements* of the consolidated financial statements in this Form 10-Q.

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 Adjusted EBITDA by segment for the periods indicated (dollars in millions):

Net Sales

Adjusted EBITDA

Segment Results—Foodservice

Three and six months ended December 30, 2023, compared to the three and six months ended December 31, 2022

Net Sales

Net sales for Foodservice increased $182.7 million, or 2.6%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $129.7 million, or 0.9%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. These increases in net sales were driven by case volume growth in our independent and Chain business, partially offset by a decrease in selling price per case. Securing new and expanding business with independent customers resulted in organic independent case growth of approximately 8.7% in the second quarter of fiscal 2024 and approximately 8.1% in the first six months of fiscal 2024, compared to the prior year periods. For the quarter, independent sales as a percentage of total Foodservice sales were 39.1%. Overall product cost deflation was 0.4% for the second quarter of fiscal 2024 and 1.4% for the first six months of fiscal 2024.

Adjusted EBITDA

Adjusted EBITDA for Foodservice increased $9.9 million, or 4.6%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $19.8 million, or 4.4%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Foodservice's Adjusted EBITDA increased $48.0 million, or 5.2%, in the second quarter of fiscal 2024 and increased $106.2 million, or 5.6% in the first six months of fiscal 2024, compared to the prior year periods. The increase in gross profit was driven by growth in cases sold and a favorable shift in the mix of cases sold, including more Performance Brands products sold to our independent customers.

Operating expenses impacting Foodservice's Adjusted EBITDA increased $38.2 million, or 5.3%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024. Operating expenses increased primarily as a result of a $23.2 million increase in personnel expenses primarily related to wages, commissions, and benefits due to an increase in full-time employees, a $12.9 million increase in insurance expense primarily related to vehicle liability and workers' compensation, and a $2.9 million increase in building rent expense primarily the result of incremental short term duplicative lease expenses associated with expansion projects, compared to the prior year period.

Operating expenses impacting Foodservice's Adjusted EBITDA increased $86.6 million, or 6.0%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. Operating expenses increased primarily as a result of a $57.1 million increase in personnel expenses primarily related to wages, commissions, and benefits due to an increase in full-time employees, a $15.7 million increase in insurance expense primarily related to vehicle liability and workers' compensation, and an increase of $7.1 million of repairs and maintenance expense primarily related to transportation equipment as the Company is waiting on replacement fleet, compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $71.8 million in the second quarter of fiscal 2023 to $72.7 million in the second quarter of fiscal 2024 and increased from $137.8 million in the first six months of fiscal 2023 to $143.3 million in the first six months of fiscal 2024 as a result of an increase in transportation equipment under finance leases.

Segment Results—Vistar

Three and six months ended December 30, 2023, compared to the three and six months ended December 31, 2022

Net Sales

Net sales for Vistar increased $83.0 million, or 7.4%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $243.3 million, or 11.0%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. These increases in net sales were driven primarily by an increase in selling price per case as a result of inflation, a recent acquisition, and case volume growth in the vending, office supply, office coffee service, and travel channels in the second quarter and first six months of fiscal 2024 compared to the prior year periods.

Adjusted EBITDA

Adjusted EBITDA for Vistar increased $1.4 million, or 1.5%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $15.6 million, or 9.4%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. These increases were the result of an increase in gross profit, partially offset by an increase in operating expenses. Gross profit contributing to Vistar's Adjusted EBITDA increased $18.5 million, or 9.0%, for the second quarter of fiscal 2024 and increased $38.5 million, or 9.7%, for the first six months of fiscal 2024 compared to the prior year periods driven by a recent acquisition, pricing improvement from procurement efficiencies, and growth in cases sold, partially offset by expected decreases in inventory holding gains.

Operating expenses impacting Vistar's Adjusted EBITDA increased $16.9 million, or 14.7%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $22.7 million, or 9.9%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. Operating expenses increased primarily as a result of a recent acquisition and increases of $2.0 million and $3.4 million in building rent expense as a result of lease renewals and expansion, for the second quarter and first six months of fiscal 2024, respectively, compared to the prior year periods.

Depreciation and amortization of intangible assets recorded in this segment increased from $10.6 million in the second quarter of fiscal 2023 to $12.8 million in the second quarter of fiscal 2024 and increased from $21.3 million in the first six months of fiscal 2023 to $23.2 million in the first six months of fiscal 2024 due to a recent acquisition.

Segment Results—Convenience

Three and six months ended December 30, 2023, compared to the three and six months ended December 31, 2022

Net Sales

Net sales for Convenience increased $77.3 million, or 1.3%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $127.4 million, or 1.0%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. The increase in net sales for the second quarter and first six months of fiscal 2024 for Convenience was driven primarily by an increase in selling price per case as a result of cigarette manufacturers’ price increases and continued inflation for food and foodservice related products, partially offset by a decline in cigarette carton sales and food and foodservice related cases sold.

Adjusted EBITDA

Adjusted EBITDA for Convenience increased $14.2 million, or 20.5%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024. This increase was a result of an increase in gross profit and a decrease in operating expenses. Gross profit contributing to Convenience's Adjusted EBITDA increased $8.2 million, or 2.2%, for the second quarter of fiscal 2024 compared to the prior year period driven by pricing improvement from procurement efficiencies. Operating expenses impacting Convenience's Adjusted EBITDA decreased $5.9 million, or 1.9%, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024. Operating expenses decreased primarily as a result of an $8.3 million decrease in personnel expenses from reduced contract labor and overtime, partially offset by a $4.4 million increase in insurance expenses primarily related to workers compensation and vehicle liability compared to the prior year period.

Adjusted EBITDA for Convenience increased $3.3 million, or 1.9%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. This increase was a result of a decrease in operating expenses, partially offset by a decrease in gross profit. Gross profit contributing to Convenience's Adjusted EBITDA decreased $14.2 million, or 1.8%, for the first six months of fiscal 2024 compared to the prior year period primarily due to expected decreases in inventory holding gains, partially offset by pricing improvement from procurement efficiencies. Operating expenses impacting Convenience's Adjusted EBITDA decreased $17.5 million, or 2.8%, from the first six months of fiscal 2023 to the first six months of fiscal 2024. Operating expenses decreased primarily as a result of a $15.0 million decrease in personnel expenses from reduced contract labor and overtime for the first six months of fiscal 2024 as compared to the prior year period.

Depreciation and amortization of intangible assets recorded in this segment increased from $36.5 million in the second quarter of fiscal 2023 to $37.2 million in the second quarter of fiscal 2024 and increased from $73.3 million in the first six months of fiscal 2023 to $74.9 million in the first six months of fiscal 2024.

Segment Results—Corporate & All Other

Three and six months ended December 30, 2023, compared to the three and six months ended December 31, 2022

Net Sales

Net sales for Corporate & All Other increased $73.7 million from the second quarter of fiscal 2023 to the second quarter of fiscal 2024 and increased $161.8 million from the first six months of fiscal 2023 to the first six months of fiscal 2024. These increases were primarily attributable to recent acquisitions within a non-reportable segment and an increase in services provided to our other segments.

Adjusted EBITDA

Adjusted EBITDA for Corporate & All Other was a negative $55.8 million for the second quarter of fiscal 2024 compared to a negative $66.9 million for the second quarter of fiscal 2023 and was a negative $101.3 million for the first six months of fiscal 2024 compared to a negative $128.3 million for the first six months of fiscal 2023. Corporate & All Other’s Adjusted EBITDA benefited in the second quarter and first six months of fiscal 2024 from $11.1 million and $21.6 million in Adjusted EBITDA, respectively, from the operations of acquisitions made in the second quarter of fiscal 2023 and in the first quarter of fiscal 2024.

Depreciation and amortization of intangible assets recorded in this segment increased from $6.3 million in the second quarter of fiscal 2023 to $20.6 million in the second quarter of fiscal 2024 and increased from $12.0 million for the first six months of fiscal 2023 to $31.2 million for the first six months of fiscal 2024 due to recent acquisitions and accelerated amortization of certain customer relationships and trade names.

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 or other debt instruments. 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.

We are exposed to interest rate risk related to changes in interest rates for borrowings under our ABL Facility. To add stability to interest expense and manage our exposure to interest rate movements, we enter into interest rate swap agreements. These swaps are designated as cash flow hedges and involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments. As of December 30, 2023, $350.0 million of the outstanding ABL Facility balance is currently hedged under interest rate swaps which results in 80% of our total debt outstanding, including finance lease obligations, being fixed-rate debt.

On November 16, 2022, the Board of Directors authorized a new share repurchase program for up to $300 million of the Company’s outstanding common stock. This authorization replaced the previously authorized $250 million share repurchase program. The new share repurchase program has an expiration date of November 16, 2026 and may be amended, suspended, or discontinued at any time at the Company’s discretion, subject to compliance with applicable laws. Repurchases under this program depend upon marketplace conditions and other factors, including compliance with the covenants in the agreements governing our existing indebtedness. During the six months ended December 30, 2023, the Company repurchased 1.3 million shares of the Company's common stock for a total of $78.1 million. As of December 30, 2023, $210.6 million remained available for share repurchases.

Our contractual 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 in this Form 10-Q. As of December 30, 2023, the Company had total purchase obligations of $320.4 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 December 30, 2023, the Company had commitments of $228.8 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 December 30, 2023.

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 December 30, 2023, our cash balance totaled $23.9 million, including restricted cash of $7.5 million, as compared to a cash balance totaling $20.0 million, including restricted cash of $7.3 million, as of July 1, 2023.

Six months ended December 30, 2023, compared to the six months ended December 31, 2022

Operating Activities

During the first six months of fiscal 2024 and fiscal 2023, our operating activities provided cash flow of $554.0 million and $424.5 million, respectively. The increase in cash flow provided by operating activities in the first six months of fiscal 2024 compared to the first six months of fiscal 2023 was largely driven by improvements in working capital and higher operating income.

Investing Activities

Cash used in investing activities totaled $436.4 million in the first six months of fiscal 2024 compared to $160.3 million in the first six months of fiscal 2023. These investments consisted of cash paid for acquisitions of $308.1 million in the first six months of fiscal 2024 compared to $65.8 million in the first six months of fiscal 2023, along with capital purchases of property, plant, and equipment of $147.1 million and $98.1 million for the first six months of fiscal 2024 and the first six months of fiscal 2023, respectively. For the first six months of fiscal 2024, purchases of property, plant, and equipment primarily consisted of outlays for warehouse improvements and expansion, warehouse equipment, transportation equipment, and information technology. The following table presents the capital purchases of property, plant, and equipment by segment.

(Dollars in millions)

Financing Activities

During the first six months of fiscal 2024, our financing activities used cash flow of $113.7 million, which consisted primarily of $78.1 million in payments to repurchase common stock and payments under finance lease obligations.

During the first six months of fiscal 2023, our financing activities used cash flow of $269.6 million, which consisted primarily of $232.1 million in net payments under our ABL Facility.

The following describes our financing arrangements as of December 30, 2023:

Credit Agreement: PFGC, a wholly-owned subsidiary of the Company, and Performance Food Group, Inc., a wholly-owned subsidiary of PFGC, are parties to the ABL Facility. The ABL Facility has an aggregate principal amount of $4.0 billion under the revolving loan facility and is scheduled to mature on September 17, 2026.

Performance Food Group, Inc. is the lead borrower under the ABL Facility, which is jointly and severally guaranteed by, and secured by the majority of the assets of, PFGC and all material domestic direct and indirect wholly-owned subsidiaries of PFGC (other than 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.

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

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

(Dollars in millions)

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 2025: On April 24, 2020, Performance Food Group, Inc. issued and sold $275.0 million aggregate principal amount of its 6.875% Senior Notes due 2025 (the "Notes due 2025"). 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.

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 part of the Notes due 2025 at a redemption price equal to 101.719% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100% of the principal amount redeemed, plus accrued and unpaid interest on May 1, 2024.

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 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 its 5.500% Senior Notes due 2027 ("the "Notes 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 a 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 part of the Notes due 2027 at a redemption price equal to 101.375% of the principal amount redeemed, plus accrued and unpaid interest. The redemption price decreases to 100% of the principal amount redeemed, plus accrued and unpaid interest on October 15, 2024.

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 2029: On July 26, 2021, Performance Food Group, Inc. issued and sold $1.0 billion aggregate principal amount of its 4.250% Senior Notes due 2029 (the “Notes due 2029”). 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 ABL Facility, to redeem the 5.500% 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 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 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, plus accrued and unpaid interest 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 December 30, 2023, 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.

Total Assets by Segment

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

Total assets for Foodservice increased $288.5 million from $6,294.0 million as of December 31, 2022 to $6,582.5 million as of December 30, 2023. During this time period, this segment increased its property, plant and equipment, operating lease right-of-use assets, and accounts receivable, partially offset by a decrease in intangible assets and inventory. Total assets for Foodservice increased $70.9 million from $6,511.6 million as of July 1, 2023 to $6,582.5 million as of December 30, 2023. During this time period, this segment increased its operating lease right-of-use assets and property, plant and equipment, partially offset by a decrease in inventory, intangible assets, and accounts receivable.

Total assets for Vistar increased $218.9 million from $1,216.0 million as of December 31, 2022 to $1,434.9 million as of December 30, 2023. During this time period, this segment increased its operating lease right-of-use assets, intangible assets, goodwill, accounts receivable, property, plant and equipment, and inventory primarily as a result of a recent acquisition. Total assets for Vistar increased $142.2 million from $1,292.7 million as of July 1, 2023 to $1,434.9 million as of December 30, 2023. During this time period, this segment increased its operating lease right-of-use assets, intangible assets, goodwill, and property, plant and equipment primarily as a result of a recent acquisition, partially offset by a decrease in accounts receivable and inventory.

Total assets for Convenience decreased $50.2 million from $4,135.9 million as of December 31, 2022 to $4,085.7 million as of December 30, 2023. During this time period, the segment decreased its intangible assets and operating lease right-of-use assets, partially offset by an increase in accounts receivable. Total assets for Convenience decreased $140.5 million from $4,226.2 million as of July 1, 2023 to $4,085.7 million as of December 30, 2023. During this time period, the segment decreased its accounts receivable, intangible assets, inventory, prepaid expenses and other current assets, and operating lease right-of-use assets.

Total assets for Corporate & All Other increased $265.7 million from $543.7 million as of December 31, 2022 to $809.4 million as of December 30, 2023. Total assets for Corporate & All Other increased $340.9 million from $468.5 million as of July 1, 2023 to $809.4 million as of December 30, 2023. During both time periods, Corporate & All Other primarily increased its assets due to recent acquisitions within a non-reportable operating segment.

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.

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, 2023. For a discussion on our exposure to market risk, see Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risks in the Form 10-K.

Evaluation of Disclosure Controls and Procedures

Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-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 Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Form 10-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 Form 10-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 Rule 13a-15(f) under the Exchange Act), that occurred during the fiscal quarter ended December 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 Form 10-K.