UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 1, 2000
Commission File No.: 0-22192
PERFORMANCE FOOD GROUP COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 54-0402940
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
6800 Paragon Place, Suite 500 23230
Richmond, Virginia (Zip Code)
(Address of Principal Executive
Offices)
Registrant's Telephone Number, Including Area Code
(804) 285-7340
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements
for the past 90 days.
X Yes No
As of August 11, 2000, 14,026,619 shares of the
Registrant's Common Stock were outstanding.
Independent Accountants' Review Report
The Board of Directors and Shareholders
Performance Food Group Company:
We have reviewed the accompanying condensed
consolidated balance sheet of Performance Food Group
Company and subsidiaries (the Company) as of July 1,
2000, and the related condensed consolidated statements
of earnings for the three-month and six-month periods
ended July 1, 2000 and July 3, 1999, and the condensed
consolidated statements of cash flows for the six-month
periods ended July 1, 2000 and July 3, 1999. These
condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified
Public Accountants. A review of interim financial
information consists principally of applying analytical
procedures to financial data and making inquiries of
persons responsible for financial and accounting
matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted
auditing standards, the objective of which is the
expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed
consolidated financial statements referred to above for
them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with
generally accepted auditing standards, the consolidated
balance sheet of Performance Food Group Company and
subsidiaries as of January 1, 2000, and the related
consolidated statements of earnings, shareholders'
equity and cash flows for the year then ended (not
presented herein); and in our report dated February 7,
2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed
consolidated balance sheet as of January 1, 2000 is
fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been
derived.
/s/KPMG LLP
Richmond, Virginia
August 7, 2000
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
July 1, January 1,
2000 2000
(Unaudited)
Assets
Current assets:
Cash $ 6,028 $ 5,606
Trade accounts and notes receivable, net 133,989 119,126
Inventories 124,063 108,550
Other current assets 9,615 9,600
Total current assets 273,695 242,882
Property, plant and equipment, net 123,831 113,930
Intangible assets, net 103,178 103,328
Other assets 1,436 1,905
Total assets $ 502,140 $ 462,045
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits $ 15,880 $ 14,082
Current installments of long-term debt 704 703
Trade accounts payable 144,245 116,821
Other current liabilities 38,023 40,397
Total current liabilities 198,852 172,003
Long-term debt, excluding current installments 105,074 92,404
Deferred income taxes 8,379 8,294
Total liabilities 312,305 272,701
Shareholders' equity 189,835 189,344
Total liabilities and shareholders' equity $ 502,140 $ 462,045
See accompanying notes to unaudited condensed consolidated financial statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
Net sales $654,603 $501,960 $1,234,353 $968,338
Cost of goods sold 567,624 434,105 1,069,965 837,490
Gross profit 86,979 67,855 164,388 130,848
Operating expenses 74,591 57,779 144,436 114,492
Operating profit 12,388 10,076 19,952 16,356
Other income (expense):
Interest expense (1,499) (1,357) (2,888) (2,643)
Nonrecurring merger expenses - - - (3,812)
Other, net (29) 110 40 104
Other expense, net (1,528) (1,247) (2,848) (6,351)
Earnings before income taxes 10,860 8,829 17,104 10,005
Income tax expense 4,127 3,399 6,500 3,924
Net earnings $ 6,733 $ 5,430 $ 10,604 $ 6,081
Basic net earnings per common share $ 0.49 $ 0.40 $ 0.76 $ 0.45
Weighted average common shares outstanding 13,824 13,586 13,931 13,532
Diluted net earnings per common share $ 0.47 $ 0.39 $ 0.74 $ 0.43
Weighted average common shares and dilutive
potential common shares outstanding 14,385 14,043 14,385 14,010
See accompanying notes to unaudited condensed consolidated financial statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
July 1, July 3,
2000 1999
Cash flows from operating activities:
Net earnings $ 10,604 $ 6,081
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 6,405 5,199
Amortization 1,876 1,390
ESOP contributions applied to principal of ESOP debt 273 266
(Gain) loss on disposal of property, plant and equipment (2) 51
Change in operating assets and liabilities, net (5,256) 11,052
Net cash provided by operating activities 13,900 24,039
Cash flows from investing activities:
Purchases of property, plant and equipment (16,923) (9,419)
Proceeds from sale of property, plant and equipment 619 86
Net cash paid for acquisitions (2,299) (6,068)
Increase (decrease) in intangibles and other assets 409 (251)
Net cash used by investing activities (18,194) (15,652)
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 1,798 (11,922)
Net borrowings on notes payable to banks 9,554 8,238
Proceeds from issuance of long-term debt 3,455 851
Principal payments on long-term debt (338) (8,781)
Repurchases of common stock (11,907) -
Distributions of pooled company - (1,025)
Employee stock option, incentive and employee stock purchase
plans and related income tax benefits 2,154 2,070
Net cash provided by (used for) financing activities 4,716 (10,569)
Net increase (decrease) in cash 422 (2,182)
Cash at beginning of period 5,606 7,796
Cash at end of period $ 6,028 $ 5,614
See accompanying notes to unaudited condensed consolidated financial statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial
Statements
July 1, 2000 and July 3, 1999
1. Basis of Presentation
The accompanying condensed consolidated financial
statements of Performance Food Group Company and
subsidiaries (the "Company") are unaudited, with the
exception of the January 1, 2000 condensed consolidated
balance sheet, which was derived from the audited
consolidated balance sheet in the Company's latest
Annual Report on Form 10-K. The unaudited condensed
consolidated financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial reporting, and in
accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited
condensed consolidated financial statements contained
in this report reflect all adjustments, consisting of
only normal recurring accruals, which are necessary for
a fair presentation of the financial position and the
results of operations for the interim periods
presented. The results of operations for any interim
period are not necessarily indicative of results for
the full year.
These unaudited condensed consolidated financial
statements, note disclosures and other information
should be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
2. Business Combinations
On February 26, 1999, the Company completed a
merger with NorthCenter Foodservice Corporation
("NCF"), in which NCF became a wholly owned subsidiary
of the Company. NCF was a privately owned foodservice
distributor based in Augusta, Maine and had 1998 net
sales of approximately $98 million. The merger was
accounted for as a pooling-of-interests and resulted in
the issuance of approximately 850,000 shares of the
Company's common stock in exchange for all of the
outstanding stock of NCF. Accordingly, the
consolidated financial statements for periods prior to
the combination have been previously restated to
include the accounts and results of operations of NCF.
The Company incurred nonrecurring merger expenses of
$3.8 million in 1999 associated with the NCF merger.
These expenses included professional fees and
transaction costs, as well as certain contractual
payments to NCF employees.
The results of operations of the Company and NCF,
including the related $3.8 million of nonrecurring
merger expenses, and the combined amounts presented in
the accompanying consolidated financial statements are
summarized below:
Three Months Six Months
Ended Ended
(In thousands) July 3, 1999 July 3, 1999
Net sales:
The Company $ 474,361 $ 919,244
NCF 27,599 49,094
Combined $ 501,960 $ 968,338
Net earnings (loss):
The Company $ 5,010 $ 8,238
NCF 420 (2,157)
Combined $ 5,430 $ 6,081
Adjustments to conform NCF's accounting methods
and practices to those of the Company consisted
primarily of depreciation and were not material. NCF,
prior to the merger with the Company, was treated as an
S-corporation for Federal income tax purposes. The
following disclosures present the combined results of
operations, excluding nonrecurring merger expenses of
$3.8 million, as if NCF was taxed as a C-corporation
for the periods presented:
Three Months Six Months
Ended Ended
(In thousands, except per share amounts) July 3, 1999 July 3, 1999
Operating profit $ 10,076 $ 16,356
Other income (expense):
Interest expense (1,357) (2,643)
Other, net 110 104
Other expense, net (1,247) (2,539)
Earnings before income taxes 8,829 13,817
Income tax expense 3,399 5,319
Net earnings $ 5,430 $ 8,498
Weighted average common shares outstanding 13,586 13,532
Basic net earnings per common share $ 0.40 $ 0.63
Weighted average common shares and dilutive
potential common shares outstanding 14,043 14,010
Diluted net earnings per common share $ 0.39 $ 0.61
On August 28, 1999, the Company acquired the
common stock of Dixon Tom-A-Toe Companies, Inc.
("Dixon"), an Atlanta-based privately owned processor
of fresh-cut produce. Dixon had operations in the
Southeastern and Midwestern United States. Its
operations have been combined with the operations of
Fresh Advantage, Inc., a subsidiary of the Company. On
August 31, 1999, AFI Food Service Distributors, Inc.
("AFI"), a subsidiary of the Company, acquired certain
net assets of State Hotel Supply Company, Inc. ("State
Hotel"), a privately owned meat processor based in
Newark, New Jersey. State Hotel provides Certified
Angus Beef and other meats to many of the leading
restaurants and food retailers in New York City and the
surrounding region. The financial results of State
Hotel have been combined with the operations of AFI.
On December 13, 1999, Virginia Foodservice Group, Inc.
("VFG"), a subsidiary of the Company, acquired certain
net assets of Nesson Meat Sales ("Nesson"), a privately
owned meat processor based in Norfolk, Virginia.
Nesson supplies Certified Angus Beef and other meats to
many leading restaurants and other foodservice
operations in the Tidewater Virginia area. The
financial results of Nesson have been combined with the
operations of VFG. Together, Dixon, State Hotel and
Nesson had 1998 sales that will contribute to the
Company's ongoing operations of approximately $100
million. The aggregate purchase price for the common
stock of Dixon and the net assets of State Hotel and
Nesson was $20.4 million. To fund these acquisitions,
the Company issued approximately 304,000 shares of its
common stock and financed $11.9 million with proceeds
from the Credit Facility (as defined herein). In 2000,
the Company issued approximately 45,000 shares of its
common stock and paid approximately $2.3 million to the
former shareholders of Dixon and Affiliated Paper
Companies, Inc. ("APC"), which was acquired in
1998, as a result of certain contractual obligations
in the purchase agreements.
The acquisitions of Dixon, State Hotel and Nesson
have been accounted for using the purchase method;
therefore, the acquired assets and liabilities have
been recorded at their estimated fair values at the
dates of acquisition. The excess of the purchase price
over the fair value of tangible net assets acquired was
approximately $19.8 million and is being amortized on a
straight-line basis over estimated lives ranging from 5
to 40 years.
The condensed consolidated statements of earnings
and cash flows reflect the results of these acquired
companies from the dates of acquisition through July 1,
2000. The unaudited consolidated results of operations
on a pro forma basis as though these acquisitions had
been consummated as of the beginning of 1999 are as
follows:
Three Months Six Months
Ended Ended
(In thousands, except per share amounts) July 3, 1999 July 3, 1999
Net sales $ 526,831 $ 1,016,335
Gross profit 72,918 140,800
Net earnings 4,545 4,239
Basic net earnings per common share $ 0.33 $ 0.31
Diluted net earnings per common share 0.32 0.30
common share
The pro forma results are presented for
informational purposes and are not necessarily
indicative of the operating results that would have
occurred had the Dixon, State Hotel and Nesson
acquisitions been consummated as of the beginning of
1999.
3. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information
for the 2000 and 1999 periods are as follows:
Six Months Ended
July 1, July 3,
(In thousands) 2000 1999
Cash paid during the period for:
Interest $ 2,929 $ 2,555
Income taxes $ 5,032 $ 291
4. Industry Segment Information
The Company has three reportable segments:
broadline foodservice distribution ("Broadline");
customized foodservice distribution ("Customized"); and
fresh-cut produce processing ("Fresh-Cut"). Broadline
distributes approximately 25,000 food and food-related
products to a combination of approximately 25,000
traditional and multi-unit chain customers. Broadline
consists of eleven operating locations that
independently design their own product mix,
distribution routes and delivery schedules to
accommodate the varying needs of their customers.
Customized focuses on serving certain of the Company's
multi-unit chain customers whose sales volume, growth,
product mix, service requirements and geographic
locations are such that these customers can be more
efficiently served through centralized information
systems, dedicated distribution routes and relatively
large and consistent orders per delivery. The
Customized distribution network covers 50 states and
several foreign countries from five distribution
facilities. Fresh-Cut processes and distributes a
variety of fresh produce primarily for quick-service
restaurants mainly in the Southeastern and Southwestern
United States. Certain 1999 amounts have been
reclassified to conform to the 2000 presentation
consistent with management's reporting structure.
Corporate &
(In thousands) Broadline Customized Fresh-Cut Intersegment Consolidated
Second Quarter 2000
Net external sales $ 335,231 $ 287,261 $ 32,111 $ - $ 654,603
Intersegment sales 950 - 6,675 (7,625) -
Operating profit 9,304 2,835 1,867 (1,618) 12,388
Total assets 320,858 114,444 51,243 15,595 502,140
Interest expense (income) 1,800 844 415 (1,560) 1,499
Depreciation and amortization 2,825 505 734 85 4,149
Capital expenditures 2,710 627 2,453 153 5,943
Second Quarter 1999
Net external sales $ 282,448 $ 204,013 $ 15,499 $ - $ 501,960
Intersegment sales 800 - 3,410 (4,210) -
Operating profit 7,393 2,895 1,250 (1,462) 10,076
Total assets 285,850 84,937 14,606 9,321 394,714
Interest expense (income) 1,660 597 (29) (871) 1,357
Depreciation and amortization 2,429 480 359 68 3,336
Capital expenditures 3,145 570 1,759 17 5,491
Corporate &
(In thousands) Broadline Customized Fresh-Cut Intersegment Consolidated
Year-To-Date 2000
Net external sales $ 636,875 $ 533,405 $ 64,073 $ - $ 1,234,353
Intersegment sales 1,828 - 12,981 (14,809) -
Operating profit 14,527 4,970 3,823 (3,368) 19,952
Total assets 320,858 114,444 51,243 15,595 502,140
Interest expense (income) 3,501 1,718 728 (3,059) 2,888
Depreciation and amortization 5,563 1,008 1,547 163 8,281
Capital expenditures 8,249 765 6,775 1,134 16,923
Year-to-Date 1999
Net external sales $ 552,127 $ 384,989 $ 31,222 $ - $ 968,338
Intersegment sales 1,560 - 6,410 (7,970) -
Operating profit 11,944 4,892 2,085 (2,565) 16,356
Total assets 285,850 84,937 14,606 9,321 394,714
Interest expense (income) 3,232 1,148 (31) (1,706) 2,643
Depreciation and amortization 4,799 957 718 115 6,589
Capital expenditures 6,095 991 2,088 245 9,419
5. Subsequent Event
Subsequent to July 1, 2000, the Company acquired
the common stock of Carroll County Foods, Inc.
("Carroll County"), a privately owned, broadline
foodservice distributor based in New Windsor, Maryland.
Carroll County provides products and services to
traditional foodservice accounts in a region that
includes Baltimore, Maryland and Washington, DC. This
acquisition is expected to add approximately $50
million in annualized net sales.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The Company markets and distributes a wide variety
of food and food-related products to the foodservice,
or "away-from-home" eating industry. The foodservice
industry consists of two major customer types:
"traditional" foodservice customers, consisting of
independent restaurants, hotels, cafeterias, schools,
healthcare facilities and other institutional
customers, and "multi-unit chain" customers, consisting
of regional and national quick-service restaurants and
casual dining restaurants. The principal components of
the Company's expenses include cost of goods sold,
which represents the amount paid to manufacturers and
growers for products sold, and operating expenses,
which include primarily labor-related expenses,
delivery costs and occupancy expenses.
As a result of the merger with NorthCenter
Foodservice Corporation ("NCF") on February 26, 1999,
the consolidated financial statements for the periods
prior to the combination have been previously restated
to include the accounts and results of operations of
NCF.
Results of Operations
The following table sets forth, for the periods
indicated, the components of the condensed consolidated
statements of earnings expressed as a percentage of net
sales:
Three Months Ended Six Months Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 86.7 86.5 86.7 86.5
Gross profit 13.3 13.5 13.3 13.5
Operating expenses 11.4 11.5 11.7 11.8
Operating profit 1.9 2.0 1.6 1.7
Other expense,net 0.2 0.2 0.2 0.7
Earnings before income taxes 1.7 1.8 1.4 1.0
Income tax expense 0.7 0.7 0.5 0.4
Net earnings 1.0 % 1.1 % 0.9 % 0.6 %
Comparison of Periods Ended July 1, 2000 and July 3, 1999
Net sales increased 30.4% to $654.6 million for
the three months ended July 1, 2000 (the "2000
quarter") from $502.0 million for the three months
ended July 3, 1999 (the "1999 quarter"). Net sales
increased 27.4% to $1.23 billion for the six months
ended July 1, 2000 (the "2000 period") from $968.3
million for the six months ended July 3, 1999 (the
"1999 period"). Net sales in the Company's existing
operations increased 26.0% over the 1999 quarter and
23.0% over the 1999 period, while acquisitions
contributed the remaining 4.4% of the Company's total
sales growth for both the 2000 quarter and period,
respectively. Inflation amounted to approximately 2%
and 1% for the 2000 quarter and period, respectively.
Gross profit increased 28.2% to $87.0 million in
the 2000 quarter from $67.9 million in the 1999
quarter. Gross profit increased 25.6% to $164.4
million in the 2000 period from $130.8 million in the
1999 period. Gross profit margin decreased to 13.3% in
the 2000 quarter and period compared to 13.5% in the
1999 quarter and period. The decrease in gross profit
margin was due primarily to the rapid growth of
certain of the Company's customized distribution
customers which generally are higher volume, lower
gross margin accounts.
Operating expenses increased 29.1% to $74.6
million in the 2000 quarter compared with $57.8 million
in the 1999 quarter. Operating expenses increased
26.2% to $144.4 million in the 2000 period from $114.5
million in the 1999 period. As a percentage of net
sales, operating expenses decreased to 11.4% in the
2000 quarter from 11.5% in the 1999 quarter, and to
11.7% in the 2000 period from 11.8% in the 1999 period.
Improvements in the Company's operating efficiency were
partially offset by consolidation costs at one of the
Company's fresh-cut facilities, as well as additional
costs incurred in the 2000 quarter related to the
startup of new customers in the Company's broadline and
customized segments.
Operating profit increased 22.9% to $12.4 million
in the 2000 quarter from $10.1 million in the 1999
quarter. Operating profit increased 22.0% to $20.0
million in the 2000 period from $16.4 million in the
1999 period. Operating profit margin declined to 1.9%
in the 2000 quarter from 2.0% in the 1999 quarter, and
to 1.6% in the 2000 period from 1.7% in the 1999
period.
Other expense, net, increased to $1.5 million in
the 2000 quarter from $1.2 million in the 1999 quarter.
Included in other expense, net, was interest expense of
$1.5 million in the 2000 quarter, compared with
interest expense of $1.4 million in the 1999 quarter.
Other expense, net, decreased to $2.8 million in the
2000 period from $6.4 million in the 1999 period. Other
expense, net, included interest expense of $2.9 million
in the 2000 period and $2.6 million in the 1999 period.
The 1999 period also contained nonrecurring merger
expenses related to the NCF merger of $3.8 million.
Income tax expense increased to $4.1 million in
the 2000 quarter from $3.4 million in the 1999 quarter,
and to $6.5 million in the 2000 period compared to $3.9
million in the 1999 period. As a percentage of
earnings before income taxes, the provision for income
taxes was 38.0% and 38.5% for the 2000 and 1999
quarters, respectively. The effective tax rate
decreased to 38.0% in the 2000 period from 39.2% in the
1999 period. The fluctuation in the effective tax rate
for the period was due primarily to the merger with
NCF, which was taxed as an S-corporation for income tax
purposes prior to the merger with the Company during
the first quarter of 1999.
Net earnings increased to $6.7 million in the 2000
quarter compared to $5.4 million in the 1999 quarter.
Net earnings also increased to $10.6 million in the
2000 period from $6.1 million in the 1999 period. As a
percentage of net sales, net earnings decreased to 1.0%
in the 2000 quarter from 1.1% in the 1999 quarter.
For the 2000 period, net earnings as a percentage of
sales increased to 0.9% from 0.6% in the 1999 period.
Liquidity and Capital Resources
The Company has historically financed its
operations and growth primarily with cash flows from
operations, borrowings under its credit facilities,
operating leases, normal trade credit terms and the
sale of the Company's common stock. Despite the
Company's large sales volume, working capital needs are
minimized because the Company's investment in inventory
is financed principally with accounts payable and
outstanding checks in excess of deposits.
Cash provided by operating activities was $13.9
million and $24.0 million for the 2000 and 1999
periods, respectively. In the 2000 period, the primary
sources of cash for operating activities were net
earnings and increased levels of trade payables,
partially offset by increased levels of trade
receivables and inventories. In the 1999 period, the
primary sources of cash for operating activities
included net earnings and decreased levels of trade
receivables and increased levels of trade payables and
accrued expenses.
Cash used by investing activities was $18.2
million and $15.7 million for the 2000 and 1999
periods, respectively. The Company's capital
expenditures for the 2000 period and the 1999 period
were $16.9 million and $9.4 million, respectively. The
Company anticipates that its total capital expenditures
for fiscal 2000 will be approximately $25 million.
Cash used by investing activities in the 2000 period
included $2.3 million paid to the former shareholders
of Affiliated Paper Companies, Inc. ("APC") and Dixon
as a result of certain contractual obligations under
the purchase agreements. In the 1999 period, cash used
by investing activities included $6.1 million paid to
the former shareholders of APC, Virginia Foodservice
Group, Inc. ("VFG") and AFI Foodservice Distributors,
Inc. ("AFI"), related to the achievement of certain
performance criteria under the purchase agreements.
Cash flows provided by financing activities was
$4.7 million in the 2000 period and cash used by
financing activities was $10.6 million in the 1999
period. Financing activities included net borrowings
of $9.6 million and $8.2 million in the 2000 and 1999
periods, respectively, on the Company's revolving
credit facility. In the 2000 period, the Company used
$11.9 million to repurchase shares of its common stock
in the open market. In the 2000 period, cash flows
from financing activities included an increase in
outstanding checks in excess of deposits of $1.8
million and proceeds of $3.5 million from Industrial
Revenue Bonds to finance the construction of a new
produce-processing facility. Financing activities in
the 1999 period included a decrease in outstanding
checks in excess of deposits of $11.9 million,
repayments of long-term debt of $8.8 million, and $1.0
million distributed to the former shareholders of NCF
prior to the merger. Finally, the 2000 and 1999
periods included proceeds of $2.2 million and $2.1
million, respectively, from the exercise of stock
options.
On March 5, 1999, the Company entered into an
$85.0 million revolving credit facility with a group of
commercial banks that replaced the Company's existing
$30.0 million credit facility. In addition, the
Company entered into a $5.0 million working capital
line of credit with the lead bank of the group.
Collectively, these two facilities are referred to as
the "Credit Facility." The Credit Facility expires in
March 2002. Approximately $44.5 million was
outstanding under the Credit Facility at July 1, 2000.
The Credit Facility also supports up to $10.0 million
of letters of credit. At July 1, 2000, the Company was
contingently liable for $6.3 million of outstanding
letters of credit that reduce amounts available under
the Credit Facility. At July 1, 2000, the Company had
$39.2 million available under the Credit Facility. The
Credit Facility bears interest at LIBOR plus a spread
over LIBOR, which varies based on the ratio of funded
debt to total capital. At July 1, 2000, the Credit
Facility bore interest at 7.12%. Additionally, the
Credit Facility requires the maintenance of certain
financial ratios as defined in the credit agreement.
On March 19, 1999, $9.0 million of Industrial
Revenue Bonds were issued on behalf of a subsidiary of
the Company to finance the construction of a produce-
processing facility. Approximately $8.1 million of the
proceeds from these bonds have been used and are
reflected on the Company's consolidated balance sheet
as of July 1, 2000. Interest varies as determined by
the remarketing agent for the bonds and was
approximately 4.95% at July 1, 2000. The bonds are
secured by a letter of credit issued by a commercial
bank and are due in March 2019.
During the third quarter of 1999, the Company
increased its master operating lease facility from
$42.0 million to $47.0 million. This facility is used
to construct or purchase four distribution centers.
Two of these distribution centers became operational in
early 1999, one became operational in the 2000 quarter,
and the remaining property is scheduled to become
operational in the first quarter of 2001. Under this
facility, the lessor owns the distribution centers,
incurs the related debt to construct the facilities and
thereafter leases each facility to the Company. The
Company has entered into a commitment to lease each
facility for a period beginning upon the completion of
each facility and ending on September 12, 2002,
including extensions. Upon the expiration of each
lease, the Company has the option to renegotiate the
lease, sell the facility to a third party or purchase
the facility at its original cost. If the Company does
not exercise its purchase options, the Company has
maximum residual value guarantees of 88% of the
aggregate property cost. The Company expects the fair
value of the properties included in this facility to
eliminate or substantially reduce the Company's
exposure under the residual value guarantees. Through
July 1, 2000, construction expenditures by the lessor
were approximately $39.8 million.
On June 9, 2000, the Company completed a $60.0
million master operating lease agreement to construct
or purchase various offices and distribution centers.
Under this facility, the lessor owns the property,
incurs the related debt to construct the facilities and
thereafter leases each facility to the Company. The
Company has entered into a commitment to lease each
facility for a period beginning upon the completion of
each facility and ending on June 9, 2005. Upon the
expiration of each lease, the Company has the option to
renegotiate the lease, sell the facility to a third
party or purchase the facility at its original cost.
If the Company does not exercise its purchase options,
the Company has maximum residual value guarantees of
85% of the aggregate properties included in this
facility to eliminate or substantially reduce the
Company's exposure under the residual value guarantees.
Through July 1, 2000, construction expenditures by the
lessor were approximately $1.1 million.
The Company believes that cash flows from
operations and borrowings under the Company's credit
facilities will be sufficient to finance its operations
and anticipated growth for the foreseeable future.
Business Combinations
On February 26, 1999, the Company completed a
merger with NCF in which NCF became a wholly owned
subsidiary of the Company. NCF was a privately owned
foodservice distributor based in Augusta, Maine and had
1998 net sales of approximately $98 million. The
merger was accounted for as a pooling-of-interests and
resulted in the issuance of approximately 850,000
shares of the Company's common stock in exchange for
all of the outstanding stock of NCF. Accordingly, the
consolidated financial statements for periods prior to
the combination have been restated to include the
accounts and results of operations of NCF.
On August 28, 1999, the Company acquired the
common stock of Dixon, an Atlanta-based privately owned
processor of fresh-cut produce. Dixon had operations
in the Southeastern and Midwestern United States. Its
operations have been combined with the operations of
Fresh Advantage, Inc., a subsidiary of the Company.
On August 31, 1999, AFI, a subsidiary of the Company,
acquired certain net assets of State Hotel Supply
Company, Inc. ("State Hotel"), a privately owned meat
processor based in Newark, New Jersey. State Hotel
provides Certified Angus Beef and other meats to many
of the leading restaurants and food retailers in New
York City and the surrounding region. The financial
results of State Hotel have been combined with the
operations of AFI. On December 13, 1999, VFG, a
subsidiary of the Company, acquired certain net
assets of Nesson Meat Sales ("Nesson"), a privately
owned meat processor based in Norfolk, Virginia.
Nesson supplies Certified Angus Beef and other meats to
many leading restaurants and other foodservice
operations in the Tidewater Virginia area. The
financial results of Nesson have been combined with the
operations of VFG. Together, Dixon, State Hotel and
Nesson had 1998 sales that will contribute to the
Company's ongoing operations of approximately $100
million. The aggregate purchase price for the common
stock of Dixon and the net assets of State Hotel and
Nesson was $20.4 million. To fund these acquisitions,
the Company issued approximately 304,000 shares of its
common stock and financed $11.9 million with proceeds
from the Credit Facility. In 2000, the Company issued
approximately 45,000 shares of its common stock and
paid approximately $2.3 million to the former
shareholders of Dixon and APC, which was acquired in
1998, as a result of certain contractual obligations
in the purchase agreements.
The acquisitions of Dixon, State Hotel and Nesson
have been accounted for using the purchase method;
therefore, the acquired assets and liabilities have
been recorded at their estimated fair values at the
dates of acquisition. The excess of the purchase price
over the fair value of tangible net assets acquired was
approximately $19.8 million and is being amortized on a
straight-line basis over estimated lives ranging from 5
to 40 years.
Subsequent Events
Subsequent to July 1, 2000, the Company acquired
the common stock of Carroll County Foods, Inc.
("Carroll County"), a privately owned, broadline
foodservice distributor based in New Windsor, Maryland.
Carroll County provides products and services to
traditional foodservice accounts in a region that
includes Baltimore, Maryland and Washington, DC. This
acquisition is expected to add approximately $50
million in annualized net sales.
Recently Issued Accounting Pronouncements
During 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activity, which was effective
for periods beginning after June 15, 1999. In May
1999, the FASB issued SFAS No. 137, Deferral of the
Effective Date of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 137
delayed the effective date of SFAS No. 133 by one year.
In June 2000, the FASB issued SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133.
The Company will be required to adopt the provisions of
these standards with the fiscal year beginning on
December 31, 2000. Management believes the effect of
the adoption of this standard will be limited to
financial statement presentation and disclosure and
will not have a material effect on the Company's
financial condition or results of operations.
Forward-Looking Statements
The Company has made certain forward-looking
statements in this quarterly report and in other
contexts that are based on estimates and assumptions
and involve risks and uncertainties, including, but not
limited to, general economic conditions, the reliance
on major customers, the relatively low margins and
economic sensitivity of the foodservice business, the
Company's ability to identify and successfully complete
acquisitions of other foodservice distributors, and
management of anticipated growth and other financial
issues. Whether such forward-looking statements, which
depend on these uncertainties and future developments,
ultimately prove to be accurate cannot be predicted.
Item 3. Quantitative and Qualitative Disclosures
About Market Risks
The Company's primary market risks are related to
fluctuations in interest rates and changes in commodity
prices. The Company's primary interest rate risk is
from changing interest rates related to the Company's
long-term debt. The Company currently manages this
risk through a combination of fixed and floating rates
on these obligations. For fixed-rate debt, interest
rate changes affect the fair market value of the debt
but do not impact earnings or cash flows. For floating-
rate debt, interest rate changes generally do not
affect the fair market value of the debt but impact
future earnings and cash flows, assuming other facts
remain constant. As of July 1, 2000, the Company's
total debt consisted of fixed and floating rate debt of
$50.0 million and $55.8 million, respectively.
Substantially all of the Company's floating rate debt
is based on LIBOR.
From time to time, the Company uses forward swap
contracts for hedging purposes to reduce the effect of
changing fuel prices. These contracts are recorded
using hedge accounting. Under hedge accounting, the
gain or loss on the hedge is deferred and recorded as a
component of the underlying expense. As of July 1,
2000, the Company had no outstanding forward swap
contracts.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders.
(a.) The Annual Meeting of Shareholders was held on
May 3, 2000.
(b.) The following Director nominees were elected by
the shareholders of record as of March 14, 2000:
Class I Votes in Votes
(term expires 2003): Favor Against Abstentions
Charles E. Adair 10,026,295 420,025 -
Timothy M. Graven 10,033,606 412,714 -
H. Allen Ryan 10,026,056 420,264 -
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
10.32 Participation Agreement dated as of June 9,
2000 for the $60 million master operating lease
agreement
10.33 Lease Agreement dated as of June 9, 2000 for
the $60 million master operating lease agreement
15 Letter regarding unaudited financial information
from KPMG LLP
27.1 Financial data schedule (SEC only)
(b.) No reports on Form 8-K were filed during
the quarter ended July 1, 2000.
Signature
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
PERFORMANCE FOOD GROUP COMPANY
By: /s/ Roger L. Boeve
Roger L. Boeve
Executive Vice President &
Chief Financial Officer
Date: August 14, 2000