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 MARCH 29, 1997
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
Richmond, Virginia
23230
(Address of Principal Executive (Zip Code)
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 May 8, 1997, 11,706,634 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 as of March 29, 1997, and the
related condensed consolidated statements of earnings and cash flows for the
three-month periods ended March 29, 1997 and March 30, 1996. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review 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 review, 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 December 28, 1996, 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, 1997, 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 December 28, 1996 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which
it has been derived.
KPMG PEAT MARWICK LLP
Richmond, Virginia
April 25, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
March 29, December 28,
1997 1996
(Unaudited)
Assets
Current assets:
Cash $ 6,333 $ 5,557
Trade accounts and notes receivable, net 67,002 55,689
Inventories 60,029 48,005
Other current assets 4,267 4,176
Total current assets 137,631 113,427
Property, plant and equipment, net 63,221 55,697
Intangible assets, net 21,322 12,751
Other assets 840 1,022
Total assets $ 223,014 $ 182,897
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits $ 11,628 $ 12,895
Current installments of long-term debt 657 650
Accounts payable 58,992 44,494
Other current liabilities 15,802 12,421
Total current liabilities 87,079 70,460
Long-term debt, excluding current installments 3,437 3,604
Note payable to bank 24,527 3,621
Deferred income taxes 4,077 4,077
Total liabilities 119,120 81,762
Shareholders' equity 103,894 101,135
Total liabilities and shareholders' equity $ 223,014 $ 182,897
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
March 29, March 30,
1997 1996
Net sales $ 268,537 $ 173,059
Cost of goods sold 233,760 147,972
Gross profit 34,777 25,087
Operating expenses 30,619 21,957
Operating profit 4,158 3,130
Other income (expense):
Interest expense (513) (344)
Other, net 80 43
Other expense, net (433) (301)
Earnings before income taxes 3,725 2,829
Income tax expense 1,454 1,117
Net earnings $ 2,271 $ 1,712
Net earnings per common share $ 0.19 $ 0.16
Weighted average common shares
and common share equivalents
outstanding 12,166 10,392
See accompanying notes to unaudited condensed consolidated financial
statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 29, March 30,
1997 1996
Cash flows from operating activities:
Net earnings $ 2,271 $ 1,712
Adjustments to reconcile net earnings to
net cash Provided by operating activities:
Depreciation and amortization 1,750 1,305
ESOP contributions applied to principal of
ESOP debt 117 99
Gain on disposal of property, plant and
equipment - (23)
Gain on insurance settlement (1,300) -
Loss on writedown of leasehold improvements 1,287 -
Changes in assets and liabilities, net of
effects of company purchased 6,945 2,101
Net cash provided by operating activities 11,070 5,194
Cash flows from investing activities
Purchases of property, plant and equipment (2,360) (4,514)
Proceeds from sale of property, plant and
equipment 29 79
Net cash paid for acquisitions (31,965) -
Net proceeds from insurance settlement 4,200 -
(Increase) decrease in intangibles and other
assets (48) 8
Net cash used by investing activities (30,144) (4,427)
Cash flows from financing activities:
Decrease in outstanding checks in excess of
deposits (1,267) (2,656)
Net borrowings (payments) on note payable to bank 20,906 (3,128)
Principal payments on long-term debt (160) (30,176)
Proceeds from issuance of common stock - 33,329
Stock option, incentive and employee stock
purchase plans 371 441
Net cash provided (used) by financing
activities 19,850 (2,190)
Net increase (decrease) in cash 776 (1,423)
Cash at beginning of period 5,557 4,235
Cash at end of period $ 6,333 $ 2,812
See accompanying notes to unaudited condensed consolidated financial
statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 29, 1997 and March 30, 1996
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 December 28, 1996 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 Combination
On December 30, 1996, the Company completed the acquisition of
certain net assets of McLane Foodservice-Temple, Inc. ("McLane
Foodservice"), a wholly-owned subsidiary of McLane Company, Inc.,
based in Temple, Texas. McLane Foodservice operates distribution
centers in Temple and Victoria, Texas and provides products and services
to traditional foodservice customers as well as multi-unit chain restaurants
and vending customers. The acquired company will operate as
Performance Food Group of Texas, LP ("PFG of Texas"), an indirect
wholly-owned subsidiary of the Company. The purchase price of
approximately $30 million, which is subject to certain post-closing
adjustments, was financed with proceeds from an existing credit facility.
Simultaneous with the closing, the Company also purchased the
distribution center located in Victoria, Texas from an independent third
party for approximately $1.5 million. The condensed consolidated
statements of earnings and cash flows reflect the results of PFG of Texas
from the date of acquisition through March 29, 1997.
This acquisition has been accounted for using the purchase method
and, accordingly, the acquired assets and liabilities have been recorded at
their estimated fair values at the date of acquisition. The excess of the
purchase price over the fair value of tangible net assets acquired is
approximately $8.7 million and is being amortized on a straight-line basis
over 40 years. In connection with its preliminary evaluation of the
acquired operations, the Company reduced the portion of the purchase
price allocated to certain of the acquired tangible net assets to reflect the
estimated realizable value of those assets and established a reserve for
certain associated costs. Management anticipates finalizing the purchase
price allocation within the next nine months as additional information
regarding the acquired business, including final settlement of the purchase
price becomes available. The total adjustments to the purchase price
allocation are not expected to be material to the Company's consolidated
financial statements.
3. Shareholders' Equity
In March 1996, the Company completed a secondary offering of
2,916,824 shares of common stock, of which the Company sold 2,255,455
shares with the remaining shares sold by selling shareholders. Net
proceeds of the offering were approximately $33.3 million, which were
used to repay a $30.0 million term loan and approximately $3.3 million
outstanding under the Company's credit facility.
In June 1996, the Company's Board of Directors declared a three-
for-two stock split effected in the form of a 50% stock dividend paid on
July 15, 1996 to shareholders of record on July 1, 1996. The split resulted
in the issuance of 3,874,807 shares of common stock in July 1996. All
references in these condensed consolidated financial statements to shares,
net earnings per share and weighted average shares have been restated to
reflect the split.
4. Supplemental Cash Flow Information
Three Months Ended
(amounts in thousands) March 29, March 30,
1997 1996
Cash paid during the period for:
Interest $ 369 $ 493
Income taxes $ 380 $ 187
Effects of purchase of companies:
Fair value of assets acquired, inclusive
of goodwill of $8,666 $ 40,327 -
Liabilities assumed (8,362) -
Net cash paid for acquisitions $ 31,965 $ -
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The Company derives its revenue primarily from the sale 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. Products
and services provided to the Company's traditional and multi-unit chain
customers are supported by identical physical facilities, vehicles,
equipment and personnel. 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.
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
March 29, March 30,
1997 1996
Net sales 100.0 % 100.0 %
Cost of goods sold 87.0 85.5
Gross profit 13.0 14.5
Operating expenses 11.4 12.7
Operating profit 1.6 1.8
Other expense, net 0.2 0.2
Earnings before income taxes 1.4 1.6
Income tax expense 0.5 0.6
Net earnings 0.9 % 1.0 %
Comparison of Periods Ended March 29, 1997 to March 30, 1996.
Net sales increased 55.2% to $268.5 million for the three months
ended March 29, 1997 (the "1997 quarter") from $173.1 million for the
three months ended March 30, 1996 (the "1996 quarter"). Net sales in the
Company's existing operations increased 29% over the 1996 quarter while
the acquisition of PFG of Texas contributed an additional 26% to the
Company's total sales growth. Net sales for the 1996 quarter were
negatively impacted by severe weather throughout the Eastern and
Midwestern United States experienced during February and March 1996.
Inflation amounted to approximately 1.5% for the 1997 quarter.
Gross profit increased 38.6% to $34.8 million in the 1997 quarter
from $25.1 million in the 1996 quarter. Gross profit margin decreased to
13.0% in the 1997 quarter compared to 14.5% in the 1996 quarter. The
decline in gross profit margin was primarily due to increased sales during
1997 to certain of the Company's large multi-unit chain customers which
generally are higher-volume, lower gross-margin accounts but also allow
for more efficient deliveries and use of capital, resulting in lower
operating expenses. Additionally, gross margins declined as a result of the
acquisition of PFG of Texas, whose margins are currently lower than those
in the Company's other broadline subsidiaries.
Operating expenses increased 39.4% to $30.6 million in the 1997
quarter compared with $22.0 million in the 1996 quarter. As a percentage
of net sales, operating expenses declined to 11.4% in the 1997 quarter
from 12.7% in the 1996 quarter. The decrease in operating expenses as a
percent of sales primarily reflects better use of the Company's facilities at
the increased level of sales and the continued shift in mix of sales to
certain of the Company's rapidly growing multi-unit chain customers
discussed above. Additionally, the 1996 quarter was negatively impacted
by increased costs related to the severe weather experienced in the East
and Midwest during the first quarter of 1996. The Company leased a
75,000 square foot distribution center in Belcamp, Maryland to service the
continued growth of certain of the Company's multi-unit chain customers,
which became operational in February 1997, and completed construction
of a 75,000 square foot distribution center in Dallas, Texas which became
operational in February 1996. The Company incurred certain start-up
expenses for these facilities, the impacts of which are approximately
comparable. The expanded distribution centers should give the Company
the capacity to efficiently service this rapidly growing division of the
business.
Operating profit increased 32.9% to $4.2 million in the 1997
quarter from $3.1 million in the 1996 quarter. Operating profit margin
declined to 1.6% for the 1997 quarter from 1.8% for the 1996 quarter.
Other expense increased to $433,000 in the 1997 quarter from
$300,000 in the 1996 quarter. Other expense includes interest expense,
which increased to $513,000 in the 1997 quarter from $344,000 in the
1996 quarter. The increase in interest expense is due to higher debt levels
in the 1997 quarter as a result of the Company's acquisition of PFG of
Texas on December 30, 1996. Other expense during the 1997 quarter also
includes a $1.3 million gain from insurance proceeds related to covered
assets at one of the Company's processing and distribution facilities which
offset a $1.3 million writedown of certain leasehold improvements
associated with the termination of the lease on one of the Company's
distribution facilities.
Income tax expense increased to $1.5 million in the 1997 quarter
from $1.1 million in the 1996 quarter as a result of higher pre-tax
earnings. As a percentage of earnings before income taxes, the provision
for income taxes was 39.0% and 39.5% for the 1997 and 1996 quarters,
respectively.
Net earnings increased 32.7% to $2.3 million in the 1997 quarter
compared to $1.7 million in the 1996 quarter. As a percentage of sales,
net earnings decreased to 0.9% in the 1997 quarter versus 1.0% in the
1996 quarter.
Liquidity and Capital Resources
The Company has historically financed its operations and growth
primarily with cash flow from operations, borrowings under its credit
facility, 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.
Cash provided by operating activities was $11.1 million and $5.2
million for the 1997 and 1996 quarters, respectively. The increase in cash
provided by operating activities resulted primarily from higher net
earnings and increased levels of trade payables.
Cash used by investing activities was $30.1 million and $4.4
million for the 1997 and 1996 quarters, respectively. Investing activities
consist primarily of additions to and disposals of property, plant and
equipment and the acquisition of businesses. The Company's total capital
expenditures for the 1997 quarter were $2.4 million including
approximately $800,000 for expansion of the distribution center in
Houma, Louisiana. The Company anticipates that its total capital
expenditures, other than for acquisitions, for the remainder of fiscal 1997
will be approximately $12 million. Investing activities during the 1997
period also included $32.0 million for the acquisition of PFG of Texas, net
of cash on hand at the acquired company, and $4.2 million from insurance
proceeds related to covered losses associated with the Company's
processing and distribution facilities.
Cash flows from financing activities in the 1997 quarter included
net borrowings on a revolving credit facility ("Credit Facility") of $20.9
million. The Credit Facility was used to finance the $32.0 million
acquisition of PFG of Texas, net of $11.1 million of repayments as a result
of the reduced working capital needs. In March 1996, the Company
completed a secondary offering of 2.9 million shares of common stock, of
which the Company sold 2.3 million shares with the remainder sold by
selling shareholders. The net proceeds to the Company from the offering
were approximately $33.3 million which was used to repay a $30.0
million term loan and to repay approximately $3.3 million outstanding on
the Company's line of credit.
The Company has $50.0 million of borrowing capacity under its
Credit Facility with a commercial bank which expires in July 1999.
Approximately $24.5 million was outstanding under the Credit Facility at
March 29, 1997. The Credit Facility also supports up to $5.0 million of
letters of credit. At March 29, 1997, the Company was contingently liable
for $2.7 million of outstanding letters of credit which reduce amounts
available under the Credit Facility. At March 29, 1997, the Company had
$22.8 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 March 29, 1997, the Credit
Facility bore interest at 5.56%. Additionally, the Credit Facility requires
the maintenance of certain financial ratios, as defined, regarding debt to
tangible net worth, cash flow coverage and current assets to current
liabilities.
The Company believes that cash flows from operations and
borrowings under its Credit Facility will be sufficient to finance its
operations and anticipated growth for the foreseeable future.
Recently Issued Accounting Pronouncements
During the 1997 quarter the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, and SFAS No. 129, Disclosure of Information About
Capital Structure. These statements are effective for periods ending after
December 15, 1997 and earlier adoption is not permitted.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the quarter ended March 29, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
15 Letter regarding unaudited financial
information from KPMG Peat Marwick LLP.
(b.) Reports on Form 8-K:
The Company filed a report on Form 8-K dated
January 13, 1997 (as amended by a Form 8-K/A
dated March 13, 1997) during the quarter to report
the acquisition of certain net assets of McLane
Foodservice-Temple, Inc.
(C.) 27 Article 5 Financial Data Schedule for 1st qtr'97 10Q.
( for SEC use only).
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
(Registrant)
By: /s/ Roger L. Boeve
Roger L. Boeve
Executive Vice
President &
Chief Financial
Officer
Date: May 12, 1997