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 JUNE 28, 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 August 6, 1997, 12,105,131 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 June 28, 1997, and
the related condensed consolidated statements of earnings for the three-month
and six-month periods ended June 28, 1997 and June 29, 1996, and the
condensed consolidated statements of cash flows for the six-month periods
ended June 28, 1997 and June 29, 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.
\s\ KPMG PEAT MARWICK LLP
Richmond, Virginia
July 25, 1997
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 28, December 28,
1997 1996
(Unaudited)
Assets
Current assets:
Cash $ 4,816 $ 5,557
Trade accounts and notes receivable, net 62,252 55,689
Inventories 64,804 48,005
Other current assets 4,297 4,176
Total current assets 136,169 113,427
Property, plant and equipment, net 63,523 55,697
Intangible assets, net 21,735 12,751
Other assets 896 1,022
Total assets $222,323 $182,897
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits $ 17,189 $ 12,895
Current installments of long-term debt 658 650
Accounts payable 55,320 44,494
Other current liabilities 16,486 12,421
Total current liabilities 89,653 70,460
Long-term debt, excluding current installments 3,277 3,604
Note payable to bank 17,310 3,621
Deferred income taxes 4,077 4,077
Total liabilities 114,317 81,762
Shareholders' equity 108,006 101,135
Total liabilities and shareholders' equity $222,323 $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 Six Months Ended
June 28, June 29, June 28, June 29
1997 1996 1997 1996
Net sales $ 292,765 $ 192,451 $ 561,302 $ 365,510
Cost of goods sold 256,547 165,524 490,307 313,496
Gross profit 36,218 26,927 70,995 52,014
Operating expenses 29,846 21,669 60,465 43,626
Operating profit 6,372 5,258 10,530 8,388
Other income (expense):
Interest expense (358) (90) (871) (434)
Other, net 104 24 184 67
Other expense, net (254) (66) (687) (367)
Earnings before income taxes 6,118 5,192 9,843 8,021
Income tax expense 2,346 2,053 3,800 3,170
Net earnings $ 3,772 $ 3,139 $ 6,043 $ 4,851
Net earnings per common share $ 0.31 $ 0.26 $ 0.50 $ 0.43
Weighted average common shares
and common share equivalents
outstanding 12,249 12,184 12,195 11,295
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
June 28, June 29,
1997 1996
Cash flows from operating activities:
Net earnings $ 6,043 $ 4,851
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and Amortization 3,404 2,699
ESOP contributions applied to principal of
ESOP debt 232 200
(Gain) loss on disposal of property, plant
and equipment 2 (48)
Gain on insurance settlement (1,300) -
Loss on writedown of leasehold improvements 1,287 -
Changes in assets and liabilities, net of effects
of companies purchased 3,902 3,926
Net cash provided by operating activities 13,570 11,628
Cash flows from investing activities
Purchases of property, plant and equipment (4,121) (6,012)
Proceeds from sale of property, plant
and equipment 51 113
Net cash paid for acquisitions (32,690) -
Net proceeds from insurance settlement 4,200 -
Increase in intangibles and other assets (11) (84)
Net cash used by investing activities (32,571) (5,983)
Cash flows from financing activities:
Increase (decrease) in outstanding checks
in excess of deposits 4,294 (4,661)
Net borrowings (payments) on note payable to bank 13,689 (4,891)
Principal payments on long-term debt (319) (30,351)
Proceeds from issuance of common stock - 33,329
Stock option, incentive and employee stock
purchase plans 596 565
Net cash provided (used) by financing
activities 18,260 (6,009)
Net decrease in cash (741) (364)
Cash at beginning of period 5,557 4,235
Cash at end of period $ 4,816 $ 3,871
See accompanying notes to unaudited condensed consolidated financial statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 28, 1997 and June 29, 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 had 1996 net sales of
approximately $180 million. The acquired company operates as
Performance Food Group of Texas, LP ("PFG of Texas"), an indirect
wholly-owned subsidiary of the Company. PFG of Texas 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 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 June 28, 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 was 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 six
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
Six months Ended
(amounts in thousands) June 28, June 29,
1997 1996
Cash paid during the period for:
Interest $ 754 $ 580
Income taxes $ 3,171 $ 2,590
Effects of purchase of companies:
Fair value of assets acquired,
inclusive of goodwill of $9,397 $ 41,052 -
Liabilities assumed (8,362) -
Net cash paid for acquisitions $ 32,690 $ -
5. Subsequent Events
On June 30, 1997, the Company completed the acquisition of all
of the outstanding capital stock of W. J. Powell Company, Inc.
("Powell"), a foodservice distributor based in Thomasville, Georgia.
Powell, with distribution centers in Thomasville, Georgia and Dothan,
Alabama, had 1996 net sales of approximately $44 million consisting
primarily of sales to traditional foodservice customers. The purchase
price of approximately $20 million, plus the assumption of
approximately $3 million of debt, was financed with proceeds from an
existing credit facility and the issuance of approximately 320,000 shares
of the Company's common stock
Also, on June 30, 1997, the Company completed the acquisition
of certain assets of Central Florida Finer Foods, Inc. ("CFFF"), a
foodservice distributor based in Winter Haven, Florida, for
approximately $1.8 million. The acquired operations represent
approximately $15 million in annual sales. The operations of CFFF will
be combined with the operations of the Company's B&R Foods division
("B&R") and will be conducted through B&R's distribution facility.
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 Six Months Ended
June 28, June 29, June 28, June 29
1997 1996 1997 1996
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 87.6 86.0 87.3 85.8
Gross profit 12.4 14.0 12.7 14.2
Operating expenses 10.2 11.3 10.8 11.9
Operating profit 2.2 2.7 1.9 2.3
Other expense, net 0.1 0.0 0.1 0.1
Earnings before income taxes 2.1 2.7 1.8 2.2
Income tax expense 0.8 1.1 0.7 0.9
Net earnings 1.3 % 1.6 % 1.1 % 1.3 %
Comparison of Periods Ended June 28, 1997 to June 29, 1996.
Net sales increased 52.1% to $292.8 million for the three months
ended June 28, 1997 (the "1997 quarter") from $192.5 million for the
three months ended June 29, 1996 (the "1996 quarter"). Net sales
increased 53.6% to $561.3 million for the six months ended June 28,
1997 (the "1997 period") from $365.5 million for the six months ended
June 29, 1996 (the "1996 period"). Net sales in the Company's existing
operations increased 25% over the 1996 quarter while the acquisition of
PFG of Texas contributed an additional 27% to the Company's total
sales growth. Net sales for the 1996 period were negatively impacted by
severe weather throughout the Eastern and Midwestern United States
experienced during February and March 1996. Inflation amounted to
less than 1% for the 1997 quarter and approximately 1.2% for the 1997
period.
Gross profit increased 34.5% to $36.2 million in the 1997 quarter
from $26.9 million in the 1996 quarter. Gross profit increased 36.5% to
$71.0 million in the 1997 period from $52.0 million in the 1996 period.
Gross profit margin decreased to 12.4% in the 1997 quarter compared to
14.0% in the 1996 quarter and to 12.7% for the 1997 period from 14.2%
in the 1996 period. 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 profit
margins declined as a result of the acquisition of PFG of Texas, whose
margins are currently lower than those in many of the Company's other
subsidiaries.
Operating expenses increased 37.7% to $29.8 million in the 1997
quarter compared with $21.7 million in the 1996 quarter. Operating
expenses increased 38.6% to $60.5 million in the 1997 period from $43.6
million in the 1996 period. As a percentage of net sales, operating
expenses declined to 10.2% in the 1997 quarter from 11.3% in the 1996
quarter and to 10.8% in the 1997 period from 11.9% in the 1996 period.
The decrease in operating expenses as a percent of net 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 21.2% to $6.4 million in the 1997
quarter from $5.3 million in the 1996 quarter. Additionally, operating
profit increased 25.5% to $10.5 million in the 1997 period from $8.4
million in the 1996 period. Operating profit margin declined to 2.2% for
the 1997 quarter from 2.7% for the 1996 quarter and to 1.9% for the
1997 period from 2.3% for the 1996 period.
Other expense increased to $254,000 in the 1997 quarter from
$66,000 in the 1996 quarter and to $687,000 in the 1997 period from
$367,000 in the 1996 period. Other expense includes interest expense,
which increased to $358,000 in the 1997 quarter from $90,000 in the
1996 quarter. Interest expense increased to $871,000 in the 1997 period
from $434,000 in the 1996 period. The increase in interest expense is
due to higher debt levels in the 1997 quarter and period as a result of the
Company's acquisition of PFG of Texas on December 30, 1996. Other
expense during the 1997 period 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 $2.3 million in the 1997 quarter
from $2.1 million in the 1996 quarter and to $3.8 million in the 1997
period from $3.2 million in the 1996 period, as a result of higher pre-tax
earnings. As a percentage of net earnings before income taxes, the
provision for income taxes was 38.4% and 39.5% for the 1997 and 1996
quarters, respectively, and 38.6% and 39.5% for the 1997 and 1996
periods, respectively.
Net earnings increased 20.2% to $3.8 million in the 1997 quarter
compared to $3.1 million in the 1996 quarter. Net earnings increased
24.6% to $6.0 million in the 1997 period from $4.9 million in the 1997
period. As a percentage of net sales, net earnings decreased to 1.3% in
the 1997 quarter versus 1.6% in the 1996 quarter and to 1.1% in the 1997
period from 1.3% in the 1996 period.
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 $13.6 million and
$11.6 million for the 1997 and 1996 periods, respectively. The increase
in cash provided by operating activities resulted primarily from higher
net earnings and decreased levels of trade receivables offset in part by
increased levels of inventories net of trade payables.
Cash used by investing activities was $32.6 million and $6.0
million for the 1997 and 1996 periods, 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 period were $4.1 million including
approximately $1.2 million for expansion of the distribution center in
Houma, Louisiana. The Company anticipates that its total capital
expenditures, other than for acquisitions, for fiscal 1997 will be
approximately $12 million. Investing activities during the 1997 period
also included $32.7 million primarily 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 one of
the Company's processing and distribution facilities.
Cash flows from financing activities was $18.3 million in the
1997 period and cash flows used by financing activities was $6.0 million
in the 1996 period. Cash flows in the 1997 period included net
borrowings on a revolving credit facility ("Credit Facility") of $13.7
million. The Credit Facility was used to finance the $32.0 million
acquisition of PFG of Texas, net of $18.3 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 $17.3 million was outstanding under the Credit Facility
at June 28, 1997. Subsequent to quarter end, the Company borrowed
approximately $13.5 million under the Credit Facility to finance the
acquisition of Powell and CFFF on June 30, 1997. The Credit Facility
also supports up to $5.0 million of letters of credit. At June 28, 1997, the
Company was contingently liable for $1.9 million of outstanding letters
of credit which reduce amounts available under the Credit Facility. At
June 28, 1997, the Company had $30.8 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 June 28, 1997, the Credit Facility bore interest at 5.86%.
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 period 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, which are effective for periods ending after
December 15, 1997 and issued SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which are effective for periods
beginning after December 15, 1997.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On May 6, 1997, the Board of Directors of the Company
declared a dividend of one Stock Purchase Right (a "Right") per share of
the Company's Common Stock, $.01 par value per share (the "Common
Stock"), outstanding on May 30, 1997 (the "Record Date"). A Right will
also accompany each share of the Company's Common Stock issued
following the Record Date. Each Right, when it first becomes
exercisable, entitles the holder to purchase from the Company one-
hundredth of one share of Preferred Stock, $.01 per value per share
(the "Preferred Stock"), at an initial exercise price of $100 per one-
hundredth of one share (the "Exercise Price"), subject to adjustment.
The terms and conditions of the Rights are set forth in a Rights
Agreement, dated as of May 16, 1997 (the "Rights Agreement"),between
the Company and First Union National Bank of North Carolina, as
Rights Agent (the "Rights Agent"), as more fully described in the
Company's Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on May 20, 1997.
Also on May 6, 1997, the Board of Directors of the Company
amended the Company's bylaws to contain an express declaration that
control share acquisitions respecting the Common Stock of the Company
are governed by and subject to the provisions of the Tennessee Control
Share Acquisition Act.
Item 4. Submission of Matters to a Vote of Security Holders.
(a.) The Annual Meeting of Shareholders was held on
May 6, 1997.
(b.) The following Director nominees were elected by
the shareholders of record as of March 17, 1997:
Votes In Votes
Class I (term expires 2000) Favor Against Abstentions
Timothy M. Graven 8,443,935 - 7,505
Charles E. Adair 8,443,935 - 7,505
(c.) The following other matters were voted on by the
shareholders of record as of March 17, 1997:
Votes In Votes
Favor Against Abstentions
Amendment of the 1993
Outside Directors' Stock
Option Plan to increase the
number of options granted
to non-employee directors
on the date of each annual
shareholders meeting. 8,178,475 259,802 13,163
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
15 Letter regarding unaudited financial
information from KPMG Peat Marwick LLP.
27 Financial Data Schedule (SEC only)
(b.) Reports on Form 8-K:
On May 20, 1997, the Company filed a report on
Form 8-K in connection with the declaration of a
dividend of one Stock Purchase Right per share of
the Company's Common Stock in accordance with
the terms of the Rights Agreement dated May 16,
1997.
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: August 8, 1997