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 APRIL 3, 1999
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 (ZipCode)
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 17, 1999, 13,513,340 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 April 3,
1999, and the related condensed consolidated statements of earnings and cash
flows for the three-month periods ended April 3, 1999 and March 28, 1998. 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 2, 1999, 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, 1999, 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 2, 1999 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
May 2, 1999
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
April 3, January 2,
1999 1999
(Unaudited)
Assets
Current assets:
Cash $ 7,510 $ 7,796
Trade accounts and notes receivable, net 113,871 110,372
Inventories 89,912 90,388
Other current assets 6,958 5,723
Total current assets 218,251 214,279
Property, plant and equipment, net 94,685 93,402
Intangible assets, net 82,171 78,023
Other assets 2,005 2,008
Total assets 397,112 387,712
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits 30,916 33,589
Current installments of long-term debt 687 797
Accounts payable 94,450 93,182
Other current liabilities 27,456 23,431
Total current liabilities 153,509 150,999
Long-term debt, excluding current installments 80,572 74,305
Deferred income taxes 5,323 5,323
Total liabilities 239,404 230,627
Shareholders' equity 157,708 157,085
Total liabilities and
shareholders' equity $ 397,112 $ 387,712
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
April 3, March 28,
1999 1998
Net sales $ 466,378 $ 375,170
Cost of goods sold 403,385 326,805
Gross profit 62,993 48,365
Operating expenses 56,713 43,387
Operating profit 6,280 4,978
Other income (expense):
Interest expense (1,286) (1,003)
Nonrecurring merger expenses (3,812) -
Other, net (6) 17
Other expense, net (5,104) (986)
Earnings before income taxes 1,176 3,992
Income tax expense 525 1,605
Net earnings $ 651 $ 2,387
Basic net earnings per common share $ 0.05 $ 0.18
Weighted average common shares outstanding 13,479 13,345
Diluted net earnings per common share $ 0.05 $ 0.17
Weighted average common shares and potential
dilutive common shares outstanding 14,187 13,874
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
April 3, March 28,
1999 1998
Cash flows from operating activities:
Net earnings $ 651 $ 2,387
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,253 2,515
ESOP contributions applied to principal of
ESOP debt 132 122
(Gain) loss on disposal of property, plant an 10 (80)
Changes in assets and liabilities 1,035 10,738
Net cash provided by operating activitie 5,081 15,682
Cash flows from investing activities:
Purchases of property, plant and equipment (3,928) (3,824)
Proceeds from sale of property, plant and equipment 52 455
(Increase) decrease in intangibles and other assets (4,815) 180
Net cash used by investing activities (8,691) (3,189)
Cash flows from financing activities:
Decrease in outstanding checks in excess of deposit (2,673) (1,711)
Net borrowings (payments) on note payable to banks 14,443 (2,067)
Repayment of promissory notes - (7,278)
Issuance of long-term debt 321 -
Principal payments on long-term debt (8,607) (169)
Distributions of pooled company (1,025) (86)
Effect of conforming fiscal year of pooled company - 85
Employee stock option, incentive and employee stock
purchase and related income tax benefit 865 535
Net cash provided (used) by financing
activities 3,324 (10,691)
Net increase (decrease) in cash (286) 1,802
Cash at beginning of period 7,796 3,880
Cash at end of period $ 7,510 $ 5,682
See accompanying notes to unaudited condensed consolidated financial statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
April 3, 1999 and March 28, 1998
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 2,
1999 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 28, 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 restated to include the
accounts and results of operations of NCF.
The results of operations, including $3.8 million of non-recurring
merger expenses, previously reported by the Company and the combined
amounts presented in the accompanying consolidated financial statements
are summarized below.
(amounts in thousands)
Three Months Ended
April 3, March 28,
1999 1998
Net sales:
The Company $ 444,883 $ 353,482
NCF 21,495 21,688
Combined $ 466,378 $ 375,170
Net earnings (loss):
The Company $ 3,228 $ 2,565
NCF (2,577) (178)
Combined $ 651 $ 2,387
Adjustments to conform NCF's accounting methods and practices to
those of the Company's consist 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 pro
forma disclosures present the combined results of operations,
excluding non-recurring merger expenses of $3.8 million, as if NCF was
taxed as a C-corporation for the periods presented:
Three Months Ended
(amounts in thousands) April 3, March 28,
1999 1998
Net sales $ 466,378 $ 375,170
Cost of goods sold 403,385 326,805
Gross profit 62,993 48,365
Operating expense 56,713 43,387
Operating profit 6,280 4,978
Other income (expense)
Interest expense (1,286) (1,003)
Other, (net) (6) 17
Other expense (net) (1,292) (986)
Earnings before income taxes 4,988 3,992
Income tax expense 1,920 1,536
Net earnings $ 3,068 $ 2,456
Weighted average common shares
outstanding 13,479 13,345
Basic net earnings per
common share $ 0.23 $ 0.18
Weighted average common shares
and potential dilutive common
shares outstanding 14,187 13,874
Diluted net earnings per
common share $ 0.22 $ 0.18
On June 1, 1998, the Company acquired certain net assets
related to the group and chemicals business of Affiliated Paper
Companies, Inc. ("APC"), a privately owned marketing organization
based in Tuscaloosa, Alabama. APC provides procurement and
merchandising services for a variety of paper, disposable and
sanitation supplies to more than 300 independent distributors.
On July 27, 1998, the Company acquired certain net assets of the
Virginia Foodservice Group ("VFG") based in Richmond, Virginia, a
division of a privately owned foodservice distributor in which a
member of the Company's management has a minor ownership
interest. VFG is a foodservice distributor primarily servicing
traditional foodservice customers in the Central Virginia market.
Collectively, these companies had 1997 net sales of approximately
$69 million. The aggregate purchase price of approximately $28.3
million, which includes an additional $4.4 million paid in the
first quarter of 1999 to the former shareholders of VFG as a result
of meeting certain performance criteria under the purchase
agreement, was financed with proceeds from an existing credit
facility. The aggregate consideration payable to the former
shareholders of APC and VFG is subject to increase in certain
circumstances.
These acquisitions have 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
$28.3 million and is being amortized on a straight-line basis
over estimated lives ranging from 5 to 40 years.
The consolidated statements of earnings and cash flows
reflect the results of these acquired companies from the date of
the acquisition through April 3, 1999. The unaudited
consolidated results of operations for the 1st quarter of 1998
on a pro forma basis as though these acquisitions had been
consummated as of the beginning of 1998 are as follows:
Three Months Ended
March 28, 1998
Net Sales $ 392,030
Gross Profit 52,897
Net Earnings 2,506
Basic Net Earnings per Common Share 0.19
Diluted Net Earnings per Common Share $ 0.18
3. Supplemental Cash Flow Information
Three Months Ended
(amounts in thousands) April 3, March 28,
1999 1998
Cash paid during the period for:
Interest $ 445 $ 993
Income taxes $ 123 $ 693
4. Industry Segment Information
During the fourth quarter of 1998, the Company adopted SFAS
No. 131, Disclosure about Segments of an Enterprise and Related
Information. The adoption of SFAS No. 131 requires the
presentation of descriptive information about reportable segments
which is consistent with that made available to the management of
the Company to assess performance of various operating units.
Under SFAS No. 131, the Company has two reportable segments:
broadline foodservice distribution ("Broadline") and customized
foodservice distribution ("Customized"). Broadline distributes
approximately 25,000 food and food-related products to a
combination of approximately 21,000 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 these 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. Customized currently distributes products in
approximately 40 states through four distribution facilities.
Other consists primarily of the Company's fresh-cut produce
operations.
Corporate
&
Broadline Customized Other Intersegment Consolidated
First Quarter 1999
Net external sales $ 269,679 $ 180,976 $ 15,723 $ - $ 466,378
Intersegment sales 760 - 3,000 (3,760) -
Operating profit 5,137 1,997 835 (1,689) 6,280
Total assets 288,111 83,237 14,251 11,513 397,112
Interest expense
(income) 1,572 551 (27) (810) 1,286
Depreciation and
amortization 2,370 400 359 124 3,253
Capital expenditures 2,950 336 329 313 3,928
First Quarter 1998
Net external sales $ 211,903 $ 150,052 $ 13,215 $ - $ 375,170
Intersegment sales 654 - 3,222 (3,876) -
Operating profit 4,185 1,618 539 (1,364) 4,978
Total assets 228,746 61,517 14,777 6,992 312,032
Interest expense
(income) 1,723 297 (97) (920) 1,003
Depreciation and
amortization 1,867 350 270 28 2,515
Capital expenditures 1,359 1,967 482 16 3,824
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, systems 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
April 3, March 28,
1999 1998
Net sales 100.0 % 100.0 %
Cost of goods sold 86.5 87.1
Gross profit 13.5 12.9
Operating expenses 12.2 11.6
Operating profit 1.3 1.3
Other expense, net 1.1 0.3
Earnings before
income taxes 0.2 1.0
Income tax expense 0.1 0.4
Net earnings 0.1 % 0.6 %
Comparison of Periods Ended April 3, 1999 to March 28, 1998.
Net sales increased 24.3% to $466.4 million for the three
months ended April 3, 1999 (the "1999 quarter") from $375.2
million for the three months ended March 28, 1998 (the "1998
quarter"). Net sales in the Company's existing operations
increased 19% over the 1998 quarter while acquisitions
contributed the remaining 5% of the Company's total sales growth.
Inflation amounted to approximately 1% for the 1999 quarter.
Gross profit increased 30.3% to $63.0 million in the 1999
quarter from $48.4 million in the 1998 quarter. Gross profit
margin increased to 13.5% in the 1999 quarter compared to 12.9%
in the 1998 quarter. The increase in gross profit margin
was due primarily to the following factors. During the second
half of 1998 and in the first quarter of 1999, the Company
acquired two broadline distribution and merchandising companies
that have higher gross margins than the Company's customized
distribution operations. Sales also grew internally in the
Company's produce processing operations by approximately 19%
during the 1999 quarter which operations currently have higher
margins than the Company's foodservice distribution operations.
Operating expenses increased 30.7% to $56.7 million in the
1999 quarter compared with $43.4 million in the 1998 quarter. As
a percentage of net sales, operating expenses increased to 12.2%
in the 1999 quarter from 11.6% in the 1998 quarter. The increase
in operating expenses as a percent of net sales is due primarily
to the following factors. The Company incurred certain start up
costs of two new distribution centers, which are replacing older,
less efficient facilities that became operational early 1999.
Operating expenses as a percentage of net sales were also
impacted by the acquisition of APC which has a higher expense
ratio than many of the Company's other subsidiaries.
Operating profit increased 26.2% to $6.3 million in the 1999
quarter from $5.0 million in the 1998 quarter. Operating profit
margin remained the same at 1.3% for both the 1999 and 1998
quarters.
Other expense increased to $5.1 million in 1999 from $1.0
million in 1998. Interest expense for the 1999 quarter amounted
to $1.3 million compared with $1.0 for the 1998 quarter. In
addition, the Company had non-recurring merger expenses related
to the merger with NCF of $3.8 million.
Income tax expense decreased to $525,000 in the 1999 quarter
from $1.6 million in the 1998 quarter primarily as a result of
lower pre-tax income compared to the year earlier period. As a
percentage of earnings before income taxes, the provision for
income taxes was 44.7% and 40.2% for the 1999 and 1998 quarters,
respectively. The fluctuation in the effective tax rate is 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.
Net earnings decreased 72.8% to $651,000 in the 1999 quarter
compared to $2.4 million in the 1998 quarter. As a percentage of
net sales, net earnings decreased to 0.1% in the 1999 quarter
versus 0.6% in the 1998 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 $5.1 million and
$15.7 million for the 1999 and 1998 quarters, respectively. The
decrease in cash provided by operating activities resulted
primarily from lower net earnings and increased levels of trade
receivables.
Cash used by investing activities was $8.7 million and $3.2
million for the 1999 and 1998 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 1999 quarter
were $3.9 million. The Company anticipates that its total
capital expenditures, other than for acquisitions, for fiscal
1999 will be approximately $29 million. In addition the 1999
quarter included $4.4 million paid to the former shareholders of
VFG related to the acheivment of certain performance criteria under
the purchase agreement.
Cash flows provided by financing activities was $3.3 million
in the 1999 quarter and used by financing activities was $10.7
million for the 1998 quarter. Cash flows in the 1999 period
included net borrowings on the revolving credit facility ("Credit
Facility") of $14.4 million. The 1999 quarter also included
repayments of long term debt in the amount of $8.6 million and
distributions to shareholders of NCF in the amount of $1.0
million. Cash flows in the 1998 period included net repayments
on the Credit Facility of $2.1 million net of repayment of $7.3
million of promissory notes used to finance the acquisition of
AFI Foodservice Distributors, Inc.
On March 5, 1999, the Company entered into an $85.0 million
Credit Facility with a group of commercial banks which replaced
the Company's existing facility. Approximately
$27.0 million was outstanding under the Credit Facility at
April 3, 1999 net of overnight investments. The Credit Facility
also supports up to $10.0 million of letters of credit. At
April 3, 1999, the Company was contingently liable for $6.0 million
of outstanding letters of credit which reduce amounts available
under the Credit Facility. At April 3, 1999, the Company had $52.0
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 April 3, 1999,
the Credit Facility bore interest at 5.42%. Additionally,
the Credit Facility requires the maintenance of certain financial ratios.
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 $300,000 of the proceeds of these bonds have been
used as of April 3, 1999. Interest varies as determined by the
remarketing agent for the bonds and was approximately 3.89% at
April 3, 1999. The bonds are secured by a letter of credit issued
by a commercial bank.
On September 12, 1997, the Company completed a $42.0 million
master operating lease agreement to construct or purchase four
distribution centers planned to become operational in 1998 and
1999. Under this agreement, 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 to purchase the facility at
its original cost. If the Company does not exercise its purchase
options, the Company has significant residual value guarantees of
each property. The Company expects the fair value of the
properties included in this agreement to eliminate or
substantially reduce the Company's exposure under the residual
value guarantees. At April 3, 1999, construction expenditures to
date were approximately $23.9 million.
The Company believes that cash flow 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 28, 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 restated to include the
accounts and results of operations of NCF.
On June 1, 1998, the Company acquired certain net assets
related to the group and chemicals business of Affiliated Paper
Companies, Inc. ("APC"), a privately owned marketing organization
based in Tuscaloosa, Alabama. APC provides procurement and
merchandising services for a variety of paper, disposable and
sanitation supplies to more than 300 independent distributors.
On July 27, 1998, the Company acquired certain net assets of the
Virginia Foodservice Group ("VFG") based in Richmond, Virginia, a
division of a privately owned foodservice distributor in which a
member of the Company's management has a minor ownership
interest. VFG is a foodservice distributor primarily servicing
traditional foodservice customers in the Central Virginia market.
Collectively, these companies had 1997 net sales of approximately
$69 million. The aggregate purchase price of approximately $28.3,
million, which includes an additional $4.4 million paid in the
first quarter of 1999 to the former shareholders of VFG as a result
of meeting certain performance criteria under the purchase agreement,
was financed with proceeds from an existing credit
facility. The aggregate consideration payable to the former
shareholders of APC and VFG is subject to increase in certain
circumstances.
The acquisition of APC and VFG have 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
$28.3 million and is being amortized on a straight-line basis
over estimated lives ranging from 5 to 40 years.
Year 2000 Issue
State of Readiness
In mid 1997, the Company initiated a project to address any
potential business disruptions related to data processing
problems as a result of the year 2000 issue. Initially, the
project focused primarily on the Company's information technology
("IT") systems. However, the project was subsequently expanded to
include non-IT systems including transportation and warehouse
refrigeration systems, telecommunications, utilities, etc. The
project consists of a number of phases: awareness, assessment,
programming/testing and implementation. With respect to IT
systems, the Company has completed the first three phases and is
approximately 66% complete with the implementation phase. The
Company expects to complete the implementation phase for IT
systems during the third quarter of 1999. With respect to non-IT
systems, the Company is in the assessment phase to identify all
critical systems requiring remediation and is developing a
timetable for remediation based upon that assessment. As part of
the year 2000 project, the Company has initiated communications
with its significant merchandise suppliers and major customers to
assess their state of readiness for the year 2000. A significant
percentage of suppliers and customers have provided the Company
with written responses regarding their state of year 2000
readiness. The Company is continuing to evaluate key business
processes to identify any additional non-IT systems requiring
remediation and to work with key suppliers and customers in
preparing for the year 2000. Despite this continuing effort, the
Company can provide no assurance that the IT and non-IT systems
of third party business partners with whom the Company relies
upon will be year 2000 compliant.
Costs
In addition to the year 2000 project, the Company has
underway a project to standardize the computer systems at nine of
its broadline distribution subsidiaries, which operate in a
distributed computing environment. The decision to standardize
the computer system used in these subsidiaries was based on the
Company's continued growth and need to capture information to
improve operating efficiencies and capitalize on the Company's
combined purchasing power. The plan to standardize these systems
was not accelerated by the year 2000 issue. Additionally, one of
the Company's distribution subsidiaries, which operates four
distribution facilities, processes information in a centralized
computing environment. Therefore, the Company's year 2000
remediation efforts have been minimized by focusing its year 2000
programming on two primary operating systems. The Company
anticipates incurring approximately $600,000 related to
remediating its IT systems for year 2000 compliance, of which the
Company has incurred approximately $400,000 to date. The Company
has not completed quantifying the remediation costs regarding non-
IT systems. Year 2000 remediation costs are being expensed as
incurred over the life of the project and are not expected to
have a material effect on the Company's results of operations.
Risks and Contingency Plans
The Company is currently assessing the consequences of its
IT and non-IT remediation efforts not being completed timely or
its efforts not being successful. As part of this assessment
process, the Company is developing contingency plans including
plans to address interruption of merchandise and services
supplied to customers and supplied by third party business
partners. The Company believes the most reasonably likely worst
case scenario related to the readiness of IT systems is that the
implementation of the year 2000 compliant system in all nine
subsidiaries may not be completed timely. The Company's
contingency plans in this case include backup plans to process
transactions for non-compliant subsidiaries through one of the
Company's year 2000 compliant systems. The Company is still
formulating these contingency plans. With respect to risks
associated with third party merchandise suppliers, the Company
believes the most reasonably likely worst case scenario is that
some of the Company's merchandise suppliers may have difficulty
filling orders and shipping products. The Company believes the
risk associated with merchandise suppliers' year 2000 readiness
is mitigated by the significant number of Company relationships
with alternative suppliers within various product categories,
which could be substituted in the event of non-compliance. The
Company also believes the number of non-compliant merchandise
suppliers will be minimized through its program of communicating
with key suppliers and assessing their state of year 2000
readiness. The Company has not yet completed its identification
and assessment of all non-IT systems requiring remediation,
including various service providers. As the Company's year 2000
project continues, the Company will continue to develop
contingency plans and identify alternative business processes and
sources of supply for goods and services.
The Company's project and related assessment of costs and
risks are based on current estimates and assumptions, including
the outcome of future events regarding the continued availability
of certain resources, the timing and effectiveness of third party
remediation efforts and other factors. There can be no assurance
that the Company's contingency plans or its efforts with respect
to third party business partners will be successful, which could
have a material adverse effect on the Company's financial
position 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
Company's anticipated growth, year 2000 compliance 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 does not currently use financial instruments for
trading purposes nor hold derivative financial instruments that could expose
the Company to significant market risk. The Company has no material foreign
currency exposure. The Company's primary exposure to market 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. As of April 3, 1999, the Company's total debt consisted
of fixed and floating rate debt of $50.0 million and $31.3 million,
respectively. Substantially all of the Company's floating rate debt is based
on LIBOR.
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 April 3, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
10.28 Revolving Credit agreement dated as of
March 5, 1999
10.29 Letter of Credit and Reimbursement Agreement by and
among KMB Produce, Inc. and First Union National Bank
dated as of March 1, 1999.
10.30 Guaranty Agreement by and among Performance Food Group
Company and First Union National Bank dated
as of March 1, 1999.
15 Letter regarding unaudited financial
information from KPMG LLP.
27.1 Financial Data Schedule (SEC only)
27.2 Restated Financial Data Schedule (SEC only)
(b.) No reports on Form 8-K were filed during the
quarter ended April 3, 1999.
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 17, 1999.