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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 27, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number
AMERISERVE FOOD DISTRIBUTION, INC.*
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(Exact name of registrant as specified in its charter)
Nebraska 47-0464089
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
17975 West Sarah Lane, Suite 100
Brookfield, WI 53045
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(Address of principal executive offices) (Zip Code)
414-792-9300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
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.
Yes No X
--- ---
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* TABLE OF ADDITIONAL REGISTRANTS
State or other jurisdiction of I.R.S. Employer
Name, Address and Telephone Number incorporation or organization Identification Number
- ---------------------------------- ------------------------------ ---------------------
AmeriServ Food Company (1) Delaware 75-2296149
Chicago Consolidated Corporation (1) Illinois 36-2691925
Northland Transportation Services, Inc. (1) Nebraska 39-1807312
The Harry H. Post Company (1) Colorado 84-0294250
Delta Transportation, Ltd. (1) Wisconsin 39-1411171
AmeriServe Transportation, Inc. (2) Nebraska 91-1824117
(1) The address of these registrants is 17975 West Sarah Lane, Suite 100,
Brookfield, WI 53045. Their telephone number is (414) 792-9300.
(2) The address of this registrant is 14841 Dallas Parkway, Dallas, TX 75240.
The telephone number is (972) 385-8595.
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AMERISERVE FOOD DISTRIBUTION, INC.
FORM 10-Q INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 27, 1997
and December 28, 1996......................................................................... 4
Condensed Consolidated Statements of Operations for the three and
nine months ended September 27, 1997 and September 28, 1996.................................. 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 27, 1997 and September 28, 1996........................................ 6
Notes to Condensed Consolidated Financial Statements.......................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................................ 12
Part II. Other Information
Item 1. Legal Proceedings ............................................................................ 16
Item 2. Changes in Securities and Use of Proceeds..................................................... 16
Item 3. Defaults upon Senior Securities............................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................................... 16
Item 5. Other Information ............................................................................ 16
Item 6. Exhibits and Reports on Form 8-K.............................................................. 16
Signatures ............................................................................................... 16
Exhibits.................................................................................................. 17
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERISERVE FOOD DISTRIBUTION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
September 27, December 28,
ASSETS 1997 1996
------------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 74,651 $ 2,162
Accounts receivable, net 16,278 68,635
Investment in accounts receivable trust 167,514 --
Inventories 153,578 47,714
Other current assets 22,551 8,077
----------- -----------
Total current assets 434,572 126,588
Property and equipment, net 116,985 33,837
Intangible assets, net 726,211 122,451
Other noncurrent assets 6,806 8,227
----------- -----------
$ 1,284,574 $ 291,103
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 323,991 $ 89,440
Current maturities of long-term debt 4,209 3,266
Accrued liabilities and other current liabilities 67,396 15,838
----------- -----------
Total current liabilities 395,596 108,544
Long-term debt 725,273 126,639
Other noncurrent liabilities 38,896 13,245
Stockholder's equity:
Senior preferred stock, $1 par value per share; 765 shares
authorized, 600 shares outstanding in 1996 -- 30,000
Preferred stock, $50,000 par value per share; 150 shares
authorized and outstanding in 1996 -- 7,500
Preferred stock, $25,000 par value per share; 400 shares
authorized, 300 shares outstanding in 1996 -- 7,500
Common stock, $10 par value per share; 2,000 shares
authorized, 600 shares outstanding 6 6
Additional paid in capital 174,603 --
Accumulated deficit (49,800) (2,331)
----------- -----------
Total stockholder's equity 124,809 42,675
----------- -----------
$ 1,284,574 $ 291,103
=========== ===========
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 28, 1996 has been derived from the
audited financial statement at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
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AMERISERVE FOOD DISTRIBUTION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, UNAUDITED)
Three Months Ended Nine Months Ended
------------------------------ ----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------- -------------- ------------ -------------
Net sales $1,232,580 $ 375,269 $1,973,589 $ 960,060
Cost of goods sold 1,110,099 338,233 1,778,643 864,013
---------- ----------- ---------- -----------
Gross profit 122,481 37,036 194,946 96,047
Distribution, selling and
administrative expenses 96,122 31,394 160,936 82,619
Amortization of intangible assets 4,915 1,388 7,234 3,491
Impairment, restructuring and other
unusual charges 44,550 -- 44,550 --
---------- ----------- ---------- -----------
Operating income (loss) (23,106) 4,254 (17,774) 9,937
Interest expense 17,706 3,024 24,712 8,090
Loss on sale of accounts receivable 2,221 -- 2,221 --
---------- ----------- ---------- -----------
Income (loss) before income taxes (43,033) 1,230 (44,707) 1,847
Provision for income taxes 1,235 395 606 735
---------- ----------- ---------- -----------
Income (loss) before extraordinary item (44,268) 835 (45,313) 1,112
Extraordinary loss 2,156 -- 2,156 --
---------- ----------- ---------- -----------
Net income (loss) ($ 46,424) $ 835 ($ 47,469) $ 1,112
========== =========== ========== ===========
See notes to condensed consolidated financial statements.
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AMERISERVE FOOD DISTRIBUTION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
Nine Months Ended
-------------------------------
September 27, September 28,
1997 1996
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OPERATING ACTIVITIES:
Net income (loss) ($ 47,469) $ 1,112
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 17,288 7,124
Impairment of property, equipment and other assets 12,404 --
Extraordinary loss 2,156 --
Changes in assets and liabilities, net of effect of acquisitions 35,456 (9,943)
---------- ----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 19,835 (1,707)
---------- ----------
INVESTING ACTIVITIES:
Businesses acquired, net of cash acquired (830,000) (94,411)
Capital expenditures (8,762) (3,449)
Net cash transfers to affiliates (8,268) (3,880)
---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (847,030) (101,740)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock -- 30,000
Proceeds from issuance of long-term debt 705,000 --
Proceeds from sale of accounts receivable 225,000 --
Proceeds from capital contribution 130,000 --
Debt financing fees incurred (26,620) --
Net increase (decrease) in borrowings under revolving line of credit (69,100) 118,700
Repayments of long-term debt (64,596) (43,878)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 899,684 104,822
---------- ----------
NET INCREASE IN CASH 72,489 1,375
CASH AT BEGINNING OF PERIOD 2,162 575
---------- ----------
CASH AT END OF PERIOD $ 74,651 $ 1,950
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 16,907 $ 6,369
Income taxes, net of refunds 2,445 1,043
Businesses acquired:
Fair value of assets acquired $1,069,117 $ 187,907
Cash paid (830,000) (94,411)
---------- ----------
Liabilities assumed $ 239,117 $ 93,496
========== ==========
Noncash investing and financing activities:
Capital expenditures through capital leases
(included in long-term debt) $ 14,800 $ 11,845
See notes to condensed consolidated financial statements.
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AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997 (UNAUDITED)
NOTE 1 - INTERIM FINANCIAL DATA
The accompanying unaudited condensed consolidated financial statements of
AmeriServe Food Distribution, Inc. (AmeriServe) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of adjustments of
a normal and recurring nature) considered necessary for a fair presentation of
the financial position and results of operations have been included. Operating
results for the nine-month period ended September 27, 1997 are not necessarily
indicative of the results that might be expected for the fiscal year ended
December 27, 1997. The financial statements presented in this Report should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in AmeriServe's Registration Statement on Form S-4 No.
333-33225 effective November 10, 1997.
NOTE 2 - ACQUISITIONS
On July 11, 1997, AmeriServe acquired the U.S. and Canadian operations of PFS, a
Division of PepsiCo, Inc., in an asset purchase transaction for approximately
$830 million in cash, including direct costs. PFS posted net sales of $3.4
billion for the fiscal year ended December 25, 1996. Financing of the
acquisition included an equity contribution of $130 million by Nebco Evans
Holding Company (NEHC), the parent company of AmeriServe, and other transactions
as described in Notes 4 and 5. PFS is engaged in the distribution of food
products and supplies to franchised and company-owned restaurants in the Pizza
Hut, Taco Bell and KFC systems, which were spun-off by PepsiCo, Inc. on October
6, 1997 and are now operating as TRICON Global Restaurants, Inc. (TRICON).
The effective date of the acquisition was June 11, 1997, the end of PFS' second
quarter. The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
from the effective date of the acquisition. Following is the preliminary
purchase price allocation (the final purchase price allocation will be based on
a final determination of the fair value of assets acquired and liabilities
assumed):
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(In millions)
- ---------------------------------------------
Accounts receivable $323.8
Inventories 86.1
Property and equipment 72.5
Goodwill and other intangibles 585.3
Other assets 1.4
Accounts payable (172.5)
Accrued liabilities (46.6)
Restructuring reserves (20.0)
---------
$830.0
- ---------------------------------------------
The restructuring reserves of $20 million were included in the preliminary
purchase price allocation above in connection with AmeriServe's business plan to
integrate the operations of PFS. The reserves represent the accruals for costs
to be incurred by AmeriServe related to the termination of redundant employees
($4 million), lease termination costs in connection with the closing of
duplicative facilities that will not be used by AmeriServe ($15 million) and
certain other costs to exit PFS activities ($1 million). See Note 3 for
additional discussion.
In connection with the acquisition, AmeriServe was assigned and assumed a sales
and distribution agreement dated May of 1997 between PFS and the Pizza Hut, Taco
Bell and KFC businesses (the "TRICON Chains"). The agreement provides that
AmeriServe is the exclusive distributor of a substantial majority of products
purchased by the domestic company-owned restaurants in the TRICON Chains for a
five-year period beginning July 12, 1997, subject to certain service performance
standards. The agreement also covers Pizza Hut and Taco Bell restaurants sold to
franchisees within the five-year period. TRICON-owned restaurants accounted for
approximately 40% of AmeriServe's consolidated net sales for the three months
ended September 27, 1997. No other single customer accounts for more than 10% of
consolidated net sales.
Concurrent with the acquisition of PFS, NEHC acquired the remaining 6.4% of the
outstanding common stock of the Harry H. Post Company (Post) from the minority
shareholder and transferred 100% of the capital stock of Post to AmeriServe in
exchange for AmeriServe's investment in NEHC preferred stock of $2.5 million.
Post is also a system foodservice distribution business and generated net sales
of $119.4 million for the fiscal year ended December 28, 1996. The Post
operations are included in the consolidated results of AmeriServe effective with
the results for the three months ended September 27, 1997.
The following unaudited pro forma results of operations for the nine months
ended September 27, 1997, and September 28, 1996 assume the acquisition of PFS
and related transactions occurred at the beginning of each period presented (in
thousands):
Nine Months Ended
------------------------------------
September 27, September 28,
1997 1996
----------------- ---------------
Net sales.................. $3,533,824 $3,362,692
Net loss................... (52,681) (6,455)
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Additionally, on October 29, 1997, AmeriServe acquired the stock of a food
distribution business in Mexico for approximately $8 million in cash. The
business distributes food products and supplies to franchised and company-owned
restaurants, primarily in Mexico, in TRICON's Pizza Hut and KFC systems. The
acquisition will be accounted for under the purchase method. The operating
results of the business are not material to the consolidated results of
AmeriServe.
NOTE 3 - IMPAIRMENT, RESTRUCTURING AND OTHER UNUSUAL CHARGES
Included in "Impairment, restructuring and other unusual charges" in the
Condensed Consolidated Statements of Operations for the three and nine month
periods ended September 27, 1997 are the following:
(In millions)
- -----------------------------------------------------------------------------
Impairment of property, equipment and other assets $12.4
Restructuring expense, principally exit costs for future lease
terminations and employee displacements 14.8
Integration costs incurred in the current period, primarily
related to a previous acquisition 4.0
Bridge financing fees, one-time costs associated with the
Accounts Receivable Program (Note 5) and other indirect costs
incurred in connection with the PFS acquisition 13.4
-----
$44.6
- -----------------------------------------------------------------------------
The noncash impairment charge and the restructuring accrual noted above reflect
actions to be taken with respect to AmeriServe facilities as a result of the PFS
acquisition. During the third quarter of 1997, management performed an extensive
review of the existing and recently acquired PFS operations with the objective
of developing a business plan for the restructuring and consolidation of the
organizations. The business plan, which was approved by AmeriServe's Board of
Directors late in the third quarter, identified a number of actions designed to
improve the efficiency and effectiveness of the combined entity's warehouse and
transportation network and operational support infrastructure. These actions,
which are expected to be substantially completed within eighteen months, include
construction of new strategically located warehouse facilities, closures of
certain existing warehouse facilities and expansions of others, dispositions of
property and equipment, conversion of computer systems, reductions in workforce
and relocation of AmeriServe's headquarters from Brookfield, Wisconsin to
Dallas, Texas.
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NOTE 4 - LONG-TERM DEBT
In connection with the PFS acquisition, on July 11, 1997, AmeriServe issued $500
million principal amount of 10-1/8% Senior Subordinated Notes due July 15, 2007
in a Rule 144A private placement and entered into a new credit facility
providing for term loans totaling $205 million and a revolving credit facility
of up to $150 million that expires on June 30, 2003. Approximately $140 million
remains available under the revolving facility as of December 15, 1997. A
portion of the proceeds was used to repay all outstanding borrowings of $133.7
million under the previous credit agreement. On October 15, 1997, AmeriServe
issued $350 million principal amount of 8-7/8% Senior Notes due October 15, 2006
in a Rule 144A private placement and used a portion of the proceeds to repay the
$205 million term loans.
Effective December 12, 1997, AmeriServe completed an offer to exchange all the
outstanding Senior Subordinated Notes due July 15, 2007 and the Senior Notes due
October 15, 2006 with New Notes with substantially identical terms that are
registered under the Securities Act of 1933.
NOTE 5 - ACCOUNTS RECEIVABLE PROGRAM
In July 1997, AmeriServe entered into a five-year Accounts Receivable Program
under which AmeriServe established AmeriServe Funding Corporation (Funding), a
wholly-owned special purpose bankruptcy-remote entity that acquires, on a daily
basis, substantially all of the trade receivables generated by AmeriServe and
its subsidiaries. The purchases by Funding are financed through the sale of the
receivables to AmeriServe Master Trust ("the Trust") and the issuance of a
series of certificates by the Trust representing undivided interests in the
assets of the Trust. As of September 27, 1997, AmeriServe had transferred $392.5
million of accounts receivable to Funding in exchange for $225 million in cash
and an undivided interest in the Trust of $167.5 million.
In accordance with the provisions of FASB No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," the
transactions have been recorded as a sale of receivables to a qualified special
purpose entity. The ongoing cost associated with the Program, which represents
the return to investors in the certificates, is reported in the Condensed
Consolidated Statements of Operations as "Loss on sale of accounts receivable."
AmeriServe has accounted for its investment in Funding as a held to maturity
security in accordance with FASB No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." (See Note 8.)
NOTE 6 - EXTRAORDINARY LOSS
In connection with the early extinguishment of debt on July 11, 1997 as
described in Note 4, AmeriServe recorded an extraordinary loss of $2.2 million,
which represents the unamortized balance of deferred financing costs associated
with the debt. Because of AmeriServe's net operating loss carry-forward
position, the charge was recorded without tax benefit. The early extinguishment
of debt on October 15, 1997, as described in Note 4, will result in an
extraordinary loss in the fourth quarter of $7.2 million, without tax benefit.
This loss also represents the unamortized balance of deferred financing costs
associated with the debt.
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NOTE 7 - STOCKHOLDER'S EQUITY
Following is a summary of transactions affecting stockholder's equity for the
nine months ended September 27, 1997:
(In thousands)
- ---------------------------------------------------------------------------------
Stockholder's equity at December 28, 1996 $42,675
Contribution of all outstanding preferred stock to additional paid
in capital at book value -
Contribution by NEHC to additional paid in capital 130,000
Loss on exchange of investment in NEHC preferred stock for
capital stock of Post, recorded as reduction in additional paid
in capital (397)
Net loss for the nine months ended September 27, 1997 (47,469)
---------
Stockholder's equity at September 27, 1997 $124,809
- --------------------------------------------------------------------------------
NOTE 8 - GUARANTOR SUBSIDIARIES
AmeriServe's operating subsidiaries fully, unconditionally, jointly and
severally guarantee the Senior Subordinated Notes and the Senior Notes discussed
in Note 4. The guarantor subsidiaries are direct or indirect wholly-owned
subsidiaries of AmeriServe, and AmeriServe and the guarantor subsidiaries
conduct substantially all of the operations of AmeriServe and its subsidiaries
on a consolidated basis. Separate financial statements of the guarantor
subsidiaries are not separately presented because, in the opinion of management,
such financial statements are not material to investors.
The only significant subsidiary of AmeriServe that is not a guarantor subsidiary
is Funding, which is a wholly-owned special purpose bankruptcy-remote
subsidiary. Funding has no operating revenues or expenses, and its only asset is
an undivided interest in an accounts receivable trust (the "Trust" - See Note
5). Funding's interest in the Trust is junior to the claims of the holders of
certificates issued by the Trust. Accordingly, as creditors of Ameriserve, the
claims of the holders of Senior Subordinated Notes and Senior Notes against the
accounts receivable held in the Trust are similarly junior to the claims of
holders of the certificates issued by the Trust.
The following is summarized combined financial information (in accordance with
Rule 1-02(bb) of Regulation S-X) for the guarantor subsidiaries of AmeriServe at
September 27, 1997 and for the nine months then ended (in thousands):
Current assets ..................................... $ 74,937
Current liabilities ................................ 72,588
Noncurrent assets .................................. 72,285
Noncurrent liabilities ............................. 52,936
Net sales .......................................... $ 796,728
Gross profit ....................................... 75,521
Net loss ........................................... (20,046)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
AmeriServe Food Distribution, Inc. (AmeriServe) is North America's largest
foodservice distributor to chain restaurants, distributing a wide variety of
items, including meat, poultry, frozen foods, canned and dry goods, produce,
beverages, dairy products, paper goods, cleaning and other supplies and small
equipment. AmeriServe's major customers are franchisers and/or franchisees in
the Pizza Hut, Taco Bell, KFC, Wendy's, Arby's, Burger King and Dairy Queen
restaurant systems.
AmeriServe acquired the U.S. and Canadian operations of PFS, a Division of
PepsiCo, Inc., effective June 11, 1997. The net sales of PFS for the fiscal year
ended December 25, 1996 were $3.4 billion. PFS distributed food products and
supplies to franchised and company-owned restaurants in the Pizza Hut, Taco Bell
and KFC systems, which were spun-off by PepsiCo, Inc. in October of 1997 and are
now operating as TRICON Global Restaurants, Inc. (TRICON). Twelve weeks of
operating results of PFS are included in AmeriServe's operating results for the
three and nine months ended September 27, 1997. Because of the relative sizes of
PFS and AmeriServe, which had net sales of $1.3 billion for the fiscal year
ended December 28, 1996, the comparisons of operating results discussed below
are significantly impacted by the PFS acquisition.
In April of 1997, AmeriServe began providing foodservice distribution to
approximately 2,600 Arby's restaurants under a three-year exclusive contract.
(While the majority of Arby's restaurants are serviced directly by AmeriServe,
some are serviced by sub-contracted independent distributors.)
RESULTS OF OPERATIONS
The following table presents certain financial information of AmeriServe,
expressed as a percentage of net sales, for the three and nine months ended
September 27, 1997 and September 26, 1996.
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 27, September 26, September 27, September 26,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 90.1% 90.1% 90.1% 90.0%
Gross profit 9.9% 9.9% 9.9% 10.0%
Distribution, selling and
administrative expenses 7.8% 8.4% 8.2% 8.6%
Operating income before
amortization of intangible
assets and impairment,
restructuring and other unusual
charges 2.1% 1.5% 1.7% 1.4%
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Net sales increased by $857 million, or 228%, for the quarter, and $1.0 billion,
or 106%, year-to-date. The PFS acquisition accounted for $781 million of the
increase for the quarter and year-to-date. The remaining sales growth of $76
million for the quarter and $219 million year-to-date was largely due to the
addition of service to Arby's.
Gross profit increased by $85 million, or 231%, for the quarter and $99 million,
or 103%, year-to-date due primarily to the PFS acquisition. The gross profit
margin was 9.9% for the quarter and year-to-date, substantially consistent with
the prior year results.
Distribution, selling and administrative expenses increased by $65 million, or
206%, for the quarter and $78 million, or 95%, year-to-date due primarily to the
PFS acquisition. Distribution, selling and administrative expenses as a percent
of net sales decreased from 8.4% to 7.8% for the quarter and decreased from 8.6%
to 8.2% year-to-date. This change reflects the impact of PFS' lower operating
expense margin, as well as leveraging of the Arby's business.
Operating income before amortization of intangible assets and impairment,
restructuring and other unusual charges increased $21 million for both the
quarter and year-to-date, or 367% and 153% for the quarter and year-to-date,
respectively, due primarily to the PFS acquisition. As a percent of net sales,
this income measure rose from 1.5% to 2.1% for the quarter and 1.4% to 1.7%
year-to-date. This change is due to the lower distribution, selling and
administrative expense as a percent of net sales as discussed above.
Amortization of intangible assets increased $3.5 million for the quarter and
$3.7 million year-to-date, reflecting the amortization of the intangible assets
arising from the preliminary allocation of the PFS purchase price.
Impairment, restructuring and other unusual charges totaled $44.6 million for
the quarter and year-to-date. This charge includes impairment of property,
equipment and other assets, exit costs for future lease terminations and
employee displacements, integration costs primarily related to a previous
acquisition and fees for bridge financing and the accounts receivable sale
program and other one-time costs associated with the PFS acquisition. The
impairment charge and exit cost accruals relate to restructuring and
consolidation actions designed to integrate the AmeriServe and PFS operations.
See Note 3 for further information.
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Interest expense increased $14.7 million for the quarter and $16.6 million year
to date, reflecting interest on additional debt primarily to finance the
acquisition of PFS.
Loss on sale of accounts receivable relates to an ongoing program established
by AmeriServe to provide additional financing capacity. Under the program,
accounts receivable are sold to a wholly-owned special purpose bankruptcy
remote subsidiary, which in turn transfers the receivables to a master trust.
The loss on sale of receivables of $2.2 million represents the return to
investors in certificates issued by the master trust. See Note 5 for further
information.
Provision for income taxes represents estimated current income taxes payable.
AmeriServe's net deferred tax assets are offset entirely by a valuation
allowance, reflecting AmeriServe's net operating loss carry-forward position.
Extraordinary loss of $2.2 million resulted from an early extinguishment of
debt. This noncash charge represents the unamortized balance of deferred
financing costs associated with a previous credit facility. Another noncash
extraordinary loss of $7.2 million will be recorded in the fourth quarter of
1997 as a result of the early extinguishment of debt on October 15, 1997. See
Notes 4 and 6 for further information.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first nine months of 1997
increased $21.5 million compared to the first nine months of 1996. Net cash
provided by operating activities in 1997 includes $13.4 million in cash outflows
for fees related to bridge financing and the accounts receivable sale program
and other indirect costs associated with the PFS acquisition. Excluding these
nonrecurring items, net cash provided by operating activities was $33.2 million
in 1997, compared to a cash use of $1.7 million in 1996. This increase reflects
favorable working capital changes due primarily to timing of payments as well as
the cash earnings generated by the PFS operations, partially offset by higher
interest payments.
Unusual charges in 1997 also included $12.4 million in noncash impairment of
property, equipment and other assets and $14.8 million in restructuring (exit)
cost accruals for future lease terminations and employee displacements. These
exit costs represent cash outflows in future periods.
Net cash used for investing activities for the first nine months of 1997
increased $745.3 million compared to 1996 reflecting the $830 million
acquisition of PFS. Capital expenditures primarily represent purchases of
warehouse and truck fleet equipment, and the $5.3 million increase over 1996 was
driven by the impact of the PFS acquisition and increased warehouse capacity.
Net cash provided by financing activities in 1997 reflected debt and equity
financing transactions to support the PFS acquisition and future capital needs
and to refinance existing borrowings. The debt transactions included issuance of
$500 million 10 1/8% Senior Subordinated Notes due in 2007 and $205 million in
term loans. The term loans were repaid in October of 1997 with proceeds from
issuance of $350 million 8 7/8% Senior Notes due in 2006. Also included in net
cash provided by financing activities is $225 million in proceeds from the
initial sale under the accounts receivable program described in Note 5. Nebco
Evans Holding Company, the parent company of AmeriServe, provided $130 million
in equity financing. See Note 7 for a summary of transactions affecting
stockholder's equity for the nine months ended September 27, 1997.
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Capital Resources are expected to be sufficient to support ongoing business
needs as well as the consolidation activities. These resources include cash
provided by operating activities, capital lease financing of capital spending,
cash on hand and an available revolving credit facility of approximately $140
million.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
AmeriServe's acquisition of PFS presents an opportunity to significantly improve
operating efficiencies of the combined business by eliminating redundant
facilities, achieving warehouse economies of scale with new and larger
facilities and improving truck fleet utilization through increased deliveries
per route. The impairment and restructuring charges recorded in the current
quarter reflect actions designed to begin taking advantage of these synergistic
opportunities.
While AmeriServe expects to generate ongoing cost savings upon the completion
of these and other future actions under consideration, future results will be
negatively impacted by costs of start-up, integration, training and other
operating inefficiencies associated with the consolidation activities. These
cash consolidation costs, for the actions that have been decided upon to date,
are expected to approximate $20 million over the next eighteen months. While
management believes it has the resources to meet its objectives, the ultimate
level and timing of cost savings is subject to the organization's ability to
manage through the complexities of the consolidation and respond to
unanticipated events.
An important component of the consolidation effort is the replacement of most
existing management information systems with a new software platform and
hardware configuration. Among other expected benefits, the new computer system
will complement the consolidation effort by providing the flexibility to support
the varied processes of the combined business as well as allowing greater
centralization of support functions. Because most existing applications are not
Year 2000 compliant, there is a risk of business disruption if the system
implementation, which is underway, is not completed within the established
timelines.
AmeriServe's future results are subject to economic and competitive risks and
uncertainties in the chain restaurant and foodservice industries, as well as
fluctuations in the costs of products distributed. Further, although
AmeriServe provides foodservice distribution to TRICON under a five-year
exclusive distribution agreement (the "Distribution Agreement") effective July
of 1997, AmeriServe is subject to the inherent risk of customer concentration
as approximately 40% of net sales are to TRICON-owned restaurants. TRICON is
actively engaged in the sale to franchisees of Taco Bell and Pizza Hut
restaurants covered by the Distribution Agreement. While the Distribution
Agreement provides that prior to such sales, such franchisees will enter into
distribution agreements on substantially similar terms, there can be no
assurance that the transition from company-owned to franchised status will not
affect AmeriServe's results. In addition, AmeriServe's future results may be
impacted by restaurant closure actions recently disclosed by TRICON.
AmeriServe is and will continue to be highly leveraged as a result of the
indebtedness incurred in connection with the acquisition of PFS. AmeriServe's
ability to meet interest payments, refinance the debt or ultimately repay the
debt is subject to the risks and uncertainties discussed above.
For additional factors that could cause AmeriServe's actual results to differ
materially from expected and historical results, see the "Risk Factors" set
forth in AmeriServe's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on November 10, 1997.
This quarterly report contains certain forward-looking statements within the
meaning of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in such forward-looking statements and readers
are cautioned not to place undue reliance on the forward-looking statements
which speak only as the date hereof. AmeriServe undertakes no obligation to
update these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence or nonoccurrence of anticipated
events.
15
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Asset Purchase Agreement between PepsiCo, Inc. and Nebco Evans
Holding Company (incorporated by reference to Exhibit 2.2 to the
Registrant's Registration Statement Form S-4 No. 333-33225 filed
August 8, 1997).
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-4 No. 333-33225
filed August 8, 1997).
3.3 Certificate of Incorporation of AmeriServ Food Company
(incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.4 By-Laws of AmeriServ Food Company (incorporated by reference to
Exhibit 3.4 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
3.5 Articles of Incorporation of AmeriServe Transportation, Inc.
(incorporated by reference to Exhibit 3.5 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.6 By-Laws of AmeriServe Transportation, Inc. (incorporated by
reference to Exhibit 3.6 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.7 Articles of Incorporation of Chicago Consolidated Corporation
(incorporated by reference to Exhibit 3.7 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.8 By-Laws of Chicago Consolidated Corporation (incorporated by
reference to Exhibit 3.8 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.9 Articles of Incorporation of Northland Transportation Services,
Inc. (incorporated by reference to Exhibit 3.9 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.10 By-Laws of Northland Transportation Services, Inc. (incorporated by
reference to Exhibit 3.10 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
3.11 Articles of Incorporation of The Harry H. Post Company
(incorporated by reference to Exhibit 3.11 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.12 By-Laws of The Harry H. Post Company (incorporated by reference to
Exhibit 3.12 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
3.13 Articles of Incorporation of Delta Transportation, Ltd.
(incorporated by reference to Exhibit 3.13 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.14 By-Laws of Delta Transportation, Ltd. (incorporated by reference to
Exhibit 3.14 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
4.1 Indenture, dated as of October 15, 1997, by and among the Company,
the Subsidiary Guarantors and State Street Bank and Trust Company,
with respect to the Senior Notes (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
No. 333-38337 filed October 21, 1997).
4.2 Form of New Senior Note (incorporated by reference to Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
4.3 Form of New Note Guarantee (incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
16
17
4.4 Purchase Agreement, by and among the Company, the Subsidiary
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Robertson Stephens dated as of October 8, 1997
(incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4 No. 333-38337 filed October 21,
1997).
4.5 Indenture, dated as of July 11, 1997, by and among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company, with
respect to the New Senior Subordinated Notes (incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
4.6 Purchase Agreement, by and among the Company, the Subsidiary
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Securities dated as of July 9, 1997 (incorporated by
reference to Exhibit 4.4 to the Registrant's Registration Statement
Form S-4 No. 333-33225 filed August 8, 1997).
10.1 Registration Rights Agreement, dated as of October 15, 1997, by and
among the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4
No. 333-38337 filed October 21, 1997).
10.2 Registration Rights Agreement, dated as of July 11, 1997, by and
among the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
10.3 Second Amended and Restated Credit Agreement, dated as of July 11,
1997 among the Company, Bank of America National Trust and Savings
Association, as Administrative Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Documentation Agent, Bank of America
National Trust and Savings Association as Letter of Credit Issuing
Lender, the Other Financial Institutions Party thereto and
BancAmerica Securities, Inc. as Arranger (incorporated by reference
to Exhibit 10.3 to the Registrant's Registration Statement on Form
S-4 No. 333-33225 filed August 8, 1997).
10.4 Employment Agreement, dated as of December 23, 1986 between the
Company and Raymond E. Marshall, as amended by Amendment to
Employment Agreement, dated as of January 1, 1995 (incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
10.5 Sales and Distribution Agreement dated as of May 6, 1997, by and
among PFS, Pizza Hut, Taco Bell, Kentucky Fried Chicken Corporation
and Kentucky Fried Chicken of California, Inc. (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed October 21,
1997).
12.1 Statements re computation of ratios (incorporated by reference to
Exhibit 12.1 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed November 6, 1997).
12.2 Statements re computation of ratios -- PFS (incorporated by
reference to Exhibit 12.2 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed November 6,
1997).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during the
fiscal quarter ended September 27, 1997
Signatures
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:
AmeriServe Food Distribution, Inc.
----------------------------------
(Registrant)
Date: December 19, 1997 /s/ Raymond Marshall
- ------------------------- ----------------------------------
President
Date: December 19, 1997 /s/ Donald Rogers
- ------------------------- ----------------------------------
Chief Financial Officer
17
18
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
------- --------
2.1 Asset Purchase Agreement between PepsiCo, Inc. and Nebco Evans
Holding Company (incorporated by reference to Exhibit 2.2 to the
Registrant's Registration Statement Form S-4 No. 333-33225 filed
August 8, 1997).
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-4 No. 333-33225
filed August 8, 1997).
3.3 Certificate of Incorporation of AmeriServ Food Company
(incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.4 By-Laws of AmeriServ Food Company (incorporated by reference to
Exhibit 3.4 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
3.5 Articles of Incorporation of AmeriServe Transportation, Inc.
(incorporated by reference to Exhibit 3.5 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.6 By-Laws of AmeriServe Transportation, Inc. (incorporated by
reference to Exhibit 3.6 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.7 Articles of Incorporation of Chicago Consolidated Corporation
(incorporated by reference to Exhibit 3.7 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.8 By-Laws of Chicago Consolidated Corporation (incorporated by
reference to Exhibit 3.8 to the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
3.9 Articles of Incorporation of Northland Transportation Services,
Inc. (incorporated by reference to Exhibit 3.9 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.10 By-Laws of Northland Transportation Services, Inc. (incorporated by
reference to Exhibit 3.10 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
3.11 Articles of Incorporation of The Harry H. Post Company
(incorporated by reference to Exhibit 3.11 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.12 By-Laws of The Harry H. Post Company (incorporated by reference to
Exhibit 3.12 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
3.13 Articles of Incorporation of Delta Transportation, Ltd.
(incorporated by reference to Exhibit 3.13 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed August 8,
1997).
3.14 By-Laws of Delta Transportation, Ltd. (incorporated by reference to
Exhibit 3.14 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
4.1 Indenture, dated as of October 15, 1997, by and among the Company,
the Subsidiary Guarantors and State Street Bank and Trust Company,
with respect to the Senior Notes (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
No. 333-38337 filed October 21, 1997).
4.2 Form of New Senior Note (incorporated by reference to Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
4.3 Form of New Note Guarantee (incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
4.4 Purchase Agreement, by and among the Company, the Subsidiary
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Robertson Stephens dated as of October 8, 1997
(incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-4 No. 333-38337 filed October 21,
1997).
18
19
4.5 Indenture, dated as of July 11, 1997, by and among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company, with
respect to the New Senior Subordinated Notes (incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement
on Form S-4 No. 333-33225 filed August 8, 1997).
4.6 Purchase Agreement, by and among the Company, the Subsidiary
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Securities dated as of July 9, 1997 (incorporated by
reference to Exhibit 4.4 to the Registrant's Registration Statement
Form S-4 No. 333-33225 filed August 8, 1997).
10.1 Registration Rights Agreement, dated as of October 15, 1997, by and
among the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4
No. 333-38337 filed October 21, 1997).
10.2 Registration Rights Agreement, dated as of July 11, 1997, by and
among the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4
No. 333-33225 filed August 8, 1997).
10.3 Second Amended and Restated Credit Agreement, dated as of July 11,
1997 among the Company, Bank of America National Trust and Savings
Association, as Administrative Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Documentation Agent, Bank of America
National Trust and Savings Association as Letter of Credit Issuing
Lender, the Other Financial Institutions Party thereto and
BancAmerica Securities, Inc. as Arranger (incorporated by reference
to Exhibit 10.3 to the Registrant's Registration Statement on Form
S-4 No. 333-33225 filed August 8, 1997).
10.4 Employment Agreement, dated as of December 23, 1986 between the
Company and Raymond E. Marshall, as amended by Amendment to
Employment Agreement, dated as of January 1, 1995 (incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
10.5 Sales and Distribution Agreement dated as of May 6, 1997, by and
among PFS, Pizza Hut, Taco Bell, Kentucky Fried Chicken Corporation
and Kentucky Fried Chicken of California, Inc. (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed October 21,
1997).
12.1 Statements re computation of ratios (incorporated by reference to
Exhibit 12.1 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed November 6, 1997).
12.2 Statements re computation of ratios -- PFS (incorporated by
reference to Exhibit 12.2 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed November 6,
1997).
27.1 Financial Data Schedule.
19