File No. 333-33223
Filed pursuant to Rule 424(b)(3)
PROSPECTUS SUPPLEMENT
(to Prospectus dated December 11, 1997)
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
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
NEBCO EVANS HOLDING COMPANY
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1444203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 Steamboat Road
Greenwich, CT 06830
(Address of principal executive offices) (Zip Code)
203-661-2500
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------
(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
----- -----
The date of this Prospectus Supplement is December 31, 1997.
<PAGE>
2
NEBCO EVANS HOLDING COMPANY
FORM 10-Q INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
<S><C> <C> <C>
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 27, 1997
and December 28, 1996..................................................... 3
Condensed Consolidated Statements of Operations for the three and
nine months ended September 27, 1997 and September 28, 1996.............. 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 27, 1997 and September 28, 1996.................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 12
Part II. Other Information
Item 1. Legal Proceedings ........................................................ 17
Item 2. Changes in Securities and Use of Proceeds ................................ 17
Item 3. Defaults upon Senior Securities........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 5. Other Information ........................................................ 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
Signatures ........................................................................... 19
Exhibits.............................................................................. 20
</TABLE>
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3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 27, December 28,
ASSETS 1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 75,132 $ 2,224
Accounts receivable, net 16,278 80,474
Investment in accounts receivable trust 167,514 --
Inventories 153,578 52,246
Other current assets 28,685 12,230
----------- -----------
Total current assets 441,187 147,174
Property and equipment, net 128,360 35,772
Intangible assets, net 726,211 126,212
Other noncurrent assets 5,506 5,788
----------- -----------
$ 1,301,264 $ 314,946
=========== ===========
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 323,357 $ 98,700
Current maturities of long-term debt 4,308 3,389
Accrued liabilities and other current liabilities 68,273 19,276
----------- -----------
Total current liabilities 395,938 121,365
Long-term debt 792,975 161,055
Other noncurrent liabilities 38,896 14,007
Stockholders' equity:
13 1/2% Senior exchangeable preferred stock, $.01 par value per
share; 5,000,000 shares authorized, 2,400,000 shares outstanding 59,133 --
Senior preferred stock, $.01 par value per share; 600 shares
authorized and outstanding 15,000 15,000
8% Senior convertible preferred stock, $.01 par value per
share; 300 shares authorized, 235 shares outstanding 2,350 2,350
15% Junior exchangeable preferred stock, $.01 par value per
share; 5,000,000 shares authorized, 2,400,000 shares outstanding 56,819 --
Class A voting common stock, $.01 par value per share; 30,000
shares authorized, 6,508 shares outstanding -- --
Class B voting common stock, $.01 par value per share; 20,000
shares authorized, 1,733 shares outstanding -- --
Additional paid in capital 4,942 7,522
Accumulated deficit (64,789) (6,353)
----------- -----------
Total stockholders' equity 73,455 18,519
----------- -----------
$ 1,301,264 $ 314,946
=========== ===========
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.
3
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4
NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,232,912 $ 407,727 $ 2,035,812 $ 1,043,894
Cost of goods sold 1,110,098 367,338 1,833,987 939,091
----------- ----------- ----------- -----------
Gross profit 122,814 40,389 201,825 104,803
Distribution, selling and
administrative expenses 96,241 34,233 166,941 90,027
Amortization of intangible assets 4,915 1,401 7,299 3,521
Impairment, restructuring and other
unusual charges 44,550 -- 44,550 --
----------- ----------- ----------- -----------
Operating income (loss) (22,892) 4,755 (16,965) 11,255
Interest expense 19,643 4,492 29,926 11,971
Loss on sale of accounts receivable 2,221 -- 2,221 --
Minority interest -- 350 -- 250
----------- ----------- ----------- -----------
Loss before income taxes (44,756) (87) (49,112) (966)
Provision for income taxes 1,235 395 606 735
----------- ----------- ----------- -----------
Loss before extraordinary item (45,991) (482) (49,718) (1,701)
Extraordinary loss 8,718 -- 8,718 --
----------- ----------- ----------- -----------
Net loss ($ 54,709) ($ 482) ($ 58,436) ($ 1,701)
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
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5
NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 27, September 28,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($ 58,436) ($ 1,701)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 17,759 7,343
Impairment of property, equipment and other assets 12,404 --
Extraordinary loss - noncash portion 2,156 --
Interest accredited on senior notes 1,496 2,209
Changes in assets and liabilities, net of effect of acquisitions 31,095 (8,989)
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 6,474 (1,138)
----------- -----------
INVESTING ACTIVITIES:
Businesses acquired, net of cash acquired (831,500) (94,411)
Capital expenditures (9,030) (3,612)
Net cash transfers to affiliates (8,126) (3,880)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (848,656) (101,903)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of subordinated loans and warrants -- 30,000
Proceeds from issuance of long-term debt 760,000 --
Proceeds from issuance of preferred stock and warrants 115,000 --
Proceeds from sale of accounts receivable 225,000 --
Debt financing fees incurred (26,620) --
Net increase (decrease) in borrowings under revolving line of credit (77,374) 118,295
Repayments of long-term debt (80,916) (43,827)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 915,090 104,468
----------- -----------
NET INCREASE IN CASH 72,908 1,427
CASH AT BEGINNING OF PERIOD 2,224 575
----------- -----------
CASH AT END OF PERIOD $ 75,132 $ 2,002
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 22,726 $ 7,145
Income taxes, net of refunds 2,445 1,043
Businesses acquired:
Fair value of assets acquired $ 1,070,617 $ 187,907
Cash paid (831,500) (94,411)
----------- -----------
Liabilities assumed $ 239,117 $ 93,496
=========== ===========
Noncash investing and financing activities:
Capital expenditures through capital leases
(included in long-term debt) $ 16,337 $ 13,353
</TABLE>
See notes to condensed consolidated financial statements
5
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6
NEBCO EVANS HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997 (Unaudited)
NOTE 1 - INTERIM FINANCIAL DATA
The accompanying unaudited condensed consolidated financial statements of Nebco
Evans Holding Company (NEHC) 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 NEHC's Registration Statement on Form S-4 No.
333-33223 effective November 10, 1997.
NOTE 2 - ACQUISITIONS
On July 11, 1997, AmeriServe Food Distribution, Inc. (AmeriServe), a
wholly-owned subsidiary of NEHC, 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 NEHC, 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):
6
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7
(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 NEHC'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.................. $3,534,407 $3,363,061
Net loss...................
(63,008) (10,311)
7
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8
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 NEHC.
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 NEHC'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.
8
<PAGE>
9
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.
In connection with the PFS acquisition, on July 11, 1997, NEHC received $55
million in proceeds upon issuance, in a Rule 144A private placement, of 12 3/8%
Senior Discount Notes due July 15, 2007. With accretion of interest, the Notes
have a principal amount of $100.4 million at maturity. In July 1997, NEHC
repaid subordinated loans due 2006 with a carrying value of $26.8 million and a
principal amount of $33.4 million with accretion of interest.
Effective December 12, 1997, AmeriServe and NEHC completed offers to exchange
all the outstanding Senior Subordinated Notes due July 15, 2007, the Senior
Notes due October 15, 2006 and the Senior Discount Notes due July 15, 2007 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.)
9
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10
NOTE 6 - EXTRAORDINARY LOSS
In connection with the early extinguishment of debt in July 1997 as described
in Note 4, NEHC recorded an extraordinary loss of $8.7 million. Included in the
extraordinary loss is $2.2 million representing the unamortized balance of
deferred financing costs related to AmeriServe borrowings and $6.6 million
representing interest not yet accreted on NEHC subordinated loans. Because of
NEHC'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.
NOTE 7 - STOCKHOLDERS' EQUITY
Following is a summary of transactions affecting stockholders' equity for the
nine months ended September 27, 1997:
(In thousands)
- --------------------------------------------------------------------------------
Stockholders' equity at December 28, 1996 $18,519
Issuance of preferred stock and warrants 115,000
Value of warrants ($2,700) recorded as additional paid in capital --
Preferred stock accretion ($48) offset by reduction in additional
paid in capital --
Preferred stock dividends ($3,604) recorded as a reduction in
additional paid in capital --
Loss on transfer of subsidiary from parent to NEHC, recorded as
reduction in additional paid in capital (1,628)
Net loss for the nine months ended September 27, 1997 (58,436)
----------
Stockholders' equity at September 27, 1997 $73,455
- -------------------------------------------------------------------------------
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 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.
10
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11
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)
11
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Nebco Evans Holding Company (NEHC) is the parent company of AmeriServe Food
Distribution, Inc. (AmeriServe) and Holberg Warehouse Properties, Inc. (HWPI).
AmeriServe accounts for substantially all of NEHC's assets and operations.
HWPI's operations consist of the leasing of two distribution centers to
AmeriServe. For the period from February 1996 through June 1997, NEHC was also
the parent of the Harry H. Post Company (Post), a system foodservice
distribution business that generated net sales of $119.4 million for the fiscal
year ended December 28, 1996. As a result of transactions discussed in Note 2,
the Post operations are included in the consolidated results of AmeriServe
effective with the three months ended September 27, 1997.
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.)
12
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13
RESULTS OF OPERATIONS
The following table presents certain financial information of NEHC, expressed
as a percentage of net sales, for the three and nine months ended September 27,
1997 and September 26, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 27, September 26, September 27, September 26,
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 90.0% 90.1% 90.1% 90.0%
Gross profit 10.0% 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 2.2% 1.5% 1.7% 1.4%
</TABLE>
Net sales increased by $825 million, or 202%, for the quarter, and $992
million, or 95%, 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
$44 million for the quarter and $211 million year-to-date was largely due to
the addition of service to Arby's.
Gross profit increased by $82 million, or 204%, for the quarter and $97
million, or 93%, year-to-date due primarily to the PFS acquisition. The gross
profit margin was 10.0% for the quarter and 9.9% year-to-date, substantially
consistent with the prior year results.
Distribution, selling and administrative expenses increased by $62 million, or
181%, for the quarter and $77 million, or 85%, 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 $20 million for both the
quarter and year-to-date, or 332% and 136% 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 2.2% 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.
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14
Amortization of intangible assets increased $3.5 million for the quarter and
$3.8 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.
Interest expense increased $15.2 million for the quarter and $18.0 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 $8.7 million resulted from early extinguishment of debt.
The noncash portion of the loss ($2.2 million) represents the unamortized
balance of deferred financing costs related to AmeriServe's previous credit
facility. The cash portion of the loss ($6.6 million) represents interest not
yet accreted on NEHC subordinated loans. 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.
14
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15
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the first nine months of 1997
increased $7.6 million compared to the first nine months of 1996. Net cash
provided by operating activities in 1997 includes cash outflows of $13.4
million for fees related to bridge financing and the accounts receivable sale
program and other indirect costs associated with the PFS acquisition as well as
$6.6 million in extraordinary loss from an early extinguishment of debt.
Excluding these nonrecurring items, net cash provided by operating activities
was $26.5 million in 1997, compared to a cash use of $1.1 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 $746.8 million compared to 1996 reflecting the $830 million
acquisition of PFS. Capital expenditures primarily represented purchases of
warehouse and truck fleet equipment, and the $5.4 million increase over 1996
reflected 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. In
addition, NEHC received $55 million in proceeds from the issuance of 12 3/8%
Senior Discount Notes due in 2007. The equity transactions consist of the
issuance of $115 million of preferred stock and warrants. See Note 7 for a
summary of transactions affecting stockholders' equity for the nine months
ended September 27, 1997.
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.
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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.
NEHC is and will continue to be highly leveraged as a result of the
indebtedness incurred in connection with the acquisition of PFS. NEHC's ability
to meet interest payments, refinance the debt or ultimately repay the debt is
subject to the risks and uncertainties discussed above.
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For additional factors which could cause NEHC's actual results to differ
materially from expected and historical results, see the "Risk Factors" set
forth in NEHC'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. NEHC 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.
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
2.1 Purchase Agreement, by and among NEHC and Donaldson,
Lufkin & Jenrette Securities Corporation, dated as of July
9, 1997 (incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement Form S-4 No. 333-33223
filed August 8, 1997).
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18
2.2 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.
333-33223 filed August 8, 1997).
3.1 Certificate of Incorporation of NEHC (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 No. 333-33223 filed August 8, 1997).
3.2 By-Laws of the NEHC (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-4
No. 333-33223 filed August 8, 1997).
4.1 Indenture, dated as of July 11, 1997, by and among NEHC
and State Street Bank and Trust Company, with respect to
the New Senior Discount Notes (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-4 No. 333-33223 filed August 8, 1997).
4.2 Form of New Senior Discount Note (incorporated by reference
to Exhibit 4.2 to the Registrant's Registration Statement on
Form S-4 No. 333-33223 filed August 8, 1997).
10.1 Registration Rights Agreement, dated as of July 11, 1997, by
and among NEHC and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.1 to
the Registrant's Registration Statement on Form S-4 No.
333-33223 filed August 8, 1997).
10.2 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 10.2 to the Registrant's Registration Statement on
Form S-4 No. 333-33223 filed August 8, 1997).
10.3 Stock Purchase Agreement, dated as of July 11, 1997, between
NEHC and DLJ Merchant Banking, II, L.P. (incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-4 No. 333-33223 filed August 8, 1997).
10.4 Sales and Distribution Agreement dated as of May 6, 1997 by
and among PFS, Pizza Hut, Inc., Taco Bell Corp., Kentucky
Fried Chicken Corporation and Kentucky Fried Chicken of
California, Inc. (incorporated by reference to Exhibit 10.4
to the Registrant's Registration Statement on Form S-4 No.
333-33223 filed August 8, 1997).
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19
12.1 Statements re computation of ratios (incorporated by
reference to Exhibit 12.1 to the Registrant's Registration
Statement on Form S-4 No. 333-33223 filed August 8, 1997).
12.2 Statements re computation of ratios - PFS (incorporated by
reference to Exhibit 12.2 to the Registrant's Registration
Statement on Form S-4 No. 333-33223 filed August 8, 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:
Nebco Evans Holding Company
------------------------------------
(Registrant)
Date: December 19, 1997 /s/ A. Petter Ostberg
- ---------------------------------- -------------------------------------
Vice President
Date: December 19, 1997 /s/ Donald Rogers
- ---------------------------------- -------------------------------------
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Purchase Agreement, by and among NEHC and Donaldson, Lufkin & Jenrette
Securities Corporation, dated as of July 9, 1997 (incorporated by
reference to Exhibit 2.1 to the Registrant's Registration Statement
Form S-4 No. 333-33223 filed August 8, 1997).
2.2 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. 333-33223 filed
August 8, 1997).
3.1 Certificate of Incorporation of NEHC (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on Form S-4
No. 333-33223 filed August 8, 1997).
3.2 By-Laws of the NEHC (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-4 No. 333-33223 filed
August 8, 1997).
4.1 Indenture, dated as of July 11, 1997, by and among NEHC and State
Street Bank and Trust Company, with respect to the New Senior Discount
Notes (incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-4 No. 333-33223 filed August 8, 1997).
4.2 Form of New Senior Discount Note (incorporated by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-4 No.
333-33223 filed August 8, 1997).
10.1 Registration Rights Agreement, dated as of July 11, 1997, by and among
NEHC and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-4 No. 333-33223 filed August 8, 1997).
10.2 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
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21
Exhibit
Number Description
- ------ -----------
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 10.2 to the
Registrant's Registration Statement on Form S-4 No. 333-33223 filed
August 8, 1997).
10.3 Stock Purchase Agreement, dated as of July 11, 1997, between NEHC and
DLJ Merchant Banking, II, L.P. (incorporated by reference to Exhibit
10.3 to the Registrant's Registration Statement on Form S-4 No.
333-33223 filed August 8, 1997).
10.4 Sales and Distribution Agreement dated as of May 6, 1997 by and among
PFS, Pizza Hut, Inc., Taco Bell Corp., Kentucky Fried Chicken
Corporation and Kentucky Fried Chicken of California, Inc.
(incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-4 No. 333-33223 filed August 8,
1997).
12.1 Statements re computation of ratios (incorporated by reference to
Exhibit 12.1 to the Registrant's Registration Statement on Form S-4
No. 333-33223 filed August 8, 1997).
12.2 Statements re computation of rations - PFS (incorporated by reference
to Exhibit 12.2 to the Registrant's Registration Statement on Form S-4
No. 333-33223 filed August 8, 1997).
27.1 Financial Data Schedule.
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