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File No. 333-51541
Filed pursuant to Rule 424(b)(3)
PROSPECTUS SUPPLEMENT
(to Prospectus dated May 11, 1998)
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By Prospectus dated May 11, 1998, Nebco Evans Holding Company ("NEHC")
offered to exchange up to $250,000,000 in aggregate liquidation preference of
its new 11 1/4% Senior Redeemable Exchangeable Preferred Stock due 2008 (the
"New Preferred Stock") which has been registered under the Securities Act of
1933, as amended, for up to $250,000,000 in aggregate liquidation preference of
its outstanding 11 1/4% Senior Redeemable Exchangeable Preferred Stock due 2008
the ("Old Preferred Stock"). Subsequently, NEHC filed the attached quarterly
report on Form 10-Q for the quarter ended March 28, 1998. Holders of the Old
Preferred Stock may wish to consider the information contained in the attached
Form 10-Q in deciding whether to exchange their Old Preferred Stock for New
Preferred Stock.
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The date of this Prospectus Supplement is May 13, 1998.
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NEBCO EVANS HOLDING COMPANY
FORM 10-Q INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 28, 1998
and December 27, 1997 .............................................3
Condensed Consolidated Statements of Operations for the three
months ended March 28, 1998 and March 29, 1997.....................4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 28, 1998 and March 29, 1997.....................5
Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................9
Part II. Other Information
Item 1. Legal Proceedings .................................................18
Item 2. Changes in Securities .............................................18
Item 3. Defaults upon Senior Securities ...................................18
Item 4. Submission of Matters to a Vote of Security Holders................18
Item 5. Other Information .................................................19
Item 6. Exhibits and Reports on Form 8-K ..................................19
Signatures
..................................................................21
Exhibits
....................................................................22
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PART I. Financial Information
Item 1. Financial Statements (Unaudited)
NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 27,
1998 1997
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 239,796 $ 231,450
Accounts receivable............................................................. 36,505 43,625
Undivided interest in accounts receivable trust................................. 125,482 154,371
Allowance for doubtful accounts................................................. (13,897) (15,566)
Inventories..................................................................... 152,542 150,148
Other current assets............................................................ 37,494 29,937
----------- -----------
Total current assets..................................................... 577,922 593,965
Property and equipment, net....................................................... 141,476 142,138
Intangible assets, net............................................................ 732,272 737,870
Other noncurrent assets........................................................... 5,349 4,817
----------- -----------
$ 1,457,019 $ 1,478,790
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............................................... $ 5,511 $ 5,127
Accounts payable................................................................ 259,091 345,603
Accrued and other current liabilities........................................... 95,213 101,219
----------- -----------
Total current liabilities................................................ 359,815 451,949
Long-term debt.................................................................... 944,626 943,609
Other noncurrent liabilities...................................................... 37,546 38,430
11 1/4% Senior redeemable exchangeable
preferred stock................................................................. 240,083 --
Stockholders' equity (deficit):
8% Senior preferred stock, $.01 par value per share; 300 shares authorized,
235 shares outstanding, $2,374
liquidation value............................................................. 2,350 2,350
13 1/2% Senior exchangeable preferred stock, $.01 par
value per share; 5,000,000 shares authorized, 2,400,000
shares outstanding............................................................ -- 59,186
15% Junior exchangeable preferred stock, $.01 par value
per share; 5,000,000 shares authorized, 2,200,000
shares outstanding............................................................ -- 56,819
Junior nonconvertible preferred stock, $.01 par value
per share; 600 shares authorized and outstanding,
$16,875 liquidation value..................................................... -- 15,000
Class A voting common stock, $.01 par value per share;
30,000 shares authorized, 6,508 shares outstanding............................ -- --
Class B nonvoting common stock, $.01 par value per
share; 20,000 shares authorized, 1,733 shares
outstanding................................................................... -- --
Additional paid-in capital...................................................... -- 4,889
Accumulated deficit............................................................. (127,401) (93,442)
----------- -----------
Total stockholders' equity (deficit)..................................... (125,051) 44,802
----------- -----------
$ 1,457,019 $ 1,478,790
=========== ===========
</TABLE>
See accompanying notes.
Note: The balance sheet at December 27, 1997 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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NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 28, MARCH 29,
1998 1997
----------- -----------
<S> <C> <C>
Net sales ................................ $ 1,123,938 $ 335,311
Cost of goods sold ....................... 1,013,010 300,682
----------- -----------
Gross profit ............................. 110,928 34,629
Distribution, selling and administrative
expenses ............................... 95,294 32,271
Amortization of intangible assets......... 6,814 997
Costs to integrate acquired operations.... 1,988 --
----------- -----------
Operating income ......................... 6,832 1,361
Other income (expense):
Interest expense, net .................. (19,299) (4,735)
Loss on sale of accounts receivable..... (3,588) --
Interest income-affiliates ............. 152 85
----------- -----------
(22,735) (4,650)
----------- -----------
Loss before income taxes ................. (15,903) (3,289)
Provision (benefit) for income taxes..... 296 (649)
----------- -----------
Net loss ................................. $ (16,199) $ (2,640)
=========== ===========
</TABLE>
See accompanying notes.
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NEBCO EVANS HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 28, MARCH 29,
1998 1997
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................................. $ (16,199) $ (2,640)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization ....................... 12,588 2,872
Interest accreted on subordinated loans.............. 1,792 1,254
Changes in assets and liabilities.................... (62,780) (5,532)
--------- ---------
Net cash used for operating activities................. (64,599) (4,046)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures................................... (4,550) (2,346)
Net cash transfers to affiliates....................... (8,543) (2,491)
--------- ---------
Net cash used in investing activities.................. (13,093) (4,837)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock.............. 250,000 --
Financing fees incurred................................ (10,000) --
Repurchase of preferred stock.......................... (153,572) --
Net increase in borrowings under revolving
line of credit....................................... -- 11,433
Repayments of long-term debt........................... (390) (714)
--------- ---------
Net cash provided by financing activities.............. 86,038 10,719
--------- ---------
Net increase in cash................................... 8,346 1,836
Cash at beginning of period............................ 231,450 2,224
--------- ---------
Cash at end of period.................................. $ 239,796 $ 4,060
========= =========
Supplemental disclosures:
Cash paid during the period for:
Interest........................................... $ 25,875 $ 3,663
Income taxes, net of refunds....................... $ 67 $ 325
Noncash investing and financing activities:
Capital expenditures through capital leases
(included in long-term debt)....................... $ 904 $ 1,367
</TABLE>
See accompanying notes.
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NEBCO EVANS HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998 (UNAUDITED)
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 three-month period ended March 28, 1998 are not necessarily
indicative of the results that might be expected for the entire fiscal year
ended December 26, 1998. This report should be read in conjunction with the
consolidated financial statements and footnotes thereto included in NEHC's Form
10-K for the fiscal year ended December 27, 1997.
2. ACQUISITIONS
Effective June 11, 1997, AmeriServe Food Distribution, Inc. (the Company), a
direct subsidiary of NEHC, acquired the PFS Division of PepsiCo, Inc. PFS
distributed food products, supplies and equipment to franchised and
company-owned restaurants in the Pizza Hut, Taco Bell and KFC systems, which
were spun-off by PepsiCo, Inc. in October 1997 and are now operating as Tricon
Global Restaurants, Inc. The acquisition has been accounted for under the
purchase method. Twelve weeks of PFS operating results are included in the
Company's operating results for the three months ended March 28, 1998.
The following unaudited pro forma results of operations for the three months
ended March 29, 1997 assume the acquisition of PFS and related transactions
occurred at the beginning of that period (in thousands):
<TABLE>
<S> <C>
Net sales ............................. $1,055,836
Net loss .............................. (13,921)
</TABLE>
On January 29, 1998, the Company entered into a definitive merger agreement
pursuant to which the Company will acquire all of the approximately 9.4 million
outstanding shares of ProSource, Inc. (ProSource) for $15.00 per share in cash.
The Company will also refinance the existing indebtedness of ProSource of
approximately $174 million. The transaction is expected to close in late May
1998. ProSource, which reported net sales of $3.9 billion for its fiscal year
ended December 27, 1997, is in the foodservice distribution business,
specializing in quick service and casual dining chain restaurants. ProSource
services approximately 12,700 restaurants, principally in the United States, in
such chains as Burger King, Red Lobster, Olive Garden, TGI Friday's, Long John
Silver's, Chili's, Sonic, Chick-fil-A, Wendy's and TCBY.
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3. SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK
On March 6, 1998, NEHC received proceeds of $250 million upon issuance of
2,500,000 shares of 11 1/4% Senior Redeemable Exchangeable Preferred Stock
(Preferred Stock) due 2008, with a liquidation preference of $100 per share, in
transactions not requiring registration under the Securities Act of 1933, as
amended. Approximately $154 million of proceeds from the issuance were used to
repurchase all NEHC's outstanding 13 1/2% senior exchangeable preferred stock,
$25,000 series junior nonconvertible preferred stock and 15% junior exchangeable
preferred stock; this amount included $10.7 million in premiums above the face
value of the repurchased stock. Dividends on the Preferred Stock are payable
quarterly in cash or in additional shares of Preferred Stock, at NEHC's option.
The Preferred Stock is exchangeable into 11 1/4% Subordinated Exchange
Debentures due 2008, at NEHC's option, subject to certain conditions, on any
scheduled dividend payment date.
On May 1, 1998, NEHC completed an offer to exchange all the outstanding Senior
Redeemable Exchangeable Preferred Stock due 2008 with new stock with
substantially identical terms that is registered under the Securities Act of
1933, as amended.
4. COSTS TO INTEGRATE ACQUIRED OPERATIONS
As a result of the 1997 acquisition of PFS, the Company had previously
identified a number of actions designed to consolidate and integrate the
operations of the Company and PFS and thereby improve the efficiency and
effectiveness of the combined warehouse and transportation network and
operations support infrastructure.
These actions included construction of new warehouse facilities, closures of
certain existing warehouse facilities and expansions of others, dispositions of
property and equipment, conversions of computer systems, reductions in
workforce, relocations of employees and other consolidation and integration
activities.
Certain costs associated with those actions, principally exit costs for lease
terminations and employee severance, were previously accrued for as part of the
PFS purchase price allocation or the restructuring charge recorded in the third
quarter of 1997. Other incremental costs associated with the actions not
qualifying as exit costs are expensed as incurred and reported as integration
costs in the consolidated statements of operations.
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The Company is in the early stages of the PFS consolidation and integration
plan. Because of the probable acquisition of ProSource (see Note 2), the plan is
expected to be modified and will likely result in certain changes in the scope
and timing of the actions to accommodate the integration of ProSource's
operations.
5. ACCOUNTS RECEIVABLE PROGRAM
Under a five-year Accounts Receivable Program effective July 1997, the Company
received $225 million upon the initial transfer of accounts receivable to a
wholly owned, special purpose, bankruptcy-remote subsidiary, AmeriServe Funding
Corporation (Funding), and concurrent sale of the accounts receivable by Funding
to AmeriServe Master Trust (the Trust). The Trust financed the purchase through
the issuance of $225 million in interest bearing certificates. As of March 28,
1998, accounts receivable sold to the Trust totaled $350.5 million and the
undivided interest in the Trust (receivables sold less the $225 million
proceeds) totaled $125.5 million.
6. GUARANTOR SUBSIDIARIES
The Company's principal operating subsidiaries fully, unconditionally, jointly
and severally guarantee the Company's $500 million 10 1/8% Senior Subordinated
Notes and $350 million 8 7/8% Senior Notes.
The guarantor subsidiaries are direct wholly owned subsidiaries of the Company.
The Company and the guarantor subsidiaries conduct substantially all of the
operations of the Company and its subsidiaries on a consolidated basis. Separate
financial statements of the guarantor subsidiaries are not separately presented
because, in the opinion of management, such financial statements are not
material to investors.
The only significant subsidiary of the Company that is not a guarantor
subsidiary is Funding, which is a wholly owned, special purpose,
bankruptcy-remote subsidiary. Funding has no operating revenues or expenses, and
its only asset is an undivided interest in an accounts receivable trust (the
Trust--see Note 5). Funding's interest in the Trust is junior to the claims of
the holders of certificates issued by the Trust. Accordingly, as creditors of
the Company, the claims of the holders of the Senior Subordinated Notes and
Senior Notes against the accounts receivable held in
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the Trust are similarly junior to the claims of holders of the certificates
issued by the Trust.
Following is summarized combined financial information (in accordance with Rule
1-02(bb) of Regulation S-X) at March 28, 1998 and for the three months then
ended for the guarantor subsidiaries of the Company (in thousands):
<TABLE>
<S> <C>
Current assets................................$ 9,084
Current liabilities........................... 6,529
Noncurrent assets............................. 50,815
Noncurrent liabilities........................ 13,375
Net sales.....................................$44,558
Operating income.............................. 1,265
Net income.................................... 1,235
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Nebco Evans Holding Company (NEHC) is the parent of AmeriServe Food
Distribution, Inc. (the Company) and Holberg Warehouse Properties, Inc (HWPI).
The Company accounts for substantially all of NEHC's assets and operations.
HWPI's operations consist entirely of the leasing of two warehouse facilities to
the Company. The Company is a foodservice distributor specializing in
distribution to chain restaurants. The Company distributes a wide variety of
food items as well as paper goods, cleaning and other supplies and equipment to
approximately 25,500 restaurants. The Company'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.
Effective June 11, 1997, the Company acquired the PFS Division of PepsiCo, Inc.
PFS distributed food products, supplies and equipment to franchised and
company-owned restaurants in the Pizza Hut, Taco Bell and KFC systems, which
were spun-off by PepsiCo, Inc. in October 1997 and are now operating as Tricon
Global Restaurants, Inc. (Tricon). The acquisition has been accounted for under
the purchase method. Twelve weeks of PFS operating results are included in the
Company's operating results for the three months ended March 28, 1998. Because
of the relative sizes of the
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Company and PFS, which reported net sales of $308.7 million and $720.5
million, respectively, for the first quarter of 1997, the comparisons of
operating results presented below are significantly impacted by the PFS
acquisition.
In April 1997, the Company began providing foodservice distribution to
approximately 2,600 Arby's restaurants under a three-year contract. While the
majority of Arby's restaurants are serviced directly by the Company, some are
serviced by other cooperating independent distributors.
NEHC is an indirect subsidiary of Holberg Industries, Inc.
RECENT DEVELOPMENTS
On January 29, 1998, the Company entered into a definitive merger agreement
pursuant to which the Company will acquire all of the approximately 9.4 million
outstanding shares of ProSource, Inc. (ProSource) for $15.00 per share in cash.
The Company will also refinance the existing indebtedness of ProSource of
approximately $174 million. The transaction is expected to close in late May
1998. ProSource, which reported net sales of $3.9 billion for its fiscal year
ended December 27, 1997, is in the foodservice distribution business,
specializing in quick service and casual dining chain restaurants. ProSource
services approximately 12,700 restaurants, principally in the United States, in
such chains as Burger King, Red Lobster, Olive Garden, TGI Friday's, Long John
Silver's, Chili's, Sonic, Chick-fil-A, Wendy's and TCBY. The Company intends to
fund the acquisition of the shares and retirement of the debt through (a)
expansion of the Company's Accounts Receivable Program (see Note 5) to include
ProSource accounts receivable (estimated proceeds of $125 million), (b)
approximately $50 million from the Company's revolving credit facility, (c) a
capital contribution from NEHC of approximately $50 million and (d) cash and
cash equivalents on hand. Because of similarities in activities, the Company
intends to consolidate certain operations of ProSource with those of the
Company. With opportunities to combine certain warehousing, transportation and
administrative activities, the Company believes that significant cost
efficiencies are ultimately achievable.
The Company has been informed by Wendy's International, Inc., the franchiser of
the Wendy's concept, that it has selected a competitor as its distributor in
certain
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geographic markets and that it will begin to transfer the business of its
company-owned units away from the Company beginning in late 1998. In addition,
the Company understands that Wendy's International, Inc. has indicated that it
will attempt to remove the Company as an authorized distributor and influence
its franchisee operators to transfer their business to the competitor. The
Company intends to take all appropriate actions to continue servicing the
Wendy's franchisees, including maintaining the highest levels of customer
service. Including ProSource net sales on a pro forma basis, the Company's 1997
net sales to the Wendy's concept totaled approximately $650 million (about 2000
company-owned and franchised units), of which approximately $150 million, or
less than 2% of total pro forma net sales of $8.9 billion, represented the
Wendy's company-owned business (about 480 units).
RESULTS OF OPERATIONS
The following table presents certain financial information of NEHC, expressed as
a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 28, March 29,
1998 1997
--------- ----------
<S> <C> <C>
Net sales ........................... 100.0% 100.0%
Cost of goods sold .................. 90.1 89.8
Gross profit ........................ 9.9 10.2
Distribution, selling
and administrative expenses ....... 8.5 9.5
Operating income before
amortization of intangible
assets and costs to integrate
acquired operations ............... 1.4 .7
</TABLE>
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First Quarter 1998 compared to First Quarter 1997
Net sales increased $788.6 million, or 235% to $1.1 billion in the first quarter
of 1998. The acquisition of PFS accounted for $724 million of the increase. The
remaining sales growth was largely due to the addition of service to Arby's.
Gross profit increased $76.3 million, or 220%, to $110.9 million in the first
quarter of 1998 due primarily to the acquisition of PFS. The gross profit margin
decreased from 10.2% in 1997 to 9.9% in 1998 reflecting the impact of PFS and a
customer mix shift towards business with relatively higher product costs.
Distribution, selling and administrative expenses increased $63.0 million, or
195%, to $95.3 million in the first quarter of 1998 due primarily to the
acquisition of PFS. Distribution, selling and administrative expenses as a
percent of net sales decreased from 9.5% in 1997 to 8.5% in 1998. This change
reflects the impact of PFS' lower operating expense margin, as well as
leveraging of the incremental Arby's business.
Operating income before amortization of intangible assets and costs to integrate
acquired operations increased $13.3 million to $15.6 million in the first
quarter of 1998 due primarily to the acquisition of PFS. As a percent of net
sales, this income measure rose from .7% in 1997 to 1.4% in 1998. This change
was driven by the lower distribution, selling and administrative expense as a
percent of net sales as discussed above.
Costs to integrate acquired operations of $2.0 million in the first quarter of
1998 primarily represented start-up costs of new distribution facilities,
expenses to relocate employees and computer system integration costs.
Amortization of intangible assets increased $5.8 million to $6.8 million in the
first quarter of 1998, reflecting the amortization of the intangible assets
arising from the allocation of the PFS purchase price.
Interest expense net of interest income increased $14.6 million to $19.3 million
in the first quarter of 1998, reflecting interest on additional debt primarily
to finance the acquisition of PFS.
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Loss on sale of accounts receivable relates to an ongoing Accounts Receivable
Program established by the Company to provide additional financing capacity.
Under the program, accounts receivable are sold to a consolidated, wholly owned,
special purpose, bankruptcy-remote subsidiary, which in turn transfers the
receivables to a master trust. The loss on sale of accounts receivable of $3.6
million primarily represents the return to investors in certificates issued by
the master trust. In a transaction expected to be completed in June 1998, the
current series of certificates issued by the master trust are expected to be
restructured, resulting in additional capital to the Company under the program
of approximately $50 million. Also, in connection with the acquisition of
ProSource, the Company intends to expand the program to include the accounts
receivable of ProSource, resulting in initial proceeds of approximately $125
million.
Provision for income taxes in 1998 represents estimated current income taxes
payable. The Company's net deferred tax assets are offset entirely by a
valuation allowance, reflecting the Company's net operating loss carryforward
position.
Net loss increased $13.6 million to $16.2 million in the first quarter of 1998,
as higher financing costs and amortization of intangibles more than offset the
operating income of PFS.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources are expected to be sufficient to support ongoing business
needs as well as activities to integrate acquisitions. These resources include
cash provided by operating activities, capital lease financing of capital
expenditures, cash and cash equivalents on hand, a revolving credit facility of
$150 million ($137 million available at March 28, 1998 excluding letters of
credit) and additional capital from the Accounts Receivable Program as discussed
above.
In late May 1998, the Company expects to reach an agreement to replace the
existing revolving credit facility with a credit facility of up to $200 million
supported by the value of the Company's inventories of food and paper products
and supplies.
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First Quarter 1998 compared to First Quarter 1997
Net cash used for operating activities increased $60.6 million to $64.6 million
in the first quarter of 1998. This increase reflects unfavorable working capital
changes, due primarily to timing of accounts payable payments, and higher
interest payments, partially offset by the cash earnings generated by the PFS
operations.
Net cash used for investing activities increased $8.3 million to $13.1 million
in the first quarter of 1998. Capital expenditures increased $2.2 million to
$4.6 million in the first quarter of 1998, driven by the impact of the
acquisition of PFS.
Net cash provided by financing activities in the first quarter of 1998 reflected
NEHC's issuance of $250 million of 11 1/4% Senior Redeemable Preferred Stock due
2008. Approximately $154 million of proceeds from the issuance were used to
repurchase certain outstanding preferred stock; this amount included $10.7
million in premiums above the face value of the repurchased stock. The remaining
proceeds will be used for general corporate purposes, including contributions to
the capital of the Company. See Note 3. Net cash provided by financing
activities in the first quarter of 1997 reflected borrowings to support spending
for additional warehouse capacity as well as inventory build-up for the Arby's
business.
SEASONALITY AND INFLATION
Historically, the Company's sales and operating results have reflected seasonal
variations. The Company experiences lower net sales and income from operations
in the first and fourth quarters, with the effects being more pronounced in the
first quarter. Additionally, the effect of these seasonal variations is more
pronounced in regions where winter weather is generally more inclement.
Inflation has not had a significant impact on the Company's operations. Food
price deflation could adversely affect the Company's profitability as a
significant portion of the Company's sales are at prices based on product cost
plus a percentage markup. The Company has not experienced significant adverse
effects of food price deflation in recent years.
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FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Consolidation and Integration of Acquisitions
The Company's acquisition of PFS and probable acquisition of ProSource presents
an opportunity to significantly improve operating efficiencies of the combined
businesses by eliminating redundant facilities, achieving warehouse economies of
scale with new and larger facilities, improving truck fleet utilization through
increased deliveries per route and leveraging the headquarters support
infrastructure.
As a result of the acquisition of PFS, the Company had previously identified a
number of actions to consolidate and integrate the operations of the Company and
PFS. These actions included construction of new warehouse facilities, closures
of certain existing warehouse facilities and expansions of others, dispositions
of property and equipment, conversions of computer systems, reductions in
workforce, relocation of employees and other consolidation and integration
activities.
Under current accounting rules, certain costs associated with these actions,
principally asset impairment reserves and exit cost accruals for lease
terminations and employee severance, were previously accounted for as part of
the PFS purchase price allocation or the restructuring charge recorded in the
third quarter of 1997. Other incremental costs associated with the actions not
qualifying as exit costs are expensed as incurred and reported as integration
costs in the consolidated statements of operations.
The Company is in the early stages of the PFS consolidation and integration
plan. Because of the probable acquisition of ProSource, the plan is expected to
be modified and will likely result in certain changes in the scope and timing of
the actions to accommodate the integration of ProSource's operations. Actions to
consolidate and integrate ProSource are expected to result in future asset
impairment reserves and exit cost accruals, as part of the ProSource purchase
price allocation or as a restructuring charge. The Company expects to record
such reserves and accruals in the second quarter of 1998; however, reliable
estimates have not yet been developed. Further, future results will be
negatively impacted by the integration costs to be expensed as incurred. Such
integration costs include start-up costs of new facilities and other
inefficiencies arising from the warehouse and transportation network
reconfiguration, as well as incremental expenses associated
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with the consolidation of the operations support infrastructure. Because of the
impact of ProSource on the consolidation plan, reliable estimates of these
integration costs have not yet been developed.
While management believes it has the resources to meet its objectives, the
ultimate level and timing of cost efficiencies to be achieved upon the
completion of the consolidation actions are subject to the Company's ability to
manage through the complexities of the consolidation and respond to
unanticipated events.
Computer Systems and Potential Year 2000 Issue
An important component of the consolidation effort is the replacement of most
existing management information systems with a new software platform and
hardware configuration. 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. The Company expects to incur significant internal staff costs
as well as significant consulting and other expenditures to implement the new
system. Another critical benefit of the new system is that it replaces
applications that are not Year 2000 compliant. The implementation of the new
system is underway and expected to be completed in mid-1999. Because of the Year
2000 issue, a delay in the implementation of the new system could have a
significant adverse impact on the Company's operations. Further, the Company is
working with vendors and customers who are at various stages in analyzing this
issue. There can be no assurance that the systems of other companies that
the Company's systems rely on or interface with will be timely converted. While
the cost to implement the new system is significant (approximately $50 million),
the anticipated expenses to resolve Year 2000 issues with other peripheral
systems used by the Company are not expected to be significant.
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With respect to ProSource, the Company intends to convert the quick service
restaurant business to the Company's new computer system prior to 2000. The
systems supporting the remaining ProSource business are being replaced and/or
upgraded as described in ProSource's Form 10-K for the fiscal year ended
December 27, 1997.
Industry and Customer Risk
The Company's future results are subject to economic and competitive risks and
uncertainties in the chain restaurant and foodservice distribution industries.
The trend of consolidation in the Company's segment of the foodservice
distribution industry, as evidenced by the Company's acquisition activity, may
further intensify competitive pressures and negatively impact relationships
between the Company and its existing customers. Some of these customers will be
vulnerable to competitors' advances because of, among other reasons, concerns
about potential service level disruptions or lack of competitive alternatives as
the Company rapidly expands. While the Company will take appropriate actions to
retain desired business, some loss of customers during this transition period is
expected. Management believes that completion of the consolidation and
integration plan will enhance the Company's position as one of the most
efficient distributors in its industry and, therefore, highly price and service
competitive.
Although the Company provides foodservice distribution to Tricon under a
five-year exclusive distribution agreement effective July 1997, the Company is
subject to the inherent risk of customer concentration, as approximately 40% of
net sales (about 23% including ProSource on a pro forma basis) are to
Tricon-owned restaurants. Tricon is actively engaged in the sale to franchisees
of restaurants covered by the distribution agreement. While the distribution
agreement provides that prior to certain 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 the Company's results. In addition, the Company's future results may be
impacted by the planned closure of poorly performing restaurants announced by
Tricon in December 1997.
17
<PAGE> 18
Risk of Leverage
NEHC and the Company are and will continue to be highly leveraged as a result of
the indebtedness incurred primarily in connection with the acquisition of PFS.
NEHC's and the Company'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 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 May 1, 1998.
This quarterly report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933. 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 of 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
On March 6, 1998, NEHC consummated the offering of $250 million of its
11 1/4% Senior Redeemable Exchangeable Preferred Stock due 2008 in
exempt transactions under Rule 144A and Regulation S under the
Securities Act. The initial purchaser of the securities was Donaldson,
Lufkin & Jenrette Securities Corporation. Approximately $154 million of
the net proceeds of the offering was used by NEHC to finance the
repurchase costs of certain classes of its outstanding preferred stock.
NEHC expects to use the remaining net proceeds for general corporate
purposes, including contributions to the capital of the Company.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
18
<PAGE> 19
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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 on Form S-4, No. 333-33223 filed August 8,
1997).
2.2 Agreement and Plan of Merger, dated as of January 29, 1998, by and
among AmeriServe Food Distribution, Inc., Steamboat Acquisition Corp.
and ProSource, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K, dated January 29, 1998).
2.3 Voting Agreement, dated as of January 29, 1998, by and among
AmeriServe Food Distribution, Inc., Steamboat Acquisition Corp. and
Onex DHC LLC and certain of its affiliates (incorporated by reference
to Exhibit 2.2 to the Registrant's Current Report on Form 8-K, dated
January 29, 1998).
3.1 Restated Certificate of Incorporation of NEHC. (incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on
Form 10-K filed March 28, 1998)
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).
</TABLE>
19
<PAGE> 20
27.1 Financial Data Schedule.*
- ----------------
* Filed herewith.
(b) Reports on Form 8-K.
During the first quarter of 1998, NEHC filed the following
filings:
1. Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 31, 1997 disclosing, under
Item 5, the merger of the Company and The Harry H. Post
Company with and into AmeriServ Food Company.
2. Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 30, 1998, disclosing, under
Item 5, the ProSource acquisition.
3. Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 16, 1998, disclosing, under Item
5, certain fourth quarter results relating to ProSource.
4. Amendment to the Current Report on Form 8-K/A filed with the
Securities and Exchange Commission on March 20, 1998,
disclosing under Item 5, certain fourth quarter results
relating to ProSource and, under Item 9, the offering and sale
of $250 million of 11 1/4% Senior Redeemable Exchangeable
Preferred Stock due 2008.
20
<PAGE> 21
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: May 12, 1998 /s/ John V. Holten,
Chairman, Director and
Chief Executive Officer
Date: May 12, 1998 /s/ Diana M. Moog,
Senior Vice President and
Chief Financial Officer
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 27 Financial Data Schedule
</TABLE>
22
<PAGE> 23
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF NEBCO EVANS HOLDING COMPANY FOR THE FIRST
QUARTER ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-26-1998
[PERIOD-START] DEC-28-1997
[PERIOD-END] MAR-28-1998
[CASH] 239,796
[SECURITIES] 0
[RECEIVABLES] 36,505
[ALLOWANCES] 13,772
[INVENTORY] 152,542
[CURRENT-ASSETS] 577,922
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 1,454,167
[CURRENT-LIABILITIES] 356,963
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 242,433
[COMMON] 0
[OTHER-SE] (127,401)
[TOTAL-LIABILITY-AND-EQUITY] 1,454,167
[SALES] 1,124,063
[TOTAL-REVENUES] 1,124,063
[CGS] 1,013,010
[TOTAL-COSTS] 1,013,010
[OTHER-EXPENSES] 104,221
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 19,929
[INCOME-PRETAX] (15,903)
[INCOME-TAX] 296
[INCOME-CONTINUING] (16,199)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (16,199)
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
