<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. 0-23496
KFC NATIONAL PURCHASING COOPERATIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-0946155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Breckinridge Lane, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 896-5900.
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------- -------------------------
<S> <C>
None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Membership Common Stock, no par value
Store Common Stock, no par value
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 [X] No [ ]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
State the aggregate market value of the voting and non-voting common
stock(1) held by nonaffiliates of the registrant as of December 31, 1999.
Membership Common Stock $5,400
Store Common Stock $2,079,200
Number of shares outstanding of each of the issuer's classes of common
stock as of December 31, 1999.
<TABLE>
<CAPTION>
Title of each class Number of Shares
------------------- ----------------
<S> <C>
Membership Common stock 552
Store Common Stock 5,621
</TABLE>
- -----------------
(1)The aggregate market value stated above is the product of the current
per share offering price of Membership Common Stock ($10) and Store Common Stock
($400) multiplied by the number of shares of Membership Common Stock and Store
Common Stock, respectively, outstanding held by nonaffiliates on December 31,
1999. For purposes of these calculations, directors and executive officers of
the Registrant are assumed to be the only affiliates.
<PAGE> 3
This Form 10-K/A Amendment No. 1 amends Item 14(d) to include the
financial statements of Unified Foodservice Purchasing Co-op, LLC.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements. See accompanying Index to Consolidated
Financial Statements and Schedule.
(a)(2) Financial Statement Schedules. See accompanying Schedule II --
Valuation and Qualifying Accounts.
(a)(3) Exhibits. Following is a list of Exhibits to this Form 10-K:
*3.1 Certificate of Incorporation of KFC Co-op, as amended.
3.2 Bylaws of KFC Co-op, as amended.
*4.1 Article IV of Certificate of Incorporation of KFC Co-op, as
amended.
4.2 Articles II, III, IV and IX of Bylaws of KFC Co-op, as amended.
(Included as part of Exhibit 3.2 attached hereto.)
**10.1 Employment Agreement between Thomas D. Henrion and the KFC
Co-op (Management contract required to be filed pursuant to Item 601(10) of
Regulation S-K).
+10.2 Supplemental Benefits/Consulting Agreement between Thomas D.
Henrion and the KFC Co-op effective as of January 1, 1994 (management contract
required to be filed pursuant to Item 601(10) of Regulation S-K).
***10.3 Amendment No. 1 to Supplemental Benefits/Consulting Agreement
between Thomas D. Henrion and the KFC Co-op effective January 1996 (management
contract required to be filed pursuant to Item 601(10) of Regulation S-K).
****10.4 Guaranty Agreement dated as of April 18, 1996 between the KFC
Co-op and National Consumer Cooperative Bank.
*****10.5 Separation and Consulting Agreement between Thomas D.
Henrion, KFC Co-op and the Unified Foodservice Purchasing Co-op, LLC (management
contract required to be filed pursuant to Item 601(10) of Regulation S-K).
******10.6 Loan Agreement between Fifth Third Bank and the KFC Co-op and
related documents.
24 Power of Attorney.
27 Financial Data Schedule (for SEC use only).
*******99.1 Operating Agreement for Unified Foodservice Purchasing
Co-op, LLC.
<PAGE> 4
*******99.2 Form of Purchasing Program Management Agreement.
+ Previously filed in Registration Statement (File No. 33-56982).
*Incorporated by reference to the KFC Co-op's Annual Report on Form 10-K for
the fiscal year ended October 31, 1997 [File No. 2-63640].
**Previously filed in Registration Statement (File No. 33-33801) with the
Securities and Exchange Commission on March 9, 1990.
***Incorporated by reference to the KFC Co-op's Annual Report on Form 10-K
for the fiscal year ended October 31, 1995 [File No. 2-63640].
****Incorporated by reference to the KFC Co-op's Annual Report on Form 10-K
for the fiscal year ended October 31, 1996 [File No. 2-63640].
*****Incorporated by reference to the Amendment No. 2 to the Tender Offer of
the KFC Co-op on Schedule 14A [File No. 005-54907].
******Incorporated by reference to the KFC Co-op's Amendment No. 6 on Form
S-1 filed on July 23, 1999 [File No. 33-56982].
*******Incorporated by reference to the Amendment No. 2 to the Proxy
Statement of the KFC Co-op on Schedule 14A [File No. 000-23496].
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K dated December 8,
1999 reporting an Item 8 change in fiscal year end from October 31 to December
31. No financial statements were filed with this Form 8-K.
(c) Exhibits.
The exhibits listed in response to Item 14(a)(3) are filed as a part of this
report.
(d) Financial Statement Schedules.
The Registrant's financial statement schedule listed in response to Item
14(a)(2) is filed as a part of this report. In accordance with Rule 3-09(b) of
Regulation S-X, the audited financial statements for the year ended December 31,
1999 of the Unified Foodservice Purchasing Co-op, LLC are hereby filed in this
amendment to the Form 10-K within 90 days of the fiscal year end of the Unified
Foodservice Purchasing Co-op, LLC. The information required in Schedule II --
Valuation and Qualifying Accounts for the Unified Foodservice Purchasing Co-op,
LLC is contained in the audited financial statements filed in response to this
Item 14(d).
<PAGE> 5
C O N T E N T S
Pages
Report of Independent Accountants 1
Consolidated Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Statement of Members' Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Members
Unified Foodservice Purchasing Co-op, LLC
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, members' equity and cash flows present
fairly, in all material respects, the financial position of Unified Foodservice
Purchasing Co-op, LLC and Subsidiary (UFPC) at December 31, 1999, and the
results of their operations and their cash flows for the period from March 1,
1999 (inception) through December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of UFPC's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 1, 2000
1
<PAGE> 7
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,816
Accounts receivable, less allowance for losses of $807 45,024
Inventories 1,126
Prepaid expenses 219
---------
Total current assets 52,185
Property and equipment, net 1,420
Deferred income taxes 18
---------
Total assets $ 53,623
=========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 21,924
Accrued expenses 10,019
---------
Total current liabilities 31,943
Premium deposits 297
Note payable-KFC Co-op 8,300
---------
Total liabilities 40,540
---------
Commitments and contingencies
Members' equity:
Capital contributions 6,000
Undistributed earnings 7,083
---------
Total members' equity 13,083
---------
Total liabilities and members' equity $ 53,623
=========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
2
<PAGE> 8
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
for the period from March 1, 1999 (inception) through December 31, 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net sales $ 514,145
Cost of goods sold 502,368
---------
Gross profit 11,777
Sourcing fees 24,076
Selling, general and administrative expenses (22,383)
Provision for losses on receivables (1,669)
Other income (expense):
Service charges 374
Interest income 384
Interest expense (84)
Miscellaneous 90
---------
Income before income taxes 12,565
Provision for income taxes 61
---------
Net income $ 12,504
=========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE> 9
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
for the period from March 1, 1999 (inception) through December 31, 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Pizza Hut Taco Bell KFC Members'
Co-op Co-op Co-op Kenco Equity
--------- --------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1999 - - - - -
Contributions $ 2,000 $ 2,000 $ 2,000 - $ 6,000
Net income 2,299 6,300 3,848 $ 57 12,504
Distributions (786) (2,555) (2,080) - (5,421)
------- -------- ------- ------ --------
Balance, December 31, 1999 $ 3,513 $ 5,745 $ 3,768 $ 57 $ 13,083
------- -------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE> 10
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
for the period from March 1, 1999 (inception) through December 31, 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $12,504
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 174
Deferred income taxes 36
Provision for losses on receivables 604
Changes in operating assets and liabilities:
Accounts receivable (43,610)
Inventories (1,126)
Prepaid expenses (97)
Accounts payable 21,354
Accrued expenses 9,631
Premium deposits (32)
-------
Net cash provided by operating activities (562)
-------
Cash flows from investing activities:
Additions to office equipment, net (810)
-------
Net cash used in investing activities (810)
-------
Cash flows from financing activities:
Distribution to Pizza Hut Co-op (786)
Distribution to Taco Bell Co-op (2,555)
Distribution to KFC Co-op (2,080)
Decrease in payables to affiliates (1,009)
Increase in note payable to KFC Co-op 7,629
Capital contributed 6,000
Other (11)
-------
Net cash provided by financing activities 7,188
-------
Net increase in cash and cash equivalents 5,816
Cash and cash equivalents - beginning of year -
-------
Cash and cash equivalents - end of year $ 5,816
=======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE> 11
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION:
On March 1, 1999 the operations of the KFC National Purchasing
Cooperative, Inc. (KFC Co-op) were combined with those of the Tricon
Global Restaurants' (Tricon) "Supply Chain Management" team to form a new
entity, the Unified Foodservice Purchasing Co-op, LLC (UFPC), to bring
the three Tricon brands (KFC, Taco Bell and Pizza Hut) together into a
single purchasing organization. The KFC Co-op has been in operation since
1980, and since approximately 1990 was supporting primarily the KFC
franchisee operators, but also provided support for a minority of Taco
Bell franchisees. The first step in the formation of UFPC was for the
three franchisee groups and Tricon to agree on the structure to support
the combined purchasing entity. Tricon agreed to re-endorse the KFC Co-op
and appoint directors to that Board. To provide entities for the Taco
Bell and Pizza Hut systems, two new co-ops were created. The Taco Bell
National Purchasing Coop, Inc. (Taco Bell Co-op) was created initially
using the spin off of stock from the KFC Co-op owned by Taco Bell
franchisees as its starting point and soliciting membership from Tricon
and the remaining Taco Bell franchisees. The Pizza Hut National
Purchasing Coop, Inc. (Pizza Hut Co-op) was formed through the
solicitation of membership from Tricon and the Pizza Hut franchisees.
Each co-op is owned and managed by a board of directors representing both
franchisees and Tricon. UFPC was created with the three Concepts as the
initial members.
In connection with the formation of UFPC, each of the KFC Co-op, Taco
Bell Co-op, and Pizza Hut Co-op (the Concept Co-ops) entered into a
Purchasing Program Management Agreement with UFPC. The Purchasing Program
Management Agreement sets forth the terms pursuant to which UFPC
administers a purchasing program on behalf of each Concept Co-op.
Each Concept Co-op's Purchasing Program Management Agreement provides
that UFPC will (i) purchase, inventory and stage and/or arrange for the
purchase, inventory and staging of goods and equipment for sale or resale
to operators and/or their distributors, (ii) negotiate purchase
arrangements with suppliers of goods and equipment who sell directly to
distributors and/or operators, (iii) assist the Concept Co-ops in
negotiating with distributors of goods and equipment, and (iv) make
available to the Concept Co-ops and operators other programs such as
health and property insurance programs. The Concept Co-ops are obligated
to fund UFPC purchasing program activities performed on their behalf.
Amounts loaned from the Concept Co-ops to UFPC carry a zero interest
rate, as each Concept Co-op only funds activities related to the
respective Concept Co-op.
6
<PAGE> 12
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED:
Each Purchasing Program Management Agreement also provides that within 60
days after the end of each fiscal quarter, UFPC will pay each Concept
Co-op an amount equal to 70% of the income generated by UFPC from each
respective purchasing program, net of all expenses allocable to the
purchasing program for such quarter. Within 60 days of the end of each
fiscal year, UFPC will pay each Concept Co-op an amount equal to 90% of
any net income generated by its purchasing program, less any quarterly
payments described above. Although those funds will be transferred to the
Concept Co-ops, the proceeds may be contributed directly back to UFPC in
the form of working capital loans. If a purchasing program generates a
net loss for a fiscal quarter or fiscal year, the Concept Co-op will
reimburse UFPC for any and all of such net loss.
The accompanying financial statements should be read in conjunction with
the financial statements for each Concept Co-op.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UFPC operates in a single segment. The more significant accounting
policies of UFPC are as follows:
A. CONSOLIDATION: The accompanying financial statements as of and for the
period from March 1, 1999 (inception) through December 31, 1999
include the accounts of UFPC, and its wholly-owned subsidiary, Kenco
Insurance Agency, Inc. (Kenco). Kenco sponsors and helps administer
insurance programs primarily for KFC franchisees. Kenco was
transferred to UFPC on March 1, 1999, in connection with the formation
of UFPC. All significant intercompany balances and transactions have
been eliminated in consolidation.
B. REVENUE RECOGNITION: UFPC recognizes revenues primarily from two
sources. A "sourcing fee" is collected, primarily from distributors
and suppliers on selected items for each Concept to fund the
purchasing and administrative operations of UFPC. This fee is
collected and remitted primarily from distributors who purchase goods
directly from suppliers (non-title business) and collect the fee on
behalf of UFPC as part of the price charged to operators for goods
delivered to the restaurants. The amount and number of products to
which this fee is added varies by Concept Co-op and is based on the
specific services to be performed by UFPC in association with the
purchasing program for each Concept Co-op. These fees are structured
to recover the cost of operations for UFPC and may include a
contingency amount to allow for various unknown factors. Substantially
all fees collected in excess of the amounts needed for operations of
UFPC are distributed to the Concept Co-ops, which after consideration
of working capital requirements may distribute the excess to their
members in the form of patronage dividends.
7
<PAGE> 13
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
B. REVENUE RECOGNITION, CONTINUED: The second source of revenue is the
additional margin (the "title fee") which is billed to those
distributors and operators who purchase goods directly from UFPC after
UFPC has taken title to the goods. At the present time only the KFC
Co-op uses the title system for a portion of its franchise food and
packaging programs. All three Concept Co-ops use the title system for
equipment purchases, but a significant portion of direct equipment
sales are currently to the KFC franchisees. Under this system UFPC
takes title of goods from, and pays the supplier. The title fee is
based on the operating cost factors for the additional expenses
associated with taking title. These costs are primarily order
processing, billing, accounts receivable, collections and the risk of
loss or a provision for bad debts. Since UFPC extends short-term
credit as part of its title program, it also bears the risk that
accounts receivables may become uncollectible or may not be paid in
accordance with usual terms if a distributor or operator experiences
financial difficulties or otherwise. If margins exceed expenses and
working capital requirements, the excess may be distributed to the
Concept Co-ops who may distribute to their members in the form of
patronage dividends. Each Concept Co-op that chooses to use the
"title" system must provide its own working capital. UFPC's accounts
receivable are identified and held separately for each Concept Co-op
as collateral in association with lines of credit issued to each
Concept Co-op.
C. INVENTORIES: Inventories at December 31, 1999 are stated at the lower
of cost, primarily determined on the first-in, first-out (FIFO)
method, or market.
D. DEPRECIATION EXPENSE: Provision for depreciation is made on the basis
of the estimated useful lives of the assets. Principally, the
double-declining balance method is used for depreciation of office
equipment and leasehold improvements.
E. STATEMENT OF CASH FLOWS: For purposes of the consolidated statement
of cash flows, UFPC considers all short-term highly liquid debt
instruments purchased with a maturity of three months or less to be
cash equivalents.
F. USE OF ESTIMATES: Management of UFPC has made a number of estimates
and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent liabilities to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
8
<PAGE> 14
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
3. CONTRIBUTION FROM KFC CO-OP:
In exchange for its membership interest in UFPC, the KFC Co-op
contributed certain operating assets and cash to UFPC. Pursuant to the
Asset Contribution and Liability Assumption Agreement, the KFC Co-op
assigned, transferred, delivered, and generally set over to UFPC, and
UFPC accepted and assumed, certain "Assets", which mean certain of the
KFC Co-op's contracts, leases, equipment, and prepaid assets (other than
any of the same which were transferred to the Taco Bell Co-op pursuant to
the Agreement and Plan of Corporate Separation), as defined in the Asset
Contribution and Liability Assumption Agreement. The Assets did not
include any other assets of the KFC Co-op, including, without limitation,
any accounts receivable, cash or cash equivalents, or goodwill. In
return, UFPC assumed and agreed to perform and discharge in full any and
all of the KFC Co-op's obligations and liabilities under its contracts
and leases. UFPC also made offers of employment to all of the employees
of the KFC Co-op on terms and conditions substantially similar in the
aggregate to those in effect before the Corporate Reorganization, except
for the KFC Co-op's then president and chief executive officer. The KFC
Co-op and UFPC entered into a Separation and Consulting Agreement with
that individual.
The following table reflects the corporate reorganization adjustment
which took place on March 1, 1999 and is included in notes payable - KFC
Co-op.
<TABLE>
<S> <C>
Assets:
Accounts receivable $ 24
Note receivable affiliate 279
Other assets 818
--------
1,121
Liabilities:
Accrued expenses 171
--------
Members' equity $ 950
========
</TABLE>
4. ACCOUNTS RECEIVABLE AND SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
As of December 31, 1999, substantially all of UFPC's receivables are
obligations of retail operators, including Tricon, and their
distributors. UFPC does not require collateral or other security on most
of these accounts. The credit risk on these accounts is controlled
through credit approvals, limits and monitoring procedures.
9
<PAGE> 15
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT:
Net property and equipment at December 31, 1999 consists of the following
<TABLE>
<S> <C>
Leasehold improvements $ 229
Office equipment 1,365
--------
1,594
Less accumulated depreciation (174)
--------
Net property and equipment $ 1,420
========
</TABLE>
6. INCOME TAXES:
Because UFPC is a limited liability corporation (LLC), earnings of UFPC
are taxed when distributed to the Concept Co-ops. Each Concept Co-op is
responsible for the tax liability related to its respective earnings in
UFPC. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to the difference between the financial
statement carrying amounts of the Concept Co-op's investment in UFPC and
the Concept Co-op's tax basis in UFPC.
7. MAJOR CUSTOMERS:
UFPC had title sales to certain distributors in excess of 10% of total
net title sales. One customer accounted for sales of approximately
$86,967,000 for the ten months ended December 31, 1999. This customer's
outstanding accounts receivable balance was approximately $6,225,000 at
December 31, 1999. A second customer accounted for sales of approximately
$69,083,000 for the ten months ended December 31, 1999. This customer's
outstanding accounts receivable balance was approximately $4,690,000 at
December 31, 1999. A third customer accounted for sales of approximately
$56,335,000 for the ten months ended December 31, 1999. This customer's
outstanding accounts receivable balance was approximately $211,000 at
December 31, 1999. A fourth customer accounted for sales of approximately
$53,347,000 for the ten months ended December 31, 1999. This customer's
outstanding accounts receivable balance was approximately $4,488,000 at
December 31, 1999.
10
<PAGE> 16
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
7. MAJOR CUSTOMERS, CONTINUED:
In October 1997, PepsiCo, Inc. spun off its three primary restaurant
divisions - KFC, Taco Bell, and Pizza Hut - into a new public company,
Tricon Global Restaurants, Inc. (Tricon). Also during fiscal 1997,
PepsiCo sold its restaurant distribution subsidiary, Pepsi Food Service
(PFS) to AmeriServe Food Distribution, Inc. (AmeriServe). AmeriServe has
been the second largest UFPC customer, purchasing goods for distribution
primarily to KFC franchisees. When AmeriServe purchased PFS, it acquired
rights under a distribution agreement which as amended may extend until
2007. This agreement binds Tricon to use AmeriServe distribution services
for Tricon-owned KFC, Taco Bell, and Pizza Hut outlets. The agreement
also extends to Taco Bell and Pizza Hut restaurants sold as part of
Tricon's announced program of refranchising certain Tricon-owned
restaurants to existing and new franchisees.
AmeriServe continues to be a major supplier of products to the Tricon
system and currently provides distribution services to over 75% of all
KFC, Taco Bell, and Pizza Hut restaurant outlets in the United States.
AmeriServe is responsible for a significant portion of the sourcing fees
collected by UFPC. Sourcing fees remitted by AmeriServe to UFPC for the
period March 1, 1999 through December 31, 1999 were approximately
$20,567,000.
On January 31, 2000, AmeriServe filed in Delaware for protection under
Chapter 11 of the U.S. bankruptcy code. The bankruptcy court in Delaware
has approved financing commitments to AmeriServe from Tricon and Burger
King Corp. In addition, to provide its suppliers confidence to continue
shipping to KFC, Taco Bell and Pizza Hut restaurants, Tricon has told its
suppliers that it would be responsible for payment of goods approved by
and purchased by Tricon through AmeriServe for use at any Tricon-owned,
franchised or licensed restaurant from January 31, 2000 until further
notice by Tricon. Tricon anticipates that AmeriServe will continue the
administrative functions of ordering and invoicing, in AmeriServe's name,
of Tricon purchased goods. UFPC wrote off approximately $1,000,000 of
receivables related to the bankruptcy of AmeriServe in its December 31,
1999 financial statements and approximately $3,200,000 in its financial
statements subsequent to year-end. The impact of AmeriServe's bankruptcy
on the business of UFPC remains uncertain.
11
<PAGE> 17
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
8. RETIREMENT PLAN:
As part of UFPC's formation, a thrift and profit-sharing plan and a money
purchase pension plan of the KFC Co-op were transferred to UFPC. The
plans cover all employees who meet certain requirements as to age and
length of service. The thrift and profit-sharing plan is funded under two
allocation methods. The first is funded through a thrift plan agreement
under Section 401(k) of the Internal Revenue Code whereby contributions
made by those employees who elected to participate are matched, in
accordance with plan guidelines and limitations, by UFPC. The second
allocation, which covers all employees and was introduced in 1986, was
funded by UFPC as determined by the Board of Directors, subject to
certain limitations. The money purchase pension plan, provides for an
employee matching contribution of 1% to 4.5% of eligible compensation.
UFPC's combined contributions relating to these plans were approximately
$1,043,555 for the period from March 1, 1999 (inception) through
December 31, 1999.
9. COMMITMENTS AND CONTINGENCIES:
UFPC's leasing arrangements include office space and equipment leased
under customary leasing arrangements which include in some instance
options to renew or purchase the leased items. All such leases are
considered operating leases. The following is a schedule of future lease
obligations:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
----------------------
<S> <C>
2000 $ 792,000
2001 721,000
2002 774,000
2003 785,000
Thereafter 916,000
----------
$3,988,000
==========
</TABLE>
Rental expense was approximately $929,000 for the period March 1, 1999
(inception) through December 31, 1999.
In the ordinary course of business, UFPC becomes involved in various
claims and legal actions. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
UFPC's consolidated financial statements.
12
<PAGE> 18
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED:
In accordance with the Purchasing Program Management Agreement, UFPC
endeavors to obtain the lowest purchase price by making large volume
purchase commitments based on a fixed pricing formula and the estimated
demand for the products on behalf of the three Concept Co-ops. The
estimates are provided by the Concept Co-ops and the commitments are made
at the direction of the Concept Co-ops. Any exposure associated with
these commitments will ultimately be borne by the respective Concept
Co-op's restaurant operators in the form of future price increases or
additional sourcing fees. Most commitments are for a year or less, but on
occasion and based on particular circumstances, may be for a longer
period. At the present time UFPC does not expect any losses from current
commitments.
10. FINANCIAL INSTRUMENTS:
The fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Differences
can arise between the fair value and carrying amount of financial
instruments that are recognized at historical amounts.
The carrying amounts of cash and cash equivalents, accounts receivable
(net), short-term borrowings, accounts payable, and accrued expenses
approximate the fair value of these instruments because of the short
maturity of these instruments.
The carrying amount of the long-term note payable approximates fair value
because the interest rate approximates that currently offered to the KFC
Co-op for similar debt instruments.
It is not practical to estimate the fair value of the note payable - KFC
Co-op due to the related party nature of that instrument.
11. IMPACT OF NEW ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
amended by SFAS No. 137. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management
believes that the adoption of SFAS No. 133 as amended by SFAS No. 137 in
fiscal 2000 will not have a material affect on UFPC's consolidated
financial statements.
13
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KFC NATIONAL PURCHASING
COOPERATIVE, INC.
March 29, 2000 By /s/ Daniel E. Woodside
-------------------------------------
Daniel E. Woodside, President
and Chief Executive Officer
