<PAGE> 1
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 JANUARY 29, 1994
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 1-8105
RYKOFF-SEXTON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-2134693
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
761 TERMINAL STREET
LOS ANGELES, CALIFORNIA 90021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(213) 622-4131
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(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, AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES ( X ) NO ( )
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
<S> <C>
OUTSTANDING AT
CLASS OF COMMON STOCK MARCH 4, 1994
- --------------------- -------------
$.10 PAR VALUE 11,628,085 SHARES
</TABLE>
<PAGE> 2
RYKOFF-SEXTON, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
January 29, 1994 and May 1, 1993 2
Condensed Consolidated Statements of Income
Three Months and Nine Months ended
January 29, 1994 and January 30, 1993 3
Condensed Consolidated Statements of Cash Flows
Nine Months ended January 29, 1994 and
January 30, 1993 4
Notes to Condensed Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information 10
Signatures 11
</TABLE>
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<PAGE> 3
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
January 29, May 1,
1994 1993
----------- --------
<S> <C> <C>
ASSETS
Current assets
Cash $ 2,779 $ 7,605
Accounts receivable, net 148,598 135,449
Inventories 131,907 122,650
Prepaid expenses 15,200 15,724
-------- --------
Total current assets 298,484 281,428
Property, plant and equipment, net 171,292 158,342
Other assets, net 23,758 21,624
-------- --------
Total assets $493,534 $461,394
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $117,559 $121,259
Current portion of long-term debt -- 9,664
-------- --------
Total current liabilities 117,559 130,923
-------- --------
Long-term debt, less current portion 189,329 144,669
-------- --------
Deferred income taxes 5,490 4,848
-------- --------
Other long-term liabilities 10,050 14,250
-------- --------
Shareholders' equity
Common stock, at stated value 1,193 1,189
Additional paid-in capital 91,890 91,327
Retained earnings 82,644 78,808
-------- --------
175,727 171,324
Less: treasury stock, at cost 4,621 4,620
-------- --------
Total shareholders' equity 171,106 166,704
-------- --------
Total liabilities and shareholders'
equity $493,534 $461,394
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
--------------------------- ---------------------------
Jan. 29 Jan. 30 Jan. 29 Jan. 30
1994 1993 1994 1993
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales .......................................... $372,747 $360,043 $1,129,930 $1,124,657
Cost of sales ...................................... 288,613 277,490 867,794 863,824
---------- ---------- ---------- ----------
Gross Profit ....................................... 84,134 82,553 262,136 260,833
Warehouse, selling, general
and administrative expenses....................... 80,013 83,994 243,428 251,282
Restructuring costs ................................ -- 31,000 -- 31,000
---------- ---------- ---------- ----------
Income (loss) from operations ...................... 4,121 (32,441) 18,708 (21,449)
Interest expense ................................... 3,511 3,424 9,760 10,370
---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes, extraordinary
item and change in accounting ................... 610 (35,865) 8,948 (31,819)
Provision (benefit) for income taxes ............... 249 (13,416) 3,668 (11,798)
---------- ---------- ---------- ----------
Income (loss) before extraordinary
item and change in accounting ................... 361 (22,449) 5,280 (20,021)
Extraordinary item, net of tax benefit ............. -- -- (1,444) --
Cumulative effect of change in
accounting for income taxes ..................... -- -- -- 732
---------- ---------- ---------- ----------
Net income (loss) .................................. $ 361 $(22,449) $ 3,836 $ (19,289)
========== ========== ========== ==========
Weighted average number of shares outstanding ...... 11,750,611 11,622,072 11,743,190 11,619,629
========== ========== ========== ==========
Earnings per share:
Income (loss) before extraordinary item
and change in accounting..................... $ 0.03 $ (1.93) $ 0.45 $ (1.72)
Extraordinary item ............................. -- -- (0.12) --
Change in accounting for income taxes .......... -- -- -- 0.06
---------- ---------- ---------- ----------
Net income ..................................... $ 0.03 $ (1.93) $ 0.33 $ (1.66)
========== ========== ========== ==========
Cash dividends per share .......................... $ -- $ 0.075 $ -- $ 0.325
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months ended
---------------------------
January 29, January 30,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities--
Net income (loss) $ 3,836 $(19,289)
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 17,898 17,447
Other non-cash restructuring expenses -- 19,750
Decrease in deferred income taxes -- (8,238)
Extraordinary item 1,444 --
Cumulative effect of change in accounting
for income taxes -- (732)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (13,149) 8,448
(Increase) decrease in inventories (9,257) 1,730
(Increase) decrease in prepaid expenses 2,169 (5,069)
(Decrease) in accounts payable and accrued liabilities (8,180) (5,665)
--------- --------
Net cash provided (used) by operating activities (5,239) 8,382
--------- --------
Cash flows used in investing activities --
Capital expenditures (28,714) (23,187)
--------- --------
Cash flows from financing activities --
Issuance of 8.875% senior subordinated notes 130,000 --
Payments of long-term debt (137,719) (9,612)
Increase under credit line 43,000 36,000
Short-term debt borrowings -- 23,000
Repayment of short-term borrowings -- (43,000)
Dividends paid -- (3,771)
Payment of finance costs (6,720) --
Issuance of common stock 566 4
--------- --------
Net cash provided by financing activities 29,127 2,621
--------- --------
Net (decrease) in cash and cash equivalents (4,826) (12,184)
Cash at beginning of period 7,605 14,697
--------- --------
Cash at end of period $ 2,779 $ 2,513
========= ========
Supplemental disclosures of cash flow information--
Cash paid during the period for
Interest $ 8,659 $ 7,598
Income taxes 1,585 1,772
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
RYKOFF-SEXTON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
2. The foregoing financial information, not examined by independent
public accountants, reflects, in the opinion of the Company, all
adjustments (which included only normal recurring adjustments)
necessary to present fairly the information purported to be shown and
is not necessarily indicative of the results of the operations for the
entire year ending April 30, 1994.
3. Primary earnings per share of common stock have been computed on the
weighted average number of shares of common stock outstanding and
dilutive common stock equivalents.
4. Inventories are carried at the lower of cost (first-in, first-out) or
market and are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
January 29, May 1,
1994 1993
----------- --------
<S> <C> <C>
Finished Goods $119,802 $110,618
Raw Materials 12,105 12,032
-------- --------
$131,907 $122,650
======== ========
</TABLE>
5. In November 1993, the Company issued $130 million principal amount of
8-7/8% Senior Subordinated Notes (the "8-7/8% Notes") due November 1,
2003 with interest payable semiannually commencing May 1, 1994. The
8-7/8% Notes were sold at a discount for an aggregate price of $128.9
million. Provisions of the 8-7/8% Notes include, without limitation,
restrictions on liens, indebtedness, asset sales, and dividends and
other restricted payments. The 8-7/8% Notes are redeemable at the
option of the Company, in whole or in part, at 104.44% of their
principal amount beginning November 1998, and thereafter at prices
declining annually to 100% on and after November 2001. In addition,
upon the occurrence of an event that constitutes a Change of Control
(as defined in the indenture for such notes), each holder of the
8-7/8% Notes may require the Company to repurchase all or a portion of
such holder's 8-7/8% Notes at a purchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest,
if any, to the date of repurchase. The 8-7/8% Notes are not subject
to any sinking fund requirements.
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<PAGE> 7
Concurrently with the sale of the 8-7/8% Notes, the Company obtained a
$100 million credit line expiring on August 31, 1996 and a $15 million
letter of credit facility expiring on August 31, 1994 from its bank
(the "New Credit Facility"). Under the New Credit Facility, the
credit line is unsecured and bears interest based on the bank's
reference rate, the interbank offshore rate, certificate of deposit
rate or fixed rate at the option of the Company. The provisions of
the New Credit Facility include, without limitation, restrictions on
secured indebtedness, asset sales, acquisitions or mergers and
dividends. Under the New Credit Facility, the Company is also
required to meet certain financial tests which include, without
limitation, those relating to the maintenance of a minimum net worth,
minimum net tangible assets, a minimum fixed charge coverage ratio, a
minimum tangible assets to funded debt ratio and a minimum current
ratio (each as defined in the New Credit Facility). In addition to
customary provisions relating to events of default, the New Credit
Facility provides that an event of default will occur upon a Change of
Control (as defined in the indenture for the 8-7/8% Notes).
The proceeds from the issuance of the 8-7/8% Notes, together with
borrowings under the New Credit Facility, were used to retire $128.1
million principal amount of 8.60% Senior Notes and outstanding senior
indebtedness under the prior bank credit facility. The early
retirement of the 8.60% Senior Notes and the outstanding senior
indebtedness under the prior bank credit facility resulted in an
extraordinary item of $1.4 million, net of tax benefit of $1.0
million, associated with the write-off of deferred finance costs.
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<PAGE> 8
RYKOFF-SEXTON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying condensed consolidated statements of income.
A summary of the period to period changes in principal items included in the
condensed consolidated statements of income is shown below:
<TABLE>
<CAPTION>
Comparison of
------------------------------------------------------
Three Months Nine Months
Ended Ended
January 29, 1994 January 29, 1994
and January 30, 1993 and January 30, 1993
------------------------------------------------------
Increases(Decreases)
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Net sales $12,704 3.53% $5,273 0.47%
Cost of sales 11,123 4.01 3,970 0.46
Gross profit 1,581 1.92 1,303 0.50
Warehouse, selling, general
and administrative expenses (3,980) (4.74) (7,854) (3.13)
Interest expense 86 2.51 (610) (5.88)
Restructuring costs (31,000) (100.00) (31,000) (100.00)
Income(loss) before provision
(benefit) for income taxes,
extraordinary item and
change in accounting 36,475 101.70 40,767 128.12
Provision(benefit) for
income taxes 13,665 101.86 15,466 131.10
Income(loss) before extra-
ordinary item and change
in accounting 22,810 101.61 25,301 126.37
Extraordinary item, net of
tax benefit --- --- (1,444) ---
Cumulative effect of change
in accounting for income taxes --- --- (732) (100.00)
Net income(loss) 22,810 101.61 23,125 119.89
</TABLE>
-7-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended January 29, 1994, sales increased $12.7 million
or 3.5% over the corresponding quarter in fiscal 1993. For the nine month
period, sales increased $5.3 million or 0.5% to $1.130 billion from $1.125
billion in the prior year period. The higher sales volumes for these periods
reflect increases associated with the implementation of new sales and marketing
programs in fiscal 1994. These increases were partially offset by the closure
of several inefficient operations and other actions taken in connection with
the restructuring program. In addition, the severe winter weather in the
Midwest and East and the Los Angeles earthquake had an impact of approximately
$3.0 million in lost sales during the quarter ended January 29, 1994.
Cost of sales for the three month period ended January 29, 1994
increased $11.1 million or 4.0% to $288.6 million and, on a year to date basis,
increased $4.0 million or 0.5% to $867.8 million. This resulted in a
comparable gross profit margin of 22.6% for the current year quarter compared
to 22.9% last year. On a year to date basis, the gross profit margins were the
same at 23.2%. Warehouse, selling, general and administrative expenses
decreased $4.0 million or 4.7% for the three month period and $7.9 million or
3.1% for the nine month period. These decreases resulted primarily from the
progress made under the Company's restructuring program.
Interest expense for the three month period ended January 29, 1994 was
comparable to the prior year period expense and for the nine month period,
interest expense decreased by $0.6 million due primarily to reduced borrowing
rates. A one-time restructuring charge of $31 million was recorded in last
year's third quarter to provide for a business reorganization. The effective
tax rates for the three month and nine month periods ended January 29, 1994
were 41.0% compared to the effective tax rates of 37.4% and 37.1%,
respectively, for the three month and nine month periods ended January 30,
1993. The increase is due to the impact of valuation allowances that were
established last year in connection with the restructuring charge, as well as
the effect of the Revenue Reconciliation Act of 1993.
Income before extraordinary item and change in accounting for the
three month period ended January 29, 1994 improved to $0.4 million from a loss
of $22.4 million last year. For the nine months ended January 29, 1994, income
before extraordinary item and change in accounting advanced to $5.3 million
from a loss of $20.0 million last year. The primary reasons for these
improvements were the effect of the restructuring charge set up last year and
operating expense reductions that were achieved this year under the
restructuring program.
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<PAGE> 10
The extraordinary item of $1.4 million, net of tax benefit, resulted
from the write-off of deferred finance costs associated with early retirement
of 8.60% senior notes and the outstanding senior indebtedness under the prior
bank credit facility as described in Note 5 to the accompanying condensed
consolidated financial statements. In fiscal 1993, the Company adopted SFAS
109 "Accounting for Income Taxes" which had a cumulative positive effect of
$0.7 million.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 29, 1994, cash used for operations
was $5.2 million compared with cash provided by operations of $8.4 million for
the corresponding period in fiscal 1993. The increase in cash used for
operations was primarily due to increases in accounts receivable and
inventories. Cash used in investing activities for the nine months ended
January 29, 1994 consisted of capital expenditures of $28.7 million compared
with $23.2 million for the comparable period in fiscal 1993. This increase is
primarily attributable to expenditures for the construction of the new
manufacturing plant for Tone Brothers. Cash provided by financing activities
was $29.1 million for the nine months ended January 29, 1994 compared with $2.6
million for the comparable period in fiscal 1993. This increase resulted from
increased borrowings.
Working capital at January 29, 1994 was $180.9 million compared with
$150.5 million at May 1, 1993. The current ratio was 2.5:1 at January 29, 1994
compared with 2.1:1 at May 1, 1993. As of January 29, 1994, total current
assets represented 60.5% of the Company's total assets.
The Company plans to relocate its Los Angeles distribution branch to a
new facility in fiscal 1995. The cost of this new facility is estimated to be
approximately $45.0 million. The Company is considering various alternatives
for financing this facility, including borrowing under its bank credit facility
or entering into an operating lease.
The Company borrows on a regular basis in order to fund its ongoing
operations. In November 1993, the Company issued $130 million principal amount
of 8-7/8% Senior Subordinated Notes (the "8-7/8% Notes") and concurrently
obtained a $100 million credit line and $15 million letter of credit facility
from its bank (the "New Credit Facility"). The proceeds from the issuance of
the 8-7/8% Notes, together with borrowings under the New Credit Facility, were
used to retire $128.1 million principal amount of 8.60% senior notes and
outstanding senior indebtedness under the prior bank credit facility. Refer to
Note 5 to the accompanying condensed consolidated financial statements which
more fully describes this refinancing.
At its meeting of March 8, 1993, the Board of Directors suspended the
payment of dividends on the Company's common stock.
-9-
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Credit Agreement between
Rykoff-Sexton, Inc. and Bank of America
National Trust and Savings Association,
dated as of December 29, 1993.
(b) Reports on Form 8-K
None filed for the quarter for which this report is filed.
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<PAGE> 12
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.
RYKOFF-SEXTON, INC.
Date: March 14, 1994 /s/ MARK VAN STEKELENBURG
---------------------------------
Mark Van Stekelenburg
President and Chief Executive
Officer
Date: March 14, 1994 /s/ RICHARD J. MARTIN
---------------------------------
Richard J. Martin
Senior Vice President and
Chief Financial Officer
Date: March 14, 1994 /s/ VICTOR B. CHAVEZ
---------------------------------
Victor B. Chavez
Vice President and Chief
Accounting Officer
-11-
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<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is made as
of December 29, 1993, between RYKOFF-SEXTON, INC., a Delaware corporation,
("Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association, ("Bank").
WHEREAS, Borrower and Bank entered into that certain Credit Agreement
dated as of October 25, 1993 (the "Agreement");
WHEREAS, Borrower and Bank desire to modify and amend certain of the
terms and provisions of the Agreement to be effective as of October 25, 1993;
NOW, THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, Borrower and Bank do hereby mutually
agree as follows:
1. The definition "Consolidated Net Tangible Assets" is amended
and restated in its entirety as follows:
"'Consolidated Net Tangible Assets' means the net book value
of the assets of Borrower and its Subsidiaries less the sum (without
duplication) of (i) any (a) intangible assets (including goodwill,
trade names, trademarks, patents, treasury stock and organization
expense) acquired after October 2, 1993, and (b) unamortized debt
discount and expense as they appear on Borrower's balance sheet; (ii)
Restricted Investments incurred after May 3, 1986; and (iii) all
liabilities (including deferred taxes and minority interests) other
than Consolidated Funded Debt."
2. The following is added as new subsection (viii) to the
definition of "Restricted Investments":
"(viii) outstanding loans and investments set forth on Schedule I
attached hereto."
3. Section 6.14 is amended and restated in its entirety as
follows:
"6.14 Priority Debt. Not permit Priority Debt at any time to
exceed five percent (5%) of Consolidated Net Tangible Assets;
provided, however, that for purposes of this Section 6.14, (a)
Priority Debt shall exclude purchase money Debt in an amount up to and
including fifteen percent (15%) of Consolidated Net Tangible Assets,
and (b) Debt shall exclude the cost of
-1-
<PAGE> 2
and all Debt related to the New Facility and the Tone Facility."
Borrower hereby represents and warrants to Bank that: (i) no default
specified in the Agreement and no event which with notice or lapse of time or
both would become such a default has occurred and is continuing, (ii) the
representations and warranties of Borrower pursuant to the Agreement are true
on and as of the date hereof as if made on and as of said date, (iii) the
making and performance by Borrower of this Amendment have been duly authorized
by all necessary action, and (iv) no consent, approval, authorization, permit
or license is required in connection with the making or performance of the
Agreement as amended hereby.
In all other respects, the Agreement shall remain in full force and
effect and shall be performed by the parties hereto according to its terms and
provisions.
All capitalized terms used herein are defined as in the Agreement.
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first above written to be effective as of October 25,
1993.
RYKOFF-SEXTON, INC.
By: /s/ RICHARD J. MARTIN
-------------------------------
Title: Senior Vice President
and Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ MARK J. GLASKY
-------------------------------
Title: Vice President
-2-
