<PAGE>
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 October 28, 1995
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 0-8105
RYKOFF-SEXTON, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2134693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1050 Warrenville Rd.
Lisle, Illinois 60532
(Address of principal executive offices) (Zip Code)
(708) 964-1414
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, 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.
Outstanding at
Class of Common Stock November 30, 1995
--------------------- -----------------
$.10 par value 14,801,147 shares
<PAGE>
RYKOFF-SEXTON, INC.
INDEX
Page
No.
Part I. Financial Information
Item l. Financial Statements
Condensed Consolidated Balance Sheets
October 28, 1995 and April 29, 1995 1
Condensed Consolidated Statements of Income
Three Months and Six Months ended
October 28, 1995 and October 29, 1994 2
Condensed Consolidated Statements of Cash Flows
Six Months ended October 28, 1995 and
October 29, 1994 3
Notes to Condensed Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
Part II. Other Information
Item 3. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
ASSETS
Current assets October 28,1995 April 29,1995
--------------- -------------
Cash and cash equivalents $16,928 $4,959
Accounts receivable, net 172,391 151,379
Inventories 157,889 138,122
Prepaid expenses 23,187 24,979
--------------- -------------
Total current assets 370,395 319,439
Property, plant and equipment, net 203,578 176,109
Other assets, net 30,116 28,520
--------------- -------------
Total assets $604,089 $524,068
--------------- -------------
--------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $73,000 $------
Accounts payable 116,811 97,623
Accrued liabilities 54,098 60,200
--------------- -------------
Total current liabilities 243,909 157,823
--------------- -------------
Long-term debt, less current portion 132,568 146,536
--------------- -------------
Deferred income taxes 11,073 11,073
--------------- -------------
Other long-term liabilities 1,816 2,096
--------------- -------------
Shareholders' equity
Common stock, at stated value 1,513 1,498
Additional paid-in capital 95,004 92,507
Retained earnings 122,245 117,161
--------------- -------------
218,762 211,166
Less: treasury stock, at cost (4,039) (4,626)
--------------- -------------
Total shareholders' equity 214,723 206,540
--------------- -------------
Total liabilities and
shareholders' equity $604,089 $524,068
--------------- -------------
--------------- -------------
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $440,545 $392,748 $862,316 $773,126
Cost of sales 352,451 308,702 688,030 607,615
----------- ----------- ----------- -----------
Gross profit 88,094 84,046 174,286 165,511
Warehouse, selling, general
and administrative expenses 85,527 74,426 164,165 149,204
Reversal of restructuring
reserves (6,441) --- (6,441) ---
----------- ----------- ----------- -----------
Income from operations 9,008 9,620 16,562 16,307
Interest expense 4,213 2,862 7,359 5,951
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 4,795 6,758 9,203 10,356
Provision for income taxes 1,918 2,771 3,681 4,246
----------- ----------- ----------- -----------
Income from continuing operations 2,877 3,987 5,522 6,110
Discontinued operations:
Income from discontinued operations,
net of income taxes --- 310 --- 137
Gain on disposal of discontinued
operations, net of income taxes --- 23,359 --- 23,359
----------- ----------- ----------- -----------
Net income $ 2,877 $27,656 $ 5,522 $29,606
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding 15,068 14,680 14,991 14,677
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Income from continuing operations $ 0.19 $ 0.27 $ 0.37 $ 0.42
Income from discontinued operations --- .02 --- .01
Gain on disposal of discontinued
operations --- 1.59 --- 1.59
----------- ----------- ----------- -----------
$ 0.19 $ 1.88 $ 0.37 $ 2.02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash dividends per share $ --- $ --- $ 0.03 $ ---
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
RYKOFF-SEXTON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
October 28, 1995 October 29, 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities--
Net income $5,522 $29,606
Adjustments to reconcile net income to net
cash provided by operating activities --
Deferred gain in sale and leaseback transaction (281) (228)
Depreciation and amortization 8,935 8,435
Gain on disposal of discontinued operations ---- (23,359)
Gain on sale of property, plant and equipment (164) (381)
Net income from discontinued operations ---- (137)
Changes in assets and liabilities:
(Increase) in accounts receivable (21,012) (11,618)
(Increase) in inventories (18,268) (20,264)
Decrease in prepaid expenses 1,792 1,034
Increase in accounts payable
and accrued liabilities 13,448 17,344
---------------- ----------------
Net cash provided by (used in) operating activities (10,028) 432
---------------- ----------------
Cash flows from investing activities --
Capital expenditures (36,028) (35,149)
Net cash used in discontinued operations ---- (11,173)
Proceeds from disposal of property, plant and equipment 299 1,305
Proceeds from sale of discontinued operations ---- 96,000
Cost of acquisition (3,833) ----
---------------- ----------------
Net cash provided by (used in) investing activities (39,562) 50,983
---------------- ----------------
Cash flows from financing activities--
Principal payments of long-term debt (80) (128)
Increase (decrease) under credit line 59,000 (21,000)
Issuance of common stock 3,096 87
Dividends paid (438) ----
Other (19) (166)
---------------- ----------------
Net cash provided by (used in) financing activities 61,559 (21,207)
---------------- ----------------
Net increase in cash and cash equivalents 11,969 30,208
Cash and cash equivalents at beginning of period 4,959 9,830
---------------- ----------------
Cash and cash equivalents at end of period $16,928 $40,038
---------------- ----------------
---------------- ----------------
Supplemental disclosures of cash flow information --
Cash paid during the period for:
Interest $6,719 $7,578
Income Taxes 1,693 4,087
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
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 27, 1996.
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.
The weighted average number of shares outstanding and earnings per share
included in the financial statements have been adjusted for a 5-for-4 stock
split distributed in the 1995 third fiscal quarter.
4. Inventories are carried at the lower of cost (first-in, first-out) or
market and are summarized as follows (amounts in thousands):
October 28, April 29,
1995 1995
---- ----
Finished Goods $151,040 $132,109
Raw Materials $ 6,849 $ 6,013
-------- --------
$157,889 $138,122
-------- --------
-------- --------
5. During 1993 the Company recorded a restructuring charge of $31 million to
cover costs associated with a planned business reorganization. This
reorganization was completed during the second quarter of the current year.
With the completion of the reorganization program, the Company reversed the
remaining unused portion of the original $31 million charge. This
reversal, totalling $6.4 million, related primarily to over estimates
of facility closures which partly offsets expenses associated with the
Los Angeles move included in warehouse, selling, general and administrative
expenses.
6. In October 1994, the Company sold all of the stock of Tone Brothers, Inc.
("Tone") to Burns Philp, Inc. ("Burns Philp"). The sale agreement provides
for arbitration in the case of a dispute and Burns Philp has filed a notice
of arbitration in which it claims contract and fraud damages in excess of
$57 million in connection with the purchase of Tone. In management's
opinion, based on consultation with legal counsel, the sale agreement
should limit any claims for breach of representations under the sale
agreement to a maximum of $25 million.
4
<PAGE>
7. In November 1995, the Company acquired substantially all of the assets of
H&O Foods, Inc., a privately owned Nevada corporation ("H&O"). H&O is a
regional, full-line institutional foodservice distributor serving Nevada,
California and Arizona.
The Company paid approximately $30,700,000 in payment of the purchase price
for the assets acquired, subject to certain post-closing purchase price
adjustments. The aggregate consideration consisted of approximately
$5,500,000 in cash, the issuance of unsecured promissory notes in the
amounts of $5,305,000 and $21,350,000 and the assumption of certain H&O
liabilities.
Additionally, on December 5, 1995, the Company announced that it had
entered into a letter of intent with U.S. Foodservice, Inc. ("U.S.
Foodservice") regarding a possible aquisition of U.S. Foodservice and
will begin negotiating definitive documentation.
U.S. Foodservice, with 1994 net sales of approximately $1.5 billion, is a
distributor of food and related non-foods to the foodservice industry,
serving more than 35,000 customers in over 30 states, primarily in the
Southeastern, Southwestern and Mid-Atlantic regions.
Under the letter of intent, upon consummation of the proposed transaction,
each share of U.S. Foodservice common stock would be exchanged for $25 in
value of the Company's common stock, subject to a maximum of 1.457 and a
minimum of 1.244 shares of the Company's common stock. Assuming
approximately 8.8 million shares of U.S. Foodservice common stock
outstanding, a maximum of approximately 12.9 million and a minimum of
approximately 11.0 million shares of the Company's common stock would be
issuable upon consummation of the proposed transaction. The Company
currently has approximately 14.8 million shares of common stock
outstanding. Treatment of the outstanding options to acquire approximately
1 million shares of U.S. Foodservice is to be determined. The letter of
intent also provides for the redemption of the preferred stock of U.S.
Foodservice for approximately $50.5 million in cash (plus accrued and
unpaid interest from October 15, 1995) and the assumption or refinancing of
approximately $350 million of U.S. Foodservice's currently outstanding
debt.
Execution of a definitive agreement is subject to a number of conditions,
including negotiation of a mutually satisfactory definitive agreement,
receipt of commitments to refinance substantially all of the existing debt
of the combined companies, obtaining necessary Board approvals, and
satisfactory completion of due diligence. Any combination of the Company
and U.S. Foodservice also will require receipt of shareholder and
regulatory approvals, including the expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
5
<PAGE>
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 Ended Six Months Ended
October 28, 1995 October 28, 1995
and October 29, 1994 and October 29, 1994
-------------------- --------------------
Increases (Decreases)
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Net sales $47,797 12.17% $89,190 11.54%
Cost of sales 43,749 14.17 80,415 13.23
Warehouse, selling, general
and administrative expenses 11,101 14.92 14,961 10.03
Reversal of restructuring reserves 6,441 100.00 6,441 100.00
Interest expense 1,351 47.20 1,408 23.66
Income from continuing operations
before income taxes (1,963) (29.05) (1,153) (11.13)
Provision for income taxes (853) (30.78) (565) (13.31)
Income from continuing operations (1,110) (27.84) (588) (9.62)
Discontinued operations:
Income from discontinued operations,
net of income taxes (310) (100.00) (137) (100.00)
Gain on disposal of discontinued
operations, net of income taxes (23,359) (100.00) (23,359) (100.00)
Net income (24,779) (89.60) (24,084) (81.35)
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended October 28, 1995, sales increased $47.8 million or
12.2% from the comparable prior year quarter. For the six month period, sales
increased $89.2 million or 11.5% to $862.3 million from $773.1 million in the
prior period. The sales increases for these periods resulted from the
introduction of new product lines, new sales and marketing strategies and
acquisitions. Same branch sales increased 3.6% and 4.2%, respectively, for the
quarter and six months ended October 28, 1995.
Cost of sales for the three month period ended October 28, 1995 increased
$43.7 million or 14.2% to $352.5 million and, on a year to date basis, increased
$80.4 million or 13.2% to $688.0 million. This resulted in a decrease in the
gross profit margin to 20.0% from 21.4% in the comparable prior year quarter
and, on a year to date basis, to 20.2% from 21.4% last year. These declines
were primarily due to the Company's fundamental shift toward becoming a full-
line distributor and offering additional product categories, such as meats,
poultry and seafood. Warehouse, selling, general and administrative expenses as
a percentage of sales for the quarter increased to 19.4%, compared with 19.0% a
year ago. This increase was due to start up expenses associated with the move
of the Los Angeles distribution center and increased selling expenses arising
from the implementation of new ordering systems. On a year-to-date
basis, these expenses have decreased to 19.0% from 19.3% last year due to the
Company's progress in containing costs and improving operating efficiencies
under its Project Results program. The reversal of restructuring reserves for
$6.4 million resulted from finalization of the provision established in 1993,
which offsets expenses associated with the Los Angeles move included in
warehouse, selling, general and administrative expenses.
Interest expense for the three and six month periods ended October 28, 1995
increased by $1.4 million in both periods primarily due to increased borrowing
levels, higher interest rates and a lower capitalized interest amount. The
effective tax rates for the three and six month periods ended October 28, 1995
and October 29, 1994 were comparable at 40% and 41%, respectively.
Income from continuing operations for the three month period ended October
28, 1995 decreased by $1.1 million to $2.9 million. For the six months ended
October 28, 1995, income from continuing operations decreased by $0.6 million to
$5.5 million. Results for these periods were impacted by a slowdown in sales
growth at various locations throughout the country, changing customer mix, the
accelerated growth of newer product categories, such as meats, poultry and
seafood, that typically carry lower margins, and by increased interest expense.
In October 1994, the Company sold all of the stock of Tone Brothers, Inc.,
("Tone") which resulted in a gain of $23.4 million, net of income taxes.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended October 28, 1995, cash used in operations was
$10.0 million compared to cash provided by operations of $0.4 million for the
comparable period in fiscal 1995. The net cash used in operations was primarily
due to increases in accounts receivable and inventories, offset by the increase
in accounts payable and accrued liabilities. Cash flows used in investing
activities for the six months ended October 28, 1995 consisted primarily of
capital expenditures of $36.0 million compared to $35.1 million for the
comparable period in fiscal 1995. The increase in capital expenditures is
attributable to the construction of the new Cincinnati distribution center.
For the comparable period in fiscal 1995, net cash provided by investing
activities of $51.0 million resulted from the proceeds of $96.0 million on the
sale of Tone, offset by net cash used in discontinued operations of
$11.2 million. Cash provided by financing activities was $61.6 million for
the six months ended October 28, 1995 compared to cash used in financing
activities of $21.2 million for the comparable period in fiscal 1995. The
change was primarily due to increased borrowings under the Company's bank credit
line.
Working capital at October 28, 1995 was $126.5 million compared to $161.6
million at April 29, 1995. The current ratio was 1.5:1 at October 28, 1995
compared with 2.0:1 at April 29, 1995. As of October 28, 1995, total current
assets represented approximately 61.3% of the total assets of the Company.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1.5 Seventh Amendment to Credit Agreement between Rykoff-
Sexton, Inc. and Bank of America National Trust and
Savings Association dated as of October 30, 1995
27 Financial Data Schedule
(b) Reports on Form 8-K
None filed for the quarter for which this report is filed.
9
<PAGE>
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: December 11, 1995 /s/MARK VAN STEKELENBURG
------------------------------
Mark Van Stekelenburg
President and Chief
Executive Officer
Date: December 11, 1995 /s/RICHARD J. MARTIN
------------------------------
Richard J. Martin
Senior Vice President and
Chief Financial Officer
Date: December 11, 1995 /s/JAMES C. WONG
------------------------------
James C. Wong
Treasurer
10
<PAGE>
EXHIBIT 10.1.5
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is made
as of October 30, 1995, between RYKOFF-SEXTON, INC., a Delaware corporation,
("Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national savings association and other subsidiaries or affiliates of BankAmerica
Corporation, including Bank of America Illinois ("Bank").
WHEREAS, Borrower and Bank entered into that certain Credit Agreement
dated as of October 25, 1993, as amended by a First Amendment dated as of
December 29, 1993, a Second Amendment dated as of March 18, 1993, a Third
Amendment dated as of April 15, 1994, a Fourth Amendment dated as of April 30,
1994, a Fifth Amendment ("Fifth Amendment") dated as of August 29, 1994, and a
Sixth Amendment dated as of September 30, 1994 (the "Agreement");
WHEREAS, Borrower and Bank desire to modify and amend certain of the
terms and provisions of the Agreement;
NOW, THEREFORE, in consideration of the promises herein contained and
for other good and valuable consideration, Borrower and Bank do hereby mutually
agree as follows:
1. In Section 2.1, the third sentence thereof and subsection (b) are
hereby deleted and the following is substituted therefor:
"The total of all Advances and the undrawn and the drawn and
unreimbursed amount of all letters of credit outstanding under this
Revolving Line may not exceed at any one time One Hundred and Twenty-
Five Million Dollars ($125,000,000.00) except that during the period
commencing October 27, 1995 and to, but not including, February 24,
1996, such maximum amount will be increased to One Hundred and Sixty
Million Dollars ($160,000,000.00); provided, however, that:
(a) The total amount of all Advances outstanding may not exceed
at any one time One Hundred Million Dollars ($100,000,000.00) as such
amount may be reduced pursuant to Section 2.10 except that during the
period commencing October 27, 1995 and to, but not including, February
24, 1996, such total amount will be increased to One Hundred and
Thirty-Five Million Dollars ($135,000,000); and "
<PAGE>
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.
RYKOFF-SEXTON, INC.
By:/s/ Richard J. Martin
---------------------
Richard J. Martin
Title: Sr. VP. & CFO
-----------------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
and other subsidiaries or
affiliates of BankAmerica
Corporation, including Bank of
America Illinois.
By:/s/ Patricia DelGrande
----------------------
Patricia DelGrande
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-START> APR-30-1995
<PERIOD-END> OCT-28-1995
<CASH> 16,928
<SECURITIES> 0
<RECEIVABLES> 172,391
<ALLOWANCES> 5,005
<INVENTORY> 157,889
<CURRENT-ASSETS> 370,395
<PP&E> 345,736
<DEPRECIATION> 142,158
<TOTAL-ASSETS> 604,089
<CURRENT-LIABILITIES> 243,909
<BONDS> 0
<COMMON> 1,513
0
0
<OTHER-SE> 214,723
<TOTAL-LIABILITY-AND-EQUITY> 604,089
<SALES> 862,316
<TOTAL-REVENUES> 862,316
<CGS> 688,030
<TOTAL-COSTS> 164,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,359
<INCOME-PRETAX> 9,203
<INCOME-TAX> 3,681
<INCOME-CONTINUING> 5,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,522
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
