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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 19367
AMERISERVE FOOD
DISTRIBUTION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-2296149
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
14841 DALLAS PARKWAY
DALLAS, TX 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(972) 338-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 periods 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 [ ]
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 II of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting shares of common
stock held by non-affiliates of the registrant is not applicable as there is not
a public market for such stock. All shares of the registrant's common stock are
held by one affiliate. As of March 26, 1998, there were 600 shares of common
stock of the registrant outstanding.
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FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the business strategy, operations, cost-saving initiatives,
economic performance, financial condition and liquidity and capital resources of
AmeriServe Food Distribution, Inc. (which, unless the context indicates or
otherwise requires, including its predecessors, is referred to in this Annual
Report on Form 10-K as "AmeriServe" or the "Company"). Such statements are
subject to various risks and uncertainties. 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. Certain factors that could cause the
Company's actual results to differ materially from expected, implied or
historical results include the factors set forth under "Forward-Looking and
Cautionary Statements" in Item 7 of this Annual Report on Form 10-K (this
"Report"), the additional factors set forth under "Risk Factors" in the
Company's amended Registration Statement on Form S-4 filed with the Securities
and Exchange Commission (the "SEC") on November 10, 1997 (the "AmeriServe
Registration Statement") and the Company's other filings with the SEC, as well
as general economic and business and market conditions, especially in the chain
restaurant business, and increased competitive and/or customer pressure. The
Company undertakes no obligations 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.
ITEM 1. BUSINESS
AmeriServe, a Delaware corporation, is a wholly-owned subsidiary of Nebco
Evans Holding Company ("NEHC"), a Delaware corporation. NEHC is also the parent
company of Holberg Warehouse Properties, Inc., a Delaware corporation ("HWPI").
AmeriServe accounts for substantially all of NEHC's assets and NEHC conducts
substantially all of its business through AmeriServe. HWPI's sole operation
consists of owning two distribution centers occupied by AmeriServe. AmeriServe
operates in a single business segment, as described below.
NEHC is a wholly owned subsidiary of Nebco Evans Distributors, Inc.
("NED"), which is a majority owned subsidiary (92.9%) of Holberg Industries,
Inc. ("Holberg"). Holberg is a privately held diversified service company with
subsidiaries operating within the food service distribution and parking services
industries in North America. Holberg was formed in 1986 to acquire and manage
food service distribution businesses. Holberg acquired NEBCO Distribution of
Omaha, Inc. ("NEBCO") in 1986. NEBCO acquired Evans Brothers Company ("Evans")
in January 1990 and the combined company was renamed NEBCO EVANS Distribution,
Inc. ("NEBCO EVANS"). NEBCO EVANS acquired L.L. Distribution Systems Inc. in
1990, Condon Supply Company in 1991 and AmeriServ Food Company ("AmeriServ"), a
distributor of food products and supplies to chain restaurants in such systems
as Wendy's, Dairy Queen, Burger King, KFC and Applebee's, in January 1996. In
conjunction with the AmeriServ acquisition, on January 25, 1996, NEHC was formed
as a wholly-owned subsidiary of NED and acquired all of the stock of NEBCO
EVANS. In April 1997, NEBCO EVANS, a Nebraska corporation, changed its name to
AmeriServe Food Distribution, Inc. (as such, "Nebraska AmeriServe").
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants. The Company is the primary
supplier to its customers of a wide variety of items, including fresh and frozen
meat and poultry, seafood, frozen foods, canned and dry goods, fresh and
pre-processed produce, beverages, dairy products, paper goods, cleaning supplies
and equipment. The Company currently serves over 30 different restaurant chains
and over 25,500 restaurant locations in North America. The Company has had
long-standing relationships with such leading restaurant concepts as Pizza Hut,
Taco Bell, KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's.
On July 11, 1997, the Company acquired (the "PFS Acquisition") the U.S. and
Canadian operations of PFS ("PFS"), a division of PepsiCo, Inc. ("PepsiCo"). PFS
distributed food products and supplies and restaurant equipment to franchised
and company-operated restaurants in the Pizza Hut, Taco Bell and KFC systems.
These systems were spun-off by PepsiCo in October 1997 and are now operating as
TRICON Global
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Restaurants, Inc. ("Tricon"). In addition, in connection with the PFS
Acquisition, the Company entered into a distribution agreement (the
"Distribution Agreement") whereby it became the exclusive distributor of
selected products until July 11, 2002 to the approximately 9,800 Pizza Hut, Taco
Bell and KFC restaurants in the continental United States owned by Pizza Hut,
Inc., Taco Bell Corp., Kentucky Fried Chicken Corporation and, Kentucky Fried
Chicken of California, Inc. (all subsidiaries of Tricon) and their subsidiaries
(the foregoing, collectively, the "Tricon Subsidiaries,") and previously
serviced by PFS. In October 1997, AmeriServe also acquired PFS de Mexico, S.A.
de C.V., a regional systems food service distributor based in Mexico City,
Mexico for $8.0 million.
On July 11, 1997, in connection with the PFS Acquisition, the Company
issued and sold $500.0 million principal amount of its 10 1/8% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") pursuant to an
Indenture, dated as of July 11, 1997, by and among the Company, certain of the
Company's subsidiaries (the "Subsidiary Guarantors") and State Street Bank and
Trust Company as Trustee (the "Senior Subordinated Note Indenture"). The Senior
Subordinated Notes were sold pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act of 1933, as
amended, (the "Securities Act") and applicable state securities laws. On
December 12, 1997, the Company consummated an offer to exchange the Senior
Subordinated Notes for new Senior Subordinated Notes, which are registered under
the Securities Act with terms substantially identical to the Senior Subordinated
Notes. (For further information, see Note 6 to the Consolidated Financial
Statements.)
On October 15, 1997, AmeriServe issued and sold $350,000,000 in aggregate
principal amount at maturity of its 8 7/8% Senior Notes due 2006 (the "Senior
Notes") pursuant to an Indenture, dated as of October 15, 1997, by and among the
Company, the Subsidiary Guarantors and State Street Bank and Trust Company, as
trustee. The Senior Notes were sold pursuant to an exemption from or in
transactions not subject to, the registration requirements of the Securities
Act. On December 12, 1997, AmeriServe consummated an offer to exchange the
Senior Notes for new Senior Notes, which are registered under the Securities
Act, with terms substantially identical to the Senior Notes.
For further information about financings by AmeriServe in connection with
the PFS Acquisition and subsequently, see Notes 6 and 7 to the Consolidated
Financial Statements.
On December 28, 1997, pursuant to an Agreement and Plan of Merger by and
among Nebraska AmeriServe, Nebraska AmeriServe's wholly owned subsidiary
AmeriServ and AmeriServ's wholly owned subsidiary The Harry H. Post Company
("Post"), Nebraska AmeriServe merged with and into AmeriServ and Post merged
with and into AmeriServ, in each case with AmeriServ, a Delaware corporation, as
the surviving corporation. In the mergers, AmeriServ changed its name to
AmeriServe Food Distribution, Inc. (the surviving corporation is referred to in
this Report as "AmeriServe" or the "Company"). In the mergers, all of the
outstanding equity securities of AmeriServ and Post were cancelled, and all of
the outstanding equity securities of Nebraska AmeriServe were converted into
substantially identical securities of the Company. The Company effected the
mergers to rationalize its corporate organization and to reduce various
compliance and regulatory costs arising from having subsidiaries incorporated in
various jurisdictions and to move its jurisdiction of incorporation from
Nebraska to Delaware.
RECENT DEVELOPMENTS
On January 29, 1998, AmeriServe, Steamboat Acquisition Corp., a newly
formed Delaware corporation and wholly owned subsidiary of AmeriServe, and
ProSource, Inc., a Delaware corporation ("ProSource"), entered into an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which AmeriServe will
acquire all outstanding shares of ProSource (the "ProSource Acquisition") for
cash. ProSource provides foodservice distribution to restaurants in North
America. ProSource also provides purchasing and logistics services to the
foodservice market in North America. ProSource's 3,400 employees serve
approximately 12,700 restaurants, including Burger King, Chick-fil-A, Chili's,
Long John Silver's, Olive Garden, Red Lobster, Sonic, TCBY, TGI Friday's and
Wendy's, from a nationwide network of distribution centers and its Corporate
Support Center in Coral Gables, Florida. The ProSource Acquisition is subject to
the approval of
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ProSource's stockholders and certain other customary conditions. In connection
with the Merger Agreement, certain stockholders of ProSource have entered into a
voting agreement with AmeriServe pursuant to which such stockholders have agreed
to vote their shares in favor of the ProSource Acquisition. Such shares are
sufficient to assure the approval of the ProSource Acquisition. ProSource and
AmeriServe have been granted early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
FOODSERVICE DISTRIBUTION INDUSTRY
The foodservice distribution business involves the purchasing, receiving,
warehousing, marketing, selecting, loading and delivery of fresh and frozen meat
and poultry, seafood, frozen foods, canned and dry goods, fresh and preprocessed
produce, beverages, dairy products, paper goods, cleaning supplies, equipment
and other supplies from manufacturers and vendors to a broad range of
enterprises, including restaurants, cafeterias, nursing homes, hospitals, other
health care facilities and schools (but generally does not include supermarkets
and other retail grocery stores). The United States foodservice distribution
industry was estimated to generate $134 billion in sales in 1997.
Within the foodservice distribution industry, there are two primary types
of distributors: broadline foodservice distributors and specialist foodservice
distributors, such as the Company. Broadline foodservice distributors service a
wide variety of customers including both independent and chain restaurants,
schools, cafeterias and hospitals. Broadline distributors may purchase and
inventory as many as 25,000 different food and food-related items. Customers
utilizing broadline foodservice distributors typically purchase inventory from
several distributors. Specialist foodservice distributors may be segregated into
three categories: product specialists, which distribute a limited number of
products (such as produce or meat); market specialists, which distribute to one
type of restaurant (such as Mexican); and systems specialists, which focus on
one type of customer (such as chain restaurants or health care facilities).
The Company operates as a systems distributor that specializes in servicing
chain restaurants. Systems specialists, such as the Company, typically purchase
and inventory between 1,100 and 5,500 different food and food-related items and
often serve as a single source of supply for their customers. Broadline food
service distributors generally rely on sales representatives who must call on
customers regularly. Systems distributors, however, regularly process orders
electronically without the need for a sales representative's involvement.
BUSINESS STRATEGY
The Company's strategy is to: (i) pursue profitable internal and external
growth opportunities; (ii) capitalize on its nationwide network of distribution
centers to increase customer density and regional market penetration; (iii)
continue to provide low cost, superior customer service; and (iv) maximize
operating leverage by integrating and consolidating the PFS and, upon
consummation of the ProSource Acquisition, ProSource businesses and by pursuing
selective acquisitions within the fragmented foodservice distribution industry.
CUSTOMERS
The Company's customers are generally individual franchisees or
franchiser-owned restaurants of chain restaurant concepts. The Company's
customers include over 30 restaurant concepts with over 25,500 restaurant
locations prior to the ProSource Acquisition. The corporate owner or franchiser
of the restaurant concept generally reserves the right to designate one or more
approved foodservice distributors within a geographic region, and each
franchisee is typically allowed to select its foodservice distributor from such
approved list.
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Including sales to franchiser-owned and franchised restaurants, the
Company's sales to the following restaurant concepts as an approximate
percentage of total pro forma sales (including PFS for all of 1997 and Post for
all of 1997 and 1996 but without giving effect to the ProSource acquisition)
were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pizza Hut................................................... 28% --
Taco Bell................................................... 28% --
KFC......................................................... 13% 9%
Wendy's..................................................... 11% 35%
Burger King................................................. 5% 17%
</TABLE>
On a pro forma basis, assuming the inclusion of PFS and Post for the full
year, restaurants owned by the Tricon Subsidiaries would have accounted for
approximately 40% of the Company's 1997 sales. No other customer accounted for
more than 10% of 1997 sales on either a pro forma or reported basis. One
customer, a franchiser, accounted for approximately 11% of 1996 net sales on a
reported basis.
The Distribution Agreement entered into with the Tricon Subsidiaries
provides the Company with exclusive distribution rights for certain restaurant
products to approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants for a
five-year term expiring on July 11, 2002. Gross profit and net pretax profit on
certain sales to Pizza Hut under the Distribution Agreement are limited. Tricon
is actively engaged in the sale to franchisees of Taco Bell and Pizza Hut
restaurants covered by the Distribution Agreement. While the Distribution
Agreement provides that prior to such sales, such franchisees will enter into
distribution agreements on substantially similar terms, there can be no
assurance that the transition from company-operated 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 Tricon Subsidiaries'
restaurants announced by Tricon in December 1997.
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. The Company services these restaurants
together with three other cooperating distributors. The cooperating distributors
currently serve Arby's restaurants located outside the Company's pre-PFS
Acquisition primary service territories.
OPERATIONS AND DISTRIBUTION
The Company's operations generally can be categorized into three business
processes: product replenishment, product storage and order fulfillment. Product
replenishment involves the management of logistics from the vendors through the
delivery of products to the Company's distribution centers. Product storage
involves the warehousing and rotation of temperature-controlled inventory at the
distribution centers pending sale to customers. Order fulfillment involves all
activities from customer order placement and selecting and loading through
delivery from the distribution centers to the restaurant location. Supporting
these processes is the Company's nationwide network of 40 distribution centers,
its fleet of approximately 900 tractors and 1,200 trailers and its management
information systems. Substantially all of the Company's products are purchased,
stored and delivered in sealed cases which the Company does not open or alter.
In connection with the PFS Acquisition, the Company expects to reduce the number
of current distribution centers from 40 to 25. In order to accomplish this
consolidation, the Company will operate its business in new and larger
facilities. (For further information, see Note 3 to The Consolidated Financial
Statements.)
Product Replenishment
While the Company is responsible for purchasing products to be delivered to
its customers, chain restaurants typically approve the vendors and negotiate the
price for their proprietary products. The Company determines the distribution
centers that will warehouse products for each customer and the quantities in
which such products will be purchased. Order quantities for each product are
systematically determined for each distribution center, taking into account both
recent sales history and projected customer demand. The distribution centers
selected to serve a customer are based on the location of the restaurants to be
serviced.
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Product Storage
The Company currently warehouses approximately 1,100 to 5,500 stock keeping
units ("SKU's") (excluding the redistribution and equipment distribution
centers) for its customers at 40 facilities in 33 metropolitan areas. Upon
receipt of the product at the distribution centers, the product is inspected and
stored on pallets, in racks or in bulk in the appropriate temperature-controlled
environment. Products stored at the distribution centers are generally not
reserved for a specific customer. Rather, customer orders are filled from the
common inventory at the relevant distribution center. The Company's computer
systems continuously monitor inventory levels in an effort to maintain optimal
levels, taking into account required service levels, buying opportunities and
capital requirements. Each distribution center contains ambient, refrigerated
(including cool docks) and frozen space, as well as offices for operations,
sales and customer service personnel and a computer network, accessing systems
at other distribution centers and the Company's corporate support centers.
A majority of the Company's distribution centers are between 100,000 to
200,000 square feet with approximately 20% refrigerated storage space, 30%
frozen storage space and 50% dry storage area. The Company uses sophisticated
logistics programs to strategically locate new distribution centers in areas
near key highways with specific consideration given to the proximity of
customers and suppliers. The Company also employs consultants in distribution
center layout and product flow to design the distribution center with the
objective of maximizing product throughput. The Company estimates that each
distribution center can effectively service customers within a 350 mile radius,
although the Company's objective is to service customers within a 150 mile
radius. The Company expects to begin operations at a new distribution center in
Orlando, Florida (269,000 sq. ft.) in April 1998. The Company expects to begin
operations at a new distribution center in Denver, Colorado (161,000 sq. ft.) in
September, 1998.
Order Fulfillment
The Company places a significant emphasis on providing high quality service
in order fulfillment. By providing high quality service and reliability, the
Company believes it can reduce the number of reorders and redeliveries, reducing
costs for both the Company and its customers. Each restaurant places product
orders based on recent usage, estimated sales and existing restaurant
inventories. The Company uses its management information systems to continually
update routes and delivery times with each customer in order to lower
fulfillment costs. Product orders are placed with the Company one to three times
a week either through the Company's customer service representatives or through
electronic transmission using specially designed software. Many of the
restaurants served by the Company transmit product orders electronically.
Once ordered by the customer, products are picked and labeled at each
distribution center, and the products are generally placed on a pallet for the
loading of outbound trailers. Delivery routes are scheduled to both fully
utilize the trailer's load capacity and minimize the number of miles driven in
order to exploit the cost benefit of customer density.
Fleet
The Company operates a fleet of approximately 900 tractors and 1,200
trailers. The Company leases approximately 300 of the tractors from General
Electric Capital Corp. pursuant to full-service leases that include maintenance,
licensing and fuel tax reporting. The Company owns approximately 600 tractors
and approximately 800 trailers. The remaining trailers are leased under similar
full-service leases from a variety of leasing companies. Lease terms average six
years for new tractors and nine years for new trailers.
Most of the Company's tractors contain onboard computers. The computers
assist in managing fleet operations and provide expense controls, automated
service level data collection and real-time driver feedback, thereby enhancing
the Company's service level to customers. Data from the onboard computers are
loaded into the routing software after each route in order to continually
optimize the route structure. Substantially all of the Company's trailers
contain three temperature-controlled compartments, which allow the Company to
simultaneously deliver frozen food, refrigerated food and dry goods.
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Management Information Systems
AmeriServe and the former PFS business currently operate with different
computer systems. AmeriServe utilizes a variety of personal computers and IBM
AS/400-based software applications. PFS also operates with a variety of
applications, the core of which are mainframe-based. Both companies have
invested significantly in their systems, and both consider their systems to be
among the leaders in the industry. Programs in use include various customized
and special-purpose applications, such as warehouse management tools, remote
order entry, automated replenishment, delivery routing, and onboard computers
for delivery trucks.
The Company is in the process of replacing its core applications with
software from J.D. Edwards in order to integrate the systems of AmeriServe and
PFS. This conversion process is expected to be substantially completed by
mid-1999 and will result in all of the Company's distribution centers operating
with the same computer systems and the same operating policies and practices.
For certain risks related to this project, see "Computer Systems and Potential
Year 2000 Issue" under Item 7 of this Report.
Procurement, Logistics and Re-Distribution
The Company procures a wide range of food, paper and cleaning products for
ultimate distribution to its chain restaurant customers. These products include
fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods,
fresh and preprocessed produce, beverages, dairy products, paper goods, cleaning
supplies and equipment. The Company also operates two re-distribution centers
for the purpose of purchasing slow-moving inventory items and consolidating
these items into full truckload shipments to the Company's distribution centers
nationally, as well as to customers outside the Company. The re-distribution
division has been approved as a national consolidation point for Burger King,
Dairy Queen, Arby's, KFC and other chains. The Company also offers
re-distribution services to customers outside of the continental United States.
The Company operates a freight logistics division for the purpose of
achieving the lowest landed costs to its distribution centers through the review
of purchase orders generated at the various distribution centers. The Company
generates freight savings through leveraged purchasing, with key carriers
operating in defined traffic lanes. This division also provides logistical
services to a substantial number of customers outside of the Company on a fee
basis. Current inbound purchase orders controlled by this division exceed 2,500
truckloads monthly. Further, the Company operates a nationally registered common
carrier fleet of temperature-controlled tractor-trailer units. This division
serves as a "core-carrier" to several national food manufacturers and is an
integral part of the Company's inbound freight logistics initiative.
MARKETING AND CUSTOMER SERVICE
The Company employs national and regional marketing representatives who
service existing customers, as well as focus on developing new customers from
among other restaurant concepts. Additionally, each division president and
certain members of senior management are active in maintaining relationships
with current and potential customers. The Company compensates its sales and
marketing representatives under various compensation plans, which combine a base
pay with an incentive bonus.
The Company's customer service activities are highly customized to the
unique needs of each customer. Each customer has a dedicated account manager who
is responsible for overseeing all of a customer's needs and coordinating the
services provided to such customer. In order to manage problem resolution, the
Company tracks customer calls to ensure that appropriate action and follow-up
occur. The Company's representatives travel frequently to the customer's
restaurant or office for regularly scheduled meetings and key project reviews to
ensure close coordination between the Company and the customer.
A key component of the Company's marketing plan is the use of customized
information systems to improve customer service, and to assist the customer in
the daily operation of its business. The Company utilizes on-line order entry
inventory systems, which permit the Company to simultaneously take orders,
compare the order to previous orders, track and replenish inventory and schedule
the delivery. In addition to placing orders, certain customers may also access
their own accounts, and inventory information, and print copies of order
acknowledgments, invoices and account statements. This electronic data
interchange system
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provides certain customers with access to the Company's information systems at
their convenience and enables the Company to accept orders 24 hours a day, seven
days a week. The electronic data interchange not only allows for greater
efficiencies, but also produces reduced administrative expenses and fewer
ordering errors.
COMPETITION
The foodservice distribution industry is highly competitive. Competitors
include other systems distribution companies focused on the chain restaurants
and captive, multi-unit franchiser-owned distribution companies and broadline
foodservice distributors.
The Company competes directly with other systems specialists that target
chain restaurant concepts. The Company's principal competitors are ProSource,
Inc., Sysco Corporation's Sygma division, Marriott Distribution Services Inc.,
Alliant Foodservice Inc., Performance Food Group, U.S. Foodservice (formerly JP
Foodservice), and MBM Corp. The Company also competes with regional and local
distributors in the foodservice industry, principally for business from
franchisee-owned chain restaurants. National and regional chain restaurant
concepts typically receive service from one or more systems distributors.
Distributors are appointed or approved to service these concepts and/or their
franchisees on either a national or regional basis. The Company believes that
distributors in the foodservice industry compete on the basis of quality,
reliability of service and price. Because a number of the Company's customers
prefer a distributor that is able to service their restaurants on a nationwide
basis, the Company believes it is in a strong position to retain and compete for
national chain restaurant customers and concepts.
Opportunities for growth by gaining access to new chains typically occur at
the expense of a competitor and are awarded in a bid or negotiation situation,
in which large blocks of business are awarded to the most efficient distributor.
The Company believes that a key competitive advantage is continuously pursuing a
strategy of being the low-cost provider of distribution and other value-added
services within the industry.
REGULATORY MATTERS
The Company is subject to a number of federal, state and local laws,
regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. The Company believes
that it is in compliance, in all material respects, with all such laws,
regulations and codes. The Company, however, is not able to predict the impact
of any changes in the requirements or mode of enforcement of these laws,
regulations and codes on its operating results.
ENVIRONMENTAL MATTERS
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities (including liabilities resulting from lawsuits brought by private
litigants) relating to its distribution centers and the land on which its
distribution centers are situated, regardless of whether the Company leases or
owns the land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant.
The Company believes it currently conducts its business, and in the past
has conducted its business, in substantial compliance with applicable
environmental laws and regulations. In addition, compliance with federal, state
and local laws enacted for protection of the environment has had no material
effect on the Company. However, there can be no assurance that environmental
conditions relating to prior, existing or future distribution centers or
distribution center sites will not have a material adverse effect on the
Company.
In connection with the PFS Acquisition, the Company reviewed existing
reports and retained environmental consultants to conduct an environmental audit
of PFS's operations in order to identify conditions that could have material
adverse effects on the Company. The Company has obtained final reports on the
results of such audit with regard to PFS, which concluded that there are no
environmental matters that are likely to have a material adverse effect on the
Company.
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EMPLOYEES
As of December 27, 1997, the Company had approximately 5,000 full-time
employees, approximately 500 of whom were employed in corporate support
functions and approximately 4,500 of whom were warehouse, transportation, sales,
and administrative staff at the distribution centers. As of such date,
approximately 275 of the Company's employees were covered by two collective
bargaining agreements. One such collective bargaining agreement, covering
approximately 200 employees and which expired in January 1998 is in the process
of being renewed. The other such collective bargaining agreement, covering
approximately 75 employees, will expire at the end of November 1998. The Company
has not experienced any labor disputes or work stoppages and believes that its
relationships with its employees are good.
ITEM 2. PROPERTIES
The Company currently operates 40 distribution centers located throughout
the United States, Canada and Mexico and is constructing two new distribution
centers as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET LEASED/OWNED
- - -------- ----------- ------------
<S> <C> <C>
Albany, NY................................................. 104,000 Leased
Albuquerque, NM............................................ 65,000 Leased
Arlington, TX.............................................. 105,600 Leased
Canton, MS................................................. 80,500 Leased
Charlotte, NC.............................................. 158,500 Owned
Charlotte, NC.............................................. 91,771 Leased
Columbus, OH............................................... 143,903 Leased
Denver, CO................................................. 119,000 Leased
Denver, CO................................................. 74,360 Leased
Denver, CO(2).............................................. 165,000 Leased
Fort Worth, TX............................................. 113,000 Leased
Gainesville, FL............................................ 53,000 Leased
Grand Rapids, MI........................................... 180,000 Owned
Gulfport, MS............................................... 63,792 Leased
Hebron, KY................................................. 124,000 Leased
Houston, TX................................................ 69,800 Leased
Indianapolis, IN........................................... 115,200 Leased
Indianapolis, IN(3)........................................ 180,100 Leased
Jacksonville, FL........................................... 119,600 Leased
Jonesboro, GA.............................................. 124,076 Leased
Lemont, IL(1).............................................. 105,000 Leased
Lenexa, KS................................................. 105,600 Leased
Madison, WI(1)............................................. 123,000 Leased
Manassas, VA............................................... 100,337 Owned
Memphis, TN................................................ 70,750 Leased
Mexico City, MX............................................ 35,000 Owned
Milwaukee, WI.............................................. 123,185 Leased
Mississauga, Ontario....................................... 53,487 Leased
Mt. Holly, NJ.............................................. 126,637 Leased
Norcross, GA............................................... 169,900 Owned
Novi, MI................................................... 72,830 Leased
Oklahoma City, OK (4)...................................... 52,500 Leased
Omaha, NE (6).............................................. 105,000 Leased
Ontario, CA................................................ 201,454 Leased
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET LEASED/OWNED
- - -------- ----------- ------------
<S> <C> <C>
Orlando, FL(2)............................................. 269,000 Leased
Orlando, FL................................................ 115,240 Leased
Plymouth, MN............................................... 104,200 Leased
Portland, OR............................................... 81,815 Leased
Salt Lake City, UT......................................... 31,000 Leased
Stockton, CA............................................... 105,000 Leased
Tempe, AZ.................................................. 67,660 Leased
Waukesha, WI(5)............................................ 196,000 Leased
</TABLE>
- - ---------------
(1) Re-distribution facilities
(2) Under construction
(3) Restaurant equipment distribution center
(4) This facility is scheduled to close in April 1998.
(5) NEHC capital lease
(6) Owned by NEHC
Within four years of December 27, 1997, two of the Company's distribution
center leases are due to expire. The Company believes it will be able to renew
expiring leases at reasonable rates in the future. In addition, in connection
with the PFS Acquisition, the Company expects to reduce the number of current
distribution centers from 40 to 25. In order to accomplish this integration and
consolidation, the Company will operate its business in new and larger
facilities. The Company believes its existing distribution centers, together
with planned modifications, expansions and new distribution centers provide
sufficient space to support the Company's expected expansion over the next
several years.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of their normal business operations. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
In December 1997, NEHC, as the sole voting stockholder of Nebraska
AmeriServe, and Nebraska AmeriServe as the sole voting stockholder of AmeriServ,
approved the reorganization merger whereby Nebraska AmeriServe was merged into
AmeriServ, which was renamed AmeriServe Food Distribution, Inc.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the common stock of AmeriServe is owned by NEHC and there is no
public trading market for such security.
AmeriServe has not paid a cash dividend in the 1997 or 1996 fiscal years.
Under the Company's Credit Facility, the Company is restricted from paying cash
dividends on its capital stock until January 11, 2003, except to the extent
necessary to enable NEHC to pay corporate overhead expenses. From and after
January 11, 2003, the Company may pay additional dividends of up to $13,000,000
annually, subject to certain conditions, to enable NEHC to service its Senior
Discount Notes. The indentures relating to the Senior Notes and the Senior
Subordinated Notes also limit the Company's ability to pay cash dividends. For
additional information regarding these restrictions, see the Company's Second
Amended and Restated Credit Agreement, the Indenture, dated as of October 15,
1997, by and between the Company and State Street Bank and Trust Company,
relating to the Senior Notes and the Indenture, dated as of July 11, 1997, by
and between the Company and State Street Bank and Trust Company, relating to the
Senior Subordinated Notes, each of which has been incorporated by reference as
an exhibit hereto. There are currently no restrictions on the ability of
AmeriServe's wholly-owned subsidiaries, other than AmeriServe Funding, to pay
cash dividends to AmeriServe.
9
<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------
1997(A) 1996(B) 1995 1994 1993
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $3,446,191 $1,280,598 $400,017 $358,516 $327,606
Gross profit........................ 342,179 128,849 40,971 37,914 35,153
Operating expenses.................. 353,069(c) 114,560 36,695 34,488 32,054
---------- ---------- -------- -------- --------
Operating income (loss)............... (10,890) 14,289 4,276 3,426 3,099
Interest expense, net............... (46,805) (10,999) (3,936) (3,294) (2,759)
Loss on sale of accounts
receivable....................... (6,757)(d) -- -- -- --
Interest income affiliates.......... 632 528 749 533 150
---------- ---------- -------- -------- --------
Income (loss) before income taxes,
extraordinary loss, and
cumulative effect of accounting
change........................... (63,820) 3,818 1,089 665 490
Provision for income taxes.......... 1,030 1,300 583 523 172
---------- ---------- -------- -------- --------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change................ (64,850) 2,518 506 142 318
Extraordinary loss on early
extinguishment of debt........... (9,373) -- -- -- (613)
Cumulative effect of change in
method of accounting for income
taxes............................ -- -- -- -- (495)
---------- ---------- -------- -------- --------
Net income (loss)................... $ (74,223) $ 2,518 $ 506 $ 142 $ (790)
========== ========== ======== ======== ========
BALANCE SHEET DATA AT END OF YEAR:
Cash and cash equivalents........... $ 231,131 $ 2,162 $ 575 $ 1,025 $ 1,682
Total assets........................ 1,462,321 291,103 77,503 79,218 75,265
Long-term debt, including current
portion.......................... 879,238 129,905 32,779 32,160 34,170
Total stockholder's equity.......... 98,055 42,675 10,157 17,205 14,779
</TABLE>
- - ---------------
(a) Includes the effects of the acquisition of PFS effective June 11, 1997.
(b) Includes the effects of the acquisition of AmeriServ on January 25, 1996.
(c) Includes $52.4 million in impairment, restructuring and other unusual
charges. See Note 3 to Consolidated Financial Statements.
(d) Relates to an ongoing program to provide additional financing capacity
through sales of accounts receivable. See Note 7 to Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is North America's largest foodservice distributor to chain
restaurants, distributing a wide variety of items, including meat, poultry,
frozen foods, canned and dry goods, produce, beverages, dairy products, paper
goods, cleaning and other supplies and 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.
On July 11, 1997, the Company acquired the U.S. and Canadian operations of
PFS. The effective date of the acquisition was June 11, 1997, the end of PFS'
second quarter. 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,
10
<PAGE> 12
Inc. As the acquisition has been accounted for under the purchase method,
twenty-eight weeks of PFS operating results are included in the Company's
operating results for the year ended December 27, 1997. Because of the relative
sizes of the Company and PFS, which had net sales of $1.3 billion and $3.4
billion, respectively, for fiscal 1996, the comparisons of operating results for
1997 to 1996 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.
On January 25, 1996, the Company acquired AmeriServ, a distributor of food
products and supplies to chain restaurants in such systems as Wendy's, Dairy
Queen, Burger King, KFC and Applebee's. Because of the relative sizes of the
Company and AmeriServ, which had net sales of $400 million and $939 million,
respectively, for fiscal 1995, the comparisons of operating results for 1996 to
1995 presented below are significantly impacted by the AmeriServ acquisition.
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 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 the second quarter of 1998.
ProSource, which reported 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 will fund
the acquisition with cash and cash equivalents on hand as well as additional
capital expected from the accounts receivable sale program as discussed below.
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 achievable.
RESULTS OF OPERATIONS
The following table presents certain financial information of the Company,
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0%
Cost of goods sold.................... 90.1 89.9 89.8
Gross profit.......................... 9.9 10.1 10.2
Distribution, selling and
administrative expenses............. 8.2 8.6 8.8
Operating income before amortization
of intangible assets and impairment,
restructuring and other unusual
charges............................. 1.7 1.5 1.4
</TABLE>
Fiscal 1997 compared to Fiscal 1996
Net sales increased $2.2 billion, or 169% to $3.4 billion in 1997. The
acquisition of PFS accounted for $1.8 billion of the increase. The remaining
sales growth was largely due to the addition of service to Arby's.
11
<PAGE> 13
Gross profit increased $213.3 million, or 166%, to $342.2 million in 1997
due primarily to the acquisition of PFS. The gross profit margin decreased from
10.1% in 1996 to 9.9% in 1997 reflecting a customer mix shift towards business
with relatively higher product costs.
Distribution, selling and administrative expenses increased $174.1 million,
or 159%, to $283.9 million in 1997 due primarily to the acquisition of PFS.
Distribution, selling and administrative expenses as a percent of net sales
decreased from 8.6% in 1996 to 8.2% in 1997. 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 impairment,
restructuring and other unusual charges increased $39.2 million, or 205%, to
$58.3 million in 1997 due primarily to the acquisition of PFS. As a percent of
net sales, this income measure rose from 1.5% in 1996 to 1.7% in 1997. This
change was driven by the lower distribution, selling and administrative expense
as a percent of net sales as discussed above.
Amortization of intangible assets increased $12.0 million to $16.8 million
in 1997, reflecting the amortization of the intangible assets arising from the
allocation of the PFS purchase price.
Impairment, restructuring and other unusual charges in 1997 totaled $52.4
million. This charge includes (a) impairment of property, equipment and other
assets ($12.4 million), (b) restructuring (exit) costs for future lease
terminations and employee severance ($13.4 million), (c) costs incurred to date
to integrate the AmeriServ and PFS operations and other unusual items ($13.0
million) and (d) bridge financing fees, commitment fees for the accounts
receivable sale program (see discussion below) and other one-time costs
associated with the acquisition of PFS ($13.6 million). The impairment charge
and the accrued restructuring (exit) costs reflect actions to be taken with
respect to the Company's existing facilities as a result of the acquisition of
PFS. During the third quarter of 1997, management performed an extensive review
of the existing and recently acquired PFS operations with the objective of
developing a business plan for the restructuring and consolidation of the
organizations. The business plan, which was approved by the Company's Board of
Directors late in the third quarter, identified a number of actions designed to
improve the efficiency and effectiveness of the combined entity's warehouse and
transportation network and operations support infrastructure. These actions,
which are expected to be completed by mid-1999, include construction of new
strategically located warehouse facilities, closures of certain existing
warehouse facilities and expansions of others, dispositions of property and
equipment, conversion of computer systems, reductions in workforce and
relocation of the Company's headquarters from Brookfield, Wisconsin to Dallas,
Texas. The costs incurred to date to integrate the AmeriServ and PFS operations
include start-up costs of new warehouse facilities and employee relocation and
other expenses to realign the operations support infrastructure. Ongoing
integration costs will continue to be reported as a separate component of
operating expenses.
Interest expense net of interest income increased $35.8 million to $46.8
million in 1997, reflecting interest on additional debt primarily to finance the
acquisition of PFS.
Loss on sale of accounts receivable relates to an ongoing program
established by 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 $6.8 million
represents the return to investors in certificates issued by the master trust.
In a transaction expected to be completed in April 1998, the current series of
certificates issued by the master trust will be restructured, resulting in
additional capital to the Company under the program of approximately $50
million. See Note 7 to Consolidated Financial Statements.
Provision for income taxes 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.
Extraordinary loss of $9.4 million in 1997 resulted from early
extinguishment of debt. This charge represents the unamortized balance of
deferred financing costs associated with previous credit facilities.
12
<PAGE> 14
Net loss of $74.2 million in 1997 compared to net income of $2.5 million in
1996 was driven by the impairment, restructuring and other unusual charges, as
well as the increased interest expense.
Fiscal 1996 Compared to Fiscal 1995
Net sales increased $880.6 million, or 220%, to $1.3 billion in 1996 due
primarily to the AmeriServ acquisition. The increase in net sales was net of
certain account resignations made during fiscal 1996. The Company regularly
reviews the profitability of its account portfolio, and at times decides to
discontinue relationships with accounts deemed not sufficiently profitable for
the Company.
Gross profit increased $87.9 million, or 215%, to $128.8 million in 1996
due primarily to the AmeriServ acquisition. Gross margin declined slightly from
10.2% in 1995 to 10.1% in 1996, due to the slightly higher cost of products
purchased by customers added through the AmeriServ acquisition.
Distribution, selling and administrative expenses increased $74.4 million,
or 210%, to $109.8 million in 1996 due primarily to the AmeriServ acquisition.
Distribution, selling and administrative expenses as a percent of net sales
decreased from 8.8% in 1995 to 8.6% in 1996, reflecting a gain on sale of
property by an affiliate and certain cost benefits in integrating the AmeriServ
business.
Operating income before amortization of intangible assets increased $13.5
million, or 243%, to $19.1 million in 1996 due primarily to the AmeriServ
acquisition. As a percent of net sales, this income measure rose slightly from
1.4% in 1995 to 1.5% in 1996, due primarily to the operating expense margin
improvements discussed above.
Amortization of intangible assets increased $3.5 million to $4.8 million in
1996 reflecting the amortization of intangible assets arising from the
allocation of the AmeriServ purchase price.
Interest expense net of interest income increased $7.1 million to $11.0
million in 1996, reflecting interest on additional debt primarily to finance the
acquisition of AmeriServ.
Provision for income taxes 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 income increased $2.0 million to $2.5 million in 1996, reflecting the
operating income from the acquired AmeriServ business, partially offset by the
increased interest expense.
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, capital contributions from NEHC
and an available revolving credit facility of approximately $137 million at
March 15, 1998.
Fiscal 1997 compared to Fiscal 1996
Net cash provided by operating activities increased $61.6 million to $62.8
million in 1997. Net cash provided by operating activities in 1997 included
$13.6 million in cash outflows for bridge financing fees, commitment fees
related to the accounts receivable sale program and other indirect costs
associated with the acquisition of PFS and $7.2 million of cash extraordinary
loss. Excluding these nonrecurring items, net cash provided by operating
activities was $83.6 million in 1997, compared to $1.2 million in 1996. This
increase reflects favorable working capital changes due primarily to timing of
payments as well as the cash earnings generated by the PFS operations, partially
offset by higher interest payments.
Unusual charges in 1997 also included $12.4 million in noncash impairment
of property, equipment and other assets and $13.4 million in restructuring
(exit) cost accruals for future lease terminations and employee severance. These
exit costs represent cash outflows in future periods.
13
<PAGE> 15
Net cash used for investing activities increased $772.8 million to $877.8
million in 1997 reflecting the $841 million acquisition of PFS. Capital
expenditures increased $10.4 million to $22.9 million in 1997, driven by the
impact of the acquisition of PFS as well as additional warehouse capacity. Cash
capital expenditures (excluding capital leases) are expected to approximate $50
million in 1998, including spending related to new computer systems, warehouse
equipment purchases and leasehold improvements.
Net cash provided by financing activities in 1997 reflected debt and equity
financing transactions to support both the acquisition of PFS and future capital
needs and to refinance existing borrowings. The debt transactions included
issuance in July 1997 of $500 million of 10 1/8% Senior Subordinated Notes due
2007 and $205 million in term loans. The term loans were repaid in October 1997
with proceeds from issuance of $350 million of 8 7/8% Senior Notes due 2006.
Also included in net cash provided by financing activities is $225 million in
proceeds from the initial sale under the accounts receivable program described
above. NEHC, the Company's parent, provided $130 million in equity financing.
Fiscal 1996 compared to Fiscal 1995
Net cash provided by operating activities decreased $3.3 million to $1.2
million in 1996. This change reflected an increase in working capital required
to service the customer base of the acquired AmeriServ business, partially
offset by an increase in cash earnings driven by the AmeriServ acquisition.
Net cash used for investing activities increased $99.4 million to $105.0
million in 1996 reflecting the $92.9 million acquisition of AmeriServ. Capital
expenditures increased $10.0 million to $12.5 million in 1996 as a result of
expenditures to modify and expand certain distribution centers.
Net cash provided by financing activities in 1996 reflected a net increase
of $120 million in borrowings under the Company's credit facilities and proceeds
of $30 million from the issuance of preferred stock to fund the acquisition of
AmeriServ and refinance existing borrowings.
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.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Integration of Acquisitions
The Company's acquisition of PFS presents an opportunity to significantly
improve operating efficiencies of the combined business by eliminating redundant
facilities, achieving warehouse economies of scale with new and larger
facilities and improving truck fleet utilization through increased deliveries
per route. The impairment and restructuring charges recorded in 1997 primarily
reflect actions designed to begin taking advantage of these synergistic
opportunities.
While the Company anticipates significant cost efficiencies upon the
completion of these and other future actions under consideration, future
operating results will be negatively impacted by integration costs, including
start-up costs of new warehouse facilities, employee hiring and training
expenses and the costs of other operating inefficiencies associated with the
consolidation activities. These future cash consolidation costs, for the actions
that have been decided upon to date, are expected to approximate $20 million
over the remaining period of the consolidation activities, which are expected to
be completed in mid-1999. While management believes it has the resources to meet
its objectives, the ultimate level and timing of cost efficiencies is subject
14
<PAGE> 16
to the organization's ability to manage through the complexities of the
consolidation and respond to unanticipated events.
While the Company anticipates significant cost efficiencies upon the
consolidation of the operations of the Company and ProSource, activities to
integrate and consolidate ProSource are expected to result in additional noncash
and cash impairment, restructuring, new warehouse start-up and other expenses
associated with the reconfiguration of the distribution network and operations
support infrastructure. The Company has not yet quantified such expenses.
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 on which
the Company's systems rely on or interface with will be timely converted. While
the cost to implement the new system is significant ($40-50 million), the
anticipated expenses to resolve Year 2000 issues with other peripheral systems
used by the Company are not expected to be significant.
Industry and Customer Risk
The Company's future results are subject to economic and competitive risks
and uncertainties in the chain restaurant and food service industries. Further,
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 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.
Risk of Leverage
The Company is and will continue to be highly leveraged as a result of the
indebtedness incurred in connection with the acquisition of PFS. 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 the Company's actual results to
differ materially from expected and historical results, see the "Risk Factors"
set forth in the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on November 10, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The financial statements required by this Item are attached to and are
hereby incorporated into this Report.
15
<PAGE> 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 27, 1998,
with respect to each person who is an executive officer, a significant employee,
or director of AmeriServe:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
John V. Holten........... 41 Director, Chairman and Chief Executive Officer
John R. Evans............ 58 Director and Vice Chairman
Raymond E. Marshall...... 48 Director, President and Treasurer
Daniel W. Crippen........ 46 Director and Executive Vice President
Gunnar E. Klintberg...... 49 Director and Assistant Secretary
A. Petter Ostberg........ 36 Vice President
Diana M. Moog............ 38 Senior Vice President and Chief Financial Officer
William F. Woodall....... 50 President and Chief Operating Officer, Procurement
Group
Kurt E. Twining.......... 42 Senior Vice President -- Human Resources
Kenneth W. Gerhardt...... 47 Senior Vice President-Information Technology*
Kenneth R. Lane.......... 50 Acting Chief Operating Officer
Kevin J. Rogan........... 46 Vice President, General Counsel and Secretary
Stanley J. 49 Vice President and Controller
Szlauderbach...........
Leif F. Onarheim......... 62 Director
Peter T. Grauer.......... 51 Director
Benoit Jamar............. 42 Director
</TABLE>
- - ---------------
* Mr. Gerhardt has announced his resignation effective April 15, 1998. A
successor has not yet been named.
John V. Holten. Mr. Holten has served as Chairman and Chief Executive
Officer of Holberg since its inception in 1986 and of NEHC since its inception
in 1996. Mr. Holten was Managing Director of DnC Capital Corporation, a merchant
banking firm in New York City, from 1984 to 1986. Mr. Holten has been a member
of the NEHC Board since 1996, and the AmeriServe Board since 1986.
John R. Evans. Mr. Evans became President of Evans in 1971, and was named
Chief Executive Officer of the combined company when Evans merged with NEBCO in
1990. Mr. Evans serves on the Board of Directors of each of M&I Northern Bank,
Aerial Company, Inc., and AFI Inc. Mr. Evans has been an officer of NEHC and a
member of the NEHC Board since 1996, and an officer of AmeriServe and a member
of its Board since 1990.
Raymond E. Marshall. Mr. Marshall has 28 years of food service
distribution experience, including 24 years with AmeriServe or its predecessors.
Mr. Marshall served as President and Chief Executive Officer of NEBCO from 1980
to 1989. Mr. Marshall has served as President of AmeriServe since 1990. Mr.
Marshall serves on the Board of Directors of Independent Distributors of America
("IDA"). Mr. Marshall has been an officer of NEHC and a member of the NEHC Board
since 1996, and a member of the AmeriServe Board since 1986.
Daniel W. Crippen. Mr. Crippen has spent the last 21 years in the
foodservice distribution business beginning with The Harry H. Post Company. In
addition, Mr. Crippen was appointed to his present position as Executive Vice
President of AmeriServe in 1997. He is Chairman of the Board of Directors of
IDA. Mr. Crippen has been an officer of NEHC and a member of the NEHC Board
since 1997, and an officer of AmeriServe and a member of its Board since 1997.
Gunnar E. Klintberg. Mr. Klintberg has served as Vice Chairman of Holberg
since its inception in 1986. Mr. Klintberg was a Managing Partner of DnC Capital
Corporation, a merchant banking firm in New York
16
<PAGE> 18
City, from 1983 to 1986. Mr. Klintberg has been an officer of NEHC and a member
of the NEHC Board since 1996, and an officer of AmeriServe and its Board since
1986.
A. Petter Ostberg. Mr. Ostberg joined Holberg in 1994 and was appointed as
Senior Vice President and Chief Financial Officer in 1997. Prior to joining
Holberg, Mr. Ostberg held various finance positions from 1990 to 1994 with New
York Cruise Lines, Inc., including Group Vice President, Treasurer and
Secretary.
Diana M. Moog. Ms. Moog was named Sr. Vice President and Chief Financial
Officer in January 1998. Ms. Moog joined AmeriServe as Senior Vice President and
Treasurer at the time of the PFS Acquisition in 1997. Previously, she had served
as Vice President, Controller of PFS. Ms. Moog had held various positions at
PepsiCo from 1989 to 1997 including Manager, Financial Reporting for PepsiCo and
Assistant Controller, Frito-Lay.
William F. Woodall. In 1982, Mr. Woodall became President of IDA, and in
1990 founded Chicago Consolidated Company ("CCC"). Mr. Woodall was appointed to
his present position as President and Chief Operating Officer of Procurement
Group at AmeriServe in 1996. He is currently on the Board of Directors of EMCO,
Inc. and holds various other positions with industry organizations.
Kurt E. Twining. Mr. Twining joined AmeriServe in 1997 as Senior Vice
President-Human Resources in connection with the PFS Acquisition. Mr. Twining
joined PFS in 1986 as Manager, Employee Relations. He then held positions of
Manager, Staffing and Development; Director, Employee Relations; Senior
Director, Employee Relations; Senior Director, Organization and Management
Development; and Vice President, Field Human Resources and Safety.
Kenneth R. Lane. Mr. Lane was named Acting Chief Operating Officer in
November 1997. He joined AmeriServe in 1997 as a Senior Vice President in
connection with the PFS Acquisition. The prior 24 years were spent with PepsiCo
in positions including as PFS Vice President Operations, North, overseeing the
Northern United States as well as international operations in Mexico, Canada and
Puerto Rico.
Kevin J. Rogan. Mr. Rogan joined AmeriServe in 1997 as its Vice President,
General Counsel, and Secretary. Previously he worked at McKesson Corporation
where he served as Vice President-Legal after McKesson acquired the assets of
FoxMeyer Health Corporation for whom he served as Senior Vice President and
General Counsel from 1994 through 1996. Previously, Mr. Rogan served as legal
counsel to Grand Metropolitan, PLC and PepsiCo.
Stanley J. Szlauderbach. Mr. Szlauderbach joined AmeriServe in 1996 as
Vice President and Controller. Before joining AmeriServe, Mr. Szlauderbach spent
14 years at PepsiCo where his experience included eight years as Corporate
Director, Financial Reporting and two years as Assistant Controller at Pizza
Hut.
Leif F. Onarheim. In 1996, Mr. Onarheim was elected chairman of NHO, the
country's largest association of business and industry. From 1992 to 1997, Mr.
Onarheim served as President of Norway's largest business school and was Vice
Chairman of the Board of the Norwegian School of Management from 1980 to 1992.
Mr. Onarheim served as CEO of Nora Industries. When Nora merged with Orkla
Borregaard to form the Orkla Group in 1991, Onarheim briefly served as the new
group's Chairman. The Orkla Group is one of Scandinavia's largest branded goods
company with production facilities in the US, Germany, Poland and England. He
serves as Chairman of the Board of Directors of H. Aschehoug & Co. publishers,
Norwegian Fair, Netcom ASA and Narvesen ASA, Vice Chairman of Saga Petroleum ASA
and is a board member of Wilhelm Wihelmsen Ltd. (shipping). He has been a
director of NEHC since 1996, a director of AmeriServe since 1986, and a director
of Holberg since 1997.
Peter T. Grauer. Mr. Grauer has been a Managing Director of Donaldson,
Lufkin & Jenrette Merchant Banking, Inc. since 1992. Mr. Grauer serves on the
Board of Directors of each of Doane Products Co. and Total Renal Care, Inc. Mr.
Grauer has been a member of the NEHC Board since 1996, and the AmeriServe Board
since January 1996.
Benoit Jamar. Mr. Jamar is a Managing Director in the Mergers &
Acquisitions group at Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"). He joined DLJSC in 1989. Mr. Jamar has been a member of the NEHC
Board since 1997, and the AmeriServe Board since 1997.
17
<PAGE> 19
The directors of AmeriServe are elected annually and each serves until his
successor has been elected and qualified, or until his earlier death,
resignation or removal. The officers of AmeriServe are elected by the Board of
Directors, and each serves until his or her successor is elected and qualified,
or until his or her death, resignation or removal.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the information for the three most recently
completed fiscal years with regard to compensation for services rendered in all
capacities to the Company by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers"). Information set forth in the table reflects compensation
earned by such individuals for services with the Company or its respective
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($)(2)
- - --------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John V. Holten....................... 1997 -- -- -- --
Chairman and Chief Executive
Officer 1996 -- -- -- --
1995 -- -- -- --
Raymond E. Marshall.................. 1997 301,375 500,000(3) 191,021(4) 11,600
President and Treasurer 1996 273,793 265,000(5) -- 11,600
1995 212,492 109,200 -- 10,400
Daniel W. Crippen.................... 1997 283,942 500,000(3) -- 9,659
Executive Vice President 1996 246,764 265,076 -- 9,659
1995 202,538 129,464 -- 9,788
Donald J. Rogers(6).................. 1997 190,811 350,000(3) 63,662(4) 11,600
Chief Financial Officer 1996 158,629 125,000(5) 33,000(7) 11,600
and Vice President 1995 115,671 45,000 33,000(7) 10,400
John R. Evans........................ 1997 260,000 -- -- 4,800
Vice Chairman 1996 263,000 -- -- 4,800
1995 262,832 -- -- 4,800
</TABLE>
- - ---------------
(1) The amounts shown in this column include amounts contributed by the Company
to its 401(k) plan under a contribution matching program.
(2) The amounts shown in this column reflect premiums paid by the Company on
behalf of Named Executive Officers for whole life insurance policies and
annuities to which the Named Executive Officers are entitled to the cash
surrender value.
(3) These amounts include discretionary cash bonuses paid by AmeriServe for
services provided during 1997 in connection with the PFS Acquisition.
(4) These amounts were paid to Messrs. Marshall and Rogers to reimburse
relocation expenses.
(5) These amounts include discretionary cash bonuses paid by Holberg for
services provided during 1995 in connection with the acquisition of
AmeriServ.
(6) As of January 5, 1998, Mr. Rogers is no longer an employee of NEHC or the
Company.
(7) This amount reflects forgiveness by the Company of a portion of a $100,000
relocation assistance loan.
The Company pays an annual management fee to Holberg for management
services. The amount of this fee is not set or allocated with respect to any
particular employee's compensation from Holberg.
DIRECTOR COMPENSATION
Leif F. Onarheim is paid $15,000 per year to serve as a director of the
Company. The other directors serve without compensation.
18
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee in fiscal 1997. Executive
officer compensation is determined by the Board of Directors of the Company. The
Company intends to form a compensation committee in fiscal 1998. The members of
such committee have not yet been determined. During fiscal 1997, no executive
officer of the Company served as a member of the compensation committee of
another entity.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Marshall's current employment agreement with the Company provides for a
three year term, scheduled to lapse on January 1, 1999, with default annual
renewals, and an annual base salary of $285,000, which will increase for 1998 to
$315,000, plus an annual bonus to be determined by the Board of Directors after
considering the Company's Reported Operating Profit (as defined in the
employment agreement), plus participation in any employee benefit plans
sponsored by the Company. Mr. Marshall agrees not to disclose confidential
information for so long as such information remains competitively sensitive.
During the term of the employment agreement and for one year after its
termination, Mr. Marshall agrees not to render services to, or have any
ownership interest in, any business which is competitive with the Company. Mr.
Marshall's employment agreement does not contain any change of control
provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's common stock is owned by NEHC. The following table
sets forth certain information as of March 27, 1998, regarding the beneficial
ownership of the common stock of NEHC by (i) each person known to NEHC to own
beneficially more than 5% of any class of the common stock of NEHC, (ii) each
director of NEHC, (iii) each Named Executive Officer of NEHC and (iv) all
executive officers and directors of NEHC as a group. All information with
respect to beneficial ownership has been furnished to NEHC by the respective
stockholders of NEHC. Except as otherwise indicated in the footnotes, each
beneficial owner has the sole power to vote and to dispose of all shares held by
such holder.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
---------------- ----------------------- -----------------
<S> <C> <C>
NED.................................... 6,508 shares of Class A Common Stock 100%(+)
1,733 shares of Class B Common Stock 100%(+)
Orkla ASA ("Orkla").................... (1)
DLJ Merchant Banking Partners, L.P. and
certain of its affiliates
("DLJMB")............................ Warrants to purchase 3,540 shares of 30%(++)
Class A Common Stock
Warrants to purchase 370 shares of 30%(++)
Class B Common Stock
Holberg................................ Warrants to purchase 753 shares of 6%(++)
Class A Common Stock
John V. Holten......................... (2)
Daniel W. Crippen...................... (3)
John R. Evans.......................... --
Peter T. Grauer........................ (4)
Benoit Jamar........................... (4)
Gunnar E. Klintberg.................... (5)
Raymond E. Marshall.................... (6)
Leif F. Onarheim....................... (7)
</TABLE>
- - ---------------
(+) Computed with respect to the currently outstanding shares of Class A common
stock of NEHC (the "Class A Common Stock") and Class B Common Stock of NEHC
(the "Class B Common Stock"), and without taking into account any options or
convertible interests of NEHC.
(++) Computed with respect to the currently outstanding shares of Class A Common
Stock and Class B Common Stock of NEHC and the warrants held by DLJMB and
Holberg, but without taking into
19
<PAGE> 21
account any other options or convertible interests of NEHC. On January 6,
1998, Holberg consummated a repurchase from DLJMB and affiliates of (i) 49%
of the Junior Preferred Stock acquired by DLJMB and affiliates in
connection with the PFS Acquisition (see Item 13. "Certain Relationships
and Related Party Transactions"), and (ii) warrants conferring the right to
acquire 753.30 shares of the Class A Common Stock.
(1) Orkla owns approximately 7% of the outstanding common stock of NED, and has
an additional interest in the common stock of NED of approximately 8%
through certain warrants to purchase such common stock. In addition, Orkla
owns approximately 30% of the outstanding common stock of Holberg (which
itself owns the balance of the common stock of NED not owned directly by
Orkla and has an additional interest in the common stock of NED of
approximately 75% through certain preferred stock convertible into common
stock), and an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The warrant and convertible interests described in this note have
been computed based upon the outstanding common shares of NED and Holberg,
without taking into account any options or convertible interests of NED or
Holberg. Orkla also has certain contractual rights as to NED and NEHC
pursuant to an Amended and Restated Investors Agreement, dated as of July
11, 1997, among DLJMB, NEHC, NED, Holberg, Holberg Incorporated
("Incorporated") and Orkla.
(2) Mr. Holten owns all of the outstanding common stock of Incorporated, the
corporate parent of Holberg, which entity owns approximately 70% of the
outstanding common stock of Holberg, and an additional interest in the
common stock of Holberg of approximately 25% through certain preferred stock
convertible into common stock. As noted above, Holberg owns approximately
93% of the outstanding NED common stock and has an additional interest
through certain preferred stock convertible into common stock. The
convertible interests described in this note have been computed based upon
the outstanding common shares of Holberg and NED, without taking into
account any options or convertible interests of Holberg or NED.
(3) Mr. Crippen owns shares of a series of convertible preferred stock of NEHC
that, if converted, would result in his ownership of approximately 1.6% of
the outstanding common stock of NEHC, taking into account the actually
outstanding shares and the warrants held by DLJMB.
(4) Messrs. Grauer and Jamar are Managing Directors of DLJSC, and may be
considered to have beneficial ownership of the interests of DLJMB in the
Company and NEHC. Messrs. Grauer and Jamar disclaim such beneficial
ownership.
(5) Mr. Klintberg is an officer and director of NED and certain of its corporate
parents, but disclaims beneficial ownership of any of the shares owned by
NED.
(6) Mr. Marshall has an interest of 5% in NED through certain options that have
been granted to him by NED. Such interest has been computed based upon the
outstanding common shares of NED, without taking into account any options or
convertible interests of NED.
(7) Mr. Onarheim has an interest of less than 1% in NED through certain options
that have been granted to him by NED. Such interest has been computed based
upon the outstanding common shares of NED, without taking into account any
options or convertible interests of NED. Mr. Onarheim has also had a long
affiliation with Orkla and acts as Orkla's representative on the Board of
Directors of the Company and NEHC, but disclaims beneficial ownership of any
interests held by Orkla.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DLJMB, an affiliate of DLJSC, and certain of its affiliates beneficially
own approximately 30% of the common stock of NEHC. Mr. Grauer, a principal of
DLJSC, is a member of the Board of Directors of NEHC and the Company; Mr. Jamar,
a principal of DLJSC, is a member of the Board of Directors of NEHC and the
Company. Holberg indirectly owns a majority of the issued and outstanding
capital stock of NEHC. See "Security Ownership of Certain Beneficial Owners and
Management." Subject to the rights of holders of Preferred Stock, Holberg and
affiliates of DLJSC collectively have sufficient voting power to elect the
entire Board of Directors of each of NEHC, and through NEHC, the Company.
20
<PAGE> 22
In connection with the PFS Acquisition, DLJSC received a merger advisory
fee of $4.0 million in cash from the Company upon consummation of the PFS
Acquisition and related financings. An affiliate of DLJ also received customary
fees in connection with their commitment to finance a portion of the purchase
price for PFS, in the event that the Company could not arrange alternative
financing prior to the closing.
In connection with the Credit Facility, DLJ Capital Funding, Inc., an
affiliate of DLJSC, acted as documentation agent (See note 6 to the Consolidated
Financial Statements of the Company included in this Report) for which it
received certain customary fees and expenses.
DLJSC has acted as an initial purchaser in connection with each of the
offerings of the Senior Discount Notes, the Senior Subordinated Notes, the
Senior Notes and the Preferred Stock for which it received certain customary
underwriting fees and discounts.
In connection with the ProSource acquisition, it is expected that DLJSC
will receive a merger advisory fee from the Company, at such time as the
acquisition is consummated.
Holberg has received customary investment banking and advisory fees from
the Company and its affiliates in connection with certain prior transactions,
including a $4.0 million merger advisory fee in connection with the PFS
Acquisition. Holberg also received fees of $1.0 million in connection with the
offering of the Senior Notes.
Holberg also receives an annual management fee from the Company of $4.0
million, commencing in 1997. In addition, in connection with the ProSource
acquisition, it is expected that Holberg will receive a merger advisory fee from
the Company, at such time as the acquisition is consummated.
A portion of the net proceeds of the Preferred Stock offering was used to
finance the repurchase cost of the Senior Preferred Stock and the Junior
Preferred Stock held by Holberg and certain affiliates of DLJSC and the Junior
Non-Convertible Preferred Stock held by NED.
With the January 1996 acquisition of AmeriServ, the Company acquired a
minority interest in Post Holdings Company ("Post Holdings"), a 93.6% owner of
Post. On November 25, 1996 NEHC acquired: (i) the Company's ownership interest
in Post Holdings; and (ii) Daniel W. Crippen's 50% ownership of Post Holdings.
In connection with this transaction, Mr. Crippen, the Company's and NEHC's
Executive Vice President, received $4.4 million ($2.0 million cash and $2.4
million in NEHC 8% Senior Convertible Preferred Stock) in exchange for his 50%
equity interest in Post Holdings.
In connection with the PFS Acquisition: (i) the remaining 6.4% of the
capital stock outstanding of Post was acquired from the minority stockholder;
(ii) a dividend of $4.7 million was declared to eliminate the intercompany
balance between Post and NEHC; (iii) all of the capital stock of Post was
transferred to AmeriServ, then a wholly-owned subsidiary of the Company; (iv)
Post's $10.6 million of outstanding indebtedness was refinanced; and (v)
AmeriServ's investment in NEHC preferred stock of $2.5 million was cancelled.
In connection with the PFS Acquisition, NEHC contributed $130.0 million of
cash to the Company. This contribution was financed in part through NEHC's sale
of the Senior Discount Notes, Senior Preferred Stock and the Junior Preferred
Stock, as well as warrants to purchase NEHC Class A Common Stock, to affiliates
of DLJSC. On January 6, 1998, Holberg purchased from DLJ Merchant Banking
Partners II, L.P. and certain of its affiliates ("DLJMBII") warrants to purchase
753.30 shares of Class A Common Stock, which had originally been issued to
DLJMBII in connection with the PFS Acquisition in July 1997.
In addition to the equity contribution to AmeriServe, the proceeds from the
offering of the Senior Discount Notes were used to redeem the 12 1/2% Senior
Secured Notes of NEHC (the "Old NEHC Notes"), with an initial purchase amount of
$22.0 million beneficially owned by DLJMB and Old NEHC Notes, with an initial
principal amount of $8.0 million held by Orkla. The respective accrued principal
and interest of the Old NEHC Notes held by DLJMB and Orkla as of June 28, 1997
were $26.2 million and $9.5 million, respectively.
21
<PAGE> 23
In connection with the PFS Acquisition, NEHC contributed to the Company an
aggregate principal amount of $45.0 million of outstanding non-convertible
preferred stock of the Company.
Prior to the PFS Acquisition, HWPI was owned 55% by Holberg and 45% by the
Company. In connection with the PFS Acquisition, NEHC purchased for $1.5 million
Holberg's 55% interest in HWPI. HWPI's sole operations consist of owning two
distribution centers, located in Omaha, Nebraska and Waukesha, Wisconsin,
occupied by the Company.
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company, including Mr. John Evans, for approximately $810,000 per year
through May 31, 2008.
The Company and Holberg also periodically engage in bi-lateral
interest-bearing loans and advances. (See Note 12 to the Consolidated Financial
Statements of AmeriServe included in this Report.)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements.
Report of Independent Auditors
Audited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial statement schedule.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits
<TABLE>
<C> <S>
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 Form S-4 No.
333-33225 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 Amended and Restated Certificate of Incorporation of
AmeriServe Food Distribution, Inc. (formerly AmeriServ Food
Company, successor to AmeriServe Food Distribution, Inc.).*
3.2 Amended and Restated Bylaws of AmeriServe Food Distribution,
Inc. (formerly AmeriServ Food Company, successor to
AmeriServe Food Distribution, Inc.) (incorporated by
reference to Exhibit 3.2 to the Registrant's Current Report
on Form 8-K, dated December 28, 1997).
3.3 Articles of Incorporation of AmeriServe Transportation, Inc.
(incorporated by reference to Exhibit 3.5 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.4 By-Laws of AmeriServe Transportation, Inc. (incorporated by
reference to Exhibit 3.6 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
</TABLE>
22
<PAGE> 24
<TABLE>
<C> <S>
3.5 Articles of Incorporation of Chicago Consolidated
Corporation (incorporated by reference to Exhibit 3.7 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.6 By-Laws of Chicago Consolidated Corporation (incorporated by
reference to Exhibit 3.8 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
3.7 Articles of Incorporation of Northland Transportation
Services, Inc. (incorporated by reference to Exhibit 3.9 to
the Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.8 By-Laws of Northland Transportation Services, Inc.
(incorporated by reference to Exhibit 3.10 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.9 Articles of Incorporation of Delta Transportation, Ltd.
(incorporated by reference to Exhibit 3.13 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.10 By-Laws of Delta Transportation, Ltd. (incorporated by
reference to Exhibit 3.14 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
4.1 Indenture, dated as of October 15, 1997, by and among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, with respect to the Senior Notes
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
4.2 Supplemental 8 7/8% New Senior Notes Indenture, dated as of
December 23, 1997, by and among AmeriServe Food
Distribution, Inc., AmeriServ Food Company, and State Street
Bank and Trust Company, as Trustee (incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report
on Form 8-K, dated December 28, 1997).
4.3 Indenture, dated as of July 11, 1997, by and among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, with respect to the new Senior Subordinated
Notes (incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
4.4 Supplemental 10 1/8% New Senior Subordinated Notes
Indenture, dated as of December 23, 1997, by and among
AmeriServe Food Distribution, Inc., AmeriServ Food Company,
and State Street Bank and Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K, dated December 28,
1997).
4.5 Purchase Agreement, by and among the Registrant, the
Subsidiary Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Securities dated as
of July 9, 1997 (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement Form S-4 No.
333-33225 filed August 8, 1997).
4.6 Purchase Agreement, by and among the Registrant, the
Subsidiary Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Robertson Stephens
dated as of October 8, 1997 (incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on
Form S-4 No. 333-38337 filed October 21, 1997).
10.1 Registration Rights Agreement, dated as of July 11, 1997, by
and among the Registrant, the Subsidiary Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
10.2 Registration Rights Agreement, dated as of October 15, 1997,
by and among the Registrant, the Subsidiary Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
</TABLE>
23
<PAGE> 25
<TABLE>
<C> <S>
10.3 Second Amended and Restated Credit Agreement, dated as of July 11, 1997 among the Registrant, Bank of
America National Trust and Savings Association, as Administrative Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Documentation Agent, Bank of America National Trust and Savings Association as
Letter of Credit Issuing Lender, the Other Financial Institutions Party thereto and BancAmerica
Securities, Inc. as Arranger (incorporated by reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
10.4 First Amendment to Second Amended and Restated Credit Agreement, dated as of October 7, 1997.*
10.5 Second Amendment to Second Amended and Restated Credit Agreement, dated as of December 22, 1997
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, dated December
28, 1997).
10.6 Employment Agreement, dated as of December 23, 1986 between the Company and Raymond E. Marshall, as
amended by Amendment to Employment Agreement, dated as of January 1, 1995 (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form S-4 No. 333-33225 filed August 8, 1997).
10.7 Sales and Distribution Agreement dated as of May 6, 1997, by and among PFS, Pizza Hut, Taco Bell,
Kentucky Fried Chicken Corporation and Kentucky Fried Chicken of California, Inc. (the "Distribution
Agreement") (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed October 21, 1997).
10.8 Amendment, dated as of May 29, 1997, to the Distribution Agreement.
21 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.*
</TABLE>
- - ---------------
* Filed herewith.
(b) Reports on Form 8-K.
During the first quarter of 1998, AmeriServe and each of the
Subsidiary Guarantors filed the following:
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 AmeriServe and Post with and into AmeriServ.
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.
24
<PAGE> 26
AMERISERVE FOOD DISTRIBUTION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholder's Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServe Food Distribution, Inc.
We have audited the accompanying consolidated balance sheets of AmeriServe
Food Distribution, Inc. (the Company) as of December 27, 1997 and December 28,
1996, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
27, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 27, 1997 and December 28, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 27, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 1998
F-2
<PAGE> 28
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 231,131 $ 2,162
Accounts receivable....................................... 43,625 73,531
Undivided interest in accounts receivable trust........... 154,371 --
Allowance for doubtful accounts........................... (15,566) (4,896)
Inventories............................................... 150,148 47,714
Due from affiliate........................................ 2,106 --
Prepaid expenses and other current assets................. 21,662 8,077
---------- --------
Total current assets.............................. 587,477 126,588
Property and equipment, net................................. 130,856 33,837
Other assets:
Intangible assets, net.................................... 737,870 122,451
Note receivable from Holberg.............................. 3,516 3,516
Other noncurrent assets................................... 2,602 4,711
---------- --------
$1,462,321 $291,103
========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 5,019 $ 3,266
Accounts payable.......................................... 345,379 89,440
Due to affiliate.......................................... -- 907
Accrued liabilities....................................... 101,219 14,931
---------- --------
Total current liabilities......................... 451,617 108,544
Long-term debt.............................................. 874,219 126,639
Other noncurrent liabilities................................ 38,430 13,245
Commitments
Stockholder's equity:
Senior preferred stock, $1 par value per share; 765 shares
authorized, 600 shares outstanding in 1996............. -- 30,000
Preferred stock, $50,000 par value per share; 150 shares
authorized and outstanding in 1996..................... -- 7,500
Preferred stock, $25,000 par value per share; 400 shares
authorized, 300 shares outstanding in 1996............. -- 7,500
Common stock, $10 par value per share; 2,000 shares
authorized, 600 shares outstanding..................... 6 6
Additional paid-in capital................................ 174,603 --
Accumulated deficit....................................... (76,554) (2,331)
---------- --------
Total stockholder's equity........................ 98,055 42,675
---------- --------
$1,462,321 $291,103
========== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $3,446,191 $1,280,598 $400,017
Cost of goods sold.................................... 3,104,012 1,151,749 359,046
---------- ---------- --------
Gross profit.......................................... 342,179 128,849 40,971
Distribution, selling and administrative expenses..... 283,855 109,750 35,396
Amortization of intangible assets..................... 16,765 4,810 1,299
Impairment, restructuring and other unusual charges... 52,449 -- --
---------- ---------- --------
Operating income (loss)............................... (10,890) 14,289 4,276
Other income (expense):
Interest expense, net............................... (46,805) (10,999) (3,936)
Loss on sale of accounts receivable................. (6,757) -- --
Interest income -- affiliates....................... 632 528 749
---------- ---------- --------
(52,930) (10,471) (3,187)
---------- ---------- --------
Income (loss) before income taxes and extraordinary
items............................................... (63,820) 3,818 1,089
Provision for income taxes............................ 1,030 1,300 583
---------- ---------- --------
Income (loss) before extraordinary items.............. (64,850) 2,518 506
Extraordinary loss.................................... 9,373 -- --
---------- ---------- --------
Net income (loss)..................................... $ (74,223) $ 2,518 $ 506
========== ========== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED PREFERRED
SENIOR STOCK, STOCK, ADDITIONAL
PREFERRED $50,000 $25,000 COMMON PAID--IN ACCUMULATED
STOCK SERIES SERIES STOCK CAPITAL DEFICIT TOTAL
--------- --------- --------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994..................... $ -- $ 7,500 $ 7,500 $6 $ 4,852 $ (2,653) $ 17,205
Dividends:
Preferred stock....... -- -- -- -- -- (2,494) (2,494)
Common stock.......... -- -- -- -- (6,086) (208) (6,294)
Contribution of
capital............... -- -- -- -- 1,234 -- 1,234
Net income............... -- -- -- -- -- 506 506
-------- ------- ------- -- -------- -------- --------
BALANCE, DECEMBER 30,
1995..................... -- 7,500 7,500 6 -- (4,849) 10,157
Issuance of 600 shares of
senior preferred
stock................. 30,000 -- -- -- -- -- 30,000
Net income............... -- -- -- -- -- 2,518 2,518
-------- ------- ------- -- -------- -------- --------
BALANCE, DECEMBER 28,
1996..................... 30,000 7,500 7,500 6 -- (2,331) 42,675
Contribution of preferred
stock to additional
paid in capital....... (30,000) (7,500) (7,500) -- 45,000 -- --
Contribution of
capital............... -- -- -- -- 130,000 -- 130,000
Loss on exchange of
investment in NEHC
preferred stock for
capital stock of
Post.................. -- -- -- -- (397) -- (397)
Net loss................. -- -- -- -- -- (74,223) (74,223)
-------- ------- ------- -- -------- -------- --------
BALANCE, DECEMBER 27,
1997..................... $ -- $ -- $ -- $6 $174,603 $(76,554) $ 98,055
======== ======= ======= == ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
AMERISERVE FOOD DISTRIBUTION,INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (74,223) $ 2,518 $ 506
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 33,928 10,061 2,762
Impairment of property, equipment and other assets........ 12,404 -- --
Extraordinary loss -- noncash portion..................... 2,156 -- --
Contribution of capital................................... -- -- 1,234
Other..................................................... -- 83 179
Changes in assets and liabilities, net of effect of
businesses acquired:
Accounts receivable..................................... 154,057 (4,924) (1,645)
Undivided interest in accounts receivable trust......... (154,371) -- --
Inventories............................................. (11,978) (6,497) (5)
Prepaid expenses and other current assets............... (11,217) 1,270 (3,070)
Accounts payable........................................ 71,139 6,741 5,035
Accrued liabilities..................................... 46,101 (5,309) (393)
Noncurrent liabilities.................................. (4,000) (66) --
Other................................................... (1,150) (2,664) (98)
---------- --------- --------
Net cash provided by operating activities................... 62,846 1,213 4,505
---------- --------- --------
INVESTING ACTIVITIES
Businesses acquired, net of cash acquired................... (849,519) (94,411) --
Capital expenditures........................................ (22,921) (12,518) (2,496)
Proceeds from disposals of property and equipment........... -- 2,866 22
Amounts received from affiliate............................. 18,433 11,121 28,969
Amounts paid to affiliate................................... (21,446) (9,591) (30,659)
Net increase in deposits with affiliates.................... (2,355) (2,480) (315)
Expenditures for intangible and other assets................ -- -- (1,095)
---------- --------- --------
Net cash used in investing activities....................... (877,808) (105,013) (5,574)
---------- --------- --------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................... -- 30,000 --
Proceeds from issuance of long-term debt.................... 1,055,000 -- --
Proceeds from sale of accounts receivable................... 225,000 -- --
Proceeds from capital contribution.......................... 130,000 -- --
Debt financing fees incurred................................ (26,325) -- --
Net increase (decrease) in borrowings under revolving line
of credit................................................. (69,100) 120,000 4,635
Repayments of long-term debt................................ (270,644) (44,613) (4,016)
---------- --------- --------
Net cash provided by financing activities................... 1,043,931 105,387 619
---------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 228,969 1,587 (450)
Cash and cash equivalents at beginning of year.............. 2,162 575 1,025
---------- --------- --------
Cash and cash equivalents at end of year.................... $ 231,131 $ 2,162 $ 575
========== ========= ========
Supplemental cash flow information:
Cash paid during the year for:
Interest................................................ $ 21,436 $ 9,504 $ 3,622
Income taxes, net of refunds............................ 2,669 1,256 322
Businesses acquired:
Fair value of assets acquired........................... $1,119,293 $ 187,907 $ --
Cash paid............................................... (849,519) (94,411) --
---------- --------- --------
Liabilities assumed..................................... $ 269,774 $ 93,496 $ --
========== ========= ========
Supplemental non cash investing and financing activities:
Property and equipment purchased with capital leases
(included in long-term debt)............................ $ 20,604 $ 11,845 $ --
</TABLE>
See accompanying notes.
F-6
<PAGE> 32
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1997
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AmeriServe Food Distribution, Inc. (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.
The Company's major customers are franchisers and/or franchisees in the
Pizza Hut, Taco Bell, KFC, Arby's, Burger King, Wendy's and Dairy Queen
restaurant systems. The Company services approximately 25,500 restaurants, the
vast majority of which are in the United States. The Company also operates
foodservice distribution businesses in Canada and Mexico, which are not material
to the consolidated financial statements of the Company.
The Company is a wholly owned subsidiary of Nebco Evans Holding Company
(NEHC), which is ultimately controlled by Holberg Industries, Inc. (Holberg).
Holberg is a privately held diversified service company with subsidiaries
operating within the food distribution and parking services industries in North
America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company has a 52- or 53-week fiscal year ending on the last Saturday of
the calendar year. The fiscal years ended December 27, 1997 (fiscal 1997),
December 28, 1996 (fiscal 1996) and December 30, 1995 (fiscal 1995) are 52-week
periods.
Cash and Cash Equivalents
Cash equivalents represent funds temporarily invested (with original
maturities not exceeding three months) as part of the Company's active
management of working capital. Cash and cash equivalents are stated at cost,
which approximates market value.
Inventories
Inventories, which consist of purchased goods held for sale, are stated at
the lower of cost (determined on a first-in, first-out basis) or net realizable
value.
Property and Equipment
Property and equipment are stated at cost, except for assets that have been
impaired. Depreciation is computed over the estimated useful lives of the
assets, using either the straight-line or double-declining balance method.
Amortization of leasehold improvements is recorded over the respective lease
terms or useful lives of the assets, whichever is shorter. Amortization of
leasehold improvements and assets under capital
F-7
<PAGE> 33
leases is included in depreciation expense. Useful lives for amortization and
depreciation calculations are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-40 years
Delivery and automotive equipment........................... 3-9 years
Warehouse equipment......................................... 5-12 years
Furniture, fixtures and equipment........................... 5-10 years
</TABLE>
Goodwill and Other Intangible Assets
Costs in excess of the net identifiable assets of businesses acquired are
amortized on a straight-line basis over 40 years. Assembled workforce, customer
lists and other intangible assets acquired in business acquisitions, deferred
financing costs and other intangibles are being amortized using primarily the
straight-line method over their respective estimated useful lives, which
generally range from 3 to 40 years.
Impairment of Long-Lived Assets
Property and equipment, goodwill and other intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of
assets, a loss will be recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
Computer Software
Costs of computer software developed or obtained for internal use are
capitalized and amortized on a straight-line basis over the estimated useful
life of the software (generally 3-8 years). Business process reengineering costs
associated with implementation of new software are expensed as incurred.
Revenue Recognition
Revenue from the sale of the Company's products is recognized upon shipment
to the customer.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (Statement) No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax assets or liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, as well as net operating loss carryforwards. Because of
the Company's prior operating losses in certain of the Company's taxable
entities, a valuation allowance has been established to offset the entire amount
of the net deferred tax assets.
Effective July 1997, the Company is included in the consolidated federal
income tax return of NEHC. Prior to that date, the Company was part of the
Holberg consolidated group for income tax purposes and made tax sharing payments
to Holberg, under a tax sharing agreement, for those entities within the
Company's subgroup that had taxable income.
F-8
<PAGE> 34
Recently Issued Accounting Standards
Accounting standards issued in 1997 included Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
as part of a full set of financial statements, and Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Statement
No. 131 establishes standards for reporting information about a company's
operating segments and related disclosures about its products, services,
geographic areas of operations and major customers. Both statements will be
adopted by the Company in 1998. The adoption of these statements will not impact
the Company's results of operations, cash flows or financial position.
Reclassifications
Certain amounts previously presented in the financial statements of prior
years have been reclassified to conform to the current year presentation.
2. ACQUISITIONS
On July 11, 1997, the Company acquired the U.S. and Canadian operations of
PFS, a Division of PepsiCo, Inc. (PFS), in an asset purchase transaction for
approximately $842 million in cash, including direct costs. PFS posted net sales
of $3.4 billion for the fiscal year ended December 25, 1996. Financing of the
acquisition included an equity contribution of $130 million by NEHC and other
transactions as described in Notes 6 and 7. PFS is engaged in the distribution
of 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. on October 6, 1997 and are now operating as TRICON Global
Restaurants, Inc. (Tricon).
The effective date of the acquisition was June 11, 1997, the end of PFS'
second quarter. The acquisition has been accounted for under the purchase
method; accordingly, its results are included in the consolidated financial
statements from the effective date of the acquisition. The purchase price was
allocated based on the estimated fair values of identifiable intangible and
tangible assets acquired and liabilities assumed at the acquisition date, as
follows (in millions):
<TABLE>
<S> <C>
Accounts receivable......................................... $ 322.3
Inventories................................................. 83.1
Property and equipment...................................... 71.5
Goodwill.................................................... 562.7
Identifiable intangible assets.............................. 36.9
Other assets................................................ 1.4
Accounts payable............................................ (168.6)
Accrued liabilities......................................... (38.8)
Restructuring reserves...................................... (23.0)
Other noncurrent liabilities................................ (5.9)
-------
$ 841.6
=======
</TABLE>
The restructuring reserves of $23 million were included in the purchase
price allocation above in connection with the business plan to consolidate the
operations of PFS and the Company. The reserves consist principally of accruals
for costs related to the displacement of employees ($6.4 million) and lease
termination costs associated with the closures of duplicative PFS warehouses
($15.7 million). There were no material charges against the restructuring
reserves as of December 27, 1997. See Note 3 for additional discussion.
F-9
<PAGE> 35
The following unaudited pro forma results of operations for fiscal 1997 and
1996 assume the acquisition of PFS and related transactions occurred at the
beginning of each period presented (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales........................................... $5,006,426 $4,874,980
Loss before extraordinary items..................... (58,190) (52,881)
Net loss............................................ (67,563) (62,254)
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
On October 29, 1997, the Company acquired the stock of a food distribution
business in Mexico for approximately $8 million in cash. The business
distributes food products and supplies to franchised and company-owned
restaurants, primarily in Mexico, in Tricon's Pizza Hut and KFC systems. The
acquisition has been accounted for under the purchase method. The operating
results of the business are not material to the consolidated results of the
Company.
On January 25, 1996, the Company acquired the common and preferred stock of
AmeriServ Food Company (AmeriServ), a foodservice distributor specializing in
distribution of food products and supplies to chain restaurants. AmeriServ
reported net sales of $939.1 million for its fiscal year ended December 30,
1995. The total cash outlay for the acquisition, including all direct costs, was
$92.9 million. Of this amount, $44 million related to the retirement of all of
AmeriServ's existing bank debt and accrued interest, which occurred concurrently
with the closing of the purchase transaction. The transaction was financed
through the issuance of $30 million of preferred stock to NEHC, as well as
borrowings under a new credit agreement.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
from the acquisition date. The excess of the purchase price over the net assets
acquired was $85 million and has been recorded as goodwill, which is being
amortized on a straight-line basis over 40 years.
The following unaudited pro forma results of operations for the year ended
December 30, 1995 assume the acquisition of AmeriServ occurred at the beginning
of the fiscal year (in thousands):
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Net sales................................................ $1,224,200
Net loss................................................. (7,134)
</TABLE>
In connection with the acquisition of AmeriServ, the Company acquired a
minority interest in the Harry H. Post Company (Post), also a foodservice
distributor to chain restaurants. In November 1996, the Company sold its
interest in Post to NEHC in exchange for $2.5 million in NEHC preferred stock.
Through certain transactions in 1996 and 1997, NEHC acquired the remaining
outstanding common stock of Post. In July 1997, NEHC transferred its investment
in Post to the Company in exchange for the NEHC preferred stock. The
transactions with NEHC had no impact on the consolidated statements of
operations. Post generated net sales of $119.4 million for its fiscal year ended
December 28, 1996. The Post operations are included in the consolidated results
of the Company effective with the beginning of the third quarter of 1997.
F-10
<PAGE> 36
3. IMPAIRMENT, RESTRUCTURING AND OTHER UNUSUAL CHARGES
Included in "Impairment, restructuring and other unusual charges" in the
accompanying consolidated statements of operations for fiscal 1997 are the
following (in millions):
<TABLE>
<S> <C>
Impairment of property, equipment and other assets.......... $12.4
Accrued restructuring expense, principally exit costs for
future lease terminations and employee severance.......... 13.4
One-time indirect costs incurred in connection with the PFS
acquisition, principally bridge financing fees and costs
to implement the Accounts Receivable Program (Note 7)..... 13.6
Costs incurred in integrating acquisitions, and other
unusual items............................................. 13.0
-----
$52.4
=====
</TABLE>
The noncash impairment charge and the accrued restructuring expense reflect
actions to be taken with respect to the Company's existing facilities as a
result of the PFS acquisition. During the third quarter of 1997, management
performed an extensive review of the existing and recently acquired PFS
operations with the objective of developing a business plan for the
restructuring and consolidation of the organizations. The business plan, which
was approved by the Company's Board of Directors late in the third quarter,
identified a number of actions designed to improve the efficiency and
effectiveness of the combined entity's warehouse and transportation network and
operations support infrastructure.
These actions, which are expected to be completed by mid-1999, include
construction of new strategically located warehouse facilities, closures of
certain existing warehouse facilities and expansions of others, dispositions of
property and equipment, conversion of computer systems, reductions in workforce
and relocation of the Company's headquarters from Brookfield, Wisconsin to
Dallas, Texas.
There were no material charges against the restructuring accrual as of
December 27, 1997.
The costs incurred in fiscal 1997 in integrating the AmeriServ and PFS
acquisitions included start-up costs of new warehouse facilities and employee
relocation and other expenses to realign the operations support infrastructure.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Land............................................... $ 2,584 $ 1,479
Buildings and improvements......................... 33,477 10,036
Delivery and automotive equipment.................. 86,879 15,929
Warehouse equipment................................ 11,359 4,617
Furniture, fixtures and equipment.................. 17,393 11,842
Construction in progress........................... 5,538 2,412
-------- -------
157,230 46,315
Less accumulated depreciation and amortization..... 26,374 12,478
-------- -------
$130,856 $33,837
======== =======
</TABLE>
F-11
<PAGE> 37
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Goodwill, less accumulated amortization of $15,849
and $5,332....................................... $661,570 $100,201
Assembled workforce, customer lists, deferred
financing costs and other intangibles, less
accumulated amortization of $9,861 and $8,370.... 76,300 22,250
-------- --------
$737,870 $122,451
======== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
8 7/8% Senior Notes due 2006....................... $350,000 $ --
10 1/8% Senior Subordinated Notes due 2007......... 500,000 --
Revolving credit facility under Credit Agreement... -- 69,100
Term loans under Credit Agreement.................. -- 45,000
Other notes payable................................ -- 6,034
-------- --------
850,000 120,134
Capital lease obligations (see Note 13)............ 29,238 9,771
-------- --------
879,238 129,905
Less current portion (capital lease obligations
only in 1997).................................... 5,019 3,266
-------- --------
$874,219 $126,639
======== ========
</TABLE>
The weighted average interest rate on the amounts outstanding under Credit
Agreement at December 28, 1996 was 7.99%.
In January 1996, in connection with the AmeriServ acquisition (see Note 2),
the Company refinanced its borrowings under a new Credit Agreement. The credit
facility provided for term loans of $45 million (amended to $50 million in March
1997) and up to $85 million under a revolving credit facility (amended to $100
million in March 1997). Interest rates on these borrowings were indexed to
certain key variable rates.
In connection with the PFS acquisition, on July 11, 1997, the Company
issued $500 million principal amount of 10 1/8% Senior Subordinated Notes due
July 15, 2007 in a private placement not requiring registration under the
Securities Act of 1933, as amended, and entered into a new credit facility
providing for term loans totaling $205 million and a revolving credit facility
of up to $150 million that expires on June 30, 2003. A portion of the proceeds
was used to repay all outstanding borrowings of $133.8 million (including
accrued interest) under the previous Credit Agreement. On October 15, 1997, the
Company issued $350 million principal amount of 8 7/8% Senior Notes due October
15, 2006 in a private placement not requiring registration under the Securities
Act of 1933, as amended, and used a portion of the proceeds to repay the $205
million principal amount of term loans and the accrued interest thereon of $1.3
million.
In connection with the early extinguishment of debt on July 11 and October
15, 1997, the Company recorded an extraordinary loss of $9.4 million, which
represents the unamortized balance of deferred financing costs associated with
the repaid indebtedness. Because of the Company's net operating loss
carryforward position, the charge was recorded without tax benefit.
F-12
<PAGE> 38
Effective December 12, 1997, the Company completed offers to exchange all
the outstanding Senior Subordinated Notes due 2007 and the Senior Notes due 2006
with new notes with substantially identical terms that are registered under the
Securities Act of 1933, as amended.
Interest on the Senior Subordinated Notes and the Senior Notes
(collectively, the Notes) is payable semiannually. The Notes are fully,
unconditionally, jointly and severally guaranteed by the Company's operating
subsidiaries. The Notes contain covenants that limit the Company from incurring
additional indebtedness and issuing preferred stock, restrict dividend payments,
limit transactions with affiliates and certain other transactions. The Senior
Subordinated Notes are subordinated to all existing and future senior
indebtedness of the Company but rank equally in right of payment with any future
senior subordinated indebtedness of the Company.
As of March 15, 1998, there have been no borrowings under the $150 million
revolving credit facility; however, available borrowings are reduced for letters
of credit outstanding ($13.5 million at that date). A commitment fee of .25% to
.50% per annum is payable on the unused portion of the revolving credit
facility. The covenants contained in the revolving credit facility restrict the
payment of dividends, capital expenditures and certain other transactions and
require the Company to maintain leverage, fixed charge and interest coverage
ratios.
In early 1996, the Company entered into interest rate swap agreements to
modify interest on a portion of the outstanding borrowings under the Credit
Agreement. Under these agreements, the Company received variable rates and paid
fixed rates. Details of these swap agreements at December 27, 1997 and December
28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Notional amount.................................... $60 million $60 million
Weighted average receive rate...................... 5.80% 5.63%
Weighted average pay rate.......................... 5.52% 5.52%
</TABLE>
The swap agreements were terminated in February 1998 with a net
insignificant gain.
7. ACCOUNTS RECEIVABLE PROGRAM
In July 1997, the Company entered into a five-year Accounts Receivable
Program (the Program)to provide additional financing capacity. Under the
Program, the Company established a consolidated wholly owned subsidiary,
AmeriServe Funding Corporation (Funding), which is a special purpose
bankruptcy-remote entity that acquires, on a daily basis, substantially all of
the trade receivables generated by the Company and its subsidiaries. The
purchases by Funding are financed through the sale of the receivables to
AmeriServe Master Trust (the Trust) and the issuance of a series of certificates
by the Trust representing undivided interests in the assets of the Trust. As of
December 27, 1997, the Company had transferred $379.4 million of accounts
receivable to Funding in exchange for $225 million in cash, and an undivided
interest in the Trust of $154.4 million.
In accordance with the provisions of Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
the transactions have been recorded as a sale of receivables to a qualified
special purpose entity. The ongoing cost associated with the Program, which
represents the return to investors in the certificates, is reported in the
accompanying consolidated statements of operations as "Loss on sale of accounts
receivable." The interest rate on the certificates at December 27, 1997 was
6.94%. The Company has accounted for its investment in Funding as a
held-to-maturity security in accordance with Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
In a transaction expected to be completed in April 1998, the current series
of certificates issued by the Trust will be restructured, resulting in
additional capital to the Company under the program of approximately $50
million.
F-13
<PAGE> 39
The accompanying consolidated balance sheets reflect an allowance for
doubtful accounts at December 27, 1997 that relates, in large part, to the
accounts receivable representing the undivided interest in the Trust. The
Company's accounts receivable generally are unsecured.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivable, investment in
accounts receivable trust, accounts payable and accrued liabilities approximate
fair value because of their short-term maturities. The carrying amounts reported
for long-term debt at December 28, 1996 approximate fair value because the
instruments carry variable rates of interest. The carrying amounts and fair
values of long-term debt at December 27, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
8 7/8% Senior Notes.................................... $350,000 $350,000
10 1/8% Senior Subordinated Notes...................... 500,000 515,000
</TABLE>
Related party financial instruments are recorded at cost.
9. GUARANTOR SUBSIDIARIES
The Company's operating subsidiaries fully, unconditionally, jointly and
severally guarantee the Senior Subordinated Notes and the Senior Notes discussed
in Note 6.
The guarantor subsidiaries are direct or indirect 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 7).
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 the Trust are similarly junior to the claims of
holders of the certificates issued by the Trust.
On the first day of fiscal 1998, two of the Company's operating
subsidiaries, AmeriServ and Post, were effectively merged with and into the
Company. Accordingly, the following summarized combined financial information
(in accordance with Rule 1-02(bb) of Regulation S-X) at December 27, 1997 and
for the year then ended is for the guarantor subsidiaries of the Company
remaining after the mergers (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 7,901
Current liabilities......................................... 5,666
Noncurrent assets........................................... 52,085
Noncurrent liabilities...................................... 13,530
Net sales................................................... $135,640
Operating income............................................ 1,288
Net income.................................................. 1,027
</TABLE>
F-14
<PAGE> 40
10. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................. $ 515 $1,104 $437
State............................... 299 196 98
Foreign............................. 95 -- --
------ ------ ----
909 1,300 535
Deferred (foreign in 1997).......... 121 -- 48
------ ------ ----
$1,030 $1,300 $583
====== ====== ====
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory rate of 34% to income (loss) before income taxes and
extraordinary loss, as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Provision (benefit) at statutory
rate................................ $(21,699) $1,298 $370
State income taxes, net of federal tax
benefit............................. 197 130 66
Foreign income taxes, net of federal
tax benefit......................... 143 -- --
Nondeductible goodwill................ 891 758 167
Equity in earnings of unconsolidated
subsidiary.......................... -- (644) --
Increase in valuation allowance....... 20,250 -- --
Other................................. 1,248 (242) (20)
-------- ------ ----
Provision for income taxes............ $ 1,030 $1,300 $583
======== ====== ====
</TABLE>
The components of the Company's deferred income tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Deferred income tax liabilities:
Intangible assets other than nondeductible
goodwill...................................... $43,980 $ 7,974
Deferred income tax assets:
Allowances and reserves.......................... 14,658 3,155
Property and equipment........................... 4,758 1,701
Accrued liabilities.............................. 33,026 9,045
Federal net operating loss carryforwards......... 34,954 10,566
------- -------
87,396 24,467
Valuation allowance for deferred tax assets...... (43,416) (16,493)
------- -------
Total deferred tax assets................ 43,980 7,974
------- -------
Net deferred tax asset............................. $ -- $ --
======= =======
</TABLE>
As of December 27, 1997, and, giving effect to the merger into the Company
of Post and AmeriServ, the Company has net operating loss carryforwards of
approximately $90 million. The Company has not yet determined whether it
incurred a change in control on July 11, 1997 under Section 382 of the Internal
F-15
<PAGE> 41
Revenue Code. Under that Section, after a change of control, the amount of such
net operating loss carryforwards that may be used annually during the permitted
carryforward period is limited.
The net operating loss carryforwards will expire between 2006 and 2012.
Because of uncertainty as to whether any benefit will be realized from the use
of such losses and other deferred tax assets, a valuation reserve has been
provided to offset any deferred tax assets in excess of deferred tax
liabilities. As of the date of its acquisition by the Company, AmeriServ had net
operating losses and other deferred tax benefits (the Acquired Tax Attributes)
of $49 million that were entirely offset by a valuation reserve. Goodwill will
be reduced to the extent of any tax benefit realized from the Acquired Tax
Attributes.
11. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have sponsored 401(k) retirement savings
plans covering substantially all employees. The Company has matched the
contributions of participating employees in accordance with the provisions of
the plans. In August 1997, the various plans were merged into a single plan that
was enhanced as of January 1, 1998.
Under the enhanced plan, eligible employees may contribute up to 18% of
eligible compensation, subject to limits imposed by law. The Company matches 50%
of the first 4% of compensation contributed by employees and 25% of additional
amounts contributed up to 6%. The Company will make additional contributions for
eligible employees of 0.8% to 2.0% of eligible compensation, depending on years
of service. Company contributions have certain vesting schedules, with all such
contributions vesting after 5 years of service. The Company may also elect to
make a discretionary contribution that would be allocated to employees based on
a predetermined formula.
Company contributions expensed under the plans approximated $961,000,
$515,000 and $109,000 in fiscal 1997, 1996 and 1995, respectively.
12. RELATED-PARTY TRANSACTIONS
With respect to related party assets and liabilities presented in the
accompanying consolidated balance sheets, the current amounts due from/to
affiliate represent interest-bearing advances to Holberg which are made in the
normal course of business as part of the cash management strategy of Holberg;
the note receivable from Holberg bears interest at 5% and is due January 1,
2007.
In 1997, distribution, selling and administrative expenses include
$4,000,000 in management fees to Holberg.
Prior to 1996, the Company participated in a self-insured casualty
(including workers' compensation and auto liability) and group health risk
program with an affiliate of Holberg, which determined the insurance expense to
be allocated to the Company. In fiscal 1995, the affiliate paid $1,128,000 of
casualty insurance and $378,000 of health insurance expenses of the Company.
These payments have been charged to operations and are reflected as contributed
capital in the accompanying consolidated financial statements. In connection
with the insurance program, the Company has deposits with an affiliate for
insurance collateral purposes of $4,835,000 and $2,480,000 at December 27, 1997
and December 28, 1996, respectively. These amounts are included in prepaid
expenses and other current assets in the accompanying consolidated balance
sheets.
Interest income from Holberg and an affiliate of approximately $632,000,
$528,000 and $749,000 in fiscal 1997, 1996 and 1995, respectively, represents
interest on the advances and note receivable from Holberg and interest on the
insurance deposits with an affiliate, less debt guarantee fees to Holberg of
$180,000 in 1995.
In 1995, the Company entered into an agreement to lease a warehouse and
office facility in Omaha, Nebraska from an affiliate of NEHC for a fixed term of
13 years. Annual rent is $500,000 for the first 5-year period of the lease, and
includes fixed escalation provisions for the 8 years thereafter. In connection
with the lease, the Company paid the affiliate a security deposit of $750,000,
which is included in other noncurrent assets in the accompanying consolidated
balance sheets.
F-16
<PAGE> 42
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company for approximately $810,000 per year through May 31, 2008.
13. LEASE COMMITMENTS
The Company has noncancelable commitments under both capital and long-term
operating leases, primarily for office and warehouse facilities and
transportation and office equipment. Many leases provide for rent escalations,
purchase and renewal options, contingent rentals based on miles driven and
payment of executory costs by the Company. Rent expense was approximately
$17,140,000, $13,757,000 and $5,709,000 (including contingent rentals) in fiscal
1997, 1996 and 1995, respectively.
Property and equipment include the following amounts under capital leases
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Delivery and automotive equipment.................. $28,778 $ 8,358
Warehouse equipment................................ 2,227 --
Furniture, fixtures and equipment.................. 3,312 3,487
------- -------
34,317 11,845
Less accumulated amortization...................... 5,767 1,741
------- -------
Property and equipment under capital leases, net... $28,550 $10,104
======= =======
</TABLE>
The following is a schedule of aggregate future minimum lease payments
(excluding contingent rentals) required under terms of the aforementioned leases
at December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
------------------ ------- ---------
<S> <C> <C>
1998.................................................... $ 8,173 $ 14,920
1999.................................................... 7,514 15,157
2000.................................................... 6,381 13,950
2001.................................................... 5,572 13,733
2002.................................................... 4,823 12,824
Thereafter.............................................. 8,222 77,610
------- --------
Total................................................... 40,685 $148,194
========
Less amount representing interest....................... 11,447
-------
Present value of net minimum lease commitments.......... $29,238
=======
</TABLE>
14. CONCENTRATION OF CREDIT RISK
On a pro forma basis, assuming the inclusion of PFS and Post for the full
year, Tricon accounted for approximately 40% of the Company's 1997 sales. No
other customer accounted for more than 10% of 1997 pro forma sales. Tricon is
the franchiser of, and through its subsidiaries operates restaurants within, the
Pizza Hut, Taco Bell and KFC systems. One customer, a franchiser, accounted for
approximately 11% of 1996 reported net sales.
In connection with the PFS acquisition, the Company was assigned and
assumed a sales and distribution agreement dated May 1997 between PFS and the
Pizza Hut, Taco Bell and KFC businesses. The agreement provides that the Company
is the exclusive distributor of a substantial majority of products purchased by
the domestic Tricon-owned restaurants for a five-year period beginning July 12,
1997, subject to certain service performance standards. The agreement also
covers restaurants sold to certain franchisees within the five-year period.
F-17
<PAGE> 43
Including sales to franchiser-owned and franchised restaurants, the
Company's sales to the following restaurant concepts as an approximate
percentage of total pro forma sales were (including PFS for all of 1997 and Post
for all of 1997 and 1996):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pizza Hut................................................... 28% --
Taco Bell................................................... 28% --
KFC......................................................... 13% 9%
Wendy's..................................................... 11% 35%
Burger King................................................. 5% 17%
</TABLE>
15. STOCKHOLDER'S EQUITY
At December 27, 1997, the authorized capital of the Company consisted of
2,000 shares of common stock at a par value of $10; 765 shares of senior
nonconvertible, nonvoting preferred stock with a liquidation preference of
$50,000 per share and cumulative dividends at a rate of $6,250 per share; 150
shares of Series $50,000 par value nonconvertible, nonvoting preferred stock
with a liquidation preference of $50,000 per share and cumulative dividends at a
rate of $5,500 per share; and 400 shares of Series $25,000 par value
nonconvertible, nonvoting preferred stock with a liquidation preference of
$25,000 per share and cumulative dividends at a rate of $2,375 per share.
On December 30, 1997, the authorized capital was modified to consist
entirely of 10,000 shares of common stock at a par value of $.01 (600 shares
outstanding) and 10,000 shares of preferred stock at a par value of $.01.
16. SUBSEQUENT EVENT
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 the second
quarter of 1998. ProSource, which reported 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.
F-18
<PAGE> 44
AMERISERVE FOOD DISTRIBUTION, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACQUISITIONS AT END
OF YEAR EXPENSES ACCOUNTS BALANCE DEDUCTIONS(1) OF YEAR
---------- ---------- ---------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 30, 1995:
Deducted from asset accounts
Allowance for doubtful
accounts........................ $1,440 $ 134 $-- $ -- $ (404) $ 1,170
Year ended December 28, 1996:
Deducted from asset accounts
Allowance for doubtful
accounts........................ 1,170 1,075 -- 3,173 (522) 4,896
Year ended December 27, 1997:
Deducted from asset accounts
Allowance for doubtful
accounts........................ 4,896 2,019 -- 10,472 (1,821) 15,566
</TABLE>
- - ---------------
(1) Represents uncollectible accounts written off, net of recoveries.
F-19
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERISERVE FOOD DISTRIBUTION, INC.
(Registrant)
By /s/ JOHN V. HOLTEN
-----------------------------------
John V. Holten
Chairman and Chief Executive
Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN V. HOLTEN Chairman, Director and Chief March 27, 1998
- - ----------------------------------------------------- Executive Officer
John V. Holten
/s/ DIANA M. MOOG Senior Vice President and March 27, 1998
- - ----------------------------------------------------- Chief Financial Officer
Diana M. Moog
/s/ STANLEY J. SZLAUDERBACH Vice President and Controller March 27, 1998
- - -----------------------------------------------------
Stanley J. Szlauderbach
/s/ JOHN R. EVANS Director March 27, 1998
- - -----------------------------------------------------
John R. Evans
/s/ RAYMOND E. MARSHALL Director March 27, 1998
- - -----------------------------------------------------
Raymond E. Marshall
/s/ GUNNAR E. KLINTBERG Director March 27, 1998
- - -----------------------------------------------------
Gunnar E. Klintberg
/s/ LEIF F. ONARHEIM Director March 27, 1998
- - -----------------------------------------------------
Leif F. Onarheim
/s/ PETER T. GRAUER Director March 27, 1998
- - -----------------------------------------------------
Peter T. Grauer
/s/ BENOiT JAMAR Director March 27, 1998
- - -----------------------------------------------------
Benoit Jamar
/s/ DANIEL W. CRIPPEN Director March 27, 1998
- - -----------------------------------------------------
Daniel W. Crippen
</TABLE>
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
<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 Form S-4 No.
333-33225 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 Amended and Restated Certificate of Incorporation of
AmeriServe Food Distribution, Inc. (formerly AmeriServ Food
Company, successor to AmeriServe Food Distribution, Inc.).*
3.2 Amended and Restated Bylaws of AmeriServe Food Distribution,
Inc. (formerly AmeriServ Food Company, successor to
AmeriServe Food Distribution, Inc.) (incorporated by
reference to Exhibit 3.2 to the Registrant's Current Report
on Form 8-K, dated December 28, 1997).
3.3 Articles of Incorporation of AmeriServe Transportation, Inc.
(incorporated by reference to Exhibit 3.5 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.4 By-Laws of AmeriServe Transportation, Inc. (incorporated by
reference to Exhibit 3.6 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
3.5 Articles of Incorporation of Chicago Consolidated
Corporation (incorporated by reference to Exhibit 3.7 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.6 By-Laws of Chicago Consolidated Corporation (incorporated by
reference to Exhibit 3.8 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
3.7 Articles of Incorporation of Northland Transportation
Services, Inc. (incorporated by reference to Exhibit 3.9 to
the Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.8 By-Laws of Northland Transportation Services, Inc.
(incorporated by reference to Exhibit 3.10 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.9 Articles of Incorporation of Delta Transportation, Ltd.
(incorporated by reference to Exhibit 3.13 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
3.10 By-Laws of Delta Transportation, Ltd. (incorporated by
reference to Exhibit 3.14 to the Registrant's Registration
Statement on Form S-4 No. 333-33225 filed August 8, 1997).
4.1 Indenture, dated as of October 15, 1997, by and among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, with respect to the Senior Notes
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
4.2 Supplemental 8 7/8% New Senior Notes Indenture, dated as of
December 23, 1997, by and among AmeriServe Food
Distribution, Inc., AmeriServ Food Company, and State Street
Bank and Trust Company, as Trustee (incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report
on Form 8-K, dated December 28, 1997).
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
<S> <C>
4.3 Indenture, dated as of July 11, 1997, by and among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, with respect to the New Senior Subordinated
Notes (incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
4.4 Supplemental 10 1/8% New Senior Subordinated Notes
Indenture, dated as of December 23, 1997, by and among
AmeriServe Food Distribution, Inc., AmeriServ Food Company,
and State Street Bank and Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K, dated December 28,
1997).
4.5 Purchase Agreement, by and among the Registrant, the
Subsidiary Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Securities dated as
of July 9, 1997 (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement Form S-4 No.
333-33225 filed August 8, 1997).
4.6 Purchase Agreement, by and among the Registrant, the
Subsidiary Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Robertson Stephens
dated as of October 8, 1997 (incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on
Form S-4 No. 333-38337 filed October 21, 1997).
10.1 Registration Rights Agreement, dated as of July 11, 1997, by
and among the Registrant, the Subsidiary Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
10.2 Registration Rights Agreement, dated as of October 15, 1997,
by and among the Registrant, the Subsidiary Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-4 No.
333-38337 filed October 21, 1997).
10.3 Second Amended and Restated Credit Agreement, dated as of
July 11, 1997 among the Registrant, Bank of America National
Trust and Savings Association, as Administrative Agent,
Donaldson, Lufkin & Jenrette Securities Corporation, as
Documentation Agent, Bank of America National Trust and
Savings Association as Letter of Credit Issuing Lender, the
Other Financial Institutions Party thereto and BancAmerica
Securities, Inc. as Arranger (incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on
Form S-4 No. 333-33225 filed August 8, 1997).
10.4 First Amendment to Second Amended and Restated Credit
Agreement, dated as of October 7, 1997.*
10.5 Second Amendment to Second Amended and Restated Credit
Agreement, dated as of December 22, 1997 (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report
on Form 8-K, dated December 28, 1997).
10.6 Employment Agreement, dated as of December 23, 1986 between
the Company and Raymond E. Marshall, as amended by Amendment
to Employment Agreement, dated as of January 1, 1995
(incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-4 No.
333-33225 filed August 8, 1997).
10.7 Sales and Distribution Agreement dated as of May 6, 1997, by
and among PFS, Pizza Hut, Taco Bell, Kentucky Fried Chicken
Corporation and Kentucky Fried Chicken of California, Inc.
(the "Distribution Agreement") (incorporated by reference to
Exhibit 10.5 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 No. 333-33225 filed
October 21, 1997).
10.8 Amendment, dated as of May 29, 1997, to the Distribution
Agreement.*
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- - ------- -------
<S> <C>
21 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.*
</TABLE>
- - ---------------
* Filed herewith.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
AMERISERVE FOOD DISTRIBUTION, INC.
PREAMBLE
AmeriServe Food Distribution, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), was originally incorporated under the DGCL on August 21, 1989 under the
name Cypress Food Company. This Amended and Restated Certificate of
Incorporation has been duly adopted in accordance with Sections 242 and 245 of
the DGCL.
ARTICLE I
The name of the Corporation is:
AMERISERVE FOOD DISTRIBUTION, INC.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
DGCL.
ARTICLE IV
Section 1. Authorized Stock. The Corporation shall be authorized to issue
(a) 10,000 shares of common stock, $0.01 par value per share ("Common Stock")
and (b) 10,000 shares of preferred stock ("Preferred Stock"), $0.01 par value
per share.
Section 2. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series. The Board (as defined below) is authorized
to fix the voting rights, if any, designations, powers, preferences and the
relative, participation, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, of any unissued series of
Preferred Stock; and to fix the number of shares constituting such series, and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding).
<PAGE> 2
Section 3. Voting Rights. Except as otherwise provided herein, by law or by
the resolution or resolutions adopted by the Board designating the rights,
powers and preferences of any series of Preferred Stock, the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE V
Unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors of the Corporation (the "Board") is expressly authorized and
empowered to make, alter and repeal the Bylaws of the Corporation by a majority
vote at any regular or special meeting of the Board or by written consent,
subject to the power of the stockholders of the Corporation to alter or repeal
any Bylaws made by the Board.
ARTICLE VII
The Corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, and any other provisions authorized by
the laws of the State of Delaware at the time in force may be added or inserted,
in the manner now or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article.
ARTICLE VIII
Section 1. Elimination of Certain Liability of Directors. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
-2-
<PAGE> 3
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a limited
liability company, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement Income Security
Act of 1974) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (2) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of the Board, provide indemnification
to employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (1) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the Corporation to indemnify the
-3-
<PAGE> 4
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed by a duly authorized officer this 23d day of December, 1997.
AMERISERVE FOOD DISTRIBUTION, INC.
By: /s/ Raymond E. Marshall
-------------------------------------
Name: Raymond E. Marshall
Title: President
-5-
<PAGE> 1
Exhibit 10.4
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of October 7, 1997 (this "Amendment"), amends the Second Amended and Restated
Credit Agreement, dated as of July 11, 1997 (the "Credit Agreement"), among
AMERISERVE FOOD DISTRIBUTION, INC., a Nebraska corporation (the "Company"), the
various financial institutions parties thereto (collectively, the "Lenders"),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as letter of credit
issuing lender, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
administrative agent (the "Administrative Agent") and DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, as documentation agent (together with the
Administrative Agent, the "Agents"). Terms defined in the Credit Agreement are,
unless otherwise defined herein or the context otherwise requires, used herein
as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement, which
provides for the Lenders to extend certain credit facilities to the Company from
time to time; and
WHEREAS, the Company proposes to issue certain senior unsecured notes and
to apply a portion of the proceeds thereof to repay the Term Loans; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective as of October 14, 1997, the Credit
Agreement shall be amended in accordance with Sections 1.1 through 1.5 below.
SECTION 1.1 Definitions. Section 1.1 of the Credit Agreement is hereby
amended by inserting in proper alphabetical order the following definitions:
"First Amendment Effective Date" means the date on or before October
31, 1997 on which the First Amendment hereto shall become effective.
"Senior Unsecured Notes means the up to $375,000,000 senior unsecured
notes dated on or about October 14, 1997 due 2007, in the form described in
the draft Offering Memorandum, a true and correct copy of which has been
delivered to the Administrative Agent."
<PAGE> 2
SECTION 1.2 Commitment Reduction. The last sentence of Section 2.7(c) of
the Credit Agreement is hereby amended to state in its entirety as follows:
"Once all of the Term Loans have been paid in full, any prepayment
pursuant to this Section 2.7 shall be applied to the Revolving Loans; and
the Revolving Loan Commitments shall be correspondingly reduced, except
that no reduction of the Revolving Loan Commitments shall result from the
issuance of the Senior Unsecured Notes."
SECTION 1.3 Indebtedness. Section 9.5 of the Credit Agreement is hereby
amended by adding the following at the end:
"(m) Senior Unsecured Notes in a principal amount not in excess of
$375,000,000."
SECTION 1.4 Contingent Obligations. Section 9.8 of the Credit Agreement is
hereby amended by adding the following immediately before the period at the end
of clause (f) thereof: "and the Senior Unsecured Notes."
SECTION 1.5 Negative Pledges, Restrictive Amendments, etc. Section 9.17 is
hereby amended by inserting the following immediately after the words "Closing
Date" in the first parenthetical contained therein: "or permitted by clause (m)
of Section 9.5 as in effect as of the First Amendment Effective Date."
SECTION 2 CONDITIONS PRECEDENT. This Amendment shall become effective when
each of the conditions precedent set forth in this Section 2 shall have been
satisfied, so long as such conditions shall be met before October 31, 1997, and
notice thereof shall have been given by the Administrative Agent to the Company
and the Lenders.
SECTION 2.1 Receipt of Documents. The Administrative Agent shall have
received all of the following documents duly executed, dated the date hereof or
such other date as shall be acceptable to the Administrative Agent, and in form
and substance satisfactory to the Administrative Agent:
(a) Amendment. This Amendment, duly executed by the Company, the
Agents and the Required Lenders.
(b) Consents. Copies, certified by the secretary or an assistant
secretary of the Company, of all documents evidencing any necessary
corporate action, consents and governmental approvals (if any) with respect
to this Amendment and the other documents described herein.
-2-
<PAGE> 3
(c) Secretary's Certificate. A certificate of the secretary or an
assistant secretary of the Company, as to (i) resolutions of the Board of
Directors of the Company then in full force and effect authorizing the
execution, delivery and performance of this Amendment and each other
document described herein, and (ii) the incumbency and signatures of those
officers of the Company authorized to act with respect to this Amendment
and each other document described herein.
(d) Guarantors Consents. The consents of the Guarantors in the form
attached hereto.
SECTION 2.2 Senior Unsecured Notes. The Company shall have issued the
Senior Unsecured Notes and repaid the Term Loans in full with the proceeds
thereof.
SECTION 2.3 Compliance with Warranties, No Default, etc. Both before and
after giving effect to the effectiveness of this Amendment, the following
statements by the Company shall be true and correct (and the Company, by its
execution of this Amendment, hereby represents and warrants to the Agents and
each Lender that such statements are true and correct as at such times):
(a) the representations and warranties set forth in Article VII of the
Credit Agreement shall be true and correct with the same effect as if then
made (unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date); and
(b) no Default or Event of Default shall have then occurred and be
continuing, and neither the Company nor any Guarantor shall be in material
violation of any law or governmental regulation or court order or decree.
SECTION 2.4 Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by or on behalf of the Company or any Guarantor shall be
satisfactory in form and substance to the Administrative Agent and its counsel;
and the Administrative Agent and its counsel shall have received all
information, approvals, opinions, documents or instruments as the Administrative
Agent or its counsel may reasonably request.
SECTION 3 REPRESENTATIONS AND WARRANTIES. To induce the Lenders and the
Agents to enter into this Amendment, the Company represents and warrants to each
Agent and each Lender as follows:
SECTION 3.1 Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Company of this Amendment and the execution and
delivery by each Guarantor of its consent executed or to be executed by it in
connection with this Amendment, are within the Company's and each such
Guarantor's corporate powers, have been duly authorized by all necessary
corporate action, and do not
-3-
<PAGE> 4
(a) contravene the Company's or any such Guarantor's Organization
Documents;
(b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting the Company or
any such Guarantor; or
(c) result in, or require the creation or imposition of, any Lien on
any of the Company's or any Guarantor's properties.
SECTION 3.2 Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Company or any other Guarantor of this Amendment
or any consent to be executed by it in connection with this Amendment.
SECTION 3.3 Validity, etc. This Amendment constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its respective
terms; and each consent executed pursuant hereto by each other Guarantor will,
on the due execution and delivery thereof by such Guarantor, be the legal, valid
and binding obligation of such Guarantor enforceable in accordance with its
terms.
SECTION 4 MISCELLANEOUS.
SECTION 4.1 Continuing Effectiveness, etc. This Amendment shall be deemed
to be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, shall remain in full force and effect and is hereby ratified, approved
and confirmed in each and every respect. After the effectiveness of this
Amendment in accordance with its terms, all references to the Credit Agreement
in the Loan Documents or in any other document, instrument, agreement or writing
shall be deemed to refer to the Credit Agreement as amended hereby.
SECTION 4.2 Payment of Costs and Expenses. The Company agrees to pay on
demand all expenses of the Administrative Agent (including Attorney Costs) in
connection with the negotiation, preparation, execution and delivery of this
Amendment.
SECTION 4.3 Severability. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such provision and
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Amendment
or affecting the validity or enforceability of such provision in any other
jurisdiction.
-4-
<PAGE> 5
SECTION 4.4 Headings. The various headings of this Amendment are inserted
for convenience only and shall not affect the meaning or interpretation of this
Amendment or any provisions hereof.
SECTION 4.5 Execution in Counterparts. This Amendment may be executed by
the parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
agreement.
SECTION 4.6 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF ILLINOIS; PROVIDED THAT THE AGENTS, THE LENDERS AND THE COMPANY
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAWS.
SECTION 4.7 Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
AMERISERVE FOOD DISTRIBUTION, INC.
By: /s/
-------------------------------
Title: CFO
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By:
-------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Lender
By: /s/ William J. Stafeh
-------------------------------
Title: Vice President
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Documentation Agent
By: /s/ Harold Phillips
-------------------------------
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
By:
-------------------------------
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
By: /s/ Paul P. Malecki
-------------------------------
Title: Vice President
-6-
<PAGE> 7
BANK ONE, WISCONSIN
By: /s/ Eric L. Thomas
-------------------------------
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
By:
-------------------------------
Title:
THE DAI-ICHI KANGYO BANK, LIMITED
By:
-------------------------------
Title:
DEBT STRATEGIES FUND, INC.
By: /s/ Anthony R. Clemente
-------------------------------
Title: Authorized Signatory
DLJ CAPITAL FUNDING, INC.
By:
-------------------------------
Title:
FLEET NATIONAL BANK
By: /s/
-------------------------------
Title: Senior Vice President
THE FUJI BANK, LIMITED
By: /s/
-------------------------------
Title: Joint General Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By:
-------------------------------
Title:
-7-
<PAGE> 8
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ Anthony R. Clemente
-------------------------------
Title: Authorized Signatory
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/
-------------------------------
Title: Chief Manager
NATEXIS BANQUE (BFCE)
By:
-------------------------------
Title:
NATIONAL WESTMINSTER BANK PLC
By: /s/ Andrew S. Weinberg
-------------------------------
Title: Vice President
SOUTHERN PACIFIC THRIFT & LOAN
ASSOC.
By: /s/ Chris Kelleher
-------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED
By:
-------------------------------
Title:
TRANSAMERICA BUSINESS CREDIT CORP.
By: /s/
-------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
-------------------------------
Title:
-8-
<PAGE> 9
AGREEMENT AND CONSENT
The undersigned hereby agree and consent to the terms and provisions of the
foregoing First Amendment to Second Amended and Restated Credit Agreement, and
agree that the Loan Documents executed by the undersigned shall remain in full
force and effect notwithstanding the provisions of the foregoing First
Amendment.
Dated: October 14, 1997
NEBCO EVANS HOLDING COMPANY
By: /s/
-------------------------------
Title: Chief Financial Officer
NORTHLAND TRANSPORTATION SERVICES,
INC.
By: /s/
-------------------------------
Title: Chief Financial Officer
AMERISERV FOOD COMPANY
By: /s/
-------------------------------
Title: Chief Financial Officer
DELTA TRANSPORTATION, LTD.
By: /s/
-------------------------------
Title: Chief Financial Officer
CHICAGO CONSOLIDATED CORPORATION
By: /s/
-------------------------------
Title: Chief Financial Officer
AMERISERVE TRANSPORTATION, INC.
By: /s/
-------------------------------
Title: Chief Financial Officer
-9-
<PAGE> 10
AMERISERVE FUNDING CORPORATION
By: /s/
-------------------------------
Title: President
-10-
<PAGE> 1
Exhibit 10.8
AMENDMENT AGREEMENT
Amendment Agreement dated as of May 29, 1997 among PFS, an unincorporated
division of PepsiCo, Inc., a North Carolina corporation, Pizza Hut, Inc., a
Delaware corporation, Taco Bell Corp., a California corporation, Kentucky Fried
Chicken Corporation, a Delaware corporation, and Kentucky Fried Chicken of
California, Inc., a Delaware corporation.
WHEREAS, the parties hereto are parties to the Sales and Distribution
Agreement dated as of May 6, 1997 (the "Distribution Agreement") pursuant to
which PFS has been appointed as the exclusive distributor of certain food,
supplies and smallwares sold to company owned Pizza Hut, Taco Bell and KFC
Restaurants in the continental United States; and
WHEREAS, the parties hereto desire to amend the Distribution Agreement on
the terms set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
(1) Section 9 of the Distribution Agreement is hereby amended by adding
the following sentence to the end of such Section:
"Notwithstanding anything to the contrary herein, the termination of this
Agreement at the expiration of such term or otherwise shall not operate to
terminate the appointment of PFS as an approved distributor of the Restaurant
Products sold to all Pizza Hut, Taco Bell and KFC restaurants pursuant to
Section 1 hereof."
(2) Other than as specifically set forth herein, the Distribution
Agreement shall remain in full force and effect, without amendment, modification
or waiver.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
PFS, a division of PepsiCo, Inc.
By: /s/ Indra K. Nooji
----------------------------
Pizza Hut, Inc.
By: /s/ David Novak
----------------------------
David Novak
President, Chief Executive Officer
<PAGE> 2
Taco Bell Corp.
By: /s/ John Antioco
----------------------------------
John Antioco
President, Chief Executive Officer
Kentucky Fried Chicken Corporation
By: /s/ David Novak
----------------------------------
David Novak
President, Chief Executive Officer
Kentucky Fried Chicken of California, Inc.
By: /s/ David Novak
----------------------------------
David Novak
President, Chief Executive Officer
- 2 -
<PAGE> 1
Exhibit 21
Subsidiaries of AmeriServe Food Distribution, Inc.
Jurisdiction of
Name of Entity Organization
-------------- ----------------
AmeriServe of Canada Ltd. Ontario
AmeriServe Funding Corporation Delaware
AmeriServe Transportation, Inc. Nebraska
Chicago Consolidated Corporation Illinois
Delta Transportation, Ltd. Wisconsin
Northland Transportation Services, Ltd. Nebraska
PFS de Mexico, S.A. de C.V. Mexico
Servicios AmeriServe S.A. de C.V. Mexico
Steamboat Acquisition Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERISERVE FOOD DISTRIBUTION, INC. FOR THE
YEAR ENDED DECEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 231,131
<SECURITIES> 0
<RECEIVABLES> 43,625
<ALLOWANCES> 15,566
<INVENTORY> 150,148
<CURRENT-ASSETS> 587,477
<PP&E> 157,230
<DEPRECIATION> 26,374
<TOTAL-ASSETS> 1,462,321
<CURRENT-LIABILITIES> 451,617
<BONDS> 874,219
0
0
<COMMON> 6
<OTHER-SE> 174,603
<TOTAL-LIABILITY-AND-EQUITY> 1,462,321
<SALES> 3,446,191
<TOTAL-REVENUES> 3,446,191
<CGS> 3,104,012
<TOTAL-COSTS> 3,104,012
<OTHER-EXPENSES> 359,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,805
<INCOME-PRETAX> (63,820)
<INCOME-TAX> 1,030
<INCOME-CONTINUING> (64,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 9,373
<CHANGES> 0
<NET-INCOME> (74,223)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
