SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1996
Commission File No.: 0-22192
PERFROMANCE FOOD GROUP COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Tennesse 54-0402940
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation Or Origanization)
6800 Paragon Place, Suite 500
Richmond, Virginia 23230
(Address Of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number,
Including Area Code (804) 285-7340
Indicate by check mark whether the Rigistrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes _________ No
As of July 31, 1996, 11,629,467 shares of the Registrant's Common Stock were
outstanding.
<PAGE>
INDEPENDENT AUDITOR'S REVIEW REPORT
The Board of Directors and Shareholders
Performance Food Group Company
We have reviewed the accompanying condensed consolidated balance sheet of
Performance Food Group Company and subsidiaries as of June 29, 1996, and the
related condensed consolidated statements of earnings for the three-month and
six-month periods ended June 29, 1996 and July 1, 1995, and the condensed
consolidated statements of cash flows for the six-month periods ended June 29,
1996 and July 1, 1995. These condensed consolidated financial statements are
the responsibility of the Company's mangement.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modificiations that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting priciples.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Performance Food Group Company
and subsidiaries as of December 30, 1995, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated February 7, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 30, 1995 is fairly stated, in all
material respects, in relation to the consoildated balance sheet from which
it has been derived.
KPMG PEAT MARWICK LLP
Richmond, Virginia
July 26, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 29, December 30,
1996 1995
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash $ 3,871 $ 4,235
Trade accounts and notes receivable, net 44,638 44,264
Inventories 38,627 37,844
Other current assets 3,340 3,184
Total current assets 90,476 89,527
Property, plant and equipment, net 55,187 51,640
Intangible assets, net 12,914 13,213
Other assets 838 754
Total assets $ 159,415 $ 155,134
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of deposits $ 9,130 $ 13,791
Current installments of long-term debt 665 3,210
Accounts payable 35,563 31,943
Other current liabilities 11,903 10,284
Total current liabilities 57,261 59,228
Long-term debt, excluding current installments 3,960 31,766
Note payable to bank 352 5,243
Deferred income taxes 3,106 3,106
Total liabilities 64,679 99,343
Shareholders' equity 94,736 55,791
Total liabilities and shareholders'equity $ 159,415 $ 155,134
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 192,451 $169,989 $ 365,510 $ 321,761
Cost of goods sold 165,524 145,449 313,496 274,874
Gross profit 26,927 24,540 52,014 46,887
Operating expenses 21,669 20,182 43,626 39,682
Operating profit 5,258 4,358 8,388 7,205
Other (income) expense:
Interest expense 90 715 434 1,453
Other, net (24) 70 (67) 90
Other expense, net 66 785 367 1,543
Earnings before income taxes 5,192 3,573 8,021 5,662
Income tax expense 2,053 1,398 3,170 2,213
Net earnings $ 3,139 $ 2,175 $ 4,851 $ 3,449
Net earnings per common share $ 0.26 $ 0.23 $ 0.43 $ 0.36
Weighted average common shares and
common share equivalents outstanding 12,184 9,652 11,295 9,595
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
June 29, July 1,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,851 $ 3,449
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 2,699 2,724
ESOP contributions applied to
principal of ESOP debt 200 178
Gain on disposal of property,
plant and equipment (48) (55)
Changes in operating assets and liabilities,
net of effects of companies purchased: 3,926 1,284
Net cash provided by operating activities 11,628 7,580
Cash flows from investing activities, net of
effects of companies purchased:
Purchases of property, plant and equipment (6,012) (5,345)
Proceeds from sale of property, plant and
equipment 113 282
Net cash paid for acquisitions - (22,378)
Increase in intangibles and other assets (84) (164)
Net cash used by investing activities (5,983) (27,605)
Cash flows from financing activities:
Decrease in outstanding checks in excess
of deposits (4,661) (495)
Net payments on note payable to bank (4,891) (1,812)
Principal payments on long-term debt (30,351) (418)
Proceeds from issuance of long-term debt - 22,715
Net proceeds from sale of common stock 33,329 -
Proceeds from stock option, incentive and
employee stock purchase plans 565 225
Net cash provided (used) by financing activities (6,009) 20,215
Net increase (decrease) in cash (364) 190
Cash at beginning of period 4,235 1,638
Cash at end of period $ 3,871 $ 1,828
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 29, 1996 and July 1, 1995
1. Basis of Presentation
The accompanying condensed consolidated financial statements of
Performance Food Group Company and subsidiaries (the "Company") are unaudited,
with the exception of the December 30, 1995 condensed consolidated balance
sheet, which was derived from the audited consolidated balance sheet in the
Company's latest annual report on Form 10-K. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Rule 10-01 of Regulation
S-X. Certain amounts in the prior year have been reclassified to conform to
the current year's presentation.
In the opinion of management, the unaudited condensed consolidated
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals, which are necessary for a fair
presentation of the financial position and the results of operations for the
interim periods presented. The results of operations for any interim period
are not necessarily indicative of results for the full year.
These unaudited condensed consolidated financial statements, note
disclosures and other information should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
2. Business Combinations
On January 3, 1995, the Company purchased all of the outstanding
capital stock of Milton's Foodservice, Inc. ("Milton's"), a Georgia
corporation. Milton's, a broadline distributor located in Oakwood, Georgia,
now operates as a wholly-owned subsidiary of the Company. Milton's had 1994
net sales of approximately $72.0 million. The aggregate consideration paid
by the Company for Milton's was $22.5 million in cash plus the assumption of
$7.3 million of indebtedness. On June 15, 1995, the Company acquired certain
assets of Cannon Foodservice, Inc. ("Cannon") for approximately $643,000.
Cannon, a broadline distributor located in Asheville, North Carolina, had
1994 net sales of approximately $9.0 million. The operations of Cannon have
been combined with the operations of Milton's and all operations are being
conducted through Milton's distribution facility in Oakwood, Georgia.
These acquisitions have been accounted for using the purchase method
and, accordingly, the acquired assets and liabilities have been recorded at
their fair values at the dates of acquisition. The excess of the purchase
price over the fair value of tangible net assets acquired related to these
acquisitions was approximately $13.1 million. The Company's intangible assets,
including goodwill, are being amortized on a straight-line basis ranging from
5 to 40 years.
3. Shareholders' Equity
In March 1996, the Company completed a secondary offering of 1,944,549
shares of common stock, of which the Company sold 1,503,637 shares with the
remaining shares sold by selling shareholders. Net proceeds of the offering to
the Company were approximately $33.3 million which were used to repay a $30.0
million term loan and approximately $3.3 million outstanding under the
Company's line of credit.
On June 13, 1996, the Company's Board of Director's declared a
three-for-two stock split to be effected in the form of a 50% stock dividend
payable on July 15, 1996 to shareholders of record on July 1, 1996. The split
resulted in the issuance of 3,874,807 shares of common stock in July 1996.
All references in these financial statements to net earnings per share and
weighted average shares have been restated to reflect the split.
4. Net Earnings per Common Share
Net earnings per common share are computed using the weighted average
number of common shares outstanding during each period, including common stock
equivalents, consisting of stock options, and calculated using the treasury
stock method, when dilutive.
5. Note Payable to Bank
Note payable to bank consists of the outstanding borrowings under a line
of credit. A total of $10.0 million was available and approximately $352,000
was outstanding under this line at June 29, 1996. Interest on the line of
credit adjusts periodically to adjusted LIBOR plus 85 basis points (6.31% at
June 29, 1996).
On July 8, 1996, the Company entered into a $50.0 million revolving
credit agreement (the "Credit Facility") with a commercial bank. The Credit
Facility bears interest at LIBOR plus a spread over LIBOR, which varies based
on the ratio of funded debt to total capital. The facility expires in July
1999. Additionally, the Credit Facility requires the maintenance of certain
financial ratios, as defined, regarding debt to tangible net worth, cash flow
coverage and current assets to current liabilities.
6. Supplemental Cash Flow Information
[CAPTION]
<TABLE>
Six Months Ended
June 29, July 1,
1996 1995
<S> <C> <C>
Cash paid during the period for:
Interest $ 580 $ 1,469
Income taxes $ 2,590 $ 2,091
Effects of purchase of companies:
Fair value of assets acquired,
inclusive of goodwill of $12,164 $ - $ 31,811
Liabilities assumed - (9,433)
Net cash paid for acquisitions $ - $ 22,378
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Performance Food Group Company and subsidiaries (the "Company") derives
its revenues primarily from the sale of food and food-related products through
its broadline distribution, customized distribution and pre-cut produce
operations. The Company also derives revenues from its private and branded
label procurement and merchandising business in which the Company acts as a
sales agent and receives commissions from manufacturers or suppliers for
products purchased by distributors. The principal components of expenses
include cost of goods sold, which represents the amount paid to manufacturers
and growers for products sold, operating expenses, which primarily include
labor-related expenses, delivery costs and occupancy expenses, and interest
expense.
Results of Operations
The following table sets forth, for the periods indicated, the
components of the consolidated statements of earnings expressed as a percentage
of net sales:
[CAPTION]
<TABLE>
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 86.0 85.6 85.8 85.4
Gross profit 14.0 14.4 14.2 14.6
Operating expenses 11.3 11.8 11.9 12.4
Operating profit 2.7 2.6 2.3 2.2
Other expense, net 0.0 0.5 0.1 0.4
Earnings before income taxes 2.7 2.1 2.2 1.8
Income tax expense 1.1 0.8 0.9 0.7
Net earnings 1.6 % 1.3 % 1.3 % 1.1 %
</TABLE>
Comparison of Periods Ended June 29, 1996 to July 1, 1995.
Net sales increased to $192.5 million for the three months ended June
29, 1996 (the "1996 quarter") from $170.0 million for the three months ended
July 1, 1995 (the "1995 quarter"). Net sales increased to $365.5 million for
the six months ended June 29, 1996 (the "1996 period") compared to $321.8
million for the six months ended July 1, 1995 (the "1995 period"). Net sales
for the 1996 period were negatively impacted by severe weather throughout the
Eastern and Midwestern United States experienced during February and March
1996. Additionally, net sales for the 1996 quarter and period vs. 1995
included approximately 4% and 2%, respectively, of deflation as lettuce
prices returned to more "normal" levels after the increase caused by flooding
in California during the second quarter of 1995. Despite the impacts of the
weather, net sales increased 13.2% for the 1996 quarter compared to the 1995
quarter and 13.6% for the 1996 period compared to a year earlier.
Substantially all of the increase in net sales during the 1996 quarter and
period was attributable to internal growth, primarily in the broadline and
customized distribution areas of the Company. Inflation, excluding the
effects of lettuce deflation discussed above, amounted to approximately 2.5%
for the 1996 quarter.
The Company has been informed that its customer, Cracker Barrel Old
Country Stores, Inc. ("Cracker Barrel") plans to solicit bids later this fall
for long term contracts related to the distribution of food service products
and gift shop merchandise to Cracker Barrel's restaurants. The Company has
been the primary supplier of these services to Cracker Barrel since 1975.
For the six months ended June 29, 1996, sales to Cracker Barrel accounted for
approximately 29% of the Company's consolidated net sales. The Company has
also been notified that it has been selected as the provider of customized
distribution services for two (2) new customers that are anticipated to account
for approximately $40 million in incremental annualized sales. The Company
expects that it will incur certain startup costs in the third or fourth quarter
of 1996 in connection with the establishment of these new relationships.
Gross profit increased 9.7% to $26.9 million in the 1996 quarter from
$24.5 million in the 1995 quarter. Gross profit increased 10.9% to $52.0
million for the 1996 period from $46.9 million in the 1995 period. Gross
profit margin decreased to 14.0% in the 1996 quarter compared to 14.4% in the
1995 quarter and decreased to 14.2% from 14.6% for the 1996 and 1995 periods,
respectively. The decline in gross profit margin was primarily due to
increased sales during 1996 in the Company's customized distribution
operations and, to a lesser degree, by costs associated with the
consolidation of two produce processing plants completed in the second
quarter of 1996. Customized distribution sales are generally higher-volume,
lower-margin sales, which require fewer, but larger deliveries than other
types of customers. Customized sales allow for a more efficient use of
trucks and personnel, and typically result in decreased operating expenses
as a percentage of sales which generally offsets the lower gross margins.
Gross margins during the 1995 period were also adversely impacted by the
inflated cost of lettuce. During the second quarter of 1995, California
experienced adverse weather conditions which created significant fluctuations
in the price and availability of lettuce and, as a result, lettuce prices
during April and May of 1995 inflated four to five times their "normal" cost
per pound. The Company was able to maintain a steady, consistent supply of
lettuce from California and was generally able to pass along the increased
cost to its customers. Although the Company was able to successfully pass
these higher costs on to its customers, the gross profit dollars per pound
remained relatively comparable to normal condition. Thus, although produce
processing sales increased significantly during the period, gross margins did
not increase proportionately.
Operating expenses increased 7.4% to $21.7 million in the 1996 quarter
compared with $20.2 million in the 1995 quarter and increased 9.9% to $43.6
million from $39.7 million for the 1996 and 1995 periods, respectively. As a
percentage of net sales, operating expenses declined to 11.3% in the 1996
quarter from 11.8% in the 1995 quarter and declined to 11.9% for the 1996
period from 12.4% for the 1995 period. The decrease in operating expenses
as a percent of sales reflects better use of the Company's facilities at the
increased level of sales. These improvements in utilization were offset in
part by increased costs related to the severe weather experienced in the East
and Midwest during the first quarter of 1996. In addition, the Company
completed construction of a 75,000 square foot customized distribution center
in McKinney, Texas (a suburb of Dallas) which became operational in February
1996. The Company incurred certain start-up expenses for the McKinney
facility during the 1996 period, which partially offset the improved operating
efficiencies gained in the Company's other operations. The expanded customized
distribution centers should give the Company the capacity to efficiently
service this rapidly growing segment of the business for the foreseeable future.
Operating profit increased 20.6% to $5.3 million in the 1996 quarter
from $4.4 million in the 1995 quarter. Additionally, operating profit
increased 16.4% to $8.4 million for the 1996 period from $7.2 million in the
1995 period. Operating profit margin increased to 2.7% and 2.3% for the 1996
quarter and period, respectively, compared with 2.6% and 2.2% for the 1995
quarter and period, respectively.
Other expense decreased to $66,000 in the 1996 quarter from $785,000 in
the 1995 quarter and to $367,000 in the 1996 period from $1.5 million in the
1995 period. Other expense includes interest expense, which decreased to
$90,000 in the 1996 quarter from $715,000 in the 1995 quarter. Interest expense
decreased to $434,000 for the 1996 period from $1.5 million for the 1995
period. The decrease in interest expense is due to reduced debt levels as a
result of the Company's secondary stock offering completed in March 1996.
Income tax expense increased to $2.1 million in the 1996 quarter from
$1.4 million in the 1995 quarter and increased to $3.2 million in the 1996
period from $2.2 million for the 1995 period, as a result of higher pre-tax
earnings. As a percentage of earnings before income taxes, the provision for
income taxes was 39.5% and 39.1% for the 1996 and 1995 quarters and periods,
respectively.
Net earnings increased 44.3% to $3.1 million in the 1996 quarter
compared to $2.2 million in the 1995 quarter. Net earnings increased 40.6% to
$4.9 million for the 1996 period from $3.4 million for the 1995 period. As a
percentage of sales, net earnings increased to 1.6% in the 1996 quarter versus
1.3% in the 1995 quarter and 1.3% in the 1996 period from 1.1% in the 1995
period.
Liquidity and Capital Resources
The Company has historically financed its operations and growth
primarily with cash flow from operations, borrowings under its credit facility,
operating leases, normal trade credit terms and the sale of the Company's
common stock. Despite the Company's large sales volume, working capital
needs are minimized because the Company's investment in inventory is financed
principally with accounts payable.
Cash provided by operating activities was $11.6 million and $7.6 million for
the 1996 and 1995 periods, respectively. The increase in cash provided by
operating activities is due primarily to higher net earnings and increased
payables levels.
Cash used by investing activities was $6.0 million and $27.6 million
for the 1996 and 1995 periods, respectively. Investing activities consist of
additions to and disposals of property, plant and equipment and the
acquisition of businesses. The Company's total capital expenditures for the
1996 period were $6.0 million including approximately $1.9 million for
expansion of the broadline distribution center in Oakwood, Georgia, and
approximately $1.9 million for construction of the customized distribution
center in McKinney, Texas. The Company anticipates that its total capital
expenditures for fiscal 1996 will be approximately $12.1 million. Of this
amount, approximately $7.0 million is intended to be expended for expansion
of certain of the Company's distribution centers. Investing activities during
the 1995 period included the $22.4 million for the acquisition of businesses,
net of cash on hand at the acquired companies.
In March 1996, the Company completed a secondary offering of 1.9 million
shares of common stock, of which the Company sold 1.5 million shares with the
remainder sold by selling shareholders. The net proceeds to the Company from
the offering were approximately $33.3 million which was used to repay the $30.0
million term loan used to finance the acquisition of Milton's and to repay
approximately $3.3 million outstanding on the Company's line of credit.
At June 29, 1996, the Company had a working capital line of credit of
$10.0 million, of which $9.6 million was unused. Interest on the line of
credit is adjusted periodically to adjusted LIBOR plus 85 basis points (6.31%
at June 29, 1996). On July 8, 1996, the Company entered into a $50.0 million
revolving credit agreement (the "Credit Facility") with a commercial bank.
The Credit Facility bears interest at LIBOR plus a spread over LIBOR, which
varies based on the ratio of funded debt to total capital. The facility
expires in July 1999. Additionally, the Credit Facility requires the
maintenance of certain financial ratios, as defined, regarding debt to tangible
net worth, cash flow coverage and current assets to current liabilities.
The Company believes that cash flows from operations and borrowings
under its credit facility will be sufficient to finance its operations and
anticipated growth for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a.) The Annual Meeting of Shareholders was held on May 7, 1996.
(b.) The following Director nominees were elected by the shareholders
of record as of March 18, 1996:
Votes In Votes
Class III (term expires 1999) Favor Against Abstentions
Jerry J. Caro 5,820,864 - 172,340
C. Michael Gray 5,981,825 - 11,379
(c.) The following other matters were voted on by the
shareholders of record as of March 18, 1996:
Votes In Votes
Favor Against Abstentions
(i) Amendment of the 1993 Employee 5,089,226 126,581 21,445
Stock Incentive Plan to (1)
increase the number of shares
issuable thereunder and (2)
limit the amount of stock-based
awards that may be granted to
individual employees under the
plan during any fiscal year.
(ii) Amendment of the1993 Outside 5,022,519 197,088 17,645
Directors' Stock Option Plan to
increase the number of shares
issuable thereunder.
(iii) Amendment of the Employee Stock 5,147,430 68,756 21,066
Purchase Plan to increase the
number of shares issuable
thereunder.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits:
15 Letter regarding unaudited financial information
from KPMG Peat Marwick LLP.
( b.) No reports on Form 8-K were filed during the quarter
ended June 29, 1996.
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFORMANCE FOOD GROUP COMPANY
(Registrant)
By: /s/ Roger L. Boeve
Roger L. Boeve
Executive Vice President
& Chief Financial Officer
Date: August 2, 1996
<PAGE>
EXHIBIT 15 LETTER REGARDING UNAUDITED FINANCIAL INFORMATION FROM KPMG PEAT
MARWICK LLP
Performmance Food Group Company
Richmond, Virginia
Gentlemen:
Re: Registration Statement No. 33-72400
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated July 26, 1996 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG PEAT MARWICK LLP
Richmond, Virginia
August 2, 1996
