<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 27, 2000
PERFORMANCE FOOD GROUP COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 0-22192 54-0402940
----------------------------- ---------------------- -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
6800 Paragon Place, Suite 500, Richmond, Virginia 23230
-------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 285-7340
Not Applicable
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
Performance Food Group Company, a Tennessee corporation (the
"Company"), has entered into an agreement to acquire the business described
below. Although the filing of this Current Report on Form 8-K is not required
until fifteen days following the consummation of the transaction, the Company is
filing the report at this time because consummation of the acquisition is
probable and the Company intends to offer securities, as more fully described
below, to finance a portion of the purchase price of the acquisition.
On October 30, 2000, the Company entered into a Stock and Membership
Interest Purchase Agreement by and among the stockholders of Redi-Cut Foods,
Inc., an Illinois corporation ("Redi-Cut"), the members of Kansas City Salad,
L.L.C., an Illinois limited liability company ("KC Salad"), the members of K.C.
Salad Real Estate, L.L.C., a Delaware limited liability company ("KC Real
Estate"), the Company and K.C. Salad Holdings, Inc., a Missouri corporation and
wholly-owned subsidiary of the Company ("Acquisition Sub") (the "Agreement").
Pursuant to the Agreement, the Company will acquire all of the issued and
outstanding capital stock of Redi-Cut, consisting of shares of Class A Common
Stock, no par value per share (the "Class A Shares"), and Class B Common Stock,
no par value per share (the "Class B Shares"), of Redi-Cut (the Class A Shares
and Class B Shares are collectively referred to as the "Shares"). In addition to
the acquisition of the Shares by the Company, the Agreement provides that
Acquisition Sub will acquire all of the membership interests of KC Salad and KC
Real Estate (the KC Salad and KC Real Estate membership units are collectively
referred to as the "Membership Units").
The aggregate consideration that will be paid by the Company and
Acquisition Sub for the Shares and Membership Units will be approximately $133.1
million, plus the assumption of approximately $7.0 million in debt. The purchase
price is subject to a post-closing adjustment based upon a review of the working
capital of Redi-Cut and KC Salad as of the closing date. The total consideration
will be paid in shares of common stock, par value $.01 per share, of the Company
(the "Common Stock"), with a value of approximately $17.5 million (based on an
average of the closing price for the Common Stock for the ten consecutive
trading days ending five days prior to the closing) and approximately $115.6
million in cash.
At the closing, the Company will deliver that number of shares of its
Common Stock as is equal to $10 million into an escrow account under the terms
and conditions of a separate agreement between the former stockholders and
members of Redi-Cut, KC Salad and KC Real Estate, respectively, the Company and
the escrow agent to secure the obligations of the former stockholders and
members of Redi-Cut, KC Salad and KC Real Estate under the terms of the
Agreement (the "Escrow Agreement"). Certain of the shares of Common Stock
delivered pursuant to the Escrow Agreement may be returned to the Company if the
stockholders and members of Redi-Cut, KC Salad and KC Real Estate have an
obligation to indemnify the Company or Acquisition Sub under the terms of the
Agreement, in most instances, prior to the first anniversary of the closing.
<PAGE> 3
At the closing, the Company will also deliver to the stockholders and
members of Redi-Cut, KC Salad and KC Real Estate, shares of the Company's Common
Stock that shall equal $7.5 million. The remaining approximately $115.6 million
of the total consideration will be paid in cash at the closing. The cash portion
of the consideration delivered under the Agreement will be financed primarily
from the net proceeds of an underwritten public offering by the Company of
2,500,000 shares of its Common Stock, plus up to an additional 375,000 shares of
Common Stock that the underwriters have the option to purchase to cover
over-allotments, if any, pursuant to a prospectus dated October 30, 2000 and a
prospectus supplement dated November 27, 2000. The remainder, if any, of the
cash portion of the consideration payable under the Agreement will come from
borrowings under the Company's existing credit facility.
The assets acquired as a result of the acquisition of the Shares and
the Membership Units were used by Redi-Cut at its Kansas City, Missouri and
Franklin Park, Illinois facilities in the fresh-cut produce processing and
distribution business, which the Company will continue. The consideration paid
under the Agreement was determined through arm's length negotiations between the
Company, and the stockholders and members of Redi-Cut, KC Salad and KC Real
Estate.
Item 5. Other Events
As of November 22, 2000, the Company and American Stock Transfer Trust
Company, as Rights Agent, amended the Company's Rights Agreement. The amendment
deletes the term "Continuing Director" in its entirety from the Rights
Agreement. Consistent with such deletion, the amendment removes all references
to the need for Continuing Director decision making, such decision making now
being vested in the Board of Directors.
Item 7. Financial Statements, Pro Forma Information and Exhibits.
(a) Financial Statements of Redi-Cut Foods, Inc. and its Affiliated
Companies.
Independent Auditors' Report
Combined Balance Sheet at September 30, 2000
Combined Statement of Income for the nine months ended September 30,
2000
Combined Statement of Changes in Stockholders' Equity, Partners'
Capital and Members' Equity for the nine months ended
September 30, 2000
Combined Statement of Cash Flows for the nine months ended
September 30, 2000
Notes to Combined Financial Statements
(b) Unaudited Pro Forma Condensed Consolidated Financial Statements.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at
September 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the nine months ended September 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the fiscal year ended January 1, 2000
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
The audited combined financial statements of Redi-Cut Foods, Inc. and
its affiliated companies satisfy the requirements of Rule 3-05 promulgated under
Regulation S-X pursuant to Rule 3-06 of Regulation S-X.
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Redi-Cut Foods, Inc.:
We have audited the accompanying combined balance sheet of Redi-Cut Foods, Inc.
and affiliated companies (the Company) as of September 30, 2000, and the related
combined statements of income, changes in stockholders' equity, partners'
capital and members' equity and cash flows for the nine months then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Redi-Cut Foods, Inc.
and affiliated companies as of September 30, 2000, and the results of their
operations and their cash flows for the nine months then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG
October 20, 2000, except as to note 9,
which is as of October 30, 2000
<PAGE> 5
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Combined Balance Sheet
September 30, 2000
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 10,982,490
Accounts receivable, net 7,442,415
Due from members 277,599
Inventories (note 3) 1,230,656
Real estate held for sale 774,074
Other current assets 654,002
------------
Total current assets 21,361,236
------------
Restricted cash and cash equivalents 731,865
Property, plant and equipment, net (notes 4, 5, and 6) 20,921,991
Intangible assets, net of accumulated amortization of $405,439 682,498
Other assets 2,342,914
------------
Total assets $ 46,040,504
============
LIABILITIES, STOCKHOLDERS' EQUITY, MEMBERS' EQUITY AND PARTNERS' CAPITAL
Current liabilities:
Current installments of notes and bonds payable (note 5) $ 1,805,270
Current installments of obligations under capital leases (note 6) 28,873
Accounts payable 7,058,164
Accrued expenses 2,386,975
------------
Total current liabilities 11,279,282
Notes and bonds payable, excluding current installments (note 5) 14,304,710
Obligations under capital leases, excluding current installments (note 6) 58,283
------------
Total liabilities 25,642,275
------------
Minority interest 765,442
------------
Stockholders' equity:
Class A voting common stock (no par value, 100,000 shares authorized,
2,000 shares outstanding) 1,200
Class B nonvoting common stock (no par value, 400,000 shares authorized,
43,627 shares outstanding) 2,869,140
Note receivable from stockholder under Subscription Agreement (2,847,540)
Retained earnings 17,658,996
------------
17,681,796
------------
Members' equity 1,267,587
Partners' capital 683,404
------------
Total stockholders' equity, members' equity and partners' capital 19,632,787
Commitments and contingencies (note 8)
------------
$ 46,040,504
============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 6
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Combined Statement of Income
Nine months ended September 30, 2000
<TABLE>
<S> <C>
Net sales (note 2) $ 97,735,810
Cost of goods sold 78,933,064
------------
Gross profit 18,802,746
Selling, general administrative expenses 9,005,536
------------
Income from operations 9,797,210
------------
Other income (expense):
Interest income 816,584
Interest expense (548,782)
Miscellaneous income 74,882
------------
342,684
------------
Income before minority interest and state replacement tax expense 10,139,894
State replacement tax expense 147,031
------------
Net income before minority interest 9,992,863
Net income attributable to minority interest 178,871
------------
Net income $ 9,813,992
============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 7
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Combined Statement of Changes in Stockholders' Equity,
Partners' Capital and Members' Equity
Nine months ended September 30, 2000
<TABLE>
<CAPTION>
REDI-CUT FOODS, INC.
--------------------------------------------------------------------------------------
COMMON STOCK
---------------------------------------- NOTE
CLASS A CLASS B RECEIVABLE
----------------- -------------------- FROM RETAINED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER EARNINGS TOTAL
------ ------- ------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 2,000 $1,200 36,000 $ 21,600 -- 14,188,411 14,211,211
Issuance of additional common
stock, January 1, 2000 -- -- 7,627 2,847,540 (2,847,540) -- --
Net income -- -- -- -- -- 9,009,612 9,009,612
Distributions -- -- -- -- -- (5,539,027) (5,539,027)
----- ------ ------ ---------- ---------- ----------- -----------
Balance, September 30, 2000 2,000 $1,200 43,627 $2,869,140 (2,847,540) 17,658,996 17,681,796
===== ====== ====== ========== ========== =========== ===========
<CAPTION>
F.C.
KANSAS CITY K.C. REAL LIMITED
SALAD, L.L.C. ESTATE, L.L.C. PARTNERSHIP
MEMBERS' MEMBERS' PARTNERS' TOTAL
EQUITY EQUITY CAPITAL EQUITY
------------ --------------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 1,041,851 (5,013) 642,964 15,891,013
Issuance of additional common
stock, January 1, 2000 -- -- -- --
Net income 530,620 94,889 178,871 9,813,992
Distributions (392,933) (1,827) (138,431) (6,072,218)
---------- ------- -------- -----------
Balance, September 30, 2000 1,179,538 88,049 683,404 19,632,787
========== ======= ======== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 8
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Combined Statement of Cash Flows
Nine months ended September 30, 2000
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 9,813,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,572,091
Minority interest share of net income 178,871
Loss on sale of equipment 4,197
Increase in accounts receivable (769,875)
Decrease in inventories 122,506
Decrease in other current assets 377,773
Increase in accounts payable 749,945
Increase in accrued expenses 469,938
------------
Total adjustments 2,705,446
------------
Net cash provided by operating activities 12,519,438
------------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,906,575)
Proceeds from sale of equipment 6,172
------------
Net cash used in investing activities (8,900,403)
------------
Cash flows from financing activities:
Payments on long-term debt (1,024,905)
Repayments of capital lease obligations (14,607)
Distributions attributable to minority interest (103,415)
Distributions to stockholders, partners and members (6,072,218)
------------
Net cash used in financing activities (7,215,145)
------------
Net decrease in cash and cash equivalents (3,596,110)
Cash and cash equivalents:
January 1, 2000 15,310,465
------------
September 30, 2000 $ 11,714,355
============
Reconciliation of cash and cash equivalents to combined balance sheet:
Cash and cash equivalents $ 10,982,490
Restricted cash and cash equivalents 731,865
------------
$ 11,714,355
============
Supplemental disclosure of cash flow information -- cash paid during the period
for interest $ 624,093
============
Supplemental disclosures of noncash investing and financing activities:
Equipment acquired through capital lease $ 63,324
Common stock issued in exchange for note receivable from stockholder 2,847,540
============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 9
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
(A) DESCRIPTION OF BUSINESS
Redi-Cut Foods, Inc. (Redi-Cut) is engaged in the processing of
fresh-cut produce. Sales are made to various food distributors and
quick-service restaurants (QSRs), as well as other customers in
the home meal replacement (HMR) industry in the Midwest.
Kansas City Salad, L.L.C. (KC Salad) is engaged in the processing
of fresh-cut produce. Sales are made to various food distributors,
QSRs and other HMR customers in the greater Kansas City, Missouri
area.
F.C. Limited Partnership (FC) leases land, a building and
manufacturing equipment to Redi-Cut that is used as Redi-Cut's
processing plant and general offices. K.C. Salad Real Estate,
L.L.C. (KC Real Estate) leases land, a building and manufacturing
equipment to KC Salad that is used as KC Salad's processing plant
and general offices.
(B) PRINCIPLES OF COMBINATION
The combined financial statements of Redi-Cut Foods, Inc. and
affiliated companies present the combination of the financial
statements of Redi-Cut and KC Salad, both of which are under
common control, and FC and KC Real Estate, both of which are
nonsubstantive special-purpose entity lessors requiring inclusion
with the related lessee operating company under Emerging Issues
Task Force (EITF) No. 90-15, Impact of Nonsubstantive Lessors,
Residual Value Guarantees, and Other Provisions in Leasing
Transactions. Material intercompany transactions and balances have
been eliminated in combination.
(C) CASH EQUIVALENTS
Cash equivalents of $11,790,705 include balances in overnight
Eurodollar sweep accounts. For purposes of the combined statement
of cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents.
(D) INVENTORIES
Inventories are valued at the lower of cost or market, with cost
determined on a first-in, first-out basis.
(Continued)
<PAGE> 10
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including leasehold improvements,
are recorded at cost. The costs of maintenance and repairs are
charged against results of operations as incurred.
Depreciation and amortization are charged against results of
operations over the estimated service lives of the related assets.
The Company principally uses the straight-line method of
depreciation and amortization for buildings and leasehold
improvements and accelerated methods of depreciation for
production equipment, furnishings, office equipment and vehicles.
Interest and related expenses of $441,347 incurred during the
construction of the FC and KC Real Estate buildings have been
capitalized.
(F) INTANGIBLE ASSETS
Intangible assets include deferred financing costs related to FC's
and KC Real Estate's bond and note issuances, a customer list and
goodwill.
Deferred financing costs are being amortized on a straight-line
basis over the life of the related debt, which is 15 years for the
FC bond, five years for the FC note and approximately 20 years for
the KC Real Estate bond.
The customer list, which was purchased from Kansas City Salad
Company, Inc., is being amortized on the straight-line method over
its estimated useful life of 20 years.
Goodwill, which represents the excess of the cost of purchased
assets over the fair value of the tangible net assets and
identifiable intangible assets at the date of the Kansas City
Salad Company, Inc. acquisition, is being amortized on the
straight-line method over 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can
be recovered through undiscounted future operation cash flows of
the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operation cash
flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not
achieved.
(G) OTHER ASSETS
Other assets primarily consist of cash surrender values of life
insurance policies, prepaid commissions and various deposits.
(Continued)
<PAGE> 11
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
(H) MINORITY INTEREST
Minority interest represents the amount of FC members' capital and
net income attributable to minority partners of FC.
(I) REVENUE RECOGNITION AND RECEIVABLES
Sales are recognized upon the shipment of goods to the customer.
Accounts receivable represent receivables from customers in the
ordinary course of business. Such amounts are recorded net of the
allowance for doubtful accounts in the accompanying combined
balance sheet.
(J) ADVERTISING EXPENSE
Advertising costs are charged to operations as incurred.
Advertising expense was $59,560 for the nine months ended
September 30, 2000.
(K) INCOME TAXES
Effective January 1, 1987, Redi-Cut elected to be taxed as a
corporation under the provisions of Subchapter S of the Internal
Revenue Code. Accordingly, no provision has been made for federal
income taxes in the accompanying combined financial statements.
Redi-Cut's net income is subject to an Illinois replacement tax of
1.5%, net of a credit for investment in property to be used in
manufacturing.
KC Salad and KC Real Estate are treated as partnerships for
federal income tax purposes. Consequently, federal income taxes
are not payable by these companies. Members are taxed individually
on their share of the companies' earnings. The companies' net
income or loss is allocated among the members in accordance with
the operating agreements of the companies.
FC is a partnership, which is generally not subject to federal or
state income taxes. Partnership income is taxable to, and losses
are deductible by, the partners. FC's net income is subject to an
Illinois replacement tax of 1.5%, net of a credit for investment
in property to be used in manufacturing.
(L) USE OF ESTIMATES
In preparing combined financial statements in conformity with
accounting principles generally accepted in the United States of
America, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the combined
financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
(Continued)
<PAGE> 12
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(2) CUSTOMER CONCENTRATION
One major customer accounted for approximately 20% of the Company's net
sales for the nine months ended September 30, 2000.
(3) INVENTORIES
Inventories at September 30, 2000 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 339,983
Finished goods 580,698
Packaged supplies 309,975
----------
$1,230,656
==========
</TABLE>
(Continued)
<PAGE> 13
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2000 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 1,471,302
Building and improvements 5,621,884
Construction in progress 6,379,737
Production equipment 20,427,467
Office furniture and equipment 726,441
Vehicles 273,221
Leasehold improvements 380,895
-------------
35,280,947
Less accumulated depreciation and amortization 14,358,956
-------------
$ 20,921,991
=============
</TABLE>
(5) NOTES AND BONDS PAYABLE
Notes and bonds payable at September 30, 2000 consists of the
following:
<TABLE>
<S> <C>
Tax-exempt Multi-Model Industrial Development Revenue Bonds (K. C. Salad Real
Estate, L.L.C. Project), interest adjusts weekly (5.65% as of September 30, 2000),
interest payable monthly, subject to annual mandatory redemption beginning
June 1, 2001 through 2020, secured by letter of credit in the amount of $7,131,179 $ 7,000,000
Illinois Development Finance Authority Adjustable Rate Industrial Revenue Bonds, Series
1991, interest adjusts weekly (5.67% as of September 30, 2000), interest accrued
semimonthly; principal and interest due October 1, 2006, cured by letter of credit
in the amount of $8,860,891 4,860,000
6.75% junior mortgage note, payable in monthly installments of $14,583, plus
interest, with final payment due March 1, 2003, secured by real property with
depreciated cost of $5,853,311 2,697,935
8.0% note to former stockholder, payable in monthly installments of $10,120,
including interest, with final payment due January 2011, payable for
redemption of Class A common stock 852,045
Borrowings under $2,500,000 line of credit, interest rate on borrowings adjusts
semiannually to LIBOR + 1% (ranging from 7.62% to 7.64% at September 30, 2000),
secured by first lien on substantially all of the Company's assets, expires
May 2001 700,000
------------
Total long-term debt 16,109,980
Less current installments 1,805,270
------------
Long-term debt, excluding current installments $ 14,304,710
============
</TABLE>
(Continued)
<PAGE> 14
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
The various debt agreements contain restrictions on net worth and
current and debt service ratios. In addition, the agreements restrict
liens on assets and the acquisition or sale of affiliated companies.
Future maturities of notes and bonds payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
----------------
<S> <C>
2000 (3 months) $ 372,157
2001 1,826,383
2002 1,176,063
2003 3,355,330
2004 1,111,625
2005 1,172,570
Thereafter 7,095,852
-------------
$ 15,737,823
=============
</TABLE>
(6) LEASES
The Company leases equipment under capital leases expiring in various
years through 2004. Interest rates on capital leases vary from 8.9% to
15.1%, and are imputed based on the lower of the Company's incremental
borrowing rate at the inception of each lease or the lessor's implicit
rate of return.
The following is a schedule of future minimum lease payments for the
Company's capital leases as of September 30, 2000:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
--------------
<S> <C>
2000 (3 months) $ 9,583
2001 36,559
2002 27,329
2003 19,453
2004 11,348
---------
Total minimum lease payments 104,272
Less amount representing interest 17,116
---------
Total obligations under capital leases 87,156
Less current installments of obligations under capital leases 28,873
---------
Obligations under capital leases, excluding current installments $ 58,283
=========
</TABLE>
(Continued)
<PAGE> 15
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
At September 30, 2000, the cost and related accumulated amortization
of equipment acquired under capital leases were $131,740 and $48,901,
respectively. Amortization expense of $10,762 is included with
depreciation expense.
The Company has entered into four operating lease agreements for
manufacturing equipment located in the Franklin Park, Illinois
building. The leases require monthly payments and expire on various
dates between 2001 and 2004.
The Company leases a facility located in Franklin Park under an
operating lease that expires in 2010. The lease requires monthly
rental payments of $11,465, plus payment of increases in real estate
taxes, insurance and normal maintenance.
The Company is liable for operating lease payments on various
trucks/trailers plus mileage charges, gas and insurance. The leases
expire on various dates between 2001 and 2009. In addition, the
Company is liable for operating lease payments on several automobiles
that expire on various dates between 2000 and 2003.
Minimum rental commitments under all noncancelable operating lease
agreements are as follows:
<TABLE>
<CAPTION>
EQUIPMENT AND
YEAR ENDING PRODUCTION/
DECEMBER 31 OFFICE FACILITIES VEHICLES TOTAL
--------------- ----------------- ----------- -----------
<S> <C> <C> <C>
2000 (3 months) $ 117,970 109,127 227,097
2001 393,459 425,052 818,511
2002 287,165 410,677 697,842
2003 202,288 392,617 594,905
2004 147,881 382,068 529,949
2005 147,881 353,512 501,393
Thereafter 726,126 480,149 1,206,275
----------- ----------- -----------
$ 2,022,770 2,553,202 4,575,972
=========== =========== ===========
</TABLE>
Rent expense was $138,487 for the nine months ended September 30,
2000.
(Continued)
<PAGE> 16
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
(7) EMPLOYEE BENEFIT PLANS
Redi-Cut maintains a profit sharing plan covering substantially all
non-union employees. Contributions to the plan are at the discretion of
the Company's board of directors. The estimated profit sharing plan
contribution of $225,000 has been accrued for the nine months ended
September 30, 2000. The plan includes a 401(k) arrangement under which
employees may elect to have Redi-Cut contribute a portion of their
compensation to the plan. For each plan year, Redi-Cut may contribute to
the plan an amount of matching contributions as determined by Redi-Cut
at its discretion. Estimated matching contributions of $48,750 have been
accrued for the nine months ended September 30, 2000.
KC Salad maintains a 401(k) retirement plan for substantially all of its
employees. Under the terms of the plan, employees may contribute a
portion of their compensation to the plan, within limits established by
the Internal Revenue Code. For each plan year, KC Salad may contribute
to the plan an amount of matching contributions as determined by KC
Salad at its discretion. There were no matching contributions for the
nine months ended September 30, 2000.
(8) COMMITMENTS AND CONTINGENCIES
The Company has various purchase and sales commitments with its
suppliers and customers extending into 2001 for the purchase and sale of
various products at stipulated prices. It is the opinion of management
that all commitments will be honored over the normal course of business.
The Company has an unfunded deferred compensation agreement with its
major stockholder, payable at retirement or death. The agreement
provides for payments of $100,000 per annum for five years, payable in
monthly installments commencing at retirement or death conditioned upon
the stockholder remaining in the employ of the Company until his
retirement or death. As of September 30, 2000, a liability of $61,147
has been recorded in the accompanying combined financial statements
related to this agreement.
The Company has an unfunded deferred compensation agreement with a
former stockholder who retired in January 1999. The agreement provides
for payments of $50,000 per annum for a covenant not to compete payable
in monthly installments of $4,167 for a period of five years. In
addition, the agreement provides for payments of $50,000 per annum as
deferred compensation payable in monthly installments of $4,167. The
payments began in February 1999. As of September 30, 2000, a liability
of $145,871 has been recorded in the accompanying combined financial
statements related to this agreement.
The Company has entered into a consulting agreement with a former
employee. The agreement provides for a consulting fee of $350,000 per
year, payable monthly, through September 30, 2004.
(Continued)
<PAGE> 17
REDI-CUT FOODS, INC. AND AFFILIATED COMPANIES
Notes to Combined Financial Statements
September 30, 2000
The Company has entered into an equity participation agreement with an
employee that provides for payment of an equity appreciation amount, as
defined in the agreement, in the event of an acquisition of the Company
prior to the employee's termination of employment. If the employee
remains with the Company until retirement and has not received a payment
of the equity appreciation amount, he will be entitled to $100,000 per
year for five years as consideration for a covenant not to compete.
The Company has guaranteed stockholder bank notes maturing in 2001 and
stockholder installment notes, payable monthly through 2011, with an
aggregate amount due of $8,551,311.
The Company has co-guaranteed an installment note for a member of KC
Salad, payable monthly through 2011, in the amount of $164,963.
(9) SUBSEQUENT EVENT
On October 30, 2000, the Company signed a definitive agreement to be
purchased by Performance Food Group Company (PFG) for a total
consideration of approximately $133 million, including cash, PFG common
stock and assumption of liabilities. The transaction, which is subject
to customary closing conditions, is expected to close in the fourth
quarter of 2000 or in early 2001.
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of
earnings give effect to:
- the Company's acquisition of Redi-Cut Foods, Inc., Kansas City Salad,
L.L.C. and K.C. Salad Real Estate, L.L.C. (collectively, "Redi-Cut");
- the sale of 2,500,000 shares of the Company's common stock in an
underwritten public offering and the Company's receipt of $104.8
million in estimated net proceeds, assuming a public offering price of
$44.50 per share and after deducting the underwriting discount and
estimated offering expenses;
- the application of the estimated net proceeds from the common stock
offering, together with $10.8 million of borrowings under one of the
Company's credit facilities, to pay the cash portion of the purchase
price of Redi-Cut; and
- the issuance of 393,258 shares of the Company's common stock, assuming
a market value for the Company's common stock of $44.50 per share, to
pay the stock portion of the purchase price of Redi-Cut;
as if all of those transactions had occurred on the first day of the respective
periods presented. The actual number of shares of common stock that the Company
will issue to pay the stock portion of the purchase price of Redi-Cut will
depend upon the market price of the Company's common stock during a specified
period of time prior to the closing date of the acquisition and may therefore be
more or less than the number of shares assumed for purposes of the pro forma
financial statements. Additionally, the purchase price for Redi-Cut is subject
to a post-closing adjustment based upon a review of Redi-Cut's working capital
as of the closing date.
The unaudited pro forma condensed consolidated statements of earnings for
1999 and the nine months ended September 30, 2000 combine the consolidated
results of operations of Performance Food Group with the combined results of
operations of Redi-Cut for the respective periods. The unaudited pro forma
condensed consolidated balance sheet as of September 30, 2000 combines the
consolidated balance sheet of Performance Food Group as of that date with the
combined balance sheet of Redi-Cut as of that date and gives effect to the
transactions described above as if those transactions had been completed as of
that date. The Company will account for the acquisition of Redi-Cut under the
purchase method of accounting.
The pro forma financial statements appearing below are based upon a
number of assumptions and estimates and are subject to uncertainties, and do not
purport to be indicative of the actual results of operations or financial
condition that would have occurred had the transactions described above in fact
occurred on the dates indicated, nor do they purport to be indicative of the
results of operations or financial condition that the Company may achieve in the
future. In particular, sales to broadline foodservice distributors, excluding
foodservice distributors which specialize in serving the quick-service
restaurant industry, represented approximately 33.4% of Redi-Cut's combined net
sales for the year ended December 31, 1999 and approximately 31.9% of its
combined net sales for the nine months ended September 30, 2000. The Company
believes that, because some of these broadline foodservice distributor customers
may view it as a competitor, Redi-Cut could lose the business of some of these
customers. The pro forma financial statements appearing below do not reflect
this potential loss of revenues.
Redi-Cut has been taxed as an S-corporation for federal income tax
purposes, which means that it was not subject to federal income taxes and that
its historical financial statements do not include a provision for federal
income taxes. Following the acquisition, Redi-Cut will become subject to federal
income tax. The following pro forma condensed consolidated financial statements
adjust income taxes as if Redi-Cut had been taxed as a C-corporation rather than
as an S-corporation prior to the acquisition.
As noted above, the acquisition of Redi-Cut will be accounted for using
the purchase method of accounting. The total purchase price will be allocated to
the tangible and intangible assets and liabilities acquired based on their
respective fair values. The allocation of the purchase price reflected in the
following pro forma financial statements is preliminary and is subject to
adjustment upon receipt of, among other things, appraisals of some of the assets
and liabilities of Redi-Cut.
Finally, the accuracy of the pro forma financial statements depends in
large part upon the accuracy of the historical financial statements on which the
pro forma statements are based. The 1999
<PAGE> 19
historical financial statements for two of the three Redi-Cut entities the
Company plans to acquire have not been separately audited by any accounting
firm, although Redi-Cut's financial statements as of and for the nine months
ended September 30, 2000 have been audited. Those two entities accounted for
approximately 9.6% of Redi-Cut's total combined net sales for the year ended
December 31, 1999. The pro forma financial statements should be read in
conjunction with the Company's historical financial statements and related notes
for the fiscal year ended January 1, 2000 (which is referred to in the pro forma
financial statements as "fiscal year 1999") and as of and for the nine months
ended September 30, 2000, which are included in the Company's Annual Report on
Form 10-K for its fiscal year 1999 and Quarterly Report on Form 10-Q for the
period ended September 30, 2000, and the historical financial statements of
Redi-Cut and the related notes included elsewhere herein.
In order to comply with GAAP, Redi-Cut's historical combined financial
statements for the nine months ended September 30, 2000 reflect the results of
operations and financial condition of the three Redi-Cut companies that the
Company plans to acquire plus one affiliated company which the Company will not
acquire. This affiliated company leases real estate and equipment to Redi-Cut.
Accordingly, unless otherwise expressly stated or the context requires, all
financial data appearing below with respect to Redi-Cut for the nine months
ended September 30, 2000 has been adjusted to eliminate this affiliated entity.
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PERFORMANCE
FOOD GROUP REDI-CUT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 9,607 $10,392 $(10,392)(a) $ 9,607
Trade accounts and notes receivable,
net.................................. 150,687 7,534 (92)(a) 158,129
Inventories............................. 120,751 1,231 -- 121,982
Other current assets.................... 9,595 1,428 -- 11,023
-------- ------- -------- --------
Total current assets............ 290,640 20,585 (10,484) 300,741
Property, plant and equipment, net........ 125,915 12,681 -- 138,596
Intangible assets, net.................... 111,235 572 126,662(b) 238,469
Other assets.............................. 1,436 3,075 (1,667)(a) 2,844
-------- ------- -------- --------
Total assets.................... $529,226 $36,913 $114,511 $680,650
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of
deposits............................. $ 27,009 $ -- $ -- $ 27,009
Current installments of long-term
debt................................. 701 1,019 (1,019)(a) 701
Trade accounts payable.................. 131,477 7,026 -- 138,503
Other current liabilities............... 44,190 2,298 2,000(b) 48,488
-------- ------- -------- --------
Total current liabilities....... 203,377 10,343 981 214,701
Long-term debt, excluding current
installments............................ 110,430 7,620 10,171(a),(d) 128,221
Deferred income taxes..................... 8,391 -- -- 8,391
-------- ------- -------- --------
Total liabilities............... 322,198 17,963 11,152 351,313
-------- ------- -------- --------
Shareholders' equity:
Preferred stock......................... -- -- -- --
Common stock............................ 141 23 6(b),(d) 170
Members' equity and partners' capital... -- 1,268 (1,268)(b) --
Additional paid-in capital.............. 101,020 -- 122,280(b),(d) 223,300
Retained earnings....................... 107,790 17,659 (17,659)(a),(b) 107,790
-------- ------- -------- --------
208,951 18,950 103,359 331,260
Loan to leveraged employee stock
ownership plan....................... (1,923) -- -- (1,923)
-------- ------- -------- --------
Total shareholders' equity...... 207,028 18,950 103,359 329,337
Commitments and contingencies............. -- -- -- --
Total liabilities and
shareholders' equity.......... $529,226 $36,913 $114,511 $680,650
======== ======= ======== ========
</TABLE>
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PERFORMANCE
FOOD GROUP REDI-CUT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................................. $1,927,480 $97,736 $ -- $2,025,216
Cost of goods sold......................... 1,669,869 78,933 -- 1,748,802
---------- ------- ------- ----------
Gross profit..................... 257,611 18,803 -- 276,414
Operating expenses......................... 222,520 9,634 2,374(c),(f) 234,528
---------- ------- ------- ----------
Operating profit................. 35,091 9,169 (2,374) 41,886
Other income (expense):
Interest expense......................... (4,604) (252) (473)(e) (5,329)
Other, net............................... 50 862 (787)(g) 125
---------- ------- ------- ----------
Other income (expense), net...... (4,554) 610 (1,260) (5,204)
---------- ------- ------- ----------
Earnings before income taxes..... 30,537 9,779 (3,634) 36,682
Income tax expense......................... 11,604 144 2,191(h) 13,939
---------- ------- ------- ----------
Net earnings..................... $ 18,933 $ 9,635 $(5,825) $ 22,743
========== ======= ======= ==========
Weighted average common shares
outstanding.............................. 13,948 -- 2,893(b),(d) 16,841
Basic net earnings per common share........ $ 1.36 $ 1.35
========== ======= ======= ==========
Weighted average common shares and dilutive
potential common shares outstanding...... 14,487 -- 2,893(b),(d) 17,380
Diluted net earnings per common share...... $ 1.31 $ 1.31
========== ======= ======= ==========
</TABLE>
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
<TABLE>
<CAPTION>
PERFORMANCE
FOOD GROUP REDI-CUT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................................. $2,055,598 $113,289 $ -- $2,168,887
Cost of goods sold......................... 1,773,632 89,462 -- 1,863,094
---------- -------- ------- ----------
Gross profit..................... 281,966 23,827 -- 305,793
Operating expenses......................... 242,625 17,881 978(c),(f) 261,484
---------- -------- ------- ----------
Operating profit................. 39,341 5,946 (978) 44,309
Other income (expense):
Interest expense......................... (5,388) (235) (573)(e) (6,196)
Nonrecurring merger expenses............. (3,812) -- -- (3,812)
Gain on sale of investment............... 768 -- -- 768
Other, net............................... 342 642 (527)(g) 457
---------- -------- ------- ----------
Other income (expense), net...... (8,090) 407 (1,100) (8,783)
---------- -------- ------- ----------
Earnings before income taxes..... 31,251 6,353 (2,078) 35,526
Income tax expense......................... 12,000 64 1,578(h) 13,642
---------- -------- ------- ----------
Net earnings..................... $ 19,251 $ 6,289 $(3,656) $ 21,884
========== ======== ======= ==========
Weighted average common shares
outstanding.............................. 13,772 -- 2,893(b),(d) 16,665
Basic net earnings per common share........ $ 1.40 $ 1.31
========== ======== ======= ==========
Weighted average common shares and dilutive
potential common shares outstanding...... 14,219 -- 2,893(b),(d) 17,112
Diluted net earnings per common share...... $ 1.35 $ 1.28
========== ======== ======= ==========
</TABLE>
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) These adjustments reflect the elimination of cash and cash equivalents,
notes receivable from certain Redi-Cut officers, cash surrender value of
life insurance policies and debt of Redi-Cut in excess of the $7.0 million
of Redi-Cut debt that the Company will assume in the acquisition.
(b) The Company will pay approximately $133.1 million to the owners of Redi-Cut,
consisting of approximately $115.6 million in cash and approximately $17.5
million in shares of the Company's common stock, plus the assumption of
approximately $7.0 million of debt. The pro forma adjustments assume that
the Company will issue 2,500,000 shares of common stock in an underwritten
public offering and receive $104.8 million in estimated net proceeds,
assuming a public offering price of $44.50 per share and after deducting the
underwriting discount and estimated expenses of the offering. These pro
forma adjustments also assume that the Company will issue 393,258 shares of
its common stock to pay the stock portion of the purchase price of Redi-Cut,
based upon an assumed market value of $44.50 per share of its common stock.
The actual number of shares the Company issues to pay the stock portion of
the purchase price will depend on the market price of its common stock
during a specified period prior to the closing date of the acquisition.
These adjustments also reflect the preliminary allocation of the purchase
price to the acquired assets and assumed liabilities of Redi-Cut, including
the elimination of Redi-Cut's combined common stock, retained earnings,
members' equity and partners' capital of $19.0 million as of September 30,
2000. This preliminary allocation also includes $2.0 million accrued for the
payment of transaction costs and other expenses related to the Redi-Cut
acquisition. Upon completion of the acquisition, the Company will record
intangible assets of approximately $127.2 million.
(c) Intangible assets to be recorded in connection with the acquisition,
expected to consist of non-compete agreements, customer lists and goodwill,
represent costs in excess of the fair value of tangible net assets acquired.
These intangible assets will be amortized on a straight-line basis over
their estimated useful lives, which range from 8 to 40 years. The weighted
average combined estimated useful lives of these assets is expected to be
approximately 36 years. These pro forma adjustments reflect amortization
expense of these intangible assets as if Redi-Cut had been acquired on the
first day of the respective periods presented.
(d) These adjustments reflect the financing of the cash portion of the Redi-Cut
acquisition with the assumed net proceeds of $104.8 million from the common
stock offering referred to above and approximately $10.8 million of
additional borrowings under one of the Company's credit facilities. Net
proceeds from the offering are net of an underwriting discount of 5.25% and
estimated offering expenses of $600,000.
(e) The interest rate on the additional borrowings referred to in note (d) above
is assumed to be 7.1% per annum. These pro forma adjustments reflect the
additional interest expense that would have been incurred by the Company if
Redi-Cut had been acquired on the first day of the respective periods
presented, and also reflect the elimination of interest expense on Redi-Cut
debt that the Company will not assume.
(f) These pro forma adjustments reduce salaries and bonuses of certain of
Redi-Cut's officers to estimated levels specified in employment agreements
that the Company anticipates entering into with these officers.
(g) Pro forma adjustments reflect the elimination of interest income on
Redi-Cut's cash and cash equivalents, which will be retained by Redi-Cut's
current owners.
(h) These adjustments adjust income taxes as if Redi-Cut were taxed as a
C-corporation for income tax purposes rather than as an S-corporation for
the periods presented. As an S-corporation, Redi-Cut was not subject to
federal income taxes. Following the acquisition, Redi-Cut will be subject to
federal income taxes.
<PAGE> 24
(c) Exhibits:
(2) Stock and Membership Interest Purchase Agreement, dated as of
October 30, 2000 by and among the stockholders of Redi-Cut
Foods, Inc., the members of Kansas City Salad, L.L.C., the
members of K.C. Salad Real Estate, L.L.C., Performance Food
Group Company and K.C. Salad Holdings, Inc. (Pursuant to Item
601(b)(2) of Regulation S-K, the schedules of this agreement
are omitted, but will be provided supplementally to the
Commission upon request.)
(4.1) Rights Agreement, dated May 16, 1997, between Performance Food
Group Company and First Union National Bank of North Carolina,
as original Rights Agent, which includes as exhibits, the Form
of Right Certificate and Summary of Rights Agreement
(incorporated by reference to the Company's Current Report on
Form 8-K dated May 19, 1997.)
(4.2) Amendment No. 1 to Rights Agreement, dated June 30, 1999
between Performance Food Group Company and American Stock
Transfer Trust Company, as subsequent Rights Agent.
(4.3) Amendment No. 2 to Rights Agreement, dated November 22, 2000
between Performance Food Group Company and American Stock
Transfer Trust Company, as subsequent Rights Agent.
(23.1) Consent of KPMG LLP.
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PERFORMANCE FOOD GROUP COMPANY
Date: November 27, 2000 By: /s/ Roger L. Boeve
---------------------------------
Roger L. Boeve
Executive Vice President and
Chief Financial Officer
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. EXHIBIT
-------------------------------------------------------------------------
<S> <C>
2 Stock and Membership Interest Purchase
Agreement, dated as of October 30, 2000 by and
among the stockholders of Redi-Cut Foods, Inc., the
members of Kansas City Salad, L.L.C., the
members of K.C. Salad Real Estate, L.L.C.,
Performance Food Group Company and K.C. Salad
Holdings, Inc. (Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules of this agreement are
omitted, but will be provided supplementally to the
Commission upon request.)
4.1 Rights Agreement, dated May 16, 1997, between
Performance Food Group Company and First Union
National Bank of North Carolina, as original Rights
Agent, which includes as exhibits, the Form of
Right Certificate and Summary of Rights
Agreement (incorporated by reference to the
Company's Current Report on Form 8-K dated May
19, 1997.)
4.2 Amendment No. 1 to Rights Agreement, dated
June 30, 1999 between Performance Food Group
Company and American Stock Transfer Trust
Company, as subsequent Rights Agent.
4.3 Amendment No. 2 to Rights Agreement, dated
November 22, 2000 between Performance Food
Group Company and American Stock Transfer
Trust Company, as subsequent Rights Agent.
23.1 Consent of KPMG LLP
</TABLE>
