<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the quarterly period ended September 28, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the transition period from to
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Commission File Number: 0-24954
JP FOODSERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1634568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
9830 Patuxent Woods Drive 21046
Columbia, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 312-7100
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (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.
YES X NO
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The number of shares of the registrant's common stock, par value $.01
per share, outstanding at November 12, 1996 was 22,212,252 shares.
<PAGE> 2
JP FOODSERVICE, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
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<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 29, 1996 and September 28, 1996 1
Condensed Consolidated Statements of Operations
Three months ended September 30, 1995
and September 28, 1996 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 1995
and September 28, 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 29, SEPTEMBER 28,
1996 1996
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 12,035 $ 9,361
Receivables, net 146,308 176,227
Inventories 78,680 100,313
Other current assets 8,946 14,265
Current deferred tax asset 553 1,160
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Total current assets 246,552 301,326
Property and equipment, net 98,590 123,565
Goodwill and other noncurrent assets 82,960 107,788
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Total assets $ 428,072 $ 532,679
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current obligations under capital leases $ 4,936 $ 5,915
Revolving bank line of credit 4,700
Current portion of long-term debt 678
Current portion of subordinated debt
with related parties 416
Accounts payable 104,688 95,551
Accrued expenses 13,523 23,511
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Total current liabilities 128,941 124,977
Noncurrent liabilities
Long-term debt 142,480 180,533
Subordinated debt with related parties 5,958 4,467
Obligations under capital leases 17,207 20,528
Noncurrent deferred tax liability 11,871 11,771
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Total noncurrent liabilities 177,516 217,299
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Total liabilities 306,457 324,276
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Commitments and contingent liabilities
Stockholders' equity
Common stock 179 211
Paid-in-capital 190,595 259,926
Accumulated deficit (24,216) (24,791)
Distribution in excess of net book value of
continuing stockholder's interest (44,943) (44,943)
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Total stockholders' equity 121,615 190,403
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Total liabilities and stockholders' equity $ 428,072 $ 532,679
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</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1
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JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
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<S> <C> <C>
Net sales $ 339,257 $ 390,832
Cost of sales 281,576 324,280
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Gross profit 57,681 66,552
Operating expenses 47,194 53,998
Amortization of intangible assets 565 597
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Income from operations 9,922 11,957
Interest expense 3,428 3,542
Nonrecurring charge 5,300
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Income (loss) before income taxes 6,494 3,115
Provision for income taxes (2,774) (1,306)
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Net income (loss) 3,720 1,809
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Net income (loss) per common share $ 0.21 $ 0.09
=========== =============
Weighted average number of shares
of common stock outstanding 17,844,428 19,559,806
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 5
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
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<S> <C> <C>
Net cash provided by (used in) operating activities $ (6,200) $ (53,592)
Cash flows from investing activities
Additions to property and equipment (4,025) (22,672)
Cost of businesses acquired $ (28,834)
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Net cash used in investing activities (4,025) (51,506)
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Cash flows from financing activities
Proceeds from public stock offering 67,274
Increase in long term debt 5,918 30,727
Proceeds from note receivable 5,500
Proceeds from employee stock purchases 169 389
Principal payments under capital lease obligations (1,393) (1,202)
Distributions to stockholders of acquired businesses (174) (264)
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Net cash provided by financing activities 4,520 102,424
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Net decrease in cash and cash equivalents (5,705) (2,674)
Cash and cash equivalents
Beginning of period 15,461 12,035
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End of period $ 9,756 $ 9,361
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 6
JP FOODSERVICE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements of JP Foodservice, Inc. (the
"Company") at September 28, 1996 and for the three months ended September 30,
1995 and September 28, 1996, included herein are unaudited, but include all
adjustments (consisting only of normal recurring entries) which the Company's
management believes to be necessary for the fair presentation of the financial
position, results of operations and cash flows of the Company at and for the
periods presented. Interim results are not necessarily indicative of results
that may be expected for the full year. The Condensed Consolidated Financial
Statements and related notes give retroactive effect to the merger with Valley
Industries, Inc. ("Valley") for all periods presented, accounted for as a
pooling of interests. The condensed consolidated balance sheets as of June 29,
1996 and September 28, 1996 include the accounts of Valley as of January 31,
1996 and September 28, 1996, respectively, and the condensed consolidated
statements of income and of cash flows for the three-month period ended
September 30, 1995 and September 28, 1996 include the results of Valley for the
three-month period ended April 30, 1995 and the eight-month period ended
September 28, 1996, respectively (see Note 3 - Merger with Valley Group). The
"Company" as used in these Condensed Consolidated Financial Statements refers
to JP Foodservice, Inc. and its subsidiaries, including Valley.
NOTE 2 - NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average number of
common and common equivalent shares outstanding during the period.
NOTE 3 - MERGER WITH VALLEY GROUP
On August 30, 1996, the Company completed a merger with Valley Industries, Inc.
(together with its affiliates, the "Valley Group"), a broadline foodservice
distributor located in Las Vegas, Nevada, for a purchase price of $40.7 million
(net of indebtedness assumed or discharged). Under the terms of the merger,
which is accounted for as a pooling of interests, the Company exchanged
1,936,494 common shares for all of the Valley Group's common shares and
ownership interests of an affiliate.
Effective June 30, 1996, the fiscal year of Valley was conformed to the
Company's fiscal year. Accordingly, an adjustment of $2.1 million has been made
to the combined Company's retained earnings on June 30, 1996 to reflect changes
in the Valley Group's retained earnings from February 1, 1996 to June 29, 1996.
All periods presented have been retroactively restated (See Note 1 - Basis of
Presentation).
Transaction costs related to the merger of $5.3 million ($3.3 million net of
tax or $0.17 per common share) were charged to income during the quarter and
consisted primarily of investment banking, legal and accountanting fees and
printing, mailing and registration expenses.
NOTE 4 - ARROW ACQUISITION
Effective August 31, 1996, the Company completed the acquisition of Arrow Paper
and Supply Co., Inc. (together with its affiliate, "Arrow"), a broadline
foodservice distributor located in Norwich, Connecticut. Under the terms of the
agreement, which is accounted for as a purchase, the Company purchased certain
assets, assumed or discharged certain liabilities and paid consideration of
$29.6 million. Approximately $1.7 million of the consideration was paid in the
form of common stock and the remainder was paid in cash. The excess of
purchase price over the fair value of net assets is
4
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approximately $28.5 million and will be amortized using the straight-line
method over 40 years. Unaudited pro forma information for the three- month
periods ended September 28, 1996 and September 30, 1995, as if the acquisition
had occurred on the first day of those periods, is shown below.
<TABLE>
<CAPTION>
Three Months Ended
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(In thousands, except per share data) September 30, 1995 September 28, 1996
------------------------- ------------------------
Actual Pro forma Actual Pro forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Revenue $ 339,257 $ 358,857 $ 390,832 $ 408,519
Income from operations 9,922 10,490 11,957 12,719
Net income 3,720 3,970 1,809 2,188
Net income per common share $ 0.21 $ 0.22 $ 0.09 $ 0.11
</TABLE>
NOTE 5 - STOCK OFFERING
In August 1996, the Company completed the sale of 3,000,000 shares of common
stock in a public offering (the "Offering") and generated $65.7 million in net
proceeds. The net proceeds of the Offering were used to fund the cash portion
of the Arrow purchase price and to repay indebtedness assumed or discharged by
the Company in connection with its acquisitions of the Valley Group and Arrow,
as discussed above. In September 1996, the Company received additional net
proceeds of $1.6 million in the Offering from the sale of 75,000 shares to
cover over-allotments.
NOTE 6 - CONTINGENCIES
From time to time, the Company is involved in litigation and proceedings
arising out of the ordinary course of business. There are no pending material
legal proceedings or environmental investigations to which the Company is a
party or to which the property of the Company is subject at this time.
NOTE 7 - SUBSEQUENT EVENT
Effective September 30, 1996, the Company completed a merger with Squeri Food
Service, Inc. (together with its affiliate, "Squeri"), a broadline foodservice
distributor located in Cincinnati, Ohio, for a purchase price of approximately
$26.1 million (net of indebtedness assumed or discharged). Under the terms of
the merger, accounted for as a pooling of interests, the Company exchanged
1,079,875 common shares for all of Squeri's common shares.
5
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 28, 1996 Compared to the Three Months Ended
September 30, 1995.
Overview
During the three months ended September 28, 1996, the Company consummated the
Valley acquisition, which is being accounted for under the pooling of interests
method. In accordance with pooling of interests accounting, both current
period results and prior period results have been restated to include the
results of Valley. Also during the three months ended September 28, 1996,
the Company consummated the Arrow acquisition, which is being accounted for
under the purchase method. In accordance with purchase accounting, prior
period results have not been restated and current period results include
the results of Arrow from the date of consummation.
Net Sales
The Company's net sales of $391 million for the three months ended September
28, 1996 (the "1997 fiscal quarter") represented a 15.2% increase from the $339
million net sales level achieved for the three months ended September 30, 1995
(the "1996 fiscal quarter"). Internal sales growth accounted for 10.7% of the
increase, with the balance attributable to sales by Valley and Arrow. Growth
in both chain account and street sales contributed to the increase in internal
sales. Chain account sales increased 14.1% in the 1997 fiscal quarter,
reflecting the continued growth in sales to the Company's larger customers. An
increase of 7.8% in street sales in the 1997 fiscal quarter resulted
principally from the growth of the street sales force and improved sales force
productivity. As a percentage of net sales, chain account sales increased to
43.8% in the 1997 fiscal quarter from 42.4% in the 1996 fiscal quarter.
Gross Profit
The Company's gross profit margin remained constant at 17.0% in the two fiscal
quarters. Decreases in gross margin, as a result of increased chain account
sales, were offset by increases in gross margin resulting from the growth of
the Company's private and signature brand products. Sales of these products
increased by $14.6 million (48.8%) over the 1996 fiscal quarter.
Operating Expenses
The increased sales volume in the 1997 fiscal quarter contributed to a 14.4%
($6.8 million) increase in operating expenses over the prior corresponding
period. As a percentage of net sales, operating expenses decreased to 13.8%
from 13.9% in the 1996 fiscal quarter. The decrease in operating expenses, as
a percentage of net sales, in the 1997 period resulted primarily from the
economies associated with the increase of chain account sales as a percentage
of net sales.
Income from Operations
Income from operations (after amortization charges of $0.6 million) increased
20.5% ($2.0 million) in the 1997 fiscal quarter over the 1996 fiscal quarter.
The increase in the 1997 period was attributable to increased sales volume and
to a decrease in operating expenses as a percentage of net sales.
Nonrecurring Charge
The Company incurred transaction costs related to the acquisition of Valley of
$5.3 million during the 1997 fiscal quarter. Under pooling of interests
accounting, such transaction costs must be expensed in the period incurred. Of
these costs, $4.0 million were paid by the stockholders of Valley through a
reduction of the acquisition purchase price. On an after-tax basis, this
charge reduced net income per common share by $0.17.
Income Taxes
The Company recorded an income tax provision of $1.3 million in the 1997 fiscal
quarter, compared to an income tax provision of $2.8 million in the prior
corresponding period. The decrease in the provision was attributable to the
Company's lower pretax profit level in the 1997 fiscal quarter. The Company's
effective tax rate of 41.9% for the 1997 fiscal quarter decreased slightly from
the effective tax rate of 42.7% for the 1996 fiscal quarter.
6
<PAGE> 9
Liquidity and Capital Resources
As of September 28, 1996, the Company's total long-term indebtedness,
including current portion, was $211.4 million, with an overall weighted average
interest rate of 7.6% (excluding deferred financing costs and costs of interest
rate swaps and interest cap arrangements).
The Company's working capital balance of $176.3 million at September 28, 1996
increased by $58.7 million from the balance at June 29, 1996. This increase
was primarily attributable to increased sales, seasonal increases in inventory
and receivables, the acquisition of the working capital of Arrow and a
reduction in accounts payable. The Company recorded $22.7 million of capital
expenditures for the quarter, of which $10.7 million related to the purchase
accounting for the Arrow acquisition and $10.0 million related to the facility
expansion and delivery fleet purchases of Valley between January 31, 1996 and
September 30, 1996. The Company expended an additional $28.8 million related
to the purchase of Arrow. These expenditures were funded with the proceeds of
the stock offering consummated in August 1996 and increases in long-term debt.
From time to time, the Company considers the acquisition of other foodservice
businesses. Any such business may be acquired for cash, common stock of the
Company, or a combination of cash and common stock.
As of September 28, 1996, $45.5 million of borrowings and $11.0 million of
letters of credit were outstanding under the Company's $110 million revolving
credit facility and an additional $53.5 million remained available to finance
the Company's working capital needs. The Company believes that the combination
of the cash flow generated by its operations, additional capital leasing
activity and borrowings under the facility will be sufficient to enable it to
finance its growth and meet its projected capital expenditures and other
liquidity requirements.
7
<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
The Company filed current reports on Form 8-K for reportable
events dated during the three months ended September 28, 1996,
pursuant to the Items and with respect to the subjects indicated:
Date Item(s) Subject
---- ------- -------
[S] [C] [C]
July 1, 1996 5 Proposed acquisition
July 17, 1996 5 Proposed acquisition
August 5, 1996 5 Earnings release
August 30, 1996 2,7 Consummated acquisition
September 3, 1996 2,7 Consummated acquisition
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
JP FOODSERVICE, INC.
(Registrant)
DATE November 12, 1996 /s/ James L. Miller
------------------------------ ------------------------------------------------
James L. Miller, President and
Chief Executive Officer
(Duly Authorized Officer)
DATE November 12, 1996 /s/ Lewis Hay, III
----------------------------- ------------------------------------------------
Lewis Hay, III, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<CASH> 9,361
<SECURITIES> 0
<RECEIVABLES> 179,953
<ALLOWANCES> 3,726
<INVENTORY> 100,313
<CURRENT-ASSETS> 301,326
<PP&E> 186,280
<DEPRECIATION> 62,715
<TOTAL-ASSETS> 532,679
<CURRENT-LIABILITIES> 124,977
<BONDS> 0
0
0
<COMMON> 211
<OTHER-SE> 190,192
<TOTAL-LIABILITY-AND-EQUITY> 532,679
<SALES> 390,832
<TOTAL-REVENUES> 390,832
<CGS> 324,280
<TOTAL-COSTS> 54,595
<OTHER-EXPENSES> 5,300<F1>
<LOSS-PROVISION> 788
<INTEREST-EXPENSE> 3,542
<INCOME-PRETAX> 3,115
<INCOME-TAX> 1,306
<INCOME-CONTINUING> 1,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,809
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<FN>
<F1>Represents nonrecurring costs associated with completing the acquisition of the
Valley Group.
</FN>
</TABLE>
