<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________to_______________
Commission file number: 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
----- -----
The number of shares of the registrant's common stock, par value $.01 per
share, outstanding at November 7, 1997 was 22,608,346 shares.
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JP FOODSERVICE, INC.
INDEX
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<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 28, 1997 and September 27, 1997 (unaudited) 1
Condensed Consolidated Statements of Earnings
Three months ended September 28, 1996
and September 27, 1997 (unaudited) 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 28, 1996
and September 27, 1997 (unaudited) 3
Notes to Condensed Consolidated Financial
Statements (unaudited) 4 - 5
Item 2. Management's Discussion and Analysis of Financial 6 - 7
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JP FOODSERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 28, September 27,
1997 1997
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 11,139 $ 11,430
Receivables, net 138,754 168,176
Inventories 110,030 123,636
Other current assets 11,946 15,574
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Total current assets 271,869 318,816
Property and equipment, net 141,724 139,413
Goodwill and other noncurrent assets 110,555 109,223
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Total assets $ 524,148 $ 567,452
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 4,594 $ 4,636
Current obligations under capital leases 4,817 4,565
Accounts payable 89,923 117,203
Accrued expenses 19,111 23,018
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Total current liabilities 118,445 149,422
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Noncurrent liabilities
Long-term debt 149,055 155,208
Obligations under capital leases 19,460 18,506
Deferred income taxes 8,242 8,242
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Total noncurrent liabilities 176,757 181,956
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Total liabilities 295,202 331,378
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Commitments and contingent liabilities
Stockholders' equity 228,946 236,074
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Total liabilities and stockholders' equity $ 524,148 $ 567,452
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1
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JP FOODSERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
September 28, September 27,
1996 1997
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<S> <C> <C>
Net sales $ 414,362 $ 467,890
Cost of sales 343,631 385,744
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Gross profit 70,731 82,146
Operating expenses 57,667 65,472
Amortization of intangible assets 597 776
-------------- ---------------
Income from operations 12,467 15,898
Interest expense 3,654 4,399
Nonrecurring charges 5,300
-------------- ---------------
Income before income taxes 3,513 11,499
Provision for income taxes 1,459 4,558
-------------- ---------------
Net income $ 2,054 $ 6,941
============== ===============
Net income per common share $ 0.10 $ 0.31
============== ===============
Weighted average number of shares
of common stock outstanding 20,639,681 22,603,440
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
2
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JP FOODSERVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
September 28, September 27,
1996 1997
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<S> <C> <C>
Cash flows from operating activities
Net income $ 2,054 $ 6,941
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 4,368 4,598
Other adjustments (2,574) (3,591)
Changes in operating assets and liabilities,
net of effects from purchase acquisitions (55,707) (11,335)
--------------- ---------------
Net cash used in operating activities (51,859) (3,387)
--------------- ---------------
Cash flows from investing activities
Additions to property and equipment (22,832) (1,454)
Cost of businesses acquired, net of cash acquired (29,104)
Collection of note receivable 5,500
--------------- ---------------
Net cash used in investing activities (46,436) (1,454)
--------------- ---------------
Cash flows from financing activities
Net proceeds from public offering of
common stock 67,274
Long-term debt borrowings 29,862 6,195
Payments of obligations under capital lease (1,306) (1,206)
Proceeds from other issuances of common stock 389 413
Other (662) (270)
--------------- ---------------
Net cash provided by financing activities 95,557 5,132
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (2,738) 291
Cash and cash equivalents
Beginning of period 12,224 11,139
--------------- ---------------
End of period $ 9,486 $ 11,430
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
JP FOODSERVICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of JP Foodservice, Inc. and its
consolidated subsidiaries (the "Company") at September 27, 1997 and for the
three months ended September 28, 1996 and September 27, 1997, 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.
NOTE 2 - NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of common
and common equivalent shares outstanding during the period.
NOTE 3 - ACQUISITIONS
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. Effective June 19,
1997, the Company completed the acquisition of Mazo-Lerch Company, Inc.
("Mazo-Lerch"), a broadline foodservice distributor located in Alexandria,
Virginia. Each of these acquisitions has been accounted for as a purchase.
Unaudited pro forma information for the three-month period ended September 28,
1996, as if the acquisitions had occurred on the first day of such period, is
shown below.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Actual Pro forma
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<S> <C> <C>
Net sales $ 414,362 $ 451,483
Income from operations 12,467 13,180
Net income 2,054 2,321
Net income per common share $ 0.10 $ 0.11
</TABLE>
NOTE 4 - SUBSEQUENT EVENTS
Outwest Acquisition
- -------------------
Effective October 30, 1997, the Company completed the acquisition of Outwest
Meat Company ("Outwest"), a foodservice distributor specializing in meats,
located in Las Vegas, Nevada. Under the terms of the acquisition, which will be
accounted for as a purchase, the Company acquired 100% of the stock of Outwest
for approximately $10.5 million. The consideration was paid in the form of
Company common shares. The excess of purchase price over fair value of net
assets is approximately $7.1 million and will be amortized using the
straight-line method over 40 years.
4
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Revised Merger Terms with Rykoff-Sexton, Inc.
- ---------------------------------------------
On November 5, 1997, the Company announced that the merger agreement signed by
the Company and Rykoff-Sexton, Inc. ("Rykoff") on June 30, 1997 has been
amended. Under the amended merger agreement, Rykoff shareholders will receive
shares of the Company at a fixed exchange ratio of 0.775 of Company common
shares for each Rykoff common share. Based on the exchange ratio, Rykoff is
valued at $1.4 billion including assumed debt.
NOTE 5 - 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 as of the date of this report.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements in this Management's Discussion with respect to management's
expectations regarding the Company's liquidity needs and resources constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements are subject to risks and uncertainties that could cause the
Company's actual results to differ materially. Such risks and uncertainties
include the sensitivity of the Company's business to national and regional
economic conditions, the effects of inflation and deflation in food prices, the
highly competitive markets in which the Company operates and the Company's
ability to implement an acquisition program. The Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission on April 23, 1997,
discusses some of the important factors that could cause JP's actual results to
differ materially from those in such forward-looking statements.
Results of Operations
- ---------------------
Three Months Ended September 27, 1997 compared to Three Months Ended September
28, 1996.
Net Sales
- ---------
The Company's net sales of $468 million for the three months ended September 27,
1997 (the "1998 fiscal quarter") represented a 13.0% increase from the $414
million net sales level achieved for the three months ended September 28, 1996
(the "1997 fiscal quarter").
The acquisition of Arrow and Mazo-Lerch accounted for sales growth of 9.5% in
the 1998 fiscal quarter. Chain account sales increased 11.6% for the 1998 fiscal
quarter, reflecting the continued growth in sales to the Company's larger
customers and the development of new chain account relationships. An increase of
13.9% in street sales for the 1998 fiscal quarter resulted principally from the
growth of the street sales force. As a percentage of net sales, street sales
increased to 58.1% for the 1998 fiscal quarter from 57.6% for the 1997 fiscal
quarter.
Gross Profit
- ------------
The Company's gross profit increased to 17.6% for the 1998 fiscal quarter from
17.1% for the 1997 fiscal quarter. The increased gross profit was primarily
attributable to the reduced purchasing costs achieved at the Company's acquired
operations as a result of their access to the Company's centralized purchasing
programs, the increase in street sales as a percentage of total sales and the
growth in sales of the Company's private and signature brand products. Sales of
the Company's proprietary products, which generally have higher gross margins
than national brand products of comparable quality, increased to 20.5% of street
sales for the 1998 fiscal quarter from 18.7% for the 1997 fiscal quarter.
Operating Expenses
- ------------------
The increased sales volume in the 1998 fiscal quarter contributed to an increase
in operating expenses of $7.8 million over the corresponding prior quarter.
Operating expenses, as a percentage of sales, increased slightly from 13.9% to
14.0%, primarily as a result of the increase in street sales as a percentage of
total sales. Sales and delivery costs are generally higher for street accounts
than for chain accounts.
Income from Operations
- ----------------------
Income from operations (after amortization charges of $0.8 million in the 1998
fiscal quarter and $0.6 million in the 1997 fiscal quarter) increased 27.5%
($3.4 million) in the 1998 fiscal quarter over the 1997 fiscal quarter. The
increase in the 1998 fiscal quarter was attributable to the increased sales
volume and the increased gross profit margin.
Income Taxes
- ------------
The Company's effective tax rate for the 1998 fiscal quarter was 39.6%, compared
to 41.5% for the corresponding 1997 fiscal quarter. This decrease was primarily
attributable to the impact of non-tax deductible goodwill amortization on the
effective tax rate.
Liquidity and Capital Resources
- -------------------------------
As of September 27, 1997, the Company's total long-term indebtedness, including
the current portion, was $182.9 million, with an overall weighted average
interest rate of 7.3% (excluding deferred financing costs).
6
<PAGE>
The Company's working capital balance (excluding current portions of long-term
debt and capital lease obligations) of $178.6 million at September 27, 1997
increased by $15.8 million from the balance at June 28, 1997. This increase
resulted primarily from sales growth, seasonal inventory and receivable trends.
The effect of these factors was partially offset by an increase in the Company's
accounts payable.
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 27, 1997, $69.9 million of borrowings and $10.6 million of
letters of credit were outstanding under the Company's $175 million revolving
credit facility and an additional $94.5 million remained available to finance
the Company's working capital and other liquidity 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 currently projected capital
expenditures and other liquidity requirements.
7
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(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 27, 1997,
pursuant to the Items and with respect to the subjects
indicated:
<TABLE>
<CAPTION>
Date Item(s) Subject
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<S> <C> <C>
June 30, 1997 5, 7 Agreement and Plan of Merger by and
among JP Foodservice, Inc., Hudson
Acquisition Corp. and Rykoff-Sexton, Inc.
September 3, 1997 5, 7 Amendment No. 1 to the Agreement and Plan
of Merger by and among JP Foodservice, Inc.,
Hudson Acquisition Corp. and Rykoff-Sexton, Inc.
</TABLE>
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.
JP FOODSERVICE, INC.
(Registrant)
DATE November 12, 1997 /s/ Lewis Hay, III
----------------- -------------------------------------
Lewis Hay, III, Senior Vice President
and Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 11,430
<SECURITIES> 0
<RECEIVABLES> 168,176
<ALLOWANCES> 0
<INVENTORY> 123,636
<CURRENT-ASSETS> 318,816
<PP&E> 139,413
<DEPRECIATION> 0
<TOTAL-ASSETS> 567,452
<CURRENT-LIABILITIES> 149,422
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 236,074
<TOTAL-LIABILITY-AND-EQUITY> 567,452
<SALES> 467,890
<TOTAL-REVENUES> 467,890
<CGS> 385,744
<TOTAL-COSTS> 66,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,399
<INCOME-PRETAX> 11,499
<INCOME-TAX> 4,558
<INCOME-CONTINUING> 6,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,941
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
