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 March 29, 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 May 12, 1997 was 22,308,796 shares.
<PAGE>
JP FOODSERVICE, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 29, 1996 and March 29, 1997 1
Condensed Consolidated Statements of Operations
Three and nine months ended March 30, 1996
and March 29, 1997 2
Condensed Consolidated Statements of Cash Flows
Nine months ended March 30, 1996
and March 29, 1997 3
Notes to Condensed Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial 7 - 8
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS June 29, March 29,
1996 1997
---------- ----------
Current assets
Cash and cash equivalents ..................... $ 12,224 $ 11,527
Receivables, net .............................. 154,405 148,211
Inventories ................................... 84,138 102,112
Other current assets .......................... 9,556 14,702
-------- --------
Total current assets ................... 260,323 276,552
-------- --------
Property and equipment, net .......................... 104,258 131,557
Goodwill and other noncurrent assets ................. 83,698 109,898
-------- --------
Total assets ......................................... $448,279 $518,007
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current obligations under capital leases ...... $ 5,072 $ 5,645
Revolving bank line of credit ................. 5,300
Current portion of long-term debt ............. 895 59
Current portion of subordinated debt
with related parties ....................... 3,622 217
Accounts payable .............................. 110,230 104,837
Accrued expenses .............................. 14,338 19,683
-------- --------
Total current liabilities .............. 139,457 130,441
-------- --------
Noncurrent liabilities
Long-term debt ................................ 145,040 147,199
Subordinated debt with related parties ........ 5,958 4,414
Obligations under capital leases .............. 17,649 19,591
Noncurrent deferred tax liability ............. 12,026 8,882
-------- --------
Total noncurrent liabilities ........... 180,673 180,086
-------- --------
Total liabilities ...................... 320,130 310,527
-------- --------
Commitments and contingent liabilities
Stockholders' equity ................................. 128,149 207,480
-------- --------
Total liabilities and stockholders' equity ........... $448,279 $518,007
======== ========
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
-------------------- ----------------------
March 30, March 29, March 30, March 29,
1996 1997 1996 1997
-------- -------- -------- --------
Net sales ....................... $349,717 $407,665 $1,059,565 $1,244,629
Cost of sales ................... 288,852 336,687 877,313 1,029,077
-------- -------- ---------- ----------
Gross profit .................... 60,865 70,978 182,252 215,552
Operating expenses .............. 51,049 57,682 150,785 174,469
Amortization of intangible assets 591 774 1,741 2,156
-------- -------- ---------- ----------
Income from operations .......... 9,225 12,522 29,726 38,927
Interest expense ................ 3,930 4,100 11,405 11,927
Nonrecurring charges (Note 6) ... 1,517 1,517 5,400
-------- -------- ---------- ----------
Income before income taxes ...... 3,778 8,422 16,804 21,600
Provision for income taxes ...... 1,577 3,341 7,060 9,751
-------- -------- ---------- ----------
Net income ...................... $ 2,201 $ 5,081 $ 9,744 $ 11,849
======== ======== ========== ==========
Net income per common share ..... $ 0.12 $ 0.23 $ 0.52 $ 0.55
======== ======== ========== ==========
Weighted average number of
shares of common stock
outstanding ..................18,828,078 22,257,662 18,784,974 21,703,219
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
2
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JP FOODSERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
--------------------
March 30, March 29,
1996 1997
--------- ---------
Cash flows from operating activities
Net income ....................................... $ 9,744 $ 11,849
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization ............... 9,875 13,139
Other adjustments ........................... (5,872)
Changes in working capital, net of effects
from acquisitions (Note 7) .................... (22,164) (9,974)
-------- --------
Net cash provided by (used in) operating activities .... (2,545) 9,142
-------- --------
Cash flows from investing activities
Additions to property and equipment .............. (8,205) (20,935)
Acquisitions of businesses, net of cash acquired . (2,765) (48,814)
Other ............................................ 5,500
-------- --------
Net cash used in investing activities .................. (10,970) (64,249)
-------- --------
Cash flows from financing activities
Proceeds from public stock offering .............. 65,832
Increase (decrease) in long-term debt (Note 7) ... 9,566 (8,926)
Principal payments under capital
lease obligations ............................. (3,393) (4,292)
Distributions to stockholders
of acquired businesses ........................ (1,098) (662)
Proceeds from employee stock purchases ........... 1,808 2,458
-------- --------
Net cash provided by financing activities .............. 6,883 54,410
-------- --------
Net decrease in cash and cash equivalents .............. (6,632) (697)
Cash and cash equivalents
Beginning of period .............................. 15,690 12,224
-------- --------
End of period .................................... $ 9,058 $ 11,527
======== ========
SEE ACCOMPANYING NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
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 March 29, 1997 and for the three and nine months ended March 30,
1996 and March 29, 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.
The Condensed Consolidated Financial Statements and related notes give
retroactive effect to the mergers with Valley Industries, Inc. (together with
its affiliates, "Valley") and Squeri Food Service, Inc. (together with its
affiliate, "Squeri") for all periods presented, accounted for under the pooling
of interests method. The condensed consolidated balance sheets as of June 29,
1996 and March 29, 1997 include the accounts of Valley as of January 31, 1996
and March 29, 1997, respectively, and the accounts of Squeri as of December 31,
1995 and March 29, 1997, respectively. The condensed consolidated statements of
cash flows for the nine-month periods ended March 30, 1996 and March 29, 1997
include the results of Valley for the nine-month period ended October 31, 1995
and the fourteen-month period ended March 29, 1997, respectively, and the
results of Squeri for the nine-month period ended September 30, 1995 and the
fifteen-month period ended March 29, 1997, respectively. The condensed
consolidated statements of operations for the three and nine-month periods ended
March 30, 1996 and March 29, 1997, respectively, include the results of Valley
for the three and nine-month periods ended October 31, 1995 and March 29, 1997
and the results of Squeri for the three and nine-month periods ended September
30, 1995 and March 29, 1997, respectively. (See Note 3 - Merger with Valley and
Note 4 - Merger with Squeri.) The "Company" as used in these Condensed
Consolidated Financial Statements refers to JP Foodservice, Inc. and its
subsidiaries, including Valley and Squeri.
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 - MERGER WITH VALLEY
On August 30, 1996, the Company completed a merger with Valley, 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 Valley'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 Company's combined retained earnings on June 30, 1996 to reflect changes
in Valley's retained earnings from February 1, 1996 to June 29, 1996. All
periods presented have been retroactively restated (see Note 1 - Basis of
Presentation).
NOTE 4 - MERGER WITH SQUERI
Effective September 30, 1996, the Company completed a merger with 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.
4
<PAGE>
Effective June 30, 1996, the fiscal year of Squeri was conformed to the
Company's fiscal year. Accordingly, an adjustment has been made to the Company's
combined retained earnings on June 30, 1996 to reflect changes in Squeri's
retained earnings from January 1, 1996 to June 29, 1996. All periods presented
have been retroactively restated (see Note 1 - Basis of Presentation).
NOTE 5 - 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
acquisition, which is accounted for as a purchase, the Company purchased certain
assets, assumed or discharged certain liabilities and paid consideration of
$28.9 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 approximately $28.2 million and is
being amortized using the straight-line method over 40 years. Unaudited pro
forma information for the nine-month periods ended March 30, 1996 and March 29,
1997, as if the acquisition had occurred on the first day of those periods, is
shown below.
Nine Months Ended
-----------------
(In thousands, March 30, 1996 March 29, 1997
except per share data) ------------------------ -----------------------
Actual Pro forma Actual Pro forma
Revenue .................... $1,059,565 $1,119,663 $1,244,629 $1,262,316
Income from operations ..... 29,726 31,542 38,927 39,689
Net income ................. 9,744 10,656 11,849 12,228
Net income per common share $ 0.52 $ 0.57 $ 0.55 $ 0.56
NOTE 6 - NONRECURRING CHARGES
During the nine months ended March 29, 1997, the Company recorded nonrecurring
charges of approximately $3.4 million for Valley and $2.0 million for Squeri
with respect to the estimated legal and other professional fees required to
complete the respective acquisitions.
The Company's effective tax rate for the nine months ended March 29, 1997
reflects the tax treatment of certain transaction costs incurred in the Valley
and Squeri acquisitions. The Company's effective tax rates for the three and
nine-month periods ended March 29, 1997 were 39.7% and 45.1%, respectively.
The net impact of the nonrecurring transaction costs to the Company's earnings
per share for the nine-month period ended March 29, 1997 was $0.21. Excluding
these nonrecurring transaction costs, the Company's earnings per share for the
nine-month period ended March 29, 1997 would have been $0.76.
During the three and nine months ended March 30, 1996, the Company terminated
discussions with Sara Lee Corporation regarding the proposed combination of the
Company and PYA Monarch, Inc. (a wholly-owned subsidiary of Sara Lee
Corporation). As a result of the termination of these discussions, which began
with a proposal submitted by Sara Lee Corporation in November 1995, the Company
wrote off the costs incurred related to the transaction (primarily legal and
advisory fees) of approximately $1.5 million.
NOTE 7 - ACCOUNTING CHANGE
On May 31, 1996 the Company entered into a three-year agreement to sell, on an
ongoing basis and without recourse, an undivided percentage ownership interest
in a designated pool of trade accounts receivable to an independent issuer of
receivable-backed paper (the "Conduit") for proceeds up to $50 million. The net
proceeds from the sale of the undivided ownership interest in the pool of
receivables was accounted for as a secured borrowing. Effective January 1, 1997,
the Company adopted, as required, Statement of Financial Accounting Standards
No. 125 (FAS 125), "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities". Under the new standard, the sale of the
undivided ownership interest in receivables has been reflected as a reduction of
trade accounts receivable, and the Company is no longer
5
<PAGE>
reporting the $50 million of proceeds as a secured borrowing. On the statement
of cash flows, this sale has been reflected as a change in working capital and a
decrease in long-term debt during the nine-month period ended March 29, 1997.
The Company's residual interest in the undivided ownership interest of the
designated pool of trade accounts receivable sold is included in trade accounts
receivable on the balance sheet. There was no material effect on net income as a
result of adopting the new standard.
NOTE 8 - 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.
6
<PAGE>
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 and needs 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 and Nine Months Ended March 29, 1997 Compared to Three and Nine Months
Ended March 30, 1996.
OVERVIEW
The condensed consolidated statements of operations for the three and nine-month
periods ended March 30, 1996 and March 29, 1997 include the results of Valley
for the three and nine-month periods ended October 31, 1995 and March 29, 1997,
respectively, and the results of Squeri for the three and nine-month periods
ended September 30, 1995 and March 29, 1997, respectively.
NET SALES
The Company's net sales of $408 million for the three months ended March 29,
1997 (the "1997 fiscal quarter") represented a 16.6% increase from the $350
million net sales level achieved for the three months ended March 30, 1996 (the
"1996 fiscal quarter"). For the nine months ended March 29, 1997 (the "1997
fiscal nine-month period"), net sales increased 17.5% to $1,245 million from
$1,060 million for the nine months ended March 30, 1996 (the "1996 fiscal
nine-month period").
The acquisition of Arrow accounted for sales growth of 6.9% and 5.2% for the
1997 fiscal quarter and 1997 fiscal nine-month period, respectively. Growth in
both chain account and street sales contributed to the increase in sales. Chain
account sales increased 15.2% for the 1997 fiscal quarter and 18.6% for the 1997
fiscal nine-month period, reflecting the continued growth in sales to the
Company's larger customers. An increase of 17.6% in street sales for the 1997
fiscal quarter and 16.6% for the 1997 fiscal nine-month period resulted
principally from the growth of the street sales force and the Arrow acquisition.
As a percentage of net sales, street sales increased to 56.7% for the 1997
fiscal quarter from 56.2% for the 1996 fiscal quarter and decreased to 57.2% in
the 1997 fiscal nine-month period from 57.6% for the prior corresponding period.
GROSS PROFIT
The Company's gross profit remained constant at 17.4% for the fiscal quarters
and increased to 17.3% in the 1997 fiscal nine-month period from 17.2% in the
prior corresponding period. The increased gross profit for the nine-month period
was primarily attributable to the growth in sales of the Company's private and
signature brand products. Sales of these products, which generally have higher
gross margins than national brand products of comparable quality, increased by
36.3% for the 1997 fiscal nine-month period over the corresponding period in the
prior fiscal year.
OPERATING EXPENSES
The increased sales volume in the 1997 fiscal quarter and the 1997 fiscal
nine-month period contributed to increases in operating expenses of 13.0% ($6.6
million) and 15.7% ($23.7 million), respectively, over the corresponding periods
in the prior fiscal year. Operating expenses increased at a slower rate than net
sales. As a percentage of net sales, operating expenses decreased to 14.1% from
14.6% and to 14.0% from 14.2% for the two fiscal quarters and the two fiscal
nine-month periods, respectively. A significant factor in this decrease was the
differing impact that winter weather had on the Company's distribution
operations during the comparable periods. The weather disturbances experienced
in the companies markets during the 1997 fiscal quarter resulted in less
disruption to the Company's distribution operations then the severe winter
storms experienced during the 1996 fiscal quarter. Revised compensation
agreements relating to the Valley and Squeri acquisitions also resulted in cost
savings for both the 1997 fiscal quarter and the 1997 fiscal nine-month period.
7
<PAGE>
INCOME FROM OPERATIONS
Income from operations (after amortization charges of $0.8 million in the 1997
fiscal quarter and $0.6 million in the 1996 fiscal quarter) increased 35.7%
($3.3 million) in the 1997 fiscal quarter over the 1996 fiscal quarter. For the
1997 fiscal nine-month period, income from operations increased 31.0% ($9.2
million) over the prior corresponding period. The increase in the 1997 fiscal
periods was attributable to the increased sales volume, the increased gross
profit margin and the decrease in operating expense as a percentage of net
sales.
INCOME TAXES
For the 1997 fiscal nine-month period, the Company's effective tax rate reflects
the tax treatment of certain of the transaction costs incurred in the Valley and
Squeri acquisitions. The Company's effective tax rates for the 1997 fiscal
quarter and 1997 fiscal nine-month period were 39.7% and 45.1%, respectively,
compared to the effective tax rates for the 1996 fiscal quarter and 1996 fiscal
nine-month period of 41.7% and 42.0%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Both the long-term indebtedness and the working capital of the Company as of
March 29, 1997 were effected by the accounting change related to the accounts
receivable securitization. (See Note 7 to the Condensed Consolidated Financial
Statements).
As of March 29, 1997, the Company's total long-term indebtedness, including the
current portion was $177.1 million, with an overall weighted average interest
rate of 7.3% (excluding deferred financing costs).
The Company's working capital balance (excluding current portions of long-term
debt and capital lease obligations) of $152.0 million at March 29, 1997
increased by $16.3 million from the balance at June 29, 1996. This increase,
which is net of the accounting change related to the accounts receivable
securitization, resulted from sales growth, working capital acquired as part of
the acquisitions, seasonal inventory and receivable trends, and a reduction 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 March 29, 1997, $62.5 million of borrowings and $11.8 million of letters
of credit were outstanding under the Company's $110 million revolving credit
facility and an additional $35.7 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.
8
<PAGE>
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 March 29, 1997,
pursuant to the Items and with respect to the subjects
indicated:
Date Item(s) Subject
January 2, 1997 4, 7 Change in Certifying Accountants
9
<PAGE>
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: May 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>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-28-1997
<PERIOD-START> Jun-30-1996
<PERIOD-END> Mar-29-1997
<CASH> 11,527
<SECURITIES> 0
<RECEIVABLES> 148,211
<ALLOWANCES> 0
<INVENTORY> 102,112
<CURRENT-ASSETS> 276,552
<PP&E> 131,557
<DEPRECIATION> 0
<TOTAL-ASSETS> 518,007
<CURRENT-LIABILITIES> 130,441
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 207,480
<TOTAL-LIABILITY-AND-EQUITY> 518,007
<SALES> 1,244,629
<TOTAL-REVENUES> 1,244,629
<CGS> 1,029,077
<TOTAL-COSTS> 176,625
<OTHER-EXPENSES> 5,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,927
<INCOME-PRETAX> 21,600
<INCOME-TAX> 9,751
<INCOME-CONTINUING> 11,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,849
<EPS-PRIMARY> 0.550
<EPS-DILUTED> 0.550
</TABLE>
