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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): June 25, 1999
U.S. FOODSERVICE
(Exact name of registrant as specified in its charter)
Delaware 0-24954 52-1634568
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
9755 Patuxent Woods Drive
Columbia, Maryland 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-7100
Not applicable
(Former name or former address, if changed since last report)
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Item 5. Other Events
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, U.S. Foodservice (the "Company") is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in forward-
looking statements made by or on behalf of the Company.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
99 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
U.S. FOODSERVICE
Date: June 25, 1999 By: /s/ George T. Megas
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George T. Megas
Senior Vice President and
Chief Financial Officer
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EXHIBIT 99
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
U.S. Foodservice is filing this Current Report on Form 8-K to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Many of the important factors presented below have been
discussed in U.S. Foodservice's prior filings with the Securities and Exchange
Commission.
U.S. Foodservice wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, U.S. Foodservice's actual results, and could cause U.S. Foodservice's
actual results for the fiscal periods ending after the date of this Current
Report to differ materially from those expressed in any forward-looking
statements made by or on behalf of U.S. Foodservice. The following factors are
not all of the factors which investors should consider prior to making an
investment decision with respect to U.S. Foodservice's securities, nor should
investors assume that the information contained herein is complete or accurate
in all respects after the date of this filing. U.S. Foodservice disclaims any
duty to update the statements contained herein.
Our business has low profit margins and is sensitive to national and
regional economic conditions.
Foodservice distribution companies like U.S. Foodservice purchase, store,
market and transport food and related products to establishments that prepare
and serve meals to be eaten away from home. Our industry is characterized by
relatively high inventory turnover with relatively low profit margins. We sell
a significant portion of our products at prices that are based on the cost of
the products plus a percentage markup. As a result, our profit levels may be
reduced during periods of food price deflation, even though our gross profit
percentage may remain relatively constant. Such a reduction could have a
material adverse effect on our business, operating results and financial
condition.
The foodservice distribution industry is sensitive to national and
regional economic conditions. Economic downturns could have an adverse impact
on the demand for our products. These downturns may reduce consumer spending at
restaurants and other foodservice institutions we supply.
Our distribution and administrative expenses are relatively fixed in the
short term. As a result, unexpected decreases in our net sales, such as those
due to severe weather conditions, can have a significant short-term adverse
impact on our operating income. Our operating results also may be adversely
affected by difficulties we may encounter in collecting our accounts receivable
and in maintaining our profit margins in times of unexpected increases in fuel
costs.
We are subject to risks associated with our acquisitions of other
foodservice businesses.
Since we became a public company in November 1994, we have acquired a
substantial number of foodservice businesses as part of our growth strategy of
supplementing internal expansion with acquisitions. Our acquisitions may not
improve our financial performance in the short or long term as we expect.
Acquisitions will enhance our earnings only if we can successfully integrate
those businesses into our marketing programs, centralized purchasing operations,
distribution network and information systems. Our ability to integrate acquired
businesses may be adversely affected by factors that include customer resistance
to our product brands and distribution system, our failure to retain management
and sales personnel, difficulties in converting different information systems to
our proprietary systems, the size of the acquired business and the allocation of
limited management resources among various integration efforts. In addition, we
may not eliminate as many redundant costs as we anticipated in selecting our
acquisition candidates. One or more of our acquisition candidates also may have
liabilities or adverse operating issues that we failed to discover prior to the
acquisition. Difficulties in integrating acquired businesses, as well as
liabilities or adverse operating issues relating to acquired businesses, could
have a material adverse effect on our business, operating results and financial
condition.
Even if acquired companies eventually contribute to an increase in our
profitability, the acquisitions may adversely affect our earnings in the short
term. Our earnings may decrease as a result of transaction-related expenses we
record for the quarter in which we complete an acquisition. Our earnings may be
further reduced by the higher operating and administrative expenses we
typically incur in the quarters immediately following an acquisition as we seek
to integrate the acquired business into our operations. The amortization of
goodwill and depreciation resulting from acquisitions also may contribute to
reduced earnings.
A significant portion of the growth in our revenues in recent years has
resulted from acquisitions. We may not be able to increase our revenues or
earnings through new acquisitions at the same rates we have
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achieved through our past acquisitions. For example, we were able to triple our
revenues directly as a result of our acquisition of Rykoff-Sexton in our 1998
fiscal year. As the foodservice distribution industry continues to consolidate,
we may find it more difficult to identify suitable acquisition candidates than
we did in the past. We may also find that the acquisition terms are not as
favorable as those in our prior acquisitions.
The way in which we pay for acquired businesses also involves risks. Many
of our past acquisitions have been structured as stock-for-stock transactions.
Continuing volatility in the U.S. securities markets and fluctuations in our
stock price may increase the risk that our stock-for-stock acquisitions could
dilute our earnings per share. We also pay cash for some businesses. In the
past, we have obtained funds for some of our cash acquisitions through
additional bank borrowings or by issuing common stock. If we increase our bank
borrowings or issue debt securities to finance future acquisitions, we will
increase our level of indebtedness and interest expense, while if we issue
additional common stock, we may dilute the ownership of our stockholders. In
addition, we may not be able to obtain the funds we need on acceptable terms.
These risks in the way we finance acquisitions could have a material adverse
effect on our business, operating results and financial condition.
Our stock price has fluctuated over a wide range, and could fluctuate
significantly in the future, as a result of our operating performance
and conditions in our industry.
From time to time, there may be significant volatility in the market price
for our common stock. Since our common stock began to trade publicly in November
1994, its market price has fluctuated over a wide range. A number of factors
involving U.S. Foodservice and the foodservice distribution industry could
contribute to future fluctuations in our stock price. These factors include the
following:
. quarterly operating results of U.S. Foodservice or other distributors of
food and related goods, which could affect the attractiveness of our
stock compared to the securities of foodservice companies with better
results or companies in other businesses;
. changes in general conditions in the economy or the foodservice
distribution industry, which could affect the demand for our products
and our operating results;
. our failure to complete and successfully integrate acquisitions of other
foodservice companies, which could adversely affect our operating
results and our ability to grow; and
. severe weather conditions, which could result in unexpected decreases in
our net sales.
The failure to attain Year 2000 compliance may have an adverse impact on
our business.
We and other companies we do business with rely on numerous computer
programs in managing day-to-day operations. We have undertaken a program to
address the Year 2000 issue, which is a general term used to describe the
various problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. Our failure to correct a Year 2000 problem could result
in a material interruption in, or a material failure of, our normal business
activities or operations. Our Year 2000 program is focused on both our internal
computer systems and third-party computer systems, including the systems of some
of our important suppliers and customers. As of March 27, 1999, we expect to
continue to incur internal staff costs and other expenses of up to $4 million to
complete our Year 2000 compliance work with respect to our major information
systems. It is possible that we will have to increase this estimate as we
complete our assessment of the impact of the Year 2000 issue on our business. In
addition, we may have to replace or upgrade systems or equipment at a
substantial cost. We cannot be sure that
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we will be able to resolve the Year 2000 issue in 1999. If we fail to resolve
the Year 2000 issue, or if our important suppliers and customers fail to
resolve their Year 2000 issues as they relate to U.S. Foodservice, the Year
2000 problem could have a material adverse effect on our business, operating
results and financial condition.
A labor dispute or work stoppage involving our employees, many of whom
are union members, could adversely affect our business.
Approximately 3,000 of our employees are members of approximately 40
different local unions associated with the International Brotherhood of
Teamsters and other labor organizations. These employees represent approximately
25% to 30% of our full-time employees and of the employees employed in our
warehouse and distribution operations. A labor dispute or work stoppage
resulting from our failure to conclude new collective bargaining agreements or
from other factors could have a material adverse effect on our business,
operating results and financial condition.
The foodservice distribution industry is highly competitive.
Our industry is extremely fragmented, with over 3,000 companies in operation
in 1998. The number and diverse nature of these companies result in highly
competitive conditions. Our competition includes not only other broadline
distributors, which provide a comprehensive range of food and related products
from a single source of supply, but also specialty distributors and system
distributors. Specialty distributors generally supply one or two product
categories, while system distributors typically supply a narrow range of
products to a limited number of multi-unit businesses operating in a broad
geographical area. We compete in each of our markets with at least one other
large national distribution company, generally SYSCO Corporation or Alliant
Foodservice, Inc., as well as with numerous regional and local distributors. In
seeking acquisitions of other foodservice businesses, we compete against both
other foodservice distribution companies and financial investors. Our failure to
compete successfully could have a material adverse effect on our business,
operating results and financial condition.
We currently have significant indebtedness and may incur additional
indebtedness in the future.
At March 27, 1999, our ratio of total debt to total capitalization was
approximately 51.0%. Our total capitalization is the sum of our total debt and
capital lease obligations plus our stockholders' equity. Our ratio of total
debt to total capitalization as of March 27, 1999 would have been
approximately 60.2% if we included as debt $325 million of accounts receivable
securitization arrangements. In accordance with generally accepted accounting
principles, we do not account for these arrangements as debt on our balance
sheet, but many lenders consider these arrangements in their credit decisions.
We may incur additional indebtedness in the future, subject to limitations
contained in the instruments governing our indebtedness, to finance capital
expenditures or for other general corporate purposes, including acquisitions.
We cannot assure you that our business will continue to generate cash flow at
or above the levels required to service our indebtedness and meet our other
cash needs. If our business fails to generate sufficient operating cash flow in
the future, or if we fail to obtain cash from other sources such as asset sales
or additional financings, we will be restricted in our ability to continue to
make acquisitions for cash and to invest in expansion or replacement of our
distribution facilities, information systems and equipment. Such a failure
could have a material adverse effect on our business, operating results and
financial condition. In addition, because a majority of our indebtedness bears
interest at floating rates, a material increase in interest rates could
adversely affect our ability to meet our liquidity requirements.
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Our success largely depends on our ability to retain our senior
management.
We largely depend for our success on the efforts of members of our senior
management. Our key senior managers have many years of experience in broadline
foodservice distribution with U.S. Foodservice and other companies, as well as
in the acquisition and integration of foodservice businesses. They have
developed and coordinated implementation of U.S. Foodservice's business
strategy since our formation in 1989. If we were to lose the services of one or
more of our key senior managers, our business, operating results and financial
condition could be materially adversely affected.
Product liability claims could have an adverse effect on our business.
Like any other seller of food and processor of meats, we face an inherent
risk of exposure to product liability claims if the products we sell cause
injury or illness. We have obtained primary and excess umbrella liability
insurance with respect to product liability claims. We cannot assure you,
however, that this insurance will continue to be available at a reasonable
cost, or, if available, will be adequate to cover liabilities. We generally
seek contractual indemnification from parties supplying our products, but any
such indemnification is limited, as a practical matter, to the creditworthiness
of the indemnifying party. If we do not have adequate insurance or contractual
indemnification available, product liabilities relating to defective products
could have a material adverse effect on our business, operating results and
financial condition.
Future sales of our common stock in the public market could adversely
affect our stock price and our ability to raise funds in new stock
offerings.
Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of our common stock and could impair our ability to
raise capital through future offerings of equity securities. Of the 49.6
million shares of our common stock outstanding at May 6, 1999, approximately 1.4
million shares were eligible for sale in the public market in accordance with
Rule 144 under the Securities Act of 1933 and approximately 1.5 million shares
were covered by the registration statement referred to below.
U.S. Foodservice has granted registration rights with respect to the
common stock primarily to holders of common stock U.S. Foodservice issued or
will issue in connection with its acquisition of other foodservice businesses.
As of May 6, 1999, approximately 1.5 million shares of common stock were
entitled to the benefits of these registration rights, all of which were shares
covered by a registration statement which was in effect under the Securities
Act. The exercise of registration rights granted by U.S. Foodservice is subject
to notice requirements, timing restrictions and volume limitations which may be
imposed by the underwriters of an offering. U.S. Foodservice is required to bear
the expenses of all these registrations, except for underwriting discounts and
commissions. We expect to grant registration rights to the stockholders of other
foodservice businesses we may acquire in the future.
We do not anticipate that we will pay cash dividends on our common stock.
We have never paid cash dividends on our common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. We may
pay cash dividends only if we comply with financial tests and
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other restrictions contained in our credit facility agreements.
Provisions in our charter and bylaws and in Delaware law could
discourage takeover attempts we oppose even if our stockholders might
benefit from a change in control of U.S. Foodservice.
Provisions in our charter and bylaws and in the Delaware general
corporation law may make it difficult and expensive for a third party to pursue
a takeover attempt we oppose, even if a change in control of U.S. Foodservice
would be beneficial to the interests of our stockholders. The charter and bylaw
provisions include a requirement that our board of directors be divided into
three classes, with approximately one-third of the directors to be elected each
year. This classification of directors makes it more difficult for an acquiror
or for other stockholders to change the composition of the board of directors.
In addition, the board of directors has the authority to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the powers,
preferences and rights of each series without stockholder approval. The ability
to issue preferred stock could discourage unsolicited acquisition proposals or
make it more difficult for a third party to gain control of U.S. Foodservice,
or otherwise could adversely affect the market price of our common stock.
Further, as a Delaware corporation, we are subject to section 203 of the
Delaware general corporation law. This section generally prohibits us from
engaging in mergers and other business combinations with stockholders that
beneficially own 15% or more of our voting stock, or with their affiliates,
unless our directors or stockholders approve the business combination in the
prescribed manner.
We have adopted a shareholder rights plan which could discourage hostile
acquisitions of control in which our stockholders may wish to
participate.
In 1996, our board of directors adopted a "poison pill" shareholder
rights plan, which may discourage a third party from making a proposal to
acquire U.S. Foodservice which we have not solicited or do not approve, even if
the acquisition would be beneficial to our stockholders. As a result, our
stockholders who wish to participate in such a transaction may not have an
opportunity to do so. Under our shareholder rights plan, preferred share
purchase rights, which are attached to our common stock, generally will be
triggered upon the acquisition, or actions that would result in the
acquisition, of 10% or more of the common stock by any person or group.
For investors eligible to report their ownership of our common stock on Schedule
13G under the Securities Exchange Act of 1934, those rights would be triggered
if such investors acquired, or took actions that would result in the acquisition
of, 15% or more of the common stock. If triggered, these rights would entitle
our stockholders other than the acquiror to purchase, for the exercise price,
shares of our common stock having a market value of two times the exercise
price. In addition, if a company acquires us in a merger or other business
combination, or if we sell more than 50% of our consolidated assets or earning
power, these rights will entitle our stockholders other than the acquiror to
purchase, for the exercise price, shares of the common stock of the acquiring
company having a market value of two times the exercise price.
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