UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
Commission file number 0-22192
PERFORMANCE FOOD GROUP COMPANY
(Exact name of Registrant as specified in its charter)
Tennessee 54-0402940
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6800 Paragon Place, Ste. 500
Richmond, Virginia 23230
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(804) 285-7340
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Rights to Purchase Preferred Stock
(Title of class)
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
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-
K. [ ]
The aggregate market value of the voting stock held
by non-affiliates of the Registrant on March 23, 2001
was approximately $827,300,000. The market value
calculation was determined using the closing sale price
of the Registrant's common stock on March 23, 2001, as
reported on The Nasdaq Stock Market.
Shares of common stock, $.01 par value per share,
outstanding on March 23, 2001 were 17,837,644.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Documents from which portions are
incorporated by reference
Part III Portions of the Registrant's Proxy
Statement relating to the Registrant's
Annual Meeting of Shareholders to be
held on May 2, 2001 are incorporated
by reference into Items 10, 11, 12 and 13.
TABLE OF CONTENTS
Part I
Item 1. Business 3
The Company and its Business Strategy 3
Growth Strategies 3
Customers and Marketing 4
Products and Services 5
Suppliers and Purchasing 6
Information Systems 6
Operations 7
Competition 9
Regulation 9
Intellectual Property 9
Employees 10
Executive Officers 10
Forward-Looking Statements 11
Risk Factors 11
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Shareholders 14
Part II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 14
Item 6. Selected Consolidated Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
Part III
Item 10. Directors and Executive Officers of the
Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management 21
Item 13. Certain Relationships and Related
Transactions 22
Part IV
Item 14. Exhibits, Financial Statements Schedules and
Reports on Form 8-K 22
PERFORMANCE FOOD GROUP COMPANY
Unless this Form 10-K indicates otherwise or the
context otherwise requires, the terms "we," "our," "us"
or "Performance Food Group" as used in this Form 10-K
refer to Performance Food Group Company and its
subsidiaries. We use a 52/53 week fiscal year ending on
the Saturday closest to December 31. References in this
Form 10-K to the years or fiscal years 2000, 1999, 1998,
1997 and 1996 refer to our fiscal years ended December
30, 2000, January 1, 2000, January 2, 1999, December 27,
1997 and December 28, 1996, respectively, unless
otherwise expressly stated or the context otherwise
requires.
PART I
Item 1. Business.
The Company and its Business Strategy
Performance Food Group, a Tennessee corporation,
was founded in 1987 through the combination of various
foodservice businesses, and has grown both internally
through increased sales to existing and new customers
and through acquisitions of existing foodservice
distributors. (Further discussion of recent
acquisitions is contained in Management's Discussion and
Analysis under Business Combinations.) Performance Food
Group is the nation's fourth largest broadline
foodservice distributor based on 2000 net sales of $2.6
billion. We market and distribute over 31,000 national
and proprietary brand food and non-food products to
approximately 27,000 customers in the foodservice or
"food-away-from-home" industry. Our extensive product
line and distribution system allow us to service both of
the major customer types in the foodservice industry:
"street" foodservice customers, which include
independent restaurants, hotels, cafeterias, schools,
healthcare facilities and other institutional customers;
and multi-unit, or "chain," customers, which include
regional and national quick-service and casual-dining
restaurants.
We service our customers through three main
operating segments. Note 15 to the audited financial
statements in this Form 10-K presents financial
information for these segments.
- Broadline. Our broadline distribution segment
markets and distributes more than 31,000 national and
proprietary brand food and non-food products to a total
of approximately 27,000 customers, including street
customers and certain corporate-owned and franchisee
locations of chains such as Burger King, Wendy's,
Subway, Church's and Popeye's. In the broadline
distribution segment, we design our product mix,
distribution routes and delivery schedules to
accommodate the needs of a large number of customers
whose individual purchases vary in size. Generally,
broadline distribution customers are located no more
than 250 miles away from one of our twelve broadline
distribution facilities, which serve customers in the
southern, southeastern, eastern and northeastern United
States.
- Customized. Our customized distribution segment
focuses on serving casual-dining chain restaurants such
as Cracker Barrel Old Country Store, Outback Steakhouse
and TGI Friday's. We believe that these customers
generally prefer a centralized point of contact that
facilitates item and menu changes, tailored distribution
routing and customer service resolution. We generally
can service these customers more efficiently than our
broadline distribution customers by warehousing only
those stock keeping units, or SKUs, specific to
customized segment customers and by making larger, more
consistent deliveries. We have five customized
distribution facilities currently serving customers in
49 states and several foreign countries.
- Fresh-cut. Our fresh-cut segment purchases,
processes, packages and distributes over 860 fresh
produce offerings under our "Fresh Advantage" and "Redi-
Cut" labels. Our fresh-cut operations are conducted at
five processing facilities, and our fresh-cut products
are sold mainly to third-party distributors for resale
primarily to quick-service restaurants such as Burger
King, KFC, McDonald's, Pizza Hut, Taco Bell and Subway
located in the southeastern, southwestern and midwestern
United States. In addition, we also distribute fresh
produce offerings to other foodservice distributors for
resale to street accounts as well as to retail
establishments.
Growth Strategies
Our business strategy is to grow our foodservice
business through both internal growth and acquisitions,
and to improve our operating profit margin. We believe
that we have the resources and competitive advantages to
continue our internal growth and that we are well
positioned to take advantage of the consolidation that
is taking place in our industry.
Our key growth strategies are as follows:
Increase Broadline Sales to Existing Accounts and
Within Existing Markets. We seek to become a principal
supplier for more of our broadline distribution
customers and to increase sales per delivery to those
customers. We believe that a higher penetration of our
existing broadline distribution accounts and markets
will allow us to strengthen our relationships with our
current customers and to realize economies of scale
driven by greater utilization of our existing
distribution infrastructure.
We believe that we can increase our penetration of
the broadline distribution customer base through focused
sales efforts that leverage our decentralized decision-
making process, our distribution infrastructure and our
quality products and value-added services. We also
believe that the typical broadline customer in our
markets uses one supplier for the majority of its
foodservice needs, but also relies upon a limited number
of additional broadline suppliers and specialty food
suppliers. We believe those customers within our
existing markets for which we are not the principal
supplier represent an additional market opportunity for
us.
We seek to maintain our price competitiveness in
the broadline distribution segment by investing in
technology aimed at enhancing our purchasing leverage.
We are currently implementing a program to standardize
product descriptions across our broadline information
systems, which is intended to allow us to enhance
coordination of our buying activity and enable us to
improve our purchasing power. In addition, we are
continuing to invest in technology to provide our sales
force with better information with which to assist
broadline customers and grow sales.
Increase Sales to Street Customers. Within our
broadline segment, we plan to focus on increasing sales
to street customers, which typically generate higher
operating margins than our sales to chain accounts. We
plan to increase our penetration of the street customer
base by leveraging our broad range of products and value-
added services and by continuing to invest in enhancing
the quality of our sales force through improvements in
our hiring and training efforts and in our utilization
of technology. Our training programs and sales
compensation system are designed to encourage our sales
force to grow sales to new and existing street
customers.
Increase Sales of Proprietary Brands. We seek to
increase sales of our proprietary brands, which
typically generate higher margins than national brands.
We believe that our proprietary brands, which include
Pocahontas, Raffinato and Colonial Tradition, offer
customers greater value than national brands, and allow
us to reduce our purchasing cost compared to the higher
purchase prices typically associated with national
brands. We also seek to increase our sales of
proprietary brands through our sales force training
program and sales compensation system.
Grow Our Customized Segment with Existing and
Selected New Customers. We seek to strengthen our
existing customized distribution relationships by
continuing to provide quality products at competitive
prices and by upgrading our level of service through
initiatives, such as electronic data transfer of
ordering, billing and inventory information, which help
ensure on-time delivery and more accurate filling of
orders. We also seek to selectively add new customers
within the customized distribution segment. We believe
that potential customers include large chains that have
traditionally relied on in-house distribution networks
and customers that are dissatisfied with their existing
distributor relationships, as well as new or growing
restaurant chains that have yet to establish a
relationship with a primary chain foodservice
distributor.
Become a Nationwide Leader in Fresh-cut Produce.
We intend to develop a national presence in the fresh-
cut produce segment by continuing to introduce
innovative products, such as our machine-processed diced
and sliced tomato products, leveraging our core products
and building our customer base by capitalizing on our
expertise in food safety and preservation.
Increase Operating Efficiencies. We seek to
increase our operating efficiencies by continuing to
invest in training- and technology-related initiatives
to provide increased productivity and value-added
services. These productivity-related initiatives include
automated warehouse management systems using radio
frequency scanning for inventory put-away and selection
and computerized truck routing systems. In addition, we
have developed and are rolling out an Internet-based
ordering system that allows customers to have real-time
access to product information, inventory levels and
their purchasing history.
Actively Pursue Strategic Acquisitions. Over the
past decade, we have supplemented our internal growth
through selective, strategic acquisitions. We believe
that the consolidation trends in the foodservice
distribution industry will continue to present
acquisition opportunities for us, and we intend to
continue to target acquisitions both in geographic
markets that we already serve, which we refer to as fold-
in acquisitions, as well as in new markets. We believe
that fold-in acquisitions can allow us to increase the
efficiency of our operations by leveraging our fixed
costs and driving more sales through our existing
facilities. New market acquisitions expand our
geographic reach into markets we do not currently serve,
and can also allow us to leverage fixed costs.
Customers and Marketing
We believe that foodservice customers select a
distributor based on timely and accurate delivery of
orders, consistent product quality, value-added services
and price. Value-added services include assistance in
managing inventories, planning menus and controlling
costs through, among other means, increased computer
communications and more efficient deliveries. In
addition, we believe that some of our larger street and
chain customers gain operational efficiencies by dealing
with one, or a limited number of, foodservice
distributors.
Street Customers. Our street customers include
independent restaurants, hotels, cafeterias, schools,
healthcare facilities and other institutional customers.
Despite the generally higher selling and delivery costs
we incur in servicing street customers, sales to these
customers typically generate higher operating profit
margins than sales to chain customers. As of December
30, 2000, we supported our sales to our street customers
with more than 700 sales and marketing representatives
and product specialists. Our sales representatives
service customers in person or by telephone, accepting
and processing orders, reviewing account balances,
disseminating new product information and providing
business assistance and advice where appropriate. Sales
representatives are generally compensated through a
combination of commission and salary based on several
factors relating to profitability and collections. These
representatives typically use laptop computers to assist
customers by entering orders, checking product
availability and pricing and developing menu-planning
ideas on a real-time basis.
Chain Customers. Our principal chain customers
generally are franchisees or corporate-owned units of
family-dining, casual-theme and quick-service
restaurants. These customers include casual-dining
restaurant concepts, such as Cracker Barrel Old Country
Store, Outback Steakhouse and TGI Friday's, as well as a
total of approximately 4,400 Burger King, Church's,
Dairy Queen, Freshens, KFC, Popeye's, Subway, TCBY and
Wendy's quick-service restaurants. Our sales programs to
chain customers tend to be tailored to the individual
customer and include a more specialized product offering
than the sales programs for our street customers. Sales
to chain customers are typically high volume, low gross
margin sales that require fewer, but larger, deliveries
than those to street customers. These programs offer
operational and cost efficiencies for both the customer
and us, which can help compensate us for the lower gross
margins. Our chain customers are supported primarily by
dedicated account representatives who are responsible
for ensuring that customers' orders are properly entered
and filled. In addition, more senior members of
management assist in identifying potential new chain
customers and managing long-term account relationships.
Two of our chain customers, Cracker Barrel and Outback,
account for a significant portion of our consolidated
net sales. Net sales to Cracker Barrel accounted for
16%, 17% and 18% of our consolidated net sales for 2000,
1999 and 1998, respectively. Net sales to Outback
accounted for 16%, 16% and 15% of our consolidated net
sales for 2000, 1999 and 1998, respectively. No other
chain customer accounted for more than 5% of our
consolidated net sales in 2000.
Fresh-cut Customers. Our fresh-cut business
provides processed produce, including salads, sandwich
lettuce and cut tomatoes, mainly to distributors for
resale to quick-service restaurants and other
institutional accounts. We seek to develop innovative
products and processing techniques to reduce costs,
improve product quality and reduce sales prices. Our
customers for our fresh-cut products are primarily other
foodservice distributors who resell these products to a
total of more than 20,000 Burger King, KFC, McDonald's,
Pizza Hut, Subway and Taco Bell restaurants. We also
service several food product manufacturers such as
Hormel and McCormick, as well as food retailers such as
Jewel-Osco, a division of Albertson's, and Dominick's, a
division of Safeway.
Products and Services
We distribute more than 31,000 national and
proprietary brand food and non-food products to a total
of approximately 27,000 foodservice customers. These
items include a broad selection of "center-of-the-plate"
entrees, canned and dry groceries, frozen foods,
refrigerated and dairy products, paper products and
cleaning supplies, fresh-cut produce, restaurant
equipment and other supplies. We also provide our
customers with other value-added services that are
described below.
Proprietary Brands. We offer customers an
extensive line of products under various proprietary
brands such as Pocahontas, Healthy USA, Premium Recipe,
Colonial Tradition, Raffinato, Gourmet Table, Brilliance
and AFFLAB. The Pocahontas brand name has been
recognized in the food industry for over 100 years.
Products offered under our various proprietary brands
include canned and dry groceries, table top sauces,
shortenings and oils, among others. Our proprietary
brands enable us to offer customers an alternative to
comparable national brands across a wide range of
products and price points. For example, the Raffinato
brand consists of a line of premium pastas, cheeses,
tomato products, sauces and oils tailored for the
Italian foods market segment, while our Healthy USA
brand is tailored to meet the needs of the health
conscious market segment. We seek to increase the sales
of our proprietary brands, as they typically carry
higher margins than comparable national brand products.
We also believe that sales of our proprietary brands can
help to promote customer loyalty.
National Brands. We offer our customers a broad
selection of national brand products. We believe that
national brands are attractive to chain accounts and
other customers seeking consistent product quality
throughout their operations. We believe that
distributing national brands has strengthened our
relationship with many national suppliers that provide
us with important sales and marketing support. These
sales complement sales of our proprietary brand
products.
Innovative Fresh-Cut Products. We believe that the
ability to provide quality products with an acceptable
shelf life is key to the success of our fresh-cut
produce business. We offer fresh-cut products, such as
pre-cut fruit, lettuce, onions and green peppers, cole
slaw, and diced, sliced and bulk tomatoes, that we
purchase, process and market under the Fresh Advantage
and Redi-Cut labels. As quick-service restaurants seek
to increase their profitability by reducing reliance on
labor-intensive tasks conducted on-site, we believe that
there is an opportunity for us to capture market share
by introducing innovative products. For example, we
believe that sliced tomatoes are one of the few
remaining produce items to still be processed on-site in
quick-service restaurants. We believe that sliced
tomatoes, when individually sliced by quick-service
restaurant employees, are generally characterized by
inconsistent slice thickness, relatively high waste and
increased food-safety risk. To help resolve this
problem, we have developed equipment that allows us to
process sliced tomatoes with consistently high quality
and to sell them at a price which we believe can allow
quick-service restaurants to realize savings when
compared to the total costs of procurement and on-site
processing.
Value-added Services. We provide customers with
other value-added services in the form of assistance in
inventory management, menu planning and improving
efficiency. As described below, we also provide
procurement and merchandising services to approximately
180 independent foodservice distributors and over 300
independent paper and janitorial supply distributors,
including our own distribution network. These
procurement and merchandising services include
negotiating vendor supply agreements and providing
quality assurance related to our proprietary and
national brand products.
The following table sets forth the percentage of
our consolidated net sales by product and service
category in 2000:
Percentage
of
Net Sales
For 2000
Center-of-the-plate.............................. 39%
Canned and dry groceries......................... 21
Frozen foods..................................... 12
Refrigerated and dairy products.................. 10
Paper products and cleaning supplies............. 8
Fresh-cut produce................................ 5
Other produce.................................... 3
Equipment and supplies........................... 1
Procurement, merchandising and other services.... 1
Total........................................ 100%
Suppliers and Purchasing
We procure our products from independent suppliers,
food brokers and merchandisers, including our wholly
owned subsidiary, Pocahontas Foods. Pocahontas procures
both nationally branded items as well as items marketed
under our proprietary brands. Independent suppliers
include large national and regional food manufacturers
and consumer products companies, meatpackers and produce
shippers. We seek to enhance our purchasing power
through volume purchasing. Although each of our
subsidiaries generally is responsible for placing its
own orders and can select the products that appeal to
its own customers, we encourage each subsidiary to
participate in company-wide purchasing programs, which
enable it to take advantage of our consolidated
purchasing power. We were not dependent on a single
source for any significant item and no third-party
supplier represented more than 5% of our total product
purchases during 2000.
Pocahontas selects foodservice products for our
Pocahontas, Healthy USA, Premium Recipe, Colonial
Tradition, Raffinato, Gourmet Table, Brilliance and
AFFLAB brands and markets these brands, as well as
nationally branded foodservice products, through
approximately 180 of our own distribution operations and
independent foodservice distributor facilities
nationwide. For our services, we receive marketing fees
paid by vendors. More than 18,000 of the products sold
through Pocahontas are sold under our proprietary
brands. Approximately 600 vendors, located throughout
the United States, supply products through the
Pocahontas distribution network. Because Pocahontas
negotiates purchase agreements on behalf of its
independent distributors as a group, the distributors
that utilize the Pocahontas procurement and
merchandising group can enhance their purchasing power.
Our fresh-cut segment purchases produce from
several of the nation's leading produce growers in
various locations, depending on the season. Our fresh-
cut segment often enters into short-term contracts to
purchase raw materials to help reduce supply risk and
manage exposure to fluctuations in costs.
Information Systems
In our broadline distribution operations, we manage
the ordering, receiving, warehousing and delivery of
over 31,000 products though our Foodstarr software,
which allows our customers to electronically place
orders with us and permits us to record sales, billing
and inventory information. The software also aids in the
timely and accurate financial reporting by our
subsidiaries to our corporate headquarters. Software
development and maintenance on this platform is managed
on a centralized basis by our corporate information
technology staff. This platform is being enhanced to
provide standardized product descriptions to facilitate
leveraging our purchasing volume across our distribution
network. In addition, we are implementing an automated
warehouse management system that uses radio frequency
scanning to track products within our distribution
centers. This technology is intended to enhance
productivity by reducing errors in inventory put-away
and selection. We have also implemented truck routing
software to optimize the distribution routes traveled by
our trucks in order to reduce excess mileage and improve
the timeliness of customer deliveries. Lastly, we have
developed and are rolling out an Internet-based ordering
system which allows customers to have real-time access
to product information, inventory levels and their
purchasing history.
In our customized distribution segment, we use a
similar software platform that has been customized to
manage large, national accounts. This system, which is
managed centrally at our customized distribution
headquarters, provides product information across our
customized distribution network and facilitates item and
menu changes by customers. We have also implemented
automated warehouse management systems and truck routing
systems at all of our customized distribution locations.
Our customized distribution customers also utilize our
computer-to-computer ordering system, PFG Connection, to
place orders.
Operations
Our subsidiaries have substantial autonomy in their
operations, subject to overall corporate management
controls and guidance. Our corporate management provides
centralized direction in the areas of strategic
planning, general and financial management, sales and
merchandising. Individual marketing efforts are
undertaken at the subsidiary level and most of our name
recognition in the foodservice business is based on the
trade names of our individual subsidiaries. In
addition, we have begun to associate these local
identities with the Performance Food Group name. Each
subsidiary has primary responsibility for its own human
resources, governmental compliance programs, accounting,
billing and collection. Financial information reported
by our subsidiaries is consolidated and reviewed by our
corporate management.
Distribution operations are conducted out of 17
distribution centers located in California, Florida,
Georgia, Louisiana, Maine, Maryland, New Jersey,
Tennessee, Texas and Virginia. Customer orders are
assembled in our distribution facilities and then
sorted, placed on pallets, and loaded onto trucks and
trailers in delivery sequence. Deliveries covering long
distances are made in large tractor-trailers that we
generally lease. Deliveries within shorter distances are
made in trucks that we either own or lease. We service
some of our larger chain customers using dedicated
trucks due to the relatively large and consistent
deliveries and the geographic distribution of these
customers. The trucks and delivery trailers we use have
separate temperature-controlled compartments. We utilize
a computer system to design efficient route sequences
for the delivery of our products.
Processing operations are conducted out of five
fresh-cut processing plants, located in Georgia,
Illinois, Missouri, North Carolina and Texas. Customer
orders are accepted, processing runs are scheduled and
produce is sorted, washed, cut, packaged and loaded onto
pallets. These pallets are loaded onto trucks for
delivery to third-party distributors, primarily for use
in quick-service restaurants. We make deliveries in
temperature-controlled trucks that we generally either
own or lease. Most of these orders are processed and
delivered in less than 24 hours from the time of order
placement.
The following table summarizes certain information
for our principal operating divisions:
Approx.
Number of
Customer
Locations
Location of Currently
Name of Subsidiary/Division Principal Region(s) Facilities Served Major Customers
Broadline Distribution:
AFFLINK Nationwide Tuscaloosa, AL 340 Independent paper
distributors
AFI Food Service Distributors New Jersey and New Elizabeth, NJ 2,500 Restaurants, healthcare
York City metropolitan facilities and schools
area
Caro Foods South Houma, LA 1,500 Wendy's, Popeye's,
Church's and other
restaurants, healthcare
facilities and schools
Carroll County Foods Baltimore, MD and New Windsor, 1,200 Restaurants, healthcare
Washington, D.C. area MD facilities and schools
NorthCenter Maine Augusta, ME 2,000 Restaurants, healthcare
facilities and schools
Performance Food Group of Texas South and Southwest Temple, TX 5,300 Popeye's, Church's,
Victoria, TX Subway, KFC, Dairy
Queen, Burger King and
other restaurants,
healthcare facilities and
schools
PFG - Florida Florida Tampa, FL 2,600 Restaurants, healthcare
facilities and schools
PFG - Hale Tennessee, Virginia and Morristown, TN 800 Restaurants, healthcare
Kentucky facilities and schools
PFG - Lester Broadline South Lebanon, TN 2,000 Wendy's and other
restaurants, healthcare
facilities and schools
PFG - Milton's South and Southeast Atlanta, GA 4,900 Subway, Zaxby's and
other restaurants,
healthcare facilities
and schools
PFG - Powell Georgia, Florida and Thomasville, GA 1,900 Restaurants, healthcare
Alabama facilities and schools
Pocahontas Foods, USA Nationwide Richmond, VA 180 Independent foodservice
distributors and vendors
Virginia Foodservice Group Virginia Richmond, VA 1,000 Texas Steakhouse and
other restaurants and
Customized Distribution: healthcare facilities
PFG Customized Distribution Nationwide Lebanon, TN 1,700 Cracker Barrel, Outback
Gainesville, FL Steakhouse, TGI Friday's
McKinney, TX and other multi-unit
Belcamp, MD restaurants
Bakersfield, CA
Fresh-cut Produce:
Fresh Advantage and Redi-Cut Southeast, Southwest Franklin Park, IL 450 Distributors who resell
and Midwest Kansas City, MO our products primarily to
Raleigh, NC approximately 20,600
Grand Prairie, TX chain restaurant locations
Carrollton, GA including Burger King,
KFC, McDonald's, Pizza
Hut, Subway, Taco Bell
and other foodservice
and retail customers
Competition
The foodservice distribution industry is highly
competitive. We compete with numerous smaller
distributors on a local level, as well as with a limited
number of national foodservice distributors. Some of
these distributors have substantially greater financial
and other resources than we do. Bidding for contracts or
arrangements with customers, particularly chain and
other large customers, is highly competitive and
distributors may market their services to a particular
customer over a long period of time before they are
invited to bid. In the fresh-cut produce segment of our
business, competition comes mainly from smaller
processors, although we encounter intense competition
from larger national and regional processors when
selling produce to chain restaurants. We believe that
most purchasing decisions in the foodservice business
are based on the distributor's ability to completely and
accurately fill orders and to provide timely deliveries,
on the quality of the product, and on price.
Regulation
Our operations are subject to regulation by state
and local health departments, the U.S. Department of
Agriculture and the Food and Drug Administration, which
generally impose standards for product quality and
sanitation. Our facilities are generally inspected at
least annually by state and/or federal authorities. In
addition, we are subject to regulation by the
Environmental Protection Agency with respect to the
disposal of wastewater and the handling of chemicals
used in cleaning.
Our relationship with our fresh food suppliers with
respect to the grading and commercial acceptance of
product shipments is governed by the Federal Produce and
Agricultural Commodities Act, which specifies standards
for sale, shipment, inspection and rejection of
agricultural products. We are also subject to regulation
by state authorities for accuracy of our weighing and
measuring devices.
Some of our distribution facilities have
underground and above ground storage tanks for diesel
fuel and other petroleum products that are subject to
laws regulating such storage tanks. These laws have not
had a material adverse effect on our results of
operations or financial condition.
Our trucking operations are regulated by the
Surface Transportation Board and the Federal Highway
Administration. In addition, interstate motor carrier
operations are subject to safety requirements prescribed
by the U.S. Department of Transportation and other
relevant federal and state agencies. Such matters as
weight and dimension of equipment are also subject to
federal and state regulations. Management believes that
we are in substantial compliance with applicable
regulatory requirements relating to our motor carrier
operations. Our failure to comply with the applicable
motor carrier regulations could result in substantial
fines or revocation of our operating permits.
Intellectual Property
Except for the Pocahontas, Fresh Advantage and Redi-
Cut trade names, we do not own or have the right to use
any patent, trademark, trade name, license, franchise or
concession, the loss of which would have a material
adverse effect on our results of operations or financial
condition.
In connection with our fresh-cut processing, we
rely heavily on certain proprietary machinery and
processes that are used to prepare some of our products.
Although we believe that the cost and complexity of our
machinery has been and will continue to be a barrier to
entry to other potential competitors in the fresh-cut
segment, we have not protected the machinery or
processes through patents or other methods. As a result,
some of our existing or potential competitors could
develop similar machinery or processes. If this
occurred, it could substantially increase competition in
the fresh-cut segment, thereby reducing prices and
materially adversely affecting our results of operations
in this segment.
Employees
As of December 30, 2000, we had approximately 5,300
full-time employees, including approximately 1,500 in
management, administration, marketing and sales and the
remainder in operations. As of December 30, 2000,
approximately 630 of our employees were represented by a
union or a collective bargaining unit. We have entered
into five collective bargaining and similar agreements
with respect to our unionized employees. We consider our
employee relations to be satisfactory.
Executive Officers
The following table sets forth certain information
concerning our executive officers and certain key
employees as of December 30, 2000:
Name Age Position
Robert C. Sledd........... 48 Chairman, Chief Executive Officer and Director
C. Michael Gray........... 51 President, Chief Operating Officer and Director
Roger L. Boeve............ 62 Executive Vice President and Chief Financial Officer
Thomas Hoffman............ 61 Senior Vice President
G. Thomas Lovelace, Jr.... 47 Vice President
John D. Austin............ 39 Vice President-Finance and Secretary
John R. Crown............. 54 Broadline Regional President
Joseph J. Paterak, Jr..... 49 Broadline Regional President
Steven Spinner............ 40 Broadline Regional President
Robert C. Sledd has served as Chairman of the Board
of Directors since February 1995 and has served as Chief
Executive Officer and a director of Performance Food
Group since 1987. Mr. Sledd served as President of
Performance Food Group from 1987 to February 1995. Mr.
Sledd has served as a director of Taylor & Sledd
Industries, Inc., a predecessor of Performance Food
Group, since 1974, and served as President and Chief
Executive Officer of that company from 1984 to 1987. Mr.
Sledd also serves as a director of SCP Pool Corporation,
a supplier of swimming pool supplies and related
products.
C. Michael Gray has served as President and Chief
Operating Officer of Performance Food Group since
February 1995 and has served as a director of
Performance Food Group since 1992. Mr. Gray served as
President of Pocahontas Foods, USA, Inc., a wholly owned
subsidiary of Performance Food Group, from 1981 to 1995.
Mr. Gray had been employed by Pocahontas since 1975,
serving as Marketing Manager and Vice President of
Marketing. Prior to joining Pocahontas, Mr. Gray was
employed by Kroger Company as a produce buyer.
Roger L. Boeve has served as Executive Vice
President and Chief Financial Officer of Performance
Food Group since 1988. Prior to that date, Mr. Boeve
served as Executive Vice President and Chief Financial
Officer for The Murray Ohio Manufacturing Company and as
Corporate Vice President and Treasurer for Bausch and
Lomb. Mr. Boeve is a certified public accountant.
Thomas Hoffman has served as Senior Vice President
of Performance Food Group since February 1995. Since
1989, Mr. Hoffman has served as President of Kenneth O.
Lester Company, Inc., a wholly owned subsidiary of
Performance Food Group. Prior to joining Performance
Food Group in 1989, Mr. Hoffman served in executive
capacities at Booth Fisheries Corporation, a subsidiary
of Sara Lee Corporation, as well as C.F.S. Continental,
Miami and International Foodservice, Miami, two
foodservice distributors.
G. Thomas Lovelace, Jr. has served as Vice
President of Performance Food Group since February 2001
and has served as President of Fresh Advantage, Inc., a
wholly owned subsidiary of Performance Food Group, since
1996.
John D. Austin has served as Vice President-Finance
since January 2001 and as Secretary of Performance Food
Group since March 2000. Mr. Austin served as Corporate
Treasurer from 1998 to January 2001. Mr. Austin also
served as Corporate Controller of Performance Food Group
from 1995 to 1998. From 1991 to 1995, Mr. Austin was
Assistant Controller for General Medical Corporation, a
medical supplies distributor. Prior to that, Mr. Austin
was an accountant with Deloitte & Touche LLP. Mr.
Austin is a certified public accountant.
John R. Crown has served as Broadline Regional
President of Performance Food Group since January 1999.
Mr. Crown served as Vice President, Business Development
of Performance Food Group from January 1997 to January
1999. From 1987 to 1996, Mr. Crown served as President
of Burris Retail Food Systems, a subsidiary of Burris
Foods, Inc., and as Executive Vice President and General
Manager of Institution Food House. Mr. Crown is
immediate past Chairman of the National Frozen Food
Association and a member of the board of directors of
Food Distributors International, two food industry trade
associations.
Joseph J. Paterak, Jr. has served as Broadline
Regional President of Performance Food Group since
January 1999. Mr. Paterak served as Vice President of
Performance Food Group from October 1998 to January
1999. From 1993 to September 1998, Mr. Paterak served as
Market President of Alliant Foodservice, Inc.
Steven Spinner has served as Broadline Regional
President of Performance Food Group since January 2001
and has served as President of AFI Foodservice
Distributors, Inc., a wholly owned subsidiary of
Performance Food Group, since October 1997. From 1989
to October 1997, Mr. Spinner served as Vice President of
AFI.
Forward-Looking Statements
This annual report on Form 10-K and the documents
incorporated by reference herein contain 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. Forward-looking statements, which
are based on assumptions and estimates and describe our
future plans, strategies and expectations, are generally
identifiable by the use of the words "anticipate,"
"will," "believe," "estimate," "expect," "intend,"
"seek" or similar expressions. These forward-looking
statements may address, among other things, our
anticipated earnings, capital expenditures,
contributions to our net sales by acquired companies,
sales momentum, customer and product sales mix, expected
efficiencies in our business and our ability to realize
expected synergies from acquisitions. These forward-
looking statements are subject to risks, uncertainties
and assumptions. Important factors that could cause
actual results to differ materially from the forward-
looking statements we make or incorporate by reference
in this annual report on Form 10-K are described under
"Risk Factors" and in the documents incorporated by
reference herein.
If one or more of these risks or uncertainties
materialize, or if any underlying assumptions prove
incorrect, our actual results, performance or
achievements may vary materially from future results,
performance or achievements expressed or implied by
these forward-looking statements. All forward-looking
statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the
cautionary statements in this section. We undertake no
obligation to publicly update or revise any forward-
looking statements to reflect future events or
developments.
Risk Factors
Foodservice distribution is a low-margin business
and is sensitive to economic conditions. We operate in
the foodservice distribution industry, which is
characterized by a high volume of sales with relatively
low profit margins. A significant portion of our sales
are at prices that are based on product cost plus a
percentage markup. As a result, our results of
operations may be negatively impacted when the price of
food goes down, even though our percentage markup may
remain constant. The foodservice industry is also
sensitive to national and regional economic conditions,
and the demand for our foodservice products has been
adversely affected from time to time by economic
downturns. In addition, our operating results are
particularly sensitive to, and may be materially
adversely impacted by, difficulties with the
collectibility of accounts receivable, inventory
control, price pressures, severe weather conditions and
increases in wages or other labor costs and fuel or
other transportation-related costs. There can be no
assurance that one or more of these factors will not
adversely affect our future operating results. We have
experienced losses due to the uncollectibility of
accounts receivable in the past and could experience
such losses in the future.
We rely on major customers. We derive a
substantial portion of our net sales from customers
within the restaurant industry, particularly certain
chain customers. Net sales to Outback Steakhouse
accounted for 16% of our consolidated net sales in 2000
and 1999. Net sales to Cracker Barrel Old Country Store
accounted for 16% of our consolidated net sales in 2000
and 17% of our consolidated net sales in 1999. We do not
have agreements requiring these or other customers to
purchase any specified amount of goods from us, nor do
we have any assurance as to the level of future
purchases by our customers. Likewise, our customers
generally have the ability to stop buying from us at any
time. A material decrease in sales to any of our major
customers or the loss of any of our major customers
would have a material adverse impact on our operating
results. In addition, to the extent we add new
customers, whether following the loss of existing
customers or otherwise, we may incur substantial start-
up expenses in initiating services to new customers.
Also, certain of our customers have from time to time
experienced bankruptcy, insolvency, and/or an inability
to pay debts to us as they come due, and similar events
in the future could have a material adverse impact on
our operating results. In particular, we believe that
one of our customers, who accounted for approximately 5%
of our consolidated net sales in 2000, may be
experiencing financial difficulties.
Our business is dependent on our ability to
complete acquisitions and integrate operations of
acquired businesses. A significant portion of our
historical growth has been achieved through acquisitions
of other foodservice distributors, and our growth
strategy includes additional acquisitions. There can be
no assurance that we will be able to make acquisitions
in the future or that any acquisitions we do make will
be successful. Furthermore, there can be no assurance
that future acquisitions will not have a material
adverse effect upon our operating results, particularly
in periods immediately following the consummation of
those transactions while the operations of the acquired
business are being integrated into our operations. In
connection with the acquisitions of other businesses in
the future, we may decide to consolidate the operations
of an acquired business with our existing operations or
make other changes with respect to the acquired
business, which could result in special charges or other
expenses. In addition, the successful integration of
acquired companies depends upon the timely, efficient
and successful execution of post-acquisition events,
which include the integration of the acquired businesses
into our purchasing programs, distribution network,
marketing programs and information systems.
Additionally, our ability to make any future
acquisitions may depend upon obtaining additional
financing. There can be no assurance that we will be
able to obtain additional financing on acceptable terms
or at all.
Managing our growth may be difficult and our growth
rate may decline. We have rapidly expanded our
operations since inception. This growth has placed
significant demands on our administrative, operational
and financial resources. We cannot assure you that this
growth will continue. To the extent that our customer
base and our services continue to grow, this growth is
expected to place a significant demand on our
managerial, administrative, operational and financial
resources. Our future performance and results of
operations will depend in part on our ability to
successfully implement enhancements to our business
management systems and to adapt those systems as
necessary to respond to changes in our business.
Similarly, our growth has created a need for expansion
of our facilities from time to time. As we near maximum
utilization of a given facility, operations may be
constrained and inefficiencies may be created which
could adversely affect our operating results until the
facility is expanded or volume is shifted to another
facility. Conversely, as we add additional facilities or
expand existing facilities, excess capacity may be
created. Any excess capacity may also create
inefficiencies and adversely affect our operating
results.
Competition in the foodservice distribution
industry is intense, and we may not be able to compete
successfully. The foodservice distribution industry is
highly competitive. We compete with numerous smaller
distributors on a local level, as well as with a limited
number of national foodservice distributors. Some of
these distributors have substantially greater financial
and other resources than we do. Bidding for contracts or
arrangements with customers, particularly chain and
other large customers, is highly competitive and
distributors may market their services to a particular
customer over a long period of time before they are
invited to bid. In the fresh-cut produce area of our
business, competition comes mainly from smaller
processors. We believe that most purchasing decisions in
the foodservice business are based on the distributor's
ability to completely and accurately fill orders and to
provide timely deliveries, on the quality of the product
and on price. Our failure to compete successfully could
have a material adverse effect on our business,
operating results and financial condition.
Our success depends on our senior management and
key employees. Our success is largely dependent on the
skills, experience and efforts of our senior management.
The loss of one or more of our members of senior
management could have a material adverse effect upon our
business and development. In addition, we depend to a
substantial degree on the services of certain key
employees. Any failure to attract and retain qualified
employees in the future could have a material adverse
effect on our business.
The market price for our common stock may be
volatile. In recent periods, there has been significant
volatility in the market price for our common stock. In
addition, the market price of our common stock could
fluctuate substantially in the future in response to a
number of factors, including the following:
- our quarterly operating results or the operating
results of other distributors of food and non-food
products;
- changes in general conditions in the economy, the
financial markets or the food distribution or
foodservice industries;
- changes in financial estimates or recommendations
by stock market analysts regarding us or our
competitors;
- announcements by us or our competitors of
significant acquisitions;
- increases in labor and fuel costs; and
- natural disasters, severe weather conditions or
other developments affecting us or our competitors.
In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market
prices of securities issued by many companies for
reasons unrelated to their operating performance. These
broad market fluctuations may materially adversely
affect our stock price, regardless of our operating
results.
Item 2. Properties.
The following table presents information about
our primary real properties and facilities and our
operating subsidiaries and division:
Owned/Leased
Approx. Area (Expiration Date
Location in Sq. Ft. Operating Segment if Leased)
AFFLINK
Tuscaloosa, AL 18,000 Broadline Leased (2001)
AFI Food Service Distributors
Elizabeth, NJ 160,000 Broadline Leased (2024)
Newark, NJ 21,000 Broadline Leased (2002)
Caro Foods
Houma, LA 162,000 Broadline Owned
Carroll County Foods
New Windsor, MD 90,000 Broadline Leased (2005)
Fresh Advantage
Carrollton, GA 105,000 Fresh-cut Owned
Raleigh, NC 36,000 Fresh-cut Leased (2001)
Grand Prairie, TX 105,000 Fresh-cut Leased (2002)
NorthCenter
Augusta, ME 123,000 Broadline Owned
Performance Food Group Company
Richmond, VA 9,000 Corporate Leased (2001)
Performance Food Group of Texas
Temple, TX 290,000 Broadline Leased (2002)
Victoria, TX 250,000 Broadline Owned
PFG Customized Distribution
Lebanon, TN 235,000 Customized Owned
Gainesville, FL 160,000 Customized Owned
McKinney, TX 163,000 Customized Owned
Belcamp, MD 73,000 Customized Leased (2001)
Bakersfield, CA 900 Customized Leased (2001)
PFG-Florida
Tampa, FL 130,000 Broadline Owned
PFG-Hale
Morristown, TN 78,000 Broadline Owned
PFG-Lester Broadline
Lebanon, TN 160,000 Broadline Leased (2002)
PFG-Milton's
Atlanta, GA 260,000 Broadline Owned
PFG-Powell
Thomasville, GA 75,000 Broadline Owned
Pocahontas Foods, USA
Richmond, VA 116,000 Broadline Leased (2005)
Redi-Cut
Franklin Park, IL 36,000 Fresh-cut Leased (2010)
Franklin Park, IL 120,000 Fresh-cut Leased (2006)
Kansas City, MO 53,000 Fresh-cut Owned
Virginia Foodservice Group
Richmond, VA 93,000 Broadline Leased (2005)
Norfolk, VA 18,000 Broadline Owned
Item 3. Legal Proceedings.
In April 1999, Maxwell Chase Technologies, LLC
filed suit in U.S. District Court against our Fresh
Advantage subsidiary. The lawsuit alleges, among other
things, patent infringement and theft of trade secrets
in the development and use of packaging materials used
in our fresh-cut produce operations. Maxwell seeks to
recover compensatory and other damages, as well as lost
profits. We are vigorously defending this action and
have filed a counterclaim against Maxwell. On February
1, 2001, the United States Patent and Trademark Office
issued a decision that significantly diminishes the
likelihood of an unfavorable decision against us with
respect to Maxwell's claim of patent infringement. We
believe that Maxwell's allegations are without merit and
that it is unlikely the outcome will have a material
adverse effect on us. However, there can be no assurance
that this matter, if decided unfavorably for us, will
not have a material adverse effect on our results of
operations.
In addition to the matter described above, we are
also involved in other legal proceedings and litigation
arising in the ordinary course of business. In the
opinion of management, the outcome of the other
proceedings and litigation currently pending will not
have a material adverse effect on our results of
operations.
Item 4. Submission of Matters to a Vote of
Shareholders.
No matters were submitted to a vote of the
shareholders during the fourth quarter ended December
30, 2000.
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters.
Our common stock is quoted on the Nasdaq Stock
Market's National Market under the symbol "PFGC." The
following table sets forth, on a per share basis, for
the fiscal quarters indicated, the high and low sales
prices for our common stock as reported on the Nasdaq
Stock Market's National Market:
2000
High Low
First Quarter $ 26.06 $ 19.00
Second Quarter 33.88 21.50
Third Quarter 38.00 31.25
Fourth Quarter 56.75 32.00
For the Year 56.75 19.00
1999
High Low
First Quarter $ 30.50 $ 23.63
Second Quarter 28.63 23.25
Third Quarter 28.63 24.38
Fourth Quarter 28.00 20.75
For the Year 30.50 20.75
As of March 23, 2001, we had approximately 2,300
shareholders of record and approximately 5,300
additional shareholders based on an estimate of
individual participants represented by security position
listings. We have not declared any cash dividends, and
the present policy of our board of directors is to
retain all earnings to support operations and to finance
our growth.
Item 6. Selected Consolidated Financial Data
(Dollar amounts in thousands, except per share amounts) 2000 1999 1998 1997 1996
STATEMENT OF EARNINGS DATA:
Net sales $ 2,605,468 $ 2,055,598 $ 1,721,316 $ 1,331,002 $ 864,219
Cost of goods sold 2,253,277 1,773,632 1,491,079 1,159,593 740,009
Gross profit 352,191 281,966 230,237 171,409 124,210
Operating expenses 302,176 242,625 198,646 146,344 103,568
Operating profit 50,015 39,341 31,591 25,065 20,642
Other income (expense):
Interest expense (6,593) (5,388) (4,411) (2,978) (1,346)
Nonrecurring merger expenses - (3,812) - - -
Gain on sale of investment - 768 - - -
Other, net (66) 342 195 111 176
Other expense, net (6,659) (8,090) (4,216) (2,867) (1,170)
Earnings before income taxes 43,356 31,251 27,375 22,198 19,472
Income tax expense 16,475 12,000 9,965 8,298 7,145
Net earnings $ 26,881 $ 19,251 $ 17,410 $ 13,900 $ 12,327
PER SHARE DATA:
Weighted average common shares outstanding 14,168 13,772 13,398 12,810 12,059
Basic net earnings per common share $ 1.90 $ 1.40 $ 1.30 $ 1.09 $ 1.02
Pro forma basic net earnings per common share(1)(2) 1.90 1.54 1.26 1.07 0.98
Weighted average common shares and dilutive
potential common shares outstanding 14,769 14,219 13,925 13,341 12,536
Diluted net earnings per common share $ 1.82 $ 1.35 $ 1.25 $ 1.04 $ 0.98
Pro forma diluted net earnings per common share(1)(2) 1.82 1.49 1.21 1.02 0.94
Book value per share $ 20.16 $ 13.42 $ 11.67 $ 10.35 $ 8.43
Closing price per share 51.27 24.38 28.13 21.00 15.25
BALANCE SHEET AND OTHER DATA:
Working capital $ 96,470 $ 70,879 $ 63,280 $ 60,131 $ 49,397
Property, plant and equipment, net 143,142 113,930 93,402 78,006 61,884
Depreciation and amortization 17,877 14,137 11,501 8,592 6,128
Capital expenditures 30,992 26,006 26,663 9,054 9,703
Total assets 709,696 462,045 387,712 308,945 202,807
Short-term debt (including current
installments of long-term debt) 1,966 703 797 867 814
Long-term debt 114,492 92,404 74,305 54,748 16,134
Shareholders' equity 357,717 189,344 157,085 137,949 105,468
Total capital $ 474,175 $ 282,451 $ 232,187 $ 193,564 $ 122,416
Debt-to-capital ratio 24.6% 33.0% 32.3% 28.7% 13.8%
Pro forma return on equity(1)(2)(3) 12.4% 12.3% 11.4% 11.2% 14.3%
P/E ratio 28.2 18.1 22.5 20.2 15.6
(1) Pro forma adjustments to net earnings per common share and return on equity add back nonrecurring merger expenses and
adjust income taxes as if NorthCenter was taxed as a C-corporation for income tax purposes rather than as an S-corporation
prior to the merger of NorthCenter in February 1999.
(2) 1999 excludes a nonrecurring gain of $768 on the sale of an investment.
(3) Return on equity for 2000 is adjusted for the impact of the common stock offering, completed in December 2000.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following discussion and analysis should be
read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial
statements and the related notes included elsewhere in
this Form 10-K.
Introduction
Performance Food Group was founded in 1987 as a
result of the combination of various foodservice
businesses, and has grown both internally through
increased sales to existing and new customers and
through acquisitions of existing foodservice
distributors. We derive our revenue primarily from the
sale of food and non-food products to the foodservice,
or "food-away-from-home," industry. The principal
components of our expenses include cost of goods sold,
which represents the amounts paid to manufacturers and
growers for products sold, and operating expenses, which
include primarily labor-related expenses, delivery costs
and occupancy expenses related to our facilities.
A portion of our growth in net sales during the
years discussed below was due to acquisitions. The
"Business Combinations" section below summarizes our
acquisitions since the beginning of 1999.
RESULTS OF OPERATIONS
The following table sets forth, for the years
indicated, the components of our consolidated statements
of earnings expressed as a percentage of net sales:
2000 1999 1998
Net sales 100.0 % 100.0 % 100.0 %
Cost of goods sold 86.5 86.3 86.6
Gross profit 13.5 13.7 13.4
Operating expenses 11.6 11.8 11.6
Operating profit 1.9 1.9 1.8
Other expense, net 0.2 0.4 0.2
Earnings before income taxes 1.7 1.5 1.6
Income tax expense 0.7 0.6 0.6
Net earnings 1.0 % 0.9 % 1.0 %
Comparison of 2000 to 1999
Net sales. Net sales increased 26.7% to $2.61
billion for 2000 from $2.06 billion for 1999. Net sales
in our existing operations increased 22.6% over 1999,
while acquisitions contributed the remaining 4.1% of our
total net sales growth for 2000. Net sales in existing
operations exclude the net sales of an acquired business
for the first 12 months following the acquisition date
of that business. Inflation amounted to approximately
1.0% in 2000.
Gross profit. Gross profit increased 24.9% to
$352.2 million in 2000 from $282.0 million in 1999.
Gross profit margin, which we define as gross profit as
a percentage of net sales, decreased to 13.5% in 2000
compared to 13.7% in 1999. The decrease in gross profit
margin was due primarily to increased sales to certain
of our chain customers, which generally are higher
volume, lower gross margin accounts.
Operating expenses. Operating expenses increased
24.5% to $302.2 million in 2000 from $242.6 million in
1999. As a percentage of net sales, operating expenses
decreased to 11.6% in 2000 from 11.8% in 1999. The
decrease in operating expenses as a percentage of net
sales was due mainly to increased sales in our
customized distribution segment, which has a lower
operating expense ratio, which we define as the ratio of
operating expenses to net sales, than our broadline and
fresh-cut segments, offset in part by higher fuel costs.
Operating profit. Operating profit increased 27.1%
to $50.0 million in 2000 from $39.3 million in 1999.
Operating profit margin, which we define as operating
profit as a percentage of net sales, was 1.9% for 2000
and 1999.
Other expense, net. Other expense, net, decreased
to $6.7 million in 2000 from $8.1 million in 1999. Other
expense, net, included interest expense of $6.6 million
in 2000 and $5.4 million in 1999. Other expense, net,
for 1999 also included nonrecurring merger expenses
related to the NorthCenter merger of $3.8 million and a
gain of $768,000 on the sale of an investment.
Income tax expense. Income tax expense increased
to $16.5 million in 2000 compared to $12.0 million in
1999. The effective tax rate decreased to 38.0% in 2000
from 38.4% in 1999. The fluctuation in the effective tax
rate was due primarily to the merger with NorthCenter,
which was taxed as an S-corporation for income tax
purposes prior to the merger with us during the first
quarter of 1999.
Net earnings. Net earnings increased 39.6% to
$26.9 million in 2000 from $19.3 million in 1999. For
2000, net earnings as a percentage of net sales
increased to 1.0% from 0.9% in 1999.
Comparison of 1999 to 1998
Net sales. Net sales increased 19.4% to $2.06
billion for 1999 compared with $1.72 billion for 1998.
Net sales in our existing operations increased 14.7%
over 1998, while acquisitions contributed an additional
4.7% to our net sales growth. Excluding the effect of
the 53rd week in 1998, net sales increased by 21.3% over
1998, and net sales in our existing operations increased
by 16.5% over 1998. Inflation was insignificant in
1999.
Gross profit. Gross profit increased 22.5% to
$282.0 million in 1999 compared with $230.2 million in
1998. Gross profit margin increased to 13.7% in 1999
compared to 13.4% in 1998. The increase in gross profit
margin was due primarily to improved profit margins at
many of our broadline locations.
Operating expenses. Operating expenses increased
22.1% to $242.6 million in 1999 from $198.6 million in
1998. As a percentage of net sales, operating expenses
increased to 11.8% in 1999 compared with 11.6% in 1998.
The increase in operating expenses as a percentage of
net sales primarily reflected increased labor costs,
including recruiting and training additional personnel,
mainly in the transportation and warehouse areas, which
are an integral part of our distribution service.
Operating expenses were also impacted by the start-up of
a new customized distribution facility to service
certain of our chain customers, which became operational
in mid-1999.
Operating profit. Operating profit increased 24.5%
to $39.3 million in 1999 from $31.6 million in 1998.
Operating profit as a percentage of net sales also
increased to 1.9% for 1999 from 1.8% for 1998.
Other expense, net. Other expense, net, increased
to $8.1 million in 1999 from $4.2 million in 1998. In
1999, other expense, net, included $3.8 million of
nonrecurring expenses related to the merger with
NorthCenter. Other expense, net, includes interest
expense, which increased to $5.4 million in 1999 from
$4.4 million in 1998. The increase in interest expense
was due primarily to higher debt levels as a result of
our various acquisitions and working capital
requirements. Partially offsetting these expenses in
1999 was a $768,000 nonrecurring gain on the sale of an
investment.
Income tax expense. Income tax expense increased
20.4% to $12.0 million in 1999 from $10.0 million in
1998 as a result of higher pre-tax earnings. As a
percentage of earnings before income taxes, income tax
expense was 38.4% in 1999 versus 36.4% in 1998. The
increase in the effective tax rate was due primarily to
the merger with NorthCenter, which was treated as an S-
corporation for income tax purposes prior to its merger
with us. As an S-corporation, NorthCenter was not
subject to income taxes prior to the merger, but
following the merger, NorthCenter became subject to
income taxes for all periods after the merger.
Net earnings. Net earnings increased to $19.3
million in 1999 from $17.4 million in 1998. As a
percentage of net sales, net earnings decreased to 0.9%
in 1999 from 1.0% in 1998.
Liquidity and Capital Resources
We have historically financed our operations and
growth primarily with cash flows from operations,
borrowings under credit facilities, the issuance of long-
term debt, operating leases, normal trade credit terms
and the sale of our common stock. Despite our growth in
net sales, we have reduced our working capital needs by
financing our investment in inventory principally with
accounts payable and outstanding checks in excess of
deposits.
Cash Flows from Operating Activities. Cash
provided by operating activities was $14.6 million in
2000. In 2000, the primary sources of cash from
operating activities were net earnings and increased
levels of trade payables, accrued expenses and income
taxes payable, partially offset by increased levels of
trade receivables and inventories. Cash provided by
operating activities was $47.0 million and $24.3 million
in 1999 and 1998, respectively. In 1999, the primary
sources of cash from operating activities were net
earnings and increased levels of trade payables and
accrued expenses, partially offset by increased levels
of inventories. In 1998, the primary sources of cash
from operating activities were net earnings and
increased levels of trade payables and accrued expenses,
partially offset by increased levels of trade
receivables.
Cash Used by Investing Activities. Cash used by
investing activities was $153.5 million in 2000.
Investing activities primarily include additions to and
disposals of property, plant and equipment and the
acquisition of businesses. Our capital expenditures,
excluding acquisitions of businesses, in 2000 were $31.0
million. Cash used by investing activities in 2000
included $124.2 million paid as a portion of the
purchase price of Redi-Cut Foods, Inc. and its
affiliates, Kansas City Salad, L.L.C. and K.C. Salad
Real Estate, L.L.C., collectively "Redi-Cut," and
Carroll County Foods, Inc., net of cash on hand at these
acquired companies, and payments made to the former
shareholders of AFFLINK Incorporated and Dixon Tom-A-Toe
Companies, Inc. as a result of certain contractual
obligations under those purchase agreements. Cash used
by investing activities was $41.8 million and $47.1
million for 1999 and 1998, respectively. During 1999
and 1998, we paid $18.1 million and $23.9 million,
respectively, for the acquisition of businesses, net of
cash on hand at the acquired companies. Our total
capital expenditures, excluding acquisitions of
businesses, for 1999 and 1998 were $26.0 million and
$26.7 million, respectively. In 1999 and 1998, proceeds
from the sale of property, plant and equipment totaled
$1.1 million and $3.6 million, respectively. Investing
activities in 1999 also included $1.6 million from the
sale of an investment.
Cash Provided by Financing Activities. Cash
provided by financing activities was $151.8 million in
2000. In 2000, cash flows from financing activities
included an increase in outstanding checks in excess of
deposits of $19.0 million, net borrowings of $12.0
million on our revolving credit facility, $3.5 million
of proceeds from industrial revenue bonds issued to
finance the construction of a new produce-processing
facility, proceeds of $124.4 million from the issuance
of additional common stock and proceeds of $5.1 million
from the exercise of stock options. In 2000, cash used
by financing activities included $800,000 of principal
payments on long-term debt and $11.9 million paid by us
to repurchase shares of our common stock in the open
market for use in connection with our employee benefit
plans. Cash used in financing activities was $7.4
million in 1999 and cash provided by financing
activities was $26.7 million in 1998. Financing
activities included net borrowings in 1999 of $13.3
million and net repayments in 1998 of $26.6 million
under our revolving credit facility. Financing
activities in 1999 also included a decrease in
outstanding checks in excess of deposits of $20.1
million, principal payments on long-term debt of $9.2
million and $1.0 million distributed to the former
shareholders of NorthCenter prior to its merger with one
of our subsidiaries. Finally, in 1999, we received cash
flows of $5.0 million from the exercise of stock options
and proceeds of $4.6 million from the issuance of
industrial revenue bonds to finance the construction of
a new produce-processing facility. Cash flows from
financing activities in 1998 included an increase in
outstanding checks in excess of deposits of $10.8
million and $1.8 million from the exercise of stock
options. Financing activities in 1998 also included
repayment of promissory notes totaling $7.3 million,
payments on long-term debt of $1.6 million, and $451,000
distributed to the former shareholders of NorthCenter.
Lastly, we received proceeds of $50.0 million from the
issuance of our 6.77% senior notes in May 1998.
On March 5, 1999, we entered into an $85.0 million
revolving credit facility with a group of commercial
banks that replaced our existing $30.0 million credit
facility. In addition, we entered into a $5.0 million
working capital line of credit with the lead bank of the
group. Collectively, these two facilities are referred
to as the "Credit Facility." The Credit Facility expires
in March 2002. Approximately $47.0 million was
outstanding under the Credit Facility at December 30,
2000. The Credit Facility also allows the issuance of up
to $10.0 million of standby letters of credit. At
December 30, 2000, we were liable for approximately $9.7
million of outstanding letters of credit that reduce
amounts available under the Credit Facility. At December
30, 2000, we had $33.3 million available under the
Credit Facility, subject to compliance with customary
borrowing conditions. The Credit Facility bears interest
at LIBOR plus a spread over LIBOR, which varies based on
the ratio of our funded debt to total capital. At
December 30, 2000, borrowings under the Credit Facility
bore interest at 7.18% per annum. Additionally, the
Credit Facility requires the maintenance of certain
financial ratios as defined in the credit agreement.
On March 19, 1999, one of our subsidiaries issued
$9.0 million of tax-exempt industrial revenue bonds to
finance the construction of a produce-processing
facility. Approximately $8.1 million of the proceeds
from these bonds had been used as of December 30, 2000.
Interest on these bonds varied as determined by the
remarketing agent for the bonds and was approximately
5.00% per annum at December 30, 2000. The bonds were
secured by a letter of credit issued by a commercial
bank and mature in March 2019. On January 31, 2001,
these bonds were refinanced with the proceeds of $9.0
million taxable revenue bonds issued by Fresh Advantage,
Inc., one of our subsidiaries, in order to free us from
certain restrictive covenants applicable to issuers of
tax-exempt bonds. Like the tax-exempt bonds, these
taxable bonds bear interest at a variable rate
determined by a remarketing agent, are secured by a
letter of credit issued by a commercial bank, and mature
in March 2019.
During the third quarter of 1999, we increased our
master operating lease facility from $42.0 million to
$47.0 million. This facility is being used to construct
four distribution centers. Two of these distribution
centers became operational in early 1999, one became
operational in the second quarter of 2000, and the
remaining property is scheduled to become operational in
the second quarter of 2001. Under this facility, the
lessor owns the distribution centers, incurs the related
debt to construct the properties and thereafter leases
each property to us. We have entered into leases for
three of the properties and have also entered into a
commitment to lease the fourth property for a period
beginning upon completion of that property. All of these
leases end on September 12, 2002, including extensions.
Upon the expiration of the leases, we may seek to renew
the leases. If we are unable to or choose not to renew
the leases, we have the option of selling the properties
to third parties or purchasing the properties at their
original cost. If the properties are sold to third
parties for less than 88% of their aggregate original
cost, we are obligated, under a residual value
guarantee, to pay the lessor an amount equal to the
shortfall. There can be no assurance that we will be
able to renew the leases or sell the properties to third
parties, and we will require substantial additional
financing if we are required to purchase these
properties upon the expiration of the master operating
lease facility. Because of the location and condition of
each property, we believe that the fair value of the
properties included in this facility could eliminate or
substantially reduce our exposure under the residual
value guarantee, although there can be no assurance that
we will not be required to make payments to satisfy this
guarantee. Through December 30, 2000, construction
expenditures by the lessor under this facility were
approximately $43.0 million.
On June 9, 2000, we entered into a $60.0 million
master operating lease facility to construct or purchase
various office buildings and distribution centers. As
of December 30, 2000, one distribution center had been
purchased and construction of one office building and
one distribution center had begun under this facility.
Under this facility, the lessor owns the properties,
incurs the related debt to construct or purchase the
properties and thereafter leases each property to us.
We have entered into a commitment to lease each property
for a period beginning upon the completion of
construction or acquisition of that property and ending
on June 9, 2005. Upon the expiration of the leases, we
may seek to renew the leases. If we are unable to or
choose not to renew the leases, we have the option to
sell the properties to third parties or purchase the
properties at their original cost. If the properties
are sold to third parties for less than 85% of their
aggregate original cost, we are obligated, under a
residual value guarantee, to pay the lessor an amount
equal to the shortfall. There can be no assurance that
we will be able to renew the leases or sell the
properties to third parties, and we will require
substantial additional financing if we are required to
purchase these properties upon the expiration of the
master operating lease facility. Because of the
location and condition of the existing property, we
believe that the anticipated fair value of the property
could eliminate or substantially reduce our exposure
under the residual value guarantee with respect to that
property. However, there can be no assurance that we
will not be required to make payments to satisfy this
guarantee either with respect to the existing property
or any other properties which may be constructed or
purchased in the future under this facility. Through
December 30, 2000, construction expenditures by the
lessor under this facility were approximately $7.7
million.
In May 1998, we issued $50.0 million of unsecured
6.77% senior notes in a private placement. These notes
are due May 8, 2010. Interest is payable semi-annually.
The senior notes require the maintenance of certain
financial ratios as defined in the note agreements.
Proceeds of the issue were used to repay amounts
outstanding under our credit facilities and for general
corporate purposes.
We believe that cash flow from operations and
borrowings under our credit facilities and our master
operating lease facilities will be sufficient to fund
our operations and capital expenditures for the
foreseeable future. However, we will likely require
additional sources of financing to the extent that we
make additional acquisitions in the future.
Business Combinations
On August 4, 2000, we acquired the common stock of
Carroll County Foods, Inc., a privately owned, broadline
foodservice distributor based in New Windsor, Maryland.
Carroll County provides products and services to
traditional foodservice accounts in a region that
includes Baltimore, Maryland and Washington, D.C.
Carroll County had 1999 net sales of approximately $45
million. The aggregate consideration payable to the
former shareholders of Carroll County is subject to
increase in certain circumstances. On December 13,
2000, we acquired the capital stock of Redi-Cut, a
privately owned fresh-cut produce processor with
facilities in Franklin Park, Illinois, a suburb of
Chicago, and Kansas City, Missouri. Redi-Cut, which
provides fresh-cut produce mainly to third-party
distributors for resale primarily to national quick-
service restaurants and other sectors of the "food-away-
from-home" industry, had 1999 net sales of approximately
$113 million.
On February 26, 1999, we completed a merger with
NorthCenter Foodservice Corporation, in which
NorthCenter became our wholly owned subsidiary.
NorthCenter was a privately owned foodservice
distributor based in Augusta, Maine, and had 1998 net
sales of approximately $98 million. The merger was
accounted for as a pooling-of-interests and resulted in
the issuance of approximately 850,000 shares of our
common stock in exchange for all of the outstanding
stock of NorthCenter. Accordingly, our consolidated
financial statements for periods prior to the merger
have been restated to include the accounts and results
of operations of NorthCenter.
On August 28, 1999, we acquired the common stock of
Dixon Tom-A-Toe Companies, Inc., an Atlanta-based
privately owned processor of fresh-cut produce. Dixon
has operations in the southeastern and midwestern United
States. Its operations have been combined with our
subsidiary Fresh Advantage, Inc. On August 31, 1999, our
subsidiary, AFI Foodservice Distributors, Inc., acquired
certain net assets of State Hotel Supply Company, Inc.,
a privately owned meat processor based in Newark, New
Jersey. State Hotel provides Certified Angus Beef and
other custom-cut meats to restaurants and food retailers
in New York City and the surrounding region. On December
13, 1999, our subsidiary, Virginia Foodservice Group,
Inc., acquired certain net assets of Nesson Meat Sales,
a privately owned meat processor based in Norfolk,
Virginia. Nesson supplies Certified Angus Beef and other
custom-cut meats to restaurants and other foodservice
operations in the mid-Atlantic region. Together, Dixon,
State Hotel and Nesson had 1998 net sales that
contributed approximately $100 million to our operations
on an annualized basis.
In 2000, we paid a total of approximately $124.2
million and issued a total of approximately 637,000
shares of our common stock for the acquisitions of
Carroll County and Redi-Cut and to the former
shareholders of AFFLINK Incorporated, which was acquired
prior to 1999, and Dixon as a result of certain
contractual obligations in those purchase agreements.
In 1999, we paid a total of approximately $18.1 million
and issued a total of approximately 304,000 shares of
our common stock for the acquisition of Dixon, State
Hotel and Nesson and to the former shareholders of
AFFLINK, AFI Food Service and Virginia Foodservice,
which were acquired prior to 1999, as a result of
certain contractual obligations in those purchase
agreements.
The acquisitions of Dixon, State Hotel, Nesson,
Carroll County and Redi-Cut have been accounted for
using the purchase method; therefore, the acquired
assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition. The
excess of the purchase price over the fair value of
tangible net assets acquired in these acquisitions was
approximately $157.1 million and is being amortized on a
straight-line basis over estimated lives ranging from 5
to 40 years. The preliminary allocation of the excess
purchase price of the Redi-Cut acquisition is subject to
adjustment in 2001. As noted above, the consideration
payable to the former owners of some of the businesses
we have acquired is subject to increase in certain
circumstances. We may be required to issue additional
shares and make additional payments in the future to the
former owners of Carroll County and AFFLINK.
Recently Issued Accounting Pronouncements
During 1998, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial Accounting
Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activity, which is effective for
periods beginning after June 15, 1999. In May 1999, FASB
issued SFAS No. 137, Deferral of the Effective Date of
SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 137 delayed the effective
date of SFAS No. 133 by one year. In June 2000, the FASB
issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Hedging Activities, an Amendment of FASB
Statement No. 133. In September 2000, the FASB issued
SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. We
will be required to adopt the provisions of these
standards with our fiscal year beginning on December 31,
2000. Management believes the effect of the adoption of
these standards on us will be limited to financial
statement presentation and disclosure and will not have
a material effect on our financial condition or results
of operations.
Quarterly Results And Seasonality
Set forth below is certain summary information with
respect to our operations for the most recent eight
fiscal quarters. Historically, the restaurant and
foodservice business is seasonal, with lower sales in
the first quarter. Consequently, we may experience lower
net sales during the first quarter, depending on the
timing of any acquisitions. Management believes our
quarterly net sales will continue to be impacted by the
seasonality of the restaurant business.
2000
(In thousands, except per share amounts)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales.............................................. $579,750 $654,603 $693,127 $677,988
Gross profit........................................... 77,409 86,979 93,223 94,580
Operating profit....................................... 7,564 12,388 15,139 14,924
Earnings before income taxes........................... 6,244 10,860 13,433 12,819
Net earnings........................................... 3,871 6,733 8,329 7,948
Basic net earnings per common share.................... 0.28 0.49 0.60 0.54
Diluted net earnings per common share.................. 0.27 0.47 0.57 0.51
1999
(In thousands, except per share amounts)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales.............................................. $466,378 $501,960 $534,583 $552,677
Gross profit........................................... 62,993 67,855 74,375 76,743
Operating profit....................................... 6,280 10,076 12,109 10,876
Earnings before income taxes........................... 1,176 8,829 11,672 9,574
Net earnings........................................... 651 5,430 7,236 5,934
Basic net earnings per common share.................... 0.05 0.40 0.52 0.42
Diluted net earnings per common share.................. 0.05 0.39 0.50 0.41
Pro forma basic net earnings per common share(1)(2).... 0.23 0.40 0.49 0.42
Pro forma diluted net earnings per common share(1)(2).. 0.22 0.39 0.47 0.41
1) Pro forma adjustments to net earnings per common
share add back nonrecurring merger expenses and adjust
income taxes as if NorthCenter, which merged with one of
our subsidiaries in February 1999, were taxed as a C-
corporation for income tax purposes rather than as an S-
corporation prior to the merger. As an S-corporation,
NorthCenter was not subject to income taxes for periods
prior to the merger. NorthCenter became subject to
income taxes for all periods following the merger.
2) 1999 excludes a nonrecurring gain of $768,000 on
the sale of an investment.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
Our primary market risks are related to
fluctuations in interest rates and changes in commodity
prices. Our primary interest rate risk is from changing
interest rates related to our long-term debt. We
currently manage this risk through a combination of
fixed and floating rates on these obligations. For fixed-
rate debt, interest rate changes affect the fair market
value of the debt but do not impact earnings or cash
flows. For floating-rate debt, interest rate changes
generally do not affect the fair market value of the
debt but impact earnings and cash flows, assuming other
facts remain constant. As of December 30, 2000, our
total debt consisted of fixed and floating rate debt of
$52.5 million and $64.0 million, respectively.
Substantially all of our floating rate debt is based on
LIBOR.
At December 30, 2000, the fair market value of our
fixed-rate debt was approximately $53.6 million.
Holding other variables constant, such as debt levels, a
one percentage point decrease in interest rates would
increase the unrealized fair market value of the fixed-
rate debt by approximately $4.0 million. The earnings
and cash flow impact for the next year resulting from a
one percentage point increase in interest rates on
floating-rate debt would be approximately $639,000,
holding other variables constant.
From time to time, we use forward swap contracts
for hedging purposes to reduce the effect of changing
fuel prices. These contracts are recorded using hedge
accounting. Under hedge accounting, the gain or loss on
the hedge is deferred and recorded as a component of the
underlying expense. As of December 30, 2000, we had no
outstanding forward swap contracts.
Item 8. Financial Statements and Supplementary Data.
Page of Form 10-K
Financial Statements:
Report of Independent Auditors...................... F-1
Consolidated Balance Sheets......................... F-2
Consolidated Statements of Earnings................. F-3
Consolidated Statements of Shareholders' Equity..... F-4
Consolidated Statements of Cash Flows............... F-5
Notes to Consolidated Financial Statements.......... F-6
Financial Statement Schedules:
Independent Auditors' Report on Financial Statement
Schedule.......................................... S-1
Schedule II - Valuation and Qualifying Accounts..... S-2
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the
Registrant.
The Proxy Statement issued in connection with the
shareholders' meeting to be held on May 2, 2001 contains
under the caption "Proposal 1: Election of Directors"
information required by Item 10 of Form 10-K and is
incorporated herein by reference. Pursuant to General
Instruction G(3), certain information concerning our
executive officers is included in Part I of this Form 10-
K, under the caption "Executive Officers."
Item 11. Executive Compensation.
The Proxy Statement issued in connection with the
shareholders' meeting to be held on May 2, 2001 contains
under the caption "Executive Compensation" information
required by Item 11 of Form 10-K and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
The Proxy Statement issued in connection with the
shareholders' meeting to be held on May 2, 2001 contains
under the captions "Security Ownership of Certain
Beneficial Owners" and "Proposal 1: Election of
Directors" information required by Item 12 of Form 10-K
and is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions.
The Proxy Statement issued in connection with the
shareholders' meeting to be held on May 2, 2001 contains
under the caption "Certain Transactions" information
required by Item 13 of Form 10-K and is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a). 1. Financial Statements. See index to Financial Statements
on page 21 of this Form 10-K.
2. Financial Statement Schedules. See index to Financial
Statement Schedules on page 21 of this Form 10-K.
3. Exhibits:
Exhibit
Number Description
A. Incorporated by reference to our Registration Statement
on Form S-1 (No. 33-64930):
3.1 -- Restated Charter of Registrant.
3.2 -- Restated Bylaws of Registrant.
4.1 -- Specimen Common Stock certificate.
4.2 -- Article 5 of the Registrant's Restated
Charter (included in Exhibit 3.1).
4.3 -- Article 6 of the Registrant's Restated
Bylaws (included in Exhibit 3.2).
10.1 -- Loan Agreement dated July 7, 1988, as
amended by various amendments thereto, by and
between the Pocahontas Food Group, Inc.
Employee Savings and Stock Ownership Trust,
Sovran Bank/Central South, Trustee, Pocahontas
Food Group, Inc., and Third National Bank,
Nashville, Tennessee.
10.2 -- Guaranty Agreement dated July 7, 1988 by
and between Pocahontas Food Group, Inc. and
Third National Bank, Nashville, Tennessee.
10.3 -- 1989 Non-Qualified Stock Option Plan.
10.4 -- 1993 Employee Stock Incentive Plan.
10.5 -- 1993 Outside Directors' Stock Option
Plan.
10.6 -- Performance Food Group Employee Savings
and Stock Ownership Plan.
10.7 -- Trust Agreement for Performance Food
Group Employee Savings and Stock Ownership
Plan.
10.8 -- Form of Pocahontas Food Group, Inc.
Executive Deferred Compensation Plan.
10.9 -- Form of Indemnification Agreement.
10.10 -- Pledge Agreement dated March 31, 1993 by
and between Hunter C. Sledd, Jr. and
Pocahontas Foods, USA, Inc.
B. Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 1, 1994:
10.11 -- First Amendment to the Trust Agreement
for Pocahontas Food Group, Inc. Employee
Savings and Stock Ownership Plan.
10.12 -- Performance Food Group Employee Stock
Purchase Plan.
Exhibit
Number Description
C. Incorporated by reference to our Quarterly Report
on Form 10-Q for the quarter ended April 2, 1994:
10.13 -- Amendment to Loan Agreement dated March
4, 1994 by and among Performance Food Group
Company Employee Savings and Stock Ownership
Plan, First Tennessee Bank, N.A., Performance
Food Group Company and Third National Bank,
Nashville, Tennessee.
D. Incorporated by Reference to our Report on Form 8-K
dated January 3, 1995:
10.14 -- Second Amendment to Loan Agreement dated
January 3, 1995 between Performance Food Group
Company, Employee Savings and Stock Ownership
Trust, First Tennessee Bank, N.A. as trustee,
Performance Food Group Company and Third
National Bank, Nashville, Tennessee.
E. Incorporated by Reference to our Annual Report on
Form 10-K for the fiscal year ended December 28, 1996:
10.15 -- Performance Food Group Company Employee
Savings and Stock Ownership Plan Savings Trust.
F. Incorporated by Reference to our Report on Form 8-K
dated May 20, 1997:
10.16 -- Rights Agreement dated as of May 16, 1997
between Performance Food Group Company and
First Union National Bank of North Carolina,
as Rights Agent.
G. Incorporated by Reference to our Quarterly
Report on Form 10-Q for the quarter ended September 27,
1997:
10.17 -- Participation Agreement dated as of
August 29, 1997 among Performance Food Group
Company, First Security Bank, National Association
and First Union National Bank (as agent for the
Lenders and Holders).
10.18 -- Lease Agreement dated as of August 29, 1997
between First Security Bank, National Association
and Performance Food Group Company.
H. Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended December 27,
1997:
10.19 -- Form of Change in Control Agreement dated
October 29, 1997 with Blake P. Auchmoody,
John D. Austin, Roger L. Boeve, John R. Crown,
C. Michael Gray, Thomas Hoffman, Mark H. Johnson,
Kenneth Peters, Robert C. Sledd and David W. Sober.
10.20 -- Form of Change in Control Agreement dated
October 29, 1997 with certain key executives.
I. Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended June 27, 1998:
10.21 -- Form of Note Purchase Agreement dated as of
May 8, 1998 for 6.77% Senior Notes due May 8, 2010.
J. Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 2, 1999:
10.22 -- Performance Food Group Company Executive
Deferred Compensation Plan.
K. Incorporated by reference to our Quarterly Report
on Form 10-Q for the quarter ended April 3, 1999:
10.23 -- Revolving Credit Agreement dated as of March
5, 1999.
10.24 -- Letter of Credit and Reimbursement Agreement
by and among KMB Produce, Inc. and First Union
National Bank, dated as of March 1, 1999.
10.25 -- Guaranty Agreement by and among Performance
Food Group Company and First Union National Bank,
dated as of March 1, 1999.
L. Incorporated by reference to our Quarterly Report
on Form 10-Q for the quarter ended October 2, 1999:
10.26 -- First Amendment to Certain Operative Agreements
dated August 31, 1999.
M. Incorporated by reference to our Quarterly Report
on Form 10-Q for the quarter ended July 1, 2000:
10.27 -- Participation Agreement dated as of June 9,
2000 for the $60 million master operating lease
agreement.
Exhibit
Number Description
10.28 -- Lease Agreement dated as of June 9, 2000 for
the $60 million master operating lease agreement.
N. Filed herewith:
10.29 -- First Amendment of Credit Agreement dated
as of September 27, 2000, among Performance
Food Group Company, the lenders party thereto
and First Union National Bank.
10.30 -- Second Amendment to Credit Agreement
dated as of December 13, 2000, among
Performance Food Group Company, the lenders
party thereto and First Union National Bank.
10.31 -- Third Amendment to Credit Agreement dated
as of December 13, 2000, among Performance
Food Group Company, the lenders party thereto
and First Union National Bank.
10.32 -- First Amendment to Certain Operative
Agreements dated as of December 13, 2000.
10.33 -- Second Amendment to Certain Operative
Agreements dated as of December 13, 2000.
21 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
(b) Reports on Form 8-K:
We filed a report on Form 8-K dated November 27,
2000 (as amended by a Form 8-K/A dated December
8, 2000) during the quarter ended December 30,
2000 to report our acquisition of Redi-Cut.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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
on March 23, 2001.
PERFORMANCE FOOD GROUP COMPANY
By: /s/ Robert C. Sledd
Robert C. Sledd
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the
following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Robert C. Sledd Chairman, Chief Executive Officer and March 23, 2001
Robert C. Sledd Director [Principal Executive Officer]
/s/ C. Michael Gray President, Chief Operating Officer and March 23, 2001
C. Michael Gray Director
/s/ Roger L. Boeve Executive Vice President and Chief March 23, 2001
Roger L. Boeve Financial Officer [Principal Financial
Officer and Principal Accounting
Officer]
/s/ Charles E. Adair Director March 23, 2001
Charles E. Adair
/s/ Fred C. Goad, Jr. Director March 23, 2001
Fred C. Goad, Jr.
/s/ Timothy M. Graven Director March 23, 2001
Timothy M. Graven
/s/ H. Allen Ryan Director March 23, 2001
H. Allen Ryan
/s/ John E. Stokely Director March 23, 2001
John E. Stokely
Independent Auditors' Report
The Board of Directors
Performance Food Group Company:
We have audited the accompanying consolidated balance sheets of
Performance Food Group Company and subsidiaries (the "Company") as of
December 30, 2000 and January 1, 2000, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each
of the fiscal years in the three-year period ended December 30, 2000.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits 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 audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Performance Food Group Company and subsidiaries as of December 30,
2000 and January 1, 2000, and the results of their operations and
their cash flows for each of these fiscal years in the three-year
period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Richmond, Virginia
February 5, 2001
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts) 2000 1999
ASSETS
Current assets:
Cash $ 18,530 $ 5,606
Trade accounts and notes receivable, less allowance for
doubtful accounts of $4,832 and $4,477 167,444 119,126
Inventories 123,586 108,550
Prepaid expenses and other current assets 4,364 4,030
Deferred income taxes 10,332 5,570
Total current assets 324,256 242,882
Property, plant and equipment, net 143,142 113,930
Goodwill, net of accumulated amortization of $9,025 and $5,941 234,421 97,975
Other intangible assets, net of accumulated
amortization of $2,840 and $1,926 4,890 5,353
Other assets 2,987 1,905
Total assets $ 709,696 $ 462,045
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of deposits $ 33,330 $ 14,082
Current installments of long-term debt 1,966 703
Trade accounts payable 134,986 116,821
Accrued expenses 49,769 36,751
Income taxes payable 7,735 3,646
Total current liabilities 227,786 172,003
Long-term debt, excluding current installments 114,492 92,404
Deferred income taxes 9,701 8,294
Total liabilities 351,979 272,701
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued, preferences to be defined when issued - -
Common stock, $.01 par value; 50,000,000 shares authorized;
17,740,168 and 14,112,151 shares issued and outstanding 177 141
Additional paid-in capital 243,586 102,681
Retained earnings 115,738 88,857
359,501 191,679
Loan to leveraged employee stock ownership plan (1,784) (2,335)
Total shareholders' equity 357,717 189,344
Commitments and contingencies (notes 4,7,8,9,11,12, and 14) - -
Total liabilities and shareholders' equity $ 709,696 $ 462,045
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share amounts) 2000 1999 1998
Net sales $ 2,605,468 $ 2,055,598 $ 1,721,316
Cost of goods sold 2,253,277 1,773,632 1,491,079
Gross profit 352,191 281,966 230,237
Operating expenses 302,176 242,625 198,646
Operating profit 50,015 39,341 31,591
Other income (expense):
Interest expense (6,593) (5,388) (4,411)
Nonrecurring merger expenses - (3,812) -
Gain on sale of investment - 768 -
Other, net (66) 342 195
Other expense, net (6,659) (8,090) (4,216)
Earnings before income taxes 43,356 31,251 27,375
Income tax expense 16,475 12,000 9,965
Net earnings $ 26,881 $ 19,251 $ 17,410
Weighted average common shares outstanding 14,168 13,772 13,398
Basic net earnings per common share $ 1.90 $ 1.40 $ 1.30
Weighted average common shares and dilutive
potential common shares outstanding 14,769 14,219 13,925
Diluted net earnings per common share $ 1.82 $ 1.35 $ 1.25
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Loan to Total
Common stock Additional Retained leveraged shareholders'
(Dollar amounts in thousands) Shares Amount paid-in capital earnings ESOP equity
Balance at December 27, 1997 13,333,286 $ 134 $ 87,412 $ 53,770 $ (3,367) $ 137,949
Employee stock option, incentive
and purchase plans and related
income tax benefits 125,487 1 1,776 - - 1,777
Principal payments on loan to
leveraged ESOP - - - - 498 498
Distributions of pooled company - - - (451) - (451)
Effect of conforming fiscal year
of pooled company - - - (98) - (98)
Net earnings - - - 17,410 - 17,410
Balance at January 2, 1999 13,458,773 135 89,188 70,631 (2,869) 157,085
Issuance of shares for acquisitions 303,928 3 8,507 - - 8,510
Employee stock option, incentive
and purchase plans and related
income tax benefits 349,450 3 4,986 - - 4,989
Principal payments on loan to
leveraged ESOP - - - - 534 534
Distributions of pooled company - - - (1,025) - (1,025)
Net earnings - - - 19,251 - 19,251
Balance at January 1, 2000 14,112,151 141 102,681 88,857 (2,335) 189,344
Proceeds from offering of common stock 3,220,000 32 124,365 - - 124,397
Issuance of shares for acquisitions 637,344 6 23,360 - - 23,366
Repurchases of common stock (479,300) (5) (11,902) - - (11,907)
Employee stock option, incentive
and purchase plans and related
income tax benefits 249,973 3 5,082 - - 5,085
Principal payments on loan to
leveraged ESOP - - - - 551 551
Net earnings - - - 26,881 - 26,881
Balance at December 30, 2000 17,740,168 $ 177 $ 243,586 $ 115,738 $ (1,784) $ 357,717
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands) 2000 1999 1998
Cash flows from operating activities:
Net earnings $ 26,881 $ 19,251 $ 17,410
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 13,879 11,081 9,152
Amortization 3,998 3,056 2,349
Loss (gain) on disposal of property, plant and equipment 302 (32) 36
Deferred income taxes (1,520) 226 1,380
ESOP contributions applied to principal of ESOP debt 551 534 498
Gain on sale of investment - (768) -
Changes in operating assets and liabilities, net of effects
of companies acquired:
Decrease (increase) in trade accounts and notes receivable (37,639) 213 (17,603)
Increase in inventories (11,112) (15,519) (9,533)
Decrease (increase) in prepaid expenses and other current assets 174 6 (1,152)
Increase in trade accounts payable 8,918 17,161 20,701
Increase in accrued expenses 6,565 7,118 4,032
Increase (decrease) in income taxes payable 3,589 4,676 (2,941)
Total adjustments (12,295) 27,752 6,919
Net cash provided by operating activities 14,586 47,003 24,329
Cash flows from investing activities, net of effects of
companies acquired:
Net cash paid for acquisitions (124,193) (18,066) (23,857)
Purchases of property, plant and equipment (30,992) (26,006) (26,663)
Proceeds from sale of property, plant and equipment 1,382 1,061 3,600
Decrease (increase) in intangibles and other assets 315 (366) (170)
Proceeds from sale of investment - 1,563 -
Net cash used by investing activities (153,488) (41,814) (47,090)
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of deposits 19,004 (20,124) 10,848
Net proceeds from (payments on) revolving credit facility 12,004 13,317 (26,560)
Proceeds from issuance of Industrial Revenue Bonds 3,455 4,640 -
Principal payments on long-term debt (812) (9,176) (1,602)
Proceeds from issuance of long-term debt 600 - 50,041
Repayment of promissory notes - - (7,278)
Proceeds from issuance of common stock 124,397 - -
Repurchases of common stock (11,907) - -
Distributions of pooled company - (1,025) (451)
Effect of conforming fiscal year of pooled company - - (98)
Employee stock option, incentive and purchase plans
and related income tax benefits 5,085 4,989 1,777
Net cash provided by (used in) financing activities 151,826 (7,379) 26,677
Net increase (decrease) in cash 12,924 (2,190) 3,916
Cash, beginning of year 5,606 7,796 3,880
Cash, end of year $ 18,530 $ 5,606 $ 7,796
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________
December 30, 2000 and January 1, 2000
1. Description of Business
Performance Food Group Company and subsidiaries (the "Company")
markets and distributes food and non-food products to the
foodservice or "food-away-from-home" industry. The foodservice
industry consists of two major customer types: "street"
foodservice customers, which include independent restaurants,
hotels, cafeterias, schools, healthcare facilities and other
institutional customers; and multi-unit, or "chain" customers,
which include regional and national quick-service and casual
dining restaurants.
The Company services these customers through three main operating
segments: broadline foodservice distribution ("Broadline");
customized foodservice distribution ("Customized"); and fresh-cut
produce processing ("Fresh-cut"). Broadline markets and
distributes more than 31,000 national and proprietary brand food
and non-food products to a total of approximately 27,000 street
and chain customers. Broadline consists of twelve operating
locations that independently design their own product mix,
distribution routes and delivery schedules to accommodate the
needs of a large number of customers, whose individual purchases
vary in size. Customized focuses on serving certain casual-dining
chain restaurants. These customers generally prefer a
centralized point of contact that facilitates item and menu
changes, tailored distribution routing and customer service
resolution. The Customized distribution network covers 49 states
and several foreign countries from five distribution facilities.
Fresh-cut purchases, processes, packages and distributes a
variety of fresh produce mainly to third-party distributors for
resale primarily to quick-service restaurants located in the
southeastern, southwestern, and midwestern United Sates. Fresh-
cut operations are conducted at five processing facilities.
The Company uses a 52/53 week fiscal year ending on the Saturday
closest to December 31. The fiscal years ended December 30, 2000,
January 1, 2000 and January 2, 1999 (52, 52 and 53-week years,
respectively) are referred to herein as 2000, 1999 and 1998,
respectively.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Performance Food Group Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
(b) Revenue Recognition and Receivables
Sales are recognized upon the shipment of goods to the customer.
Trade accounts and notes 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 consolidated balance sheets.
(c) Inventories
The Company values inventory at the lower of cost or market using
both the first-in, first-out and last-in, first-out ("LIFO")
methods. Approximately 7% of the Company's inventories are
accounted for using the LIFO method. Inventories consist
primarily of food and non-food products.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated primarily using the
straight-line method over the estimated useful lives of the
assets, which range from three to 35 years.
When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts.
The difference between the net book value of the asset and
proceeds from disposition is recognized as a gain or loss.
Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are
capitalized.
(e) Income Taxes
The Company follows Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes, which requires the
use of the asset and liability method of accounting for deferred
income taxes. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences
between the tax basis of assets and liabilities and their
reported amounts. Future tax benefits, including net operating
loss carryforwards, are recognized to the extent that realization
of such benefits is more likely than not.
(f) Intangible Assets
Intangible assets consist primarily of the excess of the purchase
price over the fair value of tangible net assets and identified
intangible assets acquired (goodwill) related to purchase
business combinations and identified intangible assets, such as
non-compete agreements, customer lists and deferred loan costs.
These intangible assets are amortized on a straight-line basis
over their estimated useful lives, which range from 5 to 40
years.
(g) Net Earnings Per Common Share
Basic net earnings per common share is computed using the
weighted average number of common shares outstanding during the
year. Diluted net earnings per common share is calculated using
the weighted average common shares and potentially dilutive
common shares, calculated using the treasury stock method,
outstanding during the year. Potentially dilutive common shares
consist of options issued under various stock plans described in
Note 12.
(h) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-Based Compensation. This
accounting standard encourages, but does not require, companies
to record compensation costs for stock-based compensation plans
using a fair-value based method of accounting for employee stock
options and similar equity instruments. The Company has elected
to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock (see Note 12).
The Company has adopted the disclosure requirements of SFAS No.
123.
(i) Accounting Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, sales and expenses.
Actual results could differ from those estimates.
(j) Fair Value of Financial Instruments
At December 30, 2000 and January 1, 2000, the carrying value of
cash, trade accounts and notes receivable, outstanding checks in
excess of deposits, trade accounts payable and accrued expenses
approximate their fair values due to the relatively short
maturities of those instruments. The carrying value of the
Company's floating-rate, long-term debt approximates fair value
due to the variable nature of the interest rates charged on such
borrowings. The Company estimates the fair value of its fixed-
rate, long-term debt, consisting primarily of $50.0 million of
6.77% Senior Notes, using discounted cash flow analysis based on
current borrowing rates. At December 30, 2000 and January 1,
2000, the fair value of the Company's 6.77% Senior Notes was
approximately $51.0 million and $48.0 million, respectively.
(k) Impairment of Long-Lived Assets
Long-lived assets, including intangible assets, held and used by
the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. For purposes of evaluating the
recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows generated by the
individual operating location.
(l) Reclassifications
Certain amounts in the 1998 consolidated financial statements
have been reclassified to conform to the 2000 and 1999
presentations.
3. Concentration of Sales and Credit Risk
Two of the Company's customers, Outback Steakhouse, Inc.
("Outback") and Cracker Barrel Old Country Stores, Inc. ("Cracker
Barrel"), account for a significant portion of the Company's
consolidated net sales. Net sales to Outback accounted for
approximately 16%, 16% and 15% of consolidated net sales for
2000, 1999 and 1998, respectively. Net sales to Cracker Barrel
accounted for approximately 16%, 17% and 18% of consolidated net
sales for 2000, 1999 and 1998, respectively. At December 30,
2000, amounts receivable from these two customers represented 16%
of total trade receivables.
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The remainder of the Company's customer base
includes a large number of individual restaurants, national and
regional chain restaurants and franchises, and other
institutional customers. The credit risk associated with trade
receivables is minimized by the Company's large customer base and
ongoing control procedures that monitor customers'
creditworthiness.
4. Business Combinations
On August 4, 2000, the Company acquired the common stock of
Carroll County Foods, Inc. ("Carroll County"), a privately owned
broadline foodservice distributor based in New Windsor, Maryland.
Carroll County provides products and services to traditional
foodservice accounts in a region that includes Baltimore,
Maryland and Washington, D.C. Carroll County had 1999 net sales
of approximately $45 million. On December 13, 2000, the Company
acquired the common stock and membership interests of Redi-Cut
Foods, Inc. and its affiliates, Kansas City Salad, L.L.C. and
K.C. Salad Real Estate, L.L.C., collectively, "Redi-Cut," a
privately owned processor of fresh-cut produce with facilities in
Franklin Park, Illinois, a suburb of Chicago, and Kansas City,
Missouri. Redi-Cut, which provides fresh-cut produce mainly to
third-party distributors for resale primarily to quick-service
restaurants such as McDonald's, KFC, Taco Bell, Pizza Hut and
Burger King, had 1999 net sales of approximately $113 million.
On August 28, 1999, the Company acquired the common stock of
Dixon Tom-A-Toe Companies, Inc. ("Dixon"), an Atlanta-based
privately owned processor of fresh-cut produce. Dixon has
operations in the southeastern and midwestern United States. Its
operations have been combined with the operations of Fresh
Advantage, Inc., a subsidiary of the Company. On August 31,
1999, AFI Food Service Distributors, Inc. ("AFI"), a subsidiary
of the Company, acquired certain net assets of State Hotel Supply
Company, Inc. ("State Hotel"), a privately owned meat processor
based in Newark, New Jersey. State Hotel provides Certified
Angus Beef and other custom-cut meats to restaurants and food
retailers in New York City and the surrounding region. The
financial results of State Hotel have been combined with the
operations of AFI. On December 13, 1999, Virginia Foodservice
Group, Inc. ("VFG"), a subsidiary of the Company, acquired
certain net assets of Nesson Meat Sales ("Nesson"), a privately
owned meat processor based in Norfolk, Virginia. Nesson supplies
Certified Angus Beef and other custom-cut meats to restaurants
and other foodservice operations in the mid-Atlantic region. The
financial results of Nesson have been combined with the
operations of VFG. Together, Dixon, State Hotel and Nesson had
1998 sales that contributed to the Company's ongoing operations
of approximately $100 million on an annualized basis.
In 2000, the Company paid a total of approximately $124.2
million, net of cash acquired, and issued a total of
approximately 637,000 shares of its common stock for the
acquisitions of Carroll County and Redi-Cut and to the former
shareholders of AFFLINK Incorporated ("AFFLINK"), which was
acquired prior to 1999, and Dixon as a result of certain
contractual obligations in those purchase agreements. The
aggregate consideration payable to the former shareholders of
Carroll County and AFFLINK is subject to increase in certain
circumstances.
In 1999, the Company paid a total of approximately $18.1 million,
net of cash acquired, and issued a total of approximately 304,000
shares of its common stock for the acquisitions of Dixon, State
Hotel and Nesson and to the former shareholders of AFFLINK, AFI
and VFG, which were acquired prior to 1999, as a result of
certain contractual obligations in those purchase agreements.
The acquisitions of Dixon, State Hotel, Nesson, Carroll County
and Redi-Cut and have been accounted for using the purchase
method; therefore, the acquired assets and liabilities have been
recorded at their estimated fair values at the dates of
acquisition. The excess of the purchase price over the fair
value of tangible net assets acquired in these acquisitions was
approximately $157.1 million and is being amortized on a straight-
line basis over estimated lives ranging from 5 to 40 years. The
preliminary allocation of the excess purchase price of the Redi-
Cut acquisition is subject to adjustment in 2001.
The consolidated statements of earnings and cash flows reflect
the results of these acquired companies from the dates of
acquisition through December 30, 2000. The unaudited consolidated
results of operations on a pro forma basis as though these
acquisitions had been consummated as of the beginning of 1999 are
as follows:
(In thousands, except per share amounts) 2000 1999
Net sales $ 2,757,965 $2,279,990
Gross profit 382,872 326,626
Net earnings 32,109 20,872
Basic net earnings per common share $ 1.81 $ 1.17
Diluted net earnings per common share 1.75 1.14
The pro forma results are presented for information purposes only
and are not necessarily indicative of the operating results that
would have occurred had the Dixon, State Hotel, Nesson, Carroll
County and Redi-Cut acquisitions been consummated as of the
beginning of 1999.
On February 26, 1999, the Company completed a merger with
NorthCenter Foodservice Corporation ("NorthCenter"), in which
NorthCenter became a wholly owned subsidiary of the Company.
NorthCenter was a privately owned foodservice distributor based
in Augusta, Maine and had 1998 net sales of approximately $98
million. The merger was accounted for as a pooling-of-interests
and resulted in the issuance of approximately 850,000 shares of
the Company's common stock in exchange for all of the outstanding
stock of NorthCenter. Accordingly, the consolidated financial
statements for periods prior to the combination have been
restated to include the accounts and results of operations of
NorthCenter. The Company incurred nonrecurring merger expenses
of $3.8 million in 1999 associated with the NorthCenter merger.
These expenses included certain contractual payments to
NorthCenter employees as well as professional fees and
transaction costs.
The results of operations of the Company and NorthCenter,
including the related $3.8 million of nonrecurring merger
expenses, and the combined amounts presented in the accompanying
consolidated financial statements for 1999 are summarized below:
(In thousands) 1999
Net sales:
The Company $ 1,945,370
NorthCenter 110,228
Combined $ 2,055,598
Net earnings:
The Company $ 18,818
NorthCenter 433
Combined $ 19,251
Adjustments to conform NorthCenter's accounting methods and
practices to those of the Company consisted primarily of
depreciation and were not material. Prior to the merger,
NorthCenter's fiscal year end was the Saturday closest to
February 28. For 1998, NorthCenter conformed its fiscal year end
to that of the Company. The effect of conforming NorthCenter's
year end was approximately $98,000.
NorthCenter, prior to the merger with the Company, was treated as
an S-corporation for Federal income tax purposes. The following
disclosures, including unaudited pro forma income tax expense,
present the combined results of operations, excluding
nonrecurring merger expenses of $3.8 million, as if NorthCenter
was taxed as a C-corporation for the year presented:
(In thousands, except per share amounts) 1999
Operating profit $ 39,341
Other income (expense):
Interest expense (5,388)
Other, net 1,110
Other expense, net (4,278)
Earnings before income taxes 35,063
Income tax expense 13,359
Net earnings $ 21,704
Weighted average common shares outstanding 13,772
Basic net earnings per common share $ 1.58
Weighted average common shares and dilutive
potential common shares outstanding 14,219
Diluted net earnings per common share $ 1.53
5. Property, Plant and Equipment
Property, plant and equipment as of December 30, 2000 and January
1, 2000 consist of the following:
(In thousands) 2000 1999
Land $ 6,240 $ 5,952
Buildings and building improvements 102,197 79,272
Transportation equipment 20,123 19,334
Warehouse and plant equipment 58,434 33,159
Office equipment, furniture and fixtures 30,575 23,993
Leasehold improvements 2,932 5,081
Construction-in-process 3,233 9,302
223,734 176,093
Less accumulated depreciation and amortization 80,592 62,163
Property, plant and equipment, net $ 143,142 $ 113,930
6. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for 2000, 1999
and 1998 are as follows:
(In thousands) 2000 1999 1998
Cash paid during the year for:
Interest $ 6,648 $ 5,323 $ 3,908
Income taxes $ 12,278 $ 7,126 $ 12,262
Effects of companies acquired:
Fair value of assets acquired $ 172,107 $ 49,097 $ 33,417
Fair value of liabilities assumed (24,548) (22,521) (9,560)
Stock issued for acquisitions (23,366) (8,510) -
Net cash paid for acquisitions $ 124,193 $ 18,066 $ 23,857
7. Long-term Debt
Long-term debt as of December 30, 2000 and January 1, 2000
consists of the following:
(In thousands) 2000 1999
Revolving Credit Facility $ 46,998 $ 34,994
Senior Notes 50,000 50,000
Industrial Revenue Bonds 15,094 4,640
ESOP loan 1,784 2,335
Other notes payable 2,582 1,138
Total long-term debt 116,458 93,107
Less current installments 1,966 703
Long-term debt, excluding current installments $ 114,492 $ 92,404
Revolving Credit Facility
On March 5, 1999, the Company entered into an $85.0 million
revolving credit facility with a group of commercial banks that
replaced the Company's existing $30.0 million credit facility.
In addition, the Company entered into a $5.0 million working
capital line of credit with the lead bank of the group.
Collectively, these two facilities are referred to as the "Credit
Facility." The Credit Facility expires in March 2002.
Approximately $47.0 million was outstanding under the Credit
Facility at December 30, 2000. The Credit Facility also supports
up to $10.0 million of letters of credit. At December 30, 2000,
the Company was contingently liable for approximately $9.7
million of outstanding letters of credit that reduce amounts
available under the Credit Facility. At December 30, 2000, the
Company had $33.3 million available under the Credit Facility.
The Credit Facility bears interest at LIBOR plus a spread over
LIBOR, which varies based on the ratio of funded debt to total
capital. At December 30, 2000, the Credit Facility bore interest
at 7.18% per annum. Additionally, the Credit Facility requires
the maintenance of certain financial ratios, as defined in the
Company's credit agreement, regarding debt to capitalization,
interest coverage and minimum net worth.
Senior Notes
In May 1998, the Company issued $50.0 million of unsecured 6.77%
Senior Notes due May 8, 2010 in a private placement. Interest is
payable semi-annually. The Senior Notes require the maintenance
of certain financial ratios, as defined, regarding debt to
capital, fixed charge coverage and minimum net worth. Proceeds
of the issuance were used to repay amounts outstanding under the
Company's credit facilities and for general corporate purposes.
Industrial Revenue Bonds
On March 19, 1999, $9.0 million of Industrial Revenue Bonds were
issued on behalf of a subsidiary of the Company to finance the
construction of a produce-processing facility. These bonds
mature in March 2019. Approximately $8.1 million of the proceeds
from these bonds have been used and are reflected on the
Company's consolidated balance sheet as of December 30, 2000.
Interest varies as determined by the remarketing agent for the
bonds and was 5.00% per annum at December 30, 2000. The bonds
are secured by a letter of credit issued by a commercial bank.
On November 10, 1999, prior to its acquisition by the Company,
Redi-Cut issued Tax Exempt Multi-Modal Industrial Development
Revenue Bonds. The proceeds from the sale of these bonds,
totaling $7.0 million, were used to finance the acquisition,
construction, installation and equipment of Redi-Cut's fresh-cut
produce processing facility in Kansas City, Missouri. Interest
on these bonds is payable monthly. The bonds are subject to
annual mandatory redemptions beginning June 1, 2001 and
continuing through 2020. Interest on these bonds adjusts weekly
and was 4.95% at December 30, 2000. The bonds are secured by a
letter of credit totaling approximately $7.1 million issued by a
commercial bank.
ESOP Loan
The Company sponsors a leveraged employee stock ownership plan
that was financed with proceeds of a note payable to a commercial
bank (the "ESOP loan"). The ESOP loan is secured by the common
stock of the Company acquired by the employee stock ownership
plan and is guaranteed by the Company. The loan is payable in
quarterly installments of $170,000, which includes interest based
on LIBOR plus a spread over LIBOR (6.41% at December 30, 2000).
The loan matures in 2003.
Maturities of long-term debt are as follows:
(In thousands)
2001 $ 1,966
2002 48,146
2003 1,077
2004 476
2005 322
Thereafter 64,471
Total long-term debt $ 116,458
8. Shareholders' Equity
In May 1997, the Company's board of directors approved a
shareholder rights plan. A dividend of one stock purchase right
(a "Right") per common share was distributed to shareholders of
record on May 30, 1997. Common shares issued subsequent to the
adoption of the rights plan automatically have Rights attached to
them. Under certain circumstances, each Right entitles the
shareholders to one-hundredth of one share of preferred stock,
par value $.01 per share, at an initial exercise price of $100
per Right. The Rights will be exercisable only if a person or
group acquires 15% or more of the Company's outstanding common
stock. Until the Rights become exercisable, they have no
dilutive effect on the Company's net earnings per common share.
The Company can redeem the Rights, which are non-voting, at any
time prior to them becoming exercisable at a redemption price of
$.001 per Right. The Rights will expire in May 2007, unless
redeemed earlier by the Company.
9. Leases
The Company leases various warehouse and office facilities and
certain equipment under long-term operating lease agreements that
expire at various dates. At December 30, 2000, the Company is
obligated under operating lease agreements to make future minimum
lease payments as follows:
(In thousands)
2001 $ 16,094
2002 14,791
2003 11,901
2004 10,648
2005 9,090
Thereafter 24,709
Total minimum lease payments $ 87,233
Total rental expense for operating leases in 2000, 1999 and 1998
was approximately $24.5 million, $16.3 million and $12.8 million,
respectively.
During the third quarter of 1999, the Company increased its
master operating lease facility from $42.0 million to $47.0
million. This facility is being used to construct four
distribution centers. Two of these distribution centers became
operational in early 1999, one became operational in the second
quarter of 2000, and the remaining property is scheduled to
become operational in the second quarter of 2001. Under this
facility, the lessor owns the distribution centers, incurs the
related debt to construct the properties, and thereafter leases
each property to the Company. The Company has entered into
leases for three of the properties and has also entered into a
commitment to lease the fourth property for a period beginning
upon completion of that property. All of these leases end on
September 12, 2002, including extensions. Upon the expiration of
the leases, the Company may seek to renew the leases. If the
Company is unable to or chooses not to renew the leases, it has
the option of selling the properties to third parties or
purchasing the properties at their original cost. If the
properties are sold to third parties for less than 88% of their
aggregate original cost, the Company is obligated, under a
residual value guarantee, to pay the lessor an amount equal to
the shortfall. These residual value guarantees are not included
in the above table of future minimum lease payments. There can
be no assurance that the Company will be able to renew the leases
or sell the properties to third parties, and the Company will
require substantial additional financing if it is required to
purchase these properties upon the expiration of the master
operating lease facility. Because of the location and condition
of each property, the Company believes that the fair value of the
properties included in this facility could eliminate or
substantially reduce the exposure under the residual value
guarantee, although there can be no assurance that the Company
will not be required to make payments to satisfy this guarantee.
Through December 30, 2000, construction expenditures by the
lessor under this facility were approximately $43.0 million.
On June 9, 2000, the Company entered into a $60.0 million master
operating lease facility to construct or purchase various office
buildings and distribution centers. As of December 30, 2000, one
distribution center had been purchased and construction of one
office building and one distribution center had begun under this
facility. Under this facility, the lessor owns the properties,
incurs the related debt to construct or purchase the properties
and thereafter leases each property to the Company. The Company
has entered into a commitment to lease each property for a period
beginning upon the completion of construction or acquisition of
that property and ending on June 9, 2005. Upon the expiration of
the leases, the Company may seek to renew the leases. If the
Company is unable to or chooses not to renew the leases, it has
the option to sell the properties to third parties or purchase
the properties at their original cost. If the properties are
sold to third parties for less than 85% of their aggregate
original cost, the Company is obligated, under a residual value
guarantee, to pay the lessor an amount equal to the shortfall.
These residual value guarantees are not included in the above
table of future minimum lease payments. There can be no
assurance that the Company will be able to renew the leases or
sell the properties to third parties, and the Company will
require substantial additional financing if it is required to
purchase these properties upon the expiration of the master
operating lease facility. Because of the location and condition
of the existing property, the Company believes that the
anticipated fair value of the property could eliminate or
substantially reduce the exposure under the residual value
guarantee with respect to that property. However, there can be
no assurance that the Company will not be required to make
payments to satisfy this guarantee either with respect to the
existing property or any other properties which may be
constructed or purchased in the future under this facility.
Through December 30, 2000, construction expenditures by the
lessor under this facility were approximately $7.7 million.
10. Income Taxes
Income tax expense consists of the following:
(In thousands) 2000 1999 1998
Current:
Federal $ 14,264 $ 11,677 $ 8,048
State 805 747 537
15,069 12,424 8,585
Deferred:
Federal 1,331 (608) 1,208
State 75 184 172
1,406 (424) 1,380
Total income tax expense $ 16,475 $ 12,000 $ 9,965
The effective income tax rates for 2000, 1999 and 1998 were
38.0%, 38.4% and 36.4%, respectively. Actual income tax expense
differs from the amount computed by applying the applicable U.S.
Federal corporate income tax rate of 35% to earnings before
income taxes as follows:
(In thousands) 2000 1999 1998
Federal income taxes computed at statutory rate $ 15,175 $ 10,938 $ 9,581
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit 692 211 464
Non-deductible expenses 145 306 126
Tax credits (281) (353) -
Losses (income) attributable to S-corporation periods - 283 (535)
Amortization of goodwill 548 340 288
Other, net 196 275 41
Total income tax expense $ 16,475 $ 12,000 $ 9,965
Deferred income taxes are recorded based upon the tax effects of
differences between the financial statement and tax bases of
assets and liabilities and available tax loss and credit
carryforwards. Temporary differences and carryforwards that
created significant deferred tax assets and liabilities at
December 30, 2000 and January 1, 2000 were as follows:
(In thousands) 2000 1999
Deferred tax assets:
Allowance for doubtful accounts $ 2,430 $ 1,647
Inventories 661 461
Accrued employee benefits 2,701 1,150
Self-insurance reserves 1,836 1,333
Deferred income 1,221 559
State operating loss carryforwards 586 732
Tax credit carryforwards 555 825
Other accrued expenses 1,246 235
Total gross deferred tax assets 11,236 6,942
Less valuation allowance - (194)
Net deferred tax assets 11,236 6,748
Deferred tax liabilities:
Property, plant and equipment 8,048 7,991
Basis difference in intangible assets 2,543 1,465
Other 14 16
Total gross deferred tax liabilities 10,605 9,472
Net deferred tax asset (liability) $ 631 $ (2,724)
The net deferred tax asset (liability) is presented in the
December 30, 2000 and January 1, 2000 consolidated balance sheets
as follows:
(In thousands) 2000 1999
Current deferred tax asset $ 10,332 $ 5,570
Noncurrent deferred tax liability (9,701) (8,294)
Net deferred tax asset (liability) $ 631 $ (2,724)
The valuation allowance relates primarily to state net operating
loss carryforwards of certain of the Company's subsidiaries. The
state net operating loss carryforwards expire in years 2010
through 2020. The Company has a state income tax credit
carryforward of approximately $555,000 that expires in 2005. The
Company believes the deferred tax assets, net of the valuation
allowance, will more likely than not be realized.
11. Employee Benefits
Employee Savings and Stock Ownership Plan
The Company sponsors the Performance Food Group Company Employee
Savings and Stock Ownership Plan (the "ESOP"). The ESOP consists
of two components: a leveraged employee stock ownership plan and
a defined contribution plan covering substantially all full-time
employees.
In 1988, the ESOP acquired 1,821,398 shares of the Company's
common stock from existing shareholders, financed with assets
transferred from predecessor plans and the proceeds of the ESOP
loan, discussed in Note 7. The Company is required to make
contributions to the ESOP equal to the principal and interest
amounts due on the ESOP loan. Accordingly, the outstanding
balance of the ESOP loan is included in the Company's
consolidated balance sheets as a liability with an offsetting
amount included as a reduction of shareholders' equity.
The ESOP expense recognized by the Company is equal to the
principal portion of the required payments. Interest on the ESOP
loan is recorded as interest expense. The Company contributed
approximately $680,000 to the ESOP per year in 2000, 1999 and
1998. These amounts included interest expense on the ESOP loan of
approximately $129,000, $146,000 and $182,000 in 2000, 1999 and
1998, respectively. The release of ESOP shares is based upon debt-
service payments. Upon release, the shares are allocated to
participating employees' accounts. At December 30, 2000, 901,928
shares had been allocated to participant accounts and 269,833
shares were held as collateral for the ESOP loan. All ESOP shares
are considered outstanding for earnings-per-share calculations.
Employees participating in the defined contribution component of
the ESOP may elect to contribute between 1% and 15% of their
qualified salaries under the provisions of Internal Revenue Code
Section 401(k). In 1998, the Company matched one half of the
first 3% of employee deferrals under the ESOP, for a total match
of 1.5%. In 1999, the Company matched 100% of the first 1% of
employee contributions, and 50% of the next 2% of employee
contributions, for a total match of 2%. In 2000, the Company
matched 100% of the first 1% of employee contributions, and 50%
of the next 3% of employee contributions, for a total match of
2.5%. Total matching contributions were $2,064,000, $1,312,000
and $684,000 for 2000, 1999 and 1998, respectively. The Company,
at the discretion of the board of directors, may make additional
contributions to the ESOP. The Company made no discretionary
contributions under the defined contribution portion of the ESOP
in 2000, 1999 or 1998.
Employee Health Benefit Plans
The Company sponsors a self-insured, comprehensive health benefit
plan designed to provide insurance coverage to all full-time
employees and their dependents. The Company accrues its estimated
liability for these self-insured benefits, including an estimate
for incurred but not reported claims. This accrual is included in
accrued expenses in the consolidated balance sheets. The Company
provides no post-retirement benefits to former employees.
12. Stock Compensation Plans
At December 30, 2000, the Company had four stock-based
compensation plans, which are described in the following
paragraphs. In accordance with APB No. 25, no compensation
expense has been recognized for the Company's stock option plans
and stock purchase plan. Had compensation expense for those
plans been determined based on the fair value at the grant date,
consistent with the method in SFAS No. 123, the Company's net
earnings and net earnings per common share would have been
reduced to the following pro forma amounts:
(In thousands except per share amounts) 2000 1999 1998
Net earnings As reported $ 26,881 $ 19,251 $ 17,410
Pro forma 24,018 17,311 15,726
Basic net earnings per common share As reported $ 1.90 $ 1.40 $ 1.30
Pro forma 1.70 1.26 1.17
Diluted net earnings per common share As reported $ 1.82 $ 1.35 $ 1.25
Pro forma 1.63 1.22 1.13
The fair value of each option was estimated at the grant date
using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used for all stock option plan
grants in 2000, 1999 and 1998, respectively: risk-free interest
rates of 5.28%, 5.28% and 5.56%; expected volatilities of 43.1%,
44.3% and 45.8%; expected option lives of 6.3 years, 7.2 years
and 6.4 years; and expected dividend yields of 0% in each year.
The pro forma effects of applying SFAS No. 123 are not indicative
of future amounts because SFAS No. 123 does not apply to awards
granted prior to fiscal 1996. Additional stock option awards are
anticipated in future years.
Stock Option and Incentive Plans
The Company sponsors the 1989 Nonqualified Stock Option Plan (the
"1989 Plan"). The options granted under this plan vest ratably
over a four-year period from date of grant. At December 30, 2000,
106,986 options were outstanding under the 1989 Plan, all of
which were exercisable. The options have terms of 10 years from
the date of grant. No grants have been made under the 1989 Plan
since July 21, 1993.
The Company also sponsors the 1993 Outside Directors Stock Option
Plan (the "Directors' Plan"). A total of 105,000 shares have been
authorized in the Directors Plan. The Directors Plan provides for
an initial grant to each non-employee member of the board of
directors of 5,250 options and an annual grant of 2,500 options
at the then current market price. Options granted under the
Directors' Plan totaled 15,250 in 2000, 10,000 in 1999 and 12,750
in 1998. These options vest one year from the date of grant and
have terms of 10 years from the grant date. At December 30,
2000, 74,750 options were outstanding under the Directors' Plan,
of which 59,500 were exercisable.
The 1993 Employee Stock Incentive Plan (the "1993 Plan") provides
for the award of up to 1,625,000 shares of common stock to
officers, key employees and consultants of the Company. Awards
under the 1993 Plan may be in the form of stock options, stock
appreciation rights, restricted stock, deferred stock, stock
purchase rights or other stock-based awards. The terms of grants
under the 1993 Plan are established at the date of grant. No
grants of common stock or related rights were made in 2000 1999
or 1998. Stock options granted under the 1993 Plan totaled
607,601, 259,140 and 405,280 for 2000, 1999 and 1998,
respectively. Options granted in 2000, 1999 and 1998 vest four
years from the date of the grant. At December 30, 2000,
1,480,339 options were outstanding under the 1993 Plan, of which
239,677 were exercisable.
A summary of the Company's stock option activity and related
information for all stock option plans for 2000, 1999 and 1998 is
as follows:
2000 1999 1998
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 1,280,040 $ 16.99 1,338,047 $ 12.65 1,050,639 $ 9.91
Granted 622,851 26.19 269,140 25.52 418,030 18.66
Exercised (153,261) 11.60 (284,289) 4.79 (73,095) 5.58
Canceled (87,555) 21.96 (42,858) 17.25 (57,527) 14.53
Outstanding at
end of year 1,662,075 $ 20.67 1,280,040 $ 16.99 1,338,047 $ 12.65
Options
exercisable at
year-end 406,163 $ 12.17 284,735 $ 8.66 530,323 $ 6.18
Weighted-average fair
value of options granted
during the year $ 13.00 $ 13.84 $ 9.83
The following table summarizes information about stock options
outstanding at December 30, 2000:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Exercise Number Remaining Average Average
Prices Outstanding at Contractual Exercise Exercisable Exercise
Dec. 30, 2000 Life Price Dec. 30, 2000 Price
$ 3.67 - $ 9.33 122,736 1.89 years $ 5.91 122,736 $ 5.91
$ 10.00 - $ 14.50 227,227 4.80 years 13.28 227,227 13.28
$ 15.56 - $ 22.88 799,193 7.85 years 18.93 36,200 18.78
$ 23.75 - $ 34.88 423,119 8.79 years 27.45 20,000 26.00
$ 35.88 - $ 47.38 89,800 9.82 years 43.07 - -
$ 3.67 - $ 47.38 1,662,075 $ 20.67 406,163 $ 12.17
Employee Stock Purchase Plan
The Company maintains the Performance Food Group Employee Stock
Purchase Plan (the "Stock Purchase Plan"), which permits eligible
employees to invest through periodic payroll deductions, in the
Company's common stock at 85% of the lesser of the market price
or the average market price as defined in the plan document. The
Company is authorized to issue 612,500 shares under the Stock
Purchase Plan. Purchases under the Stock Purchase Plan are made
twice a year, on January 15th and on July 15th. At January 14,
2001, subscriptions under the Stock Purchase Plan were
outstanding for approximately 51,000 shares at $34.70 per share.
13. Related Party Transactions
The Company leases land and buildings from certain shareholders
and members of their families. The Company made lease payments
under these leases of approximately $1,234,000, $908,000 and
$673,000 in 2000, 1999 and 1998, respectively. In July 1998, the
Company acquired certain net assets of VFG, a division of a
privately-owned foodservice distributor in which a member of the
Company's management has a minor ownership interest.
14. Contingencies
In April 1999, Maxwell Chase Technologies, LLC ("Maxwell") filed
suit against the Company's Fresh Advantage subsidiary. The
lawsuit alleges, among other things, patent infringement and
theft of trade secrets in the development and use of packaging
materials used in the Company's fresh-cut produce operations.
Maxwell seeks to recover compensatory and other damages, as well
as lost profits. The Company is vigorously defending itself
against this action and has filed a counterclaim against Maxwell.
On February 1, 2001, the United States Patent and Trademark
Office issued a decision that significantly diminishes the
likelihood of an unfavorable decision against the Company with
respect to Maxwell's claim of patent infringement. The Company
believes that Maxwell's allegations are without merit and that it
is unlikely the outcome will have a material adverse effect on
the Company. However, there can be no assurance that this
matter, if decided unfavorably for the Company, will not have a
material adverse effect on the Company's results of operations.
In addition to the matter described above, the Company is also
involved in other legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, the
outcome of the other proceedings and litigation currently pending
will not have a material adverse effect on the Company's results
of operations.
15. Industry Segment Information
The Company has three reportable segments: Broadline, Customized
and Fresh-cut. The accounting policies of the reportable segments
are the same as those described in Note 1. Certain 1999 and 1998
amounts have been reclassified to conform to the 2000
presentation, consistent with management's reporting structure:
Corporate &
(In thousands) Broadline Customized Fresh-cut Intersegment Consolidated
2000
Net external sales $ 1,367,454 $ 1,105,365 $ 132,649 $ - $ 2,605,468
Intersegment sales 4,062 - 25,802 (29,864) -
Operating profit 36,264 10,553 9,500 (6,302) 50,015
Total assets 344,489 122,601 218,390 24,216 709,696
Interest expense (income) 8,176 3,603 2,172 (7,358) 6,593
Depreciation 8,458 2,046 3,131 244 13,879
Amortization 3,271 - 633 94 3,998
Capital expenditures 16,372 1,601 11,363 1,656 30,992
1999
Net external sales $ 1,145,536 $ 823,742 $ 86,320 $ - $ 2,055,598
Intersegment sales 3,575 - 13,186 (16,761) -
Operating profit 30,167 9,333 5,009 (5,168) 39,341
Total assets 308,531 96,067 48,259 9,188 462,045
Interest expense (income) 6,953 2,447 260 (4,272) 5,388
Depreciation 7,054 1,934 1,947 146 11,081
Amortization 2,851 1 86 118 3,056
Capital expenditures 13,831 2,131 9,292 752 26,006
1998
Net external sales $ 985,729 $ 676,794 $ 58,793 $ - $ 1,721,316
Intersegment sales 2,879 - 13,409 (16,288) -
Operating profit 23,011 8,271 3,614 (3,305) 31,591
Total assets 279,471 83,214 15,167 9,860 387,712
Interest expense (income) 8,376 1,122 (537) (4,550) 4,411
Depreciation 6,373 1,455 1,219 105 9,152
Amortization 2,326 3 - 20 2,349
Capital expenditures 9,308 15,738 1,500 117 26,663
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Performance Food Group Company:
Under date of February 5, 2001, we reported on the consolidated
balance sheets of Performance Food Group Company and subsidiaries (the
"Company") as of December 30, 2000 and January 1, 2000, and the
related consolidated statements of earnings, shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended
December 30, 2000, as contained in the 2000 annual report to
shareholders. These consolidated financial statements and our report
thereon are included in the 2000 annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material aspects, the information set
forth therein.
/ s / KPMG LLP
Richmond, Virginia
February 5, 2001
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Beginning Ending
(In thousands) Balance Additions Deductions Balance
Charged Charged to
to Other
Expense Accounts
Allowance for Doubtful Accounts
January 2, 1999 $ 2,769 $ 2,426 $ 498 $ 1,802 $ 3,891
January 1, 2000 3,891 2,702 250 2,366 4,477
December 30, 2000 4,477 2,650 460 2,755 4,832
Exhibit Index
Exhibit
Number Description
10.29 -- First Amendment of Credit Agreement dated as of
September 27, 2000, among Performance Food Group Company,
the lenders party thereto and First Union National Bank.
10.30 -- Second Amendment to Credit Agreement dated as of
December 13, 2000, among Performance Food Group Company, the
lenders party thereto and First Union National Bank.
10.31 -- Third Amendment to Credit Agreement dated as of
December 13, 2000, among Performance Food Group Company, the
lenders party thereto and first Union National Bank.
10.32 -- First Amendment to certain operative agreements dates
as of December 13, 2000.
10.33 -- Second Amendment to certain operative agreements dates
as of December 13, 2000.
21 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.