1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 10, 2001
PERFORMANCE FOOD GROUP COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 0-22192 54-0402940
---------------------------- ------------------------ ----------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
12500 West Creek Parkway, Richmond, Virginia 23238
-------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 484-7700
Not Applicable
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
Performance Food Group Company, a Tennessee corporation (the
"Company"), has entered into an agreement to acquire the business described
below. Although the filing of this Current Report on Form 8-K is not required
until fifteen days following the consummation of the transaction, the Company is
filing the report at this time because consummation of the acquisition is
probable.
On August 9, 2001, the Company entered into an Agreement and Plan of
Merger by and among Fresh International Corp., a Delaware corporation ("Fresh
Express"), the Company and PFGC Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company ("Acquisition Sub") (the "Agreement").
Pursuant to the Agreement, the Company will acquire Fresh Express through the
merger of Acquisition Sub with and into Fresh Express.
The aggregate consideration that will be paid by the Company will be
approximately $302.0 million, including the repayment of net debt outstanding
and the assumption of certain liabilities, payable in cash. The actual purchase
price for Fresh Express is subject to adjustments, which are payable in cash,
based upon, among other things, Fresh Express' net worth as of the closing date.
The Company currently estimates that it will have to pay approximately $16.0
million in additional purchase price as a result of this net worth adjustment,
which amount has been included in the assumed acquisition price of $302.0
million. This amount may be increased or decreased subsequent to the closing
date based upon a post-closing review of Fresh Express' net worth as of the
closing date. In addition, the Company is obligated to pay the former
stockholders of Fresh Express, as additional purchase price, up to $10.0 million
in cash if Fresh Express achieves certain operating targets during a three-year
period following closing of the acquisition.
At the closing, the Company will deliver $15.0 million of the purchase
price into an escrow account under the terms and conditions of a separate
agreement between the former stockholders of Fresh Express, the Company and the
escrow agent to secure the obligations of the former stockholders of Fresh
Express to indemnify the Company or Acquisition Sub under the terms of the
Agreement (the "Escrow Agreement"). Cash delivered pursuant to the Escrow
Agreement may be returned to the Company if the stockholders of Fresh Express
have an obligation to indemnify the Company or Acquisition Sub under the terms
of the Agreement, in most instances, prior to the first anniversary of the
closing.
The assets to be acquired as a result of the acquisition of Fresh
Express are used by Fresh Express at its Salinas, California, Colorado Springs,
Colorado, Atlanta, Georgia, Chicago, Illinois and Greencastle, Pennsylvania
facilities in its packaged salad business, which the Company will continue. The
consideration payable under the Agreement was determined through arm's length
negotiations between the Company and the Fresh Express stockholders.
Item 5. Other Events
On August 10, 2001, the Company announced that C. Michael Gray would
assume the responsibilities as chief executive officer of the Company. Mr. Gray
will continue to serve as president of the Company.
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Item 7. Financial Statements, Pro Forma Information and Exhibits.
(a) Financial Statements of Fresh International Corp. and Subsidiaries.
Independent Auditors' Report
Consolidated Balance Sheets as of February 28, 2001, February 29, 2000
and May 31, 2001 (Unaudited)
Consolidated Statements of Operations for the years ended February 28,
2001 and February 29, 2000 and for the three months ended May 31,
2001 and May 31, 2000 (Unaudited)
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 2001 and February 29, 2000 and for the three months
ended May 31, 2001 (Unaudited)
Consolidated Statements of Cash Flows for the years ended
February 28, 2001 and February 29, 2000 and for the three months
ended May 31, 2001 and May 31, 2000 (Unaudited)
Notes to Consolidated Financial Statements
(b) Unaudited Pro Forma Condensed Consolidated Financial Statements.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
2001
Unaudited Pro Forma Condensed Consolidated Statement of Earnings
for the six months ended June 30, 2001
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for
2000
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits:
(2) Agreement and Plan of Merger, dated as of August 9, 2001, by
and among Fresh International Corp., Performance Food Group
Company and PFGC Acquisition, Inc. (Pursuant to Item 601(b)(2)
of Regulation S-K, the schedules of this agreement are
omitted, but will be provided supplementally to the Commission
upon request.)
(23.1) Consent of Deloitte & Touche LLP
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fresh International Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fresh
International Corporation and subsidiaries (collectively "the Company") as of
February 28, 2001 and February 29, 2000 and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fresh International Corporation and
subsidiaries at February 28, 2001 and February 29, 2000, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Salinas, California
May 15, 2001
(August 9, 2001 as to Note 14)
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FRESH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2001, FEBRUARY 29, 2000 AND MAY 31, 2001 ($ in thousands)
February 28, February 29, May 31,
2001 2000 2001
------------ ------------ --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 8,619 $ -- $ 2,444
Receivables - net 44,385 41,692 48,399
Inventories 18,193 22,632 15,049
Prepaid expenses 5,951 2,846 6,481
Deferred taxes on income 228 65 228
-------- -------- --------
Total current assets 77,376 67,235 72,601
PROPERTY, PLANT AND EQUIPMENT - net 79,078 87,667 76,937
INVESTMENTS 2,279 1,816 2,451
DEFERRED TAXES ON INCOME 194 1,214 194
OTHER ASSETS 6,087 3,582 6,239
-------- -------- --------
TOTAL ASSETS $165,014 $161,514 $158,422
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash overdraft $ -- $ 6,092 $ --
Accounts payable 26,166 23,313 21,792
Accrued and other liabilities 17,679 11,653 20,511
Deferred compensation payable 1,636 1,746 1,648
Current portion of long-term debt 10,162 10,054 6,553
-------- -------- --------
Total current liabilities 55,643 52,858 50,504
LONG-TERM DEBT 53,104 60,060 47,989
DEFERRED COMPENSATION PAYABLE 9,118 10,690 8,045
OTHER LIABILITIES 46 95 38
-------- -------- --------
TOTAL LIABILITIES 117,911 123,703 106,576
-------- -------- --------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value
authorized, 20,000 shares; none outstanding -- -- --
Common stock, no par value - authorized
40,000 shares; outstanding, 5,976 in 2001, 2000
and at May 31, 2001 247 247 247
Additional paid-in capital 83 83 83
Retained earnings 46,773 37,481 51,516
-------- -------- --------
Total stockholders' equity 47,103 37,811 51,846
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $165,014 $161,514 $158,422
======== ======== ========
See notes to consolidated financial statements.
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FRESH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 AND THREE MONTHS
ENDED MAY 31, 2001 AND MAY 31, 2000
($ in thousands)
YEARS ENDED THREE MONTHS ENDED
February 28, February 29, May 31, May 31,
2001 2000 2001 2000
------------ ------------ -------- --------
(Unaudited)
REVENUES $509,405 $486,006 $144,507 $135,060
COSTS AND EXPENSES
Cost of sales 410,820 399,858 110,424 107,730
Selling, general and administrative 72,709 71,903 21,214 18,692
Research and development 2,672 2,975 594 678
-------- -------- -------- --------
Total costs and expenses 486,201 474,736 132,232 127,100
-------- -------- -------- --------
INCOME FROM OPERATIONS 23,204 11,270 12,275 7,960
Interest expense 5,547 4,419 1,006 1,347
-------- -------- -------- --------
INCOME BEFORE TAXES 17,657 6,851 11,269 6,613
INCOME TAX PROVISION 4,965 1,653 3,811 1,912
-------- -------- -------- --------
NET INCOME $ 12,692 $ 5,198 $ 7,458 $ 4,701
======== ======== ======== ========
See notes to consolidated financial statements.
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FRESH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 AND THREE MONTHS
ENDED MAY 31, 2001
($ in thousands)
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- --------
BALANCE,
FEBRUARY 28, 1999 5,976 $247 $ 83 $ 35,670 $ 36,000
DISTRIBUTIONS -- -- -- (3,387) (3,387)
NET INCOME -- -- -- 5,198 5,198
----- ---- ---- -------- --------
BALANCE,
FEBRUARY 29, 2000 5,976 247 83 37,481 37,811
DISTRIBUTIONS -- -- -- (3,400) (3,400)
NET INCOME -- -- -- 12,692 12,692
----- ---- ---- -------- --------
BALANCE,
FEBRUARY 28, 2001 5,976 $247 $ 83 $ 46,773 $ 47,103
DISTRIBUTIONS (Unaudited) -- -- -- (2,715) (2,715)
NET INCOME (Unaudited) -- -- -- 7,458 7,458
----- ---- ---- -------- --------
BALANCE
MAY 31, 2001 (Unaudited) 5,976 $247 $ 83 $ 51,516 $ 51,846
===== ==== ==== ======== ========
See notes to consolidated financial statements.
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FRESH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 AND THREE MONTHS
ENDED MAY 31, 2001 AND MAY 31, 2000
($ in thousands)
YEARS ENDED THREE MONTHS ENDED
February 28, February 29, May 31, May 31,
2001 2000 2001 2000
------------ ------------ -------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,692 $ 5,198 $ 7,458 $ 4,701
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 14,268 12,944 3,806 3,579
Equity in operations of affiliates, net of
distributions (463) 37 (171) (215)
Gain on dispositions of property (811) (20) (692) --
Deferred taxes on income 857 668 -- --
Effect of changes in assets and liabilities
exclusive of sale of Dallas facility (see Note 2):
Receivables (1,085) (4,771) (4,013) (5,166)
Inventories 4,216 (1,698) 3,144 930
Prepaid expenses (3,217) 978 (530) (1,176)
Other assets (592) (214) (612) 1
Accounts payable 3,351 (177) (4,374) 298
Accrued and other liabilities 6,090 3,997 2,824 3,234
Deferred compensation (1,682) (868) (1,061) 221
-------- -------- -------- --------
Net cash provided by operating activities 33,624 16,074 5,779 6,407
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (9,097) (20,199) (2,160) (2,401)
Proceeds from sale of property 39 53 1,646 (1)
Proceeds from sale of Dallas facility 1,167 -- -- --
-------- -------- -------- --------
Net cash used by investing activities (7,891) (20,146) (514) (2,402)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit - net -- (7,700) -- --
Long-term debt repayments (13,548) (6,521) (8,725) (2,650)
Long-term debt borrowings 5,926 23,118 -- 2,178
Distributions paid (3,400) (3,387) (2,715) (1,900)
Cash overdraft decrease (6,092) (1,438) -- (1,633)
-------- -------- -------- --------
Net cash provided (used) by financing activities (17,114) 4,072 (11,440) (4,005)
-------- -------- -------- --------
NET CHANGE IN CASH 8,619 -- (6,175) --
CASH:
BEGINNING OF PERIOD -- -- 8,619 --
-------- -------- -------- --------
END OF PERIOD $ 8,619 $ -- $ 2,444 $ --
======== ======== ======== ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid $ 5,591 $ 5,211 $ 1,095 $ 1,550
Income taxes paid $ 1,945 $ 2,436 $ 1,831 $ 93
NONCASH FINANCING AND INVESTING ACTIVITIES:
During 2001 the Company sold the net assets of the Dallas facility in exchange
for a note receivable of $3,000,000 and approximately $1,200,000 in cash (see
Note 2). In addition, the Company sold various Bruce Church, LLC farming
equipment and machinery in exchange for $2,883,000 in receivables.
In fiscal 2001 and 2000, the Company financed property additions under capital
lease and other financing agreements of $774,000 and $1,218,000, respectively.
In the three months ended May 31, 2000, the Company financed property additions
under capital lease agreements of $543,000.
See notes to consolidated financial statements.
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FRESH INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000 AND THREE MONTHS
ENDED MAY 31, 2001 AND MAY 31, 2000
(INFORMATION AS OF MAY 31, 2001 AND THREE MONTHS ENDED MAY 31, 2001 AND 2000
IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION - The accompanying consolidated
financial statements include Fresh International Corp. and its two
wholly owned subsidiaries, Fresh International Holding Corporation and
TransFRESH Corporation, and their majority-owned subsidiaries
(collectively the "Company"). All significant intercompany transactions
and balances have been eliminated in consolidation.
The Company is primarily engaged in the production and distribution of
prepackaged salads throughout the United States. The Company accounts
for its operations as one operating segment. Operations are conducted
in five processing facilities. The Company grants credit to its
customers, including food wholesalers and retailers across the United
States. The Company generally does not require collateral, but performs
ongoing credit evaluations of its customers' financial condition and
limits its exposure to losses from bad debts by limiting the amount of
credit extended whenever deemed necessary.
UNAUDITED INTERIM FINANCIAL INFORMATION. The interim financial
information as of May 31, 2001 and for the three months ended May 31,
2001 and 2000 is unaudited and has been prepared on the same basis as
the audited financial statements. In the opinion of management, such
unaudited financial information includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation
of the interim information. Operating results for the three months
ended May 31, 2001 are not necessarily indicative of the results that
may be expected for the year.
REVENUE RECOGNITION AND RECEIVABLES - Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred,
and collectibility is reasonably assured. Trade accounts 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. Revenues to
one customer represented 13% of revenues for the year ended February
28, 2001. At February 28, 2001, amounts receivable from one customer
represented 13% of receivables.
RESEARCH AND DEVELOPMENT - The company incurs costs to research and
develop new products and packaging technology. Research and development
costs are expensed as incurred.
CASH - The Company places its cash with high quality financial
institutions. At times such balances may be in excess of FDIC insurance
limits.
INVENTORIES - Growing crops are stated at the lower of cost or market.
Materials and supplies are stated at the lower of average cost or
market. Finished and in-process goods are stated at the lower of cost
or aggregate net realizable value.
10
PROPERTY, PLANT AND EQUIPMENT is stated at cost and depreciated or
amortized using straight-line and accelerated methods over the
estimated useful lives ranging from three to forty years.
INVESTMENTS consist of non majority-owned investments in affiliates
accounted for using the equity method. The Company recognizes its
proportionate share of earnings or losses in the statement of
operations.
OTHER ASSETS primarily consists of a note receivable related to the
sale of the Dallas facility and goodwill related to processing facility
acquisitions, which is amortized using the straight-line method over 10
years. Unamortized balances were $1,794,000 and $2,468,000, at February
28, 2001 and February 29, 2000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived
assets, including intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset
may not be recoverable. If the undiscounted future cash flows from the
long-lived asset are less than carrying value, a loss equal to the
difference between carrying value and the fair market value of the
asset is recorded.
DEFERRED COMPENSATION PAYABLE primarily represents amounts due under
the Company's Phantom Stock Plan (see Note 10) and amounts due under a
deferred compensation plan for which benefit accruals ceased in 1995.
INCOME TAXES - In fiscal year 1999, Fresh International Corporation and
TransFRESH Corporation elected S Corporation status and are taxed
primarily at the shareholder level. As such, the S Corporation
shareholders are required to report their distributive shares of the
companies' Federal and state taxable income on their personal income
tax returns. Fresh International Holding Corporation and subsidiaries,
C corporations, are taxed at the corporate level for Federal and state
purposes. The Company accounts for income taxes under the provisions
for SFAS No. 109, "Accounting for Income Taxes." Deferred taxes on
income result from temporary differences between the reporting of
income for financial statements and tax reporting purposes.
USES OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates include the collectibility of receivables, realizable value
of inventories and the useful lives of property. Actual results could
differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARD - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No.
137 and No. 138, which defines derivatives, requires that all
derivatives be carried at fair value and provides for hedge accounting
when certain conditions are met. The Company adopted SFAS No. 133, as
amended, on March 1, 2001. The adoption of this statement did not have
an effect on the Company's financial position, results of operations or
cash flows.
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2. SALE OF DALLAS FACILITY
During fiscal year 2001 the Company sold to Taylor Farms Texas, Inc.
(the "Buyer"), substantially all of the operating assets of Fresh
Express Dallas Incorporated and discontinued its operations related to
food service in that region. Effective July 1, 2000, the Buyer received
approximately $4,100,000 in net assets in exchange for approximately
$1,200,000 in cash and a note receivable of $3,000,000 (interest at
8.75%, due $38,000 monthly, including interest, balance due July 2,
2005). A stockholder of the Company has a substantial economic interest
in the Buyer.
3. RECEIVABLES (in thousands)
2001 2000
-------- --------
Trade $ 39,981 $ 40,042
Refundable taxes on income 290 588
Other 4,362 1,477
-------- --------
Total 44,633 42,107
Allowance for doubtful accounts (248) (415)
-------- --------
Net $ 44,385 $ 41,692
======== ========
4. INVENTORIES (in thousands)
2001 2000
-------- --------
Finished and in process product $ 1,846 $ 1,904
Growing crops 9,991 14,621
Materials, supplies and other 6,356 6,107
-------- --------
Total $ 18,193 $ 22,632
======== ========
5. PROPERTY, PLANT AND EQUIPMENT (in thousands)
2001 2000
---------- ----------
Land $ 4,972 $ 4,221
Buildings and improvements 17,044 19,120
Leasehold improvements 24,511 24,810
Machinery and equipment 90,348 94,333
Equipment under capital leases 12,703 13,144
Construction in progress 1,215 4,291
---------- ----------
Total 150,793 159,919
Accumulated depreciation and amortization (71,715) (72,252)
---------- ----------
Property - net $ 79,078 $ 87,667
========== ==========
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6. INVESTMENTS
Investments primarily consist of interests in Fresh Express Colorado,
Inc. (50%) and TransFRESH Corporation Chile S.A. (50%). Equity in
earnings (losses) of affiliated interests, net of distributions, were
$463,000 and ($37,000), in 2001 and 2000, respectively.
7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
The Company has a revolving credit facility (Facility No.1) and a term
loan (Facility No. 2) covered under a bank loan agreement. Facility No.
1 is subject to renewal in September 2001 and Facility No. 2 matures
September 2002. The amount available under the revolving credit
facility ($14,167,000 at February 28, 2001) is increased by principal
paydowns on Facility No. 2 to a maximum of $15,000,000. Under the terms
of the loan agreement, the Company may elect either a variable rate of
interest (reference rate minus .5% or Libor plus 1.25%) or an interest
rate fixed for up to one year. No borrowings were outstanding on
Facility No. 1 and $5,833,000 was outstanding on Facility No. 2 at
February 28, 2001. Facility No. 2 was paid in full in March 2001.
Long-term debt at fiscal year end consists of the following (in
thousands):
2001 2000
-------- --------
John Hancock Mutual Life, 7.5% to 8.08%, due $268,000 monthly,
including interest, through December 2011 $ 27,713 $ 28,665
Banc One, 7.5-8.77%, due in monthly installments through 2007 9,379 5,598
Bank of America, Facility No. 2 (8.00% at February 28, 2001),
due $833,000 quarterly, including interest, through
September 2002 5,833 9,167
GE Capital, 7.30-8.63%, due in monthly installments through 2008 5,803 7,219
All First, 7.31%, due in monthly installments, including
interest, through December 2008 1,068 1,169
Bank of America, 8.1%, due $18,000 monthly, including interest,
paid February 2001 -- 514
PIDA, 5% to 6%, due in various monthly installments through
January 2009 791 872
Newcourt Financial, 7.2%, due $14,000 monthly including interest
through January 2003 291 473
Other 138 138
Capital lease obligations, 6.49% to 9.04%, due in various
monthly installments through 2008 12,250 16,299
-------- --------
Total 63,266 70,114
Current portion (10,162) (10,054)
-------- --------
Long-term portion $ 53,104 $ 60,060
======== ========
13
Maturities of long-term debt are as follows (in thousands):
2002 $ 10,162
2003 9,600
2004 7,019
2005 5,854
2006 5,341
Thereafter 25,290
--------
Total $ 63,266
========
The revolving credit facility and long-term borrowings are
collateralized by substantially all tangible assets of the Company.
Each of the subsidiaries are guarantors of the line of credit and term
loans. Additionally, the Company is required to maintain various
financial covenants, including debt to tangible net worth and debt
service coverage ratios, as well as minimum working capital and
tangible net worth requirements.
8. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
2001 2000
------ ------
Current:
Federal $3,233 $ 939
State 875 46
------ ------
Total 4,108 985
------ ------
Deferred:
Federal 595 299
State 262 369
------ ------
Total 857 668
------ ------
Total provision $4,965 $1,653
====== ======
The total tax provision for income taxes differs from that computed by
applying statutory U.S. Federal income tax rate (35%) to income before
taxes as follows (in thousands):
2001 2000
-------- --------
Tax provision at the statutory rate $ 6,180 $ 2,399
State income tax, net of federal tax effect 760 241
S corporation income (1,318) (1,131)
Other (657) 144
-------- --------
Total provision $ 4,965 $ 1,653
======== ========
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Net deferred income tax assets of $422,000 and $1,279,000 in 2001 and
2000, respectively, consist of the following assets and liabilities (in
thousands):
2001 2000
-------- --------
Deferred compensation $ 3,601 $ 4,863
Basis in inventory (2,014) (2,367)
Depreciation (3,325) (3,229)
Accruals and reserves 1,295 986
Federal, state credits and other 865 1,026
-------- --------
Total net deferred tax assets $ 422 $ 1,279
======== ========
9. RETIREMENT PLANS
The Company has a defined contribution 401(k) plan covering
substantially all non-union employees of the Company who have one year
of service and are at least twenty-one years of age. The Company makes
matching contributions as stated in the plan agreement. Participants
are immediately vested in their voluntary contributions and company
contributions plus actual earnings thereon. The Company made matching
contributions of approximately $762,000 and $743,000 for 2001 and 2000,
respectively.
10. DEFERRED COMPENSATION
The Company adopted a Phantom Stock Plan ("the Plan") which provides
for the awarding of units equivalent to 430 shares of the Company's
Common stock to key management employees of the Company. The Plan
offers benefits of a nonqualified, unfunded plan of performance based
deferred compensation. Each unit entitles the holder to receive, upon
exercise thereof, the excess of the fair market value of a share of
common stock (as defined) on the date of exercise over the fair market
value of such share at the time of the grant. All awards vest at the
rate of 20% per year from the date of the grant or from the specified
vesting commencement date. Plan participants are eligible to share in
dividends of the Company if certain conditions are met. Any rights to
payments under the Plan are subordinated to the obligations of the
Company to its lenders and general creditors to the extent necessary to
satisfy bank and other financial covenants.
In fiscal 2001 and 2000 the total expense (benefit) related to the Plan
was ($796,000) and $784,000, respectively.
15
11. RELATED PARTY TRANSACTIONS
The Company is involved in transactions with non-consolidated
affiliates arising in the normal course of business. In addition, the
Company has various transactions with certain stockholders including
leasing ranch properties from and loans to certain stockholders. See
also Note 2.
Related party balances included in the consolidated balance sheets at
fiscal year end are as follows (in thousands):
2001 2000
------ ----
Receivables $3,011 $150
Payables $ 649 $700
Related party transactions included in the consolidated income
statements are as follows (in thousands):
2001 2000
---- ----
Expenses $632 $894
12. LEASE COMMITMENTS
Certain equipment has been leased under capital lease agreements which
expire through 2008. In addition, the Company leases various ranch
properties and equipment under operating lease agreements expiring
through 2007. Total rental expense was $16,201,000 and $21,201,000 in
2001 and 2000, respectively, including $541,000 and $759,000,
respectively, paid to related parties for land and building rentals.
Real property leases generally contain multiple year renewal options at
increased rental rates.
Minimum rental commitments under non-cancelable operating leases,
principally for real property and equipment, are as follows (in
thousands):
Capital Operating
Leases Leases
-------- ---------
2002 $ 3,695 $ 9,196
2003 3,636 6,245
2004 3,247 3,229
2005 1,955 826
2006 1,384 333
Thereafter 285 321
-------- -------
Total future minimum lease payments 14,202 $20,150
=======
Less amount representing interest
(ranging from 6.49% to 9.04%) (1,952)
--------
Present value of future minimum lease payments 12,250
Less current portion (2,919)
--------
Long-term portion $ 9,331
========
16
During fiscal 2001, the Company entered into rental agreements to
sublease certain ranch properties included above under non-cancellable operating
leases. Minimum rental revenues under non-cancelable operating leases are as
follows (in thousands):
2002 $ 4,124
2003 3,302
2004 1,809
2005 660
2006 240
Thereafter 240
-------
Total $10,375
=======
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables, cash overdraft and accounts
payable approximates the estimated fair values because of the short
maturity of these financial instruments. The carrying amount of the
Company's long-term debt and the line of credit approximates fair value
based upon management's best estimate of interest rates that would be
available to the Company for similar debt obligations at year-end.
It is not practical to estimate fair value of investments in affiliates
because quoted market prices do not exist and an estimate of fair value
cannot be made without incurring excessive costs.
14. SUBSEQUENT EVENT
On August 9, 2001, the Company entered into an Agreement and Plan of
Merger with Performance Food Group Company and PFGC Acquisition Corp.,
a wholly owned subsidiary of PFGC (collectively referred to as "PFGC"),
which will result in the Company becoming a wholly-owned subsidiary of
PFGC. The purchase price is approximately $302.0 million in cash,
subject to adjustment. The purchase price may also be adjusted up to an
additional $10.0 million in cash based upon the attainment of certain
operating targets during a three-year period following the acquisition.
The sale of the Company to PFGC is expected to close in September 2001.
17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following unaudited pro forma condensed consolidated statements of earnings
give effect to:
- our acquisition of Fresh International Corp. and its
subsidiaries, collectively "Fresh Express," at an assumed
acquisition price of $302.0 million payable in cash;
- the sale of $350.0 million of the Company's common stock and
debt securities and the Company's receipt of $335.3 million in
estimated net proceeds, after deducting the estimated expenses
of the sales;
- the application of $302.0 million of the estimated net
proceeds referred to above to pay the purchase price of Fresh
Express; and
- the application of approximately $33.3 million of the
estimated net proceeds referred to above to repay indebtedness
outstanding under the Company's credit facility;
as if all of those transactions had occurred on the first day of the earliest
period presented. The actual purchase price for Fresh Express is subject to
adjustments, which are payable in cash, based upon, among other things, Fresh
Express' net worth as of the closing date. The Company currently estimates that
it will have to pay approximately $16.0 million in additional purchase price as
a result of this net worth adjustment, which amount has been included in the
assumed acquisition price of $302.0 million and in the following pro forma
financial statements. This amount may be increased or decreased subsequent to
the closing date based upon a post-closing review of Fresh Express' net worth as
of the closing date. In addition, in connection with the Fresh Express
acquisition, we will be required to pay up to $10.0 million in cash as
additional purchase price if Fresh Express achieves certain operating targets
during a three-year period following closing. Accordingly, the total purchase
price that we pay to acquire Fresh Express may be more or less than the amount
assumed for purposes of the following unaudited pro forma condensed consolidated
financial statements.
The unaudited pro forma condensed consolidated statement of earnings
for 2000 combines the consolidated historical results of operations of
Performance Food Group for its fiscal year ended December 30, 2000 with the
consolidated historical results of operations of Fresh Express for its fiscal
year ended February 28, 2001. The unaudited pro forma condensed consolidated
statement of earnings for the six months ended June 30, 2001 combines the
consolidated historical results of operations of Performance Food Group for that
six-month period with the consolidated historical results of operations of Fresh
Express for the six months ended June 30, 2001. The unaudited pro forma
condensed consolidated balance sheet as of June 30, 2001 combines the
consolidated historical balance sheet of Performance Food Group as of that date
with the consolidated historical balance sheet of Fresh Express as of that date
and gives effect to the transactions described above as if those transactions
had been completed as of that date. The Company will account for the acquisition
of Fresh Express under the purchase method of accounting.
The pro forma financial statements appearing below are based upon a
number of assumptions and estimates and are subject to uncertainties, and do not
purport to be indicative of the actual results of operations or financial
condition that would have occurred had the transactions described above in fact
occurred on the dates indicated, nor do they purport to be indicative of the
results of operations or financial condition that the Company may achieve in the
18
future. In particular, sales to foodservice distributors represented
approximately 13.7% of Fresh Express' consolidated revenues for its fiscal year
ended February 28, 2001 and approximately 12.8% of its consolidated revenues for
the six months ended June 30, 2001. The Company believes that, because some of
these foodservice distributor customers may view the Company as a competitor,
Fresh Express could lose the business of some of these customers. The pro forma
financial statements appearing below do not reflect this potential loss of
revenue. In addition, Fresh Express has advised us that it recently received
notice from one of its customers, which represented approximately $14.9 million
of Fresh Express' revenues during its 2000 fiscal year, that this customer will
begin buying from another producer of packaged, ready-to-eat salads. This pro
forma data also does not reflect the expected loss of revenue from this
customer.
Fresh International and one of its subsidiaries have been taxed as
S-corporations for federal income tax purposes, which means that they were not
subject to federal income taxes and that Fresh Express' historical financial
statements do not include a provision for federal income taxes for Fresh
International and this subsidiary. Upon completion of the pending acquisition,
Fresh International and its subsidiary that was previously taxed as an
S-corporation will become subject to federal income tax. The following pro forma
condensed consolidated financial statements adjust income taxes as if Fresh
International and all of its subsidiaries had been subject to federal income
taxes during all of the periods presented.
As noted above, the acquisition of Fresh Express will be accounted for
using the purchase method of accounting. The total purchase price will be
allocated to the tangible and intangible assets and liabilities acquired based
on their respective fair values. The allocation of the purchase price reflected
in the following pro forma financial statements is preliminary and is subject to
adjustment upon receipt of, among other things, appraisals of some of the assets
and liabilities of Fresh Express.
19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
PRO FORMA ADJUSTMENTS
------------------------------------
PERFORMANCE FRESH STOCK & TOTAL
FOOD GROUP EXPRESS NOTES ACQUISITION OF PRO FORMA
HISTORICAL HISTORICAL ISSUANCE FRESH EXPRESS ADJUSTMENTS PRO FORMA
----------- ---------- -------- -------------- ----------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents .................. $ 9,791 $ 5,080 $301,966 $(301,966) $ -- (a),(c) $ 14,871
Trade accounts and notes
receivable, net .......................... 161,459 46,140 -- (225) (225)(e) 207,374
Inventories ................................ 143,732 16,913 -- -- -- 160,645
Other current assets ....................... 15,067 6,411 -- -- -- 21,478
-------- -------- -------- --------- -------- ----------
Total current assets ............... 330,049 74,544 301,966 (302,191) (225) 404,368
Property, plant and equipment, net ........... 147,256 76,281 -- -- -- 223,537
Intangible assets, net ....................... 303,228 -- -- 188,896 188,896 (a),(b) 492,124
Other assets ................................. 1,640 8,629 4,821 (2,588) 2,233 (c),(e) 12,502
-------- -------- -------- --------- -------- ----------
Total assets ....................... $782,173 $159,454 $306,787 $(115,883) $190,904 $1,132,531
======== ======== ======== ========= ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of deposits ... $ 17,139 $ -- $ -- $ -- $ -- $ 17,139
Current installments of long-term debt ..... 14,898 6,140 -- (6,140) (6,140)(a) 14,898
Trade accounts payable ..................... 151,571 23,894 -- -- -- 175,465
Other current liabilities .................. 62,158 20,604 -- (1,500) (1,500)(a),(c) 81,262
-------- -------- -------- --------- -------- ----------
Total current liabilities .......... 245,766 50,638 -- (7,640) (7,640) 288,764
Long-term debt, excluding current
installments................................ 127,604 46,676 116,716 (46,676) 70,040(a),(c) 244,320
Deferred income taxes ........................ 9,701 -- -- -- -- 9,701
Other long-term liabilities .................. -- 8,138 -- (7,565) (7,565)(a) 573
-------- -------- -------- --------- -------- ----------
Total liabilities .................. 383,071 105,452 116,716 (61,881) 54,835 543,358
-------- -------- -------- --------- -------- ----------
Shareholders' equity:
Preferred stock ............................ -- -- -- -- -- --
Common stock ............................... 366 247 63 (247) (184)(a),(c) 429
Additional paid-in capital ................. 267,326 83 190,008 (83) 189,925 (a),(c) 457,334
Retained earnings .......................... 132,909 53,672 -- (53,672) (53,672)(a) 132,909
-------- -------- -------- --------- -------- ----------
400,601 54,002 190,071 (54,002) 136,069 590,672
Loan to leveraged employee stock
ownership plan ........................... (1,499) -- -- -- -- (1,499)
-------- -------- -------- --------- -------- ----------
Total shareholders' equity ......... 399,102 54,002 190,071 (54,002) 136,069 589,173
-------- -------- -------- --------- -------- ----------
Total liabilities and
shareholders' equity ............. $782,173 $159,454 $306,787 $(115,883) $190,904 $1,132,531
======== ======== ======== ========= ======== ==========
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS
ENDED JUNE 30, 2001
PRO FORMA ADJUSTMENTS
------------------------------------
PERFORMANCE FRESH STOCK TOTAL
FOOD GROUP EXPRESS & NOTES ACQUISITION OF PRO FORMA
HISTORICAL HISTORICAL ISSUANCE FRESH EXPRESS ADJUSTMENTS PRO FORMA
----------- ---------- -------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ................................ $1,518,297 $274,893 $ -- $ -- $ -- $1,793,190
Cost of goods sold ....................... 1,314,306 211,524 -- -- -- 1,525,830
---------- -------- ------- ------- ------- ----------
Gross profit ................... 203,991 63,369 -- -- -- 267,360
Operating expenses ....................... 172,035 39,545 -- 4,438 4,438(b) 216,018
---------- -------- ------- ------- ------- ----------
Operating profit ............... 31,956 23,824 -- (4,438) (4,438) 51,342
Other income (expense):
Interest expense ....................... (3,803) (2,192) (3,360) 2,192 (1,168)(d) (7,163)
Other, net ............................. (458) -- -- -- -- (458)
---------- -------- ------- ------- ------- ----------
Other income (expense), net .... (4,261) (2,192) (3,360) 2,192 (1,168) (7,621)
---------- -------- ------- ------- ------- ----------
Earnings before income taxes ... 27,695 21,632 (3,360) (2,246) (5,606) 43,721
Income tax expense (benefit) ............. 10,524 6,883 (475) (318) (793)(f) 16,614
---------- -------- ------- ------- ------- ----------
Net earnings ................... $ 17,171 $ 14,749 $(2,885) $(1,928) $(4,813) $ 27,107
========== ======== ======= ======= ======= ==========
Weighted average common shares
outstanding............................. 36,066 6,250 6,250 (a),(c) 42,316
Basic net earnings per
common share............................ $ 0.48 $ 0.64
Weighted average common shares
and dilutive potential common
shares outstanding...................... 37,383 10,077 10,077 (a),(c) 47,460
Diluted net earnings per common
share................................... $ 0.46 $ 0.63
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR 2000
PRO FORMA ADJUSTMENTS
------------------------------------
PERFORMANCE FRESH STOCK & TOTAL
FOOD GROUP EXPRESS NOTES ACQUISITION OF PRO FORMA
HISTORICAL HISTORICAL ISSUANCE FRESH EXPRESS ADJUSTMENTS PRO FORMA
----------- ---------- -------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ................................ $2,605,468 $509,405 $ -- $ -- $ -- $3,114,873
Cost of goods sold ....................... 2,253,277 410,820 -- -- -- 2,664,097
---------- -------- ------- ------- ------- ----------
Gross profit ................... 352,191 98,585 -- -- -- 450,776
Operating expenses ....................... 302,176 75,381 -- 8,876 8,876 (b) 386,433
---------- -------- ------- ------- ------- ----------
Operating profit ............... 50,015 23,204 -- (8,876) (8,876) 64,343
Other income (expense): ..................
Interest expense ....................... (6,593) (5,547) (6,336) 5,547 (789)(d) (12,929)
Other, net ............................. (66) -- -- -- -- (66)
---------- -------- ------- ------- ------- ----------
Other income (expense), net .... (6,659) (5,547) (6,336) 5,547 (789) (12,995)
---------- -------- ------- ------- ------- ----------
Earnings before income taxes ... 43,356 17,657 (6,336) (3,329) (9,665) 51,348
Income tax expense (benefit) ............. 16,475 4,965 (1,264) (664) (1,928)(f) 19,512
---------- -------- ------- ------- ------- ----------
Net earnings ................... $ 26,881 $ 12,692 $(5,072) $(2,665) $(7,737) $ 31,836
========== ======== ======= ======= ======= ==========
Weighted average common shares
outstanding............................. 28,336 6,250 6,250 (a),(c) 34,586
Basic net earnings per common share....... $ 0.95 $ 0.92
Weighted average common shares and
dilutive potential common shares
outstanding............................. 29,539 10,077 10,077 (a),(c) 39,616
Diluted net earnings per common
share................................... $ 0.91 $ 0.94
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
22
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) The pro forma adjustments assume (1) that the Company will pay $302.0
million in cash to acquire Fresh Express, including repayment of Fresh
Express debt and certain other liabilities concurrently with the
acquisition and (2) that the Company will issue 6,250,000 shares of
common stock and receive approximately $190.1 million in estimated net
proceeds after deducting estimated expenses based on an assumed price
of $32.00 per share, and (3) that the Company will sell $150.0 million
aggregate principal amount of convertible subordinated notes and
receive approximately $145.2 million in estimated net proceeds, after
deducting estimated expenses. The actual purchase price for Fresh
Express is subject to adjustments, which are payable in cash, based
upon, among other things, Fresh Express' net worth as of the closing
date. The Company currently estimates that it will have to pay
approximately $16.0 million in additional purchase price as a result of
this net worth adjustment, which amount has been included in the
assumed acquisition price of $302.0 million and in the pro forma
adjustments. This amount may be increased or decreased subsequent to
the closing date based upon a post-closing review of Fresh Express' net
worth as of the closing date. The Company will also be required to pay
up to $10.0 million in cash to the former shareholders of Fresh Express
if Fresh Express attains certain operating targets over a three-year
period following closing. Accordingly, the total purchase price that
the Company pays to acquire Fresh Express may be more or less than the
amount assumed for purposes of the pro forma financial statements.
These pro forma adjustments also reflect the preliminary allocation of
the purchase price to the acquired assets and assumed liabilities of
Fresh Express, including the elimination of Fresh Express'
stockholders' equity of $54.0 million as of June 30, 2001.
(b) Intangible assets to be recorded in connection with the acquisition,
expected to consist of tradenames, non-compete agreements, customer
lists, patents and goodwill, represent costs in excess of the fair
value of tangible net assets acquired. Upon completion of the
acquisition, the Company estimates that it will record goodwill of
approximately $108.9 million and other identifiable intangible assets
of approximately $80.0 million. Under Statement of Financial Accounting
Standards No. 142, goodwill will not be amortized, but will be subject
to review at least annually for impairment. Most other identifiable
intangible assets will be amortized over their estimated useful lives
ranging from five to fifteen years. The pro forma adjustments to the
statements of earnings reflect amortization expense of the identifiable
intangible assets (other than goodwill) as if Fresh Express had been
acquired on the first day of the earliest period presented.
(c) These adjustments reflect the issuance and sale of the common stock and
notes referred to above and the application of a portion of the
estimated net proceeds to repay indebtedness under our credit facility,
as well as the repayment of outstanding Fresh Express indebtedness in
connection with the acquisition.
(d) The interest rate on the debt securities is assumed to be 5.75% per
annum. These pro forma adjustments reflect the additional interest
expense on the notes and the reduction in interest expense related to
the application of approximately $33.3 million of the estimated
23
net proceeds from the sale of common stock and the debt securities to
repay indebtedness outstanding under the Company's credit facility.
These pro forma adjustments also reflect the elimination of interest
expense on Fresh Express debt that the Company will repay concurrently
with the acquisition.
(e) This adjustment reflects the elimination of a note receivable of Fresh
Express that will not be acquired by the Company.
(f) These adjustments adjust income taxes as if Fresh International and all
its subsidiaries were subject to federal and state income taxes for all
of the periods presented and reflects the tax effect of other pro forma
adjustments. Fresh International and one of its subsidiaries are taxed
as S-corporations, which means that Fresh International and this
subsidiary were not subject to federal and certain state income taxes
for these periods. Upon consummation of our acquisition of Fresh
Express, Fresh International and all its subsidiaries will be subject
to federal and state income taxes.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PERFORMANCE FOOD GROUP COMPANY
Date: September 10, 2001 By: /s/ Roger L. Boeve
--------------------------------------
Roger L. Boeve
Executive Vice President and
Chief Financial Officer
25
EXHIBIT INDEX
No. Exhibit
--- -------
2 Agreement and Plan of Merger, dated as of August 9, 2001, by
and among Fresh International Corp., Performance Food Group
Company and PFGC Acquisition, Inc. (Pursuant to Item 601(b)(2)
of Regulation S-K, the schedules of this agreement are
omitted, but will be provided supplementally to the Commission
upon request.)
23.1 Consent of Deloitte & Touche LLP