1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-63610 and 333-48462
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 10, 2001)
$175,000,000
[PFG LOGO]
PERFORMANCE FOOD GROUP COMPANY
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2008
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The notes are convertible, at the option of the holder, at any time on or
prior to maturity into shares of common stock of Performance Food Group Company.
The notes are convertible at a conversion price of $32.95 per share, which is
equal to a conversion rate of approximately 30.3490 shares of common stock per
$1,000 principal amount of notes, subject to adjustment. On October 10, 2001,
the last reported bid price of our common stock as reported on the Nasdaq Stock
Market's National Market was $26.36 per share.
We will pay interest on the notes on April 16 and October 16 of each
year, beginning April 16, 2002. The notes will mature on October 16, 2008. We
may redeem some or all of the notes at any time on or after October 16, 2004 at
the redemption prices described in this prospectus supplement.
The notes will be our unsecured obligations and will be subordinated to
our existing and future Senior Indebtedness, as defined in this prospectus
supplement. In addition, the notes will effectively rank junior to all existing
and future liabilities of our subsidiaries. The indenture governing the notes
will not limit the incurrence by us or our subsidiaries of additional
indebtedness, including Senior Indebtedness.
Concurrently with this offering of notes, we are publicly offering
5,000,000 shares of our common stock pursuant to a separate prospectus
supplement. We will use the net proceeds from this offering and the common stock
offering to finance a portion of the cost of acquiring Fresh International Corp.
The closing of this offering is contingent upon the concurrent closing of the
common stock offering and the acquisition of Fresh International Corp.
INVESTING IN THE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE S-20 OF THIS PROSPECTUS SUPPLEMENT.
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PER NOTE TOTAL
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Public offering price(1)................................ 100% $175,000,000
Underwriting discount................................... 3% $5,250,000
Proceeds, before expenses, to Performance Food Group.... 97% $169,750,000
(1) Plus interest accrued from October 16, 2001, if settlement occurs
after that date
The underwriters may also purchase up to an additional $26,250,000
aggregate principal amount of notes from Performance Food Group at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus supplement to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about October 16, 2001.
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MERRILL LYNCH & CO. WACHOVIA SECURITIES
CREDIT SUISSE FIRST BOSTON BANC OF AMERICA SECURITIES LLC
SUNTRUST ROBINSON HUMPHREY
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The date of this prospectus supplement is October 10, 2001.
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Omitted Graphic and Image Material
The following graphic and image material is omitted from the form of prospectus
supplement filed electronically:
Inside Front Cover:
[On the middle of the page from the top of the page to the middle are the
following: Logo for Performance Food Group Company, map of the United States and
a legend showing PFG's distribution and processing facilities classified by
PFG's customized, broadline and fresh-cut operating segments, and also showing
the facilities of Fresh Express. A reference to footnote (a) is located to the
right of Fresh Express' Colorado Springs, Colorado facility. The corresponding
footnote, located to the bottom left of the map states "The Colorado Springs,
Colorado facility is a 50/50 joint venture with a third party."]
[On the left hand side of the page from the middle to the middle of the page at
the bottom are the following: pictures of a PFG employee unloading PFG
proprietary brand products from a PFG truck and a picture of a PFG employee
using a radio frequency scanning device in one of PFG's distribution facilities
next to the caption "Performance Food Group is the nation's fourth largest
broadline foodservice distributor based upon 2000 net sales. We market and
distribute over 36,000 national and proprietary brand food and non-food items to
approximately 29,000 customers in the foodservice or "food-away-from-home"
industry."]
The following graphic and image material is omitted from the form of prospectus
supplement filed electronically:
Inside Back Cover:
[On the middle of the page from the top of the page to the middle is the
following: "Proprietary Brands & Fresh-Cut Salads," and the following ten
logos: "Pocahontas," "Raffinatto," "Gourmet Table," "AFFLAB," "Healthy USA,"
"Colonial Tradition," "Premium Recipe," "Brilliance," "West Creek" and "Village
Garden."]
[On the middle of the page from the middle of the page to the bottom are
pictures showing the following three Fresh Express packaged salads: Italian,
Caesar Salad Kit and Iceberg Garden. To the bottom left of these pictures is
the caption "Fresh Express packages and distributes a variety of fresh salad
and other produce offerings for consumption in retail and food service
channels."]
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
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Prospectus Supplement Summary............................... S-4
Risk Factors................................................ S-20
Cautionary Note Regarding Forward-Looking Statements and
Market Data............................................... S-31
Use of Proceeds............................................. S-32
Price Range of Common Stock and Dividend Policy............. S-32
Capitalization.............................................. S-33
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ S-36
Selected Consolidated Financial Data........................ S-43
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-46
Business.................................................... S-57
Management.................................................. S-70
Description of Capital Stock................................ S-73
Shares Eligible for Future Sale............................. S-74
Description of the Notes.................................... S-76
Certain United States Federal Income Tax Considerations..... S-92
Underwriting................................................ S-95
Legal Matters............................................... S-99
Experts..................................................... S-99
Index to Financial Statements............................... F-1
PROSPECTUS
PAGE
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Risk Factors................................................ 2
Special Note Regarding Forward-Looking Statements........... 6
The Company................................................. 7
Use of Proceeds............................................. 7
Ratios of Earnings to Fixed Charges......................... 7
General Description of Securities........................... 8
Description of Debt Securities.............................. 8
Description of Capital Stock................................ 23
Description of Warrants..................................... 30
Plan of Distribution........................................ 32
Available Information....................................... 32
Incorporation by Reference.................................. 33
Legal Matters............................................... 34
Experts..................................................... 34
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED OR
DEEMED TO BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED
ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES
YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE
ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME
THAT THE INFORMATION APPEARING IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS AND THE DOCUMENTS INCORPORATED OR DEEMED TO BE INCORPORATED BY
REFERENCE IN THE ACCOMPANYING PROSPECTUS IS ACCURATE ONLY AS OF THEIR RESPECTIVE
DATES. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS
MAY HAVE CHANGED SINCE THOSE DATES.
NEITHER PERFORMANCE FOOD GROUP NOR ANY OF THE UNDERWRITERS HAS TAKEN OR
WILL TAKE ACTION IN ANY JURISDICTION TO PERMIT A PUBLIC OFFERING OF THE COMMON
STOCK OR THE POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS, OTHER THAN IN THE UNITED STATES.
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PROSPECTUS SUPPLEMENT SUMMARY
This summary does not contain all of the information that may be
important to you. You should read the entire prospectus supplement and the
accompanying prospectus and the documents incorporated and deemed to be
incorporated by reference in the accompanying prospectus, including the
financial statements and related notes, before making an investment decision. We
sometimes refer to the offering being made by this prospectus supplement as the
"notes offering" or "this offering" and to the concurrent offering of our common
stock as the "common stock offering" or the "concurrent offering," and we
sometimes refer to the convertible subordinated notes being offered in this
offering as the "notes."
Unless this prospectus supplement indicates otherwise or the context
otherwise requires, the terms "we," "our," "us" or "Performance Food Group" as
used in this prospectus supplement refer to Performance Food Group Company and
its subsidiaries, and all information in this prospectus supplement assumes that
the underwriters' over-allotment options in the common stock offering and the
notes offering are not exercised. We use a 52/53 week fiscal year ending on the
Saturday closest to December 31. References in this prospectus supplement to the
years or fiscal years 1996, 1997, 1998, 1999 and 2000 mean our fiscal years
ended December 28, 1996, December 27, 1997, January 2, 1999, January 1, 2000 and
December 30, 2000, respectively, unless otherwise expressly stated or the
context otherwise requires. We also sometimes refer to the six-month periods
ended July 1, 2000 and June 30, 2001 as the six months of 2000 and 2001,
respectively. All share and per share data has been adjusted to reflect the
two-for-one common stock split that we paid on April 30, 2001. References in
this prospectus supplement to Fresh International Corp.'s 2000 fiscal year mean
its fiscal year ended February 28, 2001.
PERFORMANCE FOOD GROUP
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 36,000 national and proprietary brand food and non-food products
to approximately 29,000 customers in the foodservice or "food-away-from-home"
industry. In addition, we are a major processor of fresh-cut produce that we
market and distribute to foodservice customers. 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 operating segments:
- Broadline. Our broadline distribution segment markets and distributes
more than 32,000 national and proprietary brand food and non-food
products to approximately 29,000 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 14 broadline distribution facilities, which serve customers in
the southern, southeastern, eastern and northeastern United States. Our
broadline distribution segment net sales represented approximately
52.5% of our consolidated net sales in 2000. Net sales for this segment
grew at a compound annual rate of approximately 33.2% from 1996 through
2000.
- 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. 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
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and by making larger, more consistent deliveries. We have five
customized distribution facilities currently serving 11 customers in 49
states and several foreign countries. Our customized distribution
segment net sales represented approximately 42.4% of our consolidated
net sales in 2000. Net sales for this segment grew at a compound annual
rate of approximately 29.4% from 1996 through 2000.
- Fresh-cut. Our fresh-cut segment purchases, processes, packages and
distributes over 900 fresh produce offerings under our "Fresh
Advantage" and "Redi-Cut" labels. Our fresh-cut operations are
conducted at four processing facilities located in the southeastern,
southwestern and midwestern United States. 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. On December 13, 2000, we acquired Redi-Cut
Foods, Inc., a leading regional processor of fresh-cut produce used
primarily by foodservice operators. Our fresh-cut segment net sales
represented approximately 5.1% of our consolidated net sales in 2000,
and would have represented approximately 9.3% of our consolidated net
sales in 2000 after giving pro forma effect to our acquisition of
Redi-Cut as if that acquisition had occurred on January 2, 2000. Net
sales for this segment grew at a compound annual rate of approximately
39.6% from 1996 through 2000. Upon completion of our pending
acquisition of Fresh International Corp. described below under
"-- Pending Acquisition of Fresh International Corp.," we will become
one of the nation's leading providers of packaged, ready-to-eat salads
to food retailers based on Fresh Express' market share for the 12-month
period ended July 2001, as reported by a market research firm.
We believe that, over the last several years, we have experienced
significantly greater growth rates than the U.S. foodservice industry as a
whole, both through internal growth and through an active acquisition program.
From 1996 through 2000, we grew our net sales from $864.2 million to $2.6
billion, representing a compound annual growth rate of approximately 31.8%. By
contrast, according to data compiled by a market research firm, the total net
sales of the U.S. foodservice distribution industry were $134 billion in 1996
and $163 billion in 2000, representing a compound annual growth rate of
approximately 5.2%.
INDUSTRY OVERVIEW
According to data compiled by a market research firm, the U.S.
foodservice distribution industry generated total net sales of approximately
$163 billion in 2000, representing an increase of approximately 53.8% over 1990.
Within the consumer food industry, we believe that the purchase of
"food-away-from-home" has been driven by demographic, economic and lifestyle
trends. According to data compiled by a market research firm, from 1972 through
2000, consumer purchases of "food-away-from-home" in the U.S. grew at a compound
annual rate of approximately 7.4%. This data also indicates that consumer
purchases of "food-away-from-home" grew from approximately 37.3% of total
consumer food purchases in the U.S. in 1972 to approximately 49.2% in 2000.
We believe that the foodservice distribution industry is consolidating
but remains highly fragmented, with over 2,800 foodservice distributors in
operation according to data published by a market research firm. For example,
according to data compiled by a foodservice industry publication, the total net
sales of the ten largest broadline distributors in 2000 together accounted for
approximately 30.0% of the total net sales for the U.S. foodservice distribution
industry as a whole, compared to approximately 12.8% in 1985. We anticipate
further consolidation as larger distributors continue to pursue acquisitions in
an effort to extend geographic reach and achieve economies of scale such as
increased buying power, increased efficiency of distribution networks, increased
ability to leverage investments in information technology and elimination of
redundant overhead expenses.
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GROWTH STRATEGIES
Our 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 maintain our strong
internal growth and that we are well-positioned to take advantage of the
consolidation taking place in our industry.
Our key growth strategies are as follows:
- Increase broadline sales to existing customers and within existing
markets;
- Increase sales to street customers;
- Increase sales of proprietary brands;
- Grow our customized segment with existing and selected new customers;
- Become a nationwide leader in fresh-cut produce;
- Improve operating efficiencies through systems and technology; and
- Actively pursue strategic acquisitions.
PENDING ACQUISITION OF FRESH INTERNATIONAL CORP.
On August 9, 2001, we entered into an agreement to acquire Fresh
International Corp., which sells packaged, ready-to-eat salads under its "Fresh
Express" label, for a purchase price of approximately $302.6 million in cash,
which includes the repayment of net debt outstanding, and the assumption of
certain liabilities. Fresh International Corp. and its subsidiaries are
collectively referred to herein as "Fresh Express." The purchase price is
subject to adjustments, which are payable in cash, based upon, among other
things, Fresh Express' net worth as of the closing date. We currently estimate
that we will have to pay approximately $16.1 million in additional purchase
price as a result of this net worth adjustment, which amount has been included
in the assumed acquisition price of $302.6 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, we are obligated
to pay the former shareholders 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 the acquisition. The acquisition of Fresh
Express will be accounted for as a purchase, and we will include Fresh Express
in our consolidated results of operations commencing on the date that the
acquisition closes.
According to data compiled by a market research firm, Fresh Express is
one of the nation's leading providers of packaged, ready-to-eat salads to food
retailers based on its market share for the 12-month period ended July 2001.
Based in Salinas, California, Fresh Express distributes its products to both
retail and foodservice customers nationwide. During its 2000 fiscal year, Fresh
Express recorded revenues of approximately $509 million and its operating
margin, which is defined as income from operations divided by revenues, was
approximately 4.6%. With five processing facilities strategically located
throughout the United States, Fresh Express processes, packages and distributes
its products nationwide to food retailers such as Wal-Mart, Kroger, Albertson's
and Safeway, as well as to foodservice distributors and operators. Fresh Express
is also a leading provider of controlled and modified atmosphere systems and
packaging to extend the shelf life of packaged salads, fruits and vegetables and
other perishable products.
We believe that fresh-cut produce is a rapidly growing segment of the
domestic food industry and that our acquisition of Fresh Express will position
us to capitalize on this growth. We believe that the trend towards
health-conscious eating habits and the need for convenience have continued to
drive the popularity of fresh-cut salads and other fresh produce. In addition,
driven in part by dual-income and single-parent families, we believe that
consumer demand for convenience has contributed to the growth in this sector in
recent years. Furthermore, we believe that a number of foodservice operators are
seeking ways to increase product safety and quality while reducing labor costs.
Technological innovations in the
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processing and packaging of fresh-cut produce have enabled specialty produce
processors to extend the shelf life of their products while offering safer, more
convenient and lower cost products to their foodservice customers. We anticipate
that these trends will continue to drive demand for fresh-cut produce.
Our acquisition of Fresh Express is an important step in our strategy to
become a leading national processor of fresh-cut produce. In particular, our key
strategies to leverage the Fresh Express acquisition include the following:
- Continue to build, grow and maintain Fresh Express' distinctive
customer relationships;
- Increase sales through cross-selling of products;
- Enhance geographic coverage through the addition of Fresh Express'
processing facilities;
- Continue leadership in product innovation and development; and
- Enhance purchasing leverage through integrated procurement.
Our acquisition agreement with Fresh Express contains customary
conditions to closing. We cannot assure you that these conditions to closing
will be satisfied, that the acquisition will close or that the terms of the
acquisition will not be modified from those described in this prospectus
supplement.
In order to finance a portion of the purchase price of Fresh Express, we
intend to enter into a new $200 million revolving credit facility concurrently
with the closing of this offering. We anticipate that, if we enter into this new
credit facility, it will replace our existing $85 million revolving credit
facility and $5 million working capital line of credit and that borrowings and
letters of credit outstanding under our existing credit facility and this line
of credit will be repaid or replaced, as the case may be, with borrowings and
letters of credit under the new credit facility. The effectiveness of the new
credit facility will be subject to customary conditions and we cannot assure you
that those conditions will be satisfied or that we will enter into the new
credit facility, or, if we enter into the new credit facility, that the terms of
that credit facility will not differ from those described in this prospectus
supplement. In the event that we do not enter into the new credit facility prior
to the closing date of this offering, we intend to make additional borrowings
under our existing credit facility to finance any portion of the purchase price
of Fresh Express that we do not finance with the net proceeds from this offering
and the concurrent offering and, concurrently with the closing of this offering,
to enter into certain amendments to our existing credit facility. The
effectiveness of either the new credit facility or those amendments to our
existing credit facility is a condition to the closing of this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for more information about the
proposed new credit facility. As used in this prospectus supplement, references
to our "credit facility" mean either our existing credit facility, including, if
applicable, the proposed amendments to that credit facility discussed above, or
our new credit facility, as the context requires.
The summary of selected provisions of the acquisition agreement appearing
above is not complete and is qualified in its entirety by the acquisition
agreement, which is incorporated by reference as an exhibit to one of the
documents incorporated by reference into the accompanying prospectus. We urge
you to read the acquisition agreement for a more complete description of the
acquisition.
RECENT ACQUISITIONS
SPRINGFIELD FOODSERVICE CORPORATION
On September 10, 2001, we acquired all the outstanding common stock of
Springfield Foodservice Corporation through the merger of Springfield with and
into a newly-formed, wholly owned subsidiary of ours. The purchase price for
Springfield was approximately $80.7 million. We paid $39.8 million of the
purchase price by issuing 1,270,652 shares of our common stock to the
shareholders of Springfield and the remaining $40.9 million in cash. The
purchase price is subject to a possible post-closing reduction, based
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on a review of Springfield's stockholders' equity as of the closing date.
Accordingly, the purchase price for Springfield may be less than $80.7 million.
In addition, in connection with the acquisition, we entered into an earnout
agreement under which we will be required to pay a former shareholder of
Springfield up to $3.9 million as additional purchase price over a three-year
period if Springfield achieves certain operating targets, payable in cash and
shares of our common stock. Although we are currently leasing the land and
buildings which comprise Springfield's operating facility from an entity owned
by one of its former shareholders, we are required to purchase the facility for
a purchase price not to exceed $6.3 million if certain conditions with respect
to the real property are satisfied.
According to data provided by a foodservice industry publication,
Springfield is the largest independent foodservice distributor headquartered in
New England based on its net sales for its fiscal year ended March 31, 2001.
Springfield provides products and services from a 140,000 square foot facility
located in Springfield, Massachusetts to traditional foodservice accounts in New
England and portions of New York State. We believe that adding Springfield will
allow us to develop a contiguous Northeast market by connecting the regions
presently served by our NorthCenter and AFI operating companies and adds a
distributor with a history of growth in a densely-populated market. For its
fiscal year ended March 31, 2001, Springfield had net sales of approximately
$137.0 million, after adjusting Springfield's historical net sales to conform to
our existing revenue recognition policies.
We accounted for the acquisition of Springfield as a purchase.
Accordingly, we have included Springfield in our consolidated results of
operations beginning September 10, 2001, the closing date of the acquisition.
EMPIRE SEAFOOD HOLDING CORP.
On April 2, 2001, we acquired all of the outstanding common stock of
Empire Seafood Holding Corp. and Empire Imports, Inc., which we refer to
collectively herein as "Empire Seafood." The purchase price paid for Empire
Seafood was approximately $75.0 million, of which $41.8 million was paid in
cash, $13.6 million was paid in promissory notes and $19.6 million was paid
through the issuance of 802,558 shares of our common stock. In addition, in
connection with the acquisition, we entered into an earnout agreement under
which we will be required to pay certain former shareholders of Empire Seafood
up to $7.5 million as additional purchase price over a three-year period if
Empire Seafood achieves certain operating targets, payable in cash and shares of
our common stock.
Based in Miami, Florida, Empire Seafood is a leading distributor and
processor of seafood, marketing a broad array of quality seafood directly to
cruise lines, independent restaurants and other foodservice operators, primarily
in Florida. We believe that Empire Seafood broadens our offering of seafood, an
important "center-of-the-plate" product category, to our street and chain
customers and will provide us with additional purchasing leverage in this
product category.
We accounted for the acquisition of Empire Seafood as a purchase.
Accordingly, we have included Empire Seafood in our consolidated results of
operations since April 2, 2001, the closing date of the acquisition.
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THE OFFERING
The following is a brief summary description of some of the terms of the
notes. For a more complete description of the terms of the notes, see
"Description of the Notes" in this prospectus supplement and "Description of
Debt Securities" in the accompanying prospectus.
Issuer.............................. Performance Food Group Company.
Notes offered....................... $175,000,000 aggregate principal amount
of 5 1/2% convertible subordinated
notes due 2008, plus up to an
additional $26,250,000 aggregate
principal amount of notes if the
underwriters' over-allotment option is
exercised in full.
Maturity............................ October 16, 2008.
Interest............................ 5 1/2% per annum of the principal
amount of the notes, payable
semiannually in arrears on April 16 and
October 16, beginning April 16, 2002.
Conversion rights................... The notes are convertible, at the
option of the holder, at any time on or
prior to maturity into shares of our
common stock at a conversion price of
$32.95 per share, which is equal to a
conversion rate of approximately
30.3490 shares of common stock per
$1,000 principal amount of notes. The
conversion price is subject to
adjustment. See "Description of the
Notes -- Conversion Rights."
Ranking............................. The notes will be our unsecured
obligations and will be subordinated in
right of payment to all of our existing
and future Senior Indebtedness, as
defined. Because the notes are
subordinated, in the event of our
bankruptcy, liquidation or dissolution,
holders of the notes will not receive
any payment until holders of our Senior
Indebtedness have been paid in full.
The subordination provisions in the
indenture also prohibit us, subject to
specified terms and conditions, from
making any payment on the notes if a
payment default with respect to, or
other default permitting acceleration
of, certain types of Senior
Indebtedness has occurred and is
continuing.
As of June 30, 2001, on a pro forma
basis after giving effect to the
acquisition of Fresh Express at an
assumed acquisition price of $302.6
million, the issuance of notes and
common stock in this offering and the
concurrent offering, the incurrence of
$8.4 million of additional borrowings
under our credit facility, and the
application of the estimated net
proceeds of this offering and the
concurrent offering and the proceeds of
those additional borrowings to pay the
acquisition price of Fresh Express as
if those transactions had occurred on
that date, we would have had (on an
unconsolidated basis) approximately
$222.7 million aggregate principal
amount of outstanding Senior
Indebtedness. This amount does not
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take into account approximately $25.0
million aggregate principal amount of
Senior Indebtedness that we incurred
under our existing credit facility on
September 10, 2001 in connection with
our recent acquisition of Springfield,
nor does it take into account the
repayment of approximately $60.0
million aggregate principal amount of
Senior Indebtedness under our existing
credit facility on July 3, 2001 with
the proceeds received under our new
receivables purchase facility. We
anticipate that, if we enter into the
new credit facility, borrowings and
letters of credit outstanding under our
existing credit facility will be repaid
or replaced, as the case may be, with
borrowings and letters of credit under
our new credit facility. In addition,
at December 30, 2000 we were obligated
under operating lease agreements
entered into under our master operating
lease facilities or guarantees of those
operating lease agreements to make or
guarantee future minimum lease payments
aggregating (on an unconsolidated
basis) approximately $8.8 million
through 2005. Our obligations under
these leases and guarantees constitute
Senior Indebtedness for purposes of the
notes, although these obligations are
not reflected as indebtedness on our
balance sheet and therefore are not
included in the amount of our pro forma
Senior Indebtedness as of June 30, 2001
appearing above. The indenture under
which the notes will be issued will not
prevent us from incurring Senior
Indebtedness and will not prevent us or
our subsidiaries from incurring other
indebtedness, lease obligations or
other liabilities.
The notes will be effectively
subordinated to all existing and future
indebtedness, guarantees, lease
obligations and other liabilities of
our subsidiaries. As of June 30, 2001,
on a pro forma basis after giving
effect to the acquisition of Fresh
Express at an assumed acquisition price
of $302.6 million, the issuance of
notes and common stock in this offering
and the concurrent offering, the
incurrence of $8.4 million of
additional borrowings under our credit
facility, and the application of the
estimated net proceeds of this offering
and the concurrent offering and the
proceeds of those additional borrowings
to pay the acquisition price of Fresh
Express as if those transactions had
occurred on that date, our consolidated
subsidiaries would have had
approximately $350.3 million of
outstanding indebtedness and other
liabilities, excluding intercompany
liabilities. If we enter into our new
credit facility, we anticipate that our
existing and, subject to limited
exceptions, future subsidiaries will be
required to guarantee all of our
borrowings, letters of credit and other
obligations
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under our new credit facility; as of
June 30, 2001, on a pro forma basis
after giving effect to the transactions
described in the preceding sentence and
the effectiveness of those subsidiary
guarantees, our consolidated
subsidiaries would have guaranteed
approximately $78.5 million of
indebtedness and letter of credit
obligations under our new credit
facility. In addition, at December 30,
2000 our consolidated subsidiaries were
obligated under operating lease
agreements, including leases entered
into pursuant to our master operating
lease facilities for which Performance
Food Group is guarantor, to make future
minimum lease payments aggregating
approximately $60.2 million through
2005 and approximately $24.5 million
after that date. The operating lease
obligations of our subsidiaries will
increase substantially as a result of
our acquisition of Springfield and upon
completion of our pending acquisition
of Fresh Express. The notes will also
be effectively subordinated to the
undivided interests owned by a third
party financial institution in
receivables purchased from our
operating units pursuant to our
receivables purchase facility.
Optional redemption................. We may redeem the notes for cash, in
whole or in part, at any time on or
after October 16, 2004 at the
redemption prices listed in this
prospectus supplement, plus accrued and
unpaid interest to the redemption date.
See "Description of the
Notes -- Optional Redemption by
Performance Food Group."
Change of control................... Upon a Change of Control, as defined,
each holder of the notes may require us
to repurchase some or all of its notes
at a repurchase price equal to 100% of
the principal amount of the notes plus
accrued and unpaid interest to the
repurchase date. The repurchase price
is payable, at our option:
- in cash; or
- subject to the satisfaction of
specified conditions, in our common
stock. The number of shares of common
stock will equal the repurchase price
divided by 95% of the average of the
closing prices, as defined, of the
common stock for the five consecutive
trading days immediately preceding
and including the third trading day
prior to the repurchase date. We
anticipate that, effective as of the
closing date of this offering, the
terms of our credit facility and our
master operating lease facilities
will require that we pay the
repurchase price in common stock.
Our obligation to repurchase notes
under the circumstances described above
is subject to a number of
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important exceptions and limitations
and you should carefully review the
summary of those repurchase provisions
appearing under "Description of the
Notes -- Change of Control Permits
Purchase of Notes at the Option of the
Holder."
Book-entry notes.................... The notes will be issued in book-entry
form in minimum denominations of $1,000
and integral multiples of $1,000. The
notes will be represented by one or
more fully registered permanent global
notes without coupons deposited with a
custodian for, and registered in the
name of a nominee of, The Depository
Trust Company, as depositary for the
notes. Except under the limited
circumstances described in the
accompanying prospectus, purchasers
will not be entitled to receive notes
in definitive certificated form.
Trading............................. The notes are a new issue of securities
with no established trading market. We
do not intend to apply for listing of
the notes on any securities exchange or
for quotation of the notes on any
automated quotation system. The
underwriters have advised us that they
presently intend to make a market in
the notes after completion of this
offering. However, they are under no
obligation to do so and may discontinue
any market-making activities at any
time without notice. We cannot assure
you that an active trading market for
the notes will develop or as to the
liquidity of any trading market for the
notes that may develop. If an active
trading market for the notes does not
develop, the market price and liquidity
of the notes may be adversely affected.
Use of proceeds..................... We estimate that the net proceeds from
this offering will be approximately
$169.4 million, or approximately $194.8
million if the underwriters' over-
allotment option in this offering is
exercised in full. We estimate that the
net proceeds from the common stock
offering will be approximately $124.8
million, or approximately $143.6
million if the underwriters'
over-allotment option in the common
stock offering is exercised in full. We
intend to use the net proceeds of this
offering and the common stock offering,
together with additional borrowings
under our credit facility, to finance
the acquisition price of Fresh Express.
The closing of this offering is
conditioned upon the concurrent closing
of that acquisition and the common
stock offering and the concurrent
effectiveness of either the new credit
facility or certain amendments to our
existing credit facility. In the event
that the over-allotment option granted
to the underwriters in this offering or
the concurrent offering is exercised
before we acquire Fresh Express, we
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intend to use the additional net
proceeds to pay a portion of the
acquisition price of Fresh Express,
which will reduce and may eliminate the
additional borrowings we would have
otherwise incurred for that purpose,
and to use any remaining proceeds for
general corporate purposes, which may
include the repayment of borrowings
outstanding under our credit facility.
In the event that either over-allotment
option is exercised after we acquire
Fresh Express, we intend to use the
additional net proceeds for general
corporate purposes, which may include
the repayment of borrowings outstanding
under our credit facility.
Risk factors........................ See "Risk Factors" and the other
information included and incorporated
or deemed to be incorporated by
reference in this prospectus supplement
and the accompanying prospectus for a
discussion of factors you should
carefully consider before deciding to
invest in the notes.
Nasdaq Stock Market's National
Market symbol for our common
stock............................... PFGC
Common stock outstanding after the
common stock offering............... 43,004,240 shares, or 43,754,240 shares
if the over-allotment option granted to
the underwriters in the common stock
offering is exercised in full.
The number of shares of our common stock outstanding after the common
stock offering is based upon our shares outstanding as of September 25, 2001 and
excludes a total of 5,860,304 shares reserved for issuance under our stock
purchase plan and stock option plans at that date and shares of common stock
reserved for issuance upon conversion of notes being offered in the notes
offering. Options to purchase 3,950,020 shares of common stock at a weighted
average exercise price of $14.73 per share were outstanding under our stock
option plans as of September 25, 2001. We anticipate that, in connection with
our acquisition of Fresh Express, we will issue options to purchase
approximately 130,000 shares of our common stock at an exercise price equal to
the fair market value of our common stock on the closing date of the acquisition
to employees of Fresh Express.
CONCURRENT COMMON STOCK OFFERING
Concurrently with this offering, we are also offering 5,000,000 shares of
our common stock, plus up to an additional 750,000 shares issuable pursuant to
the over-allotment option granted to the underwriters in the common stock
offering, under a separate prospectus supplement.
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SUMMARY CONSOLIDATED FINANCIAL DATA
Set forth below is summary consolidated financial data of Performance
Food Group for the periods indicated. The summary consolidated financial data of
Performance Food Group as of and for years 1996, 1997, 1998, 1999 and 2000 are
derived from the audited consolidated financial statements of Performance Food
Group, which were audited by KPMG LLP. The consolidated financial statements as
of the years ended 1999 and 2000 and for the years 1998, 1999 and 2000, and the
report of KPMG LLP on those financial statements, are included elsewhere in this
prospectus supplement. The summary consolidated financial data as of and for the
six-month periods ended July 1, 2000 and June 30, 2001 are derived from
unaudited condensed consolidated financial statements. The unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, which our management considers necessary for a fair
presentation of our financial position and results of operations for these
periods. The financial condition and results of operations as of and for the six
months ended June 30, 2001 do not purport to be indicative of the financial
condition or results of operations to be expected as of or for the fiscal year
ending December 29, 2001. The unaudited condensed consolidated financial
statements as of June 30, 2001 and for the six-month periods ended July 1, 2000
and June 30, 2001 are included elsewhere in this prospectus supplement. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements, including the notes thereto, included elsewhere in this
prospectus supplement.
In February 1999, one of our subsidiaries merged with NorthCenter
Foodservice Corporation. The merger was accounted for as a pooling-of-interests
and resulted in the issuance of approximately 1,700,000 shares of our common
stock in exchange for all of the outstanding stock of NorthCenter. Our
consolidated financial statements for periods prior to the merger have been
restated to include the accounts and results of operations of NorthCenter.
All of the fiscal years shown below had 52 weeks, except that 1998 had 53
weeks. As a result, some of the variations reflected in the following data may
be attributed to the different lengths of the fiscal years. The six-month
periods ended July 1, 2000 and June 30, 2001 each had 26 weeks.
SIX MONTHS ENDED
-----------------------
JULY 1, JUNE 30,
1996 1997 1998 1999 2000 2000 2001
--------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES) (UNAUDITED)
STATEMENT OF EARNINGS DATA:
Net sales......................... $864,219 $1,331,002 $1,721,316 $2,055,598 $2,605,468 $1,234,353 $1,518,297
Cost of goods sold................ 740,009 1,159,593 1,491,079 1,773,632 2,253,277 1,069,965 1,314,306
-------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.................... 124,210 171,409 230,237 281,966 352,191 164,388 203,991
Operating expenses................ 103,568 146,344 198,646 242,625 302,176 144,436 172,035
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit................ 20,642 25,065 31,591 39,341 50,015 19,952 31,956
Other income (expense):
Interest expense................ (1,346) (2,978) (4,411) (5,388) (6,593) (2,888) (3,803)
Nonrecurring merger expenses.... -- -- -- (3,812) -- -- --
Gain on sale of investment...... -- -- -- 768 -- -- --
Other, net...................... 176 111 195 342 (66) 40 (458)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Other expense, net.............. (1,170) (2,867) (4,216) (8,090) (6,659) (2,848) (4,261)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes...... 19,472 22,198 27,375 31,251 43,356 17,104 27,695
Income tax expense................ 7,145 8,298 9,965 12,000 16,475 6,500 10,524
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings.................... $ 12,327 $ 13,900 $ 17,410 $ 19,251 $ 26,881 $ 10,604 $ 17,171
======== ========== ========== ========== ========== ========== ==========
(footnotes on following page)
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SIX MONTHS ENDED
-----------------------
JULY 1, JUNE 30,
1996 1997 1998 1999 2000 2000 2001
--------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES) (UNAUDITED)
Weighted average common shares
outstanding..................... 24,118 25,621 26,796 27,544 28,336 27,862 36,066
Basic net earnings per common
share........................... $ 0.51 $ 0.54 $ 0.65 $ 0.70 $ 0.95 $ 0.38 $ 0.48
Pro forma basic net earnings per
common share(1)(2).............. $ 0.49 $ 0.53 $ 0.63 $ 0.77 $ 0.95 $ 0.38 $ 0.48
Weighted average common shares and
dilutive potential common shares
outstanding..................... 25,072 26,683 27,850 28,437 29,539 28,771 37,383
Diluted net earnings per common
share........................... $ 0.49 $ 0.52 $ 0.63 $ 0.68 $ 0.91 $ 0.37 $ 0.46
Pro forma diluted net earnings per
common share(1)(2).............. $ 0.47 $ 0.51 $ 0.60 $ 0.75 $ 0.91 $ 0.37 $ 0.46
OTHER DATA:
Ratio of earnings to fixed
charges(3)...................... 13.5x 8.5x 5.8x 5.5x 5.4x 4.9x 5.7x
EBITDA(4)......................... $ 26,770 $ 33,657 $ 43,092 $ 53,478 $ 67,892 $ 28,233 $ 44,858
Capital expenditures.............. $ 9,703 $ 9,054 $ 26,663 $ 26,006 $ 30,992 $ 16,923 $ 13,791
BALANCE SHEET DATA (END OF
PERIOD):
Working capital(5)................ $ 49,397 $ 60,131 $ 63,280 $ 70,879 $ 96,470 $ 74,843 $ 84,283
Property, plant and equipment,
net............................. $ 61,884 $ 78,006 $ 93,402 $ 113,930 $ 143,142 $ 123,831 $ 147,256
Total assets...................... $202,807 $ 308,945 $ 387,712 $ 462,045 $ 709,696 $ 502,140 $ 782,173
Total debt(6)..................... $ 16,948 $ 55,615 $ 75,102 $ 93,107 $ 116,458 $ 105,778 $ 142,502
Shareholders' equity.............. $105,468 $ 137,949 $ 157,085 $ 189,344 $ 357,717 $ 189,835 $ 399,102
Debt-to-capital ratio(6)(7)....... 13.8% 28.7% 32.3% 33.0% 24.6% 35.8% 26.3%
---------------
(1) Pro forma adjustments to net earnings per common share add back nonrecurring
merger expenses in 1999 equal to $3.8 million before taxes, or $.08 per
share of common stock after taxes, related to our acquisition of NorthCenter
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 for periods prior to the merger. As
an S-corporation, NorthCenter was not subject to income tax for periods
prior to the merger. NorthCenter became subject to income taxes for all
periods following the merger. This pro forma data does not give effect to
our proposed acquisition of Fresh Express nor does it give pro forma effect
to any other acquisitions. See "-- Pending Acquisition of Fresh
International Corp.," "-- Recent Acquisitions" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Business
Combinations."
(2) 1999 excludes a nonrecurring gain of $768,000 before taxes, or $.02 per
share of common stock after taxes, on the sale of an investment.
(3) The ratio of earnings to fixed charges has been computed by dividing
earnings, which consist of consolidated net income plus income taxes and
fixed charges, except capitalized interest, by fixed charges, which consist
of consolidated interest on indebtedness, including capitalized interest,
amortization of debt discount and issuance cost, and the estimated portion
of rental expenses deemed to be equivalent to interest.
(4) EBITDA means operating profit plus depreciation and amortization. EBITDA is
not intended to represent cash flow from operations as defined by accounting
principles generally accepted in the United States, or GAAP, and should not
be considered as an alternative to net earnings as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
EBITDA is presented to provide additional information with respect to our
historical ability to meet our debt service, capital expenditures, rental
and working capital requirements.
(5) On July 3, 2001, we entered into a $90 million receivables purchase facility
under which we have sold and in the future intend to sell undivided
interests in some of our receivables to a financial institution. These sales
have resulted in a decrease in our current assets and working capital
subsequent to June 30, 2001 because we used $60.0 million of the proceeds
from the sale to repay borrowings under our existing credit facility.
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(6) Total debt is the sum of short-term and long-term debt, but does not include
our obligations under our $115 million master operating lease facilities
which we use to finance the construction or purchase of distribution centers
and office buildings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
the notes to our consolidated financial statements included elsewhere in
this prospectus supplement for additional information about these
facilities.
(7) The debt-to-capital ratio has been computed by dividing the amount of our
total debt by the sum of our total debt plus shareholders' equity as of the
end of each period, and expressing the result as a percentage.
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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Set forth below is summary historical condensed consolidated financial
data and summary unaudited pro forma condensed consolidated financial data as of
and for the periods indicated. The summary historical consolidated financial
data of Performance Food Group for 2000 and as of and for the six months ended
June 30, 2001 are derived from consolidated financial statements of Performance
Food Group included elsewhere herein as described above under "Summary
Consolidated Financial Data." The results of operations and financial condition
as of and for the six months ended June 30, 2001 do not purport to be indicative
of the results of operations or financial condition to be expected as of or for
the fiscal year ending December 29, 2001.
The summary unaudited pro forma condensed consolidated statement of
earnings and other data give effect to:
- our acquisition of Fresh Express at an assumed acquisition price of
$302.6 million payable in cash;
- the sale of 5,000,000 shares of our common stock in the common stock
offering and our receipt of $124.8 million in estimated net proceeds,
after deducting the underwriting discount and estimated expenses of the
offering;
- the sale of $175.0 million aggregate principal amount of notes in the
notes offering and our receipt of $169.4 million in estimated net
proceeds, after deducting the underwriting discount and estimated
expenses of the offering;
- our incurrence of $8.4 million of additional borrowings under our
credit facility; and
- the application of the estimated net proceeds from this offering and
the concurrent offering and the proceeds from the additional borrowings
referred to above to pay the acquisition price of Fresh Express;
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. We currently estimate that we will
have to pay approximately $16.1 million in additional purchase price as a result
of this net worth adjustment, which amount has been included in the assumed
acquisition price of $302.6 million and in the following pro forma financial
data. 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 and the amount of borrowings that we incur under our credit
facility to pay a portion of the purchase price may be more or less than the
amounts assumed for purposes of this pro forma financial data.
The summary unaudited pro forma condensed consolidated statement of
earnings and other data for 2000 combines the consolidated historical results of
operations of Performance Food Group for 2000 with the consolidated historical
results of operations of Fresh Express for its fiscal year ended February 28,
2001. The summary unaudited pro forma condensed consolidated statement of
earnings and other data 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 summary unaudited pro forma
condensed consolidated balance sheet data 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. We will account for our acquisition of Fresh
Express under the purchase method of accounting.
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The pro forma financial data appearing below is based upon a number of
assumptions and estimates and is subject to uncertainties, and that data does
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 does it purport to be indicative of the
results of operations or financial condition that we may achieve in the future.
In particular, sales to foodservice distributors represented approximately 13.7%
of Fresh Express' consolidated revenues for its 2000 fiscal year and
approximately 12.8% of its consolidated revenues for the six months ended June
30, 2001. We believe that, because some of these foodservice distributor
customers may view us as a competitor, Fresh Express could lose the business of
some of these customers. The pro forma financial data appearing below does 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. See "Risk Factors -- We may not achieve expected
benefits from the Fresh Express and Springfield acquisitions." In addition, the
pro forma financial data appearing below does not give pro forma effect to our
acquisition of Springfield, which was completed on September 10, 2001, our
acquisition of Empire Seafood, which was completed on April 2, 2001, our
acquisition of Redi-Cut, which was completed on December 13, 2000, or our
acquisition of Carroll County Foods, Inc., which was completed on August 4,
2000. See "-- Recent Acquisitions" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Business Combinations."
Fresh International Corp. 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 summary
pro forma condensed consolidated financial data 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.
The pro forma financial data should be read in conjunction with the pro
forma condensed consolidated financial statements and the related notes
appearing below under "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our historical financial statements and related notes
included elsewhere in this prospectus supplement and the historical financial
statements of Fresh Express and the related notes incorporated by reference in
the accompanying prospectus.
SIX MONTHS ENDED
2000 JUNE 30, 2001
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS,
RATIOS AND PERCENTAGES)
STATEMENT OF EARNINGS DATA:
Net sales.............................................. $2,605,468 $3,114,873 $1,518,297 $1,793,190
Cost of goods sold..................................... 2,253,277 2,664,097 1,314,306 1,525,830
---------- ---------- ---------- ----------
Gross profit......................................... 352,191 450,776 203,991 267,360
Operating expenses..................................... 302,176 386,433 172,035 216,018
---------- ---------- ---------- ----------
Operating profit..................................... 50,015 64,343 31,956 51,342
Other income (expense):
Interest expense..................................... (6,593) (17,600) (3,803) (9,259)
Other, net........................................... (66) (66) (458) (458)
---------- ---------- ---------- ----------
Other expense, net................................. (6,659) (17,666) (4,261) (9,717)
---------- ---------- ---------- ----------
(footnotes on following page)
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SIX MONTHS ENDED
2000 JUNE 30, 2001
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS,
RATIOS AND PERCENTAGES)
Earnings before income taxes........................... 43,356 46,677 27,695 41,625
Income tax expense..................................... 16,475 17,737 10,524 15,818
---------- ---------- ---------- ----------
Net earnings....................................... $ 26,881 $ 28,940 $ 17,171 $ 25,807
========== ========== ========== ==========
Weighted average common shares outstanding............. 28,336 33,336 36,066 41,066
Basic net earnings per common share.................... $ 0.95 $ 0.87 $ 0.48 $ 0.63
Weighted average common shares and dilutive potential
common shares outstanding............................ 29,539 34,539 37,383 47,694
Diluted net earnings per common share.................. $ 0.91 $ 0.84 $ 0.46 $ 0.60
OTHER DATA:
Ratio of earnings to fixed charges(1).................. 5.4x 3.1x 5.7x 4.5x
EBITDA(2).............................................. $ 67,892 $ 105,364 $ 44,858 $ 76,232
Capital expenditures................................... $ 30,992 $ 40,089 $ 13,791 $ 17,850
JUNE 30, 2001
-----------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
BALANCE SHEET DATA (END OF PERIOD):
Working capital(3).............................................................. $ 84,283 $ 115,306
Property, plant and equipment, net.............................................. $ 147,256 $ 223,537
Total assets.................................................................... $ 782,173 $1,136,022
Total debt(4)................................................................... $ 142,502 $ 327,955
Shareholders' equity............................................................ $ 399,102 $ 523,927
Debt-to-capital ratio(4)(5)..................................................... 26.3% 38.5%
---------------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings, which consist of consolidated net income plus income taxes and
fixed charges, except capitalized interest, by fixed charges, which consist
of consolidated interest on indebtedness, including capitalized interest,
amortization of debt discount and issuance cost, and the estimated portion
of rental expenses deemed to be equivalent to interest.
(2) EBITDA means operating profit plus depreciation and amortization. EBITDA is
not intended to represent cash flow from operations as defined by GAAP and
should not be considered as an alternative to net earnings as an indicator
of operating performance or as an alternative to cash flow as a measure of
liquidity. EBITDA is presented to provide additional information with
respect to our historical ability to meet our debt service, capital
expenditures, rental and working capital requirements.
(3) On July 3, 2001, we entered into a $90 million receivables purchase facility
under which we have sold and in the future intend to sell undivided
interests in some of our receivables to a financial institution. These sales
have resulted in a decrease in our current assets and working capital
subsequent to June 30, 2001 because we used $60.0 million of the proceeds
from the sale to repay borrowings under our existing credit facility.
(4) Total debt is the sum of short-term and long-term debt, but does not include
our obligations under our $115 million master operating lease facilities
which we use to finance the construction or purchase of distribution centers
and office buildings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
the notes to our consolidated financial statements included elsewhere in
this prospectus supplement for additional information about these
facilities.
(5) The debt-to-capital ratio has been computed by dividing the amount of our
total debt by the sum of our total debt plus shareholders' equity as of the
end of each period, and expressing the result as a percentage.
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RISK FACTORS
You should carefully consider the risks described below, as well as other
information contained in this prospectus supplement and the accompanying
prospectus and the documents incorporated or deemed to be incorporated by
reference in the accompanying prospectus, before buying securities in this
offering. If any of the events described below occurs, our business, financial
condition or results of operations could be materially harmed, the trading price
of the securities offered by this prospectus supplement could decline and you
may lose all or part of your investment.
FOODSERVICE DISTRIBUTION IS A LOW-MARGIN BUSINESS AND MAY BE 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 may also be 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, energy 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. In addition, although we
have sought to limit the impact of the recent increases in fuel prices by
imposing fuel surcharges on our customers, we cannot assure you that increases
in fuel prices will not adversely affect our results of operations.
THE RECENT SLOWDOWN IN THE ECONOMY AND RECENT TERRORIST ATTACKS IN THE U.S. MAY
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
As described in the preceding risk factor, the foodservice distribution
industry may be sensitive to economic downturns and may be adversely impacted by
increases in fuel and other transportation-related costs. The recent economic
slowdown and the terrorist attacks in the U.S. have adversely affected our rate
of sales growth. Further softening in the U.S. economy could have a material
adverse effect on our sales and results of operations. In addition, while we
cannot predict the impact of the recent terrorist attacks on the U.S. economy
generally, the foodservice distribution industry or our business, either a
decrease in the level of consumption of "food-away-from-home" or increases in
costs associated with our operations could have a material adverse effect on our
results of operations.
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 16.3% of our consolidated net sales in both the
six months ended June 30, 2001 and 2000. Net sales to Cracker Barrel Old Country
Store accounted for 14.6% of our consolidated net sales in the six months ended
June 30, 2001 and 16.1% of our consolidated net sales in 2000. Sales to these
customers by our customized segment generally have lower operating margins than
sales to customers in other areas of our business. We do not have agreements
requiring these or other customers to purchase any specified amount of goods
from us, although the prices paid by them may depend on the level of their
purchases, 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, with some customers being required to give us advance
notice of their intent to stop buying. 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
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particular, we believe that one of our customers, who accounted for
approximately 4.0% of our consolidated net sales in the six months ended June
30, 2001, may be experiencing financial difficulties; therefore, this customer
pays for its purchases upon delivery.
OUR GROWTH 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 any 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. Our results of
operations also may be adversely affected by expenses we incur in making
acquisitions, by amortization of acquisition-related intangible assets with
definite lives, and by additional depreciation expenses attributable to acquired
assets. Any of the businesses we acquire may also have liabilities or adverse
operating issues, including some that we fail to discover before the
acquisition, and our indemnity for such liabilities typically has been limited
and may, with respect to future acquisitions, also be limited. Although the
current owners of Fresh Express, and the former owners of Springfield and Empire
Seafood, have agreed to indemnify us for any breach of the representations they
made in their respective acquisition agreements, the maximum amount of their
indemnity is generally limited to $15.0 million, $5.9 million and $5.0 million,
respectively.
In addition, our ability to make any future acquisitions will likely
depend upon obtaining additional financing. Our existing credit facility expires
in March 2002 and, while we are seeking to enter into a new $200 million credit
facility which expires in 2006 concurrently with the closing of this offering,
there can be no assurance that we will be able to enter into the new credit
facility or otherwise renew or replace our existing credit facility or obtain
additional financing on acceptable terms or at all. Although we anticipate that
we will be able to renew or replace our existing credit facility prior to its
expiration in March 2002 and our $90 million receivables purchase facility prior
to its expiration in July 2002, any failure to do so will likely have a material
adverse effect on our business.
Our debt service obligations will increase substantially upon completion
of the notes offering and, if we obtain additional debt financing in the future,
our debt service obligations may further increase, perhaps substantially. Our
existing debt instruments contain, and the terms of any additional debt
financing we obtain in the future may contain, financial covenants and other
restrictions that limit our operating flexibility, limit our flexibility in
planning for and reacting to changes in our business and make us more vulnerable
to economic downturns and competitive pressures. To the extent that we seek to
acquire other businesses in exchange for our common stock, fluctuations in our
stock price could have a material adverse effect on our ability to complete
acquisitions. Likewise, the issuance of our common stock in connection with
acquisitions could be dilutive to our shareholders.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 142 state
that goodwill recorded in connection with both previously completed and future
acquisitions will no longer be amortized and that goodwill and other intangible
assets with indefinite lives must be tested for impairment upon adoption of this
accounting standard and at least annually thereafter. We will be required to
adopt the provisions of SFAS No. 142 with our fiscal year beginning December 30,
2001; except that SFAS No. 142 will be effective beginning July 1, 2001 for
goodwill and other intangible assets resulting from business combinations
accounted for as purchases completed after June 30, 2001, including our
acquisition of Springfield and our pending acquisition of Fresh Express. Under
this accounting standard, we will be required to perform an assessment of
whether goodwill and other intangible assets with indefinite lives are impaired
as of December 30, 2001. Following that assessment, any transitional impairment
loss will be recognized as a cumulative effect of a change in accounting
principle in our consolidated statement of earnings. Thereafter, we will be
required to
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compare periodically the fair value of each of our reporting units to its book
value. If the fair value is lower than the book value, we will test goodwill and
other intangible assets for impairment, and any resulting impairment will be
recognized as an expense in our consolidated statement of earnings in the
applicable period. If goodwill and other intangible assets resulting from
acquisitions are found to be impaired, the resulting expense will adversely
affect our results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recently Issued Accounting
Pronouncements."
OUR INDEBTEDNESS AND OUR DEBT SERVICE OBLIGATIONS WILL INCREASE SUBSTANTIALLY AS
A RESULT OF THE NOTES OFFERING AND WILL INCREASE FURTHER IN THE FUTURE.
Upon completion of the notes offering, we will have substantial amounts
of outstanding indebtedness, including amounts available for borrowing under our
credit facility, our $50 million of outstanding 6.77% senior notes due 2010 and
the notes being offered in the notes offering. As of June 30, 2001, on a pro
forma basis after giving effect to the acquisition of Fresh Express at an
assumed acquisition price of $302.6 million, the issuance of common stock in the
common stock offering and notes in the notes offering, the incurrence of $8.4
million of additional borrowings under our credit facility, and the application
of the estimated net proceeds of this offering and the concurrent offering and
the proceeds of those additional borrowings to pay the acquisition price of
Fresh Express as if those transactions had occurred on that date, we would have
had approximately $328.0 million of consolidated indebtedness and $10.1 million
of letters of credit outstanding. This amount does not take into account the
repayment of $60.0 million of bank borrowings on July 3, 2001 with the proceeds
received under our new receivables purchase facility, nor does it take into
account approximately $25.0 million of indebtedness incurred on September 10,
2001 in connection with our recent acquisition of Springfield. In addition, as
of December 30, 2000, we were a party to operating leases requiring
approximately $87.2 million in total future lease payments, and our operating
lease obligations will increase substantially with our acquisition of
Springfield and our pending acquisition of Fresh Express. Accordingly, the total
amount of our obligations in respect of indebtedness and leases will be
substantial. In addition, we intend to continue to make borrowings under our
credit facility in connection with funding our future business needs, including
capital expenditures and acquisitions, and we are seeking to replace our
existing credit facility with the proposed $200 million new credit facility to
provide additional borrowing capacity. Accordingly, after completion of this
offering and the concurrent offering, the total amount of our indebtedness will
increase, perhaps substantially.
Our indebtedness and lease obligations could have significant negative
consequences, including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring that a substantial portion of our cash flow from operations
be applied to pay principal and interest on our indebtedness and lease
payments under our leases, thereby reducing cash flow available for
other purposes;
- limiting our flexibility in planning for or reacting to changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage compared to
competitors with less leverage or better access to capital resources.
In addition, some of our borrowings, including borrowings under our
existing credit facility and under the proposed terms of our new credit
facility, and lease payments under our master operating lease facilities are and
will continue to be at variable rates based upon prevailing interest rates,
which will expose us to risk of increased interest rates. Some of our debt
instruments, including our existing credit facility and the proposed new credit
facility and our senior notes, also require that we comply with various
financial tests and impose certain restrictions on us, including, among other
things, restrictions on our ability to incur additional indebtedness, create
liens on assets, make loans or investments and pay dividends.
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MANAGING OUR GROWTH MAY BE DIFFICULT AND OUR GROWTH RATE MAY DECLINE.
We have rapidly expanded our operations since inception. This growth has
placed and will continue to place significant demands on our administrative,
operational and financial resources, and we cannot assure you that we will be
able to successfully integrate the operations of acquired businesses with our
existing operations, which could have a material adverse effect on our business.
We also 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 unless 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.
In addition, we cannot assure you that the rate of our future growth, if
any, will not decline from our recent historical growth rates. If we fail to
expand our business or make acquisitions and successfully integrate the
operations of any acquired companies, the rate of our future growth, if any,
will likely be lower than our historical growth rates.
WE MAY NOT ACHIEVE BENEFITS EXPECTED FROM THE FRESH EXPRESS AND SPRINGFIELD
ACQUISITIONS.
We agreed to acquire Fresh Express and we acquired Springfield with the
expectation that these acquisitions would result in benefits to us. Achieving
those benefits depends on the timely, efficient and successful execution of a
number of post-acquisition events, including integrating the businesses of Fresh
Express and Springfield into our purchasing programs, distribution network,
marketing programs and information systems. In general, we cannot offer
assurances that we can successfully integrate Fresh Express' or Springfield's
operations and personnel or realize the anticipated benefits of the
acquisitions. Our ability to integrate the operations of Fresh Express and
Springfield may be adversely affected by many factors, including the relatively
large size of these businesses and the allocation of our limited management
resources among various integration efforts. We cannot offer assurances that
Fresh Express or Springfield will perform as we expect. In addition, the level
of business of Fresh Express or Springfield may fluctuate. Although we expect
that Fresh Express and Springfield will gain new customers, they may also lose
customers in the ordinary course of business. In that regard, Fresh Express has
advised us that it has 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.
We also believe that our ability to successfully integrate Fresh Express
and Springfield will depend to a large degree upon our ability to retain Fresh
Express' and Springfield's existing management and sales personnel. Although we
have entered into or will enter into employment and noncompetition agreements
with certain officers of Fresh Express and Springfield, there can be no
assurance that these officers or key managers and sales personnel will not
depart.
In addition, sales to foodservice distributors represented approximately
13.7% of Fresh Express' consolidated revenues for its 2000 fiscal year and
approximately 12.8% of its consolidated revenues for the six months ended June
30, 2001. We believe that, because some of these foodservice distributor
customers may view us as a competitor, Fresh Express could lose the business of
some of these customers. We cannot assure you that, following our acquisition of
Fresh Express, we will not lose Fresh Express customers, which could have a
material adverse effect on our business.
Our failure to realize the benefits expected from these acquisitions, or
the failure of Fresh Express or Springfield to perform as we anticipate, could
have a material adverse effect on our results of operations. In addition, the
attention and effort devoted to the integration of Fresh Express and Springfield
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with our existing operations may divert management's attention from other
important issues and could seriously harm our business.
WE CAN PROVIDE NO ASSURANCE AS TO THE CONTINUED SUCCESS OF FRESH EXPRESS IN THE
PACKAGED SALAD MARKET OR OUR ABILITY TO OPERATE SUCCESSFULLY IN THE PRE-CUT
FRUIT MARKET.
An integral part of our growth strategy in connection with the
acquisition of Fresh Express involves the continued development and growth of
Fresh Express' packaged, ready-to-eat salads. Our ability to grow this line of
business is subject to a number of risks and uncertainties, in addition to those
discussed in the preceding risk factors, including our ability to effectively
operate this business, which involves the sale of products primarily to
retailers. In addition, part of our strategy is to expand Fresh Express'
business to include the processing and distribution of pre-cut fruit to food
retailers and foodservice operators to complement our existing pre-cut fruit
efforts in our fresh-cut segment. Although we have successfully processed and
distributed pre-cut fruit in limited geographic areas in the retail food market,
Fresh Express has not previously processed or distributed pre-cut fruit and, as
a result, we cannot assure you that we will be able to launch this business as
planned or operate it successfully.
THE COST OF FRESH PRODUCE COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Prices of high quality fresh produce can be volatile and supplies may be
limited due to, among other things, factors such as weather, disease and level
of agricultural production. Although we have contracts to purchase some of our
produce, the cost and quality of available produce, particularly during periods
of severe shortages of high quality produce, could have a material adverse
effect on both our sales and results of operations. In addition, our exposure to
these risks will increase with the acquisition of Fresh Express because we
believe that it is generally more difficult to pass price increases through to
food retailers than to foodservice operators.
PRODUCT LIABILITY CLAIMS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Like any other distributor and processor of food, we face an inherent
risk of exposure to product liability claims if the products we sell, or the
products sold by companies acquired by us, cause injury or illness. We may be
subject to liability, which could be substantial, because of actual or alleged
contamination in products sold by us or by companies we have acquired, including
products sold by those companies before we acquired them. We have, and the
companies we have acquired typically have had, liability insurance with respect
to product liability claims. We cannot assure you, however, that this insurance
will continue to be available at a reasonable cost or at all, or will be
adequate to cover product liability claims against us or companies we have
acquired. We generally seek contractual indemnification from resellers of our
products, but any such indemnification is limited, as a practical matter, to the
creditworthiness of the indemnifying party. If we or any of our acquired
companies do not have adequate insurance or contractual indemnification
available, product liability claims and costs associated with product recalls,
including a loss of business, could have a material adverse effect on our
business, operating results and financial condition.
Fresh Express has advised us that the Georgia Department of Agriculture
recently stated that tests it conducted indicated the presence of listeria
monocytogenes, a foodborne bacteria which can cause serious illness, in a random
sample of bagged salad produced by Fresh Express. As a result, Fresh Express
commenced a voluntary recall of approximately 1,800 cases of this product. The
Georgia Department of Agriculture subsequently issued a press release announcing
that follow-up tests could not confirm the presence of listeria monocytogenes in
the Fresh Express product and that the follow-up tests led them to believe that
the product was safe for consumption. In response, Fresh Express cancelled its
recall. Although we and Fresh Express have in place stringent food safety
programs, we cannot assure you that contamination will not be found, or be
alleged to have been found, in our products in the future.
One of our subsidiaries is the defendant in a lawsuit filed by one of its
customers seeking indemnity for any damages and expenses that the customer may
be required to pay as a result of the
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alleged contamination of produce supplied by that subsidiary. We believe that
the lawsuit is without merit, but we cannot assure you that the costs associated
with defending the lawsuit or an adverse outcome will not have a material
adverse effect on our results of operations.
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 regional processors, although we encounter intense competition from
national and larger 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. Our failure to compete successfully could have a material adverse
effect on our business, operating results and financial condition.
OUR FRESH-CUT SEGMENT RELIES ON PROPRIETARY MACHINERY AND PROCESSES THAT ARE NOT
PROTECTED BY PATENTS.
Our existing fresh-cut operations rely on proprietary machinery and
processes which are used to prepare some of our products. 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; however, we
have not protected our 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.
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, energy and fuel costs and the costs of produce or
other food products; and
- natural disasters, severe weather conditions or other developments
affecting us or our competitors.
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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.
OUR SHAREHOLDER RIGHTS PLAN, CHARTER AND BYLAWS COULD MAKE IT DIFFICULT FOR A
THIRD PARTY TO ACQUIRE OUR COMPANY.
We have a shareholder rights plan that may have the effect of
discouraging unsolicited takeover proposals. The rights issued under the
shareholder rights plan would cause substantial dilution to a person or group
that attempts to acquire us on terms not approved in advance by our board of
directors. In addition, Tennessee corporate law and our charter and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or our management. These provisions could also discourage proxy contests
and make it more difficult for you and other shareholders to elect directors and
take other corporate actions. These provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by our board of directors, without
shareholder approval, with rights senior to those of common stock;
- provide for a staggered board of directors and three-year terms for
directors, so that no more than one-third of our directors could be
replaced at any annual meeting;
- provide that directors may be removed only for cause; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by shareholders at a meeting.
We are also subject to anti-takeover provisions under Tennessee law,
which could also delay or prevent a change of control. For information about
these laws, see "Description of Capital Stock" in this prospectus supplement and
the accompanying prospectus. Together, these provisions of our charter and
bylaws, Tennessee law and our rights plan may discourage transactions that
otherwise could provide for the payment of a premium over prevailing market
prices for our common stock, and also could limit the price that investors are
willing to pay in the future for shares of our common stock.
OUR ISSUANCE OF PREFERRED STOCK COULD ADVERSELY AFFECT HOLDERS OF OUR COMMON
STOCK AND DISCOURAGE A TAKEOVER.
Our board of directors is authorized to issue up to 5,000,000 shares of
preferred stock without any action on the part of our shareholders. Our board of
directors also has the power, without shareholder approval, to set the terms of
any series of preferred stock that may be issued, including voting rights,
dividend rights, preferences over our common stock with respect to dividends or
in the event of a dissolution, liquidation or winding up and other terms. In the
event that we issue preferred stock in the future that has preference over our
common stock with respect to payment of dividends or upon our liquidation,
dissolution or winding up, or if we issue preferred stock with voting rights
that dilute the voting power of our common stock, the rights of the holders of
our common stock or the market price of our common stock could be adversely
affected. In addition, the ability of our board of directors to issue shares of
preferred stock without any action on the part of our shareholders may impede a
takeover of us and prevent a transaction favorable to our shareholders.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of our common stock and could impair our ability to
raise capital through future offerings of equity securities. Of the 38,004,240
shares of our common stock outstanding as of September 25, 2001, a total of
approximately 6,991,888 shares had
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been issued to former owners of businesses that we acquired, including
Springfield. All of these 6,991,888 shares were registered under the Securities
Act of 1933 and therefore are either freely transferable in the public markets
or are eligible for resale in the public markets pursuant to Rule 145 under the
Securities Act of 1933 or under one of the shelf registration statements that we
have filed with the SEC. Under Rule 145, sales of shares of our common stock
issued to affiliates of companies that we acquire are eligible for resale in the
public markets, subject to certain of the restrictions set forth in Rule 144
under the Securities Act of 1933. For more information about our common stock
eligible for future sale, see "Shares Eligible for Future Sale." We expect to
issue shares under these registration statements or similar registration
statements to the owners of other foodservice businesses we may acquire in the
future.
The notes being issued in the notes offering will be convertible at the
option of the holders into shares of our common stock, all of which shares of
common stock will be freely tradable in the public markets upon issuance. The
initial conversion price for the notes appears above under "Prospectus
Supplement Summary." In addition, if we are required to repurchase notes
following specified change of control events relating to us as described below
under "Our ability to repurchase notes following a change of control event and
in other circumstances may be limited," we will have the option of paying the
purchase price either in cash or in shares of our common stock. The conversion
of notes into common stock or the issuance of common stock in connection with a
change of control could result in the issuance of a substantial number of shares
and substantial dilution to our shareholders.
We and our directors and executive officers have agreed, with exceptions,
not to sell or otherwise transfer any shares of our common stock for 90 days
after the date of this prospectus supplement, without first obtaining the
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. In
addition, the former owners of Springfield have agreed, with exceptions, not to
sell or otherwise transfer any shares of our common stock until the earlier of
January 8, 2002 or 90 days after the date of this prospectus supplement, without
first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. With this consent, we, our directors and executive officers and
the former owners of Springfield may sell shares before the expiration of such
periods without prior notice to our other shareholders or to any public market
in which our common stock trades. For more information about these "lock-up"
agreements, see "Underwriting."
OUR ABILITY TO REPURCHASE NOTES FOLLOWING A CHANGE OF CONTROL EVENT AND IN OTHER
CIRCUMSTANCES MAY BE LIMITED.
Upon the occurrence of specified kinds of change in control events,
holders of the notes being offered in the notes offering may, at their option,
require us to repurchase all or a portion of their notes at a price of 100% of
the principal amount plus accrued interest, payable at our option in cash or in
shares of our common stock. Certain change in control events may constitute or
otherwise result in events of default under our credit facility, our $115
million master operating lease facilities and our $50 million 6.77% senior notes
due 2010 and other instruments and agreements to which we and our subsidiaries
are or may in the future become a party. These events of default could result in
borrowings outstanding and other amounts due under our credit facility, our
6.77% senior notes and any such other instruments and agreements becoming
immediately due and payable. In addition, upon the occurrence of some of these
events, the leases entered into pursuant to our master operating lease
facilities could be immediately terminated by the lessor, in which case we would
be required to pay substantial amounts under the master operating lease
facilities in exchange for the lessor's ownership interest in the properties
leased. We cannot assure you that we would have the financial resources or
otherwise be able to arrange financing to pay the amounts that may become due if
our obligations under these debt instruments or leases were accelerated.
Moreover, we anticipate that we will be prohibited, by the terms of our new
credit facility or, if we do not enter into the new credit facility, by
amendments to our existing credit facility that we expect will become effective
concurrently with the closing of this offering, from paying the repurchase price
of the notes in cash and we will therefore be required to either obtain a waiver
from the banks or repay or refinance all amounts outstanding under the credit
facility in order to pay the repurchase price in cash, and there can be no
assurance that we would be able to do so or, if we were able to do so, that we
would have sufficient
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funds available at such time or be able to arrange financing to pay the
repurchase price of the notes in cash. We also anticipate that, as a result of
changes to our master operating lease facilities that we expect will become
effective concurrently with the closing of this offering, those lease facilities
will incorporate an identical limitation on our ability to repurchase the notes.
In addition, some of our other debt instruments and lease facilities prohibit or
restrict the repurchase of notes, and our ability to repurchase notes under
those circumstances may be limited by applicable law or otherwise. We may be
required to refinance outstanding indebtedness or replace existing lease
facilities in order to repurchase notes, and there can be no assurance that we
would be able to do so.
In addition to the limitations described in the preceding paragraph, we
anticipate that, under our new credit facility or, if we do not enter into our
new credit facility, under amendments to our existing credit agreement that we
expect will become effective concurrently with the closing of this offering, as
well as under changes to our master operating lease facilities that we expect
will become effective concurrently with the closing of this offering, we will be
limited or prohibited from redeeming or repaying the notes prior to maturity.
These limitations, taken together with the fact that the notes are subordinated
in right of payment to our Senior Indebtedness, as defined, could adversely
affect the interests of the holders of the notes upon an event of default with
respect to the notes or in other circumstances.
THE NOTES WILL BE SUBORDINATED TO OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS.
The notes will be subordinated in right of payment to all of our existing
and future Senior Indebtedness, as defined, including indebtedness and letter of
credit obligations under our credit facility, our 6.77% senior notes due 2010,
and our obligations under operating leases and guarantees of operating leases
entered into pursuant to our master operating lease facilities. As of June 30,
2001, on a pro forma basis after giving effect to the acquisition of Fresh
Express at an assumed acquisition price of $302.6 million, the issuance of notes
and common stock in this offering and the concurrent offering, the incurrence of
$8.4 million of additional borrowings under our credit facility, and the
application of the estimated net proceeds of this offering and the concurrent
offering and the proceeds of those additional borrowings to pay the acquisition
price of Fresh Express as if those transactions had occurred on that date, we
would have had (on an unconsolidated basis) approximately $222.7 million of
outstanding Senior Indebtedness. This amount does not take into account
approximately $25.0 million aggregate principal amount of Senior Indebtedness
that we incurred under our existing credit facility on September 10, 2001 in
connection with our recent acquisition of Springfield, nor does it take into
account the repayment of approximately $60.0 million aggregate principal amount
of Senior Indebtedness under our existing credit facility on July 3, 2001 with
the proceeds received under our new receivables purchase facility. We anticipate
that, if we enter into the new credit facility, borrowings and letters of credit
outstanding under our existing credit facility will be repaid or replaced, as
the case may be, with borrowings and letters of credit under our new credit
facility. In addition, at December 30, 2000 we were obligated under operating
lease agreements entered into under our master operating lease facilities or
guarantees of those operating lease agreements to make or guarantee future
minimum lease payments aggregating (on an unconsolidated basis) approximately
$8.8 million through 2005. Our obligations under these leases and guarantees
constitute Senior Indebtedness for purposes of the notes, although these
obligations are not reflected as indebtedness on our balance sheet and therefore
are not included in the amount of our pro forma Senior Indebtedness as of June
30, 2001 appearing above.
The indenture under which the notes will be issued will not limit our
ability to incur additional indebtedness, lease obligations and other
liabilities, including Senior Indebtedness. Although some of our other debt
instruments impose limitations on our incurrence of additional indebtedness, we
retain the ability to incur substantial additional indebtedness, including
Senior Indebtedness and other obligations. Any significant amounts of additional
Senior Indebtedness or other obligations that we incur in the future may harm
our ability to service our indebtedness, including the notes, and pay our other
obligations. Because the notes are subordinated, in the event of our bankruptcy,
liquidation or dissolution, holders of the notes will not receive any payment
until holders of our Senior Indebtedness have been paid in full. The
subordination provisions in the indenture also prohibit us, subject to specified
terms and conditions, from
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making any payment on the notes if a payment default with respect to, or other
default permitting acceleration of, certain types of Senior Indebtedness has
occurred and is continuing. Under these circumstances, we may not have
sufficient assets remaining after payment of the Senior Indebtedness to pay
amounts due on any or all of the notes then outstanding.
OUR HOLDING COMPANY STRUCTURE MAY ADVERSELY AFFECT OUR ABILITY TO MEET OUR DEBT
SERVICE OBLIGATIONS UNDER THE NOTES.
Although we own some of our consolidated assets directly, a substantial
majority of our consolidated assets are and, after giving effect to our
acquisition of Fresh Express, will be held by our subsidiaries. Accordingly, our
cash flow and our ability to service our debt, including the notes, depends to a
substantial degree on the results of operations of our subsidiaries and upon the
ability of our subsidiaries to provide us cash, whether in the form of
dividends, loans or otherwise, to pay amounts due on our obligations, including
the notes. Our subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to make payments on the notes or to make
any funds available for that purpose. In addition, dividends, loans or other
distributions from our subsidiaries to us may be subject to contractual and
other restrictions, are dependent upon the results of operations of our
subsidiaries and are subject to other business considerations.
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO THE LIABILITIES OF OUR
SUBSIDIARIES.
Because of our holding company structure, the notes will be effectively
subordinated to all existing and future liabilities of our subsidiaries. These
liabilities may include indebtedness, trade payables, guarantees, lease
obligations and letter of credit obligations. Therefore, our rights and the
rights of our creditors, including the holders of the notes, to participate in
the assets of any subsidiary upon that subsidiary's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that we may ourselves be a creditor with
recognized claims against the subsidiary. However, even if we are a creditor of
one of our subsidiaries, our claims would still be effectively subordinated to
any security interests in, or mortgages or other liens on, the assets of that
subsidiary and would be subordinate to any indebtedness of the subsidiary senior
to that held by us. Although some of our debt instruments impose limitations on
the incurrence of additional indebtedness, our subsidiaries retain the ability
to incur substantial additional indebtedness and other obligations.
At June 30, 2001, on a pro forma basis after giving effect to the
acquisition of Fresh Express at an assumed acquisition price of $302.6 million,
the issuance of notes and common stock in this offering and the concurrent
offering, the incurrence of $8.4 million of additional borrowings under our
credit facility, and the application of the estimated net proceeds of this
offering and the concurrent offering and the proceeds of those additional
borrowings to pay the acquisition price of Fresh Express as if those
transactions had occurred on that date, our consolidated subsidiaries would have
had approximately $350.3 million of outstanding indebtedness and other
liabilities, excluding intercompany liabilities. If we enter into our new credit
facility, we anticipate that our existing and, subject to limited exceptions,
future subsidiaries will be required to guarantee all of our borrowings, letters
of credit and other obligations under our new credit facility; as of June 30,
2001, on a pro forma basis after giving effect to the transactions described in
the preceding sentence and the effectiveness of those subsidiary guarantees, our
consolidated subsidiaries would have guaranteed approximately $78.5 million of
indebtedness and letter of credit obligations under our new credit facility. In
addition, at December 30, 2000 our consolidated subsidiaries were obligated
under operating lease agreements, including leases entered into pursuant to our
master operating lease facilities for which Performance Food Group is guarantor,
to make future minimum lease payments aggregating approximately $60.2 million
through 2005 and approximately $24.5 million after that date. The operating
lease obligations of our subsidiaries will increase substantially as a result of
our acquisition of Springfield and upon completion of our pending acquisition of
Fresh Express. The notes are also effectively subordinated to the undivided
interests owned by a third party financial institution in receivables purchased
from our operating units pursuant to our $90 million receivables purchase
facility.
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See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
THE VOLATILITY OF THE PRICE OF OUR COMMON STOCK MAY MAKE IT DIFFICULT FOR YOU TO
RESELL THE NOTES OR THE COMMON STOCK INTO WHICH THE NOTES ARE CONVERTIBLE AT
PRICES YOU FIND ATTRACTIVE.
As described above under "The market price for our common stock may be
volatile," the market price of our common stock has been volatile and could
fluctuate substantially in the future. This volatility may make it difficult to
resell the notes or the common stock issued upon conversion of the notes at
prices and on other terms you find attractive.
THERE IS CURRENTLY NO TRADING MARKET FOR THE NOTES AND A TRADING MARKET FOR THE
NOTES MAY NOT DEVELOP.
The notes are a new issue of securities with no established trading
market. We do not intend to apply for listing of the notes on any securities
exchange or for quotation of the notes on any automated quotation system. The
underwriters have advised us that they presently intend to make a market in the
notes after completion of this offering. However, they are under no obligation
to do so and may discontinue any market-making activities at any time without
notice. We cannot assure you that an active trading market for the notes will
develop or as to the liquidity of any trading market for the notes that may
develop. If an active trading market for the notes does not develop, the market
price and liquidity of the notes may be adversely affected. If the notes are
traded, they may trade at a discount from their initial offering price,
depending on many factors, including:
- prevailing interest rates and the market for similar securities;
- the market price for our common stock;
- general economic conditions; and
- our financial condition, historic financial performance and future
prospects.
ANY RATING OF THE NOTES MAY CAUSE THEIR TRADING PRICE TO FALL.
In the future, one or more rating agencies may rate the notes. If the
rating agencies rate the notes, they may assign a lower rating than expected by
investors. Rating agencies may also lower ratings on the notes in the future. If
the rating agencies assign a lower than expected rating or reduce their ratings
in the future, the trading price of the notes would likely decline.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
This prospectus supplement, the accompanying prospectus, and the
documents incorporated or deemed to be incorporated by reference in the
accompanying prospectus 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," "should" or similar expressions. These
forward-looking statements may address, among other things, the anticipated
effects of this offering and the concurrent offering, 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
prospectus supplement and the accompanying prospectus are described under "Risk
Factors" and in the documents incorporated or deemed to be incorporated by
reference in the accompanying prospectus. These factors include, but are not
limited to:
- the relatively low margins and economic sensitivity of the foodservice
business;
- our reliance on major customers;
- our need to identify and successfully complete acquisitions of other
foodservice distributors; and
- management of our planned growth and other financial issues.
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.
The information in this prospectus supplement, the accompanying
prospectus and the documents incorporated or deemed to be incorporated by
reference in the accompanying prospectus concerning the foodservice distribution
industry and the consumer food industry (including the amount of sales and sales
growth in those industries and particular segments of those industries), the
packaged salad market (including growth in that market and Fresh Express'
ranking as a provider of packaged salads), Springfield's market position in its
geographic market, other foodservice distribution and fresh-cut produce
companies and similar matters is derived principally from publicly available
information, foodservice industry publications, data compiled by market research
firms and similar sources. Although we believe that this information is
reliable, we have not independently verified any of this information and we
cannot assure you that it is accurate. Information concerning the foodservice
distribution industry, the consumer food industry and the packaged salad market
is for the United States.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $169.4
million from this offering, or approximately $194.8 million if the underwriters'
over-allotment option is exercised in full, in each case after deducting the
underwriting discount and estimated expenses of the offering. We estimate that
we will receive net proceeds of approximately $124.8 million from the concurrent
offering, or approximately $143.6 million if the underwriters' over-allotment
option is exercised in full, in each case after deducting the underwriting
discount and the estimated expenses of that offering. We intend to use the net
proceeds from this offering and the concurrent offering, together with
approximately $8.4 million of additional borrowings under our credit facility,
to finance the purchase price of Fresh Express, which we estimate will be
approximately $302.6 million in cash, subject to possible adjustments. The
closing of this offering is contingent upon the concurrent closing of the
acquisition of Fresh Express and the concurrent offering and the concurrent
effectiveness of either the new credit facility or certain amendments to our
existing credit facility. In the event that the over-allotment option granted to
the underwriters in this offering or the concurrent offering is exercised before
we acquire Fresh Express, we intend to use the additional net proceeds to pay a
portion of the acquisition price of Fresh Express, which will reduce and may
eliminate the additional borrowings we would have otherwise incurred for that
purpose, and to use any remaining proceeds for general corporate purposes, which
may include the repayment of borrowings outstanding under our credit facility.
In the event that either over-allotment option is exercised after we acquire
Fresh Express, we intend to use the additional net proceeds for general
corporate purposes, which may include the repayment of borrowings outstanding
under our credit facility.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
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 last reported bid prices for our common
stock as reported on the Nasdaq Stock Market's National Market. The stock prices
set forth below are adjusted to reflect our two-for-one common stock split paid
on April 30, 2001.
HIGH LOW
------ ------
FISCAL 1999
First Quarter............................................. $14.84 $12.06
Second Quarter............................................ 13.94 11.78
Third Quarter............................................. 13.78 12.44
Fourth Quarter............................................ 13.81 10.75
FISCAL 2000
First Quarter............................................. $12.66 $ 9.69
Second Quarter............................................ 16.00 11.19
Third Quarter............................................. 18.81 15.81
Fourth Quarter............................................ 28.06 16.63
FISCAL 2001
First Quarter............................................. $26.81 $22.38
Second Quarter............................................ 28.48 22.52
Third Quarter............................................. 34.90 24.42
Fourth Quarter (through October 10, 2001)................. 27.00 24.85
On October 10, 2001, the last reported bid price of our common stock on
the Nasdaq Stock Market's National Market was $26.36 per share. At September 26,
2001, we had 2,861 holders of record of our common stock.
We have not declared any cash dividends and the present policy of our
board of directors is to retain all available funds to support operations and to
finance our growth. In addition, the terms of our credit facility, our master
operating lease facilities and our 6.77% senior notes due 2010 restrict our
ability to declare or pay dividends on our common stock.
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CAPITALIZATION
The following table sets forth our consolidated current installments of
long-term debt and our consolidated capitalization as of June 30, 2001 (1) on an
actual basis and (2) on a pro forma basis to reflect the following transactions
as if they had occurred on that date:
- our acquisition of Fresh Express at an assumed acquisition price of
$302.6 million payable in cash;
- the sale of 5,000,000 shares of our common stock in the common stock
offering and our receipt of $124.8 million in estimated net proceeds,
after deducting the underwriting discount and estimated expenses of the
offering;
- the sale of $175.0 million aggregate principal amount of notes in the
notes offering and our receipt of $169.4 million in estimated net
proceeds, after deducting the underwriting discount and estimated
expenses of the offering;
- our incurrence of $8.4 million of additional borrowings under our
credit facility; and
- the application of the estimated net proceeds from this offering and
the concurrent offering and the proceeds from the additional borrowings
referred to above to pay the acquisition price of Fresh Express.
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. We currently estimate that we will have to pay
approximately $16.1 million in additional purchase price as a result of this net
worth adjustment, which amount has been included in the assumed acquisition
price of $302.6 million and in the following pro forma financial data. 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 and
the amount of borrowings that we incur under our credit facility to pay a
portion of the purchase price may be more or less than the amounts assumed for
purposes of the following table. The pro forma financial data appearing below is
based upon a number of other assumptions and estimates and is subject to
uncertainties, and this table should be read in conjunction with the information
appearing under "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our historical financial statements and related notes
included elsewhere in this prospectus supplement and the historical financial
statements of Fresh Express and related notes incorporated by reference in the
accompanying prospectus.
AS OF JUNE 30, 2001
----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
Current installments of long-term debt(1)................... $ 14,898 $ 15,421
======== ========
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS(1):
Revolving credit facilities(2)(3)(4)...................... $ 60,000 $ 68,405
Convertible subordinated notes due 2008................... -- 175,000
6.77% senior unsecured notes due 2010..................... 50,000 50,000
Other long-term debt (includes loan to employee stock
ownership plan)........................................ 17,604 19,129
-------- --------
Total long-term debt, excluding current
installments..................................... 127,604 312,534
(footnotes on following page)
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AS OF JUNE 30, 2001
----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none outstanding........................... $ -- $ --
Common stock, $.01 par value, 100,000,000 shares
authorized, 36,632,248 shares issued and outstanding,
actual and 41,632,248 shares issued and outstanding,
pro forma(5)(6)........................................ 366 416
Additional paid-in capital.................................. 267,326 392,101
Retained earnings........................................... 132,909 132,909
-------- --------
Less loan to employee stock ownership plan.................. (1,499) (1,499)
-------- --------
Total shareholders' equity........................ 399,102 523,927
-------- --------
Total capitalization(7)........................... $526,706 $836,461
======== ========
---------------
(1) Does not include our obligations under our $115 million master operating
lease facilities which we use to finance the construction or purchase of
distribution centers and office buildings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and the notes to our consolidated financial statements
included elsewhere in this prospectus supplement for additional information
about these facilities.
(2) Does not include $10.1 million of letters of credit outstanding under our
existing revolving credit facility as of June 30, 2001.
(3) We currently have an $85 million credit facility and a $5 million credit
facility. In order to finance a portion of the purchase price of Fresh
Express, we intend to enter into a new $200 million revolving credit
facility concurrently with the closing of this offering. We anticipate that,
if we enter into this new credit facility, it will replace our existing $85
million revolving credit facility and $5 million working capital line of
credit and that borrowings and letters of credit outstanding under our
existing credit facility and this line of credit will be repaid or replaced,
as the case may be, with borrowings and letters of credit under the new
credit facility. If we enter into our new credit facility, we anticipate
that the new credit facility will require our existing and, subject to
limited exceptions, future subsidiaries to guarantee all of our borrowings,
letters of credit and other obligations under the new credit facility. The
effectiveness of the new credit facility will be subject to customary
conditions, and we cannot assure you that those conditions will be satisfied
or that we will enter into the new credit facility, or, if we enter into the
new credit facility, that the terms of that credit facility will not differ
from those described in this prospectus supplement. In the event that we do
not enter into the new credit facility prior to the closing date of this
offering, we intend to make additional borrowings under our existing credit
facility to finance any portion of the purchase price of Fresh Express that
we do not finance with the net proceeds from this offering and the
concurrent offering and, concurrently with the closing of this offering, to
enter into certain amendments to our existing credit facility. The
effectiveness of either the new credit facility or those amendments to our
existing credit facility is a condition to the closing of this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(4) As of September 26, 2001, we had $20.0 million of total borrowings and $7.3
million of letters of credit outstanding under our existing credit
facilities. These amounts reflect, among other things, the repayment of
$60.0 million of bank borrowings on July 3, 2001 with the proceeds received
under our new receivables purchase facility and the incurrence of
approximately $25.0 million of indebtedness on September 10, 2001 in
connection with our recent acquisition of Springfield. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(5) Common stock totals do not include a total of 5,961,640 shares of our common
stock reserved for issuance under our stock purchase plan and stock option
plans at June 30, 2001. Options to purchase 3,709,588 shares of our common
stock at a weighted average exercise price of $13.45 per share were
outstanding under our stock option plans as of June 30, 2001. In connection
with our acquisition of
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Springfield, we issued options to purchase 40,000 shares of our common stock
at an exercise price of $29.67 per share. We also anticipate that, in
connection with our acquisition of Fresh Express, we will issue options to
employees of Fresh Express to purchase approximately 130,000 shares of our
common stock at an exercise price equal to the fair market value of our
common stock on the closing date of the Fresh Express acquisition. In
addition, common stock totals do not include shares of our common stock
which will be reserved for issuance upon conversion of the notes or the
1,270,652 shares of our common stock issued in connection with the
Springfield acquisition.
(6) As of June 30, 2001, approximately 6.1% of our outstanding shares of common
stock were held by or through our employee stock ownership plan.
(7) Total capitalization is the sum of long-term debt, excluding current
installments, and total shareholders' equity.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of
earnings give effect to:
- our acquisition of Fresh Express at an assumed acquisition price of
$302.6 million payable in cash;
- the sale of 5,000,000 shares of our common stock in the common stock
offering and our receipt of $124.8 million in estimated net proceeds,
after deducting the underwriting discount and estimated expenses of the
offering;
- the sale of $175.0 million aggregate principal amount of notes in the
notes offering and our receipt of $169.4 million in estimated net
proceeds, after deducting the underwriting discount and estimated
expenses of the offering;
- our incurrence of $8.4 million of additional borrowings under our
credit facility; and
- the application of the estimated net proceeds from this offering and
the concurrent offering and the proceeds from the additional borrowings
referred to above to pay the acquisition price of Fresh Express;
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. We currently estimate that we will
have to pay approximately $16.1 million in additional purchase price as a result
of this net worth adjustment, which amount has been included in the assumed
acquisition price of $302.6 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 and the amount of borrowings that we incur under our credit
facility to pay a portion of the purchase price may be more or less than the
amounts 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 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. We will
account for our acquisition of Fresh Express under the purchase method of
accounting. The pro forma financial statements appearing below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our historical financial statements and related
notes included elsewhere in this prospectus supplement and the historical
financial statements and related notes of Fresh Express incorporated by
reference in the accompanying prospectus.
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 we may achieve in the future.
In particular, sales to foodservice distributors represented approximately 13.7%
of Fresh Express' consolidated revenues for its fiscal year ended
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February 28, 2001 and approximately 12.8% of its consolidated revenues for the
six months ended June 30, 2001. We believe that, because some of these
foodservice distributor customers may view us 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. These pro forma
financial statements also do not reflect the expected loss of revenue from this
customer. See "Risk Factors -- We may not achieve expected benefits from Fresh
Express and Springfield acquisitions." In addition, the pro forma financial data
appearing below does not give pro forma effect to our acquisition of
Springfield, which was completed on September 10, 2001, our acquisition of
Empire Seafood, which was completed on April 2, 2001, our acquisition of
Redi-Cut, which was completed on December 13, 2000, or our acquisition of
Carroll County, which was completed on August 4, 2000. See "Prospectus
Supplement Summary -- Recent Acquisitions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business
Combinations."
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.
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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 PRO
HISTORICAL HISTORICAL ISSUANCE FRESH EXPRESS ADJUSTMENTS FORMA
----------- ---------- -------- -------------- ----------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 9,791 $ 5,080 $294,200 $(294,200) $ --(a),(d) $ 14,871
Trade accounts and notes
receivable, net.......... 161,459 46,140 -- -- -- 207,599
Inventories................ 143,732 16,913 -- -- -- 160,645
Other current assets....... 15,067 6,411 -- -- -- 21,478
-------- -------- -------- --------- -------- ----------
Total current
assets............ 330,049 74,544 294,200 (294,200) -- 404,593
Property, plant and
equipment, net............. 147,256 76,281 -- -- -- 223,537
Intangible assets, net....... 303,228 -- -- 189,770 189,770(a),(b) 492,998
Other assets................. 1,640 8,629 5,625 (1,000) 4,625(c),(f) 14,894
-------- -------- -------- --------- -------- ----------
Total assets........ $782,173 $159,454 $299,825 $(105,430) $194,395 $1,136,022
======== ======== ======== ========= ======== ==========
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 -- (5,617) (5,617)(a) 15,421
Trade accounts payable..... 151,571 23,894 -- -- -- 175,465
Other current
liabilities.............. 62,158 20,604 -- (1,500) (1,500)(a),(d) 81,262
-------- -------- -------- --------- -------- ----------
Total current
liabilities....... 245,766 50,638 -- (7,117) (7,117) 289,287
Long-term debt, excluding
current installments....... 127,604 46,676 175,000 (36,746) 138,254(a),(d) 312,534
Deferred income taxes........ 9,701 -- -- -- -- 9,701
Other long-term
liabilities................ -- 8,138 -- (7,565) (7,565)(a) 573
-------- -------- -------- --------- -------- ----------
Total liabilities... 383,071 105,452 175,000 (51,428) 123,572 612,095
-------- -------- -------- --------- -------- ----------
Shareholders' equity:
Preferred stock............ -- -- -- -- -- --
Common stock............... 366 247 50 (247) (197)(a),(d) 416
Additional paid-in
capital.................. 267,326 83 124,775 (83) 124,692(a),(d) 392,101
Retained earnings.......... 132,909 53,672 -- (53,672) (53,672)(a) 132,909
-------- -------- -------- --------- -------- ----------
400,601 54,002 124,825 (54,002) 70,823 525,426
Loan to leveraged employee
stock ownership plan..... (1,499) -- -- -- -- (1,499)
-------- -------- -------- --------- -------- ----------
Total shareholders'
equity............ 399,102 54,002 124,825 (54,002) 70,823 523,927
-------- -------- -------- --------- -------- ----------
Total liabilities
and shareholders'
equity............ $782,173 $159,454 $299,825 $(105,430) $194,395 $1,136,022
======== ======== ======== ========= ======== ==========
(footnotes on page S-41)
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
PRO FORMA ADJUSTMENTS
------------------------------------
PERFORMANCE STOCK & ACQUISITION TOTAL
FOOD GROUP FRESH EXPRESS NOTES OF FRESH PRO FORMA PRO
HISTORICAL HISTORICAL ISSUANCE EXPRESS ADJUSTMENTS 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) (5,215) 1,951 (3,264)(c),(e) (9,259)
Other, net................ (458) -- -- -- -- (458)
---------- -------- ------- ------- ------- ----------
Other income
(expense), net... (4,261) (2,192) (5,215) 1,951 (3,264) (9,717)
---------- -------- ------- ------- ------- ----------
Earnings before
income taxes..... 27,695 21,632 (5,215) (2,487) (7,702) 41,625
Income tax expense
(benefit)................. 10,524 6,883 (1,076) (513) (1,589)(g) 15,818
---------- -------- ------- ------- ------- ----------
Net earnings....... $ 17,171 $ 14,749 $(4,139) $(1,974) $(6,113) $ 25,807
========== ======== ======= ======= ======= ==========
Weighted average common
shares outstanding........ 36,066 5,000 5,000(a),(d) 41,066
Basic net earnings per
common share.............. $ 0.48 $ 0.63
Weighted average common
shares and dilutive
potential common shares
outstanding............... 37,383 10,311 10,311(a),(d),(h) 47,694
Diluted net earnings per
common share.............. $ 0.46 $ 0.60
(footnotes on page S-41)
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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) (10,429) 4,969 (5,460)(c),(e) (17,600)
Other, net..................... (66) -- -- -- -- (66)
---------- -------- ------- ------- -------- ----------
Other income (expense),
net................... (6,659) (5,547) (10,429) 4,969 (5,460) (17,666)
---------- -------- ------- ------- -------- ----------
Earnings before income
taxes................. 43,356 17,657 (10,429) (3,907) (14,336) 46,677
Income tax expense (benefit)..... 16,475 4,965 (2,694) (1,009) (3,703)(g) 17,737
---------- -------- ------- ------- -------- ----------
Net earnings............ $ 26,881 $ 12,692 $(7,735) $(2,898) $(10,633) $ 28,940
========== ======== ======= ======= ======== ==========
Weighted average common shares
outstanding.................... 28,336 5,000 5,000(a),(d) 33,336
Basic net earnings per common
share.......................... $ 0.95 $ 0.87
Weighted average common shares
and dilutive potential common
shares outstanding............. 29,539 5,000 5,000(a),(d) 34,539
Diluted net earnings per common
share.......................... $ 0.91 $ 0.84
(footnotes on following page)
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NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) The pro forma adjustments assume (1) that we will pay $302.6 million in cash
to acquire Fresh Express, including repayment of certain Fresh Express debt
and other liabilities concurrently with the acquisition, (2) that we will
issue 5,000,000 shares of common stock in the common stock offering and
receive approximately $124.8 million in estimated net proceeds, after
deducting the underwriting discount and estimated expenses of the offering,
(3) that we will sell $175.0 million aggregate principal amount of notes in
the notes offering and receive approximately $169.4 million in estimated net
proceeds, after deducting the underwriting discount and the estimated
expenses of the offering and (4) that we will incur approximately $8.4
million of additional borrowings under our credit facility in connection
with the acquisition of Fresh Express. 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. We
currently estimate that we will have to pay approximately $16.1 million in
additional purchase price as a result of this net worth adjustment, which
amount has been included in the assumed acquisition price of $302.6 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. We 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 we pay to
acquire Fresh Express and the amount of borrowings that we incur under our
credit facility to pay a portion of the purchase price may be more or less
than the amounts 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, we
estimate that we will record goodwill of approximately $109.8 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) Other assets to be recorded in connection with the notes offering include
approximately $5.6 million of deferred debt issuance costs. Pro forma
adjustments to the statement of earnings reflect additional interest expense
related to the amortization of these debt issuance costs as if the notes had
been issued on the first day of the earliest period presented.
(d) These adjustments reflect the issuance of the notes and common stock in this
offering and the concurrent offering and the incurrence of $8.4 million of
additional borrowings under our credit facility, as well as the repayment of
outstanding Fresh Express indebtedness in connection with the acquisition.
(e) The interest rate on the additional borrowings under our credit facility
referred to in note (d) above is assumed to be 5.72% per annum and 6.88% per
annum for the six months of 2001 and the year 2000, respectively, which were
the weighted average historical interest rates under the existing credit
facility during those periods. These pro forma adjustments reflect the
additional interest expense on the notes and on the additional borrowings
referred to in note (d) above. These pro forma adjustments also
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reflect the elimination of interest expense on Fresh Express debt that we
will repay concurrently with the acquisition.
(f) This adjustment reflects the reduction of a note receivable of Fresh
Express.
(g) 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.
(h) These adjustments assume the conversion into common stock of the notes
issued in the notes offering at a conversion price of $32.95 per share.
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SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is selected consolidated financial data of Performance
Food Group for the periods indicated. The selected consolidated financial data
of Performance Food Group as of and for years 1996, 1997, 1998, 1999 and 2000
are derived from the audited consolidated financial statements of Performance
Food Group, which were audited by KPMG LLP. The consolidated financial
statements as of the years ended 1999 and 2000 and for the years 1998, 1999 and
2000, and the report of KPMG LLP on those financial statements, are included
elsewhere in this prospectus supplement. The selected consolidated financial
data as of and for the six-month periods ended July 1, 2000 and June 30, 2001
are derived from unaudited condensed consolidated financial statements. The
unaudited condensed consolidated financial statements include all adjustments,
consisting only of normal recurring items, which our management considers
necessary for a fair presentation of our financial position and results of
operations for these periods. The financial condition and results of operations
as of and for the six months ended June 30, 2001 do not purport to be indicative
of the financial condition or results of operations to be expected as of or for
the fiscal year ending December 29, 2001. The unaudited condensed consolidated
financial statements as of June 30, 2001 and for the six-month periods ended
July 1, 2000 and June 30, 2001 are included elsewhere in this prospectus
supplement. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements, including the notes thereto, included
elsewhere in this prospectus supplement.
In February 1999, one of our subsidiaries merged with NorthCenter. The
merger was accounted for as a pooling-of-interests and resulted in the issuance
of approximately 1,700,000 shares of our common stock in exchange for all of the
outstanding stock of NorthCenter. Our consolidated financial statements for
periods prior to the merger have been restated to include the accounts and
results of operations of NorthCenter.
All of the fiscal years shown below had 52 weeks, except that 1998 had 53
weeks. As a result, some of the variations reflected in the following data may
be attributed to the different lengths of the fiscal years. The six-month
periods ended July 1, 2000 and June 30, 2001 each had 26 weeks.
SIX MONTHS ENDED
-----------------------
JULY 1, JUNE 30,
1996 1997 1998 1999 2000 2000 2001
--------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES) (UNAUDITED)
STATEMENT OF EARNINGS
DATA:
Net sales................. $864,219 $1,331,002 $1,721,316 $2,055,598 $2,605,468 $1,234,353 $1,518,297
Cost of goods sold........ 740,009 1,159,593 1,491,079 1,773,632 2,253,277 1,069,965 1,314,306
-------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit..... 124,210 171,409 230,237 281,966 352,191 164,388 203,991
Operating expenses........ 103,568 146,344 198,646 242,625 302,176 144,436 172,035
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating
profit......... 20,642 25,065 31,591 39,341 50,015 19,952 31,956
Other income (expense):
Interest expense........ (1,346) (2,978) (4,411) (5,388) (6,593) (2,888) (3,803)
Nonrecurring merger
expenses.............. -- -- -- (3,812) -- -- --
Gain on sale of
investment............ -- -- -- 768 -- -- --
Other, net.............. 176 111 195 342 (66) 40 (458)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Other expense, net.... (1,170) (2,867) (4,216) (8,090) (6,659) (2,848) (4,261)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income
taxes................... 19,472 22,198 27,375 31,251 43,356 17,104 27,695
Income tax expense........ 7,145 8,298 9,965 12,000 16,475 6,500 10,524
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings.......... $ 12,327 $ 13,900 $ 17,410 $ 19,251 $ 26,881 $ 10,604 $ 17,171
======== ========== ========== ========== ========== ========== ==========
(footnotes on following page)
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SIX MONTHS ENDED
-----------------------
JULY 1, JUNE 30,
1996 1997 1998 1999 2000 2000 2001
--------- ----------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES) (UNAUDITED)
Weighted average common
shares outstanding...... 24,118 25,621 26,796 27,544 28,336 27,862 36,066
Basic net earnings per
common share............ $ 0.51 $ 0.54 $ 0.65 $ 0.70 $ 0.95 $ 0.38 $ 0.48
Pro forma basic net
earnings per common
share(1)(2)............. $ 0.49 $ 0.53 $ 0.63 $ 0.77 $ 0.95 $ 0.38 $ 0.48
Weighted average common
shares and dilutive
potential common shares
outstanding............. 25,072 26,683 27,850 28,437 29,539 28,771 37,383
Diluted net earnings per
common share............ $ 0.49 $ 0.52 $ 0.63 $ 0.68 $ 0.91 $ 0.37 $ 0.46
Pro forma diluted net
earnings per common
share(1)(2)............. $ 0.47 $ 0.51 $ 0.60 $ 0.75 $ 0.91 $ 0.37 $ 0.46
OTHER DATA:
Ratio of earnings to fixed
charges(3).............. 13.5x 8.5x 5.8x 5.5x 5.4x 4.9x 5.7x
EBITDA(4)................. $ 26,770 $ 33,657 $ 43,092 $ 53,478 $ 67,892 $ 28,233 $ 44,858
Capital expenditures...... $ 9,703 $ 9,054 $ 26,663 $ 26,006 $ 30,992 $ 16,923 $ 13,791
BALANCE SHEET DATA (END OF
PERIOD):
Working capital(5)........ $ 49,397 $ 60,131 $ 63,280 $ 70,879 $ 96,470 $ 74,843 $ 84,283
Property, plant and
equipment, net.......... $ 61,884 $ 78,006 $ 93,402 $ 113,930 $ 143,142 $ 123,831 $ 147,256
Total assets.............. $202,807 $ 308,945 $ 387,712 $ 462,045 $ 709,696 $ 502,140 $ 782,173
Total debt(6)............. $ 16,948 $ 55,615 $ 75,102 $ 93,107 $ 116,458 $ 105,778 $ 142,502
Shareholders' equity...... $105,468 $ 137,949 $ 157,085 $ 189,344 $ 357,717 $ 189,835 $ 399,102
Debt-to-capital
ratio(6)(7)............. 13.8% 28.7% 32.3% 33.0% 24.6% 35.8% 26.3%
---------------
(1) Pro forma adjustments to net earnings per common share add back nonrecurring
merger expenses in 1999 equal to $3.8 million before taxes, or $.08 per
share of common stock after taxes, related to our acquisition of NorthCenter
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 for periods prior to the merger. As
an S-corporation, NorthCenter was not subject to income tax for periods
prior to the merger. NorthCenter became subject to income taxes for all
periods following the merger. This pro forma data does not give effect to
our proposed acquisition of Fresh Express nor does it give pro forma effect
to any other acquisitions. See "Prospectus Supplement Summary -- Pending
Acquisition of Fresh International Corp.," "Prospectus Supplement Summary --
Recent Acquisitions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Business Combinations."
(2) 1999 excludes a nonrecurring gain of $768,000 before taxes, or $.02 per
share of common stock after taxes, on the sale of an investment.
(3) The ratio of earnings to fixed charges has been computed by dividing
earnings, which consist of consolidated net income plus income taxes and
fixed charges, except capitalized interest, by fixed charges, which consist
of consolidated interest on indebtedness, including capitalized interest,
amortization of debt discount and issuance cost, and the estimated portion
of rental expenses deemed to be equivalent to interest.
(4) EBITDA means operating profit plus depreciation and amortization. EBITDA is
not intended to represent cash flow from operations as defined by GAAP and
should not be considered as an alternative to net earnings as an indicator
of operating performance or as an alternative to cash flow as a measure of
liquidity. EBITDA is presented to provide additional information with
respect to our
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45
historical ability to meet our debt service, capital expenditures, rental
and working capital requirements.
(5) On July 3, 2001, we entered into a $90 million receivables purchase facility
under which we have sold and in the future intend to sell undivided
interests in some of our receivables to a financial institution. These sales
have resulted in a decrease in our current assets and working capital
subsequent to June 30, 2001 because we used $60 million of the proceeds from
the sale to repay borrowings under our existing credit facility.
(6) Total debt is the sum of short-term and long-term debt, but does not include
our obligations under our $115 million master operating lease facilities
which we use to finance the construction or purchase of distribution centers
and office buildings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
the notes to our consolidated financial statements included elsewhere in
this prospectus supplement for additional information about these
facilities.
(7) The debt-to-capital ratio has been computed by dividing the amount of our
total debt by the sum of our total debt plus shareholders' equity as of the
end of each period, and expressing the result as a percentage.
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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 prospectus supplement.
The following text contains references to years 2001, 2000, 1999 and
1998, which mean our fiscal years ending December 29, 2001, December 30, 2000,
January 1, 2000 and January 2, 1999, respectively. References to the 2001 period
and the 2000 period mean the six-month periods ended June 30, 2001 and July 1,
2000, respectively.
We use a 52/53 week fiscal year ending on the Saturday closest to
December 31. Consequently, we periodically have a 53-week fiscal year. Our 2000,
1999 and 1998 fiscal years were 52, 52 and 53 week years, respectively. As a
result, some of the variations reflected in the following data may be attributed
to different lengths of the fiscal years. Our 2001 and 2000 periods were each 26
weeks. As a result of our merger with NorthCenter on February 26, 1999, which we
accounted for as a pooling-of-interests, the consolidated financial statements
for periods prior to the merger have been restated to include the accounts and
results of operations of NorthCenter.
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 periods discussed below
was due to acquisitions. In addition to our pending acquisition of Fresh
Express, the information appearing below under "Business Combinations"
summarizes our acquisitions since the beginning of 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of our condensed consolidated statements of earnings expressed as a percentage
of net sales:
SIX MONTHS ENDED
-------------------
JULY 1, JUNE 30,
1998 1999 2000 2000 2001
----- ----- ----- ------- --------
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 86.6 86.3 86.5 86.7 86.6
----- ----- ----- ----- -----
Gross profit............................ 13.4 13.7 13.5 13.3 13.4
Operating expenses................................ 11.6 11.8 11.6 11.7 11.3
----- ----- ----- ----- -----
Operating profit........................ 1.8 1.9 1.9 1.6 2.1
Other expense, net................................ 0.2 0.4 0.2 0.2 0.3
----- ----- ----- ----- -----
Earnings before income taxes............ 1.6 1.5 1.7 1.4 1.8
Income tax expense................................ 0.6 0.6 0.7 0.5 0.7
----- ----- ----- ----- -----
Net earnings............................ 1.0% 0.9% 1.0% 0.9% 1.1%
===== ===== ===== ===== =====
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Comparison of 2001 and 2000 Periods
Net sales. Net sales increased 23.0% to $1.52 billion in the 2001 period
from net sales of $1.23 billion in the 2000 period. Net sales in our existing
operations for the 2001 period increased 13.7% over the 2000 period, while
acquisitions contributed the remaining 9.3% of our total sales growth for the
2001 period. Net sales in existing operations exclude the net sales of any
acquired business for the first 12 months following the acquisition date of that
business. During the third quarter of 2001, the growth in net sales in our
existing operations was below the rate of growth experienced in the first half
of 2001, reflecting both weaker general economic conditions in the third quarter
and consequences of the recent terrorist attacks. See "Risk Factors -- The
recent slowdown in the economy and recent terrorist attacks in the U.S. may have
an adverse effect on our business." Improvements in productivity and lower
interest costs offset the impact of the lower rate of sales growth on our
results of operations for the third quarter of 2001.
Gross profit. Gross profit increased 24.1% to $204.0 million in the 2001
period from gross profit of $164.4 million in the 2000 period. Gross profit
margin, which we define as gross profit as a percentage of net sales, increased
to 13.4% in the 2001 period, compared to 13.3% in the 2000 period. The increase
in gross profit margin was due primarily to increased contribution from our
fresh-cut segment, mainly as a result of the acquisition of Redi-Cut in December
2000, which typically has had higher gross profit margins than many of our other
operating companies.
Operating expenses. Operating expenses increased 19.1% to $172.0 million
in the 2001 period compared with $144.4 million in the 2000 period. As a
percentage of net sales, operating expenses decreased to 11.3% in the 2001
period from 11.7% in the 2000 period. We believe that the decrease in operating
expenses as a percentage of net sales was due mainly to tighter controls over
expenses and efficiencies related to newer, more efficient fresh-cut processing
facilities, which we opened in mid-2000.
Operating profit. Operating profit increased 60.2% to $32.0 million in
the 2001 period compared to $20.0 million in the 2000 period. Operating profit
margin, which we define as operating profit as a percentage of net sales,
increased to 2.1% in the 2001 period from 1.6% in the 2000 period.
Other expense, net. Other expense, net, increased to $4.3 million in the
2001 period from $2.8 million in the 2000 period. Included in other expense,
net, was interest expense of $3.8 million in the 2001 period, compared with
interest expense of $2.9 million in the 2000 period. Interest expense was higher
in the 2001 period than in the 2000 period primarily due to higher levels of
borrowings under our revolving credit facility, partially offset by lower
interest rates.
Income tax expense. Income tax expense increased to $10.5 million in the
2001 period from $6.5 million in the 2000 period. As a percentage of earnings
before income taxes, the provision for income taxes was 38.0% for the 2001 and
2000 periods.
Net earnings. In the 2001 period, net earnings increased 61.9% to $17.2
million from $10.6 million in the 2000 period. As a percentage of net sales, net
earnings increased to 1.1% in the 2001 period from 0.9% in the 2000 period.
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.
Gross profit. Gross profit increased 24.9% to $352.2 million in 2000
from $282.0 million in 1999. Gross profit margin 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%
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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 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.
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 pretax 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 in 1999. 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 following
the merger.
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Net earnings. Net earnings increased $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 $46.8 million for the 2001 period. In the 2001 period, the
primary sources of cash from operating activities were net earnings and
increased levels of trade payables and decreased levels of trade receivables,
partially offset by increased levels of inventories. Cash provided by operating
activities was $13.9 million for the 2000 period. In the 2000 period, the
primary sources of cash from operations were net earnings and increased levels
of trade payables, partially offset by increased levels of trade receivables and
inventories.
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 in investing activities. Cash used in investing activities was
$55.8 million for the 2001 period. Investing activities included additions to
and disposals of property, plant and equipment and the acquisition of
businesses. Our capital expenditures, excluding acquisitions of other
businesses, for the 2001 period were $13.8 million. We anticipate that our total
capital expenditures, excluding acquisitions, for fiscal 2001 will be
approximately $33.0 million, although we cannot assure you that actual capital
expenditures will not differ from this amount. Cash used in investing activities
in the 2001 period also included a total of approximately $43.8 million paid as
a portion of the purchase price for the acquisition of Empire Seafood and to the
former shareholders of Carroll County, State Hotel Supply Company, Inc. and
AFFLINK Incorporated (formerly Affiliated Paper Companies, Inc.) as a result of
certain contractual obligations under the purchase agreements relating to the
acquisitions. In the 2000 period, cash used in investing activities was $18.2
million. In the 2000 period, our total capital expenditures, excluding
acquisitions of businesses, were $16.9 million. Cash used in investing
activities in the 2000 period also included $2.3 million paid to the former
shareholders of Dixon Tom-A-Toe Companies, Inc. and AFFLINK as a result of
certain contractual obligations under the purchase agreements relating to the
acquisitions.
Cash used in investing activities was $153.5 million in 2000. 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 and Carroll County, net of cash on
hand at these acquired companies, and payments made to the former shareholders
of AFFLINK and Dixon as a result of certain contractual obligations under
purchase agreements relating to the acquisitions. Cash used in 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.
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Cash provided by financing activities. Cash provided by financing
activities was $207,000 in the 2001 period. In the 2001 period, cash flows from
financing activities included net borrowings of $13.0 million on our revolving
credit facility, $906,000 of proceeds from industrial revenue bonds issued to
finance the construction of a new produce-processing facility and proceeds of
$4.0 million from the exercise of stock options. In the 2001 period, cash used
in financing activities included a decrease in outstanding checks in excess of
deposits of $16.2 million and principal payments on long-term debt of $1.5
million. Cash provided by financing activities was $4.7 million in the 2000
period. In the 2000 period, cash flows from financing activities included an
increase in outstanding checks in excess of deposits of $1.8 million, net
borrowing of $9.6 million on our revolving credit facility, proceeds of $3.5
million from industrial revenue bonds issued to finance the construction of a
new produce-processing facility, and proceeds of $2.2 million from the exercise
of stock options. In the 2000 period, cash used in financing activities included
$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 provided by financing activities was $151.8 million in 2000. In
2000, cash flows from financing activities included proceeds of $124.4 million
from the issuance of common stock, 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, and proceeds
of $5.1 million from the exercise of stock options. In 2000, cash used by
financing activities included $812,000 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 debt 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.
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
semiannually. 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.
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 one of those banks. The credit facilities expire in
March 2002. Approximately $60.0 million was outstanding under the credit
facilities at June 30, 2001. The $85 million credit facility also allows the
issuance of up to $20.0 million of standby letters of credit, which reduce the
amount of borrowings otherwise available under the $85 million credit facility.
At June 30, 2001 we were liable for approximately $10.1 million of outstanding
letters of credit under the credit facility. At June 30, 2001, we had $19.9
million of borrowings available under our credit facilities, subject to
compliance with customary borrowing conditions. The credit facilities bear
interest at LIBOR plus a spread over LIBOR, which varies based on our ratio of
funded debt to total capital. At June 30, 2001, borrowings under the credit
facilities bore interest at 4.20% per annum. Additionally, the credit facilities
require the maintenance of certain financial ratios as defined in the credit
agreement.
In order to finance a portion of the purchase price of Fresh Express, we
intend to enter into a new $200 million revolving credit facility concurrently
with the closing of this offering. We anticipate that, if
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we enter into this new credit facility, it will replace our existing $85 million
revolving credit facility and $5 million working capital line of credit and that
borrowings and letters of credit outstanding under our existing credit facility
and this line of credit will be repaid or replaced, as the case may be, with
borrowings and letters of credit under the new credit facility. We anticipate
that the new credit facility will expire in 2006 and will allow the issuance of
up to $40 million of standby letters of credit, which will reduce the amount of
borrowings otherwise available under the new credit facility. We anticipate that
the new credit facility will bear interest at a floating rate equal to, at our
election, the agent bank's prime rate or a specified spread over LIBOR, and that
this spread will vary based upon our operating performance. We also anticipate
that the new credit facility will require the maintenance of specified financial
ratios and will contain customary events of default. We also anticipate that the
new credit facility will require that our existing and, subject to limited
exceptions, future subsidiaries guarantee all of our borrowings, letters of
credit and other obligations under the new credit facility. The effectiveness of
the new credit facility will be subject to customary conditions and we cannot
assure you that those conditions will be satisfied or that we will enter into
the new credit facility, or, if we enter into the new credit facility, that the
terms of that credit facility will not differ from those described in this
prospectus supplement. In the event that we do not enter into the new credit
facility prior to the closing date of this offering, we intend to make
additional borrowings under our existing credit facility to finance any portion
of the purchase price of Fresh Express that we do not finance with the net
proceeds from this offering and the concurrent offering and, concurrently with
the closing of this offering, to enter into certain amendments to our existing
credit facility. The effectiveness of either the new credit facility or those
amendments to our existing credit facility is a condition to the closing of this
offering.
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. On January 31, 2001, these bonds were refinanced
with the proceeds of $9.0 million taxable revenue bonds in order to free us from
certain restrictive covenants applicable to the subsidiary that issued the
tax-exempt bonds. Like the tax-exempt bonds, these taxable bonds bear interest
at a rate determined weekly by the remarketing agent for the bonds. The interest
rate for these bonds was approximately 3.95% per annum at June 30, 2001. The
bonds are secured by a letter of credit issued by a commercial bank and are due
in March 2019.
In September 1997, we entered into our first master operating lease
facility. In February 2001, we increased this master operating lease facility
from $47.0 million to $55.0 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 became 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 each of the properties. 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 the properties upon the
expiration of the master operating lease facility. Because of the location and
condition of each of the four properties referred to above, we believe that the
anticipated fair value of these properties 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 June 30, 2001, construction expenditures by the lessor under
this facility were approximately $49.3 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 June 30, 2001, two distribution centers had been purchased, one
office building had been completed and construction on 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 leases
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for three of these properties and have entered into a commitment to lease the
fourth property for a period beginning upon the completion of construction of
that property. The leases relating to the four properties referred to above, as
well as any other leases we may enter into under this facility in the future,
end 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 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 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 the properties upon the expiration of the master operating
lease facility. Because of the location and condition of each of the four
properties referred to above, we believe that the anticipated fair value of
these properties could eliminate or substantially reduce our exposure under the
residual value guarantee with respect to these four properties, although there
can be no assurance that we will not be required to make payments to satisfy
this guarantee either with respect to these four properties or any other
properties which may be constructed or purchased in the future under this
facility. Through June 30, 2001, construction and acquisition expenditures by
the lessor under the facility were approximately $26.2 million.
In December 2000, we issued 6,440,000 shares of our common stock
generating proceeds to us, after deducting underwriting discounts and expenses,
of $124.5 million, which we used to pay the cash portion of the purchase price
for Redi-Cut and repay amounts outstanding under our credit facilities.
On June 22, 2001, we filed a shelf registration statement with the SEC
registering up to $600 million of debt and equity securities. This offering and
the concurrent offering are being made under that shelf registration statement.
On July 3, 2001, we entered into our receivables purchase facility, under
which PFG Receivables Corporation, a wholly owned, special-purpose subsidiary of
ours, sells an undivided interest in certain of our trade receivables. PFG
Receivables Corporation was formed for the sole purpose of buying receivables
generated by some of our operating units, and selling an undivided interest in
those receivables to a financial institution. Under the receivables purchase
facility, our operating units transfer a portion of their accounts receivable to
PFG Receivables Corporation, which in turn, subject to certain conditions, may
from time to time sell an undivided interest in these receivables to a financial
institution. The amount of the undivided interest in the receivables owned by
the financial institution cannot exceed $90 million at any one time. The
proceeds from the initial sale of the undivided interest in these receivables
were used to repay $60.0 million of borrowings under our $85 million credit
facility. As of July 3, 2001, the amount of the undivided interest owned by the
financial institution under the receivables purchase facility was $73 million.
The receivables purchase facility expires in July 2002, but can be renewed by
mutual agreement between us and the financial institution. We will account for
this two-step transaction under the provisions of SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
On July 25, 2001, we signed a definitive agreement to acquire the common
stock of Springfield, a privately owned broadline foodservice distributor based
in Springfield, Massachusetts, for approximately $80.7 million. Springfield
provides products and services to traditional foodservice accounts in a region
covering New England and portions of New York State. For additional information
regarding Springfield and the terms of the acquisition, see "Prospectus
Supplement Summary -- Recent Acquisitions."
On August 9, 2001, we signed a definitive agreement to acquire Fresh
Express, a privately owned processor and distributor of packaged, ready-to-eat
salads with facilities in Salinas, California, Colorado Springs, Colorado,
Atlanta, Georgia, Chicago, Illinois and Greencastle, Pennsylvania. For
additional information regarding Fresh Express and the terms of the acquisition,
see "Prospectus Supplement Summary -- Pending Acquisition of Fresh International
Corp." and "Business -- Business of Fresh Express."
We believe that our cash flows from operations, borrowings under our
credit facility and our master operating lease facilities, the sale of undivided
interests in trade receivables under our receivables
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purchase facility and proceeds from this offering and the concurrent offering
will be sufficient to finance the acquisition of Fresh Express and to fund our
operations and capital expenditures for at least the next 18 months, assuming
that we are able to enter into the new credit facility or otherwise renew or
replace our existing credit facility before its expiration in March 2002 and our
$90 million receivables purchase facility before its expiration in July 2002.
However, we will likely require additional sources of financing to the extent
that we make additional acquisitions in the future.
BUSINESS COMBINATIONS
On June 1, 1998, we acquired certain net assets related to the business
of AFFLINK, a privately-owned marketing organization based in Tuscaloosa,
Alabama. AFFLINK provides procurement and merchandising services for a variety
of paper, disposable and sanitation supplies to a number of independent
distributors. On July 27, 1998, we acquired certain net assets of Virginia
Foodservice Group, Inc. based in Richmond, Virginia, a division of a
privately-owned foodservice distributor in which a member of our management has
a minor ownership interest. Virginia Foodservice is a foodservice distributor
primarily servicing traditional foodservice customers in the central Virginia
market. Collectively, these companies had 1997 net sales of approximately $69
million.
In 1998, the aggregate purchase price paid for the assets of AFFLINK and
Virginia Foodservice was approximately $23.9 million. An additional $5.5 million
was paid in the 1999 period to the former shareholders of Virginia Foodservice
and AFFLINK and an additional $1.7 million was paid in the 2000 period to the
former shareholders of AFFLINK as a result of meeting certain performance
criteria under the purchase agreements. These purchases were financed with
proceeds from a credit facility.
The acquisitions of AFFLINK and Virginia Foodservice 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 was approximately $31.1 million and is being amortized on a
straight-line basis over estimated lives ranging from 5 to 40 years.
On February 26, 1999, we completed a merger with NorthCenter, 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 1,700,000 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, 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, 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, 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. However, there can be no
assurance that this level of contribution will be sustained.
On August 4, 2000, we acquired the common stock of 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.
However, we can give no assurances
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as to the level of future net sales by Carroll County. The aggregate
consideration payable to the former shareholders of Carroll County is subject to
increase in certain circumstances.
On December 13, 2000, we acquired all of 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, for a purchase price
of $138.0 million, plus the assumption of approximately $932,000 in debt. We
paid approximately $120.5 million of the purchase price in cash and the balance
in 804,480 shares of our common stock. Redi-Cut 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. Redi-Cut had 1999 net sales of approximately $113 million. However, we
can give no assurance as to the level of future net sales by Redi-Cut.
On April 2, 2001, we acquired all the outstanding common stock of Empire
Seafood, a privately owned distributor and processor of seafood based in Miami,
Florida. The total consideration paid for the acquisition, including assumed
debt, was approximately $75 million, of which approximately $19.6 million was
paid through the issuance of 802,558 shares of our common stock. In addition, in
connection with the acquisition, we entered into an earnout agreement under
which we will be required to pay to certain of the former shareholders of Empire
Seafood up to $7.5 million as additional purchase price over a three-year period
if Empire Seafood achieves certain operating targets, payable in cash and shares
of our common stock.
In the 2001 period, we paid a total of approximately $43.8 million and
issued a total of approximately 817,000 shares of our common stock for the
acquisition of Empire Seafood and to the former shareholders of Carroll County,
State Hotel and AFFLINK as a result of certain contractual obligations in the
purchase agreements relating to those acquisitions. In the 2000 period, we paid
a total of approximately $2.3 million and issued a total of approximately 89,000
shares our of common stock to the former shareholders of AFFLINK and Dixon,
which were acquired prior to 2000, as a result of certain contractual
obligations in the purchase agreements relating to those acquisitions. The
payments were recorded as additions to goodwill.
The acquisitions of Dixon, State Hotel, Nesson, Carroll County, Redi-Cut
and Empire Seafood 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 $221.5 million and is being amortized on a straight-line basis
over estimated lives ranging from 5 to 40 years.
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 of common stock and make
additional payments in the future to the former owners of businesses we have
acquired under these and similar contractual provisions.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity, which
is effective for periods beginning after June 15, 1999. In May 1999, the 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. We adopted the SFAS No. 138 in the first
quarter of 2001. In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
We adopted the provisions of this standard in the second quarter of 2001. The
adoption of these standards had no impact on our financial condition or results
of operations.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
No. 141 requires that all business combinations initiated after June 30, 2001 be
accounted for by the purchase method and
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also specifies criteria that intangible assets acquired in a business
combination must meet to be recognized and reported apart from goodwill. The
adoption of this standard will affect our accounting for Springfield and future
acquisitions, including the pending acquisition of Fresh Express.
Also in July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142 state that goodwill should no
longer be amortized, and goodwill and other intangible assets with indefinite
lives should be tested for impairment upon adoption of the standard, and at
least annually thereafter. We will be required to adopt the provisions of SFAS
No. 142 with our fiscal year beginning December 30, 2001, except for goodwill
and any intangible assets acquired in a purchase business combination that is
completed after June 30, 2001, for which the provisions of this standard are
effective beginning July 1, 2001. As a result, after the adoption of the
provisions of this standard, we will no longer record amortization expense for
goodwill. We will also be required to perform an assessment of whether there is
an indication that goodwill and other intangible assets are impaired as of the
date of adoption. Any such transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in our consolidated
statement of earnings.
As of the date of adoption, we expect to have unamortized goodwill,
excluding Springfield and acquisitions not yet consummated in the amount of
$274.0 million, which will be subject to the transition provisions of SFAS No.
142. Amortization expense related to goodwill was $3.7 million and $1.4 million
for the 2001 and 2000 periods, respectively. We have not yet completed our
analysis of the impact of these new standards on our financial condition and
results of operations.
QUARTERLY RESULTS AND SEASONALITY
Set forth below is certain summary information with respect to our
operations for the most recent ten 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 fiscal 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.
All of the fiscal quarters set forth below had 13 weeks.
2001
-------------------------
1ST QUARTER 2ND QUARTER
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales................................................... $723,475 $794,822
Gross profit................................................ 95,375 108,616
Operating profit............................................ 11,786 20,170
Earnings before income taxes................................ 10,160 17,535
Net earnings................................................ 6,299 10,872
Basic net earnings per common share......................... 0.18 0.30
Diluted net earnings per common share....................... 0.17 0.29
2000
-----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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................... 0.14 0.24 0.30 0.27
Diluted net earnings per common share................. 0.13 0.23 0.28 0.25
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1999
-----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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................... 0.02 0.20 0.26 0.21
Pro forma basic net earnings per common share(1)(2)... 0.11 0.20 0.24 0.21
Diluted net earnings per common share................. 0.02 0.19 0.25 0.20
Pro forma diluted net earnings per common
share(1)(2)......................................... 0.11 0.19 0.24 0.20
---------------
(1) Pro forma adjustments to net earnings per common share add back nonrecurring
merger expenses equal to $3.8 million before taxes related to our
acquisition of NorthCenter 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 for
periods prior to the merger. As an S-corporation, NorthCenter was not
subject to income tax for periods prior to the merger. NorthCenter became
subject to income taxes for all periods following the merger. This pro forma
data does not give pro forma effect to our proposed acquisition of Fresh
Express nor does it give pro forma effect to any other acquisitions. See
"Prospectus Supplement Summary -- Pending Acquisition of Fresh International
Corp.," "Prospectus Supplement Summary -- Recent Acquisitions" and
"-- Business Combinations."
(2) Excludes a nonrecurring gain of $768,000 before taxes on the sale of an
investment.
MARKET RISK
Our primary market risks are related to fluctuations in interest rates. 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 June 30, 2001, our total debt consisted of fixed
and floating rate debt of $65.3 million and $77.2 million, respectively.
Substantially all of our floating rate debt is based on LIBOR.
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BUSINESS
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 36,000 national and proprietary brand food and non-food products
to approximately 29,000 customers in the foodservice or "food-away-from-home"
industry. In addition, we are a major processor of fresh-cut produce that we
market and distribute to foodservice customers. 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 operating segments:
- Broadline. Our broadline distribution segment markets and distributes
more than 32,000 national and proprietary brand food and non-food
products to approximately 29,000 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 14 broadline distribution facilities, which serve customers in
the southern, southeastern, eastern and northeastern United States. Our
broadline distribution segment net sales represented approximately
52.5% of our consolidated net sales in 2000. Net sales for this segment
grew at a compound annual rate of approximately 33.2% from 1996 through
2000.
- 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. 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 11 customers
in 49 states and several foreign countries. Our customized distribution
segment net sales represented approximately 42.4% of our consolidated
net sales in 2000. Net sales for this segment grew at a compound annual
rate of approximately 29.4% from 1996 through 2000.
- Fresh-cut. Our fresh-cut segment purchases, processes, packages and
distributes over 900 fresh produce offerings under our "Fresh
Advantage" and "Redi-Cut" labels. Our fresh-cut operations are
conducted at four processing facilities located in the southeastern,
southwestern and midwestern United States. 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. On December 13, 2000, we acquired Redi-Cut, a
leading regional processor of fresh-cut produce used primarily by
foodservice operators. Our fresh-cut segment net sales represented
approximately 5.1% of our consolidated net sales in 2000, and would
have represented approximately 9.3% of our consolidated net sales in
2000 after giving pro forma effect to our acquisition of Redi-Cut as if
that acquisition had occurred on January 2, 2000. Net sales for this
segment grew at a compound annual rate of approximately 39.6% from 1996
through 2000. Upon completion of our acquisition of Fresh Express, we
will become one of the nation's leading providers of packaged,
ready-to-eat salads to food retailers based on Fresh Express' market
share for the 12-month period ended July 2001, as reported by a market
research firm.
We believe that, over the last several years, we have experienced
significantly greater growth rates than the U.S. foodservice industry as a
whole, both through internal growth and through an active
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acquisition program. From 1996 through 2000, we grew our net sales from $864.2
million to $2.6 billion, representing a compound annual growth rate of
approximately 31.8%. By contrast, according to data compiled by a market
research firm, the total net sales of the U.S. foodservice distribution industry
were approximately $134 billion in 1996 and approximately $163 billion in 2000,
representing a compound annual growth rate of approximately 5.2%.
INDUSTRY OVERVIEW
The foodservice distribution business involves the purchasing,
warehousing, marketing and transportation of meats, poultry, refrigerated
products, frozen foods, dairy products, beverages and other food and non-food
items from manufacturers to a broad range of enterprises, including restaurants,
cafeterias, nursing homes, hospitals, other healthcare facilities and schools.
The U.S. consumer food industry, which includes "food-at-home" and
"food-away-from-home" purchases, recorded net sales of approximately $795
billion in 2000 according to data compiled by a market research firm. Within the
consumer food industry, we believe that the purchase of "food-away-from-home"
has been driven by demographic, economic and lifestyle trends. According to data
compiled by a market research firm, from 1972 through 2000, consumer purchases
of "food-away-from-home" in the U.S. grew at a compound annual rate of
approximately 7.4%. This data also indicates that consumer purchases of
"food-away-from-home" grew from approximately 37.3% of total consumer food
purchases in the U.S. in 1972 to approximately 49.2% in 2000. We believe the
trends that have fueled the demand for "food-away-from-home" have included the
percentage of women in the workforce, growth in dual-income and single-parent
households, the relative affluence of the aging baby-boomer generation and
consumer demand for convenience.
While the foodservice distribution industry is large and includes a
limited number of large distributors that have a significant market presence
nationwide or in one or two regions, we believe, based on data compiled by a
foodservice industry publication, that the industry remains fragmented, with an
estimated 2,800 companies in operation according to data published by a market
research firm. We believe that many of these companies are relatively small,
privately-owned enterprises supplying a limited range of products within local
or regional markets. We believe that the trend in the foodservice distribution
industry has been toward consolidation of small regional and local distributors
through acquisition by larger distributors. For example, according to data
compiled by a foodservice industry publication, the total net sales of the ten
largest broadline distributors in 2000 together accounted for approximately
30.0% of the total net sales for the U.S. foodservice distribution industry as a
whole, compared to approximately 12.8% in 1985. We anticipate further
consolidation as larger distributors continue to pursue acquisitions in an
effort to extend geographic reach and achieve economies of scale such as
increased buying power, increased efficiency of their distribution networks,
increased ability to leverage investments in information technology and
elimination of redundant overhead expenses.
We believe that another avenue for growth in the foodservice distribution
industry is through the development and marketing of specific foodservice
specialty items. For example, we believe that the trend towards health-conscious
eating habits has resulted in the increased popularity of salad and fresh
vegetable offerings in quick-service and other chain restaurants. This increased
popularity has generated demand for fresh-cut produce. In addition, we believe
that a number of restaurants are seeking ways to increase product quality while
reducing labor costs. Technological innovations in the processing and packaging
of fresh-cut produce have enabled specialty produce processors to extend the
shelf life of their products while offering convenience and costs savings to
their customers.
GROWTH STRATEGIES
Our 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 maintain our strong
internal growth and that we are well-positioned to take advantage of the
consolidation taking place in our industry.
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Our key growth strategies are as follows:
Increase broadline sales to existing customers 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
customers 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 whom 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 should
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 will seek 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, Colonial Tradition, Village Garden, West Creek and AFFLAB offer
customers greater value than national brands, and also 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 foodservice distributor.
Become a nationwide leader in fresh-cut produce. We believe that our
acquisition of Redi-Cut in December 2000 and our pending acquisition of Fresh
Express represent important steps in the implementation of our strategy to
become a leading national processor of fresh-cut produce for the foodservice and
retail markets. 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 and pre-cut, ready-to-eat
fruit, leveraging our core products and building our customer base by
capitalizing on our expertise in food safety and preservation.
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Improve operating efficiencies through systems and technology. 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. We seek to increase our sales to street customers because, despite
the generally higher sales and delivery costs we incur in servicing these
customers, sales to street customers typically generate higher operating profit
margins than sales to chain customers. As of June 30, 2001, we supported our
sales to our street customers with approximately 800 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
Outback Steakhouse, Cracker Barrel Old Country Store and TGI Friday's, as well
as a total of approximately 4,400 Burger King, Wendy's, Subway, KFC, Dairy
Queen, Popeye's and Church'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 which 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, Outback and Cracker Barrel, account for a significant
portion of our consolidated net sales. Net sales to Outback accounted for 16.3%
of our consolidated net sales for the six months ended June 30, 2001, and 16.3%,
15.6% and 15.2% of our consolidated net sales for 2000, 1999 and 1998,
respectively. Net sales to Cracker Barrel accounted for 14.6% of our
consolidated net sales for the six
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months ended June 30, 2001, and 16.1%, 17.3% and 18.0% of our consolidated net
sales for 2000, 1999 and 1998, respectively. No other chain customer accounted
for more than 5.0% 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 price. Our customers for our fresh-cut products are
primarily other foodservice distributors who resell these products to a total of
more than 20,000 McDonald's, Taco Bell, Burger King, Pizza Hut, Subway and KFC
restaurants. Our fresh-cut business also services 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 36,000 national and proprietary brand food and
non-food products to a total of approximately 29,000 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 which
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, Village
Garden, West Creek 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 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 lettuce, onions
and green peppers, cole slaw, and diced, sliced and bulk tomatoes, that we
purchase, process and market under our 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 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 are processing sliced tomatoes with consistently high quality and
selling them at a price which we believe allows 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 managing inventories, 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, as well as to
our own distribution
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network. These procurement and merchandising services include negotiating vendor
supply agreements and 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%
===
INFORMATION SYSTEMS
In our broadline distribution operations, we manage the ordering,
receiving, warehousing and delivery of over 32,000 products through our
Foodstar(R) 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 which 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 which 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.
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
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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 and Brilliance
brands and markets these brands, as well as nationally branded foodservice
products, through our own distribution operations and to approximately 180
independent foodservice distributors 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.
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 tradenames 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 19 distribution centers
located in California, Florida, Georgia, Louisiana, Maine, Maryland,
Massachusetts, 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 four fresh-cut processing
plants located in Georgia, Illinois, Missouri 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:
APPROXIMATE
NUMBER OF
NAME OF LOCATION OF CUSTOMER LOCATIONS
SUBSIDIARY/DIVISION PRINCIPAL REGION(S) FACILITIES CURRENTLY SERVED MAJOR CUSTOMERS
------------------- ------------------- --------------- ------------------ ---------------------
BROADLINE
DISTRIBUTION:
AFFLINK Nationwide Tuscaloosa, AL 340 Independent paper
distributors
AFI Food Service New Jersey and New Elizabeth, NJ 2,500 Restaurants,
Distributors York City healthcare facilities
metropolitan area and schools
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APPROXIMATE
NUMBER OF
NAME OF LOCATION OF CUSTOMER LOCATIONS
SUBSIDIARY/DIVISION PRINCIPAL REGION(S) FACILITIES CURRENTLY SERVED MAJOR CUSTOMERS
------------------- ------------------- --------------- ------------------ ---------------------
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, MD 1,200 Restaurants,
Washington D.C. healthcare facilities
area and schools
Empire Seafood Florida Miami, FL 2,800 Royal Caribbean,
Carnival Cruise Lines
and other cruise
lines and restaurants
NorthCenter Maine Augusta, ME 2,000 Restaurants,
healthcare facilities
and schools
Performance Food South and Southwest Temple, TX 5,300 Popeye's Church's,
Group of Texas 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 Morristown, TN 800 Restaurants,
and Kentucky healthcare 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 Thomasville, GA 1,900 Restaurants,
and Alabama healthcare facilities
and schools
Pocahontas Foods, USA Nationwide Richmond, VA 180 Independent
foodservice
distributors and
vendors
Springfield New England and Springfield, MA 2,200 Restaurants,
Foodservice portions of New healthcare facilities
York State and schools
Virginia Foodservice Virginia Richmond, VA 1,000 Texas Steakhouse and
Group other restaurants and
healthcare facilities
CUSTOMIZED
DISTRIBUTION:
PFG Customized Nationwide Lebanon, TN 1,700 Cracker Barrel,
Distribution Gainesville, FL Outback Steakhouse,
McKinney, TX TGI Friday's and
Elkton, MD other chain
Bakersfield, CA restaurants
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APPROXIMATE
NUMBER OF
NAME OF LOCATION OF CUSTOMER LOCATIONS
SUBSIDIARY/DIVISION PRINCIPAL REGION(S) FACILITIES CURRENTLY SERVED MAJOR CUSTOMERS
------------------- ------------------- --------------- ------------------ ---------------------
FRESH-CUT PRODUCE:
Fresh Advantage and Southeast, Franklin Park, 450 Distributors who
Redi-Cut Southwest and IL resell our products
Midwest Kansas City, MO primarily to
Grand Prairie, approximately 20,600
TX chain restaurant
Carrollton, GA locations, 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 area of our business, competition comes mainly from
smaller processors, although we encounter intense competition from national and
larger 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. Our failure to
compete successfully could have a material adverse effect on our business,
operating results and financial condition.
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 waste water 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 which 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.
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INTELLECTUAL PROPERTY
Except for the Pocahontas, Fresh Advantage and Redi-Cut tradenames, we do
not own or have the right to use any patent, trademark, tradename, 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 existing fresh-cut processing, we rely on certain
proprietary machinery and processes which 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.
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 preliminary decision that we believe, if finalized in
its current form, diminishes the likelihood of an unfavorable decision against
us with respect to Maxwell's claim of patent infringement. It is our
understanding that Maxwell is seeking modifications to this preliminary
decision, and we cannot assure you that the final decision issued by the Patent
and Trademark Office will not be modified or that any such modifications will
not be materially adverse to us. 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. Please review "Risk Factors -- Product liability claims could have
an adverse effect on our business" for information about a lawsuit involving one
of our subsidiaries.
EMPLOYEES
As of June 30, 2001, we had approximately 5,400 full-time employees,
including approximately 1,670 in management, administration, marketing and sales
and the remainder in operations. As of June 30, 2001, 608 of our employees were
represented by a union or a collective bargaining unit. We have entered into
four collective bargaining agreements with respect to our unionized employees.
Agreements with respect to 467, 31, 20 and 90 of our union employees expire in
October 2002, November 2003, December 2003 and June 2006, respectively. We
consider our employee relations to be satisfactory.
BUSINESS OF FRESH EXPRESS
According to data compiled by a market research firm, Fresh Express is
one of the nation's leading providers of packaged, ready-to-eat salads to food
retailers, based on its market share for the 12-month period ended July 2001.
Based in Salinas, California, Fresh Express distributes its products to both
retail and foodservice customers nationwide. During its 2000 fiscal year, Fresh
Express recorded revenues of approximately $509 million and its operating
margin, which is defined as income from operations divided by revenues, was
approximately 4.6%. With five processing facilities strategically located
throughout the United States, Fresh Express processes, packages and distributes
its products nationwide to food retailers such as Wal-Mart, Kroger, Albertson's
and Safeway, as well as foodservice distributors and
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operators. Fresh Express is also a leading provider of controlled and modified
atmosphere systems and packaging to extend the shelf life of packaged salads,
fruits and vegetables and other perishable products.
Overview of Fresh Express' Industry
We believe that fresh-cut produce is a rapidly growing segment of the
food industry and that our acquisition of Fresh Express will position us to
capitalize on this growth. We believe that the trend towards health-conscious
eating habits and the need for convenience have continued to drive the
popularity of fresh-cut salads and other fresh produce. In addition, driven in
part by dual-income and single-parent families, we believe that consumer demand
for convenience has contributed to the growth in this sector in recent years.
Furthermore, we believe that a number of foodservice operators are seeking ways
to increase product safety and quality while reducing labor costs. Technological
innovations in the processing and packaging of fresh-cut produce have enabled
specialty produce processors to extend the shelf life of their products while
offering safer, more convenient and lower cost products to their foodservice
customers. We anticipate that these trends will continue to drive demand for
fresh-cut produce.
Strategy for Fresh Express Following the Acquisition
Our acquisition of Fresh Express is an important step in our strategy to
become a leading national processor of fresh-cut produce. In particular, our key
strategies to leverage the Fresh Express acquisition include the following:
- Continue to build, grow and maintain Fresh Express' distinctive
customer relationships. We believe that Fresh Express can maintain and
grow its position in the packaged, pre-cut salad market and has the
ability to capitalize on the strengths it has developed in this market.
Fresh Express has an experienced management team and a record of
product and service innovations which should allow it to grow its
current business and expand its product offerings.
- Increase sales through cross-selling of products. Our strategy is to
grow the sales of Fresh Express' packaged, ready-to-eat salads to the
foodservice sector by leveraging our existing relationships with
foodservice operators and distributors. We believe that packaged,
pre-cut salads represent a significant business opportunity for
foodservice operators as they can provide a cost-effective alternative
compared to salads prepared by the operators' own employees while
providing a product with a longer shelf life. We will also seek to
leverage Fresh Express' well-established brand name and existing
relationships with major food retailers to increase the sales of our
existing fresh produce offerings, which we currently sell mainly to
foodservice distributors and operators. Driven by consumer demand for
healthy and convenient meals, we believe that packaged, pre-cut salads
have been a fast-growing product category in the food retail channel
over the last several years and typically command higher gross margins
than bulk lettuce.
- Enhance geographic coverage through the addition of Fresh Express'
processing facilities. The addition of five Fresh Express processing
facilities, including a strategically important facility in Salinas,
California, should allow us to enhance our nationwide marketing
capabilities and better service our customers. We anticipate that Fresh
Express' five facilities located in various regions of the country will
translate into more rapid delivery to the consumer, greater product
freshness and a higher level of service for customers.
- Continue leadership in product innovation and development. We believe
that the management of Fresh Express shares our focus on product
innovation and technological solutions to address our customers'
evolving needs. By integrating the knowledge of markets and customers
as well as the research and development efforts of Performance Food
Group and Fresh Express, we believe that together we will strengthen
our product innovation capability. Fresh Express has invested in
research and development with respect to the packaged, fresh-cut fruit
market, which we believe presents a significant business opportunity
with food retailers and traditional foodservice customers.
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- Enhance purchasing leverage through integrated procurement. The
acquisition of Fresh Express is expected to substantially increase
sales in our fresh-cut segment. By combining the procurement operations
of Performance Food Group and Fresh Express, we will seek to enhance
our purchasing volumes and buying power and realize cost savings in our
fresh-cut operations. In addition, we believe that we can reduce supply
risk and manage exposure to fluctuations in our produce costs by
leveraging Fresh Express' knowledge of innovative, quality-enhancing
and cost-effective production techniques.
Products and Services of Fresh Express
Fresh Express introduced the first packaged, ready-to-eat salads in the
United States in 1989. Since that time, Fresh Express has expanded its product
offerings to meet evolving consumer preferences. Fresh Express currently offers
consumers and foodservice operators over 30 varieties of packaged, ready-to-eat
salads, sold under three product lines: Garden Salads, World Blends and
Specialty Kits. Garden Salads include traditional iceberg and romaine garden
salads and cole slaw and accounted for approximately 30.3% of Fresh Express'
fiscal 2000 revenues. World Blends contain a combination of more exotic, darker-
leaf lettuces and vegetables and sell at higher price points and profit margins
than Garden Salads and accounted for approximately 29.3% of Fresh Express'
fiscal 2000 revenues. Specialty Kits contain ready-to-eat salads along with
other items such as croutons, salad dressings, cheese and crackers and accounted
for approximately 10.7% of Fresh Express' fiscal 2000 revenues.
Fresh Express emphasizes product innovation as a means to building strong
customer relationships. For example, Fresh Express focuses on providing
innovative products to its customers, as well as on improving processing and
packaging technology to extend the shelf life of its salads. This extended shelf
life can be especially valuable to food retailers, as it helps improve inventory
management, which can result in reduced costs. Fresh Express has capitalized on
the development of its packaging technology by offering controlled atmosphere
systems to third parties for their packaging and shipping needs.
Fresh Express' Customers and Marketing
Fresh Express has relationships with national and regional food
retailers. One customer accounted for approximately 13% of Fresh Express'
revenues during its 2000 fiscal year and four other customers each accounted for
more than 5% of its revenues during that period. No other customer accounted for
more than 5% of Fresh Express' revenues during that fiscal year.
Fresh Express' retail packaged salad business is supported by a dedicated
sales and marketing organization. The retail sales organization is led by a vice
president of sales and employs regional business managers who are responsible
for sales to retail grocery accounts within their geographic regions. These
sales managers work with a network of brokers across the country to sell Fresh
Express' products, gain business with new retail accounts and introduce new
products to existing retail accounts. Fresh Express also employs business
development managers to add focus for specific geographic areas or retail
accounts. Brokers are responsible for store-level selling and merchandising
activities on behalf of Fresh Express. Fresh Express' marketing department,
which focuses primarily on packaged salad products, assists the sales department
in the development of account specific sales promotion plans. It is also
responsible for market, product line and customer profitability analysis. Fresh
Express' marketing department employs full-time staff members under Fresh
Express' director of marketing.
Fresh Express also provides fresh-cut lettuce, spinach, cabbage, broccoli
and cauliflower to foodservice distributors such as McLane and AmeriFresh and
foodservice operators such as Taco Bell. Sales to foodservice operators and
distributors accounted for approximately 13.7% of its fiscal 2000 revenues. See
"Risk Factors -- We may not achieve benefits expected from the Fresh Express and
Springfield acquisitions." Fresh Express also seeks to introduce new products
for the foodservice industry such as whole leaf lettuce and has been approved to
supply, on a test basis, ready-to-eat salads to a national, home-delivery pizza
chain.
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Sales of Fresh Express' products to foodservice customers are conducted
directly and do not require a broker network. Fresh Express employs customer
service representatives and account managers to service its foodservice
customers. Additionally, Fresh Express has account managers working directly out
of its Atlanta facility who focus on foodservice customers.
Suppliers and Purchasing
Fresh Express contracts with growers in various locations to help reduce
supply risk and manage exposure to fluctuations in costs. In addition, Fresh
Express works proactively with suppliers to develop innovative,
quality-enhancing and cost-effective production techniques. These techniques
include proprietary seed varieties which are intended to provide superior raw
product quality, development of larger beds to increase yield and "in-field
lettuce coring," which reduces transportation and production cost while reducing
processing time.
Operations and Facilities
Fresh Express has five processing facilities located in Salinas,
California; Colorado Springs, Colorado; Atlanta, Georgia; Chicago, Illinois and
Greencastle, Pennsylvania. The facility located in Colorado Springs is owned by
a joint venture in which Fresh Express is a 50% partner with a third party. Once
harvested, produce is typically shipped by temperature-controlled trucks to one
of Fresh Express' facilities where it is inspected, processed, packaged and
boxed for shipment. Finished products are generally shipped within twenty-four
hours in temperature-controlled trucks that Fresh Express owns or leases. Fresh
Express' regional facilities allow customers to receive more frequent deliveries
with less delivery lead-time, allowing retailers and foodservice operators to
more effectively manage product freshness and inventory.
Competition
Fresh Express faces intense competition from a variety of branded and
private label competitors. Its primary competitor is Dole Food Company, which we
believe is the world's largest producer and marketer of fresh fruit and
vegetables. Since its entry into the packaged, pre-cut salad market, Dole has
captured a portion of that market in the United States which we believe is only
slightly less than Fresh Express' share of that market based on market share for
the 12-month period ended July 2001, as reported by a market research firm. We
believe that three other companies also have a significant share of the domestic
packaged, pre-cut salad market. The balance of the packaged, pre-cut salad
market is serviced by a number of smaller regional or local processors.
Intellectual Property
Fresh Express has patents to protect some of its methods of maintaining
produce products. Fresh Express has patents covering a number of its proprietary
technologies, including atmospheres used in packaging its salads and atmospheres
protecting products from decomposing.
Employees
As of June 30, 2001, Fresh Express had approximately 2,500 full-time
employees, including approximately 350 salaried employees and 1,236 union
employees. As of June 30, 2001, 128 of Fresh Express' employees were employed
under a contract with a union expiring in December 2003, and 1,108 of its
employees were employed under a contract with a union expiring in December 2005.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our
directors and executive officers as of September 26, 2001:
NAME AGE POSITION
---- --- --------
Robert C. Sledd............................ 48 Chairman of the Board
C. Michael Gray............................ 51 President, Chief Executive Officer and
Director
Roger L. Boeve............................. 63 Executive Vice President and Chief
Financial Officer
Thomas Hoffman............................. 61 Senior Vice President
G. Thomas Lovelace, Jr..................... 48 Vice President
John D. Austin............................. 39 Vice President -- Finance and Secretary
John R. Crown.............................. 55 Broadline Regional President
Joseph Paterak............................. 49 Broadline Regional President
Steven Spinner............................. 41 Broadline Division President
Charles E. Adair(1)(2)..................... 53 Director
Fred C. Goad, Jr.(1)(2).................... 61 Director
Timothy M. Graven(1)(2).................... 50 Director
H. Allen Ryan.............................. 59 Director
John E. Stokely(1)(2)...................... 48 Director
---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Robert C. Sledd has served as Chairman of the Board of Directors since
February 1995 and has served as a director of Performance Food Group since 1987.
From 1987 to August 2001, Mr. Sledd served as Chief Executive Officer of
Performance Food Group. 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 of Performance Food Group since
February 1995, has served as Chief Executive Officer since August 2001 and has
served as a director of Performance Food Group since 1992. Mr. Gray served as
Chief Operating Officer of Performance Food Group from February 1995 to August
2001. 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 and as President of Customized Distribution 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
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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 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. 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 Food Distributors
International, two food industry trade associations.
Joseph Paterak 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 Division President of Performance
Food Group since August 2001. Mr. Spinner served as Broadline Regional President
of Performance Food Group from October 2000 to August 2001 and served as
President of AFI Foodservice Distributors, Inc., a wholly owned subsidiary of
Performance Food Group, from October 1997 to October 2000. From 1989 to October
1997, Mr. Spinner served as Vice President of AFI.
Charles E. Adair has served as a director of Performance Food Group since
August 1993. Since 1993, Mr. Adair has been a partner in Cordova Ventures, a
venture capital management company. Mr. Adair was employed by Durr-Fillauer
Medical, Inc., a distributor of pharmaceuticals and other medical products, from
1973 to 1992, serving as Executive Vice President from 1978 to 1981, as
President and Chief Operating Officer from 1981 to 1992, and as a director from
1976 to 1992. In addition, Mr. Adair serves as a director of Tech Data
Corporation, a distributor of microcomputers and related hardware and software
products. Mr. Adair is a certified public accountant.
Fred C. Goad, Jr. has served as a director of Performance Food Group
since July 1993. Since April 2001, Mr. Goad has served as a partner of Voyent
Partners. Mr. Goad served as Co-Chief Executive Officer of the transaction
services division of WebMD from March 1999 to March 2001. From June 1996 to
March 1999, Mr. Goad served as Co-Chief Executive Officer and Chairman of ENVOY
Corporation, a provider of electronic transaction processing services for the
health care industry, which was acquired by WebMD in 1999. From 1985 to June
1996, Mr. Goad served as President and Chief Executive Officer and as a director
of ENVOY. Mr. Goad also serves as a director of Luminex Corporation, a maker of
proprietary technology that simplifies biological testing for the life services
industry and from February 2000 to August 2001, Mr. Goad served as a director of
Private Business, Inc., a provider of electronic commerce solutions that help
community banks provide accounts receivable financing to their small business
customers.
Timothy M. Graven has served as a director of Performance Food Group
since August 1993. Mr. Graven is the Managing Partner and co-founder of Triad
Investment Company, LLC, a private investment firm founded in 1995. Mr. Graven
previously served as President and Chief Operating Officer of Steel
Technologies, Inc. of Louisville, Kentucky, a steel processing company, from
March 1990 to
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November 1994, as Executive Vice President and Chief Financial Officer from May
1985 to March 1990 and as a director from 1982 to 1994. Mr. Graven is also a
certified public accountant.
H. Allen Ryan has served as a director of Performance Food Group since
May 2000 and serves as a consultant to Performance Food Group from time to time.
Mr. Ryan served as President of NorthCenter, a wholly owned subsidiary of
Performance Food Group, from 1982 to April 2000. Mr. Ryan is past Chairman of
Nugget Distributors, Inc., a foodservice buying group, and the International
Foodservice Distributors Association. Mr. Ryan served on the Board of Directors
of the Maine Restaurant Association and serves on the Board of Trustees of
Thomas College in Waterville, Maine. NorthCenter was the 1999 recipient of the
ID Magazine Great Distributor Organization Award.
John E. Stokely has served as a director of Performance Food Group since
April 1998. Since August 1999, Mr. Stokely has been self-employed as a business
consultant. Mr. Stokely was the President, Chief Executive Officer and Chairman
of the Board of Directors of Richfood Holdings, Inc., a retail food chain and
wholesale grocery distributor, from January 1997 until August 1999, when
Richfood was acquired by Supervalu Inc. Mr. Stokely served on the Board of
Directors and as President and Chief Operating Officer of Richfood from April
1995 to January 1997 and served as Executive Vice President and Chief Financial
Officer from 1990 to April 1995. Mr. Stokely also serves as a director of
Nash-Finch Company, a food wholesaler, and SCP Pool Corporation.
The Board of Directors has established an Audit Committee for the purpose
of recommending our auditors, reviewing the scope of their engagement,
consulting with the auditors, reviewing the results of the audit, acting as a
liaison between the Board and the auditors and reviewing various company
policies, including those related to accounting and internal control matters.
Messrs. Goad, Graven, Adair and Stokely comprise the Audit Committee.
The Board of Directors has established a Compensation Committee for the
purpose of evaluating the performance of our officers, reviewing and approving
officers' compensation, formulating bonuses for our management and administering
our stock incentive plans. Messrs. Goad, Graven, Adair and Stokely comprise the
Compensation Committee.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock. As of September 25, 2001, there
were:
- 38,004,240 shares of common stock issued and outstanding;
- 5,860,304 shares of common stock reserved for issuance under our stock
purchase plan and stock option plans; as of September 25, 2001, options
to purchase 3,950,020 shares of common stock were outstanding under our
stock option plans;
- no shares of preferred stock outstanding; and
- 1,000,000 shares of Series A Preferred Stock reserved for issuance upon
the exercise of rights issued in connection with our shareholder rights
plan.
American Stock Transfer & Trust Company is the transfer agent and
registrar for our common stock.
You should carefully review the summary description of selected
provisions of our charter, by-laws, common stock, preferred stock and
shareholder rights plan which appears in the accompanying prospectus under
"Description of Capital Stock."
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SHARES ELIGIBLE FOR FUTURE SALE
If our shareholders sell substantial amounts of our common stock,
including shares issued upon the exercise of options, in the public market
following this offering, or if there is a perception that those sales may occur,
the market price of our common stock could fall. These sales also might make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price we deem appropriate.
Upon completion of the common stock offering and based on shares
outstanding on September 25, 2001, a total of 43,004,240 shares of our common
stock will be outstanding. This amount assumes that the underwriters for the
common stock offering do not exercise their over-allotment option and does not
include the shares of common stock reserved for issuance upon conversion of the
notes being offered in the notes offering. All of our outstanding shares of
common stock are, and all of the shares being sold in the common stock offering
and issuable upon conversion of the notes being offered in the notes offering
will be, freely transferable without restriction or further registration under
the Securities Act of 1933, except for shares that are held by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act of 1933, and except
for some of the shares we have issued in acquisitions.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares of common stock are aggregated, including persons who may be deemed
our affiliates, who has beneficially owned shares of our common stock for at
least one year is entitled to sell, within any three-month period, a number of
shares that is not more than the greater of:
- 1% of the number of shares of common stock outstanding as shown by the
most recent report or statement published by us, or approximately
380,042 shares of our common stock as of September 25, 2001; or
- the average weekly trading volume of the common stock on the Nasdaq
Stock Market's National Market during the four calendar weeks before a
notice of the sale on Form 144 is filed with the SEC.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
In general, under Rule 145 a person who was issued shares of our common
stock in connection with our acquisition of another business and who was an
affiliate of the acquired business before the transaction would be entitled to
resell those shares immediately upon receipt in accordance with the requirements
of Rule 144 described above other than the holding period and notice
requirements. That person would also be entitled, after a one-year holding
period and so long as that person is not our affiliate, to resell those shares
under Rule 145 without regard to the volume limitations, manner of sale and
notice provisions of Rule 144. If the person who received those shares was not
an affiliate of the acquired business before the transaction and is not our
affiliate after the transaction, that person would be entitled to freely
transfer those shares, immediately upon receipt, without complying with Rule
144.
We have registered a total of 13,000,000 shares of our common stock under
three shelf registration statements on Form S-4 that are in effect under the
Securities Act. These registration statements permit us to register under the
Securities Act of 1933 shares of common stock that we issue to owners of
businesses we acquire, and also permit certain recipients of those shares to
resell those shares in the public markets. We have issued a total of 6,991,888
shares under these registration statements to the former owners of acquired
businesses, including Springfield. Of the shares that we have issued under these
registration statements, we do not know the exact number of shares that have
been resold by the original
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recipients. However, all of these shares are eligible for resale by the original
recipients in the public markets, either without restriction, pursuant to Rule
145 or under one of these registration statements.
Under contractual provisions in acquisition agreements, we have issued
and in the future may be required to issue additional shares of common stock to
owners of an acquired business after the acquisition date. In addition, part of
our strategy is to grow through acquisitions and, to the extent we use common
stock to pay for future acquisitions, we will likely issue additional shares
under these or subsequent shelf registration statements.
All of our executive officers and directors have agreed, with exceptions,
that they will not sell or otherwise transfer any shares of our common stock for
90 days after the date of this prospectus supplement without first obtaining the
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. In
addition, the former shareholders of Springfield have agreed, with exceptions,
that they will not sell or otherwise transfer any shares of our common stock
before the earlier of January 8, 2002 or 90 days after the date of this
prospectus supplement without first obtaining the written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. See "Underwriting."
As of September 25, 2001, 5,860,304 shares of our common stock were
reserved for issuance under our stock purchase plan and stock option plans, and
options to purchase 3,950,020 shares of our common stock were outstanding under
our stock option plans. We have filed registration statements on Form S-8
covering any shares of common stock which we may issue under these plans. We
anticipate that, in connection with our acquisition of Fresh Express, we will
issue options to purchase approximately 130,000 shares of our common stock at an
exercise price equal to the fair market value of our common stock on the closing
date of the acquisition to employees of Fresh Express. These options will be
issued under our stock option plans and will not vest until four years after
they are issued.
As of June 30, 2001, 1,534,612 shares of our common stock had been
allocated to participants under our employee stock ownership plan, or ESOP, all
of which shares are eligible for resale in the public market. These participants
exercise voting power over these shares. The remaining 711,136 shares of our
common stock held by our ESOP on June 30, 2001 were unallocated and are voted by
the ESOP's trustee at the direction of our board-appointed ESOP committee. These
shares, when allocated to trust participants, will also be eligible for resale
in the public market.
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DESCRIPTION OF THE NOTES
The notes will be issued under an indenture, as amended and supplemented
by a first supplemental indenture (collectively, the "indenture"), between us
and Bank One Trust Company, N.A., as trustee (the "Trustee"). We have summarized
selected provisions of the notes and the indenture below. This summary is not
complete and is qualified in its entirety by reference to the provisions of the
notes and the indenture, which provisions, including defined terms, are
incorporated by reference in this prospectus supplement. Forms of the notes and
the indenture have been or will be filed with the Securities and Exchange
Commission and you may obtain copies as described under "Available Information"
in the accompanying prospectus.
The notes offered by this prospectus supplement are a series of
"subordinated debt securities" as defined and described in the accompanying
prospectus and will be our unsecured subordinated obligations. The following
description of the particular terms of the notes and the indenture supplements,
and to the extent inconsistent replaces, the descriptions of the general terms
and provisions of the subordinated debt securities and the related indenture
contained in the accompanying prospectus. You should review the description of
those general terms and provisions appearing in the accompanying prospectus
under the caption "Description of Debt Securities."
In the following description of the notes, references to "Performance
Food," "we," "our," and "us" mean Performance Food Group Company excluding,
unless the context otherwise requires or otherwise expressly stated, its
subsidiaries. Capitalized terms used in the following description of the notes
but not defined have the meanings given to those terms in the accompanying
prospectus or, if not defined in the accompanying prospectus, in the indenture.
GENERAL
The notes will constitute a separate series of subordinated debt
securities under the indenture, limited to $175,000,000 aggregate principal
amount, plus up to an additional $26,250,000 aggregate principal amount if the
underwriters' over-allotment option is exercised in full. The notes will be our
unsecured obligations and will be subordinated in right of payment to all of our
existing and future Senior Indebtedness, as defined, as described below under
"Subordination." The notes will be convertible into common stock of Performance
Food at the option of the holders as described below under "Conversion Rights."
The notes will mature on October 16, 2008, unless earlier converted by the
holders, redeemed by us or repurchased by us at the option of the holders upon
the occurrence of a Change of Control, as defined below.
The notes will bear interest from October 16, 2001 at the rate of 5 1/2%
per annum. Interest on the notes will be payable semi-annually in arrears on
April 16 and October 16 of each year, commencing April 16, 2002, to the persons
who are the registered holders of the notes at the close of business on the
immediately preceding April 1 and October 1, respectively. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest will cease to accrue on a note upon its maturity, conversion,
redemption or repurchase by us upon a Change of Control on the terms and subject
to the conditions specified in the indenture.
We will be entitled to redeem the notes at the times and the redemption
prices described below under "Optional Redemption by Performance Food Group."
The notes will not be subject to a sinking fund. No Additional Amounts, as
described in the accompanying prospectus, will be payable with respect to the
notes.
If any interest payment date, redemption date or maturity date of a note
or date for repurchase of a note at the option of the holder following a Change
of Control is not a business day, then payment of the principal, premium, if
any, and interest due on that date may be made on the next business day. In that
case, no interest will accrue on the amount payable for the period from and
after the applicable interest payment date, redemption date, maturity date or
repurchase date, as the case may be.
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The indenture does not contain any financial covenants or any
restrictions on our ability to repurchase our securities or pay dividends or on
the ability of us or our subsidiaries to incur indebtedness and other
liabilities. The indenture also does not contain any covenants or other
provisions that afford protection to holders of notes in the event of a highly
leveraged or similar transaction affecting or involving Performance Food or a
change of control of Performance Food, except to the extent described under
"Change of Control Permits Purchase of Notes at the Option of the Holder" below.
We anticipate that we will be prohibited, by the terms of our new credit
facility or, if we do not enter into the new credit facility, by amendments to
our existing credit facility that we expect will become effective concurrently
with the closing of this offering, from redeeming or repaying the notes prior to
maturity. We also anticipate that, as a result of changes to our master
operating lease facilities that we expect will become effective concurrently
with the closing of this offering, those lease facilities will incorporate an
identical limitation on our ability to redeem or repay the notes. These
limitations, taken together with the fact that the notes are subordinated in
right of payment to our Senior Indebtedness, as defined, could adversely affect
the interests of the holders of the notes upon an Event of Default with respect
to the notes or in other circumstances. In addition, if we are required to
repurchase notes following a Change of Control, we anticipate that, under our
new credit facility or, if we do not enter into our new credit facility, under
amendments to our existing facility that we expect will become effective
concurrently with the closing of this offering and under changes to our master
operating lease facilities that we expect will become effective concurrently
with the closing of this offering, we will be prohibited from paying the
repurchase price of the notes in cash. See "Risk Factors -- Our ability to
repurchase notes following a change of control event and in other circumstances
may be limited."
The notes will be issued only in fully registered form without coupons,
in denominations of $1,000 and integral multiples of $1,000. The notes will be
issued in book-entry form and will be represented by one or more global notes
registered in the name of The Depository Trust Company, as depositary, or its
nominee. This means that you will not be entitled to receive a certificate for
the notes that you purchase except under the limited circumstances described in
the accompanying prospectus under "Description of Debt Securities -- Book-Entry
Debt Securities."
So long as the notes are in book-entry form, we will make payments on the
notes to the depositary or its nominee, as the registered holder of the notes.
If notes are issued in definitive certificated form under the limited
circumstances described in the accompanying prospectus, we will have the option
of paying interest by check mailed to the addresses of the persons entitled to
payment, as those addresses appear in the notes register, or by wire transfer to
accounts maintained by the payees with banks located in the United States of
America; provided that a holder of $5,000,000 or more in aggregate principal
amount of notes in definitive certificated form will be entitled to receive
interest payments on any interest payment date by wire transfer of immediately
available funds to an account at a bank located in the United States of America
designated by the holder (provided that bank has appropriate facilities
therefor) if appropriate wire transfer instructions have been received in
writing by the Trustee not less than 15 days prior to such interest payment
date. Any such wire transfer instructions received by the Trustee will remain in
effect until revoked by such holder or by a subsequent holder of those notes.
We will maintain an office or agency in The City of New York where notes
may be surrendered for payment, conversion, registration of transfer and
exchange and where notices and demands in respect of the notes and the indenture
may be delivered to us. That office or agency will initially be the office of
the Trustee maintained for that purpose in New York, New York. However, so long
as the notes are in book-entry form, you will receive payments and may transfer
and convert notes only through the facilities of the depositary and its direct
and indirect participants. See "Book-Entry Notes" below and "Description of Debt
Securities -- Book-Entry Debt Securities" in the accompanying prospectus.
All monies paid by Performance Food to the Trustee or a paying agent for
the payment of principal of or premium, if any, or interest on any note which
remain unclaimed for two years after that principal, premium, if any, or
interest has become due and payable will be repaid to Performance Food at its
request, whereupon the holder of that note may look only to Performance Food for
payment.
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CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on
the final maturity date of the notes but subject to any prior redemption or
repurchase of notes by Performance Food, convert any outstanding notes (or
portions thereof) into common stock of Performance Food, initially at a
conversion price of $32.95 per share of common stock, which is equal to a
conversion rate of approximately 30.3490 shares of common stock per $1,000
principal amount of notes. The conversion price is subject to adjustment upon
the occurrence of specified events as described below. The number of shares of
common stock issuable upon conversion of a note is determined by dividing the
principal amount of the note being converted by the conversion price in effect
on the conversion date. Holders may convert notes only in denominations of
$1,000 and integral multiples of $1,000. Except as described below, no
adjustment or payment will be made on conversion of any notes for interest
accrued thereon or for dividends, if any, paid or distributions, if any, made on
any common stock issuable on conversion of those notes.
Notwithstanding the provisions described in the immediately preceding
paragraph, if notes are converted after the close of business on a record date
for the payment of interest and on or prior to the next succeeding interest
payment date, the persons who were the registered holders of those notes at the
close of business on that record date will receive the interest payable on those
notes on the corresponding interest payment date notwithstanding the conversion.
However, notes which are converted after the close of business on a record date
but prior to the opening of business on the next succeeding interest payment
date must be accompanied by funds equal to the amount of interest payable on
that interest payment date with respect to the principal amount of notes so
converted, unless those notes have been called for redemption on a redemption
date that occurs after that record date and on or prior to the third business
day after that interest payment date, in which case no such payment shall be
required. We will not issue fractional shares of common stock upon conversion of
notes and instead will pay a cash adjustment based upon the closing price (as
defined in the indenture) of the common stock on the last trading day before the
date of the conversion. In the case of notes called for redemption, conversion
rights will expire at the close of business on the business day preceding the
date fixed for redemption, unless we default in payment of the redemption price.
A holder may exercise the right of conversion by delivering the note,
duly endorsed or assigned as provided in the indenture, to be converted to the
specified office of a conversion agent, with a completed notice of conversion,
together with any funds that may be required as described in the preceding
paragraph. The conversion date will be the date on which the notes, the notice
of conversion and any required funds have been so delivered. A holder delivering
a note for conversion will not be required to pay any taxes or duties relating
to the issuance or delivery of the common stock upon such conversion, but will
be required to pay any tax or duty which may be payable relating to any transfer
involved in the issuance or delivery of the common stock in a name other than
that of the holder of the note. Certificates representing shares of common stock
issuable on conversion will be delivered only after all applicable taxes and
duties, if any, payable by the holder have been paid.
The conversion price of the notes will be adjusted for certain events,
including, subject to the exceptions and limitations provided in the indenture,
the following:
(1) the issuance of Performance Food common stock as a dividend or
distribution on Performance Food common stock;
(2) certain subdivisions and combinations of Performance Food common
stock;
(3) the issuance to all holders of Performance Food common stock of
rights or warrants entitling them, for a period not exceeding 45
days, to purchase Performance Food common stock (or securities
convertible into Performance Food common stock) at a price per share
less than (or having a conversion price per share less than) the
current market price (as defined in the indenture) of Performance
Food common stock determined as of the date specified in the
indenture;
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(4) the dividend or other distribution to all holders of Performance Food
common stock of shares of Performance Food capital stock (other than
dividends or distributions of common stock referred to in
subparagraph (1) above) or evidences of indebtedness, cash or other
assets (including securities, but excluding (A) those rights and
warrants referred to in subparagraph (3) above, (B) dividends or
distributions of capital stock of, or similar equity interests in, a
subsidiary or other business unit of Performance Food resulting in a
change in the conversion price pursuant to the provisions described
in the next succeeding paragraph, (C) dividends and distributions in
connection with a reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance resulting
in a change in the conversion consideration pursuant to the
provisions described in the third succeeding paragraph, or (D)
dividends or distributions paid exclusively in cash);
(5) dividends or other distributions consisting exclusively of cash to
all holders of Performance Food common stock (other than cash that is
distributed upon a reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance resulting
in a change in the conversion consideration pursuant to the
provisions described in the third succeeding paragraph) in an
aggregate amount that, combined together with (A) all other such
all-cash distributions made within the preceding 12 months for which
no adjustment to the conversion price has been made pursuant to this
subparagraph (5) plus (B) the aggregate amount of any cash and the
fair market value (as determined by the Board of Directors of
Performance Food) of other consideration paid in any tender offers by
Performance Food or any of its subsidiaries for Performance Food
common stock that expired within the preceding 12 months for which no
adjustment to the conversion price has been made pursuant to
subparagraph (6) below, exceeds 5% of Performance Food's market
capitalization on the record date for such distribution; "market
capitalization" means the product of the current market price (as
defined) of Performance Food common stock determined as of the record
date for the applicable distribution times the number of shares of
Performance Food common stock outstanding on that date; and
(6) the purchase of Performance Food common stock pursuant to a tender
offer made by Performance Food or any of its subsidiaries for
aggregate consideration having a fair market value (as determined by
the Board of Directors of Performance Food) that, combined together
with (A) the aggregate amount of any cash and the fair market value
(as so determined) of any other consideration paid in any other
tender offer by Performance Food or any of its subsidiaries for
Performance Food common stock expiring within the 12 months preceding
the expiration of such tender offer for which no adjustment to the
conversion price has been made pursuant to this subparagraph (6) plus
(B) the aggregate amount of any dividends or distributions made
exclusively in cash to all holders of Performance Food common stock
within the 12 months preceding the expiration of such tender offer
for which no adjustment to the conversion price has been made
pursuant to subparagraph (5) above, exceeds 5% of Performance Food's
market capitalization on the expiration of such tender offer.
In the event that Performance Food pays a dividend or makes a
distribution to all holders of its common stock consisting of capital stock of,
or similar equity interests in, a subsidiary or other business unit of
Performance Food, the conversion price will be adjusted based on the market
value of the securities so distributed relative to the market value of
Performance Food common stock, in each case based on the average
"Post-Distribution Prices" (as defined in the indenture) of those securities for
the 10 trading days commencing on and including the fifth trading day after the
date on which "ex-dividend trading" commences for such dividend or distribution.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect at such time. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of our
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common stock or any securities convertible into or exchangeable for our common
stock or carrying the right to purchase any of the foregoing.
In the case of:
- any reclassification or change of outstanding Performance Food common
stock (other than changes in par value or from par value to no par
value or from no par value to par value or resulting from a subdivision
or combination), or
- any merger, consolidation, statutory share exchange or combination of
Performance Food with or into another person as a result of which
holders of Performance Food common stock are entitled to receive stock,
securities or other property or assets, including cash, with respect to
or in exchange for their common stock, or
- any sale or conveyance of all or substantially all the properties and
assets of Performance Food to any other person as a result of which the
holders of Performance Food common stock are entitled to receive stock,
securities or other property or assets, including cash, with respect to
or in exchange for their common stock,
the holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of stock, other securities and
other property or assets, including cash, which they would have been entitled to
receive upon such reclassification, change, merger, consolidation, statutory
share exchange, combination, sale or conveyance had such notes been converted
into Performance Food common stock immediately prior to such reclassification,
change, merger, consolidation, statutory share exchange, combination, sale or
conveyance and assuming that such holders of common stock did not exercise any
rights of election as to the kind or amount of securities, cash or other
property receivable upon such transaction, subject to exceptions provided in the
indenture.
We have a shareholder rights plan which is described in the accompanying
prospectus under "Description of Capital Stock -- Preferred Share Purchase
Rights." The conversion price of the notes will not be adjusted for the issuance
of rights under our shareholder rights plan unless and until certain events
specified in the indenture occur.
If a taxable distribution to holders of Performance Food common stock or
other transaction occurs which results in any adjustment of the conversion
price, the holders of notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. federal income tax as a dividend. In
certain other circumstances, the absence of an adjustment may result in a
taxable dividend to the holders of common stock. See "Certain United States
Federal Income Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the notes by any amount for any period of at least 20 days.
In that case we will give at least 15 days' notice of such decrease. We may make
such reductions in the conversion price, in addition to those set forth above,
as we deem advisable to avoid or diminish any income tax to holders of
Performance Food common stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes. See "Certain United States Federal Tax Considerations."
HOLDING COMPANY STRUCTURE
The notes will be unsecured obligations of Performance Food and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of Performance Food. See "Subordination" below. In addition, the notes are the
obligations of Performance Food exclusively, and are not the obligations of any
of Performance Food's subsidiaries. As a result of Performance Food's holding
company structure, the notes will be effectively subordinated to all existing
and future indebtedness and other liabilities of Performance Food's
subsidiaries. See "Subordination" below and "Risk Factors -- Our holding company
structure may adversely affect our ability to meet our debt service obligations
under the notes" and "-- The notes will be effectively subordinated to the
liabilities of our subsidiaries."
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SUBORDINATION
The payment of principal of, premium, if any, and interest on the notes
will be subordinated in right of payment, on the terms and subject to the
conditions as set forth in the indenture, to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness, whether outstanding on the date
of the indenture or thereafter incurred.
In the event of:
(1) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to Performance Food or to its assets,
(2) any liquidation, dissolution or other winding-up of Performance Food,
whether voluntary or involuntary, or
(3) any assignment for the benefit of creditors or other marshaling of
assets or liabilities of Performance Food,
the holders of Senior Indebtedness will be entitled to receive payment in full
in cash or cash equivalents of all Senior Indebtedness, or provision shall be
made for such payment in full in cash or cash equivalents, before the holders of
notes will be entitled to receive any payment or distribution of any kind or
character (other than any payment or distribution in the form of equity
securities or subordinated securities of Performance Food or any successor
obligor that, in the case of any such subordinated securities, are subordinated
in right of payment to all Senior Indebtedness that may at the time be
outstanding to at least the same extent as the notes are so subordinated (such
equity securities or subordinated securities hereinafter being called "Permitted
Junior Securities")) on account of principal of, or premium, if any, or interest
on the notes. Under the circumstances described in the preceding sentence, any
payment or distribution of assets of Performance Food of any kind or character,
whether in cash, property or securities (other than a payment or distribution in
the form of Permitted Junior Securities), by set-off or otherwise, to which the
holders of the notes or the Trustee would be entitled but for the provisions of
the indenture relating to subordination shall be paid by the liquidating trustee
or agent or other person making such payment or distribution directly to the
holders of Senior Indebtedness or their representatives ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness. The consolidation of Performance Food with
or merger of Performance Food into another person or the liquidation or
dissolution of Performance Food following the sale, assignment, transfer or
other conveyance (other than through a lease) of all or substantially all of its
properties and assets to another person upon the terms and conditions described
in the accompanying prospectus under "Description of Debt Securities --
Covenants of Performance Food Group -- Merger, Consolidation and Transfer of
Assets" shall not be deemed a dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
or liabilities of Performance Food for the purposes of this paragraph if the
person formed by such consolidation or into which Performance Food is merged or
the person which acquires all or substantially all such properties and assets,
as the case may be, shall as part of such consolidation, merger or acquisition
comply with the conditions described in the accompanying prospectus under
"Description of Debt Securities -- Covenants of Performance Food Group --
Merger, Consolidation and Transfer of Assets."
No payment or distribution of any assets of Performance Food of any kind
or character, whether in cash, property or securities (other than Permitted
Junior Securities), may be made by or on behalf of Performance Food on account
of principal of or premium, if any, or interest on the notes or on account of
the purchase, redemption or other acquisition of notes upon the occurrence of
any default in payment of any principal of or premium, if any, or interest on
any Designated Senior Indebtedness (as defined below) beyond any applicable
grace period (a "Payment Default"). However, payments on the notes may be
resumed if such Payment Default shall have been cured or waived or shall have
ceased to exist or such Designated Senior Indebtedness shall have been
discharged or paid in full in cash or cash equivalents.
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No payment or distribution of any assets of Performance Food of any kind
or character, whether in cash, property or securities (other than Permitted
Junior Securities), may be made by or on behalf of Performance Food on account
of principal of or premium, if any, or interest on the notes or on account of
the purchase, redemption or other acquisition of notes during the period
specified below (a "Payment Blockage Period") upon:
- the occurrence of any default or event of default (other than a Payment
Default) with respect to any Designated Senior Indebtedness pursuant to
which the maturity of the Designated Senior Indebtedness may be
accelerated (a "Non-Payment Default"), and
- receipt by Performance Food of written notice thereof from the trustee
or other representative of holders of the Designated Senior
Indebtedness.
The Payment Blockage Period will commence upon the date of receipt by
Performance Food of such written notice from the trustee or such other
representative of the holders of the Designated Senior Indebtedness in respect
of which the Non-Payment Default exists and shall end on the earliest of:
(1) 179 days thereafter, unless the Designated Senior Indebtedness as to
which notice was given shall have been accelerated and such
acceleration shall not have been rescinded, waived or annulled;
(2) the date on which such Non-Payment Default is cured, waived or ceases
to exist;
(3) the date on which such Designated Senior Indebtedness is discharged
in accordance with its terms or paid in full in cash or cash
equivalents; or
(4) the date on which such Payment Blockage Period shall have been
terminated by written notice to the Trustee for the notes or
Performance Food from the trustee or such other representative
initiating such Payment Blockage Period.
After a Payment Blockage Period ends, Performance Food will be required to
resume making any and all required payments in respect of the notes, including
any missed payments. In any event, not more than one Payment Blockage Period may
be commenced during any period of 365 consecutive days. No Non-Payment Default
that existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be made, the basis for the commencement of a
subsequent Payment Blockage Period, unless such Non-Payment Default has been
cured or waived for a period of not less than 60 consecutive days subsequent to
the commencement of such initial Payment Blockage Period.
In the event that, notwithstanding the provisions described above under
this caption "Subordination," any payment or distribution shall be received by
the Trustee for the notes or any holder of the notes which is prohibited by such
subordination provisions, then and in such event such payment shall be paid over
and delivered by the Trustee for the notes or such holder to the trustee or any
other representatives of holders of Senior Indebtedness for application to
Senior Indebtedness remaining unpaid until all Senior Indebtedness has been paid
in full in cash or cash equivalents, after giving effect to any concurrent
distribution to or for the holders of Senior Indebtedness. After all Senior
Indebtedness is paid in full and until the notes are paid in full, holders of
the notes shall be subrogated (equally and ratably with all other Indebtedness
of Performance Food that ranks on a parity in right of payment with the notes)
to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the holders of the notes have been applied to the payment of Senior
Indebtedness.
Failure by Performance Food to make any required payment in respect of
the notes when due or within any applicable grace period, whether or not
occurring during a Payment Blockage Period or other period during which
Performance Food is prohibited from making payments on the notes by operation of
the subordination provisions, will result in an Event of Default and,
thereafter, holders of the notes will have the right, on the terms and subject
to the conditions provided in the indenture, to accelerate the maturity of the
notes. See "Events of Default."
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By reason of such subordination, in the event of bankruptcy, liquidation,
receivership, reorganization or insolvency of, or similar proceedings involving,
Performance Food, our general creditors may recover less, ratably, than holders
of Senior Indebtedness and such general creditors may recover more, ratably,
than holders of notes.
"Credit Agreement" means the Credit Agreement dated as of March 5, 1999
among Performance Food, the lenders referred to therein and First Union National
Bank, as administrative agent, as amended, and as such agreement may be amended
further, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time, including without
limitation, any increase in the principal amount thereof or borrowings or other
obligations thereunder, together with any instruments or agreements executed and
delivered by Performance Food pursuant thereto or in connection therewith for
the benefit of the lenders or agents thereunder.
"Designated Senior Indebtedness" means:
(1) all Senior Indebtedness under the Credit Agreement; and
(2) any other Senior Indebtedness which, at the time of determination,
has an aggregate principal amount outstanding of at least $20,000,000
and that has been specifically designated in the instrument
evidencing such Senior Indebtedness or pursuant to which such Senior
Indebtedness was issued as "Designated Senior Indebtedness" of
Performance Food for purposes of the notes.
"Indebtedness" means, with respect to any person, without duplication:
(1) all liabilities of such person for borrowed money (including
liabilities for borrowed money arising under the Credit Agreement or
any other credit or loan agreements and overdrafts) or for the
deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the
ordinary course of business, but including, without limitation, all
obligations, contingent or otherwise, of such person in connection
with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities;
(2) all obligations of such person evidenced by bonds, notes, debentures
or other similar instruments;
(3) all indebtedness of such person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business;
(4) all obligations and liabilities (contingent or otherwise) in respect
of (A) leases of such person required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such person and (B) any
lease or related documents (including a financing lease or purchase
agreement) in connection with the lease of real or personal property
which provides that such person is contractually obligated to
purchase or cause a third party to purchase the leased property at
the end of the lease term and thereby guarantee a minimum residual
value of the leased property to the lessor and the obligations of
such person under such lease or related documentation to purchase or
to cause a third party to purchase such leased property;
(5) all obligations of such person under or in respect of interest rate
swap, cap or collar agreements or other similar instruments or
agreements or foreign currency hedge, exchange or purchase agreements
or other similar instruments or agreements;
(6) all Guarantees by such person of Indebtedness referred to in any of
the other clauses of this definition of any other person;
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(7) all Indebtedness referred to in any of the other clauses of this
definition of other persons the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on or with
respect to property or assets (including, without limitation,
accounts and contract rights) owned by such person, even though such
person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the
obligation so secured); and
(8) any and all deferrals, renewals, extensions, refinancings,
replacements, restatements and refundings of, and amendments,
modifications and supplements to, and any indebtedness or obligation
issued in exchange for, any Indebtedness described in any of the
other clauses of this definition.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and rent payable on
or termination payments with respect to or in connection with, and all fees,
costs, expenses and other amounts accrued or due on or in connection with,
Indebtedness of Performance Food (including, without limitation, Indebtedness of
Performance Food under the Credit Agreement), whether outstanding on the date of
the indenture or thereafter created, incurred, assumed or Guaranteed by
Performance Food (including all deferrals, renewals, extensions or refundings
of, and amendments, modifications or supplements to, the foregoing), unless, in
the case of any such Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes or that such
Indebtedness shall be subordinated in right of payment to, or shall rank pari
passu in right of payment with, the notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include:
(1) Indebtedness evidenced by the notes;
(2) any liability for federal, state or local taxes or other taxes owed
or owing by Performance Food;
(3) accounts payable or other liabilities owed or owing by Performance
Food to trade creditors (including Guarantees thereof or instruments
evidencing such liabilities);
(4) amounts owed by Performance Food for compensation to employees or for
services rendered to Performance Food;
(5) (A) Indebtedness of Performance Food to any of its subsidiaries and
(B) Indebtedness of Performance Food to any of its affiliates, which
affiliate is, directly or indirectly, a financing vehicle for
Performance Food (including, without limitation, all other debt
securities and guarantees in respect of those debt securities issued
by Performance Food to any trust, or trustees of any trust,
partnership or other entity that is an affiliate of Performance Food
and that is such a financing vehicle in connection with the issuance
by that financing vehicle of preferred securities or other securities
that rank, or Performance Food's guarantee of which ranks, pari passu
with, or junior to, the notes in right of payment);
(6) capital stock of Performance Food; and
(7) Indebtedness evidenced by any Guarantee of any Indebtedness ranking
on a parity with or junior to the notes in right of payment.
As of June 30, 2001, on a pro forma basis after giving effect to the
acquisition of Fresh Express, at an assumed acquisition price of $302.6 million,
the issuance of notes and common stock in this offering and the concurrent
offering, the incurrence of $8.4 million of additional borrowings under our
credit facility, and the application of the estimated net proceeds of this
offering and the concurrent offering and the proceeds of those additional
borrowings to pay the acquisition price of Fresh Express as if those
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transactions had occurred on that date, Performance Food would have had (on an
unconsolidated basis) approximately $222.7 million aggregate principal amount of
Senior Indebtedness and approximately $78.5 million aggregate principal amount
of Designated Senior Indebtedness outstanding. These amounts do not take into
account approximately $25.0 million aggregate principal amount of Senior
Indebtedness that Performance Food incurred under its existing credit facility
on September 10, 2001 in connection with its recent acquisition of Springfield,
nor do they take into account the repayment of approximately $60.0 million
aggregate principal amount of Senior Indebtedness under Performance Food's
existing credit facility on July 3, 2001 with the proceeds received under its
new receivables purchase facility. In addition, at December 30, 2000 Performance
Food was obligated under operating lease agreements entered into under its
master operating lease facilities or guarantees of those operating lease
agreements to make or guarantee future minimum lease payments aggregating (on an
unconsolidated basis) approximately $8.8 million through 2005. Performance
Food's obligations under these leases and guarantees constitute Senior
Indebtedness for purposes of the notes, although these obligations are not
reflected as indebtedness on Performance Food's balance sheet and therefore are
not included in the amount of Performance Food's pro forma Senior Indebtedness
as of June 30, 2001 appearing above. See "Risk Factors -- The notes will be
subordinated to our existing and future senior indebtedness."
The notes will be effectively subordinated to all existing and future
indebtedness, guarantees, lease obligations and other liabilities of Performance
Food's subsidiaries. As of June 30, 2001 on a pro forma basis after giving
effect to the acquisition of Fresh Express at an assumed acquisition price of
$302.6 million, the issuance of notes and common stock in this offering and the
concurrent offering, the incurrence of $8.4 million of additional borrowings
under Performance Food's credit facility, and the application of the estimated
net proceeds of this offering and the concurrent offering and the proceeds of
those additional borrowings to pay the acquisition price of Fresh Express as if
those transactions had occurred on that date, Performance Food's consolidated
subsidiaries would have had approximately $350.3 million of outstanding
indebtedness and other liabilities, excluding intercompany liabilities. If we
enter into our new credit facility, we anticipate that our existing and, subject
to limited exceptions, future subsidiaries will be required to guarantee all of
our borrowings, letter of credit and other obligations under our new credit
facility; as of June 30, 2001, on a pro forma basis after giving effect to the
transactions described in the preceding sentence and the effectiveness of those
subsidiary guarantees, our consolidated subsidiaries would have guaranteed
approximately $78.5 million of indebtedness and letter of credit obligations
under our new credit facility. In addition, at December 30, 2000 Performance
Food's consolidated subsidiaries were obligated under operating lease
agreements, including leases entered into pursuant to the master operating lease
facilities for which Performance Food is guarantor, to make future minimum lease
payments aggregating approximately $60.2 million through 2005 and approximately
$24.5 million after that date. The operating lease obligations of Performance
Food's subsidiaries will increase substantially as a result of its acquisition
of Springfield and upon completion of its pending acquisition of Fresh Express.
See "Risk Factors -- The notes will be effectively subordinated to the
liabilities of our subsidiaries." The notes are also effectively subordinated to
the undivided interest owned by a third party financial institution in
receivables purchased from our operating units pursuant to our $90 million
receivables purchase facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The indenture does not limit Performance Food's ability to incur Senior
Indebtedness or the ability of Performance Food or its subsidiaries to incur
other indebtedness, lease obligations or other liabilities.
OPTIONAL REDEMPTION BY PERFORMANCE FOOD GROUP
The notes are not redeemable prior to October 16, 2004. At any time on or
after that date, we may redeem the notes for cash, in whole or from time to time
in part, on at least 30 but not more than 60 days' notice, at the following
redemption prices, together with accrued and unpaid interest to the date fixed
for redemption. However, if a redemption date is an interest payment date, the
payment of interest
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becoming due on that date shall be payable to the persons who were the holders
of record at the close of business on the relevant record date and the
redemption price shall not include such interest payment.
The table below shows the redemption prices of the notes, expressed as
percentages of their principal amount, if redeemed during the following periods:
REDEMPTION
PRICE
----------
From October 16, 2004 through October 15, 2005.............. 103.1429%
From October 16, 2005 through October 15, 2006.............. 102.3571%
From October 16, 2006 through October 15, 2007.............. 101.5714%
Thereafter.................................................. 100.7857%
If we do not redeem all of the notes on any redemption date, the Trustee
will select the notes to be redeemed by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection or redemption of
notes in whole or in part in principal amounts of $1,000 and integral multiples
of $1,000. If any notes are to be redeemed in part only, a new note or notes in
aggregate principal amount equal to the unredeemed principal amount of the notes
being redeemed will be issued. If a portion of a holder's notes is selected for
partial redemption and the holder converts a portion of its notes before the
applicable redemption date, the converted portion will be deemed to be taken
from the portion selected for redemption.
The notes will not be entitled to the benefit of any sinking fund.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
If a Change of Control occurs, each holder of notes will have the right
to require us to repurchase all of that holder's notes, or any portion of those
notes in a principal amount of $1,000 or an integral multiple of $1,000, on the
date that is 45 days after the date we give the notice described below (or, if
that 45th day is not a business day, the next succeeding business day), at a
repurchase price equal to 100% of the principal amount of the notes to be
repurchased, together with accrued and unpaid interest to the repurchase date.
However, if a repurchase date is an interest payment date, the payment of
interest becoming due on that repurchase date will be payable to the persons who
were the holders of record at the close of business on the relevant record date
and the repurchase price shall not include such interest payment.
Instead of paying the repurchase price in cash, we may pay the repurchase
price (including, if applicable, accrued and unpaid interest) in common stock of
Performance Food, if we so elect in the notice referred to below. The number of
shares of common stock a holder will receive will equal the repurchase price
(including, if applicable, accrued and unpaid interest) divided by 95% of the
average of the closing prices (as defined) of the common stock for the five
consecutive trading days immediately preceding and including the third trading
day prior to the repurchase date. However, we may not pay in common stock unless
we satisfy certain conditions as provided in the indenture. If we pay the
repurchase price in common stock, we will not issue fractional shares of common
stock but we will instead pay a cash adjustment based upon the closing price (as
defined in the indenture) of the common stock on the last trading day before the
repurchase date.
Within 30 days after the occurrence of a Change of Control, we are
required to give notice to all holders of notes, as provided in the indenture,
of the occurrence of the Change of Control and of their resulting repurchase
right. We must also deliver a copy of our notice to the Trustee. To exercise the
repurchase right, a holder of notes must deliver to the Trustee, prior to the
close of business on the repurchase date, written notice of the holder's
exercise of its repurchase right and, prior to, on or after the repurchase date,
the notes with respect to which the right is being exercised. A holder will not
be entitled to receive the repurchase price until the notes to be repurchased
have been delivered as described in the preceding sentence. So long as the notes
are in book-entry form, investors will be required to exercise this
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right through the depositary's direct and indirect participants as described
below under "Book-Entry Notes."
A holder who has delivered written notice of the exercise of its
repurchase right as described in the preceding paragraph with respect to any
notes will not be permitted to convert those notes except to the extent that
holder has withdrawn that notice. A holder may withdraw the notice at any time
prior to the close of business on the repurchase date by delivering a written
notice of withdrawal to the Trustee as provided in the indenture.
A "Change of Control" will be deemed to have occurred at such time after
the original issuance of the notes as any of the following has occurred:
(1) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) acquires the beneficial
ownership (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time, and except that a person shall not be
deemed to have "beneficial ownership" of any securities tendered
pursuant to a tender offer or exchange offer made by or on behalf of
such person until such securities are accepted for purchase or
exchange), directly or indirectly, through a purchase, consolidation,
merger or other acquisition transaction or series of transactions, of
50% or more of the total voting power of all outstanding Voting Stock
of Performance Food, other than an acquisition by Performance Food,
any of Performance Food's subsidiaries or any of Performance Food's
employee benefit plans (including, without limitation, Performance
Food's employee stock ownership plan);
(2) Performance Food consolidates with, or merges with or into, another
person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person
consolidates with or merges with or into Performance Food, other
than:
(a) any transaction (I) that does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Performance Food's capital stock, and (II)
pursuant to which holders of Performance Food's capital stock
immediately prior to the transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total
voting power of all outstanding shares of Performance Food's
capital stock entitled to vote generally in the election of
directors, trustees, or managing members of, or other persons
holding similar positions with, the continuing or surviving
person immediately after the transaction; and
(b) any merger solely for the purpose of changing Performance Food's
jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity;
(3) during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted the board of directors
of Performance Food (together with any new directors whose election
to such board of directors, or whose nomination for election by
Performance Food's stockholders, was approved by a vote of a majority
of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Performance Food
then in office; or
(4) Performance Food's stockholders pass a special resolution approving a
plan of liquidation or dissolution.
Notwithstanding the foregoing provisions of this paragraph,
(x) a Change of Control arising from an acquisition of Voting Stock
described in clause
(1) above will be deemed not to have occurred if the closing price,
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common stock of Performance Food for any five trading days within the
period of 10 consecutive trading days ending immediately after the
later of such Change of Control and the public announcement of such
Change of Control equals or exceeds 105% of the conversion price of
the notes in effect on each of those trading days;
(y) a Change of Control arising from a merger, consolidation or
conveyance, transfer, lease or other disposition of assets described
in clause (2) above will be deemed not to have occurred if the
closing price, as defined, per share of common stock of Performance
Food for any five trading days within the period of ten consecutive
trading days ending immediately before such Change of Control equals
of exceeds 105% of the conversion price of the notes in effect on
each of those trading days; and
(z) a Change of Control arising from a merger or consolidation described
in clause (2) above will be deemed not to have occurred if all of the
consideration, excluding cash paid for fractional shares and cash
payments made pursuant to dissenters' appraisal rights, in such
merger or consolidation consists of shares of common stock listed on
a national securities exchange or quoted on the Nasdaq National
Market or which will be so listed or quoted immediately following
such Change of Control and if, as a result of such merger or
consolidation, the notes become convertible solely into such common
stock.
The definition of Change of Control includes a phrase relating to the
lease, transfer, conveyance or other disposition of "all or substantially all"
of Performance Food's assets. There is no precise established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase such notes as a result of a lease,
transfer, conveyance or other disposition of less than all of Performance Food's
assets may be uncertain.
Our right to pay the repurchase price in common stock is subject to our
satisfying various conditions, including:
- the registration of the common stock under the Securities Act and the
Exchange Act, if required;
- any necessary qualification or registration under applicable state
securities laws or the availability of an exemption from such
qualification and registration; and
- the listing of the common stock on the principal national securities
exchange or the quotation of the common stock on the principal national
securities quotation system on which the other outstanding shares of
Performance Food's common stock shall at the time be listed or quoted.
If we elect to pay the repurchase price in common stock and such
conditions are not satisfied prior to the close of business on the repurchase
date, we will pay the repurchase price of the notes entirely in cash. We may not
change the form of consideration to be paid for the notes once we have given the
notice that we are required to give to holders of notes, except as described in
the first sentence of this paragraph.
We will comply with the provisions of any tender offer rules under the
Exchange Act that may then be applicable in connection with any offer by us to
repurchase notes at the option of the holders of notes upon a Change of Control.
In some circumstances, the Change of Control purchase feature of the
notes may make more difficult or discourage a takeover of us and thus the
removal of incumbent management, or otherwise impede a change of control
transaction that might be beneficial to holders of notes or our common stock,
including a transaction that might result in the payment of a premium for notes
or shares of common stock. The Change of Control purchase feature, however, is
not the result of management's knowledge of any specific effort to accumulate
shares of common stock or to obtain control of us by means of a merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the Change of Control purchase
feature is the result of negotiations between us and the underwriters.
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We may at any time, to the extent permitted by applicable law, purchase
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us may, to the extent permitted by applicable law, be
reissued or resold or may be surrendered to the Trustee for cancellation.
The foregoing provisions would not necessarily protect holders of the
notes if a highly leveraged or other transaction involving us occurs. In
addition, our ability to repurchase notes upon the occurrence of a Change of
Control is subject to important limitations. The occurrence of a Change of
Control could constitute or otherwise result in events of default under our
credit facility, our master operating lease facilities, our 6.77% senior notes
and other instruments and agreements to which we and our subsidiaries are or may
in the future become a party. These events of default could result in borrowings
outstanding and other amounts owing under our credit facility, our 6.77% senior
notes and any such other instruments and agreements becoming immediately due and
payable. In addition, upon the occurrence of some of these events, the leases
entered into pursuant to our master operating lease facilities could be
immediately terminated by the lessor, in which case we would be required to pay
substantial amounts under the master operating lease facilities in exchange for
the lessor's ownership interest in the properties leased. We cannot assure you
that we would have the financial resources or otherwise be able to arrange
financing to pay the amounts that may become due if our obligations under these
debt instruments or leases were accelerated. Moreover, we anticipate that we
will be prohibited, by the terms of our new credit facility or, if we do not
enter into the new credit facility, by amendments to our existing credit
facility that we expect will become effective concurrently with the closing of
this offering from paying the repurchase price of the notes in cash and we will
therefore be required to either obtain a waiver from the banks or repay or
refinance all amounts outstanding under the credit facility in order to pay the
repurchase price in cash, and there can be no assurance that we would be able to
do so or, if we were able to do so, that we would have sufficient funds
available at such time or be able to arrange financing to pay the repurchase
price of the notes in cash. We also anticipate that, as a result of changes to
our master operating lease facilities that we expect will become effective
concurrently with the closing of this offering, those lease facilities will
incorporate an identical limitation on our ability to repurchase the notes. In
addition, some of our other debt instruments and lease facilities prohibit or
restrict the repurchase of notes, and our ability to repurchase notes may also
be limited by applicable law or otherwise. We may be required to refinance
outstanding indebtedness or replace existing lease facilities in order to
repurchase notes following a Change of Control, and there can be no assurance
that we would be able to do so. Any failure by us to repurchase the notes when
required following a Change of Control would result in an Event of Default, as
defined below, with respect to the notes. Any such Event of Default may, under
cross-default provisions, in turn cause a default under other indebtedness or
obligations of us and our subsidiaries and may entitle the holders of that
indebtedness or those obligations to demand immediate payment.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon our direction, the indenture shall cease to be of further effect
with respect to the notes, subject to survival of specified provisions of the
indenture, when:
- either (A) all outstanding notes have been delivered to the Trustee for
cancellation, subject to exceptions, or (B) all notes have become due
and payable at their final maturity date or at a redemption date and we
have deposited with the Trustee, in trust, monies in U.S. dollars in an
amount sufficient to pay the entire indebtedness on the notes in
respect of principal, premium, if any, and interest to the final
maturity date or redemption date of the notes, as the case may be;
- we have paid all other sums payable under the indenture with respect to
the notes; and
- the Trustee has received an officers' certificate and an opinion of
counsel as called for by the indenture.
The information in this paragraph supersedes and replaces, insofar as relates to
the notes, the information appearing in the first two paragraphs under the
caption "Description of Debt Securities -- Discharge, Defeasance and Covenant
Defeasance" in the accompanying prospectus.
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The notes will not be subject to defeasance or covenant defeasance, as
defined under "Description of Debt Securities -- Discharge, Defeasance and
Covenant Defeasance" in the accompanying prospectus.
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default with respect to
the notes:
(1) default in payment of any interest on any of the notes when due
(whether or not such payment is prohibited by the subordination
provisions applicable to the notes), and continuance of such default
for 30 days; or
(2) default in payment of any principal of or premium, if any, on any of
the notes when due (whether at maturity, upon redemption, upon
repurchase at the option of the holder or otherwise and whether
payable in cash or in shares of Performance Food's common stock),
whether or not such payment is prohibited by the subordination
provisions applicable to the notes; or
(3) failure by us to give the notice required by the indenture regarding
any Change of Control within 30 days after the occurrence of such
Change of Control; or
(4) default in the delivery of any shares of common stock, together with
cash instead of fractional shares, or any other securities or
property (including cash) when required to be delivered upon
conversion of any of the notes (whether or not such delivery is
prohibited by the subordination provisions applicable to the notes),
and continuance of such default for a period of 10 days; or
(5) default in the performance, or breach, of any other covenant or
warranty of Performance Food in the indenture or any note, other than
a covenant or warranty included in the indenture solely for the
benefit of a series of debt securities other than the notes, and
continuance of that default or breach (without such default or breach
having been cured or waived in accordance with the provisions of the
indenture) for a period of 60 days after notice to Performance Food
by the Trustee or to Performance Food and the Trustee by the holders
of at least 25% in aggregate principal amount of the notes then
outstanding; or
(6) (A) any indebtedness for borrowed money of Performance Food or any of
its Significant Subsidiaries in an aggregate amount in excess of
$20,000,000 shall have been accelerated or otherwise declared due and
payable (including an acceleration under the indenture with respect
to debt securities of any other series outstanding under the
indenture) or shall be required to be prepaid or repurchased (other
than by regularly scheduled required prepayment), in each case prior
to the scheduled maturity thereof as a result of a default with
respect to such indebtedness, or (B) there shall have occurred a
default in the payment when due, after the expiration of any
applicable grace period, of any indebtedness for borrowed money of
Performance Food or any of its Significant Subsidiaries in an
aggregate amount in excess of $20,000,000 (including such a default
under the indenture with respect to debt securities of any other
series outstanding under the indenture), without, in any case
referred to in clause (A) or (B) above, such acceleration or
declaration having been rescinded or annulled, such required
prepayment or repurchase or such default having been cured or waived,
or such indebtedness having been discharged within 30 days after
notice to Performance Food by the Trustee or to Performance Food and
the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding notes; or
(7) specified events of bankruptcy, insolvency or reorganization with
respect to Performance Food or any Significant Subsidiary of
Performance Food.
The information in this paragraph supersedes and replaces, insofar as relates to
the notes, the information appearing in the first paragraph under "Description
of Debt Securities -- Events of Default" in the accompanying prospectus.
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You should review the other information appearing in the accompanying
prospectus under "Description of Debt Securities -- Events of Default" for
information concerning other provisions of the indenture that are applicable
upon the occurrence of a Event of Default.
BOOK-ENTRY NOTES
The notes will be issued in the form of one or more global notes which
will be registered in the name of a depositary or its nominee and deposited
with, or on behalf of, the depositary. The initial depositary for the notes will
be The Depository Trust Company, New York, New York, which we sometimes refer to
as "DTC." You should review the information appearing under the caption
"Description of Debt Securities -- Book-Entry Debt Securities" in the
accompanying prospectus for information regarding the depositary arrangements
with respect to the notes.
If you would like to convert your notes into common stock pursuant to the
terms of the notes, or if you would like to surrender your notes for repurchase
following a Change of Control, you should contact your broker or other direct or
indirect DTC participant through which you own your notes to obtain information
on procedures, including proper forms and cut-off times, for taking those
actions. As long as the notes are in book-entry form, you will not be entitled
to take those actions directly, but will be able to do so only through your
broker or other direct or indirect DTC participants.
Neither we nor the Trustee (nor any registrar, paying agent or conversion
agent under the indenture) will have any responsibility for the performance by
DTC or direct or indirect DTC participants of their obligations under the rules
and procedures governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including, without
limitation, the presentation of notes for conversion or repurchase as described
above, only at the direction of one or more direct DTC participants to whose
account with DTC interests in the global notes are credited and only for the
principal amount of the notes for which directions have been given.
We obtained the information in this section and in the accompanying
prospectus concerning DTC and DTC's book-entry system from sources we believe to
be reliable, but we take no responsible for the accuracy of that information.
GOVERNING LAW
The indenture and the notes will be governed by, and construed in
accordance with, the law of the State of New York.
CONCERNING THE TRUSTEE
Bank One Trust Company, N.A., as Trustee under the indenture, has been
appointed by us as paying agent, conversion agent, registrar and transfer agent
with regard to the notes. The Trustee and its affiliates may from time to time
provide banking and other services to us in the ordinary course of their
business. In particular, Bank One, N.A., an affiliate of the Trustee, is the
financial institution which purchases the undivided interests in receivables of
our operating units pursuant to our $90 million receivables purchase facility
and, if we enter into our new credit facility, is expected to also be a lender
under our new credit facility.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences to a holder with respect to the purchase, ownership and disposition
of the notes or our common stock which may be acquired upon conversion of a note
as of the date of this prospectus supplement. This summary is generally limited
to holders who will hold the notes and the shares of common stock issued on
conversion of the notes as "capital assets" within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code") and who acquire
the notes in this offering at the initial offering price, and does not deal with
special situations including those that may apply to particular holders such as
exempt organizations, holders subject to the U.S. federal alternative minimum
tax, non-U.S. citizens and foreign corporations or other foreign entities,
dealers in securities, commodities or foreign currencies, financial
institutions, insurance companies, regulated investment companies, holders whose
"functional currency" is not the U.S. dollar and persons who hold the notes or
shares of common stock in connection with a "straddle," "hedging," "conversion"
or other risk reduction transaction.
The federal income tax considerations set forth below are based upon the
Code, Treasury Regulations promulgated under the Code, court decisions, and
Internal Revenue Service ("IRS") rulings now in effect, all of which are subject
to change. Prospective investors should particularly note that any such change
could have retroactive application so as to result in federal income tax
consequences different from those discussed below. We have not sought any ruling
from the IRS with respect to statements made and conclusions reached in this
discussion and there can be no assurance that the IRS will agree with those
statements and conclusions.
Based on currently applicable authorities, we will treat the notes as
indebtedness for U.S. federal income tax purposes. However, since the notes have
certain equity characteristics, it is possible that the IRS will contend that
the notes should be treated as an equity interest in, rather than indebtedness
of, our company. Except as otherwise noted, the remainder of this discussion
assumes that the notes will constitute indebtedness for U.S. tax purposes.
INVESTORS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
TAXATION OF INTEREST
Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of tax
accounting.
CONVERSION OR REPURCHASE FOR COMMON STOCK
A holder will not recognize income, gain or loss upon conversion of the
notes solely into our common stock except with respect to any amounts (including
the fair market value of any of our common stock received) attributable to
accrued interest on the notes, which will be treated as interest for federal
income tax purposes, and except with respect to cash received in lieu of
fractional shares. If we repurchase a note in exchange for common stock pursuant
to the exercise of the repurchase right upon a Change of Control, although the
matter is not entirely clear, that exchange should be treated in the same manner
as a conversion of the note as described in the preceding sentence. The holder's
tax basis in the common stock received on conversion or repurchase of a note for
common stock (except any common stock attributable to accrued interest on the
notes, the basis of which generally will be its fair market value on the date of
conversion or repurchase) pursuant to the repurchase right will be the same as
the holder's adjusted tax basis in the notes that were so converted or
repurchased at the time of conversion or repurchase (reduced by any basis
allocable to a fractional share), and the holding period for the common
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stock received on conversion or repurchase will include the holding period of
the notes that were converted or repurchased.
Cash received in lieu of a fractional share of common stock upon
conversion of the notes into common stock or upon a repurchase for common stock
of a note pursuant to exercise of the repurchase right upon a Change of Control
will generally be treated as a payment in exchange for the fractional share of
common stock. Accordingly, the receipt of cash in lieu of a fractional share of
common stock generally will result in capital gain or loss measured by the
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share.
DIVIDENDS ON COMMON STOCK
We have not declared any cash dividends on our common stock and the
present policy of our board of directors is to retain all available funds to
support operations and to finance our growth. However, if we do make
distributions on our common stock, the distributions will constitute dividends
for U.S. federal income tax purposes to the extent of our current or accumulated
earnings and profits as determined under U.S. federal income tax principles. To
the extent that a holder receives distributions on shares of common stock that
would otherwise constitute dividends for U.S. federal income tax purposes but
that exceed our current and accumulated earnings and profits, those
distributions will be treated first as a non-taxable return of capital reducing
the holder's basis in the shares of common stock. Any of those distributions in
excess of the holder's basis in the shares of common stock will generally be
treated as capital gain. Subject to applicable limitations, dividends paid to
holders that are U.S. corporations will qualify for the dividends-received
deduction so long as we have sufficient current or accumulated earnings and
profits.
DISPOSITION, REDEMPTION OR REPURCHASE FOR CASH
Except as set forth above under "Conversion or Repurchase for Common
Stock," holders generally will recognize capital gain or loss upon the sale,
redemption, including a repurchase by us for cash pursuant to the repurchase
right upon a Change of Control, or other taxable disposition of the notes or
common stock issued upon conversion of notes in an amount equal to the
difference between:
- the holder's adjusted tax basis in the notes or common stock, as the
case may be; and
- the amount of cash and fair market value of any property received from
such disposition, other than amounts attributable to accrued interest
on the notes, which will be treated as interest for federal income tax
purposes.
A holder's adjusted tax basis in a note generally will equal the cost of
the note to such holder. For a discussion of the holder's basis in shares of our
common stock, see "Conversion or Repurchase for Common Stock".
Gain or loss from the taxable disposition of the notes or common stock
issued upon conversion of notes generally will be long-term capital gain or loss
if the notes and/or shares of common stock were held for more than one year at
the time of the disposition. The deductibility of capital losses is subject to
limitations.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment under
specified circumstances. Under Section 305 of the Code and the Treasury
Regulations issued thereunder, certain adjustments to (or the failure to make
such adjustments to) the conversion price of the notes that increase the
proportionate interest of a holder in our assets or earnings and profits may
result in a taxable constructive distribution to the holders of the notes,
whether or not the holders ever convert the notes. Such constructive
distribution will be treated as a dividend, resulting in ordinary income (and a
possible dividends-received deduction in the case of corporate holders) to the
extent of our current or accumulated earnings and profits, with any excess
treated first as a non-taxable return of capital which reduces the holder's tax
basis in the notes to
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the extent thereof and thereafter as gain from the sale or exchange of the
notes. Generally, a holder's tax basis in a note will be increased to the extent
any such constructive distribution is treated as a dividend. Moreover, if there
is an adjustment (or a failure to make an adjustment) to the conversion price of
the notes that increases the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then such
increase in the proportionate interest of the holders of the common stock
generally will be treated as a constructive distribution to such holders,
taxable as described above. As a result, holders of notes could have taxable
income as a result of an event pursuant to which they receive no cash or
property.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We or our designated paying agent will, where required, report to holders
of notes or common stock and the IRS the amount of any interest paid on the
notes or dividends, if any, paid with respect to the common stock (or other
reportable payments) in each calendar year and the amount of tax, if any,
withheld with respect to such payments.
Under the backup withholding provisions of the Code and the applicable
Treasury Regulations, a holder of notes or our common stock acquired upon the
conversion of notes may be subject to backup withholding at the rate of 30.5%
(which rate is scheduled to be reduced periodically through 2006) with respect
to dividends or interest paid on, or the proceeds of a sale, exchange or
redemption of, the notes or the common stock, unless:
- such holder is a corporation or comes within certain other exempt
categories and when required demonstrates this fact; or
- provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against the holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO
YOU OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union
Securities, Inc., Credit Suisse First Boston Corporation, Banc of America
Securities LLC and SunTrust Capital Markets, Inc. are acting as representatives
of the underwriters named below. Subject to the terms and conditions contained
in a purchase agreement between us and the underwriters, we have agreed to sell
to the underwriters, and the underwriters severally have agreed to purchase from
us, the aggregate principal amount of the notes listed opposite their names
below.
PRINCIPAL
UNDERWRITER AMOUNT
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $ 61,075,000
First Union Securities, Inc................................. 61,075,000
Credit Suisse First Boston Corporation...................... 19,800,000
Banc of America Securities LLC.............................. 19,800,000
SunTrust Capital Markets, Inc............................... 3,300,000
Lehman Brothers Inc......................................... 2,650,000
Salomon Smith Barney Inc.................................... 2,650,000
U.S. Bancorp Piper Jaffray Inc.............................. 2,650,000
BB&T Capital Markets, A division of Scott & Stringfellow,
Inc....................................................... 1,000,000
Davenport & Company LLC..................................... 1,000,000
------------
Total.......................................... $175,000,000
============
The underwriters have agreed to purchase all of the notes sold under the
purchase agreement if any of the notes are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The underwriters are offering the notes, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel and other conditions contained in the purchase agreement, such as
the receipt by the underwriters of officers' certificates and legal opinions.
The closing of the sale of the notes to be purchased by the underwriters is
conditioned on the concurrent closing of the common stock offering and our
acquisition of Fresh Express. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The underwriters have advised us that they propose initially to offer the
notes to the public at the initial public offering price listed on the cover
page of this prospectus supplement and to dealers at that price less a
concession not in excess of 1.8% of the principal amount of the notes. After the
initial public offering, the public offering price and concession may be
changed.
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The following table shows the public offering price, underwriting
discount and proceeds before expenses to Performance Food Group. This
information assumes either no exercise or full exercise by the underwriters of
their over-allotment option.
PER NOTE WITHOUT OPTION WITH OPTION
-------- -------------- -----------
Public offering price(1)................... 100% $175,000,000 $201,250,000
Underwriting discount...................... 3% $5,250,000 $6,037,500
Proceeds, before expenses, to Performance
Food Group............................... 97% $169,750,000 $195,212,500
(1) Plus accrued interest from October 16, 2001, if settlement occurs
after that date
The expenses of this offering, not including the underwriting discount,
are estimated at $375,000 and are payable by Performance Food Group. The
underwriters will reimburse us for some of the expenses that we incur in
connection with this offering.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to
$26,250,000 aggregate principal amount of additional notes at the initial public
offering price, less the underwriting discount and plus accrued interest, if
any. The underwriters may exercise this option for 30 days from the date of this
prospectus supplement solely to cover any over-allotments. If the underwriters
exercise this option, each underwriter will be obligated, subject to conditions
contained in the purchase agreement, to purchase an aggregate principal amount
of additional notes proportionate to that underwriter's initial amount reflected
in the above table.
NO SALES OF OTHER DEBT SECURITIES
We have agreed, with exceptions, not to sell or transfer any debt
securities, other than the notes, for 90 days after the date of this prospectus
supplement without first obtaining the written consent of Merrill Lynch.
Specifically, we have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any of our debt securities;
- sell any option or contract to purchase any of our debt securities;
- purchase any option or contract to sell any of our debt securities;
- grant any option, right or warrant for the sale of any of our debt
securities;
- lend or otherwise dispose of or transfer any of our debt securities;
- file a registration statement related to any of our debt securities; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any of our debt
securities, whether any such swap or transaction is to be settled by
delivery of debt securities or other securities, in cash or otherwise.
This lock-up provision applies to our debt securities and to securities
convertible into or exchangeable or exercisable for or repayable with our debt
securities.
NO SALES OF COMMON STOCK
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus supplement without first obtaining the written consent of Merrill
Lynch. In addition, the former owners of Springfield have agreed, with
exceptions, not to sell or otherwise transfer any shares of our common stock
until the earlier of January 8,
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2002 or 90 days after the date of this prospectus supplement without first
obtaining the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- file or request or demand that we file a registration statement related
to the common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock,
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lock-up provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the person
executing the agreement or for which the person executing the agreement has or
later acquires the power of disposition.
Our lock-up agreement contains exceptions which permit us to offer and
issue up to 1,000,000 shares, subject to adjustment for any stock splits or
similar events, of our common stock to acquire other businesses during the
lock-up period, so long as those shares are issued directly to the stockholders
or other owners of those businesses and the recipients of those shares enter
into lock-up agreements for the remainder of the lock-up period substantially
similar to the lock-up agreement entered into by our executive officers and
directors. Our lock-up agreement also contains exceptions that permit us to
issue shares of common stock upon the exercise of outstanding options, to issue
shares and options pursuant to employee benefit plans, to issue common stock in
the common stock offering and notes in the notes offering, to issue shares of
common stock upon conversion of the notes and to register under the Securities
Act shares we have issued in acquisitions.
NO STOCK EXCHANGE LISTING OR QUOTATION OF NOTES ON THE NASDAQ NATIONAL MARKET
The notes are a new issue of securities with no established trading
market. We do not intend to apply for listing of the notes on any securities
exchange or for quotation of the notes on any automated quotation system. The
underwriters have advised us that they presently intend to make a market in the
notes after completion of this offering. However, they are under no obligation
to do so and may discontinue any market-making activities at any time without
notice. We cannot assure you that an active trading market for the notes will
develop or as to the liquidity of any trading market for the notes that may
develop. If an active trading market for the notes does not develop, the market
price and liquidity of the notes may be adversely affected. If the notes are
traded, they may trade at a discount from their initial offering price,
depending on many factors, including prevailing interest rates, the market for
similar securities, the market price of our common stock, and our financial
condition, historical financial performance and future prospects.
QUOTATION OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET
Our common stock is quoted on the Nasdaq Stock Market's National Market
under the symbol "PFGC."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the notes is completed, SEC rules may limit the
underwriters and selling group members, if any, from bidding for or purchasing
the notes. However, the representatives may engage
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in transactions that stabilize the price of the notes, such as bids or purchases
to peg, fix or maintain that price.
If the representatives create a short position in the notes in connection
with the offering, i.e., if they sell more notes than are listed on the cover of
this prospectus supplement, the representatives may reduce that short position
by purchasing notes in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the notes to stabilize their price or to reduce a
short position may cause the price of the notes to be higher than it might be in
the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in the common stock on the
Nasdaq Stock Market's National Market in accordance with Rule 103 of Regulation
M under the Securities Exchange Act during a period before the commencement of
offers or sales of common stock and notes and extending through completion of
the distribution. A passive market maker must display its bid at a price not in
excess of the highest independent bid of that security. However, if all
independent bids are lowered below the passive market maker's bid, that bid must
then be lowered when specified purchase limits are exceeded.
INTERNET DISTRIBUTION OF PROSPECTUS
One or more of the underwriters will be facilitating Internet
distribution for this offering to certain of their Internet subscription
customers and may allocate a number of notes for sale to their online brokerage
customers. An electronic prospectus supplement together with an accompanying
electronic prospectus may be available on the websites maintained by one or more
of the underwriters. Other than the prospectus supplement and the accompanying
prospectus in electronic format, the information contained on the websites
maintained by any of the underwriters relating to this offering is not a part of
this prospectus supplement or the accompanying prospectus.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking, commercial banking and other
commercial dealings with us in the ordinary course of business. They have
received customary fees and commissions for these transactions. In particular,
affiliates of several of the underwriters are lenders under our existing credit
facility, an affiliate of First Union Securities, Inc. is the agent under our
existing credit facility and our two master operating lease facilities and
another of First Union's affiliates administers our 401(k) plan. In addition, we
anticipate that, if we enter into our new credit facility, affiliates of several
of the underwriters will be lenders, and, in some cases, agents, under our new
credit facility.
First Union Securities, Inc., one of the underwriters, is an indirect,
wholly-owned subsidiary of Wachovia Corporation. Wachovia Corporation conducts
its investment banking, institutional, and capital markets businesses through
its various bank, broker-dealer and nonbank subsidiaries (including First Union
Securities, Inc.) under the trade name of Wachovia Securities. Any references to
Wachovia Securities in this prospectus supplement, however, do not include
Wachovia Securities, Inc., member NASD/SIPC and a separate broker-dealer
subsidiary of Wachovia Corporation and an affiliate of First Union Securities,
Inc., which may or may not be participating as a selling dealer in the
distribution of the securities offered by this prospectus supplement.
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NASD REGULATIONS
Affiliates of some of the underwriters are lenders under our existing
credit facility and we anticipate that, if we enter into our new credit
facility, affiliates of several of the underwriters will be lenders under our
new credit facility and, as such, may receive more than ten percent of the net
proceeds of this offering and the concurrent offering through the repayment of
borrowings under the applicable credit facility. In the event that more than ten
percent of the net proceeds of this offering and the concurrent offering is paid
to members or affiliates of members of the National Association of Securities
Dealers, Inc. participating in the offerings, this offering will be conducted in
accordance with NASD Conduct Rule 2710(c)(8). This Rule requires that the yield
on a debt security be no lower than the yield recommended by a qualified
independent underwriter which has participated in the preparation of the
registration statement and performed its usual standard of due diligence with
respect to that registration statement. Merrill Lynch has agreed to act as
qualified independent underwriter for this offering if more than 10% of the net
proceeds of this offering and the concurrent offering are paid to NASD members
or affiliates of NASD members participating in the offerings, in which case the
yield on the notes will be no lower than that recommended by Merrill Lynch.
LEGAL MATTERS
The legality of the securities offered by this prospectus supplement will
be passed upon for Performance Food Group by Bass, Berry & Sims PLC, Nashville,
Tennessee. Sidley Austin Brown & Wood LLP, San Francisco, California will act as
counsel for the underwriters. Sidley Austin Brown & Wood LLP will rely on Bass,
Berry & Sims PLC as to all matters of Tennessee law. Sidley Austin Brown & Wood,
a partnership affiliated with Sidley Austin Brown & Wood LLP, represents us in
connection with certain other legal matters.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of Performance Food Group Company and subsidiaries as of December 30,
2000 and January 1, 2000, and for each of the fiscal years in the three-year
period ended December 30, 2000, have been audited by KPMG LLP, independent
auditors, as stated in their reports, which have been included or incorporated
herein by reference, and have been included or incorporated in this prospectus
supplement in reliance upon those reports given upon the authority of that firm
as experts in accounting and auditing.
The consolidated financial statements of Fresh International Corp. and
subsidiaries as of the fiscal years ended February 28, 2001 and February 29,
2000 and for each of the fiscal years in the two-year period ended February 28,
2001 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report incorporated by reference herein and are incorporated herein in
reliance upon the report of such firm given upon the authority of that firm as
experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF PERFORMANCE
FOOD GROUP COMPANY
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 30, 2000 and
January 1, 2000........................................... F-3
Consolidated Statements of Earnings for each of the fiscal
years in the three year period ended December 30, 2000.... F-4
Consolidated Statements of Shareholders' Equity for each of
the fiscal years in the three year period ended December
30, 2000.................................................. F-5
Consolidated Statements of Cash Flows for each of the fiscal
years in the three year period ended December 30, 2000.... F-6
Notes to Consolidated Financial Statements.................. F-7
Independent Accountants' Review Report...................... F-22
Condensed Consolidated Balance Sheets as of June 30, 2001
(Unaudited) and December 30, 2000......................... F-23
Condensed Consolidated Statements of Earnings (Unaudited)
for the three-month and six-month periods ended June 30,
2001 and July 1, 2000..................................... F-24
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six-month periods ended June 30, 2001 and July 1,
2000...................................................... F-25
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-26
F-1
101
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
F-2
102
CONSOLIDATED BALANCE SHEETS
2000 1999
-------- --------
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
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.
F-3
103
CONSOLIDATED STATEMENTS OF EARNINGS
2000 1999 1998
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
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.
F-4
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL LOAN TO TOTAL
-------------------- PAID-IN RETAINED LEVERAGED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ESOP EQUITY
---------- ------ ---------- -------- --------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
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.
F-5
105
CONSOLIDATED STATEMENTS OF CASH FLOWS
2000 1999 1998
--------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
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.
F-6
106
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 States. 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.
F-7
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-8
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-9
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
2000 1999
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
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
F-10
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
1999
--------------
(IN THOUSANDS)
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:
1999
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
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
==========
F-11
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 30, 2000 and January 1, 2000
consist of the following:
2000 1999
-------- --------
(IN THOUSANDS)
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:
2000 1999 1998
-------- ------- -------
(IN THOUSANDS)
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:
2000 1999
-------- --------
(IN THOUSANDS)
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
======== ========
F-12
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-13
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-14
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
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
======= ======= ======
F-15
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
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:
2000 1999
------- -------
(IN THOUSANDS)
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:
2000 1999
------- -------
(IN THOUSANDS)
Current deferred tax asset................................ $10,332 $ 5,570
Noncurrent deferred tax liability......................... (9,701) (8,294)
------- -------
Net deferred tax asset (liability)...................... $ 631 $(2,724)
======= =======
F-16
116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
F-17
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
2000 1999 1998
------- ------- -------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
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.
F-18
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-
NUMBER REMAINING AVERAGE AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
RANGE OF EXERCISE PRICE 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.
F-19
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
FRESH- CORPORATE &
BROADLINE CUSTOMIZED CUT INTERSEGMENT CONSOLIDATED
---------- ---------- -------- ------------ ------------
(IN THOUSANDS)
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 asset........................... 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
F-20
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FRESH- CORPORATE &
BROADLINE CUSTOMIZED CUT INTERSEGMENT CONSOLIDATED
---------- ---------- -------- ------------ ------------
(IN THOUSANDS)
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
F-21
121
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders Performance Food Group Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Performance Food Group Company and subsidiaries (the Company) as of June 30,
2001, and the related condensed consolidated statements of earnings for the
three-month and six-month periods ended June 30, 2001 and July 1, 2000 and the
condensed consolidated statements of cash flows for the six-month periods ended
June 30, 2001 and July 1, 2000. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet of Performance Food Group Company and subsidiaries as of December 30,
2000, and the related consolidated statements of earnings, shareholders' equity
and cash flows for the year then ended; and in our report dated February 5,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 30, 2000 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ KPMG LLP
Richmond, Virginia
July 30, 2001
F-22
122
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 30,
2001 2000
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash...................................................... $ 9,791 $ 18,530
Trade accounts and notes receivable, net.................. 161,459 167,444
Inventories............................................... 143,732 123,586
Other current assets...................................... 15,067 14,696
-------- --------
Total current assets.............................. 330,049 324,256
Property, plant and equipment, net.......................... 147,256 143,142
Intangible assets, net...................................... 303,228 239,311
Other assets................................................ 1,640 2,987
-------- --------
Total assets...................................... $782,173 $709,696
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of deposits.................. $ 17,139 $ 33,330
Current installments of long-term debt.................... 14,898 1,966
Trade accounts payable.................................... 151,571 134,986
Other current liabilities................................. 62,158 57,504
-------- --------
Total current liabilities......................... 245,766 227,786
Long-term debt, excluding current installments.............. 127,604 114,492
Deferred income taxes....................................... 9,701 9,701
-------- --------
Total liabilities................................. 383,071 351,979
-------- --------
Shareholders' equity........................................ 399,102 357,717
-------- --------
Total liabilities and shareholders' equity........ $782,173 $709,696
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
123
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- -------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2001 2000 2001 2000
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................. $794,822 $654,603 $1,518,297 $1,234,353
Cost of goods sold........................ 686,206 567,624 1,314,306 1,069,965
-------- -------- ---------- ----------
Gross profit......................... 108,616 86,979 203,991 164,388
Operating expenses........................ 88,446 74,591 172,035 144,436
-------- -------- ---------- ----------
Operating profit..................... 20,170 12,388 31,956 19,952
Other income (expense), net:
Interest expense..................... (2,161) (1,499) (3,803) (2,888)
Other, net........................... (474) (29) (458) 40
-------- -------- ---------- ----------
Other expense, net................... (2,635) (1,528) (4,261) (2,848)
-------- -------- ---------- ----------
Earnings before income taxes......... 17,535 10,860 27,695 17,104
Income tax expense........................ 6,663 4,127 10,524 6,500
-------- -------- ---------- ----------
Net earnings......................... $ 10,872 $ 6,733 $ 17,171 $ 10,604
======== ======== ========== ==========
Weighted average common shares
outstanding............................. 36,542 27,648 36,066 27,862
======== ======== ========== ==========
Basic net earnings per common share....... $ 0.30 $ 0.24 $ 0.48 $ 0.38
======== ======== ========== ==========
Weighted average common shares and
dilutive potential common shares
outstanding............................. 37,857 28,770 37,383 28,771
======== ======== ========== ==========
Diluted net earnings per common share..... $ 0.29 $ 0.23 $ 0.46 $ 0.37
======== ======== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
F-24
124
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
--------------------
JUNE 30, JULY 1,
2001 2000
-------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings.............................................. $17,171 $10,604
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation......................................... 8,645 6,405
Amortization......................................... 4,257 1,876
ESOP contributions applied to principal of ESOP
debt................................................ 285 273
Loss (gain) on disposal of property, plant and
equipment........................................... 697 (2)
Change in operating assets and liabilities, net...... 15,772 (5,256)
------- -------
Net cash provided by operating activities......... 46,827 13,900
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (13,791) (16,923)
Net cash paid for acquisitions............................ (43,806) (2,299)
Proceeds from sale of property, plant and equipment....... 1,027 619
Decrease in intangibles and other assets.................. 797 409
------- -------
Net cash used in investing activities............. (55,773) (18,194)
------- -------
Cash flows from financing activities:
Increase (decrease) in outstanding checks in excess of
deposits............................................... (16,191) 1,798
Net borrowings on notes payable to banks.................. 13,002 9,554
Proceeds from issuance of long-term debt.................. 906 3,455
Principal payments on long-term debt...................... (1,464) (338)
Repurchases of common stock............................... -- (11,907)
Employee stock option, incentive and purchase plans and
related income tax benefits............................ 3,954 2,154
------- -------
Net cash provided by financing activities......... 207 4,716
------- -------
Net increase (decrease) in cash............................. (8,739) 422
Cash, beginning of period................................... 18,530 5,606
------- -------
Cash, end of period......................................... $ 9,791 $ 6,028
======= =======
See accompanying notes to unaudited condensed consolidated financial statements.
F-25
125
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND JULY 1, 2000
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Performance Food Group Company and subsidiaries (the "Company") are unaudited,
with the exception of the December 30, 2000 condensed consolidated balance
sheet, which was derived from the audited consolidated balance sheet in the
Company's latest Annual Report on Form 10-K. The unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial reporting, and in accordance with Rule 10-01 of Regulation
S-X.
In the opinion of management, the unaudited condensed consolidated
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals, which are necessary for a fair
presentation of the financial position and the results of operations for the
interim periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year. References in this Form
10-Q to the 2001 and 2000 quarters and periods refer to the fiscal quarters and
the six-month periods ended June 30, 2001 and July 1, 2000, respectively.
On April 11, 2001, the Company's Board of Directors declared a 2-for-1
stock split effected as a 100% stock dividend. The record date of the stock
dividend was April 23, 2001, and the stock dividend was distributed to
shareholders on April 30, 2001. All references to the number of common shares
and per common share amounts in this Form 10-Q have been restated to give
retroactive effect to the stock split for all periods presented.
These unaudited condensed consolidated financial statements, note
disclosures and other information should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.
2. BUSINESS COMBINATIONS
On April 2, 2001, the Company acquired all of the outstanding common
stock of Empire Seafood Holding Corp. ("Empire"), a privately owned distributor
and processor of seafood. Empire markets and distributes a broad array of
seafood directly to independent restaurants and other foodservice operators,
primarily in Florida.
On August 4, 2000, the Company acquired all of the outstanding 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.
On December 13, 2000, the Company acquired all of the outstanding 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 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.
The acquisitions of Empire, 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 total purchase price over the total fair value of
tangible net assets acquired was approximately $201.4 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
and Empire acquisitions are subject to final adjustment.
F-26
126
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
In the 2001 period, the Company paid a total of approximately $43.8
million in cash and issued a total of approximately 817,000 shares of its common
stock for the acquisition of Empire and to the former shareholders of Carroll
County, State Hotel Supply Company, Inc. ("State Hotel") and AFFLINK
Incorporated (formerly Affiliated Paper Companies, Inc. "AFFLINK"), which were
acquired in 2000, 1999 and 1998, respectively, as a result of certain
contractual obligations in the purchase agreements relating to those
acquisitions. In the 2000 period, the Company paid a total of approximately $2.3
million in cash and issued a total of approximately 89,000 shares of its common
stock to the former shareholders of Dixon Tom-A-Toe Companies, Inc. and AFFLINK,
which were acquired in 1999 and 1998, respectively, as a result of certain
contractual obligations in the purchase agreements relating to those
acquisitions. These payments were recorded as additions to goodwill.
The condensed consolidated statements of earnings and cash flows reflect
the results of these acquired companies from the dates of acquisition through
June 30, 2001. The unaudited consolidated results of operations on a pro forma
basis as though these acquisitions had been consummated as of the beginning of
2000 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, 2001 JULY 1, 2000 JUNE 30, 2001 JULY 1, 2000
------------- ------------ ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales........................ $794,822 $728,381 $1,544,405 $1,375,118
Gross profit..................... 108,616 99,612 207,645 188,790
Net earnings..................... 10,872 9,128 17,728 15,155
Basic net earnings per common
share.......................... $ 0.30 $ 0.25 $ 0.49 $ 0.42
Diluted net earnings per common
share.......................... 0.29 0.25 0.47 0.41
The pro forma results are presented for information purposes only and may
not be indicative of the operating results that would have occurred had the
Empire, Carroll County and Redi-Cut acquisitions been consummated as of the
beginning of 2000.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the 2001 and 2000
periods are as follows:
SIX MONTHS ENDED
----------------------------
JUNE 30, 2001 JULY 1, 2000
------------- ------------
(IN THOUSANDS)
Cash paid during the period for:
Interest............................................. $4,429 $2,929
Income taxes......................................... $8,476 $5,032
4. INDUSTRY SEGMENT INFORMATION
The Company has three reportable 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 13 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
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
in the Southeastern, Southwestern and Midwestern United States. Fresh-Cut
operations are conducted at four processing facilities.
CORPORATE &
BROADLINE CUSTOMIZED FRESH-CUT INTERSEGMENT CONSOLIDATED
--------- ---------- --------- ------------ ------------
(IN THOUSANDS)
2001 QUARTER
Net external sales....................... $415,477 $312,396 $ 66,949 $ -- $ 794,822
Intersegment sales....................... 1,820 -- 10,083 (11,903) --
Operating profit......................... 12,546 3,569 6,360 (2,305) 20,170
Total assets............................. 438,021 123,904 199,209 21,039 782,173
Interest expense (income)................ 2,827 817 2,482 (3,965) 2,161
Depreciation............................. 2,500 621 1,328 73 4,522
Amortization............................. 1,362 -- 1,003 25 2,390
Capital expenditures..................... 4,508 671 739 1,155 7,073
CORPORATE &
BROADLINE CUSTOMIZED FRESH-CUT INTERSEGMENT CONSOLIDATED
--------- ---------- --------- ------------ ------------
(IN THOUSANDS)
2000 QUARTER
Net external sales....................... $335,231 $287,261 $ 32,111 $ -- $ 654,603
Intersegment sales....................... 950 -- 6,675 (7,625) --
Operating profit......................... 9,304 2,835 1,867 (1,618) 12,388
Total assets............................. 320,858 114,444 51,243 15,595 502,140
Interest expense (income)................ 1,800 844 415 (1,560) 1,499
Depreciation............................. 2,035 505 620 64 3,224
Amortization............................. 790 -- 114 21 925
Capital expenditures..................... 2,710 627 2,453 153 5,943
CORPORATE &
BROADLINE CUSTOMIZED FRESH-CUT INTERSEGMENT CONSOLIDATED
--------- ---------- --------- ------------ ------------
(IN THOUSANDS)
2001 PERIOD
Net external sales....................... $775,157 $610,447 $132,693 $ -- $1,518,297
Intersegment sales....................... 2,651 -- 22,268 (24,919) --
Operating profit......................... 19,245 6,212 10,514 (4,015) 31,956
Total assets............................. 438,021 123,904 199,209 21,039 782,173
Interest expense (income)................ 4,918 1,819 5,572 (8,506) 3,803
Depreciation............................. 4,823 1,202 2,485 135 8,645
Amortization............................. 2,203 -- 2,007 47 4,257
Capital expenditures..................... 9,765 1,281 1,085 1,660 13,791
CORPORATE &
BROADLINE CUSTOMIZED FRESH-CUT INTERSEGMENT CONSOLIDATED
--------- ---------- --------- ------------ ------------
(IN THOUSANDS)
2000 PERIOD
Net external sales....................... $636,875 $533,405 $ 64,073 $ -- $1,234,353
Intersegment sales....................... 1,828 -- 12,981 (14,809) --
Operating profit......................... 14,527 4,970 3,823 (3,368) 19,952
Total assets............................. 320,858 114,444 51,243 15,595 502,140
Interest expense (income)................ 3,501 1,718 728 (3,059) 2,888
Depreciation............................. 3,968 1,008 1,318 111 6,405
Amortization............................. 1,595 -- 229 52 1,876
Capital expenditures..................... 8,249 765 6,775 1,134 16,923
F-28
128
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
5. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations. SFAS No. 141 requires that all business combinations initiated
after June 30, 2001, be accounted for by the purchase method and specifies
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported apart from goodwill. The adoption of this standard
will affect the Company's accounting for future acquisitions, including the
pending acquisitions of SFC and Fresh Express, discussed in Note 6.
Also in July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142 state that goodwill should no
longer be amortized, and goodwill and other intangible assets should be tested
for impairment upon adoption of the standard, and at least annually thereafter.
The Company will be required to adopt the provisions of SFAS No. 142 with its
fiscal year beginning December 30, 2001, except for goodwill and any intangible
assets acquired in a purchase business combination completed after June 30,
2001, for which the provisions of this standard are effective beginning July 1,
2001. As a result, after adoption of the provisions of this standard, the
Company will no longer record amortization expense for goodwill. The Company
will also be required to perform an assessment of whether there is an indication
that goodwill and other intangible assets are impaired as of the date of
adoption. Any such transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's
consolidated statement of income.
As of the date of adoption, the Company expects to have unamortized
goodwill, excluding acquisitions not yet consummated, in the amount of $274.0
million, which will be subject to the transition provisions of SFAS No. 142.
Amortization expense related to goodwill was $2.0 million and $693,000 for the
2001 and 2000 quarters, respectively, and $3.7 million and $1.4 million for the
2001 and 2000 periods, respectively. The Company has not yet completed its
analysis of the impact of these new standards on its financial condition and
results of operations.
6. SUBSEQUENT EVENTS
On July 3, 2001, the Company entered into an agreement with a financial
institution whereby the SPE described below sells an undivided interest in
certain of its trade receivables (the "receivables purchase facility"). Pursuant
to the receivables purchase facility, the Company formed PFG Receivables
Corporation, a wholly owned special-purpose subsidiary (the "SPE"). The SPE was
formed for the sole purpose of buying receivables generated by some of the
Company's operating units, and selling an undivided interest in those
receivables to a financial institution. Under the receivables purchase facility,
the Company's operating units, irrevocably and without recourse, transfer a
portion of their accounts receivable to the SPE. The SPE, in turn, has sold and,
subject to certain conditions, may from time to time in the future, sell an
undivided interest in these receivables to a financial institution. The amount
of the undivided interest in the receivables owned by the financial institution
cannot exceed $90 million at any one time. The proceeds from the initial sale of
the undivided interest in these receivables were used to repay borrowings under
the Company's revolving credit facility. As of July 3, 2001, the amount of the
undivided interest owned by the financial institution under the receivables
purchase facility was $73 million. The agreement expires in July 2002, but can
be renewed by mutual agreement between the financial institution and the
Company. This two-step transaction will be accounted for under the provisions of
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
On July 25, 2001, the Company signed a definitive agreement to acquire
the common stock of Springfield Foodservice Corporation ("SFC"), a privately
owned broadline foodservice distributor based in Springfield, Massachusetts, for
approximately $85 million. SFC provides products and services to traditional
foodservice accounts in a region covering New England and portions of New York
State.
F-29
129
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
On August 9, 2001, the Company signed a definitive agreement to acquire
the common stock of Fresh International Corp. ("Fresh Express"), a privately
owned fresh-cut produce processor based in Salinas, California, for
approximately $290 million, subject to adjustment. Fresh Express processes,
markets and distributes a diverse line of packaged salads to supermarkets and
foodservice operators throughout the entire United States. Fresh Express
operates five processing facilities located in Salinas, California; Greencastle,
Pennsylvania; Colorado Springs, Colorado; Atlanta, Georgia; and Chicago,
Illinois.
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130
PROSPECTUS
PERFORMANCE FOOD GROUP COMPANY
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
We may from time to time sell up to $600,000,000 (or the equivalent in
foreign currencies or currency units) aggregate initial offering price of:
- our debt securities, in one or more series, which may be either senior
debt securities, senior subordinated debt securities, subordinated debt
securities or debt securities with any other ranking;
- shares of our preferred stock, par value $0.01 per share, in one or more
series;
- shares of our common stock, par value $0.01 per share;
- warrants to purchase our common stock; or
- any combination of the foregoing.
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and any prospectus supplement,
as well as the documents incorporated or deemed to be incorporated by reference
in this prospectus, carefully before you invest.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR SECURITIES BEING SOLD PURSUANT
TO THIS PROSPECTUS.
Our common stock is traded on the Nasdaq Stock Market's National Market
under the symbol "PFGC".
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
We will sell these securities directly, through agents, dealers or
underwriters as designated from time to time, or through a combination of these
methods. We reserve the sole right to accept, and together with our agents,
dealers and underwriters reserve the right to reject, in whole or in part any
proposed purchase of securities to be made directly or through agents,
underwriters or dealers. If our agents or any dealers or underwriters are
involved in the sale of the securities, the applicable prospectus supplement
will set forth any applicable commissions or discounts.
This prospectus may not be used to consummate sales of securities unless
accompanied by the applicable prospectus supplement.
The date of this prospectus is October 10, 2001.
131
TABLE OF CONTENTS
PAGE
----
Risk Factors................................................ 2
Special Note Regarding Forward-Looking Statements........... 6
The Company................................................. 7
Use of Proceeds............................................. 7
Ratio of Earnings to Fixed Charges.......................... 7
General Description of Securities........................... 8
Description of Debt Securities.............................. 8
Description of Capital Stock................................ 23
Description of Warrants..................................... 30
Plan of Distribution........................................ 32
Available Information....................................... 32
Incorporation by Reference.................................. 33
Legal Matters............................................... 34
Experts..................................................... 34
------------------------
We have not authorized any person to give any information or to make any
representation in connection with this offering other than those contained or
incorporated by reference in this prospectus, and, if given or made, such
information or representation must not be relied upon as having been so
authorized. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by anyone in any jurisdiction in which such
offer or solicitation is not authorized, or in which the person is not qualified
to do so or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this prospectus nor any sale hereunder
shall, under any circumstances, create any implication that there has been no
change in our affairs since the date hereof, that the information contained
herein is correct as of any time subsequent to its date, or that any information
incorporated by reference herein is correct as of any time subsequent to its
date.
132
RISK FACTORS
You should carefully consider the risks described below, as well as other
information contained in this prospectus and the documents incorporated or
deemed to be incorporated by reference in this prospectus, before buying any
securities offered by the applicable prospectus supplement. If any of the events
described below occurs, our business, financial condition or results of
operations could be materially harmed, the trading price of the securities
offered by the applicable prospectus supplement could decline and you may lose
all or part of your investment.
FOODSERVICE DISTRIBUTION IS A LOW-MARGIN BUSINESS AND MAY BE 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 may also be 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, energy 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. In addition, although we
have sought to limit the impact of the recent increases in fuel prices by
imposing fuel surcharges on our customers, we cannot assure you that increases
in fuel prices will not adversely affect our results of operations.
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 16.3% of our consolidated net sales in both the six
months ended June 30, 2001 and fiscal 2000. Net sales to Cracker Barrel Old
Country Store accounted for 14.6% of our consolidated net sales in the six
months ended June 30, 2001 and 16.1% of our consolidated net sales in fiscal
2000. Sales to these customers by our customized segment generally have lower
operating margins than sales to customers in other areas of our business. We do
not have agreements requiring these or other customers to purchase any specified
amount of goods from us, although the prices paid by them may depend on the
level of their purchases, 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, with some customers being required to give
us advance notice of their intent to stop buying. 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 4.0% of our consolidated net sales in the six months
ended June 30, 2001, may be experiencing financial difficulties; therefore, this
customer pays for its purchases upon delivery.
OUR GROWTH 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
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133
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 any 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. Our results of
operations also may be adversely affected by expenses we incur in making
acquisitions, by amortization of acquisition-related intangible assets with
definite lives, and by additional depreciation expenses attributable to acquired
assets. Any of the businesses we have acquired or may acquire may also have
liabilities or adverse operating issues that we fail to discover before the
acquisition, and our indemnity for such liabilities typically has been limited
and may, with respect to future acquisitions, also be limited.
In addition, 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. If we obtain
additional debt financing in the future, which may include the issuance of debt
securities pursuant to this prospectus, our debt service obligations may
increase substantially and the terms of the debt financing may contain financial
covenants and other restrictions that limit our operating flexibility, limit our
flexibility in planning for and reacting to changes in our business and make us
more vulnerable to economic downturns and competitive pressures. To the extent
that we seek to acquire other businesses in exchange for our common stock,
fluctuations in our stock price could have a material adverse effect on our
ability to complete acquisitions. Likewise, the issuance of our common stock in
connection with acquisitions could be dilutive to our shareholders.
MANAGING OUR GROWTH MAY BE DIFFICULT AND OUR GROWTH RATE MAY DECLINE.
We have rapidly expanded our operations since inception. This growth has
placed and will continue to place significant demands on our administrative,
operational and financial resources, and we cannot assure you that we will be
able to successfully integrate the operations of acquired businesses with our
existing operations, which could have a material adverse effect on our business.
We also 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 unless 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.
In addition, we cannot assure you that the rate of our future growth, if
any, will not decline from our recent historical growth rates. If we fail to
expand our business or make acquisitions and successfully integrate the
operations of any acquired companies, the rate of our future growth, if any,
will likely be lower than our historical growth rates.
PRODUCT LIABILITY CLAIMS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Like any other distributor and processor of food, we face an inherent risk
of exposure to product liability claims if the products we sell cause injury or
illness. We have liability insurance with respect to product liability claims.
We cannot assure you, however, that this insurance will continue to be available
at a reasonable cost or at all, or, if available, will be adequate to cover
product liability claims against us. We generally seek contractual
indemnification from resellers of our products, but any such indemnification is
limited, as a practical matter, to the creditworthiness of the indemnifying
party. If we do not have adequate insurance or contractual indemnification
available, product liability claims could have a material adverse effect on our
business, operating results and financial condition.
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134
One of our subsidiaries is the defendant in a lawsuit filed by one of its
customers seeking indemnity for any damages and expenses that the customer may
be required to pay as a result of the alleged contamination of produce supplied
by that subsidiary. We believe that the lawsuit is without merit, but we cannot
assure you that the costs associated with defending the lawsuit or an adverse
outcome will not have a material adverse effect on our results of operations.
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 regional processors, although we encounter intense competition from
national and larger 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. Our failure to compete successfully could have a material adverse
effect on our business, operating results and financial condition.
OUR FRESH-CUT SEGMENT RELIES ON PROPRIETARY MACHINERY AND PROCESSES THAT ARE NOT
PROTECTED BY PATENTS.
Our existing fresh-cut operations rely on proprietary machinery and
processes which are used to prepare some of our products. We believe that the
cost and complexity of our machinery have been and will continue to be a barrier
to entry to other potential competitors in the fresh-cut segment; however, we
have not protected our 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.
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, energy and fuel costs and the costs of produce or
other food products; and
- natural disasters, severe weather conditions or other developments
affecting us or our competitors.
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135
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.
OUR SHAREHOLDER RIGHTS PLAN, CHARTER AND BYLAWS COULD MAKE IT DIFFICULT FOR A
THIRD PARTY TO ACQUIRE OUR COMPANY.
We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, Tennessee corporate law and our charter and bylaws contain provisions
that could delay, defer or prevent a change in control of our company or our
management. These provisions could also discourage proxy contests and make it
more difficult for you and other shareholders to elect directors and take other
corporate actions. These provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by our board of directors, without
shareholder approval, with rights senior to those of common stock;
- provide for a staggered board of directors and three-year terms for
directors, so that no more than one-third of our directors could be
replaced at any annual meeting;
- provide that directors may be removed only for cause; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by shareholders at a meeting.
We are also subject to anti-takeover provisions under Tennessee law, which
could also delay or prevent a change of control. Together, these provisions of
our charter and bylaws, Tennessee law and our rights plan may discourage
transactions that otherwise could provide for the payment of a premium over
prevailing market prices for our common stock, and also could limit the price
that investors are willing to pay in the future for shares of our common stock.
OUR ISSUANCE OF PREFERRED STOCK COULD ADVERSELY AFFECT HOLDERS OF OUR COMMON
STOCK AND DISCOURAGE A TAKEOVER.
Our board of directors is authorized to issue up to 5,000,000 shares of
preferred stock without any action on the part of our shareholders. Our board of
directors also has the power, without shareholder approval, to set the terms of
any series of preferred stock that may be issued, including voting rights,
dividend rights, preferences over our common stock with respect to dividends or
in the event of a dissolution, liquidation or winding up and other terms. In the
event that we issue preferred stock in the future that has preference over our
common stock with respect to payment of dividends or upon our liquidation,
dissolution or winding up, or if we issue preferred stock with voting rights
that dilute the voting power of our common stock, the rights of the holders of
our common stock or the market price of our common stock could be adversely
affected. In addition, the ability of our board of directors to issue shares of
preferred stock without any action on the part of our shareholders may impede a
takeover of us and prevent a transaction favorable to our shareholders.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of our common stock and could impair our ability to
raise capital through future offerings of equity securities. Of the 38,004,240
shares of our common stock outstanding as of September 25, 2001, a total of
approximately 6,991,888 shares had been issued to former owners of businesses
that we acquired. All of these 6,991,888 shares were registered under the
Securities Act of 1933 and therefore are either freely transferable in the
public markets or are eligible for
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resale in the public markets pursuant to Rule 145 under the Securities Act of
1933 or under one of the shelf registration statements that we have filed with
the SEC. Under Rule 145, sales of shares of our common stock issued to
affiliates of companies that we acquire are eligible for resale in the public
markets, subject to certain of the restrictions set forth in Rule 144 under the
Securities Act of 1933. We expect to issue shares under these registration
statements or similar registration statements to the owners of other foodservice
businesses we may acquire in the future.
OUR HOLDING COMPANY STRUCTURE MAY AFFECT OUR ABILITY TO SERVICE OUR DEBT.
Any debt securities we issue pursuant to a prospectus supplement will be
exclusively our obligations. Although we own a substantial portion of our
consolidated assets directly, a majority of our consolidated assets are held by
our subsidiaries. Accordingly, our cash flow and our ability to service our
debt, including the debt securities, may depend on the results of operations of
our subsidiaries and upon the ability of our subsidiaries to provide cash,
whether in the form of dividends, loans, or otherwise, to pay amounts due on our
obligations, including the debt securities. Our subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to make
payments on the debt securities or to make any funds available for that purpose.
In addition, dividends, loans or other distributions from our subsidiaries to us
may be subject to contractual and other restrictions, are dependent upon the
results of operations of our subsidiaries and are subject to other business
considerations.
Because we are a holding company, the debt securities will be effectively
subordinated to all existing and future liabilities of our subsidiaries. These
liabilities may include indebtedness, trade payables, guarantees, lease
obligations and letter of credit obligations. Therefore, our rights and the
rights of our creditors, including the holders of the debt securities, to
participate in the assets of any subsidiary upon that subsidiary's liquidation
or reorganization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that we may ourselves be a creditor with
recognized claims against the subsidiary. However, even if we are a creditor of
one of our subsidiaries, our claims would still be effectively subordinate to
any security interest in, or mortgages or other liens on, the assets of the
subsidiary and would be subordinate to any indebtedness of the subsidiary senior
to that held by us. As of June 30, 2001, our subsidiaries had total indebtedness
and other liabilities, excluding intercompany liabilities, of approximately
$220.8 million. Although some of our debt instruments impose limitations on the
incurrence of additional indebtedness, both we and our subsidiaries retain the
ability to incur substantial additional indebtedness, including senior
indebtedness, and other obligations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated or deemed to be incorporated
by reference in this prospectus 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," "should" or similar
expressions. These forward-looking statements may address, among other things,
the anticipated effects of the offering of the securities hereunder, 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 prospectus are described in this prospectus under "Risk
Factors" and in the documents incorporated or deemed to be incorporated by
reference in this prospectus, and additional factors may be discussed in the
prospectus supplement relating to a particular offering of securities. These
factors include, but are not limited to:
- the relatively low margins and economic sensitivity of the foodservice
business;
- our reliance on major customers;
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- our need to identify and successfully complete acquisitions of other
foodservice distributors; and
- management of our planned growth and other financial issues.
If one or more of these risks or uncertainties materialize, or if any
underlying assumptions proves 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.
THE COMPANY
We market and distribute a wide variety of food and food-related products
to the foodservice, or "away from home eating," industry. The foodservice
industry consists of two major customer types: "street" foodservice customers,
which includes independent restaurants, hotels, cafeterias, schools, healthcare
facilities and other institutional customers, and "chain" customers, which
includes regional and national quick-service restaurants and casual-dining
restaurants. Our customers are located primarily in the Southern, Southwestern,
Midwestern and Northeastern United States.
Our principal executive offices are located at 12500 West Creek Parkway,
Richmond, Virginia 23238 and our telephone number is (804) 484-7700.
USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement, we
will use the net proceeds from the sale of the securities for general corporate
purposes, which may include reducing our outstanding indebtedness, increasing
our working capital, acquisitions and capital expenditures. Pending the
application of the net proceeds for these purposes, we expect to invest the
proceeds in short-term, interest-bearing instruments or other investment-grade
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated:
FISCAL YEAR ENDED SIX MONTHS
-------------------------------------------------------------------- ENDED
DECEMBER 28, DECEMBER 27, JANUARY 2, JANUARY 1, DECEMBER 30, JUNE 30,
1996 1997 1999 2000 2000 2001
------------ ------------ ---------- ---------- ------------ ----------
13.5x 8.5x 5.8x 5.5x 5.4x 5.7x
Our ratio of earnings to fixed charges are calculated as follows:
- "earnings," which consist of consolidated net income plus income taxes
and fixed charges, except capitalized interest; and
- "fixed charges," which consist of consolidated interest on indebtedness,
including capitalized interest, amortization of debt discount and
issuance cost, and the estimated portion of rental expense deemed to be
equivalent to interest.
For the periods presented, there were no preferred stock dividends because
we had no shares of preferred stock outstanding; therefore, the ratio of
earnings to fixed charges and preferred stock dividends for each of the above
periods is the same as the ratio appearing in the above table.
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GENERAL DESCRIPTION OF SECURITIES
We, directly or through agents, dealers or underwriters designated from
time to time, may offer, issue and sell, together or separately, up to
$600,000,000 (or the equivalent in one or more foreign currencies or currency
units) aggregate initial offering price of:
- debt securities, in one or more series, which may be senior debt
securities, senior subordinated debt securities, subordinated debt
securities or debt securities with any other ranking;
- shares of our preferred stock, par value $0.01 per share, in one or more
series;
- shares of our common stock, par value $0.01 per share;
- warrants to purchase our common stock; or
- any combination of the foregoing,
either individually or as units consisting of one or more of the foregoing, each
on terms to be determined at the time of sale.
We may issue debt securities that are exchangeable for or convertible into
shares of our common stock or preferred stock or other debt securities. The
preferred stock may also be exchangeable for and/or convertible into shares of
our common stock or another series of our preferred stock or our debt
securities. When particular securities are offered, a supplement to this
prospectus will be delivered with this prospectus, which will set forth the
terms of the offering and sale of the offered securities.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities either separately, or together with, or upon
the conversion of or in exchange for, other securities. The debt securities may
be our unsecured and unsubordinated obligations, which we refer to as "senior
debt securities," issued in one or more series or our unsecured subordinated
obligations, which we refer to as "subordinated debt securities," issued in one
or more series. The subordinated debt securities of any series may be our senior
subordinated obligations, subordinated obligations, or may have such other
ranking as is described in the applicable prospectus supplement. The debt
securities will be issued under one or more indentures to be entered into
between us and one or more trustees. References herein to the "indenture" and
the "trustee" refer to the applicable indenture and the applicable trustee
pursuant to which any particular series of debt securities is issued. The terms
of any series of debt securities will be those specified in or pursuant to the
applicable indenture and in the certificates evidencing that series of debt
securities and those made part of the indenture by the Trust Indenture Act of
1939. We may issue both senior debt securities and subordinated debt securities
under the same indenture.
The following summary of selected provisions of the indenture and the debt
securities is not complete, and the summary of selected terms of a particular
series of debt securities included in the applicable prospectus supplement also
will not be complete. You should review the form of applicable indenture and the
form of certificate evidencing the applicable debt securities, which forms have
been or will be filed as exhibits to the registration statement of which this
prospectus is a part or as exhibits to documents which have been or will be
incorporated by reference in this prospectus. To obtain a copy of the indenture
or the form of certificate for the debt securities, see "Available Information"
in this prospectus. The following summary and the summary in the applicable
prospectus supplement are qualified in their entirety by reference to all of the
provisions of the indenture and the certificates evidencing the debt securities,
which provisions, including defined terms, are incorporated by reference in this
prospectus. Capitalized terms used in this section and not defined have the
meanings assigned to those terms in the indenture. When we refer to "Performance
Food Group", "we", "us" or "our" in this section or when we otherwise refer to
ourselves in this section, we mean Performance Food Group Company, excluding,
unless otherwise expressly stated or the context otherwise requires, our
subsidiaries.
The following description of debt securities describes general terms and
provisions of the series of debt securities to which any prospectus supplement
may relate. When we offer to sell a series of debt securities, we
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will describe the specific terms of the series in the applicable prospectus
supplement. If any particular terms of the debt securities described in a
prospectus supplement differ from any of the terms described in this prospectus,
then the terms described in the applicable prospectus supplement will supersede
the terms described in this prospectus.
General
The debt securities may be issued from time to time in one or more series
of senior debt securities and one or more series of subordinated debt
securities. We can issue an unlimited amount of debt securities under the
indenture. The indenture provides that debt securities of any series may be
issued up to the aggregate principal amount which may be authorized from time to
time by us. Please read the applicable prospectus supplement relating to the
series of debt securities being offered for specific terms including, where
applicable:
- the title of the series of debt securities;
- any limit on the aggregate principal amount of debt securities of the
series;
- the price or prices at which debt securities of the series will be
issued;
- the date or dates on which we will pay the principal of and premium, if
any, on debt securities of the series, or the method or methods, if any,
used to determine those dates;
- the rate or rates, which may be fixed or variable, at which debt
securities of the series will bear interest, if any, or the method or
methods, if any, used to determine those rates;
- the basis used to calculate interest, if any, on the debt securities of
the series if other than a 360-day year of twelve 30-day months;
- the date or dates, if any, from which interest on the debt securities of
the series will accrue, or the method or methods, if any, used to
determine those dates;
- the dates on which the interest, if any, on the debt securities of the
series will commence to accrue and will be payable and the record dates
for the payment of interest;
- the place or places where amounts due on the debt securities of the
series will be payable and where the debt securities of the series may be
surrendered for registration of transfer and exchange, if different than
the Borough of Manhattan, The City of New York;
- the terms and conditions, if any, upon which we may, at our option,
redeem debt securities of the series;
- the terms and conditions, if any, upon which we will repurchase debt
securities of the series at the option of the holders of debt securities
of the series;
- the terms of any sinking fund or analogous provision;
- if other than U.S. dollars, the currency used to purchase the debt
securities of the series and the currency used for payments on debt
securities of the series, and the ability, if any, of us or the holders
of debt securities of the series to have payments made in any other
currency;
- any addition to, or modification or deletion of, any covenant or Event of
Default with respect to debt securities of the series;
- whether the debt securities of the series are to be issuable in
registered or bearer form or both and, if in bearer form, whether any
debt securities of the series will be issued in temporary or permanent
global form and, if so, the identity of the depositary for the global
debt security;
- whether and under what circumstances we will pay Additional Amounts on
the series of debt securities to any holder who is a United States Alien
in respect of any tax, assessment or other governmental charge and, if
so, whether we will have the option to redeem the series of debt
securities rather than pay the Additional Amounts;
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- the person to whom any interest on any registered securities of the
series of debt securities will be payable, if different than the person
in whose name a registered security is registered at the close of
business on the regular record date for that interest;
- the manner in which, or the person to whom, any interest on any bearer
security of the series of debt securities will be payable, if different
than upon presentation and surrender of the coupons relating to the
bearer security;
- the extent to which, or the manner in which, any interest payable on a
temporary global debt security will be paid, if other than in the manner
provided in the indenture;
- the portion of the principal amount of the series of debt securities
which will be payable upon acceleration if other than the full principal
amount;
- the authorized denominations in which the series of debt securities will
be issued, if other than denominations of $1,000 and any integral
multiple of $1,000, in the case of registered securities, or $5,000, in
the case of bearer securities;
- the terms, if any, upon which such debt securities may be convertible
into or exchangeable for other securities;
- whether such debt securities will be senior debt securities or
subordinated debt securities and, if subordinated debt securities,
whether such subordinated debt securities will be our senior subordinated
or subordinated obligations or will have another ranking and the
definition of "Senior Indebtedness" and a summary of the subordination
provisions applicable to such subordinated debt securities;
- if the amount of payments on the series of debt securities may be
determined with reference to an index, formula or other method or methods
(any of those debt securities being referred to as "Indexed Securities")
and the manner used to determine those amounts; and
- any other terms of debt securities of the series.
As used in this prospectus and any prospectus supplement relating to the
offering of debt securities, references to the principal of and premium, if any,
and interest, if any, on the series of debt securities include the payment of
Additional Amounts, if any, required by the series of debt securities in that
context.
Debt securities may be issued as original issue discount securities to be
sold at a substantial discount below their principal amount. In the event of an
acceleration of the maturity of any original issue discount security, the amount
payable to the holder upon acceleration will be determined in the manner
described in the applicable prospectus supplement. Material federal income tax
and other considerations applicable to original issue discount securities will
be described in the applicable prospectus supplement.
If the purchase price of any debt securities is payable in a foreign
currency or currency unit or if the principal of, or premium, if any, or
interest, if any, on any of the debt securities is payable in a foreign currency
or currency unit, the specific terms of those debt securities and the applicable
foreign currency or currency unit will be specified in the prospectus supplement
relating to those debt securities.
The terms of the debt securities of any series may differ from the terms of
the debt securities of any other series, and the terms of particular debt
securities within any series may differ from each other. If expressly provided
in the applicable prospectus supplement, we may, without the consent of the
holders of the debt securities of any series, reopen an existing series of debt
securities and issue additional debt securities of that series or establish
additional or different terms of that series.
Registration, transfer, payment and paying agent
Unless otherwise indicated in the applicable prospectus supplement, each
series of debt securities will be issued in registered form only, without
coupons. The indenture, however, provides that we may also issue debt securities
in bearer form only, or in both registered and bearer form. Bearer securities
may not be offered, sold, resold or delivered in connection with their original
issuance in the United States or to any United States
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person, as defined below, other than offices located outside the United States
of specified United States financial institutions. "United States person" means
any citizen or resident of the United States, any corporation, partnership or
other entity created or organized in or under the laws of the United States, any
estate the income of which is subject to United States federal income taxation
regardless of its source, or any trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States fiduciaries who have the authority to control all substantial decisions
of the trust. "United States" means the United States of America, including the
states thereof and the District of Columbia, its territories, its possessions
and other areas subject to its jurisdiction. Purchasers of bearer securities
will be subject to certification procedures and may be affected by limitations
under United States tax laws. The applicable procedures and limitations will be
described in the prospectus supplement relating to the offering of the bearer
securities.
Unless otherwise indicated in the applicable prospectus supplement,
registered securities will be issued in denominations of $1,000 or any integral
multiple of $1,000, and bearer securities will be issued in denominations of
$5,000.
Unless otherwise indicated in the applicable prospectus supplement, the
debt securities will be payable and may be surrendered for registration of
transfer or exchange and, if applicable, for conversion into or exchange for
other types of securities, at an office or agency maintained by us in the
Borough of Manhattan, The City of New York. However, we, at our option, may make
payments of interest on any registered security by check mailed to the address
of the person entitled to receive that payment or by wire transfer to an account
maintained by the payee with a bank located in the United States. No service
charge shall be made for any registration of transfer or exchange, redemption or
repayment of debt securities, or for any conversion or exchange of debt
securities for other types of securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with that transaction.
Unless otherwise indicated in the applicable prospectus supplement, payment
of principal, premium, if any, and interest, if any, on bearer securities will
be made, subject to any applicable laws and regulations, at an office or agency
outside the United States. Unless otherwise indicated in the applicable
prospectus supplement, payment of interest due on bearer securities on any
interest payment date will be made only against surrender of the coupon relating
to that interest payment date. Unless otherwise indicated in the applicable
prospectus supplement, no payment of principal, premium, if any, or interest, if
any, with respect to any bearer security will be made at any office or agency in
the United States or by check mailed to any address in the United States or by
wire transfer to an account maintained with a bank located in the United States.
However, if any bearer securities are payable in U.S. dollars, payments on those
bearer securities may be made at the corporate trust office of the relevant
trustee or at any office or agency designated by us in the Borough of Manhattan,
The City of New York, if, but only if, payment of the full amount due on the
bearer securities for principal, premium, if any, or interest, if any, at all
offices outside of the United States maintained for that purpose by us is
illegal or effectively precluded by exchange controls or similar restrictions.
Unless otherwise indicated in the applicable prospectus supplement, we will
not be required to:
- issue, register the transfer of or exchange debt securities of any series
during a period beginning at the opening of business 15 days before any
selection of debt securities of that series of like tenor and terms to be
redeemed and ending at the close of business on the day of that
selection;
- register the transfer of or exchange any registered security, or portion
of any registered security, selected for redemption, except the
unredeemed portion of any registered security being redeemed in part;
- exchange any bearer security selected for redemption, except to exchange
a bearer security for a registered security of that series of like tenor
and terms that is simultaneously surrendered for redemption; or
- issue, register the transfer of or exchange a debt security which has
been surrendered for repayment at the option of the holder, except the
portion, if any, of the debt security not to be repaid.
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Ranking of debt securities; holding company structure
The senior debt securities of each series will be our unsecured
unsubordinated obligations and will rank on a parity in right of payment with
all of our other unsecured and unsubordinated indebtedness. The subordinated
debt securities of each series will be our unsecured obligations and will be
subordinated in right of payment to all of our existing and future Senior
Indebtedness (which term will be defined in the prospectus supplement relating
to such series of subordinated debt securities). The subordinated debt
securities of any series may be our senior subordinated or subordinated
obligations, or may have such other ranking as is described in the applicable
prospectus supplement. Accordingly, the subordinated debt securities of any
series may rank, in priority of payment, senior to, on a parity with or junior
to any other series of subordinated debt securities and the definition of
"Senior Indebtedness" applicable to any series of subordinated debt securities
may be different from the definition of "Senior Indebtedness" applicable to any
other series of subordinated debt securities. If this prospectus is being
delivered in connection with the offering of a series of subordinated debt
securities, the accompanying prospectus supplement will describe the
subordination provisions and set forth the definition of "Senior Indebtedness"
applicable to such subordinated debt securities, and such prospectus supplement
or the information incorporated or deemed to be incorporated by reference herein
will set forth the approximate amount of such Senior Indebtedness outstanding as
of a recent date.
There are no limitations in the indenture on the issuance or incurrence of
indebtedness (including Senior Indebtedness) by us or our subsidiaries.
The debt securities are exclusively our obligations. Although we own some
of our consolidated assets directly, a substantial majority of our consolidated
assets are held by our subsidiaries. Accordingly, our cash flow and our ability
to service our debt, including the debt securities, may depend to a substantial
degree on the results of operations of our subsidiaries and upon the ability of
our subsidiaries to provide cash, whether in the form of dividends, loans, or
otherwise, to pay amounts due on our obligations, including the debt securities.
Our subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to make payments on the debt securities or
to make any funds available for that purpose. In addition, dividends, loans or
other distributions from our subsidiaries to us may be subject to contractual
and other restrictions, are dependent upon the results of operations of our
subsidiaries and are subject to other business considerations.
Because we are a holding company, the debt securities will be effectively
subordinated to all existing and future liabilities of our subsidiaries. These
liabilities may include indebtedness, trade payables, guarantees, lease
obligations and letter of credit obligations. Therefore, our rights and the
rights of our creditors, including the holders of the debt securities, to
participate in the assets of any subsidiary upon that subsidiary's liquidation
or reorganization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that we may ourselves be a creditor with
recognized claims against the subsidiary. However, even if we are a creditor of
one or more of our subsidiaries, our claims would still be effectively
subordinate to any security interest in, or mortgages or other liens on, the
assets of the subsidiary and would be subordinate to any indebtedness of the
subsidiary senior to that held by us. As of June 30, 2001, our subsidiaries had
total indebtedness and other liabilities, excluding intercompany liabilities, of
approximately $220.8 million. Although some of our debt instruments impose
limitations on the incurrence of additional indebtedness, both we and our
subsidiaries retain the ability to incur substantial additional indebtedness,
including Senior Indebtedness, and other obligations.
Book-entry debt securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global debt securities. Global debt securities will be
deposited with, or on behalf of, a depositary identified in the applicable
prospectus supplement relating to the series. Global debt securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for individual
certificates evidencing debt securities, a global debt security may not be
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transferred except as a whole by the depositary to its nominee or by the nominee
to the depositary, or by the depositary or its nominee to a successor depositary
or to a nominee of the successor depositary.
We anticipate that global debt securities will be deposited with, or on
behalf of, The Depository Trust Company, or DTC, New York, New York and that
global debt securities will be registered in the name of DTC's nominee, Cede &
Co. We also anticipate that the following provisions will apply to the
depository arrangements with respect to global debt securities. Additional or
differing terms of the depository arrangements will be described in the
applicable prospectus supplement.
DTC has advised us that it is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among its participants of securities transactions,
including transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, which eliminates the
need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. DTC is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others, sometimes referred to in this
prospectus as indirect participants, that clear transactions through or maintain
a custodial relationship with a direct participant either directly or
indirectly. Indirect participants include securities brokers and dealers, banks
and trust companies. The rules applicable to DTC and its participants are on
file with the SEC.
Purchases of debt securities within the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of the actual purchaser or beneficial
owner of a debt security is, in turn, recorded on the direct and indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the direct or indirect participants through
which they purchased the debt securities. Transfers of ownership interests in
debt securities are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interests in the debt
securities, except under the limited circumstances described below.
To facilitate subsequent transfers, all debt securities deposited by
participants with DTC will be registered in the name of DTC's nominee, Cede &
Co. The deposit of debt securities with DTC and their registration in the name
of Cede & Co. will not change the beneficial ownership of the debt securities.
DTC has no knowledge of the actual beneficial owners of the debt securities.
DTC's records reflect only the identity of the direct participants to whose
accounts the debt securities are credited. Those participants may or may not be
the beneficial owners. The participants are responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any legal requirements in effect from time to time.
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Redemption notices shall be sent to DTC or its nominee. If less than all of
the debt securities of a series are being redeemed, DTC will reduce the amount
of the interest of each direct participant in the debt securities under its
procedures.
In any case where a vote may be required with respect to the debt
securities of any series, neither DTC nor Cede & Co. will give consents for or
vote the global debt securities. Under its usual procedures, DTC will mail an
omnibus proxy to us as soon as possible after the record date. The omnibus proxy
assigns the consenting or voting rights of Cede & Co. to those direct
participants to whose accounts the debt securities are credited on the record
date identified in a listing attached to the omnibus proxy.
Principal and premium, if any, and interest, if any, on the global debt
securities will be paid to Cede & Co., as nominee of DTC. DTC's practice is to
credit direct participants' accounts on the relevant payment date unless DTC has
reason to believe that it will not receive payments on the payment date.
Payments by direct and indirect participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name." Those payments will be the responsibility of participants and not
of DTC or us, subject to any legal requirements in effect from time to time.
Payment of principal, premium, if any, and interest, if any, to Cede & Co. is
our responsibility, disbursement of payments to direct participants is the
responsibility of DTC, and disbursement of payments to the beneficial owners is
the responsibility of direct and indirect participants.
Except under the limited circumstances described in this prospectus,
beneficial owners of interests in a global debt security will not be entitled to
have debt securities registered in their names and will not receive physical
delivery of debt securities. Accordingly, each beneficial owner must rely on the
procedures of DTC to exercise any rights under the debt securities and the
indenture.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer or pledge beneficial interests in global debt
securities.
DTC is under no obligation to provide its services as depositary for the
debt securities of any series and may discontinue providing its services at any
time. Neither we nor the trustee will have any responsibility for the
performance by DTC or its participants or indirect participants under the rules
and procedures governing DTC. As noted above, beneficial owners of debt
securities generally will not receive certificates representing their ownership
interests in the debt securities. However, if
- DTC notifies us that it is unwilling or unable to continue as a
depositary for the global debt securities of any series or if DTC ceases
to be a clearing agency registered under the Securities Exchange Act and
a successor depositary for the debt securities of such series is not
appointed within 90 days of the notification or of our becoming aware of
DTC's ceasing to be so registered, as the case may be,
- we determine, in our sole discretion, not to have the debt securities of
any series represented by one or more global debt securities, or
- an Event of Default under the indenture has occurred and is continuing
with respect to the debt securities of any series,
we will prepare and deliver certificates for the debt securities of that series
in exchange for beneficial interests in the global debt securities. Any
beneficial interest in a global debt security that is exchangeable under the
circumstances described in the preceding sentence will be exchangeable for debt
securities in definitive certificated form registered in the names that the
depositary shall direct. It is expected that these directions will be based upon
directions received by the depositary from its participants with respect to
ownership of beneficial interests in the global debt securities.
We obtained the information in this section and elsewhere in this
prospectus concerning DTC and DTC's book-entry system from sources that we
believe to be reliable, but we take no responsibility for the accuracy of this
information.
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Outstanding debt securities
In determining whether the holders of the requisite principal amount of
outstanding debt securities have given any request, demand, authorization,
direction, notice, consent or waiver under the indenture:
- the principal amount of an original issue discount security that shall be
deemed to be outstanding for these purposes shall be that portion of the
principal amount of the original issue discount security that could be
declared to be due and payable upon a declaration of acceleration of the
original issue discount security as of the date of the determination,
- the principal amount of any Indexed Security that shall be deemed to be
outstanding for these purposes shall be the principal face amount of the
Indexed Security determined on the date of its original issuance,
- the principal amount of a debt security denominated in a foreign currency
that shall be deemed to be outstanding for these purposes shall be the
U.S. dollar equivalent, determined on the date of original issue of the
debt security, of the principal amount of the debt security, and
- a debt security owned by us or any obligor on the debt security or any
affiliate of ours or the other obligor shall be deemed not to be
outstanding.
Redemption and repurchase
The debt securities of any series may be redeemable at our option or may be
subject to mandatory redemption by us as required by a sinking fund or
otherwise. In addition, the debt securities of any series may be subject to
repurchase by us at the option of the holders. The applicable prospectus
supplement will describe the terms, the times and the prices regarding any
optional or mandatory redemption or option to repurchase any series of debt
securities.
Conversion and exchange
The terms, if any, on which debt securities of any series are convertible
into or exchangeable for common stock or preferred stock or other debt
securities will be set forth in the applicable prospectus supplement. Such terms
may include provisions for conversion or exchange, either mandatory, at the
option of the holders or at our option.
Covenants of Performance Food Group
Merger, Consolidation and Transfer of Assets. The indenture provides that
we will not, in any transaction or series of related transactions, consolidate
or merge with or into any other person or sell, lease, assign, transfer or
otherwise convey all or substantially all of our properties and assets to any
other person unless:
- either (1) we shall be the continuing person (in the case of a merger) or
(2) the successor person (if other than us) formed by or resulting from
the consolidation or merger or to which such assets shall have been sold,
leased, assigned, transferred or otherwise conveyed is a corporation
organized and existing under the laws of the United States of America,
any state thereof or the District of Columbia and shall expressly assume
the due and punctual payment of the principal of, premium, if any, and
interest, if any, on all the debt securities outstanding under the
indenture and the due and punctual performance of all of our other
obligations under the indenture and the debt securities outstanding
thereunder;
- immediately after giving effect to such transaction or transactions, no
Event of Default under the indenture, and no event which, after notice or
lapse of time or both would become an Event of Default under the
indenture, shall have occurred and be continuing; and
- the trustee shall have received the officers' certificate and opinion of
counsel called for by the indenture.
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Upon any consolidation by us with, or our merger into, any other person or
any sale, assignment, transfer, lease or conveyance of all or substantially all
of our properties and assets to any person in accordance with the provisions of
the indenture described above, the successor person formed by the consolidation
or into which we are merged or to which the sale, assignment, transfer, lease or
other conveyance is made shall succeed to, and be substituted for, us and may
exercise every right and power of ours under the indenture with the same effect
as if such successor person had been named as us therein; and thereafter, except
in the case of a lease, the predecessor person shall be released from all
obligations and covenants under the indenture and the debt securities issued
under that indenture.
Other. Any other covenants applicable to the debt securities of any series
will be specified in the applicable prospectus supplement.
Events of default
Unless otherwise specified in the applicable prospectus supplement, an
Event of Default with respect to the debt securities of any series is defined in
the indenture as being:
(1) default in payment of any interest on, or any Additional Amounts
payable in respect of any interest on, any of the debt securities of
that series when due (whether or not, in the case of any subordinated
debt security of that series, such payment is prohibited by the
subordination provisions applicable thereto), and continuance of such
default for a period of 30 days;
(2) default in payment of any principal of or premium, if any, on, or any
Additional Amounts payable in respect of any principal of or premium,
if any, on, any of the debt securities of that series when due (whether
at maturity, upon redemption, upon repayment or repurchase at the
option of the holder or otherwise and whether payable in cash or in
shares of our common stock or other securities or property), whether or
not, in the case of any subordinated debt security of that series, such
payment is prohibited by the subordination provision applicable
thereto;
(3) default in the deposit of any sinking fund payment or payment under any
analogous provision when due with respect to any of the debt securities
of that series, whether or not, in the case of any subordinated debt
security of that series, such payment is prohibited by the
subordination provision applicable thereto;
(4) default in the delivery of any shares of common stock, together with
cash instead of fractional shares, or any other securities or property
when required to be delivered upon conversion of any convertible debt
security of that series or upon the exchange of any debt security of
that series which is exchangeable for other securities or property
(whether or not, in the case of any subordinated debt security of that
series, such delivery is prohibited by the subordination provisions
applicable thereto), and continuance of such default for a period of 10
days; or
(5) default by us in the performance, or breach, of any other covenant or
warranty in the indenture or in any debt security of that series, other
than a covenant or warranty included in the indenture solely for the
benefit of a series of debt securities other than that series, and
continuance of that default or breach (without that default or breach
having been cured or waived) for a period of 60 days after notice to us
by the trustee or the holders of not less than 25% in aggregate
principal amount of the debt securities of that series then
outstanding;
(6) (A) any indebtedness for borrowed money of us or any of our Significant
Subsidiaries in an aggregate amount in excess of $20,000,000 shall have
been accelerated or otherwise declared due and payable (including an
acceleration under the indenture with respect to debt securities of any
other series outstanding under the indenture) or shall be required to
be prepaid or repurchased (other than by regularly scheduled required
prepayment), in each case prior to the scheduled maturity thereof as a
result of a default with respect to such indebtedness, or (B) there
shall have occurred a default in the payment when due, after the
expiration of any applicable grace period, of any indebtedness for
borrowed money of us or any of our Significant Subsidiaries in an
aggregate amount in excess of $20,000,000 (including such a default
under the indenture with respect to debt
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securities of any other series outstanding under the indenture),
without, in any case referred to in clause (A) or (B) above, such
acceleration or declaration having been rescinded or annulled, such
required prepayment or repurchase or such default having been cured or
waived or such indebtedness having been discharged within 30 days after
notice to us by the trustee or to us and the trustee by the holders of
at least 25% in aggregate principal amount of the outstanding
securities of that series;
(7) specified events of bankruptcy, insolvency or reorganization with
respect to us or any Significant Subsidiary of ours; or
(8) any other Event of Default established for the debt securities of that
series.
No Event of Default with respect to any particular series of debt
securities necessarily constitutes an Event of Default with respect to any other
series of debt securities. The indenture provides that, within 90 days after the
occurrence of any default with respect to the debt securities of any series, the
trustee will mail to all holders of the debt securities of that series notice of
that default if known to a Responsible Officer of the trustee, unless that
default has been cured or waived. However, the indenture provides that the
trustee may withhold notice of a default with respect to the debt securities of
that series, except a default in payment of principal, premium, if any,
interest, if any, Additional Amounts, if any, or sinking fund payments, if any,
if the trustee considers it in the best interest of the holders to do so. As
used in this paragraph, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to the debt securities of any series.
The indenture provides that if an Event of Default (other than an Event of
Default specified in clause (7) of the second preceding paragraph) with respect
to any series of debt securities occurs and is continuing, either the trustee or
the holders of at least 25% in principal amount of the debt securities of that
series then outstanding may declare the principal of, or if debt securities of
that series are original issue discount securities, such lesser amount as may be
specified in the terms of that series of debt securities, and accrued and unpaid
interest, if any, on all the debt securities of that series to be due and
payable immediately. The indenture also provides that if an Event of Default
specified in clause (7) of the second preceding paragraph with respect to any
series of debt securities occurs, then the principal of, or if debt securities
of that series are original issue discount securities, such lesser amount as may
be specified in the terms of that series of debt securities, and accrued and
unpaid interest, if any, on all the debt securities of that series will
automatically become and be immediately due and payable without any declaration
or other action on the part of the trustee or any holder of the debt securities
of that series. However, upon specified conditions, the holders of a majority in
principal amount of the debt securities of a series then outstanding may rescind
and annul an acceleration of the debt securities of that series and its
consequences.
Subject to the provisions of the Trust Indenture Act requiring the trustee,
during the continuance of an Event of Default under the indenture, to act with
the requisite standard of care, the trustee is under no obligation to exercise
any of its rights or powers under the indenture at the request or direction of
any of the holders of debt securities of any series unless those holders have
offered the trustee reasonable indemnity. Subject to the foregoing, holders of a
majority in principal amount of the outstanding debt securities of any series
issued under the indenture have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the trustee under the
indenture with respect to that series. The indenture requires the annual filing
by us with the trustee of a certificate which states whether or not we are in
default under the terms of the indenture.
Notwithstanding any other provision of the indenture, the holder of a debt
security will have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and interest, if any, on that
debt security on the respective due dates for those payments and, in the case of
any debt security which is convertible into or exchangeable for other securities
or property, to convert or exchange, as the case may be, that debt security in
accordance with its terms, and to institute suit for the enforcement of those
payments and any right to effect such conversion or exchange, and this right
shall not be impaired without the consent of the holder.
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Modification, waivers and meetings
The indenture permits us and the trustee, with the consent of the holders
of a majority in principal amount of the outstanding debt securities of each
series issued under the indenture and affected by a modification or amendment,
to modify or amend any of the provisions of the indenture or of the debt
securities of the applicable series or the rights of the holders of the debt
securities of that series under the indenture. However, no such modification or
amendment shall, among other things,
- change the stated maturity of the principal of, or premium, if any, or
any installment of interest, if any, on or any Additional Amounts, if
any, with respect to any debt securities issued under the indenture, or
- reduce the principal of or any premium on any debt securities or reduce
the rate of interest on or the redemption or repurchase price of any debt
security, or any Additional Amounts with respect to any debt securities,
or change our obligation to pay Additional Amounts, or
- reduce the amount of principal of any original issue discount securities
that would be due and payable upon an acceleration of the maturity of any
debt security, or
- adversely affect any right of repayment or repurchase at the option of
any holder, or
- change any place where or the currency in which debt securities are
payable, or
- impair the holder's right to institute suit to enforce the payment of any
debt securities on or after their stated maturity or, in the case of any
debt security which is convertible into or exchangeable for other
securities, to enforce the right to convert or exchange that debt
security in accordance with its terms, or
- make any change that adversely affects the right, if any, to convert or
exchange debt securities for other securities or property, or
- reduce the percentage of debt securities of any series issued under the
indenture whose holders must consent to any modification or amendment or
any waiver of compliance with specific provisions of such indenture or
specified defaults under the indenture and their consequences, or
- solely in the case of a series of subordinated debt securities, modify
any of the subordination provisions applicable thereto or the definition
of Senior Indebtedness applicable thereto in a manner adverse to the
holders of such subordinated debt securities, or
- reduce the requirements for a quorum or voting at a meeting of holders of
the applicable debt securities,
without in each case obtaining the consent of the holder of each outstanding
debt security issued under such indenture affected by the modification or
amendment.
The indenture also contains provisions permitting us and the trustee,
without the consent of the holders of any debt securities issued under the
indenture, to modify or amend the indenture, among other things:
- to evidence the succession or another person to us under the indenture
and the assumption by that successor of our covenants contained in the
indenture and the debt securities;
- to add to our covenants for the benefit of the holders of all or any
series of debt securities issued under the indenture or to surrender any
right or power conferred upon us in the indenture with respect to all or
any series of debt securities issued under the indenture;
- to add to or change any provisions of the indenture to facilitate the
issuance of bearer securities;
- to establish the form or terms of debt securities of any series and any
related coupons, including, without limitation, subordination provisions
applicable to subordinated debt securities and conversion and exchange
provisions applicable to debt securities which are convertible into or
exchangeable for other securities or property and any deletions from or
additions or changes to the indenture in
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connection therewith so long as those deletions, additions and changes
are not applicable to any other series of debt securities then
outstanding;
- to cure any ambiguity or correct or supplement any provision in such
indenture which may be defective or inconsistent with other provisions in
the indenture, or to make any other provisions with respect to matters or
questions arising under the indenture which shall not adversely affect
the interests of the holders of the debt securities of any series then
outstanding;
- to add any additional Events of Default with respect to all or any series
of debt securities;
- to amend or supplement any provision contained in the indenture, provided
that the amendment or supplement does not apply to any outstanding debt
securities issued before the date of the amendment or supplement and
entitled to the benefits of that provision; or
- in the case of any series of debt securities which are convertible into
or exchangeable for common stock or other securities or property, to
provide for the conversion or exchange rights of those debt securities in
the event of any reclassification or change of our common stock or in the
event of any merger, consolidation or other business combination
transaction specified in the indenture involving us, if expressly
required by the terms of that series of debt securities.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of any series may waive our compliance with some of the
restrictive provisions of the indenture, which may include covenants, if any,
which are specified in the applicable prospectus supplement. The holders of a
majority in aggregate principal amount of the outstanding debt securities of any
series may, on behalf of all holders of debt securities of that series, waive
any past default under the indenture with respect to debt securities of that
series and its consequences, except a default in the payment of the principal
of, or premium, if any, or interest, if any, on debt securities of that series
or, in the case of any debt securities which are convertible into or
exchangeable for other securities, a default in any such conversion or exchange,
or a default in respect of a covenant or provision which cannot be modified or
amended without the consent of the holder of each outstanding debt security of
the affected series.
The indenture contains provisions for convening meetings of the holders of
a series of debt securities. A meeting may be called at any time by the trustee,
and also, upon our request, or the request of holders of at least 10% in
principal amount of the outstanding debt securities of a series. Notice of a
meeting must be given in accordance with the provisions of the indenture. Except
for any consent which must be given by the holder of each outstanding debt
security affected in the manner described above, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum, as described
below, is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding debt securities of that series.
However, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action which may be made, given or
taken by the holders of a specified percentage, which is less than a majority,
in principal amount of the outstanding debt securities of a series may be
adopted at a meeting or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the holders of that specified percentage in
principal amount of the outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of debt securities
of any series duly held in accordance with the indenture will be binding on all
holders of debt securities of that series and the related coupons, if any. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons entitled to vote a majority in principal amount of the
outstanding debt securities of a series, subject to exceptions.
Discharge, defeasance and covenant defeasance
Unless otherwise provided in the applicable prospectus supplement, upon our
direction, the indenture shall cease to be of further effect with respect to any
series of debt securities issued under the indenture
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specified by us, subject to the survival of specified provisions of the
indenture, including the obligation to pay Additional Amounts to the extent
described below, when:
- either
(A) all outstanding debt securities of that series and, in the case of
bearer securities, all related coupons, have been delivered to the trustee
for cancellation, subject to exceptions, or
(B) all debt securities of that series and, if applicable, any related
coupons have become due and payable or will become due and payable at their
stated maturity within one year or are to be called for redemption within
one year and we have deposited with the trustee, in trust, funds in U.S.
dollars or in the foreign currency in which the debt securities of that
series are payable in an amount sufficient to pay the entire indebtedness
on the debt securities of that series in respect of principal, premium, if
any, and interest, if any (and, to the extent that (x) the debt securities
of that series provide for the payment of Additional Amounts upon the
occurrence of specified events of taxation, assessment or governmental
charge with respect to payments on the debt securities and (y) the amount
of any Additional Amounts which are or will be payable is at the time of
deposit reasonably determinable by us, in the exercise of our sole
discretion, those Additional Amounts) to the date of this deposit, if the
debt securities of that series have become due and payable, or to the
maturity or redemption date of the debt securities of that series, as the
case may be;
- we have paid all other sums payable under the indenture with respect to
the debt securities of that series; and
- the trustee has received an officers' certificate and an opinion of
counsel called for by the indenture.
If the debt securities of any series provide for the payment of Additional
Amounts, we will remain obligated, following the deposit described above, to pay
Additional Amounts on those debt securities to the extent that they exceed the
amount deposited in respect of those Additional Amounts as described above.
Unless otherwise provided in the applicable prospectus supplement, we may
elect with respect to any series of debt securities either:
- to defease and be discharged from all of our obligations with respect to
that series of debt securities ("defeasance"), except for, among other
things:
(1) the obligation to pay Additional Amounts, if any, upon the
occurrence of specified events of taxation, assessment or governmental
charge with respect to payments on that series of debt securities to the
extent that those Additional Amounts exceed the amount deposited in
respect of those amounts as provided below,
(2) the obligations to register the transfer or exchange of those debt
securities,
(3) the obligation to replace temporary or mutilated, destroyed, lost or
stolen debt securities,
(4) the obligation to maintain an office or agency in respect of that
series of debt securities,
(5) the obligation to hold moneys for payment in trust, and
(6) the obligation, if applicable, to repurchase or repay debt
securities of that series at the option of the holders or to exchange or
convert debt securities of that series into other securities or property
in accordance with their terms, or
- to be released from our obligations with respect to the debt securities
of such series under specified covenants in the indenture and, if
applicable, other covenants as may be specified in the applicable
prospectus supplement, and any omission to comply with those obligations
shall not constitute a default or an Event of Default with respect to
that series of debt securities ("covenant defeasance"),
in either case upon the irrevocable deposit with the trustee, or other
qualifying trustee, in trust for that purpose, of an amount in U.S. dollars or
in the foreign currency in which those debt securities are payable at stated
maturity or, if applicable, upon redemption, and/or Government Obligations which
through the
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payment of principal and interest in accordance with their terms will provide
money, in an amount sufficient to pay the principal of and any premium and any
interest on (and, to the extent that (x) the debt securities of that series
provide for the payment of Additional Amounts and (y) the amount of the
Additional Amounts which are or will be payable is at the time of deposit
reasonably determinable by us, in the exercise of our sole discretion, the
Additional Amounts with respect to) that series of debt securities, and any
mandatory sinking fund or analogous payments on that series of debt securities,
on the due dates for those payments.
The defeasance or covenant defeasance described above shall only be
effective if, among other things:
- it shall not result in a breach or violation of, or constitute a default
under, the indenture or any other material agreement or instrument to
which we are a party or are bound;
- in the case of defeasance, we shall have delivered to the trustee an
opinion of independent counsel reasonably acceptable to the trustee
confirming that:
(A) we have received from or there has been published by the Internal
Revenue Service a ruling, or
(B) since the date of the indenture there has been a change in
applicable federal income tax law,
in either case to the effect that, and based on this ruling or change the
opinion of counsel shall confirm that, the holders of the debt securities
of the applicable series will not recognize income, gain or loss for
federal income tax purposes as a result of the defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if the defeasance had not
occurred;
- in the case of covenant defeasance, we shall have delivered to the
relevant trustee an opinion of independent counsel reasonably acceptable
to the trustee to the effect that the holders of the debt securities of
that series will not recognize income, gain or loss for federal income
tax purposes as a result of the covenant defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the covenant defeasance had not
occurred;
- if the cash and Government Obligations deposited are sufficient to pay
the outstanding debt securities of that series provided those debt
securities are redeemed on a particular redemption date, we shall have
given the trustee irrevocable instructions to redeem those debt
securities on that date; and
- no Event of Default or event which with notice or lapse of time or both
would become an Event of Default with respect to debt securities of that
series shall have occurred and be continuing on the date of the deposit
into trust; and, solely in the case of defeasance, no Event of Default
arising from specified events of bankruptcy, insolvency or reorganization
with respect to us or any Significant Subsidiary of ours or event which
with notice or lapse of time or both would become such an Event of
Default shall have occurred and be continuing during the period through
and including the 91st day after the date of the deposit into trust.
Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series,
(A) the holder of a debt security of that series is entitled to, and
does, elect under the indenture or the terms of that debt security to
receive payment in a currency other than the currency in which the deposit
has been made, or
(B) a Conversion Event, as defined below, occurs in respect of the
Foreign Currency in which the deposit has been made,
the indebtedness represented by that debt security shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the principal
of and premium, if any, and interest, if any, on that debt security as it
becomes due out of the proceeds yielded by converting the amount deposited in
respect of that
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debt security into the currency in which that debt security becomes payable as a
result of the election or Conversion Event based on (x) in the case of payments
made under clause (A) above, the applicable market exchange rate for the Foreign
Currency in effect on the second business day before the payment date, or (y)
with respect to a Conversion Event, the applicable market exchange rate for the
Foreign Currency in effect, as nearly as feasible, at the time of the Conversion
Event.
"Conversion Event" means the cessation of use of:
- a Foreign Currency both by the government of the country or the
confederation which issued such Foreign Currency and for the settlement
of transactions by a central bank or other public institutions of or
within the international banking community, or
- any currency unit or composite currency for the purposes for which it was
established.
In the event we effect covenant defeasance with respect to debt securities
of any series and those debt securities are declared due and payable because of
the occurrence of any Event of Default other than an Event of Default with
respect to the covenants as to which covenant defeasance has been effected,
which covenants would no longer be applicable to the debt securities of that
series after covenant defeasance, the amount of monies and/or Government
Obligations deposited with the relevant trustee to effect covenant defeasance
may not be sufficient to pay amounts due on the debt securities of that series
at the time of any acceleration resulting from that Event of Default. However,
we would remain liable to make payment of those amounts due at the time of
acceleration.
Upon the effectiveness of satisfaction and discharge, defeasance or
covenant defeasance with respect to the subordinated debt securities of any
series, the subordination provisions of the indenture shall cease to apply to
the debt securities of that series.
The applicable prospectus supplement may further describe the provisions,
if any, permitting or restricting defeasance or covenant defeasance with respect
to the debt securities of a particular series.
Definitions
"Foreign Currency" means any currency, currency unit or composite currency
issued by the government of one or more countries other than the United States
of America or by any recognized confederation or association of such government.
"Person" or "person" means any individual, Corporation, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Significant Subsidiary" means, with respect to us, any Subsidiary of ours
which is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (as such Rule is in effect
on the date of the indenture).
"Subsidiary" means (1) any corporation at least a majority of the total
voting power of whose outstanding Voting Stock is owned, directly or indirectly,
at the date of determination by us and/or one or more other Subsidiaries, and
(2) any other person in which we and/or one or more other Subsidiaries, directly
or indirectly, at the date of determination, (x) own at least a majority of the
outstanding ownership interests or (y) have the power to elect or direct the
election of, or to appoint or approve the appointment of, at least a majority of
the directors, trustees or managing members of, or other persons holding similar
positions with, such person.
"Voting Stock" means, with respect to any person, any class or series of
Capital Stock of such person the holders of which are ordinarily, in the absence
of contingencies, entitled to vote for the election of, or to appoint or to
approve the appointment of, the directors, trustees or managing members of, or
other persons holding similar positions with, such person.
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Governing law
The indenture and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York.
Regarding the trustees
The Trust Indenture Act limits the rights of each trustee, if the trustee
becomes a creditor of Performance Food Group, to obtain payment of claims or to
realize on property received by it in respect of those claims, as security or
otherwise. Each trustee is permitted to engage in other transactions with us and
our subsidiaries from time to time. However, if the trustee acquires any
conflicting interest it must eliminate the conflict upon the occurrence of an
Event of Default under the indenture, or else resign as trustee.
DESCRIPTION OF CAPITAL STOCK
We have authority to issue 100,000,000 shares of common stock and 5,000,000
shares of preferred stock. As of September 25, 2001, 38,004,240 shares of our
common stock were outstanding. As of September 25, 2001, no shares of our
preferred stock were outstanding, although we have reserved 1,000,000 shares of
our Series A Preferred Stock for issuance upon the exercise of rights under our
shareholder rights plan.
The following summary descriptions of selected provisions of our charter,
by-laws, common stock, preferred stock and shareholder rights plan are not
complete. These summaries are subject to, and are qualified entirely by, the
provisions of our charter, bylaws and rights agreement, all of which are
included or incorporated by reference as exhibits to the registration statement
of which this prospectus is a part. You should read our charter, bylaws and
rights agreement. In addition, the following summary descriptions of selected
provisions of Tennessee law are not complete, and the summaries are subject to,
and are qualified entirely by, the provisions of the applicable Tennessee law.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by shareholders, including the election of directors.
Shareholders are not entitled to cumulative voting rights, and, accordingly, the
holders of a majority of the shares voting for the election of directors can
elect all of the directors then standing for election. In that event, the
holders of the remaining shares will not be able to elect any person to our
board of directors.
The holders of common stock are entitled to receive such dividends, if any,
as may be declared from time to time by our board of directors, in its
discretion, from funds legally available therefor and subject to prior dividend
rights of holders of any shares of preferred stock which may be outstanding.
However, it is the present policy of our board of directors not to pay cash
dividends. Furthermore, the terms of our credit facility and our 6.77% senior
notes due May 2010 restrict our ability to declare or pay dividends on our
common stock. Upon our liquidation or dissolution, subject to prior liquidation
rights of the holders of preferred stock and after payment or provision for all
of our indebtedness and other liabilities, the holders of common stock are
entitled to receive on a pro rata basis our remaining assets available for
distribution. If any shares of our authorized but unissued Series A Preferred
Stock are issued, the holders of those shares will be entitled to vote as a
class with the holders of our common stock and to receive dividends and other
distributions, if any, ratably with the holders of our common stock. See
"Preferred Stock -- Series A Preferred Stock" below. Holders of common stock
have no preemptive rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All shares of common stock
being offered by the applicable prospectus supplement will be fully paid and not
liable to further calls or assessment by us.
Preferred Share Purchase Rights
Each of our outstanding shares of common stock is entitled to one preferred
share purchase right, and each share of common stock we issue prior to the
exercisability date described below or earlier redemption or expiration of the
rights, including the shares to be issued in any offering pursuant to the
applicable prospectus
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supplement, will be entitled to one preferred share purchase right. Each right
entitles the holder to purchase from us, upon the occurrence of specified
events, 1/100th of a share of our Series A Preferred Stock, which we refer to as
the Series A Preferred Stock, at a current exercise price of $50 per 1/100th of
a share of Series A Preferred Stock, subject to adjustment. The terms of the
rights are set forth in a rights agreement between us and American Stock
Transfer & Trust Company, as rights agent.
Until the exercisability date, we will not issue separate certificates
evidencing the rights. Until that date, the right pertaining to a share of
common stock will be evidenced by the corresponding common stock certificate,
and each right will trade as a unit with a corresponding share of common stock.
The rights will detach from the common stock, we will issue separate rights
certificates and an exercisability date will occur upon the earlier of:
- subject to the exceptions described below, the 10th day following a
public announcement that an "acquiring person," which, subject to the
exceptions listed in the following sentence, includes a person or "group"
of affiliated or associated persons, has acquired or obtained the right
to acquire beneficial ownership of
(1) 20% or more of our then outstanding common stock, or
(2) 10% or more of our then outstanding common stock if the board of
directors of Performance Food Group, after reasonable inquiry and
investigation, declares the acquiring person to be an "adverse
person" after it determines that the acquiring person, alone or with
its affiliates or associates, has become the beneficial owner of 10%
or more of Performance Food Group's common stock and after reasonable
inquiry and investigation, the acquiring person's ownership in
Performance Food Group is reasonably likely to
(a) cause Performance Food Group to take action that would provide
the acquiring person with short-term financial gain to the
detriment of the long-term interests of Performance Food Group
and its shareholders, or
(b) have a material adverse impact on the business or prospects of
Performance Food Group,
or
- the close of business on the day that a majority of our board of
directors determines that any person or group had commenced a tender
offer or exchange offer, which, if consummated, would result in the
person or group becoming an acquiring person.
The term "acquiring person" does not include:
- Performance Food Group, any subsidiary of Performance Food Group, any
employee benefit plan of Performance Food Group or any subsidiary of
Performance Food Group, or any trustee or fiduciary with respect to an
employee benefit plan of Performance Food Group or any of its
subsidiaries acting in that capacity, or
- any person who acquires common stock directly from Performance Food
Group, or
- any person who, as a result of the acquisition of common stock by
Performance Food Group which reduces the number of outstanding shares of
common stock, becomes the beneficial owner of 20% or more of our common
stock, provided that if that person becomes the beneficial owner of any
additional shares of common stock, then that person shall be deemed to be
an acquiring person.
The rights agreement provides that, until the exercisability date, or
earlier redemption or expiration of the rights, the rights will be transferred
with and only with the common stock. Until the exercisability date, or earlier
redemption or expiration of the rights, new common stock certificates issued
upon transfer or new issuances of common stock will contain a notation
incorporating the rights agreement by reference, and the transfer of any
certificates for common stock also will constitute the transfer of the rights
associated with the common stock represented by that certificate. As soon as
practicable following the exercisability date, separate certificates evidencing
the rights will be mailed to holders of record of the common stock as of the
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close of business on the exercisability date, and the separate right
certificates alone will evidence the rights. Only common stock issued before the
exercisability date will be issued certificates for the rights under these
circumstances.
The rights are not exercisable until the exercisability date. The rights
will expire on May 30, 2007 unless the expiration date is extended or unless the
rights are earlier redeemed or exchanged by Performance Food Group, in each case
as described below.
The exercise price payable for the Series A Preferred Stock and the number
of shares of Series A Preferred Stock or other securities or property issuable
upon exercise of the rights, as well as the number of rights outstanding, are
subject to adjustment from time to time pursuant to customary antidilution
provisions. The number of outstanding rights and the number of shares of Series
A Preferred Stock issuable upon exercise of each right are also subject to
adjustment in the event of a dividend or other distribution on the common stock
payable in common stock or in securities convertible into common stock or
subdivisions, consolidations or reclassifications of the common stock occurring,
in any of those cases, before the exercisability date.
If any person or group becomes an acquiring person, proper provision will
be made so that each holder of a right, other than rights beneficially owned by
the acquiring person or any of its affiliates or associates, which will become
null and void, will have the right to receive upon exercise of the right at the
then current exercise price, instead of shares of Series A Preferred Stock, that
number of shares of our common stock having a market value of two times the
exercise price of the right. If Performance Food Group does not have sufficient
common stock authorized but unissued and not reserved for other purposes to
permit the exercise in full of the rights, Performance Food Group will
substitute, for each share of common stock that would otherwise be issuable upon
exercise of a right, cash, a reduction in exercise price, other equity
securities, debt securities, other assets or any combination of the foregoing,
with the same market value as that share of common stock.
If, after a person or group has become an acquiring person, Performance
Food Group is acquired in a merger or other business combination transaction or
50% or more of its assets, cash flow or earning power are sold, proper provision
will be made so that each holder of a right, other than rights beneficially
owned by the acquiring person or any of its affiliates or associates, which will
become null and void, will have the right to receive, upon the exercise of the
right at its then current exercise price and instead of Series A Preferred
Stock, that number of shares of common stock of the acquiring company, or its
parent, which at the time of the transaction has a market value of two times the
exercise price of the right.
At any time after any person or group becomes an acquiring person and
before the acquisition by that person or group of 50% or more of our then
outstanding common stock, the Performance Food Group board of directors may
exchange the rights, in whole or in part, for common stock at an exchange ratio
of one share of common stock for each right, subject to adjustment. The
Performance Food Group board of directors will not exchange the rights owned by
the acquiring person or group or its or their associates or affiliates, which
will have become null and void.
We are not required to issue fractional shares of Series A Preferred Stock
upon exercise of the rights, other than fractions which are integral multiples
of 1/100th of a share of Series A Preferred Stock. Instead of issuing fractional
shares which are not integral multiples of 1/100th of a share of Series A
Preferred Stock, we will make an adjustment in cash based on the market price of
the shares of Series A Preferred Stock on the last trading day prior to the date
of exercise.
Upon approval by its board of directors, Performance Food Group may redeem
the rights in whole, but not in part, at any time before any person or group
becomes an acquiring person, at a price of $.001 per right. Immediately upon the
action of the board of directors ordering redemption of the rights, the right to
exercise the rights will terminate and the only right of the holders of the
rights will be to receive the redemption price specified above.
Until a right is exercised, the holder of the right, in its capacity as a
holder, will have no rights as a shareholder of Performance Food Group,
including, without limitation, the right to vote or to receive dividends.
Although the distribution of the rights will not be taxable to shareholders or
to Performance Food
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Group, shareholders may, depending upon the circumstances, recognize taxable
income in the event that the rights become exercisable for common stock of
Performance Food Group or other consideration, or for common stock of the
acquiring company or its parent as set forth above.
At any time prior to the exercisability date, the board of directors may
amend any provision of the rights agreement in any manner. Thereafter, the board
may amend the rights agreement in certain respects, including generally:
- to shorten or lengthen any time period under the rights agreement;
- to cure any ambiguity or to correct or supplement any provision which may
be defective or inconsistent with any other provision; or
- in any manner that the board of directors deems necessary or desirable,
so long as such amendment is consistent with and for the purpose of
fulfilling the objectives of the board of directors in originally
adopting the rights agreement.
Certain amendments (including changes to the redemption price, exercise price,
expiration date, or number of shares for which a right is exercisable), whether
prior to the exercisability date or thereafter, are permitted only upon approval
by a majority of the board of directors.
Preferred Stock
Our charter and the Tennessee Business Corporation Act, or the TBCA, give
our board of directors the authority, without further shareholder action, to
issue a maximum of 5,000,000 shares of preferred stock. We have reserved
1,000,000 shares of Series A Preferred Stock to be issued upon the exercise of
rights issued in connection with our shareholder rights plan.
Our board of directors has the authority, without shareholder approval, to
create one or more series of preferred stock, to issue shares of preferred stock
up to the maximum number of shares of preferred stock authorized, and to
determine the preferences, rights, privileges and restrictions of any series,
including the dividend rights, voting rights, rights and terms of redemption and
liquidation preferences, if any, the number of shares constituting such series
and the designation of such series. The issuance of preferred stock by action of
the board of directors could adversely affect the voting power, dividend rights
and other rights of the holders of common stock. Issuance of a series of
preferred stock could also, depending on the terms of the series, either impede
or facilitate the completion of a merger, tender offer or other takeover
attempt. When issuing preferred stock, the board of directors could act in a
manner that would discourage an acquisition attempt or other transaction that
the shareholders might believe to be in our or our shareholders' best interests
or in which shareholders might receive a premium for their stock over the then
prevailing market price.
The applicable prospectus supplement will describe the terms of any series
of preferred stock being offered, including:
- the number of shares and designation or title of the series and its
relative ranking;
- any liquidation preference per share;
- any date of maturity;
- any redemption, repayment or sinking fund provisions;
- any dividend rate or rates payable with respect to the shares;
- any voting rights;
- the terms and conditions upon which the preferred stock of that series is
convertible or exchangeable, if it is convertible or exchangeable; and
- any additional voting, dividend, liquidation, redemption and other
rights, preferences, privileges, limitations and restrictions.
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All shares of preferred stock offered will, when issued, be fully paid and
non-assessable.
Series A Preferred Stock. Each 1/100th of a share of Series A Preferred
Stock, if issued, will have one vote per 1/100th of a share and, except as
otherwise required by law, the holders of Series A Preferred Stock and common
stock will vote together as a class on all matters submitted to a vote of our
shareholders. Subject to the prior and superior dividend rights of any other
series of our preferred stock, each holder of 1/100th of a share of Series A
Preferred Stock will be entitled to receive such dividends, if any, as may be
declared from time to time by our board of directors in its discretion, from
funds legally available therefor, in the same kind and in an amount per 1/100th
of a share of Series A Preferred Stock equal to the per share amount of all
dividends, if any, declared on our common stock. In the event of our liquidation
or dissolution and after payment or provision for our debts and other
liabilities, including the prior claims of the holders of any other series of
preferred stock, the holder of each 1/100th of a share of Series A Preferred
Stock shall be entitled to share in any assets remaining, ratably with the
holders of each share of our common stock. Holders of the Series A Preferred
Stock will have no preemptive rights. We may not redeem the Series A Preferred
Stock. In the event of any merger, combination, share exchange or other
transaction in which shares of our common stock are exchanged for or converted
into other securities, cash or property, each 1/100th of a share of Series A
Preferred Stock will be similarly exchanged for or converted into the same
amount of securities, cash or other property as each share of our common stock.
The rights of the holders of the Series A Preferred Stock to voting, dividends
and distributions on liquidation and in the event of mergers or share exchanges
are protected by customary anti-dilution provisions.
The summary of selected provisions of our preferred stock appearing above
and the summary of any selected provisions of a particular series of preferred
stock appearing in the applicable prospectus supplement are not and will not be
complete. Those summaries are subject to, and are qualified in their entirety by
reference to, our charter and the articles of amendment to our charter
establishing the terms of any series of preferred stock, all of which have been
or will be included or incorporated by reference as exhibits to the registration
statement of which this prospectus is a part or the documents incorporated or
deemed to be incorporated by reference in this prospectus. You should read our
charter and any articles of amendment.
When we offer to sell a series of preferred stock, we will describe the
specific terms of the series in the applicable prospectus supplement. If any
particular terms of a series of preferred stock described in a prospectus
supplement differ from any of the terms described in this prospectus, then the
terms described in the applicable prospectus supplement will be deemed to
supersede the terms described in this prospectus.
Anti-Takeover Effect of Our Charter and Bylaw Provisions
Our charter and bylaws contain certain provisions that could make it more
difficult to consummate an acquisition of Performance Food Group by means of a
tender offer, a proxy contest or otherwise.
Classified Board of Directors. Our charter and bylaws provide that our
board of directors is divided into three classes of directors, with the classes
as nearly equal in number as possible. As a result, approximately one-third of
our board of directors is elected each year. This classification of the board of
directors will make it more difficult for an acquirer or for other shareholders
to change the composition of our board of directors. The bylaws provide that the
number of directors will be no fewer than five nor more than 15, with the exact
number being fixed from time to time by the board of directors. Our charter also
provides that a director may be removed only for cause by vote of the holders of
a majority of the voting power of our outstanding voting shares. In addition,
the bylaws provide that, unless the charter provides otherwise (which our
charter does not), any vacancies in our board of directors will be filled either
by the shareholders or by our board of directors. If the remaining directors do
not constitute a quorum, our bylaws permit the vacancy to be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum.
Shareholder Advance Notice Procedure. Our bylaws establish an advance
notice procedure for shareholders to make nominations of candidates for election
as directors or to bring other business before an annual meeting of the
shareholders. The shareholder notice procedure provides that only persons that
are nominated by the board of directors, or a duly authorized board committee,
or by a shareholder who has given timely written notice to the secretary of
Performance Food Group before the meeting at which directors are
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to be elected, will be eligible for election as directors. This notice is
required to include specified information about the shareholder and each
proposed director nominee, a description of all arrangements or understandings
between the shareholder and each proposed nominee and any other persons pursuant
to which the nominations are to be made by the shareholders, other information
regarding each proposed nominee that would be required to be included in a proxy
statement filed under SEC rules and regulations, and the written consent of each
proposed nominee to serve as a director if elected. The shareholder notice
procedure provides that the only business that may be conducted at an annual
meeting is business which has been brought before the meeting by, or at the
direction of, the board of directors or by a shareholder who has given timely
written notice to the secretary of Performance Food Group. This notice is
required to include a brief description of the business desired to be brought
before the meeting, any financial interest of the shareholder in that business,
and specified information about the shareholder and the shareholder's ownership
of Performance Food Group's capital stock.
Tennessee Anti-takeover Law Provisions
Provisions in Tennessee law could make it harder for someone to acquire us
through a tender offer, proxy contest or otherwise.
The Tennessee Business Combination Act provides that a party owning shares
equal to 10% or more of the voting power of any class or series of the then
outstanding voting stock of a "resident domestic corporation" is an "interested
shareholder." An interested shareholder also includes a party that is an
affiliate or associate, as defined in the Tennessee Business Combination Act, of
a "resident domestic corporation." Performance Food Group is currently a
resident domestic corporation within the meaning of this act. An interested
shareholder cannot engage in a business combination with the resident domestic
corporation unless the combination:
- takes place at least five years after the interested shareholder first
acquired 10% or more of the voting power of any class or series of the
then outstanding voting stock of the resident domestic corporation; and
- either is approved by at least two-thirds of the non-interested voting
shares of the resident domestic corporation or satisfies fairness
conditions specified in the Tennessee Business Combination Act.
These provisions apply unless one of two events occurs:
- a business combination with an entity can proceed without delay when
approved by the target corporation's board of directors before that
entity becomes an interested shareholder; or
- the resident corporation may enact a charter amendment or bylaw to remove
itself entirely from the Tennessee Business Combination Act. This charter
amendment or bylaw amendment must be approved by a majority of the
shareholders who have held shares for more than one year before the vote.
In addition, the charter amendment or bylaw cannot become operative until
two years after the vote. We have not adopted a charter amendment or
bylaw to remove ourselves from the Tennessee Business Combination Act.
The Tennessee Greenmail Act prohibits us from purchasing or agreeing to
purchase any of our securities, at a price higher than fair market value, from a
holder of 3% or more of any class of our securities who has beneficially owned
the securities for less than two years. We can, however, make this purchase if
the majority of the outstanding shares of each class of voting stock issued by
us approves the purchase or if we make an offer of at least equal value per
share to all holders of shares of the same class of securities as those held by
the prospective seller.
The Tennessee Control Share Acquisition Act strips a purchaser's shares of
voting rights any time an acquisition of shares in a Tennessee corporation which
has elected to be covered by the Tennessee Control Share Acquisition Act (as we
have) brings the purchaser's voting power to one-fifth, one-third or a majority
of all voting power. The purchaser's voting rights can be restored only by a
majority vote of the other shareholders. The purchaser may demand a meeting of
shareholders to conduct such a vote. The purchaser
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can demand a meeting for this purpose before acquiring shares in excess of the
thresholds described above, which we refer to as a control share acquisition,
only if it holds at least 10% of the outstanding shares and announces a good
faith intention to make the acquisition of shares having voting power in excess
of the thresholds stated above. If a target corporation so elects prior to the
date on which a purchaser makes a control share acquisition, a target
corporation may redeem the purchaser's shares if the shares are not granted
voting rights.
The effect of these provisions may make a change of control of us harder by
delaying, deferring or preventing a tender offer or takeover attempt that you
might consider to be in your best interest, including those attempts that might
result in the payment of a premium over the market price for our shares. They
may also promote the continuity of our management by making it harder for you to
remove or change the incumbent members of the board of directors.
Limitations on Liability and Indemnification of Directors and Officers
The TBCA provides that a corporation may indemnify any of its directors and
officers against liability incurred in connection with a proceeding if:
- the director or officer acted in good faith;
- in the case of conduct in his or her official capacity with the
corporation, the director or officer reasonably believed such conduct was
in the corporation's best interest;
- in all other cases, the director or officer reasonably believed that his
or her conduct was not opposed to the best interest of the corporation;
and
- in connection with any criminal proceeding, the director or officer had
no reasonable cause to believe that his or her conduct was unlawful.
In actions brought by or in the right of the corporation, however, the TBCA
provides that no indemnification may be made if the director or officer was
adjudged to be liable to the corporation. In cases where the director or officer
is wholly successful, on the merits or otherwise, in the defense of any
proceeding instituted because of his or her status as an officer or director of
a corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if the officer
or director is adjudged liable on the basis that personal benefit was improperly
received. Notwithstanding the foregoing, the TBCA provides that a court of
competent jurisdiction, upon application, may order that an officer or director
be indemnified for reasonable expenses if, in consideration of all relevant
circumstances, the court determines that the individual is fairly and reasonably
entitled to indemnification, notwithstanding the fact that:
- the officer or director was adjudged liable to the corporation in a
proceeding by or in the right of the corporation;
- the officer or director was adjudged liable on the basis that personal
benefit was improperly received by him or her; or
- the officer or director breached his or her duty of care to the
corporation.
Our charter provides that, to the fullest extent permitted by law, no
director shall be liable to us or our shareholders for monetary damages for
breach of any fiduciary duty as a director. Under the TBCA, this provision
relieves our directors from personal liability to us or our shareholders for
monetary damages for
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breach of fiduciary duty as a director, except for liability arising from a
judgment or other final adjudication establishing:
- any breach of the director's duty of loyalty;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
- any unlawful distributions.
We currently have in effect an executive liability insurance policy which
provides coverage for our directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar of our common stock is American Stock
Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038.
DESCRIPTION OF WARRANTS
We may issue, either separately or together with other securities, warrants
for the purchase of our common stock. The warrants are to be issued under
warrant agreements to be entered into between us and a bank or trust company, as
warrant agent, all as set forth in the prospectus supplement relating to the
particular issue of warrants. The form of warrant agreement, including the form
of certificates representing the warrants, that will be entered into with
respect to a particular offering of warrants has been or will be filed or
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part or the documents incorporated or deemed to be
incorporated by reference in the prospectus.
The following summary of selected provisions of a warrant agreement and the
related warrants and the summary of selected provisions of the particular
warrant agreement and warrants set forth in the applicable prospectus supplement
are not and will not be complete and are and will be subject to, and qualified
in their entirety by reference to, all of the provisions of the particular
warrant agreement and the related warrants. The following description of the
warrants and the warrant agreements provides certain general terms and
provisions to which any prospectus supplement may relate. Other terms and
provisions of any warrants and the related warrant agreement will be described
in the applicable prospectus supplement. To the extent that any particular terms
of the warrants or the related warrant agreement described in a prospectus
supplement differ from any of the terms described below, then the terms
described below will be deemed to have been superceded by that prospectus
supplement.
General
We may issue warrants to purchase common stock independently or together
with other securities. The warrants may be attached to or separate from the
other securities. We may issue warrants in one or more series. Each series of
warrants will be issued under a separate warrant agreement to be entered into
between us and a warrant agent. The warrant agent will be our agent and will not
assume any obligations to any holder or beneficial owner of the warrants.
The prospectus supplement and the warrant agreement relating to any series
of warrants will include specific terms of the warrants. These terms include the
following:
- the title and aggregate number of warrants;
- the price or prices at which the warrants will be issued;
- the amount of common stock for which the warrant can be exercised and the
price or the manner of determining the price or other consideration to
purchase the common stock;
- the date on which the right to exercise the warrants begins and the date
on which the right expires;
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- if applicable, the minimum or maximum amount of warrants that may be
exercised at any one time;
- if applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each other
security;
- any provision dealing with the date on which the warrants and related
securities will be separately transferable;
- any mandatory or optional redemption provision;
- the identity of the warrant agent; and
- any other terms of the warrants.
The warrants will be represented by certificates. The warrant certificate
may be exchanged or transferred under the terms outlined in the warrant
agreement. We will not charge any service charges for any transfer or exchange
of warrant certificates, but we may require payment for tax or other
governmental charges in connection with the exchange or transfer. Unless the
prospectus supplement states otherwise, until a warrant is exercised, a holder
will not be entitled to any payments on or have any rights with respect to the
common stock.
Exercise of warrants
To exercise the warrants, the holder must provide the warrant agent with
the following:
- payment of the exercise price;
- any required information described on the warrant certificates;
- the number of warrants to be exercised;
- an executed and completed warrant certificate; and
- any other items required by the warrant agreement.
If a warrant holder exercises only part of the warrants represented by a
single certificate, the warrant agent will issue a new warrant certificate for
any warrants not exercised. Unless the prospectus supplement states otherwise,
no fractional shares will be issued upon exercise of warrants, but we will pay
the cash value of any fractional shares otherwise issuable.
The exercise price and the number of shares of common stock for which each
warrant can be exercised will be adjusted upon the occurrence of events
described in the warrant agreement, including the issuance of a common stock
dividend or a combination, subdivision or reclassification of common stock.
Unless the prospectus supplement states otherwise, no adjustment will be
required until cumulative adjustments require an adjustment of at least 1% in
the exercise price. From time to time, we may reduce the exercise price as may
be provided in the warrant agreement.
Unless the prospectus supplement states otherwise, if we enter into any
consolidation, merger, or sale or conveyance of our property as an entirety, the
holder of each outstanding warrant will have the right to acquire the kind and
amount of shares of stock, other securities, property or cash receivable by a
holder of the number of shares of common stock into which the warrants were
exercisable immediately prior to the occurrence of the event.
Modification of the warrant agreement
The common stock warrant agreement will permit us and the warrant agent,
without the consent of the warrant holders, to supplement or amend the agreement
in the following circumstances:
- to cure any ambiguity;
- to correct or supplement any provision which may be defective or
inconsistent with any other provisions; or
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- to add new provisions regarding matters or questions that we and the
warrant agent may deem necessary or desirable and which do not adversely
affect the interests of the warrant holders.
PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering
and sale by them and may also sell the securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
securities will be named in the applicable prospectus supplement. We have
reserved the right to sell securities directly to investors on our own behalf in
those jurisdictions where and in such manner as we are authorized to do so.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to prevailing
market prices, or at negotiated prices. Sales of common stock may be effected
from time to time in one or more transactions on the Nasdaq National Market or
in negotiated transactions or a combination of those methods. We may also, from
time to time, authorize dealers, acting as our agents, to offer and sell
securities upon the terms and conditions as are set forth in the applicable
prospectus supplement. In connection with the sale of securities, underwriters
or agents may receive compensation from us in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of the
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and those dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent. Unless otherwise indicated
in a prospectus supplement, an agent will be acting on a reasonable efforts
basis and a dealer will purchase securities as a principal, and may then resell
such securities at varying prices to be determined by the dealer.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Dealers and agents participating in the
distribution of securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act, and to
reimbursement by us for expenses.
To facilitate an offering of a series of securities, persons participating
in the offering may engage in transactions that stabilize, maintain, or
otherwise affect the market price of the securities. This may include
over-allotments or short sales of the securities, which involves the sale by
persons participating in the offering of more securities than have been sold to
them by us. In those circumstances, such persons would cover such
over-allotments or short positions by purchasing in the open market or by
exercising the over-allotment option granted to those persons. In addition,
those persons may stabilize or maintain the price of the securities by bidding
for or purchasing securities in the open market or by imposing penalty bids,
whereby selling concessions allowed to underwriters or dealers participating in
any such offering may be reclaimed if securities sold by them are repurchased in
connection with stabilization transactions. The effect of these transactions may
be to stabilize or maintain the market price of the securities at a level above
that which might otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act (File No. 0-22192), and we therefore file periodic reports, proxy statements
and other information with the Securities and Exchange Commission relating to
our business, financial results and other matters. The reports, proxy statements
and other information we file may be inspected and copied at prescribed rates at
the SEC's Public Reference Room at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and should be available for inspection and copying at the
SEC's regional office located at 500 West Madison Street, Suite 1400, Chicago,
Illinois
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60661. You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
site that contains reports, proxy statements and other information regarding
issuers like us that file electronically with the SEC. The address of the SEC's
Internet site is http://www.sec.gov. Our SEC filings are also available at the
offices of The Nasdaq National Market, 1730 K Street, N.W., Washington, D.C.
20006-1500.
This prospectus constitutes part of a registration statement on Form S-3
filed under the Securities Act. As permitted by the SEC's rules, this prospectus
omits some of the information, exhibits and undertakings included in the
registration statement. You may read and copy the information omitted from this
prospectus but contained in the registration statement, as well as the periodic
reports and other information we file with the SEC, at the public reference
facilities maintained by the SEC in Washington, D.C., New York, New York and
Chicago, Illinois.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance we refer
you to the copy of the contract or document filed as an exhibit to the
registration statement or to a document incorporated or deemed to be
incorporated by reference in the registration statement, each such statement
being qualified in all respects by such reference.
INCORPORATION BY REFERENCE
We have elected to "incorporate by reference" certain information into this
prospectus. By incorporating by reference, we can disclose important information
to you by referring you to another document we have filed separately with the
SEC. The information incorporated by reference is deemed to be part of this
prospectus, except for information incorporated by reference that is superseded
by information contained in this prospectus, any applicable prospectus
supplement or any document we subsequently file with the SEC that is
incorporated or deemed to be incorporated by reference in this prospectus.
Likewise, any statement in this prospectus or any document which is incorporated
or deemed to be incorporated by reference herein will be deemed to have been
modified or superseded to the extent that any statement contained in any
applicable prospectus supplement or any document that we subsequently file with
the SEC that is incorporated or deemed to be incorporated by reference herein
modifies or supersedes that statement. This prospectus incorporates by reference
the documents set forth below that we have previously filed with the SEC:
- Annual Report on Form 10-K for the fiscal year ended December 30, 2000,
including information specifically incorporated by reference into our
Form 10-K from our Proxy Statement for our 2001 Annual Meeting of
Shareholders, filed with the SEC on April 4, 2001, as amended on April
13, 2001;
- Quarterly Reports on Form 10-Q, filed with the SEC on May 15, 2001 and
August 14, 2001; and
- Current Report on Form 8-K, filed with the SEC on September 10, 2001, as
amended on September 13, 2001 and on September 28, 2001.
We are also incorporating by reference all other reports that we file with
the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act between the date of this prospectus and the termination of the offering.
We will provide to each person, including any beneficial owner, to whom
this prospectus is delivered a copy of any or all of the information that we
have incorporated by reference into this prospectus but not delivered with this
prospectus. To receive a free copy of any of the documents incorporated by
reference in this prospectus, other than exhibits, unless they are specifically
incorporated by reference in those documents, call or write to our Corporate
Secretary, Performance Food Group Company, 12500 West Creek Parkway, Richmond,
Virginia 23238 (telephone (804) 484-7700). The information relating to us
contained in this prospectus does not purport to be complete and should be read
together with the information contained in the documents incorporated or deemed
to be incorporated by reference in this prospectus and the information included
in the applicable prospectus supplement.
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LEGAL MATTERS
Certain legal matters with respect to the securities offered hereby will be
passed upon for us by Bass, Berry & Sims PLC, Nashville, Tennessee. Sidley
Austin Brown & Wood LLP, San Francisco, California will act as counsel for any
underwriters or agents. Sidley Austin Brown & Wood, a partnership affiliated
with Sidley Austin Brown & Wood LLP, represents us in connection with certain
other legal matters.
EXPERTS
The consolidated financial statements of Performance Food Group Company and
subsidiaries and the related financial statement schedule as of December 30,
2000 and January 1, 2000, and for each of the fiscal years in the three-year
period ended December 30, 2000, have been incorporated by reference in this
prospectus and the related registration statement in reliance upon the report of
KPMG LLP, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Fresh International Corp. and
subsidiaries as of the fiscal years ended February 28, 2001 and February 29,
2000 and for each of the fiscal years in the two-year period ended February 28,
2001 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report incorporated by reference herein and are incorporated herein in
reliance upon the report of such firm given upon the authority of that firm as
experts in accounting and auditing.
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$175,000,000
[PFG LOGO]
PERFORMANCE FOOD GROUP COMPANY
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2008
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
WACHOVIA SECURITIES
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
SUNTRUST ROBINSON HUMPHREY
OCTOBER 10, 2001
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