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Performance Food Group Company 10-Q 2007 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2007
OR
For the transition period from to
Commission File No.: 0-22192
PERFORMANCE FOOD GROUP COMPANY
(Exact name of registrant as specified in its charter)
(804) 484-7700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
þ Large accelerated filer o Accelerated filer o Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
As of May 1, 2007, 35,328,912 shares of the issuer’s common stock were outstanding.
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Review Report of Independent Registered Public Accounting Firm
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 March 31, 2007 and the related condensed consolidated
statements of earnings and cash flows for the three-month periods ended March 31, 2007 and April 1,
2006. These condensed consolidated financial statements are the responsibility of the Company’s
management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight
Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United States), 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
U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of Performance Food Group Company and
subsidiaries as of December 30, 2006, and the related consolidated statements of earnings,
shareholders’ equity and cash flows for the year then ended (not presented herein); and in our
report dated February 26, 2007, 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, 2006 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
May 7, 2007 2
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
See accompanying notes to unaudited condensed consolidated financial statements.
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PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
See accompanying notes to unaudited condensed consolidated financial statements.
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PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
See accompanying notes to unaudited condensed consolidated financial statements.
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PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
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8. Goodwill and Other Intangible Assets
The following table presents details of the Company’s intangible assets as of March 31, 2007
and December 30, 2006:
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,”
“us,” or “Performance Food Group” as used in this Form 10-Q refer to Performance Food Group Company
and its subsidiaries other than those making up our former fresh-cut segment. References in this
Form 10-Q to the 2007 and 2006 quarters refer to our fiscal quarters ended March 31, 2007 and April
1, 2006, respectively. The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the related notes included elsewhere in this Form
10-Q and our consolidated financial statements and the related notes and Management’s Discussion
and Analysis of Financial Condition and Results of Operations contained in our Annual Report on
Form 10-K for the fiscal year ended December 30, 2006.
In 2005, we sold all of our stock in the companies comprising our fresh-cut segment to Chiquita
Brands International, Inc. In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, it is accounted for as a discontinued operation. The following
detailed discussion and analysis is representative of our continuing operations only.
Overview
Our net sales from continuing operations in the 2007 quarter increased 4.1% compared to the 2006
quarter. Food price inflation was approximately 3% in the 2007 quarter. Sales in the quarter were
impacted by increased street sales in our Broadline segment and increased sales to existing
customers in our Customized segment, partially offset by the impact of certain multi-unit business
exited in the 2006 quarter. Our gross margin percentage, which we define as gross profit as a
percentage of sales, increased in the 2007 quarter over the 2006 quarter primarily due to a more
favorable sales mix as a result of growth in our higher margin street sales and improvements
related to our procurement initiatives in our Broadline segment, partially offset by the impact of
inflation in our Broadline segment. The operating expense ratio, which we define as operating
expenses as a percentage of net sales, decreased slightly in the 2007 quarter over the 2006 quarter
primarily due to improved operating efficiencies and favorable trends in insurance costs, partially
offset by increased personnel costs related to our street sales growth initiative.
Going forward, we will continue to be focused on managing the growth we are generating in our
business, adding new capacity and driving operational improvements in each of our business
segments. We continue to seek innovative means of servicing our customers to distinguish ourselves
from others in the marketplace.
Results of Operations
Consolidated. In the 2007 quarter, net sales from continuing operations increased $60.3
million, or 4.1%, to $1.5 billion. We estimated that food product inflation was approximately 3%
in the 2007 quarter. Both segments are discussed in more detail in the following paragraphs.
Broadline. In the 2007 quarter, Broadline net sales increased $47.3 million, or 5.4%, to $916.0
million, compared to $868.7 million in the 2006 quarter. We estimated that food price inflation of
approximately 5% contributed to the increase in Broadline’s net sales in the 2007 quarter. In the
2007 quarter, sales also increased due to increased street sales, partially offset by
decreased sales to certain multi-unit accounts as a result of our
planned exit of that business.
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Broadline net sales represented 59.9% and 59.1% of our net sales from continuing operations in the
2007 and 2006 quarters, respectively. The increase as a percentage of our net sales from
continuing operations was due to the increase in street sales, as noted above, along with increased
sales to existing multi-unit accounts.
Customized. In the 2007 quarter, Customized net sales increased $13.1 million, or 2.2%, to $614.1
million, compared to $601.1 million in the 2006 quarter. The increase in the 2007 quarter was due
to continued growth with existing customers. We estimated that food price deflation of
approximately 1% reduced our sales growth in the 2007 quarter. Customized net sales represented
40.1% and 40.9% of our net sales from continuing operations in the
2007 and 2006 quarters,
respectively. The decrease in the 2007 quarter was due to the increase in Broadline sales, as
discussed above.
Cost of goods sold
Consolidated. In the 2007 quarter, cost of goods sold increased $52.1 million, or 4.1%, to $1.3
billion. Cost of goods sold as a percentage of net sales, or the cost of goods sold ratio, was
87.2% in the 2007 quarter, compared to 87.3% in the 2006 quarter. The decrease in the cost of
goods sold ratio was primarily the result of a shift in our customer mix in our Broadline segment
to higher margin street sales and improvements related to our procurement initiatives in our
Broadline segment and deflation in our Customized segment, partially offset by inflation in our
Broadline segment.
Broadline. Our Broadline segment’s cost of goods sold as a percentage of net sales in the 2007
quarter increased compared to the 2006 quarter due to inflation and product mix changes, partially
offset by improvements made related to our procurement initiatives.
Customized. Our Customized segment’s cost of goods sold as a percentage of net sales in the 2007
quarter decreased compared to the 2006 quarter due in part to food price deflation.
Gross profit
In the 2007 quarter, gross profit from continuing operations increased $8.2 million, or 4.4%, to
$195.4 million, compared to $187.3 million in the 2006 quarter. Gross profit margin was 12.8% in
the 2007 quarter, compared to 12.7% in the 2006 quarter.
Operating expenses
Consolidated. In the 2007 quarter, operating expenses increased $6.0 million, or 3.4%, to $182.6
million, compared to $176.5 million in the 2006 quarter. Operating expenses as a percentage of net
sales was 11.9% in the 2007 quarter, compared to 12.0% in the 2006 quarter.
Broadline. Our Broadline segment’s operating expenses decreased as a percentage of sales in the
2007 quarter from the 2006 quarter. The decrease in the operating expense ratio in the 2007 quarter
was due to improved operating efficiencies, primarily as a result of increased warehouse and
transportation productivity and decreased insurance costs.
Customized. Our Customized segment’s operating expenses as a percentage of sales increased in the
2007 quarter from the 2006 quarter primarily due to increased
personnel costs, partially
offset by decreased insurance costs.
Corporate. Our Corporate segment’s operating expenses decreased in the 2007 quarter compared to
the 2006 quarter primarily as a result of cost control initiatives, partially offset by increased
stock compensation expense.
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Operating Profit
Consolidated. In the 2007 quarter, operating profit from continuing operations increased $2.1
million, or 19.8%, to $12.8 million, compared to $10.7 million in the 2006 quarter. Operating
profit margin, defined as operating profit as a percentage of net sales, was 0.8% in the 2007
quarter, compared to 0.7% in the 2006 quarter. The consolidated operating profit margin in the 2007
quarter was positively impacted by improved operating efficiencies, the continued growth of higher
margin street sales and procurement initiatives in our Broadline segment and cost control
initiatives in our Corporate segment, partially offset by increased stock compensation expense in
our Corporate segment.
Broadline. Our Broadline segment’s operating profit margin was 1.3% in the 2007 quarter, compared
to 1.2% in the 2006 quarter. Operating profit margin in the 2007 quarter was positively impacted by
procurement initiatives and improved operating efficiencies, partially offset by inflation.
Customized. Our Customized segment’s operating profit margin was 1.4% in the 2007 quarter,
compared to 1.3% in the 2006 quarter. Operating profit margin in the 2007 quarter was positively
impacted by the ability to leverage our new capacity to more efficiently serve our existing
customer base, favorable trends in insurance costs and by deflation.
Other expense, net
Other expense, net, was $1.5 million in the 2007 quarter, compared to $1.4 million in the 2006
quarter. Included in other expense, net, was interest expense of $0.6 million and $0.4 million in
the 2007 and 2006 quarters, respectively. The increase from the 2006 quarter was due to higher
interest rates in the 2007 quarter. Also included in other expense, net, was interest income of
$0.8 million and $0.5 million in the 2007 and 2006 quarters, respectively. The increase from the
2006 quarter was due to an increase in our cash balance available for investment. Other expense,
net, also included losses on the sale of the undivided interest in receivables of $1.8 million and
$1.6 million in the 2007 and 2006 quarters, respectively. The increase from the 2006 quarter was
due to higher interest rates on our receivables facility. The receivables facility is discussed
below in “Liquidity and Capital Resources.”
Income tax expense
Income tax expense from continuing operations was $4.4 million in the 2007 quarter, compared to
$3.6 million in the 2006 quarter. As a percentage of earnings before income taxes, the provision
for income taxes from continuing operations was 39.2% in the 2007 quarter, compared to 38.9% in the
2006 quarter. The increase in the effective tax rate in 2007 compared to 2006 was primarily due to
the reduction of federal employment and Gulf Opportunity Zone credits generated. We expect our
effective tax rate for continuing operations to be approximately 39% for the 2007 full year.
Earnings from continuing operations
In the 2007 quarter, earnings from continuing operations increased $1.2 million, or 21.1%, to $6.9
million, compared to $5.7 million in the 2006 quarter. Earnings as a percentage of net sales were
0.4% in both the 2007 and 2006 quarters.
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Diluted net earnings per common share
Diluted net earnings per common share from continuing operations, or EPS, is computed by dividing
earnings from continuing operations available to common shareholders by the weighted average number
of common shares and dilutive potential common shares outstanding during the period. In the 2007
quarter, diluted EPS from continuing operations increased $0.04, to $0.20, from $0.16 in the 2006
quarter.
Liquidity and Capital Resources
We have historically financed our operations and growth primarily with cash flows from operations,
borrowings under our credit facilities, the issuance of long-term debt, the sale of undivided
interests in receivables sold under the Receivables Facility, operating leases, normal trade credit
terms and the sale of our common stock. We have reduced our working capital needs by financing our
inventory principally with accounts payable and outstanding checks in excess of deposits. We
typically fund our acquisitions, and expect to fund future acquisitions, with our existing cash,
additional borrowings under our revolving credit facility and the issuance of debt or equity
securities.
Cash and cash equivalents totaled $125.7 million at March 31, 2007, an increase of $50.6 million
from December 30, 2006. The increase was due to cash provided by operating activities of $40.7
million, cash provided by investing activities of $8.9 million and cash provided by financing
activities of $2.8 million. Cash flows from discontinued operations used $1.7 million, consisting
primarily of changes in discontinued assets and liabilities. Operating, investing and financing
activities of our continuing operations are discussed below.
Operating activities of continuing operations
In the 2007 quarter, we generated cash from operating activities of $40.7 million, compared to
$30.3 million in the 2006 quarter. In the 2007 quarter, net income plus depreciation and
amortization, in addition to an increase in accounts payable and income taxes and a decrease in
accounts receivable, partially offset by an increase in inventories were the main factors
contributing to the cash provided by operating activities. In the 2006 quarter, net income plus
depreciation and amortization, in addition to an increase in accounts payable and accrued expenses
and a decrease in inventories, partially offset by an increase in our accounts receivable, were the
main factors contributing to the cash provided by operating activities.
Investing activities of continuing operations
During the 2007 quarter, we generated $8.9 million from investing activities, compared to using
$11.9 million in the 2006 quarter. Investing activities include the acquisition of businesses and
additions to and disposals of property, plant and equipment. During the 2007 quarter, we completed
a substitution of collateral and sale-leaseback transaction involving one of our Broadline
operating facilities and one of our former fresh-cut segment operating facilities. Capital
expenditures were $7.0 million in the 2007 quarter and $12.0 million in the 2006 quarter. In the
2007 quarter, capital expenditures totaled $4.2 million in our Broadline segment and $2.8 million
in our Customized segment. We expect our total 2007 capital expenditures to range between $75
million and $85 million.
Financing activities of continuing operations
During the 2007 quarter, we generated $2.8 million from financing activities, compared to using
$39.6 million in the 2006 quarter. The change from the 2006 quarter was due to our share
repurchase program that was completed in the 2006 quarter (see Note 9 to our unaudited condensed
consolidated financial statements for details of our share repurchase and retirement program).
Checks in excess of deposits increased by $2.0 million in the 2007 quarter and decreased by $3.2
million in the 2006 quarter. Checks in excess of deposits represent checks that we have written
that are not yet cashed by the payee and in total exceed the current available cash balance at the
respective bank. The increase in checks in excess of deposits in the 2007 quarter was related to
timing of cash payments. Our associates who exercised stock options and purchased our stock under
the Stock Purchase Plan provided $2.6 million of proceeds in the 2007 quarter, compared to $3.3
million of proceeds in the 2006 quarter.
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Our $400 million senior revolving credit facility (the “Credit Facility”) expires in 2010 and bears
interest at a floating rate equal to, at our election, the agent bank’s prime rate or a spread over
LIBOR. This rate varies based upon our leverage ratio, as defined in the credit agreement. The
Credit Facility has an annual commitment fee, ranging from 0.125% to 0.225% of the average daily
unused portion of the total facility, based on our leverage ratio, as defined in the credit
agreement. The Credit Facility also requires the maintenance of certain financial ratios, as
defined in the credit agreement, and contains customary events of default. The Credit Facility
allows for the issuance of up to $100.0 million of standby letters of credit, which reduce
borrowings available under the Credit Facility. At March 31, 2007, we had no borrowings
outstanding, $48.1 million of letters of credit outstanding and $351.9 million available under the
Credit Facility, subject to compliance with customary borrowing conditions.
We believe that our cash flows from operations, borrowings under our Credit Facility and the sale
of undivided interests in receivables under the Receivables Facility, discussed below, will be
sufficient to fund our operations and capital expenditures for the foreseeable future. However, we
will likely require additional sources of financing to the extent that we make additional
acquisitions.
Stock Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R),
Share-Based Payment, (“SFAS 123(R)”), using the modified-prospective transition method. Under this
transition method, compensation cost recognized in fiscal 2007 and 2006 includes: 1) compensation
cost for all share-based payments granted through December 31, 2005, but for which the requisite
service period had not been completed as of December 31, 2005, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123 and 2) compensation cost for all
share-based payments granted subsequent to December 31, 2005, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been
restated.
The total share-based compensation cost recognized in operating expenses in our condensed
consolidated statements of earnings in the 2007 and 2006 quarters was $1.4 million and $0.9
million, respectively, which represents the expense associated with our stock options, stock
appreciation rights, restricted stock and shares purchased under the Stock Purchase Plan. The
income tax benefit recognized upon the exercise of stock options or vesting of restricted stock
awards in excess of the tax benefit related to the compensation cost incurred was $1.0 million and
$0.4 million for the 2007 and 2006 quarters, respectively. At March 31, 2007, there was $5.6
million of total unrecognized compensation cost related to outstanding stock options and stock
appreciation rights and $12.1 million of total unrecognized compensation cost related to unvested
shares of restricted stock, which will be recognized over the remaining vesting periods.
Off Balance Sheet Activities
At March 31, 2007, securitized accounts receivable under our Receivables Facility, which expires on
June 25, 2007, totaled $227.2 million, including $130.0 million sold to the financial institution
and derecognized from our condensed consolidated balance sheet. Total securitized accounts
receivable includes our residual interest in the accounts receivable, referred to as the Residual
Interest, of $97.2 million. The Residual Interest represents our retained interest in the
receivables held by PFG Receivables Corporation. We measure the Residual Interest using the
estimated discounted cash flows of the underlying accounts receivable, based on estimated
collections and a discount rate approximately equivalent to our incremental borrowing rate. The
loss on sale of undivided interest in receivables of $1.8 million and $1.6 million in the 2007 and
2006 quarters, respectively, was included in other expense, net, in our condensed consolidated
statements of earnings and represents our cost of securitizing those receivables with the financial
institution. See Note 7 to our condensed consolidated financial statements for further discussion
of our Receivables Facility. In addition, our 2006 Annual Report on Form 10-K contains a
discussion of why our Receivables Facility is considered off balance sheet financing and describes
other activities, which may be defined as off balance sheet financing.
Application of Critical Accounting Policies
We have prepared our condensed consolidated financial statements and the accompanying notes in
accordance with generally accepted accounting principles applied on a consistent basis. In
preparing our financial statements, management must often make estimates and assumptions that
affect reported amounts of assets, liabilities, revenues,
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expenses and related disclosures at the date of the financial statements and during the reporting
periods. Some of those judgments can be subjective and complex; consequently, actual results could
differ from those estimates. We continually evaluate the accounting policies and estimates we use
to prepare our financial statements. Management’s estimates are generally based upon historical
experience and various other assumptions that we determine to be reasonable in light of the
relevant facts and circumstances. We believe that our critical accounting estimates include
goodwill and other intangible assets, allowance for doubtful accounts, reserves for claims under
self-insurance programs, reserves for inventories, vendor rebates and other promotional incentives
and income taxes. Our 2006 Annual Report on Form 10-K describes these critical accounting
policies.
Our financial statements contain other items that require estimation, but are not as critical as
those discussed above. These include our calculations for bonus accruals, depreciation and
amortization. Changes in estimates and assumptions used in these and other items could have an
effect on our consolidated financial statements.
Adoption of FIN 48
We adopted the Financial Accounting Standards Board’s Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), effective
December 31, 2006. As a result of the adoption of FIN 48, we recorded a charge of approximately
$0.5 million to our beginning retained earnings balance. As of the date of adoption, we had
unrecognized tax benefits of $5.6 million of which $2.3 million, if recognized, would affect the
effective tax rate for continuing operations. For additional information regarding the adoption of FIN
48, see Note 6 to the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in
GAAP, and requires enhanced disclosures about fair value measurements. This statement will apply
when other accounting pronouncements require or permit fair value measurements; it does not require
new fair value measurements. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those years. We will adopt this
pronouncement in the first quarter of fiscal 2008 and are still assessing the impact SFAS No. 157
will have on our consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option of Financial Assets and
Financial Liabilities — Including an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No.
159 allows an entity the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities. Subsequent changes in fair value of these
financial assets and liabilities would be recognized in earnings when they occur. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. We will adopt this pronouncement in
the first quarter of fiscal 2008 and are still assessing the impact SFAS No. 159 will have on our
consolidated financial position and results of operations.
Forward Looking Statements
This Form 10-Q and the documents incorporated by reference herein contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements, which are based on assumptions and
estimates and describe our future plans, strategies and expectations, are generally identifiable by
the use of the words “anticipate,” “will,” “believe,” “estimate,” “expect,” “intend,” “ seek,”
“should,” “could,” “may,” “would,” or similar expressions. These forward-looking statements may
address, among other things, our anticipated earnings, capital expenditures, contributions to our
net sales by acquired companies, sales momentum, customer and product sales mix, expected
efficiencies in our business and our ability to realize expected synergies from acquisitions.
These forward-looking statements are subject to risks, uncertainties and assumptions, all as
detailed from time to time in the reports we file with the Securities and Exchange Commission.
If one or more of these risks or uncertainties materializes, 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 entirely by the cautionary statements in the section. We
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undertake no obligation to publicly update or revise any forward-looking statements to reflect
future events or developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
Our primary market risks are related to fluctuations in interest rates and changes in commodity
prices. Our primary interest rate risk is from changing interest rates related to our outstanding
debt. We manage this risk through a combination of fixed and floating rates on these obligations.
As of March 31, 2007, our total debt of $9.6 million, including capital lease obligations of $9.0
million, consisted entirely of fixed rate debt. In addition, our Receivables Facility has a
floating rate based upon a 30-day commercial paper rate and our revolving credit facility, which we
currently have no outstanding borrowings on, is based on LIBOR. A 100 basis-point increase in
market interest rates on all of our floating-rate debt and our Receivables Facility would result in
a decrease in net earnings and cash flows of approximately $0.8 million per annum, holding other
variables constant.
Significant commodity price fluctuations for certain commodities that we purchase could have a
material impact on our results of operations. In an attempt to manage our commodity price risk,
our Broadline segment enters into contracts to purchase pre-established quantities of products in
the normal course of business. Commitments that we have entered into to purchase products in our
Broadline segment as of December 30, 2006, are included in the table of contractual obligations in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financing
Activities” in our 2006 Annual Report on Form 10-K.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on
the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting during the quarter ended
March 31, 2007 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
In November 2003, certain of the former shareholders of PFG — Empire Seafood, a wholly owned
subsidiary which we acquired in 2001, brought a lawsuit against us in the Circuit Court, Eleventh
Judicial Circuit in Dade County, seeking unspecified damages and alleging breach of their
employment and earnout agreements. Additionally, they seek to have their non-compete agreements
declared invalid. We are vigorously defending ourselves and have asserted counterclaims against the
former shareholders. Management currently believes that this lawsuit will not have a material
adverse effect on our financial condition or results of operations.
From time to time, we are involved in various legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, the outcome of such proceedings and
litigation currently pending will not have a material adverse effect on our financial condition or
results of operations.
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Item 1A. Risk Factors.
There have been no material changes to our risk factors as previously disclosed in Part 1, Item 1A
of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: May 8, 2007
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Exhibit Index
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