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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 1, 2000
[ ] Transition report pursuant to Section 13 or 15(d) Of The Securities
Exchange Act of 1934
For the transition period from ______ to _____
Commission File Number: 1-1790
DI GIORGIO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0431833
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
380 Middlesex Avenue
Carteret, New Jersey 07008
(Address of principal executive offices) (Zip Code)
(732) 541-5555
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
On Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 18, 2000, there were outstanding 78.1158 shares of Class A
Common Stock and 76.8690 shares of Class B Common Stock. The aggregate market
value of the voting stock held by non-affiliates of the registrant is $0 because
all voting stock is held by affiliates of the registrant.
PART I
ITEM 1. BUSINESS.
Overview
Di Giorgio Corporation (the "Company") is one of the largest independent
wholesale food distributors in the New York City metropolitan area, which is one
of the largest retail food markets in the United States. Across its grocery,
frozen and refrigerated product categories, the Company supplies approximately
17,300 food and non-food items (excluding certain cross-docked items), comprised
predominantly of national brand name items, to more than 1,700 customer
locations. The Company serves supermarkets, both independent retailers
(including members of voluntary cooperatives) and chains principally in the five
boroughs of New York City, Long Island, New Jersey and, to a lesser extent, the
greater Philadelphia area. Over 900 grocery, frozen and refrigerated items are
offered with the Company's White Rose(TM) label. The White Rose(TM) label has
been established for over 113 years and is well recognized in the New York City
metropolitan area. For the year ended January 1, 2000, the Company had total
revenue of $1,413.8 million, net income of $9.7 million and EBITDA (as defined
herein) of $41.1 million, representing an increase from the prior year of 18.1%,
120.8% and 30.1% (when excluding a one-time $7.2 million other income item in
fiscal 1998), respectively.
Formed in 1920, the Company was acquired in 1990 by a corporation controlled by
Arthur M. Goldberg, the Company's current Chairman, President and Chief
Executive Officer (the "1990 Acquisition"). Since the 1990 Acquisition, Mr.
Goldberg and his management team have implemented a strategy focused on
enhancing productivity, growing through the acquisition of complementary
businesses, identifying and developing internal growth, as well as, new revenue
opportunities and promoting brand name recognition of the Company's White
Rose(TM) label.
In addition, the Company has developed an internet product which is currently
being distributed to retail supermarkets in the New York Metropolitan area.
EasyGrocer.com allows anyone connected to the internet to order from a local
supermarket's entire inventory for either delivery or pickup. (See "Products").
In February 2000, the Company also re-entered the business of distributing fresh
meat, poultry and seafood to certain of its customers through its existing
refrigerated warehouse facilities.
Products
General. Management believes that the distribution of multiple product
categories gives the Company an advantage over its competitors by affording
customers the ability to purchase grocery, frozen and refrigerated products from
a single supplier. In addition to its large selection of multiple category
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items, the Company is able to merchandise its well-recognized White Rose(TM)
label consistently across all three categories of products. White Rose(TM) label
sales represented approximately 3.5% of 1999 sales. While some customers
purchase items from all three product lines, others purchase items from only one
or two product lines.
Products are sold at prices which reflect the manufacturer's stated price plus a
profit margin. Prices are automatically adjusted on a regular basis based on
vendor pricing.
White Rose(TM) Label. The White Rose(TM) label is a brand recognized for quality
merchandise across over 900 grocery, frozen and refrigerated products, and has
been marketed in the New York metropolitan area for over 113 years. Products
under the White Rose(TM) brand are formulated to the Company's specifications,
often by national brand manufacturers, and are subject to random testing to
ensure quality. The White Rose(TM) brand allows independent retail customers to
carry a recognized label across numerous product lines similar to chain stores
while providing consumers with an attractive alternative to national brands. The
Company believes that White Rose(TM) labeled products generally produce higher
margins for its customers than national brands, and help the Company attract and
retain customers.
Customer Support Services. The Company offers a broad spectrum of retail support
services, including advertising, promotional and merchandising assistance;
retail operations counseling; computerized ordering services; technology support
including front-end equipment; insurance and coupon redemption services; and
store layout and equipment planning. Recently, the Company added store
engineering, sanitation and security services. The Company has a staff of retail
counselors who visit stores on a regular basis to both represent the Company and
to advise store management regarding their operations. Most of the Company's
customers utilize computerized order entry, which allows them to place and
confirm orders 24 hours a day, 7 days a week. The Company's larger independent
and chain customers generally provide their own retail support.
The Company periodically provides financial assistance to independent retailers
by providing (i) financing for the purchase of new grocery store locations; (ii)
financing for the purchase of inventories and store fixtures, equipment and
leasehold improvements; and/or (iii) extended payment terms for initial
inventories. The primary purpose of such assistance is to provide a means of
continued growth for the Company through development of new customer store
locations and the enlargement and remodeling of existing stores. Stores
receiving financing purchase the majority of their grocery, frozen and
refrigerated inventory requirements from the Company. Financial assistance is
usually in the form of a secured, interest-bearing loan, generally repayable
over a period of one to three years. As of January 1, 2000, the Company's
customer financing portfolio had an aggregate balance of approximately $18.3
million. The portfolio consisted of approximately 68 loans with a range of
$1,000 to $4.3 million.
Under the Company's insurance program, the Company offers customers the ability
to purchase liability, property and crime insurance through a master policy
purchased by the Company. Through its technologies division, the Company
distributes and supports supermarket scanning (front-end) equipment which is
compatible with the Company's information systems.
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EasyGrocer.com
Through its website, EasyGrocer.com, the Company has developed a proprietary
electronic commerce system with the specific needs of its customers and their
retail consumer in mind. The program, which currently covers all of Manhattan is
now being introduced into the other boroughs of New York City, as well as
Northern New Jersey, Nassau County, Suffolk County and Westchester County in New
York. It allows consumers to do their grocery shopping online 24 hours a day
from the convenience of their home or office. Unlike many other services,
EasyGrocer.com is a network of local grocery merchants familiar with the
specific needs, including ethnic products, of their community. Consumers are
able to shop the full inventory of specific stores they have frequented in the
past. All products offered by the supermarket are included, including groceries,
meat, produce, dairy, frozen food and health and beauty aids. Orders may be
delivered or picked up at the store.
EasyGrocer.com derives recurring revenue from the following sources:
i) per order charges to the participating stores
ii) monthly maintenance charges from the participating stores
iii) advertising from product manufacturers for product images, banner
advertising, product placement, and specials
EasyGrocer.com also charges stores a one time set up fee upon installation. In
addition, it has established information partnerships with leading manufactures
for which it receives revenue. The Company intends to enter other geographic
markets with EasyGrocer.com, either by operating the system itself or licensing
the technology to third parties.
The updated EasyGrocer.com web site became fully operational on January 3, 2000.
Among its features are the following:
o Easy to navigate front page presents options in an understandable fashion
o Full advertising support including weekly specials, product images, banner
advertising and information
o Easy to use "My EasyGrocer" membership feature allows members to have their
own home page with favorite stores, multiple shopping lists, etc.
o Multiple price support for frequent shopper programs
o Detailed on-line help and instructions
o Order status update allows consumers to monitor and edit orders already
submitted
o Improved scheduling allows consumers to place orders up to two weeks in
advance
Once on-line, the consumer is presented with a list of participating stores and
the entire selection of products offered by those stores. Just as in a
supermarket, weekly specials can be offered to internet customers. Employees of
the store will select the order and will either deliver to or have it available
for pickup by the consumer. Payment will be by means of secure credit card
transmission over the internet. Electronic mailing of ad flyers and coupons,
specifically geared to a particular shopper's buying history, is contemplated.
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The plan is to give the consumer the same selection and flexibility as in the
supermarket, but with added convenience.
The average EasyGrocer.com order size was $75 in December 1999. Management
believes this average order size is significant in that it represents a
substantial increase over the current participating stores' average sale. In
considering growth strategies for EasyGrocer.com, the Company is considering a
variety of alliances, marketing and advertising strategies. These may take the
form of both traditional media campaigns, such as billboards, newspapers and
radio advertising campaigns, as well as online ventures with leading internet
portals.
Markets and Customers
The Company's principal markets encompass the five boroughs of New York City,
Long Island, New Jersey and, to a lesser extent, the greater Philadelphia area.
The Company also has customers in upstate New York, Connecticut, Massachusetts,
Pennsylvania and Delaware, and is evaluating further expansion into those
markets.
The Company's customers include single and multiple store owners consisting of
chains and independent retailers which generally do not maintain their own
internal distribution operations for one or more of the Company's product lines.
Some of the Company's customers are independent food retailers or members of
voluntary cooperatives which seek to achieve the operating efficiencies enjoyed
by supermarket chains through common purchasing and advertising. The Company's
customers include food markets operating under some of the following trade
names: Superfresh, Waldbaums, Food Emporium and A & P (all divisions of The
Great Atlantic & Pacific Tea Co., Inc. "A&P"); Associated Food Stores
("Associated"); Gristedes and Sloans Supermarkets; King Kullen; Kings Super
Markets; Quick Chek; Royal Farms; Scaturros; and Western Beef; as well as the
Met(R), Pioneer(R), Super Food and Foodtown cooperatives.
The Met(R) and Pioneer(R) trade names are owned by the Company, however, the
customers using the trade names are independently owned and operated. The
Company and the customer stores operate as voluntary cooperatives allowing a
customer to take advantage of the benefits of advertising and merchandising on a
scale usually available only to large chains, as well as certain other retail
support services provided by the Company. As part of the cooperative
arrangement, these customers are obligated to purchase the majority of their
grocery, frozen food and refrigerated product requirements from the Company,
thereby enhancing the stability of this portion of the Company's customer base.
These customers represented approximately 15.7% and 13.6% of net sales for the
years ended January 2, 1999 and January 1, 2000, respectively. The decrease in
the percentage of net sales is strictly a result of higher overall Company sales
as both groups experienced increased annual sales from 1998 to 1999.
During the fifty-two weeks ended January 1, 2000, the Company's largest
customers, A&P and Associated, accounted for approximately 26.3% and 15.2%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 56% of net sales. The Company and/or certain of its principal
executive officers have long-standing relationships with most of the principal
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customers of the Company. The loss of certain of these principal customers or a
substantial decrease in the amount of their purchases could be disruptive to the
Company's business.
Warehousing and Distribution
The Company presently supplies its customers from three warehouse and
distribution centers. All three facilities are equipped with modern equipment
for receiving, storing and shipping large quantities of merchandise. Management
believes that the efficiency of its warehouse and distribution centers enables
the Company to compete effectively. A warehouse and inventory management system
directs all aspects of the material handling process from receiving through
shipping generating detailed cost information from which warehouse personal
manage the workforce and flow of product, thus minimizing cost while maintaining
the highest service level possible.
The Company's trucking system consists of 111 tractors (all of which are
leased), 341 trailers (of which 314 are leased) and 6 trucks (all of which are
leased). On approximately 20% of its deliveries, the Company is able to arrange
"backhauls" of products from manufacturers' or other suppliers' distribution
facilities located in the markets served by the Company, thereby enabling the
Company to reduce its procurement costs. The Company regularly uses independent
owner/operators to make deliveries on an "as needed" basis to supplement the use
of its own employees and equipment. The Company makes approximately 1,000
deliveries per weekday to its customers with a combination of its own
transportation fleet and that of third parties.
Due to the different storage and distribution requirements of each of the
Company's product lines, the Company handles each product line in a separate
facility. All of the Company's warehouse and distribution facilities are fully
integrated through the Company's computer, accounting, and management
information systems to promote operating efficiency and coordinated quality
customer service.
Purchasing
The Company purchases products for resale to its customers from approximately
1,175 suppliers in the United States and abroad. Brand name products are
purchased directly from the manufacturer, through the manufacturer's
representatives or through food brokers by buyers in each operating division.
White Rose(TM) label and several customers' private label products are purchased
from producers, manufacturers or packers who are licensed by the Company or the
specific customer The Company purchases products in large volume and resells
them in the smaller quantities required by its customers. Management believes
that the Company has the purchasing power to obtain competitive volume discounts
from its suppliers. Substantially all categories of products distributed by the
Company are available from a variety of manufacturers and suppliers, and the
Company is not dependent on any single source of supply for any specific
category, however, market conditions dictate that certain nationally prominent
brands, available from single suppliers, be available for distribution. Order
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size and frequency are determined by the Company's buyers based upon historical
sales experience, sales projections and computer forecasting. A modern
procurement system provides the buying department with extensive data to measure
the movement and profitability of each inventory item, forecast seasonal trends,
and recommend the terms of purchases, including the practice of taking advantage
of situations when the manufacturer is selling an item at a discount pursuant to
a special promotion, an industry practice known as "forward buying". This
system, which operates in concert with the warehouse management system, features
full electronic data interchange capabilities and accounting interfaces.
Competition and Trademarks
The wholesale food distribution industry is highly competitive. The Company is
one of the largest independent wholesale food distributors to supermarkets in
the New York City metropolitan area. The Company's principal competitors in all
three product categories, are C&S Wholesale Grocers, Inc., although it currently
concentrates its business on larger chains, and Bozzuto's, Inc. Krasdale Foods,
Inc. and General Trading Co. ("General Trading") are the Company's main
competitor with respect to grocery distribution, General Trading with respect to
refrigerated distribution, and Southeast Frozen Foods with respect to frozen
food distribution. As the Company expands into other geographic markets, it
expects to compete with national distributors in all product categories.
The Company also competes with cooperatives, such as Key Food Stores
Co-operative Inc., which provide distribution and support services to their
affiliated independent retailers doing business under trade names licensed to
them by the cooperatives. Unlike these competitors, the Company does not require
payment of capital contributions to the Company by retailers desiring to use the
Met(R) and Pioneer(R) names.
Management believes that the principal competitive factors in the Company's
business include price, scope of products and services offered, distribution
service levels, strength of private label brand offered, strength of store
trademarks offered and store financing support. Management believes that the
Company competes effectively by offering a full product line, including its
White Rose(TM) label, retail support and financing services, its Met(R) and
Pioneer(R) voluntary cooperative trademarks, flexible delivery schedules,
competitive prices and competitive levels of customer services.
The Company believes there is significant competitive value in its White
Rose(TM) brand, as well as its Met(R) and Pioneer(R) names.
Seasonality
Typically, the fiscal fourth quarter is the Company's strongest quarter in terms
of profitablity with the fiscal third quarter the weakest. The third quarter
comparative weakness has been mitigated somewhat by the Company's increased
sales outside of New York City.
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Employees
As of January 31, 2000, the Company employed approximately 1,275 persons, of
whom approximately 685 were covered by collective bargaining agreements with
various International Brotherhood of Teamsters locals.
The Company is a party to certain collective bargaining agreements with its
warehouse and trucking employees at its refrigerated operation (expiring
November 2000), its grocery operation (warehouse expiring October 2002 and
trucking expiring May 2000) and its frozen operation (expiring January 2004).
Management believes that the Company's present relations with its work force are
satisfactory.
ITEM 2. PROPERTIES
The Company's three principal warehouse and distribution facilities are set
forth below.
Location Use Square Footage Lease Expiration
Carteret, New Jersey Groceries, Non-Perishables, 645,000 2018 (plus two 5-year
and executive offices renewal options)
Woodbridge, New Jersey Refrigerated 200,000 2001 (plus four 5-year
renewal options)
Carteret, New Jersey Frozen 181,000 2018 (plus two 5-year
renewal options)
Westbury, New York Computer center 11,800 2007
The aggregate operating lease rent paid in connection with the Company's
facilities was approximately $5.7 million in fiscal 1999.
The Carteret grocery division distribution facility operates at approximately
90% of its current capacity and the refrigerated division distribution facility
operates at 95% of its current capacity (both on a three shift basis), while the
frozen foods division distribution facility operates at approximately 90% of its
current capacity (on a two shift basis). Depending on the type of new business
introduced (e.g. high turn product that is already slotted in inventory), each
warehouse has capacity to grow. Both the grocery facility and frozen facility
leases in Carteret provide for expansion of up to 161,000 sq. ft and 92,000 sq.
ft., respectively.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in claims, litigation and administrative proceedings of
various types in various jurisdictions. In addition, the Company has agreed to
indemnify various transferees of its divested operations with regard to certain
known and potential liabilities which may arise out of such operations. The
Company also has incurred and may in the future incur liability arising under
7
environmental laws and regulations in connection with these divested properties
and properties presently owned or acquired. Although management believes that it
has established adequate reserves for known contingencies, there can be no
assurances that the costs of environmental remediation or an unfavorable outcome
in any litigation or governmental proceeding will not have an adverse effect on
the Company.
Environmental. The Company has incurred and may in the future incur
environmental liability to clean up potential contamination at a number of
properties under certain federal and state laws, including the Federal
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"). Under such laws, liability for the cleanup of property
contaminated by hazardous substances may be imposed on both the present owner
and operator of a property and any person who owned or operated the property at
the time hazardous substances were disposed thereon. Persons who arranged for
the disposal of hazardous substances found on a disposal site may also be liable
for cleanup costs. In certain cases, the Company has agreed to indemnify the
purchaser of its former properties for liabilities arising thereon or has agreed
to remain liable for certain potential liabilities that were not assumed by the
transferee.
The Company has recorded an estimate of its total potential environmental
liability arising from specifically identified environmental problems (including
those discussed below) in the amount of approximately $924,000 as of January 1,
2000. The Company believes the reserves are adequate and that known and
potential environmental liabilities will not have a material adverse effect on
the Company's financial condition. However, there can be no assurance that the
identification of contamination at its current or former sites or changes in
cleanup requirements would not result in significant costs to the Company.
The Company is now responsible for the monitoring (cleanups having been
completed) of various sites previously owned or operated by the Company, the
most significant of which are located in St. Genevieve, Missouri and Three
Rivers, Michigan.
In addition, the Company has been identified as a potentially responsible party
("PRP") under CERCLA for clean-up costs at the Seaboard waste disposal site in
North Carolina. The Company is a member of the de minimus group comprised of
parties who allegedly contributed less than 1% of the total waste at the site.
Litigation. The Company is a defendant in an action entitled Twin County
Grocers, Inc. et al. v. Food Circus Supermarkets, Inc. et al., filed in the
United States Bankruptcy Court for the District of New Jersey on February 26,
1999. The plaintiff alleges that the Company was a party to a civil conspiracy,
breached agreements, negotiated in bad faith and tortiously interfered with a
contract and prospective economic advantage in connection with a potential sale
of Twin County's business and seeks unspecified damages. The matter has recently
been moved to the District Court of New Jersey and discovery is ongoing. The
Company believes that the allegations are without merit and will continue to
vigorously defend this action.
The Company is not a party to any other litigation, other than routine
litigation incidental to the business of the Company, which is individually or
in the aggregate material to the business of the Company. Management, after
8
consultation with counsel, does not believe that the outcome of any of its
current litigation, either individually or in the aggregate, will have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public market for the outstanding common equity of the
Company and the majority of its outstanding common equity is owned by Rose
Partners, LP.
The ability of the Company to pay dividends is governed by restrictive covenants
contained in the indenture governing its publicly held debt as well as
restrictive covenants contained in the Company's senior bank lending
arrangement. As a result of these restrictive covenants, as of January 1, 2000,
the Company is currently permitted to pay dividends in an amount up to $4.8
million and anticipates paying a $2.5 million dividend in late February or early
March 2000.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company
for the periods indicated and has been prepared by adjusting the consolidated
financial statements of the Company as if the merger between the Company and its
former parent, White Rose Foods, Inc. ("White Rose"), with the Company as the
survivor, had taken place as of January 1, 1995. Since the stockholders of the
Company, upon consummation of the merger are identical to the stockholders of
White Rose, the exchange of shares was a transfer of interest among entities
under common control, and is being accounted for at historical cost in a manner
similar to pooling of interests accounting. Such data should be read in
conjunction with the consolidated financial statements and related notes
included herein.
Year Ended Year Ended Year Ended Year Ended Year Ended
December 30, December 28, December 27, January 2, January 1,
1995 1996 1997 1999 (c) 2000
-----------------------------------------------------------------------------------
(In thousands)
Income Statement Data:
Total revenue $ 1,023,041 $ 1,050,206 $ 1,071,800 $ 1,196,933 $ 1,413,827
Gross profit(a) 107,505 114,487 112,633 121,939 138,971
Warehouse expense 39,676 41,038 42,453 49,440 51,865
Transportation expense 22,759 21,624 22,042 24,719 26,607
Selling, general and 21,877 22,694 21,598 22,760 25,834
Facility integration and -- -- -- 4,173 --
Amortization--excess of cost over
net assets acquired 2,892 2,892 2,459 2,460 2,425
Operating income 20,301 26,239 24,081 18,387 32,240
Interest expense 24,887 23,955 21,890 18,170 16,679
Amortization--deferred financing 1,457 1,138 944 721 764
Other (income), net (3,842) (3,758) (3,242) (9,534)(e) (2,744)
Income (loss) from continuing
operations
before income taxes and
extraordinary items
extraordinary items (2,201) 4,904 4,489 9,030 17,541
Income taxes 105 3,053 (1,241) 4,449 7,872
Income (loss) from continuing
operations before extraordinary
items (2,306) 1,851 5,730 4,581 9,669
Extraordinary (loss)/gain on
extinguishment of debt, net of tax 510 219 (8,693) (201) --
Net (loss) income $ (1,796) $ 2,070 $ (2,963) $ 4,380 $ 9,669
December 30, December 28, December 27, January 2, January 1,
1995 1996 1997 1999 (c) 2000
----------------------------------------------------------------------------------
(In thousands)
Balance Sheet Data:
Total assets $ 318,430 $ 301,069 $ 279,961 $ 274,828 $ 273,406
Working capital 7,344 12,342 23,365 41,117 56,397
Total debt including capital leases 223,543 215,308 196,966 178,127 164,069
Total stockholder's equity 2,035 4,105 (3,081)(b) (3,701)(d) 5,968
(deficiency)
- ----------
(a) Gross profit excludes warehouse expense shown separately.
(b) The decrease in stockholders' equity was the result of the $8.7 million
extraordinary charge, net of tax, on the extinguishment of debt as a result
of the Refinancing described in Management's Discussion and Analysis,
general and included in the Statement of Operations for the year ended
December 27, 1997. In addition, the Company dividended non-cash, non-core
assets consisting of land in Colorado and notes receivable with an
aggregate book value of approximately $4.2 million and $61,400 in cash to
its stockholders on June 20, 1997.
(c) Represents a 53 week fiscal year.
(d) Including $5 million stock repurchase in May 1998.
(e) Includes $7.2 million consideration pursuant to an agreement with Fleming
Companies, Inc. See Management's Discussion and Analysis, Results of
Operations 53 weeks ending January 2, 1999 and 52 weeks ending December 27,
1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-K include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievement
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions and those in particular in the New York City metropolitan area; the
Company's reliance on several significant customers; potential losses from loans
to its retailers; restrictions imposed by the documents governing the Company's
indebtedness; competition; the Company's labor relations; potential
environmental liabilities which the Company may have; dependence on key
personnel; changes in business regulation; business abilities and judgment of
personnel; and changes in, or failure to comply with government regulations.
General
On June 20, 1997, the Company completed a refinancing of itself and its former
parent, White Rose ("Refinancing"), intended to extend debt maturities, reduce
interest expense and improve financial flexibility. The components of the
Refinancing were (i) the offering of $155 million 10% senior notes due 2007,
(ii) the modification of the Company's bank credit facility, (iii) the receipt
of $8.9 million from the repayment of a note held by the Company from Rose
Partners, LP, which owns 98.5% of the Company, (iv) the consummation of the
tender offers and consent solicitations commenced by the Company and White Rose
on May 16, 1997 in respect of the Company's 12% Senior Notes due 2003 and White
Rose's 12-3/4% Senior Discount Notes due 1998, respectively, (v) the $4.2
million dividend by the Company to White Rose of certain non-cash assets which
were unrelated to the Company's primary business and the subsequent dividend of
those assets to White Rose's stockholders and (vi) the merger of White Rose with
and into the Company with the Company surviving the merger ("Merger").
The following discussion assumes that the Merger between White Rose and the
Company had taken place as of January 1, 1995. Since the stockholders of the
Company are identical to the stockholders of White Rose, the exchange of shares
was a transfer of interest among entities under common control, and is being
accounted for at historical cost in a manner similar to pooling-of-interests
accounting. Accordingly, the discussion presented herein reflects the assets and
liabilities and related results of operations for the combined entity for all
periods.
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Results of Operations
Fifty-two-weeks ended January 1, 2000 and fifty-three weeks ended January 2,
1999
Net sales for the fifty-two weeks ended January 1, 2000 were $1,406.1 million as
compared to $1,189.3 million for the fifty-three weeks ended January 2, 1999.
This 18.2% increase in net sales primarily reflects sales to several customers
operating supermarkets under the Foodtown banner that the Company began
servicing in late December 1998, as well as increased sales to existing
customers.
Other revenue, consisting of recurring customer related services, increased to
$7.7 million for the fifty-two weeks ended January 1, 2000 as compared to $7.6
million in the prior period as a result of the Company's overall increased
business, despite the cessation of the Company's storage businesses in Garden
City, NY and Kearny, NJ.
Gross margin (excluding warehouse expense) decreased to 9.9% of net sales or
$139.0 million for the fifty-two weeks ended January 1, 2000 as compared to
10.3% of net sales or $121.9 million for the prior period, as a result of a
change in mix of both customers and products sold. The Company has, and will
continue to, take steps intended to maintain and improve its margins; however,
as indicated by the comparative decrease in gross margin, factors such as the
additions of high volume, low margin customers, the decrease in manufacturers'
promotional activities, changes in product mix, or competitive pricing pressures
are expected to continue to have an effect on gross margin.
Warehouse expense decreased as a percentage of net sales to 3.7% of net sales or
$51.9 million for the fifty-two weeks ended January 1, 2000 as compared to 4.2%
of net sales or $49.4 million reflecting the combined effect of (i) applying
largely fixed costs to higher revenues and (ii) the elimination of the costs of
operating two frozen food facilities as operations ceased at the Garden City
facility in April 1999.
Transportation expense decreased to 1.9% of net sales or $26.6 million for the
fifty-two weeks ended January 1, 2000 as compared to 2.1% of net sales or $24.7
million in the prior period due to greater efficiencies and a change in the
Company's customer base.
Selling, general and administrative expense declined to 1.8% of net sales or
$25.8 million for the fifty-two weeks ended January 1, 2000 as compared to 1.9%
of net sales or $22.8 million for the prior period due to the effect of applying
largely fixed costs to higher revenues.
Other income, net of other expenses, increased to $2.7 million for the fifty-two
weeks ended January 1, 2000 as compared to $2.3 million for the prior period,
excluding the recording of $7.2 million of income in the prior period from
Fleming Companies, Inc. as a result of the renegotiation of a contract.
Interest expense decreased to $16.7 million for the fifty-two weeks ended
January 1, 2000 from $18.2 million for the prior period due to lower average
outstanding levels of the Company's funded debt.
12
The Company recorded an income tax provision of $7.9 million, resulting in an
effective income tax rate of 45% for the fifty-two weeks ended January 1, 2000
as compared to a provision of $4.4 million resulting in an effective rate of 49%
in the prior period. The Company's estimated effective tax rate is higher than
the statutory tax rate primarily because of the nondeductibility of certain of
the Company's amortization of the excess of cost over net assets acquired;
however, due to net operating loss carryforwards for tax purposes, the Company
does not expect to pay federal income tax for the current year with the
exception of an alternative minimum tax.
The Company recorded net income for the fifty-two weeks ended January 1, 2000 of
$9.7 million as compared to $4.4 million, which included an extraordinary loss
of $201,000, in the prior period.
Fifty-three weeks ended January 2, 1999 and fifty-two weeks ended December 27,
1997
Net sales for the fifty-three weeks ended January 2, 1999 were $1,189.3 million
as compared to $1,065.4 million for the fifty-two weeks ended December 27, 1997.
This 11.6% increase primarily reflects increased frozen food sales to a division
of A&P which began in August 1997 as well as additional business from new and
existing customers. The fifty-third week in 1998 accounted for approximately 19%
of the increase in net sales.
Other revenue, consisting of reclamation service fees, storage income, label
income, coupon-processing, and other customer related services, increased to
$7.6 million for the fifty-three weeks ended January 2, 1999 as compared to $6.4
million in the prior period primarily as a result of emphasizing additional
services to our increased customer base.
Gross margin (excluding warehouse expense) decreased to 10.3% of net sales or
$121.9 million for the fifty-three weeks ended January 2, 1999 as compared to
10.6% of net sales or $112.6 million for the prior period as a result of a
change in mix of both customers and product sold. The Company took and expects
to take steps intended to maintain and improve its margins; however, factors
such as the decrease in promotional activities, changes in product mix,
additions of high volume, low margin customers, or competitive pricing pressures
are expected to continue to have an effect on gross margin.
Warehouse expense increased to 4.2% of net sales or $49.4 million for the
fifty-three weeks ended January 2, 1999 as compared to 4.0% of net sales or
$42.5 million for the prior period primarily (i) as a result of operating two
frozen food facilities in Carteret, New Jersey and Garden City, New York since
April 1998, and (ii) the amended grocery facility lease discussed below.
Beginning in the third quarter of 1998, after all the frozen distribution
business was transitioned to the new Carteret, NJ frozen facility, warehouse
expense includes $2.7 million related to the Garden City facility which was
being used for outside public storage as well as some secondary self storage.
With respect to the grocery facility lease, in November 1997, the Company
amended its grocery facility lease, adding additional leased property, extending
the term, and increasing the annual rental obligations. The changes in the
provisions of that lease resulted in the amended lease being treated as a new
13
lease and accounted for as an operating lease. Had the terms of the lease not
changed, warehouse expense as a percentage of sales would have decreased by .1%
of sales in the current period.
Transportation expense remained constant at 2.1% of net sales or $24.7 million
for the fifty-three weeks ended January 2, 1999 as compared to 2.1% of net sales
or $22.0 million in the prior period.
Selling, general and administrative expense decreased to 1.9% of net sales or
$22.8 million for the fifty-three weeks ended January 2, 1999 as compared to
2.0% of net sales or $21.6 million in the prior period primarily due to the
effect of applying fixed costs to higher revenues.
The Company recorded $4.2 million of facility integration and abandonment
expenses related to the shut down of the Garden City facility and the move of
its frozen business to Carteret, New Jersey. This expense consisted of (i) $4.1
million related to the impairment of the leasehold improvement at Garden City,
(ii) $2.2 million related to rent and real estate taxes from May 1, 1999, the
anticipated closure date of its Garden City facility, through March 2000, the
lease termination date, (iii) $600,000 for the removal of certain equipment, and
(iv) $400,000 related to rent before the new facility was operable and moving
expenses. These expenses were offset by the $3.1 million gain on the sale of the
Garden City facility in April 1998. As of January 2, 1999, the balance of the
reserve was $2.8 million, all of which was expected to be expended before March
2000.
Other income, net of other expenses, increased to $9.5 million for the
fifty-three weeks ended January 2, 1999 from $3.2 million in the prior period.
In 1998, the Company entered into an agreement with Fleming Companies, Inc.
which called for (i) the Company to receive consideration resulting in a $7.2
million nonrecurring gain from renegotiating a contract to clarify past
practices and (ii) a strategic marketing alliance which may generate modest
commission income in the future. This increase was offset somewhat by (i) the
loss of approximately $369,000 of rental income relating to the Farmingdale
facility which was sold in the prior period and (ii) a lower level of interest
income as a result of the repayment of the Rose Partners, LP. note receivable
(repaid in June 1997) which accounted for $502,000 of interest income in the
prior period. The Farmingdale facility was sold in August 1997 with the proceeds
used to reduce outstanding indebtedness.
Interest expense decreased to $18.2 million for the fifty-three weeks ended
January 2, 1999 from $21.9 million for the prior period. The comparative
decrease from the 1997 period represents a decline in both the average
outstanding level of the Company's funded debt and the average interest rate as
a result of the Refinancing on June 20, 1997.
The Company recorded an income tax provision of $4.4 million, resulting in an
effective income tax rate of 49% for the fifty-three weeks ended January 2, 1999
as compared to a benefit of $1.2 million in the prior period. The Company's
estimated effective tax rate is higher than the statutory tax rate primarily
because of the nondeductibility of certain of the Company's amortization of the
excess of cost over net assets acquired; however, due to net operating losses
carryforwards for tax purposes, the Company does not expect to pay federal
income tax for 1998 with the exception of an alternative minimum tax.
14
The Company recorded net income for the fifty-three weeks ended January 2, 1999
of $4.4 million, including an extraordinary loss on the extinguishment of debt,
net of tax, of $201,000 as compared to net loss of $3.0 million for the prior
period which included an $8.7 million extraordinary loss on the extinguishment
of debt.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's $90 million
bank credit facility are the Company's principal sources of liquidity. The
Company's bank credit facility was amended and restated as of November 15, 1999.
It is now scheduled to mature on June 30, 2004, and bears interest at a rate per
annum equal to (at the Company's option): (i) the Euro Dollar Offering Rate plus
1.625% or (ii) the bank's prime rate.
Borrowings under the Company's revolving bank credit facility were $6.8 million
(excluding $5.1 million of outstanding letters of credit) at January 1, 2000.
Additional borrowing capacity of $73.3 million was available at that time under
the Company's then current, borrowing base certificate. The Company believes
that these sources will be adequate to meet the Company's currently anticipated
working capital needs, capital expenditures, and debt service requirements
during the next four fiscal quarters.
During the fifty-two weeks ended January 1, 2000, cash flows provided by
operating activities were $18.5 million, consisting primarily of cash generated
from income before non-cash expenses of $24.2 million offset by an increase in
accounts and notes receivable of $6.1 million.
Cash flows used in investing activities during the fifty-two weeks ended January
1, 2000 were approximately $3.4 million which were used exclusively for capital
expenditures. Net cash used in financing activities of approximately $14.5
million was utilized primarily to reduce the amount outstanding under the
Company's bank revolver and capital leases.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization and certain one-time charges, was $41.1 million during the
fifty-two weeks ended January 1, 2000 as compared to $31.6 million in the prior
period, excluding the one time recording of $7.2 million of income with respect
to the agreement with Fleming Companies, Inc. The Company has presented EBITDA
supplementally because management believes this information is useful given the
significance of the Company's depreciation and amortization and because of its
highly leveraged financial position. This data should not be considered as an
alternative to any measure of performance or liquidity as promulgated under
generally accepted accounting principles (such as net income/loss or cash
provided by/used in operating, investing and financing activities), nor should
it be considered as an indicator of the Company's overall financial performance.
Also, the EBITDA definition used herein may not be comparable to similarly
titled measures reported by other companies.
15
As part of the Company's 1998 $4.2 million facility integration and abandonment
expense, related to the shut down of the Garden City facility and the move of
its frozen business to Carteret, New Jersey, the Company recorded a reserve of
$2.8 million consisting of (i) $2.2 million for rent and real estate taxes from
May 1, 1999, the anticipated closure date of the facility, through March 31,
2000, the lease termination date, and (ii) $600,000 for the removal of certain
equipment. As of January 1, 2000, the balance of the facility integration and
abandonment reserve was $ 359,000, all of which is expected to be expended
before March 31, 2000. As planned, the Company ceased operations in the facility
in the second quarter of 1999 and is in the final stages of decommissioning the
facility.
The consolidated indebtedness of the Company decreased to $164.1 million at
January 1, 2000 as compared to $178.1 million at January 2, 1999. Stockholders'
equity was $6.0 million on January 1, 2000 as compared to a deficiency of $3.7
million on January 2, 1999. The Company anticipates paying a $2.5 million
dividend in the first quarter of 2000.
The Company currently does not expect to spend more than $4.0 million during
2000 on capital expenditures, but the Company may purchase certain assets used
in its business instead of leasing them due to economic conditions.
The Company expended approximately $150,000 in fiscal 1999 and does not expect
to expend more than $600,000 in fiscal 2000 in connection with the environmental
remediation of certain presently owned or divested properties. At January 1,
2000, the Company has reserved $924,000 for those known environmental
liabilities. The Company intends to finance the remediation through internally
generated cash flow or borrowings. Management believes that should the Company
become liable as a result of any material adverse determination of any legal or
governmental proceeding beyond the expected expenditures, it could have an
adverse effect on the Company's liquidity position.
Under the terms of the Company's revolving bank credit facility, the Company is
required to meet certain financial tests, including minimum interest coverage
ratios. As of January 1, 2000, the Company was in compliance with its covenants.
From time to time when the Company considered market conditions attractive, the
Company has purchased on the open market a portion of its public debt and may in
the future purchase and retire a portion of its outstanding public debt. In
addition, the bank credit facility now allows the payment of dividends under
certain circumstances.
The Company is continually evaluating a number of growth strategies including
expanding its product categories by acquisition or start up and expansion of the
Company's retail presence. In considering growth strategies for EasyGrocer.com,
the Company is considering a variety of alliances, marketing and advertising
strategies. These may take the form of both traditional media campaigns, such as
billboards, newspapers and radio advertising campaigns, as well as online
ventures with leading internet portals and cooperative advertising with
manufacturers and vendors. While the Company is planning to co-brand some of
these ventures, the Company does not expect to spend more than $1 million in
excess of EasyGrocer.com's revenues to promote EasyGrocer.com during fiscal
2000.
16
Year 2000 Computer Issues
The Company did not experience any material Year 2000 computer problems and, to
the best of the Company's knowledge, its customers also did not experience any
material Year 2000 computer problems. The Company's computer and the computers
used to operate the systems within the Company's office and distribution
facilities (i.e. the heating, refrigeration, air conditioning, telephone and
security systems) functioned properly into the year 2000. As a result, the
Company was able to service its customers and communicate with its suppliers
without disruption.
Although some people believe that February 29, 2000 may cause computer problems
similar to those which were predicted for the Year 2000, the Company does not
expect to encounter such problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in the interest rates on
certain of its outstanding debt. The outstanding loan balance under the
Company's bank credit facility bears interest at a variable rate based on
prevailing short-term interest rates in the United States and Europe. Based on
1999's average outstanding bank debt, a 100 basis point change in interest rates
would change interest expense by approximately $144,000. For fixed rate debt
such as the Company's $155 million 10% senior notes, interest rate changes
effect the fair market value of the notes but do not impact earnings or cash
flows.
The Company does not presently use financial derivative instruments to manage
its interest costs. The Company has no foreign exchange risks and only minimal
commodity risk with respect to commodities such as fuel oil.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page
Financial Statements
Consolidated Financial Statements of Di Giorgio Corporation and Subsidiaries
Index to Consolidated Financial Statements............................... F-1
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000.... F-3
Consolidated Statements of Operations for each of the
three years in the period ended January 1, 2000......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
ended January 1, 2000................................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended January 1, 2000..................... F-6
Notes to Consolidated Financial Statements............................... F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
The following table sets forth certain information regarding the directors and
executive officers of Di Giorgio:
Age Position
Arthur M. Goldberg (2)(3) 58 Chairman of Board of Directors, President
and Chief Executive Officer
Richard B. Neff (3) 51 Executive Vice President, Chief Financial
Officer and Director
Stephen R. Bokser 57 Executive Vice President, President of
White Rose Food Division of Di Giorgio
and Director
Jerold E. Glassman (3) 64 Director
Emil W. Solimine (2) 55 Director
Charles C. Carella (1) 66 Director
Jane Scaccetti (1) 45 Director
Joseph R. DeSimone 60 Senior Vice President Distribution
Robert A. Zorn 45 Senior Vice President and Treasurer
Lawrence S. Grossman 38 Vice President and Corporate Controller
- ----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
Directors are elected for one year terms and hold office until their successors
are elected and qualified. The executive officers are appointed by and serve at
the discretion of the Board of Directors.
Mr. Goldberg has been Chairman of the Board, President and Chief Executive
Officer of Di Giorgio since 1990. Since January 1999, Mr. Goldberg has been a
Director, President and Chief Executive Officer of Park Place Entertainment
Corp., a casino hotel operator. Prior thereto, he was a Director and Executive
Vice President and President -- Gaming Operations, Hilton Hotels Corporation,
19
since December 1996. He was President, Chairman and Chief Executive Officer and
a director of Bally Entertainment Corporation from October 1990 to December
1996. He is also Managing Partner, Arveron Investments, LP, since 1986. Mr.
Goldberg is also a director of Bally Total Fitness Holding Corporation, Bally's
Grand, Inc., and First Union Corporation. Mr. Goldberg, in his capacity as the
sole general partner of Rose Partners, L.P., controls the voting and investment
of 98.5% of the outstanding common stock of the Company.
Mr. Neff has been Executive Vice President, Chief Financial Officer and Director
of Di Giorgio since 1990. He is also a Director of Ryan Beck & Co., an
investment banking concern and Bruno's Inc., a supermarket operator.
Mr. Glassman has been a Director of Di Giorgio since 1990. Since prior to 1990,
Mr. Glassman has been Managing Partner of Grotta, Glassman & Hoffman, a law firm
which has its primary office in Roseland, New Jersey. Since 1998, Mr. Glassman
has served on the Board of DBT Online, Inc. He is also on the Board of Essex
Valley Healthcare, Inc.
Mr. Bokser has been Executive Vice President and Director of Di Giorgio since
February 1990. In addition, Mr. Bokser has served as President of the White Rose
Foods Division of Di Giorgio since prior to 1991. Mr. Bokser is also a director
of Foodtown, Inc, a supermarket cooperative since October 1999, as well as a
director of Maimonides Hospital in Brooklyn, NY.
Mr. Solimine has been a Director of Di Giorgio since 1990. He also is the Chief
Executive Officer of the Emar Group, Inc., an insurance concern, since prior to
1991.
Mr. Carella became a Director of Di Giorgio in 1995. Since prior to 1991, Mr.
Carella has been a Partner of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart &
Olstein, a law firm which has its primary office in Roseland, New Jersey. Mr.
Carella is a member of the Board of Administrations of Archdiocese of Newark and
the Board of Trustees of Fordham University. He is also a director of the Cancer
Institute of New Jersey.
Ms. Scaccetti became a Director of Di Giorgio in 1996. Ms. Scaccetti has been a
shareholder for the past nine years of Drucker & Scaccetti, P.C., a firm
specializing in accounting and business advisory services. She is also a
director for Nutrition Management Services Company, Pennsylvania Savings Bank,
Temple University Health Systems, and the Arthritis Foundation. Ms. Scaccetti is
a certified public accountant.
Mr. DeSimone has been Senior Vice President of Distribution since January 1995.
From 1990 through January 1995, he was Vice President of Warehousing and
Distribution.
Mr. Zorn has been Senior Vice President and Treasurer of Di Giorgio since 1992.
He served as a Vice President of Bankers Trust Company, New York, New York prior
to 1992.
Mr. Grossman has been employed by Di Giorgio since 1990. He has served as Vice
President of Di Giorgio since January 1994 and Corporate Controller since
February 1992. Mr. Grossman is a certified public accountant.
20
ITEM 11. EXECUTIVE COMPENSATION.
Compensation
The following table sets forth compensation paid or accrued to the Chief
Executive Officer and each of the four most highly compensated executive
officers of Di Giorgio whose cash compensation, including bonuses and deferred
compensation, exceeded $100,000 for the three fiscal years ended January 1,
2000.
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
(1)
Arthur M. Goldberg, 1999 $400,000 -- -- --
Chairman of the Board, President 1998 $400,000 -- -- --
and Chief Executive Officer 1997 $400,000 -- -- --
Richard B. Neff, 1999 $325,000 $515,000 -- $2,400(2)
Executive Vice President 1998 $325,000 $475,000 -- $2,400(2)
and Chief Financial Officer 1997 $275,923 $261,000 -- $2,400(2)
Stephen R. Bokser, 1999 $325,000 $515,000 -- $2,400(2)
Executive Vice President 1998 $325,000 $300,000 -- $2,400(2)
and President of White Rose 1997 $313,000 $250,000 -- $2,400(2)
Division
Robert A. Zorn, 1999 $230,600 $ 35,000 -- $2,400(2)
Senior Vice President and 1998 $220,600 $ 30,000 -- $2,400(2)
Treasurer 1997 $210,600 $ 32,500 -- $2,400(2)
Joseph R. DeSimone 1999 $180,300 $ 30,000 -- $2,400(2)
Senior Vice President 1998 $171,800 $ 26,000 -- $2,400(2)
Warehousing and Distribution 1997 $163,300 $ 25,000 -- $2,400(2)
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to executive officers during fiscal years 1997,
1998, and 1999 are not described herein because the incremental cost to the
Company of such benefits is below the Securities and Exchange Commission
disclosure threshold.
(2) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement Savings
Plan."
21
Employment Agreements
The Company is a party to an Agreement with Mr. Neff which runs through October
31, 2000. Currently, Mr. Neff is entitled to receive an annual salary of
$325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Neff will
receive additional compensation (the "Additional Compensation") upon the
occurrence of certain change of control type of events or distribution of assets
to shareholders, as both are defined in the Agreement ("Recognition Event") and
determined pursuant to a formula. In the event of death or disability, Mr. Neff
or his estate, will be entitled to continue to receive compensation and employee
benefits for one year following such event and in certain circumstances will
receive Additional Compensation.
The Company is a party to an Agreement with Mr. Bokser which runs through June
30, 2000. Currently, Mr. Bokser is entitled to receive an annual salary of
$325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Bokser will
receive additional compensation (the "Additional Compensation") upon the
occurrence of certain change of control type of events or distribution of assets
to shareholders, as both are defined in the Agreement ("Recognition Event") and
determined pursuant to a formula. In the event of death or disability, Mr.
Bokser or his estate, will be entitled to continue to receive compensation and
employee benefits for one year following such event and in certain circumstances
will receive Additional Compensation.
The Company is a party to an agreement with Mr. Zorn which provides that six
months notice be given by either party to terminate his employment. Currently,
Mr. Zorn is entitled to receive an annual salary of $245,600, as adjusted by
annual cost of living adjustments, if any, and annual bonuses, at the sole
discretion of the Company. Mr. Zorn may also receive additional incentive
compensation upon the occurrence of (i) the termination of Mr. Zorn's employment
with the Company; or (ii) certain change of control type of events, determined
pursuant to a formula. Under the terms of the agreement, if the employment of
Mr. Zorn is terminated for any reason other than for cause or disability, Mr.
Zorn is entitled to receive compensation and benefits for six months, provided
that he uses his best efforts to secure other executive employment.
Retirement Plan
The Company maintains the Di Giorgio Retirement Plan (the "Retirement Plan")
which is a defined benefit pension plan. Employees of the Company and its
affiliates who are not covered by a collective bargaining agreement (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Retirement Plan after completing one year of employment.
All benefits under the Retirement Plan are funded by contributions made by the
Company. In general, a participant's retirement benefit consists of the sum of
(a) with respect to employment on or after September 1, 1990, an annual amount
equal to the participant's aggregate compensation (excluding income from the
22
exercise of certain stock option and stock appreciation rights) while he is
eligible to participate in the Retirement Plan multiplied by 1.5% and (b) with
respect to employment prior to September 1, 1990, an annual amount equal to the
sum of (i) the benefit earned under the Retirement Plan as of December 31, 1987,
the product of the participant's 1988 compensation and 1.5%, and the product of
the participant's 1988 compensation in excess of $45,000 and .5% plus (ii) the
product of the participant's aggregate compensation earned after 1988 and prior
to September 1, 1990 and 1.5%. In certain circumstances, the amount determined
under (b)(i) above may be determined in an alternative manner.
Benefits under the Retirement Plan are payable at a participant's normal
retirement date (i.e., Social Security retirement age) in the form of an annuity
although a limited lump-sum payment is available. In addition, an actuarially
reduced early retirement benefit is available after a participant reaches age
55.
A participant earns a nonforfeitable (i.e., vested) right to a retirement
benefit after reaching age 65, becoming disabled, or completing five years of
employment. The estimated annual retirement income payable in the form of a life
annuity to the individuals named in the Cash Compensation Table commencing at
their respective normal retirement ages under the Retirement Plan is as follows:
Mr. Goldberg, $27,720; Mr. Neff, $25,644; Mr. Bokser $92,700; Mr. Zorn, $15,276;
Mr. De Simone, $19,056.
Retirement Savings Plan
The Company maintains the Di Giorgio Retirement Savings Plan (the "Savings
Plan") which is a defined contribution plan with a cash or deferred arrangement
(as described under Section 401(k) of the Internal Revenue Code of 1986). In
general, employees of the Company and its affiliates who are not covered by a
collective bargaining agreement (unless a bargaining agreement expressly
provides for participation) are eligible to participate in the Savings Plan
after completing one year of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1% to
15% of their total compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 5% is considered to be a "basic
contribution" and the Company makes a matching contribution of 30%.
Each participant has a fully vested (i.e., nonforfeitable) interest in all
contributions made by them and in the matching contributions made by the Company
on their behalf through 1994. For years beginning with 1995, there is a 5 year
vesting period. The employee has full investment discretion over all
contributions.
Loans are generally available up to 50% of a participant's balance and repayable
over five years, with the exception of a primary house purchase which is
repayable over ten years. Interest is targeted at prime plus 1%.
A participant may withdraw certain amounts credited to his account prior to
termination of employment. Certain withdrawals require financial hardship or
23
attainment of age 59 1/2. In general, amounts credited to a participant's
account will be distributed upon termination of employment.
Compensation of Directors
Directors of the Company who are not employees or otherwise affiliated with the
Company receive a quarterly retainer of $4,000 plus fees of $1,000 per day for
attendance at Board of Directors and Committee meetings. All directors of the
Company are also reimbursed for out-of-pocket expenses associated with
attendance at Board meetings.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended January 1, 2000, the Compensation Committee
consisted of Arthur M. Goldberg and Emil W. Solimine. Mr. Goldberg currently
serves as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company. Mr. Solimine currently serves as a Director of the
Company.
See "Certain Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Mr. Goldberg, through his indirect beneficial ownership of the Company, controls
the affairs of the Company, the majority of the common stock of which is owned
by Rose Partners, LP (98.5%). Mr. Goldberg controls the affairs of Rose
Partners, LP in his capacity as sole general partner.
Mr. Goldberg, through his indirect beneficial ownership of the Company,
effectively has the ability to determine the outcome of most corporate actions
requiring stockholder approval, including the election of the Board of
Directors, adoption of certain amendments to the charter and approval of
mergers, and sales of all or substantially all assets.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Bokser was a director of Western Beef, Inc. In fiscal 1999, the Company sold
various food products to Western Beef, Inc. in the amount of $50.9 million.
The Company employs Grotta, Glassman & Hoffman, a law firm in which Jerold E.
Glassman, a director of the Company, is a partner, for legal services on an
on-going basis. The Company paid approximately $128,000 to the firm for fiscal
1999.
The Company employs Emar Group, Inc. ("Emar Group"), a risk management and
insurance brokerage company controlled by Emil W. Solimine, a director of the
Company, for risk management and insurance brokerage services. The Company paid
Emar Group approximately $150,000 in fiscal 1999 for such services.
24
In fiscal 1999, the Company recorded income of $64,000 from Park Place
Entertainment Corp., a company Mr. Goldberg serves as President and Chief
Executive Office, in connection with the sharing of its office facilities and
sundry other expenses.
The Company believes that the transactions set forth above are on terms no less
favorable than those which could reasonably have been obtained from unaffiliated
parties.
25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. Documents filed as part of this report.
1. Financial Statements
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets as of January 2, 1999
and January 1, 2000............................................... F-3
Consolidated Statements of Operations for each of the
three years in the period ended January 1, 2000................... F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
ended January 1, 2000............................................. F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended January 1, 2000............... F-6
Notes to Consolidated Financial Statements........................ F-8
2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.................... S-1
3. Exhibits
A. Exhibits
Exhibit No. Exhibit
2.1(8) - Certificate of Ownership and Merger merging White Rose
Foods, Inc. with and into Di Giorgio Corporation.
3.1(2) - Restated Certificate of Incorporation.
3.2(2) - Bylaws.
4.1(7) - Indenture between Di Giorgio Corporation and The Bank of
New York, as Trustee, including the form of Note, dated as
of June 20, 1997.
26
10.1(9)+ - Amended and Restated Employment Agreement effective as of
October 31, 1997 between the Company and Richard B. Neff.
10.2(1)+ - Employment Agreement dated February 18, 1992 between the
Company and Robert A. Zorn
10.3(8)+ - Second Amended and Restated Employment Agreement dated
June 30, 1997 between the Company and Stephen R. Bokser
10.4(3)+ - Di Giorgio Retirement Plan as Amended and Restated
effective January 1, 1989 (dated January 26, 1996)
10.5(5)+ - Di Giorgio Retirement Savings Plan as Amended and Restated
effective January 1, 1989
10.6(6)+ - Amendment to the Di Giorgio Retirement Savings Plan
effective January 1, 1989 (dated November 28, 1995)
10.7(3) - License and Security Agreement dated as of February 1,
1993, by Di Giorgio Corporation in favor of BT Commercial
Corporation, as agent
10.8(4) - Lease between AMAX Realty Development, Inc. and V. Paulius
and Associates and the Company dated February 11, 1994
relating to warehouse facility at Carteret, New Jersey
10.9(5) - Sublease Agreement dated June 20, 1994 between Fleming
Foods East Inc. (landlord) and Di Giorgio Corporation
(tenant) relating to facilities located in Woodbridge, New
Jersey.
10.10(10) - Lease between AMAX Realty Development, Inc. and V. Paulius
and Associates and the Company dated November 26, 1997 for a
frozen food warehouse facility at Carteret, New Jersey.
10.11(10) - Third Amendment, dated as of November 26, 1997, to
Carteret grocery warehouse lease dated as of February 11,
1994.
10.12(10) - Agreement of Lease between the Company and FR
Acquisitions, Inc. for the Garden City, New York frozen food
facility dated as of February 19, 1998.
10.13(11) - Restated Credit Agreement dated as of November 15, 1999
among Di Giorgio Corporation as Borrower, the financial
institutions thereto, as Lenders, BT Commercial Corporation,
as Agent for the Lenders, and Deutsche Bank AG New York, as
Issuing Bank.
27
12.1(7) - Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
21(11) - Subsidiaries of the Registrant
- ----------
+ Compensation plans and arrangements of executives and others.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-53886) filed with the Commission on October 28, 1992
(2) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 of Di Giorgio (File No. 33-53886) filed with the
Commission on January 11, 1993
(3) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (File No. 33-53886) filed with the Commission on
February 1, 1993
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
year ended January 1,1994 (File 1-1790)
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
year ended December 31, 1994 (File 1-1790)
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995 (File 1-1790)
(7) Incorporated by reference to Registration Statement No. 333-30557 on Form
S-4 filed with the Securities and Exchange Commission on July 1, 1997.
(8) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (Registration No. 333-30557) filed with the
Commission on July 16, 1997.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1997 (File 1-1790).
(10) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 27, 1997 (File 1-1790).
(11) Filed herewith.
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the last
quarter of the period covered by this Report.
28
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
Feburary, 2000.
DI GIORGIO CORPORATION
By: /s/ Arthur M. Goldberg
Arthur M. Goldberg, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Arthur M. Goldberg Chairman, President and Chief February 23, 2000
---------------------- Executive Officer (Principal
Arthur M. Goldberg Executive Officer)
/s/ Jerold E. Glassman Director February 23, 2000
----------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director February 23, 2000
----------------------
Emil W. Solimine
/s/ Charles C. Carella Director February 23, 2000
----------------------
Charles C. Carella
/s/ Jane Scaccetti Director February 23, 2000
----------------------
Jane Scaccetti
/s/ Richard B. Neff Executive Vice President and February 23, 2000
---------------------- Chief Financial Officer
Richard B. Neff (Principal Financial and
Accounting Officer); Director
/s/ Stephen R. Bokser Executive Vice President and February 23, 2000
---------------------- Director
Stephen R. Bokser
29
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-2
FINANCIAL STATEMENTS AS OF JANUARY 1, 2000 AND JANUARY 2, 1999,
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Di Giorgio Corporation and Subsidiaries
Carteret, New Jersey:
We have audited the accompanying consolidated balance sheets of Di Giorgio
Corporation and Subsidiaries (the "Company") as of January 1, 2000 and January
2, 1999, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for each of the three years in the period
ended January 1, 2000. Our audits also included the financial statement schedule
listed in the Index at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Di Giorgio Corporation
and Subsidiaries at January 1, 2000 and January 2, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 1, 2000 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
New York, New York
February 17, 2000
F-2
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JANUARY 2, 1999 AND JANUARY 1, 2000 (in thousands,
except share data)
- --------------------------------------------------------------------------------
January 2, January 1,
ASSETS 1999 2000
CURRENT ASSETS:
Cash and cash equivalents $ 459 $ 988
Accounts and notes receivable - Net 83,012 88,845
Inventories 60,482 61,546
Deferred income taxes 11,283 7,655
Prepaid expenses 3,055 2,633
----- -----
Total current assets 158,291 161,667
PROPERTY, PLANT AND EQUIPMENT - Net 8,333 10,238
NOTES RECEIVABLE 11,844 11,386
DEFERRED FINANCING COSTS 4,935 4,652
OTHER ASSETS 15,255 11,719
EXCESS OF COST OVER NET ASSETS ACQUIRED - Net 76,170 73,744
------ ------
TOTAL ASSETS $ 274,828 $ 273,406
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Revolving credit facility $ 20,628 $ 6,782
Current installment - long-term debt and capital lease liability 211 167
Accounts payable - trade 71,616 72,410
Accrued expenses 24,719 25,911
------ ------
Total current liabilities 117,174 105,270
LONG-TERM DEBT 155,000 155,000
CAPITAL LEASE LIABILITY 2,288 2,120
OTHER LONG-TERM LIABILITIES 4,067 5,048
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, Class A, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 78.116 shares -- --
Common stock, Class B, $.01 par value, nonvoting - authorized,
1,000 shares; issued and outstanding, 76.869 shares -- --
Additional paid-in capital 8,002 8,002
Accumulated deficit (11,703) (2,034)
------- ------
Total stockholders' equity (deficiency) (3,701) 5,968
------ -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 274,828 $ 273,406
========= =========
See notes to consolidated financial statements.
F-3
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000
(in thousands)
- --------------------------------------------------------------------------------
December 27, January 2, January 1,
1997 1999 2000
REVENUE:
Net sales $ 1,065,381 $ 1,189,296 $ 1,406,094
Other revenue 6,419 7,637 7,733
----- ----- -----
Total revenue 1,071,800 1,196,933 1,413,827
COST OF PRODUCTS SOLD 959,167 1,074,994 1,274,856
------- --------- ---------
Gross profit - exclusive of warehouse
expense shown separately below 112,633 121,939 138,971
OPERATING EXPENSES:
Warehouse expense 42,453 49,440 51,865
Transportation expense 22,042 24,719 26,607
Selling, general and administrative expenses 21,598 22,760 25,834
Facility integration and abandonment expense -- 4,173 --
Amortization - excess of cost over net assets
acquired 2,459 2,460 2,425
----- ----- -----
OPERATING INCOME 24,081 18,387 32,240
INTEREST EXPENSE 21,890 18,170 16,679
AMORTIZATION - Deferred financing costs 944 721 764
OTHER INCOME - Net (3,242) (9,534) (2,744)
------ ------ ------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 4,489 9,030 17,541
PROVISION (BENEFIT) FOR INCOME TAXES (1,241) 4,449 7,872
------ ----- -----
INCOME BEFORE EXTRAORDINARY
ITEM 5,730 4,581 9,669
EXTRAORDINARY ITEM:
Loss on extinguishment of debt - net of tax (8,693) (201) --
------ ---- -----
NET INCOME (LOSS) $ (2,963) $ 4,380 $ 9,669
=========== =========== ===========
See notes to consolidated financial statements.
F-4
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000
(in thousands, except share data)
- --------------------------------------------------------------------------------
Class A Class B Additional
Common Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
BALANCES,
DECEMBER 28, 1996 101.622 $ -- 100.000 $ -- $ 17,225 $(13,120) $ 4,105
Net loss -- -- -- -- -- (2,963) (2,963)
Dividend to
stockholders -- -- -- -- (4,223) -- (4,223)
------- ---- ------- ---- ------ ---- ------
BALANCES,
DECEMBER 27, 1997 101.622 -- 100.000 -- 13,002 (16,083) (3,081)
Net income -- -- -- -- -- 4,380 4,380
Stock repurchase (23.506) -- (23.131) -- (5,000) -- (5,000)
------- ---- ------- ---- ------ ---- ------
BALANCES,
JANUARY 2, 1999 78.116 -- 76.869 -- 8,002 (11,703) (3,701)
Net income -- -- -- -- -- 9,669 9,669
------- ---- ------- ---- ------ ---- ------
BALANCES,
JANUARY 1, 2000 78.116 $ -- 76.869 $ -- $ 8,002 $ (2,034) $ 5,968
====== ==== ====== ==== ======== ======== ========
See notes to consolidated financial statements.
F-5
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000
(in thousands)
- --------------------------------------------------------------------------------
December 27, January 2, January 1,
1997 1999 2000
------ ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,963) $ 4,380 $ 9,669
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Extraordinary loss on extinguishment of
debt - net of tax 8,693 201 --
Depreciation and amortization 4,544 2,488 1,502
Amortization of deferred financing costs 944 721 764
Amortization of excess of cost over net assets acquired 2,459 2,460 2,425
Other amortization 1,840 2,188 2,153
Provision for doubtful accounts 1,300 825 700
Increase in prepaid pension cost (667) (297) (389)
Noncash interest - net 3,010 -- --
Deferred taxes (1,241) 4,155 7,415
Gain on reclassification of capitalized lease - net (2,838) -- --
Impairment loss on leasehold improvements 2,698 4,047 --
Facility integration reserve -- 2,813 --
Gain on sale of Garden City facility -- (3,115) --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (11,465) (12,122) (6,533)
Inventories (6,558) (4,361) (1,064)
Prepaid expenses 660 (6,104) 422
Other assets (5,103) 5,896 (207)
Long-term receivables (804) (4,416) 458
Increase (decrease) in:
Accounts payable 9,431 12,717 794
Accrued expenses and other liabilities (3,932) (1,000) 367
------ ------ ---
Net cash provided by operating activities 8 11,476 18,476
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,829) (2,990) (3,408)
Proceeds from Farmingdale sale 12,432 -- --
Net proceeds from Garden City facility sale -- 13,721 --
------ ------ ------
Net cash (used in) provided by
investing activities 8,603 10,731 (3,408)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings from revolving
credit facility - net (7,050) 959 (13,846)
New note offering 155,000 -- --
Premiums on completed tender offers (10,829) (335) --
Finance fees paid (6,017) -- (481)
Repayments of debt (145,295) (19,603) --
Stock repurchase -- (5,000) --
Collection of Rose Partners note receivable 8,917 -- --
Dividend to stockholders (61) -- --
Repayments of capital lease obligations (2,547) (195) (212)
Premiums on mortgage payoff (52) -- --
------ ------ ------
Net cash used in financing activities (7,934) (24,174) (14,539)
------ ------- -------
See notes to consolidated financial statements.
(Continued)
F-6
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000
(in thousands)
- --------------------------------------------------------------------------------
December 27, January 2, January 1,
1997 1999 2000
------ ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 677 $ (1,967) $ 529
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,749 2,426 459
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,426 $ 459 $ 988
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period:
Interest $ 25,285 $ 18,322 $ 16,855
========= ========= =========
Income taxes $ 195 $ 107 $ 423
========= ========= =========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Reduction of fixed assets $ 25,422 $ -- $ --
========= ========= =========
Acquisition of building with issuance of
note payable $ 7,200 $ -- $ --
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Elimination of capital lease obligations $ 28,660 $ -- $ --
========= ========= =========
Issuance of note payable in connection with
acquisition of building $ 7,200 $ -- $ --
========= ========= =========
Settlement of note payable $ -- $ 4,639 $ --
========= ========= =========
NONCASH DIVIDEND OF NOTES
RECEIVABLE AND LAND HELD FOR SALE $ 4,162 $ -- $ --
========= ========= =========
REDUCTION OF GOODWILL FOR REVERSAL
OF VALUATION ALLOWANCE ON
DEFERRED TAX ASSET $ 11,479 $ -- $ --
========= ========= =========
See notes to consolidated financial statements.
(Concluded)
F-7
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 1, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Di Giorgio Corporation and Subsidiaries (the "Company") is
a wholesale food distributor serving both independent retailers and
supermarket chains principally in the New York City metropolitan area
including Long Island, New Jersey and to a lesser extent, the Philadelphia
area. The Company distributes three primary supermarket product
categories: grocery, frozen and refrigerated.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Notes Receivable - The Company periodically provides financial assistance
to independent retailers by providing (i) financing for the purchase of
new grocery store locations; (ii) financing for the purchase of
inventories and store fixtures, equipment and leasehold improvements;
and/or (iii) extended payment terms for initial inventories. The primary
purpose of such assistance is to provide a means of continued growth for
the Company through development of new customer store locations and the
enlargement and remodeling of existing stores. Stores receiving financing
purchase the majority of their grocery, frozen and refrigerated inventory
requirements from the Company. Financial assistance is usually in the form
of a secured, interest-bearing loan, generally repayable over a period of
one to three years. As of January 1, 2000, the Company's customer
financing portfolio had an aggregate balance of approximately $18.3
million. The portfolio consisted of approximately 68 loans with a range of
$1,000 to $4.3 million.
Inventories - Inventories, primarily consisting of finished goods, are
valued at the lower of cost (weighted average cost method) or market.
Property, Plant and Equipment - Owned property, plant and equipment is
stated at cost. Capitalized leases are stated at the lesser of the present
value of future minimum lease payments or the fair value of the leased
property. Depreciation and amortization are computed using the
straight-line method over the lesser of the estimated life of the asset or
the lease.
In the event that facts and circumstances indicate that the cost of
long-lived assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Excess of Cost over Net Assets Acquired - The excess of cost over net
assets acquired ("goodwill") is being amortized by the straight-line
method over 40 years.
Management assesses the recoverability of goodwill by comparing the
Company's forecasts of cash flows from future operating results, on an
undiscounted basis, to the unamortized balance of goodwill at each
quarterly balance sheet date. If the results of such comparison indicate
that an impairment may be likely, the Company will recognize a charge to
operations at that time based upon the difference of the present value of
the expected cash flows from future operating results (utilizing a
discount rate equal to the Company's average cost of funds at the time),
and the then balance sheet value. The recoverability of goodwill is at
F-8
risk to the extent the Company is unable to achieve its forecast
assumptions regarding cash flows from operating results. Management
believes, at this time, that the goodwill carrying value and useful life
continues to be appropriate.
Deferred Financing Costs - Deferred financing costs are being amortized
over the life of the related debt.
Environmental Remediation Costs - The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study.
Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
Use of Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents - Cash equivalents are investments with original
maturities of three months or less from the date of purchase.
Revenue Recognition - The Company recognizes revenue upon shipment of
goods to the customer.
Comprehensive Income - There are no components of other comprehensive
income for the Company except for reported net income.
Segment Reporting - Given the similar economic characteristics and the
similarities as to the nature of products and services, types of
customers, and methods used to distribute products, the Company qualifies
for the aggregation rules of the Statement and therefore operates in one
reportable segment.
Fiscal Year - The Company's fiscal year-end is the Saturday closest to
December 31. The consolidated financial statements for the period ended
January 2, 1999 are comprised of 53 weeks.
Reclassifications - Certain reclassifications were made to prior years'
consolidated financial statements to conform to the current year
presentation.
New Accounting Pronouncements - In June 1998 the Financial Accounting
Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities. This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. In June
1999 the FASB issued SFAS No. 137, which defers the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company has not
completed the process of evaluating the impact that will result from
adopting SFAS No. 133.
F-9
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
January 2, January 1,
1999 2000
(in thousands)
Accounts receivable $ 66,088 $ 71,349
Notes receivable 8,657 6,897
Other receivables 12,544 15,328
Less allowance for doubtful accounts (4,277) (4,729)
-------- --------
$ 83,012 $ 88,845
======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
Estimated
Useful Life January 2, January 1,
in Years 1999 2000
(in thousands)
Land -- $ 900 $ 900
Buildings and improvements 10 2,810 4,028
Machinery and equipment 3-10 11,455 13,180
Less accumulated depreciation (9,544) (10,400)
------ -------
5,621 7,708
----- -----
Capital leases:
Building and improvements 3,117 3,117
Equipment 370 370
Less accumulated amortization (775) (957)
---- ----
2,712 2,530
----- -----
$ 8,333 $ 10,238
======== ========
Depreciation expense was approximately $4,544, $2,488 and $1,502 for the
years ended December 27, 1997, January 2, 1999 and January 1, 2000,
respectively. Included in that amount is approximately $1,451, $182, and
$182 of amortization of assets under capital leases.
Grocery Facility - In November 1997, the Company amended its lease for its
grocery facility, adding additional leased property, extending the term
and increasing the annual lease obligation. These changes in the
provisions of the lease resulted in the amended lease being treated as a
new lease and accounted for as an operating lease. The net book value of
the related capitalized asset of $24.3 million and $27.1 million of lease
obligations were removed resulting in a gain of approximately $2.8
million. The gain was classified in warehouse expense in the accompanying
consolidated statement of operations for the year ended December 27, 1997.
F-10
Frozen Facility - In 1997, the Company acquired from a third-party
landlord, land and a building in Garden City for consideration of $10.6
million, which it previously leased and accounted for as a capital lease.
On April 1, 1998, the Company sold that facility to another third-party
for $14.5 million and entered into a lease back for a two-year period with
an option to extend the lease for an additional five-year period. This
transaction resulted in a gain, which was to be amortized over the initial
lease period. In connection with this sale-leaseback transaction, the
Company recorded a pre-tax charge of approximately $2.2 million for an
impairment of certain previously acquired leasehold improvements. The
impairment recognized was measured as the amount by which the carrying
value of the assets exceeded the fair value of the assets. The charge is
included in warehouse expense in the accompanying consolidated financial
statement of operations for the year ended December 27, 1997. The Company
believed the frozen foods distribution business would be integrated into
its other location and this facility would be used for a cold storage
operation. Those plans did not materialize, which caused the Company to
conclude, in the fourth quarter of fiscal 1998, that it made more economic
sense to abandon the facility in 1999. In connection therewith, the
Company recorded an expense of approximately $4.2 million as follows (i)
$4.1 million relating to the impairment of the long-lived assets based on
cash flow analyses, (ii) $2.2 million of cash commitments subsequent to
date of abandonment, (iii) $400,000 of facilities integration costs, (iv)
$600,000 of exit costs, and net of (v) $3.1 million gain on the sale of
the facility. The $4.1 million of long-lived assets was comprised mainly
of leasehold improvements, which were abandoned when the Company ceased
operations of the facility in May 1999. A summary of the activity in the
reserve account is as follows:
(in thousands)
Balance at January 2, 1999 $ 2,813
Exit costs (846)
Lease commitment costs (1,608)
------
Balance at January 1, 2000 $ 359
=======
The remainder of the reserve will be expended prior to March 2000.
4. EXCESS OF COST OVER NET ASSETS ACQUIRED
Di Giorgio Acquisition - The Company was acquired by the current
stockholders on February 9, 1990. The acquisition was accounted for as a
purchase and the cost of the Company's stock, together with the related
acquisition fees and expenses, was allocated to the assets acquired and
liabilities assumed based on fair values.
Royal Acquisition - In June 1994, the Company acquired substantially all
of the operating properties, assets and business of a dairy and deli
distribution business. The acquisition was accounted for as a purchase and
the cost was allocated to the assets acquired and liabilities assumed
based on fair values.
As of January 2, 1999 and January 1, 2000, accumulated amortization of
excess costs over net assets acquired for the above acquisitions was
approximately $23.9 million and $26.2 million, respectively.
F-11
5. FARMINGDALE WAREHOUSE FACILITY
In August 1997, the Company completed the sale of an option it held on its
Farmingdale facility. The Company realized net cash proceeds of
approximately $7.3 million after the repayment of the mortgage in the
amount of approximately $5.2 million. The Company recognized in the
statement of operations for the year ended December 27, 1997 a $40,000
gain (before a noncash write-off of deferred expenses in the amount of
approximately $400,000) on the transaction.
Included in other income for the year ended December 27, 1997 is net
rental income of approximately $192,000 related to the facility.
6. FINANCING
On June 20, 1997, the Company completed a refinancing (the "Refinancing")
intended to extend debt maturities, reduce interest expense and improve
financial flexibility. The components of the Refinancing were: (i) the
offering of $155 million 10% senior notes due 2007, (ii) the modification
of the Company's bank credit facility, (iii) the receipt of an $8.9
million payment for the extinguishment of a note held by the Company from
Rose Partners, LP ("Rose Partners"), which owns 98.53% of the Company
(Note 15), (iv) the consummation of the tender offers and consent
solicitations commenced by the Company and White Rose Foods, Inc., ("White
Rose") and together with the tender offers on May 16, 1997 in respect of
the Company's 12% senior notes due 2003 and White Rose's 12-3/4% senior
discount notes due 1998, respectively, (v) the $4.2 million dividend by
the Company to White Rose of certain assets which were unrelated to the
Company's primary business and the subsequent dividend of those assets to
White Rose's stockholders.
As a result of the Refinancing, the Company recorded an $8.5 million
extraordinary charge, net of a tax benefit of $5.7 million, on the
extinguishment of debt relating to premiums paid in the aggregate of
approximately $10.8 million as a result of the tender offers and the
write-off of approximately $3.2 million of deferred financing fees
associated with the 12% senior notes and 12-3/4% senior discount notes.
Debt consists of the following:
Interest Rate
at January 1, January 2, January 1,
2000 1999 2000
(in thousands)
Revolving credit facility (a) 8.50 % $ 20,628 $ 6,782
======== ========
Long-term debt:
10% senior notes (b) 10.00 % $155,000 $155,000
======== ========
(a) Revolving Credit Facility - As of August 1, 1999, borrowings under
the $90 million credit facility bore interest at the bank prime rate
or the adjusted Eurodollar rate plus 1.625%. The interest rate shown
is the bank prime rate. Given the low amount of borrowing, the
Company elected not to use the Eurodollar option. The average
interest rate for 1999 was 7.61%. The facility is scheduled to
mature on June 30, 2004.
Availability for direct borrowings and letter of credit obligations
under the revolving credit facility is limited, in the aggregate to
the lesser of i) $90 million or ii) a borrowing base of 80% of
F-12
eligible receivables and 60% of eligible inventory. As of January 1,
2000, the Company had an additional $73.3 million of borrowing base
availability.
The borrowings under the revolving credit facility are secured by
the Company's inventory and accounts receivable. Among other
matters, the revolving credit facility contains certain restrictive
covenants relating to interest coverage and capital expenditures.
The Company was in compliance with the covenants as of January 1,
2000.
(b) 10% Senior Notes - The senior notes were issued under an Indenture
dated as of June 20, 1997 between the Company and The Bank of New
York, as Trustee. The senior notes are general unsecured obligations
of the Company initially issued in $155 million principal amount
maturing on June 15, 2007. The notes bear interest at the rate of
10% payable semi-annually, in arrears, on June 15 and December 15 of
each year, commencing December 15, 1997.
The notes will be redeemable at the Company's option, in whole or in
part, at any time on or after June 15, 2002, at redemption prices
defined in the Indenture. In addition, on or prior to June 15, 2000,
the Company may redeem up to 35% of the originally issued notes, at
a price of 110% of the principal amount together with accrued and
unpaid interest with the net proceeds of public equity offerings as
defined by the Indenture. Upon the occurrence of a change of
control, holders of the notes will have the right to require the
Company to repurchase all or a portion of the notes at a purchase
price equal to 101% of the principal amount, plus accrued interest.
The Indenture limits the ability of the Company and its restricted
subsidiaries to create, incur, assume, issue, guarantee or become
liable for any indebtedness, pay dividends, redeem capital stock of
the Company or a restricted subsidiary, and make certain
investments. The Indenture further restricts the Company's and its
restricted subsidiaries' ability to sell or issue a restricted
subsidiaries' capital stock, create liens, issue subordinated
indebtedness, sell assets, and undertake transactions with
affiliates. No consolidation, merger or other sale of all or
substantially all of its assets in one transaction or series of
related transactions is permitted, except in limited instances.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments are as follows:
January 2, 1999 January 1, 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Debt:
Revolving credit facility $ 20,628 $ 20,628 $ 6,782 $ 6,782
10% senior notes 155,000 141,050 155,000 142,600
Accounts and notes receivable -
current 83,012 83,012 88,845 88,845
Notes receivable - long-term 11,844 11,844 11,386 11,386
The fair value of the 10% senior notes as of January 2, 1999 and January
1, 2000 are based on trade prices of 91.00 and 92.00, respectively,
representing yields of 11.7% (as of January 2, 1999) and 11.6% (as of
January 1, 2000), respectively. Based on the borrowing rate currently
available to the Company, the revolving credit facility is considered to
be equivalent to its fair value.
F-13
The book value of the current and long-term accounts and notes receivable
are equivalent to fair value which is estimated by management by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
January 2, January 1,
1999 2000
(in thousands)
----- -----
Legal and environmental $ 1,556 $ 2,403
Interest 866 690
Employee benefits 7,479 8,937
Due to vendors/customers 4,997 8,028
Other 9,821 5,853
----- -----
$ 24,719 $ 25,911
======== ========
9. RETIREMENT
a. Pension Plans - The Company maintains a noncontributory defined benefit
pension plan covering substantially all of its noncollective bargaining
employees. The Company makes annual contributions to the plans in
accordance with the funding requirements of the Employee Retirement Income
Security Act of 1974. Assets of the Company's pension plan are invested in
Treasury notes, U.S. Government agency bonds, and temporary investments.
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, which standardizes the disclosure requirements
for pension and other postretirement benefits, eliminates certain
disclosures, and requires additional information on the changes in the
benefit obligations and fair value of plan assets.
F-14
The following table provides information for the Pension Plan:
January 2, January 1,
1999 2000
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 47,906 $ 50,115
Service cost 668 714
Interest cost 3,374 3,247
Actuarial (gain) loss 1,648 (5,770)
Benefits paid (3,481) (3,567)
-------- --------
Benefit obligation at end of year $ 50,115 $ 44,739
======== ========
January 2, January 1,
1999 2000
(in thousands)
Change in plan assets:
Fair value of plan assets at beginning of year $ 51,189 $ 51,167
Actual return on plan assets 3,459 716
Benefit payments (3,481) (3,567)
------ ------
Fair value of plan assets at end of year $ 51,167 $ 48,316
======== ========
Funded status (fair value of plan assets less benefit
obligation): $ 1,052 $ 3,577
Unrecognized net actuarial gain 8,088 6,050
Unrecognized prior service cost 137 122
--- ---
Prepaid benefit cost $ 9,277 $ 9,749
======== ========
Net pension cost includes the following components:
December 27, January 2, January 1,
1997 1999 2000
(in thousands)
Service cost $ 598 $ 668 $ 714
Interest cost 3,334 3,374 3,247
Expected return on plan assets (4,438) (4,467) (4,489)
Amortization of prior service cost 14 14 14
Recognized actuarial loss -- 44 42
----- ----- -----
$ (492) $ (367) $ (472)
======== ======== ========
F-15
For the fiscal years ended December 27, 1997. January 2, 1999, and January
1, 2000, the following actuarial assumptions were used:
December 27, January 2, January 1,
1997 1999 2000
Weighted average discount rate 7.25 % 7.00 % 7.75 %
Rate of increase in future
compensation levels 6.00 6.00 6.00
Expected long-term rate of
return on plan assets 9.00 9.00 9.00
The Company also contributes to pension plans under collective bargaining
agreements. These contributions generally are based on hours worked.
Pension expense for these plans included in operations was as follows:
Year Ended (in thousands)
December 27, 1997 $1,030
January 2, 1999 1,012
January 1, 2000 991
b. Savings Plan - The Company maintains a defined contribution 401(k) savings
plan. Employees of the Company who are not covered by a collective
bargaining agreement (unless a bargaining agreement expressly provides for
participation) are eligible to participate in the plan after completing
one year of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 15% of their total compensation (as defined in the savings plan),
subject to statutory limitations. A contribution of up to 5% is considered
to be a "basic contribution" and the Company makes a matching contribution
equal to a designated percentage of a participant's basic contribution
(which all may be subject to certain statutory limitations). Company
contributions to the plan are summarized below:
Year Ended (in thousands)
December 27, 1997 $193
January 2, 1999 197
January 1, 2000 199
F-16
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
January 2, January 1,
1999 2000
(in thousands)
Employee benefits $ 1,889 $ 1,413
Deferred income tax liability -- 1,724
Legal 1,642 1,460
Environmental 536 451
--- ---
$ 4,067 $ 5,048
======== ========
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - Various suits and claims arising in the ordinary
course of business are pending against the Company and its subsidiaries.
In the opinion of management, dispositions of these matters are
appropriately provided for and are not expected to materially effect the
Company's financial position, cash flows or results of operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management after
consultation with counsel, these claims are either without merit, covered
by insurance, adequately provided for, or not expected to result in any
material loss to the Company.
Leases - The Company conducts certain of its operations from leased
warehouse facilities and leases transportation and warehouse equipment. In
addition to rent, the Company pays property taxes, insurance and certain
other expenses relating to leased facilities and equipment.
The Company subleased a frozen warehouse facility through November 1997
and certain equipment through April 1997 from WRGFF Associates, L.P.
("WRGFF"), an affiliate of the Company. For the year December 27, 1997,
rental expense under these leases with WRGFF amounted to approximately
$0.5 million (Note 3). In May 1997 the Company acquired tangible property
formerly the subject of a capital lease at its frozen facility from WRGFF
for approximately $2 million.
The Company entered into a lease agreement to lease a dry warehouse
facility, which the Company is using for its grocery division as well as
for its administrative headquarters. The lease commitment commenced on
February 1, 1995. The lease was amended during 1997 (Note 3). The term of
the new lease expires in 2018 with two five-year renewal options. Rental
payments under the lease are approximately $2.9 million per year (through
the expiration date).
In November 1997, the Company entered into an agreement to lease a new
frozen warehouse facility in Carteret, New Jersey. The lease is accounted
for as an operating lease. The lease expires in 2018 with two five-year
renewal options. Rental payments under the lease are approximately $1.8
million for the first ten years and approximately $2.0 million for the
last ten years.
F-17
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of January 1, 2000:
Capital Operating
Fiscal Year Ending Leases Leases
(in thousands)
2000 $ 308 $ 9,270
2001 196 7,547
2002 186 6,105
2003 186 5,408
2004 186 4,979
Thereafter 3,010 63,983
----- ------
Net minimum lease payments 4,072 $ 97,292
===== ========
Less interest 1,785
Present value of net minimum lease payments
(including current installments of $167) $2,287
======
Total rent expense included in operations was as follows:
Year Ended (in thousands)
December 27, 1997 $ 7,240
January 2, 1999 12,300
January 1, 2000 12,272
Letters of Credit - In the ordinary course of business, the Company is at
times required to issue letters of credit. The Company was contingently
liable for approximately $5.4 million and $5.1 million on open letters of
credit with a bank as of January 2, 1999 and January 1, 2000,
respectively.
Guaranty - The Company has issued certain guarantees in an amount of
approximately $3 million.
Employment Agreements - The Company has employment agreements with two key
executives which will expire in June 2000 and October 2000. In addition,
one employee has an agreement that provides for a six month notice to
terminate. Under these agreements, combined annual salaries of
approximately $895,600 are expected to be paid in fiscal 2000. In
addition, the executives are entitled to additional compensation upon
occurrence of certain events.
12. EQUITY
In connection with the Refinancing (Note 6), certain assets consisting of
the Las Plumas note (Note 15), land and other assets, with an aggregate
book value of approximately $4.2 million were distributed to the
stockholders of the Company in the form of a dividend.
During 1998, the Company repurchased and retired 23.506 and 23.131 shares
of Class A and Class B common stock, respectively, for aggregate cost
consideration of $5 million.
As a result of restrictive covenants contained in the Indenture governing
the Company's publicly held debt as well as those contained in the
revolving credit facility, the Company is currently permitted to pay
dividends in an amount up to $4.8 million at January 1, 2000.
F-18
13. OTHER INCOME - NET
Other income consists of the following:
December 27, January 2, January 1,
1997 1999 2000
(in thousands)
Interest income $2,380 $2,092 $2,068
Net rental income 192 -- --
Net gain on disposal of assets 157 23 31
Other - net 513 7,419 (a) 645
--- ----- ---
$3,242 $9,534 $2,744
====== ====== ======
(a) The Company entered into an agreement with a third party which called for
the Company to receive consideration of $7.2 million related to the
re-negotiation of a contract to clarify past practices. The Company
recognized the $7.2 million as follows:
(in millions)
Forgiveness of promissory note $ 4.6
Cash 1.0
Note receivable with quarterly installments 1.7
Legal fees incurred by the Company (0.1)
----
$ 7.2
=====
14. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-19
The tax effects of significant items comprising the Company's deferred tax
assets and deferred tax liabilities are as follows:
January 2, January 1,
1999 2000
(in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 1,704 $ 1,889
Accrued expenses not deductible until paid 3,112 1,812
Difference between book and tax basis of property 2,118 2,094
Net tax operating loss carryforwards 10,002 3,954
------ -----
Deferred tax asset 16,936 9,749
------ -----
Deferred tax liabilities:
Pension asset valuation (3,590) (3,818)
------ ------
Deferred tax liabilities (3,590) (3,818)
------ ------
Net deferred tax assets $ 13,346 $ 5,931
======== ========
During the third quarter of fiscal 1997, the Company reversed the
valuation allowance related to its deferred income tax assets. The
reversal of the valuation allowance resulted in a 1997 income tax benefit
of $3.9 million and a reduction in goodwill of $11.5 million. The
reduction in goodwill reflects benefits which were attributable to the pre
1990 acquisition period.
As of January 1, 2000, approximately $8.0 million of net tax operating
loss carryforwards (which expire between the years 2008 and 2018) and
approximately $8.2 million of New Jersey state tax operating loss
carryforward (which expire between the years 2000 and 2002) are available.
As of January 1, 2000, taxes currently payable was approximately $11,000.
The income tax provision (benefit) consist of the following:
December 27, January 2, January 1,
1997 1999 2000
(in thousands)
Current income tax $ -- $ 294 $ 457
Deferred income tax 2,659 4,155 7,415
Reduction in valuation allowance (3,900) -- --
------ ------- -------
$(1,241) $ 4,449 $ 7,872
======= ======= =======
F-20
A reconciliation of the Company's effective tax rate with the statutory
Federal tax rate is as follows:
December 27, January 2, January 1,
1997 1999 2000
(in thousands)
Tax at statutory rate $ 1,526 $ 3,070 $ 5,964
State and local taxes - net of Federal benefit 391 636 1,165
Permanent differences - amortization of excess
cost over net assets acquired 742 743 743
Reduction in valuation reserve (3,900) -- --
------ ------ ------
$(1,241) $ 4,449 $ 7,872
======= ======= =======
15. RELATED PARTY TRANSACTIONS
In November 1993 approximately $11 million face value discount note was
loaned to Rose Partners, the current holder of 98.53% of the common stock
of the Company. The note was issued at an original discount of
approximately $5.3 million. In connection with the Refinancing (Note 6),
the Company received an $8.9 million payment for the extinguishment of the
note. For the year ended December 27, 1997, other income includes
approximately $502,000 of interest income related to the note.
At December 28, 1996, Las Plumas, an affiliate of the Company, owed the
Company approximately $3.5 million, evidenced by a subordinated note. In
connection with the Refinancing, the note was distributed to the
stockholders of the Company in the form of a dividend (Note 12).
A director of the Company was a director of a customer. During the
three-year period ended January 1, 2000, the Company sold various foods
products in the amounts of $37.2 million, $48.6 million and $50.9 million,
respectively, to this customer.
A director of the Company is a partner in a firm which provides legal
services to the Company on an on-going basis. The Company paid
approximately $171,000, $110,000 and $128,000, during each of the three
years in the period ended January 1, 2000, respectively, to the law firm
for legal services.
The Company employs the services of a risk management and insurance
brokerage firm which is controlled by a director of the Company. Included
in the statement of operations are fees paid to the related party of
$150,000 for each of the three years in the period ended January 1, 2000.
The Company recorded income of $166,000, $71,000 and $64,000 for each of
the three years in the period ended January 1, 2000, respectively, from an
affiliated entity of the President of the Company in connection with the
sharing of office facilities and administrative expenses.
F-21
16. MAJOR CUSTOMERS
During the year ended December 27, 1997, sales to two individual customers
represented 27.4% and 19.5% of net sales, respectively, and sales to a
similar group of customers represented 10.8%.
During the year ended January 2, 1999, sales to the same two individual
customers represented 30.5% and 17.2% of net sales, respectively.
During the year ended January 1, 2000, sales to the same two individual
customers represented 26.3% and 15.2% of net sales, respectively, and
sales to a similar group of customers represented 13.4%.
******
F-22
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
10.13(11) Restated Credit Agreement dated as of November 15, 1999
among Di Giorgio Corporation as Borrower, the financial
institutions thereto, as Lenders, BT Commercial
Corporation, as Agent for the Lenders, and Deutsche
Bank AG New York, as Issuing Bank.
21(11) Schedule of Subsidiaries