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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 December 30, 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 16, 2001, 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
17,600 food and non-food items (excluding certain cross-docked items), comprised
predominantly of national brand name items, to more than 1,800 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 950 grocery, frozen and refrigerated items are
offered with the Company's White Rose(R) label. The White Rose(R) label has been
established for over 114 years and is well recognized in the New York City
metropolitan area. For the year ended December 30, 2000, the Company had total
revenue of $1,495.4 million, net income of $10.7 million and EBITDA (as defined
herein) of $43.0 million, representing increases from the prior year of 5.8%,
11.1%, and 4.6%, respectively.
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
items, the Company is able to merchandise its well-recognized White Rose(R)
label consistently across all three categories of products. White Rose(R) label
sales represented approximately 3% of 2000 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 adjusted on a regular basis based on vendor pricing.
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. The Company also offers store engineering
and sanitation inspection services and arranges security services for its
customers. 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. The Company's larger independent and chain customers
generally provide their own retail support. Most of the Company's customers
utilize Rosey, the Company's computerized order entry system, which allows them
to place and confirm orders 24 hours a day, 7 days a week.
1
The Company periodically provides financial assistance to independent retailers
by providing (i) financing for the purchase of new locations; (ii) financing for
the purchase of inventories and store fixtures, equipment and leasehold
improvements; (iii) extended payment terms for initial inventories; and/or (iv)
working capital requirements. 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.
Generally, 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 December 30, 2000, the
Company's customer financing portfolio had an aggregate balance of approximately
$22.4 million. The portfolio consisted of approximately 75 loans with a range of
$4,000 to $4.2 million.
Under the Company's insurance program, the Company offers customers the ability
to purchase liability, property and crime insurance through a master policy.
Through its technologies division, the Company distributes and supports
supermarket scanning (front-end) equipment which is compatible with the
Company's information systems.
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,
has been introduced into the other boroughs of New York City, as well parts of
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 listed, including groceries, meat, produce,
dairy, frozen food and health and beauty aids. Orders may be delivered or picked
up at the store.
The number of participating stores, in the EasyGrocer.com program, increased to
44 in December 2000 from less than 10 in December 1999. The average
EasyGrocer.com order size was $118 in December 2000, an increase of 57% from
December 1999. Management believes this average order size is significant in
that it represents a substantial increase over the current participating stores'
average sale.
White Rose(R) Label. The White Rose(R) private label brand merchandise is
recognized for quality merchandise across over 950 grocery, frozen and
refrigerated products, and has been marketed in the New York metropolitan area
for over 114 years. Products under the White Rose(R) 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(R) 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. Management believes that White Rose(R) labeled products
generally produce higher margins for its customers than national brands, and
help the Company attract and retain customers.
2
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, Puerto Rico, Pennsylvania,
Delaware, Connecticut, and Massachusetts 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. Some of the
Company's customers include food markets operating under 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; Big R; 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. Membership
in these voluntary cooperatives enables 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 13.6%
and 14.2% of net sales for the years ended January 1, 2000 and December 30,
2000, respectively.
During the fifty-two weeks ended December 30, 2000, the Company's largest
customers, A&P and Associated, accounted for approximately 24.6% and 14.4%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 53% of net sales. The Company and/or certain of its executive
officers have long-standing relationships with most of the principal 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 its three 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 the Company's distribution centers enables it 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 personnel manage the workforce
and flow of product, thus minimizing cost while maintaining the highest service
level possible.
3
The Company's trucking system consists of 118 tractors (all of which are
leased), 371 trailers (of which 271 are leased) and 4 trucks (all of which are
leased). In addition, the Company rents trailers on a monthly basis to meet
seasonal demand. On approximately 17% 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 5,500 deliveries per week 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 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
1,400 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(R) 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
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., General Trading Co. ("General Trading"), Grocery Haulers, Inc. and
4
Northeast Frozen Foods are the Company's main competitors with respect to the
distribution of certain of the Company's product lines. 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 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(R) 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(R)
brand, as well as in its Met(R) and Pioneer(R) names.
Seasonality
Typically, the fiscal fourth quarter is the Company's strongest quarter in terms
of profitability 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.
Employees
As of February 16, 2001, the Company employed approximately 1,373 persons, of
whom approximately 898 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 2005), its grocery operation (warehouse expiring October 2002 and
trucking expiring May 2005) and its frozen operation (expiring January 2004).
Management believes that the Company's present relations with its work force are
satisfactory.
5
ITEM 2. PROPERTIES
The Company's three distribution facilities and data center 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 2006 (plus three 5-year
renewal options)
Carteret, New Jersey Frozen 179,000 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 $5.0 million in fiscal 2000.
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 95% 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
distribution facility has capacity to expand its output.
On October 25, 2000 the Company announced plans for a 100,000-square-foot
expansion of the White Rose Frozen Food distribution facility in Carteret, New
Jersey. The expansion plans were precipitated by the need to expand capacity to
accommodate product requirements of customers without compromising service. The
expansion will bring the total square footage of the facility to approximately
279,000 square feet, with completion expected by the first fiscal quarter of
2002. In addition, the grocery facility lease in Carteret provides for expansion
of up to 161,000 sq. ft.
6
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 respect 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
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 $664,000 as of December
30, 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
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
7
been moved to the Federal District Court of New Jersey and is proceeding towards
trial. 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
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 (98.54%) of its outstanding common stock is owned by
Rose Partners, LP.
The Company paid a dividend of $2.5 million in April 2000. 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 December 30, 2000, the Company is currently
permitted to pay dividends in an amount up to approximately $5.4 million.
8
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 December 31, 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 28, December 27, January 2, January 1, December 30,
1996 1997 1999 (c) 2000 2000
---------------------------------------------------------------------------
(In thousands)
Income Statement Data:
Total revenue $ 1,050,206 $ 1,071,800 $ 1,196,933 $ 1,413,827 $ 1,495,398
Gross profit(a) 114,487 112,633 121,939 138,971 144,996
Warehouse expense 41,038 42,453 49,440 51,865 52,233
Transportation expense 21,624 22,042 24,719 26,607 28,387
Selling, general and
administration expenses 22,694 21,598 22,760 25,834 29,443
Facility integration and
abandonment expense -- -- 4,173 -- --
Amortization--excess of cost over
net assets acquired 2,892 2,459 2,460 2,425 2,425
Operating income 26,239 24,081 18,387 32,240 32,508
Interest expense 23,955 21,890 18,170 16,679 16,028
Amortization--deferred financing
costs 1,138 944 721 764 730
Other (income), net (3,758) (3,242) (9,534)(e) (2,744) (3,517)
Income (loss) from continuing
operations before income taxes
and extraordinary items 4,904 4,489 9,030 17,541 19,267
Income taxes 3,053 (1,241) 4,449 7,872 8,528
Income (loss) from continuing
operations before extraordinary
items 1,851 5,730 4,581 9,669 10,739
Extraordinary (loss)/gain on
extinguishment of debt, net of tax 219 (8,693) (201) -- --
Net (loss) income $ 2,070 $ (2,963) $ 4,380 $ 9,669 $ 10,739
December December 27 January 2, January 1, December 30,
28, 1997 1999 (c) 2000 2000
1996
---------------------------------------------------------------------------
(In thousands)
Balance Sheet Data:
Total assets $301,069 $279,961 $274,828 $273,406 $289,801
Working capital 12,342 23,365 41,117 56,397 56,238
Total debt including capital leases 215,308 196,966 178,127 164,069 167,531
Total stockholder's equity 4,105 (3,081)(b) (3,701)(d) 5,968 14,207
(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. 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 a $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 52 weeks ending January 1, 2000 and 53 weeks
ending January 2, 1999.
9
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 statements may be identified by their use of words like "plans", "expects"
"aims" "believes", "projects" "anticipates", "intends" "estimates" "will" "
should" "could" and other expressions that indicate future events and trends.
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; current wholesale competition, as well as future competition from
presently unknown sources; competition in the retail segment of the supermarket
business; 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 including but not limited to new
OSHA regulations governing ergonomics; potential commercial vehicle
restrictions; and inflation especially with respect to wages and energy costs.
Results of Operations
Fifty-two-weeks ended December 30, 2000 and January 1, 2000
Net sales for the fifty-two weeks ended December 30, 2000 were $1,488.1 million
as compared to $1,406.1 million for the fifty-two weeks ended January 1, 2000.
This 5.8% increase in net sales primarily reflects increased sales to existing
customers.
Other revenue, consisting of recurring customer related services, decreased to
$7.3 million for the fifty-two weeks ended December 30, 2000 as compared to $7.7
million in the prior period. The decrease was a result of $1 million of storage
income in the prior period at the Company's Garden City, NY and Kearny, NJ
facilities, which ceased operations in 1999.
Gross margin (excluding warehouse expense) decreased to 9.7% of net sales or
$145.0 million for the fifty-two weeks ended December 30, 2000 as compared to
9.9% of net sales or $139.0 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.
10
Warehouse expense decreased as a percentage of net sales to 3.5% of net sales or
$52.2 million for the fifty-two weeks ended December 30, 2000 as compared to
3.7% of net sales or $51.9 million due to the inclusion of expenses related to
the now closed Garden City and Kearny warehouse in the prior period. Excluding
all expenses relating to these facilities in both periods, warehouse expense
would have been 3.5 % of net sales in both periods.
Transportation expense remained at 1.9% of net sales or $28.4 million for the
fifty-two weeks ended December 30, 2000 as compared to 1.9% of net sales or
$26.6 million in the prior period due to greater efficiencies offsetting higher
expenses.
Selling, general and administrative expense increased to 2.0% of net sales or
$29.4 million for the fifty-two weeks ended December 30, 2000 as compared to
1.8% of net sales or $25.8 million for the prior period primarily due to costs
associated with (i) EasyGrocer.com, (ii) increased professional fees, (iii)
employee benefits, and (iv) the relocation and ongoing expenses associated with
the Company's data processing center.
Other income, net of other expenses, increased to $3.5 million for the fifty-two
weeks ended December 30, 2000 as compared to $2.7 million for the prior period.
Interest expense decreased to $16.0 million for the fifty-two weeks ended
December 30, 2000 from $16.7 million for the prior period due to lower average
outstanding levels of the Company's debt.
The Company recorded an income tax provision of $8.5 million, resulting in an
effective income tax rate of 44% for the fifty-two weeks ended December 30, 2000
as compared to a provision of $7.9 million resulting in an effective rate of 45%
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 December 30, 2000
of $10.7 million as compared to $9.7 million in the prior period.
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 new customers 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
11
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.
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 year ended January 1, 2000
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.
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 is scheduled to mature on June 30, 2004, and bears
12
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 lead bank's prime rate.
Borrowings under the Company's revolving bank credit facility were $10.4 million
(excluding $5.1 million of outstanding letters of credit) at December 30, 2000.
Additional borrowing capacity of $71.8 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, dividend payment, if any, capital expenditures, and debt
service requirements during the next four fiscal quarters.
During the fifty-two weeks ended December 30, 2000, cash flows provided by
operating activities were $2.1 million, consisting primarily of cash generated
from income before non-cash expenses of $26.6 million, offset mainly by
increases in (i) accounts and notes receivable of $8.3 million, (ii) inventory
of $3.1 million, and (iii) other assets of $12.3 million, the majority of which
was a tax-deductible contribution to its defined benefit pension plan which
insures its continued overfunded status for the foreseeable future.
Cash flows used in investing activities during the fifty-two weeks ended
December 30, 2000 were approximately $2.3 million, which were used exclusively
for capital expenditures. Net cash provided by financing activities of
approximately $1.0 million was primarily funded from the Company's bank credit
facility, offset by a $2.5 million dividend paid.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization and certain one-time charges, was $43.0 million during the
fifty-two weeks ended December 30, 2000 as compared to $41.1 million in the
prior period. 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.
The consolidated indebtedness of the Company increased slightly to $167.5
million at December 30, 2000 as compared to $164.1 million at January 1, 2000.
Stockholders' equity was $14.2 million on December 30, 2000 as compared to $6.0
million on January 1, 2000. As of December 30, 2000, the Company is currently
permitted to pay dividends in an amount up to approximately $5.4 million
The Company currently does not expect to spend more than $4.0 million during
2001 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 $260,000 in fiscal 2000 and does not expect
to expend more than $664,000 in fiscal 2001 in connection with the environmental
remediation of certain presently owned or divested properties. At December 30,
2000, the Company has reserved $664,000 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
13
become liable as a result of any adverse determination of any legal or
governmental proceeding in a material amount 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 December 30, 2000, the Company was in compliance with its
covenants.
On October 25, 2000 the Company announced plans for a 100,000-square-foot
expansion of the White Rose Frozen Food distribution facility in Carteret, New
Jersey which should be ready for occupancy in the first fiscal quarter of 2002.
Additional rent is expected to cost the Company approximately $1.1 million per
year which should not be material to the Company's liquidity, in part because of
expected increases in warehouse efficiencies and productivity.
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.
As a way of enhancing shareholder value and providing the Company's employees
with the benefit of ownership in the Company, the Board of Directors has
authorized management to evaluate a leveraged Employee Stock Ownership Plan.
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
2000's average outstanding bank debt, a 100 basis point change in interest rates
would change interest expense by approximately $53,000. 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. At this moment, the Company has no foreign exchange risks
and only minimal commodity risk with respect to commodities such as fuel oil,
natural gas and electricity although changes in the marketplace for energy make
bring added risk which the Company cannot quantify at this time.
14
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 1, 2000 and December 30, 2000.... F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 30, 2000......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
ended December 30, 2000................................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 30, 2000..................... F-6
Notes to Consolidated Financial Statements................................. F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
15
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
Richard B. Neff (2) (3) 52 Co-Chairman of the Board of Directors
and Chief Executive officer
Stephen R. Bokser 58 Co-Chairman of the Board of Directors,
President, and Chief Operating Officer
Jerold E. Glassman (2) (3) 65 Director
Emil W. Solimine (2) 56 Director
Charles C. Carella (1) 67 Director
Jane Scaccetti (1) 46 Director
Earle I. Mack (3) 62 Director
Joseph R. DeSimone 61 Senior Vice President Distribution
Robert A. Zorn 46 Executive Vice President-Finance and
Treasurer
Lawrence S. Grossman 39 Senior Vice President and Chief
Financial Officer
Harlan Levine 39 Vice President, General Counsel and
Secretary
George Conklin 40 Vice President of Logistics
Joseph Fantozzi 39 Senior Vice President and General
Manager- White Rose Dairy Division of
Di Giorgio
John Annetta 49 Senior Vice President and General
Manager- White Rose Frozen Division of
Di Giorgio
- --------------------------------------------------------------------------------
(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.
16
Mr. Neff has been Co-Chairman and Chief Executive Officer of Di Giorgio since
October 2000. For the five years prior to October 2000, he was Di Giorgio's
Executive Vice President and Chief Financial Officer. He has been a 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. Bokser has been Co-Chairman, President, and Chief Operating Officer of Di
Giorgio since October 2000. For the five years prior to October 2000, he was Di
Giorgio's Executive Vice President and President of the White Rose Food
division. He has been a Director of Di Giorgio since 1990. Mr. Bokser is also a
director of Foodtown, a supermarket cooperative, Western Beef, Inc., a
supermarket retailer, and Maimonides Hospital in Brooklyn, NY.
Mr. Glassman has been a Director of Di Giorgio since 1990. Since prior to 1996,
Mr. Glassman has been Managing Partner of Grotta, Glassman & Hoffman, a law firm
which has its primary office in Roseland, New Jersey. Mr. Glassman is also a
director of DBT Online, Inc. and Essex Valley Healthcare, Inc.
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
1996.
Mr. Carella became a Director of Di Giorgio in 1995. Since prior to 1996, Mr.
Carella has been a Partner of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart &
Olstein. Mr. Carella is a member of the Board of Administrations of the
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 has been a Director of Di Giorgio since 1996. Since prior to 1996,
she has been a shareholder of Drucker & Scaccetti, P.C. She is also a director
of Nutrition Management Services Company, Temple University and Temple
University Health Systems, and Firekey, Inc. Ms. Scaccetti is a certified public
accountant.
Mr. Mack is Senior Partner of the Mack Company. In October 2000, Mr. Mack became
a Director of Di Giorgio. He has been a Partner of the Mack Company, a
commercial real estate enterprise, since prior to 1996. He is also a member of
the Board of Directors of Mack-Cali Realty Corporation.
Mr. DeSimone has been Senior Vice President of Distribution since prior to 1996.
Mr. Zorn has been Executive Vice President-Finance since 2001. Previously, he
held the position of Senior Vice President and Treasurer of Di Giorgio since
prior to 1996.
Mr. Grossman has been Senior Vice President and Chief Financial Officer since
2001. Previously, he held the position of Vice President-Corporate Controller
since prior to 1996. Mr. Grossman is a certified public accountant.
Mr. Levine has been Vice President and General Counsel of Di Giorgio since June
2000. Previously he held the position of Division Counsel since prior to 1996.
Mr. Conklin has been Vice President of Logistics since 1996.
17
Mr. Fantozzi has been Senior Vice President and General Manager of the White
Rose Dairy division of Di Giorgio since 2001. Previously he held the position of
Vice President and General Manager of the White Rose Dairy division of Di
Giorgio since prior to 1996.
Mr. Annetta has been Senior Vice President and General Manager of the White Rose
Frozen division of Di Giorgio since 2001. Previously he held the position of
Vice President and General Manager of the White Rose Frozen division of Di
Giorgio since prior to 1996.
18
ITEM 11. EXECUTIVE COMPENSATION.
Compensation
The following table sets forth compensation paid or accrued to both individuals
who served as Chief Executive Officer during the year 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 December 30, 2000.
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
--------------------------- ---- ------ ------ ------------ ------------
(2)
Arthur M. Goldberg, 2000 $347,000 -- -- --
Chairman of the Board, President and 1999 $400,000 -- -- --
Chief Executive Officer (1) 1998 $400,000 -- -- --
Richard B. Neff, 2000 $372,500 $470,000 $56,411 $2,550(3)
Co-Chairman of the Board of Directors 1999 $325,000 $535,000 -- $2,400(3)
and Chief Executive Officer 1998 $325,000 $475,000 -- $2,400(3)
Stephen R. Bokser, 2000 $379,808 $450,000 $56,411 $2,550(3)
Co-Chairman of the Board of Directors, 1999 $325,000 $515,000 -- $2,400(3)
President, and Chief Operating Officer 1998 $325,000 $300,000 -- $2,400(3)
Robert A. Zorn, 2000 $245,600 $40,000 -- $2,550(3)
Executive Vice President-Finance and 1999 $230,600 $35,000 -- $2,400(3)
Treasurer 1998 $220,600 $30,000 -- $2,400(3)
Joseph R. DeSimone 2000 $189,800 $32,000 -- $2,550(3)
Senior Vice President 1999 $180,300 $30,000 -- $2,400(3)
Distribution 1998 $171,800 $26,000 -- $2,400(3)
Joseph Fantozzi 2000 $174,000 $63,000 -- $2,550(3)
Senior Vice President and General 1999 $157,000 $60,000 -- $2,400(3)
Manager of White Rose Dairy Division 1998 $140,000 $52,000 -- $2,400(3)
(1) Mr. Goldberg served as Chairman of the Board, President and Chief Executive
Officer until his death in October 2000.
(2) Other annual compensation consists of interest and principal payments on a
loan payable, grossed up for taxes, which was used to purchase Company
stock. The loan bears interest at 9.5% and is payable over 5 years. 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 1998, 1999, and 2000
19
are not described herein because the incremental cost to the Company of
such benefits is below the Securities and Exchange Commission disclosure
threshold.
(3) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement Savings
Plan."
Employment Agreements
The Company is a party to an Agreement with Mr. Neff which runs through April 1,
2005. Currently, Mr. Neff is entitled to receive an annual salary of $390,000
pursuant to the Agreement. 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 and determined pursuant to a formula. In the
event of his 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 April
1, 2005. Currently, Mr. Bokser is entitled to receive an annual salary of
$400,000 pursuant to the Agreement. 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 and determined pursuant to a
formula. In the event of his 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 $260,600, 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.
20
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
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 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. Neff,
$28,191; Mr. Bokser $95,246; Mr. Zorn, $17,820; Mr. De Simone, $21,611; Mr
Fantozzi, $27,667.
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% of the basic
contribution.
Each participant has a fully vested 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%.
21
A participant may withdraw certain amounts credited to his account prior to
termination of employment. Certain withdrawals require financial hardship or
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 of the Company receive a
quarterly retainer of $6,250 plus fees of $2,000 per day for attendance at
meetings of the Board of Directors and $1,000 for Committee meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Rose Partners, LP owns a majority (98.54%) of the common stock of the Company.
Rose Partners, LP has informed the Company that Mr. Neff is the sole general
partner of Rose Partners, LP. In addition, Mr. Neff owns .73% of the common
stock of the Company and Mr. Bokser owns .73% of the common stock of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Bokser is a director of Western Beef, Inc. In fiscal 2000, the Company sold
various food products to Western Beef, Inc. in the amount of $45.9 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 $121,000 to the firm for fiscal
2000.
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 2000 for such services and purchased
insurance with premiums of $1.5 million through Emar.
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.
In April 2000, the Company loaned each of Messrs. Neff and Bokser $185,000 to be
used by each of them to purchase .57195 shares of Class A Di Giorgio common
stock and .56285 shares of Class B Di Giorgio common stock from a minority
shareholder of the Company. The loans bear interest at 9.5 % per annum and are
due five (5) years from the date of the loan. On January 31, 2001, $162,510 was
outstanding on each loan.
22
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 1, 2000 and December 30, 2000............................. F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 30, 2000................. F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
Ended December 30, 2000........................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 30, 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.
10.1(11)+ - Second Amended and Restated Employment Agreement effective
as of April 1, 2000 between the Company and Richard B. Neff.
23
10.2(1)+ - Employment Agreement dated February 18, 1992 between the
Company and Robert A. Zorn
10.3(11)+ - Third Amended and Restated Employment Agreement effective
as of April 1, 2000 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(9) - 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(9) - Third Amendment, dated as of November 26, 1997, to
Carteret grocery warehouse lease dated as of February 11,
1994.
10.13(10) - 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(12) - 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
24
(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 Annual Report on Form 10-K for
the year ended December 27, 1997 (File 1-1790).
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended January 1, 2000 (File 1-1790).
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 1, 2000 (File 1-1790).
(12) 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.
25
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 26th day of
February, 2001.
DI GIORGIO CORPORATION DI GIORGIO CORPORATION
By: /s/ Stephen R. Bokser By: /s/ Richard B. Neff
-------------------------------- -----------------------
Stephen R. Bokser Richard B. Neff
Co-Chairman, President, Co-Chairman and Chief
And Chief Operating Officer 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/ Jerold E. Glassman Director February 26,2001
- ---------------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director February 26, 2001
- ---------------------------
Emil W. Solimine
/s/ Charles C. Carella Director February 26, 2001
- ---------------------------
Charles C. Carella
/s/ Jane Scaccetti Director February 26, 2001
- ---------------------------
Jane Scaccetti
/s/ Earle I. Mack Director February 26, 2001
- ---------------------------
Earl I. Mack
/s/ Lawrence S. Grossman Senior Vice President and February 26, 2001
- ------------------------- Chief Financial Officer
Lawrence S. Grossman (Principal Financial &
Accounting Officer)
26
DI GIORGIO CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-2
FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER
30, 2000:
Consolidated Balance Sheets F-3
Consolidated Statements of Income 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 December 30, 2000 and January
1, 2000, and the related consolidated statements of income, stockholders' equity
(deficiency) and cash flows for each of the three years in the period ended
December 30, 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 Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Di Giorgio Corporation
and Subsidiaries at December 30, 2000 and January 1, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 2000 in conformity with accounting principles generally
accepted in the United States of America. 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 herein.
/s/ Deloitte & Touche LLP
New York, New York
February 16, 2001
F-2
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JANUARY 1, 2000 AND DECEMBER 30, 2000 (in thousands,
except share data)
- --------------------------------------------------------------------------------
January 1, December 30,
ASSETS 2000 2000
CURRENT ASSETS:
Cash and cash equivalents $ 988 $ 1,744
Accounts and notes receivable - Net 88,845 92,748
Inventories 61,546 64,687
Deferred income taxes 7,655 3,973
Prepaid expenses 2,633 3,727
----- -----
Total current assets 161,667 166,879
PROPERTY, PLANT AND EQUIPMENT - Net 10,238 10,339
NOTES RECEIVABLE 11,386 15,034
DEFERRED FINANCING COSTS 4,652 3,922
OTHER ASSETS 11,719 22,308
EXCESS OF COST OVER NET ASSETS ACQUIRED - Net 73,744 71,319
------ ------
TOTAL ASSETS $273,406 $289,801
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 6,782 $ 10,410
Current installment - capital lease liability 167 63
Accounts payable - trade 72,410 74,663
Accrued expenses 25,911 25,505
------ ------
Total current liabilities 105,270 110,641
LONG-TERM DEBT 155,000 155,000
CAPITAL LEASE LIABILITY 2,120 2,058
OTHER LONG-TERM LIABILITIES 5,048 7,895
STOCKHOLDERS' EQUITY:
Common stock, Class A, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 78.116 shares - -
Common stock, Class B, $.01 par value, non voting - authorized,
1,000 shares; issued and outstanding, 76.869 shares - -
Additional paid-in capital 8,002 8,002
(Accumulated deficit) retained earnings (2,034) 6,205
------ -----
Total stockholders' equity 5,968 14,207
----- ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $273,406 $289,801
======== ========
See notes to consolidated financial statements.
F-3
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 30, 2000
(in thousands)
- --------------------------------------------------------------------------------
January 2, January 1, December 30,
1999 2000 2000
REVENUE:
Net sales $ 1,189,296 $ 1,406,094 $ 1,488,062
Other revenue 7,637 7,733 7,336
----------- ----------- -----------
Total revenue 1,196,933 1,413,827 1,495,398
COST OF PRODUCTS SOLD 1,074,994 1,274,856 1,350,402
----------- ----------- -----------
Gross profit - exclusive of warehouse
expense shown separately below 121,939 138,971 144,996
OPERATING EXPENSES:
Warehouse expense 49,440 51,865 52,233
Transportation expense 24,719 26,607 28,387
Selling, general and administrative expenses 22,760 25,834 29,443
Facility integration and abandonment expense 4,173 -- --
Amortization - excess of cost over net assets
acquired 2,460 2,425 2,425
----------- ----------- -----------
OPERATING INCOME 18,387 32,240 32,508
INTEREST EXPENSE 18,170 16,679 16,028
AMORTIZATION - Deferred financing costs 721 764 730
OTHER INCOME - Net (9,534) (2,744) (3,517)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 9,030 17,541 19,267
PROVISION FOR INCOME TAXES 4,449 7,872 8,528
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY
ITEM 4,581 9,669 10,739
EXTRAORDINARY ITEM:
Loss on extinguishment of debt - net of tax (201) -- --
----------- ----------- -----------
NET INCOME $ 4,380 $ 9,669 $ 10,739
=========== =========== ===========
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 DECEMBER 30, 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 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
Net income - - - - - 10,739 10,739
Dividend - - - - - (2,500) $ (2,500)
-- -- -- -- -- -------- --------
BALANCES,
DECEMBER 30, 2000 78.116 $ - 76.869 $ - $ 8,002 $ 6,205 $ 14,207
====== ==== ====== ==== ====== ======== ========
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 DECEMBER 30, 2000
(in thousands)
- --------------------------------------------------------------------------------
January 2, January 1, December 30,
1999 2000 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,380 $ 9,669 $ 10,739
Adjustments to reconcile net income to net
cash provided by operations:
Extraordinary loss on extinguishment of
debt - net of tax 201 -- --
Depreciation and amortization 2,488 1,502 2,186
Amortization of deferred financing costs 721 764 730
Amortization of excess of cost over net assets acquired 2,460 2,425 2,425
Other amortization 2,188 2,153 2,000
Provision for doubtful accounts 825 700 700
Non-cash increase in prepaid pension cost (297) (389) (331)
Deferred taxes 4,155 7,415 8,236
Impairment loss on leasehold improvements 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 (12,122) (6,533) (4,603)
Inventories (4,361) (1,064) (3,141)
Prepaid expenses (6,104) 422 (1,094)
Other assets 5,896 (207) (12,258)
Long-term receivables (4,416) 458 (3,648)
Increase (decrease) in:
Accounts payable 12,717 794 2,253
Accrued expenses and other liabilities (1,000) 367 (2,112)
-------- -------- --------
Net cash provided by operating activities 11,476 18,476 2,082
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,990) (3,408) (2,287)
Net proceeds from Garden City facility sale 13,721 -- --
-------- -------- --------
Net cash provided by (used in)
investing activities 10,731 (3,408) (2,287)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings from revolving
credit facility - net 959 (13,846) 3,628
Premiums on completed tender offers (335) -- --
Finance fees paid -- (481) --
Repayments of debt (19,603) -- --
Stock repurchase (5,000) -- --
Dividend to stockholders -- -- (2,500)
Repayments of capital lease obligations (195) (212) (167)
-------- -------- --------
Net cash (used in) provided by financing activities (24,174) (14,539) 961
-------- -------- --------
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 DECEMBER 30, 2000
(in thousands)
- --------------------------------------------------------------------------------
January 2, January 1, December 30,
1999 2000 2000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (1,967) $ 529 $ 756
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 2,426 459 988
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 459 $ 988 $ 1,744
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period:
Interest $ 18,322 $ 16,855 $ 16,079
======== ======== ========
Income taxes $ 107 $ 423 $ 1,158
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Settlement of note payable $ 4,639 $ -- $ --
======== ======== ========
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 DECEMBER 30, 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 and 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 and majority-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
locations; (ii) financing for the purchase of inventories and store
fixtures, equipment and leasehold improvements; (iii) extended payment
terms for initial inventories; and/or (iv) working capital requirements.
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 December 30, 2000, the Company's
customer financing portfolio had an aggregate balance of approximately
$22.4 million. The portfolio consisted of approximately 75 loans with a
range of $4,000 to $4.2 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
F-8
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 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 for net sales and upon the provision of services for other
revenues.
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 Statement of Financial Accounting Standards ("SFAS")
No. 131, Disclosures About Segments of an Enterprise and Related
Information 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 are comprised of 52, 52,
and 53 weeks for the periods ended December 30, 2000, January 1, 2000 and
January 2, 1999, respectively.
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 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 deferred the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which
amends the accounting and reporting standards of Statement 133 for certain
F-9
derivative instruments and certain hedging activities. The Company believes
that the adoption of the new method of accounting for derivative
instruments and hedging activities will not have a material impact on the
Company's financial position.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
January 1, December 30,
2000 2000
(in thousands)
Accounts receivable $ 71,349 $ 77,454
Notes receivable 6,897 7,652
Other receivables 15,328 12,680
Less allowance for doubtful accounts (4,729) (5,038)
-------- --------
$ 88,845 $ 92,748
======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
Estimated
Useful Life January 1, December 30,
in Years 2000 2000
(in thousands)
Land -- $ 900 $ 900
Buildings and improvements 10 4,028 3,446
Machinery and equipment 3-10 13,180 15,887
Less accumulated depreciation (10,400) (12,267)
-------- -------
7,708 7,966
-------- -------
Capital leases:
Building and improvements 3,117 3,117
Equipment 370 370
Less accumulated amortization (957) (1,114)
-------- --------
2,530 2,373
-------- --------
$ 10,238 $ 10,339
======== ========
Depreciation expense was approximately $2,488, $1,502 and $2,186 for the
years ended January 2, 1999, January 1, 2000 and December 30, 2000,
respectively. Included in that amount is approximately $182, $182 and $157
of amortization of assets under capital leases.
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. 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. Expenses of $428,000 in
excess of the remaining reserve of $359,000 were included in warehouse
expense in fiscal 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 1, 2000 and December 30, 2000, accumulated amortization of
excess costs over net assets acquired for the above acquisitions was
approximately $26.2 million and $28.7 million, respectively.
5. FINANCING
Debt consists of the following:
Interest Rate
at December 30, January 1, December 30,
2000 2000 2000
(in thousands)
Revolving credit facility (a) 9.50 % $ 6,782 $ 10,410
======== ========
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 lead bank's 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 2000 was 9.03%. The facility is scheduled to mature on June
30, 2004.
F-11
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
eligible receivables and 60% of eligible inventory. As of December 30,
2000, the Company had an additional $71.8 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 December 30, 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 are redeemable at the Company's option, in whole or in part,
at any time on or after June 15, 2002, at redemption prices set forth
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 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.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
are as follows:
January 1, 2000 December 30, 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Debt:
Revolving credit facility $ 6,782 $ 6,782 $ 10,410 $ 10,410
10% senior notes 155,000 142,600 155,000 129,813
Accounts and notes receivable -
current 88,845 88,845 92,748 92,748
Notes receivable - long-term 11,386 11,386 15,034 15,034
The fair value of the 10% senior notes as of January 1, 2000 and December
30, 2000 are based on trade prices of 92.00 and 83.75, respectively,
representing yields of 11.6% (as of January 1, 2000) and 12.3% (as of
December 30, 2000), respectively. Based on the borrowing rate currently
available to the Company, the book or carrying value of the revolving
credit facility is considered to be equivalent to its fair value.
F-12
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.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
January 1, December 30,
2000 2000
(in thousands)
Legal and environmental $ 2,403 $ 1,828
Interest 690 639
Employee benefits 8,937 9,105
Due to vendors/customers 8,028 8,462
Other 5,853 5,471
------- -------
$25,911 $25,505
======= =======
8. 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, corporate bonds, money market funds, and other investments.
The following table provides information for the Pension Plan:
January 1, December 30,
2000 2000
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 50,115 $ 44,739
Service cost 714 644
Interest cost 3,247 3,427
Actuarial (gain) loss (5,770) 1,178
Benefits paid (3,567) (3,676)
-------- --------
Benefit obligation at end of year $ 44,739 $ 46,312
======== ========
F-13
January 1, December 30,
2000 2000
(in thousands)
Change in plan assets:
Fair value of plan assets at beginning of year $ 51,167 $ 48,316
Actual return on plan assets 716 2,672
Benefit payments (3,567) (3,676)
Contributions from plan sponsor -- 7,000
-------- --------
Fair value of plan assets at end of year $ 48,316 $ 54,312
======== ========
Reconciliation of funded status:
Funded status (fair value of plan assets less
benefit obligation) $ 3,577 $ 8,000
Unrecognized net actuarial gain 6,050 9,082
Unrecognized prior service cost 122 108
-------- --------
Prepaid benefit cost $ 9,749 $ 17,190
======== ========
Net pension cost includes the following components:
January 2, January 1, December 30,
1999 2000 2000
Service cost $ 668 $ 714 $ 644
Interest cost 3,374 3,247 3,427
Expected return on plan assets (4,467) (4,489) (4,526)
Amortization of prior service cost 14 14 14
Recognized actuarial loss 44 42 --
------- ------- -------
$ (367) $ (472) $ (441)
======= ======= =======
For the fiscal years ended January 2, 1999, January 1, 2000 and December
30, 2000, the following actuarial assumptions were used:
January 2, January 1, December 30,
1999 2000 2000
Weighted average discount rate 7.00 % 7.75 % 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
F-14
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)
January 2, 1999 $1,012
January 1, 2000 991
December 30, 2000 1,109
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)
January 2, 1999 $197
January 1, 2000 199
December 30, 2000 230
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
January 1, December 30,
2000 2000
(in thousands)
Employee benefits $1,413 $ 887
Deferred income tax liability 1,724 6,278
Legal 1,460 --
Environmental and other 451 730
------ ------
$5,048 $7,895
====== ======
10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - Various suits and claims arising in the ordinary course
of business are pending against the Company. In the opinion of management,
dispositions of these matters are appropriately provided for and are not
expected to materially affect the Company's financial position, cash flows
or results of operations.
F-15
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
distribution 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 entered into a lease agreement to lease a dry distribution
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. 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 distribution 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.
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of December 30, 2000:
Capital Operating
Fiscal Year Ending Leases Leases
(in thousands)
2001 $ 196 $ 8,987
2002 186 7,687
2003 186 6,639
2004 186 5,747
2005 186 5,464
Thereafter 2,824 60,064
------ ------
Net minimum lease payments 3,764 $ 94,588
========
Less interest 1,643
-----
Present value of net minimum lease payments (including
current Installments of $63) $ 2,121
=======
Total rent expense included in operations was as follows:
Year Ended (in thousands)
January 2, 1999 $12,300
January 1, 2000 12,272
December 30, 2000 12,064
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 $5.1 million of standby letters of credit with a
bank as of January 1, 2000 and December 30, 2000.
F-16
Guaranty - The Company has issued certain guarantees in an aggregate amount
of approximately $2.0 million.
Employment Agreements - The Company has employment agreements with two key
executives which will expire in April 2005. In addition, one employee has a
termination agreement that provides for a six month notice to terminate.
Under these agreements, combined annual salaries of approximately $1.1
million are expected to be paid in fiscal 2001. In addition, the executives
are entitled to additional compensation upon occurrence of certain events.
11. EQUITY
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 approximately $5.4 million at December 30,
2000.
12. OTHER INCOME - NET
Other income consists of the following:
January 2, January 1, December 30,
1999 2000 2000
(in thousands)
Interest income $2,092 $2,068 $2,532
Net gain on disposal of assets 23 31 33
Other - net (a) 7,419 645 952
------ ------ ------
$9,534 $2,744 $3,517
====== ====== ======
(a) In fiscal 1998, 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
F-17
13. 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.
The tax effects of significant items comprising the Company's deferred tax
assets and deferred tax liabilities are as follows:
January 1, December 30,
2000 2000
(in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 1,889 $ 2,012
Accrued expenses not deductible until paid 1,812 941
Difference between book and tax basis of property 2,094 472
Net tax operating loss carryforwards 3,954 1,020
------- -------
Deferred tax assets 9,749 4,445
------- -------
Deferred tax liabilities:
Pension asset valuation (3,818) (6,750)
------- -------
Deferred tax liabilities (3,818) (6,750)
------- -------
Net deferred tax assets (liabilities) $ 5,931 $(2,305)
======= =======
As of December 30, 2000, approximately $715,000 of Federal net tax
operating loss carryforwards (which expire between the years 2017 and 2019)
are available. As of December 30, 2000, the Company had current tax
prepayments of approximately $943,000.
The income tax provision consists of the following:
January 2, January 1, December 30,
1999 2000 2000
(in thousands)
Current income tax $ 294 $ 457 $ 292
Deferred income tax 4,155 7,415 8,236
-------- -------- --------
$ 4,449 $ 7,872 $ 8,528
======== ======== ========
F-18
A reconciliation of the Company's effective tax rate with the statutory
Federal tax rate is as follows:
January 2, January 1, December 30,
1999 2000 2000
(in thousands)
Tax at statutory rate $3,070 $5,964 $6,551
State and local taxes - net of Federal benefit 636 1,165 1,234
Permanent differences - amortization of excess cost
over net assets acquired 743 743 743
------ ------ ------
$4,449 $7,872 $8,528
====== ====== ======
14. RELATED PARTY TRANSACTIONS
A director of the Company is a director of a customer. During the
three-year period ended December 30, 2000, the Company sold various foods
products in the amounts of $48.6 million, $50.9 million and $45.9 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 $110,000, $128,000 and $121,000, during each of the three
years in the period ended December 30, 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 December 30, 2000.
The Company purchased insurance with premiums of $1.5 million from this
insurance brokerage firm in fiscal 2000.
The Company recorded income of $71,000, $64,000 and $65,000 for each of the
three years in the period ended December 30, 2000, respectively, from an
affiliated entity of the former President of the Company in connection with
the sharing of office facilities and administrative expenses.
In April 2000, the Company loaned two directors of the Company $185,000
each. The loans bear interest at 9.5% per annum and are due five years from
the date of the loan. As of December 30, 2000, $162,510 was outstanding on
each loan.
15. MAJOR CUSTOMERS
During the year ended January 2, 1999, sales to 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 25.9% and 15.0% of net sales, respectively, and
sales to a similar group of customers represented 14.0%.
During the year ended December 30, 2000, sales to two individual customers
represented 24.6% and 14.4% of net sales, respectively, and sales to the
same similar group of customers represented 15.8%.
F-19
******
SCHEDULE II
DIGIORGIO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
Allowance for doubtful accounts
for the period ended:
January 2, 1999 4,203 825 (751)(1) 4,277
January 1, 2000 4,277 700 (248)(1) 4,729
December 30, 2000 4,729 700 (391)(1) 5,038
(1) Accounts written off during the year, net of recoveries.
S-1