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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 29, 2001
[ ] 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 27, 2002, 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 larger independent
wholesale food distributors in the New York City metropolitan area, which is one
of the larger retail food markets in the United States. During 2001 the Company
achieved i) increased net income for the fourth straight year to $12.1 million,
ii) increased EBITDA (see "Reduced Leverage") for the fourth straight year to
$46.3 million, and iii) its tenth straight year of increased revenue to $1,538.8
million. These figures represent increases over 2000 net income, EBITDA and
revenue of 12.6%, 8.6% and 2.9% respectively.
Since the 1997 refinancing which extended the Company's debt maturities, reduced
interest expense, and improved its financial flexibility, the Company has
produced steady annual earnings growth and deleveraged itself significantly
while broadening its customer base. From 1997 through 2001, earnings before
extraordinary items (this excludes premiums incurred as a result of the 1997
refinancing) have increased at a compounded annual growth rate of 20.5%. Revenue
and EBITDA experienced compounded annual growth rates of 9.5% and 4.8 %
respectively during the same period.
Across its grocery, frozen and refrigerated product categories, the Company
supplies approximately 17,400 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. Approximately 900 grocery,
frozen and refrigerated items are offered with the Company's White Rose(R)
label.
Products
General. Management believes that the distribution of multiple product
categories gives the Company an advantage over certain of its competitors by
affording customers the ability to purchase grocery, frozen and refrigerated
products from a single supplier. In addition to its large breadth of nationally
branded merchandise offered in its grocery, frozen and refrigerated categories,
the Company is able to merchandise its well-recognized White Rose(R) label
consistently across all three categories of products. 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 continuously based on vendor pricing.
Customer Support Services. The Company offers a broad spectrum of retail support
services, including advertising, promotional and merchandising assistance;
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retail operations counseling; computerized ordering services; technology
support; insurance and coupon redemption services; and store layout and
equipment planning. 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. 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 the Company's computerized order entry system, which allows them to
place and confirm orders 24 hours a day, 7 days a week.
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, 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, customers 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, usually
repayable over a period of one to three years. As of December 29, 2001, the
Company's customer financing portfolio had an aggregate balance of approximately
$18.4 million. The portfolio consisted of 62 loans ranging in size from $2,394
to $4.0 million.
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 number of participating stores, in the
EasyGrocer.com program, increased to 50 in December 2001. 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. Substantially 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.
White Rose(R) Label. The White Rose(R) private label brand merchandise
consisting of over approximately 900 grocery, frozen and refrigerated products
has been marketed in the New York metropolitan area for over 115 years. The
White Rose(R) brand is recognized for quality merchandise and 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. 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. 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. White
Rose(R) label sales represented approximately 3% of 2001 sales.
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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. 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;
C-Town; Bravo; Scaturros; Grande (in Puerto Rico); 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 14.2%
and 14.5% of net sales for the years ended December 30, 2000 and December 29,
2001, respectively.
During the fifty-two weeks ended December 29, 2001, the Company's largest
customers, A&P and Associated, accounted for approximately 24.9% and 14.0%,
respectively, of net sales, and the Company's five largest customers accounted
for 52.7% of net sales. From 1997 to 2001, sales to the Company's top five
customers have shrunk as a percentage of net sales from 64.2% to 52.7%. 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
Due to the different storage and distribution requirements of each of the
Company's product lines, the Company handles each product line from a separate
distribution center. Each of the three facilities are equipped with modern
equipment for receiving, storing and shipping large quantities of merchandise.
In addition, each 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.
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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.
The Company's trucking system consists of 121 tractors (all of which are
leased), 344 trailers (of which 291 are leased) and 2 trucks (both of which are
leased). In addition, the Company rents trailers on a monthly basis to meet
seasonal demand. On approximately 18% 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 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.
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 larger 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. and Bozzuto's, Inc.
Krasdale Foods, Inc., General Trading Co., and Northeast Frozen Foods are the
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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 this competitor, the Company does not require payment of
capital contributions to the Company by retailers desiring to use the Company's
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
tradenames offered and store financing support. Management believes that the
Company competes effectively by offering full product lines, 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.
Reduced leverage
Since 1997, the Company reduced its debt by $39.9 million, of which $19.7
million relates to its bank credit facility, which had zero outstanding at
December 29, 2001. The Company has also improved its ratio of debt to EBITDA
from 5.45x in 1997 to 3.39x in 2001. The ratio of EBITDA to interest in 2001 was
2.91x versus 1.65x in 1997. Stockholder's equity increased from a deficit of
$3.1 million at December 27, 1997 to $21.0 million at December 29, 2001. In
addition, the Company had additional borrowing capacity of $85.3 million at
December 29, 2001 under the Company's then current borrowing base certificate,
exclusive of $1.5 million of cash invested with the bank, as compared to $61.2
million of availability at December 27, 1997.
The Company has presented EBITDA, defined as earnings before interest expense,
income taxes, depreciation, amortization and certain one time charges,
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.
Seasonality
Typically, the fiscal fourth quarter is the Company's strongest quarter in terms
of profitability with the fiscal third quarter the weakest. The historic
comparative weakness of the third quarter has been mitigated somewhat by the
Company's increased sales outside of New York City, especially since 1997. The
increased sales outside of New York City are either in areas that experience
5
higher summer sales (such as along the New Jersey shore) or in areas that are
more resistant to seasonal fluctuations.
Employees
As of January 18, 2002, the Company employed 1,353 persons, of whom 884 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.
Relationship with Independent Auditors
The Company has agreed to pay Deloitte & Touche LLP ("D&T") $225,000 plus
expenses up to $12,000 for the audit of the year ended December 29, 2001 and
paid $215,000 plus expenses of $12,000 for the prior year. In 2001, the Company
paid D&T $17,400 for certain research and other accounting matters. The Company
did not engage D&T for any consulting services during 2000 or 2001.
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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 $5.1 million in fiscal 2001.
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). The
frozen food 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 August 31, 2001, the Company signed amendments to its grocery and frozen
warehouse leases which provide for, among other things, the addition of
approximately 100,000 square feet of additional frozen warehouse space and 8.88
acres of additional land to be used for trailer parking. The aggregate annual
rent obligation, when the expansion is completed, will rise, depending on the
then current interest rate, by approximately $1.3 million. The Company expects
the additional rent to be offset by increased productivity and additional
business. 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 frozen facility to
approximately 279,000 square feet, with completion expected by the fourth fiscal
quarter of 2002. In addition, the grocery facility lease in Carteret provides
for expansion of up to 161,000 square feet.
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 that 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
7
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 $658,000 as of December
29, 2001. 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 a site previously owned and operated by the Company located in St.
Genevieve, Missouri. During 2001, the Company received a final approval from the
state of Michigan with respect to the Company's completed remediation of a
facility located in 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's motion for summary judgment in the action entitled
Twin County Grocers, Inc. et al. v. Food Circus Supermarkets, Inc. et al., in
which the Company was named a defendant, was granted in its entirety. Despite
plaintiff's filing of a notice of appeal, the Company remains committed to
defending its position that all of the allegations are without merit.
The Company is not a party to any other litigation, other than routine
litigation incidental to the business of the Company, which, in management's
judgment, 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.
8
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 ("Rose").
The Company paid a dividend of $5.3 million in December 2001. 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, based on its results for the year ended December 29,
2001, the Company is permitted to pay dividends up to approximately $6.0
million.
9
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company for
the periods indicated. 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 27, January 2, January 1, December 30, December 29,
1997 1999 (c) 2000 2000 2001
----------------------------------------------------------------------------
Income Statement Data:
Total revenue $ 1,071,800 $ 1,196,933 $ 1,413,827 $ 1,495,398 $ 1,538,824
Gross profit(a) 112,633 121,939 138,971 144,996 151,313
Warehouse expense 42,453 49,440 51,865 52,233 54,123
Transportation expense 22,042 24,719 26,607 28,387 29,570
Selling, general and
administration expenses 21,598 22,760 25,834 29,443 29,526
Facility integration and
abandonment expense -- 4,173 -- -- --
Amortization--excess of cost over
net assets acquired 2,459 2,460 2,425 2,425 2,425
Operating income 24,081 18,387 32,240 32,508 35,669
Interest expense 21,890 18,170 16,679 16,028 15,917
Amortization--deferred financing
costs 944 721 764 730 651
Other (income), net (3,242) (9,534)(e) (2,744) (3,517) (3,775)
Income (loss) from continuing
operations before income taxes and
extraordinary items 4,489 9,030 17,541 19,267 22,876
Income taxes (1,241) 4,449 7,872 8,528 10,781
Income (loss) from continuing
operations before extraordinary
items 5,730 4,581 9,669 10,739 12,095
Extraordinary (loss)/gain on
extinguishment of debt, net of tax (8,693) (201) -- -- --
Net (loss) income $ (2,963) $ 4,380 $ 9,669 $ 10,739 $ 12,095
December 27, January 2, January 1, December 30, December 29,
1997 1999 (c) 2000 2000 2001
----------------------------------------------------------------------------
Balance Sheet Data:
Total assets $ 279,961 $ 274,828 $ 273,406 $ 289,801 $ 290,936
Working capital 23,365 41,117 56,397 56,238 73,612
Total debt including capital leases 196,966 178,127 164,069 167,531 157,058
Total stockholder's equity (3,081)(b) (3,701)(d) 5,968 14,207 21,002
(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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-K include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These 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; potential commercial vehicle restrictions;
inflation especially with respect to wages and energy costs; and the results of
terrorism or terrorist acts against the Company.
Results of Operations
Fifty-two-weeks ended December 29, 2001 and December 30, 2000
Net sales for the fifty-two weeks ended December 29, 2001 were $1,530.9 million
as compared to $1,488.1 million for the fifty-two weeks ended December 30, 2000.
This 2.9% increase in net sales primarily reflects increased sales to existing
customers. Other revenue, consisting of recurring customer related services,
increased to $7.9 million for the fifty-two weeks ended December 29, 2001 as
compared to $7.3 million in the prior period.
Gross margin (excluding warehouse expense) increased to 9.9% of net sales or
$151.3 million for the fifty-two weeks ended December 29, 2001 as compared to
9.7% of net sales or $145.0 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 to maintain and improve its margins; however, factors
such as the additions of high volume, lower margin customers, changes in
manufacturers' promotional activities, changes in product mix, or competitive
11
pricing pressures may have an effect on gross margin. It is uncertain whether
the higher gross margins realized in the second and third quarters of 2001, but
missing in the fourth quarter of 2001, will continue.
After excluding final shutdown expenses relating to the Company's former Garden
City facility (which lease terminated on March 31, 2000) in the first quarter of
2000, warehouse expense remained flat as a percentage of net sales at 3.5% or
$54.1 million for the fifty-two weeks ended December 29, 2001 as compared to
3.5% of net sales or $51.8 million for the prior period.
Transportation expense remained at 1.9% of net sales or $29.6 million for the
fifty-two weeks ended December 29, 2001 as compared to 1.9% of net sales or
$28.4 million in the prior period due to greater efficiencies offsetting higher
expenses.
Selling, general and administrative expense decreased to 1.9% of net sales or
$29.5 million for the fifty-two weeks ended December 29, 2001 as compared to
2.0% of net sales or $29.4 million for the prior period.
Other income, net of other expenses, increased to $3.8 million for the fifty-two
weeks ended December 29, 2001 as compared to $3.5 million for the prior period.
Interest expense decreased to $15.9 million for the fifty-two weeks ended
December 29, 2001 from $16.0 million for the prior period due to lower average
outstanding levels of the Company's debt.
The Company recorded an income tax provision of $10.8 million, resulting in an
effective income tax rate of 47% for the fifty-two weeks ended December 29, 2001
as compared to a provision of $8.5 million resulting in an effective rate of 44%
in the prior period as a result of a the Company's higher statutory rates. 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. The Company paid
approximately $8.0 million in estimated federal tax in 2001.
The Company recorded net income for the fifty-two weeks ended December 29, 2001
of $12.1 million as compared to $10.7 million in the prior period.
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.
12
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 was 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.
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.
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 believes that these sources will be adequate to meet the Company's
currently anticipated working capital needs, dividend payments, if any, capital
expenditures, and debt service requirements during the next four fiscal
quarters, as well as any investments the Company may make
The Company's bank credit facility is scheduled to mature on June 30, 2004, and
bears interest at a rate per annum equal to (at the Company's option): (i) the
Euro Dollar Offering Rate plus 1.625% or (ii) the lead bank's prime rate.
Borrowings under the Company's revolving bank credit facility were zero
(excluding $4.7 million of outstanding letters of credit) at December 29, 2001.
Additional borrowing capacity of $85.3 million was available at that time under
the Company's then current borrowing base certificate exclusive of $1.5 million
of cash invested with its agent bank.
13
During the fifty-two weeks ended December 29, 2001, cash flows provided by
operating activities were $7.3 million, consisting primarily of cash generated
from income before non-cash expenses of $21.5 million, an increase in accounts
payable of $1.3 million, and an increase in accrued expenses and other
liabilities of $2.7 million, offset mainly by increases in (i) accounts and
notes receivable of $14.4 million, (ii) inventory of $1.8 million, and (iii)
other assets of $1.9 million.
Cash flows used in investing activities during the fifty-two weeks ended
December 29, 2001 were approximately $1.9 million, which were used exclusively
for capital expenditures. Net cash used in financing activities of $5.3 million
was primarily for a dividend paid in December of 2001. In addition, net
repayments under the bank credit facility of $10.4 million were offset by $10.5
million of proceeds from note participation sales discussed below.
EBITDA was $46.3 million during the fifty-two weeks ended December 29, 2001 as
compared to $42.6 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 decreased to $157.1 million at
December 29, 2001 as compared to $167.5 million at December 30, 2000.
Stockholders' equity was $21.0 million on December 29, 2001 as compared to $14.2
million on December 30, 2000. Based on its results for the year ended December
29, 2001, the Company is currently permitted to pay dividends up to
approximately $6.0 million.
The effect of FASB 143, "Goodwill and other intangibles assets," is expected to
add $2.2 million to net income in 2002. See notes to consolidated financial
statements.
The Company currently does not expect to spend more than $3.0 million during
2002 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 less than $10,000 in fiscal 2001 in connection with the
environmental remediation of certain presently owned or divested properties and
does not expect to expend more than approximately $200,000 in fiscal 2002. At
December 29, 2001, the Company has reserved $658,000 for those known
environmental liabilities. The Company intends to finance the remediation
through internally generated cash flow or borrowings. Management believes that
should the Company become liable as a result of any adverse determination of any
legal or governmental proceeding in a material amount beyond its reserves, it
could have an adverse effect on the Company's liquidity position.
In each quarter of 2001, the Company sold non-recourse, senior participations in
selected portfolios of its customer notes to various banks at par. Aggregate
proceeds from the sales were $10.5 million. All proceeds were used to repay
amounts under the bank credit facility or provide working capital. The primary
14
reason for these sales was to enhance the Company's ability to lend money to
customers within the confines of its financing agreements. The Company may sell
additional participations from time to time.
Although the Company's employees shared the pain and anguish of the destruction
of the Twin Towers in New York City, the Company did not experience a material
negative financial impact because of it. The Company's deliveries to New York
were delayed along with those of its competitors in the immediate aftermath due
to delays crossing the Hudson River. However, within a short period of time, the
Company's trucks were delivering products on a fairly normal schedule.
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 29, 2001, the Company was in compliance with its
covenants.
The Company is considering two transactions which may use up to $20 million of
the Company's available cash each involving an unconsolidated affiliate of the
Company. Any liabilities of these two new entities would be nonrecourse to the
Company. The receivables generated from transactions with these affiliated
entities would be excluded from the Company's borrowing base for purposes of
determining the amount the Company could borrow under its bank credit facility.
Both transactions are in markets other than the Company's primary market and are
in businesses related to the Company's primary business. The Company will need
the consent of its lenders to enter into these transactions. If the Company
decides to proceed with either or both of these transactions, it expects to
complete them within three to six months.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in the interest rates on its
bank credit facility. Any 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 2001's average
outstanding bank debt, a 100 basis point change in interest rates would change
interest expense by approximately $41,000. For fixed rate debt such as the
Company's $155 million 10% senior notes, interest rate changes affect the fair
market value of the senior 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 may
bring added risk, the Company cannot quantify such risk at this time.
15
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 December 30, 2000 and December 29, 2001.. F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 29, 2001......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
ended December 29, 2001................................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 29, 2001..................... F-6
Notes to Consolidated Financial Statements................................. F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
16
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 (1) 53 Co-Chairman of the Board of Directors and
Chief Executive Officer
Stephen R. Bokser 59 Co-Chairman of the Board of Directors,
President, and Chief Operating Officer
Jerold E. Glassman (1) 66 Director
Emil W. Solimine (2) 57 Director
Charles C. Carella (3) 68 Director
Jane Scaccetti (3) 47 Director
Earle I. Mack (1,2) 65 Director
Michael S. Goldberg (2) 27 Director
Joseph R. DeSimone 62 Senior Vice President Distribution
Robert A. Zorn 47 Executive Vice President-Finance and
Treasurer
Lawrence S. Grossman 40 Senior Vice President and Chief
Financial Officer
Harlan Levine 40 Vice President, General Counsel
and Secretary
George Conklin 41 Vice President of Logistics
Joseph Fantozzi 40 Senior Vice President and General
Manager- White Rose Dairy Division of
Di Giorgio
John Annetta 50 Senior Vice President and General
Manager- White Rose Frozen Division of
Di Giorgio
John J. Zumba 64 Senior Vice President
- -------------------------------------------------------------------------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
17
Directors are elected for one year terms and hold office until their successors
are elected and qualified. The executive officers are appointed by and serve at
the discretion of the Board of Directors.
Mr. 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 and the general partner of Rose since October 2000. He is
also an executor of the Estate of Arthur Goldberg, a limited partner of Rose.
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, and Western Beef, Inc., a
supermarket retailer, both customers of the Company. He is also a director of
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 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. He is also a Limited Partner of Rose.
Mr. Carella became a Director of Di Giorgio in 1995. Since prior to 1996, Mr.
Carella has been a Partner of the Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein law firm. 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, an accounting firm. 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. He is also a Limited
Partner of Rose.
Mr. Goldberg has been a Director of Di Giorgio since 2001. Mr. Goldberg worked
for Merrill Lynch from 1996 through 1999. He received his MBA from Columbia
University in 2001. He is also an executor of the Estate of Arthur Goldberg, a
Limited Partner of Rose. Mr. Goldberg is currently a private investor.
Mr. DeSimone has been Senior Vice President of Distribution since prior to 1996.
18
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.
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.
Mr. Zumba has been Senior Vice President since 2001. Previously he held the
position of Vice President of Sales since prior to 1996.
19
ITEM 11. EXECUTIVE COMPENSATION.
Compensation
The following table sets forth compensation paid or accrued to the 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 29, 2001.
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- ---- ------ ------ ------------ ------------
(1)
Richard B. Neff, 2001 $400,000 $550,000 $80,525 $2,550(2)
Co-Chairman of the Board of Directors 2000 $372,500 $470,000 $56,411 $2,550(2)
and Chief Executive Officer 1999 $325,000 $535,000 -- $2,400(2)
Stephen R. Bokser, 2001 $400,000 $550,000 $80,525 $2,550(2)
Co-Chairman of the Board of Directors, 2000 $379,808 $450,000 $56,411 $2,550(2)
President, and Chief Operating Officer 1999 $325,000 $515,000 -- $2,400(2)
Robert A. Zorn, 2001 $260,600 $ 55,000 -- $2,550(2)
Executive Vice President-Finance and 2000 $245,600 $ 40,000 -- $2,550(2)
Treasurer 1999 $230,600 $ 35,000 -- $2,400(2)
Joseph Fantozzi 2001 $191,000 $ 90,000 -- $2,550(2)
Senior Vice President and General 2000 $174,000 $ 63,000 -- $2,550(2)
Manager of White Rose Dairy Division 1999 $157,000 $ 60,000 -- $2,400(2)
Lawrence S. Grossman 2001 $186,000 $ 90,000 -- $2,550(2)
Senior Vice President and 2000 $170,000 $ 60,000 -- $2,550(2)
Chief Financial Officer 1999 $154,000 $ 55,000 -- $2,400(2)
(1) 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's 2001 interest rate was 7.28% 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 1999,
2000, and 2001 are not described herein because the incremental cost to the
Company of such benefits is below the Securities and Exchange Commission
disclosure threshold.
(2) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement Savings
Plan."
20
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 $400,000
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 $275,600, as adjusted by
annual cost of living adjustments, if any, and annual bonuses, at the sole
discretion of the Company. Mr. Zorn may also receive additional incentive
compensation upon the occurrence of (i) the termination of Mr. Zorn's employment
with the Company; or (ii) certain change of control type of events, determined
pursuant to a formula. Under the terms of the agreement, if the employment of
Mr. Zorn is terminated for any reason other than for cause or disability, Mr.
Zorn is entitled to receive compensation and benefits for six months, provided
that he uses his best efforts to secure other executive employment.
Retirement Plan
The Company maintains the Di Giorgio Retirement Plan (the "Retirement Plan")
which is a defined benefit pension plan. Employees of the Company and its
affiliates who are not covered by a collective bargaining agreement (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Retirement Plan after completing one year of employment.
All benefits under the Retirement Plan are funded by contributions made by the
Company. In general, a participant's retirement benefit consists of the sum of
(a) with respect to employment on or after September 1, 1990, an annual amount
equal to the participant's aggregate compensation (excluding income from the
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,
21
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.
In addition, the Company maintains a nonqualified supplemental pension plan that
provides for the same pension benefit calculated on income in excess of
prescribed IRS limitations. 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
and nonqualified plan is as follows: Mr. Neff, $87,248; Mr. Bokser $162,003; Mr.
Zorn, $32,823; Mr. Fantozzi, $36,413; Mr. Grossman, $27,935.
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
60% 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%.
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.
22
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 has informed the Company that Mr. Neff is the sole general partner of Rose.
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 2001, the Company sold
various products to Western Beef, Inc. in the amount of $47.1 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 $104,000 to the firm in fiscal
2001.
The Company utilizes Emar Group, Inc. ("Emar "), a risk management and insurance
brokerage company controlled by Emil W. Solimine, a director of the Company and
a limited partner of Rose, for risk management and insurance brokerage services.
The Company paid Emar approximately $200,000 in fiscal 2001 for such services
and purchased insurance with premiums of $2.0 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' interest rate for the year was 7.28% and
is payable over five (5) years from the date of the loan. On January 31, 2002,
$132,087 was outstanding on each loan.
23
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
December 30, 2000 and December 29, 2001.......................... F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 29, 2001................ F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for each of the three years in the period
Ended December 29, 2001.......................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 29, 2001............ 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.
24
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.
10.14(13) - First Amendment, dated August 31, 2001, to Carteret frozen
food warehouse lease dated November 26, 1997.
10.15(13) - Fourth Amendment, dated August 31, 2001, to Carteret
grocery warehouse lease dated as of February 11, 1994.
10.16(14) - Second Amendment, dated January 10, 2002, to Carteret
frozen food warehouse lease dated as of November 26, 1997.
25
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
(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) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 2000 File 1-1790).
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 29, 2001 (File 1-1790).
(14) Filed herewith.
26
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.
27
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 27th day of
February, 2002.
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 27, 2002
- ---------------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director February 27, 2002
- ---------------------------
Emil W. Solimine
/s/ Charles C. Carella Director February 27, 2002
- ---------------------------
Charles C. Carella
/s/ Jane Scaccetti Director February 27, 2002
- ---------------------------
Jane Scaccetti
/s/ Earle I. Mack Director February 27, 2002
- ---------------------------
Earle I. Mack
/s/ Michael S. Goldberg Director February 27, 2002
- -----------------------
Michael S. Goldberg
/s/ Lawrence S. Grossman Senior Vice President February 27, 2002
- ------------------------- and Chief Financial
Lawrence S. Grossman Officer (Principal
Financial & Accounting
Officer)
28
DI GIORGIO CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 29, 2001:
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity (Deficiency) F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-19
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 29, 2001 and
December 30, 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 29, 2001. Our audits also included the consolidated
financial statement schedule listed in the Index at Item 14(a)(2). These
consolidated financial statements and consolidated financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and consolidated
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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Di Giorgio Corporation
and Subsidiaries at December 29, 2001 and December 30, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 2001 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
February 15, 2002
F-1
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 30, 2000 AND DECEMBER 29, 2001 (in
thousands, except share data)
- --------------------------------------------------------------------------------
December 30, December 29,
2000 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,744 $ 1,807
Accounts and notes receivable - Net 92,748 103,704
Inventories 64,687 66,469
Deferred income taxes 3,973 2,888
Prepaid expenses 3,727 3,802
----- -----
Total current assets 166,879 178,670
PROPERTY, PLANT AND EQUIPMENT - Net 10,339 9,956
NOTES RECEIVABLE 15,034 7,464
DEFERRED FINANCING COSTS - Net 3,922 3,272
OTHER ASSETS 22,308 22,681
EXCESS OF COST OVER NET ASSETS ACQUIRED - Net 71,319 68,893
------ ------
TOTAL ASSETS $289,801 $290,936
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 10,410 $ --
Current installment - capital lease liability 63 57
Accounts payable - trade 74,663 75,928
Accrued expenses 25,505 29,073
------ ------
Total current liabilities 110,641 105,058
LONG-TERM DEBT 155,000 155,000
CAPITAL LEASE LIABILITY 2,058 2,001
OTHER LONG-TERM LIABILITIES 7,895 7,875
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
Retained earnings 6,205 13,000
----- ------
Total stockholders' equity 14,207 21,002
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $289,801 $290,936
======== ========
See notes to consolidated financial statements.
F-2
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 2001
(in thousands)
- --------------------------------------------------------------------------------
January 1, December 30, December 29,
2000 2000 2001
REVENUE:
Net sales $ 1,406,094 $ 1,488,062 $ 1,530,901
Other revenue 7,733 7,336 7,923
----- ----- -----
Total revenue 1,413,827 1,495,398 1,538,824
COST OF PRODUCTS SOLD 1,274,856 1,350,402 1,387,511
--------- --------- ---------
Gross profit - exclusive of warehouse
expense shown separately below 138,971 144,996 151,313
OPERATING EXPENSES:
Warehouse expense 51,865 52,233 54,123
Transportation expense 26,607 28,387 29,570
Selling, general and administrative expenses 25,834 29,443 29,526
Amortization - excess of cost over net assets
acquired 2,425 2,425 2,425
------ ------ ------
OPERATING INCOME 32,240 32,508 35,669
INTEREST EXPENSE 16,679 16,028 15,917
AMORTIZATION - Deferred financing costs 764 730 651
OTHER INCOME - Net (2,744) (3,517) (3,775)
------ ------ ------
INCOME BEFORE INCOME TAXES 17,541 19,267 22,876
PROVISION FOR INCOME TAXES 7,872 8,528 10,781
----- ----- ------
NET INCOME $ 9,669 $ 10,739 $ 12,095
=========== =========== ===========
See notes to consolidated financial statements.
F-3
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 2001
(in thousands)
- --------------------------------------------------------------------------------
Class A Class B Additional Retained
Common Stock Common Stock Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit)
BALANCES,
JANUARY 2, 1999 78.116 $ - 76.869 $ - $ 8,002 $ (11,703)
Net income - - - - - 9,669
------ --- ------ --- ------- ---------
BALANCES,
JANUARY 1, 2000 78.116 - 76.869 - 8,002 (2,034)
Net income - - - - - 10,739
Dividend - - - - - (2,500)
------ --- ------ --- ------- ---------
BALANCES,
DECEMBER 30, 2000 78.116 - 76.869 - 8,002 6,205
Net Income - - - - - 12,095
Dividend - - - - - (5,300)
------ --- ------ --- ------- ---------
BALANCES,
DECEMBER 29, 2001 78.116 $ - 76.869 $ - $ 8,002 $ 13,000
====== == ====== == ======= ========
See notes to consolidated financial statements.
F-4
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 2001
(in thousands)
- -------------------------------------------------------------------------------
January 1, December 30, December 29,
2000 2000 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,669 $ 10,739 $ 12,095
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 1,502 2,186 2,332
Amortization of deferred financing costs 764 730 651
Amortization of excess of cost over net assets acquired 2,425 2,425 2,425
Other amortization 2,153 2,000 2,099
Provision for doubtful accounts 700 700 500
Non-cash increase in prepaid pension cost (389) (331) (567)
Deferred taxes 7,415 8,236 1,966
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (6,533) (4,603) (19,721)
Inventories (1,064) (3,141) (1,782)
Prepaid expenses 422 (1,094) (75)
Other assets (207) (12,258) (1,905)
Long-term receivables 458 (3,648) 5,326
Increase (decrease) in:
Accounts payable 794 2,253 1,265
Accrued expenses and other liabilities 367 (2,112) 2,667
--- ------ -----
Net cash provided by operating activities 18,476 2,082 7,276
------ ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,408) (2,287) (1,949)
------ ------ ------
Net cash used in investing activities (3,408) (2,287) (1,949)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings from revolving
credit facility - net (13,846) 3,628 (10,410)
Proceeds from note participation sales -- -- 10,509
Finance fees paid (481) -- --
Dividend to stockholders -- (2,500) (5,300)
Repayments of capital lease obligations (212) (167) (63)
---- ---- ---
Net cash (used in) provided by financing activities (14,539) 961 (5,264)
------- --- ------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 529 756 63
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 459 988 1,744
--- --- -----
CASH AND CASH EQUIVALENTS, END OF YEAR $ 988 $ 1,744 $ 1,807
======== ======== ========
(Continued)
F-5
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 2001
(in thousands)
- --------------------------------------------------------------------------------
January 1, December 30, December 29,
2000 2000 2001
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period:
Interest $ 16,855 $ 16,079 $ 15,991
======== ======== ========
Income taxes $ 423 $ 1,158 $ 7,200
======== ======== ========
See notes to consolidated financial statements. (Concluded)
F-6
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 29, 2001
- -------------------------------------------------------------------------------
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. Customers 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 29, 2001, the Company's
customer financing portfolio had an aggregate balance of approximately
$18.4 million. The portfolio consisted of approximately 62 loans with a
range of $2,394 to $4.0 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.
F-7
Excess of Cost over Net Assets Acquired - The excess of cost over net
assets acquired ("goodwill") is being amortized by the straight-line method
over 40 years.
Management assesses the recoverability of goodwill by comparing the
Company's forecasts of cash flows from future operating results, on an
undiscounted basis, to the unamortized balance of goodwill at each
quarterly balance sheet date. If the results of such comparison indicate
that an impairment may be likely, the Company will recognize a charge to
operations at that time based upon the difference of the present value of
the expected cash flows from future operating results (utilizing a discount
rate equal to the Company's average cost of funds at the time), and the
then balance sheet value. The recoverability of goodwill is at 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 sales and upon the provision of services for other
revenues, net of returns and other allowances.
Sale of Notes Receivable - From time to time, the Company sells
non-recourse, senior participations in selected portfolios of its customer
notes to banks at par. During the year ended December 29, 2001, the Company
sold $10.5 million in notes receivable. Fees for servicing were not
material and there were no gains or losses on the sales as the sales price
was equal to the carrying value of the notes receivable.
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 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
weeks for each of the three years ended December 29, 2001.
F-8
New Accounting Pronouncements - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations. This Statement addresses the
financial accounting and reporting for business combinations and supersedes
Accounting Principles Bulletin ("APB") No.16, Business Combinations, and
SFAS No.38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 and
establishes criteria to separately recognize intangible assets apart from
goodwill. The Company does not believe that the adoption of this
pronouncement will have a material impact on the consolidated results of
operations.
In July 2001, the FASB issued SFAS No.142, Goodwill and Other Intangible
Assets. This Statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes SFAS No. 17,
Intangible Assets. This Statement requires, among other things, that
goodwill and intangible assets that have indefinite useful lives should not
be amortized, but rather should be tested at least annually for impairment,
using the guidance for measuring impairment set forth in the Statement.
SFAS No.142 is effective for the first quarter in the fiscal year ending
December 28, 2002, or for any business combinations initiated after June
30, 2001. The Company expects that the adoption of SFAS No. 142 will reduce
annual amortization expense by approximately $2.2 million after tax.
Additionally, the Company does not expect to incur goodwill impairment
charges associated when this statement is adopted.
In August 2001, the FASB issued SFAS No.143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Statement
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for the first quarter in the
fiscal year ending January 3, 2004. The Company does not believe that the
adoption of this pronouncement will have a material impact on the
consolidated results of operations.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Statement addresses
financial accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB
Statement No.121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. However, this statement retains
the fundamental provisions of Statement 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and
(b) measurement of long-lived assets to be disposed of by sale. SFAS No.144
is effective for the first quarter in the fiscal year ending December 28,
2002. The Company does not believe that the adoption of this pronouncement
will have a material impact on the consolidated results of operations.
F-9
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
December 30, December 29,
2000 2001
(in thousands)
Accounts receivable $ 77,454 $ 82,393
Notes receivable 7,652 11,075
Other receivables 12,680 15,492
Less allowance for doubtful accounts (5,038) (5,256)
------ ------
$ 92,748 $ 103,704
========= =========
3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
Estimated
Useful Life December 30, December 29,
in Years 2000 2001
(in thousands)
Land -- $ 900 $ 900
Buildings and improvements 10 3,446 3,550
Machinery and equipment 3-10 15,887 17,567
Less accumulated depreciation (12,267) (14,305)
-------- --------
7,966 7,712
-------- --------
Capital leases:
Building and improvements 3,117 3,117
Equipment 370 370
Less accumulated amortization (1,114) (1,243)
-------- --------
2,373 2,244
-------- --------
$ 10,339 $ 9,956
======== ========
Depreciation expense was approximately $1,502, $2,186 and $2,332 for the
years ended January 1, 2000, December 30, 2000 and December 29, 2001,
respectively. Included in that amount is approximately $182, $157 and $129
of amortization of assets under capital leases.
F-10
4. EXCESS OF COST OVER NET ASSETS ACQUIRED
Di Giorgio Acquisition - The Company was acquired by the majority
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 December 30, 2000 and December 29, 2001, accumulated amortization of
excess costs over net assets acquired for the above acquisitions was
approximately $28.7 million and $31.1 million, respectively.
5. FINANCING
Debt consists of the following:
Interest Rate
at December 29, December 30, December 29,
2001 2000 2001
(in thousands)
Revolving credit facility (a) 4.75 % $ 10,410 $ --
========= =========
Long-term debt:
10% senior notes (b) 10.00 % $ 155,000 $ 155,000
========= =========
(a) Revolving Credit Facility - The bank credit facility is scheduled to
mature on June 30, 2004, and bears interest at a rate per annum equal
to (at the Company's option): (i) the Euro Dollar Offering Rate plus
1.625% or (ii) the lead bank's prime rate. The interest rate shown is
the bank prime rate. Given the low amount of borrowing, the Company
elected not to use the Eurodollar option. During 2001 the average
interest rate for the outstanding borrowing (which was zero after July
2001) was 7.82%.
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 29,
2001, borrowings under the Company's revolving bank credit facility
were zero (excluding $4.7 million of outstanding letters of credit).
Additional borrowing capacity of $85.3 million was available under the
Company's borrowing base certificate exclusive of $1.5 million of cash
invested with its agent bank.
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 29, 2001.
F-11
(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, having commenced 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. 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:
December 30, 2000 December 29, 2001
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Debt:
Revolving credit facility $ 10,410 $ 10,410 $ -- $ --
10% senior notes 155,000 129,813 155,000 149,188
Accounts and notes receivable -
current 92,748 92,748 103,704 103,704
Notes receivable - long-term 15,034 15,034 7,464 7,464
The fair value of the 10% senior notes as of December 30, 2000 and December
29, 2001 are based on trade prices of 83.75 and 96.25, respectively,
representing yields of 12.3% (as of December 30, 2000) and 10.9% (as of
December 29, 2001), 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.
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.
F-12
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 30, December 29,
2000 2001
(in thousands)
Legal and environmental $ 1,828 $ 2,266
Interest 639 605
Employee benefits 9,105 9,848
Due to vendors/customers 8,462 9,523
Other 5,471 6,831
----- -----
$ 25,505 $ 29,073
========= =========
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
plan 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:
December 30, December 29,
2000 2001
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 44,739 $ 46,312
Service cost 644 705
Interest cost 3,427 3,482
Actuarial loss 1,178 2,817
Benefits paid (3,676) (3,783)
------ ------
Benefit obligation at end of year $ 46,312 $ 49,533
========= =========
F-13
December 30, December 29,
2000 2001
(in thousands)
Change in plan assets:
Fair value of plan assets at beginning of year $ 48,316 $ 54,312
Actual return on plan assets 2,672 3,417
Benefit payments (3,676) (3,783)
Contributions from plan sponsor 7,000 --
----- -----
Fair value of plan assets at end of year $ 54,312 $ 53,946
======== ========
Reconciliation of funded status:
Funded status (fair value of plan assets less
benefit obligation) $ 8,000 $ 4,413
Unrecognized net actuarial gain 9,082 13,587
Unrecognized prior service cost 108 94
--- --
Prepaid benefit cost $ 17,190 $ 18,094
======== ========
Net pension cost includes the following components:
January 1, December 30, December 29,
2000 2000 2001
(in thousands)
Service cost $ 714 $ 644 $ 705
Interest cost 3,247 3,427 3,482
Expected return on plan assets (4,489) (4,526) (5,104)
Amortization of prior service co 14 14 14
Recognized actuarial loss 42 -- --
---- ---- ----
$ (472) $ (441) $ (903)
========= ========= =========
For the fiscal years ended January 1, 2000, December 30, 2000 and December
29, 2001, the following actuarial assumptions were used:
January 1, December 30, December 29,
2000 2000 2001
Weighted average discount rate 7.00 % 7.75 % 7.25 %
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 1, 2000 $ 991
December 30, 2000 1,109
December 29, 2001 1,266
a. 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 1, 2000 $ 199
December 30, 2000 215
December 29, 2001 217
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
December 30, December 29,
2000 2001
(in thousands)
Employee benefits $ 887 $ 280
Deferred income tax liability, net 6,278 7,159
Environmental and other 730 436
--- ---
$ 7,895 $ 7,875
========= =========
F-15
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 consolidated financial
position, cash flows or results of operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management after
consultation with counsel, these claims are either without merit, covered
by insurance, adequately provided for, or not expected to result in any
material loss to the Company.
Leases - The Company conducts certain of its operations from leased
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 lease, as
amended 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 29, 2001:
Capital Operating
Fiscal Year Ending Leases Leases
(in thousands)
2002 $ 186 $ 9,412
2003 186 7,935
2004 186 6,731
2005 186 5,873
2006 186 5,751
Thereafter 2,638 52,766
----- ------
Net minimum lease payments 3,568 $ 88,468
=========
Less interest 1,510
-----
Present value of net minimum lease payments
(including current installments of $57) $ 2,058
=======
F-16
Total rent expense included in operations was as follows:
Year Ended (in thousands)
January 1, 2000 $ 12,272
December 30, 2000 12,064
December 29, 2001 11,365
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 and $4.7 million on standby letters
of credit with a bank as of December 30, 2000 and December 29, 2001,
respectively.
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 were paid in fiscal 2001. In addition, the executives are entitled
to additional compensation upon occurrence of certain events.
11. EQUITY
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, based on its results for year ended December 29,
2001 the Company is permitted to pay dividends up to approximately $6.0
million at December 29, 2001.
12. OTHER INCOME - NET
Other income consists of the following:
January 1, December 30, December 29,
2000 2000 2001
(in thousands)
Interest income $ 2,068 $ 2,532 $ 2,512
Net gain on disposal of assets 31 33 528
Other - net 645 952 735
--- --- ---
$ 2,744 $ 3,517 $ 3,775
========= ========= =========
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:
December 30, December 29,
2000 2001
(in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 2,012 $ 2,191
Accrued expenses not deductible until paid 941 697
Difference between book and tax basis of proper 472 121
Net tax operating loss carryforwards 1,020 --
----- ----
Deferred tax assets 4,445 3,009
----- -----
Deferred tax liabilities:
Pension asset valuation (6,750) (7,280)
------ ------
Deferred tax liabilities (6,750) (7,280)
------ ------
Net deferred tax liabilities $ (2,305) $ (4,271)
========= =========
As of December 29, 2001, the Company had a liability for current taxes of
approximately $1.7 million.
The income tax provision consists of the following:
January 1, December 30, December 29,
2000 2000 2001
(in thousands)
Current income tax $ 457 $ 292 $ 8,815
Deferred income tax 7,415 8,236 1,966
----- ----- -----
$ 7,872 $ 8,528 $ 10,781
========= ========= =========
F-18
A reconciliation of the Company's effective tax rate with the statutory
Federal tax rate is as follows:
January 1, December 30, December 29,
2000 2000 2001
(in thousands)
Tax at statutory rate $ 5,964 $ 6,551 $ 8,007
State and local taxes - net of Federal benefit 1,165 1,234 2,010
Permanent differences - amortization of excess cost
over net assets acquired 743 743 764
--- --- ---
$ 7,872 $ 8,528 $10,781
======= ======= =======
14. RELATED PARTY TRANSACTIONS
A director of the Company is a director of a customer. During the
three-year period ended December 29, 2001, the Company sold various
products in the amounts of $50.9 million, $45.9 million and $47.1 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 $128,000, $121,000 and $104,000, during each of the three
years in the period ended December 29, 2001, 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, $150,000 and $200,000 for three years in the period ended
December 29, 2001, respectively. The Company purchased insurance with
premiums of $2.0 million from this insurance brokerage firm in fiscal 2001.
The Company recorded income of $64,000, $65,000 and $0 for each of the
three years in the period ended December 29, 2001, 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 7.28% per annum and are due in April 2005.
As of December 29, 2001, $132,087 was outstanding on each loan.
15. MAJOR CUSTOMERS
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%.
During the year ended December 29, 2001, sales to two individual customers
represented 24.9% and 14.0% of net sales, respectively, and sales to the
same similar group of customers represented 14.7%.
******
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 1, 2000 4,277 700 (24(1) 4,729
December 30, 2000 4,729 700 (39(1) 5,038
December 29, 2002 5,038 500 (28(1) 5,256
(1) Accounts written off during the year, net of recoveries.
S-1