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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
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)
Registrant's telephone number including area code: (732) 541-5555
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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, 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 March 1, 1999, there were outstanding 78.1158 shares of Class A Common
Stock and 76.8690 shares of Class B Common Stock. The aggregate market value of
the voting stock held by non-affiliates of the registrant is $0 because all
voting stock is held by affiliates of the registrant.
PART I
ITEM 1. BUSINESS.
Overview
Di Giorgio Corporation (the "Company") is one of the largest independent
wholesale food distributors in the New York City metropolitan area, which is one
of the largest retail food markets in the United States. Across its grocery,
frozen and refrigerated product categories, the Company supplies approximately
16,800 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
Philadelphia area. Over 900 grocery, frozen and refrigerated items are offered
with the Company's White Rose(TM) label. The White Rose(TM) label has been
established for over 112 years and is well recognized in the New York City
metropolitan area. For the year ended January 2, 1999, the Company had total
revenue of $1,196.9 million and EBITDA (as defined herein) of $38.8 million.
Formed in 1920, the Company was acquired in 1990 by a corporation controlled by
Arthur M. Goldberg, the Company's current Chairman, President and Chief
Executive Officer (the "1990 Acquisition"). Since the 1990 Acquisition, Mr.
Goldberg and his management team have implemented a strategy focused on
enhancing productivity, growing through the acquisition of complementary
businesses, identifying and developing new revenue opportunities and promoting
brand name recognition of the Company's White Rose(TM) label.
Products
General. Management believes that the distribution of multiple product
categories gives the Company an advantage over its competitors by affording
customers the ability to purchase grocery, frozen and refrigerated products from
a single supplier. In addition to its large selection of multiple category
items, the Company is able to merchandise its well-recognized White Rose(TM)
label consistently across all three categories of products. White Rose(TM) label
sales represented approximately 4% of 1998 sales. While some customers purchase
items from all three product lines, others purchase items from only one or two
product lines.
Products are sold at prices which reflect the manufacturer's stated price plus a
profit margin. Prices are automatically adjusted on a regular basis based on
vendor pricing.
White Rose(TM) Label. The White Rose(TM) label is a well-recognized regional
brand for quality merchandise across over 900 grocery, frozen and refrigerated
products, and has been marketed in the New York metropolitan area for over 112
years. Products under the White Rose(TM) brand are formulated to the Company's
specifications, often by national brand manufacturers, and are subject to random
testing to ensure quality. The White Rose(TM) brand allows independent retail
customers to carry a regionally- recognized label across numerous product lines
similar to chain stores while providing consumers with an attractive alternative
to national brands. The Company believes that White Rose(TM) labeled products
1
generally produce higher margins for its customers than national brands, and
help the Company to attract and retain customers.
Customer Support Services. The Company offers a broad spectrum of retail support
services, including advertising, promotional and merchandising assistance;
retail operations counseling; computerized ordering services; insurance and
coupon redemption services; and store layout and equipment planning. Recently
the Company added store engineering, sanitation and security services. The
Company has a staff of customer representatives who visit stores on a regular
basis to advise store management regarding their operations. Most of the
Company's customers utilize computerized order entry, which allows them to place
and confirm orders 24 hours a day, 7 days a week. The Company's larger
independent and chain customers generally provide their own retail support.
The Company periodically provides financial assistance to independent retailers
by providing (i) financing for the purchase of new grocery store locations; (ii)
financing for the purchase of inventories and store fixtures, equipment and
leasehold improvements; and/or (iii) extended payment terms for initial
inventories. The primary purpose of such assistance is to provide a means of
continued growth for the Company through development of new customer store
locations and the enlargement and remodeling of existing stores. Stores
receiving financing purchase the majority of their grocery, frozen and
refrigerated inventory requirements from the Company. Financial assistance is
usually in the form of a secured, interest-bearing loan, generally repayable
over a period of one to three years. As of January 2, 1999, the Company's
customer financing portfolio had an aggregate balance of approximately $20.5
million. The portfolio consisted of approximately 78 loans with a range of
$2,000 to $5.2 million.
Under the Company's insurance program, the Company offers customers the ability
to purchase liability, property and crime insurance through a master policy
purchased by the Company. Through its technologies division, the Company
distributes and supports supermarket scanning equipment which is compatible with
the Company's information systems.
Through its new website, EasyGrocer.com, the Company has developed an electronic
commerce system with the specific needs of its customers and their retail
shoppers in mind. The program, which is being tested during the first quarter of
1999, will allow consumers to place orders directly through their personal
computers for delivery to their home or workplace or pickup at the supermarket.
Once on-line, the consumer will be presented with a list of participating stores
and will have the entire selection of products offered by that store. Just as in
a supermarket, weekly specials can be offered to internet customers. Employees
of the store will pick the order and will either deliver to or have it available
for pickup by the consumer. Payment will be by means of secure credit card
transmission over the internet, with the actual charge being processed at the
store level. Electronic mailing of ad flyers and coupons, specifically geared to
a particular shopper's buying history, is contemplated. The plan is to give the
consumer the same selection and flexibility as in the supermarket, but with
added convenience.
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 Philadelphia area. The
Company also has customers in upstate New York, Connecticut, Pennsylvania and
Delaware, and is pursuing expansion into those markets.
2
The Company's customers include single and multiple store owners consisting of
chains and independent retailers which generally do not maintain their own
internal distribution operations for one or more of the Company's product lines.
Some of the Company's customers are independent food retailers or members of
voluntary cooperatives which seek to achieve the operating efficiencies enjoyed
by supermarket chains through common purchasing and advertising. The Company's
customers include food markets operating under some of the following trade
names: Superfresh, Waldbaums, Food Emporium and A & P (all divisions of The
Great Atlantic & Pacific Tea Co., Inc. "A&P"); Associated Food Stores
("Associated"); Gristedes and Sloans Supermarkets; King Kullen; Kings Super
Markets; Quick Chek; Royal Farms; Scaturros; Grande; and Western Beef; as well
as the Met(TM), Pioneer(TM), Super Food and Foodtown cooperatives.
The Met(TM) and Pioneer(TM) trade names are owned by the Company, however, the
customers using the trade names are independently owned stores. The Company and
the customer stores operate as voluntary cooperatives allowing a customer to
take advantage of the benefits of advertising and merchandising on a scale
usually available only to large chains, as well as certain other retail support
services provided by the Company. In order to use the trade names as part of the
cooperative arrangement, customers who use these names purchase the majority of
their grocery, frozen food and refrigerated inventory requirements from the
Company, thereby enhancing the stability of this portion of the Company's
customer base. These customers represented approximately 18% and 17% of net
sales for the years ended December 27, 1997 and January 2, 1999, respectively.
During the fifty-three weeks ended January 2, 1999, the Company's largest
customers, A&P and Associated, accounted for approximately 31% and 17%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 64% of net sales. The Company or certain of its principal
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.
In the fourth quarter of 1998, the Company began servicing members of the
Foodtown cooperative. Based on the Foodtown cooperative's prior fiscal year's
historical sales, the Company expects incremental annual sales of approximately
$200 million to members of the Foodtown cooperative.
Warehousing and Distribution
The Company presently supplies its customers from three warehouse and
distribution centers. All three facilities are equipped with modern equipment
for receiving, storing and shipping large quantities of merchandise. Management
believes that the efficiency of its warehouse and distribution centers enables
the Company to compete effectively. A warehouse and inventory management system
directs all aspects of the material handling process from receiving through
shipping, thus minimizing cost while maintaining the highest service level
possible.
The Company normally has in-stock approximately 95% of its grocery product line,
approximately 97% of its refrigerated product line and approximately 96% of its
frozen food product line. Immediate product availability, efficient warehousing
techniques and flexible delivery schedules generally make it possible for the
Company to ship to customers within 24 to 48 hours of receipt of their orders.
3
The Company's trucking system consists of 119 tractors (all of which are
leased), 300 trailers (of which 273 are leased) and 11 trucks (all of which are
leased). On approximately 35% of its deliveries, the Company is able to arrange
"backhauls" of products from manufacturers' or other suppliers' distribution
facilities located in the markets served by the Company, thereby enabling the
Company to reduce its procurement costs. The Company regularly uses independent
owner/operators to make deliveries on an "as needed" basis to supplement the use
of its own employees and equipment. The Company makes, on average, approximately
1,100 deliveries per weekday to its customers with a combination of its own
transportation fleet and that of third parties.
Due to the different storage and distribution requirements of each of the
Company's product lines, the Company handles each product line in a separate
facility. All of the Company's warehouse and distribution facilities are fully
integrated through the Company's computer, accounting, and management
information systems to promote operating efficiency and coordinated quality
customer service.
Purchasing
The Company purchases products for resale to its customers from approximately
1,120 suppliers in the United States and abroad. Brand name products are
purchased directly from the manufacturer, through the manufacturer's
representatives or through food brokers by buyers in each operating division.
White Rose(TM) label and customers' private label products are purchased from
producers, manufacturers or packers who are licensed by the Company, in the case
of the White Rose(TM) label, or by the owners of the respective private labels .
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 management 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. This system, which operates in concert with the warehouse management
system, features full electronic data interchange capabilities and accounting
interfaces.
The Company from time to time buys increased quantities of inventory items when
the manufacturer is selling the item at a discount pursuant to a special
promotion, an industry practice known as "forward buying." These special
promotions are offered by various manufacturers at their sole discretion. The
Company earns income from additional margins realized in connection with these
promotional purchasing arrangements.
Competition and Trademarks
The wholesale food distribution industry is highly competitive. The Company is
one of the largest independent wholesale food distributors to supermarkets in
the New York City metropolitan area. The Company's principal competitors in all
three product categories, are C & S Wholesale Grocers, Inc., although it
currently concentrates its distribution business to larger chains, and
Bozzuto's. Krasdale Foods,
4
Inc. and General Trading Co. ("General Trading") are the Company's main
competitor with respect to grocery distribution, General Trading with respect to
refrigerated distribution, and Southeast Frozen Foods with respect to frozen
food distribution.
The Company also competes with cooperatives, such as Key Food Stores
Co-operative Inc., which provide distribution and support services to their
affiliated independent retailers doing business under trade names licensed to
them by the cooperatives. Unlike these competitors, the Company does not require
payment of capital contributions to the Company by retailers desiring to use the
Met(TM) and Pioneer(TM) names.
Management believes that the principal competitive factors in the Company's
business include price, scope of products and services offered, service,
strength of private label brand offered, strength of store trademarks offered
and store financing support. Management believes that the Company competes
effectively by offering a full product line, including its well-recognized,
regional White Rose(TM) label, retail support and financing services, its
Met(TM) and Pioneer(TM) voluntary cooperative trademarks, flexible delivery
schedules, competitive prices and competitive levels of customer services
including insurance, coupon- redemption, scanner support, computerized order
entry, and its well-positioned and efficient distribution networks.
The Company believes there is significant competitive value in its trademark
White Rose(TM) brand, as well as its trademark Met(TM) and Pioneer(TM) names.
Employees
As of February 5, 1999, the Company employed 1,229 persons, of whom 748 were
covered by collective bargaining agreements with various International
Brotherhood of Teamsters locals.
The Company is a party to certain collective bargaining agreements with its
warehouse and trucking employees at its refrigerated operation (expiring
November 2000), its grocery operation (warehouse expiring October 2002 and
trucking expiring May 2000) and its frozen operation (expiring January 2000).
Management believes that the Company's present relations with its work force are
satisfactory.
5
ITEM 2. PROPERTIES
The Company's three principal warehouse and distribution facilities are set
forth below along with its former refrigerated distribution center (currently
being used as an auxiliary facility).
In the second quarter of 1998, the Company's new frozen food facility in
Carteret, New Jersey, became fully operational.
In 1997, the Company acquired from a third-party landlord, land and a building
in Garden City for consideration of $10.6 million, which it previously leased
and accounted for as a capital lease. On April 1, 1998, the Company sold that
facility to another third-party for $14.5 million and entered into a lease back
for a two-year period with an option to extend the lease for an additional 5
year period. This transaction resulted in a gain which was to be amortized over
the initial lease period. The Company believed the frozen foods distribution
business would be integrated into its other location and this facility would be
used for a cold storage operation. Those plans did not materialize which caused
the Company to conclude, in the fourth quarter of fiscal 1998, that is made more
economic sense to abandon the facility, which is expected to be completed by May
1, 1999. In connection therewith, the Company recorded an expense relating to
(i) the impairment of the long-lived assets based on cash flow analyses, (ii)
cash commitments subsequent to date of abandonment, (iii) facilities integration
costs, and (iv) exit costs. Those expenses have been recorded net of gain on the
sale of the facility.
Location Use Square Footage Lease Expiration
- -------- --- -------------- ----------------
Carteret, New Groceries and other 645,000 2018 (plus two 5-year
Jersey Non-Perishables renewal options)
Woodbridge, New Refrigerated 200,000 2001 (plus four 5-year
Jersey renewal options)
Carteret, New Frozen 181,000 2018 (plus two 5-year
Jersey options)
Kearny, New Auxiliary 98,000 1999
Jersey
The aggregate operating lease rent paid in connection with the Company's
facilities was approximately $6.2 million in fiscal 1998.
The Carteret grocery division distribution facility operates at approximately
90% of its current capacity and the refrigerated division distribution facility
operates at 95% of its current capacity (both on a three shift basis), while the
frozen foods division distribution facility operates at approximately 90% of its
current capacity (on a two shift basis). The increase in current capacity used
from the prior year is as a result of sales to the members of the Foodtown
cooperative, which the Company began servicing in 1998. Depending on the type of
new business introduced (e.g. high turn product that is already slotted in
inventory), each warehouse has capacity to grow. Both the grocery facility and
frozen facility leases in Carteret contemplate expansion of up to 161,000 sq. ft
and 92,000 sq. ft., respectively.
6
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in claims, litigation and administrative proceedings of
various types in various jurisdictions. In addition, the Company has agreed to
indemnify various transferees of its divested operations with regard to certain
known and potential liabilities which may arise out of such operations. The
Company also has incurred and may in the future incur liability arising under
environmental laws and regulations in connection with these divested properties
and properties presently owned or acquired. Although management believes that it
has established adequate reserves for known contingencies, there can be no
assurances that the costs of environmental remediation or an unfavorable outcome
in any litigation or governmental proceeding will not have an adverse effect on
the Company.
Environmental. The Company has incurred and may in the future incur
environmental liability to clean up potential contamination at a number of
properties under certain federal and state laws, including the Federal
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"). Under such laws, liability for the cleanup of property
contaminated by hazardous substances may be imposed on both the present owner
and operator of a property and any person who owned or operated the property at
the time hazardous substances were disposed thereon. Persons who arranged for
the disposal of hazardous substances found on a disposal site may also be liable
for cleanup costs. In certain cases, the Company has agreed to indemnify the
purchaser of its former properties for liabilities arising thereon or has agreed
to remain liable for certain potential liabilities that were not assumed by the
transferee.
The Company has recorded an estimate of its total potential environmental
liability arising from specifically identified environmental problems (including
those discussed below) in the amount of approximately $1.1 million as of January
2, 1999. 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 responsible for the cleanup and/or monitoring of various sites
previously owned or operated by the Company, the most significant of which are
located in St. Genevieve, Missouri and Three Rivers, Michigan.
In addition, the Company has been identified as a potentially responsible party
("PRP") under CERCLA for clean-up costs at the Seaboard waste disposal site in
North Carolina. The Company is a member of the de minimus group comprised of
parties who allegedly contributed less than 1% of the total waste at the site.
Litigation. The Company was named a defendant in an action entitled Twin County
Grocers, Inc. and Twinco Services, Inc. v. Food Circus Supermarkets, Inc., et
al., filed in the United States Bankruptcy Court for the District of New Jersey
on February 26, 1999. The Company is one of 32 defendants named in the action.
The action alleges that the Company was a party to a civil conspiracy, breached
agreements and tortiously interfered with a contract and prospective economic
advance in connection with a potential sale of Twin County's business and seeks
unspecified damages. The Company has had a preliminary review of the complaint
by its counsel, believes that the allegations against the Company are without
merit, and intends to vigorously defend this action.
7
The Company is not a party to any other litigation, other than routine
litigation incidental to the business of the Company, which is individually or
in the aggregate material to the business of the Company. Management, after
consultation with counsel, does not believe that the outcome of any of its
current litigation, either individually or in the aggregate, will have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
There is no established public market for the outstanding common equity of the
Company and the majority of its outstanding common equity is owned by Rose
Partners, LP.
The ability of the Company to pay dividends is governed by restrictive covenants
contained in the indenture governing its publicly held debt as well as
restrictive covenants contained in the Company's senior bank lending arrangement
and the indenture governing its publicly held debt. As a result of these
restrictive covenants, the Company was not permitted to pay dividends on January
2, 1999.
9
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company
for the periods indicated and has been prepared by adjusting the consolidated
financial statements of the Company as if the merger between the Company and its
former parent, White Rose Foods, Inc. ("White Rose"), with the Company as the
survivor, had taken place as of January 2, 1994. Since the stockholders of the
Company, upon consummation of the Merger are identical to the stockholders of
White Rose, the exchange of shares was a transfer of interest among entities
under common control, and is being accounted for at historical cost in a manner
similar to pooling of interests accounting. Such data should be read in
conjunction with the consolidated financial statements and related notes
included herein.
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 30, December 28, December 27, January 2,
1994 1995 1996 1997 1999 (c)
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(In thousands)
Income Statement Data:
Total revenue $ 936,847 $ 1,023,041 $ 1,050,206 $ 1,071,800 $ 1,196,933
Gross profit(a) 101,321 107,505 114,487 112,633 121,939
Warehouse expense 37,945 39,676 41,038 42,453 49,440
Transportation expense 21,354 22,759 21,624 22,042 24,719
Selling, general and administration expenses 19,835 21,877 22,694 21,598 22,760
Facility integration and abandonment expense 3,986 -- -- -- 4,173
Amortization--excess of cost over
net assets acquired 2,766 2,892 2,892 2,459 2,460
Operating income 15,435 20,301 26,239 24,081 18,387
Interest expense 20,370 24,887 23,955 21,890 18,170
Amortization--deferred financing costs 1,479 1,457 1,138 944 721
Other (income), net (2,939) (3,842) (3,758) (3,242) (9,534)(e)
Income (loss) from continuing
operations before income taxes and
extraordinary items (3,475) (2,201) 4,904 4,489 9,030
Income taxes 63 105 3,053 (1,241) 4,449
Income (loss) from continuing
operations and extraordinary items (3,538) (2,306) 1,851 5,730 4,581
Extraordinary (loss)/gain on
extinguishment of debt, net of tax -- 510 219 (8,693) (201)
Net (loss) income $ (3,538) $ (1,796) $ 2,070 $ (2,963) 4,380
December 31, December 30, December 28, December 27, January 2,
1994 1995 1996 1997 1999 (c)
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(In thousands)
Balance Sheet Data:
Total assets $ 304,147 $ 318,430 $ 301,069 $ 279,961 $ 274,828
Working capital 2,746 7,344 12,342 23,365 41,117
Total debt incl capital leases 197,339 223,543 215,308 196,966 178,127
Total stockholder's equity (deficiency) 5,050 2,035 4,105 (3,081) (b) (3,701)(d)
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(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. See
Management's Discussion and Analysis, general. 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 year.
(d) Including $5 million stock repurchase in May 1998.
(e) Includes $7.2 million consideration as a result of the Fleming Agreement.
See Management's Discussion and Analysis, results of operations.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-K include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievement
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions and those in particular in the New York City metropolitan area;
restrictions imposed by the documents governing the Company's indebtedness;
competition; the Company's reliance on several significant customers; potential
losses from loans to its retailers; potential environmental liabilities which
the Company may have; the Company's labor relations; dependence on key
personnel; changes in business regulation; business abilities and judgment of
personnel; and changes in, or failure to comply with government regulations.
General
On June 20, 1997, the Company completed a refinancing of itself and its former
parent, White Rose, intended to extend debt maturities, reduce interest expense
and improve financial flexibility. The components of the Refinancing were (i)
the offering of $155 million 10% senior notes due 2007, (ii) the modification of
the Company's bank credit facility, (iii) the receipt of $8.9 million from the
repayment of a note held by the Company from Rose Partners, LP, which owns 98.5%
of the Company, (iv) the consummation of the tender offers and consent
solicitations commenced by the Company and White Rose on May 16, 1997 in respect
of the Company's 12% Senior Notes due 2003 and White Rose's 12-3/4% Senior
Discount Notes due 1998, respectively, (v) the $4.2 million dividend by the
Company to White Rose of certain non-cash assets which were unrelated to the
Company's primary business and the subsequent dividend of those assets to White
Rose's stockholders and (vi) the merger of White Rose with and into the Company
with the Company surviving the merger.
The following discussion assumes that the Merger between White Rose and the
Company had taken place as of January 1, 1995. Since the stockholders of the
Company are identical to the stockholders of White Rose, the exchange of shares
was a transfer of interest among entities under common control, and is being
accounted for at historical cost in a manner similar to pooling-of-interests
accounting. Accordingly, the discussion presented herein reflects the assets and
liabilities and related results of operations for the combined entity for all
periods.
11
Results of Operations
Fifty-three weeks ended January 2, 1999 and fifty-two weeks ended December 27,
1997
Net sales for the fifty-three weeks ended January 2, 1999 were $1,189.3 million
as compared to $1,065.4 million for the fifty-two weeks ended December 27, 1997.
This 11.6% increase primarily reflects increased frozen food sales to a division
of A&P which began in August 1997 as well as additional business from new and
existing customers. The fifty-third week in 1998 accounted for approximately 19%
of the increase in net sales.
Other revenue, consisting of reclamation service fees, storage income, label
income, coupon-processing, and other customer related services, increased to
$7.6 million for the fifty-three weeks ended January 2, 1999 as compared to $6.4
million in the prior period primarily as a result of emphasizing additional
services to our increased customer base.
Gross margin (excluding warehouse expense) decreased to 10.3% of net sales or
$121.9 million for the fifty-three weeks ended January 2, 1999 as compared to
10.6% of net sales or $112.6 million for the prior period as a result of a
change in mix of both customers and product sold. The Company has, and will
continue to, take steps intended to maintain and improve its margins; however,
factors such as the decrease in promotional activities, changes in product mix,
additions of high volume, low margin customers, or competitive pricing pressures
are expected to have an effect on gross margin.
Warehouse expense increased to 4.2% of net sales or $49.4 million for the
fifty-three weeks ended January 2, 1999 as compared to 4.0% of net sales or
$42.5 million for the prior period primarily (i) as a result of operating two
frozen food facilities in Carteret, New Jersey and Garden City, New York, since
April 1998 and (ii) the amended grocery facility lease discussed below.
Beginning in the third quarter of 1998, after all the frozen distribution
business was transitioned to the new Carteret, NJ frozen facility, warehouse
expense includes $2.7 million related to the Garden City facility which was
being used for outside public storage as well as some secondary self storage.
With respect to the grocery facility lease, in November 1997, the Company
amended its grocery facility lease, adding additional leased property, extending
the term, and increasing the annual rental obligations. The changes in the
provisions of that lease resulted in the amended lease being treated as a new
lease and accounted for as an operating lease. Had the terms of the lease not
changed, warehouse expense as a percentage of sales would have decreased by .1%
of sales in the current period.
Transportation expense remained constant at 2.1% of net sales or $24.7 million
for the fifty-three weeks ended January 2, 1999 as compared to 2.1% of net sales
or $22.0 million in the prior period.
Selling, general and administrative expense decreased to 1.9% of net sales or
$22.8 million for the fifty- three weeks ended January 2, 1999 as compared to
2.0% of net sales or $21.6 million in the prior period primarily due to the
effect of applying fixed costs to higher revenues.
The Company recorded $4.2 million of facility integration and abandonment
expenses related to the shut down of the Garden City facility and the move of
its frozen business to Carteret, New Jersey. This expense consisted of (i) $4.1
million related to the impairment of the leasehold improvement at Garden
12
City, (ii) $2.2 million related to rent and real estate taxes from May 1, 1999,
the anticipated closure date of its Garden City facility, through March 2000,
the lease termination date, (iii) $600,000 for the removal of certain equipment,
and (iv) $400,000 related to rent before the new facility was operable and
moving expenses. These expenses were offset by the $3.1 million gain on the sale
of the Garden City facility in April 1998. As of January 2, 1999, the balance of
the reserve was $2.8 million, all of which is expected to be expended before
March 2000.
Other income, net of other expenses, increased to $9.5 million for the
fifty-three weeks ended January 2, 1999 from $3.2 million in the prior period.
During the current period, the Company entered into an agreement with Fleming
Companies, Inc. ("Fleming Agreement") which called for (i) the Company to
receive consideration resulting in a $7.2 million nonrecurring gain from
renegotiating a contract to clarify past practices and (ii) a strategic
marketing alliance which may generate modest commission income in the future.
This increase was offset somewhat by (i) the loss of approximately $369,000 of
rental income relating to the Farmingdale facility which was sold in the prior
period and (ii) a lower level of interest income as a result of the repayment of
the Rose Partner note receivable (repaid in June 1997) which accounted for
$502,000 of interest income in the prior period. The Farmingdale facility was
sold in August 1997 with the proceeds used to reduce outstanding indebtedness.
Interest expense decreased to $18.2 million for the fifty-three weeks ended
January 2, 1999 from $21.9 million for the prior period. The comparative
decrease from the 1997 period represents a decline in both the average
outstanding level of the Company's funded debt and the average interest rate as
a result of the Company's Refinancing on June 20, 1997.
The Company recorded an income tax provision of $4.4 million, resulting in an
effective income tax rate of 49% for the fifty-three weeks ended January 2, 1999
as compared to a benefit of $1.2 million in the prior period. The Company's
estimated effective tax rate is higher than the statutory tax rate primarily
because of the nondeductibility of certain of the Company's amortization of the
excess of cost over net assets acquired; however, due to net operating losses
carryforwards for tax purposes, the Company does not expect to pay federal
income tax for 1998 with the exception of an alternative minimum tax.
The Company recorded net income for the fifty-three weeks ended January 2, 1999
of $4.4 million, including an extraordinary loss on the extinguishment of debt,
net of tax, of $201,000 as compared to net loss of $3.0 million for the prior
period which included an $8.7 million extraordinary loss on the extinguishment
of debt.
Fifty-two weeks ended December 27, 1997 and December 28, 1996
Net sales for the fifty-two weeks ended December 27, 1997 were $1,065.4 million
as compared to $1,045.2 for the fifty-two weeks ended December 28, 1996. This
1.9% increase primarily reflected increased frozen food sales to a division of
A&P and temporary supplemental supply arrangements offset by a $60 million
decrease in sales to a customer which terminated its contract for refrigerated
division products in the fourth quarter of 1996.
Other revenue, consisting of reclamation service fees, storage income, label
income, and other customer related services, increased to $6.4 million for the
fifty-two weeks ended December 27, 1997 as compared to $5.0 million in the prior
period primarily due to providing a produce distribution service for a
particular
13
customer which ended in June 1997. Excluding this produce service, other revenue
would have been $5.8 million for the fifty-two weeks ended December 27, 1997 as
a result of new services being offered by the Company, as well as, increased
services based on additional 1997 revenues.
Gross margin (excluding warehouse expense) decreased to 10.6% of net sales or
$112.6 million for the fifty-two weeks ended December 27, 1997 as compared to
11.0% of net sales or $114.5 million for the prior period as a result of a
change in mix of both customers and product sold. The Company took steps
intended to maintain and improve its margins; and factors such as the decrease
in promotional activities, changes in product mix, additions of high volume, low
margin customers, or competitive pricing pressures continued to have an effect
on gross margin.
Warehouse expense increased to 4.0% of net sales or $42.5 million for the
fifty-two weeks ended December 27, 1997 as compared to 3.9% of net sales or
$41.0 million for the prior period.
Transportation expense remained constant at 2.1% of net sales or $22.0 million
for the fifty-two weeks ended December 27, 1997 as compared to 2.1% of net sales
or $21.6 million in the prior period.
Selling, general and administrative expense decreased to 2.0% of net sales or
$21.6 million for the fifty-two weeks ended December 27, 1997 as compared to
2.2% of net sales or $22.7 million in the prior period.
Other income, net of other expenses, decreased to $3.2 million for the fifty-two
weeks ended December 27, 1997 from $3.8 million in the prior period due to
$476,000 less interest income on the Rose Partners note receivable which was
repaid in June 1997. In addition, as a result of the Farmingdale option sale in
August 1997, net rental income from that property decreased $828,000 in 1997.
These decreases were offset to some degree by income from a program run for the
benefit of a group of customers.
Interest expense decreased to $21.9 million for the fifty-two weeks ended
December 27, 1997 from $24.0 million for the prior period. The comparative
decrease from the 1996 period represented a decline in both the average
outstanding level of the Company's funded debt and the average interest rate as
a result of the Company's Refinancing on June 20, 1997.
During the third quarter of fiscal 1997, the Company reversed the valuation
allowance related to its deferred tax assets. In the opinion of management,
sufficient evidence existed, such as the positive trend in operating performance
and the favorable effects of the recently completed refinancing, which indicated
that it was more likely than not that the Company would be able to realize its
deferred income tax assets. The reversal of the valuation allowance resulted in
an income tax benefit of $3.9 million and a reduction in goodwill of $11.5
million. The reduction in goodwill reflected benefits which were attributable to
the pre-acquisition period.
For the year ended December 27, 1997, the Company recorded an income tax benefit
from continuing operations of $1.2 million (including the $3.9 million benefit)
compared to an income tax expense of $3.1 million for the year ended December
28, 1996. The Company's recorded income tax (benefit) provision was higher than
the statutory rate primarily because of the nondeductibility of certain of the
Company's amortization of the excess of cost over net asset acquired; however,
due to net operating loss carryforwards for tax purposes, the Company did not
expect to pay federal income tax for 1997, with the possible exception of some
alternative minimum tax.
14
The Company recorded a net loss for the fifty-two weeks ended December 27, 1997
of $3.0 million, including an extraordinary loss on the extinguishment of debt,
net of tax, of $8.7 million as compared to net income of $2.1 million for the
prior period which included a $219,000 extraordinary gain on the extinguishment
of debt.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's bank credit
facility are the Company's principal sources of liquidity. The Company's bank
credit facility is scheduled to mature on June 30, 2000 and bears interest at a
rate per annum equal to (at the Company's option): (i) the Euro Dollar Offering
Rate plus 2.25% or (ii) Bankers Trust Company's prime rate plus 0.75%.
Borrowings under the Company's revolving bank credit facility were $20.6 million
at January 2, 1999 at an average interest rate of 8.04%. Additional borrowing
capacity of $64.0 million was available at that time under the Company's
borrowing base formula. The Company believes that these sources will be adequate
to meet its anticipated working capital needs, capital expenditures, and debt
service requirements during fiscal 1999.
During the fifty-three weeks ended January 2, 1999, cash flows provided by
operating activities were $11.5 million, consisting primarily of (i) cash
generated from income before extraordinary items and non-cash expenses of $16.7
million and (ii) an increase in accounts payable, accrued expenses and other
liabilities of $11.7 million which were primarily offset by (i) an increase in
net receivable levels of $16.5 million, which included a $5.2 million note from
the Foodtown cooperative, and (ii) an increase in inventory of $4.4 million.
Cash flows provided by investing activities during the fifty-three weeks ended
January 2, 1999 were approximately $10.7 million; which consisted of $13.7
million of proceeds from the sale of the Garden City facility offset by $3.0
million of capital expenditures, which included the Garden City land purchase of
$1.7 million. Net cash used in financing activities was $24.2 million consisting
primarily of $19.6 million of debt payments, a $5.0 million capital stock
buyback, and net borrowings under the Company's bank credit facility of $1.0
million. The $19.6 million in debt payments included approximately $7.5 million
which was utilized to redeem the balance of the Company's 12% senior notes on
March 26, 1998. The redemption included a mandatory 4.5% premium ($335,000)
which resulted in a $201,000 extraordinary loss net of tax. As a result of this
redemption, the Company expects to save approximately $250,000 in interest
expense annually given the current difference in interest rates between the
notes redeemed and the Company's bank credit facility. The balance of debt
payments reflects the repayment of notes related to the Garden City facility and
to Fleming Companies, Inc.
Earnings before interest expense, income taxes, depreciation and amortization,
non-recurring charges such as extraordinary gains or losses ("EBITDA"), was
$38.8 million during the fifty-three weeks ended January 2, 1999 as compared to
$36.2 million in the comparable prior year period. This increase in EBITDA
reflects $7.3 million as a result of the Fleming Agreement, the $2.6 million
negative impact of the change in accounting treatment for the Company's grocery
facility lease, and the sale of the Farmingdale property in August 1997 which
contributed approximately $1.2 million to the prior year's EBITDA.
The consolidated indebtedness of the Company decreased to $178.1 million at
January 2, 1999 as compared to $197.0 million at December 27, 1997.
Stockholders' deficiency increased to $3.7 million at January 2, 1999 from a
deficiency of $3.1 million at December 27, 1997 as a result of the $5 million
stock repurchase in May 1998.
15
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 and minimum net worth. As of January 2, 1999, the Company was in
compliance with its covenants.
The indenture governing the Company's 10% Notes, as well as the agreement
governing the bank credit facility, impose various restrictions upon the
Company, including, among other things, limitations on the occurrence of
additional debt and the making of certain payments and investments.
From time to time when the Company considers market conditions attractive, as
the Company has demonstrated in the past, with the purchase on the open market
of a portion of its 12% Notes, the Company may purchase and retire a portion of
its outstanding 10% Notes. In addition, the Company continuously reviews its
capital structure, including its funded debt and capital leases, to determine if
it can more advantageously finance its operations.
Excluding the Garden City transaction, the Company spent approximately $1.3
million on capital expenditures during the fifty-three weeks ended January 2,
1999, and currently does not expect to spend more than $2.5 million during 1999
on capital expenditures.
The Company expended approximately $727,000 in fiscal 1998 and does not expect
to expend more than $1.0 million in fiscal 1999 in connection with the
environmental remediation of certain presently owned or divested properties. At
January 2, 1999, the Company has reserved $1.1 million for those known
environmental liabilities. The Company intends to finance the remediation
through internally generated cash flow or borrowings. Management believes that
should the Company become liable as a result of any material adverse
determination of any legal or governmental proceeding beyond the expected
expenditures, it could have an adverse effect on the Company's liquidity
position.
Year 2000 Computer Issues
State of readiness
The Company has implemented a Year 2000 compliance program designed to insure
that the Company's computer systems and applications will function properly
beyond 1999. The program is led by the Company's vice president of information
systems and consists of employees from across division lines. The Company
believes it has identified all of the systems which need testing, including but
not limited to its traditional computer systems as well as those systems
containing embedded chip technology commonly found in buildings and equipment
connected with a building's infrastructure such as heating, refrigeration and
air conditioning systems, security systems and telephones. The vast majority of
testing to determine if a system is Year 2000 compliant is complete. Portions of
the remediation phase, such as the billing system, are also complete and
currently in use. The remainder of the remediation phase is projected to be
completed in the second quarter of fiscal 1999. In some cases, new systems will
be purchased and those should also be in place no later than the end of the
second quarter of fiscal 1999.
Costs
The total expected cost of the Company's Year 2000 compliance program is
projected to be less than $1.25 million, consisting primarily of internal
salaries, of which approximately $740,000 has been spent as of January 2, 1999.
All costs are expensed as incurred. The Company does expect to use, on a limited
basis, some outside programmers in this effort.
16
Risks
Although the full consequences are unknown, the failure of one of the Company's
critical computer systems or the failure of an outside system, such as that of
the Federal Reserve or the electric utilities, may result in the interruption of
the Company's business which may result in a material adverse effect on the
results of operations or financial condition of the Company. With particular
respect to inventory purchased for resale from the Company's 1,120 vendors, the
Company does not expect that any vendor's or small group of vendors' Year 2000
problem(s) would have a long-term negative effect on the Company since the worst
thing that would happen is the Company would not receive any of that vendor's
product for resale. The Company doesn't expect any of its competitors would
receive that product either, so the Company and the Company's customers would
not be at a competitive disadvantage.
With respect to the Company's larger customers, communications are ongoing with
respect to their progress in resolving potential Year 2000 problems such as
insuring the integrity of the procurement system as well as helping the smaller
customers' critical needs such as cash registers and point-of-sale (POS)
systems. Despite the relative lack of problems encountered in these discussions
with both large and small customers of the Company to date, the Company has no
direct confirmation or control of our customers' Year 2000 remediation efforts,
and there can be no assurance that system failures, that cause material adverse
results to our customers, would not have an adverse effect on the Company.
Contingency Plans
The Company is in the process of developing contingency plans for those areas
which might be effected by the Year 2000 problem; however, there can be no
assurances that a contingency plan will exist for all situations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in the interest rates on
certain of its outstanding debt. The outstanding loan balance under the
Company's bank credit facility bears interest at a variable rate based on
prevailing short-term interest rates in the United States and Europe. Based on
1998's average outstanding bank debt, a 100 basis point change in interest rates
would change interest expense by approximately $173,000. For fixed rate debt
such as the Company's $155 million 10% senior notes, interest rate changes
effect the fair market value but do not impact earnings or cash flows.
The Company does not presently use financial derivative instruments to manage
its interest costs. The Company has no foreign exchange risks.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Financial Statements
Consolidated Financial Statements of Di Giorgio Corporation and Subsidiaries
Index to Consolidated Financial Statements............................... F-1
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 27, 1997 and January 2, 1999.. F-3
Consolidated Statements of Operations for each of the
three years in the period ended January 2, 1999......................... F-4
Consolidated Statements of of Changes in Stockholder's
Equity (Deficiency) for each of the three years in the period
ended January 2, 1999................................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended January 2, 1999..................... F-6
Notes to Consolidated Financial Statements............................... F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
The following table sets forth certain information regarding the directors and
executive officers of Di Giorgio:
Age Position
Arthur M. Goldberg(2)(3) 57 Chairman of Board of Directors, President
and Chief Executive Officer
Richard B. Neff(3) 50 Executive Vice President, Chief Financial
Officer and Director
Stephen R. Bokser 56 Executive Vice President, President of
White Rose Food Division of Di Giorgio
and Director
Jerold E. Glassman(3) 63 Director
Emil W. Solimine(2) 54 Director
Charles C. Carella(1) 65 Director
Jane Scaccetti Fumo(1) 44 Director
Joseph R. DeSimone 59 Senior Vice President Distribution
Robert A. Zorn 44 Senior Vice President and Treasurer
Lawrence S. Grossman 37 Vice President and Corporate Controller
- -----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
Directors are elected for one year terms and hold office until their successors
are elected and qualified. The executive officers are appointed by and serve at
the discretion of the Board of Directors.
Mr. Goldberg has been Chairman of the Board, President and Chief Executive
Officer of Di Giorgio since 1990. Mr. Goldberg is Director, President and Chief
Executive Officer of Park Place Entertainment Corp., since January 1999. Prior
there to, he was a Director and Executive Vice President and President -- Gaming
Operations, Hilton Hotels Corporation, since December 1996. He was President,
Chairman and Chief Executive Officer and a director of Bally Entertainment
Corporation from October 1990 to December 1996. He is also Managing Partner,
Arveron Investments, LP, since 1986. Mr. Goldberg is also a
19
director of Bally Total Fitness Holding Corporation, Bally's Grand, Inc., and
First Union Corporation. Mr. Goldberg, in his capacity as the sole general
partner of Rose Partners, L.P., controls the voting and investment of 98.5% of
the outstanding common stock of the Company.
Mr. Neff has been Executive Vice President, Chief Financial Officer and Director
of Di Giorgio since 1990. He is also a Director of Ryan Beck & Co., an
investment banking concern.
Mr. Glassman has been a Director of Di Giorgio since 1990. Since prior to 1990,
Mr. Glassman has been a Partner of Grotta, Glassman & Hoffman, a law firm which
has its primary office in Roseland, New Jersey.
Mr. Bokser has been Executive Vice President and Director of Di Giorgio since
February 1990. In addition, Mr. Bokser has served as President of the White Rose
Foods Division of Di Giorgio since prior to 1991. Mr. Bokser has also served as
a director of Western Beef, Inc. since 1993.
Mr. Solimine has been a Director of Di Giorgio since 1990. He also is the Chief
Executive Officer of the Emar Group, Inc., an insurance concern, since prior to
1991. Mr. Solimine has served as a director of Strober Organization, Inc., a
building material distributor, since prior to 1991.
Mr. Carella became a Director of Di Giorgio in 1995. Since prior to 1991, Mr.
Carella has been a Partner of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart &
Olstein, a law firm which has its primary office in Roseland, New Jersey. Since
1983, he has served on the Board of Administrations of Archdiocese of Newark.
Mrs. Fumo became a Director of Di Giorgio in 1996. Mrs. Fumo has been a
shareholder for the past nine years of Drucker & Scaccetti, P.C., a firm
specializing in accounting and business advisory services. She is also a
Director for Nutrition Management Services Company and Pennsylvania Savings
Bank.
Mr. DeSimone has been Senior Vice President of Distribution since January 1995.
From 1990 through January 1995, he was Vice President of Warehousing and
Distribution.
Mr. Zorn has been Senior Vice President and Treasurer of Di Giorgio since 1992.
He served as a Vice President of Bankers Trust Company, New York, New York prior
to 1992.
Mr. Grossman has been employed by Di Giorgio since 1990. He has served as Vice
President of Di Giorgio since January 1994 and Corporate Controller since
February 1992. Mr. Grossman is a certified public accountant.
20
ITEM 11. EXECUTIVE COMPENSATION.
Compensation
The following table sets forth compensation paid or accrued to the Chief
Executive Officer and each of the four most highly compensated executive
officers of Di Giorgio whose cash compensation, including bonuses and deferred
compensation, exceeded $100,000 for the three fiscal years ended January 2,
1999.
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- ---- -------- ------- ------------ ------------
(1)
Arthur M. Goldberg, 1998 $400,000 -- -- --
Chairman of the Board, President 1997 $400,000 -- -- --
and Chief Executive Officer 1996 $400,000 -- -- --
Richard B. Neff, 1998 $325,000 $475,000 -- $2,400(2)
Executive Vice President 1997 $275,923 $261,000 -- $2,400(2)
and Chief Financial Officer 1996 $260,900 $145,000 -- $2,250(2)
Stephen R. Bokser, 1998 $325,000 $300,000 -- $2,400(2)
Executive Vice President 1997 $313,000 $250,000 -- $2,400(2)
and President of White Rose 1996 $288,600 $145,000 -- $2,250(2)
Division
Robert A. Zorn, 1998 $220,600 $30,000 -- $2,400(2)
Senior Vice President and 1997 $210,600 $32,500 -- $2,400(2)
Treasurer 1996 $200,600 $20,000 -- $2,250(2)
Joseph R. DeSimone 1998 $171,800 $26,000 -- $2,400(2)
Senior Vice President 1997 $163,300 $25,000 -- $2,400(2)
Warehousing and Distribution 1996 $155,300 $20,000 -- $2,250(2)
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to executive officers during fiscal years 1996,
1997, and 1998 are not described herein because the incremental cost to
the Company of such benefits is below the Securities and Exchange
Commission disclosure threshold.
(2) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement Savings
Plan."
21
Employment Agreements
The Company is a party to an Agreement with Mr. Neff which runs through October
31, 2000. Currently, Mr. Neff is entitled to receive an annual salary of
$325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Neff will
receive additional compensation (the "Additional Compensation") upon the
occurrence of certain change of control type of events or distribution of assets
to shareholders, as both are defined in the Agreement ("Recognition Event") and
determined pursuant to a formula. In the event of death or disability, Mr. Neff
or his estate, will be entitled to continue to receive compensation and employee
benefits for one year following such event and in certain circumstances will
receive Additional Compensation. If Mr. Neff's employment is terminated by the
Company other than for cause, Mr. Neff will be entitled to receive the Salary
through the end of the Agreement. If Mr. Neff's employment is terminated by the
Company for cause, Mr. Neff will be entitled to receive Salary prorated through
the end of the week.
The Company is a party to an Agreement with Mr. Bokser which runs through June
30, 2000. Currently, Mr. Bokser is entitled to receive an annual salary of
$325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Bokser will
receive additional compensation (the "Additional Compensation") upon the
occurrence of certain change of control type of events or distribution of assets
to shareholders, as both are defined in the Agreement ("Recognition Event") and
determined pursuant to a formula. In the event of death or disability, Mr.
Bokser or his estate, will be entitled to continue to receive compensation and
employee benefits for one year following such event and in certain circumstances
will receive Additional Compensation. If Mr. Bokser's employment is terminated
by the Company other than for cause, Mr. Bokser will be entitled to receive the
Salary through the end of the Agreement. If Mr. Bokser's employment is
terminated by the Company for cause, Mr. Bokser will be entitled to receive
Salary prorated through the end of the week.
The Company is a party to an agreement with Mr. Zorn which provides for
employment through March 10, 1999. The agreement will remain in effect subject
to six months notice given by either party to terminate. Currently, Mr. Zorn is
entitled to receive an annual salary of $220,600, 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
22
in the Retirement Plan multiplied by 1.5% and (b) with respect to employment
prior to September 1, 1990, an annual amount equal to the sum of (i) the benefit
earned under the Retirement Plan as of December 31, 1987, the product of the
participant's 1988 compensation and 1.5%, and the product of the participant's
1988 compensation in excess of $45,000 and .5% plus (ii) the product of the
participant's aggregate compensation earned after 1988 and prior to September 1,
1990 and 1.5%. In certain circumstances, the amount determined under (b)(i)
above may be determined in an alternative manner.
Benefits under the Retirement Plan are payable at a participant's normal
retirement date (i.e., Social Security retirement age) in the form of an annuity
although a limited lump-sum payment is available. In addition, an actuarially
reduced early retirement benefit is available after a participant reaches age
55.
A participant earns a nonforfeitable (i.e., vested) right to a retirement
benefit after reaching age 65, becoming disabled, or completing five years of
employment. The estimated annual retirement income payable in the form of a life
annuity to the individuals named in the Cash Compensation Table commencing at
their respective normal retirement ages under the Retirement Plan is as follows:
Mr. Goldberg, $25,321; Mr. Neff, $23,241; Mr. Bokser $90,296; Mr. Zorn, $12,870;
Mr. De Simone, $16,661.
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
10% 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). This percentage is based on the
Company's consolidated pre-tax rate of return (i.e., the quotient obtained by
dividing the Company's adjusted consolidated pre-tax earnings by its
consolidated net worth) and ranges from 30% to 50%.
Each participant has a fully vested (i.e., nonforfeitable) interest in all
contributions made by them and in the matching contributions made by the Company
on their behalf and has full investment discretion over their 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.
23
Compensation of Directors
Directors of the Company who are not employees or otherwise affiliated with the
Company receive a quarterly retainer fee of $4,000 plus fees of $1,000 per day
for attendance at Board of Directors and Committee meetings. All directors of
the Company are also reimbursed for out-of-pocket expenses associated with
attendance at Board meetings.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended January 2, 1999, the Compensation Committee
consisted of Arthur M. Goldberg and Emil W. Solimine. Mr. Goldberg currently
serves as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company. Mr. Solimine currently serves as a Director of the
Company.
See "Certain Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Mr. Goldberg, through his indirect beneficial ownership of the Company, controls
the affairs of the Company, the majority of the common stock of which is owned
by Rose Partners, LP (98.5%). Mr. Goldberg controls the affairs of Rose Partners
in his capacity as sole general partner.
Mr. Goldberg, through his indirect beneficial ownership of the Company,
effectively has the ability to determine the outcome of most corporate actions
requiring stockholder approval, including the election of the Board of
Directors, adoption of certain amendments to the charter and approval of
mergers, and sales of all or substantially all assets.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Bokser is a director of Western Beef, Inc. In fiscal 1998, the Company sold
various food products to Western Beef, Inc. in the amount of $48.7 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 $110,000 to the firm for fiscal
1998.
The Company employs Emar Group, Inc. ("Emar Group"), a risk management and
insurance brokerage company controlled by Emil W. Solimine, a director of the
Company, for risk management and insurance brokerage services. The Company paid
Emar Group approximately $150,000 for fiscal 1998 for such services.
In fiscal 1998, the Company recorded income of $71,000 from Hilton Hotel
Corporation and subsidiaries, a company in which Mr. Goldberg served as
Executive Vice President - President Gaming Operations, in connection with the
sharing of its office facilities and sundry other expenses.
The Company believes that the transactions set forth above are on terms no less
favorable than those which could reasonably have been obtained from unaffiliated
parties.
24
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 27, 1997
and January 2, 1999............................................ F-3
Consolidated Statements of Operations for each of the
three years in the period ended January 2, 1999................ F-4
Consolidated Statements of Changes in Stockholder's
Equity (Deficiency) for each of the three years in the period
ended January 2, 1999.......................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended January 2, 1999............ 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(16) - 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(15) - Indenture between Di Giorgio Corporation and The Bank
of New York, as Trustee, including the form of Note,
dated as of June 20, 1997.
4.3(3) - Indenture, dated February 2, 1993 under which Di
Giorgio's Senior Notes due 2003 are issued.
25
4.4(15) - Supplemental Indenture, dated June 9, 1997 between Di
Giorgio Corporation and The Bank of New York, as
Trustee.
4.5(3) - Di Giorgio 12% Senior Note Certificate Specimen, dated
as of February 1, 1993.
10.1(3) - Credit Agreement dated as of February 10, 1993 among
the Di Giorgio Corporation, various financial
institutions, BT Commercial Corporation, as agent, and
Bankers Trust Company as Issuing Bank
10.2(5) - Sublease Agreement between MF Corp. (sublandlord) and
PC Richard & Son Long Island Corporation (subtenant),
dated July 27, 1993, relating to facilities located in
Farmingdale, New York
10.3(17)+ - Amended and Restated Employment Agreement effective as
of October 31, 1997 between the Company and Richard B.
Neff.
10.4(1)+ - Employment Agreement dated February 18, 1992 between
the Company and Robert A. Zorn
10.5(16)+ - Second Amended and Restated Employment Agreement dated
June 30, 1997 between the Company and Stephen R. Bokser
10.6(3)+ - Di Giorgio Retirement Plan as Amended and Restated
effective January 1, 1989 (dated January 26, 1996)
10.7(11)+ - Di Giorgio Retirement Savings Plan as Amended and
Restated effective January 1, 1989
10.8(13)+ - Amendment to the Di Giorgio Retirement Savings Plan
effective January 1, 1989 (dated November 28, 1995)
10.9(1) - Lease between The Four B's (landlord) and White Rose
Dairy, a division of Di Giorgio (tenant) dated November
21, 1988, as amended May 11, 1989, relating to
facilities located in Kearny, New Jersey
10.11(2) - Sub-Sublease between WRGFF (sublandlord) and Frozen
Food (subtenant), dated August 3, 1992 relating to
facilities located in Garden City, New York
10.12(4) - Consent and Amendment No. 1 dated as of June 25, 1993
to Credit Agreement dated as of February 10, 1993
10.13(5) - Consent and Amendment No. 2 dated as of November 3,
1993 to Credit Agreement dated as of February 10, 1993
10.14(3) - Note Pledge Agreement dated as of February 1, 1993, by
Di Giorgio Corporation in favor of BT Commercial
Corporation, as agent
26
10.15(3) - License and Security Agreement dated as of February 1,
1993, by Di Giorgio Corporation in favor of BT
Commercial Corporation, as agent
10.16(3) - Promissory Note dated as of February 2, 1993 made by
Las Plumas Lumber Corporation in favor of Di Giorgio
10.30(7) - 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
10.31(7) - Consent and Amendment No. 3 dated March 30, 1994 to
Credit Agreement dated as of February 10, 1993
10.32(8) - Consent and Amendment No. 4 dated April 22, 1994 to
Credit Agreement dated as of February 10, 1993.
10.33(9) - Asset Purchase Agreement made as of the 1st day of
April 1994 by and among Di Giorgio Corporation, Fleming
Foods East Inc. and Fleming Companies, Inc., and First
Amendment dated April 7, 1994 and Second Amendment dated
April 20, 1994.
10.34(10) - Third Amendment dated as of June 20, 1994 to Asset
Purchase Agreement of April 1, 1994 between Di Giorgio
Corporation, Fleming Foods East, Inc. and Fleming
Companies, Inc.
10.35(11) - Amendment No. 5 dated November 15, 1994 to Credit
Agreement dated as of February 10, 1993.
10.36(11) - Waiver and Amendment No. 6 dated as of March 3, 1995
to Credit Agreement dated as of February 10, 1993.
10.37(11) - 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.
10.38(12) - Amendment No. 7 dated September 30, 1995 to Credit
Agreement dated as of February 10, 1993.
10.39(14) - Amendment No. 8, dated as of September 26, 1996 to
Credit Agreement dated as of February 10, 1993.
10.40(15) - Amendment No. 9, dated as of May 23, 1997 to Credit
Agreement dated as February 10, 1993.
10.41(15) - Amendment No. 10, dated as of June 11, 1997 to Credit
Agreement dated as of February 10, 1993.
27
10.42(18) - 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.
10.43(18) - Third Amendment, dated as of November 26, 1997, to
Carteret grocery warehouse lease dated as of February
11, 1994.
10.46(18) - Agreement of Purchase and Sale between the Company and
FR Acquisitions, Inc. of the Company's Garden City, New
York frozen food facility dated as of February 19, 1998.
10.47(18) - Agreement of Lease between the Company and FR
Acquisitions, Inc. for the Garden City, New York frozen
food facility dated as of February 19, 1998.
10.48(19) - Amendment No. 11, dated as of March 25, 1998 to Credit
Agreement dated as of February 10, 1993 among Di Giorgio
Corporation, as Borrower, the financial institutions
parties thereto as Lenders, BT Commercial Corporation,
as Agent for the Lenders, and Bankers Trust Company, as
Issuing Bank.
10.49(20) - Amendment No. 12, dated as of March 1, 1999 to Credit
Agreement dated as of February 10, 1993 among Di Giorgio
Corporation, as Borrower, the financial institutions
parties thereto as Lenders, BT Commercial Corporation,
as Agent for the Lenders, and Bankers Trust Company, as
Issuing Bank.
12.1(15) - Statement Regarding Computation of Ratio of Earnings
to Fixed Charges.
21(20) - 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 Quarterly Report on Form 10-Q
(File No. 1-1790) filed with the Commission on August 16, 1993
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
(File No. 1-1790) filed with the Commission on November 12, 1993
28
(6) Incorporated by reference to the Registration Statement on Form S-4 of
White Rose Foods, Inc. (File No. 33-72284) filed with the Commission on
November 24, 1993.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
year ended January 1,1994 (File 1-1790)
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for quarter ended April 2, 1994 (File 1-1790)
(9) Incorporated by reference to the Company's Current Report on Form 8-K
dated April 25, 1994 (File 1-1790)
(10) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended July 2, 1994 (File 1-1790)
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for
year ended December 31, 1994 (File 1-1790)
(12) Incorporated by reference to the Quarterly Report on Form 10-Q of White
Rose Foods, Inc. for quarter ended September 30, 1995 (File 33-72284)
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995 (File 1-1790)
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for quarter ended September 28, 1996 (File 1-1790).
(15) Incorporated by reference to Registration Statement No. 333-30557 on Form
S-4 filed with the Securities and Exchange Commission on July 1, 1997.
(16) 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.
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1997 (File 1-1790).
(18) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 27, 1997 (File 1-1790).
(19) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 28, 1998 (File 1-1790).
(20) Filed herewith.
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the last
quarter of the period covered by this Report.
29
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 8th day of
March, 1999.
DI GIORGIO CORPORATION
By: /s/ Arthur M. Goldberg
Arthur M. Goldberg, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Arthur M. Goldberg Chairman, President and Chief March 8, 1999
- --------------------------- Executive Officer (Principal
Arthur M. Goldberg Executive Officer)
/s/ Jerold E. Glassman Director March 8, 1999
- ---------------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director March 8, 1999
- ---------------------------
Emil W. Solimine
/s/ Charles C. Carella Director March 8, 1999
- ---------------------------
Charles C. Carella
/s/ Jane Scaccetti Fumo Director March 8, 1999
- ---------------------------
Jane Scaccetti Fumo
/s/ Richard B. Neff Executive Vice President and March 8, 1999
- --------------------------- Chief Financial Officer (Principal
Richard B. Neff Financial and Accounting
Officer); Director
/s/ Stephen R. Bokser Executive Vice President and March 8, 1999
- --------------------------- Director
Stephen R. Bokser
DI GIORGIO CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-2
FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 2, 1999
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Di Giorgio Corporation and subsidiaries
Carteret, New Jersey
We have audited the accompanying consolidated balance sheets of Di Giorgio
Corporation and subsidiaries (the "Company") as of January 2, 1999 and December
27, 1997, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for each of the three years in the period
ended January 2, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at January
2, 1999 and December 27, 1997, and the results of their operations and their
cash flows for each of the three years in the period ended January 2, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth herein.
/s/ Deloitte & Touche LLP [GRAPHIC OMITTED]
Parsippany, New Jersey
February 19, 1999
F-2
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 27, 1997 AND JANUARY 2, 1999
(in thousands, except share data)
- --------------------------------------------------------------------------------
December 27, January 2,
ASSETS 1997 1999
CURRENT ASSETS:
Cash and cash equivalents $ 2,426 $ 459
Accounts and notes receivable - Net 71,715 83,012
Inventories 56,121 60,482
Deferred income taxes 5,118 11,283
Prepaid expenses 3,116 3,055
----- -----
Total current assets 138,496 158,291
PROPERTY, PLANT AND EQUIPMENT - Net 22,144 8,333
NOTES RECEIVABLE 7,428 11,844
DEFERRED INCOME TAXES 12,266 2,063
DEFERRED FINANCING COSTS 5,657 4,935
OTHER ASSETS 15,341 13,192
EXCESS OF COST OVER NET ASSETS ACQUIRED - Net 78,629 76,170
------ ------
TOTAL ASSETS $ 279,961 $ 274,828
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Revolving credit facility $ 19,669 $ 20,628
Current installment - long-term debt and capital lease liability 15,465 211
Accounts payable - trade 58,899 71,616
Accrued expenses 21,098 24,719
------ ------
Total current liabilities 115,131 117,174
LONG-TERM DEBT 159,333 155,000
CAPITAL LEASE LIABILITY 2,499 2,288
OTHER LONG-TERM LIABILITIES 6,079 4,067
STOCKHOLDERS' DEFICIENCY:
Common stock, Class A, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 101.622 and 78.116 shares, respectively -- --
Common stock, Class B, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 100.000 and 76.869 shares, respectively -- --
Additional paid-in capital 13,002 8,002
Accumulated deficit (16,083) (11,703)
------- -------
Total stockholders' deficiency (3,081) (3,701)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 279,961 $ 274,828
========= =========
See notes to consolidated financial statements.
F-3
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 2, 1999
(in thousands)
- --------------------------------------------------------------------------------
December 28, December 27, January 2,
1996 1997 1999
REVENUE:
Net sales $ 1,045,161 $ 1,065,381 $ 1,189,296
Other revenue 5,045 6,419 7,637
----- ----- -----
Total revenue 1,050,206 1,071,800 1,196,933
COST OF PRODUCTS SOLD 935,719 959,167 1,074,994
------- ------- ---------
Gross profit - exclusive of warehouse
expense shown separately below 114,487 112,633 121,939
OPERATING EXPENSES:
Warehouse expense 41,038 42,453 49,440
Transportation expense 21,624 22,042 24,719
Selling, general and administrative expenses 22,694 21,598 22,760
Facility integration and abandonment expense -- -- 4,173
Amortization - excess of cost over net assets
acquired 2,892 2,459 2,460
----- ----- -----
OPERATING INCOME 26,239 24,081 18,387
INTEREST EXPENSE 23,955 21,890 18,170
AMORTIZATION - Deferred financing costs 1,138 944 721
OTHER INCOME - Net (3,758) (3,242) (9,534)
------ ------ ------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 4,904 4,489 9,030
PROVISION (BENEFIT) FOR INCOME TAXES 3,053 (1,241) 4,449
------ ------ ------
INCOME BEFORE EXTRAORDINARY
ITEM 1,851 5,730 4,581
EXTRAORDINARY ITEM:
Gain (loss) on extinguishment of debt - net of tax 219 (8,693) (201)
--- ------ ----
NET INCOME (LOSS) $ 2,070 $ (2,963) $ 4,380
=========== =========== ===========
See notes to consolidated financial statements.
F-4
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 2, 1999
(in thousands, except share data)
- --------------------------------------------------------------------------------
Class A Class B Additional
Common Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
BALANCES,
DECEMBER 30, 1995 101.622 $- 100.000 $- $17,225 $(15,190) $2,035
Net income - - - - - 2,070 2,070
------- --- ------- --- ------- -------- ------
BALANCES,
DECEMBER 28, 1996 101.622 - 100.000 - 17,225 (13,120) 4,105
Net loss - - - - - (2,963) (2,963)
Dividend to
stockholders - - - - (4,223) - (4,223)
------- --- ------- --- ------- -------- ------
BALANCES,
DECEMBER 27, 1997 101.622 - 100.000 - 13,002 (16,083) (3,081)
Net income - - - - - 4,380 4,380
Stock repurchase (23.506) - (23.131) - (5,000) - (5,000)
------- --- ------- --- ------- -------- ------
BALANCES,
JANUARY 2, 1999 78.116 $- 76.869 $- $8,002 $(11,703) $(3,701)
====== = ====== = ====== ======== =======
See notes to consolidated financial statements.
F-5
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 2, 1999
(in thousands)
- --------------------------------------------------------------------------------
December 28, December 27, January 2,
1996 1997 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,070 $ (2,963) $ 4,380
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Extraordinary (gain) loss on extinguishment of
debt - net of tax (219) 8,693 201
Depreciation and amortization 4,488 4,544 2,488
Amortization of deferred financing costs 1,138 944 721
Amortization of excess of cost over net assets acquired 2,892 2,459 2,460
Other amortization 527 1,840 2,188
Provision for doubtful accounts 1,850 1,300 825
Increase in prepaid pension cost (461) (667) (297)
Non-cash interest - net 4,909 3,010 --
Deferred taxes -- (1,241) 4,155
Income tax benefit offset against excess of cost
over net assets acquired 3,008 -- --
Gain on reclassification of capitalized lease - net -- (2,838)
Impairment loss on leasehold improvements -- 2,698 4,047
Facility integration reserve -- -- 2,813
Gain on sale of Garden City facility -- -- (3,115)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable 7,464 (11,465) (12,122)
Inventories 2,768 (6,558) (4,361)
Prepaid expenses (169) 660 (6,104)
Other assets 661 (5,103) 5,896
Long-term receivables (3,666) (804) (4,416)
Increase (decrease) in:
Accounts payable (8,946) 9,431 12,717
Accrued expenses and other liabilities (2,250) (3,932) (1,000)
------ ------ ------
Net cash provided by operating activities 16,064 8 11,476
------ - ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,004) (3,829) (2,990)
Proceeds from Farmingdale sale -- 12,432 --
Net proceeds from Garden City facility sale -- -- 13,721
------ ------ ------
Net cash (used in) provided by
investing activities (1,004) 8,603 10,731
------ ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings from revolving
credit facility - net (5,584) (7,050) 959
New note offering -- 155,000 --
Premiums on completed tender offers -- (10,829) (335)
Finance fees paid -- (6,017) --
Repayments of debt (5,942) (145,295) (19,603)
Stock repurchase -- -- (5,000)
Collection of Rose Partners note receivable -- 8,917 --
Dividend to stockholders -- (61) --
Repayments of capital lease obligations (2,232) (2,547) (195)
Premiums on mortgage payoff -- (52) --
------ ------ ------
Net cash used in financing activities (13,758) (7,934) (24,174)
------- ------ -------
See notes to consolidated financial statements.
(Continued)
F-6
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 2, 1999
(in thousands)
- --------------------------------------------------------------------------------
December 28, December 27, January 2,
1996 1997 1999
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 1,302 $ 677 $ (1,967)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 447 1,749 2,426
--- ----- -----
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,749 $ 2,426 $ 459
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period:
Interest $ 18,569 $ 25,285 $ 18,322
========= ========= =========
Income taxes $ 73 $ 195 $ 107
========= ========= =========
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING ACTIVITIES:
Reduction of fixed assets $ -- $ 25,422 $ --
========= ========= =========
Acquisition of building with issuance of
note payable $ -- $ 7,200 $ --
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Elimination of capital lease obligations $ -- $ 28,660 $ --
========= ========= =========
Issuance of note payable in connection with
acquisition of building $ -- $ 7,200 $ --
========= ========= =========
NON-CASH DIVIDEND OF NOTES
RECEIVABLE AND LAND HELD FOR SALE $ -- $ 4,162 $ --
========= ========= =========
REDUCTION OF GOODWILL FOR REVERSAL
OF VALUATION ALLOWANCE ON
DEFERRED TAX ASSET $ -- $ 11,479 $ --
========= ========= =========
See notes to consolidated financial statements.
(Concluded)
F-7
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 2, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Di Giorgio Corporation and Subsidiaries (the "Company") is
a wholesale food distributor serving both independent retailers and
supermarket chains principally in the New York City metropolitan area
including Long Island, New Jersey and to a lesser extent, the Philadelphia
area. The Company distributes three primary supermarket product
categories: grocery, frozen and refrigerated.
On December 27, 1996, the Company's parent, White Rose Foods, Inc. ("White
Rose") and its parent, DIG Holding Corp. ("DIG Holding"), effected a
merger with White Rose continuing as the surviving corporation. As the
stockholders of White Rose were identical to the stockholders of DIG
Holding, the exchange of shares was a transfer of interest among entities
under common control, and was accounted for at historical cost in a manner
similar to pooling of interests accounting.
On June 20, 1997, the Company and White Rose consummated a merger in which
White Rose was merged with and into the Company, with the Company as the
survivor. Since the stockholders of the Company were identical to the
stockholders of White Rose, the exchange of shares was a transfer of
interest among entities under common control, and was accounted for at
historical cost in a manner similar to pooling-of-interests accounting.
Accordingly, the consolidated financial statements presented herein
reflect the assets and liabilities and related results of operations for
the combined entity for all periods.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Inventories - Inventories, primarily consisting of finished goods, are
valued at the lower of cost (weighted average cost method) or market.
Property, Plant and Equipment - Owned property, plant and equipment is
stated at cost. Capitalized leases are stated at the lesser of the present
value of future minimum lease payments or the fair value of the leased
property. Depreciation and amortization are computed using the
straight-line method over the lesser of the estimated life of the asset or
the lease.
In the event that facts and circumstances indicate that the cost of
long-lived assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Excess of Cost over Net Assets Acquired - The excess of cost over net
assets acquired ("goodwill") is being amortized by the straight-line
method over 40 years.
Management assesses the recoverability of goodwill by comparing the
Company's forecasts of cash flows from future operating results, on an
undiscounted basis, to the unamortized balance of goodwill at
F-8
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.
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.
Fiscal Year - The Company's fiscal year-end is the Saturday closest to
December 31. The consolidated financial statements for the period ended
January 2, 1999 are comprised of 53 weeks.
Reclassifications - Certain reclassifications were made to prior years'
consolidated financial statements to conform to the current year
presentation.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income, which is effective for
fiscal years beginning after December 15, 1997. There are no components of
other comprehensive income for the Company except for reported net income.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating
segments are determined and requires expanded quantitative and qualitative
disclosures relating to a company's operating segments. 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 believes it qualifies for the aggregation rules of the
Statement and therefore operates in one reportable segment.
In February, 1998, the FASB issued SFAS No. 132, Employers' Disclosures
About Pensions and Other Postretirement Benefits, which is effective for
fiscal years beginning after December 15, 1997. The disclosures herein are
reflective of the adoption of this statement.
In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999. The Company has not completed the process
of evaluating the impact that will result from adopting SFAS No. 133.
F-9
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
December 27, January 2,
1997 1999
(in thousands)
Accounts receivable $ 57,263 $ 66,088
Notes receivable 8,627 8,657
Other receivables 10,028 12,544
Less allowance for doubtful accounts (4,203) (4,277)
-------- --------
$ 71,715 $ 83,012
======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
Estimated
Useful Life December 27, January 2,
in Years 1997 1999
(in thousands)
Land - $ 900 $ 900
Buildings and improvements 10 19,322 2,810
Machinery and equipment 3-10 10,826 11,455
Less accumulated depreciation (12,674) (9,544)
------- ------
18,374 5,621
------ -----
Capital leases:
Building and improvements 4,419 3,117
Equipment 370 370
Less accumulated amortization (1,019) (775)
------ ----
3,770 2,712
----- -----
$ 22,144 $ 8,333
======== =======
Grocery Facility - In November 1997, the Company amended its lease for its
grocery facility, adding additional leased property, extending the term
and increasing the annual lease obligation. These changes in the
provisions of the lease resulted in the amended lease being treated as a
new lease and accounted for as an operating lease. The net book value of
the related capitalized asset of $24.3 million and $27.1 million of lease
obligations were removed resulting in a gain of approximately $2.8
million. The gain was classified in warehouse expense in the accompanying
consolidated statement of operations for the year ended December 27, 1997.
Frozen Facility - In 1997, the Company acquired from a third-party
landlord, land and a building in Garden City for consideration of $10.6
million, which it previously leased and accounted for as a capital lease.
On April 1, 1998, the Company sold that facility to another third-party
for $14.5 million and entered into a lease back for a two-year period with
an option to extend the lease for an additional 5 year period. This
transaction resulted in a gain, which was to be amortized over the initial
lease period. The Company believed the frozen foods distribution business
would be integrated into its other location and this facility would be
F-10
used for a cold storage operation. Those plans did not materialize, which
caused the Company to conclude, in the fourth quarter of fiscal 1998, that
it made more economic sense to abandon the facility, which is expected to
be completed by May 1, 1999. In connection therewith, the Company recorded
an expense of approximately $4.2 million as follows (i) $4.1 million
relating to the impairment of the long-lived assets based on cash flow
analyses, (ii) $2.2 million of cash commitments subsequent to date of
abandonment, (iii) $400,000 of facilities integration costs, and (iv)
$600,000 of exit costs. Those expenses have been recorded net of the $3.1
million gain on the sale of the facility. At January 2, 1999, the balance
of the facility integration reserve was $2.8 million, all of which is
expected to be expended prior to March 2000.
4. EXCESS OF COST OVER NET ASSETS ACQUIRED
Di Giorgio Acquisition - The Company was acquired by the current
stockholders on February 9, 1990. The acquisition was accounted for as a
purchase and the cost of the Company's stock, together with the related
acquisition fees and expenses was allocated to the assets acquired and
liabilities assumed based on fair values. As of December 27, 1997 and
January 2, 1999, accumulated amortization of excess costs over net assets
acquired was approximately $20.4 million and $22.6 million, respectively.
Royal Acquisition - In June 1994, the Company acquired substantially all
of the operating properties, assets and business of the 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 27, 1997 and January 2, 1999,
accumulated amortization of excess costs over net assets acquired was
approximately $978,000 and $1,254,000, respectively.
5. FARMINGDALE WAREHOUSE FACILITY
In August 1997, the Company completed the sale of an option it held on its
Farmingdale facility. The Company realized net cash proceeds of
approximately $7.3 million after the repayment of the mortgage in the
amount of approximately $5.2 million. The Company recognized a $40,000
gain (before a noncash write off of deferred expenses in the amount of
approximately $400,000) in the statement of operations for the year ended
December 27, 1997 on the transaction.
Included in other income for the two years ended December 27, 1997 is net
rental income of approximately $1 million and $192,000, respectively,
related to the facility.
6. FINANCING
On June 20, 1997, the Company completed a refinancing (the "Refinancing")
intended to extend debt maturities, reduce interest expense and improve
financial flexibility. The components of the Refinancing were: (i) the
offering of $155 million 10% senior notes due 2007, (ii) the modification
of the Company's bank credit facility, (iii) the receipt of an $8.9
million payment for the extinguishment of a note held by the Company from
Rose Partners, LP ("Rose Partners"), which owns 98.53% of the Company
(Note 16), (iv) the consummation of the tender offers and consent
solicitations commenced by the Company and White Rose, and together with
the "Tender Offers" on May 16, 1997 in respect of the Company's 12% senior
notes due 2003 and White Rose's 12-3/4% senior discount notes due 1998,
respectively, (v) the $4.2 million dividend by the Company to White Rose
of certain assets which were unrelated to the Company's primary business
and the subsequent dividend of those assets to White Rose's stockholders
(Note 12) and (vi) the merger (Note 1).
F-11
As a result of the Refinancing, the Company recorded an $8.5 million
extraordinary charge, net of a tax benefit of $5.7 million, on the
extinguishment of debt relating to premiums paid in the aggregate of
approximately $10.8 million as a result of the Tender Offers and the
write-off of approximately $3.2 million of deferred financing fees
associated with the 12% senior notes and 12-3/4% senior discount notes.
Debt consists of the following:
Interest Rate
at January 2, December 27, January 2,
1999 1997 1999
(in thousands)
Revolving credit facility (b) 8.04 % $ 19,669 $ 20,628
======== ========
Current portion of long-term debt:
12% senior notes, subsequently satisfied $ 7,450 $ --
Note payable, subsequently satisfied 620 --
Note payable, subsequently satisfied 7,200 --
----- -----
$ 15,270 $ --
======== =======
Long-term debt:
10% senior notes (a) 10.00 % $155,000 $155,000
Note payable, subsequently satisfied 4,333 --
----- -------
$159,333 $155,000
======== ========
(a) 10% Senior Notes - The senior notes were issued under an Indenture
dated as of June 20, 1997 between the Company and The Bank of New
York, as Trustee. The senior notes are general unsecured obligations
of the Company initially issued in $155 million principal amount
maturing on June 15, 2007. The notes bear interest at the rate of
10% payable semi-annually, in arrears, on June 15 and December 15 of
each year, commencing December 15, 1997.
The notes will be redeemable at the Company's option, in whole or in
part, at any time on or after June 15, 2002, at redemption prices
defined in the Indenture agreement. In addition, on or prior to June
15, 2000, the Company may redeem up to 35% of the originally issued
notes, at a price of 110% of the principal amount together with
accrued and unpaid interest with the net proceeds of public equity
offerings as defined by the Indenture. Upon the occurrence of a
change of control, holders of the notes will have the right to
require the Company to repurchase all or a portion of the notes at a
purchase price equal to 101% of the principal amount, plus accrued
interest.
Payments of principal and interest on the notes are subordinate to
the Company's secured obligations, including borrowings under the
revolving credit facility, capital lease obligations (Notes 6b and
11) and other existing and future senior indebtedness of the
Company.
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
F-12
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.
(b) Revolving Credit Facility - As of February 1, 1997, borrowings under
the $90 million credit facility bore interest at the rate of bank
prime plus .75% or the adjusted Eurodollar rate plus 2.25%. The
facility is scheduled to mature on June 30, 2000.
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 amount of receivable and 60% of eligible inventory. After
the Refinancing, the allowable advance against eligible inventory
increased to 70% and subsequently declines to 60% at the rate of 1%
each quarter commencing on October 1, 1997. As of January 2, 1999,
the Company had an additional $64.0 million of borrowing base
availability.
The borrowings under the revolving credit facility are secured by
the Company's inventory and accounts receivable. Among other
matters, the revolving credit facility contains certain restrictive
covenants relating to net worth, interest coverage and capital
expenditures. The facility also prohibits the payment of dividends.
The Company was in compliance with the covenants as of January 2,
1999.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments are as follows:
December 27, 1997 January 2, 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Debt (Note 6):
Revolving credit facility $ 19,669 $ 19,669 $ 20,628 $ 20,628
Note payable 7,200 7,200 -- --
10% senior notes 155,000 152,288 155,000 141,050
12% senior notes 7,450 7,897 -- --
Other notes payable 4,953 4,953 -- --
Accounts and notes receivable -
current (Note 2) 71,715 71,715 83,012 83,012
Notes receivable - long-term 7,428 7,428 11,844 11,844
The fair value of the 10% senior notes as of January 2, 1999 and December
27, 1997 are based on trade prices of 91.00 and 98.25, respectively,
representing yields of 11.7% (as of January 2, 1999) and 10.29% (as of
December 27, 1997), respectively. The fair value of the 12% senior notes
as of December 27, 1997 is based on the trade price of 106.00 representing
a yield of 10.45% (as of December 27, 1997). Based on the borrowing rate
currently available to the Company, the revolving credit facility is
considered to be equivalent to its fair value. The fair value of the note
payable at December 27, 1997 was assumed to reasonably approximate its
carrying amount since it was recently issued (as of December 27, 1997) and
was short-term in nature. The fair values of other notes payable at
December 27, 1997 were assumed to reasonably approximate their carrying
amounts since they had variable interest rates.
F-13
The book value of the current and long-term accounts and notes receivable
is equivalent to fair value which is estimated by management by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 27, January 2,
1997 1999
(in thousands)
Legal and environmental $ 1,176 $ 1,556
Interest 1,018 866
Employee benefits 6,354 7,479
Due to vendors/customers 4,286 4,997
Other 8,264 9,821
----- -----
$ 21,098 $ 24,719
======== ========
9. RETIREMENT
a. Pension Plans - The Company maintains a noncontributory defined
benefit pension plan covering substantially all of its noncollective
bargaining employees. The Company makes annual contributions to the
plans in accordance with the funding requirements of the Employee
Retirement Income Security Act of 1974. Assets of the Company's
pension plan are invested in Treasury notes, U.S. Government agency
bonds, and temporary investments.
In Fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement
benefits, eliminates certain disclosures, and requires additional
information on the changes in the benefit obligations and fair value
of plan assets.
F-14
The following table provides information for the Pension Plan:
December 27, January 2,
1997 1999
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 46,977 $ 47,906
Service cost 598 668
Interest cost 3,334 3,374
Actuarial loss 378 1,648
Benefits paid (3,381) (3,481)
------ ------
Benefit obligation at end of year $ 47,906 $ 50,115
======== ========
December 27, January 2,
1997 1999
(in thousands)
Change in plan assets:
Fair value of plan assets at beginning of year $ 50,213 $ 51,189
Actual return on plan assets 4,357 3,459
Benefit payments (3,381) (3,481)
------ ------
Fair value of plan assets at end of year $ 51,189 $ 51,167
======== ========
Funded status (fair value of plan assets less benefit
obligation): $ 3,283 $ 1,052
Unrecognized net actuarial gain 5,477 8,088
Unrecognized prior service cost 151 137
--- ---
Prepaid benefit cost $ 8,911 $ 9,277
======== ========
Net pension cost includes the following components:
December 28, December 27, January 2,
1996 1997 1999
(in thousands)
Service cost $ 585 $ 598 $ 668
Interest cost 3,350 3,334 3,374
Expected return on plan assets (4,433) (4,438) (4,467)
Amortization of prior service cost 14 14 14
Recognized actuarial loss -- -- 44
------- ------- -------
$ (484) $ (492) $ (367)
======= ======= =======
F-15
For the fiscal years ended January 2, 1999, December 27, 1997, and
December 26, 1996, the following actuarial assumptions were used:
December 26, December 27, January 2,
1996 1997 1999
Weighted average discount rate 7.50 % 7.25 % 7.00 %
Rate of increase in future
compensation levels 6.00 6.00 6.00
Expected long-term rate of
return on plan assets 9.00 9.00 9.00
The Company also contributes to pension plans under collective bargaining
agreements. These contributions generally are based on hours worked.
Pension expense for these plans included in operations was as follows:
Year Ended (in thousands)
December 28, 1996 $1,082
December 27, 1997 1,030
January 2, 1999 1,012
b. Savings Plan - The Company maintains a defined contribution 401(k)
savings plan. Employees of the Company who are not covered by a
collective bargaining agreement (unless a bargaining agreement
expressly provides for participation) are eligible to participate in
the plan after completing one year of employment.
Eligible employees may elect to contribute on a tax deferred basis
from 1% to 15% of their total compensation (as defined in the
savings plan), subject to statutory limitations. A contribution of
up to 5% is considered to be a "basic contribution" and the Company
makes a matching contribution equal to a designated percentage of a
participant's basic contribution (which all may be subject to
certain statutory limitations). Company contributions to the plan
are summarized below:
Year Ended (in thousands)
December 28, 1996 $171
December 27, 1997 193
January 2, 1999 197
F-16
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
December 27, January 2,
1997 1999
(in thousands)
Employee benefits $2,269 $1,889
Legal 2,575 1,642
Environmental 1,235 536
------ ------
$6,079 $4,067
====== ======
11. COMMITMENTS AND CONTINGENCIES
Legal proceedings - Various suits and claims arising in the ordinary
course of business are pending against the Company and its subsidiaries.
In the opinion of management, dispositions of these matters are
appropriately provided for and are not expected to materially effect the
Company's financial position, cash flows or results of operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management after
consultation with Counsel, these claims are either without merit, covered
by insurance, adequately provided for, or not expected to result in any
material loss to the Company.
Leases - The Company conducts certain of its operations from leased
warehouse facilities and leases transportation and warehouse equipment. In
addition to rent, the Company pays property taxes, insurance and certain
other expenses relating to leased facilities and equipment.
The Company subleased a frozen warehouse facility through November 1997
and certain equipment through April 1997 from WRGFF Associates, L.P.
("WRGFF"), an affiliate of the Company. For each of the years in the
two-year period ended December 27, 1997, rental expense under these leases
with WRGFF amounted to approximately $1.4 million and $0.5 million,
respectively (Note 3). In May 1997 the Company acquired tangible property
formerly the subject of a capital lease at its frozen facility from WRGFF
for approximately $2 million.
The Company had entered into a lease agreement to lease a dry warehouse
facility, which the Company is using for its grocery division as well as
for its administrative headquarters. The lease commitment commenced on
February 1, 1995. The lease was amended during 1997 (Note 3). The term of
the new lease expires in 2018 with two five-year renewal options. Rental
payments under the lease are approximately $2.9 million per year (through
the expiration date).
In November 1997, the Company entered into an agreement to lease a new
frozen warehouse facility in Carteret, New Jersey. The lease will be
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.
Although the Company continues to investigate subleasing its Kearny
facility (formerly its dairy facility), the facility was placed back into
operations in the second quarter of fiscal 1996. During fiscal 1997, the
F-17
Company operated a storage facility, a juice depot and a produce
distribution business at the location. The Company currently operates a
storage facility at the location. Also, during the fourth quarter of
fiscal 1997, the Company recorded a pretax charge of approximately
$480,000 to write down certain leasehold improvements to estimated fair
value. The charge is included in warehouse expense in the accompanying
consolidated statement of operations.
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of January 2, 1999:
Capital Operating
Fiscal Year Ending Leases Leases
(in thousands)
1999 $ 366 $ 11,553
2000 308 8,736
2001 196 6,995
2002 186 5,798
2003 186 5,220
Thereafter 3,196 68,881
----- ------
Net minimum lease payments 4,438 $ 107,183
=========
Less interest 1,939
-----
Present value of net minimum lease payments
(including current installments of $211) $2,499
======
Total rent expense included in operations was as follows:
Year Ended (in thousands)
December 28, 1996 $ 6,622
December 27, 1997 7,240
January 2, 1999 12,300
Letters of Credit - In the ordinary course of business, the Company is at
times required to issue letters of credit. The Company was contingently
liable for approximately $5.4 million and $7.2 million on open letters of
credit with a bank as of January 2, 1999 and December 27, 1997,
respectively.
Guaranty - The Company has issued certain guarantees in an amount less
than $2.0 million.
Employment Agreements - The Company has employment agreements with three
key executives which will expire in June 2000, October 2000 and February
1999. Under these agreements, combined annual salaries of approximately
$880,600 are expected to be paid in fiscal 1999. In addition, the
executives are entitled to additional compensation upon occurrence of
certain events.
12. EQUITY
In November 1993 in connection with a senior discount note offering, the
Company entered into a warrant agreement with a bank. The bank currently
owns 1.47% of the outstanding shares of common stock of the Company. The
bank holds warrants to purchase approximately 2.6% of the Company's
F-18
outstanding common stock. A warrant entitles a holder to purchase one
share of the Company's Class B common stock for $.10 per share. The
warrants are currently exercisable and expire in February 2003.
In connection with the Refinancing (Note 6), certain assets consisting of
the Las Plumas note (Note 16), land and other assets, with an aggregate
book value of approximately $4.2 million were distributed to the
stockholders of the Company in the form of a dividend.
During 1998, the Company repurchased and retired 23.506 and 23.131 shares
of Class A and Class B common stock, respectively, for aggregate cost
consideration of $5 million.
13. OTHER INCOME - NET
Other income consists of the following:
December 28, December 27, January 2,
1996 1997 1999
(in thousands)
Interest income $ 2,390 $ 2,380 $ 2,092
Net rental income 1,020 192 -
Net gain on disposal of assets 63 157 23
Other - net 285 513 7,419 (a)
------- ------ -------
$ 3,758 $ 3,242 $ 9,534
======= ======= =======
(a) The Company entered into an agreement with a third party which
called for the Company to receive consideration of $7.2 million
related to the re-negotiation of a contract to clarify past
practices.
14. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-19
The tax effects of significant items comprising the Company's deferred tax
assets and deferred tax liabilities are as follows:
December 27, January 2,
1997 1999
(in thousands)
Deferred tax assets:
Allowance for doubtful accounts $ 1,817 $ 1,704
Accrued expenses not deductible until paid 3,313 3,112
Difference between book and tax basis of property -- 2,118
Net tax operating loss carryforwards 16,160 10,001
-------- --------
Deferred tax asset 21,290 16,935
======== ========
Deferred tax liabilities:
Difference between book and tax basis of property (483) --
Pension asset valuation (3,441) (3,590)
-------- --------
Deferred tax liabilities (3,924) (3,590)
-------- --------
Net deferred tax assets $ 17,366 $ 13,345
======== ========
A valuation allowance as of December 31, 1996 related to net deferred tax
assets relating to preacquisition temporary differences and operating loss
carryforwards as well as postacquisition temporary differences and loss
carryforwards. The 1997 elimination of the valuation allowance relating
to: (i) preacquisition amount was credited to the excess of cost over net
assets of business acquired and (ii) postacquisition amount was credited
to the income tax provision for 1997.
As of December 28, 1996, the Company's deferred tax assets were fully
reserved based on the then current evidence indicating that it was more
likely than not that the future benefits of the deferred tax assets would
not be realized. During the third quarter of fiscal 1997, the Company
reversed the valuation allowance related to its deferred income tax
assets. In the opinion of management, sufficient evidence now exists, such
as the positive trend in operating performance and the favorable effects
of the recently completed refinancing, which indicates that it is more
likely than not that the Company will be able to realize its deferred
income tax assets. The reversal of the valuation allowance resulted in a
1997 income tax benefit of $3.9 million and a reduction in goodwill of
$11.5 million. The reduction in goodwill reflects benefits which were
attributable to the preacquisition period.
As of January 2, 1999, approximately $24 million of net tax operating loss
carryforwards (which expire between the years 2006 and 2017) and
approximately $23.2 million of New Jersey state tax operating loss
carryforward (which expire between the years 1999 and 2002) are available.
As of January 2, 1999, taxes currently payable was approximately $70,000.
F-20
The income tax provision (benefit) consist of the following:
December 27, January 2,
1997 1999
(in thousands)
Current income tax $ -- $ 294
Deferred income tax 2,659 4,155
Reduction in valuation allowance (3,900) --
------- ------
$(1,241) $4,449
======= ======
A reconciliation of the Company's effective tax rate with the statutory
Federal tax rate is as follows:
December 28, December 27, January 2,
1996 1997 1999
(in thousands)
Tax at statutory rate $ 1,667 $ 1,526 $3,070
State and local taxes - net of federal benefit 497 391 636
Permanent differences - amortization of excess
cost over net assets acquired 889 742 743
Reduction in valuation reserve -- (3,900) --
------ ------ -----
$ 3,053 $(1,241) $4,449
======= ======= ======
15. RELATED PARTY TRANSACTIONS
In November 1993 approximately $11 million face value discount note was
loaned to Rose Partners, the current holder of 98.53% of the common stock
of the Company. The note was issued at an original discount of
approximately $5.3 million. In connection with the Refinancing (Note 6)
the Company received an $8.9 million payment for the extinguishment of the
note. For the years ended December 28, 1996 and December 27, 1997, other
income includes approximately $981,000 and $502,000, respectively, of
interest income related to the note.
At December 28, 1996, Las Plumas, an affiliate of the Company, owed the
Company approximately $3.5 million, evidenced by a subordinated note. In
connection with the Refinancing, the note was distributed to the
stockholders of the Company in the form of a dividend (Note 12).
A director of the Company is a director of a customer. During the
three-year period ended January 2, 1999, the Company sold various foods
products in the amounts of $27.5 million, $37.2 million and $48.7 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 $111,000, $171,000 and $110,000, during each of the three
years in the period ended January 2, 1999, respectively, to the law firm
for legal services.
The Company employs the services of a risk management and insurance
brokerage firm which is controlled by a director of the Company. Included
in the statement of operations are fees paid to the related party of
$150,000 for each of the three years in the period ended January 2, 1999.
F-21
The Company recorded income of $245,000, $166,000 and $71,000 for each of
the three years in the period ended January 2, 1999, respectively, from an
affiliated entity of the President of the Company in connection with the
sharing of office facilities and administrative expenses.
16. MAJOR CUSTOMERS
During the year ended December 28, 1996, sales to two individual customers
represented 22.4% and 20.1% of net sales, respectively, and sales to a
similar group of customers represented 12.4%.
During the year ended December 27, 1997, sales to the same two individual
customers represented 27.4% and 19.5% of net sales, respectively, and
sales to a similar group of customers represented 10.9%.
During the year ended January 2, 1999, sales to the same two individual
customers represented 30.5% and 17.2% of net sales, respectively, and
sales to a similar group of customers represented 10.1%.
******
F-22
SCHEDULE II
DIGIORGIO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
Allowance for doubtful accounts
for the period ended:
December 28, 1996 $ 3,941 $ 1,850 $ 63 (2) $ (1,543) (1) $ 4,311
December 27, 1997 4,311 1,300 - (1,277) (1) 4,203
(131) (3)
January 2, 1999 4,203 825 - (751) (1) 4,277
(1) Accounts written off during the year.
(2) Transfers from other accounts.
(3) Transfers to other accounts.
S-1
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
10.49(20) Amendment No. 12, dated as of March 1, 1999 to
Credit Agreement dated as of February 10, 1993
among Di Giorgio Corporation, as Borrower, the
financial institutions parties thereto as Lenders,
BT Commercial Corporation, as Agent for the Lenders,
and Bankers Trust Company, as Issuing Bank.
21(20) Schedule of Subsidiaries