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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 DECEMBER 28, 1996
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: (908) 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 15, 1997, there were outstanding 100.612 shares of Class A 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.
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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 food retail markets in the United States. Across its grocery,
frozen and dairy product categories, the Company supplies approximately 18,000
food and non-food items, predominantly national brand name items, to more than
1,600 customer locations. The Company also markets products using its
well-recognized White Rose(TM) label, which has been established in the New York
City metropolitan area for over 110 years. The Company serves supermarkets,
independent retailers (including members of voluntary cooperatives) and chains
principally in the five boroughs of New York City, Long Island, Northern New
Jersey and, to a lesser extent, the Philadelphia area. Approximately 850
grocery, frozen and dairy items are offered with the White Rose(TM) label. For
the year ended December 28, 1996, the Company had total revenue of $1,050.2
million and EBITDA (as defined herein) of $36.9 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 through the Company's White Rose(TM) label. The success
of this strategy has been reflected in a more than doubling of the Company's
EBITDA since the 1990 Acquisition.
Management believes that the success of its strategies has created a platform
for growth opportunities in the future. As the Company has demonstrated twice
within the past year, it has the technology, flexibility and capacity to
effectively service major accounts with supplemental supply on short notice.
Management believes that this proven success has created goodwill with
prospective customers and has placed the Company in a very competitive position
to attract new business. Additionally, management continues to weigh
alternatives aimed at growing volume at its existing distribution centers by
exploring the most profitable means of expansion of its core business into the
complementary markets of Philadelphia and New England while continuing to
develop broader-based end-user recognition of its White Rose(TM) private 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 dairy products from a
single supplier. In addition, the Company is able to merchandise its
well-recognized White Rose(TM) label consistently across all three categories of
products. While some customers purchase items from all three product lines,
others purchase items from only one or two product lines.
Products are sold at prices which reflect the manufacturer's stated price plus a
profit margin. Prices are automatically adjusted on a regular basis based on
vendor pricing.
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White Rose(TM) Label. The White Rose(TM) label is a well-recognized regional
label for quality merchandise and has been marketed in the New York City
metropolitan area for over 110 years. Products under the White Rose(TM) label
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) label allows independent retail customers to carry a
regionally-recognized label similar to chain stores while providing consumers
with an attractive alternative to national brands.
Customer Support Services. Certain of the Company's customers require varying
levels of retail support services in order to compete effectively in the
marketplace. The Company provides a broad spectrum of retail support services,
including advertising, promotional and merchandising assistance; retail
operations counseling; computerized ordering services; and store layout and
equipment planning. 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 largest 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; (iii) extended payment terms for initial inventories
and/or (iv) extended payment terms for existing receivable balances. 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 their
grocery, frozen and dairy inventory requirements from the Company. Financial
assistance is usually in the form of a secured, interest-bearing loan, generally
repayable over a period of one to three years. As of December 28, 1996, the
Company's customer financing portfolio had an aggregate balance of approximately
$14.3 million. The portfolio consisted of approximately 72 loans with a range of
$12,000 to $698,000.
To further serve the needs of its customers, the Company has recently expanded
its customer support services. 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. The Company's coupon
redemption service facilitates the redemption of vendor coupons by the Company's
customers. Finally, through its technologies division, the Company distributes
supermarket scanning equipment which is compatible with the Company's
information systems.
MARKETS AND CUSTOMERS
As of December 28, 1996, the Company's principal markets encompass the five
boroughs of New York City, Long Island, northern 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
markets adjacent to the New York City metropolitan area.
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
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of voluntary cooperatives which seek to achieve the operating efficiencies
enjoyed by supermarket chains through common purchasing and advertising. Unlike
larger retail chains which predominate in suburban areas, the independent
retailers served by the Company tend to be located in urban areas. The Company's
customers include food markets operating under some of the following trade
names: the Superfresh, Waldbaums, Food Emporium and A & P Metro operations of
the Great Atlantic & Pacific Tea Co., Inc. ("A&P"), Associated Food Stores
("Associated"), Gristedes and Sloans Supermarkets, King Kullen, Kings Super
Markets, Quick Chek, Royal Farms, Scaturros, and Western Beef, as well as the
Met(TM), Pioneer(TM) and Super Food 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 their grocery,
frozen food and dairy inventory requirements from the Company, thereby enhancing
the stability of this portion of the Company's customer base. These customers
represented approximately 19% of net sales for each of the two years ended
December 28, 1996.
During the fifty-two weeks ended December 28, 1996, the Company's largest
customers, A&P and Associated, accounted for approximately 22% and 20%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 62% of net sales. One of these five customers significantly
decreased its purchases from the Company starting in November 1996. See Item 7
of this Annual Report on Form 10K. 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.
WAREHOUSING AND DISTRIBUTION
The Company presently supplies its customers from three warehouse and
distribution centers. All of these 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 newly installed 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 dairy 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.
The Company's trucking system consists of 114 tractors (all of which are
leased), 277 trailers (of which 250 are leased) and 13 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
845 deliveries per day each weekday to its customers through a combination of
its
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own transportation fleet and that of third parties. Over the past year the
Company has upgraded its trailer fleet through the replacement of older, smaller
trailers with newer, larger trailers, thereby increasing the capacity per load
in an effort to reduce transportation cost as well as increase backhaul revenue.
The new larger trailers have reduced the number of trailers needed by the
Company by 48.
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 ensure operating efficiency and coordinated quality
customer service.
PURCHASING
The Company purchases products for resale to its customers from approximately
1,400 suppliers in the United States and abroad. Brand name products are
purchased directly from the manufacturer, through the manufacturer's
representatives or through food brokers by buyers in each operating division.
White Rose(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 state of the art 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 run by various manufacturers at their sole discretion. The
Company earns income from additional margins realized in connection with these
promotional purchasing arrangements.
COMPETITION
The wholesale food distribution industry is highly competitive. The Company is
one of the largest independent wholesale food distributors to super markets in
the New York City metropolitan area and is the only independent distributor that
supplies three primary supermarket product categories: grocery, frozen and
dairy. The Company's principal competitors are C & S Wholesale Grocers, Inc.;
Krasdale Foods, Inc., and General Trading Co. ("General Trading") with respect
to grocery distribution, General Trading with respect to dairy distribution, and
Nassau Suffolk Frozen Food Company, Inc. with respect to frozen food
distribution. Many of the Company's smaller competitors generally do not provide
retail support services and financing services to independent retailers in the
Company's market.
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The Company also competes with cooperatives such as Key Food Stores Co-operative
Inc. and Twin County Grocers 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) name.
Management believes that the principal competitive factors in the Company's
business include price, service, scope of products and services offered,
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, the retail support and financing services
associated with its Met(TM) and Pioneer(TM) voluntary cooperative trademarks,
flexible delivery schedules, competitive prices, competitive levels of customer
service including newly introduced insurance, coupon-redemption and scanner
distribution services, including computerized order entry, and its
well-positioned and efficient distribution networks.
EMPLOYEES
As of December 28, 1996, the Company employed approximately 1,123 persons, of
whom approximately 689 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 dairy operation (expiring November
2000), its grocery operation (warehouse expiring October 1997 and trucking
expiring May 1997) and its frozen operation (expiring January 2000).
Management believes that the Company's present relations with its work force are
satisfactory.
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ITEM 2. PROPERTIES
The Company's three principal warehouse and distribution facilities are set
forth below along with its former dairy division, currently being used as an
auxiliary facility. In addition, the Company owns or leases various properties
principally related to its divested operations, which properties are leased to
third parties or held for resale or sublease.
Location Use Square Footage Lease Expiration
- -------- --- -------------- ----------------
Carteret, New Groceries and other Non- 645,000 2015 (plus two 5-year
Jersey Perishables renewal options)
Garden City, New Frozen 325,000 2004 (plus one 7-year
York renewal option)
Woodbridge, New Dairy 200,000 2001 (plus four 5-year
Jersey renewal options
Kearny, New Juice depot and Storage 98,000 1999
Jersey
The aggregate operating lease rent paid in connection with the Company's
facilities was approximately $800,000 in fiscal 1996.
Currently, the new Carteret grocery division distribution facility operates at
approximately 70% of capacity and the dairy division distribution facility
operates at 80% of capacity (both on a three shift basis), while the frozen
foods division distribution facility operates at approximately 50% of capacity
(on a two shift basis). Depending on the type of new business introduced (ie,
high turn product that is already slotted in inventory), each warehouse has
greater capacity to grow then stated above. The frozen foods division
distribution facility has the flexibility of further increasing capacity because
the Company uses some of the space leased by it for public storage.
The Company continues to have a leasehold interest in its former grocery
distribution facility in Farmingdale, New York under an agreement with the fee
owner of the facility. The Company and the fee owner share the economic benefits
of the resulting income stream, financings related thereto or ultimate sale of
the property, with 80% to the Company and 20% to the fee owner. The Company also
has an option to purchase the property from the fee owner commencing in 1998 in
an amount equal to 20% of the net fair market value of the property. In August
1993, the Company entered into an agreement with a third party to sublease the
entire premises for an initial term of five years with certain renewal and
purchase options.
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
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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 $2.0 million as of
December 28, 1996. The Company believes such 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.
The other two sites in which the Company had previously been named as a PRP have
been settled with nominal contributions from the Company.
The Company is not a party to any material 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 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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public offering market for the outstanding common equity
of the company and all of the outstanding common equity of the Company is owned
by White Rose Foods, Inc. ("White Rose").
The ability of the Company to pay dividends is governed by 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 December 28, 1996.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company
for the periods indicated. The results of operations include the expansion of
the frozen business on August 2, 1992 (date of the Global Acquisition) and the
expansion of the dairy division since April 1994 (initial date of the Royal
Acquisition). 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
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1993 1994 1994 1995 1996
---------- ---------- ------------ ------------ ------------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenue (a) ................... $ 704,448 $ 774,105 $ 936,847 $ 1,023,041 $ 1,050,206
Gross profit(b) ..................... 78,089 91,131 101,321 107,505 114,487
Warehouse expense ................. 28,256 32,631 37,503 39,196 40,343
Transportation expense ............ 15,784 17,916 21,354 22,759 21,624
Selling, general and
administration expenses ......... 16,874 18,932 20,229 22,360 23,387
Facility integration exp .......... -- -- 3,986 -- --
Amortization--excess of cost over
net assets acquired ............. 2,615 2,616 2,766 2,892 2,892
Operating income .................... 14,560 19,036 15,483 20,298 26,241
Interest expense .................. 14,409 15,072 15,782 19,683 18,067
Amortization--deferred financing
costs ........................... 3,366 1,581 1,370 1,336 993
Other (income) expense, net (a) ... (1,806) (1,555) (2,079) (2,708) (2,706)
(Loss) income from continuing
operations before income taxes .... (1,409) 3,938 410 1,987 9,887
Income taxes ........................ 34 109 1,121 1,946 5,046
(Loss) income from continuing
operations ....................... (1,443) 3,829 (711) 41 4,841
(Loss) income from discontinued
operations ....................... (380) 0 -- -- --
Extraordinary (loss)/gain on
extinguishment of debt, net of tax -- (3,976) -- 306 219
Net (loss) income ................... $ (1,823) $ (147) $ (711) $ 347 $ 5,060
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1993 1994 1994 1995 1996
---------- ---------- ------------ -------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA(C):
Total assets .................. $ 257,202 $267,299 $294,806 $307,247 $286,987
Working capital ............... (10,159) 5,440 1,658 7,181 12,109
Total debt incl captial leases 155,251 150,111 157,785 178,785 164,662
Total Stockholder's equity .... 11,121(d) 35,974 35,263 35,610 40,670
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(footnotes on next page)
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(a) Previously, the Company classified as other income reclamation service
fees, label income and other customer related services. Commencing in
the year ended December 28, 1996, the Company is classifying these items
as other revenue. Prior year amounts have been reclassified accordingly.
The change in classification has no effect on previously reported net
income.
(b) Gross profit excludes warehouse expense shown separately.
(c) The balance sheet data includes the balance sheet data of the
discontinued operations.
(d) On June 1, 1992, the Company distributed all of the outstanding shares
of the Las Plumas Lumber Corporation ("Las Plumas") as a dividend to its
then principal stockholder, DIG Holding Corp. ("DIG Holding"). The net
book value of such stock as of June 1, 1992 was approximately $21.7
million, based on the book value of net assets transferred including
goodwill.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fifty-two weeks ended December 28, 1996 and December 30, 1995
Net sales for the fifty-two weeks ended December 28, 1996 increased 2.6% to
$1,045 million as compared to $1,018 million in the fifty-two weeks ended
December 30, 1995. The increased sales primarily reflects higher same customer
sales, a temporary supplemental third party supply agreement, and higher selling
prices stemming from increased cost of product sold.
Other revenue, consisting of reclamation service fees, storage income, label
income, and other customer related services, increased 4.6% to $5.0 million in
the fifty-two weeks ended December 28, 1996 as compared to $4.8 million in the
prior period.
Gross margin (excluding warehouse expense) increased to 11.0% of net sales or
$114.5 million in the fifty-two weeks ended December 28, 1996 from 10.6% of net
sales or $107.5 million in the prior period as a result of a more favorable mix
of product sold. Although the Company has taken steps and will continue to take
steps to maintain and improve its margins, there can be no assurance the
decrease in promotinal activities, that management belives is any industry wide
trend, will not continue.
Warehouse expense remained relatively constant at 3.86% of net sales or $40.3
million in the fifty-two weeks ended December 28, 1996 as compared to 3.85% of
net sales or $39.2 million in the prior period, as cost improvements in the
grocery and frozen divisions were offset by higher temporary costs in the dairy
division as it related to a change in its receiving and warehousing systems.
Transportation expense decreased to 2.1% of net sales or $21.6 million in the
fifty-two weeks ended December 28, 1996 from 2.2% of net sales or $22.8 million
in the prior period as a result of better utilization of the Company's
transportation fleet. This was accomplished by reducing the number of deliveries
through the use of larger trailers acquired in a long-term lease and more
structured delivery schedules. These savings were partly offset by higher wages.
Selling, general and administrative expense remained relatively flat at 2.2% of
net sales or $23.4 million during the fifty-two weeks ended December 28, 1996 as
compared to 2.2% of net sales or $22.4 million in the prior year as a reduction
in the provision for doubtful accounts was offset by less non-cash pension asset
income.
Other income, net of other expenses, remained constant at $2.7 million during
the fifty-two weeks ended December 28, 1996 as compared to the prior period.
Other income in 1996 included a cancellation fee of $376,000 from a customer who
prematurely terminated a supply agreement while other income in 1995 included a
settlement of a lawsuit for approximately $500,000.
Interest expense decreased to $18.1 million in the fifty-two weeks ended
December 28, 1996 from $19.7 million in the prior period. The comparative
decrease in the 1996 period represents a decline in the average outstanding
level of the Company's funded debt partially offset by the inclusion of the
Carteret facility capital lease for the full period.
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The Company recorded an income tax provision of $5.0 million resulting in an
effective income tax rate of 51%. The Company's estimated effective tax rate is
higher than its statutory tax rate primarily because of the nondeductibility of
certain of the Company's amortization of the excess of cost over net assets
acquired; however, due to net operating loss carryforwards for tax purposes, the
Company does not expect to pay federal income tax for the current year with the
exception of perhaps some alternative minimum tax.
The Company recorded net income for the fifty-two weeks ended December 28, 1996
of $5.1 million, which included a $219,000 gain on the extinguishment of debt,
net of tax, as compared to $347,000 in the prior period, which included a
$306,000 gain on the extinguishment of debt, net of tax.
Fifty-two weeks ended December 30, 1995 and December 31, 1994
Net sales for the fifty-two weeks ended December 30, 1995 increased $85.8
million or 9.2% to $1,018.2 million from $932.4 million during the fifty-two
weeks ended December 31, 1994. The increased sales were the result of the Royal
Acquisition which acquisition was phased in during the period April 1994 through
June 1994.
Other revenue, consisting of reclamation service fees, storage income, label
income, and other customer related services, increased 8.1% to $4.8 million in
the fifty-two weeks ended December 30, 1995 as compared to $4.5 million in the
prior period.
Gross margin (excluding warehouse expense) decreased to 10.6% of net sales or
$107.5 million in the fifty-two weeks ended December 30, 1995 from 10.9% of net
sales or $101.3 million in the prior period, reflecting, in part, a shift in
both customer and product mix in the Company's dairy division as a result of the
Royal Acquisition. The grocery division experienced a decrease in gross margin
as compared to the prior year's comparable period resulting from, among other
things, fewer promotional opportunities extended by manufacturers. Management
believes that this decrease in promotional activities is an industry-wide trend
and may continue, although it appears that the negative pressure on the
Company's gross margins peaked in the first quarter of 1995 and gross margin
showed an improvement in each of the last three calendar quarters. The Company
has taken steps and expects to continue to take steps to maintain and improve
its margins, however, there can be no assurances that these steps will continue
to be successful.
Warehouse expense decreased to 3.8% of net sales or $39.2 million in the
fifty-two weeks ended December 30, 1995 from 4.0% of net sales or $37.5 million
in the prior period as a result of higher dairy division sales (stemming from
the Royal Acquisition) in relation to lower fixed dairy division warehouse costs
due to the consolidation of the two dairy warehouses into one which took place
in July and August of 1994. This improvement was partially offset by a temporary
first fiscal quarter increase in grocery division warehouse expense as a
percentage of sales due to the transition between the Company's old grocery
division distribution facility in Elizabeth, NJ and a new facility in Carteret,
NJ. In subsequent quarters the Company achieved better productivity in its new
grocery facility as a result of the more efficient layout compared to its old
Elizabeth, NJ facility.
Transportation expense decreased to 2.2% of net sales or $22.8 million in the
fifty-two weeks ended December 30, 1995 from 2.3% of net sales or $21.4 million
in the prior period primarily as a result of the Company's upgrading its trailer
fleet to increase the capacity per load as well as increased backhaul
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revenue offset by higher fixed costs as a result of the Royal Acquisition and
slightly higher, but anticipated, variable costs, such as tolls, as a result of
the Grocery division move to Carteret, NJ in February 1995.
Selling, general and administrative expense remained flat at 2.2% of net sales
or $22.4 million during the fifty-two weeks ended December 30, 1995 as compared
to 2.2% of net sales or $20.2 million in the prior period.
Other income, net of other expenses, increased $629,000 to $2.7 million in the
fifty-two weeks ended December 30, 1995 from $2.1 million in the prior period
primarily reflecting the settlement of a claim in the first fiscal quarter of
1995, increased recurring other income items relating to increased sales as a
result of the Royal Acquisition and other non-core business activities of the
Company.
Interest expense increased to $19.7 million in the fifty-two weeks ended
December 30, 1995 from $15.8 million in the prior period. The Company's
financing of the Royal Acquisition, the interest portion of the Carteret
facility capital lease, increased borrowings based on the relative levels of
receivables, inventory, and accounts payable, and higher interest rates were the
principal reasons for the increase.
The effective income tax rate for the fifty-two weeks ended December 30, 1995 is
98% due primarily to the nondeductibility of certain of the Company's
amortization of the excess of cost over net assets acquired; however, the
Company is part of a consolidated group for federal income tax purposes and does
not foresee paying income tax for the current year due to net operating loss
carryforwards and timing differences. This compares to an effective income tax
rate of 273% for the prior period.
The Company had net income of $347,000 for the fifty-two weeks ended December
30, 1995 which included an extraordinary gain, net of tax, on the extinguishment
of debt in the amount of $306,000 as compared to a net loss of $711,000 in the
prior period which included a one time facility integration expense of $4.0
million in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and amounts available under the Company's bank credit
facility are the Company's principal sources of liquidity. Although the
Company's bank credit facility expires on June 30, 1997, the Company believes it
will either extend the facility or replace on either substantially the same
terms or better terms due to the Company's improved financial condition. The
interest rate on the Company's bank credit facility has already been lowered by
0.25% to prime plus 0.75% or Eurodollar plus 2.25% during fiscal year 1996
because of the Company's ability to meet certain financial tests. Borrowings
under the Company's revolving bank credit facility were $26.7 million at
December 28, 1996 at an average interest rate as of that date of 8.09%.
Additional borrowing capacity of $35.0 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 debt service requirements, working
capital needs, and capital expenditures during fiscal 1997.
During the fifty-two weeks ended December 28, 1996, cash flow provided by
operating activities was $16.0 million consisting primarily of cash generated
from net income, the adding back of non-cash
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expenses and declines of $7.5 million in net receivable levels and $2.8 million
in inventory levels, offset by a $8.9 million decrease in accounts payable.
Cash flow used in investing activities during the fifty-two weeks ended December
28, 1996 was approximately $1.0 million, all of which was used for capital
expenditures. Net cash used in financing activities was approximately $13.8
million, primarily used to retire long-term debt and reduce the Company's bank
credit facility.
Earnings before interest, taxes, depreciation and amortization, excluding
extraordinary items ("EBITDA"), was $36.9 million during the fifty-two weeks
ended December 28, 1996 as compared to $30.4 million in the comparable prior
year period.
The consolidated indebtedness of the Company decreased $14.1 million to $164.7
million on December 28, 1996 compared to $178.8 million at December 30, 1995.
The decrease consisted of a $4.8 million reduction in the Company's 12% senior
notes, a $5.6 million reduction in the working capital facility, a $2.2 million
reduction in capital leases, and $1.5 million in note payments. Stockholder's
equity increased $5.1 million to $40.7 million on December 28, 1996 from $35.6
million on December 30, 1995.
The Company spent approximately $1.0 million on capital expenditures during the
fifty-two weeks ended December 28, 1996 and does not expect to spend more than
$2.5 million during 1997.
The Company expended approximately $349,000 in fiscal 1996 and does not expect
to expend more than $1.0 million in fiscal 1997 in connection with the
environmental remediation of certain presently owned or divested properties. The
Company intends to finance such remediation through internally generated cash
flow or borrowings. Management believes that should the Company become liable as
a result of any material adverse determination of any legal or governmental
proceeding beyond the expected expenditures, it could have an adverse effect on
the Company's liquidity position.
Under the terms of the Company's revolving bank credit facility, the Company is
required to meet certain financial tests, including minimum interest coverage
ratios and minimum net worth. As of December 28, 1996, the Company was in
compliance with its covenants.
The indenture governing the Company's 12% senior notes, as well as the Company's
bank agreement, 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, the
Company has purchased and may continue to purchase and retire a portion of the
Company's outstanding 12% senior notes. In addition, the Company continuously
reviews its capital structure, including its funded debt and capital leases to
determine if it can better finance its operations.
In the fourth quarter of 1996, a customer of the Company terminated its supply
agreement that was scheduled to expire in October 1997. Sales to this customer
totaled $62.7 million in the fifty-two weeks ended December 28, 1996 and $65.5
million in the comparable prior period. Notwithstanding the termination of the
agreement, the Company supplies products not covered by such agreement to this
customer, although it anticipates such shipments will cease during the second
quarter of 1997. Accordingly, revenues received from this customer will be
substantially lower in 1997 than in prior years.
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In December 1996, the Company entered the produce distribution business for a
specific customer at its Woodbridge facility. The Company is in the process of
investigating whether to expand its former dairy facility in Kearny, New Jersey
to offer produce products to all its customers. In addition, in December 1996,
the Company entered into a temporary supplemental supply arrangement with a
customer from another geographic region which lasted approximately six weeks.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
----
FINANCIAL STATEMENTS
Consolidated Financial Statements of Di Giorgio Corporation and Subsidiaries
Index to Consolidated Financial Statements.................................. F-1
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996... F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 28, 1996.......................... F-4
Consolidated Statements of Changes in Stockholder's
Equity for each of the three years in the period
ended December 28, 1996.................................................... F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 28, 1996...................... F-6
Notes to Consolidated Financial Statements.................................. F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
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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 55 Chairman of Board of Directors, President
and Chief Executive Officer
Richard B. Neff 48 Executive Vice President, Chief Financial
Officer and Director
Stephen R. Bokser 54 Executive Vice President, President of
White Rose Food Division of Di Giorgio
and Director
Jerold E. Glassman 61 Director
Emil W. Solimine 52 Director
Charles C. Carella 63 Director
Jane Scaccetti Fumo 42 Director
Joseph R. DeSimone 57 Senior Vice President Distribution
Robert A. Zorn 42 Senior Vice President and Treasurer
Lawrence S. Grossman 35 Vice President and Corporate Controller
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 and Chairman of the Board, President and Chief
Executive Officer of White Rose Foods, Inc. since its incorporation in 1992. Mr.
Goldberg is also Executive Vice President and President-- Gaming Operations,
Hilton Hotels Corporation, since December 1996. Prior thereto, he was President,
Chairman and Chief Executive Officer, Bally Entertainment Corporation from
October 1990 to December 1996. Mr. Goldberg is President, Treasurer, Secretary
and the sole director of HLT Corp. He is also Managing Partner, Arveron
Investments, LP, since 1986. Mr. Goldberg is also a director of Bally Total
Fitness Holding Corporation, Bally's Grand, Inc., First Union Corporation and
Continue-Care Corp.
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MR. NEFF has been Executive Vice President, Chief Financial Officer and Director
of Di Giorgio since 1990 and Executive Vice President, Chief Financial Officer
and Director of White Rose Foods, Inc. since its incorporation in 1992. He is
also a Director and Chairman of the Audit Committee of Ryan Beck & Co., an
investment banking concern.
MR. GLASSMAN has been a Director of Di Giorgio since 1990 and a Director of
White Rose Foods, Inc. since 1992. Since prior to 1990, Mr. Glassman has been a
Partner of Grotta, Glassman & Hoffman, a law firm which has offices in Roseland,
New Jersey.
MR. BOKSER has been Executive Vice President of Di Giorgio since January 1994
and a Director of Di Giorgio since 1992. In addition, Mr. Bokser has served as
Executive Vice President and Director of White Rose Foods, Inc. since 1992 and
President of the White Rose Food Division of Di Giorgio since prior to 1991 and
a White Rose employee since 1969.
MR. SOLIMINE has been a Director of Di Giorgio since 1990 and a Director of
White Rose Foods, Inc. since 1992. 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 and White Rose Foods, Inc. 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 offices in Roseland,
New Jersey. Since 1991, he has served as Chairman for the Board of Trustees of
the University of Medicine and Dentistry of New Jersey and since 1983 has served
on the Board of Administrations of Archdiocese of Newark. Mr. Carella is also on
the Board of Directors of Bally Gaming International, Inc.
MS. FUMO has been a shareholder for the past six 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 Warehousing and Distribution
since January 1995. Since 1990 he was Vice President of Warehousing and
Distribution.
MR. ZORN has been Senior Vice President and Treasurer of Di Giorgio since 1992
and Vice President of White Rose Foods, Inc. since 1992. He served as a Vice
President of Bankers Trust Company, New York, New York since prior to 1991.
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. In addition, Mr. Grossman has served as Corporate Controller of
White Rose Foods, Inc. since May 1992 and Vice President since January 1994. Mr.
Grossman is a certified public accountant.
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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 December 28,
1996.
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- --------------------------- ---- -------- ------- ------------ ------------
(1)
Arthur M. Goldberg, 1996 $400,000 -- -- --
Chairman of the Board, President 1995 $400,000 -- -- --
and Chief Executive Officer 1994 $400,000 -- -- --
Richard B. Neff, 1996 $260,900 $145,000 -- $2,250(2)
Executive Vice President 1995 $240,000 $130,000 -- $2,250(2)
and Chief Financial Officer 1994 $240,000 $100,000 -- $2,250(2)
Stephen R. Bokser, 1996 $288,600 $145,000 -- $2,250(2)
Executive Vice President 1995 $272,255 $130,000 -- $2,250(2)
and President of White Rose 1994 $272,255 $100,000 -- $2,250(2)
Division
Robert A. Zorn, 1996 $200,600 $20,000 -- $2,250(2)
Senior Vice President and 1995 $191,100 $12,500 -- $2,175(2)
Treasurer 1994 $181,563 $10,000 -- $2,250(2)
Joseph R. DeSimone 1996 $155,300 $20,000 -- $2,250(2)
Senior Vice President 1995 $147,900 $18,000 -- $1,800(2)
Warehousing and Distribution 1994 $142,200 $12,000 -- $1,999(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 1994, 1995, and 1996 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."
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EMPLOYMENT AGREEMENTS
The Company is a party to an agreement with Mr. Neff which provided for his
employment through April 30, 1997. The agreement remains in effect pursuant to
the everygreen provisions and will remain in effect until six months notice is
given by either party to terminate. Currently, Mr. Neff is entitled to receive
an annual salary of $267,000, and annual bonuses, at the sole discretion of the
Company. Mr. Neff may also receive additional incentive compensation upon the
occurrence of (i) the termination of Mr. Neff's employment with the Company;
(ii) the sale of substantially all of the Company's or White Rose's assets or
51% or more of the Company's or White Rose's voting stock, or the merger or
consolidation of the Company or White Rose which results in a change of control
of 51% or more of voting stock; or (iii) a registered public offering of voting
common stock made by the Company or White Rose. This additional incentive
compensation is computed by taking 2.5% of the positive difference (if any)
between the Company's net fair market value and a certain specified base amount.
In the event that Mr. Neff shall be entitled to additional compensation pursuant
to (iii), such amounts shall not be paid in cash but rather there will be a
credit of a Bonus Unit (as defined therein) which is redeemable for a period of
sixty months at the option of Mr. Neff and which will automatically be redeemed
by the Company at the end of such sixty month period. At the option of the
Company, the payment of the redemption price may be made either in cash or in
shares of stock of the Company or White Rose, as appropriate. Under the terms of
the agreement, if the employment of Mr. Neff is terminated for any reason other
than for cause or disability, Mr. Neff is entitled to receive compensation and
benefits for twelve months.
The Company is a party to an agreement with Mr. Bokser which provided for
employment through February 1, 1997. The agreement has been extended for an
additional one-year period. Currently, Mr. Bokser is entitled to receive an
annual salary of $301,000 pursuant to the agreement, as well as additional
compensation (the "Additional Compensation") upon the occurrence of a
distribution of any assets to Rose Partners in respect of Rose Partners'
ownership of the Company's stock or the realization by Rose Partners of any
amount (the "Proceeds") upon the sale, transfer or encumbrance of any of Rose
Partners' ownership interests in the Company ("Recognition Event"). Additional
Compensation is computed by multiplying the number of years Mr. Bokser is
employed by the Company (which number may not exceed four) and 1% of the
Proceeds above a certain threshold amount. If Mr. Bokser's employment is
terminated for "cause" or if he voluntarily resigns, he will not be entitled to
Additional Compensation under the Agreement. In the event of Mr. Bokser's death,
disability or termination by the Company other than for cause and the occurrence
of a Recognition Event, Mr. Bokser will continue to be entitled to receive
Additional Compensation. On each anniversary of Mr. Bokser's death, disability
or termination other than for cause, the percentage of the Proceeds that Mr.
Bokser will receive upon the occurrence of a Recognition Event will be reduced
by one percentage point (but not below zero). 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. If Mr.
Bokser's employment is terminated by the Company other than for cause, Mr.
Bokser will be entitled to continue to participate in the Company's employee
benefit plans (or to receive substantially equivalent benefits as provided
thereunder) for the remainder of the term of the Agreement.
The Company is a party to an agreement with Mr. Zorn which provided for
employment through March 10, 1997. The agreement remains in effect pursuant to
its evergreen provisions and will remain
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in effect until six months notice is given by either party to terminate.
Currently, Mr. Zorn is entitled to receive an annual salary of $210,600, 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; (ii) the sale of substantially all of the Company's
or White Rose's or 51% or more of the Company's or White Rose's voting stock, or
the merger or consolidation of the Company or White Rose which results in a
change of control of 51% or more of voting stock; or (iii) a registered public
offering of voting Common Stock made by the Company or White Rose. This
additional incentive compensation is computed by taking 1% of the positive
difference (if any) between the Company's net fair market value and a certain
specified base amount. In the event that Mr. Zorn shall be entitled to
additional compensation pursuant to (iii), such amounts shall not be paid in
cash but rather there will be a credit of a Bonus Unit (as defined therein)
which is redeemable for a period of sixty months at the option of Mr. Zorn and
which will be automatically redeemed by the Company at the end of such sixty
month period. At the option of the Company, the payment of the redemption price
may be made either in cash or in shares of stock of the Company or its parent.
Under the terms of the agreement, if the employment of Mr. Zorn is terminated
for any reason other than for cause or disability, Mr. Zorn is entitled to
receive compensation and benefits for six months, provided that he uses his best
efforts to secure other executive employment.
RETIREMENT PLAN
The Company maintains the Di Giorgio Retirement Plan (the "Retirement Plan")
which is a defined benefit pension plan. Employees of the Company and its
affiliates who are not covered by a collective bargaining agreement (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Retirement Plan after completing one year of employment.
All benefits under the Retirement Plan are funded by contributions made by the
Company. In general, a participant's retirement benefit consists of the sum of
(a) with respect to employment on or after September 1, 1990, an annual amount
equal to the participant's aggregate compensation (excluding income from the
exercise of certain stock option and stock appreciation rights) while he is
eligible to participate in the Retirement Plan multiplied by 1.5% and (b) with
respect to employment prior to September 1, 1990, an annual amount equal to the
sum of (i) the benefit earned under the Retirement Plan as of December 31, 1987,
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.
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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, $20,521; Mr. Neff, $18,441; Mr. Bokser $85,496; Mr. Zorn, $8,070;
Mr. De Simone, $11,861.
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 him and in the matching contributions made by the Company
on his behalf and has full investment discretion over his contributions.
A participant may withdraw certain amounts credited to his account prior to
termination of employment. Certain withdrawals require financial hardship or
attainment of age 59 1/2. In general, amounts credited to a participant's
account will be distributed upon termination of employment.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees 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
Messrs. Goldberg, and Solimine served as members of the Compensation Committee
of Di Giorgio during 1996. Mr. Goldberg is Chairman, President and Chief
Executive Officer of Di Giorgio and White Rose. Neither Messrs. Carella nor
Solimine serve as executive officers of Di Giorgio, White Rose or their
subsidiaries.
Mr. Goldberg, who is Chairman of the Board, President, and Chief Executive
Officer of White Rose, serves on the Board of Directors and, through his
indirect beneficial ownership, controls the affairs of Las Plumas. Mr. Neff, who
is a member of the Board of Directors of White Rose, serves as President of Las
Plumas.
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Messrs. Goldberg, Neff and Bokser, who serve as executive officers and members
of the Board of Directors of Di Giorgio and White Rose, serve as executive
officers and members of the Board of Directors of DIG Holding.
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. White Rose, the majority of the common stock of
which is owned by Rose Partners, LP (98.5%), owns 100% of the outstanding voting
common stock of Di Giorgio. 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, sales of all or substantially all assets or going private transactions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
BT Commercial Corporation ("BTCC"), an affiliate of BTNY, acts as agent and
lender under the Di Giorgio Revolving Credit Facility, entered into concurrently
with the Di Giorgio Senior Note Offering, between the Company and a syndicate of
banks. In Fiscal 1996 the Company paid fees in the amount of $213,403 and
interest in the amount of approximately $3.0 million, of which BTCC received its
portion. In addition, the Company paid an annual fee of $100,000 to BTCC for
services as agent.
On August 3, 1992, White Rose Frozen Food ("Frozen Food") and WRGFF Associates,
L.P. ("WRGFF"), a New Jersey limited partnership controlled by Mr. Goldberg,
acquired in two simultaneous transactions substantially all of the operating
properties and assets of Global from Sysco. To facilitate the Global
Acquisition,WRGFF purchased and subsequently leased certain assets of Global to
the Company. In Fiscal 1996, the Company paid approximately $1.4 million to
WRGFF in connection with the lease of such assets.
Las Plumas Divestiture
In June 1992, the Company distributed all of the outstanding shares of Las
Plumas to its then sole shareholder, DIG Holding, as a dividend. The net book
value of such stock was estimated to be $21.7 million. The Company remains
liable for various liabilities of the Las Plumas Division including liabilities
relating to environmental and workers' compensation matters incurred prior to
the date of divestiture. At the time of the dividend the Company was owed $4.5
million. As of December 28, 1996, Las Plumas owed the Company approximately $3.5
million. This indebtedness is evidenced by a subordinated note secured by a
mortgage relating to four parcels of property of Las Plumas. This loan
originally matured in June 1994 and has been extended until June 1998 and bears
interest at a fluctuating rate determined quarterly equal to the weighted
average of the interest rate paid by the Company under the Di Giorgio Revolving
Credit Facility. The weighted average interest rate with respect to this loan
was 8.39% in Fiscal 1996. The note evidencing the Las Plumas Loan is pledged as
additional security under the Di Giorgio Revolving Credit Facility. Las Plumas
has advised the Company that in the event of any sale or disposition of the
stock or substantially all of the assets of Las
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Plumas, or refinancing of the mortgage, the proceeds would be applied to the
repayment of this obligation.
Tax Sharing
DIG Holding Corp. ("DIG Holding") and the Company entered into an intercompany
tax agreement, effective January 1, 1992 (as amended), providing for the filing
of consolidated and combined federal and certain state income tax and franchise
tax returns and for the allocation of income tax liabilities related to such
returns. On December 27, 1996, White Rose and its parent, DIG Holding, effected
a merger with White Rose continuing as the surviving corporation. As provided
for in the tax agreement, White Rose assumed DIG Holding's standing in the
consolidated group. As required by the terms of the intercompany tax agreement,
each of the Company and its subsidiaries will pay to White Rose an amount equal
to the consolidated or combined federal income or state income or franchise
taxes due multiplied by a fraction, the numerator of which is each member's
separately determined taxable income and the denominator of which is the
combined or consolidated taxable income of all members of the group. Management
believes that White Rose and its subsidiaries other than the Company may benefit
from such agreement to the extent that the Company has tax attributes that
reduce the consolidated or combined tax liability of White Rose and its
subsidiaries. In addition, under certain circumstances, the Company and its
subsidiaries may not benefit from their tax attributes to the same extent as
they would have if they had filed separate returns. However, except for the
inability to fully utilize certain of the Company's separately computed tax
attributes, in no event will the Company become obligated to pay an amount which
is greater than that which it would have paid on an unconsolidated basis.
Other
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 has paid approximately $111,000 to the firm for
fiscal 1996.
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 has
paid Emar Group approximately $150,000 for fiscal 1996 for such services.
In fiscal 1996, the Company recorded income of $245,000 from Bally Entertainment
Corporation, a company in which Mr. Goldberg serves as Chairman and Chief
Executive Officer, 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.
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS
Independent Auditors' Report......................... F-2
Consolidated Balance Sheets as of December 30, 1995
and December 28, 1996................................ F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 28, 1996.... F-4
Consolidated Statements of Changes in Stockholder's
Equity for each of the three years in the period
ended December 28, 1996.............................. F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 28, 1996 F-6
Notes to Consolidated Financial Statements........... F-8
2. FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts....... S-1
3. EXHIBITS
A. Exhibits
3.1(4) - Form of Amended and Restated Certificate of
Incorporation of the Company
3.2(4) - Restated Bylaws of the Company
4.1(5) - Indenture, dated February 2, 1993 under the company
Senior Notes due 2003 are issued
4.2(5) - 12 % Senior Note due 2003 Specimen
10.1(5) - Credit Agreement dated as of February 10, 1993 among
the company, various financial institutions, BT
Commercial Corporation, as agent and Bankers Trust
Company as Issuing Bank
26
27
10.2(8)- 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(2)- Employment Agreement dated May 1, 1992 between Richard
B. Neff and the Company, as amended
10.4(2)- Employment Agreement dated February 18, 1992 between
the Company and Robert A. Zorn
10.5(10)- Amended and Restated Employment Agreement dated
January 1, 1994 between the Company and Stephen R.
Bokser
10.6(16)- Di Giorgio Retirement Plan as Amended and Restated
effective January 1, 1989 (dated January 26, 1996)
10.7(14)- Di Giorgio Retirement Savings Plan as Amended and
Restated effective January 1, 1989
10.8(16)- Amendment to the Di Giorgio Retirement Savings Plan
effective January 1, 1989 (dated November 28, 1995)
10.9(2)- 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
10.10(2)- Lease between Marley Properties, Inc. (landlord) and
Met Food Corp. (tenant), dated March 11, 1968, and
amendment thereto, relating to facilities located in
Farmingdale, New York
10.11(4)- Sub-Sublease between WRGFF (sublandlord) and Frozen
Food (subtenant), dated August 3, 1992 relating to
facilities located in Garden City, New York
10.12(7)- Consent and Amendment No. 1 dated as of June 25, 1993
to Credit Agreement dated as of February 10, 1993
10.13(8)- Consent and Amendment No. 2 dated as of November 3,
1993 to Credit Agreement dated as of February 10, 1993
10.14(5)- Note Pledge Agreement dated as of February 1, 1993,
by Di Giorgio Corporation in favor of BT Commercial
Corporation, as agent
27
28
10.15(5)- License and Security Agreement dated as of February
1, 1993, by Di Giorgio Corporation in favor of BT
Commercial Corporation, as agent
10.16(5)- Promissory Note dated as of February 2, 1993 made by
Las Plumas Lumber Corporation in favor of Di Giorgio
10.18(2)- Settlement Agreement dated July 30, 1992, by and
between White Rose Foods, Inc. and the Furniture,
Flour, Grocery, Teamsters and Chauffeurs Union, Local
No. 138
10.19(5)- Tax Sharing Agreement effective January 1, 1992 among
DIG Holding, Di Giorgio and certain other parties
10.20(9)- Amendment to Tax Sharing Agreement effective January
1, 1993 among DIG Holding, Di Giorgio and certain other
parties
10.30(10)-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(10)-Consent and Amendment No. 3 dated March 30, 1994 to
Credit Agreement dated as of February 10, 1993
10.32(11)-Consent and Amendment No. 4 dated April 22, 1994 to
Credit Agreement dated as of February 10, 1993.
10.33(12)-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(13)-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(14)-Amendment No. 5 dated November 15, 1994 to Credit
Agreement dated as of February 10, 1993.
10.36(14)-Waiver and Amendment No. 6 dated as of March 3, 1995
to Credit Agreement dated as of February 10, 1993.
10.37(14)-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.
28
29
10.38(15)-Amendment No. 7 dated September 30, 1995 to Credit
Agreement dated as of February 10, 1993.
10.39(17)- Amendment No. 8, dated as of September 26, 1996 to
Credit Agreement dated as of February 10, 1993.
21(2) - List of Subsidiaries of the Company
27(1) - Financial Data Schedule
- ------------------------------------------
(1) Filed herewith
(2) Incorporated by reference to S-1 Registration Statement of Di Giorgio (File
No. 33-53886) filed with the Commission on October 28, 1992
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to S-1
Registration Statement of the company (File No. 33-53886) filed with the
Commission on December 18, 1992
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to Registration
Statement on form S-1 of Di Giorgio (File No. 33-53886) filed with the
Commission on January 11, 1993
(5) Incorporated by reference to Amendment No. 3 to S-1 Registration Statement
of Di Giorgio (File No. 33-53886) filed with the Commission on February 1,
1993
(6) Intentionally omitted
(7) 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
(8) 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
(9) Incorporated by reference to S-4 Registration Statement of White Rose (File
No. 33-72284) filed with the Commission on November 24, 1993.
(10) Incorporated by reference to the company's Annual Report on Form 10-K for
year ended January 1,1994 (File 1-1790)
(11) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended April 2, 1994 (File 1-1790)
(12) Incorporated by reference to the company's Current Report on Form 8-K dated
April 25, 1994 (File 1-1790)
(13) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended July 2, 1994 (File 1-1790)
29
30
(14) Incorported by reference to the company's Annual Report on Form 10-K for
year ended December 31, 1994 (File 1-1790)
(15) Incorporated by reference to the companys Quarterly Report on Form 10-Q for
quarter ended September 30, 1995 (File 1-1790)
(16) Incorporated by reference to the company's Annual Report on Form 10-K for
the year ended December 30, 1995 (File 1-1790)
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 28, 1996.
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.
30
31
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 25th day of
March, 1997.
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 25, 1997
- ------------------------ Executive Officer (Principal
Arthur M. Goldberg Executive Officer)
/s/ Jerold E. Glassman Director March 25, 1997
- ------------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director March 25, 1997
- ------------------------
Emil W. Solimine
/s/ Charles C. Carella Director March 25, 1997
- ------------------------
Charles C. Carella
/s/ Jane Scaccetti Fumo Director March 25, 1997
- ------------------------
Jane Scaccetti Fumo
/s/ Richard B. Neff Executive Vice President and March 25, 1997
- ------------------------ Chief Financial Officer (Principal
Richard B. Neff Financial and Accounting
Officer); Director
/s/ Stephen R. Bokser Executive Vice President and March 25, 1997
- ------------------------ Director
Stephen R. Bokser
32
DI GIORGIO CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996 F-3
Consolidated Statements of Operations for Each of the Three Years in the Period
Ended December 28, 1996 F-4
Consolidated Statements of Changes in Stockholder's Equity for Each of the
Three Years in the Period Ended December 28, 1996 F-5
Consolidated Statements of Cash Flows for Eachof the Three Years in the Period
Ended December 28, 1996 F-6
Notes to Consolidated Financial Statements F-8
F-1
33
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Di Giorgio Corporation
Carteret, New Jersey
We have audited the consolidated balance sheets of Di Giorgio Corporation and
subsidiaries (the "Company") as of December 30, 1995 and December 28, 1996, and
the related consolidated statements of operations, stockholder's equity and cash
flows for each of the three years in the period ended December 28, 1996. 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 an 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 financial position of the Company at December 30, 1995
and December 28, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 21, 1997
F-2
34
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
ASSETS 1995 1996
CURRENT ASSETS:
Cash and equivalents $ 302 $ 1,537
Accounts and notes receivable - Net 70,864 61,550
Inventories 52,331 49,563
Prepaid expenses 3,479 3,684
--------- ---------
Total current assets 126,976 116,334
PROPERTY, PLANT AND EQUIPMENT - Net 60,058 56,270
LONG-TERM NOTES RECEIVABLE 7,195 10,861
DEFERRED FINANCING COSTS 4,828 3,835
OTHER ASSETS 12,680 12,216
EXCESS OF COST OVER NET ASSETS ACQUIRED 95,510 87,471
--------- ---------
TOTAL $ 307,247 $ 286,987
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable $ 32,303 $ 26,719
Current portion of long-term debt 1,540 1,299
Accounts payable - trade 58,414 49,468
Accrued expenses 25,307 24,361
Current installment - capital lease liability 2,231 2,378
--------- ---------
Total current liabilities 119,795 104,225
LONG-TERM DEBT 108,809 102,743
CAPITAL LEASE LIABILITY 33,902 31,523
OTHER LONG-TERM LIABILITIES 9,131 7,826
STOCKHOLDER'S EQUITY:
Common stock, Class A, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 101.62 shares -- --
Common stock, Class B, $.01 par value - authorized, 1,000 shares;
issued and outstanding, 100 shares -- --
Additional paid-in capital 45,944 45,944
Accumulated deficit (10,334) (5,274)
--------- ---------
Total stockholder's equity 35,610 40,670
--------- ---------
TOTAL $ 307,247 $ 286,987
========= =========
See notes to consolidated financial statements.
F-3
35
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
REVENUE:
Net sales $ 932,386 $ 1,018,218 $ 1,045,161
Other revenue 4,461 4,823 5,045
--------- ----------- -----------
Total revenue 936,847 1,023,041 1,050,206
COST OF PRODUCTS SOLD 835,526 915,536 935,719
--------- ----------- -----------
Gross profit - exclusive of warehouse
expense shown separately below 101,321 107,505 114,487
OPERATING EXPENSES:
Warehouse expense 37,503 39,196 40,343
Transportation expense 21,354 22,759 21,624
Selling, general and administrative expenses 20,229 22,360 23,387
Facility integration expense 3,986 -- --
Amortization - excess of cost over net assets
acquired 2,766 2,892 2,892
--------- ----------- -----------
OPERATING INCOME 15,483 20,298 26,241
INTEREST EXPENSE 15,782 19,683 18,067
AMORTIZATION - Deferred financing costs 1,370 1,336 993
OTHER INCOME - Net (2,079) (2,708) (2,706)
--------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 410 1,987 9,887
INCOME TAXES 1,121 1,946 5,046
--------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (711) 41 4,841
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - net of tax -- 306 219
--------- ----------- -----------
NET INCOME (LOSS) $ (711) $ 347 $ 5,060
========= =========== ===========
See notes to consolidated financial statements.
F-4
36
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- -------- --------
BALANCE, JANUARY 1, 1994 101.62 $ -- 100.00 $ -- $45,944 $ (9,970) $ 35,974
Net loss -- -- -- -- -- (711) (711)
------ ------ ------ ------ ------- -------- --------
BALANCE, DECEMBER 31, 1994 101.62 -- 100.00 -- 45,944 (10,681) 35,263
Net income -- -- -- -- -- 347 347
------ ------ ------ ------ ------- -------- --------
BALANCE, DECEMBER 30, 1995 101.62 -- 100.00 -- 45,944 (10,334) 35,610
Net income -- -- -- -- -- 5,060 5,060
------ ------ ------ ------ ------- -------- --------
BALANCE, DECEMBER 28, 1996 101.62 $ -- 100.00 $ -- $45,944 $ (5,274) $ 40,670
====== ====== ====== ====== ======= ======== ========
See notes to consolidated financial statements.
F-5
37
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 28, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (711) $ 347 $ 5,060
Adjustments to reconcile net (loss) income to net cash
provided by operations:
Extraordinary gain on extinguishment of debt - net of tax -- (306) (219)
Depreciation and amortization 2,812 3,949 4,488
Amortization of deferred financing costs 1,370 1,336 993
Amortization of excess of cost over net assets acquired 2,766 2,892 2,892
Other amortization 478 527 527
Provision for doubtful accounts 2,100 2,100 1,850
Increase in prepaid pension cost (960) (720) (461)
Non-cash interest -- 567 --
Loss on sale of property 459 -- --
Income tax benefit offset against excess of cost
over net assets acquired 1,058 1,841 5,001
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (11,364) 1,609 7,464
Inventories (9,071) 1,272 2,768
Prepaid expenses (175) (327) (165)
Other assets 161 595 662
Long-term receivables 264 1,560 (3,666)
Increase (decrease) in:
Accounts payable 21,827 (6,304) (8,946)
Accrued expenses and other liabilities (1,755) (2,426) (2,251)
-------- ------- --------
Net cash provided by operating activities 9,259 8,512 15,997
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,390) (1,920) (1,004)
Proceeds from sale of property 730 -- --
Cash paid to acquire business (9,700) -- --
Proceeds from contingent reimbursement 489 1,063 --
-------- ------- --------
Net cash used in investing activities (9,871) (857) (1,004)
-------- ------- --------
(Continued)
F-6
38
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER
28, 1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/repayments from revolving credit
facility - net $ 291 $ (6,529) $ (5,584)
Refinancing -- 6,600 --
Payments of transaction fees and expenses (418) (600) --
Repayments of capital lease obligations (1,618) (3,990) (2,232)
Repayments of debt (1,083) (3,529) (5,942)
Proceeds from equipment sale 3,500 -- --
-------- -------- --------
Net cash provided by (used in) financing activities 672 (8,048) (13,758)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 60 (393) 1,235
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 635 695 302
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 695 $ 302 $ 1,537
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Business acquired:
Fair value of assets acquired $ 9,298 $ -- $ --
Liabilities assumed or created (3,596) -- --
Net cash paid for business acquired (9,211) -- --
Present value of note payable issued (7,021) -- --
-------- -------- --------
EXCESS OF COST OVER NET ASSETS
ACQUIRED $ 10,530 $ -- $ --
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Acquisition of warehouse facility and machinery in
exchange for
capital lease $ -- $ 28,391 $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 15,807 $ 19,635 $ 18,569
======== ======== ========
Income taxes $ 37 $ 125 $ 73
======== ======== ========
See notes to consolidated financial statements.
(Concluded)
F-7
39
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - On February 9, 1990, DIG Acquisition Corp., a wholly-owned
subsidiary of DIG Holding Corp. ("DIG Holding"), acquired 95% of the
outstanding stock of Di Giorgio Corporation (the "Company") pursuant to a
cash tender offer at $30 per share for the Class A common stock. The
remaining 5% of Di Giorgio common stock was obtained via a merger of DIG
Acquisition Corp. and the Company.
The acquisition was accounted for as a purchase and the cost of Di Giorgio'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 30, 1995 and December 28, 1996, accumulated amortization of excess
costs over net assets acquired was approximately $16,003,000 and $18,895,000,
respectively.
In February 1993, the Company issued 100 shares of Class B common stock to
DIG Holding Corp. in exchange for a capital contribution of $25 million. In
September 1993, White Rose Foods, Inc. purchased the 100 shares of Class B
common stock from DIG Holding so that as of September 1993, White Rose Foods,
Inc. owned 100% of the Company.
DESCRIPTION OF BUSINESS - 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, northern New Jersey and to a
lesser extent, the Philadelphia area. The Company distributes three primary
supermarket product categories: grocery, frozen and dairy.
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 assets 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 is being amortized by the straight-line method over 40 years.
F-8
40
Management assesses the recoverability of goodwill by comparing the Company's
forecasts of cash flows from future operating results, on an undiscounted
basis, to the unamortized balance of goodwill at each quarterly balance sheet
date. If the results of such comparison indicate that an impairment may be
likely, the Company will recognize a charge to operations at that time based
upon the difference of the present value of the expected cash flows from
future operating results (utilizing a discount rate equal to the Company's
average cost of funds at the time), and the then balance sheet value. The
recoverability of goodwill is at risk to the extent the Company is unable to
achieve its forecast assumptions regarding cash flows from operating results.
Management believes, at this time, that the goodwill carrying value and
useful life continues to be appropriate.
DEFERRED FINANCING COSTS - Deferred financing costs are being amortized over
the life of the related debt using the interest method.
USE OF ESTIMATES - The preparation of 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 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.
FISCAL YEAR - The Company's fiscal year-end is the Saturday closest to
December 31. The financial statements for each of the three years in the
period ended December 28, 1996 comprised 52 weeks.
RECLASSIFICATIONS - Previously, the Company classified as other income
reclamation service fees, label income and other customer related services.
Commencing in the year ended December 28, 1996, the Company is classifying
these items as other revenue. Prior year amounts have been reclassified
accordingly. The change in classification has no effect on previously
reported net income.
Certain other reclassifications were made to prior years' financial
statements to conform to the current year presentation.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consists of the following:
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
Accounts receivable $ 60,231 $ 52,688
Notes receivable 7,737 7,192
Other receivables 6,837 5,981
Less allowance for doubtful accounts (3,941) (4,311)
-------- --------
$ 70,864 $ 61,550
======== ========
F-9
41
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
ESTIMATED
USEFUL LIFE DECEMBER 30, DECEMBER 28,
IN YEARS 1995 1996
(IN THOUSANDS)
Land -- $ 900 $ 900
Buildings and improvements 10 6,366 6,275
Machinery and equipment 3-10 9,662 10,495
Less accumulated depreciation (6,194) 8,024)
-------- -------
10,734 9,646
-------- -------
Capital leases:
Building and improvements 45,705 45,705
Equipment 8,410 8,410
Less accumulated amortization (4,791) (7,491)
-------- -------
49,324 46,624
-------- -------
$ 60,058 $56,270
======== =======
4. ACQUISITION
ROYAL ACQUISITION - On June 20, 1994, the Company acquired substantially all
of the operating properties, assets and business of the dairy and deli
distribution business based in Woodbridge, New Jersey known as Royal Foods
("Royal") from Fleming Foods East, Inc. and its parent corporation, Fleming
Companies Inc. The total purchase price was approximately $16.2 million,
consisting of an $8 million seller-financed note (present value of $7 million
at date of issuance) and $8.2 million in cash (net of $489,000 of contingent
reimbursement received during the year December 31, 1994 and an additional $1
million received during the year ended December 30, 1995).
The acquisition was accounted for as a purchase and the cost was allocated to
the assets acquired and liabilities assumed based on fair values. The cost of
the acquisition exceeded the total fair value of the net assets acquired. The
results of operations are included in the statement of operations from April
25, 1994, the date of the first closing. The Company did not purchase all
assets and/or operations of the seller and did not obtain all of the seller's
customers. As such it is not possible to present pro forma results estimating
combined results of operations as if the purchase acquisition was consummated
on January 2, 1994.
The Company incurred an approximate $4.0 million charge in the period ended
December 31, 1994, which has been paid as of December 28, 1996, for the
integration of its two dairy facilities. During fiscal 1994, the Company
moved its existing dairy business from its Kearny, New Jersey facility to its
Woodbridge, New Jersey facility. As part of this integration, the Company
developed an exit plan for its Kearny facility. The charge includes
approximately $3.0 million relating to contractual costs, including $2
million of fixed Kearny facility expenses, primarily for the rent and real
estate taxes. The charge also
F-10
42
included approximately $900,000 of costs paid through October 1, 1994
relating to temporary incremental expenses that were a direct result of the
plan to exit Kearny and move to Woodbridge in an orderly and timely fashion.
These charges primarily reflect duplicate and incremental labor charges
during the physical integration that did not appreciably add to the
generating of revenue.
Although the Company continues to investigate subleasing the Kearny facility,
the facility was placed back into operations in the second quarter of fiscal
1996. The Company currently operates a storage facility as well as a juice
depot at the location. In the first quarter of fiscal 1997, the Company has
begun to investigate the alternative of expanding the facility as it decides
whether to enter the produce distribution business.
5. FARMINGDALE WAREHOUSE FACILITY
On July 27, 1993, the Company, through its wholly-owned subsidiary, MF Corp.,
entered into an agreement for the sublease of Farmingdale, the Company's old
grocery facility. The initial term of the sublease is five years. The
sublessee was also granted an option, which is exercisable under certain
circumstances, to purchase the property. The Company and the fee owner will
share the economic benefits, if any, of the resulting income stream, and any
excess proceeds of financing related thereto with 80% to the Company and 20%
to the fee owner.
On March 9, 1995, the Company, through MF Corp. and in conjunction with the
fee owner, completed a $6.6 million mortgage financing of Farmingdale. The
Company realized proceeds in the amount of $3.4 million after deducting a
$2.2 million capital lease liability payment and $1 million representing
associated fees, escrow deposits and a payment to the fee owner.
Included in other income for each of the three years in the period ended
December 28, 1996 is net rental income of approximately $798,000, $954,000
and $1 million, respectively, related to the facility.
F-11
43
6. FINANCING
Debt consists of the following:
INTEREST RATE
AT DECEMBER 28, DECEMBER 30, DECEMBER 28,
1996 1995 1996
(IN THOUSANDS)
Notes payable - revolving credit
facility (b) 8.09% $ 32,303 $ 26,719
======== ========
Current portion of long-term debt:
Mortgage payable (c) 9.00% $ 627 $ 685
Fleming note payable (d) 6.37% 593 614
Other 6.75% 320 --
-------- --------
$ 1,540 $ 1,299
======== ========
Long-term debt:
Senior notes (a) 12.00% $ 97,655 $ 92,890
Mortgage payable (c) 9.00% 5,585 4,901
Fleming note payable (d) 6.37% 5,569 4,952
-------- --------
$108,809 $102,743
======== ========
(a)Senior Notes - The senior notes were issued in fully registered form under
an Indenture dated as of February 10, 1993 between the Company and The
Bank of New York, as Trustee. The senior notes are general unsecured
obligations of the Company initially issued in $100,000,000 principal
amount due February 15, 2003, bearing interest at the rate of 12% payable
semi-annually and redeemable by the Company in certain circumstances.
The senior notes may not be redeemed prior to February 15, 1998. After
February 15, 1998, the senior notes are redeemable at the Company's
option, in whole or in part, at a premium declining from 4.5% in 1998 to
par in 2001 and subsequent years until maturity in 2003. If a change of
control occurs, the Company shall make an offer to repurchase all of the
senior notes then outstanding on a date 60 days after the date of such
change of control at a cash purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest.
During the years ended December 30, 1995 and December 28, 1996, DiGiorgio
retired $2,345,000 and $4,765,000, respectively, of the senior notes that
it purchased on the open market and recorded an extraordinary gain of
$306,000 (net of taxes of $204,000) and $219,000 (net of taxes of
$146,000), respectively.
Payments of principal and interest on the senior notes are subordinate to
the Company's secured obligations, including borrowings under the
revolving credit facility, capital lease obligations (see Note 11) and
other secured indebtedness of the Company and its subsidiaries.
The Senior Note 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
Senior Note
F-12
44
Indenture further restricts the Company's and its restricted subsidiaries'
ability to sell or issue a restricted subsidiaries' capital stock, create
liens, issue subordinated indebtedness, sell assets, and undertake
transactions with affiliates. No consolidation, merger or other sale of
all or substantially all of its assets in one transaction or series of
related transactions is permitted, except in limited instances.
(b)Revolving Credit Facility - As of December 28, 1996, borrowings under the
$90 million credit facility bore interest at the Company's option, at the
rate of bank prime plus 1.0% or the adjusted Eurodollar rate plus 2.5%.
Prior to September 1995, borrowings bore interest, at the Company's
option, at the rate of bank prime plus 1.5% or the adjusted Eurodollar
rate plus 3%. On February 1, 1997, the interest rate was lowered by .25%
to prime plus .75% or the adjusted Eurodollar rate plus 2.25% because of
the Company's ability to meet certain financial tests.
Although the Company's credit facility expires on June 30, 1997,
management of the Company believes the facility will either be extended or
replaced on either substantially the same terms or better terms.
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. As of December 28, 1996, the
Company had an additional $35 million of borrowing base availability.
The borrowings under the revolving credit facility are secured by the
Company's inventory and accounts receivable as well as certain general
intangibles and documents of title. The Company also pledged as security
the Las Plumas Lumber Corp. ("Las Plumas") note (see Note 15).
The Company's $90 million revolving credit facility, among other matters,
contains certain restrictive covenants relating to net worth, interest
coverage, current ratio and capital expenditures. The facility also
prohibits the payment of dividends. The Company was in compliance with the
covenants as of December 28, 1996.
(c)Mortgage Payable - The terms of the eight-year, nonrecourse mortgage
payable of the Company's wholly-owned subsidiary, MF Corp., are payments
of $96,691 a month, including interest at 9% through 2004. Beginning in
fiscal 1998, the interest rate adjusts to Moody's A Corporate Bond Index
Daily Rate minus one-eighth of 1%. The mortgage includes customary
prepayment penalties.
(d)Fleming Note Payable - The terms of the note require quarterly principal
payments of $200,000 plus interest at a rate equal to the prime rate (as
stated in the Wall Street Journal) minus 2%, divided by two. Currently,
cash interest is 3.25% and is to be reset every eighteen months. The note
matures on June 20, 1999. The note has been discounted at a rate of 6.37%
for financial statement purposes. As of December 28, 1996, the remaining
principal amount on the note is $6 million. The note is secured by a $1.5
million letter of credit.
F-13
45
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
are as follows:
DECEMBER 30, 1995 DECEMBER 28, 1996
CARRYING FAIR CARRYING FAIR
VALUE AMOUNT VALUE AMOUNT
(IN THOUSANDS)
Debt (Note 6):
Revolving credit facility $32,303 $32,303 $26,719 $26,719
12% Senior notes 97,655 80,077 92,890 99,968
Other notes payable 12,694 12,694 11,152 11,152
Accounts and notes receivable -
current (Note 2) 70,864 70,864 61,550 61,550
Notes receivable - long-term 7,195 7,195 10,861 10,861
The fair value of the 12% senior notes as of December 30, 1995 and December
28, 1996 are based on yields of 16.44% (as of February 29, 1996) and 10.28%
(as of December 30, 1996), respectively. 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 values of other notes
payable were assumed to reasonably approximate their carrying amounts since
they have variable interest rates.
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 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
Legal $ 1,127 $ 1,123
Environmental 1,017 708
Interest 4,914 4,412
Employee benefits 5,693 5,957
Due to vendors/customers 2,659 3,219
Non-compete agreements 568 --
Facility integration expenses 609 --
Other 8,720 8,942
------- -------
$25,307 $24,361
======= =======
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46
9. RETIREMENT
a. Pension Plans - The Company maintains a noncontributory defined benefit
pension plan covering substantially all of its non-collective bargaining
employees. Pension costs for these plans and related disclosures are
determined under the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions." 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.
Plan Changes - Effective January 1, 1995, the method for determining
market and related value of assets was changed from the market value to a
five-year moving market value with asset gains/losses recognized over five
years.
The pension credit included in operations for the years ended December 31,
1994, December 30, 1995, and December 28, 1996 includes the following
components:
YEAR ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
(IN THOUSANDS)
Service cost-benefits earned
during the period $ 393 $ 345 $ 585
Interest cost on projected
benefit obligation 2,951 3,350 3,350
Return on assets - actual 1,139 (7,138) (4,302)
Net amortization and deferral (5,464) 2,746 (117)
------- ------- -------
Net periodic pension credit $ (981) $ (697) $ (484)
======= ======= =======
F-15
47
The following sets forth the status of the plan as of the most recent
actuarial report:
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $44,283 $45,179
======= =======
Accumulated benefit obligation $45,063 $46,187
======= =======
Projected benefit obligation $45,632 $46,976
Plan assets at fair value 49,132 50,213
------- -------
Plan assets in excess of projected
benefit obligation 3,500 3,237
Unrecognized prior service cost 180 165
Unrecognized net loss 4,255 5,017
------- -------
Prepaid pension cost $ 7,935 $ 8,419
======= =======
The prepaid pension cost is included in other assets on the consolidated
balance sheets.
The following table provides the assumptions used in determining the
actuarial present value of the projected benefit obligation at December
30, 1995 and December 28, 1996:
DECEMBER 30, DECEMBER 28,
1995 1996
Weighted average discount rate 7.50% 7.50%
Rate of increase in future compensation levels 6.00 6.00
Expected long-term rate of return on plan assets 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 included in operations was as follows:
YEAR ENDED (IN THOUSANDS)
December 31, 1994 $ 605
December 30, 1995 836
December 28, 1996 1,082
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 10% of their total compensation (as defined in the savings plan),
subject to statutory limitations. A contribution of up
F-16
48
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 31, 1994 $111
December 30, 1995 144
December 28, 1996 171
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
Employee benefits $4,206 $3,520
Legal 1,877 2,633
Environmenal 1,378 1,337
Other 1,670 336
------ ------
$9,131 $7,826
====== ======
11. COMMITMENTS AND CONTINGENCIES
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 subleases one warehouse facility and certain equipment from WRGFF
Associates, L.P. ("WRGFF"), an affiliate of the Company. For each of the
years in the three-year period ended December 28, 1996, rental expense under
these leases with WRGFF amounted to approximately $1.1 million, $1.2 million
and $1.4 million, respectively.
The Company entered into a lease agreement to lease a dry warehouse facility
which the Company is using for its grocery division as well as for its
administrative headquarters. The lease commitment commenced on February 1,
1995. The term of the lease expires in 2015 with two five-year renewal
options. Rental payments under the lease are approximately $2.9 million per
year (through the expiration date). The Company recorded the lease as a
capitalized asset with a related liability, having a net book value as of
December 30, 1995 and December 28, 1996 of approximately $26.9 and $25.5
million, respectively.
F-17
49
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of December 28, 1996:
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
(IN THOUSANDS)
1997 $ 4,969 $ 6,135
1998 3,856 5,255
1999 3,611 4,146
2000 3,553 2,632
2001 3,441 1,573
Thereafter 42,589 1,074
------- -------
Net minimum lease payments 62,019 $20,815
=======
Less interest 28,118
Present value of net minimum lease
payments (including current
installments of $2,378) $33,901
=======
Total rent expense included in operations was as follows:
YEAR ENDED (IN THOUSANDS)
December 31, 1994 $7,121
December 30, 1995 6,337
December 28, 1996 6,622
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 $11,346,000 and $11,979,000 on open letters of credit with a bank
as of December 30, 1995 and December 28, 1996, respectively.
EMPLOYMENT AGREEMENTS - The Company has employment agreements with three key
executives expiring February 1997, March 1997 and April 1996, subject to
automatic renewals, absent notice. Under the agreements, combined annual
salaries of $778,000 are expected to be paid in fiscal 1997. In addition, the
executives are entitled to additional compensation upon occurrence of certain
events.
F-18
50
12. OTHER INCOME - NET
Other income consists of the following:
YEAR ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 26,
1994 1995 1996
(IN THOUSANDS)
Interest income $ 852 $1,135 $1,405
Net rental income 1,037 954 1,020
Net (loss) gain on disposal
of equipment (459) -- 63
Non-compete agreement 514 213 --
Other - net 135 406 218
------- ------ ------
$ 2,079 $2,708 $2,706
======= ====== ======
13. INCOME TAXES
The Company's parent, White Rose Foods, Inc., files a consolidated Federal
tax return. The consolidated group has adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." White
Rose Foods, Inc. allocates consolidated income taxes expense or benefit to
the Company as if the Company was filing separate tax returns.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company's deferred tax asset has been reduced by a valuation allowance based
on current evidence indicating that it is not more likely than not that the
future benefits of these temporary differences will
F-19
51
be realized. The tax effects of significant items comprising the Company's
deferred tax assets and deferred tax liabilities are as follows:
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
Deferred tax assets:
Allowance for doubtful accounts $ 2,439 $ 1,814
Accrued expenses not deductible until paid 5,004 5,494
Net tax operating loss carryforwards 12,546 12,198
-------- --------
Deferred tax asset 19,989 19,506
-------- --------
Deferred tax liabilities:
Difference between book and tax basis
of property (4,783) (4,038)
Pension asset valuation (3,134) (3,296)
-------- --------
Deferred tax liabilities (7,917) (7,334)
-------- --------
Net deferred tax assets 12,072 12,172
Less valuation allowance (12,072) (12,172)
-------- --------
$ -- $ --
======== ========
The valuation allowance relates to net deferred tax assets relating to
preacquisition temporary differences and operating loss carryforwards as well
as postacquisition temporary differences and loss carryforwards. The
elimination of the valuation allowance relating to (i) preacquisition amount
is credited to the excess of cost over net assets of business acquired and
(ii) postacquisition amount is credited to the income tax provision. In each
of the three years in the period ended December 28, 1996, the excess of cost
over net assets of business acquired has been reduced by approximately $1.1
million, $2 million and $4.8 million, respectively, because of utilization of
preacquisition amounts.
As of December 28, 1996, approximately $35.9 million of federal net tax
operating loss carryforwards (which expire between the years 2006 and 2010)
and approximately $30 million of New Jersey state tax operating loss
carryforward (which expire between the years 1997 and 2002) are available.
The tax effect of $14 million of the net tax operating loss carryforward will
be credited to the excess of cost or net assets of business acquired to the
extent the valuation allowance relating to the preacquisition amounts is
eliminated and the balance will be credited to the tax provision. As of
December 28, 1996 there were no taxes currently payable.
F-20
52
The provision for income taxes consist of the following (in thousands):
YEAR ENDED
DECEMBER 28, 1996
Current income tax $4,676
Deferred income tax 370
------
$5,046
======
A reconciliation of the Company's effective tax rate from continuing
operations with the statutory Federal tax rate is as follows:
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
(IN THOUSANDS)
Tax at statutory rate $ 139 $ 676 $3,362
State and local taxes -
net of federal benefit 42 287 701
Permanent differences -
amortization of excess cost
over net assets acquired 940 983 983
------ ------ ------
$1,121 $1,946 $5,046
====== ====== ======
14. LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
Various suits and claims arising in the 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 affect the Company's financial position, cash flows or
results from operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management, these claims
are either without merit, covered by insurance, adequately provided for, or
not expected to result in any material loss to the Company.
15. RELATED PARTY TRANSACTIONS
As of December 30, 1995 and December 28, 1996, Las Plumas, an affiliate of
the Company, owed the Company approximately $3.6 million and $3.5 million,
respectively, evidenced by a subordinated note. The note is secured by deeds
of trust relating to parcels of property of Las Plumas. The loan matures in
June 1998 and bears interest at a fluctuating rate equal to the weighted
average of the interest rates paid by the Company. The entire note receivable
is classified as long-term in the consolidated balance sheet as of December
28, 1996. Interest expense includes $319,000 in fiscal 1994 of nonoperating
interest income earned on the note, and upon collection of the note the
Company is required to utilize the proceeds to repay the borrowings under the
revolving credit facility.
F-21
53
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
$222,000, $98,000 and $111,000, during each of the three years in the period
ended December 28, 1996, respectively, to the law firm for legal services.
The Company employs the services of a risk management and insurance brokerage
firm which is controlled by a director of the Company. Included in the
statement of operations are fees paid to the related party of $150,000 for
each of the three years in the period ended December 28, 1996.
The Company recorded income of $184,000, $154,000 and $245,000 for each of
the three years in the period ended December 28, 1996, respectively, from an
affiliated entity of the President of the Company in connection with the
sharing of office facilities and administrative expenses.
Included in the consolidated statement of operations for the years ended
December 31, 1994 and December 30, 1995 was $119,000 of expenses related to
services provided by a consulting and investment banking firm whose general
partner is a former officer of the Company.
16. MAJOR CUSTOMERS
During the year ended December 31, 1994, sales to two individual customers
represented 21.2% and 18.7% of net sales, respectively, and sales to a group
of customers represented 13.9%.
During the year ended December 30, 1995, sales to two individual customers
represented 22.2% and 19.7% of net sales, respectively, and sales to a group
of customers represented 13.1%.
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 group
of customers represented 12.4%.
******
F-22
54
DI GIORGIO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
Allowance for doubtful accounts
for the period ended:
December 31, 1994 $3,985 $2,100 $500(2) ($2,741)(1) $3,844
December 30, 1995 3,844 2,100 -- (2,003)(1) 3,941
December 28, 1996 3,941 1,850 63(2) (1,543)(1) 4,311
(1) Accounts written off during the year.
(2) Transfers from other accounts.
S-1