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, including 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 27, 1997, the Company had total revenue of $1,071.8 million and EBITDA (as defined herein) of $36.2 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.
On June 20, 1997, the Company completed a refinancing (the "Refinancing") of itself and its former parent, White Rose Foods, Inc. ("White Rose"), intended to extend debt maturities, reduce interest expense and improve financial flexibility. The components of the Refinancing were (i) the offering of $155 million 10% senior notes (the "10% Notes") due 2007 (the "Offering"), (ii) the modification of the Company's bank credit facility (the "Bank Credit Facility"), (iii) the receipt of $8.9 million from the repayment of a note held by the Company from Rose Partners, LP ("Rose Partners"), which owns 98.5% of the Company, (iv) the consummation of the tender offers and consent solicitations commenced by the Company (the "Company Tender Offer") and White Rose (the "White Rose Tender Offer," and together with the Company Tender Offer, the "Tender Offers") on May 16, 1997 in respect of the Company's 12% Senior Notes due 2003 (the "12% Notes") and White Rose's 12-3/4% Senior Discount Notes due 1998 (the "12-3/4% Notes"), respectively, (v) the $4.2 million dividend by the Company to White Rose of certain non-cash assets which were unrelated to the Company's primary business and the subsequent dividend of those assets to White Rose's stockholders and (vi) the merger ("Merger") of White Rose with and into the Company with the Company surviving the merger.
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.
White Rose(TM) Label. The White Rose(TM) label is a well-recognized regional brand for quality merchandise across approximately 850 grocery, frozen and dairy products, and has been marketed in the New York metropolitan area for over 110 years. Products under the White Rose(TM) brand are formulated to the Company's specifications, often by national brand manufacturers, and are subject to random testing to ensure quality. The White Rose(TM) brand allows independent retail customers to carry a regionally-recognized label across numerous products similar to chain stores while providing consumers with an attractive alternative to national brands. The Company believes that White Rose(TM) labeled products generally produce higher margins for its customers than national brands, and help the Company to attract and retain customers.
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 the majority of 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 27, 1997, the Company's customer financing portfolio had an aggregate balance of approximately $16.1 million. The portfolio consisted of approximately 85 loans with a range of $4,000 to $650,000.
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 and supports supermarket scanning equipment which is compatible with the Company's information systems.
Markets and Customers
As of December 27, 1997, 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 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 the majority of 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% and 18% of net sales for the years ended December 28, 1996 and December 27, 1997, respectively.
During the fifty-two weeks ended December 27, 1997, the Company's largest customers, A&P and Associated, accounted for approximately 27% and 19%, respectively, of net sales, and the Company's five largest customers accounted for approximately 64% of net sales. The Company or certain of its principal executive officers have long-standing relationships with most of the principal customers of the Company. The loss of certain of these principal customers or a substantial decrease in the amount of their purchases could be disruptive to the Company's business.
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 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 119 tractors (all of which are leased), 300 trailers (of which 273 are leased) and 11 trucks (all of which are leased). On approximately 35% of its deliveries, the Company is able to arrange "backhauls" of products from manufacturers' or other suppliers' distribution facilities located in the markets served by the Company, thereby enabling the Company to reduce its procurement costs. The Company regularly uses independent owner/operators to make deliveries on an "as needed" basis to supplement the use of its own employees and equipment. The Company makes on average approximately 1,000 deliveries per day each weekday to its customers through a combination of its own transportation fleet and that of third parties.
Due to the different storage and distribution requirements of each of the Company's product lines, the Company handles each product line in a separate facility. All of the Company's warehouse and distribution facilities are fully integrated through the Company's computer, accounting, and management information systems to promote operating efficiency and coordinated quality customer service.
Purchasing
The Company purchases products for resale to its customers from approximately 1,400 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 modern procurement system provides the buying department with extensive data to measure the movement and profitability of each inventory item, forecast seasonal trends, and recommend the terms of purchases. This system, which operates in concert with the warehouse management system, features full electronic data interchange capabilities and accounting interfaces.
The Company from time to time buys increased quantities of inventory items when the manufacturer is selling the item at a discount pursuant to a special promotion, an industry practice known as "forward buying." These special promotions are run by various manufacturers at their sole discretion. The Company earns income from additional margins realized in connection with these promotional purchasing arrangements, although there are currently less of these deals then there used to be.
Competition and Trademarks
The wholesale food distribution industry is highly competitive. The Company is one of the largest independent wholesale food distributors to supermarkets in the New York City metropolitan area. The Company's principal competitors 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.
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.
The Company believes there is significant competitive value in its trademark White Rose(TM) brand, as well as its trademark Met(TM) and Pioneer(TM) names.
Employees
As of February 13, 1998, the Company employed approximately 1,156 persons, of whom approximately 717 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 2002 and trucking expiring May 2000) and its frozen operation (expiring January 2000).
Management believes that the Company's present relations with its work force are satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
The Company's three principal warehouse and distribution facilities are set forth below along with its former dairy distribution center (currently being used as an auxiliary facility) and its new frozen food facility.
In November 1997, the Company amended its lease for its grocery facility, adding additional leased property, extending the term and increasing the annual lease obligations ("the Amended Grocery Facility Lease"). These changes in the provisions of the lease resulted in the Amended Grocery Facility Lease being treated as a new lease and accounted for as an operating lease.
In November 1997, the Company acquired the building and leasehold improvements, formerly the subject of a capital lease for its Garden City frozen facility for a purchase price of $9 million, consisting of cash and a $7.2 million note payable. The Company is currently under contract to buy the underlying land at its frozen facility for $1.6 million. In February 1998, the Company entered into a contract to sell the Garden City frozen facility and underlying land for approximately $14.5 million. The terms of the agreement require the Company to lease back the facility for a period of two years at an annual rent of approximately $1.5 million.
In November 1997, the Company signed an agreement to lease a new frozen food facility in Carteret, New Jersey, a property adjacent to its current grocery facility. The facility is expected to be fully operational and distributing product to the majority of its customers in the second fiscal quarter of 1998. The lease term is expected to commence March 15, 1998.
Location Use Square Footage Lease Expiration - -------- --- -------------- ---------------- Carteret, New Groceries and other Non- 645,000 2018 (plus two 5-year Jersey Perishables renewal options) Garden City, New Frozen 325,000 2000 (plus one 5-year York renewal option) Woodbridge, New Dairy 200,000 2001 (plus four 5-year Jersey renewal options) Kearny, New Auxilliary 98,000 1999 Jersey Carteret, New Frozen 181,000 2018 (plus two 5-year Jersey options)
The aggregate operating lease rent paid in connection with the Company's facilities was approximately $1.2 million in fiscal 1997.
Currently, the 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 60%of capacity (on a two shift basis).
Depending on the type of new business introduced ( e.g. high turn product that is already slotted in inventory), each warehouse has 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.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in claims, litigation and administrative proceedings of various types in various jurisdictions. In addition, the Company has agreed to indemnify various transferees of its divested operations with regard to certain known and potential liabilities which may arise out of such operations. The Company also has incurred and may in the future incur liability arising under environmental laws and regulations in connection with these divested properties and properties presently owned or acquired. Although management believes that it has established adequate reserves for known contingencies, there can be no assurances that the costs of environmental remediation or an unfavorable outcome in any litigation or governmental proceeding will not have an adverse effect on the Company.
Environmental. The Company has incurred and may in the future incur environmental liability to clean up potential contamination at a number of properties under certain federal and state laws, including the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended ("CERCLA"). Under such laws, liability for the cleanup of property contaminated by hazardous substances may be imposed on both the present owner and operator of a property and any person who owned or operated the property at the time hazardous substances were disposed thereon. Persons who arranged for the disposal of hazardous substances found on a disposal site may also be liable for cleanup costs. In certain cases, the Company has agreed to indemnify the purchaser of its former properties for liabilities arising thereon or has agreed to remain liable for certain potential liabilities that were not assumed by the transferee.
The Company has recorded an estimate of its total potential environmental liability arising from specifically identified environmental problems (including those discussed below) in the amount of approximately $1.8 million as of December 27, 1997. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
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 the majority of its outstanding common equity is owned by Rose Partners, LP.
The ability of the Company to pay dividends is governed by restrictive covenants contained in the indenture governing its publicly held debt as well as restrictive covenants contained in the Company's senior bank lending arrangement and the indenture governing its publicly held debt. As a result of these restrictive covenants, the Company was not permitted to pay dividends on December 27, 1997.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company for the periods indicated and has been prepared by adjusting the consolidated financial statements of the Company as if the merger between White Rose and the Company, with the Company as the survivor, had taken place as of January 3, 1993. Since the stockholders of the Company, upon consummation of the Merger are identical to the stockholders of White Rose, the exchange of shares was a transfer of interest among entities under common control, and is being accounted for at historical cost in a manner similar to pooling of interests accounting. The results of operations include the expansion of the dairy division since April 1994 (initial date of the purchase of substantially all of the assets of the Royal Food Division of Fleming Foods East, Inc., a subsidiary of Fleming Companies, Inc. (the "Royal Acquisition"). Such data should be read in conjunction with the consolidated financial statements and related notes included herein.
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(a) Gross profit excludes warehouse expense shown separately.
(b) The decrease in stockholders' equity was the result of the $8.7 million extraordinary charge, net of tax, on the extinguishment of debt relating to premiums paid as a result of the Tender Offers and the write-off of the deferred financing fees associated with the 12% Notes, the 12-3/4% Notes and the Farmingdale mortgage. In addition, the Company dividended non-cash, non-core assets consisting of land in Colorado and notes receivable with a book value of approximately $4.2 million and $61,400 in cash to its stockholders on June 20, 1997.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-K include, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic and business conditions and those in particular in the New York City metropolitan area; restrictions imposed by the documents governing the Company's indebtedness; competition; the Company's reliance on several significant customers; potential losses from loans to its retailers; potential environmental liabilities which the Company may have; the Company's labor relations; dependence on key personnel; changes in business regulation; business abilities and judgment of personnel; and changes in, or failure to comply with government regulations.
General
On June 20, 1997, the Company consummated the Refinancing. The following discussion assumes that the Merger between White Rose and the Company had taken place as of January 1, 1995. Since the stockholders of the Company are identical to the stockholders of White Rose, the exchange of shares was a transfer of interest among entities under common control, and is being accounted for at historical cost in a manner similar to pooling-of-interests accounting. Accordingly, the discussion presented herein reflects the assets and liabilities and related results of operations for the combined entity for all periods.
Results of Operations
Fifty-two weeks ended December 27, 1997 and December 28, 1996
Net sales for the fifty-two weeks ended December 27, 1997 were $1,065.4 million as compared to $1,045.2 for the fifty-two weeks ended December 28, 1996. This 1.9% increase primarily reflects increased frozen food sales to a division of A&P and temporary supplemental supply arrangements offset by a $60 million decrease in sales to a customer which terminated its contract for dairy division products in the fourth quarter of 1996.
Other revenue, consisting of reclamation service fees, storage income, label income, and other customer related services, increased to $6.4 million for the fifty-two weeks ended December 27, 1997 as compared to $5.0 million in the prior period primarily due to providing a produce distribution service for a particular customer which ended in June 1997. Excluding this produce service, other revenue would have been $5.8 million for the fifty-two weeks ended December 27, 1997 as a result of new services being offered by the Company, as well as, increased services based on additional 1997 revenues.
Gross margin (excluding warehouse expense) decreased to 10.6% of net sales or $112.6 million for the fifty-two weeks ended December 27, 1997 as compared to 11.0% of net sales or $114.5 million for the
prior period as a result of a change in mix of both customers and product sold. The Company has, and will continue to, take steps intended to maintain and improve its margins; however, factors such as the decrease in promotional activities, changes in product mix, additions of high volume, low margin customers, or competitive pricing pressures will have an effect on gross margin.
Warehouse expense increased to 4.0% of net sales or $42.5 million for the fifty-two weeks ended December 27, 1997 as compared to 3.9% of net sales or $41.0 million for the prior period.
Transportation expense remained constant at 2.1% of net sales or $22.0 million for the fifty-two weeks ended December 27, 1997 as compared to 2.1% of net sales or $21.6 million in the prior period.
Selling, general and administrative expense decreased to 2.0% of net sales or $21.6 million for the fifty-two weeks ended December 27, 1997 as compared to 2.2% of net sales or $22.7 million in the prior period.
Other income, net of other expenses, decreased to $3.2 million for the fifty-two weeks ended December 27, 1997 from $3.8 million in the prior period due to $476,000 less interest income on the Rose Partners note receivable which was repaid in June 1997. In addition, as a result of the Farmingdale option sale in August 1997, net rental income from that property decreased $828,000 in 1997. These decreases were offset to some degree by income from a program run for the benefit of a group of customers.
Interest expense decreased to $21.9 million for the fifty-two weeks ended December 27, 1997 from $24.0 million for the prior period. The comparative decrease from the 1996 period represents a decline in both the average outstanding level of the Company's funded debt and the average interest rate as a result of the Company's Refinancing on June 20, 1997.
During the third quarter of fiscal 1997, the Company reversed the valuation allowance related to its deferred tax assets. In the opinion of management, sufficient evidence now exists, such as the positive trend in operating performance and the favorable effects of the recently completed refinancing, which indicates that it is more likely than not that the Company will be able to realize its deferred income tax assets. The reversal of the valuation allowance resulted in an income tax benefit of $3.9 million and a reduction in goodwill of $11.5 million. The reduction in goodwill reflects benefits which were attributable to the pre-acquisition period.
For the year ended December 27, 1997, the Company recorded an income tax benefit from continuing operations of $1.2 million (including the $3.9 million benefit) compared to an income tax expense of $3.1 million for the year ended December 28, 1996. The Company's recorded income tax (benefit) provision is higher than the statutory rate primarily because of the nondeductibility of certain of the Company's amortization of the excess of cost over net asset acquired; however, due to net operating loss carryforwards for tax purposes, the Company does not expect to pay federal income tax for the current year, with the possible exception of some alternative minimum tax.
The Company recorded a net loss for the fifty-two weeks ended December 27, 1997 of $3.0 million, including an extraordinary loss on the extinguishment of debt, net of tax, of $8.7 million as compared to net income of $2.1 million for the prior period which included a $219,000 extraordinary gain on the extinguishment of debt.
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 $1,045.2 million as compared to $1,018.2 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 promotional activities, that management believes is any industry wide trend, will not continue.
Warehouse expense remained relatively constant at 3.9% of net sales or $41.0 million in the fifty-two weeks ended December 28, 1996 as compared to 3.9% of net sales or $39.7 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 increased to 2.2% of net sales or $22.7 million during the fifty-two weeks ended December 28, 1996 as compared to 2.1% of net sales or $21.9 million in the prior year.
Other income, net of other expenses, remained constant at $3.8 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 $24.0 million in the fifty-two weeks ended December 28, 1996 from $24.9 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 and additional accretion of the senior discount interest.
The Company recorded an income tax provision of $3.1 million resulting in an effective income tax rate of 62%. 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 some alternative minimum tax.
The Company recorded net income for the fifty-two weeks ended December 28, 1996 of $2.1 million, which included a $219,000 gain on the extinguishment of debt, net of tax, as compared to a loss of $1.8 million in the prior period, which included a $510,000 gain on the extinguishment of debt, net of tax.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's Bank Credit Facility are the Company's principal sources of liquidity. The Company's Bank Credit Facility will mature on June 30, 2000 and bears interest at a rate per annum equal to (at the Company's option): (i) the Euro Dollar Offering Rate plus 2.25% or (ii) Bankers Trust Company's prime rate plus 0.75%. Borrowings under the Company's revolving Bank Credit Facility were $19.7 million at December 27, 1997 at an average interest of 8.64%. Additional borrowing capacity of $61.2 million was available at that time under the Company's borrowing base formula. The Company believes that these sources will be adequate to meet its anticipated working capital needs, capital expenditures, and debt service requirements during fiscal 1998.
During the fifty-two weeks ended December 27, 1997, cash flows provided by operating activities was $8,000, consisting primarily of (i) cash generated from income before extraordinary items and non-cash expenses of $17.9 million and (ii) an increase in accounts payable of $9.4 million which were primarily offset by (i) an increase in net receivable levels of $12.3 million, (ii) an increase in inventory of $6.6 million and (iii) an increase in other assets of $5.1 million.
Cash flow provided by investing activities during the fifty-two weeks ended December 27, 1997 was approximately $8.6 million, consisting of proceeds of $12.4 million from the sale of the Farmingdale option offset by $3.9 million used for capital expenditures. Net cash used in financing activities was approximately $7.9 million as a result of the Refinancing and the payoff of the Farmingdale mortgage.
Earnings before interest expense, income taxes, depreciation and amortization, non-recurring charges such as extraordinary gains or losses ("EBITDA"), was $36.2 million during the fifty-two weeks ended December 27, 1997 as compared to $36.9 million in the comparable prior year period. In addition to lower gross margins, the decrease in EBITDA is a result of $500,000 less in cash contributions from the Farmingdale facility as a result of the option sale in August although net income increased due to the reduced interest expense after the $12.4 million in debt reduction and no further Farmingdale depreciation expense. In addition, the change in the treatment of the grocery division facility lease from a capital lease to an operating lease in December 1997 had a $240,000 negative impact on EBITDA. For 1998, the change in lease treatment will reduce EBITDA an additional $2.6 million; however pretax income is expected to increase by approximately $500,000 due to reduced interest and depreciation charges with respect to the grocery division capital lease.
The consolidated indebtedness of the Company decreased to $197.0 million at December 27, 1997 as compared to $215.3 million at December 28, 1996. The Company raised an aggregate of $155.0 million through the issuance of the 10% Notes and received $8.9 million from the repayment of the Rose Partners note which aggregate funds were used (i) to fund the purchase of $85.4 million of the 12% Notes leaving $7.5 million outstanding, (ii) to fund the $53.7 million purchase of 100% of the 12 3/4% Notes, (iii) to pay premiums of $10.8 million related to such purchases, (iv) to pay accrued interest and the fees and expenses of the Refinancing, and (v) to reduce the Bank Credit Facility by $4.9 million. As a result of the Amended Grocery Facility Lease, the net book value of the related capitalized asset of $24.3 million and $27.1 million of lease obligations were eliminated resulting in a gain of approximately $2.8 million. The gain was classified in warehouse expense in the accompanying consolidated statement of operations for the year
ended December 27, 1997. In addition, the Company recorded an impairment of certain previously acquired leasehold improvements related to its frozen facility. The impairment recognized was measured as the amount by which the carrying value of the assets exceeded the fair value of the assets.
Stockholders' equity/(deficiency) decreased to a deficiency of $3.1 million on December 27, 1997 from $4.1 million of equity on December 28, 1996.The decrease was the result of the $8.7 million extraordinary charge, net of tax, on the extinguishment of debt relating to premiums paid as a result of the Tender Offers and the write-off of the deferred financing fees associated with the 12% Notes, the 12-3/4% Notes and the Farmingdale mortgage. In addition, the Company dividended non-cash, non-core assets consisting of land in Colorado and notes receivable with a book value of approximately $4.2 million and $61,400 in cash to its stockholders on June 20, 1997.
In August 1997, the Company completed the sale of the option it held on its Farmingdale facility, the site of its former grocery warehouse and headquarters, which had been under lease to a third party. The Company realized net cash proceeds of approximately $7.3 million after the repayment of a mortgage in the amount of approximately $5.2 million. For book purposes the Company recognized a $40,000 gain (before a noncash writeoff of deferred expenses in the amount of approximately $400,000) due to the original valuation of the property. For federal income tax purposes, the Company expects to use its net operating loss carryforwards to offset an approximate $12.0 million taxable gain on the sale.
In November 1997, the Company purchased the building at its Garden City frozen food facility for $9.0 million, consisting of $1.8 million in cash, a $ 7.2 million note due in May 1998 with interest payable monthly at an annualized rate of 6.7% In addition, the Company entered into a contract to purchase the underlying land for $1.6 million. In February 1998, the Company signed a contract to sell the facility in the first half of 1998, for $14.5 million. As part of the deal the Company will lease the facility for a minimum of 2 years. The Company intends to increase it's cold storage business at that facility, as well as exploring continued use as a secondary frozen food distribution center. The Company expects to begin shipping frozen food product from its new frozen facility in Carteret, NJ in the fiscal second quarter of 1998. The Company expects future frozen division transportation costs from the new facility to be approximately the same as from its current location as increased costs to Long Island will be offset by decreased costs to New Jersey and Philadelphia. The Company expects the cost of the move to be offset by various new warehouse vendor incentives.
On February 19, 1998, the Company called for redemption of the remaining outstanding $7.5 million of its 12% Senior Notes at 104.5% of par. The transaction is expected to close in March 1998 and result in annual savings for the Company of approximately $250,000 given the current difference in interest rates between the 12% Senior Notes and the Bank Credit Facility.
The 10% Notes also provide that the Company may repurchase, and retire into treasury (i) up to $5 million of its outstanding Common Stock if the Company converts the capital lease relating to its Carteret, New Jersey distribution facility into an operating lease on or before December 20, 1998 and (ii) additional Common stock up to an amount equal to $7.3 million relating to its sale of the Farmingdale Option on or before June 20, 1998. Currently the Bank Credit Facility permits (i) but not (ii).
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 27, 1997, the Company was in compliance with its covenants.
The indenture governing the Company's 10% Notes, as well as the agreement governing the Bank Credit Facility, impose various restrictions upon the Company, including, among other things, limitations on the occurrence of additional debt and the making of certain payments and investments.
From time to time when the Company considers market conditions attractive, as the Company has demonstrated in the past, the Company has purchased on the open market a portion of its 12% Notes and may in the future purchase and retire a portion of its outstanding 10% Notes. In addition, the Company continuously reviews its capital structure, including its funded debt and capital leases, to determine if it can more advantageously finance its operations.
Excluding the Garden City building purchase, the Company spent approximately $2.1 million on capital expenditures during the fifty-two weeks ended December 27, 1997, and currently does not expect to spend more than $2.5 million during 1998 on capital expenditures.
The Company expended approximately $243,000 in fiscal 1997 and does not expect to expend more than $1.0 million in fiscal 1998 in conection with the environmental remediation of certain presently owned or divested properties. At December 27, 1997, the Company has reserved $1.8 million for those known environmental liabilities. 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.
The Company has begun an assessment as to the existence of any material Year 2000 issues in its computer systems, has identified potential areas of concern and will begin to undertake remediation of these areas in the fiscal second quarter of 1998. The Company anticipates the remediation will be complete by the end of 1998, which will allow adequate time for testing. The cost is expected to be more of a lost opportunity cost than an increased incremental direct dollar cost since the remediation is expected to be preformed by the Company's personnel.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Financial Statements
Consolidated Financial Statements of Di Giorgio Corporation and Subsidiaries
Index to Consolidated Financial Statements.................................
Independent Auditors' Report...............................................
Consolidated Balance Sheets as of December 28, 1996 and December 27, 1997..
Consolidated Statements of Operations for each of the three years in the period ended December 27, 1997.........................
Consolidated Statements of of Changes in Stockholder's Equity (Deficiency) for each of the three years in the period ended December 27, 1997...................................................
Consolidated Statements of Cash Flows for each of the three years in the period ended December 27, 1997.....................
Notes to Consolidated Financial Statements.................................
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
The following table sets forth certain information regarding the directors and executive officers of Di Giorgio:
Age Position
Arthur M. Goldberg(2)(3) 56 Chairman of Board of Directors, President and Chief Executive Officer
Richard B. Neff(3) 49 Executive Vice President, Chief Financial Officer and Director
Stephen R. Bokser 55 Executive Vice President, President of White Rose Food Division of Di Giorgio and Director
Jerold E. Glassman(3) 62 Director
Emil W. Solimine(2) 53 Director
Charles C. Carella(1) 64 Director
Jane Scaccetti Fumo(1) 43 Director
Joseph R. DeSimone 58 Senior Vice President Distribution
Robert A. Zorn 43 Senior Vice President and Treasurer
Lawrence S. Grossman 36 Vice President and Corporate Controller
- ----------------- (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Executive Committee
Directors are elected for one year terms and hold office until their successors are elected and qualified. The executive officers are appointed by and serve at the discretion of the Board of Directors.
Mr. Goldberg has been Chairman of the Board, President and Chief Executive Officer of Di Giorgio since 1990. Mr. Goldberg is also a Director and Executive Vice President and President -- Gaming Operations, Hilton Hotels Corporation, since December 1996. Prior thereto, he was President, Chairman and Chief Executive Officer and a director of Bally Entertainment Corporation from October 1990 to December 1996. He is also Managing Partner, Arveron Investments, LP, since 1986. Mr. Goldberg is also a director of Bally Total Fitness Holding Corporation, Bally's Grand, Inc., and First
Union Corporation. Mr. Goldberg, in his capacity as the sole general partner of Rose Partners, L.P., controls the voting and investment of 98.5% of the outstanding common stock of the Company.
Mr. Neff has been Executive Vice President, Chief Financial Officer and Director of Di Giorgio since 1990. He is also a Director and Chairman of the Board of Ryan Beck & Co., an investment banking concern.
Mr. Glassman has been a Director of Di Giorgio since 1990. Since prior to 1990, Mr. Glassman has been a Partner of Grotta, Glassman & Hoffman, a law firm which has offices in Roseland, New Jersey.
Mr. Bokser has been Executive Vice President of Di Giorgio since February 1990 and a Director of Di Giorgio since 1990. In addition, Mr. Bokser has served as President of White Rose Foods Division of Di Giorgio since prior to 1991. Mr. Bokser has also served as a director of Western Beef, Inc. since 1993.
Mr. Solimine has been a Director of Di Giorgio since 1990. He also is the Chief Executive Officer of the Emar Group, Inc., an insurance concern, since prior to 1991. Mr. Solimine has served as a director of Strober Organization, Inc., a building material distributor, since prior to 1991.
Mr. Carella became a Director of Di Giorgio in 1995. Since prior to 1991, Mr. Carella has been a Partner of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, a law firm which has 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.
Mrs. Fumo became a Director of Di Giorgio in 1996. Mrs. 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 Distribution since January 1995. From 1990 through January 1995, he was Vice President of Warehousing and Distribution.
Mr. Zorn has been Senior Vice President and Treasurer of Di Giorgio since 1992. He served as a Vice President of Bankers Trust Company, New York, New York since prior to 1992.
Mr. Grossman has been employed by Di Giorgio since 1990. He has served as Vice President of Di Giorgio since January 1994 and Corporate Controller since February 1992. Mr. Grossman is a certified public accountant.
ITEM 11.
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 27, 1997.
(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 1995, 1996, and 1997 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."
Employment Agreements
The Company is a party to an Agreement with Mr. Neff which will terminate on October 31, 2000. Currently, Mr. Neff is entitled to receive an annual salary of $325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Neff has been paid pursuant to the Agreement $100,000 in 1997, and will be paid an additional $100,000 on or before June 30, 1998, and will receive additional compensation (the "Additional Compensation") upon the occurrence of certain change of control type of events or distribution of assets to shareholders, as both are defined in the Agreement ("Recognition Event") and determined pursuant to a formula. In the event of death or disability, Mr. Neff or his estate, will be entitled to continue to receive compensation and employee benefits for one year following such event and in certain circumstances will receive Additional Compensation. If Mr. Neff's employment is terminated by the Company other than for cause, Mr. Neff will be entitled to receive the Salary through the end of the Agreement. If Mr. Neff's employment is terminated by the Company for cause, Mr. Neff will be entitled to receive Salary prorated through the end of the week.
The Company is a party to an Agreement with Mr. Bokser which will terminate on June 30, 2000. Currently, Mr. Bokser is entitled to receive an annual salary of $325,000 pursuant to the Agreement ("Salary"). In addition, Mr. Bokser has been paid pursuant to the Agreement $100,000 in 1997, and will be paid an additional $100,000 on or before June 30, 1998, and will receive additional compensation (the "Additional Compensation") upon the occurrence of certain change of control type of events or distribution of assets to shareholders, as both are defined in the Agreement ("Recognition Event") and determined pursuant to a formula. In the event of death or disability, Mr. Bokser or his estate, will be entitled to continue to receive compensation and employee benefits for one year following such event and in certain circumstances will receive Additional Compensation. If Mr. Bokser's employment is terminated by the Company other than for cause, Mr. Bokser will be entitled to receive the Salary through the end of the Agreement. If Mr. Bokser's employment is terminated by the Company for cause, Mr. Bokser will be entitled to receive Salary prorated through the end of the week.
The Company is a party to an agreement with Mr. Zorn which provides for employment through March 10, 1999. The agreement remains in effect pursuant to its evergreen provisions and will remain in effect subject to six months notice is given by either party to terminate. Currently, Mr. Zorn is entitled to receive an annual salary of $220,600, as adjusted by annual cost of living adjustments, if any, and annual bonuses, at the sole discretion of the Company. Mr. Zorn may also receive additional incentive compensation upon the occurrence of (i) the termination of Mr. Zorn's employment with the Company; or (ii) certain change of control type for events, determined pursuant to a formula. Under the terms of the agreement, if the employment of Mr. Zorn is terminated for any reason other than for cause or disability, Mr. Zorn is entitled to receive compensation and benefits for six months, provided that he uses his best efforts to secure other executive employment.
Retirement Plan
The Company maintains the Di Giorgio Retirement Plan (the "Retirement Plan") which is a defined benefit pension plan. Employees of the Company and its affiliates who are not covered by a collective bargaining agreement (unless a bargaining agreement expressly provides for participation) are eligible to participate in the Retirement Plan after completing one year of employment.
All benefits under the Retirement Plan are funded by contributions made by the Company. In general, a participant's retirement benefit consists of the sum of (a) with respect to employment on or after September 1, 1990, an annual amount equal to the participant's aggregate compensation (excluding income from the exercise of certain stock option and stock appreciation rights) while he is eligible to participate in the Retirement Plan multiplied by 1.5% and (b) with respect to employment prior to September 1, 1990, an annual amount equal to the sum of (i) the benefit earned under the Retirement Plan as of December 31, 1987, the product of the participant's 1988 compensation and 1.5%, and the product of the participant's 1988 compensation in excess of $45,000 and .5% plus (ii) the product of the participant's aggregate compensation earned after 1988 and prior to September 1, 1990 and 1.5%. In certain circumstances, the amount determined under (b)(i) above may be determined in an alternative manner.
Benefits under the Retirement Plan are payable at a participant's normal retirement date (i.e., Social Security retirement age) in the form of an annuity although a limited lump-sum payment is available. In addition, an actuarially reduced early retirement benefit is available after a participant reaches age 55.
A participant earns a nonforfeitable (i.e., vested) right to a retirement benefit after reaching age 65, becoming disabled, or completing five years of employment. The estimated annual retirement income payable in the form of a life annuity to the individuals named in the Cash Compensation Table commencing at their respective normal retirement ages under the Retirement Plan is as follows: Mr. Goldberg, $22,921; Mr. Neff, $20,841; Mr. Bokser $87,896; Mr. Zorn, $10,470; Mr. De Simone, $14,261.
Retirement Savings Plan
The Company maintains the Di Giorgio Retirement Savings Plan (the "Savings Plan") which is a defined contribution plan with a cash or deferred arrangement (as described under Section 401(k) of the Internal Revenue Code of 1986). In general, employees of the Company and its affiliates who are not covered by a collective bargaining agreement (unless a bargaining agreement expressly provides for participation) are eligible to participate in the Savings Plan after completing one year of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1% to 10% of their total compensation (as defined in the Savings Plan), subject to statutory limitations. A contribution of up to 5% is considered to be a "basic contribution" and the Company makes a matching contribution equal to a designated percentage of a participant's basic contribution (which all may be subject to certain statutory limitations). This percentage is based on the Company's consolidated pre-tax rate of return (i.e., the quotient obtained by dividing the Company's adjusted consolidated pre-tax earnings by its consolidated net worth) and ranges from 30% to 50%.
Each participant has a fully vested (i.e., nonforfeitable) interest in all contributions made by them and in the matching contributions made by the Company on their behalf and has full investment discretion over their contributions.
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
During the fiscal year ended December 27, 1997, the Compensation Committee consisted of Arthur M. Goldberg and Emil W. Solimine. Mr. Goldberg currently serves as Chairman of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Solimine currently serves as a Director of the Company.
See "Certain Transactions".
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Mr. Goldberg, through his indirect beneficial ownership of the Company, controls the affairs of the Company, the majority of the common stock of which is owned by Rose Partners, LP (98.5%). Mr. Goldberg controls the affairs of Rose Partners in his capacity as sole general partner.
Mr. Goldberg, through his indirect beneficial ownership of the Company, effectively has the ability to determine the outcome of most corporate actions requiring stockholder approval, including the election of the Board of Directors, adoption of certain amendments to the charter and approval of mergers, and sales of all or substantially all assets.
ITEM 13.
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 1997 the Company paid fees in the amount of approximately $242,000 and interest in the amount of approximately $2.2 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 Corporation. To facilitate the Global Acquisition,WRGFF purchased and subsequently leased certain assets of Global to the Company. In Fiscal 1997, the Company paid approximately $2.4 million to WRGFF in connection with the lease and buyout of such assets.
Mr. Bokser is a director of Western Beef, Inc. In fiscal 1997, the Company sold various food products to Western Beef, Inc. in the amount of $37.2 million.
The Company employs Grotta, Glassman & Hoffman, a law firm in which Jerold E. Glassman, a director of the Company, is a partner, for legal services on an on-going basis. The Company paid approximately $171,000 to the firm for fiscal 1997.
The Company employs Emar Group, Inc. ("Emar Group"), a risk management and insurance brokerage company controlled by Emil W. Solimine, a director of the Company, for risk management and insurance brokerage services. The Company paid Emar Group approximately $150,000 for fiscal 1997 for such services.
In fiscal 1997, the Company recorded income of $166,000 from Hilton Hotel Corporation and subsidiaries, a company in which Mr. Goldberg serves as Executive Vice President - President Gaming Operations, in connection with the sharing of its office facilities and sundry other expenses.
The Company believes that the transactions set forth above are on terms no less favorable than those which could reasonably have been obtained from unaffiliated parties.
In connection with the Refinancing, Rose Partners repaid the Rose Partners Note in the amount of approximately $8.9 million and received a dividend of certain non-cash assets (including the indebtedness of Las Plumas to the Company) with a book value of approximately $4.2 million from White Rose. Management believes that the market value of such assets approximates their book value.
ITEM 14.
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 ................................
Consolidated Balance Sheets as of December 28, 1996 and December 27, 1997 .......................................
Consolidated Statements of Operations for each of the three years in the period ended December 27, 1997 ...........
Consolidated Statements of Changes in Stockholder's Equity (Deficiency) for each of the three years in the period ended December 27, 1997......................................
Consolidated Statements of Cash Flows for each of the three years in the period ended December 27, 1997........
Notes to Consolidated Financial Statements...................
2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts............... S-1
3. Exhibits
A. Exhibits
Exhibit No. Exhibit
1.1(15) - Purchase Agreement among Di Giorgio Corporation, Merrill Lynch & Co., Merrill Lynch, Pierce & Smith Incorporated and BT Securities Corporation.
2.1(16) - Certificate of Ownership and Merger merging White Rose Foods, Inc. With and into Di Giorgio Corporation.
3.1(2) - Restated Certificate of Incorporation.
3.2(2) - Bylaws.
4.1(15) - Indenture between Di Giorgio Corporation and The Bank of New York, as Trustee, including the form of Note, dated as of June 20, 1997.
4.2(15) - Registration Rights Agreement among Di Giorgio Corporation, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and BT Securities Corporation, dated as of June 20, 1997.
4.3(3) - Indenture, dated February 2, 1993 under which Di Giorgio's Senior Notes due 2003 are issued.
4.4(15) - Supplemental Indenture, dated June 9, 1997 between Di Giorgio Corporation and The Bank of New York, as Trustee.
4.5(3) - Di Giorgio 12% Senior Note Certificate Specimen, dated as of February 1, 1993.
10.1(3) - Credit Agreement dated as of February 10, 1993 among the Di Giorgio Corporation, various financial institutions, BT Commercial Corporation, as agent and Bankers Trust Company as Issuing Bank
10.2(5) - Sublease Agreement between MF Corp. (sublandlord) and PC Richard & Son Long Island Corporation (subtenant), dated July 27, 1993, relating to facilities located in Farmingdale, New York
10.3(17)+ - Amended and Restated Employment Agreement effective as of October 31, 1997 between the Company and Richard B. Neff.
10.4(1)+ - Employment Agreement dated February 18, 1992 between the Company and Robert A. Zorn
10.5(16)+ - Second Amended and Restated Employment Agreement dated June 30, 1997 between the Company and Stephen R. Bokser
10.6(3)+ - Di Giorgio Retirement Plan as Amended and Restated effective January 1, 1989 (dated January 26, 1996)
10.7(11)+ - Di Giorgio Retirement Savings Plan as Amended and Restated effective January 1, 1989
10.8(13)+ - Amendment to the Di Giorgio Retirement Savings Plan effective January 1, 1989 (dated November 28, 1995)
10.9(1) - Lease between The Four B's (landlord) and White Rose Dairy, a division of Di Giorgio (tenant) dated November 21, 1988, as amended May 11, 1989, relating to facilities located in Kearny, New Jersey
10.11(2) - Sub-Sublease between WRGFF (sublandlord) and Frozen Food (subtenant), dated August 3, 1992 relating to facilities located in Garden City, New York
10.12(4) - Consent and Amendment No. 1 dated as of June 25, 1993 to Credit Agreement dated as of February 10,
10.13(5) - Consent and Amendment No. 2 dated as of November 3, 1993 to Credit Agreement dated as of February 10, 1993
10.14(3) - Note Pledge Agreement dated as of February 1, 1993, by Di Giorgio Corporation in favor of BT Commercial Corporation, as agent
10.15(3) - License and Security Agreement dated as of February 1, 1993, by Di Giorgio Corporation in favor of BT Commercial Corporation, as agent
10.16(3) - Promissory Note dated as of February 2, 1993 made by Las Plumas Lumber Corporation in favor of Di Giorgio
10.18(1) - 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(3) - Tax Sharing Agreement effective January 1, 1992 among DIG Holding, Di Giorgio and certain other parties
10.20(6) - Amendment to Tax Sharing Agreement effective January 1, 1993 among DIG Holding, Di Giorgio and certain other parties
10.30(7) - Lease between AMAX Realty Development, Inc. and V. Paulius and Associates and the Company dated February 11, 1994 relating to warehouse facility at Carteret, New Jersey
10.31(7) - Consent and Amendment No. 3 dated March 30, 1994 to Credit Agreement dated as of February 10, 1993
10.32(8) - Consent and Amendment No. 4 dated April 22, 1994 to Credit Agreement dated as of February 10, 1993.
10.33(9) - Asset Purchase Agreement made as of the 1st day of April 1994 by and among Di Giorgio Corporation, Fleming Foods East Inc. and Fleming Companies, Inc., and First Amendment dated April 7, 1994 and Second Amendment dated April 20, 1994.
10.34(10) - Third Amendment dated as of June 20, 1994 to Asset Purchase Agreement of April 1, 1994 between Di Giorgio Corporation, Fleming Foods East, Inc. and Fleming Companies, Inc.
10.35(11) - Amendment No. 5 dated November 15, 1994 to Credit Agreement dated as of February 10, 1993.
10.36(11) - Waiver and Amendment No. 6 dated as of March 3, 1995 to Credit Agreement dated as of February 10, 1993.
10.37(11) - Sublease Agreement dated June 20, 1994 between Fleming Foods East Inc. (landlord) and Di Giorgio Corporation (tenant) relating to facilities located in Woodbridge, New Jersey.
10.38(12) - Amendment No. 7 dated September 30, 1995 to Credit Agreement dated as of February 10, 1993.
10.39(14) - Amendment No. 8, dated as of September 26, 1996 to Credit Agreement dated as of February 10, 1993.
10.40(15) - Amendment No. 9, dated as of May 23, 1997 to Credit Agreement dated as February 10, 1993.
10.41(15) - Amendment No. 10, dated as of June 11, 1997 to Credit Agreement dated as of February 10, 1993.
10.42(18) - Lease between AMAX Realty Development, Inc. and V. Paulius and Associates and the Company dated November 26, 1997 for a frozen food warehouse facility at Carteret, New Jersey.
10.43(18) - Third Amendment, dated as of November 26, 1997, to Carteret grocery warehouse lease dated as of February 11, 1994.
10.44(18) - Agreement of Sale between the Company and United States Steel and Carnegie Pension Fund, Inc. to acquire the fee interest in the land and its rights as landlord under the ground lease with Waldbaum, Inc. at the Company's Garden City, New York frozen food facility dated as of November 26, 1997.
10.45(18) - Agreement to Assign Ground Lease and Sublease between the Company and Waldbaum, Inc. at the Company's Garden City, New York frozen food facility dated as of November 28, 1997.
10.46(18) - Agreement of Purchase and Sale between the Company and FR Acquisitions, Inc. of the Company's Garden City, New York frozen food facility dated as of February 19, 1998.
10.47(18) - Agreement of Lease between the Company and FR Acquisitions, Inc. for the Garden City, New York frozen food facility dated as of February 19, 1998.
12.1(15) - Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21(18) - Subsidiaries of the Registrant
- ------------------------------------------ + Compensation plans and arrangements of executives and others.
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33- 53886) filed with the Commission on October 28, 1992
(2) Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-1 of Di Giorgio (File No. 33-53886) filed with the Commission on January 11, 1993
(3) Incorporated by reference to Amendment No. 3 to the Company's Registration Statement on Form S-1 (File No. 33-53886) filed with the Commission on February 1, 1993
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 1-1790) filed with the Commission on August 16, 1993
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 1-1790) filed with the Commission on November 12, 1993
(6) Incorporated by reference to the Registration Statement on Form S-4 of White Rose Foods, Inc. (File No. 33-72284) filed with the Commission on November 24, 1993.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for year ended January 1,1994 (File 1-1790)
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarter ended April 2, 1994 (File 1-1790)
(9) Incorporated by reference to the Company's Current Report on Form 8-K dated April 25, 1994 (File 1-1790)
(10) Incorporated by reference to the company's Quarterly Report on Form 10-Q for quarter ended July 2, 1994 (File 1-1790)
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for year ended December 31, 1994 (File 1-1790)
(12) Incorporated by reference to the Quarterly Report on Form 10-Q of White Rose Foods, Inc. for quarter ended September 30, 1995 (File 33-72284)
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995 (File 1-1790)
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarter ended September 28, 1996 (File 1-1790).
(15) Incorporated by reference to Registration Statement No. 333-30557 on Form S-4 filed with the Securities and Exchange Commission on July 1, 1997.
(16) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form S-4 (Registration No. 333-30557) filed with the Commission on July 16, 1997.
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1997 (File 1-1790).
(18) Filed herewith.
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the last quarter of the period covered by this Report.
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 3rd day of March, 1998.
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 March 3, 1998 - ----------------------------- Chairman, President and Chief Arthur M. Goldberg Executive Officer (Principal Executive Officer)
/s/ Jerold E. Glassman March 3, 1998 - ----------------------------- Director Jerold E. Glassman
/s/ Emil W. Solimine March 3, 1998 - ----------------------------- Director Emil W. Solimine
/s/ Charles C. Carella March 3, 1998 - ----------------------------- Director Charles C. Carella
/s/ Jane Scaccetti Fumo March 3, 1998 - ----------------------------- Director Jane Scaccetti Fumo
/s/ Richard B. Neff March 3, 1998 - ----------------------------- Executive Vice President and Richard B. Neff Chief Financial Officer (Principal Financial and Accounting Officer); Director
/s/ Stephen R. Bokser March 3, 1998 - ----------------------------- Executive Vice President and Stephen R. Bokser Director
DI GIORGIO CORPORATION AND SUBSIDIARIES
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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 28, 1996 and December 27, 1997, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the three years in the period ended December 27, 1997. 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 28, 1996 and December 27, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1997 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 20, 1998
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 28, 1996 AND DECEMBER 27, 1997 (In Thousands, Except Share Data) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1997 (In Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1997 (In Thousands, Except Share Data) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1997 (In Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements. (Continued)
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1997 (In Thousands) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
(Concluded)
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 27, 1997 - --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Di Giorgio Corporation (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.
On December 27, 1996, the Company's parent, White Rose Foods, Inc. ("White Rose") and its parent, DIG Holding Corp. ("DIG Holding"), effected a merger with White Rose continuing as the surviving corporation. As the stockholders of White Rose were identical to the stockholders of DIG Holding, the exchange of shares was a transfer of interest among entities under common control, and was accounted for at historical cost in a manner similar to pooling of interests accounting.
On June 20, 1997, the Company and White Rose consummated a merger in which White Rose was merged with and into the Company, with the Company as the survivor. Since the stockholders of the Company were identical to the stockholders of White Rose, the exchange of shares was a transfer of interest among entities under common control, and is being accounted for at historical cost in a manner similar to pooling-of-interests accounting. Accordingly, the consolidated financial statements presented herein reflect the assets and liabilities and related results of operations for the combined entity for all periods. Revenue for the years ended December 30, 1995, December 28, 1996 and December 27, 1997 were the same for the separate entities prior to the combination. Income before extraordinary items would have been approximately $2.3 million, $3.0 million and $1.5 million higher for the Company than White Rose for the years ended December 30, 1995, December 28, 1996 and December 27, 1997, respectively, prior to the combination due to additional White Rose net interest expense.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Inventories - Inventories, primarily consisting of finished goods, are valued at the lower of cost (weighted average cost method) or market.
Property, Plant and Equipment - Owned property, plant and equipment is stated at cost. Capitalized leases are stated at the lesser of the present value of future minimum lease payments or the fair value of the leased property. Depreciation and amortization are computed using the straight-line method over the lesser of the estimated life of the asset or the lease.
In the event that facts and circumstances indicate that the cost of long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required.
Excess of Cost Over Net Assets Acquired - The excess of cost over net assets acquired ("goodwill") is being amortized by the straight-line method over 40 years.
Management assesses the recoverability of goodwill by comparing the Company's forecasts of cash flows from future operating results, on an undiscounted basis, to the unamortized balance of goodwill at 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 straight-line 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 27, 1997 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.
New Accounting Pronouncement - In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which will be effective for financial statements beginning after December 15, 1997. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a company's operating statements. The Company has not yet completed its analysis of how it will be effected.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consists of the following:
December 28, December 27, 1996 1997 (In Thousands)
Accounts receivable $ 52,688 $ 57,263 Notes receivable 7,192 8,627 Other receivables 5,981 10,028 Less allowance for doubtful accounts (4,311) (4,203) ------ ------ $ 61,550 $ 71,715 ======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Estimated Useful Life December 28, December 27, in Years 1996 1997 (In Thousands)
Land - $ 900 $ 900 Buildings and improvements 10 19,492 19,322 Machinery and equipment 3-10 10,495 10,826 Less accumulated depreciation (9,102) (12,674) ------ ------- 21,785 18,374 ------ ------
Capital leases: Building and improvements 32,488 4,419 Equipment 8,410 370 Less accumulated amortization (6,413) (1,019) ------ ------ 34,485 3,770 ------ ----- $ 56,270 $ 22,144 ======== ========
Grocery Facility - In November 1997, the Company amended its lease for its grocery facility, adding additional leased property, extending the term and increasing the annual lease obligation. These changes in the provisions of the lease resulted in the amended lease being treated as a new lease and accounted for as an operating lease. The net book value of the related capitalized asset of $24.3 million and $27.1 million of lease obligations were removed resulting in a gain of approximately $2.8 million. The gain was classified in warehouse expense in the accompanying consolidated statement of operations for the year ended December 27, 1997.
Frozen Facility - In November 1997, the Company acquired the building and leasehold improvements, formerly the subject of a capital lease for its frozen facility located in Garden City, New York, for a purchase price of $9 million, consisting of cash and a $7.2 million note payable (Note 6g). As a result of this transaction, the building and leasehold improvements acquired were recorded and the net book value of the related capitalized asset of $1.7 million and $1.6 million of lease obligation were removed
resulting in a loss of approximately $0.1 million. In addition, the Company entered into a contract to purchase the underlying land for $1.6 million.
In February 1998, the Company entered into a contract to sell its Garden City, New York frozen facility and underlying land for approximately $14.5 million and management anticipates the transaction to close by March 31, 1998. The terms of the agreement require the Company to lease back the facility for a period of two years with one five year option, at an annual rent of approximately $1.5 million. The Company anticipates operating a storage facility at this location. In connection with this transaction, the Company recorded a pre-tax charge of approximately $2.2 million for an impairment of certain previously acquired leasehold improvements. The impairment recognized was measured as the amount by which the carrying value of the assets exceeded the fair value of the assets. The charge is included in warehouse expense in the accompanying consolidated statement of operations for the year ended December 27, 1997.
The Company anticipates moving its existing frozen food distribution business from its Garden City, New York facility to its Carteret, New Jersey facility (Note 11).
4. EXCESS OF COST OVER NET ASSETS ACQUIRED
Di Giorgio Acquisition - The Company was acquired by the current stockholders on February 9, 1990. The acquisition was accounted for as a purchase and the cost of the Company's stock, together with the related acquisition fees and expenses was allocated to the assets acquired and liabilities assumed based on fair values. As of December 28, 1996 and December 27, 1997, accumulated amortization of excess costs over net assets acquired was approximately $18,193,000 and $20,376,000, respectively.
Royal Acquisition - In June 1994, the Company acquired substantially all of the operating properties, assets and business of the dairy and deli distribution business. The acquisition was accounted for as a purchase and the cost was allocated to the assets acquired and liabilities assumed based on fair values. As of December 28, 1996 and December 27, 1997, accumulated amortization of excess costs over net assets acquired was approximately $702,000 and $978,000, respectively.
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 was five years. The sublessee was also granted an option, which was exercisable under certain circumstances, to purchase the property. The Company and the fee owner would 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.
In August 1997, the Company completed the sale of the option it held on its Farmingdale facility. The Company realized net cash proceeds of approximately $7.3 million after the repayment of the mortgage in the amount of approximately $5.2 million. The Company recognized a $40,000
gain (before a noncash write off of deferred expenses in the amount of approximately $400,000) in the statement of operations for the year ended December 31, 1997 on the transaction.
Included in other income for the three years ended December 27, 1997 is net rental income of approximately $954,000, $1 million and $192,000, respectively, related to the facility.
6. FINANCING
On June 20, 1997, the Company completed a refinancing (the "Refinancing") intended to extend debt maturities, reduce interest expense and improve financial flexibility. The components of the Refinancing were (i) the offering of $155 million 10% senior notes due 2007, (ii) the modification of the Company's bank credit facility, (iii) the receipt of an $8.9 million payment for the extinguishment of a note held by the Company from Rose Partners, LP ("Rose Partners"), which owns 98.53% of the Company, (Note 16) (iv) the consummation of the tender offers and consent solicitations commenced by the Company and White Rose, and together with the "Tender Offers" on May 16, 1997 in respect of the Company's 12% senior notes due 2003 and White Rose's 12-3/4% senior discount notes due 1998, respectively, (v) the $4.2 million dividend by the Company to White Rose of certain assets which were unrelated to the Company's primary business and the subsequent dividend of those assets to White Rose's stockholders (Note 12) and (vi) the merger (Note 1).
As a result of the Refinancing, the Company recorded an $8.5 million extraordinary charge, net of a tax benefit of $5.7 million, on the extinguishment of debt relating to premiums paid in the aggregate of approximately $10.8 million as a result of the Tender Offers and the write-off of approximately $3.2 million of deferred financing fees associated with the 12% senior notes and 12-3/4% senior discount notes.
Debt consists of the following:
Interest Rate at December 27, December 28, December 27, 1997 1996 1997 (In Thousands)
Revolving credit facility (b) 8.64 % $ 26,719 $ 19,669 ======== ======== Current portion of long-term debt: 12% senior notes (c) 12.00 $ - $ 7,450 Mortgage payable (e) 9.00 685 - Fleming note payable (f) 6.97 614 620 Note payable (g) 6.67 - 7,200 ------- ----- $ 1,299 $ 15,270 ======= ======== Long-term debt: 10% senior notes (a) 10.00 $ - $ 155,000 12% senior notes (c) 12.00 92,890 - 12 3/4% senior discount notes (d) 12.75 50,646 - Mortgage payable (e) 9.00 4,901 - Fleming note payable (f) 6.97 4,952 4,333 ----- ----- $ 153,389 $ 159,333 ========= =========
(a) 10% Senior Notes - The senior notes were issued under an Indenture dated as of June 20, 1997 between the Company and The Bank of New York, as Trustee. The senior notes are general unsecured obligations of the Company initially issued in $155,000,000 principal amount maturing on June 15, 2007. The notes bear interest at the rate of 10% payable semi-annually, in arrears, on June 15 and December 15 of each year, commencing December 15, 1997.
The notes will be redeemable at the Company's option, in whole or in part, at any time on or after June 15, 2002, at redemption prices defined in the Indenture agreement. In addition, on or prior to June 15, 2000, the Company may redeem up to 35% of the originally issued notes, at a price of 110% of the principal amount together with accrued and unpaid interest with the net proceeds of public equity offerings as defined by the Indenture. Upon the occurrence of a change of control, holders of the notes will have the right to require the Company to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount, plus accrued interest.
Payments of principal and interest on the notes are subordinate to the Company's secured obligations, including borrowings under the revolving credit facility, capital lease obligations (Note 6b and Note 11) and other existing and future senior indebtedness of the Company.
The Indenture limits the ability of the Company and its restricted subsidiaries to create, incur, assume, issue, guarantee or become liable for any indebtedness, pay dividends, redeem capital stock of the Company or a restricted subsidiary, and make certain investments. The Indenture further restricts the Company's and its restricted subsidiaries' ability to sell or issue a restricted 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 Di Giorgio'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.
In May and June 1997, the bank credit facility was modified to, among other things, extend the expiration date of the facility to June 30, 2000, reset certain financial covenants, permit the Refinancing and increase the rate under the borrowing base formula.
Availability for direct borrowings and letter of credit obligations under the revolving credit facility is limited, in the aggregate to the lesser of i) $90 million or ii) a borrowing base of 80% of eligible amount of receivable and 60% of eligible inventory. After the Refinancing, the allowable advance against eligible inventory increased to 70% and subsequently declines to 60% at the rate of 1% each quarter commencing on October 1, 1997. As of December 27, 1997, the Company had an additional $61.2 million of borrowing base availability.
The borrowings under the revolving credit facility are secured by the Company's inventory and accounts receivable. Among other matters, the revolving credit facility contains certain restrictive covenants relating to net worth, interest coverage and capital expenditures. The facility also prohibits the payment of dividends. The Company was in compliance with the covenants as of December 27, 1997.
(c) 12% Senior Notes - The senior notes which were issued in $100,000,000 principal amount in 1993, were due in February 2003, and bear interest at the rate of 12%.
During the years ended December 30, 1995 and December 28, 1996 prior to the Tender Offers, the Company 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 $510,000 (net of $-0- taxes) and $219,000 (net of taxes of $146,000), respectively.
In June 1997, the notes were redeemed pursuant to the Tender Offers at $85,440,000 principal and a premium of approximately $6,586,000. As of December 27, 1997, $7,450,000 aggregate principal amount of the notes remain outstanding. During February 1998, pursuant to the Indenture, the Company has elected to redeem, and will redeem on March 26, 1998 all the notes outstanding at December 27, 1997, at a redemption price equal to 104.5% of the principal amount with accrued interest through the redemption date.
(d) 12 3/4% Senior Discount Notes - In November 1993 $63.5 million principal amount at maturity of Series A senior discount notes due 1998 were issued by White Rose. The notes were issued net of an original issue discount of $29.2 million. The yield to maturity was 12.75% per annum and the notes did not pay any periodic cash interest. In June 1997, the notes were redeemed in full pursuant to the Tender Offers at approximately $53,656,000 principal, which included accreted interest and a premium of approximately $4,243,000.
(e) Mortgage Payable - The terms of the eight-year, nonrecourse mortgage payable of the Company's wholly-owned subsidiary, MF Corp., were payments of $96,691 a month, including interest at 9% through 2004. The mortgage was paid off in full in conjunction with the sale of the Farmingdale facility (Note 5) and the Company recorded a $200,000 extraordinary charge, net of a tax benefit of $124,000, on the write-off of deferred financing fees associated with the mortgage.
(f) 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 6.97% for financial statement purposes which resulted in an amount outstanding at December 27, 1997 of $5.0 million. As of December 27, 1997, the remaining principal amount on the note is $5.2 million. The note is secured by a $1.5 million letter of credit.
(g) Note Payable - The note payable was issued in connection with the purchase of the building for its frozen facility (Note 3) and matures on May 27, 1998.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments are as follows:
December 28, 1996 December 27, 1997 Carrying Fair Carrying Fair Value Amount Value Amount (In Thousands) Debt (Note 6): Revolving credit facility $ 26,719 $ 26,719 $ 19,669 $ 19,669 Note payable -- -- 7,200 7,200 10% senior notes -- -- 155,000 152,288 12% senior notes 92,890 99,968 7,450 7,897 12-3/4% senior discount notes 50,646 50,406 -- -- Other notes payable 11,152 11,152 4,953 4,953 Accounts and notes receivable - current (Note 2) 61,550 61,550 71,715 71,715 Notes receivable - long-term 19,276 19,276 7,428 7,428
The fair value of the 10% senior notes as of December 27, 1997 is based on a yield of 10.29% (as of December 26, 1997). The fair value of the 12% senior notes as of December 28, 1996 and December 27, 1997 are based on yields of 10.28% (as of December 30, 1996) and 10.45% (as of December 26, 1997), respectively. The fair value of the 12-3/4% senior discount notes as of December 28, 1996 is based on the trade price representing a yield of 13.0% (as of December 30, 1996). Based on the borrowing rate currently available to the Company, the revolving credit facility is considered to be equivalent to its fair value. The fair value of the note payable is assumed to reasonably approximate its carrying amount since it was recently issued and is short-term in nature. 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 28, December 27, 1996 1997 (In Thousands) Legal and environmental $ 1,831 $ 1,176 Interest 4,412 1,018 Employee benefits 5,957 6,354 Due to vendors/customers 3,219 4,286 Other 8,943 8,264 ----- ----- $ 24,362 $ 21,098 ======== ========
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 30, 1995, December 28, 1996 and December 27, 1997 includes the following components:
Year Ended -------------------------------------------- December 30, December 28, December 27, 1995 1996 1997 (In Thousands) Service cost-benefits earned during the period $ 345 $ 585 $ 598 Interest cost on projected benefit obligation 3,350 3,350 3,334 Return on assets - actual (7,138) (4,302) (4,357) Net amortization and deferral 2,746 (117) (67) ----- ---- --- Net periodic pension credit $ (697) $ (484) $ (492) ====== ====== ======
The following sets forth the status of the plan as of the most recent actuarial report: December 28, December 27, 1996 1997 (In Thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 45,179 $ 45,534 ======== ======== Accumulated benefit obligation $ 46,187 $ 46,752 ======== ======== Projected benefit obligation $ 46,976 $ 47,906 Plan assets at fair value 50,213 51,189 ------ ------ Plan assets in excess of projected benefit obligation 3,237 3,283
Unrecognized prior service cost 165 151 Unrecognized net loss 5,017 5,477 ----- ----- Prepaid pension cost $ 8,419 $ 8,911 ======= =======
The prepaid pension cost is included in other assets on the consolidated balance sheets.
The following table provides the assumption used in determining the actuarial present value of the projected benefit obligation at December 28, 1996 and December 27, 1997:
December 28, December 27, 1996 1997
Weighted average discount rate 7.50 % 7.25 % Rate of increase in future compensation levels 6.00 6.00 Expected long-term rates 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 30, 1995 $ 836 December 28, 1996 1,082 December 27, 1997 1,030
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 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 30, 1995 $ 144 December 28, 1996 171 December 27, 1997 193
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
December 28, December 27, 1996 1997 (In Thousands) Employee benefits $ 3,520 $ 2,269 Legal 2,733 2,575 Environmental 1,337 1,235 Other 236 - ------- ------- $ 7,826 $ 6,079 ======= =======
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 subleased a frozen warehouse facility through November 1997 and certain equipment through April 1997 from WRGFF Associates, L.P. ("WRGFF"), an affiliate of the Company. For each of the years in the three-year period ended December 27, 1997, rental expense under these leases with WRGFF amounted to approximately $1.2 million, $1.4 million and $0.5 million, respectively (Note 3). In May 1997 the Company acquired tangible property formerly the subject of a capital lease at its frozen facility from WRGFF for approximately $2 million.
The Company had entered into a lease agreement to lease a dry warehouse facility which the Company is using for its grocery division as well as for its administrative headquarters. The lease commitment commenced on February 1, 1995. The lease was amended during 1997 (Note 3). The term of the new lease expires in 2018 with two five-year renewal options. Rental payments under the lease are approximately $2.9 million per year (through the expiration date).
In November 1997, the Company entered into an agreement to lease a new frozen warehouse facility in Carteret, New Jersey. The lease will be accounted for as an operating lease. The lease expires in 2018 with two five year renewal options. Rental payments under the lease are approximately $1.8 million for the first ten years and approximately $2.0 million for the last ten years.
Although the Company continues to investigate subleasing its Kearny facility (formerly its dairy facility), the facility was placed back into operations in the second quarter of fiscal 1996. During fiscal 1997, the Company operated a storage facility, a juice depot and a produce distribution business at the location. The Company currently operates a storage facility at the location. Also, during the fourth quarter of fiscal 1997, the Company recorded a pretax charge of approximately $480,000 to write down certain leasehold improvements to estimated fair value. The charge is included in operating expense in the accompanying consolidated statement of operations.
The following is a schedule of net minimum lease payments required under capital and operating leases in effect as of December 27, 1997:
Capital Operating Fiscal Year Ending Leases Leases (In Thousands) 1998 $ 366 $ 11,453 1999 366 11,075 2000 308 8,103 2001 196 6,434 2002 186 5,677 Thereafter 3,382 74,164 ----- ------ Net minimum lease payments 4,804 $ 116,906 ========= Less interest 2,110 ----- Present value of net minimum lease payments (including current installments of $195) $ 2,694 =======
Total rent expense included in operations was as follows:
Year Ended (In Thousands)
December 30, 1995 $ 6,337 December 28, 1996 6,622 December 27, 1997 7,240
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 $11,979,000 and $7,185,851 on open letters of credit with a bank as of December 28, 1996 and December 27, 1997, respectively.
Employment Agreements - The Company has employment agreements with three key executives which will expire in June 2000, October 2000 and February 1999. Under these agreements, combined annual salaries of approximately $871,000 are expected to be paid in fiscal 1998. In addition, the executives are entitled to additional compensation upon occurrence of certain events.
12. EQUITY
In November 1993 in connection with the senior discount note offering (Note 6(d)), the Company entered into a warrant agreement with a bank. The bank currently owns 1.47% of the outstanding shares of common stock of the Company. The bank holds warrants to purchase approximately 2.6% of the outstanding Di Giorgio Corporation common stock. A warrant entitles a holder to purchase one share of Di Giorgio Corporation Class B common stock for $.10 per share. The warrants are exercisable on the earlier of January 1, 1996, or the date of an initial public offering of the Company or its subsidiaries or the occurrence of other events as defined in the agreement. The warrants expire in February 2003.
In May 1995, DIG Holding purchased the Company's senior discount notes with a face value of $3 million on the open market. The purchase price was $960,000 with an accreted value of $1,967,000. DIG Holding distributed the bonds to the stockholders in December of 1995 when the bonds had a fair value of approximately $1.2 million. The accreted value at the time of the dividend was approximately $2,114,000. Interest income of $125,000 and bond amortization of $115,000 was recorded in 1995.
In connection with the Refinancing (Note 6), certain assets consisting of the Las Plumas note (Note 16), land and other assets, with an aggregate book value of approximately $4.2 million were distributed to the stockholders of the Company in the form of a dividend.
13. OTHER INCOME - NET
Other income consists of the following: Year Ended --------------------------------------------- December 30, December 28, December 27, 1995 1996 1997 (In Thousands) Interest income $ 2,301 $ 2,390 $ 2,380 Net rental income 954 1,020 192 Net gain on disposal of assets - 63 157 Other - net 374 285 513 Non-compete 213 - - ------- ------- ------- $ 3,842 $ 3,758 $ 3,242 ======= ======= =======
14. INCOME TAXES
The Company files a consolidated Federal tax return. The consolidated group has adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's deferred tax assets and deferred tax liabilities are as follows: December 28, December 27, 1996 1997 (In Thousands) Deferred tax assets: Allowance for doubtful accounts $ 1,814 $ 1,817 Accrued expenses not deductible until paid 5,494 3,313 Net tax operating loss carryforwards 15,400 16,160 ------ ------ Deferred tax asset 22,708 21,290 ====== ====== Deferred tax liabilities: Difference between book and tax basis of property (4,038) (483) Pension asset valuation (3,296) (3,441) ------ ------ Deferred tax liabilities (7,334) (3,924) ------ ------ Net deferred tax assets 15,374 17,366 Less valuation allowance (15,374) - ------- ------ $ - $ 17,366 ====== ========
The valuation allowance as of December 31, 1996 related to net deferred tax assets relating to preacquisition temporary differences and operating loss carryforwards as well as postacquisition temporary differences and
loss carryforwards. The 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.
There was no Federal provision for the year ended December 30, 1995 as a result of operating losses for financial statement and tax purposes. For the year ended December 30, 1995, the tax provision has been reduced by approximately $319,000 for the corresponding elimination of the valuation allowance. For the year ended December 28, 1996, the excess of cost over the net assets of business acquired has been reduced by approximately $2.8 million because of the utilization of preacquisition amounts. As of December 28, 1996, the Company's deferred tax assets were fully reserved based on the then current evidence indicating that is was more likely than not that the future benefits of the deferred tax assets would not be realized.
During the third quarter of fiscal 1997, the Company reversed the valuation allowance related to its deferred income tax assets. In the opinion of management, sufficient evidence now exists, such as the positive trend in operating performance and the favorable effects of the recently completed refinancing, which indicates that it is more likely than not that the Company will be able to realize its deferred income tax assets. The reversal of the valuation allowance resulted in an income tax benefit of $3.9 million and a reduction in goodwill of $11.5 million. The reduction in goodwill reflects benefits which were attributable to the pre-acquisition period.
At December 27, 1997, the net deferred tax assets of $17.4 million consist principally of operating loss carryforwards which expire from 2006 to 2010. The deferred tax assets are classified for balance sheet purposes as $12.3 million noncurrent and $5.1 million included in prepaid expenses.
As of December 27, 1997, approximately $40 million of net tax operating loss carryforwards (which expire between the years 2006 and 2010) and approximately $28.7 million of New Jersey state tax operating loss carryforward (which expire between the years 1998 and 2002) are available. As of December 27, 1997, there were no taxes currently payable.
The income tax benefit consist of the following (in thousands):
Year Ended December 27,
Deferred income tax $ 2,659 Reduction in valuation allowance (3,900) ------ $ (1,241) ========
A reconciliation of the Company's effective tax rate with the statutory Federal tax rate is as follows:
Years Ended ----------------------------------------- December 30, December 28, December 27, 1995 1996 1997 (In Thousands)
Tax at statutory rate $ (846) $ 1,667 $ 1,526
State and local taxes - net of federal benefit 287 497 391
Permanent differences - amortization of excess cost over net assets acquired 983 889 742
Reduction in valuation reserve (319) - (3,900) ---- ------- ------ $ 105 $ 3,053 $ (1,241) ===== ======= ========
15. 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.
16. RELATED PARTY TRANSACTIONS
In November 1993 approximately $11 million face value discount note was loaned to Rose Partners, the current holder of 98.53% of the common stock of the Company. The note was issued at an original discount of approximately $5.3 million. The note evidencing this indebtedness was scheduled to mature in April 1999 and was secured by an amount of shares of common stock owned by Rose Partners representing approximately 20% of the class outstanding. The note bore interest at a rate equal to the Series B senior discount notes yield to maturity of 12 3/4% per annum. As of December 28, 1996, the $8.4 million note was classified as long-term in the consolidated balance sheet. In connection with the Refinancing (Note 6) the Company received an $8.9 million payment for the extinguishment of the note. For the years ended December 30, 1995, December 28, 1996 and December 27, 1997, other income includes approximately $846,000, $981,000 and $502,000, respectively, of interest income related to the note.
At December 28, 1996, Las Plumas, an affiliate of the Company, owed the Company approximately $3.5 million, evidenced by a subordinated note. The entire note receivable was classified as long-term in the consolidated balance sheet as of December 28, 1996. The note was secured by deeds of trust relating to parcels of property of Las Plumas. The loan was scheduled to mature in June 1998 and bore interest at a fluctuating rate equal to the weighted average of the interest rates paid by the Company. In connection with the Refinancing, the note was distributed to the stockholders of the Company in the form of a dividend (Note 12).
A director of the Company is a director of a customer. During the three-year period ended December 27, 1997, the Company sold various foods products in the amounts of $22.6 million, $27.5 million and $37.2 million, respectively, to this customer.
A director of the Company is a partner in a firm which provides legal services to the Company on an on-going basis. The Company paid approximately $98,000, $111,000 and $171,000, during each of the three years in the period ended December 27, 1997, 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 27, 1997.
The Company recorded income of $154,000, $245,000 and $166,000 for each of the three years in the period ended December 27, 1997, 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 year ended 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.
17. MAJOR CUSTOMERS
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%.
During the year ended December 27, 1997, sales to two individual customers represented 27.4% and 19.5% of net sales, respectively, and sales to a group of customers represented 10.9%.
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DI GIORGIO CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) - --------------------------------------------------------------------------------
(1) Accounts written off during the year.
(2) Transfers from other accounts.
(3) Transfers to other accounts
S-1