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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
COMMISSION FILE NUMBER: 33-72284
WHITE ROSE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3172841
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
380 Middlesex Avenue
Carteret, New Jersey 07008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (908) 541-5555
____________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1997, there were outstanding 100.612 shares of Class A
Common Stock. The aggregate market value of the voting stock held by
non-affiliates of the registrant is $0 because all voting stock is held by
affiliates of the registrant.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
White Rose Foods, Inc. ("White Rose") is a company which was formed in May 1992
to serve as a holding company for all of the stock of Di Giorgio Corporation
(hereinafter "Di Giorgio" or together with its subsidiaries hereinafter the
"Company"). DIG Holding Corp. ("DIG Holding") contributed 100% of the
outstanding voting stock of Di Giorgio to White Rose in exchange for shares of
common stock of White Rose. In addition, White Rose purchased 100% of the
non-voting common stock of Di Giorgio from DIG Holding in exchange for a note
which was repaid in connection with the White Rose $63.5 million face value
senior discount note offering. Since these transactions were among companies
under common control, the acquisition of Di Giorgio by White Rose has been
accounted for as if it were a pooling of interest and the financial statements
reflect 100% ownership of Di Giorgio's operations for all periods. White Rose
and subsidiaries had no operations other than Di Giorgio's for all periods.
On December 27, 1996, White Rose and its parent, DIG Holding effected a merger
with White Rose continuing as the surviving corporation. As the stockholders
of the Company are identical to the stockholders of DIG Holding, 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
represented herein reflect the assets and liabilities and related results of
operations of the combined entity for all periods.
Di Giorgio, a Delaware corporation, was formed in 1920. Di Giorgio is one of
the largest independent wholesale food distributors in the New York City
metropolitan area, which is one of the largest food retail markets in the
United States. Across its grocery, frozen and dairy product categories, the
Company supplies approximately 18,000 food and non-food items, predominantly
national brand name items, to more than 1,600 customer locations. The Company
also markets products using its well-recognized White Rose(TM) label, which has
been established in the New York City metropolitan area for over 110 years.
The Company serves supermarkets, independent retailers (including members of
voluntary cooperatives) and chains principally in the five boroughs of New York
City, Long Island, Northern New Jersey and, to a lesser extent, the
Philadelphia area. Approximately 850 grocery, frozen and dairy items are
offered with the White Rose(TM) label. For the year ended December 28, 1996,
the Company had total revenue of $1,050.2 million and EBITDA (as defined
herein) of $36.9 million.
Formed in 1920, the Company was acquired in 1990 by a corporation controlled by
Arthur M. Goldberg, the Company's current Chairman, President and Chief
Executive Officer (the "1990 Acquisition"). Since the 1990 Acquisition, Mr.
Goldberg and his management team have implemented a strategy focused on
enhancing productivity, growing through the acquisition of complementary
businesses, identifying and developing new revenue opportunities and promoting
brand name recognition through the Company's White Rose(TM) label. The success
of this strategy has been reflected in a more than doubling of the Company's
EBITDA since the 1990 Acquisition.
Management believes that the success of its strategies has created a platform
for growth opportunities in the future. As the Company has demonstrated twice
within the past year, it has the technology, flexibility and capacity to
effectively service major accounts with supplemental supply on short notice.
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Management believes that this proven success has created goodwill with
prospective customers and has placed the Company in a very competitive position
to attract new business. Additionally, management continues to weigh
alternatives aimed at growing volume at its existing distribution centers by
exploring the most profitable means of expansion of its core business into the
complementary markets of Philadelphia and New England while continuing to
develop broader-based end-user recognition of its White Rose(TM) private label.
PRODUCTS
General. Management believes that the distribution of multiple product
categories gives the Company an advantage over its competitors by affording
customers the ability to purchase grocery, frozen and dairy products from a
single supplier. In addition, the Company is able to merchandise its
well-recognized White Rose(TM) label consistently across all three categories
of products. While some customers purchase items from all three product lines,
others purchase items from only one or two product lines.
Products are sold at prices which reflect the manufacturer's stated price plus
a profit margin. Prices are automatically adjusted on a regular basis based on
vendor pricing.
White Rose(TM) Label. The White Rose(TM) label is a well-recognized regional
label for quality merchandise and has been marketed in the New York City
metropolitan area for over 110 years. Products under the White Rose(TM) label
are formulated to the Company's specifications, often by national brand
manufacturers, and are subject to random testing to ensure quality. The White
Rose(TM) label allows independent retail customers to carry a
regionally-recognized label similar to chain stores while providing consumers
with an attractive alternative to national brands.
Customer Support Services. Certain of the Company's customers require varying
levels of retail support services in order to compete effectively in the
marketplace. The Company provides a broad spectrum of retail support services,
including advertising, promotional and merchandising assistance; retail
operations counseling; computerized ordering services; and store layout and
equipment planning. The Company has a staff of customer representatives who
visit stores on a regular basis to advise store management regarding their
operations. Most of the Company's customers utilize computerized order entry,
which allows them to place and confirm orders 24 hours a day, 7 days a week.
The Company's largest customers generally provide their own retail support.
The Company periodically provides financial assistance to independent retailers
by providing (i) financing for the purchase of new grocery store locations;
(ii) financing for the purchase of inventories and store fixtures, equipment
and leasehold improvements; (iii) extended payment terms for initial
inventories and/or (iv) extended payment terms for existing receivable
balances. The primary purpose of such assistance is to provide a means of
continued growth for the Company through development of new customer store
locations and the enlargement and remodeling of existing stores. Stores
receiving financing purchase their grocery, frozen and dairy inventory
requirements from the Company. Financial assistance is usually in the form of a
secured, interest-bearing loan, generally repayable over a period of one to
three years. As of December 28, 1996, the Company's customer financing
portfolio had an aggregate balance of approximately $14.3 million. The
portfolio consisted of approximately 72 loans with a range of $12,000 to
$698,000.
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To further serve the needs of its customers, the Company has recently expanded
its customer support services. Under the Company's insurance program, the
Company offers customers the ability to purchase liability, property and crime
insurance through a master policy purchased by the Company. The Company's
coupon redemption service facilitates the redemption of vendor coupons by the
Company's customers. Finally, through its technologies division, the Company
distributes supermarket scanning equipment which is compatible with the
Company's information systems.
MARKETS AND CUSTOMERS
As of December 28, 1996 the Company's principal markets encompass the five
boroughs of New York City, Long Island, northern New Jersey and, to a lesser
extent, the Philadelphia area. The Company also has customers in upstate New
York, Connecticut, Pennsylvania and Delaware, and is pursuing expansion into
markets adjacent to the New York City metropolitan area.
The Company's customers include single and multiple store owners consisting of
chains and independent retailers which generally do not maintain their own
internal distribution operations for one or more of the Company's product
lines. Some of the Company's customers are independent food retailers or
members of voluntary cooperatives which seek to achieve the operating
efficiencies enjoyed by supermarket chains through common purchasing and
advertising. Unlike larger retail chains which predominate in suburban areas,
the independent retailers served by the Company tend to be located in urban
areas. The Company's customers include food markets operating under some of
the following trade names: the Superfresh, Waldbaums, Food Emporium and A & P
Metro operations of the Great Atlantic & Pacific Tea Co., Inc. ("A&P"),
Associated Food Stores ("Associated"), Gristedes and Sloans Supermarkets, King
Kullen, Kings Super Markets, Quick Chek, Royal Farms, Scaturros, and Western
Beef, as well as the Met(TM), Pioneer(TM) and Super Food cooperatives.
The Met(TM) and Pioneer(TM) trade names are owned by the Company, however, the
customers using the trade names are independently owned stores. The Company
and the customer stores operate as voluntary cooperatives allowing a customer
to take advantage of the benefits of advertising and merchandising on a scale
usually available only to large chains, as well as certain other retail support
services provided by the Company. In order to use the trade names as part of
the cooperative arrangement, customers who use these names purchase their
grocery, frozen food and dairy inventory requirements from the Company, thereby
enhancing the stability of this portion of the Company's customer base. These
customers represented approximately 19% of net sales for each of the two years
ended December 28, 1996.
During the fifty-two weeks ended December 28, 1996, the Company's largest
customers, A&P and Associated, accounted for approximately 22% and 20%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 62% of net sales. One of these five customers significantly
decreased its purchases from the Company starting in November 1996. See Item 7
of this Annual Report on Form 10K. The Company or certain of its principal
executive officers have long-standing relationships with most of the principal
customers of the Company. The loss of certain of these principal customers or
a substantial decrease in the amount of their purchases could be disruptive to
the Company's business.
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WAREHOUSING AND DISTRIBUTION
The Company presently supplies its customers from three warehouse and
distribution centers. All of these facilities are equipped with modern
equipment for receiving, storing and shipping large quantities of merchandise.
Management believes that the efficiency of its warehouse and distribution
centers enables the Company to compete effectively. A newly installed
warehouse and inventory management system directs all aspects of the material
handling process from receiving through shipping, thus minimizing cost while
maintaining the highest service level possible.
The Company normally has in-stock approximately 95% of its grocery product
line, approximately 97% of its dairy product line and approximately 96% of its
frozen food product line. Immediate product availability, efficient
warehousing techniques and flexible delivery schedules generally make it
possible for the Company to ship to customers within 24 to 48 hours of receipt
of their orders.
The Company's trucking system consists of 114 tractors (all of which are
leased), 277 trailers (of which 250 are leased) and 13 trucks (all of which are
leased). On approximately 35% of its deliveries, the Company is able to
arrange 'backhauls" of products from manufacturers' or other suppliers'
distribution facilities located in the markets served by the Company, thereby
enabling the Company to reduce its procurement costs. The Company regularly
uses independent owner/operators to make deliveries on an "as needed" basis to
supplement the use of its own employees and equipment. The Company makes on
average approximately 845 deliveries per day each weekday to its customers
through a combination of its own transportation fleet and that of third
parties. Over the past year the Company has upgraded its trailer fleet through
the replacement of older, smaller trailers with newer, larger trailers,
thereby increasing the capacity per load in an effort to reduce transportation
cost as well as increase backhaul revenue. The new larger trailers have
reduced the number of trailers needed by the Company by 48.
Due to the different storage and distribution requirements of each of the
Company's product lines, the Company handles each product line in a separate
facility. All of the Company's warehouse and distribution facilities are fully
integrated through the Company's computer, accounting, and management
information systems to ensure operating efficiency and coordinated quality
customer service.
PURCHASING
The Company purchases products for resale to its customers from approximately
1,400 suppliers in the United States and abroad. Brand name products are
purchased directly from the manufacturer, through the manufacturer's
representatives or through food brokers by buyers in each operating division.
White Rose(TM) label and customers' private label products are purchased from
producers, manufacturers or packers who are licensed by the Company, in the
case of the White Rose(TM) label, or by the owners of the respective private
labels . The Company purchases products in large volume and resells them in the
smaller quantities required by its customers. Management believes that the
Company has the purchasing power to obtain competitive volume discounts from
its suppliers. Substantially all categories of products distributed by the
Company are available from a variety of manufacturers and suppliers, and the
Company is not dependent on any single source of supply for any specific
category, however, market conditions dictate that certain nationally prominent
brands, available from single suppliers, be available for distribution. Order
size and frequency are determined by management based upon historical sales
experience, sales projections and computer forecasting. A state of the art
procurement system provides the buying department with extensive data to
measure the movement and profitability of each inventory item, forecast
seasonal trends, and recommend the
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terms of purchases. This system, which operates in concert with the warehouse
management system, features full electronic data interchange capabilities and
accounting interfaces.
The Company from time to time buys increased quantities of inventory items when
the manufacturer is selling the item at a discount pursuant to a special
promotion, an industry practice known as "forward buying." These special
promotions are run by various manufacturers at their sole discretion. The
Company earns income from additional margins realized in connection with these
promotional purchasing arrangements.
COMPETITION
The wholesale food distribution industry is highly competitive. The Company is
one of the largest independent wholesale food distributors to super markets in
the New York City metropolitan area and is the only independent distributor
that supplies three primary supermarket product categories: grocery, frozen and
dairy. The Company's principal competitors are C & S Wholesale Grocers, Inc.;
Krasdale Foods, Inc., and General Trading Co. ("General Trading") with respect
to grocery distribution, General Trading with respect to dairy distribution,
and Nassau Suffolk Frozen Food Company, Inc. with respect to frozen food
distribution. Many of the Company's smaller competitors generally do not
provide retail support services and financing services to independent retailers
in the Company's market.
The Company also competes with cooperatives such as Key Food Stores
Co-operative Inc. and Twin County Grocers Inc., which provide distribution and
support services to their affiliated independent retailers doing business under
trade names licensed to them by the cooperatives. Unlike these competitors,
the Company does not require payment of capital contributions to the Company by
retailers desiring to use the Met(TM) and Pioneer(TM) name.
Management believes that the principal competitive factors in the Company's
business include price, service, scope of products and services offered,
strength of private label brand offered, strength of store trademarks offered
and store financing support. Management believes that the Company competes
effectively by offering a full product line, including its well-recognized,
regional White Rose(TM) label, the retail support and financing services
associated with its Met(TM) and Pioneer(TM) voluntary cooperative trademarks,
flexible delivery schedules, competitive prices, competitive levels of customer
service including newly introduced insurance, coupon-redemption and scanner
distribution services, including computerized order entry, and its
well-positioned and efficient distribution networks.
EMPLOYEES
As of December 28, 1996, the Company employed approximately 1,123 persons, of
whom approximately 689 were covered by collective bargaining agreements with
various International Brotherhood of Teamsters locals.
The Company is a party to certain collective bargaining agreements with its
warehouse and trucking employees at its dairy operation (expiring November
2000), its grocery operation (warehouse expiring October 1997 and trucking
expiring May 1997) and its frozen operation (expiring January 2000).
Management believes that the Company's present relations with its work force
are satisfactory.
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ITEM 2. PROPERTIES
The Company's three principal warehouse and distribution facilities are set
forth below along with its former dairy division, currently being used an
auxiliary facility. In addition, the Company owns or leases various properties
principally related to its divested operations, which properties are leased to
third parties or held for resale or sublease.
<TABLE>
<CAPTION>
Location Use Square Footage Lease Expiration
-------- --- -------------- ----------------
<S> <C> <C> <C>
Carteret, New Jersey Groceries and other Non-Perishables 645,000 2015 (plus two 5-year
renewal options)
Garden City, New Frozen 325,000 2004 (plus one 7-year
York renewal option)
Woodbridge, New Dairy 200,000 2001 (plus four 5-year
Jersey renewal options
Kearny, New Jersey Juice depot and Storage 98,000 1999
</TABLE>
The aggregate operating lease rent paid in connection with the Company's
warehouse and distribution facilities was approximately $800,000 in fiscal
1996.
Currently, the new Carteret grocery division distribution facility operates at
approximately 70% of capacity and the dairy division distribution facility
operates at 80% of capacity (both on a three shift basis), while the frozen
foods division distribution facility operates at approximately 50% of capacity
(on a two shift basis). Depending on the type of new business introduced (ie,
high turn product that is already slotted in inventory), each warehouse has
greater capacity to grow then stated above. The frozen foods division
distribution facility has the flexibility of further increasing capacity
because the Company uses some of the space leased by it for public storage.
The Company continues to have a leasehold interest in its former grocery
distribution facility in Farmingdale, New York under an agreement with the fee
owner of the facility. The Company and the fee owner share the economic
benefits of the resulting income stream, financings related thereto or ultimate
sale of the property, with 80% to the Company and 20% to the fee owner. The
Company also has an option to purchase the property from the fee owner
commencing in 1998 in an amount equal to 20% of the net fair market value of
the property. In August 1993, the Company entered into an agreement with a
third party to sublease the entire premises for an initial term of five years
with certain renewal and purchase options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in claims, litigation and administrative proceedings of
various types in various jurisdictions. In addition, the Company has agreed to
indemnify various transferees of its divested operations with regard to certain
known and potential liabilities which may arise out of such operations. The
Company also has incurred and may in the future incur liability arising under
environmental laws and
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regulations in connection with these divested properties and properties
presently owned or acquired. Although management believes that it has
established adequate reserves for known contingencies, there can be no
assurances that the costs of environmental remediation or an unfavorable outcome
in any litigation or governmental proceeding will not have an adverse effect on
the Company.
Environmental. The Company has incurred and may in the future incur
environmental liability to clean up potential contamination at a number of
properties under certain federal and state laws, including the Federal
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"). Under such laws, liability for the cleanup of property
contaminated by hazardous substances may be imposed on both the present owner
and operator of a property and any person who owned or operated the property at
the time hazardous substances were disposed thereon. Persons who arranged for
the disposal of hazardous substances found on a disposal site may also be
liable for cleanup costs. In certain cases, the Company has agreed to
indemnify the purchaser of its former properties for liabilities arising
thereon or has agreed to remain liable for certain potential liabilities that
were not assumed by the transferee.
The Company has recorded an estimate of its total potential environmental
liability arising from specifically identified environmental problems
(including those discussed below) in the amount of approximately $2.0 million
as of December 28, 1996. The Company believes such reserves are adequate and
that known and potential environmental liabilities will not have a material
adverse effect on the Company's financial condition. However, there can be no
assurance that the identification of contamination at its current or former
sites or changes in cleanup requirements would not result in significant costs
to the Company.
The Company is responsible for the cleanup and/or monitoring of various sites
previously owned or operated by the Company, the most significant of which are
located in St. Genevieve, Missouri and Three Rivers, Michigan.
In addition, the Company has been identified as a potentially responsible party
("PRP") under CERCLA for clean-up costs at the Seaboard waste disposal site in
North Carolina. The Company is a member of the de minimus group comprised of
parties who allegedly contributed less than 1% of the total waste at the site.
The other two sites in which the Company had previously been named as a PRP
have been settled with nominal contributions from the Company.
The Company is not a party to any material litigation, other than routine
litigation incidental to the business of the Company, which is individually or
in the aggregate material to the business of the Company. Management does not
believe that the outcome of any of its current litigation, either individually
or in the aggregate, will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public offering market for the outstanding common
equity of White Rose and the majority of its outstanding common equity is
owned by Rose Partners, LP.
The ability of White Rose 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, neither White Rose nor the Company were permitted
to pay dividends on December 28, 1996.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical data of the Company
for the periods indicated. The results of operations include the expansion of
the frozen business on August 2, 1992 (date of the Global Acquisition) and the
expansion of the dairy division since April 1994 (initial date of the Royal
Acquisition). On December 27, 1996, White Rose and its parent, DIG Holding
Corp., effected a merger with White Rose continuing as the surviving
corporation. As the stockholders of the Company are identical to the
stockholders of DIG Holding, 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 represented herein reflect the assets and
liabilities and related results of operations of the combined entity for all
periods. Such data should be read in conjunction with the consolidated
financial statements and related notes included herein.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
January 2, January 1, December 31, December 30, December 28,
1993 1994 1994 1995 1996
<S> <C> <C> <C> <C> <C>
(In thousands)
Income Statement Data:
Total revenue (a) . . . . . . . . . $704,448 $774,105 $936,847 $1,023,041 $1,050,206
Gross profit (b) . . . . . . . . . 78,089 91,131 101,321 107,505 114,487
Warehouse expense . . . . . . . . 28,256 32,631 37,503 39,196 40,343
Transportation expense . . . . . 15,784 17,916 21,354 22,759 21,624
Selling, general and
administration expenses . . . . 16,874 19,089 20,277 22,357 23,389
Facility integration exp. . . . . -- -- 3,986 -- --
Amortization--excess of cost over
net assets acquired . . . . . . 2,615 2,616 2,766 2,892 2,892
Operating income . . . . . . . . . 14,560 18,879 15,435 20,301 26,239
Interest expense . . . . . . . . 14,409 18,232 20,370 24,887 23,955
Amortization--deferred financing
costs . . . . . . . . . . . . . 3,366 1,600 1,479 1,457 1,138
Other (income) expense, net (a) . (1,806) (1,888) (2,939) (3,842) (3,758)
(Loss) income from continuing
operations before income taxes . (1,409) 935 (3,475) (2,201) 4,904
Income taxes . . . . . . . . . . . 34 109 63 105 3,053
(Loss) income from continuing
operations . . . . . . . . . . . (1,443) 826 (3,538) (2,306) 1,851
(Loss) income from discontinued
operations . . . . . . . . . . . (659) (1,178) -- -- --
Extraordinary (loss)/gain on
extinguishment of debt, net of
tax . . . . . . . . . . . . . . . . -- (3,976) -- 510 219
Net (loss) income . . . . . . . . . $(2,102) $(4,328) $(3,538) $(1,796) $2,070
</TABLE>
<TABLE>
<CAPTION>
January 2, January 1, December 31, December 30, December 28,
1993 1994 1994 1995 1996
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (c):
Total assets . . . . . . . . . . . $281,478 $274,988 $304,147 $318,430 $301,069
Working capital . . . . . . . . . . 2,437 6,012 2,746 7,344 12,342
Total debt incl captial leases . . 155,251 184,421 197,339 223,543 215,308
Total Stockholders' equity . . . . 33,157 8,588 (d) 5,050 2,035 4,105
</TABLE>
- ----------
(footnotes on next page)
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(a) Previously, the Company classified as other income reclamation service
fees, label income and other customer related services. Commencing in
the year ended December 28, 1996, the Company is classifying these
items as other revenue. Prior year amounts have been reclassified
accordingly. The change in classification has no effect on previously
reported net income.
(b) Gross profit excludes warehouse expense shown separately.
(c) The balance sheet data includes the balance sheet data of the
discontinued operations.
(d) On December 31, 1993 White Rose distributed all of the outstanding
shares of the Las Plumas Lumber Corporation ("Las Plumas") as a return
of capital to its principal stockholder, Rose Partners, L.P. The
Company remains liable for various liabilities of Las Plumas including
liabilities relating to environmental and workers' compensation
matters incurred prior to the date of divestiture. The net book value
of this distribution was approximately $21.7 million, based on the
book value of net assets transferred including goodwill.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
White Rose is a company which was formed in May 1992 to serve as a holding
company for all of the stock of Di Giorgio. DIG Holding contributed 100% of
the outstanding voting stock of Di Giorgio to White Rose in exchange for shares
of common stock of White Rose. In addition, White Rose purchased 100% of the
non-voting common stock of Di Giorgio from DIG Holding in exchange for a note
which was repaid in connection with the White Rose $63.5 million face value
senior discount note offering. Since these transactions were among companies
under common control, the acquisition of Di Giorgio by White Rose has been
accounted for as if it were a pooling of interest and the financial statements
reflect 100% ownership of Di Giorgio's operations for all periods. White Rose
and subsidiaries had no operations other than Di Giorgio's for all periods.
On December 27, 1996, White Rose and its parent, DIG Holding, effected a merger
with White Rose continuing as the surviving corporation. As the stockholders
of the Company are identical to the stockholders of DIG Holding, 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
represented herein reflect the assets and liabilities and related results of
operations of the combined entity for all periods.
Fifty-two weeks ended December 28, 1996 and December 30, 1995
Net sales for the fifty-two weeks ended December 28, 1996 increased 2.6% to
$1,045 million as compared to $1,018 million in the fifty-two weeks ended
December 30, 1995. The increased sales primarily reflects higher same customer
sales, a temporary supplemental third party supply agreement, and higher
selling prices stemming from increased cost of product sold.
Other revenue, consisting of reclamation service fees, storage income, label
income, and other customer related services, increased 4.6% to $5.0 million in
the fifty-two weeks ended December 28, 1996 as compared to $4.8 million in the
prior period.
Gross margin (excluding warehouse expense) increased to 11.0% of net sales or
$114.5 million in the fifty-two weeks ended December 28, 1996 from 10.6% of net
sales or $107.5 million in the prior period as a result of a more favorable mix
of product sold. Although the Company has taken steps and will continue to take
steps to maintain and improve its margins, there can be no assurance the
decrease in promotinal activities, that management belives is any industry wide
trend, will not continue.
Warehouse expense remained relatively constant at 3.86% of net sales or $40.3
million in the fifty-two weeks ended December 28, 1996 as compared to 3.85% of
net sales or $39.2 million in the prior period, as cost improvements in the
grocery and frozen divisions were offset by higher temporary costs in the dairy
division as it related to a change in its receiving and warehousing systems.
Transportation expense decreased to 2.1% of net sales or $21.6 million in the
fifty-two weeks ended December 28, 1996 from 2.2% of net sales or $22.8 million
in the prior period as a result of better
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utilization of the Company's transportation fleet. This was accomplished by
reducing the number of deliveries through the use of larger trailers acquired in
a long-term lease and more structured delivery schedules. These savings were
partly offset by higher wages.
Selling, general and administrative expense remained relatively flat at 2.2% of
net sales or $23.4 million during the fifty-two weeks ended December 28, 1996
as compared to 2.2% of net sales or $22.4 million in the prior year as a
reduction in the provision for doubtful accounts was offset by less non-cash
pension asset income.
Other income, net of other expenses, remained constant at $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 perhaps 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.
Fifty-two weeks ended December 30, 1995 and December 31, 1994
Net sales for the fifty-two weeks ended December 30, 1995 increased $85.8
million or 9.2% to $1,018.2 million from $932.4 million during the fifty-two
weeks ended December 31, 1994. The increased sales were the result of the
Royal Acquisition which acquisition was phased in during the period April 1994
through June 1994.
Other revenue, consisting of reclamation service fees, storage income, label
income, and other customer related services, increased 8.1% to $4.8 million in
the fifty-two weeks ended December 30, 1995 as compared to $4.5 million in the
prior period.
Gross margin (excluding warehouse expense) decreased to 10.6% of net sales or
$107.5 million in the fifty-two weeks ended December 30, 1995 from 10.9% of net
sales or $101.3 million in the prior period, reflecting, in part, a shift in
both customer and product mix in the Company's dairy division as a result of
the Royal Acquisition. The grocery division experienced a decrease in gross
margin as compared to the prior year's comparable period resulting from, among
other things, fewer promotional opportunities extended by manufacturers.
Management believes that this decrease in promotional activities is an
industry-wide trend and may continue, although it appears that the negative
pressure on the Company's gross margins peaked in
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<PAGE> 14
the first quarter of 1995 and gross margin showed an improvement in each of
the last three calendar quarters. The Company has taken steps and expects to
continue to take steps to maintain and improve its margins, however, there can
be no assurances that these steps will continue to be successful.
Warehouse expense decreased to 3.8% of net sales or $39.2 million in the
fifty-two weeks ended December 30, 1995 from 4.0% of net sales or $37.5 million
in the prior period as a result of higher dairy division sales (stemming from
the Royal Acquisition) in relation to lower fixed dairy division warehouse
costs due to the consolidation of the two dairy warehouses into one which took
place in July and August of 1994. This improvement was partially offset by a
temporary first fiscal quarter increase in grocery division warehouse expense
as a percentage of sales due to the transition between the Company's old
grocery division distribution facility in Elizabeth, NJ and a new facility in
Carteret, NJ. In subsequent quarters the Company achieved better productivity
in its new grocery facility as a result of the more efficient layout compared
to its old Elizabeth, NJ facility.
Transportation expense decreased to 2.2% of net sales or $22.8 million in the
fifty-two weeks ended December 30, 1995 from 2.3% of net sales or $21.4 million
in the prior period primarily as a result of the Company's upgrading its
trailer fleet to increase the capacity per load as well as increased backhaul
revenue offset by higher fixed costs as a result of the Royal Acquisition and
slightly higher, but anticipated, variable costs, such as tolls, as a result of
the Grocery division move to Carteret, NJ in February 1995.
Selling, general and administrative expense remained flat at 2.2% of net sales
or $22.4 million during the fifty-two weeks ended December 30, 1995 as compared
to 2.2% of net sales or $20.3 million in the prior period.
Other income, net of other expenses, increased $903,000 to $3.8 million in the
fifty-two weeks ended December 30, 1995 from $2.9 million in the prior period
primarily reflecting the settlement of a claim in the first fiscal quarter of
1995, increased recurring other income items relating to increased sales as a
result of the Royal Acquisition and other non-core business activities of the
Company.
Interest expense increased to $24.9 million in the fifty-two weeks ended
December 30, 1995 from $20.4 million in the prior period. The Company's
financing of the Royal Acquisition, the interest portion of the Carteret
facility capital lease, increased borrowings based on the relative levels of
receivables, inventory, and accounts payable, higher interest rates, and
additional accretion of the senior discount notes were the principal reasons
for the increase.
The Company had net loss of $1.8 millon for the fifty-two weeks ended December
30, 1995 which included an extraordinary gain, net of tax, on the
extinguishment of debt in the amount of $510,000 as compared to a net loss of
$3.5 million in the prior period which included a one time facility integration
expense of $4.0 million in the prior period.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and amounts available under the Company's bank credit
facility are the Company's principal sources of liquidity. Although the
Company's bank credit facility expires on June 30, 1997, the Company believes
it will either extend the facility or replace on either substantially the same
terms or better terms due to the Company's improved financial condition. The
interest rate on the Company's bank credit facility has already been lowered by
0.25% to prime plus 0.75% or Eurodollar plus 2.25% during fiscal year 1996
because of the Company's ability to meet certain financial tests. Borrowings
under the Company's revolving bank credit facility were $26.7 million at
December 28, 1996 at an average interest rate as of that date of 8.09%.
Additional borrowing capacity of $35.0 million was available at that time under
the Company's borrowing base formula. The Company believes that these sources
will be adequate to meet its anticipated debt service requirements, working
capital needs, and capital expenditures during fiscal 1997.
During the fifty-two weeks ended December 28, 1996, cash flow provided by
operating activities was $16.1 million consisting primarily of cash generated
from net income, the adding back of non-cash expenses and declines of $7.5
million in net receivable levels and $2.8 million in inventory levels, offset
by a $8.9 million decrease in accounts payable.
Cash flow used in investing activities during the fifty-two weeks ended
December 28, 1996 was approximately $1.0 million, all of which was used for
capital expenditures. Net cash used in financing activities was approximately
$13.8 million, primarily used to retire long-term debt and reduce the Company's
bank credit facility.
Earnings before interest, taxes, depreciation and amortization, excluding
extraordinary items and non-cash interest income ("EBITDA"), was $36.9 million
during the fifty-two weeks ended December 28, 1996 as compared to $30.4 million
in the comparable prior year period.
The consolidated indebtedness of the Company decreased $8.2 million to $215.3
million on December 28, 1996 compared to $223.5 million at December 30, 1995.
The decrease consisted of a $4.8 million reduction in the Company's 12% senior
notes, a $5.6 million reduction in the working capital facility, a $2.2 million
reduction in capital leases, and $1.5 million in note payments offset by a $5.9
million accretion of the senior discount notes. Stockholders' equity increased
$2.1 million to $4.1 million on December 28, 1996 from $2.0 million on December
30, 1995.
The Company spent approximately $1.0 million on capital expenditures during the
fifty-two weeks ended December 28, 1996 and does not expect to spend more than
$2.5 million during 1997.
The Company expended approximately $349,000 in fiscal 1996 and does not expect
to expend more than $1.0 million in fiscal 1997 in connection with the
environmental remediation of certain presently owned or divested properties.
The Company intends to finance such remediation through internally generated
cash flow or borrowings. Management believes that should the Company become
liable as a result of any material adverse determination of any legal or
governmental proceeding beyond the expected expenditures, it could have an
adverse effect on the Company's liquidity position.
Under the terms of the Company's revolving bank credit facility, the Company is
required to meet certain financial tests, including minimum interest coverage
ratios and minimum net worth. As of December 28, 1996, the Company was in
compliance with its covenants.
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<PAGE> 16
The indenture governing the Company's 12% senior notes, 12.75% senior discount
notes, as well as the Company's bank agreement, impose various restrictions
upon the Company, including, among other things, limitations on the occurrence
of additional debt and the making of certain payments and investments.
From time to time when the Company considers market conditions attractive, the
Company has purchased and may continue to purchase and retire a portion of the
Company's outstanding 12% senior notes. In addition, the Company continuously
reviews its capital structure, including its funded debt and capital leases to
determine if it can better finance its operations.
In the fourth quarter of 1996, a customer of the Company terminated its supply
agreement that was scheduled to expire in October 1997. Sales to this customer
totaled $62.7 million in the fifty-two weeks ended December 28, 1996 and $65.5
million in the comparable prior period. Notwithstanding the termination of the
agreement, the Company supplies products not covered by such agreement to this
customer, although it anticipates such shipments will cease during the second
quarter of 1997. Accordingly, revenues received from this customer will be
substantially lower in 1997 than in prior years.
In December 1996, the Company entered the produce distribution business for a
specific customer at its Woodbridge facility. The Company is in the process of
investigating whether to expand its former dairy facility in Kearny, New Jersey
to offer produce products to all its customers. In addition, in December 1996,
the Company entered into a temporary supplemental supply arrangement with a
customer from another geographic region which lasted approximately six weeks.
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<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FINANCIAL STATEMENTS
Consolidated Financial Statements of White Rose Foods, Inc. and Subsidiaries
Index to Consolidated Financial Statements . . . . . . . . . . . . . . F-1
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996 F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 28, 1996 . . . . . . . . . . F-4
Consolidated Statements of Stockholders'
Equity for each of the three years in the period
ended December 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 28, 1996 . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
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<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
The following table sets forth certain information regarding the directors and
executive officers of Di Giorgio:
<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
Arthur M. Goldberg 55 Chairman of Board of Directors, President and
Chief Executive Officer
Richard B. Neff 48 Executive Vice President, Chief Financial
Officer and Director
Stephen R. Bokser 54 Executive Vice President, President of
White Rose Food Division of Di Giorgio
and Director
Jerold E. Glassman 61 Director
Emil W. Solimine 52 Director
Charles C. Carella 63 Director
Jane Scaccetti Fumo 42 Director
Joseph R. DeSimone 57 Senior Vice President Distribution
Robert A. Zorn 42 Senior Vice President and Treasurer
Lawrence S. Grossman 35 Vice President and Corporate Controller
</TABLE>
Directors are elected for one year terms and hold office until their successors
are elected and qualified. The executive officers are appointed by and serve
at the discretion of the Board of Directors.
MR. GOLDBERG has been Chairman of the Board, President and Chief Executive
Officer of Di Giorgio since 1990 and Chairman of the Board, President and Chief
Executive Officer of White Rose Foods, Inc. since its incorporation in 1992.
Mr. Goldberg is also Executive Vice President and President--Gaming Operations,
Hilton Hotels Corporation, since December 1996. Prior thereto, he was
President, Chairman and Chief Executive Officer, Bally Entertainment
Corporation from October 1990 to December 1996. Mr. Goldberg is President,
Treasurer, Secretary and the sole director of HLT Corp. He is also Managing
Partner, Arveron Investments, LP, since 1986. Mr. Goldberg is also a
17
<PAGE> 19
director of Bally Total Fitness Holding Corporation, Bally's Grand, Inc., First
Union Corporation and Continue-Care Corp.
MR. NEFF has been Executive Vice President, Chief Financial Officer and
Director of Di Giorgio since 1990 and Executive Vice President, Chief
Financial Officer and Director of White Rose Foods, Inc. since its
incorporation in 1992. He is also a Director and Chairman of the Audit
Committee of Ryan Beck & Co., an investment banking concern.
MR. GLASSMAN has been a Director of Di Giorgio since 1990 and a Director of
White Rose Foods, Inc. since 1992. Since prior to 1990, Mr. Glassman has
been a Partner of Grotta, Glassman & Hoffman, a law firm which has offices in
Roseland, New Jersey.
MR. BOKSER has been Executive Vice President of Di Giorgio since January 1994
and a Director of Di Giorgio since 1992. In addition, Mr. Bokser has served as
Executive Vice President and Director of White Rose Foods, Inc. since 1992 and
President of the White Rose Food Division of Di Giorgio since prior to 1991 and
a White Rose employee since 1969.
MR. SOLIMINE has been a Director of Di Giorgio since 1990 and a Director of
White Rose Foods, Inc. since 1992. He also is the Chief Executive Officer of
the Emar Group, Inc., an insurance concern, since prior to 1991. Mr. Solimine
has served as a director of Strober Organization, Inc., a building material
distributor, since prior to 1991.
MR. CARELLA became a Director of Di Giorgio and White Rose Foods, Inc. in 1995.
Since prior to 1991, Mr. Carella has been a Partner of Carella, Byrne, Bain,
Gilfillan, Cecchi, Stewart & Olstein, a law firm which has offices in Roseland,
New Jersey. Since 1991, he has served as Chairman for the Board of Trustees of
the University of Medicine and Dentistry of New Jersey and since 1983 has
served on the Board of Administrations of Archdiocese of Newark. Mr. Carella
is also on the Board of Directors of Bally Gaming International, Inc.
MS. FUMO has been a shareholder for the past six years of Drucker & Scaccetti,
P.C., a firm specializing in accounting and business advisory services. She is
also a Director for Nutrition Management Services Company and Pennsylvania
Savings Bank.
MR. DESIMONE has been Senior Vice President of Warehousing and Distribution
since January 1995. Since 1990 he was Vice President of Warehousing and
Distribution.
MR. ZORN has been Senior Vice President and Treasurer of Di Giorgio since 1992
and Vice President of White Rose Foods, Inc. since 1992. He served as a Vice
President of Bankers Trust Company, New York, New York since prior to 1991.
MR. GROSSMAN has been employed by Di Giorgio since 1990. He has served as Vice
President of Di Giorgio since January 1994 and Corporate Controller since
February 1992. In addition, Mr. Grossman has served as Corporate Controller of
White Rose Foods, Inc. since May 1992 and Vice President since January 1994.
Mr. Grossman is a certified public accountant.
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<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION
The following table sets forth compensation paid or accrued to the Chief
Executive Officer and each of the four most highly compensated executive
officers of Di Giorgio whose cash compensation, including bonuses and deferred
compensation, exceeded $100,000 for the three fiscal years ended December 28,
1996.
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- ---------- --------- ------------ ------------
(1)
<S> <C> <C> <C> <C> <C>
Arthur M. Goldberg, 1996 $400,000 -- -- --
Chairman of the Board, President and 1995 $400,000 -- -- --
Chief Executive Officer 1994 $400,000 -- -- --
Richard B. Neff, 1996 $260,900 $145,000 -- $2,250(2)
Executive Vice President 1995 $240,000 $130,000 -- $2,250(2)
and Chief Financial Officer 1994 $240,000 $100,000 -- $2,250(2)
Stephen R. Bokser, 1996 $288,600 $145,000 -- $2,250(2)
Executive Vice President 1995 $272,255 $130,000 -- $2,250(2)
and President of White Rose 1994 $272,255 $100,000 -- $2,250(2)
Division
Robert A. Zorn, 1996 $200,600 $20,000 -- $2,250(2)
Senior Vice President and Treasurer 1995 $191,100 $12,500 -- $2,175(2)
1994 $181,563 $10,000 -- $2,250(2)
Joseph R. DeSimone 1996 $155,300 $20,000 -- $2,250(2)
Senior Vice President 1995 $147,900 $18,000 -- $1,800(2)
Warehousing and Distribution 1994 $142,200 $12,000 -- $1,999(2)
</TABLE>
(1) Certain incidental personal benefits to executive officers of the
Company may result from expenses incurred by the Company in the
interest of attracting and retaining qualified personnel. These
incidental personal benefits made available to executive officers
during fiscal years 1994, 1995, and 1996 are not described herein
because the incremental cost to the Company of such benefits is below
the Securities and Exchange Commission disclosure threshold.
(2) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement
Savings Plan."
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<PAGE> 21
EMPLOYMENT AGREEMENTS
The Company is a party to an agreement with Mr. Neff which provided for his
employment through April 30, 1997. The agreement remains in effect pursuant to
the everygreen provisions and will remain in effect until six months notice is
given by either party to terminate. Currently, Mr. Neff is entitled to receive
an annual salary of $267,000, and annual bonuses, at the sole discretion of the
Company. Mr. Neff may also receive additional incentive compensation upon the
occurrence of (i) the termination of Mr. Neff's employment with the Company;
(ii) the sale of substantially all of the Company's or White Rose's assets or
51% or more of the Company's or White Rose's voting stock, or the merger or
consolidation of the Company or White Rose which results in a change of control
of 51% or more of voting stock; or (iii) a registered public offering of voting
common stock made by the Company or White Rose. This additional incentive
compensation is computed by taking 2.5% of the positive difference (if any)
between the Company's net fair market value and a certain specified base
amount. In the event that Mr. Neff shall be entitled to additional
compensation pursuant to (iii), such amounts shall not be paid in cash but
rather there will be a credit of a Bonus Unit (as defined therein) which is
redeemable for a period of sixty months at the option of Mr. Neff and which
will automatically be redeemed by the Company at the end of such sixty month
period. At the option of the Company, the payment of the redemption price may
be made either in cash or in shares of stock of the Company or White Rose, as
appropriate. Under the terms of the agreement, if the employment of Mr. Neff
is terminated for any reason other than for cause or disability, Mr. Neff is
entitled to receive compensation and benefits for twelve months.
The Company is a party to an agreement with Mr. Bokser which provided for
employment through February 1, 1997. The agreement has been extended for an
additional one-year period. Currently, Mr. Bokser is entitled to receive an
annual salary of $301,000 pursuant to the agreement, as well as additional
compensation (the "Additional Compensation") upon the occurrence of a
distribution of any assets to Rose Partners in respect of Rose Partners'
ownership of the Company's stock or the realization by Rose Partners of any
amount (the "Proceeds") upon the sale, transfer or encumbrance of any of Rose
Partners' ownership interests in the Company ("Recognition Event"). Additional
Compensation is computed by multiplying the number of years Mr. Bokser is
employed by the Company (which number may not exceed four) and 1% of the
Proceeds above a certain threshold amount. If Mr. Bokser's employment is
terminated for "cause" or if he voluntarily resigns, he will not be entitled to
Additional Compensation under the Agreement. In the event of Mr. Bokser's
death, disability or termination by the Company other than for cause and the
occurrence of a Recognition Event, Mr. Bokser will continue to be entitled to
receive Additional Compensation. On each anniversary of Mr. Bokser's death,
disability or termination other than for cause, the percentage of the Proceeds
that Mr. Bokser will receive upon the occurrence of a Recognition Event will be
reduced by one percentage point (but not below zero). In the event of death or
disability Mr. Bokser or his estate will be entitled to continue to receive
compensation and employee benefits for one year following such event. If Mr.
Bokser's employment is terminated by the Company other than for cause, Mr.
Bokser will be entitled to continue to participate in the Company's employee
benefit plans (or to receive substantially equivalent benefits as provided
thereunder) for the remainder of the term of the Agreement.
The Company is a party to an agreement with Mr. Zorn which provided for
employment through March 10, 1997. The agreement remains in effect pursuant to
its evergreen provisions and will remain
20
<PAGE> 22
in effect until six months notice is given by either party to terminate.
Currently, Mr. Zorn is entitled to receive an annual salary of $210,600, as
adjusted by annual cost of living adjustments, if any, and annual bonuses, at
the sole discretion of the Company. Mr. Zorn may also receive additional
incentive compensation upon the occurrence of (i) the termination of Mr. Zorn's
employment with the Company; (ii) the sale of substantially all of the
Company's or White Rose's or 51% or more of the Company's or White Rose's
voting stock, or the merger or consolidation of the Company or White Rose which
results in a change of control of 51% or more of voting stock; or (iii) a
registered public offering of voting Common Stock made by the Company or White
Rose. This additional incentive compensation is computed by taking 1% of the
positive difference (if any) between the Company's net fair market value and a
certain specified base amount. In the event that Mr. Zorn shall be entitled to
additional compensation pursuant to (iii), such amounts shall not be paid in
cash but rather there will be a credit of a Bonus Unit (as defined therein)
which is redeemable for a period of sixty months at the option of Mr. Zorn and
which will be automatically redeemed by the Company at the end of such sixty
month period. At the option of the Company, the payment of the redemption
price may be made either in cash or in shares of stock of the Company or its
parent. Under the terms of the agreement, if the employment of Mr. Zorn is
terminated for any reason other than for cause or disability, Mr. Zorn is
entitled to receive compensation and benefits for six months, provided that he
uses his best efforts to secure other executive employment.
RETIREMENT PLAN
The Company maintains the Di Giorgio Retirement Plan (the "Retirement Plan")
which is a defined benefit pension plan. Employees of the Company and its
affiliates who are not covered by a collective bargaining agreement (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Retirement Plan after completing one year of employment.
All benefits under the Retirement Plan are funded by contributions made by the
Company. In general, a participant's retirement benefit consists of the sum of
(a) with respect to employment on or after September 1, 1990, an annual amount
equal to the participant's aggregate compensation (excluding income from the
exercise of certain stock option and stock appreciation rights) while he is
eligible to participate in the Retirement Plan multiplied by 1.5% and (b) with
respect to employment prior to September 1, 1990, an annual amount equal to the
sum of (i) the benefit earned under the Retirement Plan as of December 31,
1987, the product of the participant's 1988 compensation and 1.5%, and the
product of the participant's 1988 compensation in excess of $45,000 and .5%
plus (ii) the product of the participant's aggregate compensation earned after
1988 and prior to September 1, 1990 and 1.5%. In certain circumstances, the
amount determined under (b)(i) above may be determined in an alternative
manner.
Benefits under the Retirement Plan are payable at a participant's normal
retirement date (i.e., Social Security retirement age) in the form of an
annuity although a limited lump-sum payment is available. In addition, an
actuarially reduced early retirement benefit is available after a participant
reaches age 55.
A participant earns a nonforfeitable (i.e., vested) right to a retirement
benefit after reaching age 65, becoming disabled, or completing five years of
employment. The estimated annual retirement income payable in the form of a
life annuity to the individuals named in the Cash Compensation Table commencing
at their respective normal retirement ages under the Retirement Plan is as
follows: Mr. Goldberg, $20,521; Mr. Neff, $18,441; Mr. Bokser $85,496; Mr.
Zorn, $8,070; Mr. De Simone, $11,861.
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<PAGE> 23
RETIREMENT SAVINGS PLAN
The Company maintains the Di Giorgio Retirement Savings Plan (the "Savings
Plan") which is a defined contribution plan with a cash or deferred arrangement
(as described under Section 401(k) of the Internal Revenue Code of 1986). In
general, employees of the Company and its affiliates who are not covered by a
collective bargaining agreement (unless a bargaining agreement expressly
provides for participation) are eligible to participate in the Savings Plan
after completing one year of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1% to
10% of their total compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 5% is considered to be a "basic
contribution" and the Company makes a matching contribution equal to a
designated percentage of a participant's basic contribution (which all may be
subject to certain statutory limitations). This percentage is based on the
Company's consolidated pre-tax rate of return (i.e., the quotient obtained by
dividing the Company's adjusted consolidated pre-tax earnings by its
consolidated net worth) and ranges from 30% to 50%.
Each participant has a fully vested (i.e., nonforfeitable) interest in all
contributions made by him and in the matching contributions made by the Company
on his behalf and has full investment discretion over his contributions.
A participant may withdraw certain amounts credited to his account prior to
termination of employment. Certain withdrawals require financial hardship or
attainment of age 59 1/2. In general, amounts credited to a participant's
account will be distributed upon termination of employment.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees or otherwise affiliated with the
Company receive a quarterly retainer fee of $4,000 plus fees of $1,000 per day
for attendance at Board of Directors and Committee meetings. All directors of
the Company are also reimbursed for out-of-pocket expenses associated with
attendance at Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Goldberg, and Solimine served as members of the Compensation Committee
of Di Giorgio during 1996. Mr. Goldberg is Chairman, President and Chief
Executive Officer of Di Giorgio and White Rose. Neither Messrs. Carella nor
Solimine serve as executive officers of Di Giorgio, White Rose or their
subsidiaries.
Mr. Goldberg, who is Chairman of the Board, President, and Chief Executive
Officer of White Rose, serves on the Board of Directors and, through his
indirect beneficial ownership, controls the affairs of Las Plumas. Mr. Neff,
who is a member of the Board of Directors of White Rose, serves as President of
Las Plumas.
Messrs. Goldberg, Neff and Bokser, who serve as executive officers and members
of the Board of Directors of Di Giorgio and White Rose, serve as executive
officers and members of the Board of Directors of DIG Holding.
See "Certain Transactions".
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<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT.
Mr. Goldberg, through his indirect beneficial ownership of the Company,
controls the affairs of the Company. White Rose, the majority of the common
stock of which is owned by Rose Partners, LP (98.5%), owns 100% of the
outstanding voting common stock of Di Giorgio. Mr. Goldberg controls the
affairs of Rose Partners in his capacity as sole general partner.
Mr. Goldberg, through his indirect beneficial ownership of the Company,
effectively has the ability to determine the outcome of most corporate actions
requiring stockholder approval, including the election of the Board of
Directors, adoption of certain amendments to the charter and approval of
mergers, sales of all or substantially all assets or going private
transactions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
BT Commercial Corporation ("BTCC"), an affiliate of BTNY, acts as agent and
lender under the Di Giorgio Revolving Credit Facility, entered into
concurrently with the Di Giorgio Senior Note Offering, between the Company and
a syndicate of banks. In Fiscal 1996 the Company paid fees in the amount of
$213,403 and interest in the amount of approximately $3.0 million, of which
BTCC received its portion. In addition, the Company paid an annual fee of
$100,000 to BTCC for services as agent.
On August 3, 1992, White Rose Frozen Food ("Frozen Food") and WRGFF Associates,
L.P. ("WRGFF"), a New Jersey limited partnership controlled by Mr. Goldberg,
acquired in two simultaneous transactions substantially all of the operating
properties and assets of Global from Sysco. To facilitate the Global
Acquisition,WRGFF purchased and subsequently leased certain assets of Global to
the Company. In Fiscal 1996, the Company paid approximately $1.4 million to
WRGFF in connection with the lease of such assets.
Las Plumas Divestiture
On December 31, 1993 White Rose distributed all of the outstanding shares of
the Las Plumas Lumber Corporation ("Las Plumas") as a return of capital to its
principal stockholder, Rose Partners, L.P. The Company remains liable for
various liabilities of Las Plumas including liabilities relating to
environmental and workers' compensation matters incurred prior to the date of
divestiture. The net book value of this distribution was approximately $21.7
million, based on the book value of net assets transferred including goodwill.
At the time of the dividend the Company was owed $4.5 million. As of December
28, 1996, Las Plumas owed the Company approximately $3.5 million. This
indebtedness is evidenced by a subordinated note secured by a mortgage relating
to four parcels of property of Las Plumas. This loan originally matured in
June 1994 and has been extended until June 1998 and bears interest at a
fluctuating rate determined quarterly equal to the weighted average of the
interest rate paid by the Company under its bank credit facility. The weighted
average interest rate with respect to this loan was 8.39% in fiscal 1996. The
note evidencing the Las Plumas loan is pledged as additional security under the
Di Giorgio bank credit facility. Las Plumas has advised the Company that in
the event of any sale or disposition of the stock or substantially all of the
assets of Las Plumas, or refinancing of the mortgage, the proceeds would be
applied to the repayment of this obligation.
23
<PAGE> 25
Tax Sharing
DIG Holding and the Company entered into an intercompany tax agreement,
effective January 1, 1992 (as amended), providing for the filing of
consolidated and combined federal and certain state income tax and franchise
tax returns and for the allocation of income tax liabilities related to such
returns. On December 27, 1996, White Rose and its parent, DIG Holding,
effected a merger with White Rose continuing as the surviving corporation. As
provided for in the tax agreement, White Rose assumed DIG Holding's standing in
the consolidated group. As required by the terms of the intercompany tax
agreement, each of the Company and its subsidiaries will pay to White Rose an
amount equal to the consolidated or combined federal income or state income or
franchise taxes due multiplied by a fraction, the numerator of which is each
member's separately determined taxable income and the denominator of which is
the combined or consolidated taxable income of all members of the group.
Management believes that White Rose and its subsidiaries other than the
Company may benefit from such agreement to the extent that the Company has tax
attributes that reduce the consolidated or combined tax liability of White Rose
and its subsidiaries. In addition, under certain circumstances, the Company
and its subsidiaries may not benefit from their tax attributes to the same
extent as they would have if they had filed separate returns. However, except
for the inability to fully utilize certain of the Company's separately computed
tax attributes, in no event will the Company become obligated to pay an amount
which is greater than that which it would have paid on an unconsolidated basis.
Other
The Company employs Grotta, Glassman & Hoffman, a law firm in which Jerold E.
Glassman, a director of the Company, is a partner, for legal services on an
on-going basis. The Company has paid approximately $111,000 to the firm for
Fiscal 1996.
The Company employs Emar Group, Inc. ("Emar Group"), a risk management and
insurance brokerage company controlled by Emil W. Solimine, a director of the
Company, for risk management and insurance brokerage services. The Company has
paid Emar Group approximately $150,000 for Fiscal 1996 for such services.
In Fiscal 1996, the Company recorded income of $245,000 from Bally
Entertainment Corporation, a company in which Mr. Goldberg serves as Chairman
and Chief Executive Officer, in connection with the sharing of its office
facilities and sundry other expenses.
The Company believes that the transactions set forth above are on terms no less
favorable than those which could reasonably have been obtained from
unaffiliated parties.
24
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
A. DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Independent Auditors' Report . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 30, 1995
and December 28, 1996 . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 28, 1996 . . . F-4
Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period
ended December 28, 1996 . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 28, 1996 . F-6
Notes to Consolidated Financial Statements . . . . . . . F-8
2. FINANCIAL STATEMENT SCHEDULES
Schedule I--Condensed Financial Information . . . . . . S-1
Schedule II--Valuation and Qualifying Accounts . . . . . S-3
</TABLE>
3. EXHIBITS
A. Exhibits
3.1(4) - Form of Amended and Restated
Certificate of Incorporation of the Company
3.2(4) - Restated Bylaws of the Company
4.1(5) - Indenture, dated February 2, 1993
under the company Senior Notes due 2003 are issued
4.2(5) - 12 % Senior Note due 2003 Specimen
4.3(1) - Supplement to Indenture, dated as of
December 27, 1996.
25
<PAGE> 27
10.1(5) - Credit Agreement dated as of February 10,
1993 among the company, various financial
institutions, BT Commercial Corporation, as
agent and Bankers Trust Company as Issuing
Bank
10.2(8) - Sublease Agreement between MF Corp.
(sublandlord) and PC Richard & Son Long
Island Corporation (subtenant), dated July
27, 1993, relating to facilities located in
Farmingdale, New York
10.3(2) - Employment Agreement dated May 1, 1992
between Richard B. Neff and the Company, as
amended
10.4(2) - Employment Agreement dated February 18, 1992
between the Company and Robert A. Zorn
10.5(10) - Amended and Restated Employment Agreement
dated January 1, 1994 between the Company and
Stephen R. Bokser
10.6(16) - Di Giorgio Retirement Plan as Amended and
Restated effective January 1, 1989 (dated
January 26, 1996)
10.7(14) - Di Giorgio Retirement Savings Plan as Amended
and Restated effective January 1, 1989
10.8(16) - Amendment to the Di Giorgio Retirement Savings
Plan effective January 1, 1989 (dated November
28, 1995)
10.9(2) - Lease between The Four B's (landlord) and
White Rose Dairy, a division of Di Giorgio
(tenant) dated November 21, 1988, as amended
May 11, 1989, relating to facilities located
in Kearny, New Jersey
10.10(2) - Lease between Marley Properties, Inc.
(landlord) and Met Food Corp. (tenant), dated
March 11, 1968, and amendment thereto,
relating to facilities located in Farmingdale,
New York
10.11(4) - Sub-Sublease between WRGFF (sublandlord) and
Frozen Food (subtenant), dated August 3, 1992
relating to facilities located in Garden City,
New York
10.12(7) - Consent and Amendment No. 1 dated as of June
25, 1993 to Credit Agreement dated as of
February 10, 1993
10.13(8) - Consent and Amendment No. 2 dated as of
November 3, 1993 to Credit Agreement dated as
of February 10, 1993
26
<PAGE> 28
10.14(5) - Note Pledge Agreement dated as of
February 1, 1993, by Di Giorgio
Corporation in favor of BT Commercial
Corporation, as agent
10.15(5) - License and Security Agreement dated
as of February 1, 1993, by Di
Giorgio Corporation in favor of BT
Commercial Corporation, as agent
10.16(5) - Promissory Note dated as of February
2, 1993 made by Las Plumas Lumber
Corporation in favor of Di Giorgio
10.18(2) - Settlement Agreement dated July 30,
1992, by and between White Rose
Foods, Inc. and the Furniture,
Flour, Grocery, Teamsters and
Chauffeurs Union, Local No. 138
10.19(5) - Tax Sharing Agreement effective
January 1, 1992 among DIG Holding,
Di Giorgio and certain other parties
10.20(9) - Amendment to Tax Sharing Agreement
effective January 1, 1993 among DIG
Holding, Di Giorgio and certain
other parties
10.30(10) - Lease between AMAX Realty
Development, Inc. and V. Paulius and
Associates and the Company dated
February 11, 1994 relating to
warehouse facility at Carteret, New
Jersey
10.31(10) - Consent and Amendment No. 3 dated
March 30, 1994 to Credit Agreement
dated as of February 10, 1993
10.32(11) - Consent and Amendment No. 4 dated
April 22, 1994 to Credit Agreement
dated as of February 10, 1993.
10.33(12) - Asset Purchase Agreement made as of
the 1st day of April 1994 by and
among Di Giorgio Corporation,
Fleming Foods East Inc. and Fleming
Companies, Inc., and First Amendment
dated April 7, 1994 and Second
Amendment dated April 20, 1994.
10.34(13) - Third Amendment dated as of June 20,
1994 to Asset Purchase Agreement of
April 1, 1994 between Di Giorgio
Corporation, Fleming Foods East,
Inc. and Fleming Companies, Inc.
10.35(14) - Amendment No. 5 dated November 15,
1994 to Credit Agreement dated as of
February 10, 1993.
10.36(14) - Waiver and Amendment No. 6 dated as
of March 3, 1995 to Credit Agreement
dated as of February 10, 1993.
27
<PAGE> 29
10.37(14) - Sublease Agreement dated June 20,
1994 between Fleming Foods East Inc.
(landlord) and Di Giorgio
Corporation (tenant) relating to
facilities located in Woodbridge,
New Jersey.
10.38(15) - Amendment No. 7 dated September 30,
1995 to Credit Agreement dated as of
February 10, 1993.
10.39(17) - Amendment No. 8, dated as of
September 26, 1996 to Credit
Agreement dated as of February 10,
1993.
10.40(1) - Certificate of Ownership and Merger
of DIG Holding Corp. into White Rose
Foods, Inc. dated as of December 27,
1996 (filed by State of Delaware
January 15, 1997).
21(2) - List of Subsidiaries of the Company
27(1) - Financial Data Schedule
- ----------
(1) Filed herewith
(2) Incorporated by reference to S-1 Registration Statement of Di Giorgio
(File No. 33-53886) filed with the Commission on October 28, 1992
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to S-1
Registration Statement of the company (File No. 33-53886) filed with the
Commission on December 18, 1992
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to Registration
Statement on form S-1 of Di Giorgio (File No. 33-53886) filed with the
Commission on January 11, 1993
(5) Incorporated by reference to Amendment No. 3 to S-1 Registration Statement
of Di Giorgio (File No. 33-53886) filed with the Commission on February 1,
1993
(6) Intentionally omitted
(7) Incorporated by reference to the company's Quarterly Report on Form 10-Q
(File No. 1-1790) filed with the Commission on August 16, 1993
(8) Incorporated by reference to the company's Quarterly Report on Form 10-Q
(File No. 1-1790) filed with the Commission on November 12, 1993
(9) Incorporated by reference to S-4 Registration Statement of White Rose
(File No. 33-72284) filed with the Commission on November 24, 1993.
(10) Incorporated by reference to the company's Annual Report on Form 10-K for
year ended January 1,1994 (File 1-1790)
28
<PAGE> 30
(11) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended April 2, 1994 (File 1-1790)
(12) Incorporated by reference to the company's Current Report on Form 8-K
dated April 25, 1994 (File 1-1790)
(13) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended July 2, 1994 (File 1-1790)
(14) Incorported by reference to the company's Annual Report on Form 10-K for
year ended December 31, 1994 (File 1-1790)
(15) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended September 30, 1995 (File 1-1790)
(16) Incorporated by reference to the company's Annual Report on Form 10-K for
the year ended December 30, 1995 (File 1-1790)
(17) Incorporated by reference to the company's Quarterly Report on Form 10-Q
for quarter ended September 28, 1996.
B. REPORTS ON FORM 8-K
The Company did not file a Current Report on Form 8-K during the last
quarter of the period covered by this Report.
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 1997.
WHITE ROSE FOODS, INC.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur M. Goldberg Chairman, President and Chief March 25, 1997
- ------------------------------------ Executive Officer (Principal
Arthur M. Goldberg Executive Officer)
/s/ Jerold E. Glassman Director March 25, 1997
- ------------------------------------
Jerold E. Glassman
/s/ Emil W. Solimine Director March 25, 1997
- -------------------------------------
Emil W. Solimine
/s/ Charles C. Carella Director March 25, 1997
- -------------------------------------
Charles C. Carella
/s/ Jane Scaccetti Fumo Director March 25, 1997
- -------------------------------------
Jane Scaccetti Fumo
/s/ Richard B. Neff Executive Vice President and Chief March 25, 1997
- ------------------------------------- Financial Officer (Principal
Richard B. Neff Financial and Accounting Officer);
Director
/s/ Stephen R. Bokser Executive Vice President and March 25, 1997
- ------------------------------------- Director
Stephen R. Bokser
</TABLE>
<PAGE> 32
WHITE ROSE FOODS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996 F-3
Consolidated Statements of Operations for Each of the Three Years in the Period
Ended December 28, 1996 F-4
Consolidated Statements of Changes in Stockholder's Equity for Each of the
Three Years in the Period Ended December 28, 1996 F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the Period
Ended December 28, 1996 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
White Rose Foods, Inc.
Carteret, New Jersey
We have audited the consolidated balance sheets of White Rose Foods, Inc. and
subsidiaries (the "Company") as of December 30, 1995 and December 28, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1996. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 30, 1995
and December 28, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 21, 1997
F-2
<PAGE> 34
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS DECEMBER 30, 1995 AND DECEMBER 28, 1996 (In
Thousands, Except Share Data)
- ----------------------------------------------------------------------------------------------------
December 30, December 28,
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 447 $ 1,749
Accounts and notes receivable - Net 70,864 61,550
Inventories 52,331 49,563
Prepaid expenses 3,497 3,706
------------ -----------
Total current assets 127,139 116,568
PROPERTY, PLANT AND EQUIPMENT - Net 60,058 56,270
LONG-TERM NOTES RECEIVABLE 14,631 19,276
DEFERRED FINANCING COSTS 5,309 4,172
OTHER ASSETS 12,680 12,216
EXCESS OF COST OVER NET ASSETS ACQUIRED 98,613 92,567
------------ -----------
TOTAL $ 318,430 $ 301,069
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 32,303 $ 26,719
Current portion of long-term debt 1,540 1,299
Accounts payable - trade 58,414 49,468
Accrued expenses 25,307 24,362
Current installment - capital lease liability 2,231 2,378
------------ -----------
Total current liabilities 119,795 104,226
LONG-TERM DEBT 153,567 153,389
CAPITAL LEASE LIABILITY 33,902 31,523
OTHER LONG-TERM LIABILITIES 9,131 7,826
STOCKHOLDERS' EQUITY:
Common stock, Class A, $.01 par value - authorized,
1,000 shares; issued and outstanding, 100.612 shares - -
Additional paid-in capital 17,225 17,225
Accumulated deficit (15,190) (13,120)
------------ -----------
Total stockholders' equity 2,035 4,105
------------ -----------
TOTAL $ 318,430 $ 301,069
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 35
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(In Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
<S> <C> <C> <C>
REVENUE:
Net sales $ 932,386 $ 1,018,218 $ 1,045,161
Other revenue 4,461 4,823 5,045
----------- ----------- -----------
Total revenue 936,847 1,023,041 1,050,206
COST OF PRODUCTS SOLD 835,526 915,536 935,719
----------- ----------- -----------
Gross profit - exclusive of warehouse
expense shown separately below 101,321 107,505 114,487
OPERATING EXPENSES:
Warehouse expense 37,503 39,196 40,343
Transportation expense 21,354 22,759 21,624
Selling, general and administrative expenses 20,277 22,357 23,389
Facility integration expense 3,986 -- --
Amortization - excess of cost over net assets
acquired 2,766 2,892 2,892
----------- ----------- -----------
OPERATING INCOME 15,435 20,301 26,239
INTEREST EXPENSE 20,370 24,887 23,955
AMORTIZATION - Deferred financing costs 1,479 1,457 1,138
OTHER INCOME - Net (2,939) (3,842) (3,758)
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (3,475) (2,201) 4,904
INCOME TAXES 63 105 3,053
----------- ----------- -----------
(LOSS) INCOME BEFORE EXTRAORDINARY
ITEM (3,538) (2,306) 1,851
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - net of tax -- 510 219
----------- ----------- -----------
NET (LOSS) INCOME $ (3,538) $ (1,796) $ 2,070
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 36
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(In Thousands, Except Share Data)
- -----------------------------------------------------------------------------------------------------
CLASS A ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 100.612 $ -- $ 18,444 $ (9,856) $ 8,588
Net loss -- -- -- (3,538) (3,538)
------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1994 100.612 -- 18,444 (13,394) 5,050
Net loss -- -- -- (1,796) (1,796)
Dividend to shareholders -- -- (1,219) -- (1,219)
------- ------- -------- -------- --------
BALANCE, DECEMBER 30, 1995 100.612 -- 17,225 (15,190) 2,035
Net income -- -- -- 2,070 2,070
------- ------- -------- -------- --------
BALANCE, DECEMBER 28, 1996 100.612 $ -- $ 17,225 $(13,120) $ 4,105
======= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 37
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(In Thousands)
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($ 3,538) ($ 1,796) $ 2,070
Adjustments to reconcile net (loss) income to -
net cash provided by operations: -
Extraordinary gain on extinguishment -
of debt - net of tax - (510) (219)
Depreciation and amortization 2,812 3,949 4,488
Amortization of deferred financing costs 1,479 1,457 1,138
Amortization of excess of cost over net -
assets acquired 2,766 2,892 2,892
Other amortization 477 527 527
Provision for doubtful accounts 2,100 2,100 1,850
Increase in prepaid pension cost (960) (720) (461)
Non-cash interest expense 5,376 5,775 5,890
Non-cash interest income (788) (846) (981)
Loss on sale of property 459 - -
Income tax benefit offset against excess of cost
over net assets acquired - - 3,008
Changes in assets and liabilities: -
(Increase) decrease in: -
Accounts and notes receivable (11,364) 1,609 7,464
Inventories (9,071) 1,272 2,768
Prepaid expenses (150) (327) (169)
Other assets 161 595 661
Long-term receivables (520) 1,560 (3,666)
Increase (decrease) in: -
Accounts payable 21,827 (6,304) (8,946)
Accrued expenses and other liabilities (1,846) (2,426) (2,250)
------ ------ ------
Net cash provided by operating activities 9,220 8,807 16,064
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,390) (1,920) (1,004)
Proceeds from sale of property 730 - -
Cash paid to acquire business (9,700) - -
Proceeds from contingent reimbursement 489 1,063 -
------ ------ ------
Net cash used in investing activities (9,871) (857) (1,004)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/repayments from revolving
credit facility - net 291 (6,529) (5,584)
Refinancing - 6,600 -
Payments of transaction fees and expenses (479) (600) -
Repayments of capital lease obligations (1,618) (3,990) (2,232)
Repayments of debt (1,083) (3,529) (5,942)
Dividend to shareholders - (1,219) -
Proceeds from equipment sale 3,500 - -
------ ------ ------
Net cash provided by (used in)
financing activities 611 (9,267) (13,758)
------ ------ ------
</TABLE>
See notes to consolidated financial statements.
(Continued)
F-6
<PAGE> 38
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
(In Thousands)
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ($ 40) ($ 1,317) $ 1,302
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,804 1,764 447
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,764 $ 447 $ 1,749
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Business acquired:
Fair value of assets acquired $ 9,298 $ - $ -
Liabilities assumed or created (3,596) - -
Net cash paid for business acquired (9,211) - -
Present value of note payable issued (7,021) - -
-------- -------- --------
EXCESS OF COST OVER NET ASSETS
ACQUIRED $ 10,530 $ - $ -
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Acquisition of warehouse facility
and machinery in exchange for
capital lease $ - $ 28,391 $ -
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 15,807 $ 19,635 $ 18,569
======== ======== ========
Income taxes $ 37 $ 125 $ 73
======== ======== ========
See notes to consolidated financial statements.
F-7
<PAGE> 39
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - On February 9, 1990, DIG Acquisition Corp., a wholly-owned
subsidiary of DIG Holding Corp. ("DIG Holding"), acquired 95% of the
outstanding stock of Di Giorgio Corporation ("Di Giorgio") pursuant to a
cash tender offer at $30 per share for the Class A common stock. The
remaining 5% of Di Giorgio common stock was obtained via a merger of DIG
Acquisition Corp. and Di Giorgio.
The acquisition was accounted for as a purchase and the cost of Di
Giorgio's stock, together with the related acquisition fees and expenses
was allocated to the assets acquired and liabilities assumed based on fair
values. As of December 30, 1995 and December 28, 1996, accumulated
amortization of excess costs over net assets acquired was approximately
$16,003,000 and $18,895,000, respectively.
On June 19, 1992, DIG Holding contributed all of the outstanding capital
stock of Di Giorgio to a newly formed Delaware corporation, White Rose
Foods, Inc. (the "Company"), in exchange for 91.8 shares of White Rose
Foods, Inc.'s common stock. As the stockholders of White Rose Foods, Inc.
were identical to the stockholders of DIG Holding, the exchange of shares
was a transaction among entities under common control and has been
reflected in an accounting manner similar to a pooling of interest.
In February 1993, Di Giorgio issued 100 shares of Class B common stock to
DIG Holding in exchange for a capital contribution of $25 million. In
September 1993, the Company purchased the 100 shares of Class B common
stock from DIG Holding so that, as of September 1993, the Company owned
100% of Di Giorgio. Since this transaction was between companies under
common control, the acquisition of the minority interest has been
accounted for as if it were a pooling of interest. The purchase price
exceeded DIG Holding's historical basis by $2.5 million.
On December 27, 1996, the Company and its parent, DIG Holding, effected a
merger with the Company continuing as the surviving corporation. As the
stockholders of the Company are identical to the stockholders of DIG
Holding, 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 of the combined entity for
all periods.
DESCRIPTION OF BUSINESS - The Company is a wholesale food distributor
serving both independent retailers and supermarket chains principally in
the New York City metropolitan area including Long Island, northern New
Jersey and to a lesser extent, the Philadelphia area. The Company
distributes three primary supermarket product categories: grocery, frozen
and dairy.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
F-8
<PAGE> 40
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 interest method.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS - Cash equivalents are investments with original
maturities of three months or less from the date of purchase.
FISCAL YEAR - The Company's fiscal year-end is the Saturday closest to
December 31. The financial statements for each of the three years in the
period ended December 28, 1996 comprised 52 weeks.
RECLASSIFICATIONS - Previously, the Company classified as other income
reclamation service fees, label income and other customer related
services. Commencing in the year ended December 28, 1996, the Company is
classifying these items as other revenue. Prior year amounts have been
reclassified accordingly. The change in classification has no effect on
previously reported net income.
Certain other reclassifications were made to prior years' financial
statements to conform to the current year presentation.
F-9
<PAGE> 41
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable $ 60,231 $ 52,688
Notes receivable 7,737 7,192
Other receivables 6,837 5,981
Less allowance for doubtful accounts (3,941) (4,311)
--------- ---------
$ 70,864 $ 61,550
========= =========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 30, DECEMBER 28,
IN YEARS 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Land - $ 900 $ 900
Buildings and improvements 10 6,366 6,275
Machinery and equipment 3-10 9,662 10,495
Less accumulated depreciation (6,194) (8,024)
--------- ---------
10,734 9,646
--------- ---------
Capital leases:
Building and improvements 45,705 45,705
Equipment 8,410 8,410
Less accumulated amortization (4,791) (7,491)
--------- ---------
49,324 46,624
--------- ---------
$ 60,058 $ 56,270
========= =========
</TABLE>
4. ACQUISITION
ROYAL ACQUISITION - On June 20, 1994, the Company acquired substantially
all of the operating properties, assets and business of the dairy and deli
distribution business based in Woodbridge, New Jersey known as Royal Foods
("Royal") from Fleming Foods East, Inc. and its parent corporation,
Fleming Companies Inc. The total purchase price was approximately $16.2
million, consisting of an $8 million seller-financed note (present value
of $7 million at date of issuance) and $8.2 million in cash (net of
$489,000 of contingent reimbursement received during the year December 31,
1994 and an additional $1 million received during the year ended December
30, 1995).
F-10
<PAGE> 42
The acquisition was accounted for as a purchase and the cost was allocated
to the assets acquired and liabilities assumed based on fair values. The
cost of the acquisition exceeded the total fair value of the net assets
acquired. The results of operations are included in the statement of
operations from April 25, 1994, the date of the first closing. The Company
did not purchase all assets and/or operations of the seller and did not
obtain all of the seller's customers. As such it is not possible to
present pro forma results estimating combined results of operations as if
the purchase acquisition was consummated on January 2, 1994.
The Company incurred an approximate $4.0 million charge in the period
ended December 31, 1994, which has been paid as of December 28, 1996, for
the integration of its two dairy facilities. During fiscal 1994, the
Company moved its existing dairy business from its Kearny, New Jersey
facility to its Woodbridge, New Jersey facility. As part of this
integration, the Company developed an exit plan for its Kearny facility.
The charge includes approximately $3.0 million relating to contractual
costs, including $2 million of fixed Kearny facility expenses, primarily
for the rent and real estate taxes. The charge also included approximately
$900,000 of costs paid through October 1, 1994 relating to temporary
incremental expenses that were a direct result of the plan to exit Kearny
and move to Woodbridge in an orderly and timely fashion. These charges
primarily reflect duplicate and incremental labor charges during the
physical integration that did not appreciably add to the generating of
revenue.
Although the Company continues to investigate subleasing the Kearny
facility, the facility was placed back into operations in the second
quarter of fiscal 1996. The Company currently operates a storage facility
as well as a juice depot at the location. In the first quarter of fiscal
1997, the Company has begun to investigate the alternative of expanding
the facility as it decides whether to enter the produce distribution
business.
5. FARMINGDALE WAREHOUSE FACILITY
On July 27, 1993, the Company, through its wholly-owned subsidiary, MF
Corp., entered into an agreement for the sublease of Farmingdale the
Company's old grocery facility. The initial term of the sublease is five
years. The sublessee was also granted an option, which is exercisable
under certain circumstances, to purchase the property. The Company and the
fee owner will share the economic benefits, if any, of the resulting
income stream, and any excess proceeds of financing related thereto with
80% to the Company and 20% to the fee owner.
On March 9, 1995, the Company, through MF Corp. and in conjunction with
the fee owner, completed a $6.6 million mortgage financing of Farmingdale.
The Company realized proceeds in the amount of $3.4 million after
deducting a $2.2 million capital lease liability payment and $1 million
representing associated fees, escrow deposits and a payment to the fee
owner.
Included in other income for the three years ended December 28, 1996 is
net rental income of approximately $798,000, $954,000 and $1 million,
respectively, related to the facility.
F-11
<PAGE> 43
6. FINANCING
Debt consists of the following:
<TABLE>
<CAPTION>
INTEREST RATE
AT DECEMBER 28, DECEMBER 30, DECEMBER 28,
1996 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable - Di Giorgio
revolving credit facility (b) 8.09% $ 32,303 $ 26,719
======== ========
Current portion of long-term debt:
Mortgage payable (d) 9.00% $ 627 $ 685
Fleming note payable (e) 6.37% 593 614
Other 6.75% 320 --
-------- --------
$ 1,540 $ 1,299
======== ========
Long-term debt:
Di Giorgio senior notes (a) 12.00% $ 97,655 $ 92,890
Senior discount notes (c) 12.75% 44,758 50,646
Mortgage payable (d) 9.00% 5,585 4,901
Fleming note payable (e) 6.37% 5,569 4,952
-------- --------
$153,567 $153,389
======== ========
</TABLE>
(a) Senior Notes - The Di Giorgio senior notes were issued in fully
registered form under an Indenture dated as of February 10, 1993
between the Company and The Bank of New York, as Trustee. The Di
Giorgio senior notes are general unsecured obligations of Di Giorgio
initially issued in $100,000,000 principal amount due February 15,
2003, bearing interest at the rate of 12% payable semi-annually and
redeemable by Di Giorgio in certain circumstances.
The Di Giorgio senior notes may not be redeemed prior to February 15,
1998. After February 15, 1998, the senior notes are redeemable at Di
Giorgio's option, in whole or in part, at a premium declining from
4.5% in 1998 to par in 2001 and subsequent years until maturity in
2003. If a change of control occurs, Di Giorgio shall make an offer
to repurchase all of the senior notes then outstanding on a date 60
days after the date of such change of control at a cash purchase
price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest.
During the years ended December 30, 1995 and December 28, 1996, Di
Giorgio 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.
Payments of principal and interest on the Di Giorgio senior notes are
subordinate to Di Giorgio's secured obligations, including borrowings
under the revolving credit facility, capital lease obligations (see
Note 11) and other secured indebtedness of the Company and its
subsidiaries.
The Di Giorgio Senior Note Indenture limits the ability of the
Company and its restricted subsidiaries to create, incur, assume,
issue, guarantee or become liable for any indebtedness, pay
F-12
<PAGE> 44
dividends, redeem capital stock of the Company or a restricted
subsidiary, and make certain investments. The Di Giorgio Senior Note
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) Di Giorgio 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.
Although the Company's credit facility expires on June 30, 1997,
management of the Company believes the facility will either be
extended or replaced on either substantially the same terms or better
terms.
Availability for direct borrowings and letter of credit obligations
under the revolving credit facility is limited, in the aggregate to
the lesser of i) $90 million or ii) a borrowing base of 80% of
eligible amount of receivable and 60% of eligible inventory. As of
December 28, 1996, Di Giorgio had an additional $35 million of
borrowing base availability.
The borrowings under the revolving credit facility are secured by the
Company's inventory and accounts receivable as well as certain
general intangibles and documents of title. Di Giorgio also pledged
as security the Las Plumas Lumber Corp. ("Las Plumas") note (see Note
16).
Di Giorgio's $90 million revolving credit facility, among other
matters, contains certain restrictive covenants relating to net
worth, interest coverage, current ratio and capital expenditures. The
facility also prohibits the payment of dividends. Di Giorgio was in
compliance with the covenants as of December 28, 1996.
(c) 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 Foods, Inc. The notes were issued net of an
original issue discount of $29.2 million. The yield to maturity is
12.75% per annum and the notes do not pay any periodic cash interest.
As of December 28, 1996, the notes were recorded at $50,646,000 which
included $16,336,000 of accreted interest.
The notes are not redeemable by the Company, except upon the
occurrence of an equity offering or a change of control (as defined
in the Indenture) in each case at the redemption price of 108% of
accreted value. The notes are subordinate to all liabilities of the
Company's subsidiaries.
The Indenture contains covenants that, among other things, limit the
ability of the Company, in certain cases (unless otherwise permitted
by the Di Giorgio Senior Note Indenture (Note 6(a)) to issue
additional debt; and to pay dividends.
White Rose Foods, Inc. conducts all of its operations through Di
Giorgio and its subsidiaries and White Rose Foods, Inc.'s ability to
service the notes will be dependent on cash flows from Di Giorgio or
new financing transactions. Excluding payments allowed under the tax
sharing
F-13
<PAGE> 45
agreement and certain incidentals, Di Giorgio's ability to pay
dividends or make advances to its parent, White Rose Foods, Inc., is
restricted.
In January 1994, White Rose Foods, Inc. exchanged the Series A Senior
discount notes with $1,000 principal amount of its Series B Senior
discount notes which were registered under the Securities Act of
1933. The form and terms of the Series B Senior discount notes are
the same as the form and terms of the Series A Senior discount notes.
(d) Mortgage Payable - The terms of the eight-year, nonrecourse mortgage
payable of Di Giorgio's wholly-owned subsidiary, MF Corp., are
payments of $96,691 a month, including interest at 9% through 2004.
Beginning in fiscal 1998, the interest rate adjusts to Moody's A
Corporate Bond Index Daily Rate minus one-eighth of 1%. The mortgage
includes customary prepayment penalties.
(e) Fleming Note Payable - The terms of the note require quarterly
principal payments of $200,000 plus interest at a rate equal to the
prime rate (as stated in the Wall Street Journal) minus 2%, divided
by two. Currently, cash interest is 3.25% and is to be reset every
eighteen months. The note matures on June 20, 1999. The note has been
discounted at a rate of 6.37% for financial statement purposes. As of
December 28, 1996, the remaining principal amount on the note is $6
million. The note is secured by a $1.5 million letter of credit.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996
CARRYING FAIR CARRYING FAIR
VALUE AMOUNT VALUE AMOUNT
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt (Note 6):
Di Giorgio revolving credit facility $ 32,303 $ 32,303 $ 26,719 $ 26,719
Di Giorgio 12% senior notes 97,655 80,077 92,890 99,968
Senior 12.75% discount notes 44,758 34,925 50,646 50,406
Other notes payable 12,694 12,694 11,152 11,152
Accounts and notes receivable -
current (Note 2) 70,864 70,864 61,550 61,550
Notes receivable - long-term 14,631 14,631 19,276 19,276
</TABLE>
The fair value of the Di Giorgio 12% senior notes as of December 30, 1995 and
December 28, 1996 are based on yields of 16.44% (as of February 29, 1996) and
10.28% (as of December 30, 1996), respectively. The fair value of the 12.75%
senior discount notes as of December 30, 1995 and December 28, 1996 are based on
the trade prices representing a yield of 23.8% (as of February 29, 1996) and
13.0% (as of December 30, 1996), respectively. Based on the borrowing rate
currently available to the Company, the revolving credit facility is considered
to be equivalent to its fair value. The fair values of other notes payable were
assumed to reasonably approximate their carrying amounts since they have
variable interest rates.
The book value of the current and long-term accounts and notes receivable is
equivalent to fair value which is estimated by management by discounting the
future cash flows using the current rates at which
F-14
<PAGE> 46
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:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Legal $ 1,127 $ 1,123
Environmental 1,017 708
Interest 4,914 4,412
Employee benefits 5,693 5,957
Due to vendors/customers 2,659 3,219
Non-compete agreements 568 --
Facility integration expenses 609 --
Other 8,720 8,943
------- -------
$25,307 $24,362
======= =======
</TABLE>
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.
F-15
<PAGE> 47
The pension credit included in operations for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 includes
the following components:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 393 $ 345 $ 585
Interest cost on projected
benefit obligation 2,951 3,350 3,350
Return on assets - actual 1,139 (7,138) (4,302)
Net amortization and deferral (5,464) 2,746 (117)
------- ------- -------
Net periodic pension credit $ (981) $ (697) $ (484)
======= ======= =======
</TABLE>
The following sets forth the status of the plan as of the most recent
actuarial report:
<TABLE>
<CAPTION>
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 44,283 $ 45,179
=========== ===========
Accumulated benefit obligation $ 45,063 $ 46,187
=========== ===========
Projected benefit obligation $ 45,632 $ 46,976
Plan assets at fair value 49,132 50,213
----------- -----------
Plan assets in excess of projected
benefit obligation 3,500 3,237
Unrecognized prior service cost 180 165
Unrecognized net (gain) loss 4,255 5,017
----------- -----------
Prepaid pension cost $ 7,935 $ 8,419
=========== ===========
</TABLE>
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 30, 1995 and
December 28, 1996:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
Weighted average discount rate 7.50 % 7.50 %
Rate of increase in future compensation levels 6.00 6.00
Expected long-term rates of return on plan assets 9.00 9.00
</TABLE>
F-16
<PAGE> 48
The Company also contributes to pension plans under collective
bargaining agreements. These contributions generally are based on
hours worked. Pension expense included in operations was as follows:
YEAR ENDED (IN THOUSANDS)
December 31, 1994 $ 605
December 30, 1995 836
December 28, 1996 1,082
b. Savings Plan - The Company maintains a defined contribution 401(k) savings
plan. Employees of the Company who are not covered by a collective
bargaining agreement (unless a bargaining agreement expressly provides for
participation) are eligible to participate in the plan after completing
one year of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their total compensation (as defined in the savings plan),
subject to statutory limitations. A contribution of up 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:
<TABLE>
<CAPTION>
YEAR ENDED (IN THOUSANDS)
<S> <C>
December 31, 1994 $ 111
December 30, 1995 144
December 28, 1996 171
</TABLE>
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
Employee benefits $ 4,206 $ 3,520
Legal 1,877 2,633
Environmental 1,378 1,337
Other 1,670 336
----------- -----------
$ 9,131 $ 7,826
=========== ===========
</TABLE>
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.
F-17
<PAGE> 49
The Company subleases one warehouse facility and certain equipment from
WRGFF Associates, L.P. ("WRGFF"), an affiliate of the Company. For each of
the years in the three-year period ended December 28, 1996, rental expense
under these leases with WRGFF amounted to approximately $1.1 million, $1.2
million and $1.4 million, respectively.
The Company entered into a lease agreement to lease a dry warehouse
facility which the Company is using for its grocery division as well as
for its administrative headquarters. The lease commitment commenced on
February 1, 1995. The term of the lease expires in 2015 with two five-year
renewal options. Rental payments under the lease are approximately $2.9
million per year (through the expiration date). The Company recorded the
lease as a capitalized asset with a related liability, having a net book
value as of December 30, 1995 and December 28, 1996 of approximately $26.9
million and $25.5 million, respectively.
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of December 28, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
(IN THOUSANDS)
<C> <C> <C>
1997 $ 4,969 $ 6,135
1998 3,856 5,255
1999 3,611 4,146
2000 3,553 2,632
2001 3,441 1,573
Thereafter 42,589 1,074
--------- ---------
Net minimum lease payments 62,019 $ 20,815
=========
Less interest 28,118
---------
Present value of net minimum lease
payments (including current
installments of $2,378) $ 33,901
=========
</TABLE>
Total rent expense included in operations was as follows:
YEAR ENDED (IN THOUSANDS)
December 31, 1994 $ 7,121
December 30, 1995 6,337
December 28, 1996 6,622
LETTERS OF CREDIT - In the ordinary course of business, Di Giorgio is at
times required to issue letters of credit. Di Giorgio was contingently
liable for $11,346,000 and $11,979,000 on open letters of credit with a
bank as of December 30, 1995 and December 28, 1996, respectively.
EMPLOYMENT AGREEMENTS - Di Giorgio has employment agreements with three
key executives expiring February 1997, March 1997 and April 1996, subject
to automatic renewals, absent notice. Under the agreements, combined
annual salaries of $778,000 are expected to be paid in fiscal 1997. In
addition, the executives are entitled to additional compensation upon
occurrence of certain events.
F-18
<PAGE> 50
12. EQUITY
In November 1993 in connection with the senior discount note offering
(Note 6(c)), 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 White Rose Foods, Inc. 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 to
occur 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 shareholders 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.
13. OTHER INCOME - NET
Other income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income $ 1,673 $ 2,301 $ 2,390
Net rental income 1,037 954 1,020
Net (loss) gain on disposal of equipment (459) -- 63
Non-compete 514 213 --
Other - net 174 374 285
------- ------- -------
$ 2,939 $ 3,842 $ 3,758
======= ======= =======
</TABLE>
14. INCOME TAXES
White Rose Foods, Inc., files a consolidated Federal tax return. The
consolidated group has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The Company allocates
consolidated income taxes expense or benefit to Di Giorgio and its
subsidiaries the as if the Company was filing separate tax returns.
F-19
<PAGE> 51
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company's deferred tax asset has been reduced by a valuation allowance
based on current evidence indicating that it is not more likely than not
that the future benefits of these temporary differences will be realized.
The tax effects of significant items comprising the Company's deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts $ 2,439 $ 1,814
Accrued expenses not deductible until paid 5,004 5,494
Net tax operating loss carryforwards 16,658 13,207
-------- --------
Deferred tax asset 24,101 20,515
-------- --------
Deferred tax liabilities:
Difference between book and tax basis
of property (4,783) (4,038)
Pension asset valuation (3,134) (3,296)
-------- --------
Deferred tax liabilities (7,917) (7,334)
-------- --------
Net deferred tax assets 16,184 13,181
Less valuation allowance (16,184) (13,181)
-------- --------
$ -- $ --
======== ========
</TABLE>
The valuation allowance relates to net deferred tax assets relating to
preacquisition temporary differences and operating loss carryforwards as well as
postacquisition temporary differences and loss carryforwards. The elimination of
the valuation allowance relating to (i) preacquisition amount is credited to the
excess of cost over net assets of business acquired and (ii) postacquisition
amount is credited to the income tax provision. There was no Federal provision
for the years ended December 31, 1994 and December 30, 1995 as a result of
operating losses for financial statement and tax purposes.
In the year ended December 31, 1994, the valuation reserve increased by
approximately $287,000 as a result of the increase in the net deferred asset.
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, approximately $38.9 million of net tax operating loss
carryforwards (which expire between the years 2006 and 2010) and approximately
$30 million of New Jersey state tax operating loss carryforward (which expire
between the years 1997 and 2002) are available, of which the tax effect of $14
million will be credited to the excess of cost over net assets of business
acquired to the
F-20
<PAGE> 52
extent the valuation allowance relating to the preacquisition amounts is
eliminated and the balance will be credited to the tax provision. As of December
28, 1996, there were no taxes currently payable.
The provision for income taxes consist of the following (in thousands):
YEAR ENDED
DECEMBER 28,
1996
Current income tax $ 2,329
Deferred income tax 724
--------
$ 3,053
========
A reconciliation of the Company's effective tax rate with the statutory Federal
tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate $(1,206) $ (846) $ 1,667
State and local taxes -
net of federal benefit 42 287 497
Permanent differences -
amortization of excess cost
over net assets acquired 940 983 889
(Reduction) increase in valuation reserve 287 (319) --
------- ------- -------
$ 63 $ 105 $ 3,053
======= ======= =======
</TABLE>
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 White Rose Foods, Inc. The note was issued at an original discount of
approximately $5.3 million. The note evidencing this indebtedness matures
April 1999 and is secured by an amount of shares of common stock owned by
Rose Partners representing
F-21
<PAGE> 53
approximately 20% of the class outstanding. The note bears interest at a
rate equal to the Series B senior discount notes yield to maturity of
12.75% per annum. As of December 30, 1995 and December 28, 1996, the $7.4
million and $8.4 million note is classified as long-term in the
consolidated balance sheets. For the years ended December 31, 1994,
December 30, 1995 and December 28, 1996, other income includes
approximately $788,000, $846,000 and $981,000, respectively, of interest
income related to the note.
As of December 30, 1995 and December 28, 1996, Las Plumas, an affiliate of
the Company, owed Di Giorgio approximately $3.6 million and $3.5 million,
respectively, evidenced by a subordinated note. The note is secured by
deeds of trust relating to parcels of property of Las Plumas. The loan
matures in June 1998 and bears interest at a fluctuating rate equal to the
weighted average of the interest rates paid by Di Giorgio. The entire note
receivable is classified as long-term in the consolidated balance sheet as
of December 28, 1996. Interest expense includes $319,000 in fiscal 1994 of
nonoperating interest income earned on the note, and upon collection of
the note the Company is required to utilize the proceeds to repay the
borrowings under the revolving credit facility.
A director of the Company is a partner in a firm which provides legal
services to the Company on an on-going basis. The Company paid
approximately $222,000, $98,000 and $111,000, during each of the three
years in the period ended December 28, 1996, respectively, to the law firm
for legal services.
The Company employs the services of a risk management and insurance
brokerage firm which is controlled by a director of the Company. Included
in the statement of operations are fees paid to the related party of
$150,000 for each of the three years in the period ended December 28,
1996.
The Company recorded income of $184,000, $154,000 and $245,000 for each of
the three years in the period ended December 28, 1996, respectively, from
an affiliated entity of the President of the Company in connection with
the sharing of office facilities and administrative expenses.
Included in the consolidated statement of operations for the years ended
December 31, 1994 and December 30, 1995 was $119,000 of expenses related
to services provided by a consulting and investment banking firm whose
general partner is a former officer of the Company.
17. MAJOR CUSTOMERS
During the year ended December 31, 1994, sales to two individual customers
represented 21.2% and 18.7% of net sales, respectively, and sales to a
group of customers represented 13.9%.
During the year ended December 30, 1995, sales to two individual customers
represented 22.2% and 19.7% of net sales, respectively, and sales to a
group of customers represented 13.1%.
During the year ended December 28, 1996, sales to two individual customers
represented 22.4% and 20.1% of net sales, respectively, and sales to a
group of customers represented 12.4%.
******
F-22
<PAGE> 54
WHITE ROSE FOODS, INC.
(PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 145 $ 212
Prepaid expenses -- 22
-------- --------
Total current assets 145 234
Investments in subsidiaries 38,731 45,765
Note receivable from related party 7,436 8,415
Deferred finance fees, (less accumulated
amortization of $190 and $334,
respectively) 481 337
-------- --------
TOTAL $ 46,793 $ 54,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior discount notes $ 44,758 $ 50,646
STOCKHOLDERS' EQUITY:
Common Stock, Class A, $.01 par value -
authorized, 1,000 shares; issued and
outstanding, 100.612 shares -- --
Additional paid-in capital 17,225 17,225
Accumulated deficit (15,190) (13,120)
-------- --------
Total stockholders' equity 2,035 4,105
-------- --------
TOTAL $ 46,793 $ 54,751
======== ========
</TABLE>
Note 1: Investment in subsidiaries is accounted for under equity method
of accounting.
See notes to consolidated financial statements.
S-2
<PAGE> 55
WHITE ROSE FOODS, INC.
(PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
<S> <C> <C> <C>
INTEREST INCOME $ 821 $ 1,166 $ 985
OTHER EXPENSE (118) (150) (80)
INTEREST EXPENSE (4,588) (5,204) (5,888)
------- ------- -------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (3,885) (4,188) (4,983)
INCOME TAX BENEFIT (1,058) (1,841) (1,993)
------- ------- -------
LOSS BEFORE EXTRAORDINARY
ITEM (2,827) (2,347) (2,990)
EXTRAORDINARY ITEM:
Gain on extinguishment of debt -
net of tax -- 204 --
------- ------- -------
LOSS - WHITE ROSE FOODS, INC (2,827) (2,143) (2,990)
INCOME (LOSS) - DI GIORGIO
CORPORATION (711) 347 5,060
------- ------- -------
NET (LOSS) INCOME $(3,538) $(1,796) $ 2,070
======= ======= =======
</TABLE>
Note 1: The parent company files a consolidated tax return with its
subsidiaries. The consolidated income tax provisions were $63, $105
and $3,053 for each year in the three year period ended December 28,
1996, respectively.
Note 2: Statements of cash flows are not required since the parent company
did not have cash flows from operations.
See notes to consolidated financial statements.
S-2
<PAGE> 56
WHITE ROSE FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
Allowance for doubtful accounts for the period ended:
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3,985 $2,100 $500 (2) ($2,741)(1) $3,844
December 30, 1995 3,844 2,100 -- (2,003)(1) 3,941
December 28, 1996 3,941 1,850 63 (2) (1,543)(1) 4,311
(1) Accounts written off during the year.
(2) Transfers from other accounts.
</TABLE>
S-3
<PAGE> 1
SUPPLEMENT, dated as of December 27, 1996 (the "Supplement"), by and
between White Rose Foods, Inc., a Delaware corporation (the "Issuer"), and The
Bank of New York, a New York banking corporation, as trustee (the "Trustee"),
to the Indenture dated as of November 8, 1993 (as amended and supplemented, the
"Indenture") by and between the Issuer and the Trustee.
RECITALS
WHEREAS, the Issuer duly authorized the creation of an issue of Senior
Discount Notes Due 1998, Series A and Senior Discount Notes Due 1998, Series B
(the "Securities"), of substantially the tenor and amount set forth in the
Indenture, and to provide therefor the Issuer duly authorized the execution and
delivery of the Indenture.
WHEREAS, all acts and things necessary were done to make the
Securities, when executed by the Issuer and authenticated and delivered under
the Indenture and duly issued by the Issuer, the valid obligations of the
Issuer and to make the Indenture a valid agreement of the Issuer in accordance
with the terms of the Indenture.
WHEREAS, the Issuer and DIG Holding Corp., a New York corporation
("DIG Holding"), desire to effect a merger (the "Merger") between the Issuer
and DIG Holding with the Issuer continuing as the surviving corporation. The
Merger is not intended to adversely affect the interests of the Holders.
WHEREAS, the Issuer is controlled by Arthur M. Goldberg, the Chairman,
President and Chief Executive Officer of the Issuer. 91.8% of the issued and
outstanding shares of common stock of the Issuer are owned by DIG Holding, a
holding company controlled by Mr. Goldberg and his affiliates. The remaining
8.2% of the common stock is owned by Rose Partners, L.P., ("Rose Partners"), an
entity controlled by Mr. Goldberg and his affiliates.
WHEREAS, after giving effect to the Merger, the Issuer will continue
to be controlled by Mr. Goldberg with 98.53 % of the common stock of the Issuer
owned by Rose Partners.
WHEREAS, the parties have entered into this Supplement pursuant to
Section 7.01 of the Indenture, including paragraph (v) thereunder, in order to
clarify and cure a potential ambiguity in Article Eight with respect to the
scope of that provision. Under Section 7.01 of the Indenture the Issuer may
amend the Indenture or the Securities without notice to or consent of any
Holder.
WHEREAS, the effect of this Supplement will be to reaffirm that the
contemplated Merger is outside the scope of the limitations set forth in
Article Eight of the Indenture since the transaction will not result in a
transfer of all or substantially all of the assets of the Issuer and the
Restricted Subsidiaries on a consolidated basis.
WHEREAS, all acts and things necessary have been done to make this
Supplement a valid agreement of the Issuer in accordance with the terms of the
Indenture.
<PAGE> 2
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
Amendment of Indenture
The parties hereto mutually covenant and agree to, and do hereby,
supplement and amend the Indenture as follows:
The introductory language of Section 8.01 shall be and is hereby
amended to reflect certain definitional and other typographical modifications,
as follows:
When Issuer May Merge, Etc. (a) The Issuer shall not (i)
consolidate with, (ii) merge with or into, or (iii) transfer, directly
or indirectly by lease, assignment, sale or otherwise, including,
without limitation, as a result of the merger or consolidation of any
Restricted Subsidiary with any other Person (collectively, a
"transfer"), all or substantially all of its assets in one transaction
or a series of related transactions to ((i), (ii) and (iii) are
sometimes collectively referred to as a "Transaction"), any Person or
group of affiliated Persons or permit any Restricted Subsidiary to
enter into any such Transaction or Transactions if such Transaction or
Transactions in the aggregate would result in a transfer of all or
substantially all of the assets of the Issuer and the Restricted
Subsidiaries on a consolidated basis, unless...
In addition, the following new paragraph (b) shall be added to Section
8.01:
(b) Any Transaction which does not result in a transfer
of all or substantially all of the assets of the Issuer and its
Restricted Subsidiaries on a consolidated basis shall not be subject
to any of the limitations, restrictions or covenants set forth in this
Section 8. The merger of DIG Holding (or another holding company) with
and into the Issuer with the Issuer continuing as the surviving
corporation shall be outside the scope of Article 8.
ARTICLE 11
Effectiveness
This Supplement shall become effective as of the date first above
written.
ARTICLE III
Miscellaneous
(a) Capitalized terms herein used are used as defined in the
Indenture unless otherwise indicated.
2
<PAGE> 3
(b) This Supplement shall be governed by and constructed in
accordance with the laws of the State of New York.
(c) This Supplement may be executed in two or more counterparts,
each of which shall constitute an original but all of which when taken together
constitute but one contract.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed by their respective authorized officers as of the day and year
first above written.
WHITE ROSE FOODS, INC.
By: /s/ Richard B. Neff
---------------------------------
Name: Richard B. Neff
Title: Executive Vice President and
Chief Financial Officer
THE BANK OF NEW YORK
By: /s/ Remo J. Reale
--------------------------------
Name: Remo J. Reale
Title: Assistant Vice President
3
<PAGE> 1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/15/1997
971015241 - 2296783
CERTIFICATE OF OWNERSHIP AND MERGER
OF
DIG HOLDING CORP.
(a New York corporation)
into
WHITE ROSE FOODS, INC.
(a Delaware corporation)
It is hereby certified that:
l. DIG Holding Corp. (hereinafter referred to as the "Corporation") is
a corporation of the State of New York, the laws of which permit a merger of a
corporation of that jurisdiction with a corporation of another jurisdiction.
2. The Corporation is the owns of 91.8% of the common (voting)
stock of White Rose Foods, Inc., and hereby merges itself into White Rose
Foods, Inc., a corporation of the State of Delaware.
3. The following is a copy of the resolutions adopted on the 27th
day of December, 1996, by the Board of Directors of the corporation to merge
the corporation into White Rose Foods, Inc.:
RESOLVED that this corporation be reincorporated in the State of
Delaware by merging itself into White Rose Foods, Inc. pursuant to the
laws of the State of New York and the State of Delaware as hereinafter
provided, so that the separate existence of this corporation shall
cease as soon as the merger shall become effective, and thereupon this
corporation and White Rose Foods, Inc. will become a single
corporation, which shall continue to exist under, and be governed by,
the laws of the State of Delaware.
RESOLVED, that the terms and conditions of the proposed Merger are as
follows:
(a) From and after the effective time of the merger, all of the
estate, property, rights, privileges, powers, and franchises of this
corporation shall become vested in and be held by White Rose Foods, Inc. as
fully and entirely and without change or diminution as the same were before
held and enjoyed by this corporation, and White Rose Foods, Inc. shall assume
all of the obligations of this corporation.
<PAGE> 2
(b) Each share of common stock, [$.01 par value] of this
corporation which shall be issued and outstanding immediately prior to the
effective time of the merger shall be converted into .908386 issued and
outstanding share of common stock, [$.01 par value], of White Rose Foods, Inc.,
and, from and after the effective time of the merger, the holders of all of
said issued and outstanding shares of common stock of this corporation shall
automatically be and become holders of shares of White Rose Foods, Inc. upon
the basis above specified, whether or not certificates representing said shares
are then issued and delivered.
(c) After the effective time of the merger, each holder of record
of any outstanding certificate or certificates theretofore representing common
stock of this corporation may surrender the same to White Rose Foods, Inc. at
its office at 380 Middlesex Avenue, Carteret, New Jersey, 07008, and such
holder shall be entitled upon such surrender to receive in exchange therefor a
certificate or certificates representing a pro rata number of shares of common
stock of White Rose Foods, Inc. Until so surrendered, each outstanding
certificate which prior to the effective time of the merger represented one or
more shares of common stock of this corporation shall be deemed for all
corporate purposes to evidence ownership of a pro rata number of shares of
common stock of White Rose Foods, Inc.
(d) From and after the effective time of the merger, the
Certificate of Incorporation and the By-Laws of White Rose Foods, Inc. shall
be the Certificate of Incorporation and the By-Laws of White Rose Foods, Inc.
as in effect immediately prior to such effective time.
(e) The members of the Board of Directors and officers of White
Rose Foods, Inc. shall be the members of the Board of Directors and the
corresponding officers of White Rose Foods, Inc. immediately before the
effective time of the merger.
(f) From and after the effective time of the merger, the assets
and liabilities of this corporation and of White Rose Foods, Inc. shall be
entered on the books of White Rose Foods, Inc. at the amounts at which they
shall be carried at such time on the respective books of this corporation and
of White Rose Foods, Inc., subject to such inter-corporate adjustments or
eliminations, if any, as may be required to give effect to the merger; and,
subject to such action as may be taken by the Board of Directors of White Rose
Foods, Inc. in accordance with generally accepted accounting principles, the
capital and surplus of White Rose Foods, Inc. shall be equal to the capital and
surplus of this corporation and of White Rose Foods, Inc.
RESOLVED that, in the event that the proposed merger shall not be
terminated, the proper officers of this corporation be and they hereby
are authorized and directed to make and execute a Certificate of
Ownership and Merger setting forth a copy of these resolutions to
merge itself into White Rose Foods, Inc. and the date of adoption
thereof, and to cause the same to be filed and recorded as provided by
law, and to do all acts and things whatsoever, within the States of
New York and Delaware and any other appropriate jurisdiction,
necessary or proper to effect this merger.
<PAGE> 3
4. The proposed merger herein certified has been adopted,
approved, certified, executed, and acknowledged by DIG Holding Corp. in
accordance with the laws under which it is organized.
Signed on December 27, 1996.
WHITE ROSE FOODS, INC.
By: /s/ Richard B. Neff
---------------------------
Richard B. Neff
Its Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 1,749
<SECURITIES> 0
<RECEIVABLES> 65,861
<ALLOWANCES> 4,311
<INVENTORY> 49,583
<CURRENT-ASSETS> 116,568
<PP&E> 71,785
<DEPRECIATION> 15,515
<TOTAL-ASSETS> 301,069
<CURRENT-LIABILITIES> 104,226
<BONDS> 143,536
0
0
<COMMON> 0
<OTHER-SE> 4,105
<TOTAL-LIABILITY-AND-EQUITY> 301,069
<SALES> 1,045,161
<TOTAL-REVENUES> 1,050,206
<CGS> 935,719
<TOTAL-COSTS> 1,021,075
<OTHER-EXPENSES> 272
<LOSS-PROVISION> 1,850
<INTEREST-EXPENSE> 23,955
<INCOME-PRETAX> 4,904
<INCOME-TAX> 3,053
<INCOME-CONTINUING> 1,851
<DISCONTINUED> 0
<EXTRAORDINARY> 219
<CHANGES> 0
<NET-INCOME> 2,070
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
