ITEM 1. BUSINESS
GENERAL
Established in 1911, Rykoff-Sexton, Inc., (the "Company") is a leading broadline distributor of high quality food and related non-food products for the foodservice industry throughout the United States. The Company distributes its product line of more than 45,000 items to restaurants, industrial cafeterias, healthcare facilities, hotels, schools and colleges, supermarket delicatessens, membership warehouse stores and other establishments where food is prepared or consumed away from home. It also offers design and engineering services for all types of foodservice operations through its contract/design group. The Company's products consist of a broad line of private label and national branded food and foodservice equipment and supplies. The Company's proprietary private label products accounted for approximately 53% of the Company's net sales in fiscal 1994. The Company develops and manufactures many of its private label products, and it also manufactures other products for certain customers under their own brand labels. In fiscal 1994, the Company's sales of its self-manufactured products, including products sold through the Rykoff-Sexton Distribution Division (the "Distribution Division"), accounted for approximately 18% of net sales.
The Company's principal operations are conducted through the Distribution Division, the Rykoff-Sexton Manufacturing Division (the "Manufacturing Division"), Tone Brothers, Inc. ("Tone Brothers") and San Francisco International Cheese Imports ("San Francisco International Cheese Imports")
Distribution Division
The Distribution Division is comprised of 26 distribution branches and eight additional sales offices that are largely located in major metropolitan areas throughout the United States. The Distribution Division also offers design and engineering services for all types of foodservice operations through its ten contract/design offices. In fiscal 1994, sales of the Distribution Division (including products sold through this division by the Manufacturing Division, Tone Brothers and San Francisco International Cheese Imports) generated approximately 94% of the Company's net sales.
Manufacturing Division
At its four plants, the Manufacturing Division manufactures products primarily under the Company's proprietary private labels and also manufactures products for other manufacturers, distributors, restaurant chains and other large users under their own brand labels. Approximately 91% of the Manufacturing Division's products are sold through the Distribution Division, and the remainder are sold directly to customers.
Tone Brothers
Tone Brothers, a wholly-owned subsidiary, manufactures spices, seasonings and salad dressing mixes and sells most of its products directly to customers such as membership warehouses, food manufacturers, foodservice distributors and specialty retail stores.
San Francisco International Cheese Imports
The Company also has a smaller division, San Francisco International Cheese Imports, which distributes domestic and imported cheeses and specialty and gourmet products both through the Distribution Division and directly to customers.
PRODUCTS
The Company offers to the foodservice industry a single source of supply for more than 45,000 private label and national branded items that are distributed to approximately 100,000 foodservice establishments. The principal product lines are:
Food Products
The Company's food products include canned fruits and vegetables, tomatoes and tomato products, juices, relishes and pickle products, dry package foods, syrups, dressings and salad oils, baking supplies, extracts and colors, spices, condiments, seasonings and sauces, jellies and preserves, coffee, tea and fountain goods, prepared convenience entrees, meats, desserts and puddings, dietary foods, imported and domestic cheeses and specialty and gourmet items. Frozen foods include soups, prepared convenience entrees, bakery products, fruits and vegetables, desserts, frozen meat, chicken and fish and other frozen products customarily distributed to the foodservice industry.
Janitorial and Paper Products
The Company's non-food products include janitorial supplies such as detergents and cleaning compounds; plastic products such as refuse container liners, cutlery, straws and sandwich bags; and paper products such as napkins, cups, hats, placemats, coasters and lace doilies.
Equipment and Supplies
The Company also distributes smallware restaurant equipment and supply items, including cookware, glassware, dinnerware and other commercial kitchen equipment.
The Company's products include approximately 3,250 food and 800 non-food items that are manufactured, processed and packaged at its five plants located in Los Angeles, California; Indianapolis, Indiana; Des Moines, Iowa; Englewood, New Jersey; and Brooklyn, New York. These products are primarily manufactured under the Company's private labels. The Company also manufactures products for certain customers such as other manufacturers, distributors, restaurant chains and other large users under their own brand labels.
The Manufacturing Division's food products include mayonnaise and salad dressings, oils, margarine and shortenings, gelatins and dessert powders, vinegars, sauces, pancake and waffle mixes, biscuit and flour mixes, soup bases, jams and jellies, canned and frozen soups, canned and frozen entrees, relishes, coffee and tea. Its non-food products include detergents, cleaning compounds, refuse container liners, cutlery, straws and sandwich bags, paper napkins, placemats, chefs' hats, coasters, paper lace doilies and a line of low temperature dishwashers.
Products manufactured by Tone Brothers consist mainly of spices, seasonings and salad dressing mixes and are primarily supplied to customers such as membership warehouses, food manufacturers, foodservice distributors and specialty retail stores. These products are also sold through the Distribution Division.
The following table sets forth the approximate sales of the products manufactured by the Manufacturing Division and Tone Brothers:
In addition to its extensive product line, the Company's contract/design group has ten offices that provide design and engineering services and equipment installations for restaurants and other foodservice establishments.
MARKETING AND DISTRIBUTION
The Company markets its products and contract/design services to customers in the foodservice industry, including restaurants, industrial cafeterias, healthcare facilities, hotels, schools and colleges, airlines, clubs, supermarket delicatessens, membership warehouse stores and other establishments where food is prepared or consumed away from home.
The following table sets forth the approximate customer base of the Company for the fiscal year ended April 30, 1994:
No customer of the Company accounted for as much as two percent of the Company's sales for the fiscal year ended April 30, 1994. No product distributed by the Company accounts for a material part of the Company's sales volume. The Company does not experience material seasonal variations in its sales volume.
The Company believes that product quality, close contact with customers, prompt and accurate delivery of orders, and the ability to provide related services are of primary importance in the distribution of products to the foodservice industry. Sales offices are maintained at each of the Company's 26 distribution branches and eight additional locations as listed in the table below. The Company's sales force of approximately 1,500 employees includes approximately 1,200 foodservice specialists from the Distribution Division who are organized by region and who are each assigned to a distribution branch. The sales force also includes account executives who handle multiunit accounts such as restaurant chains and other large users. In addition to soliciting orders, sales personnel are trained to advise customers on menu selection, methods of preparing and serving food, merchandising techniques, unit cost controls and other operating procedures.
Products are distributed to customers nationwide through the Company's 26 distribution branches listed in the table below, as well as through independent distributors. With the exception of an equipment and supply branch, each branch stocks a broad line of between 3,400 and 21,000 items for sale in its marketing area. Customer orders are usually processed and shipped within 24 hours of receipt and are delivered directly to the customer. The Company uses its warehouse facilities in Los Angeles, Indianapolis and Dorsey, Maryland to store and consolidate product orders from vendors for subsequent shipment to the distribution branches.
The following table sets forth the Distribution Division's branches, sales offices and contract/design offices:
* These sales offices are in addition to sales offices maintained at each of the Company's distribution branches.
** A general distribution branch and an equipment and supply branch are located in this city.
*** Indicates facility owned by the Company; all other facilities are leased.
International sales presently account for less than two percent of the Company's total sales. However, the Company believes that the potential for growth in sales to foreign markets is significant, and it explores selected opportunities to further develop this segment of its business. The Company currently exports products to Canada, the Caribbean, Mexico, Europe, Japan and Australia. In fiscal 1992, Tone Brothers formed a joint venture with an Indian company for the preparation and exportation of black pepper and other spices from India. The Company also formed a joint venture in fiscal 1992 with a Mexican trading and manufacturing firm to establish a distribution company in Monterey, Mexico that services northeastern Mexico.
SOURCES OF SUPPLY
The Company purchases from approximately 7,900 suppliers. No supplier represented more than two percent of the Company's purchases in fiscal 1994. These suppliers, which include both large multi-line and smaller specialty processors and packagers, are selected primarily on the basis of their ability to meet the Company's quality standards. The Company has no significant long-term purchasing obligations and believes that it has adequate alternative sources of supply for almost all of the purchased items and raw materials used in its manufacturing operations.
QUALITY CONTROL AND REGULATION
The Company maintains quality control laboratories in its Los Angeles, Indianapolis, Englewood and Des Moines facilities. These laboratories are staffed by chemists and food technologists who are trained to control product quality for both self-manufactured and purchased private label products and to provide research and development support for the Company's manufactured products. Quality control procedures include the sampling and testing of raw materials, purchased private label products and Company manufactured items for quality, taste and appearance and the microbiological testing of Company manufactured food items.
EMPLOYEES
As of April 30, 1994, the Company employed a total of approximately 5,330 people, of whom approximately 2,170 were covered by collective bargaining agreements. These agreements expire at various times over the next several years. The Company believes its labor relations are good.
COMPETITION
The Company operates on a nationwide basis and encounters significant competition from a number of sources in each of its marketing areas. The Company competes with two other large national distribution companies, Sysco Corporation and Kraft Foodservice Group (owned by Philip Morris Companies), both of which have substantially greater financial and other resources than the Company. The Company also competes with numerous regional and local distributors that offer broad lines of products. In recent years, the foodservice distribution industry has been characterized by significant consolidation and the emergence of larger competitors, principally through acquisitions. There can be no assurances that the Company will not encounter increased competition in the future, which could adversely affect the Company's business.
The Company believes that although price is a consideration, competition in the foodservice industry is generally on the basis of product quality, customer relations and service. As one of the leading national broadline distributors to the foodservice industry, the Company believes that it carries a wider selection of food products of superior quality and value and a greater variety of package sizes than most of its competitors. The Company attributes its ability to compete effectively in its markets to this wider food product selection and its broad line of related non-food products, which are offered through a dedicated, highly skilled and customer-oriented sales force. Further, the Company differentiates itself in part from its competitors by (i) providing many specialty products that have been developed specifically for the foodservice industry or for particular foodservice customers, (ii) maintaining an extensive selection of imported and specialty products, equipment and supplies and (iii) offering its design and engineering services for all types of foodservice operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located on its owned property in Los Angeles, California. The Los Angeles distribution branch, which services the Southern California and Nevada markets, the Manufacturing Division headquarters, a large manufacturing plant and a warehouse that is used to store and consolidate product orders from
vendors are also located on these premises. The property consists of four buildings with approximately 1.4 million square feet of space on 20.2 acres. The Company plans to relocate the Los Angeles distribution branch to a new facility of approximately 420,000 square feet in La Mirada, California. The move is expected to take place toward the end of fiscal 1995.
The executive offices of the Distribution Division are located in Lisle, Illinois and occupy approximately 54,500 square feet pursuant to a lease which expires in November 2001.
Tone Brothers leases a facility of approximately 195,000 square feet in Des Moines, Iowa for its office, warehouse and manufacturing operations. The lease on this property expires in April 2000. In January, 1994, the Company completed the construction of an additional 335,000 square foot modern manufacturing facility in Des Moines.
In addition to the manufacturing plant located on the Los Angeles property, the Company owns and operates manufacturing plants totaling 234,000 square feet in Indianapolis, Indiana and Englewood, New Jersey. The Company also leases approximately 32,000 square feet in Brooklyn, New York for office, warehouse and manufacturing facilities. The lease on this property expires in August 1995.
Equipment and machinery owned by the Company and used in its operations consist principally of electronic data processing equipment, food and non-food processing and packaging equipment and chemical compounding, blending and product handling equipment. The Company owns a fleet of approximately 1,200 vehicles consisting of tractors, trailers, vans and bobtails, which are used for long hauls and local deliveries. In addition, the Company leases approximately 330 delivery vehicles under terms which expire at various dates through 2000.
During fiscal 1994, the Company nearly doubled the space and added a new freezer and cooler to its Orlando distribution branch and relocated its San Francisco International Cheese Imports operation to a new, larger facility. At present, the Company is completing an expansion of its Greensboro, North Carolina branch, is doubling the capacity of its Detroit branch and is in the process of planning to upgrade facilities at several other locations as well. The Company considers that its office, warehouse and manufacturing facilities are adequate to support present and immediately forseeable future operations. However, the Company continues to locate and occupy new facilities because of its expanding business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, other than ordinary routine litigation incidental to the business of the Company.
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ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
CORPORATE EXECUTIVE OFFICERS
The following are the corporate executive officers of the Company:
All of the executive officers serve in their capacities by approval of the Board of Directors. Each executive officer has, as his principal occupation, been employed by the Company in the capacities set forth or in similar capacities for more than the last five years, except as follows: Mr. Neil I. Sell's principal occupation has been as a partner in the law firm of Maslon Edelman Borman & Brand; Mr. Mark Van Stekelenburg was elected Executive Vice President in 1991 and President and Chief Executive Officer in 1992; Mr. Richard J. Martin was elected Vice President in 1988 and Senior Vice President and Chief Financial Officer in 1993; Mr. Robert J. Harter, Jr. was elected Vice President and General Counsel in 1989 and Senior Vice President, Human Resources and General Counsel in 1993; Mr. Alan V. Giuliani was elected Vice President in 1990 and President, Rykoff-Sexton Manufacturing Division in 1992; Messrs. James A. Iacobazzi and Andre M. Mills were elected Vice Presidents in 1992; Mr. F. Christopher Cruger was elected an executive officer in 1993; Mr. Harold E. Feather was elected President, Rykoff-Sexton Distribution Division in 1992 and Executive President, Corporate Planning in 1994; and Mr. Donald E. Willis, Jr. was elected Senior Vice President and Chief Information Officer in 1994.
Mr. Van Stekelenburg joined the Company in March 1991 and was previously, since 1986, President and Chief Executive Officer of G.V.A. and Kok-Ede, the foodservice division of Royal Ahold, N.V., the largest food retailer in the Netherlands which also has substantial holdings in food retailing in the United States. Mr. Martin joined the Company in August 1988 and was previously a partner with the accounting firm of Arthur Andersen & Co.; he had been associated with that firm for twenty-one years. Mr. Harter joined the Company in October 1989 and was previously Senior Vice President, General Counsel and Secretary for Tiger International, Inc. He had been an officer of Tiger International, Inc. for eleven years. Mr. Giuliani joined the Company in August 1990. Previously, Mr. Giuliani was employed by Mars, Inc., a food manufacturer, where he held various senior management positions including Vice President-Research and Development/Engineering for the Dove International Division, and Vice President-New Business Development and Vice President-Plant Manager for the M&M/Mars Division. Mr. Iacobazzi joined the Company in 1987 and has served as director of property management until his election as Vice President in 1992. Mr. Mills joined the Company in 1984 and has served as director of labor relations until his election as Vice President in 1992. Mr. F. Christopher Cruger joined the Company in 1989 when the Company acquired Tone Brothers. He had previously held the position of President and Chief Executive Officer of Tone Brothers since 1985. Mr. Harold E. Feather joined the Company in 1983 when the Company acquired John Sexton & Co. He has held various positions within the Company and was elected Executive Vice President, Corporate Planning in 1994; his most recent previous position was President, Rykoff-Sexton Distribution Division, which he held since 1992. Mr. Donald E. Willis, Jr. joined the Company in 1994, and previously served in several management information systems positions with other companies, the most recent of which was at HomeBase, a California-based specialty retailer.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reference is made to the information with respect to the principal markets on which the Company's common stock is being traded, prices for each quarterly period and dividend record for the last three years are set forth on page 2 of the Company's 1994 Annual Report to shareholders, and by such reference, such information is incorporated herein.
The Company estimates that there are approximately 4,300 shareholders including those through nominees, as of June 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the financial data with respect to the Company set forth on pages 6 and 7 of the Company's 1994 Annual Report to shareholders and by such reference, such financial data is incorporated herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis set forth on pages 8 and 9 of the Company's 1994 Annual Report to shareholders, and by such reference, such information is incorporated herein.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements set forth on pages 10 through 21 of the Company's 1994 Annual Report to shareholders, and by such reference, such information is incorporated herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Reference is made to the definitive proxy statement pursuant to Regulation 14A, which involves the election of directors at the annual meeting of shareholders to be held September 9, 1994 and will be filed with the Commission within 120 days after the close of its fiscal year ended April 30, 1994, and by such reference said proxy statement is incorporated herein in response to the information called for by Part III (Item 10.
Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13.
Item 13. Certain Relationships and Related Transactions).
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PART IV ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed below are filed as part of this Annual Report on Form 10-K:
* Management contract or compensatory plan
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K
None filed during the fourth quarter of fiscal year 1994.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Rykoff-Sexton, Inc. has duly cause this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 28, 1994 RYKOFF-SEXTON, INC.
By /s/ MARK VAN STEKELENBURG ---------------------------- Mark Van Stekelenburg, President and Chief Executive Officer
By /s/ RICHARD J. MARTIN ---------------------------- Richard J. Martin, Senior Vice President and Chief Financial Officer
By /s/ VICTOR B. CHAVEZ ---------------------------- Victor B. Chavez, Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following directors on behalf of the Registrant on the date indicated.
R. Burt Gookin
James I. Maslon
James P. Miscoll /s/ MARK VAN STEKELENBURG ------------------------------------ Mark Van Stekelenburg, signing Neil I. Sell personally as a director and as attorney in fact for the directors Bernard Sweet whose names appear opposite.
Robert G. Zeller July 28, 1994
Powers of attorney authorizing Mark Van Stekelenburg, Richard J. Martin and Victor B. Chavez, and each of them, to sign this Annual Report on Form 10-K on behalf of the above named directors of Rykoff-Sexton, Inc. have been filed as an exhibit to this report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Rykoff-Sexton, Inc.
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Rykoff-Sexton, Inc.'s Form 10-K and have issued our report thereon dated June 10, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14. (a)(2) are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Los Angeles, California June 10, 1994.
RYKOFF-SEXTON, INC.
SCHEDULE II - - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED
PARTIES FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1994
Note (A)
This promissory note receivable is due from Mark Van Stekelenburg, President and Chief Executive Officer, and is included in accounts receivable on the consolidated balance sheet. The note is secured, non-interest bearing, and payable upon demand.
RYKOFF-SEXTON, INC. SCHEDULE V- - PROPERTY, PLANT AND EQUIPMENT FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1994
(A) During the fiscal year ended April 30, 1994, the Company made improvements to certain facilities, the cost of which was included as part of the $31 million restructuring charge recorded in the prior year.
(B) During the fiscal year ended May 1, 1993, the Company recorded a $31 million restructuring charge which included a writedown of certain facilities to net realizable value.
RYKOFF - SEXTON, INC. SCHEDULE VI - - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1994
RYKOFF- SEXTON, INC. SCHEDULE VIII - - VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1994
RYKOFF-SEXTON, INC. SCHEDULE IX - - SHORT-TERM BORROWINGS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1994
Note (A) No short-term borrowings outstanding.
(B) The Company ended its short-term commercial paper program in January 1993. The average amount outstanding and the weighted average rates are based upon the actual number of days the commercial paper program was in place.
(C) The Company started its short-term commercial paper program in April 1992. Thus, the average balance outstanding and weighted average interest rate for the fiscal year were not meaningful.