5% of net sales. In addition to our food service distribution businesses, USF processes and distributes custom-cut meat
products through Stock Yards Meat Packing Company and markets and distributes restaurant equipment and supplies
through Next Day Gourmet, L.P. ("Next Day Gourmet").
We entered the U.S. food service market in April 2000 when we acquired USF, currently the second largest food service
distributor in the United States based on its sales in fiscal 2002. USF currently has a customer base of over 300,000
independent and chain businesses throughout the United States.
USF stocks and markets thousands of national, private label and signature brand items, such as canned and dry food
products, fresh meats, poultry, seafood, frozen foods, fresh produce, dairy and other refrigerated foods, paper products,
and cleaning and other supplies. USF also markets and transports such products to establishments that prepare and
serve meals to be eaten away from home.
USF operates from 89 active food distribution facilities, ten stand alone custom-cut meat shops, and six Next Day Gourmet
distribution facilities. USF maintains three principal office facilities in Greenville, South Carolina, Phoenix, Arizona, and
Columbia, Maryland, which is where its corporate headquarters are located.
Since our acquisition of USF, we have expanded our U.S. food service operations through a series of acquisitions, as set
out below:
- In fiscal 2000, USF acquired PYA/Monarch, a broadline food service distributor in the southeastern United States which
served almost 40,000 customers, and GFG Foodservice, a broadline food service distributor in North Dakota, South
Dakota and Minnesota with over 4,300 customers.
- In February 2001, USF acquired Parkway, a broadline food service distributor in western Florida. Parkway serviced over
1,000 customers.
- In May 2001, USF acquired Mutual, a broadline food service distributor in Florida. Mutual serviced over 4,200
customers.
- In November 2001, USF acquired Alliant. Alliant serviced approximately 125,000 accounts across the United States.
- In September 2002, USF acquired certain assets of Lady Baltimore, a broadline food service distributor in Kansas,
Missouri, Nebraska, Arkansas, Oklahoma, Illinois and Iowa. Lady Baltimore serviced approximately 2,836 customers.
- In December 2002, USF acquired Allen Foods, a broadline food service distributor in Kansas, Missouri and southern
Illinois. Allen Foods serviced over 5,400 customers.
- Fiscal 2002
Our food service segment in the United States is comprised entirely of USF. Net sales at USF increased by EUR 5.0
billion, or 36.5%, to EUR 18.5 billion in fiscal 2002 compared to fiscal 2001. Excluding the impact of currency exchange
rates, net sales would have increased by EUR 5.6 billion, or 43.7%, in fiscal 2002 compared to net sales in fiscal 2001.
The increase in net sales was largely due to the acquisition of Alliant, which was consolidated beginning in December
2001 and, to a lesser extent, the acquisition of Allen Foods and certain assets of Lady Baltimore, which were consolidated
in the fourth quarter of fiscal 2002. The impact of these acquisitions on net sales was partly offset by the divestiture of
certain assets of a non-strategic line of business included in the Alliant acquisition, the discontinuance of sales to
unprofitable customers that were acquired as part of the Alliant acquisition, the loss of sales as a result of consolidation
of distribution centers that served overlapping markets and USF's realignment of customer servicing in the southeastern
United States, which integrated the regional operations of USF, Alliant and PYA/Monarch. Excluding acquisitions, net sales
would have decreased slightly in fiscal 2002 compared to fiscal 2001. This decline was also caused in part by food price
deflation in the food service industry in the United States, which resulted in lower prices being paid by our customers
generally, and under our cost plus a percentage mark-up pricing contracts an additional decline in the margin in dollar
terms paid above product costs, all of which negatively affected net sales. This decline was also caused by several other
factors: a decline in tourism and business travel following the September 11, 2001, terrorist attack, which particularly
affected USF's sales to hospitality customers, along with sales in specific geographical areas that rely on the tourism
industry, including Las Vegas, Washington D.C. and Florida; and currency exchange rate differences, as noted above.
While food service operations typically have low margins, USF's gross profit margin in fiscal 2002 was significantly lower
than that of its competitors. We believe that the higher margins of USF's competitors were due in part to significantly
better purchasing programs at competitors than those at USF, which disparity was hidden in the past by the accounting
irregularities with respect to vendor allowances at USF. Competitors' net sales also generally include a higher proportion
of private label products than USF's net sales. Private label products have higher margins, in comparison with the margin
available on the sale of nationally branded products. In addition, we believe that the proportion of USF's net sales consisting
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