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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended June 29, 2002
[ ] Transition report pursuant to Section 13 or 15(d) Of The Securities Exchange
Act of 1934
For the transition period from ______ to _____
Commission File Number: 1-1790
DI GIORGIO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0431833
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
380 Middlesex Avenue
Carteret, New Jersey 07008
(Address of principal executive offices) (Zip Code)
(732) 541-5555
(Registrant's Telephone Number, Including Area Code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No____
As of August 5, 2002, there were outstanding 78.1158 shares of Class A
Common Stock and 76.8690 shares of Class B Common Stock.
DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 29, 2001 and June 29, 2002 (Unaudited)........................ 1
Consolidated Condensed Income Statements,
Twenty-Six Weeks Ended June 30, 2001
and June 29, 2002 (Unaudited).......................................... 2
Consolidated Condensed Statement of Stockholders' Equity,
Twenty-Six Weeks Ended June 29, 2002 (Unaudited)....................... 3
Consolidated Condensed Statements of Cash Flows,
Twenty-Six Weeks Ended June 30, 2001 and
June 29, 2002 (Unaudited)............................................. 4
Notes to Consolidated Condensed Financial Statements (Unaudited)......... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................. 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................... 11
Signatures ................................................................. 12
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
December 29, June 29,
2001 2002
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,807 $ 3,801
Accounts and notes receivable-net 103,704 106,815
Inventories 66,469 64,304
Deferred taxes 2,888 2,864
Prepaid expenses 3,802 7,838
--------- ---------
Total current assets 178,670 185,622
--------- ---------
Property, Plant & Equipment
Cost 25,504 27,963
Accumulated depreciation (15,548) (16,700)
--------- ---------
Net 9,956 11,263
--------- ---------
Long-term notes receivable 7,464 7,300
Other assets 22,681 22,037
Deferred financing costs 3,272 2,946
Excess of costs over net assets acquired 68,893 68,893
--------- ---------
Total assets $ 290,936 $ 298,061
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 75,928 81,035
Accrued expenses 29,073 29,893
Notes and leases payable within one year 57 59
--------- ---------
Total current liabilities 105,058 110,987
--------- ---------
Long-term debt 155,000 155,000
Capital lease liability 2,001 1,972
Other long-term liabilities 7,875 8,041
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 13,000 14,059
--------- ---------
Total stockholders' equity 21,002 22,061
--------- ---------
Total liabilities & stockholders' equity $ 290,936 $ 298,061
========= =========
See Notes to Consolidated Condensed Financial Statements
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Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Income Statements
(in thousands)
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
June 30, June 29, June 30, June 29,
2001 2002 2001 2002
Revenue:
Net sales $ 375,540 $ 387,956 $ 755,869 $ 775,332
Other revenue 1,919 1,962 3,924 3,984
--------- --------- --------- ---------
Total revenue 377,459 389,918 759,793 779,316
Cost of products sold 338,889 350,024 684,693 700,887
--------- --------- --------- ---------
Gross profit-exclusive of warehouse 38,570 39,894 75,100 78,429
expense shown below
Warehouse expense 13,039 14,540 26,799 28,892
Transportation expense 7,563 7,400 14,678 14,361
Selling, general and administrative 7,621 8,039 15,188 15,841
expense
Amortization - excess of cost over net 607 0 1,213 0
assets acquired --------- --------- --------- ---------
Operating income 9,740 9,915 17,222 19,335
Interest expense 4,101 3,919 8,348 7,867
Amortization - deferred financing costs 162 162 325 325
Other (income) - net (1,304) (774) (2,062) (1,241)
--------- --------- --------- ---------
Income before income taxes 6,781 6,608 10,611 12,384
Income tax expense 2,931 2,841 4,681 5,325
--------- --------- --------- ---------
Net income $ 3,850 $ 3,767 $ 5,930 $ 7,059
========= ========= ========= =========
See Notes to Consolidated Condensed Financial Statements
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Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Statement of Stockholders' Equity
(in thousands, except share data)
(unaudited)
Class A Class B (Accumulated
Common Stock Common Stock Additional Deficit)/
-------------- --------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
Balance at
December 30,
2001 78.1158 $ -- 76.8690 $ -- $8,002 $13,000 $21,002
Net income -- -- -- -- -- 7,059 7,059
Dividend (6,000) (6,000)
------- -------
Balance at
June 29,
2002 78.1158 $ -- 76.8690 $ -- $8,002 $14,059 $22,061
======= ==== ======= ==== ====== ======= =======
See Notes to Consolidated Condensed Financial Statements
-3-
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Twenty-six weeks ended
----------------------
June 30, June 29,
2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,930 $ 7,059
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization of fixed assets 1,147 1,153
Other amortization 2,602 1,352
Provision for doubtful accounts 300 250
Non cash pension income (348) (79)
Deferred taxes 3,973 168
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable (4,786) (4,777)
Inventory 936 2,165
Prepaid expenses (4,231) (4,036)
Long-term receivables (5,258) (298)
Other assets (86) (210)
Increase (decrease) in:
Accounts payable (2,694) 5,107
Accrued expenses and other liabilities 1,482 748
------- -------
Net cash provided by (used in) operating activities (1,033) 8,602
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (1,102) (2,459)
------- -------
Net cash used in investing activities (1,102) (2,459)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under revolving line-of-credit (7,780) 0
Dividends paid 0 (6,000)
Proceeds from note participation sale 8,510 1,878
Capital lease payments (36) (27)
------- -------
Net cash provided by (used in) financing activities 694 (4,149)
------- -------
Increase (decrease) in cash (1,441) 1,994
Cash at beginning of period 1,744 1,807
------- -------
Cash at end of period $ 303 $ 3,801
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 8,307 $ 7,829
======= =======
Income taxes $ 2,100 $ 5,392
======= =======
See Notes to Consolidated Condensed Financial Statements
-4-
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet as of June 29, 2002, the consolidated
condensed income statements for the twenty-six weeks and thirteen weeks ended
June 30, 2001 and June 29, 2002, the consolidated condensed statement of
stockholders' equity for the twenty-six weeks ended June 29, 2002, and the
consolidated condensed statements of cash flows for the twenty-six weeks ended
June 30, 2001 and June 29, 2002, and related notes are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying unaudited interim
consolidated condensed financial statements and related notes should be read in
conjunction with the financial statements and related notes included in the Form
10-K for the fiscal year ended December 29, 2001, as well as Form 10-Q for the
quarter ended March 30, 2002 as filed with the Securities and Exchange
Commission. The information furnished herein reflects, in the opinion of the
management of the Company, all adjustments, consisting of normal recurring
accruals, which are necessary to present a fair statement of the results for the
interim periods presented.
The interim figures are not necessarily indicative of the results to be expected
for the full fiscal year.
2. NEW ACCOUNTING PRONOUNCEMENTS
Effective December 30, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
which addresses the financial accounting and reporting standards for the
acquisition of intangible assets outside of a business combination and for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill be separately disclosed from other
intangible assets in the statement of financial position, and no longer be
amortized but tested for impairment on a periodic basis.
-5-
In accordance with SFAS No. 142, the Company discontinued the amortization of
goodwill effective December 30, 2001. A reconciliation of previously reported
net income to the amounts adjusted for the exclusion of goodwill amortization
net of the related income tax effect follows:
Twenty-six weeks Ended
----------------------
June 29, 2002 June 30, 2001
(in thousands)
Reported net income $7,059 $5,930
Goodwill amortization, net of tax 0 1,165
------ ------
Adjusted net income $7,059 $7,095
====== ======
The provisions of SFAS No. 142 also require the completion of a transitional
impairment test within six months of adoption, with any impairments treated as a
cumulative effect of a change in accounting principle. During the quarter ended
March 30, 2002, we completed the transitional impairment test and did not record
any impairments of goodwill.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No.145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections. In addition to amending and
rescinding other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions, SFAS No. 145 precludes companies from recording gains and losses
from the extinguishment of debt as an extraordinary item. SFAS No. 145 is
effective for the first quarter in the fiscal year ending January 3, 2004. The
Company does not expect the adoption of this pronouncement to have a material
effect on the consolidated results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of this pronouncement to have
a material effect on the consolidated results of operations or financial
position.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-Q include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements may be identified by their use of words like "plans", "expects"
"aims" "believes", "projects" "anticipates", "intends" "estimates" "will" "
should" "could" and other expressions that indicate future events and trends.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievement
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions and those in particular in the New York City metropolitan area; the
Company's reliance on several significant customers; potential losses from loans
to its retailers; restrictions imposed by the documents governing the Company's
indebtedness; current wholesale competition, as well as future competition from
presently unknown sources; competition in the retail segment of the supermarket
business; the Company's labor relations; potential environmental liabilities
which the Company may incur; dependence on key personnel; business abilities and
judgment of personnel; changes in, or failure to comply with government
regulations; potential commercial vehicle restrictions; and inflation,
especially with respect to wages and energy costs.
Results of Operations
Thirteen weeks ended June 29, 2002 and June 30, 2001
Net sales for the thirteen weeks ended June 29, 2002 rose 3.3% to $388.0 million
as compared to $375.5 million for the thirteen weeks ended June 30, 2001,
primarily due to higher sales to existing customers. Other revenue, consisting
of recurring customer related services, increased slightly to $2.0 million for
the thirteen weeks ended June 29, 2002 as compared to $1.9 million in the prior
period.
Gross margin remained at 10.3% of net sales or $39.9 million for the thirteen
weeks ended June 29, 2002, as compared to 10.3% of net sales or $38.6 million
for the prior period. The Company has, and will continue to, take steps to
maintain and improve its margins; however, factors such as the additions of high
volume, lower margin customers, changes in manufacturers' promotional
activities, changes in product mix, or competitive pricing pressures may have an
effect on gross margin. It is uncertain whether the gross margin improvement
experienced in the current quarter as compared to the 9.9% of net sales realized
in the first quarter of 2002 will continue.
-7-
Warehouse expense increased as a percentage of net sales to 3.7% of net sales or
$14.5 million for the thirteen weeks ended June 29, 2002, as compared to 3.5% of
net sales or $13.0 million in the prior period, primarily as a result of higher
health and welfare costs.
Transportation expense decreased to 1.9% of net sales or $7.4 million for the
thirteen weeks ended June 29, 2002 as compared to 2.0% of net sales or $7.6
million in the prior period, primarily as a result of increased insurance claims
in the prior period.
Selling, general and administrative expense increased to 2.1% of net sales or
$8.0 million for the thirteen weeks ended June 29, 2002 as compared to 2.0% of
net sales or $7.6 million in the prior period primarily as a result primarily as
a result of higher nonunion employee health and welfare costs.
Other income decreased to $774,000 in the thirteen weeks ended June 29, 2002 as
compared to $1.3 million for the prior period primarily due to a $520,000
settlement of a business interruption insurance claim in the prior period
resulting from an incident in January 2001.
Interest expense decreased to $3.9 million for the thirteen weeks ended June 29,
2002 from $4.1 million for the prior period as a result of less borrowed money
outstanding during 2002.
The Company recorded an income tax provision of $2.8 million, resulting in an
effective income tax rate of 43% for the thirteen weeks ended June 29, 2002 as
compared to a provision of $2.9 million and an effective rate of 43% in the
prior period.
The Company recorded net income for the thirteen weeks ended June 29, 2002 of
$3.8 million as compared to a net income of $3.9 million in the prior period.
Twenty-six weeks ended June 29, 2002 and June 30, 2001
Net sales for the twenty-six weeks ended June 29, 2002 rose 2.6% to $775.3
million as compared to $755.9 million for the twenty-six weeks ended June 30,
2001 primarily due to higher sales to existing customers. Other revenue,
consisting of recurring customer related services, increased slightly to $4.0
million for the twenty-six weeks ended June 29, 2002 as compared to $3.9 million
in the prior period.
Gross margin increased to 10.1% of net sales or $78.4 million for the twenty-six
weeks ended June 29, 2002, as compared to 9.9% of net sales or $75.1 million for
the prior period, reflecting a change in mix of both customers and products
sold, as well as an increase in special pricing opportunities that the Company
was able to take advantage of. The Company has, and will continue to, take steps
to maintain and improve its margins; however, factors such as the additions of
high volume, lower margin customers, changes in manufacturers' promotional
activities, changes in product mix, or competitive pricing pressures may have an
effect on gross margin. It is uncertain that the improvement in gross margin
realized in this year will continue.
-8-
Warehouse expense increased as a percentage of net sales to 3.7% of net sales or
$28.9 million for the twenty-six weeks ended June 29, 2002, as compared to 3.5%
of net sales or $26.8 million in the prior period primarily as a result of
higher health and welfare costs.
Transportation expense remained constant at 1.9% of net sales or $14.4 million
for the twenty-six weeks ended June 29, 2002 as compared to 1.9% of net sales or
$14.7 million in the prior period.
Selling, general and administrative expense remained constant at 2.0% of net
sales or $15.8 million for the twenty-six weeks ended June 29, 2002 as compared
to 2.0% of net sales or $15.2 million for the prior period.
Other income decreased to $1.2 million in the twenty-six weeks ended June 29,
2002 as compared to $2.1 million for the prior period, primarily due to a
$520,000 settlement of a business interruption insurance claim in the prior
period resulting from an incident in January 2001.
Interest expense decreased to $7.9 million for the twenty-six weeks ended June
29, 2002 from $8.3 million for the prior period as a result of less borrowed
money outstanding during 2002.
The Company recorded an income tax provision of $5.3 million, resulting in an
effective income tax rate of 43% for the twenty-six weeks ended June 29, 2002 as
compared to a provision of $4.7 million and an effective rate of 44% in the
prior period.
The Company recorded net income for the twenty-six weeks ended June 29, 2002 of
$7.1 million as compared to a net income of $5.9 million in the prior period.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's $90 million
bank credit facility are the Company's principal sources of liquidity. The
Company believes that these sources will be adequate to meet its anticipated
working capital needs, capital expenditures, dividend payments, if any, and debt
service requirements during the next four fiscal quarters, as well as any
investments the Company may make.
There were no borrowings under the Company's revolving bank credit facility
(excluding $4.7 million of outstanding letters of credit) at June 29, 2002. The
Company had additional borrowing capacity of $85.3 million available at that
time under the Company's then current borrowing base availability certificate
exclusive of $3.0 million of cash invested with the bank. The Company's bank
credit facility is scheduled to mature on June 30, 2004 and bears interest at a
rate per annum equal to (at the Company's option): (i) the Euro dollar offering
rate plus 1.625% or (ii) the lead bank's prime rate. The Company paid a $6
million dividend on April 1, 2002.
During the twenty-six weeks ended June 29, 2002, cash flows provided by
operating activities were approximately $8.6 million, consisting primarily of
(i) cash generated from income before non-cash expenses of $9.9 million, (ii) an
-9-
increase in accounts payable, accrued expenses, and other liabilities of $5.9
million, and (iii) a reduction of inventory of $2.2 million offset by (i) an
increase in accounts and notes receivable (including the long-term portion) of
$5.1 million, and (ii) an increase in prepaid expenses of $4.0 million.
Cash flows used in investing activities during the twenty-six weeks ended June
29, 2002 were approximately $2.5 million, which were used exclusively for
capital expenditures. Net cash used in financing activities of approximately
$4.1 million consisted of $1.9 million from the proceeds of note sales discussed
below, offset by dividends paid in the amount of $6.0 million.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $22.8 million during the twenty-six weeks ended June 29,
2002 as compared to $22.7 million in the same period of the prior year. The
Company has presented EBITDA supplementally because management believes this
information is useful given the significance of the Company's depreciation and
amortization and because of its highly leveraged financial position. This data
should not be considered as an alternative to any measure of performance or
liquidity as promulgated under generally accepted accounting principles (such as
net income/loss or cash provided by/used in operating, investing and financing
activities), nor should they be considered as an indicator of the Company's
overall financial performance. Also, the EBITDA definition used herein may not
be comparable to similarly titled measures reported by other companies.
The consolidated indebtedness of the Company decreased slightly to $157.0
million at June 29, 2002 as compared to $157.1 million at December 29, 2001 and
stockholders' equity increased to $22.1 million at June 29, 2002 as compared to
$21.0 million at December 29, 2001.
In fiscal June 2002, the Company sold non-recourse, senior participations in
selected customer notes to a bank at par. Proceeds from the sales were $1.9
million. Proceeds were either invested overnight or used to repay the bank
credit facility. The primary reason for these sales was to enhance the Company's
ability to lend money to customers within the confines of its loan agreements.
The Company may sell additional participations from time to time.
Under the terms of the Company's bank credit facility, the Company is required
to meet certain financial tests, including minimum interest coverage ratios. As
of June 29, 2002, the Company was in compliance with its covenants.
From time to time when the Company considered market conditions attractive, the
Company has, and may in the future, purchase its notes on the open market and
retire a portion of its public debt.
Kings Super Markets, Inc. ("Kings"), a customer of the Company, is supplied
pursuant to a September 1977 Agreement, as amended. On July 23, 2002 Marks &
Spencer PLC, parent of Kings, announced that it had entered into an agreement to
sell Kings to D'Agostino Supermarkets which is currently supplied by another
wholesaler. A closing date for that transaction has not been announced, however,
under the terms of its Agreement with Kings, the Company has certain rights with
respect to continuance of supply. The Company's net sales to Kings were $40.2
million for the twenty-six weeks ended June 29, 2002 and $42.3 million for the
twenty-six weeks ended June 30, 2001, and were $82.9 million for the fifty-two
weeks ended December 29, 2001.
-10-
II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 99.1 - Statement Under Oath of Principal Executive Officer and
Principal Financial Officer Regarding Facts and Circumstances
Relating to Exchange Act Filings. Filed herewith.
99.2 - Statement Under Oath of Principal Executive Officer and
Principal Financial Officer Regarding Facts and Circumstances
Relating to Exchange Act Filings. Filed herewith.
99.3 - Certification of Chief Executive Officer and Chief
Financial Officer of Di Giorgio Corporation Pursuant to 18 U.
S.C. Section 1350
(b) Reports on Form 8-K. None
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
DI GIORGIO CORPORATION
By: /s/ Richard B. Neff
----------------------------------
Richard B. Neff
Co-Chairman and Chief
Executive Officer
By: /s/ Stephen R. Bokser
----------------------------------
Stephen R. Bokser
Co-Chairman, President, and Chief
Operating Officer
By: /s/ Lawrence S. Grossman
----------------------------------
Lawrence S. Grossman
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 7, 2002
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