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 March 29, 2003
[ ] 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 April 29, 2003, 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 28, 2002 and March 29, 2003 (Unaudited)........................ 1
Consolidated Condensed Income Statements,
Thirteen Weeks Ended March 30, 2002
and March 29, 2003 (Unaudited).......................................... 2
Consolidated Condensed Statement of Stockholders' Equity,
Thirteen Weeks Ended March 29, 2003 (Unaudited)......................... 3
Consolidated Condensed Statements of Cash Flows,
Thirteen Weeks Ended March 30, 2002 and
March 29, 2003 (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 .................................... 9
Certification Of Chief Executive Officer, Richard B. Neff.................... 10
Certification Of Chief Financial Officer, Lawrence S. Grossman............... 11
Signatures .................................................................. 12
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
December 28, March 29,
2002 2003
(Unaudited)
ASSETS
Current Assets:
Cash $ 629 $ 8,617
Accounts and notes receivable-net 109,471 102,334
Inventories 68,786 66,828
Deferred income taxes 2,986 3,067
Prepaid expenses 4,928 3,675
--------- ---------
Total current assets 186,800 184,521
--------- ---------
Property, Plant & Equipment
Cost 28,735 29,034
Accumulated depreciation (17,856) (18,430)
--------- ---------
Net 10,879 10,604
--------- ---------
Long-term notes receivable 7,981 7,776
Other assets 21,397 20,732
Deferred financing costs-net 2,514 2,357
Goodwill 68,893 68,893
--------- ---------
Total assets $298,464 $294,883
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Revolving credit facility $ 2,693 $ 0
Accounts payable 77,833 68,997
Accrued expenses 31,440 36,433
Notes and leases payable within one year 60 61
-------- --------
Total current liabilities 112,026 105,491
-------- --------
Long-term debt 148,300 148,300
Capital lease liability 1,941 1,924
Other long-term liabilities 8,024 7,874
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 20,171 23,292
-------- --------
Total stockholders' equity 28,173 31,294
-------- --------
Total liabilities & stockholders' equity $298,464 $294,883
======== ========
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
--------------------
March 30, March 29,
2002 2003
Revenue:
Net sales $ 387,376 $ 383,015
Other revenue 2,022 2,239
--------- ---------
Total revenue 389,398 385,254
Cost of products sold 350,863 345,415
--------- ---------
Gross profit-exclusive of warehouse 38,535 39,839
expense shown below
Warehouse expense 14,352 15,232
Transportation expense 6,961 7,848
Selling, general and administrative expense 7,802 8,207
--------- ---------
Operating income 9,420 8,552
Interest expense 3,948 3,793
Amortization - deferred financing costs 163 157
Other (income) - net (467) (848)
--------- ---------
Income before income taxes 5,776 5,450
Income tax expense 2,484 2,329
--------- ---------
Net income $ 3,292 $ 3,121
========= =========
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
Common Stock Common Stock Additional
-------------- -------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
Balance at
December 28,
2002 78.1158 $ -- 76.8690 $ -- $8,002 $20,171 $28,173
Net income -- -- -- -- -- 3,121 $3,121
------- ---- ------- ---- ------ ------- ------
Balance at
March 29,
2003 78.1158 $ -- 76.8690 $ -- $8,002 $23,292 $31,294
======= ==== ======= ==== ====== ======== =======
See Notes to Consolidated Condensed Financial Statements
-3-
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Thirteen weeks ended
--------------------
March 30, March 29,
2002 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,292 $ 3,121
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 624 575
Other amortization 678 602
Provision for doubtful accounts 125 125
Non cash pension (income) expense (26) 243
Deferred taxes 0 (216)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable (161) 7,012
Inventory 804 1,958
Prepaid expenses 1,205 1,253
Long-term receivables (137) 205
Other assets (75) 26
Increase (decrease) in:
Accounts payable (2,694) (8,836)
Accrued expenses and other liabilities 4,095 4,928
------- --------
Net cash provided by operating activities 7,730 10,996
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (1,444) (299)
------- --------
Net cash used in investing activities (1,444) (299)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving
line-of-credit 0 (2,693)
Capital lease payments (13) (16)
------- --------
Net cash used in financing activities (13) (2,709)
------- --------
Increase in cash 6,273 7,988
Cash at beginning of period 1,807 629
------- --------
Cash at end of period $ 8,080 $ 8,617
======= ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 33 $ 52
======= ========
Income taxes $ 949 $ 231
======= ========
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 March 29, 2003, the consolidated
condensed income statement for the thirteen weeks ended March 30, 2002 and March
29, 2003, the consolidated condensed statements of cash flows for the thirteen
weeks ended March 30, 2002 and March 29, 2003, and consolidated condensed
statement of stockholders' equity for the thirteen weeks ended March 29, 2003
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 28,
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-K include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These 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 agreements 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 have; dependence on key personnel; changes in business regulation;
business abilities and judgment of personnel; changes in, or failure to comply
with government regulations; potential commercial vehicle restrictions;
inflation especially with respect to wages and energy costs; and the results of
terrorism or terrorist acts against the Company.
Results of Operations
Thirteen weeks ended March 29, 2003 and March 30, 2002
Net sales for the thirteen weeks ended March 29, 2003 decreased 1.1% to $383.0
million as compared to $387.4 million for the thirteen weeks ended March 30,
2002 as a result of a change in product mix. Other revenue, relating to
recurring customer related services increased to $2.2 million for the thirteen
weeks ended March 29, 2003 as compared to $2.0 million in the prior period. The
increase was a result of incremental storage revenue and a warehousing service
for a national manufacturer as a result of the frozen warehouse expansion,
completed in the fourth quarter of 2002.
Gross margin increased to 10.4% of net sales or $39.8 million for the thirteen
weeks ended March 29, 2003, as compared to 9.9% of net sales or $38.5 million
for the prior period because of a change in mix of both customers and products
sold. We have taken, and will continue to take steps to maintain and improve our
margins. Factors such as advantageous buying opportunities, 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. Accordingly, we cannot be certain whether the gross
margins we realized in the first quarter of 2003 will continue.
-6-
Warehouse expense increased as a percentage of net sales to 4.0% of net sales or
$15.2 million for the thirteen weeks ended March 29, 2003, as compared to 3.7%
of net sales or $14.4 million in the prior period, primarily because of
increased rent and real estate taxes associated with the frozen warehouse
expansion completed in the fourth quarter of 2002, increased insurance expenses,
increased utility expenses primarily due to a colder winter,as well as increased
wages.
Transportation expense increased to 2.0% of net sales or $7.8 million for the
thirteen weeks ended March 29, 2003 as compared to 1.8% of net sales or $7.0
million in the prior period primarily as a result of increased diesel fuel
costs, increased tolls, and increased wage and benefit costs.
Selling, general and administrative expense increased to 2.1% of net sales or
$8.2 million for the thirteen weeks ended March 29, 2003 as compared to 2.0% of
net sales or $7.8 million for the prior period primarily as a result of a
non-cash pension expense of approximately $.3 million due to lower discount
rates and expected return on plan assets.
Interest expense decreased to $3.8 million for the thirteen weeks ended March
29, 2003 from $3.9 million for the prior period due to lower overall borrowings.
The Company recorded an income tax provision of $2.3 million, resulting in an
effective income tax rate of 43% for the thirteen weeks ended March 29, 2003 as
compared to a provision of $2.5 million and an effective rate of 43% in the
prior period.
The Company recorded net income for the thirteen weeks ended March 29, 2003 of
$3.1 million as compared to net income of $3.3 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 $6.0 million of outstanding letters of credit) at March 29, 2003. The
Company had additional borrowing capacity of $84.0 million available at that
time under the Company's then current borrowing base availability certificate
exclusive of $7.3 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 expects to
receive a consent under its revolving credit facility in the second quarter of
2003 allowing for the payment of a $10 million dividend.
During the thirteen weeks ended March 29, 2003, cash flows provided by operating
activities were approximately $11.0 million, consisting primarily of (i) cash
generated from income before non-cash expenses of $4.5 million; (ii) a reduction
of accounts and notes receivable (including the long-term portion) of $7.2
million (iii) an increase in accrued expenses and other liabilities of $4.9
million; (iv) a reduction of inventory of approximately $2.0 million and (v) a
reduction of prepaid expenses of $1.3 million offset by a decrease in accounts
payable of $8.8 million.
-7-
Cash flows used in investing activities during the thirteen weeks ended March
29, 2003 were approximately $.3 million, which were used exclusively for capital
expenditures. Cash flows used in financing activities during the thirteen weeks
ended March 29, 2003 were approximately $2.7 million primarily due to repayment
of the revolving credit facility.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, decreased to $10.4 million during the thirteen weeks ended
March 29, 2003 as compared to $11.0 million in the same period of the prior
year. Increased operating costs (discussed above) were the principal reason
behind the decline. 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 this data 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.
Reconciliation of EBITDA to net income (in thousands):
2003 2002
------ ------
EBITDA $10,420 $11,026
Less: depreciation and
amortization of fixed assets 575 624
Less: other amortization 602 678
Less: interest expense 3,793 3,948
Less: income tax provision 2,329 2,484
------- -------
Net income $ 3,121 $ 3,292
======= =======
The consolidated indebtedness of the Company decreased to $150.3 million at
March 29, 2003 as compared to $153.0 million at December 28, 2002 and
stockholders' equity increased to $31.3 million at March 29, 2003 as compared to
$28.2 million at December 28, 2002.
The Company is in discussions with its largest customer with respect to the
terms of the relationship. There can be no assurance that the terms of the
relationship will stay the same. The Company is also in discussions with
potentially significant new customers in adjacent markets.
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. The Company was in compliance with its covenants as of March 29, 2003.
From time to time when the Company considered market conditions attractive, the
Company has, and may in future, purchase on the open market and retire a portion
of its public debt.
-8-
II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 99.1 - Statement for SEC solely for purposes of Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1349).
(b) Reports on Form 8-K. None
-9-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER, RICHARD B. NEFF
I, Richard B. Neff, Chief Executive Officer, Di Giorgio Corporation, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Di Giorgio
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
DI GIORGIO CORPORATION
(Registrant)
Date: April 29, 2003 /s/ Richard B. Neff
-------------------------
Richard B. Neff
Chief Executive Officer
-10-
CERTIFICATION OF CHIEF FINANCIAL OFFICER, LAWRENCE S. GROSSMAN
I, Lawrence S. Grossman, Chief Financial Officer, Di Giorgio Corporation,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Di Giorgio
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and;
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
DI GIORGIO CORPORATION
(Registrant)
Date: April 29, 2003 /s/ Lawrence S. Grossman
------------------------------
Lawrence S. Grossman
Chief Financial Officer
-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: April 29, 2003
-12-