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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 28, 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 August 7, 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 June 28, 2003 (Unaudited).................... 1
Consolidated Condensed Income Statements,
Thirteen Weeks and Twenty-Six Weeks Ended June 29, 2002
and June 28, 2003 (Unaudited)...................................... 2
Consolidated Condensed Statement of Stockholders' Equity,
Twenty-Six Weeks Ended June 28, 2003 (Unaudited)................... 3
Consolidated Condensed Statements of Cash Flows,
Twenty-Six Weeks Ended June 29, 2002 and
June 28, 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
Item 4. Controls and Procedures......................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 10
Signatures.............................................................. 11
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
December 28, 2002 June 28, 2003
(Unaudited)
ASSETS
Current Assets:
Cash $ 629 $ 6,944
Accounts and notes receivable-net 109,471 100,687
Inventories 68,786 64,128
Deferred income taxes 2,986 2,969
Prepaid expenses 4,928 4,778
-------- --------
Total current assets 186,800 179,506
-------- --------
Property, Plant and Equipment
Cost 28,735 29,155
Accumulated depreciation and amortization (17,856) (18,936)
-------- --------
Net 10,879 10,219
-------- --------
Long-term notes receivable 7,981 7,234
Other assets 21,397 20,507
Deferred financing costs-net 2,514 2,200
Goodwill 68,893 68,893
-------- --------
Total assets $ 298,464 $ 288,559
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 2,693 $ 0
Accounts payable 77,833 76,762
Accrued expenses 31,440 28,554
Notes and leases payable within one year 60 62
-------- --------
Total current liabilities 112,026 105,378
-------- --------
Long-term debt 148,300 148,300
Capital lease liability 1,941 1,908
Other long-term liabilities 8,024 7,730
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 20,171 17,241
-------- --------
Total stockholders' equity 28,173 25,243
-------- --------
Total liabilities & stockholders' equity $ 298,464 $ 288,559
======== ========
See Notes to Consolidated Condensed Financial Statements
-1-
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Income Statements
(in thousands)
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
June 29, 2002 June 28, 2003 June 29, 2002 June 28, 2003
Revenue:
Net sales $ 387,956 $ 400,433 $ 775,332 $ 783,448
Other revenue 1,962 2,512 3,984 4,751
--------- --------- --------- ---------
Total revenue 389,918 402,945 779,316 788,199
Cost of products sold 350,024 362,223 700,887 707,638
--------- --------- --------- ---------
Gross profit-exclusive of warehouse 39,894 40,722 78,429 80,561
expense shown below
Warehouse expense 14,540 15,324 28,892 30,556
Transportation expense 7,400 7,545 14,361 15,393
Selling, general and administrative expense 8,039 8,116 15,841 16,323
--------- --------- --------- ---------
Operating income 9,915 9,737 19,335 18,289
Interest expense 3,919 3,736 7,867 7,529
Amortization - deferred financing costs 162 157 325 314
Other (income) - net (774) (1,000) (1,241) (1,848)
--------- --------- --------- ---------
Income before income taxes 6,608 6,844 12,384 12,294
Income tax expense 2,841 2,895 5,325 5,224
--------- --------- --------- ---------
Net income $ 3,767 $ 3,949 $ 7,059 $ 7,070
========= ========= ========= =========
See Notes to Consolidated Condensed Financial Statements
-2-
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Statement of Stockholders' Equity
(in thousands, except share data)
(unaudited)
Class A Class B Additional
Common Stock Common Stock 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 -- -- -- -- -- 7,070 $7,070
Dividend (10,000) (10,000)
-------- --------
Balance at June 28, 2003 78.1158 $ -- 76.8690 $ -- $8,002 $17,241 $25,243
======= ==== ======= ==== ====== ======= =======
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 29, 2002 June 28, 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,059 $ 7,070
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 1,153 1,115
Other amortization 1,352 1,286
Provision for doubtful accounts 250 250
Non cash pension (income) expense (79) 486
Deferred income taxes 168 (118)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (4,777) 8,534
Inventories 2,165 4,658
Prepaid expenses (4,036) 150
Long-term receivables (298) 747
Other assets (210) (471)
Increase (decrease) in:
Accounts payable 5,107 (1,071)
Accrued expenses and other liabilities 748 (3,141)
------- --------
Net cash provided by operating activities 8,602 19,495
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,459) (456)
------- --------
Net cash used in investing activities (2,459) (456)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving line-of-credit 0 (2,693)
Dividends paid (6,000) (10,000)
Proceeds from note participation sale 1,878 0
Capital lease payments (27) (31)
------- --------
Net cash used in financing activities (4,149) (12,724)
------- --------
Increase in cash 1,994 6,315
Cash at beginning of period 1,807 629
------- --------
Cash at end of period $ 3,801 $ 6,944
======= ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 7,829 $ 7,500
======= ========
Income taxes $ 5,392 $ 5,228
======= ========
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 28, 2003, the consolidated
condensed income statements for the twenty-six weeks and thirteen weeks ended
June 29, 2002 and June 28, 2003, the consolidated condensed statement of
stockholders' equity for the twenty-six weeks ended June 28, 2003, and the
consolidated condensed statements of cash flows for the twenty-six weeks ended
June 29, 2002 and June 28, 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 well as Form 10-Q for the
quarter ended March 29, 2003 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.
-5-
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 June 28, 2003 and June 29, 2002
Net sales for the thirteen weeks ended June 28, 2003 rose 3.2% to $400.4 million
as compared to $388.0 million for the thirteen weeks ended June 29, 2002,
primarily due to sales to new customers in adjacent markets. Other revenue,
consisting of recurring customer related services, increased to $2.5 million for
the thirteen weeks ended June 28, 2003 as compared to $2.0 million in the prior
period. The increase was a result of incremental storage revenue and providing a
warehousing service for a national manufacturer. The frozen warehouse expansion,
completed in the fourth quarter of 2002 ("the Frozen Warehouse Expansion") added
the capacity which allowed the Company to provide this service.
Gross margin decreased as a percentage of net sales to 10.2% of net sales or
$40.7 million for the thirteen weeks ended June 28, 2003, as compared to 10.3%
of net sales or $39.9 million for the prior period. 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 in the future.
-6-
Warehouse expense increased as a percentage of net sales to 3.8% of net sales or
$15.3 million for the thirteen weeks ended June 28, 2003, as compared to 3.7% of
net sales or $14.5 million in the prior period, primarily as a result of higher
wages and increased building costs as a result of the Frozen Warehouse
Expansion.
Transportation expense remained flat at 1.9% of net sales or $7.5 million for
the thirteen weeks ended June 28, 2003 as compared to 1.9% of net sales or $7.4
million in the prior period.
Selling, general and administrative expense decreased to 2.0% of net sales or
$8.1 million for the thirteen weeks ended June 28, 2003 as compared to 2.1% of
net sales or $8.0 million in the prior period.
Other income increased to $1.0 million in the thirteen weeks ended June 28, 2003
as compared to $.8 million for the prior period.
Interest expense decreased to $3.7 million for the thirteen weeks ended June 28,
2003 from $3.9 million for the prior period as a result of less borrowed money
outstanding during 2003.
The Company recorded an income tax provision of $2.9 million, resulting in an
effective income tax rate of 42% for the thirteen weeks ended June 28, 2003 as
compared to a provision of $2.8 million and an effective rate of 43% in the
prior period.
The Company recorded net income for the thirteen weeks ended June 28, 2003 of
$3.9 million as compared to net income of $3.8 million in the prior period.
Twenty-six weeks ended June 28, 2003 and June 29, 2002
Net sales for the twenty-six weeks ended June 28, 2003 rose 1.1% to $783.4
million as compared to $775.3 million for the twenty-six weeks ended June 29,
2002 primarily due to higher sales to new customers in adjacent markets. Other
revenue, consisting of recurring customer related services, increased to $4.8
million for the twenty-six weeks ended June 28, 2003 as compared to $4.0 million
in the prior period primarily as a result of incremental storage revenue and
providing a warehousing service for a national manufacturer.
Gross margin increased to 10.3% of net sales or $80.6 million for the twenty-six
weeks ended June 28, 2003, as compared to 10.1% of net sales or $78.4 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. 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 in the future. It is
uncertain that the improvement in gross margin realized in this year will
continue.
-7-
Warehouse expense increased as a percentage of net sales to 3.9% of net sales or
$30.6 million for the twenty-six weeks ended June 28, 2003, as compared to 3.7%
of net sales or $28.9 million in the prior period primarily as a result of
higher wages and increased building costs as a result of the Frozen Warehouse
Expansion
Transportation expense increased to 2.0% of net sales or $15.4 million for the
twenty-six weeks ended June 28, 2003 as compared to 1.9% of net sales or $14.4
million in the prior period primarily as a result of increased expenses
including wages, fringe benefits, equipment rental, tolls and fuel.
Selling, general and administrative expense increased to 2.1% of net sales or
$16.3 million for the twenty-six weeks ended June 28, 2003 as compared to 2.0%
of net sales or $15.8 million for the prior period.
Other income increased to $1.8 million in the twenty-six weeks ended June 28,
2003 as compared to $1.2 million for the prior period.
Interest expense decreased to $7.5 million for the twenty-six weeks ended June
28, 2003 from $7.9 million for the prior period as a result of less borrowed
money outstanding during 2003.
The Company recorded an income tax provision of $5.2 million, resulting in an
effective income tax rate of 42% for the twenty-six weeks ended June 28, 2003 as
compared to a provision of $5.3 million and an effective rate of 43% in the
prior period.
The Company recorded net income for the twenty-six weeks ended June 28, 2003 of
$7.1 million as compared to net income of $7.1 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 June 28, 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 $6.8 million of cash invested. 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 currently expects to be
able to extend or replace its revolving bank credit facility on terms similar to
the terms presently in place. The Company paid a $10.0 million dividend in June
2003.
-8-
During the twenty-six weeks ended June 28, 2003, cash flows provided by
operating activities were approximately $19.5 million, consisting primarily of
(i) cash generated from income before non-cash expenses of $10.1 million, (ii) a
reduction in accounts and notes receivable (including long-term portion) of $9.3
million , (iii) a reduction of inventories of $4.7 million offset by (i) a
decrease in accounts payable, accrued expenses, and other liabilities of $4.2
million and (ii) an increase in other assets of $ .5 million.
Cash flows used in investing activities during the twenty-six weeks ended June
28, 2003 were approximately $.5 million, which were used exclusively for capital
expenditures. Net cash used in financing activities of approximately $12.7
million consisted of dividends paid in the amount of $10.0 million and $2.7
million of net repayments under the Company's revolving bank credit facility.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $22.2 million during the twenty-six weeks ended June 28,
2003 as compared to $22.8 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.
Reconciliation of EBITDA to net income (in thousands):
Six months ended June
2003 2002
------ ------
EBITDA $22,224 $22,756
Less: depreciation and
amortization of fixed assets 1,115 1,153
Less: other amortization 1,286 1,352
Less: interest expense 7,529 7,867
Less: income tax provision 5,224 5,325
----- -----
Net income $ 7,070 $ 7,059
===== =====
The consolidated indebtedness of the Company was at $150.3 million at June 28,
2003 as compared to $153.0 million at December 28, 2002 and stockholders' equity
decreased to $25.2 million at June 28, 2003 as compared to $28.2 million at
December 28, 2002 as a result of net income being offset by the $10.0 million
dividend paid in June 2003.
The Company continues to be 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.
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 28, 2003, the Company was in compliance with its covenants.
-9-
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. Gristedes Foods Inc, a
long-time customer of the Company, has expressed interest in purchasing Kings.
If Gristedes is successful in purchasing Kings, the Company has agreed to
support the transaction in the amount of $10 million in exchange for a 10 year
supply agreement containing among other items, minimum purchase amounts.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed
with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of June 30, 2003. There were no
significant changes in the Company's internal controls or other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 31.1 - Statement Under Oath of Principal Executive Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings. Filed
herewith.
31.2- Statement Under Oath of Principal Financial Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings. Filed
herewith.
32.1 - 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
-10-
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 11, 2003
-11-