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 September 27, 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 October 30, 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 September 27, 2003 (Unaudited)................. 1
Consolidated Condensed Income Statements,
Thirteen and Thirty-Nine Weeks Ended September 28, 2002
and September 27, 2003 (Unaudited)................................... 2
Consolidated Condensed Statement of Stockholders Equity,
Thirty-Nine Weeks Ended September 27, 2003 (Unaudited)............... 3
Consolidated Condensed Statements of Cash Flows,
Thirty-Nine Weeks Ended September 28, 2002 and
September 27, 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........................................... 11
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 28, September 27,
2002 2003
(unaudited)
ASSETS
Current Assets:
Cash $ 629 $ 26,572
Accounts and notes receivable-net 109,471 103,809
Inventories 68,786 66,338
Deferred income taxes 2,986 3,235
Prepaid expenses 4,928 4,846
--------- ---------
Total current assets 186,800 204,800
--------- ---------
Property, Plant and Equipment
Cost 28,735 29,417
Accumulated depreciation and amortization (17,856) (19,494)
--------- ---------
Net 10,879 9,923
--------- ---------
Long-term notes receivable 7,981 4,981
Other assets 21,397 19,976
Deferred financing costs-net 2,514 2,043
Goodwill 68,893 68,893
--------- ---------
Total assets $ 298,464 $ 310,616
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 2,693 $ 0
Accounts payable 77,833 84,070
Accrued expenses 31,440 39,616
Notes and leases payable within one year 60 63
--------- ---------
Total current liabilities 112,026 123,749
--------- ---------
Long-term debt 148,300 148,300
Capital lease liability 1,941 1,893
Other long-term liabilities 8,024 7,700
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 20,171 20,972
--------- ---------
Total stockholders' equity 28,173 28,974
--------- ---------
Total liabilities & stockholders' equity $ 298,464 $ 310,616
========= =========
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 Thirty-nine weeks ended
Sept 28, Sept 27, Sept 28, Sept 27,
2002 2003 2002 2003
Revenue:
Net sales $ 370,671 $ 391,582 $ 1,146,003 $ 1,175,030
Other revenue 1,766 2,453 5,750 7,204
--------- --------- ----------- -----------
Total revenue 372,437 394,035 1,151,753 1,182,234
Cost of products sold 334,889 352,788 1,035,776 1,060,426
--------- --------- ----------- -----------
Gross profit-exclusive of warehouse
expense shown below 37,548 41,247 115,977 121,808
Warehouse expense 14,599 15,906 43,491 46,462
Transportation expense 7,378 7,774 21,739 23,167
Selling, general and administrative expense 7,076 7,799 22,917 24,122
--------- --------- ----------- -----------
Operating income 8,495 9,768 27,830 28,057
Interest expense 3,866 3,699 11,733 11,228
Amortization-deferred financing costs 163 157 488 471
Other (income)-net (595) (542) (1,836) (2,390)
--------- --------- ----------- -----------
Income before income taxes 5,061 6,454 17,445 18,748
Income tax expense 2,122 2,723 7,448 7,947
--------- --------- ----------- -----------
Net income $ 2,939 $ 3,731 $ 9,997 $ 10,801
========= ========= =========== ===========
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 Additional
Common Stock Common Stock Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
Balance at 78.1158 $ -- 76.8690 $ -- $8,002 $20,171 $28,173
December 28, 2002
Net income -- -- -- -- -- 10,801 $10,801
Dividend (10,000) (10,000)
-------- --------
Balance at 78.1158 $ -- 76.8690 $ -- $8,002 $20,972 $28,974
September 27, 2003 ======= ==== ======= ==== ======= ======== ========
See Notes to Consolidated Condensed Financial Statements
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Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
Thirty-nine weeks ended
September 28, September 27,
2002 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,997 $ 10,801
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 1,710 1,672
Other amortization 1,986 1,803
Provision for doubtful accounts 375 375
Non cash pension (income) expense (133) 728
Deferred income taxes (186) (528)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (4,189) 5,287
Inventories 2,417 2,448
Prepaid expenses (2,581) 82
Long-term receivables (1,476) 3,000
Other assets (270) (494)
Increase in:
Accounts payable 5,716 6,237
Accrued expenses and other liabilities 5,374 7,988
-------- --------
Net cash provided by operating activities 18,740 39,399
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,545) (718)
-------- --------
Net cash used in investing activities (2,545) (718)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net 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 (42) (45)
-------- --------
Net cash used in financing activities (4,164) (12,738)
-------- --------
Increase in cash 12,031 25,943
Cash at beginning of period 1,807 629
-------- --------
Cash at end of period $ 13,838 $ 26,572
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 7,863 $ 7,533
======== ========
Income taxes $ 8,737 $ 5,262
======== ========
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet as of September 27, 2003, the
consolidated condensed income statements for the thirty-nine weeks and thirteen
weeks ended September 28, 2002 and September 27, 2003, the consolidated
condensed statement of stockholders' equity for the thirty-nine weeks ended
September 27, 2003, and the consolidated condensed statements of cash flows for
the thirty-nine weeks ended September 28, 2002 and September 27, 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 quarters ended March 29, 2003 and June 28,
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.
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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-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; inflation,
especially with respect to wages and energy costs; and the results of terrorism
or terrorist acts against the Company.
General
On October 9, 2003, the Company announced that its current business arrangement
with the Great Atlantic & Pacific Tea Company ("A&P") would end in approximately
thirty days. While the Company has begun to reduce expenses to help compensate
for the reduced sales, the loss of this business will have a negative impact on
earnings. Sales to A&P were $388.5 million in fiscal 2002 and $276.4 million for
the thirty-nine weeks ended September 27, 2003. The loss of these sales will be
partially offset by increased sales to newly obtained customers in the second
and third quarters of 2003. The Company has also established a new division, DGI
Specialty Foods, which should be operational in the fourth quarter of 2003. The
new division will offer a complete line of specialty food products including
ethnic, gourmet, imported, and organic food items. This product category is
considered one of the fastest growing areas of the supermarket business.
-6-
Results of Operations
Thirteen weeks ended September 27, 2003 and September 28, 2002
Net sales for the thirteen weeks ended September 27, 2003 increased 5.6% to
$391.6 million as compared to $370.7 million for the thirteen weeks ended
September 28, 2002 primarily as a result of sales to new customers. Other
revenue, consisting of recurring customer related services, increased to $2.5
million for the thirteen weeks ended September 27, 2003 as compared to $1.8
million in the prior period. The increase was a result of providing a
warehousing service for a national manufacturer and incremental storage revenue.
The frozen warehouse expansion, completed in the fourth quarter of 2002 ("the
Frozen Warehouse Expansion") added the capacity to enable the Company to provide
this service.
Gross margin increased to 10.5% of net sales or $41.2 million for the thirteen
weeks ended September 27, 2003, as compared to 10.1% of net sales or $37.5
million for the prior period reflecting increased other revenue from frozen
warehousing services, a change in mix of both customers and products sold, and
allowances related to new products the Company is carrying. The Company has, and
will continue to, take steps intended to maintain and improve its margins such
as auditing and scrutinizing its acquisition cost of product, better inventory
management, and taking advantage of forward buy opportunities. Factors such as
the addition or loss 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. Caution should
be taken when comparing the Company's gross margin to that of other companies
because other companies, while still complying with generally accepted
accounting principles ("GAAP"), may characterize income and expenses
differently.
Warehouse expense increased as a percentage of net sales to 4.1% of net sales or
$15.9 million for the thirteen weeks ended September 27, 2003, as compared to
3.9% of net sales or $14.6 million in the prior period, primarily as a result of
higher wages and fringes and increased building costs as a result of the Frozen
Warehouse Expansion.
Transportation expense remained flat at 2.0% of net sales or $7.8 million for
the thirteen weeks ended September 27, 2003 as compared to 2.0% of net sales or
$7.4 million in the prior period.
Selling, general and administrative expense increased to 2.0% of net sales or
$7.8 million for the thirteen weeks ended September 27, 2003 as compared to 1.9%
of net sales or $7.1 million in the prior period primarily due to increased
wages and benefits including non-cash pension expense, offset by a $.5 million
reimbursement of previously expensed legal fees as a result of a legal
settlement.
Other income decreased to $542,000 in the thirteen weeks ended September 27,
2003 as compared to $595,000 for the prior period.
Interest expense decreased to $3.7 million for the thirteen weeks ended
September 27, 2003 from $3.9 million for the prior period as a result of less
borrowed money outstanding during the current period.
-7-
The Company recorded an income tax provision of $2.7 million, resulting in an
effective income tax rate of 42% for the thirteen weeks ended September 27, 2003
as compared to a provision of $2.1 million and an effective rate of 42% in the
prior period.
The Company recorded net income for the thirteen weeks ended September 27, 2003
of $3.7 million as compared to a net income of $2.9 million in the prior period.
Thirty-nine weeks ended September 27, 2003 and September 28, 2002
Net sales for the thirty-nine weeks ended September 27, 2003 rose 2.5% to
$1,175.0 million as compared to $1,146.0 million for the thirty-nine weeks ended
September 28, 2002 primarily due to sales to new customers. Other revenue,
consisting of recurring customer related services, increased to $7.2 million for
the thirty-nine weeks ended September 27, 2003 as compared to $5.8 million in
the prior period as a result of incremental storage revenue and providing a
warehousing service for a national manufacturer.
Gross margin increased to 10.4% of net sales or $121.8 million for the
thirty-nine weeks ended September 27, 2003, as compared to 10.1% of net sales or
$116.0 million for the prior period, increased other revenue from frozen
warehousing services, a change in mix of both customers and products sold,
allowances related to new products the Company is carrying, 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 intended to
maintain and improve its margins such as auditing and scrutinizing its
acquisition cost of product, better inventory management, and taking advantage
of forward buy opportunities. Factors such as the addition or loss 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. Caution should be taken when comparing the
Company's gross margin to that of other companies because other companies, while
still complying with GAAP, may characterize income and expenses differently.
Warehouse expense increased as a percentage of net sales to 4.0% of net sales or
$46.5 million for the thirty-nine weeks ended September 27, 2003, as compared to
3.8% of net sales or $43.5 million in the prior period primarily as costs
associated with the Frozen Warehouse Expansion, increased wages, and increased
insurance expense.
Transportation expense increased to 2.0% of net sales or $23.2 million for the
thirty-nine weeks ended September 27, 2003 as compared to 1.9% of net sales or
$21.7 million in the prior period primarily as a result of increased fuel and
toll expenses.
Selling, general and administrative expense increased to 2.1% of net sales or
$24.1 million for the thirty-nine weeks ended September 27, 2003 as compared to
2.0% of net sales or $22.9 million for the prior period primarily due to
increased wages and benefits including non-cash pension expense, offset by a $.5
million reimbursement of previously expensed legal fees as a result of a legal
settlement.
-8-
Other income increased to $2.4 million in the thirty-nine weeks ended September
27, 2003 as compared to $1.8 million for the prior period.
Interest expense decreased to $11.2 million for the thirty-nine weeks ended
September 27, 2003 from $11.7 million for the prior period as a result of less
borrowed money outstanding during 2003.
The Company recorded an income tax provision of $7.9 million, resulting in an
effective income tax rate of 42% for the thirty-nine weeks ended September 27,
2003 as compared to a provision of $7.4 million and an effective rate of 44% in
the prior period.
The Company recorded net income for the thirty-nine weeks ended September 27,
2003 of $10.8 million as compared to a net income of $10.0 million in the prior
period.
Liquidity and Capital Resources
Cash flows from operations, cash on hand, and amounts available under the
Company's $90 million bank credit facility are the Company's principal sources
of liquidity. The Company's bank credit facility is scheduled to mature on June
30, 2004. The Company expects to extend or replace the bank credit facility on
terms similar to the terms presently in place prior to the end of the first
quarter of 2004. The Company believes that cash flows from operations and
amounts available under the bank credit facility will be adequate to meet its
anticipated working capital needs, capital expenditures, dividend payments, if
any, and debt service requirements through June 30, 2004, 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 September 27, 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 $25.9 million of cash invested. The Company's bank credit facility
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 $10 million dividend in June 2003.
During the thirty-nine weeks ended September 27, 2003, cash flows provided by
operating activities were approximately $39.4 million, consisting primarily of
(i) cash generated from income before non-cash expenses of $14.9 million, (ii)
an increase in accounts payable, accrued expenses, and other liabilities of
$14.2 million, (iii) reductions of accounts and notes receivables (including
long-term portion) of $8.3 million, and (iv) a reduction of inventory of $2.4
million offset by an increase in prepaid expenses and other assets of $.4
million.
Cash flows used in investing activities during the thirty-nine weeks ended
September 27, 2003 were approximately $.7 million, which were used exclusively
for capital expenditures. Net cash used in financing activities of approximately
$12.7 million consisted primarily of dividends paid in the amount of $10.0
million and $2.7 million of net repayments of the bank credit facility.
-9-
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $33.5 million during the thirty-nine weeks ended September
27, 2003 as compared to $32.9 million in the same period of the prior year. The
Company has presented EBITDA supplementally because management believes this
information enables management, investors, and others readers to evaluate and
compare from period to period, the Company's results from ongoing operations in
a more meaningful and consistent manner. This data should not be considered as
an alternative to any measure of performance or liquidity as promulgated under
GAAP (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):
Nine months ended Sept
2003 2002
---- ----
EBITDA $33,451 $32,874
Less: depreciation and
amortization of fixed assets 1,672 1,710
Less: other amortization 1,803 1,986
Less: interest expense 11,228 11,733
Less: income tax provision 7,947 7,448
----- -----
Net income $ 10,801 $ 9,997
======== =======
The consolidated indebtedness of the Company decreased to $150.3 million at
September 27, 2003 as compared to $153.0 million at December 28, 2002 and
stockholders' equity increased to $29.0 million at September 27, 2003 as
compared to $28.2 million at December 28, 2002.
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 September 27, 2003, the Company was in compliance with its covenants.
From time to time when the Company considered market conditions attractive, the
Company has purchased, and may in the future purchase its notes on the open
market and retire a portion of its public debt.
-10-
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 September 27, 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.
On October 9, 2003, we filed a Current Report on Form 8-K announcing
the loss of a large customer.
-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: November 10, 2003
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