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 27, 2004
[ ] 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____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in this Form 10-Q or any amendment to
this Form 10-Q. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes__ No_X
As April 20, 2004, there were outstanding 78.1158 shares of Class A Common
Stock and 76.8690 shares of Class B Common Stock. The aggregate market
value of the voting and non-voting stock held by non-affiliates of the
registrant is $0 because all voting and non-voting stock is held by
affiliates of the registrant.
DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 27, 2003 and March 27, 2004 (Unaudited)....................... 1
Consolidated Condensed Income Statements,
Thirteen Weeks Ended March 29, 2003 and March 27, 2004 (Unaudited)..... 2
Consolidated Condensed Statement of Stockholders Equity,
Thirteen Weeks Ended March 27, 2004 (Unaudited)........................ 3
Consolidated Condensed Statements of Cash Flows,
Thirteen Weeks Ended March 29, 2003 and March 27, 2004 (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 ................................... 12
Signatures ............................................................. 13
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
December 27, March 27,
2003 2004
(unaudited)
ASSETS
Current Assets:
Cash $ 1,637 $ 1,635
Accounts and notes receivable-net 109,738 107,021
Inventories 61,204 61,325
Deferred income taxes 2,205 2,303
Prepaid expenses 3,606 3,106
--------- ---------
Total current assets 178,390 175,390
--------- ---------
Property, Plant and Equipment
Cost 29,290 29,563
Accumulated depreciation and amortization (19,450) (20,187)
--------- ---------
Net 9,840 9,376
--------- ---------
Long-term notes receivable 11,082 9,142
Other assets 24,764 24,487
Deferred financing costs-net 1,886 2,179
Goodwill 68,893 68,893
--------- ---------
Total assets $ 294,855 $ 289,467
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 12,880 $ --
Accounts payable 59,166 59,810
Accrued expenses 30,652 35,431
Dividends payable -- 10,000
Notes and leases payable within one year 64 65
--------- ---------
Total current liabilities 102,762 105,306
--------- ---------
Long-term debt 148,300 148,300
Capital lease liability 1,877 1,860
Other long-term liabilities 9,394 9,082
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 24,520 16,917
--------- ---------
Total stockholders' equity 32,522 24,919
--------- ---------
Total liabilities & stockholders' equity $ 294,855 $ 289,467
========= =========
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 29, March 27,
2003 2004
Revenue:
Net sales $ 383,015 $ 311,144
Other revenue 2,239 2,622
--------- ---------
Total revenue 385,254 313,766
Cost of products sold 345,415 276,285
--------- ---------
Gross profit-exclusive of warehouse expense shown below 39,839 37,481
Warehouse expense 15,232 14,756
Transportation expense 7,848 6,975
Selling, general and administrative expense 8,207 8,446
--------- ---------
Operating income 8,552 7,304
Interest expense 3,793 3,777
Amortization-deferred financing costs 157 169
Other (income)-net (848) (831)
--------- ---------
Income before income taxes 5,450 4,189
Income tax expense 2,329 1,792
--------- ---------
Net income $ 3,121 $ 2,397
========= =========
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
December 27, 2003 78.1158 $-- 76.8690 $-- $8,002 $24,520 $32,522
Net income -- -- -- -- -- 2,397 2,397
Dividends -- -- -- -- -- (10,000) (10,000)
------ ---- ------ ---- ------ ------ ------
Balance at
March 27, 2004 78.1158 $-- 76.8690 $-- $8,002 $16,917 $24,919
======= ==== ======= ==== ====== ======= =======
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)
Thirteen weeks ended
--------------------
March 29, March 27,
2003 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,121 $2,397
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 575 576
Other amortization 602 198
Provision for doubtful accounts 125 125
Amortization of pension expense 243 337
Gain on sale of equipment -- (18)
Deferred income taxes (216) (98)
Proceeds from note participation sale -- 1,981
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable 7,012 611
Inventories 1,958 (121)
Prepaid expenses 1,253 500
Long-term receivables 205 1,940
Other assets 26 (29)
Increase (decrease) in:
Accounts payable (8,836) 644
Accrued expenses and other liabilities 4,928 4,407
-------- --------
Net cash provided by operating activities 10,996 13,450
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (299) (184)
Proceeds from sale of equipment -- 90
-------- --------
Net cash used in investing activities (299) (94)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under revolving line-of-credit (2,693) (12,880)
Financing fees paid -- (462)
Capital lease payments (16) (16)
-------- --------
Net cash used in financing activities (2,709) (13,358)
-------- --------
Increase (decrease) in cash 7,988 (2)
Cash at beginning of period 629 1,637
-------- --------
Cash at end of period $ 8,617 $ 1,635
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 52 $ 69
======== ========
Income taxes $ 231 $ 311
======== ========
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 27, 2004, the consolidated
condensed income statements for the thirteen weeks ended March 29, 2003 and
March 27, 2004, the consolidated condensed statement of stockholders' equity for
the thirteen weeks ended March 27, 2004, and the consolidated condensed
statements of cash flows for the thirteen weeks ended March 29, 2003 and March
27, 2004, 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
27, 2003 (where the consolidated condensed balance sheet as of December 27, 2003
has been derived), 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
As previously announced, the Company ceased doing business with the Great
Atlantic & Pacific Tea Company ("A&P") in October 2003. While the Company has
reduced expenses to help compensate for the reduced sales, the loss of this
business will continue to have a negative impact on earnings when compared to
prior periods. Sales to A&P were $93.7 million in the first fiscal quarter of
2003. The loss of these sales was partially offset by increased sales to a new
group of customers in the Philadelphia area that we began servicing in the
second quarter of 2003.
Results of Operations
Thirteen weeks ended March 27, 2004 and March 29, 2003
Net sales for the thirteen weeks ended March 27, 2004 decreased $71.9 million to
$311.1 million from $383.0 million in the prior period. Excluding sales to A&P
during the 2003 period, comparable sales increased 7.5% in the current period
mostly as a result of sales to the new customers discussed above. Other revenue,
consisting of recurring customer related services, increased to $2.6 million for
the thirteen weeks ended March 27, 2004 as compared to $2.2 million in the prior
period resulting from a full quarter of providing a warehousing service for a
national manufacturer which started in the first quarter of 2003.
-6-
Gross margin increased to 12.0% of net sales or $37.5 million for the thirteen
weeks ended March 27, 2004, as compared to 10.4% of net sales or $39.8 million
for the prior period reflecting a change in mix of both customers and products
sold and increased other revenue from frozen warehousing services. Factors such
as changes in customer mix, 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 quarter 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 4.7% of net sales or
$14.8 million for the thirteen weeks ended March 27, 2004, as compared to 4.0%
of net sales or $15.2 million in the prior period, primarily as a result of
fixed costs being compared to lower overall sales. In addition, rent expense for
the thirteen weeks ended March 27, 2004 increased approximately $.3 million as a
result of increased outside storage and occupancy costs related to the Company's
specialty food division.
Transportation expense increased as a percentage of net sales to 2.2% of net
sales or $7.0 million for the thirteen weeks ended March 27, 2004 as compared to
2.0% of net sales or $7.8 million in the prior period primarily as a result of
fixed costs being compared to lower overall sales.
Selling, general and administrative expense increased to 2.7% of net sales or
$8.4 million for the thirteen weeks ended March 27, 2004 as compared to 2.1% of
net sales or $8.2 million in the prior period as a result of fixed costs being
compared to lower overall sales, additional expenses including salaries of $.2
million related to the start up of the specialty food division, and additional
pension expense of $.1 million as compared to the prior period.
There has been no change in the Company's effective tax rate of 43%.
Net income for the thirteen weeks ended March 27, 2004 was $2.4 million as
compared to net income of $3.1 million in the prior period.
EBITDA was $8.7 million for the thirteen weeks ended March 27, 2004 as compared
to $10.4 million in the prior period. While the loss of A&P was the primary
reason for the decline, the Company incurred a $.4 million operating loss
attributable to the start up of its specialty food division.
-7-
Reconciliation of EBITDA to net income (in thousands):
Thirteen weeks ended March
2004 2003
----- ----
EBITDA $8,740 $10,420
Less: depreciation and
amortization of fixed assets 576 575
Less: other amortization 198 602
Less: interest expense 3,777 3,793
Less: income tax provision 1,792 2,329
----- -----
Net income $2,397 $3,121
====== ======
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. We believe net income is the most
closely comparable GAAP measure as opposed to cash flow from operations. Similar
to net income, management uses the EBITDA measures as a measure of the
performance of our operations without the vagaries of fluctuations in working
capital as cash flow from operations would. Management also uses the EBITDA
results when making operating decisions that require additional resources and as
a basis for certain calculations for compensation programs. We believe that the
relevant statistic for our business to measure liquidity is our working capital
plus our availability under our existing line of credit, both of which are
disclosed in our liquidity discussion under Liquidity and Capital Resources
below.
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
February 1, 2007. 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 during the next twelve months, 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 27, 2004. The
Company had additional borrowing capacity of $84.0 million available at that
time under the Company's then current borrowing base availability certificate.
The Company paid a $10 million dividend on March 31, 2004 and as of April 20,
2004, the Company had $5.5 million of borrowings outstanding under its bank
credit facility. 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.
-8-
During the thirteen weeks ended March 27, 2004, cash flows provided by operating
activities were approximately $13.5 million, consisting primarily of (i) cash
generated from income before non-cash expenses of $3.5 million, (ii) an increase
in accounts payable, accrued expenses, and other liabilities of $5.1 million,
(iii) reductions of accounts and notes receivables (including long-term portion)
of $2.6 million, (iv) a reduction of prepaid expenses of $.5 million, and (v)
proceeds of $2.0 million from the sale of note particpations offset by an
increase in inventories and other assets of $.2 million.
Cash flows used in investing activities during the thirteen weeks ended March
27, 2004 were approximately $.1 million. $.2 million was used for capital
expenditures and $.1 million was received as proceeds from the sale of excess
trailers. Net cash used in financing activities of approximately $13.4 million
consisted primarily of $12.9 million of net repayments of the bank credit
facility and $.5 million of financing fees paid.
The consolidated indebtedness of the Company decreased to $150.2 million at
March 27, 2004 as compared to $163.1 million at December 27, 2003 and
stockholders' equity decreased to $24.9 million at March 27, 2004 as compared to
$32.5 million at December 27, 2003 as a result of the $10.0 million dividend
declared in March 2004 and paid March 31, 2004.
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 March 27, 2004, 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.
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 March 27, 2004. 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.
-9-
II-OTHER INFORMATION
Item 5. Other Information
In March 2004, the Company reached an agreement for a three year term with the
union representing the frozen division warehousemen and drivers.
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: April 28, 2004
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