UNITED STATES
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 26, 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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes__ No_X
As of August 3, 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 (Unaudited),
December 27, 2003 (as restated) and June 26, 2004...................... 1
Consolidated Condensed Income Statements (Unaudited),
Thirteen Weeks and Twenty-Six Weeks Ended June 28, 2003
and June 26, 2004..................................................... 2
Consolidated Condensed Statement of Stockholders Equity (Unaudited),
Twenty-six Weeks Ended June 26, 2004................................... 3
Consolidated Condensed Statements of Cash Flows, (Unaudited)
Twenty-six Weeks Ended June 28, 2003 (as restated) and June 26, 2004... 4
Notes to Consolidated Condensed Financial Statements (Unaudited)......... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 14
Item 4. Controls and Procedures............................................. 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................... 15
Signatures ................................................................. 16
Di Giorgio Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
(unaudited)
December 27, 2003 June 26, 2004
(as restated see note 4)
ASSETS
Current Assets:
Cash $ 10,367 $ 8,429
Accounts and notes receivable-net 109,738 106,566
Inventories 61,204 62,228
Deferred income taxes 2,205 2,306
Prepaid expenses 3,606 4,395
--------- ---------
Total current assets 187,120 183,924
--------- ---------
Property, Plant and Equipment
Cost 29,290 29,738
Accumulated depreciation and amortization (19,450) (20,684)
--------- ---------
Net 9,840 9,054
--------- ---------
Long-term notes receivable 11,082 8,702
Other assets 24,764 24,336
Deferred financing costs-net 1,886 2,004
Goodwill 68,893 68,893
--------- ---------
Total assets $ 303,585 $ 296,913
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 12,880 $ 10,247
Accounts payable 67,896 69,079
Accrued expenses 30,652 31,371
Notes and leases payable within one year 64 67
--------- ---------
Total current liabilities 111,492 110,764
--------- ---------
Long-term debt 148,300 148,300
Capital lease liability 1,877 1,843
Other long-term liabilities 9,394 8,832
Stockholders' Equity:
Common stock -- --
Additional paid-in-capital 8,002 8,002
Retained earnings 24,520 19,172
--------- ---------
Total stockholders' equity 32,522 27,174
--------- ---------
Total liabilities & stockholders' equity $ 303,585 $ 296,913
========= =========
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 28, June 26, June 28, June 26,
2003 2004 2003 2004
Revenue:
Net sales $400,433 $312,150 $783,448 $623,294
Other revenue 2,512 2,977 4,751 5,599
-------- -------- -------- --------
Total revenue 402,945 315,127 788,199 628,893
Cost of products sold 362,223 277,504 707,638 553,789
-------- -------- -------- --------
Gross profit-exclusive of warehouse expense
shown below 40,722 37,623 80,561 75,104
Warehouse expense 15,324 14,822 30,556 29,578
Transportation expense 7,545 6,674 15,393 13,649
Selling, general and administrative expense 8,116 8,872 16,323 17,318
-------- -------- -------- --------
Operating income 9,737 7,255 18,289 14,559
Interest expense 3,736 3,804 7,529 7,581
Amortization-deferred financing costs 157 174 314 343
Other (income)-net (1,000) (666) (1,848) (1,497)
-------- -------- -------- --------
Income before income taxes 6,844 3,943 12,294 8,132
Income tax expense 2,895 1,688 5,224 3,480
-------- -------- -------- --------
Net income $ 3,949 $ 2,255 $ 7,070 $ 4,652
======== ======== ======== ========
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 Common Stock Class B Common Stock Additional
-------------------- ------------------- 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 -- -- -- -- -- 4,652 4,652
Dividends -- -- -- -- -- (10,000) (10,000)
------- ---- ------ ---- ------ ------ ------
Balance at
June 26, 2004 78.1158 $-- 76.8690 $-- $8,002 $19,172 $27,174
======= ==== ======= ==== ====== ======= =======
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 28, June 26,
2003 2004
CASH FLOWS FROM OPERATING ACTIVITIES: (as restated see note 4)
Net income $ 7,070 $ 4,652
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 1,115 1,073
Other amortization 1,286 401
Provision for doubtful accounts 250 250
Actuarially calculated pension expense 486 675
Gain on sale of equipment -- (18)
Deferred income taxes (118) (492)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 6,961 (605)
Inventories 4,658 (1,024)
Prepaid expenses 150 (789)
Other assets (471) (185)
Increase (decrease) in:
Accounts payable 587 1,183
Accrued expenses and other liabilities (3,141) 429
-------- --------
Net cash provided by operating activities 18,833 5,550
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to notes receivable (4,845) (3,188)
Collections of notes receivable 7,165 7,114
Proceeds from note participation sale -- 1,981
Additions to property, plant and equipment (456) (359)
Proceeds from sale of equipment -- 90
-------- --------
Net cash provided by investing activities 1,864 5,638
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under revolving line-of-credit (2,693) (2,633)
Dividends paid (10,000) (10,000)
Financing fees paid -- (462)
Capital lease payments (31) (31)
-------- --------
Net cash used in financing activities (12,724) (13,126)
-------- --------
Increase (decrease) in cash 7,973 (1,938)
Cash at beginning of period 6,429 10,367
-------- --------
Cash at end of period $ 14,402 $ 8,429
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 7,500 $ 7,565
======== ========
Income taxes $ 5,228 $ 1,896
======== ========
Noncash changes to notes receivable $ 338 $ 1,111
======== ========
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 accompanying unaudited interim consolidated condensed balance sheet as of
June 26, 2004, the consolidated condensed income statements for the twenty-six
weeks and the thirteen weeks ended June 28, 2003 and June 26, 2004, the
consolidated condensed statement of stockholders' equity for the twenty-six
weeks ended June 26, 2004, and the consolidated condensed statements of cash
flows for the twenty-six weeks ended June 28, 2003 and June 26, 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 as well as Form 10-Q for the quarter ended March 27, 2004, as filed with
the Securities and Exchange Commission. See Note 4 for information concerning
the restatement of certain prior period financial statements. 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 results are not necessarily indicative of the results to be expected
for the full fiscal year.
-5-
2. PENSION BENEFITS
Net periodic costs for the thirteen and twenty-six week periods ended June 26,
2004 and June 28, 2003 include the following components:
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
Service cost $ 273 $ 238 $ 546 $ 476
Interest cost 889 898 1,777 1,796
Expected return on plan assets (1,181) (1,156) (2,363) (2,312)
Amortization of prior service cost 5 5 10 10
Amortization of net (gain) / loss 291 209 585 419
------- ------- ------- -------
Net periodic benefit cost $ 277 $ 194 $ 555 $ 389
======= ======= ======= =======
Weighted-average assumptions used to determine
Net periodic benefit cost for years ended December 31 2004 2003
Discount rate 6.25% 6.75%
Expected long-term return on plan assets 8.25% 8.25%
Rate of compensation increase 6.00% 6.00%
3. CONTINGENCIES
Legal Proceedings -- Various suits and claims arising in the ordinary course of
business are pending against the Company. In the opinion of management,
dispositions of these matters are appropriately provided for and are not
expected to materially affect the Company's consolidated financial position,
cash flows or results of operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management, these claims are
either without merit, covered by insurance, adequately provided for, or not
expected to result in any material loss to the Company.
-6-
4. RESTATEMENT OF BALANCE SHEET AND STATEMENT OF CASH FLOWS
Subsequent to the issuance of the consolidated condensed financial statements
for the period ended March 27, 2004, the Company determined that certain cash
balances should not have been offset against other balances in the same bank. In
addition, the Company determined that the cash flows related to the loans
provided by the Company to its customers should be classified as investing
activities rather than as operating activities or financing activities in its
statement of cash flows. Accordingly, the Company plans to amend its 2003 Annual
Report on Form 10-K and its Form 10-Q for the first quarter of 2004 to reflect
adjustments to cash, accounts payable, and the classification of its lending
activities with its customers. The Company will file such amended reports as
soon as is practicable. As a result, the accompanying consolidated condensed
balance sheet as of December 27, 2003 and consolidated condensed statement of
cash flows for the twenty-six weeks ended June 28, 2003 have been restated from
amounts previously reported.
A summary of the significant effect of the restatement is as follows (in
thousands):
As of March 27, 2004 As of December 27, 2003 As of December 28, 2002
-------------------- ----------------------- -----------------------
As previously As previously As previously
reported As restated reported As restated reported As restated
Balance Sheet:
- --------------
Cash $ 1,635 $ 8,293 $ 1,637 $ 10,367 $ 629 $ 6,429
Accounts payable $59,810 $66,468 $59,166 $ 67,896 $77,833 $83,633
Twenty-six weeks ended
June 28, 2003
As Previously
STATEMENT OF CASH FLOWS: Reported As Restated
- ------------------------ -------- -----------
Cash flows from operating activities:
Changes in assets and liabilities:
(increase) decrease in:
Accounts and notes receivable $ 8,534 $ 6,961
Long-term notes receivable 747 --
Increase (decrease) in:
Accounts payable (1,071) 587
Net cash provided by operating activities 19,495 18,833
Cash flows from investing activities:
Additions to notes receivable -- (4,845)
Collections of notes receivable -- 7,165
Net cash (used in) provided by investing activities (456) 1,864
Increase (decrease) in cash 6,315 7,973
Cash at beginning of period 629 6,429
-------- --------
Cash at end of period $ 6,944 $ 14,402
======== ========
Supplemental disclosure of cash flow information:
Non cash changes to notes receivable $ -- $ 338
======== ========
-7-
As Previously
Reported As Restated
Statement of Cash Flows for the year ended December 27, 2003
Net cash provided by (used in) operating activities $ 2,081 $ 10,733
Net cash provided by (used) investing activities $ (1,200) $ (6,922)
Statement of Cash Flows for the year ended December 28, 2002
Net cash provided by (used in) operating activities $ 10,269 $ 7,771
Net cash provided by (used) investing activities $ (3,261) $ (1,291)
Net cash provided by (used in) financing activities $ (8,186) $(10,064)
Statement of Cash Flows for the year ended December 29, 2001
Net cash provided by (used in) operating activities $ 7,276 $ 15,875
Net cash provided by (used) investing activities $ (1,949) $ 1,258
Net cash provided by (used in) financing activities $ (5,264) $(15,773)
Statement of Cash Flows for the thirteen weeks ended March 27, 2004
Net cash provided by (used in) operating activities $ 13,450 $ 8,157
Net cash provided by (used) investing activities $ (94) $ 3,127
Statement of Cash Flows for the thirteen weeks ended March 29, 2003
Net cash provided by (used in) operating activities $ 10,996 $ 12,585
Net cash provided by (used) investing activities $ (299) $ 321
5. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, The Financial Accounting Standards Board ("FASB")
Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities,"
was issued. This interpretation requires that if an entity has a controlling
interest in a variable interest entity, the assets, liabilities and results of
activities of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of this
interpretation are effective for all arrangements entered into after January 31,
2003. For those arrangements entered into prior to February 1, 2003, the
provisions of this interpretation were required to be adopted at the beginning
of the first interim or annual period beginning after June 15, 2003. However, in
December 2003 the FASB published a revision to this interpretation (hereafter
referred to as ("FIN No. 46R")) to clarify some of the provisions of this
interpretation and to exempt certain entities from its requirements. Under the
new guidance, there are new effective dates for companies that have interests in
structures that are commonly referred to as special-purpose entities. These
rules are effective for financial statements for periods ending after March 15,
2004. The adoption of FIN 46R had no effect on the Company's financial
condition, results of operations or cash flows.
-8-
In May 2003, the Financial Accounting Standards Board issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," (SFAS 150) effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS 150 provides
guidance on the classification and measurement of certain financial instruments
with characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in the balance sheets. Previously, many
of those financial instruments were classified as equity. The Company does not
have any financial instruments as defined in SFAS 150; therefore, the adoption
of SFAS 150 had no effect on the Company's financial condition, results of
operations or cash flows.
-9-
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 effects 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 $186.5 million in the first two fiscal quarters
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 June 26, 2004 and June 28, 2003
Net sales for the thirteen weeks ended June 26, 2004 decreased $88.2 million to
$312.2 million from $400.4 million in the prior period. Excluding sales to A&P
during the 2003 period, sales increased 2.6% 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 $3.0 million for the
thirteen weeks ended June 26, 2004 as compared to $2.5 million due to small
increases in a number of different services.
Gross margin increased to 12.1% of net sales or $37.6 million for the thirteen
weeks ended June 26, 2004, as compared to 10.2% of net sales or $40.7 million
-10-
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 June 26, 2004, as compared to 3.8% of
net sales or $15.3 million in the prior period, primarily as a result of fixed
costs being compared to lower overall sales.
Transportation expense increased as a percentage of net sales to 2.1% of net
sales or $6.7 million for the thirteen weeks ended June 26, 2004 as compared to
1.9% of net sales or $7.5 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 2.8% of net sales or
$8.9 million for the thirteen weeks ended June 26, 2004 as compared to 2.0% of
net sales or $8.1 million in the prior period as a result of fixed costs being
compared to lower overall sales, transaction related expenses of $.3 million,
additional expenses including salaries of $.4 million related to the Company's
new distribution operations (specialty foods and Puerto Rico which began in the
second half of 2003), and additional pension expense of $.1 million as compared
to the prior period.
Net income for the thirteen weeks ended June 26, 2004 was $2.3 million as
compared to net income of $3.9 million in the prior period.
Twenty-six weeks ended June 26, 2004 and June 28, 2003
Net sales for the twenty-six weeks ended June 26, 2004 decreased $160.1 million
to $623.3 million from $783.4 million in the prior period. Excluding sales to
A&P during the 2003 period, sales increased 5.0% 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 $5.6 million for
the twenty-six weeks ended June 26, 2004 as compared to $4.8 million, primarily
as a result of increased storage and warehousing services for a national
manufacturer which started in the first quarter of 2003.
Gross margin increased to 12.0% of net sales or $75.1 million for the twenty-six
weeks ended June 26, 2004, as compared to 10.3% of net sales or $80.6 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 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.
-11-
Warehouse expense increased as a percentage of net sales to 4.7% of net sales or
$29.6 million for the twenty-six weeks ended June 26, 2004, as compared to 3.9%
of net sales or $30.6 million in the prior period, primarily as a result of
fixed costs being compared to lower overall sales. In addition, rent expense for
the twenty-six weeks ended June 26, 2004 increased approximately $.4 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 $13.6 million for the twenty-six weeks ended June 26, 2004 as compared
to 2.0% of net sales or $15.4 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 2.8% of net sales or
$17.3 million for the twenty-six weeks ended June 26, 2004 as compared to 2.1%
of net sales or $16.3 million in the prior period as a result of fixed costs
being compared to lower overall sales, additional expenses including salaries of
$.7 million related to the Company's new operations, transaction expenses of $.3
million, and additional pension expense of $.2 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 twenty-six weeks ended June 26, 2004 was $4.7 million as
compared to net income of $7.1 million in the prior period.
EBITDA was $17.2 million for the twenty-six weeks ended June 26, 2004 as
compared to $22.2 million in the prior period. While the loss of A&P was the
primary reason for the decline, the Company incurred a $1.1 million operating
loss attributable to the new operations and transaction expenses of $.3 million.
Reconciliation of EBITDA to net income (in thousands):
Twenty-six weeks ended
June 26, June 28,
2004 2003
------ ----
EBITDA $17,187 $22,224
Less: depreciation and
amortization of fixed assets 1,073 1,115
Less: other amortization 401 1,286
Less: interest expense 7,581 7,529
Less: income tax provision 3,480 5,224
------ ------
Net income $4,652 $7,070
====== ======
The Company has presented EBITDA supplementally because management believes this
information enables management, investors, and other 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 EBITDA as a measure of the performance of our
operations without the vagaries of fluctuations in working capital that cash
-12-
flow from operations would have. 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 $10.2 million of borrowings under the Company's revolving bank credit
facility (excluding $6.0 million of outstanding letters of credit) at June 26,
2004. The Company had additional borrowing capacity of $74.2 million available
at that time under the Company's then current borrowing base availability
certificate. 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.
During the twenty-six weeks ended June 26, 2004, cash flows provided by
operating activities were approximately $5.6 million, consisting primarily of
cash generated from income before non-cash expenses of $6.5 million and an
increase in accounts payable, accrued expenses, and other liabilities of $1.6
million, offset by (i) an increase in accounts receivable of $.6 million; (ii)
an increase in inventories of $1.0 million, (iii) an increase in prepaid
expenses of $.8 million, and an increase in other assets of $.2 million.
Cash flows provided by investing activities during the twenty-six weeks ended
June 26, 2004 were approximately $5.6 million consisting of $7.1 million of note
receivable collections, $2.0 million of proceeds from note participation sales
and $.1 million from proceeds from the sale of excess trailers offset by $3.2
million of new notes receivable and $.4 million for capital expenditures. Net
cash used in financing activities of approximately $13.1 million consisted
primarily of a $10.0 million dividend paid, $2.6 million of net repayments of
the bank credit facility and $.5 million of financing fees paid for the
extension of the bank credit facility until 2007.
The consolidated indebtedness of the Company decreased to $160.5 million at June
26, 2004 as compared to $163.1 million at December 27, 2003 and stockholders'
equity decreased to $27.2 million at June 26, 2004 as compared to $32.5 million
at December 27, 2003 primarily as a result of the $10.0 million dividend paid
March 31, 2004.
As previously reported, the Company anticipates that it will take possession of
and begin using the 160,000 square foot dry grocery warehouse expansion in the
fourth quarter of 2004. Expected annual rent costs are approximately $1.2
million which should be partially offset by a reduction in short term rent
-13-
expense of public warehouse space and improved productivity. We expect to spend
approximately $1.3 million in leasehold improvements related to the expansion.
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 26, 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in market risk for the company in the period
covered by this report. See our Annual Report on Form 10-K for the year ended
December 27, 2003 for a discussion of market risk for the company.
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
Company's disclosure controls and procedures (as defined in Rules 13a-15(c) and
15d-15(e) under the Securities Exchange Act of 1934, as amended). The errors
identified and discussed in Note 4 of the consolidated condensed financial
statements were the result of the misapplication of specific generally accepted
accounting principles engrained in the Company's historical financial reporting
process. The errors were identified during the quarterly review process and
immediately rectified. 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
26, 2004. There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Attached as exhibits 31.1 and 31.2 to this quarterly report are certifications
of the Chief Executive Officer and the Chief Financial Officer required in
accordance with Rule 13a-14 of the Exchange Act. This portion of the Company's
quarterly report includes the information concerning the controls evaluation
referred to in the certifications and should be read in conjunction with the
certifications for a more complete understanding of the topics presented.
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II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 31.1 - Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002. Filed herewith.
31.2 - Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002. 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
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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 and thereunto 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 16, 2004
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