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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 29, 1997 Commission File No. 1-1790
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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 07008
Carteret, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (908) 541-5555
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
As of April 25, 1997, there were 101.62 shares of Class A Common Stock and 100
shares of Class B Common Stock, par value of each class $.01, outstanding.
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DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 28, 1996 and March 29, 1997 (Unaudited)............ 1
Consolidated Condensed Statements of Income,
Thirteen Weeks Ended March 30, 1996
and March 29, 1997 (Unaudited) ............................ 2
Consolidated Condensed Statement of Stockholder's Equity,
Thirteen Weeks Ended March 29, 1997 (Unaudited) ............ 3
Consolidated Condensed Statements of Cash Flows,
Thirteen Weeks Ended March 30, 1996 and March 29, 1997
(Unaudited) ................................................ 4
Notes to Consolidated Condensed Financial Statements .......... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 6
PART II. OTHER INFORMATION
Item 5. Other Information.............................................. 9
Item 6. Exhibits and Reports on Form 8-K .............................. 9
Signatures ............................................................ 10
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
December 28, March 29,
1996 1997
(Unaudited)
ASSETS
Current Assets:
Cash...................................... $1,537 $1,520
Accounts and notes receivable-net......... 61,550 65,466
Inventories............................... 49,563 51,994
Prepaid expenses.......................... 3,684 3,174
----- -----
Total current assets................ 116,334 122,154
------- -------
Property, Plant & Equipment
Cost...................................... 71,785 72,197
Accumulated depreciation.................. (15,515) (17,093)
------ ------
Net....................................... 56,270 55,104
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Long-term notes receivable.................. 10,861 12,183
Other assets................................ 12,216 12,411
Deferred financing costs.................... 3,835 3,586
Excess of costs over net assets acquired.... 87,471 86,802
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$286,987 $292,240
======== ========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable............................. $26,719 $28,352
Accounts payable.......................... 49,468 55,134
Accrued expenses.......................... 24,361 21,895
Current installment long-term obligations. 3,677 3,634
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Total current liabilities........... 104,225 109,015
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Long-term debt.............................. 102,743 102,416
Capital lease liability..................... 31,523 30,996
Other long-term liabilities................. 7,826 7,621
Stockholder's Equity:
Common stock.............................. - -
Additional paid-in-capital................ 45,944 45,944
Accumulated deficit....................... (5,274) (3,752)
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Total stockholder's equity.......... 40,670 42,192
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$286,987 $292,240
======== ========
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands)
(unaudited)
Thirteen weeks ended
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March 30, March 29,
1996 1997
Revenue:
Net Sales..................................... $263,861 $264,378
Other Revenue................................. 1,013 1,595
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Total Revenue........................... 264,874 265,973
Cost of Products Sold........................... 236,723 237,180
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Gross Profit-exclusive of
warehouse expense shown below.................. 28,151 28,793
Warehouse expense............................. 10,423 10,609
Transportation expense........................ 5,625 5,422
Selling, general and
administrative expense........................ 5,902 5,524
Amortization-excess of cost
over net assets acquired...................... 723 669
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Operating Income................................ 5,478 6,569
Interest expense.............................. 4,741 4,165
Amortization-deferred financing costs......... 248 248
Other (income)net............................. (543) (781)
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Income before income taxes...................... 1,032 2,937
Income taxes.................................... 715 1,415
--- -----
Net income ..................................... $317 $1,522
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See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands, except share data)
(unaudited)
Additional
Class A Class B Paid-In (Accumulated
Common Stock Common Stock Capital Deficit) Total
------------ ------------ ------- ------- ------
Shares Amount Shares Amount
Balance at
December 28,
1996 101.62 $ -- 100.00 $ -- $45,944 ($5,274) $40,670
Net income:
thirteen
weeks ended
March 29,
1997 -- -- -- -- -- 1,522 1,522
------ ---- ------ ---- ------- ------- ------
Balance at
March 29,
1997 101.62 $ -- 100.00 $ -- $45,944 ($3,752) $42,192
====== ==== ====== ==== ======= ====== =======
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 30, March 29,
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................... $317 $1,522
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization................ 1,252 1,147
Amortization................................. 1,115 1,048
Provision for bad debts...................... 625 375
Increase in prepaid pension cost............. (105) (75)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable.................. 4,336 (4,291)
Inventory.................................... (777) (2,431)
Prepaid expenses............................. 191 580
Long-term receivables........................ (1,027) (1,322)
Others assets................................ 155 116
(Decrease) increase in:
Accounts payable, accrued expenses and
other liabilities........................... (9,791) 2,991
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Net cash used in operating activities........... (3,709) (340)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment....... (175) (413)
----- ---
Net cash used in investing activities........... (175) (413)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line-of-credit... 5,355 1,633
Capital lease payments.......................... (550) (579)
Long-term debt payments......................... (308) (318)
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Net cash provided by financing activities....... 4,497 736
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Increase (decrease) in cash..................... 613 (17)
Cash at beginning of period..................... 302 1,537
--- -----
Cash at end of period........................... $915 $1,520
=== =====
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest.................................... $7,507 $7,043
===== =====
Income Taxes................................ $71 $72
=== ==
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 March 29, 1997, the consolidated
condensed statements of income for the thirteen weeks ended March 30, 1996 and
March 29, 1997 and the consolidated condensed statements of cash flows for the
thirteen weeks ended March 30, 1996 and March 29, 1997 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, 1996, filed
with the Securities and Exchange Commission. The information furnished 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.
Previously, the Company classified as other income reclamation service fees,
label income and other customer related services. Commencing in the year ended
December 28, 1996, the Company is classifying these items as other revenue.
Prior year amounts have been reclassified accordingly. The change in
classification has no effect on previously reported net income.
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
Thirteen weeks ended March 29, 1997 and March 30, 1996
Net sales for the thirteen weeks ended March 29, 1997 were $264.4 million as
compared to $263.9 million for the thirteen weeks ended March 30, 1996 ("Prior
Period") as a $14.2 million decrease in sales to a customer which terminated its
contract for dairy division products in the fourth quarter of 1996 was offset by
a temporary supplemental third party supply arrangement and increased sales to
existing customers.
Other revenue, consisting of recurring customer related services, increased
57.5% to $1.6 million for the thirteen weeks ended March 29, 1997 as compared to
$1.0 million in the Prior Period primarily due to providing a produce
distribution service for a particular customer which began in the first quarter
of 1997. Revenue from this service is accounted for as other revenue because the
Company receives a handling fee per case and does not own this particular
inventory. In addition, the Company is in the process of dedicating its
auxiliary warehouse in Kearny, New Jersey to this produce distribution service,
which is expected to be fully operational in the second quarter of 1997.
Gross margin (excluding warehouse expense) increased to 10.9% of net sales or
$28.8 million for the thirteen weeks ended March 29, 1997 as compared to 10.7%
of net sales or $28.2 million for the Prior Period as a result of a more
favorable mix of product sold. Although the Company has taken steps and will
continue to take steps to maintain and improve its margins, there can be no
assurance the decrease in promotional activities, that management believes is an
industry wide trend, will not continue.
Warehouse expense remained relatively constant at 4.0% of net sales or $10.6
million for the thirteen weeks ended March 29, 1997 as compared to 4.0% of net
sales or $10.4 million for the Prior Period, as operating efficiencies in the
grocery and frozen divisions were offset by costs in the dairy division related
to the produce distribution business.
Transportation expense remained constant at 2.1% of net sales or $5.4 million
for the thirteen weeks ended March 29, 1997 as compared to 2.1% of net sales or
$5.6 million for the Prior Period.
Selling, general and administrative expense decreased to 2.1% of net sales or
$5.5 million for the thirteen weeks ended March 29, 1997 as compared to 2.2% of
net sales or $5.9 million for the Prior Period primarily due to a reduction in
the provision for doubtful accounts as a result of a significant decline in
credit exposure to a former customer.
Other income, net of other expenses, increased slightly to $781,000 for the
thirteen weeks ended March 29, 1997 as compared to $543,000 for the Prior Period
primarily due to increased interest income.
Interest expense decreased to $4.2 million for the thirteen weeks ended March
29, 1997 from $4.7 million for the Prior Period. The comparative decrease in the
1996 period represents a decline in the average outstanding level of the
Company's funded debt.
The Company recorded an income tax provision of $1.4 million resulting in an
effective income tax rate of 48% for the thirteen weeks ended March 29, 1997 as
compared to an effective tax rate of 69% for the Prior Period. The Company's
estimated effective tax rate is higher than its statutory tax rate primarily
because of the nondeductibility of certain of the Company's
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amortization of the excess of cost over net assets acquired; however, due to net
operating loss carryforwards for tax purposes, the Company does not expect to
pay federal income tax for the current year with the exception of an alternative
minimum tax.
The Company recorded net income for the thirteen weeks ended March 29, 1997 of
$1.5 million as compared to $317,000 for the Prior Period.
Liquidity and Capital Resources
Cash flow from operations and amounts available under the Company's bank credit
facility are the Company's principal sources of liquidity. The Company's bank
credit facility expires on June 30, 1997. The Company's bank group has approved
an extension of the bank credit facility until June 30, 2000 subject to the
payment of certain fees and modification of certain covenants. The Company
expects to enter into a formal amendment to effectuate this extension in the
second fiscal quarter of 1997. Effective February 1, 1997, the interest rate on
the Company's bank credit facility has already been lowered by 0.25% to prime
plus 0.75% or Eurodollar plus 2.25% because of the Company's ability to meet
certain financial tests. Borrowings under the Company's revolving bank credit
facility were $28.4 million at March 29, 1997 at an average interest rate as of
that date of 7.94%. Additional borrowing capacity of $38.3 million was available
at that time under the Company's borrowing base formula. The Company believes
that these sources will be adequate to meet its anticipated debt service
requirements, working capital needs, and capital expenditures during fiscal
1997.
During the thirteen weeks ended March 29, 1997, cash flow used for operating
activities was $340,000 consisting primarily of cash generated from net income,
non-cash expenses and increases in accounts payable and accrued expenses of $3.0
million offset by an increase in net receivable levels (including the long-term
portion) of $5.6 million and an increase in inventory levels of $2.4 million.
Cash flow used in investing activities during the thirteen weeks ended March 29,
1997 was approximately $413,000, all of which was used for capital expenditures.
Net cash provided by financing activities was approximately $736,000, consisting
of net borrowings under the bank credit facility of $1.6 million offset by note
payments and capital lease payments of $897,000.
Earnings before interest, taxes, depreciation and amortization, excluding
extraordinary items ("EBITDA"), were $9.3 million during the thirteen weeks
ended March 29, 1997 as compared to $8.1 million in the comparable prior year
period.
The consolidated indebtedness of the Company decreased $17.9 million to $165.4
million at March 29, 1997 as compared to $183.3 million at March 30, 1996. The
decrease consisted of a $4.8 million reduction in the Company's 12% senior
notes, a $9.3 million reduction in the working capital facility, a $2.3 million
reduction in capital leases, and a $1.5 million decrease in notes payable.
Stockholder's equity increased $6.3 million to $42.2 million at March 29, 1997
from $35.9 million at March 30, 1996.
Under the terms of the Company's revolving bank credit facility, the Company is
required to meet certain financial tests, including minimum interest coverage
ratios and minimum net worth. As of March 29, 1997, the Company was in
compliance with its covenants.
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The indenture governing the Company's 12% senior notes, as well as the Company's
bank agreement, impose various restrictions upon the Company, including, among
other things, limitations on the occurrence of additional debt and the making of
certain payments and investments.
From time to time when the Company considers market conditions attractive, the
Company has purchased and may continue to purchase and retire a portion of the
Company's outstanding 12% senior notes. In addition, the Company continuously
reviews its capital structure, including its funded debt and capital leases to
determine if it can better finance its operations.
In May 1997, the Company entered into an agreement to buyout a lease of tangible
property at its frozen facility from an affiliate of the Company for $2.025
million.
-8-
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Part II-OTHER INFORMATION
Item 5. Other Information
The Company continues to have a leasehold interest in its former
grocery distribution facility in Farmingdale, New York under an
agreement with the fee owner of the facility. The Company and the fee
owner share the economic benefits of the resulting income stream,
financings related thereto or ultimate sale of the property, with 80%
to the Company and 20% to the fee owner. The Company also has an
option to purchase the property from the fee owner commencing in 1998
for an amount equal to 20% of the net fair market value of the
property. In August 1993, the Company entered into an agreement to
sublease the entire premises to a third party subtenant for an initial
term of five years with certain renewal and purchase options. The
subtenant has exercised its purchase option, which option provides for
both an automatic five year extension of the sublease until August
2003 and a reduction in the subtenant's monthly rent if the Company is
unable to deliver title to the property to the subtenant by August
1998. Although there can be no assurances, the Company expects the
sale to be completed by the end of fiscal 1998.
Item 6. Exhibits and Reports on Form 8-K
(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 hereunto duly authorized.
DI GIORGIO CORPORATION
By: /s/ Arthur M. Goldberg
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Arthur M. Goldberg
Chairman, President and Chief
Executive Officer
By: /s/ Richard B. Neff
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Richard B. Neff
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 5, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF INCOME, STATEMENT OF
STOCKHOLDER'S EQUITY AND STATEMENT OF CASH FLOWS FROM FORM 10Q FOR THE PERIOD
ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 1,520
<SECURITIES> 0
<RECEIVABLES> 70,152
<ALLOWANCES> 4,686
<INVENTORY> 51,994
<CURRENT-ASSETS> 122,154
<PP&E> 72,197
<DEPRECIATION> 17,093
<TOTAL-ASSETS> 292,240
<CURRENT-LIABILITIES> 109,015
<BONDS> 92,890
0
0
<COMMON> 0
<OTHER-SE> 42,192
<TOTAL-LIABILITY-AND-EQUITY> 292,240
<SALES> 264,378
<TOTAL-REVENUES> 265,973
<CGS> 237,180
<TOTAL-COSTS> 259,404
<OTHER-EXPENSES> (533)
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 4,165
<INCOME-PRETAX> 2,937
<INCOME-TAX> 1,415
<INCOME-CONTINUING> 1,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,522
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
